Lecture Notes, Operations Management, Chapter 1, 2, 4, 6, 7, 9 - 10, 12, 15, 17 - Prof. Wally Whistance-Smith

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Lecture notes, Operations Management, Chapter 1, 2,

4, 6, 7, 9 - 10, 12, 15, 17 - Prof. Wally Whistance-
Smith
Operations Management (Ryerson University)
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Chapter 1
Outline
1. What is Operations Management?

2. 3 Basic Functions
3. Scope
4. Differentiating Features of Ops Systems
5. Ops Manager and the Management Process
6. Ops Managers and the Tools Used in Decision Making
7. Historical Evolution
8. Trends in Business
Table of Contents
What is Operations Management...............................................................................................................2
Management...........................................................................................................................................2
Operations...............................................................................................................................................2
OM Activities...........................................................................................................................................2
Importance..............................................................................................................................................3
New Challenges in OM............................................................................................................................3
3 Basic Functions.........................................................................................................................................3
Operations Function................................................................................................................................4
Types of Operations................................................................................................................................4
Goods-Service Continuum.......................................................................................................................5
Operations Interfaces..............................................................................................................................5
Scope...........................................................................................................................................................5
Differentiating Features of Operating Systems............................................................................................5
Characteristics of Operations..................................................................................................................6
Characteristics of Manufacturing Operations..........................................................................................6
Characteristics of Service Operations......................................................................................................7
Features of Operating System.................................................................................................................7
Product standardization:.....................................................................................................................7
Types of Process..................................................................................................................................7
Product Process Matrix...........................................................................................................................7
Goods v. Services.....................................................................................................................................8
Output.................................................................................................................................................8
Customer contact................................................................................................................................8

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Uniformity of input..............................................................................................................................8
Labour content....................................................................................................................................8
Quantity of Output..............................................................................................................................8
Measurement of Productivity..............................................................................................................9
Quality assurance................................................................................................................................9
Operations Manager and the Management Process...................................................................................9
Job Satisfaction........................................................................................................................................9
Operations Manager and the Tools Used in Decision Making...................................................................10
Models..................................................................................................................................................11
Quantitative Approaches.......................................................................................................................11
Pareto Phenomenon.............................................................................................................................11
Analysis of Trade offs.............................................................................................................................12
Ethical Issues.........................................................................................................................................12
The Historical Evolution.............................................................................................................................12
Major Historical Developments.............................................................................................................13
Trends in Business.....................................................................................................................................15
What is Operations Management

Management
The process by which objectives are achieved through the use of resources. Almost always deals
with:
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࿿࿿࿿࿿࿿࿿࿿࿿࿿ Ú⫬熸࿿࿿࿿࿿࿿࿿࿿࿿࿿Û響ക࿿࿿࿿࿿࿿࿿࿿࿿࿿Ü噚㵩࿿࿿࿿࿿࿿࿿࿿࿿࿿Ý Conflicting objectives
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75Ë蝎䨖࿿࿿࿿࿿࿿࿿࿿࿿࿿Ì嗾࿿࿿࿿࿿࿿࿿࿿࿿࿿Íυ࿿࿿࿿࿿࿿࿿࿿࿿࿿Î퉲惂࿿࿿࿿࿿࿿࿿࿿࿿࿿Ï⼞䳃࿿࿿࿿࿿࿿࿿࿿࿿࿿Ð읊ᇊ࿿࿿࿿࿿࿿࿿࿿࿿࿿
࿿࿿࿿࿿࿿࿿࿿࿿࿿ Óⷀ掂࿿࿿࿿࿿࿿࿿࿿࿿࿿Ô桚民࿿࿿࿿࿿࿿࿿࿿࿿࿿Õ기帞࿿࿿࿿࿿࿿࿿࿿࿿࿿Ö␌ណ࿿࿿࿿࿿࿿࿿࿿࿿࿿ ×啖࿿࿿࿿࿿࿿࿿࿿࿿࿿Ø
࿿࿿࿿࿿࿿࿿࿿࿿࿿ Ú⫬熸࿿࿿࿿࿿࿿࿿࿿࿿࿿Û響ക࿿࿿࿿࿿࿿࿿࿿࿿࿿Ü噚㵩࿿࿿࿿࿿࿿࿿࿿࿿࿿Ý Limited resources
Operations
Those activities within an organization that are directly related to providing g/s to customers
OM Activities
ĀȀЀĀȀĀ⸀ĀȀĀȀȀ⸀ĀĀȀȀ⸀ĀᜀĀᜀĀᜀĀᜀĀᜀ̀̀ĀȀ⸀ĀЀĀȀĀ⸀ĀȀĀȀȀ⸀ĀĀȀȀ⸀ĀᜀĀᜀĀᜀĀᜀ0 Forecasting
ĀȀЀĀȀĀ⸀ĀȀĀȀȀ⸀ĀĀȀȀ⸀ĀᜀĀᜀĀᜀĀᜀĀᜀ̀̀ĀȀ⸀ĀЀĀȀĀ⸀ĀȀĀȀȀ⸀ĀĀȀȀ⸀ĀᜀĀᜀĀᜀĀᜀ1 Capacity
planning
ĀȀЀĀȀĀ⸀ĀȀĀȀȀ⸀ĀĀȀȀ⸀ĀᜀĀᜀĀᜀĀᜀĀᜀ̀̀ĀȀ⸀ĀЀĀȀĀ⸀ĀȀĀȀȀ⸀ĀĀȀȀ⸀ĀᜀĀᜀĀᜀĀᜀ2 Scheduling

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23 Managing inventories
24 Assuring quality
25 Motivating employees
26 Where to locate facilities
Importance
0 Core of all business activings
1 Large percentage of company’s expenses
2 Large number of jobs
0 Purchasing
1 Quality
2 Planning
3 Scheduling
4 Inventory
1 Interrelated with other areas of business
2 We want to know how g/s are produced in order to be able to produce them better
3 VALUE ADDED
0 The ifference between the cost of inputs v. the price of outputs
O
New Challenges in OM
0 Global focus
0 From local or national focus
1 Just-in-time
0 From batch shipment
2 Supply-chain partnering
0 From low bid purchasing
3 Rapid product, development alliances
0 From lengthy product development
4 Mass customization
0 From standard products
5 Empowered employees, teams
0 From job specialization
3 Basic Functions
1. Operations

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0 Creation of goods
0 Finance
0 Provision of funds
1 Economic analysis of investment proposal
1 Marketing
0 Promoting
Operations Function
23 Inputs: land, labour, capital
Feedback
24 Transformation process
a. Control
Feedback
5888 Outputs: Goods and

Services Feedback
Throughout process, there is VALUE ADDED:
The dollar amount added to the product at each stage of production (harvest, transport,
produce)
Types of Operations
23 Good producing
23 Farming, mining
24 Storage/transport
23 Warehousing, trucking
25 Exchange
23 Retailing, wholesaling
26 Entertainment
23 Films, radio
27 Communication
23 Newspaper, radio

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Goods-Service Continuum
5888 Goods content; y-axis
5889 Service content; x-axis
Operations Interfaces
23 Maintenance
24 MIS
25 Public relations
26 Personnel
27 Accounting
28 Purchasing
29 Distribution
30 Industrial engineering
Scope
Creation of goods and services involves:
5888 Designing
decisions O
Capacity O
Location O
Equipment
5889 Operating
decisions O
Planning O
Execution O
Controlling
5890 System design is most important because many of the parameters of the system
operation are decided by design
Differentiating Features of Operating Systems

0 Degree of product standardization O
Standardized
O Customized
1 Type of process
0 Quantity of output
1 Production of goods and services
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Difference between the production of goods v. performance of services

0 Customer contact, use of inventories, and demand variables
0 Service involves a higher degree of customer contact than goods
1 Goods production can generally occur away from the customer which permits a higher
degree of seleting
0 Work methods
I Assigning jobs
II Scheduling control
III Larger inventories and therefore are better equipped to deal with demand
shocks
0 i.e. if a grocery stores has only 2 lanes, they only have 2 lanes rsulting in
waits
1 services have a greater degree of variability than goods. Goods producers often have the ability
to carefully control the amount of variability of inputs.
2 Services often require a higher labour content whereas goods production typically can be more
capital intensive (i.e.: mechanized)
3 Because high mechanizations generates products with lower variability, goods tend to be
produced in a smooth and efficient way
4 Measurement of productivity is more straightforward with goods due to a higher degree of
uniformity
5 Quality assurance is more challenging in services when performance and consumption occur at
the same time. With goods, errors can be corrected before the customer notices
Characteristics of Operations
0 Ops often accounts for the largest share of personnel/fixed capital investment
I Ops often run round-the-clock and must be managed continuously
II Ops are often complex systems with state of the art tech
IIIThe management of ops in info intensive and requires extensive data collection and analysis
IV Ops nature is systematic – even the small problems can have far-reaching negative effects
V They only call you when something goes wrong
Characteristics of Manufacturing Operations

0 Physical conversion of “raw materials” into “finished goods” (primary value added)
1 Manufacturers usually purchase inputs, sell outputs
2 Production approaches
0 Make-to-order
1 Make-to-stock
2 Fabricate-to-stock
1 Basic process types
0 Project
1 Job shop

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0 Batch process
1 Assembly line
2 Continuous process
Characteristics of Service Operations

5888 Intangible output
23 Facilitating goods
24 Customer contact
23 Customer participation in service process
25 Often consumed as they are produced
26 Often labour intensive
27 Variable, nonstandard inputs and outputs
28 Customer often owns the key inputs in the process
23 Property
24 Information
Features of Operating System

Product standardization:
5888 High
23 Little variety (i.e.: newspapers, TV, radio)
24 Low
23 High variety (i.e.: eyeglasses, custom drapes)
Types of Process
23 Large scale project
23 Launching a space shuttle
23 Oil refining
Product Process
Matrix
Low
High Variety Variety
Volume
Mass Continuous
customization Production
Mass
Production

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Batch
Production/Job
Shop
Project/Unit
Production
Degree of standardization
In order of highest volume (and lowest variety) to lowest volume (and highest variety)
23 Continuous production
24 Mass production
25 Batch production/job shop
26 Project/Unit Production
** Mass customization is of highest variety AND degree of standardization
Goods v. Services
Output
5888 Goods: Tangible
5889 Services: Intangible
Customer contact
23 Goods: Low
24 Services: High
Uniformity of input
23 Goods: High
24 Services: Low
Labour content
5888 Goods: Low
5889 Services: High
Quantity of Output
5888 Goods: High
5889 Services: Low

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Measurement of Productivity
5888 Goods: Easy
5889 Services: Difficult
Quality assurance
23 Goods: Easy
24 Services: Difficult
Operations Manager and the Management Process

5888 Planning
5888 Capacity
5889 Location
5890 Mix of products and services
5891 Make or buy
5892 Projects
5889 Organizing
5888 Degree of centralization
5889 Specialization
5890 Subcontracting
5891 Staffing
5892 Suppliers
5890 Controlling
5888 Inventory
5889 Quality
5890 Motivation
5891 Cost
5892 Productivity
5891 Directing
5888 Scheduling
5889 Incentive plans
5890 Work orders
5891 Job assignments
Job Satisfaction
In order from lowest satisfaction to highest satisfaction:
5888 Hours of work

5889 Physical working conditions
5890 Dealing with labour difficulties

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23 Solving technical problems

24 Status of POM functions
25 POM representation in upper management
26 POM decisions
27 Solving personnel problems
28 Opportunities for innovating
29 Opportunities for personal initiative
30 Solving management problems
31 Opportunities for improving productivity
Operations Manager and the Tools Used in Decision

Making
Approaches to decision making
5888 Models
5888 Definition
23 An abstraction of reality, a simplified representation of something
5889 They must ignore the unimportant details so that attention can be
concentrated on the most important aspects
5890 For each model, try to learn
23 Its purpose
24 How it is used to generate results
25 How these results are interpreted and used
26 What assumptions and limitations apply?
5889 Quantitative approaches
5888 Linear programming – widely used for optimum allocation of scarce resources
5889 Queuing technique – useful for analzung situations in which waiting lines form
5890 Inventory techniques – widely sued to control inventories
5891 Project scheduling – i.e.: PERT, useful for planning, coordination and
controlling large scale projects
5892 Forecasting – widely used to forecast demand
5893 Statistical techniques – currently used in many areas of decision making,
including quality control
5890 Trade offs
5888 Factoring rating approach
5891 Systems approach
5888 The output and the objective of the organization as a whole takes
precedence over those of any one subsystem
5889 System
23 A set of interrelated parts that msut work together
5890 The systems approach is essential whenever something is designed,
redesigned, implemented, improved, or otherwise changed
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23 Establishing priorities
23 Pareto phenomenon
5888 A few factors account for a high percentage of results achieved
24 Ethics
23 Workers safety
24 Product safety
25 Clean environment
26 Impact the community
Models
Abstraction of reality
23 Physical
24 Schematic
25 Mathematics
23 Models of cost
24 Revenue
25 Profit
C X  F VX BEPX  F BEP$  F

R X  PX P V 1 V
P
Quantitative Approaches
5888 Linear programming
5889 Queuing techniques
5890 Inventory techniques
5891 Project techniques
5892 Statistical techniques
Pareto Phenomenon
23 Also known as the “Pareto principle”, “80-20 rule”
th
24 Pareto was a 19 century economist. He observed that …
23 80% of the wealth of Italy was held by 2-% of the citizens (sometimes referred
to as the vital few)
24 Only 20% of the wealth was held by 80% of the population (the trivial many)
25 This type of relationship was observed in a wide range of solutions, including ops”
23 In quality management, it is often observed that 80% of the defects result from
a small number of defects (the vital few)
24 In inventory management, a small number of inventory items (the vital few)
account for the lion’s share of the inventory investment

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5888 This idea can be used to help us establish priorities for management actions
5889 How do we identify the vital few?
Analysis of Trade offs

Decision on amount of inventory to stock
Increased cost of holding inventory v. level of service
Ethical Issues
5888 Financial statements
5889 Workers safety
5890 Product safety
5891 Quality
5892 Environment
5893 Community
5894 Hiring/firing workers
The Historical Evolution

23 Earliest days
23 Craft production (no economies to scale)
5888 Craft production
5888 System in which highly skilled workers use simple, flexible
tools to produce small quantities of customized goods
24 Mercantilism
24 Industrial revolution
23 Interchangeable Parts (Eli Whitney, 1700)
5888 Interchangeable parts
5888 Parts of a product made to such precisions that they don’t
have to be customly fitted
24 Division of Labour (Adam Smith, 1776)
5888 Division of labour
5888 Breaking up a production process into small task so that
each worker performs a small portion of the overall job
25 Scientific Management (Fredrick Taylor, Frank and Lillian GIlberth, Henry Gantt, Henry
Ford, 1920s)
5888 Mass production
5888 System in which lower-skilled workers use specialized
machinery to produce high-volumes of standardized goods
25 Human relations movement
23 Improve productivity (Elton Mayo, 1930)

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5888 Moticational Theories (Abraham Maslow, 1940s)

5889 Employee Problem Solving (WIlliam Ouchi, 1970s)
23 Decision Models and Computer (1960+)
23 Management science
24 EDI
25 ERP
24 Japanese Manufacturers
23 TQM revolution
5888 Total quality management
5888 Involving every employee in a continual effort to improve
quality and satisfy the customers
24 Lean production
5888 Lean production
5888 System that uses a minimal amounts of resources to
produce high volumes of hgh-quality goods with some variety
Major Historical Developments

5888 Industrial revolution late 1700s)
5888 Replaced traditional craft methods
5889 Substituted machine power for labour
5890 Major contributions
23 James Watt (1764): Steam Engine
24 Adam Smith (1776): Division of Labour
25 Eli Whitney (1790): Interchangeable Parts
5889 Scientific management (early 1900)
5888 Separated ‘planning’ from ‘doing’
5889 Management’s job as to discover worker’s physical limits through
measurement, analysis and observation
5890 Major contribution
23 Fredrick Taylor: Stopwatch time studies
24 Henry Ford: Moving assembly line
5890 Human relations movement (1930s-60s)
5888 Recognition that factors other than money contribute to workers productivity
23 Understanding of the HAWTHORN EFFECT
23 Study of Western Electric plant in Hawthorn, Illinois intended to
study the impact of environmental factors (light and heat) on
productivity but found workers responded to managements’
attention regardless of environmental changes
24 Job enlargement
25 Job enrichment
5891 Management science (Mid-1900s)
5888 Deeloped new quantitative techniques for common OM problems

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5888 Major contributions:

23 Inventoy modelling
24 Linear programming
25 Project management
26 Forecasting
27 Statistical sampling
28 Quality control techniques
5889 Played a large role in supporting American military ops during WWII
23 Computer Age (1970s)
23 Provided the tool necessary to support widespread use of management
science’s quantitative techniques (the ability to process large amounts of data
quickly and relatively cheap)
5888 Development of Material Requirement Planning (MRP)
systems for production control
24 Japanese Influenced Developments (1980s)
23 Just-in-Time (JIT)
5888 Techniques designed to achieve high-volume production using
coordinated material flows, continuous improvement and elimination of
waste
24 Total Quality Management
5888 Techniques designed to achieve high levels of product quality through
shared responsibility and by eliminating the root cause of product defects
25 Business Process Reengineering
5888 ‘Clean sheet’ redesign of work processes to increase efficiency,
improve quality and reduce costs
25 Flexibility (1990s)
23 Offer a greater variety of product choices on a mass scale (mass customization)
26 Time-based competitions (1990s)
23 Developing new product designs and delivering customer’s orders more quickly
than competitors
27 Supply chain management (1990s)
23 Cooperating with suppliers and customers to reduce overall costs of the supply
chain and increase responsiveness to customers
28 Global competition (1990s)
23 International trade agreements open new markets for expansion and low barriers to
the entry of foreign competitors (i.e.: NAFTA, GATT)
24 Creates the need for decision-making tools for …
5888 Facility location
5889 Compliance with local regulations
5890 Tailoring product offerings to local tastes
5891 Managing distribution networks ..
29 Environmental Issues (1990s)
23 Pressure from consumers and regulators to reduce, reuse, recycle solid wastes and
discharges to water, air
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5888 Electronic commerce (late 1990s – early 21st century)

5888 Internet and related tech enable new methods of business transaction
23 E-tailing creates a new outlet for retail g/s with global access and 24-7
availability
24 Internet provides a cheap network for coordinating supply chain
management info
5889 Developing influence of broadband and wireless
Trends in Business
23 Internet and e-commerce
23 E-comerce
5888 Use of the internet and other electronic networks to buy/sell goods and
services
24 Management technology
25 Globalization
26 Management of supply chains
23 Outsourcing
24 Supply chain
5888 A sequence of activities that involve producing/services
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Competitiveness,
Strategic Planning,
Productivity
5888 List and briefly discuss the primary ways that organizations compete
5888 Key purchasing criteria
23 Price
24 Quality
25 Variety
26 Timeliness
5889 Competitive properties
23 Cost
24 Quality
25 Flexibility
26 Delivery
5889 Describe a company’s
5888 Strategic planning
23 Getting Started
5888 Scope of the business
5889 Is the current strategy working?
5890 What is the issues/problems?
24 Analyze the industry and source of competitive advantages (i.e.: earnings above-
average profit)
5888 How intense is the competitive rivalry?
5889 How large is the bargaining power of suppliers?
5890 How easily can a substitute good or service be developed?
5891 How large is the bargaining power of customers?
5892 How would trends and changes (demand, tech, regulation,
etc.) affect the industry?
5893 How can generic strategies of niche market, low cost, and
product differentiation be used in this industry?
5894 How can we gain and sustain competitive advantage?
25 Analyze customers
5888 What are the market segments?
5889 What are customers’ key purchasing criteria?
26 Analyze competitors (established rivals)
5888 What are the strategies and positions (i.e.: relative
competitive comparison of products) of the winners and
losers?
5889 Why do competitors behave as they do? Can we influence
them?
5890 How has their strategy been changing through time?
27 Assess relative position
5888 What are our products’ strengths and weaknesses as
customers see them? Profitability?
28 Assess the state of our business
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5888 What are the major issues (in order of importance)?

5889 What should our goals be?
5890 Should we grow, maintain, or sell off parts of our business?
23 Develop and evaluate alternative strategies
5888 Can strategies be found for each major issue?
5889 What investments should we make? What actions should we
take?
5890 For each alternative, do financial returns justify it?
24 Choose and refine the recommended strategy
5888 What strategy should we choose?
5889 What actions and policies are required? Do they fit together?
Are they reinforcing?
5890 What resources are required? Timetables? Expected results?
25 Identify major actions and implement them
5888 How can we coordinate the actions and monitor overall progress
23 Mission/vision/values
5888 Mission
5888 Where the organization is now going
5889 Vision
5888 Shared belief of where the organization desires to be in the
future
5890 Values
5888 Shared beliefs of the organization’s stakeholders
24 Strategies
5888 Strategy
5888 Long-term plans that will determine the direction a firm
will take to become (or remain) competitive
5889 Determined during the strategic planning process
5890 Sometimes called functional strategies
5889 Tactics
5888 Medium-term plans used in components of a strategy
5890 Action Plan
5888 Medium-/short-term project to accomplish a specific objective,
assigned to an individual, with a deadline and resources needed
5888 Define and measure the term productivity
5889 Productivity
5888 Measure of productive use of resources, usually expressed as ratio of output to
input
5889 Output/input = productivity
5890 Productivity growth
5888 Increase in productivity over a period of time
5889 (Current period production – previous year period production)/Previous
years period production
5891 Measuring productivity
5888 Can be based on;
23 Single input – partial productivity
5888 Output/labour
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5888 Output/machine
5889 Output/material
5890 Output/energy
23 More than one input – multlifactor
5888 Output/(labour+machine)
5889 Output/(labour+materials+energy)
24 All inputs and total measure
5888 Goods and service produced/all inputs used to
product them b. NOTE: Partial productivity (single input) is of the greatest use
Table of Contents
Competitiveness..........................................................................................................................................4
Key purchasing criteria............................................................................................................................4
Price....................................................................................................................................................4
Quality.................................................................................................................................................4
Variety.................................................................................................................................................4
Timeliness...........................................................................................................................................4
Complex Orders.......................................................................................................................................4
Competitive Priorities..............................................................................................................................4
Strategic Planning........................................................................................................................................5
Detailed Strategic Planning Process.........................................................................................................5
Missions, Vision, Values...........................................................................................................................6
Goals.......................................................................................................................................................7
Strategies, Tactics and Action Plans.........................................................................................................7
Operations Strategy.................................................................................................................................7
Strategic Decision Categories..............................................................................................................7
Generic Ops Strategy...................................................................................................................................9
Productivity...............................................................................................................................................10
5888 Competitiveness
5888 Ability and performance of an organization in the marketplace, compared
to that of similar goods and services
5889 Strategy

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23 The long term plans that determine the direction an organization takes to become (or
remain) competitive
24 Strategic Planning
23 The managerial process that determines a strategy for the organization
Competitiveness
Key purchasing criteria
23 The major demands influencing price, quality, variety and timeliness
24 Value = (Quality*Variety*Timeliness)/Price
Price
5888 If all of the other factors are equal, the customer will buy at
the lowest price
Quality
5888 Determined
by O Design
O Material
O Workmanship
O Performance O
Consistency
5889 Better for specification
Variety
5888 Choice of models/options
5889 Wider variety, wider range of customization
Timeliness
5888 Availability to customers, i.e.:
23 JIT, becoming available quickly
Complex Orders
5888 2 categories of purchasing critieria
5888 Order Qualifiers
23 Purchasing criteria that a customer perceive as minimum standards of
acceptability to be considered for purchase
24 May not be sufficient to get customers to purchase from a firm
5889 Order Winners
23 Purchasing criteria that cause the firm to be perceived as better than the
competition
Competitive Priorities
23 Important to operations characteristics:
O Cost

lOMoARcPSD|4211913
5888 Emphasising lower operation costs

23 Quality
23 Determining customers’ quality requirements translating into
specification for goods and services, i.e.:
5888 Consistently providing better service
24 Important traits
5888 High performance
5889 Consisent quality
24 Flexibility
23 Includes customization and modifications needed to fit the needs of
customers
24 Ease of increasing/decreasing production quality
25 Important traits
5888 Variety
5889 Quantity Flexibility
25 Delivery
23 Consistently meet promised due date
24 Achieved through communication networks, planning, control systems,
reliable equipment, JIT production
25 Important traits
5888 Rapid delivery
5889 On-time delivery
Strategic Planning
Detailed Strategic Planning Process
5888 Getting Started
5888 Scope of the business
5889 Is the current strategy working?
5890 What is the issues/problems?
5889 Analyze the industry and source of competitive advantages (i.e.: earnings above-average
profit)
5888 How intense is the competitive rivalry?
5889 How large is the bargaining power of suppliers?
5890 How easily can a substitute good or service be developed?
5891 How large is the bargaining power of customers?
5892 How would trends and changes (demand, tech, regulation, etc.) affect the
industry?
5893 How can generic strategies of niche market, low cost, and product
differentiation be used in this industry?
5894 How can we gain and sustain competitive advantage?
5890 Analyze customers
5888 What are the market segments?
lOMoARcPSD|4211913
23 What are customers’ key purchasing criteria?

5888 Analyze competitors (established rivals)
5888 What are the strategies and positions (i.e.: relative competitive comparison of
products) of the winners and losers?
5889 Why do competitors behave as they do? Can we influence them?
5890 How has their strategy been changing through time?
5889 Assess relative position
5888 What are our products’ strengths and weaknesses as customers see them?
Profitability?
5890 Assess the state of our business
5888 What are the major issues (in order of importance)?
5889 What should our goals be?
5890 Should we grow, maintain, or sell off parts of our business?
5891 Develop and evaluate alternative strategies
5888 Can strategies be found for each major issue?
5889 What investments should we make? What actions should we take?
5890 For each alternative, do financial returns justify it?
5892 Choose and refine the recommended strategy
5888 What strategy should we choose?
5889 What actions and policies are required? Do they fit together? Are they
reinforcing?
5890 What resources are required? Timetables? Expected results?
5893 Identify major actions and implement them
5888 How can we coordinate the actions and monitor overall progress
Missions, Vision, Values

23 Mission
5888 Where the organization is now going
5889 WestJet example:
23 To enrich the lives of everyone is WestJet’s world by providing safe,
friendly, and affordable air travel
5889 Vision
5888 Shared belief of where the organization desires to be in the future
5889 WestJet example:
23 By 2015, WestJet will be one of the 5 most successful international airlines
in the world, providing our guests with a friendly and caring experience that
will change air travel forever
5890 Values
5888 Shared beliefs of the organization’s stakeholders
5889 WestJet Example:
23 Commitment to safety
24 Positive and passionate in everything we do
25 Appreciative of our people and guests
26 Fun, friendly and caring
27 Aligned the interest of WestJetters with the interest of the company
lOMoARcPSD|4211913
23 Honest, open and keep our commitments
Goals
5888 Mission/vision provide general direction of an organization, which should
lead to organizational goals
5889 Goals provide substance to the overall mission/vision
Strategies, Tactics and Action Plans

23 Strategy
5888 Long-term plans that will determine the direction a firm will take to
become (or remain) competitive
5889 Determined during the strategic planning process
5890 Sometimes called functional strategies
5889 Tactics
5888 Medium-term plans used in components of a strategy
5890 Action Plan
5888 Medium-/short-term project to accomplish a specific objective, assigned
to an individual, with a deadline and resources needed
5889 Example
23 Business Goal: Become a leader in special orders
5888 Objectives
23 Quality: Reduce defect rate from 15% to 1%
24 Delivery Speed: reduce production lead time from 40 to 10
days
23 Reduce graphics production lead time from 10 to 1
day
24 Reduce golf ball production lead time from 30 to 9
days
25 On-Time Delivery: Increase on-time deliveries by 99.9%
Operations Strategy
5888 Operations Strategy
23 The approach that is used to guide the operations functions
Strategic Decision Categories

5888 Facility
5888 How to specialize/focus by facility
23 Market group
24 Product group
25 Product production type
5889 Capacity
5888 Related to facility
5889 Long-term decisions consider
23 Size of plant
24 Major equipment

lOMoARcPSD|4211913
23 How well they can adapt to change

5888 Vertical Integration
5888 Ownership of major part/whole part of a supply chain
5889 Important factors
23 Cost
24 Coordination
25 Control
5889 Vendor Relations
5888 2 extremes
23 Using competitor’s at arm’s length
24 Cooperative close relationships (strategic alliances)
5889 Determines if the quality of goods is assured
23 Works with suppliers to assure control production process
24 Inspect the incoming parts
5890 Product Mix, New Products
5888 Challenge of operations management increases with the variety and
rate of production
5889 Requires flexible production systems
5891 Process Types and Tech
5888 4 generic process types
23 Job shop
24 Batch
25 Assembly line
26 Continuous flow
5889 Determines appropriate tech and degree of automation
5892 Human Resources
5888 Using compensation, incentives for employee benefits
5893 Quality
5888 Determine design and production
5889 Requires:
23 Quality assurance
24 Control
25 Improvement
5890 Tools:
23 Cost of quality
24 Statistical quality control
25 Continuous improvement/6-sigma
5894 Operation Infrastructure Systems
5888 Decisions:
23 Computerized planning
24 Control system (including forecasting, scheduling)
25 Use JIT production, operations policies and types of
production/delivery system used
5889 Formulation of an Ops System

lOMoARcPSD|4211913
23 Links goals to strategy

5888 Determines ops requirements of their goals
24 Categories customers
5888 Major customers – desirable
5889 Others
25 Determine 4 competitive priorites
5888 Cost
5889 Quality
5890 Delivery
5891 Flexibility
23 Group product lines
23 High and low volume
24 Conduct ops audit
23 Determine strengths and weaknesses in each of the 9 strategic
categories
5888 Facility
5889 Capacity
5890 Vertical integration
5891 Vendor relations
5892 Product mix, new products
5893 Process types, tech
5894 HR
5895 Quality
5896 Ops infrastructure system
25 Assess degree of focus at each part of the audit
23 State objectives/policies/actions plans w/ 9 strategic decisions
26 Develop ops strategy
23 Reallocate product lines
Generic Ops Strategy

5888 Popular strategies
23 Low labour cost strategy
23 Inexpensive labour pool
24 Scale-based strategy
23 Capital intensive method for higher labour production and lower unit costs
25 Focused factories strategy
23 Narrow, specialized product lines
24 Higher quality
26 Flexible factories strategies
23 Flexible equipment that allows changes in volume, design and variety
24 Stress quality
27 Continuous improvement strategy

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5888 New product features

5889 Continuous improvement of both:
23 Product
24 Process
5889 Time-based competition
23 Strategy that focus on reduction of time needed to accomplish task
24 Outsourcing
23 Buying a part of a good or service or a segment of a production/service process
from another company, a supplier
Productivity
5888 Productivity
5888 Measure of productive use of resources, usually expressed as ratio of
output to input
5889 Output/input = productivity
5889 Productivity growth
5888 Increase in productivity over a period of time
5889 (Current period production – previous year period production)/Previous
years period production
5890 Measuring productivity
5888 Can be based on;
23 Single input – partial productivity
5888 Output/labour
5889 Output/machine
5890 Output/material
5891 Output/energy
24 More than one input – multlifactor
5888 Output/(labour+machine)
5889 Output/(labour+materials+energy)
25 All inputs and total measure
5888 Goods and service produced/all inputs used to product them
5889 NOTE: Partial productivity (single input) is of the greatest use

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4. Product Design
Outline
23 Describe the product design process

5888 Elements
5888 Product approval committee
5889 Core value
5890 Peer Review/Stage-Gates
5891 Structured Development Process
5889 Stages
5888 Scoping
5889 Building a business case
5890 Development
5891 Testing and Validation
5892 Launch
24 Name sources of ideas for new/revised designs
5888 Ideas come from a variety of sources
5888 Front line employees
5889 Suppliers/purchaser function
5890 Customer/sales function
5891 Competitor (via reverse engineering)
5892 Research and development
5889 Reverse Engineering
5888 Dismantling a competitor’s product to discover what it is composed
of, how the components work, searching for own product development
5890 Research and Development
5888 Lab scientists and engineered involved in creative work on a systemic
basis to increase knowledge directed towards product and process
innovations
25 Discuss key issues in production
23 Life Cycle
23 Incubation
23 Demand is low and product is treat with curiousity, not all the bugs have
been worked out, production methods designed for low volume
24 Growth
23 More reliable and less costly product, increased awareness of product, hi-
volume production may involve automated process to lower costs
25 Maturity
23 Few, if any, design changes
26 Saturation
23 Decline in demand
27 Decline
23 Firm may try to improve product by:
24 Improving reliability
lOMoARcPSD|4211913
23 Reducing cost of production

23 Redesign
5888 Introduce a substitute process
5889 Some products do not exhibit life cycles
5890 Services have life cycles
24 Standardization
5888 Etent to which there is absence of variety in a part of product
5889 Advantages
23 Reducing Variety
24 Increase quality and reallocating of product
25 Reduced time/cost to employees
5890 Disadvantage
23 Can lead to difficulties and competitive struggle
24 Less variety, less range of action
25 Design for Mass Customization
5888 Producers like standard form yet customers like variety (and low cost);
how to balance the two:
23 Losing benefits of standardization
24 Incurring the problems often induced by variety
23 Producing basically standardized goods but incorporating some degree of
standardization but incorporating some degree of customization
5890 Options
23 Delayed Differentiation: producing, but note quite completely until
customers preferences are known
24 Modulate design: parts are grouped into modules that are easily replaced or
interchanged (The product is composed of modules or components instead
of individual parts)
5891 Advantages
23 Avoiding long customer waits
24 Failures are easier to detect
25 Simpiler purchasing, inventory control and assembly ops
26 Reliability
5888 The ability of a product, part, or system to perform its intended function
under normal circumstance
5889 Failure: a situation in which a product, part, or system does not perform as
intended
27 Robust Design
5888 Design that can function over a broad range of conditons
5889 i.e. rubber boats are more robust that leather shoes
5890 The more robust, the less likely it is to fail due to the ability to adapt to change
5891 Generally comes with higher levels of customer satisfaction
28 Taguchi’s Approach
5888 Often easier to design a product which is insensitive to environmental
factors as oppose to controlling such factors
lOMoARcPSD|4211913
23 Central feature: parameter design (determining specifications for a product that

would make it more robust item of:
5888 Manufacturing variation
5889 Product deterioration
5890 Conditions of use
5888 Ethical/Legal Issues
5888 Take into consideration: government acts and regulation, government agencies
and boards, patent/copyright infringement
5889 Product liability: Manufacturer is liable for injuries, damages caused by
faulty product
5890 Problems can arise because of stress and time
5889 Design for Environment (DFE)
5888 Describes techniques to incorporate corporate environmental concerns
5889 Common practice: Redesign towards energy efficient, Design less hazardous
waste removal
5890 Remanufacturing
23 Refurbishing used products by replacing worn out components
5891 Designed for disassembly
23 Designed so that used produce can easily be taken apart
5892 Recycling
23 Recovers materials for future use
5890 Concurrent Engineering
5888 Bringing engineering design, manufacturing engineers and staff from
marketing, purchasing together early in the decision plans
5889 Key advantages
23 manufacturing engineers, personnel are knowledgeable on production
capabilities, important for cost, quality considerations
24 Can help to avoid length delays
25 Could be a competitive advantage
5891 Computer-Aided Design (CAD)
5888 Product design via computer graphics
5889 Benefit
23 Increases productivity of designers
24 No laborious restructuring
25 3-10x more productive
26 Creates database
27 Product geometry,dimensions, tolerance
5892 Design for Manufacturing and Assembly
5888 Design for manufacturing
23 Takes into account the organizations manufacturing capabilitys when
designing a product
5889 Design for assembly
23 Focuses on reducing the number of parts in a product and on assembly
methods and sequence

lOMoARcPSD|4211913
23 Component Commodity
23 Significant benefits when a component can be used dith pultiple products
23 Saves time
24 Standard training on assembly/installation
25 Buying in bulk
24 Trade off: Annual cost saved by commodity v. extra cost of a commodity
23 Discuss special considerations for product designs

5888 Intangible
5889 Created and delivered at the same time
5890 Trade off: customer involved v standardization
5891 Low exit/entry barriers
5892 Convenient location
5893 Service guidelines
23 One unified theme
24 Reliable delivery, variability
25 High quality, reliable service
26 User friendly
24 Describe and perform Quality Function Deployment (QFD)
 Quality Function Deployment
O Structured approach that investigates the choice of the customer into product
design
 4 Houses of Quality
23 Customers requirement, technical requirement
24 Technical requirement, specific component
25 Specific component, production process
26 Production process, quality plan
Table of Contents
Product Design Process...............................................................................................................................6
Elements:................................................................................................................................................6
Product Approval Committee..............................................................................................................6
Core Teams..........................................................................................................................................6
Peer Review/Stage-Gates....................................................................................................................7
Structured Development Process........................................................................................................7
The Stage Model.....................................................................................................................................8
1. Scoping........................................................................................................................................8
2. Building business case.................................................................................................................8

lOMoARcPSD|4211913
3. Development...............................................................................................................................9
4. Testing and Validation..................................................................................................................9
5. Launch.........................................................................................................................................9
Dell’s Product Design Development...................................................................................................9
Sources of Ideas for New or Redesigned Products......................................................................................9
Key Issues in Product Design.......................................................................................................................9
Life Cycle.................................................................................................................................................9
1. Incubation....................................................................................................................................9
2. Growth.......................................................................................................................................10
3. Maturity.....................................................................................................................................10
4. Saturation..................................................................................................................................10
5. Decline.......................................................................................................................................10
Standardization.....................................................................................................................................10
Standardization.................................................................................................................................10
Reducing Variety...............................................................................................................................10
Lack of Standardization.....................................................................................................................10
Disadvantages of Standardization.....................................................................................................10
Design for Mass Customization.............................................................................................................10
Options..............................................................................................................................................11
Advantages........................................................................................................................................11
Reliability...............................................................................................................................................11
Robust Design.......................................................................................................................................11
Taguchi’s Approach.......................................................................................................................11
Ethical/Legal Issues...............................................................................................................................11
Design for Environment (DFE)...............................................................................................................12
Concurrent Engineering........................................................................................................................12
Computer-Aided Design (CAD)..............................................................................................................12
Design for Manufacturing and Assembly..............................................................................................12
Design for manufacturing..................................................................................................................12
Design for assembly..........................................................................................................................12
Component Commodity........................................................................................................................13
Differences in Designing Systems..............................................................................................................13
Intangible..........................................................................................................................................13

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Created and delivered at the same time...........................................................................................13

Trade-off: customer involvement v. Standardization.........................................................................13
Low exit/entry barriers......................................................................................................................13
Convenient locations.........................................................................................................................13
Service design Process in the Financial Sector......................................................................................13
Service Design Guidelines.....................................................................................................................13
One unified theme............................................................................................................................13
Reliable delivery, variability...............................................................................................................14
High quality, reliable service..............................................................................................................14
User friendly......................................................................................................................................14
Quality Function Deployment...................................................................................................................14
5888 Product Design

5888 Determining the form and function of the product
Product Design Process

Elements:
Product Approval Committee
23 Consists of top management
24 Oversees design/development activities
25 Responsible for:
23 New products
24 Reviewing progress/stages (with review points)
25 Allocating resources
26 Ensuring consistency
Core Teams
5888 Cross functional teams empowered to plan and lead the design/development
projects from idea to commercialization
5889 Involves
5888 Resolving issues/conflicts
5889 Making trade offs
5890 Directing other support staff
5890 Limits of authority
5891 Roles should be previously defined
5892 Consist of
5888 Product manager
5889 Product designers

lOMoARcPSD|4211913
5888 Stylist (industrial designers)

5889 Engineers
5889 Manufacturing/Operations
representatives O Size of team expands after each
stage to include
5890 Accountants (cost goals)
5891 Process engineers (process design/tooling and equipment)
5892 Quality control, purchasing and supplier representatives
5893 Marketing reps
23 Concurrent Engineering
23 Team based approach of simultaneously designing the product/process
Peer Review/Stage-Gates
5888 Milestones during a new product design development project when the
progress of the core team is reviewed by product approval committee
5889 Types of decisions
5888 Improve
5889 Cancel
5890 Redirect
5890 Results in
5888 Recognizing problems
5889 Making appropriate adjustments
5890 Reducing cost
5891 Time to market
5891 Escalator effect
5888 Cost multiplies after each phase review
Structured Development Process

5888 Use of project management technique
23 Important to ensure there is the right amount of structure;
23 Too much – bureaucracy
24 Too little – ineffective design/development process
5889 Steps
5888 Idea generation/preliminary assessment
23 Sources
23 Customer feedback
24 Research and development staff
25 Suppliers
26 Competitors
24 Involves
23 Market evaluation
24 Technical evaluation
25 Financial evaluation
5889 Building a business case
23 Determine what customers want (customer’s voice)
24 Determine the nature of the product

lOMoARcPSD|4211913
5888 Assess technical feasibility

24 Establish product goals and objectives;
5888 Performance
5889 Price
5890 Quantity
5891 Launch date
25 Plan nature of production process, determine;
5888 Inputs
5889 Process objectives
5890 Production process in general
26 Perform complete financial analysis
24 Development of product, process
23 Translate “voice of customer into technical (physical) specifications; i.e.:
5888 Product size
5889 Features
24 Several concepts (sketch of products) are developed
5888 Each slightly different in form and function
5889 One is chosen and the design is completed
25 Build prototype of process and evaluate
26 Revise process if necessary
5888 Determine necessary:
23 Machines/equipment
24 Plant layout
25 Work center design
5889 Testing and validation
5888 Perform external testing
5889 Finalize the product and process specs
5890 Buy machines and equipment
5891 Start trial run
5890 Launch
The Stage Model

5888 IN BETWEEN 0-1: Idea screen
5889 Scoping
5888 Involves preliminary
23 Market assessment
24 Technical assessment
25 Financial assessment
5889 IN BETWEEN 1-2: second screen
5890 Building business case

5888 Involves determining customer requirements
23 Competitive analysis
24 Customer requirements

lOMoARcPSD|4211913
5888 Detailed financial and technical analysis

5889 Product definition
5890 Operations assessment
5888 IN BETWEEN 2-3: go to development
5889 Development
23 Involves further developing the product concept
24 Making and testing prototype
25 Operations process development
26 IN BETWEEN 3-4: go to testing
5890 Testing and Validation

5888 Involve further in-house testing and customer trials
5889 Acquisition of product, equipment
5890 Operation trials
5891 IN BETWEEN 4-5: go to launch
5891 Launch
5888 Post launch review
Dell’s Product Design Development

!! INSERT !!
Sources of Ideas for New or Redesigned Products

5888 Ideas come from a variety of
sources O Front line employees
O Suppliers/purchaser function
O Customer/sales function
O Competitor (via reverse engineering)
O Research and development
5889 Reverse Engineering
5888 Dismantling a competitor’s product to discover what it is composed
of, how the components work, searching for own product development
5889 Research and Development
5888 Lab scientists and engineered involved in creative work on a systemic basis to
increase knowledge directed towards product and process innovations
Key Issues in Product Design

Life Cycle
5888 Incubation
O Demand is low and product is treat with curiousity

lOMoARcPSD|4211913
23 Not all the bugs have been worked out

24 Production methods designed for low volume
24 Growth
23 More reliable and less costly product
24 Increased awareness of product
25 Hi-volume production may involve automated process to lower costs
25 Maturity
23 Few, if any, design changes
26 Saturation
23 Decline in demand
27 Decline
23 Firm may try to improve product by:
5888 Improving reliability
5889 Reducing cost of production
5890 Redesign
5891 Introduce a substitute process
24 Some products do not exhibit life cycles
25 Services have life cycles
Standardization
Standardization
Etent to which there is absence of variety in a part of product
Reducing Variety
5888 Increase quality and reallocating of product
5889 Reduced time/cost to employees
Lack of Standardization
5888 Can lead to difficulties and competitive struggle
Disadvantages of Standardization
23 Less variety, less range of action
Design for Mass Customization

5888 Producers like standard form yet customers like variety (and low cost); how to
balance the two:
23 Losing benefits of standardization
24 Incurring the problems often induced by variety
5888 Producing basically standardized goods but incorporating some
degree of standardization but incorporating some degree of
customization

lOMoARcPSD|4211913
Options
23 Delayed Differentiation
23 Producing, but note quite completely until customers preferences are known
24 Modulate design
23 Parts are grouped into modules that are easily replaced or interchanged
24 The product is composed of modules or components instead of individual parts
Advantages
23 Avoiding long customer waits
24 Failures are easier to detect
25 Simpiler purchasing, inventory control and assembly ops
Reliability
23 Reliability
23 The ability of a product, part, or system to perform its intended function under
normal circumstance
24 Failure
23 A situation in which a product, part, or system does not perform as intended
Robust Design
23 Design that can function over a broad range of conditons
23 i.e. rubber boats are more robust that leather shoes
24 The more robust, the less likely it is to fail due to the ability to adapt to change
25 Generally comes with higher levels of customer satisfaction
Taguchi’s Approach
PREMISE
5888 Often easier to design a product which is insensitive to environmental factors as
oppose to controlling such factors
5889 Central feature
5888 Parameter design
23 Determining specifications for a product that would make it more
robust item of
O Manufacturing variation
O Product deterioration O
Conditions of use
Ethical/Legal Issues
5888 Take into consideration
5888 Government acts and regulation
5889 Government agencies and boards
5890 Patent/copyright infringement

lOMoARcPSD|4211913
23 Product liability
23 Manufacturer is liable for injuries, damages caused by faulty product
O Problems can arise because of stress and time
Design for Environment (DFE)

23 Describes techniques to incorporate corporate environmental concerns
24 Common practice
23 Redesign towards energy efficient
24 Design less hazardous waste removal
25 Remanufacturing
23 Refurbishing used products by replacing worn out components
26 Designed for disassembly
23 Designed so that used produce can easily be taken apart
27 Recycling
23 Recovers materials for future use
Concurrent Engineering
5888 Bringing engineering design, manufacturing engineers and staff from
marketing, purchasing together early in the decision plans
5889 Key advantages
5888 Manufacturing engineers, personnel are knowledgeable on
production capabilities, important for cost, quality considerations
5889 Can help to avoid length delays
23 Could be a competitive advantage
Computer-Aided Design (CAD)

23 Product design via computer graphics
24 Benefit
5888 Increases productivity of designers
5888 No laborious restructuring
5889 3-10x more productive
5889 Creates database
5888 Product geometry
5889 Dimensions
5890 Tolerance
Design for Manufacturing and Assembly

Design for manufacturing
23 Takes into account the organizations manufacturing capabilitys when designing a
product
Design for assembly

5888 Focuses on reducing the number of parts in a product and on assembly
methods and sequence

lOMoARcPSD|4211913
Component Commodity
23 Significant benefits when a component can be used dith pultiple products
23 Saves time
24 Standard training on assembly/installation
25 Buying in bulk
24 Trade of
23 Annual cost saved by commodity v. extra cost of a commodity
Differences in Designing Systems

Intangible
5888 Services are intangible, rely on trust
Created and delivered at the same time

5888 Sevices are generally created/delivered at the same
time O Less easy to catch an error before a customer
O Important qualities
5888 Training
5889 Process design
5890 Customer relations
23 Quality is measured by customer satisfaction
Trade-off: customer involvement v. Standardization

5888 The less involved with the customer, the more standardization
Low exit/entry barriers

23 Services have low entry/exit barriers
5888 Easy to establish new service of an old service
5889 Difficult to measure costs; often complex
Convenient locations
5888 Convenient locations are important
Service design Process in the Financial Sector

!! inset1!!
Service Design Guidelines

One unified theme
5888 Have one unified theme (i.e. speed, convenience)
a. Helps employees to work together as oppose to cross-purposefully

lOMoARcPSD|4211913
Reliable delivery, variability

2. Ensure serve of delivery is capable of handling unexpected variability to ensure reliability
High quality, reliable service

3. Include product design features that ensure reliable service and consistently high quality
User friendly
4. Design service delivery to be user-friendly
Quality Function Deployment

23 Quality Function Deployment
O Structured approach that investigates the choice of the customer into product design
5888 4 Houses of Quality
5888 Customers requirement, technical requirement
5889 Technical requirement, specific component
5890 Specific component, production process
5891 Production process, quality plan

lOMoARcPSD|4211913
Reliability
23 Learning Objectives
5888 Describe the basic production process types
5888 Job shop
5889 Batch
5890 Repetitive
5889 Discuss automated production technologies
5888 Fixed automation: Most rigid; uses high cost, specialized equipment
for a fixed sequence
5889 Programmable automation: uses high cost, general purpose
equipment controlled by a computer program that provides the sequence of
operations and specified details about each operation
23 N/C (numerically controlled) machine
24 Robot
5890 Flexible manufacturing: group of machine centres controlled by a
computer, with automatic material handling and robots or other automated
5890 Describe steps of production process design and learn to draw process flow
diagrams
5888 Define production process
23 Determine how completed the input materials should be
24 Set production process objectives: capacity, type of process, cost, tech
25 Determine the nature of process in general
5889 Production development
23 Conceptualize the design
5888 Develop a few alternative process
concepts (incremental/hierarchial)
5889 Usually a process flow diagram
5890 Evaluate alternative process concept
24 Make an embodiment of the design
5888 Choose one process concept and complete the design
5889 Build a prototype (Determine resources, estimate costs)
5890 Refine process and re-evaluate
25 Create a detailed design
5888 Finalize the process specidication
5888 Determine specific machines, equipment
(capacities and make) and labout
5889 Design the plant layout
5890 Design the work centres
24 Buy the machine and equipment, recruit workers and start trial runs
5888 Describe the basic plant/facility layout types

lOMoARcPSD|4211913
23 Product layout: arranges production resources linearly accourding to the

progressive steps by which a product in made
24 Process (functional) layout
23 Process layout: arranges production resources together according to
similarity function
24 Cellular layout: layout in which different machines are arranged in a cell
that can process items that have similar processing requirements
25 Warehouse layout
26 Retail layout
27 Office layout
23 Solve simple assembly line balancing problems
23 Cycle time: max time allowed at each workstation to complete its set of tasks on
a unit
5888 CT = Operating time per day/Desired output per day
24 Number of workstations
5888 N = Sum of task times / Cycle times
25 Precendence network: diagram that shows the tasks and their precedence
requirements
5888 Assign the tasks with
23 Longest time
24 Most followers
5888 Procedure
5888 Identify the cucle time and determine the maximum
number of workstations
5889 Make assignments to workstations in order, beginning with
workstation O Tasks are assigned to moving from left to right
through the
precedence etwork
O Start each workstation with time left – cyce time
5890 Before each assignment use the following criteria to
determine which tasks are eligible and will fit
O All its preceding task in the network have been assigned
O The task timedoes not exceed the time left at the workstation
5891 Assign tasks andbreak ties using one of the heuristic rules
5888 Assign the task with the longest time
5889 Assign the task with the most followers
5889 After each task assignment, update the time left on the
workstation by subtracting the time of assigned task from time left
5890 Continue until al tasks how have been assigned to
workstationc and calculate total idle time
23 Develop simple process (functional) layouts
23 Minimize total transportation costs or distances
24 Heuristic
25 Closeness rating
5888 Use same equipment

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5888 Share same personnel

5889 Sequence of work flow
5890 Ease of communication
5891 Unsafe or unpleasant conditions
5892 Similar work performed
23 Reliability
23 The ability of a product, part, or system to perform its intended function under a
prescribed set of conditions
24 Failure
23 Situation in which a product, part, or system does not perform as intended
25 Normal Operating
23 The set of conditions under which an item’s reliability is specified
Strategic Importance of Reliability

5888 Failure has a far reaching effect on a
firm; O Operation
O Reputation
O Profitability
O Dissatisfied customers
O Idle employees
O Profits becoming losses
O Reduced value of investment in plant and equipment
Elements of Reliability
23 Improvement of individual components
24 Providing Redundancy
Improving Reliability
5888 Component design
5889 Production/assembly techniques
5890 Testing
5891 Redundancy/backup
5892 Preventive maintenance procedures
5893 User education
5894 System design

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Quantifying Reliability
23 Reliability is probability that the product or system will:
5888 Function when activated -- instantaneous reliability
5889 Function for a given length of time – continuous reliability
5889 Independent Events
5888 Vents whose occurrence or non-occurence do not influence each other
5890 Redundacy
5888 The use of backup components to increase reliability
Rules of Reliability
23 If two or more events are independent and the success is defined as the probability that all of
the events occur, than the probability of success is equal to the product of the probabilities of
the events occurring
23 i.e. : Ps = P1 * P2 * P3 … *PN
24 Example
5888 There are two lamps that require the other to work for it to work.
23 The probability of lamp 1 working, p = 0.90
24 The probability of lamp 2 working, p = 0.80
5889 The probability of both lamps working
23 P = 0.9*0.8 = 0.72 OR 72%
2.
5888 Redundancy
23 The use of backup components to increase reliability
23 If two events are independent and success is defined as the probability that at least one of the
events will occur, the probability of success is equal to the probability of either one plus (1 –
probability is none of the events occurs
23 i.e.: 1 – (1-P1) (1-P2) (1-P3) , simplifying:
5888 Ps = P1 + (1-P1)(P2) + (1-P2)(P3) ….
24 Example
5888 There are two lamps in a room. When on,
5888 Lamp 1 probability: 0.9
5889 Lamp 2 probability: 0.8
5889 Only one lamp is needed for success,
5890 Probability of success
5888 Ps = 1 – (1-0.9)(1-0.8) = 0.98
5891 Conceptually, think of as a backup; if one fails, the other is turned on

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v.
5888 If three events are involvement, and success is defined as the probability that at least
one of the events will occur,
5888 The probability of success is equal to the probability of one of the events
(any of the events),
23 Plus the product of (1 – that probability)
24 Plus the probability of the second event (any of the remaining events) ,
25 Plus the product of (1 – the first probability) and (1 – second probability)
and the probability of the first event
a. Probability of success = P1 + s
5889 Example
23 Three lights have probabilitys of 0.9, 0.8, 0.7 of lighting when turned on. Only
one lighted lamp is needed for success.
23 Ps = 1 – (1-0.9)(1-0.8)(1-0.7) = 0.994
24 Conceptually, we can think of this system as a backup with a backup
25 The probability of success, Ps, is the probability that the first lamp operates + if
the first fails, that the second will turn on, and then if that fails, a third
23 #1 operates + [#1 fails][#2 operates] – [#2 fails][#3 operates]
iv.
Example S!:
Determine the reliability of the system shown below O
Made up of three components
Component 1, no backup = 0.98
P=.98
Component 2, 1 backup = 0.90 + 0.9(1-0.9) = 0.99
P1 = 0.9
Pb = 0.9
Component 3, 1 backup 0.95+0.92(1-0.95) = 0.996

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P1 = 0.95
Pb = 0.92
Reliability
0.98 * 0.99 * 0.996 = 0.966
Finding Probability of Functioning for a Given Length of

Time
Reliability considering a use factor, usually time dimension:
Probabilities are determined relative to a specified length of time
i.e.: Product warranties
In this case,
Failure rate per hour
Defined as the number of failures divided by total operating hours
Example S-2
Two hundred units of a particular compent were subject to accelerated life testing
equivalent to 2,500 hours of normal use.
One unit failed after 1,000 hours an another after 2,000 hours
All other units were still working at the conclusion of the test
Failure rate per hour
2/[200-2(2,500)+1,000+2,000] = 0.000004016
Note: formula assumes constant failure over time
Time-quantity transposition is applicable (i.e.: one can reduce the test time for a proportionate
increase to amount of items) if failure rate is constant, i.e.:
Instead of 200 items for 2,5000 hours
400 items for 1,250 hours
Typical profile of failure over time
Bathtub curve
A number of products fail shortly after they are released to the market.
Second phase is after quirks have been worked out, failures bottom out
Third phase involves parts breaking due to wear over time
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
Mean time to failure (MTTF)
The average length of itme before failure of a product
Mean time between failures (MTBF)
The average time from the up time after the repair following a failure to the
next failure
Probability that Failure Will Not Occur before t, exponential

Reliability of the item is the probability that it will last at least until time T; therefore,
O Reliability is equal to the area under the curve beyond t
Observe,
The specified length of service increases the area under the curve to the right of that
point
Mean Time to Failure/Between Failure
Exponential distribution
Using t to represent length of service
The reliability or probability that failure will not occur before T
Reliaility = P(no failure before T) = 1 – e-t/MTTF

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
Example S-3
Particular vacuum cleaner has an expected life expenctency that is exponsential with a mean of 4
year and an insignificant burn-in phase
O Find the probability that one of these vacuum cleaners will have a life that ends
After the initial 4 years
Before 4 years
Not before 6 years
After initial 4 years; t = 4
T/MTTF = 4 years/4 years = 1.00
From table, e-1 = 0.3679
The probability of failure before 4 years; P1-4t
1 – t(4)
1 – 0.3679 = 0.6321
Not before 6, t = 6
T/MTTF = 6 years / 4 years = 1.50
From table, e-1.50 = 0.2231
Item Failure Due to Wear Out, Normal Distribution
Involves standard normal table

The table provides the areas under a normal curve up to a specified point, z

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Where= z is a−standardized value calclulated via
The area is the probability that SERVICE LIFE WILL NOT EXCEED SOME VALUE T
To find the reliability
Subtract probability by 1
To obtain the result of T
Work in reverse
Locate nearest probability,
Pick up the associated z value
Insert the z value in the above formula
Solve for t
Example S-4
 The mean life of a certain ball bearing can be modelled using a normal distribution with a mean
of 6 years and a standard deiation of 1 year, determine
O The probability that a ball bearing will fail before 7 years of service
O The probability that a ball bearing will fail after 7 years of service (find its reliability)
O The service life that will provide a failure probability of 10%
 Wear-out mean : 6 years
 Wearout Standard deviation: 1 year
 Wear-out is normally distributed
 The probability that a ball bearing will fail before 7 years of service
O Calculate z using the above formula
 −
 Z=(7–6)/1=1/1
 P(T<T) = P(z<1) = 0.8413

The probability that a ball bearing will fail after 7 years O 1
– (before 7 years)
O 1 – 0.8413
O 0.1587

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O −

O
That service life will provide a failure rate of 10%
O
=
O ℎ 0.1 = 1.28
1.28 = −6 1
T = 4.72
Weilbull Distribution
Weilbull is identical to the exponential distribution
If k>1 failure rate increases overtime
Because of flexibility
Weilbull distribution is commonly used to model the time to failure during the burn-in
(k<1) and wear out (k>1) phases
Availiability
Availability
The faction of time a piece of equipment or a repairable product is expect to be
available for operation
Mean time to repair
The average length of time to repair a failed item
Availability
+
Where

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MTBF
Mean time between failures
MTTR
Mean time to repair
Example S-5
A copier is expected t operate for 200 hours after repair and the mean repair time is expected to be
2 hours
MTBF : 200 H
O MTTD: 2
 +
200/(200+2)
0.99
Note (availability):
To increase availability O
Increase MTBF O
Decrease MTTR
i.e.: easier to replace cartridges

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Process Design, Facility

Layout
Contents
Introduction and Process Types..................................................................................................................2
Definitions...............................................................................................................................................2
Process Design.....................................................................................................................................2
Make or Buy........................................................................................................................................2
Classify Processes in 4 Categories...........................................................................................................2
Job Shop..............................................................................................................................................2
Batch Process......................................................................................................................................2
Repetitive/Assembly line.....................................................................................................................3
Continuous..........................................................................................................................................3
Automation.................................................................................................................................................5
Fixed Automation....................................................................................................................................5
Programmable Automatoin.....................................................................................................................5
Flexible Automation................................................................................................................................6
Process Design............................................................................................................................................7
Methodology...........................................................................................................................................7
Example 5............................................................................................................................................9
Service Process Fail-Safeing.....................................................................................................................9
Customer Perception in Service Process Design....................................................................................10
Types of Layout.........................................................................................................................................10
Product Line Layout...............................................................................................................................11
Process (Function) Layout.....................................................................................................................11
Cellular Layout......................................................................................................................................12
Warehouse Layout................................................................................................................................13
Retail Layout..........................................................................................................................................13
Office Layout.........................................................................................................................................13
Layout Design Steps..................................................................................................................................13
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Introduction and Process Types

Definitions
Process Design
Determining the form and function of how goods and services will be produced
Make or Buy
Decide whether to make or buy a part
Often a strategic decision
Fctors
Existing/desired core capabilities
Available capacity
Quality
Whether demand is steady or temporary
Secrecy of technology
Costs
Classify Processes in 4 Categories

Depends on
Variety of products
Flexibility of products
Job Shop
Definition
Process type used when a low quantity of high-variety customized goods or services is
needed
Characteristics
Process is intermittent
Work shifts from one small job to the next; each slightly different
requirements
Highly flexible machines
Skilled workers
Example
Tool and die shop which makes one-of-a-kind tool and die
Managerial Challenge
Scheduling jobs so due dates are met
Resources are used as much as possible
Batch Process
Definition
A type of process used when a moderate volume and variety of a goods or service is
desired

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Characteristics
Equipment is not as flexible as job shop
Workers are not as skilled as job shops
Intermittent process
Example
Bakeries bake/sell cookies in batches
Managerial Challenge
Scheduling batches in order to meet planned production and demand while utilizing the
resources at a high level
Repetitive/Assembly line
Definition
A type of process used when higher quantities of more standardized good or
services are needed
Production line
A sequence of machines/workstations that perform operations on a
part/product
Assembly line
A production line where parts are added to a product sequentially
Characteristics
Low level of skilled workers
Slight flexibility in equipment
Lines can be either
Machine paced (same speed)
Human paced (variable speed)
Example
Automobiles
Managerial Challenges
Capacity balance
Technology management
Quality
Materials management
Continuous
Definition
Used when a high volume of highly standardized output it required
Characteristics
No variety in output
No need for flexible equipment
Low skill wokers
Product is unable to be counted

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Example
Sugar
Managerial Considerations
Same as assembly line
Capacity balance
Technology management
Quality
Materials management
But because of faster production speed
Greater care required for automated control of flow
Start/stop production is challenging
Job Shop Batch Repetitive Continuous

Product SEMI- Highly
variety Customized Standard Standardized Standardized
Volume Low Low-Moderate High Very High
Equipment
Flexibility Very High Moderate Low Very Low
ABOVE MATRIX DEPICTS: Ideal to have the production process capabilities, i.e equipment, to
match the requirements (i.e. product variety)
Consider
Products often go through lifecycles, requiring a switch in production process
Hybrid Process
Process with elements of other process types embedded in them, i.e.:
Job shop may evolve to repetitive; having part of the process run as a job
shop while the other acts in a repetitive fashion
Focused factories

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Handle both high quantity and high variety;

Choice of operation process
Nature
Shape
Size
Quantity
Variety
Other materials
Automation
Definition
Using machinery and equipment with sensing andcontrolling devices that enable it to
operate automatically
Disadvantages
Costly
Less flexible
Adverse effect on productivity (morale)
Fixed Automation
Most rigid
Perfected by Ford Motor Company
Characteristics
High cost, specialty
Advantages
Low unit cost
High volume
Limitations
Minimal variety
High cost of making maor changes
Programmable Automatoin
Characteristics
High cost, general purpose equipment controlled via a computer program which
provides
Sequence of ops
Details of each ops
As easy to change process as it is easy to change software
Type of automation has capability of economically providing a fairly wide variety of low
volume products (i.e.: batch)

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Numerically controlled machines

Machine whih perform ops by following mathematical processing instructions
Best used whenL
Parts are processed in frequent, small batch
Parts geometry are complex
Close tolerance is required
Mistakes are costly
The possibility of making changes is high
Disadvantages
Higher cost
Robot
Machine consisting of a mechanical arm, a power supply, and a controller
Advantage
Can handle a variety of tasks
Level low robots
Low: follows fixed instruction
Programmable
High: can recognie objects, make simple decisions
Robots can be powered
Via aire (pneumatically)
Via water (hydraulically)
Via electricity
Flexible Automation
Uses equipmenttt thhhat is more customized than programmable
Key difference
Flexible automation requires less change, thereby being almost continuous and
batch
Machine center
Machine capable for performing a variety of ops
Flexible manufacturing system (FMS)
A group of machine centers controlled by a computer with automatic material
handling and robots or other automated equipment
Advantages
Offers reduced labour costs
More consistent quality
Lower capital investment
Higher flexibility
Relatively quick change over
Limitations
Systems can handle relatively narrow range of part variety
Must be used for family/similar parts
Longer planning and development times of increased complexity and cost

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Suitability depends on
Variety
Quantity
Computer Integrated Manufacturing
A system for linking a broad range of manufacturing, other activities through
computer systems
Able to
Orders
Schedules
Purchasing
Control inventory
Shop controls
Distribution in manufacturing
Process Design
Determine
Form and untion of how production of g/s is to occur
Involves
Identifying activities and their sequences, resources, controls directly needed in
production
Methodology
Define production process;
Determine how complete inputs should be; these are make or buy decisions
Set production process objectives
Capacity, flexibility
Type of process
Job shop
Assembly
Repetitive
Continuous
Technology and extent of automation, production start date
Determine the nature of the process
Production Process Development
Conceptualize the Design
Answers:
How do you get from input to output
What is the sequence of major operations? a.
Develop a few alternative concepts
Incremental
Do one step at a time
Hierarchal (top down)

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1. Divided into 2 operations, then divided into

subsystems
Usually follow a process flow design to show process and
materials going through
Evaluate each alternative
Make an embodiment of the design
Choose one process concept and comlete the design
Build a prototype process and test,
Determine resources needed
Estimate cost, quality
Refine process, re-evaluate
Create a detailed design
Finalize the process specifications
Determine the specific machine
Design plant layout
Design the work centers
Buy machines, recruit workers and start trail runs
Process flow diagram

Shows the operations and movement of materials through ops
O
Triangle
Storage

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Rectangle
Operation
Example 5
Recipe
Mix flour, yeast, salt
Knead the dough
Shape the dough
Bake in over
Let rise in pan
Bake in over
Let bread cool
Machine
Mixes, knreads
Automatically shapes,
Drops in pan
Bakes
Sliced and bagged
Process flow diagram
Service Process Fail-Safeing

Services are vulnerable to quality and delivery problems
Usually during delivery, when difficult to fix problems before customer notices
Company’s must identify points of failure
Example

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10
Customer Perception in Service Process Design

Don’t raise customers expectations too high in the beginning
End the service positively
If pleasurable, divide into segments
If painful, keep as one trip
Let customer control part of the process
Communicate the evidence to customers
Types of Layout
Layout refers to the location of O
Departments
O Work centers
O Equipment in facility
Common reasons for redesign
Inefficient operations (excessive handling)
Change in design of product
Change in quantity mix of output
Change of methods, equipment

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11
Product Line Layout

Arranges production resources linearly according to the progressive steps by which a
product is made
Since one, very few items, involved, it is possible to arrange entire layout to correspond to
production requirements of a product
Certain compromises may be made
Automatic car wash dispenses same amout regardless of level of dirt
Efficiency
Product layouts achieve high degree of labour and equipment utilization (tends to
offset cost)
Preventive maintenance
Periodic inspections and replacement of worn parts or those with high failure ates
Reduce probability of breakdowns during ops
Advantages
Low cost production
Simplified accounting
Purchasing
Inventory controls
Disadvantages
Equipment cost
Dull, repetitive jobs
Repetitive stress injuries
Inflexible response to change in quantity of output or in a product mix
Process (Function) Layout

Definition
Arranges production resources together according to similarity of function
Intermittent process
Discontinuus work flow
Batch require movement of batch quantity may require equipment like forklift
Use of general purpose equipment
Provides the flexibility necessary to handle a wide range of production range of
production sequence
Often has skilled workers
Advantages
System is much less vulnerable to shutdown caused by mechanical failure
Idle equipment usually available
Lower maintenance costs
Personnel become more skilled in specific area
Reduce necessary investment of spare parts
Disadvantages
Routing, scheduling must be done continuously

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12
Material handling is inefficient

Unit cost is generally higher
In process inventories can be sustained
Not uncommon to have equipment utilization under 50%
Cellular Layout
Definition
Layout in which different machines areee arrrranged in a cell thhhat can process
items that have similar processing equipment
Group technology
Grouping items together with similar design of manufacturing
characteristics into part families
Observe
Arranged to handle ops necessary for group (family) of similar arts
Thus, all parts flow through the same route with minor variations
Cell often in the shape “U”
Permitting teamwork via communication
Increasing flexibility because worker can work at 1 station and quickly
another
Benefits
Faster processing time
Increased capacity
Less material handling
Less work in process inventory
Reduced set up lines
Design Characteristics
Size
Shape
Material
Features
Function
Manufacturing characteristics
Type of service
Tolerance/precision
Once items that are similar are collected
Form families
System developed to store, retrieve specific info on familis
Allows for a part to be manufactured for a family, alleviated the individual
specification frustrations
Disadvantages
Time consuming
Considerable amount of data
Primary methods

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13
Visual inspections
Examination of design
Production delay
Production flow sequence and routing analysis
Warehouse Layout
Factors affecting warehouse O
Cold storage
O Size, frequency of order
High frequency placed near docks
Low frequency at front
Correlated items together
Consider cost, time of shipping while placing
Retail Layout
Objective
Cost minimization
Product flow
Customer flow
Sales influencing
Office Layout
Less need for paper works allows for open offices
Layout Design Steps

Determine the location of receiving and shipping
For product layout
Fit the process flow diagram onto a sketch of the factory floor; determine the
approximate location of each part of the process
For process layouts
Determine the expected work flow between each pair of department and place the two
departments with the highest workflows closest toether
Continue until all departments are located
Keep special requirements of machine in mine (i.e.: heavy press needs strong foundation)
Allow space for machines, in-feeds, out-feeds, workers and carts
Keep rearranging the plan using feedback from workers until you find what works best
On the factory floor, paint outlines of machines in-/out-feeds
Walk through the normal sequence of activities

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14
10. Run the electricity through

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Chapter 7: Design of Work Systems
Table of Contents
Introduction and Job Design........................................................................................................................3
Efficiency Approach.................................................................................................................................3
Behavioural Approach.............................................................................................................................4
Methods Analysis........................................................................................................................................4
Motion Study...........................................................................................................................................6
Working Conditions.....................................................................................................................................9
Brief History of Government Regulations in the Workplace....................................................................9
Temperature and Humidity.....................................................................................................................9
Ventilation...............................................................................................................................................9
Illumination.............................................................................................................................................9
Noise and Vibrations...............................................................................................................................9
Work Breaks............................................................................................................................................9
Safety......................................................................................................................................................9
Ergonomics..............................................................................................................................................9
Workers’ Well-Being and a Healthy Workplace....................................................................................9
Work Measurement....................................................................................................................................9
Stopwatch Study...................................................................................................................................10
Observed Time..................................................................................................................................11
Learning Objectives
Briefly describe efficiency and behavioural approaches to job design a.

Efficiency Approach
Specialization: focusing the job to a narrow scope
Advantages
For the company
Simplifies training
High productivity
Low wage cost
For the worker
Low education and skill requirements
Minimum responsibilities

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Little mental effort needed

Disadvantages
For the company
Difficult to motivate quality
Worker dissatisfaction, possibility of resulting in absenteeism,
high turnover, disruptive tactics
For the worker
Monotonous/boring work
Limited opportunities for advancement
Little control over work
Little opportunity for self-fulfillment
Behavioural Approach
Job enlargement
Giving a worker a larger portion of the total task
Job rotation
Workers periodically exchange jobs
Job enrichment
Increasing responsibility for planning and coordination
Self-directed teams
Groups who perform the same function and are empowered to make
certain decisions and changes in their work
Explain the purpose of methods analysis and describe how methods analysis is performed
Methods analysis; breaks down the job into sequences of tasks and elements and
improves it
Identify the job to be studied and gather all pertinent facts about its operations,
machines, equipment, materials and so on
Discussthe job with the operator and supervisor
Analyze the document the present method of performing the job
Question the present method and propose a new method
Elements
Process chart
Worker machine chart
Motion study: systemic study of the human motions used to perform an operation or
task
Tools
Motion economy principles
Analysis of elementary motions
Micro motions
Sumultaneous hand motion chart
Discuss the impact of working conditions on job design
Government regulation
Temperature and humidity

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Ventilation
Illumination
Noise and vibrations
Work breaks
Safety
Describe the time study methods and perform calculations
Stop watch study: development of standard time based on observation of one worker
taken over a number of cycles
Define the job to be studied and inform the worker
Determine number of cycles
N = (Z value * Standard deviation / max error * mean) ^ 2
N = (Z*s/e); e being the accuracy amount error amount
Time the job and rate performance
Calculate standard time
Observed time: average of recorded times
OT = sum of recorded times / number of observations
Normal time: workers performance
NT = Observed time * Performance rating
Standard time (performed job; accounts for delays)
ST = Normal time * allowance factor
Work sampling: technique for estimating the proportion of time that a worker spends on
each activity or is idle
A (acceptable error) = zvalue√(p(1-p)/n)
N = (z value/acceptable error)^2 p(1-p)
Describe various compensation methods
Time based pay: compensation based on time an employee has worked
Output based pay (piece rate): compensation based on the amount of output an
employee produces
Group bonuses
Skill/knowledge bonus plan
Introduction and Job Design

Briefly describe efficiency and behavioural approaches to job design
Vocabulary
Job design
Specifying the content and method of a job
Efficiency Approach
Vocabulary
Specialization
Focusing the job to a narrow scope

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Assembly line specialization O

Advantages
For the company
Simplifies training
High productivity
Low wage cost
For the worker
Low education and skill requirements
Disadvantages
For the company
Worker dissatisfaction, possibility of resulting in
absenteeism, high turnover, disruptive tactics
For the worker
Monotonous/boring work
Limited opportunities for advancement
Vocabulary
Job enlargement
Giving a worker a larger portion of the total task
Job rotation
Workers periodically exchange jobs
Job enrichment
Increasing responsibility for planning and coordination
Self-directed teams
Groups who perform the same function and are empowered to
make certain decisions and changes in their work
Methods Analysis
Vocabulary
Methods analysis
Breaks down the job into a sequence of tasks and elements
and improves it
Process chart
Chart used to examine the overall sequence of an operations by
focusing on movements of the operator or flow of material

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Worker-Machine chart
Used to determine portions of a work cycle during which an
operator and equipment are busy or idle
Method for job analysis
Identify the job to be studied and gather all pertinent facts about its
Operations
Machines
Equipment
Materials, etc.
Discuss the job with the operator and supervisor
Analyze and document the present method of performing the job
Question the present method and propose a new method
Questions that experienced analysts ask when developing checklist to
generate ideas for improvement
Why is there a delay, storage, or inspection at this point?
How can travel distances be shortened or avoided?
Can an operation be eliminated?
Can the sequence of operations be changed?
Can similar activities be grouped?
Would the use of additional or improved equipment be helpful?
Example of a process chart
O
Example of a worker-machine chart

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Motion Study
Vocabulary
Motion study
Systematic study of the human motions used to perform an
operation or task
Guidelines for designing motion-efficient work procedures
Micro-motion study
Use of motion pictures and slow motion to study motions that
otherwise would be too rigid to analyze
Simo chart
A chart that shows the elementary motions performed by
each hand, side-by-side, over time
Most used techniques/tool to develop efficient procedures
Analysis of elementary motions
Micro-motion (slow-motion video) study
Simultaneous hands motion chart
Example of motion economy principles
The use of arms and body
Both hands should begin and end their acivity simultaneously
and should not be idle at the same instant, expect during
frequent but short rest periods
The motions made by the hands should be minimal and
symettrical

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Momentum should assist workers wherever possible and

should be minimized if it must be overcome by muscular
effort
Continuous natural curved motions are preferable to straight-line
motions involving sudden and sharp changes in direction
Strength requirements should be much less than the
maximum available. Avoid lifting heavy objects. Use slow
motions for maximum muscle strength.
Eliminate bend and rise, awkward postions, and make the task
easier to reduce fatigue
Eliminate eye travel and avoid losing eye focus
The arrangement of the workplace
Fixed locations for all tools and materials should be provided to
permit the best sequence and eliminate or reduce search
and selection
Gavity bins and drop delievery should reduce reach and move
times, whenever possible, ejectors should remove finished
parts automatically
All materials and tools should be located within easy reach
Provide a chair or stool if possible
The design of tools and equipment
Where possible, power tools should replace hand tools
All levers, handles, wheels and other control devices should be
readily accessible to the operator and designed to give the
best possible mechanical advantage and to utilize the
strongest available muscle group
Parts should be held in position by fixtures
Example of a simultaneous hands motion chart

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Working Conditions
Brief History of Government Regulations in the Workplace
Temperature and Humidity
Ventilation
Illumination
Noise and Vibrations

Work Breaks

Safety
Ergonomics
Vocabulary
Ergonomics
Fitting the job to the worker’s capability and size
Workers’ Well-Being and a Healthy Workplace
Work Measurement
Vocabulary
Work measurement

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Determine how long it should take to do a job O

Standard time
The amount of time it should take a qualified worker to
complete a specified task, working at a sustainable rate and
using given methods, tools, equipment, raw materials, and
workplace arrangement
Most common methods to develop standard time
Stopwatch Study
Vocabulary
Stopwatch study
Development of standard time based on observations of one
worker taken over by a number of cycles
Basic steps in a stopwatch time study
Define the job to be studied and inform the worker who will be
studied
Determine the number of cycles to observe
Time the job and rate the worker’s performance
Calculate the standard time, allowing for rest periods
Determining number of cycles
The sample=size( )needed2 to achieve the goal can be determined using
Alternative formula used when the desired amount of accuracy is

stated as an amount (i.e.: within one minute of the true mean) instead of =a proportion() 2
ℎ
ℎ 
Z is the number of normal standard deviations needed for
desired confidence
s is the sample standard deviation
a is maximum acceptable error proportion ( = percentage /
100)
Xbar is the sample mean
N is the number of observations (sample size)
Typical values
90% confidence, z is 1.65
95.5% confidence, z is 2.00
Example: Determine sample size

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Yield a mean of 6.4 minutes with a standard deviation of 2.1 minutes

and a confidence level of 95%
How many observations will she need if the maximum acceptable error is ± 10%
O s = 2.1 minutes
O xbar = 6.4 minutes
O z = 1.96
O a = 0.10
O
= ( )
 Input
O
O = (0.1∗1
1.96∗2 . 2
.96 )
= 41.26
Therefore, sample size is 42

0.5 minutes
Given
O E=0.5
O s = 2.1 minutes
O z = 1.96
O
2
 O =( )
Input
O
=( )2
1.96∗2 0.5.1
= 67.77
Therefore, sample size is 68

Observed Time
O= ∑
 The observed time is simple the average of the recorded time
Where
O  ∑OT is observed ℎ time ℎ

N is the number of observations
O Note
If a task does not occur during each cycle, its average time
should be determined separately

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Chapter 7 Design of Work

Systems
Table of Contents
Job Design...................................................................................................................................................2
Efficiency School......................................................................................................................................2
Behavioural School..................................................................................................................................2
Specialization:.........................................................................................................................................3
Advantages..........................................................................................................................................3
Disadvantages.....................................................................................................................................3
Introduction to Job Design..........................................................................................................................3
What does Job Design Involve.................................................................................................................3
Objectives................................................................................................................................................3
Approaches.............................................................................................................................................3
Job Design Decisions...............................................................................................................................4
Trends in Job Design................................................................................................................................4
Physical Considerations in Job Design.....................................................................................................4
Behavioural Approach.............................................................................................................................5
Teams......................................................................................................................................................5
Benefits of teams................................................................................................................................5
Methods Analysis........................................................................................................................................5
Worker-Machine Chart............................................................................................................................6
Motion Study...........................................................................................................................................6
Working Conditions: Government Regulation.........................................................................................7
Working Conditions.....................................................................................................................................7
Noise and Vibrations...............................................................................................................................7
Work Breaks............................................................................................................................................8
Levels of Illumination..............................................................................................................................8
Safety: Protection Against Hazards..........................................................................................................8
Safety......................................................................................................................................................8
Ergonomics..............................................................................................................................................9
Work Measurement....................................................................................................................................9
Work Measurement................................................................................................................................9
Standard time..........................................................................................................................................9
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Stopwatch Time Study.............................................................................................................................9

Number of cycles.....................................................................................................................................9
Solved Problem #2................................................................................................................................10
Normal Time.........................................................................................................................................11
Standard Time.......................................................................................................................................11
Time Study Example..............................................................................................................................11
Cautions on Time Studies......................................................................................................................11
Predetermined Element Times..............................................................................................................12
Work Sampling......................................................................................................................................12
Compensation.......................................................................................................................................13
Output-based (piece rate) pay..............................................................................................................13
Question................................................................................................................................................13
Question................................................................................................................................................14
Question................................................................................................................................................14
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
Efficiency School
– A refinement of Taylor’s scientific management concepts
– Systematic, logical approach to job design
– Labour cost reduction
Behavioural School
– Emerged during the 1950s
– Emphasizes satisfaction of wants and needs
– Reminded managers of the complexity of human beings

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Specialization:
Advantages
For company
Simplifies training
High productivity
Low wage cost
For worker
Low education and skill requirement
Disadvantages
For Company
Worker dissatisfaction
Absenteeism
High turnover
Disruptive tactics
For Workers
Monotonous work
Limited opportunitiy for afvancement
Introduction to Job Design

What does Job Design Involve
Job design involves specifying the content and methods of job
– What will be done
– How the job will be done
Objectives
Objectives of job design
– Productivity
– Safety
– Quality of work life
Approaches
Two approaches to job design
– Efficiency school
– Behavioral school

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Job Design Decisions

Ultimate Job Structure
– Who
Mental and physical characteristics of the workforce
– What
What tasks will be performed
– Where
Geographic locale of the organization;
Locations of work areas
– When
Time of day
Time of occurrence in workflow
– Why
Organizational rationale for the job
Objectives and motivation of the workforce
– How
Method of performance and motivation
Trends in Job Design

– Quality control as a part of workers job
– Cross-training workers to perform multi-skilled jobs
– Employee involvement and team approaches to designing and organizing
– Extensive use of temporary workers
– Automation of heavy manual work
– Creating alternative workplaces
– Organizational commitment to providing meaningful and rewarding jobs for all

employees
Physical Considerations in Job Design

Work physiology
– sets work-rest cycles according to the energy expended in various parts of the job. The
harder the work, the more the need for rest periods.

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Ergonomics
– is a term used to describe the study of the physical arrangement of the work space
together with tools used to perform a task. Fit the work to the body rather than forcing
the body to conform to the work.
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
Teams
Self-directed teams
Groups who perform the same function and are empowered to make certain
decisions and changes in their work.
Benefits of teams
– Fewer managers are necessary
– Higher quality
– Higher productivity
– Greater worker satisfaction
Methods Analysis
Methods analysis
– breaks down the job into sequence of tasks and elements and improves it.
– Basic Procedures
Identify the job to be studied and gather information
Discuss the job with the operator and supervisor
Study and document the present method
Question the present method and propose a new one
Process Charts

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Chart used to examine the overall sequence of an operation by focusing on

movements of the operator or flow of materials
Ask:
Why is there a delay or shortage at this point?
How can travel distances be shortened/avoided?
Can an operation be eliminated?
Can the sequence be changes?
Can similar activities be grouped?
Would additional or better equipment help?
– Process Chart: Example
•
Worker-Machine Chart
Helps to see portions of work cycle during which an operator and equipment are busy or idle.
Can help to determine how many machines one operator can manage.
See Figure 7-2
Motion Study
Motion study is the systematic study of the human motions used to perform an operation.
Motion economy principles:

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guidelines for designing motion - efficient work procedures

Analysis of elemental motions (therbligs):
basic elemental motions into which a job can be broken down
Micro motion study:
use of motion pictures and slow motion to study motions that otherwise would be too
rapid to analyze
Simultaneous hand motion chart:
a chart that shows the elements performed by each hand, side by side, over time
Working Conditions: Government Regulation

Canadian Labour Code
– safety and other work standards (e.g.. min wage)
– Workers have rights to:
refuse dangerous work,
participate in improving health & safety,
know about hazards in the workplace.
Canadian Centre for Occupational Health and Safety
Workplace Hazardous Materials Information System (WHMIS),
mandates proper labeling of hazardous material
making available material safety data sheets.
Working Conditions
Working conditions
Termperature and humidity
Ventilation
Illumination
Ergonomics
Noise and vibrations
Work breaks
Safety
Cause of accidents
Noise and Vibrations

– Noise:
Selection and placement of equipment
Acoustical walls and ceilings or baffles
Provide earplugs or protective devices

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– Vibration:
Padding, stabilizers, shock absorbers, cushioning or rubber mountings
Work Breaks
– Efficiency declines as day wears on
– Work breaks can cause an upward shift
– Depends on amount of physical/mental efforts
Levels of Illumination
Task condition Type of task or area Illumination level Type of illumination
Small detail, Sewing, inspecting 100 Overhead ceiling
extremely accurate dark materials lights and desk lamps
Normal detail, Reading, part 20-50 Overhead ceiling
prolonged periods assembly, general lights
office work
Good contrast, fairly Recreational facilities 5-10 Overhead ceiling
large objects lights
Large objects Restaurant, stairway, 2-5 Overhead ceiling
warehouse lights
Safety: Protection Against Hazards

– Proper lighting
– Clearly marked danger zones
– Protective equipment
– Safety devices
– Emergency equipment
– Housekeeping
– Thorough training
– Enforcement of procedures
Safety
– Requires constant attention
– Occupational Safety and Health Standards
– WHMIS training required
– Two main causes of accidents:
carelessness
hazards

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Ergonomics
– Involves fitting the job to the worker’s capability and size.
Design of equipment, work methods, work space
Remove awkward movement
Try to prevent common workplace injuries (e.g. back injuries, repetitive motion
injuries)
Work Measurement
Work Measurement
– Determine how long it should take
to do a job.
Stopwatch time study
Predetermined element times
Work Sampling
Standard time
– The amount of time it should take a qualified worker to complete a specific task
working at a sustainable rate,
using given methods, tools and equipment, raw materials, and workplace
arrangement.
Stopwatch Time Study

– Development of a time standard based on observations of one worker taken over a
number of cycles.
– The basic steps in a time study:
Define the task to be studied
Determine the number of cycles to observe
Time the job
Compute the standard time
Number of cycles
– Number of cycles depends on:
variability of observed times,
desired accuracy, and
desired level of confidence for the estimated job time

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10
– Formulas
2
 ZS 
N  
a)
 AX
2
 ZS
N  
b)
 E
– Notation
z =Number of Normal standard deviations needed for desired confidence
s =Sample standard deviation
a =Desired accuracy proportion (= percentage/100)
=Sample mean
e =Accuracy amount or maximum acceptable error amount
n = number of observations (= sample size)
Solved Problem #2
– Determine number of observations needed to achieve a specified maximum error, with a
confidence of 95.5 percent.
mean = 5.2 minutes
standard deviation = 1.1 minutes
– Determine:
A maximum error of +/- 6% of the sample mean.
A maximum error of .40 minute.
Given
x-bar = 5.2 minutes
z = 2.00 for 95.5%
s = 1.1 minutes
a = .06
e = .40
Solution
 2
ZS   2.00(1.1)  2
N       49.72 (round up to 50 observations)
O  AX   .06(5.2) 

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11
 ZS  2  2.00(1.1)  2
N       30.25 (round up to 31 observations)
O
 E   .40
Normal Time
Normal time (NT) = Observed time x Performance rating
Observed Time is an average of recorded times
The Performance Rating expressed as a decimal. Performance Rating of a person

working 10% faster than normal = 1.10 or 110% of normal time. Working 10%
slower = 0.90 or 90% of normal.
Performance rating is subjectively assigned
Can sum normal times for several elements
Standard Time
Standard Time = Normal Time * Allowance Factor
Standard time = NT x (1 + Allowance % )
based on job time
– used when different tasks have different allowances
Standard Time = Normal time * Allowance Factor

• Standard time = NT .
1 – Allowance %
based on time in workday
– used when different tasks have similar allowances
Time Study Example

You want to determine the standard time for a job. A worker produced 20 items in an 8
hour day. As the worker was nervous under observation, it was estimated that the
employee worked about 10% faster than normal. Allowances for the job are 25% of the
normal time.
What are the normal and standard times for this job?
Normal time = Observed Time x (Perf. rating)
(480 minutes/20) x (1.10)
26.4 minutes
Cautions on Time Studies

– Analyst must be familiar with task

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12
Workers may attempt to shorten times
Abnormally short times should be discarded
Abnormally long times should be investigated
– Jobs need to be broken down into basic motions
Many jobs can’t be observed like this
– Costly and disruptive: benefits must outweigh cost
Can also use historical or published elemental times to determine times for a
task
Need high skill to describe task in basic elements
Predetermined Element Times

– Published data based on extensive research on element times
Methods Time Measurement (MTM) tables
Time Measurement Unit (TMU)
Many tables for a variety of moves and conditions
distance, difficulty, weight, degree of turn, etc.
Requires much time and skill
Work Sampling
– technique for estimating the proportion of time that a worker or machine spends on
each activity or is idle.
– Reason
Make brief observations of a worker or machine at random intervals
Does not require
Timing an activity
Continuous observation
– Steps
Identify worker to be studied
Notify workers and supervisors to avoid arousing suspections
Compute initial estimate of sample size
Determine estimated proportion of time spent on specified activity
Begin taking observations. Re-compute required sample size periodically

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13
Develop random observation schedule
Compensation
– Time-based pay
Compensation based on time an employee has worked during a pay period
– Output-based (piece rate) pay
Compensation based on the amount of output an employee produces during a pay

period
– Group Incentive Plans
Sharing of productivity gains with employees
Output and cost reduction (gain-sharing)
Increases in profit (profit-sharing)
Skill/Knowledge-Based Bonus Plans
reward workers who undergo training to

increase their skills/knowledge
Output-based (piece rate) pay

– Compensation system should be:
Accurate
Easy to apply
Consistent
Easy to understand
Fair
Question
A job is said to be enlarged vertically if the employee is involved with which of the
following?
The job’s planning
The job’s organizing
The job’s inspecting

All of the above
None of the above

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14
Question
Which of the following is the Normal Time for a job whose observed performance time is 10
minutes with a performance rating of 90%?
90 minutes
9 minutes (10 * 0.9 = 9)
1.10 minutes
11.111 minutes
None of the above
Question
Which of the following is the Standard Time for a job whose Normal Time is 20 minutes and
whose Allowances are 5% of Normal Time?
19.05 minutes
21 minutes
a. St = nt (1+allowances) = 20 (1.05) = 21
400 minutes
450 minutes
None of the above

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Basic steps in problems solving and quality tools

used
Managem O Define problem O

Collect data
Analyze problem
ent of
O
O Generate potential solution
O Choose a solution, implement it
Quality PDSA
O Monitor
Examples of Quality Dimesions O Plan

Performance Form quality improvement
O Aesthetic teams
O Special features Define problem
Convenience Develop measurements
High tech Analyze
Safety Determine cause
Reliability Do
Durability Implement
Perceived quality Study
Service after sale Evaluate
Latent Ensure
Example of service quality Act
Tangibles Standardize
Convienence Reconginze
Reliability
Responsiveness
Time
Assurance
Courtesy Basic quality tools
Determinants of Quality Process flow
Product design Diagram of the steps
Process design Check sheet
Production Organize, collect data
Costs of quality Histogram
External failure costs Empirical distribution
Internal failure costs Pareto
Appraisal (detection) costs Categorize hi to lo frequency
Prevention cost Scatter diagram
Quality Gurus
Shows degree of relationship
Deming, deming chart, PDSA, SPC between 2 variables
Juran, quality control handbook, Control chart
pareto, (fitness for use)
Line plot of time ordered
Feigenbaum, quality of source, total value
quality control (quality is a total field) Cause and effect
Crosby, zero defects (quality is free) Organize causes of problems
Total quality management Run chart
What does the customer want Values over time
Design product Methods for generating ideas
Design process Brainstorming
Keep track of results Quality circle
Extend to partners Interviewing
Benchmarking
5W2H Approach

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Chapter 10 Quality Control

Chapter 10 Outline
 Introduction
 Inspection
 Statistical Process Control
 Process Capacity
Table of Contents
Introduction................................................................................................................................................2
Phases of Quality Assurance....................................................................................................................2
Inspection....................................................................................................................................................3
Where to Inspect in the Process..............................................................................................................3
Inspection Costs......................................................................................................................................3
Examples of Inspection Points.................................................................................................................3
Statistical Process Control:..........................................................................................................................4
Statistical Process Control: The Control Process......................................................................................4
Variations and Control.............................................................................................................................4
Statistical Process Control Steps..............................................................................................................4
Control Chart...........................................................................................................................................4
Types of Variations..................................................................................................................................5
Normal Distribution.................................................................................................................................5
Control Limits..........................................................................................................................................6
Control Chart...........................................................................................................................................6
Observations from Sample Distribution..................................................................................................7
Control Limits and Errors.........................................................................................................................7
Designing Control Charts.........................................................................................................................8
Control Charts for Variables....................................................................................................................8
Upper and Lower Control Limits for Sample Mean Chart........................................................................9
Upper and Lower Control Limits for Sample Mean Chart … ALTERNATIVE METHOD...........................9
Upper and Lower Control Limits for Sample Range Control Chart........................................................10
Example: Control Chart.........................................................................................................................10
Example: Sample Mean and Range Charts............................................................................................11
Sample Mean and Range Charts...........................................................................................................13

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Control Chart Attributes........................................................................................................................13

Use of p-Charts.....................................................................................................................................14
Use of c-Charts......................................................................................................................................14
Control Charts for Attributes.................................................................................................................14
Choosing the Right Control Chart..........................................................................................................15
Nonrandom Patterns in Control charts..................................................................................................16
Question................................................................................................................................................16
Process Capability.....................................................................................................................................17
Process Capability Indices.....................................................................................................................17
Capability Example................................................................................................................................17
Process Capability Analysis....................................................................................................................18
Capability Analysis.................................................................................................................................18
Process Capability Example: Cookie Packages.......................................................................................19
What does a Cpk of .4253 mean?...........................................................................................................19
Six Sigma Quality...................................................................................................................................19
Comparing Six Sigma to CI.....................................................................................................................20
Six Sigma Improvement Methodology DMAIC......................................................................................21
Improving Process Capability................................................................................................................21
Introduction
What does the term quality control mean?
Quality Control is an activity that evaluates quality characteristics relative to a standard, and
takes corrective action when they do not meet standards
How is quality control accomplished?
by monitoring and inspecting the product during process
Phases of Quality Assurance

Least Progressive
Acceptance sampling
Inspection before/after production
Process control
Corrective action during production
Continuous improvement
Quality built into the process

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Most progressive
Inspection
How Much/How Often
Where/When
Centralized vs. On-site
Where to Inspect in the Process

Raw materials and purchased parts
Before …
A costly operation
An irreversible process
Covering process
Finished products
Inspection Costs
Examples of Inspection Points
Type of Inspection Characteristics

business points
Fast Food Cashier Accuracy
Counter area Appearance, productivity
Eating area Cleanliness
Building Appearance
Kitchen Health regulations
Hotel/motel Parking lot Safe, well lighted
Accounting Accuracy, timeliness
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Statistical Process Control:

Statistical evaluation of the output of a process during production
Statistical Process Control: The Control Process

Define
Measure
Compare to a standard
Evaluate
Take corrective action
Evaluate corrective action
Variations and Control

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

Takes periodic samples from process
Compare to predetermined limits
If outside limit
Stop process and take corrective action
If inside limits
Continue process
Control Chart
Purpose:

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to monitor process output to distinguish between random and assignable variation

A time ordered plot of sample statistics (e.g. means) obtained from an ongoing process
Upper and lower control limits define the range of acceptable variation
Types of Variations
Random variation:
Natural variations in the output of process, created by countless minor factors
Assignable variation:
A variation whose source can be identified
Normal Distribution
Only a small percentage of sample means fall more than 2 or 3 standard deviations from the
process mean.

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Control Limits
Control limits
The dividing lines between random and nonrandom deviations from the process mean
Control Chart

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Observations from Sample Distribution
Control Limits and Errors

Control Limits:
The dividing lines between random and nonrandom deviations from the mean of the
sampling distribution
Type I Error
Concluding that process has changed when it has not
Type 2 Error
Concluding a process in in control when it actually is not
Type I and Type II Errors

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
In control Out of control
In Type I error
No Error (producers risk)
control
Out of Type II Error

(consumers No error
control
risk)
Designing Control Charts

Determine sample size
Obtain 20-25 samples
Establish and graph preliminary control limits
Plot sample statistic values on control chart
Are there any points outside control limits (CL) O
No
Assume no assignable clause
O Yes
Investigate and correct
Control Charts for Variables

Variables generate data that are measured
Sample mean control charts
Used to monitor the mean of a process

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X-bar charts
Sample range control charts
Used to monitor the process dispersion
R charts
Upper and Lower Control Limits for Sample Mean Chart

UCLX  X  Zs X
LCLX  X  Zs X
where
sx = Standard deviation of sampling distribution of sample means =
= Process standard deviation
= Sample size
= Standard Normal deviate (usually z = 3) = Average

of sample means = grand mean
Upper and Lower Control Limits for Sample Mean Chart …

ALTERNATIVE METHOD
UCLX  X  A2R
LCLX  X  A2R
where
A2 can be obtained from Table 10–2

= Average of sample ranges
Sample range = maximum value – minimum value in the sample

Average of sample means = grand mean
Example: Control Chart
Twenty samples of n = 8 have been taken of the weight of a part. The average of sample ranges for
the 20 samples is .016kg, and the average of sample means is 3kg. Determine three sigma
control limits for sample mean of this process.
Given
X  3, R  .016, A2  .37(for n  8, from Table)
O
Solution
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10
Upper and Lower Control Limits for Sample Range Control Chart
UCLR  D4 R
LCLR  D3 R
Example: Control Chart

Twenty-five samples of n=10 observations have been taken from a milling process. The average of
sample ranges is .01 centimetre. Determine upper and lower control limits for sample range.
Given
O R  .01CM, D3  .22 D4  1.78(for n  10, from Table)
Solution
UCLR = 1. 78(.01) = 0178cm
LCLR = 22(.01) = 0022cm

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11
Example: Sample Mean and Range Charts
Create x-bar chart
UCL = x + A2 R  10.728  .58(0.2204) = 10.856

LCL = x - A2 R  10.728 - .58(0.2204) = 10.601
O
Plot values

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12
10.800
10.780
10.760
10.740
10.720
Means
10.700
10.680
10.660
10.640
10.620
O 10.600
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Sample
Create R-chart
UCL = D4 R  (2.11)(0.2204)  0.46504
LCL = D3 R  (0)(0.2204)  0
O
Plot values

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13
Sample Mean and Range Charts
Control Charts for
Control Chart 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.

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14
Use of p-Charts
When observations can be placed into two categories. O
Good or bad
Pass or fail
Operate or don’t operate
When the data consists of multiple samples of several observations each
Use of c-Charts
Use only when number of occurrences per unit of measure can be counted;
non-occurrences cannot be counted.
O Scratches, chips, dents, or errors per item
O Cracks or faults per unit of distance
O Breaks or tears per unit of area
O Bacteria or pollutants per unit of volumeCalls, complaints, failures per unit of time
Control Charts for Attributes

p-Chart – for sample proportion of defectives in a process
c-Chart – for the number of defects per unit
s  P 1 P
P
 N
UCLP  P Zs P
LCLP  P Zs P
UCLC  C Z C
O
LCLC  C Z C

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15
Choosing the Right Control Chart

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16
Nonrandom Patterns in Control charts
Question
On a quality control chart if one of the values plotted falls outside a limit it should signal to the
manager to do which of the following?
System is out of control, should be stopped and fixed
System is out of control, but can still be operated without any concern
System is only out of control if the number of observations falling outside the
boundary exceeds statistical expectations
With limits of 2 standard deviations, expect about 4.5% of observations will be

outside the limits

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17
With six sigma expect that only 3 out of 1 million observations will fall outside the
limits
Managers should not conclude the system is out of control from only one
observation
System is OK as is
None of the above
Process Capability
Design specifications (aka tolerances)
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
Process Capability Indices

Process capability index = specification width / process width
If the process is centered use Cp
Cp = Upper specification – lower specification 6s
If the process is not centered use Cpk
Smaller of
Process mean – Lower specification
3s
And
Upper specification – Process mean
3s
Capability Example
The design specification for the width of a part is between 101 mm and 101.8 mm (= 0.8 mm)
Which of these machines are capable

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18
O
Cp > 1.33 is desirable
Cp = 1.00 process is barely capable
Cp < 1.00 process is not capable
Process Capability Analysis
Capability Analysis
Capable
Process output falls within specifications
If incapable
redesign process or reduce variability,
use alternative process,
use 100-percent inspection, or
relax design specification.

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Process Capability Example: Cookie Packages

A company creates small packages of cookies in a 16 gram package. Government standards state
that weights must be within ± 5 percent of the weight advertised on the package.
The design specifications are:
Upper design specification = 16 + .05(16) = 16.8 grams
Lower design specification = 16 – .05(16) = 15.2 grams
Inspectors test 1,000 packages of cookies and find an average weight of 15.875 grams with a
standard deviation of .529 grams.
Is the process capable?
Specification Limits
Upper Spec = 16.8 g
Lower Spec = 15.2 g
Observed Weight
Mean = 15.875 g
Std Dev = .529 g
What does a Cpk of .4253 mean?

An index that shows how well the units being produced fit within the specification limits.
Process considered capable if Cpk  1
This process will produce a relatively high number of defects.
Many companies look for a Cpk of 1.3 or better… Six-Sigma companies want 2.0!
Six Sigma Quality

Goal:
Cpk = 2.00 = only 3.4 units per million outside design specification

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20
Comparing Six Sigma to CI

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21
Six Sigma Improvement Methodology DMAIC
Improving Process Capability

Simplify
Standardize
Mistake-proof
Upgrade equipment
Automate

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Inventory Management
Learning Objectives
Define the term inventory, list major reasons for holding inventory, and discuss the objectives of
inventory management
List the main requirements for effective inventory management, and describe A-B-C
classification and perform it
Describe the basic EQQ model, the economic quantity model, the quantity discount model and the
planned shortage model, and solve typical problems
Describe how to determine the reorder point and solve typical problems
Describe the fixed order interval model and solve typical problems
Describe the single period model and solve typical problems
Table of Contents
Introduction................................................................................................................................................2
Importance of Inventories.......................................................................................................................3
Functions (Purpose) of Inventories..........................................................................................................3
Importance and Objectives of Inventory Management...........................................................................4
Requirements for Effective Inventory Management....................................................................................5
Safely Storing and Using Inventories.......................................................................................................5
Tracking Inventories and Using Inventory Control Models......................................................................6
Periodic counting.................................................................................................................................6
Perpetual Tracking (continual tracking)...............................................................................................7
Forecasting Demands and Lead Times....................................................................................................8
Estimating Inventory Costs......................................................................................................................8
Holding Costs.......................................................................................................................................8
Ordering Costs.....................................................................................................................................9
Set up..................................................................................................................................................9
Shortage costs...................................................................................................................................10
Fixed Oder Quantity/Reorder Point Model; Determining the Economic Order Quantity..........................11
Basic Economic Order Quantity.............................................................................................................11
Economic Production Quantity (EPQ)....................................................................................................15
EOQ with Quantity Discounts................................................................................................................17
EOQ with Planned Shortages................................................................................................................20
Fixed Order Quantity/Reorder Point Model: Determining the Reorder Point...........................................21
ROP Using Annual Service Level............................................................................................................25

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Other Related Models...........................................................................................................................26

Fixed Order Interval/Order up to Level Model..........................................................................................26
Determining the Order Interval.............................................................................................................27
Single Period Model..................................................................................................................................32
Continuous Stocking Levels...................................................................................................................33
Discrete Stocking Levels........................................................................................................................35
Overview:
Bad inventory management can lead to O

Hampering of operations
O Diminishes customer satisfaction
O Increases operating costs
Chapter describes
Independent demand items
finished goods, some raw materials, spare parts, retail items
Discuss
Material requirements planning
Just-in-time
Dependent demand items
Demand for manufactured parts, components depend on production schedule for
the finished goods
Functions of inventory
Objectives
Requirements for effective inventory management
Models determining
how much to order,
when to order
Introduction
Vocabulary
Inventory
An idle material or product, usually in a warehouse or storeroom
Inventory Management
Planning and controlling the inventories
Manufacturing companies carry supplies of
Raw materials
Purchased manufacturing parts and components

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Partially finished items (i.e.: WIP)

Finished goods
Spare parts for machines, tools, other supplies
Importance of Inventories
Widely used measure of business performance is return of investment (ROI) O
Profit after tax divided by total assets
O Inventories may represent a significant portion of total assets, a reduction of inventories
can result in a significant increase in ROI
Major revenue source
Retail, wholesales
Sale of inventories
The inventory of goods held for sale is one of the largest assets of a
merchandising business
Service companies
Don’t carry as many inventories but do carry supplies and equipment
Functions (Purpose) of Inventories

To wait while being transported
Usually transported by
Ship
Rail
Truck
Planes
Type of transportation and freight could take up to reach a destination
There may be long waits at distribution centers, terminals, borders
Items being transported are called in-transit inventory
To protect against stock outs
Delayed deliveries and unexpected increases in demand increase the risk of stock-outs or
shortages
Delays can occur because of
Weather conditions
Quality problem, etc.
The risk of shortage can be reduced by holding safety stocks
Stocks in excess of average demand to compensate for variabilities in demand
and delivery lead time
To take advantage of economic lot size and quantity
To minimize … A company often buys quantities that exceed their minimum
requirements
Purchasing
Receiving
Material handlings

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Accounts payable costs

Excess amount must be stored for later use
It is usually economical to produce in larger quantities than smaller
Excess output must then be stored for greater use
Inventory storage enables organizations to buy or produce in economic lot sizes
This results in consecutive orders occurring after some interval of time (order or
replenishment cycles)
The resulting inventory is hence known as cycle stock (or lot or batch inventory)
The ability to store extra goods also allows a company to take advantage of
price discounts for larger order
To smooth seasonal demand or production
Seasonal Demand
Manufacturers who experience seasonal demand often build up inventories
during off-season periods to meet high requirements during peak seasons.
To decouple operations
Manufacturers have used inventories as buffers between successive operations to
maintain continuity of production that would otherwise be disrupted by events
such as breakdowns and accidence that may cause operations to temporarily
shut down
Work-in-process buffers
permit other operations to continue to operation while the problem is being
resolved
To hedge against price increases
Anticipation inventory
Occasionally a buy or manager will suspect that a substantial price increase is
about to occur and will purchase larger-than-normal amounts to avoid the price
increase
Importance and Objectives of Inventory Management

Under stocking O
Results in
Missed deliveries
Lost sales
Dissatisfied customers
Production stoppage
Overstocking
High price tag
Takes up storage space
Ties up funds that may be more productive elsewhere
Inventory management has 2 main concerns
Level of customer service (availability)
To have the right goods, in sufficient quantities, in the right place and at the
right time

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Cost of ordering or holding inventories

Overall objective of inventory management
Achieve satisfactory levels of customer service (availability) while keeping inventory
costs within reasonable bounds
Buyer or inventory analyst must make 2 fundamental decision
Timing of order
Size of order
Measure of performance to judge the effectiveness of their inventory management
Customer satisfaction
In-stock/fill rate
Percentage of demand filled from stock on hand
Inventory costs
Inventory turnover
Ratio of annual costs of goods to average inventory investment
Indicates how many times a year inventory issold or used
Generally, the higher the ratio, the best
Benefit of this measure that it can be used to compare other companies of
a different size in the same industry
Days of inventory
Number that indicated the expected number of days or usage that can be
supplied from existing inventory
Requirements for Effective Inventory Management

Safely Storing and Using Inventories
Inventories are usually stored indoors, in a warehouse or storeroom O
Depends on nature of how they are stored, i.e.:
Racks
Shelves
Bins
Heavy items/fast-moving items are usually stored on the floor
To save moving items long distances, warehouses are usually a vertical space (they are as tall as 3-4
storey building
Forklifts and high-reach industrial trucks are sued to access top locations
Warehouse/storerooms should be uncluttered so that items can be stored/retrieved easily
Depending on the flow of items, the right level of automation should be used
Forklifts to carry piled on pallets
Carousels or conveyor belts
Vocabulary
Warehouse management system
Computer software that controls the movement and storage of materials within a
warehouse and process the associated transactions
Include

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Receiving
Put-away
Replenishment
Picking and shipping
Applications in Textbook
Eli Lilly Canada
B.C. Hot House
Warehouses/storerooms may needed added security O
Building should be controlled
O Items that are prone to theft are seured
Safety is an important issue in warehouses
Common problem in warehouses
The existence of considerable amount of obsolete items, tehse parts include
Machines that no longer exist
Wrong parts
Excess materials
Used machines, etc.
To be efficient, outdated items should be either
sent back to the supplier (to be restocked by the supplier)
sold at a discount (salvage)
Obsolete items are a drag on company’s assets and take space in the warehouse
Tracking Inventories and Using Inventory Control Models

Periodic counting
Vocabulary
Periodic counting
Physical count of items in inventory made at periodic intervals (e.g., weekly,
monthly)
Used in many small retailers
Manager periodically checks the shelves and stockroom to determine the quantities on
hand
The manager then estimates how much of it will be demanded prior to the next delivery
and bases the order quantity on this information
This replenishment model is called the fixed order interval model
Advantage of this method
Orders from the same supplier can be issued at the same time, which can result in
economies in process and shipping
Several disadvantages of periodic review
Stock-out between review
Protect against by carrying extra stock
Time and cost of a physical count

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Perpetual Tracking (continual tracking)

Vocabulary
Perpertual tracking
Keeps track of removals from and additions to inventory continuously, thus
providing the current inventory level of each item
Fixed order quantity/reorder point model
An order of a fixed size in placed when the amount on hand drops to or below a
minimum quantity called the reorder point
Advantage
Shortages can be avoided
Order quantity is fixed
Management can determine an optimal order quantity and use it for every
order (provided that demand is not seasonal nor has a trend)
Disadvantage
Added cost of continual record keeping
Bank accounts are kept using this method
Transactions (such as customer deposits and withdrawals) are instantly
recorded and balance is determined continually
Two-Bin System
Vocabulary
Two-bin system
Reorder when the first bin is empty,
use the second bin until the order arrives;
top off the second bin and leave the rest in the first bin,
start drawing inventory from the first bin until it is empty again and repeat
Two bin system
Second bin contains enough stock to satisfy expected demand until the order is filled
plus an extra cushion of safety stock that will reduce
Advantage
No need to record each withdrawal from inventory or keep track of inventory on hand
Disadvantage
The reorder card may not be turned in
Barcodes
Vocabulary
A number assigned to an item or location, made of a group of vertical bars of different
thickness that are readable by a scanner
Five different types of barcode
UPC (Universal Product Code)
Zero on the left identifies this as a groery item
The next 5 indicate the manufacturer
Last 5 numbers indicates the specific item
Barcodes have added
Increased speed
Increased accuracy

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Radio Frequency Identification (RFID)

Technology which uses radio waves to identify items
Done through the use of an RFID rg attached to the item
Tag has an RFID reader using radios waves
Use of RFID has been increases and it is expected that RFID tags will replace barcodes
Textbook
Air Canada’s RFID
Forecasting Demands and Lead Times

Vocabulary
Purchase lead time
Time interval between ordering and receiving the order
Point-of-Sale (POS) system
Software for electronically recording sales at the time and location of sale
Inventories are used to satisfy future demand requirements
Essential to have reliable estimates of the amount and timing of future demand
Essential to know purchase lead time
Manufacturing lead time is the time it will take for a batch of a product to be manufacturered
Managers need to know the extent to which demand and lead time might vary
The greater the potential variability, the greater the need for additional safety stock to
reduce the risk of a shortage between deliveries
Crucial link between forecasting and inventory management
Point of Sale (POS) system
Electronically record actual sales at the time and location of sale. After accumulation
into daily or weekly or monthly sales for each stock-keeping unit (SKU) are used in
forecast
Given the large number of items kept in inventory of a typical organization, a simple time-series
forecasting technique such as exponential smoothing (and its variants) is commonly used to
forecast demand of items kept in inventory
Estimating Inventory Costs

Three basic costs are associated with inventories O
Holding
O Ordering
O Shortage
Holding Costs
Vocabulary
Holding or carrying cost
Related to physically having items in store
Cost includes warehousing costs

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Rent or building depreciation, labour, material-handling equipment

depreciation, heating/cooling, light, etc.)
The opportunity cost associated with having funds tied up in inventory
Other holding cost include
Insurance
Obsolescence
Spoilage
Pilferage
Breakage
The significance of some of the components of holding costs depend on the type of item
involved
O Items that are easily concealed or are fairly expensive are prone to theft and need to be
locked up
O Items such as meant and dairy are subject to rapid spoilage and need freezing/cooking
Holding costs are stated in either 2 ways
A percentage of unit costs
A dollar amount per unit
Typically annual hold costs rates range from 20-40% of the cost of the item
Ordering Costs
Vocabulary
Cost of the actual placement of an order (not including the purchase cost)
This includes
Time of purchasing/inventory control staff determining how much is needed
Periodically re-evaualting sources of supply
Preparing purchase orders
Fixed-cost portion of transportation, receiving, inspecting and moving of goods to
storage
Cost of time spent paying the invoice
Generally expressed as a fixed dollar amount, regardless of size
Set up
Vocabulary
Set up
Involves preparing the machine for the job by adjusting it, changing cutting
tools, etc.
When a company produces its own inventory instead of ordering it from a supplier, the cost of
machine set up is analogous to order cost
Fixed charge per production per run

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10
Shortage costs
Vocabulary
Shortage cost
Cost of demand exceeding supply of inventory on hand, includes unrealized
profits per unit, losses of goodwill, etc.
Performing A-B-C Classification
Items held in inventory come at opportunity costs

Example: a produce rof electrical equipment might have electrical generators, coils of
wire, and miscellaneous nuts and bolts in inventory
It would be inefficient to devote equal attention to each of these items
A more reasonable approach would be allocate control effects according to the
relative importance of various items in inventory
Vocabulary
A-B-C classification
Grouping inventory items into 3 classes to some measure of importance and
allocating inventory control efforts accordingly
A being the most important O
15-20% of t
B being moderately important
C being least important
80-20 rule/Pareto Analysis
Cycle Counting
Vocab
Cycle counting
Regular actual count of the items in inventory on a cyclic schedule
Purpose
Reduce discrepancies between inventory records and the actual quantities of
inventory on hand
Investigate the causes of inaccuracy and fizx them
Accuracy is important because inaccurate records can lead to wrong inventory control
decisions which leads to
Disruptions in production
Poor customer service
Unnecessarily high inventory carrying cost
Key questions concerning cycle counting
How much accuracy is needed?
What kind of counting cycle should be used?
Who should do it?
APICS, American Production and Inventory Control Society recommend
+-0.2% for C
+-1% for B

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11
+-5% for A
Fixed Oder Quantity/Reorder Point Model; Determining

the Economic Order Quantity
Vocabulary
Economic order quantity
The order size that minimizes total inventory control cost
Types of EOQ models
Basic economic order quantity
Economic production quantity
EOQ with quantity discounts
EOQ with planned shortages
Basic Economic Order Quantity

Used to
Identify the order size for an item that will minimize the costs of holding or ordering
inventory
Annual purchase price is unaffected by the order size
Basic Assumptions
Only one product is involved
Annual demand requirements are known
Demand is spread evenly throughout the year so that the demand rate is constant
Lead time does not vary
Each oder is received in a single delivery
There are no quantity discounts
This includes the assumptions that transportations coss per unit is fixed and
does not depend on order size
Shortages are not allowed

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12
Annual holding, ordering, and total inventory cost cuves

Annual holding cost is linearly related to order quantity

Annual ordering cost is inversely and non-linearly related to order quantity

The total annual inventory cost curve is U shaped and it’s minimum annual holding cost is
equal to annual ordering cost

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13

Calculating annual holding cost
Multiplying the average amount of inventory on hand by the cost to hold one unit for one
year
The average inventory is simply half of the order quantity
The amount on hand descreases steadily from Q to 0 (for an aveage of (Q+0)/2 or Q/2)
Annual holding cost
(Q/2)H
Q is the order quantity, units per order
H is the holding (or carrying) cost per unit per year
Annual holding cost is a linear quntion of Q
It increases or decreases in direct proportion to hanges in order quantity Q
O
Annual Ordering Costs
Annual ordering cost will decrease as order quantity increases because for a given
annual demand,
the larger the order quantity,
the fewer number of orders needed
Demo of Ordering Costs
if annual demand is 12,000 units and the order quantity is 1000 units per order, there will
be 12 orders per year
but if Q=2,000 units, unlt six order will be needed
at Q = 3000, only 4 orders will be needed
Calculating Annual Ordering Costs
Annual ordering cost = (D/Q)S
D, Demand (units per year)
S, Ordering costs per order
Because the number of order per year (D/Q) decrease as Q increases, annual ordering
cost is inversely and nonlinearly related to order quantity

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14
O
Total Inventory Costs
The total annual inventory costs of holding and ordering inventory when Q units are
order
Total inventory Cost = Annual Holding Cost + Annual Ordering Cost
Total Inventory cost = ((Q/2)H) + ((D/Q)S)
Total cost curve is U shaped (convex with one minimum) and that it reaches its
minimum at the quantity where annual holding and annual order costs are equal

O Calculating Optimal Order Quantity (Qo) can be obtained using calculus
= 0 = √2

The minimum total cost is found by substituting Qo for Q (total inventory costs
formula)
Calculating the length of order cycles (time between orders if Qo is used)
Length of order cycles (in yeas) = Qo/D
Example
A tire store sells 100 steel-belted radial tires
holding cost, H: $16/unit/year
ordering cost, S: $20/order
Demand, D: 100
Store operates 360 days a year
Optimal Quantity
Qo = √2DS/H = √(2)(100)(20)/16 = 15.8 (round to 16)
Number of orders per year
D/Qo = 100 tires per year /16 tires each time = 6.25 times per year
Length of order cycle
Qo/D = 16 tires / 100 tires per year = 0.16 year (which is 0.16*360 = 57.6
workdays)
Total Inventory Cost
Annual holding cost + annual ordering cost

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15
(Qo/2)H + (D/Qo)S = (16/2)6 + (100/16)20 = 128 + 125 = $253

Holding cost is usually stated as a percent, I, of the purchase pice (or unit cost) of an item
rather than as a dollar amount per unit H. However, as long as this percent is
converted to a dollar amounts by multiplying it by unit cost, R< the EOQ formula is still
appropriate
Example
A distributor of security monitors purchases 3,600 black-and-white monitors a
year from the manufacturer at the cost of $65 each. Ordering cost is $30 per
order, and annual holding cost rate is 20% of the unit cost
Calculate the optimal order quantity and the total annual cost of ordering and
holding inventory
D = 3,600
S = $30 per order
I = holding cost rate per year = 20%
R = unit cost = $65
H = iR = 0.2*$65 = $13
Optimal Quantity
Qo = √2DS/H = √(2*3,600*30)/13 = 128.9 (round to 129 monitors)
Total Inventory Cost
Annual holding cost + Annual ordering cost
(Qo/2)H + (D/Qo)S = (129/2)2 + (3600/129)30 = 838.50 + 837.21 =
1,675.71
Economic Production Quantity (EPQ)

The equivalent of EOQ in production is the Economic Production Quantity (EPQ)
Used to
Determine the optimal batch or lot size in a batch process
Batch Production
Widely used
The capacity to produce a part on a machine/equipment exceeds the part’s usage or
demand rate
As long as production continues, inventory will grow
Assumptions of EPQ model
Similar to EOQ
instead of orders being received in a single delivery, units are received
incrementally
How inventory levels are affected when a batch of an item is produced periodically

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16
O
During the production phase of the cycle, inventory builds up at a rate equal to the difference
between production and usage rate
Example: the daily production rate is 20 units and the daily usage rate is 5 units,
inventory levels will build up at a rate of 20 – 5 = 15 units per day
As long as production continues, inventory will grow
When production cases, the inventory level will begin to decrease
The inventory will be max, denoted Imax, when production ceases
When the amount of inventory is exusted, production resumes and the cycle repeats
itself
Because the company makes the product itself, there are no ordering cost
Every production run has a set-up cost
Cost to prepare equipment (adjusting, changing tools, etc.)
Set up costs are analogous to ordering costs and are treated the same way with the same
symbol, S
Independent of the lot (run) quantity
The larger the run quantity, the fewer the number of runs/batchs per year (D/Q) and the annual
setup cost is equal to the number of runs per year times the setup cost per run (D/Q)S
Total Annual Inventory Cost
Annual honding cost + Annual setup cost
(Imax/2)H + (D/Q)S
Imax = Maximum Inventory
Q = Production run quantity
S = Setup cost per production run
To calculate Imax, let
P = production rate (i.e.: Units per Day)
d = usage or demand rate (units per day)
The production run quantity Q is consumed at the rate of d during the entire cycle length (= the
time between the beginnings of 2 consecutive production runs) therefore
Cycle length = Q/d
The production run quantity Q is produced at the rate of p during the production run
length (the production phase cycle
Production run length = Q/P
therefore, the max inventory level is
Imax = Q – d(Q/P) = Q/P(p-d)

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17
Substituting max inventory level and total inventory cost, taking the derivative with
respect to Q setting it to zero and solving for Q
Q = √2DS/H √p/p-d
Example
Toy manufacturer uses 48,000 rubber wheels per year. The company produces wheels at
800 units per day. Holding costs are $1, setup costs is $45 and the company operates
240 days a year
Optimal production run quantity
Minimum total annual cost for holding and setup
Cycle length for optimal production run quantity
Production run length for the optimal production run quantity
Given
D = 48,000 wheels per year
S = $45 per production run
H = $1 per wheel per year
P = 800 wheels per day
d = 48,000 wheels in 240 days OR 200 wheels per day
Optimal production run quantity
Qo = √2DS/H √p/p-d = √(2*48,000*45)/1 √800/800-200 = 2,400 wheels
Minimum total annual costs for holding and setup
TCmin = Annual holding cost + Annual setup cost
TCmin = (Imax/2)H + (D/Qo)S
TCmin = 1800/2 * 1 + 48,000/2,400 * 45 = 900+900 = $1,800
Cycle length for optimal production run quantity
Q/D
2,400/200 = 12 days
Production run length for the optimal production run quantity
Q/P
2400/800 = 3 days
EOQ with Quantity Discounts

Quantity discounts
Price reductions for large orders
Example
Surgical supply company publishes pice lists where price per box decreases as quantity
increases
Consider all-unit discount case where the price of every unit given for order quantity
i.e. for 60 boxes
44($2.00) + 16 ($1.70) = 115.20
If quantity discounts re offered, the buyer must weigh the benefits
Large quantity and cheaper
Smaller quantity but more expensive
Buyer’s goal is to select quantity that will minimize total annual cost

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18
Total annual cost is the sum of annual holding cost, ordering cost and purchasing cost O
TC = Annual holding cost + annual ordering cost + annual purchase cost
O TC = (Q/2)H + (D/Q)S + RD
Where R is the unit price
Recall that the basic EOQ model does not include purchase cost
The rationale
Under the assumption that no quantity discounts is that annual purchase cost is not
affected by order quantity

When quantity discounts are offered, there is a separate U shape for each unit price O
Including annual purchase price merely raises each curve at a constant amount
O However, because the unit prices are all different, each curve is raised by a different
amount
Smaller unit prices will raise the total cost curve less than larger unit prices O
The annual total cost curve is denoted by solid lines only
The objective of the quantity discount model
Identify an order quantity that will represent the lowest total cost for the solid lines
Note:
Holding cost is a percentage of price
Lower prices mean lower holding costs which will result in larger EOQs
Price decreases, each curve minimum point will be to the right of the purchase
quantity with the following procedures
Determine the best purchasing price by
Beginning with the lowest unit price,

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19
Calculate the EOQ for each price until you find a feasible EOQ (until an EOQ falls in
the quantiy
If the EOQ for the lowest unit prie is feasible, it is the optimal order quantity
If not, compare the total cost at all break quantities larger than te
feasible EOQ with the total cost of the feasible EOQ
The quantity that yields the lowest total cost among these is optimum
Example
A factory uses 4,000 light bulbs a year,
1-499.90 cents each
500-999.85 centss
1000 or more
The cost is $30 to prepare the purchase order and the holding cost is 40% of the
purchase price per year
Determine optimal order quantity and the total annual cost
O
Find EOQ for each price until you locate feasible EOQ
EOQ0.80 = √2DS/H = √2*4000*30/0.32 = 866 light bulbs
Not feasible because it is less than 1000
EOQ0.85 = √2(4000)30/0.34 = 840 light bulbs
Feasible; fall in the 0.85 per light bulb range (500 – 999)
Find total inventory costs
Annual holding cost + annual ordering costs + annual purchase cost

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20
(Q/2)H + (D/Q)S + RD O
Find total inventory: 840 units
840/2(0.34) + 4000/840(30) + 0.85*4000 = $3,686 O
Find total inventory: 1000 units
1000/2(0.32) + 4000/1000 (30) + 0.08 (4000) = $3,480
Because $3,480 < $,686, the minimum cost order quantity is 1000 light bulbs
EOQ with Planned Shortages

When holding cost is large, demand can wait, a company may allow shortages intentionally
We assume that all shorted demand will be back-ordered (customers wait)
The back-ordered demand will incur shortage cost
This cost will be proportional to the length of the time a unit is back ordered
We represent this cost, number of units back-ordered as
B = back-order cost per unit per year
Qb = Quantity back-ordered per order cycle
Assumptions
Same as EOQ except we allow shortages
T is order interval and the length of an order cycle
t is the time period when inventory level is non-negative
tb is time period when inventory level is negative
When the next order arrives, the back-ordered demand is satisfied first (I.E.: THE INVENTORY
LEVELS JUST FATER AN ORDER ARRIVAL WILL BE q – Qo
Recall that d = demand rate per day
Because Q – Qo is used up at a rate of d units per day then
Q –Qb= d * t
t = Q – Qb/d
tb = Qb/d
T = t + tb = (Qb/d)/(Q/d)
t/T = ((Q – Qb)/d) / Q/d = Q – Qb/ Q
tb/T = Qb/d / Qd = Qb/Q
therefore, average level of inventory furing the year
Q – Qb/1 * t/T + 0(t/T) = ((Q-Qb)^2/2Q)
Average level of back orders during the year
Qb/2 * tb/T + 0(t/T) = Qb^2/2Q
Total annual inventory control cost
TC = annual ordering cost + annual holding cost + annual back-order cost
(D/S) S + ((Q – Qb)^2/2Q) H + (Qb^2/2Q) B
Taking derivative of TC with respect to Qb, setting it equal to zero and solving for Qb
Qb = Q (H/H+B)
Taking derivative of TC with respect to Q setting it equal to zero and multiplying it by 2Q^2 and
rearranging it
-2DS + Q^2H – Qb^2 (H+B) = 0
Substituting the derivative of TC in respect to Qb and Q

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Q = √2DS/H(H+B/B)
Example
Annual demand for a fridge is 50 units. The holding cost per unit per year is $200. The
backorder cost is estimated to be $5000. Ordering costs from the manufacturer is $10
per order
Determine the optimal order quantity and the back-order quantity per cycle
D is 50 unit per year
H is $200 per unit per year
B is $500 per unit per year
S is $10 per order
Q = √2DS / H (H+B/B)
Q = √2*50*10 / 200 (200 + 500/500) = 2.65, round to 3
Qb = Q (H/H+B)
Qb = 3 (200/200+500) = 0.86, round to 1
This model has the following practical implications
Allow the inventory level to drop to zero
Then when there is a customer demand for a unit, place an order for 3 fridges
Fixed Order Quantity/Reorder Point Model: Determining

the Reorder Point
Reorder point (ROP)
When the inventory level drops to this amount, the item should be reordered
ROP
ROP = d * LT
d is demand rate (units per day or week or month)
LT is leadtime in (days, weeks, or months)
Example
A patient takes 2 special tablets per day, which are delivered to his home is 7 days after an
order, at what point should the patient reorder
Usage is 2 tablet a day
Lead time is 7 days
ROP is the usage * lead time
2 * 7 =14 tablets
Thus, the patient should reorder when there are 14 tablets left
Note: demand and lead times must have the same time units
When variability is present in demand/lead time, it creates the possibility that actual demand
during a leadtime will exceed expected demand during the leadtime.
It becomes necessary to carry additional inventory called safety stock toreduce risk of
running out of inventory
The reorder point then increase by the amount of safety stock
ROP = Expected demand during a lead time + safety stock
Example

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If the expected demand during a lead time is 100 unit ,

The desired amount of safety stock is 10 units
Then the ROP would be 110 units
O
Demo of how supply stocks can reduce shortage or risk of stock-out during a
lead time (LT)
Note that for the fixed order quantity/ROP model,
Shortage/stock-out protection is needed only during lead times O
the amount of safety stock that is appropriate is determined by
demand and lea time variability
desired service level
there are two ways to define service level
lead time service level
probability that demand will not exceed supply during a lead time
annual service level
the percentage of annual demand filled
the formula commonly used to determine safety stock assumes lead time is normally
distributed
Safety stock = zϬdlt

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O
Where z is the safety factor
Number of deviations above expected demand
Where Ϭdlt is the stand deviation of demand during a lead time
Exact relationship depends on
Type of service used
Lead time
Annual
ROP Using Lead Time Service Level
Given a desired lead time service level,

The value of z can be directly determined rom the (standard) normal probability table
(appendix B, table b)
Note that stock out risk is
1 – Lead Time Service Level
Example
If the desired lead time service clevel is 0.95 (95%), stock out
would be 0.05 (5%)
Note that the small the stock-out risk the manager is willing to accept, the greater the
value of z
Example
The manger of a store says its lead time can be described through normal distribution
that has a mean of 50 bags and a standard deviation of 5 bags
Assume that the manager is willing to accept a stock-out risk of no more than 3% during a
lead time
Questions
What value of z is appropriate
How many safety stock should be held
What reorder point should be used
Given
Expected demand during lead time = 50 bags
Ϭdlt = 5 bags
Stock out risk = 3%
Answers

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What value of z is appropriate?

From the table
1 – 0.03 = 0.97
Z (of 0.97) is 1.88
How many safety stocks should be held?
zϬdlt = 1.88 (5) = 9.40 bags
What is the reorder point
ROP = Expected demand during a lead time + safety stock
ROP = 50 + 9.40 = 59.40 bags
When data on demand during a lead time are not readily available, than the safety stock
formula cannot be used
If only demand is variable, then Ϭdlt  √LT Ϭd and the reorder point is
O ROP = dbar * LT + z√LT Ϭd
 Where
 Dbar is the average daily/weekly/monthly demnd
 Ϭd = Standard deviation of daily/weekly/monthly demand
 LT = Lead time in days/weeks/months
√( σ + )
 If both demand and lead time are variable, then

 Reorder point
O Ϭdlt = √ 2 2 2
= + √
O Where 2 2 2
 Note
O ℎ ( / / ℎ)
ℎ ℎ ( // ℎ )
O
O Each of these models assume that demands and lead time are independent
 Example
O Restaurant uses 50 jars. The weekly usage has a standard deviation of 3 jars. The
manager is willing to accept no more than 10% risk of stock-out during lead time (2
weeks). Assume normal distribution.
O Questions
 Which of the above formulas is appropriate for this situation? Why?
 Determine the value of z
 Determine the ROP
O Given = 50
 Demand,
 =3
LT is 2
weeks


Acceptable stock out risk is 10%
 Lead time service level is 0.90
O Solutions
 Which of the above formulas is appropriate for this situation? Why?
 Because only the demand is variable, than the reorder point formula is
most appropriate

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25
Determine the value of z

From the table, using service level 0.90, we obtain z = 1.28
Determine the ROP+√
ROP =
ROP = 50* 2 + 1.28√2*3

Example
Daily demand is normally distributed with a mean of 3 units and a standard deviation of 1 unit and a lead time of 2 days, then demand during a lead
time√1will2+1be2=normally1.41 distributed with a mean of 6 units and a standard deviation of
O
The graph on the left is day 1
The graph in the middle is day 2
The graph on the right is the distribution of the sum of day 1 and day 1 demands O We
assumed that the manager has a desired service level from which z, then safefy
stocks and ROP, were determined
O Alternative method to determine the ROP
Based on cost of overstock and cost of shortages
This analysis will be similar to the single period model
ROP Using Annual Service Level

 Given a desired amout of annual service level (i.e.: the percentage of demand filled directly from
inventory during the whole year, fill rate)
 To find the required ROP, a 3-step procedure should be used
O Calculate

(1− )
Take
O E(z) to z-value table, determine z valu e
( )=
O Use the z value in the following general ROP formula or a specific ROP formula (12-15,
12-16) ROP is the expected demand during lead time +


Where SLannual is the annual service level

E(z) is the standardized expected number of units short during an order cycle
The derivation of the formula for E(z) in step 1 is rather long and complicated
Example
Inventory item has order quantity Q = 250 expected demand during lead time is 50 and
standard deviation of demand during a lead time is 16.
Given
Q = 250,
Standard deviation of 16

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26
50
O Question
Determine the ROP if the desired annual service level is
0.997
0.98
O Solution

 Calculate
(1− )
E(z) (0.0997, 0.98)
( ) = 250(1 −0.0997
)
O ( )= 16 = 0.047
( )= 16 = 0.3125
O 250(1−0.098)
Calculate Z value
E(z) = 0.047, z = 1.28
E(z)=0.3125, z = 0.19
ROP
50 + 0.19(16) = 53.04 units
It is important that variations in demand and lead times (with the cooperation of the suppliers) be
reduced as much as possible
O This will reduce the need for safety stock
Other Related Models

A commonly used variation of the fixed order quantity/reorder point model is the min/ma
model
O The determination of min and max is complicated but min can be approximated by ROP
and max by ROP + EOQ
Another common model is the base stock model
When the on hand inventory level back up to the base stock (i.e. max) level
Another variation of the Min/Max model is the Can Order model
In the model, when an items’ on-hand inventory level drops to or below Min. all related
items (e.g. those bought from the same supplier) are investigated to see if their on-hand
inventory level is at or below their can order level
If so, they are ordered too (to bring inventories to max)
Fixed Order Interval/Order up to Level Model

Vocabulary
Orders are placed at fixed time intervals to bring the inventory level up to level
The model is widely used by wholesalers and retailers who buy their supplies from the same
supplier
If demand is variable, the order size tends to vary from interval to interval

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27
Quite different from the EOQ/ROP model in which the order size remains fixed from cycle
to cycle while the length of the cycle varies (shorter if demand is above average, and
longer if demand is below average)
Grouping orders can save ordering and shipping costs
Some situations may not readily lend themselves to an inventory count
Example: Many retail operations
The alternative for them is to use fixed interval ordering, which requires only periodic checks of
inventory levels
Two decisions are needed to apply this model for a group of items from the same supplier
The order interval
The order up to level for each item
Determining the Order Interval

The order interval can be determined by minimizing total annual holding and ordering costs of all
the SKUs received from a particular supplier
The complications is that there are two components to ordering costs
O The cost of issuing a purchase order
O The cost of ordering each line item (SKU) in it
 In the basic model
O Assume that every SKU is ordered at every order time no matter how small its order
quantity is.
 Let
O OI be the order interval (fraction of a year)
O S be the fixed ordering cost per purchase order
O s be the variable ordering cost per SKU included in the purchase order (line item)
 For simplicity, we assume s is the same for every SKU
O n be the number of SKUs purchased from the supplier
O Rj be the unit cost of SKUj, j = 1, …, n
O I be the annual holding cost rate
O Dj be the demand for SKUj, j = 1, …, n
 For each SKUj from this supplier, we will purchase enough to last until next order
O i.e.: Q = Dj * OI
O

∗ 1
Total Annual Inventory Control Cost

Total Annual Inventory Control Cost (TC) = ∑( 2 ) ∗ +( + )( )
Taking derivative of TC with respect to OI, setting it equal to 0 and solving for

OI, we get the
Examp le
∗=
√∑
O
2( + )
optimal order interval
O Three parts are purchased from the same supplier. The basic cost of placing an order for
one of the SKUs is $1.50. The inclusion of each additional SKU costs $0.50 more. The

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28
annual carrying cost rate is 24% of the unit cost. The annual demand and unit prices are
given below. Assume that the buying company works 250 days a year.
Question
Calculate the optimal order interval
Given
SKU 1, Demand/Year is 12,000 and the price/unit is $0.50
SKU 2, demand/year is 8,000 and the price/unit is 0.30
SKU 3, demand/year is 700 and the price/unit is 0.10
S = $1.50 – 0.50 = $1.00
s = 0.50
i = 0.24
Solution; optimal∗=√order2( + ) interval
∑
=√ 2∗(1.00+3∗0.50)
OI*0.24(12000∗0.50+8000∗0.30+700∗0.10)
OI* = 0.0496 year = 12.4 days
Determining the Order up to Level
The order up to level for an item should be enough so that items last unti the next arrives (i.e.:
after an order interval plus a lead time
O This fact illustrated in the below chart also contracts the fixed order interval model with
the order quantity (EOQ/ROP) model

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29
O
Note
The order quantity (the difference between order up to level and on hand inventory
level) for the fixed order interval model will vary from one order time to another
(depending on size of demand during the past interval)
Safety Stocks
Need for safety stocks
In the presence of demand and lead time variability stocks
The two models also differ in terms of safety stocks
The fixed order interval model must have stock-out protections until the
next order arrives
The fixed order quantity (EOQ/ROP) model needs protection only during
lead time
Therefore, the fixed interval model necessitates a larger amount of
safety stock for a given service level
Therefore, order up to level or Imax can be determined by

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30
Imax = Expected demand during an order interval plus a lead

time + safety stock
Like the fixed order quantity model
The fixed order interval model can have variations in demand
and/or lead time
For the sake of simplicity and because it is the most frequently
encountered situation, the discussion will focus only on variable
demand and constant lead time case
As in the fixed order quantity model, we assume that
demand during an order interval and a lead time is
normally distributed
Example
O Given the following information for a SKU, determine its order up to level and amount
to order (optimal order quantity)
O 
Given
= 30
=3

Desired service level = 99 percent

 Amount on hand at reorder time = 71 units (safety stocks)
 Lt is 2 days
 OI is 7 days
O Solution
Calculate Z Score
99% is z =2.33
Calculate order up( to+level )(Imax)+ √ +
Imax =
Imax = 30(7+2) + 2.33(3) √7+2
Imax = 291
Amount to order
Order up to level (max) – safety stocks
291 – 71 = 220 units
Note
The average demand is usually estimated using forecast of demand, and the standard
deviation of demand is usually estimated using standard deviation of the forecast error
Coordinated Periodic Review Model
In the fixed order

It might cost less to order some items every 2, 3 or more order intervals than ordering
them at every interval,
Their holding cost may be less than the line-item ordering cost
The periodic review model

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31
O Accommodates this by determining an order interval OI for reviewing every SKU and a
multiple modates this by determining an order interval OI for reviewing every SKU and a
multiple Mi of OU for ordering SKUi (determines the order up to level SKUi)
 After planning the model (i.e.: determing OI and Mis) during operation and control of the model
(in the presence ofd demand variation),
O the on-hand inventory level of each SKU should be compared with its forecast demand
for the next OI plus lead time plus SKU should be compared with its forecast demand for
the next OI plus lead time plus safety stock (just like ROP) and if on hand inventory level
level up to the SKU’s order up to level should be ordered
 the order up level for SKUi should cover its forecast demand during the next mi order intervals
(OI) plus lead time plus safety stocks only for the next OI + LT
 the determination of optimal values for OI and Mis is complicated, we will use a simple heuristic
O find the SKU with largest annual dollar value DjRj, Suppose, it is SKU, Let mi =1
 = √( + ( ℎ ℎ 1)
O for every other SKUj, calculate
O Calculate Order
Interval OI

1
2( + ∑ ))
O ∗=
Rationale √
∑
 Thatb oth purchase order cost (S) and line item ordering cost (s) are charged to
the SKU because SKU will be ordered T EVERY ORDER INTERVAL
 Mj for other SKUs re determined using formula for relative
2( + ∑ 1
))
∗= √
∑
to mk
OI is∗ calculated=√ 2( + ) using the formula for order interval is very similar to formula ∑ but uses mjDj as the order quantity for SKU
Example
We use the same data as previous eample to compare periodic review model with the
fied order interval model
Given
S = $1.00
s = 0.50
i = 0.24
The annual demand and unit price
SKU 1, demandyear = 1
12,000; price/unit 0.50, DiRi $6,000
SKU 2, demand/year 8,000, price/unit 0.30. DiRi $2,400
SKU 3, demand/year 700, price/unit 010, DiRi $70
SKU with largest DiRi is Sku
M1=1

lOMoARcPSD|4211913
32
 √2,4000 1+0.5 = 0.91; 1
 M2 =
0.50 $6,000
O
1 +0 .5 = 5.35;5
Order Interval √ 70
M2 =1
 M3 = 0.50 $6,000
=
√ 0.24 (1∗6000+1∗2400+5∗70 )
 = 0.447 year = 11/2 days (Ibecause the buyer
2(1.00+0.4)(1+1+20)
works 250 days a year)

 Thus, OI is only slightly smaller, but the plan for SKU3, because of its smsall small annual dollar
usage, is to order it every five 5 order times
 Suppose,
OI is 11 work days
LT and safety stocks ar negligible, demand for SKU3 during the next 11 work days =
700(11)/250 = 30.8 units
Therefore, the order up to level for SKU3 should set 5(30.8) = 154 units
Single Period Model

Vocab
Single period model
Model for ordering of perishables and other items with limited useful lives
Period for spare parts is the life of the equipment, assuming that the parts cannot be used for
ther equipment
What sets unsold/unused goods apart is that they are not typically carried over from one period to
the next, at least not without penalty
Day old bread is sold at reduction
Unsold seafood is thrown out
There may even be some cost associated with disposal of leftover good
Analysis of single period model generally focuses on 2 costs
Shortage
Excess
Shortage cost may include a charge for loss of customers goodwill as well as the opportunity
cost of the lost sale
Cshortage = Cs = Revenue per unit – Cost per unit
We assume Ci>0
If a shorage or stock-out relates to an item used in production or to a spare part for
machine, then shortage is the cost of lost production
Excess cost
Difference between purchase cost and salvage value of an item left at the end of the
period
Cexcess = Ce = Cost per unit – salvage value per unit
If there is a cost associated with disposing of excess items, then the salvage value wil be
negative and will therefore increase the excess cost per unit

lOMoARcPSD|4211913
33
If the salvage value os ;arger than the original cost, then C will be negative
However, in this case, we must have Cs + Ce > 0
Because the salvage value per unit must be less than revenue per unit
Goal of thesingle period model
Identify that order quantity or stocking level that wil minimiz the long-run total excess and
shortage cost
Two categories of problems that we will consider
Those for which demand can be approzimated by a continuous distribution
(uniform/normal)
Those for which demand be approximated by a discrete distribution (say, hisctorical
frequencies or Poisson)
The nature of item can indicate which type of model might be appropriate
Example: demand for liquids and items whose individual units are small but whose
demand is large (i.e. muffins, newspaper) tend tovary over some continuous scale
Thus lending itself to the description by continuous distribution
Demand for spare parts, flowers, etc/ can be expressed it terms of the number of units
demanded
Lends itself to discrete distribution
Continuous Stocking Levels

Concept of identifying an optimal stocking level (i.e.: order quantity) is perhaps easiest to
visualize when demand is uniform
Choosing the stocking level is similar to balancing a seesaw
Instead of person on each end of the seesaw, we have excess cost per unit (Ce) on one end
of the distribution and the shortage cost per unit (Cs) on the other
The optimal stocking level is analogous to the fulerum of the seesaw
The stocking level equalizes the cost weights
If actual demand exceeds the balance point So, there is shortage
Here C is on the right end of the distribution
Similarily,
If demand is less that So, there is excess, so C is on the left of the distribution
When Ce = Cs
The optimal stocking level is halfway between the endpoint of the distribution
If one cost is greater than the other
S will be closer the larger cost

lOMoARcPSD|4211913
34
O
Service level
The probability that demand will not exceed the stocking level
Calculation of the service level
Key to determining the distribtuipns optimal stocking level So
Service Level SL = Cs / Cs+ Ce
Cs is the shortage cost per unit
Ce is the excess cost per unit
Optimal stocking level, So
Determined from the demand distribution
Example
Muffins are delivered daily to the caf, demand can vary from 30 -50 nuffins per day. The caf
spends 20 cents of a muffin and charge 80 cents. Unsold muffins have no salvage value
and cannot be carried)
Question
Find the optimal stocking level
The stock-out risk for that quantity
Cost of excess stock
Cost per unit – Salvage value per unit
0.2–0
0.20 per unit
Cost of surplus stock
Revenue per unit – Cost per unit
0.8 – 0.20
0.60 per unit
Service Level
Cs/Cs+Ce
0.60/0.6+0.2
0.75
The optimal stocking level (i.e.L order quantity) must satisfy 75% of demand
For uniform distribution
This will be at a point qual to the minimum demand plus 75% of the difference
between maximum and minimum demands
So = 30 + 0.75*50-30) = 45 muffins
Stock out risk is 1 - 0.75 = 0.25
Example

lOMoARcPSD|4211913
35
Suppose the distribution of demand for muffins in the previous example was
approximately normal with mean of 40 muffins per day and a standard deviation of 5
muffins per day
Question
Find the optimal stocking level for the muffins
Solution
Recall that Cs - $0.60, Ce =$0.20 and SL = 0.75
This indicates that 75% of the normal curve must be to the left of the stock level
The z value is between 0.67, 0.68 so .675
So = 40 + 0.675 (5) = 43.374 or 43 muffins
Discrete Stocking Levels

When stocking levels are discrete rather than continuous, the service level calculated using the ratio
Cs/(Cs+Ce) usually does not coincide with a feasible stocking level (.g. optimal amount may be
between 5 and 6 units
The optimal solution in this case is the higher level (i.e. 6 units)

lOMoARcPSD|4211913
36
In other words, choose the stocking level so that the desired service level is equalled or just
exceeded
the service level in this case is compared with the cumulative probability of demand (above)
Example
Historical records on the use of spare parts as an estimate of usage for the spare part in a
similar but new press
Stock out costs involve downtime expenses and special ordering cost. These average
$4,200 per unit short)
The spare parts cost $1,200 each and unused part has $400 salvage value
Question
Determine the optimal stocking level
Number of spare used 0, probability 0.20, cumulative probability 0.2
Number of spare parts used 1, probability is 0.3 and cumulative probability is 0.6
Number of spare parts is 2 than 0.30, 0.9
Number of spare parts 3, than 0.1 and 1
Number of parts 4 or more than 0, 0
Given
Cs = 4,200
Ce = 1,200 – 400 = 800
Stocking level
Cs/Cs+Ce = 4200/4200+800 = 0.84
Percentage of time that demand was equal to or less than some amount O
Example: demand<one part occurred 60% of the time but
demand < 2 parts occurred 90% of the time
Example
Demand for long stemmed red roses is approximated by poisson distribution has a
mean of 4 dozens of roses per day. The profit on the roses is $3 per dozen. Leftover
flowers are marked down and sold the next day at a loss of $2
Question
What are the optimal stocking level?
Given
Cs = 3
Ce = 3
SL = 3/3+3 = 0.60
Table
Demand, cumulative probability
0, 0.018
1, 0.092
2, 0.238
3, 0.434
4, 0.629
5, 0.785

lOMoARcPSD|4211913
37

lOMoARcPSD|4211913
Maintenance
Explain what maintenance is, its importance in production systems, and the range of
maintenance activities
Maintenance
All activates that keep facilities and equipment in good working order so
that a system can perform as intended
Breakdown (emergency) maintenance
Dealing with breakdowns (repair/replacement) only after they occur
Reducing or avoiding breakdowns through a program of lubrication, bolt
tightening, cleaning, inspection, and replacement of worn parts
Reliability-centered maintenance (RCM)
An approach that reduces the effect of each major cause of failure for
equipment functions
Maintenance activities
Building and grounds
Appearance and functioning of buildings, roads, parking lots, lawns,
fences, and the like
Equipment maintenance
Responsible for maintaining machinery and equipment in good working
condition and making all the necessary repairs
**focus of the chapter
Goal of maintenance management
Keep the production system in good working order at minimum cost
Describe preventive maintenance and determine the economic amount of preventive
maintenance
Goal
Reduce breakdowns
Avoid associated costs
Loss of output
Idle workers
Unexpected repairs
Most preventive maintenance is periodic
Can be scheduled according to
The result of planned inspections that reveal a need for maintenance
According to the calendar (passage of time)
After a predetermined number of operating hours (or miles for trucks)
Important issue
Frequency
As the time between two periodic maintenance increase, the cost of
preventive maintenance per unit time decrease while the risk (and cost)
of breakdowns increase
Goal

lOMoARcPSD|4211913
Balance two cost

Given preventive maintenance (PM) in interval L,
If a breakdown occurs before L,
then a breakdown maintenance cost will be incurred, and machine will be
repaired and the next time between breakdowns (TBB) will start
If there is no breakdown before L,
then a PM cost will be incurred at time L
We determine L so that the expected cost of each consequence is equal;
Breakdown cost * Prob (TBB < L) = Preventive cost * Prob (TBB > L)
Breakdown cost * Prob (TBB < L) = Preventive cost * (1 – Prob (TBB < L)
(Preventive cost + Breakdown) * Prob (TBB < L) = Preventive cost
Rob (TBB<L) = Preventive Cost / (Preventive Cost + Breakdown Cost)
Choose L so that the probability that time between breakdowns is smaller than L is
equal to Preventive cost/(Breakdown cost + Preventive cost)
Marginal cost method is similar to that used in the single period model
Example 4
Suppose that the time before a breakdown is Normally distributed and has a
mean of 3 weeks and a standard deviation of 0.60 week
If a breakdown costs an average of $1000
If preventive maintenance costs $250
What is the optimal preventive maintenance interval?
Preventive Cost / (Preventive Cost + Breakdown Cost)
250 / 250 + 1000 = 0.20
Find the number of standard deviations from the mean, represented by the area
under the normal curve of 0.2 (from left tail)
0.20 = z of -0.84
Mean + z(standard deviation) = 3 – 0.84(0.60) = 2.496 (round to 2.5
weeks)
Discuss breakdown (emergency) maintenance
Occasional breakdown is likely to occur even if there is an effective preventive
maintenance program established
Organizations that rely less on preventive need to effectively deal with breakdowns
Unlike preventive maintenance, breakdown maintenance cannot be scheduled
Provisions to deal with breakdowns
Standby or backup equipment
Can be quickly brought into service
Inventories of spare parts
That can be installed as needed, thereby avoiding lead times involved in
ordering parts
Buffer inventories of W.I.P. so that other equipment will be less likely to be
affected by short-term downtime of a particular piece of equipment
Operations
Able to deal with emergencies and perform at least some minor repairs on
the equipment

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Maintenance staff
Well trained and readily available to diagnose and correct problems
with equipment
The degree depends on importance of the equipment
At one extreme, the equipment is the focal point of the system
The other, the equipment is seldom used
Decide when to replace a machine or a group of components
When breakdowns become frequent and costly, managers must trade of costs
What is the cost of replacement compared with the cost of repair?
The question is sometimes difficult to resolve
Especially if future breakdowns cannot be predicted
Historical records may help project
Another situation
Replacement before failure may be economical is in group replacement of
components
Allowing to buy in bulk
Example 6
Facts
The maintenance manager wants to know whether he should have all the
3,000 fluorescent light bulbs to illuminate the plant, replaced
together in order to save labour costs
There are three light bulbs in a fixture (1,000 fixtures)
They are lit about 4,000 hours a years
The light bulbs have a rated life of 25,000 hour swath a standard
deviation of 5,000 hours
If all the light bulbs are replaced together, it will take 12 minutes per
fixture
Individually, it will take 20 minutes (because the latter has to be brought
from storage and returned there after the work)
Labour costs are $15 an hour
Each bulb costs $1.35 (group replacements with result in a break in
price.. buying in bulk [ignore this fact])
Solution
The average life of a bulb in years of usage is 25,000/4,000 = 6.25 years
with a standard deviation of 4,000/5,000 = 0.8 years
It will likely last 3 years
Outline
Introduction

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Replacement
Introduction
Vocab
Maintenance
All activates that keep facilities and equipment in good working order so that a
system can perform as intended
Dealing with breakdowns (repair/replacement) only after they occur
Reducing or avoiding breakdowns through a program of lubrication, bolt
tightening, cleaning, inspection, and replacement of worn parts
Reliability-centered maintenance (RCM)
An approach that reduces the effect of each major cause of failure for
equipment functions
Maintenance activities
Building and grounds
Appearance and functioning of buildings, roads, parking lots, lawns, fences, and the
like
Equipment maintenance
Responsible for maintaining machinery and equipment in good working
condition and making all the necessary repairs
**focus of the chapter
Goal of maintenance management
Keep the production system in good working order at minimum cost
Reasons for wanting to keep equipment and facilities in good operating condition
Avoid production disruptions (down time), including slowdowns and reduced yield
Maintain high quality and safety
Avoid missed delivery dates
Basic options with respect to maintenance
Example
Historical frequency of breakdowns of a machine per month are displayed on the table
Number of 0 1 2 3
Breakdowns
Frequency of 0.2 0.3 0.4 0.1
Occurrence

Cost of breakdown repair: $1000

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Cost of preventive maintenance : $1250

The expected number of breakdowns without preventive maintenance is 1.40 per
month
Expected cost of breakdown repair
Number of Frequency of Expected Number
Breakdowns Occurrence of Breakdowns

0 0.2 0 = 0*0.2
1 0.3 0.3 =1*0.3
2 0.4 0.8 =2*0.4
3 0.1 0.3 =3*0.1
1.4
1.40 breakdowns/month * $1,000 breakdown = $1,400 per month

Preventive Maintenance
$1250/month
Preventive Maintenance would yield savings of $150/month
$1,400 – 1,250
Total maintenance cost as a function of preventive maintenance efforts
O
With no preventive maintenance

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Breakdown and repair/replacement costs would be tremendous

Cost of lost production and wages while equipment is not in service must be
factored in
Cost of injuries or damages to other equipment
However, beyond the optimum preventive maintenance exceeds its benefit
Example
A person has never changed the oil in their car, and never had the brakes or tires
inspected, but had done repairs when it was absolutely necessary
Preventive costs would be negligible but the repair costs would be high (so
many parts could fail; on the highway, during rush hour)
Having it changed every morning
Obvious excess; automobiles are designed to perform for longer periods
Concept of maintaining production systems
Strike balance between prevention costs and breakdown costs
Factors affect the amount of preventive maintenance is required
In a new car, there is little preventive maintenance
Gets worn thru use, desirability for preventive maintenance increases because risk of
breakdown increases
When tires and breaks show signs of wear, they should be replaced
Dents should be checked before they rust
Car oil should be changed after high exposure to dirt
Inspection of critical parts should be done
Reliability centered maintenance
An approach that reduces the effect of each major cause of failure for equipment
functions
Different approach to redesigning the item to prevent failures
Steps
Major causes of failure identified
Major possible failure problems are determined
Major cause of each failure (AKA: FAILURE MODE) are identified
Various ways (i.e.: preventive maintenance) used to reduce the effect of each
major cause
Example 2
Study performed by a maintenance engineer
Each electrical distribution substation, there is a battery that will operate a relay switch
when electricity is interrupted or there is a surge
The system includes a battery charge and cables
Dominant failure problems for the battery system
The cable does not conduct electricity
Major cause are loose connections or corrosion
Loose connection – annual electrical resistance test is
prescribed
Corrosion – the preventive maintenance of cleaning and grease-
coating every quarter is prescribed

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The battery loses its capacity

The battery charger does not charge the battery
For each critical problem, the dominant failure cause (modes) are identified, and a
maintenance program suggests how to reduce the effect of the failure mode
RCM should be the ultimate goal of every maintenance systems
Yet orgs. Lack the basic maintenance management
Identify importance maintenance jobs
Schedule preventive maintenance jobs effectively
Perform necessary maintenance effectively and efficiently
Example 3
STK is a paper mill that needs to cut costs
Maintenance had become reactionary
Relationship with operations department was no good
20% of planned jobs, 30% of emergency jobs in a week could be performed
Results in excessive use of contractors
The plant manager calls for a re-assessment of the maintenance function and a
consulting firm was brought in
Tradesmen (pipefitter, electrician, machinist, instrument technician) were
employed as maintenance work planners
Weekly metrics (efficiency, equipment availability) were developed
Operations, maintenance meet every day
Guidelines for most repair jobs were developed
Standardizing maintenance procedures and established quality norms
Store staff prepares kits of necessary parts for maintenance so technicians don’t
have to waste time looking for parts
The number of maintenance jobs performed has now doubled
Next step is equipment failure analysis
Goal
Reduce breakdowns
Avoid associated costs
Loss of output
Idle workers
Unexpected repairs
Most preventive maintenance is periodic
Can be scheduled according to
The result of planned inspections that reveal a need for maintenance
According to the calendar (passage of time)
After a predetermined number of operating hours (or miles for trucks)
Important issue

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Frequency
As the time between two periodic maintenance increase, the cost of preventive
maintenance per unit time decrease while the risk (and cost) of breakdowns
increase
Goal
Balance two cost
Given preventive maintenance (PM) in interval L,
If a breakdown occurs before L,
then a breakdown maintenance cost will be incurred, and machine will be
repaired and the next time between breakdowns (TBB) will start
If there is no breakdown before L,
then a PM cost will be incurred at time L
We determine L so that the expected cost of each consequence is equal;
Breakdown cost * Prob (TBB < L) = Preventive cost * Prob (TBB > L)
Breakdown cost * Prob (TBB < L) = Preventive cost * (1 – Prob (TBB < L)
(Preventive cost + Breakdown) * Prob (TBB < L) = Preventive cost
Rob (TBB<L) = Preventive Cost / (Preventive Cost + Breakdown Cost)
Choose L so that the probability that time between breakdowns is smaller than L is
equal to Preventive cost/(Breakdown cost + Preventive cost)
Marginal cost method is similar to that used in the single period model
Example 4
Suppose that the time before a breakdown is Normally distributed and has a mean of 3
weeks and a standard deviation of 0.60 week
If a breakdown costs an average of $1000
If preventive maintenance costs $250
What is the optimal preventive maintenance interval?
Preventive Cost / (Preventive Cost + Breakdown Cost)
250 / 250 + 1000 = 0.20
Find the number of standard deviations from the mean, represented by the area under the
normal curve of 0.2 (from left tail)
0.20 = z of -0.84
Mean + z(standard deviation) = 3 – 0.84(0.60) = 2.496 (round to 2.5 weeks)
Preventive maintenance should be performed prior to breakdown
Predictive or condition-based maintenance
Maintenance based on historical data and ongoing monitoring of equipment condition
Pressure
Rates of flow
Vibration
Noise
Humidity
Changes in electricity
Good predictive maintenance
Relies on complete records of each piece of equipment … to monitor the health of the
equipment

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Date of installation
Operating hours
Dates
Types of repairs
Example 5
Management wants to cut unscheduled downtime to less than 1%
Standard maintenance check was a walk0through by operators, then by maintenance
staff
Problems were noted in a notepad and not recorded on a computer so it was difficult to
identify trends
They purchase Ivara
Operators walk through
Measure equipment
Enter into handheld device
Data is checked by software and an alarm will trigger for measurements out of
range
Typical problems (around 6 per day) include
Too much vibration
Low oil
Leaking seal
Total productive maintenance
Approach to maintenance where operators perform basic preventative maintenance on
their machines
Consistent with Jit/lean
Employees are given greater responsibility for quality, productivity and general
functioning of the system
Training employees in the proper procedures are a major part of TPM
How to keep equipment in good operating order
Providing the incentive to do so
Breakdown (Emergency) Maintenance
Occasional breakdown is likely to occur even if there is an effective preventive maintenance

program established
Organizations that rely less on preventive need to effectively deal with breakdowns
Unlike preventive maintenance, breakdown maintenance cannot be scheduled
Provisions to deal with breakdowns
Standby or backup equipment
Can be quickly brought into service
Inventories of spare parts
That can be installed as needed, thereby avoiding lead times involved in
ordering parts

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Buffer inventories of W.I.P. so that other equipment will be less likely to be

affected by short-term downtime of a particular piece of equipment
Operations
Able to deal with emergencies and perform at least some minor repairs on the
equipment
Maintenance staff
Well trained and readily available to diagnose and correct problems with
equipment
The degree depends on importance of the equipment
At one extreme, the equipment is the focal point of the system
The other, the equipment is seldom used
Replacement
When breakdowns become frequent and costly, managers must trade of costs O
What is the cost of replacement compared with the cost of repair?
The question is sometimes difficult to resolve
Especially if future breakdowns cannot be predicted
Historical records may help project
Another situation
Replacement before failure may be economical is in group replacement of components
Allowing to buy in bulk
Example 6
Facts
The maintenance manager wants to know whether he should have all the 3,000
fluorescent light bulbs to illuminate the plant, replaced together in order to save
labour costs
There are three light bulbs in a fixture (1,000 fixtures)
They are lit about 4,000 hours a years
The light bulbs have a rated life of 25,000 hour swath a standard deviation of
5,000 hours
If all the light bulbs are replaced together, it will take 12 minutes per fixture
Individually, it will take 20 minutes (because the latter has to be brought from
storage and returned there after the work)
Labour costs are $15 an hour
Each bulb costs $1.35 (group replacements with result in a break in price..
buying in bulk [ignore this fact])
Solution
The average life of a bulb in years of usage is 25,000/4,000 = 6.25 years with a
standard deviation of 4,000/5,000 = 0.8 years
It will likely last 3 years

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Project Management
Table of Contents
Introduction................................................................................................................................................7
The Project Manager’s Job.................................................................................................................9
Project Planning........................................................................................................................................10
Risk Management Planning...................................................................................................................11
Work Breakdown Schedule...................................................................................................................13
Project Scheduling.....................................................................................................................................13
Gantt Chart............................................................................................................................................14
PERT/CPM Technique............................................................................................................................16
Precedence Network.............................................................................................................................16
Deterministic Activity Durations................................................................................................................18
Solution Technique................................................................................................................................19
Calculating Activity Slack Times.............................................................................................................26
Probablistic Activity Durations..................................................................................................................28
Determining Path Probabilities.............................................................................................................30
Project Crashing........................................................................................................................................32
Project Execution and Control...................................................................................................................36
Project Management Software.................................................................................................................38
Learning Objectives
Introduction
Project Manager’s Job
Project Planning
Risk management planning
Work breakdown structure
Project Scheduling (lo3)
Gantt chart
PERT/CPM Technique
Precedence Network
Precedence network
Diagram of project activities and their sequential relationships by use of
arrows and nodes

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Ativity on arrow (AOA)

Network in which arrows designate activities
Acitivity-and-node (AON)
Network in which nodes designate activities
Path
A sequenceof activities that leads from the start ndoe to the end node
Critical path
The longest ath from start to end
Determines the epected project duration
Critical activities
Activities on the critical (longest) path
Path slack time
Allowable slippage for a path
The difference between the length of the path and the length of critical
(longest) path
Deterministic Activity Duration (LO4)
Vocab
Deterministic durations
Durations that are fairly certain
Probabilistic durations
Durations that allow for variation
Solution technique
Calculating activity slack times
Rules for PERT/CPM Solution Technique
Forward pass
Backward pass
Probablistic Activity Durations (LO5)
Vocab
3-point estimates method
PERt/CRM when the activity durations are vaiable and are determined
using three estimates
O Optimistic
O Most likely
O Pessimistic
Opimistic duration
The length of time under the best conditions (to)
Pessimistic durations
The length of time under the worst conditions (Tp)
Most likely duratiosn
The most probable length of time (Tm)
Beta distribution
A family of continuous positive distributions used to describe the
inherent variability in activity duration
Determining Path Probabilities

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Using simulations
Project Crashing (LO6)
Project Execution and Control
Vocab
Project execution
Involves performance of activities planned
Project control
Comparing a project’s progress against plans and taking corrective
action if necessary
Project Management Software
Using Microsoft project
Deltek (Welcom)
Learning Objectives
Describe what a project is and discuss the nature of the managers job
Project: unique, large, one-time job requiring special activities to accomplish a specific
objective in a limited time frame
Work
The work so that all of the neccssary activities are accomplished in the desired
sequence and performance goals are met
Human resourcs
So that those working on the project have direction and motivation
Communication
So that everybody has the information they need to do their work (usually
through regular meetings), and th customer sonsor is well informed
Logs of actions, issues and risk should be kpt to manage the projct and to have as
project history
Quality
So that the specific objective is realized
Time
So that the project is completed on schedule
Costs
So that the projct is completed within budgt
Manager’s skills include ability to
Motivate and direct team members
Build a team
Make trad-off dcisions in project performance goals
Expedite th work when necessary
Deal with obstacles and team conflicts
Handle failure, fear of failure
Monitor time, budgt and techniqical details
Strong leadership skills

lOMoARcPSD|4211913
Adapt to changing circumstances that may involve changes to project

performance goals, technical requirements and project team composition
Recognize need for change
Decide what changes are necessary
Accomplish them
Explain what is involved in project planning, how to manage project risk and what work
breakdown structure is
O Breaking down the project into smaller componenets
Delieverables, subprojects, work packages, and activities
Risk management planning: Identification, analysis and response plans to what may go
wrong
Estimating the required resources for the activities: Employees, equipment, material
Cost estimation for each activity
Budgetting: Calculating total cost per time, including subcontracting costs
Human resource planning: Including assigning team member roles and responsibilities
Project scheduling: Estimating activity durations, sequencing, and scheduling
Quality planning: involves determing how product quality is to e assured and controlled;
It incudes: deciding the quality policy, objectives, responsibilities, metrics, tools (i.e.:
checklists)
Communications planning: Involves determining the nature of information needed by
stakeholders and how to satisfy these needs ; It includes: plans for information
collection/storage, the tech and media used, nature of info distributed (i.e.: project
performance reports)
Purchase planning: Involves: determining what to purchase, the statement of work or the
specification of the item, supplier evaluation, selection and the award of contract , The
actual delivery and monitoring/controlling of supplier performance are part of
execution and control of the project
Explain what project scheduling is, how schedule/control Gantt charts can be used in project
scheduling, and wat PERT/COM and precedence networks are
Use PERT/CPM technique with deterministic activity durations to schedule projecs and solve
typical problems
Schedule activities with probabilistic activity durations and solve typical problems
Describe what is involved in project execution and what the earned value is
Be able to use Microsoft project
Vocab
3-point estimates method

PERt/CPM when the activity durations are variable and are determined using three
estimates
Optimistic
Most likely
Pessimistic

lOMoARcPSD|4211913
Activity-on-arrow (AOA)
Network in which arrows designate activities
Activity-n-nodes (AON)
Network in which nodes designate activities
Beta distribution
A family of continuous positive distributions used to descrive the inheret variability in
activity durations
CPM
Critical path method, used for scheduling and control of large projects
Critical activities
Activities on the critical (longest) path
Critical path
The longest path from start to end, determines the expected project durations
Deterministic durations
Durations that are fairly certain
Matrix organizations
An organizational structure that temporarily groups together specialists from different
departments to work on special projects
Most likely distribution
The most probable length of time under the best conditions (To)
Optimistic durations
The length of time under the best condition (to)
Path
A sequence of activities that leads from the start node to the end node
Path slack system
Allowable slippage for a path
The difference between the length of the path and the length of the critical longest path
Performance goals for a project
For a project, keeping the project within
Schedule
Budget
Quality guidelines
PERT
Program evaluation and reviw technique, used for scheduling and control of large
projects
Pessimistic durations
The length of time under the worst conditions (Tp)
Precedence network
Diagram of project activities and their subquential relationships by use of arrows and
nodes
Probabilistic durations
Durations that allow for variations
Project

lOMoARcPSD|4211913
Unique, large, one-time jb requiring special activities to accomplish a specific objective in a

limited time frame
Project control
Comparing a project’s progress against plans and taking corrective action if necessary
Project execution
Involves performance of activities planned
Project manager
The person responsible for planning, scheduling, executing, and controlling a projet
from iceptoin to completion, meeting the project’s requirements and ensuring
completion on time, within budget and to the required quality standards
Project planning
Analyzing the project into work packages and activities, estimating resources needed and
durations, scheduling
Project scheduling
Determining the timing of activities of the project
Work breakdown structure (WBS)
A hierarchial listing of what must be done during a project
Summary
Project
Unique, one-time, job requiring special activities by different people, established to
realize a specific objective in a limited time span
Projects go through a life cycle that involves
Initiation
Planning and scheduling
Execution
Control
Closeout
Most organizations are structured as a matrix
With memers working for both projects and a functional department
Project manager
Responsible for all project activities from inception to close-out, including meting the
project performance goals f being on time and within quality specifications and budgets
Project planning
Involves finalizing the project scope
Create the work breakdown structure
Risk identification
Assessment
Response planning
Scheduling
Cost estimations and budgeting

lOMoARcPSD|4211913
Quality
Communications
Purchase planning
Schedule/control Gantt charts are used to schedule simple projects
PERT/CPM
Used to schedule complex projects
Precedence network
Depicts the sequential relationships that exist among activities
The solution reveals the largest (critical) path and the critical activities (i.e.: those
activities that must be completed on time to achieve timely project completion)
For projects iwht variable activitiy durations, the 3-point estimates method can be used
It is possible to shorten (crash) the length of a project by shortening one or more of the critical
activities
Such gains are achieved by the use of additional resources but shortening will save
indirect project costs
Project execution
Involves putting the project plans into actions, buying materials, and assigning team
members, or subcontracting the work
Project control
Means taking measurements of project performance and takng corrective action if
necessary
Project management software
Microsoft project
Deltek’s (Welco) EPM suite
Introduction
Learning Objectives
Describe what a project is and discuss the nature of a project manager’s job?
Program
Set of projects
All projects are expected to achieve the following performance goals
To be completed within
time/schedule
cost/budget
quality guidelines
To accomplish this
Projects must be authorized
Their objectives and scope must be established
A project manager should be appointed
Prject must be planned

lOMoARcPSD|4211913
Activities/tasj must be identified and time estimates made

Resource requirements must also be estimated and budgets prepared
Project’s progress must be monitored to ensure that project’s performance
goals will be achieved
Project life cucle
Project initiation (conception, feasibility study/selection)
Planning and scheduling
Execution
Control
Closeout
Steps
Initialll an idea is presented and its feasibility is assessed
Plans must be drawn up by an architect
Approved by the owner and possibly a town’s building permits department
Succession of activities occurs
Each with its own skill requirements
Start with site preparation, lay foundation, erect frame, roofing ealls,
wiring/plumbing, installing, interior finishing, painting and carpeting
In a company
The project initiator/sponser is usually a senior manager/VP
Project output or deliverable is a good such as a building/software or service such as
emerging 2 databases
Project is influenced by company’s strategies and policies and “environment| (culture,
info systems, HR)
The major document used is the project scope 9the work that needs to be
accomplished to deliver a good or service, the specified objective)
Project portfolio selection
Involves factors
Budget
Availability of personnel with appropriate knowledge and skill
Cost-benefit consideration
Financial benefits
Return on investment
Net present value
How the project will contribute to the company’s strategy
Steps to project selection
Establish project council
i.e.: the executive committee
identify some project categories (i.e.: long v. short term, minor v. major ) and
criteria (i.e.: business value, customer satisfaction, process effectiveness,
employee satisfaction)
Collect project data
Assess resources (i.e.: labour, dollars) availability
Prioritize the projects within categories

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Select projects within categories

Select project to be funded
Communicate the result to stakeholders and provide the reasons for selection or
non0selection of each project
Project planning
Determines how the project is undertaken
Including breaking down the job into saller components (Work Breakdown
Structure) determining
the resource needed and estimating their costs
scheduling the activities involved or subcontracting the work
planning risk management
panning material purchases
Project execution
Involves purchasing material and using team members and subcontractors to perform
activities/tasks
Project control
Involves observing the project’s progress, issuing performance reports on
scope/schedule/cost/quality/risk and making any neccesay changes to project
Project
Brings various people together
Stakeholders include the project tesam who perform the activities/tasks, project
sponser/initator who initiates and gets approval afor the project, and
customer/users
The project is headed by a project manager, guided by the project sponser
Initiates and gets approval for the project
Customers/users
The project is headed by the project managers and guided by the project sponsr
Matrix organizations
Temporary groups together specialists from different departments to work on special
project
Staff members
A structural engineer or an accountant, works on one or more projects part-
time but permanently belonging to his department
Project manager and functional manger
Share the authority of assigning priorities and directing the work
The Project Manager’s Job

Project manager is responsible for O
Work
The work so that all of the neccssary activities are accomplished in the desired
sequence and performance goals are met
Human resourcs
So that those working on the project have direction and motivation

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10
Communication
So that everybody has the information they need to do their work (usually
through regular meetings), and th customer sonsor is well informed
Logs of actions, issues and risk should be kpt to manage the projct and to have as
project history
Quality
So that the specific objective is realized
Time
So that the project is completed on schedule
Costs
So that the projct is completed within budgt
Manager’s skills include ability to
Motivate and direct team members
Build a team
Make trad-off dcisions in project performance goals
Expedite th work when necessary
Deal with obstacles and team conflicts
Handle failure, fear of failure
Monitor time, budgt and techniqical details
Strong leadership skills
Adapt to changing circumstances that may involve changes to project
performance goals, technical requirements and project team composition
Recognize need for change
Decide what changes are necessary
Accomplish them
Ethical issues
Temptation to understate costs
Withhold information in order to get a project approved
Pressure to alter or make misleading statements on status erports
Falsifying records
Compromising workers’ safety
Approving substandard work
Project Planning
Further elaboration of the scope (the work to be done)
Breaking down the project into smaller componenets
Delieverables, subprojects, work packages, and activities
Identification, analysis and response plans to what may go wrong
Estimating the required resources for the activities
Employees, equipment, material
Cost estimation

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11
For each activity O

Budgetting
Calculating total cost per time, including subcontracting costs O
Human resource planning
Including assigning team member roles and responsibilities O
Project scheduling
Estimating activity durations, sequencing, and scheduling
Quality planning
Involves determing how product quality is to e assured and controlled
It incudes
Deciding the quality policy
Objectives
Responsibilities
Metrics
Tools (i.e.: checklists)
Communications planning
Involves determining the nature of information needed by stakeholders and
how to satisfy these needs
It includes
plans for information collection/storage
the tech and media used
nature of info distributed (i.e.: project performance reports)
Purchase planning
Involves
determining what to purchase
the statement of work or the specification of the item
supplier evaluation
selection and the award of contract
The actual delivery and monitoring/controlling of supplier performance are part of
execution and control of the project
Risk Management Planning

Risks relate to the occerence of events that have undesirable consequences O
Delays
O Increased costs
O Inability to meet technical specifications (quality/performance)
Good risk management
Identify as many possible risks as possible
Use brainstorming and questionnaires to involve everyone
Review documents, analue assumptions, look for inaccuracies, inconsistencies and
incompleteness
List risks in a risk register
Analyze and assess risks
Evaluate probability of occurrence and potential consequence

lOMoARcPSD|4211913
12
Use tools ike scenario analysis, simulation, decision trees and sensitivity analysis O
Plan a response to avoid/transfer/mitigate the risk
Risk response can take many forms depending on the nature and scope of
project
Steps
Identify root cause of risk
Categorize their source
Risk response
Redundant (backup) systems
An emergency generator could supply power in the
event of an electrical fire
Using a less complex process or a more stable supplier
Frequent monitoring of critical project aspects with the goal of
catching and eliminating problems in their early stages, before
they cause extensive damage
Transferring risks, say by outsourcing a particular component of a
project and requiring performance bonds
Risk-sharing, for example, as in oil and gas consortium
Extending the schedule, creating contingency funds, reducing
project scope, clarifying the requirements, obtaining
information and improving communication

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Work Breakdown Schedule
Steps
Develop a work breakdown structure is to identify the major components of te project
These could be the phase of project, deliverables or subprojects
Identify major subcomponents is decomposed into work packages
A work package can be performed by a worker, team or subcontracter
Each work package, possible with assistance from the worker, team or
subcontractor is broken down into a list of activities that will be needed to
accomplish it
Project Scheduling
Steps to project scheduling
Indemnify the activities of WBS
Including attributes and whether it is a milestone activity
Any sequential dependencies of every part of activities should be identified
If he needed resources cannot be identified, the activity should be further
decomposed
The duration of each activity can be estimated using information on the availability of
resources

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The risk register could possibly add contingency time to the duration
As work is undertain, more accurate estimates of costs and times become
available
Schedule is developed using the activity duration estimates and the sequential
dependencies of activities by the PERT/COM technique
For one-point estimate (deterministic times)
For 3-point estimate (probabilistic times)
If project is late, schedule comptession methods such as project craching
(accelerating activities) and fast tracking (overlapping predecessor-successor
activities) will be performed
The schedule ewill be displayed via a
Gantt chart for simple scheduling/controlling
PERT/CPM technique using both
deterministic and probabilistic times
project crashing
Gantt Chart
popular tool for scheduling and control of the activities of simple projects
enables managers to schedule the activities and then to monitor their progress over time by
comparing their planned to actual progress

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Chart indicates
When activites are to occur
Their planned duration
When they are to occur
The manger is able to see which activities are head of schedule and which are behild
Enables manager to direct attention
Advantage
Simple
Disadvantage
Fails to reveal relationships among activities that can be crucial to effective project
management
If one of the early activities in a projects suffers a delay, it would be important for
the manager to be able to easily determine which later activies are affected
Some activities may be safely delying without affecting the overall project
completion time

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PERT/CPM Technique
By using PERT/COM
A graphical display of project activities and their sequential relationship
An estimate of how long the project will take
An indication of which activities are most critical to timely project completion
An indication of how long any activity can be delayed without delaying the project
PERT and CPM are the same
Precedence Network
Main feature of PERT/CPM
Depicts the project activities and their sequential relationships by use of arrows and
nodes
Two slightly different conventions for constructing these networks
Activity on arrow -- Arrows designate activities
Arrows represent both activities and the sequence in which they must be
performed
Activity on node -- Nodes designate activities
Arrows show only the sequence in which activities must be performed
while the nodes represent the activities
Start at node S, not activity but is added in order to have a single stating
node … also has one end node
Types of relationships
Start to start
An activity can only start after the other has started
Finish to finish
Start to finish
Finish to start
Possible to require a pre-specified minimum delay (time buffer) in any of these
relationships
Some dependencies may be discretionary
There may be external dependencies (an externally determined start or finish time for an
activity
We will consider only finish to start

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17
One reason for the importance of paths is that they reveal sequential relationships
If one activity in a sequence is delayed or done incorrecty, all the following activities on
that path will be delayed
Important aspect of path is its length
Determined by summing the expected duration of the activities on it
Path of largest duration governs the project completion time
Expected project duration equals the expected duration of the longest path
If there are any delays along the longest path, the corresponding delays in the project
completion time

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Attempts to shorten project completion must be focused on the longest path

Called the critical path
Its activities are referred to as critical activities
Path slack time
Reflects the difference between the length of the path and the length of the
critical path, then, has zero path slack time
Deterministic Activity Durations

PERT/CPM networks determine whether activity durations are O
Probabilistic
Include an indication of the extent of probable variations O
Deterministic
Fairly certain


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Solution Technique
Necessary calculations can be exceedingly time consuming, large networks are analyzed by a
computer program and a solution technique that develops four values for each activity
O ES … the earliest time the activity can start
O EF … the earliest time the activity can finish
O LS … the latest time the activity can start and not delay the project O
LF … the latest time the activity can finish and not delay the project
Once the values have been determined, find
Expected project duration
Activity slack times

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The critical path

Steps to calculating the earliest start and finish times (left, the start, moving to right) using the
following two simple rules
The earliest finish time for any activity is equal to its earliest start time plus its expected
duration, t
EF = ES + t
ES for an activity with one immediate predessor is equal to the EF of that node. ES for an
activity with multiple immediate predecessor is equal to the largest EF of those nodes.
Let ES of the start node be 0.

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We calculate the latest start and finish time, starting from the right and moving to the left of the
precedence network (backward pass) using the following two simple rules
O The latest start for any activity is equal to its latest finish time minus its expected
duration
LS = LF – t
For a node with one immediate successor, LF equals the LS of that node. For the node with
multiple immediate successors, LF equals the smallest LS of those nodes. Let LC of the
end node equals its EF

lOMoARcPSD|4211913
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lOMoARcPSD|4211913
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26
Calculating Activity Slack Times

Activity slack times can be calculated 2 ways O
Slack = LS – ES
O Slack = LF – EF

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Rules for the PERT/CPM solution technique O

Forward pass
Start at the left side of the precedence network (i.e.: from the start node) and
work toward the right side
For the start activity, ES = 0
For each activity, ES + Activity Duration = EF
If ny activity has a unique immediate predessor; ES = EF of that activity
If any activity has multiple immediate predeccors, set its ES equal to the largest
EF of its immediate predecessors
Backward Pass
Start at the right side of the precedence network (i.e.: the end node) and work
toward the left side
Use the EF as the LF for the end activity
For each activity, LS = LF – Activity time
If any activity has an immediate follower, LF = LS of that activity
If an activity has multiple immediate followers, set the activity’s LF equal to the
smallest LS of the immediate followers
Therefore, S 1,5,7 are all critical activities (which agrees with the result of
the intuitive approach)
Knowledge of activity slacktimes provide managers wit information for
planning the allocation of scarce resource and for directing control
efforts otwoard those activities that are most susceptible to delaying
the project
O It is important to recognize that activity slack times are based on
the assumption that all of the activities on the same path will be
started as early as possible and not exceed there expected
times

lOMoARcPSD|4211913
28
If two activities are both on the same path (i.e.: activities 2, 6 in the
preceeding example) and have the same slack time (2 weeks),
this will be the total slack available to both
The activities have shared slack
If the first activity uses all the lack, there will be 0 slack for
the following activities on the path
Probablistic Activity Durations

The probabilistic PERT/CPM approach is called the 3-point estimates method and involves 3
duration estimates
O Optimistic duration
 Length of time under the best conditions (To)
O Pessimistic duration
 Length of time under the worst conditions (Tp)
O Most likely duration
 The most probable length of time
 Of interest is the average or expected duration for each activitiy and the variance
O
+4 +
O Expected ave ra ge duration of a path equal to the sum of the expec ted duration
= 6
O 
standard devi ation is estimated to be one-sixth of the difference betwe en
The
ℎ= ∑( ℎ ℎ)
pessimistic and optimistic

 ( −)
2 =[ 6
]2
 The larger the variance, the more uncertain

O Standard deviation on the duration of the path
 = √∑( ℎ)

lOMoARcPSD|4211913
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30
Knowledge of the path’s expected duration and standard deviation of duration enables
managers to calculate probabilistic estimates of the project completion time
The probability that the project wil be completed by a specified time

The probability that the project will take longer tat its scheduled completion time
Determining Path Probabilities

 The probability of a given path will be completed in a specified length of time can be determined
O ( ℎ − ℎ )
by
O
= ℎ
ℎ ℎ ℎ ℎ
ℎ ℎ
negative value indicates that specified time is earlier than expected

positive value indicaes that it is after
project is not completed until all of its activities have been completed
risky to focus exclusively on the critical path, requires determining the probability that
each path will finish by a specified time and then multiply those probabilities
result is the probability that the project will be completed by a specified time
assumes independence in path durations … which requires 2 conditions
that the activity durations are independent of each other
that each activity is on only one path

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32
Project Crashing
Estimate of an activities suration is usually made for a given evel of resouurces
Reduce length of project (crash) by using additional resources .. may reflect efforts to O
Avoid late penalty
O Take advantage of monetary incentives for timely or early completion of a project
O Free resources for another project
O With a new prodocut, you may be beating the market

lOMoARcPSD|4211913
33
May also reflect an attempt to reduce indirect costs associated with running projets 9i.e.;
facilities, equipment)
Project manager may be able to shorten a project by increasing DIRECT costs to speed up, thereby
realizing savings on indirect project cost
Time-cost trade off
Used to identify those activities that will reduce the sum of the indirect and direct
project cost
Only those activities on the critical path are potential candiates
Critical activities should be crashed according to crashing cost per period
Crash those with the lower crash cost per period first
Crashing should continue as long as the cost to crash is less than the benefits derived
from crashing
Assume that indirect costs are a linear function of project durations
We assume (direct) crashing costs per period increase faster, the more you crash a
project
General procedure for crashing
Obtain estimates of regular and crash durations and crash cost per period for each
activity and indirect project costs per period
Determine the lengths of all paths
Determine the critical activities
Crash critical activities, starting from cheapest, as long as crashing period does not
exceed benefit of crashing
Note that 2 or more paths may become ctiical as the orginal critical path becomes
shorter so that subsequent improvements will require simultaneous
shortenings of two or more paths
It will be more economical to shorten an activity that is one two or more of the
critical paths than 2 or more activities on each critical path
Costs related to crashing acivities; crashing activites reduce the indirect project cost but increase
direct costs; the optimum amount of crashing results in minimum of the sum of these two types
of costs

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Project Execution and Control

Approach to project execution is the critical chain O
Based on 2 psychological principals

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37
Student’s syndrome = student’s tendency to delay the start of an assignment

until the last possible time
Parkinson’s law
Work expands to fill the time available for its completion O
The comination of the two results in late projects
O What is done
Activities are prioritized, scheduled accordingly and done as soon as possible
Estimates of activity duration are examined to ensure that they are not being
padded with safety time
Safety time is added to the end of the critical chain and the end of each
feeder chain feeding the critical chain
Activities and chain prioprities are determined on the daily based on percentage of
buffer time
Project control
Involves controlling the changes of a project
Replanning should be kept to a minimum
Common problem
Customer/sponsers tends to frequently demand changes in work required
Problem of uncontrolled changes is the scope creep
To control projects costs/schedule
Various measures are used
Work performance
Common technique: earned value analusis
After project’s time and costs are planned, the progress of the project is
measured, not by the budget cost of work schedulated, but by budgeted cost of
work performed
Schedule time overrun is measured by schedule “variance” (=PV – EV)
The cost overrun is measure by cost “variance” (=Actual cost – EV)
For over budgeted project that is behind schedule

Forecasts cost estimates to completion (ETC) and cost estimate at
completion (EAC)
Quality control

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Involves quality tools (control charts, cause and effect) O

Project team
Managed by measuring team performance, providing feedback, resolving issues,
and recognizing good performance
Communication with project stakeholders is well managed
Risks are tracked
Contracts are managed
Project completed, and closed out
Important to review the project for lessons learned and docs for future
reference
Project Management Software

Types of software
Microsoft project
Deltek’s (Welcom) EPM suite
Advantages to using project management software
Imposes a methodology and common project management terminology
Provides a logical planning structure
Enhances communication among team members
Flags the occurrence of a problem
Automatically formats reports
Generates multiple levls of summary reports and detailed reports
Enables what-if scenarios
Generates various charts, including basic schedule/control Gantt chart

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Lecture notes, Operations Management, Chapter 1, 2,

1. What is Operations Management?

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What is Operations Management

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5888 Outputs: Goods and

Throughout process, there is VALUE ADDED:

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Differentiating Features of Operating Systems

Difference between the production of goods v. performance of services

Characteristics of Manufacturing Operations

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Characteristics of Service Operations

Features of Operating System

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** Mass customization is of highest variety AND degree of standardization

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Operations Manager and the Management Process

5888 Hours of work

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23 Solving technical problems

Operations Manager and the Tools Used in Decision

C X  F VX BEPX  F BEP$  F

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Analysis of Trade offs

Increased cost of holding inventory v. level of service

The Historical Evolution

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5888 Moticational Theories (Abraham Maslow, 1940s)

Major Historical Developments

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5888 Major contributions:

5888 Electronic commerce (late 1990s – early 21st century)

5888 What are the major issues (in order of importance)?

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5888 Emphasising lower operation costs

23 What are customers’ key purchasing criteria?

Missions, Vision, Values

23 Honest, open and keep our commitments

Strategies, Tactics and Action Plans

Strategic Decision Categories

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23 How well they can adapt to change

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23 Links goals to strategy

Generic Ops Strategy

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5888 New product features

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23 Describe the product design process

23 Reducing cost of production

23 Central feature: parameter design (determining specifications for a product that

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23 Discuss special considerations for product designs

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Created and delivered at the same time...........................................................................................13

5888 Product Design

Product Design Process

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