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CH 1 - Operations and Productivity

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464 views39 pages

CH 1 - Operations and Productivity

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Kaoutar Fatin

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Chapter 1

Operations and Productivity

Course : Production and Operation Management

Pr. Mourad Oubrich
AMOA, 2021

Heizer and Render

Principles of Operations Management, 8e

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1-1

Outline
◆ What Is Operations Management ?
◆ Organizing to Produce Goods and Services
◆ Why Study OM ?
◆ What Operations Managers Do
◆ The Productivity Challenge

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1-2

Learning Objectives
When you complete this chapter you
should be able to:
1. Define operations management
2. Explain the distinction between goods and services
3. Explain the difference between production and
productivity
4. Compute single-factor productivity
5. Compute multifactor productivity

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1-3

What Is Operations
Management?
Production is the creation of goods
and services
Operations management (OM) is the
set of activities that create value in the
form of goods and services by
transforming inputs into outputs

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1-4

Organizing to Produce
Goods and Services
◆ Essential functions:
1. Marketing – which generates demand or at
least takes the order for a product or service
2. Production/operations – which creates the
product
3. Finance/accounting – which tracks how well
the organization is doing, pays bills, collects
the money

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1-5

Organizational Charts
Commercial Bank

Operations Finance Marketing

Teller Investments Loans
Check Clearing Real estate Commercial
Transaction Industrial
processing Financial
Vault operations Accounting Personal

Auditing

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1-6

Organizational Charts
Manufacturing

Operations Finance/ Marketing

Production and inventory control accounting Sales
Scheduling; materials control Disbursements/ promotion
Quality assurance and control credits Advertising
Supply-chain management Receivables Sales
Payables
Manufacturing General ledger Market
Tooling; fabrication; assembly research
Funds Management
Design
Product development and design Money market
Detailed product specifications International
Industrial engineering exchange
Efficient use of machines, space,
and personnel
Process analysis
Development and installation of
production tools and equipment

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1-7

The Supply Chain
▶A global network of organizations and
activities that supply a firm with goods and
services
▶Members of the supply chain collaborate to
achieve high levels of customer satisfaction,
efficiency and competitive advantage.

Farmer Syrup Bottler Distributor Retailer

(Grape) producer (Fruitgrape)

1-8
Why Study OM?
1. OM is one of three major functions of
any organization, we want to study how
people organize themselves for
productive enterprise
2. We want (and need) to know how
goods and services are produced
3. We want to understand what operations
managers do
4. OM is such a costly part of an
organization
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1-9
Options for Increasing
Contribution (1/3)
Finance/
Marketing Accounting OM
Option Option Option

Increase Reduce Reduce

Sales Finance Production
Current Revenue 50% Costs 50% Costs 20%
Sales $100,000 $150,000 $100,000 $100,000
Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000
Gross Margin 20,000 30,000 20,000 36,000
Finance Costs – 6,000 – 6,000 – 3,000 – 6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500
Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500

Table 1.1
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 10
Options for Increasing
Contribution (2/3)
◆ Compare between the three options?
◆ Increasing sales by 50%, increases
contribution by 71% (7500/10 500)
◆ Reducing finance costs by 50%,
increases contribution by 21% (2 250/10
500)
◆ Reducing production cost by 20%,
increases contribution by 114%
(12 000/10 500)

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 11

Options for Increasing
Contribution (3/3)
◆ What is the feasible option?
◆Increasing sales by 50% may be difficult, it may
even be impossible
◆Contribution is increased by only 21%, even
reduction finance costs of 50% is still
inadequate for generating the necessary
increase in contribution
◆Reducing operations cost by 20% may be
difficult but feasible.
◆Given the conditions of our brief example,
Fisher Technologies has increased contribution
from 10 500$ to 22 500$.
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 12
What Operations
Managers Do
Basic Management Functions
◆ Planning
◆ Organizing
◆ Staffing
◆ Leading
◆ Controlling
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 13
Ten OM Critical Decisions
Ten Decisions
1. Design of goods and services
2. Managing quality
3. Process and capacity design
4. Location strategy
5. Layout strategy
6. Human resources and job design
7. Supply-chain management
8. Inventory management
9. Scheduling
10. Maintenance

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 14

The Critical Decisions
1. Design of goods and services
◆ Determines the lower limits of cost and
the upper limits of quality, as well as
major implications for sustainability and
the human resources required.
◆ What good or service should we offer?
◆ How should we design these products
and services?

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 15

The Critical Decisions
2. Managing quality
◆ Determines the customer’s quality
expectations and establishes policies
and procedures to achieve that quality.
◆ How do we define quality?
◆ Who is responsible for quality?

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 16

The Critical Decisions
3. Process and capacity design
◆ Determines how a good or service is
produced (ex. the process for
production)
◆ What process and what capacity will
these products require?
◆ What equipment and technology is
necessary for these processes?

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 17

The Critical Decisions
4. Location strategy
◆ Determines the best location nearness
to customers, suppliers and talent.
◆ Where should we put the facility?
◆ On what criteria should we base the
location decision?

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 18

The Critical Decisions
5. Layout strategy
◆ Determines the efficient flow of
materials, people and information
◆ How should we arrange the facility?
◆ How large must the facility be to meet
our plan?

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 19

The Critical Decisions
6. Human resources and job design
◆ Determines how to recruit, motivate and
retain personnel with the required talent
and skills.
◆ How do we provide a reasonable work
environment?
◆ How much can we expect our
employees to produce?

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 20

The Critical Decisions
7. Supply-chain management
◆ Decides how to integrate the supply chain
into the firm’s strategy, including decisions
that determine what is to be purchased
from whom and under what conditions.
◆ Should we make or buy this component?
◆ Who should be our suppliers and how can
we integrate them into our strategy?

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 21

The Critical Decisions
8. Inventory management
◆ Determine how much to order? When to
order? : how to optimize inventory ordering
and holding as customer satisfaction,
supplier capability and production
schedules are considered (holding cost is
money spent to keep and maintain a stock
of goods in storage)
◆ How much inventory of each item should
we have?
◆ When do we re-order?

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 22

The Critical Decisions
9. Scheduling
◆ Determines intermediate and short term
schedules that effectively and efficiently
utilize both personnel and facilities while
maintaining customer requirement.
◆ Are we better off keeping people on the
payroll during slowdowns?
◆ Which jobs do we perform next?

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 23

The Critical Decisions
10. Maintenance
◆ Requires decisions that consider facility
capacity, production demands, and
personnel necessary to maintain a
reliable and stable process.
◆ How do we build reliability into our
processes?
◆ Who is responsible for maintenance?

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 24

Opportunities

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 25

Certifications
The following professional organizations provide
various certifications that may enhance your
education and be of help in your career :

◆ APICS, the American Production and Inventory Control

Society
◆ American Society of Quality (ASQ)
◆ Institute for Supply Management (ISM)
◆ Project Management Institute (PMI)
◆ Council of Supply Chain Management Professionals
◆ Charter Institute of Purchasing and Supply (CIPS)
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 26
Productivity Challenge
Productivity is the ratio of outputs (goods and
services) divided by the inputs (resources
such as labor, capital and management)

The objective is to improve productivity!

This improvement can be achieved in two ways :

reducing input while keeping output constant or
increasing output while keeping input constant.
Both represent an improvement in productivity.

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 27

Productivity Measurement
Units produced
Productivity =
Input used

◆ Measure of process improvement

◆ Represents output relative to input
◆ Labor-hours is a common measure of input,
other measures such as capital (DH invested),
materials (tons of ore), or energy (kilowatts of
electricity) can be used.
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 28
Productivity Variables
1. Labor - contributes
about 10% of the
annual increase
2. Capital - contributes
about 38% of the
annual increase
3. Management -
contributes about 52%
of the annual increase
© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 29
Productivity Calculations
Labor Productivity
Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250

One resource input  single-factor productivity

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 30

Multi-Factor Productivity
Output
Productivity =
Labor + Material + Energy
+ Capital
◆ Also known as total factor productivity
◆ Output and inputs are often expressed in
dollars / DHs…

Multiple resource inputs  multi-factor productivity

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1 - 31

Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day

Old labor 8 titles/day

=
productivity 32 labor-hrs

Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day