BA 105 – You can do it!
CHAPTER 1 – INTRODUCTION
Production – creation of goods and services
Operations Management (OM) – activities that relate to the
creation of goods and services through the transformation of inputs
and outputs
- 40% of jobs are in OM
Functions in a Firm
 Marketing – generates demand
 Production/Operations – creates the product
 Finance/Accounting – tracks how well the organization is doing,
pays the bills and collects the money
Importance of OM
 Learn how people organize themselves for
enterprise
 Learn how goods and services are produced
 Understand what operations manager do
 OM is a costly part of an organization
Management Process – application of planning, organising, staffing
and leading, and controlling to achieve objectives.
Ten Major Decisions of Operation Managers
1. Design of goods and services
2. Managing quality
3. Process and capacity design
4. Location strategy
5. Layout strategy
6. Human resources, job design and work measurement
7. Supply-chain management
8. Inventory, material requirements planning, JIT
9. Intermediate and short-term scheduling
10. Maintenance
Significant events in OM
1. Early concepts (1776-1880)
 Labour specialisation (Smith, Babbage)
 Standardised parts (Whitney)
2. Scientific management (1880-1910)
 Gantt charts (Gantt)
 Motion and time studies (Gillbreth)
 Process analysis (Taylor)
 Queuing theory (Erlang)
3. Mass production (1910-1980)
 Assembly line (Ford/Sorensen)
 Statistical sampling (Shewhart
 Economic order quantity (Harris)
 Linear programming (Danzig)
 PERT/CPM (DuPont)
 Material requirements planning
4. Lean production (1980-1995)
 Just-in-time
 Computer aided design
 Electronic data interchange
 Total quality management
5. Mass customization (1995-present)
 Globalisation
 Internet/E-Commerce
 Enterprise resource planning
 International quality standards finite scheduling
 Supply chain management
 Mass customisation
 Built-to-order
 Sustainability
Operations in the service sector
Service – economic activities that produce intangible product
Service sector – segment of the economy that includes trade,
financial, lodging, education, legal, medical and other professional
occupations
Challenges of Operations Managers
- High ethical and social responsibility, increased legal
standards
- Global focus, international collaboration
- Rapid product development, design collaboration
- Environmentally sensitive production, green marketing,
sustainability
- Mass customization
- Empowered employees, enriched jobs
- Supply-chain partnering, joint ventures, alliances
- Just-in-time performance, lean, continuous performance
productive Productivity – ratio of outputs divided by one or more inputs
= products used / inputs used
Single-factor productivity – indicates the ratio of one resource to
the goods and services produced
Multifactor productivity (total factor productivity) – indicates the
ratio of many or all resources to the goods and services produced
= output / (labour + material + energy + capital + Miscellaneous)
Measurement Problems with Productivity
(1) Quality may change
(2) External elements
(3) Precise measurements may be lacking
Productivity Variables – critical to productivity measurement
 Labour 10%
 Capital 38%
 Management 52%
Knowledgeable Society – society in which much of the labour force
has migrated from manual work to work based on knowledge.
Ethical and Social Responsibility
(1) Efficiently developing and producing safe, quality products
(2) Maintaining a clean environment
(3) Providing a safe workplace
(4) Honouring stakeholder commitments
CHAPTER 2 – OPERATIONS STRATEGY AND GLOBALIZATION
Main reasons to go international
(1) Reduce cost
(2) Improve supply chain
(3) Provide better goods and services
(4) Understand the market better
(5) Learn to improve operations
(6) Attract and retain global talent
Mission – purpose or rationale for an organization’s existence
Strategy – how an organization expects to achieve its missions and
goal
Competitive Advantage – creation of a unique advantage over
competition
(1) Differentiation – distinguishing offerings
(2) Cost leadership – achieving maximum value
(3) Response – rapid, flexible and reliable performance
Resources View - view in which managers evaluate the resources
at their disposal and manage and alter them to achieve competitive
advantage
Value-chain Analysis – way to identify the elements in the
product/service chain that uniquely add value.
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 BA 105 – You can do it!

Five-forces Analysis (Porter’s Five Forces Model) – potential  Bias – forecast that is consistently higher or lower than
competing forces actual values of a time series
(1) Immediate rivals
(2) Potential entrants CHAPTER 5 – PRODUCT DESIGN
(3) Customers Product design – selection, definition and design of products
(4) Suppliers
(5) Substitute products Product-by-value analysis – list of products as well as their total
value contribution
Strategy Development
 SWOT Quality function deployment (QFD) – a process of determining
 Key success factors customer requirements and translating them into attributes that each
 Core competencies functional area can understand and act on
 Activity map
House of quality – quality function deployment process that utilizes
Global Operations Strategy Options a planning matrix to relate customer wants to how the firm will meet
 International strategy – penetration through exports and those wants
licenses – little local responsiveness and cost advantage
 Multidomestic strategy – operating decisions are Product development teams – teams charged with moving from
decentralised to each country to enhance local market requirements for a product to achieving product success
responsiveness – little cost advantage
 Global strategy – operating decisions are centralised and Concurrent Engineering – use of participating teams in design and
headquarters coordinates the standardisation and learning engineering activities
between facilities – little local responsiveness but
significant cost advantage Manufacturability and Value Engineering – activities that help
 Transnational strategy – combines the benefits of global improve a product’s design, production, maintainability and use.
scale efficiencies with the benefits of local
responsiveness. These firms transgress national Design techniques
boundaries.  Robust design – produced even in unfavourable
conditions
CHAPTER 4 – FORECASTING  Modular design – parts and components are subdivided
into modules that are easily changed or replaced
Forecasting – art and science of predicting future events  Computer Aided Design (CAD)
- Estimate of demand until actual demand is known  Design for manufacture and assembly (DFMA) – software
- Types to look at effects of design
o Economic forecasts  3-D object modelling – extension of CAD for small
o Technological forecasts prototypes
o Demand forecasts  Standard for the exchange of product data (STEP) –
format for allowing the electronic transmission of three-
Forecasting approaches dimensional data
 Quantitative – mathematical modelling
 Qualitative Virtual Reality – visual form of communication in which images
 Jury of executive opinion substitute for reality
 Delphi method – interactive group process
 Sales force composite – estimates of expected sales Value Analysis – review of successful products that takes place
 Consumer market survey during production process
 Time series
Sustainability – production system that supports conservation and
o Naïve approach
renewal of resources
o Moving averages
o Exponential smoothing
Life Cycle Assessment (LCA) – assesses the environmental
o Mean absolute deviation (MAD)
impact of a product from material and energy inputs
o Mean squared error (MSE)
o Mean absolute percent error (MAPE)
Time-based competition – competition based on time, rapidly
developing products and moving them to market
Trend Projection – time-series forecasting method that fits a trend
- Internally developed strategies
line to a series of historical data points then project the line into a the
o New internally developed products
future for forecasts
o Enhancements to existing
o Migration of existing
Seasonal Variation – regular upward and downward movements in
- External developed strategies
a time series that tie to recurring events
o Purchase technology or expertise by acquiring the
developer
Regression Analysis
o Establish joint ventures
 Linear-regression analysis
o Develop alliances
 Standard error of estimate
 Coefficient of correlation Defining a product
 Coefficient of determination  Engineering drawing
 Multiple regression  Bill of material
 Make-or-buy decision
Monitoring and controlling forecasts
 Group technology
 Tracking signals – measurement of well the forecast is at
predicting actual values Documents for production
 Assembly drawing

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 Assembly chart
 Route sheet
 Work order
 Engineering change notice (ECN)
 Configuration management
 Product life cycle management (PLM)
Service design
(1) Delaying customisation
(2) Modularising
(3) Automating
(4) Designing for the “moment of truth”
CHAPTER 7S – CAPACITY PLANNING
Capacity – the “throughput of number of units a facility can hold,
receive, store or product in a period of time
- Determines capital requirements and essentially fixed cost
- Three time horizons – long-range (facilities), intermediate
range (equipment, personnel), short range (scheduling jobs
and people)
Design Capacity – theoretical maximum output of a system in a
given period under ideal conditions
Effective Capacity – capacity a firm can expect to achieve
Utilisation – Actual output / Design Capacity
Efficiency – Actual output / Effective Capacity
Actual output (Expected output or Rated Capacity) – Effective
capacity x Efficiency
Demand Management – scheduling customers
Capacity Management – scheduling workforce
Tactics for matching Capacity to Demand
1. Make staffing changes
2. Adjust equipment
3. Improve processes to increase throughput
4. Redesigning processes to increase throughput
5. Adding process flexibility to better meet changing product
preferences
6. Closing faciltiies
Capacity analysis – determining throughput capacity of a
workstation of an entire production system
Bottleneck – limiting factor or constraint in a system
Process time of a station – time to produce a given number of
units at a single station. This determines the capacity.
Process time of a system – time of the longest (slowest) process,
the bottleneck
Process cycle time – time it takes for the product to go through the
production process with no waiting: longest past through the system.
This determines the potential ability to build a product
Theory of constraint – body of knowledge that deals with anything
limiting a organization’s ability to achieve its goals
Strategies to capacity expansion
- Leading strategy
- Lag strategy
- Straddle strategy
CHAPTER 13 – AGGREGATE PLANNING
Aggregate planning / scheduling – approach to determine the
quantity and timing of production for the intermediate future (usually
3 to 18 months)
- Meet forecasted demand while minimising costs
- 4 things needed
o Logical overall unit for measuring sales and output
BA 105 – You can do it!
o Forecast of demand
o Method of determining relevant costs
o Model that combines everything above
Scheduling decisions – plans that match production to changes in
mind
Disaggregation – process of breaking an aggregate plan into
greater detail
Master production schedule – timetable that specifies what is to
be made and when
Basic aggregate planning capacity options
- Changing inventory levels
- Varying workforce size by hiring or layoffs
- Subcontracting
- Using part-time workers
Basic demand options
- Influencing demand
- Backordering during high-demand periods – make customers
wait
- Counter seasonal product and service mixing
Chase strategy – planning strategy that sets production equal to
forecasted demand
Level scheduling – maintaining a constant output rate, production
rate, or workforce level over the planning horizon
Mixed strategy – planning strategy that uses two or more
controllable variables to set up a feasible plan
Methods for aggregate planning
- Graphical techniques
- Transportation method of linear programming
- Management coefficient model
Yield Management – capacity decision that determine the allocation
of resources to maximize profit or yield
- For organisations with perishable inventory
Three issues in yield management
(1) Multiple pricing structure
(2) Forecasts of the use and duration of the use
(3) Changes in demand
CHAPTER 7 – PROCESS DESIGN
Process strategy – approach to transforming resources into goods
and services
- Objective is to build a production process that meets customer
requirements and product specifications within cost and other
managerial constraints
- Process Focus – facility organised around processes to
facilitate low-volume, high-variety production – job shops or
intermittent process
- Repetitive Focus – product-oriented production process that
uses modules, part of components of a product previously
prepared – classic assembly line
- Product Focus – facility organised around products to
facilitate high-volume and low-variety production – continuous
process
- Mass Customisation – Rapid, low-cost production that caters
to constantly changing unique desires
o Issues
 Product design must be imaginative and fast
 Process design must be flexible
 Inventory management
 Tight schedules
 Responsive partners
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Build-to-order – Produce to customer order rather to forecast

Job Design – specifies the task that constitutes a job
Process design tools - 5 components
1. Flowchart o Labour specialisation
2. Time-function mapping (process mapping) o Job enlargement
3. Value stream mapping (VSM) o Job rotation
4. Process charts o Job enrichment
5. Service Blueprinting o Employee empowerment

Classification of services Self-Directed Team – a group of empowered individuals working

Mass Service Professional Service together to reach a common goal
Low degree of customisation High degree of customisation
and high degree of labour and high degree of labour Ergonomics – study of human interface with the environment and
Service Factory Service shop machines
Low degree of customisation High degree of customisation
and low degree of labour and low degree of labour Method Analysis – system that involves developing work
procedures that are safe and produce quality products efficiently
Techniques to improve service productivity - Flow diagram
- Separation – structuring service so customers must go where - Process chart
the service is offered - Activity chart
- Self-service – customer examining product at their own pace - Operations chart
- Postponement – customising at delivery
- Focus – restricting the offerings Visual Workplace – use of visual communication techniques to
- Modules – modular selection of service rapidly communicate information
- Automation – separating services may lead to a type of
automation Labour Standards - amount of time required to perform a job or
- Scheduling – personnel scheduling part of a job
- Training – explaining how to avoid problems
Time Study – timing a sample of a worker’s performance and using
Flexibility – ability to respond with little penalty in time, cost of it as basis for setting a standard time
customer value
Average observed time
Production Technology = sum of times recorded / number of observations
- Computer numerical control (CNC)
- Automated Identification System (AIS) Normal time
- Radio frequency identification (RFID) = average observed time x performance rating factor
- Process control
- Vision Systems Standard time
- Robot = total normal time / (1-Allowance factor)
- Automated storage and retrieval system (ASRS) * allowance factor is usually in the rang of 4%-7%
- Automated guided vehicle (AGV)
- Flexible manufacturing system (FMS) Predetermined time standards – a division of manual work into
- Computer-integrated manufacturing (CIM) small basic elements that are established and widely accepted

Process Redesign – fundamental rethinking of business processes Work sampling – estimate, via sampling, of the percentage of time
to bring about improvements that a worker spends on various tasks

Sustainability - 4Rs CHAPTER 6 – QUALITY

- Resources
- Recycling Importance of quality
- Regulations - Reduce costs
- Reputation - Gain sales

CHAPTER 10 – JOB DESIGN Quality – ability of product or service to meet customer’s needs
- Totality of features and characteristics of a product that bears
Quality of work life – achieves satisfaction on both the physical it’s ability to satisfy needs
and psychological level - Implications
o Company reputation
Mutual commitment – both management and employee strive to o Product liability
reach common objectives o Global implications

Mutual trust – reflected in reasonable, documented employment Cost of quality (COQ) – cost of doing things wrong
policies that are equitably and honestly implemented to the Main categories
satisfaction of both management and employee o Prevention costs
o Appraisal costs
Labour Planning – means of determining staffing policies dealing o Internal failure
with employment stability, work schedules and work rules o External costs

Work Schedules Total Quality Management – management of an entire

 Flexitime organization so that it excels in all aspects of products and service
 Flexible work weeks that are important to customers
 Part-time Status
Concepts of TQM

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- PDCA – “plan, do, check and act” – continuous improvement
model
- Six Sigma – a program to save time, improve quality and save
costs
- Employee empowerment – enlarging jobs so that added
responsibility is moved to the lowest levels
o Quality Circle – group of employees meeting to
solve a problem
- Benchmarking – selected a demonstrated standard of
performance that represents the very best performance
- JIT – continuous improvement and enforced problem solving
- Taguchi concept -
- Knowledge of TQM tools
TQM Tools
- Cause and effect diagram
- Pareto chart
- Flowchart
- Statistical process chart
- Control chart
Inspection – means of ensuing that an operation is producing at the
quality level expected
- Types
o Source inspection – controlling and monitoring
at the point of production or purchase
o Attribute inspection – classifies whether it is
good or defective
o Variable inspection – continuum scale
Poka-Yoke – device or technology that ensure the production of a
good unit
Service Recovery – training and empowering frontline workers to
solve a problem immediately
CHAPTER 17 – MAINTENANCE
Maintenance – all activities involved in keeping the system’s
equipment in working order
- Types
o Preventive maintenance – routine inspections,
servicing, and keeping facilities in good repair to
prevent failure
o Breakdown maintenance – when equipment
fails and must be repaired
Reliability – the probability of that a machine part will function
properly for a specified time understated conditions
- As the number of components in a series increases, the
reliability of the whole system declines
- Product Failure Rate (FR) is the basic unit to measure
reliability
Product Failure Rate
FR (%) = (number of failures/number of units tested) x 100%
FR (N) = number of failures/ number of unit-hours of operation time
Mean Time between Failures
= 1 / FR(N)
Main tactic for improving:
Reliability
- Improving individual components
- Providing redundancy
Maintenance
- Implementing and improving preventive maintenance
- Increasing repair capabilities or speed
Redundancy – use of components in parallel to raise reliability
= (prob. that 1st component works) + (prob. back up works)*(prob.
the 1st fails)
Cost of breakdown that is sometimes ignored
- Cost of inventory to be maintained to compensate downtime
- Downtime – delivery, customer relation
Autonomous Maintenance – partner operators with maintenance
personnel to observe, check, adjust, clean and notify
Total Productive Maintenance – combines TQM with a strategic
view of maintenance from process to equipment design to
preventive maintenance
- It includes:
o Designing reliable, easy to operate and
maintain machines
o Emphasising total ownership when purchasing
machines, so that service and maintenance are
included in the cost
o Developing preventive maintenance plans that
utilise the best practices
o Training for autonomous maintenance
Techniques for enhancing maintenance
- Computer simulation
- Expert system – isolating faults
- Automatic sensors – signals when something is going to fail
CHAPTER 14 – MRP & ERP
Material Requirement Planning (MRP) – a demand dependent
technique that uses a bill-of-materials, inventory, receipts, and a
master production schedule to determine material requirements
Benefits
 Better response
 Faster response
 Improved utilisation
 Reduced inventory levels
Requirements of dependent inventory models
 Master production schedule
 Specification of Bill of Materials
 Inventory availability
 Purchase orders outstanding
 Lead times
Master Production Schedule – timetable that specifies what is to
be made and when
Bill of Materials (BOM) – a listing of components, their
descriptions, and the quantity required
- Components of top level / 0 level
o Modular Bills
o Planning Bills (or kits)
o Phantom BOM
o Low-level coding
Lead times – time between recognition of need for order and
receiving it
MRP Structure
- Gross material requirements plan – scheduled of total
demand of an item
- Net Material Requirement – result of adjusting gross
requirement with on hand inventory
- Planned order receipt – quantity planned to be received in the
future
- Planned order release – scheduled date for an order to be
released
- Net requirement = gross requirements + allocations – (on
hand + scheduled receipts)
MRP Dynamics
- System Nervousness – frequent changes in MRP system

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- Time Fences – means for allowing a segment of the master 7. Defective product
schedule to be designated as “not to be rescheduled”
- Pegging – tracing up from the BOM from the component to 5 Ss for Lean Production
the parent item - Sort
- Simplify
Approaches for integrating MRP and JIT - Shine
1. Finite capacity scheduling - Standardise
2. Small buckets – Buckets are time units in MRP system - Sustain
3. Balanced flow
4. Supermarkets – inventory area that holds common item Remove Variability – any deviation from the optimum process that
that are replenished using kanban sysem delivers perfect product on time, every time

Bucketless system – time-phased data are referenced using data
records rather than defined time periods or buckets
Back Flush – Reducing inventory balance by deducting BOM on
completion of the unit
Improve Throughput – time required to move orders through the
production process from receipt to delivery
- Pull System - when materials are only produced when
requested and moved to where it is needed just as it is
needed

Lot-sizing techniques JIT Partnerships – partnerships with suppliers and purchasers to

- Lot-for-lot remove waste and reduce costs
- Economic order quantity - Consignment Inventory – arrangement where suppliers
- Part period balancing maintains the inventory until it is used
- Economic part period
- Wagner-Witner procedure JIT Inventory – minimum inventory necessary for JIT

MRP II – system that allows inventory data to be augmented by JIT Scheduling

other resource variables – MRP becomes material resource - Communicate schedules to suppliers
planning - Make level schedules – scheduling products so that each
day’s production meets the demand for the day
Closed-loop MRP system – provides feedback to the capacity - Perform to schedule
plan, master production schedule, and production plan - Seek one-piece-make and one-piece-move
- Eliminate waste
Load Report – shows resource requirements in a work centre for all - Produce in small lots
the work assigned there - Use Kanbans – mover parts through production through
signals
Tactics for smoothing the load - Make each operation produce a perfect part
- Overlapping
- Operations splitting CHAPTER 15 – SHORT TERM SCHEDULING
- Order splitting
- Lot splitting Importance of scheduling
- Faster movement
Distribution resource planning - time phased stock replenishment - Lower costs
plan for all levels of a distribution network - Faster and dependable delivery

Enterprise resource planning – Information system for identifying, Scheduling Issues

planning the enterprise-wide resources needed to make, make, ship Forward Scheduling – begins as soon as requirements are known
and account for customer orders Backward Scheduling – begins with the due date of scheduling the
final operations first
Efficient Customer Response – supply chain management
systems in the grocery industry that ties sales to buying, inventory, Scheduling criteria
logistics and production 1. Minimize completion time
2. Maximise utilisation
Advantages and disadvantages of ERP 3. Minimise WIP inventory
4. Minimise customer wait time
CHAPTER 16 – JIT & LEAN OPERATIONS
Loading Jobs – assigning of jobs to work or processing centres
Just-In-Time (JIT) – continuous and forced problem solving via - Input/output control – allows personnel to manage facility work
focus on throughput and reduced inventory by tracking work to a added work centre
- ConWIP Cards – card that control the amount of work in work
Toyota Production System (TPS) – focus on continuous centres
improvement, respecting people and work practices – employee - Gantt Charts – planning charts used in scheduling resources
learning and empowerment and allocate time
- Assignment Method
Lean Operations – eliminates waste through a focus on exactly
what the customer wants – understanding the customer wants Sequencing Jobs – determining the order in which jobs should be
done at each work centre
Seven wastes - First come, first served
1. Overproduction - Shortest processing time
2. Queues - Earliest due date
3. Transportation - Longest processing time
4. Inventory
5. Motion Critical Ratio – time remaining / workdays remaining
6. Overprocessing

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Johnson’s Rule – minimises processing time for sequencing a
group of jobs through two work centres while minimising idle times
Finite capacity scheduling – computerised short-term scheduling
that overcomes the disadvantage of rule-based systems by
providing the user with graphical interactive computing
Level material use – the use of frequent, high-quality, small lot
sizes that contribute to just-in-time production
- Advantages
o Lower inventory levels
o Faster product throughput
o Improved component and product quality
o Reduced floor space requirements
o Improved communication among employees
o Smoother production process
CHAPTER 8 – LOCATION DECISIONS
Location options
- Expanding existing facilities
- Adding another facility elsewhere
- Closing existing and opening elsewhere
Competitiveness and innovation factors
- Presence of high quality inputs
- Environment that encourages innovation and intense local
rivalry
- Pressure and insight from sophisticated local market
- Local presence f related and supporting industries
Factors affecting Globalisation
- Market economies
- International communication
- Rapid, reliable travel and shipping
- Ease of capital through countries
- Difference in labour costs
Clustering – Location of competing countries near each other
Methods of Evaluating Lcoation
- Factor Rating method – location method that instils objectivity
into the process of identifying hard-to-evaluate costs
- Location break even analysis
- Centre of gravity model
- Transportation model
Determinants of volume and revenue in a service firm
1. Purchasing power of the customer drawing area
2. Service and image compatibility with demographics
3. Competition
4. Quality of competition
5. Uniqueness of firm’s location
6. Physical qualities of facilities
7. Operating policies
8. Quality of management
CHAPTER 9 – LAYOUT DECISIONS
Types of layout
1. Office layout – locate based on frequent contact
2. Retail layout – expose customers to high-margin items
a. Slotting fees – fees manufacturers pay to get on
shelf
b. Servicescape – physical surroundings in which
a service takes place
3. Warehouse layout – balance low-cost storage with low-
cost material handling
a. Cross-docking – avoiding placement of products
in storage
b. Random Stocking - locating stock in available
empty spaces
c. Customisation – add value to a product through
modification, labelling, etc.
4. Fixed-position layout – move materials to the limited
storage areas around the site
5. Process-oriented layout – manage varied material flow of
each product
6. Product-oriented layout – equalise the task time at each
work station
a. Fabrication line – building components
b. Assembly line – assembling components
c. Heuristic – problem solving using procedures
and rules instead of mathematical equation
Work Cell – arrangement of machines and personnel that focuses
on making a single product or family of related products
CHAPTER 11 – SUPPLY CHAIN
Supply-chain management – management of activities related to
procuring materials and services, transforming them into
intermediate and final products and delivering them through a
distribution system
Make-or-buy decisions – choice between producing or purchasing
Supply chain strategies from outside sources
1. Negotiating with many supplier and playing them against
each other
2. Developing long-term partnering relationship with a few
suppliers
3. Vertical integration – purchasing or buying the supplier or
distributer
4. Joint Ventures
5. Developing keiretsu networks – suppliers who become
part of company coalition
6. Developing virtual companies
Opportunities in an integrated supply chain
- Bullwhip effect
- Pull data
- Single stage control of replenishment
- Vendor-managed inventory (VMI)
- Collaborative planning, forecasting, and replenishment
(CPFR)
- Blanket order
E-Procurement – purchasing facilitated through the Internet
Vendor selection
1. Vendor evaluation – finding and determining who will be a
good supplier
2. Vendor development – training, engineering and
production help
3. Negotiations – cost-based priced model, market-based
price model and competitive bidding
Logistics Management – approach that seeks efficiency of
operation through integration of all material acquisition, movement
and storage activities
CHAPTER 3 – PROJECT MANAGEMENT
Phases of project management
- Planning
- Scheduling
- Controlling
Project organisation – org formed to ensure that programs receive
the proper management and attention
Importance of gantt chart
- Shows relationship of each activity
- Identifies precedence relationships

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- Encourages setting realistic times Offshoring – moving a business process to a foreign country but
- Helps make better use of people, time, money and resources retaining control

Project Management Techniques Core Competencies – organisation’s unique skills and talents and
- PERT – Program evaluation and review technique capabilities
- CPM – Critical path method
Theory of competitive advantage – countries benefit from
Dummy activity – activity having no time that is inserted into the specialising in products and services in which they have relative
network to maintain the logic advantage and importing goods win which they have relative
disadvantage
Variability in activity times
- Optimistic time Backsourcing – return of business activity to the original form
- Pessimistic time
- Most likely time Nearsourcing – choosing an outside provider in the home country
or in a nearby one
Crashing – shortening activity time in a network to reduce time on
the critical path so that total completion time is reduced Risks of outsourcing
Crash cost per period = (crash cost – normal cost) / (normal time – - Erratic power grids, difficult local government, inexperienced
crash time) managers and employees
- Drop in quality of customer service
CHAPTER 12 – INVENTORY - Political backlash
- Change in employment levels
Two basic issues - Change in facilities and processes needed to receive
- How much to order components in a different state of assembly
- When to order - Vastly expanded logistics issue
Advantages
Types of inventory - Cost savings
- Raw materials - Outside expertise
- Work-in-progress - Improving operations and service
- Finished goods - Focusing on core competencies
- MRO (maintenance, repair and operating materials) - Gaining outside technology

Managing inventory Disadvantages

- ABC analysis – method of dividing on hand inventory into 3 - Increased transportation costs
classifications based on annual dollar volume - Loss of control
- Cycle counting – continuing reconciliation of inventory with - Creating future competitors
records - Negative impact on employees
- Long-term impact
Inventory Problems
- Shrinkage – inventory unaccounted for
- Pilferage – small amount of theft

Inventory costs
- Holding cost – cost of carrying stock
- Ordering cost – cost of the ordering process
- Setup cost – cost to prepare machine

Economic Order Quantity (EOQ) model – inventory control

technique that minimises the total of ordering and holding costs
Q* = Sqrt (2DS / H)

Reorder point – inventory level at which action to replenish stock

should be taken

Safety stock – extra stock to allow for uneven demand

Production Order Quantity (POQ) model – economic order

quantity technique applied to production orders

Probabilistic Model – statistical model applicable when product

demand or any other variable is not known but can be specified by
means of probability distribution

Service Level – complement of the probability of stockout

CHAPTER 11S – OUTSOURCING

Outsourcing – procuring from external sources services and

products that are normally part of the organisation
- Practice of subcontracting
- Agreement with an external organisation