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Production and
Operation Management
Heizer and Render
Operations Management, 12E, Global Edition
Principles of Operations Management, 12e, Global Edition
© 2014 Pearson Education, Inc.
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Outline
What Is Operations Management?
Why Study OM?
Organizing to Produce Goods and Services
What Operations Managers Do?
Ten Critical Decisions
Production System for Goods and Services
What is the specific position for the OM ?
Production & Productivity
Efficiency & Effectiveness
The Productivity Challenge
Productivity Measurement
Productivity Variables
Difficulties of Service Productivity
Ethics, Social Responsibility, and Sustainability
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What Is Operations
Management?
Production is the creation of
goods and services
Operations management (OM) is
the set of activities that create
value in the form of goods and
services by transforming inputs
into outputs
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Why study OM ?
Individually
In our day to day lives we routinely deal with both physical goods (mobile,
laptop, textbook…etc as well as services ( healthcare, education, and hair
dress ..etc. ) . We need to know how goods and services you already used
are produced.
We may need to know what is the requirement of the operation manager or
operation planner . You may need to understand what operations managers
do , or even to know how to successfully work with him.
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To know how to compare among the different and global products
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OM is one of three major functions of any organization, we want to study
how people organize themselves for productive enterprise.
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OM is such a costly part of an organization
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Countries today are classified as developing and development based on its
operations positions in terms of its quantity of exports and imports
(Chinese)
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Organizing to Produce
Goods and Services
Essential functions:
1. Marketing – generates demand
2. Production/operations – creates
the product
3. Finance/accounting – tracks how
well the organization is doing, pays
bills, collects the money
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What Operations
Managers Do
Basic Management Functions
Planning
Organizing
Staffing
Leading
Controlling
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Ten Critical Decisions
Ten important decisions must be performed by OM
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Design of goods and services
Managing quality
Process and capacity
Location strategy
Layout strategy
Human resources and job design
Supply-chain management
Inventory control
Scheduling
Maintenance
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© 2011 Pearson Education
Table 1.2
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The Strategic Decisions
1. Design of goods and services
Defines what is required of operations
Product design determines quality,
sustainability and human resources
2. Managing quality
Determine the customer’s quality
expectations
Establish policies and procedures to
identify and achieve that quality
‫وضع السياسات واإلجراءات لتحديد وتحقيق تلك الجودة‬
© 2014 Pearson Education, Inc.
Table 1.2 (cont.)
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The Strategic Decisions
3. Process and capacity design
How is a good or service produced?
Commits management to specific
technology, quality, resources, and
investment. .‫تلتزم اإلدارة بتكنولوجيا وجودة وموارد واستثمارات محددة‬
4. Location strategy
Nearness to customers, suppliers, and
talent.
Considering costs, infrastructure, logistics,
and government.
Table 1.2 (cont.)
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The Strategic Decisions
5. Layout strategy
Integrate capacity needs, personnel levels,
technology, and inventory
.‫دمج احتياجات القدرات ومستويات املوظفني والتكنولوجيا واملخزون‬
.‫تحديد التدفق الفعال للمواد واألشخاص واملعلومات‬
Determine the efficient flow of materials,
people, and information.
6. Human resources and job design
Recruit, motivate, and retain personnel with
the required talent and skills.
‫توظيف وتحفيز واستبقاء املوظفني ذوي املواهب واملهارات‬
.‫املطلوبة‬
Integral and expensive part of the total
system design.
.‫جزء متكامل ومكلف من تصميم النظام الكلي‬
Table 1.2 (cont.)
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The Strategic Decisions
7. Supply-chain management
Integrate supply chain into the firm’s strategy.
Determine what is to be purchased, from
whom, and under what conditions.
8. Inventory management
Inventory ordering and holding decisions.
Optimize considering customer satisfaction,
supplier capability, and production schedules.
.‫تحسني مراعاة رضا العمالء وقدرة املوردين وجداول اإلنتاج‬
Table 1.2 (cont.)
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The Strategic Decisions
9.
Scheduling
Determine and implement intermediateand short-term schedules.
‫االستفادة من املوظفني واملرافق‬
.‫مع تلبية طلبات العمالء‬
Utilize personnel and facilities while
meeting customer demands.
10. Maintenance
Consider facility capacity, production
demands, and personnel.
‫ضع في اعتبارك قدرة‬
‫املنشأة ومتطلبات اإلنتاج‬
‫ الحفاظ على‬.‫واملوظفني‬
.‫عملية موثوقة ومستقرة‬
Maintain a reliable and stable process.
Table 1.2 (cont.)
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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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Operations for Goods &
Services
uOperation management are focused
on goods and services (production)
uTV, automobiles , laptop ….etc are
examples of goods
uEducation , wash cars, hairdressing,
healthcare,……etc are example of
services
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Characteristics of Goods
u Tangible product
u Consistent product
definition
u Production usually
separate from
consumption
u Can be inventoried
u Low customer
interaction
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Characteristics of Service
u Intangible product
u Produced and
consumed at same time
u Often unique
u High customer
interaction
u Inconsistent product
definition
u Often knowledge-based
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The Production System
Inputs
Labor,
capital,
management
Transformation
location – transportation –
construction --------etc
Outputs
Goods
and
services
Feedback loop
Figure 1.6
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Production & Productivity
Efficiency & Effectiveness
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Production & productivity
production is represented by number of
output
Productivity is the ratio of outputs (goods
and services) divided by the inputs
(resources such as labour , capital,..etc)
Important Note!
Production is a measure of output
only
while productivity is a measure of
efficiency so our goal is to increase
productivity
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Production & Productivity
uHigh production may imply only that more
people are working and the employment
levels are high but it doesn’t imply high
productivity
uHigh production is interested in
quantity/numbers of goods & services
while productivity is related to the quality
of the output
uThe measurement of productivity is a good
way to evaluate country's’ ability to
improve standard of living for its people
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Efficiency & Effectiveness
uEffectiveness means only doing the
right things
uEfficiency means doing the job well
with a minimum of resources and
waste (doing things right)
uOrganization may be effective but
not efficient
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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 in purchases
less than $25
Saved 8 seconds
per transaction
Change the size of the ice
scoop
Saved 14 seconds
per drink
New espresso machines
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:
Stop requiring signatures
Saved 8 seconds
on credit card purchases
per transaction
the yearly revenue
increased by
under $25
$1,000,000 in seven years.
Productivity
has
improved
by 4.5% per
Change the size of the
ice
Saved
14 seconds
year.
scoop
per drink
New espresso machines
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Saved 12 seconds
per shot
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Mathematically , How can we
increase Productivity
Productivity =
output unit
input unit
Three ways can be undertaken to increase
productivity:1. Reducing input while keeping output constant
2. Increasing output while keeping inputs constant
3. Reducing input and increasing output at the
same time
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Productivity
Productivity =
Units produced
Input used
Measure of process improvement
Represents output relative to input
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Productivity Measurement
uSingle-Factor productivity
u Multi-Factor Productivity
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Productivity Calculations
Labor Productivity
Units produced
Productivity =
Labor-hours used
=
1,000
250
= 4 units/labor-hour
One resource input ð 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 resource inputs ð multi-factor productivity
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Computing single factor and
multifactor gains in
productivity
Example p.47
u Collins Title wants to evaluate its labor and
multifactor productivity with a new computerized
title-search system . The company has a staff of
four , each working 8 hours per day (for a payroll
cost of $640/day) and overhead expenses of
$400/day . Collins processes and closes on 8
titles each day . The new computerized titlesearch system will allow the processing of 14
titles per day . Although the staff , their work
hours and pay are the same , the overhead
expenses are now $ 800 per day . Which system
is better ?
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Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
8 titles/day
Overhead = $400/day
8 titles/day
Old labor
=
productivity
32 labor-hrs
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Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
8 titles/day
Overhead = $400/day
8 titles/day
Old labor
=
= .25 titles/labor-hr
productivity
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
Old labor
=
= .25 titles/labor-hr
productivity
32 labor-hrs
14 titles/day
New labor
=
productivity
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
Old labor
=
= .25 titles/labor-hr
productivity
32 labor-hrs
14 titles/day
New labor
=
= .4375 titles/labor-hr
productivity
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
Old multifactor
=
productivity
$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
Old multifactor
=
= .0077 titles/dollar
productivity
$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
Old multifactor
=
= .0077 titles/dollar
productivity
$640 + 400
14 titles/day
New multifactor
=
productivity
$640 + 800
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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
Old multifactor
=
= .0077 titles/dollar
productivity
$640 + 400
14 titles/day
New multifactor
=
=
.0097
titles/dollar
productivity
$640 + 800
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Conclusion
The new system is better
because it shows increase
in both the single –factor
(labor) productivity - and
multifactor productivity
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Productivity 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
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. Some overhead that makes labor available (
transportation)
4. Maintaining and enhancing skills through training ,
motivation, team building….etc.
Challenge is in maintaining and enhancing skills
in the mindset of rapidly changing technology and
knowledge
‫يكمن التحدي في الحفاظ على املهارات وتعزيزها في عقلية التكنولوجيا واملعرفة املتغيرة بسرعة‬
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Capital Productivity
uCapital investment is necessary for
increased productivity
uInflation and taxes rate affect the
capital investment (increase the cost
of capital )
u When the capital invested per
employee drop we expect drop in
productivity
ً
‫انخفاضا في اإلنتاجية‬
‫ نتوقع‬، ‫عندما ينخفض رأس املال املستثمر لكل موظف‬
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Management Productivity
uManagement is responsible for more than
50% of productivity
uManagement is responsible for ensuring
that labor and capital are effectively used
to increase productivity
uManagement is responsible for change the
society into knowledge- society by using
knowledge and technology
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Service Productivity
productivity of the service sector is
more difficult to improve because the
service sector work is :1. Typically labor intensive (teaching)
2. Frequently focused on unique
individual attributes or desires
(investment)
3. Often an intellectual task performed by
professionals (medical)
4. Often difficult to evaluate for quality
(law firm)
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Ethics, Social Responsibility,
and Sustainability
Challenges facing
operations managers:
Develop and produce safe, high-quality
Train, retrain, and motivate employees in a
safe workplace
Maintaining a sustainable clean environment
Honor stakeholder commitments
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The End
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