OPERATIONS & PRODUCTION

MANAGEMENT

Chapter: 01

OPERATIONS &
PRODUCTIVITY
 OPERATIONS & PRODUCTION
MANAGEMENT
Chapter: 01

OPERATIONS &
PRODUCTIVITY
GOODS AND 
SEVICES
 Organizing to Produce Goods 
and Services
y Essential functions:
1.Marketing – generates demand
2.Production/operations – creates the 
product
3.Finance – tracks how well the 
organization is doing, pays bills, 
collects the money
GOODS VS SERVICES:
CHARACTERISTICS OF GOODS
y Tangible product

y Consistent product definition

y Production usually separate 
from consumption

y Can be inventoried

y Low customer interaction
GOODS VS SERVICES:
CHARACTERISTICS OF 
SERVICES
1. Intangible product
2. Produced and consumed at
same time
3. Often unique
4. High customer interaction
5. Inconsistent product definition
6. Often knowledge-based
7. Frequently dispersed
GOODS VS SERVICES:
Attributes of Goods Attributes of Services
(Tangible Product) (Intangible Product)
1. Can be resold 1. Reselling unusual
2. Can be inventoried 2. Difficult to inventory
3. Some aspects of 3. Quality difficult to
quality measurable measure
4. Selling is distinct from 4. Selling is part of
production service
5. Product is 5. Provider, not product,
transportable is often transportable
GOODS VS SERVICES:
Attributes of Goods Attributes of Services
(Tangible Product) (Intangible Product)
6. Site of facility important 6. Site of facility important for
for cost customer contact
7. Often easy to automate 7. Often difficult to automate
8. Revenue generated 8. Revenue generated
primarily from tangible primarily from the
product intangible service
 OPERATIONS & PRODUCTION
MANAGEMENT
Chapter: 01

OPERATIONS &
PRODUCTIVITY
SCOPE OF 
OPM
PRODUCTION VS OPERATIONS:
PRODUCTION:

PRODUCTION IS THE CREATION 
OF GOODS AND SERVICES.
OPERATIONS:
OPERATIONS ARE THE ACTIVITIES 
USED IN THE CREATION OF 
GOODS AND SERVICES.
WHAT IS OPERATIONS 
MANAGEMENT  (OM)?????
y Operation Management can be defined as 

OPERATIONS  MANAGEMENT  IS  THE  SET 

OF  ACTIVITIES  THAT  CREATES 
VALUES  IN  THE  FORM  OF  GOODS 
AND  SERVICES  BY  TRANSFORMING 
INPUT INTO OUTPUTS.
PRODUCTION VS 
PRODUCTIVITY:
PRODUCTION:

PRODUCTION IS THE CREATION 
OF GOODS AND SERVICES.
PRODUCTIVITY:
Productivity is the ratio of outputs 
(goods and services) divided by 
the inputs (resources such as 
labor and capital).
PRODUCTION VS 
PRODUCTIVITY:
PRODUCTIVITY:
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!

Important Note!
Production is a measure of output
only and not a measure of
efficiency
 OPERATIONS & PRODUCTION
MANAGEMENT
Chapter: 01

OPERATIONS &
PRODUCTIVITY
CHALLENGES &
MEASUREMENT
THE ECONOMIC SYSTEM
Inputs Transformation Outputs

Labour,
Economic Goods
capital, and
managem System
Transforms services
ent
inputs to
outputs.

Feedback loop
PRODUCTIVITY CHALLENGES:
Units produced
Productivity =
Input used

; Measure of process improvement

; Represents output relative to input
; Only through productivity
increases can our standard of
living improve.
PRODUCTIVITY CALCULATIONS:
Labour Productivity
Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250

One resource input Ö single-factor productivity

MULTI‐FACTOR PRODUCTIVITY 
Output
Productivity =
Labor + Material + Energy
+ Capital + Miscellaneous
; Also known as total factor productivity
; Output and inputs are often expressed
in dollars

Multiple resource inputs Ö multi-factor productivity

SHABBIR TILES PRODUCTIVITY: 
Old System:
Staff of 4 works 8 hrs/day 8 tiles/day
Payroll cost = $640/day Overhead = $400/day

Old labor = 8 tiles/day

productivity 32 labor-hrs
SHABBIR TILES PRODUCTIVITY: 
Old System:
Staff of 4 works 8 hrs/day 8 tiles/day
Payroll cost = $640/day Overhead = $400/day

Old labor = 8 tiles/day = .25 titles/labor-hr

productivity 32 labor-hrs
SHABBIR TILES PRODUCTIVITY: 
Old System:
Staff of 4 works 8 hrs/day 8 tiles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 tiles/day Overhead = $800/day

Old labor = 8 tiles/day

= .25 tiles/labor-hr
productivity 32 labor-hrs

New labor = 14 tiles/day

productivity 32 labor-hrs
SHABBIR TILES PRODUCTIVITY: 
Old System:
Staff of 4 works 8 hrs/day 8 tiles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 tiles/day Overhead = $800/day

Old labor = 8 tiles/day

= .25 tiles/labor-hr
productivity 32 labor-hrs

New labor = 14 tiles/day= .4375 tiles/labor-hr

productivity 32 labor-hrs
SHABBIR TILES PRODUCTIVITY: 
Old System:
Staff of 4 works 8 hrs/day 8 tiles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 tiles/day Overhead = $800/day

Old 8 tiles/day
=
multifactor $640 + 400
productivity
SHABBIR TILES PRODUCTIVITY: 
Old System:
Staff of 4 works 8 hrs/day 8 tiles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 tiles/day Overhead = $800/day

Old 8 tiles/day
= = .0077 tiles/dollar
multifactor $640 + 400
productivity
SHABBIR TILES PRODUCTIVITY: 
Old System:
Staff of 4 works 8 hrs/day 8 tiles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 tiles/day Overhead = $800/day

Old multifactor = 8 tiles/day = .0077 tiles/dollar

productivity $640 + 400
New multifactor = 14 tiles/day
productivity $640 + 800
SHABBIR TILES PRODUCTIVITY: 
Old System:
Staff of 4 works 8 hrs/day 8 tiles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 tiles/day Overhead = $800/day

Old multifactor = 8 tiles/day = .0077 tiles/dollar

productivity $640 + 400
14 tiles/day
New multifactor = = .0097 tiles/dollar
productivity $640 + 800
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
PRODUCTIVITY VARIABLES
; Labor - contributes
about 10% of the
annual increase
; Capital - contributes
about 38% of the
annual increase
; Management -
contributes about 52%
of the annual increase
New Challenges in OM
From To
; Local or national focus ; Global focus
; Batch shipments ; Just-in-time
; Low bid purchasing ; Supply chain
partnering
; Lengthy product ; Rapid product
development development,
alliances
; Standard products ; Mass
customization
; Job specialization ; Empowered
employees, teams
 OPERATIONS & PRODUCTION
MANAGEMENT
Chapter: 01

OPERATIONS &
PRODUCTIVITY.
THE END