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1. 1 - 1© 2014 Pearson Education, Inc. Operations and Productivity PowerPoint presentation to accompany Heizer and Render Operations Management, Eleventh Edition Principles of Operations Management, Ninth Edition PowerPoint slides by Jeff Heyl 11 © 2014 Pearson Education, Inc.

3. 1 - 3© 2014 Pearson Education, Inc. Outline ▶ Global Company Profile: Hard Rock Cafe ▶ What Is Operations Management? ▶ Organizing to Produce Goods and Services ▶ The Supply Chain ▶ Why Study OM? ▶ What Operations Managers Do

4. 1 - 4© 2014 Pearson Education, Inc. Outline - Continued ▶ The Heritage of Operations Management ▶ Operations for Goods and Services ▶ Growth of Services ▶ Service Pay ▶ The Productivity Challenge ▶ Productivity Measurement ▶ Productivity Variables ▶ Productivity and the Service Sector ▶ New Challenges in Operations Management ▶ Ethics, Social Responsibility, and Sustainability

5. 1 - 5© 2014 Pearson Education, Inc. Learning Objectives When you complete this chapter you should be able to: 1. Define operations management 2. Explain the distinction between goods and services 3. Explain the difference between production and productivity 4. Compute single-factor productivity 5. Compute multifactor productivity 6. Identify the critical variables in enhancing productivity

6. 1 - 6© 2014 Pearson Education, Inc. Operations Management at Hard Rock Cafe ▶ Operations managers throughout the world are producing products every day to provide for the well-being of society. These products take on a multitude of forms. They may be washing machines at Whirlpool, motion pictures at DreamWorks, rides at Disney World, or food at Hard Rock Cafe. These firms produce thousands of complex products every day—to be delivered as the customer ordered them, when the customer wants them, and where the customer wants them. This is a challenging task, and the operations manager’s job, whether at Whirlpool, DreamWorks, Disney, or Hard Rock, is demanding.

7. 1 - 7© 2014 Pearson Education, Inc. Operations Management at Hard Rock Cafe ▶ First opened in 1971 in London ▶ Now – 150 restaurants in over 53 countries ▶ It made its name with Rock music memorabilia ▶ Creates value in the form of good food and entertainment ▶ 3,500+ custom products (meals) per day in Orlando ▶ How does an item get on the menu? ▶ Role of the Operations Manager © 2014 Pearson Education, Inc.

8. 1 - 8© 2014 Pearson Education, Inc. What Is Operations Management? Production is the creation of goods and services Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs Operations Management is the management of systems or processes that create goods and/or provide services As we progress through this text, we will discover how to manage operations in an economy in which both customers and suppliers are located throughout the world. We will see how operations managers create the goods and services that enrich our lives.

9. 1 - 9© 2014 Pearson Education, Inc. What Is Operations Management? Activities creating goods and services take place in all organizations. In manufacturing firms, the production activities that create goods are usually quite obvious. In them, we can see the creation of a tangible product such as a Sony TV or a Harley-Davidson motorcycle. In an organization that does not create a tangible good or product, the production function may be less obvious. We often call these activities services. The product may take such forms as the transfer of funds from a savings account to a checking account, the transplant of a liver, the filling of an empty seat on an airplane, or the education of a student. Regardless of whether the end product is a good or service, the production activities that go on in the organization are often referred to as operations, or operations management .

10. 1 - 10© 2014 Pearson Education, Inc. Organizing to Produce Goods and Services ▶ To create goods and services, all organizations perform three Essential functions: 1. Marketing – generates demand or at least take the order 2. Production/operations – creates the product, and delivers the product 3. Finance/accounting – tracks how well the organization is doing, pays bills, collects the money

11. 1 - 11© 2014 Pearson Education, Inc. Organizational Charts Figure 1.1 Organization Charts for two Service Organizations and one Manufacturing Organization (A) a bank, (B) an airline, and (C) a manufacturing organization. The blue areas are OM activities.

14. 1 - 14© 2014 Pearson Education, Inc. The Supply Chain ▶ Through the three functions—marketing, operations, and finance—value for the customer is created. However, firms seldom create this value by themselves. Instead, they rely on a variety of suppliers who provide everything from raw materials to accounting services. These suppliers, when taken together, can be thought of as a supply chain

15. 1 - 15© 2014 Pearson Education, Inc. The Supply Chain ▶ A global network of organizations and activities that supply a firm with goods and services ▶ When Members of the supply chain collaborate to achieve high levels of customer satisfaction, we have a tremendous force for efficiency and competitive advantage. ▶ Competition in the 21st century is not between companies; it is between supply chains Figure 1.2 Farmer Syrup Bottler Distributor Retailer producer

16. 1 - 16© 2014 Pearson Education, Inc. Why Study OM? 1. OM is one of three major functions of any organization, we want to study how people organize themselves for productive enterprise 2. We want (and need) to know how goods and services are produced 3. We want to understand what operations managers do 4. OM is such a costly part of an organization Indeed, OM provides a major opportunity for an organization to improve its profitability

17. 1 - 17© 2014 Pearson Education, Inc. Example 1: EXAMINING THE OPTIONS FOR INCREASING CONTRIBUTION ▶ Fisher Technologies is a small firm that must double its dollar contribution to 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, the old equipment will force Fisher to go out of business. ▶ APPROACH: Table 1.1 shows a simple profit-and-loss statement and three strategic options (marketing, finance/accounting, and operations) for the firm.

18. 1 - 18© 2014 Pearson Education, Inc. Options for Increasing Contribution TABLE 1.1 MARKETING OPTION FINANCE /ACCOUNTING OPTION OM OPTION CURRENT INCREASE SALES REVENUE 50% REDUCE FINANCE COSTS 50% REDUCE PRODUCTION COSTS 20% Sales $100,000 $150,000 $100,000 $100,000 Cost of goods –80,000 –120,000 –80,000 –64,000 Gross margin 20,000 30,000 20,000 36,000 Finance costs –6,000 –6,000 –3,000 –6,000 Subtotal 14,000 24,000 17,000 30,000 Taxes at 25% –3,500 –6,000 –4,200 –7,500 Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500

19. 1 - 19© 2014 Pearson Education, Inc. Example 1: EXAMINING THE OPTIONS FOR INCREASING CONTRIBUTION ▶ The first option is a marketing option, where excellent marketing management may increase sales by 50%, contribution will in turn increase 7500/10500=71%. But increasing sales 50% may be difficult; it may even be impossible. ▶ The second option is a finance/accounting option , where finance costs are cut in half through good financial management. But even a reduction of 50% is still inadequate for generating the necessary increase in contribution. Contribution is increased by only 21%. ▶ The third option is an OM option, where management reduces production costs by 20% and increases contribution by 114%.

20. 1 - 20© 2014 Pearson Education, Inc. Example 1: EXAMINING THE OPTIONS FOR INCREASING CONTRIBUTION ▶ SOLUTION: Given the conditions of our brief example, Fisher Technologies has increased contribution from $10,500 to $22,500. ▶ INSIGHT: The OM option not only yields the greatest improvement in contribution but also may be the only feasible option. Increasing sales by 50% and decreasing finance cost by 50% may both be virtually impossible. Reducing operations cost by 20% may be difficult but feasible. ▶ LEARNING EXERCISE: What is the impact of only a 15% decrease in costs in the OM option? ▶ [Answer: A $19,500 contribution; an 86% increase.] ▶ Example1 underscores the importance of the effective operations activity of a firm. Development of increasingly effective operations is the approach taken by many companies as they face growing global competition.

21. 1 - 21© 2014 Pearson Education, Inc. What Operations Managers Do Basic Management Functions ▶ Planning ▶ Organizing ▶ Staffing ▶ Leading ▶ Controlling Operations managers apply this management process to the decisions they make in the OM function. The 10 strategic OM decisions are introduced in Table 1.2 .Successfully addressing each of these decisions requires planning, organizing, staffing, leading, and controlling.

22. 1 - 22© 2014 Pearson Education, Inc. Ten Strategic Decisions TABLE 1.2 DECISION CHAPTER(S) 1. Design of goods and services 5, Supplement 5 2. Managing quality 6, Supplement 6 3. Process and capacity design 7, Supplement 7 4. Location strategy 8 5. Layout strategy 9 6. Human resources and job design 10 7. Supply-chain management 11, Supplement 11 8. Inventory management 12, 14, 16 9. Scheduling 13, 15 10. Maintenance 17

23. 1 - 23© 2014 Pearson Education, Inc. The Strategic Decisions 1. Design of goods and services ▶ Defines what is required of operations in each of the other OM decisions. For instance, ▶ Product design determines quality, cost, sustainability and human resources 2. Managing quality ▶ Determine the customer’s quality expectations ▶ Establish policies and procedures to identify and achieve that quality Table 1.2 (cont.)

24. 1 - 24© 2014 Pearson Education, Inc. The Strategic Decisions 3. Process and capacity design ▶ How is a good or service produced? ▶ Commits management to specific technology, quality, resources, and investment. 4. Location strategy ▶ Nearness to customers, suppliers, and talent. ▶ Considering costs, infrastructure, logistics, and government. Table 1.2 (cont.)

25. 1 - 25© 2014 Pearson Education, Inc. The Strategic Decisions 5. Layout strategy ▶ Integrate capacity needs, personnel levels, technology, and inventory ▶ Determine the efficient flow of materials, people, and information. 6. Human resources and job design ▶ Recruit, motivate, and retain personnel with the required talent and skills. ▶ Integral and expensive part of the total system design. Table 1.2 (cont.)

26. 1 - 26© 2014 Pearson Education, Inc. The Strategic Decisions 7. Supply-chain management ▶ Integrate supply chain into the firm’s strategy. ▶ Determine what is to be purchased, from whom, and under what conditions. 8. Inventory management ▶ Inventory ordering and holding decisions. ▶ Optimize considering customer satisfaction, supplier capability, and production schedules. Table 1.2 (cont.)

27. 1 - 27© 2014 Pearson Education, Inc. 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.)

28. 1 - 28© 2014 Pearson Education, Inc. Where are the OM Jobs? ▶ How does one get started on a career in operations? The 10 strategic OM decisions identified in Table 1.2 are made by individuals who work in the disciplines shown in the blue areas of Figure 1.1 . ▶ Business students who know their accounting, statistics, finance, and OM have an opportunity to assume entry-level positions in all of these areas. ▶ The more background an OM student has in accounting, statistics, information systems, and mathematics, the more job opportunities will be available. ▶ About 40% of all jobs are in OM. ▶ Figure 1.3 shows some recent job opportunities.

29. 1 - 29© 2014 Pearson Education, Inc. 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

31. 1 - 31© 2014 Pearson Education, Inc. Certifications ▶ APICS, the Association for Operations Management ▶ American Society for Quality (ASQ) ▶ Institute for Supply Management (ISM) ▶ Project Management Institute (PMI) ▶ Council of Supply Chain Management Professionals ▶ Charter Institute of Purchasing and Supply (CIPS)

33. 1 - 33© 2014 Pearson Education, Inc. The Heritage of OM Contributions p10: ▶Division of labor (Adam Smith 1776; Charles Babbage 1852) ▶Standardized (interchangeable) parts (Whitney 1800) ▶Scientific Management (Taylor 1881) ▶Coordinated assembly line (Ford/ Sorenson 1913) ▶Gantt charts (Gantt 1916) ▶Motion study (Frank and Lillian Gilbreth 1922) ▶Quality control (Shewhart 1924; Deming 1950) Operations management will continue to progress as contributions from other disciplines, including industrial engineering, statistics, management, and economics, improve decision making.

34. 1 - 34© 2014 Pearson Education, Inc. The Heritage of OM ▶ Computer (Atanasoff 1938) ▶ CPM/PERT (DuPont 1957, Navy 1958) ▶ Material requirements planning (Orlicky 1960) ▶ Computer aided design (CAD 1970) ▶ Flexible manufacturing system (FMS 1975) ▶ Baldrige Quality Awards (1980) ▶ Computer integrated manufacturing (1990) ▶ Globalization (1992) ▶ Internet (1995)

35. 1 - 35© 2014 Pearson Education, Inc. Eli Whitney ▶ Born 1765; died 1825 ▶ In 1798, received government contract to make 10,000 muskets ▶ Showed that machine tools could make standardized parts to exact specifications ▶ Musket parts could be used in any musket

36. 1 - 36© 2014 Pearson Education, Inc. Frederick W. Taylor ▶ Born 1856; died 1915 ▶ Known as ‘father of scientific management’ ▶ In 1881, as chief engineer for Midvale Steel, studied how tasks were done ▶ Began first motion and time studies ▶ Created efficiency principles

37. 1 - 37© 2014 Pearson Education, Inc. Taylor’s Principles Management Should Take More Responsibility for: ► Matching employees to right job ► Providing the proper training ► Providing proper work methods and tools ► Establishing legitimate incentives for work to be accomplished

38. 1 - 38© 2014 Pearson Education, Inc. Frank & Lillian Gilbreth ▶ Frank (1868-1924); Lillian (1878-1972) ▶ Husband-and-wife engineering team ▶ Further developed work measurement methods ▶ Applied efficiency methods to their home and 12 children! ▶ Book & Movie: “Cheaper by the Dozen,” “Bells on Their Toes”

39. 1 - 39© 2014 Pearson Education, Inc. ▶ Born 1863; died 1947 ▶ In 1903, created Ford Motor Company ▶ In 1913, first used moving assembly line to make Model T ▶ Unfinished product moved by conveyor past work station ▶ Paid workers very well for 1911 ($5/day!) Henry Ford

40. 1 - 40© 2014 Pearson Education, Inc. W. Edwards Deming ▶ Born 1900; died 1993 ▶ Engineer and physicist ▶ Credited with teaching Japan quality control methods in post-WW2 ▶ Used statistics to analyze process ▶ His methods involve workers in decisions

42. 1 - 42© 2014 Pearson Education, Inc. Operations for Goods and Services ▶ Manufacturers produce tangible product, services often intangible But many products are a combination of a good and a service, which complicates the definition of a service. However, we define services as including repair and maintenance, government, food and lodging, transportation, insurance, trade, financial, real estate, education, legal, medical, entertainment, and other professional occupations. ▶ Operations activities for both goods and services often very similar. Both have quality standards, are designed and produced on a schedule that meets customer demand, and are made in a facility where people are employed ▶ Distinction not always clear ▶ Few pure services meaning they have no tangible component

43. 1 - 43© 2014 Pearson Education, Inc. Differences Between Goods and Services TABLE 1.3 CHARACTERISTICS OF SERVICES CHARACTERISTICS OF GOODS 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

44. 1 - 44© 2014 Pearson Education, Inc. U.S. Agriculture, Manufacturing, and Service Employment Figure 1.5 100 – 80 – 60 – 40 – 20 – 0 – PercentofWorkforce 1800 1825 1850 1875 1900 1925 1950 1975 2000 2025 (est.) | | | | | | | | | Agriculture Services Manufacturing

45. 1 - 45© 2014 Pearson Education, Inc. Organizations in Each Sector TABLE 1.4 SECTOR EXAMPLE PERCENT OF ALL JOBS Service Sector Education, Legal, Medical, Other Trade (retail, wholesale) Utilities, Transportation Professional and Business Services Finance, Information, Real Estate Food, Lodging, Entertainment Public Administration San Diego Zoo, Arnold Palmer Hospital Walgreen's, Walmart, Nordstrom Pacific Gas & Electric, American Airlines Snelling and Snelling, Waste Management, Inc. Citicorp, American Express, Prudential, Aetna Olive Garden, Motel 6, Walt Disney U.S., State of Alabama, Cook County 13.2 13.8 3.3 10.1 21.0 9.0 15.5 85.9 Manufacturing Sector General Electric, Ford, U.S. Steel, Intel 8.2 Construction Sector Bechtel, McDermott 4.1 Agriculture King Ranch 1.4 Mining Sector Homestake Mining .4 Grand Total 100.0

46. 1 - 46© 2014 Pearson Education, Inc. Service Pay ▶ Perception that services are low-paying ▶ 42% of service workers receive above average wages ▶ 14 of 33 service industries pay below average ▶ Retail trade pays only 61% of national average ▶ Overall average wage is 96% of the average

47. 1 - 47© 2014 Pearson Education, Inc. Productivity Challenge Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital) The objective is to improve productivity! Important Note! Production is a measure of output only and not a measure of efficiency

48. 1 - 48© 2014 Pearson Education, Inc. Feedback loop Outputs Goods and services Transformation 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%). The Economic System Inputs Labor, capital, management Figure 1.6

49. 1 - 49© 2014 Pearson Education, Inc. Improving Productivity at Starbucks 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 Change the size of the ice scoop Saved 14 seconds per drink New espresso machines Saved 12 seconds per shot

50. 1 - 50© 2014 Pearson Education, Inc. Improving Productivity at Starbucks 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 Change the size of the ice scoop Saved 14 seconds per drink New espresso machines Saved 12 seconds per shot Operations improvements have helped Starbucks increase yearly revenue per outlet by $250,000 to $1,000,000 in seven years. Productivity has improved by 27%, or about 4.5% per year.

51. 1 - 51© 2014 Pearson Education, Inc. ▶ Measure of process improvement ▶ Represents output relative to input ▶ Only through productivity increases can our standard of living improve Productivity Productivity = Units produced Input used

52. 1 - 52© 2014 Pearson Education, Inc. Productivity Calculations Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000 250 Labor Productivity For example, if units produced = 1,000 and labor-hours used is 250, then: One resource input  single-factor productivity

53. 1 - 53© 2014 Pearson Education, Inc. Multi-Factor Productivity Output Labor + Material + Energy + Capital + Miscellaneous Productivity = ► Also known as total factor productivity ► Output and inputs are often expressed in dollars Multiple resource inputs  multi-factor productivity

54. 1 - 54© 2014 Pearson Education, Inc. Collins Title Ltd. Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: = Old labor productivity 8 titles/day 32 labor-hrs

55. 1 - 55© 2014 Pearson Education, Inc. Collins Title Ltd. Productivity Collins Title Insurance Ltd. wants to evaluate its labor and multifactor productivity with a new computerized title- 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.

56. 1 - 56© 2014 Pearson Education, Inc. Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 8 titles/day 32 labor-hrs = Old labor productivity = 0.25 titles/labor-hr

57. 1 - 57© 2014 Pearson Education, Inc. Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day 32 labor-hrs = Old labor productivity = New labor productivity = 0.25 titles/labor-hr 14 titles/day 32 labor-hrs

58. 1 - 58© 2014 Pearson Education, Inc. Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day 32 labor-hrs = Old labor productivity = 0.25 titles/labor-hr 14 titles/day 32 labor-hrs = New labor productivity = 0.4375 titles/labor-hr

59. 1 - 59© 2014 Pearson Education, Inc. Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: = Old multifactor productivity 8 titles/day $640 + 400

60. 1 - 60© 2014 Pearson Education, Inc. Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day $640 + 400 = Old multifactor productivity = .0077 titles/dollar

61. 1 - 61© 2014 Pearson Education, Inc. Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day $640 + 400 = Old multifactor productivity = New multifactor productivity = .0077 titles/dollar 14 titles/day $640 + 800

62. 1 - 62© 2014 Pearson Education, Inc. Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day $640 + 400 14 titles/day $640 + 800 = Old multifactor productivity = New multifactor productivity = .0077 titles/dollar = .0097 titles/dollar

63. 1 - 63© 2014 Pearson Education, Inc. 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 may be lacking

64. 1 - 64© 2014 Pearson Education, Inc. Productivity Variables 1. Labor - contributes about 10% of the annual increase 2. Capital - contributes about 38% of the annual increase 3. Management - contributes about 52% of the annual increase

65. 1 - 65© 2014 Pearson Education, Inc. Key Variables for Improved Labor Productivity 1. Basic education appropriate for the labor force 2. Diet ‫ةةةةةةة‬ of the labor force: 3. Social overhead that makes labor available ▶ ‫ةةةةة‬ ‫ةةةةة‬ ‫ةةةةةةة‬ ‫ةة‬ ‫ةةةةةة‬ ‫ةةةةةة‬ ‫ةةةة‬ Illiteracy and poor diets are a major impediment to productivity ▶ Challenge is in maintaining and enhancing skills in the midst of rapidly changing technology and knowledge ▶ Overcoming shortcomings in the quality of labor is a major challenge. Perhaps improvements can be found not only through increasing competence of labor but also via better utilized labor with a stronger commitment . Training,motivation, team building, and the human resource strategies discussed in Chapter 10

68. 1 - 68© 2014 Pearson Education, Inc. 2. Capital ▶ Human beings are tool-using animals. Capital investment provides those tools. ▶ Capital investment has increased every year ▶ Inflation and taxes increase the cost of capital, making capital investment increasingly expensive. ▶ When the capital invested per employee drops, we can expect a drop in productivity. ▶ Using labor rather than capital may reduce unemployment in the short run, but it also makes economies less productive and therefore lowers wages in the long run. Capital investment is often a necessary, but seldom a sufficient, ingredient in the battle for increased productivity. ▶ The trade-off between capital and labor is continually in flux. The higher the cost of capital or perceived risk, the more projects requiring capital are “squeezed out”: they are not pursued because the potential return on investment for a given risk has been reduced. Managers adjust their investment plans to changes in capital cost and risk.

69. 1 - 69© 2014 Pearson Education, Inc. 3. Management ▶ Ensures labor and capital are effectively used to increase productivity, This increase includes improvements made ▶ Through the Use of knowledge and the ▶ Application of technologies ▶ Using knowledge and technology is critical in postindustrial societies. Consequently, postindustrial societies are also known as knowledge societies . Knowledge societies are those in which much of the labor force has migrated from manual work to technical and information-processing tasks requiring ongoing education which is costly. The expanding knowledge base of contemporary society requires that managers use technology and knowledge effectively

70. 1 - 70© 2014 Pearson Education, Inc. 3. Management ▶ The productivity challenge is difficult. A country cannot be a world-class competitor with second- class inputs. Poorly educated labor, inadequate capital, and dated technology are second-class inputs. High productivity and high-quality outputs require high-quality inputs, including good operations managers.

71. 1 - 71© 2014 Pearson Education, Inc. Productivity and the Service Sector 1. Typically labor intensive 2. Frequently focused on unique individual attributes or desires 3. Often an intellectual task performed by professionals 4. Often difficult to mechanize and automate 5. Often difficult to evaluate for quality

72. 1 - 72© 2014 Pearson Education, Inc. 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 ▶ New water and energy saving grills

73. 1 - 73© 2014 Pearson Education, Inc. Productivity at Taco Bell Improvements:: Results:: ▶ Preparation time cut to 8 seconds ▶ Management span of control increased from 5 to 30 ▶ In-store labor cut by 15 hours/day ▶ Floor space reduced by more than 50% ▶ Stores average 164 seconds/customer from drive-up to pull-out ▶ Water- and energy-savings grills conserve 300 million gallons of water and 200 million KwH of electricity each year ▶ Green-inspired cooking method saves 5,800 restaurants $17 million per year

74. 1 - 74© 2014 Pearson Education, Inc. New Challenges in OM ▶ Global focus ▶ Supply-chain partnering ▶ Sustainability: Operations managers’ continuing battle to improve productivity is concerned with designing products and processes that are ecologically sustainable. ▶ Rapid product development ▶ Mass customization: as consumers are increasingly aware of innovation and options, substantial pressure is placed on firms to respond in a creative way. And OM must rapidly respond with product designs and flexible production processes. The goal is to produce customized products, whenever and wherever needed. ▶ Lean operations: ▶ Empowered employees

75. 1 - 75© 2014 Pearson Education, Inc. Ethics, Social Responsibility, and Sustainability Challenges facing operations managers: ▶ Develop and produce safe, high-quality green products ▶ Train, retrain, and motivate employees in a safe workplace ▶ Honor stakeholder commitments ▶ If operations managers have a moral awareness and focus on increasing productivity in a system where all stakeholders have a voice, and many ethical challenges will be successfully addressed.

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