Material for session One of the Operations Management Course at the MBA IV at HIBA in Damascus

1. Operations Management Session 1 – Operations and Productivity

8. What Is Operations Management? Production is the creation of goods and services Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs

10. Organizational Charts Commercial Bank Figure 1.1(A) Operations Teller Scheduling Check Clearing Collection Transaction processing Facilities design/layout Vault operations Maintenance Security Finance Investments Security Real estate Accounting Auditing Marketing Loans Commercial Industrial Financial Personal Mortgage Trust Department

11. Organizational Charts Airline Figure 1.1(B) Operations Ground support equipment Maintenance Ground Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications Dispatching Management science Finance/ accounting Accounting Payables Receivables General Ledger Finance Cash control International exchange Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising

12. Organizational Charts Manufacturing Figure 1.1(C) Marketing Sales promotion Advertising Sales Market research Operations 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 Process analysis Development and installation of production tools and equipment Finance/ accounting Disbursements/ credits Receivables Payables General ledger Funds Management Money market International exchange Capital requirements Stock issue Bond issue and recall

14. Options for Increasing Contribution 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 – 4,250 – 7,500 Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500 Finance/ Marketing Accounting OM Option Option Option Increase Reduce Reduce Sales Finance Production Current Revenue 50% Costs 50% Costs 20%

22. Where are the OM Jobs? Figure 1.2

24. Significant Events in OM Figure 1.3

37. Industry and Services as Percentage of GDP Services Manufacturing Australia Canada China Czech Rep France Germany Hong Kong Japan Mexico Russian Fed South Africa Spain UK US 90 − 80 − 70 − 60 − 50 − 40 − 30 − 20 − 10 − 0 −

38. Goods Versus Services Table 1.3 Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production Product is transportable Site of facility important for cost Often easy to automate Revenue generated primarily from tangible product Attributes of Goods (Tangible Product) Attributes of Services (Intangible Product) Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service Provider, not product, is often transportable Site of facility important for customer contact Often difficult to automate Revenue generated primarily from the intangible service

39. Goods and Services Figure 1.4 Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management Consulting service/ teaching Counseling Percent of Product that is a Good Percent of Product that is a Service 100% 75 50 25 0 25 50 75 100% | | | | | | | | |

40. Manufacturing and Service Employment Figure 1.5 (A) 120 – 100 – 80 – 60 – 40 – 20 – 0 – | | | | | | | 1950 1970 1990 2010 (est) 1960 1980 2000 Employment (millions) Manufacturing Service

41. Manufacturing Employment and Production Figure 1.5 (B) 40 – 30 – 20 – 10 – 0 – | | | | | | | 1950 1970 1990 2010 (est) 1960 1980 2000 – 150 – 125 – 100 – 75 – 50 – 25 – 0 Employment (millions) Index: 1997 = 100 Manufacturing employment (left scale) Industrial production (right scale)

42. Development of the Service Economy Figure 1.5 (C) United States Canada France Italy Britain Japan W. Germany 1970 2008 (est) | | | | | 40 50 60 70 80 Percent

43. Organizations in Each Sector Table 1.4 Service Sector Example % of all Jobs Education, Legal, Medical, and other Notre Dame University, San Diego Zoo, Arnold Palmer Hospital 25.5 Trade (retail, wholesale) Walgreen’s, Wal-Mart, Nordstrom’s 15.1 Utilities, Transportation Pacific Gas & Electric, American Airlines, Santa Fe R.R., Roadway Express 5.2

44. Organizations in Each Sector Table 1.4 Service Sector Example % of all Jobs Professional and Business Services Snelling and Snelling, Waste Management, Pitney-Bowes 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 Public Administration U.S., State of Alabama, Cook County 4.6

45. Organizations in Each Sector Table 1.4 Manufacturing Sector Example % of all Jobs Manufacturing General Electric, Ford, U.S. Steel, Intel 11.5 Construction Bechtel, McDermott 7.9 Agriculture King Ranch 1.6 Mining Homestake Mining 0.4 Sector Percent of all jobs Service 78.6% Manufacturing 21.4%

46. New Trends in OM Figure 1.6 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

47. New Trends in OM Figure 1.6 Lengthy product development Shorter life cycles, Internet, rapid international communication, computer-aided 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 Past Causes Future

48. New Trends in OM Figure 1.6 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 Past Causes Future

50. 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

51. The Economic System Figure 1.7 Feedback loop Outputs Goods and services Processes 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%). Inputs Labor, capital, management

52. 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

53. 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 $200,000 to $940,000 in six years. Productivity has improved by 27%, or about 4.5% per year.

55. Productivity Calculations Labor Productivity One resource input  single-factor productivity Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000 250

60. Labor Skills About half of the 17-year-olds in the US cannot correctly answer questions of this type Figure 1.8

61. Investment and Productivity 10 8 6 4 2 0 Percent increase in productivity Percentage investment 10 15 20 25 30 35