Operations

Management
Chapter 1 –
Operations and
Productivity
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 7e
Operations Management, 9e
© 2008 Prentice Hall, Inc. 1–1
 Learning Objectives
When you complete this chapter
you should be able to:

1. Define operations management

2. Explain the distinction between
goods and services
3. Explain the difference between
production and productivity

© 2008 Prentice Hall, Inc. 1–2

 Learning Objectives
When you complete this chapter
you should be able to:
4. Compute single-factor
productivity
5. Compute multifactor productivity
6. Identify the critical variables in
enhancing productivity

© 2008 Prentice Hall, Inc. 1–3

 What Is Operations
Management?

Production 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

© 2008 Prentice Hall, Inc. 1–4

 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

© 2008 Prentice Hall, Inc. 1–5

 Organizational Charts
Manufacturing

Operations Finance/ Marketing

Facilities accounting Sales
Construction; maintenance Disbursements/ promotion
Production and inventory control credits Advertising
Scheduling; materials control Receivables Sales
Quality assurance and control Payables
General ledger Market
Supply chain management research
Manufacturing Funds Management
Tooling; fabrication; assembly Money market
Design International
Product development and design exchange
Detailed product specifications Capital requirements
Industrial engineering Stock issue
Efficient use of machines, space, Bond issue
and personnel and recall
Process analysis
Development and installation of
production tools and equipment Figure 1.1(C)
© 2008 Prentice Hall, Inc. 1–6
 Why Study OM?
 OM is one of three major functions
(marketing, finance, and operations)
of any organization
 We want (and need) to know how
goods and services are produced
 We want to understand what
operations managers do
 OM is such a costly part of an
organization
© 2008 Prentice Hall, Inc. 1–7
 Operations for increasing
Contribution
Marketing Finance OM Option
option Option

Current Increase Reduce Reduce

sales Finance Production
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 cost -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
© 2008 Prentice Hall, Inc. 1–8
 What Operations
Managers Do
Basic Management Functions
 Planning
 Organizing
 Staffing
 Leading
 Controlling
© 2008 Prentice Hall, Inc. 1–9
 Ten Critical Decisions
Ten Decision Areas Chapter(s)
 Design of goods and services 5
 Managing quality 6, Supplement 6
 Process and capacity 7, Supplement 7
design
 Location strategy 8
 Layout strategy 9
 Human resources and 10, Supplement 10
job design
 Supply chain 11, Supplement 11
management
 Inventory management 12, 14, 16
 Scheduling 13, 15
 Maintenance 17
Table 1.2
© 2008 Prentice Hall, Inc. 1 – 10
 The Critical Decisions
 Design of goods and services
 What good or service should we
offer?
 How should we design these products
and services?
 Managing quality
 How do we define quality?
 Who is responsible for quality?

Table 1.2 (cont.)

© 2008 Prentice Hall, Inc. 1 – 11
 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 strategy
 Where should we put the facility?
 On what criteria should we base the
location decision?
Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 12
 The Critical Decisions
 Layout strategy
 How should we arrange the facility?
 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?
Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 13
 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?
Table 1.2 (cont.)
© 2008 Prentice Hall, Inc. 1 – 14
 The Critical Decisions
 Intermediate and short–term
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?

Table 1.2 (cont.)

© 2008 Prentice Hall, Inc. 1 – 15
 Where are the OM Jobs?
 Technology/methods
 Facilities/space utilization
 Strategic issues
 Response time
 People/team development
 Customer service
 Quality
 Cost reduction
 Inventory reduction
 Productivity improvement
© 2008 Prentice Hall, Inc. 1 – 16
 Taylor’s 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

© 2008 Prentice Hall, Inc. 1 – 17

 New Challenges in OM
From To
 Local or national focus  Global focus
 Batch shipments  Just-in-time
 Low bid purchasing  Supply chain
partnering
 Lengthy product  Rapid product
development development,
alliances
 Standard products  Mass
customization
 Job specialization  Empowered
employees, teams
© 2008 Prentice Hall, Inc. 1 – 18
 Ethics and Social Responsibility

Challenges facing
operations managers:

 Developing and producing safe,

quality products
 Maintaining a clean environment
 Providing a safe workplace
 Honoring community commitments

© 2008 Prentice Hall, Inc. 1 – 19