Chapter 1 -- OM as a Competitive Weapon

External environment Customer or client participation

Inputs
Workers Managers Equipment Facilities Materials Services Land Energy

Operations and processes Outputs

1 3 5 2 4 Goods Services

Figure 1.1

Information on performance 1

US Jobs by industry
40 Percentage of work force Manufacturing, mining, and construction Other services

30 Wholesale and retail sales 20 Government 10

0| 1957
Figure 1.4

1967

1977

1987

1997
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Manufacturing and Service Firms Stereotypes

Manufacturing Service

Physical, durable product Output can be inventoried Low customer contact Long response time Regional, national, or international markets Large facilities Capital intensive Quality easily measured Standardized products

Intangible, perishable product Output cannot be inventoried High customer contact Short response time Local markets Small facilities Labor intensive Quality difficult to measure Customized products
More like a service organization

More like a manufacturing organization

Customer Contact Model -- Richard Chase

Customers Technical Core customer contact Customers Customers

LOW-CONTACT Large technical core More manufacturing orientation

HIGH-CONTACT Small technical core More service orientation

Possible Decisions Using Customer Contact Model

Increase the technical core. Decrease the technical core. Empower the high customer contact employees. View the customer as possible external employee.

Productivity
Productivity = Total Output Total Input
commonly and practically

Productivity = Some Output =Efficiency Some Input

workers managers equipment facilities materials services land energy Products goods, services Byproducts Miscellaneous Information

Why Measure Productivity

Good to Measure If you cant measure is you cant control it track change basis for rewards Bad to Measure Be careful what you wish for you may get it suboptimization

Trade off
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Some Common Productivity Measures

Many measures of productivity are possible, and all are rough approximations. Text, page 10 Labor Productivity = # product (output) labor hours (input)
Three employees processed 600 insurance policies last week working 8 hours/day, 5 days/week

Labor Productivity = 600 polices = 5 policies/hour (3)(8)(5)

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Common Variations in Labor Productivity

Labor Productivity = # product (output) labor hours (input)

Output: Number of units produced (if single product) = Total dollar standard cost of producing products = # units * selling price/unit (summed across multiple products) Input: labor hours = (days of production) (standard hours in workday)(number of workers)(average salary/hour) = (days of production) (standard hours in workday)(number of workers)(average salary+ benefits/hour)

Multifactor Productivity
Multifactor Productivity = Total dollar standard cost of product________ Labor cost + Materials cost + Overhead
400 units of a product were made at a standard cost of $10 each; costs were $400 for labor, $1000 for material and $300 for overhead.

Multifactor Productivity = (400)(10) = 2.35 400+1000+300 No units

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Common Variations in Multifactor Productivity

Multifactor Productivity = Total dollar cost of product________ Labor cost + Materials cost + Overhead

Output: Total dollar standard cost of producing products = Number of units produced (if single product) = # units * selling price/unit (summed across multiple products)

Many measures of productivity are possible, and all are rough approximations. Text, page 10
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