OPERATIONS

MANAGEMENT

CHAPTER 1 –

OPERATIONS AND
PRODUCTIVITY

1
OUTLINE

 Company Profile: Hard rock café

 What Is Operations Management?

 Organizing To Produce Goods And Services

 Why Study OM?

 What Operations Managers Do

 The Evolution Of Operations Management

 Operations In The Service Sector 2

OUTLINE (CONT.)

 Differences Between Goods And Services

 Growth Of Services

 The Productivity Challenge

 Productivity Measurement

 Productivity Variables

 Productivity And The Service Sector

 Exciting New Trends In Operations Management

 Ethics And Social Responsibility

3
HARD ROCK CAFÉ

 Brief about hard rock

 Hard Rock Cafe Inc. is a food service, hospitality, and gaming
business originally focused on operating casual dining
restaurants. Founded in London in 1971, the company
developed its brand through the themed restaurant experience.

 Customers are typically greeted with an ambiance of rock and

roll. The company experienced significant growth and
expansion in the 1990s.

 Today, Hard Rock Cafe is diversified, with operations in the

food service (themed restaurants) industry, gaming (casino)
industry, and hospitality (hotel) industry.
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HARD ROCK CAFÉ

 The success of Hard Rock Cafe

 Is partly linked to the firm’s effectiveness in addressing the
business needs pertaining to the 10 decisions of operations
management.

 Also relevant are the productivity principles and concepts on

personnel and other areas of the business organization. Hard
Rock Cafe directly and indirectly competes against other firms,
such as Hooters, Twin Peaks, and Planet Hollywood, as well as
food service chains like McDonald’s, Burger King, Starbucks,
and Dunkin’ Donuts.

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WHAT IS OPERATION MANAGEMENT?
 Operations management is the administration of business
practices to create the highest level of efficiency possible
within an organization.

 It is concerned with converting materials and labor into

goods and services as efficiently as possible to maximize
the profit of an organization.

 Operations management focus on:

Planning Organizing Coordinating Controlling

of the resources needed to produce a company's

products and services
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ORGANIZING TO PRODUCE GOODS AND
SERVICES

 A Good is a physical product that you can see, touch,

or possible consume

 Durable Goods  >= 3 years

 Non-Durable  < 3 years

 A Service is any primary or complementary activity

“If you drop it on your foot, it won´t hurt you”

GOOD OR SERVICE?
“Services never include goods and goods never include services” 7
ORGANIZING TO PRODUCE GOODS AND
SERVICES

 Characteristics of goods:
 Tangible product Production usually separate from
consumption
1. Can be inventoried
2. Low customer interaction
 Characteristics of services:
1. Intangible product Produced & consumed at
same time
2. Often unique High customer interaction.
3. Often knowledge-based.
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WHY WE STUDY OM?

 OM is one of the three major functions of any

organization, and it is integrally related to all the other
business functions. So, we study OM…

o because we want to know how goods and services are

produce.

o to understand what operations managers do.

o because it is such a costly part of an organization.

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WHAT OPERATIONS MANAGER DO?
 Beside maintaining the main managerial functions
which is (Planning, organizing, leading and controlling),
operations manager should take a critical decision
regarding the following questions:

1. How to do more with less while maintain quality of goods and

service and process of producing?

2. How to use knowledge about the customer for designing of the

product and service?

3. How to determine resource capacity and scheduling, and

ensuring the resource and operations are coordinated?
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WHAT OPERATIONS MANAGER DO? (CONT.)
 Beside maintaining the main managerial functions
which is (Planning, organizing, leading and controlling),
operations manager should take a critical decision
regarding the following questions:

4. How to use technology to improve production?

5. How to create a high performance workplace and adopting

any global or environmental change?

 According to these questions we can conclude what

operational manager do
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10 BASIC CRITICAL (STRATEGIC ) DECISIONS
OF OPERATIONS MANAGER

1) Product and service design

 To match goods and service with the market demand and

preference. In another mean to translate the needs of the
customer into product and service.

 Ex: Pepsi Co. operations manager conduct market research

about the current trends such as consumer life styles, the result
of such research will make Pepsi change future variants of the
product Pepsi or create new product such as cherry Pepsi.

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10 BASIC CRITICAL (STRATEGIC ) DECISIONS
OF OPERATIONS MANAGER

2) Quality management

 How to maximize the quality of product and service based on

the business and customer expectation (costs, process limits).

 Ex: from the reviews of the Tche Tche café; they usually thanks
for the good quality shisha with reasonable price in addition
there is non-smoking place to meet the customers requirement.

3) Process & Capacity Design

 Capacity utilization and process efficiency is one of key

success of any business.
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10 BASIC CRITICAL (STRATEGIC ) DECISIONS
OF OPERATIONS MANAGER

4) Locations strategy

 Maximizing reaching of the target market and to choose the

strategic location where we can reach market.

 Ex: McDonald's goal is maximum market reach they opened

many places, and not enough they used mobile application
such as Otlob to reach maximum clients in addition to ads on
websites and open booths.

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10 BASIC CRITICAL (STRATEGIC ) DECISIONS
OF OPERATIONS MANAGER

5) Layout design

 How should we arrange the facility and material flow, and how
large the facility should be to meet our plan?

 Ex: Tche Tche café is modern style with good space and view,
in addition to the music background to focus on space and
provide a comfort feeling.

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10 BASIC CRITICAL (STRATEGIC ) DECISIONS
OF OPERATIONS MANAGER

6) Human Resources and job design

 Continuous improvement program required for the employee

provide training to improve their skills, provide incentives and
bonuses for the high production.

7) Supply chain management

 To develop trusted supplier partner and to use the way of

supplying that is cost effective and can support the E-business
programs.

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10 BASIC CRITICAL (STRATEGIC ) DECISIONS
OF OPERATIONS MANAGER

8) Inventory (material, requirement, planning & Jit)

 How to maintain inventory? How much inventory from each

item should we have? When to reorder? What strategy we are
going to take? FIFO or LIFO? And how to apply this technique
using system or technology?

9) Intermediate and short –term scheduling

 How much product required to be produced for customer in a

given time? How many people machine required to do job
efficiently and effectively? Then take the decision and make a
scheduling.
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10 BASIC CRITICAL (STRATEGIC ) DECISIONS
OF OPERATIONS MANAGER

10) Maintenance

 To maintain people and machines as well as process.

 The important of this decision is to keep quality and keep

resources reliable and stable.

 This 10 decision can help any size organization when

they use them in their decision making and to measure
how this affect productivity efficiency.

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THE EVALUATION OF OPERATIONS
MANAGEMENT

In the future
• The future of OM
In the present field will be
speculated based
• The widespread on the analysis
In the past use of Internet in performed in the
business earlier periods
• It was during this applications and the industry
period when experience of the
computers found authors.
their way into
organizations

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THE MAIN FOCUS OF OPERATIONS
MANAGEMENT

In the past
• The labor productivity
improvements Now
• Just in time, Rapid product
development

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OPERATION IN THE SERVICE SECTOR

 OM for service has the functional responsibility for

producing the services of an organization and providing
them directly to its customers

 The service sector treats services as intangible

products

 Service as a customer experience and service as a

package of facilitating goods and services

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DIFFERENCES BETWEEN GOODS AND
SERVICES

Goods Services

Can be resold Reselling unusual

Can be inventoried Difficult to inventory

Some aspects of quality measurable Qualify difficult to measure

Often easy to automate Selling is part of service

Ex. Automobile, Refrigerator Ex. Government, Education

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REASON FOR GROWTH OF SERVICES

 High productivity in agriculture and manufacturing

releases labor.

 Regularity of jobs in industry and services.

 High returns in trade, professions.

 Preference for knowledge work against muscle power.

 Growth in individualism.

 Example: McDonald's restaurant

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PRODUCTIVITY CHALLENGE

 Productivity is the ratio of outputs

Productivity
(goods and services) divided by
the inputs (resources such as labor
=
𝑼𝒏𝒊𝒕𝒆𝒔 𝒑𝒓𝒐𝒅𝒖𝒄𝒆𝒅
and capital)
𝑰𝒏𝒑𝒖𝒕 𝒖𝒔𝒆𝒅

 The objective is: to improve Production is a measure

this measure of efficiency of output only and not a
measure of efficiency

24
THE ECONOMIC SYSTEM TRANSFORMS
INPUTS TO OUTPUTS

Inputs Processes Outputs

The U.S. economic system
Labor, Goods
transforms inputs to outputs and
capital,
at about an annual 2.5% services
management
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%)

Feedback loop 25
INCREASING PRODUCTIVITY –
THE LA MOTOR POOL

Before Action Results

Cost $120 million  Created team Parts inventory dropped

annually assignments 20% reducing cost by
 Assigned parking places $5.4 million annually
for trucks
21,000 vehicles  Tires checked and Standardized pickups
trucks emptied each reduced costs by $12
night million annually
30% of the 900 trash  Standard customer
trucks were in repair pickups established Total fleet reduced by
 Computerized fleet 500 vehicles
management
11% of police cars  Mechanics moved to Out of service garbage
were in repair night shift trucks dropped to 18%
26
PRODUCTIVITY

 Measure of process improvement

 Represents output relative to input

 Only through productivity increases can our

standard of living improve

27
PRODUCTIVITY MEASUREMENT

 Labor Productivity

 Calculated using formula:

𝑶𝒖𝒕𝒑𝒖𝒕 𝒑𝒆𝒓 𝒑𝒆𝒓𝒊𝒐𝒅 (𝒖𝒏𝒊𝒕𝒔)
𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒆𝒎𝒑𝒍𝒐𝒚𝒆𝒆𝒔 𝒂𝒕 𝒘𝒐𝒓𝒌

 The answer from the formula is usually expressed in

terms of output per employee.

 e.g. 1000 units per employee per month

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PRODUCTIVITY MEASUREMENT (CONT.)

 Labor Productivity

 Other way to calculate labor productivity by:

𝑼𝒏𝒊𝒕𝒔 𝒑𝒓𝒐𝒅𝒖𝒄𝒆𝒅
𝑳𝒂𝒃𝒐𝒓 − 𝒉𝒐𝒖𝒓𝒔 𝒖𝒔𝒆𝒅
1000 units
 e.g. = 4 units/labor-hour
250 labor hour

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PRODUCTIVITY MEASUREMENT (CONT.)

 Multi-Factor Productivity
 Calculated using formula:
𝑶𝒖𝒕𝒑𝒖𝒕
𝑳𝒂𝒃𝒐𝒓 + 𝑴𝒂𝒕𝒆𝒓𝒊𝒂𝒍 + 𝑬𝒏𝒆𝒓𝒈𝒚 + 𝑪𝒂𝒑𝒊𝒕𝒂𝒍 + 𝑴𝒊𝒔𝒄𝒆𝒍𝒍𝒂𝒏𝒆𝒐𝒖𝒔

 Also known as total factor productivity

 Output and inputs are often expressed in dollars

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 PRODUCTIVITY MEASUREMENT (EXAMPLE)

 Collins Title Productivity

Variable Old System Old Labor Productivity
Staff 4 works
8 titles/day 8
= =
Work hours 8 hrs/day 4 works × 8 hrs/day 32

Output 8 titles/day = 0.25 title/labor-hour

Payroll cost $640/day

Overhead $400/day

Labor Productivity
Output
=
Staff × Work Hours 31
 PRODUCTIVITY MEASUREMENT (EXAMPLE)

 Collins Title Productivity

Variable Old System New System Old Labor Productivity
Staff 4 works 4 works
8 titles/day 8
= =
Work hours 8 hrs/day 8 hrs/day 4 works × 8 hrs/day 32

Output 8 titles/day 14 titles/day = 0.25 title/labor-hour

Payroll cost $640/day $640/day New Labor Productivity

Overhead $400/day $800/day
14 titles/day 14
= =
4 works × 8 hrs/day 32
Labor Productivity
Output = 0.4375 title/labor-hour
=
Staff × Work Hours 32
 PRODUCTIVITY MEASUREMENT (EXAMPLE)

 Collins Title Productivity

Variable Old System New System Old multifactor Productivity
Staff 4 works 4 works
8 titles/day
=
Work hours 8 hrs/day 8 hrs/day $640/day+$400/day

Output 8 titles/day 14 titles/day = 0.0077 titles/dollar

Payroll cost $640/day $640/day

New multifactor Productivity
Overhead $400/day $800/day
14 titles/day
=
Multifactor Productivity $640/day+$800/day
Output = 0.0097 titles/dollar
=
Payroll cost + Overhead 33
MEASUREMENT PROBLEMS

 Quality may change while the quantity of

inputs and outputs remains constant

 External elements may cause an increase or

decrease in productivity

 Precise units of measure may be lacking

34
PRODUCTIVITY VARIABLES

Contribution of productivity variables in

the annual increase

Labor Capital Management

10% 32% 52%

Labor Capital Management

35
KEY VARIABLES FOR IMPROVED LABOR
PRODUCTIVITY

• Basic education appropriate for the labor

force
• Diet of the labor force
• Social overhead that makes labor available
• Maintaining and enhancing skills in the
midst of rapidly changing technology and
knowledge

36
INVESTMENT AND PRODUCTIVITY IN
SELECTED NATIONS
10
Percent increase in mfg productivity

8 Japan
Belgium
Netherlands
6
Italy
France
4
Canada
2 US UK

0
10 15 20 25 30 35
Percentage investment
37
SERVICE PRODUCTIVITY

• Typically labor intensive

• Frequently focused on unique individual
attributes or desires
• Often an intellectual task performed by
professionals
• Often difficult to mechanize
• Often difficult to evaluate for quality
38
IMPROVE SERVICE PRODUCTIVITY

Improving Staff

Reduce the Mismatch

Introducing Systems
between Supply and
and Technology
Demand

Customer Reducing Service

interaction Levels

Substituting
Introducing New
Products for
Services
Services 39
 PRODUCTIVITY AT TACO BELL

Improvements Results

Management span of control increased

Revised the menu
from 5 to 30

Designed meals for easy preparation Preparation time cut to 8 seconds

Shifted some preparation to suppliers In-store labor cut by 15 hours/day

Efficient layout and automation Fast-food low-cost leader

Stores handle twice the volume with

Training and employee empowerment
half the labor

40
EXCITING NEW TRENDS IN OPERATIONS
MANAGEMENT

 In order to know what is the new trends we have in

operations management nowadays, we needs to know how
it was and how was the business runs and its scope and
goals. And accordingly we have to held a comparison to
know the difference
Main points In the past Nowadays
Focusing on local market Development of communications and
and producing product globalization allow for easy mobility of the
Market and service and limiting resources among regions and countries
Focus themselves with locations and thus, result in market expansion and
and geographical producing of goods and service at global
boundaries scale and result in wide competition
41
EXCITING NEW TRENDS IN OPERATIONS
MANAGEMENT
Main points In the past
Mass production by which
Just in it should be a batch of
time products & Service that
production produce in mass scale and
sold
Based on the lowest bid:
who will offer me with the
Supply lowest price to choose
chain ignoring, the quality and
reliability only its matter of
cost
Nowadays
It shifted now to (JIT) production which
means producing of goods and service
upon the receipt of the order in correct
quantity and time, with customization
ability to cope with the competition
Replaced with Supply chain Partnership
and by using the internet and system
application; this lead the suppliers
become as part of the value chain and to
build long lasting relationship with
suppliers
42
EXCITING NEW TRENDS IN OPERATIONS
MANAGEMENT

Main points In the past Nowadays

Firms Focusing now on employee

Employee was considered
empowerment where the employees are
as input for getting the
consider as a resource that bring a
Employee output through the
competitive advantage to business. Their
intervention production process.
opinions are heared,their skills are
Concerns ignored with no
developed and they are well developed to
adding values
be a decision maker not like machines

Wasting time, Wasting Lean production system that use minimal

resource, Employees Is amount of resources to produce large
Production
like a machines volume of output which means efficiency.
process = no efficiency Effectiveness can result from a multi
+ no effectiveness skilled work force
43
EXCITING NEW TRENDS IN OPERATIONS
MANAGEMENT
Main points In the past Nowadays
Main focus is green production and green
Main focus on getting
Environmental resource at the lowest marketing by which the business activities
can be done without harming the
issues, price ignoring the
environment, focusing on reducing waste
Social damages that happen to
by recycling it and using less chemicals;
responsibility the environment result this also promotes the social responsibility
& Ethics from the production
of the company and usually provide a
process
good image about it

Regarding also to the new trends of operations management; some

software and technology tools entered the production process and have
a great effect regarding the efficiency and effectiveness of producing
goods and service. For example; Computer aided design, Computer
aided manufacturing, Business Process re-engineering. 44