Operations Management PERT & CPM

4.
Production Planning & Control

&
PERT / CPM
4. PPC & PERT/CPM 1

Introduction to Production
Planning & Control (PPC)
Inputs from L C Jhamb
(especially chapter 5)
4. PPC & PERT/CPM 2

PPC - defined
Production is manufacturing of goods and / or services
Planning is the series of related & co-ordinated activities demand management,

aggregate sales & operations planning, process planning, materials management
(incl. MRP & Inventory control), Operations scheduling, and others; designed to
systematize in advance the manufacturing efforts. Planning aims to utilize resources
most effectively, to provide the right goods, at the right time, in the right quantity
Control is the review of work progress, make corrections where required; thus
ensuring that the actual is as per plan. Control includes activities such as dispatching,
progressing & expediting
Overall PPC is thus:

Planning production in advance
Setting the run-rate for each item
Fixing starting & end dates for each item
Authorizing shop floor activity by release of production orders
Follow-up, inspect & expedite to stay on course (as per plan)
4. PPC & PERT/CPM 3

Objectives of PPC
Meet targets of production, as aligned with demand, with available
resources
Provide resources (men, material, machines) of the right quantity, quality at

right time.
Optimum scheduling of facilities
To achieve balanced flow of production, with co-ordination between all

departments
Ensure conformance to delivery commitments, and make sales aware of

any potential difficulties
Inform all concerned, especially management, well in time, re: difficulties

which may crop up
4. PPC & PERT/CPM 4

Regular (essential) Functions of PPC (IMP)
ORDER PREPARATION: includes preparation of work orders, converting them to shop
orders & auxiliary orders, release of such orders to appropriate entities
MATERIAL CONTROL: includes making material estimates, indenting, purchasing, follow-

up, allocating material to shop orders
PROCESS PLANNING (or ROUTING): includes method of manufacture, operations & their
sequences, machine & tool requirements for each activity, defining requirements of
supporting equipment i.e. jigs & fixtures, measuring instruments,
TOOLS CONTROL: estimating requirement & specifications of tools (e.g. cutting tools), jigs
& fixtures, measuring instruments,. Replenishment of non consumable tools due to wear
& tear (e.g. allen keys, spanners, ..)
SCHEDULING: fixing calendar dates of various operations for various job-orders,
committing delivery dates to sales & despatch schedules
DISPATCHING: preparation & distribution of shop orders & manufacturing instructions;
assigning responsibilities to appropriate persons; authorizing them to perform the work at
respective work-centres as per the predefined schedule; authorize them to draw the
necessary resources (tools, consumables, material, etc);
PROGRESSING: recording progress of work & comparing with plan
EXPEDITING: identify (and anticipate) delays & interruptions: take corrective actions;
inform relevant stake-holders of potential & actual deviations from planned schedules
4. PPC & PERT/CPM 5

Optional Functions of PPC (IMP)
COST ESTIMATION: pre-production cost estimates used for budgeting, pricing &
profitability management. Alternatively this could the responsibility of Costing dept. or
Industrial Engineering
WORK MEASUREMENT: to estimate the time taken by a qualified worker to perform a
task, under given conditions, and at the desired level of performance. Techniques like time
& methods study, work sampling, etc. Alternatively this could the responsibility of
Industrial Engineering
SUB-CONTRACT: outsourcing work for various reasons! Alternatively this could the
responsibility of Materials / Purchase depts.
CAPACITY PLANNING: Estimation of requirements of men & machines to meet the firms
planned level of business over the short / medium & long term. Alternatively this could the
responsibility of the Engineering dept.
DEMAND MANAGEMENT: making projections of demand for various products, which can
become a basis for production planning. Various demand forecasting techniques are used
to forecast demand. For the medium term (6-18 months) an Aggregate Sales & Operations
plan is prepared. Thereon a firm schedule is created (Master Production Schedule).
Normally the sales / marketing / product management departments will do this.
4. PPC & PERT/CPM 6

The Order Preparation process a block diagram
MANUFACTURING
METHODS
Produced to
stock
Order Acceptance (OA) Receive Sales Program
Entry of OA into the system

Prepare Production Program
(say ERP)
Raise Work Order Check on-hand availability
Produced to
order Convert Work order into
Issue Shop orders
Shop Order
Shop order part A
Shop order Part B
4. PPC & PERT/CPM 7

4a. Demand Management
4. PPC & PERT/CPM 8

OBJECTIVES
Demand Management
Qualitative Forecasting Methods
Simple & Weighted Moving Average Forecasts
Exponential Smoothing
Simple Linear Regression
Web-Based Forecasting
4. PPC & PERT/CPM

Demand Management
Independent Demand:
Finished Goods
A Dependent Demand:
Raw Materials,
Component parts,
B(4) C(2) Sub-assemblies, etc.
D(2) E(1) D(3) F(2)
4. PPC & PERT/CPM

Independent Demand:
What a firm can do to manage it?
Can take an active role to influence demand
Can take a passive role and simply respond

to demand
4. PPC & PERT/CPM

Types of Forecasts
Qualitative (Judgmental)
Quantitative
Time Series Analysis
Causal Relationships
Simulation
4. PPC & PERT/CPM

Components of Demand
Average demand for a period of time

Trend
Seasonal element
Cyclical elements
Random variation
Autocorrelation
4. PPC & PERT/CPM
Finding Components of Demand
Seasonal
Seasonalvariation
variation
x
x x Linear
Linear
x x
x x Trend
x x Trend
Sales
x x x
x
x
xx
x xx x x
x
x
x x x x x x
x x x x x x
x x x
x xxxxx
x
x x
1 2 3 4
Year
4. PPC & PERT/CPM
Qualitative Methods
Executive Judgment Grass Roots
Qualitative Market Research

Historical analogy
Methods
Delphi Method Panel Consensus
4. PPC & PERT/CPM 15

Delphi Method
l. Choose the experts to participate representing a variety
of knowledgeable people in different areas
2. Through a questionnaire (or E-mail), obtain forecasts
(and any premises or qualifications for the forecasts)
from all participants
3. Summarize the results and redistribute them to the
participants along with appropriate new questions
4. Summarize again, refining forecasts and conditions, and
again develop new questions
5. Repeat Step 4 as necessary and distribute the final
results to all participants
4. PPC & PERT/CPM

Time Series Analysis
Time series forecasting models try to predict

the future based on past data
You can pick models based on:
1. Time horizon to forecast
2. Data availability
3. Accuracy required
4. Size of forecasting budget
5. Availability of qualified personnel
4. PPC & PERT/CPM
Simple Moving Average Formula
The simple moving average model assumes an average is a good

estimator of future behavior
The formula for the simple moving average is:
A t-1 + A t-2 + A t-3 +...+A t- n

Ft =
n
Ft = Forecast for the coming period
N = Number of periods to be averaged
A t-1 = Actual occurrence in the past period for up to n periods
4. PPC & PERT/CPM

Simple Moving Average Problem (1)
A t-1 + A t-2 + A t-3 +...+A t- n
Ft =
Week Demand n
1 650 Question:
Question: What
What are
are the
the 3-
3-
2 678 week
week and
and 6-week
6-week moving
moving
3 720 average
average forecasts
forecasts forfor
4 785
demand?
demand?
5 859
6 920 Assume
Assume youyou only
only have
have 33
7 850 weeks
weeks and
and 66 weeks
weeks of of
8 758 actual
actual demand
demand data
data for
for the
the
9 892 respective
10 920
respective forecasts
forecasts
11 789
12 844
4. PPC & PERT/CPM
20
Calculating the moving averages gives us:
W eek Demand 3-W eek 6-W eek
1 650 F4=(650+678+720)/3
2 678
=682.67
3 720 F7=(650+678+720
4 785 682.67 +785+859+920)/6
5 859 727.67 =768.67
6 920 788.00
7 850 854.67 768.67
8 758 876.33 802.00
9 892 842.67 815.33
10 920 833.33 844.00
11 789 856.67 866.50
12 844 867.00 854.83
4. PPC & PERT/CPM
The McGraw-Hill Companies, Inc.,
Plotting
Plotting the
themoving
moving averages
averagesand andcomparing
comparing
them
them shows
showshowhow the
the lines
linessmooth
smooth outoutto
toreveal
reveal
the
theoverall
overall upward
upward trend
trend in
in this
thisexample
example
10 00
9 00
Dema nd
8 00
Demand
3 -W e ek
7 00
6 -W e ek
6 00
5 00 Note
Notehow
howthethe
1 2 3 4 5 6 7 8 9 10 1 1 1 2 3-Week
3-Weekisis
Week smoother
smootherthan
than
the
theDemand,
Demand,
and
and6-Week
6-Weekisis
4. PPC & PERT/CPM
even
evensmoother
smoother
Simple Moving Average Problem (2) Data
Question:
Question: WhatWhat is is the
the 33
week
week moving
moving average
average
Week Demand forecast
forecast forfor this
this data?
data?
1 820
Assume
Assume you you only
only have
have 33
2 775
weeks
weeks and and 55 weeks
weeks of of
3 680
4 655
actual
actual demand
demand data data
5 620 for
for the
the respective
respective
6 600 forecasts
forecasts
7 575
4. PPC & PERT/CPM
Simple Moving Average Problem (2)
Solution
Week Demand 3-Week 5-Week
1 820 F4=(820+775+680)/3
2 775 =758.33
3 680 F6=(820+775+680
+655+620)/5
4 655 758.33 =710.00
5 620 703.33
6 600 651.67 710.00
7 575 625.00 666.00
4. PPC & PERT/CPM

Weighted Moving Average Formula
While
While the
the moving
moving average
average formula
formula implies
implies an an equal
equal
weight
weight being
being placed
placed on on each
each value
value that
that isis being
being averaged,
averaged,
the
the weighted
weighted moving
moving average
average permits
permits an
an unequal
unequal
weighting
weighting on
on prior
prior time
time periods
periods
The
The formula
formula for
for the
the moving
moving average
average is:
is:
Ft = w 1A t-1 + w 2 A t-2 + w 3A t-3 +. ..+w n A t-n

n
wwt ==weight
t weightgiven
occurrence
givento
totime
timeperiod
periodt
t w i =1
occurrence(weights
(weightsmust
mustadd
addtotoone)
one) i=1
4. PPC & PERT/CPM

Weighted Moving Average Problem (1)
Data
Question:
Question:Given
Giventhetheweekly
weeklydemand
demandand
andweights,
weights,what
whatisis
the
theforecast
forecastfor
forthe
the44th period
th
periodor
orWeek
Week4?4?
Week Demand Weights:

1 650
2 678 t-1 .5
3 720 t-2 .3
4 t-3 .2
Note
Notethat
thatthe
theweights
weightsplace
placemore
moreemphasis
emphasison
onthe
the
most
mostrecent
recentdata,
data,that
thatisistime
timeperiod
periodt-1
t-1
4. PPC & PERT/CPM
Solution
Week Demand Forecast

1 650
2 678
3 720
4 693.4
F4 = 0.5(720)+0.3(678)+0.2(650)=693.4
4. PPC & PERT/CPM
Weighted Moving Average Problem (2) Data
Question:
Question:Given
Giventhe theweekly
weeklydemand
demandinformation
informationand
and
weights,
weights,what
whatisisthe
theweighted
weightedmoving
movingaverage
averageforecast
forecast
of
ofthe
the55th period
th
periodor orweek?
week?
Week Demand Weights:

1 820 t-1 .7
2 775 t-2 .2
3 680
t-3 .1
4 655
4. PPC & PERT/CPM

Solution
W eek Demand Forecast

1 820
2 775
3 680
4 655
5 672
F5 = (0.1)(755)+(0.2)(680)+(0.7)(655)= 672
4. PPC & PERT/CPM
Exponential Smoothing Model
FFtt == FFt-1t-1 ++
(A
(At-1t-1 -- FFt-1t-1))
Where :
Ft = Forcast value for the coming t time period
Ft - 1 = Forecast value in 1 past time period
At - 1 = Actual occurance in the past t time period
= Alpha smoothing constant
Premise: The most recent observations might
have the highest predictive value
Therefore, we should give more weight to the
more recent time periods when forecasting
4. PPC & PERT/CPM
Exponential Smoothing Problem (1) Data
Week Demand Question:

Question: Given
Given the
the weekly
weekly
1 820 demand
demand data,
data, what
what are
are
2 775 the
the exponential
exponential
3 680 smoothing
smoothing forecasts
forecasts for
for
4 655 periods
periods 2-10
2-10 using
using
5 750 =0.10 and =0.60?
=0.10 and =0.60?
6 802 Assume
7 798
Assume FF1=D
1=D1 1
8 689
9 775
10
4. PPC & PERT/CPM
Answer:
Answer:The
Therespective
respectivealphas
alphascolumns
columnsdenote
denotethe
theforecast
forecastvalues.
values. Note
Note
that
thatyou
youcan
canonly
onlyforecast
forecastone
onetime
timeperiod
periodinto
intothe
thefuture.
future.
Week Demand 0.1 0.6
1 820 820.00 820.00
2 775 820.00 820.00
3 680 815.50 793.00
4 655 801.95 725.20
5 750 787.26 683.08
6 802 783.53 723.23
7 798 785.38 770.49
8 689 786.64 787.00
9 775 776.88 728.20
10 776.69 756.28
4. PPC & PERT/CPM
Exponential Smoothing Problem (1)
Plotting
Note
Notehow
howthat
thatthe
thesmaller
smalleralpha
alpharesults
resultsin
inaa smoother
smootherline
line
in
inthis
thisexample
example
900
800 Demand
Demand
700 0 .1
600 0 .6
500
1 2 3 4 5 6 7 8 9 10
Week
4. PPC & PERT/CPM

Data
Question:
Question: What
What are
are the
the
Week Demand
exponential
exponential smoothing
smoothing
1 820
forecasts
forecasts for
for periods
periods 2-5
2-5
2 775 using a =0.5?
using a =0.5?
3 680
4 655
5 Assume
Assume FF11=D
=D11
4. PPC & PERT/CPM

Solution
F1=820+(0.5)(820-820)=820 F3=820+(0.5)(775-820)=797.75
Week Demand 0.5

1 820 820.00
2 775 820.00
3 680 797.50
4 655 738.75
5 696.88
4. PPC & PERT/CPM
The MAD Statistic to Determine
Forecasting Error
n
1 M AD 0.8 standard deviation
A
t=1
t - Ft
1 standarddeviation 1.25 M AD
MAD =
n
The ideal MAD is zero which would mean

there is no forecasting error
The larger the MAD, the less the

accurate the resulting model
4. PPC & PERT/CPM

MAD Problem Data
Question:
Question: What
What isis the
the MAD
MAD value
value given
given
the
the forecast
forecast values
values inin the
the table
table below?
below?
Month Sales Forecast

1 220 n/a
2 250 255
3 210 205
4 300 320
5 325 315
4. PPC & PERT/CPM
MAD Problem Solution
Month Sales Forecast Abs Error

1 220 n/a
2 250 255 5
3 210 205 5
4 300 320 20
5 325 315 10
40
n
Note
Notethat
thatby
byitself,
itself,the
theMAD
A
t=1
t - Ft
40 only
onlylets
letsus
usknow
knowthe
MAD
themean
mean
MAD = = = 10 error
errorininaaset
setof
offorecasts
forecasts
n 4
4. PPC & PERT/CPM

Tracking Signal Formula
The Tracking Signal or TS is a measure that
indicates whether the forecast average is keeping
pace with any genuine upward or downward
changes in demand.
Depending on the number of MADs selected, the TS
can be used like a quality control chart indicating
when the model is generating too much error in its
forecasts.
The TS formula is:
RSFE Running su m of forec ast errors

TS = =
MAD Mean absol ute deviat ion
4. PPC & PERT/CPM
Simple Linear Regression Model
The
Thesimple
simplelinear
linearregression
regression Y
model
modelseeks
seeksto
tofit
fitaaline
line
through
throughvarious
variousdata
dataover
over
time
a
time
0 1 2 3 4 5 x (Time)
Yt = a + bx Is
Isthe
thelinear
linearregression
regressionmodel
model
Yt is the regressed forecast value or dependent

variable in the model, a is the intercept value of the
the regression line, and b is similar to the slope of the
regression line. However, since it is calculated with
the variability of the data in mind, its formulation is
not as straight forward as our usual notion of slope.
4. PPC & PERT/CPM

Simple Linear Regression Formulas for
Calculating a and b
a = y - bx
xy - n(y)(x)
b= 2 2
x - n(x )
4. PPC & PERT/CPM

Simple Linear Regression Problem Data
Question:
Question:Given
Giventhe
thedata
databelow,
below,what
whatisisthe
thesimple
simplelinear
linear
regression
regressionmodel
modelthat
thatcan
canbe
beused
usedto
topredict
predictsales
salesin
infuture
future
weeks?
weeks?
Week Sales
1 150
2 157
3 162
4 166
5 177
4. PPC & PERT/CPM
42
Answer:
Answer: First,
First,using
using the
thelinear
linear regression
regressionformulas,
formulas, we
we
can
can compute
computea aand
andb
b
Week Week*Week Sales Week*Sales
1 1 150 150
2 4 157 314
3 9 162 486
4 16 166 664
5 25 177 885
3 55 162.4 2499
Average Sum Average Sum
b=
xy - n(y)(x) 2499 - 5(162.4)(3) 63
= = = 6.3
x - n(x )
2 2
55 5(9) 10
a = y - bx = 162.4 - (6.3)(3) = 143.5

4. PPC & PERT/CPM
43
The resulting regression model

is: Yt = 143.5 + 6.3x
Now if we plot the regression generated forecasts against the
actual sales we obtain the following chart:
180
175
170
165
160 Sales
Sales
155 Forecast
150
145
140
135
1 2 3 4 5
Period
4. PPC & PERT/CPM
Web-Based Forecasting: CPFR
Collaborative Planning, Forecasting, and Replenishment
(CPFR) a Web-based tool used to coordinate demand
forecasting, production and purchase planning, and inventory
replenishment between supply chain trading partners.
Used to integrate the multi-tier or n-Tier supply chain,
including manufacturers, distributors and retailers.
CPFRs objective is to exchange selected internal information
to provide for a reliable, longer term future views of demand
in the supply chain.
CPFR uses a cyclic and iterative approach to derive
consensus forecasts.
4. PPC & PERT/CPM
Web-Based Forecasting:
Steps in CPFR
1. Creation of a front-end partnership

agreement
2. Joint business planning
3. Development of demand forecasts
4. Sharing forecasts
5. Inventory replenishment
4. PPC & PERT/CPM

Question Bowl
Which of the following is a classification of a basic

type of forecasting?
a. Transportation method
b. Simulation
c. Linear programming
d. All of the above
e. None of the above
Answer: b. Simulation (There are four types

including Qualitative, Time Series Analysis, Causal
Relationships, and Simulation.)
Question Bowl
Which of the following is an example of a

Qualitative type of forecasting technique or
model?
a. Grass roots
b. Market research
c. Panel consensus
d. All of the above
Answer: d. All of the above (Also includes
Historical Analogy and Delphi Method.)
Question Bowl
Which of the following is an example of a Time Series

Analysis type of forecasting technique or model?
a. Simulation
b. Exponential smoothing
c. Panel consensus
d. All of the above
Answer: b. Exponential smoothing (Also includes Simple Moving

Average, Weighted Moving Average, Regression Analysis, Box
Jenkins, Shiskin Time Series, and Trend Projections.)

Question Bowl
Which of the following is a reason why a firm should

choose a particular forecasting model?
a. Time horizon to forecast
b. Data availability
c. Accuracy required
d. Size of forecasting budget
e. All of the above
Answer: e. All of the above (Also should include

availability of qualified personnel .)
Question Bowl
Which of the following are ways to choose

weights in a Weighted Moving Average
forecasting model?
a. Cost
b. Experience
c. Trial and error
d. Only b and c above
Answer: d. Only b and c above

Question Bowl
Which of the following are reasons why the

Exponential Smoothing model has been a
well accepted forecasting methodology?
a. It is accurate
b. It is easy to use
c. Computer storage requirements are small
d. All of the above
Answer: d. All of the above

Question Bowl
The value for alpha or must be between

which of the following when used in an
Exponential Smoothing model?
a. 1 to 10
b. 1 to 2
c. 0 to 1
d. -1 to 1
e. Any number at all
Answer: c. 0 to 1
Question Bowl
Which of the following are sources of error in

forecasts?
a. Bias
b. Random
c. Employing the wrong trend line
d. All of the above
e.Answer:
None of the above
d. All of the above

Question Bowl
Which of the following would be the best MAD

values in an analysis of the accuracy of a
forecasting model?
a. 1000
b. 100
c. 10
d. 1
e. 0
Answer: e. 0
Question Bowl
If a Least Squares model is: Y=25+5x, and x is

equal to 10, what is the forecast value using
this model?
a. 100 Answer: b. 75 (Y=25+5(10)=75)
b. 75
c. 50
d. 25
Question Bowl
Which of the following are examples of

seasonal variation?
a. Additive
b. Least squares
c. Standard error of the estimate
d. Decomposition
Answer: a. Additive (The other type is of seasonal variation is
Multiplicative.)

4b. Aggregate Sales and Operations Planning

OBJECTIVES
Sales and Operations Planning
The Aggregate Operations Plan
Examples: Chase and Level

strategies
4. PPC & PERT/CPM

Exhibit
Exhibit14.1
14.1 Process planning
Long
range Strategic capacity planning
Intermediate Forecasting
& demand Sales and operations (aggregate) planning
range management
Sales plan Aggregate operations plan
Manufacturing
Services
Master scheduling
Material requirements planning
Weekly workforce and

Order scheduling customer scheduling
Short
range Daily workforce and customer scheduling
Sales and Operations Planning Activities
Long-range planning
Greater than one year planning horizon
Usually performed in annual increments
Medium-range planning
Six to eighteen months
Usually with weekly, monthly or quarterly increments
Short-range planning
One day to less than six months
Usually with weekly or daily increments
4. PPC & PERT/CPM

The Aggregate Operations Plan
Main purpose: Specify the optimal combination of
production rate (units completed per unit of time)
workforce level (number of workers)
inventory on hand (inventory carried from previous
period)
Product group or broad category (Aggregation)
This planning is done over an intermediate-range
planning period of 3 to18 months
4. PPC & PERT/CPM

Balancing Aggregate Demand
and Aggregate Production Capacity
10000
Suppose
Supposethe thefigure
figureto
to
10000
8000
the
theright
rightrepresents
represents 8000 7000
6000
forecast
forecastdemand
demandin in 6000 5500
4500
units
units 4000
Now
Nowsuppose
supposethis
this 2000
lower
lowerfigure
figurerepresents
represents 0
the
theaggregate
aggregatecapacity
capacity Jan Feb Mar Apr May Jun
of
ofthe
thecompany
companyto to
9000
meet
meetdemand
demand 10000
8000
8000
What
Whatwewewant
wanttotodo
doisis 6000
6000
4500 4000
balance
balanceout
outthe
the 4000
4000
production
productionrate,
rate,
workforce
workforcelevels,
levels,and
and
2000
inventory
inventorytotomake
make 0
these
these figuresmatch
figures matchupup
Jan Feb Mar Apr May Jun
4. PPC & PERT/CPM
Required Inputs to the Production Planning
System
Competitors Raw material Market
behavior availability demand
External
to firm
External Economic
capacity Planning
conditions
for
production
Current Current Inventory Activities Internal

physical workforce levels required to firm
capacity for
4. PPC & PERT/CPMproduction
Key Strategies for Meeting Demand
Chase
Level
Some combination of the two

4. PPC & PERT/CPM
Aggregate Planning Examples: Unit Demand
and Cost Data
Suppose
Supposewewehave
havethethefollowing
followingunit
unit
demand
demandand
andcost
costinformation:
information:
Demand/mo Jan Feb Mar Apr May Jun
4500 5500 7000 10000 8000 6000
Materials Rs5/unit
Holding costs Rs1/unit per mo.
Marginal cost of stockout Rs1.25/unit per mo.
Hiring and training cost Rs200/worker
Layoff costs Rs250/worker
Labor hours required .15 hrs/unit
Straight time labor cost Rs8/hour
Beginning inventory 250 units
Productive hours/worker/day 7.25
Paid straight hrs/day 8
4. PPC & PERT/CPM
Cut-and-Try Example: Determining
Straight Labor Costs and Output
Given
Giventhe
thedemand
demandand
andcost
costinformation
informationbelow,
below,what
what
are
arethe
theaggregate
aggregatehours/worker/month,
hours/worker/month,units/worker,
units/worker,and
and
dollars/worker?
dollars/worker?
Demand/mo Jan Feb Mar Apr May 7.25x2

Jun 2
4500 5500
Productive hours/worker/day 7000
7.25 10000 8000
6000
Paid straight hrs/day 8
7.25x0.15=48.33
22x8hrsxRs8=Rs1 &
Jan F eb M ar 84.33x22=1063.33
A pr M ay Jun
408
D ay s /m o 22 19 21 21 22 20
H rs /w ork er/m o 159.5 137.75 152.25 152.25 159.5 145
U nits /w ork er 1063.33 918.33 1015 1015 1063.33 966.67
R s /w ork er 1,408 4. PPC
1,216 1,344
& PERT/CPM 1,344 1,408 66
1,280
Chase Strategy
(Hiring & Firing to meet demand)
Lets
Letsassume
assumeour
ourcurrent
currentworkforce
workforceis
is77
Jan workers.
workers.
Days/mo 22
Hrs/worker/mo 159.5 First, calculate net requirements for
Units/worker 1,063.33 production, or 4500-250=4250 units
Rs/worker 1,408
Then, calculate number of workers

Jan needed to produce the net
Demand 4,500 requirements, or
Beg. inv. 250
4250/1063.33=3.997 or 4 workers
Net req. 4,250
Req. workers 3.997 Finally, determine the number of
Hired workers to hire/fire. In this case we
Fired 3
only need 4 workers, we have 7, so
Workforce 4
3 can be fired.
Ending inventory 0 4. PPC & PERT/CPM
Below
Beloware
arethe
thecomplete
completecalculations
calculationsfor
forthe
theremaining
remaining
months
monthsin
inthe
thesix
sixmonth
monthplanning
planninghorizon
horizon
Days/mo 22 19 21 21 22 20
Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145
Units/worker 1,063 918 1,015 1,015 1,063 967
Rs/worker 1,408 1,216 1,344 1,344 1,408 1,280

Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250
Net req. 4,250 5,500 7,000 10,000 8,000 6,000
Req. workers 3.997 5.989 6.897 9.852 7.524 6.207
Hired 2 1 3
Fired 3 2 1
W orkforce 4 6 7 10 8 7
Ending inventory 0 0 0 0 0 0
4. PPC & PERT/CPM
Below are the complete calculations for the remaining months in
the six month planning horizon with the other costs included
Jan F eb M ar A pr M ay Jun
D em and 4,500 5,500 7,000 10,000 8,000 6,000
B eg. inv. 250
N et req. 4,250 5,500 7,000 10,000 8,000 6,000
R eq. w ork ers 3.997 5.989 6.897 9.852 7.524 6.207
H ired 2 1 3
F ired 3 2 1
W ork forc e 4 6 7 10 8 7
E nding inventory 0 0 0 0 0 0
Jan F eb M ar A pr M ay Jun C os
M aterial 21,250.00 27,500.00 35,000.00 50,000.00 40,000.0030,000.00 203,750
Labor 5,627.59 7,282.76 9,268.97 13,241.38 10,593.10 7,944.83 53,958
H iring c os t 400.00 200.00 600.00 1,200
F iring c os t 750.00 500.00 250.00 1,500
4. PPC & PERT/CPM
260,408
Level Workforce Strategy (Surplus and
Shortage Allowed)
Lets
Letstake
takethe
thesame
sameproblem
problemasas
before
beforebut
butthis
thistime
timeuse
usethe
the
Level
LevelWorkforce
Workforcestrategy
strategy Jan
Demand 4 ,500
This
Thistime
timewe
wewill
willseek
seektotouse
use
aaworkforce level of 6 workers Beg. inv. 250
workforce level of 6 workers
Net req. 4 ,250
W orkers 6
P ro duction 6 ,380
Ending invento ry 2 ,130
Surplus 2 ,130
Shortage
4. PPC & PERT/CPM
Below
Below are
arethe
thecomplete
completecalculations
calculationsfor
for the
theremaining
remaining
months
months in
inthe
the six
sixmonth
month planning
planning horizon
horizon
Jan Feb Mar Apr

Demand 4,500 5,500 7,000 10,000 8,
Beg. inv. 250 2,130 2,140 1,230 -2,
Net req. 4,250 3,370 4,860 8,770 10,
Workers 6 6 6 6
Production 6,380 5,510 6,090 6,090 6,
Ending inventory 2,130 2,140 1,230 -2,680 -1,
Surplus 2,130 2,140 1,230
Note,
Note, ifif we
Shortage we recalculate
recalculate this
this sheet
sheet with
with 77 workers
workers
2,680 1,
we
we would
would have
have aa surplus
surplus
4. PPC & PERT/CPM
Below
Below are
are the
the complete
complete calculations
calculations for
for the
the remaining
remaining
months
months in
in the
the six
six month
month planning
planning horizon
horizon with
with the
the
other
other costs
costs included
included
4,500 5,500 7,000 10,000 8,000 Note,
Note, total
6,000 total
250 2,130 10 -910 -3,910 -1,620
costs
costs under
under
4,250 3,370 4,860 8,770 10,680 7,300
6 6 6 6 6 this
this
6 strategy
strategy
6,380 5,510 6,090 6,090 6,380 are
areless
5,800
lessthan
than
2,130 2,140 1,230 -2,680 -1,300 -1,500
2,130 2,140 1,230
Chase
Chaseatat
2,680 1,300 Rs260.408.62
Rs260.408.62
1,500

8,448.00 7,296.00 8,064.00 8,064.00 8,448.00 7,680.00 48,000.00
Labor
31,900.00 27,550.00 30,450.00 30,450.00 31,900.00 29,000.00 181,250.00
Material
2,130.00 2,140.00 1,230.00 Storage
5,500.00
3,350.00 1,625.00 1,875.00 Stockout
6,850.00
4. PPC & PERT/CPM 241,600.00

Question Bowl
Sales and Operations Planning activities

are usually conducted during which
planning time horizon?
a. Long-range
b. Intermediate-range Answer: b.
c. Short-range Intermediate-range
d. Really short-range (i.e., 6 to 18 months)

Question Bowl
Which of the following are Production Planning

Strategies can involve trade-offs among the
workforce size, work hours, inventory, and backlogs?
a. Chase strategy
b. Stable workforce-variable work hours
c. Level strategy
d. All of the above
e. None of the above Answer: d. All of the above

Question Bowl
Which of the following are considered relevant
costs in the Aggregate Production Plan?

a. Costs associated with changes in the
production rate
b. Inventory holding costs
c. Backordering costs
d. Basic production costs
e. All of the above
Answer: e. All of the above
Question Bowl
Which of the following Aggregate Planning

Techniques can be performed using simple
spreadsheets?
a. Cut-and-try
Answer: a. Cut-and-try (The
b. Linear programming
other two involve more complex
c. Transportation method
d. All of the above computational effort than simple
e. None of the above spreadsheets.)

Question Bowl
Which of the following methods can be used to

allocate the right type of capacity to the right type
of customer at the right price and in time to
maximize revenue?
a. Cut-and-try
b. Yield management
c. Transportation method
d. All of the above
Answer: b. Yield
management
Question Bowl
From an operational perspective Yield Management

is most effective as a capacity technique, when
which of the following happens?
a. Demand can not be segmented by customer
b. Variable costs are high
c. Fixed costs are low
d. Demand is highly variable
e. All of the above
Answer: d. Demand is
highly variable

4c. Inventory Control
(A Part of Material Planning)

OBJECTIVES
Inventory System Defined
Inventory Costs
Independent vs. Dependent Demand
Single-Period Inventory Model
Multi-Period Inventory Models: Basic Fixed-Order
Quantity Models
Multi-Period Inventory Models: Basic Fixed-Time
Period Model
Miscellaneous Systems and Issues
4. PPC & PERT/CPM
Inventory System
Inventory is the stock of any item or resource
used in an organization and can include: raw
materials, finished products, component parts,
supplies, and work-in-process
An inventory system is the set of policies and
controls that monitor levels of inventory and
determines what levels should be maintained,
when stock should be replenished, and how
large orders should be
4. PPC & PERT/CPM

Purposes of Inventory
1. To maintain independence of operations
2. To meet variation in product demand
3. To allow flexibility in production scheduling
4. To provide a safeguard for variation in raw

material delivery time
5. To take advantage of economic purchase-order

size
4. PPC & PERT/CPM

Inventory Costs
Holding (or carrying) costs
Costs for storage, handling, insurance, etc
Setup (or production change) costs
Costs for arranging specific equipment
setups, etc
Ordering costs
Costs of someone placing an order, etc
Shortage costs
Costs of canceling an order, etc
4. PPC & PERT/CPM

Independent vs. Dependent Demand
Independent Demand (Demand for the final end-

product or demand not related to other items)
Finished
product
Dependent
Demand
(Derived demand
items for
E(1 component
) parts,
subassemblies,
Component parts raw materials,
4. PPC & PERT/CPM
etc)
Inventory Systems
One time purchasing decision (Example:
vendor selling t-shirts at a football game)
Seeks to balance the costs of inventory
overstock and under stock
Multi-Period Inventory Models
Fixed-Order Quantity Models
Event triggered (Example: running out of
stock)
Fixed-Time Period Models
Time triggered (Example: Monthly sales call
by sales representative)
4. PPC & PERT/CPM
This
Thismodel
modelstates
statesthat
thatwe
we
Cu should
shouldcontinue
continueto toincrease
increase
P
the
thesize
sizeofofthe
theinventory
inventorysoso
long
longasasthe
theprobability
probabilityof
of
Co + Cu selling
sellingthe
equal
equalto
thelast
toor
lastunit
unitadded
orgreater
addedisis
greaterthan
thanthe
the
ratio
ratioof:
of:Cu/Co+Cu
Cu/Co+Cu
Where:
Co = Cost per unit of demandover estimated
Cu = Cost per unit of demand under estimated
P = Probability that theunit willbe sold
4. PPC & PERT/CPM
Single Period Model Example
Our college basketball team is playing in a tournament

game this weekend. Based on our past experience we
sell on average 2,400 shirts with a standard deviation of
350. We make Rs100 on every shirt we sell at the
game, but lose Rs50 on every shirt not sold. How many
shirts should we make for the game?
Cu = Rs100 and Co = Rs50; P 100 / (100 + 50) = .667
Z.667 = .432 (use NORMSDIST(.667) or Appendix E)

therefore we need 2,400 + .432(350) = 2,551 shirts

Multi-Period Models:
Fixed-Order Quantity Model Model
Assumptions (Part 1)
Demand for the product is constant and

uniform throughout the period
Lead time (time from ordering to receipt) is

constant
Price per unit of product is constant

Multi-Period Models:
Fixed-Order Quantity Model Model Assumptions
(Part 2)
Inventory holding cost is based on

average inventory
Ordering or setup costs are constant
All demands for the product will be

satisfied (No back orders are allowed)
4. PPC & PERT/CPM

Basic Fixed-Order Quantity Model and
Reorder Point Behavior
1. You receive an order quantity Q. 4. The cycle then repeats.
Number
of units
on hand Q Q Q
R
L L
2. Your start using
them up over time. 3. When you reach down to
Time a level of inventory of R,
R = Reorder point
Q = Economic order quantity you place your next Q
L = Lead time sized order.
Cost Minimization Goal
By
Byadding
addingthe
theitem,
item,holding,
holding,and andordering
orderingcosts
costs
together,
together,we
wedetermine
determinethe
thetotal totalcost
costcurve,
curve,which
whichinin
turn
turnis
isused
usedtotofind
findthe
theQQopotpt inventory
inventoryorder
orderpoint
pointthat
that
minimizes
minimizestotal
totalcosts
costs
Total Cost
C
O
S
T Holding
Costs
Annual Cost of
Items (DC)
Ordering Costs
QOPT
4.Order Quantity
PPC & PERT/CPM (Q)
Basic Fixed-Order Quantity (EOQ) TC=Total
TC=Totalannual
annual
cost
Model Formula cost
DD=Demand
=Demand
Total Annual Annual Annual CC=Cost
=Costperperunit
unit
Annual = Purchase + Ordering + Holding QQ=Order
=Orderquantity
quantity
Cost Cost Cost Cost SS=Cost
=Costofofplacing
placing
an
anorder
orderororsetup
setup
cost
cost
RR=Reorder
=Reorderpointpoint
LL=Lead
=Leadtime
time
H=Annual
H=Annualholding
holding
D Q and
andstorage
storagecost
cost
TC = DC + S + H per
perunit
unitof
ofinventory
inventory
Q 2
4. PPC & PERT/CPM
Deriving the EOQ
Using
Using calculus,
calculus, we
we take
take the
the first
first derivative
derivative of of the
the
total
total cost
cost function
function with
with respect
respect toto Q,
Q, and
and set set the
the
derivative
derivative (slope)
(slope) equal
equal to
to zero,
zero, solving
solving for for the
the
optimized
optimized (cost
(cost minimized)
minimized) value
value of
of QQopotpt
2DS 2(Annual Demand)(Orde r or Setup Cost)

Q OPT = =
H Annual Holding Cost
_
We
Wealso
alsoneed
need aa Reorder p oint, R = d L
reorder
reorder point
pointto
to _
tell
tell us
uswhen
whento
to d = average daily demand (constant)
place
placean anorder
order L = Lead time (constant)
4. PPC & PERT/CPM
EOQ Example (1) Problem Data
Given
Given the
theinformation
information below,
below, what
what are
arethe
theEOQ
EOQ and
and
reorder
reorder point?
point?
Annual Demand = 1,000 units

Days per year considered in average
daily demand = 365
Cost to place an order = Rs10
Holding cost per unit per year = Rs2.50
Lead time = 7 days
Cost per unit = Rs15
4. PPC & PERT/CPM

EOQ Example (1) Solution
2DS 2(1,000 )( 10)
Q OPT = = = 89.443 un its or 90 units
H 2.50
1,000 unit s / year

d = = 2.74 unit s / day
365 days / year
_
Reorder p oint, R = d L = 2.74units / day (7days ) = 19.18 or 20 units
In
Insummary,
summary,youyouplace
placeananoptimal
optimalorder
orderof
of90
90units.
units. In
In
the
thecourse
courseof
ofusing
usingthe
theunits
unitsto
tomeet
meetdemand,
demand,when
when
you
youonly
onlyhave
have2020units
unitsleft,
left,place
placethe
thenext
nextorder
orderof
of9090
units.
units.
4. PPC & PERT/CPM
EOQ Example (2) Problem Data
Determine
Determine thethe economic
economic order
order quantity
quantity
and
and the
the reorder
reorder point
point given
given the
the following
following
Annual Demand = 10,000 units

Days per year considered in average daily
demand = 365
Cost to place an order = Rs10
Holding cost per unit per year = 10% of cost
per unit
Lead time = 10 days
Cost per unit = Rs15
4. PPC & PERT/CPM
EOQ Example (2) Solution
2DS 2(10,000 ) (10)
Q OPT = = = 365.148 un its, or 366 units
H 1.50
10,000 uni ts / year

d= = 27.397 uni ts / day
365 days / year
_
R = d L = 27.397 uni ts / day (10 da ys) = 273.97 or 274 units
Place
Placean
anorder
order for
for366
366units.
units. When
Whenin inthe
thecourse
courseofof
using
usingthe
theinventory
inventoryyou
youare
are left
left with
withonly
only274
274units,
units,
place
placethe
thenext
next order
order of
of366
366units.
units.
4. PPC & PERT/CPM
Fixed-Time Period Model with Safety
Stock Formula
qq==Average
Averagedemand
demand++Safety
Safetystock
stockInventory
Inventorycurrently
currentlyon
onhand
hand
q = d(T + L) + Z T + L - I
Where :
q = quantitiy to be ordered
T = the number of days between reviews
L = lead time in days
d = forecast average daily demand
z = the number of standard deviations for a specified service probabilit y
T + L = standard deviation of demand over the review and lead time
I = current inventory level (includes items on order)
4. PPC & PERT/CPM

Multi-Period Models: Fixed-Time Period Model:
Determining the Value of T+L
( )
T+ L 2
T+ L = di
i =1
Since each day is independent and d is constant,

T+ L = (T + L) d 2
The standard deviation of a sequence of

random events equals the square root of
the sum of the variances
4. PPC & PERT/CPM

Example of the Fixed-Time Period Model
Given
Given the
the information
information below,
below, how
how many
many units
units
should
should be
be ordered?
ordered?
Average daily demand for a product is
20 units. The review period is 30 days,
and lead time is 10 days. Management
has set a policy of satisfying 96 percent
of demand from items in stock. At the
beginning of the review period there are
200 units in inventory. The daily
demand standard deviation is 4 units.
4. PPC & PERT/CPM
Example of the Fixed-Time Period Model:
Solution (Part 1)
T+ L = (T + L) d =
2
( 30 + 10) ( 4) = 25.298
2
The value for z is found by using the Excel

NORMSINV function, or as we will do here, using
Appendix D. By adding 0.5 to all the values in
Appendix D and finding the value in the table that
comes closest to the service probability, the z
value can be read by adding the column heading
label to the row label.
So, by adding 0.5 to the value from Appendix D of 0.4599,
we have a probability of 0.9599, which is given by a z = 1.75
4. PPC & PERT/CPM
Example of the Fixed-Time Period Model:
Solution (Part 2)
q = d(T + L) + Z T + L - I
q = 20(30 + 10) + (1.75)(25.298) - 200
q = 800 + 44.272 - 200 = 644.272, or 645 units
So, to satisfy 96 percent of the demand,

you should place an order of 645 units at
this review period4. PPC & PERT/CPM
Price-Break Model Formula
Based on the same assumptions as the EOQ model,
the price-break model has a similar Qopt formula:
2DS 2(Annual Demand)(Order or Setup Cost)

Q OPT = =
iC Annual Holding Cost
i = percentage of unit cost attributed to carrying inventory

C = cost per unit
Since C changes for each price-break, the formula

above will have to be used with each price-break cost
value
4. PPC & PERT/CPM
Price-Break Example Problem Data
(Part 1)
AA company
company hashas aa chance
chance toto reduce
reduce their
their inventory
inventory
ordering
ordering costs
costs by
by placing
placing larger
larger quantity
quantity orders
orders using
using
the
the price-break
price-break order
order quantity
quantity schedule
schedule below.
below. What
What
should
should their
their optimal
optimal order
order quantity
quantity be
be ifif this
this company
company
purchases
purchases this
this single
single inventory
inventory item
item with
with an an e-mail
e-mail
ordering
ordering cost
cost of
of Rs4,
Rs4, aa carrying
carrying cost
cost rate
rate of of 2%
2% of
of the
the
inventory
inventory cost
cost of
of the
the item,
item, and
and an
an annual
annual demand
demand ofof
10,000
10,000 units?
units?
Order Quantity(units) Price/unit(Rs)
0 to 2,499 Rs1.20
2,500 to 3,999 1.00
4,000 or more 4. PPC
.98& PERT/CPM
Price-Break Example Solution (Part 2)
First, plug data into formula for each price-break value of C
Annual Demand (D)= 10,000 units Carrying cost % of total cost (i)= 2%
Cost to place an order (S)= Rs4 Cost per unit (C) = $1.20, $1.00, $0.98
Next, determine if the computed Qopt values are feasible or not
Interval from 0 to 2499, the 2DS 2(10,000)( 4)

Qopt value is feasible Q OPT = = = 1,826 units
iC 0.02(1.20)
Interval from 2500-3999, the 2DS 2(10,000)( 4)
Qopt value is not feasible Q OPT = = = 2,000 units
iC 0.02(1.00)
Interval from 4000 & more, the 2DS 2(10,000)( 4)
Qopt value is not feasible Q OPT = = = 2,020 units
iC 0.02(0.98)
4. PPC & PERT/CPM
Since
Since the
thefeasible
feasiblesolution
solution occurred
occurredininthe
thefirst
firstprice-
price-
break,
break, itit means
means that
thatall
all the
theother
othertrue
trueQQopotpt values
valuesoccur
occur
at
at the
thebeginnings
beginningsof ofeach
each price-break
price-breakinterval.
interval. Why? Why?
Because
Becausethe
thetotal
total annual
annual cost
costfunction
functionis
is
Total aau
ushaped
shapedfunction
function
annual
costs So
So the
thecandidates
candidates
for
forthe
theprice-
price-
breaks
breaks are
are 1826,
1826,
2500,
2500, and
and4000
4000
units
units
0 1826 25004. PPC4000 Order Quantity
& PERT/CPM
Next, we plug the true Qopt values into the total cost
annual cost function to determine the total cost under
each price-break
D Q
TC = DC + S+ iC
Q 2
TC(0-2499)=(10000*1.20)+(10000/1826)*4+(1826/2)(0.02*1.20)
TC(0-2499)=(10000*1.20)+(10000/1826)*4+(1826/2)(0.02*1.20)
==Rs12,043.82
Rs12,043.82
TC(2500-3999)=
TC(2500-3999)=Rs10,041
Rs10,041
TC(4000&more)=
TC(4000&more)=Rs9,949.20
Rs9,949.20
Finally, we select the least costly Qopt , which is this

problem occurs in the 4000 & more interval. In
summary, our optimal order quantity is 4000 units
4. PPC & PERT/CPM
Miscellaneous Systems:
Optional Replenishment System
Maximum Inventory Level, M
q=M-I
Actual Inventory Level, I

M
Q = minimum acceptable order quantity
If q > Q, order q, otherwise do not order any.

4. PPC & PERT/CPM
Miscellaneous Systems:
Bin Systems
Two-Bin System
Order One Bin of

Inventory
Full Empty
One-Bin System
Order Enough to
Refill Bin
Periodic Check 4. PPC & PERT/CPM
ABC Classification System
Items kept in inventory are not of equal
importance in terms of:
60
Rupees invested % of
Rs Value 30 A
profit potential 0 B
sales or usage volume % of 30 C
Use 60
stock-out penalties
So, identify inventory items based on percentage of total

dollar value, where A items are roughly top 15 %, B
items as next 35 %, and the lower 65% are the C items
4. PPC & PERT/CPM
Inventory Accuracy and Cycle Counting
Inventory accuracy refers to how well

the inventory records agree with
physical count
Cycle Counting is a physical
inventory-taking technique in which
inventory is counted on a frequent
basis rather than once or twice a year
4. PPC & PERT/CPM
Question Bowl
The average cost of inventory in the

United States is which of the
following?
a. 10 to 15 percent of its cost
b. 15 to 20 percent of its cost
c. 20 to 25 percent of its cost
d. 25 to 30 percent of its cost
e. Answer:
30 to 35e.percent
30 to 35 of
percent of its cost
its cost
Question Bowl
Which of the following is a reason why firms

keep a supply of inventory?
a. To maintain independence of operations
b. To meet variation in product demand
c. To allow flexibility in production scheduling
d. To take advantage of economic purchase
order size
e. Answer: e. All
All of the of the above (Also can include to
above
provide a safeguard for variation in raw material
delivery time.)
Question Bowl
An Inventory System should include policies that

are related to which of the following?
a. How large inventory purchase orders should be
b. Monitoring levels of inventory
c. Stating when stock should be replenished
d. All of the above

Question Bowl
Which of the following is an Inventory Cost item
that is related to the managerial and clerical
costs to prepare a purchase or production order?
a. Holding costs
b. Setup costs
c. Carrying costs
d. Shortage costs
Answer: e. None of the
above (Correct answer
is Ordering Costs.)

Question Bowl
Which of the following is considered a

Independent Demand inventory item?
a. Bolts to a automobile manufacturer
b. Timber to a home builder
c. Windows to a home builder
d. Containers of milk to a grocery store
Answer: d. Containers of milk to a grocery store

Question Bowl
If you are marketing a more expensive

independent demand inventory item, which
inventory model should you use?
a. Fixed-time period model
b. Fixed-order quantity model
c. Periodic system
d. Periodic review system
e. Answer:
P-model b. Fixed-order quantity model
Question Bowl
If the annual demand for an inventory item is 5,000

units, the ordering costs are Rs100 per order, and the
cost of holding a unit is stock for a year is Rs10, which
of the following is approximately the Qopt ?
a. 5,000 units
b. Rs5,000
c. 500 units
Answer: d. 316
d. 316 units units
e. None of the above (Sqrt[(2x1000x10
0)/10=316.2277)
Question Bowl
The basic logic behind the ABC Classification
system for inventory management is which of the
following?
a. Two-bin logic
b. One-bin logic
c. Pareto principle
d. All of the above
Answer: c. Pareto principle

Question Bowl
A physical inventory-taking technique in

which inventory is counted frequently
rather than once or twice a year is which of
the following?
a. Cycle counting
b. Mathematical programming
c. Pareto principle
d. ABC classification
e. Stockkeeping unit (SKU)
Answer: a. Cycle counting
4d. Materials Requirements Planning
( a Part of MATERIALS PLANNING)

OBJECTIVES
Material Requirements Planning (MRP)

MRP Logic and Product Structure Trees
Time Fences
MRP Example
MRP II and Lot Sizing
4. PPC & PERT/CPM

Material Requirements Planning
Materials requirements planning (MRP) is a means

for determining the number of parts, components,
and materials needed to produce a product
MRP provides time scheduling information
specifying when each of the materials, parts, and
components should be ordered or produced
Dependent demand drives MRP
MRP is a software system
4. PPC & PERT/CPM

Example of MRP Logic and Product
Structure Tree
Given the product structure tree for A and the lead time and
demand information below, provide a materials requirements
plan that defines the number of units of each component and
when they will be needed
Product Structure Tree for Assembly A Lead Times
A 1 day
A B 2 days
C 1 day
D 3 days
E 4 days
B(4) C(2) F 1 day
Total Unit Demand

Day 10 50 A
D(2) E(1) D(3) F(2) Day 8 20 B (Spares)
Day 6 15 D (Spares)
4. PPC & PERT/CPM
First, the number of units of A are scheduled
backwards to allow for their lead time. So, in the
materials requirement plan below, we have to place
an order for 50 units of A on the 9th day to receive
them on day 10.
Day: 1 2 3 4 5 6 7 8 9 10
A Required 50
Order Placement 50
LT = 1 day
4. PPC & PERT/CPM

Next, we need to start scheduling the components that make up
A. In the case of component B we need 4 Bs for each A.
Since we need 50 As, that means 200 Bs. And again, we back
the schedule up for the necessary 2 days of lead time.
Day: 1 2 3 4 5 6 7 8 9 10
A Required 50
Order Placement 50
B Required 20 200
Order Placement 20 200
LT = 2
Spares
A 4x50=200
B(4) C(2)
D(2) E(1) D(3) F(2)

4. PPC & PERT/CPM
127
Finally, repeating the process for all components, we have the
final materials requirements plan:
Day: 1 2 3 4 5 6 7 8 9 10
A Required 50
LT=1 Order Placement 50
B Required 20 200
LT=2 Order Placement 20 200
C Required 100
D Required 55 400 300
LT=3 Order Placement 55 400 300
E Required 20 200
LT=4 Order Placement 20 200
F Required 200
A
Part D: Day 6
B(4) C(2) 40 + 15 spares
D(2) E(1) D(3) F(2)

4. PPC & PERT/CPM
The McGraw-Hill Companies, Inc.
Master Production Schedule (MPS)
Time-phased plan specifying how
many and when the firm plans to build
each end item
Aggregate
Aggregate Plan
Plan
(Product
(Product Groups)
Groups)
MPS
(Specific End Items)
4. PPC & PERT/CPM

Types of Time Fences
Frozen
No schedule changes allowed within this
window
Moderately Firm
Specific changes allowed within product
groups as long as parts are available
Flexible
Significant variation allowed as long as overall
capacity requirements remain at the same
levels
4. PPC & PERT/CPM
Exhibit
Exhibit15.5
15.5
Example of Time Fences
Moderately
Frozen Firm Flexible
Capacity
Forecast and available
capacity
Firm Customer Orders
8 15 26
Weeks
4. PPC & PERT/CPM

Material Requirements Planning System
Based on a master production schedule, a

material requirements planning system:
Creates schedules identifying the specific
parts and materials required to produce
end items
Determines exact unit numbers needed
Determines the dates when orders for

those materials should be released, based
on lead times
4. PPC & PERT/CPM

132
Aggregate Forecasts
Firm orders product of demand
from known plan from random
customers
customers
Engineering Master production

Schedule (MPS) Inventory
design
transactions
changes
Material From
FromExhibit
Exhibit15.6
15.6
planning
Bill of (MRP Inventory
material computer record file
file program)
Secondary reports
Primary reports
Exception reports
Planned order schedule for Planning reports
inventory and production Reports for performance
control
4. PPC & PERT/CPM control
The McGraw-Hill Companies, Inc.,
Bill of Materials (BOM) File
A Complete Product Description
Materials
Parts
Components
Production sequence
Modular BOM
Subassemblies
Super BOM
Fractional options
4. PPC & PERT/CPM
Inventory Records File
Each inventory item carried as a
separate file
Status according to time buckets
Pegging
Identify each parent item that created
demand
4. PPC & PERT/CPM
Primary MRP Reports
Planned orders to be released at a future time
Order release notices to execute the planned
orders
Changes in due dates of open orders due to
rescheduling
Cancellations or suspensions of open orders
due to cancellation or suspension of orders on
the master production schedule
Inventory status data
4. PPC & PERT/CPM

Secondary MRP Reports
Planning reports, for example, forecasting
inventory requirements over a period of
time
Performance reports used to determine
agreement between actual and
programmed usage and costs
Exception reports used to point out
serious discrepancies, such as late or
overdue orders
4. PPC & PERT/CPM
Additional MRP Scheduling Terminology
Gross Requirements
Scheduled receipts
Projected available balance
Net requirements
Planned order receipt
Planned order release

4. PPC & PERT/CPM
MRP Example
Item On-Hand Lead Time (Weeks)

X X 50 2
A 75 3
B 25 1
A(2) B(1) C 10 2
D 20 2
C(3) C(2) D(5)
Requirements
Requirementsinclude
include95
95units
units(80
(80firm
firmorders
ordersand
and15
15forecast)
forecast)of
ofXX
in
inweek
week10
10
4. PPC & PERT/CPM

Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
X LT=2 Scheduled receipts

Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
LT=3 Scheduled receipts
A(2) Proj. avail. balance 75 75 75 75 75 75 75 75
B Gross requirements 45
Proj. avail. balance 25 25 25 25 25 25 25 25
ItIttakes
takes hand
25
Planner order release 20
20
22As
Asfor
for
C
LT=2
Gross requirements
Scheduled receipts
45 40
each
eachXX On-
Proj. avail. balance
Net requirements
10 10 10 10 10
35 40
hand Planned order receipt 35 40
10 Planner order release 35 40
D Gross requirements 100
Proj. avail. balance 20 20 20 20 20 20 20
4. PPC & PERT/CPM

Day: 1 2 3 4 5 6 7 8 9 10

A(2) B(1) Proj. avail. balance 75 75 75 75 75 75 75 75
ItIttakes
takes
hand
25
20
11BBfor
C Gross requirements 45 40
for LT=2 Scheduled receipts
Proj. avail. balance 10 10 10 10 10
each
eachXX On-
hand
Net requirements
35
35
40
40
10 Planner order release 35 40
D Gross requirements 100
Proj. avail. balance 20 20 20 20 20 20 20
4. PPC & PERT/CPM

Day: 1 2 3 4 5 6 7 8 9 10

C(3) On- Net requirements 20
On- Net requirements 35 40
ItIttakes
takes33 hand
10
35
40
40
Cs
Csforfor
D
LT=2
Gross requirements
Scheduled receipts
100
each
eachAA On-
Net requirements
20 20 20 20 20 20 20
80
4. PPC & PERT/CPM

Day: 1 2 3 4 5 6 7 8 9 10

C(3) C(2) On- Net requirements 20
ItIttakes
takes22 hand
10
35
40
40
Cs
Csforfor
D
LT=2
Gross requirements
Scheduled receipts
100
each
eachBB On-
Net requirements
20 20 20 20 20 20 20
80
4. PPC & PERT/CPM

Day: 1 2 3 4 5 6 7 8 9 10

C(3) C(2) D(5) On- Net requirements 20
ItIttakes
takes55 hand
10
35
40
40
Ds
Dsforfor
D
LT=2
Gross requirements
Scheduled receipts
100
each
eachBB On-
Net requirements
20 20 20 20 20 20 20
80
4. PPC & PERT/CPM

Closed Loop MRP
Production Planning
Master Production Scheduling
Material Requirements Planning
Capacity Requirements Planning
No
Realistic? Feedback
Feedback
Yes
Execute:
Capacity Plans
Material Plans
4. PPC & PERT/CPM

Manufacturing Resource Planning
(MRP II)
Goal: Plan and monitor all resources of

a manufacturing firm (closed loop):
manufacturing
marketing
finance
engineering
Simulate the manufacturing system

4. PPC & PERT/CPM
Lot Sizing in MRP Programs
Lot-for-lot (L4L)
Economic order quantity (EOQ)
Least total cost (LTC)
Least unit cost (LUC)
Which one to use?
The one that is least costly!
4. PPC & PERT/CPM

Question Bowl
Which type of industry has only medium
expected benefits from the use of MRP?
a. Assemble-to-stock
b. Fabricate-to-stock
c. Assemble-to-order
d. Fabricate-to-order
e. Process
Answer: e. Process
Question Bowl
To ensure good master scheduling, a master

scheduler must do which of the following?
a. Never lose sight of the aggregate plan
b. Identify and communicate all problems
c. Be involved with customer order promising
d. Be visible to all levels of management
e.Answer: e. All
All of the of the above (Correct answer can also
above
include objectively trade off manufacturing, marketing,
and engineering conflicts and include all demands from
product sales, warehouse replenishment, spares, and
interplant requirements.)
Question Bowl
The purpose of a time fence is which of the

following?
a. Make sure the cows dont get out of the barn
b. Control flow through the production system
c. Maximize sales to retailers
d. All of the above
Answer: b. Control flow through the

production system
Question Bowl
Which of the following is an objective under an

MRP system?
a. To improve customer service
b. Minimize inventory investment
c. Maximize production operating efficiency
d. All of the above
Question Bowl
Which of the following is one of the three

main inputs into an MRP system?
a. BOM file
Answer: a. BOM file
b. Exception report (Correct answer can
c. Planning report also include Master
d. All of the above Schedule and
e. None of the above Inventory Records
File.)

Question Bowl
An MRP program accesses the status of a job
according to specific time periods called which
of the following?
a. Peg record
b. Time fence
c. Time bucket
d. Time clock
Answer: c. Time bucket

Question Bowl
In MRP, workload per work center can be

determined. When the work capacity is
exceeded, which of the following options can be
implemented to correct the imbalance of
workload?
a. Work overtime
b. Renegotiate the due date and reschedule
c. Subcontract to an outside shop
d. All of the above (Correct answer can also include
e. None of the above selecting an alternative work center
and rescheduling the work at a
different time.)
Question Bowl
Which of the following are reasons why a Lot-For-
Lot (L4L) method of lot sizing can be used in an
MRP application?
a. Minimizes carrying costs
b. Sets planned orders to exactly match the net
requirements
c. Produces exactly what is needed
d. Does not carry any units over into future periods
e. All of the above

4e. Process Planning & Analysis

OBJECTIVES
Process Analysis
Process Flowcharting
Types of Processes
Process Performance Metrics
4. PPC & PERT/CPM

Process Planning as defined by L C Jhamb
Process planning is the establishment of shortest (normally
time) & most economical (cost) path for a manufactured item,
from the start (say a raw material) up to being a finished good.
Process planning indicates operations to be performed & their
sequence;
Specifies the machines / equipment required
The tooling required (e.g. jigs, fixtures, ) for each operation;
Provides data (e.g. speeds, feeds;
Indicates processing times (such as set-up time, operations time;
Specifies the skill requirements for each operation
Documents that incorporate such information are:
Process Sheets or Route Sheets
Service Blue-prints

Process Analysis Terms
Process: Is any part of an organization that
takes inputs and transforms them into outputs
Cycle Time: Is the average successive time

between completions of successive units
Utilization: Is the ratio of the time that a

resource is actually activated relative to the
time that it is available for use
4. PPC & PERT/CPM

Process Flowcharting Defined
Process flowcharting is the use of a diagram

to present the major elements of a process
The basic elements can include tasks or

operations, flows of materials or customers,
decision points, and storage areas or queues
It is an ideal methodology by which to begin

analyzing a process
4. PPC & PERT/CPM
Flowchart Symbols
Purpose and Examples
Tasks or operations Examples:
Examples: Giving
Givingan an
admission
admissionticket
ticket to
toaa
customer,
customer, installing
installingaa
engine
enginein
inaacar,
car, etc.
etc.
Decision Points Examples:

Examples: How
Howmuch
much
change
changeshould
shouldbebe
given
givento
toaacustomer,
customer,
which
whichwrench
wrenchshould
should
be
be used,
used, etc.
etc.
4. PPC & PERT/CPM

Flowchart Symbols
Purpose and Examples
Storage areas or Examples:
Examples: Sheds,
Sheds,
queues lines
linesofof people
people waiting
waiting
for
for aaservice,
service, etc.
etc.
Flows of Examples:
Examples: Customers
Customers
materials or moving
moving to toaa seat,
seat,
customers mechanic
mechanicgetting
gettingaa
tool,
tool, etc.
etc.
4. PPC & PERT/CPM

Example: Flowchart of Student Going
to School
Go to Yes
Drive to Walk to
school school class
today?
No
Goof
off
4. PPC & PERT/CPM

Types of Processes
Single-stage Process
Stage 1
Multi-stage Process
Stage 1 Stage 2 Stage 3
4. PPC & PERT/CPM

Types of Processes (Continued)
A buffer refers to a storage area between
stages where the output of a stage is
placed prior to being used in a downstream
stage
Multi-stage Process with Buffer

Buffer
Stage 1 Stage 2
4. PPC & PERT/CPM

Other Process Terminology
Blocking
Occurs when the activities in a stage must stop
because there is no place to deposit the item just
completed
If there is no room for an employee to place a unit of
work down, the employee will hold on to it not able
to continue working on the next unit
Starving
Occurs when the activities in a stage must stop
because there is no work
If an employee is waiting at a work station and no
work is coming to the employee to process, the
employee will remain idle until the next unit of work
comes
4. PPC & PERT/CPM

Other Process Terminology
(Continued)
Bottleneck
Occurs when the limited capacity of a process
causes work to pile up or become unevenly
distributed in the flow of a process
If an employee works too slow in a multi-stage
process, work will begin to pile up in front of
that employee. In this is case the employee
represents the limited capacity causing the
bottleneck.
Pacing
Refers to the fixed timing of the movement of
items through the process
4. PPC & PERT/CPM
Other Types of Processes
Make-to-order
Only activated in response to an actual order
Both work-in-process and finished goods
inventory kept to a minimum
Make-to-stock
Process activated to meet expected or
forecast demand
Customer orders are served from target
stocking level
4. PPC & PERT/CPM
Operation time = Setup time + Run time
Throughput time = Average time for a unit to

move through the system
Velocity = Throughput time

Value-added time
4. PPC & PERT/CPM

(Continued)
Cycle time = Average time between
completion of units
Throughput rate = 1 .
Cycle time
Efficiency = Actual output

Standard Output
4. PPC & PERT/CPM
(Continued)
Productivity = Output
Input
Utilization = Time Activated

Time Available
4. PPC & PERT/CPM

Cycle Time Example
Suppose
Suppose you
you had
had to
to produce
produce 600
600 units
units in
in 80
80 hours
hours
to
to meet
meet the
the demand
demand requirements
requirements ofof aa product.
product.
What
What is
is the
the cycle
cycle time
time to
to meet
meet this
this demand
demand
requirement?
requirement?
Answer:
Answer: There
There are
are 4,800
4,800 minutes
minutes (60(60
minutes/hour
minutes/hour xx 80
80 hours)
hours) in
in 80
80 hours.
hours. So So the
the
average
average time
time between
between completions
completions would
would have
have
to
to be:
be: Cycle
Cycle time
time == 4,800/600
4,800/600 units
units == 88 minutes.
minutes.
4. PPC & PERT/CPM

Process Throughput Time Reduction
Perform activities in parallel
Change the sequence of activities
Reduce interruptions
4. PPC & PERT/CPM

Question Bowl
Which of the following are possible

examples of cycle times?
a. Time for each television to come off an
assembly line.
b. Time it takes for a stock purchase
c. Time it takes for an instructor to grade
an exam
d. Time it takes to build an automobile
e. All of the above

Question Bowl
Which of the following are used as

symbols in a Process Flowchart?
a. Decision points
b. Blocking Answer: a. Decision
c. Starving points (A diamond
d. Bottleneck shaped symbol.)
e. All of the above

Question Bowl
Which type of process is configured as
follows?
1 2 3
a. Single-stage process
b. Multi-stage process
c. Make-to-order process
d. Make-to-stock process
e. All of the above
Answer: b. Multi-stage process

Question Bowl
When an assembly line employee is waiting

for a unit of work to come down the line so
they can stop being idle and get back to
work, it is an example of which of the
following process terms?
a. Buffering
b. Blocking
c. Starving
d. Bottleneck
e. All of the above
Answer: c. Starving
Question Bowl
When a company waits until they have an

order for their product in hand before
beginning any production for that order, we
can characterize their operation as which of
the following processes?
a. Single-stage process
b. Multi-stage process
Answer: c. Make-to-
c. Make-to-order process order process
d. Make-to-stock process
e. All of the above

Question Bowl
If the Run Time for a batch of parts is 45 minutes

on a machine, and the Setup Time is 65 minutes,
which of the following is the Operation Time?
a. 75 minutes
b. 110 minutes
c. Only 45 minutes
d. 65/45 minutes or 1.44 hours
e. Can not be computed on the data above
Answer: b. 110 minutes ( Operation Time is the sum of

Run Time and Setup Time, or 65 + 45 = 110 minutes)
Question Bowl
If the standard expected phone calls for a

telephone marketers is 24 per hour, and one
telephone marketer did 27 per hour, which of
the following can be used to describe their
Answer: c. 112.5%
Efficiency?
(Ratio of actual
a. 88.8% performance/expected performance,
b. 100% or (27/24) x 100 = 110 minutes)
c. 112.5%
d. Well over 150%
e. Can not computed on the information given.
4e contd. Service Process Selection and Design

OBJECTIVES
The Nature of Services
Service Strategy: Focus &
Advantage
Service-System Design Matrix
Service Blueprinting
Service Fail-safing
Characteristics of a Well-Designed
Service Delivery System
4. PPC & PERT/CPM
The Nature of Services
1. Everyone is an expert on services
2. Services are idiosyncratic
3. Quality of work is not quality of

service
4. Most services contain a mix of

tangible and intangible attributes
4. PPC & PERT/CPM
Service Generalizations (Continued)
5. High-contact services are experienced,
whereas goods are consumed
6. Effective management of services requires an

understanding of marketing and personnel,
as well as operations
7. Services often take the form of cycles of

encounters involving face-to-face, phone,
Internet, electromechanical, and/or mail
interactions
4. PPC & PERT/CPM
Service Businesses
A service business is the management of

organizations whose primary business
requires interaction with the customer to
produce the service
Facilities-based services: Where the customer
must go to the service facility
Field-based services: Where the production

and consumption of the service takes place in
the customers environment
4. PPC & PERT/CPM
Internal
Internal services is the
Services management of services
Defined required to support the
activities of the larger
organization. Services
including data processing,
accounting, etc
Internal Supplier
Internal
Customer
External
Customer
Internal Supplier
4. PPC & PERT/CPM
Exhibit
Exhibit7.1
7.1
The Customer Centered View

AAphilosophical
philosophicalviewviewthat
that
suggests The Service
suggeststhe
theorganization
organization Strategy
exists
existsto
toserve
servethe
the
customer,
customer,andandthe
the
systems
systemsandandthe
the
employees
employeesexist
existto
to
facilitate
facilitatethe
theprocess
processof
of The
service.
service. Customer
The The
Systems People
4. PPC & PERT/CPM
Service Strategy: Focus and Advantage
Performance Priorities
Treatment of the customer
Speed and convenience of service delivery
Price
Variety
Quality of the tangible goods
Unique skills that constitute the service
offering
4. PPC & PERT/CPM
Service-System Design Matrix
Exhibit
Exhibit7.6
7.6
Degree of customer/server contact
Buffered Permeable Reactive
High core (none) system (some) system (much) Low
Face-to-face
total
customization
Face-to-face
Sales loose specs Production
Face-to-face
Opportunity Efficiency
tight specs
Phone
Internet & Contact
on-site
Mail contacttechnology
Low High
4. PPC & PERT/CPM

Example of Service Blueprinting
Standard Brush Apply Collect

execution time Buff
shoes polish payment
2 minutes
30 30 45 15
secs secs secs secs
Total acceptable
execution time
Wrong
5 minutes
color wax
Clean Fail
shoes point Materials
Seen by
(e.g., polish, cloth)
customer 45
secs
Line of Not seen by

visibility customer but Select and
necessary to purchase
performance supplies
4. PPC & PERT/CPM
Service Fail-safing
Poka-Yokes (A Proactive Approach)
Keeping a
mistake from Task
becoming a
service defect
Treatment Tangibles
How can we
fail-safe the
three Ts?
4. PPC & PERT/CPM
Have we
compromised
one of the
3 Ts?
1.
1. Task
Task
2.
2. Treatment
Treatment
3.
3. Tangible
Tangible
4. PPC & PERT/CPM

Three Contrasting Service Designs
The production line approach (ex.

McDonalds)
The self-service approach (ex. automatic teller

machines)
The personal attention approach (ex. Ritz-

Carlton Hotel Company)
4. PPC & PERT/CPM

Characteristics of a Well-Designed
Service System
1. Each element of the service system is consistent
with the operating focus of the firm
2. It is user-friendly
3. It is robust
4. It is structured so that consistent performance by

its people and systems is easily maintained
4. PPC & PERT/CPM

Characteristics of a Well-Designed Service
System (Continued)
5. It provides effective links between the back

office and the front office so that nothing falls
between the cracks
6. It manages the evidence of service quality in

such a way that customers see the value of
the service provided
7. It is cost-effective
4. PPC & PERT/CPM

Applying Behavioral Science to
Service Encounters
1. The front-end and back-end of the encounter are

not created equal
2. Segment the pleasure, combine the pain
3. Let the customer control the process
4. Pay attention to norms and rituals
5. People are easier to blame than systems
6. Let the punishment fit the crime in service
recovery
4. PPC & PERT/CPM
Service Guarantees as Design
Drivers
Recent research suggests:
Any guarantee is better than no guarantee
Involve the customer as well as employees
in the design
Avoid complexity or legalistic language
Do not quibble or wriggle when a customer
invokes a guarantee
Make it clear that you are happy for
customers to invoke the guarantee

Question Bowl
Which of the following are generalizations about

the nature of services?
a. Services contain tangible attributes
b. Services are experienced
c. Services often take the form of cycles of
encounters involving face-to-face
interactions
d. All of the above
Question Bowl
Which of the following is an example

of a Service Business?
a. Law firm
b. Hospital
c. Bank
d. Retail store
e. All of the above
Question Bowl
Which of the following is an example of

Internal Services?
a. Finance department
b. Marketing department
c. Operations department
d. All of the above
Question Bowl
According to the Chase and Dasu (2001) study

which of the following are behavioral concepts that
should be applied to enhance customer perceptions
of a service encounter?
a. Flow of the service experience
b. Flow of time
c. Judging encounter performance
d. All of the above
Question Bowl
Service strategy development begins by selecting

which of the following as an operating focus or
performance priority?
a. Price
b. Quality
c. Variety
d. Treatment
e. All of the above

Question Bowl
Which of the following best practices emphasized by

service executives had the highest mean
emphasize rating?
a. Leadership
b. Accessibility
c. Quality values
d. Customer orientation
e. Listening to the customer
Answer: b. Accessibility (Had the highest
mean rating at 4.02 on a 5 point scale.)
Question Bowl
Based on the Service-System Design Matrix,

which of the following has a lower level of
production efficiency?
a. Face-to-face loose specs
b. Phone contact
c. Internet and on-site technology
d. Face-to-face tight specs
e. Mail contact
Answer: a. Face-to-face loose specs
4f. Operations Scheduling

OBJECTIVES
Work Center Defined

Typical Scheduling and Control Functions
Job-shop Scheduling
Examples of Scheduling Rules
Shop-floor Control
Principles of Work Center Scheduling
Issues in Scheduling Service Personnel
4. PPC & PERT/CPM

Work Center
A work center is an area in a

business in which productive
resources are organized and work
is completed
Can be a single machine, a group
of machines, or an area where a
particular type of work is done
4. PPC & PERT/CPM

Capacity and Scheduling
Infinite loading (Example: MRP)
Finite loading
Forward scheduling
Backward scheduling (Example: MRP)
4. PPC & PERT/CPM

Types of Manufacturing Scheduling Processes
and Scheduling Approaches
Type of Process Typical Scheduling Approach
Continuous Finite forward of process,

process machine limited
High-volume Finite forward of line,

manufacturing machined limited
Med-volume Infinite forward of process,

manufacturing labor and machined limited
Low-volume Infinite forward of jobs, labor

manufacturing and some machine limited
4. PPC & PERT/CPM
Typical Scheduling and Control Functions
Allocating orders, equipment, and

personnel
Determining the sequence of order
performance
Initiating performance of the
scheduled work
Shop-floor control
4. PPC & PERT/CPM
Work-Center Scheduling Objectives
Meet due dates
Minimize lead time
Minimize setup time or cost
Minimize work-in-process inventory
Maximize machine utilization

4. PPC & PERT/CPM
Priority Rules for Job Sequencing
1. First-come, first-served (FCFS)
2. Shortest operating time (SOT)
3. Earliest due date first (DDate)
4. Slack time remaining (STR) first
5. Slack time remaining per operation (STR/OP)
4. PPC & PERT/CPM

Priority Rules for Job Sequencing
(Continued)
6. Critical ratio (CR)

(Due date - Current date)
CR =
Number of days remaining
7. Last come, first served (LCFS)

8. Random order or whim
4. PPC & PERT/CPM

Example of Job Sequencing: First-
Come First-Served
Jobs (in order Processing Due Date
Suppose
Supposeyouyouhave
havethe
thefour
four of arrival) Time (days) (days hence)
jobs
jobsto
tothe
theright
rightarrive
arrivefor
for A 4 5
processing
processingon onone
onemachine
machine B 7 10
C 3 6
D 1 4
What
Whatisisthe
theFCFS
FCFSschedule?
schedule? Do
Doall
allthe
thejobs
jobsget
getdone
doneon
ontime?
time?
Answer: FCFS Schedule No,
No,Jobs
JobsB,
B,C,
C,
Jobs (in order Processing Due Date Flow Time and
andDDare
are
of arrival) Time (days) (days hence) (days) going
goingto
tobe
belate
late
A 4 5 4
B 7 10 11
C 3 6 14
D 1 4 15
4. PPC & PERT/CPM

Example of Job Sequencing: Shortest
Operating Time
Suppose
Supposeyouyouhave
havethe
thefour
jobs
jobsto
tothe
theright
rightarrive
arrivefor
for A 4 5
processing
processingon onone
onemachine
machine B 7 10
C 3 6
D 1 4
What
Whatis
isthe
theSOT
SOTschedule? Do
schedule? Doall
allthe
thejobs
jobsget
getdone
doneon
ontime?
time?
Answer: Shortest Operating Time Schedule
Jobs (in order Processing Due Date Flow Time
No,
No,Jobs
JobsAA
of arrival) Time (days) (days hence) (days)
and
andBBare
are
D 1 4 1 going
C 3 6 4 goingtotobe
be
late
late
A 4 5 8
B 7 10 15
4. PPC & PERT/CPM
Example of Job Sequencing: Earliest Due
Date First
Suppose
Supposeyouyouhave
havethe
thefour
jobs
jobsto
tothe
theright
rightarrive
arrivefor
for A 4 5
processing
processingon onone
onemachine
machine B 7 10
C 3 6
D 1 4
What
Whatis isthe
theearliest
earliestdue
duedate
date
first
firstschedule?
schedule? Do
Doall
allthe
thejobs
jobsget
getdone
doneon
ontime?
time?
Answer: Earliest Due Date First
Jobs (in order Processing Due Date Flow Time No,
No,Jobs
JobsCC
of arrival) Time (days) (days hence) (days) and
andBBare
are
D 1 4 1 going
goingtotobe
be
A 4 5 5 late
late
C 3 6 8
B 7 10 15
4. PPC & PERT/CPM
Example of Job Sequencing: Critical Ratio
Method
Suppose
Supposeyouyouhave
havethe
thefour
jobs
jobsto
tothe
theright
rightarrive
arrivefor
for A 4 5
processing
processingon onone
onemachine
machine B 7 10
C 3 6
D 1 4
What
Whatisisthe
theCR
CRschedule? Do
schedule? Doall
allthe
thejobs
jobsget
getdone
doneon
ontime?
time?
In order to do this schedule the CRs have be calculated No,

No,but
butsince
since
for each job. If we let today be Day 1 and allow a total of there
thereisisthree-
three-
15 days to do the work. The resulting CRs and order way
waytie,
tie,only
only
schedule are: the
thefirst
firstjob
jobor
or
CR(A)=(5-4)/15=0.06 (Do this job last) two
twowill
willbe
beon
on
CR(B)=(10-7)/15=0.20 (Do this job first, tied with C and D) time
time
CR(C)=(6-3)/15=0.20 (Do this job first, tied with B and D)
CR(D)=(4-1)/15=0.20 (Do this job first, tied with B and C)
4. PPC & PERT/CPM

Example of Job Sequencing:
Last-Come First-Served
Suppose
Supposeyouyouhave
havethe
thefour
jobs
jobsto
tothe
theright
rightarrive
arrivefor
for A 4 5
processing
processingon onone
onemachine
machine B 7 10
C 3 6
D 1 4
What
Whatis
isthe
theLCFS
LCFSschedule? Do
schedule? Doall
allthe
thejobs
jobsget
getdone
doneon
ontime?
time?
Answer: Last-Come First-Served Schedule
Jobs (in order Processing Due Date Flow Time
of arrival) Time (days) (days hence) (days) No,
No,Jobs
JobsBB
D 1 4 1 and
andAAare
are
C 3 6 4 going
goingtotobe
be
B 7 10 11 late
late
A 4 5 15
4. PPC & PERT/CPM
Example of Job Sequencing: Johnsons
Rule (Part 1)
Suppose
Suppose you
you have
havethe
thefollowing
followingfive
fivejobs
jobswith
withtime
time
requirements
requirementsin
intwo
twostages
stagesof
ofproduction.
production. What
What is
isthe
the
job
jobsequence
sequenceusing
usingJohnsons
JohnsonsRule?
Rule?
Time in Hours
Jobs Stage 1 Stage 2
A 1.50 1.25
B 2.00 3.00
C 2.50 2.00
D 1.00 2.00
4. PPC & PERT/CPM

Example of Job Sequencing: Johnsons Rule (Part 2)
First, select the job with the
Time in Hours
smallest time in either stage.
Jobs Stage 1 Stage 2
That is Job D with the smallest A 1.50 1.25
time in the first stage. Place that B 2.00 3.00
job as early as possible in the C 2.50 2.00
unfilled job sequence below. D 1.00 2.00
Drop D out, select the next smallest time (Job A), and place it 4th in the job
sequence.
Drop A out, select the next smallest time. There is a tie in two stages for
two different jobs. In this case, place the job with the smallest time in the
first stage as early as possible in the unfilled job sequence.
Then place the job with the smallest time in the second stage as late as
possible in the unfilled sequence.
Job Sequence 1 2 3 4
Job Assigned 4.DPPC & PERT/CPM
B C A
Shop-Floor Control:
Major Functions
1. Assigning priority of each shop order
2. Maintaining work-in-process quantity

information
3. Conveying shop-order status information

to the office
4. PPC & PERT/CPM

Shop-Floor Control:
Major Functions (Continued)
4. Providing actual output data for capacity
control purposes
5. Providing quantity by location by shop order

for WIP inventory and accounting purposes
6. Providing measurement of efficiency,

utilization, and productivity of manpower and
machines
4. PPC & PERT/CPM

Input/Output Control
Work
Input Output
Center
Planned input should never exceed planned

output
Focuses attention on bottleneck work centers
4. PPC & PERT/CPM

Principles of Work Center Scheduling
1. There is a direct equivalence between work flow and

cash flow
2. The effectiveness of any job shop should be

measured by speed of flow through the shop
3. Schedule jobs as a string, with process steps back-

to-back
4. A job once started should not be interrupted
4. PPC & PERT/CPM

Principles of Job Shop Scheduling
(Continued)
5. Speed of flow is most efficiently achieved
by focusing on bottleneck work centers
and jobs
6. Reschedule every day
7. Obtain feedback each day on jobs that are
not completed at each work center
8. Match work center input information to
what the worker can actually do
4. PPC & PERT/CPM

Principles of Job Shop Scheduling
(Continued)
9. When seeking improvement in output,

look for incompatibility between
engineering design and process
execution
10. Certainty of standards, routings, and so

forth is not possible in a job shop, but
always work towards achieving it
4. PPC & PERT/CPM
Personnel Scheduling in Services
Scheduling consecutive days off
Scheduling daily work times
Scheduling hourly work times
4. PPC & PERT/CPM

Question Bowl
A Work Center may be which of the

following?
a. A single machine
b. A group of machines
c. An area where a particular type of work
is performed
d. All of the above
Answer : d. All of the above
Question Bowl
When work is assigned to a work center simply
based on what is needed over time, we would
refer to this as which of the following scheduling
systems?
a. A finite loading of work
b. An infinite loading of work
c. Forward scheduling
d. All of the above
Answer: b. An infinite loading of work

Question Bowl
Typical scheduling and controlling of operations
include which of the following functions?
a. Allocating orders at work centers
b. Allocating equipment at work centers
c. Allocating personnel at work centers
d. All of the above

Question Bowl
Typical scheduling and controlling of

operations include which of the following
functions?
a. Determining the job sequences
b. Dispatching
c. Expediting late and critical orders
d. All of the above
e. Answer: d. All
None of the of the above
above
Question Bowl
Which of the following are standard measures

of schedule performance used to evaluate
priority rules?
a. Meeting due dates
b. Maximizing job flow time
c. Maximizing work-in-process inventory
d. All of the above
e. None of the above Answer: a. Meeting due dates
(Correct answer can also include
minimizing WIP inventory, idle time,
and job flow time.)

Question Bowl
Which priority rule uses the calculation of the

difference between the due date and the current
date divided by the number of work days
remaining?
a. STR Answer: e. None of
b. SOT the above (Correct
c. DDate answer can is CR or
d. FCFS critical ratio.)

Question Bowl
The major functions of a shop-floor control are

which of the following?
a. Conveying shop-order status (Correct answer can also
include providing quantity by
b. Measuring efficiency
location and actual output
c. Assigning priorities data.)
d. Maintaining WIP quantity information

e. All of the above

Question Bowl
Which of the following are Tools of

Shop-Floor Control?
Answer: d. All of the
a. Daily dispatch lists above (Correct
b. Scrap reports answer can also
c. Rework reports include all status and
d. All of the above exception reports
and input/output
control reports.)

Question Bowl
Which of the following is a Principle of Work-

Center Scheduling?
a. There is a direct equivalence between work flow
and cash flow
b. Certainty of routings are very possible in a shop
c. Reschedule only once a week
d. All of the above Answer: a. There is a direct
equivalence between work flow
e. None of the above and cash flow (There are nine
other principles.)

4g. Project Management
(PERT / CPM)
OBJECTIVES
Definition of Project Management

Work Breakdown Structure
Project Control Charts
Structuring Projects
Critical Path Scheduling
4. PPC & PERT/CPM

Project Management
Defined
Project is a series of related jobs usually
directed toward some major output and
requiring a significant period of time to
perform
Project Management are the management
activities of planning, directing, and
controlling resources (people, equipment,
material) to meet the technical, cost, and time
constraints of a project
4. PPC & PERT/CPM
Characteristics of projects
Non-routine
Have a specific objective to achieve
Identifiable Start & Finish
Consist of a number of inter-related activities. Each activity in turn requires

time & resources for its completion.
The resources and skills required are multi-faceted. Sometimes, they are
unique to the specific project.
Co-ordination of the efforts of multiple agencies (departments, external

organizations, individuals) is required

Gantt Chart
Vertical
VerticalAxis:
Axis: Horizontal
Horizontal bars
bars used
used toto denote
denote length
length
Always
AlwaysActivities
Activities of
of time
time for
for each
each activity
activity or
or job.
job.
or
or Jobs
Jobs
Activity 1
Activity 2
Activity 3
Activity 4
Activity 5
Activity 6
Time Horizontal
HorizontalAxis:
Axis: Always
AlwaysTime
Time
4. PPC & PERT/CPM
Pure Project
A pure project is where a self-contained team
works full-time on the project
Structuring Projects Pure Project: Advantages

The project manager has full authority
over the project
Team members report to one boss
Shortened communication lines
Team pride, motivation, and commitment
are high
4. PPC & PERT/CPM
Structuring Projects Pure Project:
Disadvantages
Duplication of resources
Organizational goals and policies
are ignored
Lack of technology transfer
Team members have no functional
area "home"
4. PPC & PERT/CPM

Functional Project
A functional project is housed within
a functional division
President
Research and
Engineering Manufacturing
Development
Project Project Project Project Project Project Project Project Project

A B C D E F G H I
Example,
Example, Project
Project B B is
is in
in the
the functional
functional
area
area of
of Research
Research and
and Development.
Development.
4. PPC & PERT/CPM
Functional Project: Advantages
A team member can work on
several projects
Technical expertise is maintained
within the functional area
The functional area is a home
after the project is completed
Critical mass of specialized
knowledge
4. PPC & PERT/CPM
Functional Project: Disadvantages
Aspects of the project that are not

directly related to the functional
area get short-changed
Motivation of team members is
often weak
Needs of the client are secondary
and are responded to slowly
4. PPC & PERT/CPM

Matrix Project Organization Structure
President
Research and
Engineering Manufacturing Marketing
Development
Manager
Project A
Manager
Project B
Manager
Project C
4. PPC & PERT/CPM
Matrix: Advantages
Enhanced communications between functional

areas
Pinpointed responsibility
Duplication of resources is minimized
Functional home for team members
Policies of the parent organization are followed

4. PPC & PERT/CPM
Matrix: Disadvantages
Too many bosses
Depends on project managers

negotiating skills
Potential for sub-optimization

4. PPC & PERT/CPM
Work Breakdown Structure
A work breakdown structure defines the hierarchy of
project tasks, subtasks, and work packages
Level Program
1 Project 1 Project 2
2 Task 1.1 Task 1.2
3 Subtask 1.1.1 Subtask 1.1.2
4 Work Package 1.1.1.1 Work Package 1.1.1.2
4. PPC & PERT/CPM

Network-Planning Models
A project is made up of a sequence of activities that

form a network representing a project
The path taking longest time through this network of
activities is called the critical path
The critical path provides a wide range of scheduling
information useful in managing a project
Critical Path Method (CPM) helps to identify the
critical path(s) in the project networks
4. PPC & PERT/CPM

Prerequisites for Critical Path
Methodology
A project must have:
well-defined jobs or tasks whose

completion marks the end of the project;
independent jobs or tasks;
and tasks that follow a given sequence.

4. PPC & PERT/CPM
Types of Critical Path Methods
CPM with a Single Time Estimate
Used when activity times are known with certainty
Used to determine timing estimates for the project,
each activity in the project, and slack time for
activities
PERT is CPM with Three Activity Time Estimates
Used when activity times are uncertain
Used to obtain the same information as the Single
Time Estimate model and probability information
Time-Cost Models
Used when cost trade-off information is a major
consideration in planning
Used to determine the least cost in reducing total
project time
4. PPC & PERT/CPM

Steps in the CPM with Single Time
Estimate
1. Activity Identification - requires knowledge & experience.
2. Activity Sequencing and Network Construction

The network may be denoted with Activity on Arrow (AoA)
or Precedence Network
3. Determine the critical path

From the critical path all of the project and activity timing
information can be obtained
4. PPC & PERT/CPM

Important terms
Network The diagram that depicts all activities & their inter-relationships
Activity Has a duration, a start time and an end time. Can shown on arrow or on
node
Events Represent the start & finish of activities, projects, etc. All activities have
Early Start (ES) Early Finish (EF), Late Start (LS) & Late Finish (LF)
Activity Two or more activities can be concurrent, preceding or succeeding; w.r.t.
relationships each other
Dummy activity Used to break ambiguity. Has zero duration.
Activity time In PERT there is concept of optimistic (O), most likely (M), pessimistic (P)
and expected times (E). E = [ (O+4M+P) / 6 ]
Critical Path The path that determines the duration / completion of the project, and
hence must the focus of attention. .
Slack When an activity can be delayed, without affecting project completion
time.. Activities on the critical path have no slack.
Float Is the amount of slack available. There are 4 types of float i.e.
TOTAL FLOAT, FREE FLOAT, INTERFERING FLOAT & INDEPENDENT
FLOAT

Four Types of Activity Float

PERT CPM
1. It is a technique for 1. It is a technique for
planning scheduling & planning scheduling &
controlling of projects controlling of projects
whose activities are whose activities not
subject to uncertainty in subjected to any
the performance time. uncertainty and the
Hence it is a probabilistic performance times are
model fixed. Hence it is a
deterministic model
2.It is an Event oriented 2. It is an Activity oriented

system system
3.Basically does not Differentiates clearly the
differentiate critical and critical activities from the
non-critical activities other activities.
4. Used in projects where 4. Used in projects where

resources (men, overall costs is of
materials, money) are primarily important.
always available when Therefore better utilized
required. resources
5. Suitable for Research 5.Suitable for civil
and Development constructions,
projects where times installation, ship building
cannot be predicted etc.
1 2 3 4
Rules for drawing the network diagrams (AoA)

In a network diagram, arrows represent the
activities and circles represent the events.
The tail of an arrow represents the start of an
activity and the head represent the completion
of the activity.

1 2 3 4
The event numbered 1 denotes the start of the

project and is called initial event.
Event carrying the highest number in the network
denotes the completion of the project and is called
terminal event.
1 2 3 4
Each defined activity is represented by one and only

arrow in the network.
Determine which operation must be completed
immediately before other can start.
Determine which other operation must follow the
other given operation.
1 2 3 4
The network should be developed on the basis of

logical, analytical and technical dependencies
between various activities of the project.

The basic network construction Terminology used.
Network representation: There are two types of
systems
AOA system (Activity AON system
on Arrow system) (Activity on Node system
)
In this activities are In this method activities
represented by an are represented in the
arrows. circles.

Problem 1.
Construct an arrow diagram for the following project.
Activities Relationship
A Precedes B,C
B Precedes D,E
C Precedes D
D Precedes F
E Precedes G
F Precedes G

E
B
G
A
C F
D

Problem 2.
Job Immediate Duration

predecessor
A - 14 Days
B A 3 Days
C A 7 Days
D C 4 Days
E B,D 10 Days
E
B 10
A 3 D
4
14 C
Job
Key
Duration

Problem 3.
Job Immediate predecessor
A -
B -
C A,B
D A
E D
F C,E

C
B
A E

Problem 4.
Activity Predecessor
A -
B -
C -
D A,B
E B,C
A D
C E

Problem 5.
Activity Predecessor
A -
B -
C -
D A,B
E B,C
F A,B,C

A D
B F
C E

CPM with Single Time Estimate (AoN)
Consider the following consulting project:
Activity Designation Immed. Pred. Time (Weeks)
Assess customer's needs A None 2
Write and submit proposal B A 1
Obtain approval C B 1
Develop service vision and goals D C 2
Train employees E C 5
Quality improvement pilot groups F D, E 5
Write assessment report G F 1
Develop a critical path diagram and determine

the duration of the critical path and slack times
for all activities.
First draw the network
Act. Imed. Pred. Time
A None 2
B A 1
C B 1
D C 2
E C 5
F D,E 5
D(2)
G F 1
A(2) B(1) C(1) F(5) G(1)
E(5)
4. PPC & PERT/CPM
Determine early starts and early finish times
ES=4
EF=6
ES=0 ES=2 ES=3 D(2)

ES=9 ES=14
EF=2 EF=3 EF=4 EF=14 EF=15
A(2) B(1) C(1) F(5) G(1)

ES=4
EF=9
Hint:
Hint:Start
Startwith
withES=0
ES=0
and
andgo
goforward
forwardininthe
the E(5)
network
networkfrom
fromAAtotoG.
G.
4. PPC & PERT/CPM

Determine late Hint:
Hint:Start
Startwith
withLF=15
LF=15
starts and late or
orthe
thetotal
totaltime
timeofofthe
the
ES=4 project
project and
andgogo
finish times
EF=6 backward
backwardin inthe
the
network
networkfrom
fromGGto toA.
A.
ES=0 ES=2 ES=3 D(2)
ES=9 ES=14
EF=2 EF=3 EF=4 LS=7 EF=14 EF=15
LF=9
A(2) B(1) C(1) F(5) G(1)
ES=4
LS=0 LS=2 LS=3 EF=9 LS=9 LS=14
LF=2 LF=3 LF=4 LF=14 LF=15
E(5)
LS=4
LF=9
4. PPC & PERT/CPM
Critical Path & Slack
ES=4
Slack=(7-4)=(9-6)= 3 Wks
EF=6
ES=0 ES=2 ES=3 D(2)

ES=9 ES=14
EF=2 EF=3 EF=4 LS=7 EF=14 EF=15
LF=9
A(2) B(1) C(1) F(5) G(1)
ES=4
LS=0 LS=2 LS=3 EF=9 LS=9 LS=14
LF=2 LF=3 LF=4 LF=14 LF=15
E(5)
LS=4 Duration=15 weeks

LF=9
4. PPC & PERT/CPM
Example 2. CPM with Three Activity
Time Estimates (AoN)
Immediate
Task Predecesors Optimistic Most Likely Pessimistic
A None 3 6 15
B None 2 4 14
C A 6 12 30
D A 2 5 8
E C 5 11 17
F D 3 6 15
G B 3 9 27
H E,F 1 4 7
I G,H 4 19 28
Example 2. Expected Time
Calculations
ET(A)=
ET(A)=3+4(6)+15
3+4(6)+15
Immediate Expected 66
Task Predecesors Time
A None 7 ET(A)=42/6=7
ET(A)=42/6=7
B None 5.333
C A 14 Immediate
D A 5 A
B
None
None
3
2
6
4
15
14
E C 11 C
D
A
A
6
2
12
5
30
8
F D 7 E C 5 11 17
F D 3 6 15
G B 11 G B 3 9 27
H E,F 1 4 7
H E,F 4 I G,H 4 19 28
I G,H 18
Opt. Time + 4(Most Li kely Time) + Pess. Time
Expected T ime =
4. PPC & PERT/CPM 6 279
Ex. 2. Expected Time Calculations
Immediate Expected ET(B)=

ET(B)=2+4(4)+14
2+4(4)+14
Task Predecesors Time 66
A None 7
B None 5.333 ET(B)=32/6=5.333
ET(B)=32/6=5.333
C A 14
D A 5 Immediate
E C 11 A None 3 6 15
B None 2 4 14
F D 7 C A 6 12 30
G B 11 D
E
A
C
2
5
5
11
8
17
H E,F 4 F
G
D
B
3
3
6
9
15
27
I G,H 18 H
I
E,F
G,H
1
4
4
19
7
28

Expected T ime =
Ex 2. Expected Time Calculations
Immediate Expected ET(C)=

ET(C)=6+4(12)+30
6+4(12)+30
Task Predecesors Time
A None 7 66
B None 5.333
C A 14 ET(C)=84/6=14
ET(C)=84/6=14
D A 5
E C 11 Immediate
F D 7 A
B
None
None
3
2
6
4
15
14
G B 11 C
D
A
A
6
2
12
5
30
8
H E,F 4 E
F
C
D
5
3
11
6
17
15
I G,H 18 G B 3 9 27
H E,F 1 4 7
I G,H 4 19 28

Expected T ime =
Example 2. Network (AoN)
Duration = 54 Days
C(14) E(11)
A(7) H(4)
D(5) F(7)
I(18)
B G(11)
(5.333)
Example 2. Probability Exercise
What
What isis the
theprobability
probability of
of finishing
finishing this
this project
project in
in
less
less than
than 53
53 days?
days?
p(t < D)
D=53
t
TE = 54
D - TE
Z =
cp
2

Pessim. - Optim. 2
Activity v ariance, = (
2
)
6
Task Optimistic Most Likely Pessimistic Variance

A 3 6 15 4
B 2 4 14
C 6 12 30 16
D 2 5 8
E 5 11 17 4
F 3 6 15
G 3 9 27
H 1 4 7 1
I 4 19 28 16
(Sum the variance along the critical = 41

2
path.) 4. PPC & PERT/CPM 284

p(t < D)
t
D=53 TE = 54
D - TE 53 - 54
Z = = = -.156
cp
2 41
p(Z
p(Z<< -.156)
-.156) == .438,
.438, or
or 43.8
43.8 %
% (NORMSDIST(-.156)
(NORMSDIST(-.156)
There
There isis aa 43.8%
43.8% probability
probability that
that this
this project
project will
will be
be
completed
completed in in less
less than
than4.53
53 weeks.
PPC &weeks.
PERT/CPM 285
Ex 2. Additional Probability Exercise
What
What is
is the
the probability
probability that
that the
the
project
project duration
duration will
will exceed
exceed 56 56
weeks?
weeks?
4. PPC & PERT/CPM

Example 2. Additional Exercise
Solution
p(t < D)
t
TE = 54
D=56
D - TE 56 - 54
Z = = = .312
cp
2 41
p(Z
p(Z >> .312)
.312) == .378,
.378, or
or 37.8
37.8 %
% (1-NORMSDIST(.312))
(1-NORMSDIST(.312))
4. PPC & PERT/CPM
Time-Cost Models
Basic Assumption: Relationship between

activity completion time and project cost
Time Cost Models: Determine the optimum

point in time-cost tradeoffs
Activity direct costs
Project indirect costs
Activity completion times
4. PPC & PERT/CPM

CPM Assumptions/Limitations
Project activities can be identified as entities
(There is a clear beginning and ending point
for each activity.)
Project activity sequence relationships can be
specified and networked
Project control should focus on the critical
path
The activity times follow the beta distribution,
with the variance of the project assumed to
equal the sum of the variances along the
critical path
Project control should focus on the critical
path
4. PPC & PERT/CPM
Project Crashing
The process of accelerating a project is
referred as crashing.
Crashing a project relates to resource
commitment; the more resources expended, the
faster the project will finish.
There are several reasons to crash a project:
Initial schedule was too optimistic
Market needs change and the project is in demand
earlier than anticipated
The project has slipped considerably behind
schedule
There are contractual late penalties
Project Crashing
Principal methods for crashing
Improving existing resources productivity
Changing work methods
Increasing the quantity of resources
Increasing the quantity of resources is the
most commonly used method for project
crashing. There are 2 approaches:
Working current resources for longer hours
(overtime, weekend work)
Adding more personnel
Project Crashing
Fully expedited (no expense is spared)
Crash
Point
Crashed
Cost
Normal
Point
Normal
Crashed Normal
Activity Duration
Time-Cost Trade-Offs for Crashing Activities

Project Crashing
In analyzing crash options, the goal is to find
the point at which time and cost trade-offs are
optimized.
Various combinations of time-cost trade-offs

for crash options can be determined by using
the following formula:
Slope = crash cost normal cost

normal time crash time
Example
SUPPOSE:
NORMAL ACTIVITY DURATION = 8 WEEKS
NORMAL COST = Rs.14,000
CRASHED ACTIVITY DURATION = 5 WEEKS

CRASHED COST = Rs.23,000
THE ACTIVITY COST SLOPE =

23,000 14,000 OR Rs.9,000 = Rs. 3,000 per week
85 3
Cease crashing when

the target completion time is reached
the crash cost exceeds the penalty cost

Example
Normal Crashed
Activity Duration Cost (Rs) Duration Cost (Rs)
A 4 days 1,000 3 days 2,000
B 5 days 2,500 3 days 5,000
C 3 days 750 2 days 1,200
D 7 days 3,500 5 days 5,000
E 2 days 500 1 day 2,000
F 5 days 2,000 4 days 3,000
G 9 days 4,500 7 days 6,300
a) Calculate the per day costs for crashing each activity

b) Which are the most attractive candidates for crashing?
Why?

Example
Activity Per Day Cost (Rs)

A 1,000
B 1,250
C 450
D 750
E 1,500
F 1,000
G 900

Resource Allocation Problem
A shortcoming of most scheduling procedures
is that they do not address the issues of
resource utilization and availability.
Scheduling procedures tend to focus on time

rather than physical resources.

Schedules should be evaluated not merely in
terms of meeting project milestones, but also in
terms of the timing and use of scarce
resources.
A fundamental measure of the project

managers success in project management is
the skill with which the trade-offs among
performance, time, and cost are managed.
I can shorten this project by 1 day at a cost of

$400. Should I do it?

The extreme points of the relationship between
time use and resource use are the following:
Time Limited: The project must be
finished by a certain time, using as few
resources as possible. But it is time, not
resource usage, that is critical
Resource Limited: The project must be
finished as soon as possible, but without
exceeding some specific level of resource
usage or some general resource constraint

Resource Loading
Resource loading describes the amounts of
individual resources an existing schedule
requires during specific time periods
The loads (requirements) of each resource

type are listed as a function of time period
Resource loading gives a general

understanding of the demands a project or set
of projects will make on a firms resources
Resource Loading
The project manager must be aware of the
ebbs and flows of usage for each input resource
throughout the life of the project.
It is the project managers responsibility to

ensure that the required resources, in the
required amounts, are available when and
where they are needed.

Resource Leveling (Smooting)
Resource leveling aims to minimize the
period-by-period variations in resource loading
by shifting tasks within their slack allowances.
The purpose is to create a smoother
distribution of resource usage.
Resource leveling, referred to as resource
smoothing, has two objectives:
To determine the resource requirements so that
they will be available at the right time,
To allow each activity to be scheduled with the
smoothest possible transition across usage levels
Resource Leveling (Smooting)
Resource management is a multivariate,
combinatorial problem, i.e. multiple solutions
with many variables, the mathematically optimal
solution may be difficult or infeasible.
More common approach to analyzing

resource leveling problems is to apply some
resource leveling heuristics.

Resource Leveling Heuristics
Prioritizing resource allocation include
applying resources to activities:
with the smallest amount of slack
with the smallest duration
that start earliest
with the most successor tasks
requiring the most resources

Resource Leveling Steps
Create a project activity network diagram
Create a table showing the resources required
for each activity, durations, and the total float
available
Develop a time-phased resource loading table
Identify any resource conflicts and begin to
smooth the loading table using one or more
heuristics

Resource Loading Chart
Display the amount of resources required as a

function of time.
4 B 5 5 D 9 9 E 11
Res = 2 Res = 7 Res = 3
1. Start with a
0 A 4 network diagram
Res = 6 11 F 12
Res = 6
4 C 7
Res = 2
Resource Loading Charts
Activity Resource Duration ES Slack LF
A 6 4 0 0 4
B 2 1 4 0 5
C 2 3 4 4 11
D 7 4 5 0 9
E 3 2 9 0 11
F 6 1 11 0 12
2. Produce a table that shows the

duration, early start, late finish,
slack, and resource(s) required for
each activity.
3. Draw an initial loading chart with
8 each activity scheduled at its ES.
Resources
6
Resource
4 imbalance
A D F
B
2 E
C
2 4 6 8 10 12 14
Project Days
4. Rearrange activities within their slack
to create a more level profile. Splitting
8 C creates a more level project.
Resources
4 C
A D F
B
2 E
C
2 4 6 8 10 12 14
Project Days
Resource Loading Chart

Question Bowl
Which of the following are examples of

Graphic Project Charts?
a. Gantt
b. Bar
c. Milestone
d. All of the above
Question Bowl
Which of the following are one of the

three organizational structures of
projects?
a. Pure
b. Functional
c. Matrix
d. All of the above
e.Answer:
None of d.
theAll
above
of the above
Question Bowl
A project starts with a written description of the
objectives to be achieved, with a brief statement
of the work to be done and a proposed schedule
all contained in which of the following?
a. SOW
b. WBS
c. Early Start Schedule
d. Late Start Schedule
Answer: a. SOW (or Statement of Work)

Question Bowl
For some activities in a project there may be

some leeway from when an activity can start
and when it must finish. What is this period of
time called when using the Critical Path
Method?
a. Early start time
b. Late start time
c. Slack time
d. All of the above
Answer: c. Slack time
Question Bowl
How much slack time is permitted in the critical

path activity times?
a. Only one unit of time per activity
b. No slack time is permitted
c. As much as the maximum activity time in the
network
d. As much as is necessary to add up to the total
time of the
Answer: project
b. No slack time is permitted (All
critical path activities must have zero slack
time, otherwise they would not be critical to
the project completion time.)
Question Bowl
When looking at the Time-Cost Trade Offs in the

Minimum-Cost Scheduling time-cost model, we
seek to reduce the total time of a project by doing
what to the least-cost activity choices?
a. Crashing them
b. Adding slack time
Answer: a. Crashing them
c. Subtracting slack time (We crash the least-cost
d. Adding project time activity times to seek a
e. None of the above reduced total time for the
entire project and we do it
step-wise as inexpensively as
possible.)

UNIVERSITY QUESTIONS
Given data for a project
Draw the network diagram and identify critical path.
Calculate project duration and total float for each activity.
Calculate standard deviation for critical path.
'Production Planning and Control is the key to the success of a business organisation'. Discuss
the statement listing the various functions carried out under production planning & control and
their purpose in brief.
Draw Network Diagram
Calculate project duration & determine critical path
Determine slack for each activity.
Explain how production control functions are carried out in Mass Production (Give examples).
a) Draw the Network Diagram for the Project.
b) Determine the critical path and its duration.
c) Compute slack, earliest start time & earliest finish time.
Narrate the functions of production Planning and control. Explain their objective clearly .

UNIVERSITY QUESTIONS cont

Draw a network diagram.
Compute project completion time.
Identify critical path.
'Production, planning and control function involves balancing between Priority' (Demand) and
capacity (Resources)'. Discuss the statement.
Compare CPM and PERT method for project management. What do you understand by 'Network
crashing'?
Explain those functions of Production Planning & Control which enable a company to control cost
of Production & Capacity utilization.
Write short notes on any three:

a) Aggregate Planning
b) Line Balancing
c) Scheduling
d) Critical Path Method.

UNIVERSITY QUESTIONScontd
Following are the activities of a project:
Activity Immediate Activity time in weeks
Predecessor Most Most Most
Activity Optimistic Likely Pessimistic
A None 4 7 13
B A 6 9 11
C A 5 7 09
D B 3 5 07
E C 7 8 10
F D 2 3 05
G E 6 7 08
H F&G 2 3 04
a) Calculate the expected time of each activity [3]
b) Draw the network and indicate the expected time on each activity. [7]
c) Compute the earliest completion time of the project. [2]
d) Identify the critical path in the diagram. [2]

UNIVERSITY QUESTIONScontd
a) Explain the term scheduling in Production Planning. [4]

b) What are the different types of scheduling? [4]
c) What considerations will you apply in "Scheduling" the jobs in Job-Production.
[6]
Write short notes (Any three) : [14]

a) Process.:-flow-chart.
b) Control charts in Q.C.
c) Spare- parts for maintenance.
maintenance
d) Despatching in Production Control.
Distinguish between the following (any three) :

a) Product and Services
b) Routing and Scheduling.
c) Statistical Quality Control and Statistical Process Control.
d) Inspection and Quality Control.
e) Method study and work measurement.

UNIVERSITY QUESTIONS contd
What are the objectives of Production Planning and control. Enlist functions of Production
Planning and Control.
"Project control should always focus on critical path" comment.
Q4) The following information has been gathered for a project:

Activity Activity Duration in Days Immediate Predecessor/s
A 12 --
B. 9 --
C 10 A
D 10 B
E 24 B
F 10 A
G 35 C
H 40 D
I 4 E, G, H
J 7 F, I
a) Draw the Network Diagram for the project
b) Determine critical path for the project and compute project duration.
c) Compute slack, EST (Earliest Start Time), EFT (Earliest Finish Time)

University Questions contd
The activities of a project and estimated time in days for each activity are given
below:
Activity Optimistic Most Likely Pessimistic
Time Time Time
1-2 2 5 8
1-4 4 19 28
1-5 5 11 17
2-3 3 9 27
2-6 3 9 15
3-6 2 5 14
4-6 3 6 15
5-7 1 4 7
5-8 2 5 14
6-8 6 12 30
7-8 2 5 8
a) Determine expected time for each activity.
b) Draw Network Diagram and determine critical path.
c) Calculate project duration and slack for each activity.

University Questions contd
Distinguish between following (ant three):

(a) Job production and batch production.
(b) Process Layout and Product Layout.
(c) Product and service.
(d) Production planning and Production control.
(e) Statistical Quality Control and statistical process control.

Operations Management PERT & CPM

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4.

Production Planning & Control

4. PPC & PERT/CPM 1

4. PPC & PERT/CPM 2

Planning is the series of related & co-ordinated activities demand management,

Overall PPC is thus:

4. PPC & PERT/CPM 3

Provide resources (men, material, machines) of the right quantity, quality at

Optimum scheduling of facilities

To achieve balanced flow of production, with co-ordination between all

Ensure conformance to delivery commitments, and make sales aware of

Inform all concerned, especially management, well in time, re: difficulties

4. PPC & PERT/CPM 4

MATERIAL CONTROL: includes making material estimates, indenting, purchasing, follow-

4. PPC & PERT/CPM 5

4. PPC & PERT/CPM 6

Entry of OA into the system

Raise Work Order Check on-hand availability

Shop order part A

Shop order Part B

4. PPC & PERT/CPM 7

4. PPC & PERT/CPM 8

4. PPC & PERT/CPM

D(2) E(1) D(3) F(2)

4. PPC & PERT/CPM

Can take an active role to influence demand

Can take a passive role and simply respond

4. PPC & PERT/CPM

4. PPC & PERT/CPM

Average demand for a period of time

Executive Judgment Grass Roots

Qualitative Market Research

Delphi Method Panel Consensus

4. PPC & PERT/CPM 15

4. PPC & PERT/CPM

Time series forecasting models try to predict

The simple moving average model assumes an average is a good

A t-1 + A t-2 + A t-3 +...+A t- n

4. PPC & PERT/CPM

4. PPC & PERT/CPM

Ft = w 1A t-1 + w 2 A t-2 + w 3A t-3 +. ..+w n A t-n

4. PPC & PERT/CPM

Week Demand Weights:

Week Demand Forecast

Week Demand Weights:

4. PPC & PERT/CPM

W eek Demand Forecast

Week Demand Question:

4. PPC & PERT/CPM

4. PPC & PERT/CPM

Week Demand 0.5

The ideal MAD is zero which would mean

The larger the MAD, the less the

4. PPC & PERT/CPM

Month Sales Forecast

Month Sales Forecast Abs Error

4. PPC & PERT/CPM

RSFE Running su m of forec ast errors

Yt is the regressed forecast value or dependent

4. PPC & PERT/CPM

4. PPC & PERT/CPM

a = y - bx = 162.4 - (6.3)(3) = 143.5

The resulting regression model