M1: Operations and Productivity

• Operations management is a discipline that applies to all industries.
• Regardless of whether it is a restaurant, a manufacturing company, a hotel, a hospital, or a department store - the production of goods and services needs operation management.
• Production is the creation of goods and services.  It turns inputs, such as natural resources, raw materials, human resources, and capital, into outputs, which are goods and services.
• This process is shown in the above Figure1. Managing this conversion process is the role of operations management.
• Figure 1. Production Process for Products and Services (Attribution: Copyright  Rice University, OpenStax, under CC BY 4.0 license.)

  
• Goods are physical products that can be seen, touch, or possibly consume.
• Services are primary or complementary activities that does not directly produce physical products.
• CHARACTERISTICS OF GOODS

  *Tangible product

  *Consistent prioduct definition

  *Production usually separate from consumption

  *Can be invented

  *Low customer interaction
• CHARACTERISTICS OF SERVICE

  *Intangible product

  *Produced and consumed at the same time

  *High customer interaction

  *Inconsistent product definition

  *Often knowledge-based

  *Frequently dispersed
• GOODS VS. SERVICES

  ATTRIBUTES OF GOODS (TANGIBLE PRODUCT)

  *Can be resold

  *Can be invested

  *Some aspects of quality measurable

  *Selling is distinct from production

  *Product is transportable

  *Site of facility important for cost

  *Often easy to automate

  *Revenue generated primarily from tangible product
• GOODS VS. SERVICES

  ATTRIBUTES OF SERVICES (INTANGIBLE PRODUCT)

  *Reselling unusual

  *Difficult to inventory

  *Quality difficult to measure

  *Selling is part of service

  *Provider, not product, is often transportable

  *Site of facility important for cutomer contact

  *Often difficult to automate

  *revenue generated primarily from the intangible service
• Production management deals with decision making related to production processes so that the resulting goods or services are produced according to specifications, in the amount and by the schedule demanded and out of minimum cost.” -E.S. Buffa 
• Production management is the process of planning and regulating the operations of that part of a business which is responsible for actual transformation of materials into finished products. -A.W.Field
• Production management is concerned with the process which convert the inputs into outputs such as men, material, money, method etc. and the output such as goods or services. -H.A.Harding
• Operations management involves three main types of decisions, typically made at three different stages:

  1. PRODUCTION PLANNING
  2. PRODUCTION CONTROL
  3. IMPROVING PRODUCTION AND OPERATIONS
• Operations management involves three main types of decisions, typically made at three different stages:

  1. Production planning. The first decisions facing operations managers come at the planning stage. At this stage, managers decide where, when, and how production will occur. They determine site locations and obtain the necessary resources.
• Operations management involves three main types of decisions, typically made at three different stages:

  2. Production control. At this stage, the decision-making process focuses on controlling quality and costs, scheduling, and the actual day-to-day operations of running a factory or service facility.
• Operations management involves three main types of decisions, typically made at three different stages:

  3. Improving production and operations. The final stage of operations management focuses on developing more efficient methods of producing the firm’s goods or services.
• WHY STUDY OM?

  *OM is one of 3 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
• ORGANIZATIONAL CHART FOR AIRLINE

  
• ORGANIZATIONAL CHART FOR COMMERCIAL BANK

  
• ORGANIZING TO PRODUCE GOODS AND SERVICESESSENTIAL FUNCTIONS

  *Marketing ---generates demand

  *Finance/Accounting --- tracks how well the organization is doing, pays bills, and collects the money
• CUSTOMIZATION FOCUS

  Mass Customization Era 1995-2005

  *Globalization

  *Internet

  *Enterprise Resource Planning

  *Learning Organization

  *International Quality Standards

  *Finite Scheduling

  *Supply Chain Management

  *Agile Manufacturing
• QUALITY FOCUS

  Lean Production Era 1990-1995

  *Just-in-time

  *Computer Aided Design

  *Electronic Data Interchange

  *Total Quality Management

  *Baldrige Award

  *Empowerment

  *Kanbans
• COST FOCUS

  Early Concepts 1776-1880

  *Labor Specialization (Smith, Babbage)

  *Standardize Parts (Whitney)

  Scientific Management Era 1880-1910

  *Gantt Charts (Gantt)

  *Motion & Time Studies (Gilbreth)

  *Process Analysis (Taylor)

  *Queuing Theory (Erlang)

  Mass Production Era 1910-1980

  *Moving Assembly Line (Ford/Sorensen)

  *Statiscal Sampling (Shewshart)

  *Economic Order Quantity (Harris)

  *Linear Programming (Dantzig) PERT/CPM (Dupoint)

  *Material Requirements Planning
• THE HERITAGE OF OPERATIONS MANAGEMENT

  *division of labor (adam smith 1776 and charles babbage 1852)

  *standardized parts (whitney 1800)

  *scientific management (taylor 1881)

  *coordinated assembly line (ford/sorenson/avery 1913)

  *gantt charts (gantt 1916)

  *motion study (frank and lilian gilbreth 1922)

  *quality control (shewhart 1924, deming 1950)

  *computer (atanasoff 1938)

  *cpm/pert (dupont 1957)
• THE HERITAGE OF OPERATIONS MANAGEMENT CONTINUED

  *material requirements planning (orticky 1960)

  *computer aided design (CAD 1970)

  *flexible manufacturning (FMS 1975)

  *baldridge quality awards (1980)

  *computer integrated manufacturing (1990)

  *internet (1995)
• 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 productivity!

  IMPORTANT NOTE!

  Production is a measure of output only and not a measure of efficiency.
• productivity = units produced / input used

  *measure of process improvement

  *represents output relative to input

  *only through productivity increases can our standard of living improve
• Labor Productivity

  Productivity = units produced / labor-hours used

  one resource input---> single factor productivity
• Multi-Factor Productivity

  Productivity = output / labor + material + energy + capital + miscellaneous

  *also known as total factor productivity

  *output and input are often expressed in dollars

  multiple resource inputs ---> multi-factor productivity
• Example 1.  

  Collins title Company has a staff of 4 each, each working 8 hours per day (for a payroll cost of P640/day) and overhead expenses of P400 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 P800 per day. What will be the impact on productivity of the new system?   

  
• To summarize, Production management according to E.S.Buffa, deals with decision making related to production processes so that the resulting goods or services are produced according to specifications, in the amount and by the schedule demanded and out of minimum cost.  To create goods and services, all organizations perform three functions.  These functions are necessary in order for the organization to survive.
• These are marketing, which generates the demand, or at least takes the order for a product or service, operations, which creates the product, and finance or accounting, which tracks how well the organization is doing, pays bills and collects the money.  The field of operations management is relatively young, but its history is quiet interesting.  Our lifestyle and the field of operations have been greatly enhanced by the innovations and contributions of many individuals, where majority came from the twentieth century.