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L1: Manufacturing and Service Systems Management
ISE 360 Engineering EconomicsMahmut Ali GÖKÇEIndustrial Systems EngineeringComputer Sciences
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Today
Course Description Requirements, Topics Rules of the Course Lecture on Service and
Manufacturing Systems
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Course Description
Management of Manufacturing and Service Systems. Management in “Engineering” sense. Learn what types of manufacturing and service
systems exist. Learn the importance of and difficulties in
managing these systems Learn methods and tools to manage Exercise these methods.
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Course Requirements and Rules Course will require
Analytical thinking Mathematical modeling Basic Calculus and Probability Theory Reading
Course Rules Regular Attendance, Participation Midterm 30%, Final 40%, HW/Quiz 20%, Part./Attendance
10% Syllabus available at http://homes.ieu.edu.tr/~agokce/
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Your Background and e-Service Interests
What is your interest in this topic? Why? Which topics specifically interest you? Information Technology background Service management and/or manufacturing
systems experience? Have you previously taken a service operations or
service marketing class? E-Service experiences?
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Definitions
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Operations
Finance
Marketing
Functional Areas of the Firm
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Production is the creation of goods and services
The set of activities that creates value in the form of goods and services by transforming inputs into outputs is called Operations management (OM)
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Managing mfg./service systems = managing operations involved.
All organizations have operations function. What are operations you see or get involved as customers?
You might wake up with radio, wash your face, take public transportation, depend on banking to get money from parents…etc. etc.
Operations differ in volume, variety, variation in demand and visibility
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Organizational Charts
OperationsTeller SchedulingCheck ClearingCollectionTransaction processingFacilities design/layoutVault operationsMaintenanceSecurity
FinanceInvestmentsSecurityReal estate
Accounting
Auditing
MarketingLoans Commercial Industrial Financial Personal Mortgage
Trust Department
Commercial Bank
Figure 1.1(A)Figure 1.1(A)
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Organizational Charts
OperationsGround support equipmentMaintenanceGround Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications DispatchingManagement science
Finance/ accountingAccounting Payables Receivables General LedgerFinance Cash control International exchange
Airline
Figure 1.1(B)Figure 1.1(B)
MarketingTraffic administration Reservations Schedules Tariffs (pricing)SalesAdvertising
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MarketingSales promotionAdvertisingSalesMarket research
Organizational Charts
OperationsFacilities Construction; maintenance
Production and inventory control Scheduling; materials control
Quality assurance and controlSupply-chain managementManufacturing Tooling; fabrication; assembly
Design Product development and design Detailed product specifications
Industrial engineering Efficient use of machines, space, and personnel
Process 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
Manufacturing
Figure 1.1(C)Figure 1.1(C)
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Options for Increasing Contribution
SalesSales $100,000$100,000 $150,000$150,000 $100,000$100,000 $100,000$100,000
Cost of Goods Cost of Goods –– 80,000 80,000 –– 120,000 120,000 –– 80,000 80,000 –– 64,000 64,000
Gross MarginGross Margin 20,00020,000 30,00030,000 20,00020,000 36,00036,000
Finance CostsFinance Costs –– 6,000 6,000 –– 6,000 6,000 –– 3,000 3,000 –– 6,000 6,000
SubtotalSubtotal 14,00014,000 24,00024,000 17,00017,000 30,00030,000
Taxes at 25%Taxes at 25% –– 3,500 3,500 –– 6,000 6,000 –– 4,250 4,250 –– 7,500 7,500
ContributionContribution $ 10,500$ 10,500 $ 18,000$ 18,000 $ 12,750$ 12,750 $ 22,500$ 22,500
Finance/Finance/MarketingMarketing AccountingAccounting OMOM
OptionOption OptionOption OptionOption
IncreaseIncrease ReduceReduce ReduceReduceSalesSales FinanceFinance ProductionProduction
CurrentCurrent Revenue 50%Revenue 50% Costs 50%Costs 50% Costs 20%Costs 20%
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Critical Decisions Decision AreasDecision Areas
Service and product designService and product design Process and capacity designProcess and capacity design LocationLocation Layout designLayout design Human resources, job designHuman resources, job design Supply-chain managementSupply-chain management Inventory managementInventory management SchedulingScheduling MaintenanceMaintenance
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Significant Events in OM
Figure 1.3Figure 1.3
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Challenges in Mfg/Service Sys. Mgt
Global focus Just-in-time Supply chain
partnering Rapid product
development, alliances
Mass customization Empowered
employees, teams
ToToFromFrom Local or national Local or national
focusfocus
Batch shipmentsBatch shipments
Low bid purchasingLow bid purchasing
Lengthy product Lengthy product developmentdevelopment
Standard productsStandard products
Job specializationJob 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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Service
The Service Economy Early 1900s … 30% of U.S. economy produced
services Today (in the USA) … > 80% of economy
produces services Rate in Turkey is lower but increasing. But is a dominantly service economy desirable? Can there be service w/o manufacturing?
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Service
Categories of Service Business services: consulting, finance, banking,
insurance, real estate (FIRE) Trade services: retailing, maintenance, repair Social/personal services: restaurants, health care Public administration: education, government Infrastructure services: communications, transportation
How to categorize e-Service?
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Definitions: Service What is “service”?
Difficult to define … often, one observes circular definitions of what service is
General characteristics of services Services are deeds, processes, and performances Service is an experience Service is an activity that takes place between a customer and
a service employee/system Service is co-produced by the consumer Service is intangible, goods are tangible Services are consumed at the same time as they are produced Goods exist over time, services perish if not consumed
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Definitions: Service Service Components
Service package/Service product That which is “offered” or of value in the
experience A bundle of goods and services that is provided
in some environment Consists of goods, services, and information
Service process The way the service experience is created
Service supply chain Supports/facilitates the process
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DefinitionsService Service package consists of four features
Supporting facility physical resources; where the service is delivered
Facilitating goods some “thing” consumed or used during the service
experience that contributed to the experience Explicit services
readily observable benefits of the service Implicit services
psychological benefits of the service, less easy to sense
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DefinitionsWhat is e-Service? Given the previous definitions of a service
would an e-Service be characterized as a service?
would we have to modify those definitions?
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DefinitionsWhat is e-Service? An e-Service is …
[1] a service package of goods, offline services, and digital content
[2] involves some agent (Consumer, Business, Government) who consumes the service
[3] the consumer of service (“agent”) interacts with an IT technology delivery system to co-produce service
[4] digital content is a core attribute of service-product
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Definitions Definitions Examples of e-ServiceExamples of e-Service
Digital watch
Vacuum with embedded intelligence an intelligent good
Vending machine
Barcode scanner data put into internal database about supply chain information for optimizing supply chain
Traditional B2C, B2B, etc.
Digital watch with GPS, atomic clock polling
Vacuum with embedded intelligence that dynamically adapts via communication with centralized server
Vending machine with i-Phone support for payment process
Supply chain “object” (barcode scanner) that communicates status to customer of supply chain via “service-product”
E-Commerce B2C, B2B, etc.
Not an e-Service e-Service
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e-Service Types of e-Service
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Types of e-Service
x2y’s B2C B2B C2B, C2G, C2C, B2G, G2C, G2B, G2G, B2E, P2P
xSP’s ASP: application service provider BSP: business service provider CSP:commerce service provider CSP: content service provider MSP: management service provider SSP: security service provider
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Productivity Challenge
Productivity is the ratio of outputs (goods Productivity is the ratio of outputs (goods and services) divided by the inputs and services) divided by the inputs
(resources such as labor and capital)(resources such as labor and capital)
The objective is to improve this The objective is to improve this measure of efficiencymeasure of efficiency
Important Note!Production is a measure of output
only and not a measure of efficiency
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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 =Productivity =Units producedUnits produced
Labor-hours usedLabor-hours used
= = = = 44 units/labor-hour units/labor-hour1,0001,000
250250
Labor ProductivityLabor Productivity
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Multi-Factor Productivity
OutputOutput
Labor + Material + Energy Labor + Material + Energy + Capital + Miscellaneous+ Capital + Miscellaneous
Productivity =Productivity =
Also known as total factor productivityAlso known as total factor productivity
Output and inputs are often expressed Output and inputs are often expressed in dollarsin dollars
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Collins Title Productivity
Staff of Staff of 44 works works 8 8 hrs/dayhrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
==Old labor Old labor
productivityproductivity88 titles/day titles/day
3232 labor-hrs labor-hrs
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Collins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
88 titles/day titles/day
3232 labor-hrs labor-hrs==
Old labor Old labor productivityproductivity = = .25.25 titles/labor-hr titles/labor-hr
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Collins Title Productivity
Staff of Staff of 44 works works 8 8 hrs/dayhrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
3232 labor-hrs labor-hrs==
Old labor Old labor productivityproductivity
==New labor New labor
productivityproductivity
= .25 titles/labor-hr= .25 titles/labor-hr
1414 titles/day titles/day
3232 labor-hrs labor-hrs
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Collins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
3232 labor-hrs labor-hrs==
Old labor Old labor productivityproductivity = = .25.25 titles/labor-hr titles/labor-hr
14 14 titles/daytitles/day
3232 labor-hrs labor-hrs==
New labor New labor productivityproductivity = = .4375.4375 titles/labor-hr titles/labor-hr
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Collins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
==Old multifactor Old multifactor
productivityproductivity88 titles/day titles/day
$640 + 400$640 + 400
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Collins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
$640 + 400$640 + 400==
Old multifactor Old multifactor productivityproductivity = = .0077.0077 titles/dollar titles/dollar
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Collins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
$640 + 400$640 + 400==
Old multifactor Old multifactor productivityproductivity
==New multifactor New multifactor
productivityproductivity
= = .0077.0077 titles/dollar titles/dollar
1414 titles/day titles/day
$640 + 800$640 + 800
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Collins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
$640 + 400$640 + 400
1414 titles/day titles/day
$640 + 800$640 + 800
==Old multifactor Old multifactor
productivityproductivity
==New multifactor New multifactor
productivityproductivity
= = .0077.0077 titles/dollar titles/dollar
= = .0097.0097 titles/dollar titles/dollar
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Measurement Problems
QualityQuality may change while the may change while the quantity of inputs and outputs quantity of inputs and outputs remains constantremains constant
External elementsExternal elements may cause an may cause an increase or decrease in productivityincrease or decrease in productivity
Precise unitsPrecise units of measure may be of measure may be lackinglacking
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Productivity Variables
LaborLabor - contributes about - contributes about 10%10% of of the annual increasethe annual increase
CapitalCapital - contributes about - contributes about 32%32% of the annual increaseof the annual increase
ManagementManagement - contributes about - contributes about 52%52% of the annual increase of the annual increase
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Next Lecture on Forecasting
Reading : Ch 2 from Nahmias