introduction to operations management - جامعة نزوى · introduction to operations...

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Introduction to

Operations ManagementBUSI 311

University of NizwaCollege of Economics, Management and Information Systems

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� Instructor: Hatem Masri

� E-mail: [email protected]

� Office: 11H-13 (ext. 619)

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Course Description

� This introductory course is intended to give the student a good

grounding in the terminology of Operations Management and

an overall perspective of Operations Management within the

context of the organization. This course will be enhanced by

the use of case studies and a team-based term project.

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Course Objectives

� To understand the importance of operations management as

a tool for organizational survival and its relationship with

other functional areas of a business such as marketing,

finance, and information systems.

� To explain approaches to designing and improving

processes.

� To be able to use electronic spreadsheet tools (e.g. Excel

Solver) to solve operations management problems.

� To analyze relevant quantitative models to solve real world

problems.

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Required Textbook and Software

� Heizer, J, Render, B., “Operations

Management”, 8th edition, Prentice Hall,

2006, library code: TS155.H37 2006

� A 120-day version of Microsoft Excel

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Exams and Grades

� Attendance and Participation: 5%

� Homework assignments: 15%

� Quizzes: 15%

� Term Project: 10%

� Midterm exams: 20%

� Final exam: 35%

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Tentative Course Topics (subject to

change)

� Introduction: Operations and Productivity, Operations Strategy in a Global Environment, Forecasting

� Designing Operations: Design of Goods and Services, Managing Quality, Process Strategy, Location Strategies, Layout Strategy

� Managing Operations: Supply-Chain Management, Inventory Management, Aggregate Planning, Material Requirements Planning (MRP) and ERP, Just-in- Time and Lean Production Systems

Chapter 1

Operations and

Productivity

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Outline

� What Is Operations Management?

� Why Study OM?

� What Operations Managers Do

� The Heritage Of Operations Management

� Operations In The Service Sector

� Exciting New Trends In Operations Management

� The Productivity Challenge

� Ethics And Social Responsibility

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Chapter Objectives

� When you complete this chapter, you should be able to:

� Define production and productivity,

� Identify what operations managers do,

� Describe a brief history of operations management

� Explain career opportunities in operations management

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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

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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

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Organizational Charts

Operations

Ground support equipment

Maintenance

Ground Operations

Facility maintenanceCatering

Flight Operations

Crew s/chedulingFlyingCommunicationsDispatching

Management science

Finance/ accounting

Accounting

PayablesReceivablesGeneral Ledger

Finance

Cash controlInternational

exchange

Airline

Marketing

Traffic administration

ReservationsSchedulesTariffs (pricing)

Sales

Advertising

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MarketingSales promotion

Advertising

Sales

Market research

OperationsFacilities

Construction; maintenance

Production and inventory controlScheduling; materials control

Quality assurance and control

Supply-chain management

ManufacturingTooling; fabrication; assembly

DesignProduct development and designDetailed product specifications

Industrial engineeringEfficient use of machines, space,

and personnel

Process analysisDevelopment and installation of

production tools and equipment

Finance/ accountingDisbursements/ credits

ReceivablesPayablesGeneral ledger

Funds Management

Money marketInternational

exchange

Capital requirements

Stock issueBond issue

and recall

Manufacturing

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Why Study OM?

� OM is one of three major functions (marketing,

finance, and operations) of any organization

� We want 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

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What Operations Managers Do

� Planning

� Organizing

� Staffing

� Leading

� Controlling

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The Critical Decisions

1. Service and product design

What good or service should we offer?

How should we design these products and services?

2. Quality management

How do we define quality?

Who is responsible for quality?

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3. Process and capacity design

What process and what capacity will these products

require?

What equipment and technology is necessary for

these processes?

4. Location

Where should we put the facility?

On what criteria should we base the location

decision?

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5. Layout design

How should we arrange the facility and material

flow?

How large must the facility be to meet our plan?

6. Human resources and job design

How do we provide a reasonable work

environment?

How much can we expect our employees to

produce?

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7. Supply-chain management

Should we make or buy this component?

Who are our suppliers and who can integrate into our e-

commerce program?

8. Inventory, material requirements planning, and JIT

How much inventory of each item should we have?

When do we re-order?

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9. Intermediate and short–term scheduling

Are we better off keeping people on the

payroll during slowdowns?

Which jobs do we perform next?

10. Maintenance

Who is responsible for maintenance?

When do we do maintenance?

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Where are the OM Jobs?

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Significant Events in OM

Figure 1.3Figure 1.3

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New Challenges in OM

1. Global focus

2. Just-in-time

3. Supply chain

partnering

4. Rapid product

development,

alliances

5. Mass customization

6. Empowered

employees, teams

ToToFromFrom

1. Local or national focus

2. Batch shipments

3. Low bid purchasing

4. Lengthy product development

5. Standard products

6. Job specialization

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Characteristics of Goods

� Tangible product

� Consistent product definition

� Production usually separate from consumption

� Can be inventoried

� Low customer interaction

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Characteristics of Service

� Intangible product

� Produced and consumed at same time

� Often unique

� High customer interaction

� Inconsistent product definition

� Often knowledge-based

� Frequently dispersed

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Industry and Services as

Percentage of GDP

Services Manufacturing

Aust

ralia

Canada

Chin

a

Cze

ch R

ep

Fra

nce

Germ

any

Hong K

ong

Japan

Me

xico

Russi

an F

ed

South

Afr

ica

Spain

UK

US

90 −

80 −

70 −

60 −

50 −

40 −

30 −

20 −

10 −

0 −

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Goods Versus Services

Can be resold

Can be inventoried

Some aspects of quality measurable

Selling is distinct from production

Product is transportable

Site of facility important for cost

Often easy to automate

Revenue generated primarily from tangible product

Attributes of GoodsAttributes of Goods

(Tangible Product)(Tangible Product)Attributes of ServicesAttributes of Services

(Intangible Product)(Intangible Product)

Reselling unusual

Difficult to inventory

Quality difficult to measure

Selling is part of service

Provider, not product, isoften transportable

Site of facility important forcustomer contact

Often difficult to automate

Revenue generated primarily from the intangible service

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Goods and Services

Automobile

Computer

Installed carpeting

Fast-food meal

Restaurant meal/auto repair

Hospital care

Advertising agency/investment management

Consulting service/teaching

Counseling

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

100% 75 50 25 0 25 50 75 100%| | | | | | | | |

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ServicesServices

Manufacturing

Manufacturing

Development of the Service Economy

AgricultureAgriculture

100100

9090

8080

7070

6060

5050

4040

3030

2020

1010

00

18001800 18501850 19001900 19501950 20002000

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New Trends in OM

Supply-chain

partners,

Enterprise

Resource

Planning,

e-commerce

Quality emphasis requires that

suppliers be engaged in product

improvement

Low-bid

purchasing

Just-in-time

shipments

Short product life cycles and

cost of capital put pressure on

reducing inventory

Batch (large)

shipments

Global focusLow-cost, reliable worldwide

communication and

transportation networks

Local or

national focus

PastPast CausesCauses FutureFuture

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New Trends in OM

Empowered

employees,

teams, and lean

production

Changing socioculture milieu;

increasingly a knowledge and

information society

Job

specialization

Mass

customization

with added

emphasis on

quality

Affluence and worldwide

markets; increasingly flexible

production processes

Standardized

products

Rapid product

development,

alliances,

collaborative

designs

Shorter life cycles, Internet,

rapid international

communication, computer-aided

design, and international

collaboration

Lengthy product

development


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New Trends in OM

Environmentally

sensitive

production, green

manufacturing,

recycled materials,

remanufacturing

Environmental issues, ISO

14000, increasing disposal costs

Low-cost

focus


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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 this measure of efficiency

Important Note!Production is a measure of output only

and not a measure of efficiency

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FeedbackFeedback looploop

OutputsOutputs

Goods and

services

ProcessesProcesses

The U.S. economic system transforms inputs to outputs at about an annual 2.5% increase

in productivity per year. The productivity increase is the

result of a mix of capital (38%of 2.5%), labor (10% of 2.5%),

and management (52% of 2.5%).

The Economic System

InputsInputs

Labor,capital,

management

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Increasing Productivity – The LA Motor Pool

Before:

� Cost $120 million annually� 21,000 vehicles� 30% of the 900 trash trucks were in repair� 11% of police cars were in repair

Actions:

� Created team assignments� Assigned parking places for trucks� Tires checked and trucks emptied each night� Standard customer pickups established� Computerized fleet management� Mechanics moved to night shift

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Increasing Productivity – The LA Motor Pool

Results:

� Total fleet reduced by 500 vehicles

� Parts inventory dropped 20% reducing cost by $5.4 million annually

� Standardized pickups reduced costs by $12 million annually

� Out of service garbage trucks dropped to 18%

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� Measure of process improvement

� Represents output relative to input

� Only through productivity increases can

our standard of living improve

Productivity

Productivity =Productivity =Units producedUnits produced

Input usedInput used

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Productivity Calculations

Productivity =Units produced

Labor-hours used

= = 4 units/labor-hour1,000

250

Labor Productivity

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Multi-Factor Productivity

Output

Labor + Material + Energy + Capital + Miscellaneous

Productivity =

� Also known as total factor productivity

� Output and inputs are often expressed in dollars

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Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day

Old System:

=Old labor

productivity

8 titles/day

32 labor-hrs

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Old System:

8 titles/day

32 labor-hrs=

Old laborproductivity = .25 titles/labor-hr

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Old System:

14 titles/day Overhead = $800/day

New System:

8 titles/day

32 labor-hrs=

Old laborproductivity

=New laborproductivity

= .25 titles/labor-hr

14 titles/day

32 labor-hrs

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Old System:


New System:

8 titles/day

32 labor-hrs=

Old laborproductivity = .25 titles/labor-hr

14 titles/day

32 labor-hrs=

New laborproductivity

= .4375 titles/labor-hr

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Old System:


New System:

=Old multifactor

productivity

8 titles/day

$640 + 400

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Old System:


New System:

8 titles/day

$640 + 400=

Old multifactor productivity

= .0077 titles/dollar

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Old System:


New System:

8 titles/day

$640 + 400=

Old multifactor productivity

=New multifactor

productivity


14 titles/day

$640 + 800

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Old System:


New System:

8 titles/day

$640 + 400

14 titles/day

$640 + 800

=Old multifactor

productivity

=New multifactor

productivity



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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

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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

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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

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Labor Skills

About half of the 17-year-olds in the US cannot correctly answer questions of this type

Figure 1.8

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Investment and Productivity in Selected Nations

USUS UKUK

CanadaCanada

ItalyItaly

BelgiumBelgium

FranceFrance

NetherlandsNetherlands

JapanJapan

1010

88

66

44

22

00Perc

en

t in

cre

ase in

mfg

pro

du

cti

vit

yP

erc

en

t in

cre

ase in

mfg

pro

du

cti

vit

y

Percentage investmentPercentage investment

1010 1515 2020 2525 3030 3535

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Service Productivity

� Typically labor intensive

� Frequently focused on unique individual attributes or desires

� Often an intellectual task performed by professionals

� Often difficult to mechanize

� Often difficult to evaluate for quality

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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

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Productivity at Taco Bell

Results:

� Preparation time cut to 8 seconds

� Management span of control increased from 5 to 30

� In-store labor cut by 15 hours/day

� Stores handle twice the volume with half the labor

� Fast-food low-cost leader

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Ethics and Social Responsibility

Challenges facing operations managers:

� Developing safe quality products

� Maintaining a clean environment

� Providing a safe workplace

� Honoring community commitments

introduction to operations management - جامعة نزوى · introduction to operations...

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