Chapter 1-Introduction to operations management
- 1. © 2014 Pearson Education 1 - 1 1 - 1 © 2014 Pearson Education OperatiChapter One Introduction to Operations Management Heizer and Render Operations Management, Global Edition, Eleventh Edition Principles of Operations Management, Global Edition, Ninth Edition 1 © 2014 Pearson Education
- 2. © 2014 Pearson Education 1 - 2 1 - 2 © 2014 Pearson Education What Is Operations Management? Production is the creation of goods and services Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs
- 3. © 2014 Pearson Education 1 - 3 1 - 3 © 2014 Pearson Education Input-Output Model Inputs: Land Human: - Physical labor - Intellectual labor Capital: Raw materials - Energy - Water - Metals - Wood Equipment - Machines - Computers - Trucks - Tools Facilities - Hospitals - Factories - Retail stores Other: - Information - Time - Legal constraints - Government regulations Transformation Processes: - Cutting, drilling - Transporting - Teaching - Farming - Mixing - Packing - Copying, faxing Outputs: High Goods Percentage: - Houses - Automobiles - Clothing - Computers - Machines - Televisions - Food products - Textbooks - CD players High Service Percentage: - Health care - Entertainment - Car repair - Delivery - Legal - Banking - Communication Other: - Innovation
- 4. © 2014 Pearson Education 1 - 4 1 - 4 © 2014 Pearson Education Inputs • Raw minds (students) • Teachers • Administrative staff • Classrooms • Computer Lab • Library • Projectors (OHP, LCD, etc.) Outputs Enlightened students with • Good communication skills • Pleasant personalities • Leadership qualities • Good analytical ability • Team spirit • Decision-making abilities • Computer skills Random disturbances • Strikes of students teachers, or staff • Undue interference of the government in the working of institutions Transformatio n process Feedback mechanisms • Success at placement interviews • Grades obtained in examinations • Rising career graph of alumni in corporates • Number of applications for admission in the institute • Ratings of surveys Quality of Inputs monitored Quality of Outputs monitored Figure: Transformation process for BBA Program
- 5. © 2014 Pearson Education 1 - 5 1 - 5 © 2014 Pearson Education Organizing to Produce Goods and Services • Essential functions: 1. Marketing – generates demand 2. Production/operations – creates the product 3. Finance/accounting – tracks how well the organization is doing, pays bills, collects the money 4. MIS- Management Information System 5. SCM- Supply Chain management 6. Human Resource Management
- 6. © 2014 Pearson Education 1 - 6 1 - 6 © 2014 Pearson Education Factory HRM MIS SCM FIN/ACC Marketing
- 7. © 2014 Pearson Education 1 - 7 1 - 7 © 2014 Pearson Education Marketing Market Demand Customers requirements Product Design Fin/Acc Production Cost Budget Planning Petty Cash HRM Labor recruitment Labor Evaluation Training
- 8. © 2014 Pearson Education 1 - 8 1 - 8 © 2014 Pearson Education MIS Implement production module Data Management Security SCM Transport of raw material Inventory Management Import and Export
- 9. © 2014 Pearson Education 1 - 9 1 - 9 © 2014 Pearson Education Job Responsibilities of a Production executive • Coordinate with the Sales & Marketing, Accounts & Finance, and Supply Chain Division to solve product-related complications as and when required.· • Confirm about availability of raw materials and premixes before starting a shift. • Assist Quality Control Department to evaluate quality of raw materials, medicines, premixes and finished product. • Maintain health and safety standards in Production Unit. • Set daily/weekly/monthly production target and achieve the target ensuring the quality of standard.· • Product design and development.· • Check overall costing, consumption rate and ensure inventory control.· • Organize workflow by assigning responsibilities and preparing schedules as per requirements. • Oversee the entire production process and ensure maximum production with minimum cost. • Reduce wastage of resources, minimize the cost of production & improve the efficiency of production.
- 10. © 2014 Pearson Education 1 - 10 1 - 10 © 2014 Pearson Education Why Study OM? 1. OM is one of three major functions of any organization, we want to study how people organize themselves for productive enterprise 2. We want (and need) to know how goods and services are produced 3. We want to understand what operations managers do 4. OM is such a costly part of an organization
- 11. © 2014 Pearson Education 1 - 11 1 - 11 © 2014 Pearson Education The Supply Chain ▶ A global network of organizations and activities that supply a firm with goods and services ▶ Members of the supply chain collaborate to achieve high levels of customer satisfaction, efficiency and competitive advantage. Figure 1.2 Farmer Syrup Bottler Distributor Retailer producer
- 12. © 2014 Pearson Education 1 - 12 1 - 12 © 2014 Pearson Education What Operations Managers Do Basic Management Functions ▶ Planning ▶ Organizing ▶ Staffing ▶ Leading ▶ Controlling
- 13. © 2014 Pearson Education 1 - 13 1 - 13 © 2014 Pearson Education Garments Manufacturing Flow Chart
- 14. © 2014 Pearson Education 1 - 14 1 - 14 © 2014 Pearson Education Differences Between Goods and Services TABLE 1.3 CHARACTERISTICS OF SERVICES CHARACTERISTICS OF GOODS Intangible: Ride in an airline seat Tangible: The seat itself Produced and consumed simultaneously: Beauty salon produces a haircut that is consumed as it is produced Product can usually be kept in inventory (beauty care products) Unique: Your investments and medical care are unique Similar products produced (iPods) High customer interaction: Often what the customer is paying for (consulting, education) Limited customer involvement in production Inconsistent product definition: Auto Insurance changes with age and type of car Product standardized (iPhone) Often knowledge based: Legal, education, and medical services are hard to automate Standard tangible product tends to make automation feasible Services dispersed: Service may occur at retail store, local office, house call, or via internet. Product typically produced at a fixed facility Quality may be hard to evaluate: Consulting, education, and medical services Many aspects of quality for tangible products are easy to evaluate (strength of a bolt) Reselling is unusual: Musical concert or medical care Product often has some residual value
- 15. © 2014 Pearson Education 1 - 15 1 - 15 © 2014 Pearson Education Productivity Challenge Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital) The objective is to improve productivity!
- 16. © 2014 Pearson Education 1 - 16 1 - 16 © 2014 Pearson Education Single-factor Output Output Output Output measures Labor Machine Capital Energy All-factors Output measure All inputs Measures of Productivity
- 17. © 2014 Pearson Education 1 - 17 1 - 17 © 2014 Pearson Education Productivity Calculations Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000 250 Labor Productivity One resource input single-factor productivity
- 18. © 2014 Pearson Education 1 - 18 1 - 18 © 2014 Pearson Education Multi-Factor Productivity Output Labor + Material + Energy + Capital + Miscellaneous Productivity = ► Also known as total factor productivity ► Output and inputs are often expressed in dollars Multiple resource inputs multi-factor productivity
- 19. © 2014 Pearson Education 1 - 19 1 - 19 © 2014 Pearson Education 10,000 Units Produced Sold for $10/unit 500 labor hours Labor rate: $9/hr What is the labor productivity? Example: Single Factor Productivity
- 20. © 2014 Pearson Education 1 - 20 1 - 20 © 2014 Pearson Education ▶ 10,000 units / 500hrs = 20 units/hr ▶ (10,000 units * $10/unit) / (500hrs * $9/hr) = 22.22 dollar per dollar Example: Labor Productivity
- 21. © 2014 Pearson Education 1 - 21 1 - 21 © 2014 Pearson Education • Labor Productivity – Quantity (or value) of output / labor hrs – Quantity (or value) of output / shift • Machine Productivity – Quantity (or value) of output / machine hrs • Energy Productivity – Quantity (or value of output) / kwh • Capital Productivity – Quantity (or value) of output / value of input Some Single Factor Measurements
- 22. © 2014 Pearson Education 1 - 22 1 - 22 © 2014 Pearson Education Machine Productivity Solve A factory has 2 machines which works for 8 hours per day. Each machine costs $10000. The out put of the factory is 20000 packets of items daily and each packet is sold at 28$. Calculate the machine productivity in 2 possible ways.
- 23. © 2014 Pearson Education 1 - 23 1 - 23 © 2014 Pearson Education 10,000 Units Produced Sold for $10/unit 500 labor hours Labor rate: $9/hr Cost of raw material: $30,000 Overhead: $15,500 Example
- 24. © 2014 Pearson Education 1 - 24 1 - 24 © 2014 Pearson Education Output Labor + Materials + Overhead (10,000 units) * ($10) (500)*($9) + ($30,000) + ($15,500) AFP = 2.0 dollar per dollar Example : All-Factor Productivity AFP = AFP =
- 25. © 2014 Pearson Education 1 - 25 1 - 25 © 2014 Pearson Education A company has introduced a process improvement that reduces the processing time for each unit and increases output by 25% with less material but one additional worker. Under the old process, five workers could produce 60 units per hour. Labor costs are $12/hour, and material input was $16/unit. For the new process, material input is now $10/unit and overhead is charged at 1.6 times direct labor cost. Finished units sell for $31 each. a) Compute single factor productivity of labor in the old and new system. b) Compute all factor productivity for both old and new systems. Factor Old System New System Output 60 75 No of workers 5 6 Worker cost/worker $120 $120 Material $16/unit $10/unit Overhead 1.6(labor cost) 1.6(labor cost) Price 31 31
- 26. © 2014 Pearson Education 1 - 26 1 - 26 © 2014 Pearson Education Productivity and the Service Sector 1. Typically labor intensive 2. Frequently focused on unique individual attributes or desires 3. Often an intellectual task performed by professionals 4. Often difficult to mechanize and automate 5. Often difficult to evaluate for quality
- 27. © 2014 Pearson Education 1 - 27 1 - 27 © 2014 Pearson Education New Challenges in OM ▶ Global focus ▶ Supply-chain partnering ▶ Sustainability ▶ Rapid product development ▶ Mass customization ▶ Just-in-time performance ▶ Empowered employees