Transcript ISQM 377: Production Operations Analysis

AIMS 3770:
Production Operations Analysis
Dr. Linda Leon
Spring 2015
http://myweb.lmu.edu/lleon/aims3770/
What Is Operations
Management?
• Production is the creation of goods and
services
• Operations management is the set of
activities that creates goods and services by
transforming inputs into outputs
Why Study OM?
• OM is one of three major functions
(marketing, finance, and operations) of any
organization
• You need to know how goods and services
are produced
• OM is a costly part of an organization
Options for Increasing
Contribution
Marketing
Option
Current
Sales
Cost of
Goods Sold
Gross
Margin
Finance
Costs
Taxes @
25%
Contribution
$100,000
Sales
Revenue :
+50%
$150,000
-80,000
Finance &
OM Option
Accounting
Option
Finance
Production
Costs: -50% Costs: -20%
$100,000
$100,000
-120,000
-80,000
-64,000
20,000
30,000
20,000
36,000
-6,000
-6,000
-3,000
-6,000
14,000
-3,500
24,000
-6,000
17,000
-4,250
30,000
-7,500
10,500
18,000
12,750
22,500
Functions - Bank
Commercial Bank
© 1984-1994
T/Maker Co.
Marketing
Teller
Scheduling
Operations
Facilities
Layout
Transactions
Processing
Finance/
Accounting
Security
Functions - Airline
Airline
Marketing
Flight
Operations
Operations
Ground
Support
Aircraft
Maintenance
© 1984-1994 T/Maker Co.
Finance/
Accounting
Catering
Functions - Manufacturer
Manufacturing
Marketing
Facilities
Finance/
Accounting
Operations
Production
Control
Quality
Control
Supply Chain
Management
Efficiency =
Value added to good or service
Productivity = Output/Input
where inputs are
Labor + material + energy + capital
+ time + information
Location Strategy & Labor Cost
Example
• Location 1:
– Employees earn $12/hour and produce 1.25
units per hour
• Location 2:
– Employees earn $10/hour and produce 1.0 units
per hour
• Measure of Productivity = Labor Cost per
Unit
Productivity Increases
• Productivity increases when output increases more
than input or when input decreases more than output.
• Increases in productivity measure process
improvement and are correlated with improved
standard of living
• Since 1869, U.S. productivity increased at an average
rate of 2.5% per year.
• In 21st century, U.S. productivity has been slightly
lower than 2.5 % per year on average
Variables that Create Productivity
Increases
• Labor (10%)
• Capital (38%)
• Management (52%)
Operations Course Objectives
• To understand the common principles of
production and operations management
• To apply strategies dealing with various problems
encountered in the production of goods and
services
• To be aware of current issues and trends
encountered in the production of goods and
services
• To communicate persuasively in written form an
effective strategy for managing a company’s
operations
New
Challenges
in
OM
From
To
• Local or national
focus
• Batch shipments
• Low bid purchasing
• Global focus
• Lengthy product
development
• Rapid product
development,
alliances
• Standard products
• Short-term low costs
• Mass customization
• Sustainability
• Just-in-time
• Supply chain
partnering
CBA Core Outcomes
• To utilize quantitative techniques to model and
evaluate business decisions
• To effectively utilize information technology and
productivity software to analyze a business
problem, recommend possible solutions, and
communicate results to the appropriate audience
• To demonstrate critical thinking skills by defining,
modeling, analyzing and evaluating complex
business problems