Manufacturing vs.

Service
Goods Service

Surgery, teaching

Song writing, software development

Computer repair, restaurant meal

Automobile Repair, fast food

Home remodeling, retail sales

Automobile assembly, steel making

U.S. Manufacturing vs. Service Employment

Year Mfg. Service
45
90
50
80
79
72
21
28 Mfg. Production of Goods= Tangible Outputs
55 72 28 Service
70
60
60 68 32 Service Production= Act Oriented
Percent

65
50 64 36
70
40 64 36
75
30 58 42
80 44 46
20
85 43 57
10
90 35 65
0
95 25 75
45 50 55 60 65 70 75 80 85 90 95 00 02 05
00 30 70
02 25 75 Year
 Goods vs. Service

Characteristics Goods Service

Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Output Tangible Intangible
Measurement of productivity Easy Difficult
Opportunity to correct problems High Low
Inventory Much Little
Evaluation Easier Difficult
Patentable Usually Not usual
 The Conversion Process Framework
Value-Added

Inputs Transformation/ Outputs

•Land Conversion •Goods
•Labor •Services
•Capital
Process
•Information

Feedback

Feedback Control Feedback

Feedback = measurements taken at

various points in the transformation process
Control = The comparison of feedback against
previously established standards to determine
if corrective action is needed.
 The Value Chain Perspective
Value = Perceived benefits/Price (cost) to the customer

High Value Ratio= High Perceived Benefits

OM Developments
Planning and Decision-Making Framework
Strategy: Long-term; plans for Tactical: “ How to”; shorter
achieving organizational goals time-frame; the methods and
Mission actions taken to accomplish
strategies
Goals

Organizational Strategies

Functional Goals
Finance Marketing Operations
Strategies Strategies Strategies

Tactics Tactics Tactics

Operating Operating Operating

procedures procedures procedures
Operational: Doing part of the process; measured in days
 Operations Strategy
Examples of Companies or
Organizational Strategy Operations Strategy Services
Low Price Low Cost U.S. first-class postage
Wal-Mart
High Quality High performance design Sony TV
and/or high quality Lexus
processing Coca-Cola- consistent quality
Consistent Quality
Short Time Quick Response McDonald’s Restaurants
On-time delivery Express mail
FedEx; One-hour photo
Newness Innovation 3M; Express mail
Variety Flexibility Burger King (“Have it your way”)
Volume McDonald’s (“Buses Welcome”)
Service Superior customer service Disneyland; IBM
Location Convenience Supermarkets
Mall Stores
Tool: Quality Function Deployment

Source: David A. Collier and James R. Evans. OM3. 2010-2011

The House of Quality for Building a Better Pizza
Cross-Functional Design and Collaboration

Source: McGraw-Hill Irwin

 Service Matrix

Degree of Interaction and Customization

Low High
Service factory Service shop
Degree of Labor intensity

Airlines Hospitals
Low Trucking Auto repair
Hotels Repair services
Resort recreation
Mass services Professional Services
Retailing Lawyers
High Wholesaling Doctors
Schools Accountants
Retail aspects of Architects
commercial banking

Source: McGraw-Hill Irwin

 Types of Goods and Services
Types Features Pros Cons KPM
Make-to- • No option/s for • Smooth • Inventory • Inventory
Stock customer and level accuracy
(MTS) •Fixed design standardized •Forecasting •Inventory
production difficulties T/O
Make-to- •One-of-a-kind • No finished •Intermittent •Lead time
Order •Small quantities goods production
(MTO) •Meets customer’s inventory systems
specifications •Capacity
Assemble • Produces parts •Less •WIP •Speed of
-to-Order and subassemblies inventory inventory service
(ATO) •Customers choose •Faster •Limited •Inventory
from a limited set service choices levels
 5 Process Types
Process Volume Variety Work-force Customization/
Type Skills Standardization
Job Shop Low One-of-a- High Customizable
(MTO) kind

Batch Moderate Multiple Moderate Semi-customizable

Assembly or High Low Low Standardized

Repetitive

Continuous High Low Low Highly Standardized

(MTS)

Project: Nonroutine; unique set of objectives; limited time frame

Product-Process Matrix
Service-Positioning Matrix
 Process Map
• Process Map: Describes the sequence of all
activities and tasks necessary to create and deliver a
desired output or outcome; visual representation
 Layout Types- Product Layout

Raw materials
Station Station Station Station Finished
or customer item
1 2 3 4

Material Material Material Material

and/or and/or and/or and/or
labor labor labor labor

Source: William J. Stevenson. Operations

Management. 10th Edition, 2010
Layout Types- Process Layout

Source: David A. Collier and James R. Evans. OM3. 2011-2012.

Layout Types- Fixed-Position Layouts
 Layout Types- Cellular Layout

Source: David A. Collier and James R. Evans. OM3. 2011-2012.

 Comparison of Layout Types
Layout Advantages Disadvantages
Product • High output •Dull, repetitive jobs
Layout •Low unit cost •Lower worker skills
•High utilization of labor and •Prone to shutdowns
equipment •Require intensive preventive maintenance
Process •Provide more flexibility •Slow material handling
Layout •General-purpose equipment less •Higher workers skill requirements
costly than specialized •Lower equipment utilization
•Less vulnerable to equipment failures
•Increased worker satisfaction
Fixed- •Consolidated resources •Highly dependent on timely delivery of
Position •Stationary work center materials and equipment
Layout •Wide range of skills required
•Lack of storage space
Cellular • Smoother work flow • Costs associated with implementation
Layout •Reduction in material transport and •Rearrangement of layout
delay •Requires more intensive employee
•Increased employee morale training/multiskilled level
•Quicker response to quality problems
•Reduction in space consumption
•Encourages teamwork
 Factor Rating

Scores
(Out of 100) Weighted Scores
Factor Weight Alt 1 Alt 2 Alt 1 Alt 2
Proximity to
.10 100 60 .10(100) = 10.0 .10(60) = 6.0
existing source
Traffic volume .05 80 80 .05(80) = 4.0 .05(80) = 4.0
Rental costs .40 70 90 .40(70) = 28.0 .40(90) = 36.0
Size .10 86 92 .10(86) = 8.6 .10(92) = 9.2
Layout .20 40 70 .20(40) = 8.0 .20(70) = 14.0
Operating Cost .15 80 90 .15(80) = 12.0 .15(90) = 13.5
1.00 70.6 82.7
 HRM Framework

Source: Jay Heizer and Barry Render. Principles of Operations Management. 6th Edition 2006.
Job Design Continuum

Source: Jay Heizer and Barry Render. Principles of Operations Management. 6th Edition 2006.
Cause and effect diagram

Source: William J. Stevenson. Operations Management. 10th Edition, 2010

 Value Chains

Source: William J. Stevenson. Operations Management. 10th Edition, 2010

 Logistics

Source: William J. Stevenson. Operations Management. 10th Edition, 2010

 Bullwhip Effect

Source: William J. Stevenson. Operations Management. 10th Edition, 2010

Demand Management

Source: David A. Collier and James R. Evans. OM3. 2011-2012.

 Aggregate Planning Process

Layout should reflect and support the process

type chosen by the company.

Source: William J. Stevenson. Operations Management. 10th Edition, 2010

 MRP

Source: William J. Stevenson. Operations Management. 10th Edition, 2010

 MRP II

Source: William J. Stevenson. Operations Management. 10th Edition, 2010

 TC computation

Annual Cost

The Total-Cost Curve is U-Shaped

Q D
TC  H  S
2 Q

Holding Costs

Ordering Costs

Order
Q*(optimal order quantity) Quantity (Q)
Source: William J. Stevenson. Operations Management. 10th Edition, 2010
 ABC Approach

Source: William J. Stevenson. Operations Management. 10th Edition, 2010

 Inventory Management Systems
EOQ Model: The order size that minimizes total annual cost
Assumptions: Q 
2 DS

2(annual demand)(or der cost)
*

H annual per unit holding cost

• Only one product is involved
• Annual demand requirements are known
• Demand is even throughout the year
• Lead time does not vary
• Each order is received in a single delivery
• There are no quantity discounts
Profile of Inventory Level Over Time
Q
Quantity
Usage
rate
on hand

Reorder
point

Place Time
Receive Receive Place Receive
order order order order order
Lead time
Source: William J. Stevenson. Operations Management. 10th Edition, 2010
 Inventory Management Systems
Total Cost  Annual Holding Cost  Annual Ordering Cost
Q D
 H  S
2 Q
where
Q  Order quantity in units
H  Holding (carrying) cost per unit
D  Demand, usually in unit per year
S  Ordering cost
Total Cost  Carrying Cost  Ordering Cost  Purchasing Cost
Q D
 H  S  PD
2 Q
where
P  Unit price

ROP  d  LT
where
d  Demand rate (units per period, per day, per week)
LT  Lead time (in same time units as d )
Source: William J. Stevenson. Operations Management. 10th Edition, 2010
 Example: EOQ
A local distributor for a printer company expects to sell 9,600 units of printers
this year. Annual carrying cost is $16 per printer and ordering cost is $75.
a. What is EOQ?
b. How many times per year does the store reorder?
c. What is the total annual cost if the EOQ quantity is ordered?

a. EOQ: 300 Printers

2 DS 2(annual demand)(or der cost)
Q*  
H annual per unit holding cost

b. 32x
Number of orders per year: D/Q

c. Total Cost: 4,800 (Ordering and carrying costs are equal)

Source: William J. Stevenson. Operations Management. 10th Edition, 2010

 Example: EOQ
A small manufacturing firm uses roughly 3,400 pounds of chemical dye a year.
Currently the firm purchases 300 pounds per order and pays $3 per pound. The
supplier has just announced that orders of 1,000 pounds or more will be filled
at a price of $2 per pound. The manufacturing firm incurs a cost of $100 each
time it submits an order and assigns an annual holding cost of 17% of the
purchase price per pound.
a. Determine the order size that will minimize the total cost
b. If the supplier offered the discount at 1,500 pounds instead of 1,000
pounds, what order size would minimize the total cost?
1 to 999= $3 unit price
1,000+ = $2 unit price

a. EOQ: 1,414 pounds

2 DS 2(annual demand)(or der cost)
Q*  
H annual per unit holding cost

b. EOQ at $3/pound: 1, 155 pounds

TC (1,155): $10,789
TC (1,500): $7,282 (optimal order size)
 Building Blocks of Lean Operations
Standard parts
Modular design
Concurrent engineering
Highly capable production system
Product
Product
Design
Design Small lot sizes
Setup time reduction: Single-minute exchange die
Manufacturing cells
Mfg. Production flexibility
Process
Planning
Design
& Control Level loading
Close vendor relationships
Visual Systems : Kanban & Andon
Personnel/ Limited WIP
Organizati
onal
Cross-training
Workers as assets
Project management
Continuous Improvement Culture
Source: William J. Stevenson. Operations Management. 10th Edition, 2010
Source: David A. Collier and James R. Evans. OM3. 2011-2012
 Traditional vs. Lean
Factor Traditional Lean
Inventory A lot, to offset forecast errors; Minimal necessary
late deliveries to operate
Deliveries Few, large Many, small
Lot size Large Small
Setups Few, long runs Many, short runs
Vendors Long-term relationships are Partners
unusual
Workers Necessary to do the work Assets

Source: William J. Stevenson. Operations Management. 10th Edition, 2010

Source: David A. Collier and James R. Evans. OM3. 2011-2012
 Gantt Chart
Gantt Chart: organize and visually display actual or
intended use of resources in a time framework

Source: William J. Stevenson. Operations Management. 10th Edition, 2010

Source: David A. Collier and James R. Evans. OM3. 2011-2012