BA 339, OM Class Notes

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BA 339, OM Class Notes

• Chapter 1 Operations Productivity
• What is OM?
• Production productivity
• Organizing to produce goods/services
• Why study OM?
• What OM does
• OM history/heritage
• OM services

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BA 339, OM Class Notes

• What is OM?
• Managing activities that create value in the form
  of goods services
• Done by transforming inputs into outputs
• Activities that create goods/services take place
  in all organizations
• Examples
• Transport Co. maintenance, scheduling,
  dispatching activities to move products from
  suppliers to customers
• Utility engineering, quality, SCM, inventory,
  maintenance, construction, scheduling activities
  to move electricity from generators to customers
• Steel Manufacturer production scheduling,
  material control, fabrication, quality, design,
  process layout and design activities to provide
  steel to customers
• Banking collections, transaction processing,
  teller scheduling activities to help customers
  manage finance

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BA 339, OM Class Notes

• Production productivity
• Production creation of goods and services
• Obvious for manufacturing firms
• Less apparent for services often no tangible
  goods produced
• Ex. Transferring funds from savings to
  checking suing a credit card to pay for
  purchases
• Productivity ratio of outputs (goods
  services) divided by inputs (labor, capital,
  management, etc.)
• Annual increase of approx. 2.5/Yr. Mgmt.
  52 Capital 38 Labor 10 OM leading
  source of increases
• Standard of living improves only through
  increases in productivity Results in the
  creation of wealth!
• Measurement Units produced/Input (single vs.
  multi-factor)

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BA 339, OM Class Notes

• Productivity Variables
• Labor
• 4 variables affect labor productivity
• Basic education
• Diet/health
• Social O/H (infrastructure) transportation,
  sanitation, etc.
• Maintaining/enhancing the skills of labor
• Statistics
• Avg. American 17 year old knows significantly
  less math. than the average Japanese at the same
  age
• About half cannot answer the following questions
  correctly
• Rectangle, 6x4 yards what is area of the
  rectangle
• If 9y36y15, then y 1, 2, 4, or 6
• Which of the following is true about 84 of 100
  Greater than, less than or equal to 100

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BA 339, OM Class Notes

• Productivity Variables
• Capital
• Annual capital investment in the U.S. has
  increased at an annual rate of 1.5, after
  depreciation and taxes
• Inflation, taxes, and interest rates affect cost
  of capital negatively affect return on capital
  investment
• Low interest rates and inflation have helped fuel
  recent increases in productivity
• Using Labor vs. Capital
• Reduces unemployment in short run
• Results in decreased productivity
• Lowers wages in the long run

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BA 339, OM Class Notes

• Productivity Variables
• Management
• Factor of production, economic resource
• Accounts for over half of annual increases in
  productivity
• Driven by technology and utilization of knowledge
  information process improvements
• Education is critical in knowledge societies
  (post industrial societies are technologically
  based
• Ops. Managers build workforces that recognize the
  need for education and knowledge
• Ensures that technology, education knowledge
  are used effectively and efficiently
• Ensures that capital is utilized more effectively
  vs. investment in additional capital

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BA 339, OM Class Notes

• Production productivity
• Ex. LA Motor Pool (mid-90s)
• Problem 30 of trash trucks 11 of police
  vehicles were in the repair shop
• Solutions
• Individual drivers teams to complete routes
• Assigned parking spaces Improved labor
  efficiency
• Tire pressure checked every evening reduced
  flats
• Trucks emptied nightly reduced fire danger
• Standardized customer pickups
• Computerized fleet management systems reduced
  improved cost control
• Maintenance performed on night shifts improved
  util.
• Results Fleet reduced by 500 vehicles parts
  inventory dropped by 20 Out-of-service
  vehicles dropped from 30 to 18

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BA 339, OM Class Notes

• Organizing to produce goods/services
• Major organizational functions (all)
• Marketing/Sales generates demand, orders, etc.
  Demand
• Production/Operations creates product/service
  Supply
• Finance/Accounting tracks/manages Value
  Exchange Processing
• See attached Org. chart

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BA 339, OM Class Notes
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BA 339, OM Class Notes

• Why Study OM?
• To determine how people organize themselves for
  productive enterprises
• To determine how goods/services are produced
• To understand what Operations Managers do
• To understand how to control and manage costs
  (since OM is such a costly part of an
  organization)
• See attached Example Fishers Technologies
• Double contribution to fixed cost/profit to
  purchase next generation production equipment
• Without doubling, no bank loan end of business
• Using simple profit loss statement, evaluate 3
  options

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BA 339, OM Class Notes
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BA 339, OM Class Notes

• What Ops. Mgrs. Do
• Plan Organize Staff Lead Control
• Key components of project/quality mgmt.
• 10 Key Decision Areas of OM
• Service/product design what to offer design
• Quality management who is responsible how is
  it defined
• Process/capacity design what process/order
  equipment/technology
• Location placement rationale
• Layout design arrangement size
• Human resources job design work environment
  production level
• Supply chain management make vs. buy re-order
  points
• Inventory management how much when to
  re-order
• Scheduling subK vs. in-house
  short/mid/project
• Maintenance who when

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BA 339, OM Class Notes

• Jobs in OM
• Plant/production mgr.
• Purchasing/logistics/supply chain mgr.
• Warehouse/inventory mgr.
• Transportation mgr.
• Process/project mgr.
• Industrial/Mfg. engineer
• IT mgr.
• Maintenance/facility mgr.
• Construction/project mgr.
• Equipment mgr.
• HR mgr.
• Quality mgr.
• Consultants team development, strategic
  planning, customer relations, quality mgmt., risk
  management, process management

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BA 339, OM Class Notes

• OM History/Heritage
• Early Concepts (1776-1880)
• Labor specialization (Smith, Babbage)
• Standardized/interchangeable parts (Eli Whitney
  (1765-1825) Govt. Kt of 10K muskets machine
  tools to make standardized musket parts)
• Scientific Management Era 1880-1910
• Frederick W. Taylor 1856-1915 (Principles of
  Scientific Management) father of scientific
  mgmt.
• Process analysis, work methods tools analysis,
  personnel selection incentives, time motion
  studies
• Frank (1868-1924) Lillian (1878-1972) Gilbreth
• Further development of work methods, time
  motion studies and efficiency methods

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BA 339, OM Class Notes

• OM History/Heritage
• Mass Production Era 1910-1980
• Henry Ford (1863-1947) along w/Charles
  Sorensen, combined standardized parts with
  knowledge of quasi-assembly lines of meatpacking
  and mail-order business and added movable
  assembly line (1913)
• Walter Shewhart combined knowledge of
  statistics need for quality control to provide
  the foundations for statistical process control
  in quality
• W. Edwards Deming (1900-1993)
  engineer/physicist
• Focus on management improving work environment
  and processes as a means to improve quality
• Used statistics to analyze process
• Methods to involve workers in decisions

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BA 339, OM Class Notes

• OM History/Heritage
• Lean Production Era 1980-1995
• Just-in-time (JIT)
• Computer-Aided Design (CAD)
• Electronic Data Interchange (EDI)
• Total Quality Management (TQM)
• Mass Customization Era 1995-2010
• Globalization
• Internet
• Enterprise Resource Planning (ERP) MRP concept
  to all other facets of the organization
  (including services)
• SCM
• E-commerce

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BA 339, OM Class Notes

• OM Services
• Service usually intangible (Ex. e-purchase of
  airline ticket for empty seat)
• Often produced and consumed simultaneously (Ex.
  haircut, surgery, etc.)
• Often unique (Ex. investment portfolio,
  hospital care, interior design, etc.)
• High degree of customer interaction
• Inconsistent product definition (Ex. car
  insurance standardized policy but different
  cars)
• Knowledge-based
• Dispersed

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BA 339, OM Class Notes

• Attributes Goods
• Products resold
• Products inventoried
• Quality aspects measurable
• Selling separate from production
• Product transportable
• Site important to cost
• Easier to automate
• Revenue from tangible product

• Attributes Services
• Reselling unusual
• Many cant be inventoried
• Hard to measure Q
• Selling part of service
• Provider transportable
• Site important to customer contact
• More difficult to automate
• Revenue from intangibles

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BA 339, OM Class Notes

• of All Jobs
• 24.3
• 20.6
• 7.2
• 7.1
• 6.5
• 5.2
• 4.5
• 14.8
• 7.0
• 2.4
• .4

• Service Sector
• Prof. Services, ex., Legal, Medical
• Trade (retail/wholesale)
• Utilities, transportation
• Business/repair services
• Finance, Insurance, Real Estate
• Food, Lodging, Entertainment
• Public Administration
• Mfg. Sector
• Construction Sector
• Agriculture
• Mining