Chapter 1 – Operations and Productivity · PDF fileChapter 1 – Operations and ... When you complete this chapter you should be able to: 4. Compute single-factor productivity 5.

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

PowerPoint presentation to accompanyPowerPoint presentation to accompanyHeizer/Render Heizer/Render Principles of Operations Management, 7ePrinciples of Operations Management, 7eOperations Management, 9e Operations Management, 9e


OutlineOutlineGlobal Company Profile: Hard Rock Global Company Profile: Hard Rock CafeCafeWhat 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 Outline -- ContinuedContinued

The Heritage of Operations The Heritage of Operations ManagementManagementOperations in the Service SectorOperations in the Service Sector

Differences between Goods and Differences between Goods and ServicesServicesGrowth of ServicesGrowth of ServicesService PayService Pay

Exciting New Trends in Operations Exciting New Trends in Operations ManagementManagement


Outline Outline -- ContinuedContinued

The Productivity ChallengeThe Productivity ChallengeProductivity MeasurementProductivity MeasurementProductivity VariablesProductivity VariablesProductivity and the Service Sector Productivity and the Service Sector

Ethics and Social ResponsibilityEthics and Social Responsibility


Learning ObjectivesLearning ObjectivesWhen 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 management2.2. Explain the distinction between Explain the distinction between

goods and servicesgoods and services3.3. Explain the difference between Explain the difference between

production and productivityproduction and productivity


Learning ObjectivesLearning ObjectivesWhen you complete this chapter When you complete this chapter you should be able to:you should be able to:

4.4. Compute singleCompute single--factor factor productivityproductivity

5.5. Compute multifactor productivityCompute multifactor productivity6.6. 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 1971Now Now –– 121 restaurants in over 40 countries121 restaurants in over 40 countries

Rock music memorabiliaRock music memorabiliaCreates value in the form of good food Creates value in the form of good food and entertainmentand entertainment3,5003,500++ custom meals per day in Orlandocustom meals per day in OrlandoHow does an item get on the menu?How does an item get on the menu?Role of the Operations ManagerRole of the Operations Manager


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 is the set of activities that creates the set of activities that creates value in the form of goods and value in the form of goods and

services by transforming inputs services by transforming inputs into outputsinto outputs


Organizing to Produce Organizing to Produce Goods and ServicesGoods and Services

Essential functions:Essential functions:Marketing Marketing –– generates demandgenerates demandProduction/operations Production/operations –– creates creates the productthe productFinance/accounting Finance/accounting –– tracks how 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

CommercialIndustrialFinancialPersonalMortgage

Trust Department

Commercial Bank

Figure 1.1(A)Figure 1.1(A)



OperationsGround support

equipmentMaintenanceGround Operations

Facilitymaintenance

CateringFlight OperationsCrew schedulingFlyingCommunicationsDispatching

Management science

Finance/ accountingAccounting

PayablesReceivablesGeneral Ledger

FinanceCash controlInternational

exchange

Airline

Figure 1.1(B)Figure 1.1(B)

MarketingTraffic administration

ReservationsSchedulesTariffs (pricing)

SalesAdvertising


MarketingSales

promotionAdvertisingSalesMarket research


OperationsFacilities

Construction; maintenanceProduction and inventory control

Scheduling; materials controlQuality assurance and controlSupply chain managementManufacturing

Tooling; fabrication; assemblyDesign

Product development and designDetailed product specifications

Industrial engineeringEfficient use of machines, space,

and personnelProcess analysis

Development and installation ofproduction tools and equipment

Finance/ accountingDisbursements/

creditsReceivablesPayablesGeneral ledger

Funds ManagementMoney marketInternational

exchangeCapital requirements

Stock issueBond 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 organizationWe want (We want (and needand need) to know how ) to know how goods and services are producedgoods and services are producedWe want to understand what We want to understand what operations managers dooperations managers doOM 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$100,000Cost of Goods Cost of Goods –– 80,00080,000 –– 120,000120,000 –– 80,00080,000 –– 64,00064,000Gross MarginGross Margin 20,00020,000 30,00030,000 20,00020,000 36,00036,000Finance CostsFinance Costs –– 6,0006,000 –– 6,0006,000 –– 3,0003,000 –– 6,0006,000SubtotalSubtotal 14,00014,000 24,00024,000 17,00017,000 30,00030,000Taxes at 25%Taxes at 25% –– 3,5003,500 –– 6,0006,000 –– 4,2504,250 –– 7,5007,500ContributionContribution $ 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%


What Operations What Operations Managers DoManagers Do

PlanningPlanningOrganizingOrganizingStaffingStaffingLeadingLeadingControllingControlling

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 55Managing qualityManaging quality 6, Supplement 66, Supplement 6Process and capacity Process and capacity 7, Supplement 77, Supplement 7

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

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

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

Table 1.2Table 1.2


The Critical DecisionsThe Critical DecisionsDesign 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 qualityHow 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.)


The Critical DecisionsThe Critical DecisionsProcess 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 strategyWhere 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 DecisionsLayout 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 designHow 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?



The Critical DecisionsThe Critical DecisionsSupply 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 eintegrate into our e--commerce program?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 reWhen do we re--order?order?



The Critical DecisionsThe Critical DecisionsIntermediate 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?

MaintenanceMaintenanceWho 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/methodsFacilities/space utilizationFacilities/space utilizationStrategic issuesStrategic issuesResponse timeResponse timePeople/team developmentPeople/team developmentCustomer serviceCustomer serviceQualityQualityCost reductionCost reductionInventory reductionInventory reductionProductivity 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)Standardized parts (Whitney 1800)Standardized parts (Whitney 1800)Scientific Management (Taylor 1881)Scientific Management (Taylor 1881)Coordinated assembly line (Ford/ Coordinated assembly line (Ford/ Sorenson 1913)Sorenson 1913)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

Computer (Atanasoff 1938)Computer (Atanasoff 1938)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)Baldrige Quality Awards (1980)Baldrige Quality Awards (1980)Computer integrated manufacturing (1990)Computer integrated manufacturing (1990)Globalization (1992)Globalization (1992)Internet (1995)Internet (1995)


Eli WhitneyEli Whitney

Born 1765; died 1825Born 1765; died 1825In 1798, received government In 1798, received government contract to make 10,000 musketscontract to make 10,000 musketsShowed that machine tools could Showed that machine tools could make standardized parts to exact make standardized parts to exact specificationsspecifications

Musket parts could be used in any Musket parts could be used in any musketmusket


Frederick W. TaylorFrederick W. Taylor

Born 1856; died 1915Born 1856; died 1915Known as Known as ‘‘father of scientific father of scientific managementmanagement’’In 1881, as chief engineer for In 1881, as chief engineer for Midvale Steel, studied how tasks Midvale Steel, studied how tasks were donewere done

Began first motion and time studiesBegan first motion and time studies

Created efficiency principlesCreated efficiency principles


TaylorTaylor’’s Principless Principles

Matching employees to right jobMatching employees to right jobProviding the proper trainingProviding the proper trainingProviding proper work methods and Providing proper work methods and toolstoolsEstablishing 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 GilbrethFrank (1868Frank (1868--1924); Lillian (18781924); Lillian (1878--1972)1972)HusbandHusband--andand--wife engineering teamwife engineering teamFurther developed work Further developed work measurement methodsmeasurement methodsApplied efficiency methods to their Applied efficiency methods to their home and 12 children! home and 12 children! Book & Movie: Book & Movie: ““Cheaper by the Cheaper by the Dozen,Dozen,”” book: book: ““Bells on Their ToesBells on Their Toes””


Born 1863; died 1947Born 1863; died 1947In 1903, created Ford Motor In 1903, created Ford Motor CompanyCompanyIn 1913, first used moving assembly In 1913, first used moving assembly line to make Model Tline to make Model T

Unfinished 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


W. Edwards DemingW. Edwards Deming

Born 1900; died 1993Born 1900; died 1993Engineer and physicistEngineer and physicistCredited with teaching Japan Credited with teaching Japan quality control methods in postquality control methods in post--WW2WW2Used statistics to analyze processUsed statistics to analyze processHis methods involve workers in His methods involve workers in decisionsdecisions


Contributions FromContributions From

Human factorsHuman factorsIndustrial engineeringIndustrial engineeringManagement scienceManagement scienceBiological scienceBiological sciencePhysical sciencesPhysical sciencesInformation technology Information technology


New Challenges in OMNew Challenges in OM

Global focusGlobal focusJustJust--inin--timetimeSupply chain Supply chain partneringpartneringRapid product Rapid product development, development, alliancesalliancesMass Mass customizationcustomizationEmpowered Empowered employees, teamsemployees, teams

ToToFromFromLocal or national focusLocal or national focusBatch shipmentsBatch shipmentsLow bid purchasingLow bid purchasing

Lengthy product Lengthy product developmentdevelopment

Standard productsStandard products

Job specializationJob specialization


Characteristics of GoodsCharacteristics of GoodsTangible productTangible productConsistent product Consistent product definitiondefinitionProduction usually Production usually separate from separate from consumptionconsumptionCan be inventoriedCan be inventoriedLow customer Low customer interactioninteraction


Characteristics of ServiceCharacteristics of ServiceIntangible productIntangible productProduced and Produced and consumed at same timeconsumed at same timeOften uniqueOften uniqueHigh customer High customer interactioninteractionInconsistent product Inconsistent product definitiondefinitionOften knowledgeOften knowledge--basedbasedFrequently dispersedFrequently dispersed


Industry and Services as Industry and Services as Percentage of GDPPercentage of GDP

ServicesServices ManufacturingManufacturing

Aus

tral

iaA

ustr

alia

Can

ada

Can

ada

Chi

naC

hina

Cze

ch R

epC

zech

Rep

Fran

ceFr

ance

Ger

man

yG

erm

any

Hon

g K

ong

Hon

g K

ong

Japa

nJa

pan

Mex

ico

Mex

ico

Rus

sian

Fed

Rus

sian

Fed

Sout

h A

fric

aSo

uth

Afr

ica

Spai

nSp

ain

UKUK

USUS

90 90 −80 80 −70 70 −60 60 −50 50 −40 40 −30 30 −20 20 −10 10 −00 −


Goods Versus ServicesGoods Versus Services

Table 1.3Table 1.3

Can be resoldCan be resoldCan be inventoriedCan be inventoriedSome aspects of quality Some aspects of quality measurablemeasurableSelling is distinct from Selling is distinct from productionproductionProduct is transportableProduct is transportable

Site of facility important for costSite of facility important for cost

Often easy to automateOften easy to automateRevenue 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 unusualDifficult to inventoryDifficult to inventoryQuality difficult to measureQuality difficult to measure

Selling is part of service Selling is part of service

Provider, not product, isProvider, not product, isoften transportableoften transportableSite of facility important forSite of facility important forcustomer contactcustomer contactOften difficult to automateOften difficult to automateRevenue generated primarily Revenue generated primarily from the intangible servicefrom the intangible service


Goods and ServicesGoods and ServicesAutomobile

ComputerInstalled carpeting

Fast-food mealRestaurant meal/auto repair

Hospital careAdvertising agency/

investment managementConsulting service/

teachingCounseling

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

Empl

oym

ent (

mill

ions

)Em

ploy

men

t (m

illio

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

Empl

oym

ent (

mill

ions

)Em

ploy

men

t (m

illio

ns)

Inde

x:

Inde

x: 1

997

= 10

019

97 =

100

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 StatesCanadaFrance

ItalyBritainJapan

W. Germany

1970 2008 (est)

| | | | |

40 50 60 70 80Percent


Organizations in Each SectorOrganizations in Each Sector

5.25.2Pacific Gas & Electric, Pacific Gas & Electric, American Airlines, Santa American Airlines, Santa Fe R.R., Roadway Fe R.R., Roadway ExpressExpress

Utilities, Utilities, TransportationTransportation

15.115.1WalgreenWalgreen’’s, Wals, Wal--Mart, Mart, NordstromNordstrom’’ss

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

25.525.5Notre Dame University, Notre Dame University, San Diego Zoo, Arnold San Diego Zoo, Arnold Palmer HospitalPalmer Hospital

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

% of all % of all JobsJobsExampleExampleService SectorService Sector

Table 1.4Table 1.4



4.64.6U.S., State of Alabama, Cook U.S., State of Alabama, Cook CountyCounty

Public Public AdministrationAdministration

8.58.5Olive Garden, Hard Rock Cafe, Olive Garden, Hard Rock Cafe, Motel 6, Hilton Hotels, Walt Motel 6, Hilton Hotels, Walt Disney, Paramount PicturesDisney, Paramount Pictures

Food, Lodging, Food, Lodging, EntertainmentEntertainment

9.69.6Citicorp, American Express, Citicorp, American Express, Prudential, Aetna, Trammel Prudential, Aetna, Trammel Crow, EDS, IBMCrow, EDS, IBM

Finance, Finance, Information, Information, Real EstateReal Estate

10.110.1Snelling and Snelling, Waste Snelling and Snelling, Waste Management, PitneyManagement, Pitney--BowesBowes

Professional Professional and Business and Business ServicesServices

% of all % of all JobsJobsExampleExampleService SectorService Sector

Table 1.4Table 1.4



21.4%21.4%ManufacturingManufacturing

78.6%78.6%ServiceService

Percent of all jobsPercent of all jobsSectorSector

0.40.4Homestake MiningHomestake MiningMiningMining

1.61.6King RanchKing RanchAgricultureAgriculture

7.97.9Bechtel, McDermottBechtel, McDermottConstructionConstruction

11.511.5General Electric, Ford, General Electric, Ford, U.S. Steel, IntelU.S. Steel, Intel

ManufacturingManufacturing

% of all % of all JobsJobsExampleExample

Manufacturing Manufacturing SectorSector

Table 1.4Table 1.4


New Trends in OMNew Trends in OM

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

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

LowLow--bid bid purchasingpurchasing

JustJust--inin--time time performanceperformance

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

Batch (large) Batch (large) shipmentsshipments

Global focus, Global focus, moving moving production production offshoreoffshore

Reliable worldwide Reliable worldwide communication and communication and transportation networkstransportation networks

Local or Local or national national focusfocus


PastPast CausesCauses FutureFuture



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

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

Job Job specializationspecialization

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

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

Standardized Standardized productsproducts

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

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

Lengthy Lengthy product product developmentdevelopment





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

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

Ethics not Ethics not at forefrontat forefront

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

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

LowLow--cost cost focusfocus




New Trends in OMNew Trends in OMGlobal focusGlobal focusJustJust--inin--time performancetime performanceSupply chain partneringSupply chain partneringRapid product developmentRapid product developmentMass customizationMass customizationEmpowered employeesEmpowered employeesEnvironmentally sensitive productionEnvironmentally sensitive productionEthicsEthics


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 SystemInputsInputs

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:

Saved 12 seconds Saved 12 seconds per shotper shot

New espresso machinesNew espresso machines

Saved 14 seconds Saved 14 seconds per drinkper drink

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

Saved 8 seconds Saved 8 seconds per transactionper transaction

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


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:

Saved 12 seconds Saved 12 seconds per shotper shot

New espresso machinesNew espresso machines

Saved 14 seconds Saved 14 seconds per drinkper drink

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

Saved 8 seconds Saved 8 seconds per transactionper transaction

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

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.


Measure of process improvementMeasure of process improvementRepresents output relative to inputRepresents output relative to inputOnly 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

LaborLabor--hours usedhours used

= = = = 44 units/laborunits/labor--hourhour1,0001,000250250

Labor ProductivityLabor Productivity

One resource input One resource input singlesingle--factor productivityfactor productivity


MultiMulti--Factor Productivity 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 productivityOutput and inputs are often expressed Output and inputs are often expressed in dollarsin dollars

Multiple resource inputs Multiple resource inputs multimulti--factor productivityfactor productivity


Collins Title ProductivityCollins Title Productivity

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

Old System:Old System:

==Old labor Old labor productivityproductivity

88 titles/daytitles/day3232 laborlabor--hrshrs



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


88 titles/daytitles/day3232 laborlabor--hrshrs==Old labor Old labor

productivityproductivity = = .25.25 titles/labortitles/labor--hrhr



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


1414 titles/daytitles/day Overhead = Overhead = $800$800/day/dayNew System:New System:


productivityproductivity

==New labor New labor productivityproductivity

= .25 titles/labor= .25 titles/labor--hrhr

1414 titles/daytitles/day3232 laborlabor--hrshrs








14 14 titles/daytitles/day3232 laborlabor--hrshrs==New labor New labor







==Old multifactor Old multifactor productivityproductivity

88 titles/daytitles/day$640 + 400$640 + 400






88 titles/daytitles/day$640 + 400$640 + 400==Old multifactor Old multifactor

productivityproductivity = = .0077.0077 titles/dollartitles/dollar






88 titles/daytitles/day$640 + 400$640 + 400==Old multifactor Old multifactor

productivityproductivity

==New multifactor New multifactor productivityproductivity

= = .0077.0077 titles/dollartitles/dollar









==Old multifactor Old multifactor productivityproductivity

==New multifactor New multifactor productivityproductivity




Measurement ProblemsMeasurement Problems

QualityQuality may change while the may change while the quantity of inputs and outputs quantity of inputs and outputs remains constantremains constantExternal elementsExternal elements may cause an may cause an increase or decrease in productivityincrease or decrease in productivityPrecise unitsPrecise units of measure may be of measure may be lackinglacking


Productivity VariablesProductivity VariablesLaborLabor -- 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 increaseManagementManagement --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 forceDiet of the labor forceDiet of the labor forceSocial overhead that makes labor Social overhead that makes labor availableavailableMaintaining 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 SkillsAbout half of the 17About half of the 17--yearyear--olds in the US cannot 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

Perc

ent i

ncre

ase

in p

rodu

ctiv

ityPe

rcen

t inc

reas

e in

pro

duct

ivity

Percentage investmentPercentage investment1010 1515 2020 2525 3030 3535


Service ProductivityService Productivity

Typically labor intensiveTypically labor intensiveFrequently focused on unique Frequently focused on unique individual attributes or desiresindividual attributes or desiresOften an intellectual task performed by Often an intellectual task performed by professionalsprofessionalsOften difficult to mechanizeOften difficult to mechanizeOften difficult to evaluate for qualityOften difficult to evaluate for quality


Productivity at Taco BellProductivity at Taco BellImprovements:Improvements:

Revised the menu Revised the menu Designed meals for easy preparationDesigned meals for easy preparationShifted some preparation to suppliersShifted some preparation to suppliersEfficient layout and automationEfficient layout and automationTraining and employee empowermentTraining and employee empowerment


Productivity at Taco BellProductivity at Taco BellImprovements:Improvements:

Revised the menu Revised the menu Designed meals for easy preparationDesigned meals for easy preparationShifted some preparation to suppliersShifted some preparation to suppliersEfficient layout and automationEfficient layout and automationTraining and employee empowermentTraining and employee empowerment

Results:Preparation time cut to 8 secondsManagement span of control increased from 5 to 30In-store labor cut by 15 hours/dayStores handle twice the volume with half the laborFast-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 productsMaintaining a clean environmentMaintaining a clean environmentProviding a safe workplaceProviding a safe workplaceHonoring community commitmentsHonoring community commitments

Chapter 1 – Operations and Productivity · PDF fileChapter 1 – Operations and ... When you complete this chapter you should be able to: 4. Compute single-factor productivity 5.

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