L1: Manufacturing and Service Systems Management

1. L1: Manufacturing and Service Systems Management ISE 360 Engineering Economics Mahmut Ali GÖKÇE Industrial Systems Engineering Computer Sciences

2. Today • Course Description • Requirements, Topics • Rules of the Course • Lecture on Service and Manufacturing Systems

3. Course Description • Management of Manufacturing and Service Systems. • Management in “Engineering” sense. • Learn what types of manufacturing and service systems exist. • Learn the importance of and difficulties in managing these systems • Learn methods and tools to manage • Exercise these methods.

4. Course Requirements and Rules • Course will require • Analytical thinking • Mathematical modeling • Basic Calculus and Probability Theory • Reading • Course Rules • Regular Attendance, Participation • Midterm 30%, Final 40%, HW/Quiz 20%, Part./Attendance 10% • Syllabus available at http://homes.ieu.edu.tr/~agokce/

5. Your Background and e-Service Interests • What is your interest in this topic? Why? • Which topics specifically interest you? • Information Technology background • Service management and/or manufacturing systems experience? • Have you previously taken a service operations or service marketing class? • E-Service experiences?

6. Definitions

7. Marketing Operations Finance Functional Areas of the Firm

8. Production is the creation of goods and services • The set of activities that creates value in the form of goods and services by transforming inputs into outputs is called Operations management (OM)

9. Managing mfg./service systems = managing operations involved. • All organizations have operations function. What are operations you see or get involved as customers? • You might wake up with radio, wash your face, take public transportation, depend on banking to get money from parents…etc. etc. • Operations differ in volume, variety, variation in demand and visibility

10. Operations Teller Scheduling Check Clearing Collection Transaction processing Facilities design/layout Vault operations Maintenance Security Finance Investments Security Real estate Marketing Loans Commercial Industrial Financial Personal Mortgage Accounting Auditing Trust Department Organizational Charts Commercial Bank Figure 1.1(A)

11. Operations Ground support equipment Maintenance Ground Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications Dispatching Management science Finance/ accounting Accounting Payables Receivables General Ledger Finance Cash control International exchange Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising Organizational Charts Airline Figure 1.1(B)

12. Operations FacilitiesConstruction; maintenance Production and inventory controlScheduling; materials control Quality assurance and control Supply-chain management ManufacturingTooling; fabrication; assembly Design Product development and design Detailed product specifications Industrial engineering Efficient use of machines, space, and personnel Process analysis Development and installation of production tools and equipment Finance/ accounting Disbursements/ credits Receivables Payables General ledger Funds Management Money market International exchange Capital requirements Stock issue Bond issue and recall Marketing Sales promotion Advertising Sales Market research Organizational Charts Manufacturing Figure 1.1(C)

13. Finance/ Marketing Accounting OM Option Option Option Increase Reduce Reduce Sales Finance Production Current Revenue 50% Costs 50% Costs 20% Sales $100,000 $150,000 $100,000 $100,000 Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000 Gross Margin 20,000 30,000 20,000 36,000 Finance Costs – 6,000 – 6,000 – 3,000 – 6,000 Subtotal 14,000 24,000 17,000 30,000 Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500 Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500 Options for Increasing Contribution

14. Decision Areas • Service and product design • Process and capacity design • Location • Layout design • Human resources, job design • Supply-chain management • Inventory management • Scheduling • Maintenance Critical Decisions

15. Significant Events in OM Figure 1.3

16. From To • 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 Challenges in Mfg/Service Sys. Mgt

17. Characteristics of Goods • Tangible product • Consistent product definition • Production usually separate from consumption • Can be inventoried • Low customer interaction

18. Characteristics of Service • Intangible product • Produced and consumed at same time • Often unique • High customer interaction • Inconsistent product definition • Often knowledge-based • Frequently dispersed

19. Service • The Service Economy • Early 1900s … 30% of U.S. economy produced services • Today (in the USA) … > 80% of economy produces services • Rate in Turkey is lower but increasing. • But is a dominantly service economy desirable? • Can there be service w/o manufacturing?

20. Service • Categories of Service • Business services: consulting, finance, banking, insurance, real estate (FIRE) • Trade services: retailing, maintenance, repair • Social/personal services: restaurants, health care • Public administration: education, government • Infrastructure services: communications, transportation • How to categorize e-Service?

21. Definitions: Service • What is “service”? • Difficult to define … often, one observes circular definitions of what service is • General characteristics of services • Services are deeds, processes, and performances • Service is an experience • Service is an activity that takes place between a customer and a service employee/system • Service is co-produced by the consumer • Service is intangible, goods are tangible • Services are consumed at the same time as they are produced • Goods exist over time, services perish if not consumed

22. Definitions: Service • Service Components • Service package/Service product • That which is “offered” or of value in the experience • A bundle of goods and services that is provided in some environment • Consists of goods, services, and information • Service process • The way the service experience is created • Service supply chain • Supports/facilitates the process

23. DefinitionsService • Service package consists of four features • Supporting facility • physical resources; where the service is delivered • Facilitating goods • some “thing” consumed or used during the service experience that contributed to the experience • Explicit services • readily observable benefits of the service • Implicit services • psychological benefits of the service, less easy to sense

25. DefinitionsWhat is e-Service? • Given the previous definitions of a service • would an e-Service be characterized as a service? • would we have to modify those definitions?

26. DefinitionsWhat is e-Service? • An e-Service is … • [1] a service package of goods, offline services, and digital content • [2] involves some agent (Consumer, Business, Government) who consumes the service • [3] the consumer of service (“agent”) interacts with an IT technology delivery system to co-produce service • [4] digital content is a core attribute of service-product

27. Not an e-Service e-Service • Digital watch • Vacuum with embedded intelligence • an intelligent good • Vending machine • Barcode scanner data put into internal database about supply chain information for optimizing supply chain • Traditional B2C, B2B, etc. • Digital watch with GPS, atomic clock polling • Vacuum with embedded intelligence that dynamically adapts via communication with centralized server • Vending machine with i-Phone support for payment process • Supply chain “object” (barcode scanner) that communicates status to customer of supply chain via “service-product” • E-Commerce B2C, B2B, etc. Definitions Examples of e-Service

28. e-Service Types of e-Service

29. Types of e-Service • x2y’s • B2C • B2B • C2B, C2G, C2C, B2G, G2C, G2B, G2G, B2E, P2P • xSP’s • ASP: application service provider • BSP: business service provider • CSP:commerce service provider • CSP: content service provider • MSP: management service provider • SSP: security service provider

30. Productivity Challenge Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital) The objective is to improve this measure of efficiency Important Note! Production is a measure of output only and not a measure of efficiency

31. Units produced Input used Productivity = Productivity • Measure of process improvement • Represents output relative to input • Only through productivity increases can our standard of living improve

32. Units produced Labor-hours used Productivity = 1,000 250 = = 4 units/labor-hour Productivity Calculations Labor Productivity

33. Output Labor + Material + Energy + Capital + Miscellaneous Productivity = Multi-Factor Productivity • Also known as total factor productivity • Output and inputs are often expressed in dollars

34. Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old labor productivity = 8 titles/day 32 labor-hrs Collins Title Productivity

35. Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old labor productivity = = .25 titles/labor-hr 8 titles/day 32 labor-hrs Collins Title Productivity

36. Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day New System: 14 titles/day Overhead = $800/day Old labor productivity = 8 titles/day 32 labor-hrs 14 titles/day 32 labor-hrs New labor productivity = Collins Title Productivity = .25 titles/labor-hr

37. Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day New System: 14 titles/day Overhead = $800/day Old labor productivity = = .25 titles/labor-hr 8 titles/day 32 labor-hrs 14 titles/day 32 labor-hrs New labor productivity = = .4375 titles/labor-hr Collins Title Productivity

38. Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day New System: 14 titles/day Overhead = $800/day 8 titles/day $640 + 400 Old multifactor productivity = Collins Title Productivity

39. Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day New System: 14 titles/day Overhead = $800/day 8 titles/day $640 + 400 Old multifactor productivity = = .0077 titles/dollar Collins Title Productivity

40. Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day New System: 14 titles/day Overhead = $800/day 8 titles/day $640 + 400 Old multifactor productivity = 14 titles/day $640 + 800 New multifactor productivity = Collins Title Productivity = .0077 titles/dollar

41. Old System: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day New System: 14 titles/day Overhead = $800/day 8 titles/day $640 + 400 Old multifactor productivity = 14 titles/day $640 + 800 New multifactor productivity = Collins Title Productivity = .0077 titles/dollar = .0097 titles/dollar

42. Measurement Problems • Quality may change while the quantity of inputs and outputs remains constant • External elements may cause an increase or decrease in productivity • Precise units of measure may be lacking

43. 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

44. Next Lecture on Forecasting • Reading : • Ch 2 from Nahmias