hr om11 ch01 Productivity 2nd Lecture02

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Operations and
Productivity
© 2014
© 2014
Pearson
Pearson
Education,
Education,
Inc.Inc.
1
1-2
Career Opportunities in OM
▶ Operations manager
▶ Production analyst
▶ Production manager
▶ Time study analyst
▶ Inventory manager
▶ Quality analyst
▶ Quality manager
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Opportunities
Figure 1.3
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Certifications in OM
▶APICS, the Association for Operations Management
▶American Society for Quality (ASQ)
▶Institute for Supply Management (ISM)
▶Project Management Institute (PMI)
▶Council of Supply Chain Management Professionals
▶Charter Institute of Purchasing and Supply (CIPS)
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Significant Events in OM
Figure 1.4
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The Heritage of OM
▶ Division of labor (Adam Smith 1776; Charles
Babbage 1852)
▶ Standardized parts (Whitney 1800)
▶ Scientific Management (Taylor 1881)
▶ Coordinated assembly line (Ford/ Sorenson 1913)
▶ Gantt charts (Gantt 1916)
▶ Motion study (Frank and Lillian Gilbreth 1922)
▶ Quality control (Shewhart 1924; Deming 1950)
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The Heritage of OM
▶ Computer (Atanasoff 1938)
▶ CPM/PERT (DuPont 1957, Navy 1958)
▶ Material requirements planning (Orlicky 1960)
▶ Computer aided design (CAD 1970)
▶ Flexible manufacturing system (FMS 1975)
▶ Baldrige Quality Awards (1980)
▶ Computer integrated manufacturing (1990)
▶ Globalization (1992)
▶ Internet (1995)
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Frederick W. Taylor
▶ Born 1856; died 1915
▶ Known as ‘father of scientific
management’
▶ In 1881, as chief engineer for
Midvale Steel, studied how tasks
were done
▶ Began first motion and time studies
▶ Created efficiency principles
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Taylor’s Principles
Management Should Take More Responsibility for:
1. Matching employees to right job
2. Providing the proper training
3. Providing proper work methods and tools
4. Establishing legitimate incentives for
work to be accomplished
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Operations for
Goods and Services
▶ Manufacturers produce tangible product,
services often intangible
▶ Operations activities often very similar
▶ Distinction not always clear
▶ Few pure services
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U.S. Agriculture, Manufacturing,
and Service Employment
Figure 1.5
100 –
Percent of Workforce
80 –
60 –
40 –
20 –
0– |
1800
|
1825
|
1850
Agriculture
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|
1875
|
|
1900
1925
Services
|
1950
|
|
1975
2000
2025 (est.)
Manufacturing
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Good or Service?
Goods are physical items that include raw materials, parts,
subassemblies, and final products.
•Automobile
•Computer
•Oven
•Shampoo
Services are activities that provide some combination of time,
location, form or psychological value.
•Air travel
•Education
•Haircut
•Legal counsel
•Art
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Differences Between Goods and
Services
TABLE 1.3
CHARACTERISTICS OF SERVICES
CHARACTERISTICS OF GOODS
Intangible: Ride in an airline seat
Tangible: The seat itself
Produced and consumed simultaneously: Beauty salon
produces a haircut that is consumed as it is produced
Product can usually be kept in inventory (beauty care
products)
Unique: Your investments and medical care are unique
Similar products produced (iPods)
High customer interaction: Often what the customer is
paying for (consulting, education)
Limited customer involvement in production
Inconsistent product definition: Auto Insurance
changes with age and type of car
Product standardized (iPhone)
Often knowledge based: Legal, education, and medical
services are hard to automate
Standard tangible product tends to make automation
feasible
Services dispersed: Service may occur at retail store,
local office, house call, or via internet.
Product typically produced at a fixed facility
Quality may be hard to evaluate: Consulting,
education, and medical services
Many aspects of quality for tangible products are easy
to evaluate (strength of a pin)
Reselling is unusual: Musical concert or medical care
Product often has some residual value
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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 productivity!
Important Note!
Production is a measure of output only
and not a measure of efficiency
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The Economic System
Inputs
Labor,
capital,
management
Transformation
The U.S. economic system
transforms inputs to outputs at
about an annual 2.5% increase
in productivity per year. The
productivity increase is the
result of a mix of capital (38%
of 2.5%), labor (10% of 2.5%),
and management (52% of
2.5%).
Outputs
Goods
and
services
Feedback loop
Figure 1.6
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Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Stop requiring signatures on
credit card purchases under $25
Saved 8 seconds per
transaction
Change the size of the ice
scoop
New espresso machines
Saved 14 seconds per
drink
Saved 12 seconds per
shot
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Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Operations improvements have
helped StarbucksSaved
increase
yearly
Stop requiring signatures
8 seconds
revenue per outlet
bytransaction
$250,000 to
on credit card purchases
per
$1,000,000 in seven years.
under $25
27%, or
Change the size Productivity
of the ice has improved
Saved 14by
seconds
about 4.5% per year.
scoop
per drink
New espresso machines
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Saved 12 seconds
per shot
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Measurement Problems
1. Quality may change while the
quantity of inputs and outputs remains
constant
2. External elements may cause an
increase or decrease in productivity
3. Precise units of measure may be
lacking
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Productivity Variables
1. Labor - contributes about
10% of the productivity
annual increase
2. Capital - contributes
about 38% of the annual
increase
3. Management contributes about 52% of
the annual increase
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Key Variables for Improved
Labor Productivity
1. Basic education appropriate for the labor force
2. Diet of the labor force
3. Social overhead that makes labor available
▶ Challenge is in maintaining and enhancing
skills in the midst of rapidly changing
technology and knowledge
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Capital
Percent increase in productivity
10
8
6
4
2
0
10
15
20
25
30
35
Percentage investment
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Management
▶ Ensures labor and capital are effectively
used to increase productivity through:
▶ Use of knowledge
▶ Application of technologies
▶ Creates Knowledge-based societies
▶ Represents the Difficult challenge
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Productivity and the
Service Sector
1. Typically labor intensive
2. Frequently focused on unique individual
attributes or desires
3. Often an intellectual task performed by
professionals
4. Often difficult to mechanize and automate
5. Often difficult to evaluate for quality
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Productivity at Taco Bell
Improvements:
▶ Revised the menu
▶ Designed meals for easy
preparation
▶ Shifted some preparation to
suppliers
▶ Efficient layout and automation
▶ Training and employee
empowerment
▶ New water and energy saving grills
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Productivity at Taco Bell
Results:
▶ Preparation time cut to 8 seconds
▶ Management span of control increased from 5 to 30
▶ In-store labor cut by 15 hours/day
▶ Floor space reduced by more than 50%
▶ Stores average 164 seconds/customer from drive-up to
pull-out
▶ Water- and energy-savings grills conserve 300 million
gallons of water and 200 million KwH of electricity each
year
▶ Green-inspired cooking method saves in 5,800
restaurants $17 million per year (Locations: 7,000 in 2015)
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New Challenges in OM
▶
▶
▶
▶
▶
▶
▶
Global focus
Supply-chain partnering
Sustainability
Rapid product development
Mass customization
Just-in-time performance
Empowered employees
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Ethics, Social Responsibility,
and Sustainability
Challenges facing
operations managers:
▶ Develop and produce safe, high-quality
green products
▶ Train, retrain, and motivate employees
in a safe workplace
▶ Honor stakeholder commitments
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Productivity
Productivity =
Units produced
Input used
▶ Measure of process improvement
▶ Represents output relative to input
▶ Only through productivity increases
can our standard of living improve
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Productivity Calculations
Labor Productivity as example
Productivity =
Units produced
Labor-hours used
One resource input  single-factor productivity
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Multi-Factor Productivity
Productivity =
Output
Labor + Material + Energy +
Capital + Miscellaneous
►
Also known as total factor productivity
►
Output and inputs are often expressed in
dollars
Multiple resources inputs  multi-factor productivity
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Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
Labor productivity =
with old system
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8 titles/day
Overhead = $400/day
8 titles/day
32 labor-hrs
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Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
Labor productivity
=
with old system
© 2014 Pearson Education, Inc.
8 titles/day
Overhead = $400/day
8 titles/day
= 0.25 titles/labor-hr
32 labor-hrs
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Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
14 titles/day
Labor productivity
=
with new system
32 labor-hrs
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Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Labor productivity
=
= .25 titles/labor-hr
with old system
32 labor-hrs
14 titles/day
Labor productivity
=
= .4375 titles/labor-hr
with new system
32 labor-hrs
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Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Multifactor productivity
=
with old system
$640 + 400
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Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Multifactor productivity
=
= 0.0077 titles/dollar
with old system
$640 + 400
© 2014 Pearson Education, Inc.
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Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
14 titles/day
Multifactor productivity
=
with new system
$640 + 800
© 2014 Pearson Education, Inc.
1 - 38
Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Multifactor productivity
=
= 0.0077 titles/dollar
with old system
$640 + 400
14 titles/day
Multifactor productivity
=
= 0.0097 titles/dollar
with new system
$640 + 800
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Exercise
Martin Manufacturing has implemented several
programs to improve its productivity. Following data
are available:
knowing that the cost of labor is 5$ per hour. They have
asked you to evaluate the firm's productivity by:
(1) calculating the single-factor productivity, change in
productivity and the percentage change in productivity
for each factor.
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(2) calculating the multifactor productivity,
change in multifactor productivity, and the
percentage change in multifactor productivity
Notice: (Rounding decimals to the nearest thousands)
Resource
Last Year
Current Year
Change
Pct. Change
Labor
Utilities
Capital
Multifactor
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Resource
Last Year
Current Year
Change Pct. Change
Labor
10500 / 60000 =
0.175
12100 / 66000 =
0.183
0.008
4.6%
Utilities
10500 / 7600 =
1.382
12100 / 8250 =
1.467
0.085
6.2%
Capital
10500 / 83000 =
0.127
12100 / 88000 =
0.138
0.011
8.7%
Multifactor
10500 / 150600 = 0.070
12100 / 162250 =
0.075
0.005
7.1%
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