Lesson 1: Operations and Productivity

Learning Objectives

After completing this lesson, you should be able to accomplish the following objectives:

  1. Describe what operations managers do and how they contribute to the efficient operation of both service and production organizations.
  2. Conduct critical measurements of productivity improvement.

Reading/Video Assignments

  • Operations Management, Chapter 1 (pages 1–19)
  • "Operations Management at Hard Rock" video (running time 9:23):

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Click here for a transcript of the "Operations Management at Hard Rock" video.

Commentary

Operations Overview

After watching the video concerning how operations impact everyday, short-term, and long-term planning at Hard Rock Cafe, it should become apparent that the tools operations managers use are critical to the efficient operation of the enterprise. For example, operations managers use

  • logical decision-making tools to (quantitatively and qualitatively) plan the locations of cafes.
  • inventory management tools to account for and maintain an extensive and expensive collection of rock and roll memorabilia.
  • layout planning to determine the interior design of each cafe with particular emphasis on where to position the retail aspect of the store, since it contributes 50 percent of profits.
  • mathematical analysis to determine the most effective layout in the kitchens, which must produce around 3,500 customer meals per day.
  • inventory control and planning modeling to determine the correct amount of inventory of food to have. Inventory must be purchased effectively by taking into account quantity discounts and appropriate shelf lives.
  • forecasting tools to project the arrival rates of customers and set goals for managers.

In many regards, the video you watched introduced the following topics covered by the lessons in this course:

  • Operations and productivity
  • Operations strategy
  • Project management
  • Forecasting
  • Managing quality
  • Statistical process control
  • Capacity planning
  • Location strategy
  • Layout strategy
  • Inventory management

Operations management is the set of activities that creates value in the form of goods and services by transforming inputs into outputs. The list above is such a set of activities.

By the end of the course you should be able to come back to this introductory video and apply every one of these lessons to the operation of Hard Rock. It is important to note why many of the videos involve Hard Rock Cafe. I chose this particular company because it is not manufacturing-based. Hard Rock has a production element as well as a service element and it is important that you understand that operations management is applicable to nearly all organizations, no matter what their focus is: manufacturing or service-oriented.

The textbook chapter begins with several organizational charts shown in Figure 1.1. Note that there is an element of operations in each type of organization: commercial bank, airline, and manufacturing. It is easy to gloss over such simple figures; however, if you take a minute to analyze how operations impact a commercial bank (Figure 1.1(A)), you will see that the impact can be dramatic. For example, one simple aspect of operations in a commercial bank involves teller scheduling. How? We can use the tools you will learn to forecast the arrival rates of customers. This will impact when and how many tellers we have scheduled to work each hour of the day. Once we determine how long customers are willing to wait in line for the next available teller, we will need to factor this in to our calculations of how many tellers are scheduled to work hour by hour. We will also need to determine the number of transactions each customer will have. This too, will impact how many tellers are scheduled to work hour by hour. Why? Because the number of transactions each customer has will impact how long they engage each teller. This will affect how long other customers are kept waiting in line. In a service organization such as a commercial bank, one of the largest expenses is labor. We need enough labor (tellers) to adequately meet our customer expectations but not so many tellers that it becomes prohibitively expensive. Operations management tools will guide us mathematically to a logical scheduling methodology.

Critical Operations Decisions

This lesson introduces the ten critical decisions that operations managers wrestle with everyday (see Table 1.2 in your textbook).

  • Service and product design. What product or service should we offer? How should we design these products and services?
  • Quality management. Who is responsible for quality? How do we define quality?
  • Process and capacity design. What processes will these products require and in what order? What equipment and technology is necessary for these processes?
  • Location. Where should we put the facility? On what criteria should we base this location decision?
  • Layout design. How should we arrange facilities? How large must the facility be to meet our requirements?
  • Human resources and job design. How do we provide a reasonable work environment? How much can we expect our employees to produce?
  • Supply chain management. Should we make or buy this item? Who are our suppliers and how many should we have?
  • Inventory and material requirements planning. How much inventory of each item should we have? When do we re-order? How much do we order each time? Are there quantity discounts available? Should we take advantage of them?
  • Intermediate, short-term, and special project scheduling. Is subcontracting production a good idea? Are we better off keeping people on the payroll during slowdowns and off-seasons?
  • Maintenance. Who is responsible for maintenance? When do we do maintenance?

As you can tell, nearly all of these critical decisions have quantifiable answers. Through these lessons we will develop the critical thinking and analytical skills necessary to make logical decisions based on facts. This is the "science of management" that will make you successful.

Differences between Goods and Services

Example of a good: image of a laundry washing machine.Image 1.1: Example of a good

Because so many of our operations decisions are based on measurement, we need to understand what to measure and how to measure it. The measurement of goods is fairly easy. The measurement of services is slightly more complex. For example, think of the simple washing machine depicted in Image 1.1. The measurement of production of this good is relatively easy for the following reasons:

  • It is a tangible product.
  • It has consistent product definition.
  • Production is usually separate from consumption.
  • It can be inventoried.
  • It requires low customer interaction.

On the other hand, when we are designing or planning operations involving services, many of the measurements may be slightly more complex. For example, think of a simple dentist appointment (Image 1.2). In the planning for such a service, you will need to consider how to measure a successful service delivery.

Example of a service: a dentist working on a patient.Image 1.2: Example of a service

This is complicated because the service that you delivered

  • was intangible.
  • was produced and consumed at the same time.
  • was unique for the customer.
  • had a high level of customer interaction.
  • had an inconsistent product definition.
  • is often knowledge based.

Measuring Productivity

Productivity is a measure of process improvement, or how efficiently we change resources into goods and services. It represents outputs relative to inputs. In other words, what inputs did it take to produce a certain level of outputs.

Productivity = Units Produced/Inputs Used

While the text provides several applications of this fundamental formula, you must also understand how to manipulate the formula. For example, if you want to increase productivity, what must happen? There are several possible answers.

  • You can increase the number of units produced (outputs) while maintaining the same level of inputs.
  • You can maintain the level of units produced (outputs) while decreasing the level of inputs.
  • You can implement variations of the two items above.

Productivity measurement provides us with a tool to quantify process changes. The practice exercises and progress evaluation for this lesson demonstrate this. Keep in mind as you work on the problems that you may need to first determine exactly what productivity is NOW. Then, calculate what the productivity would be after the proposed changes. If productivity increases, the proposed changes are worthwhile. If productivity decreases, the proposed changes are not mathematically valid.

Review

After you complete the reading assignment and the practice problems, you will have a good understanding of what project management is all about. You should have learned

  • how the tools operations managers use are applicable to nearly all organizations.
  • that organizations rely on measurement to determine productivity.

You should understand how to calculate productivity and determine if process improvements are actually improvements at all.

Practice Exercises

Beginning on page 21 in your textbook, problems 1.2, 1.6, 1.8, and 1.10 are excellent examples of how the tools learned in this chapter can be applied to real-world problems. The answers to these practice problems are in Appendix V beginning on page A8.