Operations and Production Management Notes

Production and Operations Management MGT613
INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT POMA
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Lesson 01
Previously called Production Management Then Production and Operations Management Often called Operations Management Should not e confused !ith Operations "esearch or Production Management !hich are the domain of Mechanical and #ndustrial $ngineering%
T&$ 'O("S$ 'O)T$)T Tentative 'ourse 'ontent (nits of *earning !ise (nit # + #ntroduction and Productivity, Strategy and 'ompetitiveness (nit ## + .orecasting (nit ### + /esign of Production Systems (nit ### + 0uality (nit 1 + Operating and 'ontrolling the SystemTentative 'ourse 'ontent *ecture !ise (nit # + 2 *ectures (nit ## +3 *ectures (nit ### + 13 *ectures (nit ### + 14 *ectures (nit 1 + 12 *ecturesHistory of Management .rederic5 Taylor and Gil reths +*illian and .ran5 Gil reth- are pioneers of transforming management to scientific domain% 6orro!s a lot of information from $ngineering and Management to give an overall igger picture of operating and managing any organi7ation% /ifference et!een Operations Management and "esearch O" relies on mathematical modeling and OM relies on practical scenarios8industrial cases% O" domain and tool of $ngineers !hile OM is considered to e one of the critical tools of Managers% O" considered more po!erful to improve the !hole system !here as OM can e applied to a part of the system% O" relies on mathematical modeling !hile OM relies on practical scenarios8industrial cases% 9hy Study OP$"AT#O)S MA)AG$M$)T Operations Management form core of any organi7ation:s senior leadership% 9hat are organi7ations An organi7ation is a usiness entity that can !or5 for profit or non profit purposes to generate a value added product or service for its customers% 9hether profit or non profit, the role of an OP$"AT#O)S MA)AG$" is to sustain, protect, and pro;ect the company:s operations side% Copyright Virtual University of Pakistan
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9hy Operations Manager $very organi7ation must manage processes and operations y !hich processes are performed% An operations Manager controls the processes y !hich value is added from conversion of inputs to outputs% 9hy Operations Manager #nputs include materials, inventory, services, land, and energy, human and capital resources% Bridge et!een Management and Engineering T!o #slands named $ngineering and Management Operations management uses foundations of oth $ngineering and Management% 6ridge 6asics , $<tension of road from oth ends till they meet at the centre and fuse to give strength and allo! the foundations to give added strength to the ridge 6ridge et!een Management and $ngineering% The primary responsi ility of an Operations Manager !or5ing at any level, for production or service ased organi7ation, is to help and facilitate the uilding of !alls% #t:s a demanding ;o ut at the time ta5es the same amount of time re=uired y people !ho are creating hurdles and end up uilding !alls in stead of ridges% Also, it is important at this point in time to understand that the Strength of the 'hain is e=ual to the strength of the !ea5est *in5, so if your analysis, as an operations manager consists of oth $ngineering and Management *in5s% Any !ea5ness of analysis in $ngineering or Management *in5 !ould lead to an overall !ea5 analysis% A alanced approach !ould e to ma5e est use of the strength and overcome the !ea5nesses% As a rule of thum , pro lem solving and decision ma5ing through Production and Operations Management !ould entail that oth $ngineering and Management aspects should e utili7ed to aim for the po!erful systems + over all ig picture- approach%
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INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT"I RECAP O# $ST %e&t're
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Lesson 02
'ourse 'ontent, Midterm and .inal $<am Organi7ation /efinition .inance, Mar5eting and Operations Productive systems, Production and Service Systems Operations Management +The management of systems or processes that create goods and/or provide services Operation .unction + 'onsists of all activities directly related to producing goods or providing servicesMan'fa&t'ring and Ser(i&e Definitions Manufacturing is the transformation of ra! materials into finished goods for sale, or intermediate processes involving the production or finishing of semi>manufactures% #t is a large ranch of industry and of secondary production% Some industries, li5e semiconductor and steel manufacturer:s use the term fa rication% Service is defined as either as Services are deeds, processes, and performances% O" A service is a time>perisha le, intangi le e<perience performed for a customer acting in the role of a co>producer Definition of Ser(i&e #irms Service enterprises are organi7ations that facilitate the production and distri ution of goods, support other firms in meeting their goals, and add value to our personal lives% "ole of Services in an $conomy
Prod'&tion and Ser(i&es Gro!t) in Pa*istan 'an e attri uted to the follo!ing sectors Private Pu lic Pu lic Private Government
+ey Areas of Res,onsi i-ity for an O,erations Manager Operations Managers ;o responsi ility includes ut is not limited to? .orecasting 'apacity planning Scheduling Copyright Virtual University of Pakistan

#nventory Management 0uality Assurance and 'ontrol Motivating employees /eciding !here to locate facilities
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+ey De&ision Areas for O,erations Managers ./0H A,,roa&) 9hat ? 9hat resources8!hat amounts 9hy? The !or5 is needed to e done 9hen? )eeded8 scheduled8ordered 9here? 9or5 to e done &o! much? 0uantity to e produced or served, &o!? /esigned8capacity planning 9ho? To do the !or5
De&ision Ma*ing Operations Manager spends most of their routine hours in ma5ing decisions under certainty or uncertainty% The various tools availa le to an Operations Manager include 1% Models 3% 0uantitative approaches 3% Analysis of trade>offs @% Systems approach A,,-i&ations of Mode-s in O,erations Management Models Are 6eneficial and effective to an Operations Manager primarily ecause of the follo!ing reasons $asy to use, less e<pensive "e=uire users to organi7e Systematic approach to pro lem solving #ncrease understanding of the pro lem $na le A!hat ifB =uestions Specific o ;ectives 'onsistent tool Po!er of mathematics Standardi7ed format
Histori&a- De(e-o,ment of OM C#T and T0' Manufacturing Strategy Paradigm Service 0uality and Productivity Total 0uality Management and 0uality 'ertification &istorical /evelopment of OM +cont:d6usiness Process "eengineering Supply 'hain Management $lectronic 'ommerce
C'rrent Trends in B'siness Copyright Virtual University of Pakistan
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Trends in 6usiness in general and Operations Management !hich have shaped the industry and the technological support to the industry include the follo!ing?> 1% The #nternet, e>commerce, e> usiness 3% Management technology 3% Glo ali7ation @% Management of supply chains 2% Agility Prod'&tion and O,erations Management as N'&-e's in t)e Organi1ations Operations occupy the central figure in any service or manufacturing organi7ation% A small decision as it may seem can serious effect the !or5ings and performance output in other units%
#ndustrial $ngineering /istri ution Maintenance
Purchasing
Operations
Pu lic "elations
*egal Personnel Accounting M#S
C'rrent Iss'es in OM The recent !ave of telecom sector infrastructure consolidation and deregulation has led to a lot of foreign investors aggressively see5ing ne! Pa5istani partners% 9ith the aid of operation management studies !e can foresee the follo!ing current issues in Pa5istan% These issues have already een addressed in Pa5istan as !ell as in other countries% 1% 3% 3% @% 2% 6% D% E% F% $ffectively consolidating the operations resulting from mergers /eveloping fle<i le supply chains to ena le mass customi7ation of products and services Managing glo al supplier, production and distri ution net!or5s #ncreased Acommoditi7ationB of suppliers 'urrent #ssues in OM +cont:dAchieving the AService .actoryB $nhancing value added services Ma5ing efficient use of #nternet technology Achieving good service from service firms
/)at is a Prod'&tion and Prod'&ti(e System2 A productive system is defined as a user of resources to transform inputs into some desired outputs +products as !ell as services- !here as production system refers specifically to only desired output in the form of products or manufactured goods% #t is important to understand that productive system reflects oth production as !ell as services systems% 9e also need to understand the important transformations through !hich a ra! material is converted a value added end product or service% Copyright Virtual University of Pakistan

Physical>>manufacturing *ocation>>transportation $<change>>retailing Storage>>!arehousing Physiological>>health care #nformational>>telecommunications
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Our discussion throughout the semester !ould focus on !hat is a Service and !hat is a GoodG #n our course of discussion, !e !ill collect numerous e<amples to etter understand that 9or5ers !or5ing for creation of a product, manufacturing units are simultaneously !or5ing to create a serviceG So the statement that Services never include goods and goods never include services can never e true% Prod'&tion of Goods (s3 De-i(ery of Ser(i&es H H H Production of goods tangi le output /elivery of services an action and reaction et!een the provider 8deliverer of services and the demander of services, an5 teller, hair stylist% Service ;o categories Government 9holesale8retail .inancial services &ealthcare Personal services 6usiness services $ducation Per&ent Ser(i&e Em,-oyment for Se-e&ted Nations
Percent Service $mployment for Selected )ations +Source not Authenticated-
Country
United States Canada Pakistan Japan France Italy Bra il C!ina
1980
67.1 67.2 13.3 54.5 56.9 48.7 46.2 13.1
1987
71.0 70.8 16.0 58.8 63.6 57.7 50.0 17.8
1993
74.3 74.8 18.0 59.9 66.4 60.2 51.9 21.2
2000
74.2 74.1 23.9 72.7 70.8 62.8 56.5 40.6
Stages of E&onomi& De(e-o,ment in Pa*istan Copyright Virtual University of Pakistan

S"ciety #re$ Ind(strial , 1947 t" 1960-l Ind(strial , 1960 4 t"date#"st$ ind(strial , F(t(re#re$ d"%inant acti&ity .*ric(lt(re /inin* , c"al. Salt5""ds pr"d(cti"n Ser&ices Use "' !(%an la)"r 0a1 %(scle p"1er /ac!ine tendin* .rtistic Creati&e Intellect(al Unit "' s"cial li'e 23tended !"(se!"ld , J"int Fa%iliesIndi&id(al Standard "' li&in* %eas(re S(r&i&al Str(ct(re 0"(tine +raditi"nal .(t!"ritati&e B(rea(cratic 7ierarc!ical Inter$ dependent 5l")al
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+ec!n"l"*y Si%ple !and t""ls /ac!ines
6(antity "' *""ds 6(ality "' li'e in ter%s "' !ealt!8 ed(cati"n8 recreati"n
C"%%(nity
In'"r%ati"n
So'r&e of Ser(i&e Se&tor Gro!t) Pa5istan is slo!ly ut surely facing a change in its demographics, economics and more important social norms% This shift has often proven to e the source of service sector gro!th% #nnovation Push and Pull theory e%g% 'ash Management Services derived from products e%g% '/8Automo ile81ideo "ental #nformation driven services li5e finance ro5erage services% Social Trends Aging of the population #ncrease in *ife e<pectancy T!o>income families, oth the males and females of the family are !or5ing Gro!th in num er of single people% &ome as sanctuary #'n&tions !it) in an Organi1ation The Operations function consists of all activities that are directly related to production of a good or service% Operations function e<ist in services li5e healthcare, Police, Traffic, transportation, consultancy, food handling, restaurants etc% Operations function forms the core of all usinesses% O,erations and Mar*eting 1alue addition refers to conversion of ra! materials to finished goods or services% 1alue added often refers to the difference et!een the cost of the ra! material and the price of the finished good% The revenues from selling goods is used in etterment of e<isting product or service or " I/, investment in ne! facilities and e=uipments 9eeding out or eliminating non value adding operations% $%g% storage of goods !hich have een produced ahead of scheduled production, increases storage and inventory costs% reducing storage cost !ould reduce transformation cost and thus increase value addition Mar5eting relates to selling of a good or service of the organi7ation through advertising and pricing decisions% Mar5eting department assesses the customer:s needs and communicate it to the operations people on short term and design people on the long term asis% Copyright Virtual University of Pakistan
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Operations people need information a out demand over a short range in order to purchase ra! materials or manage inventory or schedule production plan !here as the design people need information to redesign or simply design ne! products or services% Mar5eting provides valua le information a out the competitors customers needs and communicate it to the operations people on short term and design people on the long term asis% #inan&e The finance function focuses on activities that relate to securing resources at favora le prices and then allocating these resources through out the organi7ation% .inance and Operation Personnel e<change information and e<pertise in the follo!ing !ay% 6udgets $conomic analysis of investment proposals Provision of funds Histori&a- E(o-'tion of O,erations Management #ndustrial revolution +1DD4:s Scientific management +1F11o Mass production o #nterchangea le parts o /ivision of la or &uman relations movement +1F34>64 /ecision models +1F12, 1F64>D4:s #nfluence of Capanese manufacturers Sim,-e Prod'&t S',,-y C)ain Supply 'hain? A se=uence of activities and organi7ations involved in producing and delivering a good or service% *et:s apply the same concept to !hat !e have on our rea5fast ta le every morning, a simple loaf of read%
Suppliers: Suppliers
/irect Suppliers
Producer
/istri utor
.inal 'onsumer
C'rrent Iss'es in OM An operations manager needs to prepare himself or herself for the follo!ing issues in the years to come !hether its Pa5istan or outside Pa5istan% $ffectively consolidating the operations resulting from mergers /eveloping fle<i le supply chains to ena le mass customi7ation of products and services Managing glo al supplier, production and distri ution net!or5s #ncreased Acommoditi7ationB of suppliers 'urrent #ssues in OM +cont:d Achieving the AService .actoryB $nhancing value added services Ma5ing efficient use of #nternet technology Achieving good service from service firms

COMPETITIVENESS4 STRATEG5 AND PRODUCTIVIT5 Meanings of Com,etiti(eness4 Strategy and Prod'&ti(ity
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Lesson 03
9e are already familiar !ith these three terms, for the sa5e of easy reference, let us revisit their definitions
1% Com,etiti(eness refers to an aggressive !illingness to compete 3% Strategy is an ela orate and systematic plan of action !ith defined resources and 3% Prod'&ti(ity refers to the ratio of the =uantity and =uality of units produced to the la or per
unit of time or simply ratio of output to input% Ho! Organi1ation Com,ete against ea&) ot)er 6usinesses since the eginning of time have competed against each other% On the asis of competition, various types of mar5et e<ist for nearly all lines of products and services% 9e already 5no! that a solute monopoly and perfect competition type of mar5ets are not that pervasive, yet usinesses try to avoid perfect competition and strive to go for a solute monopoly so they can en;oy no competition and e<ploit the customer sentiments for uying% 9e can identify the follo!ing common and !idespread !ays in !hich organi7ations can compete against other organi7ations%
1% Price? #n our day to day routine o servations, !e often see that a lo!er price !ould attract more 3%
customers provided the product or service fulfils its intended use% *o!er price helps an organi7ation to increase its customer ase% 0uality is an important dimension y !hich superior ra! materials as !ell as high S5illman ship !ould ensure that product manufactured or service developed is offered to the customer !ith something e<tra% That something e<tra is nothing else ut 0uality% 0uality is al!ays offered free of cost, !e !ill discuss this !hen !e study in details 0uality Management and Total 0uality Management% Product /ifferentiation refers to special features that ma5e the product or service loo5 more suita le to the customers li5e an automo ile manufacturer decides to provide GPS system to selected customer at an additional price etc% .le<i ility is the a ility to respond to changes% #t may refer to changes in target sales, product feature li5e adding GPS device to all automo iles Time refers to the period re=uired to provide a product or service to a customer from the moment the order is oo5ed to the delivery, also time re=uired to rectify a shortcoming or mista5e
3% @% 2%
A3 Com,etiti(eness 'ompetitiveness is ho! effectively an organi7ation meets the needs and re=uirements of customers relative to other +'ompetitors- organi7ations that offer similar goods or services The 5ey to successfully competing against the organi7ations competitors or rivals is to ans!er these t!o =uestions diligently #% 9hat do the 'ustomers 9antG ##% &o! can our usiness deliver the re=uired 1alue to the customersG The first =uestion egets a natural and logical ans!er !hich is that the customers !ant 1alue% Similarly the second =uestion also as5s for a logical ans!er !hich is the !ay organi7ations !ould deliver value to the customer as per the understanding of the organi7ation% #f an organi7ation can understand that 1alue Copyright Virtual University of Pakistan
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is al!ays the tradeoff et!een performance and cost then it can adopt various means to provide value to the customer% Mathematically spea5ing value e=uals the performance +of the product or service- divided y cost% Most organi7ations have different measurement rules attached in measurement of =uality, speed and fle<i ility% 1alueJ Performance8'ostJ +0uality KSpeedK .le<i ility-8'ostLLLLLLL $=% 1 The e=uation a ove also captures the product differentiation concept, !hich in reality is an important dimension of =uality% The concept of =uality !ould e covered at a later stage, to!ards the middle of the semester% 9e can also say that, the customer is measuring performance !ith the help of 0uality, Speed and .le<i ility for the price or cost he is !illing to pay% The point !orth noting is that in most of the cases the three factors of performance !ould not e !eighed e=ually in some cases, =uality !ould e more important than speed or fle<i ility etc% 9e can thus ma5e use of an important concept of assigning !eights so the e=uation changes to 1alueJ +!1 < 0uality K !3 < SpeedK !3 M .le<i ility- 8 'ostLLLLLLL$=%3 9here !1, !3 and ! 3 are different !eights and if they all have same value then e=uation 3 reduces to e=uation 1 again% #) other !ords, e=uation 3 is not only generic ut more reflective of performance measurement of an organi7ation% /ifferent organi7ations assign different means to o tain the value of these !eights y developing in> house or a consultant derived Performance Measurement Model +PMM-% This can e used to o tain an overall performance score y measuring the success of a manufacturing company in its operational activities% The developed PMM measures a companyNs level of performance in critical dimensions and com ines these performance scores to o tain a ran5ing score% A set of critical dimensions and their su > components is fully defined, and performance scorecards are developed to guide the assignment of performance scores% Performance scores are assigned according to the level of intensity of a manufacturing companyNs investments, practices, actions or infrastructures in the critical dimensions% Ho! Organi1ations &an gain Com,etiti(e Ad(antage As Students of Organi7ation Management, !e can loo5 at value in terms of the three important functions of any organi7ation to see ho! organi7ations can gain competitive advantage 1% Mar5eting 3% .inance 3% Operations A3 B'sinesses Gain Com,etiti(e Ad(antage y 'sing Mar*et ased strategies 1% #dentifying consumer !ants and needs 3% Pricing 3% Advertising and promotion B3 B'sinesses Gain Com,etiti(e Ad(antage y 'sing #inan&e ased strategies 1% #dentifying sources of funds and applications of funds% 3% 'apital and .inancial #nvestments% 3% .inancial *everage + /e t to $=uity- and Copyright Virtual University of Pakistan
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@% 'apital structure% C3 B'sinesses Gain Com,etiti(e Ad(antage y 'sing O,erations ased strategies
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1% Product and service design% The design is not only the starting point ut allo!s certain features
to e added !hich ma5es your product or service favora le to the customer%
3% 'ost or 'ost *eadership, offers the product or service at an economical price

3% *ocation refers to the 'onvenient point of sales, it can e a petrol pump +services- !ith an attached convenience store @% 0uality should al!ays match the price and service% 2% 0uic5 response a5a Also 5no!n as Agility and an organi7ation on this asis is often 5no!n as Agile Organi7ation6% .le<i ility% .le<i ility change the car model from sedan to coupe ased on your mar5eting divisions inputs% D% #nventory management% Maintain safety stoc5s and critical spares% E% Supply chain management% /evelop and sustain an active and strong chain et!een suppliers and end customers% F% Service %After sales service, o!ning the customers issue as your o!n, a concept !hich has failed PO in its =uest for foreign mar5et penetration% Throughout the semester our aim !ould e to identify and understand different types of strategies !hich have een e<ploited to the fullest y various organi7ations and adopted religiously as their actual Operational strategies companies% This has helped these organi7ations to gain competitive advantage over their counterparts% Common Reasons !)y Organi1ations #ai9e can identify certain familiar reasons !hy Organi7ations fail to achieve a competitive advantage and end up loosing out to their competitors% These reasons are universal in nature and find the same footing in Pa5istan as !ell as any other place in the !orld% 1% Too much emphasis on short>term financial performance% 0uite often, cost cutting, profit ma<imi7ing at the cost of social responsi ility or employee motivation is a failed strategy pursued y organi7ations, !hich ;ust hastens their status to o livion% 3% .ailing to ta5e advantage of strengths and opportunities% This is in reality failing to hold on to proven successful strategies or core competencies% Sometimes a change in leadership leads to change in strategy, !here ;ust for the sa5e of glory and high profits, organi7ations forget their core competence and opt for strategies and tactic !hich cause their do!nfall% 3% .ailing to recogni7e competitive threats% This reason is the e<act opposite of failure to ma5e use of the organi7ations strengths% 0uite often organi7ations decide to pursue status =uo and ends up ringing no ne! product or service or even no innovation in its e<isting product or service line leading to lac5 of customer satisfaction, decline in profits and finally eing declared a failure% @% )eglecting operations strategy% This is definitely the most important reason of failureP organi7ations often end up employing non productive techni=ues !hich lead to inconsistent and failed operations% A sence of an Operations Strategy leads to 2% Too much emphasis in product and service design and not enough on improvement% /ifferentiation in terms of service and product, American companies in 1FE4s did that they never introduced incremental refinements rather !ent for ig changes and thus lost to Capanese competitors% 6% )eglecting investments in capital and human resources% A total disregard to use the est resource% 'apital and human resources in the long run ma5e or rea5 an organi7ation% Copyright Virtual University of Pakistan
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D%
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.ailing to esta lish good internal communications% Matri< organi7ations or hierarchy or such a strong structure that often the structure does not allo! communication% E% .ailing to consider customer !ants and needs% This is actually indicative of an organi7ations lac5 of mar5eting research s5ills% This also sho!s that there is no respect to 'ustomer "elationship Management 'oncept and certainly no respect to the customer% Mission6Strategy6Ta&ti&s Most of the organi7ations tend to ans!er the =uestion that ho! does mission, strategies and tactics relate to their decision ma5ing and attaining distinctive competenciesG Organi7ations over the years have mastered the art and techni=ue of developing a vision and a mission statement, !hich helps them to come !ith functional strategies and practical tactics y !hich they can ma5e ;udicious decisions and attain distinctive competencies
Mission
03 Strategy
Strategy
Tactics
1% Strategies are Plans for achieving organi7ational goals Mission is the reason for e<istence for an organi7ation Mission Statement ans!ers the =uestion A9hat usiness are !e inGB Goals provide detail and scope of mission Tactics are the methods and actions ta5en to accomplish strategies 3% 'oncept of Strategy for a Pa5istani Automo ile manufacturer Strategies are plans for achieving organi7ational goals Mission is to provide 6$ST A(TOMO6#*$S to individuals as !ell as 6(S#)$SS organi7ations of Pa5istan Mission Statement is to give you safe !heels to move aroundB Goals are to provide utility, and heavy e=uipment mo iles% Tactics consist of employing T0M methods to accomplish strategies P-anning and De&ision Ma*ing Planning and decision ma5ing concepts ma5e use of setting a mission, goal, strategy and achieving the end result through some effective and practical tactic% #n hierarchical order the organi7ation first ma5es or develops a mission and employ tactics y developing operational procedures% Strategy $<ample You are a business student at Virtual University of Pakistan. You would like to have a career in business, have a good job, and earn enough income to live comfortably
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/issi"n 5"als 9r*ani ati"nal Strate*ies F(ncti"nal 5"als Finance 9perati"ns Strate*ies Strate*ies /ar:etin* Strate*ies
+actics 9peratin* pr"ced(res
Mission? Goal? Strategy? Tactics? Operations? $<amples of Strategies 1% 3% 3% @% 2% 6%
*ive a good life Successful career, good income O tain a 6usiness /egree from 1(% Select a usiness field of your interest and high mar5et value "egister, uy oo5s, ta5e courses, Study, graduate, apply I get ;o
*o! cost + 'ost *eadership8$conomical Scale> ased strategies + 'ritical 1alueSpeciali7ation + Specific characteristics.le<i le operations + To change production design of products on the same infrastructure&igh =uality + e<ceeds customer re=uirements and satisfactionsService + meets minimum standard specifications-
The special attri utes or a ilities that give an organi7ation a competitive edge are? 1% Price 3% 0uality 3% Time @% .le<i ility 2% Service 6% *ocation
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DISTINCTIVE COMPETENCIES The special attri utes or a ilities that give an organi7ation a competitive edge are? 1% Price 3% 0uality 3% Time @% .le<i ility 2% Service 6% *ocation
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Lesson 04
A% Operations Strategy Operations strategy The approach, consistent !ith organi7ation strategy that is used to guide the operations function% 9e first study strategy design process !ith e<ample for manufacturing and Services% Strategy Design Pro&ess
Strategy Process
Customer "ee#s
Exam !e
More Pro#ucts
Cor orate Strategy
&ncrease $rgani(ation Si(e
$ erations Strategy
&ncrease Pro#uction Ca acity
%ecisions on Processes an# &n'rastructure
)ui!# "e* +actory
Strategy Design Process for Services

Strategy Ma
+inancia! Pers ecti,e
%esire# 4esu!ts
&m ro,e S/are/o!#er 0a!ue
Customer Pers ecti,e
Customer 0a!ue Pro osition
&nterna! Pers ecti,e
)ui!#1&ncrease12c/ie,e
-earning an# .ro*t/ Pers ecti,e
2 Moti,ate# an# Pre are# 3ork'orce
Re-ations)i, et!een O,erations and Organi1ationa- Strategy Organi7ational strategy is An over all ig picture for the !hole organi7ation% *onger in time hori7on *ess detailed and roader in scope% Copyright Virtual University of Pakistan
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Operational Strategy is )arro!er in scope and in more detail Prepared y middle management% Should e in line !ith the Organi7ation strategy
Operational Strategy if
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/esigned and implemented successfully can ma5e an organi7ation more successful% Organi7ations started focusing on operational strategies in early 1FF4s efore that organi7ations focused on financial and mar5eting strategies% Operational strategies mostly function on t!o dimensions of 7'a-ity management and ser(i&e6man'fa&t'ring strategy%
An operations Manager should avoid S(6OPT#M#QAT#O) meaning his operational strategy for the department and divisions goals should not harm the overall Organi7ational strategy% &e should opt for systems approach or a ig picture approach or strictly ase his operations strategy on Organi7ational strategy% O,erations Strategy for Ser(i&e Organi1ations Service Organi7ations in Pa5istan function !ith a very detailed and ela orative Operations Strategy% #t is important to identify the Strategy /esign Process and a le to recogni7e the concepts associated !ith Strategy .ormulation% Service Organi7ations are no e<ceptions and !or5 diligently to identify, nurture and protect their distinctive competencies% Service Organi7ations are usy carrying out detailed environmental scanning and also periodically carryout S9OT Analysis% As operations manager of a service ased organi7ation, one should e a le to understand the importance of oth Order =ualifiers and Order !inners% Order =ualifiers are those significant characteristics that service customers perceive as minimum standards of accepta ility to e considered as a potential purchase !hile order !inners are the characteristics of an organi7ation:s services that cause it to e perceived as etter than the competitors services% A an5 offering 14 percent return on customers: holdings !ould e an order =ualifier ut if the same service has an additional characteristic of some added feature li5e availa ility of interest free loans for purchase of car or uilding of homes, then the an5s service ecomes order !inner% Ste,s in De(e-o,ing a Man'fa&t'ring6Ser(i&e Strategy 1% Segment the mar5et according to the product8Service group + A person interested in uying a sedan car !ould rarely sho! interest in uying an S(1 car, the mar5et segmentation should e ;ust and ;udicious3% #dentify product8Service re=uirements, demand patterns, and profit margins of each group + Rour Mar5et research department should e a le to capture these !ith the help of M#S systems3% /etermine order =ualifiers and !inners for each group + Order 0ualifiers !ould meet customer re=uirements and Order 9inners !ould satisfy customers@% 'onvert order !inners into specific performance re=uirements + 'ontinuous improvement al!ays helps and it is !hat the Capanese has perfected through OA#Q$)+ey E8terna- #a&tors
1% 3% 3% @% 2%
$conomic conditions should include oth Micro and Macro $conomics% Political conditions re=uire the organi7ation to carryout P$ST analysis% *egal environment relates to government regulations for investor protection% Technology %Gap Analysis focusing mar5et leaders in the respective field% 'ompetition so as to e<pect no free lunches or no monopolies% Copyright Virtual University of Pakistan
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6% Mar5ets are al!ays free mar5ets till proven other!ise +ey Interna- #a&tors
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1% &uman "esources include Trained, s5illed and =ualified employees% 3% .acilities and e=uipment are a good source for motivation, and o taining competitive advantage 3% @% 2% 6% D%
over your competitors% .inancial resources% A higher .ree cash flo! ma5es a company outperform its competitors% 'ustomers include repeat customers, as !ell as customer relationship Management% Products and services relates to ho! does the organi7ation values itself !hether it provides products or services that add valueTechnology %*egacy Systems or Technology that is competitive and has the potential to gain competitive advantage% Suppliers %'ompanies have ta5en care of the supplier issue y ma5ing use of effective Supply 'hain Management Strategies or use vertical or hori7ontal integration techni=ues%
Strategi& Ser(i&e Vision Ser(i&e Con&e,t in&-'des Service *evels refer to the important elements of the service to e provided, usually stated in terms of results produced for customers% Perception corresponds to the elements perceived y the target mar5et segment, y the mar5et in general, y employees, I y others% &o! do customers perceive the service conceptG /elivery focuses on the efforts in terms of the manner in !hich the service is designed, delivered, mar5eted% Strategic Service 1ision% O,erating Strategy .ocus Area includes important elements of the strategy? operations, financing, mar5eting, organi7ation, human resources, and control% Also the central service area along !ith the location of investments +human resource or Technology-% 'entral Operations to control =uality and costs, improve measures, incentives, re!ards% The e<pected results should e evaluated in terms of, =uality of service, cost profile, productivity, morale8loyalty of servers% Ser(i&e De-i(ery System The important features of the service delivery system include role of people, technology, e=uipment, layout, procedures The capacity it has to provide at pea5 levels The e<tent to !hich it should help to insure =uality standards, differentiate the service from competition, provide arriers to entry y competitors% "elatively *o! +as compared to manufacturing- Overall $ntry 6arriers $conomies of Scale *imited +not al!ays ut most of the time &igh Transportation 'osts $rratic Sales .luctuations )o Po!er /ealing !ith 6uyers or Suppliers Product Su stitutions for Service &igh 'ustomer *oyalty $<it 6arriers Com,etiti(e Ser(i&e Strategies +Overall 'ost *eadership See5ing Out *o!>cost 'ustomers Copyright Virtual University of Pakistan
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Standardi7ing a 'ustom Service "educing the Personal $lement in Service /elivery +promote self>service"educing )et!or5 'osts +hu and spo5eTa5ing Service Operations Off>line
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Com,etiti(e Ser(i&e Strategies +/ifferentiation Ma5ing the #ntangi le Tangi le +memora le'ustomi7ing the Standard Product "educing Perceived "is5 Giving Attention to Personnel Training 'ontrolling eing uni=ue in
0uality rand image, technology use, features, or
)ote? /ifferentiation in service means reputation for customer service%
'ustomer 'riteria for Selecting an online 6an5ing Service Provider in Pa5istan 9e can apply our concepts of service to an online an5ing service provider in Pa5istan% 9e investigate the service eing provided y the an5 y chec5ing for availa ility, convenience, dependa ility, personali7ation, price, =uality, reputation, safety and speed% This should help us understand the strength of service industry in a competitive environment especially in our country of Pa5istan% CHARACTERISTIC Availa ility 'onvenience /ependa ility Personali7ation Price 0uality "eputation Safety Speed Online an5ing service providers are often chec5ed for? REMAR+S 3@ hour ATM or online financial transaction Site location from any internet e=uipped computer in and out of Pa5istan On>time performance and correct information Ono! customer:s name and #/ The fee a customer pays for online service "eflected in service% 9ord>of>mouth and audited and e<amined y neutral odies% 'ustomers online data is safe and inaccessi le to others and hac5ers Avoid e<cessive !aiting in !e site loading and data availa le online%
Anti>competitiveness i%e% !hether are not allo!ing other online an5ing service providers to
enter the mar5et y constructing arriers to entry
.airness indicates the concept of Rield management% Meaning !hether the an5 is actually
providing the same return as it had promised to the customer #nvasion of Privacy% 'alling people through telephones or visiting offices thus ma5ing use of Micro>mar5eting concepts, !hich often ma5es the patron and customer feel that his privacy has een compromised% /ata Security% 6an5s ma5e it a point that the financial records of the customers are not accessed y unauthori7ed personnel% "elia ility% 6an5s al!ays strive that their service is relia le and considered safe and usa le y its customers% Most online an5ing service providers allo! its customers to access their account statement, free of cost% Ser(i&e P'r&)ase De&ision Copyright Virtual University of Pakistan
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#n order to understand further !e evaluate the service organi7ations in terms of Purchase /ecision%
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ervice !ualifier? To e ta5en seriously a certain level must e attained on the competitive dimension, as defined y other mar5et players% $<amples are cleanliness for a fast food restaurant or safe aircraft for an airline% ervice "inner? The competitive dimension used to ma5e the final choice among competitors% $<ample is price of airline tic5et or us fare% ervice #oser? .ailure to deliver at or a ove the e<pected level for a competitive dimension% $<amples are failure to repair auto +dependa ility-, rude treatment +personali7ation- or late delivery of pac5age +speed-% (sing #nformation to 'ategori7e 'ustomers + .or 'all 'enters in Pa5istan-
'oding grades customers on ho! profita le their usiness is% "outing is used y call centers to place customers in different =ueues ased on customer code% Targeting allo!s choice customers to have fees !aived and get other hidden discounts% Sharing data a out your transaction history !ith other firms is a source of revenue%
0uality and Time Strategies 9'a-ity" ased strategies .ocuses on maintaining or improving the =uality of an organi7ation:s products or services 0uality at the source Time" ased strategies .ocuses on reduction of time needed to accomplish tas5s Time 6ased Strategies? Organi7ations have registered reduction in time y employing the follo!ing A6B time ased strategies% There are 6 time ased strategies namely?> 1% Planning Time The time re=uired to react to a competitive threat, or to adopt ne! technologies, or to approve changes to an e<isting facility 3% Products8Service /esign Time The time needed to develop or mar5et ne! or redesigned products or services 3% Processing Time The time re=uired to produce goods or services, includes repairing e=uipment, =uality training, inventory etc @% 'hangeover Time is the time needed to change from producing one type of product or service to another% )e! model, ne! insurance 8health service% 2% /elivery Time is the time needed to fill orders% 6% "esponse Time for complaints is the re=uired to improve the model or service features according to customer inputs and improving employee !or5ing conditions%
1E

PRODUCTIVIT5 Productivity
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Lesson 05
Productivity is a measure of the effective use of resources, usually e<pressed as the ratio of output to input %Also called $fficiency at times Prod'&ti(ity ratios are 'sed for Planning !or5force re=uirements Scheduling e=uipment .inancial analysis Productivity Partial measures is output8+single input Multi>factor measures is output8+multiple inputs Total measure is the output8+total inputsProd'&ti(ity Gro!t) : 'urrent Period Productivity Previous Period Productivity Previous Period Productivity Prod'&ti(ity Gro!t) : Unit -ess 9'antity Partial measures Multifactor measures Total measure J Output *a or Output Output Machine 'apital Output $nergy
Output *a or K Machine
Output *a or K 'apital K $nergy
Goods or Services Produced All inputs used to produce them (nits of output per la or hour (nits of output per shift 1alue>added per la or hour (nits of output per machine hour (nits of output per "s% input /ollar value of output per "s% input (nits of output per 5ilo!att>hour "upee value of output per 5ilo!att>hour
%a or Prod'&ti(ity Ma&)ine Prod'&ti(ity Ca,ita- Prod'&ti(ity Energy Prod'&ti(ity $<ample
What is the multifactor productivity MFP? if 7500 Units Produced and Sold for s!"0#unit $ith %ost of la&or of s!"0'000' %ost of materials( s!5'000 and %ost of overhead( s!)0'000!
Solution
M.P J M.P J
/F# ;
9(tp(t <a)"r = /aterials = 9&er!ead
+D244 units-S+14414,444 K 2,444 K 34,444 +D24,44432,444 Copyright Virtual University of Pakistan
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M.P J 31%@34 #a&tors Affe&ting Prod'&ti(ity
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Productivity stands tall on four important pillars of 'apital, 0uality, Management and Technology% These pillars are also responsi le for positively as !ell as negatively affecting the Productivity of the Organi7ation% 1% 'AP#TA* An e<isting machine or facility if it is not functioning up to full capacity or turning out products !hich are not accepta le can lo!er productivity% A ne! machine or repair of e<isting machine !ould re=uire capital input% 3% 0(A*#TR Poor =uality products !ould not meet customer re=uirements and !ould need repairs and re!or5s on the product to meet the standards% 3% MA)AG$M$)T 9ith etter scheduling, planning, coordinating and controlling activities of management the machine operations can e carried to improve productivity% @% T$'&)O*OGR Technological improvements have increased productivity% A machine of today !ould outperform machine of yesterday ut may not !ithstand machines of tomorro!% 'A(T#O)? 9ithout careful planning technology can reduce productivity as it often leads to increased costs, infle<i ility or mismatched operations% All leads to reduction in value% Other .actors Affecting Productivity
Standardi1ation 9e live in a !orld !here for the sa5e of convenience, relia ility and safety,
ma;ority of the products and services have een standardi7ed% #f for a moment any process !hether it relates to manufacturing or services is made standard less, the vital concept of compati ility !ould e lost% Thin5 for a moment if there is a fire at a Montessori school or at a cro!ded stadium, if there is no standardi7ation of fire hose attached to the fire truc5 and fire hydrant present at the site, no effort !ould succeed in putting out the fire and saving the lives of the people% Use of Internet %(se of #nternet8$<tranet especially for the services side, even though there are 5no!ledge ase applications availa le for the manufacturing side as !ell ut primarily it has the een the services side !hich has een a le to e<ploit the resourcefulness of the #nternet% Com,'ter (ir'ses% A lot of time #T ased services industry have fallen a prey to computer viruses and hac5ers% Sear&)ing for -ost or mis,-a&ed items% This spea5s lo! a out the coordinating activities and can lead to loss in production time and increase in idle time% Often this also leads to increase in replacement costs S&ra, rates Any a erration in the ra! materials or processed product can lead to increase in scrap% The increase in scrap rate in fact can decrease the utili7ation of resources in general and ra! material Ne! !or*ers Organi7ations spend millions of "upees every year to train their employees% A trained !or5force is not only relia le and dependa le ut also ensures good
&ost of other .actors Affecting Productivity? Safety Shortage of #T Trained 9or5ers *ayoffs *a or turnover /esign of the !or5space #ncentive plans that re!ard productivity E3 Bott-ene&* O,eration 6ottlenec5 is one process in a chain of processes, such that its limited capacity + increased time of completion, or increased la our re=uirement- reduces the capacity of the !hole chain Copyright Virtual University of Pakistan
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Production and Operations Management MGT613 VU A related concept is critical path +see Pro;ect Management- and the Theory of 'onstraints +from the
field of #ndustrial $ngineering and Operations management-% Theory of constraints +TO'- is a ody of 5no!ledge on the effective management of +mainly usiness- organi7ations, as systems% The figure elo! clearly sho!s that a machine re=uiring 13 hours to complete the ;o is the real ottlenec5% A manufacturing ottle nec5 li5e this normally leads to delayed completion and e<tended time for ;o % Similar ottlenec5s are o served in the Service side as !ell%
Machine A
148hr
148hr
Machine 6 Machine ' Machine /

148hr 148hr
6ottlenec5 Operation
348hr
/evelop productivity measures /etermine and isolate critical + ottlenec5- operations /evelop methods for productivity improvements $sta lish reasona le goals Get management support Measure and pu lici7e improvements 'learly differentiate et!een productivity and efficiency
E8am,-e of Prod'&ti(ity Meas'rement Rou have ;ust determined that your 34 Operations + Service- department employees have used a total of 3344 hours of la or this !ee5 to process @E4 insurance forms% *ast !ee5 the same cre! used only 3444 hours of la or to process @44 forms% 9hich productivity measure should e usedG Ans!er? 'ould e classified as a Total Measure or Partial Measure and Time8*a or productivity% #s productivity increasing or decreasingG Ans!er? *ast !ee5:s productivity J @4483444 J 4%3, and this !ee5:s productivity is J @E483344 J 4%33% So, productivity is increasing slightly%
Pa5istani Productivity $<ample 1 'alculate the change in productivity of Pa5istani Te<tile #ndustry et!een the years 3443>4@ and 344@> 42G +#nstalled 'apacityParameter )um er of mills 34438@ 3FF 344@82 @36 'hange 6%DD
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Spindles +444"otors+444F3E6%E 1@2%6 FE12%2 121%6 2%6F @%13
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Pa5istani Productivity $<ample3 'alculate the change in productivity of Pa5istani Te<tile #ndustry et!een the years 3443>4@ and 344@> 42G + 9or5ing 'apacityParameter )um er of *ooms+444Spindles +444"otors+44434438@ 344@82 T 'hange @%3 @%F DD14%4 E231%4 6D%3 D2%1 13%F2 14%62 11%2F
Te<tile Productivity $<ample 3 'alculate the Productivity of Pa5istani Te<tile #ndustry et!een the years 3443>4@ and 344@>42G +9eaving Sector 'apacityParameter Po!er *oom Sector #ndependent 9eaving (nit #ntegrated Te<tile (nit Total Insta--ed /or*ing / I 33232E 334@@D 3643@ 32244 143@F 3612@1 @F@D 334@@D ; Effe&ti(eness /6I
Pa*istan A'tomo i-e Ind'stry 'alculate the Productivity 'hange for Pa5istani Automo ile #ndustry et!een the years 3443>4@ and 344@>42G Ty,e 'ars Motorcycles Truc5s 6uses Tractors 0<<="<> DF,622 363,1@F 1,66F 1,121 3E,2E3 0<<>"<. 144,313 3E6,2EF 1,FFF 1,243 32,34E ; &)ange in Prod'&ti(ity
Ho! &o'ntries6nations &an im,ro(e ,rod'&ti(ity As students of Operations Management in Pa5istan !e need to 5no! and understand ho! the concepts of productivity can help nation improve its =uality of life and economy% #ncrease capital formation y saying no to foreign goods% This !ould increase savings and decrease consumption% .oreign goods only ma5e !hy to a mar5et if there is high consumption% 6$ PAO#STA)# 6(R PAO#STA)# /ecrease in administrative + non productive- regulations of the government% Self e<planatory% "ight alance et!een Services and Manufacturing activities% #n the city of *ahore, there is an availa ility of surplus services, !hich is often less productive than manufacturing operations An emphasis on oth long term and short term o ;ective ased performance% +'losely monitor and audit the variances et!een planed and actual results-% Copyright Virtual University of Pakistan
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$<ploit the inherent resources of domestic mar5et %*et it productive mar5et for Pa5istani Producer is Pa5istani mar5et% S'mmary e 5no!n to all that the
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est
The important concepts of Productivity, 'ompetitiveness and Strategy !hen considered in cohesion enhance the overall performance of any service ased or manufacturing organi7ation% Organi7ations formulate operational and organi7ational strategies to achieve competitive advantage over its competitors% /ifferent types of competencies allo! organi7ations to formulate time or =uality ased strategies to achieve competitive Advantage and increase their revenues% The same concepts find e=ual application for a country to gain competitive advantage over other countries%
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THE DECISION PROCESS %earning O ?e&ti(es
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Lesson 06
/ecision Process is more or less the fundamental process of Management% 9hether a person !or5s in a manufacturing organi7ation or a services side organi7ation, he or she !ould e as5ed to carry out the decision process% )ormally the decision ma5ing process involves the follo!ing si< important steps 1% Specify O ;ectives and the 'riteria for decision ma5ing 3% /evelop Alternatives 3% Analy7e and compare alternatives% @% Select the est alternative% 2% #mplement the chosen Alternative 6% Monitor the results to ensure the desired results are achieved% Operations Manager identifies the criteria y !hich the proposed solutions !ill e ;udged% The common criteria often relates to costs, profits, return on investment, productivity, ris5, company image, impact on demand, or similar varia les% The management is interested that the Operations Manager should e a le to focus on parameters that !ill increase or decreaseG #deally the aim is that 1% 'osts should decrease and Profits should increase 3% "eturn on #nvestment should increase along !ith increase in Productivity% 3% "is5 should decrease along !ith increase in 'ompany image% @% /emand should increase for the product or service% 2% Monitor the results to ensure the desired results are achieved% T)e De&ision Pro&ess E8am,-e The '$O of A6' 'orporation has as5ed you +the 1P Operations- to help the 6O/ reach a decision !hether to introduce a ne! automo ile model% The ne! model !ould have the follo!ing effects on important decision ma5ing process% 'ertain Parameters !ill increase and decreaseG 'osts decrease y 12 T Profits increase y 3T "eturn on #nvestment stays the same Productivity decreases y 2T "is5 increases y 2 T 'ompany image may increase or decrease /emand may increase or decrease for the product or service% So-'tion 6ased on the a ove data, a "is5 Averse Manager !ould forego the ne! pro;ect, A "is5 ta5er !ould go for it% These factors alone do not present the overall ig picture, most of the times in practical situations, the decision is ased upon important factors li5e "O#, Productivity, (tili7ation of availa le resources, Profits and 'osts in line !ith organi7ations operational and organi7ational strategy and the mapping of the organi7ation !ith respect to its competitors and competitive environment%% Ca'ses of Poor De&isions (nforeseea le and uncertain circumstances , !hich in reality refers to a mista5e or error in the decision ma5ing, remedial action is to have a ST$$"#)G 'OMM$T#$$ + comprising of senior management- to revie! the !hole process and monitor the decision steps% De&ision En(ironments There are three degrees of 'ertainty, "is5 and (ncertainty% Copyright Virtual University of Pakistan
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1% 'ertainty? Means that the relevant parameter such as costs, capacity and demand have 5no!n values% 3% "is5 means that certain parameters have pro a ilistic outcomes% 3% (ncertainty means that the certain parameters have various possi le future events% /ecision $nvironments often represent the same three scenarios of 'ertainty, "is5 and (ncertainty% *et us consider the e<ample !here !e are ma5ing a all earing !hich is to e used in ceiling fan and our mar5eting department comes !ith up three scenarios !ith different set of num ers% #t costs us "s @4 per unit to manufacture the all earing% The mar5eting department has through its mar5et research noted that our organi7ation can have a sale price of "s% F4 per unit% 'ertainty? Profit per unit is "s% 24% Rou have an order for 3444 units% The decision is under certainty as the Means that the relevant parameter such as costs, capacity and demand have 5no!n values% "is5 There is a 32 T chance of demand of 3444 units, 24T chance of demand of 1444 units and 32 T chance of an order of 244 units% (ncertainty %There is no availa le data of demand forecasts means that the certain parameters necessary for decision ma5ing are a sent%
DECISION THEOR5 )o discussion in Production Operation Management is complete !ithout ma5ing a reference to /ecision Theory% /ecision Theory is in fact a general approach to decision ma5ing% /ecision theory consists of the follo!ing three elements% 1% A set of possi le outcomes e<ist that !ill have a earing on the results of the decision% 3% A list of alternatives to choose from% 3% A 5no!n payoff for each alternative under each possi le future condition% An operations manager !ould need to develop an understanding of decision theory 5no!ledge and needs to employ the follo!ing% 1% #dentify a set of possi le future conditions called state of nature !hich includes the lo!, high, medium demand pattern and a !or5ing on the competitor:s introduction of ne! product% 3% /evelop a list of alternatives, one of !hich may e to do nothing% 3% /etermine or estimate the payoff associated !ith each alternative for every possi le future condition% @% #f possi le estimate the li5ely hood of each possi le future condition% 2% $valuate alternatives according to some decision criterion e%g% ma<imi7e e<pected profit and select the est alternatives to choose from% PA5 O## TAB%E
>Payoff ta le summari7es the information of a decision and captures the e<pected payoffs under various
possi le states of nature%
>*et us consider an e<ample, !e are setting up a pharmaceutical factory and our state of nature indicates
that #f !e uilt a small facility the return remains the same !hether the demand is lo! or high, the medium facility indicates a constant return on moderate and high% #f !e uild a large facility chances are that the return !ould only e good if !e have a high demand or return%
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A-ternati(es Possi -e #'t're Demands %o! Sma-- #a&i-ityRs3 $< M Medi'm %arge Rs3 . M Rs3 $ M Moderate Rs3 $< M Rs3 @ M Rs3 0 M Hig) Rs3 $< M Rs3 $0 M Rs3 $. M
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The states of nature are very important, for our decision ma5ing% De&ision Ma*ing 'nder Certainty /ecision ma5ing under certainly is al!ays simple ut never availa le to the managers% A-ternati(es Small .acility Medium *arge Possi -e #'t're Demands *o! Moderate &igh "s% 14 M "s% 14 M "s% 14 M "s% 2 M "s% E M "s% 13 M "s% 1 M "s% 3 M "s% 12 M
/ecision Ma5ing under 'ertainty >#t is 5no!n !ith certainty that the demand !ill e lo!, moderate and high% >#n the e<ample, !e ;ust select the est or highest payoff for all the states of nature% De&ision Ma*ing 'nder Un&ertainty
>#n the a
sence of clear information, An Operations Manager !ould need to carryout decision ma5ing under uncertainty% This is the usual pattern !hen managers !or5ing at assem ly plants, services, oil refineries or chemical processing plant end up facing a dilemma to evaluate the alternative of payoffs%% 1% Ma<imin 3% Ma<ima< 3% Minima< "egret @% *aplace Ma8imin Ma<imin determines the !orst payoff for each alternativeP the operations manager chooses the est !orst alternative% Meaning the least + est- of the !orst% #t is a pessimistic approach% $nsures a guaranteed minimum% Ma8ima8 Ma<ima< determines the est possi le outcome 'hoose the Alternative !ith the est possi le payoff% #t does not ta5e into account any other alternative then the est payoff% An optimistic approach% Go for it strategy%
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%a,-a&e /etermines the Average payoff for each alternative And chooses the alternative !ith the est average% This is a cautious approach *aplace approach treats the states of nature as e=ually li5ely%
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E8am,-e to Ca-&'-ate Ma8imin4 Ma8ima8 and %a,-a&e A-ternati(es Small .acility Medium *arge Possi -e #'t're Demands *o! Moderate "s% 14 M "s% 14 M "s% 2 M "s% E M "s% 1 M "s% 3 M
&igh "s% 14 M "s% 13 M "s% 12 M
E8am,-e to &a-&'-ate Ma8imin4 Ma8ima8 and %a,-a&e Ma<imin , the !orst payoff for alternatives Pic5 the Minimum +*east- of the ma<imum Small .acility "s 14 M since the payoff ta le sho!s that
4 Sma-- #a&i-ity 4 Medi'm 4 %arge
Rs3 $< M Rs3 $0 M Rs3 $. M $<ample to calculate Ma<imin, Ma<ima< and *aplace *aplace , the est payoff of the average for each alternatives Small .acility "s 14 M since the payoff ta le sho!s that
4 Sma-- #a&i-ity 4 Medi'm 4 %arge
Rs3 =<6=: Rs3 $< M Rs3 0.6=: Rs3 @3== M Rs3 $@6=: Rs3 A M
/ecision Ma5ing under (ncertainty Minima< "egret /etermines the !orst regret for each alternative 'hooses the alternative !ith the est !orst% This approach see5s to minimi7e the difference et!een payoff that is reali7ed and est payoff for each state of nature%
E8am,-e to &a-&'-ate Minima8 Regret
>Minima< "egret , >Step # P 'onstruct the Ta
le of Opportunity *osses or "egrets% 4Su tract the column entries y su tracting the entry from that of the highest column value 4"epeat the process for all columns
>Step ##% Select the ma<imum regret value of each ro! + alternative
scale-
meaning small, medium and large
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$<ample to calculate Minima< "egret A-ternati(es Small .acility Medium *arge Possi -e #'t're Demands *o! Moderate "s% 14>14J4 "s% 14>14J4 "s% 2>14J "s% E>14J >2 M >3 M "s%1>14J "s% 3>14J >F M >E M
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&igh 14>12J>2 "s% 13>12J >3 M "s% 12>12J 4M
EBPECTED MONETAR5 VA%UE CRITERION /ecision Ma5ing under "is5 The area et!een the certainty and uncertainty is 5no!n as "is5% $<pected Monetary 1alue 'riterion +$M1-!hich refers to the est e<pected value among the alternatives 9e use the payoff ta le !ith pro a ilities lo! J4%3, moderate J4%2 and highestJ4%3%These pro a ilities must add to 1,mutually e<clusive and collectively e<haustive-
>$MP$'T$/ MO)$TA"R 1A*($ '"#T$"#O) >$1 small J 4%3+14-K4%2+14-K4%3+14J "s% 14 M >$1 mediumJ 4%3+2-K4%2+E-K4%3+13J "s% D%F M >$1 large J 4%3+1-K4%2+3-K4%3+12J "s% @%3 M /e se-e&t t)e sma--est fa&i-ity as it )as t)e )ig)est (a-'e $<pected 1alue of Perfect #nformation #n certain situations, it is possi le to ascertain !hich state of nature + level of demand- !ill occur !ith certainty% $%g% #f you !ant to construct a restaurant or trauma centre on a motor!ay high!ay chances are you !ould get a great "O#% $<pected value of perfect information J $<pected payoff under certainty >$<pected payoff under ris5 Vis'a- too- for ana-y1ing De&ision Pro -ems T!o visual tools used for analy7ing decision pro lems include /ecision Trees Graphical Sensitivity Analysis De&ision Trees A schematic representation of the alternatives and their possi le conse=uences is presented graphically% Rou can refer% The diagram resem les a tree% $<tremely suita le for analy7ing and evaluating situations !hich involve se=uential decisions% /ecision Trees uppose the Pakistani government decides to operate a gas field. $nitially the government had information that it can e%ploit & million cubic feet of gas but later studies indicate potential Copyright Virtual University of Pakistan
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reserves of additional &' million cubic feet. (s an operations manager you may be ask to prepare a feasibility report to either e%pand or make a new facility using the new reserves.
?ecisi"n +rees
<"1 ?e%and ; 0.4 0s. 20 B(ild s%all ?" A"t!in* 0s. 20 0ed(ce capacity $ 0s 30 23pand ; 0s 50 ?" A"t!in* ; 0s. 15 7i*! ?e%and ; 0.6 <"1 ?e%and;0.4 B(ild <ar*e 7i*! ?e%and; 0.6 0s. 60@(nit 0ed(ce #rices 0s. 45
De&ision Trees The tree is read from left to right S=uare nodes represent decisions 'ircular nodes represent chance events% 6ranches leaving s=uare nodes represent alternatives% 6ranches leaving the circular nodes represent the chance events + states of natureDe&ision Trees Ana-ysis
>Step #% Analy7e the decisions from "ight to left >Step ##% /etermine !hich alternative !ould e selected for each possi le second decision% 4.or a small facility !ith high demand there are three alternatives, select the highest payoff and
multiply it !ith the pro a le outcome% Put a dou le slash on the alternatives !hich have lo!er value% 4.ollo! the same procedure for small facility !ith high demand >Step ###% "epeat the steps for oth lo! and demand pattern for the larger facility% >Step #1% /etermine the product of chance pro a ilities >Step 1% /etermine the e<pected value of each initial alternative% >Step 1#% Select the choice !hich has a larger e<pected value than the small facility% De&ision Tree E8am,-e So-'tion Option #? 6uild Small .acility *o! /emand J 4%@ M "s% 34J "s% E &igh /emandJ4%6 M "s% 24J "s% 34 Option ##? 6uild *arge .acility *o! /emand J 4%@ M "s% @2J "s% 1E &igh /emandJ4%6 M "s% 64J "s% 36 Option ###? /etermine the $<pected 1alue of each initial alternative 6uild Small .acility J "s% EK "s% 34J "s% 3E 6uild *arge .acilityJ"s% 1EK"s% 36J "s% 2@ Se-e&t t)e %arger #a&i-ity as it )as a -arger e8,e&ted (a-'e t)an t)e sma-- fa&i-ity Sensiti(ity Ana-ysis /etermining the range of pro a ility for !hich an alternative has the est e<pected payoff% Copyright Virtual University of Pakistan
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A graphical solution Ma5es use of Alge ra Prime importance Con&-'sion
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/ecision Ma5ing is a critical responsi ility that stays !ith a manager throughout his active professional life% #t goes !ithout saying that, at the start of the service, the decision ma5ing involves lo! impact financial impact ut !ith the passage of time, the decision ma5ing ecomes more critical and highly finance focused% This very aspect gives the field of decision ma5ing a competitive edge over other important tools availa le to an operations manager% The related field of game theory is often used in con;unction !ith decision theory% Payoff Ta -e Home!or* The follo!ing ta le sho!s profit payoffs% 'alculate the results for the five rules and indicate for each rule the est and !orst decision alternatives% All 'ost and "evenue num ers in "s% 444% d1,d3, d3 and d@ represent decision options and s1,s3,s3 and s@ sho! states of nature%
4%34 4%32 4%14 4%32 S1 S3 S3 S@ MABIMIN MABIMAB %AP%ACE EBPECTED d1 d3 d3 d@ 24 E4 32 22 >34 34 32 62 D2 144 14 >12 64 >14 @2 @4
MINIMAB MONETAR5 REGRET VA%UE
The follo!ing ta le sho!s cost payoffs% 'alculate the results for the five rules and indicate for each rule the est and !orst decision alternatives% 4%@4 4%12 4%14 4%32 S1 S3 S3 S@ MABIMIN MABIMAB %AP%ACE EBPECTED d1 d3 d3 d@ @4 34 64 @4 34 D4 22 144 D2 F4 2 12 64 14 E2 32
MINIMAB MONETAR5 REGRET VA%UE
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#ORECASTING Introd'&tion
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Lesson 07
.orecasting demand is li5e forecasting !eather %Sometimes the forecast or prediction fails completely
and sometimes its near the predicted value ut still not the e<act value% Often scientists call forecasting as an educated guess, ut even then forecasting helps us to plan our trips and ;ourneys and most importantly !e as farmers ma5e use of forecasting to plant, harvest and ta5e precautionary measures%
.orecasting in
usiness forms the asis for udgeting and planning for capacity, sales, production, inventory, manpo!er, purchasing and more%
.orecasting allo!s the manager to anticipate the future so then can plan accordingly%
#ntroduction
There
are t!o ma;or uses for forecasts% One is to help the Operations Manager plan the system and the other one is to help him plan the use of the system% These are important concepts different distinct ut at the same time closely lined% Planning the system refers to planning long term plans a out the type of products or services to offer, !hat facilities and e=uipment to have, !here to locate and so on and so forth% Planning the use of the system relates to short range and intermediate range planning !hich means planning inventory !or5force resources, planning of purchasing and production activities, udgeting and scheduling etc% Thus it can e said that planning the systems more of a ;o of a senior manager, irds eye vie! and has O"GA)#QAT#O)A* ST"AT$GR in it !here as planning the use of the system is an OP$"AT#O)A* ST"AT$GR 6usiness .orecasting is more than ;ust predicting demand% .orecasting is also used to predict profits, revenues, costs, productivity changes, prices and availa ility of energy and ra! materials, interest rates, movements of 5ey economic indicators +G)P, inflation and government loans- and prices of stoc5s and onds% .orecasting is not an e<act science% $ven !ith the availa ility of computers, and algorithms, its una le to ma5e an e<act prediction it re=uires $<perience, Managerial Cudgment and Technical e<pertise% General "esponsi ility lies !ith the Mar5eting !or5force ut to this day not a single mar5eting forecast has een created !ithout the valua le contri ution of the Operations side% #ORECASTC A statement a out the future value of a varia le of interest such as resource re=uirements, capacity planning, S'M and product or service demand% .orecasts affect decisions and activities throughout an organi7ation 1% Accounting, finance 3% &uman resources 3% Mar5eting @% M#S 2% Operations 6% Product 8 service design
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A,,-i&ations of #ore&asts Accounting .inance &uman "esources Mar5eting M#S Operations Product8service design Demand Management 'ost8profit estimates 'ash flo! and funding &iring8recruiting8training Pricing, promotion, strategy #T8#S systems, services Schedules, M"P, !or5loads )e! products and services
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Demand Management
Independent ?e%andB Finis!ed 5""ds@Ser&ices

A
'
?ependent ?e%andB 0a1 /aterials8 C"%p"nent parts8 S()$asse%)lies8 etc.
Inde,endent DemandC /)at a firm &an do to manage it2 1% $ither e Active or Passive meaningG 3% 'an ta5e an active role to influence demand 3% 'an ta5e a passive role and simply respond to demand Com,onents of Demand
Average demand for a period of time Trend Seasonal element 'yclical elements "andom variation Autocorrelation
#inding Com,onents of Demand /e "Based #ore&astingC CP#R Defined
'olla
orative Planning, .orecasting, and "eplenishment +'P."- a 9e > ased tool used to coordinate demand forecasting, production and purchase planning, and inventory replenishment et!een supply chain trading partners% Rou !ill learn a out this in your later part of the semester%
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(sed
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to integrate the multi>tier or n>Tier supply chain, including manufacturers, distri utors and retailers%
'P.":s
o ;ective is to e<change selected internal information to provide for a relia le, longer term future vie!s of demand in the supply chain%
'P."
uses a cyclic and iterative approach to derive consensus forecasts%
/e "Based #ore&astingC Ste,s in CP#R 1% 'reation of a front>end partnership agreement 3% Coint usiness planning 3% /evelopment of demand forecasts @% Sharing forecasts 2% #nventory replenishment Assumes causal system+ That same system that e<isted in the past !ill e<ist in future, !here as in reality unplanned events happen li5e ta< rate increase, introduction of a competitors product or service or natural disasters.orecasts rarely perfect ecause of "A)/OM)$SS +having no specific pattern-% Allo!ances should e made for inaccuracies% .orecasts more accurate for groups vs% individuals naturally ecause forecasting errors in a group tend to cancel out forecasting errors for individuals% .orecast accuracy decreases as time hori7on increases indicating it is safe to ma5e short range forecasts instead of long term forecasts% #f you can recall !e had tal5ed a out .le<i le and Agile 'orporations in the past%
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#ORECASTING"I Roadma, to t)e %e&t're /iscuss the re=uirements of a good forecast% Steps in ma5ing a forecast% .undamental types of forecast% .iner classification of forecast /iscuss characteristics of Cudgmental .orecasts% /elphi Method% Time Series Analysis% )aUve .orecast% Re7'irements of a Good #ore&ast
Time-y3
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Lesson 08
The forecast should e timely% #ndicating that forecasting hori7on should provide enough time to implement possi le changes% 'apacity cannot e e<panded instantly it re=uires some time to plan, coordinate and increase the re=uired resources% Re-ia -e3 .orecasts should e relia le meaning that it should !or5 consistently% A forecast that is partially correct !ill succeed at sometime and sometime fail ma5ing the end users =uestion the purpose and intent of forecasting% A&&'ra&y3 .orecasts should e accurate% #n fact it should carry the degree of accuracy, so the users are a!are of the limitations of the forecast% This !ill also help the end users to plan for possi le errors and provide a asis for comparing the forecast !ith other alternative forecasts% Meaningf'- #ore&ast should e e<pressed in meaningful units% .inancial Planners !ill use "upees to sho! ho! much capital !ould e re=uiredP Mechanical Pro;ect Schedulers !ould re=uire .orecasts to carry the type of machines and crafts of technicians re=uired% /ritten6Do&'mented3 The forecasts should e presented in !riting% A documented forecast al!ays provides a chance to measure the variance et!een estimate and actual result at a later stage% Sim,-e to 'nderstand and 'se meaning that .orecasts should not e dependant upon usage of sophisticated computer techni=ues or tas5 specific highly =ualified technical personnel% A failure or limitation on the part of this can lead to an incorrect decision and less acceptance amongst end users Ste,s in t)e #ore&asting Pro&ess Determine t)e ,'r,ose of t)e fore&ast meaning !hat is the purpose and !hen !ill it e re=uired% This !ill provide the level of detail for resources re=uired man, machine, time and capital% Esta -is) a time )ori1on% 9e already 5no! that as time increases the accuracy of the .orecast decreases Se-e&t a fore&asting te&)ni7'e !hether =ualitative or =uantitative Gat)er and ana-y1e t)e a,,ro,riate data% #t goes !ithout saying that efore a forecast can e delivered data is re=uired% The closer the real life data more realistic !ould e the forecast% This may e the time !hen you !ould li5e to identify the important assumptions and suppositions% Pre,are t)e fore&ast% Monitor t)e fore&ast3 A forecast has to e closely monitored to determine !hether it is fulfilling its asic purpose% This helps in re>e<amining the method, assumptions and validity of the data and preparing a revised forecast% #'ndamenta- Ty,es of #ore&asts 9'a-itati(e Te&)ni7'es !hich use su ;ective inputs and no numerical data% #t relies solely on soft information li5e human factors, personal opinion, hunches% Thus 0ualitative .orecasts are often iased and tilted to!ards !hat the management !ants to predict% Copyright Virtual University of Pakistan
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9'antitati(e #ore&ast involves the e<tension of the historical data% #t sometimes ma5es use of
forecasting techni=ue that uses e<planatory varia les to predict future demands% 0uantitative techni=ues are favored !here =uality attri utes can:t e =uantified% #n reality oth need to e used together to develop a ;udicious and realistic forecast% #iner C-assifi&ation of #ore&asts *ud+mental " uses su ;ective inputs meaning that a ;udgmental forecast rely on analysis of su ;ective inputs o tained from various sources, such as consumer surveys, the sales staff, managers and e<ecutives, and panels of e<perts% These insights are not availa le pu licly% ,ime series " uses historical data assuming the future !ill e li5e the past and depend on developing relationships et!een varia les that can e e<pressed to predict future values% Some time series forecast try to smoothen out random variations in historical data% There are some time series forecast !hich identify specific patterns and then may even e<trapolate those patterns into the future% -ssociative models " uses e<planatory varia les to predict the future for e<ample demand for a small car may e dependant upon increase in price of petrol or ')G% The analysis in this case !ould employ a mathematical model that !ould relate the predicted varia le !ith the predictor varia le or varia les% D'dgmenta- #ore&asts C)ara&teristi&s
Cudgmental .orecasts rely solely on ;udgment and opinion to ma5e forecasts% #n the a sence of enough time, it is easy to use =ualitative type of forecast% #n case of changing e<ternal environment economic and political conditions, organi7ations may use
;udgmental forecasts% 9hen introducing ne! products, services, ne! features, ne! pac5aging, ;udgmental forecasts are used in preference over =uantitative techni=ues%
D'dgmenta- #ore&asts E8e&'ti(e o,inions normally consist of a group of senior level managers from different interfaces, used for long range planning and ne! product development% Advantage eing the collective pool of information from all divisions and departments, disadvantage eing that one person !ill dominate other interfaces, !hich can lead to erroneous forecasts% Sa-es for&e opinions have the advantage of eing in direct contact !ith customers% The sales force can detect the customers: change of plan, &o!ever it suffers from the fact that it can not differentiate et!een !hat the customer can do and !ill do% 'urrent data of sales can often lead to over pessimistic and overly optimistic forecasts, !hich then results in incorrect sales pro;ections%
Cons'mer
s'r(eys are ased on sample ta5en from potential customers% These type of surveys re=uire s5ill to develop, administer and interpret the results% Often fall victim of the consumers irrational ehavior of uying% O'tside o,inion !hich is a mi< of consumer and potential customers% This 5ind of opinion is no! a days readily availa le through internet, telephonic surveys and ne!spapers% #ts iggest limitation is a fi<ed format !hich often fails to =uantify the e<act demand forecast% De-,)i met)odC Managers and staff complete a series of =uestionnaires, each developed from the previous one, to achieve a consensus forecast% 'ommonly used for Technological forecasting, !hen to introduce a ne! technology% #t:s a long term one time activity and has the same issues li5e e<pert opinion type of ;udgmental forecast% Time Series Ana-ysis Time series forecasting models try to predict the future ased on past data 9e as Managers can pic5 models ased on? 1% Time hori7on to forecast 3% /ata availa ility 3% Accuracy re=uired @% Si7e of forecasting udget Copyright Virtual University of Pakistan
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2% Availa ility of =ualified personnel NaE(e #ore&asts Simple to use 1irtually no cost 0uic5 and easy to prepare /ata analysis is none<istent $asily understanda le Dra! a&*s 'annot provide high accuracy 'an e a standard for accuracy
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#ORECASTING"II Time Series #ore&asts
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Lesson 09
)rend > long>term up!ard or do!n!ard movement in data often relates to population shifts, changing
incomes, and cultural changes% easonality > short>term fairly regular variations in data related to factors li5e !eather, festive holidays and vacations% Mostly e<perienced y supermar5ets, restaurants, theatres, theme par5s% 'ycle !aveli5e variations of more than one year:s duration these occurs ecause of political, economic and even agricultural conditions $rregular variations > caused y unusual circumstances such as severe !eathers, earth=ua5es, !or5er stri5es, or ma;or change in product or service% They do not capture or reflect the true ehavior of a varia le and can distort the overall picture% These should e identified and removed from the data% *andom variations > caused y chance and are in reality are the residual variations that remain after the other ehaviors have een identified and accounted for% .orecast 1ariations Te&)ni7'es for A(eraging Moving average 9eighted moving average $<ponential smoothing
+oving average A techni=ue that averages a num er of recent actual values, updated as ne! values
ecome availa le%
"eighted moving average More recent values in a series are given more !eight in computing the
forecast%
Sim,-e Mo(ing A(erage #orm'-a The simple moving average model assumes an average is a good estimator of future ehavior The formula for the simple moving average is?
.t J A t >1 K A t >3 K A t >3 K %%% K A t >n n
.t J .orecast for the coming period ) J )um er of periods to e averaged At>1 J Actual occurrence in the past period for up to AnB periods
Sim,-e Mo(ing A(erage Pro -em F$G
!uestion, "hat are the -.week and /.week moving average forecasts for demand0 Assume you only have 3 !ee5s and 6 !ee5s of actual demand data for the respective forecasts%
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3e e k 1 2 3 6 5 6 7 8 9 10 11 12 %e m an# 650 678 720 785 859 920 850 758 892 920 789 866
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Sim,-e Mo(ing A(erage So-'tion F$G

W eek 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 Dem and 650 678 720 785 859 920 850 758 892 920 789 844 3- W eek 6- W eek
#>:FA.<HAI@HI0<G6= :A@03AI
682.67 727.67 788.00 854.67 876.33 842.67 833.33 856.67 867.00
#I:FA.<HAI@HI0<HI@.H@.JHJ0<G6A :IA@3AI
768.67 802.00 81 5.33 844.00 866.50 854.83
Sim,-e Mo(ing A(erage Pro -em F0G Data
0uestion? 9hat is the 3 !ee5 moving average forecast for this dataG Assume you only have 3 !ee5s and 2 !ee5s of actual demand data for the respective forecasts%
3eek 1 2 3 6 5 6 7 %eman# 820 775 680 655 620 600 575
Sim,-e Mo(ing A(erage Pro -em F0G So-'tion
W eek 1 2 3 4 5 6 7
Dem and 820 775 680 655 620 600 575
3- W eek
#>:F@0<HII.HA@<G6= :I.@3==
5- W eek
758.33 703.33 651 .67 625.00
#A:F@0<HII.HA@<HA..HA0<G6. :I$<3<<
71 0.00 666.00
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#ORECASTING"III T)e form'-a for t)e mo(ing a(erage isC
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Lesson 10
.t J !1A t >1 K ! 3 A t > 3 K ! 3 A t >3 K %%% K ! n A t > n

!t J !eight given to time period AtB occurrence +!eights must add to one/eig)ted Mo(ing A(erage Pro -em F$G Data
!i J 1
i J1
0uestion? Given the !ee5ly demand and !eights, !hat is the forecast for the @th period or 9ee5 @G
Cee: 1 2 3 4 ?e%and 650 678 720
9eights? t>1 %2 t>3 %3 t>3 %3
/eig)ted Mo(ing A(erage Pro -em F$G So-'tion

Cee: 1 2 3 4 ?e%and 650 678 720 F"recast
693.4
.@ J 4%2+D34-K4%3+6DE-K4%3+624-J6F3%@ NoteC More !eig)t age !o'-d e gi(en to re&ent most (a-'es3 /eig)ted Mo(ing A(erage Pro -em F0G Data 0uestion? Given the !ee5ly demand information and !eights, !hat is the !eighted moving average forecast of the 2th period or !ee5G
Cee: 1 2 3 4 ?e%and 820 775 680 655
Cei*!tsB t$1 0.7 t$2 0.2 t$3 0.1
/eig)ted Mo(ing A(erage Pro -em F0G So-'tion

Cee: 1 2 3 4 5 ?e%and 820 775 680 655 F"recast
672
.2 J +4%1-+D22-K+4%3-+6E4-K+4%D-+622-J 6D3 NoteC More !eig)t age !o'-d e gi(en to re&ent most (a-'es3 E8,onentia- Smoot)ing Mode-
.t J .t>1 K a+At>1 > .t>1/)ere Copyright Virtual University of Pakistan
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#t #t"$ At"$ : #ore&ast (a-'e for t)e &oming time ,eriod : #ore&ast (a-'e in $ ,ast time ,eriod : A&t'a- o&&'rren&e in t)e $ ,ast time ,eriod : A-,)a smoot)ing &onstant
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E8,onentia- Smoot)ing Pro -em F$G Data 9'estionC Gi(en t)e !ee*-y demand data4 !)at are t)e e8,onentia- smoot)ing fore&asts for ,eriods 0"$< 'sing a:<3$< and a:<3A<2 Ass'me #$:D$
Cee: 1 2 3 4 5 6 7 8 9 10 ?e%and 820 775 680 655 750 802 798 689 775
E8,onentia- Smoot)ing So-'tion F$G

Cee: 1 2 3 4 5 6 7 8 9 10 ?e%and 820 775 680 655 750 802 798 689 775 0.1 820.00 820.00 815.50 801.95 787.26 783.53 785.38 786.64 776.88 776.69 0.6 820.00 820.00 820.00 817.30 808.09 795.59 788.35 786.57 786.61 780.77
E8,onentia- Smoot)ing Pro -em F0G Data 9'estionC /)at are t)e e8,onentia- smoot)ing fore&asts for ,eriods 0". 'sing A-,)a :<3.2 Ass'me #$:D$
Cee: 1 2 3 4 5 ?e%and 820 775 680 655
E8,onentia- Smoot)ing Pro -em F0G So-'tion Copyright Virtual University of Pakistan
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Cee: 1 2 3 4 5 ?e%and 820 775 680 655
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#$:@0<HF<3.GF@0<"@0<G:@0< #=:@0<HF<3.GFII."@0<G:IJI3I. E8am,-e = " E8,onentia- Smoot)ing

#eri"d 1 2 3 4 5 6 7 8 9 10 11 12 .ct(al 42 40 43 40 41 39 46 44 45 38 40 .lp!a ; 0.1 42 41.8 41.92 41.73 41.66 41.39 41.85 42.07 42.36 41.92 41.73 2rr"r $2.00 1.20 $1.92 $0.73 $2.66 4.61 2.15 2.93 $4.36 $1.92 .lp!a ; 0.4 42 41.2 41.92 41.15 41.09 40.25 42.55 43.13 43.88 41.53 40.92 2rr"r $2 1.8 $1.92 $0.15 $2.09 5.75 1.45 1.87 $5.88 $1.53
Common Non-inear Trends
Para7o!ic
Ex onentia!
.ro*t/
Para o-i& Trends H H H 'oncaved (p!ards and 'oncaved /o!n!ards The left and right arms are !idening as the value increases or the para ola is opening up!ards% #t represents the =uadratic function
%inear Trend E7'ation Copyright Virtual University of Pakistan
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Production and Operations Management MGT613 .t J a K t 9here? .t J .orecast for period t t J Specified num er of time periods a J 1alue of .t at t J 4 J Slope of the line
%inear Trend E7'ation E8am,-e
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7 :
n :ty; " t y n t0 " t 0 F ;
y " t a : n7
%inear Trend Ca-&'-ation
7 8 5 :2699; 1 15:812; 12695112180 8 8 6.3 5:55; 1 225 275 1225
a 8
812 1 6.3:15; 8 163. 5 5
y 8 163.5 9 6.3t
Asso&iati(e #ore&asting
1% Predictor variables > used to predict values of varia le interest 3% *egression > techni=ue for fitting a line to a set of points 3% #east s1uares line > minimi7es sum of s=uared deviations around the line
#ore&ast A&&'ra&y
$rror > difference et!een actual value and predicted value Mean A solute /eviation +MA/ Average a solute error Mean S=uared $rror +MS$ Average of s=uared error Mean A solute Percent $rror +MAP$ Average a solute percent error
Sim,-e a %inear #orm'-as for Ca-&'-ating KaL and K L J y > Regression <
<y > n+ y-+< - Copyright Virtual University of Pakistan J < > n+< 3 3
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Sim,-e %inear Regression Pro -em Data
0uestion? Given the data elo!, !hat is the simple linear regression model that can e used to predict sales in future !ee5sG
Cee: 1 2 3 4 5 Sales 150 157 162 166 177
Ans!erC .irst, using the linear regression formulas, !e can compute AaB and A B
Cee: 1 2 3 4 5 3 .&era*e Cee:DCee: Sales Cee:DSales 1 150 150 4 157 314 9 162 486 16 166 664 25 177 885 55 162.4 2499 S(% .&era*e S(%
<y > n+ y-+< - J 3@FF > 2+163%@-+3- = 22 2+F < > n+< 3 3
63 J A3= 14
a J y > < J 163%@ > +6%3-+3- J $>=3.

T)e res'-ting regression mode- isC 5t : $>=3. H A3=8
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PRODUCT M SERVICE DESIGN
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Lesson 11
Product and Service /esign together form the very asis of design aspect of operations% #f S(PA"'O today decides to send a person to space, it !ould not only develop and construct a roc5et or spaceship ut !ould also provide services in the training of the astronaut% The fact is that !e cannot leave out services from products or e<clude products from service% They oth complement and supplement each other% 9e have to respect this concept and pay attention in identifying ho! products and services are present in tandem every!here% A cardiologist carrying out angioplasty may e providing services ut its unheard of today at least, that the patient !ould e carrying !ith him the spare valves for the heart, so those valves also from the same person !ho is providing those services% #f !e go to the an5 for some financial services, !e end up ma5ing use of a che=ue +product-% Similarly if 1irtual (niversity is providing students !ith an education service, it also supplements the services side y providing products li5e oo5s, compact discs, handouts, and po!er point slides% The point !e are trying to focus upon is that products and services are found in com ination and a service organi7ation can also provide products or a manufacturing organi7ation can also provide a service, li5e the e<ample !e discussed in class a out an automo ile manufacturer providing after sales service% .rom this lecture on!ards, !e !ill e em ar5ing on the ;ourney to learn a out /esign of Productive Systems% This ;ourney !ould re=uire us to complete various milestones li5e product and service design, capacity planning, .acilities *ayout, /esign of 9or5 systems and *ocations% Please pay special attention to all those e<amples you have already covered through your lectures% And try to 5eep t!o important things in mind?> 1% /esign aspect re=uires strategic planning and may fall under the domain of Organi7ational strategy and senior management, also 3% /esign aspect re=uires the e<isting system to e improved or replaced y a etter system for this you should al!ays focus on the !ord Productive% This !ord reflects the idea of adding value either to the manufacturing or the services System or to e more precise improving the operation system% Introd'&tion After completing lectures on product and service design !e !ill e a le to understand the importance of product and service design% 9e !ill also try to grasp the various important aspects of the design process in detail% 9e !ill cover the concept of standardi7ation and advantages and disadvantages% 9e should e a le to appreciate the contri ution of "I/ to the product service design% And last ut not the leastP !e !ill focus on the concept of "elia ility in order to learn in !hat possi le !ays !e can aid our organi7ation to improve its product or service:s relia ility% #mportance of Product8Service /esign Product8Service design plays a strategic role in helping an organi7ation achieve its goals% A good product8service design can ensure customer satisfaction, =uality and production costs% On the other hand, #f an organi7ation is offering poor product or service, customer:s feed ac5 in the form of lac5 of interest !ill result in poor sales% Also 0uality and production costs are affected y poor design of the product or service% The importance is also often loo5ed, as Pa5istani organi7ations have not yet learnt to pay attention to safe operations of their products or services% A poor product or service can endanger the customers or consumers life% .or this it is necessary for us as Operations Manager to =uestion the safe operations of the product or service, our organi7ation offers to its customers and thus safe guard our organi7ation from product or service lia ility% Ma;or factors in design strategy 9hen !e discussed organi7ational and operation strategy concepts !e did set a oundary line for our organi7ations effective, smooth, relia le and safe operations% 9hen !e !ill design a product or service, !e need to consider the follo!ing facts in our design strategy% @@ Copyright Virtual University of Pakistan

1% 3% 3% @% 2% 'ost 0uality Time>to>mar5et 'ustomer satisfaction 'ompetitive advantage
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A good product or service can e produced or delivered at an economical cost !ith increased =uality, !ith a less time to mar5et provided the organi7ation is !illing to aim for customer satisfaction and this most of the time results in competitive advantage as !ell increase in revenues% Product or Service /esign Activities 9hen an organi7ation decides to design its ne! product or service or refine its e<isting product or service, it is suppose to follo! certain activities religiously and diligently% The follo!ing activities are necessary?> 1% Translate customer !ants and needs into product and service re=uirements 3% "efine e<isting products and services 3% /evelop ne! products and services @% .ormulate =uality goals 2% .ormulate cost targets 6% 'onstruct and test prototypes D% /ocument specifications An organi7ation can initiate a product or service design if it is a le to understand !hat the customer actually !ants in the product or service eing offered, say for e<ample a customer !ants a fuel efficient car and if the automo ile manufacturing organi7ation is a le to refine its e<isting product, !ith the o ;ective of improving =uality and reducing costs, it can gain competitive advantage and profits% &o!ever this re=uires the organi7ation to not only construct a prototype automo ile ut also evaluate its performance for ro ustness and then the design side should document the specifications in detail, along !ith test results and performance evaluations, so only that product may e introduced !hich is a le to full fill its intended use throughout the country% A ')G fitted car should function effectively in Oarachi as !ell as *ahore or #slama ad or hilly areas of the northern part of the country% "easons for Product or Service /esign An organi7ation ta5es into account oth e<ternal and internal reasons in order to design a ne! product or service or redesign an e<isting product or service% The reasons listed elo! have often een the primary reason for the design process% 1% $conomic 3% Social and demographic 3% Political, lia ility, or legal @% 'ompetitive 2% Technological 9hat is important is to reali7e that !hether it:s a single reason or multiple reasons for a design strategy, the end result should al!ays e an improved, safe and relia le product !hich should ring revenue and competitive advantage to the organi7ation% O ;ectives of Product and Service /esign The primary focus for designing a ne! product or service is 'ustomer satisfaction along !ith the secondary focus eing an improved function of product8service, increase in revenues8profits, 0uality along !ith reduction in costs% The current trend for designing a ne! product is to pay special attention to the product or services visual appearance, the ease of production8assem ly along !ith the ease of maintenance8service% Copyright Virtual University of Pakistan
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&o!ever, the design department of the organi7ation should ta5e into account the capa ilities of the organi7ation in designing goods and services Steps in the /esign Process Most of the organi7ations follo! the design process !ith the follo!ing steps not necessarily in the same order to achieve improvement in the performance of the system and adding value% 1% Motivation? refers to the achievement of the goals for the organi7ation, for mature and e<isting organi7ations the motivation also includes government regulations +provides ne! incentives, ta< free 7ones-, competitive process, customer needs and appearance of ne! technologies that have product or service applications% 3% 'ustomers? The design process !ould never e complete !ithout the valua le inputs of the customers% Any organi7ation that fails to satisfy and meet customer re=uirements loose ground to their competitors% 3% "I/? refers to the "esearch and /evelopment departments or divisions !hich generate ne! ideas for the e<isting products or services or simply ne! ideas for ne! products or services% Mostly the activities are #T$"AT#1$ and employ the feed ac5 of customer as !ell as operations side% @% 'ompetitors? The design process often compels a company to dismantle and inspect a competitor:s product% Res !e call it "$1$"S$ $)G#)$$"#)G% This helps the organi7ation to improve its o!n product% 0uite often companies get the lame that they improved incrementally their competitors products design or certain features to !in the competition% 2% .orecast /emand? refers to the demand for the companyNs ne! product or service% 6% Manufactura ility means the ease of fa rication or assem ly of a product as it directly affects cost, =uality and productivity% D% General considerations? The design process re=uires design, production8operations and mar5eting departments to !or5 closely together% This !ould mean sharing customer feed ac5, =uality issues, and operations ottlenec5s% #n addition legal or regulatory issues and Product *ife 'ycle #ssues must e addressed as a part of design function% *egal, $thical, and $nvironmental #ssues Organi7ations !hether manufacturing a product or delivering a service are made to operate in a three dimensional frame !or5 of legal, ethical and environmental oundaries% 1% *egal% Operations Managers should e a le to understand the legal environment in !hich their organi7ations are functioning, not only there are governmental +federal, provincial or district- regulations ut also industrial or service sector o ligations% These o ligations are guidelines !hich need to e follo!ed and if the designers can adhere to them, they only ma5e life easy for themselves as !ell as for the organi7ation% ./A, OS&A, '"S% There are legal issues in !hich even the '$O can e implicated if there are violations !ith respect to pollution% ./A as the name indicates refers to .ederal /rug Agency, OS&A refers to Occupational Safety &ygiene Administration, and '6" denotes 'enter 6oard of "evenue, !hich monitors the organi7ations ta<a le income% Product lia ility refers to a manufacturer eing lia le in case of an in;ury or damages caused y a faulty product% (niform commercial code% Products carry an implication of merchanta ility and fitness, !hich is a product, must e usa le for the intended purpose% An organi7ation should strictly follo! a uniform commercial codeP imagine if a manufacturer of electricity ca le manufactures a non uniform product that can lead to electric shoc5 to the end user% 3% $thical% Operations Manager should understand that he is under 'ontractual agreement not to e<hi it unethical ehavior% "eleasing products !ith defects should e informed to the customers% This is a golden practice amongst Muslims from the Copyright Virtual University of Pakistan
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days of &oly Prophet +P6(&- and its heartening to see the same eing employed here in the field of #nternational 6usiness $nvironmental% Operations Manager should also !or5 !ith in the same $nvironmental la!s as his organi7ation% $PA is active in all countries including Pa5istan and even a '$O can e ;ailed if there is a failure to comply !ith the $nvironment la!s% #t is the responsi ility of the design side to ensure that no design !ould e finali7ed that can seriously ;eopardi7e the organi7ations standing to!ards environment%
Designers of Prod'&t6Ser(i&e s)o'-d ad)ere to G'ide-ines The design side needs to adhere to certain guidelines !hich can ensure that the organi7ation is a le to achieve its organi7ational strategy% These guidelines are often form the vary asis of an organi7ations design strategy and indicates the importance of standardi7ation in the design of a product or service% 1% Produce designs that are consistent !ith the goals of the company% An economical upscale model automo ile design if replaced !ith a lu<urious model can invite a small num er of customers and may loose the e<isting stronger customer ase% 3% Give customers the value they e<pect %"elia ility, safety, endurance, aesthetic and =uality dimensions are !hat the customers are loo5ing for% 3% Ma5e health and safety a primary concern %Green "ic5sha!s seen functioning on the roads these days are a result of ta5ing care of health and safety of the users as !ell as those !ho operate them% @% 'onsider potential harm to the environment %A ne! product should e as a primary guideline should e etter than the e<isting one and should aid in the protection of environment% A num er of automo ile manufacturers are using hy rid models or cars !here as its e<pected that steam operated cars may e availa le in 2 years%
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PRODUCT6SERVICE DESIGN"I
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Lesson 12
#n our last discussion !e focused on the o ;ectivity and importance of Product and Service /esign% 9e also !ent through the primary and secondary reasons due to !hich organi7ations opt for designing a ne! product or offering of a ne! service% 9e also tal5ed a out the strategy for designing of ne! products and services% 9e investigated the legal, ethical and environmental regulations% 9e also formulated a design strategy and also discussed guidelines, !hich the organi7ations must fulfill in order to achieve competitive advantage through designing of effective productive systems% Criti&a- Iss'es in Prod'&t and Ser(i&e Design An organi7ation needs to decide a out the follo!ing critical issues in developing its product and service design% &o! much standardi7ation Product8service relia ility "ange of operating conditions Product8service life cycles
Standardi7ation Standardi7ation is the e<tent to !hich there is an a sence of variety in a product, service or process% Standardi7ed products are immediately availa le to customers% Rou go to a mar5et and re=uest for a charger for your cellular phone, the shop5eeper !ould as5 for the model, ma5e and deliver you as special product !hich is made y your cell phone company or y an independent manufacturer, !ho provides a standardi7ed compati le model% Advantages of Standardi7ation 1% .e!er parts to deal !ith in inventory I manufacturing %The trend is to use the same components for different models of products or even in services side, the data of a customer once ta5en as input can e utili7ed for other services% 3% /esign costs are generally lo!er +the standardi7ed product has a proven trac5 record, so there is no need to chec5 its safety and relia ility features from s=uare 1, its true, its tested and verified on prototype models efore eing mar5eted3% "educed training costs and time% An important advantage and can improve P"O/('T#1#TR% @% More routine purchasing, handling, and inspection procedures +These indicate a decrease in cost and can improve relia ility as !ell as over all design and manufacturing processes2% Orders fill a le from inventory, no need to carry e<tra safety stoc5 levels as compati le components8parts can e used% Any product registering lo!er sales can e phased out ut its components may e reused in an other more popular product even Soft!ares in cellular phones, hands free arrangement etc6% Opportunities for long production runs and automation %(ninterrupted stoc5 of components availa le, so production can e controlled and if possi le a demand forecast may e used% D% )eed for fe!er parts ;ustify increased e<penditures on perfecting designs and improving =uality control procedures% The company can free up its inventory carrying costs and use it on increasing its long term tangi le and intangi le =uality standards /isadvantages of Standardi7ation 1% /esigns may e fro7en + Standardi7ed- !ith too many imperfections remaining + An e<isting shortcoming may never e removed ecause of this leading to product or component failure, catalytic converter failure led to a num er of good cars in 1FE4s-% 3% &igh cost of design changes increases resistance to improvements +associated !ith its lac5 of confidence on the design side as !ell as outsourcers, !ho provide design services-% @E Copyright Virtual University of Pakistan

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"eduction in 1ariety !hich leads to decreased variety results in less consumer appeal% This also at times lead to the competitor producing a etter product or greater variety !hich itself is a feature of lean production%
Mass 'ustomi7ation Mass customi7ation is a strategy of producing standardi7ed goods or services, ut incorporating some degree of customi7ation through delayed differentiation and modular design% /elayed /ifferentiation is the postponement tactic% Producing ut not =uite completing a product or service until customer preferences or specifications are 5no!n, a pc manufacturer employed this technology and improved its time of delivery% This led to ne! concepts of mar5eting and manufacturing to register higher profits and revenues% Product8Service "elia ility *eliability? The a ility of a product, part, or system to perform its intended function under a prescri ed set of conditions 2ailure? Situation in !hich a product, part, or system does not perform as intended 3ormal operating conditions? The set of conditions under !hich an item:s relia ility is specified e%g% an automo ile designed for operation $urope may not fulfill its intended service in Pa5istan% SO #T 9O(*/ .A#* A)/ 6$ *$SS "$*#A6*$ *ife 'ycles of Products or Services 9e often hear the term short and long product lives !hich reflect upon the idea ho! product lives are governed y Technological rate of change% #n other !ords the need and utility of the Product gets severely reduced% $%g% 1'" no longer en;oys the source of entertainment it en;oyed in 1FD4s to 1FF4s% Most of the products e<hi it Product *ife cycles e<cept !ooden pencils, paper clips, nails, 5nives etc%
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%e ma n#
Saturation Maturity %ec!ine .ro*t/
&ntro#uction
Time
*ife 'ycles of Products or Services normally entail the follo!ing phases% 1% #)T"O/('T#O) P&AS$? 9hen items are first introduced, it is received !ith curiosity% /emand is lo! in the eginning then !hen uyers egin familiar !ith the product and see it as a relia le and good uy, they start uying it% 3% G"O9T& P&AS$? 9ith the passage of time, production and design improvements lead to decrease in cost and price ecomes an attractive feature !ith increase in relia ility% 3% MAT("#TR P&AS$? 9hen the product reaches maturity stage its demand can only increase if design is refined or changed and some differentiation feature is added this may increase the demand ut !hen it goes do!n @% SAT("AT#O) P&AS$? #n this phase product demand declines and the mar5et is saturated !ith either a compati le product or su stitutes% 2% /$'*#)$? #n this phase, most of the organi7ations adopt a defensive design "I/ Strategy in an attempt to prolong the life of the product y employing ne! pac5aging, redesigning it, improving its relia ility As students of Operations Management, you may e as5ed to suggest the Product *ife 'ycle for Telecom #ndustry constituents or in other !ords !here !ould you place cell phones, !ireless phones, landline phones or satellite8ca le ased telephones in vie! of the life cycle you ;ust studied% Rou can ma5e an attempt to ans!er this for Pa5istan as !ell as other developed countries% 'an you appreciate the similarities and points of differencesG
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PRODUCT M SERVICE DESIGN"II
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Lesson 13
9e have covered certain important concepts li5e standardi7ation and mass customi7ation, through !hich organi7ations as !ell as governments are a le to address the re=uirements of a road customer population% #t is important no! to understand ho! design strategies are applied and ho! to differentiate et!een product and service design% There are certain common features to oth% An effective operations manager should 5no! oth a out goods and services% #t is also important to understand that a good design should address the issues relating to cost, performance and =uality% Design Strategies /esign strategies have one common characteristic, !hich is to achieve customer satisfaction, along !ith reasona le profit in a !ay !hich does not go eyond the organi7ations: manufacturing a ilities% An e<aggerated e<ample eing that if an automo ile car manufacturing organi7ation:s design department decides to design a truc5% This !ould pro a ly mean testing the organi7ations: manufacturing capa ility, as the organi7ation !ould not have the infrastructure to manufacture a truc5% Some of the common design strategies are
1% /esign for Manufacturing +/.M-C The designers: consideration of the organi7ation:s

manufacturing capa ilities !hen designing a product% The more general term design for operations encompasses services as !ell as manufacturing% Manufactura ility is the ease of fa rication and8or assem ly !hich is important for? i% 'ost ii% Productivity iii% 0uality /esign for Assem ly +/.A-? /esign focuses on reducing the num er of parts in a product and on assem ly methods and se=uence% /esign for /isassem ly +/./-? /esign focuses on facilitating the disassem ly in a logical and an e<act reverse se=uential manner to the assem ly methods and se=uence% /esign for "ecycling +/."-? /esign allo!s and facilitates the recovery of material of materials and components from used products for reuse% The designers: consideration of the organi7ation:s manufacturing capa ilities !hen designing a product% The more general term design for operations encompasses services as !ell as manufacturing% /esign for "emanufacturing? (sing some of the components of the old products in the manufacture of ne! products% "emanufactured products are sold at 34 to 24T of the price of ne! product %e%g% Printers, copiers, cameras, P's and 'ell8Telephones% This can e done y original e=uipment manufacturer or a competitor or end user + in the latter case its called canni ali7ation-
3% 3%
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#t is important no! to learn as an Operations Manager the concept of "ecycling% "ecycling is in simple !ords recovering materials for future use% The common recycling reasons are 'ost savings $nvironment concerns $nvironment regulations /esign for recycling is a design strategy that facilitates the recovery of materials and components of old products in the manufacture8assem ly of ne! products% The focus here is to design components that !ould allo! for disassem ly and reuse or even 'A)A6A*#QAT#O)% Ro 'st Design "o ust /esign? /esign that results in products or services that can function over a road range of conditions% The idea is to have consistent, safe and relia le operations !ith no e<cuse for environmental characteristics% $%g% Automo iles8Products produced for $uropean conditions may not perform !ell in Pa5istan ecause of different environmental conditions% Similarly if you happen to visit an industrial Copyright Virtual University of Pakistan
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area, please ma5e sure that you have a proper OS&A standard safety oot availa le to you% #n Pa5istan certain automo ile manufacturers do not comply !ith the safety oot re=uirements for all its !or5ers !or5ing at the assem ly plants% A non OS&A compliant safety oot can pro a ly cause more harm resulting in foot amputation etc% Tag'&)i A,,roa&) To Ro 'st Design Genichi Taguchi, a Capanese Manufacturing $ngineer pioneered and championed the concept of reduction in the varia ility factor in manufacturing process% &is approach helped manufacturing organi7ations to isolate and eliminate !aste% This approach resulted in =uality improvement and cost reduction% 9ith the aid of the Taguchi Approach !e can determine the factors that are controlla le and those not controlla le along !ith their optimal levels relative to ma;or product advances% The defining characteristics for the Taguchi approach include? /esign a ro ust product #nsensitive to environmental factors either in manufacturing or in use% 'entral feature is Parameter /esign% An added concept to Taguchi Approach is the /egree of )e!ness% /egree of ne!ness is an incremental enhancement of certain =uality ased performance features for the product% The various !ays in !hich degrees of ne!ness can e achieve include 1% 3% 3% @% 2% Modification of an e<isting product8service $<pansion of an e<isting product8service 'lone of a competitor:s product8service )e! product8service /egree of /esign 'hange
P)ases in Prod'&t De(e-o,ment Pro&ess A manufacturing organi7ation !hen carrying out design of a product goes through the follo!ing phases% 1% 3% 3% @% 2% 6% D% E% F% #dea generation .easi ility analysis Product specifications Process specifications Prototype development /esign revie! Mar5et test Product introduction .ollo!>up evaluation
#dea Generation often captures !hat !e have already discussed as reverse engineering% "everse engineering is the dismantling and inspecting of a competitor:s product +or any other manufacturers old or e<isting product- to discover product improvements% "esearch I /evelopment +"I/- is the organi7ed efforts to increase scientific 5no!ledge or product innovation I may involve? 6asic "esearch advances 5no!ledge a out a su ;ect !ithout near>term e<pectations of commercial applications% Applied "esearch achieves commercial applications% /evelopment converts results of applied research into commercial applications%
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Con&'rrent Engineering
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'oncurrent engineering is the ringing together of engineering design and manufacturing personnel early in the design phase% Con&'rrent Engineering Ad(antages Manufacturing Personnel are a le to identify production capa ilities and capacities %They have thus the opportunity to inform the design group a out the suita ility of certain materials on the flipsides the designer !ould 5no! the suita ility of certain designs in aiding in cost reduction and =uality improvement in production8assem ly process% $arly opportunities for design or procurement of critical tooling, some of !hich might have long lead times% This can result in a ma;or shortening of the product development process, !hich should e a 5ey competitive advantage% $arly consideration of the Technical .easi ility of a particular design or a portion of a design% Again this can avoid serious pro lems during production% The emphasis can e on pro lem resolution instead of conflict resolution% Con&'rrent Engineering Disad(antages *ong standing e<isting oundaries et!een design and manufacturing can e difficult to overcome% Simply ringing a group of people together and thin5ing that they !ill e a le to !or5 together effectively is pro a ly naUve% There must e e<tra communication and fle<i ility if the process is to !or5, and these can e difficult to achieve% 'omputer>Aided /esign 'omputer>Aided /esign +'A/- is product design using computer graphics% increases productivity of designers, 3 to 14 times creates a data ase for manufacturing information on product specifications provides possi ility of engineering and cost analysis on proposed designs Mod'-ar Design Modular design is a form of standardi7ation in !hich component parts are su divided into modules that are easily replaced or interchanged% #t allo!s? $asier diagnosis and remedy of failures $asier repair and replacement Simplification of manufacturing and assem ly A concept idoli7ed in the #T industry for soft!are development Ser(i&e Design Service is an act and service delivery system focuses on facilities, processes and s5ills% Many services are undled !ith products, li5e oil change !ould re=uire you to pay for the oil canister as !ell% A good service design involves The physical resources needed !hich are some!hat $<plicit Services The goods that are purchased or consumed y the customer !hich are the services that !e call the implicit services Operations Manager should e a!are of the fact that service is something that is done to or for a customer and service delivery system are the re=uired facilities, processes, and s5ills needed to provide a service, also the !ords used are product undle and service pac5age% 9e should 5no! that the product Copyright Virtual University of Pakistan
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undle is the com ination of goods and services provided to a customer and service pac5age is the physical resources needed to perform the service Good Ser(i&e S,e&tr'm Operations Managers often end up ans!ering !hether a certain activity falls under product manufacturing or service development% The figure elo! tries to capture the concept of the !hole spectrum8 and of Goods and Services% The spectrum or and has on R a<is the control on goods and on M a<is the control on services% This is to help understand ho! a purely manufacturing organi7ation !ould handle a services assignment as !ell as ho! the operations manager !ould effectively handle oth products as !ell as services%
Steel #r"d(cti"n .(t"%")ile /an('act(rin*
2uto<2
!iance 4e air
Manua! Car 3as/
Teac/ing &ncreasing .oo#s Contro! &ncreasing Ser,ice Content
Differen&e et!een Prod'&t and Ser(i&e Design 1% Products are Tangi le and generally services are intangi le% Services give peace of mind !hich is again an intangi le thing% 3% Services are created and delivered at the same time, haircut and car !ash% Services li5e these if not properly designed are instantly discovered y the customers% 3% Services highly visi le to customers and should e designed !ith that in mind% This adds an e<tra dimension to process design, one that is a sent in product design% @% Services cannot e inventoried% This poses on restriction on fle<i ility and leads to an increased importance in capacity design% 2% *ocation important to service design% #n fact design of services and choice of location are often closely lin5ed% 6% Services have lo! arrier to entry% Some services +)on #nformation Technology 6AS$/- have lo!er arriers to entry and e<it% This places an additional pressure on service design to e innovative and cost effective% P)ases in Ser(i&e Design Service /esign process re=uires the thorough understanding of !hat the service should e and ho! it should e delivered and that too !ith in certain standardi7ed specifications or re=uirements% 1% 'onceptuali7e 3% #dentify service pac5age components 3% /etermine performance specifications Copyright Virtual University of Pakistan
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@% Translate performance specifications into design specifications 2% Translate design specifications into delivery specifications
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A good operations manager should e a le to see the compati ility et!een design re=uirements for a product or a service% Ser(i&e B-'e,rinting Service lueprinting is a method used in service design to descri e and analy7e a proposed service% #t is a useful tool for conceptuali7ing a service delivery system Ma;or Steps in Service 6lueprinting 1% $sta lish oundaries and decide on the level of detail that is needed% 3% #dentify steps involved and descri e them% #f there is an e<isting process, get an input from those !ho do it% 3% Prepare a flo!chart of ma;or process steps% @% #dentify potential failure points% #ncorporate features that minimi7e the chances of failures% 2% $sta lish a time frame for service e<ecution and estimate of varia ility in processing time re=uirements% Time is a fundamental determinant of cost, so esta lishing a time standard for service is important% 6% Analy7e profita ility% 'ustomer !aiting time is important, leading to negative profita ility C)ara&teristi&s of /e-- Designed Ser(i&e Systems A !ell designed service system should e consistent !ith the organi7ation:s vision as !ell as mission% #t should e user friendly, ro ust, easy to sustain, cost effective and should ring value to customers% A good and !ell design should create an effective lin5age et!een ac5 operations and front operations% #t should aim for a single unifying theme% #t should ensure relia ility and high =uality% An operations manager often faces challenge of a poor service design% The reasons of a poor service design include varia le re=uirements, difficult to descri e re=uirements, high volume of customer contact% These challenges can e overcome easily !ith the aid of defining a standardi7ed re=uirement that !ould e addressed y the service, ma5e simpler re=uirements and handle only limited num er of customers at each service station or outlet% T)e Ho'se of 9'a-ity #t ma5es a lot more sense to introduce the concept of =uality in product and service design here% 9e already 5no! a superior product en;oys a roader customer ase ecause of its superior =uality% Similarly a service is a customer encounter% A popular managerial vie! is that the 0uality .unction should e deployed at the source or at the design stage% 9e also should 5no! !hat 0uality .unction /eployment is% T!o common ans!ers eing that it is the voice of the customer +!hich al!ays sets a standard for the service organi7ation to follo!- and the second one eing that it should e in the form of a house of =uality
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C"rrelati"n %atri3 ?esi*n reE(ire%ents
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C(st"%er reE(ire$ %ents
0elati"ns!ip %atri3
C"%petiti&e assess%ent
Speci'icati"ns "r tar*et &al(es
Con&-'sion &o! organi7ation can improve their product or service design is ased purely on ho! much they are !illing to invest in "esearch I /evelopment+" I/-% Organi7ations should shift some emphasis a!ay from short term performance to long term Performance% They should !or5 to!ards continual and gradual improvements instead of the ig ang approach% This is clearly an e<ample of Capanese incremental modification approach to the contrasting American philosophy of introducing a different model% 9hatever may e the approach, a good design should aim to provide a reduced product life cycle%
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RE%IABI%IT5
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Lesson 14
9e often come across statements similar to these, this ul +product- is not as relia le as the previous ul or my ne!spaper:s analysis and report !riting +service- is not as relia le as my friend:s ne!spaper analysis% These t!o sentences summari7e !hat human mind is loo5ing forG That is relia ility% "elia ility is sought y customers from all organi7ations% #nterestingly enough, the personnel !or5ing inside the organi7ation !hether engineers or managers also see5 relia ility of operations, management, #T, Accounting and other host of functions that help an organi7ation perform its day to day routine activities effectively% "elia ility is no longer that art !hich !as considered to e possessed y a family of s5illed craftsman rather has no! evolved in to a vast and ever increasing field of $ngineering% "elia ility in general and relia ility engineering in fact play a very critical part in an organi7ations product or service gaining competitive advantage over the organi7ations competitors% Re-ia i-ity 9e often overloo5 the concept of "elia ility and confuse it !ith the concept of safety% Safety is one small aspect of relia ility% "elia ility needs to e loo5ed into !ith the important perspective of failure of a product 8service and normal operating conditions for that particular product or service% *ets us riefly loo5 at the definitions of relia ility, along !ith !hat is termed as failure and !hat are the normal operating conditions for a product%
*eliability? The a ility of a product, part, or system to perform its intended function under a prescri ed
set of conditions 2ailure? Situation in !hich a product, part, or system does not perform as intended 3ormal operating conditions? The set of conditions under !hich an item:s relia ility is specified e%g% an automo ile designed for operation in $urope may not fulfill its intended useful service in Pa5istan% SO #T &AS T&$ POT$)T#A* TO .A#* A)/ 6$ *$SS "$*#A6*$% Oindly pay more attention to the !ord potential here, potential refers to something hidden or attached either to the performance or operations of a product% A an5 servicing its client if fails to provide relia le normal operating service can lead to disastrous financial conse=uences for its customers similarly if a pharmacy starts dispensing e<pired medicines it can cause serious health ha7ards to its customers% All products and services carry !ith them the potential of doing something harmful if they are una le to function according to normal operating conditions% The thing or characteristic or =uality that avoids something a errant happening is 5no!n as "$*#A6#*#TR% Meas'ring Re-ia i-ity "elia ility can e measured, =uite effectively y ma5ing use of the concept of chance or pro a ility, in other !ords !e can =uantify the concept of relia ility in terms of statistical pro a ility% Often products are made more relia le +dependa le and safe- y increasing the safe operations of certain critical parts y increasing the presence of such important elements% $%g% a computer eing used as a server may e having t!o or more uninterrupted po!er supply units ensuring its safe operations% Similarly, uilding code re=uirements in the past follo!ed a more stringent and increased factor of safety, often leading to redundancy +su assem ly or components or elements !hich !ere never rought into action or play or operations or never used in the normal routine operations of an assem ly-% #n our earlier lectures !e covered the important concept of Tacguchi method !hich made us reali7e that a product or service should e a le to provide !hat it promises under a !ell defined range of operating conditions% A car manufactured in *ahore should e a le to provide the same service in northern areas of Pa5istan or coastal elt !ith same relia ility and ro ustness% 9e no! =uantify "elia ility in terms of Pro a ility% $%g% #f a component or item has a relia ility of 4%F, it means that it has a F4T pro a ility of functioning as intended, the pro a ility it !ill fail is 1>4%F J 4%1 !hich is 14T Copyright Virtual University of Pakistan
2D

9e can use Pro a ility in t!o functions 1% The pro a ility that the product or system !ill function !hen activated% 3% The pro a ility that the product or system !ill function for a given length of time Re-ia i-ity and Pro a i-ity Basi&s
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Pro a ility is used to e<plain relia ility y ta5ing into account the fact that the product or system !ill .unction !hen activated or .unction for a given length of time% This also means !e need to 5no! a out the independent events as !ell as redundancy% )o! #ndependent events are those events !hose occurrence or nonoccurrence do not influence each other, also "edundancy is the use of ac5up components to increase relia ility% *et:s first ta5e into account the fact that Pro a ility that a system !ill function !hen activated% RU%E $ I' t1" "r %"re e&ents are independent and s(ccess is de'ined as pr")a)ility t!at all "' t!e e&ents8 "cc(r t!en t!e pr")a)ility "' s(ccess is eE(al t" t!e pr"d(ct "' pr")a)ilities
<a%p 1
<a%p 2
.90
.80
%F4 < %E4 J %D3
B"t! t!e la%ps s!"(ld )e li*!ted (p in "rder t" ens(re &isi)ility. 0elia)ility "' t!e Syste% eE(als ,0elia)ility "' c"%p"nent 1-,0elia)ility "' C"%p"nent 2RU%E 0 If two events are independent and success is defined as probability that at least one of the events will occur, then the probability of either one plus !"" #inus that probability #ultiplied by the other probability $a#p % is an e&a#ple of redundancy here, as it being backup $a#p increases the reliability of the syste# fro# "!' to "!'(
<a%p 2 ,)ac:(p-
.80
<a%p 1
.90
%F4 K +1>%F4-S%E4 J %FE
RU%E = #f three events are involved and success is defined as the pro a ility that at least one of them occurs, the pro a ility of success is e=ual to the pro a ility of the first one + any of the events-, plus the product 1%44 minus that pro a ility and the pro a ility of the second event + any of the remaining events-, plus the product of 1%44 minus each of the t!o pro a ilities and the pro a ility of third event and so on% This rule can e e<tended to cover more than three events%
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0(le 3
.70
<a%p 3 ,)ac:(p '"r <a%p 2-
VU
.80
<a%p 2 ,)ac:(p '"r <a%p1-
.90
<a%p 1
1 4 #,all 'ail1$F,1$.90-D,1$.80-D,1$.70-G ; .994
E8am,-e S"$ Re-ia i-ity
?eter%ine t!e relia)ility "' t!e syste% s!"1n

.90 .92
.98
.90
.95
$<ample S>1 Solution
+!e syste% can )e red(ced t" a series "' t!ree c"%p"nents

.9 8 .909.90:1= 0.9; .959.92:11. 95;
.98 x .99 x .996 8 .966
03 Time ased Re-ia i-ity K#ai-'re RateL The second measurement of relia ility is carried out in terms of the time% 9e all 5no! that component, products or even services have limited lives% They function or fulfill their e<pected !or5 in some normal operating conditions% A product or service:s !or5ing life !hen e<hausted or ending prematurely is often referred to as .ailure rate% *et us go ac5 to the first statement of the lecture, !hen !e made a comment that this ul is less relia le, if !e are investigate further, !e can ta5e up the e<ample in a more detail manner% Say if 1444 ul s are eing manufactured at a facility in Oarachi, these ul s once manufactured are not sent to the customers !ithout =uality chec5s% They are made to go through stringent testing, after conducting statistical analysis% The manufacturers can identify the time ased relia ility or failure of the ul % This is =uite simple as !ell as a standard procedure in determining the e<pected life of any product% #n fact this has een a part of manufacturing industry for years no!% Some of the ul s !ould fail in testing and !ould not e shipped% As a part of process control, !e can plot the testing of ul s%
2F
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&n'ant morta!ity
+e* :ran#om; 'ai!ures Time> T
+ai!ures #ue to *ear1out
The figure a ove sho!s a athtu shape and thus rightly is referred to as the 6athtu curve% On the R a<is !e represent the .ailure rate and on the M a<is !e represent the Time% A careful loo5 at the graph !ould help us to identify the three phases Phase # near the origin is called #nfant Mortality% Phase ## in the middle refers to fe! random failures% Phase ### at the far end from the origin represent failures due to !ear out% 9hat can !e o serve in the 6ath Tu 'urveG #n Phase # ? One can easily see that =uite a fe! of the products fail shortly put into service, not ecause they !ear out ut they are defective to egin !ith% #n Phase ##? The rate of failure decreases rapidly once the truly defective items are 9$$/$/ O(T +$liminating inferior products8Services-% /uring phase ##, there are fe!er failures ecause the inferior8defective has already een eliminated% This phase is free of !orn out items and as seen is the *O)G$ST P$"#O/ here% #n Phase ###? #n the third phase, failure occurs ecause the products have completed the normal life of their service life and thus !orn out% As !e can see the graphs steeps up in this phase indicating an increase in the failure rate%
The =uestion no! is ho! can !e collect information on the distri ution, length of each phaseG 9e
5no! that all this re=uires collection and analysis of data% 9e are interested in calculating mean time et!een failures for each phase% #f !e analy7e phases # and ### separately and o serve them in e<ploded or enlarged vie!s !e may e a le to trace the presence of e<ponential curve in oth the phases% #t:s clear that in Phase # !e o serve a clear e<ponential decrease in the time e<pected of a products life% $<ponential /istri ution .O" #).A)T MO"TA*#TR STAG$
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4e!ia7i!ity 8 e 1T<MT)+ 11 e 1T<MT)+ T

EBPONENTIA% DISTRIBUTION $=uipment failures as !ell as product failures may occur in this pattern% #n such a case the e<ponential distri ution, such as depicted on the graph, !e can identify t!o phases Phase # and Phase ##% Phase # indicates the pro a ility that e=uipment or product put into service at time 4 !ill fail efore specified T is a ility that a product !ill last until Time T and is represented y area under the curve et!een O and T% Phase ## indicates that the curve to the right of Point T increases in Time ut reduces in relia ility% 9e can calculate the relia ility or pro a ility values using a ta le of e<ponential values% An e<ponential distri ution is completely descri ed using the distri ution mean, !hich relia ility engineers call it the M$A) T#M$ 6$T9$$) .A#*("$S% (sing T to represent the length of service, !e can calculate P efore failure as P +)o failure efore T- J e>T8M6T.% NORMA% DISTRIBUTION
Time
4e!ia7i!ity
Product failure due to !ear out can e determined y using normal distri ution% .rom our 5no!ledge of statistics !e already 5no! that the statistic ta le for a standardi7ed varia le Q represents the area under the normal curve from essentially from the left end of the curve to a specified point 7, !here 7 is a standardi7ed value computing use T>Mean !ear out time Std /eviation of 9ear out Time Thus !e must 5no! the mean and the standard deviation of the distri ution% Again for the sa5e of easy reference !e can use the statistical ta le availa le to us !ould al!ays sho! the area that lies to the left of Q% 7J
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To o tain a pro a ility that service life !ill not e<ceed, some value T, compute Q and refer to the ta le% To find the relia ility for some T, su tract this pro a ility from 144 percent% To o tain the value of T that !ill provide a given pro a ility, locate the nearest pro a ility under the curve to the left in the statistical ta le% Then the corresponding 7 in the preceding formula and determine T% 7J T>Mean !ear out time Std /eviation of 9ear out Time E8am,-e The mean life of a certain steam tur ine can e modeled using a normal distri ution !ith a mean life of si< years, and a standard deviation of one year% /etermine each of the follo!ing? The pro a ility that a stem tur ine !ill !ear out efore seven years of service% To pro a ility that a steam tur ine !ill !ear out after seven years of service + i%e% find its relia ility The service life !ill provide a !ear>out pro a ility of 14 percent% 9ear out life meanJ 6 years% 9ear out life standard deviation J 1 year 9ear out life is normally distri uted% .or )ormal /istri ution, !e can compute Q and use it to o tain the pro a ility directly from a statistical ta le 7J T>Mean !ear out time Std /eviation of 9ear out Time
J D>681J K1%44 Since P +TVD- J4%E@13 Also, su tract the pro a ility +relia ility- determined in part a from 144 percent 1%44 >4%E@13 J 4%12ED
4e!ia7i!ity80.1587
(
gives 1%44
9e can see that on the Q scale, oth a and
(se the normal ta le and find the value of 7 that corresponds to an area under the cure of 14T 9e are focusing on 14 T of the area under the curve and chec5 only the left hand side QJ>1%3EJ +T>6-81 Thus T J6>1%3EJ@%D3 9e calculate and find value of T is @%D3 Copyright Virtual University of Pakistan
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AVAI%ABI%IT5
VU
The fraction of time a piece of e=uipment is e<pected to e availa le for operation% Mathematically, #f !e represent mean time et!een failures y MT6. and mean time to repair y MT" then Availa ility J +MT6.-8+MT6. K MT"Im,ro(ing Re-ia i-ity 9e should develop the a ility to understand the importance of relia ility and at the same time identify the !ays in !hich "elia ility can e improved in the follo!ing generic !ays% 1% 'omponent design ? Parts of a car 3% Production8assem ly techni=ues? )o re!or5s also fool proof assem ly% 3% Testing ?for trou le free final product @% "edundancy8 ac5ups? not possi le all the time ut common remedy% 2% Preventive maintenance procedures 6% (ser education+ operating manualsD% System design + !e !ill discuss in later chapters, a senior management issue, ut indicative that relia ility is al!ays considered 1#PE% "esearch I /evelopment +"I/- ? Organi7ed efforts to increase scientific 5no!ledge or product innovation I may involve? 6asic "esearch advances 5no!ledge a out a su ;ect !ithout near>term e<pectations of commercial applications% Applied "esearch achieves commercial applications% /evelopment converts results of applied research into commercial applications% CONC%USION #t is important to understand the concept of relia ility in terms of normal operating conditions as !ell as safe operations% Services in general and Products in particular are designed to provide this opportunity to the fullest% #t is recommended to invest more in " I/, !ith regards to increase in "elia ility% 0uality chec5s should e incorporated at suita le places to enhance product and services relia ility% #t is also suggested that emphasis should e shifted a!ay from short term performance to oth short as !ell as long term Performance improvement !hile formulating a relia ility ased operations strategy% Operations Manager should !or5 to!ards continual and gradual improvements instead of ig ang approach% They should !or5 to shorten the product life cycle +not the products life- as it increases products safety as !ell as relia ility% Operations side should e encouraged to pot for component commonality continual improvement and shorten time to mar5et%
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Lesson 15
CAPACIT5 P%ANNING After completing discussion on product or service design, organi7ations end up ans!ering the =uestions relating to capacity and demand% Since !e have already discussed demand forecasting, !e should no! focus on !hat capacity planning decisions are% 9e should also try to understand the importance of capacity% 'apacity decisions are important to all departments of the organi7ationP an accountant !ould e interested in collecting cost accounting information in order to ensure that correct capacity e<pansion decision is reached% Similarly a financial manager !ould e interested in performing the financial analysis of !hether the investment decision is ;ustified for a plant or capacity increase% An #nformation Technology Manager !ould end up preparing data ases that !ould aid the organi7ation again to decide a out the capacity and last ut not the least an operations manager !ould select strategies that !ould help the organi7ation achieve the optimum capacity levels to meet the capacity demand% *earning O ;ectives 'apacity planning lectures deal !ith different types of 'apacity li5e /esign, $ffectiveP (tili7ation etc 0uite often the operations manager has to identify various determinants of $ffective 'apacity% The manager has to formulate Strategy !ith respect to 'apacity Planning and plans y loo5ing in to developing 'apacity Alternatives and studying $conomies of Scale and focusing on 'ost 1olume "elationship &opefully y completing the lecture on 'apacity Planning an Operations Management the students !ould e a le to?> (nderstand, appreciate and e<plain the importance of capacity planning% /iscuss !ays of defining and measuring capacity% /escri e the factors that determine effective capacity alternatives% /iscuss the ma;or considerations related to developing capacity alternatives% 'apacity Planning 'apacity is the upper limit or ceiling on the load +demand for a product or service- that an operating unit can handle% An Operations Manager is supposed to identify tactics and formulate a strategy in order to ans!er the asic =uestions !ith respect to capacity handling% These =uestions are? 1% 9hat 5ind of capacity is neededG 3% &o! much is neededG 3% 9hen is it neededG This !ord A'apacity PlanningB reached us a day after the tragic and life changing incident of earth=ua5e of Eth Octo er 3442% 9e !ere e<posed to the idea of capacity limitation !ith respect to food, shelter, medicines and rescue operations% As a conse=uence !e also faced the challenge of planning ho! to overcome this shortcoming% #f you could recall in our earlier lectures !e tal5ed a out $rregular variations caused y unusual circumstances such as severe !eathers, earth=ua5es, !or5er stri5es, or ma;or change in product or service% These irregular variations do not capture or reflect the true ehavior of a varia le and can distort the overall picture% These should e identified and removed from the data% There are t!o uses for forecasts% One is to help the Operations Manager plan the system and the other one is to help him plan the use of the system% Planning the system refers to planning long term plans a out the type of products or services to offer, !hat facilities and e=uipment to have, !here to locate and so on and so forth% Planning the use of the system relates to short range and intermediate range planning !hich means planning inventory !or5force resources, planning of purchasing and production activities, udgeting and scheduling etc%
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Im,ortan&e of Ca,a&ity De&isions
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'apacity decisions impacts a ility to meet future demands, affects operating costs% These decisions often act as a ma;or determinant of initial costs, as they involve long>term commitment% These decisions affect competitiveness and gives ease of management% 'apacity /ecisions focus on glo ali7ation as it is more comple< and impacts long range planning% #mpacts a ility to meet future demands% 'apacity essentially limits the rate of possi le output% &aving capacity to satisfy demand can allo! a company of ta5ing advantage of tremendous opportunities% An international automo ile manufacturer of good repute increased its production y !or5ing on its capacity decision after its =uality product received a lot more demand than it !as originally anticipated% Affects operating costs% 9e already 5no! that estimated or forecasted demand differs from actual demand, so the ideal concept of capacity matching demand is untrue% Organi7ations should e !illing to ta5e a critical decision to alance the cost of over and under capacity% Overcapacity reflects over5ill of resources and under capacity sho!s a !ea5 management philosophy to ma5e est use of an availa le mar5et% Acts as a ma;or determinant of initial costs% #t is typical to see that greater the capacity of a productive unit, greater !ould e the cost% This does not mean # am advocating a one to one relationship for higher capacity for production to costsP in fact larger units tend to cost proportionately less than smaller units% $%g% Pa5istan Steel Mill at Oarachi is one good e<ample, !here higher costs are misunderstood as the mills capacity is not eing fully utili7ed #nvolves long>term commitment% Once long term commitments of resources have een ta5en, the difficulty of reversing !ould cost more% #ndicating a capacity increase or decrease for an organi7ation set up !ould mean additional costs% Affects competitiveness% This is very critical, if a firm has an e<cessive capacity or can =uic5ly add capacity, !hich fact may serve as a arrier against entry y other firms% Affects ease of management% 'apacity increase or decrease decisions involves management to ans!er the =uestion of operating the organi7ation as !ell as an increase or decrease in the plant capacity Glo ali7ation adds comple<ity% 'apacity decision often involves ma5ing a decision in a foreign country !hich re=uires the management to 5no! a out the political, economic and cultural issues% #mpacts long range planning% 'apacity decisions e<tend eyond 1E months and thus get classified as long term in nature% Organi7ations often end up ma5ing use of rupees amount in order to sho! their capacity ceiling this unfortunately needs a constant updating due to changes in price of ra! materials as !ell as utilities% A simple !ay out is to reflect the load or capacity in terms of unit produced ut this has the limitation that its only good for a single unit and fails in case of multiple types , designs of units eing produced% A preferred type of capacity measurement is to identify capacity in terms of availa ility of input units%e%g% hospitals are identified to have a capacity of 344 eds, a !or5shop y its man>hours and so on and so forth%
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CAPACIT5 P%ANNING"I
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Lesson 16
#t is important to reali7e that managers ma5e capacity decisions at the organi7ational level and not at the operational level% Often, de ottlenec5ing a process can increase departmental efficiency !ithout increasing or improving the organi7ational performance% This does not mean that capacity decisions are not ta5en at the operational level rather managers end up ma5ing capacity decisions at the individual process level in accounting, finance, human resources, information technologies, mar5eting and operations departments% Operations Mangers must understand capacity measures, economies and diseconomies of scale, capacity cushions and trade off et!een customer service and capacity utili7ation. Effi&ien&y and Uti-i1ation Operations Manager should 5no! !hat is 'apacityG They should e a le to identify the terms /esign 'apacity and $ffective capacity efore they can understand another important concept of (tili7ation% /esign capacity is the ma<imum output rate or service capacity an operation, process, or facility% Organi7ations facility or operation is designed for $ffective capacity !hich refers to /esign capacity minus allo!ances such as personal time, maintenance, and scrap Actual output is the rate of output actually achieved>>cannot e<ceed effective capacity% $fficiency8(tili7ation $<ample (se the follo!ing data to determine the $fficiency and (tili7ation /esign capacity J 24 truc5s8day $ffective capacity J @4 truc5s8day Actual output J 36 units8day Actual Output $fficiency J $fficiency 'apacity Actual Output (tili7ation J /esign 'apacity J J J J 36 units 8 day @4 units 8 day 36 units 8 day 24 units 8 day J D3T J F4T
Determinants of Effe&ti(e Ca,a&ity Operations Manager often focus on determinants of effective capacity y ta5ing into account oth macro and micro levels% At the macro levels the managers loo5 for Supply chain and $<ternal factors, !hile at the micro level they loo5 for operational factors including facilities and man and machine resources% There are D determinants of effective capacity namely?> 1% .acilities% The design of facilities includes the si7e as !ell as the provision of e<pansion% Other important factors that are necessary include transportation costs, distance to mar5et, la or supply, energy supply sources and the ease and smoothness !ith !hich !or5 can e performed% 9e should also include environmental factors such as heating, lighting and ventilation !hich not only increase the performance of the !or5force ut also act as source of motivation and !or5er loyalty% A failure to comply !ith this !ould indicate poor design !hich in reality translates to lac5 of managerial acumen% Copyright Virtual University of Pakistan
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3% Product and service factors can have a tremendous influence on capacity% $%g% !hen items are similar, the a ility of the system to produce those items is generally much greater than !hen successive items are different and uni=ue% The idea is more uniformity in the final product service output the greater capacity% # am ma5ing a reference to a P' manufacturer in (SA !hich decided that it !ould standardi7e its products and split its assem ly lines only at the point !here the a small differential product feature !as re=uired% 3% Process factors refer to the =uantity and =uality re=uirements of a process% 0uantity al!ays refers to capacity% Another added feature is =uality of output% #f =uality of output does not match the standard re=uirements it !ould generate inspection and possi le re!or5s% @% &uman factors include s5ill, craftsmanship, training and =ualification to handle any ;o it also includes the motivational factors% 2% Operational factors !ith respect to effective capacity al!ays refer to scheduling, late deliveries, accepta ility of purchased materials, parts, =uality inspection, control procedures and inventory pro lems% Scheduling issues arise !hen an organi7ation has a difference in e=uipment capa ilities for development of alternative capacities% #nventory pro lems have a negative impact on capacity 6% Supply chain factors relate to any short coming to suppliers, !arehouse processing, operational hic5 up or distri ution issues% D% $<ternal factors include product standards, safety regulations, unions and pollution control standards% At times organi7ations have e<perienced shutting do!n of their facility if they could not provide support to government regulations of pollution control% Strategy #orm'-ation /it) res,e&t to Ca,a&ity P-anning 1% 'apacity strategy for long>term demand !hich focus on demand patterns and ta5es into account gro!th rate and varia ility 3% .acilities that focus on cost of uilding and operating 3% Technological changes relate to rate and direction of technology changes @% 6ehavior of competitors 2% Availa ility of capital and other inputs +ey De&isions of Ca,a&ity P-anning #t is important to identify the 5ey decisions in order to carryout a correct capacity planning decision% Some of the common 5ey decisions are 1% Amount of capacity needed 3% Timing of changes 3% )eed to maintain alance @% $<tent of fle<i ility of facilities Steps for 'apacity Planning Strategy #t is important to understand ho! to formulate a capacity planning strategy 1% $stimate future capacity re=uirements 3% $valuate e<isting capacity 3% #dentify alternatives @% 'onduct financial analysis 2% Assess 5ey =ualitative issues 6% Select one alternative D% #mplement alternative chosen E% Monitor results
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De(e-o,ing Ca,a&ity A-ternati(es
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1% /esign fle<i ility into systems refers to long term nature of e<pansion, if at the time of original design, fle<i ility alternative is provided, and it !ould save cost in remodeling and modifications !hen e<pansion is carried out later% 3% Ta5e stage of life cycle into account% #t is important that operations manager o serve and chec5 !hether the capacity increase alternative is for a ne! product8service or mature product or service% The predicta ility for a ne! service is ris5ier as compared to an esta lished mature product or service% 3% Ta5e a A ig pictureB approach to capacity changes !hile developing the capacity of the system, it is necessary to understand the interrelationship of the components of the system% The ig picture approach relates to setting up of par5ing space, house 5eeping and landscaping if an e<pansion is to e accommodated in a multi purpose shopping plus apartment comple<% @% 6y developing capacity alternatives, organi7ations prepare to deal !ith capacity Achun5sB 'apacity increases are normally o tained in ig chun5s instead of incremental increase% A steel mills furnace may not e a le to provide e<act re=uired increase in capacity and thus !ould provide e<cessive capacity !hich may lead to increase in inventory% $%g% the demand for steel say is 3444 tone per annum in the city of su55hur, from a local steel mill the capacity is 1E44 tones per annum% The steel mill can increase its production from 1E44 tones to 3344 tones per annum and not to e<actly 3444 tones per annum% Organi7ations attempt to smooth out capacity re=uirements% This topic is discussed in more detail !hen !e !ill cover the topic of aggregate planning for the time eing !e can see that simply adding capacity y increasing the si7e of !or5force, machines, facility does not help% Operations manager should e a le to identify the optimal operating level% All Production units have an ideal or optimal level of operation in terms of unit cost of output% At the ideal level, cost per unit is the lo!est for that production unit% $conomies of Scale and /iseconomies of scale An operations manager should 5no! !hat economies and diseconomies of scale are $conomies of scale reflects a concept that states the average unit cost of a good or service can e reduced y increasing its output rate !hile diseconomies of scale reflects the case !hen the average cost per unit increases as the facility:s si7e increases% #f the output rate is less than the optimal level, increasing output rate results in decreasing average unit costs then it reflects $conomies of Scale% On the other hand if the output rate is more than the optimal level, increasing the output rate results in increasing average unit costs $valuating Alternatives
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Minimum 2,erage Cost er ?nit
2,er age cost er unit
Minimum Cost cost 4ate o' out ut
$<planation of the 'ost 'urve The e<planation for the shape of the cost curve is that lo! levels of output +Production-, the costs of facilities and e=uipment must e a sor ed +paid for- y fe! units% &ence the cost per unit is very high% As the output is increased, there are more units to a sor the fi<ed cost of utilities, facilities and e=uipment, so unit cost is decreased% Minimum 'ost !ould e recorded at the optimal rate, eyond that the unit cost !ill start to increase% Other factors no! ecome more important !hich include !or5er fatigue, e=uipment rea5do!n, the loss of fle<i ility, !hich leaves less margin for error and increases difficulty in coordinating activities% $valuating Alternatives Minimum cost & optimal operating rate are functions of size of production unit.
2,erage cost er unit
Sma!!
!ant
Me#ium !ant
-arge !ant
$ut ut rate
$valuating Alternatives As the general capacity of the plant increases, the optimal output rate increases and the minimum cost for the optimal rate decreases% This is the prime reason !hy larger plants tend to have higher optimal output rates and lo!er minimum costs than smaller plants% The senior management normally ta5es in to account the same considerations in addition to availa ility of financial, capital resources and forecasted demand% The important step is to determine enough points for each si7e facility to e a le to ma5e a comparison among different si7es% #n some industries or types of services, facility si7es are given, !here as in other facility si7e are continuous varia le% Copyright Virtual University of Pakistan
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Occasionally the management decides for a si7e !hich does not have the desired rate of output% $%g% Pharmaceutical 'ompany, oil field, gas fields% An organi7ation needs to e<amine the alternatives for future capacity from a num er of different perspectives% $conomic 'onditions set the e<ternal conditions !hich influence the follo!ing 1% 9ill Alternative e feasi leG 3% &o! much !ill it costG 3% &o! soon can !e have itG @% 9hat !ill e the operating and maintenance costsG Possi le )egative Opinion due to the follo!ing decisions% 1% /ecision to uild a ne! po!er plant, nuclear, coal, geothermal 3% /isplacement of people if a ne! hydro plant is to e uilt% 3% $nvironmental issues related to company:s ne! pro;ect%
D4

CAPACIT5 P%ANNING"II
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Lesson 17
#n our earlier lectures !e tal5ed a out importance of capacity planning along !ith the idea that capacity planning decisions are carried out !ith certain o ;ectivity in mind oth at the individual level as !ell as at the organi7ational level% 9e also learnt the various measures of capacity% 9e no! focus our attention on various alternatives availa le to us along !ith cost volume relationship% E(a-'ating A-ternati(es
Minimum 2,erage Cost er ?nit
4ate o' out ut
2,er age cost er unit
Minimum Cost cost
E8,-anation of t)e Cost C'r(e The e<planation for the shape of the cost curve is that lo! levels of output +Production-, the costs of facilities and e=uipment must e a sor ed +paid for- y fe! units% &ence the cost per unit is very high% As the output is increased, there are more units to a sor the fi<ed cost of utilities, facilities and e=uipment, so unit cost is decreased% Minimum 'ost !ould e recorded at the optimal rate, eyond that the unit cost !ill start to increase% Other factors no! ecome more important !hich include !or5er fatigue, e=uipment rea5do!n, the loss of fle<i ility, !hich leaves less margin for error and increases difficulty in coordinating activities% $valuating Alternatives
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Minimum cost & optimal operating rate are functions of size of production unit.
2,erage cost er unit
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Sma!!
!ant
Me#ium !ant
-arge !ant
$ut ut rate
E(a-'ating A-ternati(es As the general capacity of the plant increases, the optimal output rate increases and the minimum cost for the optimal rate decreases% This is the prime reason !hy larger plants tend to have higher optimal output rates and lo!er minimum costs than smaller plants% The senior management normally ta5es in to account the same considerations in addition to availa ility of financial, capital resources and forecasted demand% The important step is to determine enough points for each si7e facility to e a le to ma5e a comparison among different si7es% #n some industries or types of services, facility si7es are given, !here as in other facility si7e are continuous varia le% Occasionally the management decides for a si7e !hich does not have the desired rate of output% $%g% Pharmaceutical 'ompany, oil field, gas fields% An organi7ation needs to e<amine the alternatives for future capacity from a num er of different perspectives% $conomic 'onditions set the e<ternal conditions !hich influence the follo!ing 2% 9ill Alternative e feasi le% 6% &o! much !ill it costG D% &o! soon can !e have itG E% 9hat !ill e the operating and maintenance costsG Possi le )egative Opinion due to the follo!ing decisions% @% /ecision to uild a ne! po!er plant, nuclear, coal, geothermal 2% /isplacement of people if a ne! hydro plant is to e uilt% 6% $nvironmental issues related to company:s ne! pro;ect% P-anning Ser(i&e Ca,a&ity Services are different that manufacturing cant e inventoried !hile services cannot e inventoried, this reason alone ma5es it necessary and pertinent to plan for service capacity% )eed to e near customers as 'apacity and location are closely tied% #na ility to store services as 'apacity must e matched !ith timing of demand /egree of volatility of demand it can vary et!een pea5 and lo! periods% Cost"Vo-'me Re-ations)i,s
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Ass'm,tions of Cost"Vo-'me Ana-ysis 1% 3% 3% @% 2% 6% One product is involved $verything produced can e sold 1aria le cost per unit is the same regardless of volume .i<ed costs do not change !ith volume "evenue per unit constant !ith volume "evenue per unit e<ceeds varia le cost per unit
'ost 1olume "elationship focuses on relationships et!een costs, revenue and volume of output% The primary purpose of cost volume analysis is to estimate the income of an organi7ation under different operating conditions% #t is particularly useful as a tool for comparing capacity alternatives% The application of 'ost 1olume "elationships re=uires identification of all costs related to the production of a given product% These costs are assigned to fi<ed costs or varia le costs% .i<ed costs tend to remain constant regardless of volume of output% $<amples include "ental costs, property ta<es, e=uipment costs, heating and cooling e<penses, and certain administration costs% 1aria le costs vary directly !ith volume of output% The ma;or portions of varia le cost are materials and la or cost% .or our analysis part !e can assume that the varia le cost per unit remains the same regardless of volume of output% *et us construct the model for 'ost 1olume "elationship% #f !e select .' , 1', T', T" " , 0, 0 6$P , P and " to represent .i<ed 'ost, 1aria le 'ost, Total 'ost, Total "evenue, "evenue per unit, 0uantity or 1olume of Output, 0uantity or 1olume of Output at 6"$AO $1$) and Profit respectively then Ste, I Copyright Virtual University of Pakistan
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The total cost T' associated !ith a given volume of output is e=ual to the sum of the fi<ed cost .' and the 1aria le 'ost per (nit TC: #CH VC B 9 Ste, II "evenue per unit, li5e varia le cost per unit, is assumed to e the same regardless of the =uantity of output% Total "evenue !ill have a linear relationship !ith the output% TR: R B 9 'ost>1olume "elationships
Ste, III Profit is P difference et!een "evenue T" and 'osts T'% 'onstruct the model for 'ost 1olume "elationship PJ T">T' PJ " M 0 +.' K 1' M 0"earranging and factori7ing PJ0 + ">1'- .' Or P K .'J 0 + ">1'Also 0 J + P K.'-8 +">1'0J 0uantity or 1olume of Output 06$PJ 0uantity or 1olume of Output at 6"$AO $1$), !ould e !here PJProfit is 4 So 06$P J .'8 ">1'
'ost>1olume "elationships
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Ca,a&ity a-ternati(es in(o-(e ste, &osts3 These step costs increase in step!ise as potential volume increases% .or e<ample an organi7ation may have the option of purchasing one, t!o or three machines, !ith each additional machine increasing fi<ed cost in a non linear !ay% #n such a scenario, the fi<ed costs and potential volume !ould depend on num er of machines purchased or installed% 6rea5>$ven Pro lem !ith Step .i<ed 'osts The implication is that multiple rea5 even =uantities may occur, possi ly one for each range% )ote the total revenue line might not intersect the fi<ed cost line in a particular range, meaning that !ould e no rea5 even point in the first range% #n order to decide ho! many machines to purchase a manager must consider pro;ected annual demand +volume- relative to Multiple 6rea5 $ven Points and the most appropriate num er of machines%
$<ample The 6usiness O!ner of a sports good factory in Sial5ot is contemplating adding a ne! line of cric5et ats, !hich !ill re=uire leasing ne! e=uipment for a monthly payment of "s% 64,444% 1aria le 'osts !ould e "s% 344 per at and 6ats !ould e sold for "s% 3444 only% 1% &o! many ats !ould e sold in order to rea5 evenG Copyright Virtual University of Pakistan
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3% 9hat !ould e the profit or loss if the 144 ats are made and sold in 1 monthG 3% &o! many ats must e sold to reali7e a profit of "s% @4,444G Solution
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1% 06$PJ .'8 + ">1'J"s% 64,4448 3444>344J 64,44481E44 J 33%33 ats J 33 6ats 3% .or 0 J144 ats, the Profit or *oss !ould e PJ 0+">1'->.'J144+3444>344->64,444J144M 1E44>64,444J1E4,444>64,444J134,444 3% .or P J@4,444 0 J +.'KP-8 + ">1'-J+64,444K@4,444-8+3444>344J144,44481E44J22%26 J 26 6ats #inan&ia- Ana-ysis Mathematical Techni=ues that can e used to evaluate alternatives are 'ost 1olume "elationships .inancial Analysis /ecision Theory 9aiting *ine Analysis 'apacity alternatives are often evaluated !ith the aid of certain financial analyses% Operations manager along !ith managerial accountant often !or5 to calculate !hat cash flo! or present value in terms of rupees is availa le for the organi7ation to proceed !ith a capacity alternative decision% #t is important to understand !hat cash flo! and present values are 1% 'ash .lo! > the difference et!een cash received from sales and other sources, and cash outflo! for la or, material, overhead, and ta<es% 3% Present 1alue > the sum, in current value, of all future cash flo!s of an investment proposal% 9aiting *ine Analysis and decision theory are also t!o important !ays in !hich capacity alternatives are evaluated% Con&-'sion 'apacity planning is important that it helps an organi7ation to formulate its long term +organi7ationalstrategy and short term +operational- strategy% *ong term capacity decisions relate to overall level of capacity !hile short term capacity decisions refer to seasonal, random or irregular variations in demand% #deally capacity should match demand ut it rarely happens% 'apacity alternative decisions should e ta5en in vie! of !hat !e have already covered the concept of systems approach or the over all ig picture approach as =uite often removing a ottle nec5 at the department level may not improve the organi7ations effectiveness% An effective operations manager !ould ma5e use of =ualitative as !ell as =uantitative analysis to evaluate capacity alternatives% 'apacity decisions are often ased on facilities layout and together they define the very e<istence of an organi7ational unit%
D6

PROCESS SE%ECTION
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Lesson 18
Process Selection plays an important part in over all design of production and operations management systems% Process Selection allo!s an organi7ation to offer a safe and relia le product and service through pragmatic design and effective capacity planning% 9ith the help of process selection !e can understand the different types of processing including manual, rigid, and fle<i le as !ell as various automated approaches to processing% Process selection allo!s an operations manager to etter understand the need for management of technology% Together !ith capacity planning it helps an organi7ation to develop different approaches to meet the irregular demand pattern of the customers% Introd'&tion and Meaning Process Selection refers to the !ay an organi7ation chooses to produce its good or services% #t ta5es into account selection of technology, capacity planning, layout of facilities, and design of !or5 systems% Process selection is a natural e<tension after selection of ne! products and services% An organi7ations process strategy !ould include 1% Ma5e or 6uy /ecisions% The e<tent to !hich an organi7ation !ill produce goods or provide in house as opposed to relying on an outside organi7ation to produce or provide them% 3% 'apital #ntensity% The mi< of e=uipment and la or !ill e used y the government% 3% Process .le<i ility? The degree to !hich the system can e ad;usted to changes in processing re=uirements due to such factors as changes in product or service design, changes in volume processed, and changes in technology% Reasons to FProd'&e in"Ho'se or O'tso'r&eG Ma*e or B'y There are 6 reasons !hich are availa le to us in order to decide !hether to develop a competence in house or hire an outside competent organi7ation to supply that product, service or particular e<pertise% The latter re=uires that the outsourcer to e honest, ethical, competent% #t also re=uires that outsourcing contract should e fle<i le yet pragmatic and carry proper levels of services% Availa le capacity if an organi7ation has the e=uipment, necessary s5ills and time, it often ma5es sense to produce an item or perform a service in house% The additional costs !ould e relatively small compared !ith those re=uired to uy items or su contract them% $<pertise% #f a firm lac5s the e<pertise to do a ;o satisfactorily, uying might e a reasona le alternative% 0uality considerations% .irms that speciali7e can usually offer higher =uality than an organi7ation can attain itself% 'onversely, special =uality re=uirements or the a ility to closely monitor =uality may cause an organi7ation to perform a ;o itself% )ature of demand% 9hen demand for an item is high and steady, the organi7ation is often etter off doing the !or5 itself% &o!ever, !ide fluctuations in demand or small orders are usually etter handled y specialists, !ho are a le to com ine orders from multiple sources, !hich results in higher volume and tend to offset individual uyer fluctuation% 'ost% Any cost savings achieved from uying or ma5ing must e !eighed against the preceding factors% 'ost savings might come from the item itself or from transportation cost savings% #f there are fi<ed costs associated !ith ma5ing an item that cannot e reallocated if the item is purchased, that has to e recogni7ed in cost analysis% "is5% Outsourcing or uying the services carries ris5P often companies retain fle<i ility y carrying out certain critical activities in house and repetitive menial activities through outsourcing%
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Ty,es of O,eration
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The degree of standardi7ation and the volume of output of a product or service influence the !ay production is organi7ed% Output can range from high volume, highly standardi7ed, to lo! volume, highly customi7ed% 1% 'ontinuous Processing% 1% "epetitive Processing% 3% #ntermittent Processing% 1% 6atch Processing 3% Co Shop% 3% Automation 1% 'omputer Aided Manufacturing 3% )umerically 'ontrolled Machines 3% "o ot @% Manufacturing 'ell% 2% .le<i le Manufacturing System% Contin'o's and Semi Contin'o's O,erations 1% A system that produces highly uniform products or continuous services, often performed y machines% 1% Processing of chemicals, photographic film, ne!sprint and oil products 3% "epetitive Processing% A production system that renders one or a fe! highly standardi7ed products or services% 1% Automo iles, televisions, computers ,calculators, cameras and video e=uipments #ntermittent Processing 1% A system that produces lo!er volumes of items or services !ith a greater variety of processing re=uirements% 1% Processing of chemicals, photographic film, ne!sprint and oil products 3% 6atch Processing% A system used to produce moderate volumes of similar items% 1% Paint, ice cream, canned vegeta les 3% Maga7ines, ne!spapers, te<t oo5s and user manuals% 3% Do S)o,% A system that renders unit or small lot production or service !ith varying specifications according to customer needs A'tomation% Machinery that has sensing and controlling devices that ena les it to operate automatically% 1% 'omputer Aided manufacturing the use of computers in process control% 3% )umerically 'ontrolled Machines that perform operations y follo!ing mathematical processing instructions 3% "o ot a machine that consists of a mechanical arm, a po!er supply and a controller% #-e8i -e A'tomation 1% Manufacturing 'ell% One or a fe! )8' machines that produce a variety of parts% 3% .le<i le Manufacturing System% A group of machines designed to handle intermittent processing re=uirements and produce a variety of similar products% 1% /esigned to handle #ntermittent processes 3% Offers reduce la or costs and consistent =uality% 3% &igher .le<i ility as compared to hard automation 3% Disad(antage% 1% "e=uires longer time for planning and development Copyright Virtual University of Pakistan
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3% 'an handle only narro! range of parts variety% Com,'ter Integrated Man'fa&t'ring
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1% Manufacturing 'ell% One or a fe! )8' machines that produce a variety of parts% 3% .le<i le Manufacturing System% A group of machines designed to handle intermittent processing re=uirements and produce a variety of similar products% 1% /esigned to handle #ntermittent processes 3% Offers reduce la or costs and consistent =uality% 3% &igher .le<i ility as compared to hard automation 3% Disad(antage% 1% "e=uires longer time for planning and development 3% 'an handle only narro! range of parts variety% O,erations Strategy !it) res,e&t to Pro&ess Se-e&tion Operations strategy has the =uality of eing fine tuned !henever !e discuss a ne! idea, process selection is no different, and !e can formulate a process selection ased operations strategy as follo!s% 1% &ire and Promote Managers !ho have oth Technical and Managerial S5ills% As engineers fail in managerial decisions and managers end up relying on engineers !ho create 9&#T$ $*$P&A)TS% 3% .le<i ility as a competitive strategy to e incorporated at all levels% 3% Cudicious use of Automation as unnecessary Automation causes increase in cost and a su se=uent increase in product and inventory%
DF

#ACI%ITIES %A5OUTS
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Lesson 19
.acilities layout corresponds to configuration of departments, sections, !or5 centers, e=uipment !ith focus eing on movement of goods or services or !or5s% A traveler ma5ing use of the rail!ay platform, or us station or airport !ould e a good e<ample of !or5 eing moved through a facility% Often poor design of productive system can result in poor design of the facilities layout% After F, 11, most of the airports in the !estern !orld have sho!n that they are poorly designed to handle air traffic and passengers end up paying a heavy price in the form of long !aiting hours and even people visit airports to see of their family or friend travelers end up reaching the lo y area% The reason eing no attention !as paid at the time of design or construction to separate oarding lounge form the tic5eting counter or lounge% Such short comings plague organi7ations and it:s the tas5 of the operations manager to ensure that product as !ell as service layouts match organi7ations short as !ell as long term plans% Basi& %ayo't Ty,es The common 6asic *ayout Types are 1% Product8Service layout% A layout that uses standardi7ed processing operations to achieve smooth, rapid, high>volume flo! 3% Process layout% A *ayout that can handle varied processing re=uirements 3% .i<ed Position layout% A *ayout in !hich the product or pro;ect remains stationary, and !or5ers, materials, and e=uipment are moved as needed @% &y rid8'om ination% A *ayout that ma5es use of the com ination of Product, Process or .i<ed Position *ayout% Prod'&t %ayo't C)ara&teristi&s 1% Product layouts are used to achieve a smooth and rapid flo! of large volumes of goods and customers through a system% 3% The !or5 is divided into a series of standardi7ed tas5s, permitting speciali7ation of oth la or and e=uipment% 3% The large volumes handled y these systems ma5e it pertinent and necessary to invest in e=uipment and ;o design% @% *ayouts should e arranged to ma5e the est use of technological processing a ilities to fulfill the re=uirements of oth product and services% 2% #n manufacturing environments the lines are referred to as production lines or assem ly lines, depending on the type of activity involved% 6% #n services side, the !ord line may or may not e used li5e &ealthcare8&ospital Services line, 'ar!ash +a sence of !ord line here- or 'afeteria *ine% D% 9ithout standardi7ation, many of the enefits of the repetitive processing are lost% E% Product *ayouts achieve a high degree of la or and e=uipment utili7ation, !hich tends to offset their high e=uipment costs% F% Operations are so closely tied up that a mechanical failure or high a senteeism +rains- !ould increase vulnera ility of the Systems% 14% 9e can prevent rea5do!ns if !e religiously follo! preventive maintenance schedules, inspection and replacement of !orn parts% Ad(antages of Prod'&t %ayo't 1% &igh rate of output% 3% *o! unit cost% 3% *a or speciali7ation% @% *o! material handling cost% 2% &igh utili7ation of la or and e=uipment% 6% $sta lished routing and scheduling% Copyright Virtual University of Pakistan
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D% "outing accounting and purchasing% Disad(antages of Prod'&t %ayo't 1% 'reates dull, repetitive ;o s% 3% Poorly s5illed !or5ers may not maintain e=uipment or =uality of output of service% 3% .airly infle<i le to changes in volume% @% &ighly suscepti le to shutdo!ns% 2% )eeds preventive maintenance% 6% #ndividual incentive plans are impractical% A U"S)a,ed Prod'&tion %ine
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& n
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3orker s $u t
A @ I
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A U"S)a,ed Prod'&tion %ine Straight *ine designs are often not practical ecause of space constraints% ( shape Production *ine is more compact, and re=uires often half the length of a Straight Production *ine% ( shaped *ayouts are a must for team!or5 !here communication is necessary% ( shaped *ayouts allo! fle<i ility in !or5 assignments as !or5ers can handle ad;acent stations as !ell as stations on opposite ends% Sometimes ( shaped production line interferes !ith the cross travel8movement of !or5ers, mo ile e=uipment% &ighly automated processes do not re=uire team!or5 or communication, noise or contamination factors then ( shaped Production *ines are not re=uired%
Process Layout Functiona!"
Dept. A Dept. B
Dept. C Dept. D
Used for intermittent processing Job Shop or Batch
Dept. E Dept. F
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#r"d(ct <ay"(t
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Product Layout (Sequential)

#or$ Station % #or$ Station & #or$ Station '
Used for (epetiti)e Processing (epetiti)e or Continuous

Ad(antages of Pro&ess %ayo'ts 1% 3% 3% @% 'an handle a variety of processing re=uirements% )ot particularly vulnera le to e=uipment failures% $=uipment used is less costly% Possi le to use individual incentive plans%
Disad(antages of Pro&ess %ayo'ts 1% 3% 3% @% 2% #n>process inventory costs can e high% 'hallenging routing and scheduling% $=uipment utili7ation rates are lo!% Material handling slo! and inefficient% 'omple<ities often reduce span of supervision%
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#ACI%ITIES %A5OUTS"I
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Lesson 20
#n our last lecture, !e identified .acilities layout as the configuration of departments, sections, !or5 centers, e=uipment !ith focus eing on movement of goods or services or !or5s% So !hether it:s a traveler ma5ing use of the rail!ay platform, or us station or airport, or an automo ile or a product during its production stage or a patient needing medical attention, they all !ould =ualify as good e<amples of !or5 eing moved through a facility% Often poor design of productive system can result in poor design of the facilities layout% 9e discussed product, process and hy rid layouts, !e no! focus our attention on cellular production% #n cellular manufacturing, production !or5 stations and e=uipment are arranged in a se=uence that supports a smooth flo! of materials and components through the production process !ith minimal transport or delay% #mplementation of this lean method often represents the first ma;or shift in production activity, and it is the 5ey ena ler of increased production velocity and fle<i ility, as !ell as the reduction of capital re=uirements% The concept of lean production and Cust in Time Production Systems !ould e studied in detail !hen !e !ill discuss improvement of Productive Systems% Ce--'-ar %ayo'ts 'ellular production techni=ues reflect a relatively ne! concept in manufacturing and have yet found immediate acceptance in Pa5istani manufacturing industry as !ell% Organi7ations !hich opt for cellular manufacturing follo! the lean production strategy% There are t!o important concepts to understand at the moment, !hat cellular production is and !hat group technology isG 9e !ill discuss lean production systems in detail to!ards the end of our semester later, for the time eing !e can consider lean production systems as systems !hich focus on high =uality process !ith elimination of !aste and effective use of availa le resources% 'ellular Production *ayout in !hich machines are grouped into a cell that can process items that have similar processing re=uirements% Group Technology The grouping into part families of items !ith similar design or manufacturing characteristics% 'ellular production al!ays !ould represent the layout of machines !hile group technology !ould reflect the collection of items or products !hich need the same manufacturing re=uirements% 6oth these terms greatly influence the improvements of process and operations for any organi7ation% #t is pertinent to understand the advantage of cellular layouts over the functional layouts% 9e already 5no! that functional layouts are not only conventional in nature ut also re=uire more space as !ell as some!hat rigid layout plans, !ith increased special !or5force and continuous supervision% The ta le elo! represents the same concept%
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Primary /ifferences et!een .unctional and 'ellular *ayouts Dimension )um er of moves et!een departments Travel distances Travel paths Co !aiting times Throughput time Amount of !or5 in process Supervision difficulty Scheduling comple<ity $=uipment utili7ation #a&i-ities %ayo'ts #'n&tionamany longer varia le greater higher higher higher higher lo!er Ce--'-ar fe! shorter fi<ed shorter lo!er lo!er lo!er lo!er &igher
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9e have so far discussed !hat product and process ased layouts are, in et!een !e also focused our attention on hy rid configuration as !ell as cellular production layouts% 9e can thus safely define facilities layout as the configuration of departments, work centers and e1uipment, with particular emphasis on movement of work 4customers or materials5 through the system. 9e come across different layouts in our daily lives especially !ith respect to the services side% Some important Service *ayouts, !hich !e should 5no! include 9arehouse and storage layouts "etail layouts Office layouts People often confuse retail stores !ith !arehouse stores, an effective !ay to understand the importance of these important usiness channels is to identify the layouts associated !ith it% "etail configurations are human friendly and allo! the movement of goods through small trolleys for the customers and if placement of goods in the aisle is to e carried out then simple for5lifts or small vehicles are used, sometimes over head cranes or hoists are also used% Another important point of difference eing the !ay the goods are displayed and shelved% The layouts are properly illuminated and ventilated and mostly maintained at a human comfort temperature through effective heating and air>conditioning% The floors too are mostly vinyled and designed to ma5e the customer movement less stressful% The movement of goods involves light loads and easy transportation, as against this the !arehouse and storage layouts, !hich re=uire heavy loads and transportation% These goods re=uire heavy vehicles and loaders for movement% The stores have different illumination arrangement then retail outlets% The security measures are different for oth types of layouts, ranging from close circuit television cameras to electric ar ed !ires% Im,ortan&e of %ayo't De&isions Operations Managers are often =uestioned a out the importance of a ne! or e<isting facilities layout% #n addition to the fact that operations manager !or5 for improvement to!ards design and effect use of operation systems, they should also 5no! the importance of layout decision in terms of money% Some of these are?> 1% *ayout decisions re=uire su stantial investments of money and effort% Copyright Virtual University of Pakistan
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3% *ayout decisions involve long>term commitments% 3% *ayout decisions have significant impact on cost and efficiency of short>term operations% T)e Need for %ayo't De&isions
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An operations manager should e a!are of the fact that the need for a proper and effective layout facility is al!ays there, it is often said that if there is no facilities layout pro lem eing faced y an organi7ation then it is pro a ly una!are of its true potential% The need for layout planning arises oth in the process of designing ne! facilities and in redesigning e<isting facilities% Some of the common reasons faced y the organi7ation include?> 1% #n>efficient Operations +&igh 'ost86ottlenec5s that hamper true potential-% 3% Accidents or Safety &a7ards% 3% 'hanges in design of products or services% @% #ntroduction of ne! products or services% 2% 'hanges in volume of output or mi< of outputs% 6% 'hanges in Methods or e=uipment% D% 'hanges in $nvironmental and *egal re=uirements% E% Morale Pro lems +e%g% lac5 of face to face contact et!een supervisor and !or5er or even senior management and ;unior management-% /esign Product *ayouts? *ine 6alancing *ine 6alancing is the process of assigning tas5s to !or5stations in such a !ay that the !or5stations have appro<imately e=ual time re=uirements% The o ;ective of line alancing is to o tain e=ual time re=uirements at ma;ority of the !or5stations% This shortens the time of manufacturing as !ell as reduces the idle time% Often industry uses the term cycle time to represent the time in !hich the organi7ations resources are engaged to complete a process and idle time to represent the time in !hich the resources are left unused% Cy&-e Time 6ycle time is the ma<imum time allo!ed at each !or5station to complete its set of tas5s on a unit% #f 'T represents cycle time and / represents the desired output then !e can calculate cycle time as
'T J cycle time J OT /
Ma8im'm O't,'t #f !e 5no! !hat is the cycle time re=uired for the manufacturing of a product or offering of a service !e can calculate the ma<imum output% #f O' is the Output capacity, OT is the operating Time and 'T is the 'ycle time then
O' = Output capacity J OT 'T
#f an automo ile manufacturer !or5s for E hours and re=uires @ hours to complete its cycle then the out put capacity !ould e E8@J 3 automo iles% Minim'm N'm er of /or*stations Re7'ired Organi7ations !or5ing especially service organi7ations side often design their !or5 facilities in a !ay that they can increase their capacity output y increasing the num er of !or5 stations% #f / is the desired Copyright Virtual University of Pakistan
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output, t is the time re=uired for a specific time and OT is the Operating Time then the num er of !or5stations ) can e calculated as%
)J +/-+ tOT
t J sum of tas5 times
Pre&eden&e Diagram Precedence diagram? Tool used in line alancing to display elemental tas5s and se=uence re=uirements 0.1 min. 1.0 min.
a c
7 #
0.5 min.
2 Sim !e Prece#ence %iagram
e
0.2 min.
0.7 min. %ine Ba-an&ing R'-es H H
Assign tas5s in order of most follo!ing tas5s% 'ount the num er of tas5s that follo!% Assign tas5s in order of greatest positional !eight% Positional !eight is the sum of each tas5:s time and the times of all follo!ing tas5s%
/esigning Process *ayouts re=uire certain information, !hich includes the follo!ing? 1% *ist of departments 3% Pro;ection of !or5 flo!s 3% /istance et!een locations @% Amount of money to e invested 2% *ist of special considerations 6% *ocation of 5ey utilities S'mmary .acilities layout plays an important part in an organi7ation achieving its ma<imum potential% This also indicates that facilities layout allo! an organi7ation to en;oy a competitive advantage over its competitors% .acilities layout re=uire more than ;ust cost enefit analysis infect the decision re=uires ho! much space is re=uired y the facility and ho! to configure or optimi7e the use of this space for the product or process% Of the different types of product, process, fi<ed and hy rid types of configurations, the current trend is to!ards cellular manufacturing and group technology% 'apital investments, materials handling costs and fle<i ility are important criteria in ;udging most facilities layout% *o! volumes of production do allo! the use of Group Technology or cellular manufacturing% /esigning a process layout re=uires collecting information a out accepta le loc5 plan, and translating the loc5 plan into a detailed layout% #n product layout, !or5stations are arranged in a naturally occurring, heuristic +commonsense- for high volume of production% #n line alancing the tas5s are assigned to !or5stations so as to satisfy all precedence and cycle time constraints !hile minimi7ing the num er of !or5 stations% Copyright Virtual University of Pakistan
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DESIGN O# /OR+ S5STEMS O ?e&ti(e
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Lesson 21
/esign of 9or5 Systems is an important component in Production and Operations Management% /esign of 9or5 Systems forms the asis and e<plains the importance of !or5 design% /esign of 9or5 Systems is used to descri e the t!o asic approaches to ;o design, the first approach focuses on $fficiency through ;o speciali7ation and the other focuses ehavioral approaches to ;o design% /esign of 9or5 System also entails method analysis !hich in turn centers on ho! ;o s are performed% Motivation and Trust also form an important dimension in /esign of 9or5 systems as this alone provides an opportunity to the Organi7ation to develop effective teams !ho can achieve organi7ations short and long term o ;ectives% Motivation and Trust o servations also emphasi7es !or5ing conditions that in turn lead to !or5 measurements !hich leads to re!ard and compensation of the individual !or5ing for the organi7ation% #n short this topic of /esign of 9or5 Systems provides the perfect ridge et!een Production and Operations Management !ith &uman "esource Management% Design of /or* Systems Introd'&tion 9or5 System /esign consists of ;o design, !or5 measurement and esta lishment of time standards and !or5er compensation% The interesting fact is that even in decisions in other areas of design can affect the !or5 design system or even a change in the !or5 design system can change the decisions in other areas% *i5e Product or Service design !ill affect /esign of 9or5 Systems% *ayout /ecisions !ill also affect /esign of Systems% #t is thus logical to ensure that SRST$MS approach is follo!ed in a decision for /$S#G), so a decision in one part of the system is e=ually replicated and accepta le to all the system% $%g% Product or Service /esign !ould re=uire proper people !ith standardi7ed ;o description Do Design Co design involves specifying the content and methods of ;o % #n general the goal of the ;o design is to create a !or5 system that is not only productive ut also efficient% Co designers are concerned !ith?> 9hat !ill e done 9ho !ill do the ;o &o! the ;o !ill e done 9here the ;o !ill e done $rgonomics
A successful Co /esign must have the follo!ing =ualities 1%'arried out y e<perienced personnel !ho have the necessary training and 3%'onsistent !ith the goals of the organi7ation% 3%#n documented form% @%(nderstood and agreed y oth management and employees% 2%Shared !ith the ne! employees% 6%.actors that affect Co /esign .A'TO"S that affect Co design include Copyright Virtual University of Pakistan ac5ground%
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1%*ac5 of 5no!ledge of the employees% 3%*ac5 of Management support% 3%*ac5 of documented ;o design !hich often leads to poor audit revie! and referral% @%Co /esign can e carried out in 3 !ays the $fficient School and the 6ehavior School% 2%$fficiency School !as popular in 1F24s ased on .rederic5 9 TaylorNs Scientific Management principles% 6%6ehavior school is relatively ne! concept and focused on !ays to eliminate !or5ers dissatisfaction and incorporate the feeling of control in !or5% Design of /or* Systems 1% 3% 3% @% 2% 6% Speciali7ation 6ehavioral Approaches to Co /esign Teams Methods Analysis Motions Study 9or5ing conditions
S,e&ia-i1ation
The term speciali7ation refers to !or5 that concentrates on some aspect of a product or service% Co s that have a narro! scope% Assem ly lines, medical specialties, M6A courses% Speciali7ation ;o s tend to yield high productivity, lo! unit costs and lead to high standard of living
in
most of the industrial nations% Speciali7ation in 6usiness? Advantages /isadvantages Be)a(iora- A,,roa&)es to Do Design #n order to ma5e ;o s more interesting and meaningful ;o designers often consider Co $nlargement, Co "otation and Co $nrichment% Co $nlargement relates to giving a !or5er a larger portion of the total tas5 y hori7ontal loading Co "otation pertains to 9or5ers periodically e<change ;o s Co $nrichment is increasing responsi ility for planning and coordination tas5s, y vertical loading Moti(ation The importance of these approaches to ;o design is that they have the potential to increase the motivational po!er of ;o s y increasing !or5er satisfaction through improvement in =uality of !or5 life% Motivation al!ays influences =uality and productivity% #t contri utes to !or5 environment !here as Trust influences productivity and employee>management relations Teams Organi7ation adopt teams in order to e<ploit the enefits of teams &igher =uality &igher productivity Greater !or5er satisfaction Self>directed teams are groups of empo!ered to ma5e certain changes in their !or5 process Copyright Virtual University of Pakistan
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Met)ods Ana-ysis
Methods
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analysis deals !ith analy7ing ho! a ;o gets done, egins !ith overall analysis and then moves to specific details li5e changes in tools and e=uipment, 'hanges in product design or ne! products, 'hanges in materials or procedures and Other factors +e%g% accidents, =uality pro lemsMethods Analysis Procedure is simple and effective and does the follo!ing #dentifies the operation to e studied Gets employee input Studies and documents the current method Analy7es the ;o Proposes ne! methods #nstalls ne! methods .ollo!>ups to ensure improvements have een achieved Selecting Operations to study Sometimes a supervisor or a foreman may re=uest an operations or part of the operations to e studied% This !ould e !ith the intent to increase productivity and reduce costs% The guidelines for studying a ;o !ould include A high la or content% "epeated fre=uently% (nsafe, tiring, unpleasant, noisy and environmentally poor% 0uality pro lems, scheduling ottlenec5s etc% Ana-y1ing t)e Do and ,ro,osing ne! met)ods
Co
/esign Analyst should =uestion the integrity and effectiveness of present and proposed methods% &e or she should use charts, graphs and ver al descriptions to capture ho! the ;o is eing performed% This can e the first asis and can lead to improvement in ;o design% #-o! ,ro&ess &)art 'hart used to e<amine the overall se=uence of an operation y focusing on movements of the operator or flo! of materials 9or5er>machine chart 'hart used to determine portions of a !or5 cycle during !hich an operator and e=uipment are usy or idle E8,erien&ed Do design ana-ysts often de(e-o, a &)e&*-ist and try to ans!er t)ese 7'estions 9hy is there a delay or storage at this pointG &o! can travel distances e shortened 'an material handlings e reducedG 9ould a rearrangement of the !or5place result in greater efficiency% 'an similar activities e groupedG 9ould the use of additional or improved e=uipment e helpfulG /oes the !or5er have any suggestion or recommendation for improvementG
Insta--ing t)e Im,ro(ed Met)od Successful implementation of the proposed method changes re=uires convincing management of the desira ility of the ne! method and o taining the cooperation of the !or5er% #f the !or5er has een consulted than the tas5 of installing the ne! method is easier other!ise it can ecome the toughest part% Copyright Virtual University of Pakistan
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#f there is a paradigm change +ma;or change or ne! method- from the old method, the implementation ma5es ta5e a longer time% .ollo! up is re=uired to ensure that the changes have een incorporated%% Motion St'dy and Motion St'dy Te&)ni7'es Motion Study is the systematic study of the human motions used to perform an operation% The purpose is to eliminate 8!eed>out unnecessary motions and identify the est se=uence of operations for ma<imum efficiency% Motion study forms an important part in productivity improvements% #t is ased on .ran5 Gil reths ric5 laying trade in the early 34th century, through the use of time motion study techni=ues% Motion Study Techni=ues often incorporate the follo!ing four types 1% Motion study principles > guidelines for designing motion>efficient !or5 procedures 3% Analysis of ther ligs > asic elemental motions into !hich a ;o can e ro5en do!n 3% Micro motion study > use of motion pictures and slo! motion to study motions that other!ise !ould e too rapid to analy7e @% 'harts Motion study principles Gil reths !or5 laid the foundation for motion study principles, !hich are guidelines for designing motion efficient !or5 procedures% The guidelines are divided into three categories% 1% Principles of the use of ody% 3% Principles for the arrangement of the !or5 place% 3% Principles for the designs of tools and e=uipments% /eveloping 9or5 Methods An operations manager along !ith an analyst aims for motion efficiency y achieving the follo!ing $limination of unnecessary motions 1% 'om ination of various activities 3% "eduction in fatigue 3% #mprovement in the arrangement of the !or5place @% #mprovement in the design of tools and e=uipment T)er -ig Te&)ni7'es Analysis of ther ligs > asic elemental motions into !hich a ;o can e ro5en do!n Search implies hunting for an item !ith eyes or hands% Select means to choose from a group of o ;ects% Grasp means to ta5e hold of the o ;ect% &old refers to retention of an o ;ect that has een grasped% Ther lig Techni=ues Transport load means movement of an o ;ect after hold% "elease load means to deposit the o ;ect% Some other common Ther ligs are #nspect, Position, Plan, "est and /elay% Also .ran5 and *illian Gil reth are responsi le for micro motion study as !ell% 9or5ing 'onditions 9or5ing 'onditions +cont:d9or5 Measurement determines ho! long it should ta5e to do a ;o % This may e focusing on an individual:s performance or completion of a mega scale pro;ect% 9hen !e discuss the design part of !or5 systems !e often discuss the importance of standard time in !or5 measurement% Standard time is Copyright Virtual University of Pakistan
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the amount of time it should ta5e a =ualified !or5er to complete a specified tas5, !or5ing at sustaina le rate, using given methods, tools and e=uipments, ra! materials and !or5 place arrangements% #t also employs the follo!ing common types of !or5 measurement techni=ues 1% Stop!atch time study 3% &istorical times 3% Predetermined data @% 9or5 Sampling Sto,!at&) time st'dy
Stop!atch
time study is used to develop a time standard ased on o servations of one !or5er ta5en over num er of cycles% That is then applied to !or5 of others of the same organi7ation !ho perform the same !or5% The asic steps in stop !atch time study include 1% /efine the tas5 to e studied and inform the !or5ers !ho e studied% 3% /etermine the num er of cycles to o serve% 3% Time the ;o and rate the !or5ers performance @% 'ompute the standard time Also, the num er of cycles that must e timed is a function of three things 1% The varia ility of o served times 3% The desired accuracy 3% The desired level of confidence interval for the estimated ;o time /esired accuracy is e<pressed as percentage of the mean of the O served Time% )J +7s8a < >-3 9here Q is the num er of normal standard deviations needed for desired confidence S is sample standard deviation a is desired accuracy percentage <> +< ar- is the sample mean EBAMP%E A Mechanical $ngineer !or5ing for an automo ile manufacture in *ahore presents the follo!ing information to the Operations Manager% The assem ly !or5ers ta5e a mean time of 134 minutes to assem le a single car !ith a standard deviation of 2 minutes% The confidence limit if F2T, The Operations Manager !ill need ho! many o servations if the desired ma<imum error is K 2T Solution Given /ata SJ 2 minutes, Q is 1%F6 +since F2 '#<> J 134 minutes, aJ 2 T The formula is )J +7s8a < >-3 Su stituting the values )J + +1%F6-+2-8+4%42-+134--3 J+F6%4@-8+36-J3%6D studies J 3 studies
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De(e-o,ment of a Time Standard
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/evelopment of a Time standard involves O served Time +OT-, )ormal Time +)T- and Standard Time + ST-% Mathematically O served Time OT is represented y OT J W M8 n O served Time OT is ;ust the average of the recorded times% Also )ormal Time )T is the o served time ad;usted for !or5er performance% Simi-ar-y Norma- time NT:OT B PR
'omputed y multiplying o )ormal time is the length of
served time !ith Performance rating% time a !or5er should ta5e to perform a ;o %
Anot)er im,ortant &on&e,t is Standard time Standard TimeJSTJ)T M A. is the normal time plus allo!ance for delays li5e + getting a glass of !ater or going to the !ashroom human needsPredetermined Time Standards 1% Predetermined Time Standards are pu lished data that is ased on e<tensive research to determine standard elemental times% 3% A common system is the Methods Time Measurement + MTM3% Analysts are trained and certified efore they can e allo!ed to use MTM% MTM Ad(antages 1% 3% 3% @% They are ased on large num er of !or5ers under controlled conditions% The analyst is not re=uired to rate performance in developing the standard% There is no disruption of the operation% Standards can e esta lished even efore a ;o is done%
Com,ensation An Operations Manger comes across t!o types of compensation, !or5ing for any service or manufacturing ased organi7ation?> 1% Time> ased system, !hich is the compensation ased on time an employee has !or5ed during a pay period% 3% Output> ased +incentive- system, !hich is compensation ased on the amount of output an employee produces during a pay period C)ara&teristi&s and #orm of In&enti(e P-an Operations Manager ma5ing use of an #ncentive Plan must e a le to understand and identify the follo!ing characteristics and form of #ncentive Plan% 1% Accurate 3% $asy to apply 3% 'onsistent @% $asy to understand 2% .air 6% 'ompensation F3 Copyright Virtual University of Pakistan

Ty,es of Indi(id'a- In&enti(e P-ans
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Pa5istani organi7ations have employed various types of individual incentive plans !hich find ;udicious applications in other countries of the !orld% 1% Group #ncentive Plans 3% Ono!ledge>6ased Pay System 3% Management 'ompensation Of the three mentioned a ove, the operations manager should e a le to identify the advantages and disadvantages of each type of incentive plan% S'mmary The importance of !or5 design has een often overloo5ed ecause the !or5 of Operations Manager in the past !as not lin5ed !ith the &uman "esource /epartment of the same organi7ation% Times have changed and no! Operations side !or5 in tandem !ith &uman "esource /epartment% Operations Managers are trained to understand the t!o asic approaches to ;o design% This lecture provided us !ith an opportunity that !e discussed the advantages and disadvantages of speciali7ation and 6ehavioral approaches to Co /esign% Supplementary discussions focused on Method Analysis and Motion Study Techni=ues, !hich focused on efficiency aspect of the ;o % This may ignore the ehavior aspect ut still form an important and integral part of ;o design% And last ut not the least !or5 measurements dealt specifically !ith the length of time needed to complete a ;o and !as lin5ed !ith Personnel Planning, 'ost $stimation, 6udgeting, Scheduling and 9or5er 'ompensation%
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%OCATION P%ANNING AND ANA%5SIS %e&t're O ?e&ti(es 6y studying location planning and analysis, an operations management student should understand the #mportance of *ocation Planning and Analysis 'riteria for Manufacturing and Service *ocation selection considerations Transportation Model Im,ortan&e of %o&ation
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Lesson 22
e a le to
*ocation decisions are not limited to one time strategic planning decisions for uilding a ne! manufacturing or service facility rather most of the organi7ations face the challenge of increasing their capacity through selection of ne! locations or e<tension of e<isting locations% As an operations management student, !e can focus on the importance of location for any organi7ation through various departments of the organi7ation% Accounting !hich prepares cost estimates for changing locations as !ell as operating at ne! locations% /istri ution !hich see5s !arehouse layouts that ma5e material handling easier and customer response shorter% #mportance of *ocation $ngineering !hich considers the impact of product 8service location choices% .inance !hich performs the financial analysis for investments in ne! locations% &uman "esources, !hich hires and trains employees to support ne! locations or relocations of operations% Management #nformation Systems !hich provide information technologies that lin5 operations at different locations% #mportance of *ocation Mar5eting !hich assesses ne! locations and revised locations that are popular !ith the customers% Operations Management !hich see5s and finali7es locations that create, sustains, protect and pro;ect the est performance criteria for the !hole organi7ation% *ocation plays an important role for every usiness !hether ne! or e<isting% 9e can refer to the same airport e<ample !e discussed in our earlier lectures efore% The airport is not only cro!ded ut fails to separate the different services it provides to different categories of individuals present at the airport% The airport may need to e<plain its e<isting facility% #n Pa5istan too, !e have seen ne! airports set up at Oarachi, *ahore and #slama ad !hich cater to greater traffic of the aero planes and more passengers% *ocation decisions play an integral part of the strategic planning process of every organi7ation% #t is important to learn a out the need and nature of location decisions% As a part of his routine responsi ilities a senior Operations Manager often carries out the evaluation of different availa le locations% G-o a-i1ation and Geogra,)i& Dis,ersion of O,erations Glo ali7ation has affected Pa5istan tremendously% A num er of Multi )ational 'orporations are operating and functioning in Pa5istan% #t is important to spend some time in understanding ho! glo ali7ation ma5es it necessary and pertinent for a M)' to disperse and spread its scope and function of Operation% #t !ould e more correct if try to understand the philosophy of M)':s not operating in certain regions or certain particular countries% The !estern !orlds call these the disadvantages of Glo ali7ation, if an organi7ation decides to pac5 up its usiness and leave a host company% Copyright Virtual University of Pakistan
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Disad(antages to G-o a-i1ation The common disadvantages !hich lead to a M)' forgoing glo ali7ation includes% &anding over proprietary Technology to host countries% Political ris5s% Poor $mployee +Managers and !or5er- s5ills% Slo! customer response time% $ffective communication et!een interfaces difficult Managing G-o a- O,erations
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9hen organi7ations ecome glo al they often end up paying a heavy price in terms of managing comple< managerial issues and challenges% &ost country languages &ost 'ountry )orms and 'ustoms% 9or5force management (nfamiliar la!s and regulations% (ne<pected 'ost mi<%
Need for %o&ation De&isions 0uite often M)':s move to a host country !ith a lot of hype and propaganda of ringing ;o s to the local la our ut the reality is its o!n need to increase its revenue and profits% Most of the time the need for location decision focuses on Mar5eting Strategy 'ost of /oing 6usiness Gro!th /epletion of "esources Nat're of %o&ation De&isions *ocation /ecisions are primarily strategic in nature and have certain o ;ectives and options attached Strategic #mportance 1% *ong term commitment8costs 3% #mpact on investments, revenues, and operations 3% Supply chains O ;ectives 1% Profit potential 3% )o single location may e etter than others 3% #dentify several locations from !hich to choose Options 1% $<pand e<isting facilities 3% Add ne! facilities 3% Move Ma*ing %o&ation De&isions 1% 3% 3% @% /ecide on the criteria #dentify the important factors /evelop location alternatives $valuate the alternatives Copyright Virtual University of Pakistan
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2% Ma5e selection *ocation /ecision .actors Regiona- #a&tors *ocation of ra! materials *ocation of mar5ets *a or factors 'limate and ta<es
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Comm'nity Considerations 0uality of life Services Attitudes Ta<es $nvironmental regulations (tilities /eveloper support
Site Re-ated #a&tors
>*and >Transportation >$nvironmental >*egal

M'-ti,-e P-ant Strategies 1% Product plant strategy 3% Mar5et area plant strategy 3% Process plant strategy Mostly mi< of all three #a&tors Affe&ting %o&ation De&isions The process of determining a geographic site for firms operations ta5es into account oth manufacturing and mar5eting aspects% 9e ;ust focus on the manufacturing aspects as its more closely related to Operations Management Man'fa&t'ring .avora le *a or 'limate Pro<imity to mar5ets% 0uality of *ife Pro<imity of Suppliers and "esources% Pro<imity to the Parent 'ompany:s facilities% (tilities, Ta<es and "eal estate costs% Other factors + e<pansion, construction costs, and location near the high!ay or main rail!ays-
Dominant #a&tors in Ser(i&es Copyright Virtual University of Pakistan
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%oo* for &on&e,t &)e&* information ,ro(ided y o'r e8,ert3 /e a-so ,resent t)e fo--o!ing dominant fa&tors in se-e&tion of -o&ations for ser(i&es3 Pro<imity to 'ustomers% Transportation costs and pro<imity to mar5ets% *ocation of competitors% Site specific factors% Trends in %o&ations .oreign producers locating in different host countries even Pa5istan 'urrency fluctuations Cust>in>time manufacturing techni=ues Micro>factories #nformation Technology E(a-'ating %o&ations 'ost>Profit>1olume Analysis /etermine fi<ed and varia le costs Plot total costs /etermine lo!est total costs %o&ation Cost"Vo-'me Ana-ysis Assumptions .i<ed costs are constant 1aria le costs are linear Output can e closely estimated Only one product involved $<ample 1? 'ost>1olume Analysis The =uantity is 14,444 and the .i<ed and varia le costs for four potential locations
$ocation * + C , )i&ed Cost -s %.",""" "",""" .",""" %"",""" Variable Cost -s /" %" /.
E8am,-e $C So-'tion +ixe# Costs
0aria7!e Costs 4s11:10>000; 30:10>000; 20:10>000; 35:10>000;
Tota! Costs 4s360>000 600>000 350>000 550>000
2 ) C %
4s250>000 100>000 150>000 200>000
E8am,-e $C So-'tion Copyright Virtual University of Pakistan
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9e calculate the varia le costs y multiplying the unit cost !ith the given =uantity and calculate total costs for all four locations 9e also graph them to decide effectively, the total costs are graphed and !e see that for 14,444 units clearly location c has an advantage, eyond 14,444 units, diseconomies of scales set in and ma5es *ocation ' loo5 less lucrative% 9e select the *ocation for !hich the total cost is the lo!est% Our *ocation ', sho!s the lo!est total cost for an e=ual =uantity of 14,444 units%
4s:000; 800 700 600 500 600 300 200 100 0 0 % ) C 2
C Su erior 2 Su erior
) Su erior
10
12
16
16
2nnua! $ut ut :000;
E(a-'ating %o&ations Operations Manager can evaluate usiness site locations y ma5ing use of the follo!ing three techni=ues 1% Transportation Model /ecision ased on movement costs of ra! materials or finished goods 3% .actor "ating /ecision ased on =uantitative and =ualitative inputs 3% 'enter of Gravity Method /ecision ased on minimum distri ution costs Trans,ortation Met)od Transportation Method is a =uantitative approach that can help solve multiple facility location pro lems% #t is used to determine the allocation pattern that can e used to minimi7e the cost of shipping products from t!o or more plants or sources of supply to t!o or more !arehouses or destinations% 6ased on *inear Programming% #t does not solve all the pro lems of the multiple facility location% #t only finds the est shipping pattern et!een plants and !arehouses for a particular set of plant locations !ith a given capacity% The Operations manager or logistics analyst must try a variety of location>capacity com inations and use this to find the optimal distri ution for each alternative% /istri ution costs +varia le shipping and possi le varia le production costs- are important inputs in evaluating a particular location allocation com ination% #nvestments costs and other fi<ed costs are also considered% 0ualitative factors +li5e land and construction cost against annual profits- are also included in the analysis for each location capacity com ination% Trans,ortation Met)od
>Step #
Set up the initial matri<8ta leau% The asic steps include 'reate a ro! for each plant +e<isting or ne!- eing considered and a column for each !arehouse% Add a column for plant capacities and a ro! for !arehouse demands and then insert specific numerical values% Trans,ortation Met)od Copyright Virtual University of Pakistan
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>Ste, II
$ach cell not in the re=uirement ro! or capacity column represents a shipping route from a plant to !arehouse% #nsert the unit costs in the upper right hand corner of each of these cells% E8am,-e Pa5istan 'ellular Mo ile 'ompany plans to uild a 2444 unit production plant at #slama ad ecause demand for mo ile phones in Pa5istan has gone up% The ta leau on the ne<t slide sho!s the unit cost of shipping one truc58loader of mo iles from the e<isting plant at *ahore and the possi le location at #slama ad% Trans,ortation Met)od Plant *ahore #slama ad RE9UIREMENTS Matri86Ta -ea' #n transportation method, the sum of the shipments in a ro! must e=ual the corresponding plants capacity% Similarly the sum of the shipments to a column must add to corresponding !arehouses demand re=uirements% Thus shipments to 9arehouse 1 from *ahore and #slama ad must e=ual 3244 mo iles% /ummy Plants or 9arehouses The prime re=uirement of transportation model is that the sum of capacities must e=ual the sum of demands, !hich happens to e 14,444 units of mo ile phones% #) reality the total capacity may e<ceed total re=uirements or vice versa% D'mmy P-ants or /are)o'ses #f capacity e<ceeds re=uirements y say M units, !e add e<tra column + a dummy !arehouse!ith a demand of M units and ma5e the shipping costs in the ne! created cell e=ual to "s% 4% Since no shipments are made to the dummy !arehouse so it represents an unused plant capacity% /ummy Plants or 9arehouses #f re=uirements e<ceed capacity y say M units, !e add e<tra ro! + a dummy plant- !ith a supply of M units and ma5e the shipping costs + stoc5 out costs- in the ne! created cell e=ual to "s% 4% Since no shipments are made to the dummy !arehouse or plants so this step is automatically ta5en care of in soft!are used for such issues% Optimal Solution 9e try to find the least allocation cost process% And !e 5eep on repeating !ith various options till a ne! solution !ith least costs are o tained and !e call it the optimal solution% /AREHOUSE 1 3 244%4 D44%4 3244 644%4 @244 @244 3 2244 6444 3444 'apacity 2444 2444 14444 14444
Trans,ortation Met)od Copyright Virtual University of Pakistan
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Plant *ahore #slama ad D'mmy RE9UIREMENTS 1 1%4 0.<< D%4 4 3244 /AREHOUSE 3 3 /ummy 6%4 1%4 4 0.<< 3%44 6%44 4 >.<< .<< 4 4 4 @244 3444 4 'apacity 2444 2444
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14444 14444
The total transportation cost !ould e Sum of all (nits time M the (nit 'ost J 3244+1%4-K@244+3%4-K3244+1%4-K244+6%4J3244KF444K3244K3444J"s 1D,444% The operations manager needs to e ;udicious in his approach and may decide to e<pand the plant at *ahore and uild a small plant in #slama ad% S'mmary The lecture focused primarily on the importance of location% 1arious aspects relating to *ocation Planning and Analysis !ere focused% M)':s reasons for not selecting various countries under the gar of disadvantages in Glo al Operations !ere also e<amined% Site locations for oth manufacturing and services !ere considered% *ast ut not the least a detailed study of the Transportation Model !as also carried out% Students should also 5no! ho! to ma5e use of cost volume analysis and transportation model to carry out practical investigation of real life time Operations Management pro lems%
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MANAGEMENT O# 9UA%IT5
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Lesson 23
After completing the lecture on Management of 0uality, the POMA students should e a le to understand the term =uality and the importance of 0uality% The student should e a le to learn the /eterminants of 0uality, !hen they discuss Total 0uality management also they should e a le to identify the various costs associated !ith 0uality% The students should also e a le to appreciate the famous #SO F444 and #SO 1@444 =uality systems, !hich are also actively seen in Pa5istan% And last ut not the least out of curiosity than academic interest the students should e a!are of philosophies of 0uality Gurus% Introd'&tion 0uality Management can e understood only if !e are a le to understand the term 1uality, which is defined as 9'a-ity is t)e a i-ity of a ,rod'&t or ser(i&e to &onsistent-y meet or e8&eed &'stomer e8,e&tations3 0uality as determinant of "evenue has een often neglected, people tend to associate =uality !ith high price of the product or item they !ant to purchase, historically spea5ing this is an incorrect statement% The de ate et!een American and Capanese philosophy proves that =uality is offered free of cost and is the prime source of revenue or profit% 9hen the American industry in D4s and E4s tal5ed a out cost cutting and productivity improvement they did not paid heed to 0uality Management, !hich !as the A&oly GrailB for the Capanese #ndustry% 9hen Capanese manufacturers entered and occupied the American Mar5ets the only thing that made their products and services etter than the Americans !as the concept of 0uality, !hich led to increase in the revenues and productivity of Capanese manufacturers% E(o-'tion of 9'a-ity Management 1% Prior to #ndustrial "evolution, the s5illed craftsman performed all stages of production% Pride in !or5manship and reputation often formed the asis of producing a =uality !ell% One or small group of !or5ers !as responsi le for the entire product% After industrial revolution and speciali7ation and division of la our each !or5er !as then responsi le for small portion of !or5% This led to loss in pride of !or5manship and failure to produce =uality products% 3% 3% @% 2% 6% D% .rederic5 9inslo! Taylor the father of scientific management rought ac5 the concept of =uality y incorporating product inspection as !ell as focusing on the importance of manufacturing management% G%S% "adford introduced the concept of =uality in the product design stage and lin5ed high =uality !ith increased productivity and lo!er costs% 1F3@ 9% She!hart of 6ell Technologies introduced the Statistical process control charts% 1F34 &%.%/odge and &%G%"omig also of 6ell Technologies introduced Ta les for acceptance sampling% 1F@4:s > (niversities, 6ell Technologies and (S Army !ere using Statistical sampling techni=ues for training engineers% American Society for 0uality 'ontrol a5a AS0' + no! AS0- !as formed during the same era 1F24:s > 0uality assurance8T0' +The era of /eming, Curan and .eigen aum- !hich changed the concepts of =uality for ever% Copyright Virtual University of Pakistan
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E% 1F64:s > Qero defects championed y 0uality Guru Phillip 'ros y% #t produced the perfect missile for (S army F% 1FD4:s > 0uality assurance in services li5e health care, an5ing and travel industry% 14% *ate 1FD4s the =uality assurance concept changed to Strategic =uality approach, &arvard Professor /avid Garvin advocated preventing mista5es from occurring all together% 0uality Assurance vs% Strategic Approach Strategic Approach is the S(P$"*AT#1$ form of 0uality Assurance 0uality Assurance places emphasis on finding and correcting defects efore reaching mar5et Strategic Approach is Proactive, focusing on preventing mista5es from occurring and places greater emphasis on customer satisfaction 9'a-ity G'r' )he !uality 7urus are given more respect and recogni8ed as 9ey 6ontributors to !uality +anagement. Presented below is their contributions in a nut shell, students should learn to recogni8e these 1% 9alter She!hart is also 5no!n as A.ather of statistical =uality controlB 3% 9% $d!ards /eming presented 1@ points for =uality management !hich focused primarily on common cause of variation% 3% Coseph M% Curan is famous for his concept of A0uality is the fitness for useB% @% Armand .eigen aum said, A0uality is a total field or total functionB% 2% Philip 6% 'ros y is famous for his philosophy that A0uality is freeB% 6% Oaoru #shi5a!a> presented the Afish one diagramB or Acause effect diagramB% D% Genichi Taguchi ro ust design for designing products insensitive to change in environment% Taguchi:s contri ution !as, ATaguchi loss functionB% Dimensions of 9'a-ity The concepts of dimensions of =uality represent the fact that customers value a product 5eeping in mind different dimensions% 0uality and Operations Managers come across customer perceptions relating to demand for dura le, relia le, performance to a standard and that too in a!ay that is aesthetically correct%
1% 3% 3% @% 2% 6% D%
Performance > main characteristics of the product8service (esthetics > appearance, feel, smell, taste pecial 2eatures > e<tra characteristics 6onformance > ho! !ell product8service conforms to customer:s e<pectations *eliability > consistency of performance :urability > useful life of the product8service Perceived !uality . indirect evaluation of =uality +e%g% reputation;. erviceability . service after sale
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$<amples of 0uality /imensions
%imension
1. #er'"r%ance
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:Pro#uct; 2utomo7i!e
2&eryt!in* 1"r:s8 'it H 'inis! 0ide8 !andlin*8 *rade "' %aterials (sed Interi"r desi*n8 s"'t t"(c!
:Ser,ice; 2uto 4e air

.ll 1"r: d"ne8 at a*reed price Friendliness8 c"(rtesy8 C"%petency8 E(ic:ness Clean 1"r:@1aitin* area
2. .est!etics
3. Special 'eat(res 5a(*e@c"ntr"l place%ent <"cati"n8 call 1!en ready Cell(lar p!"ne8 C? C"%p(ter dia*n"stics player
$<amples of 0uality /imensions +'ont:d-
?i%ensi"n ,#r"d(ct.(t"%")ile
5. 0elia)ility 6. ?(ra)ility 7. #ercei&ed E(ality 8. Ser&icea)ility In'reE(ency "' )rea:d"1ns Use'(l li'e in %iles8 resistance t" r(st H c"rr"si"n +"p$rated car
,Ser&ice.(t" 0epair
C"r: d"ne c"rrectly8 ready 1!en pr"%ised C"r: !"lds (p "&er ti%e .1ard$1innin* ser&ice depart%ent
7andlin* "' c"%plaints and@"r 7andlin* "' c"%plaints reE(ests '"r in'"r%ati"n
Ser(i&e 9'a-ity Tangi les 'onvenience "elia ility "esponsiveness Time Assurance 'ourtesy
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$<amples of Service 0uality
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Dimension 1% Tangi les 3% 'onvenience 3% "elia ility @% "esponsiveness 2% Time 6% Assurance D% 'ourtesy
E8am,-es 9ere the facilities clean, personnel neatG 9as the service center conveniently locatedG 9as the pro lem fi<edG 9as customer service personnel !illing and a le to ans!er =uestionsG &o! long did the customer !aitG /id the customer service personnel seem 5no!ledgea le a out the repairG 9ere customer service personnel and the cashier friendly and courteousG
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SERVICE 9UA%IT5 %earning O ?e&ti(es
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Lesson 24
After completing this lecture the students should e a le to descri e the five dimensions of service =uality in detail% This !ould ena le them to use the service =uality gap model to diagnose =uality pro lems also understand the =uality service y design concepts% This lecture !ould provide the students !ith an opportunity to learn and illustrate ho! Taguchi methods and po5a>yo5e methods are applied to =uality design% The students should e a le to at least gain a!areness ho! organi7ations perform service =uality function deployment in order to improve their operations side% The students should also e a le to construct a statistical process control chart% Moments of Tr't) $ach customer contact + et!een the service provider and customer- is called a moment of truth% An organi7ation has the a ility to either satisfy or dissatisfy them !hen you contact them% A service recovery is satisfying a previously dissatisfied customer and ma5ing them a loyal customer% Dimensions of Ser(i&e 9'a-ity /imensions for Service 0uality are more or less the same !hich !e associate !ith the concept of 0uality in General% Also, !e as service demanders +customers- are !ell a!are of the fact that !e al!ays see5 relia ility, agility +prompt responsiveness-, assurance, tangi ility and empathy !hile eing provided !ith a service% More or less these dimensions help the customer to rate and distinguish one service provider from anotherP a good service from a ad service% Often organi7ations use a performance measure matri< using the same service dimensions and they often call it "AT$ ased on the 2 dimensions descri ed elo!%
1% 3% 3% @% 2%
*eliability? Perform promised service dependa ly and accurately% *esponsiveness? 9illingness to help customers promptly% (ssurance? A ility to convey trust and confidence% )angibles? Physical facilities and facilitating goods% <mpathy? A ility to e approacha le%
3ormally in such situations, * represents *eliability and *esponsiveness, ( represent (ssurance, ) represents )angibles and < represents <mpathy respectively. Per&ei(ed Ser(i&e 9'a-ity #t is often seen that a customers re=uired service is not provided y the service provider primarily ecause of a gap et!een Service 0uality /imensions and Service 0uality Assessment y the customer%
C"rd "' %"(t! #ers"nal needs #ast e3perience
Ser,ice @ua!ity %imensions 0elia)ility 0esp"nsi&eness .ss(rance 2%pat!y +an*i)les
23pected ser&ice
#ercei&ed ser&ice
Ser,ice @ua!ity 2ssessment 1. 23pectati"ns e3ceeded 2SI#S ,6(ality s(rprise2. 23pectati"ns %et 2SJ#S ,Satis'act"ry E(ality3. 23pectati"ns n"t %et 2SK#S ,Unaccepta)le E(ality-
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Ser(i&e 9'a-ity Ga, Mode9e can pictorially capture the gaps that e<ist et!een service provided and the service demanded
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'ustomer Perceptions
Managing the $vidence
'ommunication GAP @
'ustomer Satisfaction GAP 2
'ustomer $<pectations
(nderstanding the 'ustomer
'ustomer 8 Mar5eting "esearch GAP 1
Service /elivery
'onformance GAP 3
Management Perceptions of 'ustomer $<pectations

/esign GAP 3
'onformance
Service Standards
Service /esign
Ser(i&e Ga, Ana-ysis A good e<ample !here gap analysis is used for improvements in usiness is in the services field The most popular assessment tool used in service =uality is called S$"10(A*, !hich involves a set of the 2 most important dimensions of =uality according to ran5ings of customers Also involves a set of 2 gaps !hich represent the difference et!een customers: e<pectations and perceptions or in other !ords the difference et!een e<pected level of service vs% Actual level of service provided S$"10(A* +Stands for S$"1#'$0(A*#TR-% Ser(7'a- Mode- Ga,s *et:s try to capture all 2 gapsP one y one this !ould help us to understand in detail the 2 dimensions of service =uality% Ga, $ )he difference between actual customer e%pectations and management=s idea or perception of customer e%pectations. Managers and employees have a very internal process>oriented vie! of their usiness, it is tough to rea5 this vie! and to see things the !ay the customer does This gap of the S$"10(A* Model can help management !ith customer service Ga, 0 +ismatch between manager=s e%pectations of service 1uality and service 1uality specifications To implement a system to improve this gap, management must first understand e<actly !hat the customer !ants Copyright Virtual University of Pakistan
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#f this understanding is not present, it !ill e impossi le for management to 5no! !hether their e<pectations are aligned !ith customer specifications% Ga, = Poor delivery of service 1uality Once the specifications from gap 3 are aligned the ne<t step is to deliver these services in a perfect manner 0uality of delivery must e perfected during the interaction !ith the customer The employees that are responsi le for these actions are referred to as contact personnel Some reasons for a lac5 of =uality include poor training, communication, and preparation% Ga, > :ifferences between service delivery and e%ternal communication with customer 'ustomers are influenced y !hat they hear and see a out a company:s service 9ord>of>mouth pu licity and advertising are main outlets !hich customers open their opinions to The difference et!een !hat a customer hears a out a company:s service and !hat is actually delivered is represented y gap @ This gap can lead to dangerously negative customer perceptions Ga, . C Differen&es et!een E8,e&ted and Per&ei(ed 9'a-ity This gap is directly related to everyone:s perception of service =uality 'ustomers e<pect certain things from certain companies 9hen someone goes into a Mc/onalds to order their favorite meal a 6ig Mac, they are e<pecting e<actly !hat they are accustomed to getting +a =uic5, no hassle, tasty ig urger !ith all the !or5s-% #f it ta5es 12 minutes to get a 6ig Mac that doesn:t even have the famous special sauce on it the customer:s perceived service of Mc/onalds is going to plummet% #f gaps 1 through @ are closed to a minimum then gap 2 should follo!, if there are any gaps left in steps 1 through @ the perceived customer service =uality !ill e negatively affected The !ay to ma5e sure these gaps are closed is through thorough systems design, precise communication !ith customers, and a !ell>trained !or5force% 9'a-ity Ser(i&e y Design 9e had discussed earlier, that design of a product or service half ensures a good productive system and !e did mention a out 0uality indirectly% 9e no! ta5e a direct approach and identify the !ays in !hich !e can incorporate and identify 0uality in the /esign of Services% 1% 0uality in the Service Pac5age ?0uality ased service should e offered at same price, clu class passengers in an airline though eing provided additional lu<ury are not a le to ring enough revenue% An airline that does not add =uality !ould loose out to its competitors% 3% Taguchi Methods +"o ustness-? "elate to the =uality ased methods eing a le to deliver under all possi le environments% #f a company is una le to offer an after sales service to a customer at any particular place in the same country, it !ould simply lose out to its competitors% 3% Po5a>Ro5e? Po5a Ro5e +pronounced PO&>5ah RO&>5ay- is the Capanese !ord for mista5e proof% #n services, a simple mista5e can have dire conse=uences, thin5 of a hair dresser or stylist giving you a !rong haircut% &is mista5e cannot e rectified ecause service again is an entity !hich is ased on transaction et!een the service provider and service receiver% These devices8strategies8mechanisms8methods are used either to prevent the special causes that result in Copyright Virtual University of Pakistan
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defects, or to ine<pensively inspect each item that is produced to determine !hether it is accepta le or defective% @% 0uality .unction /eployment? is also 5no!n as 0./ or &ouse of 0uality% #t is an important tool of 0uality Management and allo!s a company not only to enchmar5 itself !ith industry leader ut also to revie! its internal operations critically% The thing to remem er here is that 0uality in design ensures the safe as !ell as relia le operations of the service% 'onsider for e<ample the simple case of an oil change or a hair cut% #f the service provider is una le to include 0uality in service, or fails to provide a consistent service under all conditions or fails to do ;ustice to idea of mista5e proof service or is una le to deploy 0uality .unction in his service, he or she !ould lose customers and competitive advantage along !ith loss in revenues and increase in costs% C-assifi&ation of Ser(i&e #ai-'res !it) Po*a"5o*e O,,ort'nities Server $rrors Tas5? /oing !or5 incorrectly Treatment? .ailure to listen to customer Tangi le? .ailure to !ear clean uniform Ho'se of 9'a-ity 0./ can strongly help an organi7ation focus on the critical characteristics of a ne! or e<isting product or service from the separate vie!points of the customer mar5et segments, company, or technology> development needs%
0el ati"ns!i ps
'ustomer $rrors Preparation? .ailure to ring necessary materials $ncounter? .ailure to follo! system flo! "esolution? .ailure to signal service failure
D
9 Capacity
Str"n* /edi(% Cea:
+raini n*
Ser& ic e 2le%ents I% p "r ta nc e C(st"% er 23pectati"ns 0elia)ility 0esp"nsi &eness .ss(rance 2%pat!y +an*i )les 9 7 6 4 2
.ttit(de
2E(ip%ent
In'"r%atii"n
C"% paris"n 1it! L"l &" ?ealer
Cei*!ted sc"re I%pr"&e% ent di ''ic(lty ran:
Achieving Service 0uality? Service 0uality can e achieved y ma5ing use of the follo!ing strategies 'ost of 0uality Service Process 'ontrol Statistical Process 'ontrol (nconditional Service Guarantee 9e !ill discuss all four in detail during our discussions in lectures that follo! this lecture for the time eing !e can reiterate the fact that =uality is offered free of cost% Also, as prevention is etter than cure, it ma5es a lot more sense to incur cost in prevention of defects instead of allo!ing the defects to occur and then rectifying them% Statistical Process 'ontrol is one important tool to ensure that Service 0uality is achieved efore a defect is introduced in the service eing offered or product eing manufactured% 14E Copyright Virtual University of Pakistan
e 0el ati &
C(st"% er #erc epti"ns " Lilla*e L"l &"
=
1 2
L"l & " ?ealer 3 4 5 "
8 3 5 2 " " " 127 4 82 5 63 1 9 7 9
5 3 6
5 2
=
"
=
" " "
= =
3
= M
" "
102 3
65 2

Costs of Ser(i&e 9'a-ity FBan* E8am,-eG
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This e<ample sho!s ho! a !ea5 design service can incur loss in customer service, !hich leads to loss in revenues% 9ith this e<ample !e also try to focus our attention on the concept of cost in =uality dimension% 9e try to capture the importance of prevention costs and ho! they are more eneficial to the organi7ation as compared to detection and failure costs% As a rule of thum it is said that prevention costs are half the detection costs and a out 13 to 16T of failure costs, ut these percentages often fail to represent, the cost e<penditures in all types of services% Failure costs External failure: $oss of future business 1egative word2of2#outh $iability insurance $egal 5udg#ents Interest penalties Detection costs Process control Peer review 4upervision Custo#er co##ent card Inspection Prevention costs 0uality planning 3raining progra# 0uality audits ,ata ac6uisition and analysis -ecruit#ent and selection 4upplier evaluation
Internal failure: 4crapped for#s -ework Recovery: 7&pedite disruption $abor and #aterials
Contro- C)art of De,art're De-ays 9e tal5ed a out the concept of Service =uality and one of its dimensions !as Tangi ility% 9e can apply this dimension to the service provided y airlines operating in Pa5istan% #f !e happen to visit any airport in the northern part of Pa5istan during !inters especially during the months of /ecem er and Canuary, !e face a situation !here often there is a delay in the flight arrival and departure% 9e can ma5e good use of statistics to improve our service =uality% #n the graph elo! !e have een a le to identify a *o!er
23pected <"1er C"ntr"l <i%it
Percentage o' '!ig/ts on time
100 90 80 70 60
U6# = p + 3
1998
p +1 p n
1 999
#6# = p 3 p +1 p n
'ontrol *imit and an (pper 'ontrol *imit% Copyright Virtual University of Pakistan
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114

TOTA% 9UA%IT5 MANAGEMENT
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Lesson 25
Total 0uality Management is a philosophy that involves each and every individual in an organi7ation in a continual effort to improve =uality and achieve customer satisfaction% T)e T9M A,,roa&) T0M is not called philosophy for nothing% #t is that common vie!point as !ell as attitude shared y the !hole organi7ation that helps the organi7ation achieves its prime o ;ective of increase in revenue as !ell as a continuous relationship !ith the customer, y providing a =uality ased service !hich fulfills the customer:s needs and re=uirements% #f !e apply the T0M approach !e can identify the role played y various departments and interfaces of the organi7ation% These roles at the functional and departmental levels if not in line !ith the organi7ational strategy !ould not allo! the organi7ation to pursue T0M% Sr3 N 1 3 3 @ 2 T9M A,,roa&) .ind out !hat the customer !ants /esign a product or service that meets or e<ceeds customer !ants /esign processes that facilitates doing the ;o right the first time Monitor and Audit +Oeeping trac5 of- results $<tend these concepts to suppliers De,artment Mar5eting /esign /ept Operations /ept Senior8GM Managers S'M 8 *ogistics89arehouse 8Materials
T9M CRITICISMS T0M Philosophy is often critici7ed for reasons !hich sho! !ea5 implementation or poor management perspective% The common criticism against T0M is?
1% T0M program not lin5ed to overall Organi7ational Strategy? This is the !ea5ness of top
3% 3% @% 2% management not a !ea5ness in the T0M philosophy% 0uality ased decisions not attached to revenue or mar5eting strategies? 0uality concept should e included in the functional side and not treated as separate and distinct from the functional departments% #ncomplete planning !ith no clear cut road map for T0M implementation? A !ea5 implantation strategy that does not identify the milestones, goals and step y step o ;ectives% "igid and impractical T0M goals? An a sence of managerial s5ill, T0M goals should e achieva le and tangi le% )on training of employees a out T0M philosophy% $mployees if not trained !ont e a le to ma5e est use of T0M philosophy%
$lements of T0M T0M is a philosophy so its elements consist of the various strategies, tactics !hich includes the follo!ing? 'ontinual improvement 'ompetitive enchmar5ing $mployee empo!erment Team approach /ecisions ased on facts Ono!ledge of tools Supplier =uality 'hampion 0uality at the source Suppliers Copyright Virtual University of Pakistan
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Of the elements descri ed a ove, !e should also focus our attention on the idea of continuous improvement as !ell as 0uality at the Source% 'ontinuous #mprovement? Philosophy that see5s to ma5e never>ending improvements to the process of converting inputs into outputs% The Capanese manufacturer as !ell as service providers have longed used this concept% Oai7en is the Capanese !ord for continuous improvement% 0uality at the Source? The philosophy of ma5ing each !or5er responsi le for the =uality of his or her !or5% Determinants of 9'a-ity The various /eterminants associated !ith the =uality concept in general and T0M philosophy in particular is? 1% 0uality of design? #ntension of designers to include or e<clude features in a product or service 3% 0uality of conformance? The degree to !hich goods or services conform to the intent of the designers 3% 0uality of $ase of (se? $ase of use and instructions to use increase the chances ut do not guarantee that a product !ill e used for intended purpose and function properly and safely% @% 0uality of Service after /elivery? The degree to !hich goods or services can e recalled and repaired, ad;ustment, replacement or uy ac5 or reevaluation of service all come under this category% T)e Conse7'en&es of Poor 9'a-ity The common conse=uences of Poor 0uality are? 1% *oss of usiness? *oss in sales, revenues and customer ase% 3% *ia ility? A poor =uality product or service comes !ith the danger of the organi7ation eing ta5en to court y an unhappy or affected customer% 3% Productivity? *oss in productivity as more time is spend in rectifying the errors or short coming then producing more% @% 'osts? #ncrease in costs as a poor =uality product is repaired or replaced or made ne!% Res,onsi i-ity for 9'a-ity 0uality 'ontrol /epartment cannot e held responsi le for 0uality alone% 0uality is the responsi ility of each and every individual !or5ing for the organi7ation% #f !e loo5 into any organi7ation e it a manufacturing or service provider !e can see the follo!ing departments !or5ing diligently for achievement of 0uality% 1% Top management 3% /esign /epartment 3% Procurement /epartment @% Production8operations /epartment 2% 0uality assurance /epartment 6% Pac5aging and shipping /epartment D% Mar5eting and sales /epartment E% 'ustomer service /epartment Costs of Tota- 9'a-ity Management There is a difference in opinion amongst e<perts !hen they analy7e costs !ith respect to T0M% .e! e<perts feel that failure costs should e ta5en up as internal and e<ternal separately and others feel they should e ta5en as one single entity of failure cost% 1% .ailure 'osts > costs incurred y defective parts8products or faulty services% $<perts are of the opinion that on average an organi7ation loses 34 to 34T of its revenue ecause of poor =uality or costs associated !ith the failure of the product or service% .ailure costs are of t!o types internal and e<ternal? Copyright Virtual University of Pakistan
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a% #nternal .ailure 'osts are the 'osts incurred to fi< pro lems that are detected efore the product8service is delivered to the customer% % $<ternal .ailure 'osts are all costs incurred to fi< pro lems that are detected after the product8service is delivered to the customer% Of the t!o, #nternal .ailure 'osts are less painful and can help an organi7ation to register increase in revenue and not compromising its product or service in the eye of its customers as !ell as its competitors% 3% Appraisal 'osts are the 'osts of activities designed to ensure =uality or uncover defects 3% Prevention 'osts include all T0M training, T0M planning, customer assessment, process control, and =uality improvement costs to prevent defects from occurring% 9'a-ity and Et)i&s 0uality is closely associated !ith $thics% A good service !ould al!ays e a le to fulfill customer needs if it is a le to follo! $thics in its true spirit% A service or product that has een poorly designed carries lia ility% On the other hand if the organi7ation has follo!ed ethics to manufacture a product or service, it !ould e a le to provide a =uality product or service to its customer% T0M is an important concept and is follo!ed y various departments of the organi7ation% Accounting department measures the costs associated !ith a poor =uality ased service or product, .inance department measures the cash flo!s associated !ith various departments, &uman "esources employees !or5force !hich is a le to turn out =uality ased !or5, Management #nformation Systems design T0M ased systems to ensure increased productivity, similarly mar5eting department uses T0M techni=ues to increase its mar5et share and customer ase% And last ut not the least Operations department !hich designs and implements T0M strategies%
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Lesson 26
#n this lecture !e !ill loo5 into detail T0M% 9e !ill initially focus on Si< Sigma concept% 9e !ill try to understand si< sigma concepts in terms of managerial and technical perspective% 9e !ill also try to understand the /eming 9heel of 0uality and seven common tools of =uality% And last ut not the least !e !ill also try to understand the concepts of statistical process control and enchmar5ing !ith respect to =uality% ISO Certifi&ations 0uality 'ertification ensures that the organi7ation has een a le to achieve T0M philosophy% The t!o popular certifications !hich are pursued y the organi7ations include #SO 1@444 and #SO F444% 1% #SO 1@444? #s a set of international standards for assessing a company:s environmental performance% 3% #SO F444? #s a set of international standards on =uality management and =uality assurance, critical to international usiness% Si8 SIGMA Statistically spea5ing a process is said to e in Si< Sigma stage if it does not have more than 3 or @ defects per million% Most of the organi7ations, measure their =uality program in terms of Si< Sigma% 'onceptually the Si< Sigma Program is designed to reduce defects and re=uires the use of certain tools and techni=ues% Si< Sigma Programs are al!ays directed to!ards =uality improvement, cost cutting and time saving% Si< Sigma Programs are employed in? /esign Production Service Operation management #nventory management /elivery Si< Sigma Management concepts find greater appreciation and application in recent times% The Si< Sigma Management characteristics include? 1% Providing strong leadership% 3% /efining performance merits% 3% Selecting pro;ects li5ely to succeed% @% Selecting and training appropriate people% Si< Sigma Technical aspects form a part and parcel of managerial strategy and aids in cost cutting and defect minimi7ation% The Technical aspects of Si< Sigma include 1% 3% 3% @% #mproving process performance "educing variation (tili7ing statistical models /esigning a structured improvement strategy
Si8 Sigma Team Si< Sigma Teams are formed for implement of Si< Sigma in true spirit 5eeping in mind oth managerial as !ell as technical aspects% Copyright Virtual University of Pakistan
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1% 3% 3% @% 2% Top management Program champions Master A lac5 eltsB A6lac5 eltsB AGreen eltsB
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Si8 Sigma Pro&ess Si< Sigma Process has various stages often organi7ations com ine one or t!o stages for monitoring and control purposes% 0uality $<perts normally identify the follo!ing 2 stages% 1% /efine 3% Measure 3% Analy7e @% #mprove 2% 'ontrol O stacles to #mplementing Si< Sigma + T0M- includes the lac5 of? 1% 'ompany>!ide definition of =uality% 3% Strategic plan for change% 3% 'ustomer focus% @% "eal employee empo!erment% 2% Strong motivation% 6% Time to devote to =uality initiatives% D% *eadership% E% Poor inter>organi7ational communication% F% 1ie! of =uality as a A=uic5 fi<B% 14% $mphasis on short>term financial results% 11% #nternal political and AturfB !ars% 'riticisms of T0M 6lind pursuit of T0M programs% Programs may not e lin5ed to strategies% 0uality>related decisions may not e tied to mar5et performance% .ailure to carefully plan a program% Basi& Ste,s in Pro -em So-(ing The pro lem solving method is more or less the same !hat !e covered in the initial part of our semester, !e al!ays try to follo! the same procedure or method !hich is to analy7e the pro lem and then generate pragmatic solutions and implement the est solution% 1% /efine the pro lem and esta lish an improvement goal% 3% 'ollect data 3% Analy7e the pro lem @% Generate potential solutions 2% 'hoose a solution 6% #mplement the solution D% Monitor the solution to see if it accomplishes the goal% Pro&ess Im,ro(ement A systematic approach to improving a process !ould al!ays result in process improvement% .ollo!ing are the common approaches for improving the process% 1% Process mapping 3% Analy7e the process 112 Copyright Virtual University of Pakistan etter

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3% "edesign the process Process mapping consists mainly of collecting information a out the process, identifying the process for each step and determining the inputs and outputs% Analy7e the process? As5 =uestions a out the process including process flo! eing logical, any activities or steps eing missing or identification of duplication activities% 0uestions a out each step !hich includes is a particular step necessary, does the step adds value, does it generates !aste, could the time to perform the step e reduced, could t!o or more steps e com ined% "edesign the process? ta5es a fresh approach to solve an issue on hand%
T)e PDSA Cy&-e Fs)e!)art Cy&-e6Deming /)ee-G The concept of the P/'A 'ycle !as first introduced y 9alter She!hart, the leading statistician, !ho also developed statistical process control in the 6ell *a oratories in the (S during the 1F34Ns% #t is often referred to as Xthe She!hart 'ycleN% #t !as ta5en up and promoted very effectively from the 1F24s on y the famous 0uality Management authority, 9% $d!ards /eming, and is conse=uently 5no!n y many as Xthe /eming 9heelN% #t is a continuous process and ena les the operations manager to chec5 the !or5 at various stages% The P/'A 'ycle is a chec5list of the four stages !hich you must go through to get from Xpro lem> facedN to Xpro lem solvedN% The four stages of P/'A8She!hart 'ycle or /eming 9heel are? $3 P%AN Study I /ocument the e<isting process% 'ollect data to identify pro lems% Survey data and develop a plan for improvement% Specify measures for evaluating the plan% 03 DO #mplement the plan on a small scale% /ocument any changes made during this phase% 'ollect data systematically for evaluation% =3 CHEC+ $valuate the data collection during this phase% 'hec5 ho! closely the results match the original goals of the plan phase% @% ACT #f the results are successful, standardi7e the ne! method and communicate the ne! method to all people associate !ith the process% #mplement training for the ne! method% #f results are unsuccessful, revise the plan and repeat the process or cease this pro;ect% Se(en Basi& Too-s 1% 3% 3% @% 2% 6% D% 'hec5 Sheet .lo! 'hart &istogram Pareto 'hart Scatter /iagram 'ause I $ffect /iagram Statistical Process 'ontrol Copyright Virtual University of Pakistan
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9'a-ity Cir&-es Team approach *ist reduction 6alance sheet Paired comparisons Ben&)mar*ing Pro&ess #dentify a critical process that needs improving% #dentify an organi7ation that e<cels in this process% 'ontact that organi7ation% Analy7e the data% #mprove the critical process%
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11D

9UA%IT5 CONTRO% M 9UA%IT5 ASSURANCE
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Lesson 27
0uality 'ontrol or 0' as it is popularly referred as Ais concerned !ith =uality of conformance of a processB% The prime purpose of 0' is to assure that the processes are performing in an accepta le manner% Organi7ations accomplish 0' y monitoring process outputs using statistical techni=ues% The practical and pragmatic 0' ased Operations Strategy for a service or manufacturing organi7ation !ould focus on the principle of =uality in design% %earning O ?e&ti(es 1% 3% 3% @% 2% 6% #ntroduction to 0uality 'ontrol and Assurance Phases of 0uality 'ontrol $lements of 'ontrol Process &o! control charts are used to monitor a process and the concepts that underlie their use% (se and interpret control charts% (se of run tests to chec5 for non randomness in process output%
P)ases of 9'a-ity Ass'ran&e
#!ases "' 6(ality .ss(rance

&ns ection )e'ore < 2'ter Pro#uction 2cce tance Sam !ing &ns ection A Correcti,e 2ction #uring Pro#uction Process Contro! @ua!ity 7ui!t into t/e Process
Continuous &m ro,ement
T/e !east rogressi,e
T/e most rogressi,e
Ins,e&tion #nspection is an important strategy, in its simplest form, is any method or device or tactics used to minimi7e defects in products or services eing offered to the customers% As Operations Manager !e should e a le to identify the follo!ing four =uestions !hile considering #nspection process% 1% 3% 3% @% &o! Much8&o! Often 9here89hen 'entrali7ed vs% On>site 9hether to inspect 1aria les or Attri utes%
An important thing to remem er is that )o inspection is necessary for lo! value, high volume products li5e common items li5e common pins, erasers or pencils !hile automated inspection is necessary for high value items% Automated inspection may e necessary for even high value, lo! volume items as !ell% The !ord volume here refers to =uantity%
&n ut s
2cce tance Sam !ing
Trans'ormation
$ut uts
2cce tance Sam !ing
Process Contro!
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Ins,e&tion Costs for Ho! M'&)6Ho! Often
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The graph elo! sho!s the relationship et!een amount of inspection re=uired and costs incurred in carrying out such inspection% 1% 9ith increase in #nspection activities the cost of undetected defectives decreases% 3% 9ith increase in inspection activities the cost of inspection increases% 9e need to o serve for Total cost function curve !hich sho!s high costs at no inspection and gradually comes do!n and reaches a minimum value at the optimal amount of inspection and then start increases%
C 9 S +
$ tima! 2mount o' &ns ection

Ins,e&tion Costs for Ho! M'&)6Ho! Often 1% 9here to #nspect in the Process 3% "a! materials and purchased parts + /O not purchase poor =uality products3% .inished products + Poor products returned y customers can also lead to additional shipping costs@% 6efore a costly operation + /o not !aste "esources of Man, Material and Machine2% 6efore an irreversi le process + Pottery, 'eramics, Tiles, P' chips, glass filaments6% 6efore a covering process + 6efore painting, plating and assem ly Copyright Virtual University of Pakistan
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E8am,-es of Ins,e&tion Points in Ser(i&e Ind'stry 9e cannot have same inspection points for the service industry, infact !e need to pay attention ype of to the type of industry or usiness in !hich a service organi7ation competes% Please refer to the !usiness ta le on the ne<t page and note the difference in characteristics and location of inspection points%
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Inspection points Cashier Counter area 7ating area +uilding 8itchen Parking lot *ccounting +uilding ;ain desk Cashiers ,eliveries
"#aracteristics *ccuracy *ppearance, productivity Cleanliness *ppearance 9ealth regulations 4afe, well lighted *ccuracy, ti#eliness *ppearance, safety <aiting ti#es *ccuracy, courtesy 0uality, 6uantity
9otel:#otel
4uper#arket
Centra-i1ed (s Onsite Ins,e&tion 1% #nspection of Ships, )uclear Plants, Petroleum "efinery, 'hemical Plant e=uipments for crac5s, rittle fracture etc oth e<ternal and internal inspection% 3% *a tests include lood tests, material testing 9'a-ity Contro- in Terms of Statisti&a- Pro&ess Contro-C 9e no! focus on the idea of 0uality 'ontrol in terms of Statistical Process 'ontrol, for this !e need to define tatistical Process 6ontrol? Statistical evaluation of the output of a process during production !uality of 6onformance, A product or service conforms to specifications 9hich 'haracteristics can e controlled? Only those characteristics !hich can e counted or measured% Main Tas5 of 0'? is to distinguish random from non random varia ility, ecause non random varia ility indicates that the process is out of control Contro- C)art 'ontrol 'hart? A time ordered plot representative sample statistics o tained from an on going process +e%g% sample means Purpose, to monitor process output to see if it is random (pper and lo!er control limits define the range of accepta le variation Contro- C)art M Statisti&a- Pro&ess Contro-
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27norma! ,ariation #ue to assigna7!e sources $ut o' contro !
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?C M ean
"orma! ,ariation #ue to c/ance 27norma! ,ariation #ue to assigna7!e sources
-C 7 8 9 10 11 12 13 16 15
Sam !e num7er
Statisti&a- Pro&ess Contro-
The essence of statistical process control is to assure that the output of a process is random so
that future output !ill e random% Statistical Process 'ontrol The 'ontrol Process consists of the follo!ing important stages% 1% /efine 3% Measure 3% 'ompare @% $valuate 2% 'orrect 6% Monitor results
Variations and Contro*andom
variation? )atural variations in the output of a process, created y countless minor factors also called 'OMMO)8 '&A)'$% #)&$"$)T and part of the process% $%g% /ifference et!een old and ne! machines% (ssignable variation? A variation !hose source can e identified Sam,-ing Distri 'tion The varia ility of a sample statistic can e descri ed y its SAMP*#)G /#ST"#6(T#O)% The goal of sampling is to determine !hether non random 8assigna le8 correcta le sources of variation are present in the output of the process% $%g% Soft drin5s ottle are never 324 M*% slight differences among the mean% Sam,-ing Distri 'tion
Sam !ing #istri7ution Process #istri7ution
Mean
Norma- Distri 'tion
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= Stan#ar# #e,iation
Mean 95.66B 99.76B
+2
+3
Contro- %imits
Sam !ing #istri7ution Process #istri7utio n
Mean -o*er contro ! !imit ? er contro ! !imit
Contro- C)arts A control chart is a time ordered plot of sample statistics% #t is used to distinguish et!een random varia ility and non random varia ility% The asis of control chart is sample distri ution !hich essentially descri es random varia ility% Theoretically any value is possi le as the distri ution e<tends to infinity% FF%DT of all values !ill e !ithin H = standard deviations 'ontrol 'harts 9e dra! a line at K 3 and call it control chart limits and o serve any value eyond this to e out of limits% 'ontrol 'hart limits are the dividing lines et!een random deviations and mean of the distri ution and non random deviations and mean of the distri ution% The limits that separate random variations from non random variations is 5no!n as ('* and *'*%
A sample statistic that falls et!een ('* and *'* suggests +does not proves- randomness and a value outside suggests +does not proves- no randomness% SPC Errors
Type # error? 'oncluding a process is not in control !hen it actually is or concluding that no
randomness is present !hen it is only randomness that is present% Type ## error? 'oncluding a process is in control !hen it is not that no randomness is not present !hen it is present%
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Ty,e I Error
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Mean = Pro7a7i!ity o' -C ?C -
O ser(ations from Sam,-e Distri 'tion

?C-
-C1 2 Sam !e num7er 3 6
'ontrol 'harts for 1aria les Mean control charts (sed to monitor the central tendency of a process% M ar charts "ange control charts (sed to monitor the process dispersion " charts MEAN AND RANGE CHARTS
Samp!ing Distribution
?C-
process mean is shifting up*ard"
C ?C-
41c/art
x1C/art
C -
%etects s/i't %oes not #etect s/i't
Samp!ing Distribution
?C-
Process )ariabi!ity is increasing"

%oes not re,ea! increase 4e,ea!s increase
C1C/art -C 41c/art
?CC -
CONTRO% CHART #OR ATTRIBUTES Copyright Virtual University of Pakistan
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p>'hart > 'ontrol chart used to monitor the proportion of defectives in a process c>'hart > 'ontrol chart used to monitor the num er of defects per unit Use of ,"C)arts 9hen o servations can e placed into t!o categories% Good or ad Pass or fail Operate or don:t operate 9hen the data consists of multiple samples of several o servations each
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Use of &"C)arts (se only !hen the num er of occurrences per unit of measure can e countedP non>occurrences cannot e counted% Scratches, chips, dents, or errors per item 'rac5s or faults per unit of distance 6rea5s or Tears per unit of area 6acteria or pollutants per unit of volume 'alls, complaints, failures per unit of time Use of Contro- C)arts At !hat point in the process to use control charts 9hat si7e samples to ta5e 9hat type of control chart to use 1% 1aria les 3% Attri utes R'n Tests
*un test a test for randomness

Any sort of pattern in the data !ould suggest a non>random process All points are !ithin the control limits > the process may not e random )onrandom Patterns in 'ontrol charts Trend 'ycles 6ias Mean shift Too much dispersion 'ounting "uns
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Co'nting A o(e6Be-o! Median R'ns r'nsG FI
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B B
Co'nting U,6Do!n R'ns r'nsG
F@
U D
D U
(nderlining each runs helps in counting #) case of (ps and /o!n the first value does not receives either a ( or / ecause nothing precedes it%
PROCESS CAPABI%IT5 Tolerances or specifications is the range of accepta le values esta lished y engineering design or customer re=uirements Process varia ility? is the natural varia ility in a process Process capa ility? is the process varia ility relative to specification Process 'apa ility is thus more importantly related to our discussion of 0uality 'ontrol and 0uality Assurance and !e !ill ta5e up three cases in detail to understand this important concept% 1% #n 'ase A !e o serve that process specifications and output are matched% 3% #n 'ase 6 process varia ility is !ell !ithin the process specification and output% 3% #n 'ase ', !e need to chec5 !hether a process is capa le of meeting specifications and not ;ust use a control chart%
-o*er S eci'icatio ? er S eci'icatio
2. Process ,aria7i!ity matc/es s eci'ications

-o*er S eci'icatio ? er S eci'icatio
). Process ,aria7i!ity *it/in s eci'ications
*e!!
-o*er ? er S eci'icatio S eci'icatio
Pro&ess Ca,a i-ity 'ase ', A manager in case ' can ta5e the follo!ing steps% 1% "edesign the process to o tain the desired output% 3% (se an alternative process to o tain the desired output% 3% "etain the current process ut attempt to eliminate output using 144 percent inspection @% $<amine the specifications to see if they are necessary or can e rela<ed
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Process 1aria ility is the 5ey factor in Process 'apa ility% #t is measured in terms of process standard deviation% Process capa ility is considered to e K 3 Standard /eviations from the process mean% $%g% An insurance company provides a service of registering a ne! mem ership + filling of form- in 14 mins, accepta le range of variation around the time is K 1 minute, the process has a standard deviation of 4%2min%#t !ould not e capa le ecause K 3 S/s !ould e K 1%2 Mins, e<ceeding the specification of K 1 minute% Process 'apa ility "atio
Process capa ility ratio, 'p J
Specification !idth Process !idth
' pJJ>
(pper specification lo!er specification 6
= SIGMA AND A SIGMA 9UA%IT5

%o!er s,e&ifi&ation
$=.< ,,m $3I ,,m
U,,er s,e&ifi&ation
$=.< ,,m $3I ,,m
Pro&ess mean H6" = Sigma H6" A Sigma
#mproving Process 'apa ility 1% Simplify 3% Standardi7e 3% Mista5e>proof + Po5a Ro5e@% (pgrade e=uipment 2% Automate Tag'&)i %oss #'n&tion
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Cost
Traditiona&ost f'n&tion
Tag'&)i &ost f'n&tion
%o!e r s,e&
Target
U,,e r s,e&
%imitations of Ca,a i-ity Inde8es 1% Process may not e sta le 3% Process output may not e normally distri uted 3% Process not centered ut 'p is used O,erations Strategy /RT 96C #t is neither necessary nor desira le to use 'ontrol charts for every production process% Some processes are highly sta le and do not re=uire 'ontrol 'harts% Managers should use 'ontrol 'harts on processes that go out of control% (se control 'harts for ne! processes till they o tain sta le results% Cudicious use of SP' !ill ensure detection of departures from randomness in a process%
13D

ACCEPTANCE SAMP%ING %earning O ?e&ti(es
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Lesson 28
Acceptance sampling is an important form of inspection applied to lots or atches of items efore or after a process, to ;udge conformance !ith predetermined standards% Similarly Sampling plans are the plans that specify lot si7e, sample si7e, num er of samples, and acceptance8re;ection criteria Single>sampling /ou le>sampling Multiple>sampling Single Sampling 'haracteristics One random is dra!n from each lot% $very item in the sample is e<amined $ach item after e<amination is classified good or defective% #f the sample contains more than a specified num er of defectives say c, then that lot is re;ected%
Do' -e Sam,-ing P-an C)ara&teristi&s
Ta5es care of limitation of Single Sampling Plan y ta5ing another sample if results of the
initial sample are inconclusive% #f results from second sample also indicate poor =uality than the lot is re;ected or other!ise decision reached on the asis of oth samples% A dou le sampling plan specifies the lot si7e, the si7e of the initial sample, accept8re;ect criteria for the initial sample, the si7e of the second sample and a single acceptance num er% 9ith dou le sampling plan, 3 values are specified for num er of defective items, a lo!er level c1 and an upper level c3% $%g% if !e have c1 e=ual to 3 and c3 to D, if num er of defects is smaller than c1 than sampling is terminated and lot is accepted% #f defects are greater than c3, than lot is re;ected% #f it:s et!een c1 and c3 then second sample is selected and compared to a third value c3 !hich can e E and if the cumulative defects from 1 and 3 does not e<ceeds c3, the lot is accepted% C)oosing a P-an 'ost and time are prime determinants of choosing a plan% Primary considerations are num er of samples needed and total num er of o servations re=uired% Single sample has only one sample ut large sample si7e% 9here the cost to o tain a sample is high than cost of analy7ing the sample, single sample plan is follo!ed% 9here inspection costs are higher than costs of o taining the sample, multiple samples are carried to ensure that a good or ad result can help terminate the sample testing thus ensuring savings in inspection cost% M'-ti,-e Sam,-ing P-ans Similar to dou le sampling plan ut allo!s more than t!o samples% A sampling plan !ill specify each sample si7e and t!o limits for each sample% The values increase !ith num er of samples% #f the cumulative num er of defects + in current and previous samples- e<ceed the upper limit, then sampling is terminated and the lot is re;ected% Copyright Virtual University of Pakistan
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#f defects les than permissi le, lot is accepted% O,erating C)ara&teristi& C'r(e
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#mportant criteria of sampling plan are ho! it discriminates et!een lots of high and lo! =uality% The a ility of a Sampling Plan to discriminate is descri ed y its O'% The degree to !hich a sampling plan discriminates et!een good and ad lots is a function of steepness of the curve The ideal plan !ould re=uire 144 T inspection of each lot% OC C'r(es
100N 9C C(r&es c"%e in &ari"(s s!apes dependin* "n t!e sa%ple si e and ris: "' and err"rs
+!is c(r&e is %"re discri%inatin*
75N
50N
25N
+!is c(r&e is less discri%inatin*
.03
.06
.09
-ot @ua!ity :+raction %e'ecti,e;
Pro7a7i!ity o' 2cce ting -ot
P 4 $ ) 2 ) & & T D $ + 2C CEPT&". -$T
T)e Perfe&t OC C'r(e
100N
+!e #er'ect 9C C(r&e

+!is c(r&e distin*(is!es per'ectly )et1een *""d and )ad l"ts.
75N
50N C!at 1"(ld all"1 y"( t" ac!ie&e a c(r&e li:e t!isO
25N
.03
.06
.09
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O' 'urve Terms Accepta le 0uality *evel +A0*-? Percentage of defective items a customer is !illing to accept from you +a property of mfg% process *ot Tolerance Percent /efective +*TP/-? (pper limit on the percentage of defects a customer is !illing to accept + a property of the consumer Average Outgoing 0uality +AO0-?Average of re;ected lots and accepted lots Average Outgoing 0uality *imit +AO0*-?Ma<imum AO0 for a range of fractions defective OC The curve sho!s the pro a ility that use of the sampling plan !ill result in lots !ith various fractions defective eing accepted% The graph sho!s that the lot !ith 3 percent defects + a fraction of 4%43- !ould have a pro a ility of a out 4%F eing accepted , F4T% And 1>4%F J4%1 + 14T eing re;ectedAs the lot =uality decreases, the pro a ility of acceptance decreases, although the relationship is not linear% OC Definitions on t)e C'r(e
100N 90N Pro7a7i!ity o' 2cce ting -ot 75N
; 0.10
50N
; 0.10
5"
"d
.6<
Indi''erent .06 .09
.03
<+#? Bad
25N
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O,erating C)ara&teristi& C'r(e
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Pro a i-ity of a&&e,ting -ot
1 4%F 4%E 4%D 4%6 4%2 4%@ 4%3 4%3 4%1 4 4
3 T
%ot 7'a-ity Ffra&tion defe&ti(eG
%42
%14
%12
%34
%32
De&ision Criteria
1%44
Idea l
A"t &ery ?iscri%inatin * P5""d Q PBad Q
Sampling Terms Acceptance =uality level +A0*-? the percentage of defects at !hich consumers are !illing to accept lots as AgoodB *ot tolerance percent defective +*TP/-? the upper limit on the percentage of defects that a consumer is !illing to accept 'onsumer:s ris5? the pro a ility that a lot contained defectives e<ceeding the *TP/ !ill e accepted Producer:s ris5? the pro a ility that a lot containing the accepta le =uality level !ill e re;ected
%ot 7'a-ity Ffra&tion defe&ti(eG
%OT
O# A C C E P T I N G
P R O B A B I % I T 5
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CONSUMEROS AND PRODUCEROS RIS+
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1
Pro a i-ity of a&&e,ting -ot
4%F 4%E 4%D 4%6 4%2 4%@ 4%3 4%3 4%1
< +#? P5""d Q Indi''eren t ;

%42 %14 %12
PBad Q
4 4
.6 <
%34
%32
$ot %uality &fraction defective'
Pro!a!ility of (cceptance
1 4% F 4% E 4% D 4% 6 4% 2 4% @ 4% 3 4% 3 4% 14 4
%F13 F %D36 1 %2@@ 3 %3D2 E
%3@@ 4 %1@F 3 %4E6 4
%1 %3 %34 4 4 -ot #ra&tion defe&ti(e in
%@ 4
%2 4
Average 0uality is the Average outgoing =uality +AO0-? Average of inspected lots +144T- and un inspected lots
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AGGREGATE P%ANNING %earning O ?e&ti(es
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Lesson 29
$<plain the !or5ing and usefulness of Aggregate Planning% #dentify the varia le decision ma5ers to !or5 !ith in aggregate planning and some of the possi le strategies they can use% /escri e some of the graphical and =uantitative techni=ues planners use% Prepare aggregate plans and compare their costs% P-anning Hori1on (ggregate planning? #ntermediate>range capacity planning, usually covering 3 to 13 months%
-ong 4ange &nterme#iate 4ange
S/ort 4ange "o*
2 mont/s
1 Dear
As Operations Manager !e should e a le to understand and identify the various Planning *evels !hich are Short "ange Plans, #ntermediate Plans and *ong "ange Plans% Short>range plans +/etailed plans1% Machine loading 3% Co assignments #ntermediate plans +General levels1% $mployment 3% .inished Good inventories 3% Su contracting, 6ac5orders @% Output *ong>range plans 1% *ong term capacity 3% *ocation 8 layout P-anning Se7'en&e
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Aggregate P-anning In,'ts "esources 1% 9or5force 3% .acilities /emand forecast Policies 1% Su contracting 3% Overtime 3% #nventory levels @% 6ac5 orders 'osts 1% #nventory carrying 3% 6ac5 orders 3% &iring8firing @% Overtime 2% #nventory changes 6% su contracting Aggregate P-anning O't,'ts 1% Total cost of a plan 3% Pro;ected levels of inventory 3% #nventory @% Output 2% $mployment 6% Su contracting D% 6ac5ordering
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Aggregate P-anning Strategies Proactive Strategy? Strategies that alter demand to match capacity are 5no!n as Proactive Strategy% "eactive Strategy? Strategies that alter capacity to match demand are 5no!n as "eactive Strategy% Mi<ed% Strategies that ma5e use of =ualities from oth Proactive and "eactive Strategy are 5no!n as Mi<ed Strategies% Demand and Ca,a&ity O,tions /emand Options? The four common demand options primarily focus on mar5et aspects apart from ac5orders !hich is strictly operational management in nature% The operations manager should 5no! all four demand options ut should e more interested in ac5 order option% 1% 3% 3% @% Pricing Promotion 6ac5 orders )e! demand
'apacity Options? The common capacity options primarily focus on% 1% &ire and layoff !or5ers 3% Overtime8slac5 time 3% Part>time !or5ers @% #nventories 2% Su contracting 6% Maintain a level !or5force D% Maintain a steady output rate E% Match demand period y period F% (se a com ination of decision varia les An important point to e noted is that /emand options are short range in nature !hile 'apacity options are long duration +term or range-% /)i&) Strategy to Use The organi7ation needs to consider t!o factors efore choosing a strategy 1% 'osts 3% 'ompany8'orporate Policy Policy can set constraints on availa le options% $%g% *ayoffs, su contracting8Outsourcing + P#A su contracting its data ases- to protect secrecy% As a rule of thum , aggregate planners see5 to match supply and demand !ithin in constraints y policies and minimum costs%
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AGGREGATE P%ANNING"I %earning O ?e&ti(es
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Lesson 30
$n this lecture we will cover the basic aggregate planning strategies, (ssumptions for (ggregate Planning, different (ggregate Planning *elationships, +aster chedule and +aster cheduler. "e will study desegregating the aggregate plans for production control. )his discussion would prepare us to take a deeper look into $nventory +anagement and +*P/<*P. (ll this would allow us to become effective operations manager to work for improving the operations as well as the systems of the organi8ations we will work for. Basi& Strategies *evel capacity strategy? Maintaining a steady rate of regular>time output !hile meeting variations in demand y a com ination of options% 'hase demand strategy? Matching capacity to demandP the planned output for a period is set at the e<pected demand for that period% 'hase Approach Advantages 1% #nvestment in inventory is lo! 3% *a or utili7ation in high /isadvantages 1% The cost of ad;usting output rates and8or !or5force levels *evel Approach Advantages 1% Sta le output rates and !or5force /isadvantages 1% Greater inventory costs 3% #ncreased overtime and idle time 3% "esource utili7ations vary over time Te&)ni7'es for Aggregate P-anning 1% 3% 3% @% 2% 6% /etermine demand for each period /etermine capacities for each period #dentify policies that are pertinent /etermine units costs /evelop alternative plans and costs Select the est plan that satisfies o ;ectives% Other!ise return to step 2%
Ass'm,tions for Aggregate P-anning 1% The regular output capacity is the same for all periods% 3% 'ost +6ac5 Order, #nventory, Su contracting etc- is a linear function composed of unit cost and num er of units% + #n reality cost is more of a step function3% Plans are feasi le + There is sufficient inventory e<ists to accommodate a plan, su contractors !ould provide =uality products and outsourcers !ould e secure@% Assumptions for Aggregate Planning 2% All costs associated !ith a decision option can e represented y a lump sum or y unit costs that are independent of the =uantity involved% 6% 'ost figures can e reasona ly estimated and are constant over the planning hori7on% Copyright Virtual University of Pakistan
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D% #nventories are uilt up and dra! do!n at a uniform rate and output occurs at a uniform rate throughout each period% 6ac5logs are treated as if they e<ist for the entire period, even though in reality they tend to uild up to!ards the end of the period Aggregate P-anning Re-ations)i,s
1% )um er of !or5ers in a period e=uals )um er of 9or5ers at the end of the previous period
P*(S )um er of ne! 9or5ers at the start of the current period > )um er of laid off 9or5ers at the start of the current period 3% )OT$? S#)'$ the organi7ation !ould not hire and layoff simultaneously, so at least one of the last t!o terms !ill e A4B% 3% #nventory at the end of a + current- period e=uals #nventory at the end of the previous period P*(S Production in the current period Amount used to satisfy the demand in the current period @% )OT$ ?The average #nventory for a period is e=ual to +6eginning #nventory Plus $nding #nventory-83 Average #nventory Aggregate Planning "elationships 'ost for a + current- period e=uals Output 'ost + "egular KOTK Su contract- K &ire8*ayoff 'ostK #nventory 'ost K 6ac5order 'ost )OT$ The cost of a particular plan for a given period can e determined y summing the appropriate costs Aggregate P-anning Re-ations)i,s Ty,e of Costs O't,'t Reg'-ar O(ertime S' &ontra&t Hire6%ayoff Hire %ayoff In(entory Ba&* Order Ho! to Ca-&'-ate "egular 'ost per (nit M 0uantity of "egular Output Overtime 'ost per (nit M Overtime 0uantity Su contract 'ost per (nit M Su contract 0uantity 'ost Per &ire M )um er &ired 'ost per *ayoff M )um er laid off 'arrying 'ost per (nit M Average #nventory 6ac5 Order 'ost Per (nit M )um er of 6ac5order (nits
Mat)emati&a- Te&)ni7'es #inear programming? Methods for o taining optimal solutions to pro lems involving allocation of scarce resources in terms of cost minimi7ation% #inear decision rule? Optimi7ing techni=ue that see5s to minimi7e com ined costs, using a set of cost> appro<imating functions to o tain a single =uadratic e=uation% S'mmary of P-anning Te&)ni7'es
ec#ni%ue =raphical :charting $inear progra##ing $inear decision rule 4i#ulation )olution 3rial and error ?pti#i@ing ?pti#i@ing 3rial and error "#aracteristics Intuitively appealing, easy to understand> solution not necessarily opti#al! Co#puteri@ed> linear assu#ptions not always valid! Co#ple& re6uires considerable effort to obtain pertinent cost infor#ation and to construct #odel> cost assu#ptions not always valid! Co#puteri@ed #odels can be e&a#ined under a variety of conditions!
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Aggregate P-anning in Ser(i&es 1% Services occur !hen they are rendered %(nli5e most manufacturing output, most services cannot e inventoried% Services such as financial planning, ta< counseling and oil changes cant e inventoried8stoc5piled% This removes the option of uilding up the inventories during a slo! period in anticipation of future demand% 3% /emand for service can e difficult to predict %The volume of demand for services is often varia le% #n some situations, customers may need prompt service% e%g% police, fire, medical emergency !hile in others they may not need prompt service and may e !illing to find some other service provider% 3% 'apacity Availa ility can e difficult to predict% Processing re=uirements for services can sometimes e =uite varia le, similar to the varia ility of !or5 in a ;o shop setting% @% /emand for service can e difficult to predict #t is difficult to measure the capacity of a person rendering a service, a dentist, a Montessorian, a an5 teller in anticipation of future demand-% 2% *a or .le<i ility can e advantage in Services *a or often comprises a significant portion of service compared to manufacturing% That coupled !ith the fact that service providers are often a le to handle a fairly !ide variety of service re=uirements means that to some e<tent, planning is easier than manufacturing Aggregate P-an to Master S&)ed'-e
Aggregate P-anning
Dissaggregation
Master S&)ed'-e
Disaggregating t)e Aggregate P-an The Aggregate Plan is ro5en do!n into Master Schedules and "ough 'ut 'apacity Planning charts respectively%
+aster schedule? The result of disaggregating an aggregate planP sho!s =uantity and timing of
specific end items for a scheduled hori7on%
*ough.cut capacity planning? Appro<imate alancing of capacity and demand to test the feasi ility
of a master schedule% 9$ 9#** /#S'(SS #T #) /$TA#* 9&$) 9$ 'O1$" O(" M"P *$'T("$ $%g% Suppose the organi7ation is ma5ing 244 aggregate units of Air conditioners for the month of March and April !ith rea5up eing 344 for !indo! types, 344 type split units !ith further tonnage capacities% A master schedule sho!s the planned output for individual products rather than an entire product group, along !ith the timing of production% Copyright Virtual University of Pakistan
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9ith "ough cut capacity planning !e can chec5 capacities of production and !arehouses constraints e<ist% This means chec5ing capacities of production and !arehouse facilities, la or and vendors to ensure that no gross deficiencies e<ist that !ill render master schedule un!or5a le% The master schedule then serves as the asis for short range planning% MS is disaggregated in stages or phases, !hich may cover !ee5s or months% Master schedule? /etermines =uantities needed to meet demand #nterfaces !ith 1% Mar5eting 3% 'apacity planning 3% Production planning @% /istri ution planning
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Master S&)ed'-ing
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A Master schedule indicates the =uantity and timing + i%e% delivery times- for a product, or a group of products, ut it does not sho! planned production% .or a master schedule may call for delivery of 244 Air conditioners on April 1% 6ut it may not re=uire any production ecause of availa ility of 1444 air conditioners in inventory% Or if there are only @44 Air conditioners, 144 !ould e planned for production% Master Scheduler $valuates impact of ne! orders Provides delivery dates for orders /eals !ith pro lems Production delays "evising master schedule #nsufficient capacity Pro?e&ted On")and In(entory
Pro;ected on>hand inventory
#nventory from previous !ee5
>
'urrent !ee5:s re=uirements
Sta ili7ing the Master Schedule 'hanges to a master schedule can e disruptive, particularly changes to the early, or near, portions of the schedule% Typically the further out in the future a change is, the less the tendency to cause pro lems% Master Production Schedules are often divided into @ stages or phases% The dividing lines et!een phases are sometimes referred to as time fences% Time #en&es in MPS
#n the first phase, usually the first fe! periods of the schedule, changes can e =uite disruptive%
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'onse=uently, once esta lished, that portion of the schedule is generally fro7en, !hich implies that all ut the most critical changes cannot e made !ithout permission from the highest levels in an organi7ation% This helps in achieving high degree of sta ility in the production system% #n the ne<t stage, perhaps the ne<t t!o days or three periods, changes are still disruptive, ut not to that e<tent that they are in first phase% Management vie!s the schedule as firm and only e<ceptional changes are made !hich helps an organi7ation gain some competitive advantage% #n the third stage, management vie!s the schedule as full, meaning that all availa le capacity has een allocated% Although changes do impact the schedule, their effect is less dramatic and they are usually made if there is good reason for doing so% #) the final phase, management vie!s the schedule as open, meaning that not all capacity has een allocated% This is !here ne! orders are usually in the Schedule% .
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INVENTOR5 MANAGEMENT %earning O ?e&ti(es
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Lesson 31
Our discussion on #nventory Management !ould e complete only !hen !e are a le to learn and understand the types of #nventories and o ;ectives of #nventory 'ontrol% This !ould ensure that !e are a le to understand the ma;or reasons for holding inventories% 9e !ould e a le to differentiate et!een independent and dependent demand% 9e !ill also learn the re=uirements of an effective inventory management system% 9e !ill revie! oth periodic as !ell as perpetual #nventory systems% 9e !ill discuss in detail the A6' approach !ith a suita le e<ample% Since our discussion !ould e<tend over three lectures !e !ill also discuss the o ;ectives of inventory management, descri e the asic $O0 model, $conomic "un Si7e, 0uantity /iscount Model !ith solved e<amples% Ty,es of In(entories The five common types of inventories are? 1% "a! materials I purchased parts% 3% Partially completed goods called work in progress. 3% .inished>goods inventories? a% +manufacturing firms- or % merchandise, +retail stores@% Goods>in>transit to !arehouses or customers% 2% "eplacement parts, tools, I supplies% O ?e&ti(e of In(entory ControTo achieve satisfactory levels of customer service !hile 5eeping inventory costs !ithin reasona le ounds% Operations Managers are !ell a!are of the fact that customer services !ith respect to #nventory ta5es into account oth the internal customers as !ell as e<ternal customers% 1% *evel of customer service% 3% 'osts of ordering and carrying inventory% #'n&tions of In(entory A manufacturing organi7ation has one or more of the follo!ing functions of inventory in mind !hen it tries to set up a pragmatic and effective inventory management system% 1% To meet anticipated demand% 3% To smooth production re=uirements% 3% To decouple operations% @% To protect against stoc5>outs% 2% To ta5e advantage of =uantity discounts% 6% To permit operations% D% To help hedge against price increases% E% To ta5e advantage of order cycles% Re7'irements of Effe&ti(e In(entory ControManagement has t!o asic functions concerning #nventory% 1% To ma5e decisions a out ho! much and !hen to order% 3% To esta lish a system of 5eeping trac5 of items in an inventory% Effe&ti(e In(entory Management An #nventory Management System !ould e called $ffective if it is a le to fulfill the follo!ing re=uirements% 1% A system to 5eep trac5 of inventory% 3% A relia le forecast of demand% Copyright Virtual University of Pakistan
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3% Ono!ledge of lead times% @% "easona le estimates of? a% &olding costs % Ordering costs c% Shortage costs 2% A classification system% In(entory Co'nting Systems There are t!o famous types of #nventory 'ounting Systems &. Periodic ystem >. Perpetual $nventory ystem4 6?3)$3U(#5
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Periodic ystem? Physical count of items made at periodic intervals% Perpetual $nventory ystem4 6?3)$3U(#5? System that 5eeps trac5 of removals from inventory continuously, thus monitoring current levels of each item% Perpetual #nventory Systems can e simple or comple<, the t!o common perpetual #nventory systems found in Pa5istan are the? )wo.@in ystem . T!o containers of inventoryP reorder !hen the first is empty% Universal @ar 6ode . 6ar code printed on a la el that has information a out the item to !hich it is attached%
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INVENTOR5 MANAGEMENT"I %earning O ?e&ti(es
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Lesson 32
#nventory Management is the procurement, use and distri ution of #nventoryP some te<t oo5s use the !or5 #nventory control for the same concept% The !ord control ensures that inputs, the process itself and the outputs are all managea le% This inventory control concept helps us to understand t!o important concepts of Operations Management i%e% Supply 'hain Management and Cust #n Time Production Systems% #n this lecture !e !ill study the A6' classification System, #nventory Ordering and &olding 'osts and $conomic Order 0uantity Model% +ey In(entory Terms The Oey #nventory Terms !e should 5no! are *ead time, &olding +carrying- costs, Ordering + Set up- 'osts and Shortage+Stoc5 out- costs 1% *ead time? Time interval et!een ordering and receiving the order% 3% &olding +carrying- costs? 'ost to carry an item in inventory for a length of time, usually a year% 'osts include #nterest, insurance, ta<es, depreciation, o solescence, deterioration, pilferages, rea5age, !arehousing costs and Opportunity costs% &olding +carrying- costs? &olding costs are stated in t!o !ays a% Percentage of unit price or % "upee 3% Ordering costs? 'osts of ordering and receiving inventory% These are the actual costs that vary !ith the actual placement of the order% @% Shortage costs? 'osts !hen demand e<ceeds supply% ABC C-assifi&ation System An important aspect of #nventory Management is that items held in inventory are not of e=ual importance in terms of rupees invested, profit potential, sales or usage volume% A6' 'lassification System controls inventories y dividing items into 3 groups A, 6 and ' respectively% 1% Group A consists of &igh "upee +Monetary- 1alue, !hich account for a small portion a out 14T of the total inventory usage% 3% Group 6 consists of Medium "upee +Monetary- 1alue, !hich account for a out 34T of the total inventory usage% 3% Group ' consists of *o! "upee +Monetary- 1alue, !hich account for a large portion a out D4T of the total inventory usage% @% The level of control reflects cost enefit concerns% 2% Group A items are revie!ed on a regular asis% 6% Group 6 items are revie!ed at a less fre=uency than Group A items ut more than Group ' items% D% Group ' items are not revie!ed and order is placed directly% E8am,-e3 Item P' Monitor Processor "AM Dema nd 14 2 32 1444 Unit Cost "s%34,444 2444 2444 3444 Ann'aVa-'e F R',eesG 344,444 32,444 132,444 3,444,444 C-assifi&ation 6 + up to "s% 244,444'+ (p to "s% 24,4446 A
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C-assify inventory according to A6' classification system, "upee value up to 24O and 244O represent ' and 6 respectively% Cy&-e Co'nting 1% 3% 3% @% 2% A physical count of items in inventory% 'ycle counting management? &o! much accuracy is neededG 9hen should cycle counting e performedG 9ho should do itG
E&onomi& Order 9'antity Mode-s 1% $conomic order =uantity model 3% $conomic production model 3% 0uantity discount model Ass'm,tions of EO9 Mode1% 3% 3% @% 2% 6% Only one product is involved% Annual demand re=uirements 5no!n% /emand is even throughout the year% *ead time does not vary% $ach order is received in a single delivery% There are no =uantity discounts%
T)e In(entory Cy&-e

@
@uantity $n Ean# Pro'i!e o' &n,entory -e,e! o,er Time
?sage rate
4eor#er Point
4ecei,e $r#er
P!ace $r#e r
4ecei,e $r#er
-ea# time
P!ace 4ecei,e $r#e $r#er r
Time
Tota- Cost
Tota! cost 8
2nnua! carrying cost Q 2 H
9
9
2nnua! or#ering cost D Q S
TC 8
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Cost Minimi1ation Goa-
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)6 =
! : A+ 3 !
2nnua! Cost
Holding Costs
$r#ering Costs
@$ :o tima! or#er Fuantity; $r#er @uantity :@;
Deri(ing t)e EO9 (sing calculus, !e ta5e the derivative of the total cost function and set the derivative +slope- e=ual to 7ero and solve for 0%
0OPT J
3/S J &
3+Annual /emand-+Order or Setup 'ostAnnual &olding 'ost
Minimum Total 'ost The total cost curve reaches its minimum !here the carrying and ordering costs are e=ual% E8am,-e 0 A local distri utor for an international aero ic e<ercise machine manufacturer e<pects to sell appro<imate 14,444 machines% Annual carrying cost is "s% 3244 per machine and Order cost is "s% 14,444% The distri utor Operates 344 days a year% 1% .ind $O0G 3% The num er of times the store !ill reorderG 3% *ength of an Order 'ycleG @% Total Annual 'ost if $O0 is orderedG Gi(en Data /J14,444 machines% &J Annual carrying cost is "s% 3244 per machine% SJOrder cost is "s% 14,444% )o of The distri utor Operates 344 days a year Ca-&'-ation of EO9 Copyright Virtual University of Pakistan
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04J S= "oot of +3 /S-8&J S= "oot +3 M 14,444 M 14,444 -83244 JS= "oot +E4,444J3E3 machines per year The num er of times the store !ill reorderG /804J14,44483E3J32%3@ J 32 Times The *ength of an Order 'ycle 048/J3E3814%444J4%43E3 of a yearJ 4%43E3 M 344J E%@F days The Total Annual 'ost, if $O0 is ordered T'J 'arrying 'ost K Ordering 'ost J0483 + &- K /804 +SJ3E383 +3244- K 14%44483E3 +14,444J323,D24 K 323,323 J "s% D4D,14D S'mmary
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#nventory Management is simply the procurement, use and distri ution of #nventory% #n our su se=uent discussions on #nventory as !ell as Supply 'hain Management !e !ill find some similarities et!een the t!o important concepts of #nventory Management and Supply 'hain Management% 9hen !e com ine #nventory Management +'ontrol- !ith Production and Purchasing !e are more or less focusing on the Capanese Philosophy of Cust #n Time Production% Also, the asic $O0 Model minimi7es the sum of carrying or holding costs as !ell as setup or ordering cost%
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INVENTOR5 MANAGEMENT"II %earning O ?e&ti(es
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Lesson 33
Our discussion on #nventory Management !ould e complete only !hen !e are a le to learn and understand the types of #nventories and o ;ectives of #nventory 'ontrol% This !ould ensure that !e are a le to understand the ma;or reasons for holding inventories% 9e !ould e a le to differentiate et!een independent and dependent demand% 9e !ill also learn the re=uirements of an effective inventory management system% 9e !ill revie! oth periodic as !ell as perpetual #nventory systems% 9e !ill discuss in detail the A6' approach !ith a suita le e<ample% Our discussion has focused on the o ;ectives of inventory management, asic $O0 model, $conomic "un Si7e, 0uantity /iscount Model !ith solved e<amples% E8am,-e FIn terms of Per&entageG ')G>*PG company in Oarachi, purchases 2444 compressors a year at "s%E,444 each% Ordering costs are "s% 244 and Annual carrying costs are 34 T of the purchase price% 'ompute the Optimal price and the total annual cost of ordering and carrying the inventory% /ata /J/emand J2,444 SJOrderingJ "s% 244 &J&olding8'arrying 'ostJ4%3 M E,444J"s%1644 $<ample 3 + #n terms of Percentage04J S= "oot of + 3+2,444-+244-8+1644-J 22%FJ26 'ompressors T'J 'arrying costs K Ordering 'osts J0483 + &- K /804 +SJ 2683 + 1644- K 2444826 +244J 3E + 1644-K @@,6@3 J@@,E44K@@,6@3J"s% EF,@@3 E&onomi& Prod'&tion 9'antity FEP9G
Production I (sage
(sage
Production I (sage
#n
(sage
ve
nt
or
y* ev
el
E&onomi& Prod'&tion 9'antity FEP9G Ass'm,tions Production done in atches or lots 'apacity to produce a part e<ceeds the part:s usage or demand rate% Copyright Virtual University of Pakistan
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Assumptions of $P0 are similar to $O0 e<cept orders are received incrementally during production% E&onomi& Prod'&tion 9'antity Ass'm,tions 1% 3% 3% @% 2% 6% D% Only one item is involved Annual demand is 5no!n (sage rate is constant (sage occurs continuously Production rate is constant *ead time does not vary )o =uantity discounts
#iner Points of E&onomi& Prod'&tion 9'antity Mode The asic $O0 model assumes that each order is delivered at a single point in time% #f the firm is the producer and user, practical e<amples indicate that inventories are replenished over time and not instantaneously% #f usage and production +delivery- rates are e=ual, then there is no uildup of inventory% Set up costs in a !ay our similar to ordering costs ecause they are independent of lot si7e% The larger the run si7e, the fe!er the num er of runs needed and hence lo!er the annual setup% The num er of runs is /80 and the annual setup cost is e=ual to the num er of runs per year times the cost per run + /80-S% Total 'ost is T' minJ 'arrying 'ostK Setup 'ost J + # ma<83-&K +/804-S 9here # ma<J Ma<imum #nventory $conomic "un Si7e
!4 =
3: A
p p u
$conomic Production 0uantity Assumptions 9here pJ production rate ( J usage rate E&onomi& Prod'&tion 9'antity Ass'm,tions The "un time +the production phase of the cycle- is a function of the run si7e and production rate "un time J 048p The ma<imum and average inventory levels are # ma< J 048p +p>u# averageJ # ma<83 $<ample +$conomic "un Si7eE8am,-e for E&onomi& R'n Si1e A firm in Sial5ot produces 324,444 each !orld class foot alls for oth domestic and international mar5ets% #t can ma5e foot alls at a rate of 3444 per day% The foot alls are manufactured uniformly Copyright Virtual University of Pakistan
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over the !hole year% 'arrying cost is "s% 144 per foot all and Setup cost for a production run is "s% 3244% The manufacturing unit operates for 324 days per year% /etermine the 1% Optimal "un Si7e% 3% Minimum total annual cost for carrying and setup cost% 3% 'ycle time for the Optimal "un Si7e% @% "un time y using the formula Solution
!4 =
3: A
p p u
1% Optimal "un Si7e% J S= "oot +3 M 324,444 M 32448144 -+ S= "oot +3 444 83444>1444 -J 3244+s=%root3M3- J2444 foot alls% 3% Minimum total annual cost for carrying and setup cost% J 'arrying 'ost K Set up 'ost J+ # ma<83-&K + /804-S 9here # ma<J 048p ++p>u--J244483444+1444J3244 foot alls )o! T'J 324483 M 144 K +324,44482444- +3244J1324 M 144 K 132,444 J132,444K 132,444 J "s% 324,444% 3% 'ycle time for the Optimal "un Si7e% 048(J244481444J 2 days @% "un time 048pJ244483444J 3%2 days 0uantity /iscount? Price reductions for large orders are called 0uantity /iscounts% Tota- Costs !it) P'r&)asing Cost 2nnua! 2nnua! carrying TC 8 9 or#ering cost cost
9 cost 9
Purc/asing
TC 8
Q H 2
DS
PD
Tota- Costs !it) PD
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2##ing Purc/asing cost #oesnGt c/ange E$@

C $ S T
TC *it/ P%
TC *it/out P%
P%
<
E$@
@uantity
E8am,-e for O,tima- Order 9'antity and Tota- Cost The maintenance department of a large cardiology hospital in #slama ad uses a out 1344 cases of corrosion removal li=uid, used for maintenance of hospital% Ordering costs are "s 144, carrying cost are "s 34 per case, and the ne! price schedule indicates that orders of less than 24 cases !ill cost "s 1324 per case, 24 to DF cases !ill cost "s 1124 per case , E4 to FF cases !ill cost "s 1424 per case and larger costs !ill e "s 1444 per case% /etermine the Optimal Order 0uantity and the Total 'ost% Given /ata /J1344 case% SJ "s% 144 per case &J"s%34 per case "ange 1 to @F 24 to DF E4 to FF 144 or more
Price "s 1324 "s 1124 "s 1424 "s 1444
'ompute the 'ommon $O0JS= "oot +3/S8&J S= "oot +3 M 144 M 1344834JS= "oot +13444J14F%2J114 cases !hich !ould e rought at 1444 per order The total 'ost to Purchase 1344 cases per year !ould e T'J 'arrying 'ostK Order 'ostK Purchase 'ost J+083-&K+/804-SKP/ J+11483-34K+13448114-144K1344M 1444 J1144K14F1K13444,444 J"s% 1,343,1F1 9hen to "eorder !ith $O0 Ordering "eorder Point > 9hen the =uantity on hand of an item drops to this amount, the item is reordered% Safety Stoc5 > Stoc5 that is held in e<cess of e<pected demand due to varia le demand rate and8or lead time% Service *evel > Pro a ility that demand !ill not e<ceed supply during lead time% Copyright Virtual University of Pakistan
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E8am,-e for Reorder Point An apartment comple< in 0uetta re=uires !ater for its home use% (sageJ 3 arrels a day *ead timeJ 2 days "OPJ (sage M *ead Time J 3 arrels a day M D J 1@ arrels Determinants of t)e Reorder Point 1% 3% 3% @% The rate of demand The lead time Stoc5 out ris5 +safety stoc5/emand and8or lead time varia ility
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E8am,-e An o!ner of a Montessori e=uipment firm in Oarachi, determined from historical records that demand for !ood re=uired for Montessori e=uipment averages 32 tones per anum% &is operations management e<pertise allo!ed him to determine the demand during lead that could e descri ed y a normal distri ution that has a mean of 32 tons and a standard deviation of 3%2 tons, !ith a stoc5 out ris5 not limited to 6 percent% a% Appropriate value of QG Please use the ta le given on the ne<t page +F% Safety stoc5 levelG c% "eorder PointG d% $<pected !eight of !ood short for any order cycle, if he !ants to maintain a service level of E4T (se the attached service level ta le% Please use the ta le given on page + 14e% Annual Service *evel, if service level JE4
Area 'nder t)e standardi1es norma- &'r(e from "P to Q1

A+7- is the integral of the standardi7ed normal distri ution from YZto 7 +in other !ords, the area under the curve to the left of 7-% #t gives the pro a ility of a normal random varia le not eing more than 7 standard deviations a ove its mean% 1alues of 7 of particular importance? 7 A+71%6@ 4%F244 *o!er limit of right 2T tail 2 1%F6 4%FD24 *o!er limit of right 3%2T tail 4 3%33 4%FF44 *o!er limit of right 1T tail 6 3%2D 4%FF24 *o!er limit of right 4%2T tail C'm'-ati(e 6 Standardi1ed Norma3%4F 4%FFF4 *o!er limit of right 4%1T tail Distri 'tion 4 7 4%44 4%41 4%43 4%43 4%4@ 4%42 4%46 4%4D 4%4E 4%4F 3%3F 4%FFF2 *o!er limit of right 4%42T tail 4%4 4%2444 4%24@4 4%24E4 4%2134 4%2164 1 4%21FF 4%233F 4%23DF 4%231F 4%232F
4%1 4%3 4%3 4%@ 4%2 4%6 4%D 4%E 4%F 1%4 4%23FE 4%2DF3 4%61DF 4%622@ 4%6F12 4%D32D 4%D2E4 4%DEE1 4%E12F 4%E@13 4%2@3E 4%2E33 4%631D 4%62F1 4%6F24 4%D3F1 4%D611 4%DF14 4%E1E6 4%E@3E 4%2@DE 4%2ED1 4%6322 4%663E 4%6FE2 4%D33@ 4%D6@3 4%DF3F 4%E313 4%E@61 4%221D 4%2F14 4%63F3 4%666@ 4%D41F 4%D32D 4%D6D3 4%DF6D 4%E33E 4%E@E2 4%222D 4%2F@E 4%6331 4%6D44 4%D42@ 4%D3EF 4%DD4@ 4%DFF2 4%E36@ 4%E24E 4%22F6 4%2FED 4%636E 4%6D36 4%D4EE 4%D@33 4%DD3@ 4%E433 4%E3EF 4%E231 4%2636 4%6436 4%6@46 4%6DD3 4%D133 4%D@2@ 4%DD6@ 4%E421 4%E312 4%E22@ 4%26D2 4%646@ 4%6@@3 4%6E4E 4%D12D 4%D@E6 4%DDF@ 4%E4DE 4%E3@4 4%E2DD 4%2D1@ 4%6143 4%6@E4 4%6E@@ 4%D1F4 4%D21D 4%DE33 4%E146 4%E362 4%E2FF 4%2D23 4%61@1 4%621D 4%6EDF 4%D33@ 4%D2@F 4%DE23 4%E133 4%E3EF 4%E631
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1%1 1%3 1%3 1%@ 1%2 1%6 1%D 1%E 1%F 3%4 3%1 3%3 3%3 3%@ 3%2 3%6 3%D 3%E 3%F 3%4 3%1 3%3 3%3 3%@ 3%2 4%E6@3 4%EE@F 4%F433 4%F1F3 4%F333 4%F@23 4%F22@ 4%F6@1 4%FD13 4%FDD3 4%FE31 4%FE61 4%FEF3 4%FF1E 4%FF3E 4%FF23 4%FF62 4%FFD@ 4%FFE1 4%FFED 4%FFF4 4%FFF3 4%FFF2 4%FFFD 4%FFFE 4%E662 4%EE6F 4%F4@F 4%F34D 4%F3@2 4%F@63 4%F26@ 4%F6@F 4%FD1F 4%FDDE 4%FE36 4%FE6@ 4%FEF6 4%FF34 4%FF@4 4%FF22 4%FF66 4%FFD2 4%FFE3 4%FFED 4%FFF1 4%FFF3 4%FFF2 4%FFFD 4%FFFE 4%E6E6 4%EEEE 4%F466 4%F333 4%F32D 4%F@D@ 4%F2D3 4%F626 4%FD36 4%FDE3 4%FE34 4%FE6E 4%FEFE 4%FF33 4%FF@1 4%FF26 4%FF6D 4%FFD6 4%FFE3 4%FFED 4%FFF1 4%FFF@ 4%FFF2 4%FFFD 4%FFFE 4%ED4E 4%EF4D 4%F4E3 4%F336 4%F3D4 4%F@E@ 4%F2E3 4%F66@ 4%FD33 4%FDEE 4%FE3@ 4%FED1 4%FF41 4%FF32 4%FF@3 4%FF2D 4%FF6E 4%FFDD 4%FFE3 4%FFEE 4%FFF1 4%FFF@ 4%FFF6 4%FFFD 4%FFFE 4%ED3F 4%EF32 4%F4FF 4%F321 4%F3E3 4%F@F2 4%F2F1 4%F6D1 4%FD3E 4%FDF3 4%FE3E 4%FED2 4%FF4@ 4%FF3D 4%FF@2 4%FF2F 4%FF6F 4%FFDD 4%FFE@ 4%FFEE 4%FFF3 4%FFF@ 4%FFF6 4%FFFD 4%FFFE 4%ED@F 4%EF@@ 4%F112 4%F362 4%F3F@ 4%F242 4%F2FF 4%F6DE 4%FD@@ 4%FDFE 4%FE@3 4%FEDE 4%FF46 4%FF3F 4%FF@6 4%FF64 4%FFD4 4%FFDE 4%FFE@ 4%FFEF 4%FFF3 4%FFF@ 4%FFF6 4%FFFD 4%FFFE 4%EDD4 4%EF63 4%F131 4%F3DF 4%F@46 4%F212 4%F64E 4%F6E6 4%FD24 4%FE43 4%FE@6 4%FEE1 4%FF4F 4%FF31 4%FF@E 4%FF61 4%FFD1 4%FFDF 4%FFE2 4%FFEF 4%FFF3 4%FFF@ 4%FFF6 4%FFFD 4%FFFE 4%EDF4 4%EFE4 4%F1@D 4%F3F3 4%F@1E 4%F232 4%F616 4%F6F3 4%FD26 4%FE4E 4%FE24 4%FEE@ 4%FF11 4%FF33 4%FF@F 4%FF63 4%FFD3 4%FFDF 4%FFE2 4%FFEF 4%FFF3 4%FFF2 4%FFF6 4%FFFD 4%FFFE 4%EE14 4%EFFD 4%F163 4%F346 4%F@3F 4%F232 4%F632 4%F6FF 4%FD61 4%FE13 4%FE2@ 4%FEED 4%FF13 4%FF3@ 4%FF21 4%FF63 4%FFD3 4%FFE4 4%FFE6 4%FFF4 4%FFF3 4%FFF2 4%FFF6 4%FFFD 4%FFFE 4%EE34 4%F412 4%F1DD 4%F31F 4%F@@1 4%F2@2 4%F633 4%FD46 4%FD6D 4%FE1D 4%FE2D 4%FEF4 4%FF16 4%FF36 4%FF23 4%FF6@ 4%FFD@ 4%FFE1 4%FFE6 4%FFF4 4%FFF3 4%FFF2 4%FFFD 4%FFFE 4%FFFE
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% SO%UTION Copyright Virtual University of Pakistan
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ta le values, 1>4%46J%F@44 therefore K QJ1%1%22
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a% $<pected *ead Time /emandJ 32 tonnes, also [d*TJ 3%2 tonnes, "is5J 6T% (sing the given % The safety stoc5 J Q[d*TJ 1%22 < 3%24 tonnesJ 3%ED2 tonnes
c% "eorder Point J J $<pected *ead Time /emand K Safety Stoc5 32 tonnes K 3%ED2J3E%ED2 tonnes
d% .rom the Service *evel Ta le, *ead time Service *evel 7J4%E therefore $+7-J4%DEE1,using the formula $+n-J$+7- M [d*T )o! Since [ d*TJ 3%2 tonnes Therefore $+n-J4%DEE1+3%24-J3F%@1 tonnesJ 1%FD432 tonnes e% S* annualJ 1>$+7- [d*T80 )o! Since 0J 32 tonnes, $+7-J 9e can calculate the Annual Service *evel y su stituting values in the formula a ove S* annualJ 1>4%DEE1+24-81444J1>3F%@4281444J1>4%43F@1J4%F61 #i8ed"Order"Inter(a- Mode1% Orders are placed at fi<ed time intervals% 3% Order =uantity for ne<t intervalG 3% Suppliers might encourage fi<ed intervals% @% May re=uire only periodic chec5s of inventory levels% 2% "is5 of stoc5 out% S'mmary #n this lecture !e studied various important concepts relating to #nventory Management% Most importantly !e learnt ho! to ma5e use of statistical ta les to calculate lead points and service levels% This lecture forms the asis for Supply 'hain Management and Cust #n Time Production Systems%
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Lesson 34 MATERIA% RE9UIREMENTS P%ANNING 6 ENTERPRISE RESOURCE P%ANNING %earning O ?e&ti(es /escri e the conditions under !hich M"P is most appropriate% /escri e the inputs, outputs and nature of M"P processing% $<plain ho! re=uirements in a Master Production Schedule are translated into material re=uirements for lo!er level items% /iscuss enefits and re=uirements of M"P% MRP +aterial re1uirements planning 4+*P5, 'omputer> ased information system that translates master schedule re=uirements for end items into time>phased re=uirements for su assem lies, components, and ra! materials%
M4P &n uts M4P Processing M4P $ut uts C/ange s $r#er re!eases P!anne#1 or#er sc/e#u!es
Exce tion re orts
Master sc/e#u!e Primary re orts )i!! o' materia!s
M4P com uter rograms
P!anning re orts
Secon#ary re orts
Per'ormance1 contro! re orts
&n,entory recor#s
&n,entory transaction
Inde,endent and De,endent Demand :ependent demand? /emand for items that are su assem lies or component parts to e used in production of finished goods% Once the independent demand is 5no!n, the dependent demand can e determined% 6umulative lead time? The sum of the lead times that se=uential phases of a process re=uire, from ordering of parts or ra! materials to completion of final assem ly% MPR In,'ts M"P has three #nputs Master Schedule Plan 6ill of Materials #nventor "ecords Master Production Schedule Time>phased plan specifying timing and =uantity of production for each end item% Material "e=uirement Planning Process Master S&)ed'-e +aster schedule? One of three primary inputs in M"PP states !hich end items are to e produced, !hen these are needed, and in !hat =uantities% Copyright Virtual University of Pakistan
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6umulative lead time? The sum of the lead times that se=uential phases of a process re=uire, from ordering of parts or ra! materials to completion of final assem ly% Planning &ori7on 6ill>of>Materials @ill of materials 4@?+5? One of the three primary inputs of M"PP a listing of all of the ra! materials, parts, su assem lies, and assem lies needed to produce one unit of a product% Prod'&t Str'&t're Tree Product structure tree? 1isual depiction of the re=uirements in a ill of materials, !here all components are listed y levels%
-e,e! 0 1 -eg 2ssem7!y
C/air )ack 2ssem7!y
Seat
2 -egs :2;
Cross 7ar
Si#e Cross )ack 4ai!s :2; 7ar Su orts :3;
3
#nventory "ecords One of the three primary inputs in M"P #ncludes information on the status of each item y time period Gross re=uirements Scheduled receipts Amount on hand *ead times *ot si7es And more \ Assem ly Time 'hart 6umulative lead time? The sum of the lead times that se=uential phases of a process re=uire, from ordering of parts or ra! materials to completion of final assem ly% MRP Pro&essing 1% 3% 3% @% 2% 6% Gross re=uirements Schedule receipts Pro;ected on hand )et re=uirements Planned>order receipts Planned>order releases
U,dating t)e System 1% "egenerative system 3% (pdates M"P records periodically Copyright Virtual University of Pakistan
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3% )et>change system @% (pdates MP" records continuously MRP O't,'ts 1% Planned orders > schedule indicating the amount and timing of future orders% 3% Order releases > Authori7ation for the e<ecution of planned orders% 3% 'hanges > revisions of due dates or order =uantities, or cancellations of orders% MRP Se&ondary Re,orts 1% Performance>control reports 3% Planning reports 3% $<ception reports Ot)er Considerations
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*ot si7ing is the 'hoosing of a lot si7e for ordering or production%

.or dependant demand, managers have variety of methods availa le as there is no clear cut advantage associated !ith anyone particular method% They can use 1% *ot for *ot Ordering% 3% $conomic Order 0uantity Model 3% .i<ed Period Ordering @% Part Period Model% *ot>for>lot ordering 1% Simplest method 3% The order or run si7e for $A'& period is set e=ual to demand for that period% 3% $liminates holding costs for parts carried over to other periods% @% Minimi7es investment in inventory% 2% #t involves different order si7es +can not ma5e use of fi<ed order si7e, standard containers and standardi7ed procedures- and re=uires a ne! setup for each run% 6% #f set up costs can e reduced this !ould e ideal to appro<imate the minimum cost lot si7e% $conomic order =uantity models tend to e less ideal% .i<ed Period Ordering provides coverage for some predetermined num er of periods% "ule of thum eing to order to cover a t!o period interval% Part>Period Model represents an attempt to alance set up and holding costs% The part period term refers to holding part or parts over a num er of periods, e%g% if a usiness holds 34 parts for 3 periods this !ould e a 34 M 3J 64 parts period% $conomic Part Period +$PP- is the ratio of setup costs to the cost of hold a unit for one period% Part>Period Model 1arious order si7es are e<amined for planning hori7on and each one]s num er of part period is determined% The one that is closet to the $PP is selected as the est lot si7e% E8am,-e for Part Period Met)od (se part>period method to determine order si7es for the demand schedule of a Montessori e=uipment manufacturer in Oarachi% The setup cost is "s% E444 per run for this item and unit holding cost is "s% 144 per period% /ata% PERIODS DEMAND CUMU%ATIVE DEMAND $ A< A< 0 = >< 0< $<< $0< > 0 $00 . =< $.0 A " $.0 I I< 000 @ .< 0I0
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ST$P # ? .irst compute $PP !hich is E4448144JE4
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P$"#O/S Period !)en order is ,-a&ed $
%ot Si1e
E8tra In(entory &arried 4 @4 0< 0 <
M'-ti,-ied y Part Periods C'm'-ati(e Periods &arried Part Periods 4 1 0 = < 4 @4 >< A < 4 @4 @< @A <
64 144 $0< $00 =<
Our calculations sho! that !e need to order 133 units to e availa le at period 1 and 144 units should e ordered availa le at period 2% The effect of lumpy demands set in period 2 and period E% Benefits of MRP *o! levels of in>process inventories A ility to trac5 material re=uirements A ility to evaluate capacity re=uirements Means of allocating production time
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Lesson 35 MATERIA% RE9UIREMENTS P%ANNING 6 ENTERPRISE RESOURCE P%ANNING" I %earning O ?e&ti(es /iscuss enefits and re=uirements of M"P% $<plain ho! an M"P system is useful in 'apacity "e=uirements 6enefits and shortcomings of M"P M"P ## and M"P% MRPC A Re&a,
1% Materia- Re7'irements P-anning FMRPG is soft!are focusing on production planning and

inventory control system used to manage manufacturing processes% 3% An M"P system is intended to simultaneously meet three o ;ectives? 1% $nsure materials and products are availa le for production and delivery to customers% 3% Maintain the lo!est possi le level of inventory% 3% Plan manufacturing activities, delivery schedules and purchasing activities% MRP Pro&essing 1% Gross re=uirements a% Total e<pected demand% 3% Scheduled receipts a% Open orders scheduled to arrive% 3% Planned on hand a% $<pected inventory on hand at the eginning of each time period% @% )et re=uirements a% Actual amount needed in each time period% 2% Planned>order receipts a% 0uantity e<pected to e received at the eginning of the period% % Offset y lead time% 6% Planned>order releases a% Planned amount to order in each time period% U,dating t)e MRP Systems 1% "egenerative system a% (pdates M"P records periodically% 3% )et>change system a% (pdates MP" records continuously% MRP in Ser(i&es 1% 3% 3% @% 2% .ood catering service $nd item J^ catered food /ependent demand J^ ingredients for each recipe, i%e% ill of materials &otel renovation Activities and materials Ae<plodedB into component parts for cost estimation and scheduling
Benefits of MRP 1% *o! levels of in>process inventories 3% A ility to trac5 material re=uirements 3% A ility to evaluate capacity re=uirements Copyright Virtual University of Pakistan
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@% Means of allocating production time Re7'irements of MRP 1% 3% 3% @% 2% 6% 'omputer and necessary soft!are Accurate and up>to>date Master schedules 6ills of materials #nventory records #ntegrity of data
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MRP II 1% 3% 3% @% 2% 6% $<panded M"P !ith emphasis placed on integration .inancial planning Mar5eting $ngineering Purchasing Manufacturing
Ca,a&ity P-anning 'apacity re=uirements planning? The process of determining short>range capacity re=uirements% *oad reports? /epartment or !or5 center reports that compare 5no!n and e<pected future capacity re=uirements !ith pro;ected capacity availa ility% Time fences? Series of time intervals during !hich order changes are allo!ed or restricted% As an operations manager !e should e a le to identify the process of 'apacity Planning% #nfact the 'apacity re=uirements planning process determines short>range capacity re=uirements% The necessary inputs are? 1% Planned order releases for M"P 3% The current shop load 3% "outing information @% Co times Outputs include load reports for each !or5 center%
%e,e!o a tentati,e master ro#uction sc/e#u!e ?se M4P to simu!ate materia! reFuirements Con,ert materia! reFuirements to resource reFuirements &s s/o ca acity a#eFuateH Des +irm u a ortion o' t/e MPS 4e,ise tentati,e master ro#uction sc/e#u!e
Can ca acity 7e c/ange# to meet reFuirements
"o
"o
Des C/ange ca acity
#oad reports? /epartment or !or5 center reports that compare 5no!n and e<pected future capacity re=uirements !ith pro;ected capacity availa ility% (n organi7ation generates a Master Schedule in terms of !hat is needed and not in terms of !hat is possi le or availa le% An over vie! of the capacity planning process includes the follo!ing% 1% The Master schedule is first tested for feasi ility and possi ly ad;usted efore it ecomes permanent% 3% The proposed schedule is processed using M"P to ascertain the materials re=uirements the schedule !ould generate% 3% These are then translated into capacity re=uirements in the form of load reports for each departments or !or5 centers% Copyright Virtual University of Pakistan
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The initial schedule may or may not e feasi le given the limits of production or availa ility of materials% Also, !ith the aid of Time fences +the series of time intervals during !hich order changes are allo!ed or restricted- a feasi le schedule may e finali7ed%
A listing of all raw materials, parts, subassemblies, and assemblies needed to produce one unit C
Product structure Tree for an Item X -e,e!

0 1 +:2; 2 ):2; %:3; E E:2; C
MRP II Man'fa&t'ring Reso'r&e P-anning +MRP II- is defined and accepted y professionals as a method for the effective planning of all resources of a manufacturing company% #deally, it should ans!er operational planning in units, financial planning in rupees, and has a simulation capa ility to ans!er _!hat>if_ =uestions and e<tension of closed>loop M"P% This is not e<clusively a soft!are function, ut a merger of people s5ills, dedication to data ase accuracy, and computer resources% #t is a total company management concept for using human resources more productively% Accounting and finance departments get accurate costs and predict cash flo!s% Operations and $ngineering departments audit and feed in accurate data on production methods in detail, such as? 1% 6ill of Materials 3% 0uality 'ontrol ased operational and functional data% ERP $nterprise resource planning +$"P-? often called the rightful ne<t step in an evolution that egan !ith MP" and evolved into M"P##% #ntegration of financial, manufacturing, and human resources on a single computer system% $"P Strategy 'onsiderations 1% &igh initial cost 3% &igh cost to maintain Copyright Virtual University of Pakistan
+inanc e Marketin g Market %eman# Manu'acturin g
Master Pro#uction sc/e#u!e 2#Iust master sc/e#u!e
Pro#uction !an
M4P
4oug/1cut Ca acity !anning
Ca acity !anning
2#Iust ro#uction !an De s
Pro7!ems H
" o
4eFuirements sc/e#u!es
" o
Pro7!ems H
De s
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3% .uture upgrades @% Training S'mmary
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Materials "e=uirements Planning +M"P- is an information Systems used to handle ordering of dependent demand items + components of assem led products The planning process egins !ith customer orders, !hich are used along !ith any ac5 orders to develop a Master Schedule that indicates timing and =uantity of finished goods% The end items are e<ploded using the ill of materialsP Material "e=uirement Plans are developed sho! =uantity and timing for ordering or producing components% The main features of M"P are the time phasing of re=uirements, calculating component re=uirements and planned order releases% To e successful M"P re=uires a computer program and accurate master production schedules, ills of materials and inventory data% .irms can only implement M"P if they have accurate records M"P ## lin5s usiness planning, production planning and the MPS% $"P:s are more refined as !ell as comprehensive versions of M"P%
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Lesson 36
Cust #n Time Production or *ean Production systems focus on the efficient delivery of products or services% Some of the distinguishing elements of the C#T systems are a pull method to manage material flo!, consistently high =uantity, small lot si7es, uniform !or5 station loads% The C#T systems provide an organi7ational structure for improved supplier coordination y integrating the logistics, production and purchasing processes% 9hen Operations Manager focuses on their organi7ation:s competitive advantage they aim for lo! cost of production, consistent =uality !ith reductions in inventory, space re=uirements, paper!or5 and increases in productivity, employee participation and effectiveness% DIT6%ean Prod'&tion *ean Manufacturing? is a management philosophy focusing on reduction of the seven !astes% 1% Over>production + 'apacity e<ceeding demand3% 9aiting time 3% Transportation @% Processing 2% 'osts 6% #nventory D% Motion + *ac5 of coordination of ody movementsDIT6%ean Prod'&tion #eat'res 6y eliminating !aste +muda-, =uality is improved, production time is reduced and cost is reduced% _Pull_ production + y means of Oan an-% 9hile some elieve that *ean Manufacturing is a set of pro lem solving tools% #n addition, e<perts in this field elieve that philosophy> ased *ean Manufacturing strategy is the most effective !ay to launch and sustain lean activities% +ey -ean man'fa&t'ring ,rin&i,-es 1% 3% 3% @% 2% Oey lean manufacturing principles include? Perfect first>time =uality > =uest for 7ero defects 9aste minimi7ation 'ontinuous improvement Pull processing? products are pulled from the consumer end, not pushed from the production end% 6% .le<i ility D% 6uilding and maintaining a long term relationship !ith suppliers through colla orative ris5 sharing, cost sharing and information sharing arrangements% A,,-i&ations of %ean Man'fa&t'ring 1% 3% 3% @% *ean &ealthcare Systems *ean Soft!are Manufacturing Systems $ngineering *ean Systems in /efense #ndustry
Generi& Strategy for Im,-ementation of a %ean ,rogram 1% Top Management to agree and discuss their lean vision% 3% Management rainstorm to identify pro;ect leader and set o ;ectives% 3% 'ommunicate plan and vision to the !or5force% Copyright Virtual University of Pakistan
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@% As5 for volunteers to form the *ean #mplementation team% 2% Appoint mem ers of the *ean Manufacturing #mplementation Team% 6% Train the #mplementation Team in the various lean tools% Organi1ationa- and O,erationa- Strategies
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1% Organi7ations aiming for C#T system should focus on the &uman "esource Management !ith proper system of incentives, re!ards, la or classification, cooperation and trust in place% 3% Organi7ations should concentrate on effective management of inventory, purchasing, logistics and scheduling% 3% Organi7ations should develop a demand ase system so less !aste is generated and good management of high =uality, small lot si7es, good =uality, standardi7ed components and !or5 methods is ensured% @% *ean or C#T Systems are effective only if they are designed to produce or deliver the right product or the right services in the right =uantities ;ust in time to serve su se=uent processes or customers% 2% Organi7ations !ho design their Operations on C#T philosophy need to encourage partnership concept !hether it:s et!een organi7ations:s purchasing department and supplier or partnership et!een management and la or%
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Lesson 37
9e have progressed our discussion on *ean Production Systems and Cust #n Time Systems and !e !ill no! focus our attention upon *ean Systems in Services, Operational 6enefits associated !ith C#T% 9e !ill also note some of the common #mplementation #ssues along !hich the Organi7ational face !hile implementing C#T% 9e also need to 5no! !hat single Oan an System is and solve some e<amples% C)ara&teristi&s of %ean SystemsC D'st"in"Time 'ontinuous #mprovement !ith the help of *ean Systems is possi le if Operations Managers are a le to focus on some of the common characteristics of *ean Systems, !hich include? 1% 3% 3% @% 2% 6% D% E% F% 14% 11% Pull method of materials flo! 'onsistently high =uality Small lot si7es (niform !or5station loads Standardi7ed components and !or5 methods 'lose supplier ties .le<i le !or5force *ine flo!s Maintenance Automated production Preventive maintenance
The figure elo! of a ship sailing through !aters is a great representation of an organi7ation carrying its usiness !ith hidden roc5s + arriers- li5e scrap, unrelia le suppliers and capacity im alance, carrying the threat of sin5ing the ship% 9ith proper and effective lean production system philosophy in place, this can e avoided and organi7ation can continue to sail through smooth and calm !aters%
Scra
?nre!ia7!e su !iers
Ca acity im7a!ance
%ean Systems in Ser(i&es 1% 3% 3% @% 2% 6% 'onsistently high =uality (niform facility loads Standardi7ed !or5 methods 'lose supplier ties .le<i le !or5force Automation Copyright Virtual University of Pakistan
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D% Preventive maintenance E% Pull method of materials flo! F% *ine flo!s O,erationa- Benefits 1% 3% 3% @% 2% 6% D% E% F% "educe space re=uirements "educe inventory investment "educe lead times #ncrease la our productivity #ncrease e=uipment utili7ation "educe paper!or5 and simple planning systems 1alid priorities for scheduling 9or5force participation #ncrease product =uality
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Im,-ementa- Iss'es 1% Organi7ational considerations a% &uman cost of C#T systems % 'ooperation and trust c% "e!ard systems and la our classifications 3% Process considerations 3% #nventory and scheduling a% MPS sta ility % Setups c% Purchasing and logistics +an an Prod'&tion Contro- System Oan an? 'ard or other device that communicates demand for !or5 or materials from the preceding station% Oan an is the Capanese !ord meaning AsignalB or Avisi le recordB% Paperless production control system% Authority to pull, or produce comes from a do!nstream process% Oan ans also govern the assem ly or Parts: movement authori7ation +an an #orm'-a 9e can mathematically construct the Oan an .ormula, #f !e designate the follo!ing alpha ets ) J Total num er of containers +Or Oan an 'ards/ J Planned usage rate of using !or5 center T J Average !aiting time for replenishment of parts plus average production time for a container of parts M J Policy varia le set y management > possi le inefficiency in the system often called Alpha ' J 'apacity of a standard container
DT(1+X) C
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Often the same formula a ove is used !ith the follo!ing parameters in mind )J ` cards /J usage T J !ait K process time M J efficiency rating ' J in capacity E8am,-e
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A company in Gu;ran!ala is ma5ing ru er tyres and tu es% The operations manager has ;ust completed his M6A from 1( and has o served that factory has inefficient machine group% &e records that the daily demand for 31B tu e is 1444 units% The average !aiting time for a container of the same part is 4%2 day% The processing time for the tyre tu e container is 4%32 day% A container can hold 244 units, currently there are 34 containers for this item% Ca-&'-ate 1% 9hat is the value of policy varia le A*P&AG 3% 9hat is the total planned inventory +!or5 in process and finished goods- for the tyre tu eG 3% Suppose that the policy varia le Alpha is 4, ho! many containers !ould e neededG 9hat is the effect of policy varia le in this pro lemG So-'tion The given data is d is 1444 units, ! ar J 4%2 day% P arJ 4%32 day% OJ 244 units and Alpha is to e calculated% 9e use the e=uation and su stitute values
k8
d: w 9 p ;: 1 9 ; c
Then !ith 34 containers in the system and since each container can hold 244 units, the total planned inventory is 34 +244-J 14,444 units #f Alpha is 4 then on su stituting values !e have
500 8
1000:0.5 90.25 ;: 1 9 ; 20
+1 K a -J244 M 34 8 1444 +4%D2+1 K a -J14,4448D24J13%33 a J13%33 Then !ith 34 containers in the system and since each container can hold 244 units, the total planned inventory is 34 + 244-J 14,444 units #f Alpha is 4 then on su stituting values !e have
16E
Production and Operations Management MGT613 1000:0.5 90.25 ;: 1 9 0 ; k8 500
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1000:0.75 ;: 1 ; 500
OJ D248244J 1%2 or more correctly 3 containers% Sing-e"Card +an an System 1% 3% 3% @% 2% 6% S'mmary Organi7ations use different methods and means to signal the need for material replenishment and production, in this lecture !e studied the effective 5an an system and learnt ho! a single card Oan an, C#T System can e used to control production flo!% $ach container must have a card% Assem ly al!ays !ithdra!s from fa rication +pull system-% 'ontainers cannot e moved !ithout a 5an an% 'ontainers should contain the same num er of parts% Only good parts are passed along% Production should not e<ceed authori7ation%
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DUST IN TIME PRODUCTION S5STEM"II
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Lesson 38
Cust #n Time system provides an organi7ation a ro ust structure y improving the relationship et!een the organi7ation and the supplier y constituting a strategic alliance net!or5 et!een the organi7ation and the suppliers% At the intra organi7ation level, C#T forms a healthy alliance et!een the management and the !or5force, all this contri utes in elimination of !aste% DUST IN TIME Cust>#n>Time +C#T-? C#T can e defined as an integrated set of activities designed to achieve high>volume production using minimal inventories +ra! materials, !or5 in process, and finished goods-% C#T also involves the elimination of !aste in production effort% C#T also involves the timing of production resources +i%e%, parts arrive at the ne<t !or5station A;ust in timeB-% Bust.in.time 4B$)5? A highly coordinated processing system in !hich goods move through the system, and services are performed, ;ust as they are needed% As operations managers !e should remem er this point on!ards that 1% C#T is also 5no!n as lean production 3% C#T is the true pull +demand- system 3% C#T operates !ith very little AfatB % S'mmary DIT Goa-s and B'i-ding B-o&*s Goal of C#T? The ultimate goal of C#T is a alanced system% C#T achieves a smooth, rapid flo! of materials through the system% The ultimate as !ell as supporting goals are represented elo! in the form of a pyramid%
?!timate 2 .oa! 7a!ance# ra i# '!o* Su orting .oa!s
E!iminate #isru tions E!iminate *aste
Make t/e system '!exi7!e
Pro#uct %esign
Process %esign
Personne! E!ements
Manu'actur1 ing P!anning
)ui!#ing )!ocks
9e need to pay special attention on uilding loc5s along !ith secondary loc5s as a sence of one or more o ;ectives can seriously harm the C#T production structure for any manufacturing or service ased organi7ation% Se&ondary Goa-s 1% $liminate disruptions 3% Ma5e system fle<i le 3% $liminate !aste, especially e<cess inventory Big (s3 %itt-e DIT 1% 6ig C#T road focus + #ncludes #nternal as !ell as $<ternala% 1endor relations Copyright Virtual University of Pakistan
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% &uman relations c% Technology management d% Materials and inventory management 3% *ittle C#T narro! focus #nternal to organi7ation a% Scheduling materials % Scheduling services of production DIT B'i-ding B-o&*s 1% Product design 3% Process design 3% Personnel8organi7ational elements @% Manufacturing planning and control The *ean Production System 6ased on t!o philosophies? 1% $limination of !aste 3% "espect for people Traditiona- S',,-ier Net!or*
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1% The organi7ations ma5e its suppliers compete against each other% 3% Also the suppliers can supply the same component or ra! material to the organi7ations competitors thus harming the organi7ations usiness% 3% Organi7ations tend to !aste resources and a lot of time looses its suppliers to the competitors% @% Suppliers too end up a sor ing poor order placement from the organi7ations% 2% The !hole net!or5 faces sluggishness or inertia%
Buyer
Supplie r Supplie r Supplie r Supplie r Supplie r Supplie r Supplie r
Tiered S',,-ier Net!or*
Buyer
First +ier Supp!ier
Supplier
Supplier
Second +ier Supp!ier

Supplier
Supplier
+hird +ier Supp!ier
Supplier
Supplier
Supplier
1% The suppliers !or5 as a strategic alliance to provide components to the organi7ation% 3% #nventory costs as !ell as the overall time involved are reduced% Copyright Virtual University of Pakistan
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3% Order e<ecution is improved and organi7ations do not face the challenge of loosing its suppliers to the competitors% @% There is little or no rivalry et!een the suppliers Transitioning to a DIT System 1% 3% 3% @% 2% 6% D% E% F% Get top management commitment /ecide !hich parts need most effort O tain support of !or5ers Try to reduce scrap material Start y trying to reduce setup times #ncorporate =uality Gradually convert operations 'onvert suppliers to C#T Prepare for o stacles
O sta&-es to Con(ersion 1% Management may not e committed 3% 9or5ers8management may not e cooperative 3% Suppliers may resist DIT in Ser(i&es The asic goal of the demand flo! technology in the service organi7ation is to provide optimum response to the customer !ith the highest =uality service and lo!est possi le cost% 1% $liminate disruptions 3% Ma5e system fle<i le 3% "educe setup and lead times @% $liminate !aste 2% Simplify the process DIT in Ser(i&es FE8am,-esG 1% 3% 3% @% 2% 6% D% DIT II C#T ##? a supplier representative !or5s right in the company:s plant, ma5ing sure there is an appropriate supply on hand% Benefits of DIT Systems 1% 3% 3% @% 2% "educed inventory levels &igh =uality .le<i ility "educed lead times #ncreased productivity Copyright Virtual University of Pakistan (pgrade 0uality 'larify Process .lo!s /evelop Supplier )et!or5s #ntroduce /emand>Pull Scheduling "eorgani7e Physical 'onfiguration $liminate (nnecessary Activities *evel the .acility *oad
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S'mmary
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C#T systems allo! an organi7ation to achieve a alanced smooth flo! of production, more system fle<i ility !ith reduction in !astes and lead time% Proper emphasis on the process and product design along !ith personnel management can provide the necessary control and re!ard of achievement of C#T or *ean Production systems%
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SUPP%5 CHAIN MANAGEMENT
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Lesson 39
upply 6hain? The se=uence of organi7ation:s facilities, functions, and activities that are involved in producing and delivering a product or service% Need for S',,-y C)ain Management 1% 3% 3% @% 2% 6% D% E% #mprove operations #ncreasing levels of outsourcing #ncreasing transportation costs 'ompetitive pressures #ncreasing glo ali7ation #ncreasing importance of e>commerce 'omple<ity of supply chains Manage inventories
Benefits of S',,-y C)ain Management 1% 3% 3% @% 2% 6% *o!er inventories &igher productivity Greater agility Shorter lead times &igher profits Greater customer loyalty
E-ements of S',,-y C)ain Management
E-ement
'ustomers .orecasting /esign Processing #nventory Purchasing Suppliers *ocation *ogistics
%ogisti&s
Ty,i&a- Iss'es
/etermining !hat customers !ant Predicting =uantity and timing of demand #ncorporating customer !ants, mfg%, and time 'ontrolling =uality, scheduling !or5 Meeting demand !hile managing inventory costs $valuating suppliers and supporting operations Monitoring supplier =uality, delivery, and relations /etermining location of facilities /eciding ho! to est move and store materials
The goal of logistic !or5 is to manage the completion of pro;ect life cycles, supply chains and resultant efficiencies% Often *ogistics is termed as the art and science of managing and controlling the flo! of goods, energy, information and other resources li5e products, services, and people, from the source of production to the mar5etplace% #t also refers to the movement of materials and information !ithin a facility and to incoming and outgoing shipments of goods and materials in a supply chain% Copyright Virtual University of Pakistan
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*ogistics is the time related positioning of resources and is commonly seen as a ranch of engineering !hich creates _people systems_ rather than _machine systems% #t involves the integration of information, transportation, inventory, !arehousing, material handling, and pac5aging% % #mportant 'haracteristics of *ogistics 1% 3% 3% @% 2% 6% Movement !ithin the facility 6ar coding #ncoming and outgoing shipments $/# +$lectronic /ata #nterchange/istri ution C#T /eliveries
%ogisti&sC E(a-'ating S)i,,ing A-ternati(es
A situation that arises fre=uently in some usinesses in ma5ing a choice et!een =uic5er+
e<pensive- shipping alternatives such as overnight or 3 day air and slo!er ut cheaper alternatives% The decision in such cases often focuses on the cost savings of alternatives versus the increased holding cost that result from using slo!er alternative% Often the supplier gets paid on delivery of the product through $/# the very same time the order reaches its destination% The #ncremental &olding cost incurred y using the slo!er alternative is computed as follo!s? #ncremental &olding 'ostJ & + d83629here &JAnnual &olding cost for the item% d J Time savings in days and d8362 is fraction of year saved% %ogisti&s E8am,-e /etermine the shipping alternative + !ith in Pa5istan- for a Oarachi ased Montessori toy manufacturer,1 days or 2 days are est !hen the holding cost of the item is "s% 144,444 per year and the 1 day shipping cost is "s 1244 and 3 day shipping cost is "s% 644 "s% 244 So-'tion &J "s% 144,444 per year Time savings J 3 days using 1 day alternative &olding cost for additional 3 days J 144,444 M + 38362J "s% 2@D%F2J2@E% Or &olding cost per day J "s% 3D@ Alternative A 'ost savings J "s% +1244>644-J "s% F44, ecause the actual cost of savings of "s F44 is more than the holding cost of "s% 2@E, use the 3 day option% 'ost savings J "s% +1244>244- J "s% 1444, ecause the actual cost of savings of "s 1444 is greater than the holding cost of "s%2@E, use the 3 day option% Distri 'tion Re7'irements P-anning /istri ution re=uirements planning +/"P- is a system for inventory management and distri ution planning% $<tends the concepts of M"P##% Copyright Virtual University of Pakistan
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(ses of /"P Management uses /"P to plan and coordinate? 1% 3% 3% @% 2% Transportation 9arehousing 9or5ers $=uipment .inancial flo!s
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E-e&troni& Data Inter&)ange $/# is the direct transmission of inter>organi7ational transactions, computer>to>computer, including purchase orders, shipping notices, and de it or credit memos% $lectronic /ata #nterchange gives an organi7ation the follo!ing enefits and advantages% 1% 3% 3% @% 2% 6% D% E% #ncreased productivity "eduction of paper!or5 *ead time and inventory reduction .acilitation of ;ust>in>time systems $lectronic transfer of funds #mproved control of operations "eduction in clerical la or #ncreased accuracy
Effi&ient Cons'mer Res,onse $fficient consumer response +$'"- is a supply chain management initiative specific to the food industry% $'" reflects companies: efforts to achieve =uic5 response using $/# and ar codes% $>'ommerce? is the use of electronic technology to facilitate usiness transactions% S'&&essf'- S',,-y C)ain 1% 3% 3% @% Trust among trading partners $ffective communications Supply chain visi ility $vent>management capa ility a% The a ility to detect and respond to unplanned events 2% Performance metrics S'mmary Supply 'hain Management is primarily the flo! of information !hich ensures the effective flo! of materials throughout the value chain% The chain e<tends from the Suppliers to the organi7ation and from the organi7ation to the customers% Operations Managers should e a le to identify that the strength of the Supply 'hain is the strength of its !ea5est lin5% #f an organi7ation fails to ma5e use of the customer feed ac5 it not only looses its customer ase ut also !ea5ens its supply chain and loses its usiness to its customers% Suppliers normally come at the upstream of the organi7ation and customers at the do!nstream to complete the Supply 'hain% Many Soft!are are availa le to ensure that Supply chain is managed effectively y the organi7ation% Supply 'hain Management is no! gaining popularity in Pa5istan% Copyright Virtual University of Pakistan
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SUPP%5 CHAIN MANAGEMENT"I %earning O ?e&ti(e
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Lesson 40
#n this lecture !e !ill focus on certain important parameters of Supply 'hain Management% 9e !ill discuss the Supply 'hain Operational "eference Metrics and 'olla orative Planning .orecasting and "eplenishment Process, !hich !ould help us analy7e the Supply chains% This !ould also help us an operation manager to design effective supply chains% 9e !ill try to understand the concepts of 1elocity and 6ull!hip effect and ho! they pose a serious challenge to the effectiveness of the Supply 'hain% S',,-y C)ain O,erationa- Referen&e FSCORG Metri&s Pers,e&ti(e "elia ility Metri&s On>time delivery Order fulfillment lead time .ill rate +fraction of demand met from stoc5Perfect order fulfillment Supply chain response time (pside production fle<i ility Agility to o tain competitiveness Supply chain management costs 9arranty cost as a percent of revenue 1alue added per employee Total inventory days of supply 'ash>to>cash cycle time )et asset turns
.le<i ility $<penses Assets8utili7ation
Supply chain response time often ma5es or rea5s a supply chain% CP#R 'P." is an acronym derived from the first letters of the follo!ing phrase? 'olla orative Planning, .orecasting and "eplenishment% 1% .ocuses on information sharing among trading partners% 3% .orecasts can e fro7en and then converted into a shipping plan% 3% $liminates typical order processing% 'P." Process consists of the follo!ing steps% Step 1 .ront>end agreement Step 3 Coint usiness plan Steps 3>2 Sales forecast Steps 6>E Order forecast colla oration Step F Order generation8delivery e<ecution Creating an Effe&ti(e S',,-y C)ain 1% 3% 3% @% 2% /evelop strategic o ;ectives and tactics% #ntegrate and coordinate activities in the internal supply chain% 'oordinate activities !ith suppliers !ith customers% 'oordinate planning and e<ecution across the supply chain% .orm strategic partnerships% Copyright Virtual University of Pakistan
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S',,-y C)ain Performan&e Dri(ers 1% 3% 3% @% 2% Ve-o&ity 0uality 'ost .le<i ility 1elocity 'ustomer service
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1% #nventory velocity? The rate at !hich inventory +material- goes through the supply chain% 3% #nformation velocity? The rate at !hich information is communicated in a supply chain% C)a--enges to an Effe&ti(e S',,-y C)ain Management 1% 3% 3% @% 2% 6% Trade"offs 1% 'ost>customer service a% /isintermediation 3% *ot>si7e>inventory a% 6ull!hip effect 3% #nventory>transportation costs a% 'ross>doc5ing @% *ead time>transportation costs 2% Product variety>inventory a% /elayed differentiation 6ull!hip effect represents the real life time situation that #nventories are progressively larger moving ac5!ard through the supply chain% 'ross>doc5ing represents the fact that the goods arriving at a !arehouse from a supplier are unloaded from the supplier:s truc5 and loaded onto out ound truc5s% Avoids !arehouse storage% /elayed differentiation relates to the Production of standard components and su assem lies, !hich are held until late in the process to add differentiating features% /isintermediation is reducing one or more steps in a supply chain y cutting out one or more intermediaries% S',,-y C)ain Iss'es
Strategic &ssues Tactica! &ssues $ erating &ssues
6arriers to integration of organi7ations Getting top management on oard /ealing !ith trade>offs Small usinesses 1aria ility and uncertainty *ong lead times
?esi*n "' t!e s(pply c!ain8 partnerin*
In&ent"ry p"licies #(rc!asin* p"licies #r"d(cti"n p"licies +ransp"rtati"n p"licies 6(ality p"licies
6(ality c"ntr"l #r"d(cti"n plannin* and c"ntr"l
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S',,-y C)ain Benefits and Dra! a&*s
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Pro -em *arge inventories *ong lead times *arge num er of parts 'ost 0uality 1aria ility
PotentiaIm,ro(ement
Benefits
Possi -e Dra! a&*s Traffic congestion #ncreased costs May not e feasi le% May need a sor functions *ess variety *oss of control *ess variety
Smaller, more fre=uent "educed holding costs deliveries /elayed differentiation 0uic5 response /isintermediation Modular Outsourcing Shorter lead times, etter forecasts .e!er parts Simpler ordering "educed cost, higher =uality A le to match supply and demand
S',,-ier Partners)i,s #deas from suppliers could lead to improved competitiveness 1% "educe cost of ma5ing the purchase 3% #ncrease "evenues 3% $nhance Performance Criti&a- Iss'es 1% Technology management a% 6enefits % "is5s 3% Strategic importance a% 0uality % 'ost c% Agility d% 'ustomer service e% 'ompetitive advantage O,erations Strategy 1% S'M creates value through changes in time, location and =uantity% 3% S'M creates competitive advantage y integrating and streamlining the diverse range of activities that involve purchasing, internal inventory, transfers and physical distri ution% S'mmary Supply 'hain Management dynamics allo! an Operations Manager to evolve an effective strategy that creates value% *ogistics and purchasing alone can allo! an operations manager to effectively control the flo! of information and materials !ith in and to and fro from the organi7ation% Organi7ations aiming for S'M implementation often fail ecause of lac5 of training of their employees as !ell as top managements commitment%
1DF

SCHEDU%ING
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Lesson 41
%earning O ?e&ti(es After completing the introductory discussion on Scheduling, the students !ould e a le to understand !hat scheduling is and ho! important it is to high volume and intermediate volume systems% #t !ould also help them to learn ho! to address scheduling needs in Co shops% The students !ould also learn the use and interpretation of Gantt 'harts% They !ould also use Assignment method for loading along !ith common Priority "ules% They !ould also learn the common and uni=ue scheduling pro lems in Service Systems% S&)ed'-ing Scheduling? Scheduling is an important tool for manufacturing and service industries !here it can have a ma;or impact on the productivity of a process% #n manufacturing, the purpose of scheduling is to minimi7e the production time and costs, y telling a production facility !hat to ma5e, !hen, !ith !hich staff, and on !hich e=uipment% Similarly, scheduling in service industries, such as airlines and pu lic transport, aim to ma<imi7e the efficiency of the operation and reduce costs% Scheduling Modern computeri7ed scheduling tools greatly outperform older manual scheduling methods% This provides the production scheduler !ith po!erful graphical interfaces !hich can e used to visually optimi7e real>time !or5 loads in various stages of the production, and pattern recognition allo!s the soft!are to automatically create scheduling opportunities !hich might not e apparent !ithout this vie! into the data% .or e<ample, an airline might !ish to minimi7e the num er of airport gates re=uired for its aircraft, in order to reduce costs, and scheduling soft!are can allo! the planners to see ho! this can e done, y analy7ing time ta les, aircraft usage, or the flo! of passengers% Scheduling 'ompanies use ac5!ard and for!ard scheduling to plan their human and material resources% 6ac5!ard scheduling is planning the tas5s from the due date to determine the start date and8or any changes in capacity re=uired, !hereas for!ard scheduling is planning the tas5s from the start date to determine the shipping date or the due date% Benefits of S&)ed'-ing Scheduling? $sta lishing the timing of the use of e=uipment, facilities and human activities in an organi7ation 1% $ffective scheduling can yield 3% 'ost savings 3% #ncreases in productivity The enefits of production scheduling include? 1% Process change>over reduction 3% #nventory reduction, leveling 3% "educed scheduling effort @% #ncreased production efficiency 2% *a or load leveling 6% Accurate delivery date =uotes D% "eal time information Hig)"Vo-'me Systems
1% .lo! system? &igh>volume system !ith Standardi7ed e=uipment and activities 3% .lo!>shop scheduling? Scheduling for high>volume flo! system
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3ork Center J1 3ork Center R2
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$ut ut
S&)ed'-ing Man'fa&t'ring O,erations &igh>volume #ntermediate> volume *o!>volume Service operations
Hig)"Vo-'me S'&&ess #a&tors Process and product design Preventive maintenance "apid repair !hen rea5do!n occurs Optimal product mi<es Minimi7ation of =uality pro lems "elia ility and timing of supplies #ntermediate>1olume Systems Outputs are et!een standardi7ed high>volume systems and made>to>order ;o shops "un si7e, timing, and se=uence of ;o s 3: p $conomic run si7e? !4 =
p u
S&)ed'-ing %o!"Vo-'me Systems #oading > assignment of ;o s to process centers e1uencing > determining the order in !hich ;o s !ill e processed Co >shop scheduling Scheduling for lo!>volume systems !ith many variations in re=uirements Gantt %oad C)art 7antt chart > used as a visual aid for loading and scheduling *oad 'hart #oad chart A type of Gantt 'hart that sho!s the loading and idle times for a group of machines or list of departments
C"r: Center 1 2 3 4
/"n. J") 3
+(es.
Ced.
+!(rs. J") 4
Fri.
J") 3 J") 1 J") 10
J") 7 J") 6 J") 7
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chedule chart A type of Gantt 'hart that sho!s the orders or ;o s in progress and !hether they are on schedule or not% $nput/?utput 6ontrol 6hart A type of 'ontrol 'hart that sho!s management of !or5 flo! and =ueues at the !or5 centers %oading Ty,es The common types of loading include the follo!ing 1% #nfinite loading 3% .inite loading 3% 1ertical loading @% &ori7ontal loading 2% .or!ard scheduling 6% 6ac5!ard scheduling D% Schedule chart 9e no! riefly discuss this type of *oading 1% #nfinite loading% Co s are assigned to !or5 centers !ithout regard to the capacity of the !or5 center% 3% .inite loading Co s are assigned to !or5 centers !ith regard to the capacity of the !or5 center and ;o processing times% 3% 1ertical loading? *oading ;o s at a !or5 center, ;o y ;o , usually according to some priority criterion, using infinite loading i%e% Co s are assigned to !or5 centers !ithout regard to the capacity of the !or5 center% @% &ori7ontal loading? *oading each ;o on all !or5 centers it !ill re=uire, then the ne<t ;o on all !or5 centers, according to some priority, using finite loading i%e% Co s are assigned to !or5 centers !ith regard to the capacity of the !or5 center and ;o processing times% 2% .or!ard scheduling? Scheduling ahead, from some point in time 6% 6ac5!ard scheduling? Scheduling y !or5ing ac5!ards from the due date D% Schedule chart A Gantt chart that sho!s the orders or ;o s in progress and !hether they are on schedule or not% Assignment Met)od of %inear Programming Assignment Model is a type of linear programming model for optimal assignment of tas5s and resources &ungarian method is the method of assigning ;o s y a one for one matching to identify the lo!est cost solution *et:s ta5e a step y step approach to understand and ma5e use of &ungarian Method H'ngarian Met)od
.irst of all, ac=uire the relevant cost information and arrange it in ta ular form Second, o tain the "o! "eductionP this is o tained y su tracting the smallest num er in each ro! from every num er in the ro!% $nter the results in a ne! ta le% Third, O tain the 'olumn "eduction y su tracting the smallest num er in each column of the ne! ta le from every num er in the column% .ourth, test !hether an optimum assignment can e made% Rou do this y determining the minimum num er of lines needed to cover + i%e%- cross out all 7eros% #f the num er of lines e=ual the num ers of ro!, an optimum assignment is possi le% #) that case move to final step%
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.ifth, if the num ers of lines is less than the num er of ro!s, modify the ta le in the follo!ing manner o Su tract the smallest uncovered num er from every uncovered num er in the ta le% o Add the smallest uncovered num er to the num ers at the intersections of covering lines o )um ers crossed out ut not at intersections of cross out lines carry over unchanged to the ne<t ta le% Si<th, "epeat steps fourth and fifth unless an Optimal ta le is o tained Seventh, ma5e the assignments% 6egin !ith ro!s or columns !ith only one 7ero% Match items that have 7eros, using only one match for each ro! and each column% 'ross out oth the ro! and column for each ro!%
H'ngarian Met)od E8am,-e Please refer to the matri< !hich sho!s Co s 1,3,3 and @ !ith Machines A, 6, ' and /% CO6S 1 3 3 @ A E 6 3 2 6 6 D 2 14 ' 3 11 D 13 / @ 14 6 F
Please apply the &ungarian Method to ma5e appropriate assignments% Select the "o! Minimum MA'&#)$ CO6S A 6 ' 1 E 6 3 3 6 D 11 3 3 2 D @ 2 14 13
/ @ 14 6 F
"O9 M#) 3 6 3 2
Su tract the smallest num er in reach ro! To form a ne! ta le and select column minimum CO6S 1 3 3 @ 'O* M#) A 6 4 4 4 4 MA'&#)$ 6 @ 1 3 2 1 ' 4 2 @ D 4 / 3 @ 3 @ 3
Su tract the smallest num er in reach column I $nter the results to form a ne! ta le CO6S 1 3 3 @ A 6 4 4 4 MA'&#)$ 6 3 4 1 @ ' 4 2 @ D / 4 3 1 3
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/etermine the minimum num er of lines needed to cross Out all 7eros% &ere !e have three lines only and ro!s are @, so the solution is not optimal H'ngarian Met)od E8am,-e Su tract the smallest value that has not een crossed out from every num er that has not een crossed out +1 here- and add this to num ers that are at intersections of covering lines MA'&#)$ 6 3 4 1 @
CO6S 1 3 3 @
A 6 4 4 4
' 4 2 @ D
/ 4 3 1 3
CO6S 1 3 3 @
MA'&#)$ A 6 6K1JD 3 4K1J1 4 4 4 4 3
' 4 2 3 6
/ 4 3 4 1
/etermine the minimum num er of lines needed to cross Out all 4 +@-, since this e=uals the num er of ro!s, !e o tain the optimum assignment% CO6S 1 3 3 @ A D 1 4 4 MA'&#)$ 6 3 4 4 3 ' 4 2 3 6 / 4 3 4 1
Ma5e the assignments, start !ith ro!s and columns !ith only one 4% Match ;o s !ith machines that have 4 costs% CO6S 1 3 3 @ A D 1 4 4 MA'&#)$ 6 3 4 4 3 ' 4 2 3 6 / 4 3 4 1
The assignment according to &ungarian Method is therefore A@, 36,1' A)/ 3/ Se=uencing e1uencing? /etermine the order in !hich ;o s at a !or5 center !ill e processed% "orkstation? An area !here one person !or5s, usually !ith special e=uipment, on a speciali7ed ;o % S'mmary Scheduling is the timing and coordination of Operations% Scheduling pro lems differ in nature ecause of the system eing designed for high volume, intermediate or lo! volume flo!% #n our ne<t lecture !e !ill discuss its complementary and supplementary concept of Se=uencing% Copyright Virtual University of Pakistan
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SE9UENCING %earning O ?e&ti(es
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Lesson 42
After completing today:s lecture, the students should e a le to develop a comprehensive understanding of scheduling and se=uencing operations !ith the help of &ungarian Methods and Cohnson "ules% The students !ould e a le to understand the priority rules along !ith the need of effective scheduling and se=uencing% The students !ould e a le to develop an Operations Strategy !ith respect to oth Scheduling and Se=uencing% Se7'en&ing e1uencing? /etermine the order in !hich ;o s at a !or5 center !ill e processed% "e=uires order for se=uencing at all !or5 centers as !ell as se=uencing at individual !or5 centers% "orkstation? An area !here one person !or5s, usually !ith special e=uipment, on a speciali7ed ;o % Se=uencing Bob time? Time needed for setup and processing of a ;o % Priority rules? Simple heuristics +'ommonsense rules- used to select the order in !hich ;o s !ill e processed% 1% *ocal "ules + pertaining to single !or5station3% Glo al "ules+ pertaining to multiple !or5station3% Co processing times and due dates are important pieces of information% @% Co time consists of processing time and setup times Priority R'-es 1% .'.S > .irst 'ome, .irst Served? Co s are processed in the order in !hich they arrive at a machine or !or5 center% 3% SPT> Shortest Processing Time? Co s are processed according to processing time at a machine or !or5 center, shortest ;o first% 3% // > /ue /ate? Co s are processed according to due date, earliest due date first% @% '" > critical ratio? Co s are processed according to smallest ratio of time remaining until due date to processing time remaining% 2% S8O > slac5 per operation? Co s are processed according to average slac5 time +time until due date minus remaining time to process-% 'ompute y dividing slac5 time y dividing slac5 time y num er of remaining operations including the current one% 6% "ush emergency? $mergency or Preferred 'ustomers first% Ass'm,tions to Priority R'-es 1% 3% 3% @% The set of ;o s is 5no!n, no ne! ;o s arrive after processing egins and no ;o s are canceled% Setup time is deterministic Processing times are deterministic rather than varia les% There !ill e no interruptions in processing such as machine rea5do!ns , accidents or !or5er illnesses%
Definitions Co .lo! Time? The length of time a ;o is in the shop at a particular !or5station or !or5 center% Co *ateness? This is the length of time the ;o completion date is e<pected to e<ceed the date the ;o !as due or promised to a customer% 1E2 Copyright Virtual University of Pakistan
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Ma5espan? This is the total time needed to complete a group of ;o s% #t is the length of time et!een the start of the first ;o in the group and the completion of the last ;o in the group% Average )um er of Co s? Co s that are considered in a shop are considered to e !or5 in process inventory% Mathematically Average )um er of Co sJ Total .lo! Time 8 Ma5espan% E8am,-e /etermine the se=uence of ;o s, average time flo!, average days late and average num er of ;o s at the !or5 center, for each of these rules .'.S SPT // '" $<ample /ata CO6 A 6 ' / $ . Part A3 #C#S Assume Co s arrived in the follo!ing order 1% A>6>'>/>$>. CO6 Processing .lo! Time + cumulative /ue /ate +3->+3Se=uences Time processing time- +3+3+1A 3 3 D 4 6 E 14 16 4 ' @ 1@ @ 14 / 14 3@ 1D D $ 2 3F 12 1@ . 13 @1 1E 33 @1 134 2@ Part A% .'.S Average .lo! timeJ Total .lo! Time8)um er of Co sJ13486J34 days Average TardinessJ2@86JF The ma5espan J@1 days Average )um er of Co s at !or5stationJ 1348@1J3%F3 ;o s per !or5station SPT, the se=uence is A>'>$>6>/>. Processing Time 3 E @ 14 2 13 /ue /ate D 16 @ 1D 12 1E
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Part 6 SPT rule CO6 Processing Se=uences Time +1A 3 ' @ $ 2 6 E / 14 . 13 @1 .lo! Time + cumulative processing time+33 6 11 1F 3F @1 14E /ue /ate +3D @ 12 16 1D 1E +3->+34 3 4 3 13 33 @4
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Average .lo! timeJ Total .lo! Time8)um er of Co sJ14E86J1E days Average TardinessJ@486J6%6Ddays The ma5espan J@1 days Average )um er of Co s at !or5stationJ 14E8@1J3%63 ;o s per !or5station Summary Part A,6,' and / DOB Se7'en&es R'-e .'.S SPT // '" Average Average Average )um er of Co s of .lo! *ateness the 9or5 'enter Time +/ays+/ays34%44 F%44 3%F3 1E%44 6%6D 3%63 1E%33 6%33 3%6E 36%6D 1@%1D 3%F
Summary Part A,6,' and / 1% Generally Spea5ing .'.S and '" rule seems to e the least effective% 3% '" is the !orst in each aspect of measurement% 3% The primary limitation of .'.S is that long ;o s !ill tend to delay other ;o s% @% &o!ever in scheduling of service systems, the .'.S has the advantage of simplicity, inherent fairness +first come first served- ut also due to non availa ility of realistic estimates of processing times for individual ;o s% Do)nsonOs R'-e FT!o /or* Center Se7'en&ingG Bohnson=s *ule? techni=ue for minimi7ing completion time for a group of ;o s to e processed on t!o machines or at t!o !or5 centers% 1% Minimi7es total idle time 3% Several conditions must e satisfied Cohnson:s "ule 'onditions 1% 3% 3% @% 2% Co time must e 5no!n and constant Co times must e independent of se=uence Co s must follo! same t!o>step se=uence Co priorities cannot e used All units must e completed at the first !or5 center efore moving to second
Cohnson:s "ule Optimum Se=uence 1% *ist the ;o s and their times at each !or5 center 3% Select the ;o !ith the shortest time Copyright Virtual University of Pakistan
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3% $liminate the ;o from further consideration @% "epeat steps 3 and 3 until all ;o s have een scheduled Do)nsonOs R'-e E8am,-e P"O'$SS#)G T#M$S + &O("S9or5 'enter 1 9or5 'enter3 2 2 @ 3 E F 3 D 6 E 13 12
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CO6 A 6 ' / $ .
1% Select the ;o !ith shortest processing time% #n our case it is Co / 3% $liminate the ro! of CO6 / I proceed further to select the ne<t ;o !ith shortest processing time !hich is 6 in our case and that too at !or5 center3 3% Similarly se=uencing other ;o s at !or5 centers, !e follo! that if there is tie of no of hours, !e can se=uence it at the eginning or the end% @% 'onstruct a chart to determine the throughput time and idle times at the !or5 centers% 9e have 2% 1st /,3nd $,3rd ',@th .,2th A and 6th 6 S&)ed'-ing Diffi&'-ties 1% 1aria ility in a% Setup times % Processing times c% #nterruptions d% 'hanges in the set of ;o s 3% )o method for identifying optimal schedule 3% Scheduling is not an e<act science @% Ongoing tas5 for a manager Minimi1ing S&)ed'-ing Diffi&'-ties 1% Set realistic due dates 3% .ocus on ottlenec5 operations 3% 'onsider lot splitting of large ;o s S&)ed'-ing Ser(i&e O,erations 1% Appointment systems a% 'ontrols customer arrivals for service 3% "eservation systems a% $stimates demand for service 3% Scheduling the !or5force a% Manages capacity for service @% Scheduling multiple resources a% 'oordinates use of more than one resource
Cy&-i&a- S&)ed'-ing Copyright Virtual University of Pakistan
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1% 3% 3% @% 2% 6% &ospitals, police8fire departments, restaurants, supermar5ets "otating schedules Set a scheduling hori7on #dentify the !or5 pattern /evelop a asic employee schedule Assign employees to the schedule
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Ser(i&e O,eration Pro -ems 1% 'annot store or inventory services 3% 'ustomer service re=uests are random 3% Scheduling service involves a% 'ustomers % 9or5force c% $=uipment Maintenan&e Maintenance? All activities that maintain facilities and e=uipment in good !or5ing order so that a system can perform as intended 6rea5do!n maintenance? "eactive approachP dealing !ith rea5do!ns or pro lems !hen they occur Preventive maintenance? Proactive approachP reducing rea5do!ns through a program of lu rication, ad;ustment, cleaning, inspection, and replacement of !orn parts Maintenan&e Reasons "easons for 5eeping e=uipment running 1% Avoid production disruptions 3% )ot add to production costs 3% Maintain high =uality @% Avoid missed delivery dates Brea*do!n Conse7'en&es Some of the important conse=uences are? 1% Production capacity is reduced ? Orders are delayed 3% )o production? Overhead continues 3% 'ost per unit increases? 0uality issues @% Product may e damaged 2% Safety issues a% #n;ury to employees % #n;ury to customers Tota- Maintenan&e Cost
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TotaCost
Pre,enti,e maintenance cost
Co st
)reak#o*n an# re air cost $ timum 2mount o' Pre,enti,e Maintenance
Pre(enti(e Maintenan&e Preventive maintenance? goal is to reduce the incidence of rea5do!ns or failures in the plant or e=uipment to avoid the associated costs 1% Preventive maintenance is periodic 3% "esult of planned inspections 3% According to calendar @% After predetermined num er of hours $<ample 1 .re=uency of rea5do!n
"um7er o' 7reak#o*ns +reFuency o' occurrence 0 1
& .60
' .10
.20
.30
#f the average cost of a rea5do!n is "s%14,444, and the cost of preventative maintenance is "s%13,244 per month, should !e use preventive maintenanceG $<ample 1 Solution N'm er of Brea*do!ns #re7'en&y of O&&'rren&e 30< 3=< 3>< 3$< $3<< E8,e&ted n'm er of Brea*do!ns < 3=< 3@< 3=< $3><
< $ 0 =
$<pected cost to repair J 1%@ rea5do!ns per month M "s%14,444 J "s%1@,444 Preventive maintenance J "s%13,244% PM results in savings of "s%1244 per month Copyright Virtual University of Pakistan
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Predi&ti(e Maintenan&e
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Predictive maintenance? An attempt to determine !hen est to perform preventive maintenance activities Total productive maintenance? C#T approach !here !or5ers perform preventive maintenance on the machines they operate Brea*do!n Programs 1% 3% 3% @% Stand y or ac5up e=uipment that can e =uic5ly pressed into service #nventories of spare parts that can e installed as needed Operators !ho are a le to perform minor repairs "epair people !ho are !ell trained and readily availa le to diagnose and correct pro lems !ith e=uipment
Re,-a&ement 1% 3% 3% @% 2% 6% D% Trade>off decisions 'ost of replacement vs% cost of continued maintenance )e! e=uipment !ith ne! features vs% maintenance #nstallation of ne! e=uipment may cause disruptions Training costs of employees on ne! e=uipment .orecasts for demand on e=uipment may re=uire ne! e=uipment capacity 9hen is it time for replacementG
O,erations Strategy 1% Scheduling can hinder or help the Operations Strategy% 3% An on time delivery of a product or service is only possi le if the Operations Managers is a le to do effective scheduling% 3% An ineffective scheduling !ould result in inefficient use of resources and possi le dissatisfied customers% @% Scheduling as an Operations Strategy can provide an organi7ation a competitive advantage over its competitors% 2% Time ased competition depends on good scheduling% 6% Good design, superior =uality and other elements of a !ell run organi7ation are meaningless if effective scheduling is a sent from Operations Management Strategy% D% Scheduling is that an5 alance !hich may seem great in num ers ut if not used effectively !ould not ma5e any sense% S'mmary Scheduling involves timing and coordination of operations% Scheduling is different for high volume, intermediate volume and lo! volume% Scheduling for ;o shops is very comple<, ecause of variety ;o s that need to e processed% The t!o ma;or pro lems in Scheduling is the assigning of ;o s to the machines +!or5 centers- and se=uence of operations at a machine% Gantt *oad charts are used to help managers visuali7e the !or5 load situation% Scheduling of service systems re=uire appointment or reservation systems, although all systems are not amena le to this% 9hen multiple resources are involved, the alancing can e difficult% Maintenance Activities ensure that se=uence activities are completed on time and as per schedule% Maintenance adds to revenue and not to costs%
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PRODECT MANAGEMENT
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Lesson 43
%earning O ?e&ti(es After completing our lectures @3 and @@, !e should e a le to understand the 6ehavioral aspects of pro;ects in terms of pro;ect personnel and the pro;ect manager% 9e should e a le to appreciate the nature and importance of !or5 rea5do!n structure in Pro;ect Management% 9e should develop a !or5ing 5no!ledge of P$"T8'PM techni=ues% 'onstruct simple net!or5 diagrams and try to assimilate the 5ind of information that a P$"T or 'PM analysis can provide% And last ut not the least !e should e a le to analy7e net!or5s !ith pro a ilistic times and descri e activity AcrashingB and solve some pro lems% Pro?e&ts Pro;ects are uni=ue, one>time +temporary- operations designed to accomplish a specific set of o ;ectives in a limited time frame% This property of eing a temporary and a one>time venture contrast !ith operations, !hich are permanent or semi>permanent ongoing functional !or5 to create the same product or service over>and>over again% The management of these t!o systems is often very different and re=uires varying technical s5ills and philosophy, hence re=uiring the development of pro;ect management Pro?e&t Management Pro;ect Management is the organi7ing and managing resources in such a !ay that these resources deliver all the !or5 re=uired to complete a pro;ect !ithin defined scope, time, and cost constraints% A pro;ect is a temporary and one>time endeavor underta5en to create a uni=ue product or service% /istinguishing characteristics of Pro;ect Management 1% &o! is it differentG *imited time frame )arro! focus, specific o ;ectives *ess ureaucratic 3% 9hy is it usedG Special needs Pressures for ne! or improves products or services 3% Pro;ect Management has the follo!ing important 5ey metrics Time 'ost Performance o ;ectives +ey S'&&ess #a&tors 9hat are the Oey Success .actorsG 1% Top>do!n commitment 3% &aving a capa le pro;ect manager 3% &aving time to plan @% 'areful trac5ing and control 2% Good communications Pro;ect Management has certain ma;or administrative issues, such as 1% $<ecutive responsi ilities 3% Pro;ect selection 3% Pro;ect manager selection @% Organi7ational structure Copyright Virtual University of Pakistan
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2% Organi7ational alternatives 6% Manage !ithin functional unit D% Assign a coordinator E% (se a matri< organi7ation !ith a pro;ect leader Pro;ect Management normally involves the 5no!ledge of Pro;ect management tools, 9or5 rea5do!n structure, )et!or5 diagram, Gantt charts and "is5 management% Pro?e&t ManagementC Hos,ita9e are given the tas5 of setting up a hospital facility in our community% The plan is to set up oth medicine and surgery facilities related to all important fields of medicine and surgery% The pro;ect Managers are re=uired to list the possi le activities in the form of Planning and Scheduling +Gantt 'hart- and )et!or5 /iagram AO) and AOA Activities
5antt c!art
Locate new facilities Interview staff Hire and train staff Select and order Machinery e!odel and install !achines Start "ttendin# Patient
M2 4
2P 4
M2 D
K? "
K? -
2? .
SE P
$C T
"$ 0
%E C
Pro;ect Management? &ospital 'onstruction and Operation Activities include? *ocate ne! facilities #ntervie! staff &ire and train staff Select and order Machinery "emodel and install phones Start Patient $<amination8startup Net!or* Diagrams and Con(entions
a c 7 a
7 c
c 7
c
%ummy acti,ity
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Pro?e&t Net!or* Q A&ti(ity on Arro!
$r#er 'urnitur e -ocate 'aci!itie s
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6
+urniture setu
2
4emo#e!
1
&nter,ie *
Mo,e in
Eire an# train
Pro?e&t Net!or* Q A&ti(ity on Node

$r#er 'urniture -ocate 'aci!ities
+urniture setu
1
4emo#e!
6
Mo,e &n
S
&nter,ie* Eire an# train
Activity on Arro!? The )et!or5 diagram convention in !hich arro!s designate activities% Activity on )ode? The )et!or5 diagram convention in !hich the nodes designate the activities% Activities? Pro;ect steps that consume or utili7e resources +and or time-% $vents? The starting and finishing of activities designated y nodes in the Activity on Arro! notation% Path? Se=uence of activities that leads from the starting node to the finishing node 'ritical path? The longest pathP determines e<pected pro;ect duration 'ritical activities? Activities on the critical path Slac5? Allo!a le slippage for pathP the difference the length of path and the length of critical path
Critica! Pat/
#at! 1$2$3$4$5$6 1$2$5$6 1$3$5$6

Pro?e&t %ife Cy&-e
<en*t!
,1ee:s-
Slac: 2 0 6
18 20 14
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The Pro;ect *ife 'ycle comprises of a ne! concept idea for a uni=ue activity !hich is then evaluated through feasi ility reports, planned !ith certain se=uence of activities, e<ecution of activities and terminated after the pro;ect has een completed or shelved due to certain unavoida le% 9hat is important is to note that all stages of Pro;ect *ife 'ycle are administered and handled y competent Pro;ect Management team or Pro;ect Managers%
C"ncep t
+easi7i!it y P!annin g Executio n Terminatio n
Planning and Scheduling involves the follo!ing 5ey decisions? /eciding !hich pro;ects to implement Selecting a pro;ect manager Selecting a pro;ect team Planning and designing the pro;ect Managing and controlling pro;ect resources /eciding if and !hen a pro;ect should e terminated Res,onsi i-ities of a Pro?e&t Manager Pro;ect Manager is normally considered responsi le for? Pro;ect Management "esponsi le for? Technical and .inancial Analysis Pro;ect Manager is normally considered to have =ualification such as PMP certification '.M, '.A and '.P certification Pro;ect Manager should e s5illed enough to carryout or supervise the calculation of .inancial $valuation and #nvestment Analysis 'ost 6enefit Analysis Pro;ect Managers should e a le to focus on $thical #ssues and avoid? Temptation to understate costs 9ithhold information Misleading status reports .alsifying records 'ompromising !or5ers: safety Approving su standard !or5 /or* Brea*do!n Str'&t're A pro;ect is different that operations due to its uni=ue nature% A good pro;ect management practice is to rea5do!n the pro;ect into su level or group of similar activities% These su level or group of similar activities is called 9or5 6rea5do!n Structure% The !or5 rea5do!n structure usually represents a Parent 'hild Activity !ith the relationship et!een a parent and child level eing easily identifia le% The !or5 rea5 do!n structure allo!s a pro;ect manager to incorporate more administrative control over the pro;ect activities% Copyright Virtual University of Pakistan
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ProIect C
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-e,e! 1 -e,e! 2 -e,e! 3 -e,e! 6

PERT and CPM P$"T? 'PM? 1% 3% 3% @% Program $valuation and "evie! Techni=ue 'ritical Path Method Graphically displays pro;ect activities $stimates ho! long the pro;ect !ill ta5e #ndicates most critical activities Sho! !here delays !ill not affect pro;ect
Ad(antages of PERT 1% 3% 3% @% 2% .orces managers to organi7e Provides graphic display of activities #dentifies 'ritical activities Slac5 activities
%imitations of PERT 1% 3% 3% @% #mportant activities may e omitted Precedence relationships may not e correct $stimates may include a fudge factor May focus solely on critical path
Pro?e&t S&o,e and S&o,e Cree, Pro;ect Scope refers to the total !or5 needed out of a pro;ect% The primary tool re=uired to descri e Pro;ect Scope is the 9or5 6rea5do!n Structure% Often pro;ects suffer from an irritant 5no!n as scope creep% Scope creep is the unnecessary e<tension of pro;ect scope !hich does not allo! the pro;ect to e completed !ithin udget and !ith in the time limits% Organi7ations incorporate special management techni=ues to isolate and eliminate scope creep% Senior Management is advised and trained y outside consultants to avoid decisions !hich lead to increase in usiness scope creep or technical scope creep% Technical Scope creep +li5e Gold plating- is the unfortunate tendency of technical side to add certain avoida le and costly features in their products +services or soft!ares- to ma5e their product or service more po!erful and attracta le to the customers% 6usiness Scope creep +often called customer pleasingis the tendency of the usiness managers to over do the customer relationship !ith their customers% A pragmatic strategy to avoid scope creep is to e ;udicious to the original pro;ect scope and religiously avoid uncalled for usiness or technical additions that may incorporate scope creep% Copyright Virtual University of Pakistan
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S'mmary
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9e learnt the Pro;ect Management concept to e different and uni=ue from operations side% Operations represent a repetition of same activities !hile pro;ects represent e<ecution of uni=ue activities% &o!ever there e<ist similarities !hich include administration of activities y pro;ect manager in a similar fashion to the activities performed y the operations manager% 9e discussed the )et!or5 /iagrams, an &ospital e<ample Pro;ect in terms of Gantt 'hart, 9or5 6rea5do!n Structure and ;o responsi ilities of a Pro;ect Manager%
1FD

PRODECT MANAGEMENT"I %earning O ?e&ti(es
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Lesson 44
After learning a out the net!or5 diagrams, the pro;ect life cycle and the responsi ilities of pro;ect manager% 9e !ill no! learn the important concept of time estimates +!hich is ased on computing algorithms of $arly Start, $arly .inish, *ate Start and *ate .inish- and variances !hich are used to control the pro;ect activities% 9e !ill consider important aspects li5e the for!ard and ac5!ard path time estimates, Pro;ect 'rashing, Time 'ost Trade Offs, Pro;ect Management Soft!are, "is5 Management and develop a pro;ect management ased Operations Strategy% Time Estimates There are t!o common types of time estimates namely 1% /eterministic? Time estimates that are fairly certain 3% Pro a ilistic? $stimates of times that allo! for variation E8am,-eC Hos,ita9e ta5e the same hospital e<ample and no! place the time dimension to it % 6 *eeks
er s $r# /ine c a M
ne c/i Ma u Set
8 *eeks
te s ca -o i!itie 'ac
&n te
3 *eeks
o#e ! 11 *eeks
4em
$ erationa!
5
1 *eek
in ra # t ta'' n a a! S re Ei e#ic 9 *eeks M
r,
ie *
6 *eeks
3
The activities from locating the facility to ma5ing the hospital fully are represented in the form of a net!or5 diagram% The student should try to !rite do!n the activities along !ith the activity description then try to dra! the net!or5 diagram using oth the activity on node and activity on arro! as practice% Com,'ting A-gorit)m )et!or5 activities 1% $S? early start 3% $.? early finish 3% *S? late start @% *.? late finish (sed to determine 1% $<pected pro;ect duration 3% Slac5 time 3% 'ritical path
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Pro a i-isti& Time Estimates 1% Optimistic time ? Time re=uired under optimal conditions 3% Pessimistic time? Time re=uired under !orst conditions 3% Most li5ely time? Most pro a le length of time that !ill e re=uired Pro a ilistic $stimates re=uire t!o important parameters li5e $<pected Time and 1ariance represented y te and [ respectively%
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to 2cti,ity Start $ timistic Time
tm
te
t Pessimistic Time
te
!here
t + 4t +t o m p = 6
Most -ike!y Time :mo#e;
te = e pected time to = optimi!tic time tm = mo!t li"ely time tp = pe!!imi!tic time

Varian&e The !ord variance reflects the s=uare of standard deviation of activities on a path and represented y [3% The si7e of variance reflects the degree of uncertainty associated !ith activity:s time, the larger the variance the larger the uncertainty%
(tp # to)$ = %6
2 = &ariance to = optimi!tic time tp = pe!!imi!tic time

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E8am,-e
3ptimistic +ime 4ost !i$e!y +ime Pessimistic +ime
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&,-,1 b
,%,' a
,. &,' c
',-,. d
,1 &,' g
',.,/ e
.,/,0 f
-,1 ', i
-,1,2 h
Path Pro a ilities
Speci(ied time # Pat) ' mean = Q indicates ho! many standard deviations of the path distri ution the specified tine Pat) !tandard de&iation is eyond the e<pected path duration% #f the value of A7B is K3%24 or more, treat the pro a ility of path
completion y the specified time as 144 percent% Time"&ost Trade"offsC Cras)ing 'rash is the shortening activity duration Procedure for crashing 'rash the pro;ect one period at a time Only an activity on the critical path 'rash the least e<pensive activity Multiple critical paths? find the sum of crashing the least e<pensive activity on each critical path Pro?e&t Cras)ing 'rashing a pro;ect involves paying more money to complete a pro;ect more =uic5ly% Since the critical path determines the length of a pro;ect, it ma5es sense to reduce the length of activities on the critical path% 'ritical Path activities should e reduced until the pro;ect is reduced to the desired length or you are paying more per day than you save% #f you have multiple 'ritical Paths, they should e shortened simultaneously% Time>'ost Trade>Offs? 'rashing Time>'ost Trade>Offs? 'rashing
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Tota! Cost Ex ecte# &n#irect costs
S/orten
Cumu!ati,e Cost o' Cras/ing $ timum
C42SE S/orten
$<ample The manager of a P&A is a out to underta5e a reforestation pro;ect throughout Pa5istan% &e is first as5ed to carryout a pilot pro;ect% The pro;ect !ill involve the follo!ing si< activities? S"% ACTIVIT5 PRECEEDS ` STA"T ( 1 9 M R Q (,1 9 9,M Q R Q $)/ TIME ESITIMATES F DA5SG OPT#M#ST#' MOST *#O$*RA P$SS#M#ST#' A aB mB A B 32 3E 36 3E 36 36 24 @4 32 @4 3F 64 62 23 @@ 23 3E E@
So-'tion? .irst of all, !e construct net!or5 diagram ased on Activity on )ode follo!ed y calculating the pro a ilistic time AtB and standard deviation A[B using the formulas given elo! and then the $S,$. and *S, *. using the for!ard pass +progression- and ac5!ard pass +progression- respectively% t J +aK@mK -86 and [ J + >a-86 Copyright Virtual University of Pakistan
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The denominator of A6B reflects the concept of area under the curve that the range of data lies to K 3 Standard /eviations from mean also it sho!s the !eighted average%
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$nd
Start
24
( 9
32
Q
@4
1
@4
@4
ACTIVIT5 START U V / B 5 S I3 Activity ( Activity 1 Activity 9 Activity M Activity R Activity Q
TIME ESITIMATES F DA5SG K aL K mL K L =. 0@ 0A 0@ 0A =A .< >< =. >< 0J A< A. .0 >> .0 =@ @>
t .< >< =. >< =< A<
R . > = > 0 @
#OR/AR D ES E# < < .< >< @< $$< .< >< @. @< $$< $I<
BAC+/ARD %S 0. < I. >< @< $$< %# I. >< $$< @< $$< $I<
S%AC+ n 0. < 0. < < <
Time KtL : FaH>mH G6A J +32K@+24- K62-86J +144K344-86J 34486J 24 days J +3EK@+@4- K23-86J +E4K164-86J 3@486J @4 days J +36K@+32- K@@-86J +D4K1@4-86J 31486J 32 days J +3EK@+@4- K23-86J +E4K164-86J 3@486J @4 days J +36K@+3F- K3E-86J +6@K116-86J 1E486J 34 days J +36K@+64- KE@-86J +134K3@4-86J 36486J 64 days
Standard De(iation KRL : F "aG6A Activity ( Activity 1 Activity 9 Activity M Activity R Activity Q Criti&a- Pat) The critical path is the longest path ta5en for the pro;ect to complete% .rom Start to $nd there are three possi le paths as from the )et!or5 /iagram Start (>9>Q>$nd J 24 K 32K64 J 1@2 days +logically incorrectStart>1>M>R>Q>$ndJ @4K@4K34K64 J 1D4 days Start>1>9>Q>$ndJ @4K32K64 J 132 days +logically incorrect.or the 'ritical Path, !e also calculate the standard deviation of Pro;ect portfolio Start>1>M>R>Q>$ndJ[3J a+@-3K+@-3K+3-3K+E-3bJ +16K16K@K6@-J +144 Then [ J S=uare "oot + 144- J 14 days Also individual sum of standard deviations J @K@K3KE J 1E days Copyright Virtual University of Pakistan J J J J J J +62>32-86J +34-86J 2 days +23>3E-86J +3@-86J @ days +@@>36-86J +1E-86J 3 days +23>3E-86J +3@-86J @ days +3E>36-86J +13-86J 3 days +E@>36-86J +@E-86J E days
343
VU
Since portfolio pro;ect [ J 14 days is less than individual sum of 1E days, it sho!s our value of portfolio [ is correct )ormal /istri ution A7B J +M>c-8[ , no! since MJ 344 days c J 1D4 days, [J 14 days Also (sing the )ormal Pro a ility 'urve
c J 1D4 days, [J 14 days
MJ 344 days
QJ +M c-8[ J +344>1D4-814J 34814J 3%4 According to the standard normal ta le, the area at 7 J 3 is 4%@FED% Adding 4%2 for left hand side of the standard normal curve, !e get 4%FFED%
0%3? 9hat is the estimated e<pected +mean- time for Pro;ect 'ompletionG 132 days 1@2 days 1D4 days 1E4 days 322 days T)e ans!er is $I< Days FC)oi&e CG 0%@? 9hat is the estimated slac5 time for activity 9G 4 days 32 days 32 days @2 days E2 days T)e ans!er is 0. Days FC)oi&e BG 0%2? 9hat is the pro a ility that the critical path for this pro;ect !ill e completed !ith in 344 daysG 4%E@13 4%F2@@ 4%FDD3 4%FFD@ 4%FFED 6ased on the calculations of critical path A[B a ove, the ans!er comes out to e 4%FFED +C)oi&e E-%
@ E 3 14
D 11
Given the portion of the net!or5 sho!n a ove, !hat is the earliest finish time for activity 14>11, if the earliest start time of E>14 is A13B and the earliest start time of F>14 is A13BG 33 33 3@ 32 Copyright Virtual University of Pakistan
343

36 0%1? 9hat is the estimated e<pected +mean- time for activity RG 34 days 3F days 3E days 36 days 32 days T)e ans!er is =< Days FC)oi&e AG
VU
34@

ACTIVIT5 t START E to 14 F to 14 14 to 11 @ 3 D #OR/ARD $S $. 13 13 16 16 12 0= BAC+/ARD *S *. 13 1@ 16 16 16 33 S%AC+ n 4 1 4
VU
0%3? 9hat is the estimated standard deviation in the time for activity QG 3 days 3 days @ days E days 2 days T)e ans!er is @ Days FC)oi&e DG
%5
& f
e 0
So-(ed E8am,-es Rou have een hired as the 'hief Pro;ect Manager, y your city:s Oa adi Association for construction, renovation and repairs of the city Oa adi Stadium% The Oa adi Associations President had in the past hired an #ndian 'onsultant to help him carry out the tas5 of e<panding and improving the hoc5ey stadium% The #ndian 'onsultant left the !or5 after collecting the time +in days- associated !ith the activities and developing the for!ard path net!or5 diagrams%
IME E) IM( E) (" I*I + ,P IMI) I" M,) $I-E$+ PE))IMI) I" IMMEDI( E PREDE"E)),R * + C , 7 ) = A C / / C ( . B B C A % C C 2 2 + * *,C + 7,)
. c
% / C / C
342

?
VU
2 .
Finis!
Start C
The Association President has as5ed you to calculate the follo!ing? a% 'alculate the e<pected time and variance for each activity% % 'alculate the activity slac5s and determine critical path using e<pected activity timesG c% 9hat is the pro a ility of completing the pro;ect !ith in 224 daysG Solution 9e first of all calculate the $<pected times and variances for each activity using the formulae respectively teJ +aK@mK -86 [3J ++ >a-86-3 The results are presented in the form of the ta le
(" I*I + E.PE" ED IME * + C , 7 ) = 4.00 5.50 3.50 12.00 6.50 9.00 4.50 *(RI(/"E 1.00 0.69 0.25 1.78 2.25 2.78 0.69
f% 9e need to calculate the $arliest Start, *atest Start, $arliest .inish, *atest .inish represented y
the sym ols $S, *S, $. and *. respectively% 9e use the for!ard path net!or5 diagram as provided y the hoc5ey association:s president%
346

(" I*I + * + C , 7 ) = E) 0.00 0.00 5.50 4.00 9.00 5.50 15.50 EF 4.00 5.50 9.00 16.00 15.50 14.50 20.00 t 4.00 5.50 3.50 12.00 6.50 9.00 4.50
VU
As !e can see from the ta le a ove the earliest time y !hich Activity G !ould finish is 34 days and re=uires @%2 days of time to complete% 9e need to 5no! calculate values of *atest Start and *atest .inish using the ac5!ard path% Please refer to the ac5!ard path diagram elo!, the direction of arro!s have een reversed indicating that !e are actually ac5 tracing the activities !ith the same times as calculated a ove using for!ard path%
)2CL324% P2TE ?
2 .
Finis!
Start C
(" I*I + 5 F 2 ? C B .
$) 15.50 6.50 9.00 8.00 5.50 0.00 4.00

Start
$F 20.00 15.50 15.50 20.00 9.00 5.50 8.00

+inis/ $) 4.00 0.00 5.50 8.00 9.00 13.00 15.50 EF 4.00 5.50 9.00 16.00 15.50 14.50 20.00
t 4.50 9.00 6.50 12.00 3.50 5.50 4.00
(" I*I + * + C , 7 ) =
E) 0.00 0.00 5.50 4.00 9.00 5.50 15.50
$F 8.00 5.50 9.00 20.00 15.50 15.50 20.00
)$("4.00 0.00 0.00 4.00 0.00 1.00 0.00
"RI I"($ P( 0 A9 S2S S2S A9 S2S A9 S2S
34D

P( 0 .$? .$2$5 B$C$2$5 B$F$5 E.PE" ED IME 16.00 15.00 20.00 19.00 *(RI(/"E 2.78 3.94 3.89 4.17
VU
The critical path is 6>'>$>G !ith total e<pected time of 34 days% c% 9e first calculate the 7 value Q J J J J +t>te-8d[3 +33>34-8d3%EF 381%FD3 1%2314
(sing the )ormal /istri ution ta le, !e calculate the pro a ility of completing the pro;ect in 33 days to e 4%F32D% Pro?e&t Management Soft!are Too-s 1% 'omputer aided design +'A/3% Group!are +*otus )otes3% Pro;ect management soft!are a% 'A Super Pro;ect % &arvard Total Manager c% MS Pro;ect d% Sure Trac5 Pro;ect Manager e% Time *ine Ad(antages of PM Soft!are 1% 3% 3% @% 2% 6% D% E% #mposes a methodology Provides logical planning structure $nhances team communication .lag constraint violations Automatic report formats Multiple levels of reports $na les !hat>if scenarios Generates various chart types
Pro?e&t Ris* Management "is5? occurrence of events that have undesira le conse=uences 1% /elays 3% #ncreased costs 3% #na ility to meet specifications @% Pro;ect termination Ris* Management 1% #dentify potential ris5s 3% Analy7e and assess ris5s 3% 9or5 to minimi7e occurrence of ris5 Copyright Virtual University of Pakistan
34E

@% $sta lish contingency plans O,erations Strategy
VU
1% Many Organi7ations have setup a separate Pro;ect Management department or cell to administer uni=ue and non repetitive activities% 3% The scope of the pro;ect decides !hether to use a pro;ect management soft!are tool or not% 3% Pro;ect teams normally operate as a matri< team !ith employees from different functional departments !or5ing !ith the pro;ect team% #n such situations the organi7ations device a strategy that pro;ect manger should lead the team as he or she is more a!are of the situation eing faced y the !hole organi7ation as !ell as the constituent functional departments% S'mmary 1% 3% 3% @% Pro;ects are uni=ue set of activities esta lished to given set of o ;ectives in a limited time span% P$"T and 'PM t!o commonly used techni=ues for developing and monitoring pro;ects% T!o slightly different conventions can e used for constructing a net!or5 diagram% The tas5 of developing and updating pro;ect net!or5s =uic5ly ecomes pro;ects of even moderate si7e or P' applications% 2% A deterministic approach is useful for estimating the duration of the pro;ect, !hen activity times can e fairly !ell esta lished% 6% #n some instances, it may e possi le to shorten or crash the length of a pro;ect y shortening one or more of the pro;ect activities% D% Often Pro;ects are shortened to the point !here the cost of additional reduction !ould e<ceed the enefit of additional reduction to a specified time%
34F

/AITING %INES %earning O ?e&ti(es
VU
Lesson 45
After completing the lecture, !e should e a le to e<plain the formation of !aiting lines in unloaded systems, identify the goal of =ueuing + !aiting line- analysis, list the measures of system performance that are used in =ueuing analysis% 9e should e a le to understand the importance of simulation and at the same time !e should loo5 eyond the Production Operations Management class as usiness graduate professionals adding value to the society% Visit to a Cri&*et Stadi'm 1% 9aiting in lines does not add en;oyment 3% 9aiting in lines does not generate revenue 3% 9aiting *ines @% 9aiting lines are non>value added occurrences 2% Are formed at airports, cric5et stadiums, post offices% 6% .ormed due to non scheduled random arrivals D% Often regarded as poor service =uality /aiting %ine E8am,-es 1% 3% 3% @% 2% Orders !aiting to e filled Truc5s !aiting to e loaded or unloaded Co !aiting to e processed $=uipment !aiting to e loaded Machines !aiting to e repaired%
Ser(i&e Station as a /aiting %ine E8am,-e Service station is usually designed to provide service on average service time% At macro level system is unloaded at micro level the system is overloaded a Parado< 'ustomers arrive at random rate Service re=uirements vary only oil change or even tuning or maintenance activity in order to change oil /aiting %ines 0ueuing theory? Mathematical approach to the analysis of !aiting lines% 1% Goal of =ueuing analysis is to minimi7e the sum of t!o costs 'ustomer !aiting costs and Service capacity costs% 3% 9aiting lines are non>value added occurrences Im,-i&ations of /aiting %ines 1% 'ost to provide !aiting space 3% *oss of usiness a% 'ustomers leaving % 'ustomers refusing to !ait 3% *oss of good!ill @% "eduction in customer satisfaction 2% 'ongestion may disrupt other usiness operations
314

9'e'ing Ana-ysis
VU
Organi7ations carry out =ueuing analysis to ensure that they are a le to alance the service levels !ith costs !hich the organi7ation can incur% The ultimate goal of =ueuing analysis is to minimi7e the sum of t!o costs that is the service capacity cost +represented on < a<is- and customer !aiting costs%
Tota! cost
Customer *aiting cost
Ca acity cost
Cost
Tota! cost
Cost o' Ser,ice Ca acity Cost o' Customers 3aiting
Ser,ice ca acity
$ timum
Negati(e E8,onentia- Distri 'tionC Anot)er e8am,-e of Common 9'e'ing System
311
VU
+:t;
P+t ) - = %*3
0 T t 0ueue discipline is considered to e a primary re=uirement in service systems% &o!ever hospital emergency rooms, rush orders in a factory and main frame computer processing of ;o s do not follo! 0ueue /iscipline% System C)ara&teristi&s 1% Population Source a% #nfinite source? customer arrivals are unrestricted % .inite source? num er of potential customers is limited 3% )um er of o servers +channels3% Arrival and service patterns @% 0ueue discipline +order of serviceE-ements of 9'e'ing System
Population Source, Arrivals, 9aiting *ines, Processing Order, Service, System and $<it are the common identifia le elements of a 0ueuing System%
Processing $r#er
2rri,a!s
3aiting -ine System
Ser,ice
Exit
9'e'ing Systems The System characteristics are 1% Population Source 3% )um er of Servers+ 'hannels3% Arrival and Service Patterns @% 0ueue /iscipline
313
VU
/(ltiple C!annels
6hannel, A server in a service system
/(ltiple #!ases
Poisson Distri 'tion Poisson distri 'tion is a discrete pro a ility distri ution and e<presses the pro a ility of a num er of events occurring in a fi<ed period of time if these events occur !ith a 5no!n average rate, and are independent of the time since the last event%
0.25 0.2 0.15 0.1 0.05 0 0 1 2 3 6 5 6 7 8 9 10 11 12

/aiting %ine Mode-s As a student of Operations Management !e can identify the follo!ing types of 9aiting *ine Models in our day to day routine activities% 1% 3% 3% @% Patient ?'ustomers enter the !aiting line and remain until served "eneging? 9aiting customers gro! impatient and leave the line Coc5eying? 'ustomers may s!itch to another line 6al5ing? (pon arriving, decide the line is too long and decide not to enter the line 9aiting Time vs% (tili7ation
The figure represents an increase in system utili7ation at the e<pense of increase in oth length of the !aiting line and average !aiting time% These values increase as the utili7ation approaches 144 percent% The implication is that under normal circumstances, 144 percent utili7ation is not a reali7ation goal%
313
VU
2,erage num7er on time *aiting in !ine
System ?ti!i(ation /aiting Time (s3 Uti-i1ation
1 00B
System Performan&e 1% 3% 3% @% 2% Average num er of customers !aiting Average time customers !ait System utili7ation #mplied cost Pro a ility that an arrival !ill have to !ait
E8am,-e Ser(i&e Station 9'e'ing Mode-sC Infinite"So'r&e 1% 3% 3% @% Single channel, e<ponential service time Single channel, constant service time Multiple channel, e<ponential service time Multiple priority service, e<ponential service time
Priority ModeProcessing or#er
3 2rri,a! s
1
3aiting !ine
1
Ser,ice System Exit
2rri,a!s are assigne# a riority as t/ey arri,e
#inite"So'r&e #orm'-as
31@

) )+U (verage 3umber "aiting # = 3 +1 2 ervice 2actor C = #+) + U - ) +1 2 = 3 # C2 (verage 3umber *unning B = 32 +1 C (verage "aiting )ime " = (verage 3umber being erved A = 23C 3umber in Population 3 = B + # + A
#inite"So'r&e 9'e'ing
VU
"ot *aiting or 7eing ser,e#
3aiting
)eing ser,e#
K ?
/)ere !e 'se t)e form'-a
E T
Ot)er A,,roa&)es Non Mat)emati&a- A,,roa&)es 1% 3% 3% @% 2% 6% D% E% "educe perceived !aiting time 2 = B + #+ A Maga7ines in !aiting rooms "adio8television #n>flight movies .illing out forms /erive enefits from !aiting Place impulse items near chec5out Advertise other goods8services
B+ A
Sim'-ation Simulation? a descriptive techni=ue that ena les a decision ma5er to evaluate the ehavior of a model under various conditions% 1% Simulation models comple< situations 3% Models are simple to use and understand 3% Models can play A!hat ifB e<periments @% $<tensive soft!are pac5ages availa le Sim'-ation Pro&ess 1% 3% 3% @% 2% 6% #dentify the pro lem /evelop the simulation model Test the model /evelop the e<periments "un the simulation and evaluate results "epeat @ and 2 until results are satisfactory Copyright Virtual University of Pakistan
312

Monte Car-o Sim'-ation
VU
Monte 'arlo method? Pro a ilistic simulation techni=ue used !hen a process has a random component 1% #dentify a pro a ility distri ution 3% Setup intervals of random num ers to match pro a ility distri ution 3% O tain the random num ers @% #nterpret the results E8am,-e S)o!ing t)e 'se of Mi&rosoft E8&eAn Operations Manager ma5es est use of the po!er of Microsoft $<cel y carrying out simulation% The first picture elo! sho!s a snapshot !hich carries the formulae and the second picture represents the actual values%
316
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Sim'-ating Distri 'tions commonly used are the Poisson and )ormal /istri utions% Poisson distri 'tion? Mean of distri ution is re=uired Norma- Distri 'tion? )eed to 5no! the mean and standard deviation Stim'-ated Va-'e: Mean H Random N'm er B Standard De(iation Uniform Distri 'tion
+:x;
Stimulated 1alueJ aK + >a-+"andom num er as a percentageCom,'ter Sim'-ation Simulation languages 1% S#MS'"#PT ##%2 Copyright Virtual University of Pakistan
31D

3% GPSS8& 3% GPSS8P' @% "$S0 Advantages of Simulation 1% Solves pro lems that are difficult or impossi le to solve mathematically 3% Allo!s e<perimentation !ithout ris5 to actual system 3% 'ompresses time to sho! long>term effects @% Serves as training tool for decision ma5ers *imitations of Simulation 1% /oes not produce optimum solution 3% Model development may e difficult 3% 'omputer run time may e su stantial @% Monte 'arlo simulation only applica le to random systems 9hy Simulation is necessary 1% Mathematics involved is too complicated 3% $asier to manipulate than reality 3% Soft!are and hard!are permit modeling Simulation Steps 1% Pro lem formulation 3% Model uilding 3% /ata ac=uisition @% Model translation 2% 1erification I validation 6% $<periment planning I e<ecution D% Analysis E% #mplementation I documentation O,erations Strategy
VU
1% The central idea for formulating an Operations Strategy for 9aiting *ine concept is designing a service system to achieve a alance et!een service capacity and customer !aiting time% 3% The operations strategy should e a le to identify an appropriate and accepta le level of service capacity as !ell as =uality so !aiting lines are not formed or formed !hich are managea le and accepta le to the customers% 3% Often Organi7ations !hen challenged y lac5 of practical solutions or space constraints opt for a more tangi le =uality ased solutions y engaging the !aiting customers in activities !hich give the customers not only an opportunity to ma5e use of the time ut also to ma5e the !aiting time less painful and more pleasant% S'mmary Analysis of !aiting lines can e an important milestone in the design of improved service systems% 9aiting lines have a tendency to form in even those systems !hich in a macro sense are under loaded or unloaded% The arrival of customers at random times and varia ility of service times com ine to create temporary overloads% 9hen this happens, !aiting lines appear% A ma;or consideration in the analysis of the =ueuing systems is !hether the num er of potential customers is limited +finite source- or !hether entry to the system is unrestricted +infinite source-%Of the 2 models !e studied, @ dealt !ith infinite source and 1 !ith finite source population% As a rule, the models assume that customer arrival rates are descri ed y Poisson distri ution and service time can e descri ed y a negative e<ponential distri ution%
31E

POMA Strategies eyond t)e fina- e8am
VU
1% #n the long run +!hen factors of production change, any or com ination of the factors of la or, land, technology-, productivity gro!th is almost everything if not everything% 3% /o not create artificial non operational management strategies means to alance capacity to demand +#t can cause competitive advantage to shift to!ards your competitor and your organi7ation losing the competition% 3% &o! much does it really cost to manufacture a product or develop a service + refer to the concept of total costs, !hich !e learnt in our discussions on inventory management, alternative capacity, =uality, maintenance and !aiting lines@% 'ompetitive advantage in operational and organi7ation strategy creates a !in !in situation for the organi7ation% 2% Operations Manager should learn to thin5 at the margin +an addition in cost y 1 "upee+unit cost- !ould increase or decrease the revenue y 1 "upee+unit revenue8 enefit--% 6% &o! !e as Operations Manager can play a part in minimi7ation of costs of most important of services in Pa5istan i%e% education and medical% Trade off et!een $ffectiveness and =uality% D% &o! and !hy Pro;ect Management concepts are e=ually important to Production Operations Management and vice versa% E% The importance of coordinating, planning, controlling, udgeting operations and pro;ect activities in achieving our firms short and long term o ;ectives% F% The concepts of strategy, competitiveness and productivity, design of product and services, design of !or5 systems and facilities, concept of =uality and system improvement as applica le in organi7ations e applied to Pa5istan% 14% &o! as Operations Manager !e can communicate to masses the importance of Pa5istani domestic mar5ets and ho! they help in capital formation% #f !e say no to foreign goods consumption, foreign good !ould not come to our place and !e can generate a !ell deserved saving% That saving can e channeli7ed to provide clean and drin5a le !ater, etter health care, education or even used for infrastructural issues% e%g% if 1 T of Pa5istani population saves "s% 14 per !ee5 for 1 year alone !e !ould have almost DE4 million rupees or 13 to 13 Million (S dollars y !hich !e can set iogas plants or !aste incinerator oiler ased po!er generation or clean drin5ing !aters or even institutions of higher learning% $$$$$$$$$$$$$$$$$$$$$$$+72 2A?$$$$$$$$$$$$$$$$$$$$$
31F

Operations and Production Management Notes

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Production and Operations Management MGT613

INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT POMA

Production and Operations Management MGT613

Copyright Virtual University of Pakistan

Production and Operations Management MGT613

Production and Operations Management MGT613

C'rrent Trends in B'siness Copyright Virtual University of Pakistan

Production and Operations Management MGT613

*egal Personnel Accounting M#S

Production and Operations Management MGT613

Percent Service $mployment for Selected )ations +Source not Authenticated-

Stages of E&onomi& De(e-o,ment in Pa*istan Copyright Virtual University of Pakistan

Production and Operations Management MGT613

Production and Operations Management MGT613

Copyright Virtual University of Pakistan

Production and Operations Management MGT613

Production and Operations Management MGT613

Production and Operations Management MGT613

3% 'ost or 'ost *eadership, offers the product or service at an economical price

Production and Operations Management MGT613

Copyright Virtual University of Pakistan

Production and Operations Management MGT613

+actics 9peratin* pr"ced(res

+actics 9peratin* pr"ced(res

+actics 9peratin* pr"ced(res

Mission? Goal? Strategy? Tactics? Operations? $<amples of Strategies 1% 3% 3% @% 2% 6%

Copyright Virtual University of Pakistan

Production and Operations Management MGT613

Cor orate Strategy

&ncrease $rgani(ation Si(e

&ncrease Pro#uction Ca acity

%ecisions on Processes an# &n'rastructure

)ui!# "e* +actory

Strategy Design Process for Services

Customer Pers ecti,e

Customer 0a!ue Pro osition

&nterna! Pers ecti,e

-earning an# .ro*t/ Pers ecti,e

2 Moti,ate# an# Pre are# 3ork'orce

Production and Operations Management MGT613

Production and Operations Management MGT613

Production and Operations Management MGT613

0uality rand image, technology use, features, or

)ote? /ifferentiation in service means reputation for customer service%

Production and Operations Management MGT613

Copyright Virtual University of Pakistan

Production and Operations Management MGT613

Output *a or K 'apital K $nergy

%a or Prod'&ti(ity Ma&)ine Prod'&ti(ity Ca,ita- Prod'&ti(ity Energy Prod'&ti(ity $<ample

9(tp(t <a)"r = /aterials = 9&er!ead

+D244 units-S+14414,444 K 2,444 K 34,444 +D24,44432,444 Copyright Virtual University of Pakistan

Production and Operations Management MGT613

Machine 6 Machine ' Machine /

Copyright Virtual University of Pakistan

Production and Operations Management MGT613

Production and Operations Management MGT613

Copyright Virtual University of Pakistan

Production and Operations Management MGT613

Production and Operations Management MGT613

Copyright Virtual University of Pakistan

Production and Operations Management MGT613

Copyright Virtual University of Pakistan

Production and Operations Management MGT613