Operations

Management
Chapter 1 –
Operations and
Productivity
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 7e
Operations Management, 9e
© 2008 Prentice Hall, Inc. 1–1
 Learning Objectives
When you complete this chapter
you should be able to:

1. Define operations management

2. Explain the distinction between
goods and services
3. Explain the difference between
production and productivity

© 2008 Prentice Hall, Inc. 1–2

 The Hard Rock Cafe
 First opened in 1971
 Now – 121 restaurants in over 40 countries
 Rock music
 Creates value in the form of good food
and entertainment
 3,500+ custom meals per day in Orlando
 How does an item get on the menu?
 Role of the Operations Manager

© 2008 Prentice Hall, Inc. 1–3

 What Is Operations
Management?

Production is the creation of

goods and services
Operations management (OM)
is the set of activities that
creates value in the form of
goods and services by
transforming inputs into
outputs
© 2008 Prentice Hall, Inc. 1–4
 What is Operations Management?

• Operations management (OM) is the science

and art of ensuring that goods and services are
created and delivered successfully to
customers.
• The principles of OM help one to view a
business enterprise as a total system, in which
all activities are coordinated not only vertically
throughout the organization, but also
horizontally across multiple functions.

© 2008 Prentice Hall, Inc. 1–5

 Operations: A Transformation Process
Feedback

Inputs Outputs

Workers
Managers Performance
Goods
Equipment Operations and Services
Facility processes
Materials
Land
Energy
Information

Lead time The time between ordering a good or service and

receiving it.
© 2008 Prentice Hall, Inc. 1–6
 Production Systems
System Inputs Conversion Output
(desired)
Hospital Patients Health Care Healthy
MDs, Nurses Individuals
Medical Supplies
Equipment
Restaurant Hungry Customers Prepare Food Satisfied
Food, Chef Serve Food Customers
Servers
Atmosphere
Automobile Sheet Steel Fabrication High Quality
Plant Engine Parts and Assembly Automobiles
Tools, Equipment of Cars
Workers
University High School Grads Transferring Educated
Teachers, Books of Knowledge Individuals
Classroom and Skills

© 2008 Prentice Hall, Inc. 1–7

 Organizing to Produce
Goods and Services
 Essential functions:
 Marketing – generates demand
 Production/operations – creates
the product
 Finance/accounting – tracks how
well the organization is doing, pays
bills, collects the money

© 2008 Prentice Hall, Inc. 1–8

 Organizational Charts
Commercial Bank

Operations Finance Marketing

Teller Investments Loans
Scheduling Security Commercial
Check Clearing Real estate Industrial
Collection Financial
Transaction Accounting Personal
processing
Facilities Mortgage
design/layout
Auditing
Vault operations
Trust Department
Maintenance
Security
Figure 1.1(A)
© 2008 Prentice Hall, Inc. 1–9
 Organizational Charts
Airline

Operations Finance/ Marketing

Ground support accounting Traffic
equipment Accounting administration
Maintenance Payables Reservations
Ground Operations Receivables Schedules
General Ledger Tariffs (pricing)
Facility
maintenance Finance Sales
Catering Cash control Advertising
Flight Operations International
exchange
Crew scheduling
Flying
Communications
Dispatching
Management science Figure 1.1(B)
© 2008 Prentice Hall, Inc. 1 – 10
 Organizational
Manufacturing
Charts

Operations Finance/ Marketing

Facilities accounting Sales
Construction; maintenance Disbursements/ promotion
Production and inventory control credits Advertising
Scheduling; materials control Receivables Sales
Quality assurance and control Payables
General ledger Market
Supply chain management research
Manufacturing Funds Management
Tooling; fabrication; assembly Money market
Design International
Product development and design exchange
Detailed product specifications Capital requirements
Industrial engineering Stock issue
Efficient use of machines, space, Bond issue
and personnel
and recall
Process analysis
Development and installation of
production tools and equipment Figure 1.1(C)
© 2008 Prentice Hall, Inc. 1 – 11
 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
© 2008 Prentice Hall, Inc. 1 – 12
 What Operations
Managers Do
Basic Management Functions
 Planning
 Organizing
 Staffing
 Leading
 Controlling
© 2008 Prentice Hall, Inc. 1 – 13
 Ten Critical Decisions
Ten Decision Areas Chapter(s)
 Design of goods and services 5
 Managing quality 6, Supplement 6
 Process and capacity 7, Supplement 7
design
 Location strategy 8
 Layout strategy 9
 Human resources and 10, Supplement 10
job design
 Supply chain 11, Supplement 11
management
 Inventory management 12, 14, 16
 Scheduling 13, 15
 Maintenance 17
© 2008 Prentice Hall, Inc. 1 – 14
 The Critical Decisions
 Design of goods and services
 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?

Table 1.2 (cont.)

© 2008 Prentice Hall, Inc. 1 – 15
 The Critical Decisions
 Process and capacity design
 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?
Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 16
 The Critical Decisions
 Layout strategy
 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?
Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 17
 The Critical Decisions
 Supply chain management
 Should we make or buy this component?
 Who are our suppliers and who can
integrate into our e-commerce program?
 Inventory, material requirements
planning, and JIT
 How much inventory of each item should
we have?
 When do we re-order?
Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 18
 The Critical Decisions
 Intermediate and short–term
scheduling
 Are we better off keeping people on
the payroll during slowdowns?
 Which jobs do we perform next?
 Maintenance
 Who is responsible for maintenance?
 When do we do maintenance?

© 2008 Prentice Hall, Inc. 1 – 19

 http://panmore.com/apple-inc-
operations-management-10-d
ecisions-areas-productivity

© 2008 Prentice Hall, Inc.

Table 1.3 1 – 20
 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 0 25 50 75 100%
| | | | | | | | |

Percent of Product that is a Good Percent of Product that is a Service

Figure 1.4
© 2008 Prentice Hall, Inc. 1 – 21
 New Trends in OM
Past Causes Future
Local or Reliable worldwide Global focus,
national communication and moving
focus transportation networks production
offshore
Batch (large) Short product life cycles Just-in-time
shipments and cost of capital put performance
pressure on reducing
inventory
Low-bid Supply chain competition Supply chain
purchasing requires that suppliers be partners,
engaged in a focus on the collaboration,
end customer alliances,
outsourcing

Figure 1.6
© 2008 Prentice Hall, Inc. 1 – 22
 New Trends in OM
Past Causes Future
Lengthy Shorter life cycles, Rapid product
product Internet, rapid international development,
development communication, computer- alliances,
aided design, and collaborative
international collaboration designs
Standardized Affluence and worldwide Mass
products markets; increasingly customization
flexible production with added
processes emphasis on
quality
Job Changing socioculture Empowered
specialization milieu; increasingly a employees,
knowledge and information teams, and lean
society production

Figure 1.6
© 2008 Prentice Hall, Inc. 1 – 23
 New Trends in OM
Past Causes Future
Low-cost Environmental issues, ISO Environmentally
focus 14000, increasing disposal sensitive
costs production, green
manufacturing,
recycled
materials,
remanufacturing
Ethics not Businesses operate more High ethical
at forefront openly; public and global standards and
review of ethics; opposition social
to child labor, bribery, responsibility
pollution expected

Figure 1.6
© 2008 Prentice Hall, Inc. 1 – 24
 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

© 2008 Prentice Hall, Inc. 1 – 25

 Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to save time. Some
improvements:
Stop requiring signatures Saved 8 seconds
on credit card purchases per transaction
under $25
Change the size of the ice Saved 14 seconds
scoop per drink
New espresso machines Saved 12 seconds
per shot
© 2008 Prentice Hall, Inc. 1 – 26
 Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Operations improvements have
helped Starbucks
Stop requiring signatures increase
Saved yearly
8 seconds
revenue per outlet
on credit card purchases perby $200,000 to
transaction
under $25 $940,000 in six years.
Change the sizeProductivity
of the ice hasSaved
improved by 27%,
14 seconds
scoop or about 4.5% per
peryear.
drink
New espresso machines Saved 12 seconds
per shot
© 2008 Prentice Hall, Inc. 1 – 27
 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

© 2008 Prentice Hall, Inc. 1 – 28

 Productivity Calculations

Labor Productivity
Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250

One resource input  single-factor productivity

© 2008 Prentice Hall, Inc. 1 – 29

 Productivity at Taco Bell
Improvements:
 Revised the menu
 Designed meals for easy preparation
 Shifted some preparation to suppliers
 Efficient layout and automation
 Training and employee empowerment

© 2008 Prentice Hall, Inc. 1 – 30

 Productivity at Taco Bell
Improvements:
Results:
Revised the menu
 Designed meals for easy preparation
 Preparation time cut to 8 seconds
 Shifted some preparation to suppliers
 Management span of control
 Efficient layout and automation
increased from 5 to 30
 Training and employee empowerment
 In-store labor cut by 15 hours/day
 Stores handle twice the volume with
half the labor
 Fast-food low-cost leader

© 2008 Prentice Hall, Inc. 1 – 31

 Ethics and Social Responsibility

Challenges facing
operations managers:

 Developing and producing safe,

quality products
 Maintaining a clean environment
 Providing a safe workplace
 Honoring community commitments

© 2008 Prentice Hall, Inc. 1 – 32