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Some real life scenarios which I used in the past to highlight the importance of Operations Management

Operations Management

• fortunately, some of these scenarios are no more valid

Chapter 1 – Operations and Productivity

• many improvements have been realized both in the public and private sector • improvement, or continuous improvement, to be exact, is the right approach to increasing quality, efficiency, productivity, and profitability.

PowerPoint presentation to accompany Heizer/Render, Operations Management, 11th Ed. Some additions and deletions have been made by Ömer Yağız to this slide set. (Revised March 2016) © 2008 Prentice Hall, Inc.

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Some Real Life Scenarios in OM

 You mail a letter by Express Post (APS) to an address in İstanbul. The recipient gets it after 3 days; whereas a package sent to İstanbul via Yurtiçi Kargo (or any of the others) is in the hands of the addressee in 6 hours. Plus, order tracking on Google Earth! QUALITY OF SERVICE?  You buy a shirt from an expensive store and pay lots of money; the buttons come off after the shirt is worn three times. The manufacturer has to really make a special(!) effort to achieve this terrible quality. 1– 3

© 2008 Prentice Hall, Inc.

© 2008 Prentice Hall, Inc.

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A real episode at Esenboğa on Feb. 6, 2012

Some Real Life Scenarios in OM  A THY plane takes off 40 minutes late from an airport because some Japanese tourists on board forget to identify their baggage before boarding the plane. The plane flies from İstanbul to Ankara in 50 minutes. 40 minutes delay for a 50 minute flight !! HOW DO WE EXPLAIN THIS IN TERMS OF EFFICIENCY, PRODUCTIVITY, AND PROFITABILITY ? (This has been rectified some time ago by the elimination of baggage identification prior to boarding.)

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SOME REAL-LIFE Some Real Life SCENARIOS Scenarios IN in OM OM

 Many of us have witnessed the agony and the suffering (and even deaths) that many senior citizens have had to endure in order to collect their retirement or pension pay from the various commercial banks. This was an episode that repeated every month or every three months, especially in large urban centers. The government organizations and the banks involved in this service process unfortunately did nothing for a long time to improve the situation and increase the quality of this rather routine service (now the situation is a little better) © 2008 Prentice Hall, Inc.

© 2008 Prentice Hall, Inc.

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© 2008 Prentice Hall, Inc.



Esenboğa Airport



lots of delays and cancellations due to snow and winter conditions



an operations manager’s nightmare (kâbus)



unhappy and angry passengers



THY and TGS service personnel in a very difficult (and unenviable) position 1– 6

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A real episode at Esenboğa on Feb. 6, 2012

Some Real Life Scenarios in OM

 This serious situation had a very happy ending for the passengers and service personnel. HOW?

 Why did some people prefer McDonald’s or similar fast-food restaurants despite the fact that it they were more expensive than comparable food served elsewhere? The same is true for Varan and Ulusoy bus companies..

• full and timely information given to passengers face-to-face and via electronic boards • effective and timely catering service to passengers at the gates • very courteous, understanding and helpful attitude by the ground service personnel towards the passengers • nobody had the courage to complain and/or say something bad about the situation, including myself..

© 2008 Prentice Hall, Inc.

 When you go to some government office (say, the Tax Bureau) you spend so much you feel terribly exhausted after a very routine task. Is the whole process designed to maximize pain to citizens ? Now, things are a bit different; next slide… 1– 7

© 2008 Prentice Hall, Inc.

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Some Real Life Scenarios in OM

Some Real Life Scenarios in OM

 Things are better at the Tax Bureau

 Things are also better at Çankaya Kaymakamlığı..

• attitude change on the part of personnel (civil servant concept)



Apostille service unit



1.5 TL per apostille charged



2 X 1.5 TL = 3.00 TL

• errors are minimized



a 3-ply receipt costs 3.00 TL

• personnel assist those in need of help for filling out forms, etc.



no charge for 2 or less apostilles; 3 or more apostilles charged at the rate of 1.50 TL per apostille



amazingly clever practice by a public organization!! Olamaz, rüya mı bu?

• technology in general, IT in particular, makes the whole process easier, less timeconsuming, more efficient, and less costly

• they even offer you free tea at the Hitit Vergi Dairesi.. © 2008 Prentice Hall, Inc.

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Some Real Life Scenarios in OM  During registration periods at many universities, poor students have to report to so many different offices and people, and have to wait so long in several lines. Not only the students but also instructors and administrators have to go through the same unpleasant experience. Indeed, we are a society of endless waiting lines! IS THIS SOMETHING ORDAINED BY GOD OR WHAT ?? (Now with online registration, the situation has improved somewhat)

© 2008 Prentice Hall, Inc.

© 2008 Prentice Hall, Inc.

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Some Real Life Scenarios in OM • İnönü Boulevard traffic accident in one of the underpasses just yesterday • Road into Ankara closed for hours; cars backed up for kms. • No effective remedy for this serious problem • Hudson Tunnel in New York City in 1963 case 1 – 11

© 2008 Prentice Hall, Inc.

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Some Real Life Scenarios in OM

Some Real Life Scenarios in OM

• Hospital patient acceptance procedures

• Traffic light systems in metropolitan areas in Turkey

– Who should do what ?

– Service channel concept – remember queuing theory?

– Repetition of basic data recording

– Quality of service?

– Productivity suffers

– Productivity?

– Solution?

– Akıllı Trafik Sistemi - İzmir

© 2008 Prentice Hall, Inc.

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© 2008 Prentice Hall, Inc.

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Outline Outline - Continued

 Global Company Profile: Hard Rock Café

 The Heritage of Operations Management

 Big Chefs in Turkey (11 locations including Dubai)

 Operations in the Service Sector

 What Is Operations Management?

 Differences between Goods and Services

 Organizing to Produce Goods and Services

 Growth of Services  Service Pay

 The Supply Chain

 Exciting New Trends in Operations Management

 Why Study OM?  What Operations Managers Do

© 2008 Prentice Hall, Inc.

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© 2008 Prentice Hall, Inc.

Outline - Continued

Learning Objectives When you complete this chapter you should be able to:

 The Productivity Challenge  Productivity Measurement  Productivity Variables

1. Define operations management

 Productivity and the Service Sector

2. Explain the distinction between goods and services

 New Challenges in OM

3. Explain the difference between production and productivity

 Ethics, Social Responsibility and Sustainability © 2008 Prentice Hall, Inc.

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© 2008 Prentice Hall, Inc.

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Learning Objectives

The Hard Rock Cafe

When you complete this chapter you should be able to:

 First opened in 1971; theme restaurant

4. Compute single-factor productivity

 Rock music memorabilia

 Now – 150 restaurants in over 53 countries

 Creates value in the form of good food and entertainment

5. Compute multifactor productivity

 3,500+ custom meals per day in Orlando

6. Identify the critical variables in enhancing productivity

© 2008 Prentice Hall, Inc.

 How does an item get on the menu?  Role of the Operations Manager 1 – 19

© 2008 Prentice Hall, Inc.

Köfteci Ramiz

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DO & CO Catering Atilla Doğudan- Vienna

www.doco.com www.kofteciramiz.com © 2008 Prentice Hall, Inc.

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© 2008 Prentice Hall, Inc.

Dabbawala-Meal Delivery System in Mumbai, India

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What Is Operations Management?

• Dabba – metal lunchbox (sefer tası) Production is the creation of goods and services

• Dabbawala – one who carries dabbas and delivers them to people in offices and elsewhere

Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs

– http://www.youtube.com/watch?v=sxW9sUnodM8 – http://www.youtube.com/watch?v=fTkGDXRnR9I

– This is required watching… On your own time.

© 2008 Prentice Hall, Inc.

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© 2008 Prentice Hall, Inc.

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Transformations

OM Involves Managing Transformations Input

• Physical and chemical--manufacturing (shoes, PC’s, planes, paint, detergents)

Transformation Process

• Locational--transportation (rail, sea, air, road)

Output

• Exchange--retailing (all kinds of stores, offices), banking ??

(Value Adding)

Transformation is enabled by The 5 Ps of OM:

 People  Plants  Parts  Processes  Planning and Control

© 2008 Prentice Hall, Inc.

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• Storage--warehousing (normal and cold storage) • Physiological--health care (hospitals, clinics) • Informational--telecommunications (schools, Reuter Services, Internet and blogs, news media, TV services, METU) © 2008 Prentice Hall, Inc.

Operations as the Technical Core

Organizing to Produce Goods and Services  Essential functions:  Marketing – generates demand

Workers

Operations

Personnel

Purchasing

Suppliers

Capital Markets, Stockholders Finance

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 Production/operations – creates the product  Finance/accounting – tracks how well the organization is doing, pays bills, collects the money

Marketing Customers

© 2008 Prentice Hall, Inc.

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Organizational Charts

Organizational Charts

Commercial Bank

Airline Operations

Operations

Finance

Marketing

Teller Scheduling Check Clearing Collection Transaction processing Facilities design/layout Vault operations Maintenance Security

Investments Security Real estate

Loans Commercial Industrial Financial Personal Mortgage

Accounting

Ground support equipment Maintenance Ground Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications Dispatching Management science

Auditing Trust Department Figure 1.1(A)

© 2008 Prentice Hall, Inc.

© 2008 Prentice Hall, Inc.

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© 2008 Prentice Hall, Inc.

Finance/ accounting Accounting Payables Receivables General Ledger Finance Cash control International exchange

Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising

Figure 1.1(B) 1 – 30

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Organizational Charts The Supply Chain

Manufacturing Operations

Finance/ accounting

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

Disbursements/ credits Receivables Payables General ledger Funds Management Money market International exchange Capital requirements Stock issue Bond issue and recall

 A global network of organizations and activities that supply a firm with goods and services

Marketing Sales promotion Advertising Sales Market research

 Members of the supply chain collaborate to achieve high levels of customer satisfaction, efficiency and competitive advantage.

Process analysis Development and installation of production tools and equipment

Figure 1.1(C)

© 2008 Prentice Hall, Inc.

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© 2008 Prentice Hall, Inc.

Options for Increasing Contribution

Why Study OM?  OM is one of three major functions (marketing, finance, and operations) of any organization

Cont /unit = p – v (TL)

Marketing Option

Finance/ Accounting Option

OM Option

Current

Increase Sales Revenue 50%

Reduce Finance Costs 50%

Reduce Production Costs 20%

$100,000 – 80,000 20,000 – 6,000 14,000 – 3,500 $ 10,500

$150,000 – 120,000 30,000 – 6,000 24,000 – 6,000 $ 18,000

$100,000 – 80,000 20,000 – 3,000 17,000 – 4,250 $ 12,750

$100,000 – 64,000 36,000 – 6,000 30,000 – 7,500 $ 22,500

Breakeven point = TFC/p-v (units)

 We want (and need) to know how goods and services are produced

Sales Cost of Goods Gross Margin Finance Costs Subtotal Taxes at 25% Contribution

 We want to understand what operations managers do  OM is such a costly part of an organization © 2008 Prentice Hall, Inc.

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Increase in contribution 1 – 33

71%

21%

114%

© 2008 Prentice Hall, Inc.

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Ten Strategic Decisions

What Operations Managers Do

Ten Decision Areas  Design of goods and services  Managing quality  Process and capacity design  Location strategy  Layout strategy  Human resources and job design  Supply chain management  Inventory management  Scheduling  Maintenance

Basic Management Functions  Planning  Organizing  Staffing

 Leading  Controlling

Chapter(s) 5 6, Supplement 6 7, Supplement 7 8 9 10, Supplement 10

11, Supplement 11 12, 14, 16 13, 15 17 Table 1.2

© 2008 Prentice Hall, Inc.

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© 2008 Prentice Hall, Inc.

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The Strategic Decisions

The Strategic Decisions

1. Design of goods and services

3. Process and capacity design

 Defines what is required of operations  Product design determines quality, sustainability and human resources

 How is a good or service produced?  Commits management to specific technology, quality, resources, and investment.

2. Managing quality  Determine the customer’s quality expectations  Establish policies and procedures to identify and achieve that quality

4. Location strategy  Nearness to customers, suppliers, and talent.

Table 1.2 (cont.) © 2008 Prentice Hall, Inc.

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 Considering costs, infrastructure, logistics, and government . Table 1.2 (cont.) © 2008 Prentice Hall, Inc.

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The Strategic Decisions

The Strategic Decisions

7. Supply chain management

5. Layout strategy

 Integrate supply chain into the firm’s strategy

 How should we arrange the facility?  Integrate capacity needs, personnel levels, technology, and inventory

 Determine what is to be purchased, from whom, and under what conditions.

6. Human resources and job design

8. Inventory managementI

 Recruit, motivate, and retain personnel with the required talent and skills.

 Inventory ordering and holding decisions.

 Integral and expensive part of the total system design. Table 1.2 (cont.) © 2008 Prentice Hall, Inc.

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 Optimize considering customer satisfaction, supplier capability, and Table 1.2 (cont.) production schedules. © 2008 Prentice Hall, Inc.

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Where are the OM Jobs?

The Strategic Decisions 9. Scheduling  Determine and implement intermediate- and short-term schedules.  Utilize personnel and facilities while meeting customer demands.

10.Maintenance  Consider facility capacity, production demands, and personnel.  Maintain a reliable and stable process. Table 1.2 (cont.) © 2008 Prentice Hall, Inc.

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© 2008 Prentice Hall, Inc.

Figure 1.2

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Opportunities

Where are the OM Jobs?          

Technology/methods Facilities/space utilization Strategic issues Response time People/team development Customer service Quality Cost reduction Inventory reduction Productivity improvement

© 2008 Prentice Hall, Inc.

Figure 1.2

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© 2011 Pearson Education, Inc. publishing as Prentice Hall

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Significant Events in OM

Certifications  APICS, the American Production and Inventory Control Society  American Society of Quality (ASQ)  Institute for Supply Management (ISM)  Project Management Institute (PMI)  Council of Supply Chain Management Professionals  Charter Institute of Purchasing and Supply (CIPS)

Figure 1.3 © 2011 Pearson Education, Inc. publishing as Prentice Hall

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© 2008 Prentice Hall, Inc.

The Heritage of OM

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The Heritage of OM

 Division of labor (Adam Smith 1776; Charles Babbage 1852)

 Electronic digital computer (Atanasoff 1938)

 Interchangeable (standardized) parts (Whitney 1800)

 CPM/PERT (DuPont 1957)

 not programmable; solved linear equations  Material requirements planning (Orlicky 1960)

 Scientific Management (Taylor 1881)

 Computer aided design (CAD 1970)

 Coordinated assembly line (Ford/ Sorenson 1913- (93 minutes vs. 12.5 hours for chassis assembly))

 Flexible manufacturing system (FMS 1975)  JIT,TQC,TQM,KANBAN, Poka Yoke (1980’s)

 Gantt charts (Gantt 1916)

 EFQM and Baldrige Quality Awards (1980)

 Motion study (Frank and Lillian Gilbreth 1922)

 Computer integrated manufacturing (1990)

 Quality control (Shewhart 1924; Deming 1950)

© 2008 Prentice Hall, Inc.

 Globalization (1992)  Internet (1995) 1 – 47

 e-business, e-government (1996- )

© 2008 Prentice Hall, Inc.

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Eli Whitney

Frederick W. Taylor

 Born 1765; died 1825

 Born 1856; died 1915

 In 1798, received government contract to make 10,000 muskets

 Known as ‘father of scientific management’

 Showed that machine tools could make standardized parts to exact specifications

 In 1881, as chief engineer for Midvale Steel, studied how tasks were done

 Musket (tüfek) parts could be used in any musket © 2008 Prentice Hall, Inc.

 Began first motion and time studies

 Created efficiency principles 1 – 49

© 2008 Prentice Hall, Inc.

Taylor’s Principles

Frank & Lillian Gilbreth  Frank (1868-1924); Lillian (18781972)

Management Should Take More Responsibility for:

 Husband-and-wife engineering team

 Matching employees to right job

 Further developed work measurement methods

 Providing the proper training  Providing proper work methods and tools

 Applied efficiency methods to their home and 12 children!

 Establishing legitimate incentives for work to be accomplished © 2008 Prentice Hall, Inc.

1 – 50

 Book & Movie: “Cheaper by the Dozen,” book: “Bells on Their Toes” 1 – 51

© 2008 Prentice Hall, Inc.

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W. Edwards Deming

Henry Ford  Born 1863; died 1947  In 1903, created Ford Motor Company

 Born 1900; died 1993

 In 1913, first used moving assembly line to make Model T

 Credited with teaching Japan quality control methods in postWW2

 Engineer and physicist

 Unfinished product moved by conveyor past work station

 Used statistics to analyze process

 Paid workers very well for 1911 ($5/day!) “The customer can have any color as long as it is black” H. Ford

© 2008 Prentice Hall, Inc.

 His methods involve workers in decisions 1 – 53

© 2008 Prentice Hall, Inc.

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Contributions From

Deming Institute: http://deming.org

 Human factors (ergonomics, fatigue studies)  Industrial engineering  Management science (operations research)  Biological science  Physical sciences  Information technology

© 2008 Prentice Hall, Inc.

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© 2008 Prentice Hall, Inc.

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What is Operations Research ?

What is Industrial Engineering ?

OR/MS Professionals aim to provide rational bases for decision making by seeking to understand and structure complex situations and to use this understanding to predict system behavior and improve system performance.

Industrial engineering is concerned with the design, installation, and improvement of integrated systems of people, material, information, equipment and energy. It draws upon specialized knowledge and skills in the mathematical, physical and social sciences, together with the principles and methods of engineering analysis and design to specify, predict and evaluate the results to be obtained from such systems.

Much of this work is done using analytical and numerical techniques to develop and manipulate mathematical and computer models of organizational systems composed of people, machines, and procedures. ...

IIE Web Site -- http://www.iienet.org

http://www.informs.org/ © 2008 Prentice Hall, Inc.

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© 2008 Prentice Hall, Inc.

What is Operations Research ?

New Challenges in OM From

OR/MS draws upon ideas from engineering, management, mathematics, and psychology to contribute to a wide variety of application domains; the field is closely related to several other fields in the "decision sciences" -- applied mathematics, computer science, economics, and industrial engineering. INFORMS Web Site -http://www.informs.org © 2008 Prentice Hall, Inc.

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To

 Local or national focus

 Global focus

 Batch shipments

 Just-in-time

 Low bid purchasing

 Supply chain partnering (keiretsu?)

 Lengthy product development

 Rapid product development, alliances

 Standard products

 Mass customization

 Job specialization

 Empowered employees, teams

© 2008 Prentice Hall, Inc.

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Current Issues

Current Issues

 Speeding up the time it takes to get new products into production. (Concurrent engineering -- eş zamanlı mühendislik)

 Achieving high quality quickly and keeping it up in the face of restructuring.

 Developing flexible production systems to enable “mass customization” of products and services. (kişiye özel seri üretim; kitlesel bireyselleştirme; özelleştirme)

 Managing a diverse workforce.  Conforming to environmental constraints, ethical standards, and government regulations.

 Managing global production networks.  Developing and integrating new production technologies into existing production systems © 2008 Prentice Hall, Inc.

….

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© 2008 Prentice Hall, Inc.

Mass Customization (kişiye özel seri üretim) Interesting Example

Mass customization

Panasonic Bicycles Matsushita Corp.- NBIC 21 employeees plus CAD system 18 basic models in 199 color patterns; 8 million variations Standard model - 90 min/unit; special model - 150 min/unit Price: %20-30 more than standard model Delivery time: ~ 3 weeks (Why? -- feeling of anticipation for something special!!) © 2008 Prentice Hall, Inc.

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Mass Customization (kişiye özel seri üretim)

• Kitlesel Özelleştirme • Kitle Özelleştirmesi • Kişiselleştirme • Kitlesel Bireyselleştirme

• Seri Uyarlama • Yığın Kişiselleştirme • Kitlesel Özel Üretim • Kişiye Özel Üretim • *Kişiye Özel Kitlesel (seri) Üretim © 2008 Prentice Hall, Inc.

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Characteristics of Goods  Tangible product

 Many computer companies at one time used to let you configure your own laptop

 Consistent product definition

 HP

 Production usually separate from consumption

 Toshiba  Dell  Gateway (one of the pioneers in this area)

 Can be inventoried  Low customer interaction

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 Often easy to automate

© 2008 Prentice Hall, Inc.

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Characteristics of Service

Goods Versus Services

 Intangible product  Produced and consumed at same time  Often unique  High customer interaction  Inconsistent product definition  Often knowledgebased(education, medical, legal, etc.)

 Not possible or easy to automate

Attributes of Services (Intangible Product)

Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production Product is transportable

Reselling unusual Difficult to inventory Quality difficult to measure

Table 1.3

© 2008 Prentice Hall, Inc.

Differences Between Goods and Services Intangible: Ride in an airline seat

Tangible: The seat itself

Produced and consumed simultaneously: Beauty salon produces a haircut that is consumed as it is produced

Product can usually be kept in inventory (beauty care products)

Unique: Your investments and medical care are unique

Similar products produced (iPods)

High customer interaction: Often what the customer is paying for (consulting, education)

Limited customer involvement in production

Inconsistent product definition: Auto Insurance changes with age and type of car

Product standardized (iPhone)

Often knowledge based: Legal, education, and medical services are hard to automate

Standard tangible product tends to make automation feasible

Services dispersed: Service may occur at retail store, local office, house call, or via internet.

Product typically produced at a fixed facility

Quality may be hard to evaluate: Consulting, education, and medical services

Many aspects of quality for tangible products are easy to evaluate (strength of a bolt)

Reselling is unusual: Musical concert or medical care

Product often has some residual value

© 2014 Pearson Education

Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management

Consulting service/ teaching Counseling 100%

75

50

25

0

|

|

|

|

|

Percent of Product that is a Good

25

50

75

100%

|

|

|

|

Percent of Product that is a Service Figure 1.4

1 - 69 © 2008 Prentice Hall, Inc.

Manufacturing and Service Employment

1 – 70

Manufacturing Employment and Production – 150

Service

80 – 60 – 40 –

Manufacturing

20 – | 1950

| 1960

© 2008 Prentice Hall, Inc.

| 1970

|

| | | 1990 2010 (est) 1980 2000

Industrial production (right scale)

– 100 – 75 40 30 20 10 0

– – – – –

Manufacturing – 50 employment (left scale)

– 25 | 1950

| 1960

Figure 1.5 (A)

– 125

Index: 1997 = 100

100 –

Employment (millions)

Employment (millions)

120 –

0–

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Goods and Services

TABLE 1.3 CHARACTERISTICS OF GOODS

Provider, not product, is often transportable Site of facility important for customer contact Often difficult to automate Revenue generated primarily from the intangible service

Often easy to automate Revenue generated primarily from tangible product 1 – 67

CHARACTERISTICS OF SERVICES

Selling is part of service

Site of facility important for cost

 Frequently dispersed(local office, house call, etc.) © 2008 Prentice Hall, Inc.

Attributes of Goods (Tangible Product)

| 1970

| 1980

| 1990

–| 0 2010 (est) 2000 |

Figure 1.5 (B) 1 – 71

© 2008 Prentice Hall, Inc.

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Development of the Service Economy

Organizations in Each Sector

United States Canada

Education, Legal, Medical, and other

ODTÜ, Bayındır Hastaneleri, Arnold Palmer Hospital

25.5

Trade (retail, wholesale)

Migros,Walgreen’s, WalMart, Nordstrom’s, Teknosa

15.1

Utilities, Transportation

Enerjisa, Başkent Gaz, THY, DDY, Pacific Gas & Electric, American Airlines, Santa Fe R.R., Roadway Express

5.2

France Italy Britain Japan |

|

40

|

|

|

50 60 70 Percent of GDP

W. Germany

80

1970

2008 (est) Figure 1.5 (C)

© 2008 Prentice Hall, Inc.

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Organizations in Each Sector Service Sector

Example

1 – 74

Organizations in Each Sector Manufacturing

TOFAŞ, ÇİMSA,General Electric, Ford, U.S. Steel, Intel

11.5

Construction

MESA, TEKFEN, Bechtel, McDermott

7.9

Agriculture

King Ranch

1.6

Mining

Homestake Mining

0.4

Sector

Percent of all jobs

10.1

Finance, Information, Real Estate

Citicorp, American Express, Prudential, Aetna, Trammel Crow, EDS, IBM

9.6

Food, Lodging, Entertainment

Olive Garden, Hard Rock Cafe, Motel 6, Hilton Hotels, Walt Disney, Paramount Pictures

8.5

4.6 Table 1.4

© 2008 Prentice Hall, Inc.

1 – 75

% of all Jobs

Example

Service

78.6%

Manufacturing

21.4%

© 2008 Prentice Hall, Inc.

New Trends in OM

Table 1.4 1 – 76

New Trends in OM

Past

Causes

Future

Local or national focus

Reliable worldwide communication and transportation networks

Global focus, moving production offshore

Batch (large) shipments

Short product life cycles and cost of capital put pressure on reducing inventory

Just-in-time performance

Low-bid purchasing

Supply chain competition requires that suppliers be engaged in a focus on the end customer

Supply chain partners, collaboration, alliances, outsourcing

Past

Causes

Future

Lengthy product development

Shorter life cycles, Internet, rapid international communication, computeraided design, and international collaboration

Rapid product development, alliances, collaborative designs

Standardized products

Affluence and worldwide markets; increasingly flexible production processes

Mass customization with added emphasis on quality

Job specialization

Changing socioculture milieu; increasingly a knowledge and information society

Empowered employees, teams, and lean production

Figure 1.6 © 2008 Prentice Hall, Inc.

Table 1.4

© 2008 Prentice Hall, Inc.

Manufacturing Sector

Snelling and Snelling, Waste Management, Pitney-Bowes

U.S., State of Alabama, Cook County

Example

% of all Jobs

Professional and Business Services

Public Administration

% of all Jobs (USA)

Service Sector

Figure 1.6 1 – 77

© 2008 Prentice Hall, Inc.

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New Trends in OM Past

Causes

Summary- New Trends in OM Future

Low-cost focus

Environmental issues, ISO 14000, increasing disposal costs

Environmentally sensitive production, green manufacturing, recycled materials, remanufacturing

Ethics not at forefront

Businesses operate more openly; public and global review of ethics; opposition to child labor, bribery, pollution

High ethical standards and social responsibility expected

       

Global focus Just-in-time performance Supply chain partnering Rapid product development Mass customization Empowered employees Environmentally sensitive production Ethics

Figure 1.6 © 2008 Prentice Hall, Inc.

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© 2008 Prentice Hall, Inc.

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The Economic System

Productivity Challenge Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital)

Inputs

Processes

Outputs

Labor, capital, management

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%).

Goods and services

The objective is to improve productivity! Important Note! Production is a measure of output only and not a measure of efficiency

Feedback loop Figure 1.7

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Improving Productivity at Starbucks

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Improving Productivity at Starbucks

A team of 10 analysts continually look for ways to shave time. Some improvements:

A team of 10 analysts continually look for ways to shave time. Some improvements:

Stop requiring signatures on credit card purchases under $25

Saved 8 seconds per transaction

Operations improvements have helped Starbucks increase yearly Stop requiring signatures Saved 8 seconds revenue per outlet $200,000 to on credit card purchases perby transaction under $25 $940,000 in six years.

Change the size of the ice scoop

Saved 14 seconds per drink

improved by 27%, Change the sizeProductivity of the ice hasSaved 14 seconds or about 4.5% per scoop peryear. drink

New espresso machines

Saved 12 seconds per shot

New espresso machines

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© 2008 Prentice Hall, Inc.

Saved 12 seconds per shot 1 – 84

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Productivity

Efficiency vs. effectiveness

Units produced

Efficiency – doing a job with a minimum of resources and waste i.e. doing the job well. Efficiency= actual output/standard output

 Represents output relative to input

Effectiveness – achieving your stated goal or purpose i.e. doing the right job.

 Only through productivity increases can our standard of living improve 1 – 85

Productivity Calculations

=

© 2008 Prentice Hall, Inc.

Productivity =

Units produced Labor-hours used 1,000 250

 Output and inputs are often expressed in dollars Multiple resource inputs  multi-factor productivity

One resource input  single-factor productivity 1 – 87

IllustrationCollins Title Productivity

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Collins Title Productivity

Old System (Non-computerized): Staff of 4 works 8 hrs/day Payroll cost = $640/day

Output Labor + Material + Energy + Capital + Miscellaneous

 Also known as total factor productivity

= 4 units/labor-hour

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Multi-Factor Productivity

Labor Productivity Productivity =

Input used

 Measure of process improvement

(70pcs/hr) / (60 pcs/hr) = 1.17

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Productivity =

Old System:

8 titles/day Overhead = $400/day

Staff of 4 works 8 hrs/day Payroll cost = $640/day

8 titles/day Old labor = productivity 32 labor-hrs

8 titles/day Overhead = $400/day

8 titles/day Old labor = = .25 titles/labor-hr productivity 32 labor-hrs

Note: Collins Title is a reinsurance company (tapu sigortası). It has set up a new computerized title search system. © 2008 Prentice Hall, Inc.

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Collins Title Productivity

Collins Title Productivity

Old System: Staff of 4 works 8 hrs/day Payroll cost = $640/day New System: 14 titles/day

Old System: 8 titles/day Overhead = $400/day

Staff of 4 works 8 hrs/day Payroll cost = $640/day New System:

Overhead = $800/day

14 titles/day

8 titles/day Old labor = = .25 titles/labor-hr productivity 32 labor-hrs

14 titles/day New labor = = .4375 titles/labor-hr productivity 32 labor-hrs

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Collins Title Productivity

Staff of 4 works 8 hrs/day Payroll cost = $640/day New System:

Overhead = $800/day

© 2008 Prentice Hall, Inc.

14 titles/day

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8 titles/day Overhead = $400/day Overhead = $800/day

8 titles/day Old multifactor = = .0077 titles/dollar productivity $640 + 400

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Collins Title Productivity

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Collins Title Productivity

Old System:

14 titles/day

75 % increase

Old System: 8 titles/day Overhead = $400/day

8 titles/day Old multifactor = productivity $640 + 400

Staff of 4 works 8 hrs/day Payroll cost = $640/day New System:

© 2008 Prentice Hall, Inc.

Collins Title Productivity

Old System:

14 titles/day

Overhead = $800/day

8 titles/day Old labor = = .25 titles/labor-hr productivity 32 labor-hrs

14 titles/day New labor = productivity 32 labor-hrs

Staff of 4 works 8 hrs/day Payroll cost = $640/day New System:

8 titles/day Overhead = $400/day

Old System: 8 titles/day Overhead = $400/day

Staff of 4 works 8 hrs/day Payroll cost = $640/day New System:

Overhead = $800/day

14 titles/day

8 titles/day Overhead = $400/day Overhead = $800/day

8 titles/day Old multifactor = = .0077 titles/dollar productivity $640 + 400

8 titles/day Old multifactor = = .0077 titles/dollar productivity $640 + 400

14 titles/day New multifactor = productivity $640 + 800

14 titles/day New multifactor = = .0097 titles/dollar productivity $640 + 800 26 % increase

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Productivity Variables

Measurement Problems

For the U.S. economy’s 2.5 % annual increase

 Quality may change while the quantity of inputs and outputs remains constant

 Labor - contributes about 10% of the annual increase

 External elements may cause an increase or decrease in productivity(power or gas shortages, strikes & lockouts, etc)

 Precise units of measure may be lacking (not all cars may require the same inputs– Opel Corsa vs. Porsche)

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 Capital - contributes about 38% of the annual increase  Management contributes about 52% of the annual increase

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Key Variables for Improved Labor Productivity

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Labor Skills About half of the 17-year-olds in the US cannot correctly answer questions of this type

 Basic education appropriate for the labor force  Diet of the labor force  Social overhead that makes labor available (transportation, sanitation, health services, etc.)  Maintaining and enhancing skills in the midst of rapidly changing technology and knowledge © 2008 Prentice Hall, Inc.

Figure 1.8 1 – 99

© 2008 Prentice Hall, Inc.

Service Productivity

Investment and Productivity 10 Percent increase in productivity

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 Typically labor intensive  Frequently focused on unique individual attributes or desires

8 6

 Often an intellectual task performed by professionals

4

 Often difficult to mechanize

2

 Often difficult to evaluate for quality

0 10

15

20

25

30

35

Percentage investment © 2008 Prentice Hall, Inc.

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NO COMMENT!

Productivity at Taco Bell Improvements:  Revised the menu  Designed meals for easy preparation  Shifted some preparation to suppliers  Efficient layout and automation  Training and employee empowerment

How about DO&CO İkram Hizmetleri A.Ş. (Airline Catering Company)? http://www.doco.com

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© 2008 Prentice Hall, Inc.

Productivity at Taco Bell

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Ethics and Social Responsibility

Improvements:

Challenges facing operations managers:

 Revised the menu Results: Designed meals for easy preparation  Shifted some preparation to suppliers  Preparation time of tacos cut to 8  Efficient layout and automation seconds  Training and employee empowerment  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 © 2008 Prentice Hall, Inc.

 Developing and producing safe, quality products

 Maintaining a clean environment  Providing a safe workplace  Honoring community commitments 1 – 105

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Some Bestseller Books on Operations Management

Copenhagen County Hospital



Porter, Michael E., The Competitive Advantage of Nations. The Free Press, 1990.



Womack, James P., Jones, Daniel T., and Daniel Roos. The Machine That Changed The World: The Story of Lean Production. Harper Collins, 1990.



Womack, James P., Jones, Daniel T. Lean Thinking. Simon and Schuster, 1996



Treacy, Michael and Fred Wiersema. The Discipline of Market Leaders. Addison Wesley, 1997.



Halberstam, David. The Reckoning. Avon Books, 1986



Hammer, Michael and James Champy. Reengineering the Corporation: A Manifesto for Business Revolution. Harper Collins, 1994.



Hammer, Michael and Steven A. Stanton. The Reengineering Revolution Handbook. Harper Collins, 1995



Liker, Jeffrey K. The Toyota Way. McGraw-Hill, 2004.

• Textbook – p. 54 • Cost cutting example • Another example: think of Hacettepe Hospital (or any large-scale hospital in Turkey) – lots of opportunities for cutting costs and increasing efficiency and productivity © 2008 Prentice Hall, Inc.

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Some Bestseller Books on Operations Management  Pande, Peter S., Neuman, Robert P., Cavanagh, Roland R. The Six Sigma Way. McGraw-Hill 2000.

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Some Landmark Articles on Operations Management 

Porter, Michael E. “The Competitive Advantage of Nations.” Harvard Business Review (HBR), March-April 1990.



Skinner, Wickham. “Manufacturing - Missing Link in Corporate Strategy.” HBR, May-June 1969.



Skinner, Wickham. “The Focused Factory.” HBR, May-June 1974.



Wheelwright, Steven C. and Robert H. Hayes. “Competing Through Manufacturing.” HBR, January-February 1985.



Hayes, Robert H. “Why Japanese Factories Work.” HBR, July-August 1981.



Skinner, Wickham. “The Productivity Paradox.” HBR, July-August 1986.



Hayes, Robert H. and Kim Clark. “Why Some Factories Are More Productive Than Others.” HBR, September-October 1986.

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Some Landmark Articles on Operations Management  Drucker, Peter F. “The Emerging Theory of Manufacturing.” HBR, May-June 1990.

 Drucker, Peter F. “The Productivity Challenge.” HBR, NovemberDecember 1991.

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