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D R . H A B I B A H @ N O R E H A N H J H A R O N
MRSE 1513: OPERATIONS STRATEGY AND MANAGEMENT
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Syllabus MRSE 1513
TOPICS ASSESSMENT
IMPORTANT NOTES
..\sem 2-201516\Syllabus MDE MRSE 1513 OperationsSem2 1516 PT.docx
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Organizing to Produce Goods and Services
Essential functions:1. Marketing – generates demand2. Production/operations – creates the product3. Finance/accounting – tracks how well the
organization is doing, pays bills, collects themoney
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Organizational Charts
OperationsTellerSchedulingCheck ClearingCollectionTransactionprocessing
Facilitiesdesign/layoutVault operationsMaintenanceSecurity
FinanceInvestmentsSecurityReal estate
Accounting
Auditing
MarketingLoans
CommercialIndustrialFinancialPersonal
Mortgage
Trust Department
Commercial Bank
Figure 1.1(A)
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Organizational Charts
OperationsGround support
equipmentMaintenanceGround Operations
Facilitymaintenance
Catering
Flight OperationsCrew schedulingFlyingCommunicationsDispatching
Management science
Finance/accounting
AccountingPayablesReceivablesGeneral Ledger
FinanceCash controlInternationalexchange
Airline
Figure 1.1(B)
MarketingTrafficadministration
ReservationsSchedulesTariffs (pricing)
SalesAdvertising
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Organizational Charts
MarketingSales
promotionAdvertisingSalesMarketresearch
OperationsFacilities
Construction; maintenanceProduction and inventory control
Scheduling; materials controlQuality assurance and controlSupply-chain managementManufacturing
Tooling; fabrication; assembly
DesignProduct development and designDetailed product specifications
Industrial engineeringEfficient use of machines, space,
and personnelProcess analysis
Development and installation of
production tools and equipment
Finance/accountingDisbursements/
credits
ReceivablesPayablesGeneral ledger
Funds ManagementMoney marketInternational
exchangeCapital requirements
Stock issueBond issue
and recall
Manufacturing
Figure 1.1(C)
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Operations
One of the areas for competitive advantage isoperations, i.e. the production and delivery of both
goods and services to the customer.
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WHAT IS IT ABOUT?
Operations strategy ties up with the overall business strategy while operations managementensures that the operations are executed effectively,
efficiently and productively.
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Why Study OM?
1. OM is one of three major functions of anyorganization, we want to study how people organizethemselves for productive enterprise
2. We want ( and need ) to know how goods and servicesare produced
3. We want to understand what operations managers do
4. OM is such a costly part of an organization
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D R . H A B I B A H @ N O R E H A N H J . H A R O N
P O W E R P O I N T P R E S E N TAT I O N T O A C C O M PA N YH E I Z E R A N D R E N D E RO P E R AT I O N S M A N A G E M E N T , 1 0 EP R I N C I P L E S O F O P E R AT I O N S M A N A G E M E N T ,8 E
P O W E R P O I N T S L I D E S B Y J E F F H E Y L
1Operations and
Productivity
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Learning Objectives
When you complete this chapteryou should be able to:
1. Define operations management2. Explain the distinction between
goods and services
3. Explain the difference betweenproduction and productivity
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Learning Objectives
When you complete this chapteryou should be able to:
4. Compute single-factorproductivity5. Compute multifactor productivity
6. Identify the critical variables inenhancing productivity
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PRODUCTION IS THE CREATIONOF GOODS AND SERVICES
Operations Management
Operations management (OM) is the set ofactivities that create value in the form of
goods and services by transforming inputsinto outputs
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Characteristics of Goods
Tangible productConsistent productdefinition
Production usuallyseparate fromconsumption
Can be inventoriedLow customerinteraction
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Characteristics of Service
Intangible productProduced andconsumed at same time
Often uniqueHigh customerinteraction
Inconsistent productdefinitionOften knowledge-basedFrequently dispersed
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Gross domestic Product (GDP ) is amonetary measure of the value of all final goods andservices produced in a period (quarterly or yearly).
Nominal GDP estimates are commonly used todetermine the economic performance of a whole
country or region, and to make international
comparisons.
https://en.wikipedia.org/wiki/Measurement_in_economicshttps://en.wikipedia.org/wiki/Measurement_in_economics
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Goods and Services
AutomobileComputerInstalled carpeting
Fast-food mealRestaurant meal/auto repair
Hospital careAdvertising agency/
investment managementConsulting service/
teachingCounseling
Percent of Product that is a Good Percent of Product that is a Service
100% 75 50 25 0 25 50 75 100%| | | | | | | | |
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Manufacturing and Service Employment
120 –
100 –
80 –
60 –
40 –
20 –
0 – | | | | | | |1950 1970 1990 2010 (est)
1960 1980 2000
E m p
l o y m e n
t ( m i l l i o n s
)
Figure 1.4 (A)
Manufacturing
Service
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Development of the Service Economy
Figure 1.4 (C)
United States CanadaFrance
ItalyBritainJapan
W. Germany
1970 2010 (est)
| | | | |
40 50 60 70 80Percent
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The Hard RockCafe
The ―product,‖ includes more than tasty meals— the
layout, the memorabilia on display, and the service all
encompass the dining package from Hard Rock that
consumers now expect. The meals themselves are
designed, tested, and then analyzed for the cost of
ingredients, labor requirements, and customer
satisfaction. Among other tasks, the operations
manager must consider both the attractiveness and
efficiency of restaurant layout, supplier quality and
reliability, employee motivation and training,
maintenance of tight schedules, and preparation of
outstanding meals.
© 2011 Pearson Education, Inc.ublishin as Prentice Hall
• First opened in 1971• Now – 129 restaurants
in over 40 countries• Rock music memorabilia• Creates value in the form of
good food andentertainment
• 3,500 + custom meals perday in Orlando
• How does an item get on themenu?
• Role of the OperationsManager
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P L A N N I N GO R G A N I Z I N GS TA F F I N GL E A D I N GC O N T R O L L I N G
What Operations
Managers Do
Basic Management Functions
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Ten Critical Decisions
Ten Decision Areas Chapter(s)
1. Design of goods and services 52. Managing quality 6, Supplement 63. Process and capacity 7, Supplement 7
design4. Location strategy 85. Layout strategy 96. Human resources and 10
job design
7. Supply-chain 11, Supplement 11management8. Inventory, MRP, JIT 12, 14, 169. Scheduling 13, 1510. Maintenance 17
Table 1.2
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The Critical Decisions
1. Design of goods and services What good or service should we offer?How should we design these products and services?
2. Managing qualityHow do we define quality? Who is responsible for quality?
Table 1.2 (cont.)
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The Critical Decisions
3. Process and capacity design What process and what capacity will these productsrequire? What equipment and technology is necessary forthese processes?
4. Location strategy Where should we put the facility?On what criteria should we base the locationdecision?
Table 1.2 (cont.)
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The Critical Decisions
5. Layout strategyHow should we arrange the facility?How large must the facility be to meet our plan?
6. Human resources and job designHow do we provide a reasonable workenvironment?How much can we expect our employees toproduce?
Table 1.2 (cont.)
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The Critical Decisions
7. Supply-chain managementShould we make or buy this component? Who should be our suppliers and how can we integratethem into our strategy?
8. Inventory, material requirements planning, andJIT
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
9. Intermediate and short – term scheduling Are we better off keeping people on the payrollduring slowdowns? Which jobs do we perform next?
10. MaintenanceHow do we build reliability into our processes? Who is responsible for maintenance?
Table 1.2 (cont.)
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Where are the OM Jobs?
Technology/methodsFacilities/space utilizationStrategic issues
Response timePeople/team developmentCustomer service
QualityCost reductionInventory reductionProductivity improvement
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Opportunities
Figure 1.2
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Contributions From
Human factorsIndustrial engineering
Management scienceBiological sciencePhysical sciencesInformation technology
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Organizations in Each Sector
Service Sector Example % of allJobs
Education, Legal,Medical, other
San Diego Zoo, Arnold Palmer Hospital 25.8
Trade (retail,wholesale)
Walgreen’s, Wal -Mart, Nordstrom’s 14.9
Utilities,Transportation
Pacific Gas & Electric, AmericanAirlines
5.2
Professional andBusiness Services
Snelling and Snelling, WasteManagement, Inc.
10.7
Table 1.3
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Organizations in Each Sector
Service Sector Example % of allJobs
Finance,Information,Real Estate
Citicorp, American Express,Prudential, Aetna
9.6
Food, Lodging,Entertainment
Olive Garden, Motel 6, WaltDisney
8.5
PublicAdministration
U.S., State of Alabama, CookCounty
4.6
Total 78.8Table 1.3
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Organizations in Each Sector
Other Sectors Example% of all
Jobs
ManufacturingSector
General Electric, Ford, U.S.Steel, Intel
11.2
ConstructionSector
Bechtel, McDermott 8.1
Agriculture Sector King Ranch 1.4
Mining Sector Homestake Mining 0.5
Total 21.2
Table 1.3
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New Challenges in OM
Global focusJust-in-time
Supply-chainpartneringRapid productdevelopment,alliancesMasscustomizationEmpoweredemployees, teams
ToFromLocal or national focusBatch shipments
Low bid purchasing
Lengthy productdevelopment
Standard products
Job specialization
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Changing Challenges
TraditionalApproach Reasons forChange CurrentChallenge
Ethics andregulationsnot at the
forefront
Public concern overpollution, corruption,child labor, etc.
High ethical andsocialresponsibility;
increased legal andprofessionalstandards
Local ornational
focus
Growth of reliable, lowcost communication and
transportation
Global focus,international
collaboration
Lengthyproductdevelopment
Shorter life cycles;growth of globalcommunication; CAD,Internet
Rapid productdevelopment;designcollaboration
Figure 1.5
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Changing Challenges
TraditionalApproach
Reasons forChange
CurrentChallenge
Low costproduction,with littleconcern forenvironment;free resources(air, water)ignored
Public sensitivity toenvironment; ISO 14000standard; increasingdisposal costs
Environmentallysensitiveproduction; greenmanufacturing;sustainability
Low-coststandardizedproducts
Rise of consumerism;increased affluence;individualism
Masscustomization
Figure 1.5
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Changing Challenges
TraditionalApproach
Reasons forChange
CurrentChallenge
Emphasis onspecialized,often manualtasks
Recognition of theemployee's totalcontribution; knowledgesociety
Empoweredemployees;enriched jobs
“In -house”production;
low-bidpurchasing
Rapid technologicalchange; increasing
competitive forces
Supply-chainpartnering; joint
ventures, alliances
Large lotproduction
Shorter product lifecycles; increasing needto reduce inventory
Just-In-Timeperformance; lean;continuousimprovement
Figure 1.5
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New Trends in OM
EthicsGlobal focusEnvironmentally sensitive production
Rapid product developmentEnvironmentally sensitive productionMass customizationEmpowered employeesSupply-chain partneringJust-in-time performance
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QUESTIONS – based on the VIDEO
What are some of the possible challenges faced in themanufacturing of the aircraft?
How many OM critical decisions are involved in theoperations?
What are some of the services (non-manufacturing
activities) critical decisions required atmanufacturing plant?
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Productivity
© 2011 Pearson Education, Inc.ublishin as Prentice Hall
Is PRODUCTIVITY = PRODUCTION?
Is PRODUCTIVITY = PROFIT?
Is PRODUCTIVITY = PERFORMANCEMEASURE?
Is PRODUCTIVITY = all of the above?
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1 - 44© 2011 Pearson Education, Inc.ublishin as Prentice Hall
Productivity Challenge
Productivity is the ratio of outputs (goodsand services) divided by the inputs
(resources such as labor and capital)
The objective is to improve productivity!
Im po rtant Note!Produc t ion i s a m easure of outpu t
on ly and n ot a m easure of eff ic iency
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1 - 45© 2011 Pearson Education, Inc.ublishin as Prentice Hall
The Economic System
Feedback loop
Outputs
Goodsand
services
Transformation
The U.S. economic systemtransforms inputs to outputs
at about an annual 2.5%
increase in productivity peryear. The productivity
increase is the result of amix of capital (38% of 2.5%),
labor (10% of 2.5%), andmanagement (52% of 2.5%).
Inputs
Labor,capital,
management
Figure 1.6
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The Manufacturing System
Feedback loop
Outputs
Goods,services, by
products
TransformationProcess
Inputs
Labor,capital,
materials,management
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1 - 47© 2011 Pearson Education, Inc.ublishin as Prentice Hall
Improving Productivity at Starbucks
A team of 10 analystscontinually look for waysto shave time. Someimprovements:Stop requiring signatureson credit card purchasesunder $25
Saved 8 secondsper transaction
Change the size of the icescoop
Saved 14 secondsper drink
New espresso machines Saved 12 secondsper shot
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1 - 48© 2011 Pearson Education, Inc.ublishin as Prentice Hall
Improving Productivity at Starbucks
A team of 10 analystscontinually look for waysto shave time. Someimprovements:Stop requiring signatureson credit card purchasesunder $25
Saved 8 secondsper transaction
Change the size of the icescoop
Saved 14 secondsper drink
New espresso machines Saved 12 secondsper shot
Operations improvements havehelped Starbucks increase yearlyrevenue per outlet by $200,000 to$940,000 in six years.Productivity has improved by 27%,or about 4.5% per year.
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1 - 49© 2011 Pearson Education, Inc.ublishin as Prentice Hall
Measure of process improvementRepresents output relative to input
Only through productivity increasescan our standard of living improve
Productivity
Productivity =Units produced
Input used
Hospital productivity
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Hospital productivity
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Productivity Cycle
© 2013 HABIBAH HARON
Measurement
EvaluationPlanning
Improvement
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Productivity Measurement
Selection on operationunits to observeUnderstand product,production process, andinvolved staffDividing of input andoutput sourcesDesigning data collection
Selecting basic periodGaining deflatorinformation
Data collection andidentifying part to fix
Data synthesisCalculating productivityPreparing chart forproductivity index Analyzing productivity’strend
© 2013 HABIBAH HARON
This procedure is based on Sumanth’s Model:
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Productivity Measurement
Two types:
Partial productivity Single factor
Total productivity Total factor productivity
© 2013 HABIBAH HARON
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1 - 54© 2011 Pearson Education, Inc.ublishin as Prentice Hall
Partial Productivity
Productivity =Units produced
Labor-hours used
= = 4 units/labor-hour1,000250
Labor Productivity
One resourc e inp ut single-factor p roduc t iv ity
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1 - 55© 2013 HABIBAH HARON
Total Productivity
OutputLabor + Material + Energy+ Capital + Miscellaneous
Productivity =
Output and inputs are often expressedin monetary unit (RM)
Mult ip le reso urc e inp uts mul t i - fac tor p roduc t iv i ty
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1 - 57© 2011 Pearson Education, Inc.ublishin as Prentice Hall
Productivity calculation
Staff of 4 works 8 hrs/day 8 units/dayPayroll cost = $640/day Overhead = $400/day
Old System:
8 units/day32 labor-hrs=
Old laborproductivity = .25 units/labor-hr
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Productivity
Staff of 4 works 8 hrs/day 8 units/dayPayroll cost = $640/day Overhead = $400/day
Old System:
14 units/day Overhead = $800/day
New System:
8 units/day32 labor-hrs=
Old laborproductivity
=New laborproductivity
= .25 units/labor-hr
14 units/day32 labor-hrs
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Productivity
Staff of 4 works 8 hrs/day 8 units/dayPayroll cost = $640/day Overhead = $400/day
Old System:
14 units/day Overhead = $800/day
New System:
8 units/day32 labor-hrs=
Old laborproductivity = .25 units/labor-hr
14 units/day32 labor-hrs=
New laborproductivity = .4375 units/labor-hr
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Productivity
Staff of 4 works 8 hrs/day 8 units/dayPayroll cost = $640/day Overhead = $400/day
Old System:
14 units/day Overhead = $800/day
New System:
=Old multifactorproductivity8 units/day$640 + 400
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1 - 61© 2011 Pearson Education, Inc.ublishin as Prentice Hall
Productivity
Staff of 4 works 8 hrs/day 8 units/dayPayroll cost = $640/day Overhead = $400/day
Old System:
14 units/day Overhead = $800/day
New System:
8 units/day$640 + 400=
Old multifactorproductivity = .0077 units/dollar
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1 - 62© 2011 Pearson Education, Inc.ublishin as Prentice Hall
Productivity
Staff of 4 works 8 hrs/day 8 units/dayPayroll cost = $640/day Overhead = $400/day
Old System:
14 units/day Overhead = $800/day
New System:
8 units/day$640 + 400=
Old multifactorproductivity
=New multifactorproductivity
= .0077 units/dollar
14 units/day$640 + 800
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1 - 64© 2011 Pearson Education, Inc.ublishin as Prentice Hall
Measurement Problems
1. Quality may change while thequantity of inputs and outputsremains constant
2. External elements may cause anincrease or decrease inproductivity
Precise units of measure may belacking
P d i i E l i
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Productivity Evaluation
By comparing between 2 periods of study or planned values – measuring the index• 1st quarter as based, evaluate performance of 2 nd quarter
Example:
© 2011 Pearson Education, Inc.ublishin as Prentice Hall
Productivity index (1 st qtr) = .0077 units /dollar.0077 units /dollar
= 1
Productivity index (2 nd qtr)= .0115 units /dollar.0077 units /dollar
= 1.49
E i
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Exercise
Labour 520 hours at RM 13 per hour
Solvent 100 gallons at RM 5 per gallon
Equipment
rental 20 day at RM 50 per day
A laundry operator carried out maintenance work on its 65 dryer machines in
December last year using the resources shown in the table below:
i. Calculate the labor productivity
ii. With the introduction of GST, the costs for each of the resources increased by 6%.
Calculate the total productivity for the current month.iii. Using December as the base month, calculate the total productivity index for the
current month
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1 - 67© 2011 Pearson Education, Inc.ublishin as Prentice Hall
Productivity Variables
1. Labor - contributesabout 10% of theannual increase
2. Capital - contributesabout 38% of theannual increase
3. Management -contributes about 52%of the annual increase
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Productivity Planning
Set target based on company objectives andpolicy
© 2011 Pearson Education, Inc.ublishin as Prentice Hall
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Productivity Improvement
Technology-basedEmployee-basedProduct-based
Task-basedMaterial-basedEnergy-based
Discuss – video
© 2013 HABIBAH HARON
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Productivity Improvement Video
© 2013 HABIBAH HARON
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Key Variables for Improved Labor Productivity
1. Basic education appropriate for thelabor force
2. Diet of the labor force3. Social overhead that makes labor
available
Challenge is in maintaining andenhancing skills in the midst of rapidlychanging technology and knowledge
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Labor Skills
About half of the 17-year-olds in the U.S. cannotcorrectly answer questions of this type
Figure 1.7
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Service Productivity
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Service Productivity
1. Typically labor intensive2. Frequently focused on unique
individual attributes or desires
3. Often an intellectual task performed byprofessionals
4. Often difficult to mechanize
5. Often difficult to evaluate for quality
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Productivity at Taco Bell
Improvements:Revised the menuDesigned meals for easy preparation
Shifted some preparation to suppliersEfficient layout and automationTraining and employee empowerment
New water and energy saving grills
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Productivity at Taco Bell
Improvements:Revised the menuDesigned meals for easy preparation
Shifted some preparation to suppliersEfficient layout and automationTraining and employee empowerment
New water and energy saving grills
Results:Preparation time cut to 8 secondsManagement span of control increasedfrom 5 to 30In-store labor cut by 15 hours/dayStores handle twice the volume with halfthe labor
Conserve 300 million gallons of water and200 million KwH of electricity each yearsaving $17 million annually
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Ethics andSocial Responsibility
Challenges facingoperations managers:
Developing and producing safe,quality productsMaintaining a clean environment
Providing a safe workplaceHonoring stakeholder commitments
P d ti it b fit
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Productivity benefits
Consumer - Higher living standards and betterservicesEmployee - Increased in bonus
Stakeholder - Higher dividendsOrganization - Increased in market shareNation - Healthier economy
Society - Improved national security
© 2013 HABIBAH HARON
GLOBAL ISSUE
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End of Topic 1 – Introduction &
Productivity