Operations Management

Chapter 1: Introduction
Week 1- Lecture 2

1-1
POM-Related Professional Societies

• APICS - The Association for Operations Management

• American Society for Quality (ASQ)
• Institute for Supply Management (ISM)
• Institute for Operations Research and Management Science (INFORMS)
• The Production and Operations Management Society (POMS)
• The Project Management Institute (PMI)
• Council of Supply Chain Management Professionals (CSCMP)
Significant Events in OM
 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 productivity!

Important Note!
Production is a measure of output only
and not a measure of efficiency
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 Calculations
Labor Productivity
Units produced
Productivity =
Labor-hours used

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

One resource input  single-factor productivity

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

Multiple resource inputs  multi-factor productivity

 Title Productivity
Example
A company has a staff of four,
each working 8 hours per day Old System:
(for a payroll Staff of 4 works 8 hrs/day 8 titles/day
cost of $640/day) and
overhead expenses of $400
Payroll cost = $640/day Overhead = $400/day
per day. The company
processes and closes on 8
titles each day. The new
computerized title-search
system will allow the
Old labor 8 titles/day
processing of 14 titles per = = .25 titles/labor-hr
day. Although the staff, their
productivity 32 labor-hrs
work hours, and pay are the
same, the overhead expenses
are now $800 per day.
 Title Productivity
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 8 titles/day

= = .25 titles/labor-hr
productivity 32 labor-hrs

New labor 14 titles/day

= = .4375 titles/labor-hr
productivity 32 labor-hrs
 Title Productivity
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 multifactor 8 titles/day

= = .0077 titles/dollar
productivity $640 + 400
 Title Productivity
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 multifactor 8 titles/day

= = .0077 titles/dollar
productivity $640 + 400

New multifactor 14 titles/day

= = .0097 titles/dollar
productivity $640 + 800
 Productivity Variables
1. Labor - contributes about 10% of
the annual increase

2. Capital - contributes about 38%

of the annual increase

3. Management - contributes about

52% of the annual increase
The Economic System
Inputs Transformation Outputs

Labor, The U.S. economic system Goods

capital, transforms inputs to outputs at and
management about an annual 2.5% increase services
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%).

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