Operations Management Operations and Productivity Chapter 1 Transparency

Operations Management Operations and Productivity Chapter 1 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 1 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

What Is Operations Management? Production is the creation of goods and services Operations management is the set of activities that creates value in the form of goods and services by transforming inputs into outputs Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 2 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

The Heritage of Operations Management Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 3 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Significant Events in Operations Management Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 4 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

The Heritage of Operations Management Division of labor (Adam Smith 1776 and Charles Babbage 1852) Standardized parts (Whitney 1800) Scientific Management (Taylor 1881) Coordinated assembly line (Ford/Sorenson/Avery 1913) Gantt charts (Gantt 1916) Motion study (Frank and Lillian Gilbreth 1922 Quality control (Shewhart 1924; Deming 1950) Computer (Atanasoff 1938) CPM/PERT (Du. Pont 1957) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 5 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

The Heritage of Operations Management - Continued Material requirements planning (Orlicky 1960) Computer aided design (CAD 1970) Flexible manufacturing system (FMS 1975) Baldrige Quality Awards (1980) Computer integrated manufacturing (1990) Globalization(199 2) Internet (1995) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 6 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Eli Whitney ¨ Born 1765; died 1825 ¨ In 1798, received government contract to make 10, 000 muskets ¨ Showed that machine tools could make standardized parts to exact specifications © 1995 Corel Corp. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e ¨ Musket parts could be used in any musket 7 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Frederick W. Taylor ¨ Born 1856; died 1915 ¨ Known as ‘father of scientific management’ ¨ In 1881, as chief engineer for Midvale Steel, studied how tasks were done ¨ Began first motion & time studies ¨ Created efficiency principles © 1995 Corel Corp. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 8 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Taylor: Management Should Take More Responsibility for ¨ Matching employees to right job ¨ Providing the proper training ¨ Providing proper work methods and tools ¨ Establishing legitimate incentives for work to be accomplished Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 9 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Frank & Lillian Gilbreth ¨ Frank (1868 -1924); Lillian (1878 -1972) ¨ Husband-wife engineering team ¨ Further developed work measurement methods ¨ Applied efficiency methods to their home & 12 children! ¨ (Book & Movie: “Cheaper by the Dozen, ” book: “Bells 10 on Their Toes”) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e © 1995 Corel Corp. © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Henry Ford ¨ Born 1863; died 1947 ¨ In 1903, created Ford Motor Company ¨ In 1913, first used moving assembly line to make Model T ¨ ‘Make them all alike!’ © 1995 Corel Corp. Unfinished product moved by conveyor past work station ¨ Paid workers very well for 1911 ($5/day!) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 11 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

W. Edwards Deming ¨ Born 1900; died 1993 ¨ Engineer & physicist ¨ Credited with teaching Japan quality control methods in post-WW 2 ¨ Used statistics to analyze process ¨ His methods involve workers in decisions Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 12 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Contributions From ¨ Human factors ¨ Industrial engineering ¨ Management science ¨ Biological science ¨ Physical sciences ¨ Information science Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 13 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Significant Events in OM ¨ Division of labor (Smith, 1776) ¨ Standardized parts (Whitney, 1800) ¨ Scientific management (Taylor, 1881) ¨ Coordinated assembly line (Ford 1913) ¨ Gantt charts (Gantt, 1916) ¨ Motion study (the Gilbreths, 1922) ¨ Quality control (Shewhart, 1924) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Significant Events Continued ¨ CPM/PERT (Dupont, 1957) ¨ MRP (Orlicky, 1960) ¨ CAD ¨ Flexible manufacturing systems (FMS) ¨ Manufacturing automation protocol (MAP) ¨ Computer integrated manufacturing (CIM) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 15 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

New Challenges in OM From ¨ Local or national focus ¨ Batch shipments ¨ Low bid purchasing To ¨ Global focus ¨ Just-in-time ¨ Supply chain partnering ¨ Lengthy product development ¨ Standard products ¨ Job specialization Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 16 ¨ Rapid product development, alliances ¨ Mass customization ¨ Empowered employees, © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

What Operations Managers Do Plan - Organize - Staff - Lead Control Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 17 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Ten Critical Decisions ¨ Service, product design……………. . ¨ Quality management………………… ¨ Process, capacity design…………. . ¨ Location ………………… ¨ Layout design ……………. . ¨ Human resources, job design……. . 18 ¨ Supply-chain Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 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 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

The Critical Decisions ¨ Quality management ¨ Who is responsible for quality? ¨ How do we define quality? ¨ Service and product design ¨ What product or service should we offer? ¨ How should we design these products and services? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 19 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

The Critical Decisions Continued ¨ Process and capacity design ¨ What processes will these products require and in what order? ¨ What equipment and technology is necessary for these processes? ¨ Location ¨ Where should we put the facility ¨ On what criteria should we base this location decision? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 20 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

The Critical Decisions Continued ¨ Layout design ¨ How should we arrange the facility? ¨ How large a facility is required? ¨ Human resources and job design ¨ How do we provide a reasonable work environment? ¨ How much can we expect our employees to produce? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 21 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

The Critical Decisions Continued ¨ Supply chain management ¨ Should we make or buy this item? ¨ Who are our good suppliers and how many should we have? ¨ Inventory, material requirements planning, ¨ How much inventory of each item should we have? ¨ When do we re-order? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 22 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

The Critical Decisions Continued ¨ Intermediate, short term, and project scheduling ¨ Is subcontracting production a good idea? ¨ Are we better off keeping people on the payroll during slowdowns? ¨ Maintenance ¨ Who is responsible for maintenance? ¨ When do we do maintenance? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 23 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Organizing to Produce Goods and Services Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 24 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Organizing to Produce Goods and Services ¨ Essential functions: ¨ Marketing – generates demand ¨ Operations –creates the product ¨ Finance/accounting – tracks organizational performance, pays bills, collects money Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 25 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Organizational Functions ¨ Marketing ¨ Gets customers ¨ Operations ¨ creates product or service ¨ Finance/Account ing ¨ Obtains funds ¨ Tracks money Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e © 1995 Corel Corp. 26 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Sample Organization Charts Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 27 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Functions - Bank Commercial Bank © 1984 -1994 T/Maker Co. Marketing Teller Scheduling Finance/ Accounting Operations Transactions Check Clearing Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e Processing 28 Security © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Functions - Airline Marketing Flight Operations © 1984 -1994 T/Maker Co. Finance/ Accounting Operations Ground Support Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e Facility Maintenance 29 Catering © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Functions - Manufacturer Manufacturing Marketing Manufacturing Finance/ Accounting Operations Production Control Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 30 Quality Control Purchasing © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Organizational Charts Commercial Bank Operations Teller Scheduling Check Clearing Transactions processing Facilities design/layout Vault operations Maintenance Security Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e Finance Investments Security Real Estate Accountin g Auditing 31 Marketing Loans Commercial Industrial Financial Personal Mortgage Trust Department © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Organizational Charts Airline Operations Ground support equipment Maintenance Ground Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications Dispatching Management science Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e Finance & Accounting Payables Receivables General Ledger Finance Cash control International exchange rates 32 Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Organizational Charts Manufacturing Operations Facilities: Construction: maintenance Production & inventory control Scheduling: materials 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 Transparency and equipment Masters to accompany 33 Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e Finance & Accounting Marketing Sales promotion s Advertisin g Sales Market research Disbursements/cred its Receivables Payables General ledger Funds Management Money market International exchange Capital requirements Stock issue Bond issues and by Prentice Hall, Inc. , Upper Saddle River, recall ©N. J. 2004 07458

Why Study OM? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 34 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Why Study OM? ¨ OM is one of three major functions (marketing, finance, and operations) of any organization. ¨ We want (and need) to know how goods and services are produced. ¨ We want to understand what operations managers do. ¨ OM is such a costly part of an organization. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 35 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Options for Increasing Contribution Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 36 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Where are the OM Jobs Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 37 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Where are the OM Jobs Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 38 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Where Are the OM Jobs? ¨ Technology/methods ¨ Facilities/space utilization ¨ Strategic issues ¨ Response time ¨ People/team development ¨ Customer service ¨ Quality ¨ Cost reduction ¨ Inventory reduction ¨ Productivity improvement Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 39 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Exciting New Challenges in Operations Management Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 40 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Changing Challenges for the Operations Manager Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 41 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Changing Challenges for the Operations Manager Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 42 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Operations in the Service Sector Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 43 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Characteristics of Goods ¨ Tangible product ¨ Consistent product definition ¨ Production usually separate from consumption ¨ Can be inventoried ¨ Low customer interaction Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e © 1995 Corel Corp. 44 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Characteristics of Service © 1995 Corel Corp. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e ¨ Intangible product ¨ Produced & consumed at same time ¨ Often unique ¨ High customer interaction ¨ Inconsistent product definition ¨ Often knowledge 45 based © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Service Economies Proportion of Employment in the Service Sector Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 46 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Goods Versus Services Goods Service ¨ Can be resold ¨ Can be inventoried ¨ Some aspects of quality measurable ¨ Selling is distinct from Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e ¨ Reselling unusual ¨ Difficult to inventory ¨ Quality difficult to measure ¨ Selling is part of service 47 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Goods Versus Services Continued Goods ¨Service Product is ¨ Provider, not transportable product is transportable ¨ Site of facility important for cost ¨ Site of facility important for customer contact ¨ Often easy to ¨ Often difficult to automate ¨ Revenue generated ¨ Revenue primarily from generated tangible product 48 primarily from intangible service. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

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 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 49 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Organizations in Each Sector – Table 1. 4 Summary Sector % of all Jobs Service 75. 4% Manufacturing 24. 6% Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 50 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Development of the Service Economy U. S. Employment, % Share 80 Services as a Percent of GDP United States %70 60 Services 50 40 Industry 20 10 Canada 250 France 200 Italy 150 Britain 30 100 Japan Farming 0 1850 75 1900 25 U. S. Exports of Services In Billions of Dollars 50 W Germany 50 75 2000 1970 2000 40 50 60 70 Percent 0 1970 75 80 85 90 95 2000 Year 2000 data is estimated Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 51 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

The Productivity Challenge Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 52 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

The Economic System Transforms Inputs to Outputs Input s Land, Labor, Capital, Manageme nt Process Outputs 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%) Goods and Services Feedback loop Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 53 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Typical Impact of Quality Improvement As productivity improved Wages increased Parts per man hour Costs were pared Cost per unit decreased Average worker's annual cash compensation increased $2. 25 110 27000 $2. 00 105 26000 $1. 75 100 95 25000 24000 $1. 50 Year A Year B Year C Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e Year A Year B 54 Year C Year A Year B Year C © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Productivity ¨ Measure of process improvement ¨ Represents output relative to input Productivity = Units produced Input used ¨ Only through productivity increases can our standard of living improve Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 55 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Multi-Productivity = Output Labor + material + energy + capital + miscellaneous Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 56 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Measurement Problems ¨ Quality may change while the quantity of inputs and outputs remains constant ¨ External elements may cause an increase or decrease in productivity ¨ Precise units of measure may be lacking Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 57 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Productivity Variables ¨ Labor - contributes about 10% of the annual increase ¨ Capital - contributes about 32% of the annual increase ¨ Management - contributes about 52% of the annual increase Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 58 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Key Variables for Improved Labor Productivity ¨ Basic education appropriate for the labor force ¨ Diet of the labor force ¨ Social overhead that makes labor available ¨ Maintaining and enhancing skills in the midst of rapidly changing technology and knowledge Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 59 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Jobs in the U. S Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 60 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Comparison of Productivity Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 61 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Investment and Productivity in Selected Nations Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 62 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

Service Productivity ¨ Typically labor intensive ¨ Frequently individually processed ¨ Often an intellectual task performed by professionals ¨ Often difficult to mechanize ¨ Often difficult to evaluate for quality Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 63 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458

The Challenge of Social Responsibility Increasing emphasis on business and social responsibility Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 64 © 2004 by Prentice Hall, Inc. , Upper Saddle River, N. J. 07458