[PPT]Operations and Productivity - Christopher Lee · Web viewOperations and Productivity 1...
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1 Operations and Productivity
PowerPoint presentation to accompany PowerPoint presentation to accompany Heizer and Render Heizer and Render Operations Management, 10e Operations Management, 10e Principles of Operations Management, 8ePrinciples of Operations Management, 8e
PowerPoint slides by Jeff Heyl
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OutlineOutline Global Company Profile: Hard Rock
Cafe What Is Operations Management? Organizing to Produce Goods and
Services Why Study OM? What Operations Managers Do
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Outline - ContinuedOutline - Continued The Heritage of Operations
Management Operations in the Service Sector
Differences between Goods and Services
Growth of Services Service Pay
Exciting New Trends in Operations Management
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Outline - ContinuedOutline - Continued
The Productivity Challenge Productivity Measurement Productivity Variables Productivity and the Service Sector
Ethics and Social Responsibility
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Learning ObjectivesLearning Objectives
When you complete this chapter When you complete this chapter you should be able to:you should be able to:
1. Define operations management2. Explain the distinction between
goods and services3. Explain the difference between
production and productivity
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Learning ObjectivesLearning Objectives
When you complete this chapter When you complete this chapter you should be able to:you should be able to:
4. Compute single-factor productivity
5. Compute multifactor productivity6. Identify the critical variables in
enhancing productivity
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The Hard Rock CafeThe Hard Rock Cafe
First opened in 1971 Now – 129 restaurants in over 40 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 What Is Operations Management?Management?
ProductionProduction is the creation of goods and services
Operations management (OM)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 Organizing to Produce Goods and ServicesGoods and Services
Essential functions:1.1. MarketingMarketing – generates demand2.2. Production/operationsProduction/operations – creates
the product3.3. Finance/accountingFinance/accounting – tracks how
well the organization is doing, pays bills, collects the money
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Organizational ChartsOrganizational Charts
OperationsTeller SchedulingCheck ClearingCollectionTransaction processingFacilities design/layoutVault operationsMaintenanceSecurity
FinanceInvestmentsSecurityReal estate
Accounting
Auditing
MarketingLoans Commercial Industrial Financial Personal Mortgage
Trust Department
Commercial Bank
Figure 1.1(A)
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Organizational ChartsOrganizational Charts
OperationsGround support equipmentMaintenanceGround Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications DispatchingManagement science
Finance/ accountingAccounting Payables Receivables General LedgerFinance Cash control International exchange
Airline
Figure 1.1(B)
MarketingTraffic administration Reservations Schedules Tariffs (pricing)SalesAdvertising
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MarketingSales promotionAdvertisingSalesMarket research
Organizational ChartsOrganizational Charts
OperationsFacilities Construction; maintenanceProduction and inventory control Scheduling; materials controlQuality assurance and controlSupply-chain managementManufacturing Tooling; fabrication; assemblyDesign Product development and design Detailed product specificationsIndustrial engineering Efficient use of machines, space, and personnelProcess analysis Development and installation of production tools and equipment
Finance/ accountingDisbursements/ credits Receivables Payables General ledgerFunds Management Money market International exchangeCapital requirements Stock issue Bond issue and recall
Manufacturing
Figure 1.1(C)
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Why Study OM?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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Options for Increasing Options for Increasing ContributionContribution
Table 1.1
Sales $100,000 $150,000 $100,000 $100,000Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000Gross Margin 20,000 30,000 20,000 36,000Finance Costs – 6,000 – 6,000 – 3,000 – 6,000Subtotal 14,000 24,000 17,000 30,000Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500
Finance/Marketing Accounting OM
Option Option Option
Increase Reduce ReduceSales Finance Production
Current Revenue 50% Costs 50% Costs 20%
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What Operations What Operations Managers DoManagers Do
Planning Organizing Staffing Leading Controlling
Basic Management FunctionsBasic Management Functions
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Ten Critical DecisionsTen Critical DecisionsTen Decision Areas Chapter(s)1. Design of goods and services 52. Managing quality 6, Supplement 63. Process and capacity 7, Supplement 7
design 4. Location strategy 85. Layout strategy 96. Human resources and 10
job design 7. Supply-chain 11, Supplement 11
management8. Inventory, MRP, JIT 12, 14, 169. Scheduling 13, 1510. Maintenance 17 Table 1.2
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The Critical DecisionsThe Critical Decisions1. 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.)
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The Critical DecisionsThe Critical Decisions3. 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.)
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The Critical DecisionsThe Critical Decisions5. 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.)
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The Critical DecisionsThe Critical Decisions7. 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.)
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The Critical DecisionsThe Critical Decisions9. Intermediate and short–term
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.)
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Where are the OM Jobs?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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OpportunitiesOpportunities
Figure 1.2
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CertificationsCertifications APICS, the American Production and
Inventory Control Society American Society of Quality (ASQ) Institute for Supply Management (ISM) Project Management Institute (PMI) Council of Supply Chain Management
Professionals Charter Institute of Purchasing and
Supply (CIPS)
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Significant Events in OMSignificant Events in OM
Figure 1.3
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The Heritage of OMThe 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)
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The Heritage of OMThe 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)
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Eli WhitneyEli 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
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Frederick W. TaylorFrederick W. Taylor Born 1856; died 1915 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
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Taylor’s PrinciplesTaylor’s Principles
Matching employees to right job Providing the proper training Providing proper work methods and
tools Establishing legitimate incentives for
work to be accomplished
Management Should Take More Management Should Take More Responsibility for:Responsibility for:
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Frank & Lillian GilbrethFrank & 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”
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Born 1863; died 1947 In 1903, created Ford Motor
Company In 1913, first used moving assembly
line to make Model TUnfinished product moved by
conveyor past work station Paid workers very well for 1911
($5/day!)
Henry FordHenry Ford
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W. Edwards DemingW. Edwards Deming Born 1900; died 1993 Engineer and physicist Credited with teaching Japan
quality control methods in post-WW2
Used statistics to analyze process His methods involve workers in
decisions
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Contributions FromContributions From
Human factors Industrial engineering Management science Biological science Physical sciences Information technology
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New Challenges in OMNew Challenges in OM
Global focus Just-in-time Supply-chain
partnering Rapid product
development, alliances
Mass customization
Empowered employees, teams
ToToFromFrom Local or national focus Batch shipments Low bid purchasing
Lengthy product development
Standard products
Job specialization
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Characteristics of GoodsCharacteristics of Goods Tangible product Consistent product
definition Production usually
separate from consumption
Can be inventoried Low customer
interaction
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Characteristics of ServiceCharacteristics 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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Industry and Services as Industry and Services as Percentage of GDPPercentage of GDP
Services Manufacturing
Aus
tral
ia
Can
ada
Chi
na
Cze
ch R
ep
Fran
ce
Ger
man
y
Hon
g K
ong
Japa
n
Mex
ico
Rus
sian
Fed
Sout
h A
fric
a
Spai
n
UK US
90 −80 −70 −60 −50 −40 −30 −20 −10 −
0 −
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Goods and ServicesGoods and ServicesAutomobile
ComputerInstalled carpeting
Fast-food mealRestaurant meal/auto repair
Hospital careAdvertising agency/
investment managementConsulting service/
teachingCounseling
Percent of Product that is a Good Percent of Product that is a Service
100% 75 50 25 0 25 50 75 100%| | | | | | | | |
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120 –
100 –
80 –
60 –
40 –
20 –
0 – | | | | | | |1950 1970 1990 2010 (est)
1960 1980 2000
Empl
oym
ent (
mill
ions
)
Manufacturing and Service Manufacturing and Service EmploymentEmployment
Figure 1.4 (A)
Manufacturing
ServiceService
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Manufacturing Employment Manufacturing Employment and Productionand Production
Figure 1.4 (B)
40 –30 –20 –10 –0 – | | | | | | |
1950 1970 1990 2010 (est)1960 1980 2000
– 150150
– 125125
– 100100
– 7575
– 5050
– 2525
– 00
Empl
oym
ent (
mill
ions
)
Inde
x: 1
997
= 10
0In
dex:
199
7 =
100
Manufacturingemployment
(left scale)
Industrial Industrial productionproduction
(right scale)(right scale)
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Development of the Development of the Service EconomyService Economy
Figure 1.4 (C)
United StatesCanadaFrance
ItalyBritainJapan
W. Germany
1970 2010 (est)
| | | | |
40 50 60 70 80Percent
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Organizations in Each SectorOrganizations in Each SectorService SectorService Sector ExampleExample
% of all % of all JobsJobs
Education, Legal, Medical, other
San Diego Zoo, Arnold Palmer Hospital
25.8
Trade (retail, wholesale)
Walgreen’s, Wal-Mart, Nordstrom’s
14.9
Utilities, Transportation
Pacific Gas & Electric, American Airlines
5.2
Professional and Business Services
Snelling and Snelling, Waste Management, Inc.
10.7
Table 1.3
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Organizations in Each SectorOrganizations in Each SectorService SectorService Sector ExampleExample
% of all % of all JobsJobs
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
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Organizations in Each SectorOrganizations in Each Sector
Other SectorsOther Sectors ExampleExample% of all % of all
JobsJobsManufacturing 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
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Changing ChallengesChanging ChallengesTraditional 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
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Changing ChallengesChanging ChallengesTraditional 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
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Changing ChallengesChanging ChallengesTraditional 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
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New Trends in OMNew 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
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Productivity ChallengeProductivity 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!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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Feedback loop
Outputs
Goods and
services
Transformation
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%).
The Economic SystemThe Economic SystemInputs
Labor,capital,
management
Figure 1.6
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Improving Productivity at Improving Productivity at StarbucksStarbucks
A team of 10 analysts A team of 10 analysts continually look for ways continually look for ways to shave time. Some to shave time. Some improvements: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
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Improving Productivity at Improving Productivity at StarbucksStarbucks
A team of 10 analysts A team of 10 analysts continually look for ways continually look for ways to shave time. Some to shave time. Some improvements: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
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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Measure of process improvement Represents output relative to input Only through productivity increases
can our standard of living improve
ProductivityProductivity
Productivity =Units produced
Input used
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Productivity CalculationsProductivity Calculations
Productivity =Units produced
Labor-hours used
= = 4 units/labor-hour1,000250
Labor ProductivityLabor Productivity
One resource input single-factor productivity
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Multi-Factor Productivity Multi-Factor Productivity
OutputLabor + Material + Energy + Capital + Miscellaneous
Productivity =
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 ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
=Old labor productivity
8 titles/day32 labor-hrs
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Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
8 titles/day32 labor-hrs
=Old labor productivity = .25 titles/labor-hr
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Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/dayNew System:New System:
8 titles/day32 labor-hrs
=Old labor productivity
=New labor productivity
= .25 titles/labor-hr
14 titles/day14 titles/day32 labor-hrs32 labor-hrs
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Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/dayNew System:New System:
8 titles/day32 labor-hrs
=Old labor productivity = .25 titles/labor-hr
14 titles/day32 labor-hrs
=New labor productivity = .4375 titles/labor-hr
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Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/dayNew System:New System:
=Old multifactor productivity
8 titles/day$640 + 400
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Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/dayNew System:New System:
8 titles/day$640 + 400
=Old multifactor productivity = .0077 titles/dollar
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Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/dayNew System:New System:
8 titles/day$640 + 400
=Old multifactor productivity
=New multifactor productivity
= .0077 titles/dollar
14 titles/day14 titles/day$640 + 800$640 + 800
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Collins Title ProductivityCollins Title Productivity
Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day
Old System:Old System:
14 titles/day Overhead = $800/dayNew System:New System:
8 titles/day$640 + 400
14 titles/day$640 + 800
=Old multifactor productivity
=New multifactor productivity
= .0077 titles/dollar
= .0097 titles/dollar
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Measurement ProblemsMeasurement Problems1.1. QualityQuality may change while the
quantity of inputs and outputs remains constant
2.2. External elementsExternal elements may cause an increase or decrease in productivity Precise unitsPrecise units of measure may be
lacking
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Productivity VariablesProductivity Variables1.1. LaborLabor - contributes
about 10% of the annual increase
2.2. CapitalCapital - contributes about 38% of the annual increase
3.3. ManagementManagement - contributes about 52% of the annual increase
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Key Variables for Improved Key Variables for Improved Labor ProductivityLabor Productivity
1. Basic education appropriate for the labor force
2. Diet of the labor force3. Social overhead that makes labor
available Challenge is in maintaining and
enhancing skills in the midst of rapidly changing technology and knowledge
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Labor SkillsLabor SkillsAbout half of the 17-year-olds in the U.S. cannot About half of the 17-year-olds in the U.S. cannot correctly answer questions of this typecorrectly answer questions of this type
Figure 1.7
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Investment and Productivity Investment and Productivity
10
8
6
4
2
0
Perc
ent i
ncre
ase
in p
rodu
ctiv
ity
Percentage investment10 15 20 25 30 35
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Service ProductivityService Productivity
1. Typically labor intensive2. Frequently focused on unique
individual attributes or desires3. Often an intellectual task performed by
professionals4. Often difficult to mechanize5. Often difficult to evaluate for quality
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Productivity at Taco BellProductivity 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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Productivity at Taco BellProductivity 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
Results: Preparation time cut to 8 seconds 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 Conserve 300 million gallons of water and Conserve 300 million gallons of water and
200 million KwH of electricity each year 200 million KwH of electricity each year saving $17 million annuallysaving $17 million annually
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Ethics andEthics andSocial ResponsibilitySocial Responsibility
Challenges facing Challenges facing operations managers:operations managers:
Developing and producing safe, quality products
Maintaining a clean environment Providing a safe workplace Honoring stakeholder commitments
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