OPERATIONS AND PRODUCTIVITY OPERATION MANAGEMENT OPERATIONS AND PRODUCTIVITY

OPERATIONS AND PRODUCTIVITY OPERATION MANAGEMENT OPERATIONS AND PRODUCTIVITY BARRY PUALENGCO – KAREN TRINIDAD

Contents 1 Introduction to Operation Management 2 Productivity 3 Examples 4 Challenges OPERATIONS AND PRODUCTIVITY

WHAT IS INSIDE A BUSINESS? OPERATIONS AND PRODUCTIVITY

WE CREATE VALUE Production/Operation ØFacilities Construction ØFacilities Maintenance ØProduction and inventory control ØScheduling, material controls ØQuality Assurance and control ØSupply-chain management ØManufacturing tooling fabrication; Assembly; ØDesign products, product development ØDetailed product specification ØIndustrial engineering, efficient use of machine, space, personnel. OPERATIONS AND PRODUCTIVITY Finance/Accounting ØDisbursement/credits, Accounts receivable, payable, General ledger ØFund management, money market, International exchange ØCapital requirements, Stock issue, Bond issue and recall ØFinance, cash control ØInvestment Marketing ØSale promotion ØAdvertising ØMarket research ØSales

What are these activities? Production/ Operation Finance/ Accounting Marketing OPERATIONS AND PRODUCTIVITY creation of goods and services tracks how well the organization is doing, paying bills, and collecting money. generates the demand, or at least takes the order for a product or service.

VALUE ADDED INPUTS Land Labor Capital OUTPUTS TRANSFORMATION/ CONVERSION PROCESS Goods Services FEEDBACK CONTROL FEEDBACK OPERATIONS AND PRODUCTIVITY FEEDBACK

Definition Operation Management is the set of activities that creates value in the form of goods and services by transforming inputs into outputs OPERATIONS AND PRODUCTIVITY

EXAMPLES INPUT-PROCESS-OUTPUT 1. 2. 3. INPUT PROCESS OUTPUT OPERATIONS AND PRODUCTIVITY

FOOD PROCESSOR INPUTS Raw Vegetables PROCESSING Cleaning Metal Sheets Water Energy Labor Building Making cans Equipment OPERATIONS AND PRODUCTIVITY Cutting Cooking Packing Labeling OUTPUTS Canned vegetables

HOSPITAL PROCESS INPUTS Raw Vegetables Doctors PROCESSING Examination Nurses Surgery Hospital Monitoring Medical Supplies Medication Equipment Therapy Laboratories OPERATIONS AND PRODUCTIVITY OUTPUTS Healthy patients

GOODS AND SERVICES 1. Can be resold 2. Can be inventoried 3. Some aspect of quality are measurable 4. Selling is distinct from production 5. Product is transportable 6. Site of facility is important for cost 7. Easy to automate 8. Revenue generated from tangible product 1. Reselling is unusual 2. Cannot be inventoried 3. Many aspect are difficult to measure 4. Selling is often part of the services 5. Provider is transportable 6. Site of facility is important for customer contact 7. Difficult to automate 8. Revenue generated from intangible services GOODS SERVICES Difference between Goods and Services OPERATIONS AND PRODUCTIVITY

Manufacturing or Service? Tangible OPERATIONS AND PRODUCTIVITY Act

Goods-service Continuum Steel production Home remodeling Auto Repair Maid Service Teaching Automobile fabrication Retail sales Appliance repair Manual car wash. Lawn mowing High percentage goods Low percentage service OPERATIONS AND PRODUCTIVITY Low percentage goods High percentage service

Manufacturing vs Service MANUFACTURING Characteristics SERVICE Tangible Intangible Output Low High Low Uniformity of input Low High Labor content High Easy High OPERATIONS AND PRODUCTIVITY High Customer contact Low Uniformity of output Measurement of productivity Opportunity to correct quality problems Difficult Low

US EMPLOYMENT MANUFACTURING VS. SERVICE OPERATIONS AND PRODUCTIVITY

Lets Try This! • Fisher Technologies is a small firm that double its dollar contribution to a fixed cost and profit in order to be profitable enough to purchase the next generation of production equipment. Management has determined that if the firm fails to increase contribution, its bank will not make the loan and the equipment cannot be purchased. It the firm cannot purchase the equipment, the limitations of the old equipment will force Fisher to go out of business and, in doing so, puts its employees out of work and discontinue producing goods and services for its customers. OPERATIONS AND PRODUCTIVITY

Fisher Technologies Sales Cost of Goods Gross Margin Finance costs Subtotal Taxes at 25% Contribution $100, 000. 00 -80, 000. 00 20, 000. 00 -6, 000. 00 14, 000. 00 -3, 500. 00 $10, 500 Option No. 1: (Marketing Option) Good marketing management may increase sales by 50% Option No. 2: (Finance/Accounting Option) Good financial management cut in half the finance costs. Option No. 3: (OM Option) Reduce production cost by 20% OPERATIONS AND PRODUCTIVITY

Details Sales Cost of Goods Gross Margin Finance costs Subtotal Taxes at 25% Contribution Current Option 1 Option 2 Option 3 $100, 000. 00 $150, 000. 00 $100, 000. 00 -80, 000. 00 -120, 000. 00 -80, 000. 00 -64, 000. 00 20, 000. 00 30, 000. 00 20, 000. 00 36, 000. 00 -6, 000. 00 -3, 000. 00 -6, 000. 00 14, 000. 00 24, 000. 00 17, 000. 00 30, 000. 00 -3, 500. 00 -6, 000. 00 -4, 250. 00 -7, 500. 00 $10, 500. 00 $18, 000. 00 $12, 750. 00 $22, 500. 00 OPERATIONS AND PRODUCTIVITY

Productivity Challenge: Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital) Productivity = Output Input = Goods and Services Labor and Capital Objective: to improve productivity! OPERATIONS AND PRODUCTIVITY

Definition Efficiency Doing job well- minimum resources/waste Effective doing the right thing. OPERATIONS AND PRODUCTIVITY

How do we increase Productivity? 1. 2. 3. Reduce inputs, constant outputs Increase outputs, constant inputs Resulting to High ROI, lower prices. OPERATIONS AND PRODUCTIVITY 4. High ROI, constant productivity = higher prices

Productivity Measurement Single-factor productivity indicates the ratio of one resource (input) to the goods and services produced (outputs) Multifactor productivity indicates the ratio of many or all resources (inputs) to the goods and services produced (outputs) OPERATIONS AND PRODUCTIVITY

Example Collins Title wants to evaluate its labor and multifactor productivity with a new computerized search system. The company has a staff of four, each working 8 hours per day (for a payroll cost of $640/day) and overhead expenses of $400 per day. Collins processes and closes on 8 titles each day. The new computerized title-search system will allow the processing of 14 titles per day. Although the staff, their work hours, and pay are the same, the overhead expenses are now $800 per day. Use Single-factor productivity. Use multifactor productivity. OPERATIONS AND PRODUCTIVITY

Productivity Variables Management Capital Labor contributes about 10% of the annual increase OPERATIONS AND PRODUCTIVITY contributes about 38% of the annual increase which contributes about 52% of the annual increase.

OPERATIONS AND PRODUCTIVITY CHALLENGES

6 yds 4 yds What is the area of this rectangle? a. 4 square yds b. 6 square yds c. 10 square yds d. 20 square yds e. 24 square yds OPERATIONS AND PRODUCTIVITY

If 9 Y + 3 = 6 y + 15, then Y = a. 1 c. 4 b. 2 d. 6 OPERATIONS AND PRODUCTIVITY

Which of the following is true about 84% of 100? a. It is greater than 100 b. It is less than 100 c. Its is equal to 100 OPERATIONS AND PRODUCTIVITY

Lets Try This. • At Modern Lumber, Inc. , Art Binley, president and producer of apple crates sold to growers, has been able, with his current equipment, to produce 240 crates per 100 logs. He currently purchases 100 logs per day, and each log requires 3 labor-hours to process. He believes that he can hire a professional buyer who can buy a better-quality log at the same cost. If this is the case, he can increase his production to 260 crates per 100 logs. His laobr-hours will increase by 8 hours per day. – What will be the impact on productivity (measured in crates per labor-hour) if the buyer is hired? OPERATIONS AND PRODUCTIVITY

Problem 2 • Art Binley has decided to look at his productivity from a multifactor (total factor productivity) perspective (refer to Solved Problem 1. 1). To do so, he has determined his labor, capital, energy, and material usage and decided to use dollars as the common denominator. His total laborhours are now 300 per day and will increase to 308 per day. His capital and energy costs will remain constant at $350 and $150 per day, respectively. Material costs for the 100 logs per day are $1, 000 and will remain the same. Because he pays an average of $10 per hour (with fringes), Binley determines his productivity increase as follows: OPERATIONS AND PRODUCTIVITY

Solution Current System with Professional Buyer 300 hrs. @ $10 = 308 hrs @ $10 = $3, 080 100 logs/day 000 Labor: $3, 000 Material: 1, 000 Capital: 350 Energy: 150 Total Cost: $4, 500 580 Multifactor productivity of current Multifactor productivity of OPERATIONS AND PRODUCTIVITY system: = 240 crates/4, 500 = proposed system: = 260 1, $4,

OPERATIONS AND PRODUCTIVITY Thank You! www. themegallery. com