RIFT VALLY UNIVERSITY

MBA PROGRAM

Title: ASSIGNMENT ON OPERATION MANAGEMENT

AN ASSIGNMENT SUBMITTED FOR THE PARTIAL FULFILLMENT OF

THE COURSE OPERATION MANAGEMENT

Prepared by

Bedri Muktar Ahmed

ID No 146/2012

March 2021
Harar, Ethiopia
1. Take a given hospital in Ethiopia and define hospital operations management as a
transformation process. Consider all the inputs, processes and the outputs in the
hospital operations system and explain each of them.

A transformation process is any activity or group of activities that takes one or more inputs,
transforms and adds value to them, and provides outputs for customers or clients. One useful
way of categorizing different types of transformation is into:

 Manufacture – the physical creation of products (for example cars)

 Transport – the movement of materials or customers (for example a taxi service)

 Supply – change in ownership of goods (for example in retailing)

 Service – the treatment of customers or the storage of materials (for example hospital
wards, warehouses).

In this context the hospital taken as example is Harar General hospital. Harar General hospital
have been undertaking the service such as palliative care, HIV counseling and testing, STI
services and Post-exposure prophylaxis (PEP) services, maternal and child care, prenatal and
post natal services plus other related services.Harar General Hospital is Ethiopia's leading
hospital in the treatment of ART patients and currently treat 2000 patient per month. In order to
offer the above listed service the hospital hires employees with significant profession and buys
an important medical machines that used to treat the patient. The hospital constantly improves
the supply of medical equipment’s, drugs and compounds infrastructure that make easy to deliver
quality and reliable service. The medical supervision team, which is organized by the hospital
management, uses check sheet to constantly assess the service level of the different departments
in the hospital and gives feedback accordingly in timely base. The transformation process of
Harar General hospital is the hospital transforms ill patients (the input) into healthy patients (the
output).Treating a patient in hospital involves not only the ‘customer's’ state of health, but also
any materials used in treatment and information about the patient. The transformation process is
summarized in the following diagram.

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 The transformation process at hospital
Inputs ProcessOutput

— Examination
— Doctors — Surgery
— Nurses — Healthy
— Monitoring
— Building
— Medical — Medication Patients
— Supplies — Therapy
— Equipment
— Laboratory

2. What are the competitive dimensions of operations strategy? List and discuss them.

There are four broad categories of operations priorities or measures/dimensionswhich can be

termed as cost, time, quality and flexibility.

1) Cost

If an organization is competing on price then it is essential that it keeps its cost base lower than
the competition. Then it will either make more profit than rivals, if price is equal, or gain market
share if price is lower. Cost is also important for a strategy of providing a product to a market
niche, which competitors cannot provide. Thus cost proximity (i.e. to ensure costs are close to
the market average) is important to maximize profits and deter competitors from entering the
market. The major categories of cost are staff, facilities (including overheads) and material with
the greatest scope for cost reduction lies with reduction of the cost of materials.

2) Time

The time delay or speed of operation can be measured as the time between a customer request for
a product or service and then receiving that product/service. Speed is an important factor to the
customer making a choice which organization to use and in competitive terms speed can be used
to both reduce costs (making to inaccurate forecast) and reduce delivery time (better customer
service). The concept of P: D ratios compares the demand time D( from customer request to
receipt of goods and services) to the total throughput time P of the purchase, make and delivery

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stages. Thus in make to stock system D is basically the delivery time, but for a customer to order
system the customer demand time is equal to the purchase, make and delivery stages(P).

3) Quality

Quality covers both the quality of the product/service itself and the quality of the process that
delivers the product or service. Quality can be measured by the ‘cost of quality’ model were
costs are categorized as either the cost of achieving the good quality(the costs of quality
assurance) or the cost of poor quality products(the cost of not conforming to specifications) the
advantages of good quality on competitiveness include increased dependability, reduced cost and
improved customer service.

4) Flexibility

There are numbers of areas in which flexibility can be demonstrated. For example, it can mean
the ability to offer a wide variety of products/services to the customer and to be able to change
these products/services quickly. Flexibility is needed so the organization can adapt to changing
customer needs in terms of product range and varying demand to cope with capacity shortfalls
due to equipment breakdown or component shortage. Type of flexibility include product
flexibility which is the ability to be able to quickly act in response to changing customer needs
with new product/service designs and volume flexibility which is the ability to be able to
decrease or increase output in response to changes in demand. Volume flexibility may be needed
for seasonal changing demand as may have to react to demand changes minute by minute.

3. The one service organization in Ethiopia, say Ethiopian Airline, and one manufacturing
organization, say Metahara Sugar Factory. Compare and contrast their similarities and
differences from their operations point of view.

Organization can be classified in two broad categories as either manufacturing or service.

Manufacturing organizations produce physical, tangible items which can be stored as inventory
before delivery to the customer. Service organizations produce intangible items that cannot be
produced ahead of time.

Methara sugar factory is manufacturing organizations that produce sugar which is tangible and
store as inventory before delivery to the customer. Whereas Ethiopian airline is a service
organization which produce intangible items that cannot produce ahead of time.

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Operation and management of Methara sugar factory

Costs: - Sugar productionis a complex business which requires skilled people to manage and
supervise all aspects of the production, from the collection of cane to the delivery of sugar to the
market place. The costs involved with any methara sugar factory need to be taken into account.
There would be costs involved with operation, maintenance, transport and marketing.

Energy Sugar production uses a great deal of energy to boil the juice as well as that required to
operate crushers and other equipment.

Transportation Transport may be required to bring cane from the fields to the factory and also
to take the product to market..

Maintenance Equipment cannot be operated effectively without proper maintenance and repair.

Therefore due consideration must be given to the provision of maintenance. Several options are
available to the factory:

 Provide its own spares

 Buy spares from local suppliers
 Import from outside the region or country.

Sugar cane Suitable sugar cane must be available if methara sugar factory is to be efficiently
operated. It will be necessary to investigate what variety of cane is grown locally and assess its
suitability for the type of processing undertaken

Ethiopian airline is a service offering organization which undertakes the activities of scheduling
planes, cargo, and flight and ground crews as an operations function.Its operation system consists
of the airplanes, airport facilities, and maintenance facilities, sometimes spread out over a wide
territory. The activities that the Ethiopian airlines undertake as a service organization include:
Forecasting: -things such as weather and landing conditions, seat demand for flights, andthe
growth in air travel.
Capacity planning: - capacity planning isessential for the Ethiopian airline to maintain cash
flow and make a reasonableprofit. (Too few or too many planes, or the right number of planes
but in the wrongplaces, will upsetits profits).
Facilities and layout: - important in achieving effective use of workers and equipment at the
right time and place.

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Scheduling: - of planes for flights and for routine maintenance; scheduling of pilots and
flightattendants; and scheduling of ground crews, counter staff, and baggage handlers.
Managing inventories: -inventories items such as foods and beverages, first-aid equipment,
inflight magazines, pillows and blankets, and life preservers must be managed.
Assuring quality: -quality assurance isessential in flying and maintenance operations, where the
emphasis is on safety, and important in dealing with customers at ticket counters, check-in,
telephone and electronic reservations, and curb service, where the emphasis is on efficiency and
courtesy.
Motivating and training employees: - to be effective at offering quality services Ethiopian
airline train and motivate its employeesin all phases of operations.
Locating facilities: -according to managers’ decisions on which cities to provide servicefor,
where to locate maintenance facilities, and where to locate major and minor hubs.
Here below the comparison and contrast is made based on their operational points of
view:-
Service and manufacturing operations have differences, but also have similarities. For example,
Ethiopian airlines and Methara sugar factory both create mission statements and a vision for how
the organization will be run and perceived by customers. Each of them wants to lead the market
in its specific industry.
Characteristics

Methara sugar factory produce tangible goods i.e. sugar, which are physical products that can be
held and seen. The factory uses sugarcane, production machinery and facilities and human
resources as an input and produce sugar as output from which it generate profit. On the other
hand, Ethiopian airlines provide certain intangible services that may not be easily identifiable
and is an open transformation process work for converting inputs (customers) to desired outputs
(satisfied customers) through the appropriate application of resources (human power, technology,
modern airplane and etc.).

Customization vs. Standardization

Methara sugar factory have standardized way of production and produces sugar in masses in a
factory. Finishedsugar is generally the same as the next. Ethiopian airline, by contrast, have more
opportunities to customize the services it provide. For example, in the past the customers are

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going to the ticket office to buy a ticket, but currently it introduces online ticket sales services in
which the service operation of the current service is not likely the same as the past services.

Production Environment

Both Ethiopian airline and Methara sugar factory plan the environment in which work takes
place, but they focus on different elements. Methara sugar factory for instance, consider the
manufacturing layout and the layout can be fixed, process-focused or product-focused, such as in
an assembly line factory. These issues affect the manufacturer's workforce performance and total
output. Ethiopian airline, by contrast, undertake its Service operations; by planning the
environment according to how it affects customers. For example, Ethiopian airline concerned
with how the atmosphere appears to customers. Dimensions of the service environment include
the layout of furnishings, arrangement of signs and tangible cues, such as colors and sounds
designed to enhance the customer experience.

Operations Management

In a Methara sugar factory, operations managers oversee the activities required to produce sugar
from sugarcane. Issues managers in this environment face include managing the space to store
raw materials/sugarcane, the flow of input materials through the manufacturing process, how
much sugar to produce and the quality of sugar produced. InEthiopian airline, operations
managers schedule workers to handle customer demand. They must coach and train employees to
provide optimal services to customers, allocate the necessary airplanes at the schedule, manage
the fuel, schedule pre and post maintenance for planes, and other related works to provide good
services.

Similarities

Both Ethiopian airlines and Methara sugar factory face many similar issues that affect the end
result of the operation. For example, both face issues of cost control. Methara sugar factory must
find suppliers of raw materials at the lowest cost, and highest quality as possible. Likewise,
Ethiopian airlinekeep' indirect cost of providing services low so that the company can provide
competitive prices to customers and still turn its profit up. Other issues both types of operations
face include forecasting demand for products and services and staying competitive in the
marketplace.

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Differences

Differences between manufacturingcompany (Methara sugar factory) and the service company
(Ethiopian airline) is explained are as follows:

 Simultaneous production and consumption: - In Ethiopian airline there is high contact
of services and service must be produced in the presence of the customer, since they are
consumed as produced. As services cannot be produced in one location and transported to
another, like goods, Ethiopian airline provide its service operation by highly dispersing
geographically to close to its customer. Methara sugar factory involves simultaneous
production and consumption that allows the possibility of self-service involving the customer
at the point of consumption (e.g. shop).
 Perishable: - Ethiopian airlinecannot be storing its service for later use since service is
produced ahead of time. Whereas in Methara sugar factory inventory can be used to buffer
supply and demand.
 Ownership: - Inmethara sugar factory ownership is transferred to the customer. Whereas
in Ethiopian airline ownership is not transferred for service as services cannot be owned or
resold.

 Tangibility: - Ethiopian airline provide a service that is intangible making it difficult for
a customer to evaluate the service in advance. In the case of Methara sugar factory,
customers can see the sugar manufactured and evaluate it.

4. Briefly describe the historic development of operations management and their

contributors.

The historical development of operations management

Although people have been producing and selling products since the very beginning of civilization, the
implementation of operations management is a relatively new phenomenon. An operation in some form
has been around as long as human endeavor itself but, in manufacturing at least, it has changed
dramatically over time.Systems for production have existed since ancient times. The production of
goods for sale, at least in the modern sense, and the modern factory system had their roots in the
Industrial Revolution.

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The Industrial Revolution
The Industrial Revolution began in the 1770s in England and spread to the rest of Europe and to
the United States during the 19th century. Prior to that time, goods were produced in small shops
by craftsmen and their apprentices. Under that system, it was common for one person to be
responsible for making a product, such as a horse-drawn wagon or a piece of furniture, from start
to finish. Only simple tools were available; the machines in use today had not been invented.
Then, a number of innovations in the 18th century changed the face of production forever by
substituting machine power for human power. Perhaps the most significant of these was the
steam engine, because it provided a source of power to operate machines in factories. Ample
supplies of coal and iron ore provided materials for generating power and making machinery.
The new machines, made of iron, were much stronger and more durable than the simple wooden
machines they replaced.
In the earliest days of manufacturing, goods were produced using craft production: highly
skilled workers using simple, flexible tools produced goods according to customer specifications.
Craft production had major shortcomings. Because products were made by skilled craftsmen
who custom fitted parts, production was slow and costly. And when parts failed, the
replacements also had to be custom made, which was also slow and costly. Another
shortcomingwas that production costs did not decrease as volume increased; there were no
economies of scale, which would have provided a major incentive for companies to expand.
Instead, many small companies emerged, each with its own set of standards. A major change
occurred that gave the Industrial Revolution a boost: the development of standard gauging
systems.
Scientific Management
The scientific management era brought widespread changes to the management of factories. The
movement was spearheaded by the efficiency engineer and inventor Frederick Winslow Taylor,
who is often referred to as the father of scientific management. Taylor believed in a “science of
management” based on observation, measurement, analysis and improvement of work methods,
and economic incentives. He studied work methods in great detail to identify the best method for
doing each job. Taylor also believed that management should be responsible for planning,
carefully selecting and training workers, finding the best way to perform each job, achieving
cooperation between management and workers, and separating management activities from work

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activities. Craft production System in which highly skilled workers uses simple, flexible tools
to produce small quantities of customized goods.
Taylor’s methods emphasized maximizing output. They were not always popular with workers,
who sometimes thought the methods were used to unfairly increase output without a
corresponding increase in compensation. Certainly some companies did abuse workers in their
quest for efficiency. Eventually, the public outcry reached the halls of Congress, and hearings
were held on the matter. Taylor himself was called to testify in 1911, the same year in which his
classic book, The Principles of Scientific Management, was published. The publicity from those
hearings actually helped scientific management principles to achieve wide acceptance in
industry. A number of other pioneers also contributed heavily to this movement, including the
following:
Frank Gilbreth was an industrial engineer who is often referred to as the father of motion study.
He developed principles of motion economy that could be applied to incredibly small portions of
a task.
Henry Gantt recognized the value of nonmonetary rewards to motivate workers, and developed
a widely used system for scheduling, called Gantt charts.
Harrington Emerson applied Taylor’s ideas to organization structure and encouraged the use of
experts to improve organizational efficiency. He testified in a congressional hearing that
railroads could save a million dollars a day by applying principles of scientific management.
Henry Ford, the great industrialist, employed scientific management techniques in his factories.
During the early part of the 20th century, automobiles were just coming into vogue in the United
States. Ford’s Model T was such a success that the company had trouble keeping up with orders
for the cars. In an effort to improve the efficiency of operations, Ford adopted the scientific
management principles espoused by Frederick Winslow Taylor.
He also introduced the moving assembly line, which had a tremendous impact on production
methods in many industries. Among Ford’s many contributions was the introduction of mass
production to the automotive industry, a system of production in which large volumes of
standardized goods are produced by low-skilled or semiskilled workers using highly specialized
and often costly, equipment. Ford was able to do this by taking advantage of a number of
important concepts. Perhaps the key concept that launched mass production was
interchangeable parts, sometimes attributed to Eli Whitney, an American inventor who applied

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the concept to assembling muskets in the late 1700s. The basis for interchangeable parts was to
standardize parts so that any part in a batch of parts would fit any automobile coming down the
assembly line. This meant that parts did not have to be custom fitted, as they were in craft
production. The standardized parts could also be used for replacement parts. The result was a
tremendous decrease in assembly time and cost. Ford accomplished this by standardizing the
gauges used to measure parts during production and by using newly developed processes to
produce uniform parts.
A second concept used by Ford was the division of labor, which Adam Smith wrote about in
The Wealth of Nations (1776). Division of labor means that an operation, such as assembling an
automobile, is divided up into a series of many small tasks, and individual workers are assigned
to one of those tasks. Unlike craft production, where each worker was responsible for doing
many tasks, and thus required skill, with division of labor the tasks were so narrow that virtually
no skill was required.Together, these concepts enabled Ford to tremendously increase the
production rate at his factories using readily available inexpensive labor. Both Taylor and Ford
were despised by many workers, because they held workers in such low regard, expecting them
to perform like robots. This paved the way for the human relations movement.
The Human Relations Movement
Whereas the scientific management movement heavily emphasized the technical aspects of work
design, the human relations movement emphasized the importance of the human element in job
design. Lillian Gilbreth, a psychologist and the wife of Frank Gilbreth, worked with her husband,
focusing on the human factor in work. (The Gilbreths were the subject of a classic 1950s film,
Cheaper by the Dozen.) Many of her studies in the 1920s dealt with worker fatigue. In the
following decades, there was much emphasis on motivation. During the 1930s, Elton Mayo
conducted studies at the Hawthorne division of Western Electric. His studies revealed that in
addition to the physical and technical aspects of work, worker motivation is critical for
improving productivity. During the 1940s, Abraham Maslow developed motivational theories,
which Frederick Hertzberg refined in the 1950s. Douglas McGregor added Theory X and Theory
Y in the 1960s. These theories represented the two ends of the spectrum of how employees view
work. Theory X, on the negative end, assumed that workers do not like to work, and have to be
controlled, rewarded and punished to get them to do good work. This attitude was quite common
in the automobile industry and in some other industries, until the threat of global competition

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forced them to rethink that approach. Theory Y, on the other end of the spectrum, assumed that
workers enjoy the physical and mental aspects of work and become committed to work. The
Theory X approach resulted in an adversarial environment, whereas the Theory Y approach
resulted in empowered workers and a more cooperative spirit. In the 1970s, William Ouchi
added Theory Z, which combined the Japanese approach with such features as lifetime
employment, employee problem solving, and consensus building, and the traditional Western
approach that features short-term employment, specialists, and individual decision making and
responsibility.
Decision Models and Management Science
The factory movement was accompanied by the development of several quantitative techniques.
F. W. Harris developed one of the first models in 1915: a mathematical model for inventory
order size. In the 1930s, three coworkers at Bell Telephone Labs, H. F. Dodge, H. G. Romig, and
W. Shewhart, developed statistical procedures for sampling and quality control. In 1935, L.H.C.
Tippett conducted studies that provided the groundwork for statistical-sampling theory. At first,
these quantitative models were not widely used in industry. However, the onset of World War II
changed that. The war generated tremendous pressures on manufacturing output, and specialists
from many disciplines combined efforts to achieve advancements in the military and in
manufacturing. After the war, efforts to develop and refine quantitative tools for decision making
continued, resulting in decision models for forecasting, inventory management, project
management, and other areas of operations management. During the 1960s and 1970s,
management science techniques were highly regarded; in the 1980s, they lost some favor.
However, the widespread use of personal computers and user friendly software in the workplace
contributed to resurgence in the popularity of these techniques.
The Influence of Japanese Manufacturers
A number of Japanese manufacturers developed or refined management practices that
increasedthe productivity of their operations and the quality of their products, due in part to the
influenceof Americans W. Edwards Deming and Joseph Juran. This made them very
competitive, sparking interest in their approaches by companies outside Japan. Their approaches
emphasized quality and continual improvement, worker teams and empowerment, and achieving
customer satisfaction. The Japanese can be credited with spawning the “quality revolution” that
occurred in industrialized countries, and with generating widespread interest in lean production.

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The influence of the Japanese on U.S. manufacturing and service companies has been enormous
and promises to continue for the foreseeable future.
Operations Today
Advances in information technology and global competition have had a major influence on
operations management. In many cases, the Internet has altered the way companies compete in
the marketplace. Electronic business, or e-business, involves the use of the Internet to transact
business. E-business is changing the way business organizations interact with their customers
and their suppliers. Most familiar to the general public is e-commerce, consumer–business
transactions such as buying online or requesting information. However, business-to-business
transactions such as e-procurement represent an increasing share of e-business. E-business is
receiving increased attention from business owners and managers in developing strategies,
planning, and decision making.Operations management is primarily concerned with three kinds
of technology: product and service technology, process technology, and information technology
(IT). All three can have a major impact on costs, productivity, and competitiveness.
Product and service technology refers to the discovery and development of new products and
services.
Process technology refers to methods, procedures, and equipment used to produce goods and
provide services including supply chain processes.
Information technology (IT) Information technology is heavily ingrained in today’s business
operations. This includes electronic data processing, the use of bar codes to identify and track
goods, obtaining point-of-sale information, data transmission, the Internet, e-commerce, e-mail,
and more.
During the 1970s and 1980s, many companies neglected to include operations strategy in their
corporate strategy. Working with fewer resources due to layoffs, corporate downsizing, and
general cost cutting is forcing managers to make trade-off decisions on resource allocation, and
to place increased emphasis on cost control and productivity improvement.Revenue management
is a method used by some companies to maximize the revenue they receive from fixed operating
capacity by influencing demand through price manipulation. Process analysis and improvement
includes cost and time reduction, productivity improvement, process yield improvement, and
quality improvement and increasing customer satisfaction. This is sometimes referred to as a six
sigma process.Given a boost by the “quality revolution” of the 1980s and 1990s, quality is now

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ingrained in business. Some businesses use the term total quality management (TQM) to describe
their quality efforts. A quality focus emphasizes customer satisfaction and often involves
teamwork. Process improvement can result in improved quality, cost reduction, and time
reduction. Agility refers to the ability of an organization to respond quickly to demands or
opportunities. Lean production, a new approach to production, emerged in the 1990s. It
incorporates anumber of the recent trends listed here, with an emphasis on quality, flexibility,
time reduction,and teamwork. This has led to a flattening of the organizational structure, with
fewerlevels of management.
Contributors of Operations Managements
The present position where the operations management finds itself today has gone through a
large number of stages to reach the present formidable stage. Although the history of operations
management is not very old—the roots of this type of management can be easily linked with the
concept which deals with the phenomenon of division of labor. This concept was given by Adam
Smith in his very famous book ‘The Wealth of Nations’ in 1776.Experts in the field, from the
time of Adam Smith and F.W. Taylor, leading to Dodge and Tippet, have contributed to the
important present status of operations management in today’s world.

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 Contributors of operation management

5. Discuss the advantages and disadvantages of the three production systems: job shop,
batch and production systems?
Classification of Production Systems
Production systems can be classified as Job-shop, Batch, Mass andContinuous production
systems.
1) Job-Shop Production
Job-shop production are characterized by manufacturing one or fewquantity of
productsdesigned and produced as per the specification ofcustomers within prefixed time and

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cost. The distinguishing feature ofthis is low volume and high variety of products.A job-shop
comprises of general-purpose machines arranged intodifferent departments. Each job
demands unique technologicalrequirements, demands processing on machines in a certain
sequence.
Advantages
Following are the advantages of Job-shop Production:
 Because of general purpose machines and facilities variety of productscan be
produced.
 Operators will become more skilled and competent, as each job givesthem learning
opportunities.
 Full potential of operators can be utilized.
 Opportunity exists for Creative methods and innovative ideas.
Disadvantages
Following are the limitations of Job-shop Production:
 Higher cost due to frequent set up changes.
 Higher level of inventory at all levels and hence higher inventory cost.
 Production planning is complicated.
 Larger space requirements.
2) Batch Production
American Production and Inventory Control Society (APICS) defineBatch Production as a
form of manufacturing in which the job passthrough the functional departments in lots or
batches and each lot mayhave a different routing.
Advantages
Following are the advantages of Batch Production:
 Better utilization of plant and machinery.
 Promotes functional specialization.
 Cost per unit is lower as compared to job order production.
 Lower investment in plant and machinery.
 Flexibility to accommodate and process number of products.
 Job satisfaction exists for operators.

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Disadvantages
Following are the limitations of Batch Production:
 Material handling is complex because of irregular and longer flows.
 Production planning and control is complex.
 Work in process inventory is higher compared to continuousproduction.
 Higher set up costs due to frequent changes in set up.
3) Mass Production
Manufacture of discrete parts or assemblies using a continuous processare called Mass
Production.
Advantages
Following are the advantages of Mass Production:
 Higher rate of production with reduced cycle time.
 Higher capacity utilization due to line balancing.
 Less skilled operators are required.
 Low process inventory.
 Manufacturing cost per unit is low.
Disadvantages
Following are the limitations of Mass Production:
 Breakdown of one machine will stop an entire production line.
 Line layout needs major change with the changes in the product design.
 High investment in production facilities.
 The cycle time is determined by the slowest operation.
4) Continuous Production
Production facilities are arranged as per the sequence of productionoperations from the first
operations to the finished product. The items aremade to flow through the sequence of
operations through materialhandling devices such as conveyors, transfer devices, etc.
Advantages
Following are the advantages of Continuous Production:
 Standardization of product and process sequence.
 Higher rate of production with reduced cycle time.

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  Higher capacity utilization due to line balancing.
 Manpower is not required for material handling as it is completelyautomatic.
 Person with limited skills can be used on the production line.
 Unit cost is lower due to high volume of production.
Disadvantages
Following are the limitations of Continuous Production:
 Flexibility to accommodate and process number of products does notexist.
 Very high investment for setting flow lines.
 Product differentiation is limited

6. Briefly describe the following concepts and give examples from Ethiopian firms.
a. Modular design
b. Design for disassembly
c. Robust design

Modular design

Modular design is a design approach that creates things out of independent parts with standard
interfaces. This allows designs to be customized, upgraded, repaired and for parts to

be reused. Modular design offers an efficient method for mass customization, enabling multiple
product variations while keeping costs low. Especially in turbulent economic times with
unpredictable customer behavior, R&D teams can reconfigure products quickly to react to
changing customer needs. Companies apply modular design in various ways, depending on
factors such as industry, brand strategy, organizational structure, product architecture, etc.
Independent of these issues, most companies cites very similar screens for deciding when to
implement modular design. This section helps companies determine the following:

i. When in the design process to consider modular alternatives

ii. How to target individual products for modular design

iii. To what extent a design should be made modular

iv. How modular design manifests itself in different industries

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Examples of modular design firm in Ethiopia: -is Ethiopian Metal and Engineering
Corporation, which is producing parts and assembling Bishoftu Bus.

Design for disassembly

Design for Disassembly is a design process that allows easier access to the materials, parts and
products of a building when it is renovated and/or disassembled. It provides flexibility whilst
renovating, disassembly or conversion. This design process includes developing the assemblies,
components, materials, construction techniques, and information and management systems to
accomplish this goal. The recovery of materials is intended to maximize economic value and
minimize environmental impacts through subsequent reuse, repair, remanufacture and recycling
the whole or part of a building.There are three important factors in design for disassembly:   

a. The selection and use of materials

b. The design of the components and product
c. The selection and use of fasteners

Example of design for disassembly: -Designing for disassembly is not practice widely in
Ethiopia but it is currently started in manufacturers of bottled water. They will collect the bottle
after usage and they reuse it after some purifying process.

Robust Design

Robust Design method, also called the Taguchi Method, pioneered by Dr. Genichi Taguchi,
Japanese engineer who began working for the telecommunications company, ECL (Electrical
Communications Lab, a part of NT&T), in 1950’s. Robust design is a systematic methodology to
design products whose performance is least affected by variations, i.e. noise, in the system
(system variations here means variations due to component size variations, different
environmental conditions, etc.). By consciously considering the noise factors (environmental
variation during the product’s usage, manufacturing variation, and component deterioration) and
the cost of failure in the field the Robust Design method helps ensure customer satisfaction.
Robust Design focuses on improving the fundamental function of the product or process, thus
facilitating flexible designs and concurrent engineering. Indeed, it is the most powerful method
available to reduce product cost, improve quality, and simultaneously reduce development

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 interval.Robustness: Taguchi’s definition of a robust design is: “a product whose performance is
minimally sensitive to factors causing variability (at the lowest possible cost)”.

Example of robust design: - MIDROC Ethiopia investment group has about 70 companies
operating a robust wing in the manufacturing of leather garment and glove.

7. What is mass customization mean? How do firms achieve mass customization? Explain
it.

Mass customization is the process of delivering wide-market goods and services that are
modified to satisfy a specific customer need. It is a marketing and manufacturing technique that
combines the flexibility and personalization of custom-made products with the low unit
costs associated with mass production. Mass customization products may also be referred to as
made to order or built to order.It allows a customer to customize certain features of a product
while keeping costs closer to that of mass-produced products. To achieve mass customization a
company must focus on developing products that satisfy customer’s needs and can only be
reachable if the firm is able to produce the unique products in a mass production way. In General
customer involvement and modularity are important factors for achieving mass
customization.There are many ways to achieve mass customization. Each level of mass
customization achievement can be categorized by: -

 The degree of organizational transformation that is required: this refers to the initial
point in the manufacturing process where customers can alter their products, also known
as the point of customer involvement or decoupling point
 The mass customization approach: this is related to the nature of the customization.
8. What are the places in the new product development process? List exhaustively and
explain with example.

In order to stay successful in the face of maturing products, companies have to obtain new ones
by carefully executed new product development process. So it’simportant to understand
consumers, markets, and competitors in order to develop products that deliver superior value to
customers. There are eight major steps in the new product development process:-

1. Idea generation

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 The new product development process starts with idea generation. Idea generation refers to the
systematic search for new-product ideas. Typically, a company generates hundreds of ideas,
maybe even thousands, to find a handful of good ones in the end. Two sources of new ideas can
be identified:

i. Internal idea sources: the company finds new ideas internally. That means R&D, but
also contributions from employees.
ii. External idea sources: the company finds new ideas externally. This refers to all kinds
of external sources, e.g. distributors and suppliers, but also competitors. The most
important external source is customers, because the new product development process
should focus on creating customer value.

2. Idea screening
The next step in the new product development process is idea screening. Idea screening means
nothing else than filtering the ideas to pick out good ones. In other words, all ideas generated are
screened to spot good ones and drop poor ones as soon as possible. While the purpose of idea
generation was to create a large number of ideas, the purpose of the succeeding stages is to
reduce that number. The reason is that product development costs rise greatly in later stages.
Therefore, the company would like to go ahead only with those product ideas that will turn into
profitable products.

3. Concept development and Testing

To go on in the new product development process, attractive ideas must be developed into a
product concept. A product concept is a detailed version of the new-product idea stated in
meaningful consumer terms. It could be distinguished that:-

 A product idea an idea for a possible product

 A product concept a detailed version of the idea stated in meaningful consumer terms
 A product image the way consumers perceive an actual or potential product.

Concept development and testing have two stages in the development of new products:

a) Concept development

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 For example let’s take a car manufacturer that has developed an all-electric car. The idea has
passed the idea screening and must now be developed into a concept. Possible product concepts
for this electric car could be:

 Concept 1: an affordably priced mid-size car designed as a second family car to be used
around town for visiting friends and doing shopping.
 Concept 2: a mid-priced sporty compact car appealing to young singles and couples.
 Concept 3: a high-end midsize utility vehicle appealing to those who like the space
SUVs provide but also want an economical car.
b) Concept testing

New product concepts, such as those given above, need to be tested with groups of target
consumers. The concepts can be presented to consumers either symbolically or physically. The
question is always: does the particular concept have strong consumer appeal?

4. Marketing strategy development

The next step in the new product development process is the marketing strategy development.
When a promising concept has been developed and tested, it is time to design an initial
marketing strategy for the new product based on the product concept for introducing this new
product to the market.The marketing strategy statement consists of three parts and should be
formulated carefully:

 A description of the target market, the planned value proposition, and the sales, market
share and profit goals for the first few years
 An outline of the product’s planned price, distribution and marketing budget for the first
year
 The planned long-term sales, profit goals and the marketing mix strategy.

5. Business analysis
Once decided upon a product concept and marketing strategy, management can evaluate the
business attractiveness of the proposed new product. The fifth step in the new product
development process involves a review of the sales, costs and profit projections for the new
product to find out whether these factors satisfy the company’s objectives. If they do, the product
can be moved on to the product development stage.

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6. Product development
The new product development process goes on with the actual product development. Up to this
point, for many new product concepts, there may exist only a word description, a drawing or
perhaps a rough prototype. But if the product concept passes the business test, it must be
developed into a physical product to ensure that the product idea can be turned into a workable
market offering.

7. Test marketing
The last stage before commercialization in the new product development process is test
marketing. In this stage of the new product development process, the product and its proposed
marketing programme are tested in realistic market settings. Therefore, test marketing gives the
marketer experience with marketing the product before going to the great expense of full
introduction..

8. Commercialization
Test marketing has given management the information needed to make the final decision: launch
or do not launch the new product. The final stage in the new product development process is
commercialization. Commercialization means introducing a new product into the market. At this
point, the highest costs are incurred: the company may need to build or rent a manufacturing
facility. Large amounts may be spent on advertising, sales promotion and other marketing efforts
in the first year.Some factors should be considered before the product is
commercialized:Introduction timing: (if the economy is down) andIntroduction places(Where
to launch the new product),should it be launched in a single location, a region, the national
market, or the international market?

An example of the new product development is a mobile phone manufacturer company. Those
companies need to know that a phone is not just a verbal communication device, but also needs
to be smart and tie in to all sorts of other communication and entertainment as well as it has to be
deal with modern technology. The companiesare diagnosis their customer and assess their
competitors to develop a modern and more specialized mobile phone that is renovated than past
time product. While producing this phone the company has to apply all the product development

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stage and introduce their new manufactured phone to their customer. These advancements came
as a direct result of product development.

9. Compare and contrast, concurrent engineering, quality function deployment, and

traditional approaches to product design. Give empirical example in the Ethiopian
context for your explanation.

Concurrent engineering is a systematic approach to the integrated, concurrent design of

products and their related processes, including manufacture and support. This approach is
intended to cause the developers from the outset, to consider all elements of the product life
cycle from conception to disposal, including quality, cost, schedule, and user
requirements.Concurrent engineering overcomes the shortcomings of traditional product
development approaches. It is a systematic approach to the integrated and concurrent design of
products and their relative processes.

Traditional product development has used the sequential process, i.e. conceptual design,
detailed design, process planning, prototype manufacturing, test, and re-design with each step
completed by product developers separated in different departments. Defects often occurred in
the final products since the early design stage in traditional product development could not
consider the downstream requirements, e. g., manufacturability, assimilability, quality control,
etc.

Quality function deployment is a structured process, a visuallanguage, and a set of inter-linked

engineering and management charts, which uses the sevenmanagement (new) tools. It establishes
customer value using the voice of the customer andtransforms that value to design, production,
and manufacturing process characteristics.

Comparison
A comparison of the concurrent engineering model and the traditional model of product
realization is shown in Figure below. As it can be seen, there are huge time savings when
concurrent engineering is implemented in the design-to-manufacturing cycle of the product
realization. Also the concurrent engineering method does not lead into problems of
implementing the design in manufacturing such as costly engineering changes. This will result in
reducing the overall product cost.

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In the traditional model, once the design is made, all of the departments that are involved in the
product realization are expected to follow it although they have very little input in the design of
the product. A frequently asked question is, how good the design can be without involvement of
domain experts? Very often, the design teams in the traditional model do not have the knowledge
and the skills to make a product that will be functional, of high quality and manufacturable.

The figure also show that while the Concurrent Engineering design method begins with a cost
target for the product, the traditional method has no such benchmark. Following the design stage,
the Concurrent Engineering team compares the derived cost of the product design to the targeted
cost. Only if the estimated cost is lower or equal to the targeted cost, the production of the
product can begin. Such design discipline is essential to ensure that the price of the product is
competitive in the market.

The traditional approach of designing a product has been in use for decades. This method was
useful especially when companies enjoyed significant market shares and the competition was
either very limited or nonexistent. Today, however, the market is highly competitive and

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consequently the traditional method is deemed unattractive in favor of the Concurrent
Engineering method. The traditional product realization is shown in the next:

Quality function deploymentis the methodology used by concurrent engineering teamwork to

satisfy customer's needs to the maximum degree. Concurrent engineering creates an environment
where all major functions such as marketing, purchasing, finance, suppliers, product engineering,
customers, and manufacturing engineering are involved from product concept initiation through
product launch. In concurrent engineering projects, the voice of both the internal and external
customer is captured and converted into specific product characteristics. A key technology of
concurrent engineeringis Quality Function Deployment. Quality function deployment provides a
means of translating customer requirements into appropriate technical requirements for each
stage of product development and production. Quality function deployment in the concurrent
engineering process is structured to address both the needs of the internal and external
customers. The approach to quality function deployment consists of four phases, which
transform the customer voice. In the first phase, the customer voice is transformed into product
characteristics. The second phase converts the critical product characteristics into subsystem

26
characteristics. Phase three converts the subsystem characteristics into manufacturing process
characteristics. Finally, phase four converts’ process characteristics into production controls.

Quality function deployment "is a method for developing a design quality aimed at satisfying the
consumer and then translating the consumer's demand into design targets and major quality
assurance points to be used throughout the production phase. Quality function deployment is a
way to assure the design quality while the product is still in the design stage. Quality deployment
function has demonstrated the reduction of development time by one-half to one-third. Since its
introduction, Quality Function Deployment has helped to transform the way many companies:

 Plan new products

 Design product requirements
 Determine process characteristics
 Control the manufacturing process
 Document already existing product specifications

Quality function deployment uses some principles from Concurrent Engineering in that cross-
functional teams are involved in all phases of product development (product planning, product
design, process planning and process control). Each of the four phases in a quality function
deployment process uses a matrix to translate customer requirements from initial planning stages
through production control.

Phase 1, Product Planning: Building the House of Quality. This phase is led by marketing
department and many organizations only get through this phase of a quality function deployment
process.

Phase 2, Product Design: This phase 2 is led by the engineering department and it requires
creativity and innovative team ideas. Product concepts are created during this phase and part
specifications are documented.

Phase 3, Process Planning: Process planning comes next and is led by manufacturing
engineering. During process planning, manufacturing processes are flowcharted and process
parameters (or target values) are documented.

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Phase 4, Process Control: And finally, in production planning, performance indicators are
created to monitor the production process, maintenance schedules, and skills training for
operators.

Empirical example in the Ethiopia context for my explanation is Ethiopia sugar corporation
Research & Development Center, Bishofitu Automotive Engineering Industry. Traditionalproject
planning and execution has been marked by the definition of objectives and mile-stones. These
goals are met through a progression of networked activities, some of which must be performed
sequentially, others of which may be conducted in parallel. Planning techniques such as Program
Evaluation and Review Technique (PERT), Graphical evaluation and review technique (GERT),
and Critical Path Method (CPM) have been used to support this sequencing of tasks and
activities. However, until the beginning of the 1990s time compression was not a major issue in
the new product development environment. In the planning and scheduling of tasks and
activities, any time compression concerns were only implicitly present

10. Explain briefly factors to be considered in location decisions. Support your explanation
with practical example by taking Ethiopian organization(s).

Factors to be Consider When Choosing a Business Location

Availability of raw materials:if a company intends to run a manufacturing or production

business, then the nearness or availability of raw materials is a factor it must consider when
choosing its business location. If the business is not sited close to these raw materials, then
sourcing and transportation will reduce its profit margin.

Nearness to market: The next important factor to consider is the nearness of the business to its
customers. Are the company’s customer’s resellers or end users? Answering this question will
help to determine the best area to locate the business and make it easy for customers to find the
product.

Availability of basic infrastructure: Availability of basic infrastructure can affect the choice of
business location. Amenities and infrastructure such as water supply, power supply, good road
network and security are things to consider when locating business

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Economic policy: The economic policy or system of a particular region may also affect decision
and choice of location. Some economy favor capitalists and others are driven by socialism;
where the government controls all businesses. Other sub-factors to consider are government’s
policy, fiscal and monetary policy, exchange rates, taxes, levies and duties.

Demographics: Demographics as a factor can have a big influence on the choice of business
location. The type of product or service the business offers and the status of the customers will
play a vital in the choice of small business location.

Psychographics: The mindset of customers or the aura of a particular region is also a factor to
consider when choosing a location for business.

Industrial Clusters / areas: Industrial areas are areas mapped out specifically for commercial
purposes especially manufacturing firms. These areas are sometimes given special attention such
as good road network, constant power supply, etc. In some certain regions, heavy duty
manufacturers are forced by the government to site their companies in these industrial areas.

Export processing zones: Locating business in an export processing zone may be a smart choice
if the company is an exporter. Locating business in such regions means a reduction in
transportation cost, faster inspection and clearance of products by custom officials and so on

Free trade zones: International free trade zones and trade fair centers are also good places to site
business because it is accessible and normally receives wide publicity

Distributive channel: If the business doesn’t deal directly with end users or final consumers,
then it’s wise to put its distributive channel into consideration when choosing a location for
business.

Examples of plant location (Ethiopia)

Ethiopia Steel factory are generally located near the main road and capital city. This choice of
site is mainly because of more economical transport of the finished goods as compared to basic
raw materials.Mugger cement factory and National cement factory manufacture cement; such
plants are located near the lime and the coal deposits.Sugar factoriesare produce sugar and
ethanol and the factory are located near the sugar cane field.

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11. What is design capacity and how do you measure capacity of a facility? Explain.

Design capacity is the theoretical maximum output of a system in a given period under ideal
conditions. For many companies designing capacity can be straightforward, effective capacity is
the capacity a firm expects to achieve given its current operating constraints. To measure
capacity the units of output is used. If the variety of products produced at a work center or in a
plant is not large, it is often possible to use a unit common to all products. In addition standard
time is also needed which is expressed as the time required for making the product using a given
method of manufacturing. Utilization is the available time that is the maximum hours which can
be expected from the work center; the percentage of time that the work center is active.
Efficiency is how the work center is used in comparison with standard.Available time is the
number of hours a work center can be used.

Available time = the number of machines x the number of workers x the hours of operations.

The measures are:

1. Utilization = Actual output / Design capacity, this is a percent of design capacity. Also
measured as: 
Utilization = (Hours actually worked / available hours) x 100%
2. Efficiency = Actual output / Effective capacity, this is an actual output as a percent of
effective capacity. Also measured as: 
Efficiency = (Actual rate of production / Standard rate of production) x 100%

These measures are important for an operations manager, but they often need to know the
expected output of a facility or process. Also referred to as rated capacity: 
Rated Capacity = (Available time) x (Utilization) x (Efficiency) 

12. Discuss the various aspects of capacity concepts with example.

Capacity can be taken as a measure of an organizations ability to provide customers with service
or goods in the amount requested at the time requested. It should take in to account both the
volume and the time over which capacity is available. Capacity decision should be taken by
firstly identifying requirements and then evaluating the alternative capacity plans generated. The
term 'capacity' means a "constraint" or an upper limit. Having too much capacity relative to

30
demand means incurring sizable costs to an unused capacity and having too low capacity means
that the demand from some customers may be unfilled. Therefore, it is equally important to
understand the concepts and impact of an appropriate capacity level.

Theoretical Capacity, Theoretical capacity is the denominator-level concept that is based on

producing at full efficiency all the time.For example, if Ethiopia steel industries can produce 15
units of wardrobe per shift when the production lines are operating at maximum speed and if a
shift consists of 8 working hours giving 3 shifts per 24 hour a day then the annual theoretical
capacity is 15 units x 3 shifts x 360 days = 16,200 units.

Practical Capacity, Practical capacity is a denominator-level concept that reduces the

theoretical capacity by unavoidable operating interruptions such as scheduled maintenance time,
shutdowns for holidays and so on. Assume that the practical production rate is 12 units per shift
and the industry can run 300 days a year, then the practical annual capacity is 12 units x 3 shifts
x 300 days = 10,800 units.

Normal Capacity, both theoretical and practical capacity measure what a plant can supply. In
contrast, normal capacity measures the denominator level in terms of demand for the output of
the plant. Normal capacity utilization is a concept based on the level of capacity utilization that
specifies the average customer demand over a time period that includes seasonal, cyclical and
trend factors.

Budget Capacity, Budget capacity is the denominator-level concept based on the expected level
of capacity utilization for the budget period.

Examples of capacity in different sector

1. General: Specific ability of an entity (person or organization) or resource, measured in

quantity and level of quality, over an extended period.
2. Banking: Borrower's ability to repay a debt on a timely basis, determined by deducting
total cash outflows from the borrower’s total income during (usually) a month.
3. Law: Legal ability of an entity (person or organization) to perform an act, such as creating
a binding contract.

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 4. Manufacturing: Highest sustainable output rate (maximum number of units per month,
quarter, or year) that can be achieved with current resources, maintenance strategies,
product specifications, etc.

13. Briefly explain the different types of layout with example.

Layout design concerns the physical placement of resources such as equipment and storage
facilities. Layout design is important because it can have a significant effect on the cost and
efficiency of an operation and can entail substantial investment in time and money. There are
four types of layout:-

1) Process Layout

Process layout is recommended for batch production. All machines performing similar type of
operations are grouped at one location in the process layout e.g., all lathes, milling machines, etc.
are grouped in the shop will be clustered in like groups.Thus, in process layout the arrangement
of facilities are grouped together according to their functions. The flow paths of material through
the facilities from one functional area to another vary from product to product. Usually the paths
are long and there will be possibility of backtracking.Process layout is normally used when the
production volume is not sufficient to justify a product layout. Typically, job shops employ
process layouts due to the variety of products manufactured and their low production volumes.

2) Product Layout

In this type of layout, machines and auxiliary services are located according to the processing
sequence of the product. If the volume of production of one or more products is large, the
facilities can be arranged to achieve efficient flow of materials and lower cost per unit. Special
purpose machines are used which perform the required function quickly and reliably. The
product layout is selected when the volume of production of a product is high such that a
separate production line to manufacture it can be justified. In a strict product layout, machines
are not shared by different products. Therefore, the production volume must be sufficient to
achieve satisfactory utilization of the equipment.

3) Hybrid Layout

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 A hybrid layout attempts to combine the efficiency of a product layout with the flexibility of a
process layout. Hybrid layouts are created from placing together resources which service a subset
of the total range of product or services. When grouping products or services together in this way
the grouping is termed a family. The process of grouping the products or services to create a
family is termed as group technology. Group technology has three aspects:

i. Grouping parts into families

Grouping parts or customers into families has the objective of reducing the changeover time
between batches, allowing smaller batch sizes, and thus improving flexibility

ii. Grouping physical facilities into cells to reduce transportation time between processes

Physical facilities are grouped into cells with the intention of reducing material or customer
movements. Whereas a process layout involves extensive movement of materials or customers
between departments which common processes, a cell comprises all the facilities required to
manufacture a family of components or delivery a service. Material and customer movement is
therefore restricted to within the cell and throughput times are therefore reduced.

iii. Creating groups of multi-skilled workers

Creating groups of multi-skilled workers enables increased autonomy and flexibility on the
part of operators. This enables easier changeovers from one part to another and increases the
job enrichment of members of the group. This in turn can improve motivation and have a
beneficial effect on quality.

Examples of hybrid layouts include custom manufacture, maternity unit in hospital, and
cafeteria with multiple serving areas. In services a cell layout could involve an insurance
organization organized by type of claim (e.g. car, home, travel)

4) Fixed – Position Layout

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This layout design is used when the product or service cannot be moved and so the transforming
process must take place at the location of product creation or service delivery. In a fixed position
layout all resources for producing the product, such as equipment and labor must move to the site
of the product or service. The emphasis when using a fixed-position layout is on the scheduling
and coordination of resources to ensure that they are available in the required amounts at the
required time. Examples of fixed – position layouts include construction sites such as for
building or for large ships, aircraft manufacture and full service restaurants.

14. What do you know about agile manufacturing? Compare with lean manufacturing and
their strategic orientations.

Agile manufacturing is a manufacturing that responds quickly to customer desires and input
through a highly integrated information technology communication system to produce high-
quality, highly customizable modular products.
Lean Manufacturing is a manufacturing approach that focuses on minimizing costs. It means
there is a minimal amount of money invested in raw materials and inventory at all times.  It
follows a demand-based flow style. Both lean and agile manufacturing are methodological
approaches to lowering costs, improving customer service, and providing faster response time
Similarities

Both lean and agile manufacturing are suited for modern managers who desire to increase
business sustainability and revenue. Both are designed to keep companies competitive. They
both must be decided on early in the manufacturing planning process, as they affect all aspects of
the process. Both rely on statistical analysis and open communication between all involved
stakeholders.

Differences

Lean manufacturing focuses on reducing costs, allowing companies greater price flexibility.
Agile manufacturing focuses on responding quickly to unexpected customer requests, allowing
companies to capitalize on the highest possible number of sales opportunities.Production
configuration for agile manufacturing uses fewer people, relying more on automation and
modular design than lean manufacturing, which relies heavily on people. Regarding inventory,
lean manufacturing requires a higher inventory of smaller parts, while agile manufacturing

34
requires a lower inventory due to modular design.  The modular design also makes agile
manufacturing systems more ready to adapt to customization requests.

15. Briefly describe factors to be considered in efficient layout design

Facility Layout
Production is the basic activity of all industrial units. Production activity is done in factories
which house manufacturing processes. The basic inputs of the production processes are labor,
equipment or machines, capital, energy, information & resources. The outputs are products or the
services.

Factors in determining the efficient layout & design: 

1. Flexibility: The facility layout should be such that it can be readjusted or modified
according to future expansion or changes.
2. Flow of Movement: It should be a smooth flow from input to output so tat the overall
coordination is maintained between various units.
3. Utilization of Space: There should be a proper & optimal usage of space to ensure that
all the equipment is properly placed & the handling of materials is done is done best in
such a space.
4. Ease of Communication: There should be an effective communication between various
aspects of business which is conducive to its overall growth.
5. Safety: Occupational safety measures must be in place for optimum production & cutting
losses caused due to hazards.
6. Management of Materials: There should be a proper maintenance & upkeep of
equipment’s to ensure that the production is hassle free.
7. Ensuring High Employee Morale: Since this directly affects production, factors like
attractiveness of a facility, ventilation, lighting, restrooms & cafeterias have to be
provided for maximum employee participation.

16. How time standard is determined in the work measurement? Explain the steps with
example.

Work measurement is concerned with the determination of the amount of time required to
perform a unit of work. Work measurement is very important for promoting productivity of an

35
organization. It enables management to compare alternate methods and also to do initial staffing.
Time standard in the work measurement are determined through the use of statistical techniques
to arrive a standard time for performing one cycle of repetitive job.

Steps

i. Establish the standard job method

It is essential that the best method of undertaking the job is determined using method study
before a time study is undertaken. If a better method for the job is found then the time study
analysis will need to be repeated.
ii. Break down the job into elements
The job should be broken down into a number of easily measurable tasks. This will permit a
more accurate calculation of standard time as varying proficiencies at different parts of the whole
job can be taken into account.
iii. Study the job
This has traditionally been undertaken with a stopwatch, or electronic timer, by observation of
the task. Each time element is recorded on an observation sheet. A Video camera can be used for
observation, which permits study away from the workplace, and in slow motion, which permits a
higher degree of accuracy of measurement.
iv. Rate the worker’s performance
As the time study is being conducted a rating of the worker’s performance is also taken in order
to achieve a true time rating for the task. Rating factors are usually between 80% and 120% of
normal. This is an important but subjective element in the procedure and is best done if the
observer is familiar with the job itself.
v. Compute the average time
Once a sufficient sample of job cycles have been undertaken an average is taken of the observed
times called the cycle time. The sample size can be determined statistically, but is often around
five to fifteen due to cost restrictions.
vi. Compute the normal time
Adjust the cycle time for the efficiency and speed of the worker who was observed. The normal
time is calculated by multiplying the cycle time by the performance rating factors.
vii. Compute the standard time

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The standard time is computed by adjusting the normal time by an allowance factor to take
account of unavoidable delays such as machine breakdown and rest periods.
17. What are the different types of incentive plans to be considered in the compensations
system in the operations environment?

Six Types of Incentive Plans

Incentives are effective motivators when the objectives to be met are clearly stated upfront and
when the incentives offered are desirable. Gone are the days when one type of incentive, such as
money or a pat on the back, worked for everyone. A company that provides various types of
incentives, tailored to individual workers, will succeed at motivating employees to consistently
do their best.

1) Profit or Gain-Sharing

Giving employees the chance to share in productivity gains or profits, usually through cash
or stock bonuses, can motivate them to hit individual benchmarks or help reach team-wide or
organizational objectives. One way to offer profit sharing is through deferred compensation.

2) Cash Bonuses

One-time bonuses, in addition to regular pay increases or commissions, may be paid to

individuals for meeting certain milestones or perform valuable services. Bonuses also might
be offered for extraordinary performance after completion, appraisal and analysis of a
specific project.

3) Retention Bonuses

Retention bonuses reward employees for staying with the company for a particular amount of
time or through a specific event, such as during a merger or acquisition or a crucial
production period.

4) Long-term, Stock-Based Incentives

Publicly traded companies may offer long-term incentives based around the price of common
stock. These incentives help align an employee's long-term financial interest with that of the

37
 company. The most popular of these incentives is restricted stock, which is given subject to
sale restrictions or forfeiture until the employee has been with the company a specific period
of time. Also popular are stock options, which allow the employee to buy shares at an
agreed-upon price for a certain period of time. Performance shares -- grants of actual shares
of stock, payment of which is contingent on performance over a multi-year period -- are
sometimes offered to executives or officers.

5) Training

Offering specialized training in an area of interest is another valued incentive. The key to
making this work is to allow the high-performing individual to choose the type of training he
most values.

6) Recognition

Many employees thrive on being recognized in front of their peers. The company recognizes
the employee through signs in the lobby, emails, a special parking place and at staff meetings
and in employee newsletters. Employees (or teams) might be offered additional vacation or
personal time as an incentive to achieve a specific goal.

18. What is the difference between design capacity and effective capacity? Describe their
difference with example.

 Design capacity
Designed capacity of a facility is the planned or engineered rate of output of goods or services
under normal or full scale operating conditions. The design capacity should reflect
management’s strategy for meeting the demand. The best approach is to plan for some in-
between level of capacity.

Examples of design capacity

Design capacity is the maximum output of a structure, facility, process, machine, tool or
component based on its design. It is the capacity that can be achieved under ideal conditions with
unlimited resources such as labor, power, materials and parts. Design capacity is an important
consideration in capacity planning because achieving more capacity isn't always a simple matter

38
of adding more inputs. Things have limits. The following are illustrative examples of design
capacity.

Structure: - A large organization is poorly structured such that adding more staff only

decreases revenue.

Facilities: - A restaurant is designed for a maximum of 120 seats. In order to achieve its design
capacity it requires 12 staff and other inputs such as ample food.

Production: - The batch production line of a bakery can produce 12,000 loaves of bread an hour
on a fully staffed shift.

Transport: - A subway platform is designed for no more than 12,000 passengers.

Energy: - A solar module is designed for 20.1% conversion efficiency under ideal conditions
such as intense, direct sunlight when the panels are clean.

Technology: - A cloud platform is designed for scale such that it could support billions of
concurrent users if it were allocated enough resources such as millions of computing units.

Process: -A customer support process has a variety of technology and

administrative bottlenecks such that it can't be efficiently scaled beyond serving 1,000
customers an hour.

Infrastructure: - A rain garden can filter up to 40,000 liters of storm water an hour.

Machines: - A robot can sort 10,300 recycling items an hour under ideal conditions such as a
high density of objects the robot is able to recognize.

Components: - A cloud platform designed to scale has a poorly designed component that fails
with more than 2,000 concurrent users. The component represents a bottleneck that places a
limit on the capacity of the software.

 Effective capacity

Effective capacity is the maximum output of the specific product or product mix the system of
workers and machines is capable of producing as an integrated whole. Effective capacity is less

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than design capacity or at the most equal it because of the limitation of product mix, quality
specification, and breakdowns.

Examples of effective capacity:-

Effective capacity is the maximum capacity of something based on itsdesign capacity and

resources available to it. The following are illustrative examples.

Production Line: -A production line has an effective capacity of 120 units an hour. This is
based on the design of the production line such as the throughput of each workstation. It is also
based on the resources available to the production line such as labor, power, materials and parts.

Facilities: - An office has an effective capacity of 400 employees based on the design of the
building and availability of resources such as power that are required to operate the facility.

Services: - A flight has an effective capacity of 220 passengers based on the design of the
aircraft and availability of staff and inputs such as fuel.

Technology: - A cloud software platform has effective capacity of 20,000 concurrent users. The
design of the software allows for practically unlimited capacity.

Difference

Design capacity is what the engineers have designed a plant to operate at. Effective capacity is
what the plant actually runs at. At most modern, large scale plants the effective capacity can
often exceed the design capacity. Engineering types are conservative and want to make sure they
operate to specs. As a result, designs often contain redundancies. As a result, simple de-
bottlenecking can often "add" capacity.Utilization will determine what the effective capacity is
i.e. if the plan is turned on then the effective capacity is zero.

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