MAR 3203 Chapter 1: Operations and Productivity

Production

The creation of goods and services

Operations management (OM)

The set of activities that create value in the form of goods and services by transforming inputs into outputs

Three functions of organizations

1. Marketing, which generates the demand

2. Production/operations creates the product

3. Finance/accounting tracks how well the organization is doing, pays bills, collects money

Supply chain

A global network of organizations and activities that supply a firm with goods and services

Services

Economic activities that typically produce an intangible product; almost all services and almost all goods are a mixture of a service and a tangible product

Service sector

Economy that spans trade, financial, lodging, education, legal, medical, and other professional occupations

• The largest economic sector in postindustrial societies

• Productivity increase in agriculture and manufacturing has allowed for more economic resources towards services

• Many service jobs pay well

Characteristics of goods vs services

Goods

• Tangible: The seat itself

• Many aspects of quality are easy to evaluate: strength of a bolt

Services

• Intangible: Ride in an airline seat

• Quality may be hard to evaluate: consulting, education, and medical services

Productivity

The ratio of outputs (goods and services) divided by one or more inputs (such as labor, capital, or management)

• Measure of process improvement

• High production means producing many units, while high productivity is producing units efficiently

• Only through productivity increases can standard of living improve

Single-factor productivity

Indicates the ratio of goods and services produced (output) to one resource (input)

Example: labor productivity

Multi-factor productivity

Indicates the ratio of goods and services produced (outputs) to many or all resources (inputs)

• Also known as total factor productivity

• Output and inputs are often expressed in dollars $

Productivity 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

Productivity variables

Factors critical to productivity improvement are

1. Labor: contributes about 10% of the annual increase

   • Basic education and appropriate labor force, diet of labor force, social overhead like transportation

2. Capital: about 38% of the annual increase

   • Inflation and taxes increase the cost of capital

3. Management: about 52% of the annual increase

   • Ensures labor and capital are effectively u sed to increase productivity

Knowledge societies

Post-industrial societies in which much of the labor force has migrated from manual work to technical and information-processing tasks requiring ongoing education

Productivity and the service sector

Productivity improvement in services is difficult because

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