Chapter 1 :

Introduction to Operations Management

Percentages 28%

Categories

Operations Management
Low cost product Technical superiority Product characteristics Efficient, flexible operations adaptable to customers Engg. Research development Location

18%

Marketing

17%
16% 17% 4%

Momentum/name recognition
Quality Good management Financial resources

Operations deals with production of goods and services that people buy and use everyday.

Operations are actually various functions in the organization for efficient acquisition and utilization of resources.

What is Operations Management?

Operations management refers to the direction and control of the processes that transforms inputs into finished goods and services.

In other words, OM is a set of activities that creates goods and services through the transformations of inputs into outputs.

2 The Operations Management System

The Operations Management System

Inputs
Workers Managers Equipment Facilities Materials Services Land Energy

The Operations Management System

Inputs
Workers Managers Equipment Facilities Materials Services Land Energy

Operations and processes

1 3 5 2 4

The Operations Management System

Inputs
Workers Managers Equipment Facilities Materials Services Land Energy

Operations and processes Outputs

1 3 5 2 4 Goods Services

The Operations Management System

External environment Customer or client participation

Inputs
Workers Managers Equipment Facilities Materials Services Land Energy

Operations and processes Outputs

1 3 5 2 4 Goods Services

The Operations Management System

External environment Customer or client participation

Inputs
Workers Managers Equipment Facilities Materials Services Land Energy

Operations and processes Outputs

1 3 5 2 4 Goods Services

Information on performance

3 OM As A Set of Decisions

Five category of decisions:

Category 1: Strategic choices Strategy is only as good as the results it produces. Good results require good strategies.

Category 2: Processes

Process Management
type of work to be done in house amount of automation to be used methods of improving existing processes

Technology Management Selection of technology to be used

Work-force management degree of specialization or enlargement of the works

methods of making time estimates for work requirement

Category 3: Quality Quality drives operational decisions. The level of quality a company seeks to achieve is a strategic decision that eventually determines how a product is made or a service is delivered.

Category 4: Capacity, Location and Layout

5. Operating Decisions:
A. How to coordinate various parts of the internal and external supply-chain (Supply-Chain Management) B. C. D. E. How to make accurate forecast (Forecasting) How to control inventory (Inventory Management) How to control output and staffing levels over time (Aggregate Planning) How to decide amount of quantity to be purchased or produced (Materials requirement Planning)

F. How to implement just-in-time systems (JIT) G. Which jobs are to be given top priority (Scheduling)

Manufacturing and Services : Similarities and Dissimilarities

Continuum of Characteristics

Continuum of Characteristics
More like a manufacturing organization More like a service organization

Continuum of Characteristics
More like a manufacturing organization More like a service organization

Physical, durable product Output can be inventoried Low customer contact Long response time Regional, national or International markets Large facilities Capital intensive Quality easily measured

Continuum of Characteristics
More like a manufacturing organization More like a service organization

Physical, durable product Output can be inventoried Low customer contact Long response time Regional, national or International markets Large facilities Capital intensive Quality easily measured

Intangible, perishable product Output cannot be inventoried High customer contact Short response time Local markets Small facilities Labor intensive Quality not easily measured

6 Productivity

The organization enhances its competitiveness which means more wealth to be distributed and ultimately a higher standard of living for everyone involved.
-- Lee Saw Hoon

Quality of Life
Higher Standard of Living Higher Gross Domestic Product

Contribution from Employment

Contributions from Higher Productivity Contribution from higher Total Factor Productivity Quality of Capital & System

Contribution from Capital Employed

QUALITATIVE INPUT

Quality of workforce

Productivity Measurement

Productivity =

Output Input

Labor productivity =

Units produced Employee hours

Productivity

600 Units Labor productivity = (5 employees)(40 hours/employee)

Productivity

Labor productivity = 3 units/hour

Productivity

Multifactor productivity =

Quantity at standard cost Labor cost + Materials cost + Overhead cost

Example 1: At Modern Lumber, Inc., Mr. Azlan, the

manager of apple creates has been able with his current equipment to produce 240 creates per 100 logs. He currently purchases 100 logs per day and each log requires 3 labor hours to process. However, he has the option to hire a professional buyer who can buy a betterquality log at the same cost. If this is the case, he can increase his production to 260 creates/100 logs. His labor hours will increase by 8 hours/day. What will be the impact on productivity if the buyer is hired?

Example 2: Collins Title Co. has a staff of four each

working 8 hours/day (for a payroll cost of $160 per employee per day) and a overhead expenses of $400/day. Collins produces and closes on 8 titles each day. The company recently purchases a computerized title search system that will allow the processing of 14 titles/day. The staff working hours and pay will be the same. However the new overhead cost will be $800/day. Compute single and multi factor productivity in both the systems and % increase or decrease in productivity.

Productivity Determination Hometask: Compact disc players are produced on an automated assembly line. The standard cost of compact disc players is RM125 per unit (labor, RM 20; materials, RM 65; and overhead, RM 40). The sales price is RM 250 per unit (a) To achieve a 10 percent multifactor productivity improvement by reducing materials costs only, by what percentage must those costs be reduced? (Ans: % reduction: 17.48) (b) To achieve a 10 percent multifactor productivity improvement by reducing labor costs only, by what percentage must those costs be reduced? (Ans: % reduction 56.8)

If the cost of her input (materials used, technical support, energy, consumed, etc) to produce the one-hour programme is RM1000, and that she is able to attract 2000 listeners, then we can compute the productivity as the ratio of 2,000 listeners of RM1,000 of input. Supposing that each listener is willing to pay RM1 each for listening, then we have a productivity figure of 2.
--Gog Swee Seang

They (the guidelines for reforming employee wagesystem) need to be carefully studied to arrive at principles to measure and reward productivity. After all, not all work can be quantified and reliably measured. For instance, the output of employers and managers is the most difficult to asses quantitatively. Thus, productivity measurement is a sensitive issue.

-- Tan Sri Raman Navaratnam

Decreasing the value of losses in input (i.e., minimizing waste) will contribute significantly to productivity growth.
- Zinor D. Radovilsky

Productivity Improvement: Toyota Way

Over production Idle time of workers and equipments Transportation delays Poor quality

Labor and material loss play not only a great role as a productivity analysis base, but they also appear as an active element in productivity growth.
- Zinor D. Radovilsky

Class
Technological

Loss
Ineffective technological design Equipment in poor conditions Wrong materials

Indicator
Idle time of equipment Equipment downtime Cost of wrong materials

Poor automation policy

No. of defectives No. of workers per process Average over material usage
Workers idle time because of the poor tool supply

Poor tool supply

Low-level of technical instruction

No. of lost-time accidents

Class
Organizational

Loss
Ineffective facility layout Unbalance process line Inefficient work processing Poor working conditions Wrong work standards

Indicator
Transportation cost between departments Percentage of idle time on assembly line Idle time of workstations

Workers idle time in the department Frequency of the lost-time accidents Number of lost-time accidents

Workers idle time because of wrong work standards

Inefficient pay system

Inventory shortages Overstocked level of inventory Poor material requirement planning Poor scheduling Low level-of product quality Poor quality control inspection

Workers idle time because of inefficient output-based system

Shortage cost Cost of overstocked inventory Investment tied up in inventory Direct shortage cost Delays of input materials Workers idle time because of poor scheduling

No. of defectives No. of defectives

Class

Loss

Indicator
No. of workers unsatisfied or almost unsatisfied with the job No. of workers unsatisfied or almost unsatisfied with motivation policy No. of employees with lower that required educational level Average number of task per worker No. of workers unsatisfied or almost unsatisfied with their incentives

Behavioral Poor job satisfaction Difficulties in motivating employees Low education and skill requirement Low level of responsibilities Ineffective incentives

7 Malaysian Productivity Award

Productivity Award
To create awareness of the importance of productivity improvement towards economic development To emphasize that productivity enhancement has high impact on sustainability and future prospects of the economy To upgrade all efforts on the qualitative aspects of both capital and labor as well as efficiency with which these inputs are integrated To emphasize the usefulness of productivity measurement in managing and evaluating company performance

Criteria
Quantitative
Labor productivity Capital productivity Capital intensity Process efficiency Labor cost per employee Unit labor cost

Qualitative
Inventory and materials management Utilization of machinery and equipment Product/service development Technical efficiency Productivity management

Assessors responsibilities
Evaluate companies that are listed according to the selection done through required standard.

Visit to companies listed to ensure the information and check data consistency in the application report (submission) and to obtain required clarification
Decide on companies to be recommended as a potential winner to the Technical Committee

Who Can Apply?

Manufacturing category: Category 1: Local company with annual sales turnover not exceeding RM10 million Category 2: Local company with annual sales turnover exceeding RM10 million to RM25 million Category 3: Local company with annual sales turnover exceeding RM25 million to RM100 million Category 4: Open (Local company with annual sales turnover exceeding RM100 million and Multinational company)

Benefits of the Award

The MPC Productivity Award Trophy Certificate of Appreciation

Eligible to use the Award Logo for three years following the year of the Award for publicity purposes
Enjoy 20% discount for any training programs organized by MPC