© Wiley 20051 Chapters 1+2 - Introduction to Operations Management Operations Management by R. Dan Reid & Nada R. Sanders 2 nd Edition © Wiley 2005 PowerPoint.

© Wiley 2005 1

Chapters 1+2 - Introduction to Operations Management

Operations Managementby

R. Dan Reid & Nada R. Sanders2nd Edition © Wiley 2005

PowerPoint Presentation by R.B. Clough - UNH

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What is Operations Management?

The business function

responsible for planning,

coordinating, and controlling

the resources needed to produce a

company’s products and services

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Typical Organization Chart

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Business Information Flow

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OM’s Transformation Role

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Productivity

Inputs

OutputsP

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Differences between Manufacturers and Service Operations

Services: Intangible product Service cannot be

inventoried High customer

contact Short response time Labor intensive

Manufacturers:

Tangible product Product can be

inventoried Low customer contact Longer response time Capital intensive

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Service and Manufacturers

All use technology Both have quality, productivity, &

response issues All must forecast demand Each will have capacity, layout, and

location issues All have customers and suppliers All have scheduling and staffing issues

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Trends in OM Service sector growing

to 80% of non-farm jobs- See Figure 1-4

Global competitiveness Demands for higher

quality Huge technology

changes Time based competition Work force diversity

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OM Decisions

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Operations Management Decisions

Strategic: Product/Service

Design Process Selection Capacity

Planning Facility Location Facility Layout Job Design

Tactical: Quality Control Demand

Forecasting Supply Chain

Management Production Planning Inventory Control Scheduling

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Business/Functional Strategy

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Operations Strategy – Designing the Operations Function

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Competitive Priorities- The Edge

Four Important Operations Questions: Will you compete on –

Cost? Quality? Time? Flexibility? All of the above? Some? Tradeoffs?

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Competing on Cost?

Typically high volume products

Often limit product range & offer little

customization

May invest in automation to reduce unit costs

Can use lower skill labor

Probably use product focused layouts

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Competing on Quality? High performance design:

Superior features, high durability, & excellent customer service

Product & service consistency: Meets design specifications Close tolerances Error free delivery

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Competing on Time?

Fast delivery: Focused on shorter time between order placement

and delivery

On-time delivery: Deliver product exactly when needed every time

Rapid development speed Using concurrent processes to shorten product

development time

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Competing on Flexibility? Product flexibility:

Easily switch production from one item to another Easily customize product/service to meet specific

requirements of a customer

Volume flexibility: Ability to ramp production up and down to match

market demands

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Productivity

Inputs

OutputsP

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Measuring Productivity Productivity is a measure of how efficiently inputs

are converted to outputs

Productivity = output/input Total Productivity Measure

Productivity relative to all inputs

Partial Productivity Measure Productivity relative to a single input (e.g.,

labor hours) Multifactor Productivity Measure

Productivity relative to a subgroup of inputs (e.g., labor and materials)

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Labor Productivity

Example: Assume two workers paint twenty-four tables

in eight hours: Inputs: 16 hours of labor (2 workers x 8 hours) Outputs: 24 painted tables

hourtableshours

tables

Inputs

Outputs/5.1

16

24

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Multifactor Productivity Convert all inputs & outputs to $ values Example (labor and materials productivity):

200 units produced that sell for $12.00 each Materials cost $6.50 per unit 40 hours of labor were required at $10 an hour

200 $12/

200 $6.50/ 40 $10/

$24001.41

$1700

units unitOutputsInputs units unit hours hour

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Interpreting Productivity Measures

Is the productivity measure of 1.41 in the previous example good or bad?

Can’t tell without a reference point Compare to previous measures

(e.g.: last week) or to another benchmark

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Productivity Growth Rate

Can be used to compare a process’s productivity at a given time (P2) to the same process’ productivity at an earlier time (P1)

1

12

P

PPRateGrowth

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Productivity Growth RateExample:

Last week a company produced 150 units using 200 hours of labor This week, the same company produced 180 units using 250 hours

of labor

rategrowthnegativeaor

P

PPRateGrowth

hourunitshours

unitsP

hourunitshours

unitsP

%4

04.075.0

75.072.0

/72.0250

1802

/75.0200

150

1

12

1

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Productivity Example - An automobile manufacturer has presented the following data for the past three years in its annual report. As a potential investor, you are interested in calculating yearly productivity and year to year productivity gains as one of several factors in your investment analysis.

2003 2002 2001

Labor Productivity

Unit Car Sales/Employee 24.1 21.2 18.3

Year-to-year Improvement 13.7% 15.8%

Total Productivity

Total Cost Productivity 1.26 1.24 1.19

Year-to-year Improvement 1.6% 4.2%

Which is the best measurement?

2003 2002 2001

Unit car sales

2,700,000

2,400,000

2,100,000

Employees

112,000 113,000 115,000

$ Sales(billions$)

$49,000 $41,000 $38,000

Cost of Sales(billions)

$39,000 $33,000 $32,000

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Homework

Ch. 2 Problems: 1, 5, 6, 8, 9.