1 PRODUCTION AND OPERATIONS MANAGEMENT

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 is the creation of goods and servicesgoods and services

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


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 What is Operations Management?Management?


OM is one of three major OM is one of three major functions (functions (marketing, finance, and marketing, finance, and operationsoperations) of any organization) of any organization

We want (We want (and needand need) to know how ) to know how goods and services are producedgoods and 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 OM is such a costly part of an organizationorganization

Why Study OM?Why Study OM?


Why Study OM?Why Study OM?


What Operations What Operations Managers DoManagers Do

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 Organizational FunctionsFunctions

MarketingMarketing• Gets customersGets customers

OperationsOperations• creates product or servicecreates product or service

Finance/AccountingFinance/Accounting• Obtains fundsObtains funds• Tracks moneyTracks money


Functions - AirlineFunctions - Airline

Operations Finance/AccountingMarketing

GroundSupport

FlightOperations

FacilityMaintenance Catering

Airline


Functions - BankFunctions - Bank


CheckClearing

TellerScheduling

TransactionsProcessing Security

Commercial Bank© 1984-1994 T/Maker Co.


Functions - Functions - ManufacturerManufacturer


ProductionControlManufacturing Quality

Control Purchasing

Manufacturing


Characteristics of Characteristics of GoodsGoods

¨ Tangible product

¨ Consistent product definition

¨ Production usually separate from consumption

¨ Can be inventoried

¨ Low customer interaction

© 1995 Corel Corp.


Characteristics of Characteristics of ServiceService

¨ 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 Selling is distinct from 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 Product is transportabletransportable

Site of facility Site of facility important for costimportant for cost

Often easy to automateOften easy to automate Revenue generated Revenue generated

primarily from primarily from tangible producttangible product

Provider, not product Provider, not product is transportableis transportable

Site of facility Site of facility important for customer important for customer contactcontact

Often difficult to Often difficult to automateautomate

Revenue generated Revenue generated primarily from primarily from intangible service.intangible service.

Good Service


Goods and servicesGoods and servicesservice

sgoodsGoods

AirlineHotelLaw Firm

Steel ProducerMining FirmFarmer

Fast FoodNewspaper

Automobile MfgComputer 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 Classification of Services: labor intensityServices: labor intensity

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

People based

Service

Equipmentbased

AutomaticMonitoredOperatedUnskilledSkilledProfessional


Interaction and Interaction and CustomizationCustomization

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

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

Judgment

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 The Service Process MatrixMatrix

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 ManagementA greatly simplified example…A greatly simplified example…

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

2424POM - J. Galván POM - J. Galván

saute’onions

serve

tomatosauce

boilwater

cook servesaute’garlicspices

addpasta drainready?

Tim

Sue

Jim

washlettuce teardrainPeg mixonionsgarlic

oil &vinegartomatoes

dough warmbake cutopenwine 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 planning, operation, and control for the creation

of dinnerof dinnerLow complexityLow complexity

saute’onions

serve

tomatosauce

boilwater



Tim

Sue

Jim




tableware glasses

Kim

Greg serve

serve

ready?heat oliveoil in pan

yellowonionsgreen onions

cut / slice

saute’

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

of dinnerof dinnerLow complexityLow complexity

saute’onions

serve

tomatosauce

boilwater



Tim

Sue

Jim




tableware glasses

Kim

Greg serve

serve

ready?

tomato pasteoliveoil

crush tomatoestomato puree

fresh basilfresh parsley

tomatosauce

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

creation of dinnercreation of dinnerLow complexityLow complexity

Medium complexity Medium complexity : Planning & building of a : Planning & building of a home…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 Coordination of approximately 25 subcontractorssubcontractors


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

creation of dinner creation of dinner

Another “medium Another “medium complexity” complexity” exampleexample

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

Pancakes…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” complexity” exampleexample

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


Cruise ship line: Production Cruise ship line: Production per dayper 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


““High complexity” High complexity” examplesexamples

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

Aramark serving 100,000 meals/day for Aramark serving 100,000 meals/day for athletes, staff and media at Beijing Gamesathletes, staff 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 Federal Express operating over one million drop-off mailboxes in 215 countriesdrop-off mailboxes in 215 countries

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


Operations ManagementOperations ManagementMany seemingly simple everyday tasks are Many seemingly simple everyday tasks are very complex in nature, but repetitiveness very complex in nature, but repetitiveness and familiarity hide their complexityand familiarity hide their complexity• Making dinner, tying your shoes, Making dinner, tying your shoes, driving to LA…driving to LA…

• Helping your parents setup a facebook Helping your parents setup a facebook pagepage

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

Productivity Output createdInput used


Productivity VariablesProductivity Variables

Productivity = Productivity =

Output (Income, units produced, etc.)Output (Income, units produced, etc.) Labor + Material+ Energy+ Capital+ Labor + Material+ Energy+ Capital+ MiscellaneousMiscellaneous


PRODUCTIVITY OF 2 MACHINESPRODUCTIVITY OF 2 MACHINES DAILY REQUIREMENTS

Daily outputunits

LaborHours

EnergyKw

Raw materialsKg

MACHINE 1 4000 20 400 800MACHINE 2 1500 12 60 400COSTS 24 2,6 2 $ per hour $ per Kw $ per KgTotal productivityMACHINE 1 1,282051 Units/$ MACHINE 1MACHINE 2 1,205788 Units/$Labor ProductivityMACHINE 1 200 Units/worked hour MACHINE 1MACHINE 2 125 Units/worked hourEnergy productivityMACHINE 1 10 Units/KwMACHINE 2 25 Units/Kw MACHINE 2Materials productivityMACHINE 1 5 Units/Kg MACHINE 1MACHINE 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 increase or decrease in productivity.productivity.

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


Productivity VariablesProductivity Variables LaborLabor - contributes about 1/6 of - contributes about 1/6 of the annual increasethe annual increase

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

ManagementManagement - contributes about - contributes about 2/3 of the annual increase2/3 of the annual increase


Key Variables for Key Variables for Improved Labor Improved Labor ProductivityProductivity

Basic Basic educationeducation appropriate for the appropriate for the labor forcelabor force

WellbeingWellbeing of the labor force of the labor force Social support Social support (health, education, (health, education, infrastructure, housing…) that makes infrastructure, housing…) that makes labor availablelabor 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 Frequently individually processedprocessed

Often an intellectual task Often an intellectual task performed by professionalsperformed by professionals

Often difficult to mechanizeOften difficult to mechanize Often difficult to evaluate for Often difficult to evaluate for qualityquality

1 PRODUCTION AND OPERATIONS MANAGEMENT

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