Operations Management

Operations Management Operations Management
Chapter Chapter 11--17 17

Roberta Russell & Bernard W. Taylor, III Roberta Russell & Bernard W. Taylor, III
Organization of This Text: Organization of This Text:
Part I Part I Operations Management Operations Management
Intro. to Operations and Intro. to Operations and
Supply Chain Management: Supply Chain Management: Chapter Chapter 1 (Slide 5) 1 (Slide 5)
Quality Management: Quality Management: Chapter Chapter 2 2 (Slide (Slide 67) 67)
Statistical Quality Control: Statistical Quality Control: Chapter Chapter 3 3 (Slide (Slide 120) 120)
11--22
Statistical Quality Control: Statistical Quality Control: Chapter Chapter 3 3 (Slide (Slide 120) 120)
Product Design: Product Design: Chapter Chapter 4 4 (Slide (Slide 186) 186)
Service Design: Service Design: Chapter Chapter 5 5 (Slide (Slide 231) 231)
Processes and Technology: Processes and Technology: Chapter Chapter 6 6 (Slide (Slide 276) 276)
Facilities: Facilities: Chapter Chapter 7 7 (Slide (Slide 321) 321)
Human Resources: Human Resources: Chapter Chapter 8 8 (Slide (Slide 402) 402)
Project Management: Project Management: Chapter Chapter 9 9 (Slide (Slide 450) 450)
Supply Chain Supply Chain
Strategy and Design: Strategy and Design: Chapter Chapter 10 (Slide 507) 10 (Slide 507)
Global Supply Chain Global Supply Chain
Procurement and Distribution: Procurement and Distribution: Chapter Chapter 11 11 (Slide (Slide 534) 534)
Organization of This Text: Organization of This Text:
Part II Part II Supply Chain Management Supply Chain Management
11--33
Procurement and Distribution: Procurement and Distribution: Chapter Chapter 11 11 (Slide (Slide 534) 534)
Forecasting: Forecasting: Chapter Chapter 12 12 (Slide (Slide 575) 575)
Inventory Management: Inventory Management: Chapter Chapter 13 13 (Slide (Slide 641) 641)
Sales and Sales and
Operations Planning: Operations Planning: Chapter Chapter 14 14 (Slide (Slide 703) 703)
Resource Planning: Resource Planning: Chapter Chapter 15 15 (Slide (Slide 767) 767)
Lean Systems: Lean Systems: Chapter Chapter 16 16 (Slide (Slide 827) 827)
Scheduling: Scheduling: Chapter Chapter 17 17 (Slide (Slide 878) 878)
Learning Objectives of Learning Objectives of
this Course this Course
Gain an appreciation of strategic importance Gain an appreciation of strategic importance
of operations and supply chain management of operations and supply chain management
in a global business environment in a global business environment
Understand how operations relates to other Understand how operations relates to other
11--44
Understand how operations relates to other Understand how operations relates to other
business functions business functions
Develop a working knowledge of concepts Develop a working knowledge of concepts
and methods related to designing and and methods related to designing and
managing operations and supply chains managing operations and supply chains
Develop a skill set for quality and process Develop a skill set for quality and process
improvement improvement
Introduction to Operations and Introduction to Operations and
Supply Chain Management Supply Chain Management
Chapter 1 Chapter 1
Lecture Outline Lecture Outline
What Operations and Supply Chain What Operations and Supply Chain
Managers Do Managers Do
Operations Function Operations Function
11--66
Evolution of Operations and Supply Chain Evolution of Operations and Supply Chain
Management Management
Globalization and Competitiveness Globalization and Competitiveness
Operations Operations
Strategy and Organization of the Text Strategy and Organization of the Text
Learning Objectives for This Course Learning Objectives for This Course
What Operations and What Operations and
Supply Chain Managers Do Supply Chain Managers Do
What is Operations Management? What is Operations Management?
design, operation, and improvement of productive design, operation, and improvement of productive
systems systems
What is Operations? What is Operations?
11--77
What is Operations? What is Operations?
a function or system that transforms inputs into outputs of a function or system that transforms inputs into outputs of
greater value greater value
What is a Transformation Process? What is a Transformation Process?
a series of activities along a a series of activities along a value chain value chain extending from extending from
supplier to customer supplier to customer
activities that do not add value are superfluous and activities that do not add value are superfluous and
should be eliminated should be eliminated
Physical: Physical: as in manufacturing operations as in manufacturing operations
Locational: Locational: as in transportation or as in transportation or
warehouse operations warehouse operations
Transformation Process Transformation Process
11--88
warehouse operations warehouse operations
Exchange: Exchange: as in retail operations as in retail operations
Physiological: Physiological: as in health care as in health care
Psychological: Psychological: as in entertainment as in entertainment
Informational: Informational: as in communication as in communication
INPUT
Material
OUTPUT
Operations as a Operations as a
Transformation Process Transformation Process
11--99
Material
Machines
Labor
Management
Capital
TRANSFORMATION
PROCESS
OUTPUT
Goods
Services
Feedback & Requirements Feedback & Requirements
Marketing Marketing
Finance and Finance and
11--10 10
Finance and Finance and
Accounting Accounting
Human Human
Resources Resources
Outside Outside
Suppliers Suppliers
How is Operations Relevant to my How is Operations Relevant to my
Major? Major?
Accounting Accounting
As an auditor you must As an auditor you must
understand the fundamentals of understand the fundamentals of
operations management. operations management.
11--11 11
Information Information
Technology Technology
IT is a tool, and theres no better IT is a tool, and theres no better
place to apply it than in place to apply it than in
operations. operations.
We use so many things you We use so many things you
learn in an operations class learn in an operations class
scheduling, lean production, scheduling, lean production,
theory of constraints, and tons of theory of constraints, and tons of
quality tools. quality tools.
How is Operations Relevant to my How is Operations Relevant to my
Major? (cont.) Major? (cont.)
Economics Economics
Marketing Marketing
Its all about processes. I live Its all about processes. I live
by flowcharts and Pareto by flowcharts and Pareto
analysis. analysis.
How can you do a good job How can you do a good job
11--12 12
Marketing Marketing
Finance Finance
How can you do a good job How can you do a good job
marketing a product if youre marketing a product if youre
unsure of its quality or delivery unsure of its quality or delivery
status? status?
Most of our capital budgeting Most of our capital budgeting
requests are from operations, requests are from operations,
and most of our cost savings, and most of our cost savings,
too. too.
Evolution of Operations and Evolution of Operations and
Craft production Craft production
process of handcrafting products or process of handcrafting products or
services for individual customers services for individual customers
Division of labor Division of labor
11--13 13
Division of labor Division of labor
dividing a job into a series of small tasks dividing a job into a series of small tasks
each performed by a different worker each performed by a different worker
Interchangeable parts Interchangeable parts
standardization of parts initially as standardization of parts initially as
replacement parts; enabled mass replacement parts; enabled mass
production production
Scientific management Scientific management
systematic analysis of work methods systematic analysis of work methods
Mass production Mass production
Supply Chain Management (cont.) Supply Chain Management (cont.)
11--14 14
Mass production Mass production
high high--volume production of a standardized volume production of a standardized
product for a mass market product for a mass market
Lean production Lean production
adaptation of mass production that prizes adaptation of mass production that prizes
quality and flexibility quality and flexibility
Historical Events in Historical Events in
Era Events/Concepts Dates Originator
Industrial
Revolution
Steam engine 1769
James Watt
Division of labor 1776
Adam Smith
11--15 15
Revolution
Interchangeable parts 1790
Eli Whitney
Scientific
Management
Principles of scientific
management
1911
Frederick W. Taylor
Time and motion studies 1911
Frank and Lillian
Gilbreth
Activity scheduling chart 1912
Henry Gantt
Moving assembly line 1913
Henry Ford
Operations Management Operations Management (cont.) (cont.)
Human
Relations
Hawthorne studies 1930 Elton Mayo
Motivation theories
1940s Abraham Maslow
1950s Frederick Herzberg
11--16 16
Relations
Motivation theories 1950s Frederick Herzberg
1960s Douglas McGregor
Operations
Research
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, waiting
line theory, decision
theory, PERT/CPM
1950s
Operations research
groups
MRP, EDI, EFT, CIM
1960s,
1970s
Joseph Orlicky, IBM
and others
JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (total quality
1980s
W. Edwards Deming,
11--17 17
Quality
Revolution
management)
1980s
Joseph Juran
Strategy and
operations
1980s
Wickham Skinner,
Robert Hayes
Business process
reengineering
1990s
Michael Hammer,
James Champy
Six Sigma 1990s GE, Motorola
Internet
Revolution
Internet, WWW, ERP,
supply chain management
1990s ARPANET, Tim
Berners-Lee SAP,
i2 Technologies,
11--18 18
i2 Technologies,
ORACLE
E-commerce 2000s Amazon, Yahoo,
eBay, Google, and
others
Globalization WTO, European Union,
and other trade
agreements, global supply
chains, outsourcing, BPO,
Services Science
1990s
2000s
Numerous countries
and companies
Supply Chain Management (cont.) Supply Chain Management (cont.)
Supply chain management Supply chain management
management of the flow of information, products, and services across management of the flow of information, products, and services across
a network of customers, enterprises, and supply chain partners a network of customers, enterprises, and supply chain partners
11--19 19
Globalization and Globalization and
Competitiveness Competitiveness
Why go global? Why go global?
favorable cost favorable cost
access to international markets access to international markets
11--20 20
access to international markets access to international markets
response to changes in demand response to changes in demand
reliable sources of supply reliable sources of supply
latest trends and technologies latest trends and technologies
Increased globalization Increased globalization
results from the Internet and falling trade results from the Internet and falling trade
barriers barriers
Competitiveness (cont.) Competitiveness (cont.)
11--21 21
Hourly Compensation Costs for Production Workers Hourly Compensation Costs for Production Workers
Source: Source: U.S. Bureau of Labor Statistics, 2005. U.S. Bureau of Labor Statistics, 2005.
11--22 22
World Population Distribution World Population Distribution
Source: Source: U.S. Census Bureau, 2006. U.S. Census Bureau, 2006.
11--23 23
Trade in Goods as % of GDP Trade in Goods as % of GDP
(sum of merchandise exports and imports divided by GDP, valued in U.S. dollars) (sum of merchandise exports and imports divided by GDP, valued in U.S. dollars)
Productivity and Productivity and
degree to which a nation can produce goods and degree to which a nation can produce goods and
services that meet the test of international services that meet the test of international
markets markets
Productivity Productivity
11--24 24
ratio of output to input ratio of output to input
Output Output
sales made, products produced, customers sales made, products produced, customers
served, meals delivered, or calls answered served, meals delivered, or calls answered
Input Input
labor hours, investment in equipment, material labor hours, investment in equipment, material
usage, or square footage usage, or square footage
11--25 25
Measures of Productivity
11--26 26
Average Annual Growth Rates in Productivity, 1995 Average Annual Growth Rates in Productivity, 1995--2005. 2005.
Source: Source: Bureau of Labor Statistics. A Chartbook of Bureau of Labor Statistics. A Chartbook of
International Labor Comparisons. January 2007, p. 28. International Labor Comparisons. January 2007, p. 28.
11--27 27
Average Annual Growth Rates in Output and Input, 1995 Average Annual Growth Rates in Output and Input, 1995--2005 2005
Source: Source: Bureau of Labor Statistics. A Chartbook of International Bureau of Labor Statistics. A Chartbook of International
Labor Comparisons, January 2007, p. 26. Labor Comparisons, January 2007, p. 26.
Dramatic Increase in
Output w/ Decrease in
Labor Hours
Retrenching Retrenching
productivity is increasing, but both output and input productivity is increasing, but both output and input
decrease with input decreasing at a faster rate decrease with input decreasing at a faster rate
11--28 28
decrease with input decreasing at a faster rate decrease with input decreasing at a faster rate
Assumption that more input would cause Assumption that more input would cause
output to increase at the same rate output to increase at the same rate
certain limits to the amount of output may not be certain limits to the amount of output may not be
considered considered
output produced output produced is emphasized, not is emphasized, not output sold output sold; ;
increased inventories increased inventories
Strategy Strategy
Provides direction for achieving a mission Provides direction for achieving a mission
Five Steps for Strategy Formulation Five Steps for Strategy Formulation
Defining a primary task Defining a primary task
Strategy and Operations Strategy and Operations
11--29 29
Defining a primary task Defining a primary task
What is the firm in the business of doing? What is the firm in the business of doing?
Assessing core competencies Assessing core competencies
What does the firm do better than anyone else? What does the firm do better than anyone else?
Determining order winners and order qualifiers Determining order winners and order qualifiers
What qualifies an item to be considered for purchase? What qualifies an item to be considered for purchase?
What wins the order? What wins the order?
Positioning the firm Positioning the firm
How will the firm compete? How will the firm compete?
Deploying the strategy Deploying the strategy
Strategic Planning Strategic Planning
Mission
and Vision
11--30 30
Corporate
Strategy
Operations
Strategy
Marketing
Strategy
Financial
Strategy
Order Winners Order Winners
and Order Qualifiers and Order Qualifiers
11--31 31
Source: Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan
Betts, Betts, Operations and Process Management Operations and Process Management, Prentice Hall, 2006, p. 47 , Prentice Hall, 2006, p. 47
Positioning the Firm Positioning the Firm
Cost Cost
Speed Speed
Quality Quality
11--32 32
Quality Quality
Flexibility Flexibility
Positioning the Firm: Positioning the Firm:
Cost Cost
Waste elimination Waste elimination
relentlessly pursuing the removal of all waste relentlessly pursuing the removal of all waste
Examination of cost structure Examination of cost structure
11--33 33
Examination of cost structure Examination of cost structure
looking at the entire cost structure for looking at the entire cost structure for
reduction potential reduction potential
Lean production Lean production
providing low costs through disciplined providing low costs through disciplined
operations operations
Speed Speed
fast moves, fast adaptations, tight linkages fast moves, fast adaptations, tight linkages
Internet Internet
conditioned customers to expect immediate responses conditioned customers to expect immediate responses
Service organizations Service organizations
11--34 34
Service organizations Service organizations
always competed on speed (McDonalds, LensCrafters, and always competed on speed (McDonalds, LensCrafters, and
Federal Express) Federal Express)
Manufacturers Manufacturers
time time--based competition: build based competition: build--to to--order production and order production and
efficient supply chains efficient supply chains
Fashion industry Fashion industry
two two--week design week design--to to--rack lead time of Spanish retailer, Zara rack lead time of Spanish retailer, Zara
Quality Quality
Minimizing defect rates or conforming to Minimizing defect rates or conforming to
design specifications; please the customer design specifications; please the customer
Ritz Ritz--Carlton Carlton -- one customer at a time one customer at a time
11--35 35
Ritz Ritz--Carlton Carlton -- one customer at a time one customer at a time
Service system is designed to move heaven Service system is designed to move heaven
and earth to satisfy customer and earth to satisfy customer
Every employee is empowered to satisfy a Every employee is empowered to satisfy a
guests wish guests wish
Teams at all levels set objectives and devise Teams at all levels set objectives and devise
quality action plans quality action plans
Each hotel has a quality leader Each hotel has a quality leader
ability to adjust to changes in product mix, ability to adjust to changes in product mix,
production volume, or design production volume, or design
National Bicycle Industrial Company National Bicycle Industrial Company
offers 11,231,862 variations offers 11,231,862 variations
11--36 36
offers 11,231,862 variations offers 11,231,862 variations
delivers within two weeks at costs only 10% delivers within two weeks at costs only 10%
above standard models above standard models
mass customization mass customization: the mass production of : the mass production of
customized parts customized parts
Policy Deployment Policy Deployment
Policy deployment Policy deployment
translates corporate strategy into measurable translates corporate strategy into measurable
objectives objectives
11--37 37
objectives objectives
Hoshins Hoshins
action plans generated from the policy action plans generated from the policy
deployment process deployment process
Policy Deployment Policy Deployment
11--38 38
Derivation of an Action Plan Using Policy Deployment Derivation of an Action Plan Using Policy Deployment
Balanced Scorecard Balanced Scorecard
Balanced scorecard Balanced scorecard
measuring more than financial performance measuring more than financial performance
finances finances
11--39 39
finances finances
customers customers
processes processes
learning and growing learning and growing
Key performance indicators Key performance indicators
a set of measures that help managers evaluate a set of measures that help managers evaluate
performance in critical areas performance in critical areas
Balanced Balanced Scorecard Worksheet Scorecard Worksheet
11--40 40
11--41 41
Radar Chart Radar Chart
Dashboard Dashboard
Operations Strategy Operations Strategy
Products Products
Services Services Process Process
and and
Technology Technology
11--42 42
Capacity Capacity
Human Human
Resources Resources
Quality Quality
Facilities Facilities
Sourcing Sourcing Operating Operating
Systems Systems
Chapter 1 Supplement Chapter 1 Supplement
Decision Analysis Decision Analysis
Operations Operations Management Management Operations Operations Management Management
Decision Making without Probabilities Decision Making without Probabilities
Decision Analysis with Excel Decision Analysis with Excel
Supplement 1 Supplement 1--44 44
Decision Analysis with Excel Decision Analysis with Excel
Decision Analysis with OM Tools Decision Analysis with OM Tools
Decision Making with Probabilities Decision Making with Probabilities
Expected Value of Perfect Information Expected Value of Perfect Information
Sequential Decision Tree Sequential Decision Tree
Quantitative methods Quantitative methods
a set of tools for operations manager a set of tools for operations manager
Decision analysis Decision analysis
Decision analysis Decision analysis
a set of quantitative decision a set of quantitative decision--making making
techniques for decision situations in which techniques for decision situations in which
uncertainty exists uncertainty exists
Example of an uncertain situation Example of an uncertain situation
demand for a product may vary between 0 and 200 demand for a product may vary between 0 and 200
units, depending on the state of market units, depending on the state of market
Decision Making Decision Making
Without Probabilities Without Probabilities
States of nature States of nature
Events that may occur in the future Events that may occur in the future
Examples of states of nature: Examples of states of nature:
high or low demand for a product high or low demand for a product
high or low demand for a product high or low demand for a product
good or bad economic conditions good or bad economic conditions
Decision making under risk Decision making under risk
probabilities can be assigned to the occurrence of probabilities can be assigned to the occurrence of
states of nature in the future states of nature in the future
Decision making under uncertainty Decision making under uncertainty
probabilities can NOT be assigned to the probabilities can NOT be assigned to the
occurrence of states of nature in the future occurrence of states of nature in the future
Payoff Table Payoff Table
Payoff table Payoff table
method for organizing and illustrating payoffs from different method for organizing and illustrating payoffs from different
decisions given various states of nature decisions given various states of nature
Payoff Payoff
outcome of a decision outcome of a decision
outcome of a decision outcome of a decision
States Of Nature States Of Nature
Decision Decision aa bb
11 Payoff 1a Payoff 1a Payoff 1b Payoff 1b
2 2 Payoff 2a Payoff 2a Payoff 2b Payoff 2b
Decision Making Criteria Under Decision Making Criteria Under
Uncertainty Uncertainty
Maximax Maximax
choose decision with the maximum of the choose decision with the maximum of the
maximum payoffs maximum payoffs
Maximin Maximin
choose decision with the maximum of the choose decision with the maximum of the
minimum payoffs minimum payoffs
Minimax regret Minimax regret
choose decision with the minimum of the choose decision with the minimum of the
maximum regrets for each alternative maximum regrets for each alternative
Decision Making Criteria Under Decision Making Criteria Under
Uncertainty (cont.) Uncertainty (cont.)
Hurwicz Hurwicz
choose decision in which decision payoffs are choose decision in which decision payoffs are
weighted by a coefficient of optimism, alpha weighted by a coefficient of optimism, alpha
weighted by a coefficient of optimism, alpha weighted by a coefficient of optimism, alpha
coefficient of optimism is a measure of a coefficient of optimism is a measure of a
decision makers optimism, from decision makers optimism, from 0 0 (completely (completely
pessimistic) to pessimistic) to 11 (completely optimistic) (completely optimistic)
Equal likelihood (La Place) Equal likelihood (La Place)
choose decision in which each state of nature is choose decision in which each state of nature is
weighted equally weighted equally
Southern Textile Southern Textile
Company Company
STATES OF NATURE STATES OF NATURE
Good Foreign Good Foreign Poor Foreign Poor Foreign
DECISION DECISION Competitive Conditions Competitive Conditions Competitive Conditions Competitive Conditions
Expand Expand $ 800,000 $ 800,000 $ 500,000 $ 500,000
Maintain status quo Maintain status quo 1,300,000 1,300,000 --150,000 150,000
Sell now Sell now 320,000 320,000 320,000 320,000
Maximax Solution Maximax Solution
Expand Expand $ 800,000 $ 800,000 $ 500,000 $ 500,000
Expand Expand $ 800,000 $ 800,000 $ 500,000 $ 500,000
Sell now Sell now 320,000 320,000 320,000 320,000
Expand: Expand: $800,000 $800,000
Status quo: Status quo: 1,300,000 1,300,000 Maximum Maximum
Sell: Sell: 320,000 320,000
Decision: Maintain status quo Decision: Maintain status quo
Maximin Solution Maximin Solution
Expand Expand $ 800,000 $ 800,000 $ 500,000 $ 500,000
Expand Expand $ 800,000 $ 800,000 $ 500,000 $ 500,000
Sell now Sell now 320,000 320,000 320,000 320,000
Expand: Expand: $500,000 $500,000 Maximum Maximum
Status quo: Status quo: --150,000 150,000
Sell: Sell: 320,000 320,000
Decision: Expand Decision: Expand
Minimax Regret Solution Minimax Regret Solution
Competitive Conditions Competitive Conditions Competitive Conditions Competitive Conditions
$1,300,000 $1,300,000 -- 800,000 = 500,000 800,000 = 500,000 $500,000 $500,000 -- 500,000 = 0 500,000 = 0
1,300,000 1,300,000 -- 1,300,000 = 0 1,300,000 = 0 500,000 500,000 -- ((--150,000)= 650,000 150,000)= 650,000
1,300,000 1,300,000 -- 1,300,000 = 0 1,300,000 = 0 500,000 500,000 -- ((--150,000)= 650,000 150,000)= 650,000
1,300,000 1,300,000 -- 320,000 = 980,000 320,000 = 980,000 500,000 500,000 -- 320,000= 180,000 320,000= 180,000
Expand: Expand: $500,000 $500,000 Minimum Minimum
Status quo: Status quo: 650,000 650,000
Sell: Sell: 980,000 980,000
Hurwicz Criteria Hurwicz Criteria
Expand Expand $ 800,000 $ 800,000 $ 500,000 $ 500,000
Expand Expand $ 800,000 $ 800,000 $ 500,000 $ 500,000
Sell now Sell now 320,000 320,000 320,000 320,000
= 0.3 = 0.3 1 1 -- = 0.7 = 0.7
Expand: Expand: $800,000(0.3) + 500,000(0.7) = $590,000 $800,000(0.3) + 500,000(0.7) = $590,000 Maximum Maximum
Status quo: Status quo: 1,300,000(0.3) 1,300,000(0.3) --150,000(0.7) = 285,000 150,000(0.7) = 285,000
Sell: Sell: 320,000(0.3) + 320,000(0.7) = 320,000 320,000(0.3) + 320,000(0.7) = 320,000
Equal Likelihood Criteria Equal Likelihood Criteria
Expand Expand $ 800,000 $ 800,000 $ 500,000 $ 500,000
Expand Expand $ 800,000 $ 800,000 $ 500,000 $ 500,000
Sell now Sell now 320,000 320,000 320,000 320,000
Two states of nature each weighted 0.50 Two states of nature each weighted 0.50
Expand: Expand: $800,000(0.5) + 500,000(0.5) = $650,000 $800,000(0.5) + 500,000(0.5) = $650,000 Maximum Maximum
Status quo: Status quo: 1,300,000(0.5) 1,300,000(0.5) --150,000(0.5) = 575,000 150,000(0.5) = 575,000
Sell: Sell: 320,000(0.5) + 320,000(0.5) = 320,000 320,000(0.5) + 320,000(0.5) = 320,000
Decision Analysis with Decision Analysis with
Excel Excel
Decision Analysis with Decision Analysis with
OM Tools OM Tools
Decision Making with Decision Making with
Probabilities Probabilities
Risk involves assigning probabilities to Risk involves assigning probabilities to
states of nature states of nature
states of nature states of nature
Expected value Expected value
a weighted average of decision outcomes in a weighted average of decision outcomes in
which each future state of nature is which each future state of nature is
assigned a probability of occurrence assigned a probability of occurrence
Expected value Expected value
EV ( EV (xx) = ) =
pp((xx
ii
))xx
ii

nn
i i =1 =1
i i =1 =1
xx
ii
= outcome = outcome ii
pp((xx
ii
)) = probability of outcome = probability of outcome ii
where where
Probabilities: Example Probabilities: Example
Expand Expand $ 800,000 $ 800,000 $ 500,000 $ 500,000
Sell now Sell now 320,000 320,000 320,000 320,000
p(good) = 0.70 p(poor) = 0.30 p(good) = 0.70 p(poor) = 0.30
EV(expand): EV(expand): $800,000(0.7) + 500,000(0.3) = $710,000 $800,000(0.7) + 500,000(0.3) = $710,000
EV(status quo): 1,300,000(0.7) EV(status quo): 1,300,000(0.7) --150,000(0.3) = 865,000 150,000(0.3) = 865,000 Maximum Maximum
EV(sell): EV(sell): 320,000(0.7) + 320,000(0.3) = 320,000 320,000(0.7) + 320,000(0.3) = 320,000
Decision: Status quo Decision: Status quo
Probabilities: Excel Probabilities: Excel
Expected Value of Expected Value of
Perfect Information Perfect Information
EVPI EVPI
maximum value of perfect information to maximum value of perfect information to
the decision maker the decision maker
the decision maker the decision maker
maximum amount that would be paid to maximum amount that would be paid to
gain information that would result in a gain information that would result in a
decision better than the one made decision better than the one made
without perfect information without perfect information
EVPI Example EVPI Example
Good conditions will exist Good conditions will exist 70% 70% of the time of the time
choose maintain status quo with payoff of choose maintain status quo with payoff of $1,300,000 $1,300,000
Poor conditions will exist Poor conditions will exist 30% 30% of the time of the time
choose expand with payoff of choose expand with payoff of $500,000 $500,000
choose expand with payoff of choose expand with payoff of $500,000 $500,000
Expected value given perfect information Expected value given perfect information
= $1,300,000 (0.70) + 500,000 (0.30) = $1,300,000 (0.70) + 500,000 (0.30)
= $1,060,000 = $1,060,000
Recall that expected value without perfect Recall that expected value without perfect
information was $865,000 (maintain status quo) information was $865,000 (maintain status quo)
EVPI EVPI== $1,060,000 $1,060,000 -- 865,000 = $195,000 865,000 = $195,000

Sequential Sequential
Decision Trees Decision Trees
A graphical method for analyzing A graphical method for analyzing
decision situations that require a decision situations that require a
sequence of decisions over time sequence of decisions over time
sequence of decisions over time sequence of decisions over time
Decision tree consists of Decision tree consists of
Square nodes Square nodes -- indicating decision points indicating decision points
Circles nodes Circles nodes -- indicating states of nature indicating states of nature
Arcs Arcs -- connecting nodes connecting nodes
Evaluations at Nodes Evaluations at Nodes
Compute EV at nodes 6 & 7 Compute EV at nodes 6 & 7
EV EV((node 6 node 6)= 0.80($3,000,000) + 0.20($700,000) = $2,540,000 )= 0.80($3,000,000) + 0.20($700,000) = $2,540,000
EV EV((node 7 node 7)= 0.30($2,300,000) + 0.70($1,000,000)= $1,390,000 )= 0.30($2,300,000) + 0.70($1,000,000)= $1,390,000
Decision at node 4 is between Decision at node 4 is between
Decision at node 4 is between Decision at node 4 is between
$2,540,000 $2,540,000 for Expand and for Expand and
$450,000 $450,000 for Sell land for Sell land
Choose Expand Choose Expand
Repeat expected value calculations and decisions at Repeat expected value calculations and decisions at
remaining nodes remaining nodes
66
2 2
11
44 $1,160,000 $1,160,000
$1,740,000 $1,740,000
$2,540,000 $2,540,000
0.60 0.60
0.40 0.40
$225,000 $225,000
Market growth Market growth
$2,000,000 $2,000,000
$3,000,000 $3,000,000
$700,000 $700,000
0.80 0.80
$1,290,000 $1,290,000
0.20 0.20
Decision Tree Analysis Decision Tree Analysis
77
11
3 3
44
55
$1,160,000 $1,160,000
$1,360,000 $1,360,000
$790,000 $790,000
$1,390,000 $1,390,000
$2,300,000 $2,300,000
$1,000,000 $1,000,000
$210,000 $210,000
0.40 0.40
0.70 0.70
0.30 0.30
0.60 0.60
$450,000 $450,000
Chapter 2 Chapter 2
Quality Management Quality Management
Roberta Russell & Bernard W. Taylor, III
What Is Quality? What Is Quality?
Evolution of Quality Evolution of Quality
Quality in Service Quality in Service
Companies Companies
Six Sigma Six Sigma
22--68 68
Quality Tools Quality Tools
TQM and QMS TQM and QMS
Focus of Quality Focus of Quality
Customers Customers
Role of Employees in Role of Employees in
Quality Improvement Quality Improvement
Cost of Quality Cost of Quality
Effect of Quality Effect of Quality
Management on Management on
Quality Awards Quality Awards
ISO 9000 ISO 9000
What Is Quality? What Is Quality?
Oxford American Dictionary Oxford American Dictionary
a degree or level of excellence a degree or level of excellence
American Society for Quality American Society for Quality
22--69 69
American Society for Quality American Society for Quality
totality of features and characteristics totality of features and characteristics
that satisfy needs without deficiencies that satisfy needs without deficiencies
Consumers and producers Consumers and producers
perspective perspective
What Is Quality: What Is Quality:
Customers Perspective Customers Perspective
Fitness for use Fitness for use
how well product or how well product or
service does what it is service does what it is
supposed to supposed to
22--70 70
supposed to supposed to
Quality of design Quality of design
designing quality designing quality
characteristics into a characteristics into a
product or service product or service
A Mercedes and a Ford are A Mercedes and a Ford are
equally fit for use, but with equally fit for use, but with
different design dimensions. different design dimensions.
Dimensions of Quality: Dimensions of Quality:
Manufactured Products Manufactured Products
Performance Performance
basic operating characteristics of a product; how basic operating characteristics of a product; how
well a car handles or its gas mileage well a car handles or its gas mileage
Features Features
22--71 71
Features Features
extra items added to basic features, such as a extra items added to basic features, such as a
stereo CD or a leather interior in a car stereo CD or a leather interior in a car
Reliability Reliability
probability that a product will operate properly probability that a product will operate properly
within an expected time frame; that is, a TV will within an expected time frame; that is, a TV will
work without repair for about seven years work without repair for about seven years
Conformance Conformance
degree to which a product meets pre degree to which a product meets pre established established
standards standards
Manufactured Products (cont.) Manufactured Products (cont.)
22--72 72
standards standards
Durability Durability
how long product lasts before replacement; with how long product lasts before replacement; with
care, L.L.Bean boots may last a lifetime care, L.L.Bean boots may last a lifetime
Serviceability Serviceability
ease of getting repairs, speed of repairs, courtesy ease of getting repairs, speed of repairs, courtesy
and competence of repair person and competence of repair person
Aesthetics Aesthetics
how a product looks, feels, sounds, how a product looks, feels, sounds,
smells, or tastes smells, or tastes
Safety Safety
Manufactured Products (cont.) Manufactured Products (cont.)
22--73 73
Safety Safety
assurance that customer will not suffer assurance that customer will not suffer
injury or harm from a product; an injury or harm from a product; an
especially important consideration for especially important consideration for
automobiles automobiles
Perceptions Perceptions
subjective perceptions based on brand subjective perceptions based on brand
name, advertising, and like name, advertising, and like
Services Services
Time and timeliness Time and timeliness
how long must a customer wait for service, how long must a customer wait for service,
and is it completed on time? and is it completed on time?
22--74 74
and is it completed on time? and is it completed on time?
is an overnight package delivered overnight? is an overnight package delivered overnight?
Completeness: Completeness:
is everything customer asked for provided? is everything customer asked for provided?
is a mail order from a catalogue company is a mail order from a catalogue company
complete when delivered? complete when delivered?
Service (cont.) Service (cont.)
Courtesy: Courtesy:
how are customers treated by employees? how are customers treated by employees?
are catalogue phone operators nice and are are catalogue phone operators nice and are
22--75 75
are catalogue phone operators nice and are are catalogue phone operators nice and are
their voices pleasant? their voices pleasant?
Consistency Consistency
is same level of service provided to each is same level of service provided to each
customer each time? customer each time?
is your newspaper delivered on time every is your newspaper delivered on time every
morning? morning?
Accessibility and convenience Accessibility and convenience
how easy is it to obtain service? how easy is it to obtain service?
does service representative answer you calls quickly? does service representative answer you calls quickly?
Accuracy Accuracy
Service (cont.) Service (cont.)
22--76 76
Accuracy Accuracy
is service performed right every time? is service performed right every time?
is your bank or credit card statement correct every month? is your bank or credit card statement correct every month?
Responsiveness Responsiveness
how well does company react to unusual situations? how well does company react to unusual situations?
how well is a telephone operator able to respond to a how well is a telephone operator able to respond to a
customers questions? customers questions?
Producers Perspective Producers Perspective
Quality of conformance Quality of conformance
making sure product or service is produced making sure product or service is produced
22--77 77
making sure product or service is produced making sure product or service is produced
according to design according to design
if new tires do not conform to specifications, they if new tires do not conform to specifications, they
wobble wobble
if a hotel room is not clean when a guest checks if a hotel room is not clean when a guest checks
in, hotel is not functioning according to in, hotel is not functioning according to
specifications of its design specifications of its design
Meaning of Quality Meaning of Quality
22--78 78
A Final Perspective A Final Perspective
Customers and producers perspectives Customers and producers perspectives
depend on each other depend on each other
22--79 79
Producers perspective: Producers perspective:
production process and COST production process and COST
Customers perspective: Customers perspective:
fitness for use and PRICE fitness for use and PRICE
Customers view must dominate Customers view must dominate
Evolution of Quality Management: Evolution of Quality Management:
Quality Gurus Quality Gurus
Walter Shewart Walter Shewart
In 1920s, developed control charts In 1920s, developed control charts
Introduced term Introduced term quality assurance quality assurance
W. Edwards Deming W. Edwards Deming
22--80 80
W. Edwards Deming W. Edwards Deming
Developed courses during World War II to teach Developed courses during World War II to teach
statistical quality statistical quality--control techniques to engineers and control techniques to engineers and
executives of companies that were military suppliers executives of companies that were military suppliers
After war, began teaching statistical quality control to After war, began teaching statistical quality control to
Japanese companies Japanese companies
Joseph M. Juran Joseph M. Juran
Followed Deming to Japan in 1954 Followed Deming to Japan in 1954
Focused on strategic quality planning Focused on strategic quality planning
Quality improvement achieved by focusing on projects Quality improvement achieved by focusing on projects
to solve problems and securing breakthrough solutions to solve problems and securing breakthrough solutions
Armand V. Feigenbaum Armand V. Feigenbaum
In 1951, introduced concepts of total quality control In 1951, introduced concepts of total quality control
and continuous quality improvement and continuous quality improvement
Philip Crosby Philip Crosby
Evolution of Quality Management: Evolution of Quality Management:
Quality Gurus (cont.) Quality Gurus (cont.)
22--81 81
Philip Crosby Philip Crosby
In 1979, emphasized that costs of poor quality far In 1979, emphasized that costs of poor quality far
outweigh cost of preventing poor quality outweigh cost of preventing poor quality
In 1984, defined absolutes of quality management In 1984, defined absolutes of quality management
conformance to requirements, prevention, and zero conformance to requirements, prevention, and zero
defects defects
Kaoru Ishikawa Kaoru Ishikawa
Promoted use of quality circles Promoted use of quality circles
Developed fishbone diagram Developed fishbone diagram
Emphasized importance of internal customer Emphasized importance of internal customer
Demings 14 Points Demings 14 Points
1. 1. Create constancy of purpose Create constancy of purpose
2. 2. Adopt philosophy of prevention Adopt philosophy of prevention
22--82 82
2. 2. Adopt philosophy of prevention Adopt philosophy of prevention
3. 3. Cease mass inspection Cease mass inspection
4. 4. Select a few suppliers based on Select a few suppliers based on
quality quality
5. 5. Constantly improve system and Constantly improve system and
workers workers
6. 6. Institute worker training Institute worker training
7. 7. Instill leadership among Instill leadership among
Demings 14 Points (cont.) Demings 14 Points (cont.)
22--83 83
supervisors supervisors
8. 8. Eliminate fear among employees Eliminate fear among employees
9. 9. Eliminate barriers between Eliminate barriers between
departments departments
10. 10. Eliminate slogans Eliminate slogans
11. 11. Remove numerical quotas Remove numerical quotas
12. 12. Enhance worker pride Enhance worker pride
Demings 14 Points (cont.) Demings 14 Points (cont.)
22--84 84
13. 13. Institute vigorous training and Institute vigorous training and
education programs education programs
14. 14. Develop a commitment from top Develop a commitment from top
management to implement management to implement
above 13 points above 13 points
Deming Wheel: PDCA Cycle Deming Wheel: PDCA Cycle
22--85 85
Quality Tools Quality Tools
Process Flow Process Flow
Chart Chart
Histogram Histogram
Scatter Diagram Scatter Diagram
22--86 86
Chart Chart
Cause Cause--and and--
Effect Diagram Effect Diagram
Check Sheet Check Sheet
Pareto Analysis Pareto Analysis
Statistical Process Statistical Process
Control Chart Control Chart
Flow Chart Flow Chart
22--87 87
Cause Cause--and and--Effect Diagram Effect Diagram
Cause Cause--and and--effect diagram (fishbone diagram) effect diagram (fishbone diagram)
chart showing different categories of problem causes chart showing different categories of problem causes
22--88 88
Cause Cause--and and--Effect Matrix Effect Matrix
Cause Cause--and and--effect matrix effect matrix
grid used to prioritize causes of quality problems grid used to prioritize causes of quality problems
22--89 89
Check Sheets and Histograms Check Sheets and Histograms
22--90 90
Pareto Analysis Pareto Analysis
Pareto analysis Pareto analysis
most quality problems result from a few causes most quality problems result from a few causes
22--91 91
Pareto Chart Pareto Chart
22--92 92
22--93 93
Control Chart Control Chart
22--94 94
TQM and QMS TQM and QMS
Total Quality Management (TQM) Total Quality Management (TQM)
customer customer--oriented, leadership, strategic oriented, leadership, strategic
planning, employee responsibility, planning, employee responsibility,
22--95 95
planning, employee responsibility, planning, employee responsibility,
continuous improvement, cooperation, continuous improvement, cooperation,
statistical methods, and training and statistical methods, and training and
education education
Quality Management System (QMS) Quality Management System (QMS)
system to achieve customer satisfaction system to achieve customer satisfaction
that complements other company that complements other company
systems systems
Focus of Quality Management Focus of Quality Management
Customers Customers
TQM and QMSs TQM and QMSs
serve to achieve customer satisfaction serve to achieve customer satisfaction
Partnering Partnering
22--96 96
Partnering Partnering
a relationship between a company and a relationship between a company and
its supplier based on mutual quality its supplier based on mutual quality
standards standards
Measuring customer satisfaction Measuring customer satisfaction
important component of any QMS important component of any QMS
customer surveys, telephone interviews customer surveys, telephone interviews
Role of Employees in Role of Employees in
Quality Improvement Quality Improvement
Participative Participative
problem solving problem solving
employees involved in employees involved in
quality quality--management management
22--97 97
quality quality--management management
every employee has every employee has
undergone extensive undergone extensive
training to provide quality training to provide quality
service to Disneys guests service to Disneys guests
Kaizen Kaizen
involves everyone in involves everyone in
process of continuous process of continuous
improvement improvement
Quality circle Quality circle
group of workers group of workers
and supervisors and supervisors
from same area from same area
who address who address
Presentation
Implementation
Monitoring
Training
Group processes
Data collection
Problem analysis
Organization
8-10 members
Same area
Supervisor/moderator
Quality Circles Quality Circles
and QITs and QITs
22--98 98
who address who address
quality problems quality problems
Process/Quality Process/Quality
improvement teams improvement teams
(QITs) (QITs)
focus attention on focus attention on
business processes business processes
rather than separate rather than separate
company functions company functions
Solution
Problem results
Problem
Analysis
Cause and effect
Data collection
and analysis
Problem
Identification
List alternatives
Consensus
Brainstorming
Problem analysis
Quality in Services Quality in Services
Service defects are not always easy Service defects are not always easy
to measure because service output to measure because service output
is not usually a tangible item is not usually a tangible item
22--99 99
is not usually a tangible item is not usually a tangible item
Services tend to be labor intensive Services tend to be labor intensive
Services and manufacturing Services and manufacturing
companies have similar inputs but companies have similar inputs but
different processes and outputs different processes and outputs
Quality Attributes in Quality Attributes in
Services Services
Principles of TQM apply Principles of TQM apply
equally well to services equally well to services
and manufacturing and manufacturing
22--100 100
Timeliness Timeliness
how quickly a service is how quickly a service is
provided? provided?
Benchmark Benchmark
best level of quality best level of quality
achievement in one achievement in one
company that other company that other
companies seek to achieve companies seek to achieve
quickest, friendliest, most quickest, friendliest, most
accurate service accurate service
available. available.
Six Sigma Six Sigma
A process for developing and delivering A process for developing and delivering
virtually perfect products and services virtually perfect products and services
Measure of how much a process Measure of how much a process
deviates from perfection deviates from perfection
22--101 101
deviates from perfection deviates from perfection
3.4 defects per million opportunities 3.4 defects per million opportunities
Six Sigma Process Six Sigma Process
four basic steps of Six Sigma four basic steps of Six Sigma align, align,
mobilize, accelerate, and govern mobilize, accelerate, and govern
Champion Champion
an executive responsible for project success an executive responsible for project success
DEFINE DEFINE
CONTROL
IMPROVE IMPROVE
ANALYZE
MEASURE MEASURE
Six Sigma: Six Sigma:
Breakthrough Strategy Breakthrough Strategy DMAIC DMAIC
22--102 102
3.4 DPMO
67,000 DPMO
cost = 25% of
sales
Six Sigma: Six Sigma:
Black Belts and Black Belts and
Green Belts Green Belts
Black Belt Black Belt
project leader project leader
Master Black Belt Master Black Belt
22--103 103
Master Black Belt Master Black Belt
a teacher and mentor a teacher and mentor
for Black Belts for Black Belts
Green Belts Green Belts
project team project team
members members
Six Sigma Six Sigma
Design for Six Sigma (DFSS) Design for Six Sigma (DFSS)
a systematic approach to designing products and a systematic approach to designing products and
processes that will achieve Six Sigma processes that will achieve Six Sigma
22--104 104
processes that will achieve Six Sigma processes that will achieve Six Sigma
Profitability Profitability
typical criterion for selection Six Sigma project typical criterion for selection Six Sigma project
one of the factors distinguishing Six Sigma from one of the factors distinguishing Six Sigma from
TQM TQM
Quality is not only free, it is an Quality is not only free, it is an
honest honest--to to--everything profit maker. everything profit maker.
Cost of Quality Cost of Quality
Cost of Achieving Good Quality Cost of Achieving Good Quality
Prevention costs Prevention costs
costs incurred during product design costs incurred during product design
Appraisal costs Appraisal costs
22--105 105
Appraisal costs Appraisal costs
costs of measuring, testing, and analyzing costs of measuring, testing, and analyzing
Cost of Poor Quality Cost of Poor Quality
Internal failure costs Internal failure costs
include scrap, rework, process failure, downtime, include scrap, rework, process failure, downtime,
and price reductions and price reductions
External failure costs External failure costs
include complaints, returns, warranty claims, include complaints, returns, warranty claims,
liability, and lost sales liability, and lost sales
Prevention Costs Prevention Costs
Quality planning costs Quality planning costs
costs of developing and costs of developing and
implementing quality implementing quality
management program management program
Product Product--design costs design costs
Training costs Training costs
costs of developing and costs of developing and
putting on quality training putting on quality training
programs for employees programs for employees
22--106 106
Product Product--design costs design costs
costs of designing costs of designing
products with quality products with quality
characteristics characteristics
Process costs Process costs
costs expended to make costs expended to make
sure productive process sure productive process
conforms to quality conforms to quality
specifications specifications
programs for employees programs for employees
and management and management
Information costs Information costs
costs of acquiring costs of acquiring
and maintaining data and maintaining data
related to quality, and related to quality, and
development and development and
analysis of reports on analysis of reports on
quality performance quality performance
Appraisal Costs Appraisal Costs
Inspection and testing Inspection and testing
costs of testing and inspecting materials, parts, and costs of testing and inspecting materials, parts, and
product at various stages and at end of process product at various stages and at end of process
Test equipment costs Test equipment costs
22--107 107
Test equipment costs Test equipment costs
costs of maintaining equipment used in testing costs of maintaining equipment used in testing
quality characteristics of products quality characteristics of products
Operator costs Operator costs
costs of time spent by operators to gather data for costs of time spent by operators to gather data for
testing product quality, to make equipment testing product quality, to make equipment
adjustments to maintain quality, and to stop work to adjustments to maintain quality, and to stop work to
assess quality assess quality
Internal Failure Costs Internal Failure Costs
Scrap costs Scrap costs
costs of poor costs of poor--quality quality
products that must be products that must be
discarded, including labor, discarded, including labor,
material, and indirect costs material, and indirect costs
Process downtime costs Process downtime costs
costs of shutting down costs of shutting down
productive process to fix productive process to fix
problem problem
22--108 108
material, and indirect costs material, and indirect costs
Rework costs Rework costs
costs of fixing defective costs of fixing defective
products to conform to products to conform to
quality specifications quality specifications
Process failure costs Process failure costs
costs of determining why costs of determining why
production process is production process is
producing poor producing poor--quality quality
products products
problem problem
Price Price--downgrading costs downgrading costs
costs of discounting poor costs of discounting poor--
quality products quality products that is, that is,
selling products as selling products as
seconds seconds
External Failure Costs External Failure Costs
Customer complaint costs Customer complaint costs
costs of investigating and costs of investigating and
satisfactorily responding to a satisfactorily responding to a
customer complaint resulting customer complaint resulting
from a poor from a poor--quality product quality product
Product liability costs Product liability costs
litigation costs litigation costs
resulting from product resulting from product
liability and customer liability and customer
22--109 109
from a poor from a poor--quality product quality product
Product return costs Product return costs
costs of handling and replacing costs of handling and replacing
poor poor--quality products returned quality products returned
by customer by customer
Warranty claims costs Warranty claims costs
costs of complying with costs of complying with
product warranties product warranties
liability and customer liability and customer
injury injury
Lost sales costs Lost sales costs
costs incurred costs incurred
because customers because customers
are dissatisfied with are dissatisfied with
poor poor--quality products quality products
and do not make and do not make
additional purchases additional purchases
Measuring and Measuring and
Reporting Quality Costs Reporting Quality Costs
Index numbers Index numbers
ratios that measure quality costs against a ratios that measure quality costs against a
base value base value
labor index labor index
22--110 110
labor index labor index
ratio of quality cost to labor hours ratio of quality cost to labor hours
cost index cost index
ratio of quality cost to manufacturing cost ratio of quality cost to manufacturing cost
sales index sales index
ratio of quality cost to sales ratio of quality cost to sales
production index production index
ratio of quality cost to units of final product ratio of quality cost to units of final product
Quality QualityCost Relationship Cost Relationship
Cost of quality Cost of quality
difference between price of difference between price of
nonconformance and conformance nonconformance and conformance
22--111 111
nonconformance and conformance nonconformance and conformance
cost of doing things wrong cost of doing things wrong
20 to 35% of revenues 20 to 35% of revenues
cost of doing things right cost of doing things right
3 to 4% of revenues 3 to 4% of revenues
Effect of Quality Effect of Quality
Management on Productivity Management on Productivity
ratio of output to input ratio of output to input
Quality impact on productivity Quality impact on productivity
fewer defects increase output, and quality fewer defects increase output, and quality
22--112 112
fewer defects increase output, and quality fewer defects increase output, and quality
improvement reduces inputs improvement reduces inputs
Yield Yield
a measure of productivity a measure of productivity
Yield=(total input)(% good units) + (total input)(1-%good units)(% reworked)
or
Y=(I)(%G)+(I)(1 Y=(I)(%G)+(I)(1--%G)(%R) %G)(%R)
Computing Product Computing Product
Cost per Unit Cost per Unit
Y
R K I K
r d
) )( ( ) )( ( +
=
Product Cost
22--113 113
Y
where:
K
d
= direct manufacturing cost per unit
I = input
K
r
= rework cost per unit
R = reworked units
Y = yield
Computing Product Yield Computing Product Yield
for Multistage Processes for Multistage Processes
Y = (I)(%g
1
)(%g
2
) (%g
n
)
22--114 114
where:
I = input of items to the production process that will
result in finished products
g
i
= good-quality, work-in-process products at stage i
Quality QualityProductivity Ratio Productivity Ratio
QPR QPR
productivity index that includes productivity and productivity index that includes productivity and
quality costs quality costs
22--115 115
quality costs quality costs
QPR =
(good-quality units)
(input) (processing cost) + (reworked units) (rework cost)
(100) (100)
Malcolm Baldrige Award Malcolm Baldrige Award
Created in 1987 to stimulate growth of Created in 1987 to stimulate growth of
quality management in United States quality management in United States
Categories Categories
22--116 116
Categories Categories
Leadership Leadership
Information and analysis Information and analysis
Strategic planning Strategic planning
Human resource focus Human resource focus
Process management Process management
Business results Business results
Customer and market focus Customer and market focus
Other Awards for Quality Other Awards for Quality
National individual National individual
awards awards
Armand V. Feigenbaum Armand V. Feigenbaum
Medal Medal
International awards International awards
European Quality Award European Quality Award
Canadian Quality Award Canadian Quality Award
22--117 117
Medal Medal
Deming Medal Deming Medal
E. Jack Lancaster Medal E. Jack Lancaster Medal
Edwards Medal Edwards Medal
Shewart Medal Shewart Medal
Ishikawa Medal Ishikawa Medal
Australian Business Australian Business
Excellence Award Excellence Award
Deming Prize from Japan Deming Prize from Japan
ISO 9000 ISO 9000
A set of procedures and A set of procedures and
policies for international policies for international
quality certification of quality certification of
suppliers suppliers
ISO 9001:2000 ISO 9001:2000
Systems Systems Requirements Requirements
standard to assess ability to standard to assess ability to
22--118 118
Standards Standards
ISO 9000:2000 ISO 9000:2000
Systems SystemsFundamentals Fundamentals
and Vocabulary and Vocabulary
defines fundamental defines fundamental
terms and definitions terms and definitions
used in ISO 9000 family used in ISO 9000 family
standard to assess ability to standard to assess ability to
achieve customer satisfaction achieve customer satisfaction
ISO 9004:2000 ISO 9004:2000
Systems Systems Guidelines for Guidelines for
Performance Improvements Performance Improvements
guidance to a company for guidance to a company for
continual improvement of its continual improvement of its
quality quality--management system management system
ISO 9000 Certification, ISO 9000 Certification,
Implications, and Registrars Implications, and Registrars
ISO 9001:2000 ISO 9001:2000only only
standard that carries third standard that carries third--
party party certification certification
22--119 119
Many overseas companies Many overseas companies
will not do business with a will not do business with a
supplier unless it has ISO supplier unless it has ISO
9000 certification 9000 certification
ISO 9000 accreditation ISO 9000 accreditation
ISO registrars ISO registrars
Statistical Process Control Statistical Process Control
Chapter 3 Chapter 3
Basics of Statistical Process Control Basics of Statistical Process Control
Control Charts Control Charts
33--121 121
Control Charts for Attributes Control Charts for Attributes
Control Charts for Variables Control Charts for Variables
Control Chart Patterns Control Chart Patterns
SPC with Excel and OM Tools SPC with Excel and OM Tools
Process Capability Process Capability
Basics of Statistical Basics of Statistical
Process Control Process Control
Statistical Process Control Statistical Process Control
(SPC) (SPC)
monitoring production process monitoring production process
to detect and prevent poor to detect and prevent poor
UCL UCL
33--122 122
to detect and prevent poor to detect and prevent poor
quality quality
Sample Sample
subset of items produced to subset of items produced to
use for inspection use for inspection
process is within statistical process is within statistical
control limits control limits
UCL UCL
LCL LCL
Basics of Statistical Basics of Statistical
Process Control Process Control (cont.) (cont.)
Random Random
inherent in a process inherent in a process
depends on equipment depends on equipment
and machinery, and machinery,
Non Non--Random Random
special causes special causes
identifiable and identifiable and
correctable correctable
33--123 123
and machinery, and machinery,
engineering, operator, engineering, operator,
and system of and system of
measurement measurement
natural occurrences natural occurrences
correctable correctable
include equipment out of include equipment out of
adjustment, defective adjustment, defective
materials, changes in materials, changes in
parts or materials, broken parts or materials, broken
machinery or equipment, machinery or equipment,
operator fatigue or poor operator fatigue or poor
work methods, or errors work methods, or errors
due to lack of training due to lack of training
SPC in Quality Management SPC in Quality Management
SPC SPC
tool for identifying problems in tool for identifying problems in
order to make improvements order to make improvements
33--124 124
order to make improvements order to make improvements
contributes to the TQM goal of contributes to the TQM goal of
continuous improvements continuous improvements
Quality Measures: Quality Measures:
Attributes and Variables Attributes and Variables
Attribute Attribute
a product characteristic that can be a product characteristic that can be
evaluated with a discrete response evaluated with a discrete response
33--125 125
evaluated with a discrete response evaluated with a discrete response
good good bad; yes bad; yes -- no no
Variable measure Variable measure
a product characteristic that is continuous a product characteristic that is continuous
and can be measured and can be measured
weight weight -- length length
Nature of defect is different in services Nature of defect is different in services
Service defect is a failure to meet Service defect is a failure to meet
SPC Applied to SPC Applied to
Services Services
33--126 126
Service defect is a failure to meet Service defect is a failure to meet
customer requirements customer requirements
Monitor time and customer satisfaction Monitor time and customer satisfaction
Services (cont.) Services (cont.)
Hospitals Hospitals
timeliness and quickness of care, staff responses to requests, timeliness and quickness of care, staff responses to requests,
accuracy of lab tests, cleanliness, courtesy, accuracy of accuracy of lab tests, cleanliness, courtesy, accuracy of
paperwork, speed of admittance and checkouts paperwork, speed of admittance and checkouts
Grocery stores Grocery stores
33--127 127
Grocery stores Grocery stores
waiting time to check out, frequency of out waiting time to check out, frequency of out--of of--stock items, stock items,
quality of food items, cleanliness, customer complaints, quality of food items, cleanliness, customer complaints,
checkout register errors checkout register errors
Airlines Airlines
flight delays, lost luggage and luggage handling, waiting time flight delays, lost luggage and luggage handling, waiting time
at ticket counters and check at ticket counters and check--in, agent and flight attendant in, agent and flight attendant
courtesy, accurate flight information, passenger cabin courtesy, accurate flight information, passenger cabin
cleanliness and maintenance cleanliness and maintenance
Services (cont.) Services (cont.)
Fast Fast--food restaurants food restaurants
waiting time for service, customer complaints, waiting time for service, customer complaints,
cleanliness, food quality, order accuracy, employee cleanliness, food quality, order accuracy, employee
courtesy courtesy
33--128 128
courtesy courtesy
Catalogue Catalogue--order companies order companies
order accuracy, operator knowledge and courtesy, order accuracy, operator knowledge and courtesy,
packaging, delivery time, phone order waiting time packaging, delivery time, phone order waiting time
Insurance companies Insurance companies
billing accuracy, timeliness of claims processing, billing accuracy, timeliness of claims processing,
agent availability and response time agent availability and response time
Where to Use Control Charts Where to Use Control Charts
Process has a tendency to go out of control Process has a tendency to go out of control
Process is particularly harmful and costly if it Process is particularly harmful and costly if it
goes out of control goes out of control
Examples Examples
33--129 129
Examples Examples
at the beginning of a process because it is a waste of at the beginning of a process because it is a waste of
time and money to begin production process with bad time and money to begin production process with bad
supplies supplies
before a costly or irreversible point, after which before a costly or irreversible point, after which
product is difficult to rework or correct product is difficult to rework or correct
before and after assembly or painting operations that before and after assembly or painting operations that
might cover defects might cover defects
before the outgoing final product or service is before the outgoing final product or service is
delivered delivered
A graph that establishes A graph that establishes
control limits of a control limits of a
process process
Control limits Control limits
Types of charts Types of charts
Attributes Attributes
p p--chart chart
33--130 130
Control limits Control limits
upper and lower bands of upper and lower bands of
a control chart a control chart
p p--chart chart
cc--chart chart
Variables Variables
mean (x bar mean (x bar chart) chart)
range (R range (R--chart) chart)
Process Control Chart Process Control Chart
Upper Upper
control control
limit limit
Process Process
Out of control Out of control
33--131 131
11 22 33 44 55 66 77 88 99 10 10
Sample number Sample number
Process Process
average average
Lower Lower
control control
limit limit
Normal Distribution Normal Distribution
33--132 132
=0 =0 11 22 33 --11 --22 --3 3
95% 95%
99.74% 99.74%
A Process Is in A Process Is in
Control If Control If
1. 1. no sample points outside limits no sample points outside limits
2. 2. most points near process average most points near process average
33--133 133
2. 2. most points near process average most points near process average
3. 3. about equal number of points above about equal number of points above
and below centerline and below centerline
4. 4. points appear randomly distributed points appear randomly distributed
Control Charts for Control Charts for
Attributes Attributes
pp--chart chart
uses portion defective in a sample uses portion defective in a sample
33--134 134
uses portion defective in a sample uses portion defective in a sample
cc--chart chart
uses number of defective items in uses number of defective items in
a sample a sample
pp--Chart Chart
UCL = UCL = pp + + zz
pp
LCL = LCL = pp -- zz
pp
33--135 135

pp
zz == number of standard deviations from number of standard deviations from
process average process average
pp == sample proportion defective; an estimate sample proportion defective; an estimate
of process average of process average

pp
= standard deviation of sample proportion = standard deviation of sample proportion

pp
= =
pp(1 (1 -- pp))
nn
Construction of p Construction of p--Chart Chart
NUMBER OF NUMBER OF PROPORTION PROPORTION
SAMPLE SAMPLE DEFECTIVES DEFECTIVES DEFECTIVE DEFECTIVE
11 66 .06 .06
22 00 .00 .00
33--136 136
20 samples of 100 pairs of jeans 20 samples of 100 pairs of jeans
22 00 .00 .00
33 44 .04 .04
:: :: ::
:: :: ::
20 20 18 18 .18 .18
200 200
Construction of p Construction of p--Chart (cont.) Chart (cont.)
pp(1 (1 -- pp))
0.10(1 0.10(1 -- 0.10) 0.10)
= 200 / 20(100) = 0.10 = 200 / 20(100) = 0.10
total defectives total defectives
total sample observations total sample observations
p = p =
33--137 137
UCL = UCL = pp + + zz = 0.10 + 3 = 0.10 + 3
pp(1 (1 -- pp))
nn
0.10(1 0.10(1 -- 0.10) 0.10)
100 100
UCL = 0.190 UCL = 0.190
LCL = 0.010 LCL = 0.010
LCL = LCL = pp -- zz = 0.10 = 0.10 -- 33
pp(1 (1 -- pp))
nn
0.10(1 0.10(1 -- 0.10) 0.10)
100 100
0.10 0.10
0.12 0.12
0.14 0.14
0.16 0.16
0.18 0.18
0.20 0.20
P
r
o
p
o
r
t
i
o
n

d
e
f
e
c
t
i
v
e
P
r
o
p
o
r
t
i
o
n

d
e
f
e
c
t
i
v
e
UCL = 0.190 UCL = 0.190
pp = 0.10 = 0.10
Construction Construction
of p of p--Chart Chart
(cont.) (cont.)
33--138 138
0.02 0.02
0.04 0.04
0.06 0.06
0.08 0.08
0.10 0.10
P
r
o
p
o
r
t
i
o
n

d
e
f
e
c
t
i
v
e
P
r
o
p
o
r
t
i
o
n

d
e
f
e
c
t
i
v
e
22 44 66 88 10 10 12 12 14 14 16 16 18 18 20 20
LCL = 0.010 LCL = 0.010
(cont.) (cont.)
cc--Chart Chart
UCL = UCL = cc + + zz
cc
LCL = LCL = cc -- zz

cc
= = cc
33--139 139
LCL = LCL = cc -- zz
cc
where where
cc = number of defects per sample = number of defects per sample

cc
= = cc
cc--Chart (cont.) Chart (cont.)
Number of defects in 15 sample rooms Number of defects in 15 sample rooms
1 12 1 12
2 8 2 8
SAMPLE SAMPLE
cc = = 12.67 = = 12.67
190 190
15 15
NUMBER NUMBER
OF OF
DEFECTS DEFECTS
33--140 140
2 8 2 8
3 16 3 16
: : : :
: : : :
15 15 15 15
190 190
15 15
UCL UCL = = cc + + zz
cc
= 12.67 + 3 12.67 = 12.67 + 3 12.67
= 23.35 = 23.35
LCL LCL = = cc -- zz
cc
= 12.67 = 12.67 -- 3 12.67 3 12.67
= 1.99 = 1.99
12 12
15 15
18 18
21 21
24 24
N
u
m
b
e
r

o
f

d
e
f
e
c
t
s
N
u
m
b
e
r

o
f

d
e
f
e
c
t
s
UCL = 23.35 UCL = 23.35
cc = 12.67 = 12.67
cc--Chart Chart
(cont.) (cont.)
33--141 141
33
66
99
N
u
m
b
e
r

o
f

d
e
f
e
c
t
s
N
u
m
b
e
r

o
f

d
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f
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c
t
s
22 44 66 88 10 10 12 12 14 14 16 16
LCL = 1.99 LCL = 1.99
(cont.) (cont.)
Control Charts for Control Charts for
Variables Variables
Range chart ( R Range chart ( R--Chart ) Chart )
uses amount of dispersion in a uses amount of dispersion in a
sample sample
33--142 142
sample sample
Mean chart ( x Mean chart ( x --Chart ) Chart )
uses process average of a uses process average of a
sample sample
xx--bar Chart: bar Chart:
Standard Deviation Known Standard Deviation Known
UCL = UCL = UCL = UCL = UCL = UCL = UCL = UCL = x xx xx xx x + + + + + + + + zz
xx
LCL = LCL = LCL = LCL = LCL = LCL = LCL = LCL = x xx xx xx x - -- -- -- - zz
xx
UCL = UCL = UCL = UCL = UCL = UCL = UCL = UCL = x xx xx xx x + + + + + + + + zz
xx
LCL = LCL = LCL = LCL = LCL = LCL = LCL = LCL = x xx xx xx x - -- -- -- - zz
xx
x xx xx xx x + + + + + + + + x xx xx xx x + ... + ... + ... + ... + ... + ... + ... + ... x xx xx xx x x xx xx xx x + + + + + + + + x xx xx xx x + ... + ... + ... + ... + ... + ... + ... + ... x xx xx xx x
= == == == == == == == =
= == == == == == == == = = == == == == == == == =
33--143 143
x xx xx xx x
1 11 11 11 1
+ + + + + + + + x xx xx xx x
2 22 22 22 2
+ ... + ... + ... + ... + ... + ... + ... + ... x xx xx xx x
n nn nn nn n
n nn nn nn n
x xx xx xx x
1 11 11 11 1
+ + + + + + + + x xx xx xx x
2 22 22 22 2
+ ... + ... + ... + ... + ... + ... + ... + ... x xx xx xx x
n nn nn nn n
n nn nn nn n
x xx xx xx x = == == == = x xx xx xx x = == == == =
= == == == == == == == =
where where
x x = average of sample means = average of sample means
where where
x x = average of sample means = average of sample means
= == == == == == == == =
xx--bar Chart Example: bar Chart Example:
Standard Deviation Known (cont.) Standard Deviation Known (cont.)
33--144 144
Standard Deviation Known (cont.) Standard Deviation Known (cont.)
33--145 145
Standard Deviation Unknown Standard Deviation Unknown
UCL = UCL = UCL = UCL = UCL = UCL = UCL = UCL = x xx xx xx x + + + + + + + + A AA AA AA A
2 22 22 22 2
R RR RR RR R LCL = LCL = LCL = LCL = LCL = LCL = LCL = LCL = x xx xx xx x - -- -- -- - A AA AA AA A
2 22 22 22 2
R RR RR RR R UCL = UCL = UCL = UCL = UCL = UCL = UCL = UCL = x xx xx xx x + + + + + + + + A AA AA AA A
2 22 22 22 2
R RR RR RR R LCL = LCL = LCL = LCL = LCL = LCL = LCL = LCL = x xx xx xx x - -- -- -- - A AA AA AA A
2 22 22 22 2
R RR RR RR R
= == == == == == == == = = == == == == == == == =
33--146 146
where where where where where where where where
x xx xx xx x = average of sample means = average of sample means = average of sample means = average of sample means = average of sample means = average of sample means = average of sample means = average of sample means
where where where where where where where where
x xx xx xx x = average of sample means = average of sample means = average of sample means = average of sample means = average of sample means = average of sample means = average of sample means = average of sample means
Control Control
Limits Limits
33--147 147
Standard Deviation Unknown Standard Deviation Unknown
OBSERVATIONS (SLIP OBSERVATIONS (SLIP- - RING DIAMETER, CM) RING DIAMETER, CM)
SAMPLE SAMPLE kk 11 22 33 44 55 xx RR
11 5.02 5.02 5.01 5.01 4.94 4.94 4.99 4.99 4.96 4.96 4.98 4.98 0.08 0.08
22 5.01 5.01 5.03 5.03 5.07 5.07 4.95 4.95 4.96 4.96 5.00 5.00 0.12 0.12
33 4.99 4.99 5.00 5.00 4.93 4.93 4.92 4.92 4.99 4.99 4.97 4.97 0.08 0.08
33--148 148
Example 15.4 Example 15.4
33 4.99 4.99 5.00 5.00 4.93 4.93 4.92 4.92 4.99 4.99 4.97 4.97 0.08 0.08
44 5.03 5.03 4.91 4.91 5.01 5.01 4.98 4.98 4.89 4.89 4.96 4.96 0.14 0.14
55 4.95 4.95 4.92 4.92 5.03 5.03 5.05 5.05 5.01 5.01 4.99 4.99 0.13 0.13
66 4.97 4.97 5.06 5.06 5.06 5.06 4.96 4.96 5.03 5.03 5.01 5.01 0.10 0.10
77 5.05 5.05 5.01 5.01 5.10 5.10 4.96 4.96 4.99 4.99 5.02 5.02 0.14 0.14
88 5.09 5.09 5.10 5.10 5.00 5.00 4.99 4.99 5.08 5.08 5.05 5.05 0.11 0.11
99 5.14 5.14 5.10 5.10 4.99 4.99 5.08 5.08 5.09 5.09 5.08 5.08 0.15 0.15
10 10 5.01 5.01 4.98 4.98 5.08 5.08 5.07 5.07 4.99 4.99 5.03 5.03 0.10 0.10
50.09 50.09 1.15 1.15
Standard Deviation Unknown (cont.) Standard Deviation Unknown (cont.)
R = R = R = R = R = R = R = R = = == == == = = 0.115 = 0.115 = 0.115 = 0.115 = 0.115 = 0.115 = 0.115 = 0.115 R = R = R = R = R = R = R = R = = == == == = = 0.115 = 0.115 = 0.115 = 0.115 = 0.115 = 0.115 = 0.115 = 0.115
R R R R R R R R
k kk kk kk k
R R R R R R R R
k kk kk kk k
1.15 1.15
10 10
1.15 1.15
10 10
33--149 149
UCL = UCL = xx + + AA
22
RR = 5.01 + (0.58)(0.115) = 5.08 = 5.01 + (0.58)(0.115) = 5.08
LCL = LCL = xx -- AA
22
RR = 5.01 = 5.01 -- (0.58)(0.115) = 4.94 (0.58)(0.115) = 4.94
==
==
x x = = = 5.01 cm = = = 5.01 cm
==
xx
kk
50.09 50.09
10 10
Retrieve Factor Value A Retrieve Factor Value A
22
UCL = 5.08 UCL = 5.08
M
e
a
n
M
e
a
n
5.10 5.10
5.08 5.08
5.06 5.06
5.04 5.04
5.02 5.02
5.00 5.00
xx = 5.01 = 5.01
==
33--150 150
xx-- bar bar
Chart Chart
Example Example
(cont.) (cont.)
LCL = 4.94 LCL = 4.94
||
11
||
22
||
33
||
44
| |
55
| |
66
| |
77
| |
88
| |
99
| |
10 10
5.00 5.00
4.98 4.98
4.96 4.96
4.94 4.94
4.92 4.92
RR-- Chart Chart
UCL = UCL = DD
44
RR LCL = LCL = DD
33
RR
RR = =
RR
33--151 151
RR = =
RR
kk
where where
RR = range of each sample = range of each sample
kk = number of samples = number of samples
RR--Chart Example Chart Example
OBSERVATIONS (SLIP OBSERVATIONS (SLIP- -RING DIAMETER, CM) RING DIAMETER, CM)
SAMPLE SAMPLE kk 11 22 33 44 55 xx RR
11 5.02 5.02 5.01 5.01 4.94 4.94 4.99 4.99 4.96 4.96 4.98 4.98 0.08 0.08
22 5.01 5.01 5.03 5.03 5.07 5.07 4.95 4.95 4.96 4.96 5.00 5.00 0.12 0.12
33 4.99 4.99 5.00 5.00 4.93 4.93 4.92 4.92 4.99 4.99 4.97 4.97 0.08 0.08
33--152 152
33 4.99 4.99 5.00 5.00 4.93 4.93 4.92 4.92 4.99 4.99 4.97 4.97 0.08 0.08
44 5.03 5.03 4.91 4.91 5.01 5.01 4.98 4.98 4.89 4.89 4.96 4.96 0.14 0.14
55 4.95 4.95 4.92 4.92 5.03 5.03 5.05 5.05 5.01 5.01 4.99 4.99 0.13 0.13
66 4.97 4.97 5.06 5.06 5.06 5.06 4.96 4.96 5.03 5.03 5.01 5.01 0.10 0.10
77 5.05 5.05 5.01 5.01 5.10 5.10 4.96 4.96 4.99 4.99 5.02 5.02 0.14 0.14
88 5.09 5.09 5.10 5.10 5.00 5.00 4.99 4.99 5.08 5.08 5.05 5.05 0.11 0.11
99 5.14 5.14 5.10 5.10 4.99 4.99 5.08 5.08 5.09 5.09 5.08 5.08 0.15 0.15
10 10 5.01 5.01 4.98 4.98 5.08 5.08 5.07 5.07 4.99 4.99 5.03 5.03 0.10 0.10
50.09 50.09 1.15 1.15
RR--Chart Example (cont.) Chart Example (cont.)
UCL = UCL = UCL = UCL = UCL = UCL = UCL = UCL = D DD DD DD D
4 44 44 44 4
R R R R R R R R = 2.11(0.115) = 0.243 = 2.11(0.115) = 0.243 = 2.11(0.115) = 0.243 = 2.11(0.115) = 0.243 = 2.11(0.115) = 0.243 = 2.11(0.115) = 0.243 = 2.11(0.115) = 0.243 = 2.11(0.115) = 0.243 UCL = UCL = UCL = UCL = UCL = UCL = UCL = UCL = D DD DD DD D
4 44 44 44 4
R R R R R R R R = 2.11(0.115) = 0.243 = 2.11(0.115) = 0.243 = 2.11(0.115) = 0.243 = 2.11(0.115) = 0.243 = 2.11(0.115) = 0.243 = 2.11(0.115) = 0.243 = 2.11(0.115) = 0.243 = 2.11(0.115) = 0.243
33--153 153
Retrieve Factor Values D Retrieve Factor Values D
33
and D and D
44
LCL = LCL = LCL = LCL = LCL = LCL = LCL = LCL = D DD DD DD D
3 33 33 33 3
R RR RR RR R = 0(0.115) = 0 = 0(0.115) = 0 = 0(0.115) = 0 = 0(0.115) = 0 = 0(0.115) = 0 = 0(0.115) = 0 = 0(0.115) = 0 = 0(0.115) = 0 LCL = LCL = LCL = LCL = LCL = LCL = LCL = LCL = D DD DD DD D
3 33 33 33 3
R RR RR RR R = 0(0.115) = 0 = 0(0.115) = 0 = 0(0.115) = 0 = 0(0.115) = 0 = 0(0.115) = 0 = 0(0.115) = 0 = 0(0.115) = 0 = 0(0.115) = 0
RR--Chart Example (cont.) Chart Example (cont.)
UCL = 0.243 UCL = 0.243
0.28 0.28
0.24 0.24
0.20 0.20
33--154 154
LCL = 0 LCL = 0
R
a
n
g
e
R
a
n
g
e
RR = 0.115 = 0.115
||
11
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22
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33
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44
||
55
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66
||
77
||
88
||
99
||
10 10
0.20 0.20
0.16 0.16
0.12 0.12
0.08 0.08
0.04 0.04
0 0
Using x Using x-- bar and R bar and R--Charts Charts
Together Together
Process average and process variability must be in control Process average and process variability must be in control
It is possible for samples to have very narrow ranges, but It is possible for samples to have very narrow ranges, but
33--155 155
It is possible for samples to have very narrow ranges, but It is possible for samples to have very narrow ranges, but
their averages might be beyond control limits their averages might be beyond control limits
It is possible for sample averages to be in control, but It is possible for sample averages to be in control, but
ranges might be very large ranges might be very large
It is possible for an R It is possible for an R--chart to exhibit a distinct downward chart to exhibit a distinct downward
trend, suggesting some nonrandom cause is reducing trend, suggesting some nonrandom cause is reducing
variation variation
Control Chart Patterns Control Chart Patterns
Run Run
sequence of sample values that display same characteristic sequence of sample values that display same characteristic
Pattern test Pattern test
determines if observations within limits of a control chart display a determines if observations within limits of a control chart display a
nonrandom pattern nonrandom pattern
33--156 156
nonrandom pattern nonrandom pattern
To identify a pattern: To identify a pattern:
8 consecutive points on one side of the center line 8 consecutive points on one side of the center line
8 consecutive points up or down 8 consecutive points up or down
14 points alternating up or down 14 points alternating up or down
2 out of 3 consecutive points in zone A (on one side of center line) 2 out of 3 consecutive points in zone A (on one side of center line)
4 out of 5 consecutive points in zone A or B (on one side of center 4 out of 5 consecutive points in zone A or B (on one side of center
line) line)
Control Chart Patterns (cont.) Control Chart Patterns (cont.)
UCL UCL
UCL UCL
33--157 157
LCL LCL
Sample observations Sample observations
consistently above the consistently above the
center line center line
LCL LCL
consistently below the consistently below the
center line center line
Control Chart Patterns (cont.) Control Chart Patterns (cont.)
UCL UCL
UCL UCL
33--158 158
LCL LCL
consistently increasing consistently increasing
LCL LCL
consistently decreasing consistently decreasing
Zones for Pattern Tests Zones for Pattern Tests
UCL UCL
Zone A Zone A
Zone B Zone B
Zone C Zone C
Process Process
3 sigma = 3 sigma = xx + + A A
2 2
R R
= =
2 sigma = 2 sigma = xx + ( + (A A
2 2
R R))
= = 22
33
1 sigma = 1 sigma = xx + ( + (A A
2 2
R R))
= = 11
33
= =
33--159 159
LCL LCL
Zone C Zone C
Zone B Zone B
Zone A Zone A
Process Process
average average
3 sigma = 3 sigma = xx -- A A
2 2
R R
= =
2 sigma = 2 sigma = xx -- ((A A
2 2
R R))
= = 22
33
1 sigma = 1 sigma = xx -- ((A A
2 2
R R))
= =
11
33
xx
= =
||
11
||
22
||
3 3
||
4 4
||
5 5
||
6 6
||
7 7
||
8 8
||
9 9
||
10 10
||
11 11
||
12 12
||
13 13
Performing a Pattern Test Performing a Pattern Test
11 4.98 4.98 BB B B
22 5.00 5.00 BB U U C C
33 4.95 4.95 BB D D A A
44 4.96 4.96 BB D D A A
SAMPLE SAMPLE xx ABOVE/BELOW ABOVE/BELOW UP/DOWN UP/DOWN ZONE ZONE
33--160 160
44 4.96 4.96 BB D D A A
55 4.99 4.99 BB U U C C
66 5.01 5.01 U U C C
77 5.02 5.02 AA U U C C
88 5.05 5.05 AA U U B B
99 5.08 5.08 AA U U A A
10 10 5.03 5.03 AA D D B B
Sample Size Determination Sample Size Determination
Attribute charts require larger sample sizes Attribute charts require larger sample sizes
33--161 161
Attribute charts require larger sample sizes Attribute charts require larger sample sizes
50 to 100 parts in a sample 50 to 100 parts in a sample
Variable charts require smaller samples Variable charts require smaller samples
2 to 10 parts in a sample 2 to 10 parts in a sample
SPC with Excel SPC with Excel
33--162 162
SPC with Excel and OM Tools SPC with Excel and OM Tools
33--163 163
Tolerances Tolerances
design specifications reflecting product design specifications reflecting product
requirements requirements
33--164 164
Process capability Process capability
range of natural variability in a process range of natural variability in a process
what we measure with control charts what we measure with control charts
Process Capability (cont.) Process Capability (cont.)
(a) Natural variation (a) Natural variation
exceeds design exceeds design
specifications; process specifications; process
is not capable of is not capable of
meeting specifications meeting specifications
all the time. all the time.
Design Design
Specifications Specifications
33--165 165
(b) Design specifications (b) Design specifications
and natural variation the and natural variation the
same; process is capable same; process is capable
of meeting specifications of meeting specifications
most of the time. most of the time.
Design Design
Process Process
all the time. all the time.
Process Process
Process Capability (cont.) Process Capability (cont.)
(c) Design specifications (c) Design specifications
greater than natural greater than natural
variation; process is variation; process is
capable of always capable of always
conforming to conforming to
specifications. specifications.
Design Design
33--166 166
specifications. specifications.
Process Process
(d) Specifications greater (d) Specifications greater
than natural variation, than natural variation,
but process off center; but process off center;
capable but some output capable but some output
will not meet upper will not meet upper
specification. specification.
Design Design
Process Process
Process Capability Measures Process Capability Measures
Process Capability Ratio Process Capability Ratio
tolerance range tolerance range
33--167 167
CC
pp
==
==
tolerance range tolerance range
process range process range
upper specification limit upper specification limit --
lower specification limit lower specification limit
66
Computing C Computing C
pp
Net weight specification = 9.0 oz Net weight specification = 9.0 oz 0.5 oz 0.5 oz
Process mean = 8.80 oz Process mean = 8.80 oz
Process standard deviation = 0.12 oz Process standard deviation = 0.12 oz
33--168 168
CC
pp
==
= = 1.39 = = 1.39
upper specification limit upper specification limit --
lower specification limit lower specification limit
66
9.5 9.5 -- 8.5 8.5
6(0.12) 6(0.12)
Process Capability Measures Process Capability Measures
Process Capability Index Process Capability Index
==
33--169 169
C C
pk pk
= minimum = minimum
xx -- lower specification limit lower specification limit
33
==
upper specification limit upper specification limit -- xx
33
==
,,
Computing C Computing C
pk pk
Net weight specification = 9.0 oz Net weight specification = 9.0 oz 0.5 oz 0.5 oz
Process mean = 8.80 oz Process mean = 8.80 oz
Process standard deviation = 0.12 oz Process standard deviation = 0.12 oz
==
33--170 170
CC
pk pk
= minimum = minimum
= minimum , = 0.83 = minimum , = 0.83
x x -- lower specification limit lower specification limit
33
==
upper specification limit upper specification limit -- xx
33
==
,,
8.80 8.80 -- 8.50 8.50
3(0.12) 3(0.12)
9.50 9.50 -- 8.80 8.80
3(0.12) 3(0.12)
with Excel with Excel
33--171 171
with Excel and OM Tools with Excel and OM Tools
33--172 172
Acceptance Sampling Acceptance Sampling
Single Single--Sample Attribute Plan Sample Attribute Plan
Operating Characteristic Curve Operating Characteristic Curve
Operating Characteristic Curve Operating Characteristic Curve
Developing a Sampling Plan with Excel Developing a Sampling Plan with Excel
Average Outgoing Quality Average Outgoing Quality
Double Double -- and Multiple and Multiple--Sampling Plans Sampling Plans
Acceptance Sampling Acceptance Sampling
Accepting or rejecting a production lot based Accepting or rejecting a production lot based
on the number of defects in a sample on the number of defects in a sample
Not consistent with TQM or Zero Defects Not consistent with TQM or Zero Defects
Not consistent with TQM or Zero Defects Not consistent with TQM or Zero Defects
philosophy philosophy
producer and customer agree on the number of producer and customer agree on the number of
acceptable defects acceptable defects
a means of identifying not preventing poor quality a means of identifying not preventing poor quality
percent of defective parts versus PPM percent of defective parts versus PPM
Sampling plan Sampling plan
provides guidelines for accepting a lot provides guidelines for accepting a lot
Single SingleSample Sample
Attribute Plan Attribute Plan
Single sampling plan Single sampling plan
NN = lot size = lot size
nn = sample size (random) = sample size (random)
nn = sample size (random) = sample size (random)
cc = acceptance number = acceptance number
dd = number of defective items in sample = number of defective items in sample
If If dd cc, accept lot; else reject , accept lot; else reject
Producers and Producers and
Consumers Risk Consumers Risk
AQL or acceptable quality level AQL or acceptable quality level
proportion of defects consumer will accept in proportion of defects consumer will accept in
a given lot a given lot
or producers risk or producers risk
or producers risk or producers risk
probability of rejecting a good lot probability of rejecting a good lot
LTPD or lot tolerance percent defective LTPD or lot tolerance percent defective
limit on the number of defectives the limit on the number of defectives the
customer will accept customer will accept
or consumers risk or consumers risk
probability of accepting a bad lot probability of accepting a bad lot
Producers and Producers and
Consumers Risk (cont.) Consumers Risk (cont.)
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Type I Error Type I Error
Producer Risk Producer Risk
Sampling Errors Sampling Errors
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Producer Risk Producer Risk
Type II Error Type II Error
Consumers Risk Consumers Risk
No Error No Error
Operating Characteristic Operating Characteristic
(OC) Curve (OC) Curve
shows probability of accepting lots of shows probability of accepting lots of
different quality levels with a specific different quality levels with a specific
sampling plan sampling plan
assists management to discriminate assists management to discriminate
between good and bad lots between good and bad lots
exact shape and location of the curve is exact shape and location of the curve is
defined by the sample size ( defined by the sample size (nn) and ) and
acceptance level ( acceptance level (cc) for the sampling ) for the sampling
plan plan
OC Curve (cont.) OC Curve (cont.)
OC curve for OC curve for n n and and cc
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AQL AQL LTPD LTPD
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Developing a Sampling Plan Developing a Sampling Plan
with OM Tools with OM Tools
ABC Company produces mugs ABC Company produces mugs
in lots of 10,000. Performance in lots of 10,000. Performance
measures for quality of mugs measures for quality of mugs
for in the sampling plan? for in the sampling plan?
measures for quality of mugs measures for quality of mugs
sent to stores call for a sent to stores call for a
producers risk of 0.05 with an producers risk of 0.05 with an
AQL of 1% defective and a AQL of 1% defective and a
consumers risk of 0.10 with a consumers risk of 0.10 with a
LTPD of 5% defective. What LTPD of 5% defective. What
size sample and what size sample and what
acceptance number should acceptance number should
ABC use to achieve ABC use to achieve
performance measures called performance measures called
for in the sampling plan? for in the sampling plan? LTPD = 5% LTPD = 5%
N = 10,000 N = 10,000 n = ? n = ?
= 0.05 = 0.05 c = c =
??
= = 0.10 0.10
AQL = 1% AQL = 1%
LTPD = 5% LTPD = 5%
Average Outgoing Average Outgoing
Quality (AOQ) Quality (AOQ)
Expected number of defective Expected number of defective
items that will pass on to items that will pass on to
customer with a sampling plan customer with a sampling plan
customer with a sampling plan customer with a sampling plan
Average outgoing quality limit Average outgoing quality limit
(AOQL) (AOQL)
maximum point on the curve maximum point on the curve
worst level of outgoing quality worst level of outgoing quality
AOQ Curve AOQ Curve
Double Double--Sampling Plans Sampling Plans
Take small initial sample Take small initial sample
If # defective lower limit, accept If # defective lower limit, accept
If # defective > upper limit, reject If # defective > upper limit, reject
If # defective between limits, take second If # defective between limits, take second
sample sample
Accept or reject based on 2 samples Accept or reject based on 2 samples
Less costly than single Less costly than single--sampling plans sampling plans
Multiple Multiple--Sampling Plans Sampling Plans
Uses smaller sample sizes Uses smaller sample sizes
Take initial sample Take initial sample
If # defective lower limit, accept If # defective lower limit, accept
If # defective between limits, resample If # defective between limits, resample
Continue sampling until accept or reject Continue sampling until accept or reject
lot based on all sample data lot based on all sample data
Product Design Product Design
Chapter 4 Chapter 4
Design Process
Concurrent Design
Technology in Design
44--187 187
Technology in Design
Design Reviews
Design for Environment
Design for Robustness
Quality Function Deployment Quality Function Deployment
Design Process Design Process
Effective design can provide a competitive Effective design can provide a competitive
edge edge
matches product or service characteristics with matches product or service characteristics with
Copyright 2009 John Wiley & Sons, Inc. Copyright 2009 John Wiley & Sons, Inc.
44--188 188
ensures that customer requirements are met in the ensures that customer requirements are met in the
simplest and least costly manner simplest and least costly manner
reduces time required to design a new product or reduces time required to design a new product or
service service
minimizes revisions necessary to make a design minimizes revisions necessary to make a design
workable workable
Design Process (cont.) Design Process (cont.)
Product design
defines appearance of product
sets standards for performance
44--189 189
sets standards for performance
specifies which materials are to be used
determines dimensions and tolerances
Design Process (cont.) Design Process (cont.)
44--190 190
Idea Generation Idea Generation
Companys own
R&D department
Customer complaints
Salespersons in the
field
Factory workers
44--191 191
Customer complaints
or suggestions
Marketing research
Suppliers
Factory workers
New technological
developments
Competitors
Perceptual Maps Perceptual Maps
Visual comparison of Visual comparison of
customer perceptions customer perceptions
Idea Generation (cont.) Idea Generation (cont.)
44--192 192
customer perceptions customer perceptions
Benchmarking Benchmarking
Comparing product/process Comparing product/process
against best against best--in in--class class
Reverse engineering Reverse engineering
Dismantling competitors product to Dismantling competitors product to
improve your own product improve your own product
Perceptual Map of Perceptual Map of
Breakfast Cereals Breakfast Cereals
44--193 193
Feasibility Study Feasibility Study
Market analysis
Economic analysis
44--194 194
Economic analysis
Technical/strategic analyses
Performance specifications
Rapid Prototyping Rapid Prototyping
testing and revising a testing and revising a
preliminary design model preliminary design model
Build a prototype Build a prototype
44--195 195
Build a prototype Build a prototype
form design form design
functional design functional design
production design production design
Test prototype Test prototype
Revise design Revise design
Retest Retest
Form and Functional Design Form and Functional Design
Form Design Form Design
how product will how product will
look? look?
44--196 196
look? look?
Functional Design Functional Design
how product will how product will
perform? perform?
reliability
maintainability
usability
Computing Reliability Computing Reliability
Components in series Components in series
44--197 197
0.90 0.90 0.90 0.90
0.90 x 0.90 = 0.81 0.90 x 0.90 = 0.81
Components in series Components in series
Computing Reliability (cont.) Computing Reliability (cont.)
Components in parallel Components in parallel
44--198 198
0.95 + 0.90(1 0.95 + 0.90(1--0.95) = 0.995 0.95) = 0.995
0.95 0.95
0.90 0.90
RR
22
RR
11
System Reliability System Reliability
0.90 0.90
44--199 199
0.92 0.92 0.98 0.98 0.98 0.98
0.92+(1 0.92+(1--0.92)(0.90)=0.99 0.92)(0.90)=0.99 0.98 0.98 0.98 0.98
0.98 x 0.99 x 0.98 = 0.951 0.98 x 0.99 x 0.98 = 0.951
SA = SA =
MTBF MTBF
System Availability (SA) System Availability (SA)
44--200 200
SA = SA =
MTBF + MTTR MTBF + MTTR
where:
MTBF = mean time between failures
MTTR = mean time to repair
System Availability System Availability
(cont.) (cont.)
PROVIDER PROVIDER MTBF (HR) MTBF (HR) MTTR (HR) MTTR (HR)
AA 60 60 4.0 4.0
BB 36 36 2.0 2.0
44--201 201
BB 36 36 2.0 2.0
CC 24 24 1.0 1.0
SA SA
AA
= 60 / (60 + 4) = .9375 or 94% = 60 / (60 + 4) = .9375 or 94%
SA SA
BB
= 36 / (36 + 2) = .9473 or 95% = 36 / (36 + 2) = .9473 or 95%
SA SA
CC
= 24 / (24 + 1) = .96 or 96% = 24 / (24 + 1) = .96 or 96%
Usability Usability
Ease of use of a product or service Ease of use of a product or service
ease of learning ease of learning
ease of use ease of use
44--202 202
ease of use ease of use
ease of remembering how to use ease of remembering how to use
frequency and severity of errors frequency and severity of errors
user satisfaction with experience user satisfaction with experience
How the product will be made How the product will be made
Simplification Simplification
reducing number of parts, assemblies, or options in a reducing number of parts, assemblies, or options in a
product product
Production Design Production Design
44--203 203
product product
Standardization Standardization
using commonly available and interchangeable parts using commonly available and interchangeable parts
Modular Design Modular Design
combining standardized building blocks, or modules, to combining standardized building blocks, or modules, to
create unique finished products create unique finished products
Design for Manufacture (DFM) Design for Manufacture (DFM)
Designing a product so that it can be produced easily and Designing a product so that it can be produced easily and
economically economically
Design Design
Simplification Simplification
(b) Revised design (b) Revised design (c) Final design (c) Final design (a) Original design (a) Original design
Source: Source: Adapted from G. Boothroyd and Adapted from G. Boothroyd and
P. Dewhurst, Product Design. Key to P. Dewhurst, Product Design. Key to
Successful Robotic Assembly. Successful Robotic Assembly. Assembly Assembly
Engineering Engineering (September 1986), pp. 90 (September 1986), pp. 90--
93. 93.
44--204 204
One One--piece base & piece base &
elimination of elimination of
fasteners fasteners
Design for Design for
push push--and and--snap snap
assembly assembly
Assembly using Assembly using
common fasteners common fasteners
Final Design and Process Plans
Final design Final design
detailed drawings detailed drawings
and specifications and specifications
Process plans Process plans
workable instructions workable instructions
necessary equipment necessary equipment
44--205 205
and specifications and specifications
for new product or for new product or
service service
necessary equipment necessary equipment
and tooling and tooling
component sourcing component sourcing
recommendations recommendations
job descriptions and job descriptions and
procedures procedures
computer programs for computer programs for
automated machines automated machines
Design Team Design Team
44--206 206
Concurrent Design
A new approach to A new approach to
design that involves design that involves
simultaneous design of simultaneous design of
products and processes products and processes
by design teams by design teams
Involves suppliers Involves suppliers
Incorporates production Incorporates production
process process
Uses a price Uses a price--minus minus
44--207 207
by design teams by design teams
Improves quality of early Improves quality of early
design decisions design decisions
Uses a price Uses a price--minus minus
system system
Scheduling and Scheduling and
management can be management can be
complex as tasks are complex as tasks are
done in parallel done in parallel
Uses technology to aid Uses technology to aid
design design
Technology in Design Technology in Design
Computer Aided Design (CAD) Computer Aided Design (CAD)
assists in creation, modification, and analysis of assists in creation, modification, and analysis of
a design a design
44--208 208
computer computer--aided engineering (CAE) aided engineering (CAE)
tests and analyzes designs on computer screen tests and analyzes designs on computer screen
computer computer--aided manufacturing (CAD/CAM) aided manufacturing (CAD/CAM)
ultimate design ultimate design--to to--manufacture connection manufacture connection
product life cycle management (PLM) product life cycle management (PLM)
managing entire lifecycle of a product managing entire lifecycle of a product
collaborative product design (CPD) collaborative product design (CPD)
Collaborative Product Design Collaborative Product Design
(CPD) (CPD)
A software system for collaborative design and
development among trading partners
With PML, manages product data, sets up project
workspaces, and follows life cycle of the product
44--209 209
workspaces, and follows life cycle of the product
Accelerates product development, helps to resolve
product launch issues, and improves quality of design
Designers can
conduct virtual review sessions
test what if scenarios
assign and track design issues
communicate with multiple tiers of suppliers
create, store, and manage project documents
Design Review
Review designs to prevent Review designs to prevent failures failures and and
ensure ensure value value
Failure mode and effects analysis (FMEA)
44--210 210
Failure mode and effects analysis (FMEA)
a systematic method of analyzing product
failures
Fault tree analysis (FTA)
a visual method for analyzing interrelationships
among failures
Value analysis (VA)
helps eliminate unnecessary features and
functions
FMEA for Potato Chips FMEA for Potato Chips
Failure
Mode
Cause of
Failure
Effect of
Failure
Corrective
Action
Stale low moisture content
expired shelf life
poor packaging
tastes bad
wont crunch
thrown out
lost sales
add moisture
cure longer
better package seal
shorter shelf life
Broken too thin cant dip change recipe
44--211 211
Broken too thin
too brittle
rough handling
rough use
poor packaging
cant dip
poor display
injures mouth
chocking
perceived as old
lost sales
change recipe
change process
change packaging
Too Salty outdated receipt
process not in control
uneven distribution of salt
eat less
drink more
health hazard
lost sales
experiment with recipe
experiment with process
introduce low salt version
Fault tree analysis (FTA)
44--212 212
Value analysis (VA)
Can we do without it?
Does it do more than is required?
Does it cost more than it is worth?
44--213 213
Does it cost more than it is worth?
Can something else do a better job?
Can it be made by
a less costly method?
with less costly tooling?
with less costly material?
Can it be made cheaper, better, or faster by
someone else?
Value analysis (VA) (cont.) Value analysis (VA) (cont.)
Updated versions also include: Updated versions also include:
Is it recyclable or biodegradable? Is it recyclable or biodegradable?
Is the process sustainable? Is the process sustainable?
44--214 214
Is the process sustainable? Is the process sustainable?
Will it use more energy than it is worth? Will it use more energy than it is worth?
Does the item or its by Does the item or its by--product harm the product harm the
environment? environment?
Design for Environment and Design for Environment and
Extended Producer Responsibility Extended Producer Responsibility
Design for environment Design for environment
designing a product from material that can be recycled designing a product from material that can be recycled
design from recycled material design from recycled material
design for ease of repair design for ease of repair
44--215 215
design for ease of repair design for ease of repair
minimize packaging minimize packaging
minimize material and energy used during manufacture, minimize material and energy used during manufacture,
consumption and disposal consumption and disposal
Extended producer responsibility Extended producer responsibility
holds companies responsible for their product even after its holds companies responsible for their product even after its
useful life useful life
Design for Environment Design for Environment
44--216 216
Sustainability Sustainability
Ability to meet present needs without compromising Ability to meet present needs without compromising
those of future generations those of future generations
Green product design Green product design
Use fewer materials Use fewer materials
44--217 217
Use fewer materials Use fewer materials
Use recycled materials or recovered components Use recycled materials or recovered components
Dont assume natural materials are always better Dont assume natural materials are always better
Dont forget energy consumption Dont forget energy consumption
Extend useful life of product Extend useful life of product
Involve entire supply chain Involve entire supply chain
Change paradigm of design Change paradigm of design
Source: Source: Adapted from the Business Adapted from the Business
Social Responsibility Web site, Social Responsibility Web site,
www.bsr.org www.bsr.org, accessed April 1, 2007. , accessed April 1, 2007.
Quality Function
Deployment (QFD)
Translates voice of customer into technical Translates voice of customer into technical
design requirements design requirements
44--218 218
design requirements design requirements
Displays requirements in matrix diagrams Displays requirements in matrix diagrams
first matrix called house of quality first matrix called house of quality
series of connected houses series of connected houses
House of Quality House of Quality
Trade Trade--off matrix off matrix
Design Design
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44--219 219
Customer Customer
Target values Target values
Relationship Relationship
matrix matrix
Competitive Competitive
assessment assessment
11 22 44
66
Competitive Assessment
of Customer
Requirements
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Competitive Assessment Competitive Assessment
Customer Requirements Customer Requirements 11 22 33 44 55
Presses quickly Presses quickly 99 BB AA XX
Removes wrinkles Removes wrinkles 88 AB AB XX
44--220 220
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Removes wrinkles Removes wrinkles 88 AB AB XX
Doesnt stick to fabric Doesnt stick to fabric 66 XX BA BA
Provides enough steam Provides enough steam 88 AB AB XX
Doesnt spot fabric Doesnt spot fabric 66 XX AB AB
Doesnt scorch fabric Doesnt scorch fabric 99 AA XXBB
Heats quickly Heats quickly 66 XX BB AA
Automatic shut Automatic shut--off off 33 AB ABXX
Quick cool Quick cool--down down 33 XX AA BB
Doesnt break when dropped Doesnt break when dropped 55 AB AB XX
Doesnt burn when touched Doesnt burn when touched 55 AB AB XX
Not too heavy Not too heavy 88 XX AA BB
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Presses quickly Presses quickly -- -- ++ ++ ++ --
Removes wrinkles Removes wrinkles + + ++ ++ ++ ++
Doesnt stick to fabric Doesnt stick to fabric -- ++ ++ ++ ++
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Requirements Requirements
to Design to Design
Characteristics Characteristics
44--221 221
Doesnt stick to fabric Doesnt stick to fabric -- ++ ++ ++ ++
Provides enough steam Provides enough steam ++ ++ ++ ++
Doesnt spot fabric Doesnt spot fabric ++ -- -- --
Doesnt scorch fabric Doesnt scorch fabric ++ ++ ++ -- ++
Heats quickly Heats quickly -- -- ++ --
Automatic shut Automatic shut--off off ++
Quick cool Quick cool--down down -- -- ++ ++
Doesnt break when dropped Doesnt break when dropped ++ ++ ++ ++
Doesnt burn when touched Doesnt burn when touched ++ ++ ++ ++
Not too heavy Not too heavy ++ -- -- -- ++ --
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Tradeoff Matrix
44--222 222
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Targeted Changes in
Design
44--223 223
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Units of measure Units of measure ft ft--lb lb lb lb in. in. cm cm ty ty ea ea mm mm oz/s oz/s sec sec sec sec Y/N Y/N Y/N Y/N
Iron A Iron A 3 3 1.4 1.4 8x4 8x4 2 2 SS SS 27 27 15 15 0.5 0.5 45 45 500 500 N N Y Y
Iron B Iron B 4 4 1.2 1.2 8x4 8x4 1 1 MG MG 27 27 15 15 0.3 0.3 35 35 350 350 N N Y Y
Our Iron (X) Our Iron (X) 2 2 1.7 1.7 9x5 9x5 4 4 T T 35 35 15 15 0.7 0.7 50 50 600 600 N N Y Y
Estimated impact Estimated impact 3 3 4 4 4 4 4 4 5 5 4 4 3 3 2 2 5 5 5 5 3 3 0 0
Estimated cost Estimated cost 3 3 3 3 3 3 3 3 4 4 3 3 3 3 3 3 4 4 4 4 5 5 2 2
Targets Targets 1.2 1.2 8x5 8x5 3 3 SS SS 30 30 30 30 500 500
Design changes Design changes ** ** ** ** ** ** **
O
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s
Completed
House of Quality
44--224 224
SS = Silverstone SS = Silverstone
MG = Mirorrglide MG = Mirorrglide
T = Titanium T = Titanium
A Series of Connected
QFD Houses
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Product Product
A A--11
Part Part
44--225 225
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House House
of of
quality quality
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Parts Parts
deployment deployment
AA--22
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Process Process
planning planning
Process Process
A A--33
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Operating Operating
A A--44
Benefits of QFD
Promotes better understanding of Promotes better understanding of
customer demands customer demands
44--226 226
design interactions design interactions
Involves manufacturing in design Involves manufacturing in design
process process
Provides documentation of design Provides documentation of design
process process
Design for Robustness Design for Robustness
Robust product Robust product
designed to withstand variations in environmental and
operating conditions
Robust design
44--227 227
Robust design
yields a product or service designed to withstand
variations
Controllable factors
design parameters such as material used, dimensions,
and form of processing
Uncontrollable factors
users control (length of use, maintenance, settings, etc.)
Design for Robustness (cont.) Design for Robustness (cont.)
Tolerance Tolerance
allowable ranges of variation in the dimension of a allowable ranges of variation in the dimension of a
part part
44--228 228
Consistency Consistency
consistent errors are easier to correct than random consistent errors are easier to correct than random
errors errors
parts parts within tolerances may yield within tolerances may yield assemblies that
are not within limits
consumers prefer product characteristics near their consumers prefer product characteristics near their
ideal values ideal values
Taguchis Quality Loss
Function
Quantifies customer
preferences toward
quality
44--229 229
quality
Emphasizes that
customer preferences
are strongly oriented
toward consistently
Design for Six Sigma
(DFSS)
Q
u
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l
i
t
y

L
o
s
s
Q
u
a
l
i
t
y

L
o
s
s
Lower Lower
tolerance tolerance
limit limit
Target Target
Upper Upper
tolerance tolerance
limit limit
Copyright 2009 John Wiley & Sons, Inc. Copyright 2009 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this work beyond All rights reserved. Reproduction or translation of this work beyond
that permitted in section 117 of the 1976 United States Copyright that permitted in section 117 of the 1976 United States Copyright
Act without express permission of the copyright owner is unlawful. Act without express permission of the copyright owner is unlawful.
Request for further information should be addressed to the Request for further information should be addressed to the
44--230 230
Request for further information should be addressed to the Request for further information should be addressed to the
Permission Department, John Wiley & Sons, Inc. The purchaser Permission Department, John Wiley & Sons, Inc. The purchaser
may make back may make back--up copies for his/her own use only and not for up copies for his/her own use only and not for
distribution or resale. The Publisher assumes no responsibility for distribution or resale. The Publisher assumes no responsibility for
errors, omissions, or damages caused by the use of these errors, omissions, or damages caused by the use of these
programs or from the use of the information herein. programs or from the use of the information herein.
Service Design Service Design
Chapter 5 Chapter 5
Service Economy
Characteristics of Services
55--232 232
Characteristics of Services
Service Design Process
Tools for Service Design
Waiting Line Analysis for
Service Improvement
Service Economy Service Economy
55--233 233
Source: U.S. Bureau of Labor Statistics, IBM Almaden Research Center
55--234 234
Characteristics of Services Characteristics of Services
Services Services
acts, deeds, or performances acts, deeds, or performances
Goods Goods
55--235 235
Goods Goods
tangible objects tangible objects
Facilitating services Facilitating services
accompany almost all purchases of goods accompany almost all purchases of goods
Facilitating goods Facilitating goods
accompany almost all service purchases accompany almost all service purchases
Continuum from Continuum from
Goods to Services Goods to Services
55--236 236
Source: Adapted from Earl W. Sasser, R.P. Olsen, and D. Daryl Wyckoff,
Management of Service Operations (Boston: Allyn Bacon, 1978), p.11.
Characteristics
of Services (cont.)
Services are Services are
intangible intangible
Service output is Service output is
variable variable
Service inseparable Service inseparable
from delivery from delivery
Services tend to be Services tend to be
decentralized and decentralized and
55--237 237
variable variable
Services have higher Services have higher
customer contact customer contact
perishable perishable
decentralized and decentralized and
dispersed dispersed
consumed more often consumed more often
than products than products
Services can be easily Services can be easily
emulated emulated
Service
Design
Process
55--238 238
Service concept
purpose of a service; it defines target
market and customer experience
Service package
Service Design
Process (cont.)
55--239 239
Service package
mixture of physical items, sensual
benefits, and psychological benefits
Service specifications
performance specifications
design specifications
delivery specifications
Service Process Matrix Service Process Matrix
55--240 240
Design
Decision
High-Contact Service Low-Contact Service
High v. Low Contact
Services
Facility
Convenient to
Near labor or
55--241 241
Facility
location
Convenient to
customer
Near labor or
transportation source
Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Compensative
Advantage (New York:McGraw-Hill, 2001), p. 210
Facility
layout
Must look presentable,
accommodate
customer needs, and
facilitate interaction
with customer
Designed for efficiency
Design
Decision
High-Contact Service Low-Contact
Service
Quality
control
More variable since
customer is involved in
process; customer
expectations and
Measured against
established
standards; testing
High v. Low Contact
Services (cont.)
55--242 242
process; customer
expectations and
perceptions of quality
may differ; customer
present when defects
occur
standards; testing
and rework possible
to correct defects
Capacity
Excess capacity required
to handle peaks in
demand
Planned for average
demand
Design
Decision
Service
Worker skills
Must be able to
interact well with
customers and use
Technical skills
High v. Low Contact
Services (cont.)
55--243 243
customers and use
judgment in decision
making
Scheduling
Must accommodate
customer schedule
Customer
concerned only
with completion
date
Design
Decision
Service
High v. Low Contact
Services (cont.)
Service
process
Mostly front-room
activities; service may
change during delivery
in response to
Mostly back-room
activities;
planned and
executed with
55--244 244
in response to
customer
executed with
minimal
interference
Service package
Varies with customer;
includes environment
as well as actual
service
Fixed, less
extensive
Tools for Service Design Tools for Service Design
Service blueprinting Service blueprinting
line of influence line of influence
line of interaction line of interaction
Servicescapes Servicescapes
space and function space and function
ambient conditions ambient conditions
55--245 245
line of interaction line of interaction
line of visibility line of visibility
line of support line of support
Front Front--office/Back office/Back--
office activities office activities
ambient conditions ambient conditions
signs, symbols, and signs, symbols, and
artifacts artifacts
Quantitative Quantitative
techniques techniques
Service Blueprinting Service Blueprinting
55--246 246
Service Blueprinting (Cont) Service Blueprinting (Cont)
55--247 247
Elements of Elements of
Waiting Line Analysis Waiting Line Analysis
Operating characteristics Operating characteristics
average values for characteristics that describe average values for characteristics that describe
performance of waiting line system performance of waiting line system
Queue Queue
55--248 248
Queue Queue
a single waiting line a single waiting line
Waiting line system Waiting line system
consists of arrivals, servers, and waiting line consists of arrivals, servers, and waiting line
structure structure
Calling population Calling population
source of customers; infinite or finite source of customers; infinite or finite
55--249 249
Waiting Line Analysis (cont.) Waiting Line Analysis (cont.)
Arrival rate ( Arrival rate ())
frequency at which customers arrive at a waiting line frequency at which customers arrive at a waiting line
according to a probability distribution, usually Poisson according to a probability distribution, usually Poisson
Service time ( Service time ( ))
55--250 250
Service time ( Service time ( ))
time required to serve a customer, usually described by time required to serve a customer, usually described by
negative exponential distribution negative exponential distribution
Service rate must be shorter than arrival rate ( Service rate must be shorter than arrival rate ( < < ))
Queue discipline Queue discipline
order in which customers are served order in which customers are served
Infinite queue Infinite queue
can be of any length; length of a can be of any length; length of a finite finite queue is limited queue is limited
Waiting Line Analysis (cont.) Waiting Line Analysis (cont.)
Channels Channels
number of number of
parallel parallel
55--251 251
parallel parallel
servers for servers for
servicing servicing
customers customers
Phases Phases
number of number of
servers in servers in
sequence a sequence a
customer customer
must go must go
through through
Operating Characteristics Operating Characteristics
Operating characteristics Operating characteristics are assumed to are assumed to
approach a approach a steady state steady state
55--252 252
Traditional Cost Relationships Traditional Cost Relationships
as service improves, cost increases as service improves, cost increases
55--253 253
Psychology of Waiting Psychology of Waiting
Waiting rooms Waiting rooms
magazines and magazines and
newspapers newspapers
Disney Disney
costumed characters costumed characters
mobile vendors mobile vendors
55--254 254
televisions televisions
Bank of America Bank of America
mirrors mirrors
Supermarkets Supermarkets
magazines magazines
impulse purchases impulse purchases
mobile vendors mobile vendors
accurate wait times accurate wait times
special passes special passes
Psychology of Waiting (cont.) Psychology of Waiting (cont.)
Preferential treatment Preferential treatment
Grocery stores: express lanes for customers with Grocery stores: express lanes for customers with
few purchases few purchases
Airlines/Car rental agencies: special cards Airlines/Car rental agencies: special cards
55--255 255
Airlines/Car rental agencies: special cards Airlines/Car rental agencies: special cards
available to frequent available to frequent--users or for an additional fee users or for an additional fee
Phone retailers: route calls to more or less Phone retailers: route calls to more or less
experienced salespeople based on customers experienced salespeople based on customers
sales history sales history
Critical service providers Critical service providers
services of police department, fire department, etc. services of police department, fire department, etc.
waiting is unacceptable; cost is not important waiting is unacceptable; cost is not important
Waiting Line Models Waiting Line Models
Single Single--server server model model
simplest, most basic waiting line structure simplest, most basic waiting line structure
Frequent variations (all with Poisson arrival rate) Frequent variations (all with Poisson arrival rate)
55--256 256
Frequent variations (all with Poisson arrival rate) Frequent variations (all with Poisson arrival rate)
exponential service times exponential service times
general (unknown) distribution of service times general (unknown) distribution of service times
constant service times constant service times
exponential service times with finite queue exponential service times with finite queue
exponential service times with finite calling population exponential service times with finite calling population
Basic Single Basic Single--Server Model Server Model
Assumptions Assumptions
Poisson arrival rate Poisson arrival rate
exponential service exponential service
Computations Computations
= mean arrival rate = mean arrival rate
= mean service rate = mean service rate
55--257 257
exponential service exponential service
times times
first first--come, first come, first--
served queue served queue
discipline discipline
infinite queue length infinite queue length
infinite calling infinite calling
population population
= mean service rate = mean service rate
n = number of n = number of
customers in line customers in line
Basic Single Basic Single--Server Model (cont.) Server Model (cont.)
probability that no customers probability that no customers
are in queuing system are in queuing system
average number of customers average number of customers
in queuing system in queuing system
( ) ( )
PP
00
= 1 = 1

LL ==

55--258 258
probability of probability of nn customers in customers in
queuing system queuing system
average number of customers average number of customers
in waiting line in waiting line
( ) ( )
PP
00
= 1 = 1
( ) ( )( ) ( ) ( )( )
PP
nn
= = P P
00
= 1 = 1

nn

nn

LL ==

LL
qq
==

22
(( ))
Basic Single Basic Single--Server Model (cont.) Server Model (cont.)
average time customer average time customer
spends in queuing system spends in queuing system
probability that server is busy probability that server is busy
and a customer has to wait and a customer has to wait
(utilization factor) (utilization factor)
1 L 1 L

WW= = = =
55--259 259
average time customer average time customer
spends waiting in line spends waiting in line
probability that server is idle probability that server is idle
and customer can be served and customer can be served

WW= = = =

(( ))
WW
qq
==

==
II = 1 = 1
= 1 = 1 = = P P
00


Example Example
55--260 260
Example (cont.) Example (cont.)
55--261 261
Service Improvement Analysis Service Improvement Analysis
waiting time (8 min.) is too long waiting time (8 min.) is too long
hire assistant for cashier? hire assistant for cashier?
increased service rate increased service rate
55--262 262
increased service rate increased service rate
hire another cashier? hire another cashier?
reduced arrival rate reduced arrival rate
Is improved service worth the cost? Is improved service worth the cost?
Example: Excel Example: Excel
55--263 263
Advanced Single Advanced Single--Server Models Server Models
Constant service times Constant service times
occur most often when automated equipment or occur most often when automated equipment or
machinery performs service machinery performs service
55--264 264
machinery performs service machinery performs service
Finite queue lengths Finite queue lengths
occur when there is a physical limitation to length of occur when there is a physical limitation to length of
waiting line waiting line
Finite calling population Finite calling population
number of customers that can arrive is limited number of customers that can arrive is limited
Advanced Single Advanced Single--Server Server
Models (cont.) Models (cont.)
55--265 265
Basic Multiple Basic Multiple--Server Model Server Model
single waiting line and service facility with single waiting line and service facility with
several independent servers in parallel several independent servers in parallel
same assumptions as single same assumptions as single--server model server model
55--266 266
same assumptions as single same assumptions as single--server model server model
ss > >
s = number of servers s = number of servers
servers must be able to serve customers faster than servers must be able to serve customers faster than
they arrive they arrive
probability that there are no customers in system probability that there are no customers in system
1
n
1
s
s
n! s! s -
( ) ( )( )
n = s 1
1
P
0
=
+
(cont.) (cont.)
55--267 267
1
n
s!s
n s
P
0
, for n s
1
n
n!
( )
{
( )
P
0
, for n > s
P
n
=
probability of probability of nn customers in system customers in system
n! s! s -
( ) ( )( )
n = 0
(cont.) (cont.)
probability that customer must wait probability that customer must wait
( ) ( )
1 1
s s
ss
ss! ! ss
PP
ww
= P = P
00
LL
qq
= = LL

55--268 268
( ) ( )
ss! ! ss
(( //))
s s

((ss 1)! ( 1)! (ss ))
22
LL = = PP
0 0
++
LL

WW==
1 L 1 L
qq

WW
qq
= = WW ==
==

ss
Example Example
55--269 269
55--270 270
55--271 271
55--272 272
55--273 273
To cut wait time, add another service To cut wait time, add another service
representative representative
now, now, ss = 4 = 4
55--274 274
Therefore: Therefore:
Multiple Multiple--Server Waiting Line Server Waiting Line
in Excel in Excel
55--275 275
Processes and Technology Processes and Technology
Chapter 6 Chapter 6
Process Planning
Process Analysis
66--277 277
Process Analysis
Process Innovation
Technology Decisions
Process Planning Process Planning
Process
a group of related tasks with specific inputs and outputs
Process design
what tasks need to be done and how they are
66--278 278
what tasks need to be done and how they are
coordinated among functions, people, and
organizations
Process strategy
an organizations overall approach for physically
producing goods and services
Process planning
converts designs into workable instructions for
manufacture or delivery
Process Strategy Process Strategy
Vertical integration
extent to which firm will produce inputs and control outputs of
each stage of production process
Capital intensity
66--279 279
Capital intensity
mix of capital (i.e., equipment, automation) and labor
resources used in production process
Process flexibility
ease with which resources can be adjusted in response to
changes in demand, technology, products or services, and
resource availability
Customer involvement
role of customer in production process
Outsourcing
Cost Cost
Capacity Capacity
Speed Speed
Reliability Reliability
66--280 280
Quality Quality Expertise Expertise
Process Selection
Projects
one-of-a-kind production of a product to customer order
Batch production
66--281 281
processes many different jobs at the same time in groups or
batches
Mass production
produces large volumes of a standard product for a mass
market
Continuous production
used for very-high volume commodity products
Sourcing Continuum
66--282 282
Product Product--Process Matrix Process Matrix
66--283 283
Source: Source: Adapted from Robert Hayes and Steven Wheelwright, Adapted from Robert Hayes and Steven Wheelwright, Restoring the Competitive Edge Restoring the Competitive Edge
Competing through Manufacturing Competing through Manufacturing (New York, John Wiley & Sons, 1984), p. 209. (New York, John Wiley & Sons, 1984), p. 209.
PROJECT PROJECT BATCH BATCH
Types of Processes
Type of
product
Unique
Made Made--to to--
order order
(customized) (customized)
MASS MASS
Made Made--to to--
stock stock
(standardized ) (standardized )
CONT CONT..
Commodity Commodity
66--284 284
Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive Operations Management for Competitive
Advantage Advantage (New York:McGraw (New York:McGraw--Hill, 2001), p. 210 Hill, 2001), p. 210
Type of Type of
customer customer
One One--at at--aa--
time time
Few Few
individual individual
customers customers
Mass Mass
market market
Mass Mass
market market
Product Product
demand demand
Infrequent Infrequent Fluctuates Fluctuates Stable Stable Very stable Very stable
Types of Processes (cont.)
Demand
volume
Very low
Low to Low to
medium medium
MASS MASS
High High
CONT CONT..
Very high Very high
66--285 285
No. of No. of
different different
products products
Infinite Infinite
variety variety
Many, varied Many, varied Few Few Very few Very few
Production Production
system system
Long Long--term term
project project
Discrete, job Discrete, job
shops shops
Repetitive, Repetitive,
assembly assembly
lines lines
Continuous, Continuous,
process process
industries industries
Equipment Varied
General General--
purpose purpose
MASS MASS
Special Special--
purpose purpose
CONT CONT..
Highly Highly
automated automated
66--286 286
Primary Primary
type of type of
work work
Specialized Specialized
contracts contracts
Fabrication Fabrication Assembly Assembly
Mixing, Mixing,
treating, treating,
refining refining
Worker Worker
skills skills
Experts, Experts,
crafts crafts--
persons persons
Wide range Wide range
of skills of skills
Limited Limited
range of range of
skills skills
Equipment Equipment
monitors monitors
Advantages
Custom work,
latest technology
Flexibility, Flexibility,
quality quality
MASS MASS
Efficiency, Efficiency,
speed, speed,
low cost low cost
CONT CONT..
Highly efficient, Highly efficient,
large capacity, large capacity,
ease of control ease of control
66--287 287
Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive Advantage Operations Management for Competitive Advantage (New (New
York:McGraw York:McGraw--Hill, 2001), p. 210 Hill, 2001), p. 210
Dis Dis--
advantages advantages
Non Non--repetitive, repetitive,
small customer small customer
base, expensive base, expensive
Costly, slow, Costly, slow,
difficult to difficult to
manage manage
Capital Capital
investment; investment;
lack of lack of
responsiveness responsiveness
Difficult to change, Difficult to change,
far far--reaching errors, reaching errors,
limited variety limited variety
Examples Examples
Construction, Construction,
shipbuilding, shipbuilding,
spacecraft spacecraft
Machine shops, Machine shops,
print shops, print shops,
bakeries, bakeries,
education education
Automobiles, Automobiles,
televisions, televisions,
computers, computers,
fast food fast food
Paint, chemicals, Paint, chemicals,
foodstuffs foodstuffs
examines cost trade-offs associated with demand volume
Cost
Fixed costs
constant regardless of the number of units produced
Process Selection with Process Selection with
Break Break--Even Analysis Even Analysis
66--288 288
constant regardless of the number of units produced
Variable costs
vary with the volume of units produced
Revenue
price at which an item is sold
Total revenue
is price times volume sold
Profit
difference between total revenue and total cost
Break Break--Even Analysis (cont.) Even Analysis (cont.)
Total cost Total cost = fixed cost + total variable cost = fixed cost + total variable cost
TC = TC = cc
ff
+ + vc vc
vv
66--289 289
TC = TC = cc
ff
+ + vc vc
vv
Total revenue = volume x price Total revenue = volume x price
TR = TR = vp vp
Profit Profit = total revenue = total revenue -- total cost total cost
Z = TR Z = TR TC = TC = vp vp -- ((cc
ff
+ + vc vc
vv
))
Break Break--Even Analysis (cont.) Even Analysis (cont.)
TR TR = TC = TC
vp vp = = cc
ff
+ + vc vc
vv
66--290 290
Solving for Break Solving for Break--Even Point (Volume) Even Point (Volume)
vp vp = = cc
ff
+ + vc vc
vv
vp vp -- vc vc
vv
= = cc
ff
vv((p p -- cc
vv
)) = = cc
ff
vv ==
cc
ff
p p -- cc
vv
Break Break--Even Analysis: Example Even Analysis: Example
Fixed cost Fixed cost = = cc
ff
= $2,000 = $2,000
Variable cost Variable cost = = cc
vv
= $5 per raft = $5 per raft
Price Price = = pp = $10 per raft = $10 per raft
66--291 291
Price Price = = pp = $10 per raft = $10 per raft
Break Break--even point is even point is
v v = = = 400 rafts = = = 400 rafts
cc
ff
p p -- cc
vv
2000 2000
10 10 -- 55
Break Break--Even Analysis: Graph Even Analysis: Graph
Total Total
cost cost
line line
$3,000 $3,000
Dollars Dollars
66--292 292
line line
Total Total
revenue revenue
line line
Break Break--even point even point
400 400 Units Units
$2,000 $2,000
$1,000 $1,000
Process Plans
Set of documents that detail manufacturing
and service delivery specifications
assembly charts
66--293 293
assembly charts
operations sheets
quality-control check-sheets
Process Selection Process Selection
$2,000 + $5 $2,000 + $5vv = $10,000 + $3 = $10,000 + $3vv
$2 $2vv = $8,000 = $8,000
Process A Process A Process B Process B
66--294 294
Below or equal to 4,000, choose A Below or equal to 4,000, choose A
Above or equal to 4,000, choose B Above or equal to 4,000, choose B
$2 $2vv = $8,000 = $8,000
vv = 4,000 rafts = 4,000 rafts
Process Analysis Process Analysis

systematic systematic
examinatio examinatio
n of all n of all
66--295 295
n of all n of all
aspects of aspects of
process to process to
improve improve
operation operation
Part name Part name Crevice Tool Crevice Tool
Part No. Part No. 52074 52074
Usage Usage Hand Hand--Vac Vac
Assembly No. Assembly No. 520 520
Oper. No. Oper. No. Description Description Dept. Dept. Machine/Tools Machine/Tools Time Time
10 10 Pour in plastic bits Pour in plastic bits 041 041 Injection molding Injection molding 2 min 2 min
20 20 Insert mold Insert mold 041 041 #076 #076 2 min 2 min
An Operations Sheet for a Plastic Part An Operations Sheet for a Plastic Part
66--296 296
20 20 Insert mold Insert mold 041 041 #076 #076 2 min 2 min
30 30 Check settings Check settings 041 041 113, 67, 650 113, 67, 650 20 min 20 min
& start machine & start machine
40 40 Collect parts & lay flat Collect parts & lay flat 051 051 Plastics finishing Plastics finishing 10 min 10 min
50 50 Remove & clean mold Remove & clean mold 042 042 Parts washer Parts washer 15 min 15 min
60 60 Break off rough edges Break off rough edges 051 051 Plastics finishing Plastics finishing 10 min 10 min
Process Analysis
Building a flowchart
Determine objectives
Define process boundaries
66--297 297
Define process boundaries
Define units of flow
Choose type of chart
Observe process and collect data
Map out process
Validate chart
Process Flowcharts
look at manufacture of product or delivery
of service from broad perspective
Incorporate
66--298 298
Incorporate
nonproductive activities (inspection,
transportation, delay, storage)
productive activities (operations)
Process Flowchart Process Flowchart
Symbols Symbols
Inspection Inspection
66--299 299
Inspection Inspection
Transportation Transportation
Delay Delay
Storage Storage
Process Process
66--300 300
Process Process
Flowchart Flowchart
of Apple of Apple
Processin Processin
g g
66--301 301
Simple Value Chain Flowchart Simple Value Chain Flowchart
66--302 302
Process Innovation
Breakthrough Breakthrough
Improvement Improvement
Continuous improvement Continuous improvement
refines the breakthrough refines the breakthrough
66--303 303
Improvement Improvement
Continuous improvement activities Continuous improvement activities
peak; time to reengineer process peak; time to reengineer process
Total redesign Total redesign
of a process for of a process for
breakthrough breakthrough
improvements improvements
From Function to Process
M
a
n
u
f
a
c
t
u
r
i
n
g
M
a
n
u
f
a
c
t
u
r
i
n
g
A
c
c
o
u
n
t
i
n
g
A
c
c
o
u
n
t
i
n
g
P
u
r
c
h
a
s
i
n
g
P
u
r
c
h
a
s
i
n
g
Product Development Product Development
66--304 304
M
a
n
u
f
a
c
t
u
r
i
n
g
M
a
n
u
f
a
c
t
u
r
i
n
g
A
c
c
o
u
n
t
i
n
g
A
c
c
o
u
n
t
i
n
g
S
a
l
e
s
S
a
l
e
s
P
u
r
c
h
a
s
i
n
g
P
u
r
c
h
a
s
i
n
g
Order Fulfillment Order Fulfillment
Customer Service Customer Service
Function Function
Process Process
Strategic Strategic
Directives Directives
Goals for Process Goals for Process
Detailed Detailed
High High -- level level
Process map Process map
Innovative Innovative
Ideas Ideas
Innovative Innovative
Ideas Ideas
Design Design
Principles Principles
Design Design
Principles Principles
Model Model Model Model
Customer Customer
Customer Customer
Key Key Key Key
Baseline Data Baseline Data Baseline Data Baseline Data
Benchmark Benchmark
Data Data
Benchmark Benchmark
Data Data
Process Innovation Process Innovation
66--305 305
Pilot Study Pilot Study
of New Design of New Design
Detailed Detailed
Process Map Process Map
Goals Goals
Met? Met?
Goals Goals
Met? Met?
Model Model
Validation Validation
Model Model
Validation Validation
Key Key
Measures Measures
Key Key
Measures Measures
Full Scale Full Scale
Implementation Implementation
No No Yes Yes
High High--Level Process Map Level Process Map
66--306 306
Principles for Redesigning
Processes
Remove waste, simplify, and consolidate
similar activities
Link processes to create value
66--307 307
Link processes to create value
Let the swiftest and most capable enterprise
execute the process
Flex process for any time, any place, any way
Capture information digitally at the source and
propagate it through process
Principles for Redesigning
Processes (cont.)
Provide visibility through fresher and richer
information about process status
Fit process with sensors and feedback loops
that can prompt action
66--308 308
that can prompt action
Add analytic capabilities to process
Connect, collect, and create knowledge around
process through all who touch it
Personalize process with preferences and
habits of participants
Techniques for Generating
Innovative Ideas
Vary the entry point to a problem
in trying to untangle fishing lines, its best to start
from the fish, not the poles
66--309 309
from the fish, not the poles
Draw analogies
a previous solution to an old problem might work
Change your perspective
think like a customer
bring in persons who have no knowledge of
process
Techniques for Generating
Innovative Ideas (cont.)
Try inverse brainstorming
what would increase cost
what would displease the customer
Chain forward as far as possible
66--310 310
Chain forward as far as possible
if I solve this problem, what is the next problem
Use attribute brainstorming
how would this process operate if. . .
our workers were mobile and flexible
there were no monetary constraints
we had perfect knowledge
Technology Decisions
Financial justification of technology
Purchase cost
Operating Costs
66--311 311
Operating Costs
Annual Savings
Revenue Enhancement
Replacement Analysis
Risk and Uncertainty
Piecemeal Analysis
Components of e Components of e--Manufacturing Manufacturing
66--312 312
A Technology Primer
Computer-aided
design (CAD)
Group technology
Computer-aided
design (CAD)
Group technology
Creates and communicates designs Creates and communicates designs
electronically electronically
Classifies designs into families for easy Classifies designs into families for easy
Product Technology Product Technology
66--313 313
Group technology
(GT)
Computer-aided
engineering (CAE)
Collaborative
product commerce
(CPC)
Group technology
(GT)
Computer-aided
engineering (CAE)
Collaborative
product commerce
(CPC)
Classifies designs into families for easy Classifies designs into families for easy
retrieval and modification retrieval and modification
Tests functionality of CAD designs Tests functionality of CAD designs
electronically electronically
Facilitates electronic communication and Facilitates electronic communication and
exchange of information among designers exchange of information among designers
and suppliers and suppliers
Product data
management
(PDM)
Product data
management
(PDM)
Keeps track of design specs and revisions Keeps track of design specs and revisions
for the life of the product for the life of the product
Integrates decisions of those involved in Integrates decisions of those involved in
Product Technology Product Technology
A Technology Primer (cont.)
66--314 314
Product life cycle
management
(PLM)
Product
configuration
Product life cycle
management
(PLM)
Product
configuration
Integrates decisions of those involved in Integrates decisions of those involved in
product development, manufacturing, sales, product development, manufacturing, sales,
customer service, recycling, and disposal customer service, recycling, and disposal
Defines products configured by customers Defines products configured by customers
who have selected among various options, who have selected among various options,
usually from a Web site usually from a Web site
Standard for
exchange of
product model data
(STEP)
Standard for
exchange of
product model data
(STEP)
Set standards for communication among Set standards for communication among
different CAD vendors; translates CAD data different CAD vendors; translates CAD data
into requirements for automated inspection into requirements for automated inspection
and manufacture and manufacture
Process Technology Process Technology
66--315 315
(STEP)
Computer-aided
design and
manufacture
(CAD/CAM)
Computer aided
process (CAPP)
E-procurement
(STEP)
Computer-aided
design and
manufacture
(CAD/CAM)
Computer aided
process (CAPP)
E-procurement
and manufacture and manufacture
Electronic link between automated design Electronic link between automated design
(CAD) and automated manufacture (CAM) (CAD) and automated manufacture (CAM)
Generates process plans based on Generates process plans based on
database of similar requirements database of similar requirements
Electronic purchasing of items from e Electronic purchasing of items from e--
marketplaces, auctions, or company marketplaces, auctions, or company
websites websites
Computer
numerically control
(CNC)
Computer
numerically control
(CNC)
Machines controlled by software code to perform a Machines controlled by software code to perform a
variety of operations with the help of automated variety of operations with the help of automated
tool changers; also collects processing information tool changers; also collects processing information
and quality data and quality data
Manufacturing Technology Manufacturing Technology
66--316 316
Flexible
manufacturing
system (FMS)
Robots
Conveyors
Flexible
manufacturing
system (FMS)
Robots
Conveyors
and quality data and quality data
A collection of CNC machines connected by an A collection of CNC machines connected by an
automated material handling system to produce a automated material handling system to produce a
wide variety of parts wide variety of parts
Manipulators that can be programmed to perform Manipulators that can be programmed to perform
repetitive tasks; more consistent than workers but repetitive tasks; more consistent than workers but
less flexible less flexible
Fixed Fixed--path material handling; moves items along a path material handling; moves items along a
belt or overhead chain; reads packages and belt or overhead chain; reads packages and
diverts them to different directions; can be very fast diverts them to different directions; can be very fast
Automatic guided
vehicle (AGV)
Automated storage
Automatic guided
vehicle (AGV)
Automated storage
A driverless truck that moves material along a A driverless truck that moves material along a
specified path; directed by wire or tape embedded specified path; directed by wire or tape embedded
in floor or by radio frequencies; very flexible in floor or by radio frequencies; very flexible
An automated warehouse An automated warehouse some 26 stores high some 26 stores high
in which items are placed in a carousel in which items are placed in a carousel- -type type
Manufacturing Technology Manufacturing Technology
66--317 317
Automated storage
and retrieval system
(ASRS)
Process Control
Computer-integrated
manufacturing (CIM)
Automated storage
and retrieval system
(ASRS)
Process Control
Computer-integrated
manufacturing (CIM)
in which items are placed in a carousel in which items are placed in a carousel- -type type
storage system and retrieved by fast storage system and retrieved by fast- -moving moving
stacker cranes; controlled by computer stacker cranes; controlled by computer
Continuous monitoring of automated equipment; Continuous monitoring of automated equipment;
makes real makes real--time decisions on ongoing operation, time decisions on ongoing operation,
maintenance, and quality maintenance, and quality
Automated manufacturing systems integrated Automated manufacturing systems integrated
through computer technology; also called e through computer technology; also called e- -
manufacturing manufacturing
Business to
Business (B2B)
Business to
Consumer (B2C)
Business to
Business (B2B)
Business to
Consumer (B2C)
Electronic transactions between businesses Electronic transactions between businesses
usually over the Internet usually over the Internet
Electronic transactions between businesses and Electronic transactions between businesses and
their customers usually over the Internet their customers usually over the Internet
Information Technology Information Technology
66--318 318
Consumer (B2C)
Internet
Intranet
Extranet
Consumer (B2C)
Internet
Intranet
Extranet
their customers usually over the Internet their customers usually over the Internet
A global information system of computer networks A global information system of computer networks
that facilitates communication and data transfer that facilitates communication and data transfer
Communication networks internal to an Communication networks internal to an
organization; can be password (i.e., firewall) organization; can be password (i.e., firewall)
protected sites on the Internet protected sites on the Internet
Intranets connected to the Internet for shared Intranets connected to the Internet for shared
access with select suppliers, customers, and access with select suppliers, customers, and
trading partners trading partners
Bar Codes
Radio Frequency
Identification tags
(RFID)
Bar Codes
Radio Frequency
Identification tags
(RFID)
A series of vertical lines printed on most packages that A series of vertical lines printed on most packages that
identifies item and other information when read by a identifies item and other information when read by a
scanner scanner
An integrated circuit embedded in a tag that can send An integrated circuit embedded in a tag that can send
and receive information; a twenty and receive information; a twenty--first century bar code first century bar code
with read/write capabilities with read/write capabilities
66--319 319
(RFID)
Electronic data
interchange (EDI)
Extensive markup
language (XML)
Enterprise
resource planning
(ERP)
(RFID)
Electronic data
interchange (EDI)
Extensive markup
language (XML)
Enterprise
resource planning
(ERP)
with read/write capabilities with read/write capabilities
A computer A computer--to to--computer exchange of business computer exchange of business
documents over a proprietary network; very expensive documents over a proprietary network; very expensive
and inflexible and inflexible
A programming language that enables computer A programming language that enables computer to to --
computer communication over the Internet by tagging computer communication over the Internet by tagging
data before its is sent data before its is sent
Software for managing basic requirements of an Software for managing basic requirements of an
enterprise, including sales & marketing, finance and enterprise, including sales & marketing, finance and
accounting, production & materials management, and accounting, production & materials management, and
human resources human resources
Supply chain
management (SCM)
Customer relationship
management (CRM)
Supply chain
management (SCM)
Customer relationship
management (CRM)
Software for managing flow of goods and information Software for managing flow of goods and information
among a network of suppliers, manufacturers and among a network of suppliers, manufacturers and
distributors distributors
Software for managing interactions with customers and Software for managing interactions with customers and
compiling and analyzing customer data compiling and analyzing customer data
66--320 320
management (CRM)
Decision support
systems (DSS)
Expert systems (ES)
Artificial intelligence
(AI)
management (CRM)
Decision support
systems (DSS)
Expert systems (ES)
Artificial intelligence
(AI)
An information system that helps managers make An information system that helps managers make
decisions; includes a quantitative modeling component decisions; includes a quantitative modeling component
and an interactive component for what and an interactive component for what--if analysis if analysis
A computer system that uses an expert knowledge base A computer system that uses an expert knowledge base
to diagnose or solve a problem to diagnose or solve a problem
A field of study that attempts to replicate elements of A field of study that attempts to replicate elements of
human thought in computer processes; includes expert human thought in computer processes; includes expert
systems, genetic algorithms, neural networks, and fuzzy systems, genetic algorithms, neural networks, and fuzzy
logic logic
Capacity and Facilities Capacity and Facilities
Chapter 7 Chapter 7
Capacity Planning
Basic Layouts Basic Layouts
Designing Process Layouts
Designing Service Layouts
Designing Product Layouts
Hybrid Layouts
Capacity
Maximum capability to produce Maximum capability to produce
Capacity planning Capacity planning
establishes overall level of productive establishes overall level of productive
resources for a firm resources for a firm
3 basic strategies for timing of capacity 3 basic strategies for timing of capacity
expansion in relation to steady growth in expansion in relation to steady growth in
demand (lead, lag, and average) demand (lead, lag, and average)
Capacity Expansion Strategies Capacity Expansion Strategies
Capacity (cont.)
Capacity increase depends on
volume and certainty of anticipated demand
strategic objectives
costs of expansion and operation
Best operating level
% of capacity utilization that minimizes unit costs
Capacity cushion
% of capacity held in reserve for unexpected
occurrences
Economies of Scale Economies of Scale
it costs less per unit to produce high levels of
output
fixed costs can be spread over a larger number of
units units
production or operating costs do not increase
linearly with output levels
quantity discounts are available for material
purchases
operating efficiency increases as workers gain
experience
Best Operating Level for a Hotel
Machine Objectives of Machine Objectives of
Facility Layout Facility Layout
Minimize material-handling
costs
Utilize space efficiently
Facilitate entry, exit, and
placement of material, products,
and people
Arrangement of areas within a facility to: Arrangement of areas within a facility to:
Utilize space efficiently
Utilize labor efficiently
Eliminate bottlenecks
Facilitate communication and
interaction
Reduce manufacturing cycle
time
Reduce customer service time
Eliminate wasted or redundant
movement
Increase capacity
and people
Incorporate safety and security
measures
Promote product and service
quality
Encourage proper maintenance
activities
Provide a visual control of
activities
Provide flexibility to adapt to
changing conditions
BASIC LAYOUTS
Process layouts
group similar activities together
according to process or function they
perform perform
Product layouts
arrange activities in line according to
sequence of operations for a particular
product or service
Fixed-position layouts
are used for projects in which product
cannot be moved
Process Layout in Services Process Layout in Services
Womens Womens
lingerie lingerie
Shoes Shoes Housewares Housewares
Womens Womens
dresses dresses
Womens Womens
sportswear sportswear
Cosmetics Cosmetics
and jewelry and jewelry
Entry and Entry and
display area display area
Childrens Childrens
department department
Mens Mens
department department
Manufacturing Process Layout Manufacturing Process Layout
A Product Layout A Product Layout
In In
Out Out
Description Description Sequential Sequential
arrangement of arrangement of
activities activities
Process Process
Comparison of Product Comparison of Product
and Process Layouts and Process Layouts
Functional Functional
grouping of grouping of
Product Product
Type of process
Product
Demand
Volume
Equipment
Type of process
Product
Demand
Volume
Equipment
Continuous, mass Continuous, mass
production, mainly production, mainly
assembly assembly
Standardized, made Standardized, made
to stock to stock
Stable Stable
High High
Special purpose Special purpose
Intermittent, job Intermittent, job
shop, batch shop, batch
production, mainly production, mainly
fabrication fabrication
Varied, made to Varied, made to
order order
Fluctuating Fluctuating
Low Low
General purpose General purpose
Workers
Inventory
Storage space
Workers
Inventory
Storage space
Limited skills Limited skills
Low in Low in--process, high process, high
finished goods finished goods
Small Small
Process Process
Comparison of Product Comparison of Product
and Process Layouts and Process Layouts
Varied skills Varied skills
High in High in--process, low process, low
finished goods finished goods
Large Large
Product Product
Storage space
Material handling
Aisles
Scheduling
Layout decision
Goal
Advantage
Storage space
Material handling
Aisles
Scheduling
Layout decision
Goal
Advantage
Small Small
Fixed path (conveyor) Fixed path (conveyor)
Narrow Narrow
Part of balancing Part of balancing
Line balancing Line balancing
Equalize work at each Equalize work at each
station station
Efficiency Efficiency
Large Large
Variable path (forklift) Variable path (forklift)
Wide Wide
Dynamic Dynamic
Machine location Machine location
Minimize material Minimize material
handling cost handling cost
Fixed Fixed--Position Layouts Position Layouts
Typical of projects in Typical of projects in
which product produced which product produced
is too fragile, bulky, or is too fragile, bulky, or
heavy to move heavy to move
77--335 335
Equipment, workers, Equipment, workers,
materials, other materials, other
resources brought to the resources brought to the
site site
Low equipment utilization Low equipment utilization
Highly skilled labor Highly skilled labor
Typically low fixed cost Typically low fixed cost
Often high variable costs Often high variable costs
Designing Process Layouts Designing Process Layouts
Goal: minimize material handling costs Goal: minimize material handling costs
Block Diagramming Block Diagramming
minimize nonadjacent loads minimize nonadjacent loads minimize nonadjacent loads minimize nonadjacent loads
use when quantitative data is available use when quantitative data is available
Relationship Diagramming Relationship Diagramming
based on location preference between areas based on location preference between areas
use when quantitative data is not available use when quantitative data is not available
Block Diagramming Block Diagramming
Unit load Unit load
quantity in which quantity in which
material is normally material is normally
STEPS STEPS
create load summary chart create load summary chart
calculate composite (two calculate composite (two material is normally material is normally
moved moved
Nonadjacent load Nonadjacent load
distance farther distance farther
than the next block than the next block
calculate composite (two calculate composite (two
way) movements way) movements
develop trial layouts develop trial layouts
minimizing number of minimizing number of
nonadjacent loads nonadjacent loads
Block Diagramming: Example Block Diagramming: Example
Department Department 11 22 33 44 55
Load Summary Chart Load Summary Chart
FROM/TO FROM/TO DEPARTMENT DEPARTMENT
11 22 33
Department Department 11 22 33 44 55
11 100 100 50 50
22 200 200 50 50
33 60 60 40 40 50 50
44 100 100 60 60
55 50 50
44 55
Block Diagramming: Block Diagramming:
2 3 200 loads 2 3 200 loads
2 4 150 loads 2 4 150 loads
1 3 110 loads 1 3 110 loads
1 2 100 loads 1 2 100 loads
110 110
Nonadjacent Loads: Nonadjacent Loads:
110+40=150 110+40=150
Nonadjacent Loads: Nonadjacent Loads:
00
1 2 100 loads 1 2 100 loads
4 5 60 loads 4 5 60 loads
11 22 33
44
55
100 100 200 200
150 150
50 50
50 50
60 60
40 40
Grid 1 Grid 1
11 22
33
44
55
100 100
200 200
150 150
50 50
50 50
60 60
40 40
110 110
Grid 2 Grid 2
Block Diagramming: Block Diagramming:
(a) Initial block diagram (a) Initial block diagram (b) Final block diagram (b) Final block diagram
Block Diagram
type of schematic layout diagram; includes space requirements
11
22
33
44
55
33
22
55
11 44
Relationship Diagramming Relationship Diagramming
Schematic diagram that Schematic diagram that
uses weighted lines to uses weighted lines to
denote location preference denote location preference denote location preference denote location preference
Muthers grid Muthers grid
format for displaying
manager preferences for
department locations
Relationship Diagramming: Excel Relationship Diagramming: Excel
Relationship Relationship
Diagramming: Example Diagramming: Example
Offices Offices
AA
OO
UU II
X Undesirable X Undesirable
A Absolutely necessary A Absolutely necessary
E Especially important E Especially important
I Important I Important
O Okay O Okay
U Unimportant U Unimportant
X Undesirable X Undesirable
Stockroom Stockroom
Shipping and Shipping and
receiving receiving
Locker room Locker room
Toolroom Toolroom
AA A A
OO
OO
OO
OO
UU
UU
UU
U U
E E
XX
II
Relationship Diagrams: Example (cont.) Relationship Diagrams: Example (cont.)
(a) Relationship diagram of original layout (a) Relationship diagram of original layout
Key: Key: AA
EE
II
O O
UU
XX
Offices Offices
Stockroom Stockroom
Locker Locker
room room
Toolroom Toolroom
Shipping Shipping
and and
receiving receiving
(b) Relationship diagram of revised layout (b) Relationship diagram of revised layout
Offices Offices
Stockroom Stockroom
Shipping Shipping
Relationship Diagrams: Example (cont.) Relationship Diagrams: Example (cont.)
Offices Offices
Locker Locker
room room
Toolroom Toolroom
Shipping Shipping
and and
receiving receiving
Key: Key: AA
EE
II
O O
UU
XX
Computerized layout Computerized layout
Solutions Solutions
CRAFT
Computerized Relative Allocation of Facilities
Technique
CORELAP
Computerized Relationship Layout Planning Computerized Relationship Layout Planning
PROMODEL and EXTEND
visual feedback
allow user to quickly test a variety of scenarios
Three-D modeling and CAD
integrated layout analysis
available in VisFactory and similar software
Designing Service
Layouts
Must be both attractive and functional
Types
Free flow layouts
encourage browsing, increase impulse purchasing, are flexible encourage browsing, increase impulse purchasing, are flexible
and visually appealing
Grid layouts
encourage customer familiarity, are low cost, easy to clean and
secure, and good for repeat customers
Loop and Spine layouts
both increase customer sightlines and exposure to products,
while encouraging customer to circulate through the entire
store
Types of Store Layouts Types of Store Layouts
Designing Product
Layouts
Objective
Balance the assembly line
Line balancing
tries to equalize the amount of work at each tries to equalize the amount of work at each
workstation
Precedence requirements
physical restrictions on the order in which operations
are performed
Cycle time
maximum amount of time a product is allowed to
spend at each workstation
Cycle Time Example Cycle Time Example
CC
dd
= =
production time available production time available
desired units of output desired units of output
CC
dd
= =
(8 hours x 60 minutes / hour) (8 hours x 60 minutes / hour)
(120 units) (120 units)
CC
dd
= = = = 4 minutes 4 minutes
480 480
120 120
Flow Time vs Cycle Time Flow Time vs Cycle Time
Cycle time = max time spent at any station Cycle time = max time spent at any station
Flow time = time to complete all stations Flow time = time to complete all stations
11 22 33
4 minutes 4 minutes 4 minutes 4 minutes 4 minutes 4 minutes
Flow time = 4 + 4 + 4 = 12 minutes Flow time = 4 + 4 + 4 = 12 minutes
Cycle time = max (4, 4, 4) = 4 minutes Cycle time = max (4, 4, 4) = 4 minutes
Efficiency of Line and Balance Delay
ii
ii = 1 = 1
tt
ii
ii
ii = 1 = 1
tt
ii
Minimum number of Minimum number of
workstations workstations
Balance Balance
delay delay
ii = 1 = 1
nC nC
aa
EE ==
ii = 1 = 1
CC
dd
NN ==
where where
tt
ii
= completion time for element = completion time for element ii
jj = number of work elements = number of work elements
nn = actual number of workstations = actual number of workstations
C C
aa
= actual cycle time = actual cycle time
CC
dd
= desired cycle time = desired cycle time
delay delay
total idle total idle
time of line time of line
calculated calculated
as (1 as (1 --
efficiency) efficiency)
Line Balancing Procedure Line Balancing Procedure
1. Draw and label a precedence diagram
2. Calculate desired cycle time required for line
3. Calculate theoretical minimum number of
4. Group elements into workstations, recognizing cycle
time and precedence constraints
5. Calculate efficiency of line
6. Determine if theoretical minimum number of
workstations or an acceptable efficiency level has
been reached. If not, go back to step 4.
Line Balancing: Example Line Balancing: Example
WORK ELEMENT WORK ELEMENT PRECEDENCE PRECEDENCE TIME (MIN) TIME (MIN)
AA Press out sheet of fruit Press out sheet of fruit 0.1 0.1
BB Cut into strips Cut into strips A A 0.2 0.2
CC Outline fun shapes Outline fun shapes A A 0.4 0.4
DD Roll up and package Roll up and package B, C B, C 0.3 0.3
0.1 0.1
0.2 0.2
0.4 0.4
0.3 0.3
D D
BB
CC
AA
Line Balancing: Example (cont.) Line Balancing: Example (cont.)
WORK ELEMENT WORK ELEMENT PRECEDENCE PRECEDENCE TIME (MIN) TIME (MIN)
AA Press out sheet of fruit Press out sheet of fruit 0.1 0.1
BB Cut into strips Cut into strips A A 0.2 0.2
CC Outline fun shapes Outline fun shapes A A 0.4 0.4
DD Roll up and package Roll up and package B, C B, C 0.3 0.3
CC
dd
= = = 0.4 minute = = = 0.4 minute
40 hours x 60 minutes / hour 40 hours x 60 minutes / hour
6,000 units 6,000 units
2400 2400
6000 6000
NN = = = 2.5 = = = 2.5 3 workstations 3 workstations
1.0 1.0
0.4 0.4
0.1 + 0.2 + 0.3 + 0.4 0.1 + 0.2 + 0.3 + 0.4
0.4 0.4
REMAINING REMAINING REMAINING REMAINING
WORKSTATION WORKSTATION ELEMENT ELEMENT TIME TIME ELEMENTS ELEMENTS
11 AA 0.3 0.3 B, C B, C
BB 0.1 0.1 C, D C, D
22 CC 0.0 0.0 D D
3 3 DD 0.1 0.1 none none
C C
dd
= 0.4 = 0.4
N N = 2.5 = 2.5
3 3 DD 0.1 0.1 none none
0.1 0.1
0.2 0.2
0.4 0.4
0.3 0.3
D D
BB
CC
AA
A, B A, B CC DD
Work Work
station 1 station 1
Work Work
station 2 station 2
Work Work
station 3 station 3
C C
dd
= 0.4 = 0.4
N N = 2.5 = 2.5
0.3 0.3
minute minute
0.4 0.4
minute minute
0.3 0.3
minute minute
EE = = = 0.833 = 83.3% = = = 0.833 = 83.3%
0.1 + 0.2 + 0.3 + 0.4 0.1 + 0.2 + 0.3 + 0.4
3(0.4) 3(0.4)
1.0 1.0
1.2 1.2
Computerized Line Computerized Line
Balancing Balancing
Use heuristics to assign tasks to Use heuristics to assign tasks to
Longest operation time Longest operation time Longest operation time Longest operation time
Shortest operation time Shortest operation time
Most number of following tasks Most number of following tasks
Least number of following tasks Least number of following tasks
Ranked positional weight Ranked positional weight
Hybrid Layouts Hybrid Layouts
Cellular layouts
group dissimilar machines into work centers (called cells)
that process families of parts with similar shapes or
processing requirements processing requirements
Production flow analysis (PFA)
reorders part routing matrices to identify families of parts
with similar processing requirements
Flexible manufacturing system
automated machining and material handling systems automated machining and material handling systems
which can produce an enormous variety of items
Mixed-model assembly line
processes more than one product model in one line
Cellular Layouts
1. 1. Identify families of parts with similar Identify families of parts with similar
flow paths flow paths
2. 2. Group machines into cells based on Group machines into cells based on 2. 2. Group machines into cells based on Group machines into cells based on
part families part families
3. 3. Arrange cells so material movement Arrange cells so material movement
is minimized is minimized
4. 4. Locate large shared machines at Locate large shared machines at
point of use point of use
Parts Families Parts Families
A family of A family of
similar parts similar parts
A family of related A family of related
grocery items grocery items
Original Process Layout Original Process Layout
Assembly Assembly
44
66
77 99
CC AA BB Raw materials Raw materials
11
22
33
55 88
10 10
11 11
12 12
Part Routing Matrix Part Routing Matrix
Machines Machines
Parts Parts 11 22 33 44 55 66 77 88 99 10 10 11 11 12 12
A A xx xx xx xx xx
B B xx xx xx xx
CC xx xx xx CC xx xx xx
DD xx xx xx xx xx
EE xx xx xx
FF xx xx xx
GG xx xx xx xx
HH xx xx xx
Figure 5.8 Figure 5.8
Revised Cellular Layout Revised Cellular Layout
99
Assembly Assembly
88 10 10
11 11
12 12
33
66
11 22
44
55
77
11 11
A B C A B C
Raw materials Raw materials
Cell 1 Cell 1 Cell 2 Cell 2 Cell 3 Cell 3
Reordered Routing Matrix Reordered Routing Matrix
Machines Machines
Parts Parts 11 22 44 88 10 10 33 66 99 55 77 11 11 12 12
A A xx xx xx xx xx
D D xx xx xx xx xx
FF xx xx xx FF xx xx xx
CC xx xx xx
GG xx xx xx xx
BB xx xx xx xx
HH xx xx xx
EE xx xx xx
Advantages and Disadvantages Advantages and Disadvantages
of Cellular Layouts of Cellular Layouts
Advantages Advantages
Reduced material Reduced material
handling and transit time handling and transit time
Reduced setup time Reduced setup time
Disadvantages Disadvantages
Inadequate part families Inadequate part families
Poorly balanced cells Poorly balanced cells
Reduced setup time Reduced setup time
Reduced work Reduced work--in in--
process inventory process inventory
Better use of human Better use of human
resources resources
Easier to control Easier to control
Easier to automate Easier to automate
Expanded training and Expanded training and
scheduling of workers scheduling of workers
Increased capital Increased capital
investment investment
Automated Manufacturing Cell Automated Manufacturing Cell
Source: Source: J. T. Black, Cellular J. T. Black, Cellular
Manufacturing Systems Reduce Manufacturing Systems Reduce
Setup Time, Make Small Lot Setup Time, Make Small Lot
Production Economical. Production Economical. Industrial Industrial
Engineering Engineering (November 1983) (November 1983)
Flexible Manufacturing Flexible Manufacturing
Systems (FMS) Systems (FMS)
FMS consists of numerous programmable
machine tools connected by an automated
material handling system and controlled by
a common computer network a common computer network
FMS combines flexibility with efficiency
FMS layouts differ based on
variety of parts that the system can process
size of parts processed
average processing time required for part
completion
Full-Blown FMS
Mixed Model Mixed Model
Assembly Lines Assembly Lines
Produce multiple models in any order Produce multiple models in any order
on one assembly line on one assembly line
Issues in mixed model lines Issues in mixed model lines
Line balancing Line balancing
UU--shaped lines shaped lines
Flexible workforce Flexible workforce
Model sequencing Model sequencing
Balancing U Balancing U--Shaped Lines Shaped Lines
AA BB CC
DD EE
Precedence diagram: Precedence diagram:
Cycle time = 12 min Cycle time = 12 min
A,B A,B C,D C,D EE
(a) Balanced for a straight line (a) Balanced for a straight line
9 min 9 min 12 min 12 min 3 min 3 min
Efficiency = = = .6666 = 66.7 % Efficiency = = = .6666 = 66.7 %
24 24
36 36
24 24
3(12) 3(12)
12 min 12 min 12 min 12 min
C,D C,D
A,B A,B
EE
(b) Balanced for a U (b) Balanced for a U--shaped line shaped line
Efficiency = = = 100 % Efficiency = = = 100 %
24 24
24 24
24 24
2(12) 2(12)
Facility Location Models Facility Location Models
Types of Facilities Types of Facilities
Site Selection: Where to Locate Site Selection: Where to Locate
Location Analysis Techniques Location Analysis Techniques
Types of Facilities Types of Facilities
Heavy Heavy--manufacturing facilities manufacturing facilities
large, require a lot of space, and are large, require a lot of space, and are
expensive expensive
expensive expensive
Light Light--industry facilities industry facilities
smaller, cleaner plants and usually less smaller, cleaner plants and usually less
costly costly
Retail and service facilities Retail and service facilities
smallest and least costly smallest and least costly
Factors in Heavy Manufacturing Factors in Heavy Manufacturing
Location Location
Construction costs Construction costs
Land costs Land costs
Raw material and finished goods Raw material and finished goods
Raw material and finished goods Raw material and finished goods
shipment modes shipment modes
Proximity to raw materials Proximity to raw materials
Utilities Utilities
Means of waste disposal Means of waste disposal
Labor availability Labor availability
Factors in Light Industry Factors in Light Industry
Location Location
Land costs Land costs
Transportation costs Transportation costs
Proximity to markets Proximity to markets
depending on delivery requirements depending on delivery requirements
including frequency of delivery including frequency of delivery
required by customer required by customer
Factors in Retail Location Factors in Retail Location
Proximity to customers Proximity to customers
Location is everything Location is everything
Location is everything Location is everything
Infrequent but important Infrequent but important
being in the right place at the being in the right place at the
right time right time
Must consider other factors, Must consider other factors,
especially financial especially financial
Location criteria for Location criteria for
manufacturing facility manufacturing facility
nature of labor force nature of labor force
labor costs labor costs
especially financial especially financial
considerations considerations
Location decisions made more Location decisions made more
often for service operations often for service operations
than manufacturing facilities than manufacturing facilities
Location criteria for service Location criteria for service
access to customers access to customers
proximity to suppliers and proximity to suppliers and
markets markets
distribution and distribution and
transportation costs transportation costs
energy availability and cost energy availability and cost
community infrastructure community infrastructure
quality of life in community quality of life in community
government regulations and government regulations and
taxes taxes
Global Location Factors Global Location Factors
Government stability Government stability
Government regulations Government regulations
Political and economic Political and economic
systems systems
Raw material availability Raw material availability
Number and proximity of Number and proximity of
suppliers suppliers
Transportation and Transportation and
systems systems
Economic stability and growth Economic stability and growth
Exchange rates Exchange rates
Culture Culture
Climate Climate
Export/import regulations, Export/import regulations,
duties and tariffs duties and tariffs
distribution system distribution system
Labor cost and education Labor cost and education
Available technology Available technology
Commercial travel Commercial travel
Technical expertise Technical expertise
Cross Cross--border trade border trade
regulations regulations
Group trade agreements Group trade agreements
Regional and Community Regional and Community
Location Factors in U.S. Location Factors in U.S.
Labor (availability, Labor (availability,
education, cost, and education, cost, and
unions) unions)
Proximity of customers Proximity of customers
Modes and quality of Modes and quality of
transportation transportation
Community government Community government
Proximity of customers Proximity of customers
Number of customers Number of customers
Construction/leasing Construction/leasing
costs costs
Land cost Land cost
Community government Community government
Local business Local business
Government services Government services
(e.g., Chamber of (e.g., Chamber of
Commerce) Commerce)
Regional and Community Regional and Community
Location Factors in U.S. (cont.) Location Factors in U.S. (cont.)
Business climate Business climate
Community services Community services
Incentive packages Incentive packages
Infrastructure (e.g., Infrastructure (e.g.,
roads, water, sewers) roads, water, sewers)
Quality of life Quality of life
Taxes Taxes
Government regulations Government regulations
Environmental Environmental
Raw material availability Raw material availability
Commercial travel Commercial travel
Climate Climate
Taxes Taxes
Availability of sites Availability of sites
Financial services Financial services
Community inducements Community inducements
Proximity of suppliers Proximity of suppliers
Education system Education system
Location Incentives Location Incentives
Tax credits Tax credits
Relaxed government regulation Relaxed government regulation
Job training Job training
Job training Job training
Infrastructure improvement Infrastructure improvement
Money Money
Geographic Information Geographic Information
Systems (GIS) Systems (GIS)
Computerized system for storing, managing, Computerized system for storing, managing,
creating, analyzing, integrating, and digitally creating, analyzing, integrating, and digitally
displaying geographic, i.e., spatial, data displaying geographic, i.e., spatial, data
displaying geographic, i.e., spatial, data displaying geographic, i.e., spatial, data
Specifically used for site selection Specifically used for site selection
enables users to integrate large quantities of enables users to integrate large quantities of
information about potential sites and analyze these information about potential sites and analyze these
data with many different, powerful analytical tools data with many different, powerful analytical tools
GIS Diagram GIS Diagram
Location Analysis Techniques Location Analysis Techniques
Location factor rating Location factor rating
Center Center--of of--gravity gravity
Center Center--of of--gravity gravity
Load Load--distance distance
Location Factor Rating Location Factor Rating
Identify important factors Identify important factors
Weight factors (0.00 Weight factors (0.00 -- 1.00) 1.00)
Subjectively score each factor (0 Subjectively score each factor (0 -- 100) 100)
Sum weighted scores Sum weighted scores
Sum weighted scores Sum weighted scores
Location Factor Rating: Example Location Factor Rating: Example
Labor pool and climate Labor pool and climate
Proximity to suppliers Proximity to suppliers
Wage rates Wage rates
LOCATION FACTOR LOCATION FACTOR
.30 .30
.20 .20
.15 .15
WEIGHT WEIGHT
80 80
100 100
60 60
Site 1 Site 1
65 65
91 91
95 95
Site 2 Site 2
90 90
75 75
72 72
Site 3 Site 3
SCORES (0 TO 100) SCORES (0 TO 100)
Wage rates Wage rates
Community environment Community environment
Proximity to customers Proximity to customers
Shipping modes Shipping modes
Air service Air service
.15 .15
.15 .15
.10 .10
.05 .05
.05 .05
60 60
75 75
65 65
85 85
50 50
95 95
80 80
90 90
92 92
65 65
72 72
80 80
95 95
65 65
90 90
Weighted Score for Labor pool and climate for Weighted Score for Labor pool and climate for
Site 1 = (0.30)(80) = 24 Site 1 = (0.30)(80) = 24
Location Factor Rating: Example Location Factor Rating: Example
(cont.) (cont.)
24.00 24.00
20.00 20.00
Site 1 Site 1
19.50 19.50
18.20 18.20
Site 2 Site 2
27.00 27.00
15.00 15.00
Site 3 Site 3
WEIGHTED SCORES WEIGHTED SCORES
Site 3 has the Site 3 has the
20.00 20.00
9.00 9.00
11.25 11.25
6.50 6.50
4.25 4.25
2.50 2.50
77.50 77.50
18.20 18.20
14.25 14.25
12.00 12.00
9.00 9.00
4.60 4.60
3.25 3.25
80.80 80.80
15.00 15.00
10.80 10.80
12.00 12.00
9.50 9.50
3.25 3.25
4.50 4.50
82.05 82.05
Site 3 has the Site 3 has the
highest factor rating highest factor rating
Location Factor Rating Location Factor Rating
Locate facility at center of movement Locate facility at center of movement
in geographic area in geographic area
Based on weight and distance Based on weight and distance
Center Center--of of--Gravity Gravity
Technique Technique
Based on weight and distance Based on weight and distance
traveled; establishes grid traveled; establishes grid--map of map of
area area
Identify coordinates and weights Identify coordinates and weights
shipped for each location shipped for each location
Grid Grid--Map Coordinates Map Coordinates

nn
WW
ii
i = i = 11
xx
ii
WW
ii
i = i = 11
nn
x = x =

nn
WW
ii
i = i = 11
yy
ii
WW
ii
i = i = 11
nn
y = y =
yy
22
yy
1 ( 1 (x x , , yy ), ), WW
2 ( 2 (xx
22
, , yy
22
), ), WW
22
where, where,
xx, , y y == coordinates of new facility coordinates of new facility
at center of gravity at center of gravity
xx
ii
, y , y
ii
== coordinates of existing coordinates of existing
facility facility i i
WW
ii
== annual weight shipped from annual weight shipped from
facility facility i i
i = i = 11 i = i = 11
x x
11
xx
22
xx
33
xx
yy
11
yy
33
1 ( 1 (x x
11
, , yy
11
), ), WW
11
3 ( 3 (xx
33
, , yy
33
), ), WW
33
Center Center--of of--Gravity Technique: Gravity Technique:
Example Example
A A B B C C D D
xx 200 200 100 100 250 250 500 500
yy 200 200 500 500 600 600 300 300
Wt Wt 75 75 105 105 135 135 60 60
yy
700 700
500 500
600 600
BB
CC
(135) (135)
(105) (105)
400 400
300 300
200 200
100 100
00 xx
700 700 500 500 600 600 400 400 300 300 200 200 100 100
A A
DD
(75) (75)
(60) (60)
Miles Miles
M
i
l
e
s
M
i
l
e
s
x x = = = 238 = = = 238
nn

WW
ii
i = i = 11

xx
ii
WW
ii
i = i = 11
nn
(200)(75) + (100)(105) + (250)(135) + (500)(60) (200)(75) + (100)(105) + (250)(135) + (500)(60)
75 + 105 + 135 + 60 75 + 105 + 135 + 60
i = i = 11

nn
WW
ii
i = i = 11

yy
ii
WW
ii
i = i = 11
nn
y y = = = 444 = = = 444
(200)(75) + (500)(105) + (600)(135) + (300)(60) (200)(75) + (500)(105) + (600)(135) + (300)(60)
75 + 105 + 135 + 60 75 + 105 + 135 + 60
A A B B C C D D
xx 200 200 100 100 250 250 500 500
yy 200 200 500 500 600 600 300 300
Wt Wt 75 75 105 105 135 135 60 60
yy
700 700
500 500
600 600
BB
CC
(135) (135)
(105) (105)
Center of gravity Center of gravity (238, 444) (238, 444)
400 400
300 300
200 200
100 100
00 xx
700 700 500 500 600 600 400 400 300 300 200 200 100 100
A A
DD
(75) (75)
(60) (60)
Miles Miles
M
i
l
e
s
M
i
l
e
s
Center of gravity Center of gravity (238, 444) (238, 444)
Center Center--of of--Gravity Technique Gravity Technique
Load Load--Distance Technique Distance Technique
Compute (Load x Distance) for each site Compute (Load x Distance) for each site
Choose site with lowest (Load x Distance) Choose site with lowest (Load x Distance)
Distance can be actual or straight Distance can be actual or straight--line line
Load Load--Distance Calculations Distance Calculations
ll
i i
dd
i i
i = i = 11
nn
LD = LD =
where, where,
LD = LD = load load--distance value distance value
ll
ii
= = load expressed as a weight, number of trips or units load expressed as a weight, number of trips or units
being shipped from proposed site and location being shipped from proposed site and location i i
dd
ii
= = distance between proposed site and location distance between proposed site and location i i
dd
ii
= = ((x x
ii
-- xx))
2 2
+ ( + (yy
ii
-- yy))
2 2
((x,y x,y) ) = = coordinates of proposed site coordinates of proposed site
((xx
ii
, y , y
ii
) ) = = coordinates of existing facility coordinates of existing facility
where, where,
Load Load--Distance: Example Distance: Example
Potential Sites Potential Sites
Site Site XX YY
11 360 360 180 180
22 420 420 450 450
33 250 250 400 400
Suppliers Suppliers
AA B B C C D D
XX 200 200 100 100 250 250 500 500
YY 200 200 500 500 600 600 300 300
Wt Wt 75 75 105 105 135 135 60 60
33 250 250 400 400 Wt Wt 75 75 105 105 135 135 60 60
Compute distance from each site to each supplier Compute distance from each site to each supplier
= (200 = (200--360) 360)
22
+ (200 + (200--180) 180)
22
dd
AA
= (x = (x
AA
-- xx
11
))
22
+ (y + (y
AA
-- yy
11
))
22
Site 1 Site 1
= 161.2 = 161.2
= (100 = (100--360) 360)
22
+ (500 + (500--180) 180)
22
dd
BB
= (x = (x
BB
-- xx
11
))
22
+ (y + (y
BB
-- yy
11
))
22
= 412.3 = 412.3
dd
CC
= 434.2 = 434.2 dd
DD
= 184.4 = 184.4
Load Load--Distance: Example (cont.) Distance: Example (cont.)
Site 2 Site 2 dd
AA
= 333 = 333 dd
CC
= 226.7 = 226.7 dd
BB
= 323.9 = 323.9 dd
DD
= 170 = 170
Site 3 Site 3 dd
AA
= 206.2 = 206.2 dd
CC
= 200 = 200 dd
BB
= 180.3 = 180.3 dd
DD
= 269.3 = 269.3
Compute load Compute load--distance distance
nn

ll dd
i = 1 i = 1

ll
i i
dd
i i
LD = LD =
Site 1 = (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(434.4) = 125,063 Site 1 = (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(434.4) = 125,063
Site 2 = (75)(333) + (105)(323.9) + (135)(226.7) + (60)(170) = 99,789 Site 2 = (75)(333) + (105)(323.9) + (135)(226.7) + (60)(170) = 99,789
Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555* Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555*
* Choose site 3 * Choose site 3
Load Load--Distance Technique Distance Technique
Human Resources Human Resources
Chapter 8 Chapter 8
Human Resources and Quality Management
Changing Nature of Human Resources
Management
88--403 403
Contemporary Trends in Human Resources
Management
Employee Compensation
Managing Diversity in Workplace
Job Design
Job Analysis
Learning Curves
Human Resources and Quality
Management
Employees play important
role in quality management
Malcolm Baldrige National
Quality Award winners have a
Employees have power to
make decisions that will
improve quality and customer
service
88--404 404
Quality Award winners have a
pervasive human resource
focus
Employee training and
education are recognized as
necessary long-term
investments
service
Strategic goals for quality and
customer satisfaction require
teamwork and group
participation
Changing Nature of Human
Resources Management
Scientific management
Breaking down jobs into
elemental activities and
simplifying job design
Assembly-line
Production meshed with
principles of scientific
management
88--405 405
simplifying job design
Jobs
Comprise a set of tasks,
elements, and job motions
(basic physical
movements)
In a piece-rate wage
system, pay is based on
output
management
Advantages of task
specialization
High output, low costs,
and minimal training
Disadvantages of task
specialization
Boredom, lack of
motivation, and physical
and mental fatigue
Employee Motivation Employee Motivation
Motivation Motivation
willingness to work hard because
that effort satisfies an employee
need
Improving Motivation
(cont.)
design of jobs to fit employee
work responsibility
empowerment
88--406 406
positive reinforcement and
feedback
effective organization and
discipline
fair treatment of people
satisfaction of employee needs
setting of work-related goals
empowerment
restructuring of jobs when
necessary
rewards based on company as
well as individual performance
achievement of company goals
Evolution of Theories of
Employee Motivation
Abraham Maslows Abraham Maslows
Pyramid of Human Pyramid of Human
Needs Needs
Douglas McGregors Douglas McGregors
Theory X and Theory Y Theory X and Theory Y
Theory X Employee Theory X Employee
Dislikes work Dislikes work
Must be coerced Must be coerced
Frederick Herzbergs Frederick Herzbergs
Hygiene/Motivation Hygiene/Motivation
Theories Theories
Hygiene Factors Hygiene Factors
Company policies Company policies
Supervision Supervision
88--407 407
Self Self--
actualization actualization
Esteem Esteem
Social Social
Safety/Security Safety/Security
Physiological (financial) Physiological (financial)
Must be coerced Must be coerced
Shirks responsibility Shirks responsibility
Little ambition Little ambition
Security top motivator Security top motivator
Theory Y Employee Theory Y Employee
Work is natural Work is natural
Self Self--directed directed
Controlled Controlled
Accepts responsibility Accepts responsibility
Makes good decisions Makes good decisions
Supervision Supervision
Working conditions Working conditions
Interpersonal relations Interpersonal relations
Salary, status, security Salary, status, security
Motivation Factors Motivation Factors
Achievement Achievement
Recognition Recognition
Job interest Job interest
Responsibility Responsibility
Growth Growth
Advancement Advancement
Contemporary Trends in
Human Resources Management
Job training
extensive and varied
two of Demings 14 points
refer to employee
education and training
Empowerment
giving employees
authority to make
decisions
88--408 408
education and training
Cross Training
an employee learns more
than one job
Job rotation
horizontal movement
between two or more jobs
according to a plan
decisions
Teams
group of employees work
on problems in their
immediate work area
Contemporary Trends in Human
Resources Management (cont.)
Job enrichment Job enrichment
vertical enlargement
allows employees control
over their work
Alternative workplace
nontraditional work location
Telecommuting
employees work
88--409 409
horizontal enlargement
an employee is assigned a
complete unit of work with
defined start and end
Flexible time
part of a daily work
schedule in which
employees can choose
time of arrival and
departure
employees work
electronically from a
location they choose
Temporary and part-time
employees
mostly in fast-food and
restaurant chains, retail
companies, package delivery
services, and financial firms
Employee Compensation
Types of pay
hourly wage
the longer someone works, the more s/he is paid
88--410 410
individual incentive or piece rate
employees are paid for the number of units they produce
during the workday
straight salary
common form of payment for management
commissions
usually applied to sales and salespeople
Gainsharing
an incentive plan joins employees
in a common effort to achieve
Employee Compensation (cont.)
88--411 411
in a common effort to achieve
company goals in which they
share in the gains
Profit sharing
sets aside a portion of profits for
employees at years end
Managing Diversity in Managing Diversity in
Workplace Workplace
Workforce has become more diverse Workforce has become more diverse
4 out of every 10 people entering workforce during 4 out of every 10 people entering workforce during
the decade from 1998 to 2008 will be members of the decade from 1998 to 2008 will be members of
88--412 412
the decade from 1998 to 2008 will be members of the decade from 1998 to 2008 will be members of
minority groups minority groups
In 2000 U.S. Census showed that some minorities, In 2000 U.S. Census showed that some minorities,
primarily Hispanic and Asian, are becoming primarily Hispanic and Asian, are becoming
majorities majorities
Companies must develop a strategic approach Companies must develop a strategic approach
to managing diversity to managing diversity
Affirmative Actions vs. Affirmative Actions vs.
Managing Diversity Managing Diversity
Affirmative action
an outgrowth of laws and
regulations
government initiated and
mandated
Managing diversity
process of creating a work
environment in which all
employees can contribute
to their full potential in
88--413 413
mandated
contains goals and
timetables designed to
increase level of
participation by women
and minorities to attain
parity levels in a
companys workforce
not directly concerned
with increasing company
success or increasing
profits
to their full potential in
order to achieve a
companys goals
voluntary in nature, not
mandated
seeks to improve internal
communications and
interpersonal
relationships, resolve
conflict, and increase
product quality,
productivity, and efficiency
Diversity Management Programs
Education
Awareness
88--414 414
Awareness
Communication
Fairness
Commitment
Global Diversity Issues
Cultural, language, geography
significant barriers to managing a globally diverse workforce
E-mails, faxes, Internet, phones, air travel
make managing a global workforce possible but not
88--415 415
make managing a global workforce possible but not
necessarily effective
How to deal with diversity?
identify critical cultural elements
learn informal rules of communication
use a third party who is better able to bridge cultural gap
become culturally aware and learn foreign language
teach employees cultural norm of organization
Attributes of Good Job Design Attributes of Good Job Design
An appropriate degree of
repetitiveness
An appropriate degree of
attention and mental
Goals and achievement
feedback
A perceived contribution
to a useful product or
88--416 416
attention and mental
absorption
Some employee
responsibility for
decisions and discretion
Employee control over
their own job
to a useful product or
service
Opportunities for
personal relationships
and friendships
Some influence over the
way work is carried out
in groups
Use of skills
Factors in Job Design Factors in Job Design
Task analysis Task analysis
how tasks fit together to form a job how tasks fit together to form a job
Worker analysis Worker analysis
determining worker capabilities and responsibilities for a determining worker capabilities and responsibilities for a
88--417 417
determining worker capabilities and responsibilities for a determining worker capabilities and responsibilities for a
job job
Environment analysis Environment analysis
physical characteristics and location of a job physical characteristics and location of a job
Ergonomics Ergonomics
fitting task to person in a work environment fitting task to person in a work environment
Technology and automation Technology and automation
broadened scope of job design broadened scope of job design
Elements of Job Design Elements of Job Design
88--418 418
Job Analysis Job Analysis
Method Analysis (work methods) Method Analysis (work methods)
Study methods used in the work included in Study methods used in the work included in
the job to see how it should be done the job to see how it should be done
88--419 419
the job to see how it should be done the job to see how it should be done
Primary tools are a variety of charts that Primary tools are a variety of charts that
illustrate in different ways how a job or work illustrate in different ways how a job or work
process is done process is done
Process Flowchart Symbols Process Flowchart Symbols
Operation: Operation:
An activity directly contributing to product or service An activity directly contributing to product or service
Inspection: Inspection:
Transportation: Transportation:
Moving the product or service from one location to another Moving the product or service from one location to another
88--420 420
Storage: Storage:
Store of the product or service Store of the product or service
Inspection: Inspection:
Examining the product or service for completeness, Examining the product or service for completeness,
irregularities, or quality irregularities, or quality
Delay: Delay:
Process having to wait Process having to wait
Process Flowchart Process Flowchart
88--421 421
11
22
33
Key in customer data Key in customer data
on card on card
Feed data card in Feed data card in
Position customer for photo Position customer for photo Idle Idle
Idle Idle
Accept card Accept card
2.6 2.6
0.4 0.4
1.0 1.0
Job Photo Job Photo--Id Cards Id Cards Date 10/14 Date 10/14
Time Time Time Time
(min) (min) Operator Operator (min) (min) Photo Machine Photo Machine
Worker Worker--
Machine Machine
Chart Chart
88--422 422
33
44
55
66
77
88
99
Position customer for photo Position customer for photo
Take picture Take picture
Inspect card & trim edges Inspect card & trim edges
Idle Idle
Idle Idle
Idle Idle
Photo/card processed Photo/card processed
Begin photo process Begin photo process
1.0 1.0
0.6 0.6
3.4 3.4
1.2 1.2
Chart Chart
Worker Worker--Machine Chart: Summary Machine Chart: Summary
Summary Summary
88--423 423
Operator Time Operator Time %% Photo Machine Time Photo Machine Time %%
Work Work 5.8 5.8 63 63 4.8 4.8 52 52
Idle Idle 3.4 3.4 37 37 4.4 4.4 48 48
Total Total 9.2 min 9.2 min 100% 100% 9.2 Min 9.2 Min 100% 100%
Motion Study Motion Study
Used to ensure efficiency of motion in Used to ensure efficiency of motion in
a job a job
Frank & Lillian Gilbreth Frank & Lillian Gilbreth
88--424 424
Frank & Lillian Gilbreth Frank & Lillian Gilbreth
Find one best way to do task Find one best way to do task
Use videotape to study motions Use videotape to study motions
General Guidelines for General Guidelines for
Efficient Use Of Human Body Efficient Use Of Human Body
Work Work
simplified, rhythmic and symmetric simplified, rhythmic and symmetric
88--425 425
simplified, rhythmic and symmetric simplified, rhythmic and symmetric
Hand/arm motions Hand/arm motions
coordinated and simultaneous coordinated and simultaneous
Employ full extent of physical capabilities Employ full extent of physical capabilities
Conserve energy Conserve energy
use machines, minimize distances, use momentum use machines, minimize distances, use momentum
Tasks Tasks
simple, minimal eye contact and muscular effort, no simple, minimal eye contact and muscular effort, no
unnecessary motions, delays or idleness unnecessary motions, delays or idleness
General Guidelines for General Guidelines for
Efficient Arrangement of Workplace Efficient Arrangement of Workplace
Tools, material, equipment Tools, material, equipment -- designated, easily accessible designated, easily accessible
location location
Comfortable and healthy seating and work area Comfortable and healthy seating and work area
88--426 426
Comfortable and healthy seating and work area Comfortable and healthy seating and work area
Efficient Use of Equipment Efficient Use of Equipment
Equipment and mechanized tools enhance worker abilities Equipment and mechanized tools enhance worker abilities
Use foot Use foot--operated equipment to relieve hand/arm stress operated equipment to relieve hand/arm stress
Construct and arrange equipment to fit worker use Construct and arrange equipment to fit worker use
Learning Curves
Illustrates
improvement rate of
workers as a job is
repeated
P
r
o
c
e
s
s
i
n
g

t
i
m
e

p
e
r

u
n
i
t
P
r
o
c
e
s
s
i
n
g

t
i
m
e

p
e
r

u
n
i
t
88--427 427
repeated
Processing time per
unit decreases by a
constant percentage
each time output
doubles
Units produced Units produced
P
r
o
c
e
s
s
i
n
g

t
i
m
e

p
e
r

u
n
i
t
P
r
o
c
e
s
s
i
n
g

t
i
m
e

p
e
r

u
n
i
t
Learning Curves (cont.) Learning Curves (cont.)
tt
nn
= = tt
11
nn
bb
Time required for the Time required for the nn
th th
unit = unit =
88--428 428
tt
nn
= = tt
11
nn
where: where:
tt
nn
== time required for time required for nn
th th
unit produced unit produced
tt
11
== time required for first unit produced time required for first unit produced
nn == cumulative number of units produced cumulative number of units produced
bb = where = where rr is the learning curve percentage is the learning curve percentage
(decimal coefficient) (decimal coefficient)
ln
ln 2
r
Learning Curve Effect Learning Curve Effect
Contract to produce 36 computers. Contract to produce 36 computers.
tt
11
= 18 hours, learning rate = 80% = 18 hours, learning rate = 80%
What is time for 9th, 18th, 36th units? What is time for 9th, 18th, 36th units?
88--429 429
What is time for 9th, 18th, 36th units? What is time for 9th, 18th, 36th units?
tt
99
= (18)(9) = (18)(9)
ln(0.8)/ln 2 ln(0.8)/ln 2
= (18)(9) = (18)(9)
--0.322 0.322
= (18)/(9) = (18)/(9)
0.322 0.322
= (18)(0.493) = 8.874hrs = (18)(0.493) = 8.874hrs
tt
18 18
= (18)(18) = (18)(18)
ln(0.8)/ln 2 ln(0.8)/ln 2
= (18)(0.394) = 7.092hrs = (18)(0.394) = 7.092hrs
tt
36 36
= (18)(36) = (18)(36)
ln(0.8)/ln 2 ln(0.8)/ln 2
= (18)(0.315) = 5.674hrs = (18)(0.315) = 5.674hrs
Learning Curve for Mass Learning Curve for Mass
Production Job Production Job
P
r
o
c
e
s
s
i
n
g

t
i
m
e

p
e
r

u
n
i
t
P
r
o
c
e
s
s
i
n
g

t
i
m
e

p
e
r

u
n
i
t
88--430 430
Standard Standard
time time
End of improvement End of improvement
Units produced Units produced
P
r
o
c
e
s
s
i
n
g

t
i
m
e

p
e
r

u
n
i
t
P
r
o
c
e
s
s
i
n
g

t
i
m
e

p
e
r

u
n
i
t
Learning Curves (cont.) Learning Curves (cont.)
Advantages
planning labor
planning budget
Limitations
product modifications
negate learning curve
effect
88--431 431
planning budget
determining
scheduling
requirements
effect
improvement can derive
from sources besides
learning
industry-derived learning
curve rates may be
inappropriate
Work Measurement Work Measurement
Time Studies Time Studies
Work Sampling Work Sampling
Work Measurement Work Measurement
Determining how long it takes to do a job Determining how long it takes to do a job
Growing importance in service sector Growing importance in service sector
Services tend to be labor Services tend to be labor--intensive intensive
Services tend to be labor Services tend to be labor--intensive intensive
Service jobs are often repetitive Service jobs are often repetitive
Time studies Time studies
Standard time Standard time
is time required by an average worker to perform a job once is time required by an average worker to perform a job once
Incentive piece Incentive piece--rate wage system based on time rate wage system based on time
study study
Stopwatch Time Stopwatch Time
Study Basic Steps Study Basic Steps
1. 1. Establish standard job method Establish standard job method
2. 2. Break down job into elements Break down job into elements
2. 2. Break down job into elements Break down job into elements
3. 3. Study job Study job
4. 4. Rate workers performance (RF) Rate workers performance (RF)
5. 5. Compute average time (t) Compute average time (t)
Stopwatch Time Study Stopwatch Time Study
Basic Steps (cont.) Basic Steps (cont.)
6. 6. Compute normal time Compute normal time
Normal Time = (Elemental average) x (rating factor) Normal Time = (Elemental average) x (rating factor)
NNtt == ((t t )( )(RF RF))
7. 7. Compute standard time Compute standard time
Normal Cycle Time = NT = Normal Cycle Time = NT = N Ntt
NNtt == ((t t )( )(RF RF))
ST = (NT)(1 + AF) ST = (NT)(1 + AF)
Standard Time = (normal cycle time) x (1 + allowance factor) Standard Time = (normal cycle time) x (1 + allowance factor)
Performing a Time Study Performing a Time Study
Time Study Observation Sheet Time Study Observation Sheet
Identification of operation Identification of operation Sandwich Assembly Sandwich Assembly Date 5/17 Date 5/17
Operator Operator Approval Approval Observer Observer
Smith Smith Jones Jones Russell Russell
Cycles Cycles Summary Summary
11 22 33 44 55 66 77 88 99 10 10 tt Nt Nt RF RF tt
11 22 33 44 55 66 77 88 99 10 10 tt Nt Nt RF RF tt
Place ham, cheese, Place ham, cheese,
and lettuce on bread and lettuce on bread
11
22
33
44
Grasp and lay Grasp and lay
out bread slices out bread slices
Spread mayonnaise Spread mayonnaise
on both slices on both slices
Place top on sandwich, Place top on sandwich,
Slice, and stack Slice, and stack
tt
tt
tt
tt
RR
RR
RR
RR
.11 .11 .44 .44 .79 .79 1.13 1.13 1.47 1.47 1.83 1.83 2.21 2.21 2.60 2.60 2.98 2.98 3.37 3.37
.04 .04 .05 .05 .05 .05 .04 .04 .06 .06 .05 .05 .06 .06 .06 .06 .07 .07 .05 .05 .53 .53 .053 .053 1.05 1.05 .056 .056
.04 .04 .38 .38 .72 .72 1.05 1.05 1.40 1.40 1.76 1.76 2.13 2.13 2.50 2.50 2.89 2.89 3.29 3.29
.07 .07 .06 .06 .07 .07 .08 .08 .08 .08 .08 .08 .07 .07 .07 .07 .10 .10 .09 .09 .77 .77 .077 .077 .077 .077 1.00 1.00
.11 .11 .12 .12 .14 .14 .12 .12 .12 .12 .13 .13 .13 .13 .13 .13 .14 .14 .14 .14 1.28 1.28 1.28 1.28 1.10 1.10 .141 .141
.93 .93 .23 .23 .55 .55 1.25 1.25 1.60 1.60 1.96 1.96 2.34 2.34 2.72 2.72 3.12 3.12 3.51 3.51
.12 .12 .10 .10 .08 .08 .09 .09 .12 .12 .10 .10 .11 .11 .11 .11 .10 .10 .10 .10 1.03 1.03 1.03 1.03 1.10 1.10 .113 .113
.33 .33 .67 .67 1.01 1.01 1.34 1.34 1.71 1.71 2.07 2.07 2.44 2.44 2.82 2.82 3.24 3.24 3.61 3.61
Performing a Time Performing a Time
Study (cont.) Study (cont.)
Normal time = (Elemental average)(rating factor) Normal time = (Elemental average)(rating factor)
NNtt = ( = ( t t )( )(RF RF) = (0.053)(1.05) = 0.056 ) = (0.053)(1.05) = 0.056
Average element time = Average element time = t t = = = 0.053 = = = 0.053
tt
10 10
0.53 0.53
10 10
NNtt = ( = ( t t )( )(RF RF) = (0.053)(1.05) = 0.056 ) = (0.053)(1.05) = 0.056
Normal Cycle Time = NT = Normal Cycle Time = NT = N Ntt = 0.387 = 0.387
ST = (NT) (1 + AF) = (0.387)(1+0.15) = 0.445 min ST = (NT) (1 + AF) = (0.387)(1+0.15) = 0.445 min
Performing a Time Performing a Time
Study (cont.) Study (cont.)
How many sandwiches can be made in 2 hours? How many sandwiches can be made in 2 hours?
= 269.7 or 270 sandwiches = 269.7 or 270 sandwiches
120 min 120 min
0.445 min/sandwich 0.445 min/sandwich
Number of Cycles Number of Cycles
To determine sample size: To determine sample size:
n n ==
zs zs
eT eT
22
where where
zz == number of standard deviations from the mean in a number of standard deviations from the mean in a
zz == number of standard deviations from the mean in a number of standard deviations from the mean in a
normal distribution reflecting a level of statistical normal distribution reflecting a level of statistical
confidence confidence
TT == average job cycle time from the sample time study average job cycle time from the sample time study
ee == degree of error from true mean of distribution degree of error from true mean of distribution
ss = = = = sample standard deviation from sample sample standard deviation from sample
time study time study
((xx
ii
-- xx))
22
n n -- 11
Number of Cycles: Example Number of Cycles: Example
Average cycle time = 0.361 Average cycle time = 0.361
Computed standard deviation = 0.03 Computed standard deviation = 0.03
Company wants to be 95% confident that computed time is Company wants to be 95% confident that computed time is
within 5% of true average time within 5% of true average time
n n = = = 10.61 or 11 = = = 10.61 or 11
zs zs
eT eT
22
(1.96)(0.03) (1.96)(0.03)
(0.05)(0.361) (0.05)(0.361)
22
Number of Cycles: Example Number of Cycles: Example
(cont.) (cont.)
Developing Time Standards Developing Time Standards
without a Time Study without a Time Study
Elemental standard time Elemental standard time
files files
predetermined job predetermined job
element times element times
Predetermined motion Predetermined motion
Advantages Advantages
worker cooperation worker cooperation
unnecessary unnecessary
workplace uninterrupted workplace uninterrupted
Predetermined motion Predetermined motion
times times
predetermined times for predetermined times for
basic micro basic micro--motions motions
Time measurement units Time measurement units
TMUs = 0.0006 minute TMUs = 0.0006 minute
100,000 TMU = 1 hour 100,000 TMU = 1 hour
workplace uninterrupted workplace uninterrupted
performance ratings performance ratings
unnecessary unnecessary
consistent consistent
Disadvantages Disadvantages
ignores job context ignores job context
may not reflect skills and may not reflect skills and
abilities of local workers abilities of local workers
MTM Table for MOVE MTM Table for MOVE
3/4 or less 3/4 or less 2.0 2.0 2.0 2.0 2.0 2.0
11 2.5 2.5 2.9 2.9 3.4 3.4 2.3 2.3 2.5 2.5 1.00 1.00 00
TIME (TMU) WEIGHT ALLOWANCE TIME (TMU) WEIGHT ALLOWANCE
DISTANCE DISTANCE Hand in Hand in Weight Weight Static Static
MOVED MOVED motion motion (lb) (lb) Dynamic Dynamic constant constant
(INCHES) (INCHES) A A B B CC B B up to: up to: factor factor TMU TMU
11 2.5 2.5 2.9 2.9 3.4 3.4 2.3 2.3 2.5 2.5 1.00 1.00 00
22 3.6 3.6 4.6 4.6 5.2 5.2 2.9 2.9
33 4.9 4.9 5.7 5.7 6.7 6.7 3.6 3.6 7.5 7.5 1.06 1.06 2.2 2.2
44 6.1 6.1 6.9 6.9 8.0 8.0 4.3 4.3
20 20 19.2 19.2 18.2 18.2 22.1 22.1 15.6 15.6 37.5 37.5 1.39 1.39 12.5 12.5
A. Move object to other hand or against stop A. Move object to other hand or against stop
B. Move object to approximate or indefinite location B. Move object to approximate or indefinite location
C. Move object to exact location C. Move object to exact location
Source: MTM Association for Standards and Research. Source: MTM Association for Standards and Research.
Work Sampling Work Sampling
Determines the proportion of time a worker Determines the proportion of time a worker
spends on activities spends on activities
Primary uses of work sampling are to Primary uses of work sampling are to
Primary uses of work sampling are to Primary uses of work sampling are to
determine determine
ratio delay ratio delay
percentage of time a worker or machine is delayed or idle percentage of time a worker or machine is delayed or idle
analyze jobs that have non analyze jobs that have non--repetitive tasks repetitive tasks
Cheaper, easier approach to work Cheaper, easier approach to work
measurement measurement
Steps of Work Sampling Steps of Work Sampling
n n = = pp(1 (1 -- pp) )
zz
22
1. 1. Define job activities Define job activities
2. 2. Determine number of observations in work sample Determine number of observations in work sample
n n = = pp(1 (1 -- pp) )
zz
ee
where where
nn == sample size (number of sample observations) sample size (number of sample observations)
zz == number of standard deviations from mean for desired number of standard deviations from mean for desired
level of confidence level of confidence
ee == degree of allowable error in sample estimate degree of allowable error in sample estimate
pp == proportion of time spent on a work activity estimated proportion of time spent on a work activity estimated
prior to calculating work sample prior to calculating work sample
Steps of Work Sampling Steps of Work Sampling
(cont.) (cont.)
3. 3. Determine length of sampling Determine length of sampling
period period
4. 4. Conduct work sampling study; Conduct work sampling study;
4. 4. Conduct work sampling study; Conduct work sampling study;
record observations record observations
5. 5. Periodically re Periodically re--compute number compute number
of observations of observations
Work Sampling: Example Work Sampling: Example
What percent of time is spent looking up What percent of time is spent looking up
information? Current estimate is information? Current estimate is pp = 30% = 30%
Estimate within +/ Estimate within +/-- 2%, with 95% confidence 2%, with 95% confidence
22 22
After 280 observations, After 280 observations, pp = 38% = 38%
n n = = pp(1 (1 -- pp) = (0.3)(0.7) = 2016.84 or 2017 ) = (0.3)(0.7) = 2016.84 or 2017
zz
ee
22
1.96 1.96
0.02 0.02
22
n n = = pp(1 (1 -- pp) = (0.38)(0.62) = 2263 ) = (0.38)(0.62) = 2263
zz
ee
22
1.96 1.96
0.02 0.02
22
Project Management Project Management
Chapter 9 Chapter 9
Project Planning
Project Scheduling
Project Control
99--451 451
Project Control
CPM/PERT
Probabilistic Activity Times
Microsoft Project
Project Crashing and Time-Cost
Trade-off
Project Management Process
Project
unique, one-time operational activity or effort
99--452 452
Project Management Process Project Management Process
(cont.) (cont.)
99--453 453
Project Management Process Project Management Process
(cont.) (cont.)
99--454 454
Project Elements Project Elements
Objective Objective
Scope Scope
Contract requirements Contract requirements
99--455 455
Contract requirements Contract requirements
Schedules Schedules
Resources Resources
Personnel Personnel
Control Control
Risk and problem analysis Risk and problem analysis
Project Team and Project Manager
Project team Project team
made up of individuals from various areas and made up of individuals from various areas and
departments within a company departments within a company
99--456 456
departments within a company departments within a company
Matrix organization Matrix organization
a team structure with members from functional a team structure with members from functional
areas, depending on skills required areas, depending on skills required
Project manager Project manager
most important member of project team most important member of project team
Scope Statement and Work Scope Statement and Work
Breakdown Structure Breakdown Structure
Scope statement Scope statement
a document that provides an understanding, a document that provides an understanding,
justification, and expected result of a project justification, and expected result of a project
99--457 457
justification, and expected result of a project justification, and expected result of a project
Statement of work Statement of work
written description of objectives of a project written description of objectives of a project
Work breakdown structure (WBS) Work breakdown structure (WBS)
breaks down a project into components, breaks down a project into components,
subcomponents, activities, and tasks subcomponents, activities, and tasks
99--458 458
Work Breakdown Structure for Computer Order Work Breakdown Structure for Computer Order
Processing System Project Processing System Project
Work Breakdown Structure for Computer Order Work Breakdown Structure for Computer Order
Processing System Project Processing System Project
Organizational Organizational
Breakdown Breakdown
Structure (OBS) Structure (OBS)
a chart that a chart that
shows which shows which
Responsibility Assignment Matrix Responsibility Assignment Matrix
99--459 459
shows which shows which
organizational organizational
units are units are
responsible for responsible for
work items work items
Responsibility Responsibility
Assignment Assignment
Matrix (RAM) Matrix (RAM)
shows who is shows who is
responsible for responsible for
work in a work in a
project project
Global and Diversity Issues in Global and Diversity Issues in
Project Management Project Management
In existing global business environment, In existing global business environment,
project teams are formed from different project teams are formed from different
genders, cultures, ethnicities, etc. genders, cultures, ethnicities, etc.
99--460 460
In global projects diversity among team In global projects diversity among team
members can add an extra dimension to members can add an extra dimension to
project planning project planning
Cultural research and communication are Cultural research and communication are
important elements in planning process important elements in planning process
Project Scheduling
Steps Steps
Define activities Define activities
Sequence Sequence
Techniques Techniques
Gantt chart Gantt chart
CPM/PERT CPM/PERT
99--461 461
Sequence Sequence
Estimate time Estimate time
Develop schedule Develop schedule
CPM/PERT CPM/PERT
Microsoft Project Microsoft Project
Gantt Chart
Graph or bar chart with a bar for each
project activity that shows passage of
time
99--462 462
time
Provides visual display of project
schedule
Slack
amount of time an activity can be delayed
without delaying the project
|| || | | | | | |
Activity Activity
Design house Design house
and obtain and obtain
financing financing
Lay foundation Lay foundation
Order and Order and
00 22 44 66 88 10 10
Month Month
Example of Gantt Chart Example of Gantt Chart
99--463 463
Order and Order and
receive receive
materials materials
Build house Build house
Select paint Select paint
Select carpet Select carpet
Finish work Finish work
Month Month
11 33 55 77 99
Project Control Project Control
Time management Time management
Cost management Cost management
Quality management Quality management
Performance management Performance management
99--464 464
Performance management Performance management
Earned Value Analysis Earned Value Analysis
a standard procedure for numerically measuring a a standard procedure for numerically measuring a
projects progress, forecasting its completion date and projects progress, forecasting its completion date and
cost and measuring schedule and budget variation cost and measuring schedule and budget variation
Communication Communication
Enterprise project management Enterprise project management
CPM/PERT CPM/PERT
Critical Path Method (CPM) Critical Path Method (CPM)
DuPont & Remington DuPont & Remington--Rand (1956) Rand (1956)
Deterministic task times Deterministic task times
99--465 465
Deterministic task times Deterministic task times
Activity Activity--on on--node network construction node network construction
Project Evaluation and Review Technique Project Evaluation and Review Technique
(PERT) (PERT)
US Navy, Booz, Allen & Hamilton US Navy, Booz, Allen & Hamilton
Multiple task time estimates; probabilistic Multiple task time estimates; probabilistic
Activity Activity--on on--arrow network construction arrow network construction
Project Network Project Network
Activity-on-node (AON)
nodes represent activities,
and arrows show
precedence relationships
Activity-on-arrow (AOA)
Node Node
99--466 466
Activity-on-arrow (AOA)
arrows represent activities
and nodes are events for
points in time
Event
completion or beginning
of an activity in a project
Dummy
two or more activities
cannot share same start
and end nodes
11 33 22
Branch Branch
AOA Project Network for AOA Project Network for
a House a House
22 00
33
Lay Lay
foundation foundation
Dummy Dummy
Finish Finish Build Build
99--467 467
33
22 00
11
33
11 11
11
1 1 22 44 66 77
55
financing financing
Order and Order and
receive receive
materials materials
Finish Finish
work work
Select Select
carpet carpet
Select Select
paint paint
Build Build
house house
Concurrent Activities Concurrent Activities
2 2 33
Lay foundation Lay foundation
33
Dummy Dummy
Lay Lay
foundation foundation
22 00
99--468 468
Order material Order material
(a) (a) Incorrect precedence Incorrect precedence
relationship relationship
(b) (b) Correct precedence Correct precedence
relationship relationship
44 22
Order material Order material
11
AON Network for House
Building Project
22
22
44
33
77
Lay foundations Lay foundations
99--469 469
11
33
33
11
55
11
66
11
77
11 Start Start
financing financing
Order and receive Order and receive
materials materials
Select paint Select paint
11
33
22
22
44
33
33
66
77
11 Start Start
Critical Path Critical Path
99--470 470
33
11
55
11
66
11
Critical path Critical path
Longest path Longest path
through a network through a network
Minimum project Minimum project
completion time completion time
A: A: 11--22--44--77
3 + 2 + 3 + 1 = 9 months 3 + 2 + 3 + 1 = 9 months
B: B: 11--22--55--66--77
3 + 2 + 1 + 1 + 1 = 8 months 3 + 2 + 1 + 1 + 1 = 8 months
C: C: 11--33--44--77
3 + 1 + 3 + 1 = 8 months 3 + 1 + 3 + 1 = 8 months
D: D: 11--33--55--66--77
3 + 1 + 1 + 1 + 1 = 7 months 3 + 1 + 1 + 1 + 1 = 7 months
Activity Start Times
22
22
44
33
77
Start at 5 months Start at 5 months
Finish at 9 months Finish at 9 months
99--471 471
1 1
3 3
33
11
55
11
66
11
77
11
Start Start
Finish Finish
Node Configuration Node Configuration
Activity number Activity number Earliest start Earliest start
Earliest finish Earliest finish
99--472 472
11 00 33
33 00 33
Activity duration Activity duration Latest start Latest start
Latest finish Latest finish
Activity Scheduling Activity Scheduling
Earliest start time (ES)
earliest time an activity can start
ES = maximum EF of immediate predecessors
Forward pass
99--473 473
Forward pass
starts at beginning of CPM/PERT network to
determine earliest activity times
Earliest finish time (EF)
earliest time an activity can finish
earliest start time plus activity time
EF= ES + t
Earliest Activity Start and Earliest Activity Start and
Finish Times Finish Times
11 00 33
22 33 55
22
44 55 88
33
Start Start
99--474 474
11 00 33
11
33 33 44
11
55 55 66
11
66 66 77
11
77 88 99
11
financing financing
Select pain Select pain
materials materials
Activity Scheduling (cont.) Activity Scheduling (cont.)
Latest start time (LS)
Latest time an activity can start without delaying
critical path time
LS= LF - t
99--475 475
LS= LF - t
Latest finish time (LF)
latest time an activity can be completed without
delaying critical path time
LF = minimum LS of immediate predecessors
Backward pass
Determines latest activity times by starting at the end
of CPM/PERT network and working forward
Latest Activity Start and Latest Activity Start and
Finish Times Finish Times
11 00 33
22 33 55
22 33 55
44 55 88
33 55 88
77 88 99
Start Start
99--476 476
11 00 33
11 00 33
33 33 44
11 44 55
55 55 66
11 66 77
66 66 77
11 77 88
77 88 99
11 88 99
financing financing
Select pain Select pain
materials materials
0000 5555 5555 3333 3333 *2 *2 *2 *2
0000 3333 3333 0000 0000 *1 *1 *1 *1
Slack S Slack S Slack S Slack S EF EF EF EF LF LF LF LF ES ES ES ES LS LS LS LS Activity Activity Activity Activity
Activity Slack Activity Slack
99--477 477
* Critical Path * Critical Path * Critical Path * Critical Path
0000 9999 9999 8888 8888 *7 *7 *7 *7
1111 7777 8888 6666 7777 6666
1111 6666 7777 5555 6666 5555
0000 8888 8888 5555 5555 *4 *4 *4 *4
1111 4444 5555 3333 4444 3333
0000 5555 5555 3333 3333 *2 *2 *2 *2
Probabilistic Time Estimates
Beta distribution
a probability distribution traditionally used in
CPM/PERT
Mean (expected time): Mean (expected time): tt ==
aa + 4 + 4mm + + bb
99--478 478
aa = optimistic estimate = optimistic estimate
mm = most likely time estimate = most likely time estimate
bb = pessimistic time estimate = pessimistic time estimate
where where
Mean (expected time): Mean (expected time): tt ==
66
Variance: Variance:
22
==
bb -- aa
66
22
Examples of Beta Distributions Examples of Beta Distributions
PP
(
t
i
m
e
)
(
t
i
m
e
)
PP
(
t
i
m
e
)
(
t
i
m
e
)
aa mm tt bb aa mm tt bb
Time Time
99--479 479
PP
(
t
i
m
e
)
(
t
i
m
e
)
Time Time
m m = = tt
Time Time
Time Time
bb aa
Project Network with Probabilistic
Time Estimates: Example
Start Start Finish Finish
22
11
6,8,10 6,8,10
44
2,4,12 2,4,12
88
3,7,11 3,7,11
10 10
1,4,7 1,4,7
Equipment Equipment
installation installation
System System
development development
Equipment testing Equipment testing
and modification and modification
Manual Manual
System System
training training
Final Final
debugging debugging
99--480 480
22
3,6,9 3,6,9
33
1,3,5 1,3,5
55
2,3,4 2,3,4
66
3,4,5 3,4,5
77
2,2,2 2,2,2
3,7,11 3,7,11
99
2,4,6 2,4,6
1,4,7 1,4,7
11 11
1,10,13 1,10,13 Position Position
recruiting recruiting
Manual Manual
testing testing
Job Training Job Training
Orientation Orientation
System System
testing testing
System System
changeover changeover
Activity Time Estimates Activity Time Estimates
1 1 66 88 10 10 88 0.44 0.44
22 33 66 99 66 1.00 1.00
TIME ESTIMATES (WKS) TIME ESTIMATES (WKS) MEAN TIME MEAN TIME VARIANCE VARIANCE
ACTIVITY ACTIVITY aa mm bb t t
2 2
99--481 481
22 33 66 99 66 1.00 1.00
33 11 33 55 33 0.44 0.44
44 22 44 12 12 55 2.78 2.78
55 22 33 44 33 0.11 0.11
66 33 44 55 44 0.11 0.11
77 22 22 22 22 0.00 0.00
88 33 77 11 11 77 1.78 1.78
99 22 44 66 44 0.44 0.44
10 10 11 44 77 44 1.00 1.00
11 11 11 10 10 13 13 99 4.00 4.00
Activity Early, Late Times, Activity Early, Late Times,
and Slack and Slack
ACTIVITY ACTIVITY tt
2 22 22 22 2
ES ES EF EF LS LS LF LF SS
1 1 88 0.44 0.44 00 88 11 99 11
2 2 66 1.00 1.00 00 66 00 66 00
3 3 33 0.44 0.44 00 33 22 55 22
4 4 55 2.78 2.78 88 13 13 16 16 21 21 88
99--482 482
4 4 55 2.78 2.78 88 13 13 16 16 21 21 88
5 5 33 0.11 0.11 66 99 66 99 00
6 6 44 0.11 0.11 33 77 55 99 22
7 7 22 0.00 0.00 33 55 14 14 16 16 11 11
8 8 77 1.78 1.78 99 16 16 99 16 16 00
9 9 44 0.44 0.44 99 13 13 12 12 16 16 33
10 10 44 1.00 1.00 13 13 17 17 21 21 25 25 88
11 11 99 4.00 4.00 16 16 25 25 16 16 25 25 00
11 00
88
88 11 99
44 88
13 13
55 16 16 21 21
10 10 13 13
17 17
11 00 33
22 00
66
66 00 66
88 99
16 16
77 99 16 16
Critical Path Critical Path
Earliest, Latest, and Slack Earliest, Latest, and Slack
99--483 483
33 00
33
33 22 55
66 33
77
44 55 99
77 33
55
22 14 14 16 16
99 99
13 13
44 12 12 16 16
66 00 66
55 66
99
33 66 99
11 11
16 16
25 25
99 16 16 25 25
22
= =
22
2 + 2 +
55
22
++
88
22
++
11 11
22
Total project variance Total project variance
99--484 484
22
= =
22
2 + 2 +
55
22
++
88
22
++
11 11
22
= 1.00 + 0.11 + 1.78 + 4.00 = 1.00 + 0.11 + 1.78 + 4.00
= 6.89 weeks = 6.89 weeks
99--485 485
Probabilistic Network Analysis Probabilistic Network Analysis
Determine probability that project is Determine probability that project is
completed within specified time completed within specified time
ZZ ==
xx --

99--486 486
where where
== tt
pp
= project mean time = project mean time
== project standard deviation project standard deviation
x x == proposed project time proposed project time
ZZ == number of standard deviations number of standard deviations xx
is from mean is from mean
ZZ ==

Normal Distribution of Normal Distribution of
Project Time Project Time
Probability Probability
99--487 487
= = tt
pp
Time Time xx
ZZ
Southern Textile Example Southern Textile Example
What is the probability that the project is completed within 30 What is the probability that the project is completed within 30
weeks? weeks?

22
ZZ ==
xx --

PP((xx 30 weeks) 30 weeks)
99--488 488

22
= 6.89 = 6.89
ZZ ==
==
= 1.91 = 1.91

30 30 -- 25 25
2.62 2.62
From Table A.1, (appendix A) a From Table A.1, (appendix A) a ZZ score of 1.91 corresponds to a score of 1.91 corresponds to a
probability of 0.4719. Thus probability of 0.4719. Thus PP(30) = 0.4719 + 0.5000 = 0.9719 (30) = 0.4719 + 0.5000 = 0.9719
= 25 = 25 Time (weeks) Time (weeks) x x = 30 = 30
Southern Textile Example Southern Textile Example
PP((xx 22 weeks) 22 weeks)
What is the probability that the project is completed within 22 What is the probability that the project is completed within 22
weeks? weeks?
22
= 6.89 = 6.89
ZZ ==
==
xx --

22 22 -- 25 25
99--489 489
= 25 = 25
Time Time
(weeks) (weeks)
xx = 22 = 22
= 6.89 = 6.89
==
= = --1.14 1.14
22 22 -- 25 25
2.62 2.62
From Table A.1 (appendix A) a From Table A.1 (appendix A) a ZZ score of score of --1.14 corresponds to a 1.14 corresponds to a
probability of 0.3729. Thus probability of 0.3729. Thus PP(22) = 0.5000 (22) = 0.5000 -- 0.3729 = 0.1271 0.3729 = 0.1271
Popular software package for project Popular software package for project
management and CPM/PERT analysis management and CPM/PERT analysis
Relatively easy to use Relatively easy to use
99--490 490
Relatively easy to use Relatively easy to use
Microsoft Project (cont.) Microsoft Project (cont.)
99--491 491
99--492 492
99--493 493
99--494 494
99--495 495
99--496 496
PERT Analysis with PERT Analysis with
99--497 497
99--498 498
99--499 499
Project Crashing
Crashing
reducing project time by expending additional
resources
99--500 500
Crash time
an amount of time an activity is reduced
Crash cost
cost of reducing activity time
Goal Goal
reduce project duration at minimum cost
22
88
4 4
12 12
Project Network for Building
a House
99--501 501
1 1
12 12
88
33
44
55
44
66
44
77
44
Normal Time and Cost Normal Time and Cost
vs. Crash Time and Cost vs. Crash Time and Cost
$7,000 $7,000
$6,000 $6,000
$5,000 $5,000
Crashed activity Crashed activity
Crash cost Crash cost
Slope = crash cost per week Slope = crash cost per week
99--502 502
$4,000 $4,000
$3,000 $3,000
$2,000 $2,000
$1,000 $1,000
|| || || || || | | | |
00 22 44 66 88 10 10 12 12 14 14 Weeks Weeks
Normal activity Normal activity
Normal time Normal time
Normal cost Normal cost
Crash time Crash time
Slope = crash cost per week Slope = crash cost per week
Project Crashing: Example Project Crashing: Example
TOTAL TOTAL
NORMAL NORMAL CRASH CRASH ALLOWABLE ALLOWABLE CRASH CRASH
TIME TIME TIME TIME NORMAL NORMAL CRASH CRASH CRASH TIME CRASH TIME COST PER COST PER
ACTIVITY ACTIVITY (WEEKS) (WEEKS) (WEEKS) (WEEKS) COST COST COST COST (WEEKS) (WEEKS) WEEK WEEK
11 12 12 77 $3,000 $3,000 $5,000 $5,000 55 $400 $400
99--503 503
11 12 12 77 $3,000 $3,000 $5,000 $5,000 55 $400 $400
22 88 55 2,000 2,000 3,500 3,500 33 500 500
33 44 33 4,000 4,000 7,000 7,000 11 3,000 3,000
44 12 12 99 50,000 50,000 71,000 71,000 33 7,000 7,000
55 44 11 500 500 1,100 1,100 33 200 200
66 44 11 500 500 1,100 1,100 33 200 200
77 44 33 15,000 15,000 22,000 22,000 11 7,000 7,000
$75,000 $75,000 $110,700 $110,700
11
12 12
22
88
33
44
55
44
66
44
77
44
$400 $400
$500 $500
$3000 $3000
$7000 $7000
$200 $200
$200 $200
$700 $700
12 12
44
Project Duration: Project Duration:
36 weeks 36 weeks
FROM FROM
$500 $500
$7000 $7000
99--504 504
11
77
22
88
33
44
55
44
66
44
77
44
$400 $400
$500 $500
$3000 $3000
$7000 $7000
$200 $200
$200 $200
$700 $700
12 12
44
Project Duration: Project Duration:
31 weeks 31 weeks
Additional Cost: Additional Cost:
$2000 $2000
TO TO
Crashing costs increase as project Crashing costs increase as project
duration decreases duration decreases
Indirect costs increase as project Indirect costs increase as project
Time Time--Cost Relationship Cost Relationship
99--505 505
Indirect costs increase as project Indirect costs increase as project
duration increases duration increases
Reduce project length as long as Reduce project length as long as
crashing costs are less than indirect crashing costs are less than indirect
costs costs
Time Time--Cost Tradeoff Cost Tradeoff
C
o
s
t

(
$
)
C
o
s
t

(
$
)
Minimum cost = optimal project time Minimum cost = optimal project time
Total project cost Total project cost
Indirect cost Indirect cost
99--506 506
C
o
s
t

(
$
)
C
o
s
t

(
$
)
Project duration Project duration
Crashing Crashing Time Time
Direct cost Direct cost
Strategy and Design Strategy and Design
Chapter 10 Chapter 10
The Management of Supply Chains
Information Technology: A Supply Chain
Enabler
10 10--508 508
Enabler
Supply Chain Integration
Supply Chain Management (SCM)
Software
Measuring Supply Chain Performance
Supply Chains Supply Chains
All facilities, functions, and activities All facilities, functions, and activities
associated with flow and transformation associated with flow and transformation
of goods and services from raw materials of goods and services from raw materials
10 10--509 509
of goods and services from raw materials of goods and services from raw materials
to customer, as well as the associated to customer, as well as the associated
information flows information flows
An integrated group of processes to An integrated group of processes to
source, make, and deliver products source, make, and deliver products
10 10--510 510
Supply Chain Illustration Supply Chain Illustration
Supply Supply
10 10--511 511
Supply Supply
Chain Chain
for for
Denim Denim
Jeans Jeans
Supply Supply
10 10--512 512
Supply Supply
Chain Chain
for for
Denim Denim
Jeans Jeans
(cont.) (cont.)
Supply Chain Processes Supply Chain Processes
10 10--513 513
Supply Chain for Service Supply Chain for Service
Providers Providers
More difficult than manufacturing More difficult than manufacturing
Does not focus on the flow of physical goods Does not focus on the flow of physical goods
10 10--514 514
Does not focus on the flow of physical goods Does not focus on the flow of physical goods
Focuses on human resources and support Focuses on human resources and support
services services
More compact and less extended More compact and less extended
Value Chains Value Chains
Value chain
every step from raw materials to the eventual end user
ultimate goal is delivery of maximum value to the end user
Supply chain
10 10--515 515
Supply chain
activities that get raw materials and subassemblies into
manufacturing operation
ultimate goal is same as that of value chain
Demand chain
increase value for any part or all of chain
Terms are used interchangeably
Value Value
creation of value for customer is important aspect of supply creation of value for customer is important aspect of supply
chain management chain management
Supply Chain
Management (SCM)
Managing flow of information through supply
chain in order to attain the level of
synchronization that will make it more
responsive to customer needs while lowering
10 10--516 516
responsive to customer needs while lowering
costs
Keys to effective SCM
information
communication
cooperation
trust
Supply Chain Supply Chain
Uncertainty and Inventory Uncertainty and Inventory
One goal in SCM:
respond to uncertainty in
customer demand
without creating costly
excess inventory
Factors that contribute to
uncertainty
inaccurate demand
forecasting
long variable lead times
10 10--517 517
excess inventory
Negative effects of
uncertainty
lateness
incomplete orders
Inventory
insurance against supply
chain uncertainty
long variable lead times
late deliveries
incomplete shipments
product changes
batch ordering
price fluctuations and
discounts
inflated orders
Bullwhip Effect Bullwhip Effect
Occurs when slight demand variability is magnified as information
moves back upstream
10 10--518 518
Risk Pooling Risk Pooling
Risks are aggregated to reduce the Risks are aggregated to reduce the
impact of individual risks impact of individual risks
Combine inventories from multiple locations Combine inventories from multiple locations
10 10--519 519
Combine inventories from multiple locations Combine inventories from multiple locations
into one into one
Reduce parts and product variability, Reduce parts and product variability,
thereby reducing the number of product thereby reducing the number of product
components components
Create flexible capacity Create flexible capacity
Information Technology:
A Supply Chain Enabler
Information links all aspects of supply chain
E-business
replacement of physical business processes with electronic
ones
10 10--520 520
ones
Electronic data interchange (EDI)
a computer-to-computer exchange of business documents
Bar code and point-of-sale
data creates an instantaneous computer record of a sale
Information Technology:
A Supply Chain Enabler (cont.)
Radio frequency identification (RFID)
technology can send product data from an item to a reader
via radio waves
Internet
10 10--521 521
Internet
allows companies to communicate with suppliers,
customers, shippers and other businesses around the world
instantaneously
Build-to-order (BTO)
direct-sell-to-customers model via the Internet; extensive
communication with suppliers and customer
Supply Chain Enablers Supply Chain Enablers
10 10--522 522
RFID Capabilities RFID Capabilities
10 10--523 523
RFID Capabilities (cont.) RFID Capabilities (cont.)
10 10--524 524
Supply Chain Integration Supply Chain Integration
Information sharing among supply chain
members
Reduced bullwhip effect
Early problem detection
10 10--525 525
Early problem detection
Faster response
Builds trust and confidence
Collaborative planning, forecasting,
replenishment, and design
Reduced bullwhip effect
Lower costs (material, logistics, operating, etc.)
Higher capacity utilization
Improved customer service levels
Coordinated workflow, production and
operations, procurement
Production efficiencies
Fast response
Supply Chain Integration (cont.) Supply Chain Integration (cont.)
10 10--526 526
Fast response
Improved service
Quicker to market
Adopt new business models and
technologies
Penetration of new markets
Creation of new products
Improved efficiency
Mass customization
Collaborative Planning, Forecasting, Collaborative Planning, Forecasting,
and Replenishment (CPFR) and Replenishment (CPFR)
Process for two or more companies in
a supply chain to synchronize their
demand forecasts into a single plan to
meet customer demand
10 10--527 527
meet customer demand
Parties electronically exchange
past sales trends
point-of-sale data
on-hand inventory
scheduled promotions
forecasts
(SCM) Software (SCM) Software
Enterprise resource planning (ERP) Enterprise resource planning (ERP)
software that integrates the components of a software that integrates the components of a
company by sharing and organizing company by sharing and organizing
10 10--528 528
company by sharing and organizing company by sharing and organizing
information and data information and data
Key Performance Indicators Key Performance Indicators
Metrics used to measure supply chain performance Metrics used to measure supply chain performance
Inventory turnover Inventory turnover
inventory of value aggregate Average
sold goods of Cost
turns Inventory =
10 10--529 529
Total value (at cost) of inventory Total value (at cost) of inventory
Days of supply Days of supply
Fill rate: fraction of orders filled by a distribution center within a Fill rate: fraction of orders filled by a distribution center within a
specific time period specific time period
= ) item e (unit valu ) item for inventory (average inventory of value aggregate Average i i
days) sold)/(365 goods of (Cost
supply of Days =
10 10--530 530
Computing Computing
Key Key
Indicators Indicators
Process Control and SCOR Process Control and SCOR
Process Control Process Control
not only for manufacturing operations not only for manufacturing operations
can be used in any processes of supply chain can be used in any processes of supply chain
10 10--531 531
can be used in any processes of supply chain can be used in any processes of supply chain
Supply Chain Operations Reference (SCOR) Supply Chain Operations Reference (SCOR)
a cross industry supply chain diagnostic tool a cross industry supply chain diagnostic tool
maintained by the Supply Chain Council maintained by the Supply Chain Council
SCOR SCOR
10 10--532 532
SCOR SCOR
(cont.) (cont.)
10 10--533 533
(cont.) (cont.)
Procurement and Distribution Procurement and Distribution
Procurement
E-Procurement
11 11--535 535
Distribution
Transportation
The Global Supply Chain
Procurement Procurement
The purchase of goods and services from suppliers The purchase of goods and services from suppliers
Cross enterprise teams Cross enterprise teams
coordinate processes between a company and its supplier coordinate processes between a company and its supplier
On On--demand (direct demand (direct--response) delivery response) delivery
11 11--536 536
On On--demand (direct demand (direct--response) delivery response) delivery
requires the supplier to deliver goods when demanded by the requires the supplier to deliver goods when demanded by the
customer customer
Continuous replenishment Continuous replenishment
supplying orders in a short period of time according to a supplying orders in a short period of time according to a
predetermined schedule predetermined schedule
Outsourcing Outsourcing
Sourcing
selection of suppliers
Outsourcing
purchase of goods and services from an
11 11--537 537
purchase of goods and services from an
outside supplier
Core competencies
what a company does best
Single sourcing
a company purchases goods and services
from only a few (or one) suppliers
Categories of Goods and Categories of Goods and
Services... Services...
11 11--538 538
EE--Procurement Procurement
Direct purchase from suppliers over the Direct purchase from suppliers over the
Internet, by using software packages or Internet, by using software packages or
through e through e--marketplaces, e marketplaces, e--hubs, and hubs, and
11 11--539 539
through e through e--marketplaces, e marketplaces, e--hubs, and hubs, and
trading exchanges trading exchanges
Can streamline and speed up the Can streamline and speed up the
purchase order and transaction process purchase order and transaction process
EE--Procurement (cont.) Procurement (cont.)
What can companies buy over the What can companies buy over the
Internet? Internet?
Manufacturing inputs Manufacturing inputs
11 11--540 540
Manufacturing inputs Manufacturing inputs
the raw materials and components that go the raw materials and components that go
directly into the production process of the product directly into the production process of the product
Operating inputs Operating inputs
maintenance, repair, and operation goods and maintenance, repair, and operation goods and
services services
EE--Procurement (cont.) Procurement (cont.)
EE--marketplaces (e marketplaces (e--hubs) hubs)
Websites where companies and suppliers Websites where companies and suppliers
conduct business conduct business--to to--business activities business activities
11 11--541 541
conduct business conduct business--to to--business activities business activities
Reverse auction Reverse auction
process used by e process used by e--marketplaces for buyers marketplaces for buyers
to purchase items; company posts orders on to purchase items; company posts orders on
the internet for suppliers to bid on the internet for suppliers to bid on
Distribution Distribution
Encompasses all channels, processes, and functions, Encompasses all channels, processes, and functions,
including warehousing and transportation, that a including warehousing and transportation, that a
product passes on its way to final customer product passes on its way to final customer
Order fulfillment Order fulfillment
process of ensuring on process of ensuring on--time delivery of an order time delivery of an order
11 11--542 542
process of ensuring on process of ensuring on--time delivery of an order time delivery of an order
Logistics Logistics
transportation and distribution of goods and transportation and distribution of goods and
services services
Driving force today is speed Driving force today is speed
Particularly important for Internet dot Particularly important for Internet dot--coms coms
Distribution Centers (DC) Distribution Centers (DC)
and Warehousing and Warehousing
DCs are some of the largest business DCs are some of the largest business
facilities in the United States facilities in the United States
Trend is for more frequent orders in smaller Trend is for more frequent orders in smaller
11 11--543 543
Trend is for more frequent orders in smaller Trend is for more frequent orders in smaller
quantities quantities
Flow Flow--through facilities and automated through facilities and automated
material handling material handling
Postponement Postponement
final assembly and product configuration final assembly and product configuration
may be done at the DC may be done at the DC
Warehouse Management Warehouse Management
Systems Systems
Highly automated system that runs day Highly automated system that runs day--to to--day day
operations of a DC operations of a DC
Controls item putaway, picking, packing, and Controls item putaway, picking, packing, and
shipping shipping
11 11--544 544
shipping shipping
Features Features
transportation management transportation management
order management order management
yard management yard management
labor management labor management
warehouse optimization warehouse optimization
11 11--545 545
A WMS
Vendor Vendor--Managed Inventory Managed Inventory
Manufacturers generate orders, not distributors or Manufacturers generate orders, not distributors or
retailers retailers
Stocking information is accessed using EDI Stocking information is accessed using EDI
11 11--546 546
Stocking information is accessed using EDI Stocking information is accessed using EDI
A first step towards supply chain collaboration A first step towards supply chain collaboration
Increased speed, reduced errors, and improved Increased speed, reduced errors, and improved
service service
Collaborative Logistics and Collaborative Logistics and
Distribution Outsourcing Distribution Outsourcing
Collaborative planning, forecasting, and Collaborative planning, forecasting, and
replenishment create greater economies of replenishment create greater economies of
scale scale
11 11--547 547
replenishment create greater economies of replenishment create greater economies of
scale scale
Internet Internet--based exchange of data and based exchange of data and
information information
Significant decrease in inventory levels and Significant decrease in inventory levels and
costs and more efficient logistics costs and more efficient logistics
Companies focus on core competencies Companies focus on core competencies
Transportation Transportation
Rail
low-value, high-density, bulk
products, raw materials,
intermodal containers
not as economical for small
11 11--548 548
not as economical for small
loads, slower, less flexible
than trucking
Trucking
main mode of freight
transport in U.S.
small loads, point-to-point
service, flexible
More reliable, less damage
than rails; more expensive
than rails for long distance
Transportation (cont.) Transportation (cont.)
Air
most expensive and fastest, mode of
freight transport
lightweight, small packages <500 lbs
high-value, perishable and critical
11 11--549 549
high-value, perishable and critical
goods
less theft
Package Delivery
small packages
fast and reliable
increased with e-Business
primary shipping mode for Internet
companies
Transportation (cont.) Transportation (cont.)
Water
low-cost shipping mode
primary means of international shipping
U.S. waterways
slowest shipping mode
11 11--550 550
slowest shipping mode
Intermodal
combines several modes of shipping-
truck, water and rail
key component is containers
Pipeline
transport oil and products in liquid form
high capital cost, economical use
long life and low operating cost
Internet Transportation Internet Transportation
Exchanges Exchanges
Bring together shippers and carriers Bring together shippers and carriers
Initial contact, negotiations, auctions Initial contact, negotiations, auctions
Examples Examples
www.nte.com www.nte.com
11 11--551 551
www.nte.com www.nte.com
www.freightquote.com www.freightquote.com
International trade barriers have fallen International trade barriers have fallen
New trade agreements New trade agreements
To compete globally requires an effective supply chain To compete globally requires an effective supply chain
Information technology is an enabler of global trade Information technology is an enabler of global trade
11 11--552 552
Information technology is an enabler of global trade Information technology is an enabler of global trade
Obstacles to Global Chain Obstacles to Global Chain
Transactions Transactions
Increased documentation for invoices, cargo
insurance, letters of credit, ocean bills of lading or air
waybills, and inspections
Ever changing regulations that vary from country to
11 11--553 553
Ever changing regulations that vary from country to
country that govern the import and export of goods
Trade groups, tariffs, duties, and landing costs
Limited shipping modes
Differences in communication technology and
availability
Obstacles to Global Chain Obstacles to Global Chain
Transactions (cont.) Transactions (cont.)
Different business practices as well as language
barriers
Government codes and reporting requirements that
vary from country to country
11 11--554 554
vary from country to country
Numerous players, including forwarding agents,
custom house brokers, financial institutions, insurance
providers, multiple transportation carriers, and
government agencies
Since 9/11, numerous security regulations and
requirements
Duties and Tariffs Duties and Tariffs
Proliferation of trade agreements Proliferation of trade agreements
Nations form trading groups Nations form trading groups
no tariffs or duties within group no tariffs or duties within group
charge uniform tariffs to nonmembers charge uniform tariffs to nonmembers
11 11--555 555
charge uniform tariffs to nonmembers charge uniform tariffs to nonmembers
Member nations have a competitive advantage Member nations have a competitive advantage
within the group within the group
Trade specialists
include freight forwarders, customs house brokers,
export packers, and export management and trading
companies
Duties and Tariffs (cont.) Duties and Tariffs (cont.)
11 11--556 556
Landed Cost Landed Cost
Total cost of producing, storing, and Total cost of producing, storing, and
transporting a product to the site of transporting a product to the site of
consumption or another port consumption or another port
Value added tax (VAT)
11 11--557 557
Value added tax (VAT)
an indirect tax assessed on the increase in value of
a good at any stage of production process from
raw material to final product
Clicker shock
occurs when an ordered is placed with a company
that does not have the capability to calculate landed
cost
Web Web--based International Trade based International Trade
Logistic Systems Logistic Systems
International trade logistics web-based software
systems reduce obstacles to global trade
convert language and currency
provide information on tariffs, duties, and customs processes
11 11--558 558
provide information on tariffs, duties, and customs processes
attach appropriate weights, measurements, and unit prices to
individual products ordered over the Web
incorporate transportation costs and conversion rates
calculate shipping costs online while a company enters an
order
track global shipments
Recent Trends in Globalization for Recent Trends in Globalization for
U.S. Companies U.S. Companies
Two significant changes Two significant changes
passage of NAFTA passage of NAFTA
admission of China in WTO admission of China in WTO
11 11--559 559
admission of China in WTO admission of China in WTO
Mexico Mexico
cheap labor and relatively short shipping time cheap labor and relatively short shipping time
China China
cheaper labor and longer work week, but lengthy cheaper labor and longer work week, but lengthy
shipping time shipping time
Major supply chains have moved to China Major supply chains have moved to China
Chinas Increasing Role Chinas Increasing Role
in the Global Supply Chain in the Global Supply Chain
Worlds premier sources of supply Worlds premier sources of supply
Abundance of low Abundance of low--wage labor wage labor
Worlds fastest growing market Worlds fastest growing market
11 11--560 560
Worlds fastest growing market Worlds fastest growing market
Regulatory changes have liberalized its Regulatory changes have liberalized its
market market
Increased exporting of higher technology Increased exporting of higher technology
products products
Models in Doing Business in China Models in Doing Business in China
Employ local third Employ local third--party trading agents party trading agents
Wholly Wholly--owned foreign enterprise owned foreign enterprise
11 11--561 561
Develop your own international Develop your own international
procurement offices procurement offices
Challenges Sourcing from China Challenges Sourcing from China
Getting reliable information in more Getting reliable information in more
difficult than in the U.S. difficult than in the U.S.
Information technology is much less Information technology is much less
11 11--562 562
Information technology is much less Information technology is much less
advanced and sophisticated than in the advanced and sophisticated than in the
U.S. U.S.
Work turnover rates among low Work turnover rates among low--skilled skilled
workers is extremely high workers is extremely high
Effects of 9/11 on Global Chains Effects of 9/11 on Global Chains
Increase security measures Increase security measures
added time to supply chain schedules added time to supply chain schedules
Increased supply chain costs Increased supply chain costs
24 hours rules for risk screening 24 hours rules for risk screening
11 11--563 563
24 hours rules for risk screening 24 hours rules for risk screening
extended documentation extended documentation
extend time by 3 extend time by 3--4 days 4 days
Inventory levels have increased 5% Inventory levels have increased 5%
Other costs Other costs include:
new people, technologies, equipment, surveillance,
communication, and security systems, and training necessary
for screening at airports and seaports around the world
Transshipment Models Transshipment Models
Transportation Model Transportation Model
Transshipment Model Transshipment Model
Transportation Model Transportation Model
A transportation model is formulated for a class of A transportation model is formulated for a class of
problems with the following characteristics problems with the following characteristics
a product is transported from a number of sources to a a product is transported from a number of sources to a
number of destinations at the minimum possible cost number of destinations at the minimum possible cost
number of destinations at the minimum possible cost number of destinations at the minimum possible cost
each source is able to supply a fixed number of units of each source is able to supply a fixed number of units of
product product
each destination has a fixed demand for product each destination has a fixed demand for product
Solution Methods Solution Methods
stepping stepping--stone stone
modified distribution modified distribution
Excels Solver Excels Solver
Transportation Method: Example Transportation Method: Example
Transportation Method: Example Transportation Method: Example
Problem Problem
Formulation Formulation
Using Excel Using Excel
Total Cost Total Cost
Formula Formula
Using Solver Using Solver
from Tools from Tools
Menu Menu
Solution Solution
Modified Modified
Problem Problem
Solution Solution
Transshipment Transshipment
Model Model
Transshipment Model: Solution Transshipment Model: Solution
Forecasting Forecasting
Strategic Role of Forecasting in Supply
Chain Management
Components of Forecasting Demand
12 12--576 576
Components of Forecasting Demand
Time Series Methods
Forecast Accuracy
Time Series Forecasting Using Excel
Regression Methods
Forecasting Forecasting
Predicting the future Predicting the future
Qualitative forecast methods Qualitative forecast methods
12 12--577 577
subjective subjective
Quantitative forecast Quantitative forecast
methods methods
based on mathematical based on mathematical
formulas formulas
Forecasting and Supply Chain
Management
Accurate forecasting determines how much Accurate forecasting determines how much
inventory a company must keep at various points inventory a company must keep at various points
along its supply chain along its supply chain
Continuous replenishment Continuous replenishment
12 12--578 578
supplier and customer share continuously updated data supplier and customer share continuously updated data
typically managed by the supplier typically managed by the supplier
reduces inventory for the company reduces inventory for the company
speeds customer delivery speeds customer delivery
Variations of continuous replenishment Variations of continuous replenishment
quick response quick response
JIT (just JIT (just--in in--time) time)
VMI (vendor VMI (vendor--managed inventory) managed inventory)
stockless inventory stockless inventory
Forecasting
Quality Management
Accurately forecasting customer demand is
a key to providing good quality service
12 12--579 579
a key to providing good quality service
Strategic Planning
Successful strategic planning requires
accurate forecasts of future products and
markets
Types of Forecasting Methods Types of Forecasting Methods
Depend on Depend on
time frame time frame
demand behavior demand behavior
12 12--580 580
demand behavior demand behavior
causes of behavior causes of behavior
Time Frame Time Frame
Indicates how far into the future is Indicates how far into the future is
forecast forecast
Short Short-- to mid to mid--range forecast range forecast
12 12--581 581
Short Short-- to mid to mid--range forecast range forecast
typically encompasses the immediate future typically encompasses the immediate future
daily up to two years daily up to two years
Long Long--range forecast range forecast
usually encompasses a period of time longer usually encompasses a period of time longer
than two years than two years
Demand Behavior Demand Behavior
Trend Trend
a gradual, long a gradual, long--term up or down movement of term up or down movement of
demand demand
Random variations Random variations
12 12--582 582
Random variations Random variations
movements in demand that do not follow a pattern movements in demand that do not follow a pattern
Cycle Cycle
an up an up--and and--down repetitive movement in demand down repetitive movement in demand
Seasonal pattern Seasonal pattern
an up an up--and and--down repetitive movement in demand down repetitive movement in demand
occurring periodically occurring periodically
Time Time Time Time
D
e
m
a
n
d
D
e
m
a
n
d
D
e
m
a
n
d
D
e
m
a
n
d
Random Random
movement movement
Forms of Forecast Movement
12 12--583 583
Time Time
(a) Trend (a) Trend
Time Time
(d) Trend with seasonal pattern (d) Trend with seasonal pattern
Time Time
(c) Seasonal pattern (c) Seasonal pattern
Time Time
(b) Cycle (b) Cycle
D
e
m
a
n
d
D
e
m
a
n
d
D
e
m
a
n
d
D
e
m
a
n
d
Forecasting Methods
Time series Time series
statistical techniques that use historical demand data statistical techniques that use historical demand data
to predict future demand to predict future demand
Regression methods Regression methods
12 12--584 584
Regression methods Regression methods
attempt to develop a mathematical relationship attempt to develop a mathematical relationship
between demand and factors that cause its behavior between demand and factors that cause its behavior
Qualitative Qualitative
use management judgment, expertise, and opinion to use management judgment, expertise, and opinion to
predict future demand predict future demand
Qualitative Methods Qualitative Methods
Management, marketing, purchasing,
and engineering are sources for internal
qualitative forecasts
12 12--585 585
qualitative forecasts
Delphi method
involves soliciting forecasts about
technological advances from experts
Forecasting Process Forecasting Process
6. Check forecast
accuracy with one or
more measures
4. Select a forecast
model that seems
appropriate for data
5. Develop/compute
forecast for period of
historical data
1. Identify the
purpose of forecast
3. Plot data and identify
patterns
2. Collect historical
data
12 12--586 586
8a. Forecast over
planning horizon
9. Adjust forecast based
on additional qualitative
information and insight
10. Monitor results
and measure forecast
accuracy
8b. Select new
forecast model or
adjust parameters of
existing model
7.
Is accuracy of
forecast
acceptable?
No
Yes
Time Series Time Series
Assume that what has occurred in the past will
continue to occur in the future
Relate the forecast to only one factor - time
12 12--587 587
Relate the forecast to only one factor - time
Include
moving average
exponential smoothing
linear trend line
Moving Average
Naive Naive forecast forecast
demand in current period is used as next periods demand in current period is used as next periods
forecast forecast
Simple moving average Simple moving average
12 12--588 588
Simple moving average Simple moving average
uses average demand for a fixed sequence of uses average demand for a fixed sequence of
periods periods
stable demand with no pronounced behavioral stable demand with no pronounced behavioral
patterns patterns
Weighted moving average Weighted moving average
weights are assigned to most recent data weights are assigned to most recent data
Moving Average: Moving Average:
Nave Approach Nave Approach
Jan Jan 120 120
Feb Feb 90 90
ORDERS ORDERS
MONTH MONTH PER MONTH PER MONTH
--
120 120
FORECAST FORECAST
12 12--589 589
Feb Feb 90 90
Mar Mar 100 100
Apr Apr 75 75
May May 110 110
June June 50 50
July July 75 75
Aug Aug 130 130
Sept Sept 110 110
Oct Oct 90 90
120 120
90 90
100 100
75 75
110 110
50 50
75 75
130 130
110 110
90 90
Nov Nov --
Simple Moving Average Simple Moving Average
nn
ii = 1 = 1

DD
ii
12 12--590 590
MA MA
nn
= =
ii = 1 = 1
nn
where where
nn == number of periods in number of periods in
the moving average the moving average
DD
ii
== demand in period demand in period ii
33--month Simple Moving Average month Simple Moving Average
Jan Jan 120 120
Feb Feb 90 90
ORDERS ORDERS
MA MA
33
= =
33
ii = 1 = 1

D D
ii
33
MOVING MOVING
AVERAGE AVERAGE
12 12--591 591
Feb Feb 90 90
Mar Mar 100 100
Apr Apr 75 75
May May 110 110
June June 50 50
July July 75 75
Aug Aug 130 130
Sept Sept 110 110
Oct Oct 90 90
Nov Nov --
==
90 + 110 + 130 90 + 110 + 130
33
= 110 orders = 110 orders
for Nov for Nov
103.3 103.3
88.3 88.3
95.0 95.0
78.3 78.3
78.3 78.3
85.0 85.0
105.0 105.0
110.0 110.0
55--month Simple Moving Average month Simple Moving Average
Jan Jan 120 120
Feb Feb 90 90
ORDERS ORDERS
MA MA
55
= =
55
ii = 1 = 1

D D
ii
MOVING MOVING
AVERAGE AVERAGE
12 12--592 592
Feb Feb 90 90
Mar Mar 100 100
Apr Apr 75 75
May May 110 110
June June 50 50
July July 75 75
Aug Aug 130 130
Sept Sept 110 110
Oct Oct 90 90
Nov Nov --
MA MA
55
= =
55
==
90 + 110 + 130+75+50 90 + 110 + 130+75+50
55
= 91 orders = 91 orders
for Nov for Nov
99.0 99.0
85.0 85.0
82.0 82.0
88.0 88.0
95.0 95.0
91.0 91.0
Smoothing Effects Smoothing Effects
150 150
125 125
100 100
O
r
d
e
r
s
O
r
d
e
r
s
55--month month
12 12--593 593
75 75
50 50
25 25
0 0
| | | | | | | | | | |
Jan Jan Feb Feb Mar Mar Apr Apr May May June June July July Aug Aug Sept Sept Oct Oct Nov Nov
Actual Actual
O
r
d
e
r
s
O
r
d
e
r
s
Month Month
33--month month
Weighted Moving Average Weighted Moving Average
WMA WMA
nn
= =
i i = 1 = 1

WW
i i
DD
i i
where where
Adjusts moving average Adjusts moving average
method to more method to more
closely reflect data closely reflect data
fluctuations fluctuations
nn
12 12--594 594
where where
WW
ii
= the weight for period = the weight for period ii, ,
between 0 and 100 between 0 and 100
percent percent
WW
ii
= 1.00 = 1.00
Weighted Moving Average Example Weighted Moving Average Example
MONTH MONTH WEIGHT WEIGHT DATA DATA
August August 17% 17% 130 130
September September 33% 33% 110 110
October October 50% 50% 90 90
12 12--595 595
October October 50% 50% 90 90
WMA WMA
33
= =
33
i i = 1 = 1

WW
i i
DD
i i
= (0.50)(90) + (0.33)(110) + (0.17)(130) = (0.50)(90) + (0.33)(110) + (0.17)(130)
= 103.4 orders = 103.4 orders
November Forecast November Forecast
Averaging method Averaging method
Weights most recent data more strongly Weights most recent data more strongly
Exponential Smoothing Exponential Smoothing
12 12--596 596
Weights most recent data more strongly Weights most recent data more strongly
Reacts more to recent changes Reacts more to recent changes
Widely used, accurate method Widely used, accurate method
FF
t t +1 +1
= = DD
tt
+ (1 + (1 -- ))FF
tt
where: where:
FF
t t +1 +1
== forecast for next period forecast for next period
Exponential Smoothing (cont.) Exponential Smoothing (cont.)
12 12--597 597
FF
t t +1 +1
== forecast for next period forecast for next period
DD
tt
== actual demand for present period actual demand for present period
FF
tt
== previously determined forecast for previously determined forecast for
present period present period
== weighting factor, smoothing constant weighting factor, smoothing constant
Effect of Smoothing Constant Effect of Smoothing Constant
0.0 0.0 1.0 1.0
If If = 0.20, then = 0.20, then FF
t t +1 +1
= 0.20 = 0.20 D D
tt
+ 0.80 + 0.80 FF
tt
If If = 0, then = 0, then FF
tt +1 +1
= 0 = 0 DD
tt
+ 1 + 1 FF
tt
= = FF
tt
12 12--598 598
tt +1 +1 tt tt tt
Forecast does not reflect recent data Forecast does not reflect recent data
If If = 1, then = 1, then FF
t t +1 +1
= 1 = 1 DD
tt
+ 0 + 0 FF
tt
== D D
tt
Forecast based only on most recent data Forecast based only on most recent data
FF
2 2
= = DD
1 1
+ (1 + (1 - - ) )FF
1 1
= (0.30)(37) + (0.70)(37) = (0.30)(37) + (0.70)(37)
= 37 = 37
Exponential Smoothing ( Exponential Smoothing (=0.30) =0.30)
PERIOD PERIOD MONTH MONTH DEMAND DEMAND
11 Jan Jan 37 37
22 Feb Feb 40 40
33 Mar Mar 41 41
12 12--599 599
FF
3 3
= = DD
2 2
+ (1 + (1 - - ) )FF
2 2
= (0.30)(40) + (0.70)(37) = (0.30)(40) + (0.70)(37)
= 37.9 = 37.9
FF
13 13
= = DD
12 12
+ (1 + (1 - - ) )FF
12 12
= (0.30)(54) + (0.70)(50.84) = (0.30)(54) + (0.70)(50.84)
= 51.79 = 51.79
33 Mar Mar 41 41
44 Apr Apr 37 37
55 May May 45 45
66 Jun Jun 50 50
77 Jul Jul 43 43
88 Aug Aug 47 47
99 Sep Sep 56 56
10 10 Oct Oct 52 52
11 11 Nov Nov 55 55
12 12 Dec Dec 54 54
FORECAST, FORECAST, FF
tt + 1 + 1
PERIOD PERIOD MONTH MONTH DEMAND DEMAND ( ( = 0.3) = 0.3) ( ( = 0.5) = 0.5)
11 Jan Jan 37 37
22 Feb Feb 40 40 37.00 37.00 37.00 37.00
33 Mar Mar 41 41 37.90 37.90 38.50 38.50
44 Apr Apr 37 37 38.83 38.83 39.75 39.75
12 12--600 600
44 Apr Apr 37 37 38.83 38.83 39.75 39.75
55 May May 45 45 38.28 38.28 38.37 38.37
66 Jun Jun 50 50 40.29 40.29 41.68 41.68
77 Jul Jul 43 43 43.20 43.20 45.84 45.84
88 Aug Aug 47 47 43.14 43.14 44.42 44.42
99 Sep Sep 56 56 44.30 44.30 45.71 45.71
10 10 Oct Oct 52 52 47.81 47.81 50.85 50.85
11 11 Nov Nov 55 55 49.06 49.06 51.42 51.42
12 12 Dec Dec 54 54 50.84 50.84 53.21 53.21
13 13 Jan Jan 51.79 51.79 53.61 53.61
70 70
60 60
50 50
40 40
Actual Actual
O
r
d
e
r
s
O
r
d
e
r
s
= 0.50 = 0.50
12 12--601 601
40 40
30 30
20 20
10 10
0 0
| | | | | | | | | | | | |
11 22 33 44 55 66 77 88 99 10 10 11 11 12 12 13 13
O
r
d
e
r
s
O
r
d
e
r
s
Month Month
= 0.30 = 0.30
AF AF
t t +1 +1
= = FF
t t +1 +1
+ + TT
t t +1 +1
where where
TT = an exponentially smoothed trend factor = an exponentially smoothed trend factor
Adjusted Exponential Smoothing Adjusted Exponential Smoothing
12 12--602 602
TT
t t +1 +1
= = ((FF
t t +1 +1
-- FF
tt
) + (1 ) + (1 -- ) ) T T
tt
where where
TT
tt
= the last period trend factor = the last period trend factor
= a smoothing constant for trend = a smoothing constant for trend
Adjusted Exponential Adjusted Exponential
Smoothing ( Smoothing (=0.30) =0.30)
PERIOD PERIOD MONTH MONTH DEMAND DEMAND
11 Jan Jan 37 37
22 Feb Feb 40 40
33 Mar Mar 41 41
TT
33
= = ((FF
3 3
-- FF
22
) + (1 ) + (1 -- ) ) TT
22
= (0.30)(38.5 = (0.30)(38.5 -- 37.0) + (0.70)(0) 37.0) + (0.70)(0)
= 0.45 = 0.45
AF AF = = FF + + TT = 38.5 + 0.45 = 38.5 + 0.45
12 12--603 603
44 Apr Apr 37 37
55 May May 45 45
66 Jun Jun 50 50
77 Jul Jul 43 43
88 Aug Aug 47 47
99 Sep Sep 56 56
10 10 Oct Oct 52 52
11 11 Nov Nov 55 55
12 12 Dec Dec 54 54
AF AF
33
= = FF
33
+ + TT
3 3
= 38.5 + 0.45 = 38.5 + 0.45
= 38.95 = 38.95
TT
13 13
= = ((FF
13 13
-- FF
12 12
) + (1 ) + (1 -- ) ) TT
12 12
= (0.30)(53.61 = (0.30)(53.61 -- 53.21) + (0.70)(1.77) 53.21) + (0.70)(1.77)
= 1.36 = 1.36
AF AF
13 13
= = FF
13 13
+ + TT
13 13
= 53.61 + 1.36 = 54.97 = 53.61 + 1.36 = 54.97
Adjusted Exponential Smoothing: Adjusted Exponential Smoothing:
Example Example
FORECAST FORECAST TREND TREND ADJUSTED ADJUSTED
PERIOD PERIOD MONTH MONTH DEMAND DEMAND FF
tt +1 +1
TT
tt +1 +1
FORECAST AF FORECAST AF
tt +1 +1
11 Jan Jan 37 37 37.00 37.00
22 Feb Feb 40 40 37.00 37.00 0.00 0.00 37.00 37.00
33 Mar Mar 41 41 38.50 38.50 0.45 0.45 38.95 38.95
44 Apr Apr 37 37 39.75 39.75 0.69 0.69 40.44 40.44
12 12--604 604
44 Apr Apr 37 37 39.75 39.75 0.69 0.69 40.44 40.44
55 May May 45 45 38.37 38.37 0.07 0.07 38.44 38.44
66 Jun Jun 50 50 38.37 38.37 0.07 0.07 38.44 38.44
77 Jul Jul 43 43 45.84 45.84 1.97 1.97 47.82 47.82
88 Aug Aug 47 47 44.42 44.42 0.95 0.95 45.37 45.37
99 Sep Sep 56 56 45.71 45.71 1.05 1.05 46.76 46.76
10 10 Oct Oct 52 52 50.85 50.85 2.28 2.28 58.13 58.13
11 11 Nov Nov 55 55 51.42 51.42 1.76 1.76 53.19 53.19
12 12 Dec Dec 54 54 53.21 53.21 1.77 1.77 54.98 54.98
13 13 Jan Jan 53.61 53.61 1.36 1.36 54.96 54.96
Adjusted Exponential Smoothing Adjusted Exponential Smoothing
Forecasts Forecasts
70 70
60 60
50 50
Actual Actual
D
e
m
a
n
d
D
e
m
a
n
d
Adjusted forecast ( Adjusted forecast ( = 0.30) = 0.30)
12 12--605 605
40 40
30 30
20 20
10 10
0 0
| | | | | | | | | | | | |
11 22 33 44 55 66 77 88 99 10 10 11 11 12 12 13 13
D
e
m
a
n
d
D
e
m
a
n
d
Period Period
Forecast ( Forecast ( = 0.50) = 0.50)
yy = = aa + + bx bx
where where
Linear Trend Line Linear Trend Line
b =
a = y - b x
xy - nxy
x
2
- nx
2
12 12--606 606
where where
a a = intercept = intercept
b b = slope of the line = slope of the line
x x = time period = time period
y y = forecast for = forecast for
demand for period demand for period xx
where
n = number of periods
x = = mean of the x values
y = = mean of the y values
x
n
y
n
Least Squares Example Least Squares Example
xx(PERIOD) (PERIOD) yy(DEMAND) (DEMAND) xy xy xx
22
11 73 73 37 37 11
22 40 40 80 80 44
33 41 41 123 123 99
44 37 37 148 148 16 16
55 45 45 225 225 25 25
66 50 50 300 300 36 36
12 12--607 607
66 50 50 300 300 36 36
77 43 43 301 301 49 49
88 47 47 376 376 64 64
99 56 56 504 504 81 81
10 10 52 52 520 520 100 100
11 11 55 55 605 605 121 121
12 12 54 54 648 648 144 144
78 78 557 557 3867 3867 650 650
x = = 6.5
y = = 46.42
78
12
557
12
Least Squares Example Least Squares Example
(cont.) (cont.)
12 12--608 608
y = = 46.42
b = = =1.72
a = y - bx
= 46.42 - (1.72)(6.5) = 35.2
3867 - (12)(6.5)(46.42)
650 - 12(6.5)
2
xy - nxy
x
2
- nx
2
12
Linear trend line y = 35.2 + 1.72x
Forecast for period 13 y = 35.2 + 1.72(13) = 57.56 units
70 70
60 60
50 50
Actual Actual
D
e
m
a
n
d
D
e
m
a
n
d
12 12--609 609
40 40
30 30
20 20
10 10
0 0
| | | | | | | | | | | | |
11 22 33 44 55 66 77 88 99 10 10 11 11 12 12 13 13
D
e
m
a
n
d
D
e
m
a
n
d
Period Period
Linear trend line Linear trend line
Seasonal Adjustments Seasonal Adjustments
Repetitive increase/ decrease in demand Repetitive increase/ decrease in demand
Use seasonal factor to adjust forecast Use seasonal factor to adjust forecast
12 12--610 610
Seasonal factor = Seasonal factor = SS
ii
==
DD
i i
DD
Seasonal Adjustment (cont.) Seasonal Adjustment (cont.)
2002 12.6 2002 12.6 8.6 8.6 6.3 6.3 17.5 17.5 45.0 45.0
2003 14.1 2003 14.1 10.3 10.3 7.5 7.5 18.2 18.2 50.1 50.1
2004 15.3 2004 15.3 10.6 10.6 8.1 8.1 19.6 19.6 53.6 53.6
Total 42.0 Total 42.0 29.5 29.5 21.9 21.9 55.3 55.3 148.7 148.7
DEMAND (1000S PER QUARTER) DEMAND (1000S PER QUARTER)
YEAR YEAR 11 22 33 44 Total Total
12 12--611 611
Total 42.0 Total 42.0 29.5 29.5 21.9 21.9 55.3 55.3 148.7 148.7
SS
11
= = = 0.28 = = = 0.28
DD
11
DD
42.0 42.0
148.7 148.7
SS
22
= = = 0.20 = = = 0.20
DD
22
DD
29.5 29.5
148.7 148.7
SS
44
= = = 0.37 = = = 0.37
DD
44
DD
55.3 55.3
148.7 148.7
SS
33
= = = 0.15 = = = 0.15
DD
33
DD
21.9 21.9
148.7 148.7
Seasonal Adjustment (cont.) Seasonal Adjustment (cont.)
yy = 40.97 + 4.30 = 40.97 + 4.30x x = 40.97 + 4.30(4) = 58.17 = 40.97 + 4.30(4) = 58.17
For 2005 For 2005
12 12--612 612
SF SF
1 1
= ( = (SS
11
) ( ) (FF
55
) = (0.28)(58.17) = 16.28 ) = (0.28)(58.17) = 16.28
SF SF
2 2
= ( = (SS
22
) ( ) (FF
55
) = (0.20)(58.17) = 11.63 ) = (0.20)(58.17) = 11.63
SF SF
3 3
= ( = (SS
33
) ( ) (FF
55
) = (0.15)(58.17) = 8.73 ) = (0.15)(58.17) = 8.73
SF SF
4 4
= ( = (SS
44
) ( ) (FF
55
) = (0.37)(58.17) = 21.53 ) = (0.37)(58.17) = 21.53
yy = 40.97 + 4.30 = 40.97 + 4.30x x = 40.97 + 4.30(4) = 58.17 = 40.97 + 4.30(4) = 58.17
Forecast Accuracy Forecast Accuracy
Forecast error
difference between forecast and actual demand
MAD
12 12--613 613
MAD
mean absolute deviation
MAPD
mean absolute percent deviation
Cumulative error
Average error or bias
Mean Absolute Deviation Mean Absolute Deviation
(MAD) (MAD)
|| DD
tt
-- FF
t t
||
nn
MAD = MAD =
12 12--614 614
where where
tt = period number = period number
DD
tt
= demand in period = demand in period tt
FF
tt
= forecast for period = forecast for period tt
nn = total number of periods = total number of periods
= absolute value = absolute value
MAD Example MAD Example
11 37 37 37.00 37.00
22 40 40 37.00 37.00 3.00 3.00 3.00 3.00
33 41 41 37.90 37.90 3.10 3.10 3.10 3.10
44 37 37 38.83 38.83 - -1.83 1.83 1.83 1.83
55 45 45 38.28 38.28 6.72 6.72 6.72 6.72
PERIOD PERIOD DEMAND, DEMAND, DD
tt
FF
tt
(( =0.3) =0.3) ((DD
tt
- - FF
tt
) ) ||DD
tt
- - FF
tt
||
| D
t
- F
t
|
n
MAD =
12 12--615 615
55 45 45 38.28 38.28 6.72 6.72 6.72 6.72
66 50 50 40.29 40.29 9.69 9.69 9.69 9.69
77 43 43 43.20 43.20 - -0.20 0.20 0.20 0.20
88 47 47 43.14 43.14 3.86 3.86 3.86 3.86
99 56 56 44.30 44.30 11.70 11.70 11.70 11.70
10 10 52 52 47.81 47.81 4.19 4.19 4.19 4.19
11 11 55 55 49.06 49.06 5.94 5.94 5.94 5.94
12 12 54 54 50.84 50.84 3.15 3.15 3.15 3.15
557 557 49.31 49.31 53.39 53.39
=
= 4.85
53.39
11
Other Accuracy Measures Other Accuracy Measures
Mean absolute percent deviation (MAPD) Mean absolute percent deviation (MAPD)
MAPD = MAPD =
|D |D
tt
-- FF
t t
||
DD
t t
12 12--616 616
DD
t t
Cumulative error Cumulative error
E = E = ee
tt
Average error Average error
E = E =
ee
t t
nn
Comparison of Forecasts Comparison of Forecasts
FORECAST FORECAST MAD MAD MAPD MAPD E E ((E E))
Exponential smoothing ( Exponential smoothing ( = 0.30) = 0.30) 4.85 4.85 9.6% 9.6% 49.31 49.31 4.48 4.48
12 12--617 617
Adjusted exponential smoothing Adjusted exponential smoothing 3.81 3.81 7.5% 7.5% 21.14 21.14 1.92 1.92
(( = 0.50, = 0.50, = 0.30) = 0.30)
Linear trend line Linear trend line 2.29 2.29 4.9% 4.9%
Forecast Control Forecast Control
Tracking signal
monitors the forecast to see if it is biased
high or low
12 12--618 618
high or low
1 MAD 0.8
Control limits of 2 to 5 MADs are used most
frequently
Tracking signal = = Tracking signal = =
((DD
tt
-- FF
t t
))
MAD MAD
EE
MAD MAD
Tracking Signal Values Tracking Signal Values
11 37 37 37.00 37.00
22 40 40 37.00 37.00 3.00 3.00 3.00 3.00 3.00 3.00
33 41 41 37.90 37.90 3.10 3.10 6.10 6.10 3.05 3.05
44 37 37 38.83 38.83 --1.83 1.83 4.27 4.27 2.64 2.64
DEMAND DEMAND FORECAST, FORECAST, ERROR ERROR EE ==
PERIOD PERIOD DD
tt
FF
tt
DD
tt
-- FF
tt
((DD
t t
-- F F
t t
)) MAD MAD
1.00 1.00
2.00 2.00
1.62 1.62
TRACKING TRACKING
SIGNAL SIGNAL
12 12--619 619
44 37 37 38.83 38.83 --1.83 1.83 4.27 4.27 2.64 2.64
55 45 45 38.28 38.28 6.72 6.72 10.99 10.99 3.66 3.66
66 50 50 40.29 40.29 9.69 9.69 20.68 20.68 4.87 4.87
77 43 43 43.20 43.20 --0.20 0.20 20.48 20.48 4.09 4.09
88 47 47 43.14 43.14 3.86 3.86 24.34 24.34 4.06 4.06
99 56 56 44.30 44.30 11.70 11.70 36.04 36.04 5.01 5.01
10 10 52 52 47.81 47.81 4.19 4.19 40.23 40.23 4.92 4.92
11 11 55 55 49.06 49.06 5.94 5.94 46.17 46.17 5.02 5.02
12 12 54 54 50.84 50.84 3.15 3.15 49.32 49.32 4.85 4.85
TS
3
= = 2.00
6.10
3.05
Tracking signal for period 3
1.62 1.62
3.00 3.00
4.25 4.25
5.01 5.01
6.00 6.00
7.19 7.19
8.18 8.18
9.20 9.20
10.17 10.17
Tracking Signal Plot Tracking Signal Plot
33
22
11
T
r
a
c
k
i
n
g

s
i
g
n
a
l

(
M
A
D
)
T
r
a
c
k
i
n
g

s
i
g
n
a
l

(
M
A
D
)
Exponential smoothing ( = 0.30)
12 12--620 620
00
--11
--22
--33
| | | | | | | | | | | | |
00 11 22 33 44 55 66 77 88 99 10 10 11 11 12 12
T
r
a
c
k
i
n
g

s
i
g
n
a
l

(
M
A
D
)
T
r
a
c
k
i
n
g

s
i
g
n
a
l

(
M
A
D
)
Period Period
Linear trend line
Statistical Control Charts Statistical Control Charts
==
((DD
tt
-- FF
t t
))
22
nn -- 11
12 12--621 621
Using Using we can calculate statistical control we can calculate statistical control
limits for the forecast error limits for the forecast error
Control limits are typically set at Control limits are typically set at 33
Statistical Control Charts Statistical Control Charts
E
r
r
o
r
s
E
r
r
o
r
s
18.39 18.39
12.24 12.24
6.12 6.12
UCL = +3
12 12--622 622
E
r
r
o
r
s
E
r
r
o
r
s
00
--6.12 6.12
--12.24 12.24
--18.39 18.39
| | | | | | | | | | | | |
00 11 22 33 44 55 66 77 88 99 10 10 11 11 12 12
Period Period
LCL = -3
Time Series Forecasting using Excel Time Series Forecasting using Excel
Excel can be used to develop forecasts: Excel can be used to develop forecasts:
Moving average Moving average
Exponential smoothing Exponential smoothing
12 12--623 623
Exponential smoothing Exponential smoothing
Adjusted exponential smoothing Adjusted exponential smoothing
Linear trend line Linear trend line
Exponentially Smoothed and Adjusted Exponentially Smoothed and Adjusted
Exponentially Smoothed Forecasts Exponentially Smoothed Forecasts
12 12--624 624
Demand and exponentially Demand and exponentially
smoothed forecast smoothed forecast
12 12--625 625
Data Analysis option Data Analysis option
12 12--626 626
Computing a Forecast with Computing a Forecast with
Seasonal Adjustment Seasonal Adjustment
12 12--627 627
OM Tools OM Tools
12 12--628 628
Regression Methods
Linear regression
a mathematical technique that relates a
dependent variable to an independent
12 12--629 629
dependent variable to an independent
variable in the form of a linear equation
Correlation
a measure of the strength of the relationship
between independent and dependent
variables
Linear Regression Linear Regression
yy = = aa + + bx bx
aa == yy -- b x b x
bb ==
xy xy -- nxy nxy
xx
22
-- nx nx
22
12 12--630 630
where where
aa == intercept intercept
bb == slope of the line slope of the line
xx == = mean of the = mean of the xx data data
yy == = mean of the = mean of the yy data data
xx
nn
yy
nn
Linear Regression Example Linear Regression Example
xx yy
(WINS) (WINS) (ATTENDANCE) (ATTENDANCE) xy xy xx
22
44 36.3 36.3 145.2 145.2 16 16
66 40.1 40.1 240.6 240.6 36 36
66 41.2 41.2 247.2 247.2 36 36
12 12--631 631
66 41.2 41.2 247.2 247.2 36 36
88 53.0 53.0 424.0 424.0 64 64
66 44.0 44.0 264.0 264.0 36 36
77 45.6 45.6 319.2 319.2 49 49
55 39.0 39.0 195.0 195.0 25 25
77 47.5 47.5 332.5 332.5 49 49
49 49 346.7 346.7 2167.7 2167.7 311 311
Linear Regression Example (cont.) Linear Regression Example (cont.)
x = = 6.125
y = = 43.36
b =
49
8
346.9
8
xy - nxy
2
x
2
- nx
2
12 12--632 632
=
= 4.06
a = y - bx
= 43.36 - (4.06)(6.125)
= 18.46
x
2
- nx
2
(2,167.7) - (8)(6.125)(43.36)
(311) - (8)(6.125)
2
60,000 60,000
50,000 50,000
40,000 40,000
y
Linear Regression Example (cont.) Linear Regression Example (cont.)
y = 18.46 + 4.06x
y = 18.46 + 4.06(7)
= 46.88, or 46,880
Regression equation
Attendance forecast for 7 wins
12 12--633 633
| | | | | | | | | | |
00 11 22 33 44 55 66 77 88 99 10 10
30,000 30,000
20,000 20,000
10,000 10,000
Linear regression line, Linear regression line,
yy = 18.46 + 4.06 = 18.46 + 4.06xx
Wins, x
A
t
t
e
n
d
a
n
c
e
,

y
Correlation and Coefficient of Correlation and Coefficient of
Determination Determination
Correlation, Correlation, rr
Measure of strength of relationship Measure of strength of relationship
Varies between Varies between --1.00 and +1.00 1.00 and +1.00
12 12--634 634
Varies between Varies between --1.00 and +1.00 1.00 and +1.00
Coefficient of determination, Coefficient of determination, rr
22
Percentage of variation in dependent Percentage of variation in dependent
variable resulting from changes in the variable resulting from changes in the
independent variable independent variable
Computing Correlation Computing Correlation
nn xy xy -- xx yy
[[nn xx
22
-- (( xx))
22
] [ ] [nn yy
22
-- (( yy))
22
]]
r r ==
(8)(2,167.7) (8)(2,167.7) -- (49)(346.9) (49)(346.9)
12 12--635 635
Coefficient of determination Coefficient of determination
rr
2 2
= (0.947) = (0.947)
2 2
= 0.897 = 0.897
r r ==
(8)(2,167.7) (8)(2,167.7) -- (49)(346.9) (49)(346.9)
[(8)(311) [(8)(311) -- (49 (49
)2 )2
] [(8)(15,224.7) ] [(8)(15,224.7) -- (346.9) (346.9)
22
]]
rr = 0.947 = 0.947
Regression Analysis with Excel Regression Analysis with Excel
12 12--636 636
(cont.) (cont.)
12 12--637 637
(cont.) (cont.)
12 12--638 638
Multiple Regression Multiple Regression
Study the relationship of demand to two or more independent Study the relationship of demand to two or more independent
variables variables
y = y =
00
+ +
11
xx
1 1
+ +
22
xx
2 2
+ +
kk
xx
kk
where where
12 12--639 639
where where
00
== the intercept the intercept
11
, , , ,
kk
== parameters for the parameters for the
independent variables independent variables
xx
1 1
, , , , xx
kk
== independent variables independent variables
Multiple Regression with Excel Multiple Regression with Excel
12 12--640 640
Inventory Management Inventory Management
Beni Asllani Beni Asllani
University of Tennessee at Chattanooga University of Tennessee at Chattanooga
Operations Management - 6
th
Edition Operations Management - 6
th
Edition
Elements of Inventory Management
Inventory Control Systems
Economic Order Quantity Models
13 13--642 642
Economic Order Quantity Models
Quantity Discounts
Reorder Point
Order Quantity for a Periodic Inventory
System
What Is Inventory? What Is Inventory?
Stock of items kept to meet future
demand
Purpose of inventory management
13 13--643 643
Purpose of inventory management
how many units to order
when to order
Inventory and Supply Chain
Management
Bullwhip effect Bullwhip effect
demand information is distorted as it moves away demand information is distorted as it moves away
from the end from the end--use customer use customer
higher safety stock inventories to are stored to higher safety stock inventories to are stored to
13 13--644 644
higher safety stock inventories to are stored to higher safety stock inventories to are stored to
compensate compensate
Seasonal or cyclical demand Seasonal or cyclical demand
Inventory provides independence from vendors Inventory provides independence from vendors
Take advantage of price discounts Take advantage of price discounts
Inventory provides independence between Inventory provides independence between
stages and avoids work stoppages stages and avoids work stoppages
Inventory and Quality
Management in the Supply Chain
Customers usually perceive quality
service as availability of goods they want
when they want them
13 13--645 645
when they want them
Inventory must be sufficient to provide
high-quality customer service in QM
Types of Inventory Types of Inventory
Raw materials
Purchased parts and supplies
13 13--646 646
Work-in-process (partially completed)
products (WIP)
Items being transported
Tools and equipment
Two Forms of Demand Two Forms of Demand
Dependent Dependent
Demand for items used to produce final Demand for items used to produce final
products products
Tires stored at a Goodyear plant are an
example of a dependent demand item
13 13--647 647
example of a dependent demand item
Independent Independent
Demand for items used by external Demand for items used by external
customers customers
Cars, appliances, computers, and houses
are examples of independent demand
inventory
Inventory Costs Inventory Costs
Carrying cost Carrying cost
cost of holding an item in inventory cost of holding an item in inventory
Ordering cost Ordering cost
cost of replenishing inventory cost of replenishing inventory
13 13--648 648
cost of replenishing inventory cost of replenishing inventory
Shortage cost Shortage cost
temporary or permanent loss of sales temporary or permanent loss of sales
when demand cannot be met when demand cannot be met
Inventory Control Systems Inventory Control Systems
Continuous system (fixed Continuous system (fixed--order order--
quantity) quantity)
constant amount ordered when constant amount ordered when
inventory declines to inventory declines to
predetermined level predetermined level
13 13--649 649
predetermined level predetermined level
Periodic system (fixed Periodic system (fixed--time time--
period) period)
order placed for variable amount order placed for variable amount
after fixed passage of time after fixed passage of time
ABC Classification ABC Classification
Class A Class A
5 5 15 % of units 15 % of units
70 70 80 % of value 80 % of value
Class B Class B
13 13--650 650
Class B Class B
30 % of units 30 % of units
15 % of value 15 % of value
Class C Class C
50 50 60 % of units 60 % of units
5 5 10 % of value 10 % of value
ABC Classification: Example ABC Classification: Example
11 $ 60 $ 60 90 90
22 350 350 40 40
33 30 30 130 130
44 80 80 60 60
PART PART UNIT COST UNIT COST ANNUAL USAGE ANNUAL USAGE
13 13--651 651
44 80 80 60 60
55 30 30 100 100
66 20 20 180 180
77 10 10 170 170
88 320 320 50 50
99 510 510 60 60
10 10 20 20 120 120
ABC Classification: ABC Classification:
11 $ 60 $ 60 90 90
22 350 350 40 40
33 30 30 130 130
PART PART UNIT COST UNIT COST ANNUAL USAGE ANNUAL USAGE
TOTAL % OF TOTAL % OF TOTAL
PART VALUE VALUE QUANTITY % CUMMULATIVE
9 $30,600 35.9 6.0 6.0
8 16,000 18.7 5.0 11.0
2 14,000 16.4 4.0 15.0
1 5,400 6.3 9.0 24.0
AA
13 13--652 652
33 30 30 130 130
44 80 80 60 60
55 30 30 100 100
66 20 20 180 180
77 10 10 170 170
88 320 320 50 50
99 510 510 60 60
10 10 20 20 120 120
1 5,400 6.3 9.0 24.0
4 4,800 5.6 6.0 30.0
3 3,900 4.6 10.0 40.0
6 3,600 4.2 18.0 58.0
5 3,000 3.5 13.0 71.0
10 2,400 2.8 12.0 83.0
7 1,700 2.0 17.0 100.0
$85,400
BB
CC
% OF TOTAL % OF TOTAL
CLASS ITEMS VALUE QUANTITY
A 9, 8, 2 71.0 15.0
B 1, 4, 3 16.5 25.0
C 6, 5, 10, 7 12.5 60.0
Economic Order Quantity
(EOQ) Models
EOQ
optimal order quantity that will
minimize total inventory costs
13 13--653 653
minimize total inventory costs
Basic EOQ model
Production quantity model
Assumptions of Basic Assumptions of Basic
EOQ Model EOQ Model
Demand is known with certainty and is constant over time Demand is known with certainty and is constant over time
No shortages are allowed No shortages are allowed
Lead time for the receipt of orders is constant Lead time for the receipt of orders is constant
Order quantity is received all at once Order quantity is received all at once
13 13--654 654
Order quantity is received all at once Order quantity is received all at once
Demand Demand
rate rate
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t
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L
e
v
e
l
Order quantity, Order quantity, QQ
Inventory Order Cycle Inventory Order Cycle
Average Average
inventory inventory
QQ
22
13 13--655 655
Time Time
Lead Lead
time time
Lead Lead
time time
Order Order
placed placed
Order Order
placed placed
Order Order
receipt receipt
Order Order
receipt receipt
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Reorder point, Reorder point, RR
00
22
EOQ Cost Model EOQ Cost Model
C C
oo
-- cost of placing order cost of placing order D D -- annual demand annual demand
CC
cc
-- annual per annual per--unit carrying cost unit carrying cost QQ -- order quantity order quantity
Annual ordering cost = Annual ordering cost =
C C
oo
D D
QQ
13 13--656 656
QQ
Annual carrying cost = Annual carrying cost =
C C
c c
QQ
22
Total cost = + Total cost = +
CC
oo
DD
QQ
C C
c c
QQ
22
EOQ Cost Model EOQ Cost Model
TC = +
C
o
D
Q
C
c
Q
2
C D
C

Deriving Q
opt
Proving equality of
costs at optimal point
=
C
o
D
Q
C
c
Q
2
13 13--657 657
= +
C
o
D
Q
2
C
c
2
TC
Q
0 = +
C
0
D
Q
2
C
c
2
Q
opt
=
2C
o
D
C
c
=
Q 2
Q
2
=
2C
o
D
C
c
Q
opt
=
2C
o
D
C
c
EOQ Cost Model (cont.) EOQ Cost Model (cont.)
Annual Annual
cost ($) cost ($)
Total Cost Total Cost
Carrying Cost = Carrying Cost =
CC
cc
Q Q
22
Slope = 0 Slope = 0
Minimum Minimum
total cost total cost
13 13--658 658
Order Quantity, Order Quantity, Q Q
22
total cost total cost
Optimal order Optimal order
QQ
opt opt
Ordering Cost = Ordering Cost =
CC
oo
DD
Q Q
EOQ Example EOQ Example
C C
cc
= $0.75 per gallon = $0.75 per gallon CC
oo
= $150 = $150 DD = 10,000 gallons = 10,000 gallons
QQ
opt opt
==
22C C
oo
DD
CC
cc
TC TC
min min
= + = +
CC
oo
DD
QQ
CC
cc
QQ
2 2
13 13--659 659
QQ
opt opt
==
2(150)(10,000) 2(150)(10,000)
(0.75) (0.75)
QQ
opt opt
= 2,000 gallons = 2,000 gallons
TC TC
min min
= + = +
(150)(10,000) (150)(10,000)
2,000 2,000
(0.75)(2,000) (0.75)(2,000)
22
TC TC
min min
= $750 + $750 = $1,500 = $750 + $750 = $1,500
Orders per year = Orders per year = DD//QQ
opt opt
== 10,000/2,000 10,000/2,000
= = 5 orders/year 5 orders/year
Order cycle time = Order cycle time = 311 days/( 311 days/(D D//QQ
opt opt
))
== 311/5 311/5
== 62.2 store days 62.2 store days
Production Quantity
Model
An inventory system in which an order is
received gradually, as inventory is
simultaneously being depleted
13 13--660 660
simultaneously being depleted
AKA non-instantaneous receipt model
assumption that Q is received all at once is relaxed
p - daily rate at which an order is received over
time, a.k.a. production rate
d - daily rate at which inventory is demanded
Production Quantity Model Production Quantity Model
(cont.) (cont.)
QQ(1 (1--d/p d/p))
Inventory Inventory
level level
Maximum Maximum
inventory inventory
level level
13 13--661 661
(1 (1--d/p d/p))
QQ
22
Time Time
00
Order Order
receipt period receipt period
Begin Begin
order order
receipt receipt
End End
order order
receipt receipt
Average Average
inventory inventory
level level
Production Quantity Model Production Quantity Model
(cont.) (cont.)
pp = production rate = production rate dd = demand rate = demand rate
Maximum inventory level = Maximum inventory level = QQ -- dd
QQ
pp
13 13--662 662
== QQ 1 1 --
dd
pp
Average inventory level = Average inventory level = 1 1 --
QQ
22
dd
pp
TC TC = + 1 = + 1 --
dd
pp
CC
oo
DD
QQ
CC
cc
QQ
22
QQ
opt opt
==
2 2CC
oo
DD
CC
cc
1 1 --
d d
p p
Production Quantity Model: Production Quantity Model:
Example Example
C
c
= $0.75 per gallon C
o
= $150 D = 10,000 gallons
d = 10,000/311 = 32.2 gallons per day p = 150 gallons per day
QQ = = = 2,256.8 gallons = = = 2,256.8 gallons
2 2CC
oo
DD
2(150)(10,000) 2(150)(10,000)
13 13--663 663
QQ
opt opt
= = = 2,256.8 gallons = = = 2,256.8 gallons
C C
cc
1 1 -- dd
pp
0.75 1 0.75 1 --
32.2 32.2
150 150
TC TC = + 1 = + 1 -- = $1,329 = $1,329
dd
pp
CC
oo
DD
QQ
CC
cc
QQ
22
Production run = = = 15.05 days per order Production run = = = 15.05 days per order
QQ
pp
2,256.8 2,256.8
150 150
Production Quantity Model: Production Quantity Model:
Number of production runs = = = 4.43 runs/year
D
Q
10,000
2,256.8
13 13--664 664
Number of production runs = = = 4.43 runs/year
Q
2,256.8
Maximum inventory level = Q 1 - = 2,256.8 1 -
= 1,772 gallons
d
p
32.2
150
Solution of EOQ Models with Solution of EOQ Models with
Excel Excel
13 13--665 665
Solution of EOQ Models with Solution of EOQ Models with
Excel (Cont) Excel (Cont)
13 13--666 666
Solution of EOQ Models with OM Solution of EOQ Models with OM
Tools Tools
13 13--667 667
Quantity Discounts Quantity Discounts
Price per unit decreases as order Price per unit decreases as order
quantity increases quantity increases
13 13--668 668
TC TC = + + = + + PD PD
CC
oo
DD
QQ
CC
cc
QQ
22
where where
PP = per unit price of the item = per unit price of the item
DD = annual demand = annual demand
Quantity Discount Model (cont.) Quantity Discount Model (cont.)
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c
o
s
t

(
$
)
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o
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y

c
o
s
t

(
$
)
TC TC ( (dd
2 2
= $6 ) = $6 )
TC TC ( (dd
1 1
= $8 ) = $8 )
TC TC = ($10 ) = ($10 )
ORDER SIZE PRICE
0 - 99 $10
100 199 8 (d
1
)
200+ 6 (d
2
)
13 13--669 669
QQ
opt opt
Carrying cost Carrying cost
Ordering cost Ordering cost
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o
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y

c
o
s
t

(
$
)
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y

c
o
s
t

(
$
)
QQ((dd
1 1
) = 100 ) = 100 QQ((dd
2 2
) = 200 ) = 200
Quantity Discount: Example Quantity Discount: Example
QUANTITY QUANTITY PRICE PRICE
1 1 -- 49 49 $1,400 $1,400
50 50 -- 89 89 1,100 1,100
90+ 90+ 900 900
C C
oo
== $2,500 $2,500
C C
cc
== $190 per TV $190 per TV
DD == 200 TVs per year 200 TVs per year
22CC DD
2(2500)(200) 2(2500)(200)
13 13--670 670
QQ
opt opt
= = = 72.5 TVs = = = 72.5 TVs
22CC
oo
DD
CC
cc
2(2500)(200) 2(2500)(200)
190 190
TC TC = + + = + + PD PD = $233,784 = $233,784
CC
oo
DD
QQ
opt opt
CC
cc
QQ
opt opt
22
For For QQ = 72.5 = 72.5
TC TC = + + = + + PD PD = $194,105 = $194,105
CC
oo
DD
QQ
CC
cc
QQ
22
For For QQ = 90 = 90
Quantity Quantity--Discount Model Solution Discount Model Solution
with Excel with Excel
13 13--671 671
Reorder Point Reorder Point
Level of inventory at which a new order is placed Level of inventory at which a new order is placed
RR = = dL dL
13 13--672 672
RR = = dL dL
where where
dd = demand rate per period = demand rate per period
LL = lead time = lead time
Reorder Point: Example Reorder Point: Example
Demand = 10,000 gallons/year Demand = 10,000 gallons/year
Store open 311 days/year Store open 311 days/year
Daily demand = 10,000 / 311 = 32.154 Daily demand = 10,000 / 311 = 32.154
13 13--673 673
Daily demand = 10,000 / 311 = 32.154 Daily demand = 10,000 / 311 = 32.154
gallons/day gallons/day
Lead time = L = 10 days Lead time = L = 10 days
R = dL = (32.154)(10) = 321.54 gallons R = dL = (32.154)(10) = 321.54 gallons
Safety Stocks Safety Stocks
Safety stock Safety stock
buffer added to on hand inventory during lead buffer added to on hand inventory during lead
time time
Stockout Stockout
13 13--674 674
Stockout Stockout
an inventory shortage an inventory shortage
Service level Service level
probability that the inventory available during lead probability that the inventory available during lead
time will meet demand time will meet demand
Variable Demand with Variable Demand with
a Reorder Point a Reorder Point
QQ
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13 13--675 675
Reorder Reorder
point, point, RR
LT LT
Time Time
LT LT
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00
Reorder Point with Reorder Point with
a Safety Stock a Safety Stock
QQ
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13 13--676 676
Reorder Reorder
point, point, RR
QQ
LT LT
Time Time
LT LT
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00
Safety Stock
Reorder Point With Reorder Point With
Variable Demand Variable Demand
RR = = dL dL + + zz
dd
LL
where where
dd == average daily demand average daily demand
13 13--677 677
dd == average daily demand average daily demand
LL == lead time lead time
dd
== the standard deviation of daily demand the standard deviation of daily demand
zz == number of standard deviations number of standard deviations
corresponding to the service level corresponding to the service level
probability probability
zz
dd
LL == safety stock safety stock
Reorder Point for Reorder Point for
a Service Level a Service Level
Probability of Probability of
meeting demand during meeting demand during
lead time = service level lead time = service level
13 13--678 678
Probability of Probability of
a stockout a stockout
RR
Safety stock
ddLL
Demand Demand
z
d
L
Reorder Point for Reorder Point for
The paint store wants a reorder point with a 95% The paint store wants a reorder point with a 95%
service level and a 5% stockout probability service level and a 5% stockout probability
dd = 30 gallons per day = 30 gallons per day
LL = 10 days = 10 days
13 13--679 679
dd
= 5 gallons per day = 5 gallons per day
For a 95% service level, For a 95% service level, zz = 1.65 = 1.65
RR = = dL dL + + zz
dd
LL
= 30(10) + (1.65)(5)( 10) = 30(10) + (1.65)(5)( 10)
= 326.1 gallons = 326.1 gallons
Safety stock Safety stock = = zz
dd
LL
= (1.65)(5)( 10) = (1.65)(5)( 10)
= 26.1 gallons = 26.1 gallons
Determining Reorder Point with Determining Reorder Point with
Excel Excel
13 13--680 680
Order Quantity for a Order Quantity for a
Periodic Inventory System Periodic Inventory System
QQ = = dd((tt
bb
+ + LL) + ) + zz
dd
tt
b b
+ + L L -- II
where where
13 13--681 681
where where
dd = average demand rate = average demand rate
tt
bb
= the fixed time between orders = the fixed time between orders
LL = lead time = lead time

dd
= standard deviation of demand = standard deviation of demand
zz
dd
tt
bb
+ + LL = safety stock = safety stock
II = inventory level = inventory level
Periodic Inventory System Periodic Inventory System
13 13--682 682
Fixed Fixed--Period Model with Period Model with
dd = 6 packages per day = 6 packages per day

dd
= 1.2 packages = 1.2 packages
tt
bb
= 60 days = 60 days
II = 8 packages = 8 packages
13 13--683 683
II = 8 packages = 8 packages
zz = 1.65 (for a 95% service level) = 1.65 (for a 95% service level)
QQ = = dd((tt
bb
+ + LL) + ) + zz
dd
tt
b b
+ + L L -- II
= (6)(60 + 5) + (1.65)(1.2) 60 + 5 = (6)(60 + 5) + (1.65)(1.2) 60 + 5 -- 8 8
= 397.96 packages = 397.96 packages
Fixed Fixed--Period Model with Excel Period Model with Excel
13 13--684 684
Simulation Simulation
Monte Carlo Simulation
Monte Carlo Simulation
Computer Simulation with Excel
Areas of Simulation Application
Mathematical and computer modeling technique for
replicating real-world problem situations
Modeling approach primarily used to analyze
probabilistic problems
probabilistic problems
It does not normally provide a solution; instead it provides
information that is used to make a decision
Physical simulation
Space flights, wind tunnels, treadmills for tires
Mathematical-computerized simulation
Computer-based replicated models
Monte Carlo Simulation Monte Carlo Simulation
Select numbers randomly from a Select numbers randomly from a
probability distribution probability distribution
Use these values to observe how a Use these values to observe how a
Use these values to observe how a Use these values to observe how a
model performs over time model performs over time
Random numbers each have an equal Random numbers each have an equal
likelihood of being selected at random likelihood of being selected at random
Distribution of Demand Distribution of Demand
LAPTOPS DEMANDED LAPTOPS DEMANDED FREQUENCY OF FREQUENCY OF PROBABILITY OF PROBABILITY OF
PER WEEK, PER WEEK, xx DEMAND DEMAND DEMAND, DEMAND, P P((xx))
00 20 20 0.20 0.20
11 40 40 0.40 0.40
11 40 40 0.40 0.40
22 20 20 0.20 0.20
33 10 10 0.10 0.10
44 10 10 0.10 0.10
100 100 1.00 1.00
Roulette Wheel of Demand Roulette Wheel of Demand
90 90
80 80
20 20
00
xx = 0 = 0
x x = 4 = 4
xx = 3 = 3
60 60
xx = 2 = 2
xx = 1 = 1
Generating Demand Generating Demand
from Random Numbers from Random Numbers
DEMAND, DEMAND, RANGES OF RANDOM NUMBERS, RANGES OF RANDOM NUMBERS,
xx rr
00 00--19 19
00 00--19 19
11 20 20--59 59 rr = 39 = 39
22 60 60--79 79
33 80 80--89 89
44 90 90--99 99
Random Number Table Random Number Table
15 Weeks of Demand 15 Weeks of Demand
WEEK WEEK rr DEMAND ( DEMAND (xx)) REVENUE (S) REVENUE (S)
11 39 39 11 4,300 4,300
22 73 73 22 8,600 8,600
33 72 72 22 8,600 8,600
44 75 75 22 8,600 8,600
55 37 37 11 4,300 4,300
66 02 02 00 00
77 87 87 33 12,900 12,900
Average demand Average demand
= 31/15 = 31/15
= 2.07 laptops/week = 2.07 laptops/week
77 87 87 33 12,900 12,900
88 98 98 44 17,200 17,200
99 10 10 00 00
10 10 47 47 11 4,300 4,300
11 11 93 93 44 17,200 17,200
12 12 21 21 11 4,300 4,300
13 13 95 95 44 17,200 17,200
14 14 97 97 44 17,200 17,200
15 15 69 69 22 8,600 8,600
= 31 = 31 $133,300 $133,300
Computing Expected Demand Computing Expected Demand
EE((xx) ) = (0.20)(0) + (0.40)(1) + (0.20)(2) = (0.20)(0) + (0.40)(1) + (0.20)(2)
+ (0.10)(3) + (0.10)(4) + (0.10)(3) + (0.10)(4)
= 1.5 laptops per week = 1.5 laptops per week
= 1.5 laptops per week = 1.5 laptops per week
Difference between 1.5 and 2.07 is due to small number of periods Difference between 1.5 and 2.07 is due to small number of periods
analyzed (only 15 weeks) analyzed (only 15 weeks)
Steady Steady--state result state result
an average result that remains constant after enough trials an average result that remains constant after enough trials
Random Numbers in Excel Random Numbers in Excel
Simulation in Excel Simulation in Excel
Simulation in Excel (cont.) Simulation in Excel (cont.)
Simulation (cont.) Simulation (cont.)
Areas of Simulation Application Areas of Simulation Application
Waiting Lines/Service Waiting Lines/Service
Complex systems for which it is difficult to develop
analytical formulas
Determine how many registers and servers are
Determine how many registers and servers are
needed to meet customer demand
Inventory Management Inventory Management
Traditional models make the assumption that
customer demand is certain
Simulation is widely used to analyze JIT without
having to implement it physically
Areas of Simulation Areas of Simulation
Application (cont.) Application (cont.)
Production and Manufacturing Systems Production and Manufacturing Systems
Examples: production scheduling, production sequencing,
assembly line balancing, plant layout, and plant location
analysis
analysis
Machine breakdowns typically occur according to some
probability distributions
Capital Investment and Budgeting Capital Investment and Budgeting
Capital budgeting problems require estimates of cash flows,
often resulting from many random variables
Simulation has been used to generate values of cash flows,
market size, selling price, growth rate, and market share
Areas of Simulation Application Areas of Simulation Application
(cont.) (cont.)
Logistics Logistics
Typically include numerous random variables, such as
distance, different modes of transport, shipping rates, and
schedules to analyze different distribution channels
Service Operations Service Operations
Service Operations Service Operations
Examples: police departments, fire departments, post offices,
hospitals, court systems, airports
Complex operations that no technique except simulation can
be employed
Environmental and Resource Analysis Environmental and Resource Analysis
Examples: impact of manufacturing plants, waste-disposal
facilities, nuclear power plants, waste and population
conditions, feasibility of alternative energy sources
Sales and Operations Planning Sales and Operations Planning
The Sales and Operations Planning The Sales and Operations Planning
Process Process
Strategies for Adjusting Capacity Strategies for Adjusting Capacity
14 14--704 704
Strategies for Adjusting Capacity Strategies for Adjusting Capacity
Strategies for Managing Demand Strategies for Managing Demand
Quantitative Techniques for Aggregate Quantitative Techniques for Aggregate
Planning Planning
Hierarchical Nature of Planning Hierarchical Nature of Planning
Aggregate Planning for Services Aggregate Planning for Services
Determines the resource capacity needed to
meet demand over an intermediate time
horizon
Aggregate refers to sales and operations planning
for product lines or families
14 14--705 705
Aggregate refers to sales and operations planning
for product lines or families
Sales and Operations planning (S&OP) matches
supply and demand
Objectives
Establish a company wide game plan for allocating
resources
Develop an economic strategy for meeting
demand
Process Process
14 14--706 706
The Monthly S&OP Planning The Monthly S&OP Planning
Process Process
14 14--707 707
Meeting Demand Strategies Meeting Demand Strategies
Adjusting capacity Adjusting capacity
Resources necessary to meet demand Resources necessary to meet demand
are acquired and maintained over the are acquired and maintained over the
time horizon of the plan time horizon of the plan
14 14--708 708
time horizon of the plan time horizon of the plan
Minor variations in demand are handled Minor variations in demand are handled
with overtime or under with overtime or under--time time
Managing demand Managing demand
Proactive demand management Proactive demand management
Strategies for Adjusting Capacity
Level production Level production
Producing at a constant rate Producing at a constant rate
and using inventory to and using inventory to
absorb fluctuations in absorb fluctuations in
demand demand
Overtime and under Overtime and under--time time
Increasing or decreasing Increasing or decreasing
working hours working hours
Subcontracting Subcontracting
14 14--709 709
demand demand
Chase demand Chase demand
Hiring and firing workers to Hiring and firing workers to
match demand match demand
Peak demand Peak demand
Maintaining resources for Maintaining resources for
high high--demand levels demand levels
Subcontracting Subcontracting
Let outside companies Let outside companies
complete the work complete the work
Part Part--time workers time workers
Hiring part time workers to Hiring part time workers to
complete the work complete the work
Backordering Backordering
Providing the service or Providing the service or
product at a later time period product at a later time period
Level Production Level Production
Demand Demand
14 14--710 710
U
n
i
t
s
U
n
i
t
s
Time Time
Chase Demand Chase Demand
Demand Demand
14 14--711 711
U
n
i
t
s
U
n
i
t
s
Time Time
Strategies for Managing Demand
Shifting demand into
other time periods
Incentives
Sales promotions
14 14--712 712
Sales promotions
Advertising campaigns
Offering products or
services with counter-
cyclical demand patterns
Partnering with suppliers
to reduce information
distortion along the
supply chain
Quantitative Techniques For AP
Pure Strategies
Mixed Strategies
Linear Programming
14 14--713 713
Linear Programming
Transportation Method
Other Quantitative
Techniques
Pure Strategies Pure Strategies
QUARTER QUARTER SALES FORECAST (LB) SALES FORECAST (LB)
Spring Spring 80,000 80,000
Summer Summer 50,000 50,000
Fall Fall 120,000 120,000
Winter Winter 150,000 150,000
Example: Example:
14 14--714 714
Hiring cost Hiring cost = $100 per worker = $100 per worker
Firing cost Firing cost = $500 per worker = $500 per worker
Inventory carrying cost Inventory carrying cost = $0.50 pound per quarter = $0.50 pound per quarter
Regular production cost per pound Regular production cost per pound = $2.00 = $2.00
Production per employee Production per employee = 1,000 pounds per quarter = 1,000 pounds per quarter
Beginning work force Beginning work force = 100 workers = 100 workers
Winter Winter 150,000 150,000
Level Production Strategy Level Production Strategy
Level production
= 100,000 pounds
(50,000 + 120,000 + 150,000 + 80,000)
4
SALES PRODUCTION
14 14--715 715
Spring 80,000 100,000 20,000
Summer 50,000 100,000 70,000
Fall 120,000 100,000 50,000
Winter 150,000 100,000 0
400,000 140,000
Cost of Level Production Strategy
(400,000 X $2.00) + (140,00 X $.50) = $870,000
SALES PRODUCTION
QUARTER FORECAST PLAN INVENTORY
Chase Demand Strategy Chase Demand Strategy
Spring Spring 80,000 80,000 80,000 80,000 80 80 00 20 20
Summer Summer 50,000 50,000 50,000 50,000 50 50 00 30 30
SALES SALES PRODUCTION PRODUCTION WORKERS WORKERS WORKERS WORKERS WORKERS WORKERS
QUARTER QUARTER FORECAST FORECAST PLAN PLAN NEEDED NEEDED HIRED HIRED FIRED FIRED
14 14--716 716
Summer Summer 50,000 50,000 50,000 50,000 50 50 00 30 30
Fall Fall 120,000 120,000 120,000 120,000 120 120 70 70 00
Winter Winter 150,000 150,000 150,000 150,000 150 150 30 30 00
100 100 50 50
Cost of Chase Demand Strategy Cost of Chase Demand Strategy
(400,000 X $2.00) + (100 x $100) + (50 x $500) = $835,000 (400,000 X $2.00) + (100 x $100) + (50 x $500) = $835,000
Level Production with Excel Level Production with Excel
14 14--717 717
Chase Demand with Excel Chase Demand with Excel
14 14--718 718
Mixed Strategy Mixed Strategy
Combination of Level Production and
Chase Demand strategies
Examples of management policies
no more than x% of the workforce can be
14 14--719 719
no more than x% of the workforce can be
laid off in one quarter
inventory levels cannot exceed x dollars
Many industries may simply shut down
manufacturing during the low demand
season and schedule employee
vacations during that time
Mixed Strategies with Excel Mixed Strategies with Excel
14 14--720 720
Mixed Strategies with Excel Mixed Strategies with Excel
(cont.) (cont.)
14 14--721 721
General Linear Programming (LP)
Model
LP gives an optimal solution, but demand
and costs must be linear
Let
14 14--722 722
Let
W
t
= workforce size for period t
P
t
=units produced in period t
I
t
=units in inventory at the end of period t
F
t
=number of workers fired for period t
H
t
= number of workers hired for period t
LP MODEL
Minimize Z = $100 (H
1
+ H
2
+ H
3
+ H
4
)
+ $500 (F
1
+ F
2
+ F
3
+ F
4
)
+ $0.50 (I
1
+ I
2
+ I
3
+ I
4
)
+ $2 (P
1
+ P
2
+ P
3
+ P
4
)
Subject to
P
1
- I
1
= 80,000 (1)
Demand I
1
+ P
2
- I
2
= 50,000 (2)
constraints I
2
+ P
3
- I
3
= 120,000 (3)
I
3
+ P
4
- I
4
= 150,000 (4)
Production 1000 W = P (5)
14 14--723 723
Production 1000 W
1
= P
1
(5)
constraints 1000 W
2
= P
2
(6)
1000 W
3
= P
3
(7)
1000 W
4
= P
4
(8)
100 + H
1
- F
1
= W
1
(9)
Work force W
1
+ H
2
- F
2
= W
2
(10)
constraints W
2
+ H
3
- F
3
= W
3
(11)
W
3
+ H
4
- F
4
= W
4
(12)
Setting up the Spreadsheet Setting up the Spreadsheet
14 14--724 724
The LP Solution The LP Solution
14 14--725 725
Transportation Method Transportation Method
11 900 900 1000 1000 100 100 500 500
22 1500 1500 1200 1200 150 150 500 500
EXPECTED EXPECTED REGULAR REGULAR OVERTIME OVERTIME SUBCONTRACT SUBCONTRACT
QUARTER QUARTER DEMAND DEMAND CAPACITY CAPACITY CAPACITY CAPACITY CAPACITY CAPACITY
14 14--726 726
22 1500 1500 1200 1200 150 150 500 500
33 1600 1600 1300 1300 200 200 500 500
44 3000 3000 1300 1300 200 200 500 500
Regular production cost per unit Regular production cost per unit $20 $20
Overtime production cost per unit Overtime production cost per unit $25 $25
Subcontracting cost per unit Subcontracting cost per unit $28 $28
Inventory holding cost per unit per period Inventory holding cost per unit per period $3 $3
Beginning inventory Beginning inventory 300 units 300 units
Transportation Tableau Transportation Tableau
Unused
PERIOD OF PRODUCTION 1 2 3 4 Capacity Capacity
Beginning 0 3 6 9
Inventory 300 300
Regular 600 300 100 1000
Overtime 100 100
Subcontract 500
Regular 1200 1200
1
2
PERIOD OF USE
20 23 26 29
25 28 31 34
28 31 34 37
20 23 26
14 14--727 727
Regular 1200 1200
Overtime 150 150
Subcontract 250 250 500
Regular 1300 1300
Overtime 200 200
Subcontract 500 500
Regular 1300 1300
Overtime 200 200
Subcontract 500 500
Demand 900 1500 1600 3000 250
2
3
4
20 23 26
25 28 31
28 31 34
20 23
25 28
28 31
20
25
28
Burruss Production Plan Burruss Production Plan
11 900 900 1000 1000 100 100 0 0 500 500
REGULAR REGULAR SUB SUB- - ENDING ENDING
PERIOD PERIOD DEMAND DEMAND PRODUCTION PRODUCTION OVERTIME OVERTIME CONTRACT CONTRACT INVENTORY INVENTORY
14 14--728 728
22 1500 1500 1200 1200 150 150 250 250 600 600
33 1600 1600 1300 1300 200 200 500 500 1000 1000
44 3000 3000 1300 1300 200 200 500 500 0 0
Total Total 7000 7000 4800 4800 650 650 1250 1250 2100 2100
Using Excel for the Transportation Using Excel for the Transportation
Method of Aggregate Planning Method of Aggregate Planning
14 14--729 729
Other Quantitative Techniques Other Quantitative Techniques
Linear decision rule (LDR) Linear decision rule (LDR)
Search decision rule (SDR) Search decision rule (SDR)
14 14--730 730
Management coefficients model Management coefficients model
Items Items
Product lines Product lines
or families or families
Individual Individual
products products
Resource Resource
Level Level
Plants Plants
Critical Critical
work work
centers centers
Planning Planning
Capacity Capacity
Planning Planning
Resource
requirements
plan
Rough-cut
capacity
plan
Sales and
Operations
Plan
Master
production
schedule
Hierarchical Nature of Planning
14 14--731 731
Components Components
Manufacturing Manufacturing
operations operations
Individual Individual
machines machines
Capacity
requirements
plan
Input/
output
control
Material
requirements
plan
Shop
floor
schedule
All All
work work
centers centers
Disaggregation: process of breaking an aggregate plan into more detailed plans Disaggregation: process of breaking an aggregate plan into more detailed plans
Collaborative Planning Collaborative Planning
Sharing information and synchronizing Sharing information and synchronizing
production across supply chain production across supply chain
Part of CPFR (collaborative planning, Part of CPFR (collaborative planning,
14 14--732 732
Part of CPFR (collaborative planning, Part of CPFR (collaborative planning,
forecasting, and replenishment) forecasting, and replenishment)
involves selecting products to be jointly involves selecting products to be jointly
managed, creating a single forecast of managed, creating a single forecast of
customer demand, and synchronizing customer demand, and synchronizing
production across supply chain production across supply chain
Available-to-Promise (ATP)
Quantity of items that can be promised to customer
Difference between planned production and customer
orders already received
14 14--733 733
Capable-to-promise
quantity of items that can be produced and mad available at
a later date
AT in period 1 = (On-hand quantity + MPS in period 1)
(CO until the next period of planned production)
ATP in period n = (MPS in period n)
(CO until the next period of planned production)
ATP: Example ATP: Example
14 14--734 734
ATP: Example (cont.) ATP: Example (cont.)
14 14--735 735
ATP: Example (cont.) ATP: Example (cont.)
14 14--736 736
ATP in April = (10+100) ATP in April = (10+100) 70 = 40 70 = 40
ATP in May = 100 ATP in May = 100 110 = 110 = --10 10
ATP in June = 100 ATP in June = 100 50 = 50 50 = 50
= 30 = 30
= 0 = 0
Take excess units from April
Rule Based ATP Rule Based ATP
Product
Request
Is the product
available at
this location?
Is an alternative
product available
at an alternate
location?
Available-
to-promise
Allocate
Yes Yes
No No
No No
Yes Yes
14 14--737 737
Is an alternative
product available
at this location?
Is this product
available at a
different
location?
Available-
to-promise
Allocate
inventory
Capable-to-
promise date
Is the customer
willing to wait for
the product?
Allocate
inventory
Revise master
schedule
Trigger production
Lose sale
Yes Yes
No No
Yes Yes
No No
Yes Yes
No No
Aggregate Planning for Services Aggregate Planning for Services
1. 1. Most services cannot be inventoried Most services cannot be inventoried
2. 2. Demand for services is difficult to predict Demand for services is difficult to predict
3. 3. Capacity is also difficult to predict Capacity is also difficult to predict
14 14--738 738
3. 3. Capacity is also difficult to predict Capacity is also difficult to predict
4. 4. Service capacity must be provided at the Service capacity must be provided at the
appropriate place and time appropriate place and time
5. 5. Labor is usually the most constraining Labor is usually the most constraining
resource for services resource for services
Yield Management
14 14--739 739
Yield Management (cont.)
14 14--740 740
Yield Management: Example Yield Management: Example
NO NO--SHOWS SHOWS PROBABILITY PROBABILITY P P((N N < < X X))
00 .15 .15 .00 .00
11 .25 .25 .15 .15
22 .30 .30 .40 .40
33 .30 .30 .70 .70
.517 .517
14 14--741 741
33 .30 .30 .70 .70
Optimal probability of no Optimal probability of no--shows shows
P( P(nn < < xx) ) = = .517 = = .517
CC
uu
CC
uu
+ + CC
oo
75 75
75 + 70 75 + 70
Hotel should be overbooked by two rooms
Linear Programming Linear Programming
Model Formulation
Graphical Solution Method
Linear Programming Model Solution
Linear Programming Model Solution
Solving Linear Programming Problems
with Excel
Sensitivity Analysis
A model consisting of linear relationships A model consisting of linear relationships
representing a firms objective and resource constraints representing a firms objective and resource constraints
Linear Programming (LP)
LP is a mathematical modeling technique used to determine a LP is a mathematical modeling technique used to determine a
level of operational activity in order to achieve an objective, level of operational activity in order to achieve an objective,
subject to restrictions called constraints subject to restrictions called constraints
Types of LP Types of LP
Types of LP (cont.) Types of LP (cont.)
Types of LP (cont.) Types of LP (cont.)
LP Model Formulation LP Model Formulation
Decision variables
mathematical symbols representing levels of activity of an
operation
Objective function
Objective function
a linear relationship reflecting the objective of an operation
most frequent objective of business firms is to maximize profit
most frequent objective of individual operational units (such as
a production or packaging department) is to minimize cost
Constraint
a linear relationship representing a restriction on decision
making
LP Model Formulation (cont.) LP Model Formulation (cont.)
Max/min z = c Max/min z = c
11
xx
11
+ c + c
22
xx
22
+ ... + c + ... + c
nn
xx
nn
subject to: subject to:
aa
11 11
xx
11
+ a + a
12 12
xx
22
+ ... + a + ... + a
1n 1n
xx
nn
(, =, ) b (, =, ) b
11
11 11 11 12 12 22 1n 1n nn 11
aa
21 21
xx
11
+ a + a
22 22
xx
22
+ ... + a + ... + a
2n 2n
xx
nn
(, =, ) b (, =, ) b
22
::
aa
n1 n1
x1 + a x1 + a
n2 n2
xx
22
+ ... + a + ... + a
nn nn
xx
nn
(, =, ) b (, =, ) b
nn
xx
jj
= decision variables = decision variables
bb
ii
= constraint levels = constraint levels
cc
j j
= objective function coefficients = objective function coefficients
a a
ij ij
= constraint coefficients = constraint coefficients
LP Model: Example LP Model: Example
Labor Labor Clay Clay Revenue Revenue
PRODUCT PRODUCT (hr/unit) (hr/unit) (lb/unit) (lb/unit) ($/unit) ($/unit)
Bowl Bowl 11 44 40 40
RESOURCE REQUIREMENTS RESOURCE REQUIREMENTS
Bowl Bowl 11 44 40 40
Mug Mug 22 33 50 50
There are 40 hours of labor and 120 pounds of clay There are 40 hours of labor and 120 pounds of clay
available each day available each day
Decision variables Decision variables
xx
11
= number of bowls to produce = number of bowls to produce
xx
22
= number of mugs to produce = number of mugs to produce
LP Formulation: Example LP Formulation: Example
Maximize Maximize ZZ = $40 = $40 xx
11
+ 50 + 50 xx
22
Subject to Subject to
xx
11
++ 22xx
22
40 hr 40 hr (labor constraint) (labor constraint)
xx
11
++ 22xx
22
40 hr 40 hr (labor constraint) (labor constraint)
44xx
11
++ 33xx
22
120 lb 120 lb (clay constraint) (clay constraint)
xx
1 1
, , xx
22
00
Solution is Solution is xx
11
= 24 bowls = 24 bowls xx
2 2
= 8 mugs = 8 mugs
Revenue = $1,360 Revenue = $1,360
Graphical Solution Method Graphical Solution Method
1. 1. Plot model constraint on a set of coordinates Plot model constraint on a set of coordinates
in a plane in a plane
2. 2. Identify the feasible solution space on the Identify the feasible solution space on the
2. 2. Identify the feasible solution space on the Identify the feasible solution space on the
graph where all constraints are satisfied graph where all constraints are satisfied
simultaneously simultaneously
3. 3. Plot objective function to find the point on Plot objective function to find the point on
boundary of this space that maximizes (or boundary of this space that maximizes (or
minimizes) value of objective function minimizes) value of objective function
Graphical Solution: Example Graphical Solution: Example
4 4 xx
11
+ 3 + 3 xx
2 2
120 lb 120 lb
50 50
40 40
30 30
x x
2 2
xx
11
+ 2 + 2 xx
2 2
40 hr 40 hr
Area common to Area common to
both constraints both constraints
30 30
20 20
10 10
0 0
||
10 10
||
60 60
||
50 50
||
20 20
||
30 30
||
40 40
x x
1 1
Computing Optimal Values Computing Optimal Values
xx
11
++ 22xx
22
== 40 40
44xx
11
++ 33xx
22
== 120 120
44xx
11
++ 88xx
22
== 160 160
--44xx
11
-- 33xx
22
== --120 120
55xx
22
== 40 40
xx == 88
4 4 xx
11
+ 3 + 3 xx
2 2
== 120 lb 120 lb
40 40
30 30
x x
2 2
xx
22
== 88
xx
11
++ 2(8) 2(8) == 40 40
xx
11
== 24 24
xx
11
+ 2 + 2 xx
2 2
== 40 hr 40 hr
20 20
10 10
0 0
||
10 10
||
20 20
||
30 30
||
40 40
x x
1 1
ZZ = $40(24) + $50(8) = $1,360 = $40(24) + $50(8) = $1,360
24 24
88
Extreme Corner Points Extreme Corner Points
xx
11
= 224 bowls = 224 bowls
xx
2 2
== 8 mugs 8 mugs
ZZ = $1,360 = $1,360 xx = 30 bowls = 30 bowls
x x
11
= 0 bowls = 0 bowls
xx
2 2
== 20 mugs 20 mugs
ZZ = $1,000 = $1,000
x x
22
40 40
ZZ = $1,360 = $1,360 xx
11
xx
2 2
== 0 mugs 0 mugs
ZZ = $1,200 = $1,200
A A
BB
CC ||
20 20
||
30 30
||
40 40
||
10 10
xx
11
40 40
30 30
20 20
10 10
0 0
4 4xx
11
+ 3 + 3xx
2 2
== 120 lb 120 lb
40 40
30 30
xx
22
ZZ = 70 = 70xx
11
+ 20 + 20xx
22
Optimal point: Optimal point:
xx = 30 bowls = 30 bowls
Objective Function Objective Function
xx
11
+ 2 + 2xx
2 2
== 40 hr 40 hr
20 20
10 10
0 0
BB
||
10 10
||
20 20
||
30 30
||
40 40
xx
11
CC
AA
xx
11
xx
2 2
== 0 mugs 0 mugs
ZZ = $2,100 = $2,100
Minimization Problem Minimization Problem
CHEMICAL CONTRIBUTION CHEMICAL CONTRIBUTION
Brand Brand Nitrogen (lb/bag) Nitrogen (lb/bag) Phosphate (lb/bag) Phosphate (lb/bag)
Gro Gro--plus plus 22 44
Crop Crop--fast fast 44 33
Crop Crop--fast fast 44 33
Minimize Minimize ZZ = $6x = $6x
11
+ $3x + $3x
22
subject to subject to
22xx
11
++ 44xx
22
16 lb of nitrogen 16 lb of nitrogen
44xx
11
++ 33xx
22
24 lb of phosphate 24 lb of phosphate
xx
11
, , xx
22
00
14 14
12 12
10 10
x x
22
Graphical Solution Graphical Solution
xx
11
= 0 bags of Gro = 0 bags of Gro--plus plus
xx
22
= 8 bags of Crop = 8 bags of Crop--fast fast
ZZ = $24 = $24
10 10
8 8
6 6
4 4
2 2
0 0
||
22
||
44
||
66
||
88
||
10 10
||
12 12
||
14 14 xx
11
AA
BB
CC
Z = 6 Z = 6xx
11
+ 3 + 3xx
22
Simplex Method Simplex Method
A mathematical procedure for solving linear programming A mathematical procedure for solving linear programming
problems according to a set of steps problems according to a set of steps
Slack variables added to constraints to represent unused Slack variables added to constraints to represent unused
resources resources
xx
11
+ 2x + 2x
2 2
+ s + s
1 1
==40 hours of labor 40 hours of labor
11 2 2 1 1
4x 4x
11
+ 3x + 3x
2 2
+ s + s
2 2
==120 lb of clay 120 lb of clay
Surplus variables subtracted from constraints to represent variables subtracted from constraints to represent
excess above resource requirement. For example, excess above resource requirement. For example,
22xx
11
+ 4 + 4xx
2 2
16 is transformed into 16 is transformed into
22xx
11
+ 4 + 4xx
2 2
-- ss
1 1
= = 16 16
Slack/surplus variables have a 0 coefficient in the objective Slack/surplus variables have a 0 coefficient in the objective
function function
Z = $40x Z = $40x
1 1
+ $50x + $50x
2 2
+ 0s + 0s
1 1
+ 0s + 0s
2 2
Solution Solution
Points with Points with
Slack Slack
Variables Variables
Solution Solution
Points with Points with
Surplus Surplus
Variables Variables
Solving LP Problems with Excel Solving LP Problems with Excel
(cont.) (cont.)
(cont.) (cont.)
Sensitivity Range for Labor Sensitivity Range for Labor
Hours Hours
Sensitivity Range for Sensitivity Range for
Bowls Bowls
Resource Planning Resource Planning
Material Requirements Planning (MRP)
Capacity Requirements Planning (CRP)
15 15--768 768
Enterprise Resource Planning (ERP)
Customer Relationship Management (CRM)
Supply Chain Management (SCM)
Product Lifecycle Management (PLM)
Resource
Planning for
Manufacturing
15 15--769 769
Material Requirements
Planning (MRP)
Computerized inventory control and
production planning system
When to use MRP?
15 15--770 770
When to use MRP?
Dependent demand items
Discrete demand items
Complex products
Job shop production
Assemble-to-order environments
Demand Characteristics Demand Characteristics
Independent demand Independent demand Dependent demand Dependent demand
100 x 1 = 100 x 1 =
100 tabletops 100 tabletops
15 15--771 771
11 22 33 44 55
Week Week
400 400
300 300
200 200
100 100
N
o
.

o
f

t
a
b
l
e
s
N
o
.

o
f

t
a
b
l
e
s
Continuous demand Continuous demand
M T W Th F M T W Th F M T W Th F M T W Th F
400 400
300 300
200 200
100 100
N
o
.

o
f

t
a
b
l
e
s
N
o
.

o
f

t
a
b
l
e
s
Discrete demand Discrete demand
100 tables 100 tables 100 x 4 = 400 table legs 100 x 4 = 400 table legs
Material Material
Planning Planning
Material
requirements
planning
Item
master
file
Product
structure
file
Master
production
schedule
15 15--772 772
Planned
order
releases
Work
orders
Purchase
orders
Rescheduling
notices
MRP Inputs and Outputs MRP Inputs and Outputs
Inputs Inputs
Master production Master production
schedule schedule
Outputs Outputs
Planned order Planned order
releases releases
15 15--773 773
schedule schedule
Product structure file Product structure file
Item master file Item master file
releases releases
Work orders Work orders
Purchase orders Purchase orders
Rescheduling notices Rescheduling notices
Master Production Schedule Master Production Schedule
Drives MRP process with a schedule of Drives MRP process with a schedule of
finished products finished products
Quantities represent production not demand Quantities represent production not demand
Quantities may consist of a combination of Quantities may consist of a combination of
15 15--774 774
Quantities may consist of a combination of Quantities may consist of a combination of
customer orders and demand forecasts customer orders and demand forecasts
Quantities represent what needs to be Quantities represent what needs to be
produced, not what can be produced produced, not what can be produced
Quantities represent end items that may or Quantities represent end items that may or
may not be finished products may not be finished products
(cont.) (cont.)
PERIOD PERIOD
MPS ITEM MPS ITEM 11 22 3 3 4 4 5 5
Pencil Case Pencil Case 125 125 125 125 125 125 125 125 125 125
15 15--775 775
Pencil Case Pencil Case 125 125 125 125 125 125 125 125 125 125
Clipboard Clipboard 85 85 95 95 120 120 100 100 100 100
Lapboard Lapboard 75 75 120 120 47 47 20 20 17 17
Lapdesk Lapdesk 00 50 50 0 0 50 50 0 0
Product Structure File Product Structure File
15 15--776 776
Product Structure
Top clip (1) Bottom clip (1)
Clipboard
15 15--777 777
Top clip (1) Bottom clip (1)
Pivot (1) Spring (1)
Rivets (2)
Finished clipboard Pressboard (1)
Product Structure Tree Product Structure Tree
Clipboard Level 0 Level 0
15 15--778 778
Level 1 Level 1
Level 2 Level 2
Spring
(1)
Bottom Clip
(1)
Top Clip
(1)
Pivot
(1)
Rivets
(2)
Clip Assy
(1)
Pressboard
(1)
Multilevel Indented BOM Multilevel Indented BOM
0 0 -- -- -- -- Clipboard Clipboard ea ea 1 1
-- 1 1 -- -- -- Clip Assembly Clip Assembly ea ea 1 1
LEVEL LEVEL ITEM ITEM UNIT OF MEASURE UNIT OF MEASURE QUANTITY QUANTITY
15 15--779 779
-- 1 1 -- -- -- Clip Assembly Clip Assembly ea ea 1 1
-- -- 2 2 -- -- Top Clip Top Clip ea ea 1 1
-- -- 2 2 -- -- Bottom Clip Bottom Clip ea ea 1 1
-- -- 2 2 -- -- Pivot Pivot ea ea 1 1
-- -- 2 2 -- -- Spring Spring ea ea 1 1
-- 1 1 -- -- -- Rivet Rivet ea ea 2 2
-- 1 1 -- -- -- Press Board Press Board ea ea 1 1
Specialized BOMs Specialized BOMs
Phantom bills Phantom bills
Transient subassemblies Transient subassemblies
Never stocked Never stocked
15 15--780 780
Never stocked Never stocked
Immediately consumed in next stage Immediately consumed in next stage
KK--bills bills
Group small, loose parts under pseudo Group small, loose parts under pseudo--item item
number number
Reduces paperwork, processing time, and file Reduces paperwork, processing time, and file
space space
Specialized BOMs (cont.) Specialized BOMs (cont.)
Modular bills Modular bills
Product assembled from major subassemblies and Product assembled from major subassemblies and
customer options customer options
15 15--781 781
customer options customer options
Modular bill kept for each major subassembly Modular bill kept for each major subassembly
Simplifies forecasting and planning Simplifies forecasting and planning
X10 automobile example X10 automobile example
3 x 8 x 3 x 8 x 4 = 2,304 configurations 3 x 8 x 3 x 8 x 4 = 2,304 configurations
3 + 8 + 3 + 8 + 4 = 26 modular bills 3 + 8 + 3 + 8 + 4 = 26 modular bills
X10
Automobile
Engines Exterior color Interior Interior color Body
(1 of 3) (1 of 8) (1 of 3) (1 of 8) (1 of 4)
Modular BOMs Modular BOMs
15 15--782 782
44--Cylinder (.40) Cylinder (.40) Bright red (.10) Bright red (.10) Leather (.20) Leather (.20) Grey (.10) Grey (.10) Sports coupe (.20) Sports coupe (.20)
66--Cylinder (.50) Cylinder (.50) White linen (.10) White linen (.10) Tweed (.40) Tweed (.40) Light blue (.10) Light blue (.10) Two Two--door (.20) door (.20)
88--Cylinder (.10) Cylinder (.10) Sulphur yellow (.10) Sulphur yellow (.10) Plush (.40) Plush (.40) Rose (.10) Rose (.10) Four Four--door (.30) door (.30)
Neon orange (.10) Neon orange (.10) Off Off--white (.20) white (.20) Station wagon (.30) Station wagon (.30)
Metallic blue (.10) Metallic blue (.10) Cool green (.10) Cool green (.10)
Emerald green (.10) Emerald green (.10) Black (.20) Black (.20)
Jet black (.20) Jet black (.20) Brown (.10) Brown (.10)
Champagne (.20) Champagne (.20) B/W checked (.10) B/W checked (.10)
(1 of 3) (1 of 8) (1 of 3) (1 of 8) (1 of 4)
Time-phased Bills
an assembly chart shown against a time
scale
15 15--783 783
Forward scheduling: start at todays date and schedule forward to determine
the earliest date the job can be finished. If each item takes one period to
complete, the clipboards can be finished in three periods
Backward scheduling: start at the due date and schedule backwards to
determine when to begin work. If an order for clipboards is due by period three,
we should start production now
Item Master File Item Master File
DESCRIPTION DESCRIPTION INVENTORY POLICY INVENTORY POLICY
Item Item Pressboard Pressboard Lead time Lead time 11
Item no. Item no. 7341 7341 Annual demand Annual demand 5000 5000
Item type Item type Purch Purch Holding cost Holding cost 11
Product/sales class Product/sales class Comp Comp Ordering/setup cost Ordering/setup cost 50 50
15 15--784 784
Product/sales class Product/sales class Comp Comp Ordering/setup cost Ordering/setup cost 50 50
Value class Value class BB Safety stock Safety stock 00
Buyer/planner Buyer/planner RSR RSR Reorder point Reorder point 39 39
Vendor/drawing Vendor/drawing 07142 07142 EOQ EOQ 316 316
Phantom code Phantom code NN Minimum order qty Minimum order qty 100 100
Unit price/cost Unit price/cost 1.25 1.25 Maximum order qty Maximum order qty 500 500
Pegging Pegging YY Multiple order qty Multiple order qty 11
LLC LLC 11 Policy code Policy code 33
Item Master File (cont.) Item Master File (cont.)
PHYSICAL INVENTORY PHYSICAL INVENTORY USAGE/SALES USAGE/SALES
On hand On hand 150 150 YTD usage/sales YTD usage/sales 1100 1100
Location Location W142 W142 MTD usage/sales MTD usage/sales 75 75
On order On order 100 100 YTD receipts YTD receipts 1200 1200
Allocated Allocated 75 75 MTD receipts MTD receipts 00
Cycle Cycle 33 Last receipt Last receipt 8/25 8/25
15 15--785 785
CODES CODES
Cycle Cycle 33 Last receipt Last receipt 8/25 8/25
Last count Last count 9/5 9/5 Last issue Last issue 10/5 10/5
Difference Difference --2 2
Cost acct. Cost acct. 00754 00754
Routing Routing 00326 00326
Engr Engr 07142 07142
MRP Processes MRP Processes
Exploding the bill Exploding the bill
of material of material
Netting out inventory Netting out inventory
Netting Netting
process of subtracting on process of subtracting on--
hand quantities and hand quantities and
scheduled receipts from scheduled receipts from
15 15--786 786
Lot sizing Lot sizing
Time Time--phasing phasing
scheduled receipts from scheduled receipts from
gross requirements to gross requirements to
produce net requirements produce net requirements
Lot sizing Lot sizing
determining the quantities determining the quantities
in which items are usually in which items are usually
made or purchased made or purchased
MRP Matrix MRP Matrix
15 15--787 787
MRP: Example MRP: Example
11 22 33 44 55
Clipboard Clipboard 85 85 95 95 120 120 100 100 100 100
Lapdesk Lapdesk 00 60 60 00 60 60 00
15 15--788 788
Item Master File Item Master File
CLIPBOARD CLIPBOARD LAPDESK LAPDESK PRESSBOARD PRESSBOARD
On hand On hand 25 25 20 20 150 150
On order On order 175 (Period 1) 175 (Period 1) 00 00
(sch receipt) (sch receipt)
LLC LLC 00 00 11
Lot size Lot size L4L L4L Mult 50 Mult 50 Min 100 Min 100
Lead time Lead time 11 11 11
MRP: Example (cont.) MRP: Example (cont.)
Product Structure Record Product Structure Record
Clipboard Level 0 Level 0
Pressboard
(1)
Clip Assy
(1)
Rivets
(2)
Level 1 Level 1
15 15--789 789
Lapdesk
Pressboard
(2)
Trim
(3)
Beanbag
(1)
Glue
(4 oz)
Level 0 Level 0
(1) (1) (2)
Level 1 Level 1
Level 1 Level 1
ITEM: CLIPBOARD ITEM: CLIPBOARD LLC: 0 LLC: 0 PERIOD PERIOD
LOT SIZE: L4L LOT SIZE: L4L LT: 1 LT: 1 11 22 33 44 55
Gross Requirements Gross Requirements 85 85 95 95 120 120 100 100 100 100
Scheduled Receipts Scheduled Receipts 175 175
15 15--790 790
Projected on Hand Projected on Hand 25 25
Net Requirements Net Requirements
Planned Order Receipts Planned Order Receipts
Planned Order Releases Planned Order Releases
15 15--791 791
Projected on Hand Projected on Hand 25 25 115 115
Net Requirements Net Requirements 00
(25 + 175) = 200 units available (25 + 175) = 200 units available
(200 (200 -- 85) = 115 on hand at the end of Period 1 85) = 115 on hand at the end of Period 1
15 15--792 792
Projected on Hand Projected on Hand 25 25 115 115 20 20
Net Requirements Net Requirements 00 00
115 units available 115 units available
(115 (115 -- 85) = 20 on hand at the end of Period 2 85) = 20 on hand at the end of Period 2
15 15--793 793
Projected on Hand Projected on Hand 25 25 115 115 20 20 00
Net Requirements Net Requirements 00 00 100 100
Planned Order Receipts Planned Order Receipts 100 100
Planned Order Releases Planned Order Releases 100 100
20 units available 20 units available
(20 (20 -- 120) = 120) = --100 100 100 additional Clipboards are required 100 additional Clipboards are required
Order must be placed in Period 2 to be received in Period 3 Order must be placed in Period 2 to be received in Period 3
15 15--794 794
Projected on Hand Projected on Hand 25 25 115 115 20 20 00 00 00
Net Requirements Net Requirements 00 00 100 100 100 100 100 100
Planned Order Receipts Planned Order Receipts 100 100 100 100 100 100
Planned Order Releases Planned Order Releases 100 100 100 100 100 100
Following the same logic Gross Requirements in Periods 4 Following the same logic Gross Requirements in Periods 4
and 5 develop Net Requirements, Planned Order Receipts, and and 5 develop Net Requirements, Planned Order Receipts, and
ITEM: LAPDESK ITEM: LAPDESK LLC: 0 LLC: 0 PERIOD PERIOD
LOT SIZE: MULT 50 LOT SIZE: MULT 50 LT: 1 LT: 1 11 22 33 44 55
Gross Requirements Gross Requirements 00 60 60 00 60 60 00
Scheduled Receipts Scheduled Receipts
15 15--795 795
Gross Requirements Gross Requirements 00 60 60 00 60 60 00
15 15--796 796
Projected on Hand Projected on Hand 20 20 20 20 10 10 10 10 00 00
Net Requirements Net Requirements 00 40 40 50 50
Planned Order Receipts Planned Order Receipts 50 50 50 50
Planned Order Releases Planned Order Releases 50 50 50 50
Following the same logic, the Lapdesk MRP matrix is Following the same logic, the Lapdesk MRP matrix is
completed as shown completed as shown
15 15--797 797
ITEM: PRESSBOARD ITEM: PRESSBOARD LLC: 0 LLC: 0 PERIOD PERIOD
LOT SIZE: MIN 100 LOT SIZE: MIN 100 LT: 1 LT: 1 11 22 33 44 55
Gross Requirements Gross Requirements
x2 x2 x2 x2
x1 x1 x1 x1 x1 x1
15 15--798 798
Gross Requirements Gross Requirements 100 100 100 100 200 200 100 100 00
x2 x2 x2 x2
15 15--799 799
Gross Requirements Gross Requirements 100 100 100 100 200 200 100 100 00
Projected on Hand Projected on Hand 150 150 50 50 50 50 00 00 00
Net Requirements Net Requirements 50 50 150 150 100 100
Planned Order Receipts Planned Order Receipts 100 100 150 150 100 100
Planned Order Report Planned Order Report
PERIOD PERIOD
ITEM ITEM 11 22 33 44 55
15 15--800 800
Clipboard Clipboard 100 100 100 100 100 100
Lapdesk Lapdesk 50 50 50 50
Pressboard Pressboard 100 100 150 150 100 100
Lot Sizing in MRP Systems
Lot-for-lot ordering policy
Fixed-size lot ordering policy
15 15--801 801
Minimum order quantities
Maximum order quantities
Multiple order quantities
Economic order quantity
Periodic order quantity
Using Excel for MRP Calculations Using Excel for MRP Calculations
15 15--802 802
Advanced Lot Sizing Rules: L4L
15 15--803 803
Total cost of L4L = (4 X $60) + (0 X $1) = $240
Advanced Lot Sizing Rules: EOQ
2(30)(60
60
1
EOQ = =
minimum order quantity
15 15--804 804
Total cost of EOQ = (2 X $60) + [(10 + 50 + 40) X $1)] = $220
Advanced Lot Sizing Rules: POQ
/ 60/ 30 2 POQ Q d = = =
periods worth of requirements
15 15--805 805
Total cost of POQ = (2 X $60) + [(20 + 40) X $1] = $180
Planned Order Report Planned Order Report
Item Item #2740 #2740 Date Date 9 9 -- 25 25 -- 05 05
On hand On hand 100 100 Lead time Lead time 2 weeks 2 weeks
On order On order 200 200 Lot size Lot size 200 200
Allocated Allocated 50 50 Safety stock Safety stock 50 50
SCHEDULED SCHEDULED PROJECTED PROJECTED
DATE DATE ORDER NO. ORDER NO. GROSS REQS. GROSS REQS. RECEIPTS RECEIPTS ON HAND ON HAND ACTION ACTION
50 50
99--26 26 AL 4416 AL 4416 25 25 25 25
15 15--806 806
99--26 26 AL 4416 AL 4416 25 25 25 25
99--30 30 AL 4174 AL 4174 25 25 00
10 10--01 01 GR 6470 GR 6470 50 50 -- 50 50
10 10--08 08 SR 7542 SR 7542 200 200 150 150 Expedite SR 10 Expedite SR 10--01 01
10 10--10 10 CO 4471 CO 4471 75 75 75 75
10 10--15 15 GR 6471 GR 6471 50 50 25 25
10 10--23 23 GR 6471 GR 6471 25 25 00
10 10--27 27 GR 6473 GR 6473 50 50 -- 50 50 Release PO 10 Release PO 10--13 13
Key: Key: AL AL = allocated = allocated WO WO = work order = work order
CO CO = customer order = customer order SR SR = scheduled receipt = scheduled receipt
PO PO = purchase order = purchase order GR GR = gross requirement = gross requirement
MRP Action Report MRP Action Report
Current date 9 Current date 9--25 25--08 08
ITEM ITEM DATE DATE ORDER NO. ORDER NO. QTY. QTY. ACTION ACTION
#2740 #2740 10 10--08 08 7542 7542 200 200 Expedite Expedite SR SR 10 10- -01 01
15 15--807 807
#2740 #2740 10 10--08 08 7542 7542 200 200 Expedite Expedite SR SR 10 10- -01 01
#3616 #3616 10 10--09 09 Move forward Move forward PO PO 10 10- -07 07
#2412 #2412 10 10--10 10 Move forward Move forward PO PO 10 10- -05 05
#3427 #3427 10 10--15 15 Move backward Move backward PO PO 10 10- -25 25
#2516 #2516 10 10--20 20 7648 7648 100 100 De De- -expedite expedite SR SR 10 10- -30 30
#2740 #2740 10 10--27 27 200 200 Release Release PO PO 10 10- -13 13
#3666 #3666 10 10--31 31 50 50 Release Release WO WO 10 10- -24 24
Capacity Requirements Capacity Requirements
Planning (CRP) Planning (CRP)
Creates a load profile
Identifies under-loads and over-loads
15 15--808 808
Inputs
Planned order releases
Routing file
Open orders file
CRP CRP
MRP planned
order
releases
15 15--809 809
Routing
file
Capacity
requirements
planning
Open
orders
file
Load profile for
each process
Calculating Capacity Calculating Capacity
Maximum capability to produce Maximum capability to produce
Rated Capacity Rated Capacity
Theoretical output that could be attained if a process were Theoretical output that could be attained if a process were
operating at full speed without interruption, exceptions, or operating at full speed without interruption, exceptions, or
15 15--810 810
operating at full speed without interruption, exceptions, or operating at full speed without interruption, exceptions, or
downtime downtime
Effective Capacity Effective Capacity
Takes into account the efficiency with which a particular Takes into account the efficiency with which a particular
product or customer can be processed and the utilization of product or customer can be processed and the utilization of
the scheduled hours or work the scheduled hours or work
Effective Daily Capacity = (no. of machines or workers) x
(hours per shift) x (no. of shifts) x (utilization) x ( efficiency)
Calculating Capacity (cont.) Calculating Capacity (cont.)
Utilization Utilization
Percent of available time spent working Percent of available time spent working
How well a machine or worker performs compared to a How well a machine or worker performs compared to a
15 15--811 811
How well a machine or worker performs compared to a How well a machine or worker performs compared to a
standard output level standard output level
Load Load
Standard hours of work assigned to a facility Standard hours of work assigned to a facility
Load Percent Load Percent
Ratio of load to capacity Ratio of load to capacity
Load Percent = x 100%
load
capacity
Load Profiles Load Profiles
graphical comparison of load versus graphical comparison of load versus
capacity capacity
Leveling underloaded conditions: Leveling underloaded conditions:
15 15--812 812
Leveling underloaded conditions: Leveling underloaded conditions:
Acquire more work Acquire more work
Pull work ahead that is scheduled for later Pull work ahead that is scheduled for later
time periods time periods
Reduce normal capacity Reduce normal capacity
Reducing Over Reducing Over--load Conditions load Conditions
1. Eliminating unnecessary requirements
2. Rerouting jobs to alternative machines,
workers, or work centers
3. Splitting lots between two or more machines
15 15--813 813
3. Splitting lots between two or more machines
4. Increasing normal capacity
5. Subcontracting
6. Increasing efficiency of the operation
7. Pushing work back to later time periods
8. Revising master schedule
Initial Load Profile Initial Load Profile
H
o
u
r
s

o
f

c
a
p
a
c
i
t
y
H
o
u
r
s

o
f

c
a
p
a
c
i
t
y
120 120
110 110
100 100
90 90
80 80
70 70
15 15--814 814
H
o
u
r
s

o
f

c
a
p
a
c
i
t
y
H
o
u
r
s

o
f

c
a
p
a
c
i
t
y
11 22 33 44 55 66
Time (weeks) Time (weeks)
Normal Normal
capacity capacity
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
Adjusted Load Profile Adjusted Load Profile
H
o
u
r
s

o
f

c
a
p
a
c
i
t
y
H
o
u
r
s

o
f

c
a
p
a
c
i
t
y
120 120
110 110
100 100
90 90
80 80
70 70
60 60
Pull ahead Pull ahead
Push back Push back
Work
an
extra
15 15--815 815
H
o
u
r
s

o
f

c
a
p
a
c
i
t
y
H
o
u
r
s

o
f

c
a
p
a
c
i
t
y
11 22 33 44 55 66
Time (weeks) Time (weeks)
Normal Normal
capacity capacity
50 50
40 40
30 30
20 20
10 10
0 0
Pull ahead Pull ahead
Push back Push back
Push back Push back
Overtime
extra
shift
Load leveling Load leveling
process of balancing underloads and overloads process of balancing underloads and overloads
Relaxing MRP Assumptions Relaxing MRP Assumptions
Material is not always the most constraining
resource
Lead times can vary
15 15--816 816
Not every transaction needs to be recorded
Shop floor may require a more sophisticated
scheduling system
Scheduling in advance may not be appropriate
for on-demand production.
Enterprise Resource Planning
(ERP)
Software that organizes and manages
a companys business processes by
sharing information across functional
15 15--817 817
sharing information across functional
areas
integrating business processes
facilitating customer interaction
providing benefit to global companies
Organizational Data Flows
15 15--818 818
Source: Adapted from Joseph Brady, Ellen Monk, and Bret Wagner, Concepts in
Enterprise Resource Planning (Boston: Course Technology, 2001), pp. 712
ERPs Central Database ERPs Central Database
15 15--819 819
Selected Enterprise Software
Vendors
15 15--820 820
ERP Implementation
Analyze business processes
Choose modules to implement
Which processes have the biggest impact on Which processes have the biggest impact on
customer relations? customer relations?
15 15--821 821
customer relations? customer relations?
Which process would benefit the most from Which process would benefit the most from
integration? integration?
Which processes should be standardized? Which processes should be standardized?
Align level of sophistication
Finalize delivery and access
Link with external partners
Customer Relationship
Management (CRM)
Software that Software that
Plans and executes business processes Plans and executes business processes
Involves customer interaction Involves customer interaction
15 15--822 822
Involves customer interaction Involves customer interaction
Changes focus from managing products to Changes focus from managing products to
managing customers managing customers
Analyzes point Analyzes point--of of--sale data for patterns sale data for patterns
used to predict future behavior used to predict future behavior
Software that plans and executes business Software that plans and executes business
processes related to supply chains processes related to supply chains
Includes Includes
15 15--823 823
Includes Includes
Supply chain planning Supply chain planning
Supply chain execution Supply chain execution
Supplier relationship management Supplier relationship management
Distinctions between ERP and SCM are Distinctions between ERP and SCM are
becoming increasingly blurred becoming increasingly blurred
Product Lifecycle Management Product Lifecycle Management
(PLM) (PLM)
Software that
Incorporates new product design and Incorporates new product design and
development and product life cycle development and product life cycle
15 15--824 824
development and product life cycle development and product life cycle
management management
Integrates customers and suppliers in the Integrates customers and suppliers in the
design process though the entire product life design process though the entire product life
cycle cycle
ERP and Software Systems
15 15--825 825
Connectivity Connectivity
Application programming interfaces (APIs) Application programming interfaces (APIs)
give other programs well give other programs well--defined ways of speaking to defined ways of speaking to
them them
Enterprise Application Integration (EAI) solutions Enterprise Application Integration (EAI) solutions
15 15--826 826
Enterprise Application Integration (EAI) solutions Enterprise Application Integration (EAI) solutions
EDI is being replaced by XML, business EDI is being replaced by XML, business
language of Internet language of Internet
Service Service--oriented architecture (SOA) oriented architecture (SOA)
collection of services that communicate with each collection of services that communicate with each
other within software or between software other within software or between software
Lean Systems Lean Systems
Basic Elements of Lean Production
Benefits of Lean Production
Implementing Lean Production
16 16--828 828
Lean Services
Leaning the Supply Chain
Lean Six Sigma
Lean and the Environment
Lean Consumption
Lean Production
Doing more with less inventory, fewer
workers, less space
Just-in-time (JIT)
smoothing the flow of material to arrive
16 16--829 829
smoothing the flow of material to arrive
just as it is needed
JIT and Lean Production are used
interchangeably
Muda
waste, anything other than that which
adds value to product or service
Waste in Operations Waste in Operations
16 16--830 830
Waste in Operations (cont.) Waste in Operations (cont.)
16 16--831 831
Waste in Operations (cont.) Waste in Operations (cont.)
16 16--832 832
Basic Elements Basic Elements
1. Flexible resources
2. Cellular layouts
3. Pull system
4. Kanbans
16 16--833 833
4. Kanbans
5. Small lots
6. Quick setups
7. Uniform production levels
8. Quality at the source
9. Total productive
maintenance
10. Supplier networks
Flexible Resources
Multifunctional workers
perform more than one job
general-purpose machines perform
several basic functions
16 16--834 834
several basic functions
Cycle time
time required for the worker to complete
one pass through the operations
assigned
Takt time
paces production to customer demand
Standard Operating
Routine for a Worker
16 16--835 835
Cellular Layouts
Manufacturing cells
comprised of dissimilar machines brought
together to manufacture a family of parts
16 16--836 836
together to manufacture a family of parts
Cycle time is adjusted to match takt time
by changing worker paths
Cells with Worker Routes
16 16--837 837
Worker Routes Lengthen as
Volume Decreases
16 16--838 838
Pull System
Material is pulled through the system when Material is pulled through the system when
needed needed
Reversal of traditional push system where Reversal of traditional push system where
material is pushed according to a schedule material is pushed according to a schedule
16 16--839 839
material is pushed according to a schedule material is pushed according to a schedule
Forces cooperation Forces cooperation
Prevent over and underproduction Prevent over and underproduction
While push systems rely on a predetermined While push systems rely on a predetermined
schedule, pull systems rely on customer schedule, pull systems rely on customer
requests requests
Kanbans Kanbans
Card which indicates standard quantity Card which indicates standard quantity
of production of production
Derived from two Derived from two--bin inventory system bin inventory system
16 16--840 840
Derived from two Derived from two--bin inventory system bin inventory system
Maintain discipline of pull production Maintain discipline of pull production
Authorize production and movement of Authorize production and movement of
goods goods
Sample Kanban Sample Kanban
16 16--841 841
Origin of Kanban Origin of Kanban
a) Two a) Two--bin inventory system bin inventory system b) Kanban inventory system b) Kanban inventory system
Bin 1 Bin 1
Bin 2 Bin 2
Kanban Kanban
16 16--842 842
Reorder Reorder
card card
Q - R
R R
QQ = order quantity = order quantity
RR = reorder point = reorder point -- demand during lead time demand during lead time
Types of Kanban Types of Kanban
Production kanban
authorizes production of
goods
Withdrawal kanban
Signal kanban
a triangular kanban
used to signal
production at the
16 16--843 843
Withdrawal kanban
authorizes movement of
goods
Kanban square
a marked area designated
to hold items
production at the
previous workstation
Material kanban
used to order material in
advance of a process
Supplier kanban
rotates between the
factory and suppliers
16 16--844 844
16 16--845 845
16 16--846 846
Determining Number of Determining Number of
Kanbans Kanbans
No. of Kanbans = No. of Kanbans =
average demand during lead time + safety stock average demand during lead time + safety stock
container size container size
dL dL + + SS
16 16--847 847
where where
NN = number of kanbans or containers = number of kanbans or containers
d d = average demand over some time period = average demand over some time period
LL = lead time to replenish an order = lead time to replenish an order
SS = safety stock = safety stock
CC = container size = container size
NN ==
dL dL + + SS
CC
Determining Number of Determining Number of
Kanbans: Example Kanbans: Example
dd = 150 bottles per hour = 150 bottles per hour
LL = 30 minutes = 0.5 hours = 30 minutes = 0.5 hours
SS = 0.10(150 x 0.5) = 7.5 = 0.10(150 x 0.5) = 7.5
CC = 25 bottles = 25 bottles
16 16--848 848
Round up to 4 (to allow some slack) or Round up to 4 (to allow some slack) or
down to 3 (to force improvement) down to 3 (to force improvement)
NN = = = =
= = 3.3 kanbans or containers = = 3.3 kanbans or containers
dL dL + + SS
CC
(150 x 0.5) + 7.5 (150 x 0.5) + 7.5
25 25
75 + 7.5 75 + 7.5
25 25
Small Lots Small Lots
Require less space and capital Require less space and capital
investment investment
Move processes closer together Move processes closer together
16 16--849 849
Move processes closer together Move processes closer together
Make quality problems easier to Make quality problems easier to
detect detect
Make processes more dependent Make processes more dependent
on each other on each other
Inventory Hides Problems Inventory Hides Problems
16 16--850 850
Less Inventory Exposes Problems Less Inventory Exposes Problems
16 16--851 851
Components of Lead Time Components of Lead Time
Processing time Processing time
Reduce number of items or improve efficiency Reduce number of items or improve efficiency
Move time Move time
16 16--852 852
Move time Move time
Reduce distances, simplify movements, standardize Reduce distances, simplify movements, standardize
routings routings
Waiting time Waiting time
Better scheduling, sufficient capacity Better scheduling, sufficient capacity
Setup time Setup time
Generally the biggest bottleneck Generally the biggest bottleneck
Quick Setups Quick Setups
Internal setup Internal setup
Can be performed Can be performed
only when a only when a
SMED Principles SMED Principles
Separate internal setup from Separate internal setup from
external setup external setup
Convert internal setup to external Convert internal setup to external
16 16--853 853
only when a only when a
process is stopped process is stopped
External setup External setup
Can be performed Can be performed
in advance in advance
Convert internal setup to external Convert internal setup to external
setup setup
Streamline all aspects of setup Streamline all aspects of setup
Perform setup activities in Perform setup activities in
parallel or eliminate them entirely parallel or eliminate them entirely
Common Techniques for Reducing Common Techniques for Reducing
Setup Time Setup Time
16 16--854 854
Setup Time (cont.) Setup Time (cont.)
16 16--855 855
Setup Time (cont.) Setup Time (cont.)
16 16--856 856
Uniform Production Levels
Result from smoothing production Result from smoothing production
requirements on final assembly line requirements on final assembly line
Kanban systems can handle +/ Kanban systems can handle +/-- 10% 10%
demand changes demand changes
16 16--857 857
demand changes demand changes
Reduce variability with more accurate Reduce variability with more accurate
forecasts forecasts
Smooth demand across planning Smooth demand across planning
horizon horizon
Mixed Mixed--model assembly steadies model assembly steadies
component production component production
Mixed Mixed--Model Sequencing Model Sequencing
16 16--858 858
Quality at the Source
Visual control
makes problems visible
Poka-yokes
Jidoka
authority to stop the
production line
Andons
16 16--859 859
Poka-yokes
prevent defects from
occurring
Kaizen
a system of continuous
improvement; change for
the good of all
Andons
call lights that signal
quality problems
Under-capacity
scheduling
leaves time for planning,
problem solving, and
maintenance
Examples of Visual Examples of Visual
Control Control
16 16--860 860
Control (cont.) Control (cont.)
16 16--861 861
Control (cont.) Control (cont.)
16 16--862 862
5 Whys 5 Whys
One of the keys to an effective Kaizen is One of the keys to an effective Kaizen is
finding the root cause of a problem and finding the root cause of a problem and
eliminating it eliminating it
16 16--863 863
eliminating it eliminating it
A practice of asking why? repeatedly A practice of asking why? repeatedly
until the underlying cause is identified until the underlying cause is identified
(usually requiring five questions) (usually requiring five questions)
Simple, yet powerful technique for finding Simple, yet powerful technique for finding
the root cause of a problem the root cause of a problem
Total Productive Total Productive
Maintenance (TPM) Maintenance (TPM)
Breakdown maintenance Breakdown maintenance
Repairs to make failed machine operational Repairs to make failed machine operational
Preventive maintenance Preventive maintenance
16 16--864 864
Preventive maintenance Preventive maintenance
System of periodic inspection and System of periodic inspection and
maintenance to keep machines operating maintenance to keep machines operating
TPM combines preventive maintenance TPM combines preventive maintenance
and total quality concepts and total quality concepts
TPM Requirements TPM Requirements
Design products that can be easily produced Design products that can be easily produced
on existing machines on existing machines
Design machines for easier operation, Design machines for easier operation,
changeover, maintenance changeover, maintenance
16 16--865 865
changeover, maintenance changeover, maintenance
Train and retrain workers to operate machines Train and retrain workers to operate machines
Purchase machines that maximize productive Purchase machines that maximize productive
potential potential
Design preventive maintenance plan spanning Design preventive maintenance plan spanning
life of machine life of machine
Unneeded equipment, tools, furniture;
unneeded items on walls, bulletins; items
blocking aisles or stacked in corners;
unneeded inventory, supplies, parts; safety
hazards
Items not in their correct places; correct places
not obvious; aisles, workstations, & equipment
locations not indicated; items not put away
immediately after use
Floors, walls, stairs, equipment, & surfaces not
clean; cleaning materials not easily
accessible; lines, labels, signs broken or
Keep only what you
need
A place for
everything and
everything in its
place
Cleaning, and looking
for ways to keep
clean and organized
Seiri(sort)
Seiton(set in order)
Seisou (shine)
5S Scan Goal Eliminate or Correct
16 16--866 866
accessible; lines, labels, signs broken or
unclean; other cleaning problems
Necessary information not visible; standards
not known; checklists missing; quantities and
limits not easily recognizable; items cant be
located within 30 seconds
Number of workers without 5S training; number
of daily 5S inspections not performed; number
of personal items not stored; number of times
job aids not available or up-to-date
clean and organized
Maintaining and
monitoring the first
three categories
Sticking to the rules
Seiketsu
(standardize)
Shisuke (sustain)
Supplier Networks
Long-term supplier contracts
Synchronized production
Supplier certification
16 16--867 867
Supplier certification
Mixed loads and frequent deliveries
Precise delivery schedules
Standardized, sequenced delivery
Locating in close proximity to the customer
Benefits of Lean
Production
Reduced inventory
Improved quality
Lower costs
16 16--868 868
Lower costs
Reduced space requirements
Shorter lead time
Increased productivity
Benefits of Lean
Production (cont.)
Greater flexibility
Better relations with suppliers
Simplified scheduling and control activities
16 16--869 869
Simplified scheduling and control activities
Increased capacity
Better use of human resources
More product variety
Use lean production to finely tune an Use lean production to finely tune an
operating system operating system
16 16--870 870
operating system operating system
Somewhat different in USA than Japan Somewhat different in USA than Japan
Lean production is still evolving Lean production is still evolving
Lean production is not for everyone Lean production is not for everyone
Lean Services Lean Services
Basic elements of lean
production apply equally to
services
16 16--871 871
services
Most prevalent applications
lean retailing
lean banking
lean health care
Leaning the Supply Chain Leaning the Supply Chain
pulling a smooth flow of material through a pulling a smooth flow of material through a
series of suppliers to support frequent series of suppliers to support frequent
replenishment orders and changes in customer replenishment orders and changes in customer
demand demand
16 16--872 872
demand demand
Firms need to share information and Firms need to share information and
coordinate demand forecasts, production coordinate demand forecasts, production
planning, and inventory replenishment with planning, and inventory replenishment with
suppliers and suppliers suppliers throughout suppliers and suppliers suppliers throughout
supply chain supply chain
Leaning the Supply Chain (cont.) Leaning the Supply Chain (cont.)
Steps in Leaning the Supply Chain: Steps in Leaning the Supply Chain:
Build a highly collaborative business Build a highly collaborative business
environment environment
16 16--873 873
environment environment
Adopt the technology to support your Adopt the technology to support your
system system
Lean Six Sigma Lean Six Sigma
Lean and Six Sigma are natural partners for Lean and Six Sigma are natural partners for
process improvement process improvement
Lean Lean
16 16--874 874
Lean Lean
Eliminates waste and creates flow Eliminates waste and creates flow
More continuous improvement More continuous improvement
Six Sigma Six Sigma
Reduces variability and enhances process Reduces variability and enhances process
capabilities capabilities
Requires breakthrough improvements Requires breakthrough improvements
Lean and the Environment Lean and the Environment
Leans mandate to eliminate waste and Leans mandate to eliminate waste and
operate only with those resources that operate only with those resources that
are absolutely necessary aligns well with are absolutely necessary aligns well with
16 16--875 875
are absolutely necessary aligns well with are absolutely necessary aligns well with
environmental initiatives environmental initiatives
Environmental waste is often an indicator Environmental waste is often an indicator
of poor process design and inefficient of poor process design and inefficient
production production
EPA Recommendations EPA Recommendations
Commit to eliminate environmental waste through lean Commit to eliminate environmental waste through lean
implementation implementation
Recognize new improvement opportunities by Recognize new improvement opportunities by
incorporating environmental, heath and safety (EHS) incorporating environmental, heath and safety (EHS)
16 16--876 876
incorporating environmental, heath and safety (EHS) incorporating environmental, heath and safety (EHS)
icons and data into value stream maps icons and data into value stream maps
Involve staff with EHS expertise in planning Involve staff with EHS expertise in planning
Find and drive out environmental wastes in specific Find and drive out environmental wastes in specific
process by using lean process process by using lean process--improvement tools improvement tools
Empower and enable workers to eliminate Empower and enable workers to eliminate
environmental wastes in their work areas environmental wastes in their work areas
Lean Consumption Lean Consumption
Consumptions process involves locating, Consumptions process involves locating,
buying, installing, using, maintaining, repairing, buying, installing, using, maintaining, repairing,
and recycling. and recycling.
16 16--877 877
Lean Consumption seeks to: Lean Consumption seeks to:
Provide customers what they want, where and Provide customers what they want, where and
when they want it when they want it
Resolve customer problems quickly and completely Resolve customer problems quickly and completely
Reduce the number of problems customers need to Reduce the number of problems customers need to
solve solve
Scheduling Scheduling
Objectives in Scheduling
Loading
Sequencing
17 17--879 879
Sequencing
Monitoring
Advanced Planning and Scheduling Systems
Theory of Constraints
Employee Scheduling
What is Scheduling? What is Scheduling?
Last stage of planning before production Last stage of planning before production
occurs occurs
Specifies Specifies when when labor, equipment, and labor, equipment, and
17 17--880 880
Specifies Specifies when when labor, equipment, and labor, equipment, and
facilities are needed to produce a facilities are needed to produce a
product or provide a service product or provide a service
Scheduled Operations Scheduled Operations
Process Industry Process Industry
Linear programming Linear programming
EOQ with non EOQ with non--instantaneous instantaneous
replenishment replenishment
Batch Production Batch Production
Aggregate planning Aggregate planning
Master scheduling Master scheduling
17 17--881 881
Mass Production Mass Production
Assembly line balancing Assembly line balancing
Project Project
Project Project --scheduling scheduling
techniques (PERT, CPM) techniques (PERT, CPM)
Material requirements Material requirements
planning (MRP) planning (MRP)
Capacity requirements Capacity requirements
planning (CRP) planning (CRP)
Objectives in Scheduling Objectives in Scheduling
Meet customer due Meet customer due
dates dates
Minimize job lateness Minimize job lateness
Minimize overtime Minimize overtime
Maximize machine or Maximize machine or
labor utilization labor utilization
17 17--882 882
Minimize response time Minimize response time
Minimize completion Minimize completion
time time
Minimize time in the Minimize time in the
system system
Minimize idle time Minimize idle time
Minimize work Minimize work--in in--
process inventory process inventory
Shop Floor Control (SFC) Shop Floor Control (SFC)
scheduling and monitoring of day scheduling and monitoring of day--to to--day production day production
in a job shop in a job shop
also called also called production control production control and and production production
activity control activity control (PAC) (PAC)
17 17--883 883
activity control activity control (PAC) (PAC)
usually performed by production control department usually performed by production control department
Loading Loading
Check availability of material, machines, and labor Check availability of material, machines, and labor
Sequencing Sequencing
Release work orders to shop and issue dispatch lists for Release work orders to shop and issue dispatch lists for
individual machines individual machines
Monitoring Monitoring
Maintain progress reports on each job until it is complete Maintain progress reports on each job until it is complete
Loading Loading
Process of assigning work to limited Process of assigning work to limited
resources resources
Perform work with most efficient Perform work with most efficient
17 17--884 884
Perform work with most efficient Perform work with most efficient
resources resources
Use assignment method of linear Use assignment method of linear
programming to determine allocation programming to determine allocation
Assignment Method Assignment Method
1. 1. Perform row reductions Perform row reductions
subtract minimum value in each subtract minimum value in each
row from all other row values row from all other row values
2. 2. Perform column reductions Perform column reductions
4. 4. If number of lines equals number If number of lines equals number
of rows in matrix, then optimum of rows in matrix, then optimum
solution has been found. Make solution has been found. Make
assignments where zeros appear assignments where zeros appear
17 17--885 885
2. 2. Perform column reductions Perform column reductions
subtract minimum value in each subtract minimum value in each
column from all other column column from all other column
values values
3. 3. Cross out all zeros in matrix Cross out all zeros in matrix
use minimum number of use minimum number of
horizontal and vertical lines horizontal and vertical lines
Else modify matrix Else modify matrix
subtract minimum uncrossed value subtract minimum uncrossed value
from all uncrossed values from all uncrossed values
add it to all cells where two lines add it to all cells where two lines
intersect intersect
other values in matrix remain other values in matrix remain
unchanged unchanged
5. 5. Repeat steps 3 and 4 until Repeat steps 3 and 4 until
optimum solution is reached optimum solution is reached
Assignment Method: Example Assignment Method: Example
Initial PROJECT Initial PROJECT
Matrix Matrix 11 22 33 44
Bryan Bryan 10 10 55 66 10 10
Kari Kari 66 22 44 66
Noah Noah 77 66 55 66
Chris Chris 99 55 44 10 10
17 17--886 886
Row reduction Row reduction Column reduction Column reduction Cover all zeros Cover all zeros
5 5 0 0 11 55 33 00 11 44 33 0 1 44
4 4 0 0 22 44 22 00 22 33 22 0 2 33
2 2 1 1 00 11 00 11 00 00 0 1 0 0
5 5 1 1 00 66 33 11 00 55 33 1 0 55
Number lines Number lines number of rows so modify matrix number of rows so modify matrix
Chris Chris 99 55 44 10 10
Assignment Method: Example (cont.) Assignment Method: Example (cont.)
Modify matrix Modify matrix Cover all zeros Cover all zeros
11 00 11 22 1 0 1 2
00 00 22 11 0 0 2 1
00 33 22 00 0 3 2 0
11 11 00 33 1 1 0 3
Number of lines = number of rows so at optimal solution Number of lines = number of rows so at optimal solution
17 17--887 887
11 22 33 44
Bryan Bryan 11 00 11 22
Kari Kari 0 0 00 22 11
Noah Noah 00 33 22 00
Chris Chris 11 11 00 33
PROJECT PROJECT
11 22 33 44
Bryan Bryan 10 10 5 66 10 10
Kari Kari 6 22 44 66
Noah Noah 77 66 55 6
Chris Chris 99 55 4 10 10
PROJECT PROJECT
Project Cost = (5 + 6 + 4 + 6) X $100 = $2,100 Project Cost = (5 + 6 + 4 + 6) X $100 = $2,100
Sequencing Sequencing
Prioritize jobs assigned to a resource
If no order specified use first-come first-served (FCFS)
Other Sequencing Rules
FCFS - first-come, first-served
17 17--888 888
FCFS - first-come, first-served
LCFS - last come, first served
DDATE - earliest due date
CUSTPR - highest customer priority
SETUP - similar required setups
SLACK - smallest slack
CR - smallest critical ratio
SPT - shortest processing time
LPT - longest processing time
Minimum Slack and Minimum Slack and
Smallest Critical Ratio Smallest Critical Ratio
SLACK considers both work and time remaining SLACK considers both work and time remaining
CR recalculates sequence as processing CR recalculates sequence as processing
SLACK = (due date SLACK = (due date todays date) todays date) (processing time) (processing time)
17 17--889 889
CR = = CR = =
If CR > 1, job ahead of schedule If CR > 1, job ahead of schedule
If CR < 1, job behind schedule If CR < 1, job behind schedule
If CR = 1, job on schedule If CR = 1, job on schedule
time remaining time remaining due date due date -- todays date todays date
work remaining work remaining remaining processing time remaining processing time
CR recalculates sequence as processing CR recalculates sequence as processing
continues and arranges information in ratio form continues and arranges information in ratio form
Sequencing Jobs through One Process Sequencing Jobs through One Process
Flow time (completion time) Flow time (completion time)
Time for a job to flow through system Time for a job to flow through system
Makespan Makespan
17 17--890 890
Makespan Makespan
Time for a group of jobs to be completed Time for a group of jobs to be completed
Tardiness Tardiness
Difference between a late jobs due date Difference between a late jobs due date
and its completion time and its completion time
Simple Sequencing Rules Simple Sequencing Rules
PROCESSING PROCESSING DUE DUE
JOB JOB TIME TIME DATE DATE
AA 55 10 10
17 17--891 891
AA 55 10 10
BB 10 10 15 15
CC 22 55
DD 88 12 12
EE 66 88
Simple Sequencing Simple Sequencing
Rules: FCFS Rules: FCFS
A A 00 55 55 10 10 00
FCFS FCFS START START PROCESSING PROCESSING COMPLETION COMPLETION DUE DUE
SEQUENCE SEQUENCE TIME TIME TIME TIME TIME TIME DATE DATE TARDINESS TARDINESS
17 17--892 892
A A 00 55 55 10 10 00
B B 55 10 10 15 15 15 15 00
C C 15 15 22 17 17 55 12 12
D D 17 17 88 25 25 12 12 13 13
EE 25 25 66 31 31 88 23 23
Total Total 93 93 48 48
Average Average 93/5 = 18.60 93/5 = 18.60 48/5 = 9.6 48/5 = 9.6
Rules: DDATE Rules: DDATE
C C 00 22 22 55 00
EE 22 66 88 88 00
DDATE DDATE START START PROCESSING PROCESSING COMPLETION COMPLETION DUE DUE
17 17--893 893
EE 22 66 88 88 00
A A 88 55 13 13 10 10 33
D D 13 13 88 21 21 12 12 99
B B 21 21 10 10 31 31 15 15 16 16
Average Average 75/5 = 15.00 75/5 = 15.00 28/5 = 5.6 28/5 = 5.6
A(10-0) 5 = 5
B(15-0) 10 = 5
C(5-0) 2 = 3
D(12-0) 8 = 4
E(8-0) 6 = 2
Rules: SLACK Rules: SLACK
SLACK SLACK START START PROCESSING PROCESSING COMPLETION COMPLETION DUE DUE
17 17--894 894
EE 00 66 66 88 00
CC 66 22 88 55 33
DD 88 88 16 16 12 12 44
AA 16 16 55 21 21 10 10 11 11
BB 21 21 10 10 31 31 15 15 16 16
Average Average 82/5 = 16.40 34/5 = 6.8 82/5 = 16.40 34/5 = 6.8
Rules: SPT Rules: SPT
SPT SPT START START PROCESSING PROCESSING COMPLETION COMPLETION DUE DUE
17 17--895 895
C C 00 22 22 55 00
A A 22 55 77 10 10 00
EE 77 66 13 13 88 55
D D 13 13 88 21 21 12 12 99
B B 21 21 10 10 31 31 15 15 16 16
Average Average 74/5 = 14.80 74/5 = 14.80 30/5 = 6 30/5 = 6
Rules: Summary Rules: Summary
FCFS FCFS 18.60 18.60 9.6 9.6 3 23 23
DDATE DDATE 15.00 15.00 5.6 3 16
AVERAGE AVERAGE AVERAGE AVERAGE NO. OF NO. OF MAXIMUM MAXIMUM
RULE RULE COMPLETION TIME COMPLETION TIME TARDINESS TARDINESS JOBS TARDY JOBS TARDY TARDINESS TARDINESS
17 17--896 896
DDATE DDATE 15.00 15.00 5.6 3 16
SLACK SLACK 16.40 16.40 6.8 6.8 44 16 16
SPT SPT 14.80 6.0 6.0 3 16
Sequencing Jobs Through Sequencing Jobs Through
Two Serial Process Two Serial Process
Johnsons Rule Johnsons Rule
1. 1. List time required to process each job at each machine. List time required to process each job at each machine.
Set up a one Set up a one--dimensional matrix to represent desired dimensional matrix to represent desired
sequence with # of slots equal to # of jobs. sequence with # of slots equal to # of jobs.
2. 2. Select smallest processing time at either machine. If Select smallest processing time at either machine. If
17 17--897 897
2. 2. Select smallest processing time at either machine. If Select smallest processing time at either machine. If
that time is on machine 1, put the job as near to that time is on machine 1, put the job as near to
beginning of sequence as possible. beginning of sequence as possible.
3. 3. If smallest time occurs on machine 2, put the job as If smallest time occurs on machine 2, put the job as
near to the end of the sequence as possible. near to the end of the sequence as possible.
4. 4. Remove job from list. Remove job from list.
5. 5. Repeat steps 2 Repeat steps 2--4 until all slots in matrix are filled and all 4 until all slots in matrix are filled and all
jobs are sequenced. jobs are sequenced.
Johnsons Rule Johnsons Rule
JOB JOB PROCESS 1 PROCESS 1 PROCESS 2 PROCESS 2
A A 66 88
B B 11 11 66
CC 77 33
17 17--898 898
CC 77 33
DD 99 77
EE 55 10 10
C E A B
D
Johnsons Rule (cont.) Johnsons Rule (cont.)
A B C D E
E A D B C
Process 1 Process 1
(sanding) (sanding)
17 17--899 899
E A D B C
Process 1 Process 1
(sanding) (sanding)
55 11 11 20 20 31 31 38 38
E A D B C
Process 2 Process 2
(painting) (painting)
55 15 15 23 23 30 30 37 37 41 41
Idle time Idle time
Completion time = 41
Idle time = 5+1+1+3=10
Guidelines for Selecting a Guidelines for Selecting a
Sequencing Rule Sequencing Rule
1. 1. SPT most useful when shop is highly congested SPT most useful when shop is highly congested
2. 2. Use SLACK for periods of normal activity Use SLACK for periods of normal activity
3. 3. Use DDATE when only small tardiness values can Use DDATE when only small tardiness values can
17 17--900 900
3. 3. Use DDATE when only small tardiness values can Use DDATE when only small tardiness values can
be tolerated be tolerated
4. 4. Use LPT if subcontracting is anticipated Use LPT if subcontracting is anticipated
5. 5. Use FCFS when operating at low Use FCFS when operating at low--capacity levels capacity levels
6. 6. Do not use SPT to sequence jobs that have to be Do not use SPT to sequence jobs that have to be
assembled with other jobs at a later date assembled with other jobs at a later date
Monitoring Monitoring
Work package Work package
Shop paperwork that travels with a job Shop paperwork that travels with a job
Gantt Chart Gantt Chart
17 17--901 901
Shows both planned and completed Shows both planned and completed
activities against a time scale activities against a time scale
Input/Output Control Input/Output Control
Monitors the input and output from each Monitors the input and output from each
work center work center
22
33
Job 32B Job 32B
Job 23C Job 23C
F
a
c
i
l
i
t
y
F
a
c
i
l
i
t
y
Behind schedule Behind schedule
Ahead of schedule Ahead of schedule
17 17--902 902
11 22 33 44 55 66 88 99
10 10
11 11 12 12 Days Days
11
Todays Date Todays Date
Job 11C Job 11C Job 12A Job 12A
F
a
c
i
l
i
t
y
F
a
c
i
l
i
t
y
Key: Key: Planned activity Planned activity
Completed activity Completed activity
On schedule On schedule
Input/Output Control Input/Output Control
Input/Output Report Input/Output Report
Planned input Planned input 65 65 65 65 70 70 70 70 270 270
Actual input Actual input 0 0
PERIOD PERIOD 11 22 3 3 4 4 TOTAL TOTAL
17 17--903 903
Deviation Deviation 0 0
Planned output Planned output 75 75 75 75 75 75 75 75 300 300
Actual output Actual output 0 0
Deviation Deviation 0 0
Backlog Backlog 30 30
20 10 5 0 20 10 5 0
Input/Output Report Input/Output Report
Planned input Planned input 65 65 65 65 70 70 70 70 270 270
Actual input Actual input 60 60 60 60 65 65 65 65 250 250
PERIOD PERIOD 11 22 3 3 4 4 TOTAL TOTAL
Input/Output Control (cont.) Input/Output Control (cont.)
17 17--904 904
Deviation Deviation --55 --55 --5 5 --5 5 --20 20
Planned output Planned output 75 75 75 75 75 75 75 75 300 300
Actual output Actual output 75 75 75 75 65 65 65 65 280 280
Deviation Deviation --00 --00 --10 10 --10 10 --20 20
Backlog Backlog 30 30 15 15 0 0 0 0 0 0
Advanced Planning and Advanced Planning and
Scheduling Systems Scheduling Systems
Infinite Infinite -- assumes infinite capacity assumes infinite capacity
Loads without regard to capacity Loads without regard to capacity
Then levels the load and sequences jobs Then levels the load and sequences jobs
17 17--905 905
Then levels the load and sequences jobs Then levels the load and sequences jobs
Finite Finite -- assumes finite (limited) capacity assumes finite (limited) capacity
Sequences jobs as part of the loading Sequences jobs as part of the loading
decision decision
Resources are never loaded beyond Resources are never loaded beyond
capacity capacity
Advanced Planning and Advanced Planning and
Scheduling Systems (cont.) Scheduling Systems (cont.)
Advanced planning and scheduling (APS) Advanced planning and scheduling (APS)
Add Add--ins to ERP systems ins to ERP systems
Constraint Constraint--based programming (CBP) identifies a based programming (CBP) identifies a
17 17--906 906
Constraint Constraint--based programming (CBP) identifies a based programming (CBP) identifies a
solution space and evaluates alternatives solution space and evaluates alternatives
Genetic algorithms based on natural selection Genetic algorithms based on natural selection
properties of genetics properties of genetics
Manufacturing execution system (MES) monitors Manufacturing execution system (MES) monitors
status, usage, availability, quality status, usage, availability, quality
Theory of Constraints Theory of Constraints
Not all resources are used evenly Not all resources are used evenly
17 17--907 907
Not all resources are used evenly Not all resources are used evenly
Concentrate on the bottleneck resource Concentrate on the bottleneck resource
Synchronize flow through the bottleneck Synchronize flow through the bottleneck
Use process and transfer batch sizes to Use process and transfer batch sizes to
move product through facility move product through facility
Drum-Buffer-Rope
Drum Drum
Bottleneck, beating to set the pace of production for Bottleneck, beating to set the pace of production for
the rest of the system the rest of the system
Buffer Buffer
17 17--908 908
Buffer Buffer
Inventory placed in front of the bottleneck to ensure Inventory placed in front of the bottleneck to ensure
it is always kept busy it is always kept busy
Determines output or throughput of the system Determines output or throughput of the system
Rope Rope
Communication signal; tells processes upstream Communication signal; tells processes upstream
when they should begin production when they should begin production
TOC Scheduling Procedure
Identify bottleneck
Schedule job first whose lead time to
bottleneck is less than or equal to
bottleneck processing time
17 17--909 909
bottleneck processing time
Forward schedule bottleneck machine
Backward schedule other machines to
sustain bottleneck schedule
Transfer in batch sizes smaller than
process batch size
B
A
C D
B3 B3 1 77 C3 C3 2 15 15
D3 D3 3 55
17 17--910 910
Synchronous Synchronous
Manufacturing Manufacturing
B1 B1 1 55
B2 B2 2 33
C1 C1 3 22
C2 C2 1 10 10
D1 D1 3 10 10
D2 D2 2 88
Operation Operation j j of item of item i i performed at performed at
machine center machine center kk takes takes l l minutes minutes
to process to process
Item Item ii Key: Key: i
ij ij k ll
Synchronous Synchronous
Manufacturing (cont.) Manufacturing (cont.)
Demand = 100 As Demand = 100 As
Machine setup time = 60 minutes Machine setup time = 60 minutes
MACHINE 1 MACHINE 1 MACHINE 2 MACHINE 2 MACHINE 3 MACHINE 3
17 17--911 911
MACHINE 1 MACHINE 1 MACHINE 2 MACHINE 2 MACHINE 3 MACHINE 3
B1 B1 55 B2 B2 33 C1 C1 22
B3 B3 77 C3 C3 15 15 D3 D3 55
C2 C2 10 10 D2 D2 88 D1 D1 10 10
Sum Sum 22 22 26* 26* 17 17
* Bottleneck * Bottleneck
Synchronous Manufacturing (cont.) Synchronous Manufacturing (cont.)
Machine 1
Setup
1002 2322
C2 B1 B3
Setup
Setup Setup
1562
Machine 2
Idle
2
17 17--912 912
Machine 3
Completion
time
12 2732
0 200 1260 1940
2737
C3 B2 D2
C1 D1 D3 Idle
Setup
1512 1872
Setup
Employee Scheduling Employee Scheduling
Labor is very flexible Labor is very flexible
resource resource
Scheduling workforce is Scheduling workforce is
17 17--913 913
complicated, repetitive complicated, repetitive
task task
Assignment method can Assignment method can
be used be used
Heuristics are commonly Heuristics are commonly
used used
Employee Scheduling Heuristic Employee Scheduling Heuristic
1. 1. Let Let N = no. of workers available N = no. of workers available
DD
ii
= demand for workers on day i = demand for workers on day i
X = day working X = day working
O = day off O = day off
2. 2. Assign the first N Assign the first N -- DD
11
workers day 1 off. Assign the next N workers day 1 off. Assign the next N -- D D
22
17 17--914 914
2. 2. Assign the first N Assign the first N -- DD
11
workers day 1 off. Assign the next N workers day 1 off. Assign the next N -- D D
22
workers day 2 off. Continue in a similar manner until all days are workers day 2 off. Continue in a similar manner until all days are
have been scheduled have been scheduled
3. 3. If number of workdays for full time employee < 5, assign If number of workdays for full time employee < 5, assign
remaining workdays so consecutive days off are possible remaining workdays so consecutive days off are possible
4. 4. Assign any remaining work to part Assign any remaining work to part--time employees time employees
5. 5. If consecutive days off are desired, consider switching schedules If consecutive days off are desired, consider switching schedules
among days with the same demand requirements among days with the same demand requirements
DAY OF WEEK DAY OF WEEK MM TT WW TH TH FF SA SA SU SU
MIN NO. OF MIN NO. OF
WORKERS REQUIRED WORKERS REQUIRED 33 33 44 33 44 55 33
Taylor Taylor
Smith Smith
Simpson Simpson
Employee Scheduling Employee Scheduling
17 17--915 915
Simpson Simpson
Allen Allen
Dickerson Dickerson
Taylor Taylor OO XX XX O O XX XX XX
Smith Smith OO XX XX O O XX XX XX
Simpson Simpson XX OO XX XX O O XX XX
Employee Scheduling (cont.) Employee Scheduling (cont.)
17 17--916 916
Simpson Simpson XX OO XX XX O O XX XX
Allen Allen XX OO XX XX XX XX O O
Dickerson Dickerson XX XX O O XX XX XX O O
Completed schedule satisfies requirements but has no Completed schedule satisfies requirements but has no
consecutive days off consecutive days off
Employee Scheduling (cont.) Employee Scheduling (cont.)
Taylor Taylor OO OO XX XX XX XX XX
Smith Smith OO OO XX XX XX XX XX
Simpson Simpson XX XX O O O O XX XX XX
17 17--917 917
Simpson Simpson XX XX O O O O XX XX XX
Allen Allen XX XX XX O O XX XX O O
Dickerson Dickerson XX XX XX XX O O XX O O
Revised schedule satisfies requirements with consecutive Revised schedule satisfies requirements with consecutive
days off for most employees days off for most employees
Automated Scheduling Systems
Staff Scheduling
Schedule Bidding
17 17--918 918
Schedule Bidding
Schedule
Optimization
www.bookfiesta4u.com www.bookfiesta4u.com
Thank You Thank You
22--919 919

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Chapter Chapter 11--17 17

EVPI EVPI== $1,060,000 $1,060,000 -- 865,000 = $195,000 865,000 = $195,000

Basic Single Basic Single--Server Model Server Model

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