Operations and Productivity
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Agenda
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Definitions and Overview
▶
Goods and Services
▶
Productivity Measurement
2
Learning Objectives
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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 and multi-factor
productivity
5.
Compute unit change and percentage change in
productivity
3
Definition of OM
quotes from textbooks…
“... the process of obtaining and utilizing resources to produce useful
goods and services so as to meet the goals of the organization.”
“... the management of the direct resources required to produce the
goods and services provided by an organization.”
“... the process of managing people and resources in order to create a
product or service.”
“... the systematic direction and control of the processes that transform
resources into finished products.”
“…the management of systems or processes that create goods and/or
provide services.”
“…responsible for planning, coordinating, and controlling the resources
needed to produce a company’s goods and services.”
“ … the set of activities that create value in the form of goods and
services by transforming inputs into outputs.”
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Operation Process
Inputs
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Transformation
Outputs
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Production
n
The creation of goods and services
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Goods vs. Services
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tangibility
time of production & consumption
uniqueness/standardization
customer involvement/interaction
quality consistence
reselling/residual value
…
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Supply Chain
Figure 2. Soft Drink Supply Chain
n
A supply chain consists of all parties involved, directly
or indirectly, in fulfilling a customer request.
n
A global network of organizations and activities that
supply a firm/consumer with goods and services.
n
Members of the supply chain collaborate to achieve
high levels of customer satisfaction, efficiency and
competitive advantage.
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Why Study OM?
n
OM is one of the major functions of any organization.
q
n
The production function creates the products and services
we use.
q
n
How goods and services are produced
Regardless of your role/job in an organization, you can
perform better and help you explore more career
opportunities if you know operations.
q
n
How people organize themselves for productive enterprise
Understand what operations (managers) do
OM is such a costly part of an organization that OM
provides a major opportunity for an organization to
improve its profitability and enhance its services.
q
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Learn what and how to improve operations
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Productivity
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Evaluate Operation Process
Inputs
Transformation
Outputs
Value Added: The difference between the cost of inputs and
the value or price of outputs.
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Productivity
Inputs
(resources such as
labor, capital…)
Productivity =
Outputs
Transformation
(goods, services)
Output (units/value produced)
Input
n
Represents output relative to input
n
Measure of process improvement
n
Only through productivity increases can our standard of living
improve
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Productivity Measures
n
Single-factor (simple) productivity:
Output
Single Input
n
Multi-factor productivity:
Output
Multiple Inputs
(e.g. materials, labor, capital, convert to the same units, usually $)
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Example
n
A small manufacturer spends 150 labor hours and makes
6,000 pieces of gear every day.
1.
What is labor productivity?
2.
If the labor productivity were increased to 50 pieces/hour, how many pieces
of gear would the manufacturer produce given the same labor hours?
3.
If the labor productivity were increased to 50 pieces/hour, how many labor
hours would be needed given the same production units?
1.
If the manufacturer changed the process and only produced 5,000 pieces
every day given the same labor hours, would the productivity increase or
decrease, and by how much?
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Solution
1.
labor productivity=6,000pieces/150hours=40pieces/hour
2.
output=input*productivity=150hours*50pieces/hour=7,500pieces
3.
input=output/productivity=6,000pieces/(50pieces/hour)=120hours
4.
new productivity=5,000pieces/150hours=33.33pieces/hour
unit change=33.33 – 40 = – 6.67pieces/hour (decreased 6.67pieces/hour)
percentage change= – 6.67/40= – 16.7% (decreased 16.7%)
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Example
A small manufacturer makes 6,000 pieces of gear every day
using following resources:
Labor
150 hours per day @ $40 per hour
Raw Materials
1,000 pounds per day @ $20 per pound
Capital cost
Utility
$3,000 per day
$1,000 per day
1.
What is labor productivity?
2.
What is multi-factor productivity?
3.
If multi-factor productivity increased by 30%, how many pieces of gear does the
manufacturer produce while everything else remains the same?
4.
What would be the multi-factor productivity if the manufacturer finds another
supplier that charges material cost $15 per pound while everything else remains
the same?
q
What is unit change in multi-factor productivity?
q
What is percentage change in multi-factor productivity?
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Solution
1. Labor productivity= 6,000pieces/(150*$40)=1 piece/$
2. Multi-factor productivity=6,000pieces/(150*$40+1,000*$20+$3,000+$1,000)
= 6,000pieces/$30,000 = 0.2pieces/$
3. New multi-factor productivity = 0.2(1+30%) piece/$ = 0.26piece/$
New output = inputs*new productivity= $30,000*0.26pieces/$ = 7,800pieces
or New outputs = Original outputs*(1+30%) = 7,800 pieces
4. New multi-factor productivity
= 6,000pieces/(150*$40+1,000*$15+$3,000+$1,000)
= 6,000pieces/$25,000=0.24 pieces/$
Unit change=new–old=0.24pieces/$ – 0.2pieces/$=0.04pieces/$
Percentage change=Unit change/old=0.04pieces/$ / 0.2pieces/$=20%(0.2)
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Review
DS412
▶
Definitions and Overview
▶
Goods and Services
▶
Productivity Measurement
18
Learning Objectives
DS412
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 and multi-factor
productivity
5.
Compute unit change and percentage change in
productivity
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