Transcript ppt

Operations
Management
Chapter 1 –
Operations and
Productivity
PowerPoint presentation to accompany
Heizer/Render, Operations Management,
11th Ed.
Some additions and deletions have been made by Ömer Yağız to
this slide set.
(Revised March 2015)
© 2008 Prentice Hall, Inc.
1–1
Some real life scenarios
which I used in the past to
highlight the importance of
Operations Management
• fortunately, some of these scenarios are no
more valid
• many improvements have been realized both
in the public and private sector
• improvement, or continuous improvement, to
be exact, is the right approach to increasing
quality, efficiency, productivity, and
profitability.
© 2008 Prentice Hall, Inc.
1–2
Some Real Life Scenarios in
OM
 Many of us have witnessed the agony and the
suffering (and even deaths) that many senior
citizens have had to endure in order to collect
their retirement or pension pay from the
various commercial banks. This was an
episode that repeated every month or every
three months, especially in large urban
centers. The government organizations and
the banks involved in this service process
unfortunately did nothing for a long time to
improve the situation and increase the quality
of this rather routine service (now the
situation is a little better)
© 2008 Prentice Hall, Inc.
1–3
SOME REAL-LIFE
Some
Real Life SCENARIOS
Scenarios IN
in
OM
OM
 You mail a letter by Express Post (APS) to an
address in İstanbul. The recipient gets it after
3 days; whereas a package sent to İstanbul
via Yurtiçi Kargo (or any of the others) is in
the hands of the addressee in 6 hours. Plus,
order tracking on Google Earth! QUALITY OF
SERVICE?
 You buy a shirt from an expensive store and
pay lots of money; the buttons come off after
the shirt is worn three times. The
manufacturer has to really make a special(!)
effort to achieve this terrible quality.
© 2008 Prentice Hall, Inc.
1–4
Some Real Life Scenarios in
OM
 A THY plane takes off 40 minutes late from an
airport because some Japanese tourists on
board forget to identify their baggage before
boarding the plane. The plane flies from
İstanbul to Ankara in 50 minutes. 40 minutes
delay for a 50 minute flight !! HOW DO WE
EXPLAIN THIS IN TERMS OF EFFICIENCY,
PRODUCTIVITY, AND PROFITABILITY ? (This
has been rectified some time ago by the
elimination of baggage identification prior to
boarding.)
© 2008 Prentice Hall, Inc.
1–5
A real episode at Esenboğa
on Feb. 6, 2012
© 2008 Prentice Hall, Inc.

Esenboğa Airport

lots of delays and
cancellations due to
snow and winter
conditions

an operations manager’s
nightmare (kâbus)

unhappy and angry
passengers

THY and TGS service
personnel in a very
difficult (and unenviable)
position
1–6
A real episode at Esenboğa
on Feb. 6, 2012
 This serious situation had a very
happy ending for the passengers
and service personnel. HOW?
• full and timely information given to
passengers face-to-face and via electronic
boards
• effective and timely catering service to
passengers at the gates
• very courteous, understanding and helpful
attitude by the ground service personnel
towards the passengers
• nobody had the courage to complain
and/or say something bad about the
situation, including myself..
© 2008 Prentice Hall, Inc.
1–7
Some Real Life Scenarios in
OM
 Why did some people prefer McDonald’s or
similar fast-food restaurants despite the fact
that it they were more expensive than
comparable food served elsewhere? The
same is true for Varan and Ulusoy bus
companies..
 When you go to some government office (say,
the Tax Bureau) you spend so much you feel
terribly exhausted after a very routine task. Is
the whole process designed to maximize pain
to citizens ? Now, things are a bit different;
next slide…
© 2008 Prentice Hall, Inc.
1–8
Some Real Life Scenarios in
OM
 Things are better at the Tax Bureau
• attitude change on the part of personnel
(civil servant concept)
• technology in general, IT in particular,
makes the whole process easier, less timeconsuming, more efficient, and less costly
• errors are minimized
• personnel assist those in need of help for
filling out forms, etc.
• they even offer you free tea at the Hitit
Vergi Dairesi..
© 2008 Prentice Hall, Inc.
1–9
Some Real Life Scenarios in
OM
 Things are also better at Çankaya
Kaymakamlığı..
•
Apostille service unit
•
1.5 TL per apostille charged
•
2 X 1.5 TL = 3.00 TL
•
a 3-ply receipt costs 3.00 TL
•
no charge for 2 or less apostilles; 3 or
more apostilles charged at the rate of 1.50
TL per apostille
•
amazingly clever practice by a public
organization!! Olamaz, rüya mı bu?
© 2008 Prentice Hall, Inc.
1 – 10
Some Real Life Scenarios in
OM
 During registration periods at many
universities, poor students have to report to
so many different offices and people, and
have to wait so long in several lines. Not only
the students but also instructors and
administrators have to go through the same
unpleasant experience. Indeed, we are a
society of endless waiting lines! IS THIS
SOMETHING ORDAINED BY GOD OR WHAT
?? (Now with online registration, the situation
has improved somewhat)
© 2008 Prentice Hall, Inc.
1 – 11
Some Real Life Scenarios in
OM
• İnönü Boulevard traffic accident in
one of the underpasses just
yesterday
• Road into Ankara closed for hours;
cars backed up for kms.
• No effective remedy for this serious
problem
• Hudson Tunnel in New York City in
1963 case
© 2008 Prentice Hall, Inc.
1 – 12
Outline
 Global Company Profile: Hard Rock
Café
 Big Chefs in Turkey (11 locations
including Dubai)
 What Is Operations Management?
 Organizing to Produce Goods and
Services
 The Supply Chain
 Why Study OM?
 What Operations Managers Do
© 2008 Prentice Hall, Inc.
1 – 13
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
© 2008 Prentice Hall, Inc.
1 – 14
Outline - Continued
 The Productivity Challenge
 Productivity Measurement
 Productivity Variables
 Productivity and the Service Sector
 New Challenges in OM
 Ethics, Social Responsibility and
Sustainability
© 2008 Prentice Hall, Inc.
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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
© 2008 Prentice Hall, Inc.
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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
© 2008 Prentice Hall, Inc.
1 – 17
The Hard Rock Cafe
 First opened in 1971; theme restaurant
 Now – 150 restaurants in over 53 countries
 Rock music memorabilia
 Creates value in the form of good food
and entertainment
 3,500+ custom meals per day in Orlando
 How does an item get on the menu?
 Role of the Operations Manager
© 2008 Prentice Hall, Inc.
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Köfteci Ramiz
www.kofteciramiz.com
© 2008 Prentice Hall, Inc.
1 – 19
DO & CO Catering
Atilla Doğudan- Vienna
www.doco.com
© 2008 Prentice Hall, Inc.
1 – 20
Dabbawala-Meal Delivery
System in Mumbai, India
• Dabba – metal lunchbox (sefer tası)
• Dabbawala – one who carries dabbas
and delivers them to people in
offices and elsewhere
– http://www.youtube.com/watch?v=sxW9sUnodM8
– http://www.youtube.com/watch?v=fTkGDXRnR9I
– This is required watching… On your own time.
© 2008 Prentice Hall, Inc.
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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
© 2008 Prentice Hall, Inc.
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OM Involves Managing Transformations
Input
Transformation
Process
Output
(Value Adding)
Transformation is
enabled by The 5 Ps of OM:
© 2008 Prentice Hall, Inc.
 People
 Plants
 Parts
 Processes
 Planning and Control
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Transformations
• Physical and chemical--manufacturing
(shoes, PC’s, planes, paint, detergents)
• Locational--transportation (rail, sea, air, road)
• Exchange--retailing (all kinds of stores,
offices), banking ??
• Storage--warehousing (normal and cold
storage)
• Physiological--health care (hospitals, clinics)
• Informational--telecommunications (schools,
Reuter Services, Internet and blogs, news
media, TV services, METU)
© 2008 Prentice Hall, Inc.
1 – 24
Operations as the Technical
Core
Operations
Workers
Finance
Personnel
Purchasing
Suppliers
Capital Markets, Stockholders
Marketing
Customers
© 2008 Prentice Hall, Inc.
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Organizing to Produce
Goods and Services
 Essential functions:
 Marketing – generates demand
 Production/operations – creates
the product
 Finance/accounting – tracks how
well the organization is doing, pays
bills, collects the money
© 2008 Prentice Hall, Inc.
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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)
© 2008 Prentice Hall, Inc.
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Organizational Charts
Airline
Operations
Ground support
equipment
Maintenance
Ground Operations
Facility
maintenance
Catering
Flight Operations
Crew scheduling
Flying
Communications
Dispatching
Management science
© 2008 Prentice Hall, Inc.
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)
1 – 28
Organizational Charts
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
Finance/
accounting
Disbursements/
credits
Receivables
Payables
General ledger
Funds Management
Money market
International
exchange
Capital requirements
Stock issue
Bond issue
and recall
Marketing
Sales
promotion
Advertising
Sales
Market
research
Process analysis
Development and installation of
production tools and equipment
© 2008 Prentice Hall, Inc.
Figure 1.1(C)
1 – 29
The Supply Chain
 A global network of organizations and activities
that supply a firm with goods and services
 Members of the supply chain collaborate to
achieve high levels of customer satisfaction,
efficiency and competitive advantage.
© 2008 Prentice Hall, Inc.
1 – 30
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
© 2008 Prentice Hall, Inc.
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Options for Increasing
Contribution
Cont /unit = p – v (TL)
Breakeven point = TFC/p-v (units)
Current
Sales
Cost of Goods
Gross Margin
Finance Costs
Subtotal
Taxes at 25%
Contribution
$100,000
– 80,000
20,000
– 6,000
14,000
– 3,500
$ 10,500
Increase in contribution
© 2008 Prentice Hall, Inc.
Marketing
Option
Finance/
Accounting
Option
Increase
Reduce
Sales
Finance
Revenue 50% Costs 50%
$150,000
– 120,000
30,000
– 6,000
24,000
– 6,000
$ 18,000
71%
$100,000
– 80,000
20,000
– 3,000
17,000
– 4,250
$ 12,750
21%
OM
Option
Reduce
Production
Costs 20%
$100,000
– 64,000
36,000
– 6,000
30,000
– 7,500
$ 22,500
114%
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What Operations
Managers Do
Basic Management Functions
 Planning
 Organizing
 Staffing
 Leading
 Controlling
© 2008 Prentice Hall, Inc.
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Ten Strategic 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
Scheduling
Maintenance
Chapter(s)
5
6, Supplement 6
7, Supplement 7
8
9
10, Supplement 10
11, Supplement 11
12, 14, 16
13, 15
17
Table 1.2
© 2008 Prentice Hall, Inc.
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The Strategic Decisions
1. Design of goods and services
 Defines what is required of operations
 Product design determines quality,
sustainability and human resources
2. Managing quality
 Determine the customer’s quality
expectations
 Establish policies and procedures to
identify and achieve that quality
Table 1.2 (cont.)
© 2008 Prentice Hall, Inc.
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The Strategic Decisions
3. Process and capacity design
 How is a good or service produced?
 Commits management to specific
technology, quality, resources, and
investment.
4. Location strategy
 Nearness to customers, suppliers,
and talent.
 Considering costs, infrastructure,
logistics, and government .
Table 1.2 (cont.)
© 2008 Prentice Hall, Inc.
1 – 36
The Strategic Decisions
5. Layout strategy
 How should we arrange the facility?
 Integrate capacity needs, personnel
levels, technology, and inventory
6. Human resources and job design
 Recruit, motivate, and retain
personnel with the required talent and
skills.
 Integral and expensive part of the
total system design.
Table 1.2 (cont.)
© 2008 Prentice Hall, Inc.
1 – 37
The Strategic Decisions
7. Supply chain management
 Integrate supply chain into the firm’s
strategy
 Determine what is to be purchased, from
whom, and under what conditions.
8. Inventory managementI
 Inventory ordering and holding
decisions.
 Optimize considering customer
satisfaction, supplier capability, and
Table 1.2 (cont.)
production schedules.
© 2008 Prentice Hall, Inc.
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The Strategic Decisions
9. Scheduling
 Determine and implement
intermediate- and short-term
schedules.
 Utilize personnel and facilities while
meeting customer demands.
10.Maintenance
 Consider facility capacity, production
demands, and personnel.
 Maintain a reliable and stable process.
Table 1.2 (cont.)
© 2008 Prentice Hall, Inc.
1 – 39
Where are the OM Jobs?
© 2008 Prentice Hall, Inc.
Figure 1.2
1 – 40
Where are the OM Jobs?










© 2008 Prentice Hall, Inc.
Technology/methods
Facilities/space utilization
Strategic issues
Response time
People/team development
Customer service
Quality
Cost reduction
Inventory reduction
Productivity improvement
1 – 41
Opportunities
Figure 1.2
© 2011 Pearson Education, Inc. publishing as Prentice Hall
1 - 42
Certifications
 APICS, the American Production and
Inventory Control Society
 American Society of Quality (ASQ)
 Institute for Supply Management (ISM)
 Project Management Institute (PMI)
 Council of Supply Chain Management
Professionals
 Charter Institute of Purchasing and
Supply (CIPS)
© 2011 Pearson Education, Inc. publishing as Prentice Hall
1 - 43
Significant Events in OM
Figure 1.3
© 2008 Prentice Hall, Inc.
1 – 44
The Heritage of OM
 Division of labor (Adam Smith 1776;
Charles Babbage 1852)
 Interchangeable (standardized) parts
(Whitney 1800)
 Scientific Management (Taylor 1881)
 Coordinated assembly line (Ford/
Sorenson 1913- (93 minutes vs. 12.5 hours
for chassis assembly))
 Gantt charts (Gantt 1916)
 Motion study (Frank and Lillian Gilbreth
1922)
 Quality control (Shewhart 1924; Deming
1950)
© 2008 Prentice Hall, Inc.
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The Heritage of OM
 Electronic digital computer (Atanasoff 1938)
 not programmable; solved linear equations
 CPM/PERT (DuPont 1957)
 Material requirements planning (Orlicky 1960)
 Computer aided design (CAD 1970)
 Flexible manufacturing system (FMS 1975)
 JIT,TQC,TQM,KANBAN, Poka Yoke (1980’s)
 EFQM and Baldrige Quality Awards (1980)
 Computer integrated manufacturing (1990)
 Globalization (1992)
 Internet (1995)
 e-business, e-government (1996- )
© 2008 Prentice Hall, Inc.
1 – 46
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 (tüfek) parts could be used
in any musket
© 2008 Prentice Hall, Inc.
1 – 47
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
© 2008 Prentice Hall, Inc.
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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
© 2008 Prentice Hall, Inc.
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Frank & Lillian Gilbreth
 Frank (1868-1924); Lillian (18781972)
 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,” book: “Bells on Their Toes”
© 2008 Prentice Hall, Inc.
1 – 50
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!)
“The customer can have any color as long as it is black”
© 2008 Prentice Hall, Inc.
H. Ford
1 – 51
W. Edwards Deming
 Born 1900; died 1993
 Engineer and physicist
 Credited with teaching Japan
quality control methods in postWW2
 Used statistics to analyze process
 His methods involve workers in
decisions
© 2008 Prentice Hall, Inc.
1 – 52
Deming Institute:
http://deming.org
© 2008 Prentice Hall, Inc.
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Contributions From
 Human factors
(ergonomics, fatigue
studies)
 Industrial engineering
 Management science
(operations research)
 Biological science
 Physical sciences
 Information technology
© 2008 Prentice Hall, Inc.
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What is Industrial
Engineering ?
Industrial engineering is concerned with the
design, installation, and improvement of
integrated systems of people, material,
information, equipment and energy.
It draws upon specialized knowledge and
skills in the mathematical, physical and
social sciences, together with the principles
and methods of engineering analysis and
design to specify, predict and evaluate the
results to be obtained from such systems.
IIE Web Site -- http://www.iienet.org
© 2008 Prentice Hall, Inc.
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What is Operations
Research ?
OR/MS Professionals aim to provide
rational bases for decision making by
seeking to understand and structure
complex situations and to use this
understanding to predict system behavior
and improve system performance.
Much of this work is done using analytical
and numerical techniques to develop and
manipulate mathematical and computer
models of organizational systems
composed of people, machines, and
procedures.
...
http://www.informs.org/
© 2008 Prentice Hall, Inc.
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What is Operations
Research ?
OR/MS draws upon ideas from engineering,
management, mathematics, and psychology
to contribute to a wide variety of application
domains; the field is closely related to
several other fields in the "decision
sciences" -- applied mathematics, computer
science, economics, and industrial
engineering.
INFORMS Web Site -http://www.informs.org
© 2008 Prentice Hall, Inc.
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New Challenges in OM
From
To
 Local or national focus
 Global focus
 Batch shipments
 Just-in-time
 Low bid purchasing
 Supply chain
partnering (keiretsu?)
 Lengthy product
development
 Rapid product
development,
alliances
 Standard products
 Mass customization
 Job specialization
 Empowered
employees, teams
© 2008 Prentice Hall, Inc.
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Current Issues
 Speeding up the time it takes to get new products
into production. (Concurrent engineering -- eş
zamanlı mühendislik)
 Developing flexible production systems to enable
“mass customization” of products and services.
(kişiye özel seri üretim; kitlesel bireyselleştirme;
özelleştirme)
 Managing global production networks.
 Developing and integrating new production
technologies into existing production systems
….
© 2008 Prentice Hall, Inc.
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Current Issues
 Achieving high quality quickly and keeping it up
in the face of restructuring.
 Managing a diverse workforce.
 Conforming to environmental constraints, ethical
standards, and government regulations.
© 2008 Prentice Hall, Inc.
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Mass Customization (kişiye özel seri üretim)
Interesting Example
Panasonic Bicycles
Matsushita Corp.- NBIC
21 employeees plus CAD system
18 basic models in 199 color patterns; 8 million
variations
Standard model - 90 min/unit; special model - 150
min/unit
Price: %20-30 more than standard model
Delivery time: ~ 3 weeks (Why? -- feeling of
anticipation for something special!!)
© 2008 Prentice Hall, Inc.
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Mass customization
• Kitlesel Özelleştirme
• Kitle Özelleştirmesi
• Kişiselleştirme
• Kitlesel Bireyselleştirme
• Seri Uyarlama
• Yığın Kişiselleştirme
• Kitlesel Özel Üretim
• Kişiye Özel Üretim
• *Kişiye Özel Kitlesel (seri) Üretim
© 2008 Prentice Hall, Inc.
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Mass Customization (kişiye özel seri üretim)
 Many computer companies at one time
used to let you configure your own laptop
 HP
 Toshiba
 Dell
 Gateway (one of the pioneers in this area)
© 2008 Prentice Hall, Inc.
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Characteristics of Goods
 Tangible product
 Consistent product
definition
 Production usually
separate from
consumption
 Can be inventoried
 Low customer
interaction
 Often easy to
automate
© 2008 Prentice Hall, Inc.
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Characteristics of Service
 Intangible product
 Produced and consumed at
same time
 Often unique
 High customer interaction
 Inconsistent product
definition
 Often knowledgebased(education, medical,
legal, etc.)
 Frequently dispersed(local
office, house call, etc.)
© 2008 Prentice Hall, Inc.
 Not possible or easy to
automate
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Goods Versus Services
Attributes of Goods
(Tangible Product)
Attributes of Services
(Intangible Product)
Can be resold
Can be inventoried
Some aspects of quality
measurable
Selling is distinct from
production
Product is transportable
Reselling unusual
Difficult to inventory
Quality difficult to measure
Site of facility important for cost
Often easy to automate
Revenue generated primarily
from tangible product
© 2008 Prentice Hall, Inc.
Selling is part of service
Provider, not product, is
often transportable
Site of facility important for
customer contact
Often difficult to automate
Revenue generated primarily
from the intangible service
Table 1.3
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Differences Between Goods and
Services
TABLE 1.3
CHARACTERISTICS OF SERVICES
CHARACTERISTICS OF GOODS
Intangible: Ride in an airline seat
Tangible: The seat itself
Produced and consumed simultaneously: Beauty salon
produces a haircut that is consumed as it is produced
Product can usually be kept in inventory (beauty care
products)
Unique: Your investments and medical care are unique
Similar products produced (iPods)
High customer interaction: Often what the customer is
paying for (consulting, education)
Limited customer involvement in production
Inconsistent product definition: Auto Insurance
changes with age and type of car
Product standardized (iPhone)
Often knowledge based: Legal, education, and medical
services are hard to automate
Standard tangible product tends to make automation
feasible
Services dispersed: Service may occur at retail store,
local office, house call, or via internet.
Product typically produced at a fixed facility
Quality may be hard to evaluate: Consulting,
education, and medical services
Many aspects of quality for tangible products are easy
to evaluate (strength of a bolt)
Reselling is unusual: Musical concert or medical care
Product often has some residual value
© 2014 Pearson Education
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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
Figure 1.4
© 2008 Prentice Hall, Inc.
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Manufacturing and Service
Employment
Employment (millions)
120 –
100 –
80 –
60 –
40 –
20 –
0–
© 2008 Prentice Hall, Inc.
Service
Manufacturing
|
|
|
|
|
|
|
1950
1970
1990 2010 (est)
1960
1980
2000
Figure 1.5 (A)
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Manufacturing Employment
and Production
Industrial
production
(right scale)
– 125
– 100
– 75
40
30
20
10
0
–
–
–
–
–
Manufacturing – 50
employment
(left scale)
Index: 1997 = 100
Employment (millions)
– 150
– 25
|
1950
|
|
|
|
–| 0
1970
1990 2010 (est)
1960
1980
2000
|
Figure 1.5 (B)
© 2008 Prentice Hall, Inc.
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Development of the
Service Economy
|
40
|
|
|
50
60
70
Percent of GDP
United States
Canada
France
Italy
Britain
Japan
W. Germany
|
80
1970
2008 (est)
Figure 1.5 (C)
© 2008 Prentice Hall, Inc.
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Organizations in Each Sector
Service Sector
Example
% of all
Jobs
(USA)
Education,
Legal, Medical,
and other
ODTÜ, Bayındır
Hastaneleri, Arnold
Palmer Hospital
25.5
Trade (retail,
wholesale)
Migros,Walgreen’s, WalMart, Nordstrom’s,
Teknosa
15.1
Utilities,
Transportation
Enerjisa, Başkent Gaz,
THY, DDY, Pacific Gas &
Electric, American
Airlines, Santa Fe R.R.,
Roadway Express
5.2
© 2008 Prentice Hall, Inc.
Table 1.4
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Organizations in Each Sector
Service Sector
Example
% of all
Jobs
Professional
and Business
Services
Snelling and Snelling, Waste
Management, Pitney-Bowes
10.1
Finance,
Information,
Real Estate
Citicorp, American Express,
Prudential, Aetna, Trammel
Crow, EDS, IBM
9.6
Food, Lodging,
Entertainment
Olive Garden, Hard Rock Cafe,
Motel 6, Hilton Hotels, Walt
Disney, Paramount Pictures
8.5
Public
Administration
U.S., State of Alabama, Cook
County
4.6
Table 1.4
© 2008 Prentice Hall, Inc.
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Organizations in Each Sector
Manufacturing
Sector
Example
% of all
Jobs
Manufacturing
TOFAŞ, ÇİMSA,General
Electric, Ford, U.S. Steel,
Intel
11.5
Construction
MESA, TEKFEN, Bechtel,
McDermott
7.9
Agriculture
King Ranch
1.6
Mining
Homestake Mining
0.4
Sector
Percent of all jobs
Service
78.6%
Manufacturing
21.4%
© 2008 Prentice Hall, Inc.
Table 1.4
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New Trends in OM
Past
Causes
Future
Local or
national
focus
Reliable worldwide
communication and
transportation networks
Global focus,
moving
production
offshore
Batch (large)
shipments
Short product life cycles
and cost of capital put
pressure on reducing
inventory
Just-in-time
performance
Low-bid
purchasing
Supply chain competition
requires that suppliers be
engaged in a focus on the
end customer
Supply chain
partners,
collaboration,
alliances,
outsourcing
Figure 1.6
© 2008 Prentice Hall, Inc.
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New Trends in OM
Past
Lengthy
product
development
Standardized
products
Job
specialization
Causes
Shorter life cycles,
Internet, rapid international
communication, computeraided design, and
international collaboration
Affluence and worldwide
markets; increasingly
flexible production
processes
Changing socioculture
milieu; increasingly a
knowledge and information
society
Future
Rapid product
development,
alliances,
collaborative
designs
Mass
customization
with added
emphasis on
quality
Empowered
employees,
teams, and lean
production
Figure 1.6
© 2008 Prentice Hall, Inc.
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New Trends in OM
Past
Causes
Low-cost
focus
Environmental issues, ISO
14000, increasing disposal
costs
Ethics not
at forefront
Businesses operate more
openly; public and global
review of ethics; opposition
to child labor, bribery,
pollution
Future
Environmentally
sensitive
production, green
manufacturing,
recycled
materials,
remanufacturing
High ethical
standards and
social
responsibility
expected
Figure 1.6
© 2008 Prentice Hall, Inc.
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Summary- New Trends in OM








© 2008 Prentice Hall, Inc.
Global focus
Just-in-time performance
Supply chain partnering
Rapid product development
Mass customization
Empowered employees
Environmentally sensitive production
Ethics
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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
© 2008 Prentice Hall, Inc.
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The Economic System
Inputs
Processes
Outputs
Labor,
capital,
management
The U.S. economic system
transforms inputs to outputs
at about an annual 2.5%
increase in productivity per
year. The productivity
increase is the result of a
mix of capital (38% of 2.5%),
labor (10% of 2.5%), and
management (52% of 2.5%).
Goods
and
services
Feedback loop
Figure 1.7
© 2008 Prentice Hall, Inc.
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Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave 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
© 2008 Prentice Hall, Inc.
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Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Operations improvements have
helped Starbucks
increase
yearly
Stop requiring signatures
Saved
8 seconds
revenue per outlet
$200,000 to
on credit card purchases
perby
transaction
$940,000 in six years.
under $25
improved
by 27%,
Change the sizeProductivity
of the ice hasSaved
14 seconds
or about 4.5% per
scoop
peryear.
drink
New espresso machines
© 2008 Prentice Hall, Inc.
Saved 12 seconds
per shot
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Efficiency vs. effectiveness
Efficiency – doing a job with a minimum
of resources and waste i.e. doing the job
well.
Efficiency= actual output/standard output
(70pcs/hr) / (60 pcs/hr) = 1.17
Effectiveness – achieving your stated
goal or purpose i.e. doing the right job.
© 2008 Prentice Hall, Inc.
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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
© 2008 Prentice Hall, Inc.
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Productivity Calculations
Labor Productivity
Productivity =
=
Units produced
Labor-hours used
1,000
250
= 4 units/labor-hour
One resource input  single-factor productivity
© 2008 Prentice Hall, Inc.
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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
© 2008 Prentice Hall, Inc.
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IllustrationCollins Title Productivity
Old System (Non-computerized):
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
Note: Collins Title is a reinsurance company (tapu
sigortası). It has set up a new computerized title search
system.
© 2008 Prentice Hall, Inc.
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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 = .25 titles/labor-hr
© 2008 Prentice Hall, Inc.
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Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old labor
=
productivity 32 labor-hrs = .25 titles/labor-hr
14 titles/day
New labor
=
productivity
32 labor-hrs
© 2008 Prentice Hall, Inc.
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Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old labor
=
productivity 32 labor-hrs = .25 titles/labor-hr
14 titles/day
New labor
=
= .4375 titles/labor-hr
productivity
32 labor-hrs
© 2008 Prentice Hall, Inc.
75 % increase
1 – 90
Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old multifactor
=
productivity
$640 + 400
© 2008 Prentice Hall, Inc.
1 – 91
Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old multifactor
=
= .0077 titles/dollar
productivity
$640 + 400
© 2008 Prentice Hall, Inc.
1 – 92
Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old multifactor
=
= .0077 titles/dollar
productivity
$640 + 400
14 titles/day
New multifactor
=
productivity
$640 + 800
© 2008 Prentice Hall, Inc.
1 – 93
Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old multifactor
=
= .0077 titles/dollar
productivity
$640 + 400
14 titles/day
New multifactor
=
= .0097 titles/dollar
productivity
$640 + 800
26 % increase
© 2008 Prentice Hall, Inc.
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Measurement Problems
 Quality may change while the
quantity of inputs and outputs
remains constant
 External elements may cause an
increase or decrease in
productivity(power or gas
shortages, strikes & lockouts, etc)
 Precise units of measure may be
lacking (not all cars may require the
same inputs– Opel Corsa vs.
Porsche)
© 2008 Prentice Hall, Inc.
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Productivity Variables
For the U.S. economy’s
2.5 % annual increase
 Labor - contributes
about 10% of the
annual increase
 Capital - contributes
about 38% of the
annual increase
 Management contributes about 52%
of the annual increase
© 2008 Prentice Hall, Inc.
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Key Variables for Improved
Labor Productivity
 Basic education appropriate for the
labor force
 Diet of the labor force
 Social overhead that makes labor
available (transportation, sanitation,
health services, etc.)
 Maintaining and enhancing skills in the
midst of rapidly changing technology
and knowledge
© 2008 Prentice Hall, Inc.
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Labor Skills
About half of the 17-year-olds in the US cannot
correctly answer questions of this type
Figure 1.8
© 2008 Prentice Hall, Inc.
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Investment and Productivity
Percent increase in productivity
10
8
6
4
2
0
10
15
20
25
30
35
Percentage investment
© 2008 Prentice Hall, Inc.
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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
© 2008 Prentice Hall, Inc.
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NO COMMENT!
© 2008 Prentice Hall, Inc.
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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
How about DO&CO İkram Hizmetleri A.Ş.
(Airline Catering Company)?
http://www.doco.com
© 2008 Prentice Hall, Inc.
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Productivity at Taco Bell
Improvements:
 Revised the menu
Results:
Designed meals for easy preparation
 Shifted some preparation to suppliers
 Preparation time of tacos cut to 8
 Efficient layout and automation
seconds
 Training and employee empowerment
 Management span of control
increased from 5 to 30
 In-store labor cut by 15 hours/day
 Stores handle twice the volume with
half the labor
 Fast-food low-cost leader
© 2008 Prentice Hall, Inc.
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Ethics and Social Responsibility
Challenges facing
operations managers:
 Developing and producing safe,
quality products
 Maintaining a clean environment
 Providing a safe workplace
 Honoring community commitments
© 2008 Prentice Hall, Inc.
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Copenhagen County Hospital
• Textbook – p. 54
• Cost cutting example
• Another example: think of Hacettepe
Hospital (or any large-scale hospital
in Turkey) – lots of opportunities for
cutting costs and increasing
efficiency and productivity
© 2008 Prentice Hall, Inc.
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Some Bestseller Books on Operations Management

Porter, Michael E., The Competitive Advantage of Nations. The Free
Press, 1990.

Womack, James P., Jones, Daniel T., and Daniel Roos. The Machine
That Changed The World: The Story of Lean Production. Harper
Collins, 1990.

Womack, James P., Jones, Daniel T. Lean Thinking. Simon and
Schuster, 1996

Treacy, Michael and Fred Wiersema. The Discipline of Market Leaders.
Addison Wesley, 1997.

Halberstam, David. The Reckoning. Avon Books, 1986

Hammer, Michael and James Champy. Reengineering the Corporation:
A Manifesto for Business Revolution. Harper Collins, 1994.

Hammer, Michael and Steven A. Stanton. The Reengineering Revolution
Handbook. Harper Collins, 1995

Liker, Jeffrey K. The Toyota Way. McGraw-Hill, 2004.
© 2008 Prentice Hall, Inc.
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Some Bestseller Books on Operations Management
 Pande, Peter S., Neuman, Robert P., Cavanagh, Roland R. The
Six Sigma Way. McGraw-Hill 2000.
© 2008 Prentice Hall, Inc.
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Some Landmark Articles on Operations Management

Porter, Michael E. “The Competitive Advantage of Nations.” Harvard
Business Review (HBR), March-April 1990.

Skinner, Wickham. “Manufacturing - Missing Link in Corporate
Strategy.” HBR, May-June 1969.

Skinner, Wickham. “The Focused Factory.” HBR, May-June 1974.

Wheelwright, Steven C. and Robert H. Hayes. “Competing Through
Manufacturing.” HBR, January-February 1985.

Hayes, Robert H. “Why Japanese Factories Work.” HBR, July-August
1981.

Skinner, Wickham. “The Productivity Paradox.” HBR, July-August
1986.

Hayes, Robert H. and Kim Clark. “Why Some Factories Are More
Productive Than Others.” HBR, September-October 1986.
© 2008 Prentice Hall, Inc.
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Some Landmark Articles on Operations Management
 Drucker, Peter F. “The Emerging Theory of Manufacturing.” HBR,
May-June 1990.
 Drucker, Peter F. “The Productivity Challenge.” HBR, NovemberDecember 1991.
© 2008 Prentice Hall, Inc.
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