lecture of mgt-303= p.o.m. - 1
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Operations and Productivity
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Learning ObjectivesLearning ObjectivesDefinition of Operations Management (OM)Organizational FunctionsWhy Study OM?The future of the disciplineGoods Versus ServicesMeasuring productivityCareer opportunities in operations management
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What Is Operations What Is Operations Management?Management?
ProductionProduction is the creation of goods and services
Operations management (OM)Operations management (OM) is the set of activities that create value in the form of
goods and services by transforming inputs into
outputs
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Organizing to Produce Organizing to Produce Goods and ServicesGoods and Services
Essential functions:1.1. MarketingMarketing – generates demand2.2. Production/operationsProduction/operations – creates
the product3.3. Finance/accountingFinance/accounting – tracks how
well the organization is doing, pays bills, collects the money
4.4. Human Resources Human Resources – provides labor, wage and salary administration and job evaluation
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Commercial Bank
Operations
Teller Scheduling
Check Clearing
Collection
Transaction processing
Facilities design/layout
Vault operations
Maintenance
Security
Finance
Investments
Security
Real estate
Accounting
Auditing
Marketing
Loans
Commercial
Industrial
Financial
Personal
Mortgage
Trust Department
Human Resources
Recruitment
Job evaluation
Performance evaluation
Wage and Salary Adm.
Personnel records
Organizational ChartsOrganizational Charts
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Manufacturing
Operations
Facilities Construction; maintenanceProduction and inventory control Scheduling; materials controlQuality assurance and controlSupply-chain managementManufacturing Tooling; fabrication; assemblyDesign Product development and design Detailed product specificationsIndustrial engineering Efficient use of machines, space, and personnelProcess analysis Development and installation of production tools and equipment
Finance/ accountingDisbursements/ credits Receivables Payables General ledgerFunds Management Money market International exchangeCapital requirements Stock issue Bond issue and recall
MarketingSales promotionAdvertisingSalesMarket research
Human Resources
Recruitment
Job evaluation
Performance evaluation
Wage and Salary Adm.
Personnel records
Organizational ChartsOrganizational Charts
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Why Study OM?Why Study OM?1. OM is one of four major functions of
any organization, we want to study how people organize themselves for productive enterprise
2. We want (and need) to know how goods and services are produced
3. We want to understand what operations managers do
4. OM is such a costly part of an organization
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What Operations What Operations Managers DoManagers Do
Planning Organizing Staffing Leading Controlling
Basic Management FunctionsBasic Management Functions
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Ten Critical DecisionsTen Critical DecisionsTen Decision Areas
1. Design of goods and services2. Managing quality3. Process and capacity design 4. Location strategy5. Layout strategy6. Human resources and job design 7. Supply-chain management8. Inventory9. Scheduling10. Maintenance
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The Critical DecisionsThe Critical Decisions1. Design of goods and services
What good or service should we offer?
How should we design these products and services?
2. Managing quality How do we define quality? Who is responsible for quality?
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The Critical DecisionsThe Critical Decisions3. Process and capacity design
What process and what capacity will these products require?
What equipment and technology is necessary for these processes?
4. Location strategy Where should we put the facility? On what criteria should we base the
location decision?
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The Critical DecisionsThe Critical Decisions5. Layout strategy
How should we arrange the facility? 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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The Critical DecisionsThe Critical Decisions7. Supply-chain management
Should we make or buy this component?
Who should be our suppliers and how can we integrate them into our strategy?
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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The Critical DecisionsThe Critical Decisions9. Intermediate and short–term
scheduling Are we better off keeping people on
the payroll during slowdowns? Which jobs do we perform next?
10.Maintenance How do we build reliability into our
processes? Who is responsible for maintenance?
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Characteristics of GoodsCharacteristics of Goods Tangible product Consistent product
definition Production usually
separate from consumption
Can be inventoried Low customer
interaction
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Characteristics of ServiceCharacteristics of Service Intangible product Produced and
consumed at same time Often unique High customer
interaction Inconsistent product
definition Often knowledge-based
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Industry and Services as Industry and Services as Percentage of GDPPercentage of GDP
Services Manufacturing
Aus
tral
ia
Can
ada
Chi
na
Cze
ch R
ep
Fran
ce
Ger
man
y
Hon
g K
ong
Japa
n
Mex
ico
Rus
sian
Fed
Sout
h A
fric
a
Spai
n
UK US
Turk
ey
90 −80 −70 −60 −50 −40 −30 −20 −10 −
0 −
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New Trends in OMNew Trends in OM Ethics Global focus Environmentally sensitive production Rapid product development Mass customization Empowered employees Supply-chain partnering Just-in-time performance
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Productivity ChallengeProductivity 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!The objective is to improve productivity!
Important Note!Production is a measure of output
only and not a measure of efficiency
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Efficiency Versus Efficiency Versus EffectivenessEffectiveness
The difference between efficient and effective is that efficiency refers to how well you do something, whereas effectiveness refers to how useful it is.
“Efficiency is doing things right; effectiveness is doing the right things.”
Doing the Right Things is More Important than Doing Things Right
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Measure of process improvement Represents output relative to input Only through productivity increases
can our standard of living improve
ProductivityProductivity
Productivity =Units produced
Input used
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1 - 22© 2011 Pearson Education, Inc. publishing as Prentice Hall
Productivity CalculationsProductivity Calculations
Productivity =Units produced
Labor-hours used
= = 4 units/labor-hour1,000250
Labor ProductivityLabor Productivity
One resource input single-factor productivity
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Multi-Factor Productivity Multi-Factor Productivity
OutputLabor + Material + Energy + Capital + Miscellaneous
Productivity =
Also known as total factor productivity Output and inputs are often expressed
in dollars
Multiple resource inputs multi-factor productivity
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Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
=Old labor productivity
8 titles/day32 labor-hrs
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1 - 25© 2011 Pearson Education, Inc. publishing as Prentice Hall
Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
8 titles/day32 labor-hrs
=Old labor productivity = .25 titles/labor-hr
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1 - 26© 2011 Pearson Education, Inc. publishing as Prentice Hall
Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/dayNew System:New System:
8 titles/day32 labor-hrs
=Old labor productivity
=New labor productivity
= .25 titles/labor-hr
14 titles/day14 titles/day32 labor-hrs32 labor-hrs
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1 - 27© 2011 Pearson Education, Inc. publishing as Prentice Hall
Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/dayNew System:New System:
8 titles/day32 labor-hrs
=Old labor productivity = .25 titles/labor-hr
14 titles/day32 labor-hrs
=New labor productivity = .4375 titles/labor-hr
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1 - 28© 2011 Pearson Education, Inc. publishing as Prentice Hall
Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/dayNew System:New System:
=Old multifactor productivity
8 titles/day$640 + 400
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1 - 29© 2011 Pearson Education, Inc. publishing as Prentice Hall
Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/dayNew System:New System:
8 titles/day$640 + 400
=Old multifactor productivity = .0077 titles/dollar
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1 - 30© 2011 Pearson Education, Inc. publishing as Prentice Hall
Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/dayNew System:New System:
8 titles/day$640 + 400
=Old multifactor productivity
=New multifactor productivity
= .0077 titles/dollar
14 titles/day14 titles/day$640 + 800$640 + 800
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1 - 31© 2011 Pearson Education, Inc. publishing as Prentice Hall
Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/dayNew System:New System:
8 titles/day$640 + 400
14 titles/day$640 + 800
=Old multifactor productivity
=New multifactor productivity
= .0077 titles/dollar
= .0097 titles/dollar
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1 - 32© 2011 Pearson Education, Inc. publishing as Prentice Hall
Measurement ProblemsMeasurement Problems1.1. QualityQuality may change while the quantity
of inputs and outputs remains constant (HDTV, iphones)
2.2. External elementsExternal elements may cause an increase or decrease in productivity (using more reliable electric power system)
3.3. Precise unitsPrecise units of measure may be lacking
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1 - 33© 2011 Pearson Education, Inc. publishing as Prentice Hall
Productivity VariablesProductivity Variables1.1. LaborLabor - contributes
about 10% of the annual increase
2.2. CapitalCapital - contributes about 38% of the annual increase
3.3. ManagementManagement - contributes about 52% of the annual increase
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Key Variables for Improved Key Variables for Improved Labor ProductivityLabor Productivity
1. Basic education appropriate for the labor force
2. Diet of the labor force3. Social overhead that makes labor
available such as transportation and sanitation
Challenge is in maintaining and enhancing skills in the midst of rapidly changing technology and knowledge
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Investment and Productivity Investment and Productivity
10
8
6
4
2
0
Perc
ent i
ncre
ase
in p
rodu
ctiv
ity
Percentage investment10 15 20 25 30 35
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Service ProductivityService Productivity
1. Typically labor intensive (teaching, counseling)
2. Frequently focused on unique individual desires (customer representatives in banks)
3. Often an intellectual task performed by professionals
4. Often difficult to mechanize5. Often difficult to evaluate for quality
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Ethics andEthics andSocial ResponsibilitySocial Responsibility
Challenges facing Challenges facing operations managers:operations managers:
Developing and producing safe, quality products
Maintaining a clean environment Providing a safe workplace Honoring stakeholder commitments
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Entry-Level Jobs in OMEntry-Level Jobs in OMPurchasing planner/buyerProduction (or operations) supervisorProduction (or operations)
scheduler/controllerProduction (or operations) analystInventory analystQuality specialistOthers …