Session 1
Transcript of Session 1
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Operations ManagementOperations ManagementSession 1 – Session 1 – Operations and Operations and ProductivityProductivity
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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:
1.1. Define operations managementDefine operations management
2.2. Explain the distinction between Explain the distinction between goods and servicesgoods and services
3.3. Explain the difference between Explain the difference between production and productivityproduction 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:
4.4. Compute single-factor Compute single-factor productivityproductivity
5.5. Compute multifactor productivityCompute multifactor productivity
6.6. Identify the critical variables in Identify the critical variables in enhancing productivityenhancing productivity
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What Is Operations What Is Operations Management?Management?
ProductionProduction is the creation of is the creation of goods and servicesgoods and services
Operations management (OM)Operations management (OM) is the set of activities that is the set of activities that
creates value in the form of creates value in the form of goods and services by goods and services by
transforming inputs into transforming inputs into outputsoutputs
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Organizing to Produce Organizing to Produce Goods and ServicesGoods and Services
Essential functions:Essential functions: Marketing – generates demandMarketing – generates demand
Production/operations – creates Production/operations – creates the productthe product
Finance/accounting – tracks how Finance/accounting – tracks how well the organization is doing, pays well the organization is doing, pays bills, collects the moneybills, collects the money
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Why Study OM?Why Study OM?
OM is one of three major functions OM is one of three major functions (marketing, finance, and operations) (marketing, finance, and operations) of any organizationof any organization
We want (We want (and needand need) to know how ) to know how goods and services are producedgoods and services are produced
We want to understand what We want to understand what operations managers dooperations managers do
OM is such a costly part of an OM is such a costly part of an organizationorganization
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What Operations What Operations Managers DoManagers Do
PlanningPlanning
OrganizingOrganizing
StaffingStaffing
LeadingLeading
ControllingControlling
Basic Management FunctionsBasic Management Functions
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The Critical DecisionsThe Critical Decisions
Design of goods and servicesDesign of goods and services What good or service should we What good or service should we
offer?offer? How should we design these products How should we design these products
and services? and services?
Managing qualityManaging quality How do we define quality?How do we define quality? Who is responsible for quality?Who is responsible for quality?
Table 1.2 (cont.)Table 1.2 (cont.)
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The Critical DecisionsThe Critical Decisions
Process and capacity designProcess and capacity design What process and what capacity will What process and what capacity will
these products require?these products require?
What equipment and technology is What equipment and technology is necessary for these processes?necessary for these processes?
Location strategyLocation strategy Where should we put the facility?Where should we put the facility?
On what criteria should we base the On what criteria should we base the location decision?location decision?
Table 1.2 (cont.)Table 1.2 (cont.)
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The Critical DecisionsThe Critical Decisions Layout strategyLayout strategy
How should we arrange the facility?How should we arrange the facility?
How large must the facility be to meet How large must the facility be to meet our plan?our plan?
Human resources and job designHuman resources and job design How do we provide a reasonable work How do we provide a reasonable work
environment?environment?
How much can we expect our How much can we expect our employees to produce?employees to produce?
Table 1.2 (cont.)Table 1.2 (cont.)
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The Critical DecisionsThe Critical Decisions
Supply chain managementSupply chain management Should we make or buy this component?Should we make or buy this component?
Who are our suppliers and who can Who are our suppliers and who can integrate into our e-commerce program?integrate into our e-commerce program?
Inventory, material requirements Inventory, material requirements planning, and JITplanning, and JIT How much inventory of each item should How much inventory of each item should
we have?we have?
When do we re-order?When do we re-order?Table 1.2 (cont.)Table 1.2 (cont.)
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The Critical DecisionsThe Critical Decisions
Intermediate and shortIntermediate and short––term term schedulingscheduling Are we better off keeping people on Are we better off keeping people on
the payroll during slowdowns?the payroll during slowdowns?
Which jobs do we perform next?Which jobs do we perform next?
MaintenanceMaintenance Who is responsible for maintenance?Who is responsible for maintenance?
When do we do maintenance?When do we do maintenance?
Table 1.2 (cont.)Table 1.2 (cont.)
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Where are the OM Jobs?Where are the OM Jobs?
Technology/methodsTechnology/methods Facilities/space utilizationFacilities/space utilization Strategic issuesStrategic issues Response timeResponse time People/team developmentPeople/team development Customer serviceCustomer service QualityQuality Cost reductionCost reduction Inventory reductionInventory reduction Productivity improvementProductivity improvement
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The Heritage of OMThe Heritage of OM
Division of labor (Adam Smith 1776; Division of labor (Adam Smith 1776; Charles Babbage 1852)Charles Babbage 1852)
Standardized parts (Whitney 1800)Standardized parts (Whitney 1800)
Scientific Management (Taylor 1881)Scientific Management (Taylor 1881)
Coordinated assembly line (Ford/ Coordinated assembly line (Ford/ Sorenson 1913)Sorenson 1913)
Gantt charts (Gantt 1916)Gantt charts (Gantt 1916)
Motion study (Frank and Lillian Gilbreth Motion study (Frank and Lillian Gilbreth 1922)1922)
Quality control (Shewhart 1924; Deming Quality control (Shewhart 1924; Deming 1950)1950)
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The Heritage of OMThe Heritage of OM
Computer (Atanasoff 1938)Computer (Atanasoff 1938)
CPM/PERT (DuPont 1957)CPM/PERT (DuPont 1957)
Material requirements planning (Orlicky Material requirements planning (Orlicky 1960)1960)
Computer aided design (CAD 1970)Computer aided design (CAD 1970)
Flexible manufacturing system (FMS 1975)Flexible manufacturing system (FMS 1975)
Baldrige Quality Awards (1980)Baldrige Quality Awards (1980)
Computer integrated manufacturing (1990)Computer integrated manufacturing (1990)
Globalization (1992)Globalization (1992)
Internet (1995)Internet (1995)
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Taylor’s PrinciplesTaylor’s Principles
Matching employees to right jobMatching employees to right job
Providing the proper trainingProviding the proper training
Providing proper work methods and Providing proper work methods and toolstools
Establishing legitimate incentives for Establishing legitimate incentives for work to be accomplishedwork to be accomplished
Management Should Take More Management Should Take More Responsibility for:Responsibility for:
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Born 1863; died 1947Born 1863; died 1947
In 1903, created Ford Motor In 1903, created Ford Motor CompanyCompany
In 1913, first used moving assembly In 1913, first used moving assembly line to make Model Tline to make Model TUnfinished product moved by Unfinished product moved by
conveyor past work stationconveyor past work station
Paid workers very well for 1911 Paid workers very well for 1911 ($5/day!)($5/day!)
Henry FordHenry Ford
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W. Edwards DemingW. Edwards Deming
Born 1900; died 1993Born 1900; died 1993
Engineer and physicistEngineer and physicist
Credited with teaching Japan Credited with teaching Japan quality control methods in post-quality control methods in post-WW2WW2
Used statistics to analyze processUsed statistics to analyze process
His methods involve workers in His methods involve workers in decisionsdecisions
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Contributions FromContributions From
Human factorsHuman factors
Industrial engineeringIndustrial engineering
Management scienceManagement science
Biological scienceBiological science
Physical sciencesPhysical sciences
Information technology Information technology
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New Challenges in OMNew Challenges in OM
Global focusGlobal focus
Just-in-timeJust-in-time
Supply chain Supply chain partneringpartnering
Rapid product Rapid product development, development, alliancesalliances
Mass Mass customizationcustomization
Empowered Empowered employees, teamsemployees, teams
ToToFromFrom Local or national focusLocal or national focus
Batch shipmentsBatch shipments
Low bid purchasingLow bid purchasing
Lengthy product Lengthy product developmentdevelopment
Standard productsStandard products
Job specializationJob specialization
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Characteristics of GoodsCharacteristics of Goods
Tangible productTangible product
Consistent product Consistent product definitiondefinition
Production usually Production usually separate from separate from consumptionconsumption
Can be inventoriedCan be inventoried
Low customer Low customer interactioninteraction
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Characteristics of ServiceCharacteristics of Service Intangible productIntangible product
Produced and Produced and consumed at same timeconsumed at same time
Often uniqueOften unique
High customer High customer interactioninteraction
Inconsistent product Inconsistent product definitiondefinition
Often knowledge-basedOften knowledge-based
Frequently dispersedFrequently dispersed
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Industry and Services as Industry and Services as Percentage of GDPPercentage of GDP
ServicesServices ManufacturingManufacturing
Au
stra
liaA
ust
ralia
Can
ada
Can
ada
Ch
ina
Ch
ina
Cze
ch R
epC
zech
Rep
Fra
nce
Fra
nce
Ger
man
yG
erm
any
Ho
ng
Ko
ng
Ho
ng
Ko
ng
Jap
anJa
pan
Mex
ico
Mex
ico
Ru
ssia
n F
edR
uss
ian
Fed
So
uth
Afr
ica
So
uth
Afr
ica
Sp
ain
Sp
ain
UK
UK
US
US
90 90 −
80 80 −
70 70 −
60 60 −
50 50 −
40 40 −
30 30 −
20 20 −
10 10 −
00 −
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Goods Versus ServicesGoods Versus Services
Table 1.3Table 1.3
Can be resoldCan be resold
Can be inventoriedCan be inventoried
Some aspects of quality Some aspects of quality measurablemeasurable
Selling is distinct from Selling is distinct from productionproduction
Product is transportableProduct is transportable
Site of facility important for costSite of facility important for cost
Often easy to automateOften easy to automate
Revenue generated primarily Revenue generated primarily from tangible productfrom tangible product
Attributes of GoodsAttributes of Goods(Tangible Product)(Tangible Product)
Attributes of ServicesAttributes of Services (Intangible Product) (Intangible Product)
Reselling unusualReselling unusual
Difficult to inventoryDifficult to inventory
Quality difficult to measureQuality difficult to measure
Selling is part of service Selling is part of service
Provider, not product, isProvider, not product, isoften transportableoften transportable
Site of facility important forSite of facility important forcustomer contactcustomer contact
Often difficult to automateOften difficult to automate
Revenue generated primarily Revenue generated primarily from the intangible servicefrom the intangible service
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Goods and ServicesGoods and ServicesAutomobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/investment management
Consulting service/teaching
Counseling
Percent of Product that is a GoodPercent of Product that is a Good Percent of Product that is a ServicePercent of Product that is a Service
100%100% 7575 5050 2525 00 2525 5050 7575 100%100%|| || || || || || || || ||
Figure 1.4Figure 1.4
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120120 –
100 100 –
80 80 –
60 60 –
40 40 –
20 20 –
0 0 –| | | | | | |
19501950 19701970 19901990 2010 (est)2010 (est)19601960 19801980 20002000
Em
plo
ymen
t (m
illi
on
s)E
mp
loym
ent
(mil
lio
ns)
Manufacturing and Service Manufacturing and Service EmploymentEmployment
Figure 1.5 (A)Figure 1.5 (A)
ManufacturingManufacturing
ServiceService
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Manufacturing Employment Manufacturing Employment and Productionand Production
Figure 1.5 (B)Figure 1.5 (B)
40 40 –
30 30 –
20 20 –
10 10 –
0 0 – | | | | | | |19501950 19701970 19901990 2010 (est)2010 (est)
19601960 19801980 20002000
– 150150
– 125125
– 100100
– 7575
– 5050
– 2525
– 00
Em
plo
ymen
t (m
illi
on
s)E
mp
loym
ent
(mil
lio
ns)
In
dex
: 19
97 =
100
Ind
ex:
1997
= 1
00
Manufacturingemployment
(left scale)
Industrial Industrial productionproduction
(right scale)(right scale)
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Organizations in Each SectorOrganizations in Each SectorManufacturing Manufacturing SectorSector ExampleExample
% of all % of all JobsJobs
ManufacturingManufacturing General Electric, Ford, General Electric, Ford, U.S. Steel, IntelU.S. Steel, Intel
11.511.5
ConstructionConstruction Bechtel, McDermottBechtel, McDermott 7.97.9
AgricultureAgriculture King RanchKing Ranch 1.61.6
MiningMining Homestake MiningHomestake Mining 0.40.4
SectorSector Percent of all jobsPercent of all jobs
ServiceService 78.6%78.6%
ManufacturingManufacturing 21.4%21.4%
Table 1.4Table 1.4
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New Trends in OMNew Trends in OM
Local or Local or national national focusfocus
Reliable worldwide Reliable worldwide communication and communication and transportation networkstransportation networks
Global focus, Global focus, moving moving production production offshoreoffshore
Batch (large) Batch (large) shipmentsshipments
Short product life cycles Short product life cycles and cost of capital put and cost of capital put pressure on reducing pressure on reducing inventoryinventory
Just-in-time Just-in-time performanceperformance
Low-bid Low-bid purchasingpurchasing
Supply chain competition Supply chain competition requires that suppliers be requires that suppliers be engaged in a focus on the engaged in a focus on the end customerend customer
Supply chain Supply chain partners, partners, collaboration, collaboration, alliances, alliances, outsourcingoutsourcing
Figure 1.6Figure 1.6
PastPast CausesCauses FutureFuture
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New Trends in OMNew Trends in OM
Lengthy Lengthy product product developmentdevelopment
Shorter life cycles, Shorter life cycles, Internet, rapid international Internet, rapid international communication, computer-communication, computer-aided design, and aided design, and international collaborationinternational collaboration
Rapid product Rapid product development, development, alliances, alliances, collaborative collaborative designsdesigns
Standardized Standardized productsproducts
Affluence and worldwide Affluence and worldwide markets; increasingly markets; increasingly flexible production flexible production processesprocesses
Mass Mass customization customization with added with added emphasis on emphasis on qualityquality
Job Job specializationspecialization
Changing socioculture Changing socioculture milieu; increasingly a milieu; increasingly a knowledge and information knowledge and information societysociety
Empowered Empowered employees, employees, teams, and lean teams, and lean productionproduction
Figure 1.6Figure 1.6
PastPast CausesCauses FutureFuture
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New Trends in OMNew Trends in OM
Low-cost Low-cost focusfocus
Environmental issues, ISO Environmental issues, ISO 14000, increasing disposal 14000, increasing disposal costscosts
Environmentally Environmentally sensitive sensitive production, green production, green manufacturing, manufacturing, recycled recycled materials, materials, remanufacturingremanufacturing
Ethics not Ethics not at forefrontat forefront
Businesses operate more Businesses operate more openly; public and global openly; public and global review of ethics; opposition review of ethics; opposition to child labor, bribery, to child labor, bribery, pollutionpollution
High ethical High ethical standards and standards and social social responsibility responsibility expectedexpected
Figure 1.6Figure 1.6
PastPast CausesCauses FutureFuture
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New Trends in OMNew Trends in OM
Global focusGlobal focus Just-in-time performanceJust-in-time performance Supply chain partneringSupply chain partnering Rapid product developmentRapid product development Mass customizationMass customization Empowered employeesEmpowered employees Environmentally sensitive productionEnvironmentally sensitive production EthicsEthics
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Productivity ChallengeProductivity Challenge
Productivity is the ratio of outputs (goods Productivity is the ratio of outputs (goods and services) divided by the inputs and services) divided by the inputs
(resources such as labor and capital)(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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FeedbackFeedback looploop
OutputsOutputs
Goods and
services
ProcessesProcesses
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 System
InputsInputs
Labor,capital,
management
Figure 1.7Figure 1.7
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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 Stop requiring signatures on credit card purchases on credit card purchases under $25under $25
Saved 8 seconds Saved 8 seconds per transactionper transaction
Change the size of the ice Change the size of the ice scoopscoop
Saved 14 seconds Saved 14 seconds per drinkper drink
New espresso machinesNew espresso machines Saved 12 seconds Saved 12 seconds per shotper shot
© 2008 Prentice Hall, Inc. 1 – 36
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 Stop requiring signatures on credit card purchases on credit card purchases under $25under $25
Saved 8 seconds Saved 8 seconds per transactionper transaction
Change the size of the ice Change the size of the ice scoopscoop
Saved 14 seconds Saved 14 seconds per drinkper drink
New espresso machinesNew espresso machines Saved 12 seconds Saved 12 seconds per shotper shot
Operations improvements have Operations improvements have helped Starbucks increase yearly helped Starbucks increase yearly revenue per outlet by $200,000 to revenue per outlet by $200,000 to $940,000 in six years.$940,000 in six years.
Productivity has improved by 27%, Productivity has improved by 27%, or about 4.5% per year.or about 4.5% per year.
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Measure of process improvementMeasure of process improvement
Represents output relative to inputRepresents output relative to input
Only through productivity increases Only through productivity increases can our standard of living improvecan our standard of living improve
ProductivityProductivity
Productivity =Productivity =Units producedUnits produced
Input usedInput used
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Productivity CalculationsProductivity Calculations
Productivity =Productivity =Units producedUnits produced
Labor-hours usedLabor-hours used
= = = = 44 units/labor-hour units/labor-hour1,0001,000
250250
Labor ProductivityLabor Productivity
One resource input One resource input single-factor productivity single-factor productivity
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Multi-Factor Productivity Multi-Factor Productivity
OutputOutput
Labor + Material + Energy Labor + Material + Energy + Capital + Miscellaneous+ Capital + Miscellaneous
Productivity =Productivity =
Also known as total factor productivityAlso known as total factor productivity
Output and inputs are often expressed Output and inputs are often expressed in dollarsin dollars
Multiple resource inputs Multiple resource inputs multi-factor productivity multi-factor productivity
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Measurement ProblemsMeasurement Problems
QualityQuality may change while the may change while the quantity of inputs and outputs quantity of inputs and outputs remains constantremains constant
External elementsExternal elements may cause an may cause an increase or decrease in productivityincrease or decrease in productivity
Precise unitsPrecise units of measure may be of measure may be lackinglacking
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Productivity VariablesProductivity Variables
LaborLabor - contributes - contributes about about 10%10% of the of the annual increaseannual increase
CapitalCapital - contributes - contributes about about 38%38% of the of the annual increaseannual increase
ManagementManagement - - contributes about contributes about 52%52% of the annual increaseof the annual increase
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Key Variables for Improved Key Variables for Improved Labor ProductivityLabor Productivity
Basic education appropriate for the Basic education appropriate for the labor forcelabor force
Diet of the labor forceDiet of the labor force
Social overhead that makes labor Social overhead that makes labor availableavailable
Maintaining and enhancing skills in the Maintaining and enhancing skills in the midst of rapidly changing technology midst of rapidly changing technology and knowledgeand knowledge
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Labor SkillsLabor Skills
About half of the 17-year-olds in the US cannot About half of the 17-year-olds in the US cannot correctly answer questions of this typecorrectly answer questions of this type
Figure 1.8Figure 1.8
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Investment and Productivity Investment and Productivity
1010
88
66
44
22
00
Per
cen
t in
crea
se in
pro
du
ctiv
ity
Per
cen
t in
crea
se in
pro
du
ctiv
ity
Percentage investmentPercentage investment
1010 1515 2020 2525 3030 3535
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Service ProductivityService Productivity
Typically labor intensiveTypically labor intensive
Frequently focused on unique Frequently focused on unique individual attributes or desiresindividual attributes or desires
Often an intellectual task performed by Often an intellectual task performed by professionalsprofessionals
Often difficult to mechanizeOften difficult to mechanize
Often difficult to evaluate for qualityOften difficult to evaluate for quality
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Productivity at Taco BellProductivity at Taco Bell
Improvements:Improvements: Revised the menu Revised the menu Designed meals for easy preparationDesigned meals for easy preparation Shifted some preparation to suppliersShifted some preparation to suppliers Efficient layout and automationEfficient layout and automation Training and employee empowermentTraining and employee empowerment
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Productivity at Taco BellProductivity at Taco Bell
Improvements:Improvements: Revised the menu Revised the menu Designed meals for easy preparationDesigned meals for easy preparation Shifted some preparation to suppliersShifted some preparation to suppliers Efficient layout and automationEfficient layout and automation Training and employee empowermentTraining and employee empowerment
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 Fast-food low-cost leader
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Ethics and Social ResponsibilityEthics and Social Responsibility
Challenges facing Challenges facing operations managers:operations managers:
Developing and producing safe, Developing and producing safe, quality productsquality products
Maintaining a clean environmentMaintaining a clean environment
Providing a safe workplaceProviding a safe workplace
Honoring community commitmentsHonoring community commitments