MGT613 Handouts Lecture 1 45

1
Production and Operations Management MGT613 VU

Lesson 01
INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT
POMA
Previously called Production Management
Then Production and Operations Management
Often called Operations Management
Should not e confused !ith Operations "esearch or Production Management !hich are the domain
of Mechanical and #ndustrial $ngineering%
T&$ 'O("S$ 'O)T$)T
Tentative 'ourse 'ontent (nits of *earning !ise
(nit # + #ntroduction and Productivity, Strategy and 'ompetitiveness-
(nit ## + .orecasting-
(nit ### + /esign of Production Systems-
(nit ### + 0uality-
(nit 1 + Operating and 'ontrolling the System-
Tentative 'ourse 'ontent *ecture !ise
(nit # + 2 *ectures-
(nit ## +3 *ectures-
(nit ### + 13 *ectures-
(nit ### + 14 *ectures-
(nit 1 + 12 *ectures-
History of Management
.rederic5 Taylor and Gilreths +*illian and .ran5 Gilreth- are pioneers of transforming
management to scientific domain%
6orro!s a lot of information from $ngineering and Management to give an overall igger picture of
operating and managing any organi7ation%
/ifference et!een Operations Management and "esearch
O" relies on mathematical modeling and OM relies on practical scenarios8industrial cases%
O" domain and tool of $ngineers !hile OM is considered to e one of the critical tools of
Managers%
O" considered more po!erful to improve the !hole system !here as OM can e applied to a part of
the system%
O" relies on mathematical modeling !hile OM relies on practical scenarios8industrial cases%
9hy Study OP$"AT#O)S MA)AG$M$)T
Operations Management form core of any organi7ation:s senior leadership%
9hat are organi7ations
An organi7ation is a usiness entity that can !or5 for profit or non profit purposes to generate a
value added product or service for its customers%
9hether profit or non profit, the role of an OP$"AT#O)S MA)AG$" is to sustain, protect, and
pro;ect the company:s operations side%
Copyright Virtual University of Pakistan
3
9hy Operations Manager
$very organi7ation must manage processes and operations y !hich processes are performed%
An operations Manager controls the processes y !hich value is added from conversion of inputs to
outputs%
9hy Operations Manager
#nputs include materials, inventory, services, land, and energy, human and capital resources%
Bridge et!een Management and Engineering
T!o #slands named $ngineering and Management
Operations management uses foundations of oth $ngineering and Management%
6ridge 6asics , $<tension of road from oth ends till they meet at the centre and fuse to give
strength and allo! the foundations to give added strength to the ridge
6ridge et!een Management and $ngineering% The primary responsiility of an Operations
Manager !or5ing at any level, for production or service ased organi7ation, is to help and
facilitate the uilding of !alls% #t:s a demanding ;o ut at the time ta5es the same amount of
time re=uired y people !ho are creating hurdles and end up uilding !alls in stead of ridges%
Also, it is important at this point in time to understand that the Strength of the 'hain is e=ual to
the strength of the !ea5est *in5, so if your analysis, as an operations manager consists of oth
$ngineering and Management *in5s% Any !ea5ness of analysis in $ngineering or Management
*in5 !ould lead to an overall !ea5 analysis% A alanced approach !ould e to ma5e est use of
the strength and overcome the !ea5nesses% As a rule of thum, prolem solving and decision
ma5ing through Production and Operations Management !ould entail that oth $ngineering
and Management aspects should e utili7ed to aim for the po!erful systems + over all ig
picture- approach%
3
Lesson 02
INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT"I
RECAP O# $
ST
%e&t're
'ourse 'ontent, Midterm and .inal $<am
Organi7ation /efinition
.inance, Mar5eting and Operations
Productive systems, Production and Service Systems
Operations Management +The management of systems or processes that create goods and/or
provide services-
Operation .unction + 'onsists of all activities directly related to producing goods or providing
services-
Man'fa&t'ring and Ser(i&e Definitions
Manufacturing is the transformation of ra! materials into finished goods for sale, or intermediate
processes involving the production or finishing of semi>manufactures%
#t is a large ranch of industry and of secondary production% Some industries, li5e semiconductor
and steel manufacturer:s use the term farication%
Service is defined as either as
Services are deeds, processes, and performances%
O"
A service is a time>perishale, intangile e<perience performed for a customer acting in the role of a
co>producer
Definition of Ser(i&e #irms

Service enterprises are organi7ations that facilitate the production and distriution of goods, support
other firms in meeting their goals, and add value to our personal lives%
"ole of Services in an $conomy
Prod'&tion and Ser(i&es Gro!t) in Pa*istan
'an e attriuted to the follo!ing sectors
Private
Pulic
Pulic Private
Government

+ey Areas of Res,onsii-ity for an O,erations Manager
Operations Managers ;o responsiility includes ut is not limited to?
.orecasting
'apacity planning
Scheduling
@
#nventory Management
0uality Assurance and 'ontrol
Motivating employees
/eciding !here to locate facilities
+ey De&ision Areas for O,erations Managers ./0H A,,roa&)
9hat ? 9hat resources8!hat amounts
9hy? The !or5 is needed to e done
9hen? )eeded8 scheduled8ordered
9here? 9or5 to e done
&o! much? 0uantity to e produced or served,
&o!? /esigned8capacity planning
9ho? To do the !or5
De&ision Ma*ing
Operations Manager spends most of their routine hours in ma5ing decisions under certainty or
uncertainty% The various tools availale to an Operations Manager include
1% Models
3% 0uantitative approaches
3% Analysis of trade>offs
@% Systems approach
A,,-i&ations of Mode-s in O,erations Management
Models Are 6eneficial and effective to an Operations Manager primarily ecause of the follo!ing
reasons
$asy to use, less e<pensive
"e=uire users to organi7e
Systematic approach to prolem solving
#ncrease understanding of the prolem
$nale A!hat ifB =uestions
Specific o;ectives
'onsistent tool
Po!er of mathematics
Standardi7ed format
Histori&a- De(e-o,ment of OM
C#T and T0'
Manufacturing Strategy Paradigm
Service 0uality and Productivity
Total 0uality Management and 0uality 'ertification
&istorical /evelopment of OM +cont:d-
6usiness Process "eengineering
Supply 'hain Management
$lectronic 'ommerce
C'rrent Trends in B'siness
2
Trends in 6usiness in general and Operations Management !hich have shaped the industry and the
technological support to the industry include the follo!ing?>
1% The #nternet, e>commerce, e>usiness
3% Management technology
3% Gloali7ation
@% Management of supply chains
2% Agility
Prod'&tion and O,erations Management as N'&-e's in t)e Organi1ations
Operations occupy the central figure in any service or manufacturing organi7ation% A small decision as
it may seem can serious effect the !or5ings and performance output in other units%
C'rrent Iss'es in OM
The recent !ave of telecom sector infrastructure consolidation and deregulation has led to a lot of
foreign investors aggressively see5ing ne! Pa5istani partners% 9ith the aid of operation management
studies !e can foresee the follo!ing current issues in Pa5istan% These issues have already een
addressed in Pa5istan as !ell as in other countries%
1% $ffectively consolidating the operations resulting from mergers
3% /eveloping fle<ile supply chains to enale mass customi7ation of products and services
3% Managing gloal supplier, production and distriution net!or5s
@% #ncreased Acommoditi7ationB of suppliers
2% 'urrent #ssues in OM +cont:d-
6% Achieving the AService .actoryB
D% $nhancing value added services
E% Ma5ing efficient use of #nternet technology
F% Achieving good service from service firms
/)at is a Prod'&tion and Prod'&ti(e System2
A productive system is defined as a user of resources to transform inputs into some desired outputs
+products as !ell as services- !here as production system refers specifically to only desired output in
the form of products or manufactured goods%
#t is important to understand that productive system reflects oth production as !ell as services systems%
9e also need to understand the important transformations through !hich a ra! material is converted a
value added end product or service%
Pulic
"elations
Accounting
#ndustrial
$ngineering
Operations
Maintenance
Personnel
Purchasing
/istriution
M#S
*egal
6
Physical>>manufacturing
*ocation>>transportation
$<change>>retailing
Storage>>!arehousing
Physiological>>health care
#nformational>>telecommunications
Our discussion throughout the semester !ould focus on !hat is a Service and !hat is a GoodG #n our
course of discussion, !e !ill collect numerous e<amples to etter understand that 9or5ers !or5ing for
creation of a product, manufacturing units are simultaneously !or5ing to create a serviceG So the
statement that Services never include goods and goods never include services can never e true%
Prod'&tion of Goods (s3 De-i(ery of Ser(i&es
H Production of goods tangile output
H /elivery of services an action and reaction et!een the provider 8deliverer of services and the
demander of services, an5 teller, hair stylist%
H Service ;o categories
Government
9holesale8retail
.inancial services
&ealthcare
Personal services
6usiness services
$ducation
Per&ent Ser(i&e Em,-oyment for Se-e&ted Nations
Percent Service $mployment for Selected )ations +Source not Authenticated-
Stages of E&onomi& De(e-o,ment in Pa*istan
Country 1980 1987 1993 2000
United States 67.1 71.0 74.3 74.2
Canada 67.2 70.8 74.8 74.1
Pakistan 13.3 16.0 18.0 23.9
Japan 54.5 58.8 59.9 72.7
France 56.9 63.6 66.4 70.8
Italy 48.7 57.7 60.2 62.8
Brail 46.2 50.0 51.9 56.5
C!ina 13.1 17.8 21.2 40.6

D
So'r&e of Ser(i&e Se&tor Gro!t)
Pa5istan is slo!ly ut surely facing a change in its demographics, economics and more important social
norms% This shift has often proven to e the source of service sector gro!th%
#nnovation
Push and Pull theory e%g% 'ash Management
Services derived from products e%g% '/8Automoile81ideo "ental
#nformation driven services li5e finance ro5erage services%
Social Trends
Aging of the population
#ncrease in *ife e<pectancy
T!o>income families, oth the males and females of the family are !or5ing
Gro!th in numer of single people%
&ome as sanctuary
#'n&tions !it) in an Organi1ation
The Operations function consists of all activities that are directly related to production of a good or
service%
Operations function e<ist in services li5e healthcare, Police, Traffic, transportation, consultancy,
food handling, restaurants etc%
Operations function forms the core of all usinesses%
O,erations and Mar*eting
1alue addition refers to conversion of ra! materials to finished goods or services%
1alue added often refers to the difference et!een the cost of the ra! material and the price of the
finished good%
The revenues from selling goods is used in etterment of e<isting product or service or " I/,
investment in ne! facilities and e=uipments
9eeding out or eliminating non value adding operations% $%g% storage of goods !hich have een
produced ahead of scheduled production, increases storage and inventory costs% reducing storage
cost !ould reduce transformation cost and thus increase value addition
Mar5eting relates to selling of a good or service of the organi7ation through advertising and pricing
decisions%
Mar5eting department assesses the customer:s needs and communicate it to the operations people
on short term and design people on the long term asis%
S"ciety

#re$
d"%inant
acti&ity
Use "'
!(%an
la)"r
Unit "'
s"cial li'e
Standard
"' li&in*
%eas(re Str(ct(re +ec!n"l"*y

#re$
Ind(strial
, 1947 t"
1960-l
.*ric(lt(re
/inin* ,
c"al. Salt-
0a1
%(scle
p"1er
23tended
!"(se!"ld
, J"int
Fa%ilies-
S(r&i&al 0"(tine
+raditi"nal
.(t!"ritati&e
Si%ple
!and t""ls
Ind(strial
, 1960 4
t"date-
5""ds
pr"d(cti"n
/ac!ine
tendin*
Indi&id(al 6(antity
"' *""ds
B(rea(cratic
7ierarc!ical
/ac!ines
#"st$
ind(strial
, F(t(re-
Ser&ices .rtistic
Creati&e
Intellect(al
C"%%(nity 6(ality "'
li'e in
ter%s "'
!ealt!8
ed(cati"n8
recreati"n
Inter$
dependent
5l")al
In'"r%ati"n

E
Operations people need information aout demand over a short range in order to purchase ra!
materials or manage inventory or schedule production plan !here as the design people need
information to redesign or simply design ne! products or services%
Mar5eting provides valuale information aout the competitors customers needs and communicate
it to the operations people on short term and design people on the long term asis%
#inan&e
The finance function focuses on activities that relate to securing resources at favorale prices and
then allocating these resources through out the organi7ation%
.inance and Operation Personnel e<change information and e<pertise in the follo!ing !ay%
6udgets
$conomic analysis of investment proposals
Provision of funds
Histori&a- E(o-'tion of O,erations Management
#ndustrial revolution +1DD4:s-
Scientific management +1F11-
o Mass production
o #nterchangeale parts
o /ivision of laor
&uman relations movement +1F34>64-
/ecision models +1F12, 1F64>D4:s-
#nfluence of Capanese manufacturers
Sim,-e Prod'&t S',,-y C)ain
Supply 'hain? A se=uence of activities and organi7ations involved in producing and delivering a good
or service% *et:s apply the same concept to !hat !e have on our rea5fast tale every morning, a simple
loaf of read%
C'rrent Iss'es in OM
An operations manager needs to prepare himself or herself for the follo!ing issues in the years to
come !hether its Pa5istan or outside Pa5istan%
$ffectively consolidating the operations resulting from mergers
/eveloping fle<ile supply chains to enale mass customi7ation of products and services
Managing gloal supplier, production and distriution net!or5s
#ncreased Acommoditi7ationB of suppliers
'urrent #ssues in OM +cont:d-
Achieving the AService .actoryB
$nhancing value added services
Ma5ing efficient use of #nternet technology
Achieving good service from service firms
Suppliers:
Suppliers
/irect
Suppliers
Producer
/istriutor
.inal
'onsumer
F
Lesson 03
COMPETITIVENESS4 STRATEG5 AND PRODUCTIVIT5
Meanings of Com,etiti(eness4 Strategy and Prod'&ti(ity
9e are already familiar !ith these three terms, for the sa5e of easy reference, let us revisit their
definitions
1% Com,etiti(eness refers to an aggressive !illingness to compete
3% Strategy is an elaorate and systematic plan of action !ith defined resources and
3% Prod'&ti(ity refers to the ratio of the =uantity and =uality of units produced to the laor per
unit of time or simply ratio of output to input%
Ho! Organi1ation Com,ete against ea&) ot)er
6usinesses since the eginning of time have competed against each other% On the asis of competition,
various types of mar5et e<ist for nearly all lines of products and services% 9e already 5no! that
asolute monopoly and perfect competition type of mar5ets are not that pervasive, yet usinesses try to
avoid perfect competition and strive to go for asolute monopoly so they can en;oy no competition and
e<ploit the customer sentiments for uying% 9e can identify the follo!ing common and !idespread
!ays in !hich organi7ations can compete against other organi7ations%
1% Price ? #n our day to day routine oservations, !e often see that a lo!er price !ould attract more
customers provided the product or service fulfils its intended use% *o!er price helps an
organi7ation to increase its customer ase%
3% 0uality is an important dimension y !hich superior ra! materials as !ell as high S5illman
ship !ould ensure that product manufactured or service developed is offered to the customer
!ith something e<tra% That something e<tra is nothing else ut 0uality% 0uality is al!ays
offered free of cost, !e !ill discuss this !hen !e study in details 0uality Management and
Total 0uality Management%
3% Product /ifferentiation refers to special features that ma5e the product or service loo5 more
suitale to the customers li5e an automoile manufacturer decides to provide GPS system to
selected customer at an additional price etc%
@% .le<iility is the aility to respond to changes% #t may refer to changes in target sales, product
feature li5e adding GPS device to all automoiles
2% Time refers to the period re=uired to provide a product or service to a customer from the
moment the order is oo5ed to the delivery, also time re=uired to rectify a shortcoming or
mista5e
A3 Com,etiti(eness
'ompetitiveness is ho! effectively an organi7ation meets the needs and re=uirements of customers
relative to other +'ompetitors- organi7ations that offer similar goods or services
The 5ey to successfully competing against the organi7ations competitors or rivals is to ans!er these t!o
=uestions diligently
#% 9hat do the 'ustomers 9antG
##% &o! can our usiness deliver the re=uired 1alue to the customersG
The first =uestion egets a natural and logical ans!er !hich is that the customers !ant 1alue% Similarly
the second =uestion also as5s for a logical ans!er !hich is the !ay organi7ations !ould deliver value to
the customer as per the understanding of the organi7ation% #f an organi7ation can understand that 1alue
14
is al!ays the tradeoff et!een performance and cost then it can adopt various means to provide value to
the customer%
Mathematically spea5ing value e=uals the performance +of the product or service- divided y cost%
Most organi7ations have different measurement rules attached in measurement of =uality, speed and
fle<iility%
1alueJ Performance8'ostJ +0uality KSpeedK .le<iility-8'ostLLLLLLL $=% 1
The e=uation aove also captures the product differentiation concept, !hich in reality is an important
dimension of =uality% The concept of =uality !ould e covered at a later stage, to!ards the middle of the
semester%
9e can also say that, the customer is measuring performance !ith the help of 0uality, Speed and
.le<iility for the price or cost he is !illing to pay%
The point !orth noting is that in most of the cases the three factors of performance !ould not e
!eighed e=ually in some cases, =uality !ould e more important than speed or fle<iility etc% 9e can
thus ma5e use of an important concept of assigning !eights so the e=uation changes to
1alueJ +!1 < 0uality K !3 < SpeedK !3 M .le<iility- 8 'ostLLLLLLL$=%3
9here !1, !3 and ! 3 are different !eights and if they all have same value then e=uation 3 reduces to
e=uation 1 again% #) other !ords, e=uation 3 is not only generic ut more reflective of performance
measurement of an organi7ation%
/ifferent organi7ations assign different means to otain the value of these !eights y developing in>
house or a consultant derived Performance Measurement Model +PMM-% This can e used to otain an
overall performance score y measuring the success of a manufacturing company in its operational
activities% The developed PMM measures a companyNs level of performance in critical dimensions and
comines these performance scores to otain a ran5ing score% A set of critical dimensions and their su>
components is fully defined, and performance scorecards are developed to guide the assignment of
performance scores% Performance scores are assigned according to the level of intensity of a
manufacturing companyNs investments, practices, actions or infrastructures in the critical dimensions%
Ho! Organi1ations &an gain Com,etiti(e Ad(antage
As Students of Organi7ation Management, !e can loo5 at value in terms of the three important
functions of any organi7ation to see ho! organi7ations can gain competitive advantage
1% Mar5eting
3% .inance
3% Operations
A3 B'sinesses Gain Com,etiti(e Ad(antage y 'sing Mar*et ased strategies
1% #dentifying consumer !ants and needs
3% Pricing
3% Advertising and promotion
B3 B'sinesses Gain Com,etiti(e Ad(antage y 'sing #inan&e ased strategies
1% #dentifying sources of funds and applications of funds%
3% 'apital and .inancial #nvestments%
3% .inancial *everage + /et to $=uity- and
11
@% 'apital structure%
C3 B'sinesses Gain Com,etiti(e Ad(antage y 'sing O,erations ased strategies
1% Product and service design % The design is not only the starting point ut allo!s certain features
to e added !hich ma5es your product or service favorale to the customer%
3% 'ost or 'ost *eadership , offers the product or service at an economical price
3% *ocation refers to the 'onvenient point of sales, it can e a petrol pump +services- !ith an
attached convenience store
@% 0uality should al!ays match the price and service%
2% 0uic5 response a5a Also 5no!n as Agility and an organi7ation on this asis is often 5no!n as
Agile Organi7ation-
6% .le<iility% .le<iility change the car model from sedan to coupe ased on your mar5eting
divisions inputs%
D% #nventory management % Maintain safety stoc5s and critical spares%
E% Supply chain management % /evelop and sustain an active and strong chain et!een suppliers
and end customers%
F% Service %After sales service, o!ning the customers issue as your o!n, a concept !hich has
failed PO in its =uest for foreign mar5et penetration%
Throughout the semester our aim !ould e to identify and understand different types of strategies
!hich have een e<ploited to the fullest y various organi7ations and adopted religiously as their
actual Operational strategies companies% This has helped these organi7ations to gain competitive
advantage over their counterparts%
Common Reasons !)y Organi1ations #ai-
9e can identify certain familiar reasons !hy Organi7ations fail to achieve a competitive advantage and
end up loosing out to their competitors% These reasons are universal in nature and find the same footing
in Pa5istan as !ell as any other place in the !orld%
1% Too much emphasis on short>term financial performance% 0uite often, cost cutting, profit
ma<imi7ing at the cost of social responsiility or employee motivation is a failed strategy
pursued y organi7ations, !hich ;ust hastens their status to olivion%
3% .ailing to ta5e advantage of strengths and opportunities% This is in reality failing to hold on
to proven successful strategies or core competencies% Sometimes a change in leadership
leads to change in strategy, !here ;ust for the sa5e of glory and high profits, organi7ations
forget their core competence and opt for strategies and tactic !hich cause their do!nfall%
3% .ailing to recogni7e competitive threats% This reason is the e<act opposite of failure to ma5e
use of the organi7ations strengths% 0uite often organi7ations decide to pursue status =uo and
ends up ringing no ne! product or service or even no innovation in its e<isting product or
service line leading to lac5 of customer satisfaction, decline in profits and finally eing
declared a failure%
@% )eglecting operations strategy% This is definitely the most important reason of failureP
organi7ations often end up employing non productive techni=ues !hich lead to inconsistent
and failed operations% Asence of an Operations Strategy leads to
2% Too much emphasis in product and service design and not enough on improvement%
/ifferentiation in terms of service and product, American companies in 1FE4s did that they
never introduced incremental refinements rather !ent for ig changes and thus lost to
Capanese competitors%
6% )eglecting investments in capital and human resources% A total disregard to use the est
resource% 'apital and human resources in the long run ma5e or rea5 an organi7ation%
13
D% .ailing to estalish good internal communications% Matri< organi7ations or hierarchy or
such a strong structure that often the structure does not allo! communication%
E% .ailing to consider customer !ants and needs% This is actually indicative of an
organi7ations lac5 of mar5eting research s5ills% This also sho!s that there is no respect to
'ustomer "elationship Management 'oncept and certainly no respect to the customer%
Mission6Strategy6Ta&ti&s
Most of the organi7ations tend to ans!er the =uestion that ho! does mission, strategies and tactics relate
to their decision ma5ing and attaining distinctive competenciesG Organi7ations over the years have
mastered the art and techni=ue of developing a vision and a mission statement, !hich helps them to
come !ith functional strategies and practical tactics y !hich they can ma5e ;udicious decisions and
attain distinctive competencies
03 Strategy
1% Strategies are Plans for achieving organi7ational goals
Mission is the reason for e<istence for an organi7ation
Mission Statement ans!ers the =uestion A9hat usiness are !e inGB
Goals provide detail and scope of mission
Tactics are the methods and actions ta5en to accomplish strategies
3% 'oncept of Strategy for a Pa5istani Automoile manufacturer
Strategies are plans for achieving organi7ational goals
Mission is to provide 6$ST A(TOMO6#*$S to individuals as !ell as 6(S#)$SS
organi7ations of Pa5istan
Mission Statement is to give you safe !heels to move aroundB
Goals are to provide utility, and heavy e=uipment moiles%
Tactics consist of employing T0M methods to accomplish strategies
P-anning and De&ision Ma*ing

Planning and decision ma5ing concepts ma5e use of setting a mission, goal, strategy and achieving the
end result through some effective and practical tactic% #n hierarchical order the organi7ation first ma5es
or develops a mission and employ tactics y developing operational procedures%
Strategy $<ample
You are a business student at Virtual University of Pakistan. You would like to have a career in
business, have a good job, and earn enough income to live comfortably
Strategy Strategy Tactics Tactics Mission Mission
13
/issi"n
5"als
9r*aniati"nal Strate*ies
F(ncti"nal 5"als
Finance
Strate*ies
/ar:etin*
Strate*ies
9perati"ns
Strate*ies
+actics +actics
+actics
9peratin*
pr"ced(res
9peratin*
pr"ced(res
9peratin*
pr"ced(res
Mission? *ive a good life
Goal? Successful career, good income
Strategy? Otain a 6usiness /egree from 1(%
Tactics? Select a usiness field of your interest and high mar5et value
Operations? "egister, uy oo5s, ta5e courses, Study, graduate, apply I get ;o
$<amples of Strategies
1% *o! cost + 'ost *eadership8$conomical -
3% Scale>ased strategies + 'ritical 1alue-
3% Speciali7ation + Specific characteristics-
@% .le<ile operations + To change production design of products on the same infrastructure-
2% &igh =uality + e<ceeds customer re=uirements and satisfactions-
6% Service + meets minimum standard specifications-
The special attriutes or ailities that give an organi7ation a competitive edge are?
1% Price
3% 0uality
3% Time
@% .le<iility
2% Service
6% *ocation
1@
Lesson 04
DISTINCTIVE COMPETENCIES
The special attriutes or ailities that give an organi7ation a competitive edge are?
1% Price
3% 0uality
3% Time
@% .le<iility
2% Service
6% *ocation
A% Operations Strategy
Operations strategy The approach, consistent !ith organi7ation strategy that is used to guide the
operations function% 9e first study strategy design process !ith e<ample for manufacturing and
Services%
Strategy Design Pro&ess
Re-ations)i, et!een O,erations and Organi1ationa- Strategy
Organi7ational strategy is
An over all ig picture for the !hole organi7ation%
*onger in time hori7on
*ess detailed and roader in scope%
Exam!e Strategy Process
Customer "ee#s
Cororate Strategy
$erations Strategy
%ecisions on Processes
an# &n'rastructure
More Pro#ucts
&ncrease
$rgani(ation Si(e
&ncrease Pro#uction Caacity
)ui!# "e* +actory
Strategy Ma
+inancia! Persecti,e
Customer Persecti,e
&nterna! Persecti,e
-earning an# .ro*t/ Persecti,e
&mro,e S/are/o!#er 0a!ue
Customer 0a!ue Proosition
)ui!#1&ncrease12c/ie,e
2 Moti,ate# an# Preare#
3ork'orce
%esire# 4esu!ts
Strategy Design Process for Services Strategy Design Process for Services
12
Operational Strategy is
)arro!er in scope and in more detail
Prepared y middle management%
Should e in line !ith the Organi7ation strategy
Operational Strategy if
/esigned and implemented successfully can ma5e an organi7ation more successful%
Organi7ations started focusing on operational strategies in early 1FF4s efore that
organi7ations focused on financial and mar5eting strategies%
Operational strategies mostly function on t!o dimensions of 7'a-ity management and
ser(i&e6man'fa&t'ring strategy%
An operations Manager should avoid S(6OPT#M#QAT#O) meaning his operational strategy for the
department and divisions goals should not harm the overall Organi7ational strategy% &e should opt for
systems approach or a ig picture approach or strictly ase his operations strategy on Organi7ational
strategy%
O,erations Strategy for Ser(i&e Organi1ations
Service Organi7ations in Pa5istan function !ith a very detailed and elaorative Operations Strategy% #t
is important to identify the Strategy /esign Process and ale to recogni7e the concepts associated !ith
Strategy .ormulation% Service Organi7ations are no e<ceptions and !or5 diligently to identify, nurture
and protect their distinctive competencies% Service Organi7ations are usy carrying out detailed
environmental scanning and also periodically carryout S9OT Analysis%
As operations manager of a service ased organi7ation, one should e ale to understand the
importance of oth Order =ualifiers and Order !inners% Order =ualifiers
are those significant characteristics that service customers perceive as minimum standards of
acceptaility to e considered as a potential purchase !hile order !inners
are the characteristics of an organi7ation:s services that cause it to e perceived as etter than the
competitors services% A an5 offering 14 percent return on customers: holdings !ould e an order
=ualifier ut if the same service has an additional characteristic of some added feature li5e availaility
of interest free loans for purchase of car or uilding of homes, then the an5s service ecomes order
!inner%
Ste,s in De(e-o,ing a Man'fa&t'ring6Ser(i&e Strategy
1% Segment the mar5et according to the product8Service group + A person interested in uying a sedan
car !ould rarely sho! interest in uying an S(1 car, the mar5et segmentation should e ;ust and
;udicious-
3% #dentify product8Service re=uirements, demand patterns, and profit margins of each group + Rour
Mar5et research department should e ale to capture these !ith the help of M#S systems-
3% /etermine order =ualifiers and !inners for each group + Order 0ualifiers !ould meet customer
re=uirements and Order 9inners !ould satisfy customers-
@% 'onvert order !inners into specific performance re=uirements + 'ontinuous improvement al!ays
helps and it is !hat the Capanese has perfected through OA#Q$)-
+ey E8terna- #a&tors
1% $conomic conditions should include oth Micro and Macro $conomics%
3% Political conditions re=uire the organi7ation to carryout P$ST analysis%
3% *egal environment relates to government regulations for investor protection%
@% Technology %Gap Analysis focusing mar5et leaders in the respective field%
2% 'ompetition so as to e<pect no free lunches or no monopolies%
16
6% Mar5ets are al!ays free mar5ets till proven other!ise
+ey Interna- #a&tors
1% &uman "esources include Trained, s5illed and =ualified employees%
3% .acilities and e=uipment are a good source for motivation, and otaining competitive advantage
over your competitors%
3% .inancial resources % A higher .ree cash flo! ma5es a company outperform its competitors%
@% 'ustomers include repeat customers, as !ell as customer relationship Management%
2% Products and services relates to ho! does the organi7ation values itself !hether it provides
products or services that add value-
6% Technology %*egacy Systems or Technology that is competitive and has the potential to gain
competitive advantage%
D% Suppliers %'ompanies have ta5en care of the supplier issue y ma5ing use of effective Supply
'hain Management Strategies or use vertical or hori7ontal integration techni=ues%
Strategi& Ser(i&e Vision
Ser(i&e Con&e,t in&-'des
Service *evels refer to the important elements of the service to e provided, usually stated in
terms of results produced for customers%
Perception corresponds to the elements perceived y the target mar5et segment, y the mar5et
in general, y employees, I y others% &o! do customers perceive the service conceptG
/elivery focuses on the efforts in terms of the manner in !hich the service is designed,
delivered, mar5eted%
Strategic Service 1ision%
O,erating Strategy
.ocus Area includes important elements of the strategy? operations, financing, mar5eting,
organi7ation, human resources, and control% Also the central service area along !ith the location
of investments +human resource or Technology-%
'entral Operations to control =uality and costs, improve measures, incentives, re!ards% The
e<pected results should e evaluated in terms of, =uality of service, cost profile, productivity,
morale8loyalty of servers%
Ser(i&e De-i(ery System
The important features of the service delivery system include role of people, technology, e=uipment,
layout, procedures
The capacity it has to provide at pea5 levels
The e<tent to !hich it should help to insure =uality standards, differentiate the service from
competition, provide arriers to entry y competitors%
"elatively *o! +as compared to manufacturing- Overall $ntry 6arriers
$conomies of Scale *imited +not al!ays ut most of the time-
&igh Transportation 'osts
$rratic Sales .luctuations
)o Po!er /ealing !ith 6uyers or Suppliers
Product Sustitutions for Service
&igh 'ustomer *oyalty
$<it 6arriers
Com,etiti(e Ser(i&e Strategies +Overall 'ost *eadership-
See5ing Out *o!>cost 'ustomers
1D
Standardi7ing a 'ustom Service
"educing the Personal $lement in Service /elivery +promote self>service-
"educing )et!or5 'osts +hu and spo5e-
Ta5ing Service Operations Off>line
Com,etiti(e Ser(i&e Strategies +/ifferentiation-
Ma5ing the #ntangile Tangile +memorale-
'ustomi7ing the Standard Product
"educing Perceived "is5
Giving Attention to Personnel Training
'ontrolling 0uality
)ote? /ifferentiation in service means eing uni=ue in rand image, technology use, features, or
reputation for customer service%
'ustomer 'riteria for Selecting an online 6an5ing Service Provider in Pa5istan
9e can apply our concepts of service to an online an5ing service provider in Pa5istan% 9e investigate
the service eing provided y the an5 y chec5ing for availaility, convenience, dependaility,
personali7ation, price, =uality, reputation, safety and speed% This should help us understand the strength
of service industry in a competitive environment especially in our country of Pa5istan%
CHARACTERISTIC REMAR+S
Availaility 3@ hour ATM or online financial transaction
'onvenience Site location from any internet e=uipped
computer in and out of Pa5istan
/ependaility On>time performance and correct information
Personali7ation Ono! customer:s name and #/
Price The fee a customer pays for online service
0uality "eflected in service%
"eputation 9ord>of>mouth and audited and e<amined y
neutral odies%
Safety 'ustomers online data is safe and inaccessile
to others and hac5ers
Speed Avoid e<cessive !aiting in !esite loading and
data availale online%
Online an5ing service providers are often chec5ed for?
Anti>competitiveness i%e% !hether are not allo!ing other online an5ing service providers to
enter the mar5et y constructing arriers to entry
.airness indicates the concept of Rield management% Meaning !hether the an5 is actually
providing the same return as it had promised to the customer
#nvasion of Privacy% 'alling people through telephones or visiting offices thus ma5ing use of
Micro>mar5eting concepts, !hich often ma5es the patron and customer feel that his privacy has
een compromised%
/ata Security% 6an5s ma5e it a point that the financial records of the customers are not accessed
y unauthori7ed personnel%
"eliaility% 6an5s al!ays strive that their service is reliale and considered safe and usale y
its customers% Most online an5ing service providers allo! its customers to access their account
statement, free of cost%
Ser(i&e P'r&)ase De&ision
1E
#n order to understand further !e evaluate the service organi7ations in terms of Purchase /ecision%
ervice !ualifier? To e ta5en seriously a certain level must e attained on the competitive
dimension, as defined y other mar5et players% $<amples are cleanliness for a fast food
restaurant or safe aircraft for an airline%
ervice "inner? The competitive dimension used to ma5e the final choice among competitors%
$<ample is price of airline tic5et or us fare%
ervice #oser? .ailure to deliver at or aove the e<pected level for a competitive dimension%
$<amples are failure to repair auto +dependaility-, rude treatment +personali7ation- or late
delivery of pac5age +speed-%
(sing #nformation to 'ategori7e 'ustomers + .or 'all 'enters in Pa5istan-
'oding grades customers on ho! profitale their usiness is%
"outing is used y call centers to place customers in different =ueues ased on customer code%
Targeting allo!s choice customers to have fees !aived and get other hidden discounts%
Sharing data aout your transaction history !ith other firms is a source of revenue%

0uality and Time Strategies
9'a-ity"ased strategies
.ocuses on maintaining or improving the =uality of an organi7ation:s products or services
0uality at the source
Time"ased strategies
.ocuses on reduction of time needed to accomplish tas5s
Time 6ased Strategies? Organi7ations have registered reduction in time y employing the
follo!ing A6B time ased strategies% There are 6 time ased strategies namely?>
1% Planning Time The time re=uired to react to a competitive threat, or to adopt ne!
technologies, or to approve changes to an e<isting facility
3% Products8Service /esign Time The time needed to develop or mar5et ne! or redesigned
products or services
3% Processing Time The time re=uired to produce goods or services, includes repairing
e=uipment, =uality training, inventory etc
@% 'hangeover Time is the time needed to change from producing one type of product or
service to another% )e! model, ne! insurance 8health service%
2% /elivery Time is the time needed to fill orders%
6% "esponse Time for complaints is the re=uired to improve the model or service features
according to customer inputs and improving employee !or5ing conditions%
1F
Lesson 05
PRODUCTIVIT5
Productivity
Productivity is a measure of the effective use of resources, usually e<pressed as the ratio of output to
input %Also called $fficiency at times
Prod'&ti(ity ratios are 'sed for
Planning !or5force re=uirements
Scheduling e=uipment
.inancial analysis
Productivity
Partial measures is output8+single input-
Multi>factor measures is output8+multiple inputs-
Total measure is the output8+total inputs-
Prod'&ti(ity Gro!t) : 'urrent Period Productivity Previous Period Productivity
Previous Period Productivity
Prod'&ti(ity Gro!t) : Unit -ess 9'antity
Partial Output Output Output Output
measures *aor Machine 'apital $nergy
Multifactor Output Output
measures *aor K Machine *aor K 'apital K $nergy

Total J Goods or Services Produced
measure All inputs used to produce them
%aor Prod'&ti(ity
(nits of output per laor hour
(nits of output per shift
1alue>added per laor hour
Ma&)ine
Prod'&ti(ity
(nits of output per machine hour
Ca,ita- Prod'&ti(ity
(nits of output per "s% input
/ollar value of output per "s% input
Energy Prod'&ti(ity
(nits of output per 5ilo!att>hour
"upee value of output per 5ilo!att>hour
$<ample
What is the multifactor productivity MFP? if 7500 Units Produced and Sold for s!"0#unit $ith
%ost of la&or of s!"0'000' %ost of materials( s!5'000 and %ost of overhead( s!)0'000!
Solution
M.P J +D244 units-S+144-
14,444 K 2,444 K 34,444
M.P J +D24,444-
32,444
/F# ;
9(tp(t
<a)"r = /aterials = 9&er!ead
34
M.P J 31%@34
#a&tors Affe&ting Prod'&ti(ity
Productivity stands tall on four important pillars of 'apital, 0uality, Management and Technology%
These pillars are also responsile for positively as !ell as negatively affecting the Productivity of the
Organi7ation%
1% 'AP#TA* An e<isting machine or facility if it is not functioning up to full capacity or turning out
products !hich are not acceptale can lo!er productivity% A ne! machine or repair of e<isting
machine !ould re=uire capital input%
3% 0(A*#TR Poor =uality products !ould not meet customer re=uirements and !ould need repairs
and re!or5s on the product to meet the standards%
3% MA)AG$M$)T 9ith etter scheduling, planning, coordinating and controlling activities of
management the machine operations can e carried to improve productivity%
@% T$'&)O*OGR Technological improvements have increased productivity% A machine of today
!ould outperform machine of yesterday ut may not !ithstand machines of tomorro!%
'A(T#O)? 9ithout careful planning technology can reduce productivity as it often leads to increased
costs, infle<iility or mismatched operations% All leads to reduction in value%
Other .actors Affecting Productivity
Standardi1ation 9e live in a !orld !here for the sa5e of convenience, reliaility and safety,
ma;ority of the products and services have een standardi7ed% #f for a moment any process !hether
it relates to manufacturing or services is made standard less, the vital concept of compatiility
!ould e lost% Thin5 for a moment if there is a fire at a Montessori school or at a cro!ded stadium,
if there is no standardi7ation of fire hose attached to the fire truc5 and fire hydrant present at the
site, no effort !ould succeed in putting out the fire and saving the lives of the people%
Use of Internet %(se of #nternet8$<tranet especially for the services side, even though there are
5no!ledge ase applications availale for the manufacturing side as !ell ut primarily it has the
een the services side !hich has een ale to e<ploit the resourcefulness of the #nternet%
Com,'ter (ir'ses % A lot of time #T ased services industry have fallen a prey to computer viruses
and hac5ers%
Sear&)ing for -ost or mis,-a&ed items % This spea5s lo! aout the coordinating activities and can
lead to loss in production time and increase in idle time% Often this also leads to increase in
replacement costs
S&ra, rates Any aerration in the ra! materials or processed product can lead to increase in scrap%
The increase in scrap rate in fact can decrease the utili7ation of resources in general and ra!
material
Ne! !or*ers Organi7ations spend millions of "upees every year to train their employees% A
trained !or5force is not only reliale and dependale ut also ensures good
&ost of other .actors Affecting Productivity?
Safety
Shortage of #T Trained 9or5ers
*ayoffs
*aor turnover
/esign of the !or5space
#ncentive plans that re!ard productivity
E3 Bott-ene&* O,eration
6ottlenec5 is one process in a chain of processes, such that its limited capacity + increased time of
completion, or increased laour re=uirement- reduces the capacity of the !hole chain
31
A related concept is critical path +see Pro;ect Management- and the Theory of 'onstraints +from the
field of #ndustrial $ngineering and Operations management-%
Theory of constraints +TO'- is a ody of 5no!ledge on the effective management of +mainly
usiness- organi7ations, as systems%
The figure elo! clearly sho!s that a machine re=uiring 13 hours to complete the ;o is the real
ottlenec5% A manufacturing ottle nec5 li5e this normally leads to delayed completion and e<tended
time for ;o% Similar ottlenec5s are oserved in the Service side as !ell%
/evelop productivity measures
/etermine and isolate critical +ottlenec5- operations
/evelop methods for productivity improvements
$stalish reasonale goals
Get management support
Measure and pulici7e improvements
'learly differentiate et!een productivity and efficiency
E8am,-e of Prod'&ti(ity Meas'rement
Rou have ;ust determined that your 34 Operations + Service- department employees have used a total of
3344 hours of laor this !ee5 to process @E4 insurance forms% *ast !ee5 the same cre! used only 3444
hours of laor to process @44 forms%
9hich productivity measure should e usedG
Ans!er? 'ould e classified as a Total Measure or Partial Measure and Time8*aor productivity%
#s productivity increasing or decreasingG
Ans!er? *ast !ee5:s productivity J @4483444 J 4%3, and this !ee5:s productivity is J @E483344 J 4%33%
So, productivity is increasing slightly%
Pa5istani Productivity $<ample 1
'alculate the change in productivity of Pa5istani Te<tile #ndustry et!een the years 3443>4@ and 344@>
42G +#nstalled 'apacity-
Parameter 34438@ 344@82 'hange
)umer of mills 3FF @36 6%DD
Machine 6 6ottlenec5
Operation
Machine A
Machine '
Machine /
148hr
148hr
148hr
148hr
348hr
33
Spindles +444- F3E6%E FE12%2 2%6F
"otors+444- 1@2%6 121%6 @%13
Pa5istani Productivity $<ample3
'alculate the change in productivity of Pa5istani Te<tile #ndustry et!een the years 3443>4@ and 344@>
42G + 9or5ing 'apacity-
Parameter 34438@ 344@82 T 'hange
)umer of *ooms+444- @%3 @%F 13%F2
Spindles +444- DD14%4 E231%4 14%62
"otors+444- 6D%3 D2%1 11%2F
Te<tile Productivity $<ample 3
'alculate the Productivity of Pa5istani Te<tile #ndustry et!een the years 3443>4@ and 344@>42G
+9eaving Sector 'apacity-
Parameter Insta--ed
I
/or*ing / ; Effe&ti(eness
/6I
Po!er *oom Sector 33232E 334@@D
#ndependent 9eaving (nit 3643@ 32244
#ntegrated Te<tile (nit 143@F @F@D
Total 3612@1 334@@D
Pa*istan A'tomoi-e Ind'stry
'alculate the Productivity 'hange for Pa5istani Automoile #ndustry et!een the years 3443>4@ and
344@>42G
Ty,e 0<<="<> 0<<>"<. ; &)ange in
Prod'&ti(ity
'ars DF,622 144,313
Motorcycles 363,1@F 3E6,2EF
Truc5s 1,66F 1,FFF
6uses 1,121 1,243
Tractors 3E,2E3 32,34E
Ho! &o'ntries6nations &an im,ro(e ,rod'&ti(ity
As students of Operations Management in Pa5istan !e need to 5no! and understand ho! the concepts
of productivity can help nation improve its =uality of life and economy%
#ncrease capital formation y saying no to foreign goods% This !ould increase savings and
decrease consumption% .oreign goods only ma5e !hy to a mar5et if there is high consumption%
6$ PAO#STA)# 6(R PAO#STA)#
/ecrease in administrative + non productive- regulations of the government% Self e<planatory%
"ight alance et!een Services and Manufacturing activities% #n the city of *ahore, there is an
availaility of surplus services, !hich is often less productive than manufacturing operations
An emphasis on oth long term and short term o;ective ased performance% +'losely monitor
and audit the variances et!een planed and actual results-%
33
$<ploit the inherent resources of domestic mar5et %*et it e 5no!n to all that the est
productive mar5et for Pa5istani Producer is Pa5istani mar5et%
S'mmary
The important concepts of Productivity, 'ompetitiveness and Strategy !hen considered in cohesion
enhance the overall performance of any service ased or manufacturing organi7ation% Organi7ations
formulate operational and organi7ational strategies to achieve competitive advantage over its
competitors% /ifferent types of competencies allo! organi7ations to formulate time or =uality ased
strategies to achieve competitive
Advantage and increase their revenues% The same concepts find e=ual application for a country to gain
competitive advantage over other countries%
3@
Lesson 06
THE DECISION PROCESS
%earning O?e&ti(es
/ecision Process is more or less the fundamental process of Management% 9hether a person !or5s in a
manufacturing organi7ation or a services side organi7ation, he or she !ould e as5ed to carry out the
decision process% )ormally the decision ma5ing process involves the follo!ing si< important steps
1% Specify O;ectives and the 'riteria for decision ma5ing
3% /evelop Alternatives
3% Analy7e and compare alternatives%
@% Select the est alternative%
2% #mplement the chosen Alternative
6% Monitor the results to ensure the desired results are achieved%
Operations Manager identifies the criteria y !hich the proposed solutions !ill e ;udged% The common
criteria often relates to costs, profits, return on investment, productivity, ris5, company image, impact on
demand, or similar variales% The management is interested that the Operations Manager should e ale
to focus on parameters that !ill increase or decreaseG #deally the aim is that
1% 'osts should decrease and Profits should increase
3% "eturn on #nvestment should increase along !ith increase in Productivity%
3% "is5 should decrease along !ith increase in 'ompany image%
@% /emand should increase for the product or service%
2% Monitor the results to ensure the desired results are achieved%
T)e De&ision Pro&ess E8am,-e
The '$O of A6' 'orporation has as5ed you +the 1P Operations- to help the 6O/ reach a decision
!hether to introduce a ne! automoile model% The ne! model !ould have the follo!ing effects on
important decision ma5ing process% 'ertain Parameters !ill increase and decreaseG
'osts decrease y 12 T
Profits increase y 3T
"eturn on #nvestment stays the same
Productivity decreases y 2T
"is5 increases y 2 T
'ompany image may increase or decrease
/emand may increase or decrease for the product or service%
So-'tion
6ased on the aove data, a "is5 Averse Manager !ould forego the ne! pro;ect, A "is5 ta5er !ould go
for it% These factors alone do not present the overall ig picture, most of the times in practical situations,
the decision is ased upon important factors li5e "O#, Productivity, (tili7ation of availale resources,
Profits and 'osts in line !ith organi7ations operational and organi7ational strategy and the mapping of
the organi7ation !ith respect to its competitors and competitive environment%%
Ca'ses of Poor De&isions
(nforeseeale and uncertain circumstances , !hich in reality refers to a mista5e or error in the decision
ma5ing, remedial action is to have a ST$$"#)G 'OMM$T#$$ + comprising of senior management- to
revie! the !hole process and monitor the decision steps%
De&ision En(ironments
There are three degrees of 'ertainty, "is5 and (ncertainty%
32
1% 'ertainty? Means that the relevant parameter such as costs, capacity and demand have 5no!n
values%
3% "is5 means that certain parameters have proailistic outcomes%
3% (ncertainty means that the certain parameters have various possile future events%
/ecision $nvironments often represent the same three scenarios of 'ertainty, "is5 and (ncertainty% *et
us consider the e<ample !here !e are ma5ing a all earing !hich is to e used in ceiling fan and our
mar5eting department comes !ith up three scenarios !ith different set of numers% #t costs us "s @4 per
unit to manufacture the all earing% The mar5eting department has through its mar5et research noted
that our organi7ation can have a sale price of "s% F4 per unit%
'ertainty? Profit per unit is "s% 24% Rou have an order for 3444 units% The decision is under certainty
as the Means that the relevant parameter such as costs, capacity and demand have 5no!n values%
"is5 There is a 32 T chance of demand of 3444 units, 24T chance of demand of 1444 units and 32
T chance of an order of 244 units%
(ncertainty %There is no availale data of demand forecasts means that the certain parameters
necessary for decision ma5ing are asent%
DECISION THEOR5
)o discussion in Production Operation Management is complete !ithout ma5ing a reference to
/ecision Theory% /ecision Theory is in fact a general approach to decision ma5ing%
/ecision theory consists of the follo!ing three elements%
1% A set of possile outcomes e<ist that !ill have a earing on the results of the decision%
3% A list of alternatives to choose from%
3% A 5no!n payoff for each alternative under each possile future condition%
An operations manager !ould need to develop an understanding of decision theory 5no!ledge and
needs to employ the follo!ing%
1% #dentify a set of possile future conditions called state of nature !hich includes the lo!, high,
medium demand pattern and a !or5ing on the competitor:s introduction of ne! product%
3% /evelop a list of alternatives, one of !hich may e to do nothing%
3% /etermine or estimate the payoff associated !ith each alternative for every possile future
condition%
@% #f possile estimate the li5ely hood of each possile future condition%
2% $valuate alternatives according to some decision criterion e%g% ma<imi7e e<pected profit and
select the est alternatives to choose from%
PA5 O## TAB%E
>Payoff tale summari7es the information of a decision and captures the e<pected payoffs under various
possile states of nature%
>*et us consider an e<ample, !e are setting up a pharmaceutical factory and our state of nature indicates
that #f !e uilt a small facility the return remains the same !hether the demand is lo! or high, the
medium facility indicates a constant return on moderate and high% #f !e uild a large facility chances are
that the return !ould only e good if !e have a high demand or return%
36
A-ternati(es Possi-e #'t're Demands
%o! Moderate Hig)
Sma-- #a&i-ityRs3 $< M Rs3 $< M Rs3 $< M
Medi'm Rs3 . M Rs3 @ M Rs3 $0 M
%arge Rs3 $ M Rs3 0 M Rs3 $. M
The states of nature are very important, for our decision ma5ing%
De&ision Ma*ing 'nder Certainty
/ecision ma5ing under certainly is al!ays simple ut never availale to the managers%
*o! Moderate &igh
Small .acility "s% 14 M "s% 14 M "s% 14 M
Medium "s% 2 M "s% E M "s% 13 M
*arge "s% 1 M "s% 3 M "s% 12 M
/ecision Ma5ing under 'ertainty
>#t is 5no!n !ith certainty that the demand !ill e lo!, moderate and high%
>#n the e<ample, !e ;ust select the est or highest payoff for all the states of nature%
De&ision Ma*ing 'nder Un&ertainty
>#n the asence of clear information, An Operations Manager !ould need to carryout decision ma5ing
under uncertainty% This is the usual pattern !hen managers !or5ing at assemly plants, services, oil
refineries or chemical processing plant end up facing a dilemma to evaluate the alternative of payoffs%%
1% Ma<imin
3% Ma<ima<
3% Minima< "egret
@% *aplace
Ma8imin
Ma<imin determines the !orst payoff for each alternativeP the operations manager chooses the est
!orst alternative% Meaning the least +est- of the !orst%
#t is a pessimistic approach%
$nsures a guaranteed minimum%
Ma8ima8
Ma<ima< determines
the est possile outcome
'hoose the Alternative !ith the est possile payoff%
#t does not ta5e into account any other alternative then the est payoff%
An optimistic approach%
Go for it strategy%
3D
%a,-a&e
/etermines the Average payoff for each alternative
And chooses the alternative !ith the est average%
This is a cautious approach
*aplace approach treats the states of nature as e=ually li5ely%
E8am,-e to Ca-&'-ate Ma8imin4 Ma8ima8 and %a,-a&e
*o! Moderate &igh
Small .acility "s% 14 M "s% 14 M "s% 14 M
Medium "s% 2 M "s% E M "s% 13 M
*arge "s% 1 M "s% 3 M "s% 12 M
E8am,-e to &a-&'-ate Ma8imin4 Ma8ima8 and %a,-a&e
Ma<imin , the !orst payoff for alternatives
Pic5 the Minimum +*east- of the ma<imum
Small .acility "s 14 M since the payoff tale sho!s that
4 Sma-- #a&i-ity Rs3 $< M
4 Medi'm Rs3 $0 M
4 %arge Rs3 $. M
$<ample to calculate Ma<imin, Ma<ima< and *aplace
*aplace , the est payoff of the average for each alternatives
Small .acility "s 14 M since the payoff tale sho!s that
4 Sma-- #a&i-ity Rs3 =<6=: Rs3 $< M
4 Medi'm Rs3 0.6=: Rs3 @3== M
4 %arge Rs3 $@6=: Rs3 A M
/ecision Ma5ing under (ncertainty
Minima< "egret
/etermines the !orst regret for each alternative
'hooses the alternative !ith the est !orst%
This approach see5s to minimi7e the difference et!een payoff that is reali7ed and est payoff for
each state of nature%
E8am,-e to &a-&'-ate Minima8 Regret
>Minima< "egret ,
>Step # P 'onstruct the Tale of Opportunity *osses or "egrets%
4Sutract the column entries y sutracting the entry from that of the highest column value
4"epeat the process for all columns
>Step ##% Select the ma<imum regret value of each ro! + alternative meaning small, medium and large
scale-
3E
$<ample to calculate Minima< "egret
*o! Moderate &igh
Small .acility "s% 14>14J4 "s% 14>14J4 14>12J>2
Medium "s% 2>14J
>2 M
"s% E>14J
>3 M
"s% 13>12J
>3 M
*arge "s%1>14J
>F M
"s% 3>14J
>E M
"s% 12>12J
4 M
EBPECTED MONETAR5 VA%UE CRITERION
/ecision Ma5ing under "is5
The area et!een the certainty and uncertainty is 5no!n as "is5%
$<pected Monetary 1alue 'riterion +$M1-!hich refers to the est e<pected value among the
alternatives
9e use the payoff tale !ith proailities lo! J4%3, moderate J4%2 and highestJ4%3%These
proailities must add to 1,mutually e<clusive and collectively e<haustive-
>$MP$'T$/ MO)$TA"R 1A*($ '"#T$"#O)
>$1 small J 4%3+14-K4%2+14-K4%3+14-
J "s% 14 M
>$1 mediumJ 4%3+2-K4%2+E-K4%3+13-
J "s% D%F M
>$1 large J 4%3+1-K4%2+3-K4%3+12-
J "s% @%3 M
/e se-e&t t)e sma--est fa&i-ity as it )as t)e )ig)est (a-'e
$<pected 1alue of Perfect #nformation
#n certain situations, it is possile to ascertain !hich state of nature + level of demand- !ill
occur !ith certainty% $%g% #f you !ant to construct a restaurant or trauma centre on a motor!ay
high!ay chances are you !ould get a great "O#%
$<pected value of perfect information J $<pected payoff under certainty >$<pected payoff
under ris5
Vis'a- too- for ana-y1ing De&ision Pro-ems
T!o visual tools used for analy7ing decision prolems include
/ecision Trees
Graphical Sensitivity Analysis
De&ision Trees
A schematic representation of the alternatives and their possile conse=uences is presented graphically%
Rou can refer%
The diagram resemles a tree%
$<tremely suitale for analy7ing and evaluating situations !hich involve se=uential decisions%
/ecision Trees
uppose the Pakistani government decides to operate a gas field. $nitially the government had
information that it can e%ploit & million cubic feet of gas but later studies indicate potential
3F
reserves of additional &' million cubic feet. (s an operations manager you may be ask to
prepare a feasibility report to either e%pand or make a new facility using the new reserves.
De&ision Trees
The tree is read from left to right
S=uare nodes represent decisions
'ircular nodes represent chance events%
6ranches leaving s=uare nodes represent alternatives%
6ranches leaving the circular nodes represent the chance events + states of nature-
De&ision Trees Ana-ysis
>Step #% Analy7e the decisions from "ight to left
>Step ##% /etermine !hich alternative !ould e selected for each possile second decision%
4.or a small facility !ith high demand there are three alternatives, select the highest payoff and
multiply it !ith the proale outcome% Put a doule slash on the alternatives !hich have lo!er value%
4.ollo! the same procedure for small facility !ith high demand
>Step ###% "epeat the steps for oth lo! and demand pattern for the larger facility%
>Step #1% /etermine the product of chance proailities
>Step 1% /etermine the e<pected value of each initial alternative%
>Step 1#% Select the choice !hich has a larger e<pected value than the small facility%
De&ision Tree E8am,-e So-'tion
Option #? 6uild Small .acility
*o! /emand J 4%@ M "s% 34J "s% E
&igh /emandJ4%6 M "s% 24J "s% 34
Option ##? 6uild *arge .acility
*o! /emand J 4%@ M "s% @2J "s% 1E
&igh /emandJ4%6 M "s% 64J "s% 36
Option ###? /etermine the $<pected 1alue of each initial alternative
6uild Small .acility J "s% EK "s% 34J "s% 3E
6uild *arge .acilityJ"s% 1EK"s% 36J "s% 2@
Se-e&t t)e %arger #a&i-ity as it )as a -arger e8,e&ted (a-'e t)an t)e sma-- fa&i-ity
Sensiti(ity Ana-ysis
/etermining the range of proaility for !hich an alternative has the est e<pected payoff%
?ecisi"n +rees
B(ild s%all
B(ild <ar*e
<"1 ?e%and ; 0.4 0s. 20
7i*!
?e%and ;
0.6
<"1 ?e%and;0.4
7i*! ?e%and; 0.6
0s. 60@(nit
?" A"t!in* 0s. 20
?" A"t!in* ; 0s. 15
0ed(ce #rices 0s. 45
23pand ; 0s 50
0ed(ce capacity
$ 0s 30
34
A graphical solution
Ma5es use of Algera
Prime importance
Con&-'sion
/ecision Ma5ing is a critical responsiility that stays !ith a manager throughout his active professional
life% #t goes !ithout saying that, at the start of the service, the decision ma5ing involves lo! impact
financial impact ut !ith the passage of time, the decision ma5ing ecomes more critical and highly
finance focused% This very aspect gives the field of decision ma5ing a competitive edge over other
important tools availale to an operations manager% The related field of game theory is often used in
con;unction !ith decision theory%
Payoff Ta-e Home!or*
The follo!ing tale sho!s profit payoffs% 'alculate the results for the five rules and indicate for each
rule the est and !orst decision alternatives% All 'ost and "evenue numers in "s% 444% d1,d3, d3 and
d@ represent decision options and s1,s3,s3 and s@ sho! states of nature%
The follo!ing tale sho!s cost payoffs% 'alculate the results for the five rules and indicate for each
rule the est and !orst decision alternatives%
4%34 4%32 4%14 4%32
S1 S3 S3 S@ MABIMIN MABIMAB %AP%ACE EBPECTED
MONETAR5
VA%UE
MINIMAB
REGRET
d1 24 >34 D2 64
d3 E4 34 144 >14
d3 32 32 14 @2
d@ 22 62 >12 @4
4%@4 4%12 4%14 4%32
S1 S3 S3 S@ MABIMIN MABIMAB %AP%ACE EBPECTED
MONETAR5
VA%UE
MINIMAB
REGRET
d1 @4 34 D2 64
d3 34 D4 F4 14
d3 64 22 2 E2
d@ @4 144 12 32
31
Lesson 07
#ORECASTING
Introd'&tion
.orecasting demand is li5e forecasting !eather %Sometimes the forecast or prediction fails completely
and sometimes its near the predicted value ut still not the e<act value% Often scientists call forecasting
as an educated guess, ut even then forecasting helps us to plan our trips and ;ourneys and most
importantly !e as farmers ma5e use of forecasting to plant, harvest and ta5e precautionary measures%
.orecasting in usiness forms the asis for udgeting and planning for capacity, sales, production,
inventory, manpo!er, purchasing and more%
.orecasting allo!s the manager to anticipate the future so then can plan accordingly%
#ntroduction
There are t!o ma;or uses for forecasts% One is to help the Operations Manager plan the system and the
other one is to help him plan the use of the system% These are important concepts different distinct ut at
the same time closely lined%
Planning the system refers to planning long term plans aout the type of
products or services to offer, !hat facilities and e=uipment to have, !here to locate and so on and so
forth% Planning the use of the system relates to short range and intermediate range planning !hich
means planning inventory !or5force resources, planning of purchasing and production activities,
udgeting and scheduling etc%
Thus it can e said that planning the systems more of a ;o of a senior manager, irds eye vie! and has
O"GA)#QAT#O)A* ST"AT$GR in it !here as planning the use of the system is an OP$"AT#O)A*
ST"AT$GR
6usiness .orecasting is more than ;ust predicting demand% .orecasting is also used to predict profits,
revenues, costs, productivity changes, prices and availaility of energy and ra! materials, interest rates,
movements of 5ey economic indicators +G)P, inflation and government loans- and prices of stoc5s and
onds%
.orecasting is not an e<act science% $ven !ith the availaility of computers, and algorithms, its unale
to ma5e an e<act prediction it re=uires $<perience, Managerial Cudgment and Technical e<pertise%
General "esponsiility lies !ith the Mar5eting !or5force ut to this day not a single mar5eting forecast
has een created !ithout the valuale contriution of the Operations side%
#ORECASTC
A statement aout the future value of a variale of interest such as resource re=uirements, capacity
planning, S'M and product or service demand%
.orecasts affect decisions and activities throughout an organi7ation
1% Accounting, finance
3% &uman resources
3% Mar5eting
@% M#S
2% Operations
6% Product 8 service design
33
A,,-i&ations of #ore&asts
Accounting 'ost8profit estimates
.inance 'ash flo! and funding
&uman "esources &iring8recruiting8training
Mar5eting Pricing, promotion, strategy
M#S #T8#S systems, services
Operations Schedules, M"P, !or5loads
Product8service design )e! products and services
Demand Management
Inde,endent DemandC /)at a firm &an do to manage it2
1% $ither e Active or Passive meaningG
3% 'an ta5e an active role to influence demand
3% 'an ta5e a passive role and simply respond to demand
Com,onents of Demand
Average demand for a period of time
Trend
Seasonal element
'yclical elements
"andom variation
Autocorrelation
#inding Com,onents of Demand
/e"Based #ore&astingC CP#R Defined
'ollaorative Planning, .orecasting, and "eplenishment +'P."- a 9e>ased tool used to coordinate
demand forecasting, production and purchase planning, and inventory replenishment et!een supply
chain trading partners% Rou !ill learn aout this in your later part of the semester%
Demand Management
A
6 '
/ $ / .
?ependent ?e%andB
0a1 /aterials8
C"%p"nent parts8
S()$asse%)lies8 etc.
Independent ?e%andB
Finis!ed 5""ds@Ser&ices
33
(sed to integrate the multi>tier or n>Tier supply chain, including manufacturers, distriutors and
retailers%
'P.":s o;ective is to e<change selected internal information to provide for a reliale, longer term
future vie!s of demand in the supply chain%
'P." uses a cyclic and iterative approach to derive consensus forecasts%
/e"Based #ore&astingC
Ste,s in CP#R
1% 'reation of a front>end partnership agreement
3% Coint usiness planning
3% /evelopment of demand forecasts
@% Sharing forecasts
2% #nventory replenishment
Assumes causal system+ That same system that e<isted in the past !ill e<ist in future, !here as in
reality unplanned events happen li5e ta< rate increase, introduction of a competitors product or service
or natural disasters-
.orecasts rarely perfect ecause of "A)/OM)$SS +having no specific pattern-% Allo!ances should
e made for inaccuracies%
.orecasts more accurate for groups vs% individuals naturally ecause forecasting errors in a group tend
to cancel out forecasting errors for individuals%
.orecast accuracy decreases as time hori7on increases indicating it is safe to ma5e short range forecasts
instead of long term forecasts% #f you can recall !e had tal5ed aout .le<ile and Agile 'orporations in
the past%
3@
Lesson 08
#ORECASTING"I
Roadma, to t)e %e&t're
/iscuss the re=uirements of a good forecast%
Steps in ma5ing a forecast%
.undamental types of forecast%
.iner classification of forecast
/iscuss characteristics of Cudgmental .orecasts%
/elphi Method%
Time Series Analysis%
)aUve .orecast%
Re7'irements of a Good #ore&ast
Time-y3 The forecast should e timely% #ndicating that forecasting hori7on should provide enough time
to implement possile changes% 'apacity cannot e e<panded instantly it re=uires some time to plan,
coordinate and increase the re=uired resources%
Re-ia-e3 .orecasts should e reliale meaning that it should !or5 consistently% A forecast that is
partially correct !ill succeed at sometime and sometime fail ma5ing the end users =uestion the purpose
and intent of forecasting%
A&&'ra&y3 .orecasts should e accurate% #n fact it should carry the degree of accuracy, so the users are
a!are of the limitations of the forecast% This !ill also help the end users to plan for possile errors and
provide a asis for comparing the forecast !ith other alternative forecasts%
Meaningf'- #ore&ast should e e<pressed in meaningful units% .inancial Planners !ill use "upees to
sho! ho! much capital !ould e re=uiredP Mechanical Pro;ect Schedulers !ould re=uire .orecasts to
carry the type of machines and crafts of technicians re=uired%
/ritten6Do&'mented3 The forecasts should e presented in !riting% A documented forecast al!ays
provides a chance to measure the variance et!een estimate and actual result at a later stage%
Sim,-e to 'nderstand and 'se meaning that .orecasts should not e dependant upon usage of
sophisticated computer techni=ues or tas5 specific highly =ualified technical personnel% A failure or
limitation on the part of this can lead to an incorrect decision and less acceptance amongst end users
Ste,s in t)e #ore&asting Pro&ess
Determine t)e ,'r,ose of t)e fore&ast meaning !hat is the purpose and !hen !ill it e re=uired%
This !ill provide the level of detail for resources re=uired man, machine, time and capital%
Esta-is) a time )ori1on% 9e already 5no! that as time increases the accuracy of the .orecast
decreases
Se-e&t a fore&asting te&)ni7'e !hether =ualitative or =uantitative
Gat)er and ana-y1e t)e a,,ro,riate data% #t goes !ithout saying that efore a forecast can e
delivered data is re=uired% The closer the real life data more realistic !ould e the forecast% This may e
the time !hen you !ould li5e to identify the important assumptions and suppositions%
Pre,are t)e fore&ast%
Monitor t)e fore&ast3 A forecast has to e closely monitored to determine !hether it is fulfilling its
asic purpose% This helps in re>e<amining the method, assumptions and validity of the data and
preparing a revised forecast%
#'ndamenta- Ty,es of #ore&asts
9'a-itati(e Te&)ni7'es !hich use su;ective inputs and no numerical data% #t relies solely on soft
information li5e human factors, personal opinion, hunches% Thus 0ualitative .orecasts are often iased
and tilted to!ards !hat the management !ants to predict%
32
9'antitati(e #ore&ast involves the e<tension of the historical data% #t sometimes ma5es use of
forecasting techni=ue that uses e<planatory variales to predict future demands% 0uantitative techni=ues
are favored !here =uality attriutes can:t e =uantified%
#n reality oth need to e used together to develop a ;udicious and realistic forecast%
#iner C-assifi&ation of #ore&asts
*ud+mental " uses su;ective inputs meaning that a ;udgmental forecast rely on analysis of su;ective
inputs otained from various sources, such as consumer surveys, the sales staff, managers and
e<ecutives, and panels of e<perts% These insights are not availale pulicly%
,ime series " uses historical data assuming the future !ill e li5e the past and depend on developing
relationships et!een variales that can e e<pressed to predict future values% Some time series forecast
try to smoothen out random variations in historical data% There are some time series forecast !hich
identify specific patterns and then may even e<trapolate those patterns into the future%
-ssociative models " uses e<planatory variales to predict the future for e<ample demand for a small
car may e dependant upon increase in price of petrol or ')G% The analysis in this case !ould employ a
mathematical model that !ould relate the predicted variale !ith the predictor variale or variales%
D'dgmenta- #ore&asts C)ara&teristi&s
Cudgmental .orecasts rely solely on ;udgment and opinion to ma5e forecasts%
#n the asence of enough time, it is easy to use =ualitative type of forecast%
#n case of changing e<ternal environment economic and political conditions, organi7ations may use
;udgmental forecasts%
9hen introducing ne! products, services, ne! features, ne! pac5aging, ;udgmental forecasts are used
in preference over =uantitative techni=ues%
D'dgmenta- #ore&asts
E8e&'ti(e o,inions normally consist of a group of senior level managers from different interfaces,
used for long range planning and ne! product development% Advantage eing the collective pool of
information from all divisions and departments, disadvantage eing that one person !ill dominate other
interfaces, !hich can lead to erroneous forecasts%
Sa-es for&e opinions have the advantage of eing in direct contact !ith customers% The sales force can
detect the customers: change of plan, &o!ever it suffers from the fact that it can not differentiate
et!een !hat the customer can do and !ill do% 'urrent data of sales can often lead to over pessimistic
and overly optimistic forecasts, !hich then results in incorrect sales pro;ections%
Cons'mer s'r(eys are ased on sample ta5en from potential customers% These type of surveys re=uire
s5ill to develop, administer and interpret the results% Often fall victim of the consumers irrational
ehavior of uying%
O'tside o,inion !hich is a mi< of consumer and potential customers% This 5ind of opinion is no! a
days readily availale through internet, telephonic surveys and ne!spapers% #ts iggest limitation is a
fi<ed format !hich often fails to =uantify the e<act demand forecast%
De-,)i met)odC Managers and staff complete a series of =uestionnaires, each developed from the
previous one, to achieve a consensus forecast% 'ommonly used for Technological forecasting, !hen to
introduce a ne! technology% #t:s a long term one time activity and has the same issues li5e e<pert
opinion type of ;udgmental forecast%
Time Series Ana-ysis
Time series forecasting models try to predict the future ased on past data
9e as Managers can pic5 models ased on?
1% Time hori7on to forecast
3% /ata availaility
3% Accuracy re=uired
@% Si7e of forecasting udget
36
2% Availaility of =ualified personnel
NaE(e #ore&asts
Simple to use
1irtually no cost
0uic5 and easy to prepare
/ata analysis is none<istent
$asily understandale
Dra!a&*s
'annot provide high accuracy
'an e a standard for accuracy
3D
Lesson 09
#ORECASTING"II
Time Series #ore&asts
)rend > long>term up!ard or do!n!ard movement in data often relates to population shifts, changing
incomes, and cultural changes%
easonality > short>term fairly regular variations in data related to factors li5e !eather, festive holidays
and vacations% Mostly e<perienced y supermar5ets, restaurants, theatres, theme par5s%
'ycle !aveli5e variations of more than one year:s duration these occurs ecause of political,
economic and even agricultural conditions
$rregular variations > caused y unusual circumstances such as severe !eathers, earth=ua5es, !or5er
stri5es, or ma;or change in product or service% They do not capture or reflect the true ehavior of a
variale and can distort the overall picture% These should e identified and removed from the data%
*andom variations > caused y chance and are in reality are the residual variations that remain after the
other ehaviors have een identified and accounted for%
.orecast 1ariations
Te&)ni7'es for A(eraging
Moving average
9eighted moving average
$<ponential smoothing
+oving average A techni=ue that averages a numer of recent actual values, updated as ne! values
ecome availale%
"eighted moving average More recent values in a series are given more !eight in computing the
forecast%
Sim,-e Mo(ing A(erage #orm'-a
The simple moving average model assumes an average is a good estimator of future ehavior
The formula for the simple moving average is?
.
t
J .orecast for the coming period
) J )umer of periods to e averaged
A
t>1
J Actual occurrence in the past period for up to AnB periods
Sim,-e Mo(ing A(erage Pro-em F$G
!uestion, "hat are the -.week and /.week moving average forecasts for demand0
Assume you only have 3 !ee5s and 6 !ee5s of actual demand data for the respective forecasts%
n
A K %%% K A K A K A
J .
n > t 3 > t 3 > t 1 > t
t
3E
Sim,-e Mo(ing A(erage So-'tion F$G
Sim,-e Mo(ing A(erage Pro-em F0G Data
0uestion? 9hat is the 3 !ee5 moving average forecast for this dataG
Assume you only have 3 !ee5s and 2 !ee5s of actual demand data for the respective forecasts%

Sim,-e Mo(ing A(erage Pro-em F0G So-'tion
3eek %eman#
1 650
2 678
3 720
6 785
5 859
6 920
7 850
8 758
9 892
10 920
11 789
12 866
Week Demand 3- Week 6- Week
1 650
2 678
3 720
4 785 682.67
5 859 727.67
6 920 788.00
7 850 854.67 768.67
8 758 876.33 802.00
9 892 842.67 815.33
10 920 833.33 844.00
11 789 856.67 866.50
12 844 867.00 854.83
3eek %eman#
1 820
2 775
3 680
6 655
5 620
6 600
7 575
Week Demand 3- Week 5- Week
1 820
2 775
3 680
4 655 758.33
5 620 703.33
6 600 651.67 710.00
7 575 625.00 666.00
#
>
:F@0<HII.HA@<G6=
:I.@3==
#
A
:F@0<HII.HA@<HA..HA0<G6.
:I$<3<<
#>:FA.<HAI@HI0<G6=
:A@03AI
#I:FA.<HAI@HI0<HI@.H@.JHJ0<G6A
:IA@3AI
3F
Lesson 10
#ORECASTING"III
T)e form'-a for t)e mo(ing a(erage isC
n > t n 3 > t 3 3 > t 3 1 > t 1 t
A ! K %%% K A ! K A ! K A ! J .
!
t
J !eight given to time period AtB occurrence +!eights must add to one-
/eig)ted Mo(ing A(erage Pro-em F$G Data
0uestion? Given the !ee5ly demand and !eights, !hat is the forecast for the @th period or 9ee5 @G
/eig)ted Mo(ing A(erage Pro-em F$G So-'tion
.@ J 4%2+D34-K4%3+6DE-K4%3+624-J6F3%@
NoteC More !eig)t age !o'-d e gi(en to re&ent most (a-'es3
/eig)ted Mo(ing A(erage Pro-em F0G Data
0uestion? Given the !ee5ly demand information and !eights, !hat is the !eighted moving average
forecast of the 2th period or !ee5G
/eig)ted Mo(ing A(erage Pro-em F0G So-'tion
.2 J +4%1-+D22-K+4%3-+6E4-K+4%D-+622-J 6D3
NoteC More !eig)t age !o'-d e gi(en to re&ent most (a-'es3
E8,onentia- Smoot)ing Mode-
.
t
J .
t>1
K a+A
t>1
> .
t>1
-
/)ere
1 J !
n
1 J i
i
Cee: ?e%and
1 650
2 678
3 720
4
9eights?
t>1 %2
t>3 %3
t>3 %3
Cee: ?e%and F"recast
1 650
2 678
3 720
4 693.4
Cee: ?e%and
1 820
2 775
3 680
4 655
Cei*!tsB
t$1 0.7
t$2 0.2
t$3 0.1
Cee: ?e%and F"recast
1 820
2 775
3 680
4 655
5 672
@4
#t : #ore&ast (a-'e for t)e &oming time ,eriod
#t"$ : #ore&ast (a-'e in $ ,ast time ,eriod
At"$ : A&t'a- o&&'rren&e in t)e $ ,ast time ,eriod

: A-,)a smoot)ing &onstant

E8,onentia- Smoot)ing Pro-em F$G Data
9'estionC Gi(en t)e !ee*-y demand data4 !)at are t)e e8,onentia- smoot)ing fore&asts for
,eriods 0"$< 'sing a:<3$< and a:<3A<2
Ass'me #$:D$
E8,onentia- Smoot)ing So-'tion F$G
E8,onentia- Smoot)ing Pro-em F0G Data
9'estionC /)at are t)e e8,onentia- smoot)ing fore&asts for ,eriods 0". 'sing A-,)a :<3.2
Ass'me #$:D$
E8,onentia- Smoot)ing Pro-em F0G So-'tion
Cee: ?e%and
1 820
2 775
3 680
4 655
5 750
6 802
7 798
8 689
9 775
10
Cee: ?e%and 0.1 0.6
1 820 820.00 820.00
2 775 820.00 820.00
3 680 815.50 820.00
4 655 801.95 817.30
5 750 787.26 808.09
6 802 783.53 795.59
7 798 785.38 788.35
8 689 786.64 786.57
9 775 776.88 786.61
10 776.69 780.77
Cee: ?e%and
1 820
2 775
3 680
4 655
5
@1
#$:@0<HF<3.GF@0<"@0<G:@0<
#=:@0<HF<3.GFII."@0<G:IJI3I.
E8am,-e = " E8,onentia- Smoot)ing
Common Non-inear Trends
Parao-i& Trends
H 'oncaved (p!ards and 'oncaved /o!n!ards
H The left and right arms are !idening as the value increases or the paraola is opening
up!ards%
H #t represents the =uadratic function
%inear Trend E7'ation
Para7o!ic
Exonentia!
.ro*t/
Cee: ?e%and
1 820
2 775
3 680
4 655
5
#eri"d .ct(al .lp!a ; 0.1 2rr"r .lp!a ; 0.4 2rr"r
1 42
2 40 42 $2.00 42 $2
3 43 41.8 1.20 41.2 1.8
4 40 41.92 $1.92 41.92 $1.92
5 41 41.73 $0.73 41.15 $0.15
6 39 41.66 $2.66 41.09 $2.09
7 46 41.39 4.61 40.25 5.75
8 44 41.85 2.15 42.55 1.45
9 45 42.07 2.93 43.13 1.87
10 38 42.36 $4.36 43.88 $5.88
11 40 41.92 $1.92 41.53 $1.53
12 41.73 40.92
@3
.
t
J a K t
9here?
.
t
J .orecast for period t
t J Specified numer of time periods
a J 1alue of .t at t J 4
J Slope of the line
%inear Trend E7'ation E8am,-e
%inear Trend Ca-&'-ation
Asso&iati(e #ore&asting
1% Predictor variables > used to predict values of variale interest
3% *egression > techni=ue for fitting a line to a set of points
3% #east s1uares line > minimi7es sum of s=uared deviations around the line
#ore&ast A&&'ra&y
$rror > difference et!een actual value and predicted value
Mean Asolute /eviation +MA/-
Average asolute error
Mean S=uared $rror +MS$-
Average of s=uared error
Mean Asolute Percent $rror +MAP$-
Average asolute percent error
Sim,-e %inear Regression #orm'-as for Ca-&'-ating KaL and KL
y 8 163.5 9 6.3t
a 8
812 1
6.3:15;
5
8
7 8
5 :2699; 1 15:812;
5:55; 1 225
8
12695112180
2751225
8 6.3
163.
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n t
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t
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y "
7
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n

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- < n+ > <
- < -+ y n+ > <y
J
< > y J a
@3
Sim,-e %inear Regression Pro-em Data
0uestion? Given the data elo!, !hat is the simple linear regression model that can e used to
predict sales in future !ee5sG
Ans!erC .irst, using the linear regression formulas, !e can compute AaB and AB
T)e res'-ting regression mode- isC
5t : $>=3. H A3=8
Cee: Sales
1 150
2 157
3 162
4 166
5 177
Cee: Cee:DCee: Sales Cee:DSales
1 1 150 150
2 4 157 314
3 9 162 486
4 16 166 664
5 25 177 885
3 55 162.4 2499
.&era*e S(% .&era*e S(%
$>=3.
A3=
J +6%3-+3- > 163%@ J < > y J a
J
14
63
- F + 2 22
- 2+163%@-+3 > 3@FF
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- < -+ y n+ > <y
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3 3
=
@@
Lesson 11
PRODUCT M SERVICE DESIGN
Product and Service /esign together form the very asis of design aspect of operations% #f S(PA"'O
today decides to send a person to space, it !ould not only develop and construct a roc5et or spaceship
ut !ould also provide services in the training of the astronaut% The fact is that !e cannot leave out
services from products or e<clude products from service% They oth complement and supplement each
other% 9e have to respect this concept and pay attention in identifying ho! products and services are
present in tandem every!here% A cardiologist carrying out angioplasty may e providing services ut its
unheard of today at least, that the patient !ould e carrying !ith him the spare valves for the heart, so
those valves also from the same person !ho is providing those services% #f !e go to the an5 for some
financial services, !e end up ma5ing use of a che=ue +product-% Similarly if 1irtual (niversity is
providing students !ith an education service, it also supplements the services side y providing
products li5e oo5s, compact discs, handouts, and po!er point slides% The point !e are trying to focus
upon is that products and services are found in comination and a service organi7ation can also provide
products or a manufacturing organi7ation can also provide a service, li5e the e<ample !e discussed in
class aout an automoile manufacturer providing after sales service%
.rom this lecture on!ards, !e !ill e emar5ing on the ;ourney to learn aout /esign of Productive
Systems% This ;ourney !ould re=uire us to complete various milestones li5e product and service design,
capacity planning, .acilities *ayout, /esign of 9or5 systems and *ocations% Please pay special
attention to all those e<amples you have already covered through your lectures% And try to 5eep t!o
important things in mind?>
1% /esign aspect re=uires strategic planning and may fall under the domain of Organi7ational
strategy and senior management, also
3% /esign aspect re=uires the e<isting system to e improved or replaced y a etter system
for this you should al!ays focus on the !ord Productive% This !ord reflects the idea of
adding value either to the manufacturing or the services System or to e more precise
improving the operation system%
Introd'&tion
After completing lectures on product and service design !e !ill e ale to understand the importance of
product and service design% 9e !ill also try to grasp the various important aspects of the design process
in detail% 9e !ill cover the concept of standardi7ation and advantages and disadvantages% 9e should e
ale to appreciate the contriution of "I/ to the product service design% And last ut not the leastP !e
!ill focus on the concept of "eliaility in order to learn in !hat possile !ays !e can aid our
organi7ation to improve its product or service:s reliaility%
#mportance of Product8Service /esign
Product8Service design plays a strategic role in helping an organi7ation achieve its goals% A good
product8service design can ensure customer satisfaction, =uality and production costs% On the other
hand, #f an organi7ation is offering poor product or service, customer:s feedac5 in the form of lac5 of
interest !ill result in poor sales% Also 0uality and production costs are affected y poor design of the
product or service% The importance is also often loo5ed, as Pa5istani organi7ations have not yet learnt to
pay attention to safe operations of their products or services% A poor product or service can endanger
the customers or consumers life% .or this it is necessary for us as Operations Manager to =uestion the
safe operations of the product or service, our organi7ation offers to its customers and thus safe guard our
organi7ation from product or service liaility%
Ma;or factors in design strategy
9hen !e discussed organi7ational and operation strategy concepts !e did set a oundary line for our
organi7ations effective, smooth, reliale and safe operations% 9hen !e !ill design a product or service,
!e need to consider the follo!ing facts in our design strategy%
@2
1% 'ost
3% 0uality
3% Time>to>mar5et
@% 'ustomer satisfaction
2% 'ompetitive advantage
A good product or service can e produced or delivered at an economical cost !ith increased =uality,
!ith a less time to mar5et provided the organi7ation is !illing to aim for customer satisfaction and this
most of the time results in competitive advantage as !ell increase in revenues%
Product or Service /esign Activities
9hen an organi7ation decides to design its ne! product or service or refine its e<isting product or
service, it is suppose to follo! certain activities religiously and diligently% The follo!ing activities are
necessary?>
1% Translate customer !ants and needs into product and service re=uirements
3% "efine e<isting products and services
3% /evelop ne! products and services
@% .ormulate =uality goals
2% .ormulate cost targets
6% 'onstruct and test prototypes
D% /ocument specifications
An organi7ation can initiate a product or service design if it is ale to understand !hat the customer
actually !ants in the product or service eing offered, say for e<ample a customer !ants a fuel efficient
car and if the automoile manufacturing organi7ation is ale to refine its e<isting product, !ith the
o;ective of improving =uality and reducing costs, it can gain competitive advantage and profits%
&o!ever this re=uires the organi7ation to not only construct a prototype automoile ut also evaluate its
performance for roustness and then the design side should document the specifications in detail, along
!ith test results and performance evaluations, so only that product may e introduced !hich is ale to
full fill its intended use throughout the country% A ')G fitted car should function effectively in Oarachi
as !ell as *ahore or #slamaad or hilly areas of the northern part of the country%
"easons for Product or Service /esign
An organi7ation ta5es into account oth e<ternal and internal reasons in order to design a ne! product
or service or redesign an e<isting product or service% The reasons listed elo! have often een the
primary reason for the design process%
1% $conomic
3% Social and demographic
3% Political, liaility, or legal
@% 'ompetitive
2% Technological
9hat is important is to reali7e that !hether it:s a single reason or multiple reasons for a design strategy,
the end result should al!ays e an improved, safe and reliale product !hich should ring revenue and
competitive advantage to the organi7ation%
O;ectives of Product and Service /esign
The primary focus for designing a ne! product or service is 'ustomer satisfaction along !ith the
secondary focus eing an improved function of product8service, increase in revenues8profits, 0uality
along !ith reduction in costs%
The current trend for designing a ne! product is to pay special attention to the product or
services visual appearance, the ease of production8assemly along !ith the ease of maintenance8service%
@6
&o!ever, the design department of the organi7ation should ta5e into account the capailities of the
organi7ation in designing goods and services
Steps in the /esign Process
Most of the organi7ations follo! the design process !ith the follo!ing steps not necessarily in the same
order to achieve improvement in the performance of the system and adding value%
1% Motivation? refers to the achievement of the goals for the organi7ation, for mature and e<isting
organi7ations the motivation also includes government regulations +provides ne! incentives, ta<
free 7ones-, competitive process, customer needs and appearance of ne! technologies that have
product or service applications%
3% 'ustomers? The design process !ould never e complete !ithout the valuale inputs of the
customers% Any organi7ation that fails to satisfy and meet customer re=uirements loose ground
to their competitors%
3% "I/? refers to the "esearch and /evelopment departments or divisions !hich generate ne!
ideas for the e<isting products or services or simply ne! ideas for ne! products or services%
Mostly the activities are #T$"AT#1$ and employ the feedac5 of customer as !ell as
operations side%
@% 'ompetitors? The design process often compels a company to dismantle and inspect a
competitor:s product% Res !e call it "$1$"S$ $)G#)$$"#)G% This helps the organi7ation to
improve its o!n product% 0uite often companies get the lame that they improved incrementally
their competitors products design or certain features to !in the competition%
2% .orecast /emand? refers to the demand for the companyNs ne! product or service%
6% Manufacturaility means the ease of farication or assemly of a product as it directly affects
cost, =uality and productivity%
D% General considerations? The design process re=uires design, production8operations and
mar5eting departments to !or5 closely together% This !ould mean sharing customer feedac5,
=uality issues, and operations ottlenec5s% #n addition legal or regulatory issues and Product
*ife 'ycle #ssues must e addressed as a part of design function%
*egal, $thical, and $nvironmental #ssues
Organi7ations !hether manufacturing a product or delivering a service are made to operate in a three
dimensional frame !or5 of legal, ethical and environmental oundaries%
1% *egal% Operations Managers should e ale to understand the legal environment in !hich
their organi7ations are functioning, not only there are governmental +federal, provincial or
district- regulations ut also industrial or service sector oligations% These oligations are
guidelines !hich need to e follo!ed and if the designers can adhere to them, they only
ma5e life easy for themselves as !ell as for the organi7ation%
./A, OS&A, '"S% There are legal issues in !hich even the '$O can e implicated if
there are violations !ith respect to pollution% ./A as the name indicates refers to
.ederal /rug Agency, OS&A refers to Occupational Safety &ygiene Administration,
and '6" denotes 'enter 6oard of "evenue, !hich monitors the organi7ations ta<ale
income%
Product liaility refers to a manufacturer eing liale in case of an in;ury or damages
caused y a faulty product%
(niform commercial code% Products carry an implication of merchantaility and fitness,
!hich is a product, must e usale for the intended purpose% An organi7ation should
strictly follo! a uniform commercial codeP imagine if a manufacturer of electricity
cale manufactures a non uniform product that can lead to electric shoc5 to the end
user%
3% $thical% Operations Manager should understand that he is under
'ontractual agreement not to e<hiit unethical ehavior% "eleasing products !ith defects
should e informed to the customers% This is a golden practice amongst Muslims from the
@D
days of &oly Prophet +P6(&- and its heartening to see the same eing employed here in the
field of #nternational 6usiness
3% $nvironmental% Operations Manager should also !or5 !ith in the same
$nvironmental la!s as his organi7ation% $PA is active in all countries including Pa5istan
and even a '$O can e ;ailed if there is a failure to comply !ith the $nvironment la!s% #t is
the responsiility of the design side to ensure that no design !ould e finali7ed that can
seriously ;eopardi7e the organi7ations standing to!ards environment%
Designers of Prod'&t6Ser(i&e s)o'-d ad)ere to G'ide-ines
The design side needs to adhere to certain guidelines !hich can ensure that the organi7ation is ale to
achieve its organi7ational strategy% These guidelines are often form the vary asis of an organi7ations
design strategy and indicates the importance of standardi7ation in the design of a product or service%
1% Produce designs that are consistent !ith the goals of the company% An economical upscale model
automoile design if replaced !ith a lu<urious model can invite a small numer of customers and
may loose the e<isting stronger customer ase%
3% Give customers the value they e<pect %"eliaility, safety, endurance, aesthetic and =uality
dimensions are !hat the customers are loo5ing for%
3% Ma5e health and safety a primary concern %Green "ic5sha!s seen functioning on the roads these
days are a result of ta5ing care of health and safety of the users as !ell as those !ho operate them%
@% 'onsider potential harm to the environment %A ne! product should e as a primary guideline should
e etter than the e<isting one and should aid in the protection of environment% A numer of
automoile manufacturers are using hyrid models or cars !here as its e<pected that steam operated
cars may e availale in 2 years%
@E
Lesson 12
PRODUCT6SERVICE DESIGN"I
#n our last discussion !e focused on the o;ectivity and importance of Product and Service /esign% 9e
also !ent through the primary and secondary reasons due to !hich organi7ations opt for designing a
ne! product or offering of a ne! service% 9e also tal5ed aout the strategy for designing of ne!
products and services% 9e investigated the legal, ethical and environmental regulations% 9e also
formulated a design strategy and also discussed guidelines, !hich the organi7ations must fulfill in order
to achieve competitive advantage through designing of effective productive systems%
Criti&a- Iss'es in Prod'&t and Ser(i&e Design
An organi7ation needs to decide aout the follo!ing critical issues in developing its product and service
design%
&o! much standardi7ation
Product8service reliaility
"ange of operating conditions
Product8service life cycles
Standardi7ation
Standardi7ation is the e<tent to !hich there is an asence of variety in a product, service or process%
Standardi7ed products are immediately availale to customers% Rou go to a mar5et and re=uest for a
charger for your cellular phone, the shop5eeper !ould as5 for the model, ma5e and deliver you as
special product !hich is made y your cell phone company or y an independent manufacturer, !ho
provides a standardi7ed compatile model%
Advantages of Standardi7ation
1% .e!er parts to deal !ith in inventory I manufacturing %The trend is to use the same components for
different models of products or even in services side, the data of a customer once ta5en as input can
e utili7ed for other services%
3% /esign costs are generally lo!er +the standardi7ed product has a proven trac5 record, so there is no
need to chec5 its safety and reliaility features from s=uare 1, its true, its tested and verified on
prototype models efore eing mar5eted-
3% "educed training costs and time% An important advantage and can improve P"O/('T#1#TR%
@% More routine purchasing, handling, and inspection procedures +These indicate a decrease in cost and
can improve reliaility as !ell as over all design and manufacturing processes-
2% Orders fill ale from inventory, no need to carry e<tra safety stoc5 levels as compatile
components8parts can e used% Any product registering lo!er sales can e phased out ut its
components may e reused in an other more popular product even Soft!ares in cellular phones,
hands free arrangement etc-
6% Opportunities for long production runs and automation %(ninterrupted stoc5 of components
availale, so production can e controlled and if possile a demand forecast may e used%
D% )eed for fe!er parts ;ustify increased e<penditures on perfecting designs and improving =uality
control procedures% The company can free up its inventory carrying costs and use it on increasing
its long term tangile and intangile =uality standards
/isadvantages of Standardi7ation
1% /esigns may e fro7en + Standardi7ed- !ith too many imperfections remaining + An e<isting
shortcoming may never e removed ecause of this leading to product or component failure,
catalytic converter failure led to a numer of good cars in 1FE4s-%
3% &igh cost of design changes increases resistance to improvements +associated !ith its lac5 of
confidence on the design side as !ell as outsourcers, !ho provide design services-%
@F
3% "eduction in 1ariety !hich leads to decreased variety results in less consumer appeal% This also at
times lead to the competitor producing a etter product or greater variety !hich itself is a feature of
lean production%
Mass 'ustomi7ation
Mass customi7ation is a strategy of producing standardi7ed goods or services, ut incorporating some
degree of customi7ation through delayed differentiation and modular design%
/elayed /ifferentiation is the postponement tactic% Producing ut not =uite completing a product or
service until customer preferences or specifications are 5no!n, a pc manufacturer employed this
technology and improved its time of delivery% This led to ne! concepts of mar5eting and manufacturing
to register higher profits and revenues%
Product8Service "eliaility
*eliability? The aility of a product, part, or system to perform its intended function under a prescried
set of conditions
2ailure? Situation in !hich a product, part, or system does not perform as intended
3ormal operating conditions? The set of conditions under !hich an item:s reliaility is specified e%g% an
automoile designed for operation $urope may not fulfill its intended service in Pa5istan% SO #T
9O(*/ .A#* A)/ 6$ *$SS "$*#A6*$
*ife 'ycles of Products or Services
9e often hear the term short and long product lives !hich reflect upon the idea ho! product lives are
governed y Technological rate of change% #n other !ords the need and utility of the Product gets
severely reduced% $%g% 1'" no longer en;oys the source of entertainment it en;oyed in 1FD4s to 1FF4s%
Most of the products e<hiit Product *ife cycles e<cept !ooden pencils, paper clips, nails, 5nives etc%
24
*ife 'ycles of Products or Services normally entail the follo!ing phases%
1% #)T"O/('T#O) P&AS$? 9hen items are first introduced, it is received !ith curiosity%
/emand is lo! in the eginning then !hen uyers egin familiar !ith the product and see it as a
reliale and good uy, they start uying it%
3% G"O9T& P&AS$? 9ith the passage of time, production and design improvements lead to
decrease in cost and price ecomes an attractive feature !ith increase in reliaility%
3% MAT("#TR P&AS$? 9hen the product reaches maturity stage its demand can only increase if
design is refined or changed and some differentiation feature is added this may increase the
demand ut !hen it goes do!n
@% SAT("AT#O) P&AS$? #n this phase product demand declines and the mar5et is saturated
!ith either a compatile product or sustitutes%
2% /$'*#)$? #n this phase, most of the organi7ations adopt a defensive design "I/ Strategy in
an attempt to prolong the life of the product y employing ne! pac5aging, redesigning it,
improving its reliaility
As students of Operations Management, you may e as5ed to suggest the Product *ife 'ycle for
Telecom #ndustry constituents or in other !ords !here !ould you place cell phones, !ireless
phones, landline phones or satellite8cale ased telephones in vie! of the life cycle you ;ust studied%
Rou can ma5e an attempt to ans!er this for Pa5istan as !ell as other developed countries% 'an you
appreciate the similarities and points of differencesG
Time
&ntro#uction
.ro*t/
Maturity
Saturation
%ec!ine
%
e
m
a
n
#
21
Lesson 13
PRODUCT M SERVICE DESIGN"II
9e have covered certain important concepts li5e standardi7ation and mass customi7ation, through
!hich organi7ations as !ell as governments are ale to address the re=uirements of a road customer
population% #t is important no! to understand ho! design strategies are applied and ho! to differentiate
et!een product and service design% There are certain common features to oth% An effective operations
manager should 5no! oth aout goods and services% #t is also important to understand that a good
design should address the issues relating to cost, performance and =uality%
Design Strategies
/esign strategies have one common characteristic, !hich is to achieve customer satisfaction, along !ith
reasonale profit in a !ay !hich does not go eyond the organi7ations: manufacturing ailities% An
e<aggerated e<ample eing that if an automoile car manufacturing organi7ation:s design department
decides to design a truc5% This !ould proaly mean testing the organi7ations: manufacturing
capaility, as the organi7ation !ould not have the infrastructure to manufacture a truc5%
Some of the common design strategies are
1% /esign for Manufacturing +/.M-C The designers: consideration of the organi7ation:s
manufacturing capailities !hen designing a product% The more general term design for
operations encompasses services as !ell as manufacturing% Manufacturaility is the ease of
farication and8or assemly !hich is important for?
i% 'ost
ii% Productivity
iii% 0uality
3% /esign for Assemly +/.A-? /esign focuses on reducing the numer of parts in a product and
on assemly methods and se=uence%
3% /esign for /isassemly +/./-? /esign focuses on facilitating the disassemly in a logical and
an e<act reverse se=uential manner to the assemly methods and se=uence%
@% /esign for "ecycling +/."-? /esign allo!s and facilitates the recovery of material of materials
and components from used products for reuse% The designers: consideration of the
organi7ation:s manufacturing capailities !hen designing a product% The more general term
design for operations encompasses services as !ell as manufacturing%
2% /esign for "emanufacturing? (sing some of the components of the old products in the
manufacture of ne! products% "emanufactured products are sold at 34 to 24T of the price of
ne! product %e%g% Printers, copiers, cameras, P's and 'ell8Telephones% This can e done y
original e=uipment manufacturer or a competitor or end user + in the latter case its called
canniali7ation-
#t is important no! to learn as an Operations Manager the concept of "ecycling% "ecycling is in simple
!ords recovering materials for future use% The common recycling reasons are
'ost savings
$nvironment concerns
$nvironment regulations
/esign for recycling is a design strategy that facilitates the recovery of materials and components of old
products in the manufacture8assemly of ne! products% The focus here is to design components that
!ould allo! for disassemly and reuse or even 'A)A6A*#QAT#O)%
Ro'st Design
"oust /esign? /esign that results in products or services that can function over a road range of
conditions% The idea is to have consistent, safe and reliale operations !ith no e<cuse for environmental
characteristics% $%g% Automoiles8Products produced for $uropean conditions may not perform !ell in
Pa5istan ecause of different environmental conditions% Similarly if you happen to visit an industrial
23
area, please ma5e sure that you have a proper OS&A standard safety oot availale to you% #n Pa5istan
certain automoile manufacturers do not comply !ith the safety oot re=uirements for all its !or5ers
!or5ing at the assemly plants% A non OS&A compliant safety oot can proaly cause more harm
resulting in foot amputation etc%
Tag'&)i A,,roa&) To Ro'st Design
Genichi Taguchi, a Capanese Manufacturing $ngineer pioneered and championed the concept of
reduction in the variaility factor in manufacturing process% &is approach helped manufacturing
organi7ations to isolate and eliminate !aste% This approach resulted in =uality improvement and cost
reduction%
9ith the aid of the Taguchi Approach !e can determine the factors that are controllale and those not
controllale along !ith their optimal levels relative to ma;or product advances%
The defining characteristics for the Taguchi approach include?
/esign a roust product
#nsensitive to environmental factors either in manufacturing or in use%
'entral feature is Parameter /esign%
An added concept to Taguchi Approach is the /egree of )e!ness% /egree of ne!ness is an incremental
enhancement of certain =uality ased performance features for the product% The various !ays in !hich
degrees of ne!ness can e achieve include
1% Modification of an e<isting product8service
3% $<pansion of an e<isting product8service
3% 'lone of a competitor:s product8service
@% )e! product8service
2% /egree of /esign 'hange
P)ases in Prod'&t De(e-o,ment Pro&ess
A manufacturing organi7ation !hen carrying out design of a product goes through the follo!ing phases%
1% #dea generation
3% .easiility analysis
3% Product specifications
@% Process specifications
2% Prototype development
6% /esign revie!
D% Mar5et test
E% Product introduction
F% .ollo!>up evaluation
#dea Generation often captures !hat !e have already discussed as reverse engineering% "everse
engineering is the dismantling and inspecting of a competitor:s product +or any other manufacturers old
or e<isting product- to discover product improvements%
"esearch I /evelopment +"I/- is the organi7ed efforts to increase scientific 5no!ledge or product
innovation I may involve?
6asic "esearch advances 5no!ledge aout a su;ect !ithout near>term e<pectations of
commercial applications%
Applied "esearch achieves commercial applications%
/evelopment converts results of applied research into commercial applications%
23
Con&'rrent Engineering
'oncurrent engineering is the ringing together of engineering design and manufacturing personnel
early in the design phase%
Con&'rrent Engineering Ad(antages
Manufacturing Personnel are ale to identify production capailities and capacities %They have thus
the opportunity to inform the design group aout the suitaility of certain materials on the flipsides
the designer !ould 5no! the suitaility of certain designs in aiding in cost reduction and =uality
improvement in production8assemly process%
$arly opportunities for design or procurement of critical tooling, some of !hich might have long
lead times% This can result in a ma;or shortening of the product development process, !hich should
e a 5ey competitive advantage%
$arly consideration of the Technical .easiility of a particular design or a portion of a design% Again
this can avoid serious prolems during production% The emphasis can e on prolem resolution
instead of conflict resolution%
Con&'rrent Engineering Disad(antages
*ong standing e<isting oundaries et!een design and manufacturing can e difficult to
overcome% Simply ringing a group of people together and thin5ing that they !ill e ale to
!or5 together effectively is proaly naUve%
There must e e<tra communication and fle<iility if the process is to !or5, and these can e
difficult to achieve%
'omputer>Aided /esign
'omputer>Aided /esign +'A/- is product design using computer graphics%
increases productivity of designers, 3 to 14 times
creates a dataase for manufacturing information on product specifications
provides possiility of engineering and cost analysis on proposed designs
Mod'-ar Design
Modular design is a form of standardi7ation in !hich component parts are sudivided into modules that
are easily replaced or interchanged% #t allo!s?
$asier diagnosis and remedy of failures
$asier repair and replacement
Simplification of manufacturing and assemly
A concept idoli7ed in the #T industry for soft!are development
Ser(i&e Design
Service is an act and service delivery system focuses on facilities, processes and s5ills%
Many services are undled !ith products, li5e oil change !ould re=uire you to pay for the oil canister as
!ell% A good service design involves
The physical resources needed !hich are some!hat $<plicit Services
The goods that are purchased or consumed y the customer !hich are the services that !e
call the implicit services
Operations Manager should e a!are of the fact that service is something that is done to or for a
customer and service delivery system are the re=uired facilities, processes, and s5ills needed to provide
a service, also the !ords used are product undle and service pac5age% 9e should 5no! that the product
2@
undle is the comination of goods and services provided to a customer and service pac5age is the
physical resources needed to perform the service
Good Ser(i&e S,e&tr'm
Operations Managers often end up ans!ering !hether a certain activity falls under product
manufacturing or service development% The figure elo! tries to capture the concept of the !hole
spectrum8and of Goods and Services% The spectrum or and has on R a<is the control on goods and on
M a<is the control on services%
This is to help understand ho! a purely manufacturing organi7ation !ould handle a services assignment
as !ell as ho! the operations manager !ould effectively handle oth products as !ell as services%
Differen&e et!een Prod'&t and Ser(i&e Design
1% Products are Tangile and generally services are intangile% Services give peace of mind !hich
is again an intangile thing%
3% Services are created and delivered at the same time, haircut and car !ash% Services li5e these if
not properly designed are instantly discovered y the customers%
3% Services highly visile to customers and should e designed !ith that in mind% This adds an
e<tra dimension to process design, one that is asent in product design%
@% Services cannot e inventoried% This poses on restriction on fle<iility and leads to an increased
importance in capacity design%
2% *ocation important to service design% #n fact design of services and choice of location are often
closely lin5ed%
6% Services have lo! arrier to entry% Some services +)on #nformation Technology 6AS$/- have
lo!er arriers to entry and e<it% This places an additional pressure on service design to e
innovative and cost effective%
P)ases in Ser(i&e Design
Service /esign process re=uires the thorough understanding of !hat the service should e and ho! it
should e delivered and that too !ith in certain standardi7ed specifications or re=uirements%
1% 'onceptuali7e
3% #dentify service pac5age components
3% /etermine performance specifications
Steel #r"d(cti"n
.(t"%")ile /an('act(rin*
2uto<2!iance 4eair
Manua! Car 3as/

Teac/ing

&ncreasing
.oo#s Contro!

&ncreasing
Ser,ice Content
22
@% Translate performance specifications into design specifications
2% Translate design specifications into delivery specifications
A good operations manager should e ale to see the compatiility et!een design re=uirements for a
product or a service%
Ser(i&e B-'e,rinting
Service lueprinting is a method used in service design to descrie and analy7e a proposed service% #t is
a useful tool for conceptuali7ing a service delivery system
Ma;or Steps in Service 6lueprinting
1% $stalish oundaries and decide on the level of detail that is needed%
3% #dentify steps involved and descrie them% #f there is an e<isting process, get an input from
those !ho do it%
3% Prepare a flo!chart of ma;or process steps%
@% #dentify potential failure points% #ncorporate features that minimi7e the chances of failures%
2% $stalish a time frame for service e<ecution and estimate of variaility in processing time
re=uirements% Time is a fundamental determinant of cost, so estalishing a time standard for
service is important%
6% Analy7e profitaility% 'ustomer !aiting time is important, leading to negative profitaility
C)ara&teristi&s of /e-- Designed Ser(i&e Systems
A !ell designed service system should e consistent !ith the organi7ation:s vision as !ell as mission% #t
should e user friendly, roust, easy to sustain, cost effective and should ring value to customers%
A good and !ell design should create an effective lin5age et!een ac5 operations and front
operations% #t should aim for a single unifying theme% #t should ensure reliaility and high =uality%
An operations manager often faces challenge of a poor service design% The reasons of a poor service
design include variale re=uirements, difficult to descrie re=uirements, high volume of customer
contact% These challenges can e overcome easily !ith the aid of defining a standardi7ed re=uirement
that !ould e addressed y the service, ma5e simpler re=uirements and handle only limited numer of
customers at each service station or outlet%
T)e Ho'se of 9'a-ity
#t ma5es a lot more sense to introduce the concept of =uality in product and service design here% 9e
already 5no! a superior product en;oys a roader customer ase ecause of its superior =uality%
Similarly a service is a customer encounter% A popular managerial vie! is that the 0uality .unction
should e deployed at the source or at the design stage% 9e also should 5no! !hat 0uality .unction
/eployment is% T!o common ans!ers eing that it is the voice of the customer +!hich al!ays sets a
standard for the service organi7ation to follo!- and the second one eing that it should e in the form of
a house of =uality
26
Con&-'sion
&o! organi7ation can improve their product or service design is ased purely on ho! much they are
!illing to invest in "esearch I /evelopment+" I/-% Organi7ations should shift some emphasis a!ay
from short term performance to long term Performance% They should !or5 to!ards continual and
gradual improvements instead of the ig ang approach% This is clearly an e<ample of Capanese
incremental modification approach to the contrasting American philosophy of introducing a different
model% 9hatever may e the approach, a good design should aim to provide a reduced product life
cycle%
C"rrelati"n
%atri3
?esi*n
reE(ire%ents
C(st"%er
reE(ire$
%ents
C"%petiti&e
assess%ent
0elati"ns!ip
%atri3
Speci'icati"ns
"r
tar*et &al(es
2D
Lesson 14
RE%IABI%IT5
9e often come across statements similar to these, this ul +product- is not as reliale as the previous
ul or my ne!spaper:s analysis and report !riting +service- is not as reliale as my friend:s ne!spaper
analysis% These t!o sentences summari7e !hat human mind is loo5ing forG That is reliaility%
"eliaility is sought y customers from all organi7ations% #nterestingly enough, the personnel !or5ing
inside the organi7ation !hether engineers or managers also see5 reliaility of operations, management,
#T, Accounting and other host of functions that help an organi7ation perform its day to day routine
activities effectively% "eliaility is no longer that art !hich !as considered to e possessed y a family
of s5illed craftsman rather has no! evolved in to a vast and ever increasing field of $ngineering%
"eliaility in general and reliaility engineering in fact play a very critical part in an organi7ations
product or service gaining competitive advantage over the organi7ations competitors%
Re-iai-ity
9e often overloo5 the concept of "eliaility and confuse it !ith the concept of safety% Safety is one
small aspect of reliaility% "eliaility needs to e loo5ed into !ith the important perspective of failure of
a product 8service and normal operating conditions for that particular product or service% *ets us riefly
loo5 at the definitions of reliaility, along !ith !hat is termed as failure and !hat are the normal
operating conditions for a product%
*eliability ? The aility of a product, part, or system to perform its intended function under a prescried
set of conditions
2ailure ? Situation in !hich a product, part, or system does not perform as intended
3ormal operating conditions ? The set of conditions under !hich an item:s reliaility is specified e%g%
an automoile designed for operation in $urope may not fulfill its intended useful service in Pa5istan%
SO #T &AS T&$ POT$)T#A* TO .A#* A)/ 6$ *$SS "$*#A6*$% Oindly pay more attention to the
!ord potential here, potential refers to something hidden or attached either to the performance or
operations of a product% A an5 servicing its client if fails to provide reliale normal operating service
can lead to disastrous financial conse=uences for its customers similarly if a pharmacy starts dispensing
e<pired medicines it can cause serious health ha7ards to its customers% All products and services carry
!ith them the potential of doing something harmful if they are unale to function according to normal
operating conditions% The thing or characteristic or =uality that avoids something aerrant happening is
5no!n as "$*#A6#*#TR%
Meas'ring Re-iai-ity
"eliaility can e measured, =uite effectively y ma5ing use of the concept of chance or proaility, in
other !ords !e can =uantify the concept of reliaility in terms of statistical proaility% Often products
are made more reliale +dependale and safe- y increasing the safe operations of certain critical parts
y increasing the presence of such important elements% $%g% a computer eing used as a server may e
having t!o or more uninterrupted po!er supply units ensuring its safe operations% Similarly, uilding
code re=uirements in the past follo!ed a more stringent and increased factor of safety, often leading to
redundancy +suassemly or components or elements !hich !ere never rought into action or play or
operations or never used in the normal routine operations of an assemly-% #n our earlier lectures !e
covered the important concept of Tacguchi method !hich made us reali7e that a product or service
should e ale to provide !hat it promises under a !ell defined range of operating conditions% A car
manufactured in *ahore should e ale to provide the same service in northern areas of Pa5istan or
coastal elt !ith same reliaility and roustness%
9e no! =uantify "eliaility in terms of Proaility% $%g% #f a component or item has a reliaility of 4%F,
it means that it has a F4T proaility of functioning as intended, the proaility it !ill fail is 1>4%F J
4%1 !hich is 14T
2E
9e can use Proaility in t!o functions
1% The proaility that the product or system !ill function !hen activated%
3% The proaility that the product or system !ill function for a given length of time
Re-iai-ity and Proai-ity Basi&s
Proaility is used to e<plain reliaility y ta5ing into account the fact that the product or system !ill
.unction !hen activated or .unction for a given length of time% This also means !e need to 5no! aout
the independent events as !ell as redundancy%
)o! #ndependent events are those events !hose occurrence or nonoccurrence do not influence each
other, also "edundancy is the use of ac5up components to increase reliaility%
*et:s first ta5e into account the fact that Proaility that a system !ill function !hen activated%
RU%E $
I' t1" "r %"re e&ents are independent and s(ccess is de'ined as pr")a)ility t!at all "' t!e
e&ents8 "cc(r t!en t!e pr")a)ility "' s(ccess is eE(al t" t!e pr"d(ct "' pr")a)ilities
B"t! t!e la%ps s!"(ld )e li*!ted (p in "rder t" ens(re &isi)ility. 0elia)ility "' t!e Syste%
eE(als ,0elia)ility "' c"%p"nent 1-,0elia)ility "' C"%p"nent 2-
RU%E 0
RU%E =
#f three events are involved and success is defined as the proaility that at least one of them occurs,
the proaility of success is e=ual to the proaility of the first one + any of the events-, plus the product
1%44 minus that proaility and the proaility of the second event + any of the remaining events-, plus
the product of 1%44 minus each of the t!o proailities and the proaility of third event and so on% This
rule can e e<tended to cover more than three events%
<a%p 1
<a%p 2 ,)ac:(p-
If two events are independent and success is defined as
probability that at least one of the events will occur, then the
probability of either one plus !"" #inus that probability
#ultiplied by the other probability
$a#p % is an e&a#ple of redundancy here, as it being backup
$a#p increases the reliability of the syste# fro# "!' to "!'(
.90
.80
<a%p
1
<a%p
2
%F4 < %E4 J %D3
.90
.80
%F4 K +1>%F4-S%E4 J %FE
2F
0(le 3 0(le 3
E8am,-e S"$ Re-iai-ity
$<ample S>1 Solution
03 Time ased Re-iai-ity K#ai-'re RateL
The second measurement of reliaility is carried out in terms of the time% 9e all 5no! that component,
products or even services have limited lives% They function or fulfill their e<pected !or5 in some
normal operating conditions% A product or service:s !or5ing life !hen e<hausted or ending prematurely
is often referred to as .ailure rate%
*et us go ac5 to the first statement of the lecture, !hen !e made a comment that this ul is less
reliale, if !e are investigate further, !e can ta5e up the e<ample in a more detail manner% Say if 1444
uls are eing manufactured at a facility in Oarachi, these uls once manufactured are not sent to the
customers !ithout =uality chec5s% They are made to go through stringent testing, after conducting
statistical analysis% The manufacturers can identify the time ased reliaility or failure of the ul% This
is =uite simple as !ell as a standard procedure in determining the e<pected life of any product% #n fact
this has een a part of manufacturing industry for years no!% Some of the uls !ould fail in testing and
!ould not e shipped% As a part of process control, !e can plot the testing of uls%
.90
.80
.70
1$F,1$.90-D,1$.80-D,1$.70-G ; .994
1 4 #,all 'ail-
<a%p 1
<a%p 2 ,)ac:(p '"r <a%p1-
<a%p 3 ,)ac:(p '"r <a%p 2-
?eter%ine t!e relia)ility "' t!e syste% s!"1n
.98 .90
.90
.92
.95
+!e syste% can )e red(ced t" a series "' t!ree
c"%p"nents
.9
8
.909.90:1=
0.9;
.959.92:11.
95;
.98 x .99 x .996 8
.966
64
The figure aove sho!s a athtu shape and thus rightly is referred to as the 6athtu curve% On the R
a<is !e represent the .ailure rate and on the M a<is !e represent the Time% A careful loo5 at the graph
!ould help us to identify the three phases
Phase # near the origin is called #nfant Mortality%
Phase ## in the middle refers to fe! random failures%
Phase ### at the far end from the origin represent failures due to !ear out%
9hat can !e oserve in the 6ath Tu 'urveG
#n Phase # ? One can easily see that =uite a fe! of the products fail shortly put into service, not ecause
they !ear out ut they are defective to egin !ith%
#n Phase ##? The rate of failure decreases rapidly once the truly defective items are 9$$/$/ O(T
+$liminating inferior products8Services-% /uring phase ##, there are fe!er failures ecause the
inferior8defective has already een eliminated% This phase is free of !orn out items and as seen is the
*O)G$ST P$"#O/ here%
#n Phase ###? #n the third phase, failure occurs ecause the products have completed the normal life of
their service life and thus !orn out% As !e can see the graphs steeps up in this phase indicating an
increase in the failure rate%
The =uestion no! is ho! can !e collect information on the distriution, length of each phaseG 9e
5no! that all this re=uires collection and analysis of data% 9e are interested in calculating mean
time et!een failures for each phase%
#f !e analy7e phases # and ### separately and oserve them in e<ploded or enlarged vie!s !e may e
ale to trace the presence of e<ponential curve in oth the phases% #t:s clear that in Phase # !e oserve a
clear e<ponential decrease in the time e<pected of a products life%
$<ponential /istriution .O" #).A)T MO"TA*#TR STAG$
+e* :ran#om;
'ai!ures
&n'ant
morta!ity
+ai!ures
#ue
to *ear1out
Time>
T
61
EBPONENTIA% DISTRIBUTION
$=uipment failures as !ell as product failures may occur in this pattern% #n such a case the e<ponential
distriution, such as depicted on the graph, !e can identify t!o phases Phase # and Phase ##% Phase #
indicates the proaility that e=uipment or product put into service at time 4 !ill fail efore specified T
is aility that a product !ill last until Time T and is represented y area under the curve et!een O and
T%
Phase ## indicates that the curve to the right of Point T increases in Time ut reduces in reliaility% 9e
can calculate the reliaility or proaility values using a tale of e<ponential values% An e<ponential
distriution is completely descried using the distriution mean, !hich reliaility engineers call it the
M$A) T#M$ 6$T9$$) .A#*("$S% (sing T to represent the length of service, !e can calculate P
efore failure as P +)o failure efore T- J e
>T8M6T.
%
NORMA% DISTRIBUTION
Product failure due to !ear out can e determined y using normal distriution% .rom our 5no!ledge of
statistics !e already 5no! that the statistic tale for a standardi7ed variale Q represents the area under
the normal curve from essentially from the left end of the curve to a specified point 7, !here 7 is a
standardi7ed value computing use
7 J T>Mean !ear out time
Std /eviation of 9ear out Time
Thus !e must 5no! the mean and the standard deviation of the distriution% Again for the sa5e of easy
reference !e can use the statistical tale availale to us !ould al!ays sho! the area that lies to the left
of Q%
4e!ia7i!ity 8 e
1T<MT)+
11 e
1T<MT)+
T Time
4e!ia7i!ity
0 (
63
To otain a proaility that service life !ill not e<ceed, some value T, compute Q and refer to the tale%
To find the reliaility for some T, sutract this proaility from 144 percent%
To otain the value of T that !ill provide a given proaility, locate the nearest proaility under the
curve to the left in the statistical tale%
Then the corresponding 7 in the preceding formula and determine T%
E8am,-e
The mean life of a certain steam turine can e modeled using a normal distriution !ith a mean life of
si< years, and a standard deviation of one year% /etermine each of the follo!ing?
The proaility that a stem turine !ill !ear out efore seven years of service%
To proaility that a steam turine !ill !ear out after seven years of service + i%e% find its reliaility-
The service life !ill provide a !ear>out proaility of 14 percent%
9ear out life meanJ 6 years%
9ear out life standard deviation J 1 year
9ear out life is normally distriuted%
.or )ormal /istriution, !e can compute Q and use it to otain the proaility directly from a statistical
tale
J D>681J K1%44
Since P +TVD- J4%E@13
Also, sutract the proaility +reliaility- determined in part a from 144 percent
1%44 >4%E@13
J 4%12ED
9e can see that on the Q scale, oth a and gives 1%44
(se the normal tale and find the value of 7 that corresponds to an area under the cure of 14T
9e are focusing on 14 T of the area under the curve and chec5 only the left hand side
QJ>1%3EJ +T>6-81
Thus T J6>1%3EJ@%D3
9e calculate and find value of T is @%D3
4e!ia7i!ity80.1587
0 (
63
AVAI%ABI%IT5
The fraction of time a piece of e=uipment is e<pected to e availale for operation%
Mathematically, #f !e represent mean time et!een failures y MT6. and mean time to repair y
MT" then
Availaility J +MT6.-8+MT6. K MT"-
Im,ro(ing Re-iai-ity
9e should develop the aility to understand the importance of reliaility and at the same time identify
the !ays in !hich "eliaility can e improved in the follo!ing generic !ays%
1% 'omponent design ? Parts of a car
3% Production8assemly techni=ues? )o re!or5s also fool proof assemly%
3% Testing ?for troule free final product
@% "edundancy8ac5ups? not possile all the time ut common remedy%
2% Preventive maintenance procedures
6% (ser education+ operating manuals-
D% System design + !e !ill discuss in later chapters, a senior management issue, ut indicative that
reliaility is al!ays considered 1#P-
E% "esearch I /evelopment +"I/- ? Organi7ed efforts to increase scientific 5no!ledge or
product innovation I may involve?
6asic "esearch advances 5no!ledge aout a su;ect !ithout near>term e<pectations of commercial
applications%
Applied "esearch achieves commercial applications%
/evelopment converts results of applied research into commercial applications%
CONC%USION
#t is important to understand the concept of reliaility in terms of normal operating conditions as !ell as
safe operations% Services in general and Products in particular are designed to provide this opportunity
to the fullest% #t is recommended to invest more in " I/, !ith regards to increase in "eliaility% 0uality
chec5s should e incorporated at suitale places to enhance product and services reliaility%
#t is also suggested that emphasis should e shifted a!ay from short term performance to oth short as
!ell as long term Performance improvement !hile formulating a reliaility ased operations strategy%
Operations Manager should !or5 to!ards continual and gradual improvements instead of ig ang
approach% They should !or5 to shorten the product life cycle +not the products life- as it increases
products safety as !ell as reliaility% Operations side should e encouraged to pot for component
commonality continual improvement and shorten time to mar5et%
6@
Lesson 15
CAPACIT5 P%ANNING
After completing discussion on product or service design, organi7ations end up ans!ering the =uestions
relating to capacity and demand% Since !e have already discussed demand forecasting, !e should no!
focus on !hat capacity planning decisions are% 9e should also try to understand the importance of
capacity%
'apacity decisions are important to all departments of the organi7ationP an accountant !ould e
interested in collecting cost accounting information in order to ensure that correct capacity e<pansion
decision is reached% Similarly a financial manager !ould e interested in performing the financial
analysis of !hether the investment decision is ;ustified for a plant or capacity increase% An #nformation
Technology Manager !ould end up preparing data ases that !ould aid the organi7ation again to decide
aout the capacity and last ut not the least an operations manager !ould select strategies that !ould
help the organi7ation achieve the optimum capacity levels to meet the capacity demand%
*earning O;ectives
'apacity planning lectures deal !ith different types of 'apacity li5e /esign, $ffectiveP (tili7ation etc
0uite often the operations manager has to identify various determinants of $ffective 'apacity% The
manager has to formulate Strategy !ith respect to 'apacity Planning and plans y loo5ing in to
developing 'apacity Alternatives and studying $conomies of Scale and focusing on 'ost 1olume
"elationship
&opefully y completing the lecture on 'apacity Planning an Operations Management the students
!ould e ale to?>
(nderstand, appreciate and e<plain the importance of capacity planning%
/iscuss !ays of defining and measuring capacity%
/escrie the factors that determine effective capacity alternatives%
/iscuss the ma;or considerations related to developing capacity alternatives%
'apacity Planning
'apacity is the upper limit or ceiling on the load +demand for a product or service- that an operating unit
can handle%
An Operations Manager is supposed to identify tactics and formulate a strategy in order to ans!er the
asic =uestions !ith respect to capacity handling% These =uestions are?
1% 9hat 5ind of capacity is neededG
3% &o! much is neededG
3% 9hen is it neededG
This !ord A'apacity PlanningB reached us a day after the tragic and life changing incident of
earth=ua5e of E
th
Octoer 3442% 9e !ere e<posed to the idea of capacity limitation !ith respect to food,
shelter, medicines and rescue operations% As a conse=uence !e also faced the challenge of planning ho!
to overcome this shortcoming%
#f you could recall in our earlier lectures !e tal5ed aout $rregular variations caused y unusual
circumstances such as severe !eathers, earth=ua5es, !or5er stri5es, or ma;or change in product
or service% These irregular variations do not capture or reflect the true ehavior of a variale and
can distort the overall picture% These should e identified and removed from the data%
There are t!o uses for forecasts% One is to help the Operations Manager plan the system and the
other one is to help him plan the use of the system%
Planning the system refers to planning long term plans aout the type of products or services to
offer, !hat facilities and e=uipment to have, !here to locate and so on and so forth% Planning
the use of the system relates to short range and intermediate range planning !hich means
planning inventory !or5force resources, planning of purchasing and production activities,
udgeting and scheduling etc%
62
Im,ortan&e of Ca,a&ity De&isions
'apacity decisions impacts aility to meet future demands, affects operating costs% These decisions
often act as a ma;or determinant of initial costs, as they involve long>term commitment% These
decisions affect competitiveness and gives ease of management% 'apacity /ecisions focus on
gloali7ation as it is more comple< and impacts long range planning%
#mpacts aility to meet future demands% 'apacity essentially limits the rate of possile output%
&aving capacity to satisfy demand can allo! a company of ta5ing advantage of tremendous
opportunities% An international automoile manufacturer of good repute increased its production
y !or5ing on its capacity decision after its =uality product received a lot more demand than it
!as originally anticipated%
Affects operating costs% 9e already 5no! that estimated or forecasted demand differs from
actual demand, so the ideal concept of capacity matching demand is untrue% Organi7ations
should e !illing to ta5e a critical decision to alance the cost of over and under capacity%
Overcapacity reflects over5ill of resources and under capacity sho!s a !ea5 management
philosophy to ma5e est use of an availale mar5et%
Acts as a ma;or determinant of initial costs% #t is typical to see that greater the capacity of a
productive unit, greater !ould e the cost% This does not mean # am advocating a one to one
relationship for higher capacity for production to costsP in fact larger units tend to cost
proportionately less than smaller units% $%g% Pa5istan Steel Mill at Oarachi is one good e<ample,
!here higher costs are misunderstood as the mills capacity is not eing fully utili7ed
#nvolves long>term commitment% Once long term commitments of resources have een ta5en,
the difficulty of reversing !ould cost more% #ndicating a capacity increase or decrease for an
organi7ation set up !ould mean additional costs%
Affects competitiveness% This is very critical, if a firm has an e<cessive capacity or can =uic5ly
add capacity, !hich fact may serve as a arrier against entry y other firms%
Affects ease of management% 'apacity increase or decrease decisions involves management to
ans!er the =uestion of operating the organi7ation as !ell as an increase or decrease in the plant
capacity
Gloali7ation adds comple<ity% 'apacity decision often involves ma5ing a decision in a foreign
country !hich re=uires the management to 5no! aout the political, economic and cultural
issues%
#mpacts long range planning% 'apacity decisions e<tend eyond 1E months and thus get
classified as long term in nature%
Organi7ations often end up ma5ing use of rupees amount in order to sho! their capacity ceiling this
unfortunately needs a constant updating due to changes in price of ra! materials as !ell as utilities% A
simple !ay out is to reflect the load or capacity in terms of unit produced ut this has the limitation that
its only good for a single unit and fails in case of multiple types , designs of units eing produced% A
preferred type of capacity measurement is to identify capacity in terms of availaility of input units%e%g%
hospitals are identified to have a capacity of 344 eds, a !or5shop y its man>hours and so on and so
forth%
66
Lesson 16
CAPACIT5 P%ANNING"I
#t is important to reali7e that managers ma5e capacity decisions at the organi7ational level and not at
the operational level% Often, deottlenec5ing a process can increase departmental efficiency !ithout
increasing or improving the organi7ational performance% This does not mean that capacity decisions
are not ta5en at the operational level rather managers end up ma5ing capacity decisions at the
individual process level in accounting, finance, human resources, information technologies,
mar5eting and operations departments%
Operations Mangers must understand capacity measures, economies and diseconomies of scale,
capacity cushions and trade off et!een customer service and capacity utili7ation.
Effi&ien&y and Uti-i1ation
Operations Manager should 5no! !hat is 'apacityG They should e ale to identify the terms /esign
'apacity and $ffective capacity efore they can understand another important concept of (tili7ation%
/esign capacity is the ma<imum output rate or service capacity an operation, process, or
facility%
Organi7ations facility or operation is designed for $ffective capacity !hich refers to /esign
capacity minus allo!ances such as personal time, maintenance, and scrap
Actual output is the rate of output actually achieved>>cannot e<ceed effective capacity%
$fficiency8(tili7ation $<ample
(se the follo!ing data to determine the $fficiency and (tili7ation

/esign capacity J 24 truc5s8day
$ffective capacity J @4 truc5s8day
Actual output J 36 units8day
Determinants of Effe&ti(e Ca,a&ity
Operations Manager often focus on determinants of effective capacity y ta5ing into account oth
macro and micro levels% At the macro levels the managers loo5 for Supply chain and $<ternal factors,
!hile at the micro level they loo5 for operational factors including facilities and man and machine
resources% There are D determinants of effective capacity namely?>
1% .acilities% The design of facilities includes the si7e as !ell as the provision of e<pansion% Other
important factors that are necessary include transportation costs, distance to mar5et, laor
supply, energy supply sources and the ease and smoothness !ith !hich !or5 can e performed%
9e should also include environmental factors such as heating, lighting and ventilation !hich
not only increase the performance of the !or5force ut also act as source of motivation and
!or5er loyalty% A failure to comply !ith this !ould indicate poor design !hich in reality
translates to lac5 of managerial acumen%
$fficiency J
(tili7ation J
Actual Output J 36 units 8 day
$fficiency 'apacity J @4 units 8 day
J F4T
Actual Output J 36 units 8 day
/esign 'apacity J 24 units 8 day
J D3T
6D
3% Product and service factors can have a tremendous influence on capacity% $%g% !hen items are
similar, the aility of the system to produce those items is generally much greater than !hen
successive items are different and uni=ue% The idea is more uniformity in the final product
service output the greater capacity% # am ma5ing a reference to a P' manufacturer in (SA
!hich decided that it !ould standardi7e its products and split its assemly lines only at the point
!here the a small differential product feature !as re=uired%
3% Process factors refer to the =uantity and =uality re=uirements of a process% 0uantity al!ays
refers to capacity% Another added feature is =uality of output% #f =uality of output does not match
the standard re=uirements it !ould generate inspection and possile re!or5s%
@% &uman factors include s5ill, craftsmanship, training and =ualification to handle any ;o it also
includes the motivational factors%
2% Operational factors !ith respect to effective capacity al!ays refer to scheduling, late deliveries,
acceptaility of purchased materials, parts, =uality inspection, control procedures and inventory
prolems% Scheduling issues arise !hen an organi7ation has a difference in e=uipment
capailities for development of alternative capacities% #nventory prolems have a negative
impact on capacity
6% Supply chain factors relate to any short coming to suppliers, !arehouse processing, operational
hic5 up or distriution issues%
D% $<ternal factors include product standards, safety regulations, unions and pollution control
standards% At times organi7ations have e<perienced shutting do!n of their facility if they could
not provide support to government regulations of pollution control%
Strategy #orm'-ation /it) res,e&t to Ca,a&ity P-anning
1% 'apacity strategy for long>term demand !hich focus on demand patterns and ta5es into account
gro!th rate and variaility
3% .acilities that focus on cost of uilding and operating
3% Technological changes relate to rate and direction of technology changes
@% 6ehavior of competitors
2% Availaility of capital and other inputs
+ey De&isions of Ca,a&ity P-anning
#t is important to identify the 5ey decisions in order to carryout a correct capacity planning decision%
Some of the common 5ey decisions are
1% Amount of capacity needed
3% Timing of changes
3% )eed to maintain alance
@% $<tent of fle<iility of facilities
Steps for 'apacity Planning Strategy
#t is important to understand ho! to formulate a capacity planning strategy
1% $stimate future capacity re=uirements
3% $valuate e<isting capacity
3% #dentify alternatives
@% 'onduct financial analysis
2% Assess 5ey =ualitative issues
6% Select one alternative
D% #mplement alternative chosen
E% Monitor results
6E
De(e-o,ing Ca,a&ity A-ternati(es
1% /esign fle<iility into systems refers to long term nature of e<pansion, if at the time of original
design, fle<iility alternative is provided, and it !ould save cost in remodeling and
modifications !hen e<pansion is carried out later%
3% Ta5e stage of life cycle into account% #t is important that operations manager oserve and chec5
!hether the capacity increase alternative is for a ne! product8service or mature product or
service% The predictaility for a ne! service is ris5ier as compared to an estalished mature
product or service%
3% Ta5e a Aig pictureB approach to capacity changes !hile developing the capacity of the system,
it is necessary to understand the interrelationship of the components of the system% The ig
picture approach relates to setting up of par5ing space, house 5eeping and landscaping if an
e<pansion is to e accommodated in a multi purpose shopping plus apartment comple<%
@% 6y developing capacity alternatives, organi7ations prepare to deal !ith capacity Achun5sB
'apacity increases are normally otained in ig chun5s instead of incremental increase% A steel
mills furnace may not e ale to provide e<act re=uired increase in capacity and thus !ould
provide e<cessive capacity !hich may lead to increase in inventory% $%g% the demand for steel
say is 3444 tone per annum in the city of su55hur, from a local steel mill the capacity is 1E44
tones per annum% The steel mill can increase its production from 1E44 tones to 3344 tones per
annum and not to e<actly 3444 tones per annum%
Organi7ations attempt to smooth out capacity re=uirements% This topic is discussed in more detail !hen
!e !ill cover the topic of aggregate planning for the time eing !e can see that simply adding capacity
y increasing the si7e of !or5force, machines, facility does not help% Operations manager should e ale
to identify the optimal operating level% All Production units have an ideal or optimal level of operation
in terms of unit cost of output% At the ideal level, cost per unit is the lo!est for that production unit%
$conomies of Scale and /iseconomies of scale
An operations manager should 5no! !hat economies and diseconomies of scale are
$conomies of scale reflects a concept that states the average unit cost of a good or service can e
reduced y increasing its output rate !hile diseconomies of scale reflects the case !hen the average cost
per unit increases as the facility:s si7e increases%
#f the output rate is less than the optimal level, increasing output rate results in decreasing average unit
costs then it reflects $conomies of Scale% On the other hand if the output rate is more than the optimal
level, increasing the output rate results in increasing average unit costs
$valuating Alternatives
6F
$<planation of the 'ost 'urve
The e<planation for the shape of the cost curve is that lo! levels of output +Production-, the costs of
facilities and e=uipment must e asored +paid for- y fe! units% &ence the cost per unit is very high%
As the output is increased, there are more units to asor the fi<ed cost of utilities, facilities and
e=uipment, so unit cost is decreased%
Minimum 'ost !ould e recorded at the optimal rate, eyond that the unit cost !ill
start to increase% Other factors no! ecome more important !hich include !or5er fatigue, e=uipment
rea5do!n, the loss of fle<iility, !hich leaves less margin for error and increases difficulty in
coordinating activities%
As the general capacity of the plant increases, the optimal output rate increases and the
minimum cost for the optimal rate decreases%
This is the prime reason !hy larger plants tend to have higher optimal output rates and lo!er
minimum costs than smaller plants%
The senior management normally ta5es in to account the same considerations in addition to
availaility of financial, capital resources and forecasted demand%
The important step is to determine enough points for each si7e facility to e ale to ma5e a
comparison among different si7es%
#n some industries or types of services, facility si7es are given, !here as in other facility si7e are
continuous variale%
Minimum Cost
cost
2
,
e
r
a
g
e

c
o
s
t

e
r

u
n
i
t
0
4ate o' outut
Minimum 2,erage Cost er ?nit
Minimum cost & optimal operating rate are functions of
size of production unit.
2
,
e
r
a
g
e

c
o
s
t

e
r

u
n
i
t
0
Sma!!
!ant
Me#ium
!ant -arge
!ant
$utut rate
D4
Occasionally the management decides for a si7e !hich does not have the desired rate of output%
$%g% Pharmaceutical 'ompany, oil field, gas fields%
An organi7ation needs to e<amine the alternatives for future capacity from a numer of different
perspectives%
$conomic 'onditions set the e<ternal conditions !hich influence the follo!ing
1% 9ill Alternative e feasileG
3% &o! much !ill it costG
3% &o! soon can !e have itG
@% 9hat !ill e the operating and maintenance costsG
Possile )egative Opinion due to the follo!ing decisions%
1% /ecision to uild a ne! po!er plant, nuclear, coal, geothermal
3% /isplacement of people if a ne! hydro plant is to e uilt%
3% $nvironmental issues related to company:s ne! pro;ect%
D1
Lesson 17
CAPACIT5 P%ANNING"II
#n our earlier lectures !e tal5ed aout importance of capacity planning along !ith the idea that capacity
planning decisions are carried out !ith certain o;ectivity in mind oth at the individual level as !ell as
at the organi7ational level% 9e also learnt the various measures of capacity% 9e no! focus our attention
on various alternatives availale to us along !ith cost volume relationship%
E(a-'ating A-ternati(es
E8,-anation of t)e Cost C'r(e
The e<planation for the shape of the cost curve is that lo! levels of output +Production-, the costs of
facilities and e=uipment must e asored +paid for- y fe! units% &ence the cost per unit is very high%
As the output is increased, there are more units to asor the fi<ed cost of utilities, facilities and
e=uipment, so unit cost is decreased%
Minimum 'ost !ould e recorded at the optimal rate, eyond that the unit cost !ill
start to increase% Other factors no! ecome more important !hich include !or5er fatigue, e=uipment
rea5do!n, the loss of fle<iility, !hich leaves less margin for error and increases difficulty in
coordinating activities%
Minimum Cost
cost
2
,
e
r
a
g
e

c
o
s
t

e
r

u
n
i
t
0
Minimum 2,erage Cost er ?nit
4ate o' outut
D3
E(a-'ating A-ternati(es
As the general capacity of the plant increases, the optimal output rate increases and the
minimum cost for the optimal rate decreases% This is the prime reason !hy larger plants tend to
have higher optimal output rates and lo!er minimum costs than smaller plants% The senior
management normally ta5es in to account the same considerations in addition to availaility of
financial, capital resources and forecasted demand%
The important step is to determine enough points for each si7e facility to e ale to ma5e a
comparison among different si7es% #n some industries or types of services, facility si7es are
given, !here as in other facility si7e are continuous variale% Occasionally the management
decides for a si7e !hich does not have the desired rate of output% $%g% Pharmaceutical 'ompany,
oil field, gas fields%
An organi7ation needs to e<amine the alternatives for future capacity from a numer of different
perspectives% $conomic 'onditions set the e<ternal conditions !hich influence the follo!ing
2% 9ill Alternative e feasile%
6% &o! much !ill it costG
D% &o! soon can !e have itG
E% 9hat !ill e the operating and maintenance costsG
Possile )egative Opinion due to the follo!ing decisions%
@% /ecision to uild a ne! po!er plant, nuclear, coal, geothermal
2% /isplacement of people if a ne! hydro plant is to e uilt%
6% $nvironmental issues related to company:s ne! pro;ect%
P-anning Ser(i&e Ca,a&ity
Services are different that manufacturing cant e inventoried !hile services cannot e inventoried, this
reason alone ma5es it necessary and pertinent to plan for service capacity%
)eed to e near customers as 'apacity and location are closely tied%
#naility to store services as 'apacity must e matched !ith timing of demand
/egree of volatility of demand it can vary et!een pea5 and lo! periods%

Cost"Vo-'me Re-ations)i,s
Minimum cost & optimal operating rate are functions of
size of production unit.
2
,
e
r
a
g
e

c
o
s
t

e
r

u
n
i
t
0
Sma!!
!ant
Me#ium
!ant -arge
!ant
$utut rate
D3

Ass'm,tions of Cost"Vo-'me Ana-ysis
1% One product is involved
3% $verything produced can e sold
3% 1ariale cost per unit is the same regardless of volume
@% .i<ed costs do not change !ith volume
2% "evenue per unit constant !ith volume
6% "evenue per unit e<ceeds variale cost per unit
'ost 1olume "elationship focuses on relationships et!een costs, revenue and volume of output% The
primary purpose of cost volume analysis is to estimate the income of an organi7ation under different
operating conditions% #t is particularly useful as a tool for comparing capacity alternatives%
The application of 'ost 1olume "elationships re=uires identification of all costs related to the
production of a given product% These costs are assigned to fi<ed costs or variale costs%
.i<ed costs tend to remain constant regardless of volume of output% $<amples include "ental costs,
property ta<es, e=uipment costs, heating and cooling e<penses, and certain administration costs%
1ariale costs vary directly !ith volume of output% The ma;or portions of variale cost are materials
and laor cost% .or our analysis part !e can assume that the variale cost per unit remains the same
regardless of volume of output%
*et us construct the model for 'ost 1olume "elationship% #f !e select .' , 1', T', T" " , 0, 0
6$P
, P
and " to represent .i<ed 'ost, 1ariale 'ost, Total 'ost, Total "evenue, "evenue per unit, 0uantity or
1olume of Output, 0uantity or 1olume of Output at 6"$AO $1$) and Profit respectively then
Ste, I
D@
The total cost T' associated !ith a given volume of output is e=ual to the sum of the fi<ed cost .' and
the 1ariale 'ost per (nit
TC: #CH VC B 9
Ste, II
"evenue per unit, li5e variale cost per unit, is assumed to e the same regardless of the =uantity of
output% Total "evenue !ill have a linear relationship !ith the output%
TR: R B 9
'ost>1olume "elationships
Ste, III
Profit is P difference et!een "evenue T" and 'osts T'% 'onstruct the model for 'ost 1olume
"elationship
PJ T">T'
PJ " M 0 +.' K 1' M 0-
"earranging and factori7ing
PJ0 + ">1'- .'
Or P K .'J 0 + ">1'-
Also 0 J + P K.'-8 +">1'-
0J 0uantity or 1olume of Output
06$PJ 0uantity or 1olume of Output at 6"$AO $1$), !ould e !here
PJProfit is 4
So 06$P J .'8 ">1'
'ost>1olume "elationships
D2
Ca,a&ity a-ternati(es in(o-(e ste, &osts3
These step costs increase in step!ise as potential volume increases%
.or e<ample an organi7ation may have the option of purchasing one, t!o or three machines, !ith
each additional machine increasing fi<ed cost in a non linear !ay%
#n such a scenario, the fi<ed costs and potential volume !ould depend on numer of machines
purchased or installed%
6rea5>$ven Prolem !ith Step .i<ed 'osts
The implication is that multiple rea5 even =uantities may occur, possily one for each range%
)ote the total revenue line might not intersect the fi<ed cost line in a particular range, meaning that
!ould e no rea5 even point in the first range%
#n order to decide ho! many machines to purchase a manager must consider pro;ected annual
demand +volume- relative to Multiple 6rea5 $ven Points and the most appropriate numer of
machines%
$<ample
The 6usiness O!ner of a sports good factory in Sial5ot is contemplating adding a ne! line of cric5et
ats, !hich !ill re=uire leasing ne! e=uipment for a monthly payment of "s% 64,444% 1ariale 'osts
!ould e "s% 344 per at and 6ats !ould e sold for "s% 3444 only%
1% &o! many ats !ould e sold in order to rea5 evenG
D6
3% 9hat !ould e the profit or loss if the 144 ats are made and sold in 1 monthG
3% &o! many ats must e sold to reali7e a profit of "s% @4,444G
Solution
1% 0
6$P
J .'8 + ">1'-
J"s% 64,4448 3444>344J 64,44481E44
J 33%33 ats J 33 6ats
3% .or 0 J144 ats, the Profit or *oss !ould e
PJ 0+">1'->.'J144+3444>344->64,444J144M 1E44>64,444J1E4,444>64,444J134,444
3% .or P J@4,444
0 J +.'KP-8 + ">1'-J+64,444K@4,444-8+3444>344-
J144,44481E44J22%26 J 26 6ats
#inan&ia- Ana-ysis
Mathematical Techni=ues that can e used to evaluate alternatives are
'ost 1olume "elationships
.inancial Analysis
/ecision Theory
9aiting *ine Analysis
'apacity alternatives are often evaluated !ith the aid of certain financial analyses% Operations manager
along !ith managerial accountant often !or5 to calculate !hat cash flo! or present value in terms of
rupees is availale for the organi7ation to proceed !ith a capacity alternative decision% #t is important to
understand !hat cash flo! and present values are
1% 'ash .lo! > the difference et!een cash received from sales and other sources, and cash
outflo! for laor, material, overhead, and ta<es%
3% Present 1alue > the sum, in current value, of all future cash flo!s of an investment proposal%
9aiting *ine Analysis and decision theory are also t!o important !ays in !hich capacity alternatives
are evaluated%
Con&-'sion
'apacity planning is important that it helps an organi7ation to formulate its long term +organi7ational-
strategy and short term +operational- strategy% *ong term capacity decisions relate to overall level of
capacity !hile short term capacity decisions refer to seasonal, random or irregular variations in demand%
#deally capacity should match demand ut it rarely happens% 'apacity alternative decisions should e
ta5en in vie! of !hat !e have already covered the concept of systems approach or the over all ig
picture approach as =uite often removing a ottle nec5 at the department level may not improve the
organi7ations effectiveness% An effective operations manager !ould ma5e use of =ualitative as !ell as
=uantitative analysis to evaluate capacity alternatives%
'apacity decisions are often ased on facilities layout and together they define the very e<istence of an
organi7ational unit%
DD
Lesson 18
PROCESS SE%ECTION
Process Selection plays an important part in over all design of production and operations
management systems% Process Selection allo!s an organi7ation to offer a safe and reliale product
and service through pragmatic design and effective capacity planning% 9ith the help of process
selection !e can understand the different types of processing including manual, rigid, and fle<ile
as !ell as various automated approaches to processing% Process selection allo!s an operations
manager to etter understand the need for management of technology% Together !ith capacity
planning it helps an organi7ation to develop different approaches to meet the irregular demand
pattern of the customers%
Introd'&tion and Meaning
Process Selection refers to the !ay an organi7ation chooses to produce its good or services% #t ta5es into
account selection of technology, capacity planning, layout of facilities, and design of !or5 systems%
Process selection is a natural e<tension after selection of ne! products and services%
An organi7ations process strategy !ould include
1% Ma5e or 6uy /ecisions% The e<tent to !hich an organi7ation !ill produce goods or provide in
house as opposed to relying on an outside organi7ation to produce or provide them%
3% 'apital #ntensity% The mi< of e=uipment and laor !ill e used y the government%
3% Process .le<iility? The degree to !hich the system can e ad;usted to changes in processing
re=uirements due to such factors as changes in product or service design, changes in volume
processed, and changes in technology%
Reasons to FProd'&e in"Ho'se or O'tso'r&eG Ma*e or B'y
There are 6 reasons !hich are availale to us in order to decide !hether to develop a competence in
house or hire an outside competent organi7ation to supply that product, service or particular
e<pertise% The latter re=uires that the outsourcer to e honest, ethical, competent% #t also re=uires that
outsourcing contract should e fle<ile yet pragmatic and carry proper levels of services%
Availale capacity if an organi7ation has the e=uipment, necessary s5ills and time, it often
ma5es sense to produce an item or perform a service in house% The additional costs !ould
e relatively small compared !ith those re=uired to uy items or sucontract them%
$<pertise% #f a firm lac5s the e<pertise to do a ;o satisfactorily, uying might e a
reasonale alternative%
0uality considerations% .irms that speciali7e can usually offer higher =uality than an
organi7ation can attain itself% 'onversely, special =uality re=uirements or the aility to
closely monitor =uality may cause an organi7ation to perform a ;o itself%
)ature of demand% 9hen demand for an item is high and steady, the organi7ation is often
etter off doing the !or5 itself% &o!ever, !ide fluctuations in demand or small orders are
usually etter handled y specialists, !ho are ale to comine orders from multiple sources,
!hich results in higher volume and tend to offset individual uyer fluctuation%
'ost% Any cost savings achieved from uying or ma5ing must e !eighed against the
preceding factors% 'ost savings might come from the item itself or from transportation cost
savings% #f there are fi<ed costs associated !ith ma5ing an item that cannot e reallocated if
the item is purchased, that has to e recogni7ed in cost analysis%
"is5% Outsourcing or uying the services carries ris5P often companies retain fle<iility y
carrying out certain critical activities in house and repetitive menial activities through
outsourcing%
DE
Ty,es of O,eration
The degree of standardi7ation and the volume of output of a product or service influence the !ay
production is organi7ed% Output can range from high volume, highly standardi7ed, to lo! volume,
highly customi7ed%
1% 'ontinuous Processing%
1% "epetitive Processing%
3% #ntermittent Processing%
1% 6atch Processing
3% Co Shop%
3% Automation
1% 'omputer Aided Manufacturing
3% )umerically 'ontrolled Machines
3% "oot
@% Manufacturing 'ell%
2% .le<ile Manufacturing System%
Contin'o's and Semi Contin'o's O,erations
1% A system that produces highly uniform products or continuous services, often performed y
machines%
1% Processing of chemicals, photographic film, ne!sprint and oil products
3% "epetitive Processing% A production system that renders one or a fe! highly standardi7ed
products or services%
1% Automoiles, televisions, computers ,calculators, cameras and video e=uipments
#ntermittent Processing
1% A system that produces lo!er volumes of items or services !ith a greater variety of processing
re=uirements%
1% Processing of chemicals, photographic film, ne!sprint and oil products
3% 6atch Processing% A system used to produce moderate volumes of similar items%
1% Paint, ice cream, canned vegetales
3% Maga7ines, ne!spapers, te<too5s and user manuals%
3% Do S)o,% A system that renders unit or small lot production or service !ith varying
specifications according to customer needs
A'tomation%
Machinery that has sensing and controlling devices that enales it to operate automatically%
1% 'omputer Aided manufacturing the use of computers in process control%
3% )umerically 'ontrolled Machines that perform operations y follo!ing mathematical
processing instructions
3% "oot a machine that consists of a mechanical arm, a po!er supply and a controller%
#-e8i-e A'tomation
1% Manufacturing 'ell% One or a fe! )8' machines that produce a variety of parts%
3% .le<ile Manufacturing System% A group of machines designed to handle intermittent
processing re=uirements and produce a variety of similar products%
1% /esigned to handle #ntermittent processes
3% Offers reduce laor costs and consistent =uality%
3% &igher .le<iility as compared to hard automation
3% Disad(antage%
1% "e=uires longer time for planning and development
DF
3% 'an handle only narro! range of parts variety%
Com,'ter Integrated Man'fa&t'ring
1% Manufacturing 'ell% One or a fe! )8' machines that produce a variety of parts%
3% .le<ile Manufacturing System% A group of machines designed to handle intermittent
processing re=uirements and produce a variety of similar products%
1% /esigned to handle #ntermittent processes
3% Offers reduce laor costs and consistent =uality%
3% &igher .le<iility as compared to hard automation
3% Disad(antage%
1% "e=uires longer time for planning and development
3% 'an handle only narro! range of parts variety%
O,erations Strategy !it) res,e&t to Pro&ess Se-e&tion
Operations strategy has the =uality of eing fine tuned !henever !e discuss a ne! idea, process
selection is no different, and !e can formulate a process selection ased operations strategy as
follo!s%
1% &ire and Promote Managers !ho have oth Technical and Managerial S5ills% As engineers fail
in managerial decisions and managers end up relying on engineers !ho create 9&#T$
$*$P&A)TS%
3% .le<iility as a competitive strategy to e incorporated at all levels%
3% Cudicious use of Automation as unnecessary Automation causes increase in cost and a
suse=uent increase in product and inventory%
E4
Lesson 19
#ACI%ITIES %A5OUTS
.acilities layout corresponds to configuration of departments, sections, !or5 centers, e=uipment !ith
focus eing on movement of goods or services or !or5s% A traveler ma5ing use of the rail!ay platform,
or us station or airport !ould e a good e<ample of !or5 eing moved through a facility% Often poor
design of productive system can result in poor design of the facilities layout% After F, 11, most of the
airports in the !estern !orld have sho!n that they are poorly designed to handle air traffic and
passengers end up paying a heavy price in the form of long !aiting hours and even people visit airports
to see of their family or friend travelers end up reaching the loy area% The reason eing no attention
!as paid at the time of design or construction to separate oarding lounge form the tic5eting counter or
lounge% Such short comings plague organi7ations and it:s the tas5 of the operations manager to ensure
that product as !ell as service layouts match organi7ations short as !ell as long term plans%
Basi& %ayo't Ty,es
The common 6asic *ayout Types are
1% Product8Service layout% A layout that uses standardi7ed processing operations to achieve
smooth, rapid, high>volume flo!
3% Process layout% A *ayout that can handle varied processing re=uirements
3% .i<ed Position layout% A *ayout in !hich the product or pro;ect remains stationary, and
!or5ers, materials, and e=uipment are moved as needed
@% &yrid8'omination% A *ayout that ma5es use of the comination of Product, Process or .i<ed
Position *ayout%
Prod'&t %ayo't C)ara&teristi&s
1% Product layouts are used to achieve a smooth and rapid flo! of large volumes of goods and
customers through a system%
3% The !or5 is divided into a series of standardi7ed tas5s, permitting speciali7ation of oth laor
and e=uipment%
3% The large volumes handled y these systems ma5e it pertinent and necessary to invest in
e=uipment and ;o design%
@% *ayouts should e arranged to ma5e the est use of technological processing ailities to fulfill
the re=uirements of oth product and services%
2% #n manufacturing environments the lines are referred to as production lines or assemly lines,
depending on the type of activity involved%
6% #n services side, the !ord line may or may not e used li5e &ealthcare8&ospital Services line,
'ar!ash +asence of !ord line here- or 'afeteria *ine%
D% 9ithout standardi7ation, many of the enefits of the repetitive processing are lost%
E% Product *ayouts achieve a high degree of laor and e=uipment utili7ation, !hich tends to offset
their high e=uipment costs%
F% Operations are so closely tied up that a mechanical failure or high asenteeism +rains- !ould
increase vulneraility of the Systems%
14% 9e can prevent rea5do!ns if !e religiously follo! preventive maintenance schedules,
inspection and replacement of !orn parts%
Ad(antages of Prod'&t %ayo't
1% &igh rate of output%
3% *o! unit cost%
3% *aor speciali7ation%
@% *o! material handling cost%
2% &igh utili7ation of laor and e=uipment%
6% $stalished routing and scheduling%
E1
D% "outing accounting and purchasing%
Disad(antages of Prod'&t %ayo't
1% 'reates dull, repetitive ;os%
3% Poorly s5illed !or5ers may not maintain e=uipment or =uality of output of service%
3% .airly infle<ile to changes in volume%
@% &ighly susceptile to shutdo!ns%
2% )eeds preventive maintenance%
6% #ndividual incentive plans are impractical%
A U"S)a,ed Prod'&tion %ine
A U"S)a,ed Prod'&tion %ine
Straight *ine designs are often not practical ecause of space constraints% ( shape Production *ine is
more compact, and re=uires often half the length of a Straight Production *ine%
( shaped *ayouts are a must for team!or5 !here communication is necessary% ( shaped *ayouts allo!
fle<iility in !or5 assignments as !or5ers can handle ad;acent stations as !ell as stations on opposite
ends% Sometimes ( shaped production line interferes !ith the cross travel8movement of !or5ers, moile
e=uipment% &ighly automated processes do not re=uire team!or5 or communication, noise or
contamination factors then ( shaped Production *ines are not re=uired%
$ 0 = >
.
A
I @ J $<
&
n
$u
t
3orker
s
Dept.
A
Dept.
B
Dept.
D
Dept.
C
Dept.
F
Dept.
E
Used for intermittent processing
Job Shop or Batch
Process Layout
Functiona!"
E3
Ad(antages of Pro&ess %ayo'ts
1% 'an handle a variety of processing re=uirements%
3% )ot particularly vulnerale to e=uipment failures%
3% $=uipment used is less costly%
@% Possile to use individual incentive plans%
Disad(antages of Pro&ess %ayo'ts
1% #n>process inventory costs can e high%
3% 'hallenging routing and scheduling%
3% $=uipment utili7ation rates are lo!%
@% Material handling slo! and inefficient%
2% 'omple<ities often reduce span of supervision%
#or$
Station
%
#or$
Station
&
#or$
Station
'
Product Layout
(Sequential)
Used for (epetiti)e Processing
(epetiti)e or Continuous
#r"d(ct <ay"(t
E3
Lesson 20
#ACI%ITIES %A5OUTS"I
#n our last lecture, !e identified .acilities layout as the configuration of departments, sections, !or5
centers, e=uipment !ith focus eing on movement of goods or services or !or5s% So !hether it:s a
traveler ma5ing use of the rail!ay platform, or us station or airport, or an automoile or a product
during its production stage or a patient needing medical attention, they all !ould =ualify as good
e<amples of !or5 eing moved through a facility% Often poor design of productive system can result in
poor design of the facilities layout% 9e discussed product, process and hyrid layouts, !e no! focus our
attention on cellular production% #n cellular manufacturing, production !or5 stations and e=uipment are
arranged in a se=uence that supports a smooth flo! of materials and components through the production
process !ith minimal transport or delay% #mplementation of this lean method often represents the first
ma;or shift in production activity, and it is the 5ey enaler of increased production velocity and
fle<iility, as !ell as the reduction of capital re=uirements% The concept of lean production and Cust in
Time Production Systems !ould e studied in detail !hen !e !ill discuss improvement of Productive
Systems%
Ce--'-ar %ayo'ts
'ellular production techni=ues reflect a relatively ne! concept in manufacturing and have yet found
immediate acceptance in Pa5istani manufacturing industry as !ell% Organi7ations !hich opt for cellular
manufacturing follo! the lean production strategy% There are t!o important concepts to understand at
the moment, !hat cellular production is and !hat group technology isG 9e !ill discuss lean production
systems in detail to!ards the end of our semester later, for the time eing !e can consider lean
production systems as systems !hich focus on high =uality process !ith elimination of !aste and
effective use of availale resources%
'ellular Production
*ayout in !hich machines are grouped into a cell that can process items that have
similar processing re=uirements%
Group Technology
The grouping into part families of items !ith similar design or manufacturing
characteristics%
'ellular production al!ays !ould represent the layout of machines !hile group technology !ould
reflect the collection of items or products !hich need the same manufacturing re=uirements% 6oth these
terms greatly influence the improvements of process and operations for any organi7ation%
#t is pertinent to understand the advantage of cellular layouts over the functional layouts% 9e already
5no! that functional layouts are not only conventional in nature ut also re=uire more space as !ell as
some!hat rigid layout plans, !ith increased special !or5force and continuous supervision% The tale
elo! represents the same concept%
E@
Primary /ifferences et!een .unctional and 'ellular *ayouts
Dimension #'n&tiona- Ce--'-ar
)umer of moves et!een departments many fe!
Travel distances longer shorter
Travel paths variale fi<ed
Co !aiting times greater shorter
Throughput time higher lo!er
Amount of !or5 in process higher lo!er
Supervision difficulty higher lo!er
Scheduling comple<ity higher lo!er
$=uipment utili7ation lo!er &igher
#a&i-ities %ayo'ts
9e have so far discussed !hat product and process ased layouts are, in et!een !e also focused our
attention on hyrid configuration as !ell as cellular production layouts% 9e can thus safely define
facilities layout as the configuration of departments, work centers and e1uipment, with particular
emphasis on movement of work 4customers or materials5 through the system.
9e come across different layouts in our daily lives especially !ith respect to the services side% Some
important Service *ayouts, !hich !e should 5no! include
9arehouse and storage layouts
"etail layouts
Office layouts
People often confuse retail stores !ith !arehouse stores, an effective !ay to understand the importance
of these important usiness channels is to identify the layouts associated !ith it% "etail configurations
are human friendly and allo! the movement of goods through small trolleys for the customers and if
placement of goods in the aisle is to e carried out then simple for5lifts or small vehicles are used,
sometimes over head cranes or hoists are also used%
Another important point of difference eing the !ay the goods are displayed and shelved% The layouts
are properly illuminated and ventilated and mostly maintained at a human comfort temperature through
effective heating and air>conditioning% The floors too are mostly vinyled and designed to ma5e the
customer movement less stressful% The movement of goods involves light loads and easy transportation,
as against this the !arehouse and storage layouts, !hich re=uire heavy loads and transportation% These
goods re=uire heavy vehicles and loaders for movement% The stores have different illumination
arrangement then retail outlets% The security measures are different for oth types of layouts, ranging
from close circuit television cameras to electric ared !ires%
Im,ortan&e of %ayo't De&isions

Operations Managers are often =uestioned aout the importance of a ne! or e<isting facilities layout% #n
addition to the fact that operations manager !or5 for improvement to!ards design and effect use of
operation systems, they should also 5no! the importance of layout decision in terms of money% Some of
these are?>
1% *ayout decisions re=uire sustantial investments of money and effort%
E2
3% *ayout decisions involve long>term commitments%
3% *ayout decisions have significant impact on cost and efficiency of short>term operations%
T)e Need for %ayo't De&isions
An operations manager should e a!are of the fact that the need for a proper and effective layout
facility is al!ays there, it is often said that if there is no facilities layout prolem eing faced y an
organi7ation then it is proaly una!are of its true potential% The need for layout planning arises oth in
the process of designing ne! facilities and in redesigning e<isting facilities% Some of the common
reasons faced y the organi7ation include?>
1% #n>efficient Operations +&igh 'ost86ottlenec5s that hamper true potential-%
3% Accidents or Safety &a7ards%
3% 'hanges in design of products or services%
@% #ntroduction of ne! products or services%
2% 'hanges in volume of output or mi< of outputs%
6% 'hanges in Methods or e=uipment%
D% 'hanges in $nvironmental and *egal re=uirements%
E% Morale Prolems +e%g% lac5 of face to face contact et!een supervisor and !or5er or even
senior management and ;unior management-%
/esign Product *ayouts? *ine 6alancing
*ine 6alancing is the process of assigning tas5s to !or5stations in such a !ay that the !or5stations
have appro<imately e=ual time re=uirements%
The o;ective of line alancing is to otain e=ual time re=uirements at ma;ority of the !or5stations% This
shortens the time of manufacturing as !ell as reduces the idle time% Often industry uses the term cycle
time to represent the time in !hich the organi7ations resources are engaged to complete a process and
idle time to represent the time in !hich the resources are left unused%
Cy&-e Time
6ycle time is the ma<imum time allo!ed at each !or5station to complete its set of tas5s on a unit% #f 'T
represents cycle time and / represents the desired output then !e can calculate cycle time as
/
OT
J time cycle J 'T
Ma8im'm O't,'t
#f !e 5no! !hat is the cycle time re=uired for the manufacturing of a product or offering of a service
!e can calculate the ma<imum output% #f O' is the Output capacity, OT is the operating Time and 'T is
the 'ycle time then
'T
OT
J capacity Output O' =
#f an automoile manufacturer !or5s for E hours and re=uires @ hours to complete its cycle then the out
put capacity !ould e E8@J 3 automoiles%
Minim'm N'mer of /or*stations Re7'ired
Organi7ations !or5ing especially service organi7ations side often design their !or5 facilities in a !ay
that they can increase their capacity output y increasing the numer of !or5 stations% #f / is the desired
E6
output, t is the time re=uired for a specific time and OT is the Operating Time then the numer of
!or5stations ) can e calculated as%
s tas5 time of sum J t
OT
t- +/-+
J )
Pre&eden&e Diagram
Precedence diagram? Tool used in line alancing to display elemental tas5s and se=uence re=uirements
%ine Ba-an&ing R'-es
H Assign tas5s in order of most follo!ing tas5s%
'ount the numer of tas5s that follo!%
H Assign tas5s in order of greatest positional !eight%
Positional !eight is the sum of each tas5:s time and the times of all follo!ing tas5s%
/esigning Process *ayouts re=uire certain information, !hich includes the follo!ing?
1% *ist of departments
3% Pro;ection of !or5 flo!s
3% /istance et!een locations
@% Amount of money to e invested
2% *ist of special considerations
6% *ocation of 5ey utilities
S'mmary
.acilities layout plays an important part in an organi7ation achieving its ma<imum potential% This also
indicates that facilities layout allo! an organi7ation to en;oy a competitive advantage over its
competitors% .acilities layout re=uire more than ;ust cost enefit analysis infect the decision re=uires
ho! much space is re=uired y the facility and ho! to configure or optimi7e the use of this space for the
product or process% Of the different types of product, process, fi<ed and hyrid types of configurations,
the current trend is to!ards cellular manufacturing and group technology%
'apital investments, materials handling costs and fle<iility are important criteria in ;udging most
facilities layout% *o! volumes of production do allo! the use of Group Technology or cellular
manufacturing% /esigning a process layout re=uires collecting information aout acceptale loc5 plan,
and translating the loc5 plan into a detailed layout% #n product layout, !or5stations are arranged in a
naturally occurring, heuristic +commonsense- for high volume of production% #n line alancing the tas5s
are assigned to !or5stations so as to satisfy all precedence and cycle time constraints !hile minimi7ing
the numer of !or5 stations%
2 Sim!e Prece#ence
%iagram
a
7
c #
e
0.1
min.
0.7
min.
1.0
min.
0.5 min. 0.2
min.
ED
Lesson 21
DESIGN O# /OR+ S5STEMS
O?e&ti(e
/esign of 9or5 Systems is an important component in Production and Operations Management% /esign
of 9or5 Systems forms the asis and e<plains the importance of !or5 design% /esign of 9or5 Systems
is used to descrie the t!o asic approaches to ;o design, the first approach focuses on $fficiency
through ;o speciali7ation and the other focuses ehavioral approaches to ;o design% /esign of 9or5
System also entails method analysis !hich in turn centers on ho! ;os are performed% Motivation and
Trust also form an important dimension in /esign of 9or5 systems as this alone provides an
opportunity to the Organi7ation to develop effective teams !ho can achieve organi7ations short and
long term o;ectives% Motivation and Trust oservations also emphasi7es !or5ing conditions that in turn
lead to !or5 measurements !hich leads to re!ard and compensation of the individual !or5ing for the
organi7ation% #n short this topic of /esign of 9or5 Systems provides the perfect ridge et!een
Production and Operations Management !ith &uman "esource Management%
Design of /or* Systems Introd'&tion
9or5 System /esign consists of ;o design, !or5 measurement and estalishment of time standards
and !or5er compensation%
The interesting fact is that even in decisions in other areas of design can affect the !or5 design
system or even a change in the !or5 design system can change the decisions in other areas% *i5e
Product or Service design !ill affect /esign of 9or5 Systems% *ayout /ecisions !ill also affect
/esign of Systems%
#t is thus logical to ensure that SRST$MS approach is follo!ed in a decision for /$S#G), so a
decision in one part of the system is e=ually replicated and acceptale to all the system% $%g% Product
or Service /esign !ould re=uire proper people !ith standardi7ed ;o description
Do Design
Co design involves specifying the content and methods of ;o% #n general the goal of the ;o design
is to create a !or5 system that is not only productive ut also efficient%
Co designers are concerned !ith?>
9hat !ill e done
9ho !ill do the ;o
&o! the ;o !ill e done
9here the ;o !ill e done
$rgonomics
A successful Co /esign must have the follo!ing =ualities
1%'arried out y e<perienced personnel !ho have the necessary training and ac5ground%
3%'onsistent !ith the goals of the organi7ation%
3%#n documented form%
@%(nderstood and agreed y oth management and employees%
2%Shared !ith the ne! employees%
6%.actors that affect Co /esign
.A'TO"S that affect Co design include
EE
1%*ac5 of 5no!ledge of the employees%
3%*ac5 of Management support%
3%*ac5 of documented ;o design !hich often leads to poor audit revie! and referral%
@%Co /esign can e carried out in 3 !ays the $fficient School and the 6ehavior School%
2%$fficiency School !as popular in 1F24s ased on .rederic5 9 TaylorNs Scientific Management
principles%
6%6ehavior school is relatively ne! concept and focused on !ays to eliminate !or5ers
dissatisfaction and incorporate the feeling of control in !or5%
Design of /or* Systems
1% Speciali7ation
3% 6ehavioral Approaches to Co /esign
3% Teams
@% Methods Analysis
2% Motions Study
6% 9or5ing conditions
S,e&ia-i1ation
The term speciali7ation refers to !or5 that concentrates on some aspect of a product or service%
Cos that have a narro! scope%
Assemly lines, medical specialties, M6A courses%
Speciali7ation ;os tend to yield high productivity, lo! unit costs and lead to high standard of living in
most of the industrial nations%
Speciali7ation in 6usiness? Advantages
/isadvantages
Be)a(iora- A,,roa&)es to Do Design
#n order to ma5e ;os more interesting and meaningful ;o designers often consider Co $nlargement,
Co "otation and Co $nrichment%
Co $nlargement relates to giving a !or5er a larger portion of the total tas5 y hori7ontal loading
Co "otation pertains to 9or5ers periodically e<change ;os
Co $nrichment is increasing responsiility for planning and coordination tas5s, y vertical loading
Moti(ation
The importance of these approaches to ;o design is that they have the potential to increase the
motivational po!er of ;os y increasing !or5er satisfaction through improvement in =uality of !or5
life%
Motivation al!ays influences =uality and productivity% #t contriutes to !or5 environment !here as
Trust influences productivity and employee>management relations
Teams
Organi7ation adopt teams in order to e<ploit the enefits of teams
&igher =uality
&igher productivity
Greater !or5er satisfaction
Self>directed teams are groups of empo!ered to ma5e certain changes in their !or5 process
EF
Met)ods Ana-ysis
Methods analysis deals !ith analy7ing ho! a ;o gets done, egins !ith overall analysis and then
moves to specific details li5e changes in tools and e=uipment, 'hanges in product design or ne!
products, 'hanges in materials or procedures and Other factors +e%g% accidents, =uality prolems-
Methods Analysis Procedure is simple and effective and does the follo!ing
#dentifies the operation to e studied
Gets employee input
Studies and documents the current method
Analy7es the ;o
Proposes ne! methods
#nstalls ne! methods
.ollo!>ups to ensure improvements have een achieved
Selecting Operations to study
Sometimes a supervisor or a foreman may re=uest an operations or part of the operations to e studied%
This !ould e !ith the intent to increase productivity and reduce costs% The guidelines for studying a
;o !ould include
A high laor content%
"epeated fre=uently%
(nsafe, tiring, unpleasant, noisy and environmentally poor%
0uality prolems, scheduling ottlenec5s etc%
Ana-y1ing t)e Do and ,ro,osing ne! met)ods
Co /esign Analyst should =uestion the integrity and effectiveness of present and proposed methods%
&e or she should use charts, graphs and veral descriptions to capture ho! the ;o is eing performed%
This can e the first asis and can lead to improvement in ;o design%
#-o! ,ro&ess &)art
'hart used to e<amine the overall se=uence of an operation y focusing on movements of the
operator or flo! of materials
9or5er>machine chart
'hart used to determine portions of a !or5 cycle during !hich an operator and e=uipment are usy
or idle
E8,erien&ed Do design ana-ysts often de(e-o, a &)e&*-ist and try to ans!er t)ese 7'estions
9hy is there a delay or storage at this pointG
&o! can travel distances e shortened
'an material handlings e reducedG
9ould a rearrangement of the !or5place result in greater efficiency%
'an similar activities e groupedG
9ould the use of additional or improved e=uipment e helpfulG
/oes the !or5er have any suggestion or recommendation for improvementG
Insta--ing t)e Im,ro(ed Met)od
Successful implementation of the proposed method changes re=uires convincing management of the
desiraility of the ne! method and otaining the cooperation of the !or5er%
#f the !or5er has een consulted than the tas5 of installing the ne! method is easier other!ise it can
ecome the toughest part%
F4
#f there is a paradigm change +ma;or change or ne! method- from the old method, the
implementation ma5es ta5e a longer time%
.ollo! up is re=uired to ensure that the changes have een incorporated%%
Motion St'dy and Motion St'dy Te&)ni7'es
Motion Study is the systematic study of the human motions used to perform an operation% The purpose
is to eliminate 8!eed>out unnecessary motions and identify the est se=uence of operations for
ma<imum efficiency% Motion study forms an important part in productivity improvements% #t is ased on
.ran5 Gilreths ric5 laying trade in the early 34th century, through the use of time motion study
techni=ues%
Motion Study Techni=ues often incorporate the follo!ing four types
1% Motion study principles > guidelines for designing motion>efficient !or5 procedures
3% Analysis of therligs > asic elemental motions into !hich a ;o can e ro5en do!n
3% Micro motion study > use of motion pictures and slo! motion to study motions that other!ise
!ould e too rapid to analy7e
@% 'harts
Motion study principles Gilreths !or5 laid the foundation for motion study principles, !hich are
guidelines for designing motion efficient !or5 procedures% The guidelines are divided into three
categories%
1% Principles of the use of ody%
3% Principles for the arrangement of the !or5 place%
3% Principles for the designs of tools and e=uipments%
/eveloping 9or5 Methods
An operations manager along !ith an analyst aims for motion efficiency y achieving the follo!ing
$limination of unnecessary motions
1% 'omination of various activities
3% "eduction in fatigue
3% #mprovement in the arrangement of the !or5place
@% #mprovement in the design of tools and e=uipment
T)er-ig Te&)ni7'es
Analysis of therligs > asic elemental motions into !hich a ;o can e ro5en do!n
Search implies hunting for an item !ith eyes or hands%
Select means to choose from a group of o;ects%
Grasp means to ta5e hold of the o;ect%
&old refers to retention of an o;ect that has een grasped%
Therlig Techni=ues
Transport load means movement of an o;ect after hold%
"elease load means to deposit the o;ect%
Some other common Therligs are #nspect, Position, Plan, "est and /elay%
Also .ran5 and *illian Gilreth are responsile for micro motion study as !ell%
9or5ing 'onditions
9or5ing 'onditions +cont:d-
9or5 Measurement determines ho! long it should ta5e to do a ;o% This may e focusing on an
individual:s performance or completion of a mega scale pro;ect% 9hen !e discuss the design part of
!or5 systems !e often discuss the importance of standard time in !or5 measurement% Standard time is
F1
the amount of time it should ta5e a =ualified !or5er to complete a specified tas5, !or5ing at sustainale
rate, using given methods, tools and e=uipments, ra! materials and !or5 place arrangements% #t also
employs the follo!ing common types of !or5 measurement techni=ues
1% Stop!atch time study
3% &istorical times
3% Predetermined data
@% 9or5 Sampling
Sto,!at&) time st'dy
Stop!atch time study is used to develop a time standard ased on oservations of one !or5er ta5en
over numer of cycles% That is then applied to !or5 of others of the same organi7ation !ho perform the
same !or5% The asic steps in stop !atch time study include
1% /efine the tas5 to e studied and inform the !or5ers !ho e studied%
3% /etermine the numer of cycles to oserve%
3% Time the ;o and rate the !or5ers performance
@% 'ompute the standard time
Also, the numer of cycles that must e timed is a function of three things
1% The variaility of oserved times
3% The desired accuracy
3% The desired level of confidence interval for the estimated ;o time
/esired accuracy is e<pressed as percentage of the mean of the Oserved Time%
)J +7s8a <
>
-
3
9here
Q is the numer of normal standard deviations needed for desired confidence
S is sample standard deviation
a is desired accuracy percentage
<
>
+< ar- is the sample mean
EBAMP%E
A Mechanical $ngineer !or5ing for an automoile manufacture in *ahore presents the follo!ing
information to the Operations Manager% The assemly !or5ers ta5e a mean time of 134 minutes to
assemle a single car !ith a standard deviation of 2 minutes% The confidence limit if F2T, The
Operations Manager !ill need ho! many oservations if the desired ma<imum error is K 2T
Solution
Given /ata
SJ 2 minutes,
Q is 1%F6 +since F2 '#-
<
>
J 134 minutes,
aJ 2 T
The formula is
)J +7s8a <
>
-
3
Sustituting the values
)J + +1%F6-+2-8+4%42-+134--
3
J+F6%4@-8+36-J3%6D studies J 3 studies
F3
De(e-o,ment of a Time Standard
/evelopment of a Time standard involves Oserved Time +OT-, )ormal Time +)T- and Standard Time
+ ST-%
Mathematically Oserved Time OT is represented y OT J W M8 n
Oserved Time OT is ;ust the average of the recorded times% Also )ormal Time )T is the
oserved time ad;usted for !or5er performance%
Simi-ar-y Norma- time NT:OT B PR
'omputed y multiplying oserved time !ith Performance rating%
)ormal time is the length of time a !or5er should ta5e to perform a ;o%
Anot)er im,ortant &on&e,t is Standard time
Standard TimeJSTJ)T M A. is the normal time plus allo!ance for delays li5e + getting a glass
of !ater or going to the !ashroom human needs-
Predetermined Time Standards
1% Predetermined Time Standards are pulished data that is ased on e<tensive research to
determine standard elemental times%
3% A common system is the Methods Time Measurement + MTM-
3% Analysts are trained and certified efore they can e allo!ed to use MTM%
MTM Ad(antages
1% They are ased on large numer of !or5ers under controlled conditions%
3% The analyst is not re=uired to rate performance in developing the standard%
3% There is no disruption of the operation%
@% Standards can e estalished even efore a ;o is done%
Com,ensation
An Operations Manger comes across t!o types of compensation, !or5ing for any service or
manufacturing ased organi7ation?>
1% Time>ased system, !hich is the compensation ased on time an employee has !or5ed during a
pay period%
3% Output>ased +incentive- system, !hich is compensation ased on the amount of output an
employee produces during a pay period
C)ara&teristi&s and #orm of In&enti(e P-an
Operations Manager ma5ing use of an #ncentive Plan must e ale to understand and identify the
follo!ing characteristics and form of #ncentive Plan%
1% Accurate
3% $asy to apply
3% 'onsistent
@% $asy to understand
2% .air
6% 'ompensation
F3
Ty,es of Indi(id'a- In&enti(e P-ans
Pa5istani organi7ations have employed various types of individual incentive plans !hich find ;udicious
applications in other countries of the !orld%
1% Group #ncentive Plans
3% Ono!ledge>6ased Pay System
3% Management 'ompensation
Of the three mentioned aove, the operations manager should e ale to identify the advantages and
disadvantages of each type of incentive plan%
S'mmary
The importance of !or5 design has een often overloo5ed ecause the !or5 of Operations Manager in
the past !as not lin5ed !ith the &uman "esource /epartment of the same organi7ation% Times have
changed and no! Operations side !or5 in tandem !ith &uman "esource /epartment% Operations
Managers are trained to understand the t!o asic approaches to ;o design% This lecture provided us
!ith an opportunity that !e discussed the advantages and disadvantages of speciali7ation and
6ehavioral approaches to Co /esign%
Supplementary discussions focused on Method Analysis and Motion Study Techni=ues, !hich focused
on efficiency aspect of the ;o% This may ignore the ehavior aspect ut still form an important and
integral part of ;o design%
And last ut not the least !or5 measurements dealt specifically !ith the length of time needed to
complete a ;o and !as lin5ed !ith Personnel Planning, 'ost $stimation, 6udgeting, Scheduling and
9or5er 'ompensation%
F@
Lesson 22
%OCATION P%ANNING AND ANA%5SIS
%e&t're O?e&ti(es
6y studying location planning and analysis, an operations management student should e ale to
understand the
#mportance of *ocation Planning and Analysis
'riteria for Manufacturing and Service *ocation selection considerations
Transportation Model
Im,ortan&e of %o&ation
*ocation decisions are not limited to one time strategic planning decisions for uilding a ne!
manufacturing or service facility rather most of the organi7ations face the challenge of increasing their
capacity through selection of ne! locations or e<tension of e<isting locations%
As an operations management student, !e can focus on the importance of location for any organi7ation
through various departments of the organi7ation%
Accounting !hich prepares cost estimates for changing locations as !ell as operating at ne!
locations%
/istriution !hich see5s !arehouse layouts that ma5e material handling easier and customer
response shorter%
#mportance of *ocation
$ngineering !hich considers the impact of product 8service location choices%
.inance !hich performs the financial analysis for investments in ne! locations%
&uman "esources, !hich hires and trains employees to support ne! locations or relocations of
operations%
Management #nformation Systems !hich provide information technologies that lin5 operations
at different locations%
#mportance of *ocation
Mar5eting !hich assesses ne! locations and revised locations that are popular !ith the
customers%
Operations Management !hich see5s and finali7es locations that create, sustains, protect and
pro;ect the est performance criteria for the !hole organi7ation%
*ocation plays an important role for every usiness !hether ne! or e<isting% 9e can refer to the same
airport e<ample !e discussed in our earlier lectures efore% The airport is not only cro!ded ut fails to
separate the different services it provides to different categories of individuals present at the airport% The
airport may need to e<plain its e<isting facility% #n Pa5istan too, !e have seen ne! airports set up at
Oarachi, *ahore and #slamaad !hich cater to greater traffic of the aero planes and more passengers%
*ocation decisions play an integral part of the strategic planning process of every organi7ation% #t is
important to learn aout the need and nature of location decisions% As a part of his routine
responsiilities a senior Operations Manager often carries out the evaluation of different availale
locations%
G-oa-i1ation and Geogra,)i& Dis,ersion of O,erations
Gloali7ation has affected Pa5istan tremendously% A numer of Multi )ational 'orporations are
operating and functioning in Pa5istan% #t is important to spend some time in understanding ho!
gloali7ation ma5es it necessary and pertinent for a M)' to disperse and spread its scope and function
of Operation% #t !ould e more correct if try to understand the philosophy of M)':s not operating in
certain regions or certain particular countries% The !estern !orlds call these the disadvantages of
Gloali7ation, if an organi7ation decides to pac5 up its usiness and leave a host company%
F2
Disad(antages to G-oa-i1ation
The common disadvantages !hich lead to a M)' forgoing gloali7ation includes%
&anding over proprietary Technology to host countries%
Political ris5s%
Poor $mployee +Managers and !or5er- s5ills%
Slo! customer response time%
$ffective communication et!een interfaces difficult
Managing G-oa- O,erations
9hen organi7ations ecome gloal they often end up paying a heavy price in terms of managing
comple< managerial issues and challenges%
&ost country languages
&ost 'ountry )orms and 'ustoms%
9or5force management
(nfamiliar la!s and regulations%
(ne<pected 'ost mi<%
Need for %o&ation De&isions
0uite often M)':s move to a host country !ith a lot of hype and propaganda of ringing ;os to the
local laour ut the reality is its o!n need to increase its revenue and profits% Most of the time the need
for location decision focuses on
Mar5eting Strategy
'ost of /oing 6usiness
Gro!th
/epletion of "esources
Nat're of %o&ation De&isions
*ocation /ecisions are primarily strategic in nature and have certain o;ectives and options attached
Strategic #mportance
1% *ong term commitment8costs
3% #mpact on investments, revenues, and operations
3% Supply chains
O;ectives
1% Profit potential
3% )o single location may e etter than others
3% #dentify several locations from !hich to choose
Options
1% $<pand e<isting facilities
3% Add ne! facilities
3% Move
Ma*ing %o&ation De&isions
1% /ecide on the criteria
3% #dentify the important factors
3% /evelop location alternatives
@% $valuate the alternatives
F6
2% Ma5e selection
*ocation /ecision .actors
Regiona- #a&tors
*ocation of ra! materials
*ocation of mar5ets
*aor factors
'limate and ta<es
Comm'nity Considerations
0uality of life
Services
Attitudes
Ta<es
$nvironmental regulations
(tilities
/eveloper support
Site Re-ated #a&tors
>*and
>Transportation
>$nvironmental
>*egal
M'-ti,-e P-ant Strategies
1% Product plant strategy
3% Mar5et area plant strategy
3% Process plant strategy
Mostly mi< of all three
#a&tors Affe&ting %o&ation De&isions
The process of determining a geographic site for firms operations ta5es into account oth manufacturing
and mar5eting aspects% 9e ;ust focus on the manufacturing aspects as its more closely related to
Operations Management
Man'fa&t'ring
.avorale *aor 'limate
Pro<imity to mar5ets%
0uality of *ife
Pro<imity of Suppliers and "esources%
Pro<imity to the Parent 'ompany:s facilities%
(tilities, Ta<es and "eal estate costs%
Other factors + e<pansion, construction costs, and location near the high!ay or main rail!ays-
Dominant #a&tors in Ser(i&es
FD
%oo* for &on&e,t &)e&* information ,ro(ided y o'r e8,ert3 /e a-so ,resent t)e fo--o!ing
dominant fa&tors in se-e&tion of -o&ations for ser(i&es3
Pro<imity to 'ustomers%
Transportation costs and pro<imity to mar5ets%
*ocation of competitors%
Site specific factors%
Trends in %o&ations
.oreign producers locating in different host countries even Pa5istan
'urrency fluctuations
Cust>in>time manufacturing techni=ues
Micro>factories
#nformation Technology
E(a-'ating %o&ations
'ost>Profit>1olume Analysis
/etermine fi<ed and variale costs
Plot total costs
/etermine lo!est total costs
%o&ation Cost"Vo-'me Ana-ysis
Assumptions
.i<ed costs are constant
1ariale costs are linear
Output can e closely estimated
Only one product involved
$<ample 1? 'ost>1olume Analysis
The =uantity is 14,444 and the .i<ed and variale costs for four potential locations
E8am,-e $C So-'tion
E8am,-e $C So-'tion
+ixe#
Costs
0aria7!e
Costs
Tota!
Costs

2
)
C
%

4s250>000
100>000
150>000
200>000

4s11:10>000;
30:10>000;
20:10>000;
35:10>000;

4s360>000
600>000
350>000
550>000

$ocation )i&ed
Cost
Variable
Cost
*
+
C
,
-s %.","""
"","""
.","""
%"","""
-s
/"
%"
/.

FE
9e calculate the variale costs y multiplying the unit cost !ith the given =uantity and
calculate total costs for all four locations
9e also graph them to decide effectively, the total costs are graphed and !e see that for 14,444
units clearly location c has an advantage, eyond 14,444 units, diseconomies of scales set in and
ma5es *ocation ' loo5 less lucrative%
9e select the *ocation for !hich the total cost is the lo!est%
Our *ocation ', sho!s the lo!est total cost for an e=ual =uantity of 14,444 units%
E(a-'ating %o&ations
Operations Manager can evaluate usiness site locations y ma5ing use of the follo!ing three
techni=ues
1% Transportation Model
/ecision ased on movement costs of ra! materials or finished goods
3% .actor "ating
/ecision ased on =uantitative and =ualitative inputs
3% 'enter of Gravity Method
/ecision ased on minimum distriution costs
Trans,ortation Met)od
Transportation Method is a =uantitative approach that can help solve multiple facility location prolems%
#t is used to determine the allocation pattern that can e used to minimi7e the cost of shipping products
from t!o or more plants or sources of supply to t!o or more !arehouses or destinations%
6ased on *inear Programming%
#t does not solve all the prolems of the multiple facility location%
#t only finds the est shipping pattern et!een plants and !arehouses for a particular set of
plant locations !ith a given capacity%
The Operations manager or logistics analyst must try a variety of location>capacity
cominations and use this to find the optimal distriution for each alternative%
/istriution costs +variale shipping and possile variale production costs- are important
inputs in evaluating a particular location allocation comination%
#nvestments costs and other fi<ed costs are also considered%
0ualitative factors +li5e land and construction cost against annual profits- are also included in
the analysis for each location capacity comination%
>Step #
Set up the initial matri<8taleau% The asic steps include
'reate a ro! for each plant +e<isting or ne!- eing considered and a column for each !arehouse%
Add a column for plant capacities and a ro! for !arehouse demands and then insert specific
numerical values%
800
700
600
500
600
300
200
100
0
2nnua! $utut :000;
4s:000;
8 10 12 16 16 6 6 2 0
2
)
C
)
Suerior
C
Suerior
2
Suerior
%
FF
>Ste, II
$ach cell not in the re=uirement ro! or capacity column represents a shipping route from a plant to
!arehouse% #nsert the unit costs in the upper right hand corner of each of these cells%
E8am,-e
Pa5istan 'ellular Moile 'ompany plans to uild a 2444 unit production plant at #slamaad ecause
demand for moile phones in Pa5istan has gone up% The taleau on the ne<t slide sho!s the unit cost of
shipping one truc58loader of moiles from the e<isting plant at *ahore and the possile location at
#slamaad%
Plant
/AREHOUSE
1 3 3
'apacity
*ahore 244%4 644%4 2244 2444
#slamaad D44%4 @244 6444 2444
RE9UIREMENTS 3244 @244 3444
14444
14444
Matri86Ta-ea'
#n transportation method, the sum of the shipments in a ro! must e=ual the corresponding plants
capacity%
Similarly the sum of the shipments to a column must add to corresponding !arehouses demand
re=uirements% Thus shipments to 9arehouse 1 from *ahore and #slamaad must e=ual 3244
moiles%
/ummy Plants or 9arehouses
The prime re=uirement of transportation model is that the sum of capacities must e=ual the sum
of demands, !hich happens to e 14,444 units of moile phones%
#) reality the total capacity may e<ceed total re=uirements or vice versa%
D'mmy P-ants or /are)o'ses
#f capacity e<ceeds re=uirements y say M units, !e add e<tra column + a dummy !arehouse-
!ith a demand of M units and ma5e the shipping costs in the ne! created cell e=ual to "s% 4%
Since no shipments are made to the dummy !arehouse so it represents an unused plant capacity%
/ummy Plants or 9arehouses
#f re=uirements e<ceed capacity y say M units, !e add e<tra ro! + a dummy plant- !ith a
supply of M units and ma5e the shipping costs + stoc5 out costs- in the ne! created cell e=ual to
"s% 4%
Since no shipments are made to the dummy !arehouse or plants so this step is automatically
ta5en care of in soft!are used for such issues%
Optimal Solution
9e try to find the least allocation cost process%
And !e 5eep on repeating !ith various options till a ne! solution !ith least costs are otained
and !e call it the optimal solution%
144
Plant
/AREHOUSE
1 3 3 /ummy
'apacity
*ahore
1%4
0.<<
6%4 1%4
0.<<
4 2444
#slamaad
D%4 3%44
>.<<
6%44
.<<
4 2444
D'mmy 4 4 4 4
RE9UIREMENTS
3244 @244 3444 4 14444
14444
The total transportation cost !ould e Sum of all (nits time M the (nit 'ost
J 3244+1%4-K@244+3%4-K3244+1%4-K244+6%4-
J3244KF444K3244K3444J"s 1D,444%
The operations manager needs to e ;udicious in his approach and may decide to e<pand the plant at
*ahore and uild a small plant in #slamaad%
S'mmary
The lecture focused primarily on the importance of location% 1arious aspects relating to *ocation
Planning and Analysis !ere focused% M)':s reasons for not selecting various countries under the gar
of disadvantages in Gloal Operations !ere also e<amined% Site locations for oth manufacturing and
services !ere considered% *ast ut not the least a detailed study of the Transportation Model !as also
carried out% Students should also 5no! ho! to ma5e use of cost volume analysis and transportation
model to carry out practical investigation of real life time Operations Management prolems%
141
Lesson 23
MANAGEMENT O# 9UA%IT5
After completing the lecture on Management of 0uality, the POMA students should e ale to
understand the term =uality and the importance of 0uality% The student should e ale to learn the
/eterminants of 0uality, !hen they discuss Total 0uality management also they should e ale to
identify the various costs associated !ith 0uality% The students should also e ale to appreciate the
famous #SO F444 and #SO 1@444 =uality systems, !hich are also actively seen in Pa5istan% And last ut
not the least out of curiosity than academic interest the students should e a!are of philosophies of
0uality Gurus%
Introd'&tion
0uality Management can e understood only if !e are ale to understand the term 1uality, which is
defined as
9'a-ity is t)e ai-ity of a ,rod'&t or ser(i&e to &onsistent-y meet or e8&eed &'stomer
e8,e&tations3
0uality as determinant of "evenue has een often neglected, people tend to associate =uality !ith high
price of the product or item they !ant to purchase, historically spea5ing this is an incorrect statement%
The deate et!een American and Capanese philosophy proves that =uality is offered free of cost and is
the prime source of revenue or profit%
9hen the American industry in D4s and E4s tal5ed aout cost cutting and productivity improvement
they did not paid heed to 0uality Management, !hich !as the A&oly GrailB for the Capanese
#ndustry%
9hen Capanese manufacturers entered and occupied the American Mar5ets the only thing that made
their products and services etter than the Americans !as the concept of 0uality, !hich led to
increase in the revenues and productivity of Capanese manufacturers%
E(o-'tion of 9'a-ity Management
1% Prior to #ndustrial "evolution, the s5illed craftsman performed all stages of production% Pride in
!or5manship and reputation often formed the asis of producing a =uality !ell% One or small group
of !or5ers !as responsile for the entire product% After industrial revolution and speciali7ation and
division of laour each !or5er !as then responsile for small portion of !or5% This led to loss in
pride of !or5manship and failure to produce =uality products%
3% .rederic5 9inslo! Taylor the father of scientific management rought ac5 the concept of =uality
y incorporating product inspection as !ell as focusing on the importance of manufacturing
management%
3% G%S% "adford introduced the concept of =uality in the product design stage and lin5ed high =uality
!ith increased productivity and lo!er costs%
@% 1F3@ 9% She!hart of 6ell Technologies introduced the Statistical process control charts%
2% 1F34 &%.%/odge and &%G%"omig also of 6ell Technologies introduced Tales for acceptance
sampling%
6% 1F@4:s > (niversities, 6ell Technologies and (S Army !ere using Statistical sampling techni=ues
for training engineers% American Society for 0uality 'ontrol a5a AS0' + no! AS0- !as formed
during the same era
D% 1F24:s > 0uality assurance8T0' +The era of /eming, Curan and .eigenaum- !hich changed the
concepts of =uality for ever%
143
E% 1F64:s > Qero defects championed y 0uality Guru Phillip 'rosy% #t produced the perfect missile
for (S army
F% 1FD4:s > 0uality assurance in services li5e health care, an5ing and travel industry%
14% *ate 1FD4s the =uality assurance concept changed to Strategic =uality approach, &arvard Professor
/avid Garvin advocated preventing mista5es from occurring all together%
0uality Assurance vs% Strategic Approach
Strategic Approach is the S(P$"*AT#1$ form of 0uality Assurance
0uality Assurance places emphasis on finding and correcting defects efore reaching
mar5et
Strategic Approach is Proactive, focusing on preventing mista5es from occurring and places
greater emphasis on customer satisfaction
9'a-ity G'r'
)he !uality 7urus are given more respect and recogni8ed as 9ey 6ontributors to !uality +anagement.
Presented below is their contributions in a nut shell, students should learn to recogni8e these
1% 9alter She!hart is also 5no!n as A.ather of statistical =uality controlB
3% 9% $d!ards /eming presented 1@ points for =uality management !hich focused primarily on
common cause of variation%
3% Coseph M% Curan is famous for his concept of A0uality is the fitness for useB%
@% Armand .eigenaum said, A0uality is a total field or total functionB%
2% Philip 6% 'rosy is famous for his philosophy that A0uality is freeB%
6% Oaoru #shi5a!a> presented the Afish one diagramB or Acause effect diagramB%
D% Genichi Taguchi roust design for designing products insensitive to change in environment%
Taguchi:s contriution !as, ATaguchi loss functionB%
Dimensions of 9'a-ity
The concepts of dimensions of =uality represent the fact that customers value a product 5eeping in
mind different dimensions% 0uality and Operations Managers come across customer perceptions
relating to demand for durale, reliale, performance to a standard and that too in a!ay that is
aesthetically correct%
1% Performance > main characteristics of the product8service
3% (esthetics > appearance, feel, smell, taste
3% pecial 2eatures > e<tra characteristics
@% 6onformance > ho! !ell product8service conforms to customer:s e<pectations
2% *eliability > consistency of performance
6% :urability > useful life of the product8service
D% Perceived !uality . indirect evaluation of =uality +e%g% reputation-
;. erviceability . service after sale
143
$<amples of 0uality /imensions
$<amples of 0uality /imensions +'ont:d-
Ser(i&e 9'a-ity
Tangiles
'onvenience
"eliaility
"esponsiveness
Time
Assurance
'ourtesy
%imension

1. #er'"r%ance

2. .est!etics

3. Special 'eat(res

:Pro#uct;
2utomo7i!e
2&eryt!in* 1"r:s8 'it H
'inis!
0ide8 !andlin*8 *rade "'
%aterials (sed
Interi"r desi*n8 s"'t t"(c!

5a(*e@c"ntr"l place%ent
Cell(lar p!"ne8 C?
player

:Ser,ice;
2uto 4eair

.ll 1"r: d"ne8 at a*reed
price
Friendliness8 c"(rtesy8
C"%petency8 E(ic:ness
Clean 1"r:@1aitin* area

<"cati"n8 call 1!en ready
C"%p(ter dia*n"stics

?i%ensi"n

5. 0elia)ility

6. ?(ra)ility

7. #ercei&ed
E(ality

8.
Ser&icea)ility
,#r"d(ct-
.(t"%")ile
In'reE(ency "' )rea:d"1ns

Use'(l li'e in %iles8 resistance
t" r(st H c"rr"si"n

+"p$rated car

7andlin* "' c"%plaints and@"r
reE(ests '"r in'"r%ati"n
,Ser&ice-
.(t" 0epair
C"r: d"ne c"rrectly8
ready 1!en pr"%ised

C"r: !"lds (p "&er
ti%e

.1ard$1innin* ser&ice
depart%ent

7andlin* "' c"%plaints

14@
$<amples of Service 0uality
Dimension E8am,-es
1% Tangiles 9ere the facilities clean, personnel neatG
3% 'onvenience 9as the service center conveniently locatedG
3% "eliaility 9as the prolem fi<edG
@% "esponsiveness 9as customer service personnel !illing and ale to ans!er =uestionsG
2% Time &o! long did the customer !aitG
6% Assurance
/id the customer service personnel seem 5no!ledgeale aout the
repairG
D% 'ourtesy 9ere customer service personnel and the cashier friendly and courteousG
142
Lesson 24
SERVICE 9UA%IT5
%earning O?e&ti(es
After completing this lecture the students should e ale to descrie the five dimensions of service
=uality in detail% This !ould enale them to use the service =uality gap model to diagnose =uality
prolems also understand the =uality service y design concepts% This lecture !ould provide the
students !ith an opportunity to learn and illustrate ho! Taguchi methods and po5a>yo5e methods are
applied to =uality design% The students should e ale to at least gain a!areness ho! organi7ations
perform service =uality function deployment in order to improve their operations side% The students
should also e ale to construct a statistical process control chart%
Moments of Tr't)
$ach customer contact +et!een the service provider and customer- is called a moment of truth%
An organi7ation has the aility to either satisfy or dissatisfy them !hen you contact them%
A service recovery is satisfying a previously dissatisfied customer and ma5ing them a loyal
customer%
Dimensions of Ser(i&e 9'a-ity
/imensions for Service 0uality are more or less the same !hich !e associate !ith the concept of
0uality in General% Also, !e as service demanders +customers- are !ell a!are of the fact that !e al!ays
see5 reliaility, agility +prompt responsiveness-, assurance, tangiility and empathy !hile eing
provided !ith a service% More or less these dimensions help the customer to rate and distinguish one
service provider from anotherP a good service from a ad service% Often organi7ations use a performance
measure matri< using the same service dimensions and they often call it "AT$ ased on the 2
dimensions descried elo!%
1% *eliability? Perform promised service dependaly and accurately%
3% *esponsiveness? 9illingness to help customers promptly%
3% (ssurance? Aility to convey trust and confidence%
@% )angibles? Physical facilities and facilitating goods%
2% <mpathy? Aility to e approachale%
3ormally in such situations, * represents *eliability and *esponsiveness, ( represent (ssurance, )
represents )angibles and < represents <mpathy respectively.
Per&ei(ed Ser(i&e 9'a-ity
#t is often seen that a customers re=uired service is not provided y the service provider primarily
ecause of a gap et!een Service 0uality /imensions and Service 0uality Assessment y the customer%
C"rd "'
%"(t!
#ers"nal
needs
#ast
e3perience
23pected
ser&ice
#ercei&ed
ser&ice
Ser,ice @ua!ity
%imensions
0elia)ility
0esp"nsi&eness
.ss(rance
2%pat!y
+an*i)les
Ser,ice @ua!ity 2ssessment
1. 23pectati"ns e3ceeded
2SI#S ,6(ality s(rprise-
2. 23pectati"ns %et
2SJ#S ,Satis'act"ry E(ality-
3. 23pectati"ns n"t %et
2SK#S ,Unaccepta)le
E(ality-
146
'ustomer
Perceptions
'ustomer
$<pectations
Service
/elivery
Service
Standards
Management
Perceptions
of 'ustomer
$<pectations
Managing the
$vidence
'onformance
Service /esign
(nderstanding
the 'ustomer
'ustomer Satisfaction
GAP 2
'ustomer 8
Mar5eting "esearch
GAP 1
'onformance
GAP 3
'ommunication
GAP @
/esign GAP 3
Ser(i&e 9'a-ity Ga, Mode-
9e can pictorially capture the gaps that e<ist et!een service provided and the service demanded
Ser(i&e Ga, Ana-ysis
A good e<ample !here gap analysis is used for improvements in usiness is in the services
field
The most popular assessment tool used in service =uality is called S$"10(A*, !hich
involves a set of the 2 most important dimensions of =uality according to ran5ings of
customers
Also involves a set of 2 gaps !hich represent the difference et!een customers:
e<pectations and perceptions or in other !ords the difference et!een e<pected level of
service vs% Actual level of service provided
S$"10(A* +Stands for S$"1#'$0(A*#TR-%
Ser(7'a- Mode- Ga,s
*et:s try to capture all 2 gapsP one y one this !ould help us to understand in detail the 2 dimensions of
service =uality%
Ga, $
)he difference between actual customer e%pectations and management=s idea or perception of customer
e%pectations.
Managers and employees have a very internal process>oriented vie! of their usiness, it is tough to
rea5 this vie! and to see things the !ay the customer does
This gap of the S$"10(A* Model can help management !ith customer service
Ga, 0
+ismatch between manager=s e%pectations of service 1uality and service 1uality specifications
To implement a system to improve this gap, management must first understand e<actly !hat the
customer !ants
14D
#f this understanding is not present, it !ill e impossile for management to 5no! !hether their
e<pectations are aligned !ith customer specifications%
Ga, =
Poor delivery of service 1uality
Once the specifications from gap 3 are aligned the ne<t step is to deliver these services in a perfect
manner
0uality of delivery must e perfected during the interaction !ith the customer
The employees that are responsile for these actions are referred to as contact personnel
Some reasons for a lac5 of =uality include poor training, communication, and preparation%
Ga, >
:ifferences between service delivery and e%ternal communication with customer
'ustomers are influenced y !hat they hear and see aout a company:s service
9ord>of>mouth pulicity and advertising are main outlets !hich customers open their
opinions to
The difference et!een !hat a customer hears aout a company:s service and !hat is
actually delivered is represented y gap @
This gap can lead to dangerously negative customer perceptions
Ga, . C Differen&es et!een E8,e&ted and Per&ei(ed 9'a-ity
This gap is directly related to everyone:s perception of service =uality
'ustomers e<pect certain things from certain companies
9hen someone goes into a Mc/onalds to order their favorite meal a 6ig Mac, they are
e<pecting e<actly !hat they are accustomed to getting +a =uic5, no hassle, tasty ig urger
!ith all the !or5s-% #f it ta5es 12 minutes to get a 6ig Mac that doesn:t even have the
famous special sauce on it the customer:s perceived service of Mc/onalds is going to
plummet%
#f gaps 1 through @ are closed to a minimum then gap 2 should follo!, if there are any gaps
left in steps 1 through @ the perceived customer service =uality !ill e negatively affected
The !ay to ma5e sure these gaps are closed is through thorough systems design, precise
communication !ith customers, and a !ell>trained !or5force%
9'a-ity Ser(i&e y Design
9e had discussed earlier, that design of a product or service half ensures a good productive system and
!e did mention aout 0uality indirectly% 9e no! ta5e a direct approach and identify the !ays in !hich
!e can incorporate and identify 0uality in the /esign of Services%
1% 0uality in the Service Pac5age ?0uality ased service should e offered at same price, clu class
passengers in an airline though eing provided additional lu<ury are not ale to ring enough
revenue% An airline that does not add =uality !ould loose out to its competitors%
3% Taguchi Methods +"oustness-? "elate to the =uality ased methods eing ale to deliver under all
possile environments% #f a company is unale to offer an after sales service to a customer at any
particular place in the same country, it !ould simply lose out to its competitors%
3% Po5a>Ro5e? Po5a Ro5e +pronounced PO&>5ah RO&>5ay- is the Capanese !ord for mista5e proof%
#n services, a simple mista5e can have dire conse=uences, thin5 of a hair dresser or stylist giving
you a !rong haircut% &is mista5e cannot e rectified ecause service again is an entity !hich is
ased on transaction et!een the service provider and service receiver% These
devices8strategies8mechanisms8methods are used either to prevent the special causes that result in
14E
defects, or to ine<pensively inspect each item that is produced to determine !hether it is acceptale
or defective%
@% 0uality .unction /eployment? is also 5no!n as 0./ or &ouse of 0uality% #t is an important tool of
0uality Management and allo!s a company not only to enchmar5 itself !ith industry leader ut
also to revie! its internal operations critically%
The thing to rememer here is that 0uality in design ensures the safe as !ell as reliale operations of
the service% 'onsider for e<ample the simple case of an oil change or a hair cut% #f the service provider is
unale to include 0uality in service, or fails to provide a consistent service under all conditions or fails
to do ;ustice to idea of mista5e proof service or is unale to deploy 0uality .unction in his service, he or
she !ould lose customers and competitive advantage along !ith loss in revenues and increase in costs%
C-assifi&ation of Ser(i&e #ai-'res !it) Po*a"5o*e O,,ort'nities
Server $rrors 'ustomer $rrors
Tas5? /oing !or5 incorrectly Preparation? .ailure to ring necessary
materials
Treatment? .ailure to listen to customer $ncounter? .ailure to follo! system flo!
Tangile? .ailure to !ear clean uniform "esolution? .ailure to signal service failure
Ho'se of 9'a-ity
0./ can strongly help an organi7ation focus on the critical characteristics of a ne! or e<isting product
or service from the separate vie!points of the customer mar5et segments, company, or technology>
development needs%
Achieving Service 0uality? Service 0uality can e achieved y ma5ing use of the follo!ing strategies
'ost of 0uality
Service Process 'ontrol
Statistical Process 'ontrol
(nconditional Service Guarantee
9e !ill discuss all four in detail during our discussions in lectures that follo! this lecture for the time
eing !e can reiterate the fact that =uality is offered free of cost% Also, as prevention is etter than cure,
it ma5es a lot more sense to incur cost in prevention of defects instead of allo!ing the defects to occur
and then rectifying them% Statistical Process 'ontrol is one important tool to ensure that Service 0uality
is achieved efore a defect is introduced in the service eing offered or product eing manufactured%
I
%
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C(st"%er 23pectati"ns
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" Lilla*e L"l &"
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Ser&ice 2le%ents
0el ati"ns!i ps
127 82 63 102 65
1
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Costs of Ser(i&e 9'a-ity FBan* E8am,-eG
This e<ample sho!s ho! a !ea5 design service can incur loss in customer service, !hich leads to loss
in revenues% 9ith this e<ample !e also try to focus our attention on the concept of cost in =uality
dimension% 9e try to capture the importance of prevention costs and ho! they are more eneficial to the
organi7ation as compared to detection and failure costs% As a rule of thum it is said that prevention
costs are half the detection costs and aout 13 to 16T of failure costs, ut these percentages often fail to
represent, the cost e<penditures in all types of services%
Failure costs Detection costs Prevention costs
External failure:
$oss of future business Process control 0uality planning
1egative word2of2#outh Peer review 3raining progra#
$iability insurance 4upervision 0uality audits
$egal 5udg#ents Custo#er co##ent card ,ata ac6uisition and analysis
Interest penalties Inspection -ecruit#ent and selection
4upplier evaluation
Internal failure:
4crapped for#s
-ework

Recovery:
7&pedite disruption
$abor and #aterials
Contro- C)art of De,art're De-ays
9e tal5ed aout the concept of Service =uality and one of its dimensions !as Tangiility% 9e can apply
this dimension to the service provided y airlines operating in Pa5istan% #f !e happen to visit any airport
in the northern part of Pa5istan during !inters especially during the months of /ecemer and Canuary,
!e face a situation !here often there is a delay in the flight arrival and departure% 9e can ma5e good
use of statistics to improve our service =uality% #n the graph elo! !e have een ale to identify a
*o!er
'ontrol *imit and an (pper 'ontrol *imit%
114
111
Lesson 25
TOTA% 9UA%IT5 MANAGEMENT
Total 0uality Management is a philosophy that involves each and every individual in an organi7ation in
a continual effort to improve =uality and achieve customer satisfaction%
T)e T9M A,,roa&)
T0M is not called philosophy for nothing% #t is that common vie!point as !ell as attitude shared y the
!hole organi7ation that helps the organi7ation achieves its prime o;ective of increase in revenue as
!ell as a continuous relationship !ith the customer, y providing a =uality ased service !hich fulfills
the customer:s needs and re=uirements%
#f !e apply the T0M approach !e can identify the role played y various departments and interfaces of
the organi7ation% These roles at the functional and departmental levels if not in line !ith the
organi7ational strategy !ould not allo! the organi7ation to pursue T0M%
Sr3 N T9M A,,roa&) De,artment
1 .ind out !hat the customer !ants Mar5eting
3
/esign a product or service that meets or
e<ceeds customer !ants
/esign /ept
3
/esign processes that facilitates doing the ;o
right the first time
Operations /ept
@ Monitor and Audit +Oeeping trac5 of- results Senior8GM Managers
2 $<tend these concepts to suppliers S'M 8 *ogistics89arehouse 8Materials
T9M CRITICISMS
T0M Philosophy is often critici7ed for reasons !hich sho! !ea5 implementation or poor management
perspective% The common criticism against T0M is?
1% T0M program not lin5ed to overall Organi7ational Strategy? This is the !ea5ness of top
management not a !ea5ness in the T0M philosophy%
3% 0uality ased decisions not attached to revenue or mar5eting strategies? 0uality concept should
e included in the functional side and not treated as separate and distinct from the functional
departments%
3% #ncomplete planning !ith no clear cut road map for T0M implementation? A !ea5 implantation
strategy that does not identify the milestones, goals and step y step o;ectives%
@% "igid and impractical T0M goals? An asence of managerial s5ill, T0M goals should e
achievale and tangile%
2% )on training of employees aout T0M philosophy% $mployees if not trained !ont e ale to
ma5e est use of T0M philosophy%
$lements of T0M
T0M is a philosophy so its elements consist of the various strategies, tactics !hich includes the
follo!ing?
'ontinual improvement
'ompetitive enchmar5ing
$mployee empo!erment
Team approach
/ecisions ased on facts
Ono!ledge of tools
Supplier =uality
'hampion
0uality at the source
Suppliers
113
Of the elements descried aove, !e should also focus our attention on the idea of continuous
improvement as !ell as 0uality at the Source%
'ontinuous #mprovement? Philosophy that see5s to ma5e never>ending improvements to the process of
converting inputs into outputs% The Capanese manufacturer as !ell as service providers have longed used
this concept% Oai7en is the Capanese !ord for continuous improvement%
0uality at the Source? The philosophy of ma5ing each !or5er responsile for the =uality of his or her
!or5%
Determinants of 9'a-ity
The various /eterminants associated !ith the =uality concept in general and T0M philosophy in
particular is?
1% 0uality of design? #ntension of designers to include or e<clude features in a product or service
3% 0uality of conformance? The degree to !hich goods or services conform to the intent of the
designers
3% 0uality of $ase of (se? $ase of use and instructions to use increase the chances ut do not
guarantee that a product !ill e used for intended purpose and function properly and safely%
@% 0uality of Service after /elivery? The degree to !hich goods or services can e recalled and
repaired, ad;ustment, replacement or uyac5 or reevaluation of service all come under this
category%
T)e Conse7'en&es of Poor 9'a-ity
The common conse=uences of Poor 0uality are?
1% *oss of usiness? *oss in sales, revenues and customer ase%
3% *iaility? A poor =uality product or service comes !ith the danger of the organi7ation eing
ta5en to court y an unhappy or affected customer%
3% Productivity? *oss in productivity as more time is spend in rectifying the errors or short coming
then producing more%
@% 'osts? #ncrease in costs as a poor =uality product is repaired or replaced or made ne!%
Res,onsii-ity for 9'a-ity
0uality 'ontrol /epartment cannot e held responsile for 0uality alone% 0uality is the responsiility
of each and every individual !or5ing for the organi7ation% #f !e loo5 into any organi7ation e it a
manufacturing or service provider !e can see the follo!ing departments !or5ing diligently for
achievement of 0uality%
1% Top management
3% /esign /epartment
3% Procurement /epartment
@% Production8operations /epartment
2% 0uality assurance /epartment
6% Pac5aging and shipping /epartment
D% Mar5eting and sales /epartment
E% 'ustomer service /epartment
Costs of Tota- 9'a-ity Management
There is a difference in opinion amongst e<perts !hen they analy7e costs !ith respect to T0M% .e!
e<perts feel that failure costs should e ta5en up as internal and e<ternal separately and others feel they
should e ta5en as one single entity of failure cost%
1% .ailure 'osts > costs incurred y defective parts8products or faulty services% $<perts are of the
opinion that on average an organi7ation loses 34 to 34T of its revenue ecause of poor =uality
or costs associated !ith the failure of the product or service% .ailure costs are of t!o types
internal and e<ternal?
113
a% #nternal .ailure 'osts are the 'osts incurred to fi< prolems that are detected efore the
product8service is delivered to the customer%
% $<ternal .ailure 'osts are all costs incurred to fi< prolems that are detected after the
product8service is delivered to the customer%
Of the t!o, #nternal .ailure 'osts are less painful and can help an organi7ation to register increase in
revenue and not compromising its product or service in the eye of its customers as !ell as its
competitors%
3% Appraisal 'osts are the 'osts of activities designed to ensure =uality or uncover defects
3% Prevention 'osts include all T0M training, T0M planning, customer assessment, process
control, and =uality improvement costs to prevent defects from occurring%
9'a-ity and Et)i&s
0uality is closely associated !ith $thics% A good service !ould al!ays e ale to fulfill customer needs
if it is ale to follo! $thics in its true spirit% A service or product that has een poorly designed carries
liaility% On the other hand if the organi7ation has follo!ed ethics to manufacture a product or service, it
!ould e ale to provide a =uality product or service to its customer%
T0M is an important concept and is follo!ed y various departments of the organi7ation% Accounting
department measures the costs associated !ith a poor =uality ased service or product, .inance
department measures the cash flo!s associated !ith various departments, &uman "esources employees
!or5force !hich is ale to turn out =uality ased !or5, Management #nformation Systems design T0M
ased systems to ensure increased productivity, similarly mar5eting department uses T0M techni=ues to
increase its mar5et share and customer ase% And last ut not the least Operations department !hich
designs and implements T0M strategies%
11@
Lesson 26
TOTA% 9UA%IT5 MANAGEMENT"I
#n this lecture !e !ill loo5 into detail T0M% 9e !ill initially focus on Si< Sigma concept% 9e !ill try
to understand si< sigma concepts in terms of managerial and technical perspective% 9e !ill also try to
understand the /eming 9heel of 0uality and seven common tools of =uality% And last ut not the least
!e !ill also try to understand the concepts of statistical process control and enchmar5ing !ith respect
to =uality%
ISO Certifi&ations
0uality 'ertification ensures that the organi7ation has een ale to achieve T0M philosophy% The t!o
popular certifications !hich are pursued y the organi7ations include #SO 1@444 and #SO F444%
1% #SO 1@444? #s a set of international standards for assessing a company:s environmental
performance%
3% #SO F444? #s a set of international standards on =uality management and =uality assurance,
critical to international usiness%
Si8 SIGMA
Statistically spea5ing a process is said to e in Si< Sigma stage if it does not have more than 3 or @
defects per million% Most of the organi7ations, measure their =uality program in terms of Si< Sigma%
'onceptually the Si< Sigma Program is designed to reduce defects and re=uires the use of certain tools
and techni=ues%
Si< Sigma Programs are al!ays directed to!ards =uality improvement, cost cutting and time saving% Si<
Sigma Programs are employed in?
/esign
Production
Service
Operation management
#nventory management
/elivery
Si< Sigma Management concepts find greater appreciation and application in recent times% The Si<
Sigma Management characteristics include?
1% Providing strong leadership%
3% /efining performance merits%
3% Selecting pro;ects li5ely to succeed%
@% Selecting and training appropriate people%
Si< Sigma Technical aspects form a part and parcel of managerial strategy and aids in cost cutting and
defect minimi7ation% The Technical aspects of Si< Sigma include
1% #mproving process performance
3% "educing variation
3% (tili7ing statistical models
@% /esigning a structured improvement strategy
Si8 Sigma Team
Si< Sigma Teams are formed for implement of Si< Sigma in true spirit 5eeping in mind oth managerial
as !ell as technical aspects%
112
1% Top management
3% Program champions
3% Master Alac5 eltsB
@% A6lac5 eltsB
2% AGreen eltsB
Si8 Sigma Pro&ess
Si< Sigma Process has various stages often organi7ations comine one or t!o stages for etter
monitoring and control purposes% 0uality $<perts normally identify the follo!ing 2 stages%
1% /efine
3% Measure
3% Analy7e
@% #mprove
2% 'ontrol
Ostacles to #mplementing Si< Sigma + T0M- includes the lac5 of?
1% 'ompany>!ide definition of =uality%
3% Strategic plan for change%
3% 'ustomer focus%
@% "eal employee empo!erment%
2% Strong motivation%
6% Time to devote to =uality initiatives%
D% *eadership%
E% Poor inter>organi7ational communication%
F% 1ie! of =uality as a A=uic5 fi<B%
14% $mphasis on short>term financial results%
11% #nternal political and AturfB !ars%
'riticisms of T0M
6lind pursuit of T0M programs%
Programs may not e lin5ed to strategies%
0uality>related decisions may not e tied to mar5et performance%
.ailure to carefully plan a program%

Basi& Ste,s in Pro-em So-(ing
The prolem solving method is more or less the same !hat !e covered in the initial part of our
semester, !e al!ays try to follo! the same procedure or method !hich is to analy7e the prolem and
then generate pragmatic solutions and implement the est solution%
1% /efine the prolem and estalish an improvement goal%
3% 'ollect data
3% Analy7e the prolem
@% Generate potential solutions
2% 'hoose a solution
6% #mplement the solution
D% Monitor the solution to see if it accomplishes the goal%
Pro&ess Im,ro(ement
A systematic approach to improving a process !ould al!ays result in process improvement% .ollo!ing
are the common approaches for improving the process%
1% Process mapping
3% Analy7e the process
116
3% "edesign the process
Process mapping consists mainly of collecting information aout the process, identifying
the process for each step and determining the inputs and outputs%
Analy7e the process? As5 =uestions aout the process including process flo! eing logical,
any activities or steps eing missing or identification of duplication activities%
0uestions aout each step !hich includes is a particular step necessary, does the step adds
value, does it generates !aste, could the time to perform the step e reduced, could t!o or
more steps e comined%
"edesign the process? ta5es a fresh approach to solve an issue on hand%
T)e PDSA Cy&-e Fs)e!)art Cy&-e6Deming /)ee-G
The concept of the P/'A 'ycle !as first introduced
y 9alter She!hart, the leading statistician, !ho also
developed statistical process control in the 6ell
*aoratories in the (S during the 1F34Ns% #t is often
referred to as Xthe She!hart 'ycleN% #t !as ta5en up
and promoted very effectively from the 1F24s on y
the famous 0uality Management authority, 9%
$d!ards /eming, and is conse=uently 5no!n y many
as Xthe /eming 9heelN% #t is a continuous process and
enales the operations manager to chec5 the !or5 at
various stages%
The P/'A 'ycle is a chec5list of the four stages
!hich you must go through to get from Xprolem>
facedN to Xprolem solvedN%

The four stages of P/'A8She!hart 'ycle or /eming 9heel are?
$3 P%AN
Study I /ocument the e<isting process%
'ollect data to identify prolems%
Survey data and develop a plan for improvement%
Specify measures for evaluating the plan%
03 DO
#mplement the plan on a small scale%
/ocument any changes made during this phase%
'ollect data systematically for evaluation%
=3 CHEC+
$valuate the data collection during this phase%
'hec5 ho! closely the results match the original goals of the plan phase%
@% ACT
#f the results are successful, standardi7e the ne! method and communicate the ne!
method to all people associate !ith the process%
#mplement training for the ne! method%
#f results are unsuccessful, revise the plan and repeat the process or cease this pro;ect%
Se(en Basi& Too-s
1% 'hec5 Sheet
3% .lo! 'hart
3% &istogram
@% Pareto 'hart
2% Scatter /iagram
6% 'ause I $ffect /iagram
D% Statistical Process 'ontrol
11D
9'a-ity Cir&-es
Team approach
*ist reduction
6alance sheet
Paired comparisons
Ben&)mar*ing Pro&ess
#dentify a critical process that needs improving%
#dentify an organi7ation that e<cels in this process%
'ontact that organi7ation%
Analy7e the data%
#mprove the critical process%
11E
$ututs &nut
s
2ccetance
Sam!ing
Process
Contro!
Trans'ormation
2ccetance
Sam!ing
Lesson 27
9UA%IT5 CONTRO% M 9UA%IT5 ASSURANCE
0uality 'ontrol or 0' as it is popularly referred as Ais concerned !ith =uality of conformance of a
processB% The prime purpose of 0' is to assure that the processes are performing in an acceptale
manner% Organi7ations accomplish 0' y monitoring process outputs using statistical techni=ues% The
practical and pragmatic 0' ased Operations Strategy for a service or manufacturing organi7ation
!ould focus on the principle of =uality in design%
%earning O?e&ti(es
1% #ntroduction to 0uality 'ontrol and Assurance
3% Phases of 0uality 'ontrol
3% $lements of 'ontrol Process
@% &o! control charts are used to monitor a process and the concepts that underlie their use%
2% (se and interpret control charts%
6% (se of run tests to chec5 for non randomness in process output%
P)ases of 9'a-ity Ass'ran&e
Ins,e&tion
#nspection is an important strategy, in its simplest form, is any method or device or tactics used to
minimi7e defects in products or services eing offered to the customers% As Operations Manager !e
should e ale to identify the follo!ing four =uestions !hile considering #nspection process%
1% &o! Much8&o! Often
3% 9here89hen
3% 'entrali7ed vs% On>site
@% 9hether to inspect 1ariales or Attriutes%
An important thing to rememer is that )o inspection is necessary for lo! value, high volume products
li5e common items li5e common pins, erasers or pencils !hile automated inspection is necessary for
high value items% Automated inspection may e necessary for even high value, lo! volume items as
!ell% The !ord volume here refers to =uantity%
#!ases "' 6(ality .ss(rance
2ccetance
Sam!ing
Process
Contro!
Continuous
&mro,ement
&nsection )e'ore <
2'ter Pro#uction
&nsection A
Correcti,e 2ction #uring
Pro#uction
@ua!ity 7ui!t into t/e
Process
T/e !east rogressi,e
T/e most rogressi,e
11F
Ins,e&tion Costs for Ho! M'&)6Ho! Often
The graph elo! sho!s the relationship et!een amount of inspection re=uired and costs incurred in
carrying out such inspection%
1% 9ith increase in #nspection activities the cost of undetected defectives decreases%
3% 9ith increase in inspection activities the cost of inspection increases%
9e need to oserve for Total cost function curve !hich sho!s high costs at no inspection and gradually
comes do!n and reaches a minimum value at the optimal amount of inspection and then start increases%
Ins,e&tion Costs for Ho! M'&)6Ho! Often
1% 9here to #nspect in the Process
3% "a! materials and purchased parts + /O not purchase poor =uality products-
3% .inished products + Poor products returned y customers can also lead to additional shipping
costs-
@% 6efore a costly operation + /o not !aste "esources of Man, Material and Machine-
2% 6efore an irreversile process + Pottery, 'eramics, Tiles, P' chips, glass filaments-
6% 6efore a covering process + 6efore painting, plating and assemly-
C9S+
$tima!
2mount o' &nsection
134
E8am,-es of Ins,e&tion Points in Ser(i&e Ind'stry
9e cannot have same inspection points for the
service industry, infact !e need to pay attention
to the type of industry or usiness in !hich a
service organi7ation competes% Please refer to the
tale on the ne<t page and note the difference in
characteristics and location of inspection points%

Centra-i1ed (s Onsite Ins,e&tion
1% #nspection of Ships, )uclear Plants, Petroleum "efinery, 'hemical Plant e=uipments for crac5s,
rittle fracture etc oth e<ternal and internal inspection%
3% *a tests include lood tests, material testing
9'a-ity Contro- in Terms of Statisti&a- Pro&ess Contro-C
9e no! focus on the idea of 0uality 'ontrol in terms of Statistical Process 'ontrol, for this !e need to
define
tatistical Process 6ontrol ? Statistical evaluation of the output of a process during production
!uality of 6onformance, A product or service conforms to specifications
9hich 'haracteristics can e controlled? Only those characteristics !hich can e counted or
measured%
Main Tas5 of 0'? is to distinguish random from non random variaility, ecause non random
variaility indicates that the process is out of control
Contro- C)art
'ontrol 'hart? A time ordered plot representative sample statistics otained from an on going
process +e%g% sample means-
Purpose , to monitor process output to see if it is random
(pper and lo!er control limits define the range of acceptale variation
Contro- C)art M Statisti&a- Pro&ess Contro-
ype of
!usiness
Inspection
points
"#aracteristics
)ast )ood
Cashier
Counter area
7ating area
+uilding
8itchen
*ccuracy
*ppearance, productivity
Cleanliness
*ppearance
9ealth regulations
9otel:#otel
Parking lot
*ccounting
+uilding
;ain desk
4afe, well lighted
*ccuracy, ti#eliness
*ppearance, safety
<aiting ti#es
4uper#arket
Cashiers
,eliveries
*ccuracy, courtesy
0uality, 6uantity
131
Statisti&a- Pro&ess Contro-
The essence of statistical process control is to assure that the output of a process is random so
that future output !ill e random%
Statistical Process 'ontrol
The 'ontrol Process consists of the follo!ing important stages%
1% /efine
3% Measure
3% 'ompare
@% $valuate
2% 'orrect
6% Monitor results
Variations and Contro-
*andom variation ? )atural variations in the output of a process, created y countless minor factors also
called 'OMMO)8 '&A)'$% #)&$"$)T and part of the process% $%g% /ifference et!een old and
ne! machines%
(ssignable variation ? A variation !hose source can e identified
Sam,-ing Distri'tion
The variaility of a sample statistic can e descried y its SAMP*#)G /#ST"#6(T#O)% The goal of
sampling is to determine !hether non random 8assignale8 correctale sources of variation are present in
the output of the process% $%g% Soft drin5s ottle are never 324 M*% slight differences among the mean%
Sam,-ing Distri'tion
Norma- Distri'tion
0 1 2 3 6 5 6 7 8 9 10 11 12 13 16 15
?C
-
-C
-
Sam!e
num7er
M
ean
$ut o'
contro
!
"orma!
,ariation #ue to
c/ance
27norma! ,ariation #ue to
assigna7!e sources
27norma! ,ariation #ue to
assigna7!e sources
Sam!ing
#istri7ution
Process
#istri7ution
Mean
133
Contro- %imits
Contro- C)arts
A control chart is a time ordered plot of sample statistics%
#t is used to distinguish et!een random variaility and non random variaility%
The asis of control chart is sample distriution !hich essentially descries random variaility%
Theoretically any value is possile as the distriution e<tends to infinity%
FF%DT of all values !ill e !ithin H = standard deviations
'ontrol 'harts
9e dra! a line at K 3 and call it control chart limits and oserve any value eyond this to e out
of limits%
'ontrol 'hart limits are the dividing lines et!een random deviations and mean of the
distriution and non random deviations and mean of the distriution%
The limits that separate random variations from non random variations is 5no!n as ('* and
*'*%
A sample statistic that falls et!een ('* and *'* suggests +does not proves- randomness and a value
outside suggests +does not proves- no randomness%
SPC Errors
Type # error? 'oncluding a process is not in control !hen it actually is or concluding that no
randomness is present !hen it is only randomness that is present%
Type ## error? 'oncluding a process is in control !hen it is not that no randomness is not present
!hen it is present%
Mean
3 2 +2 +3
95.66B
99.76B
= Stan#ar# #e,iation
Sam!ing
#istri7ution
Process
#istri7utio
n
Mean
-o*er
contro
! !imit
?er
contro
! !imit
133
Ty,e I Error
Oser(ations from Sam,-e Distri'tion
'ontrol 'harts for 1ariales
Mean control charts
(sed to monitor the central tendency of a process%
M ar charts
"ange control charts
(sed to monitor the process dispersion
" charts
MEAN AND RANGE CHARTS
CONTRO% CHART #OR ATTRIBUTES
Mean
-C
-
?C
-

=
Pro7a7i!ity o'
Sam!e num7er
?C-
-C-
1 2 3 6
?C-
-
C
-
?C-
-
C
-
41c/art
%etects s/i't
process mean is
shifting up*ard"
Samp!ing
Distribution
%oes not #etect s/i't
?C-
%oes not re,ea!
increase
?C-
-C
-
-
C
-
4e,ea!s increase
Process )ariabi!ity is increasing"
x1C/art
Samp!ing
Distribution
41c/art
C1C/art
13@
p>'hart > 'ontrol chart used to monitor the proportion of defectives in a process
c>'hart > 'ontrol chart used to monitor the numer of defects per unit
Use of ,"C)arts
9hen oservations can e placed into t!o categories%
Good or ad
Pass or fail
Operate or don:t operate
9hen the data consists of multiple samples of several oservations each
Use of &"C)arts
(se only !hen the numer of occurrences per unit of measure can e countedP non>occurrences
cannot e counted%
Scratches, chips, dents, or errors per item
'rac5s or faults per unit of distance
6rea5s or Tears per unit of area
6acteria or pollutants per unit of volume
'alls, complaints, failures per unit of time
Use of Contro- C)arts
At !hat point in the process to use control charts
9hat si7e samples to ta5e
9hat type of control chart to use
1% 1ariales
3% Attriutes
R'n Tests
*un test a test for randomness
Any sort of pattern in the data !ould suggest a non>random process
All points are !ithin the control limits > the process may not e random
)onrandom Patterns in 'ontrol charts
Trend
'ycles
6ias
Mean shift
Too much dispersion
'ounting "uns
132
(nderlining each runs helps in counting
#) case of (ps and /o!n the first value does not receives either a ( or / ecause nothing precedes it%
PROCESS CAPABI%IT5
Tolerances or specifications is the range of acceptale values estalished y engineering design
or customer re=uirements
Process variaility? is the natural variaility in a process
Process capaility? is the process variaility relative to specification
Process 'apaility is thus more importantly related to our discussion of 0uality 'ontrol and 0uality
Assurance and !e !ill ta5e up three cases in detail to understand this important concept%
1% #n 'ase A !e oserve that process specifications and output are matched%
3% #n 'ase 6 process variaility is !ell !ithin the process specification and output%
3% #n 'ase ', !e need to chec5 !hether a process is capale of meeting specifications and not ;ust
use a control chart%
Pro&ess Ca,ai-ity
'ase ', A manager in case ' can ta5e the follo!ing steps%
1% "edesign the process to otain the desired output%
3% (se an alternative process to otain the desired output%
3% "etain the current process ut attempt to eliminate output using 144 percent inspection
@% $<amine the specifications to see if they are necessary or can e rela<ed
Co'nting Ao(e6Be-o! Median R'ns FI
r'nsG
Co'nting U,6Do!n R'ns F@
r'nsG
U U D U D U D U U
D
B A A B A B B B A A
B
-o*er
Seci'icatio
?er
Seci'icatio
2. Process ,aria7i!ity
matc/es seci'ications
-o*er
Seci'icatio
?er
Seci'icatio
). Process ,aria7i!ity *e!!
*it/in seci'ications
-o*er
Seci'icatio
?er
Seci'icatio
136
Process 1ariaility is the 5ey factor in Process 'apaility% #t is measured in terms of process standard
deviation% Process capaility is considered to e K 3 Standard /eviations from the process mean% $%g%
An insurance company provides a service of registering a ne! memership + filling of form- in 14 mins,
acceptale range of variation around the time is K 1 minute, the process has a standard deviation of
4%2min%#t !ould not e capale ecause K 3 S/s !ould e K 1%2 Mins, e<ceeding the specification of K
1 minute%
Process 'apaility "atio
= SIGMA AND A SIGMA 9UA%IT5
#mproving Process 'apaility
1% Simplify
3% Standardi7e
3% Mista5e>proof + Po5a Ro5e-
@% (pgrade e=uipment
2% Automate
Tag'&)i %oss #'n&tion
Process capaility ratio, 'p J
Specification !idth
Process !idth
(pper specification lo!er specification
6
'
pJJ>
Pro&ess
mean
%o!er
s,e&ifi&ation
U,,er
s,e&ifi&ation
$=.< ,,m
$=.< ,,m
$3I ,,m $3I ,,m
H6" = Sigma
H6" A Sigma
13D
%imitations of Ca,ai-ity Inde8es
1% Process may not e stale
3% Process output may not e normally distriuted
3% Process not centered ut '
p
is used
O,erations Strategy /RT 96C
#t is neither necessary nor desirale to use 'ontrol charts for every production process%
Some processes are highly stale and do not re=uire 'ontrol 'harts%
Managers should use 'ontrol 'harts on processes that go out of control%
(se control 'harts for ne! processes till they otain stale results%
Cudicious use of SP' !ill ensure detection of departures from randomness in a process%
Cost
Target
%o!e
r s,e&
U,,e
r s,e&
Traditiona-
&ost
f'n&tion
Tag'&)i
&ost
f'n&tion
13E
Lesson 28
ACCEPTANCE SAMP%ING
%earning O?e&ti(es
Acceptance sampling is an important form of inspection applied to lots or atches of items efore or
after a process, to ;udge conformance !ith predetermined standards% Similarly Sampling plans are the
plans that specify lot si7e, sample si7e, numer of samples, and acceptance8re;ection criteria
Single>sampling
/oule>sampling
Multiple>sampling
Single Sampling 'haracteristics
One random is dra!n from each lot%
$very item in the sample is e<amined
$ach item after e<amination is classified good or defective%
#f the sample contains more than a specified numer of defectives say c, then that lot is
re;ected%
Do'-e Sam,-ing P-an C)ara&teristi&s
Ta5es care of limitation of Single Sampling Plan y ta5ing another sample if results of the
initial sample are inconclusive%
#f results from second sample also indicate poor =uality than the lot is re;ected or other!ise
decision reached on the asis of oth samples%
A doule sampling plan specifies the lot si7e, the si7e of the initial sample, accept8re;ect criteria
for the initial sample, the si7e of the second sample and a single acceptance numer%
9ith doule sampling plan, 3 values are specified for numer of defective items, a lo!er level
c1 and an upper level c3% $%g% if !e have c1 e=ual to 3 and c3 to D, if numer of defects is
smaller than c1 than sampling is terminated and lot is accepted%
#f defects are greater than c3, than lot is re;ected%
#f it:s et!een c1 and c3 then second sample is selected and compared to a third value c3 !hich
can e E and if the cumulative defects from 1 and 3 does not e<ceeds c3, the lot is accepted%
C)oosing a P-an
'ost and time are prime determinants of choosing a plan%
Primary considerations are numer of samples needed and total numer of oservations
re=uired%
Single sample has only one sample ut large sample si7e%
9here the cost to otain a sample is high than cost of analy7ing the sample, single sample plan
is follo!ed%
9here inspection costs are higher than costs of otaining the sample, multiple samples are
carried to ensure that a good or ad result can help terminate the sample testing thus ensuring
savings in inspection cost%
M'-ti,-e Sam,-ing P-ans
Similar to doule sampling plan ut allo!s more than t!o samples%
A sampling plan !ill specify each sample si7e and t!o limits for each sample%
The values increase !ith numer of samples%
#f the cumulative numer of defects + in current and previous samples- e<ceed the upper limit,
then sampling is terminated and the lot is re;ected%
13F
#f defects les than permissile, lot is accepted%
O,erating C)ara&teristi& C'r(e
#mportant criteria of sampling plan are ho! it discriminates et!een lots of high and lo! =uality%
The aility of a Sampling Plan to discriminate is descried y its O'%
The degree to !hich a sampling plan discriminates et!een good and ad lots is a function of
steepness of the curve
The ideal plan !ould re=uire 144 T inspection of each lot%
OC C'r(es
T)e Perfe&t OC C'r(e
P4$)2)&-&TD
$
+
2
C
C
E
P
T
&
"
.

-
$
T
-ot @ua!ity :+raction %e'ecti,e;
100N
75N
50N
25N
.03 .06 .09
9C C(r&es c"%e in
&ari"(s s!apes
dependin* "n t!e
sa%ple sie and ris: "'
and err"rs
+!is c(r&e is %"re
discri%inatin*
+!is c(r&e is less
discri%inatin*
P
r
o
7
a
7
i
!
i
t
y

o
'

2
c
c
e
t
i
n
g

-
o
t
100N
75N
50N
25N
.03 .06 .09
+!is c(r&e distin*(is!es
per'ectly )et1een *""d
and )ad l"ts.
+!e #er'ect 9C C(r&e +!e #er'ect 9C C(r&e
C!at 1"(ld all"1 y"(
t" ac!ie&e a c(r&e li:e
t!isO
134
O' 'urve Terms
Acceptale 0uality *evel +A0*-? Percentage of defective items a customer is !illing to accept from
you +a property of mfg% process-
*ot Tolerance Percent /efective +*TP/-? (pper limit on the percentage of defects a customer is
!illing to accept + a property of the consumer-
Average Outgoing 0uality +AO0-?Average of re;ected lots and accepted lots
Average Outgoing 0uality *imit +AO0*-?Ma<imum AO0 for a range of fractions defective
OC
The curve sho!s the proaility that use of the sampling plan !ill result in lots !ith various fractions
defective eing accepted% The graph sho!s that the lot !ith 3 percent defects + a fraction of 4%43- !ould
have a proaility of aout 4%F eing accepted , F4T% And 1>4%F J4%1 + 14T eing re;ected-
As the lot =uality decreases, the proaility of acceptance decreases, although the relationship is not
linear%
OC Definitions on t)e C'r(e
P
r
o
7
a
7
i
!
i
t
y

o
'

2
c
c
e
t
i
n
g

-
o
t
100N
75N
50N
25N
.03 .06 .09
; 0.10
90N
; 0.10
.
6
<
<
+
#
?
Indi''erent
5
"
"
d
Bad
131
O,erating C)ara&teristi& C'r(e
De&ision Criteria
Sampling Terms
Acceptance =uality level +A0*-? the percentage of defects at !hich consumers are !illing to accept
lots as AgoodB
*ot tolerance percent defective +*TP/-? the upper limit on the percentage of defects that a
consumer is !illing to accept
'onsumer:s ris5? the proaility that a lot contained defectives e<ceeding the *TP/ !ill e
accepted
Producer:s ris5? the proaility that a lot containing the acceptale =uality level !ill e re;ected
4
4%1
4%3
4%3
4%@
4%2
4%6
4%D
4%E
4%F
1
4 %42 %14 %12 %34 %32
P
r
o
i
-
i
t
y

o
f

a
&
&
e
,
t
i
n
g

-
o
t
%ot 7'a-ity Ffra&tion
defe&ti(eG
3
T
4
1%44
PROBABI%IT5
O
#

A
CCEPTING

%
O
T
%ot 7'a-ity Ffra&tion
defe&ti(eG
P5""d
Q
PBad
Q
Idea
l
A"t &ery
?iscri%inatin
*
133
CONSUMEROS AND PRODUCEROS RIS+
Average 0uality is the Average outgoing =uality +AO0-? Average of inspected lots +144T- and un
inspected lots
4
4%1
4%3
4%3
4%@
4%2
4%6
4%D
4%E
4%F
1
4
%42 %14 %12 %34 %32
P
r
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i
-
i
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o
f

a
&
&
e
,
t
i
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-
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t
$ot %uality &fraction defective'
;
;
P5""d
Q
.6
<
PBad
Q
Indi''eren
t
<
+#?
4
4%
1
4%
3
4%
3
4%
@
4%
2
4%
6
4%
D
4%
E
4%
F
1
4 %1
4
%34 %3
4
%@
4
%2
4
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o
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(
c
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p
t
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#ra&tion defe&ti(e in -ot
%F13
F
%D36
1
%2@@
3
%3D2
E
%3@@
4
%1@F
3
%4E6
4
133
Lesson 29
AGGREGATE P%ANNING
%earning O?e&ti(es
$<plain the !or5ing and usefulness of Aggregate Planning%
#dentify the variale decision ma5ers to !or5 !ith in aggregate planning and some of the possile
strategies they can use%
/escrie some of the graphical and =uantitative techni=ues planners use%
Prepare aggregate plans and compare their costs%
P-anning Hori1on
(ggregate planning? #ntermediate>range capacity planning, usually covering 3 to 13 months%
As Operations Manager !e should e ale to understand and identify the various Planning *evels !hich
are Short "ange Plans, #ntermediate Plans and *ong "ange Plans%
Short>range plans +/etailed plans-
1% Machine loading
3% Co assignments
#ntermediate plans +General levels-
1% $mployment
3% .inished Good inventories
3% Sucontracting, 6ac5orders
@% Output
*ong>range plans
1% *ong term capacity
3% *ocation 8 layout
P-anning Se7'en&e
S/ort
4ange
&nterme#iate
4ange
-ong 4ange
"o* 2 mont/s 1 Dear
13@
Aggregate P-anning In,'ts
"esources
1% 9or5force
3% .acilities
/emand forecast
Policies
1% Sucontracting
3% Overtime
3% #nventory levels
@% 6ac5 orders
'osts
1% #nventory carrying
3% 6ac5 orders
3% &iring8firing
@% Overtime
2% #nventory changes
6% sucontracting
Aggregate P-anning O't,'ts
1% Total cost of a plan
3% Pro;ected levels of inventory
3% #nventory
@% Output
2% $mployment
6% Sucontracting
D% 6ac5ordering
132
Aggregate P-anning Strategies
Proactive Strategy? Strategies that alter demand to match capacity are 5no!n as Proactive Strategy%
"eactive Strategy? Strategies that alter capacity to match demand are 5no!n as "eactive Strategy%
Mi<ed% Strategies that ma5e use of =ualities from oth Proactive and "eactive Strategy are 5no!n
as Mi<ed Strategies%
Demand and Ca,a&ity O,tions
/emand Options? The four common demand options primarily focus on mar5et aspects apart from
ac5orders !hich is strictly operational management in nature% The operations manager should 5no! all
four demand options ut should e more interested in ac5 order option%

1% Pricing
3% Promotion
3% 6ac5 orders
@% )e! demand
'apacity Options? The common capacity options primarily focus on%
1% &ire and layoff !or5ers
3% Overtime8slac5 time
3% Part>time !or5ers
@% #nventories
2% Sucontracting
6% Maintain a level !or5force
D% Maintain a steady output rate
E% Match demand period y period
F% (se a comination of decision variales
An important point to e noted is that /emand options are short range in nature !hile 'apacity options
are long duration +term or range-%
/)i&) Strategy to Use
The organi7ation needs to consider t!o factors efore choosing a strategy
1% 'osts
3% 'ompany8'orporate Policy
Policy can set constraints on availale options% $%g% *ayoffs,
sucontracting8Outsourcing + P#A sucontracting its dataases- to protect secrecy%
As a rule of thum, aggregate planners see5 to match supply and demand !ithin in
constraints y policies and minimum costs%
136
Lesson 30
AGGREGATE P%ANNING"I
%earning O?e&ti(es
$n this lecture we will cover the basic aggregate planning strategies, (ssumptions for (ggregate
Planning, different (ggregate Planning *elationships, +aster chedule and +aster cheduler. "e will
study desegregating the aggregate plans for production control. )his discussion would prepare us to
take a deeper look into $nventory +anagement and +*P/<*P. (ll this would allow us to become
effective operations manager to work for improving the operations as well as the systems of the
organi8ations we will work for.
Basi& Strategies
*evel capacity strategy? Maintaining a steady rate of regular>time output !hile meeting
variations in demand y a comination of options%
'hase demand strategy? Matching capacity to demandP the planned output for a period is set at
the e<pected demand for that period%
'hase Approach
Advantages
1% #nvestment in inventory is lo!
3% *aor utili7ation in high
/isadvantages
1% The cost of ad;usting output rates and8or !or5force levels
*evel Approach
Advantages
1% Stale output rates and !or5force
/isadvantages
1% Greater inventory costs
3% #ncreased overtime and idle time
3% "esource utili7ations vary over time
Te&)ni7'es for Aggregate P-anning
1% /etermine demand for each period
3% /etermine capacities for each period
3% #dentify policies that are pertinent
@% /etermine units costs
2% /evelop alternative plans and costs
6% Select the est plan that satisfies o;ectives% Other!ise return to step 2%
Ass'm,tions for Aggregate P-anning
1% The regular output capacity is the same for all periods%
3% 'ost +6ac5 Order, #nventory, Sucontracting etc- is a linear function composed of unit cost and
numer of units% + #n reality cost is more of a step function-
3% Plans are feasile + There is sufficient inventory e<ists to accommodate a plan, sucontractors
!ould provide =uality products and outsourcers !ould e secure-
@% Assumptions for Aggregate Planning
2% All costs associated !ith a decision option can e represented y a lump sum or y unit costs
that are independent of the =uantity involved%
6% 'ost figures can e reasonaly estimated and are constant over the planning hori7on%
13D
D% #nventories are uilt up and dra! do!n at a uniform rate and output occurs at a uniform rate
throughout each period% 6ac5logs are treated as if they e<ist for the entire period, even though
in reality they tend to uild up to!ards the end of the period
Aggregate P-anning Re-ations)i,s
1% )umer of !or5ers in a period e=uals )umer of 9or5ers at the end of the previous period
P*(S )umer of ne! 9or5ers at the start of the current period > )umer of laid off 9or5ers at
the start of the current period
3% )OT$? S#)'$ the organi7ation !ould not hire and layoff simultaneously, so at least one of the
last t!o terms !ill e A4B%
3% #nventory at the end of a + current- period e=uals #nventory at the end of the previous period
P*(S Production in the current period Amount used to satisfy the demand in the current
period
@% )OT$ ?The average #nventory for a period is e=ual to +6eginning #nventory Plus $nding
#nventory-83
Average #nventory
Aggregate Planning "elationships
'ost for a + current- period e=uals Output 'ost + "egular KOTK Sucontract- K &ire8*ayoff 'ostK
#nventory 'ost K 6ac5order 'ost
)OT$
The cost of a particular plan for a given period can e determined y summing the appropriate costs
Aggregate P-anning Re-ations)i,s
Ty,e of Costs Ho! to Ca-&'-ate
O't,'t
Reg'-ar "egular 'ost per (nit M 0uantity of "egular Output
O(ertime Overtime 'ost per (nit M Overtime 0uantity
S'&ontra&t Sucontract 'ost per (nit M Sucontract 0uantity
Hire6%ayoff
Hire 'ost Per &ire M )umer &ired
%ayoff 'ost per *ayoff M )umer laid off
In(entory 'arrying 'ost per (nit M Average #nventory
Ba&* Order 6ac5 Order 'ost Per (nit M )umer of 6ac5order (nits
Mat)emati&a- Te&)ni7'es
#inear programming? Methods for otaining optimal solutions to prolems involving allocation of
scarce resources in terms of cost minimi7ation%
#inear decision rule? Optimi7ing techni=ue that see5s to minimi7e comined costs, using a set of cost>
appro<imating functions to otain a single =uadratic e=uation%
S'mmary of P-anning Te&)ni7'es
ec#ni%ue )olution "#aracteristics
=raphical
:charting
3rial and
error
Intuitively appealing, easy to understand> solution not necessarily opti#al!
$inear
progra##ing
?pti#i@ing Co#puteri@ed> linear assu#ptions not always valid!
$inear
decision rule
?pti#i@ing
Co#ple& re6uires considerable effort to obtain pertinent cost infor#ation
and to construct #odel> cost assu#ptions not always valid!
4i#ulation
3rial and
error
Co#puteri@ed #odels can be e&a#ined under a variety of conditions!
13E
Aggregate P-anning in Ser(i&es
1% Services occur !hen they are rendered %(nli5e most manufacturing output, most services cannot
e inventoried% Services such as financial planning, ta< counseling and oil changes cant e
inventoried8stoc5piled% This removes the option of uilding up the inventories during a slo!
period in anticipation of future demand%
3% /emand for service can e difficult to predict %The volume of demand for services is often
variale% #n some situations, customers may need prompt service% e%g% police, fire, medical
emergency !hile in others they may not need prompt service and may e !illing to find some
other service provider%
3% 'apacity Availaility can e difficult to predict% Processing re=uirements for services can
sometimes e =uite variale, similar to the variaility of !or5 in a ;o shop setting%
@% /emand for service can e difficult to predict #t is difficult to measure the capacity of a person
rendering a service, a dentist, a Montessorian, a an5 teller in anticipation of future demand-%
2% *aor .le<iility can e advantage in Services *aor often comprises a significant portion of
service compared to manufacturing% That coupled !ith the fact that service providers are often
ale to handle a fairly !ide variety of service re=uirements means that to some e<tent, planning
is easier than manufacturing
Aggregate P-an to Master S&)ed'-e
Disaggregating t)e Aggregate P-an
The Aggregate Plan is ro5en do!n into Master Schedules and "ough 'ut 'apacity Planning charts
respectively%

+aster schedule ? The result of disaggregating an aggregate planP sho!s =uantity and timing of
specific end items for a scheduled hori7on%
*ough.cut capacity planning ? Appro<imate alancing of capacity and demand to test the feasiility
of a master schedule%
9$ 9#** /#S'(SS #T #) /$TA#* 9&$) 9$ 'O1$" O(" M"P *$'T("$
$%g% Suppose the organi7ation is ma5ing 244 aggregate units of Air conditioners for the month of
March and April !ith rea5up eing 344 for !indo! types, 344 type split units !ith further tonnage
capacities%
A master schedule sho!s the planned output for individual products rather than an entire product
group, along !ith the timing of production%
Aggregate
P-anning
Dissaggregation
Master
S&)ed'-e
13F
9ith "ough cut capacity planning !e can chec5 capacities of production and !arehouses
constraints e<ist% This means chec5ing capacities of production and !arehouse facilities, laor and
vendors to ensure that no gross deficiencies e<ist that !ill render master schedule un!or5ale% The
master schedule then serves as the asis for short range planning%
MS is disaggregated in stages or phases, !hich may cover !ee5s or months%
Master schedule? /etermines =uantities needed to meet demand
#nterfaces !ith
1% Mar5eting
3% 'apacity planning
3% Production planning
@% /istriution planning
1@4
Master S&)ed'-ing
A Master schedule indicates the =uantity and timing + i%e% delivery times- for a product, or a group
of products, ut it does not sho! planned production% .or a master schedule may call for delivery of
244 Air conditioners on April 1% 6ut it may not re=uire any production ecause of availaility of
1444 air conditioners in inventory% Or if there are only @44 Air conditioners, 144 !ould e planned
for production%
Master Scheduler
$valuates impact of ne! orders
Provides delivery dates for orders
/eals !ith prolems
Production delays
"evising master schedule
#nsufficient capacity
Pro?e&ted On")and In(entory
Staili7ing the Master Schedule
'hanges to a master schedule can e disruptive, particularly changes to the early, or near, portions
of the schedule%
Typically the further out in the future a change is, the less the tendency to cause prolems%
Master Production Schedules are often divided into @ stages or phases% The dividing lines et!een
phases are sometimes referred to as time fences%
Time #en&es in MPS
#n the first phase, usually the first fe! periods of the schedule, changes can e =uite disruptive%
Pro;ected on>hand
inventory
#nventory from
previous !ee5
'urrent !ee5:s
re=uirements
> :
1@1
'onse=uently, once estalished, that portion of the schedule is generally fro7en, !hich implies that
all ut the most critical changes cannot e made !ithout permission from the highest levels in an
organi7ation% This helps in achieving high degree of staility in the production system%
#n the ne<t stage, perhaps the ne<t t!o days or three periods, changes are still disruptive, ut not to
that e<tent that they are in first phase%
Management vie!s the schedule as firm and only e<ceptional changes are made !hich helps an
organi7ation gain some competitive advantage%
#n the third stage, management vie!s the schedule as full, meaning that all availale capacity has
een allocated%
Although changes do impact the schedule, their effect is less dramatic and they are usually made if
there is good reason for doing so%
#) the final phase, management vie!s the schedule as open, meaning that not all capacity has een
allocated% This is !here ne! orders are usually in the Schedule%
.
1@3
Lesson 31
INVENTOR5 MANAGEMENT
%earning O?e&ti(es
Our discussion on #nventory Management !ould e complete only !hen !e are ale to learn and
understand the types of #nventories and o;ectives of #nventory 'ontrol% This !ould ensure that !e are
ale to understand the ma;or reasons for holding inventories% 9e !ould e ale to differentiate et!een
independent and dependent demand% 9e !ill also learn the re=uirements of an effective inventory
management system% 9e !ill revie! oth periodic as !ell as perpetual #nventory systems% 9e !ill
discuss in detail the A6' approach !ith a suitale e<ample% Since our discussion !ould e<tend over
three lectures !e !ill also discuss the o;ectives of inventory management, descrie the asic $O0
model, $conomic "un Si7e, 0uantity /iscount Model !ith solved e<amples%
Ty,es of In(entories
The five common types of inventories are?
1% "a! materials I purchased parts%
3% Partially completed goods called work in progress.
3% .inished>goods inventories?
a% +manufacturing firms- or
% merchandise, +retail stores-
@% Goods>in>transit to !arehouses or customers%
2% "eplacement parts, tools, I supplies%
O?e&ti(e of In(entory Contro-
To achieve satisfactory levels of customer service !hile 5eeping inventory costs !ithin reasonale
ounds% Operations Managers are !ell a!are of the fact that customer services !ith respect to #nventory
ta5es into account oth the internal customers as !ell as e<ternal customers%
1% *evel of customer service%
3% 'osts of ordering and carrying inventory%
#'n&tions of In(entory
A manufacturing organi7ation has one or more of the follo!ing functions of inventory in mind !hen it
tries to set up a pragmatic and effective inventory management system%
1% To meet anticipated demand%
3% To smooth production re=uirements%
3% To decouple operations%
@% To protect against stoc5>outs%
2% To ta5e advantage of =uantity discounts%
6% To permit operations%
D% To help hedge against price increases%
E% To ta5e advantage of order cycles%
Re7'irements of Effe&ti(e In(entory Contro-
Management has t!o asic functions concerning #nventory%
1% To ma5e decisions aout ho! much and !hen to order%
3% To estalish a system of 5eeping trac5 of items in an inventory%
Effe&ti(e In(entory Management
An #nventory Management System !ould e called $ffective if it is ale to fulfill the follo!ing
re=uirements%
1% A system to 5eep trac5 of inventory%
3% A reliale forecast of demand%
1@3
3% Ono!ledge of lead times%
@% "easonale estimates of?
a% &olding costs
% Ordering costs
c% Shortage costs
2% A classification system%
In(entory Co'nting Systems
There are t!o famous types of #nventory 'ounting Systems
&. Periodic ystem
>. Perpetual $nventory ystem4 6?3)$3U(#5
Periodic ystem? Physical count of items made at periodic intervals%
Perpetual $nventory ystem4 6?3)$3U(#5? System that 5eeps trac5 of removals from inventory
continuously, thus monitoring current levels of each item% Perpetual #nventory Systems can e simple or
comple<, the t!o common perpetual #nventory systems found in Pa5istan are the?
)wo.@in ystem . T!o containers of inventoryP reorder !hen the first is empty%
Universal @ar 6ode . 6ar code printed on a lael that has information aout the item
to !hich it is attached%
1@@
Lesson 32
INVENTOR5 MANAGEMENT"I
%earning O?e&ti(es
#nventory Management is the procurement, use and distriution of #nventoryP some te<t oo5s use the
!or5 #nventory control for the same concept% The !ord control ensures that inputs, the process itself and
the outputs are all manageale% This inventory control concept helps us to understand t!o important
concepts of Operations Management i%e% Supply 'hain Management and Cust #n Time Production
Systems% #n this lecture !e !ill study the A6' classification System, #nventory Ordering and &olding
'osts and $conomic Order 0uantity Model%
+ey In(entory Terms
The Oey #nventory Terms !e should 5no! are *ead time, &olding +carrying- costs, Ordering + Set
up- 'osts and Shortage+Stoc5 out- costs
1% *ead time? Time interval et!een ordering and receiving the order%
3% &olding +carrying- costs? 'ost to carry an item in inventory for a length of time, usually a year%
'osts include #nterest, insurance, ta<es, depreciation, osolescence, deterioration, pilferages,
rea5age, !arehousing costs and Opportunity costs% &olding +carrying- costs? &olding costs are
stated in t!o !ays
a% Percentage of unit price or
% "upee
3% Ordering costs? 'osts of ordering and receiving inventory% These are the actual costs that vary
!ith the actual placement of the order%
@% Shortage costs? 'osts !hen demand e<ceeds supply%
ABC C-assifi&ation System
An important aspect of #nventory Management is that items held in inventory are not of e=ual
importance in terms of rupees invested, profit potential, sales or usage volume%
A6' 'lassification System controls inventories y dividing items into 3 groups A, 6 and '
respectively%
1% Group A consists of &igh "upee +Monetary- 1alue, !hich account for a small portion aout
14T of the total inventory usage%
3% Group 6 consists of Medium "upee +Monetary- 1alue, !hich account for aout 34T of the
total inventory usage%
3% Group ' consists of *o! "upee +Monetary- 1alue, !hich account for a large portion aout
D4T of the total inventory usage%
@% The level of control reflects cost enefit concerns%
2% Group A items are revie!ed on a regular asis%
6% Group 6 items are revie!ed at a less fre=uency than Group A items ut more than Group '
items%
D% Group ' items are not revie!ed and order is placed directly%
E8am,-e3
Item Dema
nd
Unit Cost Ann'a-
Va-'e
F R',eesG
C-assifi&ation
P' 14 "s%34,444 344,444 6 + up to "s% 244,444-
Monitor 2 2444 32,444 '+ (p to "s% 24,444-
Processor 32 2444 132,444 6
"AM 1444 3444 3,444,444 A
1@2
C-assify inventory according to A6' classification system, "upee value up to 24O and 244O
represent ' and 6 respectively%
Cy&-e Co'nting
1% A physical count of items in inventory%
3% 'ycle counting management?
3% &o! much accuracy is neededG
@% 9hen should cycle counting e performedG
2% 9ho should do itG
E&onomi& Order 9'antity Mode-s
1% $conomic order =uantity model
3% $conomic production model
3% 0uantity discount model
Ass'm,tions of EO9 Mode-
1% Only one product is involved%
3% Annual demand re=uirements 5no!n%
3% /emand is even throughout the year%
@% *ead time does not vary%
2% $ach order is received in a single delivery%
6% There are no =uantity discounts%
T)e In(entory Cy&-e
Tota- Cost
Pro'i!e o' &n,entory -e,e! o,er Time
@uantity
$n Ean#
@
4ecei,e
$r#er
P!ace
$r#e
r
4ecei,e
$r#er
P!ace
$r#e
r
4ecei,e
$r#er
-ea# time
4eor#er
Point
?sage
rate
Time
2nnua!
carrying
cost
2nnua!
or#ering
cost
Tota! cost 8
9
Q
2
H
D
Q
S
TC 8 9
1@6
Cost Minimi1ation Goa-
Deri(ing t)e EO9
(sing calculus, !e ta5e the derivative of the total cost function and set the derivative +slope- e=ual
to 7ero and solve for 0%
Minimum Total 'ost
The total cost curve reaches its minimum !here the carrying and ordering costs are e=ual%
E8am,-e 0
A local distriutor for an international aeroic e<ercise machine manufacturer e<pects to sell
appro<imate 14,444 machines% Annual carrying cost is "s% 3244 per machine and Order cost is "s%
14,444% The distriutor Operates 344 days a year%
1% .ind $O0G
3% The numer of times the store !ill reorderG
3% *ength of an Order 'ycleG
@% Total Annual 'ost if $O0 is orderedG
Gi(en Data
/J14,444 machines%
&J Annual carrying cost is "s% 3244 per machine%
SJOrder cost is "s% 14,444%
)o of The distriutor Operates 344 days a year
Ca-&'-ation of EO9
$r#er @uantity
:@;
$r#ering Costs
@
$
2
n
n
u
a
!

C
o
s
t
:otima! or#er Fuantity;
!
:
A
!
)6 + =
3
Holding
Costs
'ost &olding Annual
'ost- Setup or rder /emand-+O 3+Annual
J
&
3/S
J 0
OPT
1@D
0
4
J S= "oot of +3 /S-8&J
S= "oot +3 M 14,444 M 14,444 -83244
JS= "oot +E4,444-
J3E3 machines per year
The numer of times the store !ill reorderG
/80
4
J14,44483E3J32%3@
J 32 Times
The *ength of an Order 'ycle
0
4
8/J3E3814%444J4%43E3 of a yearJ 4%43E3 M 344J E%@F days
The Total Annual 'ost, if $O0 is ordered
T'J 'arrying 'ost K Ordering 'ost
J0
4
83 + &- K /80
4
+S-
J3E383 +3244- K 14%44483E3 +14,444-
J323,D24 K 323,323
J "s% D4D,14D
S'mmary
#nventory Management is simply the procurement, use and distriution of #nventory% #n our suse=uent
discussions on #nventory as !ell as Supply 'hain Management !e !ill find some similarities et!een
the t!o important concepts of #nventory Management and Supply 'hain Management% 9hen !e
comine #nventory Management +'ontrol- !ith Production and Purchasing !e are more or less focusing
on the Capanese Philosophy of Cust #n Time Production% Also, the asic $O0 Model minimi7es the sum
of carrying or holding costs as !ell as setup or ordering cost%
1@E
Lesson 33
INVENTOR5 MANAGEMENT"II
%earning O?e&ti(es
Our discussion on #nventory Management !ould e complete only !hen !e are ale to learn and
understand the types of #nventories and o;ectives of #nventory 'ontrol% This !ould ensure that !e are
ale to understand the ma;or reasons for holding inventories% 9e !ould e ale to differentiate et!een
independent and dependent demand% 9e !ill also learn the re=uirements of an effective inventory
management system% 9e !ill revie! oth periodic as !ell as perpetual #nventory systems% 9e !ill
discuss in detail the A6' approach !ith a suitale e<ample% Our discussion has focused on the
o;ectives of inventory management, asic $O0 model, $conomic "un Si7e, 0uantity /iscount Model
!ith solved e<amples%
E8am,-e FIn terms of Per&entageG
')G>*PG company in Oarachi, purchases 2444 compressors a year at "s%E,444 each% Ordering costs
are "s% 244 and Annual carrying costs are 34 T of the purchase price% 'ompute the Optimal price and
the total annual cost of ordering and carrying the inventory%
/ata
/J/emand J2,444
SJOrderingJ "s% 244
&J&olding8'arrying 'ostJ4%3 M E,444J"s%1644
$<ample 3 + #n terms of Percentage-
0
4
J S= "oot of + 3+2,444-+244-8+1644--
J 22%FJ26 'ompressors
T'J 'arrying costs K Ordering 'osts
J0
4
83 + &- K /80
4
+S-
J 2683 + 1644- K 2444826 +244-
J 3E + 1644-K @@,6@3
J@@,E44K@@,6@3J"s% EF,@@3
E&onomi& Prod'&tion 9'antity FEP9G
E&onomi& Prod'&tion 9'antity FEP9G Ass'm,tions
Production done in atches or lots
'apacity to produce a part e<ceeds the part:s usage or demand rate%
#
n
v
e
n
t
o
r
y

*
e
v
e
l
(sage
(sage
P
r
o
d
u
c
t
i
o
n
I

(
s
a
g
e
P
r
o
d
u
c
t
i
o
n
I

(
s
a
g
e
1@F
Assumptions of $P0 are similar to $O0 e<cept orders are received incrementally during
production%
E&onomi& Prod'&tion 9'antity Ass'm,tions
1% Only one item is involved
3% Annual demand is 5no!n
3% (sage rate is constant
@% (sage occurs continuously
2% Production rate is constant
6% *ead time does not vary
D% )o =uantity discounts
#iner Points of E&onomi& Prod'&tion 9'antity Mode-
The asic $O0 model assumes that each order is delivered at a single point in time%
#f the firm is the producer and user, practical e<amples indicate that inventories are replenished
over time and not instantaneously%
#f usage and production +delivery- rates are e=ual, then there is no uildup of inventory%
Set up costs in a !ay our similar to ordering costs ecause they are independent of lot si7e%
The larger the run si7e, the fe!er the numer of runs needed and hence lo!er the annual setup%
The numer of runs is /80 and the annual setup cost is e=ual to the numer of runs per year
times the cost per run + /80-S%
Total 'ost is
T'
min
J 'arrying 'ostK Setup 'ost
J + #
ma<
83-&K +/80
4
-S
9here #
ma<
J Ma<imum #nventory
$conomic "un Si7e
$conomic Production 0uantity Assumptions
9here pJ production rate
( J usage rate
E&onomi& Prod'&tion 9'antity Ass'm,tions
The "un time +the production phase of the cycle- is a function of the run si7e and production rate
"un time J 0
4
8p
The ma<imum and average inventory levels are
#
ma<
J 0
4
8p +p>u-
#
average
J #
ma<
83
$<ample +$conomic "un Si7e-
E8am,-e for E&onomi& R'n Si1e
A firm in Sial5ot produces 324,444 each !orld class footalls for oth domestic and international
mar5ets% #t can ma5e footalls at a rate of 3444 per day% The footalls are manufactured uniformly
u p
p
A
:
!
=
3
4
124
over the !hole year% 'arrying cost is "s% 144 per footall and Setup cost for a production run is "s%
3244% The manufacturing unit operates for 324 days per year%
/etermine the
1% Optimal "un Si7e%
3% Minimum total annual cost for carrying and setup cost%
3% 'ycle time for the Optimal "un Si7e%
@% "un time y using the formula
Solution
1% Optimal "un Si7e%
J S= "oot +3 M 324,444 M 32448144 -+ S= "oot +3 444 83444>1444 --
J 3244+s=%root3M3- J2444 footalls%
3% Minimum total annual cost for carrying and setup cost%
J 'arrying 'ost K Set up 'ost
J+ # ma<83-&K + /804-S
9here # ma<J 048p ++p>u--J244483444+1444-
J3244 footalls
)o! T'J 324483 M 144 K +324,44482444- +3244-
J1324 M 144 K 132,444
J132,444K 132,444
J "s% 324,444%
3% 'ycle time for the Optimal "un Si7e%
048(J244481444J 2 days
@% "un time
048pJ244483444J 3%2 days
0uantity /iscount? Price reductions for large orders are called 0uantity /iscounts%
Tota- Costs !it) P'r&)asing Cost
Tota- Costs !it) PD
2nnua!
carrying
cost
Purc/asing
cost
TC 8 9
Q
2
H
D
Q
S
TC 8
9
9
2nnua!
or#ering
cost
PD
9
u p
p
A
:
!
=
3
4
121
E8am,-e for O,tima- Order 9'antity and Tota- Cost
The maintenance department of a large cardiology hospital in #slamaad uses aout 1344 cases of
corrosion removal li=uid, used for maintenance of hospital% Ordering costs are "s 144, carrying cost
are "s 34 per case, and the ne! price schedule indicates that orders of less than 24 cases !ill cost
"s 1324 per case, 24 to DF cases !ill cost "s 1124 per case , E4 to FF cases !ill cost "s 1424 per
case and larger costs !ill e "s 1444 per case%
/etermine the Optimal Order 0uantity and the Total 'ost%
Given /ata
/J1344 case%
SJ "s% 144 per case
&J"s%34 per case
"ange Price
1 to @F "s 1324
24 to DF "s 1124
E4 to FF "s 1424
144 or more "s 1444
'ompute the 'ommon $O0JS= "oot +3/S8&-
J S= "oot +3 M 144 M 1344834-
JS= "oot +13444-
J14F%2J114 cases !hich !ould e rought at 1444 per order
The total 'ost to Purchase 1344 cases per year !ould e
T'J 'arrying 'ostK Order 'ostK Purchase 'ost
J+083-&K+/80
4
-SKP/
J+11483-34K+13448114-144K1344M 1444
J1144K14F1K13444,444
J"s% 1,343,1F1
9hen to "eorder !ith $O0 Ordering
"eorder Point > 9hen the =uantity on hand of an item drops to this amount, the item is reordered%
Safety Stoc5 > Stoc5 that is held in e<cess of e<pected demand due to variale demand rate and8or
lead time%
Service *evel > Proaility that demand !ill not e<ceed supply during lead time%
C$ST
E$@
TC *it/ P%
TC *it/out P%
P%
< @uantity
2##ing Purc/asing cost
#oesnGt c/ange E$@
123
E8am,-e for Reorder Point
An apartment comple< in 0uetta re=uires !ater for its home use%
(sageJ 3 arrels a day
*ead timeJ 2 days
"OPJ (sage M *ead Time
J 3 arrels a day M D J 1@ arrels
Determinants of t)e Reorder Point
1% The rate of demand
3% The lead time
3% Stoc5 out ris5 +safety stoc5-
@% /emand and8or lead time variaility
E8am,-e
An o!ner of a Montessori e=uipment firm in Oarachi, determined from historical records that
demand for !ood re=uired for Montessori e=uipment averages 32 tones per anum% &is operations
management e<pertise allo!ed him to determine the demand during lead that could e descried y
a normal distriution that has a mean of 32 tons and a standard deviation of 3%2 tons, !ith a stoc5
out ris5 not limited to 6 percent%
a% Appropriate value of QG Please use the tale given on the ne<t page +F-
% Safety stoc5 levelG
c% "eorder PointG
d% $<pected !eight of !ood short for any order cycle, if he !ants to maintain a service level of
E4T (se the attached service level tale% Please use the tale given on page + 14-
e% Annual Service *evel, if service level JE4
C'm'-ati(e
Standardi1ed Norma-
Distri'tion
7 4%44 4%41 4%43 4%43 4%4@ 4%42 4%46 4%4D 4%4E 4%4F
4%4 4%2444 4%24@4 4%24E4 4%2134 4%2164 4%21FF 4%233F 4%23DF 4%231F 4%232F
4%1 4%23FE 4%2@3E 4%2@DE 4%221D 4%222D 4%22F6 4%2636 4%26D2 4%2D1@ 4%2D23
4%3 4%2DF3 4%2E33 4%2ED1 4%2F14 4%2F@E 4%2FED 4%6436 4%646@ 4%6143 4%61@1
4%3 4%61DF 4%631D 4%6322 4%63F3 4%6331 4%636E 4%6@46 4%6@@3 4%6@E4 4%621D
4%@ 4%622@ 4%62F1 4%663E 4%666@ 4%6D44 4%6D36 4%6DD3 4%6E4E 4%6E@@ 4%6EDF
4%2 4%6F12 4%6F24 4%6FE2 4%D41F 4%D42@ 4%D4EE 4%D133 4%D12D 4%D1F4 4%D33@
4%6 4%D32D 4%D3F1 4%D33@ 4%D32D 4%D3EF 4%D@33 4%D@2@ 4%D@E6 4%D21D 4%D2@F
4%D 4%D2E4 4%D611 4%D6@3 4%D6D3 4%DD4@ 4%DD3@ 4%DD6@ 4%DDF@ 4%DE33 4%DE23
4%E 4%DEE1 4%DF14 4%DF3F 4%DF6D 4%DFF2 4%E433 4%E421 4%E4DE 4%E146 4%E133
4%F 4%E12F 4%E1E6 4%E313 4%E33E 4%E36@ 4%E3EF 4%E312 4%E3@4 4%E362 4%E3EF
1%4 4%E@13 4%E@3E 4%E@61 4%E@E2 4%E24E 4%E231 4%E22@ 4%E2DD 4%E2FF 4%E631
7 A+7-
1%6@
2
4%F244 *o!er limit of right 2T tail
1%F6
4
4%FD24 *o!er limit of right 3%2T tail
3%33
6
4%FF44 *o!er limit of right 1T tail
3%2D
6
4%FF24 *o!er limit of right 4%2T tail
3%4F
4
4%FFF4 *o!er limit of right 4%1T tail
3%3F
1
4%FFF2 *o!er limit of right 4%42T tail
A+7- is the integral of the standardi7ed normal distriution from YZto 7 +in other !ords, the area under the curve to
the left of 7-% #t gives the proaility of a normal random variale not eing more than 7 standard deviations aove
its mean% 1alues of 7 of particular importance?
Area 'nder t)e standardi1es norma- &'r(e from "P to Q1
123
1%1 4%E6@3 4%E662 4%E6E6 4%ED4E 4%ED3F 4%ED@F 4%EDD4 4%EDF4 4%EE14 4%EE34
1%3 4%EE@F 4%EE6F 4%EEEE 4%EF4D 4%EF32 4%EF@@ 4%EF63 4%EFE4 4%EFFD 4%F412
1%3 4%F433 4%F4@F 4%F466 4%F4E3 4%F4FF 4%F112 4%F131 4%F1@D 4%F163 4%F1DD
1%@ 4%F1F3 4%F34D 4%F333 4%F336 4%F321 4%F362 4%F3DF 4%F3F3 4%F346 4%F31F
1%2 4%F333 4%F3@2 4%F32D 4%F3D4 4%F3E3 4%F3F@ 4%F@46 4%F@1E 4%F@3F 4%F@@1
1%6 4%F@23 4%F@63 4%F@D@ 4%F@E@ 4%F@F2 4%F242 4%F212 4%F232 4%F232 4%F2@2
1%D 4%F22@ 4%F26@ 4%F2D3 4%F2E3 4%F2F1 4%F2FF 4%F64E 4%F616 4%F632 4%F633
1%E 4%F6@1 4%F6@F 4%F626 4%F66@ 4%F6D1 4%F6DE 4%F6E6 4%F6F3 4%F6FF 4%FD46
1%F 4%FD13 4%FD1F 4%FD36 4%FD33 4%FD3E 4%FD@@ 4%FD24 4%FD26 4%FD61 4%FD6D
3%4 4%FDD3 4%FDDE 4%FDE3 4%FDEE 4%FDF3 4%FDFE 4%FE43 4%FE4E 4%FE13 4%FE1D
3%1 4%FE31 4%FE36 4%FE34 4%FE3@ 4%FE3E 4%FE@3 4%FE@6 4%FE24 4%FE2@ 4%FE2D
3%3 4%FE61 4%FE6@ 4%FE6E 4%FED1 4%FED2 4%FEDE 4%FEE1 4%FEE@ 4%FEED 4%FEF4
3%3 4%FEF3 4%FEF6 4%FEFE 4%FF41 4%FF4@ 4%FF46 4%FF4F 4%FF11 4%FF13 4%FF16
3%@ 4%FF1E 4%FF34 4%FF33 4%FF32 4%FF3D 4%FF3F 4%FF31 4%FF33 4%FF3@ 4%FF36
3%2 4%FF3E 4%FF@4 4%FF@1 4%FF@3 4%FF@2 4%FF@6 4%FF@E 4%FF@F 4%FF21 4%FF23
3%6 4%FF23 4%FF22 4%FF26 4%FF2D 4%FF2F 4%FF64 4%FF61 4%FF63 4%FF63 4%FF6@
3%D 4%FF62 4%FF66 4%FF6D 4%FF6E 4%FF6F 4%FFD4 4%FFD1 4%FFD3 4%FFD3 4%FFD@
3%E 4%FFD@ 4%FFD2 4%FFD6 4%FFDD 4%FFDD 4%FFDE 4%FFDF 4%FFDF 4%FFE4 4%FFE1
3%F 4%FFE1 4%FFE3 4%FFE3 4%FFE3 4%FFE@ 4%FFE@ 4%FFE2 4%FFE2 4%FFE6 4%FFE6
3%4 4%FFED 4%FFED 4%FFED 4%FFEE 4%FFEE 4%FFEF 4%FFEF 4%FFEF 4%FFF4 4%FFF4
3%1 4%FFF4 4%FFF1 4%FFF1 4%FFF1 4%FFF3 4%FFF3 4%FFF3 4%FFF3 4%FFF3 4%FFF3
3%3 4%FFF3 4%FFF3 4%FFF@ 4%FFF@ 4%FFF@ 4%FFF@ 4%FFF@ 4%FFF2 4%FFF2 4%FFF2
3%3 4%FFF2 4%FFF2 4%FFF2 4%FFF6 4%FFF6 4%FFF6 4%FFF6 4%FFF6 4%FFF6 4%FFFD
3%@ 4%FFFD 4%FFFD 4%FFFD 4%FFFD 4%FFFD 4%FFFD 4%FFFD 4%FFFD 4%FFFD 4%FFFE
3%2 4%FFFE 4%FFFE 4%FFFE 4%FFFE 4%FFFE 4%FFFE 4%FFFE 4%FFFE 4%FFFE 4%FFFE
12@
%
SO%UTION
122
a% $<pected *ead Time /emandJ 32 tonnes, also [
d*T
J 3%2 tonnes, "is5J 6T% (sing the given
tale values, 1>4%46J%F@44 therefore K QJ1%1%22
% The safety stoc5 J Q[
d*T
J 1%22 < 3%24 tonnesJ 3%ED2 tonnes
c% "eorder Point J $<pected *ead Time /emand K Safety Stoc5
J 32 tonnes K 3%ED2J3E%ED2 tonnes
d% .rom the Service *evel Tale, *ead time Service *evel 7J4%E therefore $+7-J4%DEE1,using
the formula $+n-J$+7- M [
d*T
)o! Since [
d*T
J 3%2 tonnes
Therefore $+n-J4%DEE1+3%24-J3F%@1 tonnesJ 1%FD432 tonnes
e% S*
annual
J 1>$+7- [
d*T
80
)o! Since 0J 32 tonnes, $+7-J
9e can calculate the Annual Service *evel y sustituting values in the formula aove
S*
annual
J 1>4%DEE1+24-81444J1>3F%@4281444J1>4%43F@1J4%F61
#i8ed"Order"Inter(a- Mode-
1% Orders are placed at fi<ed time intervals%
3% Order =uantity for ne<t intervalG
3% Suppliers might encourage fi<ed intervals%
@% May re=uire only periodic chec5s of inventory levels%
2% "is5 of stoc5 out%
S'mmary
#n this lecture !e studied various important concepts relating to #nventory Management% Most
importantly !e learnt ho! to ma5e use of statistical tales to calculate lead points and service levels%
This lecture forms the asis for Supply 'hain Management and Cust #n Time Production Systems%
126
Lesson 34
MATERIA% RE9UIREMENTS P%ANNING 6 ENTERPRISE RESOURCE P%ANNING
%earning O?e&ti(es
/escrie the conditions under !hich M"P is most appropriate%
/escrie the inputs, outputs and nature of M"P processing%
$<plain ho! re=uirements in a Master Production Schedule are translated into material
re=uirements for lo!er level items%
/iscuss enefits and re=uirements of M"P%
MRP
+aterial re1uirements planning 4+*P5, 'omputer>ased information system that translates master
schedule re=uirements for end items into time>phased re=uirements for suassemlies, components, and
ra! materials%
Inde,endent and De,endent Demand
:ependent demand? /emand for items that are suassemlies or component parts to e used in
production of finished goods% Once the independent demand is 5no!n, the dependent demand can e
determined%
6umulative lead time? The sum of the lead times that se=uential phases of a process re=uire, from
ordering of parts or ra! materials to completion of final assemly%
MPR In,'ts
M"P has three #nputs
Master Schedule Plan
6ill of Materials
#nventor "ecords
Master Production Schedule
Time>phased plan specifying timing and =uantity of production for each end item%
Material "e=uirement Planning Process
Master S&)ed'-e
+aster schedule? One of three primary inputs in M"PP states !hich end items are to e produced, !hen
these are needed, and in !hat =uantities%
M4P
&nuts
M4P
Processing
M4P
$ututs
Master
sc/e#u!e
)i!! o'
materia!s
&n,entory
recor#s
M4P
comuter
rograms
C/ange
s
$r#er
re!eases
P!anne#1
or#er
sc/e#u!es
Excetion reorts
P!anning reorts
Per'ormance1
contro!
reorts
&n,entory
transaction
Primary
reorts
Secon#ary
reorts
12D
6umulative lead time? The sum of the lead times that se=uential phases of a process re=uire, from
ordering of parts or ra! materials to completion of final assemly%
Planning &ori7on
6ill>of>Materials
@ill of materials 4@?+5? One of the three primary inputs of M"PP a listing of all of the ra! materials,
parts, suassemlies, and assemlies needed to produce one unit of a product%
Prod'&t Str'&t're Tree
Product structure tree? 1isual depiction of the re=uirements in a ill of materials, !here all components
are listed y levels%
#nventory "ecords
One of the three primary inputs in M"P
#ncludes information on the status of each item y time period
Gross re=uirements
Scheduled receipts
Amount on hand
*ead times
*ot si7es
And more \
Assemly Time 'hart
6umulative lead time ? The sum of the lead times that se=uential phases of a process re=uire,
from ordering of parts or ra! materials to completion of final assemly%
MRP Pro&essing
1% Gross re=uirements
3% Schedule receipts
3% Pro;ected on hand
@% )et re=uirements
2% Planned>order receipts
6% Planned>order releases
U,dating t)e System
1% "egenerative system
3% (pdates M"P records periodically
C/air
Seat
-egs :2;
Cross
7ar
Si#e
4ai!s :2;
Cross
7ar
)ack
Suorts :3;
-eg
2ssem7!y
)ack
2ssem7!y
-e,e!
0
1
2
3
12E
3% )et>change system
@% (pdates MP" records continuously
MRP O't,'ts
1% Planned orders > schedule indicating the amount and timing of future orders%
3% Order releases > Authori7ation for the e<ecution of planned orders%
3% 'hanges > revisions of due dates or order =uantities, or cancellations of orders%
MRP Se&ondary Re,orts
1% Performance>control reports
3% Planning reports
3% $<ception reports
Ot)er Considerations
*ot si7ing is the 'hoosing of a lot si7e for ordering or production%
.or dependant demand, managers have variety of methods availale as there is no clear cut
advantage associated !ith anyone particular method% They can use
1% *ot for *ot Ordering%
3% $conomic Order 0uantity Model
3% .i<ed Period Ordering
@% Part Period Model%
*ot>for>lot ordering
1% Simplest method
3% The order or run si7e for $A'& period is set e=ual to demand for that period%
3% $liminates holding costs for parts carried over to other periods%
@% Minimi7es investment in inventory%
2% #t involves different order si7es +can not ma5e use of fi<ed order si7e, standard containers
and standardi7ed procedures- and re=uires a ne! setup for each run%
6% #f set up costs can e reduced this !ould e ideal to appro<imate the minimum cost lot si7e%
$conomic order =uantity models tend to e less ideal%
.i<ed Period Ordering provides coverage for some predetermined numer of periods%
"ule of thum eing to order to cover a t!o period interval%
Part>Period Model represents an attempt to alance set up and holding costs%
The part period term refers to holding part or parts over a numer of periods, e%g% if a usiness holds
34 parts for 3 periods this !ould e a 34 M 3J 64 parts period%
$conomic Part Period +$PP- is the ratio of setup costs to the cost of hold a unit for one period%
Part>Period Model
1arious order si7es are e<amined for planning hori7on and each one]s numer of part period is
determined%
The one that is closet to the $PP is selected as the est lot si7e%
E8am,-e for Part Period Met)od
(se part>period method to determine order si7es for the demand schedule of a Montessori e=uipment
manufacturer in Oarachi% The setup cost is "s% E444 per run for this item and unit holding cost is "s%
144 per period%
/ata%
PERIODS
$ 0 = > . A I @
DEMAND A< >< 0< 0 =< " I< .<
CUMU%ATIVE DEMAND A< $<< $0< $00 $.0 $.0 000 0I0
12F
ST$P # ? .irst compute $PP !hich is E4448144JE4
P$"#O/S
Period !)en
order is ,-a&ed
%ot Si1e E8tra
In(entory
&arried
M'-ti,-ied y
Periods &arried
Part Periods C'm'-ati(e
Part Periods
$ 64 4 4 4 4
144 @4 1 @4 @4
$0< 0< 0 >< @<
$00 0 = A @A
. =< < < < <
Our calculations sho! that !e need to order 133 units to e availale at period 1 and 144 units
should e ordered availale at period 2%
The effect of lumpy demands set in period 2 and period E%
Benefits of MRP
*o! levels of in>process inventories
Aility to trac5 material re=uirements
Aility to evaluate capacity re=uirements
Means of allocating production time
164
Lesson 35
MATERIA% RE9UIREMENTS P%ANNING 6 ENTERPRISE RESOURCE P%ANNING" I
%earning O?e&ti(es
/iscuss enefits and re=uirements of M"P%
$<plain ho! an M"P system is useful in 'apacity "e=uirements
6enefits and shortcomings of M"P
M"P ## and M"P%
MRPC A Re&a,
1% Materia- Re7'irements P-anning FMRPG is soft!are focusing on production planning and
inventory control system used to manage manufacturing processes%
3% An M"P system is intended to simultaneously meet three o;ectives?
1% $nsure materials and products are availale for production and delivery to customers%
3% Maintain the lo!est possile level of inventory%
3% Plan manufacturing activities, delivery schedules and purchasing activities%
MRP Pro&essing
1% Gross re=uirements
a% Total e<pected demand%
3% Scheduled receipts
a% Open orders scheduled to arrive%
3% Planned on hand
a% $<pected inventory on hand at the eginning of each time period%
@% )et re=uirements
a% Actual amount needed in each time period%
2% Planned>order receipts
a% 0uantity e<pected to e received at the eginning of the period%
% Offset y lead time%
6% Planned>order releases
a% Planned amount to order in each time period%
U,dating t)e MRP Systems
1% "egenerative system
a% (pdates M"P records periodically%
3% )et>change system
a% (pdates MP" records continuously%
MRP in Ser(i&es
1% .ood catering service
3% $nd item J^ catered food
3% /ependent demand J^ ingredients for each recipe, i%e% ill of materials
@% &otel renovation
2% Activities and materials Ae<plodedB into component parts for cost estimation and scheduling
Benefits of MRP
1% *o! levels of in>process inventories
3% Aility to trac5 material re=uirements
3% Aility to evaluate capacity re=uirements
161
@% Means of allocating production time
Re7'irements of MRP
1% 'omputer and necessary soft!are
3% Accurate and up>to>date
3% Master schedules
@% 6ills of materials
2% #nventory records
6% #ntegrity of data
MRP II
1% $<panded M"P !ith emphasis placed on integration
3% .inancial planning
3% Mar5eting
@% $ngineering
2% Purchasing
6% Manufacturing
Ca,a&ity P-anning
'apacity re=uirements planning? The process of determining short>range capacity re=uirements%
*oad reports? /epartment or !or5 center reports that compare 5no!n and e<pected future capacity
re=uirements !ith pro;ected capacity availaility%
Time fences? Series of time intervals during !hich order changes are allo!ed or restricted%
As an operations manager !e should
e ale to identify the process of
'apacity Planning% #nfact the
'apacity re=uirements planning
process determines short>range
capacity re=uirements% The
necessary inputs are?
1% Planned order releases
for M"P
3% The current shop load
3% "outing information
@% Co times
Outputs include load reports for each
!or5 center%
#oad reports? /epartment or !or5 center reports that compare 5no!n and e<pected future capacity
re=uirements !ith pro;ected capacity availaility%
(n organi7ation generates a Master Schedule in terms of !hat is needed and not in terms of !hat is
possile or availale%
An over vie! of the capacity planning process includes the follo!ing%
1% The Master schedule is first tested for feasiility and possily ad;usted efore it ecomes
permanent%
3% The proposed schedule is processed using M"P to ascertain the materials re=uirements the
schedule !ould generate%
3% These are then translated into capacity re=uirements in the form of load reports for each
departments or !or5 centers%
%e,e!o a tentati,e
master ro#uction
sc/e#u!e
?se M4P to
simu!ate materia!
reFuirements
Con,ert materia!
reFuirements to
resource reFuirements
+irm u a ortion
o' t/e MPS
&s s/o
caacity
a#eFuateH
Can
caacity 7e
c/ange# to meet
reFuirements
4e,ise tentati,e
master ro#uction
sc/e#u!e
C/ange
caacity
Des
"o
Des
"o
163
The initial schedule may or may not e feasile given the limits of production or availaility of
materials% Also, !ith the aid of Time fences +the series of time intervals during !hich order changes are
allo!ed or restricted- a feasile schedule may e finali7ed%
MRP II
Man'fa&t'ring Reso'r&e P-anning +MRP II- is defined and accepted y professionals as a method for
the effective planning of all resources of a manufacturing company%
#deally, it should ans!er operational planning in units, financial planning in rupees, and has a simulation
capaility to ans!er _!hat>if_ =uestions and e<tension of closed>loop M"P%
This is not e<clusively a soft!are function, ut a merger of people s5ills, dedication to data ase
accuracy, and computer resources% #t is a total company management concept for using human resources
more productively%
Accounting and finance departments
get accurate costs and predict cash
flo!s% Operations and $ngineering
departments audit and feed in
accurate data on production methods
in detail, such as?
1% 6ill of Materials
3% 0uality 'ontrol ased
operational and functional
data%
ERP
$nterprise resource planning +$"P-? often called the rightful ne<t step in an evolution that egan !ith
MP" and evolved into M"P##% #ntegration of financial, manufacturing, and human resources on a single
computer system%
$"P Strategy 'onsiderations
1% &igh initial cost
3% &igh cost to maintain
A listing of all raw materials, parts, A listing of all raw materials, parts,
subassemblies, and assemblies needed to subassemblies, and assemblies needed to
produce one unit produce one unit
Product structure Tree for an Item X Product structure Tree for an Item X
C
+:2; E:2; E %:3;
C ):2;
0
1
2
-e,e!
Market Market
%eman# %eman#
Pro#uction Pro#uction
!an !an
Pro7!ems Pro7!ems
H H
4oug/1cut 4oug/1cut
Caacity !anning Caacity !anning
De De
s s
" "
o o
De De
s s
" "
o o
+inanc +inanc
e e
Marketin Marketin
g g
Manu'acturin Manu'acturin
g g
2#Iust 2#Iust
ro#uction ro#uction
!an !an
Master Master
Pro#uction sc/e#u!e Pro#uction sc/e#u!e
M4P M4P
Caacity Caacity
!anning !anning
Pro7!ems Pro7!ems
H H
4eFuirements 4eFuirements
sc/e#u!es sc/e#u!es
2
#
I
u
s
t

2
#
I
u
s
t

m
a
s
t
e
r

m
a
s
t
e
r

s
c
/
e
#
u
!
e
s
c
/
e
#
u
!
e
163
3% .uture upgrades
@% Training
S'mmary
Materials "e=uirements Planning +M"P- is an information Systems used to handle ordering of
dependent demand items + components of assemled products-
The planning process egins !ith customer orders, !hich are used along !ith any ac5 orders
to develop a Master Schedule that indicates timing and =uantity of finished goods%
The end items are e<ploded using the ill of materialsP Material "e=uirement Plans are
developed sho! =uantity and timing for ordering or producing components%
The main features of M"P are the time phasing of re=uirements, calculating component
re=uirements and planned order releases%
To e successful M"P re=uires a computer program and accurate master production schedules,
ills of materials and inventory data%
.irms can only implement M"P if they have accurate records
M"P ## lin5s usiness planning, production planning and the MPS% $"P:s are more refined as
!ell as comprehensive versions of M"P%
16@
Lesson 36
DUST IN TIME PRODUCTION S5STEM
Cust #n Time Production or *ean Production systems focus on the efficient delivery of products or
services% Some of the distinguishing elements of the C#T systems are a pull method to manage material
flo!, consistently high =uantity, small lot si7es, uniform !or5 station loads% The C#T systems provide an
organi7ational structure for improved supplier coordination y integrating the logistics, production and
purchasing processes% 9hen Operations Manager focuses on their organi7ation:s competitive advantage
they aim for lo! cost of production, consistent =uality !ith reductions in inventory, space re=uirements,
paper!or5 and increases in productivity, employee participation and effectiveness%
DIT6%ean Prod'&tion
*ean Manufacturing? is a management philosophy focusing on reduction of the seven !astes%
1% Over>production + 'apacity e<ceeding demand-
3% 9aiting time
3% Transportation
@% Processing
2% 'osts
6% #nventory
D% Motion + *ac5 of coordination of ody movements-
DIT6%ean Prod'&tion #eat'res
6y eliminating !aste +muda-, =uality is improved, production time is reduced and cost is
reduced%
_Pull_ production +y means of Oanan-%
9hile some elieve that *ean Manufacturing is a set of prolem solving tools%
#n addition, e<perts in this field elieve that philosophy>ased *ean Manufacturing strategy
is the most effective !ay to launch and sustain lean activities%
+ey -ean man'fa&t'ring ,rin&i,-es
1% Oey lean manufacturing principles include?
3% Perfect first>time =uality > =uest for 7ero defects
3% 9aste minimi7ation
@% 'ontinuous improvement
2% Pull processing? products are pulled from the consumer end, not pushed from the production
end%
6% .le<iility
D% 6uilding and maintaining a long term relationship !ith suppliers through collaorative ris5
sharing, cost sharing and information sharing arrangements%
A,,-i&ations of %ean Man'fa&t'ring
1% *ean &ealthcare Systems
3% *ean Soft!are Manufacturing
3% Systems $ngineering
@% *ean Systems in /efense #ndustry
Generi& Strategy for Im,-ementation of a %ean ,rogram
1% Top Management to agree and discuss their lean vision%
3% Management rainstorm to identify pro;ect leader and set o;ectives%
3% 'ommunicate plan and vision to the !or5force%
162
@% As5 for volunteers to form the *ean #mplementation team%
2% Appoint memers of the *ean Manufacturing #mplementation Team%
6% Train the #mplementation Team in the various lean tools%
Organi1ationa- and O,erationa- Strategies
1% Organi7ations aiming for C#T system should focus on the &uman "esource Management !ith
proper system of incentives, re!ards, laor classification, cooperation and trust in place%
3% Organi7ations should concentrate on effective management of inventory, purchasing, logistics
and scheduling%
3% Organi7ations should develop a demand ase system so less !aste is generated and good
management of high =uality, small lot si7es, good =uality, standardi7ed components and !or5
methods is ensured%
@% *ean or C#T Systems are effective only if they are designed to produce or deliver the right
product or the right services in the right =uantities ;ust in time to serve suse=uent processes or
customers%
2% Organi7ations !ho design their Operations on C#T philosophy need to encourage partnership
concept !hether it:s et!een organi7ations:s purchasing department and supplier or partnership
et!een management and laor%
166
Lesson 37
DUST IN TIME PRODUCTION S5STEM"I
9e have progressed our discussion on *ean Production Systems and Cust #n Time Systems and !e !ill
no! focus our attention upon *ean Systems in Services, Operational 6enefits associated !ith C#T% 9e
!ill also note some of the common #mplementation #ssues along !hich the Organi7ational face !hile
implementing C#T% 9e also need to 5no! !hat single Oanan System is and solve some e<amples%
C)ara&teristi&s of %ean SystemsC D'st"in"Time
'ontinuous #mprovement !ith the help of *ean Systems is possile if Operations Managers are ale
to focus on some of the common characteristics of *ean Systems, !hich include?
1% Pull method of materials flo!
3% 'onsistently high =uality
3% Small lot si7es
@% (niform !or5station loads
2% Standardi7ed components and !or5 methods
6% 'lose supplier ties
D% .le<ile !or5force
E% *ine flo!s
F% Maintenance
14% Automated production
11% Preventive maintenance
The figure elo! of a ship sailing through !aters is a great representation of an organi7ation
carrying its usiness !ith hidden roc5s +arriers- li5e scrap, unreliale suppliers and capacity
imalance, carrying the threat of sin5ing the ship% 9ith proper and effective lean production system
philosophy in place, this can e avoided and organi7ation can continue to sail through smooth and
calm !aters%
%ean Systems in Ser(i&es
1% 'onsistently high =uality
3% (niform facility loads
3% Standardi7ed !or5 methods
@% 'lose supplier ties
2% .le<ile !or5force
6% Automation
Scra
?nre!ia7!e
su!iers
Caacity
im7a!ance
16D
D% Preventive maintenance
E% Pull method of materials flo!
F% *ine flo!s
O,erationa- Benefits
1% "educe space re=uirements
3% "educe inventory investment
3% "educe lead times
@% #ncrease laour productivity
2% #ncrease e=uipment utili7ation
6% "educe paper!or5 and simple planning systems
D% 1alid priorities for scheduling
E% 9or5force participation
F% #ncrease product =uality
Im,-ementa- Iss'es
1% Organi7ational considerations
a% &uman cost of C#T systems
% 'ooperation and trust
c% "e!ard systems and laour classifications
3% Process considerations
3% #nventory and scheduling
a% MPS staility
% Setups
c% Purchasing and logistics
+anan Prod'&tion Contro- System
Oanan? 'ard or other device that communicates demand for !or5 or materials from the preceding
station%
Oanan is the Capanese !ord meaning AsignalB or Avisile recordB%
Paperless production control system%
Authority to pull, or produce comes from a do!nstream process%
Oanans also govern the assemly or Parts: movement authori7ation
+anan #orm'-a
9e can mathematically construct the Oanan .ormula, #f !e designate the follo!ing alphaets
) J Total numer of containers +Or Oanan 'ards-
/ J Planned usage rate of using !or5 center
T J Average !aiting time for replenishment of parts
plus average production time for a
container of parts
M J Policy variale set y management
> possile inefficiency in the system often called Alpha
' J 'apacity of a standard container
N =
DT(1+X)
C
16E
Often the same formula aove is used !ith the follo!ing parameters in mind
)J ` cards
/J usage
T J !ait K process time
M J efficiency rating
' J in capacity
E8am,-e
A company in Gu;ran!ala is ma5ing ruer tyres and tues% The operations manager has ;ust
completed his M6A from 1( and has oserved that factory has inefficient machine group% &e
records that the daily demand for 31B tue is 1444 units% The average !aiting time for a container of
the same part is 4%2 day% The processing time for the tyre tue container is 4%32 day% A container can
hold 244 units, currently there are 34 containers for this item%
Ca-&'-ate
1% 9hat is the value of policy variale A*P&AG
3% 9hat is the total planned inventory +!or5 in process and finished goods- for the tyre tueG
3% Suppose that the policy variale Alpha is 4, ho! many containers !ould e neededG 9hat
is the effect of policy variale in this prolemG
So-'tion
The given data is
d is 1444 units, ! ar J 4%2 day%
P arJ 4%32 day% OJ 244 units and Alpha is to e calculated%
9e use the e=uation and sustitute values
Then !ith 34 containers in the system and since each container can hold 244 units, the total planned
inventory is 34 +244-J 14,444 units
#f Alpha is 4 then on sustituting values !e have
+1 K a -J244 M 34 8 1444 +4%D2-
+1 K a -J14,4448D24J13%33
a J13%33
Then !ith 34 containers in the system and since each container can hold 244 units, the total
planned inventory is 34 + 244-J 14,444 units
#f Alpha is 4 then on sustituting values !e have
k 8
d: w 9 p ;: 1 9 ;
c
500 8
1000:0.5 90.25 ;: 1 9 ;
20
16F
OJ D248244J 1%2 or more correctly 3 containers%
Sing-e"Card +anan System
1% $ach container must have a card%
3% Assemly al!ays !ithdra!s from farication +pull system-%
3% 'ontainers cannot e moved !ithout a 5anan%
@% 'ontainers should contain the same numer of parts%
2% Only good parts are passed along%
6% Production should not e<ceed authori7ation%
S'mmary
Organi7ations use different methods and means to signal the need for material replenishment and
production, in this lecture !e studied the effective 5anan system and learnt ho! a single card Oanan,
C#T System can e used to control production flo!%
k 8
1000:0.5 90.25 ;: 1 9 0 ;
500
k 8
1000:0.75 ;: 1 ;
500
1D4
Lesson 38
DUST IN TIME PRODUCTION S5STEM"II
Cust #n Time system provides an organi7ation a roust structure y improving the relationship et!een
the organi7ation and the supplier y constituting a strategic alliance net!or5 et!een the organi7ation
and the suppliers% At the intra organi7ation level, C#T forms a healthy alliance et!een the management
and the !or5force, all this contriutes in elimination of !aste%
DUST IN TIME
Cust>#n>Time +C#T-? C#T can e defined as an integrated set of activities designed to achieve
high>volume production using minimal inventories +ra! materials, !or5 in process, and
finished goods-%
C#T also involves the elimination of !aste in production effort%
C#T also involves the timing of production resources +i%e%, parts arrive at the ne<t
!or5station A;ust in timeB-%
Bust.in.time 4B$)5? A highly coordinated processing system in !hich goods move through the
system, and services are performed, ;ust as they are needed% As operations managers !e should
rememer this point on!ards that
1% C#T is also 5no!n as lean production
3% C#T is the true pull +demand- system
3% C#T operates !ith very little AfatB
%
S'mmary DIT Goa-s and B'i-ding B-o&*s
Goal of C#T? The ultimate goal of C#T is a alanced system% C#T achieves a smooth, rapid flo! of
materials through the system% The ultimate as !ell as supporting goals are represented elo! in the
form of a pyramid%
9e need to pay special attention on uilding loc5s along !ith secondary loc5s as asence of one
or more o;ectives can seriously harm the C#T production structure for any manufacturing or service
ased organi7ation%
Se&ondary Goa-s
1% $liminate disruptions
3% Ma5e system fle<ile
3% $liminate !aste, especially e<cess inventory
Big (s3 %itt-e DIT
1% 6ig C#T road focus + #ncludes #nternal as !ell as $<ternal-
a% 1endor relations
Pro#uct
%esign
Process
%esign
Personne!
E!ements
Manu'actur1
ing P!anning
E!iminate #isrutions
Make t/e system '!exi7!e
E!iminate *aste
2
7a!ance#
rai# '!o*
?!timate
.oa!
Suorting
.oa!s
)ui!#ing
)!ocks
1D1
% &uman relations
c% Technology management
d% Materials and inventory management
3% *ittle C#T narro! focus #nternal to organi7ation
a% Scheduling materials
% Scheduling services of production
DIT B'i-ding B-o&*s
1% Product design
3% Process design
3% Personnel8organi7ational elements
@% Manufacturing planning and control
The *ean Production System
6ased on t!o philosophies?
1% $limination of !aste
3% "espect for people
Traditiona- S',,-ier Net!or*
1% The organi7ations ma5e its suppliers compete against each other%
3% Also the suppliers can supply the same component or ra! material to the organi7ations
competitors thus harming the organi7ations usiness%
3% Organi7ations tend to !aste resources and a lot of time looses its suppliers to the competitors%
@% Suppliers too end up asoring poor order placement from the organi7ations%
2% The !hole net!or5 faces sluggishness or inertia%
Tiered S',,-ier Net!or*
1% The suppliers !or5 as a strategic alliance to provide components to the organi7ation%
3% #nventory costs as !ell as the overall time involved are reduced%
Buyer
Supplie
r
Supplie
r
Supplie
r
Supplie
r
Supplie
r
Supplie
r
Supplie
r
Supplier
Supplier
Supplier
Supplier Supplier Supplier
Buyer
Supplier First +ier Supp!ier
Second +ier Supp!ier
+hird +ier Supp!ier
1D3
3% Order e<ecution is improved and organi7ations do not face the challenge of loosing its suppliers
to the competitors%
@% There is little or no rivalry et!een the suppliers
Transitioning to a DIT System
1% Get top management commitment
3% /ecide !hich parts need most effort
3% Otain support of !or5ers
@% Try to reduce scrap material
2% Start y trying to reduce setup times
6% #ncorporate =uality
D% Gradually convert operations
E% 'onvert suppliers to C#T
F% Prepare for ostacles
Osta&-es to Con(ersion
1% Management may not e committed
3% 9or5ers8management may not e cooperative
3% Suppliers may resist
DIT in Ser(i&es
The asic goal of the demand flo! technology in the service organi7ation is to provide optimum
response to the customer !ith the highest =uality service and lo!est possile cost%
1% $liminate disruptions
3% Ma5e system fle<ile
3% "educe setup and lead times
@% $liminate !aste
2% Simplify the process
DIT in Ser(i&es FE8am,-esG
1% (pgrade 0uality
3% 'larify Process .lo!s
3% /evelop Supplier )et!or5s
@% #ntroduce /emand>Pull Scheduling
2% "eorgani7e Physical 'onfiguration
6% $liminate (nnecessary Activities
D% *evel the .acility *oad
DIT II
C#T ##? a supplier representative !or5s right in the company:s plant, ma5ing sure there is an
appropriate supply on hand%
Benefits of DIT Systems
1% "educed inventory levels
3% &igh =uality
3% .le<iility
@% "educed lead times
2% #ncreased productivity
1D3
S'mmary
C#T systems allo! an organi7ation to achieve a alanced smooth flo! of production, more system
fle<iility !ith reduction in !astes and lead time% Proper emphasis on the process and product design
along !ith personnel management can provide the necessary control and re!ard of achievement of C#T
or *ean Production systems%
1D@
Lesson 39
SUPP%5 CHAIN MANAGEMENT
upply 6hain? The se=uence of organi7ation:s facilities, functions, and activities that are involved in
producing and delivering a product or service%
Need for S',,-y C)ain Management
1% #mprove operations
3% #ncreasing levels of outsourcing
3% #ncreasing transportation costs
@% 'ompetitive pressures
2% #ncreasing gloali7ation
6% #ncreasing importance of e>commerce
D% 'omple<ity of supply chains
E% Manage inventories
Benefits of S',,-y C)ain Management
1% *o!er inventories
3% &igher productivity
3% Greater agility
@% Shorter lead times
2% &igher profits
6% Greater customer loyalty
E-ements of S',,-y C)ain Management
%ogisti&s
The goal of logistic !or5 is to manage the completion of pro;ect life cycles, supply chains and resultant
efficiencies% Often *ogistics is termed as the art and science of managing and controlling the flo! of
goods, energy, information and other resources li5e products, services, and people, from the source of
production to the mar5etplace%
#t also refers to the movement of materials and information !ithin a facility and to incoming and
outgoing shipments of goods and materials in a supply chain%
/eciding ho! to est move and store materials *ogistics
/etermining location of facilities *ocation
Monitoring supplier =uality, delivery, and relations
Suppliers
$valuating suppliers and supporting operations Purchasing
Meeting demand !hile managing inventory costs #nventory
'ontrolling =uality, scheduling !or5 Processing
#ncorporating customer !ants, mfg%, and time /esign
Predicting =uantity and timing of demand .orecasting
/etermining !hat customers !ant 'ustomers
Ty,i&a- Iss'es E-ement
1D2
*ogistics is the time related positioning of resources and is commonly seen as a ranch of engineering
!hich creates _people systems_ rather than _machine systems% #t involves the integration of information,
transportation, inventory, !arehousing, material handling, and pac5aging%
%
#mportant 'haracteristics of *ogistics
1% Movement !ithin the facility
3% 6ar coding
3% #ncoming and outgoing shipments
@% $/# +$lectronic /ata #nterchange-
2% /istriution
6% C#T /eliveries
%ogisti&sC E(a-'ating S)i,,ing A-ternati(es
A situation that arises fre=uently in some usinesses in ma5ing a choice et!een =uic5er+
e<pensive- shipping alternatives such as overnight or 3 day air and slo!er ut cheaper alternatives%
The decision in such cases often focuses on the cost savings of alternatives versus the increased
holding cost that result from using slo!er alternative%
Often the supplier gets paid on delivery of the product through $/# the very same time the order
reaches its destination%
The #ncremental &olding cost incurred y using the slo!er alternative is computed as follo!s?
#ncremental &olding 'ostJ & + d8362-
9here &JAnnual &olding cost for the item%
d J Time savings in days and d8362 is fraction of year saved%
%ogisti&s E8am,-e
/etermine the shipping alternative + !ith in Pa5istan- for a Oarachi ased Montessori toy
manufacturer,1 days or 2 days are est !hen the holding cost of the item is "s% 144,444 per year and the
1 day shipping cost is "s 1244 and 3 day shipping cost is
"s% 644
"s% 244
So-'tion
&J "s% 144,444 per year
Time savings J 3 days using 1 day alternative
&olding cost for additional 3 days
J 144,444 M + 38362-
J "s% 2@D%F2J2@E%
Or &olding cost per day J "s% 3D@
Alternative A
'ost savings J "s% +1244>644-J "s% F44, ecause the actual cost of savings of "s F44 is more than
the holding cost of "s% 2@E, use the 3 day option%
'ost savings J "s% +1244>244- J "s% 1444, ecause the actual cost of savings of "s 1444 is greater
than the holding cost of "s%2@E, use the 3 day option%
Distri'tion Re7'irements P-anning
/istriution re=uirements planning +/"P- is a system for inventory management and distriution
planning% $<tends the concepts of M"P##%
1D6
(ses of /"P
Management uses /"P to plan and coordinate?
1% Transportation
3% 9arehousing
3% 9or5ers
@% $=uipment
2% .inancial flo!s
E-e&troni& Data Inter&)ange
$/# is the direct transmission of inter>organi7ational transactions, computer>to>computer, including
purchase orders, shipping notices, and deit or credit memos%
$lectronic /ata #nterchange gives an organi7ation the follo!ing enefits and advantages%
1% #ncreased productivity
3% "eduction of paper!or5
3% *ead time and inventory reduction
@% .acilitation of ;ust>in>time systems
2% $lectronic transfer of funds
6% #mproved control of operations
D% "eduction in clerical laor
E% #ncreased accuracy
Effi&ient Cons'mer Res,onse
$fficient consumer response +$'"- is a supply chain management initiative specific to the food
industry% $'" reflects companies: efforts to achieve =uic5 response using $/# and ar codes%
$>'ommerce? is the use of electronic technology to facilitate usiness transactions%
S'&&essf'- S',,-y C)ain
1% Trust among trading partners
3% $ffective communications
3% Supply chain visiility
@% $vent>management capaility
a% The aility to detect and respond to unplanned events
2% Performance metrics
S'mmary
Supply 'hain Management is primarily the flo! of information !hich ensures the effective flo! of
materials throughout the value chain% The chain e<tends from the Suppliers to the organi7ation and from
the organi7ation to the customers% Operations Managers should e ale to identify that the strength of
the Supply 'hain is the strength of its !ea5est lin5% #f an organi7ation fails to ma5e use of the customer
feed ac5 it not only looses its customer ase ut also !ea5ens its supply chain and loses its usiness to
its customers% Suppliers normally come at the upstream of the organi7ation and customers at the
do!nstream to complete the Supply 'hain% Many Soft!are are availale to ensure that Supply chain is
managed effectively y the organi7ation% Supply 'hain Management is no! gaining popularity in
Pa5istan%
1DD
Lesson 40
SUPP%5 CHAIN MANAGEMENT"I
%earning O?e&ti(e
#n this lecture !e !ill focus on certain important parameters of Supply 'hain Management% 9e !ill
discuss the Supply 'hain Operational "eference Metrics and 'ollaorative Planning .orecasting
and "eplenishment Process, !hich !ould help us analy7e the Supply chains% This !ould also help
us an operation manager to design effective supply chains% 9e !ill try to understand the concepts of
1elocity and 6ull!hip effect and ho! they pose a serious challenge to the effectiveness of the
Supply 'hain%
S',,-y C)ain O,erationa- Referen&e FSCORG Metri&s
Pers,e&ti(e Metri&s
"eliaility On>time delivery
Order fulfillment lead time
.ill rate +fraction of demand met from
stoc5-
Perfect order fulfillment
.le<iility Supply chain response time
(pside production fle<iility
Agility to otain competitiveness
$<penses Supply chain management costs
9arranty cost as a percent of revenue
1alue added per employee
Assets8utili7ation Total inventory days of supply
'ash>to>cash cycle time
)et asset turns
Supply chain response time often ma5es or rea5s a supply chain%
CP#R
'P." is an acronym derived from the first letters of the follo!ing phrase? 'ollaorative Planning,
.orecasting and "eplenishment%
1% .ocuses on information sharing among trading partners%
3% .orecasts can e fro7en and then converted into a shipping plan%
3% $liminates typical order processing%
'P." Process consists of the follo!ing steps%
Step 1 .ront>end agreement
Step 3 Coint usiness plan
Steps 3>2 Sales forecast
Steps 6>E Order forecast collaoration
Step F Order generation8delivery e<ecution
Creating an Effe&ti(e S',,-y C)ain
1% /evelop strategic o;ectives and tactics%
3% #ntegrate and coordinate activities in the internal supply chain%
3% 'oordinate activities !ith suppliers !ith customers%
@% 'oordinate planning and e<ecution across the supply chain%
2% .orm strategic partnerships%
1DE
S',,-y C)ain Performan&e Dri(ers
1% 0uality
3% 'ost
3% .le<iility
@% 1elocity
2% 'ustomer service
Ve-o&ity
1% #nventory velocity? The rate at !hich inventory +material- goes through the supply chain%
3% #nformation velocity? The rate at !hich information is communicated in a supply chain%
C)a--enges to an Effe&ti(e S',,-y C)ain Management
1% 6arriers to integration of organi7ations
3% Getting top management on oard
3% /ealing !ith trade>offs
@% Small usinesses
2% 1ariaility and uncertainty
6% *ong lead times
Trade"offs
1% 'ost>customer service
a% /isintermediation
3% *ot>si7e>inventory
a% 6ull!hip effect
3% #nventory>transportation costs
a% 'ross>doc5ing
@% *ead time>transportation costs
2% Product variety>inventory
a% /elayed differentiation
6ull!hip effect represents the real life time situation that #nventories are progressively
larger moving ac5!ard through the supply chain%
'ross>doc5ing represents the fact that the goods arriving at a !arehouse from a supplier are
unloaded from the supplier:s truc5 and loaded onto outound truc5s% Avoids !arehouse
storage%
/elayed differentiation relates to the Production of standard components and
suassemlies, !hich are held until late in the process to add differentiating features%
/isintermediation is reducing one or more steps in a supply chain y cutting out one or
more intermediaries%
S',,-y C)ain Iss'es
6(ality c"ntr"l
#r"d(cti"n plannin* and
c"ntr"l
In&ent"ry p"licies
#(rc!asin* p"licies
#r"d(cti"n p"licies
+ransp"rtati"n
p"licies
6(ality p"licies
?esi*n "' t!e
s(pply c!ain8
partnerin*
$erating &ssues Tactica! &ssues Strategic &ssues
1DF
S',,-y C)ain Benefits and Dra!a&*s
Pro-em Potentia-
Im,ro(ement
Benefits Possi-e
Dra!a&*s
*arge inventories Smaller, more fre=uent
deliveries
"educed holding costs Traffic congestion
#ncreased costs
*ong lead times /elayed differentiation
/isintermediation
0uic5 response May not e feasile% May
need asor functions
*arge numer of
parts
Modular .e!er parts
Simpler ordering
*ess variety
'ost
0uality
Outsourcing "educed cost, higher
=uality
*oss of control
1ariaility Shorter lead times,
etter forecasts
Ale to match supply
and demand
*ess variety
S',,-ier Partners)i,s
#deas from suppliers could lead to improved competitiveness
1% "educe cost of ma5ing the purchase
3% #ncrease "evenues
3% $nhance Performance
Criti&a- Iss'es
1% Technology management
a% 6enefits
% "is5s
3% Strategic importance
a% 0uality
% 'ost
c% Agility
d% 'ustomer service
e% 'ompetitive advantage
O,erations Strategy
1% S'M creates value through changes in time, location and =uantity%
3% S'M creates competitive advantage y integrating and streamlining the diverse range of
activities that involve purchasing, internal inventory, transfers and physical distriution%
S'mmary
Supply 'hain Management dynamics allo! an Operations Manager to evolve an effective strategy that
creates value% *ogistics and purchasing alone can allo! an operations manager to effectively control the
flo! of information and materials !ith in and to and fro from the organi7ation% Organi7ations aiming for
S'M implementation often fail ecause of lac5 of training of their employees as !ell as top
managements commitment%
1E4
Lesson 41
SCHEDU%ING
%earning O?e&ti(es
After completing the introductory discussion on Scheduling, the students !ould e ale to understand
!hat scheduling is and ho! important it is to high volume and intermediate volume systems% #t !ould
also help them to learn ho! to address scheduling needs in Co shops% The students !ould also learn the
use and interpretation of Gantt 'harts% They !ould also use Assignment method for loading along !ith
common Priority "ules% They !ould also learn the common and uni=ue scheduling prolems in Service
Systems%
S&)ed'-ing
Scheduling? Scheduling is an important tool for manufacturing and service industries !here it can have
a ma;or impact on the productivity of a process% #n manufacturing, the purpose of scheduling is to
minimi7e the production time and costs, y telling a production facility !hat to ma5e, !hen, !ith !hich
staff, and on !hich e=uipment% Similarly, scheduling in service industries, such as airlines and pulic
transport, aim to ma<imi7e the efficiency of the operation and reduce costs%
Scheduling
Modern computeri7ed scheduling tools greatly outperform older manual scheduling methods% This
provides the production scheduler !ith po!erful graphical interfaces !hich can e used to visually
optimi7e real>time !or5 loads in various stages of the production, and pattern recognition allo!s the
soft!are to automatically create scheduling opportunities !hich might not e apparent !ithout this vie!
into the data% .or e<ample, an airline might !ish to minimi7e the numer of airport gates re=uired for its
aircraft, in order to reduce costs, and scheduling soft!are can allo! the planners to see ho! this can e
done, y analy7ing time tales, aircraft usage, or the flo! of passengers%
Scheduling
'ompanies use ac5!ard and for!ard scheduling to plan their human and material resources% 6ac5!ard
scheduling is planning the tas5s from the due date to determine the start date and8or any changes in
capacity re=uired, !hereas for!ard scheduling is planning the tas5s from the start date to determine the
shipping date or the due date%
Benefits of S&)ed'-ing
Scheduling? $stalishing the timing of the use of e=uipment, facilities and human activities in an
organi7ation
1% $ffective scheduling can yield
3% 'ost savings
3% #ncreases in productivity
The enefits of production scheduling include?
1% Process change>over reduction
3% #nventory reduction, leveling
3% "educed scheduling effort
@% #ncreased production efficiency
2% *aor load leveling
6% Accurate delivery date =uotes
D% "eal time information
Hig)"Vo-'me Systems
1% .lo! system ? &igh>volume system !ith Standardi7ed e=uipment and activities
3% .lo!>shop scheduling ? Scheduling for high>volume flo! system
1E1
S&)ed'-ing Man'fa&t'ring O,erations
&igh>volume
#ntermediate>
volume
*o!>volume
Service
operations
Hig)"Vo-'me S'&&ess #a&tors
Process and product design
Preventive maintenance
"apid repair !hen rea5do!n occurs
Optimal product mi<es
Minimi7ation of =uality prolems
"eliaility and timing of supplies
#ntermediate>1olume Systems
Outputs are et!een standardi7ed high>volume systems and made>to>order ;o shops
"un si7e, timing, and se=uence of ;os
$conomic run si7e?
S&)ed'-ing %o!"Vo-'me Systems
#oading > assignment of ;os to process centers
e1uencing > determining the order in !hich ;os !ill e processed
Co>shop scheduling
Scheduling for lo!>volume systems !ith many variations in re=uirements
Gantt %oad C)art
7antt chart > used as a visual aid for loading and scheduling
*oad 'hart
#oad chart A type of Gantt 'hart that sho!s the loading and idle times for a group of machines or list
of departments
3ork Center J1 3ork Center R2
$utut
u p
p
A
:
!
=
3
4
C"r:
Center
/"n. +(es. Ced. +!(rs. Fri.
1 J") 3 J") 4
2 J") 3 J") 7
3 J") 1 J") 6 J") 7
4 J") 10

1E3
chedule chart A type of Gantt 'hart that sho!s the orders or ;os in progress and !hether they are
on schedule or not%
$nput/?utput 6ontrol 6hart A type of 'ontrol 'hart that sho!s management of !or5 flo! and =ueues
at the !or5 centers
%oading Ty,es
The common types of loading include the follo!ing
1% #nfinite loading
3% .inite loading
3% 1ertical loading
@% &ori7ontal loading
2% .or!ard scheduling
6% 6ac5!ard scheduling
D% Schedule chart
9e no! riefly discuss this type of *oading
1% #nfinite loading% Cos are assigned to !or5 centers !ithout regard to the capacity of the !or5
center%
3% .inite loading Cos are assigned to !or5 centers !ith regard to the capacity of the !or5 center
and ;o processing times%
3% 1ertical loading? *oading ;os at a !or5 center, ;o y ;o, usually according to some priority
criterion, using infinite loading i%e% Cos are assigned to !or5 centers !ithout regard to the
capacity of the !or5 center%
@% &ori7ontal loading? *oading each ;o on all !or5 centers it !ill re=uire, then the ne<t ;o on all
!or5 centers, according to some priority, using finite loading i%e% Cos are assigned to !or5
centers !ith regard to the capacity of the !or5 center and ;o processing times%
2% .or!ard scheduling? Scheduling ahead, from some point in time
6% 6ac5!ard scheduling? Scheduling y !or5ing ac5!ards from the due date
D% Schedule chart A Gantt chart that sho!s the orders or ;os in progress and !hether they are on
schedule or not%
Assignment Met)od of %inear Programming
Assignment Model is a type of linear programming model for optimal assignment of tas5s and resources
&ungarian method is the method of assigning ;os y a one for one matching to identify the lo!est cost
solution
*et:s ta5e a step y step approach to understand and ma5e use of &ungarian Method
H'ngarian Met)od
.irst of all, ac=uire the relevant cost information and arrange it in taular form
Second, otain the "o! "eductionP this is otained y sutracting the smallest numer in each ro!
from every numer in the ro!% $nter the results in a ne! tale%
Third, Otain the 'olumn "eduction y sutracting the smallest numer in each column of the ne!
tale from every numer in the column%
.ourth, test !hether an optimum assignment can e made% Rou do this y determining the minimum
numer of lines needed to cover + i%e%- cross out all 7eros% #f the numer of lines e=ual the numers
of ro!, an optimum assignment is possile% #) that case move to final step%
1E3
.ifth, if the numers of lines is less than the numer of ro!s, modify the tale in the follo!ing
manner
o Sutract the smallest uncovered numer from every uncovered numer in the tale%
o Add the smallest uncovered numer to the numers at the intersections of covering
lines
o )umers crossed out ut not at intersections of cross out lines carry over unchanged to
the ne<t tale%
Si<th, "epeat steps fourth and fifth unless an Optimal tale is otained
Seventh, ma5e the assignments% 6egin !ith ro!s or columns !ith only one 7ero% Match items that
have 7eros, using only one match for each ro! and each column% 'ross out oth the ro! and column
for each ro!%
H'ngarian Met)od E8am,-e
Please refer to the matri< !hich sho!s Cos 1,3,3 and @ !ith Machines A, 6, ' and /%
CO6S A 6 ' /
1 E 6 3 @
3 6 D 11 14
3 3 2 D 6
@ 2 14 13 F
Please apply the &ungarian Method to ma5e appropriate assignments%
Select the "o! Minimum
MA'&#)$
CO6S A 6 ' / "O9 M#)
1 E 6 3 @ 3
3 6 D 11 14 6
3 3 2 D 6 3
@ 2 14 13 F 2
Sutract the smallest numer in reach ro!
To form a ne! tale and select column minimum
MA'&#)$
CO6S A 6 ' /
1 6 @ 4 3
3 4 1 2 @
3 4 3 @ 3
@ 4 2 D @
'O* M#) 4 1 4 3
Sutract the smallest numer in reach column I $nter the results to form a ne! tale
MA'&#)$
CO6S A 6 ' /
1 6 3 4 4
3 4 4 2 3
3 4 1 @ 1
@ 4 @ D 3
1E@
/etermine the minimum numer of lines needed to cross Out all 7eros% &ere !e have three lines only
and ro!s are @, so the solution is not optimal
H'ngarian Met)od E8am,-e
Sutract the smallest value that has not een crossed out from every numer that has not een crossed
out +1 here- and add this to numers that are at intersections of covering lines
MA'&#)$
CO6S A 6 ' /
1 6K1JD 3 4 4
3 4K1J1 4 2 3
3 4 4 3 4
@ 4 3 6 1
/etermine the minimum numer of lines needed to cross Out all 4 +@-, since this e=uals the numer of
ro!s, !e otain the optimum assignment%
MA'&#)$
CO6S A 6 ' /
1 D 3 4 4
3 1 4 2 3
3 4 4 3 4
@ 4 3 6 1
Ma5e the assignments, start !ith ro!s and columns !ith only one 4% Match ;os !ith machines that
have 4 costs%
MA'&#)$
CO6S A 6 ' /
1 D 3 4 4
3 1 4 2 3
3 4 4 3 4
@ 4 3 6 1
The assignment according to &ungarian Method is therefore
A@, 36,1' A)/ 3/
Se=uencing
e1uencing? /etermine the order in !hich ;os at a !or5 center !ill e processed%
"orkstation? An area !here one person !or5s, usually !ith special e=uipment, on a speciali7ed ;o%
S'mmary
Scheduling is the timing and coordination of Operations% Scheduling prolems differ in nature ecause
of the system eing designed for high volume, intermediate or lo! volume flo!% #n our ne<t lecture !e
!ill discuss its complementary and supplementary concept of Se=uencing%
MA'&#)$
CO6S A 6 ' /
1 6 3 4 4
3 4 4 2 3
3 4 1 @ 1
@ 4 @ D 3
1E2
Lesson 42
SE9UENCING
%earning O?e&ti(es
After completing today:s lecture, the students should e ale to develop a comprehensive understanding
of scheduling and se=uencing operations !ith the help of &ungarian Methods and Cohnson "ules% The
students !ould e ale to understand the priority rules along !ith the need of effective scheduling and
se=uencing% The students !ould e ale to develop an Operations Strategy !ith respect to oth
Scheduling and Se=uencing%
Se7'en&ing
e1uencing? /etermine the order in !hich ;os at a !or5 center !ill e processed%
"e=uires order for se=uencing at all !or5 centers as !ell as se=uencing at individual !or5 centers%
"orkstation? An area !here one person !or5s, usually !ith special e=uipment, on a speciali7ed ;o%
Se=uencing
Bob time? Time needed for setup and processing of a ;o%
Priority rules? Simple heuristics +'ommonsense rules- used to select the order in !hich ;os !ill e
processed%
1% *ocal "ules + pertaining to single !or5station-
3% Gloal "ules+ pertaining to multiple !or5station-
3% Co processing times and due dates are important pieces of information%
@% Co time consists of processing time and setup times
Priority R'-es
1% .'.S > .irst 'ome, .irst Served? Cos are processed in the order in !hich they arrive at a machine
or !or5 center%
3% SPT> Shortest Processing Time? Cos are processed according to processing time at a machine or
!or5 center, shortest ;o first%
3% // > /ue /ate? Cos are processed according to due date, earliest due date first%
@% '" > critical ratio? Cos are processed according to smallest ratio of time remaining until due date to
processing time remaining%
2% S8O > slac5 per operation? Cos are processed according to average slac5 time +time until due date
minus remaining time to process-% 'ompute y dividing slac5 time y dividing slac5 time y
numer of remaining operations including the current one%
6% "ush emergency? $mergency or Preferred 'ustomers first%
Ass'm,tions to Priority R'-es
1% The set of ;os is 5no!n, no ne! ;os arrive after processing egins and no ;os are canceled%
3% Setup time is deterministic
3% Processing times are deterministic rather than variales%
@% There !ill e no interruptions in processing such as machine rea5do!ns , accidents or !or5er
illnesses%
Definitions
Co .lo! Time? The length of time a ;o is in the shop at a particular !or5station or !or5 center%
Co *ateness? This is the length of time the ;o completion date is e<pected to e<ceed the date the ;o
!as due or promised to a customer%
1E6
Ma5espan? This is the total time needed to complete a group of ;os% #t is the length of time et!een the
start of the first ;o in the group and the completion of the last ;o in the group%
Average )umer of Cos? Cos that are considered in a shop are considered to e !or5 in process
inventory% Mathematically
Average )umer of CosJ Total .lo! Time 8 Ma5espan%
E8am,-e
/etermine the se=uence of ;os, average time flo!, average days late and average numer of ;os at
the !or5 center, for each of these rules
.'.S
SPT
//
'"
$<ample /ata
CO6 Processing Time /ue /ate
A 3 D
6 E 16
' @ @
/ 14 1D
$ 2 12
. 13 1E
Part A3 #C#S
Assume Cos arrived in the follo!ing order 1% A>6>'>/>$>.
CO6
Se=uences
Processing
Time
+1-
.lo! Time + cumulative
processing time- +3-
/ue /ate
+3-
+3->+3-
A 3 3 D 4
6 E 14 16 4
' @ 1@ @ 14
/ 14 3@ 1D D
$ 2 3F 12 1@
. 13 @1 1E 33
@1 134 2@
Part A% .'.S
Average .lo! timeJ Total .lo! Time8)umer of CosJ13486J34 days
Average TardinessJ2@86JF
The ma5espan J@1 days
Average )umer of Cos at !or5stationJ
1348@1J3%F3 ;os per !or5station
SPT, the se=uence is A>'>$>6>/>.
1ED
Part 6 SPT rule
CO6
Se=uences
Processing
Time
+1-
.lo! Time + cumulative
processing time-
+3-
/ue
/ate
+3-
+3->+3-
A 3 3 D 4
' @ 6 @ 3
$ 2 11 12 4
6 E 1F 16 3
/ 14 3F 1D 13
. 13 @1 1E 33
@1 14E @4
Average .lo! timeJ Total .lo! Time8)umer of CosJ14E86J1E days
Average TardinessJ@486J6%6Ddays
The ma5espan J@1 days
Average )umer of Cos at !or5stationJ
14E8@1J3%63 ;os per !or5station
Summary Part A,6,' and /
DOB
Se7'en&es
R'-e
Average
.lo!
Time
+/ays-
Average
*ateness
+/ays-
Average )umer of Cos of
the 9or5 'enter
.'.S 34%44 F%44 3%F3
SPT 1E%44 6%6D 3%63
// 1E%33 6%33 3%6E
'" 36%6D 1@%1D 3%F
Summary Part A,6,' and /
1% Generally Spea5ing .'.S and '" rule seems to e the least effective%
3% '" is the !orst in each aspect of measurement%
3% The primary limitation of .'.S is that long ;os !ill tend to delay other ;os%
@% &o!ever in scheduling of service systems, the .'.S has the advantage of simplicity,
inherent fairness +first come first served- ut also due to non availaility of realistic
estimates of processing times for individual ;os%
Do)nsonOs R'-e FT!o /or* Center Se7'en&ingG
Bohnson=s *ule? techni=ue for minimi7ing completion time for a group of ;os to e processed on
t!o machines or at t!o !or5 centers%
1% Minimi7es total idle time
3% Several conditions must e satisfied
Cohnson:s "ule 'onditions
1% Co time must e 5no!n and constant
3% Co times must e independent of se=uence
3% Cos must follo! same t!o>step se=uence
@% Co priorities cannot e used
2% All units must e completed at the first !or5 center efore moving to second
Cohnson:s "ule Optimum Se=uence
1% *ist the ;os and their times at each !or5 center
3% Select the ;o !ith the shortest time
1EE
3% $liminate the ;o from further consideration
@% "epeat steps 3 and 3 until all ;os have een scheduled
Do)nsonOs R'-e E8am,-e
P"O'$SS#)G T#M$S + &O("S-
CO6 9or5 'enter 1 9or5 'enter3
A 2 2
6 @ 3
' E F
/ 3 D
$ 6 E
. 13 12
1% Select the ;o !ith shortest processing time% #n our case it is Co /
3% $liminate the ro! of CO6 / I proceed further to select the ne<t ;o !ith shortest processing time
!hich is 6 in our case and that too at !or5 center3
3% Similarly se=uencing other ;os at !or5 centers, !e follo! that if there is tie of no of hours, !e can
se=uence it at the eginning or the end%
@% 'onstruct a chart to determine the throughput time and idle times at the !or5 centers% 9e have
2% 1
st
/,3
nd
$,3
rd
',@
th
.,2
th
A and 6
th
6
S&)ed'-ing Diffi&'-ties
1% 1ariaility in
a% Setup times
% Processing times
c% #nterruptions
d% 'hanges in the set of ;os
3% )o method for identifying optimal schedule
3% Scheduling is not an e<act science
@% Ongoing tas5 for a manager
Minimi1ing S&)ed'-ing Diffi&'-ties
1% Set realistic due dates
3% .ocus on ottlenec5 operations
3% 'onsider lot splitting of large ;os
S&)ed'-ing Ser(i&e O,erations
1% Appointment systems
a% 'ontrols customer arrivals for service
3% "eservation systems
a% $stimates demand for service
3% Scheduling the !or5force
a% Manages capacity for service
@% Scheduling multiple resources
a% 'oordinates use of more than one resource
Cy&-i&a- S&)ed'-ing
1EF
1% &ospitals, police8fire departments, restaurants, supermar5ets
3% "otating schedules
3% Set a scheduling hori7on
@% #dentify the !or5 pattern
2% /evelop a asic employee schedule
6% Assign employees to the schedule
Ser(i&e O,eration Pro-ems
1% 'annot store or inventory services
3% 'ustomer service re=uests are random
3% Scheduling service involves
a% 'ustomers
% 9or5force
c% $=uipment
Maintenan&e
Maintenance? All activities that maintain facilities and e=uipment in good !or5ing order so that a
system can perform as intended
6rea5do!n maintenance? "eactive approachP dealing !ith rea5do!ns or prolems !hen they occur
Preventive maintenance? Proactive approachP reducing rea5do!ns through a program of lurication,
ad;ustment, cleaning, inspection, and replacement of !orn parts
Maintenan&e Reasons
"easons for 5eeping e=uipment running
1% Avoid production disruptions
3% )ot add to production costs
3% Maintain high =uality
@% Avoid missed delivery dates
Brea*do!n Conse7'en&es
Some of the important conse=uences are?
1% Production capacity is reduced ? Orders are delayed
3% )o production? Overhead continues
3% 'ost per unit increases? 0uality issues
@% Product may e damaged
2% Safety issues
a% #n;ury to employees
% #n;ury to customers
Tota- Maintenan&e Cost
1F4
Pre(enti(e Maintenan&e
Preventive maintenance? goal is to reduce the incidence of rea5do!ns or failures in the plant or
e=uipment to avoid the associated costs
1% Preventive maintenance is periodic
3% "esult of planned inspections
3% According to calendar
@% After predetermined numer of hours
$<ample 1
.re=uency of rea5do!n
#f the average cost of a rea5do!n is "s%14,444, and the cost of preventative maintenance is
"s%13,244 per month, should !e use preventive maintenanceG
$<ample 1 Solution
N'mer of
Brea*do!ns
#re7'en&y
of
O&&'rren&e
E8,e&ted
n'mer of
Brea*do!ns
<
$
0
=
30<
3=<
3><
3$<
$3<<
<
3=<
3@<
3=<
$3><
$<pected cost to repair J 1%@ rea5do!ns per month M "s%14,444
J "s%1@,444
Preventive maintenance J "s%13,244%
PM results in savings of "s%1244 per month
)reak#o*n an#
reair cost
$timum 2mount o'
Pre,enti,e Maintenance
C
o
s
t
Tota-
Cost
Pre,enti,e
maintenance cost
"um7er o' 7reak#o*ns 0 1 & '
+reFuency o' occurrence .20 .30 .60 .10
1F1
Predi&ti(e Maintenan&e
Predictive maintenance? An attempt to determine !hen est to perform preventive maintenance
activities
Total productive maintenance? C#T approach !here !or5ers perform preventive maintenance on the
machines they operate
Brea*do!n Programs
1% Standy or ac5up e=uipment that can e =uic5ly pressed into service
3% #nventories of spare parts that can e installed as needed
3% Operators !ho are ale to perform minor repairs
@% "epair people !ho are !ell trained and readily availale to diagnose and correct prolems !ith
e=uipment
Re,-a&ement
1% Trade>off decisions
3% 'ost of replacement vs% cost of continued maintenance
3% )e! e=uipment !ith ne! features vs% maintenance
@% #nstallation of ne! e=uipment may cause disruptions
2% Training costs of employees on ne! e=uipment
6% .orecasts for demand on e=uipment may re=uire ne! e=uipment capacity
D% 9hen is it time for replacementG
O,erations Strategy
1% Scheduling can hinder or help the Operations Strategy%
3% An on time delivery of a product or service is only possile if the Operations Managers is ale to do
effective scheduling%
3% An ineffective scheduling !ould result in inefficient use of resources and possile dissatisfied
customers%
@% Scheduling as an Operations Strategy can provide an organi7ation a competitive advantage over its
competitors%
2% Time ased competition depends on good scheduling%
6% Good design, superior =uality and other elements of a !ell run organi7ation are meaningless if
effective scheduling is asent from Operations Management Strategy%
D% Scheduling is that an5 alance !hich may seem great in numers ut if not used effectively !ould
not ma5e any sense%
S'mmary
Scheduling involves timing and coordination of operations% Scheduling is different for high volume,
intermediate volume and lo! volume% Scheduling for ;o shops is very comple<, ecause of variety ;os
that need to e processed% The t!o ma;or prolems in Scheduling is the assigning of ;os to the
machines +!or5 centers- and se=uence of operations at a machine%
Gantt *oad charts are used to help managers visuali7e the !or5 load situation%
Scheduling of service systems re=uire appointment or reservation systems, although all systems are not
amenale to this% 9hen multiple resources are involved, the alancing can e difficult% Maintenance
Activities ensure that se=uence activities are completed on time and as per schedule% Maintenance adds
to revenue and not to costs%
1F3
Lesson 43
PRODECT MANAGEMENT
%earning O?e&ti(es
After completing our lectures @3 and @@, !e should e ale to understand the 6ehavioral aspects of
pro;ects in terms of pro;ect personnel and the pro;ect manager% 9e should e ale to appreciate the
nature and importance of !or5 rea5do!n structure in Pro;ect Management% 9e should develop a
!or5ing 5no!ledge of P$"T8'PM techni=ues%
'onstruct simple net!or5 diagrams and try to assimilate the 5ind of information that a P$"T or 'PM
analysis can provide% And last ut not the least !e should e ale to analy7e net!or5s !ith proailistic
times and descrie activity AcrashingB and solve some prolems%
Pro?e&ts
Pro;ects are uni=ue, one>time +temporary- operations designed to accomplish a specific set of o;ectives
in a limited time frame%
This property of eing a temporary and a one>time venture contrast !ith operations,
!hich are permanent or semi>permanent ongoing functional !or5 to create the same product or service
over>and>over again%
The management of these t!o systems is often very different and re=uires varying technical s5ills and
philosophy, hence re=uiring the development of pro;ect management
Pro?e&t Management
Pro;ect Management is the organi7ing and managing resources in such a !ay that these resources
deliver all the !or5 re=uired to complete a pro;ect !ithin defined scope, time, and cost constraints% A
pro;ect is a temporary and one>time endeavor underta5en to create a uni=ue product or service%
/istinguishing characteristics of Pro;ect Management
1% &o! is it differentG
*imited time frame
)arro! focus, specific o;ectives
*ess ureaucratic
3% 9hy is it usedG
Special needs
Pressures for ne! or improves products or services
3% Pro;ect Management has the follo!ing important 5ey metrics
Time
'ost
Performance o;ectives
+ey S'&&ess #a&tors
9hat are the Oey Success .actorsG
1% Top>do!n commitment
3% &aving a capale pro;ect manager
3% &aving time to plan
@% 'areful trac5ing and control
2% Good communications
Pro;ect Management has certain ma;or administrative issues, such as
1% $<ecutive responsiilities
3% Pro;ect selection
3% Pro;ect manager selection
@% Organi7ational structure
1F3
2% Organi7ational alternatives
6% Manage !ithin functional unit
D% Assign a coordinator
E% (se a matri< organi7ation !ith a pro;ect leader
Pro;ect Management normally involves the 5no!ledge of Pro;ect management tools, 9or5 rea5do!n
structure, )et!or5 diagram, Gantt charts and "is5 management%
Pro?e&t ManagementC Hos,ita-
9e are given the tas5 of setting up a hospital facility in our community% The plan is to set up oth
medicine and surgery facilities related to all important fields of medicine and surgery% The pro;ect
Managers are re=uired to list the possile activities in the form of
Planning and Scheduling +Gantt 'hart- and )et!or5 /iagram AO) and AOA Activities
Pro;ect Management? &ospital 'onstruction and Operation Activities include?
*ocate ne! facilities
#ntervie! staff
&ire and train staff
Select and order Machinery
"emodel and install phones
Start Patient $<amination8startup
Net!or* Diagrams and Con(entions
M2
4
2P
4
M2
D
K?
"
K?
-
2?
.
SE
P
$C
T
"$
0
%E
C
Locate new facilities
Interview staff
Hire and train staff
Select and order Machinery
e!odel and install
!achines
Start "ttendin# Patient
5antt c!art
a
7
c a
7
c
a
7
c
#
a
7
c
%ummy
acti,ity
1F@
Pro?e&t Net!or* Q A&ti(ity on Arro!
Pro?e&t Net!or* Q A&ti(ity on Node
Activity on Arro!? The )et!or5 diagram convention in !hich arro!s designate activities%
Activity on )ode? The )et!or5 diagram convention in !hich the nodes designate the activities%
Activities? Pro;ect steps that consume or utili7e resources +and or time-%
$vents? The starting and finishing of activities designated y nodes in the Activity on Arro!
notation%
Path? Se=uence of activities that leads from the starting node to the finishing node
'ritical path? The longest pathP determines e<pected pro;ect duration
'ritical activities? Activities on the critical path
Slac5? Allo!ale slippage for pathP the difference the length of path and the length of critical path
Pro?e&t %ife Cy&-e
1
2
3
6
5 6
-ocate
'aci!itie
s
$r#er
'urnitur
e
+urniture
setu
&nter,ie
* Eire an#
train
4emo#e!
Mo,e
in
1
2
3
5
6
-ocate
'aci!ities
$r#er
'urniture
+urniture
setu
&nter,ie*
4emo#e!
Mo,e
&n
6
Eire an#
train
7 S
#at! <en*t!
,1ee:s-
Slac:
1$2$3$4$5$6
1$2$5$6
1$3$5$6
18
20
14
2
0
6

Critica!
Pat/
1F2
The Pro;ect *ife 'ycle comprises of a ne! concept idea for a uni=ue activity !hich is then
evaluated through feasiility reports, planned !ith certain se=uence of activities, e<ecution of
activities and terminated after the pro;ect has een completed or shelved due to certain unavoidale%
9hat is important is to note that all stages of Pro;ect *ife 'ycle are administered and handled y
competent Pro;ect Management team or Pro;ect Managers%
Planning and Scheduling involves the follo!ing 5ey decisions?
/eciding !hich pro;ects to implement
Selecting a pro;ect manager
Selecting a pro;ect team
Planning and designing the pro;ect
Managing and controlling pro;ect resources
/eciding if and !hen a pro;ect should e terminated
Res,onsii-ities of a Pro?e&t Manager
Pro;ect Manager is normally considered responsile for?
Pro;ect Management
"esponsile for? Technical and .inancial Analysis
Pro;ect Manager is normally considered to have =ualification such as
PMP certification
'.M, '.A and '.P certification
Pro;ect Manager should e s5illed enough to carryout or supervise the calculation of
.inancial $valuation and #nvestment Analysis
'ost 6enefit Analysis
Pro;ect Managers should e ale to focus on $thical #ssues and avoid?
Temptation to understate costs
9ithhold information
Misleading status reports
.alsifying records
'ompromising !or5ers: safety
Approving sustandard !or5
/or* Brea*do!n Str'&t're
A pro;ect is different that operations due to its uni=ue nature% A good pro;ect management practice is to
rea5do!n the pro;ect into sulevel or group of similar activities% These sulevel or group of similar
activities is called 9or5 6rea5do!n Structure%
The !or5 rea5do!n structure usually represents a Parent 'hild Activity !ith the relationship et!een
a parent and child level eing easily identifiale% The !or5 rea5 do!n structure allo!s a pro;ect
manager to incorporate more administrative control over the pro;ect activities%
C"ncep
t
+easi7i!it
y
P!annin
g
Executio
n
Terminatio
n
M 2 " 2 . E M E " T
1F6
PERT and CPM
P$"T? Program $valuation and "evie! Techni=ue
'PM? 'ritical Path Method

1% Graphically displays pro;ect activities
3% $stimates ho! long the pro;ect !ill ta5e
3% #ndicates most critical activities
@% Sho! !here delays !ill not affect pro;ect
Ad(antages of PERT
1% .orces managers to organi7e
3% Provides graphic display of activities
3% #dentifies
@% 'ritical activities
2% Slac5 activities
%imitations of PERT
1% #mportant activities may e omitted
3% Precedence relationships may not e correct
3% $stimates may include a fudge factor
@% May focus solely on critical path
Pro?e&t S&o,e and S&o,e Cree,
Pro;ect Scope refers to the total !or5 needed out of a pro;ect% The primary tool re=uired to descrie
Pro;ect Scope is the 9or5 6rea5do!n Structure% Often pro;ects suffer from an irritant 5no!n as scope
creep% Scope creep is the unnecessary e<tension of pro;ect scope !hich does not allo! the pro;ect to e
completed !ithin udget and !ith in the time limits% Organi7ations incorporate special management
techni=ues to isolate and eliminate scope creep% Senior Management is advised and trained y outside
consultants to avoid decisions !hich lead to increase in usiness scope creep or technical scope creep%
Technical Scope creep +li5e Gold plating- is the unfortunate tendency of technical side to add certain
avoidale and costly features in their products +services or soft!ares- to ma5e their product or service
more po!erful and attractale to the customers% 6usiness Scope creep +often called customer pleasing-
is the tendency of the usiness managers to over do the customer relationship !ith their customers% A
pragmatic strategy to avoid scope creep is to e ;udicious to the original pro;ect scope and religiously
avoid uncalled for usiness or technical additions that may incorporate scope creep%
ProIect
C
-e,e! 1
-e,e! 2
-e,e! 3
-e,e! 6
1FD
S'mmary
9e learnt the Pro;ect Management concept to e different and uni=ue from operations side% Operations
represent a repetition of same activities !hile pro;ects represent e<ecution of uni=ue activities% &o!ever
there e<ist similarities !hich include administration of activities y pro;ect manager in a similar fashion
to the activities performed y the operations manager% 9e discussed the )et!or5 /iagrams, an &ospital
e<ample Pro;ect in terms of Gantt 'hart, 9or5 6rea5do!n Structure and ;o responsiilities of a
Pro;ect Manager%
1FE
Lesson 44
PRODECT MANAGEMENT"I
%earning O?e&ti(es
After learning aout the net!or5 diagrams, the pro;ect life cycle and the responsiilities of pro;ect
manager% 9e !ill no! learn the important concept of time estimates +!hich is ased on computing
algorithms of $arly Start, $arly .inish, *ate Start and *ate .inish- and variances !hich are used to
control the pro;ect activities% 9e !ill consider important aspects li5e the for!ard and ac5!ard path
time estimates, Pro;ect 'rashing, Time 'ost Trade Offs, Pro;ect Management Soft!are, "is5
Management and develop a pro;ect management ased Operations Strategy%
Time Estimates
There are t!o common types of time estimates namely
1% /eterministic? Time estimates that are fairly certain
3% Proailistic? $stimates of times that allo! for variation
E8am,-eC Hos,ita-
9e ta5e the same hospital e<ample and no! place the time dimension to it %
The activities from locating the facility to ma5ing the hospital fully are represented in the form of a
net!or5 diagram% The student should try to !rite do!n the activities along !ith the activity description
then try to dra! the net!or5 diagram using oth the activity on node and activity on arro! as practice%
Com,'ting A-gorit)m
)et!or5 activities
1% $S? early start
3% $.? early finish
3% *S? late start
@% *.? late finish
(sed to determine
1% $<pected pro;ect duration
3% Slac5 time
3% 'ritical path
1
2
3
6
5 6
8 *eeks
6 *eeks
3 *eeks
6 *eeks
9 *eeks
11 *eeks
1 *eek
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$erationa!
1FF
Proai-isti& Time Estimates
1% Optimistic time ? Time re=uired under optimal conditions
3% Pessimistic time? Time re=uired under !orst conditions
3% Most li5ely time? Most proale length of time that !ill e re=uired
Proailistic $stimates re=uire t!o important parameters li5e $<pected Time and
1ariance represented y t
e
and [ respectively%
!here
Varian&e
The !ord variance reflects the s=uare of standard deviation of activities on a path and represented
y [
3
% The si7e of variance reflects the degree of uncertainty associated !ith activity:s time, the
larger the variance the larger the uncertainty%
2cti,ity
Start
$timistic
Time
Most -ike!y
Time
:mo#e;
Pessimistic
Time
t
o
t
t
m
t
e
t
e
=
t
o
+ 4t
m
+t
p

6
t
e
= epected time
t
o
= optimi!tic time
t
m
= mo!t li"ely time
t
p
= pe!!imi!tic time
2
=
(t
p
# t
o
)
$
%6
2
= &ariance
t
o
= optimi!tic time
t
p
= pe!!imi!tic
time
344
E8am,-e
Path Proailities
Q indicates ho! many standard deviations of the path distriution the specified tine
is eyond the e<pected path duration% #f the value of A7B is K3%24 or more, treat the proaility of path
completion y the specified time as 144 percent%
Time"&ost Trade"offsC Cras)ing
'rash is the shortening activity duration
Procedure for crashing
'rash the pro;ect one period at a time
Only an activity on the critical path
'rash the least e<pensive activity
Multiple critical paths? find the sum of crashing the least e<pensive activity on each critical path
Pro?e&t Cras)ing
'rashing a pro;ect involves paying more money to complete a pro;ect more =uic5ly%
Since the critical path determines the length of a pro;ect, it ma5es sense to reduce the length of activities
on the critical path%
'ritical Path activities should e reduced until the pro;ect is reduced to the desired length or you are
paying more per day than you save%
#f you have multiple 'ritical Paths, they should e shortened simultaneously%
Time>'ost Trade>Offs? 'rashing
Time>'ost Trade>Offs? 'rashing
%
,
'
,
-
a
',-,.
d
',.,/
e
.,/,0
f
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b
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h
&
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c
3ptimistic
+ime
4ost !i$e!y
+ime
Pessimistic
+ime
'
=
Speci(ied time # Pat)
mean
Pat) !tandard de&iation
341
$<ample
The manager of a P&A is aout to underta5e a reforestation pro;ect throughout Pa5istan% &e is first
as5ed to carryout a pilot pro;ect% The pro;ect !ill involve the follo!ing si< activities?
S"%
`
ACTIVIT5 PRECEEDS TIME ESITIMATES F DA5SG
OPT#M#ST#'
A aB
MOST *#O$*RA
mB
P$SS#M#ST#'
A B
STA"T (,1
( 9 32 24 62
1 9,M 3E @4 23
9 Q 36 32 @@
M R 3E @4 23
R Q 36 3F 3E
Q $)/ 36 64 E@

So-'tion? .irst of all, !e construct net!or5 diagram ased on Activity on )ode follo!ed y calculating
the proailistic time AtB and standard deviation A[B using the formulas given elo! and then the $S,$.
and *S, *. using the for!ard pass +progression- and ac5!ard pass +progression- respectively%
t J +aK@mK-86 and [ J +>a-86
Tota!
Cost
S/orten
S/orten
Cumu!ati,e
Cost o'
Cras/ing
Execte# &n#irect costs
$timum
C42SE
343
The denominator of A6B reflects the concept of area under the curve that the range of data lies to K 3
Standard /eviations from mean also it sho!s the !eighted average%
ACTIVIT5 TIME ESITIMATES
F DA5SG
#OR/AR
D
BAC+/ARD S%AC+
K aL K mL K L t R ES E# %S %# n
START
U =. .< A. .< . < .< 0. I. 0.
V 0@ >< .0 >< > < >< < >< <
/ 0A =. >> =. = .< @. I. $$< 0.
B 0@ >< .0 >< > >< @< >< @< <
5 0A 0J =@ =< 0 @< $$< @< $$< <
S =A A< @> A< @ $$< $I< $$< $I< <
I3 Time KtL : FaH>mHG6A
Activity ( J +32K@+24- K62-86J +144K344-86J 34486J 24 days
Activity 1 J +3EK@+@4- K23-86J +E4K164-86J 3@486J @4 days
Activity 9 J +36K@+32- K@@-86J +D4K1@4-86J 31486J 32 days
Activity M J +3EK@+@4- K23-86J +E4K164-86J 3@486J @4 days
Activity R J +36K@+3F- K3E-86J +6@K116-86J 1E486J 34 days
Activity Q J +36K@+64- KE@-86J +134K3@4-86J 36486J 64 days
Standard De(iation KRL : F"aG6A
Activity ( J +62>32-86J +34-86J 2 days
Activity 1 J +23>3E-86J +3@-86J @ days
Activity 9 J +@@>36-86J +1E-86J 3 days
Activity M J +23>3E-86J +3@-86J @ days
Activity R J +3E>36-86J +13-86J 3 days
Activity Q J +E@>36-86J +@E-86J E days
Criti&a- Pat)
The critical path is the longest path ta5en for the pro;ect to complete%
.rom Start to $nd there are three possile paths as from the )et!or5 /iagram
Start (>9>Q>$nd J 24 K 32K64 J 1@2 days +logically incorrect-
Start>1>M>R>Q>$ndJ @4K@4K34K64 J 1D4 days
Start>1>9>Q>$ndJ @4K32K64 J 132 days +logically incorrect-
.or the 'ritical Path, !e also calculate the standard deviation of Pro;ect portfolio
Start>1>M>R>Q>$ndJ[3J a+@-3K+@-3K+3-3K+E-3bJ +16K16K@K6@-J +144 -
Then [ J S=uare "oot + 144- J 14 days
Also individual sum of standard deviations J @K@K3KE J 1E days
(
1
9 Q
24
@4
32
Start
M R
$nd
@4
@4
343
Since portfolio pro;ect [ J 14 days is less than individual sum of 1E days, it sho!s our value of portfolio
[ is correct
)ormal /istriution
A7B J +M>c-8[ , no! since MJ 344 days c J 1D4 days,
[J 14 days
Also (sing the )ormal Proaility 'urve
QJ +M c-8[
J +344>1D4-814J 34814J 3%4
According to the standard normal tale, the area at 7 J 3 is 4%@FED% Adding 4%2 for left hand side of the
standard normal curve, !e get 4%FFED%
0%3? 9hat is the estimated e<pected +mean- time for Pro;ect 'ompletionG
132 days
1@2 days
1D4 days
1E4 days
322 days
T)e ans!er is $I< Days FC)oi&e CG
0%@? 9hat is the estimated slac5 time for activity 9G
4 days
32 days
32 days
@2 days
E2 days
T)e ans!er is 0. Days FC)oi&e BG
0%2? 9hat is the proaility that the critical path for this pro;ect !ill e completed !ith in 344 daysG
4%E@13
4%F2@@
4%FDD3
4%FFD@
4%FFED
6ased on the calculations of critical path A[B aove, the ans!er comes out to e 4%FFED +C)oi&e E-%
Given the portion of the net!or5 sho!n aove, !hat is the earliest finish time for activity 14>11, if the
earliest start time of E>14 is A13B and the earliest start time of F>14 is A13BG
33
33
3@
32
MJ 344 days
c J 1D4 days,
[J 14 days
E
F
14 11
@
3
D
34@
36
0%1? 9hat is the estimated e<pected +mean- time for activity RG
34 days
3F days
3E days
36 days
32 days
T)e ans!er is =< Days FC)oi&e AG
342
ACTIVIT5 #OR/ARD BAC+/ARD S%AC+
t $S $. *S *. n
START
E to 14 @ 13 16 13 16 4
F to 14 3 13 12 1@ 16 1
14 to 11 D 16 0= 16 33 4
0%3? 9hat is the estimated standard deviation in the time for activity QG
3 days
3 days
@ days
E days
2 days
T)e ans!er is @ Days FC)oi&e DG
So-(ed E8am,-es
Rou have een hired as the 'hief Pro;ect Manager, y your city:s Oaadi Association for construction,
renovation and repairs of the city Oaadi Stadium% The Oaadi Associations President had in the past
hired an #ndian 'onsultant to help him carry out the tas5 of e<panding and improving the hoc5ey
stadium% The #ndian 'onsultant left the !or5 after collecting the time +in days- associated !ith the
activities and developing the for!ard path net!or5 diagrams%
("I*I+ ,PIMI)I" M,) $I-E$+ PE))IMI)I" IMMEDI(E PREDE"E)),R
* A B 2
+ % C B 2
C / / C +
, C / A *
7 / C % *,C
) C ( C +
= . C 7,)
IME E)IM(E)
1
a
-
d
.
c
%
5
b
0
e
&
f
346
B
.
C
2
?
5
F
Start
Finis!
The Association President has as5ed you to calculate the follo!ing?
a% 'alculate the e<pected time and variance for each activity%
% 'alculate the activity slac5s and determine critical path using e<pected activity timesG
c% 9hat is the proaility of completing the pro;ect !ith in 224 daysG
Solution
9e first of all calculate the $<pected times and variances for each activity using the formulae
respectively
t
e
J +aK@mK-86
[
3
J ++>a-86-
3
The results are presented in the form of the tale
("I*I+ E.PE"ED IME *(RI(/"E
* 4.00 1.00
+ 5.50 0.69
C 3.50 0.25
, 12.00 1.78
7 6.50 2.25
) 9.00 2.78
= 4.50 0.69
f% 9e need to calculate the $arliest Start, *atest Start, $arliest .inish, *atest .inish represented y
the symols $S, *S, $. and *. respectively% 9e use the for!ard path net!or5 diagram as
provided y the hoc5ey association:s president%
34D
("I*I+ E) EF t
* 0.00 4.00 4.00
+ 0.00 5.50 5.50
C 5.50 9.00 3.50
, 4.00 16.00 12.00
7 9.00 15.50 6.50
) 5.50 14.50 9.00
= 15.50 20.00 4.50
As !e can see from the tale aove the earliest time y !hich Activity G !ould finish is 34 days and
re=uires @%2 days of time to complete% 9e need to 5no! calculate values of *atest Start and *atest
.inish using the ac5!ard path% Please refer to the ac5!ard path diagram elo!, the direction of
arro!s have een reversed indicating that !e are actually ac5 tracing the activities !ith the same times
as calculated aove using for!ard path%
)2CL324% P2TE
B
.
C
2
?
5
F
Start
Finis!
("I*I+ $) $F t
5 15.50 20.00 4.50
F 6.50 15.50 9.00
2 9.00 15.50 6.50
? 8.00 20.00 12.00
C 5.50 9.00 3.50
B 0.00 5.50 5.50
. 4.00 8.00 4.00
("I*I+ E) $) EF $F )$("- "RII"($ P(0
* 0.00 4.00 4.00 8.00 4.00 A9
+ 0.00 0.00 5.50 5.50 0.00 S2S
C 5.50 5.50 9.00 9.00 0.00 S2S
, 4.00 8.00 16.00 20.00 4.00 A9
7 9.00 9.00 15.50 15.50 0.00 S2S
) 5.50 13.00 14.50 15.50 1.00 A9
= 15.50 15.50 20.00 20.00 0.00 S2S
Start +inis/
34E
P(0 *(RI(/"E
.$? 2.78
.$2$5 3.94
B$C$2$5 3.89
B$F$5 4.17
16.00
15.00
20.00
19.00
E.PE"ED IME
The critical path is 6>'>$>G !ith total e<pected time of 34 days%
c% 9e first calculate the 7 value
Q J +t>t
e
-8d[
3
J +33>34-8d3%EF
J 381%FD3
J 1%2314
(sing the )ormal /istriution tale, !e calculate the proaility of completing the pro;ect in 33 days to
e 4%F32D%
Pro?e&t Management Soft!are Too-s
1% 'omputer aided design +'A/-
3% Group!are +*otus )otes-
3% Pro;ect management soft!are
a% 'A Super Pro;ect
% &arvard Total Manager
c% MS Pro;ect
d% Sure Trac5 Pro;ect Manager
e% Time *ine
Ad(antages of PM Soft!are
1% #mposes a methodology
3% Provides logical planning structure
3% $nhances team communication
@% .lag constraint violations
2% Automatic report formats
6% Multiple levels of reports
D% $nales !hat>if scenarios
E% Generates various chart types
Pro?e&t Ris* Management
"is5? occurrence of events that have undesirale conse=uences
1% /elays
3% #ncreased costs
3% #naility to meet specifications
@% Pro;ect termination
Ris* Management
1% #dentify potential ris5s
3% Analy7e and assess ris5s
3% 9or5 to minimi7e occurrence of ris5
34F
@% $stalish contingency plans
O,erations Strategy
1% Many Organi7ations have setup a separate Pro;ect Management department or cell to administer
uni=ue and non repetitive activities%
3% The scope of the pro;ect decides !hether to use a pro;ect management soft!are tool or not%
3% Pro;ect teams normally operate as a matri< team !ith employees from different functional
departments !or5ing !ith the pro;ect team% #n such situations the organi7ations device a
strategy that pro;ect manger should lead the team as he or she is more a!are of the situation
eing faced y the !hole organi7ation as !ell as the constituent functional departments%
S'mmary
1% Pro;ects are uni=ue set of activities estalished to given set of o;ectives in a limited time span%
3% P$"T and 'PM t!o commonly used techni=ues for developing and monitoring pro;ects%
3% T!o slightly different conventions can e used for constructing a net!or5 diagram%
@% The tas5 of developing and updating pro;ect net!or5s =uic5ly ecomes pro;ects of even
moderate si7e or P' applications%
2% A deterministic approach is useful for estimating the duration of the pro;ect, !hen activity times
can e fairly !ell estalished%
6% #n some instances, it may e possile to shorten or crash the length of a pro;ect y shortening
one or more of the pro;ect activities%
D% Often Pro;ects are shortened to the point !here the cost of additional reduction !ould e<ceed
the enefit of additional reduction to a specified time%
314
Lesson 45
/AITING %INES
%earning O?e&ti(es
After completing the lecture, !e should e ale to e<plain the formation of !aiting lines in unloaded
systems, identify the goal of =ueuing + !aiting line- analysis, list the measures of system performance
that are used in =ueuing analysis% 9e should e ale to understand the importance of simulation and at
the same time !e should loo5 eyond the Production Operations Management class as usiness
graduate professionals adding value to the society%
Visit to a Cri&*et Stadi'm
1% 9aiting in lines does not add en;oyment
3% 9aiting in lines does not generate revenue
3% 9aiting *ines
@% 9aiting lines are non>value added occurrences
2% Are formed at airports, cric5et stadiums, post offices%
6% .ormed due to non scheduled random arrivals
D% Often regarded as poor service =uality
/aiting %ine E8am,-es
1% Orders !aiting to e filled
3% Truc5s !aiting to e loaded or unloaded
3% Co !aiting to e processed
@% $=uipment !aiting to e loaded
2% Machines !aiting to e repaired%
Ser(i&e Station as a /aiting %ine E8am,-e
Service station is usually designed to provide service on average service time% At macro level system is
unloaded at micro level the system is overloaded a Parado<
'ustomers arrive at random rate
Service re=uirements vary only oil change or even tuning or maintenance activity in order to change oil
/aiting %ines
0ueuing theory? Mathematical approach to the analysis of !aiting lines%
1% Goal of =ueuing analysis is to minimi7e the sum of t!o costs 'ustomer !aiting costs and
Service capacity costs%
3% 9aiting lines are non>value added occurrences
Im,-i&ations of /aiting %ines
1% 'ost to provide !aiting space
3% *oss of usiness
a% 'ustomers leaving
% 'ustomers refusing to !ait
3% *oss of good!ill
@% "eduction in customer satisfaction
2% 'ongestion may disrupt other usiness operations
311
9'e'ing Ana-ysis
Organi7ations carry out =ueuing analysis to ensure that they are ale to alance the service levels !ith
costs !hich the organi7ation can incur% The ultimate goal of =ueuing analysis is to minimi7e the sum of
t!o costs that is the service capacity cost +represented on < a<is- and customer !aiting costs%
Negati(e E8,onentia- Distri'tionC Anot)er e8am,-e of Common 9'e'ing System
$timum
Cost o'
Ser,ice
Caacity
Cost o'
Customers
3aiting
Tota! cost
C
o
s
t
Ser,ice caacity
Tota!
cost
Customer
*aiting cost
Caacity
cost
8 9
313
0ueue discipline is considered to e a primary re=uirement in service systems% &o!ever hospital
emergency rooms, rush orders in a factory and main frame computer processing of ;os do not follo!
0ueue /iscipline%
System C)ara&teristi&s
1% Population Source
a% #nfinite source? customer arrivals are unrestricted
% .inite source? numer of potential customers is limited
3% )umer of oservers +channels-
3% Arrival and service patterns
@% 0ueue discipline +order of service-
E-ements of 9'e'ing System
Population Source, Arrivals, 9aiting *ines, Processing Order, Service, System and $<it are the
common identifiale elements of a 0ueuing System%
9'e'ing Systems
The System characteristics are
1% Population Source
3% )umer of Servers+ 'hannels-
3% Arrival and Service Patterns
@% 0ueue /iscipline
+:t;
0 T t
*3 ) t P % - + =
2rri,a!s Ser,ice 3aiting
-ine
Exit
Processing
$r#er
System
313
Poisson Distri'tion
Poisson distri'tion is a discrete proaility distriution and e<presses the proaility of a numer of
events occurring in a fi<ed period of time if these events occur !ith a 5no!n average rate, and are
independent of the time since the last event%
/aiting %ine Mode-s
As a student of Operations Management !e can identify the follo!ing types of 9aiting *ine Models in
our day to day routine activities%
1% Patient ?'ustomers enter the !aiting line and remain until served
3% "eneging? 9aiting customers gro! impatient and leave the line
3% Coc5eying? 'ustomers may s!itch to another line
@% 6al5ing? (pon arriving, decide the line is too long and decide not to enter the line
9aiting Time vs% (tili7ation
The figure represents an increase in system utili7ation at the e<pense of increase in oth length of the
!aiting line and average !aiting time% These values increase as the utili7ation approaches 144 percent%
The implication is that under normal circumstances, 144 percent utili7ation is not a reali7ation goal%
/(ltiple C!annels
/(ltiple #!ases
6hannel, A server in a service system
0
0.05
0.1
0.15
0.2
0.25
0 1 2 3 6 5 6 7 8 9 10 11 12
31@
/aiting Time (s3 Uti-i1ation
System Performan&e
1% Average numer of customers !aiting
3% Average time customers !ait
3% System utili7ation
@% #mplied cost
2% Proaility that an arrival !ill have to !ait
E8am,-e Ser(i&e Station
9'e'ing Mode-sC Infinite"So'r&e
1% Single channel, e<ponential service time
3% Single channel, constant service time
3% Multiple channel, e<ponential service time
@% Multiple priority service, e<ponential service time
Priority Mode-
#inite"So'r&e #orm'-as
System
?ti!i(ation
2
,
e
r
a
g
e

n
u
m
7
e
r

o
n

t
i
m
e

*
a
i
t
i
n
g

i
n

!
i
n
e
0 1
00B
2rri,a!
s
Ser,ice 3aiting
!ine
Exit
Processing
or#er
System
1 1 2 3 1
2rri,a!s are assigne#
a riority as t/ey arri,e
312
A # B 3 Population in 3umber
23C A erved being 3umber (verage
C 32 B *unning 3umber (verage
C2
2 )
# 3
U ) #
" )ime "aiting (verage
2 3 # "aiting 3umber (verage
U )
)
C 2actor ervice
+ + =
=
=
+
=
=
+
=
- 1 +
- 1 + - +
- 1 +
#inite"So'r&e 9'e'ing
/)ere !e 'se t)e form'-a
Ot)er A,,roa&)es Non Mat)emati&a- A,,roa&)es
1% "educe perceived !aiting time
3% Maga7ines in !aiting rooms
3% "adio8television
@% #n>flight movies
2% .illing out forms
6% /erive enefits from !aiting
D% Place impulse items near chec5out
E% Advertise other goods8services
Sim'-ation
Simulation? a descriptive techni=ue that enales a decision ma5er to evaluate the ehavior of a model
under various conditions%
1% Simulation models comple< situations
3% Models are simple to use and understand
3% Models can play A!hat ifB e<periments
@% $<tensive soft!are pac5ages availale
Sim'-ation Pro&ess
1% #dentify the prolem
3% /evelop the simulation model
3% Test the model
@% /evelop the e<periments
2% "un the simulation and evaluate results
6% "epeat @ and 2 until results are satisfactory
"ot *aiting or
7eing ser,e#
3aiting
)eing
ser,e#
K - E
? 3 T
A # B
A B
2
+ +
+
=
316
Monte Car-o Sim'-ation
Monte 'arlo method? Proailistic simulation techni=ue used !hen a process has a random component
1% #dentify a proaility distriution
3% Setup intervals of random numers to match proaility distriution
3% Otain the random numers
@% #nterpret the results
E8am,-e S)o!ing t)e 'se of Mi&rosoft E8&e-
An Operations Manager ma5es est use of the po!er of Microsoft $<cel y carrying out simulation%
The first picture elo! sho!s a snapshot !hich carries the formulae and the second picture represents
the actual values%
31D
Sim'-ating Distri'tions commonly used are the Poisson and )ormal /istriutions%
Poisson distri'tion? Mean of distriution is re=uired
Norma- Distri'tion? )eed to 5no! the mean and standard deviation
Stim'-ated Va-'e: Mean H Random N'mer B Standard De(iation
Uniform Distri'tion
Stimulated 1alueJ aK +>a-+"andom numer as a percentage-
Com,'ter Sim'-ation
Simulation languages
1% S#MS'"#PT ##%2
a 7 0 x
+:x;
31E
3% GPSS8&
3% GPSS8P'
@% "$S0
Advantages of Simulation
1% Solves prolems that are difficult or impossile to solve mathematically
3% Allo!s e<perimentation !ithout ris5 to actual system
3% 'ompresses time to sho! long>term effects
@% Serves as training tool for decision ma5ers
*imitations of Simulation
1% /oes not produce optimum solution
3% Model development may e difficult
3% 'omputer run time may e sustantial
@% Monte 'arlo simulation only applicale to random systems
9hy Simulation is necessary
1% Mathematics involved is too complicated
3% $asier to manipulate than reality
3% Soft!are and hard!are permit modeling
Simulation Steps
1% Prolem formulation
3% Model uilding
3% /ata ac=uisition
@% Model translation
2% 1erification I validation
6% $<periment planning I e<ecution
D% Analysis
E% #mplementation I documentation
O,erations Strategy
1% The central idea for formulating an Operations Strategy for 9aiting *ine concept is designing a
service system to achieve a alance et!een service capacity and customer !aiting time%
3% The operations strategy should e ale to identify an appropriate and acceptale level of service
capacity as !ell as =uality so !aiting lines are not formed or formed !hich are manageale and
acceptale to the customers%
3% Often Organi7ations !hen challenged y lac5 of practical solutions or space constraints opt for
a more tangile =uality ased solutions y engaging the !aiting customers in activities !hich
give the customers not only an opportunity to ma5e use of the time ut also to ma5e the !aiting
time less painful and more pleasant%
S'mmary
Analysis of !aiting lines can e an important milestone in the design of improved service systems%
9aiting lines have a tendency to form in even those systems !hich in a macro sense are under loaded or
unloaded%
The arrival of customers at random times and variaility of service times comine to create temporary
overloads% 9hen this happens, !aiting lines appear%
A ma;or consideration in the analysis of the =ueuing systems is !hether the numer of potential
customers is limited +finite source- or !hether entry to the system is unrestricted +infinite source-%Of the
2 models !e studied, @ dealt !ith infinite source and 1 !ith finite source population%
As a rule, the models assume that customer arrival rates are descried y Poisson distriution and
service time can e descried y a negative e<ponential distriution%
31F
POMA Strategies eyond t)e fina- e8am
1% #n the long run +!hen factors of production change, any or comination of the factors of laor,
land, technology-, productivity gro!th is almost everything if not everything%
3% /o not create artificial non operational management strategies means to alance capacity to
demand +#t can cause competitive advantage to shift to!ards your competitor and your
organi7ation losing the competition%
3% &o! much does it really cost to manufacture a product or develop a service + refer to the
concept of total costs, !hich !e learnt in our discussions on inventory management, alternative
capacity, =uality, maintenance and !aiting lines-
@% 'ompetitive advantage in operational and organi7ation strategy creates a !in !in situation for
the organi7ation%
2% Operations Manager should learn to thin5 at the margin +an addition in cost y 1 "upee+unit
cost- !ould increase or decrease the revenue y 1 "upee+unit revenue8enefit--%
6% &o! !e as Operations Manager can play a part in minimi7ation of costs of most important of
services in Pa5istan i%e% education and medical% Trade off et!een $ffectiveness and =uality%
D% &o! and !hy Pro;ect Management concepts are e=ually important to Production Operations
Management and vice versa%
E% The importance of coordinating, planning, controlling, udgeting operations and pro;ect
activities in achieving our firms short and long term o;ectives%
F% The concepts of strategy, competitiveness and productivity, design of product and services,
design of !or5 systems and facilities, concept of =uality and system improvement as applicale
in organi7ations e applied to Pa5istan%
14% &o! as Operations Manager !e can communicate to masses the importance of Pa5istani
domestic mar5ets and ho! they help in capital formation% #f !e say no to foreign goods
consumption, foreign good !ould not come to our place and !e can generate a !ell deserved
saving% That saving can e channeli7ed to provide clean and drin5ale !ater, etter health care,
education or even used for infrastructural issues% e%g% if 1 T of Pa5istani population saves "s% 14
per !ee5 for 1 year alone !e !ould have almost DE4 million rupees or 13 to 13 Million (S
dollars y !hich !e can set iogas plants or !aste incinerator oiler ased po!er generation or
clean drin5ing !aters or even institutions of higher learning%
$$$$$$$$$$$$$$$$$$$$$$$+72 2A?$$$$$$$$$$$$$$$$$$$$$

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Production and Operations Management MGT613 VU

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