POM - J. Galván 1 PRODUCTION AND OPERATIONS MANAGEMENT Ch. 1: Operations and Productivity.

POM - J. Galván POM - J. Galván 11

PRODUCTION AND PRODUCTION AND OPERATIONS OPERATIONS

MANAGEMENTMANAGEMENT

Ch. 1: Operations and Ch. 1: Operations and ProductivityProductivity


Learning ObjectivesLearning Objectives

Define operations managementDefine operations management


What is Operations What is Operations Management?Management?

ProductionProduction is the creation of goods is the creation of goods and servicesand services

Operations managementOperations management is the set is the set of activities that creates goods and of activities that creates goods and services through the services through the transformation of inputs into transformation of inputs into outputsoutputs


Operations: A systems view in Operations: A systems view in manufacturing manufacturing

Inbound Logistics

Production and

Operations

Outbound Logistics

Physical Inputs

Financial Inputs

Finance

Sales and Marketing

Physical Outputs

Financial Outputs

FeedbackPurchasing


What is Operations Management?What is Operations Management?


OM is one of three major functions OM is one of three major functions ((marketing, finance, and operationsmarketing, finance, and operations) of any ) of any organizationorganization

We want (We want (and needand need) to know how goods ) to know how goods and services are producedand services are produced

We want to know what operations We want to know what operations managers domanagers do

OM is such a costly part of an organizationOM is such a costly part of an organization

Why Study OM?Why Study OM?


Why Study OM?Why Study OM?


What Operations Managers What Operations Managers DoDo

PlanPlan OrganizeOrganize StaffStaff LeadLead ControlControl


Critical Action areasCritical Action areas Managing qualityManaging quality Design of goods and servicesDesign of goods and services Location strategiesLocation strategies Layout strategiesLayout strategies Human resourcesHuman resources Supply-chain managementSupply-chain management Inventory managementInventory management SchedulingScheduling MaintenanceMaintenance

The job of OMThe job of OM



Organizational FunctionsOrganizational Functions

MarketingMarketing

• Gets customersGets customers

OperationsOperations

• creates product or servicecreates product or service

Finance/AccountingFinance/Accounting

• Obtains fundsObtains funds

• Tracks moneyTracks money


Functions - AirlineFunctions - Airline

OperationsFinance/

AccountingMarketing

Ground

Support

Flight

Operations

Facility

MaintenanceCatering

Airline


Functions - BankFunctions - Bank

OperationsFinance/

AccountingMarketing

Check

Clearing

Teller

Scheduling

Transactions

ProcessingSecurity

Commercial Bank© 1984-1994 T/Maker Co.


Functions - ManufacturerFunctions - Manufacturer

OperationsFinance/

AccountingMarketing

Production

ControlManufacturing

Quality

ControlPurchasing

Manufacturing


Characteristics of GoodsCharacteristics of Goods

¨ Tangible product¨ Consistent product

definition¨ Production usually

separate from consumption

¨ Can be inventoried¨ Low customer

interaction© 1995 Corel Corp.


Characteristics of ServiceCharacteristics of Service

¨ Intangible product¨ Produced & consumed at

same time¨ Often unique¨ High customer interaction¨ Inconsistent product

definition¨ Often knowledge-based¨ Frequently dispersed

© 1995 Corel Corp.


Goods versus ServicesGoods versus Services

Can be resoldCan be resold Can be inventoriedCan be inventoried Some aspects of Some aspects of

quality measurablequality measurable Selling is distinct from Selling is distinct from

productionproduction

¨ Reselling unusual¨ Difficult to inventory¨ Quality difficult to

measure¨ Selling is part of

service

Good Service


Goods versus ServicesGoods versus Services

Product is transportableProduct is transportable

Site of facility important for Site of facility important for

costcost

Often easy to automateOften easy to automate

Revenue generated primarily Revenue generated primarily

from tangible productfrom tangible product

Provider, not product is Provider, not product is

transportabletransportable

Site of facility important for Site of facility important for

customer contactcustomer contact

Often difficult to automateOften difficult to automate

Revenue generated primarily Revenue generated primarily

from intangible service.from intangible service.

Good Service


Goods and servicesGoods and servicesse

rvic

es g

oodsGoods

Airline

Hotel

Law Firm

Steel Producer

Mining Firm

Farmer

Fast Food

Newspaper

Automobile Mfg

Computer Hardware

It is often difficult to exactly specify the difference between a good and a service - we shall use a scale


Increasing Labor Intensity

Classification of Services: labor Classification of Services: labor intensityintensity

Labor intensity - the ratio of Labor intensity - the ratio of labor costs to the value of labor costs to the value of plant and equipment plant and equipment

People based

Service

Equipmentbased

Automatic Monitored Operated Unskilled Skilled Professional


Interaction and CustomizationInteraction and Customization

The extent to which The extent to which customer-contact personnel customer-contact personnel exercise judgement exercise judgement (interaction) in meeting (interaction) in meeting individual customer needsindividual customer needs

The extent to which the The extent to which the service is customizedservice is customized

Judg

men

t

Customized

High

Low

High LowLegal servicesHealth careArchitect designPlumberTaxi

TelephoneHotelRetail bankingGood restaurant

Large scale education Preventive health programs

Public transportFast foodAppliance repairMovie theater Spectator sports


The Service Process MatrixThe Service Process Matrix

Low labor intensityCapital Decisions Technology advances Managing service delivery

High labor intensityHiring and trainingMethods developmentEmployee schedulingControl of far locationsStartup of new units

managing growth

Low interaction/customizationMarketingMaking the service warmAttention to physical surroundingsManaging rigid hierarchy Standard Operating Proced.

High interaction/customizationFighting cost increasesMaintaining qualityReacting to customer interventionManaging the advance of people

MASS SERVICE

Retailing, WholesalingSchools, Dry cleaner

PROFESSIONAL SERVICE

Doctors, Lawyers, CPA

SERVICE Shop

Hospitals, Auto repairUpscale restaurants

SERVICE FACTORY

Airline, Hotel, Trucking, Fast Food


New Challenges in OMNew Challenges in OM

Local or national focus Batch shipments Low bid purchasing Lengthy product

development Standard products Job specialization

Global focus Just-in-time Supply chain partnering Rapid product

development Mass customization Empowered employees

From To

Operations ManagementOperations Management

A greatly simplified example…A greatly simplified example…

... the design, planning, operation, and ... the design, planning, operation, and creation of a spaghetti dinner [a creation of a spaghetti dinner [a good or service] at the Doe’s homegood or service] at the Doe’s home

2424POM - J. Galván POM - J. Galván

saute’onions

serve

tomatosauce

boilwater

cook serve

saute’garlic

spices

addpasta

drainready?

Tim

Sue

Jim

washlettuce

teardrainPeg mix

onionsgarlic

oil &vinegar

tomatoes

dough warmbake cut

openwine

servebreathe

tableware

glasses

Kim

Greg serve

serve

ready?

Ops Mgmt at the Doe’sOps Mgmt at the Doe’splanning, operation, and control for the creation of dinnerplanning, operation, and control for the creation of dinner

Low complexityLow complexity

saute’onions

serve

tomatosauce

boilwater

cook serve

saute’garlic

spices

addpasta

drainready?

Tim

Sue

Jim

washlettuce

teardrainPeg mix

onionsgarlic

oil &vinegar

tomatoes

dough warmbake cut

openwine

servebreathe

tableware

glasses

Kim

Greg serve

serve

ready?heat oliveoil in pan

yellowonions

green onions

cut / slice

saute’



saute’onions

serve

tomatosauce

boilwater

cook serve

saute’garlic

spices

addpasta

drainready?

Tim

Sue

Jim

washlettuce

teardrainPeg mix

onionsgarlic

oil &vinegar

tomatoes

dough warmbake cut

openwine

servebreathe

tableware

glasses

Kim

Greg serve

serve

ready?

tomato paste

oliveoil

crush tomatoes

tomato puree

fresh basil

fresh parsley

tomatosauce



Medium complexity Medium complexity : Planning & building of a home…: Planning & building of a home… 2 years clearing land, 1 year of design work2 years clearing land, 1 year of design work Approximately 250,000 construction stepsApproximately 250,000 construction steps Coordination of approximately 25 subcontractorsCoordination of approximately 25 subcontractors


Ops Mgmt at the Doe’sOps Mgmt at the Doe’splanning, operation, and control for the creation of dinner planning, operation, and control for the creation of dinner

Another “medium Another “medium complexity” examplecomplexity” example

One morning’s breakfast makings at One morning’s breakfast makings at Anaheim’s Int’l House of Pancakes…Anaheim’s Int’l House of Pancakes…



One morning’s breakfastOne morning’s breakfast 7,000 pancakes7,000 pancakes 5,500 eggs5,500 eggs 1,000 pounds pork1,000 pounds pork 600 glasses orange juice600 glasses orange juice 1,000 pots of coffee1,000 pots of coffee 10 cooks10 cooks 18 waiters18 waiters

Life April 20, 2007


Another “medium Another “medium complexity” examplecomplexity” example

One day’s food on a modern cruise ship…One day’s food on a modern cruise ship…


3333

POM - J. Galván POM - J. Galván

Cruise ship line: Production per dayCruise ship line: Production per day

12,000 meals12,000 meals 20,000 pounds of vegetables20,000 pounds of vegetables 3,000 pounds of meats and seafood3,000 pounds of meats and seafood 4,000 dinner rolls4,000 dinner rolls 3,000 eggs3,000 eggs 3,500 packages of sugar3,500 packages of sugar 50 gallons of ice cream50 gallons of ice cream

3434


““High complexity” examplesHigh complexity” examples

McDonald's supplying ~30,000 restaurants in McDonald's supplying ~30,000 restaurants in 121 countries121 countries

Aramark serving 100,000 meals/day for athletes, Aramark serving 100,000 meals/day for athletes, staff and media at Beijing Gamesstaff and media at Beijing Games

Bank of America operating 16,000 ATMs and Bank of America operating 16,000 ATMs and 5,700 branch banks in the United States5,700 branch banks in the United States

Federal Express operating over one million drop-Federal Express operating over one million drop-off mailboxes in 215 countriesoff mailboxes in 215 countries

Building a new subway for Athens, Greece ($2.6 Building a new subway for Athens, Greece ($2.6 billion)billion)

3535


Operations ManagementOperations Management

Many seemingly simple everyday tasks are very Many seemingly simple everyday tasks are very complex in nature, but repetitiveness and complex in nature, but repetitiveness and familiarity hide their complexityfamiliarity hide their complexity• Making dinner, tying your shoes, driving to Making dinner, tying your shoes, driving to

LA…LA…• Helping your parents setup a facebook pageHelping your parents setup a facebook page

Most real world problems demand sophisticated Most real world problems demand sophisticated methods at first exposure, but their complexity is methods at first exposure, but their complexity is hidden as they become “familiar”hidden as they become “familiar”



PRODUCTIVITYPRODUCTIVITY


ProductivityProductivity

¨ Measure of process improvement¨ Represents output relative to input

¨ Comparison variable (not absolute variable):¨ Which factory is more productive in terms of labor?¨ What production system is more energy efficient?¨ Which country produces more per employee? …

¨ Productivity increases improve standard of living ¨ From 1889 to 1973, U.S. productivity increased at a 2.5%

annual compound rate

ProductivityProductivity Output createdOutput created

Input usedInput used


Productivity VariablesProductivity Variables

Productivity = Productivity =

Output (Income, units produced, etc.)Output (Income, units produced, etc.)

Labor + Material+ Energy+ Capital+ MiscellaneousLabor + Material+ Energy+ Capital+ Miscellaneous


PRODUCTIVITY OF 2 MACHINESPRODUCTIVITY OF 2 MACHINES DAILY REQUIREMENTS

Daily outputunits

LaborHours

EnergyKw

Raw materialsKg

MACHINE 1 4000 20 400 800

MACHINE 2 1500 12 60 400

COSTS 24 2,6 2

$ per hour $ per Kw $ per Kg

Total productivity

MACHINE 1 1,282051 Units/$ MACHINE 1

MACHINE 2 1,205788 Units/$

Labor Productivity

MACHINE 1 200 Units/worked hour MACHINE 1

MACHINE 2 125 Units/worked hour

Energy productivity

MACHINE 1 10 Units/Kw

MACHINE 2 25 Units/Kw MACHINE 2

Materials productivity

MACHINE 1 5 Units/Kg MACHINE 1

MACHINE 2 3,75 Units/Kg


Measurement ProblemsMeasurement Problems

QualityQuality may change while the may change while the quantity of inputs and outputs quantity of inputs and outputs remains constant.remains constant.

External elementsExternal elements may cause an may cause an increase or decrease in productivity.increase or decrease in productivity.

Precise unitsPrecise units of measure may be of measure may be lackinglacking


Productivity VariablesProductivity Variables

LaborLabor - contributes about 1/6 of the - contributes about 1/6 of the annual increaseannual increase

CapitalCapital - contributes about 1/6 of the - contributes about 1/6 of the annual increaseannual increase

ManagementManagement - contributes about 2/3 - contributes about 2/3 of the annual increaseof the annual increase


Key Variables for Improved Key Variables for Improved Labor ProductivityLabor Productivity

Basic Basic educationeducation appropriate for the labor force appropriate for the labor force WellbeingWellbeing of the labor force of the labor force Social support Social support (health, education, infrastructure, (health, education, infrastructure,

housing…) that makes labor availablehousing…) that makes labor available TechnologyTechnology used used Maintaining and enhancing Maintaining and enhancing skillsskills Business organizationBusiness organization Market access (Market access (economies of scale)economies of scale)


Service ProductivityService Productivity

Typically labor intensiveTypically labor intensive Frequently individually processedFrequently individually processed Often an intellectual task performed Often an intellectual task performed

by professionalsby professionals Often difficult to mechanizeOften difficult to mechanize Often difficult to evaluate for qualityOften difficult to evaluate for quality

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POM - J. Galván 1 PRODUCTION AND OPERATIONS MANAGEMENT Ch. 1: Operations and Productivity.

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