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Operations and
Productivity
1-1
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
2011 Pearson Education, Inc. publishing as Prentice Hall
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Organizing to Produce
Goods and Services
u 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
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Current
Sales
Cost of Goods
Gross Margin
Finance Costs
Subtotal
Taxes at 25%
Contribution
Finance/
Accounting
Option
Increase
Reduce
Sales
Finance
Revenue 50% Costs 50%
$100,000
80,000
20,000
6,000
14,000
3,500
$ 10,500
$150,000
120,000
30,000
6,000
24,000
6,000
$ 18,000
$100,000
80,000
20,000
3,000
17,000
4,250
$ 12,750
OM
Option
Reduce
Production
Costs 20%
$100,000
64,000
36,000
6,000
30,000
7,500
$ 22,500
Table 1.1
1-5
What Operations
Managers Do
Basic Management Functions
u Planning
u Organizing
u Staffing
u Leading
u Controlling
2011 Pearson Education, Inc. publishing as Prentice Hall
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Managing quality
How do we define quality?
Who is responsible for quality?
Location strategy
Where should we put the facility?
On what criteria should we base the
location decision?
Table 1.2 (cont.)
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Maintenance
Who is responsible for maintenance?
When do we do maintenance?
Table 1.2 (cont.)
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Figure 1.2
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Significant Events in OM
Figure 1.3
2011 Pearson Education, Inc. publishing as Prentice Hall
1 - 13
The Heritage of OM
u Division of labor (Adam Smith 1776;
Charles Babbage 1852)
u Standardized parts (Whitney 1800)
u Scientific Management (Taylor 1881)
u Coordinated assembly line (Ford/
Sorenson 1913)
u Gantt charts (Gantt 1916)
u Motion study (Frank and Lillian Gilbreth
1922)
u Quality control (Shewhart 1924; Deming
1950)
2011 Pearson Education, Inc. publishing as Prentice Hall
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The Heritage of OM
u Computer (Atanasoff 1938)
u CPM/PERT (DuPont 1957, Navy 1958)
u Material requirements planning (Orlicky 1960)
u Computer aided design (CAD 1970)
u Flexible manufacturing system (FMS 1975)
u Baldrige Quality Awards (1980)
u Computer integrated manufacturing (1990)
u Globalization (1992)
u Internet (1995)
2011 Pearson Education, Inc. publishing as Prentice Hall
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Frederick W. Taylor
u Born 1856; died 1915
u Known as father of scientific
management
u In 1881, as chief engineer for
Midvale Steel, studied how tasks
were done
u Began first motion and time studies
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Taylors Principles
Management Should Take More
Responsibility for:
u Matching employees to right job
u Providing the proper training
u Providing proper work methods and
tools
u Establishing legitimate incentives for
work to be accomplished
2011 Pearson Education, Inc. publishing as Prentice Hall
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Henry Ford
u Born 1863; died 1947
u In 1903, created Ford Motor
Company
u In 1913, first used moving assembly
line to make Model T
uUnfinished product moved by
conveyor past work station
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W. Edwards Deming
u Born 1900; died 1993
u Engineer and physicist
u Credited with teaching Japan
quality control methods in postWW2
u Used statistics to analyze process
u His methods involve workers in
decisions
2011 Pearson Education, Inc. publishing as Prentice Hall
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New Challenges in OM
From
To
uGlobal focus
uBatch shipments
uJust-in-time
uSupply-chain
partnering
uLengthy product
development
uRapid product
development,
alliances
uStandard products
uMass
customization
uJob specialization
uEmpowered
employees, teams
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Characteristics of Goods
u Tangible product
u Consistent product
definition
u Production usually
separate from
consumption
u Can be inventoried
u Low customer
interaction
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Characteristics of Service
u Intangible product
u Produced and
consumed at same time
u Often unique
u High customer
interaction
u Inconsistent product
definition
u Often knowledge-based
u Frequently dispersed
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Services
80
Manufacturing
70
60
50
40
30
20
US
UK
Spain
South Africa
Russian Fed
Mexico
Japan
Hong Kong
Germany
France
Czech Rep
China
Canada
Australia
10
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75
|
50
|
25
|
0
|
25
|
50
|
75
|
100%
|
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120
100
Service
80
60
40
Manufacturing
20
0
|
|
|
|
|
|
|
1950
1970
1990 2010 (est)
1960
1980
2000
Figure 1.4 (A)
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Industrial
production
(right scale)
150
125
100
75
40
30
20
10
0
Manufacturing 50
employment
(left scale)
Employment (millions)
Manufacturing Employment
and Production
25
|
1950
|
|
|
|
| 0
1970
1990 2010 (est)
1960
1980
2000
Figure 1.4 (B)
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New Trends in OM
u Ethics
u Global focus
u Environmentally sensitive production
u Rapid product development
u Environmentally sensitive production
u Mass customization
u Empowered employees
u Supply-chain partnering
u Just-in-time performance
2011 Pearson Education, Inc. publishing as Prentice Hall
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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!
Important Note!
Production is a measure of output
only and not a measure of efficiency
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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
Saved 14 seconds
per drink
Saved 12 seconds
per shot
1 - 29
Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Saved 12 seconds
per shot
1 - 30
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Productivity
Productivity =
Units produced
Input used
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Productivity Calculations
Labor Productivity
Units produced
Labor-hours used
Productivity =
1,000
= 4 units/labor-hour
250
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Multi-Factor Productivity
Productivity =
Output
Labor + Material + Energy
+ Capital + Miscellaneous
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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
u Precise units of measure may be
lacking
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Service Productivity
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
5. Often difficult to evaluate for quality
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Ethics and
Social Responsibility
Challenges facing
operations managers:
u Developing and producing safe,
quality products
u Maintaining a clean environment
u Providing a safe workplace
u Honoring stakeholder commitments
2011 Pearson Education, Inc. publishing as Prentice Hall
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