Operations
Management
Operations and Productivity
Chapter 1
1
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
Management
trends
in
Operations
 Operations in the service sector
 The Productivity challenge
2
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
3
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
4
Whirlpool’s Management Team
 Whirlpool Corporation’s management team
believes in the company’s 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.
5
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
Human inputs
INPUTS
Transformation
process
Goods
Services
OUTPUTS
6
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)
Ada Smith treats the topic of the division of labor
 Standardized parts (Whitney, 1800)
Eli Whitney introduced concept of standard interchangeable
parts in 1799
 Scientific management (Taylor, 1881)
He described how the application of the scientific method to the
management of workers greatly could improve productivity
7
Significant Events II
 Coordinated assembly line (Ford 1913)
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 charts (Gantt, 1916)
Gantt designed his charts so that foremen or other supervisors could quickly know
whether production was on schedule, ahead of schedule or behind schedule
 Motion study (the Gilbreths, 1922)
From their various studies the Gilbreths developed, the laws of human
motion from which evolved the principles of motion economy
 Quality control (Shewhart, 1924)
Father of statistical quality control
8
Significant Events III
 CPM / PERT (Dupont, 1957)
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
 MRP (Orlicky, 1960)
Material Requirements Planning (MRP) is a software based production
planning and inventory control system used to manage manufacturing
processes.




CAD
Flexible manufacturing systems (FMS)
Manufacturing automation protocol (MAP)
Computer integrated manufacturing (CIM)
9
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
managers do
 OM is such
organization
a
costly
operations
part
of
an
10
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.
11
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
12
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
13
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
14
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
15
New Challenges in OM
Before
 Local or national
focus
 Batch shipments
 Low bid purchasing
After
 Global focus
 Just-in-time
 Supply chain
partnering
 Lengthy product
development
 Rapid product
development,
alliances
 Standard products
 Job specialization
 Mass
customization
 Empowered
employees, teams
16
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
17
Characteristics of Goods
18
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 (welltrained humans)
 Frequently dispersed
19
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.
20
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.
21
Examples of Services
 Tourist Office
Officer’s advice
Flying tickets
22
Goods Versus Services
Goods
 Can be resold
 Can be
inventoried

 Some aspects of
quality
measurable
 Selling is distinct
from production



Service
Reselling
unusual
Difficult to
inventory
Quality difficult to
measure
Selling is part of
service
23
Goods Versus Services Continued
Goods
 Product is
transportable
 Site of facility
important for cost
Service
 Provider, not
product is
transportable
 Site of facility
important for
customer contact
 Often easy to
 Often difficult to
automate
automate
 Revenue
generated primarily  Revenue
from tangible
generated primarily
product
from intangible
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service.
Development of the Service
Economy
Increasing
exports +
employment in
services sector
U.S. Employment, % Share
80
United States
%70
60
Services
50
40
Canada
250
France
200
Italy
150
Industry
Britain
30
20
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
Japan
50
W Germany
1970
1991
40 50 60 70
Percent
0
1970 75 80 85 90 95 2000
Year 2000 data is estimated
25
The Economic System
Transforms Inputs to Outputs
Inputs
Land, Labor,
Capital,
Management
Process
The economic system
transforms inputs to outputs
at about an annual 1.7%
increase in productivity
(capital 38% of 1.7%), labor
(10% of 1.7%), management
(52% of 1.7%)
Outputs
Goods and
Services
Feedback loop
26
Productivity
 Measure of process improvement
 Represents output relative to input
Productivity
Units produced
= Input used
 Productivity increases improve standard of
living and creates income.
 From 1889 to 1973, U.S. productivity
increased at a 2.5% annual rate
27
Factors affecting Productivity
 Capital investments in
production/technology/equipment/
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
28
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.
29
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
30
Jobs in the U.S
6%
5%
Education, Health, etc.
5%
Manufacturing
3%
1%
6%
Retail Trade
State & Local Gov't
14%
Finance, Insurance
26%
Wholesale Trade
Transport, Public Util.
16%
Construction
Federal Government
18%
Mining
31
Productivity Growth 1971- 1992
Labor
5
4,5
% per year
4
3,5
3
United States
West Germany
Japan
2,5
2
1,5
1
0,5
0
Whole Economy
Manufacturing
32
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
33