Operations and

Productivity 1

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 Outline
Global Company Profile: Hard Rock Cafe

What Is Operations Management?

Organizing to Produce Goods and
Services
The Supply Chain
Why Study OM?
What Operations Managers Do

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 Outline - Continued
The Heritage of Operations Management
Operations for Goods and Services
The Productivity Challenge
Current Challenges in Operations
Management
Ethics, Social Responsibility, and
Sustainability

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 Operations Management
at Hard Rock Cafe

First opened in 1971

Now 150 restaurants in over 53 countries
Rock music memorabilia
Creates value in the form of good food and
entertainment
3,500+ custom meals per day in Orlando
How does an item get on the menu?
Role of the Operations Manager
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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
Figure 1.1

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 Organizational Charts
Figure 1.1

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 The Supply Chain
A global network of organizations and
activities that supply a firm with goods and
services
Members of the supply chain collaborate to
achieve high levels of customer satisfaction,
efficiency and competitive advantage
Figure 1.2

Farmer Syrup Bottler Distributor Retailer

producer

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 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
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 Ten Strategic Decisions
TABLE 1.2
DECISION CHAPTER(S)
1. Design of goods and services 5, Supplement 5
2. Managing quality 6, Supplement 6
3. Process and capacity strategy 7, Supplement 7
4. Location strategy 8
5. Layout strategy 9
6. Human resources and job design 10
7. Supply-chain management 11, Supplement 11
8. Inventory management 12, 14, 16
9. Scheduling 13, 15
10. Maintenance 17

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 The Strategic Decisions
1. Design of goods and services
Defines what is required of operations
Product design determines quality,
sustainability and human resources
2. Managing quality
Determine the customers quality
expectations
Establish policies and procedures to
identify and achieve that quality
Table 1.2 (cont.)

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 The Strategic Decisions
3. Process and capacity design
How is a good or service produced?
Commits management to specific
technology, quality, resources, and
investment
4. Location strategy
Nearness to customers, suppliers, and
talent
Considering costs, infrastructure, logistics,
and government Table 1.2 (cont.)

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 The Strategic Decisions
5. Layout strategy
Integrate capacity needs, personnel levels,
technology, and inventory
Determine the efficient flow of materials,
people, and information
6. Human resources and job design
Recruit, motivate, and retain personnel with
the required talent and skills
Integral and expensive part of the total
system design
Table 1.2 (cont.)

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 The Strategic Decisions
7. Supply chain management
Integrate supply chain into the firms strategy
Determine what is to be purchased, from
whom, and under what conditions
8. Inventory management
Inventory ordering and holding decisions
Optimize considering customer satisfaction,
supplier capability, and production schedules

Table 1.2 (cont.)

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 The Strategic Decisions
9. Scheduling
Determine and implement intermediate-
and short-term schedules
Utilize personnel and facilities while
meeting customer demands
10. Maintenance
Consider facility capacity, production
demands, and personnel
Maintain a reliable and stable process
Table 1.2 (cont.)

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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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 Significant Events in OM

Figure 1.4
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 Operations for
Goods and Services
Services Economic activities that
typically produce an intangible product
(such as education, entertainment,
lodging, government, financial, and
health services)

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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

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 Characteristics of Goods
Tangible product
Consistent product
definition
Production usually
separate from
consumption
Can be inventoried
Low customer
interaction

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 Characteristics of Service
Intangible product
Produced and
consumed at same time
Often unique
High customer
interaction
Inconsistent product
definition
Often knowledge-based
Frequently dispersed
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 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 0 25 50 75 100%
| | | | | | | | |

Percent of Product that is a Good Percent of Product that is a Service

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 U.S. Agriculture, Manufacturing,
and Service Employment
Figure 1.5
100 -

80
Percent of Workforce

60

40

20

0 . | | | | | | | | |

1825 1875 1925 1975 2025 (est.)

1800 1850 1900 1950 2000

Agriculture Services Manufacturing

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 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

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 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%).

Feedback loop

Figure 1.6

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 Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave 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
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per shot 1 - 27
 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.
Change the size Productivity
of the ice has improved
Saved 14 by 27%, or
seconds
scoop about 4.5% per year.
per drink
New espresso machines Saved 12 seconds
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per shot 1 - 28
 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
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
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
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

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 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
3. Precise units of measure may be
lacking

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 Management
Ensures labor and capital are effectively
used to increase productivity
Use of knowledge
Application of technologies
Knowledge societies
Labor has migrated from manual work to
technical and information-processing tasks
More effective use of technology,
knowledge, and capital
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 Productivity in the Service
Sector
Productivity improvement in services is
difficult because:
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 Uber
Improvements:
Mobility-as-a-service
Low costs and ease of use
Peer-to-peer transport services
Generates employment
Decrease in fuel emission

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 New Challenges in OM
From To
Local or national focus Global focus
Just-in-time
Batch shipments
Supply-chain partnering
Low bid purchasing Rapid product
development, alliances
Mass customization
Lengthy product
development Empowered employees,
teams

Standard products

Job specialization
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 Changing Challenges
Traditional Reasons for Current
Approach Change Challenge
Ethics and Public concern over High ethical and
regulations pollution, corruption, social
not at the child labor, etc. responsibility;
forefront increased legal
and professional
standards
Local or Growth of reliable, low Global focus,
national cost communication international
focus and transportation collaboration

Lengthy Shorter life cycles; Rapid product

product growth of global development;
development communication; CAD, design
Internet collaboration

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 Changing Challenges
Traditional Reasons for Current
Approach Change Challenge
Low cost Public sensitivity to Environmentally
production, environment; ISO 14000 sensitive
with little standard; increasing production; green
concern for disposal costs manufacturing;
environment; sustainability
free
resources
(air, water)
ignored
Low-cost Rise of consumerism; Mass
standardized increased affluence; customization
products individualism

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 Changing Challenges
Traditional Reasons for Current
Approach Change Challenge
Emphasis on Recognition of the Empowered
specialized, employee's total employees;
often manual contribution; knowledge enriched jobs
tasks society
In-house Rapid technological Supply-chain
production; change; increasing partnering; joint
low-bid competitive forces ventures,
purchasing alliances
Large lot Shorter product life Just-In-Time
production cycles; increasing need performance;
to reduce inventory lean; continuous
improvement

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 Ethics, Social Responsibility,
and Sustainability
Challenges facing
operations managers:
Develop and produce safe, high-quality
green products
Train, retrain, and motivate employees
in a safe workplace
Honor stakeholder commitments

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 Ethics,Stakeholders
Social Responsibility,
and
Those Sustainability
with a vested interest in an
organization, including customers,
distributors,
Challenges facing suppliers, owners, lenders,
employees,
operations managers: and community members.

Develop and produce safe, high-quality

green products
Train, retrain, and motivate employees
in a safe workplace
Honor stakeholder commitments

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