ch01 of Operations Management in engineering.ppt
HamzaNaeem93
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Feb 25, 2025
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About This Presentation
Operations Management
Slide Content
© 2006 Prentice Hall, Inc. 1 – 1
Operations
Management
Chapter 1 –
Operations and Productivity
© 2006 Prentice Hall, Inc.
PowerPoint presentation to accompanyPowerPoint presentation to accompany
Heizer/Render Heizer/Render
Principles of Operations Management, 6ePrinciples of Operations Management, 6e
Operations Management, 8e Operations Management, 8e
Operations
Management
Chapter 1 –
Operations and Productivity
© 2006 Prentice Hall, Inc.
PowerPoint presentation to accompanyPowerPoint presentation to accompany
Heizer/Render Heizer/Render
Principles of Operations Management, 6ePrinciples of Operations Management, 6e
Operations Management, 8e Operations Management, 8e
© 2006 Prentice Hall, Inc. 1 – 2
OutlineOutline
Global Company Profile: Hard Rock Global Company Profile: Hard Rock
CafeCafe
What Is Operations Management?What Is Operations Management?
Organizing To Produce Goods And Organizing To Produce Goods And
Services Services
Why Study OM?Why Study OM?
What Operations Managers DoWhat Operations Managers Do
How This Book Is OrganizedHow This Book Is Organized
OutlineOutline
Global Company Profile: Hard Rock Global Company Profile: Hard Rock
CafeCafe
What Is Operations Management?What Is Operations Management?
Organizing To Produce Goods And Organizing To Produce Goods And
Services Services
Why Study OM?Why Study OM?
What Operations Managers DoWhat Operations Managers Do
How This Book Is OrganizedHow This Book Is Organized
© 2006 Prentice Hall, Inc. 1 – 3
Outline - ContinuedOutline - Continued
The Heritage Of Operations The Heritage Of Operations
ManagementManagement
Operations In The Service SectorOperations In The Service Sector
Differences Between Goods And Differences Between Goods And
ServicesServices
Growth Of ServicesGrowth Of Services
Service PayService Pay
Exciting New Trends In Operations Exciting New Trends In Operations
ManagementManagement
Outline - ContinuedOutline - Continued
The Heritage Of Operations The Heritage Of Operations
ManagementManagement
Operations In The Service SectorOperations In The Service Sector
Differences Between Goods And Differences Between Goods And
ServicesServices
Growth Of ServicesGrowth Of Services
Service PayService Pay
Exciting New Trends In Operations Exciting New Trends In Operations
ManagementManagement
© 2006 Prentice Hall, Inc. 1 – 4
Outline - ContinuedOutline - Continued
The Productivity ChallengeThe Productivity Challenge
Productivity MeasurementProductivity Measurement
Productivity VariablesProductivity Variables
Productivity And The Service Sector Productivity And The Service Sector
Ethics And Social ResponsibilityEthics And Social Responsibility
Outline - ContinuedOutline - Continued
The Productivity ChallengeThe Productivity Challenge
Productivity MeasurementProductivity Measurement
Productivity VariablesProductivity Variables
Productivity And The Service Sector Productivity And The Service Sector
Ethics And Social ResponsibilityEthics And Social Responsibility
© 2006 Prentice Hall, Inc. 1 – 5
Learning ObjectivesLearning Objectives
When you complete this chapter, When you complete this chapter,
you should be able to:you should be able to:
Identify or DefineIdentify or Define::
Production and productivityProduction and productivity
Operations management (OM)Operations management (OM)
What operations managers doWhat operations managers do
ServicesServices
Learning ObjectivesLearning Objectives
When you complete this chapter, When you complete this chapter,
you should be able to:you should be able to:
Identify or DefineIdentify or Define::
Production and productivityProduction and productivity
Operations management (OM)Operations management (OM)
What operations managers doWhat operations managers do
ServicesServices
© 2006 Prentice Hall, Inc. 1 – 6
Learning ObjectivesLearning Objectives
When you complete this chapter, When you complete this chapter,
you should be able to:you should be able to:
Describe or ExplainDescribe or Explain ::
A brief history of operations A brief history of operations
managementmanagement
Career opportunities in operations Career opportunities in operations
managementmanagement
The future of the disciplineThe future of the discipline
Measuring productivityMeasuring productivity
Learning ObjectivesLearning Objectives
When you complete this chapter, When you complete this chapter,
you should be able to:you should be able to:
Describe or ExplainDescribe or Explain ::
A brief history of operations A brief history of operations
managementmanagement
Career opportunities in operations Career opportunities in operations
managementmanagement
The future of the disciplineThe future of the discipline
Measuring productivityMeasuring productivity
© 2006 Prentice Hall, Inc. 1 – 7
The Hard Rock CafeThe Hard Rock Cafe
First opened in 1971First opened in 1971
Now – 110 restaurants in over 40 countriesNow – 110 restaurants in over 40 countries
Rock music memorabiliaRock music memorabilia
Creates value in the form of good food Creates value in the form of good food
and entertainmentand entertainment
3,5003,500
++
custom meals per day in Orlando custom meals per day in Orlando
How does an item get on the menu?How does an item get on the menu?
Role of the Operations ManagerRole of the Operations Manager
The Hard Rock CafeThe Hard Rock Cafe
First opened in 1971First opened in 1971
Now – 110 restaurants in over 40 countriesNow – 110 restaurants in over 40 countries
Rock music memorabiliaRock music memorabilia
Creates value in the form of good food Creates value in the form of good food
and entertainmentand entertainment
3,5003,500
++
custom meals per day in Orlando custom meals per day in Orlando
How does an item get on the menu?How does an item get on the menu?
Role of the Operations ManagerRole of the Operations Manager
© 2006 Prentice Hall, Inc. 1 – 8
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 is
the set of activities that creates the set of activities that creates
value in the form of goods and value in the form of goods and
services by transforming inputs services by transforming inputs
into outputsinto outputs
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 is
the set of activities that creates the set of activities that creates
value in the form of goods and value in the form of goods and
services by transforming inputs services by transforming inputs
into outputsinto outputs
© 2006 Prentice Hall, Inc. 1 – 9
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
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
© 2006 Prentice Hall, Inc. 1 – 10
Organizational ChartsOrganizational Charts
Operations
Teller
Scheduling
Check Clearing
Collection
Transaction
processing
Facilities
design/layout
Vault operations
Maintenance
Security
Finance
Investments
Security
Real estate
Accounting
Auditing
Marketing
Loans
Commercial
Industrial
Financial
Personal
Mortgage
Trust Department
Commercial Bank
Figure 1.1(A)Figure 1.1(A)
Organizational ChartsOrganizational Charts
Operations
Teller
Scheduling
Check Clearing
Collection
Transaction
processing
Facilities
design/layout
Vault operations
Maintenance
Security
Finance
Investments
Security
Real estate
Accounting
Auditing
Marketing
Loans
Commercial
Industrial
Financial
Personal
Mortgage
Trust Department
Commercial Bank
Figure 1.1(A)Figure 1.1(A)
© 2006 Prentice Hall, Inc. 1 – 11
Organizational ChartsOrganizational Charts
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
Airline
Figure 1.1(B)Figure 1.1(B)
Marketing
Traffic
administration
Reservations
Schedules
Tariffs (pricing)
Sales
Advertising
Organizational ChartsOrganizational Charts
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
Airline
Figure 1.1(B)Figure 1.1(B)
Marketing
Traffic
administration
Reservations
Schedules
Tariffs (pricing)
Sales
Advertising
© 2006 Prentice Hall, Inc. 1 – 12
Marketing
Sales
promotion
Advertising
Sales
Market
research
Organizational ChartsOrganizational Charts
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
Manufacturing
Figure 1.1(C)Figure 1.1(C)
Marketing
Sales
promotion
Advertising
Sales
Market
research
Organizational ChartsOrganizational Charts
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
Manufacturing
Figure 1.1(C)Figure 1.1(C)
© 2006 Prentice Hall, Inc. 1 – 13
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
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
© 2006 Prentice Hall, Inc. 1 – 14
Options for Increasing Options for Increasing
ContributionContribution
SalesSales $100,000$100,000 $150,000$150,000 $100,000$100,000 $100,000$100,000
Cost of Goods Cost of Goods –– 80,000 80,000 –– 120,000 120,000 –– 80,000 80,000 –– 64,000 64,000
Gross MarginGross Margin 20,00020,000 30,00030,000 20,00020,000 36,00036,000
Finance CostsFinance Costs –– 6,000 6,000 –– 6,000 6,000 –– 3,000 3,000 –– 6,000 6,000
SubtotalSubtotal 14,00014,000 24,00024,000 17,00017,000 30,00030,000
Taxes at 25%Taxes at 25% –– 3,500 3,500 –– 6,000 6,000 –– 4,250 4,250 –– 7,500 7,500
ContributionContribution $ 10,500$ 10,500 $ 18,000$ 18,000 $ 12,750$ 12,750 $ 22,500$ 22,500
Finance/Finance/
MarketingMarketingAccountingAccounting OMOM
OptionOption OptionOption OptionOption
IncreaseIncrease ReduceReduce ReduceReduce
SalesSales FinanceFinance ProductionProduction
CurrentCurrentRevenue 50%Revenue 50%Costs 50%Costs 50% Costs 20%Costs 20%
Options for Increasing Options for Increasing
ContributionContribution
SalesSales $100,000$100,000 $150,000$150,000 $100,000$100,000 $100,000$100,000
Cost of Goods Cost of Goods –– 80,000 80,000 –– 120,000 120,000 –– 80,000 80,000 –– 64,000 64,000
Gross MarginGross Margin 20,00020,000 30,00030,000 20,00020,000 36,00036,000
Finance CostsFinance Costs –– 6,000 6,000 –– 6,000 6,000 –– 3,000 3,000 –– 6,000 6,000
SubtotalSubtotal 14,00014,000 24,00024,000 17,00017,000 30,00030,000
Taxes at 25%Taxes at 25% –– 3,500 3,500 –– 6,000 6,000 –– 4,250 4,250 –– 7,500 7,500
ContributionContribution $ 10,500$ 10,500 $ 18,000$ 18,000 $ 12,750$ 12,750 $ 22,500$ 22,500
Finance/Finance/
MarketingMarketingAccountingAccounting OMOM
OptionOption OptionOption OptionOption
IncreaseIncrease ReduceReduce ReduceReduce
SalesSales FinanceFinance ProductionProduction
CurrentCurrentRevenue 50%Revenue 50%Costs 50%Costs 50% Costs 20%Costs 20%
© 2006 Prentice Hall, Inc. 1 – 15
What Operations What Operations
Managers DoManagers Do
PlanningPlanning
OrganizingOrganizing
StaffingStaffing
LeadingLeading
ControllingControlling
Basic Management FunctionsBasic Management Functions
What Operations What Operations
Managers DoManagers Do
PlanningPlanning
OrganizingOrganizing
StaffingStaffing
LeadingLeading
ControllingControlling
Basic Management FunctionsBasic Management Functions
© 2006 Prentice Hall, Inc. 1 – 16
Ten Critical DecisionsTen Critical Decisions
Ten Decision AreasTen Decision Areas Chapter(s)Chapter(s)
Service and product designService and product design 55
Quality managementQuality management 66
6 Supplement6 Supplement
Process and capacity Process and capacity 77
design design 7 Supplement7 Supplement
LocationLocation 88
Layout designLayout design 99
Human resources, Human resources, 1010
job design job design 10 Supplement10 Supplement
Supply-chain Supply-chain 1111
management management 11 Supplement11 Supplement
Inventory managementInventory management 12, 14, 1612, 14, 16
SchedulingScheduling 13, 1513, 15
MaintenanceMaintenance 1717
Table 1.2Table 1.2
Ten Critical DecisionsTen Critical Decisions
Ten Decision AreasTen Decision Areas Chapter(s)Chapter(s)
Service and product designService and product design 55
Quality managementQuality management 66
6 Supplement6 Supplement
Process and capacity Process and capacity 77
design design 7 Supplement7 Supplement
LocationLocation 88
Layout designLayout design 99
Human resources, Human resources, 1010
job design job design 10 Supplement10 Supplement
Supply-chain Supply-chain 1111
management management 11 Supplement11 Supplement
Inventory managementInventory management 12, 14, 1612, 14, 16
SchedulingScheduling 13, 1513, 15
MaintenanceMaintenance 1717
Table 1.2Table 1.2
© 2006 Prentice Hall, Inc. 1 – 17
The Critical DecisionsThe Critical Decisions
Service and product designService and product design
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?
Quality managementQuality management
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.)
The Critical DecisionsThe Critical Decisions
Service and product designService and product design
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?
Quality managementQuality management
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.)
© 2006 Prentice Hall, Inc. 1 – 18
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?
LocationLocation
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.)
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?
LocationLocation
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.)
© 2006 Prentice Hall, Inc. 1 – 19
The Critical DecisionsThe Critical Decisions
Layout designLayout design
How should we arrange the facility How should we arrange the facility
and material flow?and material flow?
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.)
The Critical DecisionsThe Critical Decisions
Layout designLayout design
How should we arrange the facility How should we arrange the facility
and material flow?and material flow?
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.)
© 2006 Prentice Hall, Inc. 1 – 20
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.)
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.)
© 2006 Prentice Hall, Inc. 1 – 21
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.)
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.)
© 2006 Prentice Hall, Inc. 1 – 22
Where are the OM Jobs?Where are the OM Jobs?
Figure 1.2Figure 1.2
Where are the OM Jobs?Where are the OM Jobs?
Figure 1.2Figure 1.2
© 2006 Prentice Hall, Inc. 1 – 23
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
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
© 2006 Prentice Hall, Inc. 1 – 24
Significant Events in OMSignificant Events in OM
Figure 1.3Figure 1.3
Significant Events in OMSignificant Events in OM
Figure 1.3Figure 1.3
© 2006 Prentice Hall, Inc. 1 – 25
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/Avery 1913)Sorenson/Avery 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)
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/Avery 1913)Sorenson/Avery 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)
© 2006 Prentice Hall, Inc. 1 – 26
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)
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)
© 2006 Prentice Hall, Inc. 1 – 27
Eli WhitneyEli Whitney
Born 1765; died 1825Born 1765; died 1825
In 1798, received government In 1798, received government
contract to make 10,000 musketscontract to make 10,000 muskets
Showed that machine tools could Showed that machine tools could
make standardized parts to exact make standardized parts to exact
specificationsspecifications
Musket parts could be used in any Musket parts could be used in any
musketmusket
Eli WhitneyEli Whitney
Born 1765; died 1825Born 1765; died 1825
In 1798, received government In 1798, received government
contract to make 10,000 musketscontract to make 10,000 muskets
Showed that machine tools could Showed that machine tools could
make standardized parts to exact make standardized parts to exact
specificationsspecifications
Musket parts could be used in any Musket parts could be used in any
musketmusket
© 2006 Prentice Hall, Inc. 1 – 28
Frederick W. TaylorFrederick W. Taylor
Born 1856; died 1915Born 1856; died 1915
Known as ‘father of scientific Known as ‘father of scientific
management’management’
In 1881, as chief engineer for In 1881, as chief engineer for
Midvale Steel, studied how tasks Midvale Steel, studied how tasks
were donewere done
Began first motion and time studiesBegan first motion and time studies
Created efficiency principlesCreated efficiency principles
Frederick W. TaylorFrederick W. Taylor
Born 1856; died 1915Born 1856; died 1915
Known as ‘father of scientific Known as ‘father of scientific
management’management’
In 1881, as chief engineer for In 1881, as chief engineer for
Midvale Steel, studied how tasks Midvale Steel, studied how tasks
were donewere done
Began first motion and time studiesBegan first motion and time studies
Created efficiency principlesCreated efficiency principles
© 2006 Prentice Hall, Inc. 1 – 29
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:
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:
© 2006 Prentice Hall, Inc. 1 – 30
Frank & Lillian GilbrethFrank & Lillian Gilbreth
Frank (1868-1924); Lillian (1878-1972)Frank (1868-1924); Lillian (1878-1972)
Husband-and-wife engineering teamHusband-and-wife engineering team
Further developed work Further developed work
measurement methodsmeasurement methods
Applied efficiency methods to their Applied efficiency methods to their
home and 12 children! home and 12 children!
Book & Movie: “Cheaper by the Book & Movie: “Cheaper by the
Dozen,” book: “Bells on Their Toes”Dozen,” book: “Bells on Their Toes”
Frank & Lillian GilbrethFrank & Lillian Gilbreth
Frank (1868-1924); Lillian (1878-1972)Frank (1868-1924); Lillian (1878-1972)
Husband-and-wife engineering teamHusband-and-wife engineering team
Further developed work Further developed work
measurement methodsmeasurement methods
Applied efficiency methods to their Applied efficiency methods to their
home and 12 children! home and 12 children!
Book & Movie: “Cheaper by the Book & Movie: “Cheaper by the
Dozen,” book: “Bells on Their Toes”Dozen,” book: “Bells on Their Toes”
© 2006 Prentice Hall, Inc. 1 – 31
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 T
Unfinished 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
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 T
Unfinished 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
© 2006 Prentice Hall, Inc. 1 – 32
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
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
© 2006 Prentice Hall, Inc. 1 – 33
Contributions FromContributions From
Human factorsHuman factors
Industrial engineeringIndustrial engineering
Management scienceManagement science
Biological scienceBiological science
Physical sciencesPhysical sciences
Information science Information science
Contributions FromContributions From
Human factorsHuman factors
Industrial engineeringIndustrial engineering
Management scienceManagement science
Biological scienceBiological science
Physical sciencesPhysical sciences
Information science Information science
© 2006 Prentice Hall, Inc. 1 – 34
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
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
© 2006 Prentice Hall, Inc. 1 – 35
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
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
© 2006 Prentice Hall, Inc. 1 – 36
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
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
© 2006 Prentice Hall, Inc. 1 – 37
Industry and Services as Industry and Services as
Percentage of GDPPercentage of GDP
ServicesServices ManufacturingManufacturing
A
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U
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90 90 −
80 80 −
70 70 −
60 60 −
50 50 −
40 40 −
30 30 −
20 20 −
10 10 −
00 −
Industry and Services as Industry and Services as
Percentage of GDPPercentage of GDP
ServicesServices ManufacturingManufacturing
A
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S
p
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S
p
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U
K
U
K
U
S
U
S
90 90 −
80 80 −
70 70 −
60 60 −
50 50 −
40 40 −
30 30 −
20 20 −
10 10 −
00 −
© 2006 Prentice Hall, Inc. 1 – 38
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, is
often transportableoften transportable
Site of facility important forSite of facility important for
customer contactcustomer contact
Often difficult to automateOften difficult to automate
Revenue generated primarily Revenue generated primarily
from the intangible servicefrom the intangible service
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, is
often transportableoften transportable
Site of facility important forSite of facility important for
customer contactcustomer contact
Often difficult to automateOften difficult to automate
Revenue generated primarily Revenue generated primarily
from the intangible servicefrom the intangible service
© 2006 Prentice Hall, Inc. 1 – 39
Goods and ServicesGoods and Services
Automobile
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 GoodPercent of Product that is a ServicePercent of Product that is a Service
100%100% 7575 5050 2525 00 2525 5050 7575100%100%
|| || || || || || || || ||
Figure 1.4Figure 1.4
Goods and ServicesGoods and Services
Automobile
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 GoodPercent of Product that is a ServicePercent of Product that is a Service
100%100% 7575 5050 2525 00 2525 5050 7575100%100%
|| || || || || || || || ||
Figure 1.4Figure 1.4
© 2006 Prentice Hall, Inc. 1 – 40
Organizations in Each SectorOrganizations in Each Sector
Service SectorService Sector ExampleExample
% of all % of all
JobsJobs
Professional Professional
Services, Services,
Education, Education,
Legal, MedicalLegal, Medical
Notre Dame University, Notre Dame University,
San Diego Zoo, Arnold San Diego Zoo, Arnold
Palmer HospitalPalmer Hospital
25.525.5
Trade (retail, Trade (retail,
wholesale)wholesale)
Walgreen’s, Wal-Mart, Walgreen’s, Wal-Mart,
Nordstrom’sNordstrom’s
20.620.6
Utilities, Utilities,
TransportationTransportation
Pacific Gas & Electric, Pacific Gas & Electric,
American Airlines, Santa American Airlines, Santa
Fe R.R., Roadway Fe R.R., Roadway
ExpressExpress
7.17.1
Table 1.4Table 1.4
Organizations in Each SectorOrganizations in Each Sector
Service SectorService Sector ExampleExample
% of all % of all
JobsJobs
Professional Professional
Services, Services,
Education, Education,
Legal, MedicalLegal, Medical
Notre Dame University, Notre Dame University,
San Diego Zoo, Arnold San Diego Zoo, Arnold
Palmer HospitalPalmer Hospital
25.525.5
Trade (retail, Trade (retail,
wholesale)wholesale)
Walgreen’s, Wal-Mart, Walgreen’s, Wal-Mart,
Nordstrom’sNordstrom’s
20.620.6
Utilities, Utilities,
TransportationTransportation
Pacific Gas & Electric, Pacific Gas & Electric,
American Airlines, Santa American Airlines, Santa
Fe R.R., Roadway Fe R.R., Roadway
ExpressExpress
7.17.1
Table 1.4Table 1.4
© 2006 Prentice Hall, Inc. 1 – 41
Organizations in Each SectorOrganizations in Each Sector
Service SectorService Sector ExampleExample
% of all % of all
JobsJobs
Business and Business and
Repair ServicesRepair Services
Snelling and Snelling, Snelling and Snelling,
Waste Management, Waste Management,
Pitney-BowesPitney-Bowes
6.96.9
Finance, Finance,
Insurance, Insurance,
Real EstateReal Estate
Citicorp, American Citicorp, American
Express, Prudential, Express, Prudential,
Aetna, Trammel CrowAetna, Trammel Crow
6.76.7
Food, Lodging, Food, Lodging,
EntertainmentEntertainment
McDonald’s, Hard Rock McDonald’s, Hard Rock
Café, Motel 6, Hilton Café, Motel 6, Hilton
Hotels, Walt Disney, Hotels, Walt Disney,
Paramount PicturesParamount Pictures
5.45.4
Public Public
AdministrationAdministration
U.S., State of Alabama, U.S., State of Alabama,
Cook CountyCook County
4.54.5
Table 1.4Table 1.4
Organizations in Each SectorOrganizations in Each Sector
Service SectorService Sector ExampleExample
% of all % of all
JobsJobs
Business and Business and
Repair ServicesRepair Services
Snelling and Snelling, Snelling and Snelling,
Waste Management, Waste Management,
Pitney-BowesPitney-Bowes
6.96.9
Finance, Finance,
Insurance, Insurance,
Real EstateReal Estate
Citicorp, American Citicorp, American
Express, Prudential, Express, Prudential,
Aetna, Trammel CrowAetna, Trammel Crow
6.76.7
Food, Lodging, Food, Lodging,
EntertainmentEntertainment
McDonald’s, Hard Rock McDonald’s, Hard Rock
Café, Motel 6, Hilton Café, Motel 6, Hilton
Hotels, Walt Disney, Hotels, Walt Disney,
Paramount PicturesParamount Pictures
5.45.4
Public Public
AdministrationAdministration
U.S., State of Alabama, U.S., State of Alabama,
Cook CountyCook County
4.54.5
Table 1.4Table 1.4
© 2006 Prentice Hall, Inc. 1 – 42
Organizations in Each SectorOrganizations in Each Sector
Manufacturing Manufacturing
SectorSector ExampleExample
% of all % of all
JobsJobs
GeneralGeneral General Electric, Ford, General Electric, Ford,
U.S. Steel, IntelU.S. Steel, Intel
13.313.3
ConstructionConstruction Bechtel, McDermottBechtel, McDermott 7.17.1
AgricultureAgriculture King RanchKing Ranch 2.52.5
MiningMining Homestake MiningHomestake Mining 0.40.4
SectorSector Percent of all jobsPercent of all jobs
ServiceService 76.7%76.7%
ManufacturingManufacturing 23.3%23.3%
Table 1.4Table 1.4
Organizations in Each SectorOrganizations in Each Sector
Manufacturing Manufacturing
SectorSector ExampleExample
% of all % of all
JobsJobs
GeneralGeneral General Electric, Ford, General Electric, Ford,
U.S. Steel, IntelU.S. Steel, Intel
13.313.3
ConstructionConstruction Bechtel, McDermottBechtel, McDermott 7.17.1
AgricultureAgriculture King RanchKing Ranch 2.52.5
MiningMining Homestake MiningHomestake Mining 0.40.4
SectorSector Percent of all jobsPercent of all jobs
ServiceService 76.7%76.7%
ManufacturingManufacturing 23.3%23.3%
Table 1.4Table 1.4
© 2006 Prentice Hall, Inc. 1 – 43
ServicesServices
M
a
n
u
f
a
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t
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g
M
a
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u
f
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c
t
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r
i
n
g
Development of the Development of the
Service EconomyService Economy
Figure 1.5 (A)Figure 1.5 (A)
AgricultureAgriculture
100100
9090
8080
7070
6060
5050
4040
3030
2020
1010
00
18001800 18501850 19001900 19501950 20002000
ServicesServices
M
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M
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Development of the Development of the
Service EconomyService Economy
Figure 1.5 (A)Figure 1.5 (A)
AgricultureAgriculture
100100
9090
8080
7070
6060
5050
4040
3030
2020
1010
00
18001800 18501850 19001900 19501950 20002000
© 2006 Prentice Hall, Inc. 1 – 44
Development of the Development of the
Service EconomyService Economy
Figure 1.5 (B)Figure 1.5 (B)
30 30 –
25 25 –
20 20 –
15 15 –
10 10 –
5 5 –
0 0 –
19501950 19701970 19901990 20102010
– 150150
– 125125
– 100100
– 7575
– 5050
– 2525
– 00
E
m
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1
9
9
7
=
1
0
0
1
9
9
7
=
1
0
0Manufacturing
employment
Industrial
production
Estimate
Development of the Development of the
Service EconomyService Economy
Figure 1.5 (B)Figure 1.5 (B)
30 30 –
25 25 –
20 20 –
15 15 –
10 10 –
5 5 –
0 0 –
19501950 19701970 19901990 20102010
– 150150
– 125125
– 100100
– 7575
– 5050
– 2525
– 00
E
m
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(
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(
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1
9
9
7
=
1
0
0
1
9
9
7
=
1
0
0Manufacturing
employment
Industrial
production
Estimate
© 2006 Prentice Hall, Inc. 1 – 45
Development of the Development of the
Service EconomyService Economy
Figure 1.5 (C)Figure 1.5 (C)
United States
Canada
France
Italy
Britain
Japan
W. Germany
1970 2005
| | | | |
40 50 60 70 80
Percent
Development of the Development of the
Service EconomyService Economy
Figure 1.5 (C)Figure 1.5 (C)
United States
Canada
France
Italy
Britain
Japan
W. Germany
1970 2005
| | | | |
40 50 60 70 80
Percent
© 2006 Prentice Hall, Inc. 1 – 46
New Trends in OMNew Trends in OM
Local or Local or
national national
focusfocus
Low-cost, reliable Low-cost, reliable
worldwide communication worldwide communication
and transportation and transportation
networksnetworks
Global focusGlobal focus
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
shipmentsshipments
Low-bid Low-bid
purchasingpurchasing
Quality emphasis requires Quality emphasis requires
that suppliers be engaged that suppliers be engaged
in product improvementin product improvement
Supply-Supply-
chain chain
partners, partners,
Enterprise Enterprise
Resource Resource
Planning, Planning,
e-commercee-commerce
Figure 1.6Figure 1.6
PastPast CausesCauses FutureFuture
New Trends in OMNew Trends in OM
Local or Local or
national national
focusfocus
Low-cost, reliable Low-cost, reliable
worldwide communication worldwide communication
and transportation and transportation
networksnetworks
Global focusGlobal focus
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
shipmentsshipments
Low-bid Low-bid
purchasingpurchasing
Quality emphasis requires Quality emphasis requires
that suppliers be engaged that suppliers be engaged
in product improvementin product improvement
Supply-Supply-
chain chain
partners, partners,
Enterprise Enterprise
Resource Resource
Planning, Planning,
e-commercee-commerce
Figure 1.6Figure 1.6
PastPast CausesCauses FutureFuture
© 2006 Prentice Hall, Inc. 1 – 47
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 teams, and
lean lean
productionproduction
Figure 1.6Figure 1.6
PastPast CausesCauses FutureFuture
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 teams, and
lean lean
productionproduction
Figure 1.6Figure 1.6
PastPast CausesCauses FutureFuture
© 2006 Prentice Hall, Inc. 1 – 48
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, production,
green green
manufacturing, manufacturing,
recycled recycled
materials, materials,
remanufacturingremanufacturing
Figure 1.6Figure 1.6
PastPast CausesCauses FutureFuture
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, production,
green green
manufacturing, manufacturing,
recycled recycled
materials, materials,
remanufacturingremanufacturing
Figure 1.6Figure 1.6
PastPast CausesCauses FutureFuture
© 2006 Prentice Hall, Inc. 1 – 49
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 this The objective is to improve this
measure of efficiencymeasure of efficiency
Important Note!
Production is a measure of output
only and not a measure of efficiency
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 this The objective is to improve this
measure of efficiencymeasure of efficiency
Important Note!
Production is a measure of output
only and not a measure of efficiency
© 2006 Prentice Hall, Inc. 1 – 50
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
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
© 2006 Prentice Hall, Inc. 1 – 51
Increasing Productivity – Increasing Productivity –
The LA Motor PoolThe LA Motor Pool
Before:Before:
Cost Cost $120$120 million annually million annually
21,00021,000 vehicles vehicles
30%30% of the of the 900900 trash trucks were in repair trash trucks were in repair
11%11% of police cars were in repair of police cars were in repair
Actions:Actions:
Created team assignmentsCreated team assignments
Assigned parking places for trucksAssigned parking places for trucks
Tires checked and trucks emptied each nightTires checked and trucks emptied each night
Standard customer pickups establishedStandard customer pickups established
Computerized fleet managementComputerized fleet management
Mechanics moved to night shiftMechanics moved to night shift
Increasing Productivity – Increasing Productivity –
The LA Motor PoolThe LA Motor Pool
Before:Before:
Cost Cost $120$120 million annually million annually
21,00021,000 vehicles vehicles
30%30% of the of the 900900 trash trucks were in repair trash trucks were in repair
11%11% of police cars were in repair of police cars were in repair
Actions:Actions:
Created team assignmentsCreated team assignments
Assigned parking places for trucksAssigned parking places for trucks
Tires checked and trucks emptied each nightTires checked and trucks emptied each night
Standard customer pickups establishedStandard customer pickups established
Computerized fleet managementComputerized fleet management
Mechanics moved to night shiftMechanics moved to night shift
© 2006 Prentice Hall, Inc. 1 – 52
Increasing Productivity – Increasing Productivity –
The LA Motor PoolThe LA Motor Pool
Cost $120 million annuallyCost $120 million annually
21,000 vehicles21,000 vehicles
30% of the 900 garbage trucks were in repair30% of the 900 garbage trucks were in repair
11% of police cars were in repair11% of police cars were in repair
Before:Before:
Actions:Actions:
Creating team assignmentsCreating team assignments
Assigned parking places for trucksAssigned parking places for trucks
Tire checked and trucks emptied each nightTire checked and trucks emptied each night
Standard customer pickups establishedStandard customer pickups established
Computerized fleet managementComputerized fleet management
Mechanics moved to night shiftMechanics moved to night shift
Results:
Total fleet reduced by 500 vehicles
Parts inventory dropped 20% reducing
cost by $5.4 million annually
Standardized pickups reduced costs by
$12 million annually
Out of service garbage trucks dropped
to 18%
Increasing Productivity – Increasing Productivity –
The LA Motor PoolThe LA Motor Pool
Cost $120 million annuallyCost $120 million annually
21,000 vehicles21,000 vehicles
30% of the 900 garbage trucks were in repair30% of the 900 garbage trucks were in repair
11% of police cars were in repair11% of police cars were in repair
Before:Before:
Actions:Actions:
Creating team assignmentsCreating team assignments
Assigned parking places for trucksAssigned parking places for trucks
Tire checked and trucks emptied each nightTire checked and trucks emptied each night
Standard customer pickups establishedStandard customer pickups established
Computerized fleet managementComputerized fleet management
Mechanics moved to night shiftMechanics moved to night shift
Results:
Total fleet reduced by 500 vehicles
Parts inventory dropped 20% reducing
cost by $5.4 million annually
Standardized pickups reduced costs by
$12 million annually
Out of service garbage trucks dropped
to 18%
© 2006 Prentice Hall, Inc. 1 – 53
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
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
© 2006 Prentice Hall, Inc. 1 – 54
Productivity CalculationsProductivity Calculations
Productivity =Productivity =
Units producedUnits produced
Labor-hours usedLabor-hours used
= = = = 44 units/labor-hour units/labor-hour
1,0001,000
250250
Labor ProductivityLabor Productivity
Productivity CalculationsProductivity Calculations
Productivity =Productivity =
Units producedUnits produced
Labor-hours usedLabor-hours used
= = = = 44 units/labor-hour units/labor-hour
1,0001,000
250250
Labor ProductivityLabor Productivity
© 2006 Prentice Hall, Inc. 1 – 55
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
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
© 2006 Prentice Hall, Inc. 1 – 56
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 8 8 hrs/dayhrs/day 88 titles/day titles/day
Payroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
==
Old labor Old labor
productivityproductivity
88 titles/day titles/day
3232 labor-hrs labor-hrs
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 8 8 hrs/dayhrs/day 88 titles/day titles/day
Payroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
==
Old labor Old labor
productivityproductivity
88 titles/day titles/day
3232 labor-hrs labor-hrs
© 2006 Prentice Hall, Inc. 1 – 57
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/day
Payroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
88 titles/day titles/day
3232 labor-hrs labor-hrs
==
Old labor Old labor
productivityproductivity
= = .25.25 titles/labor-hr titles/labor-hr
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/day
Payroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
88 titles/day titles/day
3232 labor-hrs labor-hrs
==
Old labor Old labor
productivityproductivity
= = .25.25 titles/labor-hr titles/labor-hr
© 2006 Prentice Hall, Inc. 1 – 58
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 8 8 hrs/dayhrs/day 88 titles/day titles/day
Payroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
3232 labor-hrs labor-hrs
==
Old labor Old labor
productivityproductivity
==
New labor New labor
productivityproductivity
= .25 titles/labor-hr= .25 titles/labor-hr
1414 titles/day titles/day
3232 labor-hrs labor-hrs
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 8 8 hrs/dayhrs/day 88 titles/day titles/day
Payroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
3232 labor-hrs labor-hrs
==
Old labor Old labor
productivityproductivity
==
New labor New labor
productivityproductivity
= .25 titles/labor-hr= .25 titles/labor-hr
1414 titles/day titles/day
3232 labor-hrs labor-hrs
© 2006 Prentice Hall, Inc. 1 – 59
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/day
Payroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
3232 labor-hrs labor-hrs
==
Old labor Old labor
productivityproductivity
= = .25.25 titles/labor-hr titles/labor-hr
14 14 titles/daytitles/day
3232 labor-hrs labor-hrs
==
New labor New labor
productivityproductivity
= = .4375.4375 titles/labor-hr titles/labor-hr
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/day
Payroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
3232 labor-hrs labor-hrs
==
Old labor Old labor
productivityproductivity
= = .25.25 titles/labor-hr titles/labor-hr
14 14 titles/daytitles/day
3232 labor-hrs labor-hrs
==
New labor New labor
productivityproductivity
= = .4375.4375 titles/labor-hr titles/labor-hr
© 2006 Prentice Hall, Inc. 1 – 60
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/day
Payroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
==
Old multifactor Old multifactor
productivityproductivity
88 titles/day titles/day
$640 + 400$640 + 400
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/day
Payroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
==
Old multifactor Old multifactor
productivityproductivity
88 titles/day titles/day
$640 + 400$640 + 400
© 2006 Prentice Hall, Inc. 1 – 61
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/day
Payroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
$640 + 400$640 + 400
==
Old multifactor Old multifactor
productivityproductivity
= = .0077.0077 titles/dollar titles/dollar
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/day
Payroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
$640 + 400$640 + 400
==
Old multifactor Old multifactor
productivityproductivity
= = .0077.0077 titles/dollar titles/dollar
© 2006 Prentice Hall, Inc. 1 – 62
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/day
Payroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
$640 + 400$640 + 400
==
Old multifactor Old multifactor
productivityproductivity
==
New multifactor New multifactor
productivityproductivity
= = .0077.0077 titles/dollar titles/dollar
1414 titles/day titles/day
$640 + 800$640 + 800
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/day
Payroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
$640 + 400$640 + 400
==
Old multifactor Old multifactor
productivityproductivity
==
New multifactor New multifactor
productivityproductivity
= = .0077.0077 titles/dollar titles/dollar
1414 titles/day titles/day
$640 + 800$640 + 800
© 2006 Prentice Hall, Inc. 1 – 63
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/day
Payroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
$640 + 400$640 + 400
1414 titles/day titles/day
$640 + 800$640 + 800
==
Old multifactor Old multifactor
productivityproductivity
==
New multifactor New multifactor
productivityproductivity
= = .0077.0077 titles/dollar titles/dollar
= = .0097.0097 titles/dollar titles/dollar
Collins Title ProductivityCollins Title Productivity
Staff of Staff of 44 works works 88 hrs/day hrs/day 88 titles/day titles/day
Payroll cost = Payroll cost = $640$640/day/day Overhead = Overhead = $400$400/day/day
Old System:Old System:
1414 titles/day titles/day Overhead = Overhead = $800$800/day/day
New System:New System:
88 titles/day titles/day
$640 + 400$640 + 400
1414 titles/day titles/day
$640 + 800$640 + 800
==
Old multifactor Old multifactor
productivityproductivity
==
New multifactor New multifactor
productivityproductivity
= = .0077.0077 titles/dollar titles/dollar
= = .0097.0097 titles/dollar titles/dollar
© 2006 Prentice Hall, Inc. 1 – 64
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
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
© 2006 Prentice Hall, Inc. 1 – 65
Productivity VariablesProductivity Variables
LaborLabor - contributes about - contributes about 10%10% of of
the annual increasethe annual increase
CapitalCapital - contributes about - contributes about 32%32%
of the annual increaseof the annual increase
ManagementManagement - contributes about - contributes about
52%52% of the annual increase of the annual increase
Productivity VariablesProductivity Variables
LaborLabor - contributes about - contributes about 10%10% of of
the annual increasethe annual increase
CapitalCapital - contributes about - contributes about 32%32%
of the annual increaseof the annual increase
ManagementManagement - contributes about - contributes about
52%52% of the annual increase of the annual increase
© 2006 Prentice Hall, Inc. 1 – 66
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
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
© 2006 Prentice Hall, Inc. 1 – 67
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
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
© 2006 Prentice Hall, Inc. 1 – 68
Investment and Productivity Investment and Productivity
in Selected Nationsin Selected Nations
USUS UKUK
CanadaCanada
ItalyItaly
BelgiumBelgium
FranceFrance
NetherlandsNetherlands
JapanJapan
1010
88
66
44
22
00
P
e
r
c
e
n
t
i
n
c
r
e
a
s
e
i
n
m
f
g
p
r
o
d
u
c
t
i
v
i
t
y
P
e
r
c
e
n
t
i
n
c
r
e
a
s
e
i
n
m
f
g
p
r
o
d
u
c
t
i
v
i
t
y
Percentage investmentPercentage investment
1010 1515 2020 2525 3030 3535
Investment and Productivity Investment and Productivity
in Selected Nationsin Selected Nations
USUS UKUK
CanadaCanada
ItalyItaly
BelgiumBelgium
FranceFrance
NetherlandsNetherlands
JapanJapan
1010
88
66
44
22
00
P
e
r
c
e
n
t
i
n
c
r
e
a
s
e
i
n
m
f
g
p
r
o
d
u
c
t
i
v
i
t
y
P
e
r
c
e
n
t
i
n
c
r
e
a
s
e
i
n
m
f
g
p
r
o
d
u
c
t
i
v
i
t
y
Percentage investmentPercentage investment
1010 1515 2020 2525 3030 3535
© 2006 Prentice Hall, Inc. 1 – 69
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
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
© 2006 Prentice Hall, Inc. 1 – 70
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
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
© 2006 Prentice Hall, Inc. 1 – 71
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
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
© 2006 Prentice Hall, Inc. 1 – 72
Ethics and Social ResponsibilityEthics and Social Responsibility
Challenges facing Challenges facing
operations managers:operations managers:
Developing safe quality productsDeveloping safe quality products
Maintaining a clean environmentMaintaining a clean environment
Providing a safe workplaceProviding a safe workplace
Honoring community commitmentsHonoring community commitments
Ethics and Social ResponsibilityEthics and Social Responsibility
Challenges facing Challenges facing
operations managers:operations managers:
Developing safe quality productsDeveloping safe quality products
Maintaining a clean environmentMaintaining a clean environment
Providing a safe workplaceProviding a safe workplace
Honoring community commitmentsHonoring community commitments
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