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OPERATIONS MANAGEMENT

Course Outline
Introduction to Operations Management Forecasting System and work Design Quality Supply Chain Management Inventory Management and Scheduling Project Management Manufacturing and Service Technologies

Operations Management
Course Programme:
10 hours lectures, discussions and presentations 2 hours group presentation

Operations Management
Assessment Method:
10% Attendance 10% Class participation 30% Students group assignment 30% Students individual assignment 20% Written examination

Operations Management
Reference:
William J Stevenson. Operations Management (9th Edition). The McGraw-Hill Companies Inc. ISBN 0-07-304191-2

Group and Individual Assignment


  

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

Key terms to understand


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


Quality Cost Time Flexibility Agility


7

Operations Management
The management of systems or processes that create goods and/or provide services
Organization

Finance

Operations

Marketing

ValueValue-Added
The difference between the cost of inputs and the value or price of outputs.
Value added
Inputs Land Labor Capital Transformation/ Conversion process
Feedback

Outputs Goods Services

Control
Feedback Feedback
9

GoodsGoods-service Continuum

Steel production Home remodeling Auto Repair Maid Service Teaching Automobile fabrication Retail sales Appliance repair Manual car wash Lawn mowing

High percentage goods Low percentage service

Low percentage goods High percentage service

10

Food Processor
Inputs
Raw Vegetables Metal Sheets Water Energy Labor Building Equipment

Processing
Cleaning Making cans Cutting Cooking Packing Labeling

Outputs
Canned vegetables

11

Hospital Process
Inputs
Doctors, nurses Hospital Medical Supplies Equipment Laboratories

Processing
Examination Surgery Monitoring Medication Therapy

Outputs
Healthy patients

12

Manufacturing or Service?

Tangible

Act

13

Production of Goods vs. Delivery of Services


  

Production of goods tangible output Delivery of services an act Service job categories
Government Wholesale/retail Financial services Healthcare Personal services Business services Education
14

Key Differences
1. 2. 3. 4. 5. 6. 7. 8.

Customer contact Uniformity of input Labor content of jobs Uniformity of output Measurement of productivity Production and delivery Quality assurance Amount of inventory
15

Manufacturing v Service
Characteristic
Output Customer contact Uniformity of input Labor content Uniformity of output Measurement of productivity Opportunity to correct quality problems
High

Manufacturing Service
Tangible Low High Low High Easy High Intangible High Low High Low Difficult Low

16

Scope of Operations Management




Operations Management includes:


Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating employees Deciding where to locate facilities And more . . .
17

The operations function


Consists of all activities directly related to producing goods or providing services

18

Types of Operations
Operations
Goods Producing Storage/Transportation

Examples
Farming, mining, construction, manufacturing, power generation Warehousing, trucking, mail service, moving, taxis, buses, hotels, airlines Retailing, wholesaling, banking, renting, leasing, library, loans Films, radio and television, concerts, recording Newspapers, radio and television newscasts, telephone, satellites
19

Exchange Entertainment Communication

U.S. Manufacturing vs. Service Employment


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

20

Responsibilities of Operations Management


Planning
Capacity Location Products & services Make or buy Layout Projects Scheduling Inventory Quality Costs Productivity

Organizing
Degree of centralization Process selection

Staffing
Hiring/laying off Use of Overtime

Directing
Incentive plans Issuance of work orders Job assignments

Controlling/Improving

21

Key Decisions of Operations Managers


      

What
What resources/what amounts

When
Needed/scheduled/ordered

Where
Work to be done

How
Designed

Who
To do the work

How How Much


22

Decision Making
System Design
capacity location arrangement of departments product and service planning acquisition and placement of equipment

23

Decision Making
System operation
personnel inventory scheduling project management quality assurance

24

Decision Making
Models  Quantitative approaches  Analysis of trade-offs  Systems approach


25

Models
A model is an abstraction of reality.
Physical Schematic Mathematical

Tradeoffs

What are the pros and cons of models?

26

Models Are Beneficial


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

27

Quantitative Approaches
Linear programming Queuing Techniques Inventory models Project models Statistical models

28

Systems Approach
The whole is greater than the sum of the parts.

SubSub-optimization

29

Pareto Phenomenon
A few factors account for a high percentage of the occurrence of some event(s). 80/20 Rule - 80% of problems are caused by 20% of the activities. How do we identify the vital few?

30

Business Operations Overlap

Operations

Marketing

Finance

31

Operations Interfaces
Industrial Engineering Distribution Maintenance

Purchasing

Operations

Public Relations

Legal Personnel Accounting MIS


32

Historical Evolution of Operations Management


Industrial revolution (1770s)  Scientific management (1911)


Mass production Interchangeable parts Division of labor

Human relations movement (1920-60)  Decision models (1915, 1960-70s)  Influence of Japanese manufacturers

33

Trends in Business


Major trends
The Internet, e-commerce, e-business Management technology Globalization Management of supply chains Agility

34

Simple Product Supply Chain


Suppliers Suppliers Direct Suppliers Final Consumer

Producer

Distributor

Supply Chain: A sequence of activities And organizations involved in producing And delivering a good or service

35

A Supply Chain for Bread


Stage of Production
Farmer produces and harvests wheat Wheat transported to mill Mill produces flour Flour transported to baker Baker produces bread Bread transported to grocery store Grocery store displays and sells bread Total Value-Added

Value Added
$0.15 $0.08 $0.15 $0.08 $0.54 $0.08 $0.21 $1.29

Value of Product
$0.15 $0.23 $0.38 $0.46 $1.00 $1.08 $1.29

36

Other Important Trends


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

37

HISTORICAL MILESTONES IN OM

38

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


39

The Industrial Revolution


   

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

40

The Industrial Revolution


     

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

41

Post-Civil War Period


 

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

Scientific Management


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

Scientific Management


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

44

Human Relations and Behavioralism




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

Operations Research
  

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

46

The Service Revolution


     

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

The Computer Revolution


     

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

Today's Factors Affecting OM


     

Global Competition Quality, Customer Service, and Cost Challenges Rapid Expansion of Advanced Technologies Continued Growth of the Service Sector Scarcity of Operations Resources Social-Responsibility Issues

49

Operations Management

William J. Stevenson

8th edition
50

FORECAST:
 

A statement about the future value of a variable of interest such as demand. Forecasts affect decisions and activities throughout an organization
Accounting, finance Human resources Marketing MIS Operations Product / service design

51

Uses of Forecasts
Accounting Finance Human Resources Marketing MIS Operations Product/service design Cost/profit estimates Cash flow and funding Hiring/recruiting/training Pricing, promotion, strategy IT/IS systems, services Schedules, MRP, workloads New products and services
52

   

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

53

Elements of a Good Forecast


Timely

Reliable

Accurate

Written
54

Steps in the Forecasting Process


The forecast

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

Types of Forecasts


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

Judgmental Forecasts
    

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

57

Time Series Forecasts


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

58

Forecast Variations
Irregular variatio n

Trend

Cycles
90 89 88 Seasonal variations
59

Naive Forecasts
Uh, give me a minute.... We sold 250 wheels last week.... Now, next week we should sell....
The forecast for any period equals the previous periods actual value.

60

Nave Forecasts
Simple to use  Virtually no cost  Quick and easy to prepare  Data analysis is nonexistent  Easily understandable  Cannot provide high accuracy  Can be a standard for accuracy


61

Uses for Nave Forecasts




Stable time series data


F(t) = A(t-1)

Seasonal variations
F(t) = A(t-n)

Data with trends


F(t) = A(t-1) + (A(t-1) A(t-2))

62

Techniques for Averaging


  

Moving average Weighted moving average Exponential smoothing

63

Moving Averages


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

MAn =


1 Ai i= n

Weighted moving average More recent values in a series are given more weight in computing the forecast.

64

Moving Averages


Moving average
n

MAn =
Period 1 2 3 4 5 6

1 Ai i= n

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


65

Moving Averages


Moving average

MAn =
Period 1 2 3 4 5 6

1 Ai i= n
Actual 41 42 42

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

66

Moving Averages


Moving average

MAn =
Period 1 2 3 4 5 6

1 Ai i= n
Actual 41 42 42 44

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

67

Moving Averages


Moving average

MAn =
Period 1 2 3 4 5 6

1 Ai i= n
Actual 41 42 42 44 43

Sales Average Forecast for next period 40 41 123/3 41 42 42 125/3 41.67 44 128/3 42.67 ?

68

Moving Averages


Moving average

MAn =
Period 1 2 3 4 5 6

1 Ai i= n
Actual 41 42 42 44 43 43

Sales Average Forecast for next period 40 41 123/3 41 42 42 125/3 41.67 44 128/3 42.67 43 129/3 43

69

Simple Moving Average


Actual 47 45 43 41 39 37 35 1 2 3 4 5 6 7
n

MA5

MA3 8 9 10 11 12

MAn =

1 Ai i= n
70

Weighted Moving Averages




Weighted Moving average

WMAn=
Period 1 2 3 4 5 6 Sales 40 41 42 ? ? ? Weight 20% 30% 50% Result

1 A*wi i=
Forecast Actual

71

Weighted Moving Averages




Weighted Moving average

WMAn=
Period 1 2 3 4 5 6 Sales 40 41 42 ? ? ? Weight 20% 30% 50%

1 A*wi i=

Result Forecast Actual 8 12.3 21 41.3 42

72

Weighted Moving Averages




Weighted Moving average

WMAn=
Period 1 2 3 4 5 6 Sales 40 41 42 42 ? ? Weight 20% 30% 50% 8.2 12.6 21

1 A*wi i=

Result Forecast Actual

41.8

44

73

Weighted Moving Averages




Weighted Moving average

WMAn=
Period 1 2 3 4 5 6 Sales 40 41 42 42 44 ? Weight

1 A*wi i=

Result Forecast Actual

20% 30% 50%

8.4 12.6 22

43

43

74

Weighted Moving Averages




Weighted Moving average

WMAn=
Period 1 2 3 4 5 6 Sales 40 41 42 42 44 43 Weight

1 A*wi i=

Result Forecast Actual

20% 30% 50%

8.4 13.2 21.5

43.1

43

75

Exponential Smoothing

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


Premise--The most recent observations might have the highest predictive value.
Therefore, we should give more weight to the more recent time periods when forecasting.
76

Exponential Smoothing

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


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


77

Exponential Smoothing

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


= Next Period Ft-1= Previous Period E !Smoothing Constant At-1 = Actual Result Previous Period
Ft
78

Exponential Smoothing - Problem

Ft = Ft-1 + E(At-1 - Ft-1) Ft = Result of formula Ft-1= 42 E !Smoothing = .10 At-1 = 44
79

Exponential Smoothing - Problem

Ft = Ft-1 + E(At-1 - Ft-1) Ft = 42 + .10(44-42) Ft = 42 + .10(2) Ft = 42 + .20 Ft = 42.20
80

Exponential Smoothing - Problem

Ft = Ft-1 + E(At-1 - Ft-1) Ft = 43 + .10(42.20-43) Ft = 43 + .10(-.80) Ft = 43 + -.080 Ft = 42.92
81

Example 3 - Exponential Smoothing


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

82

Picking a Smoothing Constant


Actual

50
E!.4

Dem and

45 40 35 1 2 3 4 5 6 7 8

E !.1

9 10 11 12

Period

83

Common Nonlinear Trends


Parabolic

Exponential

Growth

84

Linear Trend Equation


Ft

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

   

Ft = Forecast for period t t = Specified number of time periods a = Value of Ft at t = 0 b = Slope of the line

85

Calculating a and b
n (ty) - t y b = n t 2 - ( t) 2

y - b t a = n

86

Linear Trend Equation Example


t W eek 1 2 3 4 5 7 t = 15 ( 7 t) 2 = 2 2 5 7 t
2

t 1 4 9 16 25 = 55

y S a le s 150 157 162 166 177 7 y = 812

ty 150 314 486 664 885 7 ty = 2 4 9 9

87

Linear Trend Calculation


5 (2499) - 15(812) 12495-12180 b = = = 6.3 5(55) - 225 275 -225

812 - 6.3(15) a = = 143.5 5

y = 143.5 + 6.3t
88

Associative Forecasting


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

89

Linear Model Seems Reasonable


X 7 2 6 4 14 15 16 12 14 20 15 7 Y 15 10 13 15 25 27 24 20 27 44 34 17

Computed relationship
50 40 30 20 10 0 0 5 10 15 20 25

A straight line is fitted to a set of sample points.


90

Forecast Accuracy


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

Mean Squared Error (MSE)


Average of squared error

Mean Absolute Percent Error (MAPE)


Average absolute percent error

91

MAD, MSE, and MAPE


MAD = Actual  forecast n MSE = ( Actual  forecast) n -1 Actual  forecas t n / Actual*100)
2

MAPE =

92

Example 10
Period 1 2 3 4 5 6 7 8 Actual 217 213 216 210 213 219 216 212 Forecast 215 216 215 214 211 214 217 216 (A-F) 2 -3 1 -4 2 5 -1 -4 -2 |A-F| 2 3 1 4 2 5 1 4 22 (A-F)^2 4 9 1 16 4 25 1 16 76 (|A-F|/Actual)*100 0.92 1.41 0.46 1.90 0.94 2.28 0.46 1.89 10.26

MAD= MSE= MAPE=

2.75 10.86 1.28

93

Controlling the Forecast




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

Forecasting errors are in control if


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

94

Sources of Forecast errors


Model may be inadequate  Irregular variations  Incorrect use of forecasting technique


95

Tracking Signal
Tracking signal
Ratio of cumulative error to MAD

(Actual-forecast) Tracking signal =


MAD
Bias Persistent tendency for forecasts to be Greater or less than actual values.

96

Choosing a Forecasting Technique


No single technique works in every situation  Two most important factors


Cost Accuracy


Other factors include the availability of:


Historical data Computers Time needed to gather and analyze the data Forecast horizon
97

Exponential Smoothing

98

Linear Trend Equation

99

Simple Linear Regression

100

DESIGN OF WORK SYSTEMS

McGraw-Hill/Irwin

101 Operations Management, Eighth Edition, by William J. Stevenson Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

Job Design


Job design involves specifying the content and methods of job


What will be done Who will do the job How the job will bob will be done Where the job will be done Ergonomics
102

Design of Work Systems


     

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

Job Design Success


Successful Job Design must be:


  

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

104

Specialization in Business: Advantages


For Management:
2. High productivity 3. Low wage costs

For Labor: 1. Simplifies training 1. Low education and


skill requirements 2. Minimum responsibilities 3. Little mental effort needed
105

Disadvantages
ForManagement:
1. Difficult to motivate quality

ForLabor:
1. Monotonous work

2. Limited opportunities for advancement 2. Worker dissatisfaction, possibly resulting in 3. Little control over work absenteeism, high 4. Little opportunity for turnover, disruptive self-fulfillment tactics, poor attention to quality
106

Behavioral Approaches to Job Design




Job Enlargement
Giving a worker a larger portion of the total task by horizontal loading

Job Rotation
Workers periodically exchange jobs

Job Enrichment
Increasing responsibility for planning and coordination tasks, by vertical loading
107

Motivation and Trust




Motivation
Influences quality and productivity Contributes to work environment

Trust
Influences productivity and employeemanagement relations

108

Teams


Benefits of teams
Higher quality Higher productivity Greater worker satisfaction

Self-directed teams
Groups of empowered to make certain changes in their work process

109

Methods Analysis


Methods analysis
Analyzing how a job gets done Begins with overall analysis Moves to specific details

110

Methods Analysis
The need for methods analysis can come from a number of different sources:
Changes Changes Changes Other

in tools and equipment

in product design or new products in materials or procedures factors (e.g. accidents, quality problems)
111

Methods Analysis Procedure


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

Analyzing the Job




Flow process chart


Chart used to examine the overall sequence of an operation by focusing on movements of the operator or flow of materials

Worker-machine chart
Chart used to determine portions of a work cycle during which an operator and equipment are busy or idle

113

FLOW PROCESS CHART

ANALYST PAGE Job Requisition of petty cash D. Kolb 1 of 2

Details of Method
Requisition made by department head Put in pick-up basket To accounting department Account and signature verified Amount approved by treasurer Amount counted by cashier Amount recorded by bookkeeper Petty cash sealed in envelope Petty cash carried to department Petty cash checked against requisition Receipt signed Petty cash stored in safety box
114

Motion Study
Motion study is the systematic study of the human motions used to perform an operation.

115

Motion Study Techniques




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

116

Developing Work Methods


1. 2. 3. 4.

5.

Eliminate unnecessary motions Combine activities Reduce fatigue Improve the arrangement of the workplace Improve the design of tools and equipment

117

Working Conditions
T e m p e ra tu re & H u m id i t y V e n t il a t io n

I l lu m in a t i o n

C o lo r

118

Working Conditions (contd)


Noise & Vibration Work Breaks

Safety

Causes of Accidents

119

Work Measurement
    

Standard time Stopwatch time study Historical times Predetermined data Work Sampling

120

Compensation


Time-based system
Compensation based on time an employee has worked during a pay period

Output-based (incentive) system


Compensation based on the amount of output an employee produces during a pay period

121

Form of Incentive Plan


    

Accurate Easy to apply Consistent Easy to understand Fair

122

Compensation
  

Individual Incentive Plans Group Incentive Plans Knowledge-Based Pay System Management Compensation
123

PRODUCT AND SERVICE DESIGN

McGraw-Hill/Irwin

124 Operations Management, Eighth Edition, by William J. Stevenson Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

Product and Service Design




Major factors in design strategy


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

Product or Service Design Activities


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

126

Reasons for Product or Service Design


    

Economic Social and demographic Political, liability, or legal Competitive Technological

127

Objectives of Product and Service Design


 

Main focus
Customer satisfaction

Secondary focus
Function of product/service Cost/profit Quality Appearance Ease of production/assembly Ease of maintenance/service
128

Designing For Operations




Taking into account the capabilities of the organization in designing goods and services

129

Legal, Ethical, and Environmental Issues




Legal
FDA, OSHA, IRS Product liability Uniform commercial code

 

Ethical
Releasing products with defects

Environmental
EPA

130

Regulations & Legal Considerations


Product

Liability - A manufacturer is liable for any injuries or damages caused by a faulty product. Commercial Code - Products carry an implication of merchantability and fitness.

Uniform

131

Designers Adhere to Guidelines


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


132

Other Issues in Product and Service Design


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


133

Life Cycles of Products or Services


Saturation Maturity

Deman d

Decline Growth

Introduction

Time
134

Standardization


Standardization
Extent to which there is an absence of variety in a product, service or process

Standardized products are immediately available to customers

135

Advantages of Standardization


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

  

136

Advantages of Standardization
(Contd)
 

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

Disadvantages of Standardization


Designs may be frozen with too many imperfections remaining. High cost of design changes increases resistance to improvements. Decreased variety results in less consumer appeal.

138

Mass Customization

Mass customization:
A strategy of producing standardized goods or services, but incorporating some degree degree of customization Delayed differentiation Modular design

139

Delayed Differentiation

Delayed differentiation is a postponement tactic


Producing but not quite completing a product or service until customer preferences or specifications are known

140

Modular Design
Modular design is a form of standardization in which component parts are subdivided into modules that are easily replaced or interchanged. It allows:
easier diagnosis and remedy of failures easier repair and replacement simplification of manufacturing and assembly
141

Reliability


Reliability: The ability of a product, part, or


system to perform its intended function under a prescribed set of conditions

ailure: Situation in which a product, part,


or system does not perform as intended

Normal operating conditions: The set of


conditions under which an items reliability is specified
142

Improving Reliability
Component design Production/assembly techniques Testing Redundancy/backup Preventive maintenance procedures User education System design
143

Product Design
    

Product Life Cycles Robust Design Concurrent Engineering Computer-Aided Design Modular Design

144

Robust Design
Robust Design: Design that results in products or services that can function over a broad range of conditions

145

Taguchi Approach Robust Design




Design a robust product


Insensitive to environmental factors either in manufacturing or in use.

Central feature is Parameter Design.  Determines:




factors that are controllable and those not controllable their optimal levels relative to major product advances
146

Degree of Newness
1. Modification

of an existing product/service 2. Expansion of an existing product/service 3. Clone of a competitors product/service 4. New product/service

147

Degree of Design Change


Type of Design Change Modification Expansion Clone New Newness of the organization Low Low High High Newness to the market Low Low Low High

148

Phases in Product Development Process


1. 2. 3. 4. 5. 6. 7. 8. 9. Idea generation Feasibility analysis Product specifications Process specifications Prototype development Design review Market test Product introduction Follow-up evaluation
149

Idea Generation
Supply chain based

Ideas

Competitor based

Research based

150

Reverse Engineering
Reverse engineering is the dismantling and inspecting of a competitors product to discover product improvements.

151

Research & Development (R&D)




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

152

Manufacturability


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


Cost Productivity Quality

153

Designing for Manufacturing


Beyond the overall objective to achieve customer satisfaction while making a reasonable profit is: Design for Manufacturing(DFM) The designers consideration of the organizations manufacturing capabilities when designing a product. The more general term design for operations encompasses services as well as manufacturing

154

Concurrent Engineering
Concurrent engineering is the bringing together of engineering design and manufacturing personnel early in the design phase.

155

Computer-Aided Design


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


increases productivity of designers, 3 to 10 times creates a database for manufacturing information on product specifications provides possibility of engineering and cost analysis on proposed designs
156

Product design
Design for manufacturing (DFM)  Design for assembly (DFA)  Design for recycling (DFR)  Remanufacturing  Design for disassembly (DFD)  Robust design

157

Recycling
Recycling: recovering materials for future use  Recycling reasons


Cost savings Environment concerns Environment regulations

158

Service Design
Service is an act  Service delivery system


Facilities Processes Skills




Many services are bundled with products


159

Service Design


Service design involves


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

160

Service Design
 

Service
Something that is done to or for a customer

Service delivery system


The facilities, processes, and skills needed to provide a service

Product bundle
The combination of goods and services provided to a customer

Service package
The physical resources needed to perform the service
161

Differences Between Product and Service Design

Tangible intangible  Services created and delivered at the same time  Services cannot be inventoried  Services highly visible to customers  Services have low barrier to entry  Location important to service

162

Phases in Service Design


1. Conceptualize

service package components 3. Determine performance specifications 4. Translate performance specifications into design specifications 5. Translate design specifications into delivery specifications
2. Identify

163

Service Blueprinting


Service blueprinting
A method used in service design to describe and analyze a proposed service

A useful tool for conceptualizing a service delivery system

164

Major Steps in Service Blueprinting


1. 2. 3. 4. 5. 6.

Establish boundaries Identify steps involved Prepare a flowchart Identify potential failure points Establish a time frame Analyze profitability

165

Characteristics of Well Designed Service Systems


1. 2. 3. 4. 5. 6. 7. 8. 9.

Consistent with the organization mission User friendly Robust Easy to sustain Cost effective Value to customers Effective linkages between back operations Single unifying theme Ensure reliability and high quality
166

Challenges of Service Design


Variable requirements  Difficult to describe  High customer contact  Service customer encounter


167

Quality Function Deployment




Quality Function Deployment


Voice of the customer House of quality

QFD: An approach that integrates the voice of the customer into the product and service development process.

168

The House of Quality


Correlation matrix Design requirements

Customer requirements

Relationship matrix

Competitive assessment

Specifications or target values


169

House of Quality Example


Correlation:
X X X X

Water resistance

Door seal resistance

Engineering Characteristics

Accoust. Trans. Window

Energy needed to close door

Check force on level ground Energy needed to open door

Strong positive Positive Negative Strong negative


X = Us A = Comp. A B = Comp. B (5 is best) 1 2 3 4

Competitive evaluation

Customer Requirements Easy to close Stays open on a hill Easy to open Doesnt leak in rain No road noise Importance weighting Target values

7 5 3 3 2
Reduce energy level to 7.5 ft/lb

X X AB

AB

XAB A XB X A B

10

6
Maintain current level

6
Reduce force to 9 lb.

9
Reduce energy to 7.5 ft/lb.

2
Maintain current level

3
Maintain current level

Relationships:
Strong = 9 Medium = 3 Small = 1

Technical evaluation (5 is best)

5 4 3 2 1

B A X

BA X

B A X

B X A

BXA

BA X

170

The Kano Model


Kano Model

Customer Satisfaction

Excitement Expected Must Have

Customer Needs

171

Operations Strategy
1. Increase emphasis on component commonality 2. Package products and services 3. Use multiple-use platforms 4. Consider tactics for mass customization 5. Look for continual improvement 6. Shorten time to market
172

Shorten Time to Market


1. Use standardized components 2. Use technology 3. Use concurrent engineering

173

TOTAL QUALITY MANAGEMENT

174

Learning Objectives
   

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

175

Learning Objectives


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

176

Defining Quality
 

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

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

Defining Quality


5 Ways

Conformance to specifications


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

Fitness for use




Value for price paid




Support services


Psychological


Manufacturing Quality vs. Service Quality




Manufacturing quality focuses on tangible product features




Conformance, performance, reliability, features

Service organizations produce intangible products that must be experienced




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

Cost of Quality
 

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


Quality control costs


 

Prevention costs Appraisal costs Internal failure costs External failure costs

Quality failure costs


 

180

Cost of Quality

4 Categories

Early detection/prevention is less costly




May be less by a factor of 10


181

Evolution of TQM

New Focus

182

Quality Gurus

183

TQM Philosophy


  

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

TQM Philosophy - concepts




Focus on Customer
 

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

Continuous Improvement


 

Benchmarking Employee Empowerment




Empower all employees; external and internal customers

185

TQM Philosophy Concepts (continued)




Team Approach
 

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

Understanding Quality Tools




Plan-Do-Study-Act
186

Ways of Improving Quality




Plan-Do-Study-Act Cycle (PDSA)


 

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

Seven Tools of Quality Control




Quality Function Deployment




187

PDSA Details


Plan
  

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

Do


Study


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

Act
 

188

PDSA



(continued)

Cycle is repeated
After act phase, start planning and repeat process

189

Seven Tools of Quality Control


      

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

Cause-and-Effect Diagrams
 

Called Fishbone Diagram Focused on solving identified quality problem

191

Flowcharts


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

192

Checklist


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

193

Control Charts


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

194

Scatter Diagrams
 

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

195

Pareto Analysis


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

  

196

Histograms


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

197

Product Design - Quality Function Deployment


 

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

Customer requirements Competitive evaluation Product characteristics Relationship matrix Trade-off matrix Setting Targets

198

Quality Function Deployment (QFD) Details




Process used to ensure that the product meets customer specifications

Voice of the engineer

Voice of the customer

Customer-based benchmarks

199

QFD - House of Quality




Adding trade-offs, targets & developing product specifications


Trade-offs

Targets

Technical Benchmarks
200

Reliability


critical to quality

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

Reliability


critical to quality

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


Increase reliability by placing components in parallel


202

Reliability


critical to quality

Increase reliability by placing components in parallel Parallel components allow system to operate if one or the other fails

RS = R1 + (R2* Probability of needing 2nd component)


203

Process Management


 

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

Quality Awards and Standards




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

  

205

MBNQA- What Is It?




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

The Deming Prize




Given by the Union of Japanese Scientists and Engineers since 1951

Named after W. Edwards Deming who worked to improve Japanese quality after WWII

 

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

207

ISO Standards


ISO 9000 Standards:


   

  

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


ISO 14000:
Focuses on a company s environmental responsibility
208

Why TQM Efforts Fail




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

TQM Within OM
 

TQM is broad sweeping organizational change TQM impacts


   

 

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

TQM Highlights


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

TQM Highlights - Continued




 

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

Quality Control

213

Phases of Quality Assurance


Inspection before/after production
Acceptance sampling

Inspection and corrective action during production


Process control

Quality built into the process


Continuous improvement

The least progressive

The most progressive

214

Inspection
How Much/How Often  Where/When  Centralized vs. On-site

Inputs Transformation Outputs

Acceptance sampling

Process control

Acceptance sampling

215

Inspection Costs
Cost

Total Cost

Cost of inspection

Cost of passing defectives

Optimal Amount of Inspection


216

Where to Inspect in the Process


    

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

Examples of Inspection Points


Type of business Fast Food Inspection points Cashier Counter area Eating area Building Kitchen Hotel/motel Parking lot Accounting Building Main desk Supermarket Cashiers Deliveries Characteristics Accuracy Appearance, productivity Cleanliness Appearance Health regulations Safe, well lighted Accuracy, timeliness Appearance, safety Waiting times Accuracy, courtesy Quality, quantity
218

Statistical

Process Control:

Statistical evaluation of the output of a process during production


Quality

of Conformance: A product or service conforms to specifications

219

Control Chart


Control Chart

Purpose: to monitor process output to see if it is random A time ordered plot representative sample statistics obtained from an on going process (e.g. sample means) Upper and lower control limits define the range of acceptable variation

220

Control Chart
Abnormal variation due to assignable sources Out of control

UCL
Mean Normal variation due to chance Abnormal variation due to assignable sources

LCL

10 11 12 13 14 15

Sample number

221

Statistical Process Control




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

222

Statistical Process Control




The Control Process


Define Measure Compare Evaluate Correct Monitor results
223

Statistical Process Control




Variations and Control


Random variation: Natural variations in the output of a process, created by countless minor factors Assignable variation: A variation whose source can be identified

224

Sampling Distribution
Sampling distribution Process distribution

Mean

225

Normal Distribution
W!Standard deviation

W

W

Mean 95.44% 99.74%

W

W

226

Control Limits
Sampling distribution Process distribution

Mean Lower control limit Upper control limit

227

SPC Errors


Type I error
Concluding a process is not in control when it actually is.

Type II error
Concluding a process is in control when it is not.

228

Type I Error
E/2 E/2

Mean E!Probability of Type I error LCL UCL

229

Observations from Sample Distribution


UCL

LCL 1 2 Sample number 3 4

230

Control Charts for Variables


Variables generate data that are measured. measured.


Mean control charts


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

Range control charts


Used to monitor the process dispersion R charts
231

Mean and Range Charts


(process mean is shifting upward) Sampling Distribution

UCL

x-Chart
LCL

Detects shift

UCL

R-chart
LCL

Does not detect shift


232

Mean and Range Charts


Sampling Distribution (process variability is increasing)

UCL

x-Chart
LCL

Does not reveal increase

UCL

R-chart
LCL

Reveals increase

233

Control Chart for Attributes




p-Chart - Control chart used to monitor the proportion of defectives in a process c-Chart - Control chart used to monitor the number of defects per unit

Attributes generate data that are counted. counted.

234

Use of p-Charts


When observations can be placed into two categories.


Good or bad Pass or fail Operate or dont operate

When the data consists of multiple samples of several observations each


235

Use of c-Charts


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

Use of Control Charts




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

 

237

Run Tests
 

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

238

Nonrandom Patterns in Control charts


Trend  Cycles  Bias  Mean shift  Too much dispersion


239

Counting Runs
Figure 10.12
Counting Above/Below Median Runs (7 runs)

B A

B A

Figure 10.13

Counting Up/Down Runs

(8 runs)

U D U U D
240

Process Capability


Tolerances or specifications
Range of acceptable values established by engineering design or customer requirements

Process variability
Natural variability in a process

Process capability
Process variability relative to specification
241

Process Capability
Lower Specification Upper Specification

A. Process variability matches specifications


Lower Specification Upper Specification

B. Process variability Lower Upper well within specifications Specification Specification

C. Process variability exceeds specifications


242

Process Capability Ratio


specification width Process capability ratio, Cp = process width Cp = Upper specification lower specification 6W

243

3 Sigma and 6 Sigma Quality


Lower specification
1350 ppm 1.7 ppm

Upper specification
1350 ppm 1.7 ppm

Process mean +/- 3 Sigma +/- 6 Sigma

244

Improving Process Capability


Simplify  Standardize  Mistake-proof  Upgrade equipment  Automate


245

Limitations of Capability Indexes


1. 2.

Process may not be stable Process output may not be normally distributed Process not centered but Cp is used

3.

246

Statistical Process Control (SPC)


Invented by Walter Shewhart at Western Electric  Distinguishes between


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




Based on repeated samples from a process

247

Empirical Rule

-3 -2 -1  +1 +2 +3 68% 95% 99.7%


248

Control Charts in General


  

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

Variables Data Charts




Process Centering
X bar chart X bar is a sample mean X !
n

X
i !1

Process Dispersion (consistency)


R chart R is a sample range

R ! max( X i )  min( X i )

250

X bar charts
Center line is the grand mean (X double m bar) Xj  Points are X barsW ! W / n j !1 x


X!

UCL ! X  zW x
-OR-

LCL ! X  zW x

UCL ! X  A2 R

LCL ! X  A2 R
251

R Charts
Center line is the grand mean (R bar)  Points are R  D3 and D4 values are tabled according to n (sample size)


UCL ! D4 R

LCL ! D3 R

252

Use of X bar & R charts


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


253

Attribute Charts


c charts used to count defects in a constant sample size


n

UCL ! c  z c

c
c!
i !1

! centerline

LCL ! c  z c

254

Attribute Charts


p charts used to track a proportion (fraction) defective


pi !
m

x
i !1

p
p!
j !1

x
m !
ij

nm

! centerline

p (1  p ) UCL ! p  z n

p (1  p ) LCL ! p  z n

255

Process Capability
The ratio of process variability to design specifications Natural data
spread -3 -2
Lower Spec

-1

+1

+2
Upper Spec

+3

The natural spread of the data is 6

256

E-COMMERCE AND SUPPLY CHAIN MANAGEMENT

257

Supply Chains & SCM




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

Components of a Supply Chain




External Suppliers source of raw material


Tier one supplier supplies directly to the processor Tier two supplier supplies directly to tier one Tier three supplier supplies directly to tier two

Internal Functions include processing functions


Processing, purchasing, planning, quality, shipping

External Distributors transport finished products to appropriate locations


Logistics managers are responsible for traffic management and distribution management
259

Components of a Supply Chain




External Distributors transport finished products to appropriate locations


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

260

A Basic Supply Chain

261

The Bullwhip Effect


 

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

262

The Bullwhip Effect




Counteracting the Effect:


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

Issues Affecting Supply Chain Management


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


264

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


Business-to-business (B2B) and Business-to-consumer (B2C)

265

Types of E-Commerce


Business-to-Business (B2B) Evolution:


Automated order entry systems started in 1970s Electronic Data Interchange (EDI) started in the 1970s Electronic Storefronts emerged in the 1990s Net Marketplaces emerged in the late 1990s

Benefits of B2B E-Commerce


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

Types of E-Commerce
 

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

B2C revenue model sources


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

SCM Factors


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

Global SCM Factors




Managing extensive global supply chains introduces many complications


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

Sourcing Issues
 

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

Vertical integration related to levels of insourcing or outsourcing products or services

270

Insourcing vs. Outsourcing




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


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

271

Make or Buy Analysis




Analysis will look at the expected sales levels and cost of internal operations vs. cost of purchasing the product or service
Total Cost of Outsourcin g : TC Buy ! FC Buy  Buy v Q VC Total Cost of Insourcing : TC Make ! FC Make  Make v Q VC Indifferen ce Point : FC Buy  Buy v Q ! FC Make  Make v Q VC VC
272

Example: Make-or-Buy analysis- Mary and Sue, have decided to open a bagel shop. Their first decision is whether they should make the bagels on-site or by the bagels from a

local bakery. If they buy from the local bakery they will need airtight containers at a fixed cost of $1000 annually. They can buy the bagels for $0.40 each. If they make the bagels in-house they will need a small kitchen at a fixed cost of $15,000 annually. It will cost them $0.15 per bagel to make. The believe they will sell 60,000 bagels.

    

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

The Role of Purchasing




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

274

Critical Factors in Successful Partnership Relations




Critical factors in successful partnering include;


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

Critical Factors in Successful Partnership Relations


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


Share a common vision Share short/long term plans Driven by end-customer needs

Benefits of Partnering
Early supplier involvement (ESI) in the design process Using supplier expertise to develop and share cost improvements and eliminate costly processes Shorten time to market
276

Supply Chain Distribution




Warehouses involved in supply chain distributions and include


Plant warehouses Regional warehouses Local warehouses

Warehouses can either be


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

Supply Chain Distribution continued


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

278

Supply Chain Distribution continued


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

279

Supply Chain Distribution continued




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

280

Integrated SCM


Implementing integrated SCM requires:


Analyzing the whole supply chain Starting by integrating internal functions first Integrating external suppliers through partnerships

Manufacturers Goals
Reduce costs Reduce duplication of effort Improve quality Reduce lead time Implement cost reduction program Involve suppliers early Reduce time to market

Suppliers Goals
Increase sales volume Increase customer loyalty Reduce cost Improve demand data Improve profitability

281

Supply Chain Measurements




Measuring supply chain performance


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


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

282

Supply Chain Performance Measurement


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


Warranty costs Products returned Cost reductions allowed because of product defects Company response times Transaction costs

283

Current Trends in SCM




Increased use of electronic marketplace such as


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

Current Trends in SCM continued




Increased use of electronic marketplace such as


Value chain management automation of a firms purchasing or selling processes Exchanges marketplace that focuses on spot requirements of large firms in a single industry Industry consortia industry-owned markets that enable buyers to purchase direct inputs from a limited set of invited suppliers

Decreased supply chain velocity due to greater distances with greater uncertainty and generally less efficient.
285

SCM Across the Organization


   

 

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

286

SCM Highlights


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

SCM Highlights (continued)




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

SCM Highlights (continued)


 Global

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

SCM Highlights (continued)




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

SCM Highlights (continued)




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

SCM Highlights (continued)


 Integrated

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

292

SCM Highlights (continued)




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

LOCATION PLANNING AND ANALYSIS

McGraw-Hill/Irwin

294 Operations Management, Eighth Edition, by William J. Stevenson Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

Need for Location Decisions


   

Marketing Strategy Cost of Doing Business Growth Depletion of Resources

295

Nature of Location Decisions




Strategic Importance
Long term commitment/costs Impact on investments, revenues, and operations Supply chains

Objectives
Profit potential No single location may be better than others Identify several locations from which to choose

Options
Expand existing facilities Add new facilities Move
296

Making Location Decisions


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


297

Location Decision Factors


Regional Factors Community Considerations

Multiple Plant Strategies

Site-related Factors

298

Regional Factors
Location of raw materials  Location of markets  Labor factors  Climate and taxes


299

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

300

Site Related Factors


Land  Transportation  Environmental  Legal


301

Multiple Plant Strategies


Product plant strategy  Market area plant strategy  Process plant strategy


302

Comparison of Service and Manufacturing Considerations


Manufacturing/Distribution
Cost Focus Transportation modes/costs Energy availability, costs Labor cost/availability/skills Building/leasing costs

Service/Retail
Revenue focus Demographics: age,income,etc Population/drawing area Competition Traffic volume/patterns Customer access/parking

303

Trends in Locations


Foreign producers locating in U.S.


Made in USA Currency fluctuations

  

Just-in-time manufacturing techniques Microfactories Information Technology

304

Foreign Government

Cultural Differences Customer Preferences Labor

a. Policies on foreign ownership of production facilities Local Content Import restrictions Currency restrictions Environmental regulations Local product standards b. Stability issues Living circumstances for foreign workers / dependents Religious holidays/traditions Possible buy locally sentiment

Resources

Level of training and education of workers Work practices Possible regulations limiting number of foreign employees Language differences Availability and quality of raw materials, energy, transportation
305

Evaluating Locations


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

306

Location Cost-Volume Analysis




Assumptions
Fixed costs are constant Variable costs are linear Output can be closely estimated Only one product involved

307

Example 1: Cost-Volume Analysis


Fixed and variable costs for L o a tio n F ix e fourcpotential locationsd
A B C D $ 2 1 1 2 C 5 0 5 0 o s 0 ,0 0 ,0 0 ,0 0 ,0 t 0 0 0 0 0 0 0 0 V a r ia b le C o s t $ 1 1 3 0 2 0 3 5

308

Example 1: Solution
F ix e d C o s ts A B C D $ 2 5 0 ,0 0 0 1 0 0 ,0 0 0 1 5 0 ,0 0 0 2 0 0 ,0 0 0 V a r ia b le C o s ts $ 1 1 (1 0 ,0 0 0 ) 3 0 (1 0 ,0 0 0 ) 2 0 (1 0 ,0 0 0 ) 3 5 (1 0 ,0 0 0 ) T o ta l C o s ts $ 3 6 0 ,0 0 0 4 0 0 ,0 0 0 3 5 0 ,0 0 0 5 5 0 ,0 0 0

309

Example 1: Solution
$(000) 800 700 600 500 400 300 200 100 0 0 D B C A
A Superior C Superior B Superior

10

12

14

16

Annual Output (000)


310

Evaluating Locations


Transportation Model
Decision based on movement costs of raw materials or finished goods

Factor Rating
Decision based on quantitative and qualitative inputs

Center of Gravity Method


Decision based on minimum distribution costs
311

PROCESS SELECTION AND FACILITY LAYOUT

McGraw-Hill/Irwin

312 Operations Management, Eighth Edition, by William J. Stevenson Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

Introduction


Process selection
Deciding on the way production of goods or services will be organized

Major implications
Capacity planning Layout of facilities Equipment Design of work systems

313

Process Selection and System Design


Forecasting Capacity Planning Facilities and Equipment

Product and Service Design Process Selection

Layout

Technological Change

Work Design

314

Process Strategy
Key aspects of process strategy

Capital intensive equipment/labor Process flexibility Adjust to changes


Design Volume technology

315

Process Selection
Batch
  

Variety
How much

Flexibility
What degree

Job Shop

Repetitive

Volume
Expected output

Continuous

316

Process Types


Job shop
Small scale

Batch
Moderate volume

Repetitive/assembly line
High volumes of standardized goods or services

Continuous
Very high volumes of non-discrete goods
317

Product Process Matrix


Process Type
Low volume Unique (one of a kind) Appliance repair Emergency room Commercial bakery Classroom Lecture Low volume Higher Multiple volume Products Standardized product Very high volume Commodity product Not feasible

Job Shop

Batch

Repetitive

Automotive assembly Automatic carwash

Continuous (flow)

Not feasible

Oil refinery Water purification

318

Product Process Matrix


Dimension
Low volume Unique (one of a kind) Low volume Multiple Products Higher volume Standardized product Very high volume Commodity product

Job variety Process flexibility Unit cost Volume of output

Very High Very High Very High Very High

Moderate Moderate Moderate Low

Low Low Low High

Very low Very low Very low Very low

319

Automation


Automation: Machinery that has sensing and control devices that enables it to operate
Fixed automation Programmable automation

320

Automation
Computer-aided design and manufacturing systems (CAD/CAM) Numerically controlled (NC) machines Robot Manufacturing cell Flexible manufacturing systems(FMS) Computer-integrated manufacturing (CIM)

321

Facilities Layout


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

322

Importance of Layout Decisions


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


323

The Need for Layout Decisions


Inefficient operations
For Example:

High Cost Bottlenecks

Changes in the design of products or services

Accidents
The introduction of new products or services

Safety hazards
324

The Need for Layout Design (Contd)


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

325

Basic Layout Types


   

Product layouts Process layouts Fixed-Position layout Combination layouts

326

Basic Layout Types




Product layout
Layout that uses standardized processing operations to achieve smooth, rapid, highvolume flow

Process layout
Layout that can handle varied processing requirements

Fixed Position layout


Layout in which the product or project remains stationary, and workers, materials, and equipment are moved as needed
327

Product Layout
Raw materials or customer
Material and/or labor Station 1 Material and/or labor Station 2 Material and/or labor Station 3 Material and/or labor Station 4
Finished item

Used for Repetitive or Continuous Processing

328

Advantages of Product Layout


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


329

Disadvantages of Product Layout


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

330

A U-Shaped Production Line


In

4 5

Workers

6
Out

10

331

Process Layout
Process Layout (functional)
Dept. A Dept. C Dept. E

Dept. B

Dept. D

Dept. F

Used for Intermittent processing Job Shop or Batch

332

Product Layout
Product Layout (sequential)
Work Station 1 Work Station 2 Work Station 3

Used for Repetitive Processing Repetitive or Continuous

333

Advantages of Process Layouts


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


334

Disadvantages of Process Layouts


      

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

335

Cellular Layouts


Cellular Production
Layout in which machines are grouped into a cell that can process items that have similar processing requirements

Group Technology
The grouping into part families of items with similar design or manufacturing characteristics

336

Functional vs. Cellular Layouts


Dimension
Number of moves between departments Travel distances Travel paths Job waiting times Throughput time Amount of work in process Supervision difficulty Scheduling complexity Equipment utilization

Functional
many longer variable greater higher higher higher higher lower few

Cellular

shorter fixed shorter lower lower lower lower higher

337

Other Service Layouts


Warehouse and storage layouts  Retail layouts  Office layouts


338

Design Product Layouts: Line Balancing


Line Balancing is the process of assigning tasks to workstations in such a way that the workstations have approximately equal time requirements.

339

Cycle Time
Cycle time is the maximum time allowed at each workstation to complete its set of tasks on a unit.

340

Determine Maximum Output


OT Output capacity = CT OT ! operating time per day D = Desired output rate OT CT = cycle time = D

341

Determine the Minimum Number of Workstations Required


N = (D)( t) OT = sum of task times

342

Precedence Diagram
Precedence diagram: Tool used in line balancing to display elemental tasks and sequence requirements
0.1 min. 1.0 min.

a c
0.7 min.

b d
0.5 min.

A Simple Precedence Diagram

e
0.2 min.

343

Example 1: Assembly Line Balancing




Arrange tasks shown in Figure 6.10 into three workstations.


Use a cycle time of 1.0 minute Assign tasks in order of the most number of followers

344

Example 1 Solution
Workstation 1 Time Remaining Eligible 1.0 0.9 0.2 1.0 1.0 0.5 0.3 a, c c none b d e Assign Task a c b d e Revised Time Remaining 0.9 0.2 0.2 0.0 0.5 0.3 0.0 0.3 0.5 Station Idle Time

2 3

345

Calculate Percent Idle Time


Idle time per cycle Percent idle time = (N)(CT)

Efficiency = 1 Percent idle time

346

Line Balancing Rules


Some Heuristic (intuitive) Rules:
Assign

tasks in order of most following

tasks.
Count the number of tasks that follow
Assign

tasks in order of greatest positional weight.


Positional weight is the sum of each tasks time and the times of all following tasks.
347

Example 2
0.2 0.2 0.3

a
0.8

b
0.6

f
1.0

g
0.4

h
0.3

348

Solution to Example 2
Station 1 Station 2 Station 3 Station 4

a c

e f d g h

349

Parallel Workstations
1 min. 30/hr. 1 min. 30/hr. 2 min. 30/hr. 1 min. 30/hr.

Bottleneck
30/hr. 1 min. 60/hr. 1 min. 30/hr. 1 min. 30/hr. 1 min. 30/hr. 1 min. 60/hr.

Parallel Workstations

350

Designing Process Layouts


Information Requirements: 1. List of departments 2. Projection of work flows 3. Distance between locations 4. Amount of money to be invested 5. List of special considerations 6. Location of key utilities

351

Example 3: Interdepartmental Work Flows for Assigned Departments


30 1 170 3 10 0 2

C
352

Process Layout
Milling Assembly & Test Grinding

Drilling

Plating

Process Layout - work travels to dedicated process centers

353

Functional Layout
222 444

Mill

222 111 444

222

Drill
1111 2222

Grind

3333

111 333 111 333

Assembly
111

Lathes

Heat treat

Gear cutting

111 444

354

Cellular Manufacturing Layout


-1111 Lathe Mill Drill Heat treat Heat treat Heat treat Drill Gear -1111 cut Assembly
355

222222222

Mill

Drill

Grind - 2222

3333333333

Lathe Mill

Grind - 3333

44444444444444

Mill

Gear - 4444 cut

CAPACITY PLANNING FOR PRODUCTS AND SERVICES

McGraw-Hill/Irwin

356 Operations Management, Eighth Edition, by William J. Stevenson Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

Capacity Planning
Capacity is the upper limit or ceiling on the load that an operating unit can handle.  The basic questions in capacity handling are:


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


357

Importance of Capacity Decisions


1. 2. 3. 4. 5. 6. 7. 8.

Impacts ability to meet future demands Affects operating costs Major determinant of initial costs Involves long-term commitment Affects competitiveness Affects ease of management Globalization adds complexity Impacts long range planning
358

Capacity


Design capacity
maximum output rate or service capacity an operation, process, or facility is designed for

Effective capacity
Design capacity minus allowances such as personal time, maintenance, and scrap

Actual output
rate of output actually achieved--cannot exceed effective capacity.
359

Efficiency and Utilization


Actual output Efficiency = Effective capacity Actual output Utilization = Design capacity
Both measures expressed as percentages

360

Efficiency/Utilization Example
Design capacity = 50 trucks/day Effective capacity = 40 trucks/day Actual output = 36 units/day

Actual output

36 units/day = 40 units/ day

Efficiency =
90% Effective capacity Actual output Design capacity =

Utilization =
72%

36 units/day 50 units/day

=
361

Determinants of Effective Capacity


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


362

Strategy Formulation
      

Capacity strategy for long-term demand Demand patterns Growth rate and variability Facilities
Cost of building and operating

Technological changes
Rate and direction of technology changes

Behavior of competitors Availability of capital and other inputs


363

Key Decisions of Capacity Planning


1. 2. 3. 4.

Amount of capacity needed Timing of changes Need to maintain balance Extent of flexibility of facilities

Capacity cushion extra demand intended to offset uncertainty


364

Steps for Capacity Planning


1. 2. 3. 4. 5. 6. 7. 8.

Estimate future capacity requirements Evaluate existing capacity Identify alternatives Conduct financial analysis Assess key qualitative issues Select one alternative Implement alternative chosen Monitor results
365

Make or Buy
1. Available 2. Expertise

capacity

considerations 4. Nature of demand 5. Cost 6. Risk


3. Quality

366

Developing Capacity Alternatives


1. 2. 3.

Design flexibility into systems Take stage of life cycle into account Take a big picture approach to capacity changes Prepare to deal with capacity chunks Attempt to smooth out capacity requirements Identify the optimal operating level

4. 5. 6.

367

Economies of Scale


Economies of scale
If the output rate is less than the optimal level, increasing output rate results in decreasing average unit costs

Diseconomies of scale
If the output rate is more than the optimal level, increasing the output rate results in increasing average unit costs

368

Evaluating Alternatives
Production units have an optimal rate of output for minimal cost. Average cost per unit

Minimum average cost per unit

Minimum cost

Rate of output
369

Evaluating Alternatives
Minimum cost & optimal operating rate are functions of size of production unit. Average cost per unit

Small
plant

Medium plant

Large plant

Output rate
370

Planning Service Capacity




Need to be near customers


Capacity and location are closely tied

Inability to store services


Capacity must be matched with timing of demand

Degree of volatility of demand


Peak demand periods

371

Cost-Volume Relationships

Amount ($)

Fixed cost (FC) 0 Q (volume in units)


372

Cost-Volume Relationships
Amount ($) 0

Q (volume in units)
373

Cost-Volume Relationships
Amount ($) 0

BEP units Q (volume in units)


374

Break-Even Problem with Step Fixed Costs

3 machines 2 machines 1 machine Quantity Step fixed costs and variable costs.
375

Break-Even Problem with Step Fixed Costs


$
BEP2 TC 3 TC 2 1 BEP
3

TC

Quantity Multiple break-even points


376

Assumptions of Cost-Volume Analysis


1. 2. 3. 4. 5. 6.

One product is involved Everything produced can be sold Variable cost per unit is the same regardless of volume Fixed costs do not change with volume Revenue per unit constant with volume Revenue per unit exceeds variable cost per unit

377

Financial Analysis


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

378

Calculating Processing Requirements


P ro d u c t Annual D em and S ta n d a rd p r o c e s s in g tim e p e r u n it ( h r .) P r o c e s s in g tim e n e e d e d (h r.)

#1 #2 #3

400 300 700

5 .0 8 .0 2 .0

2 ,0 0 0 2 ,4 0 0 1 ,4 0 0 5 ,8 0 0
379

INVENTORY MANAGEMENT

McGraw-Hill/Irwin

380 Operations Management, Eighth Edition, by William J. Stevenson Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

Inventory: a stock or store of goods

Independent Demand

Dependent Demand

B(4)

C(2)

D(2)

E(1)

D(3)

F(2)

Independent demand is uncertain. Dependent demand is certain.


381

Types of Inventories
  

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

382

Types of Inventories (Contd)


 

Replacement parts, tools, & supplies Goods-in-transit to warehouses or customers

383

Functions of Inventory
 

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

 

384

Functions of Inventory (Contd)


 

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

 

Objective of Inventory Control




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

386

Effective Inventory Management


   

A system to keep track of inventory A reliable forecast of demand Knowledge of lead times Reasonable estimates of
Holding costs Ordering costs Shortage costs

A classification system
387

Inventory Counting Systems




Periodic System
Physical count of items made at periodic intervals

Perpetual Inventory System


System that keeps track of removals from inventory continuously, thus monitoring current levels of each item
388

Inventory Counting Systems (Contd)


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

214800 232087768
389

Key Inventory Terms


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

390

ABC Classification System


Classifying inventory according to some measure of importance and allocating control efforts accordingly.

A - very important B - mod. important C - least important

High Annual $ value of items Low

A B C
Few Many

Number of Items 391

Cycle Counting
 

A physical count of items in inventory Cycle counting management


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

Economic Order Quantity Models


  

Economic order quantity model Economic production model Quantity discount model

393

Assumptions of EOQ Model


     

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

The Inventory Cycle


Q
Quantity on hand Profile of Inventory Level Over Time

Usage rate

Reorder point

Receive order

Place Receive order order

Place Receive order order

Time

Lead time
395

Total Cost
Annual Annual Total cost = carrying + ordering cost cost TC = Q H 2 + DS Q

396

Cost Minimization Goal


The Total-Cost Curve is U-Shaped
Annual Cost

Q D TC ! H  S 2 Q

Ordering Costs
QO (optimal order quantity) Order Quantity (Q)
397

Deriving the EOQ


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

398

Minimum Total Cost


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

399

Economic Production Quantity (EPQ)


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


400

Economic Production Quantity Assumptions


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

401

Economic Run Size

Q0 !

p 2DS H p u

402

Total Costs with Purchasing Cost (PD)


Annual Annual + Purchasing TC = carrying + ordering cost cost cost TC = Q H 2 + DS Q + PD

403

Total Costs with Purchase Cost (PD)


Cost
Adding Purchasing cost TC with PD doesnt change EOQ

TC without PD

PD

EOQ

Quantity
404

Total Cost (TC) with Constant Carrying Costs (CC)


Total Cost

TCa TCb TCc


Decreasing Price

CC a,b,c
OC

EOQ

Quantity
405

When to Reorder with EOQ Ordering




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

Determinants of the Reorder Point


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


407

Safety Stock
Quantity

Maximum probable demand during lead time Expected demand during lead time

ROP Safety stock reduces risk of stockout during lead time Safety stock
LT Time
408

Reorder Point (ROP)


The ROP based on a normal Distribution of lead time demand
Service level Risk of a stockout Probability of no stockout Expected demand 0

ROP
Safety stock z

Quantity

z-scale

409

Fixed-Order-Interval Model
Orders are placed at fixed time intervals  Order quantity for next interval?  Suppliers might encourage fixed intervals  May require only periodic checks of inventory levels  Risk of stockout

410

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


Ordering Packing Shipping costs




May be practical when inventories cannot be closely monitored


411

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


412

Single Period Model




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

Single Period Model




Continuous stocking levels


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

Discrete stocking levels


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

Operations Strategy


Too much inventory


Tends to hide problems Easier to live with problems than to eliminate them Costly to maintain

Wise strategy
Reduce lot sizes Reduce safety stock

415

Economic Production Quantity


Production & Usage Production & Usage

Usage

Usage

416

SCHEDULING

417

Scheduling Operations
   

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

Scheduling Definitions


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

   

Bottleneck:
A resource whose capacity is less than the demand placed on it

Due date:
When the job is supposed to be finished

Slack:
The time that a job can be delayed & still finish by its due date

Queue:
A waiting line
419

High-Volume Operations


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

Low-Volume Operations


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


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

Low-Volume Tool Gantt Charts


 

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

422

Gantt Chart (continued)




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

423

Scheduling Work - Work Loading




Infinite loading:
Ignores capacity constraints, but helps identify bottlenecks in a proposed schedule to enable proactive management

Finite loading:
Allows only as much work to be assigned as can be done with available capacity but doesnt prepare for inevitable slippage
424

Other Scheduling Techniques


 

Forward Scheduling starts processing immediately when a job is received Backward Scheduling begin scheduling the jobs last activity so that the job is finished on due date

425

Monitoring Work Flow Input/Output Control


 

I/O control is a capacity-control technique used to monitor work flow at individual work centers Monitors how well available capacity is used and provides insight into process problems
Period 6 800 780 -20 -40 Period 6 800 780 -20 -70 80 7 820 810 -10 -50 8 800 810 10 -40

Figure 15-6 Input/output report for work center 101 Input Information (in hours) 4 5 Planned Input 800 750 Actual Input 750 780 Deviation -50 30 Cumulative deviation 0 -50 -20 Output information (in hours) Planned output Actual output Deviation Cumulative deviation Backlog (in hours) 4 800 800 0 0 50 5 800 750 -50 -50 80

0 100

7 800 850 50 -20 40

8 800 825 25 5 25 426

How to Sequence Jobs


  

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

Commonly Used Priorities Rules


      

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

Slack per remaining Operations (S/RO)


Slack /(number of remaining operations)
428

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

How to Use Priority Rules


1. 2.

3.

Decide which priority rule to use List all jobs waiting to be processed with their job time Using priority rule determine which job has highest priority then second, third and so on

430

Measuring Scheduling Performance




Job flow time:


Time a job is completed minus the time the job was first available for processing; avg. flow time measures responsiveness

Average # jobs in system:


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

  

Makespan:
The time it takes to finish a batch of jobs; measure of efficiency

Job lateness:
Whether the job is completed ahead of, on, or behind schedule;

Job tardiness:
How long after the due date a job was completed, measures due date performance
431

Scheduling Performance Calculations


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


Job C finishes on day 17

Job D ends on day 20

Calculation mean flow time:


MFT= (sum job flow times)/ # of jobs = (10+13+17+20)/4 = 60/4 = 15 days

Calculating average number of jobs in the system:


Average # Jobs =(sum job flow times)/ # days to complete batch = (60)/20 = 3 job

Makespan is the length of time to complete a batch


Makespan = Completion time for Job D minus start time for Job A = 20 0 = 20 days
432

Performance Calculations (Cont.)


 

Lateness and Tardiness are both measures related to customer service Average tardiness is a more relevant Customer Service measurement as illustrated below

Example 15-5 Calculating job lateness and job tardiness Completion Date 10 13 17 20

Job A B C D

Due Date 15 15 10 20 Average

Lateness -5 -2 7 0 0

Tardiness 0 0 7 0 1.75
433

Comparing Shortest Processing time (SPT) and Slack per remaining Operations (S/RO)
Performance Measures using SPT Job Time at Work Center 301 (days) 3 7 6 4 2 5 27

Job A B C D E F Total

Due date (days from now) 15 20 30 20 22 20 Avg. Job Flow


Total Job Flow Time

Makespan Avg. # Jobs

SPT Completion Date 5 27 20 9 2 14 12.83 77 27 2.85

Lateness (days) -10 7 -10 -11 -20 -6 -8.3

Tardiness (days) 0 7 0 0 0 0 1.2

Scheduling Sequence 2 6 5 3 1 4

E done at end of day 2

A end of day 5

D at end of day 9

F at end of C at end of day 14 day 20

B done at end of day 27


434

Comparing Shortest Processing time (SPT) and Slack per remaining Operations (S/RO)
(cont.)
Performance Measures Using S/RO Job Time Remaining at Work Remaining Number Center Job Time at Slack of Operations 301 Other Work Due date Time After Work Job (days) Center (days) (days from now) (days) Center 301 A 3 6 15 6 2 B 7 8 20 5 4 C 6 5 30 19 3 D 4 3 20 13 2 E 2 7 22 13 3 F 5 5 20 10 3 Total 27

S/RO 2 1 4.75 4.33 3.25 2.5

Scheduling Sequence 2 1 6 5 4 3
Avg. Job Flow Total Job Flow Time Makespan Avg. # Jobs

Completion Lateness Tardiness Date (days) (days) 10 -5 0 7 -13 0 27 -3 0 21 1 1 17 -5 0 15 -5 0 16.17 -5.0 0.167 97 27 3.59

B done at end of day 7

A at end F at end of E at end of D at end of of day 10 day 15 day 17 day 21

C done at end of day 27


435

Sequencing Jobs through Two Work Centers Johnsons Rule




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


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

If the shortest Processing time is for a 1st activity, schedule that job in the earliest available position in the job sequence If the shortest processing time is for 2nd activity, schedule that job in the last available position in the job sequence When you schedule a job eliminate it from further consideration

Step 3 Repeat step 2 until you have put all activities for the job in the schedule
436

Johnsons Rule Example: Vickis Office Cleaners does the annual major cleaning of university buildings. The job requires mopping (1st activity) and waxing (2nd activity) of each building. Vicki wants to minimize the time it takes her crews to finish cleaning (minimize makespan) the five buildings. She needs to finish in 20 days.

Activity 1 Activity 2 Mopping (days) Waxing (days) Hall Adams Hall 1 2 Bryce Building 3 5 Chemistry Building 2 4 Drake Union 5 4 Evans Center 4 2

Johnson's Activity 1 Activity 2 Sequence Mopping (days) Waxing (days) Adams Hall (A) 1 2 Chemistry Building (C) 2 4 Bryce Building (B) 3 5 Drake Union (D) 5 4 Evans Center (E) 4 2

Activity 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Mopping A C C B B B D D D D D E E E E Waxing A A C C C C B B B B B D D D D E437E

Scheduling Bottlenecks
  

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

Optimized production technology (OPT) Principles


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

439

OPT Principles - continued


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

440

Theory of Constraints
 1. 2. 3.

4. 5.

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

Scheduling for Service Organizations




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

Managing service capacity:


Staff for peak demand (if cost isnt prohibitive) Floating employees or employees on call Temporary, seasonal, or part-time employees
442

Developing a Workforce Schedule: Tibrewala, Philippe, and Brown developed a technique for scheduling a seven day operation giving each employee two consecutive days off. This example shows how a staff of six people can be scheduled.


Step 1 Find out the minimum number of employees needed for each day of the week
(1) Day of the week Number of staff needed M 4 T 5 W Th 5 3 F 5 Sa Su 2 3

Step 2 Given the above requirements, calculate the number of employees needed for each pair of consecutive days
(1) Pair of Consecutive Days Total of Staff needed Monday & Tuesday 9 employees Tuesday & Wednesday 10 employees Wednesday & Thursday 8 employees Thursday & Friday 8 employees Friday & Saturday 7 employees Saturday & Sunday 5 employees

Step 3 - Find the pair of days with the lowest total needed
443

Workforce Scheduling (cont.)




Step 4 Update the number of employees you still need to schedule for each day
(2) Day of the week Number of staff needed M 3 T 4 W Th 4 2 F 4 Sa Su 2 3

Step 5 Using the updated staffing needs, repeat steps 2 through 4 until you have satisfied all needs
(2) Pair of Consecutive Days Total of Staff needed Monday & Tuesday 7 employees Tuesday & Wednesday 8 employees Wednesday & Thursday 6 employees Thursday & Friday 6 employees Friday & Saturday 6 employees Saturday & Sunday 5 employees
444

Scheduling (cont.)
M T W Th F Sa Su (3) Day of the week M T W Th F Sa Su(4) Day of the week Number of staff needed 2 3 3 1 3 2 3 Number of staff needed 1 2 3 1 2 1 2
(3) Pair of Consecutive Days Monday & Tuesday Tuesday & Wednesday Wednesday & Thursday Thursday & Friday Friday & Saturday Saturday & Sunday Total of Staff needed 5 employees 6 employees 4 employees 4 employees 5 employees 5 employees
(4) Pair of Consecutive Days Monday & Tuesday Tuesday & Wednesday Wednesday & Thursday Thursday & Friday Friday & Saturday Saturday & Sunday Total of Staff needed 3 employees 5 employees 4 employees 3 employees 3 employees 5 employees

445

Schedule (cont.)
(5) Day of the week M T W Th F Sa Su(6) Day of the week M T W Th F Sa Su Number of staff needed 0 1 2 0 1 1 2Number of staff needed 0 1 1 0 0 0 1
(5) Pair of Consecutive Days Monday & Tuesday Tuesday & Wednesday Wednesday & Thursday Thursday & Friday Friday & Saturday Saturday & Sunday Total of Staff needed 1 employees 3 employees 2 employees 1 employees 2 employees 3 employees
(6) Pair of Consecutive Days Monday & Tuesday Tuesday & Wednesday Wednesday & Thursday Thursday & Friday Friday & Saturday Saturday & Sunday Total of Staff needed 1 employees 2 employees 1 employees 0 employees 0 employees 1 employees

446

Final Schedule
(7) Day of the week M T W Th F Sa Su Number of staff needed 0 0 0 0 0 0 0
Employees 1 2 3 4 5 6 M x x x x off x T x x x x off x W x x off x x x Th x x off x x x F x x x x x off Sa off off x off x off Su off off x off x x


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

Scheduling Across the Organization




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

448

Scheduling Across the Organization - continued


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

Scheduling Highlights


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

Scheduling Highlights


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

Scheduling Highlights


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

452

PROJECT MANAGEMENT

453

Project Management Applications




What is a project?
Any unique endeavor with specific objectives With multiple activities With defined precedent relationships With a specific time period for completion

Examples?
A major event like a wedding Any construction project Designing a political campaign
454

Project Life Cycle


 

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

  

Network Planning Techniques




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

Both PERT and CPM




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

 

Network Diagrams


Activity-on-Node (AON):
Uses nodes to represent the activity Uses arrows to represent precedence relationships

458

Step 1-Define the Project: Cables By Us is bringing a new product on line to be manufactured in their current facility in some existing space. The owners have identified 11 activities and their precedence relationships. Develop an AON for the project.

Activity A B C D E F G H I J K

Description Develop product specifications Design manufacturing process Source & purchase materials Source & purchase tooling & equipment Receive & install tooling & equipment Receive materials Pilot production run Evaluate product design Evaluate process performance Write documentation report Transition to manufacturing

Immediate Duration Predecessor (weeks) None 4 A 6 A 3 B 6 D 14 C 5 E&F 2 G 2 G 3 H&I 4 J 2


459

Step 2- Diagram the Network for Cables By Us

460

Step 3 (a)- Add Deterministic Time Estimates and Connected Paths

461

Step 3 (a) (Continued): Calculate the Path Completion Times


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

Some Network Definitions


     

All activities on the critical path have zero slack Slack defines how long non-critical activities can be delayed without delaying the project Slack = the activitys late finish minus its early finish (or its late start minus its early start) Earliest Start (ES) = the earliest finish of the immediately preceding activity Earliest Finish (EF) = is the ES plus the activity time Latest Start (LS) and Latest Finish (LF) = the latest an activity can start (LS) or finish (LF) without delaying the project completion
463

ES, EF Network

464

LS, LF Network

465

Calculating Slack
Activity A B C D E F G H I J K Late Finish 4 10 25 16 30 30 32 35 35 39 41 Early Finish 4 10 7 16 30 12 32 34 35 39 41 Slack (weeks) 0 0 18 0 0 18 0 1 0 0 0
466

Revisiting Cables By Us Using Probabilistic Time Estimates


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

Using Beta Probability Distribution to Calculate Expected Time Durations


 

A typical beta distribution is shown below, note that it has definite end points The expected time for finishing each activity is a weighted average

optimistic  4 most likely  pessimistic Exp. time ! 6


468

Calculating Expected Task Times


optimistic  4 most likely  pessimistic Expected time ! 6
Activity A B C D E F G H I J K Optimistic time 2 3 2 4 12 2 2 2 2 2 2 Most likely time 4 7 3 7 16 5 2 3 3 4 2 Pessimistic time 6 10 5 9 20 8 2 4 5 6 2 Expected time 4 6.83 3.17 6.83 16 5 2 3 3.17 4 469 2

Network Diagram with Expected Activity Times

470

Estimated Path Durations through the Network


Activities on paths ABDEGHJK ABDEGIJK ACFGHJK ACFGIJK


Expected duration 44.66 44.83 23.17 23.34

ABDEGIJK is the expected critical path & the project has an expected duration of 44.83 weeks
471

Adding ES and EF to Network

472

Gantt Chart Showing Each Activity Finished at the Earliest Possible Start Date

473

Adding LS and LF to Network

474

Gantt Chart Showing the Latest Possible Start Times if the Project Is to Be Completed in 44.83 Weeks

475

Estimating the Probability of Completion Dates


   

Using probabilistic time estimates offers the advantage of predicting the probability of project completion dates We have already calculated the expected time for each activity by making three time estimates Now we need to calculate the variance for each activity The variance of the beta probability distribution is:
2

po ! 6

where p=pessimistic activity time estimate

o=optimistic activity time estimate


476

Project Activity Variance


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

Variances of Each Path through the Network


Path Number 1 2 3 4 Activities on Path A,B,D,E,G,H,J,k A,B,D,E,G,I,J,K A,C,F,G,H,J,K A,C,F,G,I,J,K Path Variance (weeks) 4.82 4.96 2.24 2.38

478

Calculating the Probability of Completing the Project in Less Than a Specified Time


When you know: The expected completion time Its variance You can calculate the probability of completing the project in X weeks with the following formula:

specified time  path expected time DT  EFP ! z! 2 path standard time P


Where DT = the specified completion date 2 EFPath = the expected completion time of the path
Path

! variance of path

479

Example: Calculating the probability of finishing the project in 48 weeks


 

Use the z values in Appendix B to determine probabilities 48 weeks  44.66 weeks ! 1.52 z e.g. probability for path 1 is !
4.82

Path Number 1 2 3 4

Activities on Path A,B,D,E,G,H,J,k A,B,D,E,G,I,J,K A,C,F,G,H,J,K A,C,F,G,I,J,K

Path Variance z-value (weeks) 4.82 4.96 2.24 2.38 1.5216 1.4215 16.5898 15.9847

Probability of Completion
0.9357 0.9222 1.000 1.000
480

Reducing Project Completion Time




Project completion times may need to be shortened because


Different deadlines Penalty clauses Need to put resources on a new project Promised completion dates

Reduced project completion time is crashing


481

Reducing Project Completion Time - continued




Crashing a project needs to balance


Shorten a project duration Cost to shorten the project duration

Crashing a project requires you to know


Crash time of each activity Crash cost of each activity

Crash cost/duration = (crash cost-normal cost)/(normal time crash time)

482

Reducing the Time of a Project (crashing)


Activity Normal Time (wk) 4 6 3 6 14 5 2 2 3 4 2 Normal Cost ($) 8,000 30,000 6,000 24,000 60,000 5,000 6,000 4,000 4,000 4,000 5,000 Crash Time 3 5 3 4 12 4 2 2 2 2 2 Crash Cost ($) 11,000 35,000 6,000 28,000 72,000 6,500 6,000 4,000 5,000 6,400 5,000 Max. weeks of reduction 1 1 0 2 2 1 0 0 1 2 0 Reduce cost per week 3,000 5,000 0 2,000 6,000 1500 0 0 1,000 1,200 483 0

A B C D E F G H I J K

Crashing Example: Suppose the Cables By Us project manager wants to reduce the new product project from 41 to 36 weeks.
  

Crashing Costs are considered to be linear Look to crash activities on the critical path Crash the least expensive activities on the critical path first (based on cost per week)
Crash activity I from 3 weeks to 2 weeks $1000 Crash activity J from 4 weeks to 2 weeks $2400 Crash activity D from 6 weeks to 4 weeks $4000 Recommend Crash Cost $7400

Question: Will crashing 5 weeks return more in benefits than it costs?


484

Crashed Network Diagram

485

The Critical Chain Approach




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

Original critical path


Activity A Activity B Activity C Activity D Activity E

Critical path with project buffer


Activity A Activity B Activity C Activity D Activity E Project Buffer
486

Adding Feeder Buffers to Critical Chains


  

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

487

Project Management OM Across the Organization


   

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

Project Management Highlights




 

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

Project Management Highlights


(continued)
 

Pert uses probabilistic time estimates to determine the probability that a project will be done by a specific time. To reduce the length of the project (crashing), we need to know the critical path of the project and the cost of reducing individual activity times. Crashing activities that are not on the critical path typically does not reduce project completion time. The critical chain approach removes excess safety time from individual activities and creates a project buffer at the end of the critical path.
490

491

2G,3G,Wi-Fi 802.11

492

493

494

495

496

GPS

497

Barcode
(Universal Product Code, UPC )

7 1 0 1 2 3

4 5 6 7 8 8

OCR-B

498

499

RFID
  > > 
   

500

RFID

501

BI(

502

DECISION MAKING & PROBLEM SOLVING

503

DECISION MAKING & PROBLEM SOLVING

. . . .
504

DECISION MAKING & PROBLEM SOLVING

505

DECISION MAKING & PROBLEM SOLVING


1. Qualitative approach

2. Quantitative approach
(Management by figures) (Management by indicators) (Management by dashboard)

3. Mixed approach
506

BI(


BI Business Intelligence

507

BI(


508

BI(
 

Have data Understand how to intepret data

509

(Key Performance Indicators)

510

The Balanced Scorecard




1 4

511

Financial Perspective
Objective Measures Initiatives Target Performance Actual Performance

$2,000,000

$2,100,000

$3,000,000

$3,420,000

6%

6.48%
512

Customer Perspective
Objective Measures Initiatives Target Performance 6% Actual Performance 7%

1. 2.

1.

90% 2

87% 2

2.

513

Internal Business Process Perspective


Objective Measures Initiatives Target Performance 78% Actual Performance 79.3%

30 92%

30 90%

514

Internal Business Process Perspective


Objective Measures Initiatives Target Performance 78% Actual Performance 79.3%

90%

90%

515

Learning and Growth Perspective


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

85%

90%

90%

90%

516




517

OLAP: Cube
1 2 3 4

518

/
519

BI(


520

Trace

(Track & )
521

END OF LECTURE

522