00.

Operations Management
Pre-Mid Term
By Prof. N. Narayanan

In OPERATIONS MANAGEMENT (PGP Term II, Pre-Mid Term, 2011)

Reference (Text Book): J. Heizer, B. Render and J. Rajashekhar, Operations Management, 9th Edition, Pearson Education, 2009

Course Evaluation Plan

Assignments/Quizzes: Pre-Mid Term: 15%
8% for Quizzes. 5% for Assignments. 2% for Class Participation

Post-Mid Term:

15%

Mid Term Exam: End Term Exam:

Pre-Mid Term: Post-Mid Term:

30% 40%
By Prof. N. Narayanan By Prof. Sushil Kumar

Sessions Plan Pre-Mid Term

Sn.1 Date Topic Text ; Exercise/ Case Nos. 1 21 Sep Operations Ch. 1: Operations and Productivity (pp 1 27) (Wed) Management: 1. Global Co. Profile: OM at Hard Rock Caf (pp 2 Function and 3) [15] its Role/ 2. Example 1: Examining options for increasing Significance contribution (pp 6 ) [43] 3. Case: The Faltering Factory (Handout PDF file) [50 57] 4. OM in Action: Improving Productivity at Starbucks (pp 15) [72] 5. Example 2: Computing Productivity at Collins Title (pp 16) [77 79] 6. OM in Action: Taco Bell Improves Productivity to Lower Costs (pp 20) [95 97]
1

Each session is of 1 hours duration.

Sessions Plan Pre-Mid Term (Continued)

Sn. Nos.
2

Date
22 Sep (Thu)

Topic

Text ; Exercise/ Case

Operations Ch. 2: Operations Strategy in a Global Environment (pp 29 Strategy and 58) Competitiveness 1. Global Co. Profile: Boeings Global Strategy Yields Competitive Advantage (pp 30 31) [4] 2. OM in Action: Going Global to Compete (pp 34) [40] * 3. OM in Action: VideoconA True Indian Multinational Company (pp 35) [41] * 4. OM in Action: IndiaA Major Destination for Outsourcing (pp 36) [42]* 5. Figure 2.3: Sample Missions for a Company, OM Function, and Major OM Departments (pp 38) [43]* 6. OM in Action: Low Cost Strategy Wins at Franz Colruyt (pp 40) [30 31] 7. OM in Action: Response Strategy at Hong Kongs Johnson Electric (pp 41) [35] 8. OM in Action: US Cartoons Production at Home in Manila (pp 33) [39] 9. Example 1: Strategy Development at Pierre Alexander (pp 43) [54]* 10. Strategy at Pirelli SpA (pp 53) [55 56]

Sessions Plan Product Design and Development

Sn. Date Topic Nos. 3 23 Sep. Product
(Fri.)

Text ; Exercise/ Case

Ch. 4: Design of Goods and Services (pp 1111 148) Design and 1. Global Company Profile: Regal Marine (pp 112) [4] development 2. OM in Action: The Kano Model (pp 118) [12] 3. Product-by-Value Analysis, to Help in Variety Control for a Companys Product Profile [26 30] 4. Example 1: Great Cameras Inc.: Constructing a House of Quality (pp 120) [37 45] 5. OM in Action: Designing Trident Splash (pp 122) [85] 6. OM in Action: Sona Koya Steering and Maruti Alto (pp 123) [89] 7. OM in Action: Mudras Lifestyles Success Story (pp 126) [92] 8. OM in Action: Chasing Fads in the Cell Phone industry (pp 130) [150 152]
9. Example 2: First Bank Corp. Delivery of Service to Drive-in Customers at the drive-up window (pp 138) [153 155] 10.Case Study: The Future Bank concept (handout) [156 157] 11.Case: De Mars Product Strategy (pp 146) [158 161]

Session Plan: 04 05: Process Design (incl. of Service Process Design)

Sn. Nos. 4 5 Date Oct. (Fri) Topic Process Design (including Service Process Design) Text ; Exercise/ Case Ch 6: Process Strategy (pp 213 245) 1. Global Co. Profile: Dell Computer Corp. (pp 214 215) [3] 2. Example 1: Job Shop Process Focus at Standard Register (pp 217) [8, 9] 3. Example 2: Repetitive Manufacturing at Harley-Davidson (pp 218) [10, 11] 4. Example 3: Product Focused Prodn. at Nucor Steel (pp 219) [12, 13] 5. OM in Acton: Mass Customization at Borders Books and at Smooth FM Radio (pp 221) [17 28] 6. Example 4: Kieber Enterprises: Cross-Over Chart for process choice (pp 224 225) [62 63] 7. OM in Action: OM at the Barber Shop (pp 238 39) [65 72] 8. OM in Action: Technology Changes in the Hotel Industry (pp 237) [77 78] 9. Case: Rochester Manufacturing Corporation (pp 243) [80 82] 10. Case: Process Strategy at Wheeled Coach (pp 244 45) [83 85] Oct (Thu): Quiz I

Oct. (Thu)

Sessions Plan Pre-Mid Term (Continued)

Sn. Nos.

Date
Oct. (Fri)

Topic
Process Analysis & Work Systems Design (incl. Method Study & Work Measurement) (2.5 hours)

Text ; Exercise/ Case

Ch. 6: Process Strategy (pp 226 230) revisited; Ch. 9: Human Resources and Job Design (pp 349 371)) & Supplement 9: Work Measurement (pp 585 589) 1. Service Blue-printing for Registration Process at Southern University [24 26] 2. OM in Action: Using Incentives to Unsnarl Traffic Jams in the OR (pp 358) [48 50] 3. OM in Action: Saving steps on the B-2 Bomber (pp 363) [51 55] 4. Case: InfosysChallenge of Attrition (pp 369) [56 58] 5. Case: Hard Rocks Human Resource Strategy (pp 370) [59 61] 6. Example S1: Determining Normal and Standard Time (pp 376 77) [83] 7. Example S2: Computing Standard Time (pp 377 378) [89] 8. Example S3: Computing sample size for time study (pp 379) [95] 9. OM in Action: UPS: The Tightest Ship in the Shipping Business (pp 380) [109] Ch. 8: Facilities Layout Strategies (pp 305 348) 1. McDonalds Looks for Competitive Advantage through Layout (pp 308 09) [10 11]

68

Oct (Thu)

Oct (Fri) Facilities Layout (2 hours)

Sessions Plan Pre-Mid Term (Continued)

Sn. Nos.
68

Date
Oct. (Fri)

Topic
Process Analysis & Work Systems Design (incl. Method Study & Work Measurement) (2.5 hours)

Text ; Exercise/ Case

Oct (Thu)

[Continued]

Oct (Fri)

Ch. 8: Facilities Layout Strategies (pp 305 348) 1. McDonalds Looks for Competitive Advantage through Layout Facility Layout (pp 308 09) [10 11] (2 hours) 2. Example 1: Walters Company: Designing a process layout (pp 319) [45 53] 3. OM in Action: Bengaluru International AirportModern and Functional Airport (pp 322) [56 58] 4. OM in Action: Work Cells at Rowe Furniture (pp 325) [69 70] 5. Example 2: Staffing Work Cells (pp 326) [73] 6. Examples 3, 4,and 5: Boeing: Assembly line design for assembly of electrostatic wing component (pp 330 333) [85 92] Oct (Thu): Quiz II

Sessions Plan Pre-Mid Term (Continued)

Sn. Nos. Date Topic Text ; Exercise/ Case

9 10

Oct. (Thu)

Scale & Capacity Planning (including Service Capacity Planning)

Oct. (Fri)

Sup. 6: Capacity Planning (pp 247 273) 1. Examples S1 and S2: Sara James Bakery Utilization and Efficiency (pp 249 50) [13, 14] 2. OM in Actn.: Too Little Capacity at Dalrymple Bay (pp 252); 3. OMA: Too Much Capacity at GM and Ford (pp 253) [33 37] 4. BE Analysis: Single Product Case (pp 258) [56 58] 5. BE Analysis: Multiproduct Case (pp 258 260) [59 65] 6. Problem No. S6.22: A & Z Lettuce Products (pp 270) Breakeven analysis for single product [do as practice problem] 7. Problem No. S6.23: Carter Manufacturing (pp 270) Breakeven analysis for single product [do as practice problem] 8. Problem No. S6.24: Red Rose Club (pp 271) Breakeven analysis for multiple products [do as practice problem] 9. Example S6: Southern Hospital Supplies (pp 266 67) [66 69] 10.Problem No. 6.28 (pp 271) Holtz Furniture Capacity Planning by Decision Tree Analysis [do as practice problem] 11.Capacity Planning at Arnold Palmr Hosptl (pp 272) [82 88] 12.HBSP Case: 9-687-045: Chaparral Steel (Abridged), 19 pages. [89 92]

1. The Operations Management Function, its Role and Significance

By Prof. N. Narayanan

In OPERATIONS MANAGEMENT (PGP Term II, 2011)

Reference: Ch. 1: Operations and Productivity (pp 1 24) In: J. Heizer, B. Render and J. Rajashekhar, Operations
Management, 8th Edition, Pearson Education, 2009

Sessions Plan Pre-Mid Term

Sn. Date Topic Text ; Exercise/ Case Nos. 1 22 Sep Operations Ch. 1: Operations and Productivity (pp 1 27) (Thu) Management: 1. Global Co. Profile: OM at Hard Rock Caf (pp 2 Function and 3) [15] its Role/ 2. Example 1: Examining options for increasing Significance contribution (pp 6 ) [43] 3. Case: The Faltering Factory (Handout PDF file) [45] 4. OM in Action: Improving Productivity at Starbucks (pp 15) [69] 5. Example 2: Computing Productivity at Collins Title (pp 16) [80] 6. OM in Action: Taco Bell Improves Productivity to Lower Costs (pp 20) [91]

Overview
1. Global Co. Profile: Hard Rock Caf (pp 2) Basics
a. Classification in Industrial development b. Classification of Manufacturing Industries c. Classification of Basic Industries d. Classification of Manufacturing based on: Volumes of Products, and corresponding Plant Layout and Material Flow Pattern

2. 3. 4. 5. 6. 7. 8.

Manufacturing vs. Service Basic Functions of an Organization Operations Management as a Function Productivity Measurement Ten Critical Decision Areas in Operations Management Exciting New Trends in Operations Management Priorities for Operations Management

Global Company Profile:

Hard Rock Caf (pp 2)

1. Products take the form of food. 2. Over 35 million guests worldwide each year. 3. Theme restaurant: rock music memorabilia 4. OM at HRC provides more than 3500 custom products (meals) everyday. 5. Products designed, tested and analyzed for cost, labor requirements and customer satisfaction. 6. Production process must be maintained to ensure a quality meal. 7. OM must ensure effective staff, layouts, etc.

1a. Classification in Industrial

development

Industrial Development over time, in three major steps 1. Primary industries (Extraction) including Hunting, Agriculture, Fishing, Mining, Quarrying, Forestry, etc. 2. Secondary industries (Construction Manufacturing and public utility generation) including Refinement, Conversion, Fabrication and Assembly 3. Tertiary Industries (Services) including physical distribution, transportation, education, banking, health, retailing, catering, BPO, etc., etc.

1b. Classification of Basic

Industries

Classification of Basic Industries 1. Process Industries E.g., Beverages, Cement,

Chemicals, Drugs, Food processing, Metals, Paper, Petroleum products, Textiles, Tires, etc.

2. Discrete Item Manufacturing Industries

E.g., Aerospace, Automobiles, Garments, Machinery, Computers, Appliances, etc.

3. Project Industries E.g., Construction, Erection

and Commissioning, Ship Building, etc.

4. Service and Other Industries E.g.,

Advertising, Financial, Hospitality, Insurance, Mass Media, Retail, banking, BPO, Transportation, Utilities (Power, Gas, Telecommunications), etc.

1c. Classification of Manufacturing Industries

Classification of Manufacturing Industries

Consumer Goods Natural Resources

Basic Producer

Raw Materials

Converter

Industrial Products

Fabricator

Consumer Goods

1.

Basic Producer (Raw Material Extractor and Refiner) E.g., steel ingots (from iron ore), rubber, glass
Usually involve heavy capital investment in specialized equipment

2. 3.

Converter (Material Processor) E.g., bar stock from

steel ingots, plastics from petroleum products Usually involve uncomplicated physical products

Fabricator and Assembler E.g., machined engine

components (say bolts and nuts) from rods or bar stocks; assembled final products using the fabricated components Usually involve complicated physical productscomponents or final products

1d. Classification of Manufacturing based on Volumes of Products, and corresponding Plant Layout and Material Flow Pattern

Classification of Manufacturing based on Volumes of Products, and corresponding Plant Layout and Material Flow Patterns

1. Job Sop Manufacturing Usually engineer- or

make-to-order itemsHigh variety of low volume productswith general-purpose machines in process layouts Increasing product Increasing product volumes volumes

2. Batch (or Intermittent) Manufacturing Usually

process layouts (for small batch production), or line layouts (for large-batch production)

for multiple products in continual demandHigh variety with low volume products may be with

3. Mass Production (Continuous Flow or Discrete Repetitive) Usually for products in high continuous
demandwith special purpose machines in line layouts

4. Cellular Production Toward combining the best of

Job Shop and Mass Manufacturing

Relevance of Cellular Production

(Will be discussed in detail under Facilities Layout)

From Process Layout to Work Cell For Flow

From: To:

Process Layout
Lathe Lathe 5 4 1 Saw Saw

Work Cell
2 Saw Lathe Grinder Press Lathe

2 Heat Treat 3 6

Press Press

Grinder Grinder

Heat Treat

The traditional Organization of Operations

(with MRP-based Approaches) A storage of inventory in the warehouse may often be resorted to, with a pond-draining mindset! Inventory (warehouse)

Receiving

Operation

Operation

Shipping

Suppliers

Lean Approach
The Relevance of Cellular Production Point of use storage
(Limited inventories)

Cell 1

Cell 2

Cell 3

Suppliers

2. Manufacturing vs. Service

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

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

Goods Versus Services

Attributes of Goods (Tangible Product) Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production Product is transportable Site of facility important for cost Often easy to automate Revenue generated primarily from tangible product Attributes of Services (Intangible Reselling unusual Product) Difficult to inventory Quality difficult to measure Selling is part of service Provider, not product, is often transportable Site of facility important for customer contact Often difficult to automate Revenue generated primarily from the intangible service

Differences Between Goods and Services

1. Services are usually intangible (e.g., an empty airline seat, for travel between two cities) 2. Services are often produced and consumed simultaneously. 3. Services are often unique, for every individual
customer.

4. 5. 6. 7.

Services have high customer interaction. Services have inconsistent product definition. Services are often knowledge-based. Services are frequently dispersed.

Manufacturing Vs. Service

S. No.

Manufacturing Output is tangible Output is inventoriable Time delay from production to consumption For standard products, Mass Production is possible Little or no interaction between manufacturer and customer Customers do not participate in manufacturing Factories are located away from customers Manufacturing may be largely automated Quality of goods is much easier to define and measure Quality doesnt depend upon a single person The output can usually be measured or counted

Services Output is intangible Output is not inventoriable Simultaneous production and consumption Services more often unique, so Mass Production may not be possible Lot of interaction between manufacturer and customer Customers often participate in services Facilities located close to customers Services are generally labour-intensive Quality of services is more difficult to define and measure Quality often depends on a single person Difficult to count or measure output

1 2 3 4 5 6 7 8 9 10 11

Even manufacturing is being required to assume many of the characteristics of service, to survive under the growing competition. The manufactured product may become just a part of the service offered.

Goods and Services

Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management Consulting service/ teaching Counseling
100%
|

75
|

50
|

25
|

0
|

25
|

50
|

75
|

100%
|

Percent of Product that is a Good

Percent of Product that is a Service

Most New Creations and Growth are in Services Rather Than in Products
Goods
Automobiles Computers Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/Investment management Consulting Service/Teaching Counseling
100% 75% 50% 25% 0% 25% 50% 75% 100%

Services

Percent of product that is a good

Percent of product that is a service

Similarities Between Goods and Services

1. Even though services differ from goods, the operation function continues to transform the input of resources into the output of products. 2. The criteria for effective performance of activities of the
operation function are often very similar for both goods and services. For example,

Both goods and services must have quality standards established. Both must be designed and processed on a schedule, in a facility where human resources are employed.

3. In reality, almost all goods and all services are a mixture

of a service and a tangible product. (There can be some instances of pure services, for example, Counseling.)

Relevance of

Operations Management and Operations Strategy,

Even in Service Industries

What drives bottom-line performance in almost every industrybe it manufacturing or serviceis Competitive Advantages through
Quality, Cost, Delivery, and Service.

All these are Operations issues.

Challenges to Improving Productivity in the Service Sector

1. Typically labour-intensive (for example, counseling, teaching). 2. Frequently focused on unique individual attributes or desires
(for example, investment advice).

3. Often an intellectual task performed by professionals (for

example, medical diagnosis).

4. Often difficult to mechanize and automate (for example, a

haircut).

5. Often difficult to evaluate for quality (for example,

performance of a law firm). Low productivity improvement in the service sector is also attributable to the growth low-productivity activities in the service sector (which may not have been part of the measured economy, such as child care, food preparation, house cleaning, and laundry service).

3. Basic Functions of an Organization

Organizing to Produce Goods and Services

Essential functions:
Marketing generates demand Production/operations creates the product Finance/accounting tracks how well the organization is doing, pays bills, collects the money. Also helps integrate the business with the rest of the economy, HRM

Basic Functions of an Organization

Finance

Operations

Marketing

HRM

Organizational Charts
Commercial Bank

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

Example

Examining options for Increasing Contribution

Doubling Contribution at Fisher Technologies (all Figures in $)
Marketing Optiona Current Increase Sales Revenue 50% Sales Costs of goods Gross Margin Finance costs Subtotal Taxes at 25% Contributiond
a b

Financial/ Accounting Optionb Reduce Finance Costs 50% 100,000 80,000 20,000 3000 17,000 4,250 12,750

OM Optionc Reduce Production Costs 20% 100,000 64,000 36,000 6000 30,000 7,500 22,500

100,000 80,000 20,000 6000 14,000 3,500 10,500

150,000 120,000 30,000 6000 24,000 6,000 18,000

Increasing sales 50% increases contribution by $7,500, or 71% (7,500/10,500) Reducing finance costs 50% increases contribution by $2,500 or 20% (2,250/10,500) c Reducing production costs 20% increases contribution by $12,000 or 114% (12,000/10,500) d Contribution to fixed cost (including finance costs) and profits

4. Operations Management as a Function

What Is Operations Management? Production/Operations is the creation of goods and services Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs

The Operations System (Manufacturing or Service) of an Organization The Horizontal, Value Stream
Random Fluctuations Inputs: Land Labor Capital Management
Adjustments needed? Monitor output

Conversion Process Feedback: actual vs. desired

Outputs: xx Goods Services

The random fluctuations above are the unplanned or uncontrollable influences that cause the actual output to differ from the expected output. Reducing such fluctuations (or variations), and their effects, is a major management task. The Horizontal Input-Process-Output can be seen as made of multiple stages of Value-Adding Stream

The Vertical, Macro-Micro, Cyclical Management Process A progressive1 sequence of

Purposes as processes, to be pursued at the macro or whole level,

followed by a matching progressive1 sequence of

Means as processes, to be pursued at the micro or parts level
1

Progressive in terms of fulfillment of precedence requirements for each process.

Operations Management
OM is focused on enabling efficient and effective processes for the creation of value, by right coordination of all the inputs, and by linking the outputs to actual customer requirements (which are the very basis for the definition of value). The conversion process is, by itself, assumed to be determined by what is already available as inputs in the process technologies employed, or can be available through R&D, and so can be treated as a black box with its known design capacities, etc., and so as not part of OM. Thus OM is not determined by the technologies of products or processes, and is thus a common process for all kinds of operations.

Contributions From
Human factors Industrial engineering Management science Biological science Physical sciences Information science

Case: The Faltering Factory

Caselet: The Faltering Factory

Issues Faced
i. Customer complaints:
o Prices not competitive o Deliveries sometimes seriously late o Quality not up to expected standards

ii. Slow working tempo, under present factory managers charge:

o Worker productivity slipping due to delays and slowing down caused by uneven flow of work.
Uneven flow of work caused by substandard materials and inadequate maintenance. Misguided cost reduction efforts on purchases led to deterioration in purchased materials Further misguided efforts at cost reduction through cutback in maintenance personnel.

iii. Owners failure to recognize need to and make distinct provision for effective Operations Management,
o When manufacturing competence still being established.

Caselet: The Faltering Factory (Continued)

The common, underlying/ root cause: Misguided/ undue/ excessive emphasis on cost-cutting alone, rather than first on the creation of customer value

3 Case 1: The Vicious Cycle at The Faltering Factory and its conversion to Virtuous Cycle
The unbalanced, excessive emphasis placed at the factory on Cost Cutting (i.e., without due attention to the primary purpose of Creation of customer Value) has been the trigger point that led to the operation of the vicious cycles at the company.

Existing Vicious cycles: Macro-level root cause problem: An unbalanced, excessive emphasis on cost cutting1, without due primary attention to value creation2 Micro-level root cause problem: A cost reduction1 accompanied by unacceptable loss of value creation, leading to also unanticipated cost increases Possible Virtuous cycles: Macro-level root cause solution: A balanced emphasis on value creation as primary purpose, followed by emphasis on cost reduction Micro-level root cause solution: Cost reduction in the long term to complement the uncompromised value creation, as the primary purpose.
1

Not incurring costs that dont add customer value;

Giving customer what he requires.

Case 1: The Faltering Factory Operations A key functional area in the organization
Finance Operations Marketing HRM

Marketing Emphasizes the viewpoint of customer value Finance Emphasizes the viewpoint of shareholder value HRM Emphasizes the viewpoint of employees, i.e., Quality of work life So, when Operations emphasizes the productivity and hence cost reduction viewpoints, it must do so in harmony with the above viewpoints.

Operations must emphasize all the above values, but finally, in the long term, also, Human Resource Value.

Case 1: The Faltering Factory

Setting precedence-wise priority

in the pursuit of Purposes or Values,

from the short term to long term
Human Resource Value
(Through emphasis of employee empowerment that wins their involvement)

Quality before Productivity

(Through pursuit of quality at source through prevention)

Customer Value
(Through Effectiveness of Operationsin meeting customer needs)

Shareholder Value
(Through Productivity of Operations, through pursuit of cost reduction)

Customer Value must come before shareholder value can be realized. However, according to Vineet Nayar1 (2010), employee value must come even before customer value.
1

Vineet Nayar, Employees First, Customer Second, Harvard Business School Press, 2011.

The Operation-to-Profit Chain

Employee Retention

Operations Strategy and Product Delivery System

Revenue Growth External Customer Value Customer Satisfaction Customer Loyalty Profitability
Product concept results for customers Product designed and delivered to meet customer needs Retention Repeat business Referral

Internal Operation Quality

Employee Satisfaction Employee Productivity

Workplace design Job design Employee development Employee rewards & recognition Tools for serving customers

Inputs To, and by, the employees

Consequences For the customers and the share-holders

Case 1: The Faltering Factory - Questions

The consultants in-depth investigation revealed a slippage in worker productivity caused by an uneven flow of work, caused, in turn, by a combination of substandard materials and inadequate maintenance, which were, in turn, caused by poor control of purchased materials (by usage of substitute materials to save on purchases, which were not up to standards). Further, to compensate for this loss, a overhead cost reduction (inclusive of a cutback in maintenance personnel) ensued, resulting only in still more productivity loss. Questions: 1. Draw a figure showing the two glaring errors in decision in Operations at the company and the chain of consequences of these errors in decision, with causal interrelationships between them. 2. Do you see any vicious cycle/s operating? What are the triggers of such vicious cycles? Is it possible to manage such trigger points so as to convert from vicious to virtuous cycles? What new decision making processes may be required? 3. Looking at Operations Management as a function involving decision making at the functional level of Operations as against other functions such as Marketing, HRM, etc., discuss how it will accommodate these newer decision making processes.

The Heritage of Operations Management

The Heritage of OM
Division of labor (Adam Smith 1776; Charles Babbage 1852) Standardized parts (Whitney 1800) Scientific Management (Taylor 1881) Coordinated assembly line (Ford/ Sorenson/Avery 1913) Gantt charts (Gantt 1916) Motion study (Frank and Lillian Gilbreth 1922) Quality control (Shewhart 1924; Deming 1950) (Shewhart

The Heritage of OM
Computer (Atanasoff 1938) (Atanasoff CPM/PERT (DuPont 1957) Material requirements planning (Orlicky (Orlicky 1960) Computer aided design (CAD 1970) Flexible manufacturing system (FMS 1975) Baldrige Quality Awards (1980) Computer integrated manufacturing (1990) Globalization (1992) Internet (1995)

Frederick W. Taylor
Born 1856; died 1915 Known as father of scientific management In 1881, as chief engineer for Midvale Steel, studied how tasks were done
Began first motion and time studies

Created efficiency principles

Taylors Principles
Management Should Take More Responsibility for:
Matching employees to right job Providing the proper training Providing proper work methods and tools Establishing legitimate incentives for work to be accomplished

Frank & Lillian Gilbreth

Frank (1868-1924); Lillian (1878-1972) (1868(1878Husband-andHusband-and-wife engineering team Further developed work measurement methods Applied efficiency methods to their home and 12 children! Book & Movie: Cheaper by the Dozen, book: Bells on Their Toes

Henry Ford
Born 1863; died 1947 In 1903, created Ford Motor Company In 1913, first used moving assembly line to make Model T
Unfinished product moved by conveyor past work station

Paid workers very well for 1911 ($5/day!)

W. Edwards Deming
Born 1900; died 1993 Engineer and physicist Credited with teaching Japan quality control methods in post-WW2 postUsed statistics to analyze process His methods involve workers in decisions

Eli Whitney
Born 1765; died 1825 In 1798, received government contract to make 10,000 muskets Showed that machine tools could make standardized parts to exact specifications
Musket parts could be used in any musket

5. Productivity Measurement

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, over time. efficiency,
Important Note! Production is a measure of output only, and not a measure of efficiency

OM in Action:
(pp 15)

Improving Productivity at Starbucks case date: 2005

1. Pursuit of productivity improvements as a game of saving seconds from various operations at Starbucks outlets. 2. Three examples:
a. Stop requiring signatures on credit card purchases under $25. This sliced 5 seconds off the transaction time at the cash register. b. Redesign of scoop for ice for beverage helped reduce the number of scoops required to one, saving 14 seconds in the operation involving one minute. c. New espresso machine, grinding and brewing coffee with push of a button, helped free the server to do other things, saving 12 seconds per espresso shot.

3. These improvements helped increase average yearly volume at the outlets from $740,000 by $200,000 in 6 years (i,e., by 27%, or, by 4.5% per year).

Productivity Units produced Productivity = Input used

Measure of process improvement Represents output relative to input Only through productivity increases can our standard of living improve

Productivity
Partial measures

Outputs Productivi = ty Inputs

output/(single input)

Productivity = Units produced/Input (a single resource) used

Multi-factor measures
output/(multiple inputs) Productivity = Output/(Labur + Material + Energy + Capital + Miscellaneous), where the individual inputs (the denominator) can be expressed in Rs. and summed.

Total measure

output/(total inputs)

Productivity Calculations
Single Factor (or, Partial) Productivity

Units produced Labor Productivity = LaborLabor-hours used

= 1,000 250 = 4 units/labor-hour units/labor-

Single factor or Partial Productivities do not measure the efficiency of use of the factor considered; it only measures how much the particular factor has been leveraged which is contributed to by all the factors involved.

Example Labor Productivity

10,000 Units Produced Sold for $10/unit 500 labor hours Labor rate: $9/hr Cost of raw material: $5,000 Cost of purchased material: $25,000

What is the labor productivity?

Example--Labor Productivity
10,000 units/500hrs = 20 units/hour ...

... or we can arrive at a unit-less figure (10,000 unit*$10/unit)/(500hrs*$9/hr) = 22.22 Can you think of any advantages or disadvantages of each approach?

Multi-Factor Productivity
Productivity = Output Labor + Material + Energy + Capital + Miscellaneous

Also known as total factor productivity, when all the resources that cost a company are included in the calculation Inputs are expressed, in a common unit for all factors, often in dollars If Outputs are multiple products, they also need to be in common units, which can be in dollars.

Service Productivity
Typically labor intensive Frequently focused on unique individual attributes or desires Often an intellectual task performed by professionals Often difficult to mechanize Often difficult to evaluate for quality

A Case Example: Collins Titles

(Example 2 pp 26)
(Evaluation of productivity before and after introduction of a proposed new computerized search system)

Collins Titles Labor Productivity

8 titles/day Overhead = $400/day

With the Old System at Collins Titles:

Staff of 4 works 8 hrs/day Payroll cost = $640/day

With the New System at Collins Titles:

14 titles/day Overhead = $800/day 8 titles/day = .25 titles/labor-hr titles/labor32 labor-hrs labor14 titles/day New labor titles/laborproductivity = 32 labor-hrs = .4375 titles/labor-hr laborThe introduction of the new system lead to higher overhead, and the labor productivity has improved, but what about the multi-factor productivity?

Collins Titles Multi-factor Productivity

With the Old System at Collins Titles: Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day With the New System at Collins Titles: 14 titles/day Overhead = $800/day 8 titles/day Old = .0077 titles/dollar = multifactor $640 + 400 productivity New 14 titles/day = .0097 titles/dollar multifactor = $640 + 800 productivity
The Multifactor Productivity has also improved.

Productivity Variables
(as found to happen over a period of time in the U.S. economy)

Labor - contributes about 10% of the annual increase Capital - contributes about 32% of the annual increase Management - contributes about 52% of the annual increase

Applying Productivity Figures

Youve just told your boss that the plant labor productivity is better than that of a plant in a related business. Why might he not be pleased with you (from this information)?

PQCDSM Checklist Another form of evaluation of Operations Management performance

Item Checkpoints

Productivity (P) Quality (Q)

Has the production output been lower lately? Can it be raised? Has the worker productivity been up to par? Has quality been declining? Has the defect rate risen? Can the yield be raised? Has there been an increase in customer complaints? Have costs gone up? Have the units of materials and fuels risen? Have late delivery increased? Can the production lead times be shortened? Have there been any safety problems? Has the number of accidents increased? Are people engaging in unsafe work practices? Is morale up or down? Are there any interpersonal problems? Are people getting getting appropriate job assignments?

Cost (C) Delivery (D) Safety (S)

Morale (M)

6. Ten Critical Decision Areas in Operations Management

Ten Critical Decisions

Ten Decision Areas 1. Service and product design 2. Quality management 3. Process and capacity design 4. Location 5. Layout design 6. Human resources, job design 7. Supply-chain Supplymanagement 8. Inventory management 9. Scheduling 10. Maintenance Chapter (s) 5 6 6 Supplement 7 7 Supplement 8 9 10 10 Supplement 11 11 Supplement 12, 14, 16 13, 15 17

The Critical Decisions

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

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

The Critical Decisions

Process and capacity design
What process and what capacity will these products require? What equipment and technology is necessary for these processes?

Location
Where should we put the facility? On what criteria should we base the location decision?

The Critical Decisions Layout design

How should we arrange the facility and material flow? How large must the facility be to meet our plan?

Human resources and job design

How do we provide a reasonable work environment? How much can we expect our employees to produce?

The Critical Decisions Supply-chain management

Should we make or buy this component? Who are our suppliers and who can integrate into our e-commerce program?

Inventory, material requirements planning, and JIT

How much inventory of each item should we have? When do we re-order?

The Critical Decisions

Intermediate and shortterm scheduling
Are we better off keeping people on the payroll during slowdowns? Which jobs do we perform next?

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

Significant Events in OM

Figure 1.3

6. Case: The LA Motor Pool

(pp 15 in the 8th Edition of the book)

OM in Action:

Increasing Productivity in the L.A. Motor Pool

(p 15 in the 8th Edn.)
The newly elected mayor of Los Angeles faced many problems. One of them was a 21,000 vehicle motor pool with bloated expenses and poor vehicle availability. On any given day, as many as 30% of the citys 900 trash trucks and 11% of the police department cars were in the repair shop. The problems included too many vehicles in some agencies, vehicle sabotage and abuse, missed repairs, vehicles never serviced. The L.A. motor pool and its $120 million-a-year maintenance operation needed improved productivity. The mayor implemented seven simple operations management interventions: (1) individual drivers were turned into team players who helped complete each others routes; (2) trucks were assigned specific parking places so they could easily be located each morning; (3) tire pressure was checked on every truck every night to avoid flat tires during the working hours; (4) all trucks were emptied every night to avoid such dangers as left over cinders igniting a fire; (5) standard customer pickups were established (this alone saved the city $12 million per year); (6) the utility department installed a computerized fleet management system (to track vehicle use and to charge departments); and (7) mechanics were moved to night shifts so the vehicles were not in the shop during the day. As a result of these management changes, the department cut its total fleet by 500 vehicles; its inventory of parts dropped 20%, freeing up $5.4 million dollars a year; and out-of-service garbage trucks dropped from that embarrassing 30% to 18%. Source: The Wall Street Journal (July 6, 1995)

Increasing Productivity The LA Motor Pool

(pp 15 in the 8th Edition of the book)

Before:
Cost $120 million annually 21,000 vehicles 30% of the 900 trash trucks were in repair 11% of police cars were in repair

Actions:
Created team assignments Assigned parking places for trucks Tires checked and trucks emptied each night Standard customer pickups established Computerized fleet management Mechanics moved to night shift

Increasing Productivity The LA Motor Pool

(pp 15 in the 8th Edition of the book)

Before:
Cost $120 million annually

Results: 21,000 vehicles

30%Total fleet trash trucks were invehicles of the 900 reduced by 500 repair 11%Parts inventory dropped 20% reducing of police cars were in repair

Actions: cost by $5.4 million annually $12 million annually Assigned parking places for trucks

Created team assignments Standardized pickups reduced costs by Tires Out of service garbage trucksnight checked and trucks emptied each dropped

to 18% Standard customer pickups established

Computerized fleet management Mechanics moved to night shift

Case: Productivity

at Taco Bell

Case: Productivity

at Taco Bell (pp 20)

Improvements:
1) Revised the menu 2) Designed meals for easy preparation 3) Shifted some preparation to suppliers 4) Efficient layout and automation 5) Training and employee empowerment

Case: Productivity

at Taco Bell (pp 20)

Results:
Preparation time cut to 8 seconds Management span of control increased from 5 to 30 In-store labor cut by 15 hours/day Stores handle twice the volume with half the labor Fast-food low-cost leader

The Economic System

Inputs
Labor, capital, management

Processes
The U.S. economic system transforms inputs to outputs at about an annual 2.5% increase in productivity per year. The productivity increase is the result of a mix of capital (38% of 2.5%), labor (10% of 2.5%), and management (52% of 2.5%).

Outputs
Goods and services

Feedback loop

7. Exciting New Trends in Operations Management

New Challenges in OM
From
Local or national focus Batch shipments Low bid purchasing Lengthy product development Standard products Job specialization

To
Global focus Just-inJust-in-time Supply chain partnering Rapid product development, alliances Mass customization Empowered employees, teams

New Trends in OM
Past
Local or national focus Batch (large) shipments

Causes
LowLow-cost, reliable worldwide communication and transportation networks

Future
Global focus

Short product life cycles and cost of capital put pressure on reducing inventory Quality emphasis requires that suppliers be engaged in product improvement

Just-inJust-in-time shipments

LowLow-bid purchasing

SupplySupply-chain partners, Enterprise Resource Planning, e-commerce

New Trends in OM
Past
Lengthy product development Standardized products

Causes
Shorter life cycles, Internet, rapid international communication, computercomputeraided design, and international collaboration Affluence and worldwide markets; increasingly flexible production processes Changing socioculture milieu; increasingly a knowledge and information society

Future
Rapid product development, alliances, collaborative designs Mass customization with added emphasis on quality Empowered employees, teams, and lean production

Job specialization

New Trends in OM
Past
LowLow-cost focus

Causes
Environmental issues, ISO 14000, increasing disposal costs

Future
Environmentally sensitive production, green manufacturing, recycled materials, remanufacturing

Exciting New Trends in Operation Management

1. Global focus, particularly because of the rapid decline in
communication and transport costs

2. Just-in-Time performance 3. Supply chain partnering 4. Rapid product development 5. Mass customization 6. Empowered employees 7. Environmentally sensitive production 8. Ethics

8. Priorities for Operations Management

Ethics and Social Responsibility

Challenges facing operations managers:
Developing safe quality products Maintaining a clean environment Providing a safe workplace Honoring community commitments

Priorities for Operations Management

1. Acquire Capabilities to Tolerate Product Proliferation 2. Relate the Operations System to Customer/Market 3. Develop Systems and Procedures that Promote
Learning

The End: Any Questions?