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Introduction to Operations Management
PowerPoint presentation to accompany Heizer and Render Operations Management, 10e Principles of Operations Management, 8e
PowerPoint slides by Jeff Heyl
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Outline
1. What Is Operations Management ? 2. Organizing to Produce Goods & Services
3. Why Study OM ?
4. What Operations Managers Do 5. The Heritage of Operations Management
6. Operations in the Service Sector
7. Exciting New Trends in Operations Management 8. Productivity Challenge
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1. What Is Operations Management ?
Production is the creation of goods and services Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs
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2. Organizing to Produce Goods & Services
Basic Functions of the Business Organization
Organization Marketing Operations
Finance
Essential functions:
Marketing generates demand Production/operations creates the product Finance/accounting tracks how well the organization is doing, pays bills, collects the money
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Supply & Demand
Operations & Supply Chains Sales & Marketing
Supply
>
<
Demand
Wasteful Costly
Supply
Demand
Opportunity Loss Customer Dissatisfaction
Supply
Demand
Ideal
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Organizational Charts Example (Manufacturing)
e.g. Toyota, Frito-Lay, PTT, SCG
Manufacturing Operations
Facilities
Construction; maintenance
Finance/ accounting
Disbursements/ credits Receivables Payables General ledger Funds Management Money market International exchange Capital requirements Stock issue Bond issue and recall
Marketing
Sales promotion Advertising Sales Market research
Production and inventory control
Scheduling; materials control
Quality assurance and control Supply chain management Manufacturing
Tooling; fabrication; assembly
Design
Product development and design Detailed product specifications
Industrial engineering
Efficient use of machines, space, and personnel
Process analysis
Development and installation of production tools and equipment
Figure 1.1(C)
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Organizational Charts Example (Service)
e.g. THAI, Air Asia, etc.
Airline
Operations
Ground support equipment Maintenance Ground Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications Dispatching Management science
Finance/ accounting
Accounting Payables Receivables General Ledger Finance Cash control International exchange
Marketing
Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising
Figure 1.1(B)
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3. Why Study OM ?
CEO
Organization
Marketing
CMO
Operations
COO
Finance
CFO
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
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Opportunities
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OM is such a costly part of an organization !!!
Example: Options for Increasing Contribution
Marketing Option Finance/ Accounting Option OM Option Reduce Production Costs 20% $100,000 64,000 36,000 6,000 30,000 7,500 $ 22,500
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Current Sales Cost of Goods (80% of sales) Gross Margin Finance Costs Subtotal Taxes at 25% Contribution
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Increase Reduce Sales Finance Revenue 50% Costs 50% $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
$100,000 80,000 20,000 6,000 14,000 3,500 $ 10,500
4. What Operations Managers Do
Basic Management Functions
Planning Organizing Staffing
Leading
Controlling
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The 10 OM Critical Decisions
Design of goods and services (Ch.5)
What good or service should we offer? How should we design these products and services? How do we define quality? Who is responsible for quality? What process and what capacity will these products require? What equipment and technology is necessary for these processes?
Managing quality (Ch. 6, Supplement 6)
Process and capacity design (Ch. 7, Supplement 7)
Location strategy (Ch. 8)
Where should we put the facility? On what criteria should we base the location decision?
Layout strategy (Ch. 9)
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How should we arrange the facility? How large must the facility be to meet our plan?
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The 10 OM Critical Decisions
Human resources and job design (Ch. 10)
How do we provide a reasonable work environment?
How much can we expect our employees to produce? Should we make or buy this component? Who are our suppliers and who can integrate into our e-commerce program? How much inventory of each item should we have? When do we re-order? Are we better off keeping people on the payroll during slowdowns? Which jobs do we perform next? Who is responsible for maintenance? When do we do maintenance?
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Supply chain management (Ch. 11, Supplement 11)
Inventory, material requirements planning, and JIT (Ch. 12, 14, 16)
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Intermediate and shortterm scheduling (Ch. 13, 15)
Maintenance (Ch. 17)
5. The Heritage of Operations Management
Significant Events in OM
Providing choices to customers
Meeting customers expectation
Figure 1.3
Maximizing outputs
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Frederick Winslow Taylor Father of Scientific Management
Believed in a science of management based on observation, measurement, analysis and improvement of work methods, and economic incentives
Management is responsible for planning, carefully selecting and training workers, finding the best way to perform each job, achieving cooperation between management and workers, and separating management activities from work activities Emphasis was on maximizing output
Henry Ford - employed scientific management techniques to his factories
Moving assembly line
Ford assembly plant (Model T) then
Ford assembly plant (Mustang) now
Mass production
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OM Progress With Contributions From
Industrial engineering Management science Quantitative Analysis (e.g. statistics, linear programming, PERT, decision analysis, transportation model, etc.)
Economics
Physical sciences (e.g. biology, anatomy, chemistry, physics, etc.)
Human factors
Information and Communication technology (ICT)
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6. Operations in the Service Sector
Manufacturing vs. Service?
Manufacturing and Service Organizations differ chiefly because manufacturing is goods-oriented and service is act-oriented.
Goods
Services
Tangible
Act-Oriented
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Characteristics of Goods
Tangible product
Consistent product definition
Production usually separate from consumption Can be inventoried Low customer interaction
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Characteristics of Service
Intangible product
Produced and consumed at same time
Often unique
High customer interaction
Inconsistent product definition Often knowledge-based Frequently dispersed
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Manufacturing and Service Employment (U.S.)
120
100 80 60 40 20 0
Employment (millions)
Service
Manufacturing
| | | | | | | 1950 1970 1990 2010 (est) 1960 1980 2000
Figure 1.5 (A)
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Manufacturing Employment and Production (U.S.)
150 Industrial production
(right scale)
125
Employment (millions)
Output
40 30 20 10 0
75 50
Manufacturing employment 25
(left scale)
| 1950
| | | | | 1970 1990 2010 (est) 1960 1980 2000
Figure 1.5 (B)
Input
Index: 1997 = 100
100
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Industry and Services as Percentage of GDP
90 80
Services
Manufacturing
70
60 50 40 30 20 10 Germany Japan 0
Mexico
Russian Fed
Czech Rep
Spain
Hong Kong
China
Canada
France
South Africa
UK
Australia
US
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Goods and Services
Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management Consulting service/ teaching Counseling
100%
|
75
|
50
|
25
|
0
|
25
|
50
|
75
|
100%
|
Percent of Product that is a Good Percent of Product that is a Service
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7. Exciting New Trends in Operations Management
Changing Challenges Traditional Approach
Ethics and regulations not at the forefront Local or national focus
Reasons for Change
Public concern over pollution, corruption, child labor, etc.
Current Challenge
High ethical and social responsibility; increased legal and professional standards Global focus, international collaboration
Growth of reliable, low cost communication and transportation
Lengthy product development
Shorter life cycles; growth of global communication; CAD, Internet
Rapid product development; design collaboration
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Changing Challenges Traditional Approach
Low cost production, with little concern for environment; free resources (air, water) ignored Low-cost standardized products
Reasons for Change
Public sensitivity to environment; ISO 14000 standard; increasing disposal costs
Current Challenge
Environmentally sensitive production; green manufacturing; sustainability
Rise of consumerism; increased affluence; individualism
Mass customization
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Changing Challenges Traditional Approach
Emphasis on specialized, often manual tasks In-house production; low-bid purchasing Large lot production
Reasons for Change
Recognition of the employee's total contribution; knowledge society Rapid technological change; increasing competitive forces Shorter product life cycles; increasing need to reduce inventory
Current Challenge
Empowered employees; enriched jobs Supply-chain partnering; joint ventures, alliances Just-In-Time performance; lean; continuous improvement
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8. Productivity Challenge
The Economic System
Inputs
Labor, capital, management
Transformation
The U.S. economic system transforms inputs to outputs at about an annual 2.5% increase in productivity per year. The productivity increase is the result of a mix of capital (0.95%), labor (0.25%), and management (1.3%).
Outputs
Goods and services
Feedback loop
Figure 1.6
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Productivity
Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital)
Productivity =
Units produced Input used
Improve productivity means improving efficiency
Efficient means doing the job well i.e. with a minimum of resources and waste Effective means doing the right thing Productivity measures are useful for
Tracking an operating units performance over time Judging the performance of an entire industry or country
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Productivity Calculations
Labor Productivity
Example : Units produced = 1,000 and labor-hours used is 250
Productivity =
Units produced Labor-hours used 1,000 250 = 4 units/labor-hour
One resource input single-factor productivity
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Practice Problem 1.1 : Productivity (pp 1.2)
C. A. Ratchet, the local auto mechanic, finds that it usually takes him 2 hours to diagnose and fix a typical problem. What is his daily productivity (assume an 8 hour day)? Ans : 4 problems/day
Mr. Ratchet believes he can purchase a small computer trouble-shooting device, which will allow him to find and fix a problem in the incredible (at least to his customers!) time of 1 hour. He will, however, have to spend an extra hour each morning adjusting the computerized diagnostic device.
What will be the impact on his productivity if he purchases the device? Ans : new productivity = 7 problems/day productivity increase of 75 %
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Multi-Factor Productivity Productivity = Output Labor + Material + Energy + Capital + Miscellaneous
Also known as total factor productivity Output and inputs are often expressed in dollars
Multiple resource inputs multi-factor productivity
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Example - Collins Title Productivity
Collins Title wants to evaluate its labor and multifactor productivity with a new computerized title-search system. The company has a staff of four, each working 8 hours per day (for a payroll cost of $640/day) and overhead expenses of $400/day. Collins processes and closes on 8 titles each day. The new computerized system will allow the processing of 14 titles per day. The staff, their work hours, and pay are the same, but the overhead expenses are now $800/day.
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Example - Collins Title Productivity Labor productivity Old System:
Staff of 4 works 8 hrs/day Payroll cost = $640/day New System:
14 titles/day
8 titles/day Overhead = $400/day
Overhead = $800/day
8 titles/day Old labor = productivity 32 labor-hrs = .25 titles/labor-hr 14 titles/day New labor = = .4375 titles/labor-hr productivity 32 labor-hrs
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Example - Collins Title Productivity Multifactor productivity Old System:
Staff of 4 works 8 hrs/day Payroll cost = $640/day New System:
14 titles/day
8 titles/day Overhead = $400/day
Overhead = $800/day
8 titles/day Old multifactor = = .0077 titles/dollar productivity $640 + 400 14 titles/day New multifactor = = .0097 titles/dollar productivity $640 + 800
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Practice Problem 1.2 : Multifactor Productivity (pp 1.3, 1.5)
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. (a) Viewing this from a total (multifactor) productivity perspective, what is her productivity at present and with the new paint? (Ans: 0.24, 0.26) (b) How would total (multifactor) productivity change if using the new paint raised Ms. Frenchs material costs by $0.50 per doll? (Ans:
0.23)
(c) If she uses the new paint, by what amount could Ms. Frenchs material costs increase without reducing total (multifactor) productivity? (Ans: by $0.27)
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Ethics and Social Responsibility
Challenges facing operations managers:
Developing and producing safe, quality products Maintaining a clean environment
Providing a safe workplace
Honoring stakeholder commitments
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Video Case 1.1
Frito-Lay: Operations Management in Manufacturing
More than three dozen brands, 15 brands sell more than $100 million annually, 7 sell over $1 billion Planning processes covers 3 to 18 months
Unique processes and specially designed equipment
High fixed costs require high volumes and high utilization Demand profile based on historical sales, forecasts, innovations, promotion, local demand data
Match total demand to capacity, expansion plans, and costs
Quarterly aggregate plan goes to 38 plants in 18 regions Each plant develops 4-week plan for product lines and production runs
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Video Case 1.2
Hard Rock Cafe: Operations Management in Services
First opened in 1971
Now 129 restaurants in over 40 countries
Rock music memorabilia
Creates value in the form of good food and entertainment 3,500+ custom meals per day in Orlando How does an item get on the menu? Role of the Operations Manager
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Discussion Point
Identify how each of the 10 decisions of OM is applied at Frito Lay VS Hard Rock Cafe
Operations Decisions Goods and service design Quality Process and capacity design Location selection Layout design Human resources and job design Supply chain Inventory Goods Product is usually tangible Many objective standards Customers not involved Services Product is not tangible Many subjective standards Customer may be directly involved Capacity must match demand Near raw materials and labor Production efficiency Technical skills, consistent labor standards, output based wages Relationship critical to final product Raw materials, work-in-process, and finished goods may be held Level schedules possible Often preventive and takes place at production site Near customers Enhances product and production Interact with customers, labor standards vary Important, but may not be critical Cannot be stored
Scheduling Maintenance
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Meet immediate customer demand Often repair and takes place at customers site
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