lecture 1 operation and productivity.pdf
- 2. Outline ▶ What Is Operations Management? ▶ Organizing to Produce Goods and Services ▶ The Supply Chain ▶ Why Study OM? ▶ What Operations Managers Do? ▶ Operations for Goods and Services ▶ The Productivity Challenge ▶ Productivity Measurement ▶ Productivity Variables ▶ Productivity and the Service Sector ▶ New Challenges in Operations Management ▶ Ethics, Social Responsibility, and Sustainability
- 3. Learning Objectives When you complete this lecture you should be able to: 1. Define operations management 2. Explain the distinction between goods and services 3. Explain the difference between production and productivity 4. Compute single-factor productivity 5. Compute multifactor productivity 6. Identify the critical variables in enhancing productivity
- 4. 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
- 5. 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
- 9. 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
- 10. 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. What Operations Managers Do Basic Management Functions ▶ Planning ▶ Organizing ▶ Staffing ▶ Leading ▶ Controlling
- 12. Ten Strategic OM Decisions TABLE 1.2 DECISION 1. Design of goods and services 2. Managing quality 3. Process and capacity design 4. Location strategy 5. Layout strategy 6. Human resources and job design 7. Supply-chain management 8. Inventory management 9. Scheduling 10. Maintenance
- 13. Where are the OM Jobs? ▶ Technology/methods ▶ Facilities/space utilization ▶ Strategic issues ▶ Response time ▶ People/team development ▶ Customer service ▶ Quality ▶ Cost reduction ▶ Inventory reduction ▶ Productivity improvement
- 14. Certifications ▶ APICS, the Association for Operations Management ▶ American Society for Quality (ASQ) ▶ Institute for Supply Management (ISM) ▶ Project Management Institute (PMI) ▶ Council of Supply Chain Management Professionals ▶ Charter Institute of Purchasing and Supply (CIPS)
- 15. Operations for Goods and Services ▶ Manufacturers produce tangible product, services often intangible ▶ Operations activities often very similar ▶ Distinction not always clear ▶ Few pure services
- 16. 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
- 17. 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! This improvement can be achieved in two ways: reducing inputs while keeping output constant or increasing output while keeping inputs constant. Important Note! Production is a measure of output only and not a measure of efficiency Production is the making of goods and services. High production may imply only that more people are working and that employment levels are high (low unemployment), but it does not imply high productivity.
- 18. Improving Productivity at Starbucks A team of 10 analysts continually look for ways to shave time. Some improvements: Stop requiring signatures on credit card purchases under $25 Saved 8 seconds per transaction Change the size of the ice scoop Saved 14 seconds per drink New espresso machines Saved 12 seconds per shot
- 19. Improving Productivity at Starbucks A team of 10 analysts continually look for ways to shave time. Some improvements: Stop requiring signatures on credit card purchases under $25 Saved 8 seconds per transaction Change the size of the ice scoop Saved 14 seconds per drink New espresso machines Saved 12 seconds per shot Operations improvements have helped Starbucks increase yearly revenue per outlet by $250,000 to $1,000,000 in seven years. Productivity has improved by 27%, or about 4.5% per year.
- 20. ▶ Measure of process improvement ▶ Represents output relative to input ▶ Only through productivity increases can our standard of living improve Productivity Productivity = Units produced Input used
- 21. Productivity Calculations Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000 250 Labor Productivity One resource input single-factor productivity For example, if units produced = 1,000 and labor-hours used is 250, then:
- 22. 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
- 24. Measurement Problems 1. Quality may change while the quantity of inputs and outputs remains constant 2. External elements may cause an increase or decrease in productivity 3. Precise units of measure may be lacking
- 25. Productivity Variables 1. Labor - contributes about 10% of the annual increase 2. Capital - contributes about 38% of the annual increase 3. Management - contributes about 52% of the annual increase
- 26. Key Variables for Improved Labor Productivity 1. Basic education appropriate for the labor force 2. Diet of the labor force 3. Social overhead that makes labor available such as transportation. ▶ Challenge is in maintaining and enhancing skills in the midst of rapidly changing technology and knowledge
- 28. Management ▶Ensures labor and capital are effectively used to increase productivity ▶Use of knowledge ▶Application of technologies ▶Knowledge societies ▶Difficult challenge
- 29. Productivity and the Service Sector Productivity of the service sector has proven difficult to improve because service-sector work is: 1. Typically labor intensive (e.g., counseling, teaching). 2. Frequently focused on unique individual attributes or desires (e.g., investment advice). 3. Often an intellectual task performed by professionals (e.g., medical diagnosis). 4. Often difficult to mechanize and automate (e.g., a haircut). 5. Often difficult to evaluate for quality (e.g., performance of a law firm).
- 30. Productivity at Taco Bell Improvements: ▶ Revised the menu ▶ Designed meals for easy preparation ▶ Shifted some preparation to suppliers ▶ Efficient layout and automation ▶ Training and employee empowerment ▶ New water and energy saving grills
- 31. Productivity at Taco Bell Improvements: Results: ▶ Preparation time cut to 8 seconds ▶ Management span of control increased from 5 to 30 ▶ In-store labor cut by 15 hours/day ▶ Floor space reduced by more than 50% ▶ Stores average 164 seconds/customer from drive- up to pull-out ▶ Water- and energy-savings grills conserve 300 million gallons of water and 200 million KwH of electricity each year ▶ Green-inspired cooking method saves 5,800 restaurants $17 million per year
- 32. New Challenges in OM ▶ Global focus ▶ Supply-chain partnering ▶ Sustainability ▶ Rapid product development ▶ Mass customization ▶ Just-in-time performance ▶ Empowered employees
- 33. Ethics, Social Responsibility, and Sustainability Challenges facing operations managers: ▶ Develop and produce safe, high-quality green products ▶ Train, retrain, and motivate employees in a safe workplace ▶ Honor stakeholder commitments