OM201:

Operation and Productivity

Friday, 1 March BE 2562 18:53

Hard Rock Café, Opened in 1971, now with 150 restaurants in over 53 countries.
• Designing meals + Testing
• Analyzing meals for ingredient costs and labor requirements
• Operations task >>> Preparing employee schedules

What is operations management?

Operation management (OM): Set of activities that create value in the form of goods and
services by transforming inputs into outputs - Production: creation of goods and services

Organizing to produce goos and services, 3 essential functions that creates value for
customers

1. Marketing: Generate demand (Not creating values)

2. Production/Operation: Creates products >>> Gives value to the product/service
3. Finance/Accounting: Tacking performance of the company (Numerical ways), pays
bills, collects money

The supply chain: A global network of organizations and activities that supply a firm
goods and services (May create value for the firm)
Members of the supply chain collaborate to achieve high levels of customer
satisfaction, efficiency and competitive advantage
As our society becomes more technologically oriented, increasing in specialization is used
to achieve higher levels of customer satisfaction that adding value at each step in supply
chain.

Why study OM?

1. One of three main functions of any organization, how people organize themselves
for productive enterprise.
2. How goods and services are produced.
3. What operation manager do?
4. Costly part of an organization that many company try to improve it >>> COGS: If
decreasing, it will increase contribution margin per unit.

Marketing option >>> Increase sales, however; it also increase COGS at the same time.
(Affects all part)
Finance/Accounting option >>> Decrease in “Finance Costs” which is minor cost, it is
unnecessary to allocate and reduce this cost
OM option >>> Decline in percentage of Major cost, which in most organization, firm
invest to improve and reduce this cost.

What operation manager do?

1. Planning (Expect)
2. Organizing (Manage)
3. Staffing (HR)
4. Leading (Direction)
5. Controlling

These management process is to make decisions in OM function, through “The 10

Strategic OM Decision”

Helpful organization provide various certifications that enhance your education and
career
◆ APICS, the Association for Operations Management (www.apics.org)
◆ American Society for Quality (ASQ) (www.asq.org)
◆ Institute for Supply Management (ISM) (www.ism.ws)
◆ Project Management Institute (PMI) (www.pmi.org)
◆ Council of Supply Chain Management Professionals (www.cscmp.org)

Heritage of OM

• Eli Whitney (1800): Creation of interchangeable parts, achieved through

standardization and quality control
• Frederick W. Taylor (1881):
○ Father of scientific management
○ Personal selection, planning and scheduling, motion study, and the ergonomics
○ Management should assume more responsible for Matching job, provide
training, proper work method and tool, and incentives for work to be
accomplished
• Henry Ford and Charles Sorensen: Quasi-assembly lines
• Walter Shewhart: Quality control, with statistical sampling

OM is shaped by many advances, such as, science, industry, IT

Operations for goods and services

Manufacturing produce tangible product, but services often intangible.
The operation activities for both goods and services are often very similar.
Few company are pure services/goods
Services: Economic activities that typically product an intangible product, such as
education, entertainment

Service constitution is the largest sector in postindustrial societies, which it became

dominant and greater than manufacturing in early 1920s.
With the perception that services are low-paying jobs, however; in study showed that 42%
of service workers receive above average wages. Only 14 of 33 service industries are
paying below average.

The productivity challenge

Productivity is the ratio of outputs divided by the inputs. Manager job is to enhance
this ratio of outputs to inputs
Can be applied that, their job is to improving efficiency

This improvement achieve in two ways

○ Reducing inputs while keeping/increasing outputs
○ Increasing outputs while keeping/decreasing inputs

Case study: Starbucks

Stop requiring signatures on credit card under $25 Saved 8 secs
Change size of ice scoop Saved 14 secs
New coffee machine Saved 12 secs

OM helped starbucks to increase yearly revenue per outlet by $250,000 to $1,000,000 >
productivity improved by 27% or 4.5% annually.

Productivity
Measure of process improvement
Represents output relative to input
Productivity increase = Increase standard of living

Calculations: One resource input >>> Single-factor productivity

Multiple resource inputs >>> Multi-factor productivity

Note: Convert every unit into currency >>> easier to calculate

Measurement problems
1. Quality may change while the quantity of inputs and outputs remains constant
2. External elements may cause an increase or decrease in productivity
3. Precise units of measure maybe lacking

Productivity variable:
• Labor contribute 10% of the annual increase
• Capital contribute 38% of improvement
• Management rise 52% of the annual increase

Key variables for improved labor productivity

1. Education appropriate for the labor force
2. Diet of the labor force
3. Social overhead that makes labor available
Challenge is in maintaining and enhancing skills in the midst of rapidly changing
technology and knowledge

Key variables for improved capital productivity

Adjust their investment plans to changes in capital cost and risk

Key variables for improved management productivity

1. Ensures labor and capital are effectively used to increase productivity by helps of
a. Knowledge
b. Technology
2. Knowledge societies: Post-industrial societies, those in which much of the labor force
has migrated from manual work to technical and information-processing task,
requiring ongoing education.
3. More effective use of technology, knowledge, and capital

Productivity in the service sector

• Difficult to improve
• Hard to accurately measure productivity and improvement
1. Typically labor intensive
2. Frequently focused on unique individual attributes or desires
3. Often an intellectual task performed by professionals, doctor
4. Often difficult to mechanize and automate
5. Often difficult to evaluate for quality

Summary: Operations, marketing, and finance/accounting are the three functions basic
to all organizations. The operations function creates goods and services. Much of the
progress of opera- tions management has been made in the twentieth century, but since
the beginning of time, humankind has been attempt- ing to improve its material well-
being. Operations managers are key players in the battle to improve productivity.
As societies become increasingly affluent, more of their resources are devoted to
services. In the U.S., more than 85% of the workforce is employed in the service sector.
Productivity improvements and a sustainable environment are difficult to achieve, but
operations managers are the primary vehicle for making improvements.