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 understand what
operations managers do
 OM is such a costly part of an
organization
 What Operations
Managers Do
Basic Management Functions
 Planning
 Organizing
 Staffing
 Leading
 Controlling
Ten Critical Decisions
Ten Decision Areas
 Service and product design
 Quality management
 Process and capacity design
 Location
 Layout design
 Human resources, job design
 Supply-chain management
 Inventory management
 Scheduling
 Maintenance

Table 1.2
The Critical Decisions
 Service and product design
 What good or service should we offer?
 How should we design these products and services?
 Quality management
 How do we define quality?
 Who is responsible for quality?

Table 1.2 (cont.)

The Critical Decisions
 Process and capacity design
 What process and what capacity will these products
require?
 What equipment and technology is necessary for
these processes?
 Location
 Where should we put the facility?
 On what criteria should we base the location
decision?

Table 1.2 (cont.)

The Critical Decisions
 Layout design
 How should we arrange the facility and material
flow?
 How large must the facility be to meet our plan?
 Human resources and job design
 How do we provide a reasonable work
environment?
 How much can we expect our employees to
produce?

Table 1.2 (cont.)

 The Critical Decisions
 Supply-chain management
 Should we make or buy this component?
 Who are our suppliers and who can integrate into our e-
commerce program?
 Inventory, material requirements planning, and JIT
 How much inventory of each item should we have?
 When do we re-order?

Table 1.2 (cont.)

The Critical Decisions
 Intermediate and short–term scheduling
 Are we better off keeping people on the payroll
during slowdowns?
 Which jobs do we perform next?
 Maintenance
 Who is responsible for maintenance?
 When do we do maintenance?

Table 1.2 (cont.)

Where are the OM Jobs?
 Technology/methods
 Facilities/space utilization
 Strategic issues
 Response time
 People/team development
 Customer service
 Quality
 Cost reduction
 Inventory reduction
 Productivity improvement
 New Challenges in OM
From To
 Local or national focus  Global focus
 Batch shipments  Just-in-time
 Low bid purchasing  Supply chain
partnering
 Lengthy product  Rapid product
development development,
alliances
 Standard products  Mass
customization
 Job specialization  Empowered
employees, teams
Characteristics of Goods
 Tangible product
 Consistent product
definition
 Production usually
separate from
consumption
 Can be inventoried
 Low customer
interaction
Characteristics of Service
 Intangible product
 Produced and
consumed at same time
 Often unique
 High customer
interaction
 Inconsistent product
definition
 Often knowledge-based
 Frequently dispersed
 Goods Versus Services
Attributes of Goods Attributes of Services
(Tangible Product) (Intangible Product)
Can be resold Reselling unusual
Can be inventoried Difficult to inventory
Some aspects of quality Quality difficult to measure
measurable
Selling is distinct from Selling is part of service
production
Product is transportable Provider, not product, is
often transportable
Site of facility important for cost Site of facility important for
customer contact
Often easy to automate Often difficult to automate
Revenue generated primarily Revenue generated primarily
from tangible product from the intangible service

Table 1.3
Goods and Services
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
100% 75 50 25 0 25 50 75 100%
| | | | | | | | |

Percent of Product that is a Good Percent of Product that is a Service

Figure 1.4
Productivity Challenge

Productivity is the ratio of outputs (goods and

services) divided by the inputs (resources such as
labor and capital)

The objective is to improve this measure of

efficiency

Important Note!
Production is a measure of output
only and not a measure of efficiency
Productivity
Units produced
Productivity =
Input used

 Measure of process improvement

 Represents output relative to input
 Only through productivity increases
can our standard of living improve
Productivity Calculations

Labor Productivity

Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250
 Multi-Factor Productivity

Output
Productivity =
Labor + Material + Energy +
Capital + Miscellaneous

 Also known as total factor productivity

 Output and inputs are often expressed in
dollars
Measurement Problems

 Quality may change while the quantity

of inputs and outputs remains
constant
 External elements may cause an
increase or decrease in productivity
 Precise units of measure may be
lacking
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
Key Variables for Improved Labor
Productivity

 Basic education appropriate for the labor

force
 Diet of the labor force
 Social overhead that makes labor
available
 Maintaining and enhancing skills in the
midst of rapidly changing technology and
knowledge
Labor Skills
About half of the 17-year-olds in the US cannot correctly answer questions of this
type

Figure 1.8
Investment and Productivity in
Selected Nations
10

Percent increase in mfg productivity 8 Japan

Belgium
Netherlands
6
Italy
France
4
Canada
2 US UK

0
10 15 20 25 30 35
Percentage investment
Service Productivity

 Typically labor intensive

 Frequently focused on unique individual
attributes or desires
 Often an intellectual task performed by
professionals
 Often difficult to mechanize
 Often difficult to evaluate for quality
 Ethics and Social Responsibility

Challenges facing
operations managers:

 Developing safe quality products

 Maintaining a clean environment
 Providing a safe workplace
 Honoring community commitments
 Problems (Productivity)

Problem 1:
Jalal Uddin, the Production Manager at Mughal Mills, can
currently expect his operation to produce 1000 square
yards of fabric for each ton of raw cotton. Each ton of
raw cotton requires 5 labor hours to process. He believes
that he can buy a better quality raw cotton, which will
enable him to produce 1200 square yards per ton of raw
cotton with the same labor hours.
What will be the impact on productivity (measured in
square yards per labor-hour) if he purchases the higher
quality raw cotton?
 Problems (Productivity)

Problem 2:
C. A. Ratchet, the local auto mechanic, finds that it
usually takes him 2 hours to diagnose and fix a typical
problem. What is his daily productivity (assume an 8
hour day)?
Mr. Ratchet believes he can purchase a small computer
trouble-shooting device, which will allow him to find and
fix a problem in the incredible (at least to his customers!)
time of 1 hour. He will, however, have to spend an extra
hour each morning adjusting the computerized
diagnostic device. What will be the impact on his
productivity if he purchases the device?
 Problems (Productivity)

Problem 3:
Joanna French is currently working a total of 12 hours
per day to produce 240 dolls. She thinks that by
changing the paint used for the facial features and
fingernails that she can increase her rate to 360 dolls per
day. Total material cost for each doll is approximately
$3.50; she has to invest $20 in the necessary supplies
(expendables) per day; energy costs are assumed to be
only $4.00 per day; and she thinks she should be making
$10 per hour for her time. Viewing this from a total
(multifactor) productivity perspective, what is her
productivity at present and with the new paint?