Reference: Heizer and Render Operations Management, 10e

Operations Management
Reference:
Heizer and Render
Operations Management, 10e
2011 Pearson Education, Inc. publishing as Prentice
Hall
1-1
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
2011 Pearson Education, Inc. publishing as Prentice Hall
1-2
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
1-3
Organizational Charts
Commercial Bank
Operations
Finance
Marketing
Teller
Scheduling
Check Clearing
Collection
Transaction
processing
Facilities
design/layout
Vault operations
Maintenance
Security
Investments
Security
Real estate
Loans
Commercial
Industrial
Financial
Personal
Mortgage
Accounting
Auditing
Trust Department
1-4
Organizational Charts
Airline
Operations
Ground support
equipment
Maintenance
Ground Operations
Facility
maintenance
Catering
Flight Operations
Crew scheduling
Flying
Communications
Dispatching
Management science
Finance/
accounting
Accounting
Payables
Receivables
General Ledger
Finance
Cash control
International
exchange
Marketing
Traffic
administration
Reservations
Schedules
Tariffs (pricing)
Sales
Advertising
Figure 1.1(B)
1-5
Organizational
Charts
Manufacturing
Operations
Facilities
Construction; maintenance
Production and inventory control

Scheduling; materials control
Quality assurance and control

Supply-chain management
Manufacturing
Tooling; fabrication; assembly
Design
Product development and design

Detailed product specifications
Industrial engineering
Efficient use of machines, space,

and personnel
Process analysis
Development and installation of

production tools and equipment
Finance/
accounting
Disbursements/
credits
Receivables
Payables
General ledger
Funds Management
Money market
International
exchange
Capital requirements
Stock issue
Bond issue
and recall
Marketing
Sales
promotion
Advertising
Sales
Market
research
Figure 1.1(C)
1-6
Why Study OM?

1. OM is one of three major functions of
any organization, we want to study
how people organize themselves for
productive enterprise
2. We want (and need) to know how
goods and services are produced
3. We want to understand what
operations managers do
4. OM is such a costly part of an
organization
1-7
What Operations
Managers Do
Basic Management Functions
Planning
Organizing
Staffing
Leading
Controlling
1-8
Ten Critical Decisions

Ten Decision Areas
Chapter(s)
1. Design of goods and services

2. Managing quality
3. Process and capacity
design
4. Location strategy
5. Layout strategy
6. Human resources and
job design
7. Supply-chain
management
8. Inventory, MRP, JIT
9. Scheduling
10. Maintenance
5
6, Supplement 6
7, Supplement 7
8
9
10
11, Supplement 11
12, 14, 16
13, 15
17
Table 1.2
1-9
The Critical Decisions

1. Design of goods and services
What good or service should we
offer?
How should we design these
products and services?
2. Managing quality
How do we define quality?
Who is responsible for quality?
Table 1.2 (cont.)
1 - 10

3. Process and capacity design
What process and what capacity will
these products require?
What equipment and technology is
necessary for these processes?
4. Location strategy
Where should we put the facility?
On what criteria should we base the
location decision?
Table 1.2 (cont.)
1 - 11

5. Layout strategy
How should we arrange the facility?
How large must the facility be to meet
our plan?
6. 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.)
1 - 12

7. Supply-chain management
Should we make or buy this

component?
Who should be our suppliers and how
can we integrate them into our strategy?
8. Inventory, material requirements

planning, and JIT
How much inventory of each item
should we have?
When do we re-order?
Table 1.2 (cont.)
1 - 13

9. Intermediate and shortterm
scheduling
Are we better off keeping people on
the payroll during slowdowns?
Which jobs do we perform next?
10. Maintenance
How do we build reliability into our
processes?
Who is responsible for maintenance?
Table 1.2 (cont.)
1 - 14
Significant Events in OM
Figure 1.3
1 - 15
The Heritage of OM
Division of labor (Adam Smith 1776;
Charles Babbage 1852)
Standardized parts (Whitney 1800)
Scientific Management (Taylor 1881)
Coordinated assembly line (Ford/
Sorenson 1913)
Gantt charts (Gantt 1916)
Motion study (Frank and Lillian Gilbreth
1922)
Quality control (Shewhart 1924; Deming
1950)
1 - 16
The Heritage of OM
Computer (Atanasoff 1938)
CPM/PERT (DuPont 1957, Navy 1958)
Material requirements planning (Orlicky
1960)
Computer aided design (CAD 1970)
Flexible manufacturing system (FMS 1975)
Baldrige Quality Awards (1980)
Computer integrated manufacturing (1990)
Globalization (1992)
Internet (1995)
1 - 17
Eli Whitney
Born 1765; died 1825
In 1798, received government
contract to make 10,000 muskets
Showed that machine tools could
make standardized parts to exact
specifications
Musket parts could be used in any
musket
1 - 18
Frederick W. Taylor
Known as father of scientific
management
In 1881, as chief engineer for
Midvale Steel, studied how tasks
were done
Began first motion and time studies
Created efficiency principles

1 - 19
Taylors 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
1 - 20
Frank & Lillian Gilbreth

Frank (1868-1924); Lillian (1878-1972)
Husband-and-wife engineering team
Further developed work
measurement methods
Applied efficiency methods to their
home and 12 children!
Book & Movie: Cheaper by the
Dozen, Bells on Their Toes
1 - 21
Henry Ford
In 1903, created Ford Motor
Company
In 1913, first used moving assembly
line to make Model T
Unfinished product moved by
conveyor past work station
Paid workers very well for 1911

($5/day!)
1 - 22
W. Edwards Deming
Engineer and physicist
Credited with teaching Japan
quality control methods in postWW2
Used statistics to analyze
process
His methods involve workers in
decisions
1 - 23
Contributions From
Human factors
Industrial engineering
Management science
Biological science
Physical sciences
Information technology
1 - 24
New Challenges in OM
From
Local or national focus
Batch shipments
Low bid purchasing
Lengthy product
development
Standard products
Job specialization
To
Global focus
Just-in-time
Supply-chain
partnering
Rapid product
development,
alliances
Mass
customization
Empowered
employees, teams1 - 25
Characteristics of Goods
Tangible product
Consistent product
definition
Production usually
separate from
consumption
Can be inventoried
Low customer
interaction
1 - 26
Characteristics of Service
Intangible product
Produced and
consumed at same time
Often unique
High customer
interaction
Inconsistent product
definition
Often knowledge-based
Frequently dispersed
1 - 27
Goods and Services

Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
100%
75
50
25
25
50
75
100%
Percent of Product that is a Good

Percent of Product that is a Service

1 - 28
Manufacturing and Service

Employment
120
Employment (millions)
100
80
Service
60
40
20
Manufacturing
0
|
|
|
|
|
|
|
1950
1970
1990 2010 (est)
1960
1980
2000
Figure 1.4 (A)
1 - 29
Manufacturing Employment
and Production
Industrial
production
125
(right scale)
100
75
50
40
30
20
10
0
Manufacturing
employment
(left scale)
25
Index: 1997 = 100
Employment (millions)
150
0
|
|
|
|
|
|
|
1950
1970
1990 2010 (est)
1960
1980
2000
Figure 1.4 (B)
1 - 30
Development of the
Service Economy
United States
Canada
France
Italy
Britain
Japan
W. Germany
1970
2010 (est)
40
50
60
70
Percent
80
Figure 1.4 (C)

1 - 31
Organizations in Each Sector

Service Sector
Example
% of all
Jobs
Education,
Legal, Medical,
other
San Diego Zoo, Arnold

Palmer Hospital
25.8
Trade (retail,
wholesale)
Walgreens, Wal-Mart,
Nordstroms
14.9
Utilities,
Transportation
Pacific Gas & Electric,

American Airlines
5.2
Professional and Snelling and Snelling, Waste

Business
Management, Inc.
Services
10.7
Table 1.3
1 - 32

Service Sector
% of all
Jobs
Example
Finance,
Information,
Real Estate
Citicorp, American Express,

Prudential, Aetna
9.6
Food, Lodging,
Entertainment
Olive Garden, Motel 6, Walt

Disney
8.5
Public
Administration
U.S., State of Alabama, Cook

County
4.6
Total
78.8
Table 1.3
1 - 33

Other Sectors
% of all
Jobs
Example
Manufacturing
Sector
General Electric, Ford,

U.S. Steel, Intel
11.2
Construction
Sector
Bechtel, McDermott
8.1
Agriculture
Sector
King Ranch
1.4
Mining Sector
Homestake Mining
0.5
Total
21.2
Table 1.3
1 - 34
Changing Challenges
Traditional
Approach
Reasons for
Change
Current
Challenge
Ethics and
regulations
not at the
forefront
Public concern over

pollution, corruption,
child labor, etc.
High ethical and

social
responsibility;
increased legal
and professional
standards
Local or
national
focus
Growth of reliable, low

cost communication
and transportation
Global focus,
international
collaboration
Lengthy
product
development
Shorter life cycles;

growth of global
communication; CAD,
Internet
Rapid product
development;
design
collaboration
Figure 1.5
1 - 35
Changing Challenges
Traditional
Approach
Reasons for
Change
Current
Challenge
Low cost
production,
with little
concern for
environment;
free
resources
(air, water)
ignored
Public sensitivity to
environment; ISO 14000
standard; increasing
disposal costs
Environmentally
sensitive
production; green
manufacturing;
sustainability
Low-cost
standardized
products
Rise of consumerism;
increased affluence;
individualism
Mass
customization
Figure 1.5
1 - 36
Changing Challenges
Traditional
Approach
Reasons for
Change
Current
Challenge
Emphasis on
specialized,
often manual
tasks
Recognition of the
employee's total
contribution; knowledge
society
Empowered
employees;
enriched jobs
In-house
production;
low-bid
purchasing
Rapid technological
change; increasing
competitive forces
Supply-chain
partnering; joint
ventures, alliances
Large lot
production
Shorter product life

cycles; increasing need
to reduce inventory
Just-In-Time
performance;
lean; continuous
improvement
Figure 1.5
1 - 37
New Trends in OM
Ethics
Global focus
Environmentally sensitive production
Rapid product development
Environmentally sensitive production
Mass customization
Empowered employees
Supply-chain partnering
Just-in-time performance
1 - 38
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
1 - 39
The Economic System

Inputs
Transformation
Outputs
Labor,
capital,
management
The U.S. economic system

transforms inputs to outputs
at about an annual 2.5%
increase 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%).
Goods
and
services
Feedback loop
1 - 40
Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Stop requiring signatures
on credit card purchases
under $25
Saved 8 seconds
per transaction
Change the size of the ice

scoop
Saved 14 seconds
per drink
New espresso machines
Saved 12 seconds
per shot
1 - 41
Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Operations improvements have

Stop requiring signatures
Saved
8 seconds
helped Starbucks
increase
yearly
on credit card purchases
perby
transaction
revenue per outlet
$200,000 to
under $25
$940,000 in six years.
Change the sizeProductivity
of the ice hasSaved
14 seconds
improved
by 27%,
scoop
peryear.
drink
or about 4.5% per
New espresso machines
Saved 12 seconds
per shot
1 - 42
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
1 - 43
Productivity Calculations
Labor Productivity
Units produced
Productivity = Labor-hours used
1,000
=
= 4 units/labor-hour
250
One resource input single-factor productivity
1 - 44
Multi-Factor Productivity
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
1 - 45
Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
8 titles/day
Overhead = $400/day
8 titles/day
Old labor =
productivity 32 labor-hrs
1 - 46

Old System:
8 titles/day
Overhead = $400/day
8 titles/day
Old labor =
= .25 titles/labor-hr
32
labor-hrs
productivity
1 - 47

Old System:
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old labor =
32
labor-hrs
productivity
14 titles/day
New labor =
32 labor-hrs
productivity
1 - 48

Old System:
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old labor =
32
labor-hrs
productivity
14 titles/day
New labor =
32
labor-hrs
productivity
1 - 49

Old System:
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old multifactor =
$640 + 400
productivity
1 - 50

Old System:
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old multifactor =
= .0077 titles/dollar
$640
+
400
productivity
1 - 51

Old System:
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old multifactor =
$640
+
400
productivity
14 titles/day
New multifactor =
$640 + 800
productivity
1 - 52

Old System:
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old multifactor =
$640
+
400
productivity
14 titles/day
New multifactor =
$640
+
800
productivity
1 - 53
Measurement Problems
1. Quality may change while the
quantity of inputs and outputs
remains constant
2. External elements may cause an
increase or decrease in
productivity
Precise units of measure may be
lacking
1 - 54
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
1 - 55
Key Variables for Improved

Labor Productivity
1. Basic education appropriate for the
labor force
2. Diet of the labor force
3. Social overhead that makes labor
available
Challenge is in maintaining and
enhancing skills in the midst of rapidly
changing technology and knowledge
1 - 56
Labor Skills
About half of the 17-year-olds in the U.S. cannot
correctly answer questions of this type
Figure 1.7
1 - 57
Investment and Productivity

Percent increase in productivity
10
8
6
4
2
0
10
15
20
25
30
35
Percentage investment
1 - 58
Service Productivity
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
5. Often difficult to evaluate for quality
1 - 59
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
1 - 60
Productivity at Taco Bell

Results:
Improvements:
Preparation
Revised the time
menucut to 8 seconds
span
control
increased
Management
Designed meals
forofeasy
preparation
from 5 to 30
Shifted some preparation to suppliers
In-store labor cut by 15 hours/day
Efficient layout and automation
Stores handle twice the volume with half

the
laborand employee empowerment
Training
water and
Conserve
New water300
andmillion
energygallons
savingof
grills
200 million KwH of electricity each year
saving $17 million annually
1 - 61
Ethics and
Social Responsibility
Challenges facing
operations managers:
Developing and producing safe,
quality products
Maintaining a clean environment
Providing a safe workplace
Honoring stakeholder commitments
1 - 62
END
1 - 63

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Operations Management

Production is the creation of

2011 Pearson Education, Inc. publishing as Prentice Hall

2011 Pearson Education, Inc. publishing as Prentice Hall

Production and inventory control

Quality assurance and control

Product development and design

Efficient use of machines, space,

Development and installation of

2011 Pearson Education, Inc. publishing as Prentice Hall

Why Study OM?

2011 Pearson Education, Inc. publishing as Prentice Hall

Ten Critical Decisions

1. Design of goods and services

The Critical Decisions

The Critical Decisions

The Critical Decisions

6. Human resources and job design

Table 1.2 (cont.)

2011 Pearson Education, Inc. publishing as Prentice Hall

The Critical Decisions

Should we make or buy this

8. Inventory, material requirements

The Critical Decisions

Created efficiency principles

Frank & Lillian Gilbreth

Paid workers very well for 1911

2011 Pearson Education, Inc. publishing as Prentice Hall

Goods and Services

Percent of Product that is a Good

Percent of Product that is a Service

Manufacturing and Service

Index: 1997 = 100

2011 Pearson Education, Inc. publishing as Prentice Hall

2011 Pearson Education, Inc. publishing as Prentice Hall

Figure 1.4 (C)

Organizations in Each Sector

San Diego Zoo, Arnold

Pacific Gas & Electric,

Professional and Snelling and Snelling, Waste

Organizations in Each Sector

Citicorp, American Express,

Olive Garden, Motel 6, Walt

U.S., State of Alabama, Cook

2011 Pearson Education, Inc. publishing as Prentice Hall

Organizations in Each Sector

General Electric, Ford,

2011 Pearson Education, Inc. publishing as Prentice Hall

Public concern over

High ethical and

Growth of reliable, low

Shorter life cycles;

2011 Pearson Education, Inc. publishing as Prentice Hall

2011 Pearson Education, Inc. publishing as Prentice Hall

Shorter product life

2011 Pearson Education, Inc. publishing as Prentice Hall

The Economic System

The U.S. economic system

2011 Pearson Education, Inc. publishing as Prentice Hall

Change the size of the ice

New espresso machines

2011 Pearson Education, Inc. publishing as Prentice Hall

Operations improvements have