Chapter 1-Introduction to OM-OPM530

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Chapter 1

Introduction to Operations

Management and

Productivity


What Is Operations Management?

� Product/Output

�Goods or services

�Consumer goods, industrial goods or producer goods

� Production is the creation of goods and services

� Operations management is the set of activities that creates value in the form of goods and services by transforming inputs into outputs

Why Study OM?


� OM is one of three major functions (marketing, finance, and operations) of any organization.

� We want (and need) to know how goods and services are produced.

� We want to understand what operations managers do.

� OM is such a costly part of an organization.


Objectives of OM� To produce a specific product, on a schedule,

at minimum cost� To achieve customer satisfaction by providing

them G+S at competitive cost, affordable price, within a reasonable time schedule

� To be an effective producer - max the value of output

� To enhance productivity through efficiency of the production process

� To adapt for future survival - production system has to be flexible, ability to respond rapidly to changes in product design or process design


Cont6

� To utilize labor, equipment, material & other resources efficiently. Management is concerned with labor efficiency due to high cost associated with utilization of labor

� To produce goods to meet expected demand & meet the required delivery date


Functions:

� Marketing

- Gets customers

� Operations

- creates product or service

� Finance/Accounting

- Obtains funds

- Tracks money

Organizing to Produce Goods and Services

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Functions - Bank

OperationsFinance/

AccountingMarketing

Check

Clearing

Teller

Scheduling

Transactions

ProcessingSecurity

Commercial Bank© 1984-1994 T/Maker Co.


Functions - Manufacturer

OperationsFinance/

AccountingMarketing

Production

ControlManufacturing

Quality

ControlPurchasing

Manufacturing


Roles of Operations Manager

� Performs the basic functions of the management process: planning, organizing, staffing, directing and controlling

� Ability to make goods decisions, allocate resources effectively and make efficient operations functions


� 10 Strategic OM Decision

a) Goods & Service Designb) Qualityc) Process & Capacity Designd) Location Selectione) Layout Designf) Human Resource & Job Designg) Supply Chain Managementh) InventoryI) Schedulingk) Maintenance


The Critical Decisions

� Goods and Service design

- What product or service should we offer?

- How should we design these products and services?

� Quality management

- Who is responsible for quality?

- How do we define quality?


The Critical Decisions - Continued

� Process and capacity design

- What processes will these products require and in what order?

- What equipment and technology is necessary for these processes?

� Location

- Where should we put the facility

- On what criteria should we base this location decision?

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� Layout design

- How should we arrange the facility?

- How large a facility is required?

� Human resources and job design

- How do we provide a reasonable work environment?

- How much can we expect our employees to produce?



� Supply chain management

- Should we make or buy this item?

- Who are our good suppliers and how many should we have?

� Inventory, material requirements

planning,

- How much inventory of each item should we have?

- When do we re-order?



� Intermediate, short term, and project scheduling

- Is subcontracting production a good idea?

- Are we better off keeping people on the payroll during slowdowns?

� Maintenance

- Who is responsible for maintenance?

- When do we do maintenance?


Characteristics of Goods

� Tangible product

- Can be seen and touched and must be delivered to customers.

� Production usually separate from consumption

- Goods are produced in advance, sale and consumption comes later

� Can be inventoried

- Product can be produced in advance and held as inventories until customer needs them


Cont6

� Low customer interaction

- Customers are not involved in the production process.

� Long lead times

- It may takes several days or weeks to manufacture goods.

� Consistent product definition

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Characteristics of Service� Intangible product

- Cannot be seen, touched or displayed (airlines services, hotel services)

� Produced & consumed at same time

- there is no stored inventory. (beauty salon produces hair cut, the doctor produces an operation)

� Often unique

- Mix of financial coverage such as investments and insurance policies, may be not the same as anyone else

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Cont6

� High customer interaction

- Services are often difficult to standardize, automate and make as efficient as we would like because customer interaction demands uniqueness

� Inconsistent product definition

- Product definition may be rigorous, as in the case of an auto insurance policy, but inconsistent because policyholders change cars and mature

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Cont6

� Often knowledge-based

- As in the case of educational, medical and legal services and therefore hard to automate.

� Frequently dispersed

- Dispersion occurs because services are frequently brought to the client/customer via a local office or a retail outlet

� Short lead times

- services may need to be delivered immediately when customer wants the service

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� Differences between Goods & Services

Attributes of GOODS Attributes of SERVICES

Product can be resold Reselling a service is unusual

Product can be inventoried Many services cannot be inventoried

Some aspects of quality are measurable

Many aspects of quality are difficult to measure

Selling is distinct from production Selling is often a part of the service

Product is transportable Provider, not product, is often transportable

Site of facility is important for cost Site of facility is important for customer contact

Often easy to automate Service is often difficult to automate

Revenue is generated primarily from the tangible product

Revenue is generated primarily from the intangible service.


Operations/Production System Model

Inputs Transformation

Process/conversion

process

Outputs

Feedback


Features of Production System

� Inputs

- consist of all resources that are necessary for production to take place, consist of manpower, machine, material, money, equipment.

� Transformation Process

- during this process, the less valuable input resources are transformed into valuable form of output through a series of value added processes. Ex: surgical procedures in a hospital, assembly parts in a automobile factory

- Factors affecting are capacity, efficiency, effectiveness, flexibility


Cont6

� Outputs

- End result of a production either good or services

� Feedback (actual vs expected)

- A control mechanism for operations systems. It includes measuring the operations system actual performance against the expected performance

- Feedback loop – enables management to decide whether or not adjustments in the organizational activities are needed

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Relationship of Operations System and other functions in the organization

� Environment influences the operations systems either directly/indirectly

� Internal environment includes all subsystems within the organization or firms

- Consists of 3 primary functions - Marketing, Production/operations, Finance

� External environment exists outside the organization which may affects the decisions and behaviors of a business organization either directly/indirectly

- Ex : government, law and regulation, competitors, suppliers, labor union, consumers

Trends in Operations management

� Ethics

� Global focus

� Rapid product development

� Environmentally sensitive production

� Mass customization

� Empowered employees

� Supply-chain partnering

� Just in time performance



� Measure of process improvement

� Represents output relative to input

� Only through productivity increases can our standard of living improve

Productivity – the ratio of outputs (G&S) divided by the inputs (recourses such as land, labor, capital and management)

Single factor Single factor

ProductivityProductivityUnits produced/output

Input used=


Cont6

� The measurement of productivity can be quite direct.

� Labor hours is a common measure of input

� Other measures such as capital, material or energy can be used


Multi-factor Productivity

- Indicates the ratio of many or all resources (inputs) to the goods and services produced (outputs)

Multi-factor

Productivity = Unit produced/Output

Labor + material + energy + capital + miscellaneous


Measurement Problems

� Quality may change while the quantity of inputs and outputs remains constant

� External elements may cause an increase or decrease in productivity

� Precise units of measure may be lacking

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Productivity Variables

� Labor – improvement in the contribution of labor to productivity is the result of healthier, better educated and better nourished labor forced

� Capital – inflation and taxes increases the cost of capital, making capital investment increasingly expensive.

� Management – responsible for ensuring that labor and capital are effectively used to increase productivity


Problem 1:

� Mike Fray, the Production Manager at Ralts Mills, can currently expect his operation to produce 1000 square yards of fabric for each ton of raw cotton. Each ton of raw cotton requires 5 labor hours to process. He believes that he can buy better quality raw cotton, which will enable him to produce 1200 square yards per ton of raw cotton with the same labor hours.

� What will be the impact on productivity (measured in square yards per labor-hour) if he purchases the higher quality raw cotton?


Answer 1:

Productivity improves 20% = ( 240 - 200 ) / 200 = 0.2

Current labor productivity = 1000 sq yds1 ton x 5 hours

= 200 sq yds per hour

New labor productivity = 1200 sq yds1 ton x 5 hours

= 240 sq yds per hour


Problem 2:

� Joanna French is currently working a total of 12 hours per day to produce 240 dolls. She thinks that by changing the paint used for the facial features and fingernails that she can increase her rate to 360 dolls per day. Total material cost for each doll is approximately $3.50; she has to invest $20 in the necessary supplies (expendables) per day; energy costs are assumed to be only $4.00 per day; and she thinks she should be making $10 per hour for her time.

� Viewing this from a total (multifactor) productivity perspective, what is her productivity at present and with the new paint?


Currently Using the new paint

Labor 12 hrs * $10 = $120 12 hrs * $10 = $ 120

Material 240 * $3.50 = $840 360 * $3.50 = $1260

Supplies = $ 20 = $ 20

Energy = $ 4 = $ 4

Total Inputs = $984 = $1404

Productivity 240/984 = 0.24 360/1404 = .26

Answer 2:

Chapter 1-Introduction to OM-OPM530

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