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OM Ch01 Operations and Productivity Heizer

This document provides an introduction to operations management. It discusses key concepts like production, operations management, supply chains, and productivity. It also outlines 10 strategic decisions that operations managers must make, such as designing goods/services, managing quality, determining processes, and scheduling. Improving productivity is important, as shown through examples of Starbucks streamlining transactions to save seconds per customer. Overall, the document defines operations management and its importance in transforming inputs into valuable outputs.

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0% found this document useful (0 votes)

52 views31 pages

OM Ch01 Operations and Productivity Heizer

Uploaded by

Saimuna Yeasmin

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Operations and Productivity

Chapter 1
OPERATIONS MANAGEMENT by
Jay Heizer, Barry Render and
Chuck Munson

Md. Tanvir Alam

Assistant Professor
Dept. of Marketing, DU 1
“Our business is about technology, yes. But it’s also about operations and customer
relationships.”

—– Michael Saul Dell

2
“You can make a lot of mistakes and still recover if you run an efficient operation.
Or you can be brilliant and still go out of business if you’re too inefficient.”

– Sam Walton
INTRODUCTION
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. Activities creating
goods and services take place in all organizations.
 In manufacturing firms, the production activities
that create goods are usually quite obvious. In
What Is Operations Management? them, we can see the creation of a tangible product
such as a Sony TV or a Harley-Davidson
motorcycle.
 In an organization that does not create a tangible
good or product, the production function may be
less obvious. We often call these activities services.
The services may be “hidden” from the public and
even from the customer. The product may take
such forms as the transfer of funds from a savings
account to a checking account, the transplant of a
liver, the filling of an empty seat on an airplane, or
the education of a student.
Examples

Organization Charts for One

Service Organizations and One
Manufacturing Organization
The Supply Chain

A supply chain (see Figure) is a Soft Drink Supply Chain

global network of organizations A supply chain for a bottle of Coke requires a beet or
sugar cane farmer, a syrup producer, a bottler, a
and activities that supply a firm distributor, and a retailer, each adding value to satisfy a
customer. Only with collaborations between all members
with goods and services. of the supply chain can efficiency and customer
satisfaction be maximized. The supply chain, in general,
starts with the provider of basic raw materials and
continues all the way to the final customer at the retail
store.
Why Study OM?
 OM is one of the three major functions of
any organization, and it is integrally
related to all the other business
functions.

We study OM for four reasons:  We study OM because we want to know

how goods and services are produced .

 We study OM to understand what

operations managers do .

 We study OM because it is such a costly

part of an organization .
What Operations
Managers Do
• Design of goods and services
• Managing quality
• Process strategy
• Location strategies
10 Strategic OM Decisions
• Layout strategies
• Human resources
• Supply-chain management
• Inventory management
• Scheduling
• Maintenance
10 Strategic OM Decisions
1. Design of goods and services: Defines much of what is required of operations in each of the other OM decisions. For
instance, product design usually determines the lower limits of cost and the upper limits of quality, as well as major
implications for sustainability and the human resources required.
2. Managing quality: Determines the customer’s quality expectations and establishes policies and procedures to identify
and achieve that quality.
3. Process and capacity strategy: Determines how a good or service is produced (i.e., the process for production) and
commits management to specific technology, quality, human resources, and capital investments that determine much of the
firm’s basic cost structure.
4. Location strategy: Requires judgments regarding nearness to customers, suppliers, and talent, while considering costs,
infrastructure, logistics, and government.
5. Layout strategy: Requires integrating capacity needs, personnel levels, technology, and inventory requirements to
determine the efficient flow of materials, people, and information.
6. Human resources and job design: Determines how to recruit, motivate, and retain personnel with the required talent
and skills. People are an integral and expensive part of the total system design.
7. Supply chain management: Decides how to integrate the supply chain into the firm’s strategy, including decisions that
determine what is to be purchased, from whom, and under what conditions.
8. Inventory management: Considers inventory ordering and holding decisions and how to optimize them as customer
satisfaction, supplier capability, and production schedules are considered.
9. Scheduling: Determines and implements intermediate- and short-term schedules that effectively and efficiently utilize
both personnel and facilities while meeting customer demands.
10. Maintenance: Requires decisions that consider facility capacity, production demands, and personnel necessary to
maintain a reliable and stable process.
Eli Whitney

"Father of American Technology“

- Credited with the development of
interchangeable parts.

Painting of Eli Whitney, 1919

Operations for
Goods and Services
Services are especially important
because almost 80% of all jobs are
in service firms.
Services: Economic activities that
typically produce an intangible
product (such as education,
entertainment, lodging,
government, financial, and health
services).
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

© 2014 Pearson Education 1 - 12

The Economic System

Inputs Transformation Outputs

Labor, Examples of Transformation Goods

capital, are: and
management Storage services
Transportation
Machining

Feedback loop

Figure 1.6

© 2014 Pearson Education 1 - 13

Improving Productivity at
Starbucks

A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Stop requiring signatures Saved 8 seconds
on credit card purchases per transaction
under $25
Change the size of the ice Saved 14 seconds
scoop per drink
New espresso machines Saved 12 seconds
per shot
© 2014 Pearson Education 1 - 14
Improving Productivity at
Starbucks

A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Operations improvements have
helped StarbucksSaved
Stop requiring signatures increase yearly
8 seconds
revenue per outlet
on credit card purchases bytransaction
per $250,000 to
under $25 $1,000,000 in seven years.
Change the size Productivity
of the ice has improved
Saved 14by 27%, or
seconds
scoop about 4.5% per year.
per drink
New espresso machines Saved 12 seconds
per shot
© 2014 Pearson Education 1 - 15
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

© 2014 Pearson Education 1 - 16

Productivity Calculations

Labor Productivity
Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250

One resource input  single-factor productivity

© 2014 Pearson Education 1 - 17

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

© 2014 Pearson Education 1 - 18

COMPUTING SINGLE-FACTOR
AND MULTIFACTOR GAINS IN
PRODUCTIVITY

Collins Title Insurance Ltd. wants to evaluate its labor and multifactor
productivity with a new computerized title-search system. The company has
a staff of four, 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 new computerized title-search system 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.
Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day

Old labor 8 titles/day

productivity = 32 labor-hrs

© 2014 Pearson Education 1 - 20

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day