Operations and Productivity DS412 Agenda DS412 ▶ Definitions and Overview ▶ Goods and Services ▶ Productivity Measurement 2 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 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.” DS412 4 Operation Process Inputs DS412 Transformation Outputs 5 Production n The creation of goods and services DS412 6 Goods vs. Services • • • • • • • DS412 tangibility time of production & consumption uniqueness/standardization customer involvement/interaction quality consistence reselling/residual value … 7 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. DS412 8 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 DS412 Learn what and how to improve operations 9 Productivity DS412 Evaluate Operation Process Inputs Transformation Outputs Value Added: The difference between the cost of inputs and the value or price of outputs. DS412 11 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 DS412 12 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 $) DS412 13 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? DS412 14 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%) DS412 15 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? DS412 16 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) DS412 17 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 19