Introduction to Production Operations Management Management Science is

Introduction to Production & Operations Management

Management Science …is the study and development of techniques for the formulation and analysis of management and related business problems. Operations research models are often helpful in this process.

Operations Research …is the application of techniques developed in mathematics, statistics, engineering and the physical sciences to the solution of problems in business, government, industry, economics and the social sciences.

Quantitative Methods …employ mathematical models to reach a wide variety of business decisions. l l l They give modern managers a competitive edge Managers do not need to have great mathematical skills Familiarity allows one to: l l Ask the right questions Recognize when additional analysis is necessary Evaluate potential solutions Make informed decisions

Qualitative Methods …like more traditional methods, however, qualitative methods come in many varieties. Different researchers focus on different sources of data: l l One's own immediate experience Others' experiences, which we might seek to understand through: l l l their speech or writing, their other behaviors, their products - technology, artwork, footprints, etc.

What is POM? l Production is the creation of goods and services l Production and/or Operations Management are the activities that transform resources into goods and services

Why Study POM? l It is one of the 3 critical parts of any organization: l l l Marketing – generates demand Operations – creates the product Finance/accounting – tracks organizational performance, pays bills, collects money It shows us how goods and services are produced l It shows us what POM managers do l It is the most costly part of any organization l

Cost as a Percentage of Sales Meat Furniture Restaurant Heavy Packing Manufacturing Equipment 79% 40% 38% 42% 8 3 90 9 15 22 77 15 20 16 74 22 12 23 77 20 1 8 4 3 POM Materials Labor Fringes Total S, G & A Int. , Taxes, Profits, etc.

Jobs in the U. S.

Jobs in POM l Less than 20% of all jobs are in manufacturing (and they are declining) l Almost 80% of jobs are in the service sector (and they are increasing) l Nearly half of all jobs are in POM l Most POM jobs are professional and/or managerial

Chapters Covered in Text l l l Forecasting……………… Service, product design……………. . Quality management………………… Process, capacity design…………. . . Location. . ………………… Layout design ……………. Human resources, job design……. . Supply-chain management………… Inventory management ……………. Scheduling ……………. . Maintenance. . . …………… Ch. 4 Ch. 5 Ch. 6, 6 S Ch. 7, 7 S Ch. 8 Ch. 9 Ch. 10, 10 S Ch. 11, 11 s Ch. 12, 14, 16 Ch. 3, 15 Ch. 17

The Critical Decisions l Quality management l Who is responsible for quality? l How do we define quality? l Service and product design l What product or service should we offer? l How should we design these products and services?

The Critical Decisions - Continued l Process and capacity design l What processes will these products require and in what order? l What equipment and technology is necessary for these processes? l Location l Where should we put the facility l On what criteria should we base this location decision?

The Critical Decisions - Continued l Layout design l How should we arrange the facility? l How large a facility is required? l Human resources and job design l How do we provide a reasonable work environment? l How much can we expect our employees to produce?

The Critical Decisions - Continued l Supply chain management l Should we make or buy this item? l Who are our good suppliers and how many should we have? l Inventory, material requirements planning, l How much inventory of each item should we have? l When do we re-order?

The Critical Decisions - Continued l Intermediate, scheduling short term, and project l Is subcontracting production a good idea? l Are we better off keeping people on the payroll during slowdowns? l Maintenance l Who is responsible for maintenance? l When do we do maintenance?

Significant Events in POM Division of labor (Adam Smith, The Wealth of Nations, 1776) l Industrial Revolution l Standardization of parts (Eli Whitney, 1765 - 1825) l l l Cotton Gin (1792) Contract with U. S. for muskets (1798) l l l Some doubt about true interchangeability Simeon North (Middletown) John Hall (Harpers Ferry)

Significant Events in POM (cont. ) l Scientific management (Frederick Taylor 1865 - 1915) l The Principles of Scientific Management, 1911 l l Match employees to jobs Provide the proper training Provide the proper methods and tools Establish legitimate incentives

Significant Events in POM (cont. ) Taylor’s 4 Principles of Scientific Management: l l l Replace rule-of-thumb work methods with methods based on a scientific study of the tasks Scientifically select, train, and develop each worker rather than passively leaving them to train themselves Cooperate with the workers to ensure that the scientifically developed methods are being followed Divide work nearly equally between managers and workers, so that the managers apply scientific management principles to planning the work and the workers actually perform the tasks

Significant Events in POM (cont. ) l l l l Coordinated assembly line (Henry Ford 1863 1947) Gantt charts (Henry Gantt 1861 -1919) Motion studies (Frank and Lillian Gilbreth, 1922) Quality control (Shewhart, Juran, Feigenbaum, Deming, Taguchi, etc. ) CAD Flexible manufacturing systems (FMS) Computer integrated manufacturing (CIM)

New Challenges in OM From From l Global focus To l l l Local or national focus Batch shipments Low bid purchasing Lengthy product development cycles Standardized products Job specialization Just-in-time l Supply chain partnering l l Rapid product development Strategic alliances l Mass customization l Empowered employees l Teams l

Goods vs. Services

Characteristics of Goods l l l Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction © 1995 Corel Corp.

Characteristics of Services l l l l © 1995 Corel Corp. Intangible product Produced & consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed

Goods vs. Services Goods Goods l Reselling unusual l. Service Can be resold l Difficult to l Can be inventory inventoried l Quality difficult to l Some aspects of measure quality measurable l Selling is distinct l Selling is part of service from production

Goods vs. Services - Continued Goods Goods l Provider, not product l. Service Product is transportable l Site of facility important for cost Often easy to automate l Revenue generated primarily from tangible product l is transportable l Site of facility important for customer contact l Often difficult to automate l Revenue generated primarily from intangible service

Goods Contain Services / Services Contain Goods Automobile Computer Installed Carpeting Fast-food Meal Restaurant Meal Auto Repair Hospital Care Advertising Agency Investment Management Consulting Service Counseling 100 75 50 25 50 75 100 Percent of Product that is a Good Percent of Product that is a Service

New Challenges in Operations Management

Changing Challenges for the Operations Manager

Changing Challenges for the Operations Manager

The Productivity Challenge

The Economic System Transforms Inputs to Outputs Input s Land, Labor, Capital, Manageme nt Process The economic system transforms inputs to outputs at about an annual 2. 5% increase in productivity (capital 38% of 2. 5%), labor (10% of 2. 5%), management (52% of 2. 5%) Feedback loop Outputs Goods and Services

Productivity l Measure of process improvement l Represents output relative to input Productivity = Units produced Input used l Only through productivity increases can our standard of living improve

Adam Smith on Productivity …He asserted that ten workers could produce 48, 000 pins per day if each of eighteen specialized tasks was assigned to particular workers. Average productivity: 4, 800 pins per worker per day. But absent the division of labor, a worker would be lucky to produce even one pin per day.

Henry Ford on Productivity …In 1907, Henry Ford announced his goal for the Ford Motor Company: to create "a motor car for the great multitude. " At that time, automobiles were expensive, custom-made machines. Ford realized he'd need a more efficient way to produce the Model T in order to lower the price. He and his team looked at other industries and four principles that would further their goal: l l Interchangeable parts Continuous flow Division of labor Reducing wasted effort

Frank Gilbreth on Productivity …improved a five-thousand-year-old job and had enabled bricklayers to lay brick faster with less effort and fatigue. On one particularly difficult type of wall, where the previous record had been 120 bricks per hour, his methods allowed them to lay 350 bricks, an increase in productivity of over 190%.

Walter Shewhart on Productivity …the original notions of Total Quality Management and continuous improvement trace back to a former Bell Telephone employee named Walter Shewhart. One of W. Edwards Deming's teachers, he preached the importance of adapting management processes to create profitable situations for both businesses and consumers, promoting the utilization of his own creation: the SPC chart.

Impact of Quality Improvement Productivity improved Costs were pared Wages increased Parts per man hour Cost per unit decreased $2. 25 110 Average worker's annual cash compensation increased 27000 $2. 00 26000 105 $1. 75 100 95 25000 24000 $1. 50 Year A Year B Year C

Measurement Problems l Quality may change while the quantity of inputs and outputs remains constant l External elements may cause an increase or decrease in productivity l Precise units of measure may be lacking

Productivity Increase l Labor - contributes about 10% of the annual increase l Capital - contributes about 32% of the annual increase l Management - contributes about 52% of the annual increase

Key Variables for Improved Labor Productivity l Basic education appropriate for the labor force l Diet of the labor force l Social overhead that makes labor available l Maintaining and enhancing skills in the midst of rapidly changing technology and knowledge

Comparison of Productivity

Service Productivity l Typically labor intensive l Frequently individually processed l Often an intellectual task performed by professionals l Often difficult to mechanize l Often difficult to evaluate for quality

Current Trends l U. S. is becoming more of a knowledge intensive service economy l Globalization l Total Quality Control l Need for flexibility and innovation