© 2008 Prentice Hall, Inc.1 – 1 Operations Management Chapter 1 – Operations and Productivity PowerPoint presentation to accompany Heizer/Render Principles.

© 2008 Prentice Hall, Inc. 1 – 1

Operations ManagementOperations ManagementChapter 1 – Chapter 1 – Operations and Operations and ProductivityProductivity

PowerPoint presentation to accompany PowerPoint presentation to accompany Heizer/Render Heizer/Render Principles of Operations Management, 7ePrinciples of Operations Management, 7eOperations Management, 9e Operations Management, 9e Some additions and deletions have been made by Ömer Yağız to this slide set. (Revised February 2012)


Some real life scenarios Some real life scenarios which I used in the past to which I used in the past to highlight the importance of highlight the importance of

Operations ManagementOperations Management• fortunately, some of these scenarios are no fortunately, some of these scenarios are no

more validmore valid

• many improvements have been realized both many improvements have been realized both in the public and private sectorin the public and private sector

• improvement, or improvement, or continuous improvement, to , to be exact, is the right approach to increasing be exact, is the right approach to increasing quality, efficiency, productivity, and quality, efficiency, productivity, and profitability. profitability.


SSome Real Life Scenarios in ome Real Life Scenarios in OMOM

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)


SOME REAL-LIFE SCENARIOS IN SOME REAL-LIFE SCENARIOS IN OMOM

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.



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.)



A real episode at EsenboğaA real episode at Esenboğaon Feb. 6, 2012 on Feb. 6, 2012

Esenboğa Airport, two Esenboğa Airport, two weeks ago weeks ago

lots of delays and lots of delays and cancellations due to cancellations due to snow and winter snow and winter conditionsconditions

an operations manager’s an operations manager’s nightmare (kâbus)nightmare (kâbus)

unhappy and angry unhappy and angry passengers passengers

THY and TGS service THY and TGS service personnel in a very personnel in a very difficult (and unenviable) difficult (and unenviable) positionposition


A real episode at EsenboğaA real episode at Esenboğaon Feb. 6, 2012 on Feb. 6, 2012

This serious situation had a very This serious situation had a very happy ending for the passengers happy ending for the passengers and service personnel. HOW?and service personnel. HOW?

• full and timely information given to full and timely information given to passengers face-to-face and via electronic passengers face-to-face and via electronic boards boards

• effective and timely catering service to effective and timely catering service to passengers at the gatespassengers at the gates

• very courteous, understanding and helpful very courteous, understanding and helpful attitude by the ground service personnel attitude by the ground service personnel towards the passengerstowards the passengers

• nobody had the courage to complain nobody had the courage to complain and/or say something bad about the and/or say something bad about the situation, including myself..situation, including myself..


Why do some people prefer McDonald’s or similar fast-food restaurants despite the fact that it they are 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…



Things are better at the Tax BureauThings are better at the Tax Bureau

• attitude change on the part of personnel (civil attitude change on the part of personnel (civil servant concept)servant concept)

• technology in general, IT in particular, makes technology in general, IT in particular, makes the whole process easier, less time-the whole process easier, less time-consuming, more efficient, and less costlyconsuming, more efficient, and less costly

• errors are minimizederrors are minimized

• personnel assist those in need of help for personnel assist those in need of help for filling out forms, etc.filling out forms, etc.

• they even offer you free tea at the Hitit Vergi they even offer you free tea at the Hitit Vergi Dairesi..Dairesi..



Things are also better at Çankaya Things are also better at Çankaya Kaymakamlığı..Kaymakamlığı..

• Apostille service unitApostille service unit

• 1.5 TL per apostille charged1.5 TL per apostille charged

• 2 X 1.5 TL = 3.00 TL2 X 1.5 TL = 3.00 TL

• a 3-ply receipt costs 3.00 TLa 3-ply receipt costs 3.00 TL

• no charge for 2 or less apostilles; 3 or no charge for 2 or less apostilles; 3 or more apostilles charged at the rate of 1.50 more apostilles charged at the rate of 1.50 TL per apostilleTL per apostille

• amazingly clever practice by a public amazingly clever practice by a public organization!! Olamaz, rüya mı bu?organization!! Olamaz, rüya mı bu?



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)



OutlineOutline

Global Company Profile: Hard Rock Global Company Profile: Hard Rock CafeCafe

What Is Operations Management?What Is Operations Management?

Organizing to Produce Goods and Organizing to Produce Goods and Services Services

Why Study OM?Why Study OM?

What Operations Managers DoWhat Operations Managers Do How This Book Is OrganizedHow This Book Is Organized


Outline - ContinuedOutline - Continued

The The Heritage of Operations f Operations ManagementManagement

Operations in the Service SectorOperations in the Service Sector Differences between Goods and Differences between Goods and

ServicesServices

Growth of ServicesGrowth of Services

Service PayService Pay

Exciting New Trends in Operations Exciting New Trends in Operations ManagementManagement


Outline - ContinuedOutline - Continued

The Productivity ChallengeThe Productivity Challenge Productivity MeasurementProductivity Measurement

Productivity VariablesProductivity Variables

Productivity and the Service Sector Productivity and the Service Sector

Ethics and Social ResponsibilityEthics and Social Responsibility


Learning ObjectivesLearning Objectives

When you complete this chapter When you complete this chapter you should be able to:you should be able to:

1.1. Define operations managementDefine operations management

2.2. Explain the distinction between Explain the distinction between goods and servicesgoods and services

3.3. Explain the difference between Explain the difference between production and productivityproduction and productivity


Learning ObjectivesLearning Objectives

When you complete this chapter When you complete this chapter you should be able to:you should be able to:

4.4. Compute single-factor Compute single-factor productivityproductivity

5.5. Compute multifactor productivityCompute multifactor productivity

6.6. Identify the critical variables in Identify the critical variables in enhancing productivityenhancing productivity


The Hard Rock CafeThe Hard Rock Cafe

First opened in 1971First opened in 1971 Now – 121 restaurants in over 40 countriesNow – 121 restaurants in over 40 countries

Rock music memorabiliaRock music memorabilia

Creates value in the form of good food Creates value in the form of good food and entertainmentand entertainment

3,5003,500++ custom meals per day in Orlando custom meals per day in Orlando

How does an item get on the menu?How does an item get on the menu?

Role of the Operations ManagerRole of the Operations Manager


Köfteci RamizKöfteci Ramiz

www.kofteciramiz.com


DO & CO CateringDO & CO Catering

www.doco.com


What Is Operations What Is Operations Management?Management?

ProductionProduction is the creation of is the creation of goods and servicesgoods and services

Operations management (OM)Operations management (OM) is the set of activities that is the set of activities that

creates value in the form of creates value in the form of goods and services by goods and services by

transforming inputs into transforming inputs into outputsoutputs


OM Involves Managing TransformationsOM Involves Managing Transformations

Input Output

People Plants Parts Processes Planning and Control

TransformationProcess

(Value Adding)

Transformation is enabled by The 5 Ps of OM:


TransformationsTransformations

• Physical and chemical--manufacturing Physical and chemical--manufacturing (shoes, PC’s, planes, paint, detergents)(shoes, PC’s, planes, paint, detergents)

• Locational--transportation (rail, sea, air, road)Locational--transportation (rail, sea, air, road)

• Exchange--retailing (all kinds of stores, Exchange--retailing (all kinds of stores, offices)offices), banking ??, banking ??

• Storage--warehousing (normal and cold Storage--warehousing (normal and cold storage)storage)

• Physiological--health care (hospitals, clinics)Physiological--health care (hospitals, clinics)

• Informational--telecommunications (schools, Informational--telecommunications (schools, Reuter Services, Internet and Reuter Services, Internet and blogsblogs, news , news media, TV services,media, TV services, METU)METU)


Operations as the Technical Operations as the Technical CoreCore

Operations

Finance

Capital Markets, Stockholders

Marketing

Customers

Wo

rker

s

Su

pp

lier

s

Pu

rch

asin

g

Per

son

nel


Organizing to Produce Organizing to Produce Goods and ServicesGoods and Services

Essential functions:Essential functions: Marketing – generates demandMarketing – generates demand

Production/operations – creates Production/operations – creates the productthe product

Finance/accounting – tracks how Finance/accounting – tracks how well the organization is doing, pays well the organization is doing, pays bills, collects the moneybills, collects the money


Organizational ChartsOrganizational Charts

OperationsTeller SchedulingCheck ClearingCollectionTransaction processingFacilities design/layoutVault operationsMaintenanceSecurity

FinanceInvestmentsSecurityReal estate

Accounting

Auditing

MarketingLoans Commercial Industrial Financial Personal Mortgage

Trust Department

Commercial Bank

Figure 1.1(A)Figure 1.1(A)



OperationsGround support equipmentMaintenanceGround Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications DispatchingManagement science

Finance/ accountingAccounting Payables Receivables General LedgerFinance Cash control International exchange

Airline

Figure 1.1(B)Figure 1.1(B)

MarketingTraffic administration Reservations Schedules Tariffs (pricing)SalesAdvertising


MarketingSales promotionAdvertisingSalesMarket research


OperationsFacilities Construction; maintenance

Production and inventory control Scheduling; materials control

Quality assurance and controlSupply chain managementManufacturing Tooling; fabrication; assembly

Design Product development and design Detailed product specifications

Industrial engineering Efficient use of machines, space, and personnel

Process analysis Development and installation of production tools and equipment

Finance/ accountingDisbursements/ credits Receivables Payables General ledgerFunds Management Money market International exchangeCapital requirements Stock issue Bond issue and recall

Manufacturing

Figure 1.1(C)Figure 1.1(C)


Why Study OM?Why Study OM?

OM is one of three major functions OM is one of three major functions (marketing, finance, and operations) (marketing, finance, and operations) of any organizationof any organization

We want (We want (and needand need) to know how ) to know how goods and services are producedgoods and services are produced

We want to understand what We want to understand what operations managers dooperations managers do

OM is such a costly part of an OM is such a costly part of an organizationorganization


Options for Increasing Options for Increasing ContributionContribution

SalesSales $100,000$100,000 $150,000$150,000 $100,000$100,000 $100,000$100,000

Cost of Goods Cost of Goods –– 80,000 80,000 –– 120,000 120,000 –– 80,000 80,000 –– 64,000 64,000

Gross MarginGross Margin 20,00020,000 30,00030,000 20,00020,000 36,00036,000

Finance CostsFinance Costs –– 6,000 6,000 –– 6,000 6,000 –– 3,000 3,000 –– 6,000 6,000

SubtotalSubtotal 14,00014,000 24,00024,000 17,00017,000 30,00030,000

Taxes at 25%Taxes at 25% –– 3,500 3,500 –– 6,000 6,000 –– 4,250 4,250 –– 7,500 7,500

ContributionContribution $ 10,500$ 10,500 $ 18,000$ 18,000 $ 12,750$ 12,750 $ 22,500$ 22,500

Finance/Finance/MarketingMarketing AccountingAccounting OMOM

OptionOption OptionOption OptionOption

IncreaseIncrease ReduceReduce ReduceReduceSalesSales FinanceFinance ProductionProduction

CurrentCurrent Revenue 50%Revenue 50% Costs 50%Costs 50% Costs 20%Costs 20%

Increase in contribution 71% 21% 114%


What Operations What Operations Managers DoManagers Do

PlanningPlanning

OrganizingOrganizing

StaffingStaffing

LeadingLeading

ControllingControlling

Basic Management FunctionsBasic Management Functions


Ten Critical DecisionsTen Critical DecisionsTen Decision AreasTen Decision Areas Chapter(s)Chapter(s)

Design of goods and servicesDesign of goods and services 55 Managing qualityManaging quality 6, Supplement 66, Supplement 6 Process and capacity Process and capacity 7, Supplement 77, Supplement 7

design design Location strategyLocation strategy 88 Layout strategyLayout strategy 99 Human resources and Human resources and 10, Supplement 1010, Supplement 10

job design job design Supply chain Supply chain 11, Supplement 1111, Supplement 11

management management Inventory managementInventory management 12, 14, 1612, 14, 16 SchedulingScheduling 13, 1513, 15 MaintenanceMaintenance 1717

Table 1.2Table 1.2


The Critical DecisionsThe Critical Decisions

Design of goods and servicesDesign of goods and services What good or service should we What good or service should we

offer?offer? How should we design these products How should we design these products

and services? and services?

Managing qualityManaging quality How do we define quality?How do we define quality? Who is responsible for quality?Who is responsible for quality?

Table 1.2 (cont.)Table 1.2 (cont.)



Process and capacity designProcess and capacity design What process and what capacity will What process and what capacity will

these products require?these products require?

What equipment and technology is What equipment and technology is necessary for these processes?necessary for these processes?

Location strategyLocation strategy Where should we put the facility?Where should we put the facility?

On what criteria should we base the On what criteria should we base the location decision?location decision?



The Critical DecisionsThe Critical Decisions Layout strategyLayout strategy

How should we arrange the facility?How should we arrange the facility?

How large must the facility be to meet How large must the facility be to meet our plan?our plan?

Human resources and job designHuman resources and job design How do we provide a reasonable work How do we provide a reasonable work

environment?environment?

How much can we expect our How much can we expect our employees to produce?employees to produce?




Supply chain managementSupply chain management Should we make or buy this component?Should we make or buy this component?

Who are our suppliers and who can Who are our suppliers and who can integrate into our e-commerce program?integrate into our e-commerce program?

Inventory, material requirements Inventory, material requirements planning, and JITplanning, and JIT How much inventory of each item should How much inventory of each item should

we have?we have?

When do we re-order?When do we re-order?Table 1.2 (cont.)Table 1.2 (cont.)



Intermediate and shortIntermediate and short––term term schedulingscheduling Are we better off keeping people on Are we better off keeping people on

the payroll during slowdowns?the payroll during slowdowns?

Which jobs do we perform next?Which jobs do we perform next?

MaintenanceMaintenance Who is responsible for maintenance?Who is responsible for maintenance?

When do we do maintenance?When do we do maintenance?



Where are the OM Jobs?Where are the OM Jobs?

Figure 1.2Figure 1.2


Where are the OM Jobs?Where are the OM Jobs?

Technology/methodsTechnology/methods Facilities/space utilizationFacilities/space utilization Strategic issuesStrategic issues Response timeResponse time People/team developmentPeople/team development Customer serviceCustomer service QualityQuality Cost reductionCost reduction Inventory reductionInventory reduction Productivity improvementProductivity improvement


Significant Events in OMSignificant Events in OM



The Heritage of OMThe Heritage of OM Division of labor (Adam Smith 1776; Division of labor (Adam Smith 1776;

Charles Babbage 1852)Charles Babbage 1852)

Interchangeable (sInterchangeable (standardizedtandardized)) parts parts (Whitney 1800)(Whitney 1800)

Scientific Management (Taylor 1881)Scientific Management (Taylor 1881)

Coordinated assembly line (Ford/ Coordinated assembly line (Ford/ Sorenson 1913Sorenson 1913-- (93 minutes vs. 12.5 hours for chassis assembly)))

Gantt charts (Gantt 1916)Gantt charts (Gantt 1916)

Motion study (Frank and Lillian Gilbreth Motion study (Frank and Lillian Gilbreth 1922)1922)

Quality control (Shewhart 1924; Deming Quality control (Shewhart 1924; Deming 1950)1950)


The Heritage of OMThe Heritage of OM Electronic digital cElectronic digital computer (Atanasoff 1938)omputer (Atanasoff 1938)

not programmable; solved linear equationsnot programmable; solved linear equations

CPM/PERT (DuPont 1957)CPM/PERT (DuPont 1957)

Material requirements planning (Orlicky 1960)Material requirements planning (Orlicky 1960)

Computer aided design (CAD 1970)Computer aided design (CAD 1970)

Flexible manufacturing system (FMS 1975)Flexible manufacturing system (FMS 1975)

JIT,TQC,TQM,KANBAN, Poka Yoke (1980’s)JIT,TQC,TQM,KANBAN, Poka Yoke (1980’s)

EFQM and EFQM and Baldrige Quality Awards (1980)Baldrige Quality Awards (1980)

Computer integrated manufacturing (1990)Computer integrated manufacturing (1990)

Globalization (1992)Globalization (1992)

Internet (1995)Internet (1995)

e-business, e-government (1996- )e-business, e-government (1996- )


Eli WhitneyEli Whitney

Born 1765; died 1825Born 1765; died 1825

In 1798, received government In 1798, received government contract to make 10,000 musketscontract to make 10,000 muskets

Showed that machine tools could Showed that machine tools could make standardized parts to exact make standardized parts to exact specificationsspecificationsMusketMusket (tüfek) (tüfek) parts could be used in parts could be used in

any musketany musket


Frederick W. TaylorFrederick W. Taylor


Known as ‘father of scientific Known as ‘father of scientific management’management’

In 1881, as chief engineer for In 1881, as chief engineer for Midvale Steel, studied how tasks Midvale Steel, studied how tasks were donewere doneBegan first motion and time studiesBegan first motion and time studies

Created efficiency principlesCreated efficiency principles


Taylor’s PrinciplesTaylor’s Principles

Matching employees to right jobMatching employees to right job

Providing the proper trainingProviding the proper training

Providing proper work methods and Providing proper work methods and toolstools

Establishing legitimate incentives for Establishing legitimate incentives for work to be accomplishedwork to be accomplished

Management Should Take More Management Should Take More Responsibility for:Responsibility for:


Frank & Lillian GilbrethFrank & Lillian Gilbreth

Frank (1868-1924); Lillian (1878-Frank (1868-1924); Lillian (1878-1972)1972)

Husband-and-wife engineering teamHusband-and-wife engineering team

Further developed work Further developed work measurement methodsmeasurement methods

Applied efficiency methods to their Applied efficiency methods to their home and 12 children! home and 12 children!

Book & Movie: “Cheaper by the Book & Movie: “Cheaper by the Dozen,” book: “Bells on Their Toes”Dozen,” book: “Bells on Their Toes”



In 1903, created Ford Motor In 1903, created Ford Motor CompanyCompany

In 1913, first used moving assembly In 1913, first used moving assembly line to make Model Tline to make Model TUnfinished product moved by Unfinished product moved by

conveyor past work stationconveyor past work station

Paid workers very well for 1911 Paid workers very well for 1911 ($5/day!)($5/day!)

Henry FordHenry Ford

“The customer can have any color as long as it is black” H. Ford


W. Edwards DemingW. Edwards Deming


Engineer and physicistEngineer and physicist

Credited with teaching Japan Credited with teaching Japan quality control methods in post-quality control methods in post-WW2WW2

Used statistics to analyze processUsed statistics to analyze process

His methods involve workers in His methods involve workers in decisionsdecisions


Deming Institute: http://deming.org


Contributions FromContributions From

Human factorsHuman factors (ergonomics, fatigue (ergonomics, fatigue studies)studies)

Industrial engineeringIndustrial engineering

Management scienceManagement science (operations research)(operations research)

Biological scienceBiological science

Physical sciencesPhysical sciences

Information technology Information technology


What is Industrial What is Industrial Engineering ?Engineering ?

Industrial engineering is concerned with the Industrial engineering is concerned with the design, installation, design, installation, and and improvementimprovement of of integrated systems of people, material, integrated systems of people, material, information, equipment and energy. information, equipment and energy.

It draws upon specializedIt draws upon specialized knowledge and skills knowledge and skills in the mathematical, physical and social in the mathematical, physical and social sciences, together with the principles and sciences, together with the principles and methods of engineering analysis and design to methods of engineering analysis and design to specify, predict and evaluate thespecify, predict and evaluate the results to be results to be obtained from such systems. obtained from such systems.

IIE Web Site -- http://www.iienet.org


What is Operations What is Operations Research ?Research ?

OR/MS Professionals aim to provide OR/MS Professionals aim to provide rational bases for decision makingrational bases for decision making by by seeking to understand and structure seeking to understand and structure complex situations and to use this complex situations and to use this understanding to predict system behavior understanding to predict system behavior and improve system performance.and improve system performance.

Much of this work is done using Much of this work is done using analytical analytical and numerical techniquesand numerical techniques to develop and to develop and manipulate manipulate mathematicalmathematical and and computer computer modelsmodels of organizational systems of organizational systems composed of people, machines, and composed of people, machines, and procedures. procedures. ... ...

http://www.informs.org/


What is Operations What is Operations Research ?Research ?

OR/MS draws upon ideas from engineering, OR/MS draws upon ideas from engineering, management, mathematics, and psychology management, mathematics, and psychology to contribute to a wide variety of application to contribute to a wide variety of application domains; the field is closely related to domains; the field is closely related to several other fields in the "several other fields in the "decision decision sciencessciences" -- applied mathematics, computer " -- applied mathematics, computer science, economics, and industrial science, economics, and industrial engineering.engineering.

INFORMS Web Site -- INFORMS Web Site -- http://www.informs.org


New Challenges in OMNew Challenges in OM

Global focusGlobal focus

Just-in-timeJust-in-time Supply chain Supply chain

partneringpartnering ( (keiretsu?)keiretsu?)

Rapid product Rapid product development, development, alliancesalliances

Mass customizationMass customization

Empowered Empowered employees, teamsemployees, teams

ToToFromFrom Local or national focusLocal or national focus

Batch shipmentsBatch shipments

Low bid purchasingLow bid purchasing

Lengthy product Lengthy product developmentdevelopment

Standard productsStandard products

Job specializationJob specialization


Current IssuesCurrent Issues

Speeding up the time it takes to get new products into Speeding up the time it takes to get new products into production. (Concurrent engineering -- eş zamanlı production. (Concurrent engineering -- eş zamanlı mühendislik)mühendislik)

Developing flexible production systems to enable Developing flexible production systems to enable “mass customization” of products and services.“mass customization” of products and services.(kişiye özel seri üretim; kitlesel bireyselleştirme; (kişiye özel seri üretim; kitlesel bireyselleştirme; özelleştirme)özelleştirme)

Managing global production networks.Managing global production networks.

Developing and integrating new production Developing and integrating new production technologies into existing production systemstechnologies into existing production systems

……..


Achieving high quality quickly and keeping it up Achieving high quality quickly and keeping it up in the face of restructuring.in the face of restructuring.

Managing a diverse workforce.Managing a diverse workforce.

Conforming to environmental constraints, ethical Conforming to environmental constraints, ethical standards, and government regulations.standards, and government regulations.

Current IssuesCurrent Issues


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/unitPrice: %20-30 more than standard model

Delivery time: ~ 3 weeks (Why? -- feeling of anticipation for something special!!)


Many computer companies now let you Many computer companies now let you configure your own laptopconfigure your own laptopHPHP

ToshibaToshiba

DellDell

Gateway (one of the pioneers in this area)Gateway (one of the pioneers in this area)

Mass Customization (İsteğe Bağlı Seri Üretim)Mass Customization (İsteğe Bağlı Seri Üretim)Interesting ExampleInteresting Example


Characteristics of GoodsCharacteristics of Goods

Tangible productTangible product

Consistent product Consistent product definitiondefinition

Production usually Production usually separate from separate from consumptionconsumption

Can be inventoriedCan be inventoried

Low customer Low customer interactioninteraction

Often easy to Often easy to automateautomate


Characteristics of ServiceCharacteristics of Service Intangible productIntangible product

Produced and consumed at Produced and consumed at same timesame time

Often uniqueOften unique

High customer interactionHigh customer interaction

Inconsistent product Inconsistent product definitiondefinition

Often knowledge-Often knowledge-

basedbased((education, medical, education, medical, legal, etc.)legal, etc.)

Frequently dispersedFrequently dispersed(local (local office, house call, etc.)office, house call, etc.)

Not possible or easy to Not possible or easy to automateautomate


Goods Versus ServicesGoods Versus Services

Table 1.3Table 1.3

Can be resoldCan be resold

Can be inventoriedCan be inventoried

Some aspects of quality Some aspects of quality measurablemeasurable

Selling is distinct from Selling is distinct from productionproduction

Product is transportableProduct is transportable

Site of facility important for costSite of facility important for cost

Often easy to automateOften easy to automate

Revenue generated primarily Revenue generated primarily from tangible productfrom tangible product

Attributes of GoodsAttributes of Goods(Tangible Product)(Tangible Product)

Attributes of ServicesAttributes of Services (Intangible Product) (Intangible Product)

Reselling unusualReselling unusual

Difficult to inventoryDifficult to inventory

Quality difficult to measureQuality difficult to measure

Selling is part of service Selling is part of service

Provider, not product, isProvider, not product, isoften transportableoften transportable

Site of facility important forSite of facility important forcustomer contactcustomer contact

Often difficult to automateOften difficult to automate

Revenue generated primarily Revenue generated primarily from the intangible servicefrom the intangible service


Goods and ServicesGoods and ServicesAutomobile

Computer

Installed carpeting

Fast-food meal

Restaurant meal/auto repair

Hospital care

Advertising agency/investment management

Consulting service/teaching

Counseling

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

100%100% 7575 5050 2525 00 2525 5050 7575 100%100%|| || || || || || || || ||



120120 –

100 100 –

80 80 –

60 60 –

40 40 –

20 20 –

0 0 –| | | | | | |

19501950 19701970 19901990 2010 (est)2010 (est)19601960 19801980 20002000

Em

plo

ymen

t (m

illi

on

s)E

mp

loym

ent

(mil

lio

ns)

Manufacturing and Service Manufacturing and Service EmploymentEmployment

Figure 1.5 (A)Figure 1.5 (A)

ManufacturingManufacturing

ServiceService


Manufacturing Employment Manufacturing Employment and Productionand Production

Figure 1.5 (B)Figure 1.5 (B)

40 40 –

30 30 –

20 20 –

10 10 –

0 0 – | | | | | | |19501950 19701970 19901990 2010 (est)2010 (est)

19601960 19801980 20002000

– 150150

– 125125

– 100100

– 7575

– 5050

– 2525

– 00

Em

plo

ymen

t (m

illi

on

s)E

mp

loym

ent

(mil

lio

ns)

In

dex

: 19

97 =

100

Ind

ex:

1997

= 1

00

Manufacturingemployment

(left scale)

Industrial Industrial productionproduction

(right scale)(right scale)


Development of the Development of the Service EconomyService Economy

Figure 1.5 (C)Figure 1.5 (C)

United States

Canada

France

Italy

Britain

Japan

W. Germany

1970 2008 (est)

| | | | |

40 50 60 70 80Percent of GDP


Organizations in Each SectorOrganizations in Each Sector

Service SectorService Sector ExampleExample% of all % of all

JobsJobs

Education, Education, Legal, Medical, Legal, Medical, and otherand other

Notre Dame University, Notre Dame University, San Diego Zoo, Arnold San Diego Zoo, Arnold Palmer HospitalPalmer Hospital

25.525.5

Trade (retail, Trade (retail, wholesale)wholesale)

Walgreen’s, Wal-Mart, Walgreen’s, Wal-Mart, Nordstrom’sNordstrom’s

15.115.1

Utilities, Utilities, TransportationTransportation

Pacific Gas & Electric, Pacific Gas & Electric, American Airlines, Santa American Airlines, Santa Fe R.R., Roadway Fe R.R., Roadway ExpressExpress

5.25.2

Table 1.4Table 1.4


Organizations in Each SectorOrganizations in Each Sector

Service SectorService Sector ExampleExample% of all % of all

JobsJobs

Professional Professional and Business and Business ServicesServices

Snelling and Snelling, Waste Snelling and Snelling, Waste Management, Pitney-BowesManagement, Pitney-Bowes

10.110.1

Finance, Finance, Information, Information, Real EstateReal Estate

Citicorp, American Express, Citicorp, American Express, Prudential, Aetna, Trammel Prudential, Aetna, Trammel Crow, EDS, IBMCrow, EDS, IBM

9.69.6

Food, Lodging, Food, Lodging, EntertainmentEntertainment

Olive Garden, Hard Rock Cafe, Olive Garden, Hard Rock Cafe, Motel 6, Hilton Hotels, Walt Motel 6, Hilton Hotels, Walt Disney, Paramount PicturesDisney, Paramount Pictures

8.58.5

Public Public AdministrationAdministration

U.S., State of Alabama, Cook U.S., State of Alabama, Cook CountyCounty

4.64.6

Table 1.4Table 1.4


Organizations in Each SectorOrganizations in Each SectorManufacturing Manufacturing SectorSector ExampleExample

% of all % of all JobsJobs

ManufacturingManufacturing General Electric, Ford, General Electric, Ford, U.S. Steel, IntelU.S. Steel, Intel

11.511.5

ConstructionConstruction Bechtel, McDermottBechtel, McDermott 7.97.9

AgricultureAgriculture King RanchKing Ranch 1.61.6

MiningMining Homestake MiningHomestake Mining 0.40.4

SectorSector Percent of all jobsPercent of all jobs

ServiceService 78.6%78.6%

ManufacturingManufacturing 21.4%21.4%

Table 1.4Table 1.4


New Trends in OMNew Trends in OM

Local or Local or national national focusfocus

Reliable worldwide Reliable worldwide communication and communication and transportation networkstransportation networks

Global focus, Global focus, moving moving production production offshoreoffshore

Batch (large) Batch (large) shipmentsshipments

Short product life cycles Short product life cycles and cost of capital put and cost of capital put pressure on reducing pressure on reducing inventoryinventory

Just-in-time Just-in-time performanceperformance

Low-bid Low-bid purchasingpurchasing

Supply chain competition Supply chain competition requires that suppliers be requires that suppliers be engaged in a focus on the engaged in a focus on the end customerend customer

Supply chain Supply chain partners, partners, collaboration, collaboration, alliances, alliances, outsourcingoutsourcing


PastPast CausesCauses FutureFuture



Lengthy Lengthy product product developmentdevelopment

Shorter life cycles, Shorter life cycles, Internet, rapid international Internet, rapid international communication, computer-communication, computer-aided design, and aided design, and international collaborationinternational collaboration

Rapid product Rapid product development, development, alliances, alliances, collaborative collaborative designsdesigns

Standardized Standardized productsproducts

Affluence and worldwide Affluence and worldwide markets; increasingly markets; increasingly flexible production flexible production processesprocesses

Mass Mass customization customization with added with added emphasis on emphasis on qualityquality

Job Job specializationspecialization

Changing socioculture Changing socioculture milieu; increasingly a milieu; increasingly a knowledge and information knowledge and information societysociety

Empowered Empowered employees, employees, teams, and lean teams, and lean productionproduction





Low-cost Low-cost focusfocus

Environmental issues, ISO Environmental issues, ISO 14000, increasing disposal 14000, increasing disposal costscosts

Environmentally Environmentally sensitive sensitive production, green production, green manufacturing, manufacturing, recycled recycled materials, materials, remanufacturingremanufacturing

Ethics not Ethics not at forefrontat forefront

Businesses operate more Businesses operate more openly; public and global openly; public and global review of ethics; opposition review of ethics; opposition to child labor, bribery, to child labor, bribery, pollutionpollution

High ethical High ethical standards and standards and social social responsibility responsibility expectedexpected




Summary- Summary- New Trends in OMNew Trends in OM

Global focusGlobal focus Just-in-time performanceJust-in-time performance Supply chain partneringSupply chain partnering Rapid product developmentRapid product development Mass customizationMass customization Empowered employeesEmpowered employees Environmentally sensitive productionEnvironmentally sensitive production EthicsEthics


Productivity ChallengeProductivity Challenge

Productivity is the ratio of outputs (goods Productivity is the ratio of outputs (goods and services) divided by the inputs and services) divided by the inputs

(resources such as labor and capital)(resources such as labor and capital)

The objective is to improve productivity!The objective is to improve productivity!

Important Note!Production is a measure of output

only and not a measure of efficiency


FeedbackFeedback looploop

OutputsOutputs

Goods and

services

ProcessesProcesses

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%).

The Economic SystemThe Economic System

InputsInputs

Labor,capital,

management



Improving Productivity at Improving Productivity at StarbucksStarbucks

A team of 10 analysts A team of 10 analysts continually look for ways continually look for ways to shave time. Some to shave time. Some improvements:improvements:

Stop requiring signatures Stop requiring signatures on credit card purchases on credit card purchases under $25under $25

Saved 8 seconds Saved 8 seconds per transactionper transaction

Change the size of the ice Change the size of the ice scoopscoop

Saved 14 seconds Saved 14 seconds per drinkper drink

New espresso machinesNew espresso machines Saved 12 seconds Saved 12 seconds per shotper shot


Improving Productivity at Improving Productivity at StarbucksStarbucks

A team of 10 analysts A team of 10 analysts continually look for ways continually look for ways to shave time. Some to shave time. Some improvements:improvements:

Stop requiring signatures Stop requiring signatures on credit card purchases on credit card purchases under $25under $25

Saved 8 seconds Saved 8 seconds per transactionper transaction

Change the size of the ice Change the size of the ice scoopscoop

Saved 14 seconds Saved 14 seconds per drinkper drink

New espresso machinesNew espresso machines Saved 12 seconds Saved 12 seconds per shotper shot

Operations improvements have Operations improvements have helped Starbucks increase yearly helped Starbucks increase yearly revenue per outlet by $200,000 to revenue per outlet by $200,000 to $940,000 in six years.$940,000 in six years.

Productivity has improved by 27%, Productivity has improved by 27%, or about 4.5% per year.or about 4.5% per year.


Efficiency vs. effectivenessEfficiency vs. effectiveness

Efficiency – doing a job with a minimum Efficiency – doing a job with a minimum of resources and waste i.e. doing the job of resources and waste i.e. doing the job well.well.Efficiency= actual output/standard output Efficiency= actual output/standard output

(70pcs/hr) / (60 pcs/hr) = 1.17

Effectiveness – achieving your stated Effectiveness – achieving your stated goal or purpose i.e. doing the right job.goal or purpose i.e. doing the right job.


Measure of process improvementMeasure of process improvement

Represents output relative to inputRepresents output relative to input

Only through productivity increases Only through productivity increases can our standard of living improvecan our standard of living improve

ProductivityProductivity

Productivity =Productivity =Units producedUnits produced

Input usedInput used


Productivity CalculationsProductivity Calculations

Productivity =Productivity =Units producedUnits produced

Labor-hours usedLabor-hours used

= = = = 44 units/labor-hour units/labor-hour1,0001,000

250250

Labor ProductivityLabor Productivity

One resource input One resource input single-factor productivity single-factor productivity


Multi-Factor Productivity Multi-Factor Productivity

OutputOutput

Labor + Material + Energy Labor + Material + Energy + Capital + Miscellaneous+ Capital + Miscellaneous

Productivity =Productivity =

Also known as total factor productivityAlso known as total factor productivity

Output and inputs are often expressed Output and inputs are often expressed in dollarsin dollars

Multiple resource inputs Multiple resource inputs multi-factor productivity multi-factor productivity


Illustration-Illustration-Collins Title ProductivityCollins Title Productivity

Staff of Staff of 44 works works 8 8 hrs/dayhrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day

Old SystemOld System (Non-computerized) (Non-computerized)::

==Old labor Old labor

productivityproductivity88 titles/day titles/day

3232 labor-hrs labor-hrs

Note: Collins Title is a reinsurance company (tapu sigortası). It has set up a new computerized title search system


Collins Title ProductivityCollins Title Productivity

Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day

Old System:Old System:

88 titles/day titles/day

3232 labor-hrs labor-hrs==

Old labor Old labor productivityproductivity = = .25.25 titles/labor-hr titles/labor-hr



Staff of Staff of 44 works works 8 8 hrs/dayhrs/day 88 titles/day titles/dayPayroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day


1414 titles/day titles/day Overhead = Overhead = $800$800/day/day

New System:New System:



Old labor Old labor productivityproductivity

==New labor New labor

productivityproductivity

= .25 titles/labor-hr= .25 titles/labor-hr


3232 labor-hrs labor-hrs









Old labor Old labor productivityproductivity = = .25.25 titles/labor-hr titles/labor-hr

14 14 titles/daytitles/day


New labor New labor productivityproductivity = = .4375.4375 titles/labor-hr titles/labor-hr

75 % increase







==Old multifactor Old multifactor

productivityproductivity88 titles/day titles/day

$640 + 400$640 + 400








$640 + 400$640 + 400==

Old multifactor Old multifactor productivityproductivity = = .0077.0077 titles/dollar titles/dollar








$640 + 400$640 + 400==

Old multifactor Old multifactor productivityproductivity

==New multifactor New multifactor


= = .0077.0077 titles/dollar titles/dollar


$640 + 800$640 + 800








$640 + 400$640 + 400


$640 + 800$640 + 800

==Old multifactor Old multifactor


==New multifactor New multifactor




26 % increase


Measurement ProblemsMeasurement Problems

QualityQuality may change while the may change while the quantity of inputs and outputs quantity of inputs and outputs remains constantremains constant

External elementsExternal elements may cause an may cause an increase or decrease in increase or decrease in productivityproductivity(power or gas (power or gas shortages, strikes & lockouts, etc)shortages, strikes & lockouts, etc)

Precise unitsPrecise units of measure may be of measure may be lackinglacking (not all cars may require the (not all cars may require the same inputs– Opel Corsa vs. same inputs– Opel Corsa vs. Porsche)Porsche)


Productivity VariablesProductivity Variables

For the U.S. economy’s For the U.S. economy’s 2.5 % annual increase2.5 % annual increase

LaborLabor - contributes - contributes about about 10%10% of the of the annual increaseannual increase

CapitalCapital - contributes - contributes about about 38%38% of the of the annual increaseannual increase

ManagementManagement - - contributes about contributes about 52%52% of the annual increaseof the annual increase


Key Variables for Improved Key Variables for Improved Labor ProductivityLabor Productivity

Basic education appropriate for the Basic education appropriate for the labor forcelabor force

Diet of the labor forceDiet of the labor force

Social overhead that makes labor Social overhead that makes labor availableavailable (transportation, sanitation, (transportation, sanitation, health services, etc.)health services, etc.)

Maintaining and enhancing skills in the Maintaining and enhancing skills in the midst of rapidly changing technology midst of rapidly changing technology and knowledgeand knowledge


Labor SkillsLabor Skills

About half of the 17-year-olds in the US cannot About half of the 17-year-olds in the US cannot correctly answer questions of this typecorrectly answer questions of this type



Investment and Productivity Investment and Productivity

1010

88

66

44

22

00

Per

cen

t in

crea

se in

pro

du

ctiv

ity

Per

cen

t in

crea

se in

pro

du

ctiv

ity

Percentage investmentPercentage investment

1010 1515 2020 2525 3030 3535


Service ProductivityService Productivity

Typically labor intensiveTypically labor intensive

Frequently focused on unique Frequently focused on unique individual attributes or desiresindividual attributes or desires

Often an intellectual task performed by Often an intellectual task performed by professionalsprofessionals

Often difficult to mechanizeOften difficult to mechanize

Often difficult to evaluate for qualityOften difficult to evaluate for quality


NO COMMENT!NO COMMENT!


Productivity at Taco BellProductivity at Taco Bell

Improvements:Improvements: Revised the menu Revised the menu Designed meals for easy preparationDesigned meals for easy preparation Shifted some preparation to suppliersShifted some preparation to suppliers Efficient layout and automationEfficient layout and automation Training and employee empowermentTraining and employee empowerment

How about DO&CO İkram Hizmetleri A.Ş. (Airline Catering Company)? http://www.doco.com


Productivity at Taco BellProductivity at Taco Bell

Improvements:Improvements: Revised the menu Revised the menu Designed meals for easy preparationDesigned meals for easy preparation Shifted some preparation to suppliersShifted some preparation to suppliers Efficient layout and automationEfficient layout and automation Training and employee empowermentTraining and employee empowerment

Results:

Preparation time of tacos cut to 8 seconds

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


Ethics and Social ResponsibilityEthics and Social Responsibility

Challenges facing Challenges facing operations managers:operations managers:

Developing and producing safe, Developing and producing safe, quality productsquality products

Maintaining a clean environmentMaintaining a clean environment

Providing a safe workplaceProviding a safe workplace

Honoring community commitmentsHonoring community commitments


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.


Some Bestseller Books on Operations Management

Pande, Peter S., Neuman, Robert P., Cavanagh, Roland R. The Six Sigma Way. McGraw-Hill 2000.


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.


Drucker, Peter F. “The Emerging Theory of Manufacturing.” HBR, May-June 1990.

Drucker, Peter F. “The Productivity Challenge.” HBR, November-December 1991.

Some Landmark Articles on Operations Management

© 2008 Prentice Hall, Inc.1 – 1 Operations Management Chapter 1 – Operations and Productivity PowerPoint presentation to accompany Heizer/Render Principles.

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