Introduction To OM Chapter 1

Heizer, Render, Griffin
Operations Management
Canadian Edition
Slides adapted for Canada by Mats Gerschman
Chapter 1: Operations and Productivity
Copyright 2014 Pearson

Canada Inc.
Outline
What Is Operations Management?
Organizing To Produce Goods And Services
Why Study OM?
What Operations Managers Do
How This Book Is Organized
ADM 3301 ~ Rim Jaber
Outline - Continued
The Heritage Of Operations Management
Operations In The Service Sector
Differences Between Goods And Services
Growth Of Services
Service Pay
Exciting New Trends In Operations

Management
Outline - Continued
The Productivity Challenge
Productivity Measurement
Productivity Variables
Productivity and the Service Sector
Ethics and Social Responsibility
Learning Objectives
When you complete this chapter,
you should be able to:
Define Operations management (OM)
Explain the distinction between
goods and services
Explain the difference between
Production and productivity
Learning Objectives
Describe or Explain :
A brief history of operations
management
Career opportunities in operations
management
The future of the discipline
Learning Objectives
Compute single-factor productivity
Compute multifactor productivity
Identify the critical variables in
enhancing productivity
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
Transformations:
Physical transformations--manufacturing
Locational transformations--transportation
Exchange operations--retailing
Storage operations--warehousing
Physiological operations--health care
Informational transformations-telecommunications
Organizing to Produce Goods and

Services
To create goods and services, all
organizations require three essential
functions:
Marketing
Production/operations
Finance/accounting
10
ORGANIZATIONAL FUNCTIONS
Marketing
Gets customers,
Generates demand
Operations
Creates the goods or services
Finance/Accounting
Tracks how well the organization
is doing, pays bills, collects the
money
1995 Corel Corp.
11
Organizational Charts
Commercial Bank
Operations
Finance
Marketing
Teller
Scheduling
Check Clearing
Collection
Transaction
processing
Facilities
design/layout
Vault operations
Maintenance
Security
Investments
Security
Real estate
Loans
Commercial
Industrial
Financial
Personal
Mortgage
Accounting
Auditing
Trust Department
Figure 1.1(A)
12
Airline
Operations
Ground support
equipment
Maintenance
Ground Operations
Facility
maintenance
Catering
Flight Operations
Crew scheduling
Flying
Communications
Dispatching
Management science
Finance/
accounting
Accounting
Payables
Receivables
General Ledger
Finance
Cash control
International
exchange
Marketing
Traffic
administration
Reservations
Schedules
Tariffs (pricing)
Sales
Advertising
Figure 1.1(B)
13
Manufacturing
Operations
Facilities
Construction; maintenance
Production and inventory control

Scheduling; materials control
Quality assurance and control

Supply-chain management
Manufacturing
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/
accounting
Marketing
Disbursements/
credits
Receivables
Payables
General ledger
Funds Management
Money market
International
exchange
Capital requirements
Stock issue
Bond issue
and recall
Sales
promotion
Advertising
Sales
Market
research
Figure 1.1(C)
14
INTERDEPENDENCY OF THE THREE

MAJOR FUNCTIONS
The success of an organization depends not only
on how well each area performs, but also on
how well the areas interface with each other.
Example:
Marketing is responsible for assessing customer
wants and needs, and for communicating those to
operations people (short term) and to design people
(long term).
15
INTERDEPENDENCY OF THE THREE

MAJOR FUNCTIONS
Marketing needs from operations the
manufacturing or service lead time.
Finance and operations management
cooperate by exchanging information and
expertise in: Budgeting, Economic
analysis of investment proposals, and
Provision of funds.
16
Why Study OM?

OM is one of three major functions
(marketing, finance, and operations) of any
organization
We want (and need) 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
17
Options for Increasing

Contribution
Copyright 2014 Pearson Canada Inc.
Table 1.1
What Operations
Managers Do
Basic Management Functions
Planning
Organizing
Staffing
Leading
Controlling
19
Ten Critical Decisions

Ten Decision Areas
Design of goods and services
Managing quality
Process and capacity
design
Location strategy
Layout strategy
Human resources and
job design
Supply-chain
management
Inventory management,
MRP, JIT
Scheduling
Maintenance
Chapter(s)
5
6, 6 Supplement
7, 7 Supplement
8
9
10, 10 Supplement
11, 11 Supplement
12, 14, 16
13, 15
17
Table 1.2
20
Ten Critical Decisions

Ten Decision Areas
Managing quality
Process and capacity
design
Location strategy
Layout strategy
Human resources and
job design
Supply-chain
management
Inventory management,
MRP, JIT
Scheduling
Maintenance
Chapter(s)
5
6, 6 Supplement
7, 7 Supplement
8
9
10, 10 Supplement
11, 11 Supplement
12, 14, 16
13, 15
17
Table 1.2
21
The Critical Decisions

What good or service should we offer?
How should we design these products and
services?
Managing quality
How do we define quality?
Who is responsible for quality?
Table 1.2 (cont.)

22

Process and capacity design
What process and what capacity will these
products require?
What equipment and technology is necessary
for these processes?
Location strategy
Where should we put the facility?
On what criteria should we base the location
decision?
Table 1.2 (cont.)
23

Layout strategy
How should we arrange the facility and
material flow?
How large must the facility be to meet our
plan?
Human resources and job design

How do we provide a reasonable work
environment?
How much can we expect our employees to
produce?
Table 1.2 (cont.)
24

Supply-chain management
Should we make or buy this component?
Who are our suppliers and who can integrate
into our e-commerce program?
Inventory, material requirements planning,

and JIT
How much inventory of each item should we
have?
When do we re-order?
Table 1.2 (cont.)
25

Intermediate and shortterm scheduling
Are we better off keeping people on the
payroll during slowdowns?
Which jobs do we perform next?
Maintenance
Who is responsible for maintenance?
When do we do maintenance?
Table 1.2 (cont.)
26
Where are the OM Jobs?
Technology/methods
Facilities/space utilization
Strategic issues
Response time
People/team development
Customer service
Quality
Cost reduction
Inventory reduction
Productivity improvement
27
Opportunities
Figure 1.2
2011 Pearson Education, Inc. publishing as Prentice Hall
Certifications
APICS, the American Production and
Inventory Control Society
Excellence Canada
Standards Council of Canada
Institute for Supply Management
(ISM)
Project Management Institute (PMI)
Council of Supply Chain Management
Professionals
29
The Heritage of Operations Management
30
Significant Events in OM
Figure 1.3
31
SIGNIFICANT EVENTS IN OM
The Industrial Revolution:
1776: Division of Labor (Adam Smith)
1800: Standardized Parts (Eli Whitney)
Scientific Management:
1881: Scientific Management (Frederick Taylor)
1913: Coordinated Assembly Line (Henri Ford)
Industrial Psychology:
1922: Motion Study (Frank & Lillian Gilberth)
1933: Effect of Environment on Employee Productivity
and Motivation (Elton
Mayo)
32
Decision Models and Management Science:
1916: Gantt Charts (Henry Gantt)

1917: Inventory Control (F.W. Harris)
1924: Quality Control (Walter Shewhart)
1934: Sampling Techniques (L.H.C. Tippet)
1940: Operations Research (in England)
1947: Linear Programming (Dantzig)
1950: Quality Control ( Edwards Deming)
1950-1960: Simulation, Queueing Theory, Decision Theory,
Mathematical Programming, Program Evaluation and Review
Technique (PERT), Critical Path Method (CPM), Materials
Requirements Planning (MRP)
33
1970-1980: Software for Inventory Control, Scheduling,
Forecasting
1980-1990: Just in Time (JIT), Total Quality Management
(TQM), Computer Integrated Manufacturing (CIM),
Flexible Manufacturing Systems (FMS), Computer Aided
Design (CAD), Computer Aided Manufacturing (CAM),
Manufacturing Automation Protocol (MAP), robotics
1992: Globalization
1995: Internet
2000: Smart systems
Future based upon:
management science/ information science/ business analyatics
34
Eli Whitney
Born 1765; died 1825
In 1798, received government contract
to make 10,000 muskets
Showed that machine tools could
make standardized parts to exact
specifications
Musket parts could be used in any
musket
Frederick W. Taylor
Known as father of scientific
management
In 1881, as chief engineer for Midvale
Steel, studied how tasks were done
Began first motion and time studies
Created efficiency principles
Taylors Principles
Management Should Take More
Responsibility for:
Matching employees to right job

Providing the proper training
Providing proper work methods and tools
Establishing legitimate incentives for work to
be accomplished
Henry Ford
In 1903, created Ford Motor Company
In 1913, first used moving assembly line
to make Model T
Unfinished product moved by conveyor
past work station
Paid workers very well for 1911

($5/day!)
Frank & Lillian Gilbreth

Frank (1868-1924); Lillian (1878-1972)
Husband-and-wife engineering team
Further developed work measurement
methods
Applied efficiency methods to their home
and 12 children!
Book & Movie: Cheaper by the Dozen,
Bells on Their Toes
W. Edwards Deming
Engineer and physicist
Credited with teaching Japan quality
control methods in post-WW2
Used statistics to analyze process
His methods involve workers in
decisions
Other Historical Disciplines

Impacting OM
Industrial Engineering
Management Science (operations research)
Statistics and Economics
Physical Sciences (new materials/technology)
Information Technology (computer-aided
design, enterprise resource planning,
computer integrated manufacturing)
Flexible manufacturing system
Globalization
Internet
Canada Inc.
Operations in the Manufacturing or

Service Sector
42
Characteristics of Goods
Tangible product
Consistent product
definition
Production usually
separate from
consumption
Can be inventoried
Low customer
interaction
43
Characteristics of Service
Intangible product
Produced and consumed at
same time
Often unique
High customer interaction
Inconsistent product
definition
Often knowledge-based
Frequently dispersed
44
Service Or Good?
If you drop it on your foot, it wont hurt you.

(Good or service?)
Services never include goods and goods never
include services. (True or false?)
What about McDonalds?
Identify the (physical) product of McDonald's?

Service or Manufacturing?
The company certainly manufactures tangible
products, Why then would we consider McDonalds
a service business?
45
MANUFACTURING (PRODUCING
GOODS) VERSUS SERVICE
Manufacturing and Service are often
similar in terms of what is done, but
different in terms of how it is done.
Manufacturing and service organizations
differ chiefly because manufacturing is
product-oriented and service is actoriented.
46
GOODS VERSUS SERVICES

Goods
Can be resold
Can be inventoried
Some aspects of
quality measurable
Selling is distinct
from production
Service
Reselling unusual
Difficult to inventory
Quality difficult to
measure
Selling is part of
service
47
GOODS VERSUS SERVICES CONTINUED

Goods
Service
Product is
transportable
Site of facility
important for cost
Often easy to
automate
Revenue generated
primarily from
tangible product
Provider, not product is

transportable
Site of facility important
for customer contact
Often difficult to
automate
Revenue generated
primarily from
intangible service.
48
Goods and Services

Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
100%
|
75
|
50
|
25
|
Percent of Product that is a Good
25
50
|
75
|
100%
|
Percent of Product that is a Service
Industry and Services as

Percentage of GDP
90
Services
80
Manufacturing
70
60
50
40
30
20
10
US
UK
Spain
South Africa
Russian Fed
Mexico
Japan
Hong Kong
Germany
France
Czech Rep
China
Canada
Australia
Manufacturing and Service

Employment
120
Employment (millions)
100
80
Service
60
40
20
0
Manufacturing
|
|
|
|
|
|
|
1950
1970
1990 2010 (est)
1960
1980
2000

Canada Inc.
Figure 1.4 (A)
Manufacturing Employment and

Production

Canada Inc.
Industrial
production
(right scale)
125
100
75
50
40
30
20
10
0
Manufacturing 25
employment
(left scale)
|
1950
Index: 1997 = 100
Employment (millions)
150
|
|
|
|
|
1970
1990 2010 (est)
1960
1980
2000
Figure 1.4 (B)
Development of the
Service Economy
United States
Canada
France
Italy
Britain
Japan
W. Germany
|
40
50
1970
Canada Inc.
60
70
Percent
80
2010 (est)
Figure 1.4 (C)
Organizations in Each Sector

ServiceProducing
Sector
Example
Healthcare
Sick Kids Hospital
12
Trade
Hudson Bay Company; Real

Canadian SuperStore
15
Transportation/
warehousing
WestJet; Maritime-Ontario
Freight Lines Ltd.
Finance/
Insurance
Royal Bank; Manulife
Professional
services
Borden Ladner Gervais Law

Firm
% of all
Jobs
Table 1.3

ServiceProducing
Sector
Example
% of all
Jobs
Business,
Building, Other
support services
Edmonton Waste Management

Centre; Carlson Wagonlit Travel
Educational
services
McGill University
Information,
Culture,
Recreation
Calgary Flames, Princess of

Wales Theatre
Accommodation,
Food services
Tim Hortons, Royal York Hotel
Table 1.3
% of all
Jobs
Other Sectors
Example
Manufacturing
sector
Magna International inc.
10
Construction
sector
PCL Construction Mgmnt.
Agriculture,
Forestry, Mining,
Oil and gas,
Utilities
Farming Operations; Canadian

Mining Company; Dome Pacific
Logging Ltd.; Ontario Power
Generation
Other Services,
Public
administration
Joes Barber Shop,; ABC

Landscaping; Province of
Manitoba
10
Table 1.3
Exciting New Challenges in Operations

Management
57
Changing Challenges
Traditional
Approach
Reasons for
Change
Current
Challenge
Ethics and
regulations
not at the
forefront
Public concern over

pollution, corruption,
child labour, etc.
High ethical and

social
responsibility;
increased legal
and professional
standards
Local or
national
focus
Growth of reliable, low

cost communication
and transportation
Global focus,
international
collaboration
Lengthy
product
development
Shorter life cycles;

growth of global
communication; CAD,
internet
Rapid product
development;
design
collaboration

Canada Inc.
Figure 1.5
Changing Challenges
Traditional
Approach
Reasons for
Change
Current
Challenge
Low cost
production,
with little
concern for
environment;
free
resources
(air, water)
ignored
Public sensitivity to
environment; ISO 14000
standard; increasing
disposal costs
Environmentally
sensitive
production; green
manufacturing;
sustainability
Low-cost
standardized
products
Rise of consumerism;
increased affluence;
individualism
Mass
customization

Canada Inc.
Figure 1.5
Changing Challenges
Traditional
Approach
Reasons for
Change
Current
Challenge
Emphasis on
specialized,
often manual
tasks
Recognition of the
employee's total
contribution; knowledge
society
Empowered
employees;
enriched jobs
In-house
production;
low-bid
purchasing
Rapid technological
change; increasing
competitive forces
Supply-chain
partnering; joint
ventures, alliances
Large lot
production
Shorter product life

cycles; increasing need
to reduce inventory
Just-in-time
performance;
lean; continuous
improvement

Canada Inc.
Figure 1.5
New Trends in OM
Ethics
Global focus
Environmentally sensitive production
Mass customization
Empowered employees
Supply-chain partnering
Just-in-time performance

Canada Inc.
The Productivity Challenge
62
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
63
The Economic System

Transforms Inputs to Outputs
Inputs
Land, Labor,
Capital,
Management
Process
The US economic system
transforms inputs to outputs
at about an annual 2.5%
increase in productivity.
(capital 38% of 2.5%), labor
(10% of 2.5%), management
(52% of 2.5%)
Outputs
Goods and
Services
Feedback loop
Figure 1.6
64
Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways to
save time. Some
improvements:
Stop requiring signatures
on credit card purchases
under $25
Saved 8 seconds
per transaction
Change the size of the ice

scoop
Saved 14 seconds
per drink
New espresso machines
Saved 12 seconds
per shot
Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways to
shave time. Some
improvements:
Operations improvements have helped

Stop requiring signatures
Saved
seconds
Starbucks increase
yearly8revenue
per
on credit card purchases
transaction
outlet by $200,000per
to $940,000
in six
under $25
years.
27%, or
Change the sizeProductivity
of the ice has improved
Saved 14by
seconds
about 4.5% per year.
scoop
per drink
New espresso machines
Saved 12 seconds
per shot
Productivity
Units produced
Productivity =
Input used
Measure of process improvement
Represents output relative to input
Only through productivity increases can
our standard of living improve
67
Productivity Calculations
Labor Productivity
Units produced
Productivity = Labor-hours used
1,000
=
= 4 units/labor-hour
250
One resource input single-factor productivity
68
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 multi-factor productivity
69
Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
8 titles/day
Overhead = $400/day
8 titles/day
Old labor =
productivity 32 labor-hrs
70

Old System:
8 titles/day
Overhead = $400/day
8 titles/day
Old labor =
= .25 titles/labor-hr
32
labor-hrs
productivity
71

Old System:
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old labor =
32
labor-hrs
productivity
14 titles/day
New labor =
32 labor-hrs
productivity
72

Old System:
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old labor =
32
labor-hrs
productivity
14 titles/day
New labor =
32
labor-hrs
productivity
73

Old System:
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old multifactor =
$640 + 400
productivity
74

Old System:
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old multifactor =
= .0077 titles/dollar
$640
+
400
productivity
75

Old System:
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old multifactor =
$640
+
400
productivity
14 titles/day
New multifactor =
$640 + 800
productivity
76

Old System:
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old multifactor =
$640
+
400
productivity
14 titles/day
New multifactor =
$640
+
800
productivity
77
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
78
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
79
Key Variables for Improved

Labor Productivity
1. Basic education appropriate for the
labor force
2. Diet of the labor force
3. Social overhead that makes labor
available
Challenge is in maintaining and enhancing
skills in the midst of rapidly changing
technology and knowledge
80
Labor Skills
About half of the 17-year-olds in the US cannot
correctly answer questions of this type
Figure 1.7
81
Investment and Productivity

Percent increase in productivity
10
8
6
4
2
0
10
15
20
25
Percentage investment
30
35
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
83
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
New water and energy saving grills
84
Productivity at Taco Bell

Improvements:
Results:
Revised the menu
Preparation
time
to preparation
8 seconds
Designed
meals
forcut
easy
Management
span of control
increased
Shifted
some preparation
to suppliers
from 5 to 30
Efficient layout and automation
In-store labor cut by 15 hours/day
Training and employee empowerment
Stores handle twice the volume with
half the labor
Conserve 300 million gallons of water
and 200 million KwH of electricity each
year saving $17 million annually
85
Ethics and Social Responsibility

Challenges facing
operations managers:
Developing and producing safe,
quality products
Maintaining a clean environment
Providing a safe workplace
Honoring stakeholder commitments
86
Summary
The operations function creates goods
and services
Operations, marketing, finance are three
functions basic to all organizations
Operations management has a long
history and keeps evolving
Operations managers are key players
for improved productivity
Affluent societies devote more of their
resources to services
In Canada more than of the workforce
are in the service sector

Canada Inc.

Introduction To OM Chapter 1

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Introduction To OM Chapter 1

Caricato da

Copyright:

Formati disponibili

Heizer, Render, Griffin

Chapter 1: Operations and Productivity

Copyright 2014 Pearson

ADM 3301 ~ Rim Jaber

Exciting New Trends In Operations

ADM 3301 ~ Rim Jaber

ADM 3301 ~ Rim Jaber

Organizing to Produce Goods and

ADM 3301 ~ Rim Jaber

ADM 3301 ~ Rim Jaber

Production and inventory control

Quality assurance and control

Product development and design

Efficient use of machines, space,

Development and installation of

INTERDEPENDENCY OF THE THREE

INTERDEPENDENCY OF THE THREE

Why Study OM?

Options for Increasing

Copyright 2014 Pearson Canada Inc.

Ten Critical Decisions

Ten Critical Decisions

The Critical Decisions

Table 1.2 (cont.)

The Critical Decisions

The Critical Decisions

Human resources and job design

The Critical Decisions

Inventory, material requirements planning,

The Critical Decisions

Where are the OM Jobs?

The Heritage of Operations Management

ADM 3301 ~ Rim Jaber

1916: Gantt Charts (Henry Gantt)

Created efficiency principles

Matching employees to right job

Paid workers very well for 1911

Frank & Lillian Gilbreth

Other Historical Disciplines

Operations in the Manufacturing or

ADM 3301 ~ Rim Jaber

If you drop it on your foot, it wont hurt you.

Identify the (physical) product of McDonald's?

GOODS VERSUS SERVICES

ADM 3301 ~ Rim Jaber

GOODS VERSUS SERVICES CONTINUED

Provider, not product is

ADM 3301 ~ Rim Jaber

Goods and Services

Percent of Product that is a Good

Percent of Product that is a Service

2011 Pearson Education, Inc. publishing as Prentice Hall

Industry and Services as

Copyright 2014 Pearson Canada Inc.

Manufacturing and Service

Copyright 2014 Pearson

Figure 1.4 (A)

Manufacturing Employment and

Copyright 2014 Pearson

Index: 1997 = 100

Figure 1.4 (C)

Organizations in Each Sector

Sick Kids Hospital