Chapter 1 – Operations and
Productivity
Introduction
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
What – An introduction to Operations
Management
Where – In any business that wants to
improve its productivity
Why – Productivity is one measure of
success in business
What is Operations
Management?

“Operations Management is the set of
activities that creates goods and
services by transforming inputs into
outputs”
What are the Inputs and
Outputs?




A
A
A
A
Sony TV Factory
Bank
Hospital
University
Why Study Operations
Management?




Study how people organize themselves for
productive enterprise
Study how goods and services are produced
Understand what operations managers do
Understand how operations management
affects costs for an organization
Operations Management
Breakdown





Design of Goods and Services
Managing Quality
Process Strategy
Location Strategy
Layout Strategy
Breakdown Continued

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
Human Resources
Supply-chain Management
Inventory Management
Scheduling
Maintenance
Framework of Business

All businesses perform three functions
to create goods and services:



Finance and Accounting
Marketing
Operations and Production
Operations Management and
Services
Goods vs Services

Goods




Resold
Inventoried
Measurable
Quality
Sales distinct
from
Production

Services




Reselling Unusual
Difficult to
Inventory
Quality Difficult to
Measure
Selling Part of
Service
Goods vs Services Continued

Goods

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
Product
Transportable
Location for
Cost
Easy to
Automate

Services



Provider
Transportable
Location for
Customer
Contact
Difficult to
Automate
Trends in Services


Your job
Your parents’ job
Growth of Services
U.S. Employment, % Share
80
United States
%70
60
Services
50
40
Canada
250
France
200
Italy
150
Industry
30
Britain
20
Japan
10
U.S. Exports of Services
In Billions of Dollars
Services as a Percent of GDP
Farming
0
1850 75 1900 25 50 75 2000
100
50
W Germany
1970
1991
40 50 60 70
Percent
Year 2000 data is estimated
0
1970 75 80 85 90 95 2000
Mix of Goods and Services
Automobile
Computer
Installed Carpeting
Fast-food Meal
Restaurant Meal
Auto Repair
Hospital Care
Advertising Agency
Investment Management
Consulting Service
Counseling
100
75
50
25
Percent of Product that is a Good
0
25
50
75
100
Percent of Product that is a Service
Pure Service

Pure Service: No physical product
provided along with a service
Applying OM to Services

Can be very difficult to apply operations
management concepts to the service
sector
Productivity
Productivity Definition

Productivity is the ratio of outputs of an
enterprise divided by its inputs
Outputs
Productivity =
Inputs
Productivity Definition


Outputs?
Inputs?
Products and Services
Productivity =
Labour, Material, Energy, Capital
Productivity Definition


It is the function of Operations
Management to improve the ratio of
outputs to inputs – to make the
operation more efficient.
How?
Productivity Improvement

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Why measure national productivity?
Only by increasing productivity does the
standard of living improve
Three variables:

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Labour
Capital
Management