Operations Management Operations and Productivity Chapter 1

1. Operations ManagementOperations and ProductivityChapter 1

2. 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 trends in Operations Management • Operations in the service sector • The Productivity challenge

3. 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

4. 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

5. 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. 

6. 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 Goods Transformation process Human inputs Services INPUTS OUTPUTS

7. 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) • Standardized parts (Whitney, 1800) • Scientific management (Taylor, 1881) Ada Smith treats the topic of the division of labor Eli Whitney introduced concept of standard interchangeable parts in 1799 He described how the application of the scientific method to the management of workers greatly could improve productivity

8. Significant Events II • Coordinated assembly line (Ford 1913) • Gantt charts (Gantt, 1916) • Motion study (the Gilbreths, 1922) • Quality control (Shewhart, 1924) 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 designed his charts so that foremen or other supervisors could quickly know whether production was on schedule, ahead of schedule or behind schedule From their various studies the Gilbreths developed, the laws of human motion from which evolved the principles of motion economy Father of statistical quality control

9. Significant Events III 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 • CPM / PERT (Dupont, 1957) • MRP (Orlicky, 1960) • CAD • Flexible manufacturing systems (FMS) • Manufacturing automation protocol (MAP) • Computer integrated manufacturing (CIM) Material Requirements Planning (MRP) is a software based production planning and inventory control system used to manage manufacturing processes.

10. 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 operations managers do • OM is such a costly part of an organization

11. 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.

12. 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

13. 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

14. 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

15. 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

16. New Challenges in OM BeforeAfter • Local or national focus • Batch shipments • Low bid purchasing • Lengthy product development • Standard products • Job specialization • Global focus • Just-in-time • Supply chain partnering • Rapid product development, alliances • Mass customization • Empowered employees, teams

17. 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

18. Characteristics of Goods

19. 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 (well-trained humans) • Frequently dispersed

20. 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.

21. 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.

22. Examples of Services • Tourist Office Officer’s advice Flying tickets

23. Goods Versus Services GoodsService • Can be resold • Can be inventoried • Some aspects of quality measurable • Selling is distinct from production • Reselling unusual • Difficult to inventory • Quality difficult to measure • Selling is part of service

24. Goods Versus Services - Continued GoodsService • Product is transportable • Site of facility important for cost • Often easy to automate • Revenue generated primarily from tangible product • Provider, not product is transportable • Site of facility important for customer contact • Often difficult to automate • Revenue generated primarily from intangible service.

25. U.S. Exports of Services U.S. Employment, % Share Services as a Percent of GDP 80 %70 60 50 40 30 20 10 0 In Billions of Dollars United States Canada France Italy Britain Japan W Germany 250 200 150 100 50 0 Services Industry Farming 1970 1991 1850 75 1900 25 50 75 2000 40 50 60 70 1970 75 80 85 90 95 2000 Percent Year 2000 data is estimated Development of the Service Economy Increasing exports + employment in services sector

26. Inputs Process Outputs Land, Labor, Capital, Management 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%) Goods and Services Feedback loop The Economic System Transforms Inputs to Outputs

27. Units produced Productivity = Input used Productivity • Measure of process improvement • Represents output relative to input • Productivity increases improve standard of living and creates income. • From 1889 to 1973, U.S. productivity increased at a 2.5% annual rate

28. 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

29. 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.

30. 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

31. Jobs in the U.S

32. Labor % per year Whole Economy Manufacturing Productivity Growth 1971- 1992

33. 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