OPERATIONS MANAGEMENTOPERATIONS AND PRODUCTIVITYL2 -

1

CHANGING CHALLENGES FOR THE OPERATIONS MANAGER

Past Causes Future Local or national focus

Low-cost, reliable worldwide communication and transportation networks

Global Focus

Batch (large) shipments

Cost of capital puts pressure on reducing investment in inventory

Just-in-time shipments

Low-bid purchasing

Quality emphasis requires that suppliers be engaged in product improvement

SC partners, ERP

Lengthy product development

Shorter life cycles, rapid international communication, computer-aided design, and international collaboration

Rapid product development, alliances, collaborative designs

2

CHANGING CHALLENGES FOR THE OPERATIONS MANAGER

Past Causes Future Standardized products

Affluence and worldwide markets; increasingly flexible production processes

Mass customization

Job specialization

Changing socio-cultural scene. Increasingly a knowledge and information society.

Empowered employees, teams,

Low cost focus

Environmental issues, ISO increasing disposal costs

Environmentally sensitive production, Green manufacturing,

3

CHARACTERISTICS OF GOODS

Tangible product

Production usually

separate from

consumption

Consistent product

definition

Low customer

interaction

Can be inventoried 4

CHARACTERISTICS OF SERVICE

Intangible product

Produced & consumed at

same time

Inconsistent product

definition

High customer

interaction

Often unique

Often knowledge-based

Frequently dispersed

5

GOODS VERSUS SERVICES

Can be resold

Can be inventoried

Some aspects of

quality measurable

Selling is distinct

from production

Reselling unusual

Difficult to inventory

Quality difficult to

measure

Selling is part of

service

6

GOODS SERVICES

GOODS VERSUS SERVICES - CONTINUED

Product is transportable

Site of facility important

for cost

Often easy to automate

Revenue generated

primarily from tangible

product

Provider is transportable

Site of facility important

for customer contact

Often difficult to

automate

Revenue generated

primarily from intangible

service. 7

GOODS SERVICES

GOODS CONTAIN SERVICES / SERVICES CONTAIN GOODS

0 25 50 75 100255075100

AutomobileComputer

Installed CarpetingFast-food Meal

Restaurant MealAuto RepairHospital Care

Advertising AgencyInvestment Management

Consulting ServiceCounseling

Percent of Product that is a GoodPercent of Product that is a Service

8

THE PRODUCTION SYSTEM TRANSFORMS INPUTS TO OUTPUTS

The Production System

Land, Labor, Capital, Management

Goods and Services

Feedback loop

Inputs Process Outputs

9

PRODUCTIVITY

Measure of process improvement Represents ratio of output to input

Only through productivity increases can our standard of living improve

ProductivityProductivityProductivityProductivity UnitsUnits producedproducedUnitsUnits producedproducedInput usedInput usedInput usedInput used= = = =

10

MULTI-FACTOR PRODUCTIVITY

Productivity = Output

Labor + material + capital + energy + Misc

11

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

12

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

13

SERVICE PRODUCTIVITY

Reasons for low productivity in services

Typically labor intensive

Frequently individually processed

Often an intellectual task performed by

professionals

Often difficult to mechanize

Often difficult to evaluate for quality

15