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Operations Management

Operations Management

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Chapter 1-17

Operations Management

Roberta Russell & Bernard W. Taylor, III

Organization of This Text: Part I – Operations Management
Intro. to Operations and Supply Chain Management: Quality Management: Statistical Quality Control: Product Design: Service Design: Processes and Technology: Facilities: Human Resources: Project Management: Chapter 1 (Slide 5) Chapter 2 (Slide 67) Chapter 3 (Slide 120) Chapter 4 (Slide 186) Chapter 5 (Slide 231) Chapter 6 (Slide 276) Chapter 7 (Slide 321) Chapter 8 (Slide 402) Chapter 9 (Slide 450)
1 -2

Organization of This Text: Part II – Supply Chain Management
Supply Chain Strategy and Design: Global Supply Chain Procurement and Distribution: Forecasting: Inventory Management: Sales and Operations Planning: Resource Planning: Lean Systems: Scheduling: Chapter 10 (Slide 507) Chapter 11 (Slide 534) Chapter 12 (Slide 575) Chapter 13 (Slide 641) Chapter 14 (Slide 703) Chapter 15 (Slide 767) Chapter 16 (Slide 827) Chapter 17 (Slide 878)
1 -3

Learning Objectives of this Course
Gain an appreciation of strategic importance of operations and supply chain management in a global business environment Understand how operations relates to other business functions Develop a working knowledge of concepts and methods related to designing and managing operations and supply chains Develop a skill set for quality and process improvement
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Chapter 1
Introduction to Operations and Supply Chain Management
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
What Operations and Supply Chain Managers Do Operations Function Evolution of Operations and Supply Chain Management Globalization and Competitiveness Operations Strategy and Organization of the Text Learning Objectives for This Course
1 -6

What Operations and Supply Chain Managers Do
What is Operations Management?
design, operation, and improvement of productive systems

What is Operations?
a function or system that transforms inputs into outputs of greater value

What is a Transformation Process?
a series of activities along a value chain extending from supplier to customer activities that do not add value are superfluous and should be eliminated

1 -7

Transformation Process
Physical: as in manufacturing operations Locational: as in transportation or warehouse operations Exchange: as in retail operations Physiological: as in health care Psychological: as in entertainment Informational: as in communication
1 -8

Operations as a Transformation Process
INPUT •Material •Machines •Labor •Management •Capital

TRANSFORMATION PROCESS

OUTPUT •Goods •Services

Feedback & Requirements 1 -9

Operations Function
Operations Marketing Finance and Accounting Human Resources Outside Suppliers
1-10

How is Operations Relevant to my Major?
Accounting Information Technology Management
“As an auditor you must understand the fundamentals of operations management.” “IT is a tool, and there’s no better place to apply it than in operations.” “We use so many things you learn in an operations class— class— scheduling, lean production, theory of constraints, and tons of quality tools.”
1-11

How is Operations Relevant to my Major? (cont.)
Economics Marketing
“It’s all about processes. I live by flowcharts and Pareto analysis.” “How can you do a good job marketing a product if you’re unsure of its quality or delivery status?” “Most of our capital budgeting requests are from operations, and most of our cost savings, too.”
1-12

Finance

Evolution of Operations and Supply Chain Management
Craft production
process of handcrafting products or services for individual customers

Division of labor
dividing a job into a series of small tasks each performed by a different worker

Interchangeable parts
standardization of parts initially as replacement parts; enabled mass production

1-13

Evolution of Operations and Supply Chain Management (cont.)
Scientific management
systematic analysis of work methods

Mass production
highhigh-volume production of a standardized product for a mass market

Lean production
adaptation of mass production that prizes quality and flexibility
1-14

Historical Events in Operations Management
Era
Industrial Revolution

Events/Concepts
Steam engine Division of labor Interchangeable parts Principles of scientific management

Dates
1769 1776 1790 1911 1911 1912 1913

Originator
James Watt Adam Smith Eli Whitney Frederick W. Taylor Frank and Lillian Gilbreth Henry Gantt Henry Ford

Time and motion studies Scientific Management Activity scheduling chart Moving assembly line

1-15

Historical Events in Operations Management (cont.)
Era
Human Relations

Events/Concepts
Hawthorne studies Motivation theories Linear programming Digital computer Simulation, waiting line theory, decision theory, PERT/CPM MRP, EDI, EFT, CIM

Dates
1930 1940s 1950s 1960s 1947 1951 1950s 1960s, 1970s

Originator
Elton Mayo Abraham Maslow Frederick Herzberg Douglas McGregor George Dantzig Remington Rand Operations research groups Joseph Orlicky, IBM and others
1-16

Operations Research

Historical Events in Operations Management (cont.)
Era Events/Concepts Dates Originator
1970s 1980s 1980s 1990s 1990s Taiichi Ohno (Toyota) W. Edwards Deming, Joseph Juran Wickham Skinner, Robert Hayes Michael Hammer, James Champy GE, Motorola JIT (just-in-time) TQM (total quality management) Strategy and Quality Revolution operations Business process reengineering Six Sigma

1-17

Historical Events in Operations Management (cont.)
Era
Internet Revolution

Events/Concepts

Dates Originator
ARPANET, Tim Berners-Lee SAP, i2 Technologies, ORACLE Amazon, Yahoo, eBay, Google, and others Numerous countries and companies

Internet, WWW, ERP, 1990s supply chain management

E-commerce

2000s

Globalization WTO, European Union, 1990s and other trade 2000s agreements, global supply chains, outsourcing, BPO, Services Science

1-18

) Supply chain management management of the flow of information. enterprises.Evolution of Operations and Supply Chain Management (cont. and supply chain partners 1-19 . and services across a network of customers. products.

Globalization and Competitiveness Why “go global”? favorable cost access to international markets response to changes in demand reliable sources of supply latest trends and technologies Increased globalization results from the Internet and falling trade barriers 1-20 .

2005. Bureau of Labor Statistics.) Hourly Compensation Costs for Production Workers Source: U.Globalization and Competitiveness (cont. 1-21 .S.

Globalization and Competitiveness (cont. Census Bureau.S. 1-22 .) World Population Distribution Source: U. 2006.

) Trade in Goods as % of GDP (sum of merchandise exports and imports divided by GDP.Globalization and Competitiveness (cont. valued in U. dollars) 1-23 .S.

customers served. material usage. investment in equipment. meals delivered. products produced. or square footage 1-24 . or calls answered Input labor hours.Productivity and Competitiveness Competitiveness degree to which a nation can produce goods and services that meet the test of international markets Productivity ratio of output to input Output sales made.

Productivity and Competitiveness (cont.) Measures of Productivity 1-25 .

28. 1-26 . 1995-2005. 1995Source: Bureau of Labor Statistics. p.Productivity and Competitiveness (cont. A Chartbook of International Labor Comparisons. January 2007.) Average Annual Growth Rates in Productivity.

Productivity and Competitiveness (cont. January 2007.) Average Annual Growth Rates in Output and Input. 1995-2005 1995Source: Bureau of Labor Statistics. Dramatic Increase in Output w/ Decrease in Labor Hours 1-27 . 26. p. A Chartbook of International Labor Comparisons.

Productivity and Competitiveness (cont. increased inventories 1-28 . sold.) Retrenching productivity is increasing. not output sold. but both output and input decrease with input decreasing at a faster rate Assumption that more input would cause output to increase at the same rate certain limits to the amount of output may not be considered output produced is emphasized.

Strategy and Operations Strategy Provides direction for achieving a mission Five Steps for Strategy Formulation Defining a primary task What is the firm in the business of doing? Assessing core competencies What does the firm do better than anyone else? Determining order winners and order qualifiers What qualifies an item to be considered for purchase? What wins the order? Positioning the firm How will the firm compete? Deploying the strategy 1-29 .

Strategic Planning Mission and Vision Corporate Strategy Marketing Strategy Operations Strategy Financial Strategy 1-30 .

Operations and Process Management. Robert Johnston.Order Winners and Order Qualifiers Source: Adapted from Nigel Slack. p. 2006. Prentice Hall. 1-31 . and Alan Betts. Stuart Chambers. 47 Management.

Positioning the Firm Cost Speed Quality Flexibility 1-32 .

Positioning the Firm: Cost Waste elimination relentlessly pursuing the removal of all waste Examination of cost structure looking at the entire cost structure for reduction potential Lean production providing low costs through disciplined operations 1-33 .

fast adaptations. tight linkages Internet conditioned customers to expect immediate responses Service organizations always competed on speed (McDonald’s. and Federal Express) Manufacturers timetime-based competition: build-to-order production and build-toefficient supply chains Fashion industry twotwo-week design-to-rack lead time of Spanish retailer.Positioning the Firm: Speed fast moves. LensCrafters. Zara design-to- 1-34 .

one customer at a time Service system is designed to “move heaven and earth” to satisfy customer Every employee is empowered to satisfy a guest’s wish Teams at all levels set objectives and devise quality action plans Each hotel has a quality leader 1-35 . please the customer RitzRitz-Carlton .Positioning the Firm: Quality Minimizing defect rates or conforming to design specifications.

Positioning the Firm: Flexibility ability to adjust to changes in product mix. or design National Bicycle Industrial Company offers 11.862 variations delivers within two weeks at costs only 10% above standard models mass customization: the mass production of customization: customized parts 1-36 . production volume.231.

Policy Deployment Policy deployment translates corporate strategy into measurable objectives Hoshins action plans generated from the policy deployment process 1-37 .

Policy Deployment Derivation of an Action Plan Using Policy Deployment 1-38 .

Balanced Scorecard Balanced scorecard measuring more than financial performance finances customers processes learning and growing Key performance indicators a set of measures that help managers evaluate performance in critical areas 1-39 .

Balanced Scorecard Balanced Scorecard Worksheet 1-40 .

Balanced Scorecard Radar Chart Dashboard 1-41 .

Operations Strategy Services Products Human Resources Process and Technology Capacity Quality Facilities Sourcing Operating Systems 1-42 .

III . Taylor.Chapter 1 Supplement Decision Analysis Operations Management Roberta Russell & Bernard W.

Lecture Outline Decision Analysis Decision Making without Probabilities Decision Analysis with Excel Decision Analysis with OM Tools Decision Making with Probabilities Expected Value of Perfect Information Sequential Decision Tree Supplement 1-44 1- .

Decision Analysis Quantitative methods a set of tools for operations manager Decision analysis a set of quantitative decision-making decisiontechniques for decision situations in which uncertainty exists Example of an uncertain situation demand for a product may vary between 0 and 200 units. depending on the state of market Supplement 1-45 1- .

Decision Making Without Probabilities States of nature Events that may occur in the future Examples of states of nature: high or low demand for a product good or bad economic conditions Decision making under risk probabilities can be assigned to the occurrence of states of nature in the future Decision making under uncertainty probabilities can NOT be assigned to the occurrence of states of nature in the future Supplement 1-46 1- .

Payoff Table Payoff table method for organizing and illustrating payoffs from different decisions given various states of nature Payoff outcome of a decision States Of Nature Decision a b 1 Payoff 1a Payoff 1b 2 Payoff 2a Payoff 2b Supplement 1-47 1- .

Decision Making Criteria Under Uncertainty Maximax choose decision with the maximum of the maximum payoffs Maximin choose decision with the maximum of the minimum payoffs Minimax regret choose decision with the minimum of the maximum regrets for each alternative Supplement 1-48 1- .

) Hurwicz choose decision in which decision payoffs are weighted by a coefficient of optimism. from 0 (completely pessimistic) to 1 (completely optimistic) Equal likelihood (La Place) choose decision in which each state of nature is weighted equally Supplement 1-49 1- .Decision Making Criteria Under Uncertainty (cont. alpha coefficient of optimism is a measure of a decision maker’s optimism.

000 320.Southern Textile Company STATES OF NATURE Good Foreign Poor Foreign Competitive Conditions DECISION Expand Maintain status quo Sell now Competitive Conditions $ 800.300.000 320.000 Supplement 1-50 1- .000 -150.000 $ 500.000 1.

000 1.300.000 $800.000 ← Maximum Decision: Maintain status quo Supplement 1-51 1- .Maximax Solution STATES OF NATURE Good Foreign Poor Foreign Competitive Conditions DECISION Expand Maintain status quo Sell now Expand: Status quo: Sell: Competitive Conditions $ 800.000 320.000 -150.000 $ 500.000 320.300.000 1.000 320.

Maximin Solution STATES OF NATURE Good Foreign Poor Foreign Competitive Conditions DECISION Expand Maintain status quo Sell now Competitive Conditions $ 800.000 -150.000 1.000 320.300.000 Expand: Status quo: Sell: $500.000 ← Maximum Decision: Expand Supplement 1-52 1- .000 320.000 320.000 $ 500.000 -150.

000 650.000 = 980.000 .300.000 $500.320.000 = 500.000 1.000 500.000= 180.000)= 650.500.300.320.000 .Minimax Regret Solution Good Foreign Competitive Conditions Poor Foreign Competitive Conditions $1.000 ← Minimum Decision: Expand Supplement 1-53 1- .1.300.800.(-150.000 .000 .000 Expand: Status quo: Sell: $500.000 = 0 500.300.000 .000 .000 = 0 1.000 980.

000 1.3 Expand: $800.3) + 320.α = 0.7) = 285.000 320.300.7 $ 500.300.000(0.000 α = 0.000 ← Maximum Status quo: 1.3) -150.7) = 320.000 Decision: Expand Supplement 1-54 1- .000(0.000 320.000 1 .3) + 500.7) = $590.000(0.000(0.000(0.000 Sell: 320.000 -150.000(0.Hurwicz Criteria STATES OF NATURE Good Foreign Poor Foreign Competitive Conditions DECISION Expand Maintain status quo Sell now Competitive Conditions $ 800.

50 Expand: $800.5) + 500.000(0.000 320.000 ← Maximum Status quo: 1.000(0.000(0.000 1.000 Decision: Expand Supplement 1-55 1- .5) -150.5) + 320.300.Equal Likelihood Criteria STATES OF NATURE Good Foreign Poor Foreign Competitive Conditions DECISION Expand Maintain status quo Sell now Competitive Conditions $ 800.000(0.300.000(0.000 -150.000 $ 500.5) = 320.000 Sell: 320.5) = $650.5) = 575.000 Two states of nature each weighted 0.000(0.000 320.

Decision Analysis with Excel Supplement 1-56 1- .

Decision Analysis with OM Tools Supplement 1-57 1- .

Decision Making with Probabilities Risk involves assigning probabilities to states of nature Expected value a weighted average of decision outcomes in which each future state of nature is assigned a probability of occurrence Supplement 1-58 1- .

Expected value EV (x) = (x p(xi)xi where xi = outcome i p(xi) = probability of outcome i ∑ i =1 n Supplement 1-59 1- .

000 1.000(0.000 320.000 EV(status quo): 1.000 ← Maximum EV(sell): 320.7) -150.000 p(good) = 0.Decision Making with Probabilities: Example STATES OF NATURE Good Foreign Poor Foreign Competitive Conditions DECISION Expand Maintain status quo Sell now Competitive Conditions $ 800.3) = 320.7) + 320.3) = 865.30 $ 500.3) = $710.70 EV(expand): $800.000(0.000 320.300.000(0.000 Decision: Status quo Supplement 1-60 1- .300.000 p(poor) = 0.000(0.000 -150.000(0.7) + 500.000(0.

Decision Making with Probabilities: Excel Supplement 1-61 1- .

Expected Value of Perfect Information EVPI maximum value of perfect information to the decision maker maximum amount that would be paid to gain information that would result in a decision better than the one made without perfect information Supplement 1-62 1- .

300.060.30) = $1.000 (0.000 = $195.300.000 Supplement 1-63 1- .000 Recall that expected value without perfect information was $865.865.000 Poor conditions will exist 30% of the time choose expand with payoff of $500.000 .70) + 500.000 (0.060.000 Expected value given perfect information = $1.EVPI Example Good conditions will exist 70% of the time choose maintain status quo with payoff of $1.000 (maintain status quo) EVPI= EVPI= $1.

indicating states of nature Arcs .connecting nodes Supplement 1-64 1- .Sequential Decision Trees A graphical method for analyzing decision situations that require a sequence of decisions over time Decision tree consists of Square nodes .indicating decision points Circles nodes .

000 for Expand and $450.000 EV( 6)= EV(node 7)= 0.390.000) + 0.30($2.80($3.20($700.000.000 for Sell land Choose Expand Repeat expected value calculations and decisions at remaining nodes Supplement 1-65 1- .70($1.000) = $2.000.300.540.Evaluations at Nodes Compute EV at nodes 6 & 7 EV(node 6)= 0.000 EV( 7)= Decision at node 4 is between $2.000)= $1.540.000) + 0.

000.160.540.000 0.60 3 $1.290.000.000 $450.740.000 0.360.000 $1.300.000 $3.000 0.30 $2.Decision Tree Analysis $1.000 1 $1.000 5 $210.000 0.000 $2.20 $700.40 $790.80 $1.000 0.000 Supplement 1-66 17 0.70 $1.40 $225.60 2 0.390.000 4 6 0.000 .000.000 Market growth $2.

III .Chapter 2 Quality Management Operations Management Roberta Russell & Bernard W. Taylor.

Lecture Outline What Is Quality? Evolution of Quality Management Quality Tools TQM and QMS Focus of Quality Management— Management— Customers Role of Employees in Quality Improvement Quality in Service Companies Six Sigma Cost of Quality Effect of Quality Management on Productivity Quality Awards ISO 9000 2-68 .

What Is Quality? Oxford American Dictionary a degree or level of excellence American Society for Quality totality of features and characteristics that satisfy needs without deficiencies Consumer’s and producer’s perspective 2-69 .

” but with different design dimensions. 2-70 .What Is Quality: Customer’s Perspective Fitness for use how well product or service does what it is supposed to Quality of design designing quality characteristics into a product or service A Mercedes and a Ford are equally “fit for use.

such as a stereo CD or a leather interior in a car Reliability probability that a product will operate properly within an expected time frame. that is. how well a car handles or its gas mileage Features “extra” items added to basic features.Dimensions of Quality: Manufactured Products Performance basic operating characteristics of a product. a TV will work without repair for about seven years 2-71 .

L. with care.Dimensions of Quality: Manufactured Products (cont. courtesy and competence of repair person 2-72 .) Conformance degree to which a product meets pre–established pre– standards Durability how long product lasts before replacement. speed of repairs.Bean boots may last a lifetime Serviceability ease of getting repairs.L.

advertising. an especially important consideration for automobiles Perceptions subjective perceptions based on brand name. and like 2-73 .Dimensions of Quality: Manufactured Products (cont. smells. or tastes Safety assurance that customer will not suffer injury or harm from a product. feels.) Aesthetics how a product looks. sounds.

Dimensions of Quality: Services Time and timeliness how long must a customer wait for service. and is it completed on time? is an overnight package delivered overnight? Completeness: is everything customer asked for provided? is a mail order from a catalogue company complete when delivered? 2-74 .

) Courtesy: how are customers treated by employees? are catalogue phone operators nice and are their voices pleasant? Consistency is same level of service provided to each customer each time? is your newspaper delivered on time every morning? 2-75 .Dimensions of Quality: Service (cont.

) Accessibility and convenience how easy is it to obtain service? does service representative answer you calls quickly? Accuracy is service performed right every time? is your bank or credit card statement correct every month? Responsiveness how well does company react to unusual situations? how well is a telephone operator able to respond to a customer’s questions? 2-76 .Dimensions of Quality: Service (cont.

hotel is not functioning according to specifications of its design 2-77 .What Is Quality: Producer’s Perspective Quality of conformance making sure product or service is produced according to design if new tires do not conform to specifications. they wobble if a hotel room is not clean when a guest checks in.

Meaning of Quality 2-78 .

What Is Quality: A Final Perspective Customer’s and producer’s perspectives depend on each other Producer’s perspective: production process and COST Customer’s perspective: fitness for use and PRICE Customer’s view must dominate 2-79 .

began teaching statistical quality control to Japanese companies Joseph M. Edwards Deming Developed courses during World War II to teach statistical quality-control techniques to engineers and qualityexecutives of companies that were military suppliers After war. Juran Followed Deming to Japan in 1954 Focused on strategic quality planning Quality improvement achieved by focusing on projects to solve problems and securing breakthrough solutions 2-80 . developed control charts Introduced term “quality assurance” “quality W.Evolution of Quality Management: Quality Gurus Walter Shewart In 1920s.

and “zero defects” Kaoru Ishikawa Promoted use of quality circles Developed “fishbone” diagram Emphasized importance of internal customer 2-81 . prevention.) Armand V. emphasized that costs of poor quality far outweigh cost of preventing poor quality In 1984.Evolution of Quality Management: Quality Gurus (cont. defined absolutes of quality management— management— conformance to requirements. Feigenbaum In 1951. introduced concepts of total quality control and continuous quality improvement Philip Crosby In 1979.

Constantly improve system and workers 2-82 . Cease mass inspection 4. Select a few suppliers based on quality 5.Deming’s 14 Points 1. Adopt philosophy of prevention 3. Create constancy of purpose 2.

Instill leadership among supervisors 8. Eliminate barriers between departments 10. Eliminate slogans 2-83 . Eliminate fear among employees 9.) 6.Deming’s 14 Points (cont. Institute worker training 7.

Institute vigorous training and education programs 14. Develop a commitment from top management to implement above 13 points 2-84 .) 11. Remove numerical quotas 12. Enhance worker pride 13.Deming’s 14 Points (cont.

Deming Wheel: PDCA Cycle 2-85 .

Quality Tools Process Flow Chart Cause-andCause-andEffect Diagram Check Sheet Pareto Analysis Histogram Scatter Diagram Statistical Process Control Chart 2-86 .

Flow Chart 2-87 .

Cause-andCause-and-Effect Diagram Cause-andCause-and-effect diagram (“fishbone” diagram) chart showing different categories of problem causes 2-88 .

Cause-andCause-and-Effect Matrix Cause-andCause-and-effect matrix grid used to prioritize causes of quality problems 2-89 .

Check Sheets and Histograms 2-90 .

Pareto Analysis Pareto analysis most quality problems result from a few causes 2-91 .

Pareto Chart 2-92 .

Scatter Diagram 2-93 .

Control Chart 2-94 .

employee responsibility. statistical methods. leadership. cooperation. continuous improvement. strategic planning.TQM and QMS Total Quality Management (TQM) customercustomer-oriented. and training and education Quality Management System (QMS) system to achieve customer satisfaction that complements other company systems 2-95 .

Focus of Quality Management— Management— Customers TQM and QMSs serve to achieve customer satisfaction Partnering a relationship between a company and its supplier based on mutual quality standards Measuring customer satisfaction important component of any QMS customer surveys. telephone interviews 2-96 .

Role of Employees in Quality Improvement Participative problem solving employees involved in qualityquality-management every employee has undergone extensive training to provide quality service to Disney’s guests Kaizen involves everyone in process of continuous improvement 2-97 .

Quality Circles and QITs Organization Quality circle group of workers and supervisors from same area who address quality problems Presentation Implementation Monitoring 8-10 members Same area Supervisor/moderator Training Group processes Data collection Problem analysis Process/Quality improvement teams (QITs) focus attention on business processes rather than separate company functions Solution Problem results Problem Identification List alternatives Consensus Brainstorming Problem Analysis Cause and effect Data collection and analysis 2-98 .

Quality in Services Service defects are not always easy to measure because service output is not usually a tangible item Services tend to be labor intensive Services and manufacturing companies have similar inputs but different processes and outputs 2-99 .

” 2-100 . most accurate service available.Quality Attributes in Services Principles of TQM apply equally well to services and manufacturing Timeliness how quickly a service is provided? Benchmark “best” level of quality achievement in one company that other companies seek to achieve “quickest. friendliest.

and govern Champion an executive responsible for project success 2-101 . Sigma— mobilize.4 defects per million opportunities Six Sigma Process four basic steps of Six Sigma—align.Six Sigma A process for developing and delivering virtually perfect products and services Measure of how much a process deviates from perfection 3. accelerate.

Six Sigma: Breakthrough Strategy—DMAIC Strategy— DEFINE MEASURE ANALYZE IMPROVE CONTROL 3.4 DPMO 67.000 DPMO cost = 25% of sales 2-102 .

Six Sigma: Black Belts and Green Belts Black Belt project leader Master Black Belt a teacher and mentor for Black Belts Green Belts project team members 2-103 .

it is an honest-tohonest-to-everything profit maker.Six Sigma Design for Six Sigma (DFSS) a systematic approach to designing products and processes that will achieve Six Sigma Profitability typical criterion for selection Six Sigma project one of the factors distinguishing Six Sigma from TQM “Quality is not only free.” 2-104 .

testing. process failure. liability. warranty claims. and price reductions External failure costs include complaints. rework. downtime. and lost sales 2-105 . and analyzing Cost of Poor Quality Internal failure costs include scrap. returns.Cost of Quality Cost of Achieving Good Quality Prevention costs costs incurred during product design Appraisal costs costs of measuring.

Prevention Costs Quality planning costs costs of developing and implementing quality management program Training costs costs of developing and putting on quality training programs for employees and management ProductProduct-design costs costs of designing products with quality characteristics Information costs costs of acquiring and maintaining data related to quality. and development and analysis of reports on quality performance Process costs costs expended to make sure productive process conforms to quality specifications 2-106 .

to make equipment adjustments to maintain quality. and product at various stages and at end of process Test equipment costs costs of maintaining equipment used in testing quality characteristics of products Operator costs costs of time spent by operators to gather data for testing product quality. and to stop work to assess quality 2-107 . parts.Appraisal Costs Inspection and testing costs of testing and inspecting materials.

Internal Failure Costs Scrap costs costs of poor-quality poorproducts that must be discarded. material. products— selling products as “seconds” Process failure costs costs of determining why production process is producing poor-quality poorproducts 2-108 . and indirect costs Process downtime costs costs of shutting down productive process to fix problem Rework costs costs of fixing defective products to conform to quality specifications PricePrice-downgrading costs costs of discounting poorpoorquality products—that is. including labor.

External Failure Costs Customer complaint costs costs of investigating and satisfactorily responding to a customer complaint resulting from a poor-quality product poor- Product liability costs litigation costs resulting from product liability and customer injury Product return costs costs of handling and replacing poorpoor-quality products returned by customer Lost sales costs costs incurred because customers are dissatisfied with poorpoor-quality products and do not make additional purchases Warranty claims costs costs of complying with product warranties 2-109 .

Measuring and Reporting Quality Costs Index numbers ratios that measure quality costs against a base value labor index ratio of quality cost to labor hours cost index ratio of quality cost to manufacturing cost sales index ratio of quality cost to sales production index ratio of quality cost to units of final product 2-110 .

Quality– Quality–Cost Relationship Cost of quality difference between price of nonconformance and conformance cost of doing things wrong 20 to 35% of revenues cost of doing things right 3 to 4% of revenues 2-111 .

and quality improvement reduces inputs Yield a measure of productivity Yield=(total input)(% good units) + (total input)(1-%good units)(% reworked) or Y=(I)(%G)+(I)(1Y=(I)(%G)+(I)(1-%G)(%R) 2-112 .Effect of Quality Management on Productivity Productivity ratio of output to input Quality impact on productivity fewer defects increase output.

Computing Product Cost per Unit Product Cost (Kd )(I) +(Kr )(R) = Y where: Kd = direct manufacturing cost per unit I = input Kr = rework cost per unit R = reworked units Y = yield 2-113 .

Computing Product Yield for Multistage Processes Y = (I)(%g1)(%g2) … (%gn) where: I = input of items to the production process that will result in finished products gi = good-quality. work-in-process products at stage i 2-114 .

Quality– Quality–Productivity Ratio QPR productivity index that includes productivity and quality costs (good-quality units) (input) (processing cost) + (reworked units) (rework cost) QPR = (100) 2-115 .

Malcolm Baldrige Award Created in 1987 to stimulate growth of quality management in United States Categories Leadership Information and analysis Strategic planning Human resource focus Process management Business results Customer and market focus 2-116 .

Jack Lancaster Medal Edwards Medal Shewart Medal Ishikawa Medal International awards European Quality Award Canadian Quality Award Australian Business Excellence Award Deming Prize from Japan 2-117 .Other Awards for Quality National individual awards Armand V. Feigenbaum Medal Deming Medal E.

ISO 9000 A set of procedures and policies for international quality certification of suppliers Standards ISO 9000:2000 Quality Management Systems— Systems—Fundamentals and Vocabulary defines fundamental terms and definitions used in ISO 9000 family ISO 9001:2000 Quality Management Systems— Systems—Requirements standard to assess ability to achieve customer satisfaction ISO 9004:2000 Quality Management Systems— Systems—Guidelines for Performance Improvements guidance to a company for continual improvement of its qualityquality-management system 2-118 .

Implications.ISO 9000 Certification. and Registrars ISO 9001:2000—only 9001:2000— standard that carries thirdthirdparty certification Many overseas companies will not do business with a supplier unless it has ISO 9000 certification ISO 9000 accreditation ISO registrars 2-119 .

III .Chapter 3 Statistical Process Control Operations Management Roberta Russell & Bernard W. Taylor.

Lecture Outline Basics of Statistical Process Control Control Charts Control Charts for Attributes Control Charts for Variables Control Chart Patterns SPC with Excel and OM Tools Process Capability 3-121 .

Basics of Statistical Process Control Statistical Process Control (SPC) monitoring production process to detect and prevent poor quality UCL Sample subset of items produced to use for inspection LCL Control Charts process is within statistical control limits 3-122 .

Basics of Statistical Process Control (cont.) Random inherent in a process depends on equipment and machinery. defective materials. operator. broken machinery or equipment. and system of measurement natural occurrences NonNon-Random special causes identifiable and correctable include equipment out of adjustment. changes in parts or materials. operator fatigue or poor work methods. or errors due to lack of training 3-123 . engineering.

SPC in Quality Management SPC tool for identifying problems in order to make improvements contributes to the TQM goal of continuous improvements 3-124 .

length 3-125 . yes .no Variable measure a product characteristic that is continuous and can be measured weight .Quality Measures: Attributes and Variables Attribute a product characteristic that can be evaluated with a discrete response good – bad.

SPC Applied to Services Nature of defect is different in services Service defect is a failure to meet customer requirements Monitor time and customer satisfaction 3-126 .

accurate flight information. out-ofquality of food items. accuracy of lab tests. waiting time at ticket counters and check-in. lost luggage and luggage handling. staff responses to requests. cleanliness. frequency of out-of-stock items. speed of admittance and checkouts Grocery stores waiting time to check out. agent and flight attendant checkcourtesy. checkout register errors Airlines flight delays.SPC Applied to Services (cont.) Hospitals timeliness and quickness of care. passenger cabin cleanliness and maintenance 3-127 . courtesy. cleanliness. accuracy of paperwork. customer complaints.

packaging. timeliness of claims processing. order accuracy. customer complaints.) FastFast-food restaurants waiting time for service. cleanliness. delivery time. agent availability and response time 3-128 . operator knowledge and courtesy.SPC Applied to Services (cont. employee courtesy CatalogueCatalogue-order companies order accuracy. phone order waiting time Insurance companies billing accuracy. food quality.

after which product is difficult to rework or correct before and after assembly or painting operations that might cover defects before the outgoing final product or service is delivered 3-129 .Where to Use Control Charts Process has a tendency to go out of control Process is particularly harmful and costly if it goes out of control Examples at the beginning of a process because it is a waste of time and money to begin production process with bad supplies before a costly or irreversible point.

Control Charts A graph that establishes control limits of a process Control limits upper and lower bands of a control chart Types of charts Attributes p-chart c-chart Variables mean (x bar – chart) range (R-chart) (R- 3-130 .

Process Control Chart Out of control Upper control limit Process average Lower control limit 1 2 3 4 5 6 7 8 9 10 Sample number 3-131 .

1σ µ=0 1σ 2σ 3σ 3-132 .Normal Distribution 95% 99.2σ .3σ .74% .

… no sample points outside limits 2. … about equal number of points above and below centerline 4. … points appear randomly distributed 3-133 .A Process Is in Control If … 1. … most points near process average 3.

Control Charts for Attributes p-chart uses portion defective in a sample c-chart uses number of defective items in a sample 3-134 .

p) n 3-135 σp = .zσp z = number of standard deviations from process average p = sample proportion defective. an estimate of process average σp = standard deviation of sample proportion p(1 .p-Chart UCL = p + zσp LCL = p .

04 : : .18 20 samples of 100 pairs of jeans 3-136 .Construction of p-Chart pSAMPLE NUMBER OF DEFECTIVES PROPORTION DEFECTIVE 1 2 3 : : 20 6 0 4 : : 18 200 .00 .06 .

Construction of p-Chart (cont.010 = 0.p) n = 200 / 20(100) = 0.10) 100 3-137 .3 0.10(1 .10 0.z LCL = 0.10(1 .10 .0.) pp= total defectives total sample observations p(1 .p) n = 0.0.10 + 3 p(1 .190 LCL = p .10) 100 UCL = p + z UCL = 0.

06 0.010 4 6 8 10 12 14 Sample number 16 18 20 p = 0.20 0.02 2 LCL = 0.16 Proportion defective UCL = 0.08 0.04 0.10 0.) 0.12 0.190 Construction of p-Chart p(cont.0.10 3-138 .14 0.18 0.

c-Chart UCL = c + zσc LCL = c .zσc where σc = c c = number of defects per sample 3-139 .

67 3-140 .99 12.35 LCL = c .c-Chart (cont.3 = 1.67 : : 15 15 190 : : UCL = c + zσc = 12.67 .67 12.zσ c = 12.) Number of defects in 15 sample rooms NUMBER OF DEFECTS SAMPLE 1 2 3 12 8 16 c= 190 15 = 12.67 + 3 = 23.

) Number of defects 2 4 6 8 10 12 14 16 Sample number 3-141 .67 15 12 9 6 3 LCL = 1.99 c-Chart (cont.35 21 18 c = 12.24 UCL = 23.

Control Charts for Variables Range chart ( R-Chart ) Ruses amount of dispersion in a sample Mean chart ( x -Chart ) uses process average of a sample 3-142 .

.zσx x x1 + x2 + . xn n x = average of sample means 3-143 = .x-bar Chart: Standard Deviation Known = UCL = x + zσx = x = where LCL = = ..

x-bar Chart Example: Standard Deviation Known (cont.) 3-144 .

x-bar Chart Example: Standard Deviation Known (cont.) 3-145 .

A2R where x = average of sample means 3-146 .x-bar Chart Example: Standard Deviation Unknown = UCL = x + A2R = LCL = x .

Control Limits 3-147 .

01 5.08 4 4.03 4.96 4.15 0.98 3 4.97 4.01 5.99 5.01 5.03 5.99 5.02 5.03 5.02 5.09 R 0.08 0.95 4.89 5.99 4.99 4.99 5.96 4.11 0.08 5.96 4.97 5.01 2 5.99 5.10 0.99 x 4.01 5.14 5.08 5.10 4.98 5.92 4.95 4.08 0.06 5.01 4.96 4.93 5.00 4.06 5.01 5.91 4.09 4.10 1.03 50.07 4.00 4.10 5.13 0.05 5.RING DIAMETER.15 3-148 .10 5.09 5.00 4.05 5.96 4.14 0. CM) (SLIPSAMPLE k 1 2 3 4 5 6 7 8 9 10 Example 15.99 5.05 4.12 0.07 5 4.08 5.03 4.92 5.14 0.4 1 5.94 5.x-bar Chart Example: Standard Deviation Unknown OBSERVATIONS (SLIP.98 5.

115 = x= = 50.09 5.) R= ∑x k ∑R k = 1.(0.08 LCL = x = A2R = 5.x-bar Chart Example: Standard Deviation Unknown (cont.58)(0.58)(0.94 Retrieve Factor Value A2 3-149 .15 10 = 0.01 cm = 10 = UCL = x + A2R = 5.115) = 5.115) = 4.01 .01 + (0.

01 UCL = 5.04 – Mean 5.98 – 4.bar Chart Example (cont.08 – 5.92 – | 1 | 2 | 3 | | | | 4 5 6 7 Sample number | 8 | 9 | 10 LCL = 4.) 4.08 x.96 – 4.00 – = x = 5.5.10 – 5.94 – 4.94 3-150 .06 – 5.02 – 5.

R.Chart UCL = D4R R= where R = range of each sample k = number of samples 3-151 LCL = D3R ∑R k .

99 5.06 5.96 4.06 5.10 5.00 4.98 3 4.03 5.99 5.14 5.02 5.91 4.92 5.98 5.93 5.99 5.89 5. CM) (SLIPSAMPLE k 1 2 3 4 5 6 7 8 9 10 Example 15.10 0.92 4.09 4.98 5.R-Chart Example OBSERVATIONS (SLIP-RING DIAMETER.10 5.08 5.02 5.08 5.08 4 4.09 R 0.03 5.14 0.97 5.99 4.07 4.00 4.99 4.05 5.01 5.03 4.08 0.97 4.95 4.94 5.00 4.01 5.96 4.03 4.95 4.05 5.05 4.08 0.08 5.01 5.10 1.99 5.96 4.13 0.15 0.09 5.14 0.96 4.12 0.96 4.10 4.07 5 4.01 5.01 4.01 2 5.01 5.11 0.03 50.99 x 4.3 1 5.15 3-152 .99 5.

) UCL = D4R = 2.3 3-153 .115) = 0 Retrieve Factor Values D3 and D4 Example 15.11(0.115) = 0.243 LCL = D3R = 0(0.R-Chart Example (cont.

28 – 0.12 – 0.24 – 0.16 – 0.04 – 0– LCL = 0 | | | 1 2 3 | | | | 4 5 6 7 Sample number | 8 | 9 | 10 R = 0.243 3-154 .08 – 0.) 0.R-Chart Example (cont.20 – Range 0.115 UCL = 0.

but ranges might be very large It is possible for an R-chart to exhibit a distinct downward Rtrend. but their averages might be beyond control limits It is possible for sample averages to be in control.Using x. suggesting some nonrandom cause is reducing variation 3-155 .bar and R-Charts xRTogether Process average and process variability must be in control It is possible for samples to have very narrow ranges.

Control Chart Patterns Run sequence of sample values that display same characteristic Pattern test determines if observations within limits of a control chart display a nonrandom pattern To identify a pattern: 8 consecutive points on one side of the center line 8 consecutive points up or down 14 points alternating up or down 2 out of 3 consecutive points in zone A (on one side of center line) 4 out of 5 consecutive points in zone A or B (on one side of center line) 3-156 .

) UCL UCL LCL Sample observations consistently below the center line LCL Sample observations consistently above the center line 3-157 .Control Chart Patterns (cont.

) UCL UCL LCL Sample observations consistently increasing LCL Sample observations consistently decreasing 3-158 .Control Chart Patterns (cont.

A2R Sample number 3-159 .(A2R) 3 Zone B = 2 2 sigma = x .(A2R) 3 Zone A LCL | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 = 3 sigma = x .Zones for Pattern Tests UCL Zone A = 2 2 sigma = x + (A (A2R) 3 = 3 sigma = x + A2R Zone B = 1 1 sigma = x + (A (A2R) 3 Zone C Process average = x Zone C = 1 1 sigma = x .

Performing a Pattern Test SAMPLE 1 2 3 4 5 6 7 8 9 10 x 4.00 4.99 5.02 5.98 5.01 5.96 4.03 ABOVE/BELOW B B B B B — A A A A UP/DOWN — U D D U U U U U D ZONE B C A A C C C B A B 3-160 .95 4.08 5.05 5.

Sample Size Determination Attribute charts require larger sample sizes 50 to 100 parts in a sample Variable charts require smaller samples 2 to 10 parts in a sample 3-161 .

SPC with Excel 3-162 .

SPC with Excel and OM Tools 3-163 .

Process Capability Tolerances design specifications reflecting product requirements Process capability range of natural variability in a process— process— what we measure with control charts 3-164 .

process is not capable of meeting specifications all the time.Process Capability (cont. Process Design Specifications (b) Design specifications and natural variation the same.) Design Specifications (a) Natural variation exceeds design specifications. Process 3-165 . process is capable of meeting specifications most of the time.

but process off center. process is capable of always conforming to specifications.Process Capability (cont.) Design Specifications (c) Design specifications greater than natural variation. capable but some output will not meet upper specification. Process 3-166 . Process Design Specifications (d) Specifications greater than natural variation.

Process Capability Measures Process Capability Ratio Cp = tolerance range process range upper specification limit lower specification limit = 6σ 3-167 .

39 6(0.5 .Computing Cp Net weight specification = 9.0 oz ± 0.5 oz Process mean = 8.80 oz Process standard deviation = 0.5 = 1.8.12 oz Cp = upper specification limit lower specification limit 6σ 9.12) = 3-168 .

= upper specification limit .lower specification limit 3σ 3σ .x 3-169 .Process Capability Measures Process Capability Index = Cpk = minimum x .

12) = 0.50 9.8.12) . 3-170 .12 oz = x .83 . = minimum 3(0.50 .8.80 .lower specification limit Cpk = minimum 3σ = upper specification limit .5 oz Process mean = 8.0 oz ± 0.80 oz Process standard deviation = 0.80 3(0.x 3σ 8.Computing Cpk Net weight specification = 9.

Process Capability with Excel 3-171 .

Process Capability with Excel and OM Tools 3-172 .

Chapter 3 Supplement Acceptance Sampling Operations Management Roberta Russell & Bernard W. III . Taylor.

Lecture Outline SingleSingle-Sample Attribute Plan Operating Characteristic Curve Developing a Sampling Plan with Excel Average Outgoing Quality Double .and Multiple-Sampling Plans Multiple- Supplement 3-174 3- .

Acceptance Sampling Accepting or rejecting a production lot based on the number of defects in a sample Not consistent with TQM or Zero Defects philosophy producer and customer agree on the number of acceptable defects a means of identifying not preventing poor quality percent of defective parts versus PPM Sampling plan provides guidelines for accepting a lot Supplement 3-175 3- .

else reject Supplement 3-176 3- .Single– Single–Sample Attribute Plan Single sampling plan N = lot size n = sample size (random) c = acceptance number d = number of defective items in sample If d ≤ c. accept lot.

Producer’s and Consumer’s Risk AQL or acceptable quality level α or producer’s risk proportion of defects consumer will accept in a given lot probability of rejecting a good lot LTPD or lot tolerance percent defective limit on the number of defectives the customer will accept β or consumer’s risk probability of accepting a bad lot Supplement 3-177 3- .

Producer’s and Consumer’s Risk (cont.) Accept Good Lot Reject No Error Type I Error Producer’ Risk Bad Lot Type II Error Consumer’s Risk No Error Sampling Errors Supplement 3-178 3- .

Operating Characteristic (OC) Curve shows probability of accepting lots of different quality levels with a specific sampling plan assists management to discriminate between good and bad lots exact shape and location of the curve is defined by the sample size (n) and (n acceptance level (c) for the sampling (c plan Supplement 3-179 3- .

20 AQL Proportion defective LTPD Supplement 3-180 3- .05 0.80 – Probability of acceptance.12 0. Pa 0.16 0.10 0.18 0.04 0.02 0.06 0.) 1.40 – 0.14 0.08 0.00 – α = 0.60 – OC curve for n and c 0.OC Curve (cont.20 – β = 0.10 – | | | | | | | | | | 0.

Developing a Sampling Plan with OM Tools ABC Company produces mugs in lots of 10.05 ? β = 0.000. Performance measures for quality of mugs sent to stores call for a producer’s risk of 0. What size sample and what acceptance number should ABC use to achieve performance measures called for in the sampling plan? N = 10.05 with an AQL of 1% defective and a consumer’s risk of 0.000 α = 0.10 with a LTPD of 5% defective.10 AQL = 1% LTPD = 5% n=? c= Supplement 3-181 3- .

Average Outgoing Quality (AOQ) Expected number of defective items that will pass on to customer with a sampling plan Average outgoing quality limit (AOQL) maximum point on the curve worst level of outgoing quality Supplement 3-182 3- .

AOQ Curve Supplement 3-183 3- .

DoubleDouble-Sampling Plans Take small initial sample If # defective ≤ lower limit. accept If # defective > upper limit. reject If # defective between limits. take second sample Accept or reject based on 2 samples Less costly than single-sampling plans single- Supplement 3-184 3- .

resample Continue sampling until accept or reject lot based on all sample data Supplement 3-185 3- .MultipleMultiple-Sampling Plans Uses smaller sample sizes Take initial sample If # defective ≤ lower limit. reject If # defective between limits. accept If # defective > upper limit.

Chapter 4 Product Design Operations Management Roberta Russell & Bernard W. Taylor. III .

Lecture Outline Design Process Concurrent Design Technology in Design Design Reviews Design for Environment Design for Robustness Quality Function Deployment 4-187 .

Design Process Effective design can provide a competitive edge matches product or service characteristics with customer requirements ensures that customer requirements are met in the simplest and least costly manner reduces time required to design a new product or service minimizes revisions necessary to make a design workable Copyright 2009 John Wiley & Sons. 4-188 . Inc.

) Product design defines appearance of product sets standards for performance specifies which materials are to be used determines dimensions and tolerances 4-189 .Design Process (cont.

Design Process (cont.) 4-190 .

Idea Generation Company’s own R&D department Customer complaints or suggestions Marketing research Suppliers Salespersons in the field Factory workers New technological developments Competitors 4-191 .

) Perceptual Maps Visual comparison of customer perceptions Benchmarking Comparing product/process against best-in-class best-in- Reverse engineering Dismantling competitor’s product to improve your own product 4-192 .Idea Generation (cont.

Perceptual Map of Breakfast Cereals 4-193 .

Feasibility Study Market analysis Economic analysis Technical/strategic analyses Performance specifications 4-194 .

Rapid Prototyping testing and revising a preliminary design model Build a prototype form design functional design production design Test prototype Revise design Retest 4-195 .

Form and Functional Design Form Design how product will look? Functional Design how product will perform? reliability maintainability usability 4-196 .

Computing Reliability Components in series 0.90 0.90 = 0.90 x 0.81 4-197 .90 0.

90(1-0.95 + 0.Computing Reliability (cont.95) = 0.995 0.95 R1 0.) Components in parallel 0.90 R2 0.90(1- 4-198 .

98 0.98 0.98 0.98 0.90 0.90)=0.92+(10.92 0.System Reliability 0.99 0.98 = 0.98 x 0.92+(1-0.951 4-199 .92)(0.99 x 0.

System Availability (SA) SA = MTBF MTBF + MTTR where: MTBF = mean time between failures MTTR = mean time to repair 4-200 .

) PROVIDER A B C MTBF (HR) 60 36 24 MTTR (HR) 4.9375 or 94% SAB = 36 / (36 + 2) = .96 or 96% 4-201 .0 1.0 2.System Availability (cont.0 SAA = 60 / (60 + 4) = .9473 or 95% SAC = 24 / (24 + 1) = .

Usability Ease of use of a product or service ease of learning ease of use ease of remembering how to use frequency and severity of errors user satisfaction with experience 4-202 .

or options in a product Standardization using commonly available and interchangeable parts Modular Design combining standardized building blocks.Production Design How the product will be made Simplification reducing number of parts. to create unique finished products Design for Manufacture (DFM) • Designing a product so that it can be produced easily and economically 4-203 . or modules. assemblies.

Key to Successful Robotic Assembly. Dewhurst. “Product Design…. Boothroyd and P. (c) Final design (b) Revised design Assembly using common fasteners OneOne-piece base & elimination of fasteners Design for push-andpush-and-snap assembly 4-204 .” Assembly Engineering (September 1986).Design Simplification (a) Original design Source: Adapted from G. 909093. pp.

Final Design and Process Plans Final design detailed drawings and specifications for new product or service Process plans workable instructions necessary equipment and tooling component sourcing recommendations job descriptions and procedures computer programs for automated machines 4-205 .

Design Team 4-206 .

Concurrent Design A new approach to design that involves simultaneous design of products and processes by design teams Improves quality of early design decisions Involves suppliers Incorporates production process Uses a price-minus pricesystem Scheduling and management can be complex as tasks are done in parallel Uses technology to aid design 4-207 .

modification. and analysis of a design computercomputer-aided engineering (CAE) tests and analyzes designs on computer screen computercomputer-aided manufacturing (CAD/CAM) ultimate design-to-manufacture connection design-to- product life cycle management (PLM) managing entire lifecycle of a product collaborative product design (CPD) 4-208 .Technology in Design Computer Aided Design (CAD) assists in creation.

Collaborative Product Design (CPD) A software system for collaborative design and development among trading partners With PML. manages product data. and improves quality of design Designers can conduct virtual review sessions test “what if” scenarios assign and track design issues communicate with multiple tiers of suppliers create. store. and manage project documents 4-209 . sets up project workspaces. and follows life cycle of the product Accelerates product development. helps to resolve product launch issues.

Design Review Review designs to prevent failures and ensure value Failure mode and effects analysis (FMEA) a systematic method of analyzing product failures Fault tree analysis (FTA) a visual method for analyzing interrelationships among failures Value analysis (VA) helps eliminate unnecessary features and functions 4-210 .

FMEA for Potato Chips Failure Mode Stale Cause of Failure low moisture content expired shelf life poor packaging too thin too brittle rough handling rough use poor packaging outdated receipt process not in control uneven distribution of salt Effect of Failure tastes bad won’t crunch thrown out lost sales can’t dip poor display injures mouth chocking perceived as old lost sales eat less drink more health hazard lost sales Corrective Action add moisture cure longer better package seal shorter shelf life change recipe change process change packaging Broken Too Salty experiment with recipe experiment with process introduce low salt version 4-211 .

Fault tree analysis (FTA) 4-212 .

better. or faster by someone else? 4-213 .Value analysis (VA) Can we do without it? Does it do more than is required? Does it cost more than it is worth? Can something else do a better job? Can it be made by a less costly method? with less costly tooling? with less costly material? Can it be made cheaper.

Value analysis (VA) (cont.) Updated versions also include: Is it recyclable or biodegradable? Is the process sustainable? Will it use more energy than it is worth? Does the item or its by-product harm the byenvironment? 4-214 .

consumption and disposal Extended producer responsibility holds companies responsible for their product even after its useful life 4-215 .Design for Environment and Extended Producer Responsibility Design for environment designing a product from material that can be recycled design from recycled material design for ease of repair minimize packaging minimize material and energy used during manufacture.

Design for Environment 4-216 .

org. 2007. accessed April 1.org.Sustainability Ability to meet present needs without compromising those of future generations Green product design Use fewer materials Use recycled materials or recovered components Don’t assume natural materials are always better Don’t forget energy consumption Extend useful life of product Involve entire supply chain Change paradigm of design Source: Adapted from the Business Social Responsibility Web site.bsr. www. www.bsr. 4-217 .

Quality Function Deployment (QFD) Translates voice of customer into technical design requirements Displays requirements in matrix diagrams first matrix called “house of quality” series of connected houses 4-218 .

House of Quality Importance 5 TradeTrade-off matrix 3 Design characteristics 4 Relationship matrix 2 Competitive assessment 1 Customer requirements 6 Target values 4-219 .

Competitive Assessment of Customer Requirements Competitive Assessment Customer Requirements Presses quickly Removes wrinkles Irons well Doesn’t stick to fabric Provides enough steam Doesn’t spot fabric Doesn’t scorch fabric Easy and safe to use Heats quickly Automatic shut-off shutQuick cool-down coolDoesn’t break when dropped Doesn’t burn when touched Not too heavy 9 8 6 8 6 9 6 3 3 5 5 8 X AB AB X X A A B X 4-220 1 2 B A AB X 3 X 4 5 X BA AB X AB A XB X X B A ABX ABX B .

Time to go from 450º to 100º Material used in soleplate Flow of water from holes Energy needed to press Thickness of soleplate Customer Requirements Presses quickly Removes wrinkles Irons well Doesn’t stick to fabric Provides enough steam Doesn’t spot fabric Doesn’t scorch fabric Easy and safe to use Heats quickly Automatic shut-off shutQuick cool-down coolDoesn’t break when dropped Doesn’t burn when touched Not too heavy - .+ + + - .+ Automatic shutoff Number of holes Size of soleplate Weight of iron Size of holes From Customer Requirements to Design Characteristics Protective cover for soleplate Time required to reach 450º F .+ + + + + + + + + + + + + + + + + - - + + + .+ + + + + + -4-221 + + + + + .

Tradeoff Matrix Energy needed to press Weight of iron + Size of soleplate Thickness of soleplate Material used in soleplate + Number of holes Size of holes Flow of water from holes Time required to reach 450º Time to go from 450º to 100º 4-222 Protective cover for soleplate Automatic shutoff + .

5 0.7 2 3 45 35 50 5 4 30 * 500 350 600 5 4 500 * N N N 3 5 Estimated impact Estimated cost Targets Design changes 4-223 Automatic shutoff Number of holes Size of holes .3 0.7 4 3 1. 8x4 8x4 9x5 4 3 8x5 * cm 2 1 4 4 3 3 * ty SS MG T 5 4 SS * ea 27 27 35 4 3 30 * mm oz/s sec sec Y/N Y/N 15 15 15 3 3 0.4 1.2 1.2 * in.Protective cover for soleplate Y Y Y 0 2 Time to go from 450º to 100º Time required to reach 450º Material used in soleplate Targeted Changes in Design Energy needed to press Thickness of soleplate Size of soleplate Weight of iron Flow of water from holes Objective measures Units of measure Iron A Iron B Our Iron (X) ft-lb ft3 4 2 3 3 lb 1.

Completed House of Quality SS = Silverstone MG = Mirorrglide T = Titanium 4-224 .

A Series of Connected QFD Houses Product characteristics Customer requirements A-1 Product characteristics Part characteristics Part characteristics House of quality A-2 Parts deployment Process characteristics A-3 Process characteristics Operations Process planning A-4 Operating requirements 4-225 .

Benefits of QFD Promotes better understanding of customer demands Promotes better understanding of design interactions Involves manufacturing in design process Provides documentation of design process 4-226 .

dimensions. settings. etc.) 4-227 .Design for Robustness Robust product designed to withstand variations in environmental and operating conditions Robust design yields a product or service designed to withstand variations Controllable factors design parameters such as material used. and form of processing Uncontrollable factors user’s control (length of use. maintenance.

) Tolerance allowable ranges of variation in the dimension of a part Consistency consistent errors are easier to correct than random errors parts within tolerances may yield assemblies that are not within limits consumers prefer product characteristics near their ideal values 4-228 .Design for Robustness (cont.

Taguchi’s Quality Loss Function Quantifies customer preferences toward quality Emphasizes that customer preferences are strongly oriented toward consistently Design for Six Sigma (DFSS) Quality Loss Lower tolerance limit Target Upper tolerance limit 4-229 .

John Wiley & Sons. The Publisher assumes no responsibility for errors. 4-230 . or damages caused by the use of these programs or from the use of the information herein. The purchaser may make back-up copies for his/her own use only and not for backdistribution or resale. omissions. Inc. Inc. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department. All rights reserved.Copyright 2009 John Wiley & Sons.

Chapter 5 Service Design Operations Management Roberta Russell & Bernard W. III . Taylor.

Lecture Outline Service Economy Characteristics of Services Service Design Process Tools for Service Design Waiting Line Analysis for Service Improvement 5-232 .

Service Economy Source: U. Bureau of Labor Statistics. IBM Almaden Research Center 5-233 .S.

5-234 .

deeds. or performances Goods tangible objects Facilitating services accompany almost all purchases of goods Facilitating goods accompany almost all service purchases 5-235 .Characteristics of Services Services acts.

and D. Management of Service Operations (Boston: Allyn Bacon. Sasser. Olsen. Daryl Wyckoff.Continuum from Goods to Services Source: Adapted from Earl W. p.11. 5-236 . R. 1978).P.

) Services are intangible Service output is variable Services have higher customer contact Services are perishable Service inseparable from delivery Services tend to be decentralized and dispersed Services are consumed more often than products Services can be easily emulated 5-237 .Characteristics of Services (cont.

Service Design Process 5-238 .

it defines target market and customer experience Service package mixture of physical items. sensual benefits.) Service concept purpose of a service. and psychological benefits Service specifications performance specifications design specifications delivery specifications 5-239 .Service Design Process (cont.

Service Process Matrix 5-240 .

N. Low Contact Services Design Decision Facility location Facility layout High-Contact Service Convenient to customer Must look presentable. Jacobs.High v. Chase. and facilitate interaction with customer Low-Contact Service Near labor or transportation source Designed for efficiency Source: Adapted from R. Operations Management for Compensative Advantage (New York:McGraw-Hill. accommodate customer needs. 210 5-241 . and R. p. Aquilano. 2001).

High v. Low Contact Services (cont. and R. testing and rework possible to correct defects Capacity Planned for average demand Source: Adapted from R. N.) Design Decision Quality control High-Contact Service More variable since customer is involved in process. p. 210 5-242 . Jacobs. 2001). Operations Management for Compensative Advantage (New York:McGraw-Hill. customer expectations and perceptions of quality may differ. Aquilano. Chase. customer present when defects occur Excess capacity required to handle peaks in demand Low-Contact Service Measured against established standards.

) Design Decision Worker skills High-Contact Service Must be able to interact well with customers and use judgment in decision making Must accommodate customer schedule Low-Contact Service Technical skills Scheduling Customer concerned only with completion date Source: Adapted from R. 210 5-243 . 2001). Aquilano. Operations Management for Compensative Advantage (New York:McGraw-Hill. p. Jacobs. Chase. and R. N. Low Contact Services (cont.High v.

2001). includes environment as well as actual service Source: Adapted from R. Chase. planned and executed with minimal interference Fixed. N. Jacobs. less extensive Service package Varies with customer. Aquilano. p. and R. service may change during delivery in response to customer Low-Contact Service Mostly back-room activities. 210 5-244 . Operations Management for Compensative Advantage (New York:McGraw-Hill. Low Contact Services (cont.High v.) Design Decision Service process High-Contact Service Mostly front-room activities.

Tools for Service Design Service blueprinting line of influence line of interaction line of visibility line of support Servicescapes space and function ambient conditions signs. and artifacts Front-office/BackFront-office/Backoffice activities Quantitative techniques 5-245 . symbols.

Service Blueprinting 5-246 .

Service Blueprinting (Con’t) 5-247 .

Elements of Waiting Line Analysis Operating characteristics average values for characteristics that describe performance of waiting line system Queue a single waiting line Waiting line system consists of arrivals. and waiting line structure Calling population source of customers. servers. infinite or finite 5-248 .

5-249 .

) Arrival rate (λ) (λ frequency at which customers arrive at a waiting line according to a probability distribution. length of a finite queue is limited 5-250 . usually described by negative exponential distribution Service rate must be shorter than arrival rate (λ < µ) (λ Queue discipline order in which customers are served Infinite queue can be of any length. usually Poisson Service time (µ) (µ time required to serve a customer.Elements of Waiting Line Analysis (cont.

) Channels number of parallel servers for servicing customers Phases number of servers in sequence a customer must go through 5-251 .Elements of Waiting Line Analysis (cont.

Operating Characteristics Operating characteristics are assumed to approach a steady state 5-252 .

cost increases 5-253 .Traditional Cost Relationships as service improves.

Psychology of Waiting Waiting rooms magazines and newspapers televisions Disney costumed characters mobile vendors accurate wait times special passes Bank of America mirrors Supermarkets magazines “impulse purchases” 5-254 .

waiting is unacceptable. etc. cost is not important 5-255 .Psychology of Waiting (cont. fire department.) Preferential treatment Grocery stores: express lanes for customers with few purchases Airlines/Car rental agencies: special cards available to frequent-users or for an additional fee frequentPhone retailers: route calls to more or less experienced salespeople based on customer’s sales history Critical service providers services of police department.

most basic waiting line structure Frequent variations (all with Poisson arrival rate) exponential service times general (unknown) distribution of service times constant service times exponential service times with finite queue exponential service times with finite calling population 5-256 .Waiting Line Models SingleSingle-server model simplest.

firstfirstserved queue discipline infinite queue length infinite calling population Computations λ = mean arrival rate µ = mean service rate n = number of customers in line 5-257 .Basic Single-Server Model SingleAssumptions Poisson arrival rate exponential service times firstfirst-come.

) Singleprobability that no customers are in queuing system P0 = average number of customers in queuing system L= µ–λ λ ( ) λ 1– µ λ n probability of n customers in queuing system Pn = average number of customers in waiting line λ µ Lq = λ2 µ ( µ – λ) ( ) ( )( ) λ n µ · P0 = µ 1– 5-258 .Basic Single-Server Model (cont.

) Singleaverage time customer spends in queuing system W= 1 µ–λ = L λ probability that server is busy and a customer has to wait (utilization factor) λ ρ= µ probability that server is idle and customer can be served I=1– ρ =1– λ µ = P0 5-259 average time customer spends waiting in line λ Wq = µ ( µ – λ) .Basic Single-Server Model (cont.

Basic Single-Server Model SingleExample 5-260 .

) 5-261 .Basic Single-Server Model SingleExample (cont.

Service Improvement Analysis waiting time (8 min.) is too long hire assistant for cashier? increased service rate hire another cashier? reduced arrival rate Is improved service worth the cost? 5-262 .

Basic Single-Server Model SingleExample: Excel 5-263 .

Advanced Single-Server Models SingleConstant service times occur most often when automated equipment or machinery performs service Finite queue lengths occur when there is a physical limitation to length of waiting line Finite calling population number of “customers” that can arrive is limited 5-264 .

Advanced Single-Server SingleModels (cont.) 5-265 .

Basic Multiple-Server Model Multiplesingle waiting line and service facility with several independent servers in parallel same assumptions as single-server model singlesµ > λ s = number of servers servers must be able to serve customers faster than they arrive 5-266 .

) probability that there are no customers in system 1 P0 = n = s – 1 1 λ n 1 λ s sµ ∑ n=0 () n! µ + ( )( ) s! µ sµ .Basic Multiple-Server Model Multiple(cont. for n > s n–s s!s µ Pn = 1 λ n P0. for n ≤ s n! µ { () () 5-267 .λ probability of n customers in system 1 λ n P0.

) probability that customer must wait Pw = 1 s! () λ µ s sµ sµ – λ P0 Lq = L – λ µ L= λµ (λ/µ)s (s – 1)! (sµ – λ)2 (s L W= λ P0 + λ µ Wq = W – 1 µ = Lq λ λ ρ= sµ 5-268 .Basic Multiple-Server Model Multiple(cont.

Basic Multiple-Server Model MultipleExample 5-269 .

Basic Multiple-Server Model MultipleExample (cont.) 5-270 .

) 5-271 .Basic Multiple-Server Model MultipleExample (cont.

) 5-272 .Basic Multiple-Server Model MultipleExample (cont.

Basic Multiple-Server Model MultipleExample (cont.) 5-273 .

Basic Multiple-Server Model MultipleExample (cont.) To cut wait time. s = 4 Therefore: 5-274 . add another service representative now.

MultipleMultiple-Server Waiting Line in Excel 5-275 .

Chapter 6 Processes and Technology Operations Management Roberta Russell & Bernard W. III . Taylor.

Lecture Outline Process Planning Process Analysis Process Innovation Technology Decisions 6-277 .

Process Planning Process a group of related tasks with specific inputs and outputs Process design what tasks need to be done and how they are coordinated among functions. people. and organizations Process strategy an organization’s overall approach for physically producing goods and services Process planning converts designs into workable instructions for manufacture or delivery 6-278 .

and resource availability Customer involvement role of customer in production process 6-279 . products or services. equipment. automation) and labor resources used in production process Process flexibility ease with which resources can be adjusted in response to changes in demand.Process Strategy Vertical integration extent to which firm will produce inputs and control outputs of each stage of production process Capital intensity mix of capital (i. technology..e.

Outsourcing Cost Capacity Quality Speed Reliability Expertise 6-280 .

Process Selection Projects one-of-a-kind production of a product to customer order Batch production processes many different jobs at the same time in groups or batches Mass production produces large volumes of a standard product for a mass market Continuous production used for very-high volume commodity products 6-281 .

Sourcing Continuum 6-282 .

p. 1984).ProductProduct-Process Matrix Source: Adapted from Robert Hayes and Steven Wheelwright. 6-283 . Restoring the Competitive Edge Competing through Manufacturing (New York. John Wiley & Sons. 209.

Types of Processes PROJECT BATCH Made-toMade-toorder (customized) MASS Made-toMade-tostock (standardized ) CONT. Type of product Unique Commodity Type of customer One-atOne-at-atime Few individual customers Mass market Mass market Product demand Infrequent Fluctuates Stable Very stable Source: Adapted from R. Operations Management for Competitive Advantage (New York:McGraw-Hill. Jacobs. Aquilano. Chase. and R. CONT. 2001). p. 210 York:McGraw- 6-284 . N.

and R. N. Jacobs. Demand volume No. Chase. Operations Management for Competitive Advantage (New York:McGraw-Hill. Aquilano. assembly lines Continuous. p.Types of Processes (cont. 2001). CONT.) PROJECT BATCH MASS CONT. process industries Source: Adapted from R. of different products Production system Very low Low to medium High Very high Infinite variety Many. 210 York:McGraw- 6-285 . job shops Repetitive. varied Few Very few LongLong-term project Discrete.

Chase. 210 York:McGraw- 6-286 . 2001). craftscraftspersons Fabrication Assembly Wide range of skills Limited range of skills Source: Adapted from R. Operations Management for Competitive Advantage (New York:McGraw-Hill. Aquilano. and R. refining Equipment monitors Primary type of work Worker skills Specialized contracts Experts.Types of Processes (cont. CONT. p. Equipment Varied GeneralGeneralpurpose SpecialSpecialpurpose Highly automated Mixing.) PROJECT BATCH MASS CONT. treating. Jacobs. N.

bakeries. expensive Costly. 2001). fast food CONT.Types of Processes (cont. chemicals. foodstuffs Source: Adapted from R. slow. ease of control Difficult to change. shipbuilding. N. spacecraft Paint. Chase. difficult to manage Machine shops. small customer base. Jacobs. Operations Management for Competitive Advantage (New York:McGrawYork:McGraw-Hill. computers. large capacity. education Examples Construction. p. latest technology Flexibility. low cost Capital investment. print shops. Aquilano. quality DisDisadvantages NonNon-repetitive. televisions. farlimited variety Advantages Custom work. Highly efficient. far-reaching errors. 210 6-287 .) PROJECT BATCH MASS Efficiency. CONT. and R. lack of responsiveness Automobiles. speed.

Process Selection with BreakBreak-Even Analysis examines cost trade-offs associated with demand volume Cost Fixed costs constant regardless of the number of units produced Variable costs vary with the volume of units produced Revenue price at which an item is sold Total revenue is price times volume sold Profit difference between total revenue and total cost 6-288 .

Process Selection with BreakBreak-Even Analysis (cont.(cf + vcv) 6-289 .total cost Z = TR – TC = vp .) Total cost = fixed cost + total variable cost TC = cf + vcv Total revenue = volume x price TR = vp Profit = total revenue .

) TR = TC vp = cf + vcv vp .vcv = cf v ( p .c v) = c f v= cf p .cv Solving for Break-Even Point (Volume) Break6-290 .Process Selection with BreakBreak-Even Analysis (cont.

cv = 2000 10 .5 6-291 = 400 rafts .000 Variable cost = cv = $5 per raft Price = p = $10 per raft BreakBreak-even point is v= cf p .BreakBreak-Even Analysis: Example Fixed cost = cf = $2.

BreakBreak-Even Analysis: Graph Dollars Total cost line $3.000 — $2.000 — $1.000 — Total revenue line 400 BreakBreak-even point Units 6-292 .

Process Plans Set of documents that detail manufacturing and service delivery specifications assembly charts operations sheets quality-control check-sheets 6-293 .

000 rafts Below or equal to 4.000 + $5v = $10. choose A Above or equal to 4. choose B 6-294 .Process Selection Process A Process B $2.000.000 $2v v = 4.000 + $3v $5v $3v $2v = $8.000.

Process Analysis • systematic examinatio n of all aspects of process to improve operation 6-295 .

10 20 30 40 50 60 Description Pour in plastic bits Insert mold Check settings & start machine Collect parts & lay flat Remove & clean mold Break off rough edges Dept.An Operations Sheet for a Plastic Part Part name Part No. 67. No. 041 041 041 051 042 051 Machine/Tools Injection molding #076 113. 650 Plastics finishing Parts washer Plastics finishing Time 2 min 2 min 20 min 10 min 15 min 10 min 6-296 . Usage Crevice Tool 52074 Hand-Vac Hand- Assembly No. 520 Oper.

Process Analysis Building a flowchart Determine objectives Define process boundaries Define units of flow Choose type of chart Observe process and collect data Map out process Validate chart 6-297 .

transportation.Process Flowcharts look at manufacture of product or delivery of service from broad perspective Incorporate nonproductive activities (inspection. delay. storage) productive activities (operations) 6-298 .

Process Flowchart Symbols Operations Inspection Transportation Delay Storage 6-299 .

Process Flowchart of Apple Processin g 6-300 .

6-301 .

Simple Value Chain Flowchart 6-302 .

time to reengineer process 6-303 .Process Innovation Continuous improvement refines the breakthrough Breakthrough Improvement Total redesign of a process for breakthrough improvements Continuous improvement activities peak.

From Function to Process Product Development Manufacturing Purchasing Accounting Sales Order Fulfillment Supply Chain Management Customer Service Function Process 6-304 .

Process Innovation Strategic Directives Goals for Process Performance High .level Process map Detailed Process Map Pilot Study of New Design Customer Requirements Baseline Data Benchmark Data Innovative Ideas Model Validation Design Principles Key Performance Measures No Goals Met? Yes Full Scale Implementation 6-305 .

HighHigh-Level Process Map 6-306 .

and consolidate similar activities Link processes to create value Let the swiftest and most capable enterprise execute the process Flex process for any time.Principles for Redesigning Processes Remove waste. any place. simplify. any way Capture information digitally at the source and propagate it through process 6-307 .

collect.Principles for Redesigning Processes (cont.) Provide visibility through fresher and richer information about process status Fit process with sensors and feedback loops that can prompt action Add analytic capabilities to process Connect. and create knowledge around process through all who touch it Personalize process with preferences and habits of participants 6-308 .

it’s best to start from the fish.Techniques for Generating Innovative Ideas Vary the entry point to a problem in trying to untangle fishing lines. not the poles Draw analogies a previous solution to an old problem might work Change your perspective think like a customer bring in persons who have no knowledge of process 6-309 .

our workers were mobile and flexible there were no monetary constraints we had perfect knowledge 6-310 . what is the next problem Use attribute brainstorming how would this process operate if. . .Techniques for Generating Innovative Ideas (cont.) Try inverse brainstorming what would increase cost what would displease the customer Chain forward as far as possible if I solve this problem.

Technology Decisions Financial justification of technology Purchase cost Operating Costs Annual Savings Revenue Enhancement Replacement Analysis Risk and Uncertainty Piecemeal Analysis 6-311 .

Components of e-Manufacturing e- 6-312 .

A Technology Primer Product Technology Computer-aided design (CAD) Group technology (GT) Computer-aided engineering (CAE) Collaborative product commerce (CPC) Creates and communicates designs electronically Classifies designs into families for easy retrieval and modification Tests functionality of CAD designs electronically Facilitates electronic communication and exchange of information among designers and suppliers 6-313 .

sales. and disposal Defines products “configured” by customers who have selected among various options. customer service. manufacturing.A Technology Primer (cont.) Product Technology Product data management (PDM) Product life cycle management (PLM) Product configuration Keeps track of design specs and revisions for the life of the product Integrates decisions of those involved in product development. recycling. usually from a Web site 6-314 .

translates CAD data into requirements for automated inspection and manufacture Electronic link between automated design (CAD) and automated manufacture (CAM) Generates process plans based on database of similar requirements Electronic purchasing of items from eemarketplaces.A Technology Primer (cont. or company websites 6-315 . auctions.) Process Technology Standard for exchange of product model data (STEP) Computer-aided design and manufacture (CAD/CAM) Computer aided process (CAPP) E-procurement Set standards for communication among different CAD vendors.

also collects processing information and quality data A collection of CNC machines connected by an automated material handling system to produce a wide variety of parts Manipulators that can be programmed to perform repetitive tasks. “reads” packages and diverts them to different directions. can be very fast 6-316 . more consistent than workers but less flexible FixedFixed-path material handling.A Technology Primer (cont. moves items along a belt or overhead chain.) Manufacturing Technology Computer numerically control (CNC) Flexible manufacturing system (FMS) Robots Conveyors Machines controlled by software code to perform a variety of operations with the help of automated tool changers.

realmaintenance.A Technology Primer (cont. makes real-time decisions on ongoing operation. and quality Automated manufacturing systems integrated through computer technology. directed by wire or tape embedded in floor or by radio frequencies. also called eemanufacturing 6-317 .) Manufacturing Technology Automatic guided vehicle (AGV) Automated storage and retrieval system (ASRS) Process Control Computer-integrated manufacturing (CIM) A driverless truck that moves material along a specified path. very flexible An automated warehouse—some 26 stores high— warehouse— high— in which items are placed in a carousel-type carouselstorage system and retrieved by fast-moving faststacker cranes. controlled by computer Continuous monitoring of automated equipment.

and trading partners 6-318 Extranet .e.A Technology Primer (cont.) Information Technology Business – to – Business (B2B) Business – to – Consumer (B2C) Internet Intranet Electronic transactions between businesses usually over the Internet Electronic transactions between businesses and their customers usually over the Internet A global information system of computer networks that facilitates communication and data transfer Communication networks internal to an organization.. customers. can be password (i. firewall) protected sites on the Internet Intranets connected to the Internet for shared access with select suppliers.

a twenty-first century bar code twentywith read/write capabilities A computer-to-computer exchange of business computer-todocuments over a proprietary network. very expensive and inflexible A programming language that enables computer – to computer communication over the Internet by tagging data before its is sent Software for managing basic requirements of an enterprise. including sales & marketing. finance and accounting.A Technology Primer (cont.) Information Technology Bar Codes Radio Frequency Identification tags (RFID) Electronic data interchange (EDI) Extensive markup language (XML) Enterprise resource planning (ERP) A series of vertical lines printed on most packages that identifies item and other information when read by a scanner An integrated circuit embedded in a tag that can send and receive information. and human resources 6-319 . production & materials management.

A Technology Primer (cont.) Information Technology Supply chain management (SCM) Customer relationship management (CRM) Decision support systems (DSS) Expert systems (ES) Artificial intelligence (AI) Software for managing flow of goods and information among a network of suppliers. includes a quantitative modeling component and an interactive component for what-if analysis whatA computer system that uses an expert knowledge base to diagnose or solve a problem A field of study that attempts to replicate elements of human thought in computer processes. genetic algorithms. includes expert systems. and fuzzy logic 6-320 . neural networks. manufacturers and distributors Software for managing interactions with customers and compiling and analyzing customer data An information system that helps managers make decisions.

III .Chapter 7 Capacity and Facilities Operations Management Roberta Russell & Bernard W. Taylor.

Lecture Outline Capacity Planning Basic Layouts Designing Process Layouts Designing Service Layouts Designing Product Layouts Hybrid Layouts .

lag. and average) .Capacity Maximum capability to produce Capacity planning establishes overall level of productive resources for a firm 3 basic strategies for timing of capacity expansion in relation to steady growth in demand (lead.

Capacity Expansion Strategies .

Capacity (cont.) Capacity increase depends on volume and certainty of anticipated demand strategic objectives costs of expansion and operation Best operating level % of capacity utilization that minimizes unit costs Capacity cushion % of capacity held in reserve for unexpected occurrences .

Economies of Scale it costs less per unit to produce high levels of output fixed costs can be spread over a larger number of units production or operating costs do not increase linearly with output levels quantity discounts are available for material purchases operating efficiency increases as workers gain experience .

Best Operating Level for a Hotel .

and people Incorporate safety and security measures Promote product and service quality Encourage proper maintenance activities Provide a visual control of activities Provide flexibility to adapt to changing conditions . products. and placement of material.Machine Objectives of Facility Layout Arrangement of areas within a facility to: Minimize material-handling costs Utilize space efficiently Utilize labor efficiently Eliminate bottlenecks Facilitate communication and interaction Reduce manufacturing cycle time Reduce customer service time Eliminate wasted or redundant movement Increase capacity Facilitate entry. exit.

BASIC LAYOUTS Process layouts group similar activities together according to process or function they perform Product layouts arrange activities in line according to sequence of operations for a particular product or service Fixed-position layouts are used for projects in which product cannot be moved .

Process Layout in Services Women’s lingerie Shoes Housewares Women’s dresses Cosmetics and jewelry Children’s department Women’s sportswear Entry and display area Men’s department .

Manufacturing Process Layout .

A Product Layout In Out .

made to order Fluctuating Low General purpose Type of process Product Demand Volume Equipment . mainly fabrication Varied. mass production. batch production. job shop. mainly assembly Standardized. made to stock Stable High Special purpose Process Functional grouping of activities Intermittent.Comparison of Product and Process Layouts Product Description Sequential arrangement of activities Continuous.

Comparison of Product and Process Layouts Product Workers Inventory Storage space Material handling Aisles Scheduling Layout decision Goal Advantage Limited skills Low in-process. high infinished goods Small Fixed path (conveyor) Narrow Part of balancing Line balancing Equalize work at each station Efficiency Process Varied skills High in-process. low infinished goods Large Variable path (forklift) Wide Dynamic Machine location Minimize material handling cost Flexibility .

workers. materials. other resources brought to the site Low equipment utilization Highly skilled labor Typically low fixed cost Often high variable costs 7-335 .FixedFixed-Position Layouts Typical of projects in which product produced is too fragile. or heavy to move Equipment. bulky.

Designing Process Layouts Goal: minimize material handling costs Block Diagramming minimize nonadjacent loads use when quantitative data is available Relationship Diagramming based on location preference between areas use when quantitative data is not available .

Block Diagramming Unit load quantity in which material is normally moved STEPS create load summary chart calculate composite (two way) movements develop trial layouts minimizing number of nonadjacent loads Nonadjacent load distance farther than the next block .

Block Diagramming: Example Load Summary Chart 1 2 3 FROM/TO DEPARTMENT Department 1 1 2 3 4 5 — 60 2 100 — 100 3 50 200 — 50 4 50 40 — 5 4 5 50 60 — .

Block Diagramming: Example (cont.) 2 2 1 1 4 3 2 3 1 1 3 4 3 2 5 5 5 4 4 5 200 loads 150 loads 110 loads 100 loads 60 loads 50 loads 50 loads 40 loads 0 loads 0 loads Nonadjacent Loads: 110+40=150 0 110 100 150 200 1 2 3 4 4 Grid 1 2 150 200 50 50 40 60 50 110 50 60 3 5 5 40 .

Block Diagramming: Example (cont. includes space requirements (a) Initial block diagram (b) Final block diagram 1 2 4 1 2 4 3 5 3 5 .) Block Diagram type of schematic layout diagram.

Relationship Diagramming Schematic diagram that uses weighted lines to denote location preference Muther’s grid format for displaying manager preferences for department locations .

Relationship Diagramming: Excel .

Relationship A Absolutely necessary E Especially important Diagramming: Example I Important Production O Offices U Stockroom A Shipping and receiving Locker room O Toolroom U U O O O X U A I E A O Okay U Unimportant X Undesirable .

Relationship Diagrams: Example (cont.) (a) Relationship diagram of original layout Offices Locker room Shipping and receiving Key: A E I Production O U X Stockroom Toolroom .

) (b) Relationship diagram of revised layout Stockroom Offices Shipping and receiving Toolroom Production Locker room Key: A E I O U X .Relationship Diagrams: Example (cont.

Computerized layout Solutions CRAFT Computerized Relative Allocation of Facilities Technique CORELAP Computerized Relationship Layout Planning PROMODEL and EXTEND visual feedback allow user to quickly test a variety of scenarios Three-D modeling and CAD integrated layout analysis available in VisFactory and similar software .

easy to clean and secure. are low cost. while encouraging customer to circulate through the entire store . are flexible and visually appealing Grid layouts encourage customer familiarity. increase impulse purchasing.Designing Service Layouts Must be both attractive and functional Types Free flow layouts encourage browsing. and good for repeat customers Loop and Spine layouts both increase customer sightlines and exposure to products.

Types of Store Layouts .

Designing Product Layouts Objective Balance the assembly line Line balancing tries to equalize the amount of work at each workstation Precedence requirements physical restrictions on the order in which operations are performed Cycle time maximum amount of time a product is allowed to spend at each workstation .

Cycle Time Example production time available desired units of output (8 hours x 60 minutes / hour) (120 units) Cd = Cd = Cd = 480 120 = 4 minutes .

4. 4) = 4 minutes .Flow Time vs Cycle Time Cycle time = max time spent at any station Flow time = time to complete all stations 1 4 minutes 2 4 minutes 3 4 minutes Flow time = 4 + 4 + 4 = 12 minutes Cycle time = max (4.

Efficiency of Line and Balance Delay Efficiency i Minimum number of workstations ∑ E= where i=1 ti ∑ N= i=1 i ti Balance delay total idle time of line calculated as (1 efficiency) nCa Cd ti j n Ca Cd = completion time for element i = number of work elements = actual number of workstations = actual cycle time = desired cycle time .

Calculate theoretical minimum number of workstations 4. recognizing cycle time and precedence constraints 5. If not. go back to step 4. Draw and label a precedence diagram 2. Calculate desired cycle time required for line 3. . Determine if theoretical minimum number of workstations or an acceptable efficiency level has been reached. Calculate efficiency of line 6.Line Balancing Procedure 1. Group elements into workstations.

2 PRECEDENCE — A A B.3 0.2 0.4 .Line Balancing: Example WORK ELEMENT A B C D Press out sheet of fruit Cut into strips Outline fun shapes Roll up and package 0.4 0.1 0.3 B 0.1 A C D 0. C TIME (MIN) 0.

2 + 0.) WORK ELEMENT A B C D Press out sheet of fruit Cut into strips Outline fun shapes Roll up and package PRECEDENCE — A A B.000 units 0.4 = 1.0 0.4 0.4 0.3 + 0.2 0.4 minute N= = 2.5 3 workstations .1 + 0.3 Cd = 40 hours x 60 minutes / hour 6.4 = 2400 6000 = 0.1 0. C TIME (MIN) 0.Line Balancing: Example (cont.

1 0.3 0.4 N = 2. C C.1 0.3 0.) WORKSTATION 1 2 3 ELEMENT A B C D B 0.Line Balancing: Example (cont.5 D 0. D D none Cd = 0.1 A C REMAINING TIME 0.0 0.4 .2 REMAINING ELEMENTS B.

3 minute C 0.4 N = 2.4) = 1.833 = 83.0 1.5 E= 0.2 = 0.3 minute Cd = 0.2 + 0.Line Balancing: Example (cont. B 0.1 + 0.3% .) Work station 1 Work station 2 Work station 3 A.4 3(0.3 + 0.4 minute D 0.

Computerized Line Balancing Use heuristics to assign tasks to workstations Longest operation time Shortest operation time Most number of following tasks Least number of following tasks Ranked positional weight .

Hybrid Layouts Cellular layouts group dissimilar machines into work centers (called cells) that process families of parts with similar shapes or processing requirements Production flow analysis (PFA) reorders part routing matrices to identify families of parts with similar processing requirements Flexible manufacturing system automated machining and material handling systems which can produce an enormous variety of items Mixed-model assembly line processes more than one product model in one line .

Cellular Layouts 1. Locate large shared machines at point of use . Identify families of parts with similar flow paths 2. Group machines into cells based on part families 3. Arrange cells so material movement is minimized 4.

Parts Families A family of similar parts A family of related grocery items .

Original Process Layout Assembly 4 6 7 9 5 2 1 3 10 8 12 11 A B C Raw materials .

Part Routing Matrix Parts A B C D E F G H 1 x 2 x x x x x x x x x x x x x x x x x 3 Machines 4 5 6 7 x x x x x x x x 8 x 9 10 11 12 x x x Figure 5.8 .

Revised Cellular Layout Assembly 8 10 9 12 11 4 Cell 1 Cell 2 6 Cell 3 7 2 1 3 5 A B C Raw materials .

Reordered Routing Matrix Parts A D F C G B H E 1 x x x 2 x x 4 x x x Machines 8 10 3 6 x x x x x x x x x x x x x x x x x x 9 5 7 11 12 x x x x .

.

Advantages and Disadvantages of Cellular Layouts Advantages Reduced material handling and transit time Reduced setup time Reduced work-inwork-inprocess inventory Better use of human resources Easier to control Easier to automate Disadvantages Inadequate part families Poorly balanced cells Expanded training and scheduling of workers Increased capital investment .

T.” Industrial Engineering (November 1983) . Black. Make Small Lot Production Economical. “Cellular Manufacturing Systems Reduce Setup Time.Automated Manufacturing Cell Source: J.

Flexible Manufacturing Systems (FMS) FMS consists of numerous programmable machine tools connected by an automated material handling system and controlled by a common computer network FMS combines flexibility with efficiency FMS layouts differ based on variety of parts that the system can process size of parts processed average processing time required for part completion .

Full-Blown FMS .

Mixed Model Assembly Lines Produce multiple models in any order on one assembly line Issues in mixed model lines Line balancing U-shaped lines Flexible workforce Model sequencing .

Balancing U-Shaped Lines UPrecedence diagram: A B C Cycle time = 12 min D E (a) Balanced for a straight line A.D E (b) Balanced for a U-shaped line UA.6666 = 66.D E Efficiency = 24 2(12) = 24 24 = 100 % 12 min 12 min .7 % C.B C.B 9 min Efficiency = 12 min 24 3(12) = 24 36 3 min = .

Chapter 7 Supplement Facility Location Models Operations Management Roberta Russell & Bernard W. Taylor. III .

Lecture Outline Types of Facilities Site Selection: Where to Locate Location Analysis Techniques Supplement 7-374 7- .

Types of Facilities HeavyHeavy-manufacturing facilities large. cleaner plants and usually less costly Retail and service facilities smallest and least costly Supplement 7-375 7- . require a lot of space. and are expensive LightLight-industry facilities smaller.

Factors in Heavy Manufacturing Location Construction costs Land costs Raw material and finished goods shipment modes Proximity to raw materials Utilities Means of waste disposal Labor availability Supplement 7-376 7- .

Factors in Light Industry Location Land costs Transportation costs Proximity to markets depending on delivery requirements including frequency of delivery required by customer Supplement 7-377 7- .

Factors in Retail Location Proximity to customers Location is everything Supplement 7-378 7- .

Site Selection: Where to Locate Infrequent but important being “in the right place at the right time” Location criteria for manufacturing facility nature of labor force labor costs proximity to suppliers and markets distribution and transportation costs energy availability and cost community infrastructure quality of life in community government regulations and taxes Must consider other factors. especially financial considerations Location decisions made more often for service operations than manufacturing facilities Location criteria for service access to customers Supplement 7-379 7- .

duties and tariffs Raw material availability Number and proximity of suppliers Transportation and distribution system Labor cost and education Available technology Commercial travel Technical expertise CrossCross-border trade regulations Group trade agreements Supplement 7-380 7- .Global Location Factors Government stability Government regulations Political and economic systems Economic stability and growth Exchange rates Culture Climate Export/import regulations.

Chamber of Commerce) Supplement 7-381 7- .Regional and Community Location Factors in U. education.. cost. Labor (availability.S.g. and unions) Proximity of customers Number of customers Construction/leasing costs Land cost Modes and quality of transportation Transportation costs Community government Local business regulations Government services (e.

S. sewers) Quality of life Taxes Availability of sites Financial services Community inducements Proximity of suppliers Education system Supplement 7-382 7- . roads.Regional and Community Location Factors in U. (cont.) Business climate Community services Incentive packages Government regulations Environmental regulations Raw material availability Commercial travel Climate Infrastructure (e. water.g..

Location Incentives Tax credits Relaxed government regulation Job training Infrastructure improvement Money Supplement 7-383 7- .

spatial. managing. powerful analytical tools Supplement 7-384 7- .e.Geographic Information Systems (GIS) Computerized system for storing. and digitally displaying geographic. i. analyzing. creating.. integrating. data Specifically used for site selection enables users to integrate large quantities of information about potential sites and analyze these data with many different.

GIS Diagram Supplement 7-385 7- .

Location Analysis Techniques Location factor rating Center-ofCenter-of-gravity LoadLoad-distance Supplement 7-386 7- .

Location Factor Rating Identify important factors Weight factors (0.00) Subjectively score each factor (0 .00 .1.100) Sum weighted scores Supplement 7-387 7- .

10 .05 .15 .Location Factor Rating: Example SCORES (0 TO 100) LOCATION FACTOR Labor pool and climate Proximity to suppliers Wage rates Community environment Proximity to customers Shipping modes Air service WEIGHT .20 .15 .30)(80) = 24 Supplement 7-388 7- .30 .05 Site 1 80 100 60 75 65 85 50 Site 2 65 91 95 80 90 92 65 Site 3 90 75 72 80 95 65 90 Weighted Score for “Labor pool and climate” for Site 1 = (0.

00 15.50 4.00 4.00 10.50 3.50 Site 2 19.00 11.25 80.05 Site 3 has the highest factor rating Supplement 7-389 7- .80 12.50 18.50 82.00 9.25 4.20 14.25 12.Location Factor Rating: Example (cont.25 6.00 9.00 9.50 77.25 2.00 20.80 Site 3 27.60 3.) WEIGHTED SCORES Site 1 24.

Location Factor Rating with Excel and OM Tools Supplement 7-390 7- .

Center-ofCenter-of-Gravity Technique Locate facility at center of movement in geographic area Based on weight and distance traveled. establishes grid-map of gridarea Identify coordinates and weights shipped for each location Supplement 7-391 7- .

W1 (x ∑ Wi i=1 n ∑ Wi i=1 n y1 y3 3 (x3. y3). W2 (x ∑ xiWi i=1 x= n ∑ yiWi i=1 y= n y2 1 (x1. W3 (x where. y1). y = coordinates of new facility at center of gravity xi.GridGrid-Map Coordinates y 2 (x2. yi = coordinates of existing facility i Wi = annual weight shipped from facility i x1 x2 x3 x Supplement 7-392 7- . x. y2).

Center-ofCenter-of-Gravity Technique: Example y 700 600 500 Miles 400 300 200 100 0 100 200 300 400 500 600 700 x Miles Supplement 7-393 7- A C B (105) D A (75) (60) (135) x y Wt 200 200 75 B 100 500 105 C 250 600 135 D 500 300 60 .

Center-ofCenter-of-Gravity Technique: Example (cont.) x= i=1 n ∑ xiWi = n (200)(75) + (100)(105) + (250)(135) + (500)(60) 75 + 105 + 135 + 60 = 238 i=1 n ∑ Wi y= i=1 n ∑ yiWi = (200)(75) + (500)(105) + (600)(135) + (300)(60) 75 + 105 + 135 + 60 = 444 i=1 ∑ Wi Supplement 7-394 7- .

) y 700 600 500 Miles 400 300 200 100 0 100 200 300 400 500 600 700 x Miles Supplement 7-395 7- A C B (105) (135) x y Wt 200 200 75 B 100 500 105 C 250 600 135 D 500 300 60 A Center of gravity (238.Center-ofCenter-of-Gravity Technique: Example (cont. 444) D (60) (75) .

Center-ofCenter-of-Gravity Technique with Excel and OM Tools Supplement 7-396 7- .

LoadLoad-Distance Technique Compute (Load x Distance) for each site Choose site with lowest (Load x Distance) Distance can be actual or straight-line straight- Supplement 7-397 7- .

LoadLoad-Distance Calculations LD = where. yi) = coordinates of existing facility Supplement 7-398 7- . LD = li di di = = = loadload-distance value load expressed as a weight. (x. number of trips or units being shipped from proposed site and location i distance between proposed site and location i (xi .x)2 + (yi .y)2 (y ∑ ld i n i i=1 where.y) (xi .y) = coordinates of proposed site x.

2 dD = 184.3 (500- (xB .4 Supplement 7-399 7- .2 (200(100(100-360)2 + (500-180)2 = 412.x1)2 + (yA .LoadLoad-Distance: Example Potential Sites Site X 1 360 2 420 3 250 Y 180 450 400 A 200 200 75 Suppliers B C 100 250 500 600 105 135 D 500 300 60 X Y Wt Compute distance from each site to each supplier Site 1 dA = dB = (xA .y1)2 = dC = 434.y1)2 = (200(200-360)2 + (200-180)2 = 161.x1)2 + (yB .

7 dD = 170 dD = 269.7) + (60)(170) = 99.789 Site 3 = (75)(206.3) + (135)(434.2) + (60)(434.4) = 125.) Site 2 dA = 333 dB = 323.063 Site 2 = (75)(333) + (105)(323.555* * Choose site 3 Supplement 7-400 7- .2 dB = 180.3 Site 3 dA = 206.9) + (135)(226.LoadLoad-Distance: Example (cont.3) + (135)(200) + (60)(269.9 dC = 226.2) + (105)(412.3) = 77.2) + (105)(180.3 dC = 200 Compute load-distance load- LD = ∑ ld i n i i=1 Site 1 = (75)(161.

LoadLoad-Distance Technique with Excel and OM Tools Supplement 7-401 7- .

Taylor. III .Chapter 8 Human Resources Operations Management Roberta Russell & Bernard W.

Lecture Outline Human Resources and Quality Management Changing Nature of Human Resources Management Contemporary Trends in Human Resources Management Employee Compensation Managing Diversity in Workplace Job Design Job Analysis Learning Curves 8-403 .

Human Resources and Quality Management Employees play important role in quality management Malcolm Baldrige National Quality Award winners have a pervasive human resource focus Employee training and education are recognized as necessary long-term investments Employees have power to make decisions that will improve quality and customer service Strategic goals for quality and customer satisfaction require teamwork and group participation 8-404 .

low costs. and minimal training In a piece-rate wage system. and physical and mental fatigue 8-405 . and job motions (basic physical movements) Advantages of task specialization High output. elements. pay is based on output Disadvantages of task specialization Boredom. lack of motivation.Changing Nature of Human Resources Management Scientific management Breaking down jobs into elemental activities and simplifying job design Assembly-line Production meshed with principles of scientific management Jobs Comprise a set of tasks.

Employee Motivation Motivation willingness to work hard because that effort satisfies an employee need Improving Motivation (cont.) design of jobs to fit employee work responsibility empowerment restructuring of jobs when necessary rewards based on company as well as individual performance achievement of company goals Improving Motivation positive reinforcement and feedback effective organization and discipline fair treatment of people satisfaction of employee needs setting of work-related goals 8-406 .

Evolution of Theories of Employee Motivation Abraham Maslow’s Pyramid of Human Needs Douglas McGregor’s Theory X and Theory Y •Theory X Employee • Dislikes work • Must be coerced • Shirks responsibility • Little ambition • Security top motivator Frederick Herzberg’s Hygiene/Motivation Theories •Hygiene Factors • Company policies • Supervision • Working conditions • Interpersonal relations • Salary. security •Motivation Factors • Achievement • Recognition • Job interest • Responsibility • Growth • Advancement 8-407 SelfSelfactualization Esteem Social Safety/Security Physiological (financial) •Theory Y Employee • Work is natural • Self-directed Self• Controlled • Accepts responsibility • Makes good decisions . status.

Contemporary Trends in Human Resources Management Job training extensive and varied two of Deming’s 14 points refer to employee education and training Empowerment giving employees authority to make decisions Cross Training an employee learns more than one job Teams group of employees work on problems in their immediate work area Job rotation horizontal movement between two or more jobs according to a plan 8-408 .

and financial firms 8-409 .Contemporary Trends in Human Resources Management (cont.) Job enrichment vertical enlargement allows employees control over their work Alternative workplace nontraditional work location Telecommuting employees work electronically from a location they choose horizontal enlargement an employee is assigned a complete unit of work with defined start and end Flexible time part of a daily work schedule in which employees can choose time of arrival and departure Temporary and part-time employees mostly in fast-food and restaurant chains. package delivery services. retail companies.

the more s/he is paid individual incentive or piece rate employees are paid for the number of units they produce during the workday straight salary common form of payment for management commissions usually applied to sales and salespeople 8-410 .Employee Compensation Types of pay hourly wage the longer someone works.

) Gainsharing an incentive plan joins employees in a common effort to achieve company goals in which they share in the gains Profit sharing sets aside a portion of profits for employees at year’s end 8-411 .Employee Compensation (cont.

are becoming majorities Companies must develop a strategic approach to managing diversity 8-412 .Managing Diversity in Workplace Workforce has become more diverse 4 out of every 10 people entering workforce during the decade from 1998 to 2008 will be members of minority groups In 2000 U. primarily Hispanic and Asian.S. Census showed that some minorities.

productivity. Managing Diversity Affirmative action an outgrowth of laws and regulations government initiated and mandated contains goals and timetables designed to increase level of participation by women and minorities to attain parity levels in a company’s workforce not directly concerned with increasing company success or increasing profits Managing diversity process of creating a work environment in which all employees can contribute to their full potential in order to achieve a company’s goals voluntary in nature. and increase product quality. not mandated seeks to improve internal communications and interpersonal relationships. resolve conflict.Affirmative Actions vs. and efficiency 8-413 .

Diversity Management Programs Education Awareness Communication Fairness Commitment 8-414 .

geography significant barriers to managing a globally diverse workforce E-mails. faxes. Internet. air travel make managing a global workforce possible but not necessarily effective How to deal with diversity? identify critical cultural elements learn informal rules of communication use a third party who is better able to bridge cultural gap become culturally aware and learn foreign language teach employees cultural norm of organization 8-415 . language.Global Diversity Issues Cultural. phones.

Attributes of Good Job Design An appropriate degree of repetitiveness An appropriate degree of attention and mental absorption Some employee responsibility for decisions and discretion Employee control over their own job Goals and achievement feedback A perceived contribution to a useful product or service Opportunities for personal relationships and friendships Some influence over the way work is carried out in groups Use of skills 8-416 .

Factors in Job Design Task analysis how tasks fit together to form a job Worker analysis determining worker capabilities and responsibilities for a job Environment analysis physical characteristics and location of a job Ergonomics fitting task to person in a work environment Technology and automation broadened scope of job design 8-417 .

Elements of Job Design 8-418 .

Job Analysis Method Analysis (work methods) Study methods used in the work included in the job to see how it should be done Primary tools are a variety of charts that illustrate in different ways how a job or work process is done 8-419 .

or quality Delay: Process having to wait Storage: Store of the product or service 8-420 .Process Flowchart Symbols Operation: An activity directly contributing to product or service Transportation: Moving the product or service from one location to another Inspection: Examining the product or service for completeness. irregularities.

Process Flowchart 8-421 .

6 Idle WorkerWorkerMachine Chart –2 0.4 Accept card Idle Begin photo process –3 –4 –5 Position customer for photo 1.4 Photo/card processed –6 –7 –8 –9 8-422 Inspect card & trim edges 1.Job Photo-Id Cards PhotoTime (min) Operator Time (min) Date Photo Machine 10/14 –1 Key in customer data on card Feed data card in 2.0 Take picture 0.6 Idle 3.2 Idle .

8 4.2 Min % 52 48 100% 8-423 .2 min % 63 37 100% Photo Machine Time 4.WorkerWorker-Machine Chart: Summary Summary Operator Time Work Idle Total 5.4 9.8 3.4 9.

Motion Study Used to ensure efficiency of motion in a job Frank & Lillian Gilbreth Find one “best way” to do task Use videotape to study motions 8-424 .

rhythmic and symmetric Hand/arm motions coordinated and simultaneous Employ full extent of physical capabilities Conserve energy use machines. no unnecessary motions. use momentum Tasks simple. delays or idleness 8-425 .General Guidelines for Motion Study Efficient Use Of Human Body Work simplified. minimize distances. minimal eye contact and muscular effort.

General Guidelines for Motion Study Efficient Arrangement of Workplace Tools.designated. material. easily accessible location Comfortable and healthy seating and work area Efficient Use of Equipment Equipment and mechanized tools enhance worker abilities Use foot-operated equipment to relieve hand/arm stress footConstruct and arrange equipment to fit worker use 8-426 . equipment .

Learning Curves Illustrates improvement rate of workers as a job is repeated Processing time per unit decreases by a constant percentage each time output doubles Processing time per unit Units produced 8-427 .

) Time required for the nth unit = tn = t1n b where: tn = t1 = n= b= time required for nth unit produced time required for first unit produced cumulative number of units produced ln r where r is the learning curve percentage ln 2 (decimal coefficient) 8-428 .Learning Curves (cont.

Learning Curve Effect Contract to produce 36 computers.315) = 5.8)/ln 2 = (18)(9)-0.8)/ln 2 = (18)(0. 36th units? t9 = (18)(9)ln(0.493) = 8. t1 = 18 hours. learning rate = 80% What is time for 9th.874hrs t18 = (18)(18)ln(0.8)/ln 2 = (18)(0. 18th.394) = 7.092hrs t36 = (18)(36)ln(0.322 = (18)(0.322 = (18)/(9)0.674hrs 8-429 .

Learning Curve for Mass Production Job Processing time per unit End of improvement Standard time Units produced 8-430 .

Learning Curves (cont.) Advantages planning labor planning budget determining scheduling requirements Limitations product modifications negate learning curve effect improvement can derive from sources besides learning industry-derived learning curve rates may be inappropriate 8-431 .

Chapter 8 Supplement Work Measurement Operations Management Roberta Russell & Bernard W. Taylor. III .

Lecture Outline Time Studies Work Sampling Supplement 8-433 8- .

Work Measurement Determining how long it takes to do a job Growing importance in service sector Services tend to be labor-intensive laborService jobs are often repetitive Time studies Standard time is time required by an average worker to perform a job once Incentive piece-rate wage system based on time piecestudy Supplement 8-434 8- .

Establish standard job method Break down job into elements Study job Rate worker’s performance (RF) Compute average time (t) Supplement 8-435 8- . 5. 2. 3. 4.Stopwatch Time Study Basic Steps 1.

Compute normal time Normal Time = (Elemental average) x (rating factor) Nt = (t )(RF) )(RF) Normal Cycle Time = NT = ΣNt 7.Stopwatch Time Study Basic Steps (cont.) 6. Compute standard time Standard Time = (normal cycle time) x (1 + allowance factor) ST = (NT)(1 + AF) Supplement 8-436 8- .

05 1. cheese.47 1.13 1.07 .12 .93 1.056 R .24 3.10 .10 .13 .12 3.10 .03 1.12 .98 3.04 t .14 1. and stack R .25 1.28 1.29 .71 2.07 R .06 .141 3 R .10 .05 .61 Supplement 8-437 8- .96 2.72 1.34 2.10 .11 .14 .67 1.05 .00 .07 .08 .10 .05 .077 .13 .08 .13 2.05 .40 1.01 1.55 .11 .06 .07 . and lettuce on bread t 2 3 4 5 6 7 8 9 10 Σt Approval Jones Date 5/17 Observer Russell Summary t RF Nt .38 .09 .12 .51 4 Place top on sandwich.14 .53 .37 .83 2.10 1.60 2.07 . t .08 .05 .04 .11 t .09 .06 .11 .03 1.72 3.06 .12 .76 2.60 1.77 .79 1.113 Slice.89 3.33 .44 .23 .44 2.82 3.077 1.13 .07 2.28 1.053 1.08 .04 .Performing a Time Study Time Study Observation Sheet Identification of operation Sandwich Assembly Operator Smith Cycles 1 Grasp and lay 1 out bread slices 2 Spread mayonnaise on both slices Place ham.34 1.12 .21 2.50 2.

387)(1+0.053 10 10 Normal time = (Elemental average)(rating factor) Nt = ( t )(RF) = (0.15) = 0.053)(1.387 ST = (NT) (1 + AF) = (0.056 )(RF) Normal Cycle Time = NT = Σ Nt = 0.Performing a Time Study (cont.) Average element time = t = 0.445 min Supplement 8-438 8- .53 Σt = = 0.05) = 0.

Performing a Time Study (cont.7 or 270 sandwiches Example 17.445 min/sandwich = 269.3 Supplement 8-439 8- .) How many sandwiches can be made in 2 hours? 120 min 0.

x)2 = sample standard deviation from sample time study n-1 eT 2 T = average job cycle time from the sample time study e = degree of error from true mean of distribution Supplement 8-440 8- .Number of Cycles To determine sample size: zs n= where z = number of standard deviations from the mean in a normal distribution reflecting a level of statistical confidence s= Σ(xi .

Number of Cycles: Example • Average cycle time = 0.61 or 11 (0.03 • Company wants to be 95% confident that computed time is within 5% of true average time zs n= eT 2 2 = (1.361) Supplement 8-441 8- .361 • Computed standard deviation = 0.05)(0.03) = 10.96)(0.

) Supplement 8-442 8- .Number of Cycles: Example (cont.

000 TMU = 1 hour Disadvantages ignores job context may not reflect skills and abilities of local workers Supplement 8-443 8- .Developing Time Standards without a Time Study Elemental standard time files predetermined job element times Advantages worker cooperation unnecessary workplace uninterrupted performance ratings unnecessary consistent Predetermined motion times predetermined times for basic micro-motions micro- Time measurement units TMUs = 0.0006 minute 100.

Move object to exact location Supplement 8-444 8- .9 4.2 Hand in motion B 2.5 7.6 5.3 2.9 4 6.0 3.2 6.0 22.5 2 3.00 1.6 4.5 1.39 12. Move object to other hand or against stop B.2 B 2. C.9 18. Move object to approximate or indefinite location Source: MTM Association for Standards and Research.5 A.2 C 2.MTM Table for MOVE TIME (TMU) WEIGHT ALLOWANCE DISTANCE MOVED (INCHES) A 3/4 or less 2.0 2.1 … 20 19.1 37.06 Static constant TMU 0 2.7 6.4 5.6 Weight (lb) up to: 2.9 3.3 15.0 1 2.6 3 4.7 8.5 Dynamic factor 1.

easier approach to work measurement Supplement 8-445 8- .Work Sampling Determines the proportion of time a worker spends on activities Primary uses of work sampling are to determine ratio delay percentage of time a worker or machine is delayed or idle analyze jobs that have non-repetitive tasks non- Cheaper.

p) 2 . Define job activities Determine number of observations in work sample n= where n = sample size (number of sample observations) z = number of standard deviations from mean for desired level of confidence e = degree of allowable error in sample estimate p = proportion of time spent on a work activity estimated prior to calculating work sample Supplement 8-446 8- z e p(1 . 2.Steps of Work Sampling 1.

Determine length of sampling period 4. Periodically re-compute number reof observations Supplement 8-447 8- . Conduct work sampling study. record observations 5.Steps of Work Sampling (cont.) 3.

2%. with 95% confidence +/2 n= z e 2 p(1 .Work Sampling: Example What percent of time is spent looking up information? Current estimate is p = 30% Estimate within +/.38)(0.02 (0. p = 38% z e 2 2 n= p(1 .3)(0.7) = 2016.02 (0.62) = 2263 Supplement 8-448 8- .p) = 1.84 or 2017 After 280 observations.96 0.p) = 1.96 0.

Supplement 8-449 8- .

III . Taylor.Chapter 9 Project Management Operations Management Roberta Russell & Bernard W.

Lecture Outline Project Planning Project Scheduling Project Control CPM/PERT Probabilistic Activity Times Microsoft Project Project Crashing and Time-Cost Trade-off 9-451 .

Project Management Process Project unique. one-time operational activity or effort 9-452 .

Project Management Process (cont.) 9-453 .

Project Management Process (cont.) 9-454 .

Project Elements Objective Scope Contract requirements Schedules Resources Personnel Control Risk and problem analysis 9-455 .

depending on skills required Project manager most important member of project team 9-456 .Project Team and Project Manager Project team made up of individuals from various areas and departments within a company Matrix organization a team structure with members from functional areas.

justification. and tasks 9-457 . and expected result of a project Statement of work written description of objectives of a project Work breakdown structure (WBS) breaks down a project into components. activities. subcomponents.Scope Statement and Work Breakdown Structure Scope statement a document that provides an understanding.

Work Breakdown Structure for Computer Order Processing System Project 9-458 .

Responsibility Assignment Matrix Organizational Breakdown Structure (OBS) a chart that shows which organizational units are responsible for work items Responsibility Assignment Matrix (RAM) shows who is responsible for work in a project 9-459 .

Global and Diversity Issues in Project Management In existing global business environment. cultures. etc. ethnicities. project teams are formed from different genders. In global projects diversity among team members can add an extra dimension to project planning Cultural research and communication are important elements in planning process 9-460 .

Project Scheduling Steps Define activities Sequence activities Estimate time Develop schedule Techniques Gantt chart CPM/PERT Microsoft Project 9-461 .

Gantt Chart Graph or bar chart with a bar for each project activity that shows passage of time Provides visual display of project schedule Slack amount of time an activity can be delayed without delaying the project 9-462 .

Example of Gantt Chart 0 Activity Design house and obtain financing Lay foundation Order and receive materials Build house | 2 | Month 4 | 6 | 8 | 10 Select paint Select carpet 1 Finish work 3 Month 5 7 9 9-463 .

Project Control Time management Cost management Quality management Performance management Earned Value Analysis a standard procedure for numerically measuring a project’s progress. forecasting its completion date and cost and measuring schedule and budget variation Communication Enterprise project management 9-464 .

Allen & Hamilton Multiple task time estimates. probabilistic Activity-onActivity-on-arrow network construction 9-465 .CPM/PERT Critical Path Method (CPM) DuPont & Remington-Rand (1956) RemingtonDeterministic task times Activity-onActivity-on-node network construction Project Evaluation and Review Technique (PERT) US Navy. Booz.

and arrows show precedence relationships Node 1 2 3 Activity-on-arrow (AOA) arrows represent activities and nodes are events for points in time Event completion or beginning of an activity in a project Branch Dummy two or more activities cannot share same start and end nodes 9-466 .Project Network Activity-on-node (AON) nodes represent activities.

AOA Project Network for a House 3 2 0 1 Order and receive materials Lay foundation 3 Design house and obtain financing Dummy Build house Finish work 1 2 4 Select paint 1 3 1 6 Select carpet 1 7 5 9-467 .

Concurrent Activities Lay foundation 3 Lay foundation Dummy 2 1 Order material (b) Correct precedence relationship 0 2 3 2 Order material 4 (a) Incorrect precedence relationship 9-468 .

AON Network for House Building Project Lay foundations Build house 2 2 Start 1 3 3 1 5 1 4 3 Finish work 7 1 6 1 Select carpet Design house and obtain financing Order and receive materials Select paint 9-469 .

Critical Path 2 2 Start 1 3 3 1 5 1 6 1 4 3 7 1 A: B: C: D: 1-2-4-7 3 + 2 + 3 + 1 = 9 months 1-2-5-6-7 3 + 2 + 1 + 1 + 1 = 8 months 1-3-4-7 3 + 1 + 3 + 1 = 8 months 1-3-5-6-7 3 + 1 + 1 + 1 + 1 = 7 months Critical path Longest path through a network Minimum project completion time 9-470 .

Activity Start Times Start at 5 months 2 2 Start 4 3 Finish at 9 months 1 3 3 1 Start at 3 months 7 1 6 1 Start at 6 months Finish 5 1 9-471 .

Node Configuration Activity number Earliest start Earliest finish 1 3 0 0 3 3 Latest finish Activity duration Latest start 9-472 .

Activity Scheduling Earliest start time (ES) earliest time an activity can start ES = maximum EF of immediate predecessors Forward pass starts at beginning of CPM/PERT network to determine earliest activity times Earliest finish time (EF) earliest time an activity can finish earliest start time plus activity time EF= ES + t 9-473 .

Earliest Activity Start and Finish Times Lay foundations Build house Start 2 2 1 1 0 3 3 5 4 3 7 1 6 6 7 Finish work 5 8 8 9 Design house and obtain financing 3 1 3 4 5 1 Select pain 1 5 6 Select carpet Order and receive materials 9-474 .

Activity Scheduling (cont.) Latest start time (LS) Latest time an activity can start without delaying critical path time LS= LF .t Latest finish time (LF) latest time an activity can be completed without delaying critical path time LF = minimum LS of immediate predecessors Backward pass Determines latest activity times by starting at the end of CPM/PERT network and working forward 9-475 .

Latest Activity Start and Finish Times Lay foundations Build house Start 2 2 1 1 0 0 3 3 3 3 5 5 4 3 5 5 8 8 7 1 6 6 7 7 8 8 8 9 9 Design house and obtain financing Finish work 3 1 3 4 4 5 5 1 5 6 6 7 1 Select carpet Order and receive materials Select pain 9-476 .

Activity Slack Activity *1 *2 3 *4 5 6 *7 * Critical Path LS 0 3 4 5 6 7 8 ES 0 3 3 5 5 6 8 LF 3 5 5 8 7 8 9 EF 3 5 4 8 6 7 9 Slack S 0 0 1 0 1 1 0 9-477 .

Probabilistic Time Estimates Beta distribution a probability distribution traditionally used in CPM/PERT Mean (expected time): t= a + 4m + b 4m 6 2 Variance: where σ = 2 b-a 6 a = optimistic estimate m = most likely time estimate b = pessimistic time estimate 9-478 .

Examples of Beta Distributions P(time) P(time) a m t Time b a Time t m b P(time) a m=t Time b 9-479 .

7.11 Start 2 3.4.4 Job Training 9 2.4.Project Network with Probabilistic Time Estimates: Example Equipment installation 1 6.3.12 8 Manual testing 3.9 Position recruiting Finish 5 2.2 9-480 .5 6 3.5 Orientation 7 2.13 System changeover 3 1.10 System development 4 Equipment testing and modification System training Final debugging 10 1.7 11 2.4.6 System testing 1.2.10.3.4.6.8.

44 1.00 4.78 0.44 1.78 0.00 1.44 2.00 9-481 1 2 3 4 5 6 7 8 9 10 11 .11 0.11 0.Activity Time Estimates TIME ESTIMATES (WKS) ACTIVITY MEAN TIME VARIANCE a 6 3 1 2 2 3 2 3 2 1 1 m 8 6 3 4 3 4 2 7 4 4 10 b 10 9 5 12 4 5 2 11 6 7 13 t 8 6 3 5 3 4 2 7 4 4 9 б2 0.00 0.

44 1.00 ES EF LS LF S 1 2 3 4 5 6 7 8 9 10 11 0 0 0 8 6 3 3 9 9 13 16 8 6 3 13 9 7 5 16 13 17 25 1 0 2 16 6 5 14 9 12 21 16 9 6 5 21 9 9 16 16 16 25 25 1 0 2 8 0 2 11 0 3 8 0 9-482 .Activity Early.78 0.44 1.00 1.44 2.78 0. Late Times.00 4.11 0. and Slack ACTIVITY t 8 6 3 5 3 4 2 7 4 4 9 б2 0.00 0.11 0.

and Slack 1 0 8 1 8 9 4 8 5 16 21 8 9 7 9 5 6 3 6 6 3 4 5 9 16 13 Critical Path 10 13 17 1 0 3 Finish Start 2 0 6 0 6 16 13 11 16 25 6 9 7 3 0 3 2 3 9 9 4 12 16 9 16 25 5 9 7 3 5 2 14 16 9-483 .Earliest. Latest.

89 weeks 9-484 .11 + 1.00 + 0.78 + 4.00 = 6.Total project variance σ2 = б22 + б52 + б82 + б112 σ = 1.

9-485 .

Probabilistic Network Analysis Determine probability that project is completed within specified time Z= where x-µ σ µ = tp = project mean time σ = project standard deviation x = proposed project time Z = number of standard deviations x is from mean 9-486 .

Normal Distribution of Project Time Probability Zσ µ = tp x Time 9-487 .

(appendix A) a Z score of 1.5000 = 0.4719 + 0.89 Z = = x-µ σ = 2.89 weeks = 6.91 Time (weeks) From Table A.9719 9-488 .62 weeks 30 .1.Southern Textile Example What is the probability that the project is completed within 30 weeks? P(x ≤ 30 weeks) σ σ σ µ = 25 x = 30 2 = 6.25 2.91 corresponds to a probability of 0.62 = 1. Thus P(30) = 0.4719.

25 2.1271 9-489 .0.62 weeks 22 .89 Z = = x-µ σ = 2.14 corresponds to a probability of 0. Thus P(22) = 0.3729 = 0.89 weeks = 6.3729.1 (appendix A) a Z score of -1.62 = -1.14 x = 22 µ = 25 Time (weeks) From Table A.Southern Textile Example What is the probability that the project is completed within 22 weeks? P(x ≤ 22 weeks) σ σ σ 2 = 6.5000 .

Microsoft Project Popular software package for project management and CPM/PERT analysis Relatively easy to use 9-490 .

) 9-491 .Microsoft Project (cont.

Microsoft Project (cont.) 9-492 .

) 9-493 .Microsoft Project (cont.

Microsoft Project (cont.) 9-494 .

) 9-495 .Microsoft Project (cont.

Microsoft Project (cont.) 9-496 .

PERT Analysis with Microsoft Project 9-497 .

PERT Analysis with Microsoft Project (cont.) 9-498 .

) 9-499 .PERT Analysis with Microsoft Project (cont.

Project Crashing Crashing reducing project time by expending additional resources Crash time an amount of time an activity is reduced Crash cost cost of reducing activity time Goal reduce project duration at minimum cost 9-500 .

Project Network for Building a House 2 8 1 12 4 12 7 4 3 4 6 4 5 4 9-501 .

000 – Normal activity Crash cost Crashed activity Slope = crash cost per week $3.000 – 0 – | 2 Crash time Normal time | 4 | 6 | 8 | 10 | 12 | 14 Weeks 9-502 .Normal Time and Cost vs.000 – $1.000 – $6.000 – $5.000 – Normal cost $2.000 – $4. Crash Time and Cost $7.

000 2.700 5 3 1 3 3 3 1 $400 500 3.000 4.000 3.000 200 200 7.000 7.000 500 500 15.000 $75.000 50.000 $5.Project Crashing: Example NORMAL TIME (WEEKS) CRASH TIME (WEEKS) TOTAL ALLOWABLE CRASH TIME (WEEKS) CRASH COST PER WEEK ACTIVITY NORMAL COST CRASH COST 1 2 3 4 5 6 7 12 8 4 12 4 4 4 7 5 3 9 1 1 3 $3.100 1.500 7.000 9-503 .000 $110.000 71.100 22.000 1.

$500 2 8 1 12 $7000 4 12 $700 7 4 6 4 $200 $500 2 8 Project Duration: 36 weeks FROM … $400 3 4 $3000 5 4 $200 $7000 4 12 $700 7 4 6 4 $200 TO… Project Duration: 31 weeks Additional Cost: $2000 1 7 $400 3 4 $3000 5 4 $200 9-504 .

TimeTime-Cost Relationship Crashing costs increase as project duration decreases Indirect costs increase as project duration increases Reduce project length as long as crashing costs are less than indirect costs 9-505 .

TimeTime-Cost Tradeoff Minimum cost = optimal project time Total project cost Indirect cost Cost ($) Direct cost Crashing Project duration 9-506 Time .

III .Chapter 10 Supply Chain Management Strategy and Design Operations Management Roberta Russell & Bernard W. Taylor.

Lecture Outline The Management of Supply Chains Information Technology: A Supply Chain Enabler Supply Chain Integration Supply Chain Management (SCM) Software Measuring Supply Chain Performance 10-508 10- .

” “make. functions.” and “deliver” products 10-509 10- . as well as the associated information flows An integrated group of processes to “source.Supply Chains All facilities. and activities associated with flow and transformation of goods and services from raw materials to customer.

Supply Chain Illustration 10-510 10- .

Supply Chain for Denim Jeans 10-511 10- .

Supply Chain for Denim Jeans (cont.) 10-512 10- .

Supply Chain Processes 10-513 10- .

Supply Chain for Service Providers More difficult than manufacturing Does not focus on the flow of physical goods Focuses on human resources and support services More compact and less extended 10-514 10- .

Value Chains Value chain every step from raw materials to the eventual end user ultimate goal is delivery of maximum value to the end user Supply chain activities that get raw materials and subassemblies into manufacturing operation ultimate goal is same as that of value chain Demand chain increase value for any part or all of chain Terms are used interchangeably Value creation of value for customer is important aspect of supply chain management 10-515 10- .

Supply Chain Management (SCM) Managing flow of information through supply chain in order to attain the level of synchronization that will make it more responsive to customer needs while lowering costs Keys to effective SCM information communication cooperation trust 10-516 10- .

Supply Chain Uncertainty and Inventory One goal in SCM: respond to uncertainty in customer demand without creating costly excess inventory Factors that contribute to uncertainty inaccurate demand forecasting long variable lead times late deliveries incomplete shipments product changes batch ordering price fluctuations and discounts inflated orders Negative effects of uncertainty lateness incomplete orders Inventory insurance against supply chain uncertainty 10-517 10- .

Bullwhip Effect Occurs when slight demand variability is magnified as information moves back upstream 10-518 10- .

Risk Pooling Risks are aggregated to reduce the impact of individual risks Combine inventories from multiple locations into one Reduce parts and product variability. thereby reducing the number of product components Create flexible capacity 10-519 10- .

Information Technology: A Supply Chain Enabler Information links all aspects of supply chain E-business replacement of physical business processes with electronic ones Electronic data interchange (EDI) a computer-to-computer exchange of business documents Bar code and point-of-sale data creates an instantaneous computer record of a sale 10-520 10- .

extensive communication with suppliers and customer 10-521 10- . shippers and other businesses around the world instantaneously Build-to-order (BTO) direct-sell-to-customers model via the Internet.Information Technology: A Supply Chain Enabler (cont.) Radio frequency identification (RFID) technology can send product data from an item to a reader via radio waves Internet allows companies to communicate with suppliers. customers.

Supply Chain Enablers 10-522 10- .

RFID Capabilities 10-523 10- .

RFID Capabilities (cont.) 10-524 10- .

) Higher capacity utilization Improved customer service levels 10-525 10- . and design Reduced bullwhip effect Lower costs (material. operating. replenishment.Supply Chain Integration Information sharing among supply chain members Reduced bullwhip effect Early problem detection Faster response Builds trust and confidence Collaborative planning. logistics. forecasting. etc.

) Coordinated workflow. production and operations. procurement Production efficiencies Fast response Improved service Quicker to market Adopt new business models and technologies Penetration of new markets Creation of new products Improved efficiency Mass customization 10-526 10- .Supply Chain Integration (cont.

and Replenishment (CPFR) Process for two or more companies in a supply chain to synchronize their demand forecasts into a single plan to meet customer demand Parties electronically exchange past sales trends point-of-sale data on-hand inventory scheduled promotions forecasts 10-527 10- . Forecasting.Collaborative Planning.

Supply Chain Management (SCM) Software Enterprise resource planning (ERP) software that integrates the components of a company by sharing and organizing information and data 10-528 10- .

Key Performance Indicators Metrics used to measure supply chain performance Inventory turnover Inventory turns = Cost of goods sold Average aggregate value of inventory Total value (at cost) of inventory Average aggregate value of inventory = ∑ (average inventory for item i ) × (unit value item i ) Days of supply Days of supply = Average aggregate value of inventory (Cost of goods sold)/(365 days) Fill rate: fraction of orders filled by a distribution center within a specific time period 10-529 10- .

Computing Key Performance Indicators 10-530 10- .

Process Control and SCOR Process Control not only for manufacturing operations can be used in any processes of supply chain Supply Chain Operations Reference (SCOR) a cross industry supply chain diagnostic tool maintained by the Supply Chain Council 10-531 10- .

SCOR 10-532 10- .

SCOR (cont.)

10-533 10-

Chapter 11
Global Supply Chain Procurement and Distribution
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Procurement E-Procurement Distribution Transportation The Global Supply Chain

11-535 11-

Procurement
The purchase of goods and services from suppliers Cross enterprise teams
coordinate processes between a company and its supplier

OnOn-demand (direct-response) delivery (directrequires the supplier to deliver goods when demanded by the customer

Continuous replenishment
supplying orders in a short period of time according to a predetermined schedule

11-536 11-

Outsourcing
Sourcing
selection of suppliers

Outsourcing
purchase of goods and services from an outside supplier

Core competencies
what a company does best

Single sourcing
a company purchases goods and services from only a few (or one) suppliers
11-537 11-

Categories of Goods and Services...

11-538 11-

E-Procurement
Direct purchase from suppliers over the Internet, by using software packages or through e-marketplaces, e-hubs, and eetrading exchanges Can streamline and speed up the purchase order and transaction process

11-539 11-

E-Procurement (cont.)
What can companies buy over the Internet?
Manufacturing inputs
the raw materials and components that go directly into the production process of the product

Operating inputs
maintenance, repair, and operation goods and services
11-540 11-

E-Procurement (cont.)
E-marketplaces (e-hubs) (eWebsites where companies and suppliers conduct business-to-business activities business-to-

Reverse auction
process used by e-marketplaces for buyers eto purchase items; company posts orders on the internet for suppliers to bid on

11-541 11-

Distribution
Encompasses all channels, processes, and functions, including warehousing and transportation, that a product passes on its way to final customer Order fulfillment process of ensuring on-time delivery of an order onLogistics transportation and distribution of goods and services Driving force today is speed Particularly important for Internet dot-coms dot-

11-542 11-

Distribution Centers (DC) and Warehousing
DCs are some of the largest business facilities in the United States Trend is for more frequent orders in smaller quantities FlowFlow-through facilities and automated material handling Postponement final assembly and product configuration may be done at the DC
11-543 11-

Warehouse Management Systems
Highly automated system that runs day-to-day day-tooperations of a DC Controls item putaway, picking, packing, and shipping Features transportation management order management yard management labor management warehouse optimization

11-544 11-

A WMS
11-545 11-

VendorVendor-Managed Inventory
Manufacturers generate orders, not distributors or retailers Stocking information is accessed using EDI A first step towards supply chain collaboration Increased speed, reduced errors, and improved service

11-546 11-

Collaborative Logistics and Distribution Outsourcing
Collaborative planning, forecasting, and replenishment create greater economies of scale InternetInternet-based exchange of data and information Significant decrease in inventory levels and costs and more efficient logistics Companies focus on core competencies
11-547 11-

Transportation
Rail
low-value, high-density, bulk products, raw materials, intermodal containers not as economical for small loads, slower, less flexible than trucking

Trucking
main mode of freight transport in U.S. small loads, point-to-point service, flexible More reliable, less damage than rails; more expensive than rails for long distance

11-548 11-

Transportation (cont.)
Air
most expensive and fastest, mode of freight transport lightweight, small packages <500 lbs high-value, perishable and critical goods less theft

Package Delivery
small packages fast and reliable increased with e-Business primary shipping mode for Internet companies
11-549 11-

Transportation (cont.)
Water
low-cost shipping mode primary means of international shipping U.S. waterways slowest shipping mode

Intermodal
combines several modes of shippingtruck, water and rail key component is containers

Pipeline
transport oil and products in liquid form high capital cost, economical use long life and low operating cost
11-550 11-

com 11-551 11- .com www. auctions Examples www.Internet Transportation Exchanges Bring together shippers and carriers Initial contact. negotiations.nte.freightquote.

Global Supply Chain
International trade barriers have fallen New trade agreements To compete globally requires an effective supply chain Information technology is an “enabler” of global trade

11-552 11-

Obstacles to Global Chain Transactions
Increased documentation for invoices, cargo insurance, letters of credit, ocean bills of lading or air waybills, and inspections Ever changing regulations that vary from country to country that govern the import and export of goods Trade groups, tariffs, duties, and landing costs Limited shipping modes Differences in communication technology and availability

11-553 11-

Obstacles to Global Chain Transactions (cont.)
Different business practices as well as language barriers Government codes and reporting requirements that vary from country to country Numerous players, including forwarding agents, custom house brokers, financial institutions, insurance providers, multiple transportation carriers, and government agencies Since 9/11, numerous security regulations and requirements

11-554 11-

Duties and Tariffs
Proliferation of trade agreements Nations form trading groups
no tariffs or duties within group charge uniform tariffs to nonmembers

Member nations have a competitive advantage within the group Trade specialists
include freight forwarders, customs house brokers, export packers, and export management and trading companies

11-555 11-

Duties and Tariffs (cont.)

11-556 11-

Landed Cost
Total cost of producing, storing, and transporting a product to the site of consumption or another port Value added tax (VAT)
an indirect tax assessed on the increase in value of a good at any stage of production process from raw material to final product

Clicker shock
occurs when an ordered is placed with a company that does not have the capability to calculate landed cost
11-557 11-

WebWeb-based International Trade Logistic Systems
International trade logistics web-based software systems reduce obstacles to global trade
convert language and currency provide information on tariffs, duties, and customs processes attach appropriate weights, measurements, and unit prices to individual products ordered over the Web incorporate transportation costs and conversion rates calculate shipping costs online while a company enters an order track global shipments

11-558 11-

Recent Trends in Globalization for U.S. Companies
Two significant changes
passage of NAFTA admission of China in WTO

Mexico
cheap labor and relatively short shipping time

China
cheaper labor and longer work week, but lengthy shipping time Major supply chains have moved to China
11-559 11-

China’s Increasing Role in the Global Supply Chain World’s premier sources of supply Abundance of low-wage labor lowWorld’s fastest growing market Regulatory changes have liberalized its market Increased exporting of higher technology products
11-560 11-

Models in Doing Business in China
Employ local third-party trading agents thirdWhollyWholly-owned foreign enterprise Develop your own international procurement offices

11-561 11-

Challenges Sourcing from China
Getting reliable information in more difficult than in the U.S. Information technology is much less advanced and sophisticated than in the U.S. Work turnover rates among low-skilled lowworkers is extremely high
11-562 11-

Effects of 9/11 on Global Chains
Increase security measures
added time to supply chain schedules Increased supply chain costs

24 hours rules for “risk screening”
extended documentation extend time by 3-4 days 3-

Inventory levels have increased 5% Other costs include:
new people, technologies, equipment, surveillance, communication, and security systems, and training necessary for screening at airports and seaports around the world
11-563 11-

Chapter 11 Supplement
Transportation and Transshipment Models
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Transportation Model Transshipment Model

Supplement 11-565 11-

Transportation Model
A transportation model is formulated for a class of problems with the following characteristics
a product is transported from a number of sources to a number of destinations at the minimum possible cost each source is able to supply a fixed number of units of product each destination has a fixed demand for product

Solution Methods
steppingstepping-stone modified distribution Excel’s Solver

Supplement 11-566 11-

Transportation Method: Example

Supplement 11-567 11-

Transportation Method: Example

Supplement 11-568 11-

Problem Formulation Using Excel

Total Cost Formula

Supplement 11-569 11-

Using Solver from Tools Menu Supplement 11-570 11- .

Solution Supplement 11-571 11- .

Modified Problem Solution Supplement 11-572 11- .

Transshipment Model Supplement 11-573 11- .

Transshipment Model: Solution Supplement 11-574 11- .

Taylor. III .Chapter 12 Forecasting Operations Management Roberta Russell & Bernard W.

Lecture Outline Strategic Role of Forecasting in Supply Chain Management Components of Forecasting Demand Time Series Methods Forecast Accuracy Time Series Forecasting Using Excel Regression Methods 12-576 12- .

Forecasting Predicting the future Qualitative forecast methods subjective Quantitative forecast methods based on mathematical formulas 12-577 12- .

Forecasting and Supply Chain Management Accurate forecasting determines how much inventory a company must keep at various points along its supply chain Continuous replenishment supplier and customer share continuously updated data typically managed by the supplier reduces inventory for the company speeds customer delivery Variations of continuous replenishment quick response JIT (just-in-time) (just-inVMI (vendor-managed inventory) (vendorstockless inventory 12-578 12- .

Forecasting Quality Management Accurately forecasting customer demand is a key to providing good quality service Strategic Planning Successful strategic planning requires accurate forecasts of future products and markets 12-579 12- .

Types of Forecasting Methods Depend on time frame demand behavior causes of behavior 12-580 12- .

midShort.to mid-range forecast typically encompasses the immediate future daily up to two years LongLong-range forecast usually encompasses a period of time longer than two years 12-581 12- .Time Frame Indicates how far into the future is forecast Short.

Demand Behavior Trend a gradual. long-term up or down movement of longdemand Random variations movements in demand that do not follow a pattern Cycle an up-and-down repetitive movement in demand up-and- Seasonal pattern an up-and-down repetitive movement in demand up-andoccurring periodically 12-582 12- .

Forms of Forecast Movement Demand Demand Random movement Time (a) Trend Time (b) Cycle Time (c) Seasonal pattern Demand Time (d) Trend with seasonal pattern 12-583 12- Demand .

and opinion to predict future demand 12-584 12- . expertise.Forecasting Methods Time series statistical techniques that use historical demand data to predict future demand Regression methods attempt to develop a mathematical relationship between demand and factors that cause its behavior Qualitative use management judgment.

and engineering are sources for internal qualitative forecasts Delphi method involves soliciting forecasts about technological advances from experts 12-585 12- .Qualitative Methods Management. marketing. purchasing.

Select new forecast model or adjust parameters of existing model Yes 8a.Forecasting Process 1. Identify the purpose of forecast 2. Plot data and identify patterns 6. Check forecast accuracy with one or more measures 5. Is accuracy of forecast acceptable? No 8b. Select a forecast model that seems appropriate for data 7. Monitor results and measure forecast accuracy 12-586 12- . Forecast over planning horizon 9. Develop/compute forecast for period of historical data 4. Collect historical data 3. Adjust forecast based on additional qualitative information and insight 10.

time Include moving average exponential smoothing linear trend line 12-587 12- .Time Series Assume that what has occurred in the past will continue to occur in the future Relate the forecast to only one factor .

Moving Average Naive forecast demand in current period is used as next period’s forecast Simple moving average uses average demand for a fixed sequence of periods stable demand with no pronounced behavioral patterns Weighted moving average weights are assigned to most recent data 12-588 12- .

Moving Average: Naïve Approach MONTH ORDERS PER MONTH Jan Feb Mar Apr May June July Aug Sept Oct Nov 12-589 12- FORECAST 120 90 120 100 90 75 100 110 75 50 110 75 50 130 75 110 130 90 110 90 .

Simple Moving Average n MAn = where i=1 Σ D i n n = number of periods in the moving average Di = demand in period i 12-590 12- .

3 88.0 110.0 MONTH Jan Feb Mar Apr May June July Aug Sept Oct Nov MA3 = i=1 Σ 3 Di 3 90 + 110 + 130 3 = = 110 orders for Nov 12-591 12- .0 78.3 95.0 105.3 85.3-month Simple Moving Average ORDERS PER MONTH 120 90 100 75 110 50 75 130 110 90 MOVING AVERAGE – – – 103.3 78.

5-month Simple Moving Average ORDERS PER MONTH 120 90 100 75 110 50 75 130 110 90 MOVING AVERAGE – – – – – 99.0 MONTH Jan Feb Mar Apr May June July Aug Sept Oct Nov MA5 = i=1 Σ 5 Di 5 = 90 + 110 + 130+75+50 5 = 91 orders for Nov 12-592 12- .0 95.0 88.0 82.0 91.0 85.

Smoothing Effects 150 – 125 – 100 – Orders 75 – 50 – 25 – 0– | Jan | Feb | Mar Actual 3-month 5-month | | | | Apr May June July Month | | Aug Sept | Oct | Nov 12-593 12- .

00 12-594 12- . between 0 and 100 percent Σ Wi = 1.Weighted Moving Average Adjusts moving average method to more closely reflect data fluctuations WMAn = where i=1 Σ Wi Di n Wi = the weight for period i.

50)(90) + (0.33)(110) + (0.Weighted Moving Average Example MONTH August September October WEIGHT 17% 33% 50% 3 DATA 130 110 90 November Forecast WMA3 = Σ1 Wi Di i= = (0.17)(130) = 103.4 orders 12-595 12- .

accurate method 12-596 12- .Exponential Smoothing Averaging method Weights most recent data more strongly Reacts more to recent changes Widely used.

Exponential Smoothing (cont.α)Ft where: Ft +1 = forecast for next period Dt = actual demand for present period Ft = previously determined forecast for present period α = weighting factor. smoothing constant 12-597 12- .) Ft +1 = α Dt + (1 .

Effect of Smoothing Constant 0. then Ft +1 = 0 Dt + 1 Ft = Ft Forecast does not reflect recent data If α = 1. then Ft +1 = 1 Dt + 0 Ft = Dt Forecast based only on most recent data 12-598 12- . then Ft +1 = 0.20 Dt + 0.80 Ft If α = 0.0 ≤ α ≤ 1.20.0 If α = 0.

79 12-599 12- .30)(54) + (0.70)(37) = 37.9 F13 = αD12 + (1 .30) (α PERIOD 1 2 3 4 5 6 7 8 9 10 11 12 MONTH Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec DEMAND 37 40 41 37 45 50 43 47 56 52 55 54 F2 = αD1 + (1 .70)(50.30)(40) + (0.α)F12 = (0.α)F1 = (0.Exponential Smoothing (α=0.α)F2 = (0.84) = 51.30)(37) + (0.70)(37) = 37 F3 = αD2 + (1 .

3) (α = 0.85 51.00 38.29 43.28 40.42 53.37 41.30 47.21 53.83 38.84 44. Ft + 1 (α = 0.90 38.71 50.) PERIOD 1 2 3 4 5 6 7 8 9 10 11 12 13 MONTH Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan DEMAND 37 40 41 37 45 50 43 47 56 52 55 54 – FORECAST.61 12-600 12- .68 45.5) – 37.81 49.Exponential Smoothing (cont.84 51.75 38.06 50.50 39.20 43.79 – 37.14 44.42 45.00 37.

) 70 – 60 – 50 – Orders 40 – α = 0.Exponential Smoothing (cont.30 30 – 20 – 10 – 0– | 1 | 2 | 3 | 4 | 5 | 6 Month 12-601 12- Actual α = 0.50 | 7 | 8 | 9 | 10 | 11 | 12 | 13 .

β) Tt where Tt = the last period trend factor β = a smoothing constant for trend AFt +1 = Ft +1 + Tt +1 12-602 12- .Ft) + (1 .Adjusted Exponential Smoothing where T = an exponentially smoothed trend factor Tt +1 = β(Ft +1 .

77) = 1.70)(1.5 .β) T12 = (0.Adjusted Exponential Smoothing (β=0.5 + 0.36 = 54.30)(38.37.97 12-603 12- .45 AF3 = F3 + T3 = 38.30) (β PERIOD 1 2 3 4 5 6 7 8 9 10 11 12 MONTH Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec DEMAND 37 40 41 37 45 50 43 47 56 52 55 54 T3 = β(F3 .β) T2 = (0.30)(53.61 + 1.53.70)(0) = 0.95 T13 = β(F13 .0) + (0.36 AF13 = F13 + T13 = 53.21) + (0.45 = 38.F2) + (1 .F12) + (1 .61 .

95 40.50 39.77 1.00 38.42 53.05 2.71 50.75 38.00 0.36 – 37.44 38.07 0.07 1.00 38.44 38.37 38.76 58.85 51.84 44.61 TREND ADJUSTED Tt +1 FORECAST AFt +1 – 0.97 0.42 45.44 47.21 53.98 54.82 45.76 1.37 45.Adjusted Exponential Smoothing: Example PERIOD 1 2 3 4 5 6 7 8 9 10 11 12 13 MONTH Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan DEMAND 37 40 41 37 45 50 43 47 56 52 55 54 – FORECAST Ft +1 37.37 46.96 12-604 12- .45 0.28 1.13 53.19 54.69 0.95 1.00 37.

50) (α .30) (β 60 – Actual 50 – Demand 40 – 30 – 20 – 10 – 0– | 1 | 2 | 3 | 4 | 5 | | 6 7 Period | 8 | 9 | 10 | 11 | 12 | 13 12-605 12- Forecast (α = 0.Adjusted Exponential Smoothing Forecasts 70 – Adjusted forecast (β = 0.

nx2 Σx a = y-bx where n = number of periods Σx x = n = mean of the x values Σy y = n = mean of the y values 12-606 12- where a = intercept b = slope of the line x = time period y = forecast for demand for period x .nxy b = 2 .Linear Trend Line y = a + bx Σ xy .

Least Squares Example x(PERIOD) 1 2 3 4 5 6 7 8 9 10 11 12 78 43 47 56 52 55 54 557 y(DEMAND) 73 40 41 37 45 50 xy 37 80 123 148 225 300 301 376 504 520 605 648 3867 x2 1 4 9 16 25 36 49 64 81 100 121 144 650 12-607 12- .

(12)(6.nx2 x = y = = 6.72)(6.5)(46.12(6.bx = 46.(1.72 3867 .5)2 a = y .42 .5) = 35.Least Squares Example (cont.nxy b = 2 ∑x .) 78 12 557 12 ∑xy .42) = 650 .2 12-608 12- .5 = 46.42 =1.

2 + 1.Linear trend line y = 35.72x Forecast for period 13 y = 35.72(13) = 57.2 + 1.56 units 70 – 60 – 50 – Demand 40 – Linear trend line 30 – 20 – 10 – 0– | 1 | 2 | 3 | 4 | 5 | | 6 7 Period | 8 | 9 | 10 | 11 | 12 | 13 Actual 12-609 12- .

Seasonal Adjustments Repetitive increase/ decrease in demand Use seasonal factor to adjust forecast Di ∑D Seasonal factor = Si = 12-610 12- .

9 S3 = = = 0.3 7.1 21.3 42.15 ∑D 148.5 18.0 8.2 19.1 15.6 55.3 45.6 29.Seasonal Adjustment (cont.6 10.7 12-611 12- .5 8.1 53.7 D2 29.7 D4 55.37 ∑D 148.20 ∑D 148.3 S4 = = = 0.7 D3 21.7 D1 42.3 10.6 14.5 6.9 17.5 S2 = = = 0.6 148.) YEAR 2002 2003 2004 Total DEMAND (1000’S PER QUARTER) 1 2 3 4 Total 12.28 ∑D 148.0 S1 = = = 0.0 50.

) For 2005 y = 40.63 (S (F SF3 = (S3) (F5) = (0.17) = 11.17) = 21.17) = 16.53 (S (F 12-612 12- .30(4) = 58.17 4.28 (S (F SF2 = (S2) (F5) = (0.15)(58.30x SF1 = (S1) (F5) = (0.20)(58.97 + 4.Seasonal Adjustment (cont.97 + 4.73 (S (F SF4 = (S4) (F5) = (0.30x = 40.28)(58.17) = 8.37)(58.

Forecast Accuracy Forecast error difference between forecast and actual demand MAD mean absolute deviation MAPD mean absolute percent deviation Cumulative error Average error or bias 12-613 12- .

Mean Absolute Deviation (MAD)
Σ| Dt - Ft | MAD = n
where t = period number Dt = demand in period t Ft = forecast for period t n = total number of periods   = absolute value
12-614 12-

MAD Example
PERIOD 1 2 3 4 5 6 7 8 9 10 11 12 DEMAND, Dt Ft (α =0.3) (Dt - Ft) |Dt - Ft| – 3.00 3.10 1.83 6.72 9.69 0.20 3.86 11.70 4.19 5.94 3.15 53.39 37 37.00 – 40 37.00 3.00 41 Σ| D37.90 t | 3.10 t - F 37 38.83 1.83 MAD = 38.28 -6.72 n 45 50 40.29 9.69 53.39 = 43.20 -0.20 43 47 43.14 3.86 11 56 = 4.85 44.30 11.70 52 47.81 4.19 55 49.06 5.94 54 50.84 3.15 557 49.31

12-615 12-

Other Accuracy Measures
Mean absolute percent deviation (MAPD)

∑|Dt - Ft| MAPD = ∑Dt
Cumulative error E = ∑et Average error E=

∑et
n
12-616 12-

Comparison of Forecasts

FORECAST

MAD

MAPD

E

(E) 4.48 3.02 1.92 –

Exponential smoothing (α = 0.30) 4.85 (α 9.6% 49.31 Exponential smoothing (α = 0.50) 4.04 (α 8.5% 33.21 Adjusted exponential smoothing 3.81 7.5% 21.14 (α = 0.50, β = 0.30) Linear trend line 2.29 4.9% –

12-617 12-

Forecast Control
Tracking signal
monitors the forecast to see if it is biased high or low Tracking signal = ∑(Dt - Ft) E = MAD MAD

1 MAD ≈ 0.8 б Control limits of 2 to 5 MADs are used most frequently
12-618 12-

Tracking Signal Values
PERIOD DEMAND Dt FORECAST, Ft ERROR Dt - Ft ∑E = ∑(Dt - Ft) TRACKING MAD SIGNAL

1 2 3 4 5 6 7 8 9 10 11 12

37 40 41 37 45 50 43 47 56 52 55 54

37.00 – – 37.00 3.00 3.00 37.90 3.10 6.10 38.83 -1.83 4.27 38.28 6.72 10.99 Tracking signal for period 3 40.29 9.69 20.68 43.20 -0.20 20.48 6.10 43.14 = 3.86 = 2.00 24.34 TS3 3.05 44.30 11.70 36.04 47.81 4.19 40.23 49.06 5.94 46.17 50.84 3.15 49.32

– – 3.00 1.00 3.05 2.00 2.64 1.62 3.66 3.00 4.87 4.25 4.09 5.01 4.06 6.00 5.01 7.19 4.92 8.18 5.02 9.20 4.85 10.17

12-619 12-

Tracking Signal Plot
3σ – Tracking signal (MAD) 2σ – 1σ – 0σ – -1σ – -2σ – -3σ – | 0 | 1 | 2 | 3 | 4 | 5 | 6 Period | 7 | 8 | 9 | 10 | 11 | 12 Linear trend line Exponential smoothing (α = 0.30) α

12-620 12-

Statistical Control Charts
σ= ∑(Dt - Ft)2 n-1

Using σ we can calculate statistical control limits for the forecast error Control limits are typically set at ± 3σ

12-621 12-

Statistical Control Charts
18.39 – 12.24 – 6.12 – Errors 0– -6.12 – -12.24 – -18.39 – | 0 LCL = -3σ σ | 1 | 2 | 3 | 4 | 5 | 6 Period | 7 | 8 | 9 | 10 | 11 | 12 UCL = +3σ σ

12-622 12-

Time Series Forecasting using Excel
Excel can be used to develop forecasts:
Moving average Exponential smoothing Adjusted exponential smoothing Linear trend line

12-623 12-

Exponentially Smoothed and Adjusted Exponentially Smoothed Forecasts

12-624 12-

Demand and exponentially smoothed forecast

12-625 12-

Data Analysis option

12-626 12-

Computing a Forecast with Seasonal Adjustment

12-627 12-

OM Tools

12-628 12-

Regression Methods
Linear regression
a mathematical technique that relates a dependent variable to an independent variable in the form of a linear equation

Correlation
a measure of the strength of the relationship between independent and dependent variables

12-629 12-

Linear Regression
y = a + bx

a = y-bx Σ xy - nxy 2 - nx2 b = Σx where a = intercept b = slope of the line Σx x =n Σy y =n = mean of the x data = mean of the y data
12-630 12-

Linear Regression Example
(WINS) 4 6 6 8 6 7 5 7 49 x (ATTENDANCE) 36.3 40.1 41.2 53.0 44.0 45.6 39.0 47.5 346.7 y xy 145.2 240.6 247.2 424.0 264.0 319.2 195.0 332.5 2167.7 x2 16 36 36 64 36 49 25 49 311

12-631 12-

) 49 x= 8 346.7) .(4.9y = 8 = 6.125 = 43.Linear Regression Example (cont.(8)(6.36 .bx = 43.125)2 = 4.36) (311) .46 12-632 12- .nx2 = (2.167.06)(6.06 a = y .(8)(6.125)(43.nxy2 b = ∑x2 .36 ∑xy .125) = 18.

) Regression equation y = 18.06(7) = 46.000 – 30.06x .000 – 20.000 – 50. or 46.000 – | 0 | 1 | 2 | 3 | 4 | | 5 6 Wins.46 + 4.06x 4.Linear Regression Example (cont.46 + 4.000 – 10.000 – 40. x | 7 | 8 | 9 | 10 12-633 12- Attendance forecast for 7 wins y = 18.06x 60.88. y Linear regression line.880 Attendance.46 + 4. y = 18.

00 Coefficient of determination. r Measure of strength of relationship Varies between -1.00 and +1. r2 Percentage of variation in dependent variable resulting from changes in the independent variable 12-634 12- .Correlation and Coefficient of Determination Correlation.

9)2] r = 0.897 12-635 12- r= .(49)(346.7) .(346.9) [(8)(311) .167.947 Coefficient of determination r2 = (0.(∑ x)2] [n∑ y2 .224.7) .∑ x∑ y [n∑ x2 .947)2 = 0.(∑ y)2] [n (8)(2.(49)2] [(8)(15.Computing Correlation r= n∑ xy .

Regression Analysis with Excel 12-636 12- .

) 12-637 12- .Regression Analysis with Excel (cont.

Regression Analysis with Excel (cont.) 12-638 12- .

βk = parameters for the independent variables x1. xk = independent variables 12-639 12- .Multiple Regression Study the relationship of demand to two or more independent variables y = β0 + β1x1 + β2x2 … + βkxk where β0 = the intercept β1. … . … .

Multiple Regression with Excel 12-640 12- .

Chapter 13 Inventory Management Operations Management . III Beni Asllani University of Tennessee at Chattanooga . Taylor.6th Edition Roberta Russell & Bernard W.

Lecture Outline Elements of Inventory Management Inventory Control Systems Economic Order Quantity Models Quantity Discounts Reorder Point Order Quantity for a Periodic Inventory System 13-642 13- .

What Is Inventory? Stock of items kept to meet future demand Purpose of inventory management how many units to order when to order 13-643 13- .

Inventory and Supply Chain Management Bullwhip effect demand information is distorted as it moves away from the end-use customer endhigher safety stock inventories to are stored to compensate Seasonal or cyclical demand Inventory provides independence from vendors Take advantage of price discounts Inventory provides independence between stages and avoids work stoppages 13-644 13- .

Inventory and Quality Management in the Supply Chain Customers usually perceive quality service as availability of goods they want when they want them Inventory must be sufficient to provide high-quality customer service in QM 13-645 13- .

Types of Inventory Raw materials Purchased parts and supplies Work-in-process (partially completed) products (WIP) Items being transported Tools and equipment 13-646 13- .

and houses are examples of independent demand inventory 13-647 13- .Two Forms of Demand Dependent Demand for items used to produce final products Tires stored at a Goodyear plant are an example of a dependent demand item Independent Demand for items used by external customers Cars. appliances. computers.

Inventory Costs Carrying cost cost of holding an item in inventory Ordering cost cost of replenishing inventory Shortage cost temporary or permanent loss of sales when demand cannot be met 13-648 13- .

Inventory Control Systems Continuous system (fixed-order(fixed-orderquantity) constant amount ordered when inventory declines to predetermined level Periodic system (fixed-time(fixed-timeperiod) order placed for variable amount after fixed passage of time 13-649 13- .

ABC Classification Class A 5 – 15 % of units 70 – 80 % of value Class B 30 % of units 15 % of value Class C 50 – 60 % of units 5 – 10 % of value 13-650 13- .

ABC Classification: Example PART 1 2 3 4 5 6 7 8 9 10 UNIT COST $ 60 350 30 80 30 20 10 320 510 20 ANNUAL USAGE 90 40 130 60 100 180 170 50 60 120 13-651 13- .

400 4.0 16.0 170 71.3 9.0 9.700 B 9 C 10 TOTAL % OF TOTAL % TOTAL UNIT COSTQUANTITY OF% CUMMULATIVE ANNUAL USAGE VALUE 9 8 2 1 4 3 6 5 10 7 35.0 80 5.0 20 3.0 A 130 15.0 QUANTITY 83.1 13-652 13- .6 30 10.6001 16.ABC Classification: Example (cont.0 1.2 % OF TOTAL 18. 4.0 120 60.5 10VALUE 13.400 6.) PART PART VALUE $30.400 A 8 1. 2 2.0002 14. 5.000 CLASS 7 2.0 24.0 C 50 100.0 4.0 18.0 ITEMS 2.0 4. 10.8004 3.6 6.8 12.0 60 30.0 Example 10.5 $85.0 30 6.7 350 5.0 17.0 320 71. 8. 3 510 16.4 4.9005 3.6006 3.0 15.0 %180TOTAL OF 58.5 90 6.000 3 5.0 B 100 40.9 $ 60 6.0 40 11. 720 12.0 60 25.

Economic Order Quantity (EOQ) Models EOQ optimal order quantity that will minimize total inventory costs Basic EOQ model Production quantity model 13-653 13- .

Assumptions of Basic EOQ Model Demand is known with certainty and is constant over time No shortages are allowed Lead time for the receipt of orders is constant Order quantity is received all at once 13-654 13- .

Q Inventory Level Demand rate Average inventory Q 2 Reorder point. R 0 Lead time Order Order placed receipt Lead time Order Order placed receipt Time 13-655 13- .Inventory Order Cycle Order quantity.

annual demand Q .cost of placing order Cc .order quantity CoD Q CcQ 2 CcQ 2 13-656 13- .annual per-unit carrying cost perAnnual ordering cost = Annual carrying cost = Total cost = CoD + Q D .EOQ Cost Model Co .

EOQ Cost Model Deriving Qopt CcQ CoD TC = + Q 2 CoD Cc ∂TC =– 2 + Q 2 ∂Q C0D Cc 0=– 2 + Q 2 Qopt = 2CoD Cc Proving equality of costs at optimal point CoD CcQ = Q 2 Q2 2CoD = Cc 2CoD Cc Qopt = 13-657 13- .

) Annual cost ($) Slope = 0 Minimum total cost CcQ Carrying Cost = 2 Total Cost CoD Ordering Cost = Q Optimal order Qopt Order Quantity. Q 13-658 13- .EOQ Cost Model (cont.

75)(2.000) = + 2 2.000 gallons CcQ CoD TCmin = + Q 2 TCmin (150)(10.500 Order cycle time = 311 days/(D/Qopt) days/(D = 311/5 = 62.EOQ Example Cc = $0.000 gallons Orders per year = D/Qopt = 10.000) (0.2 store days 13-659 13- .75 per gallon Qopt = Qopt = 2CoD Cc 2(150)(10.000 = 5 orders/year TCmin = $750 + $750 = $1.000) (0.000 Qopt = 2.000/2.75) Co = $150 D = 10.

daily rate at which inventory is demanded 13-660 13- . production rate d .daily rate at which an order is received over time.k.Production Quantity Model An inventory system in which an order is received gradually. as inventory is simultaneously being depleted AKA non-instantaneous receipt model assumption that Q is received all at once is relaxed p .a. a.

) Inventory level Maximum inventory level Average inventory level Q(1-d/p) (1-d/p) Q (1-d/p) (1-d/p) 2 0 Order receipt period Begin End order order receipt receipt Time 13-661 13- .Production Quantity Model (cont.

Production Quantity Model (cont.p d d = Q 1 -p d = demand rate 2CoD Qopt = Cc 1 .d p Q d Average inventory level = 1p 2 CoD CcQ d TC = Q + 2 1 .) p = production rate Q Maximum inventory level = Q .p 13-662 13- .

2 150 = 2.75 per gallon Co = $150 d = 10.000 gallons p = 150 gallons per day 2(150)(10.000) 0.75 1 .Production Quantity Model: Example Cc = $0.329 2.256.d p = D = 10.32.05 days per order 150 13-663 13- .000/311 = 32.p = $1.8 Q Production run = p = = 15.2 gallons per day 2C o D Qopt = Cc 1 .256.8 gallons CoD CcQ d TC = Q + 2 1 .

) 10.256.8 1 - = 1.772 gallons 13-664 13- .000 D Number of production runs = Q = 2.8 = 4.2 150 = 2.Production Quantity Model: Example (cont.p 32.43 runs/year d Maximum inventory level = Q 1 .256.

Solution of EOQ Models with Excel 13-665 13- .

Solution of EOQ Models with Excel (Con’t) 13-666 13- .

Solution of EOQ Models with OM Tools 13-667 13- .

Quantity Discounts Price per unit decreases as order quantity increases CcQ CoD TC = + + PD 2 Q where P = per unit price of the item D = annual demand 13-668 13- .

) ORDER SIZE 0 .99 100 – 199 200+ PRICE $10 8 (d1) 6 (d2) TC = ($10 ) TC (d1 = $8 ) TC (d2 = $6 ) Inventory cost ($) Carrying cost Ordering cost Q(d1 ) = 100 Qopt Q(d2 ) = 200 13-669 13- .Quantity Discount Model (cont.

400 1.49 50 .784 2 Qopt CcQ CoD TC = + + PD = $194.5 TVs 190 CcQopt CoD TC = + + PD = $233.5 PRICE $1.105 2 Q 13-670 13- For Q = 90 .Quantity Discount: Example QUANTITY 1 .89 90+ Qopt = For Q = 72.100 900 2C o D = Cc Co = $2.500 Cc = $190 per TV D = 200 TVs per year 2(2500)(200) = 72.

QuantityQuantity-Discount Model Solution with Excel 13-671 13- .

Reorder Point Level of inventory at which a new order is placed R = dL where d = demand rate per period L = lead time 13-672 13- .

154)(10) = 321.000 / 311 = 32.154 gallons/day Lead time = L = 10 days R = dL = (32.54 gallons 13-673 13- .000 gallons/year Store open 311 days/year Daily demand = 10.Reorder Point: Example Demand = 10.

Safety Stocks Safety stock buffer added to on hand inventory during lead time Stockout an inventory shortage Service level probability that the inventory available during lead time will meet demand 13-674 13- .

Variable Demand with a Reorder Point Q Inventory level Reorder point. R 0 LT Time LT 13-675 13- .

R Safety Stock 0 LT Time 13-676 13- LT .Reorder Point with a Safety Stock Inventory level Q Reorder point.

Reorder Point With Variable Demand R = dL + zσd L where d = average daily demand L = lead time σd = the standard deviation of daily demand z = number of standard deviations corresponding to the service level probability zσd L = safety stock 13-677 13- .

Reorder Point for a Service Level Probability of meeting demand during lead time = service level Probability of a stockout Safety stock zσd L σ dL Demand R 13-678 13- .

1 gallons 13-679 13- .Reorder Point for Variable Demand The paint store wants a reorder point with a 95% service level and a 5% stockout probability d = 30 gallons per day L = 10 days σd = 5 gallons per day For a 95% service level.1 gallons Safety stock = z σd L = (1.65)(5)( 10) = 26.65)(5)( 10) = 326. z = 1.65 R = dL + z σd L = 30(10) + (1.

Determining Reorder Point with Excel 13-680 13- .

I .Order Quantity for a Periodic Inventory System Q = d(tb + L) + zσd where d = average demand rate tb = the fixed time between orders L = lead time σd = standard deviation of demand zσd tb + L = safety stock I = inventory level 13-681 13- tb + L .

Periodic Inventory System 13-682 13- .

2) = 397.8 = (6)(60 + 5) + (1.2 packages tb = 60 days L = 5 days I = 8 packages z = 1.65 (for a 95% service level) Q = d(tb + L) + zσd tb + L .65)(1.FixedFixed-Period Model with Variable Demand d = 6 packages per day σd = 1.96 packages 13-683 13- .I 60 + 5 .

FixedFixed-Period Model with Excel 13-684 13- .

Taylor. III .Chapter 13 Supplement Simulation Operations Management Roberta Russell & Bernard W.

Lecture Outline Monte Carlo Simulation Computer Simulation with Excel Areas of Simulation Application Supplement 13-686 13- .

treadmills for tires Mathematical-computerized simulation Computer-based replicated models Supplement 13-687 13- .Simulation Mathematical and computer modeling technique for replicating real-world problem situations Modeling approach primarily used to analyze probabilistic problems It does not normally provide a solution. wind tunnels. instead it provides information that is used to make a decision Physical simulation Space flights.

Monte Carlo Simulation Select numbers randomly from a probability distribution Use these values to observe how a model performs over time Random numbers each have an equal likelihood of being selected at random Supplement 13-688 13- .

P(x) 0.20 0.20 0.00 Supplement 13-689 13- .10 1.10 0.Distribution of Demand LAPTOPS DEMANDED PER WEEK. x 0 1 2 3 4 FREQUENCY OF DEMAND 20 40 20 10 10 100 PROBABILITY OF DEMAND.40 0.

Roulette Wheel of Demand 0 90 x=4 x=0 80 x=3 20 x=2 x=1 60 Supplement 13-690 13- .

Generating Demand from Random Numbers DEMAND. r 0-19 20-59 2060-79 6080-89 8090-99 90r = 39 Supplement 13-691 13- . x 0 1 2 3 4 RANGES OF RANDOM NUMBERS.

Random Number Table Supplement 13-692 13- .

900 17.15 Weeks of Demand WEEK r DEMAND (x) (x REVENUE (S) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 39 73 72 75 37 02 87 98 10 47 93 21 95 97 69 1 2 2 2 1 0 3 4 0 1 4 1 4 4 2 Σ = 31 4.600 8.300 17.200 Average demand 4.200 0 4.200 8.200 = 2.600 4.300 0 12.300 Supplement 13-693 13- .07 laptops/week 17.300 = 31/15 17.300 8.600 $133.600 8.

20)(2) + (0.10)(4) = 1.10)(3) + (0.07 is due to small number of periods analyzed (only 15 weeks) •Steady-state result Steady•an average result that remains constant after enough trials Supplement 13-694 13- .20)(0) + (0.Computing Expected Demand E(x) = (0.5 laptops per week •Difference between 1.40)(1) + (0.5 and 2.

Random Numbers in Excel Supplement 13-695 13- .

Simulation in Excel Supplement 13-696 13- .

) Supplement 13-697 13- .Simulation in Excel (cont.

Decision Making with Simulation Supplement 13-698 13- .

) Supplement 13-699 13- .Decision Making with Simulation (cont.

Areas of Simulation Application Waiting Lines/Service Complex systems for which it is difficult to develop analytical formulas Determine how many registers and servers are needed to meet customer demand Inventory Management Traditional models make the assumption that customer demand is certain Simulation is widely used to analyze JIT without having to implement it physically Supplement 13-700 13- .

growth rate. assembly line balancing. selling price.Areas of Simulation Application (cont. production sequencing.) Production and Manufacturing Systems Examples: production scheduling. plant layout. market size. and market share Supplement 13-701 13- . and plant location analysis Machine breakdowns typically occur according to some probability distributions Capital Investment and Budgeting Capital budgeting problems require estimates of cash flows. often resulting from many random variables Simulation has been used to generate values of cash flows.

court systems. fire departments. waste and population conditions. airports Complex operations that no technique except simulation can be employed Environmental and Resource Analysis Examples: impact of manufacturing plants.) Logistics Typically include numerous random variables. nuclear power plants. post offices. waste-disposal facilities. such as distance. shipping rates.Areas of Simulation Application (cont. hospitals. feasibility of alternative energy sources Supplement 13-702 13- . different modes of transport. and schedules to analyze different distribution channels Service Operations Examples: police departments.

Taylor.Chapter 14 Sales and Operations Planning Operations Management Roberta Russell & Bernard W. III .

Lecture Outline The Sales and Operations Planning Process Strategies for Adjusting Capacity Strategies for Managing Demand Quantitative Techniques for Aggregate Planning Hierarchical Nature of Planning Aggregate Planning for Services 14-704 14- .

Sales and Operations Planning Determines the resource capacity needed to meet demand over an intermediate time horizon Aggregate refers to sales and operations planning for product lines or families Sales and Operations planning (S&OP) matches supply and demand Objectives Establish a company wide game plan for allocating resources Develop an economic strategy for meeting demand 14-705 14- .

Sales and Operations Planning Process 14-706 14- .

The Monthly S&OP Planning Process 14-707 14- .

Meeting Demand Strategies Adjusting capacity Resources necessary to meet demand are acquired and maintained over the time horizon of the plan Minor variations in demand are handled with overtime or under-time under- Managing demand Proactive demand management 14-708 14- .

Strategies for Adjusting Capacity Level production Producing at a constant rate and using inventory to absorb fluctuations in demand Overtime and under-time underIncreasing or decreasing working hours Subcontracting Let outside companies complete the work Chase demand Hiring and firing workers to match demand PartPart-time workers Hiring part time workers to complete the work Peak demand Maintaining resources for highhigh-demand levels Backordering Providing the service or product at a later time period 14-709 14- .

Level Production Demand Production Units Time 14-710 14- .

Chase Demand Demand Production Units Time 14-711 14- .

Strategies for Managing Demand Shifting demand into other time periods Incentives Sales promotions Advertising campaigns Offering products or services with countercyclical demand patterns Partnering with suppliers to reduce information distortion along the supply chain 14-712 14- .

Quantitative Techniques For AP Pure Strategies Mixed Strategies Linear Programming Transportation Method Other Quantitative Techniques 14-713 14- .

000 50.Pure Strategies Example: QUARTER Spring Summer Fall Winter SALES FORECAST (LB) 80.50 pound per quarter Regular production cost per pound = $2.000 120.00 Production per employee = 1.000 Hiring cost = $100 per worker Firing cost = $500 per worker Inventory carrying cost = $0.000 150.000 pounds per quarter Beginning work force = 100 workers 14-714 14- .

50) = $870.000 120.000 20.000 50.000 X $2.000 50.000 100.000 140.000 0 400.000 + 80.000 PRODUCTION PLAN INVENTORY QUARTER Spring Summer Fall Winter 100.000 pounds 4 SALES FORECAST 80.000 70.Level Production Strategy Level production (50.000 100.000 + 120.00) + (140.000 + 150.00 X $.000 150.000 Cost of Level Production Strategy (400.000) = 100.000 14-715 14- .000 100.

000 50.000 80.000 120.000 14-716 14- .000 120.000 X $2.00) + (100 x $100) + (50 x $500) = $835.000 150.000 150.000 80 50 120 150 0 0 70 30 100 20 30 0 0 50 Cost of Chase Demand Strategy (400.000 50.Chase Demand Strategy QUARTER SALES PRODUCTION FORECAST PLAN WORKERS WORKERS WORKERS NEEDED HIRED FIRED Spring Summer Fall Winter 80.

Level Production with Excel 14-717 14- .

Chase Demand with Excel 14-718 14- .

Mixed Strategy Combination of Level Production and Chase Demand strategies Examples of management policies no more than x% of the workforce can be laid off in one quarter inventory levels cannot exceed x dollars Many industries may simply shut down manufacturing during the low demand season and schedule employee vacations during that time 14-719 14- .

Mixed Strategies with Excel 14-720 14- .

Mixed Strategies with Excel (cont.) 14-721 14- .

General Linear Programming (LP) Model LP gives an optimal solution. but demand and costs must be linear Let Wt = workforce size for period t Pt =units produced in period t It =units in inventory at the end of period t Ft =number of workers fired for period t Ht = number of workers hired for period t 14-722 14- .

I2 I2 + P3 .000 = 150.I1 I1 + P2 .F3 W3 + H4 .F4 = 80.I4 1000 W1 1000 W2 1000 W3 1000 W4 100 + H1 .50 (I1 + I2 + I3 + I4) + $2 (P1 + P2 + P3 + P4) Subject to Demand constraints Production constraints Work force constraints P1 .000 = P1 = P2 = P3 = P4 = W1 = W2 = W3 = W4 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) 14-723 14- .LP MODEL Minimize Z = $100 (H1 + H2 + H3 + H4) + $500 (F1 + F2 + F3 + F4) + $0.F1 W1 + H2 .I3 I3 + P4 .000 = 50.F2 W2 + H3 .000 = 120.

Setting up the Spreadsheet 14-724 14- .

The LP Solution 14-725 14- .

Transportation Method EXPECTED QUARTER DEMAND REGULAR OVERTIME SUBCONTRACT CAPACITY CAPACITY CAPACITY 1 2 3 4 900 1500 1600 3000 1000 1200 1300 1300 100 150 200 200 500 500 500 500 Regular production cost per unit $20 Overtime production cost per unit $25 Subcontracting cost per unit $28 Inventory holding cost per unit per period $3 Beginning inventory 300 units 14-726 14- .

Transportation Tableau PERIOD OF USE Unused Capacity Capacity 6 — 26 31 34 — 23 28 31 1300 200 20 25 28 — 150 250 — — 500 1300 200 500 900 1500 1600 — 100 29 34 37 26 31 34 23 28 31 20 25 28 3000 250 250 9 300 1000 100 500 1200 150 500 1300 200 500 1300 200 500 PERIOD OF PRODUCTION Beginning Inventory 1 Regular Overtime Subcontract 2 Regular Overtime Subcontract 3 Regular Overtime Subcontract 4 Regular Overtime Subcontract Demand 300 600 20 25 28 1200 — 300 23 28 31 20 25 28 1 2 0 — 100 3 3 4 14-727 14- .

Burruss’ Production Plan REGULAR SUBSUBENDING PERIOD DEMAND PRODUCTION OVERTIME CONTRACT INVENTORY 1 2 3 4 Total 900 1500 1600 3000 7000 1000 1200 1300 1300 4800 100 150 200 200 650 0 250 500 500 1250 500 600 1000 0 2100 14-728 14- .

Using Excel for the Transportation Method of Aggregate Planning 14-729 14- .

Other Quantitative Techniques Linear decision rule (LDR) Search decision rule (SDR) Management coefficients model 14-730 14- .

Hierarchical Nature of Planning Items Product lines or families Production Planning Sales and Operations Plan Capacity Planning Resource requirements plan Resource Level Plants Individual products Master production schedule Rough-cut capacity plan Critical work centers Components Material requirements plan Capacity requirements plan All work centers Manufacturing operations Shop floor schedule Input/ output control Individual machines Disaggregation: process of breaking an aggregate plan into more detailed plans 14-731 14- .

Collaborative Planning Sharing information and synchronizing production across supply chain Part of CPFR (collaborative planning. and synchronizing production across supply chain 14-732 14- . forecasting. creating a single forecast of customer demand. and replenishment) involves selecting products to be jointly managed.

Available-to-Promise (ATP) Quantity of items that can be promised to customer Difference between planned production and customer orders already received AT in period 1 = (On-hand quantity + MPS in period 1) – (CO until the next period of planned production) ATP in period n = (MPS in period n) – (CO until the next period of planned production) Capable-to-promise quantity of items that can be produced and mad available at a later date 14-733 14- .

ATP: Example 14-734 14- .

ATP: Example (cont.) 14-735 14- .

ATP: Example (cont.) Take excess units from April ATP in April = (10+100) – 70 = 40 = 30 ATP in May = 100 – 110 = -10 =0 ATP in June = 100 – 50 = 50 14-736 14- .

Rule Based ATP Product Request Yes Is the product available at this location? Is an alternative product available at an alternate location? No Capable-topromise date Yes Availableto-promise No Allocate inventory Availableto-promise Yes Is an alternative product available at this location? Allocate inventory Yes No Is the customer willing to wait for the product? Yes Revise master schedule Is this product available at a different location? No No Lose sale Trigger production 14-737 14- .

Capacity is also difficult to predict 4. Most services cannot be inventoried 2. Demand for services is difficult to predict 3.Aggregate Planning for Services 1. Service capacity must be provided at the appropriate place and time 5. Labor is usually the most constraining resource for services 14-738 14- .

Yield Management 14-739 14- .

Yield Management (cont.) 14-740 14- .

30 Optimal probability of no-shows noP(n < x) ≤ P(n Cu 75 = = .70 .40 .Yield Management: Example NO-SHOWS NO0 1 2 3 PROBABILITY .517 Cu + Co 75 + 70 P(N < X) .15 .15 .517 Hotel should be overbooked by two rooms 14-741 14- .25 .00 .30 .

III . Taylor.Chapter 14 Supplement Linear Programming Operations Management Roberta Russell & Bernard W.

Lecture Outline Model Formulation Graphical Solution Method Linear Programming Model Solution Solving Linear Programming Problems with Excel Sensitivity Analysis Supplement 14-743 14- .

subject to restrictions called constraints Supplement 14-744 14- .Linear Programming (LP) A model consisting of linear relationships representing a firm’s objective and resource constraints LP is a mathematical modeling technique used to determine a level of operational activity in order to achieve an objective.

Types of LP Supplement 14-745 14- .

Types of LP (cont.) Supplement 14-746 14- .

) Supplement 14-747 14- .Types of LP (cont.

LP Model Formulation Decision variables mathematical symbols representing levels of activity of an operation Objective function a linear relationship reflecting the objective of an operation most frequent objective of business firms is to maximize profit most frequent objective of individual operational units (such as a production or packaging department) is to minimize cost Constraint a linear relationship representing a restriction on decision making Supplement 14-748 14- .

+ a2nxn (≤. ≥) b1 a21x1 + a22x2 + ... ≥) bn xj = decision variables bi = constraint levels cj = objective function coefficients aij = constraint coefficients z = c1x1 + c2x2 + ... ≥) b2 : an1x1 + an2x2 + . =. + cnxn Supplement 14-749 14- .. + annxn (≤. =....) Max/min subject to: a11x1 + a12x2 + . + a1nxn (≤.LP Model Formulation (cont. =.

LP Model: Example RESOURCE REQUIREMENTS PRODUCT Bowl Mug Labor (hr/unit) 1 2 Clay (lb/unit) 4 3 Revenue ($/unit) 40 50 There are 40 hours of labor and 120 pounds of clay available each day Decision variables x1 = number of bowls to produce x2 = number of mugs to produce Supplement 14-750 14- .

x2 ≥ 0 (labor constraint) (clay constraint) x2 = 8 mugs Solution is x1 = 24 bowls Revenue = $1.LP Formulation: Example Maximize Z = $40 x1 + 50 x2 Subject to x1 + 4x1 + 2x2 ≤ 40 hr 3x2 ≤ 120 lb x1 .360 Supplement 14-751 14- .

Plot model constraint on a set of coordinates in a plane 2.Graphical Solution Method 1. Plot objective function to find the point on boundary of this space that maximizes (or minimizes) value of objective function Supplement 14-752 14- . Identify the feasible solution space on the graph where all constraints are satisfied simultaneously 3.

Graphical Solution: Example x2 50 – 40 – 30 – 20 – 10 – 0– | 10 | 20 | 30 | 40 Area common to both constraints x1 + 2 x2 ≤ 40 hr | 50 | 60 x1 Supplement 14-753 14- 4 x1 + 3 x2 ≤ 120 lb .

360 Supplement 14-754 14- x1 + 4x1 + 4x1 + -4x1 - 2x 2 = 3x 2 = 8x 2 = 3x 2 = 5x 2 = x2 = 40 120 160 -120 40 8 40 24 x1 + 2 x2 = 40 hr x1 + 2(8) = x1 = .Computing Optimal Values x2 40 – 4 x1 + 3 x2 = 120 lb 30 – 20 – 10 – 8 0– | 10 | 24 | 20 30 | x1 40 Z = $40(24) + $50(8) = $1.

360 x1 = 30 bowls x2 = 0 mugs Z = $1.000 A B | C| 30 40 x1 = 224 bowls x2 = 8 mugs Z = $1.200 x1 Supplement 14-755 14- .Extreme Corner Points x2 40 – 30 – 20 – 10 – 0– | 10 | 20 x1 = 0 bowls x2 = 20 mugs Z = $1.

100 B x1 + 2x2 = 40 hr 2x | C | 30 40 x 1 30 – A 20 – 10 – | 10 | 20 0– Supplement 14-756 14- .Objective Function x2 40 – 4x1 + 3x2 = 120 lb 3x Z = 70x1 + 20x2 70x 20x Optimal point: x1 = 30 bowls x2 = 0 mugs Z = $2.

x 2 ≥ 0 Supplement 14-757 14- .Minimization Problem CHEMICAL CONTRIBUTION Brand GroGro-plus CropCrop-fast Nitrogen (lb/bag) 2 4 Phosphate (lb/bag) 4 3 Minimize Z = $6x1 + $3x2 subject to 2x1 + 4x2 ≥ 16 lb of nitrogen 4x1 + 3x2 ≥ 24 lb of phosphate x 1.

Graphical Solution x2 14 – x1 = 0 bags of Gro-plus GroCrop12 – x2 = 8 bags of Crop-fast Z = $24 10 – A 8– 6– 4– 2– 0– | 2 | 4 B | 6 | 8 C | 10 | 12 | 14 Z = 6x1 + 3x2 6x 3x x1 Supplement 14-758 14- .

For example.s1 = 16 4x 16 Slack/surplus variables have a 0 coefficient in the objective function Z = $40x1 + $50x2 + 0s1 + 0s2 Supplement 14-759 14- . 2x1 + 4x2 ≥ 16 is transformed into 4x 16 2x1 + 4x2 .Simplex Method A mathematical procedure for solving linear programming problems according to a set of steps Slack variables added to ≤ constraints to represent unused resources x1 + 2x2 + s1 =40 hours of labor 40 4x1 + 3x2 + s2 =120 lb of clay 120 Surplus variables subtracted from ≥ constraints to represent excess above resource requirement.

Solution Points with Slack Variables Supplement 14-760 14- .

Solution Points with Surplus Variables Supplement 14-761 14- .

Solving LP Problems with Excel Supplement 14-762 14- .

) Supplement 14-763 14- .Solving LP Problems with Excel (cont.

Solving LP Problems with Excel (cont.) Supplement 14-764 14- .

Sensitivity Range for Labor Hours Supplement 14-765 14- .

Sensitivity Range for Bowls Supplement 14-766 14- .

Chapter 15 Resource Planning Operations Management Roberta Russell & Bernard W. III . Taylor.

Lecture Outline Material Requirements Planning (MRP) Capacity Requirements Planning (CRP) Enterprise Resource Planning (ERP) Customer Relationship Management (CRM) Supply Chain Management (SCM) Product Lifecycle Management (PLM) 15-768 15- .

Resource Planning for Manufacturing 15-769 15- .

Material Requirements Planning (MRP) Computerized inventory control and production planning system When to use MRP? Dependent demand items Discrete demand items Complex products Job shop production Assemble-to-order environments 15-770 15- .

of tables 300 – 200 – 100 – M T W Th F M T W Th F 15-771 15- . of tables 300 – 200 – 100 – 1 2 3 4 Week 5 Discrete demand No.Demand Characteristics Independent demand Dependent demand 100 x 1 = 100 tabletops 100 tables 100 x 4 = 400 table legs Continuous demand 400 – 400 – No.

Material Requirements Planning Product structure file Master production schedule Material requirements planning Item master file Planned order releases Work orders Purchase orders Rescheduling notices 15-772 15- .

MRP Inputs and Outputs Inputs Master production schedule Product structure file Item master file Outputs Planned order releases Work orders Purchase orders Rescheduling notices 15-773 15- .

not what can be produced Quantities represent end items that may or may not be finished products 15-774 15- .Master Production Schedule Drives MRP process with a schedule of finished products Quantities represent production not demand Quantities may consist of a combination of customer orders and demand forecasts Quantities represent what needs to be produced.

Master Production Schedule (cont.) MPS ITEM Pencil Case Clipboard Lapboard Lapdesk 1 125 85 75 0 2 125 95 120 50 PERIOD 3 4 125 120 47 0 125 100 20 50 5 125 100 17 0 15-775 15- .

Product Structure File 15-776 15- .

Product Structure Clipboard Top clip (1) Bottom clip (1) Pivot (1) Spring (1) Rivets (2) Finished clipboard Pressboard (1) 15-777 15- .

Product Structure Tree Clipboard Level 0 Pressboard (1) Clip Ass’y (1) Rivets (2) Level 1 Top Clip (1) Bottom Clip (1) Pivot (1) Spring (1) Level 2 15-778 15- .

Multilevel Indented BOM LEVEL ITEM UNIT OF MEASURE QUANTITY 0----1----2---2---2---2--1---1--- Clipboard Clip Assembly Top Clip Bottom Clip Pivot Spring Rivet Press Board ea ea ea ea ea ea ea ea 1 1 1 1 1 1 2 1 15-779 15- .

loose parts under pseudo-item pseudonumber Reduces paperwork. processing time. and file space 15-780 15- .Specialized BOMs Phantom bills Transient subassemblies Never stocked Immediately consumed in next stage K-bills Group small.

Specialized BOMs (cont.)
Modular bills
Product assembled from major subassemblies and customer options Modular bill kept for each major subassembly Simplifies forecasting and planning X10 automobile example
3 x 8 x 3 x 8 x 4 = 2,304 configurations 3 + 8 + 3 + 8 + 4 = 26 modular bills

15-781 15-

Modular BOMs
X10 Automobile

Engines (1 of 3)

Exterior color (1 of 8)

Interior (1 of 3)

Interior color (1 of 8)

Body (1 of 4)

4-Cylinder (.40) 6-Cylinder (.50) 8-Cylinder (.10)

Bright red (.10) White linen (.10) Sulphur yellow (.10) Neon orange (.10)

Leather (.20) Tweed (.40) Plush (.40)

Grey (.10) Light blue (.10) Rose (.10) Off-white (.20) Off-

Sports coupe (.20) Two-door (.20) TwoFour-door (.30) FourStation wagon (.30) Black (.20) Brown (.10) B/W checked (.10)

Metallic blue (.10) Emerald green (.10) Jet black (.20) Champagne (.20)

Cool green (.10)

15-782 15-

Time-phased Bills
an assembly chart shown against a time scale

Forward scheduling: start at today‘s date and schedule forward to determine the earliest date the job can be finished. If each item takes one period to complete, the clipboards can be finished in three periods Backward scheduling: start at the due date and schedule backwards to determine when to begin work. If an order for clipboards is due by period three, we should start production now
15-783 15-

Item Master File
DESCRIPTION Item Pressboard Item no. 7341 Item type Purch Product/sales class Comp Value class B Buyer/planner RSR Vendor/drawing 07142 Phantom code N Unit price/cost 1.25 Pegging Y LLC 1 INVENTORY POLICY Lead time Annual demand Holding cost Ordering/setup cost Safety stock Reorder point EOQ Minimum order qty Maximum order qty Multiple order qty Policy code 1 5000 1 50 0 39 316 100 500 1 3

15-784 15-

Item Master File (cont.)
PHYSICAL INVENTORY On hand Location On order Allocated Cycle Last count Difference 150 W142 100 75 3 9/5 -2 USAGE/SALES YTD usage/sales MTD usage/sales YTD receipts MTD receipts Last receipt Last issue CODES 1100 75 1200 0 8/25 10/5

Cost acct. Routing Engr

00754 00326 07142

15-785 15-

MRP Processes
Exploding the bill of material Netting out inventory Lot sizing TimeTime-phasing requirements Netting
process of subtracting ononhand quantities and scheduled receipts from gross requirements to produce net requirements

Lot sizing
determining the quantities in which items are usually made or purchased

15-786 15-

MRP Matrix

15-787 15-

MRP: Example
Master Production Schedule 1 Clipboard Lapdesk 85 0 2 95 60 3 120 0 4 100 60 5 100 0

Item Master File On hand On order LLC Lot size Lead time CLIPBOARD LAPDESK 25 20 175 (Period 1) 0 (sch receipt) 0 0 L4L Mult 50 1 1 PRESSBOARD 150 0 1 Min 100 1
15-788 15-

MRP: Example (cont.)
Product Structure Record Clipboard Level 0

Pressboard (1)

Clip Ass’y (1)

Rivets (2)

Level 1

Lapdesk

Level 0

Pressboard (2)

Trim (3’)

Beanbag (1)

Glue (4 oz)

Level 1

15-789 15-

MRP: Example (cont.)
ITEM: CLIPBOARD LOT SIZE: L4L Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases 25 LLC: 0 LT: 1 1 85 2 95 3 120 175 PERIOD 4 100 5 100

15-790 15-

MRP: Example (cont.)
ITEM: CLIPBOARD LOT SIZE: L4L Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases 25 115 0 LLC: 0 LT: 1 1 85 2 95 3 120 175 PERIOD 4 100 5 100

(25 + 175) = 200 units available (200 - 85) = 115 on hand at the end of Period 1

15-791 15-

MRP: Example (cont.)
ITEM: CLIPBOARD LOT SIZE: L4L Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases 25 115 0 LLC: 0 LT: 1 1 85 2 95 3 120 175 20 0 PERIOD 4 100 5 100

115 units available (115 - 85) = 20 on hand at the end of Period 2

15-792 15-

MRP: Example (cont.)
ITEM: CLIPBOARD LOT SIZE: L4L Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases 100 25 115 0 20 0 LLC: 0 LT: 1 1 85 2 95 3 120 175 0 100 100 PERIOD 4 100 5 100

20 units available (20 - 120) = -100 — 100 additional Clipboards are required Order must be placed in Period 2 to be received in Period 3
15-793 15-

MRP: Example (cont.)
ITEM: CLIPBOARD LOT SIZE: L4L Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases 100 25 115 0 20 0 LLC: 0 LT: 1 1 85 2 95 3 120 175 0 100 100 100 0 100 100 100 0 100 100 PERIOD 4 100 5 100

Following the same logic Gross Requirements in Periods 4 and 5 develop Net Requirements, Planned Order Receipts, and Planned Order Releases
15-794 15-

MRP: Example (cont.)
ITEM: LAPDESK LOT SIZE: MULT 50 Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases 20 LLC: 0 LT: 1 1 0 2 60 3 0 PERIOD 4 60 5 0

15-795 15-

MRP: Example (cont.)
ITEM: LAPDESK LOT SIZE: MULT 50 Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases 50 20 20 0 10 40 50 50 10 0 50 50 0 LLC: 0 LT: 1 1 0 2 60 3 0 PERIOD 4 60 5 0

Following the same logic, the Lapdesk MRP matrix is completed as shown

15-796 15-

MRP: Example (cont.)
ITEM: CLIPBOARD LLC: 0 LOT SIZE: L4L LT: 1 Planned Order Releases ITEM: LAPDESK LOT SIZE: MULT 50 LLC: 0 LT: 1 1 50 1 2 1 2 100 2 PERIOD 3 4 100 100 5 PERIOD 3 4 50 PERIOD 3 4 5 5

Planned Order Releases ITEM: PRESSBOARD LLC: 0 LOT SIZE: MIN 100 LT: 1 Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases

150

15-797 15-

MRP: Example (cont.)
ITEM: CLIPBOARD LLC: 0 LOT SIZE: L4L LT: 1 Planned Order Releases ITEM: LAPDESK LOT SIZE: MULT 50 LLC: 0 LT: 1 1 2 100 PERIOD 3 4 100 100 PERIOD x1 3 4 50 PERIOD 3 4 200 100 5 0 5

x1
1 50 2

x1
5

Planned Order Releases

x2 x2 ITEM: PRESSBOARD LLC: 0 LOT SIZE: MIN 100 LT: 1 1 2 Gross Requirements 100 100 Scheduled Receipts Projected on Hand 150 Net Requirements Planned Order Receipts Planned Order Releases

15-798 15-

) ITEM: CLIPBOARD LLC: 0 LOT SIZE: L4L LT: 1 Planned Order Releases ITEM: LAPDESK LOT SIZE: MULT 50 LLC: 0 LT: 1 1 50 1 100 50 2 100 50 50 100 150 1 2 100 2 PERIOD 3 4 100 100 5 PERIOD 3 4 50 PERIOD 3 4 200 100 0 150 150 100 0 100 100 5 0 0 5 Planned Order Releases ITEM: PRESSBOARD LLC: 0 LOT SIZE: MIN 100 LT: 1 Gross Requirements Scheduled Receipts Projected on Hand 150 Net Requirements Planned Order Receipts Planned Order Releases 100 15-799 15- .MRP: Example (cont.

MRP: Example (cont.) Planned Order Report PERIOD ITEM Clipboard Lapdesk Pressboard 1 2 3 4 5 100 100 100 50 50 100 150 100 15-800 15- .

Lot Sizing in MRP Systems Lot-for-lot ordering policy Fixed-size lot ordering policy Minimum order quantities Maximum order quantities Multiple order quantities Economic order quantity Periodic order quantity 15-801 15- .

Using Excel for MRP Calculations 15-802 15- .

Advanced Lot Sizing Rules: L4L Total cost of L4L = (4 X $60) + (0 X $1) = $240 15-803 15- .

Advanced Lot Sizing Rules: EOQ EO Q = 2(30)(60 = 60 1 minimum order quantity Total cost of EOQ = (2 X $60) + [(10 + 50 + 40) X $1)] = $220 15-804 15- .

Advanced Lot Sizing Rules: POQ POQ = Q / d = 60 / 30 = 2 periods worth of requirements Total cost of POQ = (2 X $60) + [(20 + 40) X $1] = $180 15-805 15- .

AL 4416 AL 4174 GR 6470 CO 4471 GR 6471 GR 6471 50 Date 9 .Planned Order Report Item #2740 On hand 100 On order 200 Allocated 50 DATE ORDER NO.25 .50 WO = work order SR = scheduled receipt GR = gross requirement 15-806 15- 10-08 10- 150 10-27 10- 50 25 0 .50 Expedite SR 10-01 1075 25 0 Release PO 10-13 10- Key: AL = allocated CO = customer order PO = purchase order . 9-26 9-30 10-01 10SR 7542 10-10 1010-15 1010-23 10GR 6473 GROSS REQS.05 Lead time 2 weeks Lot size 200 Safety stock 50 SCHEDULED PROJECTED RECEIPTS ON HAND ACTION 25 25 50 200 75 50 25 .

7542 200 Expedite Move forward Move forward Move backward De-expedite DeRelease Release ACTION SR PO PO PO SR PO WO 10-01 1010-07 1010-05 1010-25 1010-30 1010-13 1010-24 10- 10-08 1010-09 1010-10 1010-15 1010-20 1010-27 1010-31 10- 7648 100 200 50 15-807 15- .MRP Action Report Current date 9-25-08 9-25ITEM #2740 #3616 #2412 #3427 #2516 #2740 #3666 DATE ORDER NO. QTY.

Capacity Requirements Planning (CRP) Creates a load profile Identifies under-loads and over-loads Inputs Planned order releases Routing file Open orders file 15-808 15- .

CRP MRP planned order releases Routing file Capacity requirements planning Open orders file Load profile for each process 15-809 15- .

or downtime Effective Capacity Takes into account the efficiency with which a particular product or customer can be processed and the utilization of the scheduled hours or work Effective Daily Capacity = (no. of shifts) x (utilization) x ( efficiency) 15-810 15- . exceptions.Calculating Capacity Maximum capability to produce Rated Capacity Theoretical output that could be attained if a process were operating at full speed without interruption. of machines or workers) x (hours per shift) x (no.

) Utilization Percent of available time spent working Efficiency How well a machine or worker performs compared to a standard output level Load Standard hours of work assigned to a facility Load Percent Ratio of load to capacity load Load Percent = capacity x 100% 15-811 15- .Calculating Capacity (cont.

Load Profiles graphical comparison of load versus capacity Leveling underloaded conditions: Acquire more work Pull work ahead that is scheduled for later time periods Reduce normal capacity 15-812 15- .

Rerouting jobs to alternative machines. or work centers 3. Subcontracting 6. Increasing normal capacity 5.Reducing Over-load Conditions Over1. Revising master schedule 15-813 15- . Pushing work back to later time periods 8. Eliminating unnecessary requirements 2. workers. Increasing efficiency of the operation 7. Splitting lots between two or more machines 4.

Initial Load Profile 120 – 110 – 100 – 90 – 80 – 70 – 60 – 50 – 40 – 30 – 20 – 10 – 0– 1 2 3 4 5 Hours of capacity Normal capacity 6 Time (weeks) 15-814 15- .

Adjusted Load Profile 120 – 110 – 100 – 90 – 80 – 70 – 60 – 50 – 40 – 30 – 20 – 10 – 0– 1 Hours of capacity Pull ahead Overtime Work an extra shift Push back Push back Normal capacity 2 3 4 5 6 Time (weeks) Load leveling process of balancing underloads and overloads 15-815 15- .

15-816 15- .Relaxing MRP Assumptions Material is not always the most constraining resource Lead times can vary Not every transaction needs to be recorded Shop floor may require a more sophisticated scheduling system Scheduling in advance may not be appropriate for on-demand production.

Enterprise Resource Planning (ERP) Software that organizes and manages a company’s business processes by sharing information across functional areas integrating business processes facilitating customer interaction providing benefit to global companies 15-817 15- .

Concepts in Enterprise Resource Planning (Boston: Course Technology. Ellen Monk. pp.Organizational Data Flows Source: Adapted from Joseph Brady. 7–12 15-818 15- . and Bret Wagner. 2001).

ERP’s Central Database 15-819 15- .

Selected Enterprise Software Vendors 15-820 15- .

ERP Implementation Analyze business processes Choose modules to implement Which processes have the biggest impact on customer relations? Which process would benefit the most from integration? Which processes should be standardized? Align level of sophistication Finalize delivery and access Link with external partners 15-821 15- .

Customer Relationship Management (CRM) Software that Plans and executes business processes Involves customer interaction Changes focus from managing products to managing customers Analyzes point-of-sale data for patterns point-ofused to predict future behavior 15-822 15- .

Supply Chain Management Software that plans and executes business processes related to supply chains Includes Supply chain planning Supply chain execution Supplier relationship management Distinctions between ERP and SCM are becoming increasingly blurred 15-823 15- .

Product Lifecycle Management (PLM) Software that Incorporates new product design and development and product life cycle management Integrates customers and suppliers in the design process though the entire product life cycle 15-824 15- .

ERP and Software Systems 15-825 15- .

Connectivity Application programming interfaces (APIs) give other programs well-defined ways of speaking to wellthem Enterprise Application Integration (EAI) solutions EDI is being replaced by XML. business language of Internet ServiceService-oriented architecture (SOA) collection of “services” that communicate with each other within software or between software 15-826 15- .

Taylor.Chapter 16 Lean Systems Operations Management Roberta Russell & Bernard W. III .

Lecture Outline Basic Elements of Lean Production Benefits of Lean Production Implementing Lean Production Lean Services Leaning the Supply Chain Lean Six Sigma Lean and the Environment Lean Consumption 16-828 16- .

less space Just-in-time (JIT) smoothing the flow of material to arrive just as it is needed “JIT” and “Lean Production” are used interchangeably Muda waste. fewer workers.Lean Production Doing more with less inventory. anything other than that which adds value to product or service 16-829 16- .

Waste in Operations 16-830 16- .

) 16-831 16- .Waste in Operations (cont.

Waste in Operations (cont.) 16-832 16- .

2. 5. 7. 3. 9. 10.Basic Elements 1. 8. Flexible resources Cellular layouts Pull system Kanbans Small lots Quick setups Uniform production levels Quality at the source Total productive maintenance Supplier networks 16-833 16- . 6. 4.

Flexible Resources Multifunctional workers perform more than one job general-purpose machines perform several basic functions Cycle time time required for the worker to complete one pass through the operations assigned Takt time paces production to customer demand 16-834 16- .

Standard Operating Routine for a Worker 16-835 16- .

Cellular Layouts Manufacturing cells comprised of dissimilar machines brought together to manufacture a family of parts Cycle time is adjusted to match takt time by changing worker paths 16-836 16- .

Cells with Worker Routes 16-837 16- .

Worker Routes Lengthen as Volume Decreases 16-838 16- .

pull systems rely on customer requests 16-839 16- .Pull System Material is pulled through the system when needed Reversal of traditional push system where material is pushed according to a schedule Forces cooperation Prevent over and underproduction While push systems rely on a predetermined schedule.

Kanbans Card which indicates standard quantity of production Derived from two-bin inventory system twoMaintain discipline of pull production Authorize production and movement of goods 16-840 16- .

Sample Kanban 16-841 16- .

Origin of Kanban a) Two-bin inventory system TwoBin 1 Kanban Bin 2 Reorder card Q-R R R b) Kanban inventory system Q = order quantity R = reorder point .demand during lead time 16-842 16- .

Types of Kanban Production kanban authorizes production of goods Signal kanban a triangular kanban used to signal production at the previous workstation Withdrawal kanban authorizes movement of goods Material kanban used to order material in advance of a process Kanban square a marked area designated to hold items Supplier kanban rotates between the factory and suppliers 16-843 16- .

16-844 16- .

16-845 16- .

16-846 16- .

Determining Number of Kanbans No. of Kanbans = average demand during lead time + safety stock container size dL + S C where N = N = number of kanbans or containers d = average demand over some time period L = lead time to replenish an order S = safety stock C = container size 16-847 16- .

5) = 7.Determining Number of Kanbans: Example d = 150 bottles per hour L = 30 minutes = 0.5 C = 25 bottles (150 x 0.5 dL + S N= = 25 C = 75 + 7.5) + 7.10(150 x 0.3 kanbans or containers 25 Round up to 4 (to allow some slack) or down to 3 (to force improvement) 16-848 16- .5 = 3.5 hours S = 0.

Small Lots Require less space and capital investment Move processes closer together Make quality problems easier to detect Make processes more dependent on each other 16-849 16- .

Inventory Hides Problems 16-850 16- .

Less Inventory Exposes Problems 16-851 16- .

sufficient capacity Setup time Generally the biggest bottleneck 16-852 16- .Components of Lead Time Processing time Reduce number of items or improve efficiency Move time Reduce distances. standardize routings Waiting time Better scheduling. simplify movements.

Quick Setups Internal setup Can be performed only when a process is stopped SMED Principles Separate internal setup from external setup Convert internal setup to external setup Streamline all aspects of setup Perform setup activities in parallel or eliminate them entirely External setup Can be performed in advance 16-853 16- .

Common Techniques for Reducing Setup Time 16-854 16- .

) 16-855 16- .Common Techniques for Reducing Setup Time (cont.

) 16-856 16- .Common Techniques for Reducing Setup Time (cont.

Uniform Production Levels Result from smoothing production requirements on final assembly line Kanban systems can handle +/.10% +/demand changes Reduce variability with more accurate forecasts Smooth demand across planning horizon MixedMixed-model assembly steadies component production 16-857 16- .

MixedMixed-Model Sequencing 16-858 16- .

problem solving. “change for the good of all” Under-capacity scheduling leaves time for planning. and maintenance 16-859 16- .Quality at the Source Visual control makes problems visible Jidoka authority to stop the production line Poka-yokes prevent defects from occurring Andons call lights that signal quality problems Kaizen a system of continuous improvement.

Examples of Visual Control 16-860 16- .

) 16-861 16- .Examples of Visual Control (cont.

Examples of Visual Control (cont.) 16-862 16- .

5 Whys One of the keys to an effective Kaizen is finding the root cause of a problem and eliminating it A practice of asking “why?” repeatedly until the underlying cause is identified (usually requiring five questions) Simple. yet powerful technique for finding the root cause of a problem 16-863 16- .

Total Productive Maintenance (TPM) Breakdown maintenance Repairs to make failed machine operational Preventive maintenance System of periodic inspection and maintenance to keep machines operating TPM combines preventive maintenance and total quality concepts 16-864 16- .

maintenance Train and retrain workers to operate machines Purchase machines that maximize productive potential Design preventive maintenance plan spanning life of machine 16-865 16- . changeover.TPM Requirements Design products that can be easily produced on existing machines Design machines for easier operation.

standards not known. checklists missing. labels. number of daily 5S inspections not performed. workstations. & surfaces not clean. lines. and looking for ways to keep clean and organized Maintaining and monitoring the first three categories Sticking to the rules Seiketsu (standardize) Shisuke (sustain) 16-866 16- . correct places not obvious. other cleaning problems Necessary information not visible. unneeded inventory. items not put away immediately after use Floors. signs broken or unclean. quantities and limits not easily recognizable. stairs. supplies. furniture. bulletins. walls. items can’t be located within 30 seconds Number of workers without 5S training. unneeded items on walls. equipment. parts. number of times job aids not available or up-to-date Seiton(set in order) Seisou (shine) A place for everything and everything in its place Cleaning. aisles. items blocking aisles or stacked in corners.5S Scan Seiri(sort) Goal Keep only what you need Eliminate or Correct Unneeded equipment. cleaning materials not easily accessible. tools. safety hazards Items not in their correct places. number of personal items not stored. & equipment locations not indicated.

Supplier Networks Long-term supplier contracts Synchronized production Supplier certification Mixed loads and frequent deliveries Precise delivery schedules Standardized. sequenced delivery Locating in close proximity to the customer 16-867 16- .

Benefits of Lean Production Reduced inventory Improved quality Lower costs Reduced space requirements Shorter lead time Increased productivity 16-868 16- .

) Greater flexibility Better relations with suppliers Simplified scheduling and control activities Increased capacity Better use of human resources More product variety 16-869 16- .Benefits of Lean Production (cont.

Implementing Lean Production Use lean production to finely tune an operating system Somewhat different in USA than Japan Lean production is still evolving Lean production is not for everyone 16-870 16- .

Lean Services Basic elements of lean production apply equally to services Most prevalent applications lean retailing lean banking lean health care 16-871 16- .

production planning.Leaning the Supply Chain “pulling” a smooth flow of material through a series of suppliers to support frequent replenishment orders and changes in customer demand Firms need to share information and coordinate demand forecasts. and inventory replenishment with suppliers and supplier’s suppliers throughout supply chain 16-872 16- .

Leaning the Supply Chain (cont.) Steps in Leaning the Supply Chain: Build a highly collaborative business environment Adopt the technology to support your system 16-873 16- .

Lean Six Sigma Lean and Six Sigma are natural partners for process improvement Lean Eliminates waste and creates flow More continuous improvement Six Sigma Reduces variability and enhances process capabilities Requires breakthrough improvements 16-874 16- .

Lean and the Environment Lean’s mandate to eliminate waste and operate only with those resources that are absolutely necessary aligns well with environmental initiatives Environmental waste is often an indicator of poor process design and inefficient production 16-875 16- .

heath and safety (EHS) icons and data into value stream maps Involve staff with EHS expertise in planning Find and drive out environmental wastes in specific process by using lean process-improvement tools processEmpower and enable workers to eliminate environmental wastes in their work areas 16-876 16- .EPA Recommendations Commit to eliminate environmental waste through lean implementation Recognize new improvement opportunities by incorporating environmental.

maintaining. Lean Consumption seeks to: Provide customers what they want. repairing. where and when they want it Resolve customer problems quickly and completely Reduce the number of problems customers need to solve 16-877 16- . buying.Lean Consumption Consumptions process involves locating. and recycling. using. installing.

Chapter 17 Scheduling Operations Management Roberta Russell & Bernard W. Taylor. III .

Lecture Outline Objectives in Scheduling Loading Sequencing Monitoring Advanced Planning and Scheduling Systems Theory of Constraints Employee Scheduling 17-879 17- .

equipment.What is Scheduling? Last stage of planning before production occurs Specifies when labor. and facilities are needed to produce a product or provide a service 17-880 17- .

Scheduled Operations Process Industry Linear programming EOQ with non-instantaneous nonreplenishment Batch Production Aggregate planning Master scheduling Material requirements planning (MRP) Capacity requirements planning (CRP) Mass Production Assembly line balancing Project Project -scheduling techniques (PERT. CPM) 17-881 17- .

Objectives in Scheduling Meet customer due dates Minimize job lateness Minimize response time Minimize completion time Minimize time in the system Minimize overtime Maximize machine or labor utilization Minimize idle time Minimize work-inwork-inprocess inventory 17-882 17- .

Shop Floor Control (SFC) scheduling and monitoring of day-to-day production day-toin a job shop also called production control and production activity control (PAC) usually performed by production control department Loading Check availability of material. machines. and labor Sequencing Release work orders to shop and issue dispatch lists for individual machines Monitoring Maintain progress reports on each job until it is complete 17-883 17- .

Loading Process of assigning work to limited resources Perform work with most efficient resources Use assignment method of linear programming to determine allocation 17-884 17- .

Make row from all other row values assignments where zeros appear 2. Repeat steps 3 and 4 until optimum solution is reached 17-885 17- . then optimum subtract minimum value in each solution has been found.Assignment Method 1. Perform column reductions subtract minimum value in each column from all other column values Else modify matrix subtract minimum uncrossed value from all uncrossed values add it to all cells where two lines intersect other values in matrix remain unchanged 3. Cross out all zeros in matrix use minimum number of horizontal and vertical lines 5. Perform row reductions 4. If number of lines equals number of rows in matrix.

Assignment Method: Example Initial Matrix Bryan Kari Noah Chris Row reduction 5 4 2 5 0 0 1 1 1 2 0 0 5 4 1 6 1 10 6 7 9 2 5 2 6 5 PROJECT 3 4 6 10 4 6 5 6 4 10 Cover all zeros 3 2 0 3 0 0 1 1 1 2 0 0 4 3 0 5 Column reduction 3 2 0 3 0 0 1 1 1 2 0 0 4 3 0 5 Number lines ≠ number of rows so modify matrix 17-886 17- .

) Modify matrix 1 0 0 1 0 0 3 1 1 2 2 0 2 1 0 3 Cover all zeros 1 0 0 1 0 0 3 1 1 2 2 0 2 1 0 3 Number of lines = number of rows so at optimal solution PROJECT Bryan Kari Noah Chris 1 1 0 0 1 2 0 0 3 1 3 1 2 2 0 4 2 1 0 3 Bryan Kari Noah Chris 1 10 6 7 9 PROJECT 2 5 2 6 5 3 6 4 5 4 4 10 6 6 10 Project Cost = (5 + 6 + 4 + 6) X $100 = $2.100 17-887 17- .Assignment Method: Example (cont.

first-served LCFS .smallest critical ratio SPT .similar required setups SLACK . first served DDATE .Sequencing Prioritize jobs assigned to a resource If no order specified use first-come first-served (FCFS) Other Sequencing Rules FCFS .smallest slack CR .shortest processing time LPT .highest customer priority SETUP .last come.earliest due date CUSTPR .first-come.longest processing time 17-888 17- .

job ahead of schedule If CR < 1. job on schedule 17-889 17- .today’s date = remaining processing time If CR > 1. job behind schedule If CR = 1.Minimum Slack and Smallest Critical Ratio SLACK considers both work and time remaining SLACK = (due date – today’s date) – (processing time) CR recalculates sequence as processing continues and arranges information in ratio form time remaining CR = remaining work due date .

Sequencing Jobs through One Process Flow time (completion time) Time for a job to flow through system Makespan Time for a group of jobs to be completed Tardiness Difference between a late job’s due date and its completion time 17-890 17- .

Simple Sequencing Rules JOB PROCESSING TIME DUE DATE A B C D E 5 10 2 8 6 10 15 5 12 8 17-891 17- .

6 17-892 17- .60 10 15 5 12 8 0 0 12 13 23 48 48/5 = 9.Simple Sequencing Rules: FCFS FCFS START PROCESSING COMPLETION SEQUENCE TIME TIME TIME DATE DUE TARDINESS A B C D E Total Average 0 5 15 17 25 5 10 2 8 6 5 15 17 25 31 93 93/5 = 18.

00 5 8 10 12 15 0 0 3 9 16 28 28/5 = 5.Simple Sequencing Rules: DDATE DDATE START PROCESSING COMPLETION SEQUENCE TIME TIME TIME DATE DUE TARDINESS C E A D B Total Average 0 2 8 13 21 2 6 5 8 10 2 8 13 21 31 75 75/5 = 15.6 17-893 17- .

Simple Sequencing Rules: SLACK A(10-0) – 5 = 5 B(15-0) – 10 = 5 C(5-0) – 2 = 3 D(12-0) – 8 = 4 E(8-0) – 6 = 2 DUE TARDINESS SLACK START PROCESSING COMPLETION SEQUENCE TIME TIME TIME DATE E C D A B Total Average 0 6 8 16 21 6 2 8 5 10 6 8 16 21 31 82 82/5 = 16.40 8 5 12 10 15 0 3 4 11 16 34 34/5 = 6.8 17-894 17- .

80 5 10 8 12 15 0 0 5 9 16 30 30/5 = 6 17-895 17- .Simple Sequencing Rules: SPT SPT START PROCESSING COMPLETION SEQUENCE TIME TIME TIME DATE DUE TARDINESS C A E D B Total Average 0 2 7 13 21 2 5 6 8 10 2 7 13 21 31 74 74/5 = 14.

6 5.0 3 3 4 3 23 16 16 16 17-896 17- .60 15.40 14.80 9.00 16.8 6.Simple Sequencing Rules: Summary RULE AVERAGE COMPLETION TIME AVERAGE TARDINESS NO.6 6. OF JOBS TARDY MAXIMUM TARDINESS FCFS DDATE SLACK SPT 18.

Sequencing Jobs Through Two Serial Process Johnson’s Rule 1. Repeat steps 2-4 until all slots in matrix are filled and all 2jobs are sequenced. Remove job from list. put the job as near to beginning of sequence as possible. If that time is on machine 1. List time required to process each job at each machine. Set up a one-dimensional matrix to represent desired onesequence with # of slots equal to # of jobs. 4. 5. 3. 17-897 17- . Select smallest processing time at either machine. put the job as near to the end of the sequence as possible. If smallest time occurs on machine 2. 2.

Johnson’s Rule JOB A B C D E PROCESS 1 6 11 7 9 5 PROCESS 2 8 6 3 7 10 E A D B C 17-898 17- .

) E E 5 A 11 D 20 A D B B C C 31 38 Process 1 (sanding) Idle time E 5 15 A 23 D 30 B 37 C 41 Process 2 (painting) Completion time = 41 Idle time = 5+1+1+3=10 17-899 17- .Johnson’s Rule (cont.

SPT most useful when shop is highly congested Use SLACK for periods of normal activity Use DDATE when only small tardiness values can be tolerated Use LPT if subcontracting is anticipated Use FCFS when operating at low-capacity levels lowDo not use SPT to sequence jobs that have to be assembled with other jobs at a later date 17-900 17- . 3. 2. 5. 6.Guidelines for Selecting a Sequencing Rule 1. 4.

Monitoring Work package Shop paperwork that travels with a job Gantt Chart Shows both planned and completed activities against a time scale Input/Output Control Monitors the input and output from each work center 17-901 17- .

Gantt Chart Job 32B 3 Job 23C 2 Job 11C 1 Ahead of schedule Job 12A On schedule Behind schedule Facility 1 Key: 2 3 4 5 6 8 Today’s Date 9 10 11 12 Days Planned activity Completed activity 17-902 17- .

Input/Output Control Input/Output Report PERIOD Planned input Actual input Deviation Planned output Actual output Deviation Backlog 1 65 2 65 3 70 4 70 TOTAL 270 0 0 300 0 0 0 75 75 75 75 30 20 10 5 17-903 17- .

) Input/Output Report PERIOD Planned input Actual input Deviation Planned output Actual output Deviation Backlog 1 65 60 -5 75 75 -0 30 2 65 60 -5 75 75 -0 15 3 70 65 -5 75 65 -10 0 4 70 65 -5 75 65 -10 0 TOTAL 270 250 -20 300 280 -20 0 17-904 17- .Input/Output Control (cont.

assumes finite (limited) capacity Sequences jobs as part of the loading decision Resources are never loaded beyond capacity 17-905 17- .assumes infinite capacity Loads without regard to capacity Then levels the load and sequences jobs Finite .Advanced Planning and Scheduling Systems Infinite .

availability.Advanced Planning and Scheduling Systems (cont. usage. quality 17-906 17- .) Advanced planning and scheduling (APS) AddAdd-ins to ERP systems ConstraintConstraint-based programming (CBP) identifies a solution space and evaluates alternatives Genetic algorithms based on natural selection properties of genetics Manufacturing execution system (MES) monitors status.

Theory of Constraints Not all resources are used evenly Concentrate on the” bottleneck” resource Synchronize flow through the bottleneck Use process and transfer batch sizes to move product through facility 17-907 17- .

beating to set the pace of production for the rest of the system Buffer Inventory placed in front of the bottleneck to ensure it is always kept busy Determines output or throughput of the system Rope Communication signal. tells processes upstream when they should begin production 17-908 17- .Drum-Buffer-Rope Drum Bottleneck.

TOC Scheduling Procedure Identify bottleneck Schedule job first whose lead time to bottleneck is less than or equal to bottleneck processing time Forward schedule bottleneck machine Backward schedule other machines to sustain bottleneck schedule Transfer in batch sizes smaller than process batch size 17-909 17- .

A B B3 1 7 C C3 2 15 D D3 3 5 B2 2 3 C2 1 10 D2 2 8 B1 1 5 Key: i C1 3 2 Item i D1 3 10 Synchronous Manufacturing ij k l Operation j of item i performed at machine center k takes l minutes to process 17-910 17- .

Synchronous Manufacturing (cont.) Demand = 100 A’s Machine setup time = 60 minutes MACHINE 1 MACHINE 2 MACHINE 3 B1 B3 C2 Sum 5 7 10 22 B2 C3 D2 3 15 8 26* C1 D3 D1 2 5 10 17 * Bottleneck 17-911 17- .

Synchronous Manufacturing (cont.) Machine 1 C2 2 Idle Machine 2 C3 12 Machine 3 Setup C1 0 200 D1 1260 1512 Setup B2 1872 Setup D2 2732 1002 Setup B1 1562 Setup B3 2322 Setup Idle 1940 D3 Completion time 2737 17-912 17- .

Employee Scheduling Labor is very flexible resource Scheduling workforce is complicated. repetitive task Assignment method can be used Heuristics are commonly used 17-913 17- .

Assign the first N . Continue in a similar manner until all days are have been scheduled 3. If number of workdays for full time employee < 5. Assign any remaining work to part-time employees part5.D1 workers day 1 off. If consecutive days off are desired. consider switching schedules among days with the same demand requirements 17-914 17- . of workers available Di = demand for workers on day i X = day working O = day off 2.D2 workers day 2 off. Let N = no. Assign the next N .Employee Scheduling Heuristic 1. assign remaining workdays so consecutive days off are possible 4.

Employee Scheduling DAY OF WEEK WORKERS REQUIRED Taylor Smith Simpson Allen Dickerson M T W MIN NO. OF 3 3 4 TH 3 F 4 SA 5 SU 3 17-915 17- .

Employee Scheduling (cont.) DAY OF WEEK WORKERS REQUIRED Taylor Smith Simpson Allen Dickerson M T W MIN NO. OF 3 3 4 X X O O X X X X X O TH 3 O O X X X F 4 X X O X X SA 5 X X X X X SU 3 X X X O O O O X X X Completed schedule satisfies requirements but has no consecutive days off 17-916 17- .

) DAY OF WEEK WORKERS REQUIRED Taylor Smith Simpson Allen Dickerson M T W MIN NO. OF 3 3 4 O O X X X X X O X X TH 3 X X O O X F 4 X X X X O SA 5 X X X X X SU 3 X X X O O O O X X X Revised schedule satisfies requirements with consecutive days off for most employees 17-917 17- .Employee Scheduling (cont.

Automated Scheduling Systems Staff Scheduling Schedule Bidding Schedule Optimization 17-918 17- .

bookfiesta4u.Thank You www.com 2-919 .

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