LECTURER

BJMP 2033
PRODUCTION & OPERATIONS MANAGEMENT
 Chapter 1
INTRODUCTION TO POM:
OPERATIONS AND COMPETITIVENESS
 LEARNING OBJECTIVES

When you complete this chapter

you should be able to:

1. Define operations management

2. Explain the distinction between
goods and services
3. Explain the difference between
production and productivity
 LEARNING OBJECTIVES

When you complete this chapter

you should be able to:

4. Compute single-factor productivity

5. Compute multifactor productivity
6. Identify the critical variables in
enhancing productivity
7. Explain the relationship of the
strategy and operations.
 INTRODUCTION TO POM
https://www.youtube.com/watch?v=leMOReAE2hk

• WHAT IS PRODUCTION?
• PRODUCTION IS THE CREATION OF GOODS AND
SERVICES

• WHAT IS OPERATIONS?
• A FUNCTION OR SYSTEM THAT TRANSFORMS INPUTS
INTO OUTPUTS OF GREATER VALUE
 DEFINITION OF OPERATIONS MANAGEMENT

 What is Operations Management?

design, operation, and improvement of
production systems

 Operations management (OM) is the set of

activities that create value in the form of
goods and services by transforming inputs
into outputs (Heizer, Render and Munson,
2017)
1-8
 TRANSFORMATION PROCESS

What is a Transformation Process?

a series of activities along a value chain extending from supplier to
customer activities that do not add value are superfluous and
should be eliminated
• PHYSICAL: AS IN MANUFACTURING OPERATIONS
• LOCATIONAL: AS IN TRANSPORTATION OPERATIONS
• EXCHANGE: AS IN RETAIL OPERATIONS
• PHYSIOLOGICAL: AS IN HEALTH CARE
• PSYCHOLOGICAL: AS IN ENTERTAINMENT
• INFORMATIONAL: AS IN COMMUNICATION
 OPERATIONS AS A
TRANSFORMATION PROCESS

INPUT
•Material
OUTPUT
•Machines TRANSFORMATION
•Goods
•Labor PROCESS
•Services
•Management
•Capital

Feedback
 ESSENTIAL FUNCTIONS IN
OPERATIONS:

1. Marketing – generates demand

2. Production/operations – creates the
product
3. Finance/accounting – tracks how well the
organization is doing, pays bills, collects the
money
4. Human Resources – Hire and fire worker
1-11
5. Suppliers – Supply raw materials
OPERATIONS FUNCTION
 WHY STUDY OM?

1. OM is one of three 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
WHAT OPERATIONS MANAGERS DO

 PLANNING
 ORGANIZING
 STAFFING
 LEADING
 CONTROLLING
 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
OPPORTUNITIES
SIGNIFICANT EVENTS IN OM
 HISTORICAL EVENTS IN
OPERATIONS MANAGEMENT

Era Events/Concepts Dates Originator

Steam engine 1769 James Watt
Industrial
Division of labor 1776 Adam Smith
Revolution
Interchangeable parts 1790 Eli Whitney
Principles of scientific
1911 Frederick W. Taylor
management
Frank and Lillian
Scientific Time and motion studies 1911 Gilbreth
Management Activity scheduling chart 1912 Henry Gantt
Moving assembly line 1913 Henry Ford
 HISTORICAL EVENTS IN OPERATIONS
MANAGEMENT (CONT.)

Era Events/Concepts Dates Originator

Hawthorne studies 1930 Elton Mayo
Human 1940s Abraham Maslow
Relations Motivation theories 1950s Frederick Herzberg
1960s Douglas McGregor
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, waiting
Operations Operations research
line theory, decision 1950s
Research groups
theory, PERT/CPM
1960s, Joseph Orlicky, IBM
MRP, EDI, EFT, CIM
1970s and others
 HISTORICAL EVENTS IN OPERATIONS
MANAGEMENT (CONT.)

Era Events/Concepts Dates Originator

JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (total quality W. Edwards Deming,
1980s
management) Joseph Juran
Quality
Strategy and Wickham Skinner,
Revolution 1990s
operations Robert Hayes
Business process Michael Hammer,
1990s
reengineering James Champy
 HISTORICAL EVENTS IN OPERATIONS
MANAGEMENT (CONT.)

Era Events/Concepts Dates Originator

Globalization WTO, European Union, 1990s Numerous countries
and other trade 2000s and companies
agreements
Internet Internet, WWW, ERP, 1990s ARPANET, Tim
Revolution supply chain management Berners-Lee SAP,
i2 Technologies,
ORACLE,
PeopleSoft
E-commerce 2000s Amazon, Yahoo,
eBay, and others
 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

 Born 1856; died 1915

 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
© 2011 Pearson Education
 TAYLOR’S 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
 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”
 HENRY FORD

 Born 1863; died 1947

 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!)
 W. EDWARDS DEMING

 Born 1900; died 1993

 Engineer and physicist
 Credited with teaching Japan quality
control methods in post-WW2
 Used statistics to analyze process
 His methods involve workers in
decisions
 CONTINUUM FROM GOODS
TO SERVICES

Source: Adapted
Copyright 2006 from
John Wiley Earl
& Sons, Inc.W. Sasser, R. P. Olsen, and D. Daryl Wyckoff, Management of Service
Operations (Boston: Allyn Bacon, 1978), p.11.
 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 0 25 50 75 100%
| | | | | | | | |

Percent of Product that is a Good Percent of Product that is a Service

 MANUFACTURING AND SERVICE
EMPLOYMENT
120 –

Employment (millions) 100 –

80 – Service

60 –

40 –

Manufacturing
20 –

0– | | | | | | |
1950 1970 1990 2010 (est)
1960 1980 2000
 MANUFACTURING EMPLOYMENT
AND PRODUCTION
Industrial – 150
production
(right scale)
Employment (millions)

– 125

Index: 1997 = 100

– 100

– 75
Manufacturing
40 – employment – 50
(left scale)
30 –
20 – – 25
10 –
0 – | | | | | | – |0
1950 1970 1990 2010 (est)
© 2011 Pearson Education 1960 1980 2000
 COMPETITIVENESS AND PRODUCTIVITY
• COMPETITIVENESS
• DEGREE TO WHICH A NATION CAN PRODUCE
GOODS AND SERVICES THAT MEET THE TEST OF
INTERNATIONAL MARKETS
• PRODUCTIVITY
• RATIO OF OUTPUT TO INPUT
• OUTPUT
• SALES MADE, PRODUCTS PRODUCED, CUSTOMERS
SERVED, MEALS DELIVERED, OR CALLS ANSWERED
• INPUT
• LABOR HOURS, INVESTMENT IN EQUIPMENT, 1-32
MATERIAL USAGE, OR SQUARE FOOTAGE
PRODUCTIVITY

OUTPUT (UNIT
PRODUCED)
INPUT (INPUT USED)
1-33
COMPETITIVENESS AND
PRODUCTIVITY (CONT.)

Measures of Productivity 1-34

 EXAMPLE SINGLE PRODUCTIVITY

• IF UNITS PRODUCED: 1,000 AND LABOR-HOURS

USED IS 250, THEN PRODUCTIVITY?

ANSWER:
• UNITS PRODUCED/INPUT USED
= 1,000/250
= 4 UNITS PER LABOR-HOUR 1-35
 CALCULATE:

Unit produced 100 000

Labor hours 10 000
Machine hours 5 000
Cost of materials $35 000
Cost of energy $15 000

(a) LABOR PRODUCTIVITY

(b) MACHINE PRODUCTIVITY
(c) MULTIFACTOR PRODUCTIVITY OF DOLLAR SPENT ON
LABOR, MACHINE, MATERIALS AND ENERGY.
 THE AVERAGE LABOR RATE IS $15 AN HOUR
 AVERAGE MACHINE USAGE RATE IS $10 AN HOUR
SOLUTION:
 EXAMPLE MULTIFACTOR PRODUCTIVITY

Collins Title Company has a staff of 4, each

working 8 hours per day (for a payroll cost of
$640/day) and overhead expenses of $400 per
day. Collins processes and closes on 8 titles
each day. The company recently purchased a
computerized title-search system that will
allow the processing of 14 titles per day.
Although the staff, their work hours, and pay
are the same, the overhead expenses are now
$800 per day.
 SOLUTION:
Labor productivity with the old system:
8 titles per day = 0.25 titles per labor-hour
32 labor-hours

Labor productivity with the new system:

14 titles per day = 0.4375 titles per labor-hour
32 labor-hours

Multifactor productivity with the old system:

8 titles per day = 0.0077 titles per dollar
$640 + 400

Multifactor productivity with the new system:

14 titles per day = 0.0097 titles per dollar
$640 + 800
1-39
 EXERCISE

PREMIER PRODUCTION SDN. BHD INTENDS TO ASSESS ITS CURRENT PRODUCTIVITY

LEVEL. THE COMPANY IS CONSIDERING TO ADOPT A NEW SYSTEM TO INCREASE ITS
PRODUCTIVITY LEVEL. THE FOLLOWING DATA WAS GATHERED.
a) SINGLE FACTOR PRODUCTIVITY (CURRENT & NEW SYSTEM)
b) THE INCREASE IN PRODUCTIVITY USING NEW SYSTEM
c) MULTIFACTOR PRODUCTIVITY (CURRENT & NEW SYSTEM)
d) THE INCREASE IN PRODUCTIVITY USING NEW SYSTEM

CURRENT SYSTEMS New systems

• OUTPUT LEVEL = 5000 UNITS  Output level = 6500 units
 Labour-hours = 300@RM10
• LABOUR-HOURS = 250@RM10
 Material = RM1000
• MATERIAL = RM1000  Capital = RM400
• CAPITAL = RM400  Overheads = RM100
• OVERHEADS = RM100
 Strategy and Operations
• STRATEGY IS HOW THE MISSION OF A COMPANY IS ACCOMPLISHED.
IT PROVIDES DIRECTION FOR ACHIEVING A MISSION.

FOUR STEPS FOR STRATEGY FORMULATION:

1. DEFINING A PRIMARY TASK
• WHAT IS THE FIRM IN THE BUSINESS OF DOING?
2. ASSESSING CORE COMPETENCIES
• WHAT DOES THE FIRM DO BETTER THAN ANYONE ELSE?
3. DETERMINING ORDER WINNERS AND ORDER QUALIFIERS
• WHAT WINS THE ORDER?
• WHAT QUALIFIES AN ITEM TO BE CONSIDERED FOR PURCHASE?
4. POSITIONING THE FIRM
• HOW WILL THE FIRM COMPETE?
5. DEPLOYING THE STRATEGY
• TRANSLATE CORPORATE STRATEGY INTO MEASURABLE OBJECTIVE.
 PRIMARY TASK:
STRATEGIC PLANNING

Mission
and Vision

Corporate
Strategy

Marketing Operations Financial

Strategy
Copyright 2006 John Wiley & Sons, Inc.
Strategy Strategy
 10 STRATEGIC OM DECISION

1.GOODS AND SERVICE DESIGN

2.QUALITY
3.PROCESS & CAPACITY DESIGN
4.LOCATION’S SELECTION
5.LAYOUT DESIGN
6.HUMAN RESOURCES & JOB DESIGN
7. SUPPLY CHAIN MANAGEMENT
8.INVENTORY
9.SCHEDULING
10.MAINTENANCE
 COMPETITIVE PRIORITIES

• COST COMPETING ON:

-differentiation
• QUALITY -cost
-response
• FLEXIBILITY
• TIME / SPEED
OPERATIONS STRATEGY AT
WAL-MART
 OPERATIONS STRATEGY:
PRODUCTS AND SERVICES

• MAKE-TO-ORDER
• PRODUCTS AND SERVICES ARE MADE TO CUSTOMER
SPECIFICATIONS AFTER AN ORDER HAS BEEN RECEIVED
• MAKE-TO-STOCK
• PRODUCTS AND SERVICES ARE MADE IN
ANTICIPATION OF DEMAND
• ASSEMBLE-TO-ORDER
• PRODUCTS AND SERVICES ADD OPTIONS
ACCORDING TO CUSTOMER SPECIFICATIONS
 PRODUCTION STRATEGY:
PROCESSES AND TECHNOLOGY

• PROJECT
• ONE-AT-A-TIME PRODUCTION OF A PRODUCT TO
CUSTOMER ORDER
• BATCH PRODUCTION
• SYSTEMS PROCESS MANY DIFFERENT JOBS AT THE SAME
TIME IN GROUPS (OR BATCHES)
• MASS PRODUCTION
• LARGE VOLUMES OF A STANDARD PRODUCT FOR A MASS
MARKET
• CONTINUOUS PRODUCTION
• USED FOR VERY HIGH VOLUME COMMODITY PRODUCTS
PRODUCT-PROCESS MATRIX

Source: Adapted from Robert

Hayes and Steven Wheelwright,
Restoring the Competitive
Edge: Competing Through
Manufacturing (New York: John
Wiley & Sons, 1984), p. 209
 Continuous Production
A paper manufacturer produces a
continuous sheet paper from wood
pulp slurry, which is mixed, pressed,
dried, and wound onto reels.

Mass Production
Here in a clean room a worker performs
quality checks on a computer assembly line.

Batch Production
At Martin Guitars bindings on the guitar frame are
installed by hand and are wrapped with a cloth
webbing until glue is dried.

Project
Construction of the aircraft carrier USS Nimitz was a huge
project that took almost 10 years to complete.
 SERVICE STRATEGY:
PROCESSES AND TECHNOLOGY

• PROFESSIONAL SERVICE
• HIGHLY CUSTOMIZED AND VERY LABOR INTENSIVE
• SERVICE SHOP
• CUSTOMIZED AND LABOR INTENSIVE
• MASS SERVICE
• LESS CUSTOMIZED AND LESS LABOR INTENSIVE
• SERVICE FACTORY
• LEAST CUSTOMIZED AND LEAST LABOR INTENSIVE
SERVICE-PROCESS MATRIX

Source: Adapted from Roger

Schmenner, “How Can Service
Businesses Survive and
Prosper?” Sloan Management
Review 27(3):29
 Service Factory
Electricity is a commodity available
continuously to customers.

Mass Service
A retail store provides a standard array of
products from which customers may choose.

Service Shop
Although a lecture may be prepared in advance, its
delivery is affected by students in each class.

Professional Service
A doctor provides personal service to each patient based
on extensive training in medicine.
Copyright 2006 John Wiley & Sons, Inc.
 Policy Deployment

Translating corporate
strategy into measurable
Copyright 2006 John Wiley & Sons, Inc.
objectives
 Balanced Scorecard

 Measuring more than financial performance.

 Examines a firm’s performance in six critical
areas;
1. Financial
2. Customers
3. Process
4. Learning and Growing
5. Social
6. Environmental
 KEY
PERFORMANCE
INDICATORS

SOURCE:
ROBERT KAPLAN AND DAVID
NORTON, STRATEGY MAPS:
CONVERTING INTANGIBLE
ASSETS INTO TANGIBLE
OUTCOMES (BOSTON:
HARVARD BUSINESS SCHOOL
PRESS, 2004), FIGURE 3-2,
P. 67

2-55
 BALANCED SCORECARD

Radar Chart Dashboard