Operations Management

OPERATIONS MANAGEMENT
Course Outline
Introduction to Operations Management Forecasting System and work Design Quality Supply Chain Management Inventory Management and Scheduling Project Management Manufacturing and Service Technologies
Operations Management
Course Programme:
10 hours lectures, discussions and presentations 2 hours group presentation
Assessment Method:
10% Attendance 10% Class participation 30% Students group assignment 30% Students individual assignment 20% Written examination
Reference:
William J Stevenson. Operations Management (9th Edition). The McGraw-Hill Companies Inc. ISBN 0-07-304191-2
Group and Individual Assignment

You need to be a member of one of the study groups Each study group will conduct a case study on any operation at its own choice The study group should comment and recommend what measures can be made in order to improve the efficiency & effectiveness of the operation. A presentation will be made in last session followed by a written reports with not less than 1,000 words in English or 1,500 words in Chinese. You should submit the assignment not later than a month counting from the last session The report should include:
Background of the operation you are going to study What challenges they are facing ahead What areas they perform well and what areas they perform poor What suggestions you would make in order to improve the efficiency & effectiveness of the operation
Key terms to understand

Order winner and order qualifier 5 key attributes in good operations management

Quality Cost Time Flexibility Agility

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The management of systems or processes that create goods and/or provide services
Organization
Finance
Operations
Marketing
ValueValue-Added
The difference between the cost of inputs and the value or price of outputs.
Value added
Inputs Land Labor Capital Transformation/ Conversion process
Feedback
Outputs Goods Services
Control
Feedback Feedback
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GoodsGoods-service Continuum
Steel production Home remodeling Auto Repair Maid Service Teaching Automobile fabrication Retail sales Appliance repair Manual car wash Lawn mowing
High percentage goods Low percentage service
Low percentage goods High percentage service
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Food Processor
Inputs
Raw Vegetables Metal Sheets Water Energy Labor Building Equipment
Processing
Cleaning Making cans Cutting Cooking Packing Labeling
Outputs
Canned vegetables
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Hospital Process
Inputs
Doctors, nurses Hospital Medical Supplies Equipment Laboratories
Processing
Examination Surgery Monitoring Medication Therapy
Outputs
Healthy patients
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Manufacturing or Service?
Tangible
Act
13
Production of Goods vs. Delivery of Services

Production of goods tangible output Delivery of services an act Service job categories
Government Wholesale/retail Financial services Healthcare Personal services Business services Education
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Key Differences
1. 2. 3. 4. 5. 6. 7. 8.
Customer contact Uniformity of input Labor content of jobs Uniformity of output Measurement of productivity Production and delivery Quality assurance Amount of inventory
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Manufacturing v Service
Characteristic
Output Customer contact Uniformity of input Labor content Uniformity of output Measurement of productivity Opportunity to correct quality problems
High
Manufacturing Service
Tangible Low High Low High Easy High Intangible High Low High Low Difficult Low
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Scope of Operations Management

Operations Management includes:

Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating employees Deciding where to locate facilities And more . . .
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The operations function

Consists of all activities directly related to producing goods or providing services
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Types of Operations
Operations
Goods Producing Storage/Transportation
Examples
Farming, mining, construction, manufacturing, power generation Warehousing, trucking, mail service, moving, taxis, buses, hotels, airlines Retailing, wholesaling, banking, renting, leasing, library, loans Films, radio and television, concerts, recording Newspapers, radio and television newscasts, telephone, satellites
19
Exchange Entertainment Communication
U.S. Manufacturing vs. Service Employment

Year Mfg. Service 45 79 21 50 72 28 55 72 28 60 68 32 65 64 36 70 64 36 75 58 42 80 44 46 85 43 57 90 35 65 95 32 68 00 30 70
100 80 P er c e n t 60 40 20 0 45 50 55 60 65 70 75 80 85 90 95 00 Year
20
Responsibilities of Operations Management

Planning
Capacity Location Products & services Make or buy Layout Projects Scheduling Inventory Quality Costs Productivity
Organizing
Degree of centralization Process selection
Staffing
Hiring/laying off Use of Overtime
Directing
Incentive plans Issuance of work orders Job assignments
Controlling/Improving
21
Key Decisions of Operations Managers

What
What resources/what amounts
When
Needed/scheduled/ordered
Where
Work to be done
How
Designed
Who
To do the work
How How Much

22
Decision Making
System Design
capacity location arrangement of departments product and service planning acquisition and placement of equipment
23
Decision Making
System operation
personnel inventory scheduling project management quality assurance
24
Decision Making
Models Quantitative approaches Analysis of trade-offs Systems approach

25
Models
A model is an abstraction of reality.
Physical Schematic Mathematical
Tradeoffs
What are the pros and cons of models?
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Models Are Beneficial

Easy to use, less expensive Require users to organize Systematic approach to problem solving Increase understanding of the problem Enable what if questions Specific objectives Consistent tool Power of mathematics Standardized format

27
Quantitative Approaches
Linear programming Queuing Techniques Inventory models Project models Statistical models
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Systems Approach
The whole is greater than the sum of the parts.
SubSub-optimization
29
Pareto Phenomenon
A few factors account for a high percentage of the occurrence of some event(s). 80/20 Rule - 80% of problems are caused by 20% of the activities. How do we identify the vital few?
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Business Operations Overlap
Operations
Marketing
Finance
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Operations Interfaces
Industrial Engineering Distribution Maintenance
Purchasing
Operations
Public Relations
Legal Personnel Accounting MIS

32
Historical Evolution of Operations Management

Industrial revolution (1770s) Scientific management (1911)

Mass production Interchangeable parts Division of labor
Human relations movement (1920-60) Decision models (1915, 1960-70s) Influence of Japanese manufacturers

33
Trends in Business

Major trends
The Internet, e-commerce, e-business Management technology Globalization Management of supply chains Agility
34
Simple Product Supply Chain

Suppliers Suppliers Direct Suppliers Final Consumer
Producer
Distributor
Supply Chain: A sequence of activities And organizations involved in producing And delivering a good or service
35
A Supply Chain for Bread

Stage of Production
Farmer produces and harvests wheat Wheat transported to mill Mill produces flour Flour transported to baker Baker produces bread Bread transported to grocery store Grocery store displays and sells bread Total Value-Added
Value Added
$0.15 $0.08 $0.15 $0.08 $0.54 $0.08 $0.21 $1.29
Value of Product
$0.15 $0.23 $0.38 $0.46 $1.00 $1.08 $1.29
36
Other Important Trends

Ethical behavior Operations strategy Working with fewer resources Cost control and productivity Quality and process improvement Increased regulation and product liability Lean production

37
HISTORICAL MILESTONES IN OM
38
Historical Milestones in OM
The Industrial Revolution Post-Civil War Period Scientific Management Human Relations and Behaviorism Operations Research The Service Revolution

39
The Industrial Revolution

The industrial revolution developed in England in the 1700s. The steam engine, invented by James Watt in 1764, largely replaced human and water power for factories. Adam Smiths The Wealth of Nations in 1776 touted the economic benefits of the specialization of labor. Thus the late-1700s factories had not only machine power but also ways of planning and controlling the tasks of workers.
40
The Industrial Revolution

The industrial revolution spread from England to other European countries and to the United Sates. In 1790 an American, Eli Whitney, developed the concept of interchangeable parts. The first great industry in the US was the textile industry. In the 1800s the development of the gasoline engine and electricity further advanced the revolution. By the mid-1800s, the old cottage system of production had been replaced by the factory system. . . . more
41
Post-Civil War Period

During the post-Civil War period great expansion of production capacity occurred. By post-Civil War the following developments set the stage for the great production explosion of the 20th century:
increased capital and production capacity the expanded urban workforce new Western US markets an effective national transportation system
42
Scientific Management

Frederick Taylor is known as the father of scientific management. His shop system employed these steps:
Each workers skill, strength, and learning ability were determined. Stopwatch studies were conducted to precisely set standard output per worker on each task. Material specifications, work methods, and routing sequences were used to organize the shop. Supervisors were carefully selected and trained. Incentive pay systems were initiated. 43
Scientific Management

In the 1920s, Ford Motor Companys operation embodied the key elements of scientific management:
standardized product designs mass production low manufacturing costs mechanized assembly lines specialization of labor interchangeable parts
44
Human Relations and Behavioralism

In the 1927-1932 period, researchers in the Hawthorne( ) Studies realized that human factors were affecting production. Researchers and managers alike were recognizing that psychological and sociological factors affected production. From the work of behavioralists came a gradual change in the way managers thought about and treated workers.
45
Operations Research

During World War II, enormous quantities of resources (personnel, supplies, equipment, ) had to be deployed. Military operations research (OR) teams were formed to deal with the complexity of the deployment. After the war, operations researchers found their way back to universities, industry, government, and consulting firms. OR helps operations managers make decisions when problems are complex and wrong decisions are costly.
46
The Service Revolution

The creation of services organizations accelerated sharply after World War II. Today, more than two-thirds of the US workforce is employed in services. About two-thirds of the US GDP is from services. There is a huge trade surplus in services. Investment per office worker now exceeds the investment per factory worker. Thus there is a growing need for service operations management.
47
The Computer Revolution

Explosive growth of computer and communication technologies Easy access to information and the availability of more information Advances in software applications such as Enterprise Resource Planning (ERP) software Widespread use of email More and more firms becoming involved in E-Business using the Internet Result: faster, better decisions over greater distances
48
Today's Factors Affecting OM

Global Competition Quality, Customer Service, and Cost Challenges Rapid Expansion of Advanced Technologies Continued Growth of the Service Sector Scarcity of Operations Resources Social-Responsibility Issues
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William J. Stevenson
8th edition
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FORECAST:

A statement about the future value of a variable of interest such as demand. Forecasts affect decisions and activities throughout an organization
Accounting, finance Human resources Marketing MIS Operations Product / service design
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Uses of Forecasts
Accounting Finance Human Resources Marketing MIS Operations Product/service design Cost/profit estimates Cash flow and funding Hiring/recruiting/training Pricing, promotion, strategy IT/IS systems, services Schedules, MRP, workloads New products and services
52

Assumes causal system past ==> future Forecasts rarely perfect because of randomness Forecasts more accurate for groups vs. individuals Forecast accuracy decreases as time horizon increases
I see that you will get an A this semester.
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Elements of a Good Forecast

Timely
Reliable
Accurate
Written
54
Steps in the Forecasting Process

The forecast
Step 6 Monitor the forecast Step 5 Prepare the forecast Step 4 Gather and analyze data Step 3 Select a forecasting technique Step 2 Establish a time horizon Step 1 Determine purpose of forecast
55
Types of Forecasts

Judgmental - uses subjective inputs Time series - uses historical data assuming the future will be like the past Associative models - uses explanatory variables to predict the future
56
Judgmental Forecasts

Executive opinions Sales force opinions Consumer surveys Outside opinion Delphi method
Opinions of managers and staff Achieves a consensus forecast
57
Time Series Forecasts

Trend - long-term movement in data Seasonality - short-term regular variations in data Cycle wavelike variations of more than one years duration Irregular variations - caused by unusual circumstances Random variations - caused by chance

58
Forecast Variations
Irregular variatio n
Trend
Cycles
90 89 88 Seasonal variations
59
Naive Forecasts
Uh, give me a minute.... We sold 250 wheels last week.... Now, next week we should sell....
The forecast for any period equals the previous periods actual value.
60
Nave Forecasts
Simple to use Virtually no cost Quick and easy to prepare Data analysis is nonexistent Easily understandable Cannot provide high accuracy Can be a standard for accuracy

61
Uses for Nave Forecasts

Stable time series data

F(t) = A(t-1)
Seasonal variations
F(t) = A(t-n)
Data with trends

F(t) = A(t-1) + (A(t-1) A(t-2))
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Techniques for Averaging

Moving average Weighted moving average Exponential smoothing
63
Moving Averages

Moving average A technique that averages a number of recent actual values, updated as new values become available.
n
MAn =

1 Ai i= n
Weighted moving average More recent values in a series are given more weight in computing the forecast.
64
Moving Averages

Moving average
n
MAn =
Period 1 2 3 4 5 6
1 Ai i= n
Sales Average Forecast for next period 40 41 42 123/3 41 ? ? ?

65
Moving Averages

Moving average
MAn =
Period 1 2 3 4 5 6
1 Ai i= n
Actual 41 42 42
Sales Average Forecast for next period 40 41 123/3 41 42 42 ? ?
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Moving Averages

Moving average
MAn =
Period 1 2 3 4 5 6
1 Ai i= n
Actual 41 42 42 44
Sales Average Forecast for next period 40 41 42 123/3 41 125/3 41.67 42 44 ?
67
Moving Averages

Moving average
MAn =
Period 1 2 3 4 5 6
1 Ai i= n
Actual 41 42 42 44 43
Sales Average Forecast for next period 40 41 123/3 41 42 42 125/3 41.67 44 128/3 42.67 ?
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Moving Averages

Moving average
MAn =
Period 1 2 3 4 5 6
1 Ai i= n
Actual 41 42 42 44 43 43
Sales Average Forecast for next period 40 41 123/3 41 42 42 125/3 41.67 44 128/3 42.67 43 129/3 43
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Simple Moving Average

Actual 47 45 43 41 39 37 35 1 2 3 4 5 6 7
n
MA5
MA3 8 9 10 11 12
MAn =
1 Ai i= n
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Weighted Moving Averages

Weighted Moving average
WMAn=
Period 1 2 3 4 5 6 Sales 40 41 42 ? ? ? Weight 20% 30% 50% Result
1 A*wi i=
Forecast Actual
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WMAn=
Period 1 2 3 4 5 6 Sales 40 41 42 ? ? ? Weight 20% 30% 50%
1 A*wi i=
Result Forecast Actual 8 12.3 21 41.3 42
72

WMAn=
Period 1 2 3 4 5 6 Sales 40 41 42 42 ? ? Weight 20% 30% 50% 8.2 12.6 21
1 A*wi i=
Result Forecast Actual
41.8
44
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WMAn=
Period 1 2 3 4 5 6 Sales 40 41 42 42 44 ? Weight
1 A*wi i=
20% 30% 50%
8.4 12.6 22
43
43
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WMAn=
Period 1 2 3 4 5 6 Sales 40 41 42 42 44 43 Weight
1 A*wi i=
20% 30% 50%
8.4 13.2 21.5
43.1
43
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Exponential Smoothing
Ft = Ft-1 + E(At-1 - Ft-1)

Premise--The most recent observations might have the highest predictive value.
Therefore, we should give more weight to the more recent time periods when forecasting.
76
Ft = Ft-1 + E(At-1 - Ft-1)

Weighted averaging method based on previous forecast plus a percentage of the forecast error A-F is the error term, E is the % feedback

77
Ft = Ft-1 + E(At-1 - Ft-1)

= Next Period Ft-1= Previous Period E !Smoothing Constant At-1 = Actual Result Previous Period
Ft
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Exponential Smoothing - Problem
Ft = Ft-1 + E(At-1 - Ft-1) Ft = Result of formula Ft-1= 42 E !Smoothing = .10 At-1 = 44
79
Ft = Ft-1 + E(At-1 - Ft-1) Ft = 42 + .10(44-42) Ft = 42 + .10(2) Ft = 42 + .20 Ft = 42.20
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Ft = Ft-1 + E(At-1 - Ft-1) Ft = 43 + .10(42.20-43) Ft = 43 + .10(-.80) Ft = 43 + -.080 Ft = 42.92
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Example 3 - Exponential Smoothing

Period 1 2 3 4 5 6 7 8 9 10 11 12 Actual 42 40 43 40 41 39 46 44 45 38 40 Alpha = 0.1 Error 42 41.8 41.92 41.73 41.66 41.39 41.85 42.07 42.36 41.92 41.73 -2.00 1.20 -1.92 -0.73 -2.66 4.61 2.15 2.93 -4.36 -1.92 Alpha = 0.4 Error 42 41.2 41.92 41.15 41.09 40.25 42.55 43.13 43.88 41.53 40.92 -2 1.8 -1.92 -0.15 -2.09 5.75 1.45 1.87 -5.88 -1.53
82
Picking a Smoothing Constant

Actual
50
E!.4
Dem and
45 40 35 1 2 3 4 5 6 7 8
E !.1
9 10 11 12
Period
83
Common Nonlinear Trends

Parabolic
Exponential
Growth
84
Linear Trend Equation

Ft
Ft = a + bt
0 1 2 3 4 5 t

Ft = Forecast for period t t = Specified number of time periods a = Value of Ft at t = 0 b = Slope of the line
85
Calculating a and b
n (ty) - t y b = n t 2 - ( t) 2
y - b t a = n
86
Linear Trend Equation Example

t W eek 1 2 3 4 5 7 t = 15 ( 7 t) 2 = 2 2 5 7 t
2
t 1 4 9 16 25 = 55
y S a le s 150 157 162 166 177 7 y = 812
ty 150 314 486 664 885 7 ty = 2 4 9 9
87
Linear Trend Calculation

5 (2499) - 15(812) 12495-12180 b = = = 6.3 5(55) - 225 275 -225
812 - 6.3(15) a = = 143.5 5
y = 143.5 + 6.3t
88
Associative Forecasting

Predictor variables - used to predict values of variable interest Regression - technique for fitting a line to a set of points Least squares line - minimizes sum of squared deviations around the line
89
Linear Model Seems Reasonable

X 7 2 6 4 14 15 16 12 14 20 15 7 Y 15 10 13 15 25 27 24 20 27 44 34 17
Computed relationship
50 40 30 20 10 0 0 5 10 15 20 25
A straight line is fitted to a set of sample points.

90
Forecast Accuracy

Error - difference between actual value and predicted value Mean Absolute Deviation (MAD)
Average absolute error
Mean Squared Error (MSE)

Average of squared error
Mean Absolute Percent Error (MAPE)

Average absolute percent error
91
MAD, MSE, and MAPE

MAD = Actual forecast n MSE = ( Actual forecast) n -1 Actual forecas t n / Actual*100)
2
MAPE =
92
Example 10
Period 1 2 3 4 5 6 7 8 Actual 217 213 216 210 213 219 216 212 Forecast 215 216 215 214 211 214 217 216 (A-F) 2 -3 1 -4 2 5 -1 -4 -2 |A-F| 2 3 1 4 2 5 1 4 22 (A-F)^2 4 9 1 16 4 25 1 16 76 (|A-F|/Actual)*100 0.92 1.41 0.46 1.90 0.94 2.28 0.46 1.89 10.26
MAD= MSE= MAPE=
2.75 10.86 1.28
93
Controlling the Forecast

Control chart
A visual tool for monitoring forecast errors Used to detect non-randomness in errors
Forecasting errors are in control if

All errors are within the control limits No patterns, such as trends or cycles, are present
94
Sources of Forecast errors

Model may be inadequate Irregular variations Incorrect use of forecasting technique

95
Tracking Signal
Tracking signal
Ratio of cumulative error to MAD
(Actual-forecast) Tracking signal =

MAD
Bias Persistent tendency for forecasts to be Greater or less than actual values.
96
Choosing a Forecasting Technique

No single technique works in every situation Two most important factors

Cost Accuracy

Other factors include the availability of:

Historical data Computers Time needed to gather and analyze the data Forecast horizon
97
98
Linear Trend Equation
99
Simple Linear Regression
100
DESIGN OF WORK SYSTEMS
McGraw-Hill/Irwin
101 Operations Management, Eighth Edition, by William J. Stevenson Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
Job Design

Job design involves specifying the content and methods of job

What will be done Who will do the job How the job will bob will be done Where the job will be done Ergonomics
102
Design of Work Systems

Specialization Behavioral Approaches to Job Design Teams Methods Analysis Motions Study Working conditions
103
Job Design Success

Successful Job Design must be:

Carried out by experienced personnel with the necessary training and background Consistent with the goals of the organization In written form Understood and agreed to by both management and employees
104
Specialization in Business: Advantages

For Management:
2. High productivity 3. Low wage costs
For Labor: 1. Simplifies training 1. Low education and

skill requirements 2. Minimum responsibilities 3. Little mental effort needed
105
Disadvantages
ForManagement:
1. Difficult to motivate quality
ForLabor:
1. Monotonous work
2. Limited opportunities for advancement 2. Worker dissatisfaction, possibly resulting in 3. Little control over work absenteeism, high 4. Little opportunity for turnover, disruptive self-fulfillment tactics, poor attention to quality
106
Behavioral Approaches to Job Design

Job Enlargement
Giving a worker a larger portion of the total task by horizontal loading
Job Rotation
Workers periodically exchange jobs
Job Enrichment
Increasing responsibility for planning and coordination tasks, by vertical loading
107
Motivation and Trust

Motivation
Influences quality and productivity Contributes to work environment
Trust
Influences productivity and employeemanagement relations
108
Teams

Benefits of teams
Higher quality Higher productivity Greater worker satisfaction
Self-directed teams
Groups of empowered to make certain changes in their work process
109
Methods Analysis

Methods analysis
Analyzing how a job gets done Begins with overall analysis Moves to specific details
110
Methods Analysis
The need for methods analysis can come from a number of different sources:
Changes Changes Changes Other
in tools and equipment
in product design or new products in materials or procedures factors (e.g. accidents, quality problems)
111
Methods Analysis Procedure

the operation to be studied 2. Get employee input 3. Study and document current method 4. Analyze the job 5. Propose new methods 6. Install new methods 7. Follow-up to ensure improvements have been achieved
1. Identify
112
Analyzing the Job

Flow process chart

Chart used to examine the overall sequence of an operation by focusing on movements of the operator or flow of materials
Worker-machine chart
Chart used to determine portions of a work cycle during which an operator and equipment are busy or idle
113
FLOW PROCESS CHART
ANALYST PAGE Job Requisition of petty cash D. Kolb 1 of 2
Details of Method
Requisition made by department head Put in pick-up basket To accounting department Account and signature verified Amount approved by treasurer Amount counted by cashier Amount recorded by bookkeeper Petty cash sealed in envelope Petty cash carried to department Petty cash checked against requisition Receipt signed Petty cash stored in safety box
114
Motion Study
Motion study is the systematic study of the human motions used to perform an operation.
115
Motion Study Techniques

Motion study principles - guidelines for designing motion-efficient work procedures Analysis of therbligs - basic elemental motions into which a job can be broken down Micromotion study - use of motion pictures and slow motion to study motions that otherwise would be too rapid to analyze Charts
116
Developing Work Methods

1. 2. 3. 4.
5.
Eliminate unnecessary motions Combine activities Reduce fatigue Improve the arrangement of the workplace Improve the design of tools and equipment
117
Working Conditions
T e m p e ra tu re & H u m id i t y V e n t il a t io n
I l lu m in a t i o n
C o lo r
118
Working Conditions (contd)

Noise & Vibration Work Breaks
Safety
Causes of Accidents
119
Work Measurement

Standard time Stopwatch time study Historical times Predetermined data Work Sampling
120
Compensation

Time-based system
Compensation based on time an employee has worked during a pay period
Output-based (incentive) system

Compensation based on the amount of output an employee produces during a pay period
121
Form of Incentive Plan

Accurate Easy to apply Consistent Easy to understand Fair
122
Compensation

Individual Incentive Plans Group Incentive Plans Knowledge-Based Pay System Management Compensation
123
PRODUCT AND SERVICE DESIGN
McGraw-Hill/Irwin
Product and Service Design

Major factors in design strategy

Cost Quality Time-to-market Customer satisfaction Competitive advantage
Product and service design or redesign should be closely tied to an organizations strategy
125
Product or Service Design Activities

Translate customer wants and needs into product and service requirements Refine existing products and services Develop new products and services Formulate quality goals Formulate cost targets Construct and test prototypes Document specifications

126
Reasons for Product or Service Design

Economic Social and demographic Political, liability, or legal Competitive Technological
127
Objectives of Product and Service Design

Main focus
Customer satisfaction
Secondary focus
Function of product/service Cost/profit Quality Appearance Ease of production/assembly Ease of maintenance/service
128
Designing For Operations

Taking into account the capabilities of the organization in designing goods and services
129
Legal, Ethical, and Environmental Issues

Legal
FDA, OSHA, IRS Product liability Uniform commercial code

Ethical
Releasing products with defects
Environmental
EPA
130
Regulations & Legal Considerations

Product
Liability - A manufacturer is liable for any injuries or damages caused by a faulty product. Commercial Code - Products carry an implication of merchantability and fitness.
Uniform
131
Designers Adhere to Guidelines

Produce designs that are consistant with the goals of the company Give customers the value they expect Make health and safety a primary concern Consider potential harm to the environment

132
Other Issues in Product and Service Design

Product/service life cycles How much standardization Product/service reliability Range of operating conditions

133
Life Cycles of Products or Services

Saturation Maturity
Deman d
Decline Growth
Introduction
Time
134
Standardization

Standardization
Extent to which there is an absence of variety in a product, service or process
Standardized products are immediately available to customers
135
Advantages of Standardization

Fewer parts to deal with in inventory & manufacturing Design costs are generally lower Reduced training costs and time More routine purchasing, handling, and inspection procedures

136
Advantages of Standardization
(Contd)

Orders fillable from inventory Opportunities for long production runs and automation Need for fewer parts justifies increased expenditures on perfecting designs and improving quality control procedures.
137
Disadvantages of Standardization

Designs may be frozen with too many imperfections remaining. High cost of design changes increases resistance to improvements. Decreased variety results in less consumer appeal.
138
Mass Customization
Mass customization:
A strategy of producing standardized goods or services, but incorporating some degree degree of customization Delayed differentiation Modular design
139
Delayed Differentiation
Delayed differentiation is a postponement tactic

Producing but not quite completing a product or service until customer preferences or specifications are known
140
Modular Design
Modular design is a form of standardization in which component parts are subdivided into modules that are easily replaced or interchanged. It allows:
easier diagnosis and remedy of failures easier repair and replacement simplification of manufacturing and assembly
141
Reliability

Reliability: The ability of a product, part, or

system to perform its intended function under a prescribed set of conditions
ailure: Situation in which a product, part,

or system does not perform as intended
Normal operating conditions: The set of

conditions under which an items reliability is specified
142
Improving Reliability
Component design Production/assembly techniques Testing Redundancy/backup Preventive maintenance procedures User education System design
143
Product Design

Product Life Cycles Robust Design Concurrent Engineering Computer-Aided Design Modular Design
144
Robust Design
Robust Design: Design that results in products or services that can function over a broad range of conditions
145
Taguchi Approach Robust Design

Design a robust product

Insensitive to environmental factors either in manufacturing or in use.
Central feature is Parameter Design. Determines:

factors that are controllable and those not controllable their optimal levels relative to major product advances
146
Degree of Newness
1. Modification
of an existing product/service 2. Expansion of an existing product/service 3. Clone of a competitors product/service 4. New product/service
147
Degree of Design Change

Type of Design Change Modification Expansion Clone New Newness of the organization Low Low High High Newness to the market Low Low Low High
148
Phases in Product Development Process

1. 2. 3. 4. 5. 6. 7. 8. 9. Idea generation Feasibility analysis Product specifications Process specifications Prototype development Design review Market test Product introduction Follow-up evaluation
149
Idea Generation
Supply chain based
Ideas
Competitor based
Research based
150
Reverse Engineering
Reverse engineering is the dismantling and inspecting of a competitors product to discover product improvements.
151
Research & Development (R&D)

Organized efforts to increase scientific knowledge or product innovation & may involve:
Basic Research advances knowledge about a subject without near-term expectations of commercial applications. Applied Research achieves commercial applications. Development converts results of applied research into commercial applications.
152
Manufacturability

Manufacturability is the ease of fabrication and/or assembly which is important for:

Cost Productivity Quality
153
Designing for Manufacturing

Beyond the overall objective to achieve customer satisfaction while making a reasonable profit is: Design for Manufacturing(DFM) The designers consideration of the organizations manufacturing capabilities when designing a product. The more general term design for operations encompasses services as well as manufacturing
154
Concurrent Engineering
Concurrent engineering is the bringing together of engineering design and manufacturing personnel early in the design phase.
155
Computer-Aided Design

Computer-Aided Design (CAD) is product design using computer graphics.

increases productivity of designers, 3 to 10 times creates a database for manufacturing information on product specifications provides possibility of engineering and cost analysis on proposed designs
156
Product design
Design for manufacturing (DFM) Design for assembly (DFA) Design for recycling (DFR) Remanufacturing Design for disassembly (DFD) Robust design

157
Recycling
Recycling: recovering materials for future use Recycling reasons

Cost savings Environment concerns Environment regulations
158
Service Design
Service is an act Service delivery system

Facilities Processes Skills

Many services are bundled with products

159
Service Design

Service design involves

The physical resources needed The goods that are purchased or consumed by the customer Explicit services Implicit services
160
Service Design

Service
Something that is done to or for a customer
Service delivery system

The facilities, processes, and skills needed to provide a service
Product bundle
The combination of goods and services provided to a customer
Service package
The physical resources needed to perform the service
161
Differences Between Product and Service Design
Tangible intangible Services created and delivered at the same time Services cannot be inventoried Services highly visible to customers Services have low barrier to entry Location important to service

162
Phases in Service Design

1. Conceptualize
service package components 3. Determine performance specifications 4. Translate performance specifications into design specifications 5. Translate design specifications into delivery specifications
2. Identify
163
Service Blueprinting

Service blueprinting
A method used in service design to describe and analyze a proposed service
A useful tool for conceptualizing a service delivery system
164
Major Steps in Service Blueprinting

1. 2. 3. 4. 5. 6.
Establish boundaries Identify steps involved Prepare a flowchart Identify potential failure points Establish a time frame Analyze profitability
165
Characteristics of Well Designed Service Systems

1. 2. 3. 4. 5. 6. 7. 8. 9.
Consistent with the organization mission User friendly Robust Easy to sustain Cost effective Value to customers Effective linkages between back operations Single unifying theme Ensure reliability and high quality
166
Challenges of Service Design

Variable requirements Difficult to describe High customer contact Service customer encounter

167
Quality Function Deployment


Voice of the customer House of quality
QFD: An approach that integrates the voice of the customer into the product and service development process.
168
The House of Quality

Correlation matrix Design requirements
Customer requirements
Relationship matrix
Competitive assessment
Specifications or target values

169
House of Quality Example

Correlation:
X X X X
Water resistance
Door seal resistance
Engineering Characteristics
Accoust. Trans. Window
Energy needed to close door
Check force on level ground Energy needed to open door
Strong positive Positive Negative Strong negative

X = Us A = Comp. A B = Comp. B (5 is best) 1 2 3 4
Competitive evaluation
Customer Requirements Easy to close Stays open on a hill Easy to open Doesnt leak in rain No road noise Importance weighting Target values
7 5 3 3 2
Reduce energy level to 7.5 ft/lb
X X AB
AB
XAB A XB X A B
10
6
Maintain current level
6
Reduce force to 9 lb.
9
Reduce energy to 7.5 ft/lb.
2
3
Relationships:
Strong = 9 Medium = 3 Small = 1
Technical evaluation (5 is best)
5 4 3 2 1
B A X
BA X
B A X
B X A
BXA
BA X
170
The Kano Model

Kano Model
Customer Satisfaction
Excitement Expected Must Have
Customer Needs
171
Operations Strategy
1. Increase emphasis on component commonality 2. Package products and services 3. Use multiple-use platforms 4. Consider tactics for mass customization 5. Look for continual improvement 6. Shorten time to market
172
Shorten Time to Market

1. Use standardized components 2. Use technology 3. Use concurrent engineering
173
TOTAL QUALITY MANAGEMENT
174
Learning Objectives

Explain the meaning of TQM Identify the costs of Quality Describe the evolution of TQM Identify Quality leaders and their contributions
175
Learning Objectives

Identify key features of the TQM philosophy Describe tools identifying and solving quality problems Describe quality awards and quality certifications
176
Defining Quality

Definition of quality is dependent on the people defining it There is a lack of a single, universal definition of quality 5 common definitions include

Conformance to specifications Fitness for use Value for price paid Support services Psychological criteria
177
Defining Quality

5 Ways
Conformance to specifications

Does product/service meet targets and tolerances defined by designers? Evaluates performance for intended use Evaluation of usefulness vs. price paid Quality of support after sale e.g. Ambiance, prestige, friendly staff
178
Fitness for use

Value for price paid

Support services

Psychological

Manufacturing Quality vs. Service Quality

Manufacturing quality focuses on tangible product features

Conformance, performance, reliability, features
Service organizations produce intangible products that must be experienced

Quality often defined by perceptional factors like courtesy, friendliness, promptness, waiting time, consistency
179
Cost of Quality

Quality affects all aspects of the organization Quality has dramatic cost implications of;

Quality control costs

Prevention costs Appraisal costs Internal failure costs External failure costs
Quality failure costs

180
Cost of Quality
4 Categories
Early detection/prevention is less costly

May be less by a factor of 10

181
Evolution of TQM
New Focus
182
Quality Gurus
183
TQM Philosophy

TQM Focuses on identifying quality problem root causes Encompasses the entire organization Involves the technical as well as people Relies on seven basic concepts of Customer focus Continuous improvement Employee empowerment Use of quality tools Product design Process management Managing supplier quality
184
TQM Philosophy - concepts

Focus on Customer

Identify and meet customer needs Stay tuned to changing needs, e.g. fashion styles Continuous learning and problem solving, e.g. Kaizen, 6 sigma
Continuous Improvement

Benchmarking Employee Empowerment

Empower all employees; external and internal customers
185
TQM Philosophy Concepts (continued)

Team Approach

Teams formed around processes 8 to 10 people Meet weekly to analyze and solve problems Ongoing training on analysis, assessment, and correction, & implementation tools Studying practices at best in class companies
Understanding Quality Tools

Plan-Do-Study-Act
186
Ways of Improving Quality

Plan-Do-Study-Act Cycle (PDSA)

Also called the Deming Wheel after originator Circular, never ending problem solving process Tools typically taught to problem solving teams Used to translate customer preferences to design
Seven Tools of Quality Control


187
PDSA Details

Plan

Evaluate current process Collect procedures, data, identify problems Develop an improvement plan, performance objectives Implement the plan trial basis
Do

Study

Collect data and evaluate against objectives Communicate the results from trial If successful, implement new process
Act

188
PDSA

(continued)
Cycle is repeated
After act phase, start planning and repeat process
189
Seven Tools of Quality Control

Cause-and-Effect Diagrams Flowcharts Checklists Control Charts Scatter Diagrams Pareto Analysis Histograms
190
Cause-and-Effect Diagrams

Called Fishbone Diagram Focused on solving identified quality problem
191
Flowcharts

Used to document the detailed steps in a process Often the first step in Process Re-Engineering
192
Checklist

Simple data check-off sheet designed to identify type of quality problems at each work station; per shift, per machine, per operator
193
Control Charts

Important tool used in Statistical Process Control Chapter 6 The UCL and LCL are calculated limits used to show when process is in or out of control
194
Scatter Diagrams

A graph that shows how two variables are related to one another Data can be used in a regression analysis to establish equation for the relationship
195
Pareto Analysis

Technique that displays the degree of importance for each element Named after the 19th century Italian economist Often called the 80-20 Rule Principle is that quality problems are the result of only a few problems e.g. 80% of the problems caused by 20% of causes

196
Histograms

A chart that shows the frequency distribution of observed values of a variable like service time at a bank drive-up window Displays whether the distribution is symmetrical (normal) or skewed
197
Product Design - Quality Function Deployment

Critical to ensure product design meets customer expectations Useful tool for translating customer specifications into technical requirements is Quality Function Deployment (QFD) QFD encompasses

Customer requirements Competitive evaluation Product characteristics Relationship matrix Trade-off matrix Setting Targets
198
Quality Function Deployment (QFD) Details

Process used to ensure that the product meets customer specifications
Voice of the engineer
Voice of the customer
Customer-based benchmarks
199
QFD - House of Quality

Adding trade-offs, targets & developing product specifications

Trade-offs
Targets
Technical Benchmarks
200
Reliability

critical to quality
Reliability is the probability that the product, service or part will function as expected No product is 100% certain to function properly Reliability is a probability function dependent on sub-parts or components
201
Reliability

critical to quality
Reliability of a system is the product of component reliabilities RS = (R1) (R2) (R3) . . . (Rn) RS = reliability of the product or system R1 = reliability of the components

Increase reliability by placing components in parallel

202
Reliability

critical to quality
Increase reliability by placing components in parallel Parallel components allow system to operate if one or the other fails
RS = R1 + (R2* Probability of needing 2nd component)

203
Process Management

Quality products come from quality sources Quality must be built into the process Quality at the source is belief that it is better to uncover source of quality problems and correct it TQM extends to quality of product from company s suppliers
204
Quality Awards and Standards

Malcolm Baldrige National Quality Award (MBNQA) The Deming Prize ISO 9000 Certification ISO 14000 Standards

205
MBNQA- What Is It?

Award named after the former Secretary of Commerce Regan Administration Intended to reward and stimulate quality initiatives Given to no more that two companies in each of three categories; manufacturing, service, and small business Past winners; Motorola Corp., Xerox, FedEx, 3M, IBM, Ritz-Carlton
206
The Deming Prize

Given by the Union of Japanese Scientists and Engineers since 1951
Named after W. Edwards Deming who worked to improve Japanese quality after WWII

Not open to foreign companies until 1984 Florida P & L was first US company winner
207
ISO Standards

ISO 9000 Standards:

Certification developed by International Organization for Standardization Set of internationally recognized quality standards Companies are periodically audited & certified ISO 9000:2000 QMS Fundamentals and Standards ISO 9001:2000 QMS Requirements ISO 9004:2000 QMS - Guidelines for Performance More than 40,000 companies have been certified

ISO 14000:
Focuses on a company s environmental responsibility
208
Why TQM Efforts Fail

Lack of a genuine quality culture Lack of top management support and commitment Over- and under-reliance on SPC methods
209
TQM Within OM

TQM is broad sweeping organizational change TQM impacts

Marketing providing key inputs of customer information Finance evaluating and monitoring financial impact Accounting provides exact costing Engineering translate customer requirements into specific engineering terms Purchasing acquiring materials to support product development Human Resources hire employees with skills necessary Information systems increased need for accessible information
210
TQM Highlights

TQM is different from the old concept of quality as it focus is on serving customers, identifying the causes of quality problems, and building quality into the production process Four categories of quality cost of prevention, appraisal, internal and external costs Seven TQM notable individuals include Walter A. Shewhart, W. Edwards Demings, Joseph M. Juran, Armand V. Feigenbaum, Philip B. Crosby, Kaoru Ishikawa, and Genichi Taguchi
211
TQM Highlights - Continued

Seven features of TQM combine to create TQM philosophy; customer focus, continuous improvement, employee empowerment, use of quality tools, product design, process management, and managing supplier quality QFD is a tool used to translate customer needs into specific engineering requirements Reliability is the probability that the product will functions as expected The Malcom Baldridge Award is given to companies to recognize excellence in quality management.
212
Quality Control
213
Phases of Quality Assurance

Inspection before/after production
Acceptance sampling
Inspection and corrective action during production

Process control
Quality built into the process

Continuous improvement
The least progressive
The most progressive
214
Inspection
How Much/How Often Where/When Centralized vs. On-site

Inputs Transformation Outputs
Acceptance sampling
Process control
Acceptance sampling
215
Inspection Costs
Cost
Total Cost
Cost of inspection
Cost of passing defectives
Optimal Amount of Inspection

216
Where to Inspect in the Process

Raw materials and purchased parts Finished products Before a costly operation Before an irreversible process Before a covering process
217
Examples of Inspection Points

Type of business Fast Food Inspection points Cashier Counter area Eating area Building Kitchen Hotel/motel Parking lot Accounting Building Main desk Supermarket Cashiers Deliveries Characteristics Accuracy Appearance, productivity Cleanliness Appearance Health regulations Safe, well lighted Accuracy, timeliness Appearance, safety Waiting times Accuracy, courtesy Quality, quantity
218
Statistical
Process Control:
Statistical evaluation of the output of a process during production

Quality
of Conformance: A product or service conforms to specifications
219
Control Chart

Control Chart
Purpose: to monitor process output to see if it is random A time ordered plot representative sample statistics obtained from an on going process (e.g. sample means) Upper and lower control limits define the range of acceptable variation
220
Control Chart
Abnormal variation due to assignable sources Out of control
UCL
Mean Normal variation due to chance Abnormal variation due to assignable sources
LCL
10 11 12 13 14 15
Sample number
221
Statistical Process Control

The essence of statistical process control is to assure that the output of a process is random so that future output will be random.
222

The Control Process

Define Measure Compare Evaluate Correct Monitor results
223

Variations and Control

Random variation: Natural variations in the output of a process, created by countless minor factors Assignable variation: A variation whose source can be identified
224
Sampling Distribution
Sampling distribution Process distribution
Mean
225
Normal Distribution
W!Standard deviation
W
W
Mean 95.44% 99.74%
W
W
226
Control Limits
Sampling distribution Process distribution
Mean Lower control limit Upper control limit
227
SPC Errors

Type I error
Concluding a process is not in control when it actually is.
Type II error
Concluding a process is in control when it is not.
228
Type I Error
E/2 E/2
Mean E!Probability of Type I error LCL UCL
229
Observations from Sample Distribution

UCL
LCL 1 2 Sample number 3 4
230
Control Charts for Variables

Variables generate data that are measured. measured.

Mean control charts

Used to monitor the central tendency of a process. X bar charts
Range control charts

Used to monitor the process dispersion R charts
231
Mean and Range Charts

(process mean is shifting upward) Sampling Distribution
UCL
x-Chart
LCL
Detects shift
UCL
R-chart
LCL
Does not detect shift

232
Mean and Range Charts

Sampling Distribution (process variability is increasing)
UCL
x-Chart
LCL
Does not reveal increase
UCL
R-chart
LCL
Reveals increase
233
Control Chart for Attributes

p-Chart - Control chart used to monitor the proportion of defectives in a process c-Chart - Control chart used to monitor the number of defects per unit
Attributes generate data that are counted. counted.
234
Use of p-Charts

When observations can be placed into two categories.

Good or bad Pass or fail Operate or dont operate
When the data consists of multiple samples of several observations each

235
Use of c-Charts

Use only when the number of occurrences per unit of measure can be counted; non-occurrences cannot be counted.
Scratches, chips, dents, or errors per item Cracks or faults per unit of distance Breaks or Tears per unit of area Bacteria or pollutants per unit of volume Calls, complaints, failures per unit of time 236
Use of Control Charts

At what point in the process to use control charts What size samples to take What type of control chart to use
Variables Attributes

237
Run Tests

Run test a test for randomness Any sort of pattern in the data would suggest a non-random process All points are within the control limits the process may not be random
238
Nonrandom Patterns in Control charts

Trend Cycles Bias Mean shift Too much dispersion

239
Counting Runs
Figure 10.12
Counting Above/Below Median Runs (7 runs)
B A
B A
Figure 10.13
Counting Up/Down Runs
(8 runs)
U D U U D
240
Process Capability

Tolerances or specifications
Range of acceptable values established by engineering design or customer requirements
Process variability
Natural variability in a process
Process capability
Process variability relative to specification
241
Process Capability
Lower Specification Upper Specification
A. Process variability matches specifications

Lower Specification Upper Specification
B. Process variability Lower Upper well within specifications Specification Specification
C. Process variability exceeds specifications

242
Process Capability Ratio

specification width Process capability ratio, Cp = process width Cp = Upper specification lower specification 6W
243
3 Sigma and 6 Sigma Quality

Lower specification
1350 ppm 1.7 ppm
Upper specification
1350 ppm 1.7 ppm
Process mean +/- 3 Sigma +/- 6 Sigma
244
Improving Process Capability

Simplify Standardize Mistake-proof Upgrade equipment Automate

245
Limitations of Capability Indexes

1. 2.
Process may not be stable Process output may not be normally distributed Process not centered but Cp is used
3.
246
Statistical Process Control (SPC)

Invented by Walter Shewhart at Western Electric Distinguishes between

common cause variability (random) special cause variability (assignable)

Based on repeated samples from a process
247
Empirical Rule
-3 -2 -1 +1 +2 +3 68% 95% 99.7%

248
Control Charts in General

Are named according to the statistics being plotted, i.e., X bar, R, p, and c Have a center line that is the overall average Have limits above and below the center line at 3 standard deviations (usually)
Upper Control Limit (UCL) Center line Lower Control Limit (LCL)
249
Variables Data Charts

Process Centering
X bar chart X bar is a sample mean X !
n
X
i !1
Process Dispersion (consistency)

R chart R is a sample range
R ! max( X i ) min( X i )
250
X bar charts
Center line is the grand mean (X double m bar) Xj Points are X barsW ! W / n j !1 x

X!
UCL ! X zW x
-OR-
LCL ! X zW x
UCL ! X A2 R
LCL ! X A2 R
251
R Charts
Center line is the grand mean (R bar) Points are R D3 and D4 values are tabled according to n (sample size)

UCL ! D4 R
LCL ! D3 R
252
Use of X bar & R charts

Charts are always used in tandem Data are collected (20-25 samples) Sample statistics are computed All data are plotted on the 2 charts Charts are examined for randomness If random, then limits are used forever

253
Attribute Charts

c charts used to count defects in a constant sample size

n
UCL ! c z c
c
c!
i !1
! centerline
LCL ! c z c
254
Attribute Charts

p charts used to track a proportion (fraction) defective

pi !
m
x
i !1
p
p!
j !1
x
m !
ij
nm
! centerline
p (1 p ) UCL ! p z n
p (1 p ) LCL ! p z n
255
Process Capability
The ratio of process variability to design specifications Natural data
spread -3 -2
Lower Spec
-1
+1
+2
Upper Spec
+3
The natural spread of the data is 6
256
E-COMMERCE AND SUPPLY CHAIN MANAGEMENT
257
Supply Chains & SCM

A supply chain is the network of all the activities involved in delivering a finished product/service to the customer Sourcing of: raw materials, assembly, warehousing, order entry, distribution, delivery Supply Chain Management is the vital business function that coordinates all of the network links Coordinates movement of goods through supply chain from suppliers to manufacturers to distributors Promotes information sharing along chain like forecasts, sales data, & promotions
258
Components of a Supply Chain

External Suppliers source of raw material

Tier one supplier supplies directly to the processor Tier two supplier supplies directly to tier one Tier three supplier supplies directly to tier two
Internal Functions include processing functions

Processing, purchasing, planning, quality, shipping
External Distributors transport finished products to appropriate locations

Logistics managers are responsible for traffic management and distribution management
259
Components of a Supply Chain

External Distributors transport finished products to appropriate locations

Logistics managers are responsible for managing the movement of products between locations. Includes;
traffic management arranging the method of shipment for both incoming and outgoing products or material distribution management movement of material from manufacturer to the customer

260
A Basic Supply Chain
261
The Bullwhip Effect

Bullwhip effect - the inaccurate or distorted demand information created in the supply chain Causes are generated by: demand forecasting updating, order batching, price fluctuations, rationing and gaming
262
The Bullwhip Effect

Counteracting the Effect:

Change the way suppliers forecast product demand by making this information available at all levels of the supply chain Share real demand information (POS terminals) Eliminate order batching Stabilize pricing Eliminate gaming
263
Issues Affecting Supply Chain Management

Information technology enablers include the Internet, Web, EDI, intranets and extranets, bar code scanners, and pointof-sales demand information E-commerce and e-business uses internet and web to transact business

264
Types of E-Commerce
E-commerce is defined as the use of the Internet and the Web to transact business Two types of e-commerce are

Business-to-business (B2B) and Business-to-consumer (B2C)
265
Types of E-Commerce

Business-to-Business (B2B) Evolution:

Automated order entry systems started in 1970s Electronic Data Interchange (EDI) started in the 1970s Electronic Storefronts emerged in the 1990s Net Marketplaces emerged in the late 1990s
Benefits of B2B E-Commerce

Lower procurement administrative costs, Low-cost access to global suppliers Lower inventory investment due to price transparency/reduced response time Better product quality because of increased cooperation between buyers and sellers, especially during the product design and development
266
Types of E-Commerce

Business-to-Consumer (B2C):
On-line businesses try to reach individual consumers
B2C revenue model sources

Advertising Web site offers providers and opportunity to advertise Subscription Web site charges a subscription fee for access to the site Transaction company receives a fee for executing a transaction Sales a means of selling goods, information, or service directly to customers Affiliate companies receive a referral fee for directing business to an affiliate
267
SCM Factors

SCM must consider the following trends, improved capabilities, & realities:
Consumer Expectations and Competition power has shifted to the consumer Globalization capitalize on emerging markets Government Regulations and E-Commerce issues of Internet government regulations Environment Implications of E-Commerce recycling, sustainable eco-efficiency, and waste minimization
268
Global SCM Factors

Managing extensive global supply chains introduces many complications

Geographically dispersed members - increase replenishment transit times and inventory investment Forecasting accuracy complicated by longer lead times and different operating practices Exchange rates fluctuate, inflation can be high Infrastructure issues like transportation, communication, lack of skilled labor, & scarce local material supplies Product proliferation created by the need to customize products for each market
269
Sourcing Issues

Which products to produce in-house and which are provided by other supply chain members Vertical integration a measure of how much of the supply chain is owned by the manufacturer
Backward integration owning or controlling of sources of raw material and component parts Forward integration owning or control the channels of distribution
Vertical integration related to levels of insourcing or outsourcing products or services
270
Insourcing vs. Outsourcing

What questions need to be asked before sourcing decisions are made?

Is product/service technology critical to firms success? Is product/service a core competency? Is it something your company must do to survive?
271
Make or Buy Analysis

Analysis will look at the expected sales levels and cost of internal operations vs. cost of purchasing the product or service
Total Cost of Outsourcin g : TC Buy ! FC Buy Buy v Q VC Total Cost of Insourcing : TC Make ! FC Make Make v Q VC Indifferen ce Point : FC Buy Buy v Q ! FC Make Make v Q VC VC
272
Example: Make-or-Buy analysis- Mary and Sue, have decided to open a bagel shop. Their first decision is whether they should make the bagels on-site or by the bagels from a
local bakery. If they buy from the local bakery they will need airtight containers at a fixed cost of $1000 annually. They can buy the bagels for $0.40 each. If they make the bagels in-house they will need a small kitchen at a fixed cost of $15,000 annually. It will cost them $0.15 per bagel to make. The believe they will sell 60,000 bagels.

Mary and Sue wants to know if they should make or buy the bagels. FCBuy + (VCBuy x Q) = FCMake + (VCMake x Q) $1,000 + ($0.40 x Q) = $15,000 + ($0.15 x Q) Q = 56,000 bagels Since the costs are equal at 56,000 bagels and Mary and Sue expect to use 60,000 bagels, they should make the bagels in-house
273
The Role of Purchasing

Purchasing role has attained increased importance since material costs represent 50-60% of cost of goods sold
Ethics considerations is a constant concern Developing supplier relationships is essential Determining how many suppliers to use Developing partnerships
274
Critical Factors in Successful Partnership Relations

Critical factors in successful partnering include;

Impact attaining levels of productivity and competitiveness that are not possible through normal supplier relationships Intimacy working relationship between two partners Vision the mission or objectives of the partnership
275
Critical Factors in Successful Partnership Relations

Have a long-term orientation Are strategic in nature Share information Share risks and opportunities

Share a common vision Share short/long term plans Driven by end-customer needs
Benefits of Partnering
Early supplier involvement (ESI) in the design process Using supplier expertise to develop and share cost improvements and eliminate costly processes Shorten time to market
276
Supply Chain Distribution

Warehouses involved in supply chain distributions and include

Plant warehouses Regional warehouses Local warehouses
Warehouses can either be

General used for long-term storage Distribution used for short-term storage, consolidation, and product mixing
277
Supply Chain Distribution continued

Transportation consolidation warehouses consolidate less-thantruckload (LTL) quantities into truckload (TL) quantities Product mixing warehouse value added customer service of grouping a variety of products into a direct shipment to the customer

278

Services are offered can improve customer service by moving goods closer to the customer and thus reducing replenishment time Crossdocking or movement of material without storage and order-picking material while still performing the receiving and shipping functions.

279

Radio Frequency Identification Technology (RFID) automated data collection technology which relies on radio waves to transfer data between reader and RFID tag Third-party Service Providers ease of developing an electronic storefront has allowed the discovery of suppliers from around the world
280
Integrated SCM

Implementing integrated SCM requires:

Analyzing the whole supply chain Starting by integrating internal functions first Integrating external suppliers through partnerships
Manufacturers Goals
Reduce costs Reduce duplication of effort Improve quality Reduce lead time Implement cost reduction program Involve suppliers early Reduce time to market
Suppliers Goals
Increase sales volume Increase customer loyalty Reduce cost Improve demand data Improve profitability
281
Supply Chain Measurements

Measuring supply chain performance

Traditional measures include;
Return on investment Profitability Market share Revenue growth

Additional measures
Customer service levels Inventory turns Weeks of supply Inventory obsolescence

282
Supply Chain Performance Measurement

Customer demands for better-quality requires companys to develop ways to measure improvements Some measurements include

Warranty costs Products returned Cost reductions allowed because of product defects Company response times Transaction costs
283
Current Trends in SCM

Increased use of electronic marketplace such as

E-distributors independently owned net marketplaces having catalogs representing thousands of suppliers and designed for spot purchases E-purchasing companies that connect on-line MRO suppliers to business who pay fees to join the market, usually for long-term contractual purchasing
284
Current Trends in SCM continued

Increased use of electronic marketplace such as

Value chain management automation of a firms purchasing or selling processes Exchanges marketplace that focuses on spot requirements of large firms in a single industry Industry consortia industry-owned markets that enable buyers to purchase direct inputs from a limited set of invited suppliers
Decreased supply chain velocity due to greater distances with greater uncertainty and generally less efficient.
285
SCM Across the Organization

SCM changes the way companies do business. Accounting shares SCM benefits due to inventory level decreases Marketing benefits by improved customer service levels Information systems are critical for information sharing through PSO data, EDI, RFID, the Internet, intranet, and extranets Purchasing is responsible for sourcing materials Operations use timely demand information to more effectively plan production schedules
286
SCM Highlights

Every organization is part of a supply chain, either as a customer or as a supplier. Supply chains include all the processes needed to make a finished product, from the extraction of raw materials through the sale to the end user. SCM is the integration and coordination of these efforts. The bullwhip effect distorts product demand information passed between levels of the supply chain. The more levels that exist, the more distortion that is possible. Variability results from updating demand estimates at each level, order batching, price fluctuations, and rationing
287
SCM Highlights (continued)

Many issues affect supply chain management. The Internet, the WEB, EDI, intranets, extranets, bar-code scanners, and POS data are SCM enablers. B2B and B2C electronic commerce enable supply chain management. Net marketplaces bring together thousands or suppliers and customers. Allowing for efficient sourcing and lower transaction costs.
288

Global
supply chains increase geographic distances between members, causing greater uncertainty in delivery times. Purchasing has a major role in SCM. Purchasing is involved in sourcing decisions and developing strategic long-term partnerships.
289

Ethics in supply management is an ongoing concern. Since buyers are in a position to influence or award business, it is imperative that buyers avoid any appearance of unethical behavior or conflict of interest. Companies make insourcing and outsourcing decisions. These make-or-buy decisions are based on financial and strategic criteria.
290

Partnerships require sharing information, risks, technologies, and opportunities. Impact, intimacy, and vision are critical to successful partnering. Supply chain distribution requires effective warehousing operations. The warehouses provide transportation, consolidation, product mixing, and service.
291

Integrated
SCM usually begins with the manufacturer integrating internal processes first. The, the company tries to integrate the external suppliers. The last step is integrating the external distributors.
292

A company needs to evaluate the performance of its supply chain. Regular performance metrics (ROI, profitability, market share, customer service levels, etc.) and other measures that reflect the objectives of the SC are used. The emergence of net marketplaces has significantly affected SCM. As supply chains become longer, it is likely that supply chain velocity will decrease. It is possible that a more strategic and integrated approach is needed to advance SCM to the next level.
293
LOCATION PLANNING AND ANALYSIS
McGraw-Hill/Irwin
Need for Location Decisions

Marketing Strategy Cost of Doing Business Growth Depletion of Resources
295
Nature of Location Decisions

Strategic Importance
Long term commitment/costs Impact on investments, revenues, and operations Supply chains
Objectives
Profit potential No single location may be better than others Identify several locations from which to choose
Options
Expand existing facilities Add new facilities Move
296
Making Location Decisions

Decide on the criteria Identify the important factors Develop location alternatives Evaluate the alternatives Make selection

297
Location Decision Factors

Regional Factors Community Considerations
Multiple Plant Strategies
Site-related Factors
298
Regional Factors
Location of raw materials Location of markets Labor factors Climate and taxes

299
Community Considerations
Quality of life Services Attitudes Taxes Environmental regulations Utilities Developer support

300
Site Related Factors

Land Transportation Environmental Legal

301
Multiple Plant Strategies

Product plant strategy Market area plant strategy Process plant strategy

302
Comparison of Service and Manufacturing Considerations

Manufacturing/Distribution
Cost Focus Transportation modes/costs Energy availability, costs Labor cost/availability/skills Building/leasing costs
Service/Retail
Revenue focus Demographics: age,income,etc Population/drawing area Competition Traffic volume/patterns Customer access/parking
303
Trends in Locations

Foreign producers locating in U.S.

Made in USA Currency fluctuations

Just-in-time manufacturing techniques Microfactories Information Technology
304
Foreign Government
Cultural Differences Customer Preferences Labor
a. Policies on foreign ownership of production facilities Local Content Import restrictions Currency restrictions Environmental regulations Local product standards b. Stability issues Living circumstances for foreign workers / dependents Religious holidays/traditions Possible buy locally sentiment
Resources
Level of training and education of workers Work practices Possible regulations limiting number of foreign employees Language differences Availability and quality of raw materials, energy, transportation
305
Evaluating Locations

Cost-Profit-Volume Analysis
Determine fixed and variable costs Plot total costs Determine lowest total costs
306
Location Cost-Volume Analysis

Assumptions
Fixed costs are constant Variable costs are linear Output can be closely estimated Only one product involved
307
Example 1: Cost-Volume Analysis

Fixed and variable costs for L o a tio n F ix e fourcpotential locationsd
A B C D $ 2 1 1 2 C 5 0 5 0 o s 0 ,0 0 ,0 0 ,0 0 ,0 t 0 0 0 0 0 0 0 0 V a r ia b le C o s t $ 1 1 3 0 2 0 3 5
308
Example 1: Solution
F ix e d C o s ts A B C D $ 2 5 0 ,0 0 0 1 0 0 ,0 0 0 1 5 0 ,0 0 0 2 0 0 ,0 0 0 V a r ia b le C o s ts $ 1 1 (1 0 ,0 0 0 ) 3 0 (1 0 ,0 0 0 ) 2 0 (1 0 ,0 0 0 ) 3 5 (1 0 ,0 0 0 ) T o ta l C o s ts $ 3 6 0 ,0 0 0 4 0 0 ,0 0 0 3 5 0 ,0 0 0 5 5 0 ,0 0 0
309
Example 1: Solution
$(000) 800 700 600 500 400 300 200 100 0 0 D B C A
A Superior C Superior B Superior
10
12
14
16
Annual Output (000)

310
Evaluating Locations

Transportation Model
Decision based on movement costs of raw materials or finished goods
Factor Rating
Decision based on quantitative and qualitative inputs
Center of Gravity Method

Decision based on minimum distribution costs
311
PROCESS SELECTION AND FACILITY LAYOUT
McGraw-Hill/Irwin
Introduction

Process selection
Deciding on the way production of goods or services will be organized
Major implications
Capacity planning Layout of facilities Equipment Design of work systems
313
Process Selection and System Design

Forecasting Capacity Planning Facilities and Equipment
Product and Service Design Process Selection
Layout
Technological Change
Work Design
314
Process Strategy
Key aspects of process strategy

Capital intensive equipment/labor Process flexibility Adjust to changes

Design Volume technology
315
Process Selection
Batch

Variety
How much
Flexibility
What degree
Job Shop
Repetitive
Volume
Expected output
Continuous
316
Process Types

Job shop
Small scale
Batch
Moderate volume
Repetitive/assembly line
High volumes of standardized goods or services
Continuous
Very high volumes of non-discrete goods
317
Product Process Matrix

Process Type
Low volume Unique (one of a kind) Appliance repair Emergency room Commercial bakery Classroom Lecture Low volume Higher Multiple volume Products Standardized product Very high volume Commodity product Not feasible
Job Shop
Batch
Repetitive
Automotive assembly Automatic carwash
Continuous (flow)
Not feasible
Oil refinery Water purification
318
Product Process Matrix

Dimension
Low volume Unique (one of a kind) Low volume Multiple Products Higher volume Standardized product Very high volume Commodity product
Job variety Process flexibility Unit cost Volume of output
Very High Very High Very High Very High
Moderate Moderate Moderate Low
Low Low Low High
Very low Very low Very low Very low
319
Automation

Automation: Machinery that has sensing and control devices that enables it to operate
Fixed automation Programmable automation
320
Automation
Computer-aided design and manufacturing systems (CAD/CAM) Numerically controlled (NC) machines Robot Manufacturing cell Flexible manufacturing systems(FMS) Computer-integrated manufacturing (CIM)
321
Facilities Layout

Layout: the configuration of departments, work centers, and equipment, with particular emphasis on movement of work (customers or materials) through the system
322
Importance of Layout Decisions

Requires substantial investments of money and effort Involves long-term commitments Has significant impact on cost and efficiency of short-term operations

323
The Need for Layout Decisions

Inefficient operations
For Example:
High Cost Bottlenecks
Changes in the design of products or services
Accidents
The introduction of new products or services
Safety hazards
324
The Need for Layout Design (Contd)

Changes in environmental or other legal requirements Changes in volume of output or mix of products Morale problems Changes in methods and equipment
325
Basic Layout Types

Product layouts Process layouts Fixed-Position layout Combination layouts
326
Basic Layout Types

Product layout
Layout that uses standardized processing operations to achieve smooth, rapid, highvolume flow
Process layout
Layout that can handle varied processing requirements
Fixed Position layout

Layout in which the product or project remains stationary, and workers, materials, and equipment are moved as needed
327
Product Layout
Raw materials or customer
Material and/or labor Station 1 Material and/or labor Station 2 Material and/or labor Station 3 Material and/or labor Station 4
Finished item
Used for Repetitive or Continuous Processing
328
Advantages of Product Layout

High rate of output Low unit cost Labor specialization Low material handling cost High utilization of labor and equipment Established routing and scheduling Routing accounting and purchasing

329
Disadvantages of Product Layout

Creates dull, repetitive jobs Poorly skilled workers may not maintain equipment or quality of output Fairly inflexible to changes in volume Highly susceptible to shutdowns Needs preventive maintenance Individual incentive plans are impractical

330
A U-Shaped Production Line

In
4 5
Workers
6
Out
10
331
Process Layout
Process Layout (functional)
Dept. A Dept. C Dept. E
Dept. B
Dept. D
Dept. F
Used for Intermittent processing Job Shop or Batch
332
Product Layout
Product Layout (sequential)
Work Station 1 Work Station 2 Work Station 3
Used for Repetitive Processing Repetitive or Continuous
333
Advantages of Process Layouts

Can handle a variety of processing requirements Not particularly vulnerable to equipment failures Equipment used is less costly Possible to use individual incentive plans

334
Disadvantages of Process Layouts

In-process inventory costs can be high Challenging routing and scheduling Equipment utilization rates are low Material handling slow and inefficient Complexities often reduce span of supervision Special attention for each product or customer Accounting and purchasing are more involved
335
Cellular Layouts

Cellular Production
Layout in which machines are grouped into a cell that can process items that have similar processing requirements
Group Technology
The grouping into part families of items with similar design or manufacturing characteristics
336
Functional vs. Cellular Layouts

Dimension
Number of moves between departments Travel distances Travel paths Job waiting times Throughput time Amount of work in process Supervision difficulty Scheduling complexity Equipment utilization
Functional
many longer variable greater higher higher higher higher lower few
Cellular
shorter fixed shorter lower lower lower lower higher
337
Other Service Layouts

Warehouse and storage layouts Retail layouts Office layouts

338
Design Product Layouts: Line Balancing

Line Balancing is the process of assigning tasks to workstations in such a way that the workstations have approximately equal time requirements.
339
Cycle Time
Cycle time is the maximum time allowed at each workstation to complete its set of tasks on a unit.
340
Determine Maximum Output

OT Output capacity = CT OT ! operating time per day D = Desired output rate OT CT = cycle time = D
341
Determine the Minimum Number of Workstations Required

N = (D)( t) OT = sum of task times
342
Precedence Diagram
Precedence diagram: Tool used in line balancing to display elemental tasks and sequence requirements
0.1 min. 1.0 min.
a c
0.7 min.
b d
0.5 min.
A Simple Precedence Diagram
e
0.2 min.
343
Example 1: Assembly Line Balancing

Arrange tasks shown in Figure 6.10 into three workstations.

Use a cycle time of 1.0 minute Assign tasks in order of the most number of followers
344
Example 1 Solution
Workstation 1 Time Remaining Eligible 1.0 0.9 0.2 1.0 1.0 0.5 0.3 a, c c none b d e Assign Task a c b d e Revised Time Remaining 0.9 0.2 0.2 0.0 0.5 0.3 0.0 0.3 0.5 Station Idle Time
2 3
345
Calculate Percent Idle Time

Idle time per cycle Percent idle time = (N)(CT)
Efficiency = 1 Percent idle time
346
Line Balancing Rules

Some Heuristic (intuitive) Rules:
Assign
tasks in order of most following
tasks.
Count the number of tasks that follow
Assign
tasks in order of greatest positional weight.

Positional weight is the sum of each tasks time and the times of all following tasks.
347
Example 2
0.2 0.2 0.3
a
0.8
b
0.6
f
1.0
g
0.4
h
0.3
348
Solution to Example 2
Station 1 Station 2 Station 3 Station 4
a c
e f d g h
349
Parallel Workstations
1 min. 30/hr. 1 min. 30/hr. 2 min. 30/hr. 1 min. 30/hr.
Bottleneck
30/hr. 1 min. 60/hr. 1 min. 30/hr. 1 min. 30/hr. 1 min. 30/hr. 1 min. 60/hr.
Parallel Workstations
350
Designing Process Layouts

Information Requirements: 1. List of departments 2. Projection of work flows 3. Distance between locations 4. Amount of money to be invested 5. List of special considerations 6. Location of key utilities
351
Example 3: Interdepartmental Work Flows for Assigned Departments

30 1 170 3 10 0 2
C
352
Process Layout
Milling Assembly & Test Grinding
Drilling
Plating
Process Layout - work travels to dedicated process centers
353
Functional Layout
222 444
Mill
222 111 444
222
Drill
1111 2222
Grind
3333
111 333 111 333
Assembly
111
Lathes
Heat treat
Gear cutting
111 444
354
Cellular Manufacturing Layout

-1111 Lathe Mill Drill Heat treat Heat treat Heat treat Drill Gear -1111 cut Assembly
355
222222222
Mill
Drill
Grind - 2222
3333333333
Lathe Mill
Grind - 3333
44444444444444
Mill
Gear - 4444 cut
CAPACITY PLANNING FOR PRODUCTS AND SERVICES
McGraw-Hill/Irwin
Capacity Planning
Capacity is the upper limit or ceiling on the load that an operating unit can handle. The basic questions in capacity handling are:

What kind of capacity is needed? How much is needed? When is it needed?

357
Importance of Capacity Decisions

1. 2. 3. 4. 5. 6. 7. 8.
Impacts ability to meet future demands Affects operating costs Major determinant of initial costs Involves long-term commitment Affects competitiveness Affects ease of management Globalization adds complexity Impacts long range planning
358
Capacity

Design capacity
maximum output rate or service capacity an operation, process, or facility is designed for
Effective capacity
Design capacity minus allowances such as personal time, maintenance, and scrap
Actual output
rate of output actually achieved--cannot exceed effective capacity.
359
Efficiency and Utilization

Actual output Efficiency = Effective capacity Actual output Utilization = Design capacity
Both measures expressed as percentages
360
Efficiency/Utilization Example
Design capacity = 50 trucks/day Effective capacity = 40 trucks/day Actual output = 36 units/day
Actual output
36 units/day = 40 units/ day
Efficiency =
90% Effective capacity Actual output Design capacity =
Utilization =
72%
36 units/day 50 units/day
=
361
Determinants of Effective Capacity

Facilities Product and service factors Process factors Human factors Operational factors Supply chain factors External factors

362
Strategy Formulation

Capacity strategy for long-term demand Demand patterns Growth rate and variability Facilities
Cost of building and operating
Technological changes
Rate and direction of technology changes
Behavior of competitors Availability of capital and other inputs

363
Key Decisions of Capacity Planning

1. 2. 3. 4.
Amount of capacity needed Timing of changes Need to maintain balance Extent of flexibility of facilities
Capacity cushion extra demand intended to offset uncertainty

364
Steps for Capacity Planning

1. 2. 3. 4. 5. 6. 7. 8.
Estimate future capacity requirements Evaluate existing capacity Identify alternatives Conduct financial analysis Assess key qualitative issues Select one alternative Implement alternative chosen Monitor results
365
Make or Buy
1. Available 2. Expertise
capacity
considerations 4. Nature of demand 5. Cost 6. Risk

3. Quality
366
Developing Capacity Alternatives

1. 2. 3.
Design flexibility into systems Take stage of life cycle into account Take a big picture approach to capacity changes Prepare to deal with capacity chunks Attempt to smooth out capacity requirements Identify the optimal operating level
4. 5. 6.
367
Economies of Scale

Economies of scale
If the output rate is less than the optimal level, increasing output rate results in decreasing average unit costs
Diseconomies of scale
If the output rate is more than the optimal level, increasing the output rate results in increasing average unit costs
368
Evaluating Alternatives
Production units have an optimal rate of output for minimal cost. Average cost per unit
Minimum average cost per unit
Minimum cost
Rate of output
369
Evaluating Alternatives
Minimum cost & optimal operating rate are functions of size of production unit. Average cost per unit
Small
plant
Medium plant
Large plant
Output rate
370
Planning Service Capacity

Need to be near customers

Capacity and location are closely tied
Inability to store services

Capacity must be matched with timing of demand
Degree of volatility of demand

Peak demand periods
371
Cost-Volume Relationships
Amount ($)
Fixed cost (FC) 0 Q (volume in units)

372
Amount ($) 0
Q (volume in units)
373
Amount ($) 0
BEP units Q (volume in units)

374
Break-Even Problem with Step Fixed Costs
3 machines 2 machines 1 machine Quantity Step fixed costs and variable costs.
375
Break-Even Problem with Step Fixed Costs

$
BEP2 TC 3 TC 2 1 BEP
3
TC
Quantity Multiple break-even points

376
Assumptions of Cost-Volume Analysis

1. 2. 3. 4. 5. 6.
One product is involved Everything produced can be sold Variable cost per unit is the same regardless of volume Fixed costs do not change with volume Revenue per unit constant with volume Revenue per unit exceeds variable cost per unit
377
Financial Analysis

Cash Flow - the difference between cash received from sales and other sources, and cash outflow for labor, material, overhead, and taxes. Present Value - the sum, in current value, of all future cash flows of an investment proposal.
378
Calculating Processing Requirements

P ro d u c t Annual D em and S ta n d a rd p r o c e s s in g tim e p e r u n it ( h r .) P r o c e s s in g tim e n e e d e d (h r.)
#1 #2 #3
400 300 700
5 .0 8 .0 2 .0
2 ,0 0 0 2 ,4 0 0 1 ,4 0 0 5 ,8 0 0
379
INVENTORY MANAGEMENT
McGraw-Hill/Irwin
Inventory: a stock or store of goods
Independent Demand
Dependent Demand
B(4)
C(2)
D(2)
E(1)
D(3)
F(2)
Independent demand is uncertain. Dependent demand is certain.

381
Types of Inventories

Raw materials & purchased parts Partially completed goods called work in progress Finished-goods inventories
(manufacturing firms) or merchandise (retail stores)
382
Types of Inventories (Contd)

Replacement parts, tools, & supplies Goods-in-transit to warehouses or customers
383
Functions of Inventory

To meet anticipated demand To smooth production requirements To decouple operations To protect against stock-outs

384
Functions of Inventory (Contd)

To take advantage of order cycles To help hedge against price increases To permit operations To take advantage of quantity discounts
385

Objective of Inventory Control

To achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds
Level of customer service Costs of ordering and carrying inventory
386
Effective Inventory Management

A system to keep track of inventory A reliable forecast of demand Knowledge of lead times Reasonable estimates of
Holding costs Ordering costs Shortage costs
A classification system
387
Inventory Counting Systems

Periodic System
Physical count of items made at periodic intervals
Perpetual Inventory System

System that keeps track of removals from inventory continuously, thus monitoring current levels of each item
388
Inventory Counting Systems (Contd)

Two-Bin System - Two containers of inventory; reorder when the first is empty Universal Bar Code - Bar code printed on a label that has 0 information about the item to which it is attached

214800 232087768
389
Key Inventory Terms

Lead time: time interval between ordering and receiving the order Holding (carrying) costs: cost to carry an item in inventory for a length of time, usually a year Ordering costs: costs of ordering and receiving inventory Shortage costs: costs when demand exceeds supply

390
ABC Classification System

Classifying inventory according to some measure of importance and allocating control efforts accordingly.
A - very important B - mod. important C - least important
High Annual $ value of items Low
A B C
Few Many
Number of Items 391
Cycle Counting

A physical count of items in inventory Cycle counting management

How much accuracy is needed? When should cycle counting be performed? Who should do it?
392
Economic Order Quantity Models

Economic order quantity model Economic production model Quantity discount model
393
Assumptions of EOQ Model

Only one product is involved Annual demand requirements known Demand is even throughout the year Lead time does not vary Each order is received in a single delivery There are no quantity discounts
394
The Inventory Cycle

Q
Quantity on hand Profile of Inventory Level Over Time
Usage rate
Reorder point
Receive order
Place Receive order order
Place Receive order order
Time
Lead time
395
Total Cost
Annual Annual Total cost = carrying + ordering cost cost TC = Q H 2 + DS Q
396
Cost Minimization Goal

The Total-Cost Curve is U-Shaped
Annual Cost
Q D TC ! H S 2 Q
Ordering Costs
QO (optimal order quantity) Order Quantity (Q)
397
Deriving the EOQ

Using calculus, we take the derivative of the total cost function and set the derivative (slope) equal to zero and solve for Q.
Q OPT = 2DS = H 2(Annual Demand)(Order or Setup Cost) Annual Holding Cost
398
Minimum Total Cost

The total cost curve reaches its minimum where the carrying and ordering costs are equal.
Q OPT = 2DS = H 2(Annual Demand)(Order or Setup Cost) Annual Holding Cost
399
Economic Production Quantity (EPQ)

Production done in batches or lots Capacity to produce a part exceeds the parts usage or demand rate Assumptions of EPQ are similar to EOQ except orders are received incrementally during production

400
Economic Production Quantity Assumptions

Only one item is involved Annual demand is known Usage rate is constant Usage occurs continually Production rate is constant Lead time does not vary No quantity discounts

401
Economic Run Size
Q0 !
p 2DS H p u
402
Total Costs with Purchasing Cost (PD)

Annual Annual + Purchasing TC = carrying + ordering cost cost cost TC = Q H 2 + DS Q + PD
403
Total Costs with Purchase Cost (PD)

Cost
Adding Purchasing cost TC with PD doesnt change EOQ
TC without PD
PD
EOQ
Quantity
404
Total Cost (TC) with Constant Carrying Costs (CC)

Total Cost
TCa TCb TCc

Decreasing Price
CC a,b,c
OC
EOQ
Quantity
405
When to Reorder with EOQ Ordering

Reorder Point - When the quantity on hand of an item drops to this amount, the item is reordered Safety Stock - Stock that is held in excess of expected demand due to variable demand rate and/or lead time. Service Level - Probability that demand will not exceed supply during lead time.
406
Determinants of the Reorder Point

The rate of demand The lead time Demand and/or lead time variability Stockout risk (safety stock)

407
Safety Stock
Quantity
Maximum probable demand during lead time Expected demand during lead time
ROP Safety stock reduces risk of stockout during lead time Safety stock
LT Time
408
Reorder Point (ROP)

The ROP based on a normal Distribution of lead time demand
Service level Risk of a stockout Probability of no stockout Expected demand 0
ROP
Safety stock z
Quantity
z-scale
409
Fixed-Order-Interval Model
Orders are placed at fixed time intervals Order quantity for next interval? Suppliers might encourage fixed intervals May require only periodic checks of inventory levels Risk of stockout

410
Fixed-Interval Benefits
Tight control of inventory items Items from same supplier may yield savings in:

Ordering Packing Shipping costs

May be practical when inventories cannot be closely monitored

411
Fixed-Interval Disadvantages
Requires a larger safety stock Increases carrying cost Costs of periodic reviews

412
Single Period Model

Single period model: model for ordering of perishables and other items with limited useful lives Shortage cost: generally the unrealized profits per unit Excess cost: difference between purchase cost and salvage value of items left over at the end of a period
413
Single Period Model

Continuous stocking levels

Identifies optimal stocking levels Optimal stocking level balances unit shortage and excess cost
Discrete stocking levels

Service levels are discrete rather than continuous Desired service level is equaled or exceeded
414
Operations Strategy

Too much inventory

Tends to hide problems Easier to live with problems than to eliminate them Costly to maintain
Wise strategy
Reduce lot sizes Reduce safety stock
415
Economic Production Quantity

Production & Usage Production & Usage
Usage
Usage
416
SCHEDULING
417
Scheduling Operations

Companies differentiate based on product volume and product variety Differentiation affects how the company organizes its operations Each kind of company operation needs different scheduling techniques Scheduling has specific definitions for routing, bottleneck, due date, slack and queue
418
Scheduling Definitions

Routing:
The operations to be performed, their sequence, the work centers, & the time standards

Bottleneck:
A resource whose capacity is less than the demand placed on it
Due date:
When the job is supposed to be finished
Slack:
The time that a job can be delayed & still finish by its due date
Queue:
A waiting line
419
High-Volume Operations

High-volume, also called flow operations, like automobiles, bread, gasoline can be repetitive or continuous
High-volume standard items; discrete or continuous with smaller profit margins Designed for high efficiency and high utilization High volume flow operations with fixed routings Bottlenecks are easily identified Commonly use line-balancing to design the process around the required tasks
420
Low-Volume Operations

Low-volume, job shop operations, are designed for flexibility.

Use more general purpose equipment Customized products with higher margins Each product or service may have its own routing (scheduling is much more difficult) Bottlenecks move around depending upon the products being produced at any given time
421
Low-Volume Tool Gantt Charts

Developed in the early 1900s by Henry Gantt Load charts (see below Figure 15-1)
Illustrates the workload relative to the capacity of a resource Shows todays job schedule by employee
422
Gantt Chart (continued)

Progress charts:
Illustrates the planned schedule compared to actual performance Brackets show when activity is scheduled to be finished. Note that design and pilot run both finished late and feedback has not started yet.
423
Scheduling Work - Work Loading

Infinite loading:
Ignores capacity constraints, but helps identify bottlenecks in a proposed schedule to enable proactive management
Finite loading:
Allows only as much work to be assigned as can be done with available capacity but doesnt prepare for inevitable slippage
424
Other Scheduling Techniques

Forward Scheduling starts processing immediately when a job is received Backward Scheduling begin scheduling the jobs last activity so that the job is finished on due date
425
Monitoring Work Flow Input/Output Control

I/O control is a capacity-control technique used to monitor work flow at individual work centers Monitors how well available capacity is used and provides insight into process problems
Period 6 800 780 -20 -40 Period 6 800 780 -20 -70 80 7 820 810 -10 -50 8 800 810 10 -40
Figure 15-6 Input/output report for work center 101 Input Information (in hours) 4 5 Planned Input 800 750 Actual Input 750 780 Deviation -50 30 Cumulative deviation 0 -50 -20 Output information (in hours) Planned output Actual output Deviation Cumulative deviation Backlog (in hours) 4 800 800 0 0 50 5 800 750 -50 -50 80
0 100
7 800 850 50 -20 40
8 800 825 25 5 25 426
How to Sequence Jobs

Which of several jobs should be scheduled first? Techniques are available to do short-term planning of jobs based on available capacity & priorities Priority rules:
Decision rules to allocate the relative priority of jobs at a work center Local priority rules: determines priority based only on jobs at that workstation Global priority rules: also considers the remaining workstations a job must pass through
427
Commonly Used Priorities Rules

First come, first served (FCFS) Last come, first served (LCFS) Earliest due date (EDD) Shortest processing time (SPT) Longest processing time (LPT) Critical ratio (CR):
(Time until due date)/(processing time)
Slack per remaining Operations (S/RO)

Slack /(number of remaining operations)
428
Example Using Shortest processing time (SPT), Earliest due date (EDD)
Example Using SPT and EDD at Jill's Machine Shop-Work Center 101 Job Time Days to SPT Rule EDD Rule Job Number (includes Setup & Run Time) Due Date Sequence Sequence EZE101 AZK111 AZK111 3 days 3 BRU872 EZE101 BRU872 2 days 6 AZK111 DBR664 CUF373 5 days 8 DBR664 BRU872 DBR664 4 days 5 FID448 CUF373 EZE101 1day 4 CUF373 FID448 FID448 4 days 9
429
How to Use Priority Rules

1. 2.
3.
Decide which priority rule to use List all jobs waiting to be processed with their job time Using priority rule determine which job has highest priority then second, third and so on
430
Measuring Scheduling Performance

Job flow time:

Time a job is completed minus the time the job was first available for processing; avg. flow time measures responsiveness
Average # jobs in system:

Measures amount of work-in-progress; avg. # measures responsiveness and work-in-process inventory

Makespan:
The time it takes to finish a batch of jobs; measure of efficiency
Job lateness:
Whether the job is completed ahead of, on, or behind schedule;
Job tardiness:
How long after the due date a job was completed, measures due date performance
431
Scheduling Performance Calculations

Job A finishes on day 10 Job B finishes on day 13

Job C finishes on day 17
Job D ends on day 20
Calculation mean flow time:

MFT= (sum job flow times)/ # of jobs = (10+13+17+20)/4 = 60/4 = 15 days
Calculating average number of jobs in the system:

Average # Jobs =(sum job flow times)/ # days to complete batch = (60)/20 = 3 job
Makespan is the length of time to complete a batch

Makespan = Completion time for Job D minus start time for Job A = 20 0 = 20 days
432
Performance Calculations (Cont.)

Lateness and Tardiness are both measures related to customer service Average tardiness is a more relevant Customer Service measurement as illustrated below
Example 15-5 Calculating job lateness and job tardiness Completion Date 10 13 17 20
Job A B C D
Due Date 15 15 10 20 Average
Lateness -5 -2 7 0 0
Tardiness 0 0 7 0 1.75
433
Comparing Shortest Processing time (SPT) and Slack per remaining Operations (S/RO)
Performance Measures using SPT Job Time at Work Center 301 (days) 3 7 6 4 2 5 27
Job A B C D E F Total
Due date (days from now) 15 20 30 20 22 20 Avg. Job Flow

Total Job Flow Time
Makespan Avg. # Jobs
SPT Completion Date 5 27 20 9 2 14 12.83 77 27 2.85
Lateness (days) -10 7 -10 -11 -20 -6 -8.3
Tardiness (days) 0 7 0 0 0 0 1.2
Scheduling Sequence 2 6 5 3 1 4
E done at end of day 2
A end of day 5
D at end of day 9
F at end of C at end of day 14 day 20
B done at end of day 27

434
Comparing Shortest Processing time (SPT) and Slack per remaining Operations (S/RO)
(cont.)
Performance Measures Using S/RO Job Time Remaining at Work Remaining Number Center Job Time at Slack of Operations 301 Other Work Due date Time After Work Job (days) Center (days) (days from now) (days) Center 301 A 3 6 15 6 2 B 7 8 20 5 4 C 6 5 30 19 3 D 4 3 20 13 2 E 2 7 22 13 3 F 5 5 20 10 3 Total 27
S/RO 2 1 4.75 4.33 3.25 2.5
Scheduling Sequence 2 1 6 5 4 3
Avg. Job Flow Total Job Flow Time Makespan Avg. # Jobs
Completion Lateness Tardiness Date (days) (days) 10 -5 0 7 -13 0 27 -3 0 21 1 1 17 -5 0 15 -5 0 16.17 -5.0 0.167 97 27 3.59
B done at end of day 7
A at end F at end of E at end of D at end of of day 10 day 15 day 17 day 21
C done at end of day 27

435
Sequencing Jobs through Two Work Centers Johnsons Rule

Johnsons Rule a technique for minimizing makespan in a two-stage, unidirectional process

Step 1 List the jobs and the processing time for each activity Step 2 Find the shortest activity processing time among the jobs not yet scheduled

If the shortest Processing time is for a 1st activity, schedule that job in the earliest available position in the job sequence If the shortest processing time is for 2nd activity, schedule that job in the last available position in the job sequence When you schedule a job eliminate it from further consideration
Step 3 Repeat step 2 until you have put all activities for the job in the schedule
436
Johnsons Rule Example: Vickis Office Cleaners does the annual major cleaning of university buildings. The job requires mopping (1st activity) and waxing (2nd activity) of each building. Vicki wants to minimize the time it takes her crews to finish cleaning (minimize makespan) the five buildings. She needs to finish in 20 days.
Activity 1 Activity 2 Mopping (days) Waxing (days) Hall Adams Hall 1 2 Bryce Building 3 5 Chemistry Building 2 4 Drake Union 5 4 Evans Center 4 2
Johnson's Activity 1 Activity 2 Sequence Mopping (days) Waxing (days) Adams Hall (A) 1 2 Chemistry Building (C) 2 4 Bryce Building (B) 3 5 Drake Union (D) 5 4 Evans Center (E) 4 2
Activity 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Mopping A C C B B B D D D D D E E E E Waxing A A C C C C B B B B B D D D D E437E
Scheduling Bottlenecks

In the 1970s Eli Goldratt introduced optimized production technology (OPT) OPT focused on bottlenecks for scheduling & capacity planning Definitions:
Throughput: quantity of finished goods that can be sold Transfer batch: quantity of items moved at the same time from one resource to the next Process batch: quantity produced at a resource before switching to another product
438
Optimized production technology (OPT) Principles

Balance the process rather than the flow Non-bottleneck usage is driven by some other constraint in the system Use and activation of a resource are not the same A hour lost at a bottleneck is lost forever, but an hour lost at a non-bottleneck is a mirage

439
OPT Principles - continued

Bottleneck determine throughput and inventory in system The transfer batch does not need to be equal to the process batch The process batch should be variable Consider all constraints simultaneously. Lead times are the result of the schedule and are not predetermined .

440
Theory of Constraints
1. 2. 3.
4. 5.
TOC is an extension of OPT theory is that a systems output is determined by its constraints Identify the bottleneck(s) in the process Exploit (fully utilize) the bottleneck(s) Subordinate all other decisions to Step 2 Schedule non-bottlenecks to support maximum use of bottleneck activities Elevate the Bottleneck(s) Do not let inertia set in
441
Scheduling for Service Organizations

Demand management:
Appointments & reservations Posted availability Delayed services or backlogs (queues)
Managing service capacity:

Staff for peak demand (if cost isnt prohibitive) Floating employees or employees on call Temporary, seasonal, or part-time employees
442
Developing a Workforce Schedule: Tibrewala, Philippe, and Brown developed a technique for scheduling a seven day operation giving each employee two consecutive days off. This example shows how a staff of six people can be scheduled.

Step 1 Find out the minimum number of employees needed for each day of the week
(1) Day of the week Number of staff needed M 4 T 5 W Th 5 3 F 5 Sa Su 2 3
Step 2 Given the above requirements, calculate the number of employees needed for each pair of consecutive days
(1) Pair of Consecutive Days Total of Staff needed Monday & Tuesday 9 employees Tuesday & Wednesday 10 employees Wednesday & Thursday 8 employees Thursday & Friday 8 employees Friday & Saturday 7 employees Saturday & Sunday 5 employees
Step 3 - Find the pair of days with the lowest total needed
443
Workforce Scheduling (cont.)

Step 4 Update the number of employees you still need to schedule for each day
(2) Day of the week Number of staff needed M 3 T 4 W Th 4 2 F 4 Sa Su 2 3
Step 5 Using the updated staffing needs, repeat steps 2 through 4 until you have satisfied all needs
(2) Pair of Consecutive Days Total of Staff needed Monday & Tuesday 7 employees Tuesday & Wednesday 8 employees Wednesday & Thursday 6 employees Thursday & Friday 6 employees Friday & Saturday 6 employees Saturday & Sunday 5 employees
444
Scheduling (cont.)
M T W Th F Sa Su (3) Day of the week M T W Th F Sa Su(4) Day of the week Number of staff needed 2 3 3 1 3 2 3 Number of staff needed 1 2 3 1 2 1 2
(3) Pair of Consecutive Days Monday & Tuesday Tuesday & Wednesday Wednesday & Thursday Thursday & Friday Friday & Saturday Saturday & Sunday Total of Staff needed 5 employees 6 employees 4 employees 4 employees 5 employees 5 employees
445
Schedule (cont.)
(5) Day of the week M T W Th F Sa Su(6) Day of the week M T W Th F Sa Su Number of staff needed 0 1 2 0 1 1 2Number of staff needed 0 1 1 0 0 0 1
446
Final Schedule
(7) Day of the week M T W Th F Sa Su Number of staff needed 0 0 0 0 0 0 0
Employees 1 2 3 4 5 6 M x x x x off x T x x x x off x W x x off x x x Th x x off x x x F x x x x x off Sa off off x off x off Su off off x off x x

This technique gives a work schedule for each employee to satisfy minimum daily staffing requirements Next step is to replace numbers with employee names Manager can give senior employees first choice and proceed until all employees have a schedule 447
Scheduling Across the Organization

Scheduling executes a companys strategic business plan and affects functional areas throughout the company
Accounting relies on schedule information and completion of customer orders to develop revenue projections
448
Scheduling Across the Organization - continued

Marketing uses schedule effectiveness measurement to determine whether the company is using lead times for competitive advantage Information systems maintains the scheduling database Operations uses the schedule to maintain its priorities and to provide customer service by finishing jobs on time
449
Scheduling Highlights

Different kinds of environments need different scheduling techniques. Scheduling in the high-volume environment is typically done through line design and balancing. Scheduling in a low-volume environment typically involves the use of priority rules. Shop loading techniques included infinite or finite loading. Finite loading loads jobs up to a predetermined capacity level. Loading can be done using forward or backward scheduling Priority rules are used to make scheduling decisions. SPT always minimizes mean job flow times, mean job lateness, and average number of jobs in system. Rules related to due dates tend to minimize the maximum tardiness of the jobs.
450

Performance measures reflect the priorities of the organization. Mean flow time, mean job lateness, mean job tardiness, makespan, and the average number of jobs in the system measure the effectiveness of schedules. Johnsons Rule is a effective technique for minimizing makespan when two successive workstations are needed to complete the process. When scheduling bottleneck systems, the basic principles of OPT apply. TOC expands OPT into a managerial philosophy of continuous improvement.
451

Service organizations use different techniques such as appointments, reservations, and posted schedules for effective use of service capacity. A method developed by Tibrewala, Phillippe, and Brown constructs workforce schedules when a company uses full-time employees, operates seven days each week, and gives its employees two consecutive days off
452
PROJECT MANAGEMENT
453
Project Management Applications

What is a project?
Any unique endeavor with specific objectives With multiple activities With defined precedent relationships With a specific time period for completion
Examples?
A major event like a wedding Any construction project Designing a political campaign
454
Project Life Cycle

Conception: identify the need Feasibility analysis or study: costs benefits, and risks Planning: who, how long, what to do? Execution: doing the project Termination: ending the project
455

Network Planning Techniques

Program Evaluation & Review Technique (PERT): Developed to manage the Polaris missile project Many tasks pushed the boundaries of science & engineering (tasks duration = probabilistic) Critical Path Method (CPM): Developed to coordinate maintenance projects in the chemical industry A complex undertaking, but individual tasks are routine (tasks duration = deterministic)
456
Both PERT and CPM

Graphically display the precedence relationships & sequence of activities Estimate the projects duration Identify critical activities that cannot be delayed without delaying the project Estimate the amount of slack associated with non-critical activities
457

Network Diagrams

Activity-on-Node (AON):
Uses nodes to represent the activity Uses arrows to represent precedence relationships
458
Step 1-Define the Project: Cables By Us is bringing a new product on line to be manufactured in their current facility in some existing space. The owners have identified 11 activities and their precedence relationships. Develop an AON for the project.
Activity A B C D E F G H I J K
Description Develop product specifications Design manufacturing process Source & purchase materials Source & purchase tooling & equipment Receive & install tooling & equipment Receive materials Pilot production run Evaluate product design Evaluate process performance Write documentation report Transition to manufacturing
Immediate Duration Predecessor (weeks) None 4 A 6 A 3 B 6 D 14 C 5 E&F 2 G 2 G 3 H&I 4 J 2

459
Step 2- Diagram the Network for Cables By Us
460
Step 3 (a)- Add Deterministic Time Estimates and Connected Paths
461
Step 3 (a) (Continued): Calculate the Path Completion Times

Paths Path duration ABDEGHJK 40 ABDEGIJK 41 ACFGHJK 22 ACFGIJK 23 The longest path (ABDEGIJK) limits the projects duration (project cannot finish in less time than its longest path) ABDEGIJK is the projects critical path
462
Some Network Definitions

All activities on the critical path have zero slack Slack defines how long non-critical activities can be delayed without delaying the project Slack = the activitys late finish minus its early finish (or its late start minus its early start) Earliest Start (ES) = the earliest finish of the immediately preceding activity Earliest Finish (EF) = is the ES plus the activity time Latest Start (LS) and Latest Finish (LF) = the latest an activity can start (LS) or finish (LF) without delaying the project completion
463
ES, EF Network
464
LS, LF Network
465
Calculating Slack
Activity A B C D E F G H I J K Late Finish 4 10 25 16 30 30 32 35 35 39 41 Early Finish 4 10 7 16 30 12 32 34 35 39 41 Slack (weeks) 0 0 18 0 0 18 0 1 0 0 0
466
Revisiting Cables By Us Using Probabilistic Time Estimates

Activity A B C D E F G H I J K Description Develop product specifications Design manufacturing process Source & purchase materials Source & purchase tooling & equipment Receive & install tooling & equipment Receive materials Pilot production run Evaluate product design Evaluate process performance Write documentation report Transition to manufacturing Optimistic time 2 3 2 4 12 2 2 2 2 2 2 Most likely time 4 7 3 7 16 5 2 3 3 4 2 Pessimistic time 6 10 5 9 20 8 2 4 5 6 2
467
Using Beta Probability Distribution to Calculate Expected Time Durations

A typical beta distribution is shown below, note that it has definite end points The expected time for finishing each activity is a weighted average
optimistic 4most likely pessimistic Exp. time ! 6

468
Calculating Expected Task Times

optimistic 4most likely pessimistic Expected time ! 6
Activity A B C D E F G H I J K Optimistic time 2 3 2 4 12 2 2 2 2 2 2 Most likely time 4 7 3 7 16 5 2 3 3 4 2 Pessimistic time 6 10 5 9 20 8 2 4 5 6 2 Expected time 4 6.83 3.17 6.83 16 5 2 3 3.17 4 469 2
Network Diagram with Expected Activity Times
470
Estimated Path Durations through the Network

Activities on paths ABDEGHJK ABDEGIJK ACFGHJK ACFGIJK

Expected duration 44.66 44.83 23.17 23.34
ABDEGIJK is the expected critical path & the project has an expected duration of 44.83 weeks
471
Adding ES and EF to Network
472
Gantt Chart Showing Each Activity Finished at the Earliest Possible Start Date
473
Adding LS and LF to Network
474
Gantt Chart Showing the Latest Possible Start Times if the Project Is to Be Completed in 44.83 Weeks
475
Estimating the Probability of Completion Dates

Using probabilistic time estimates offers the advantage of predicting the probability of project completion dates We have already calculated the expected time for each activity by making three time estimates Now we need to calculate the variance for each activity The variance of the beta probability distribution is:
2
po ! 6
where p=pessimistic activity time estimate
o=optimistic activity time estimate

476
Project Activity Variance

Activity A B C D E F G H I J K Optimistic 2 3 2 4 12 2 2 2 2 2 2 Most Likely 4 7 3 7 16 5 2 3 3 4 2 Pessimistic 6 10 5 9 20 8 2 4 5 6 2 Variance 0.44 1.36 0.25 0.69 1.78 1.00 0.00 0.11 0.25 0.44 0.00 477
Variances of Each Path through the Network

Path Number 1 2 3 4 Activities on Path A,B,D,E,G,H,J,k A,B,D,E,G,I,J,K A,C,F,G,H,J,K A,C,F,G,I,J,K Path Variance (weeks) 4.82 4.96 2.24 2.38
478
Calculating the Probability of Completing the Project in Less Than a Specified Time

When you know: The expected completion time Its variance You can calculate the probability of completing the project in X weeks with the following formula:
specified time path expected time DT EFP ! z! 2 path standard time P

Where DT = the specified completion date 2 EFPath = the expected completion time of the path
Path
! variance of path
479
Example: Calculating the probability of finishing the project in 48 weeks

Use the z values in Appendix B to determine probabilities 48 weeks 44.66 weeks ! 1.52 z e.g. probability for path 1 is !
4.82
Path Number 1 2 3 4
Activities on Path A,B,D,E,G,H,J,k A,B,D,E,G,I,J,K A,C,F,G,H,J,K A,C,F,G,I,J,K
Path Variance z-value (weeks) 4.82 4.96 2.24 2.38 1.5216 1.4215 16.5898 15.9847
Probability of Completion
0.9357 0.9222 1.000 1.000
480
Reducing Project Completion Time

Project completion times may need to be shortened because

Different deadlines Penalty clauses Need to put resources on a new project Promised completion dates
Reduced project completion time is crashing

481
Reducing Project Completion Time - continued

Crashing a project needs to balance

Shorten a project duration Cost to shorten the project duration
Crashing a project requires you to know

Crash time of each activity Crash cost of each activity
Crash cost/duration = (crash cost-normal cost)/(normal time crash time)
482
Reducing the Time of a Project (crashing)

Activity Normal Time (wk) 4 6 3 6 14 5 2 2 3 4 2 Normal Cost ($) 8,000 30,000 6,000 24,000 60,000 5,000 6,000 4,000 4,000 4,000 5,000 Crash Time 3 5 3 4 12 4 2 2 2 2 2 Crash Cost ($) 11,000 35,000 6,000 28,000 72,000 6,500 6,000 4,000 5,000 6,400 5,000 Max. weeks of reduction 1 1 0 2 2 1 0 0 1 2 0 Reduce cost per week 3,000 5,000 0 2,000 6,000 1500 0 0 1,000 1,200 483 0
A B C D E F G H I J K
Crashing Example: Suppose the Cables By Us project manager wants to reduce the new product project from 41 to 36 weeks.

Crashing Costs are considered to be linear Look to crash activities on the critical path Crash the least expensive activities on the critical path first (based on cost per week)
Crash activity I from 3 weeks to 2 weeks $1000 Crash activity J from 4 weeks to 2 weeks $2400 Crash activity D from 6 weeks to 4 weeks $4000 Recommend Crash Cost $7400
Question: Will crashing 5 weeks return more in benefits than it costs?

484
Crashed Network Diagram
485
The Critical Chain Approach

The Critical Chain Approach focuses on the project due date rather than on individual activities and the following realities:
Project time estimates are uncertain so we add safety time Multi-levels of organization may add additional time to be safe Individual activity buffers may be wasted on lower-priority activities A better approach is to place the project safety buffer at the end
Original critical path

Activity A Activity B Activity C Activity D Activity E
Critical path with project buffer

Activity A Activity B Activity C Activity D Activity E Project Buffer
486
Adding Feeder Buffers to Critical Chains

The theory of constraints, the basis for critical chains, focuses on keeping bottlenecks busy. Time buffers can be put between bottlenecks in the critical path These feeder buffers protect the critical path from delays in non-critical paths
487
Project Management OM Across the Organization

Accounting uses project management (PM) information to provide a time line for major expenditures Marketing use PM information to monitor the progress to provide updates to the customer Information systems develop and maintain software that supports projects Operations use PM to information to monitor activity progress both on and off critical path to manage resource requirements
488
Project Management Highlights

A project is a unique, one time event of some duration that consumes resources and is designed to achieve an objective in a given time period. Each project goes through a five-phase life cycle: concept, feasibility study, planning, execution, and termination. Two network planning techniques are PERT and CPM. Pert uses probabilistic time estimates. CPM uses deterministic time estimates. Pert and CPM determine the critical path of the project and the estimated completion time. On large projects, software programs are available to identify the critical path.
489
Project Management Highlights

(continued)

Pert uses probabilistic time estimates to determine the probability that a project will be done by a specific time. To reduce the length of the project (crashing), we need to know the critical path of the project and the cost of reducing individual activity times. Crashing activities that are not on the critical path typically does not reduce project completion time. The critical chain approach removes excess safety time from individual activities and creates a project buffer at the end of the critical path.
490
491
2G,3G,Wi-Fi 802.11
492
493
494
495
496
GPS
497
Barcode
(Universal Product Code, UPC )
7 1 0 1 2 3
4 5 6 7 8 8
OCR-B
498
499
RFID
> >

500
RFID
501
BI(
502
DECISION MAKING & PROBLEM SOLVING
503
. . . .
504
505

1. Qualitative approach
2. Quantitative approach
(Management by figures) (Management by indicators) (Management by dashboard)
3. Mixed approach
506
BI(

BI Business Intelligence
507
BI(

508
BI(

Have data Understand how to intepret data
509
(Key Performance Indicators)
510
The Balanced Scorecard

1 4
511
Financial Perspective
Objective Measures Initiatives Target Performance Actual Performance
$2,000,000
$2,100,000
$3,000,000
$3,420,000
6%
6.48%
512
Customer Perspective
Objective Measures Initiatives Target Performance 6% Actual Performance 7%
1. 2.
1.
90% 2
87% 2
2.
513
Internal Business Process Perspective

Objective Measures Initiatives Target Performance 78% Actual Performance 79.3%
30 92%
30 90%
514
Internal Business Process Perspective

Objective Measures Initiatives Target Performance 78% Actual Performance 79.3%
90%
90%
515
Learning and Growth Perspective

Objective Measures Initiatives Target Performance 80% 2 90% 92% Actual Performance 88% 2
85%
90%
90%
90%
516

517
OLAP: Cube
1 2 3 4
518
/
519
BI(

520
Trace
(Track & )
521
END OF LECTURE
522

Operations Management

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Operations Management

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OPERATIONS MANAGEMENT

Group and Individual Assignment

Key terms to understand

Quality Cost Time Flexibility Agility

Outputs Goods Services

High percentage goods Low percentage service

Low percentage goods High percentage service

Production of Goods vs. Delivery of Services

Scope of Operations Management

Operations Management includes:

The operations function

Exchange Entertainment Communication

U.S. Manufacturing vs. Service Employment

Responsibilities of Operations Management

Key Decisions of Operations Managers

How How Much

What are the pros and cons of models?

Models Are Beneficial

Business Operations Overlap

Legal Personnel Accounting MIS

Historical Evolution of Operations Management

Mass production Interchangeable parts Division of labor

Simple Product Supply Chain

A Supply Chain for Bread

Other Important Trends

The Industrial Revolution

The Industrial Revolution

Post-Civil War Period

Human Relations and Behavioralism

The Service Revolution

The Computer Revolution

Today's Factors Affecting OM

Elements of a Good Forecast

Steps in the Forecasting Process

Time Series Forecasts

Uses for Nave Forecasts

Stable time series data

Data with trends

Techniques for Averaging

Moving average Weighted moving average Exponential smoothing

Sales Average Forecast for next period 40 41 42 123/3 41 ? ? ?

Sales Average Forecast for next period 40 41 123/3 41 42 42 ? ?

Sales Average Forecast for next period 40 41 42 123/3 41 125/3 41.67 42 44 ?

Simple Moving Average

Weighted Moving Averages

Weighted Moving average

Weighted Moving Averages

Weighted Moving average

Result Forecast Actual 8 12.3 21 41.3 42

Weighted Moving Averages

Weighted Moving average

Result Forecast Actual

Weighted Moving Averages

Weighted Moving average

Result Forecast Actual

20% 30% 50%

Weighted Moving Averages

Weighted Moving average

Result Forecast Actual

20% 30% 50%

8.4 13.2 21.5

Ft = Ft-1 + E(At-1 - Ft-1)

Ft = Ft-1 + E(At-1 - Ft-1)

Central feature is Parameter Design. Determines: