Operations Management Operations and Productivity Chapter 1

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Operations ManagementOperations and
ProductivityChapter 1
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Outline

• Global company profile Whirlpool
• What is Operations Management?
• The heritage of Operations Management
• Why study OM?
• What Operations Managers do
• Organizing to produce goods and services
• Where are the OM jobs?
• Exciting new trends in Operations Management
• Operations in the service sector
• The Productivity challenge

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Learning Objectives

• When you complete this chapter, you should be
  able to
• Identify or Define
• Production and productivity
• Operations Management (OM)
• What operations managers do
• Services
• Describe or Explain
• A brief history of operations management
• The future of the discipline
• Measuring productivity

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Whirlpool Case Example

• Change in attitude - employees live quality
• Training - use your heads as well as your hands
• Flexible work rules
• Gain-sharing
• Global procurement
• Role of information/information technology
• Adoption of a Worldwide strategy

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Whirlpools Management Team

• Whirlpool Corporations management team believes
  in the companys values-based strategy.
• Teamwork From the first to the last,
• they take each step forward as a team.
• Innovation is a key strategy of Whirlpool
  Corporation, and an essential part of the
  company's long-term growth. 

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What Is Operations Management?

• Production is the creation of goods and services

• Operations management is the set of activities
  that creates goods and services by transforming
  inputs into outputs

Raw materials
Goods
Transformation process
Human inputs
Services
INPUTS
OUTPUTS
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Significant Events I
The origins of Operations Management can be
traced back to the Industrial Revolution (in the
late 18th and early 19th centuries )

• Division of labor (Smith, 1776)
• Standardized parts (Whitney, 1800)
• Scientific management (Taylor, 1881)

Ada Smith treats the topic of the division of
labor
Eli Whitney introduced concept of standard
interchangeable parts in 1799
He described how the application of the
scientific method to the management of workers
greatly could improve productivity
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Significant Events II

• Coordinated assembly line (Ford 1913)
• Gantt charts (Gantt, 1916)
• Motion study (the Gilbreths, 1922)
• Quality control (Shewhart, 1924)

Manufacturing process in which interchangeable
parts are added to a product in a sequential
manner to create a finished product faster than
with handcrafting-type methods
Gantt designed his charts so that foremen or
other supervisors could quickly know whether
production was on schedule, ahead of schedule or
behind schedule
From their various studies the Gilbreths
developed, the laws of human motion from which
evolved the principles of motion economy
Father of statistical quality control
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Significant Events III

• CPM / PERT (Dupont, 1957)
• MRP (Orlicky, 1960)
• CAD
• Flexible manufacturing systems (FMS)
• Manufacturing automation protocol (MAP)
• Computer integrated manufacturing (CIM)

CPM Critical Path Method, is used to determine
what is the shortest time to carry out the
project PERT Program (or Project) Evaluation and
Review Technique, is a technique developed in the
mid-50, used to program and control programmes to
be carried out
Material Requirements Planning (MRP) is a
software based production planning and inventory
control system used to manage manufacturing
processes.
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Why Study OM?

• OM is one of three major functions (marketing,
  finance, and operations) of any organization
• We want (and need) to know how goods and services
  are produced
• We want to know what operations managers do
• OM is such a costly part of an organization

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Why do I need OM in the future?

• Many graduates are expected to rise to senior
  management levels
• OM is the central core function of every company
• Regardless of whether your area of expertise is,
  the techniques and concepts of OM will help you
  in your business career
• Knowledge of OM will allow your future company to
  offer products and services cheaper, better, and
  faster.

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What Operations Managers Do?

• Plan planning the schedule according to sales
  demand (defining priorities)
• Organize ensuring effective production of goods
  and services
• Staff motivating and monitoring
• Lead developing and cascading the organizations
  strategy
• Control creating and maintaining a positive flow
  of work

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Ten Critical Decisions

• Service, product design
• Quality management
• Process, capacity design
• Location
• Layout design
• Human resources, job design.
• Supply-chain management
• Inventory management
• Scheduling
• Maintenance

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Organizational Functions

• Marketing
• Gets customers. It includes advertising,
  distribution and selling
• Operations
• Creates product or service
• Is is the activity you carry out
• Finance/Accounting
• Obtains funds funds for business
• Tracks money

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Where are the OM Jobs?

• As we said, OM is the central core function
  of every company, so there are a great variety of
  jobs in this field
• Technology/methods
• Facilities/space utilization
• Strategic issues
• Response time
• People/team development
• Customer service
• Quality
• Cost reduction
• Inventory reduction
• Productivity improvement

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New Challenges in OM
Before
After

• Local or national focus
• Batch shipments
• Low bid purchasing
• Lengthy product development
• Standard products
• Job specialization

• Global focus
• Just-in-time
• Supply chain partnering
• Rapid product development, alliances
• Mass customization
• Empowered employees, teams

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Characteristics of Goods

• Tangible product
• Consistent product definition
• Production usually separate from consumption
• Can be inventoried thereby giving system
  designers additional degrees of freedom
• Low customer interaction

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Characteristics of Goods
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Characteristics of Service

• Intangible product. No physical form
• Produced consumed at same time
• Often unique
• High customer interaction
• Inconsistent product definition
• Often knowledge-based. Labor intensive
  (well-trained humans)
• Frequently dispersed

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Characteristics of Service

• Service transactions are repetitive. Service
  needs are continuous.
• The arrival rate of service request is random.
• Nature of service demand is heterogeneous.
  Customers have unique needs.
• Cannot be inventoried. Cannot be stored.
• Service quality is difficult to assess.
  Subjective.

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Characteristics of Service

• A service is defined as a transaction in which
  the customer largely perceives the dominant
  value-adding component as being the intangible
  part of the product bundle.
• Each total product experience has a tangible
  component but their dominant component is
  intangible.

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Examples of Services

• Tourist Office Officers advice
  Flying tickets

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Goods Versus Services
Goods
Service

• Reselling unusual
• Difficult to inventory
• Quality difficult to measure
• Selling is part of service

• Can be resold
• Can be inventoried
• Some aspects of quality measurable
• Selling is distinct from production

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Goods Versus Services - Continued
Goods
Service

• Product is transportable
• Site of facility important for cost
• Often easy to automate
• Revenue generated primarily from tangible product

• Provider, not product is transportable
• Site of facility important for customer contact
• Often difficult to automate
• Revenue generated primarily from intangible
  service.

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Development of the Service Economy
Increasing exports employment in services sector
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The Economic System Transforms Inputs to Outputs
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Productivity

• Measure of process improvement
• Represents output relative to input
• Productivity increases improve standard of living
  and creates income.
• From 1889 to 1973, U.S. productivity increased at
  a 2.5 annual rate

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Factors affecting Productivity

• Capital investments in production/technology/equip
  ment/ facilities.
• e.g. Automatization Computerization
  (minimizes tasks performed by employees).
• Workforce knowledge and skill
• Social environment. Making employees comfortable
  work methods.
• Quality of products/processes/management
• Geographic factors

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Measurement Problems

• Quality may change while the quantity of inputs
  and outputs remains constant. And will affect
  productivity.
• External elements may cause an increase or
  decrease in productivity
• Precise units of measure may be lacking. It can
  only be measured indirectly, that is, by
  measuring other variables and then calculating
  productivity from them.

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Productivity Variables

• Labor - contributes about 10 of the annual
  increase.
• Capital - contributes about 32 of the annual
  increase
• Management - contributes about 52 of the annual
  increase

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Jobs in the U.S
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Productivity Growth 1971- 1992
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Service Productivity

• Typically labor intensive
• Frequently individually processed
• Often an intellectual task performed by
  professionals
• Often difficult to mechanize
• Often difficult to evaluate for quality