Pro and Opera Mgt

INTRODUCTIO

N

TO PR

ODUCTION

& OPERATI

ONS

MANAGEMENT

MANAGEMENT SCIENCE…is the study and development

of techniques for the formulation and analysis of management and related business problems. Operations research models are often helpful in this process.

OPERATIONS RESEARCH…is the application of techniques

developed in mathematics, statistics, engineering and the physical sciences to the solution of problems in business, government, industry, economics and the social sciences.

QUANTITATIVE METHODS…employ mathematical models to reach

a wide variety of business decisions.They give modern managers a competitive edgeManagers do not need to have great mathematical skills

Familiarity allows one to: Ask the right questions Recognize when additional analysis is necessary Evaluate potential solutions Make informed decisions

QUALITATIVE METHODS…like more traditional methods, however,

qualitative methods come in many varieties. Different researchers focus on different sources of data: One's own immediate experience Others' experiences, which we might seek to

understand through: their speech or writing, their other behaviors, their products - technology, artwork, footprints,

etc.

WHAT IS POM?Production is the creation of goods and

servicesProduction and/or Operations

Management are the activities that transform resources into goods and services

WHY STUDY POM?It is one of the 3 critical parts of any

organization:Marketing – generates demandOperations – creates the productFinance/accounting – tracks organizational performance, pays bills, collects money

It shows us how goods and services are produced

It shows us what POM managers doIt is the most costly part of any organization

COST AS A PERCENTAGE OF SALES

Meat Furniture Restaurant Heavy

Packing Manufacturing Equipment

POM

Materials 79% 40% 38% 42%Labor 8 15 20 12

Fringes 3 22 16 23Total 90 77 74 77

S, G & A 9 15 22 20

Int., Taxes, Profits, etc. 1 8 4 3

JOBS IN THE U.S.

26%

18%

16%

14%

6%6% 5% 5%

3%1%

Education, Health, etc.

Manufacturing

Retail Trade

State & Local Gov't

Finance, Insurance

Wholesale Trade

Transport, Public Util.

Construction

Federal Government

Mining

aaaaaaaaa

JOBS IN POMLess than 20% of all jobs are in

manufacturing (and they are declining)Almost 80% of jobs are in the service

sector (and they are increasing)Nearly half of all jobs are in POMMost POM jobs are professional and/or

managerial

THE CRITICAL DECISIONS

Quality management Who is responsible for quality? How do we define quality?

Service and product design What product or service should we offer? How should we design these products and

services?

THE CRITICAL DECISIONS - CONTINUED

Process and capacity design What processes will these products require

and in what order? What equipment and technology is

necessary for these processes?Location

Where should we put the facility On what criteria should we base this location

decision?


Layout design How should we arrange the facility? How large a facility is required?

Human resources and job design How do we provide a reasonable work

environment? How much can we expect our employees to

produce?


Supply chain management Should we make or buy this item? Who are our good suppliers and how many

should we have?Inventory, material requirements planning,

How much inventory of each item should we have?

When do we re-order?


Intermediate, short term, and project scheduling Is subcontracting production a good idea? Are we better off keeping people on the

payroll during slowdowns?Maintenance

Who is responsible for maintenance? When do we do maintenance?

SIGNIFICANT EVENTS IN POMDivision of labor (Adam Smith, The

Wealth of Nations, 1776)Industrial RevolutionStandardization of parts (Eli Whitney,

1765 - 1825)Cotton Gin (1792)Contract with U.S. for muskets (1798)

Some doubt about true interchangeability Simeon North (Middletown) John Hall (Harpers Ferry)

SIGNIFICANT EVENTS IN POM (CONT.)Scientific management (Frederick Taylor

1865 - 1915) The Principles of Scientific Management,

1911 Match employees to jobs Provide the proper training Provide the proper methods and tools Establish legitimate incentives

SIGNIFICANT EVENTS IN POM (CONT.)Taylor’s 4 Principles of Scientific

Management: Replace rule-of-thumb work methods with methods

based on a scientific study of the tasks Scientifically select, train, and develop each worker

rather than passively leaving them to train themselves Cooperate with the workers to ensure that the

scientifically developed methods are being followed Divide work nearly equally between managers and

workers, so that the managers apply scientific management principles to planning the work and the workers actually perform the tasks

SIGNIFICANT EVENTS IN POM (CONT.)Coordinated assembly line (Henry Ford

1863 -1947)Gantt charts (Henry Gantt 1861-1919)Motion studies (Frank and Lillian

Gilbreth, 1922)Quality control (Shewhart, Juran,

Feigenbaum, Deming, Taguchi, etc.)CADFlexible manufacturing systems (FMS)Computer integrated manufacturing

(CIM)

NEW CHALLENGES IN OM

Local or national focus

Batch shipmentsLow bid purchasingLengthy product

development cyclesStandardized

productsJob specialization

Global focus Just-in-time Supply chain

partnering Rapid product

development Strategic alliances Mass customization Empowered

employees Teams

FromFrom ToTo

GOODS VS. SERVICES

CHARACTERISTICS OF GOODS

Tangible product Consistent product

definition Production usually

separate from consumption

Can be inventoried Low customer

interaction © 1995 Corel Corp.

CHARACTERISTICS OF SERVICES

Intangible product Produced & consumed at

same time Often unique High customer interaction Inconsistent product

definition Often knowledge-based Frequently dispersed

© 1995 Corel Corp.

GOODS VS. SERVICES

Can be resoldCan be inventoriedSome aspects of quality

measurableSelling is distinct from

production

Reselling unusualDifficult to

inventoryQuality difficult to

measure

Selling is part of service

GoodsGoods ServiceService

GOODS VS. SERVICES - CONTINUED

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

GoodsGoods ServiceService

GOODS CONTAIN SERVICES / SERVICES CONTAIN GOODS

0 25 50 75 100255075100

AutomobileComputerInstalled Carpeting

Fast-food MealRestaurant Meal

Auto RepairHospital Care

Advertising AgencyInvestment Management

Consulting ServiceCounseling

Percent of Product that is a Good Percent of Product that is a Service

NEW CHALLENGES IN OPERATIONS MANAGEMENT

CHANGING CHALLENGES FOR THE OPERATIONS MANAGER

Past Causes Future Local or national focus

Low-cost, reliable worldwide communication and transportation networks

Global Focus

Batch (large) shipments

Cost of capital puts pressure on reducing investment in inventory

Just-in-time shipments

Low-bid purchasing

Quality emphasis requires that suppliers be engaged in product improvement

Supply-chain partners

Lengthy product development

Shorter life cycles, rapid international communication, computer-aided design, and international collaboration

Rapid product development, alliances, collaborative designs

CHANGING CHALLENGES FOR THE OPERATIONS MANAGER

Past Causes Future Standardized products

Affluence and worldwide markets; increasingly flexible production processes

Mass customization

Job specialization

Changing sociocultural milieu. Increasingly a knowledge and information society.

Empowered employees, teams, and lean production

Low cost focus

Environmental issues, ISO 14000, increasing disposal costs

Environmentally sensitive production, Green manufacturing, recycled materials, remanufacturing

THE PRODUCTIVITY CHALLENGE

THE ECONOMIC SYSTEM TRANSFORMS INPUTS TO OUTPUTS

The economic system transforms inputs to outputs at about an annual 2.5% increase in productivity (capital 38% of 2.5%), labor (10% of 2.5%), management (52% of 2.5%)

Land, Labor, Capital, Management

Goods and Services

Feedback loop

Inputs Process Outputs

Measure of process improvementRepresents output relative to input

Only through productivity increases can our standard of living improve

PRODUCTIVITY

ProductivityProductivity UnitsUnits producedproducedInput usedInput used= =

ADAM SMITH ON PRODUCTIVITY…He asserted that ten workers could

produce 48,000 pins per day if each of eighteen specialized tasks was assigned to particular workers. Average productivity: 4,800 pins per worker per day. But absent the division of labor, a worker would be lucky to produce even one pin per day.

HENRY FORD ON PRODUCTIVITY…In 1907, Henry Ford announced his goal

for the Ford Motor Company: to create "a motor car for the great multitude." At that time, automobiles were expensive, custom-made machines.Ford realized he'd need a more efficient way to produce the Model T in order to lower the price. He and his team looked at other industries and found four principles that would further their goal:

Interchangeable parts Continuous flowDivision of laborReducing wasted effort

FRANK GILBRETH ON PRODUCTIVITY…improved a five-thousand-year-old job

and had enabled bricklayers to lay brick faster with less effort and fatigue. On one particularly difficult type of wall, where the previous record had been 120 bricks per hour, his methods allowed them to lay 350 bricks, an increase in productivity of over 190%.

WALTER SHEWHART ON PRODUCTIVITY…the original notions of Total Quality

Management and continuous improvement trace back to a former Bell Telephone employee named Walter Shewhart. One of W. Edwards Deming's teachers, he preached the importance of adapting management processes to create profitable situations for both businesses and consumers, promoting the utilization of his own creation: the SPC chart.

IMPACT OF QUALITY IMPROVEMENT

Parts per man hour

95

100

105

110

115

Year A Year B Year C

Cost per unit decreased

$1.50

$1.75

$2.00

$2.25


Average worker's annual cash compensation increased

24000

25000

26000

27000


Productivity improved Costs were pared Wages increased

MEASUREMENT PROBLEMSQuality 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

PRODUCTIVITY INCREASELabor - contributes about 10% of

the annual increaseCapital - contributes about 32% of

the annual increaseManagement - contributes about

52% of the annual increase

KEY VARIABLES FOR IMPROVED LABOR PRODUCTIVITYBasic education appropriate for the

labor forceDiet of the labor forceSocial overhead that makes labor

availableMaintaining and enhancing skills in

the midst of rapidly changing technology and knowledge

COMPARISON OF PRODUCTIVITY

SERVICE PRODUCTIVITYTypically labor intensiveFrequently individually processedOften an intellectual task performed

by professionalsOften difficult to mechanizeOften difficult to evaluate for

quality

CURRENT TRENDSU.S. is becoming more of a

knowledge intensive service economy

GlobalizationTotal Quality ControlNeed for flexibility and innovation

END

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