Chapter: Introduction to Operations Management
Course: OPERATIONS MANAGEMENT
Lecture 1
Week: 1st (12th September)
Dr. Waqas Ahmed
Department of Operations and Supply Chain
NUST Business School (NBS)
National University of Sciences & Technology, Islamabad, Pakistan
»Dr. Waqas Ahmed
General Introduction
Course Details
Course Title: Operations Management Program: MS L&SCM
Course Code: OTM 841 Credit Hours: 3
Course Faculty
Dr. Waqas Ahmed
Associate Professor & Program Head
Office: Room 312, NUST Business School, NUST
Office hours Session: Monday &Tuesday (9:00 am to 11:00 am)
Email: [Link]@[Link]
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Faculty Introduction
hD (Industrial and Management Engineering)
Hanyang University, South Korea
S (Mechanical Engineering)
Seoul National University, South Korea
BA (Operations Management)
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Course Learning Outcomes:
pon completion of this course, the student should be able to:
LO 1. Summarize key concepts and theories of operations management.
LO 2. Apply operations management tools and techniques for
process improvement /problem solving.
LO 3. Analyze service/ production challenges in operations using advance theories
and best practices such as Lean, Six Sigma, capacity and bottleneck
management, etc
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Course Evaluation:
rading will be done as per NBS criteria. The breakup is as follows:
inal Exam 35%
idterm 20%
inal Project 20%
uizzes 10%
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Required Course Material:
Textbook (s):
●Operations Management, 12th ed., by William J Stevenson. Prentice Hall, 2015.
●Principles of Operations Management, 10th ed., by Jay Hazier, Barry, Render. Pearson, 2011
Reference Book (s):
●Operations Management, by Nigel Slack, Stuart Chambers, Christine Harland, Alan Harrison and
Robert Johnston, Pitman publishing, 2001.
●Operations Management, Design, Planning and Control for Manufacturing and Services,
Dilworth B. James, McGraw-Hill International Editions.
Other Material:
●Research Papers
●HBS Case Studies.
●Instructor notes
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Project Deadlines & Deliverables
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Course Content (Weekly)
Course Outline
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Outline
▶ What Is Operations Management?
▶ Organizing to Produce Goods and Services
▶ Why Study OM?
▶ What Operations Managers Do
▶ The Heritage of Operations Management
▶ Operations for Goods and Services
▶ Growth of Services
▶ The Productivity Challenge
▶ Productivity Measurement
▶ Productivity Variables
▶ Productivity and the Service Sector
▶ New Challenges in Operations Management
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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
4. Compute single-factor productivity
5. Compute multifactor productivity
6. Identify the critical variables in enhancing productivity
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What Is Operations Management?
Production is the creation of goods and services
Operations management (OM) is the set of activities that
create value in the form of goods and services by transforming
inputs into outputs
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Organizing to Produce Goods and Services
● Essential functions:
1. Marketing – generates demand
2. Production/operations – creates the product
3. Finance/accounting – tracks how well the
organization is doing, pays bills, collects the money
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Organizational Charts
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Organizational Charts
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Organizational Charts
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What Operations Managers Do
Basic Management Functions
▶ Planning
▶ Organizing
▶ Staffing
▶ Leading
▶ Controlling
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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
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Operations for Goods and Services
● Manufacturers produce tangible product, services often
intangible
● Operations activities often very similar
● Distinction not always clear
● Few pure services
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Differences Between Goods and Services
CHARACTERISTICS OF SERVICES CHARACTERISTICS OF GOODS
Intangible: Ride in an airline seat Tangible: The seat itself
Produced and consumed simultaneously: Product can usually be kept in inventory
Beauty parlour produces a face ficial that is (beauty care products)
consumed as it is produced
Unique: Your investments and medical care are Similar products produced (iPods)
unique
High customer interaction: Often what the Limited customer involvement in production
customer is paying for (consulting, education)
Inconsistent product definition: Auto Insurance Product standardized (iPhone)
changes with age and type of car
Often knowledge based: Legal, education, and Standard tangible product tends to make
medical services are hard to automate automation feasible
Services dispersed: Service may occur at retail Product typically produced at a fixed facility
store, local office, house call, or via internet.
Quality may be hard to evaluate: Consulting, Many aspects of quality for tangible products
education, and medical services are easy to evaluate (strength of a bolt)
Reselling is unusual: Musical concert or Product often has some residual value
medical care
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U.S. Agriculture, Manufacturing, and Service Employment
100 –
Percent of Workforce 80 –
60 –
40 –
20 –
| | | | | | | | |
0–
1825 1875 1925 1975 2025 (est.)
1800 1850 1900 1950 2000
Agriculture Services Manufacturing
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Organizations in Each Sector
PERCENT OF
SECTOR EXAMPLE ALL JOBS
Service Sector
Education, Legal, Medical, San Diego Zoo, Arnold Palmer Hospital 13.2
Other Walgreen's, Walmart, Nordstrom 13.8
Trade (retail, wholesale) Pacific Gas & Electric, American Airlines 3.3
Utilities, Transportation Snelling and Snelling, Waste 10.1
85.9
Professional and Business Management, Inc. 21.0
Services Citicorp, American Express, Prudential, 9.0
Finance, Information, Real Aetna
Estate 15.5
Olive Garden, Motel 6, Walt Disney
Food, Lodging, Entertainment U.S., State of Alabama, Cook County
Public Administration
Manufacturing Sector General Electric, Ford, U.S. Steel, Intel 8.2
Construction Sector Bechtel, McDermott 4.1
Agriculture King Ranch 1.4
Mining Sector Homestake Mining .4
Grand Total 100.0
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Productivity Challenge
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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
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The Economic System
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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%).
Feedback loop
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Improving Productivity at Starbucks
A team of 10 analysts
continually look for ways
to save time. Some
improvements:
Stop requiring signatures Saved 8 seconds
on credit card purchases per transaction
under $25
Change the size of the ice Saved 14 seconds
scoop per drink
New espresso machines Saved 12 seconds
per shot
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Improving Productivity at Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Operations improvements have
helped StarbucksSaved
Stop requiring signatures increase yearly
8 seconds
revenue per outlet
on credit card purchases bytransaction
per $250,000 to
under $25 $1,000,000 in seven years.
Change the size Productivity
of the ice has improved
Saved 14by 27%, or
seconds
scoop about 4.5% per year.
per drink
New espresso machines Saved 12 seconds
per shot
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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
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Productivity Calculations
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Labor Productivity
Units produced
Productivity =
Labor-hours used
1,000
= = 4 units/labor-hour
250
One resource input single-factor productivity
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Multi-Factor Productivity
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Output
Productivity =
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
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Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old labor 8 titles/day
productivity = 32 labor-hrs
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Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old labor 8 titles/day
productivity = 32 labor-hrs = .25 titles/labor-hr
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Collins 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
productivity = 32 labor-hrs = .25 titles/labor-hr
New labor 14 titles/day
productivity = 32 labor-hrs
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Collins 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
productivity = 32 labor-hrs = .25 titles/labor-hr
New labor 14 titles/day
productivity = 32 labor-hrs = .4375 titles/labor-hr
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Collins 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
productivity =
$640 + 400
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Collins 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
productivity = = .0077 titles/dollar
$640 + 400
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Collins 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
productivity = = .0077 titles/dollar
$640 + 400
New multifactor 14 titles/day
productivity =
$640 + 800
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Collins 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
productivity = = .0077 titles/dollar
$640 + 400
New multifactor 14 titles/day
productivity = = .0097 titles/dollar
$640 + 800
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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
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Productivity and the Service Sector
1. Typically labor intensive
2. Frequently focused on unique individual attributes or
desires
3. Often an intellectual task performed by professionals
4. Often difficult to mechanize and automate
5. Often difficult to evaluate for quality
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Productivity at Taco Bell
Improvements:
▶ Revised the menu
▶ Designed meals for easy
preparation
▶ Shifted some preparation to
suppliers
▶ Efficient layout and automation
▶ Training and employee empowerment
▶ New water and energy saving grills
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Results:
Productivity at Taco Bell
▶ Preparation time cut to 8 seconds
▶ Management span of control increased from 5
Improvements
to 30 :
▶ In-store labor cut by 15 hours/day
▶ Floor space reduced by more than 50%
▶ Stores average 164 seconds/customer from
drive-up to pull-out
▶ Water- and energy-savings grills conserve 300
million gallons of water and 200 million KwH of
electricity each year
▶ Green-inspired cooking method saves 5,800
restaurants $17 million per year
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New Challenges in OM
● Global focus
● Supply-chain partnering
● Sustainability
● Rapid product development
● Mass customization
● Just-in-time performance
● Empowered employees
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Thank you! Any Questions
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