PRODUCTION AND
OPERATIONS
MANAGEMENT
BSBA
Learning Objectives
Definition of Operations Management (OM)
Organizational Functions
Why Study OM?
A brief history of operations management
The future of the discipline
Goods Versus Services
Measuring productivity
Career opportunities in operations
management
WHAT IS OPERATIONS
MANAGEMENT?
Production is the creation of goods
and services
Operations management (OM)
is the set of activities that
create value in the form of
goods and services by
transforming inputs into
outputs
Organizing to Produce
Goods and Services
Essential functions:
1.
2.
3.
4.
Marketing generates demand
Production/operations creates the
product
Finance/accounting tracks how
well the organization is doing, pays
bills, collects the money
Human Resources provides labor,
wage and salary administration
and job evaluation
Organizational Charts
Commercial Bank
Operations
Teller Scheduling
Check Clearing
Collection
Transaction processing
Facilities design/layout
Vault operations
Maintenance
Security
Finance
Investments
Security
Real estate
Accounting
Auditing
Marketing
Loans
Commercial
Industrial
Financial
Personal
Mortgage
Trust Department
Human Resources
Recruitment
Job evaluation
Performance evaluation
Wage and Salary Adm.
Personnel records
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
Process analysis
Development and installation of
production tools and equipment
Finance/ accounting
Disbursements/
credits
Receivables
Payables
General ledger
Funds Management
Money market
International
exchange
Capital requirements
Stock issue
Bond issue
and recall
Human Resources
Recruitment
Marketing
Sales
promotion
Advertising
Sales
Market research
Job evaluation
Performance evaluation
Wage and Salary Adm.
Personnel records
Why Study OM?
1.
OM is one of four major functions of
any organization, we want to study
how people organize themselves for
productive enterprise
2. We want (and need) to know how
goods and services are produced
3. We want to understand what
operations managers do
4. OM is such a costly part of an
organization
Options for Increasing
Contribution
Marketing
Option
Current
Sales
Cost of Goods
Gross Margin
Finance Costs
Subtotal
Taxes at 25%
Contribution
$100,000
80,000
20,000
6,000
14,000
3,500
$ 10,500
Finance/
Accounting
Option
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
OM
Option
Reduce
Production
Costs 20%
$100,000
64,000
36,000
6,000
30,000
7,500
$ 22,500
WHAT OPERATIONS
MANAGERS DO
Basic Management Functions
Planning
Organizing
Staffing
Leading
Controlling
Ten Critical Decisions
Ten Decision Areas
1.
2.
3.
Design of goods and services
Managing quality
Process and capacity
design
4.
Location strategy
5.
Layout strategy
6.
Human resources and
job design
7.
Supply-chain
management
8.
Inventory, MRP, JIT
9.
Scheduling
10. Maintenance
The Critical Decisions
1.
Design of goods and services
2.
What good or service should we offer?
How should we design these products
and services?
Managing quality
How do we define quality?
Who is responsible for quality?
The Critical Decisions
3.
Process and capacity design
4.
What process and what capacity will
these products require?
What equipment and technology is
necessary for these processes?
Location strategy
Where should we put the facility?
On what criteria should we base the
location decision?
The Critical Decisions
5.
Layout strategy
6.
How should we arrange the facility?
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?
The Critical Decisions
7.
Supply-chain management
8.
Should we make or buy this component?
Who should be our suppliers and how
can we integrate them into our strategy?
Inventory, material requirements
planning, and JIT
How much inventory of each item should
we have?
When do we re-order?
The Critical Decisions
9.
Intermediate and shortterm
scheduling
10.
Are we better off keeping people on
the payroll during slowdowns?
Which jobs do we perform next?
Maintenance
How do we build reliability into our
processes?
Who is responsible for maintenance?
Significant Events in OM
The Heritage of OM
Division of labor (Adam Smith 1776; Charles Babbage
1852)
Standardized parts (Whitney 1800)
Scientific Management (Taylor 1881)
Assembly line (Ford/ Sorenson 1913)
Gantt charts (Gantt 1916)
Motion study (Frank and Lillian Gilbreth 1922)
Quality control (Shewhart 1924; Deming 1950)
The Heritage of OM
First Digital Computer (Atanasoff 1938)
CPM/PERT (DuPont 1957, Navy 1958)
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)
Mass Customization (2000s)
New Challenges in OM
From
To
Local or national focus
Batch shipments
Global focus
Just-in-time
Low bid purchasing
Supply-chain partnering
Rapid product
development, alliances
Mass customization
Lengthy product development
Standard products
Job specialization
Empowered employees,
teams
Characteristics of Goods
Tangible product
Consistent product
definition
Production usually
separate from
consumption
Can be inventoried
Low customer
interaction
Characteristics of Service
Intangible product
Produced and
consumed at same time
Often unique
High customer
interaction
Inconsistent product
definition
Often knowledge-based
Frequently dispersed
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
|
Percent of Product that is a Good
0
|
25
|
50
|
75
|
100%
|
Percent of Product that is a Service
Changing Challenges
Traditional
Approach
Reasons for
Change
Current
Challenge
Ethics and
regulations
not at the
forefront
Public concern over
pollution, corruption,
child labor, etc.
High ethical and
social
responsibility;
increased legal
and professional
standards
Local or
national
focus
Growth of reliable, low
cost communication
and transportation
Global focus,
international
collaboration
Lengthy
product
development
Shorter life cycles;
growth of global
communication; CAD,
Internet
Rapid product
development;
design
collaboration
Changing Challenges
Traditional
Approach
Reasons for
Change
Current
Challenge
Low cost
production,
with little
concern for
environment;
free
resources
(air, water)
ignored
Public sensitivity to
environment; ISO 14000
standard; increasing
disposal costs
Environmentally
sensitive
production; green
manufacturing;
sustainability
Low-cost
standardized
products
Rise of consumerism;
increased affluence;
individualism
Mass
customization
Changing Challenges
Traditional
Approach
Reasons for
Change
Current
Challenge
Emphasis on
specialized,
often manual
tasks
Recognition of the
employee's total
contribution; knowledge
society
Empowered
employees;
enriched jobs
In-house
production;
low-bid
purchasing
Rapid technological
change; increasing
competitive forces
Supply-chain
partnering; joint
ventures, alliances
Large lot
production
Shorter product life
cycles; increasing need
to reduce inventory
Just-In-Time
performance;
lean; continuous
improvement
New Trends in OM
Ethics
Global focus
Environmentally sensitive production
Rapid product development
Mass customization
Empowered employees
Supply-chain partnering
Just-in-time performance
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 productivity!
Important Note!
Production is a measure of output only and not a
measure of efficiency
Efficiency Versus
Effectiveness
The difference between efficient and effective is that
efficiency refers to how well you do something, whereas
effectiveness refers to how useful it is.
Efficiency is doing things right; effectiveness is
doing the right things.
Doing the Right Things is More Important
than Doing Things Right
Efficiency Versus
Effectivenes
For example, if a company is not doing well and
they decide to train their workforce on a new
technology. The training goes really well - they
train all their employees in avery short time and
tests show they have absorbed the training well.
But overall productivity doesn't improve. In this
case the company's strategy was efficient but not
effective.
The Economic System
Inputs
Transformation
Outputs
Labor,
capital,
management
Economic system transforms
inputs to outputs
/CONVERSITION PROCESS
Goods
and
services
Feedback loop
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
Productivity Calculations
Labor Productivity
Productivity =
Units produced
Labor-hours used
1,000
= 250 = 4 units/labor-hour
One resource input single-factor productivity
Multi-Factor Productivity
Output
Productivity =
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
Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
Old labor
productivity
8 titles/day
32 labor-hrs
8 titles/day
Overhead = $400/day
Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
Old labor
productivity
8 titles/day
32 labor-hrs
8 titles/day
Overhead = $400/day
= .25 titles/labor-hr
Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
8 titles/day
Overhead = $400/day
New System:
14 titles/day
Overhead = $800/day
Old labor
productivity
New labor
productivity
8 titles/day
32 labor-hrs
14 titles/day
32 labor-hrs
= .25 titles/labor-hr
Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
8 titles/day
Overhead = $400/day
New System:
14 titles/day
Overhead = $800/day
Old labor
productivity
New labor
productivity
8 titles/day
32 labor-hrs
14 titles/day
32 labor-hrs
= .25 titles/labor-hr
= .4375 titles/labor-hr
Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
8 titles/day
Overhead = $400/day
New System:
14 titles/day
Old multifactor
productivity
Overhead = $800/day
8 titles/day
$640 + 400
Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
8 titles/day
Overhead = $400/day
New System:
14 titles/day
Old multifactor
productivity
Overhead = $800/day
8 titles/day
$640 + 400
= .0077 titles/dollar
Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
8 titles/day
Overhead = $400/day
New System:
14 titles/day
Old multifactor
productivity
New multifactor
productivity
Overhead = $800/day
8 titles/day
$640 + 400
14 titles/day
$640 + 800
= .0077 titles/dollar
Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
8 titles/day
Overhead = $400/day
New System:
14 titles/day
Old multifactor
productivity
New multifactor
productivity
Overhead = $800/day
8 titles/day
$640 + 400
= .0077 titles/dollar
14 titles/day
$640 + 800
= .0097 titles/dollar
Measurement Problems
1. Quality may change while the quantity
of inputs and outputs remains constant
(HDTV, iphones)
2. External elements may cause an
increase or decrease in productivity
(using more reliable electric power
system)
3. Precise units of measure may be lacking
Productivity Variables
1. Labor - contributes
about 10% of the
annual increase
2. Capital - contributes
about 38% of the
annual increase
3. Management contributes about
52% of the annual
increase
Key Variables for Improved
Labor Productivity
1.
Basic education appropriate for the labor force
2.
Diet of the labor force
3.
Social overhead that makes labor available such as
transportation and sanitation
Challenge is in maintaining and
enhancing skills in the midst of rapidly
changing technology and knowledge
Investment and
Productivity
Percent increase in productivity
10
8
6
4
2
0
10
15
20
25
Percentage investment
30
35
Service Productivity
1.
Typically labor intensive (teaching, counseling)
2.
Frequently focused on unique individual desires (customer
representatives in banks)
3.
Often an intellectual task performed by professionals
4.
Often difficult to mechanize
5.
Often difficult to evaluate for quality
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
FINALLY
