Operations

Management
Chapter 1
Operations and Productivity
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 6e
Operations Management, 8e
2006 Prentice Hall, Inc.

11

Ten Critical Decisions

Ten Decision Areas

Design of Goods and Service
Quality management
Process and capacity design
Location
Layout design
Human resources, job design
Supply-chain management
Inventory management
Scheduling
Maintenance

12

Outline
Global Company Profile: Hard Rock
Cafe

What Is Operations Management?

Organizing To Produce Goods And
Services

The Supply Chain

Why Study OM?

What Operations Managers Do

13

Outline - Continued
The Heritage Of Operations
Management
Operations for Goods and Services
The Productivity Challenge
New Challenges in OM
Ethics, Social Responsibility and
Sustainability

14

Learning Objectives
When you complete this chapter,
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

15

Learning Objectives
When you complete this chapter,
you should be able to:
4. Compute single-factor
productivity
5. Compute multifactor productivity
6. Identify the critical variables in
enhancing productivity

16

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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Organizing to Produce
Goods and Services
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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Organizational Charts
Commercial Bank
Operations

Finance

Marketing

Teller
Scheduling
Check Clearing
Collection
Transaction
processing
Facilities
design/layout
Vault operations
Maintenance
Security

Investments
Security
Real estate

Loans
Commercial
Industrial
Financial
Personal
Mortgage

Accounting

Auditing
Trust Department
Figure 1.1(A)
1 10

Organizational Charts
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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Organizational Charts
Manufacturing
Operations
Facilities
Construction; maintenance

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

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

Process analysis
Development and installation of
production tools and equipment

Figure 1.1(C)
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The Supply Chain

A supply chain is a global network of
organizations and activities that supply
a firm with goods and services.

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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
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What Operations
Managers Do
Basic Management Functions
Planning

Organizing
Staffing

Leading
Controlling
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Where are the OM Jobs?

Figure 1.2

1 18

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
1 19

Significant Events in OM

Figure 1.3
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The Heritage of OM
Division of labor (Adam Smith 1776;
Charles Babbage 1852)
Standardized parts (Whitney 1800)
Scientific Management (Taylor 1881)
Coordinated assembly line (Ford/
Sorenson/Avery 1913)
Gantt charts (Gantt 1916)
Motion study (Frank and Lillian Gilbreth
1922)
Quality control (Shewhart 1924; Deming
1950)
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The Heritage of OM
Computer (Atanasoff 1938)

CPM/PERT (DuPont 1957)

Material requirements planning (Orlicky 1960)
Computer aided design (CAD 1970)
Flexible manufacturing system (FMS 1975)
Baldrige Quality Awards (1980)
Computer integrated manufacturing (1990)
Globalization (1992)
Internet (1995)
PERT: Program evaluation and review techniques
CPM: Critical Path Method

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New Challenges in OM
From

To

Local or national focus

Global focus

Batch shipments

Just-in-time

Low bid purchasing

Supply chain
partnering

Lengthy product
development

Rapid product
development,
alliances

Standard products

Mass
customization

Job specialization

Empowered
employees, teams
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Goods Versus Services

Attributes of Goods
(Tangible Product)

Attributes of Services
(Intangible Product)

Can be resold
Can be inventoried
Some aspects of quality
measurable
Selling is distinct from
production
Product is transportable

Reselling unusual
Difficult to inventory
Quality difficult to measure

Site of facility important for cost

Often easy to automate
Revenue generated primarily
from tangible product

Selling is part of service

Provider, not product, is
often transportable
Site of facility important for
customer contact
Often difficult to automate
Revenue generated primarily
from the intangible service
Table 1.3

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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 this
measure of efficiency
Important Note!
Production is a measure of output
only and not a measure of efficiency
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Productivity
Units produced
Productivity =
Input used

Measure of process improvement

Represents output relative to input
Only through productivity increases
can our standard of living improve
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Productivity Calculations
Labor Productivity
Productivity =

Units produced
Labor-hours used
1,000
250

= 4 units/labor-hour

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Multi-Factor Productivity
Output
Productivity =
Labor + Material + Energy
+ Capital + Miscellaneous
Also known as total factor productivity
Output and inputs are often expressed
in dollars

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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 - contributes about 10% of
the annual increase

Capital - contributes about 38%

of the annual increase
Management - contributes about
52% of the annual increase

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New Trends in OM
Global
Focus

Empowe
red
Employe
es

Supply
-chain
partner
-ing

Sustaina
bility

Mass
Customi
-zation

Rapid
Product
Development

Just-in
Time
Perfor
mance

1 57

Ten Critical Decisions

Ten Decision Areas
Service and product design
Quality management
Process and capacity
design
Location
Layout design
Human resources,
job design
Supply-chain
management
Inventory management
Scheduling
Maintenance

Chapter(s)
5
6
6 Supplement
7
7 Supplement
8
9
10
10 Supplement
11
11 Supplement
12, 14, 16
13, 15
17
Table 1.2
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The Critical Decisions

Service and product design
What good or service should we
offer?
How should we design these products
and services?

Quality management
How do we define quality?
Who is responsible for quality?

Table 1.2 (cont.)

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The Critical Decisions

Process and capacity design
What process and what capacity will
these products require?
What equipment and technology is
necessary for these processes?

Location
Where should we put the facility?
On what criteria should we base the
location decision?
Table 1.2 (cont.)
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The Critical Decisions

Layout design
How should we arrange the facility
and material flow?
How large must the facility be to meet
our plan?

Human resources and job design

How do we provide a reasonable work
environment?
How much can we expect our
employees to produce?
Table 1.2 (cont.)
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The Critical Decisions

Supply-chain management
Should we make or buy this component?
Who are our suppliers and who can
integrate into our e-commerce program?

Inventory, material requirements

planning, and JIT
How much inventory of each item should
we have?
When do we re-order?
Table 1.2 (cont.)
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The Critical Decisions

Intermediate and shortterm
scheduling
Are we better off keeping people on
the payroll during slowdowns?
Which jobs do we perform next?

Maintenance
Who is responsible for maintenance?
When do we do maintenance?
Table 1.2 (cont.)
1 64