Operations and Quality Management

IT362 Operations and
Quality Management
Chat 2: Capacity and Aggregate
Planning
By
Francis Ho, Chartered Engineer (MIET)
To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved.
Capacity Planning
Establishes overall level of
productive resources
Affects lead time
responsiveness, cost &
competitiveness
Determines when and how
much to increase capacity
Capacity Expansion
Volume & certainty of anticipated
demand
Strategic objectives for growth
Costs of expansion & operation
Incremental or one-step
expansion
Capacity Expansion Strategies
Capacity Expansion Strategies

(a) Capacity lead strategy
(b) Capacity lag strategy
Capacity
Demand
Units
Units
Demand
Capacity
Time
Time
(c) Average capacity strategy
(d) Incremental vs. one-step expansion

One-step expansion
Capacity
Units
Units
Demand
Incremental
expansion
Demand
Figure 9.1
Time
Time
Average cost per room
Best Operating Levels
Figure 9.2
# Rooms
Average cost per room
Best Operating Levels
Best operating
level
Economies
of scale
250
Figure 9.2
Diseconomies
of scale
500
1000
# Rooms
Aggregate Production
Planning (APP)
Matches market demand to company
resources
Plans production 6 months to 12 months
in advance
Expresses demand, resources, and
capacity in general terms
Develops a strategy for economically
meeting demand
Establishes a company-wide game plan
for allocating resources
Inputs and Outputs to APP
Inputs and Outputs to APP

Capacity
Constraints
Demand
Forecasts
Size of
Workforce
Strategic
Objectives
Aggregate
Production
Planning
Production
per month
(in units or $)
Inventory
Levels
Company
Policies
Financial
Constraints
Units or dollars
subcontracted,
backordered, or lost
Figure 9.3
Adjusting Capacity to
Meet Demand
1. Producing at a constant rate and using inventory
to absorb fluctuations in demand (level
production)
2. Hiring and firing workers to match demand (chase
demand)
3. Maintaining resources for high demand levels
4. Increase or decrease working hours (overtime
and undertime)
5. Subcontracting work to other firms
6. Using part-time workers
7. Providing the service or product at a later time
period (backordering)
Strategy Details
Level production - produce at constant
rate & use inventory as needed to meet
demand
Chase demand - change workforce levels
so that production matches demand
Maintaining resources for high demand
levels - ensures high levels of customer
service
Strategy Details
Overtime & undertime - common when
demand fluctuations are not extreme
Subcontracting - useful if supplier meets
quality & time requirements
Part-time workers - feasible for unskilled
jobs or if labor pool exists
Backordering - only works if customer is
willing to wait for product/services
Level Production
Level Production
Demand
Units
Production
Time
Figure 9.4 (a)
Chase Demand
Demand
Units
Production
Time
Figure 9.4 (b)
APP Using Pure Strategies

QUARTER
SALES FORECAST (LB)
Spring
Summer
Fall
Winter
80,000
50,000
120,000
150,000
Hiring cost
Firing cost
Inventory carrying cost
Production per employee
Beginning work force
= $100 per worker

= $500 per worker
= $0.50 pound per quarter
= 1,000 pounds per quarter
= 100 workers
Example 9.1
APP Using Pure Strategies

QUARTER
Spring
Summer
Fall
Winter
SALES FORECAST (LB)

80,000
50,000
120,000
150,000
Level production
Hiring cost = $100 per worker
Firing cost = $500 per worker
(50,000carrying
+ 120,000
+ 150,000
80,000)
Inventory
cost
= $0.50+pound
per quarter
4
Production per employee = 1,000 pounds per quarter
Beginning work
forcepounds
= 100 workers
= 100,000
Example 9.1
Level Production Strategy

QUARTER
Spring
Summer
Fall
Winter
SALES
FORECAST
80,000
50,000
120,000
150,000
PRODUCTION
PLAN
INVENTORY
100,000
100,000
100,000
100,000
400,000
20,000
70,000
50,000
0
140,000
Cost = 140,000 pounds x 0.50 per pound = $70,000
Example 9.1
Chase Demand Strategy

QUARTER
SALES PRODUCTION
FORECAST
PLAN
Spring
Summer
Fall
Winter
80,000
50,000
120,000
150,000
80,000
50,000
120,000
150,000
WORKERS
NEEDED
80
50
120
150
WORKERS WORKERS
HIRED
FIRED
0
0
70
30
20
30
0
0
100
50
Cost = (100 workers hired x $100) + (50 workers fired x $500)

= $10,000 + 25,000 = $35,000
Example 9.1
Demand Management
Shift demand into other periods
Incentives, sales promotions,
advertising campaigns
Offer product or services with

countercyclical demand patterns
Partnering with suppliers to reduce
information distortion along the
supply chain
Demand Distortion along

the Supply Chain
Aggregate Planning
for Services
Most services cant be inventoried
Demand for services is difficult to predict
Capacity is also difficult to predict
Service capacity must be provided at the
appropriate place and time
5. Labor is usually the most constraining
resource for services
1.
2.
3.
4.
Yield Management
Cu
P(n < x)
Cu + Co
where
n = number of no-shows
x = number of rooms or seats overbooked
Cu = cost of underbooking; i.e., lost sale
Co = cost of overbooking; i.e., replacement cost
P = probability
Yield Management
NO-SHOWS
PROBABILITY
0
1
2
3
.15
.25
.30
.30
Example 9.4
Yield Management
NO-SHOWS
PROBABILITY
P(N < X)
0
1
2
3
.15
.25
.30
.30
.00
.15
.40
.70
.517
Expected number of no shows

0(.15) + 1(.25) + 2(.30) + 3(.30) = 1.75
Optimal probability of no-shows
Cu
75
P(n < x) C + C =
= .517
75
+
70
u
o
Example 9.4
Yield Management
NO-SHOWS
PROBABILITY
P(N < X)
Cost of overbooking
0
.15
.00
[2(.15) + 1(.25)]$70
= $38.50 .25
Cost of bumping customers
1
.15
Lost revenue from .40
no-shows.517
2(.30)$75 = $22.50 .30
3
.70
$61.00 .30
Total cost of overbooking
by
2 rooms
Expected number of no shows
Expected savings = ($131.225 - $61) = $70.25 a night
0(.15) + 1(.25) + 2(.30) + 3(.30) = 1.75
Optimal probability of no-shows
Cu
75
P(n < x) C + C =
= .517
75
+
70
u
o
Example 9.4
Questions?
Thank You!

Quality Management
Chat 4: Quality Management
By
What Is Quality?
The degree of excellence of a
thing (Websters Dictionary)
The totality of features and

characteristics that satisfy needs
(ASQ)
Fitness for use
Quality of design
Dimensions of Quality (Garvin)

1. Performance
Basic operating characteristics
2. Features
Extra items added to basic features
3. Reliability
Probability product will operate over
time

4. Conformance
Meeting pre-established standards
5. Durability
Life span before replacement
6. Serviceability
Ease of getting repairs, speed &
competence of repairs

7. Aesthetics
Look, feel, sound, smell or taste
8. Safety
Freedom from injury or harm
9. Other perceptions
Subjective perceptions based on
brand name, advertising, etc
Service Quality
1. Time & Timeliness
Customer waiting time, completed
on time
2. Completeness
Customer gets all they asked for
3. Courtesy
Treatment by employees
Service Quality
4. Consistency
Same level of service for all customers
5. Accessibility & Convenience

Ease of obtaining service
6. Accuracy
Performed right every time
7. Responsiveness
Reactions to unusual situations
Quality of
Conformance
Ensuring product or service
produced according to design
Depends on
Design of production process
Performance of machinery
Materials
Training
The Meaning of Quality

The Meaning of Quality
Producers Perspective
Production
Figure 14.1
Consumers Perspective
Quality of Conformance
Quality of Design
Conformance to
specifications
Cost
Quality characteristics
Price
Marketing
Fitness for
Consumer Use
Quality Philosophers
Walter Shewhart
W. Edwards Deming
Joseph Juran
Philip Crosby
Armand Feigenbaum
Demings 14 Points
1.
2.
3.
4.
Create constancy of purpose

Adopt philosophy of prevention
Cease mass inspection
Select a few suppliers based on
quality
5. Constantly improve system and
workers
6. Institute worker training
Demings 14 Points
7. Instill leadership among
supervisors
8. Eliminate fear among employees
9. Eliminate barriers between
departments
10. Eliminate slogans
11. Remove numerical quotas
Demings 14 Points
12. Enhance worker pride
13. Institute vigorous training and
education programs
14. Develop a commitment from top
management to implement these
13 points
The Deming Wheel

(or PDCA Cycle)
4. Act
1. Plan
Institutionalize
improvement;
continue the
cycle.
Identify the
problem and
develop the
plan for
improvement.
3. Study/Check
2. Do
Assess the plan;

is it working?
Implement the
plan on a test
basis.
Figure 14.2
Total Quality Management

1.
2.
3.
4.
5.
6.
7.
8.
Customer defined quality

Top management leadership
Quality as a strategic issue
All employees responsible for quality
Continuous improvement
Shared problem solving
Statistical quality control
Training & education for all employees
TQM Throughout the

Organization
Marketing, sales, research
Engineering
Purchasing
Human resources
Management
Packing, storing, shipping
After-sale support
TQM and External

Suppliers
Support of suppliers required to
satisfy customer expectations
Single-sourcing
Partnering
Suppliers may be required to
adopt quality programs or meet
specific standards
TQM and Customer

Satisfaction
Requires some form of
measurement system
Customer surveys widely used
Total customer satisfaction is
often an organizations
overriding objective
TQM and Information

Technology
Critical to monitoring and controlling
quality in an organization
IT systems must be structured to satisfy
the requirements of TQM systems
IT systems tie together all the
organization's functions and processes
IT systems must be able to apply
appropriate tools to drive improvement
It systems must be able to store and
access relevant data for analysis
Strategic Implications of
TQM
Quality is key to effective strategy
Clear strategic goal, vision, mission
High quality goals
Operational plans & policies
Feedback mechanism
Strong leadership
TQM in Service Companies

Inputs similar to manufacturing
Processes & outputs are different
Services tend to be labor intensive
Quality measurement
is harder
Timeliness is
important measure
TQM principles
apply to services
Quality on the Web

Internet creates new rules doing
business
Key factors in differentiating firms
B2B largest part of Internet
business
Direct sales more visible
Internet removes the
human dimension
Dimensions of Web Quality

1. Ease of use
2. Clarity of information and instructions
3. Server reliability
4. Speed of page loading
5. Transaction time
6. Aesthetics
7. Privacy and security
8. Domain name
9. Human backup
10. Transaction reliability
Cost of Quality
Cost of achieving good quality
Prevention
Planning, Product design,
Process, Training, Information
Appraisal
Inspection and testing,
Test equipment,
Operator
Cost of Quality
Cost of poor quality
Internal failure costs
Scrap, Rework, Process failure,
Process downtime, Pricedowngrading
External failure costs

Customer complaints,
Product return,
Warranty, Product
liability, Lost sales
Measuring and Reporting

Quality
Labor index
Quality cost / labor hours
Cost index
Quality cost / manufacturing cost
Sales index
Quality cost / sales
Production index
Quality cost / units produced
Quality Costs and Index

YEAR
1999
2000
2001
2002
$ 27,000
155,000
386,400
242,000
$ 810,400
41,500
122,500
469,200
196,000
829,200
74,600
113,400
347,800
103,500
639,300
112,300
107,000
219,100
106,000
544,400
Accounting Measures
Sales
$ 4,360,000
Mfg costs
1,760,000
4,450,000
1,810,000
Quality Costs
Prevention
Appraisal
Internal failure
External failure
Total
5,050,000
1,880,000
5,190,000
1,890,000
Quality Costs and Index

total quality costs
Quality index =
(100)
base
$810,400(100)
Quality cost per sale =
4,360,000
= 18.58
YEAR
QUALITY
SALES INDEX
QUALITY MANUFACTURING
COST INDEX
1999
2000
2001
2002
18.58
18.63
12.66
10.49
46.04
45.18
34.00
28.80
QualityCost Relationship
Increased prevention costs lead to
decreased failure costs
Improved quality leads to
increased sales and market share
Quality improvement at the design
stage
Higher quality products can
command higher prices
Profitability
Deming Prize winners showed higher than
average results on financial performance
indicators
Baldrige Award winners consistently exceed
industry averages on financial performance
Quality leads to improved profitability and ROI
Quality is ... a profit--maker
In the long run, quality and profitability are
closely related
Quality and Productivity

output
Productivity =
input
Fewer defects increase output
Quality improvement reduces inputs
Measuring Yield and

Productivity
Yield = (total input) (% good units) +
(total input)(1 - % good units)(% reworked)
Y = (I)(%G) + (I)(1 - %G)(%R)

where
Y
I
%G
%R
= yield
= number units started in production
= percentage good units
= percentage of defective units reworked
Product Yield
Start 100 motors per day
80% are good
50% of poor quality units can be reworked
Yield = (I)(%G) + (I)(1 - %G)(%R)

Y = 100(0.80) + 100(1 - 0.80)(0.50)
= 90 motors
If product quality is increased to 90% good,
Y = 100(0.90) + 100(1 - 0.90)(0.50)
= 95 motors
Example 14.2
Product Cost
(direct manufacturing cost per unit)(input)
+ (rework cost per unit)(reworked units)
Product cost =
yield
(Kd)(I) + (Kr)(R)
Product cost =
Y
where
Kd
I
Kr
R
Y
= direct manufacturing cost per unit

= input
= rework cost per unit
= reworked units
= yield
Product Cost
Direct mfg cost = $30, Rework cost = $12
100 motors started, 20% defective
50% of defective motors can be reworked
(Kd)(I) + (Kr)(R)
Product cost =
Y
($30)(100) + ($12)(10)
Product cost =
= $34.67 per motor
90 motors
The manufacturing cost after quality improvement is
($30)(100) + ($12)(5)
Product cost =
95 motors
Example 14.3
= $32.21 per motor
Multistage Product Yield

Y = (I) (%g1)(%g2)...(%gn)
where
I = input batch size
%gi = percent good at stage i
Multistage Process Yield

Start with
100 motors
STAGE
AVERAGE PERCENTAGE
GOOD QUALITY
1
2
3
4
0.93
0.95
0.97
0.92
Y = (I) (%g1)(%g2)...(%gn)
= (100)(0.93)(0.95)(0.97)(0.92)
Y = 78.8 motors
Solve for I
Y
100
I=
=
= 126.8 motors
(%g1)(%g2)...(%gn)
(0.93)(0.95)(0.97)(0.92)
Example 14.4
Quality Productivity Ratio

(QPR)
Includes productivity and quality costs
Increases
if processing or rework costs decrease
if process yield increases
Good-quality units
QPR =
(100)
(input)(processing cost) +
(defective units)(rework cost)
QPR Example
Direct cost = $30/unit
Rework cost = $12/unit
Start with 100 motors per day
80% are good, 50% of defective units can be reworked
Company studies 4 changes
1. Increase production to 200 units/day
2. Cut processing cost to $26 & rework cost to $10
3. Increase yield to 95%
4. Combine 2 and 3
QPR Example
Direct cost = $30/unit
Rework cost = $12/unit
Start with 100 motors per day
80% are good, 50% of defective units can be reworked
Base case:
80 + 10
QPR =
(100)($30) + (10)($12)
(100) = 2.89
Case 1: Increase input to capacity of 200 units

QPR =
160 + 10
(200)($30) + (20)($12)
(100) = 2.89
QPR Example
Case 2: Reduce processing cost to $26 and rework to $10
80 + 10
QPR =
(100)($26) + (10)($10)
(100) = 3.33
Case 3: Increase initial good-quality to 95%

95 + 10
QPR =
(100) = 3.22
(100)($30) + (2.5)($12)
Case 4: Decrease costs and increase initial good-quality
QPR =
95 + 2.5
(100) = 3.71
(100)($26) + (2.5)($10)
Questions?
Thank You!

Quality Management
Chat 3: Enterprise Resource
Planning
By
Enterprise Resource
Planning (ERP)
Organizes and manages a
companys business processes by
sharing information across
functional areas
Connects with supply-chain and
customer management
applications
ERP Modules
ERP Modules
Figure 12.1
ERPs Central Database

Finance &
Accounting
Sales
&
Marketing
ERP Data
Repository
Production &
Materials
Management
Human
Resources
Figure 12.2
ERP Implementation
First step is to analyze business
processes
Which processes have the biggest
impact on customer relations?
Which process would benefit the
most from integration?
Which processes should be
standardized?
Use of Internet portals can aid

implementation
Customer Relationship
Management (CRM)
Plans and executes business
processes that involve customer
interaction
Changes focus from managing
products to managing customers
Point-of-sale data is analyzed for
patterns used to predict future
behavior
Supply Chain Management

Supply chain planning
Supply chain execution
Supplier relationships
Distinctions between ERP and
SCM are becoming increasingly
blurred
Collaborative Product
Commerce (CPC)
New product design and
development and product life
cycle management
Integrates customers and
suppliers in the design process
though the entire product life cycle
Collaborative Product
Commerce (CPC)
Customer Relationship
Management (CRM)
Collaborative
Design
Collaborative
Product
Commerce
(CPC)
Product
Design
Collaborative
Manufacture
Manufacture
&
Delivery
DFMA
Collaborative
Design
Collaborative
Manufacture
Enterprise
Resource
Planning
(ERP)
Time to Customer
Time to Market
Customers
Suppliers
Figure 12.3
Supply Chain
Management (SCM)
Connectivity
A very difficult problem
Enterprise Application Integration
(EAI) solutions
EDI is being replaced by XML
A continuing issue
ERP and MRP

MRP (material requirements planning)
was the precursor to ERP
Primarily a production planning and
control system
MRP evolved to MRP II (manufacturing
resource planning)
ERP and ERP II continue to extend the
links through all business processes
Material Requirements
Planning
Computerized inventory control &
production planning system
Schedules component items when
they are needed - no earlier and no
later
When to Use MRP

Dependent and discrete items
Complex products
Job shop production
Assemble-to-order environments
Demand Characteristics
Independent demand
Dependent demand
100 x 1 =
100 tabletops
100 x 4 = 400 table legs
100 tables
Continuous demand
Discrete demand
400
300
No. of tables
No. of tables
400
200
100
1
3
Week
300
200
100
5
M T W Th F
M T W Th F
Figure 12.4
Material
Requirements
Planning
Material
Requirements
Planning
Product
structure
file
Master
production
schedule
Material
requirements
planning
Item
master
file
Planned
order
releases
Figure 12.5
Work
orders
Purchase
orders
Rescheduling
notices
Master Production
Schedule
Drives MRP process with a schedule of
finished products
Quantities represent production not
demand
Quantities may consist of a combination of
customer orders & demand forecasts
Quantities represent what needs to be
produced, not what can be produced
Master Production
Schedule
MPS ITEM
Clipboard
Lapdesk
Lapboard
Pencil Case
85
0
75
125
PERIOD
2
3
4
95
50
120
125
120
0
47
125
100
50
20
125
100
0
17
125
Product Structure Tree

Clipboard
Pressboard
(1)
Top Clip
(1)
Level 0
Clip Assy
(1)
Bottom Clip
(1)
Rivets
(2)
Pivot
(1)
Level 1
Spring
(1)
Level 2
Figure 12.6
Product Structure Tree

Clipboard
Top clip (1)
Pivot (1)
Bottom clip (1)
Spring (1)
Rivets (2)
Finished clipboard
Pressboard (1)
Figure 12.6
Indented Bill of Material

LEVEL
0----1----2---2---2---2--1---1---
ITEM
Clipboard
Clip Assembly
Top Clip
Bottom Clip
Pivot
Spring
Rivet
Press Board
UNIT OF MEASURE
QUANTITY
ea
ea
ea
ea
ea
ea
ea
ea
1
1
1
1
1
1
2
1
Specialized BOMS
Phantom bills
Transient subassemblies
Never stocked
Immediately consumed in next stage
K-bills
Group small, loose parts under
pseudo-item number
Reduces paperwork
Specialized BOMS
Modular bills
Product
assembled from major

subassemblies & customer options
Modular bill kept for each major
subassembly
Simplifies forecasting & planning
X10 Automobile example
3 x 8 x 3 x 8 x 4 = 2,304 configurations
3 + 8 + 3 + 8 + 4 = 26 modular bills
Modular Bills of Material

X10
Automobile
Engines
(1 of 3)
Exterior color
(1 of 8)
Interior
(1 of 3)
Interior color
(1 of 8)
Body
(1 of 4)
4-Cylinder (.40)
Bright red (.10)
Leather (.20)
Grey (.10)
Sports coupe (.20)
6-Cylinder (.50)
White linen (.10)
Tweed (.40)
Light blue (.10)
Two-door (.20)
8-Cylinder (.10)
Sulphur yellow (.10)
Plush (.40)
Rose (.10)
Four-door (.30)
Neon orange (.10)
Off-white (.20)
Station wagon (.30)
Metallic blue (.10)
Cool green (.10)
Emerald green (.10)
Black (.20)
Jet black (.20)
Brown (.10)
Champagne (.20)
B/W checked (.10)
Figure 12.7
Basic MRP
Processes
1. Exploding the bill of material
2. Netting out inventory
3. Lot sizing
4. Time-phasing requirements
School Mate Products

Product Structure Record
Clipboard
Level 0
Clip Assy
(1)
Pressboard
(1)
Rivets
(2)
Level 1
Lapdesk
Pressboard
(2)
Trim
(3)
Level 0
Beanbag
(1)
Glue
(4 oz)
Level 1
Example 12.1
MRP Outputs
Planned orders
Work orders
Purchase orders
Changes to previous plans or

existing schedules
Action notices
Rescheduling notices
Capacity Requirements
Planning (CRP)
Computerized system that projects
load from material plan
Creates load profile
Identifies underloads and overloads
Capacity
Usually expressed as standard
machine hours or labor hours
Capacity = (no. machines or workers)
x (no. shifts) x (utilization)
x (efficiency)
Capacity Terms
Load profile
Compares released and planned
orders with work center capacity
Capacity
Productive capability; includes
utilization and efficiency
Utilization
% of available working time spent
working
More Capacity Terms

Efficiency
Load
The standard hours of work
assigned to a facility
Load percent
The ratio of load to capacity
Load % = (load/capacity)x100%
Capacity Requirements
Planning
MRP planned
order
releases
Routing
file
Capacity
requirements
planning
Open
orders
file
Load profile for

each machine center
Figure 12.8
Hours of capacity
Initial Load Profile

120
110
100
90
80
70
60
50
40
30
20
10
0
Normal
capacity
Time (weeks)
Figure 12.9
Remedies for Underloads

1. Acquire more work
2. Pull work ahead that is scheduled
for later time periods
3. Reduce normal capacity
Remedies for Overloads

1. Eliminate unnecessary requirements
2. Reroute jobs to alternative machines or
work centers
3. Split lots between two or more machines
4. Increase normal capacity
5. Subcontract
6. Increase the efficiency of the operation
7. Push work back to later time periods
8. Revise master schedule
Hours of capacity
Adjusted Load Profile

120
110
100
90
80
70
60
50
40
30
20
10
0
Pull ahead
Overtime
Work
an
extra
shift
Push back
Push back
Normal
capacity
Time (weeks)
Figure 12.10
Relaxing MRP
Assumptions
Material is not always the
constraining resource
Lead times can vary
Not every transaction needs to be
recorded
JIT can be used with MRP
The shop floor may require a more
sophisticated scheduling system
Manufacturing
Resource
Planning
(MRP II)
Manufacturing
Resource
Planning
(MRP II)
Customer
orders
Aggregate
production
plan
Forecast
No
Feasible?
Yes
Master production
schedule
Material requirements
planning
Capacity requirements
planning
No
Feasible?
Feedback
Yes
Purchase
orders
Work
orders
Inventory
Shop floor
control
Manufacture
Figure 12.11
Manufacturing
Resource
Planning
(MRP II)
Aggregate
production
plan
Forecast
No
Customer
orders
Aggregate
production
plan
Forecast
No
Feasible?
Customer
orders
Yes
Master production
schedule
planning
planning
Feasible?
No
Feasible?
Feedback
Yes
Master
production
schedule
Yes
Purchase
orders
Work
orders
Inventory
Shop floor
control
Manufacture
Figure 12.11
Manufacturing
Resource
Planning
(MRP II)
Master production
schedule
Customer
orders
Aggregate
production
plan
Forecast
No
Feasible?
Yes
Master production
schedule
planning
planning
planning
planning
No
Feasible?
Feedback
Yes
No
Feasible?
Yes
Purchase
orders
Work
orders
Inventory
Shop floor
control
Manufacture
Figure 12.11
Manufacturing
Resource
Planning
(MRP II)
Purchase
orders
Customer
orders
Aggregate
production
plan
Forecast
No
Feasible?
Yes
Master production
schedule
Work
orders
planning
planning
Shop floor
control
Inventory
No
Feasible?
Feedback
Yes
Purchase
orders
Work
orders
Inventory
Shop floor
control
Manufacture
Manufacture
Figure 12.11
Manufacturing
Resource
Planning
(MRP II)
Customer
orders
Aggregate
production
plan
Forecast
No
Feasible?
Yes
Master production
schedule
planning
planning
No
Feasible?
Feedback
Yes
Purchase
orders
Work
orders
Inventory
Shop floor
control
Manufacture
Figure 12.11
Questions?
Thank You!

Quality Management
Chat 1: Operations Strategy
By
Assessment
Assignment 30%
Report Format
Not More Than 2500 words
Appendix not included in the word
count.
Examination 70%
Answer any 3 questions out of 4.
Each Question carries 33 marks.
2 hours duration
Plagiarisim Check
Once you have the plagiarism report and before you submit the coursework to the VLE check your score
against the following percentages: 10% -accepted
11-25% -make sure all quotes are referenced
26- 33% - make sure all quotes are referenced and all ideas are cited correctly
34-50% - You should not submit this, with these levels of copy/paste, or your marks will be affected. You
need to rewrite the content in your own words, remembering to cite the sources of the ideas as well as the
words you have used. It is not enough to simply rewrite in your own words as this is poor scholarship and
will still lose marks.
51-100% this is plagiarism and will be dealt with under university disciplinary procedures for cheating unless
you take action now.
Recommended action: cite all sources, rewrite using your own words, but ensure that where you have used
the ideas of others - i.e. the rewritten content, that you still credit the source. Refer to plagiarism notes.
You will find the correct way to cite sources at this url:http://www.referencing.port.ac.uk/apa/index.html
Assignment on
Operation Strategy
1. The operations strategy contribution to overall business
objectives.
2. Product/service design issues and possibilities.
3. Capacity management and scheduling methods and how
the recommended techniques may aid operations
managers to improve performance.
4. Aspects of quality management.
5. In discussing 1-5 give examples of the information systems,
which may contribute to performance improvements in
each of the five areas.
Conclusion: Reflect on your recommended solution and any
strategic opportunities that might arise from there.
Strategy Formulation
1. Define a primary task
2. Assess core
competencies
3. Determine order
winners & order qualifiers
4. Positioning the firm
Competing on Cost
Eliminate all waste
Invest in
Updated facilities & equipment
Streamlining operations
Training & development
Competing on Quality
Please the customer
Understand customer
attitudes toward and
expectations of
quality
Competing on
Flexibility
Produce wide variety of
products
Introduce new products
Modify existing
products quickly
Respond to customer
needs
Competing on Speed
Fast moves
Fast adaptations
Tight linkages
Operations Role in
Corporate Strategy
Provide support for overall
strategy of a firm
Serve as firms distinctive
competence
Must be consistent
Must be consistent with overall
strategy
Operations
Strategy at
Wal-Mart
Operations
Strategy at
Wal-Mart
Wal-Mart
Mission
Provide value for our customers
Competitive
Priority
Low prices, everyday
Operations
Strategy
Low inventory levels
Short flow times
Operations
Structure
Linked communications
between stores
Fast transportation
system
Enabling Process
and Technologies
EDI/satellites
Cross-docking
Focused
locations
Figure 2.1
Strategy and the

Internet
Create a distinctive
business strategy
Strengthen existing
competitive advantages
Integrate new and
traditional activities
Must provide a unique
value to the customer
Strategic Decisions in
Operations
Strategic Decisions in
Operations
Products
Services
Capacity
Human
Resources
Facilities
Sourcing
Processes and
Technology
Quality
Operating
Systems
Figure 2.2
Products & Services

Make-to-order
Made to customer specifications
after order received
Make-to-stock
Made in anticipation of demand
Assemble-to-order
Add options according to
customer specification
Processes & Technology

Project
One-time production of product to
customer order
Batch production
Process many jobs at same time in batch
Mass production
Produce large volumes of standard
product for mass market
Continuous production
Very high volume commodity product
Product-Process Matrix
Product-Process Matrix
High
Continuous
Production
Volume
Mass
Production
Batch
Production
Projects
Low
Low
Figure 2.3
Standardization
High
Service-Process Matrix
Service-Process Matrix
High
Service
Factory
Volume
Mass
Service
Low
Service
Shop
Professional
Service
Low
Figure 2.4
Standardization
High
Capacity & Facilities

How much capacity to provide
Size of capacity changes
Handling excess demand
Hiring/firing
workers
Need for new
facilities
Facilities
Best size for facility?
Large or small facilities
Facility focus
Facility location
Global facility
Human Resources
Skill levels required

Degree of autonomy
Policies
Profit sharing
Individual or team
work
Supervision methods
Levels of
management
Training
Quality
Target level
Measurement
Employee involvement
Training
Systems needed to ensure quality
Maintaining quality awareness
Evaluating quality efforts
Determining customer perceptions
Sourcing
Degree of vertical
integration
Supplier selection
Supplier
relationship
Supplier quality
Supplier
cooperation
Operating Systems
Execute strategy daily
Information technology
support
Effective planning & control
systems
Alignment of inventory
levels, scheduling
priorities, & reward systems
Strategic Planning
Strategic Planning
Mission and
Vision
Voice of the
Business
Marketing
Strategy
Corporate
Strategy
Operations
Strategy
Voice of the
Customer
Financial
Strategy
Figure 2.5
Policy Deployment
Hoshin planning
Focuses employees on common
goals & priorities
Translates strategy into
measurable objectives
Aligns day-to-day decisions with
strategic plan
Derivation of an Action Plan
Derivation of an Action Plan

Reduce production
cycle time by
30%
Reduce queue
time by 50%
Reduce setup
time by 50%
Cut lot sizes in
half
Increase electronic
transactions by 30%
Reduce business
cycle time by 50%
Redesign supplier
quality reporting process
Reduce
purchasing
cycle time by
30%
Set up supplier
education groups
Reduce supplier
base by 50%
What
Who
When
Measure
Resource
Improve
work
flow
Billy
Wray
9-1-03
Average
queue
time per
job
$5,000
...
...
...
...
...
...
...
Figure 2.6
Balanced Scorecard
Finance How should we look to our
shareholders?
Customer How should we look to our

customers?
Processes At which business

processes must we excel?
Learning and Growing How will we

sustain our ability to change and
improve?
Mobils Strategy Map
Mobils Strategy Map

Revenue Growth Strategy
Finances
Customers
Processes
Volume growth
Net margin
Nongasoline products &

services
More premium brands
Delight the customer
Win-win dealer
relations
Clean/safe/fast
Develop business skills
Create new products &

services
Convenience store
Learning and
Growth
Personal growth
Align goals
Build best-in-class
franchise
Teamwork, quality
Functional excellence
Strategic & job skills
Deliver products on
spec, on time
Inventory management
Process improvement
New technology
Figure 2.7
Issues and Trends

Global markets,
sourcing,
operations
Virtual companies
Greater choice
Emphasis on
service
Speed and
flexibility
Supply chains
C-commerce
Technological
advances
Knowledge
Environment
and social
responsibilities
The Changing Corporation
The Changing Corporation

CHARACTERISTIC
20TH CENTURY
CORPORATION
Organization
Focus
Style
Source of strength
Structure
Resources
Operations
Products
Reach
Financials
Inventories
Strategy
Leadership
Workers
Job expectations
Motivation
Improvements
Quality
The Pyramid
Internal
Structures
Stability
Self-sufficient
Physical assets
Vertical integration
Mass production
Domestic
Quarterly
Months
Top-down
Dogmatic
Employees
Security
To compete
Incremental
Affordable best
21ST CENTURY
CORPORATION
The Web
External
Flexible
Change
Interdependencies
Information
Virtual integration
Mass customization
Global
Real-time
Hours
Bottom-up
Inspirational
Employees, free agents
Personal growth
To build
Revolutionary
No compromise
Table 2.1
Questions?
Thank You!

Quality Management
Chat 5: Statistical Quality
Control
By
Statistical Process
Control
Take periodic samples from process
Plot sample points on control chart
Determine if process
UCL
is within limits
Prevent quality
problems
LCL
Variation
Common Causes
Variation inherent in a process
Can be eliminated only through
improvements in the system
Special Causes
Variation due to identifiable factors
Can be modified through operator or
management action
Types of Data
Attribute data
Product characteristic
evaluated with a discrete choice
Good/bad, yes/no
Variable data
Product characteristic that
can be measured
Length, size, weight, height,
time, velocity
SPC Applied to
Services
Nature of defect is different in
services
Service defect is a failure to meet
customer requirements
Monitor times, customer
satisfaction
Service Quality Examples

Hospitals
Timeliness, responsiveness,
accuracy of lab tests
Grocery Stores
Check-out time, stocking, cleanliness
Airlines
Luggage handling, waiting times,
courtesy
Fast food restaurants

Waiting times, food quality,
cleanliness, employee courtesy
Service Quality Examples

Catalog-order companies
Order accuracy, operator
knowledge and courtesy,
packaging, delivery time,
phone order waiting time
Insurance companies
Billing accuracy, timeliness of claims
processing, agent availability and
response time
Control Charts
Graph establishing process control
limits
Charts for variables
Mean (x-bar), Range (R)
Charts for attributes

p and c
Process Control Chart

Out of control
Upper
control
limit
Process
average
Lower
control
limit
1
Figure 15.1
10
Sample number
A Process is In Control if
1. No sample points outside limits
2. Most points near process average
3. About equal number of points
above & below centerline
4. Points appear randomly
distributed
Development of
Control Chart
Based on in-control data
If non-random causes present
discard data
Correct control chart limits
Control Charts for

Attributes
p Charts
Calculate percent defectives in sample
c Charts
Count number of
defects in item
p-Chart
UCL = p + zp
LCL = p - zp
where
z = the number of standard deviations from
the process average
p = the sample proportion defective; an
estimate of the process average
p = the standard deviation of the sample
proportion
p =
p(1 - p)
n
The Normal Distribution
95%
99.74%
-3
-2
-1
=0
Control Chart Z Values

Smaller Z values make more
sensitive charts
Z = 3.00 is standard
Compromise between sensitivity
and errors
p-Chart Example
20 samples of 100 pairs of jeans
SAMPLE
1
2
3
:
:
20
NUMBER OF
DEFECTIVES
PROPORTION
DEFECTIVE
6
0
4
:
:
18
200
.06
.00
.04
:
:
.18
Example 15.1
p-Chart Example
SAMPLE
1
2
3
:
:
20
NUMBER OF
DEFECTIVES
6
0
4
:
:
18
200
PROPORTION
DEFECTIVE
.06
.00
total defectives
p = .04
total sample observations
:
= 200: / 20(100)
= 0.10
.18
Example 15.1
p-Chart Example
SAMPLE
1
2
3
:
:
20
NUMBER OF
DEFECTIVES
PROPORTION
DEFECTIVE
p = 0.10
6
.06
0
0.10(1 - 0.10)
p(1.00
- p)
UCL = p + z
= 0.10 + 3
100
n
4
.04
:
UCL := 0.190
:
0.10(1 - 0.10)
p(1 - p):
LCL
= 0.10 - 3
18= p - z
100
n.18
200= 0.010
LCL
Example 15.1
p-Chart
0.20
UCL = 0.190
0.18
0.16
Proportion defective
0.14
0.12
0.10
p = 0.10
0.08
0.06
0.04
0.02
LCL = 0.010
8
10
12
Sample number
14
16
18
20
c-Chart
UCL = c + zc
LCL = c - zc
c =
where
c = number of defects per sample
c-Chart
The number of defects in 15 sample rooms
SAMPLE
NUMBER OF DEFECTS
1
2
3
12
8
16
:
:
:
:
15
15
190
190
c=
= 12.67
15
UCL = c + zc
= 12.67 + 3
= 23.35
12.67
LCL = c + zc
= 12.67 - 3
= 1.99
12.67
Example 15.2
c-Chart
24
UCL = 23.35
Number of defects
21
18
c = 12.67
15
12
9
6
LCL = 1.99
10
12
14
16
Sample number
Control Charts for

Variables
Mean chart ( x -Chart )
Uses average of a sample
Range chart ( R-Chart )

Uses amount of dispersion in
a sample
Range ( R- ) Chart
UCL = D4R
LCL = D3R
R
R= k
where
R = range of each sample
k = number of samples
SAMPLE SIZE
n
FACTOR FOR x-CHART

A2
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
1.88
1.02
0.73
0.58
0.48
0.42
0.37
0.44
0.11
0.99
0.77
0.55
0.44
0.22
0.11
0.00
0.99
0.99
0.88
FACTORS FOR R-CHART

D3
D4
Range ( R- ) Chart
0.00
0.00
0.00
0.00
0.00
0.08
0.14
0.18
0.22
0.26
0.28
0.31
0.33
0.35
0.36
0.38
0.39
0.40
0.41
3.27
2.57
2.28
2.11
2.00
1.92
1.86
1.82
1.78
1.74
1.72
1.69
1.67
1.65
1.64
1.62
1.61
1.61
1.59
Table 15.1
R-Chart Example
OBSERVATIONS (SLIP-RING DIAMETER, CM)
SAMPLE k
1
2
3
4
5
6
7
8
9
10
5.02
5.01
4.99
5.03
4.95
4.97
5.05
5.09
5.14
5.01
5.01
5.03
5.00
4.91
4.92
5.06
5.01
5.10
5.10
4.98
4.94
5.07
4.93
5.01
5.03
5.06
5.10
5.00
4.99
5.08
4.99
4.95
4.92
4.98
5.05
4.96
4.96
4.99
5.08
5.07
4.96
4.96
4.99
4.89
5.01
5.03
4.99
5.08
5.09
4.99
4.98
5.00
4.97
4.96
4.99
5.01
5.02
5.05
5.08
5.03
0.08
0.12
0.08
0.14
0.13
0.10
0.14
0.11
0.15
0.10
50.09
1.15
Example 15.3
R-Chart Example
UCL = D4R = 2.11(0.115) = 0.243

R
1.15
R=
=
= 0.115
OBSERVATIONS
(SLIP-RING
DIAMETER, CM)
k
10
LCL = D
3R = 0(0.115) = 0
SAMPLE0.28
k
1
2
3
4
5
x
R
Range
1
2
3
4
5
6
7
8
9
10
0.24
0.20
0.16
0.12
0.08
0.04
0
5.02 5.01 4.94

5.01
UCL 5.03
= 0.2435.07
4.99 5.00 4.93
5.03 4.91 5.01
0.115 5.03
4.95R =4.92
4.97 5.06 5.06
5.05 5.01 5.10
5.09 5.10 5.00
5.14 5.10 4.99
LCL = 0
5.01
|
| 4.98| 5.08
|
4.99
4.95
4.92
4.98
5.05
4.96
4.96
4.99
5.08
5.07
|
|
4.96
4.96
4.99
4.89
5.01
5.03
4.99
5.08
5.09
4.99|
4
5
6
7
Sample number
4.98 0.08
5.00 0.12
4.97 0.08
4.96 0.14
4.99 0.13
5.01 0.10
5.02 0.14
5.05 0.11
5.08 0.15
5.03
|
| 0.10|
50.09
8
91.1510
Example 15.3
x-Chart Calculations
x1 + x2 + ... xk
=
x=
k
=
UCL = x + A2R
=
LCL = x - A2R
where
=
x = the average of the sample means
x-Chart Example
SAMPLE k
50.095.01 4.94 4.99

=1 x
5.02
x=
=
= 5.01 cm
k
2
5.01
10 5.03 5.07 4.95
4.96 4.98
4.96 5.00
3
4.99 5.00 4.93 4.92 4.99 4.97
4
5.03 4.91 5.01 4.98 4.89 4.96
=
UCL5 = x + A2R4.95
= 5.01
= 5.08
4.92+ (0.58)(0.115)
5.03 5.05 5.01
4.99
6
4.97 5.06 5.06 4.96 5.03 5.01
5.01- (0.58)(0.115)
5.10 4.96 4.99
5.02
LCL7 = x= - A2R5.05
= 5.01
= 4.94
8
5.09 5.10 5.00 4.99 5.08 5.05
9
5.14 5.10 4.99 5.08 5.09 5.08
10
5.01 4.98 5.08 5.07 4.99 5.03
0.08
0.12
0.08
0.14
0.13
0.10
0.14
0.11
0.15
0.10
50.09
1.15
Example 15.4
x-Chart Example
5.10
5.08
5.06
SAMPLE k
UCL = 5.08

1
5.04 50.09
=1 x
4.94 4.99
x=
= 5.02 5.01= 5.01
cm
k5.02 5.0110=5.03 5.07 4.95
2
Mean
4.96 4.98
4.96 5.00
= 5.01
3
4.99 x5.00
4.93 4.92 4.99 4.97
5.00 5.03 4.91
4
5.01 4.98 4.89 4.96
=
UCL5 = x +
A R = 5.01 + (0.58)(0.115)
= 5.08
5.03 5.05 5.01
4.99
4.98 2 4.95 4.92
6
4.97 5.06 5.06 4.96 5.03 5.01
5.01- (0.58)(0.115)
5.10 4.96 4.99
5.02
LCL7 = x= -4.96
A2R5.05
= 5.01
= 4.94
8
5.09 LCL
5.10
5.00 4.99 5.08 5.05
= 4.94
4.94
9
5.14 5.10 4.99 5.08 5.09 5.08
10
5.08 5.07 4.99 5.03
4.92 5.01 4.98
|
1
Example 15.4
|
2
|
3
|
|
|
|
4
5
6
7
Sample number
R
0.08
0.12
0.08
0.14
0.13
0.10
0.14
0.11
0.15
0.10
| 50.09
|
|1.15
8
9
10
Using x- and R-Charts

Together
Each measures the process
differently
Both process average and variability

must be in control
Control Chart Patterns

UCL
UCL
LCL
Sample observations
consistently below the
center line
Figure 15.3
LCL
Sample observations
consistently above the
center line
Control Chart Patterns

UCL
UCL
LCL
Sample observations
consistently increasing
LCL
Sample observations
consistently decreasing
Figure 15.3
Process Capability
Range of natural variability in process
Measured with control charts.
Process cannot meet specifications if

natural variability exceeds tolerances
3-sigma quality
Specifications equal the process control
limits.
6-sigma quality
Specifications twice as large as control
limits
Process Capability
Design
Specifications
(a) Natural variation

exceeds design
specifications; process
is not capable of
meeting specifications
all the time.
Process
Design
Specifications
(b) Design specifications
and natural variation the
same; process is capable
of meeting specifications
most the time.
Process
Figure 15.5
Process Capability
Design
Specifications
(c) Design specifications

greater than natural
variation; process is
capable of always
conforming to
specifications.
Process
Design
Specifications
(d) Specifications greater
than natural variation,
but process off center;
capable but some output
will not meet upper
specification.
Process
Figure 15.5
Process Capability
Measures
Process Capability Ratio
tolerance range
Cp = process range
upper specification limit lower specification limit
=
6
Computing Cp
Net weight specification = 9.0 oz 0.5 oz
Process mean = 8.80 oz
Process standard deviation = 0.12 oz
upper specification limit lower specification limit
Cp =
6
9.5 - 8.5
=
= 1.39
6(0.12)
Example 15.6
Process Capability
Measures
Process Capability Index
Cpk = minimum
=
x - lower specification limit
,
3
=
upper specification limit - x
3
Computing Cpk
Net weight specification = 9.0 oz 0.5 oz
Process mean = 8.80 oz
Process standard deviation = 0.12 oz
Cpk = minimum
= minimum
=
x - lower specification limit
,
3
=
upper specification limit - x
3
8.80 - 8.50 9.50 - 8.80
,
3(0.12)
3(0.12)
= 0.83
Example 15.7
Questions?
Thank You!
OVERVIEW
This unit introduces students to the analysis, design and control of production systems and to
their associated quality control and Management.
Firstly the organisational structure is considered before the major area of inventory management.
Capacity planning and loading is dealt with and then MRP, JIT, OPT and the TOC. Each area is
put in its correct context with the emphasis being on suitability for particular situations.
The management of quality is discussed with an emphasis on Total Quality Management
principles. Quality systems and auditing is then considered as well as process capability. Quality
control using SPC (Statistical Process Control) techniques is then covered.
AIMS & OUTCOMES

Aims :
To understand the analysis, design and control of production systems
Outcomes : By the end of this unit you should be able to:
Take a strategic approach to operations management

Understand the principal developments in planning and control
Use statistical process control techniques
Apply the 'zero defect' philosophy based on cost factors related to quality
LESSON OUTLINE
Lesson 1: Organisation Structures and Production Planning
In this lesson the possible types of organisational structure are introduced. The steps in
production planning are then considered as well as the requirements.
Lesson 2: Capacity Planning, Production Programmes, Production Control and Loading
In this lesson the related areas of capacity planning, production control and loading are dealt with.
Capacity planning:
The problems of defining and dealing with capacity are explored. Capacity adjustment, load
adjustment, problems in measuring capacity and methods to increase capacity are considered.
Production Control : The areas and stages of production control, progressing parts. Loading :
Infinite and finite capacity, forward and backward loading, adaptive loading.
Lesson 3: Materials Requirements Planning
In this lesson MRP and MRP 2 systems are considered with the following areas:
MRP inputs, comparisons with 'stock replenishment,' structure diagrams, orders and
requirements, level by level analysis, netting and batching, MRP outputs, benefits and
drawbacks, MRP 2 introduction
Lesson 4: Just In Time Manufacturing and Management of Constraints
In this lesson inventory management using the 'pull principle' is explored in the following areas:
JIT : JIT background, implementation, targets, drawbacks, characteristics. Management activities,
purchasing and suppliers.
OPT : Background to OPT, advantages and drawbacks, bottlenecks, drum buffer rope
scheduling.
TOC : Theory Of Constraints philosophy, steps, measures of performance, impact.
The module assignment is introduced with this lesson with the problem based on a case study
(case study 1).
Lesson 5: The Management of Quality
Quality control principles for design, suppliers, goods inward inspection, vendor rating, audits and
processes.
Total Quality Management (TQM) traceability, documentation, the customer, benefits, Deming
principles, quality circles.
Quality systems (ISO 9000, 2000) and audits
Lesson 6: Process Capability & Statistical Process Control
Process Capability
This lesson introduces process capability in statistical terms based on known variability and target
values. Statistical Process Control (SPC). Statistical process control using variables is introduced.
Assessment
A report based assignment is given with lesson 4 and linked to the case study (Operations Case
Study 1). This report will cover 30% of the marks for the unit.Lesson activities and discussion
questions as well as further text book examples will provide preparation for the formal
examination. The examination will cover 70% of the marks for the unit.
READING LIST
A single course book has been specified:
Russell R S, Taylor B W, (2000), Operations Management, Third Edition, Prentice Hall.
ISBN 0 13 013092 3
However, this book will also contain material outside the scope of this module, but in related
areas. The lesson notes in some areas cover work not included in the course book.
LESSON 1 OVERVIEW
Organisation Structures and Production Planning
In this lesson the possible types of organisational structure are introduced.
The steps in production planning are then considered as well as the requirements.
AIMS & OUTCOMES

Aims :
To introduce management organisational structures and their significance

To develop an understanding of production control principles
Outcomes : By the end of this lesson you should be able to:
Establish the suitability of an organisation structure

Outline the elements in a production control plan
Appreciate planning and control principles
1. ORGANISATION STRUCTURES AND PRODUCTION PLANNING

1.1 Organisation Structures
Types Of Structure - Introduction
In each of the key strategic planning functions ? business strategy, product
strategy and manufacturing strategy, two factors are essential ? an overall
understanding of the thinking of the company in all the other activities, and the
need to ensure compatibility between them. Because of the essential nature of
each of the strategies to the business, only direct involvement by the Chief
Executive will ensure success, just as his commitment and drive will be needed
to ensure success of the subsequent implementation.
Organisation Structures
There are four types of organisation structure that are mainly relevant to the
manufacturing function:
1. The Mechanistic Organisation (Pyramid/Hierarchical) - This is the traditional
organisational structure for the manufacturing and other functions found within
industry. Especially prevalent in the medium and larger companies it is
characterised by a precise subdivision of the total organisation into sections each
with its own semi?discrete objectives. Co?ordination is achieved by superiors in
the hierarchy and by formal procedures. Individual tasks and responsibilities are
precisely specified and the majority of interactions are between superior and
subordinate. There is, in other words, a heavy emphasis on formal organisation.
The mechanistic organisation seems to operate well when a company is
operating within a comparatively stable environment so that events can be
foreseen and anticipated by the devising of appropriate procedures. Conversely,
it does not operate well in a rapidly changing, fluid environment due to the
inherent inertia in its bureaucratic methods. The introduction of advanced
manufacturing facilities is usually accompanied by major changes to operating
conditions across traditional mechanistic boundaries and can therefore pose real
problems of response and communication.
2. The Organic Organisation - An organic system is virtually the opposite of the
mechanistic organisation described above. Considerable reliance is placed on
the members of management forsaking their specialist occupation and adapting
their behaviour in voluntary and spontaneous co?operation with colleagues in
pursuit of common objectives as the situation may dictate. Rights and
responsibilities are assumed or conceded with changing circumstances. Very
little use is made of formal authority; most interactions, even those between
supervisor and subordinate, are or resemble consultations between colleagues.
The organic approach is most suited to situations of rapid change and
uncertainty when fluid organisational practices are necessary to achieve the swift
responses required. This would certainly be true in a small manufacturing
company where traditional demarcation rules do not apply. The problem with it,
and why it is normally doomed to failure in larger companies, is that due to the
lack of formal communication channels it relies on informal, irregular, "chance"

transfer of information, and being human that means that omissions will occur
3. The Product Based Organisation - This organisational structure is similar to
the hierarchical or functional model described in (1) in terms of having formal
responsibilities and reporting methods accurately defined. However it differs from
(1) in a key area. If we considered a company manufacturing three main product
lines a, b and c then in case (1) the design engineers, for example, would be an
individual, autonomous group responsible for all three products via their formal
position within the organisation. In a product based organisation the design group
may be split into three distinct groups with responsibility for a particular product
only. This would also hold for other disciplines within the organisation and
possibly include an individual at director level with single product responsibility.
There are advantages with this type of organisation as it leads to an increased
identification for the individual with the product and subsequently easier
accountability. However it will be very heavy on human resources if applied
across the board within the whole company.
4. The Project Based Organisation - This again is a variation on the theme of
(1) in that it relies heavily on formal definition of reporting methods and
responsibilities. However it differs from (1) in that the organisational structure is
formed with a particular objective in mind, for example the introduction of a new
product line or the construction of a new manufacturing facility. People from all
the disciplines involved are formed into a project team reporting through the
project manager or director. These teams can then be added to, subtracted from,
broken down and reformed as the situation demands. The individuals involved
are able to identify with their task yet still need to retain communication links with
their own specialist areas.
It is worth noting that although these four types of structure are defined distinctly
it is not suggested that any of them exist in the pure form to the total exclusion of
any elements of the others. Most actual organisations can have elements of all
four of them in areas where they may be most applicable. For example the
finance and accounts areas are usually unaffected by the manufacturing facilities
involved and may therefore have a pyramid structure. A creative, self-contained
department such as advertising may evolve an organic structure. The product
design area can be particularly suited to a product-based structure whilst the
manufacturing engineering area may be project based especially if it is involved
with large installations.
One important item worth remembering is that there exists both formal and
informal management structures. This is especially important to systems analysts
when investigating the flow of information involved in manufacturing industry.
It is vital that organisational change is planned to suit the new operating
conditions and that long lead actions such as retraining are instigated if
necessary.
Managers and supervisors must learn to present problems instead of solutions
and not have preconceived ideas. Initially informal meetings should be set up
between everyone concerned to judge whether the experiment is worth trying in
that particular case. If that is the case then authority must be redistributed, rules
must be as few in number as possible and information, plans and systems must
be kept simple.
Working In A Group
Formal morning meetings are instituted to plan the days work and assignments,
weekly meetings to plan the weeks work ahead and similarly monthly meetings
where long term lessons and experiences can be reviewed.
The objectives of the group must be clearly defined ? such as increased
productivity, increased job satisfaction, improved environment and conditions,
reduced scrap or any combination of them.
The formation of a production group should encompass a natural whole unit of
work ?that is the members should be able to identify with the start and end of the
product or process. If the possibility of organising along product lines rather than
process lines is present at the design stage then this should be encouraged,
geographically producing the "factory within a factory".
The people in this group will then all have related tasks, which they can see
serve a common purpose. When the autonomous working group is operating
efficiently then the following requirements are usually met:
The group will evolve a natural instinctive job rotation to suit load as
well as create an interest.
There will be natural give and take in the group in order to achieve an
overall target.
The group will work together in a co?ordinated, cohesive, responsible,
communicative manner, resulting in a rise in efficiency.
1.2 Production Planning

Introduction
Basic information gathered by the various departments such as sales, marketing
and product design via forecasts and other techniques is used by the production
control department to ascertain information relating to forward planning and
pre?production type information.
However the detailed production plan then has to follow almost immediately in
order that delivery dates can be estimated and maintained.
An objective is a goal that you plan to reach; it must therefore be clearly defined,
quantified, time constrained and achievable. " A plan is an adequate,
predetermined means to an end".
Seven step planning method
1.
2.
3.
4.
5.
6.
7.
Clarify goal ? set objectives.

Estimate resources required and available.
Devise possible paths.
Depict problems and decide how to overcome them.
Select path.
Build total plan.
Critique and follow up ? control.
What does production control need to plan?
1.
2.
3.
4.
5.
6.
7.
Human resources.
Materials.
Machines.
Space.
Time.
Equipment.
Money.
The way you plan for these basic commodities will again vary depending on the
type of industry but one or two basic principles will hold true:
1. Human resources: must be planned for and in sufficient time to obtain
2.
3.
4.
5.
6.
them and train them. Facilities for training these people must also be
provided, i.e. new tools, fixtures, extra parts etc. Account must be taken
of 'learning curve effects,' which will differ according to the task; graphs
are available to make suitable allowances for learning curve factors,
dependant on the percentage improvement in performance with time.
Materials: require careful planning if one is to minimise investment in
inventory. Inventory control is a major function of production control and
includes raw material, work in progress, finished component stock, both
bought out and made in, finished products and consumables. The
production controller should be able to obtain from accounts a
breakdown of inventory into any or all of the above classifications in
order that he may control them. Materials are often between 30% and
50% of the cost of sales, therefore the effect on profits of poor inventory
control can be seen. "Inventory turn" ratio of companies is the acceptable
measure of the efficiency of inventory control. This is often less than 2 to
1 which means that at least six months stock is being held on average
throughout the year ? this takes a lot of financing. Basically the
production controller should check input of sales orders against their
programme to obtain some control over finished goods stocks. This will
lead to a control on the bought out and made in orders which in turn will
lead to control of the raw material. As a general rule, one should never
order, or call for delivery, before the goods are needed. Also, one should
hold stocks at the lowest level of inventory wherever possible.
Machines: whilst production control does not decide the type or number
of machines, they are concerned with the decision, as they will have to
load them (in the capacity sense). The introduction of new machines may
call for different grades of materials or different tolerances. It may also
mean a complete change to the paperwork system employed.
Space: like machines it is not the production controllers job to find space,
but it is his job to load that space or what goes into it, be it people or
machines. If more space is being planned it usually means more
production. The production controllers are therefore vitally interested
since they will have to plan to increase his production in the appropriate
areas.
Time: this is the commodity the production controller is continually
planning and is dealt with in more detail in loading and scheduling.
Equipment: a vital aspect of any production system and includes the
required equipment. The planning of equipment acquisition, storage and
distribution is therefore important and should be carried out by
7.
production control. The inspection and maintenance of equipment is also

vital and should be properly planned and controlled.
Money: required in the areas discussed above. If the money was not
forthcoming in any one of these areas, then a production controllers
plans would be thrown into disarray. Production control is a game of
consequences. Those who are good at it are successful, those who
aren't; fail. Even the best-laid plans go wrong but if you have drawn up a
good plan (the seven steps of planning) then you have a reasonable
chance of the consequences being minor.
Basic information gathered by the various departments such as sales, marketing

and product design via forecasts and other techniques is used by the production
control department to ascertain information relating to forward planning and
pre?production type information.
However the detailed production plan then has to follow almost immediately in
order that delivery dates can be estimated and maintained.
An objective is a goal that you plan to reach; it must therefore be clearly defined,
quantified, time constrained and achievable.
LESSON 2 OVERVIEW
Capacity Planning, Production Programmes, Production Control and Loading
In this lesson the related areas of capacity planning, production control and loading are dealt with.
Capacity planning
The problems of defining and dealing with capacity are explored.
Capacity adjustment, load adjustment, problems in measuring capacity and methods to
increase capacity are considered.
Production Control
The areas and stages of production control, progressing parts.
Loading
Infinite and finite capacity, forward and backward loading, adaptive loading.
AIMS & OUTCOMES

Aims :
To understand the principles and constraints involved in the management of capacity.
Outcomes : By the end of this lesson you should be able to:
Appreciate the problems in measuring capacity

Analyse capacity requirements
Recognise the stages of manufacture that require measurement and control
Understand reasons for output diverging from planned programme
Appreciate the requirements of loading
Apply suitable methods of loading
2. CAPACITY PLANNING, PRODUCTION PROGRAMMES, PRODUCTION

CONTROL AND LOADING
2.1 Capacity Planning
Meaning of Capacity
Capacity is the time available, either in man-hours or machine hours, any one
facility required by production to produce the finished products.
Man-hours are used as a basis for measuring capacity where man is the only
source of capacity or is the predominant source, e.g. assembly, welding, visual
inspection; machine hours are used as a basis for measuring capacity where a
machine is the only source of capacity or is the predominant source, e.g. capstan
and automatic lathes and automated test equipment.
Capacity can mean different things to different people and can be measured in
different units so one must be quite clear what one means when stating the
capacity of a facility.
The allowances should be updated regularly which means that a system of

recording and feedback is essential.
Problems of Measuring Capacity
The first problem encountered in measuring capacity is being able to define it.
Unfortunately capacity means different things to different people, even within the
same company. It is pointless trying to define capacity to a salesman as so many
man-hours or machine hours - he is interested in the number of units per hour /
day / week / period which the factory is capable of producing. The production
manager is interested in the number of man-hours or machine hours required to
produce a given output. The production controller is interested in both and must
be able to talk to Sales and Production in their own terminology.
It may be an oversimplification to say that in a continuous process plant capacity
is "x" thousand tonnes per day, but what does it mean? Does it mean that on
average over a given period of time the output reaches x thousand tonnes per
day or does it mean that if everything works 100% that the output will be x? The
other question not answered in the first statement is that of " how long is a day?"
Is it a normal 8 hour 1 shift day or is it 2 by 10 hour shifts? 3 ? 8 hour shifts or
some other measure?
How we measure capacity will depend on why we need to know the capacity. As
we have seen in the previous discussion, we may talk different capacities for
long, medium or short term planning. Long-term capacity measurement is usually
relatively easy. It is the medium and short term capacity which create most
problems such as:
1.
2.
3.
4.
5.
6.
7.
Different facilities are measured in different ways.

Capacities are often dynamic / fluid / uncertain.
What to measure.
When and how often to measure capacity.
Overestimating capacity and underestimating capacity required.
Effect of holidays on capacity.
Insufficient categorising of capacity.
Looking at the above list in a little more detail:
1. Different facilities required to produce a product are often measured and

perhaps can only be measured in different ways. For example:
FACILITY
HOW MEASURED
Process Line
Unit output or hours available / unit of time
Individual Machine As above

Labour
Hours available (BY SKILL)
2.
3. Dynamic Capacity: capacity is never static. A continuous process plant is
4.
about the nearest one can get to static capacity, but even this plant
requires maintenance and even with a full planned maintenance
schedule it can, and does, break down.
The more variety of product, that can put through a particular plant, the
more "non?running" time will be generated because of changeover. As
changeover times are fluid, dependent upon what has to be done to
change from one product to the next, so capacity is fluid.Labour is,
perhaps, the most fluid of all the capacities. Not only does one not know
when it will be available, but one seldom knows how well it will perform
when it is available.
What to measure is, perhaps, the most difficult problem. This is
inextricably tied up with the form in which the loading information is
prepared. The loading information generates the capacity required; it is
therefore pointless to compare capacity required in one term and
capacity available in a different term.
If labour capacity is being calculated, there are normally four elements to

be considered:
1. absenteeism
2. non-working time - personal allowance - rest periods etc.
3. efficiency
4. labour turnover and training
If measuring machine capacity there are normally three elements to

consider:
5. Breakdown maintenance: - machinery will break down even
under a system of planned maintenance. Maintaining a record of
6.
7.
8.
9.
10.
11.
breakdowns will provide a percentage reduction to apply to the

capacity figure.
Planned maintenance: - if this is to take place during the normal
working hours then the maintenance times must be deleted from
available capacity at the planned times. To avoid this one can
always try to plan maintenance outside normal working hours.
Idle time; this can be subdivided into:
Waiting work
Waiting material / tools
Cleaning time
Setting time
5. When and how often to measure capacity is also a difficult problem.
6.
7.
8.
Generally speaking the shorter the capacity planning period the more
frequent it is necessary to measure the capacity. Average output per
period is satisfactory for medium and long term planning but in the short
term we are working on actual orders and need to know capacity
available on a weekly or even daily basis.
Average figures must be closely examined for abnormal variances
occurring during their compilation such as epidemics, major plant
breakdowns, pay disputes/ work to rules etc.
Because of some of the problems mentioned earlier a number of
companies seriously over-estimate capacity available. They may state
capacity as 40 hours per week and then use production engineer's
standard hour figures thereby creating a massive shortfall in hours
required.
It is imperative that capacity available and capacity required are
measured in the same terms.
The effect of holidays on capacity must be taken into account ? not just
annual holiday but also statutory holidays. If a company allows flexibility
in holiday taking then the use of historical data can be useful, the list of
firm dates should be obtained as soon as possible or the company might
limit a percentage of the workforce by department to simultaneous
holidays.
Insufficient categorisation of capacity can and does cause problems in
capacity planning and loading. Using total labour force for a particular
area / department is useless unless the whole of that labour force is
capable of carrying out all the jobs to be done in that department. The
usual breakdown is skilled, semi?skilled and unskilled. This may need
further breakdown into the particular skills, say, turners, millers, grinders
etc. An even more detailed breakdown may be required.
Machine grouping needs to be studied to ensure that the machines within a

particular group are capable of performing all the jobs likely to be loaded onto
that group.
In some cases it may be also necessary to regroup into "ability to hold tolerance".
In summary, capacity available and capacity required are the two main tools of
production programmers / controllers. If they can improve upon the quality of
these tools, they stand a far better chance of succeeding in their objective of
producing the right goods at the right time at the optimum cost. Therefore, if he
can isolate and measure the various elements he can analyse the reasons for
the figures and get something done about them. Any improvement in the
availability of existing capacity generates a direct increase in output, a reduction

in unit costs, and hence, a larger profit.
One of the obvious ways to increase capacity is to double or treble the number of
shifts. There are many disadvantages in adopting this method, such as increased
supervision, shift allowances, lower inefficiencies, problems of control and
payment, job dissatisfaction etc. The advantages are better utilisation of plant
(particularly in high capital cost facilities) and a shortening of lead times.
Down time can be reduced by a system of planned maintenance.
Idle time can be reduced by being much more realistic in terms of loading and
scheduling and better control over material and tools.
Ancillary time can be reduced by better scheduling, such that jobs having a
similar "set-up" can be scheduled concurrently.
See Russell R S, Taylor B W, pp 517-520
2.2 Production Programmes
Production programmes vary with the type of business. In job shop production a
programme cannot be compiled until orders are received. This type of production
programme will therefore be dealt with under the heading of " Loading ".
The purpose of a production programme is to:
1.
2.
3.
4.
Define the capacity required.

Generate material requirements.
Forewarn staff of what will be expected of them.
Ensure that finance is available when required.
Programmes are compiled from sales forecasts and / or known orders and
usually span a financial year. Some companies have a rolling on programme of
12 - 15 months, with the first three months fixed and the rest is used for planning
raw material, labour and finance required.
The sales forecasts on which these programmes are based should, wherever
possible, be in terms of individual products or product groupings. If the sales
department can only give total sales for the year, then production control has to
break this down into monthly requirements.
The provisional sales programme and the provisional production programme are
then approved by the board of directors and from these firmed documents evolve
the sales programme, production programme and departmental budgets.
Analysis of Production Capacity Required
This is a "broad brush" analysis based on average output per department per
product group. It is pointless issuing a production programme that cannot be
completed with the available resources.
Time standards are used to calculate process times for the batch sizes involved
and standard offset times are included at the appropriate point to build up a total
capacity / lead time picture. (Offset times could be for example: - test - 2 weeks,
assy. - 2 weeks, sub-assembly - 3 weeks, raw materials -10 weeks, castings - 16

weeks, forgings - 24 weeks etc.)
The resultant capacity requirement programme can then be set against the
current capacity to ascertain the feasibility of the combined requirements. If the
capacity is not in balance with the requirements one must then look at the
possible solutions to the problem. If the shortfall in capacity is minimal the most
likely solution is to employ overtime or to increase the efficiency in the relevant
area.
If the capacity requirement shows peaks and troughs it may be possible to move
some of the peaks into the troughs, providing one is prepared to accept the cost
of increased work in progress. This process is generally referred to as load
balancing. However the process is not always as easy as it looks, as it is not
always possible to move load from one facility without upsetting the load on
another.
If the capacity requirement cannot be met by any of the previous methods one is
faced with two alternatives:
1. Increase resources.
2. Reduce sales forecast.
Before increasing resources one should first find out whether or not the increase
in sales forecast is to be a sustained one. If the answer is to increase resources,
sufficient time must be allowed to accommodate their acquisition.
The provisional production programme can then be costed and approved by the
board. It is therefore obvious that as the production programme generates
requirements for resources in terms of men, machines and money, it is vital that
it is prepared with great care.
2.3 Production Control
'Control' is the continuous monitoring of actual production against planned
production, initiating the appropriate remedial action to get production back on
plan or changing future plans to take account of the reasons for departure from
the original plan. "
From the definition it is obvious that there must be a plan before we can control
it. The normal control concepts of input, operation, measurement and feedback
apply to production control problems and can be applied to any facet of it. The
degree to which it is done depends on the type of production.
Control can be broken down into the following main areas:?
1. Customer Orders.
2. Equipment - both initial supply and maintenance.
3. Material - raw and bought out components.
4. Machine loading and scheduling.
5. Assembly.
6. Testing.
The type of control depends on the type of production and the company policy on
manufacturing to stock.
In " one-off " type production the control mechanism is loading to finite capacity
of the various facilities, the determination of delivery dates, the setting of "due
dates" for various materials and stages of production, the measurement against
these due dates and the measurement of efficiency (actual times against
estimated times).
The following stages of manufacture require measurement and control:
1. Issue of drawings and B. of M's.
2. Raising of purchase orders.
3. Issuing instructions to shop floor.
4. Kitting of parts for assembly.
5. Various stages of assembly.
6. Inspection and test.
7. Packing and despatch.
It is important to note that the maximum added value occurs at the latter stages
and therefore great attention should be paid to them.
The measurement of efficiency in this type of production is not only a measure of
the shop floor efficiency but also an estimate of the efficiency of estimating.
When measuring against assembly it is not always possible to have easily
identified stages. In such cases it is very useful to get the foreman to assess the
amount of work outstanding.
When setting due dates for assembly and test, time required for rectification must
be included. There must also be a good feedback system where faulty
components have to be replaced.
Packing and despatch should be part of the control mechanism. At this stage the
work in progress value is a maximum, it is, therefore, imperative that the goods
are cleared as speedily as possible.
In batch production, where production programmes are in existence, customer's
orders must be monitored to provide information for decision-making; i.e. does
the programme need to be amended?
Output is also checked against the programme. If they do not agree, then
reasons for divergence must be ascertained. To find these reasons other control
mechanisms need setting up.
(a) Issues to shop floor.
(b) Capacity available.
(c) Efficiencies of workers and machines.
(d) Scrap and rectification.
In mass or flow production and in the process industries the control mechanism
is basically one of checking orders against programme, input of raw materials
against programme, output against programme and finished goods stocks

against acceptable levels of finished goods stocks.
The Progress Function
Progressing or progress chasing is part of the production control function and is
basically the continuous monitoring of a job to ensure that it is within plan and the
reporting to control of those jobs which are deviating from plan.
Progressing should be a preventative function rather than a fire-fighting one. A
good progress man will prepare a diary showing what is due on each day. Some
time before that day he will check up on the job and assess whether or not it is
going to plan - if not he will report it to control for action.
Progressing is organised in three ways:
1. PRODUCT PROGRESSING means that a progress team or person
responsible for progressing a particular product through the factory. This person
or their team will be responsible for all aspects of that product including bought
out, raw material, "made-in", etc. They will, therefore, be chasing in all
departments of the factory.
a. The advantage of this type of progressing is that someone is responsible for a
product and therefore has a goal to achieve - most useful in one-off type
production. The disadvantage is that, in a multi-product factory the number of
personnel required is higher and supervision on the shop floor has loads of
progress chasers all competing for his capacity.
2. DEPARTMENTAL PROGRESSING means that progress personnel are
allocated to specific departments and are responsible for progressing all the work
within that department, without reference to the overall requirements. These
chasers tend to identify themselves with the supervision of their department.
a. The advantage with this progress organisation is that supervision deal only
with one person and a good working relationship usually exists between them.
The disadvantage is that they do not have an end product in sight and lose some
of the impetus of the product chaser. They are also unaware of relative
importance of jobs but do have recourse to higher authority in the control function
to set priorities.
3. A COMBINATION OF (1) & (2) usually has co-ordinating progress chasers for
products and detail chasers within departments. The co-ordinating chaser has
the overall plan for the product and he then deals through the departmental
chasers for his details. If problems of priority arise he can settle these by himself,
because he knows the effect on his product, or by reference to the overall
controller.
2.4 Loading
Introduction
Loading is the allocation of time required to make a product to the various
production facilities required to make that product and the subsequent inputting
of orders to the production departments so that:
1. The utilisation of resources is optimised.

2. The facilities are not overloaded.
3. Realistic delivery dates are quoted.
4. Out of balance production facilities can be highlighted, i.e. a backlog of
work building up in some sections whilst others may be idle, so that the
necessary corrective action can be taken.Programmes are compiled
from sales forecasts and / or known orders and usually span a financial
year. Some companies have a rolling on programme of 12 - 15 months,
with the first three months fixed and the rest is used for planning raw
material, labour and finance required.
Loading to INFINITE CAPACITY means that one loads a programme of work

assuming that there is no limit to the capacity available. This method of loading is
used to check the feasibility of a particular program of work.
Loading to FINITE CAPACITY means that one continues loading work on to a
facility until such time as the specified capacity of that facility is reached. This
method of loading is used to determine realistic delivery dates for components
and / or products.
Loading to finite capacity presupposes that the finite capacity has been
determined for each of the facilities that are to be loaded. It also presupposes
that the loading information is available for each order as it arrives in the factory.
The problem is to load this information across the facilities. The two methods of
loading are forward and backward loading.
FOREWARD LOADING means starting at time now with the lowest level and
loading forward in time until the final assembly or test department is loaded. This
method of loading results in the earliest completion date of any order and is the
easiest method. Its big disadvantage is in cases where customers specify
forward delivery dates - this method produces goods earlier than required and
thus debars other jobs being loaded which were ordered later but required earlier
and also increases inventory costs.
BACKWARD LOADING is the reverse of forward loading, i.e. one starts by
loading the test or assembly stage and then progressively loading the lower
levels until one gets to the lowest level. The disadvantage with this method is that
one often runs out of time at the lower levels, and then forward loading has to be
done to arrive at the earliest delivery date for that particular order. To avoid this
running out of capacity at lower levels one should subtract the overall cycle time
from the due date to see if one gets a negative answer - if YES, then forward
load.
Determination of Realistic Delivery Dates
Where production is to stock of finished goods, the production programme will
have been loaded to check the validity of the programme, i.e. loaded to infinite
capacity. Even though capacity is available overall, it is still necessary to load the
individual production orders to finite capacity in order to ascertain any imbalance
of facilities at that time. There is usually no problem in giving delivery dates, as
deliveries are "ex-stock".
Where production is to customer order, but the component parts are
manufactured to stock, the loading is in areas are, one must first check
availability of parts. If parts are not available then loading of assembly areas
cannot be done until all the parts are available; normally one would not have to
wait the full cycle time of the part as a replenishment order is, most probably,
already going through the manufacturing cycle.
Where production is to customer order only, it usually means that each order is
unique and that most components have to be made or bought for that order. It is
also quite common for the design and drawing office to be involved in preparing
the specification, bill of materials and drawings for the finished product and its
components. It is essential that these departments are also loaded, in order that
a realistic delivery date can be determined. Also if any special tooling or test
equipment is required these must also be loaded into the appropriate duration.
Only when all the facilities to be used are loaded to finite capacity can a realistic
delivery date be given. A simple network or Gantt chart is the usual way of
showing the sequence of events and simple loading charts can be prepared to
show the load against capacity.
Adaptive Loading
When you fail to meet a production programme it is necessary to carry out
adaptive loading. This simply means the re-loading of overdue work into forward
available capacity before loading any new work.
Further background information can be found from Russell and Taylor (1999)
Chapter 14
LESSON 3 OVERVIEW
Materials Requirement Planning (MRP)
In this lesson MRP and MRP 2 systems are considered with the following areas:
MRP inputs, comparisons with 'stock replenishment,' structure diagrams, orders and
requirements, level by level analysis, netting and batching, MRP outputs, benefits and
drawbacks, MRP 2 introduction.
AIMS & OUTCOMES

Aims :
To develop a strategic understanding of 'Material Requirement Planning'.

To appreciate the structure and applications of 'Manufacturing Resource Planning.'
Outcomes : When you have completed the lesson you should be able to:
Outline the required inputs to MRP

Understand MRP system outputs
Initiate improvements to the operation of an MRP system
Detect faults in an MRP system operation.
Analyse the suitability for an MRP system
Understand the principles of MRP 2.
3. MATERIALS REQUIREMENTS PLANNING

3.1 Materials Requirements Planning (M.R.P.)
MRP Inputs
M.R.P. as the name implies, is the breakdown of requirements of lower level
assemblies, components and raw materials and the planning of orders to cover
these requirements, in order to provide what you want, when you want it and at
the same time optimising inventory costs.
The ideal inventory control situation, for which we all strive, is to arrange for all
manufacturing inventory to be in process such that every item is consumed
immediately (by entering the next stage of conversion) upon completion of
receipt.
There are three questions to be answered in any inventory control system:
1. When do you order?

2. How much do you order?
3. What level of investment do you accept?
Two rules to remember in inventory control:
1. Never call for delivery until it is needed.

2. Always try to hold stock at the lowest inventory level.
The two basic methods of inventory control which attempt to answer the above
questions are:
1. Stock replenishment.
2. M.R.P.
In the first case the re-order level and re-order quantity, are fixed by using
formulae that take into account stock holding costs. In the second case, M.R.P. is
designed to translate the production programme into time phased net
requirements and to provide coverage for these requirements.
One of the big problems in inventory control is caused by changes to
programme. In stock replenishment systems it is not possible to amend all your
ROL's (reorder levels) and ROQ's (reorder quantities). With M.R.P. it is possible
to reassess your requirements and hopefully do something about them.
In order to do M.R.P. we need to have certain information:
1.
2.
3.
4.
5.
A master production programme.

A bill of material (BOM) for each product.
A reasonably accurate cycle time for each item in the assembly.
A reasonably accurate lead-time for all bought out components and raw
materials.
A good stock recording system.
Having said that, the main aim is to provide what you want when you want it and,
at the same time, to optimise inventory cost, let us now see how we set about it.
It is essential to understand the relationship between orders and requirements
and the principle of level-by-level analysis. To explain this it is perhaps best to

look at the way a computer package tackles the problem. A computer is really
necessary to do M.R.P. in a reasonably sized organisation.
Structure Diagrams
The way in which an assembly is made, can be represented by a structure
diagram. It is essential that this diagram will represent the way the product is
actually made. The BOM is originally produced at the design stage and may not
represent the way that the product is physically made. It therefore needs
checking before its incorporation.
The objective now is to "explode" the assembly to find out how many of each
sub-assembly, component and raw material items are required. The term "level"
is used to denote the level of breakdown at which a sub-assembly or component
occurs. The different levels can be shown by suitable indentation of the BOM.
The indented explosion shows the requirements of each item, at each level,
required to make the product. This explosion can be summarised to show the
total number of each item to make the product.
A further advantage from this type of system is the ability to use the information
to provide a "used on" list for specified components. The term used to describe
this process is "implosion".
Orders and Requirements
The relationship between orders and requirements is fundamental to an
understanding of the principle of M.R.P.
Suppose product A is made up of components B, C & D and an order for a
certain quantity of A is received.
In order to satisfy that demand an internal order for the required amount of A
must be placed thus authorising the manufacture. The placing of an order for A
generates requirements for B, C & D. To reserve the appropriate quantity of B, C
& D the requirements each retain the identity of their "used on" order i.e. the
order for A.
In order to get B, C & D orders must be placed. These orders are called
COVERING orders to which each requirement is linked by retaining the orders
identity. The requirements are now linked to both the "used on" order and the
covering order.
Level by Level Analysis
One of the most important techniques in M.R.P. is the level by level analysis of
the production plan.
Consider the breakdown or explosion of a product A. The final assembly of A is
said to be at level 1. The assembly A requires two sub-assemblies B & C, and a
piece part D; these are said to be level 2 items. B & C require further assemblies
and piece parts, which will be level 3 and so on down the structure.
To make A by a certain date it is necessary to ascertain the dates by which the
various sub-assemblies and piece parts are required via a backdating operation
(backward loading). The subtraction of the cycle time of A from the due date of A
will give the due dates for B, C & D. In turn the subtraction of cycle times for B, C
& D from the due dates of B, C & D will give the due dates for D and E on B and
B & D on C. It should be noted that the required dates for D & E on B may be
different from those for B & D on C depending upon the cycle time of B & C.
A part appearing on more than one level gives rise to a basic problem of
provisioning. It is by no means uncommon particularly with standard ex-stock
items such as fixings and fastenings. The problem is solved, by processing all
the requirements, for same part, at the same time, so that free stock can be
allocated to the earliest requirements and batched orders can be placed to cover
the remainder. In order to do this the LOWEST LEVEL on which a part appears
is retained for all requirements.
The production plan can now be processed level by level. This does not imply
that batching will be taking place but it does mean that the complete requirement
status is available before ordering takes place and that each parts stock data is
accessed once only.
Netting and Batching
Netting and batching is the process of setting the stock and on order position
against the requirements to arrive at net requirements and then ordering the
remainder in accordance with predetermined batching rules.
Details of the current stock position, re-order method and cycle time for each part
are held along with the requirements information and order details. The table
below illustrates some of the facilities of netting and batching; the problem in this
example is the provision for the manufacture of 10 A's by week 50.
STOCK POSITION
Part Time Order
Method
Free
Stock
REQUIREMENT DATA ORDER DATA
Al. Stock
Pot.
Stock
Bef
Aft
Bef
Aft
Bef
Gross Net Wk Used Cov Cov Cov

Req Req Req on Ord Ord Ord
Qty Due ID
Aft
NB
10
10
50 None 10
50
A1
NB
10
44
A1
44
C1
NB
41
C1
41
B1
10
10
44
A1
10
44
B2
13
37
B1
20
37
E1
13
10
40
B2
12
12
17
20
35
E1
12
12
17
10
37
B1
D1
12
12
10
10
40
B2
D1
12
12
16
41
C1
12
12
16
10
44
A1
20
19
35
E1
E
D
2
2
B20
B25
NB
Key :
NB
B20
No batching
Batches of 20 etc.
E1
25
25
35
41
D1
D2
D2
19
53
F1
Allocated stock
Free stock
Potential stock
B1 etc
Reserved physical stock on hand.

Unallocated physical stock on hand
Available stock from orders not complete
First order for B etc.
The following steps indicate the way in which netting and batching is applied:
1. Product A has a requirement for 10. As there is no stock and batching is

2.
3.
4.
5.
6.
7.
8.
9.
not allowed, an order for 10 A's is placed for completion by week 50.
This order generates requirements for 10 B's, 10 C's and 10 D's for week
44, i.e. the start date for assembly A.
The part C is not used at lower levels, so it can now be completely
covered. The 1 free stock of C is allocated to this gross requirement,
giving a net requirement of 9 C's. Since C's are not batched, this results
in an order for 9 C's for week 44.
This generates gross requirements of 9 B's and 9 D's for week 41 as the
cycle time for C is 3 weeks.
Both requirements for B have now been generated, so B can now be
covered. The free stock of 2 is allocated to the earlier requirement and
two orders are placed; one for 7 B's in week 41 and one for 10 B's in
week 44.
These orders generate requirements for D & E (7 of each for week 37
and 10 of each for week 40.) E is now at its lowest level and can be
covered.
E has two requirements (7 week 37 & 10 week 41) and has no free
stock. It can be ordered in batches of 20 and this is done to cover the
first requirement - the second requirement is automatically covered by
the same order. Note that a potential stock of 3 remains unused.
D has now reached its lowest level and can be covered. The earliest
requirement is for 20 for use on E1. The free stock of 12 is allocated and
the balance of 8 is covered by a batch order for 25. This leaves a
potential stock of 17 that covers the next requirement of 7 on B1 and 10
on B2. There is now no potential stock to cover the requirement of 9 on
C1 so another batch is ordered. This covers the next requirement for 10
on A1 and leaves a potential stock of 6.
Part F can also be netted and batched at this stage. Although there are
two positions on the structure where F occurs, only one requirement is to
be covered, since both are covered by E1, the batched order for E.
a. This completes the provisioning for A. The actual work carried out is
shown in the order data at the right hand side. Note that each
requirement is related to both its covering order and its used on order.
Bill Of Materials
In summary, then, M.R.P. is a computational technique that converts the master
schedule for end products into a detailed schedule for the raw materials and
components used in the end products. The detailed schedule identifies of each
raw material and component item. It also tells when each item must be ordered
and delivered so as to meet the master schedule for the final products.
M.R.P. is often considered a subset of inventory control. While it is an effective
tool for minimizing unnecessary inventory investment, M.R.P. is also useful in
production scheduling and purchasing of materials.
The concept of M.R.P. is relatively straightforward. What complicates the
application of the technique is the sheer magnitude of the data to be processed.
The master schedule provides the overall production plan for final products in
terms of month by month, or week by week delivery requirements. Each of the
products may contain hundreds of individual components. These components
are produced out of raw materials, some of which are common among the
components. For example, several parts may be produced out of the same sheet
steel. The components are assembled into simple subassemblies. Then these
subassemblies are put together into more complex assemblies - and so on, until
the final product is assembled together. Each production step takes time. All of
these factors must be incorporated into the M.R.P computations. Although each
separate computation is uncomplicated the magnitude of all the data to be
processed is so large that the application of M.R.P. is virtually impossible unless
carried out on a digital computer.
M.R.P. Outputs
The M.R.P. program generates a variety of outputs that can be used in the
planning and management of plant operations. These outputs include:
1. Order release notice, to place orders that have been planned by the
M.R.P. system.
2. Reports showing planned orders to be released in future periods.

3. Rescheduling notices, indicating changes in due dates for open orders.
4. Cancellation notices, indicating cancellation of open orders because of
changes in the master schedule.
5. Reports on inventory status.
The above outputs are called primary outputs but in addition, secondary outputs
can be generated by the M.R.P. system at the users option and can include:
1. Performance reports of various types, indicating costs, item usage,
actual versus planned lead times, and other measures of performance.
2. Exception reports, showing deviations from schedule, orders that are

3.
overdue, scrap and so on.

Inventory forecasts, indicating projected inventory levels (both aggregate
inventory as well as item inventory) in future periods.
MRP Benefits & Drawbacks
M.R.P. is the most widely used production management system in both the U.S.
and Europe but it is well known that there are fundamental drawbacks. The
benefits include:
1. It is really the only long term planning tool for manufacturers of complex
2.
3.
4.
5.
6.
goods.
The ability to pinpoint the progress of manufacturing and the size of
inventory at any given time.
The ability to give accurate dates for manufacture at the point of order.
Engineering changes and shop floor work orders are tightly controlled.
Order quantities can be controlled to meet requirements.
It is compatible with traditional Western accounting techniques and there
is a wide choice of software to choose from.
Drawbacks with M.R.P. include:
1. Serious problems maintaining file integrity, and the consequent need to
set up procedures to attempt to achieve database security and accuracy.
2. It is capacity insensitive in that it can call for production capacity that

does not exist.
3. It lacks any strategy for quality control, production smoothing, line
balancing, preventive maintenance and other improvements in the

production process and it encourages managers and workers to achieve
"ad hoc" manual override.
The fact that many companies struggle to achieve successful computerisation

with M.R.P., let alone achieve the management control, which should lead to
further improvements, is the main reason why many companies are now turning
to alternative methods.
For further details see Russell R S, Taylor B W, (2000), Chapter 13
3.2 M.R.P. II: Manufacturing Resource Planning
Material requirements planning has changed significantly over the years.
Four steps can be identified in the evolution of M.R.P.:
1. An improved ordering method
2. Priority planning
3. Closed loop M.R.P.
4. M.R.P. II
The first step was implemented when initial use of the computer was made to
perform the requirements planning calculations. Before the computer this task
was performed manually and consumed tremendous amounts of time and
manpower to accomplish. Computerized M.R.P. systems represented a
tremendous improvement in the ordering of raw materials and components
because of the speed and accuracy with which the requirements planning task
could be performed.
The need for the second step in M.R.P. evolution grew out of attempts to
implement step one M.R.P. in conjunction with an unrealistic master schedule.
This was a master schedule that ignored the limitation imposed by plant capacity
and other constraints. It caused the M.R.P. processor to generate schedules and
requirements that could not be accomplished in the factory. As a result, the use
of shortage lists continued. To overcome these problems, the M.R.P. systems
began to incorporate priority planning into their computations. The term "priority
planning" denotes an M.R.P. system that determines not only what materials
should be ordered but also when those materials will be required. The planning
of material requirements can be phased into time periods (weeks, or even days).
Priority planning not only provides a means for dealing with urgent jobs by
increasing their priorities but it also helps to un-expedite jobs whose priorities
have been reduced.
The next step, the introduction of closed loop M.R.P., is an improvement over
step two M.R.P. because it not only plans the priorities, but also provides
feedback information, relative to executing the priority plan.
Closed loop M.R.P. means that the various functions in production planning and
control (capacity planning, inventory management, shop floor control, and
M.R.P.) have been integrated into a single system. It also means that there is
feedback from vendors, the production shop, and so on, when problems arise in
implementing the production plan.
Closed loop M.R.P. represents a significant achievement in terms of tying
together the various separate functions of a production planning and control
system. However, there is one final step in the evolution of M.R.P. This fourth
step involves a link-up between the closed loop M.R.P. system and the financial
systems of the company. Manufacturing resource planning is the name given to
this combination.
M.R.P.II possesses two basic characteristics that go beyond closed loop M.R.P.:
1. It is an operational and financial system
2. It is a simulator.
The operational and financial system makes M.R.P.II a company wide system,
concerned with all facets of the business, including sales, production,
engineering, inventories, and cash flows. In all cases, the operations of the
individual departments are reduced to the same common denominator: financial
data. This common base provides the company management with the
information needed to manage it successfully. For example, raw materials on
hand can be converted into their equivalent cost and summed over all stocks in
inventory. Work in process can be evaluated by adding raw material costs to the
cost of labour turned in against the particular part numbers and orders. Other
operating data can be expressed in money terms by a similar calculation
procedure.
M.R.P.II is also a simulator which is intended to answer "what if" questions. The
simulator can be used to simulate the probable outcomes of alternative
production plans and management decisions which are under consideration.
Most manufacturers are by now more than familiar with the philosophy of
M.R.P.II. About 70% of all manufacturing companies use M.R.P. systems in the
UK, although usage is more concentrated among larger companies.
M.R.P.II is a "push" system, in the sense that a forecast is generated at the
outset and a manufacturing plan developed to meet those demands. The plan
then drives the manufacture through the issue of work orders. M.R.P.II is
essentially a computerised database of parts, components, finished goods, work
in progress and requirements.
Chapter 13
LESSON 4 OVERVIEW
Just In Time Manufacture and Management of Constraints
In this lesson inventory management using the 'pull principle' is explored in the following areas:
JIT : JIT background, implementation, targets, drawbacks, characteristics. Management

activities, purchasing and suppliers.
OPT : Background to OPT, advantages and drawbacks, bottlenecks, drum buffer rope
scheduling.
TOC : Theory Of Constraints philosophy, steps, measures of performance, impact.
The module assignment is introduced with this lesson with the problem based on a case study
(case study 1).
AIMS & OUTCOMES

Aims :
To develop an understanding of the requirements and applications of JIT systems.

To develop an appreciation of constraint management philosophy and use.
Outline the benefits and risks involved in the introduction of JIT systems.
Appreciate the requirements for JIT implementation.
Understand the principle of 'drum-buffer-rope' scheduling.
Understand the use and benefits of OPT.
Apply the 'Theory Of Constraints' through the required steps.
Apply measures of performance using TOC philosophy.
4. JUST IN TIME MANUFACTURING AND MANAGEMENT OF CONSTRAINTS

4.1 Just in Time (J.I.T.) Manufacturing
Just in time manufacturing, which became popular in Japan during the early
seventies, developed by Toyota into a complementary set of some 40 J.I.T.
techniques and approaches, has assumed some of the mystique of an oriental
philosophy.
Some descriptions of J.I.T. suggest that it comprises of a whole series of
complex and sophisticated techniques. It is not. Others imply that it is capital
intensive, involving heavy investments in technology. It does not.
But this is not to say that J.I.T. is easy to implement, nor necessarily low cost. In
fact, J.I.T. involves an ongoing process of continuous improvement. As such,
success with it demands intense management commitment, often requiring

extended periods of expensive consultancy time with outside specialists.
One of the attractions of J.I.T. manufacturing is its simplicity. The goal of J.I.T. is
the production and delivery of the required items, at the required time and in the
required quantity. J.I.T. has been labelled a "pull" or "demand driven" system
because nothing is produced until just before it is needed. Demand for parts and
finished goods therefore "pulls" goods through the system.
J.I.T. techniques were first developed in the U.S. but adopted in industry by the
Japanese. J.I.T. methods were notably used in the building of the Empire State
Building, where limited space in Manhattan meant deliveries had to be made on
demand in small quantities.
In recent times Japanese industry have perfected J.I.T. systems, and all the
major car, electronics and consumer goods manufacturers have adopted the
methods, along with the associated "re" system which was developed at Toyota.
"Kanban" involves the use of cards or other signifiers to prompt action at the
"upstream" manufacturing process. A simple example is at MacDonalds, where
an empty holding tray signifies to the cooks to prepare more food, while a full tray
signifies for them to stop.
In manufacturing, J.I.T. is a risky philosophy because inventories are kept to a
minimum and planning is short term. It is therefore necessary to have a number
of simultaneous objectives, including zero defects, zero set-up times, zero
handling, zero breakdowns, zero lead times and a batch size of one. Hold ups in
production are enemy number one - faulty goods are eliminated by total quality
control techniques, while breakdowns are avoided by adopting preventative
maintenance of the same thoroughness that you might see in use at an aircraft
operator.
Effective J.I.T. systems enable manufacturers to produce high quality goods at
short notice, with low inventories and high productivity of labour. Manufacturers
that use J.I.T. are generally profitable organisations with a very high level of
management control.
The ease with which J.I.T. can be understood belies the extreme difficulty which
all manufacturers experience when attempting to implement it. J.I.T. involves
cultural changes at every level within the factory and among suppliers, and even
customers. Suppliers are effectively viewed as part of the manufacturing chain
and so the J.I.T. philosophy of producing small quantities of high quality goods
on demand must be acceptable to them. A supplier will only be able to do this if it
is given long-term contracts and detailed and regular planning information.
Inside the factory, production lines will have to be rearranged allowing for line
balancing, and workers must have multiple skills and be able and willing to help
others on the line. One fault can hold up the whole line and is not considered
acceptable. Work orders and lists may be abolished in favour of Kanban cards,
and inventories are reduced or abolished altogether. Parts are delivered to the
point of manufacture.
Design also needs to be changed along "group technology" principles to ensure
that smooth production can be achieved along with maximum flexibility. The
more duplication of parts the better. New machining and assembly systems may
be required to ensure the ability to change quickly from making one model to
another. Managers, workers and even accountants will have to be re-educated in
the new philosophy.
The computerisation of J.I.T. is at an early stage and is in no way systematic. It is
sometimes said that J.I.T. involves no computerisation, but in practice this is, of
course, not the case. A Master Production Schedule is still required to calculate
optimal manufacturing in terms of costs, lead times and use of resources. A
planning system, derived from sales and forecast information, is also required,
particularly as J.I.T. aims at smoothing production as much as possible. This may
be incorporated into a production control (M.R.P.II) suite although some
manufacturers actually use standard office software for this. J.I.T. also places a
high value on up to the minute accurate information and computer based
systems are widely used for this. These systems may be used for transmitting
Kanban type demands up the production line, as well as for transmitting
information out the door to suppliers, either directly or through the use of
electronic data interchange networks.
The need for optimisation of all resources at a low level also calls for a high
degree of computerisation. Machine tools, for example, must be closely
monitored as part of the preventative maintenance programme, while the ability
to quickly switch from machining one model to another increasingly involves the
transmission of stored programs electronically.
This is still very much an area of debate. There is little doubt that J.I.T. involves a
certain amount of risk taking and users should not shirk from computerisation as
a means of ensuring management control.
J.I.T. can be expensive at the outset, if not in terms of computerisation then in
terms of management effort and consultancy. J.I.T. techniques are risky or
ineffectual without a full commitment from management- aiming for zero
inventory. JIT without a proper quality control programme, for example, will soon
lead to problems.
Most companies in the U.K. moving towards J.I.T. are taking it step by step,
usually with the help of a consultancy. Most sensibly, an inventory reduction and
a quality programme will be introduced along with management and worker
training as a first phase.
Reduction in manufacturing costs through the elimination of waste is the simple
message of J.I.T.; putting it into practice is a little more complex.
Although there are many varied approaches to J.I.T. improvement, there are
common grounds for implementing and these fall broadly across two stages.
The first focuses on preparing the plant, manufacturing processes and products
for more efficient production, and is similar in every manufacturing concern.
1. Analyse the product line - can it be rationalised? Look at parts
commonality; can the types and variety of tooling be reduced?
2. Sketch out process diagrams of production operations - examine them

for high set-up times, rework loops, throughput delays, buffer sites,
storage sizes, inspection points, down time and so on. Focus on
bottlenecks at first for greatest close-in return in terms of increased
throughput.
3. Review work disciplines and working methods across the shop floor -
4.
consider group technology, can machines be rearranged into cells to

provide for minimum set-up time and to minimise the size of buffer
stores? Work with operators to improve housekeeping practices.
Finally, and most importantly, determine current quality control
performance. Right first time certainly, but right at all costs is central to
J.I.T. Poor quality or high variations in quality will hamper further moves
towards J.I.T. Perform, measure, follow up.
The targets of this first round of J.I.T. improvements include:
1. Eliminating anything that doesn't add value - reduce and eventually

2.
3.
eliminate queues, excess stock, over production, prolonged set-ups, high

scrap levels.
Reducing inventory to expose problems in workflow, quality, vendor
supply reliability, tooling and equipment performance.
Producing exact needs at exact time - work using small lot sizes, pull
through production using simplified systems; design work and flow to
facilitate efficiency of material-machine flow.
If these approaches can be assimilated, then the more difficult to manage J.I.T.
techniques, such as using Kanban, master production scheduling, M.R.P.II, and
E.D.I. communication networks linked with a preferred supplier base, can then be
adopted in stages. There is a school of feeling that the next stage of
implementation should centre on a small cell, and once this has been made to
work, J.I.T. can then be progressed by rapidly transferring the skills and
experience round the organisation.
The use of Kanban cards to signify a need to restock is a good example of the
need to go back to basics with J.I.T., rather than immediately looking for high
tech. solutions. Many leading A.M.T. consultants argue that the successful route
to automation is in simplifying, integrating and automating. J.I.T. can be used as
the simplifying element, J.I.T. forms an ongoing cycle of improvement, which can
be viewed as the integrating framework for implementing automation plans.
J.I.T. requires new approaches to measuring the performance of manufacturing,
other than strict monitoring of machine utilisation or output levels. Some of the
"new" indicators can include: - inventory turns, on-time delivery ( $ / day or + / days ), overdue orders ( $ / line item ), quality measurements ( incoming lot
rejection rates, percentage defectives ), work in progress levels, manufacturing
scrap rate, total number of part numbers, amount of warehousing space,
machine up-time, productivity rates and reduction in paperwork.
Not all companies can adopt J.I.T. usefully. It is obviously best suited to a
flowline environment and "one off" job shops would gain little. The higher the
volume and the less the variety, the more useful is J.I.T. Some J.I.T methods will
be useful across the board. Large companies have most to gain because size
ensures stability, but small companies can also benefit.
No matter how it is measured, success with J.I.T. rests squarely with senior
management developing a coherent strategy. J.I.T. needs then to be
championed to involve all levels of the company. It should be implemented in
small bites, with 10% or 15% of the project costs going into training; and if this
sounds expensive, consider the costs of ignorance.
The potential benefits are well known: it provides manufacturing managers with a
strategic framework with which to pursue excellence, product quality, short lead
times, low inventory, rationalise supplier relationships and ensure a smooth flow
of goods on the factory floor.
The drawbacks are less widely known and include:
1. The difficulty in achieving cultural changes to support J.I.T.

2. The necessity to involve outside suppliers who may not share the same
goals.
3. Companies using it may be vulnerable to unexpected problems due to

lack of contingency planning.
4. It becomes less suitable as product complexity increases.

5. It lacks a long term planning method, lacks simulation capability and
currently lacks computer software support.
JIT Characteristics
Small Inventories
Fast Setups
Small Batch Sizes
Frequent Delivery
Flexible Labour
Flexible Equipment
Consensus Management
Integrated Technical Support & Vendors
Management Activities For JIT Implementation
Establish good housekeeping practice: orderliness, tidiness and clarity.

Eliminate obvious waste.
Manage detail: train managers in the techniques used to manage
information.
Develop teamwork: create committees, quality circles or other vehicles
for employee-management interaction.
Install statistical process control.
Install preventive maintenance
Develop production flow: identify and time the demand chain, reduce
setups.
Simplify handling
Establish performance objectives.
Structural simplification.
Purchasing & Suppliers

Emphasis should be on developing long-term relationships with suppliers.
Objective is to reduce costs and increase quality and productivity by:
Involving the supplier in the product design effort.

Reducing the number of suppliers.
Increase technical support provided to suppliers.
Schedule of order releases that encourages supplier to commit

resources.
Lower costs with learning curve effects of long-term relationship.
Increasing communications.
Locating suppliers nearby to reduce their variance and increase
frequency of delivery.
Aiding suppliers in establishing SPC.
Reducing inspection; as quality levels improve.
Improving product design through suppliers innovations.
Increasing detection & correction of defects.
Using standard containers; simplification of part counts.
Obtaining volume discounts through larger purchase commitments.
Chapter 15
4.2 Management of Constraints
Optimised Production Technology (O.P.T.)
O.P.T. is a proprietary system of U.S. origin that differentiates resources into
standard or bottleneck categories, which it schedules quite differently to cut
inventory. But flow is integrated to meet the actual demands of the order book.
Also categorised as a "philosophy", O.P.T. is in practice dependent on dedicated
software. Like J.I.T. it can point to a demonstrable track record.
The goal of manufacturing according to O.P.T. is to make money. This is defined
in terms of three criteria ? throughput, inventory and operating expenses. The
aim is to increase throughput ? defined as the rate at which money is generated
through selling finished goods ? but to decrease inventory and operating
expenses, or an extra hour of idle time.
Factory scheduling is at the root of O.P.T., and the critical factor in scheduling is,
according to O.P.T., the identification and elimination or management of
bottlenecks. It is pointed out, for example, that an hour saved in the set?up time
on a bottleneck resource is an hour saved for the whole system, but an hour
saved on a non?bottleneck resource is just an extra hour of inventory.
O.P.T. bears some resemblance to both M.R.P. and J.I.T. It is not just a
computer system but, like J.I.T., is a philosophy that concentrates on issues such
as quality, lead times, lot sizes and machine set?up times.
O.P.T. assumes that lead times and batch sizes should not be fixed and are
variable according to finite capacity at any given time. This is very different to
M.R.P. which assumes infinite capacity but tries to set up lead-time buckets and
lot sizes.
M.R.P. and O.P.T. are similar in other respects. Both require a large complex
database of product and machine information for the calculation of schedules. If
anything, the O.P.T. system demands more information than M.R.P. in that it
needs to know how the product is made, its route through the factory and set?up
and run times. But much of this data is available from existing M.R.P. systems
that can provide bill of material, routing and inventory information.
O.P.T. is critical of traditional accounting techniques and advocates a switch to

more Japanese like methods where productivity of the plant as a whole is
measured, not of individual machines or departments that may be just creating
stock.
Remarkable claims of 100% success have been made for O.P.T. By its suppliers
and these have been borne out by some independent studies. Although O.P.T.
and M.R.P. have some similarities at the planning level, O.P.T. is probably more
like J.I.T. in the way it concentrates on batch sizes, inventory reduction and
set?up times. Some researchers have said it is a halfway house between the
two.
O.P.T. is marketed as a system which is complementary to M.R.P. and J.I.T. and
which meets the weaknesses of the other two systems.
The benefits of O.P.T. include; it quickly targets problems with quality, high
set?up times and high inventories; it incorporates production and material
requirements planning. It can produces immediate results and incorporates
financial analysis and offers some strategy for labour relations, marketing and for
measuring plant productivity; it is suitable for job?shops, repetitive manufacturing
and the process industry.
Drawbacks with O.P.T. are; it assumes that the production process can be
modelled; it directly challenges traditional cost accounting; it seems to work best
in very complex environments where simulation is required; like M.R.P., it
involves the establishment of a detailed database which must be accurate; it
involves substantial software and hardware investment; and it asks companies to
put their faith in a method which is "owned" by a small company.
It is not surprising, for example, that O.P.T. has produced good results ? every
management that has invested in it to date, has invested significant time and
money in its success. M.R.P. on the other hand has often been sold to the user
as a piece of software and no more.
Companies with complex manufacturing operations would do well to explore
O.P.T. simply on the basis of the glowing testimonies it has received. The fact
that it incorporates planning tools that J.I.T. does not have, makes it an important
alternative to M.R.P.
Smaller companies may find O.P.T. expensive and possibly an overkill, while
J.I.T. may be unsuitable because of the increased volatility of the market or
because there is little repetitive manufacturing. In this case M.R.P. remains the
only option, but it can be combined with a use of J.I.T. techniques where
applicable.
Bottlenecks & Capacity Constrained Resources
A bottleneck is any resource that has capacity equal to or less than the demand
placed on it.
A capacity constrained resource (CCR) is a non-bottleneck that is being utilised
close to its capacity and may become a bottleneck if not utilised carefully.
Basic Principles
1. An hour of production time lost at a bottleneck subtracts one
hour of output from the entire production system.
2. An hour of time saved at a non-bottleneck only adds an hour
to its idle time.
Drum, Buffer, Rope Scheduling
The bottleneck resource is the 'drum'; it sets the rate of all other operations to
match its own, which becomes the 'drum beat' for the entire system.
Buffers are used to prevent unforeseen events from disrupting output. Stock
buffers are inventories of finished goods held in anticipation of market demand.
Time buffers are used before bottlenecks so they can keep working even if the
flow of material to them is disrupted. To prevent the build-up of excess inventory
there must be a linkage between a bottleneck and the processes that feed it. This
linkage is referred to as the rope.
The "Theory Of Constraints' is a development from the philosophy of OPT and
can be applied to a whole organisation rather than just production.
Basic Steps:
1. Identify the system constraints.
2. Decide how to exploit the system constraints.
3. Subordinate everything to the above decision.
4. Elevate the system constraints.
5. If a constraint was broken in previous steps, go back to step 1.
Do not allow inertia to cause a system constraint.
The philosophy uses the following definitions:
Throughput (T)
The rate at which the system generates money (through sales).
Inventories (I)
All the money the system invests in things it intends to sell.
Operating Expense (OE)
All the money we spend on helping to turn Inventories into Throughput.
Measures of Performance
The normal measures are:
1. Profit and loss: Net Profit (N.P).
2. Balance sheet: Return On Investment (R.O.I.).
These can be calculated at follows:
It naturally follows that it is desirable to increase throughput but reduce operating

expense and inventory; however, priorities are often set.
It is considered that it the normal 'Cost World' the priorities are likely to be set in
the following order:
1. OE
2. T
3. I
In the 'Throughput World' the priorities would be:
1. T
2. I
3. OE
The main element in operating expenses is normally the cost of labour and in the
'Cost World' the first priority would be to reduce labour (with subsequent social
consequences), whilst in the 'Throughput World' this is only the third level of
priority. Interestingly Japanese industry has on the whole attempted to increase
throughput whilst retaining labour, when UK industry has tended to shed labour
and not increase throughput.
Impact Of Actions
In any process of improvement the actions taken first will tend to have more
impact than those taken later since after solving the 'more obvious' problems it
will get more difficult to gain impact from further actions. This typically follows the
well-known 80: 20 rule (Independent Variables). A much greater effect can result
by concentrating actions on constraint areas (Dependant Variables).
For more information look at Russell and Taylor (2000) Chapters 11, 12, 13, 14
and 15
Inventory Management Examples
The following questions from Russell and Taylor are suggested for additional
practice (some answers are given at the end of the book).
MRP & Capacity
Questions 13.1-13.5 & 13.9-13.18 pp 686-687
Problems 13.1 P687, 13.16 & 13.17 pp 694-695
JIT
Questions 15.1-15.11, 15.20, 15.21, 15.24, 15.25, 15.28-15.30 pp 763-764
T.O.C
Example 14.5 P 718
LESSON 5 OVERVIEW
The Management of Quality
Quality control principles for design, suppliers, goods inward inspection, vendor rating, audits and
processes. Total Quality Management (TQM) traceability, documentation, the customer, benefits,
Deming principles, quality circles. Quality systems (ISO 9000, 2000) and audits
AIMS & OUTCOMES

Aims :
To apply the 'zero defect' philosophy based on the cost factors related to quality.
Outcomes : -
When you have completed the lesson you should be able to:
Appreciate the use of 'quality circles.'

Apply ISO 9000 requirements to a system.
Set up a quality audit.
Appreciate the benefits of 'Total Quality Management' (TQM).
5. JUST IN TIME MANUFACTURING AND MANAGEMENT OF CONSTRAINTS

5.1 The Management of Quality
Objectives
The primary objective of any quality management system should be to define a
series of performance standards, which are compatible with the products being
manufactured and the customer's requirements; furthermore, this objective must
be achieved at minimum cost. This can be accomplished only by a company
which recognises that total commitment and involvement are essential at all
levels, and is prepared to apply the latest techniques. However, these
performance standards will not be static because the demands of customers will
change, and the level of competition will increase. Thus, as secondary objective,
it will be necessary to operate on the basis of continuous improvement in order to
maintain a competitive lead.
Any company wishing to achieve real and lasting success should have as part of
its overall objective the attainment of standards of quality that can stand
comparison with the world's best. This means that the company should be
working continuously to improve its standards at all levels and in all areas.
For example:
product design - design fit for function

product engineering - process fit for design
supplier relationships - supplies fit for production
customer service - service fit for products.
Costs
Until recently the true costs of quality were not generally recognised, probably
because the wrong question was being asked. The question that should have
been asked was 'What is the total cost to the company of quality failures?' and
not 'What is the cost of an inspection system?
1. The costs and savings of a total quality approach

Savings
Cost
Cost of producing scrap and Redesign of products

defective items
Cost of rectifying faulty

items
Alteration of processes and

tools
Cost of goods-inward
inspection and returns
procedures
Development of selfinspection Development of

supplier auditing
Cost of customer complaints Development of improved

and claims
customer relations
Cost of inspectors and lost
time programmes
Continuous improvement
2.
3. The costs and savings of a quality inspection system
Savings
Cost
Costs of defective items

reduced
Inspector's wages and lost

time Rectification work
reduced.
The major difference of approach is obvious. In (1) the broad view is taken; all
the factors that contribute to the costs of quality, and all the savings that can be
achieved, have been taken into account. This is not the case in (2), which looks
at the situation in a narrow and selective way.
Quality Control Principles
Like all management control systems, quality control is based on the closed- loop
principle. A typical application is shown illustrating how the faults found by
inspection should be recorded and analysed, and the results used to tackle
apparent areas of weakness so that, whether the weakness is in design,
production or supply, the company can move closer to the ultimate (and unachievable!) objective of zero defects at zero cost. Generally such defects are
now measured in parts per million (ppm).
The work of the quality control department can be broken down into six functional
control areas:
1. design
2. suppliers
3. processes
4. traceability
5. documentation
6. customers
Quality Control and Design
A number of 'tools, or techniques can be used to check out a design from a
quality point of view, and it is one of the functions of the quality control
department to ensure that these techniques are used by designers, and to assist
where necessary. The tools concerned are:

Failure modes and effects analysis (FMEA) Critical parameter management
(CPM) Quality function deployment (QFD) Failure modes and effects analysis
FMEA is designed to predict the failures that might occur in a sub-assembly or
component, the effects that such failures might have in the operation of the full
assembly, and what steps could be taken to prevent the failure and its
consequent effects. FMEA is a formalised approach to the problem of evaluating
a design from a quality performance point of view. It answers the question is this
product fit for the purpose for which it was designed? and is based on a matrix
which evaluates each part in terms of risk priority number (RPN).
This RPN indicates the degree of correlation between a part and a failure mode
Quality Control and Suppliers
There are three possible areas where quality control could be involved with
suppliers, although it should not be necessary to apply all three since (2) and (3)
probably make (1) unnecessary.
1. Goods-inwards inspection.
2. Vendor rating
3. Supplier audits.
Goods Inwards (GI) Inspection
If satisfactory supplier audits and vendor rating systems are in operation, it
should not be necessary to carry out goods-inwards inspection on goods
received from recognised suppliers. However, if the other systems have not been
implemented it may be necessary to inspect key items qualitatively and some
random quality checks are also advisable, particularly on new suppliers or when
only vendor rating is being used.
If some form of ABC classification system is in operation (high-value items, class
A; medium, class B; low, class C), an inspection policy can be specified, for
example:
class A 100 percent inspection

class B sample inspection
class C no inspection.
If possible, computer records should be kept for all GI inspections, so that these
can be analysed as a part of the overall quality management system and to allow
any trends to be identified. An area of the goods-receiving bay should be set
aside for inspections, and any goods that are not acceptable should be
transferred to secure quarantine area.
Vendor rating
The objective of a vendor rating system is to ensure that suppliers are, at least,
maintaining the required standards of quality and service, and to monitor any
agreed improvement plans. Vendor rating can also be used by Purchasing to
select a supplier if single sourcing is not in operation.
If a computerised purchasing system is in use, suitable software for vendor rating
may be included in the module, but if not the company may need to devise a
system, based on a spreadsheet package that allows for entry of data in a
number of categories, for example:
Price stability
Are prices held stable for reasonable periods of time?
Delivery promises
Are these reasonable for the type of supply?
Delivery on time
Are deliveries generally on time?
Quality of goods
Are quality standards maintained?
Accuracy of documents
Are advice notes and invoices correct?
Certification
Are test certificates in order?
However, it is unlikely that all these categories will be used by one company, and
the choice will depend on the type of business.
The assessments should be carried out regularly (say twice yearly) on the
information collected during the six month period, and if a purchasing system is
available, some of these data could be obtained by creating special reports, e.g.
a delivery performance (delivery on time) report.
Supplier audits
The objective of supplier auditing is to, assist suppliers to achieve the customer's
required standards of quality and service. This is usually done by a series of
visits to the suppliers' premises by customer's quality audit team during which
performance in relevant areas is assessed and measured.
If the 'score' in a particular area is below standard, the audit team may
recommend changes in systems, procedures and policies designed to improve
the position. This is obviously a sensitive area and can only work if there is a high
level of mutual trust, respect and partnership. If a supplier meets the required
standards, a certificate and rating may be awarded (e.g. Ford Motor Company's
Ql), which is often used by a supplier as a selling feature. However, in order to
retain this status (approved supplier) it will be necessary for the supplier to
maintain and continuously improve performances.
Quality Control and Processes
To maintain quality control over a process it is necessary to set up a system of
measurement, and to analyse the measurements, in order to detect where faults
are likely to occur if an apparent adverse trend is not reversed.
Four techniques must be considered in this context:
1. Process capability
2. Statistical process control (SPC)
3. Sampling
4. Calibration control
5.2 The Management of Quality
Quality Control and Traceability
In many industries and product areas it is essential for quality management to be

able to identify which materials and processes have been used on a batch of
products; also, in some cases, it is necessary to know the customers who have
bought those products, so that if a problem arises it can be investigated with all
the available facts being known.
The require level of traceability depends to a considerable extent on how I safety
critical, the product is. For instance, all products in the aerospace or food
industries would have very high traceability rating levels, whereas the products
from a decorative tile maker might have basic ratings. Alternatively, a maker of
nuts and bolts might need high traceability on some products and intermediate or
even basic on others, depending upon the application.
The required traceability level for a product can be classified into one of the
following three categories.
Basic In this case traceability is required only to tackle problems

involving cost, for example if scrap levels are too high. in such cases the
customer is unlikely to be affected.
Intermediate In this case the problem could involve customer claims
and rejections but there is no safety factor involved, for example a high
number of complaints about product life requiring a supply of
replacements.
High In this case the problem will certainly involve customers and
there could be a risk of consequential claims, for example an accident
caused by faulty brake parts on a car, or an outbreak of food poisoning.
in such a situation it may be necessary to recall some or all of the
product for examination, and perhaps modification or rejection.
Typical techniques for obtaining traceability information are:
Purchasing All purchased items used to manufacture the product will be received into
stock and held as totally discrete lot, each being recorded against a lot number: this will
be cross-referenced to the supplier's delivery note and probably some form of
documentation, for example a certificate of conformance, a test certificate or a chemical
analysis. Such lots should never be mixed in a production batch where traceability is
required, and should therefore be held in separate stock locations.
Production Full records should be kept of all production batches such that, at some
future date, it would be possible to know the operations or processes carried out, by
whom, on which machines, with which tooling and on what day/shift. These records
should also include full details of any inspections carried out (first-off, patrol, sampling)
and any other information that may be relevant. Production batches should never be
mixed if traceability is required.
Sales Where full or intermediate traceability is required, each product should be coded
with a serial or batch number and each of these numbers should be traceable to a
customer. In addition, sales should maintain complete records of all customers
complaints and claims, so that this information can be used by quality management to
identify potential problem areas.
Quality Control and Documentation
Apart from the obvious records that should be kept by quality management
(inspection record, calibration records, warranty claim investigations, etc) the QC
department should be responsible for maintaining the quality manuals and

standard procedures. These should specify exactly how work should be done
and what record should be kept: this information is needed as part of the ISO
9000 certification process. A typical example is shown in appendix.
QC should also be responsible for issuing certificates of conformance (CofC) or
test certificates which are required when certain types of product are despatched
to a customer. These certificates are a form of guarantee, stating that the
products listed conform to a standard that has been specified by the customer
and agreed by the supplier.
QC may also be involved in the issue or receipt of concession documents, which
are used to certify that a product or batch does not fully meet specification but
will be accepted by the customer, often at a lower rate. Concessions can only be
used internally, but in this case the production department is the 'supplier' and
the QC department the 'customer'.
For example, it may be that a batch fails the sample check acceptance level by a
small margin and should therefore be rejected, but because of special
circumstances is accepted under the concession system.
Quality Control and the Customer
One of the main functions of the QC department is to ensure that customers
receive goods of a standard up to, or above, their expectations, at a competitive
price. it is therefore important that QC know what these expectations are, and
this can be achieved only by market surveys and investigations into complaints.
Quality, from a customer point of view, is difficult to define because it is partly
subjective and therefore hard to measure, but is generally judged on three
factors:
Quantitative does it perform its design functions effectively?

Qualitative does it look or feel good, without blemishes?
Duration - does it have an acceptable life expectancy?
It is the function of QC to answer these questions, and to do this it must be able

to set up the necessary tasting, checking and control procedures, on the basis of
some of the principles put forward by Dr Genichi Taguchi. This Taguchi
methodology is based on a concept known as the quality loss function, which
states that every design parameter has a target value, with upper and lower
control limits on either side of the target.
If, as ought to be the case, the target value is set to match the desires of the
customer, then any deviation will suggest a reduced level of satisfaction, and the
higher will be the level of dissatisfaction. In other words, to keep the customer
happy, the aim should be to keep as close to the target as possible
The QC department should therefore work closely with the sales and marketing
department to monitor these deviations and to compare them with customer
complaints and the results of customer satisfaction surveys so the, where
necessary, designs or processes can be modified to reduce the deviation values.
Customer Services and TQM
The concept of total quality management requires not only quality of product, but
also quality of service, and if this concept is applied in all areas of the company
the benefits can be considerable, especially when it recognises that customers
can be both internal and external.
All manufacturing companies can be visualised as a number of chains, and at
each connecting point there is a 'supplier to customer' relationship. Whether
these are internal or external, the principles of customer service apply. It will be
noted that TQM is not a part of any 'chain, but is an overall concept, affecting
every relationship. Thus, wherever a link exists, the principles should be applied.
These principles can be defined as follows.
Wherever a supplier/customer link (internal or external) exists a strong
partnership bond should be built up which allow both partners will allow both
partners to understand the other's problems and work together to overcome
them.
The Benefits of Total Quality Management
The tasks that make up the quality management function are now complex, due
to fairly recent realisation that the function covers all aspects of an enterprise,
from the specification of a new product through to after-sales services. Every
area of a company is affected by this need to I build in I quality in both products
and services, and this need is complicated by the fact that all such endeavours
must be integrated.
This can be illustrated in terms of the process capability index where the ratio
between design requirements and manufacturing capability is a crucial factor in
ensuring that the resultant products are of the required standard. Other
departments will also be involved in this exercise, for instance the maintenance
engineers, who need to ensure that process equipment is serviced to meet the
demands of accuracy and reliability.
This process of involving and integrating all employees in a total quality strategy
is known as TQM (total quality management), and required full cooperation at all
employee levels, from top to bottom. This means that effective and enthusiastic
leadership must be provided at the top, with compete commitment from all,
including suppliers. The benefits can be well worth the effort in terms of
increased output (fewer rejects), increased sales (more customer loyalty), lower
costs, and improved relations with customer, suppliers and employees.
Applying Total Quality Management
TQM can be applied in any type of business - manufacturing, distribution,
retailing or provision of services - since the same principles apply in every case.
These principles can be summarised in terms of the steps involved:
1. Involve everybody from the start, and make it clear that their
2.
3.
contributions are crucial to the success of the project.

Explain why such a project is necessary in terms of the need to meet
world- class competition and the benefits that can be obtained.
Spread the responsibility, by allowing each department and work area to
attack its own problems, within an overall plan. (Note a)
4. Develop the theme that quality is not just a measure of product

5.
6.
acceptability, but involves such aspects as waste, cleanliness, tidiness

and good housekeeping. (Note b)
Set targets that are achievable in terms of these factors and publicise the
achievement of such targets.
Develop the concept of continuous improvement by encouraging each
department set new targets and to achieve these targets.
(Note a) The spreading of responsibility, in this context, usually involves the

creation of I quality circles, - a Japanese idea which, when modified to suit
Western ideas, allows employees, at department or section level, to meet daily to
discuss the problems of yesterday and the challenges of today. The meetings, if
free from management interference, often generate the best improvement
suggestions.
(Note b) The Japanese use the term '5S' when considering improvements in
industrial housekeeping. This involves the four basic principles of (the fifth 'S' is
for a Japanese word which means commitment to the other four):
seir the removal of unnecessary things
seiton putting everything in order
seiketsu maintenance of cleanliness
seiso cleaning.
Companies that are now using the TQM approach have found that many of the
best ideas and improvement suggestions have come from the least likely source.
They have thus learnt that quality is not the preserve of the experts, since it is
often the case that - given the proper motivation - the person closest to the job
can what need to be done to improve it.
The Deming Principles for Total Quality
The total quality management system relates not just to the technical quality of
the products, but more to the quality of performance of every function in the
company. This recognises that the quality and cost of a product, and the level of
service provided, depend on its design, the lead times, the process reliability, the
choice of materials, and the effectiveness of the supporting functions (suppliers,
administrative staff, indirects, etc.)
The principles that govern the implementation of a total quality system, and
which have proved effective over numerous applications, were originally laid
down by Dr W.E.Deming and developed by others such as Dr J.M.Duran and Dr
K. Ishikawa.
The Deming Principles for Total Quality:
1. Innovate in all areas including training, and provide resources to assist.

Maintain an innovative and vigorous training programme.
2. Learn the 'zero defect' philosophy and the need for continued
improvement.
3. Do not rely upon mass inspection for quality.

4. Reduce the number of suppliers and develop them for continuous
improvement of service as well as cost.
5. Use statistical techniques to identify sources of waste and cure both

system faults and local faults at source.
6. Ensure that organisational and management systems support innovation

7.
8.
9.
10.
11.
12.
13.
and continuous improvement.

Provide supervision with on-line techniques for problem identification and
problem solution via their teams.
Create openness by encouraging questions and the reporting of
problems.
Attack waste by the use of multidisciplinary teams.
Avoid exhortive slogans as a substitute for team approaches.
Beware of over-bureaucratic imposition of work standards.
Provide elementary statistical training to all employees.
Make maximum use of statistical data to focus on priority problems and
direct the effort of all talent in the company.
What distinguishes a total quality company from a traditional one is the way in
which its people think and act; the value that such people place on quality of
performance in every activity, and what they do to improve the quality of their
work. This attitude can be described as a culture, which defines how people at
work share with each other, and how they do things on a daily basis.
The TQM culture cannot be imposed from above, but must be developed by
motivation and encouragement at all levels, based on the realization that TQM is
a means of moving a company to the top of the world-class league.
5.3 Quality Circles and Problem Solving Techniques
Quality Circles
Quality circles are typically groups of four to twelve people who carry out similar
tasks and who generally come from the same work area. These people meet on
a regular basis to identify and analyse problems and to establish solutions to the
problems. The solutions are then presented to management for evaluation and
approval. The circle is then often responsible for the implementation and
effectiveness of the solution.
Through the quality circle a deficiency is identified, corrective action (with
management involvement) is taken to correct the deficiency and action taken to
prevent reoccurrence.
Quality circles relate directly to the quality of the item and/or service and there is
no direct involvement in the activities that occurred previously.
A single quality circle would deal only with problems or subjects related
specifically to its own area of operation, although some solutions may be
applicable to other areas. The application of quality circles is not restricted to the
manufacturing scene - any organisation where numbers of people are engaged
in similar activities, can utilise circle techniques.
Topics are not restricted to product or service related problems. Circle members
will be experts in their particular work activity, so their knowledge and experience
can be effectively utilised in a number of directions, at least to suggest ways of
increasing job enrichment, etc. This in turn will be reflected in the individuals
quality of life, both at work and privately, each favourably influencing their future
attitude and performance at work to both the company's and individual's benefit.
In a well-organised operation, most suggestions made within a circle will be

accepted by management for implementation and, where not implemented, the
management will extensively discuss their reasons for rejection with the circle.
Though somewhat the second prize, this attitude and response in turn enhances
the work force's satisfaction, particularly as the operatives themselves will feel
they have made a worthwhile contribution.
Company-wide Approach
Quality circles can be considered as one of the tools of the total quality
management toolbox, so one should acquire the knowledge to use it properly.
Any philosophy which enhances the quality of the product or service should be
implemented on a company-wide basis. Related direction must come from senior
management who must give not only support but commitment. Through this
adequate resources by way of finance, time and resources (mainly people) must
be made available.
First Considerations
Before embarking upon a circle programme it is important to consider: reasons
for introducing a quality circle programme; associated costs; methods of
establishing the circles programme; education of management and workforce in
the understanding the
programme; training; organisational structure for circles; benefits and advantages
derived implementation; methods of evaluating effectiveness.
Reasons for introducing a quality circle programme
A quality circle programme can produce effective results but is not itself an end to
quality problems. Circles are an improvement technique which, without the
established underlying quality system, are worthless. A circle programme should
be considered as company-wise and not just an isolated technique which can be
switched on and off as effectiveness rises or falls The most generally accepted
reasons are for improvements in:
the quality of the product or service

employee satisfaction
communication
employee effectiveness
company competitiveness.
Each individual company needs to positively establish its particular reasons

before implementing a circle programme, which needs to be made known to the
workforce to solicit their cooperation and enthusiasm and to gauge their reaction
and enthusiasm before final introduction and implementation. The reasons 'why'
are important!
Associated costs
Circles are voluntary in membership but usually meet in company paid time,
which involves related salaries and wages. Additionally it might be considered
necessary to employ a consultant to assist at least in the initial set-up,
development and implementation. Costs associated with the training of personnel
in the application of circles, together with training materials, can be significant,

especially if consultants are used throughout, and/or operation processes are
extensive or complicated.
Methods of establishing the circle programme
A steering committee should be established and the responsibility for the circle
formation should lie with a senior member of staff who has detailed knowledge of
the company activities or processes. An overall leader or facilitator needs to he
appointed and most often comes from one of the three most related areas, e.g.
production, training or quality control.
Once established the steering committee can:
1. Determine the requirements for third parties (consultants)
assistance
2. Define responsibilities and lines of communication with other
circles and management.
3. Communicate to all employees the reasons for, and the
benefits to be derived from quality circles.
Education of management and the workforce
If any potential resistance to plans is anticipated, ideally this is carried out by
third party sources, i.e. consultant, so that much more credence can be given to
the subject. Hence better employee acceptance. The aim is to minimise any
learning period by benefiting from experience gained elsewhere, thereby rapidly
gaining employee interest and maintaining momentum. Full understanding of the
aims and procedures by the workforce from the outset is of vital importance for
the technique's success.
Training
To ensure effectiveness training of the circle team across many areas should be
given including:
Statistical and quality control techniques.

Methods of data collection
Problem-solving techniques
Leadership skills.
Brainstorming sessions
Presentation techniques.
The requirement for statistical and quality control techniques is particularly

important in production related circles and essential where mass production is
concerned. Effective data collection needs to be taught and leadership gained
from training and experience. For problem solving brainstorming techniques are
particularly appropriate for basic/ad hoc groups naturally leading to solution
identification as well as encouraging cohesion of the group. Effective
presentation techniques, as with data acquisition, assembly and interpretation
are a fundamental requirement for quality circles as a conclusion of their
activities.
In general, most facilitators receive training from third party sources. The
facilitators, in turn, are normally responsible for circle leader and member
training. This does have advantages of regulating the rate of progress to that
which is most appropriate to the company.
Organisational structure for circles
Quality circles are voluntary participation activities for the members.
Members become committed through identification with their respective circles
such that they achieve very high efficiency and are instrumental in improving
working conditions as well as product quality. The circle objectives are to identify
problems, develop solutions and then present the complete case to management
for consideration with the view to eventual approval and implementation. The
philosophy of quality circles has been called management from the bottom
upwards'. Management is, in effect, delegating some of its responsibilities to the
workforce! It also leads to a better and more open form of communication, which
can, in turn, lead only to an enhancement in employee-management
relationships.
Membership should be strictly voluntary with no one banned from membership.
Whilst a leader is necessary for -any team, and in this case should be elected
from within the group, it is -important that no further structuring is introduced.
Each member then has equal status and should feel at ease and confident to
make their maximum contribution. Each circle therefore appoints a leader who,
for effectiveness, is usually an existing supervisor.
Circles, to be effective, should liase with each other, so that related problems can
be discussed. There is, therefore, the need for a coordinator - the facilitator between individual circles and management. The facilitator oversees the
development of the circle programme assisting and coordinating the circle
meetings. He will also watch over circles activities, problem identification and
solving, and the eventual implementation of solutions whilst also obtaining the
necessary funding for support.
The circle leaders are primarily responsible for the effectiveness of the meetings
ensuring that all circle members are adequately trained in the problem-solving
techniques.
Benefits and Advantages Benefits accrue initially from the natural formation of
teams which promotes cooperation understanding and appreciation of each
others, role within the Organisation. From this people see more how their input
relates to the whole, which in turn promotes enthusiasm and, through better
understanding of others, induces incentives to learn and progress to further
career opportunities.
Benefits are derived in areas where people work together and experience similar
problems. e.g.
Accounts
Administration
Design/Engineering
Production
Sales and Marketing.
Implementation
Each circle sets itself a project. Smaller projects, which can be quickly
completed, can have a much greater impact upon the well being of the workforce
and the company as a whole, as well as providing early success encouragement
for the group.
Typical activities could be:
office administration control

repair/reworking of rejected items maintenance
productivity improvements design changes
document control invoicing
customer complaints
A schedule should be developed for circle meetings, constraints of the work

scene, and the type of project chosen, dictating the frequency of meetings, but
probably once a week at a predetermined time. The length of the meeting should
be limited, one hour usually being adequate if well chaired. The chairperson
should know reasonably well in advance the topics that are to be raised; should
have some clear idea about what he or she hopes the meeting will achieve; and
should give a guide from the chair without suppressing good contributions. At the
end of the discussion the findings should be summarised and circle approval
sought. (To promote interest and participation, the chairperson can be changed
say every three/six months, if everyone is in agreement.)
A systematic approach should be made to problem solving. The problem causes
should be investigated and solutions discussed and tested. Documentary
evidence should be developed to support the anticipated effectiveness of the
proposed solution. Across circle involvement and information exchange should
be encouraged and experts or specialists can be invited to participate if deemed
beneficial.
Methods of evaluating effectiveness
Much will depend on the nature of the project. Production7related problems,
which have been solved, by circle members, could result in tangible savings in
areas such as:
Reduction in scrap
Reduction in repairs/reworking speed-up in unit assembly.
Elimination of bottlenecks.
Standardisation of components and procedures.
Flexible working
Usually benefits resulting from the introduction of quality circle programmes are:
Improvements in product/service quality and efficiency

Improvements in company communication and co-operation
improvements in management-employee relationships enhanced
operative job satisfaction.
Improvements in quality and efficiency can be measured in monetary
terms.
Improvements in communication and co-operation can be seen in the

improvements in management-employee relationships.
Enhanced job satisfaction should lead to greater feeling of belonging,
and result in a reduction of absenteeism with increased efficiency.
Problem Solving
Quality circles are set up to identify and analyse problems and establish solutions
to the problem. In the first instance it will be necessary to collect all the available
pertinent information pertaining to that problem, and analyse these data and to
discuss and evaluate methods of disposing of, or reducing the effects of, the
problem. Assessment of available data is the first stage of the analysis. The
second stage is to determine what further data should be collected and how
these data should be presented and evaluated.
There are many problem-solving techniques which can be used, but, for relatively
inexperienced groups, brainstorming sessions are an ideal method of obtaining a
large number of ideas, and always work better than individual thought. Each
member of the circle is, in turn, given the opportunity to present his or her ideas
of the possible causes of the problem and their suggested solutions each against
a limited time - usually one minute. The initial session should be limited to putting
forward individual ideas with no other member should interrupting the flow. All
members should be encouraged to contribute no matter how 'way-out' their
contribution may be. A circle leader will list for all to see, usually on a flip-chart
indicating problems caused and suggested remedies. The session continues until
everyone has run out of ideas.
Once all ideas have been exhausted and listed, the circle members will then
evaluate the possible causes of the problems. After full consideration of all
possible contributory factors, the task is to investigate the most likely cause(s) for
the problem's existence.
Once probable causes have been determined the remedies listed can then be
evaluated to decide on the most appropriate solution. Most quality problems are
due to a combination of causes which can be categorized under four headings
(known as the four Ms,): machines, methods, materials and manpower.
Machines would be include production equipment, computers, vehicles,

cleaning equipment or any type of equipment associated with the
business;
Methods would be the procedures or routines associated with carrying
out a task.
Materials would include raw materials, software, stationery, cleaning
material etc.
Manpower covers operator skill and training requirements.
Data Collection
Having decided on the possible solution to the problem, it will then be necessary
to collect all the data associated with the problem area. Certain decisions must
first be made, such as:
Whether the data are to be organised around the type of defect,

employee, shift, or machine
The period over which the data are to be collected.
A check sheet should be designed in order that the information can be collected
with the minimum of effort. The most effective method is to break down the
activity into a number of sub-activities and to evaluate each accordingly. On the
checklist should be recorded the faults, the reasons for rejection and a brief
description of the nature of the fault at each sub- activity stage. Related reasons
for pursuing or rejecting a particular course of action should be listed, and, where
pursued, quantified for benefit.
All pertinent information is collected and arranged in an easily read manner using
say:
Histograms
Pareto diagrams
Scatter diagrams
Cause and effective diagrams (Fishbone/Ishikawa diagrams)
Quantitative charts
Flow diagrams
Once a solution, or solutions, have been agreed upon the circle must then
evaluate the cost of implementing the solution together with the anticipated
savings, and present the findings to management in a convincing manner.
5.4 Quality System Audits
Audit objectives
1. To ensure that the 'Quality Management System' (QMS)
meets the requirements of IS09000.
2. To ensure the QMS is understood by everyone.
Internal Audits provide an opportunity for analysing a QMS 'and identifying ways
in which it can be improved. They are also taken very seriously by the
certification bodies during external audits.
A QMS should define the procedures used for audits and cover the following
points:
responsibility
scheduling
planning
execution
reporting
corrective actions
Responsibility
Those responsible for audits should be qualified, competent, and independent of
the area being audited. A QMS must document how these requirements are
fulfilled.
Scheduling
Audits should be systematic and carried out in accordance with a pre-planned
schedule.
Generally carried out in one of two ways
1. They schedule each department for audit and then they audit all the
IS09000 requirements which apply to that department (functional audit).
Or
2. They schedule all the IS0900 requirements for audit and then audit all
the departments to which that requirement applies (requirements audit).
Functional audits tend to be easier to carry out since boundaries are clear
however they do have some disadvantages:
system deficiencies which have an impact on several departments may

be missed.
processes frequently cross departmental boundaries so it can be
difficult to assess the impact of any given activity on the operation of the
whole process.
each department is audited infrequently and so impact of changes may
not be identified rapidly.
tendency to focus on major requirements in each department can result
in some minor, although still important, requirements being missed.
Planning
Important that audits are carried out systematically, consistently and
comprehensively.
Plan should be based on results of previous audits.
An audit checklist is often of value but it important that this is not just at a
superficial level.
Reporting
Audit procedure in QMS should define information required within audit reports
which is typically:
What was audited, the areas and requirements.

How audit was carried out
Details of deficiencies
Conclusions with identification of potential QMS improvements.
Corrective Action
The reporting of audit deficiencies, implementation of corrective action and follow
up must be documented as part of the audit procedure. If an individual audit
deficiency report is produced it should detail:
report number
auditor
date of audit
function and requirement audited
deficiency found
person responsible for corrective action
proposed corrective action
date for completion
final verification by auditor of action effectiveness.
External Audits
External audits are carried out either by a third party assessing body, or
sometimes by a customer.
They are similar to internal audits and may look at a small number of elements of
IS09000 (a surveillance visit).
Alternatively, they may look at the QMS in its entirety (an assessment visit).
Chapter 3
The following questions from Russell and Taylor are suggested for additional
practice (some answers are given at the end of the book).
Quality Management Examples
Questions
3.4, 3.5, 3.11-3.13, 3.17, 3.19, 3.27, 3.29. pp123-124
LESSON 6 OVERVIEW
Process Capability
This lesson introduces process capability in statistical terms based on known variability and target
values.
Statistical Process Control (SPC)
Statistical process control using variables is introduced
AIMS & OUTCOMES

Aims :
To develop an understanding of statistical process control and its applications
Select a suitable statistical process control method for a given application.

Interpret SPC charts.
Understand the role of SPC in an overall quality system.

Understand the use and benefits of SPC.
Determine the control limits for SPC charts.
Produce SPC charts
6. PROCESS CAPABILITY & STATISTICAL PROCESS CONTROL

6.1 Process capability
Process capability is the link between design and production, because it
measures how capable the production process is of meeting the design
tolerance. In other words, there are two constraints. the design tolerance (limits)
that are set in accordance with the specification (by means of a critical
parameter), and the process capability of the machine or equipment that will
used to make the item concerned. The capability of a production machine or
processes usually defined in terms of a normal distribution' curve of a type
considered later. The probabilities given by such a curve are related to standard
, and in some manufacturing control systems it is conventional to
deviations
relate the output data measurements to 3 (3 x standard deviations) distribution
situation.
The process capability index
is therefore defined in these terms by giving it
a value of I if the 3 tolerance can be met, 1.33 if 4 can be met, and so on.
Thus, the higher the C., value, the higher is the capability of the machine or
process to keep within the tolerances set by the design specification. in fact, in
some types of industry, the six sigma system is used (six standard deviations),
sometimes known as the 'Motorola six sigma'. This demands a very high
functional specification (i.e. very tight control limits) where the
value is 2.0.
The capability index for a process can only be found by experimentation, i.e. by
measuring a representative sample of the items produced by that process and
plotting the results on a control chart. Then the variations found must be plotted
as a bar chart, to check that the conditions fit the normal distribution pattern.
As an example of this procedure (taken from Fox 1993), the diameter of a hole in
a component is design-specified as 20 mm with a design tolerance of +/- 2 mm.
Measurements of the diameter on a number of components gave a mean of 19.5
mm and a sigma value of 0.47.
The formulae used and the calculations performed to calculate the capability
index for this or any other process are given, where UCL is the upper limit, LCL is
the lower control limit and x is the mean value of the measurements. The higher
the value of the better is the capability and therefore the lower of the two values
(I. 06) is accepted, and can be used in the SPC process to be described.
Calculating the process capability index
This process is within capability. If it had been below 1.0 consideration would
have had to be given to modifying the process, or changing the design.
For further information see Russell R S, Taylor B W, (2000), pp 153-155
6.2 Statistical Process Control

Introduction
SPC can be defined as a procedure that uses statistical methods to analyse the
measured results of a process, and uses that analysis to control and manage it.
Because it is statistically based, SPC can predict the probability of an event in
the future and thus allow for adjustments to be made in the process that will
prevent that event from occurring if it is undesirable. SPC is yet another example
of the basic management technique of 'feed-back'.
The above data showed the way in which a process capability index can be
calculated by comparing engineering (design) needs with manufacturing
capability. It also showed how the upper and lower control limits which were a
part of the engineering needs, were used in these calculations.
SPC is therefore operated by plotting the results of test measurements of a
sample of a production batch on to charts, but in this case two charts are used,
one for the average value and the other for the range of readings, related to the
control limits.
Sampling
Sampling id required for quality control, because it is highly uneconomic to carry
out 100 per cent checking on all products and processes. The procedures for
selecting sample size are clearly defined in various standards such as ISO 2859.
These standards specify sampling plans based on the attributes of the products,
indexed by the AQL (acceptable quality level) The AQL is the I only just
acceptable I quality level and is the poorest quality level that can be accepted as
the process average.
Inspection by attributes means that each unit of product inspected is classified as
acceptable or defective; i.e. each unit is considered to have one of these
attributes. This type of inspection system does not depend on the degree of
acceptability or defectiveness, i.e. it is a 'pass or fail, system.
There is an alternative system of sampling, known as inspection by variables,
which does take degrees into account, and operates by considering
measurements made on the inspected items; this system is now widely used.
Such a system is defined in MIL-STD-414 (Sample procedures and tables for
inspection by variables).
Statistical Process Control (SPC).
Control Charts (first used by W A Shewhart in 1924)
A control chart will tell us that one of the following states applies:
EITHER The process control has been achieved at the desired level and
therefore the process should be left to continue.
OR
The process is not achieving the desired level and therefore the
process is 'out of control' and intervention is required.
Causes for variations of the quality:
1. Random Causes
2.
The variation due to random causes can-not be eliminated and are a

function of the process capability. Variations in process will follow a
'normal distribution.'
Systematic Causes
Variations due to a systematic cause involve an out of control condition.
The cause is an avoidable condition that is capable of rectification. When
a systematic cause is detected, intervention is required.
Types of control chart
1. Quantitative performance characteristic (variables).

2.
Values are expressed through some measuring unit (mm etc).

Qualitative performance characteristic (attributes).
Values are determined from 'good or bad,' 'go or not go,' type conditions
from which a measure of defect proportion is made.
Procedure and example

A large sample of 125 observations of the performance characteristic x is taken
in advance. The data are divided into 25 subgroups with n=5 observations in
each of them. If there are not any reasons for a special way of forming
subgroups, they should be arranged in the order of their measuring.
PROCEEDURE
1 Tabulate Results
Further background information can be found from:

Operations Management, Russell R S, Taylor B W, Prentice Hall, ISBN 0-13013092-3, Chapter 4

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IT362 Operations and

Capacity Expansion Strategies

Capacity Expansion Strategies

(b) Capacity lag strategy

(c) Average capacity strategy

(d) Incremental vs. one-step expansion

Average cost per room

Best Operating Levels

Average cost per room

Best Operating Levels

Inputs and Outputs to APP

Inputs and Outputs to APP

APP Using Pure Strategies

SALES FORECAST (LB)

= $100 per worker

APP Using Pure Strategies

SALES FORECAST (LB)

Level Production Strategy

Cost = 140,000 pounds x 0.50 per pound = $70,000

Chase Demand Strategy

Cost = (100 workers hired x $100) + (50 workers fired x $500)

Offer product or services with

Demand Distortion along

Expected number of no shows

IT362 Operations and

The totality of features and

Dimensions of Quality (Garvin)

Dimensions of Quality (Garvin)

Dimensions of Quality (Garvin)

5. Accessibility & Convenience

The Meaning of Quality

Create constancy of purpose

The Deming Wheel

Assess the plan;

Total Quality Management

Customer defined quality

TQM Throughout the

TQM and External

TQM and Customer

TQM and Information

TQM in Service Companies

Quality on the Web

Dimensions of Web Quality

External failure costs

Measuring and Reporting

Quality Costs and Index

Quality Costs and Index

Quality and Productivity

Measuring Yield and

Y = (I)(%G) + (I)(1 - %G)(%R)

Yield = (I)(%G) + (I)(1 - %G)(%R)

= direct manufacturing cost per unit

= $32.21 per motor

Multistage Product Yield

Multistage Process Yield

Quality Productivity Ratio

Case 1: Increase input to capacity of 200 units

Case 3: Increase initial good-quality to 95%

IT362 Operations and

ERPs Central Database

Use of Internet portals can aid

Supply Chain Management

ERP and MRP