l Course Name Operations Management l Course code

l Course Name: Operations Management l Course code: MGT 411 l Reference books: u 1. Operations Management, by Krajewski/Ritzman/Malhotra u 2. Production and Operations Management by S. Anil kumar and S. Suresh Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1– 1

COMPETING WITH OPERATIONS Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. For Operations Management, by Krajewski/Ritzman/Malhotra © 2010 Pearson Education 1– 2

Operations Management According to Krajewski / Ritzman / Malhotra: l Operations Management the direction and control of the process that transform inputs into products and services. l The systematic design, direction, and control of processes that transform inputs into services and products for internals, as well as external, customers l Processes can be linked together to form a supply chain – interrelated processes within a firms and across different firms that produce a service or product to the satisfaction of the customers Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1– 3

According to S. Anil Kumar and N. Suresh: Operations management is the process, which combines and transforms various resources used in the operations subsystem of the organization into value added product/services in a controlled manner as per the policies of the organization. Therefore, it is that part of an organization, which is concerned with the transformation of a range of inputs into the required (products/services) having the requisite quality level. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1– 4

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l Process: Any activity or group of activities that takes one or more inputs, transforms and adds value to them, and provides one or more outputs for its customers. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1– 6

Across the Organization Finance Acquires financial resources and capital for inputs Material & Service Inputs Sales Revenue Support Functions Operations • • Accounting Information Systems Human Resources Engineering Translates materials and service into outputs Figure 1. 1 Marketing Generates sales of outputs Product & Service Outputs Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1– 7

A Process View External environment Internal and external customers Inputs • Workers • Managers • Equipment • Facilities • Materials • Land • Energy Outputs • Goods • Services Processes and operations 1 3 5 2 4 Information on performance Figure 1. 2 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1– 8

A Process View Continuum of characteristics of manufacturing and service organizations More like a manufacturing process • • • Physical, durable output Output can be inventoried Low customer contact Long response time Capital intensive Quality easily measured More like a service process • • • Intangible, perishable output Output cannot be inventoried High customer contact Short response time Labor intensive Quality not easily measured Figure 1. 3 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1– 9

The Supply Chain View New service/ product development Supplier relationship process Customer relationship management Order fulfillment process External customers External suppliers Support Processes Figure 1. 4 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1 – 10

The Supply Chain View l Core processes are sets of activities that deliver value to external customers 1. Supplier relationship process 2. New service/product development process 3. Order fulfillment process 4. Customer relationship process l Support processes provide vital resources and inputs to the core processes Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1 – 11

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Job shops production Job shops are typically small manufacturing systems that handle job production, that is, custom/bespoke or semi-custom/bespoke manufacturing processes such as small to medium-size customer orders or batch jobs -A typical example would be a machine shop, which may make parts for local industrial machinery, farm machinery and implements, boats and ships, or even batches of specialized components for the aircraft industry. continuous flow manufactures such as textile, steel, food manufacturing and manual labor. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1 – 15

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Batch production occurs when many similar items are produced together. Each batch goes through one stage of the production process before moving onto next stage. Good examples include: Cricket bat manufacture Baking / meal preparation Clothing production Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1 – 18

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Some common continuous processes are the following: • Oil refining • Chemicals • Synthetic fibers • Fertilizers • Pulp and paper • Blast furnace (iron) • Metal smelting • Power stations • Natural gas processing • Sanitary waste water treatment • Continuous casting of steel • Rotary kilns for calcining lime or cement • Float glass Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1 – 23

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Scope of operations management 1. Product design: product design and development provides link between marketing, customer needs and expectations and the activities required to manufacture the product. 2. Process design: an overall process route for converting the raw materials in finished goods. 3. Production planning and control: the process of planning the production in advance, setting the exact route of each item, fixing the starting and finishing dates for each item, to give production orders and follow up the progress of products according to orders. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1 – 30

4. Planning: Planning is deciding in advance what to do, how to do it, when to do it and who is to do it. 5. Routing ( direction-finding): selection of path which each part of the product will follow, which being transformed from raw materials to finished products. 6. Scheduling: the fixation of time and date for each operation. 7. Dispatching: release of orders and instruction for the starting of production for any item in acceptance with the route sheet and schedule charts. 8. Quality control: a system that is used to maintain a desired level of quality in a product or service. 9. Materials management: 10. Maintenance management Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1 – 31

Productivity Improvement EXAMPLE 1. 1 Calculate the productivity for the following operations: a. Three employees process 600 insurance policies in a week. They work 8 hours per day, 5 days per week. SOLUTION Policies processed a. Labor productivity = Employee hours 600 policies = = 5 policies/hour (3 employees)(40 hours/employee) Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1 – 32

Productivity Improvement EXAMPLE 1. 1 Calculate the productivity for the following operations: b. A team of workers makes 400 units of a product, which is sold in the market for $10 each. The accounting department reports that for this job the actual costs are $400 for labor, $1, 000 for materials, and $300 for overhead. SOLUTION Value of output a. Multifactor productivity = Labor cost + Materials cost + Overhead cost = (400 units)($10/unit) $4, 000 = = 2. 35 $400 + $1, 000 + $300 $1, 700 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1 – 33

Application This Year Last Year Before Last 2, 762, 103 2, 475, 738 2, 175, 447 Employment (hrs) 112, 000 113, 000 115, 00 Sales of manufactured products ($) $49, 363 $40, 831 — Total manufacturing cost of sales ($) $39, 000 $33, 000 — Factory unit sales ($) § Calculate the year-to-date labor productivity: Last Year This Year factory unit sales 2, 762, 103 employment 112, 000 = 24. 66/hr 2, 475, 738 113, 000 Year Before Last = 21. 91/hr 2, 175, 447 115, 000 = $18. 91/hr § Calculate the multifactor productivity: This Year sales of mfg products $49, 363 total mfg cost $39, 000 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. = 1. 27 Last Year $40, 831 $33, 000 = 1. 24 1 – 34

Solved Problem 1 Student tuition at Boehring University is $150 per semester credit hour. The state supplements school revenue by $100 per semester credit hour. Average class size for a typical 3 -credit course is 50 students. Labor costs are $4, 000 per class, material costs are $20 per student per class, and overhead costs are $25, 000 per class. a. What is the multifactor productivity ratio for this course process? b. If instructors work an average of 14 hours per week for 16 weeks for each 3 -credit class of 50 students, what is the labor productivity ratio? Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1 – 35

Solved Problem 1 SOLUTION a. Multifactor productivity is the ratio of the value of output to the value of input resources. Value of output = 50 student class 3 credit hours student $150 tuition + $100 state support credit hour = $37, 500/class Value of inputs = Labor + Materials + Overhead = $4, 000 + ($20/student 50 students/class) + $25, 000 = $30, 000/class Multifactor productivity = Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Output Input = $37, 500/class $30, 000/class = 1. 25 1 – 36

Solved Problem 1 SOLUTION b. Labor productivity is the ratio of the value of output to labor hours. The value of output is the same as in part (a), or $45, 000, so Labor hours of input = 14 hours week 16 weeks class = 224 hours/class Labor productivity = Output Input = $45, 000/class 224 hours/class = $200. 89/hour Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1 – 37

Solved Problem 2 Natalie Attire makes fashionable garments. During a particular week employees worked 360 hours to produce a batch of 132 garments, of which 52 were “seconds” (meaning that they were flawed(defective)). Seconds are sold for $90 each at Attire’s Factory Outlet Store. The remaining 80 garments are sold to retail distribution at $200 each. What is the labor productivity ratio of this manufacturing process? Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1 – 38

Solved Problem 2 SOLUTION Value of output = (52 defective 90/defective) + (80 garments 200/garment) = $20, 680 Labor hours of input = 360 hours Labor productivity = Output Input = $20, 680 360 hours = $57. 44 in sales per hour Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1 – 39