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MGT214 Operations Management
Module 1 – Chapter 1
Introduction to Operations Management
YANBU UNIVERSITY COLLEGE
Management Science Department
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© Yanbu University College
1
What Is Operations Management?
Organizing to Produce Goods and Services
Why Study OM?
What Operations Managers Do
Operations in the Service Sector
Differences between Goods and Services
The Productivity Challenge
Productivity Measurement
Ethics and Social Responsibility
Outline
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When you complete this chapter you should be able to:
Define operations management
Explain the distinction between goods and services
Explain the difference between production and productivity
Compute single-factor productivity
Compute multifactor productivity
Learning Objectives
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Hard Rock Café
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Hard Rock Cafe is a chain of theme restaurants founded in 1971 in London
More than 129 restaurant (branches) in more than 40 countries
In Florida branch, 3500 meals are prepared per day
Every year, they have more than 35 million customers.
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Hard Rock Café
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How does Hard Rock
Café achieve that?
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Hard Rock Café
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Operations of HRC
Design products
Efficient layout.
Labor requirements
Customer satisfaction
Source for qualified suppliers
Quality of the meals
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Hard Rock Café
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Production is the production 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
It is the management of the production system
What Is Operations Management?
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Organizing to Produce Goods and Services
Essential functions:
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Finance or Accounting
Production or
Operations
Marketing
Ensure and allocating financial resources
Produce / create goods and services
Assess customers needs
Sell / Promote goods and services
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Upper Level Management
Operational Processes
Supporting Processes
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Organizing to Produce Goods and Services
Essential functions:
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Organizing to Produce Goods and Services
Essential functions:
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Why Study OM?
We want to study how people organize themselves for productive enterprise
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
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What Operations Managers Do?
Basic Management Functions (POSLC)
Planning
Organizing
Staffing
Leading
Controlling
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Ten Critical Decisions of OM
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Where are the OM Jobs
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Operation in the Service Sector
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Differences between goods and services
Goods are:
Tangible product
Consistent product definition
Production usually separated from consumption
Can be inventoried
Low customer interaction
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Operation in the Service Sector
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Differences between goods and services
Services are:
Intangible product
Produced and consumed at same time (no stored inventory)
Often unique
High customer interaction
Often knowledge-based (education, medical, legal, etc.)
Frequently dispersed
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Differences Between Goods and Services
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Attributes of Goods (Tangible Product)
Attributes of Services (Intangible Product)
Revenue generated primarily from tangible product
Can be resold
Can be inventoried
Some aspects of quality measurable
Selling is distinct from production
Product is transportable
Often easy to automate
Revenue generated primarily from the intangible service
Reselling unusual
Difficult for inventory
Quality difficult to measure
Selling is part of service
Provider, not product, is often transportable
Often difficult to automate
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Productivity Challenge
Productivity is the ratio of output (goods and services) divided by the inputs (resources such as labor and capital)
The objective is to improve productivity.
Efficiency Vs. Effectiveness
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Important Note
Production is a measure of output only and not a measure of efficiency
Improved productivity leads to improved efficiency
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The Economic System
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Why ‘Feedback Loop’?
How to improve productivity?
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Slide 21
OM in Action > Improving Productivity at Starbucks
“This is a game of seconds..” says Silva Peterson, whom Starbucks has put in charge of saving seconds. Her team of 10 analysts is constantly asking themselves: “How can we shave time off this?”
Perterson’s analysis suggested that there were some obvious opportunities. First, stop requiring signatures on credit-card purchase under $25. This sliced 8 seconds off the transaction time at the cash register.
Then analysts noticed that Starbucks’s largest cold beverage, the Venti size, required two bending and digging motions to scoop up enough ice. The scoop was too small. Redesign of the scoop provided the proper amount in one motion and cut 14 seconds off the average time of 1 minute.
Third were new espresso machines; with the push of a button, the machines grind coffee beans and brew. This allowed the server, called a “barista” in Stabuck’s vocabulary,to do other things. The saving: about 12 second per espresso shot.
As a result, operation at Starbucks outlets have increased the average yearly volume by $250,000, to about 1 million in the past 7 years. This is a 27% improvement in productivity-about 4,5% per year. In the service industry, a 4,5% per year increase is very tasty.
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Improving Productivity at Starbucks
A team of 10 analysts continually look for ways to save time. Some improvement made were….
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| 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 expresso machines | Saved 12 seconds per shot |
Operations improvements have helped Starbucks increase yearly revenue per outlet by $200,000 to $940,000 in six years.
Productivity has improved by 27%, or about 4.5% per year.
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Productivity Measurement
Measure of process improvement
Represent output relative to input
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Productivity Calculations
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Labor Productivity
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Productivity Calculations
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Total/Multi-Factor Productivity
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Measurement Problems
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Single-factor productivity Vs. multifactor productivity
Quality may change while the quantity of inputs and outputs remains constant
External elements may cause an increase or decrease in productivity
Precise units of measure may be lacking
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Productivity Variables
The increase in productivity depends on…
Labor – contributes about 10% of the annual increase
Capital – contributes about 38% of the annual increase
Management – contributes about 52% of the annual increase
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Productivity Variables
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Key variable to labor productivity
Basic education appropriate for the labor force
Diet of the labor force
Social overhead that makes labor available
Maintaining and enhancing skills in the midst of rapidly changing technology and knowledge
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Productivity Variables – Labor Skills
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About half of the 17-years-olds in the US cannot correctly answer questions of this type, compared to the Japanese
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Productivity Variables – Capital
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Human beings are tool-using animals
Capital investment provides those tools
When the capital per employee drops, there will be a drop in productivity
Capital investment is necessary but seldom increase productivity
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Productivity Variables – Management
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Ensure labor and capital are effectively used to increase productivity
Improvement made through the use of knowledge and the application of technology – knowledge society (requires ongoing education and training)
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Productivity and Service Sector
Productivity of the service sector has proven difficult to improve because service-sector work is…
Labor intensive (e.g. counseling, teaching)
Focused on unique individual attributes or desires (e.g. investment advice)
An intellectual task performed by professionals (e.g. medical diagnosis)
Difficult to mechanize and automate (e.g. haircut)
Difficult to evaluate for quality (e.g. performance of a law firm)
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Productivity at Taco Bell
Improvements
Revised the menu
Designed meals for easy preparation
Shift some preparation to suppliers
Efficient layout and automation
Training and employee empowerment
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Productivity at Taco Bell
Results:
Preparation time cut to 8 second
Management span of control increased from 5 to 30
In-store labor cut by 15 hours/day
Stores handle twice the volume with half the labor
Fast-food low-cost leader
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Ethics and Social Responsibility
Challenges facing operations managers
Developing and producing safe, quality products
Maintaining a clean and sustainable environment
Providing a safe workplace
Honoring community commitments
Managers must do all this in an ethical and socially responsible way while meeting and demands of the marketplace
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Production and Operations Management
Video
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Helpful Video
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Q & A
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Practice Operations
Practice Operations (PO) is a 3D, interactive, game-based simulation developed by McGraw-Hill Education. It allows management students to visualize how operations management’s key concepts function in a manufacturing scenario. PO provide a simple simulation for a clothing manufacturing and distribution company, named Kibby & Strand, where the player/student plays the role of an operations manager who is incharge of production decisions that include “placing bids for contracts, managing physical and human resources, ordering raw materials, turning them into refined clothing, and shipping the final products to the client”. PO aims to expose students to some issues related to the production process, supply chain management, inventory management, warehouse layout, scheduling, human resource, quality management and control, capacity planning and customer satisfaction.
Learning Objectives
1. Illustrate the role and responsibilities of the operations manager and the possible challenges that he/she may face.
2. Demonstrate the importance of operations management and process thinking
3. Provide a simple simulation for a manufacturing scenario to understand the structure of a production process
4. Illustrate an example of how products move in the production floor and ship to clients
5. Illustrate how receiving, production and shipping tasks are organized and related to the production process
6. Apply operations management decisions that involve production process, supply chain management, inventory management, layout, scheduling, human resource, quality management, and capacity planning.
Assignment Instructions
: The assignment consists of THREE core tasks: Task1: Play Practice Operations o Go to https://www.mhpractice.com/products/Practice_Operations” https://www.mhpractice.com/products/Practice_Operations and click on “Play the Demo” button to start the game.
Task2: Answer the Discussion Questions
Once you complete the first task, you can start the second one where you are required to prepare PPT slides that include the answers for the following questions. Allocate a slide for each question.
1- Describe the contracts that you completed in detail such as required materials, quantity, quality …etc. (in a table)?
2 – Describe the strategies that you have applied to meet the production schedules?
3- As an operation manager, explain the factors that influence your performance? Provide minimum 4 factors within the scope of OM decisions. Make sure you show your performance result which similar to Figure 5.
