OPERATIONS AND

PRODUCTIVITY

Dr. Richard Adu Agyapong

 WHAT IS OPERATIONS MANAGEMENT
• OM as a discipline applies to services as well as manufacturing firms. It
applies throughout the world to virtually all productive enterprises.
• 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 output.
• Activities creating goods and services take place in all organisations.
• In manufacturing firms, the production activities that create goods are
usually obvious as we can see the creation of tangible good or product
such TV, Car, Laptop etc.

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 WHAT IS OPERATIONS CONTD.
• In organisations that does not create a tangible good or
product, the production function is less obvious. We often
call these activities services.
• The service may be hidden from the public and even from
the customer.
• The product may take such forms as the transfer of funds
from a savings account to a checking account, the
transplant of a liver, the filling of an empty seat on an
airplane or the education of a student.
• Regardless of whether the end product is a good or
service, the production activities that go on in the
organization are often referred to as operations or
operations management.
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ORGANIZING TO PRODUCT GOODS AND
SERVICES
To create goods and services, all organizations perform three
functions. These functions are necessary ingredients not only for
production but also for an organization’s survival. They are:
o Marketing, which generates the demand or at least takes the order for
a product or service (nothing happens until there is a sale)
o Production/operations, which creates, produces and delivers the
product
o Finance/accounting which tracks how well the organization is doing,
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pays the bills and collects the money.
 THE ONLY REAL
DIFFERENCE BETWEEN
ONE ORGANISATION AND
ANOTHER IS THE
“QUOTE”
PERFORMANCE OF IT’S
PEOPLE.

-PETER F. DRUCKER
THE SUPPLY CHAIN
• Through the three functions—marketing, operations, and
finance—value for the customer is created.
• However, firms seldom create this value by themselves.
Instead, they rely on a variety of suppliers who provide
everything from raw materials to accounting services. These
suppliers, when taken together, can be thought of as a supply
chain.
• A supply chain is a global network of organizations and
activities that supply a firm with goods and services.
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SUPPLY CHAIN CONTD.

A supply chain for a bottle of coke requires a sugar can farmer, syrup
producer, a bottler, a distributor and a retailer, each adding value to
satisfy a customer. Only with collaborations between all members of
the supply chain can efficiency and customer satisfaction be
maximized.
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WHY STUDY OM
• OM is one of the three major functions of any
organization, and it is integrally related to all the other
business functions. OM, therefore, we study how people
organize themselves for productive enterprise.
• To know how goods and services are produced.
• To understand what operations managers do.
• One of the costly part of an organization as a larger
percentage of the revenue of most firms are spent on OM
function.
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WHAT OPERATIONS MANAGERS DO
1. Design of goods and services: Defines much of what is required of operations in each of the
other OM decisions. For instance, product design usually determines the lower limits of cost
and the upper limits of quality, as well as major implications for sustainability and the human
resources required.

2. Managing quality: Determines the customer’s quality expectations and establishes policies
and procedures to identify and achieve that quality.

3. Process and capacity strategy: Determines how a good or service is produced (i.e., the
process for production) and commits management to specific technology, quality, human
resources, and capital investments that determine much of the firm’s basic cost structure.

4. Location strategy: Requires judgments regarding nearness to customers, suppliers, and talent,
while considering costs, infrastructure, logistics, and government.

5. Layout strategy: Requires integrating capacity needs, personnel levels, technology, and
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inventory requirements to determine the efficient flow of materials, people, and information.
WHAT OPERATIONS MANAGERS DO CONTD.
6. Human resources and job design: Determines how to recruit, motivate, and retain personnel
with the required talent and skills. People are an integral and expensive part of the total system
design.

7. Supply chain management: Decides how to integrate the supply chain into the firm’s strategy,
including decisions that determine what is to be purchased, from whom, and under what
conditions.

8. Inventory management: Considers inventory ordering and holding decisions and how to
optimize them as customer satisfaction, supplier capability, and production schedules are
considered.

9. Scheduling: Determines and implements intermediate- and short-term schedules that effectively
and efficiently utilize both personnel and facilities while meeting customer demands.

10. Maintenance: Requires decisions that consider facility capacity, production demands, and
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personnel necessary to maintain a reliable and stable process.
PROFESSIONAL ORGANISATIONS IN
OPERATIONS MANAGEMENT
• APIC, the association for operations management (
www.apics.org)
• American Society for Quality (ASQ) (www.asq.org)
• Institute for Supply Management (ISM) (www.ism.ws)
• Project Management Institute (PMI) (www.pmi.org)
• Council of Supply Chain Management Professionals (
www.cscmp.org)
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HISTORY OF OPERATIONS MANAGEMENT

• Eli Whitney (1800) credited for the early popularization of

interchangeable parts which was achieved through standardization and
quality control
• Frederick W. Taylor (1881) known as the father of scientific management,
contributed to personnel selection, planning a scheduling, motion study
and ergonomics.
• Another contribution of Taylor was the belief that management should
assume more responsibility for: matching employees to the right job,
providing the proper training, providing proper work methods and tools
and establishing legitimate incentives for work to be accomplished
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HISTORY OF OPERATIONS MANAGEMENT
CONTD.
• Henry Ford (1913) is credited with the introduction of the concept of assembly
line, where men stood still and material moved.
• Walter Shewhart (1924) is also provided the foundations for statistical
sampling in quality control
• W. Edwards Deming (1950) was also of the similar belief as expressed by F. W.
Taylor that management must do more to improve the work environment and
processes so that quality can be improved.
• Innovations from the physical sciences have also contributed to advances in
OM. These innovations include new adhesives, faster integrated circuits,
gamma rays to sanitize food products and specialized glass for iPhones and
plasma TVs.
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OPERATIONS FOR GOODS AND SERVICES

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THE PRODUCTIVITY CHALLENGE
• The creation of goods and services requires changing
resources into goods and services. The more efficiently we
make this change the more productive we are the move
value is added to the good or service provided.
• Productivity is the ration of outputs (goods and services)
divided by the inputs (resources, such as labour and
capital)
• The operations manager’s job is to enhance this ratio of
outputs to inputs.
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THE PRODUCTIVITY CHALLENGE
Improving efficiency can be achieved in two ways:
• Reducing inputs while keeping output constant or increasing output
while keeping inputs constant.
Management creates this production system which provides the
conversion of inputs into outputs.
Outputs are the goods and services, including such diverse items as
guns, butter, education, improved judicial systems etc.
High production may imply only that more people are working and
that employment levels are high, but it does not imply high
productivity.
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PRODUCTIVITY CHALLENGE CONTD.
• Measurement of productivity is an excellent way to
evaluate a country’s ability to provide an improving
standard of living for its people. Only through increases in
productivity can the standard of living improve.
• If returns to labour, capital or management are increased
without productivity, prices rise. On the other hand,
downward pressure is placed on prices when productivity
increases because more is being produced with the same
resources
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 PRODUCTIVITY MEASUREMENT
• Productivity = units produced
input used
• For example, if units produced = 1,000 and labour - hours used is 250, then:
• Single factor productivity = units produced = 1,000
Labour-hours used 250
= 4 units per labour-hour
• The use of just one resource input to measure productivity is known as single
factor productivity. However, multifactor productivity is a broader view of
productivity which includes all inputs
• Multi-factor Productivity = output
labour + material + energy + capital+ miscellaneous

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COMPUTING SINGLE FACTOR AND
MULTIFACTOR GAINS IN PRODUCTIVITY
• BBF company Ltd. Wants to evaluate its labour and
multifactor productivity with a new computerized title search
system. The company has a staff of four (4), each working 8
hours per day for a payroll cost of GHS 640/day and overhead
expenses of GHS 400 per day. BBF purchases and closes 8
titles each day. The new computerized title search system will
allow the processing of 14 titles per day. Although, the staff,
their work hours and pay are the same, the overhead expenses
are now GHS 800 per day.
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SOLUTION
• Labour productivity with the old system = 8 titles per day
32 labour hours
Ans= 0.25 title per labour-hour
• Labour productivity with new system = 14 titles per day
32 labour hours
Ans= 0.4375 title per labour-hour
• Multifactor productivity with the old system = 8 titles per day
GHS640 + GHS400
Ans= 0.0077 titles per GHS
• Multifactor productivity with the new system = 14 titles per
day
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MERITS AND DEMERITS OF PRODUCTIVITY
MEASUREMENT
Merits
• Aids manages in determining how well they are doing
• Provides better information about the trade-offs among
factors

Demerits
• Is a better measure of productivity but remains
complicated because of the numerous input factors that
are considered.
• Substantial measurement problems remain
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MEASUREMENT PROBLEMS WITH
PRODUCTIVITY
• Quality may change while the quantity of inputs and outputs remains
constant
• External elements may cause an increase or decrease a productivity for
which the system under study may not be directly responsible. For example,
having a more reliable supply of electricity over time may improve the
firm’s productivity but not necessarily because of any managerial decision.
• Precise units of measure may be lacking
• Measurement of productivity in the service sector is extremely difficult
where the end product can be hard to define. For example, economics
statistics may ignore the quality of your haircut, the outcome of a court case
the quality of the sales presentation etc.
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PRODUCTIVITY VARIABLES
Productivity increases are dependent on three
productivity variables;
• Labour
• Capital
• Management

These factors are critical to improved productivity

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LABOUR
• Improvement in the contribution of labour to productivity is the result of a healthier, better-
educated and better-nourished labour force.
• Three key variables for improved labour productivity are:
• Basic education appropriate for an effective labour force
• Diet of the labour force
• Social overhead that makes labour available such as transportation and sanitation
• Illiteracy and poor diets are a major predicaments to productivity, costing countries up to
20% of their productivity
• Infrastructure that yields clean drinking water and sanitation is also an opportunity for
improved productivity as well as an opportunity
• Recent data suggest that the average American 17-year-old knows significantly less
mathematics than the average Japanese at the same age.
• In Ghana, literacy rate is around 79% as at 2021 from a previous low of 57.9% in 2000
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CAPITAL

• Human beings are tool-using animals. Capital investment provides those tools
• Inflation and taxes increase the cost of capital, making capital investment
increasingly expensive.
• Using labour instead of capital may reduce unemployment in the short term, but
it also makes economies less productive and therefore lowers wages in the long
run.
• The trade-off between capital and labour is continually in flux. The higher cost
of capital or perceived risk, the more projects requiring capital are squeezed out,
they are not pursued because the potential return on investment for a given risk
has been reduced
• Managers adjust their investment plans to changes in capital cost and risk
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MANAGEMENT

• Management is a factor of production and an economic resource.

Management is responsible for ensuring that labour and capital are
effectively used to increase productivity.
• Management accounts for over half of the annual increase in productivity
• This increase includes improvements made through the use of knowledge
and the application of technology.
• Using knowledge and technology is critical in postindustrial societies. Post
industrial societies are also known as knowledge societies. Much of labour
force has migrated from manual work to technical and information
processing task requiring ongoing education
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PRODUCTIVITY AND THE SERVICE SECTOR

The service sector provides a special challenge to the accurate measurement of

productivity and productivity improvement
Productivity of the service sector has proven difficult to improve because of the
following:
• Typically labour intensive (e.g., teaching, counseling)
• Frequently focused on unique individual attributes or desires
• Often an intellectual task performed by professionals
• Often difficult to mechanize and automate
• Often difficult to evaluate for quality
Despite the difficulty in improving productivity in the service sector, improvements
are being made. An example is the case of uber as presented in the next slide.
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CURRENT CHALLENGES IN OPERATIONS
MANAGEMENT
• Operations managers work in an exciting and dynamic environment. This
environment is the result of a variety of challenging forces, from globalization of
world trade to the transfer of ideas, product, and money at electronic speed. Some
of the challenges are:
• Globalisation
• Supply chain partnering
• Sustainability
• Rapid product development
• Mass customization
• Lean operations
These challenges must be successfully addressed by today’s operations managers.

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 Don’t Rest When
You Are Tired, Rest
When You are
THANK YOU. Done…

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