8 9 10 Merged

Short-Term
Scheduling
1
PowerPoint presentation to accompany
Heizer, Render, Munson
5
Operations Management, Twelfth Edition, Global Edition
Principles of Operations Management, Tenth Edition, Global Edition
PowerPoint slides by Jeff Heyl
Copyright © 2017 Pearson Education, Ltd. 15 - 1

Outline
▶Loading jobs
▶Sequencing jobs

Short-Term Scheduling
The objective of scheduling is to

allocate and prioritize demand
(generated by either forecasts or
customer orders) to available
facilities

Importance of Short-Term
Scheduling
▶ Effective and efficient scheduling can be a
competitive advantage
▶ Faster movement of goods through a facility
means better use of assets and lower costs
▶ Additional capacity resulting from faster
throughput improves customer service
through faster delivery
▶ Good schedules result in more dependable
deliveries

Scheduling Decisions
TABLE 15.1 Scheduling Decisions
ORGANIZATION MANAGERS SCHEDULE THE FOLLOWING

Alaska Airlines Maintenance of aircraft
Departure timetables
Flight crews, catering, gate, ticketing personnel
Arnold Palmer Hospital Operating room use
Patient admissions
Nursing, security, maintenance staffs
Outpatient treatments
University of Alabama Classrooms and audiovisual equipment
Student and instructor schedules
Graduate and undergraduate courses
Amway Center Ushers, ticket takers, food servers, security personnel
Delivery of fresh foods and meal preparation
Orlando Magic games, concerts, arena football
Lockheed Martin Production of goods
Factory Purchases of materials
Workers

Scheduling Issues
▶ Scheduling deals with the timing of
operations
▶ The task is the allocation and prioritization
of demand
▶ Significant factors are
1) Forward or backward scheduling
2) Finite or infinite loading
3) The criteria for sequencing jobs

Scheduling
Flow
Figure 15.1

Forward and Backward
Scheduling
▶ Forward scheduling starts as soon as the
requirements are known
▶ Produces a feasible schedule though it
may not meet due dates
▶ Frequently results in
buildup of work-in-
process inventory
Due
Now Date

Scheduling
▶ Backward scheduling begins with the due
date and schedules the final operation first
▶ Schedule is produced by working
backwards though the processes
▶ Resources may not
be available to
accomplish the
schedule Now
Due
Date

Scheduling
▶ Backward scheduling begins with the due
date and schedules thesfinal a r e operation first
o a c h e
▶ Schedulethis a p
produced p r byp aworking
e s e e v e l o
O f t e n d t o d p a c i t y
backwards m b i though
n e
e e the
n c a processes r
co f b e t w s t o m e
- o f c u
▶ Resources
trade ramay i n t s anot
n d
s
s t t i o n
con eto
be available xpect
a
accomplish the
schedule Now
Due
Date

Finite and Infinite Loading
▶ Assigning jobs to work stations
▶ Finite loading assigns work up to the
capacity of the work station
▶ All work gets done
▶ Due dates may be pushed out
▶ Infinite loading does not consider
capacity
▶ All due dates are met
▶ Capacities may have to be adjusted
Scheduling Criteria
1. Minimize completion time

2. Maximize utilization of facilities
3. Minimize work-in-process (WIP)
inventory
4. Minimize customer waiting time

Different Processes/
Different Approaches
Different Processes Suggest Different Approaches to
TABLE 15.2
Scheduling
Process-focused facilities (job shops)
► Scheduling to customer orders where changes in both volume and
variety of jobs/clients/patients are frequent
► Schedules are often due-date focused, with loading refined by finite
loading techniques
► Examples: foundries, machine shops, cabinet shops, print shops, many
restaurants, and the fashion industry
Repetitive facilities (assembly lines)
► Schedule module production and product assembly based on frequent
forecasts
► Finite loading with a focus on generating a forward-looking schedule
► JIT techniques are used to schedule components that feed the
assembly line
► Examples: assembly lines for washing machines at Whirlpool and
automobiles at Ford

Different Processes/
Different Approaches
Different Processes Suggest Different Approaches to
TABLE 15.2
Scheduling
Product-focused facilities (continuous)
► Schedule high-volume finished products of limited variety to meet a
reasonably stable demand within existing fixed capacity
► Finite loading with a focus on generating a forward-looking schedule
that can meet known setup and run times for the limited range of
products
► Examples: huge paper machines at International Paper, beer in a
brewery at Anheuser-Busch, and potato chips at Frito-Lay

Scheduling
Process-Focused Facilities
▶ High-variety, low volume
▶ Production items differ considerably
▶ Schedule incoming orders without
violating capacity constraints
▶ Scheduling can be complex

Loading Jobs
▶ Assign jobs so that costs, idle time, or
completion time are minimized
▶ Two forms of loading
▶ Capacity oriented
▶ Assigning specific jobs to work centers

Gantt Charts
▶ Load chart shows the loading and idle
times of departments, machines, or
facilities
▶ Displays relative workloads over time
▶ Schedule chart monitors jobs in
process
▶ All Gantt charts need to be updated
frequently to account for changes

Gantt Load Chart Example
Figure 15.3
Work Day
Monday Tuesday Wednesday Thursday Friday
Center
Metalworks Job 349 Job 350
Mechanical Job 349 Job 408
Electronics Job 408 Job 349
Painting Job 295 Job 408 Job 349
Processing Unscheduled Center not available

Gantt Schedule Chart Example
Figure 15.4
Start of an
Day Day Day Day Day Day Day Day activity
Job
1 2 3 4 5 6 7 8
End of an
activity
A Scheduled
activity time
allowed
Maintenance Actual work
B progress
Nonproduction
time
C
Point in time
when chart is
reviewed
Now
Assignment Method
▶ A special class of linear programming

models that assigns tasks or jobs to
resources
▶ Objective is usually to minimize cost
or time
▶ Only one job (or worker) is assigned
to one machine (or project)

Assignment Method
▶ Build a table of costs or time associated
with particular assignments
TYPESETTER
JOB A B C
R-34 $11 $14 $ 6
S-66 $ 8 $10 $11
T-50 $ 9 $12 $ 7

Assignment Method
1. Create zero opportunity costs by repeatedly
subtracting the lowest costs from each row
and column
2. Draw the minimum number of vertical and
horizontal lines necessary to cover all the
zeros in the table. If the number of lines
equals either the number of rows or the
number of columns, proceed to step 4.
Otherwise proceed to step 3.

Assignment Method
3. Subtract the smallest number not covered by
a line from all other uncovered numbers. Add
the same number to any number at the
intersection of two lines. Return to step 2.
4. Optimal assignments are at zero locations in
the table. Select one, draw lines through the
row and column involved, and continue to the
next assignment.

Assignment Example
Typesetter
A B C
Job
R-34 $11 $14 $ 6
S-66 $ 8 $10 $11
T-50 $ 9 $12 $ 7
Step 1a - Rows Step 1b - Columns
Typesetter Typesetter
A B C A B C
Job Job
R-34 $ 5$ 8$ 0 R-34 $ 5$ 6$ 0
S-66 $ 0$ 2$ 3 S-66 $ 0$ 0$ 3
T-50 $ 2$ 5$ 0 T-50 $ 2$ 3$ 0
Assignment Example
Step 2 - Lines Step 3 - Subtraction
Typesetter The smallest uncovered number is 2

A B C so this is subtracted from all other
uncovered numbers and added to
Job numbers at the intersection of lines
R-34 $ 5$ 6$ 0
S-66 $ 0$ 0$ 3
T-50 $ 2$ 3$ 0 Typesetter
A B C
Smallest uncovered number Job
R-34 $ 3$ 4$ 0
Because only two lines are
needed to cover all the zeros, the S-66 $ 0$ 0$ 5
solution is not optimal T-50 $ 0$ 1$ 0

Assignment Example
Step 2 - Lines Step 4 - Assignments
Typesetter Start by assigning R-34 to worker C as

A B C this is the only possible assignment for
worker C.
Job
R-34 $ 3$ 4$ 0 Job T-50 must go to worker A as
worker C is already assigned. This
S-66 $ 0$ 0$ 5 leaves S-66 for worker B.
T-50 $ 0$ 1$ 0
Typesetter
Because three lines are needed, A B C
the solution is optimal and Job
assignments can be made R-34 $ 3$ 4$ 0
S-66 $ 0$ 0$ 5
T-50 $ 0$ 1$ 0

Assignment Example
Typesetter Typesetter
A B C A B C
Job Job
R-34 $11 $14 $ 6 R-34 $ 3$ 4$ 0
S-66 $ 8 $10 $11 S-66 $ 0$ 0$ 5
T-50 $ 9 $12 $ 7 T-50 $ 0$ 1$ 0
From the original cost table

Minimum cost = $6 + $10 + $9 = $25

Sequencing Jobs
▶ Specifies the order in which jobs should
be performed at work centers
▶ Priority rules are used to dispatch or
sequence jobs
▶ FCFS: First come, first served
▶ SPT: Shortest processing time
▶ EDD: Earliest due date
▶ LPT: Longest processing time

Performance Criteria
▶ Flow time – the time between the release of a
job to a work center until the job is finished
Sum of total flow time
Average completion time =
Number of jobs
Total job work (processing) time
Utilization metric = Sum of total flow time
Average number of = Sum of total flow time
jobs in the system Total job work (processing) time
Total late days
Average job lateness = Number of jobs

Performance Criteria
▶ Flow time – the time between the release of a
job to a work center until the job is finished
Average completion time =
Number of jobs
Job lateness = Max{0, yesterday + flow time – due date}
Utilization metric = Sum of total flow time
Average number of = Sum of total flow time
jobs in the system Total job work (processing) time
Total late days
Average job lateness = Number of jobs

Sequencing Example
Apply the four popular sequencing rules to
these five jobs
Job Work (Processing) Job Due

Time Date
Job (Days) (Days)
A 6 8
B 2 6
C 8 18
D 3 15
E 9 23

Sequencing Example
FCFS: Sequence A-B-C-D-E
Job Work
Job (Processing) Flow Job Due Job
Sequence Time Time Date Lateness
A 6 6 8 0
B 2 8 6 2
C 8 16 18 0
D 3 19 15 4
E 9 28 23 5
28 77 11

Sequencing Example
FCFS: Sequence A-B-C-D-E

Average completion time = Number of jobs
= 77/5 = 15.4 days

Utilization metric = Sum of total flow time = 28/77 = 36.4%
Average number of Sum of total flow time

jobs in the system = Total job work time
= 77/28 = 2.75 jobs
Total late days

Average job lateness = Number of jobs = 11/5 = 2.2 days

Sequencing Example
SPT: Sequence B-D-A-C-E
Job Work
B 2 2 6 0
D 3 5 15 0
A 6 11 8 3
C 8 19 18 1
E 9 28 23 5
28 65 9

Sequencing Example
SPT: Sequence B-D-A-C-E

= 65/5 = 13 days
Total job work time


= 65/28 = 2.32 jobs
Total late days


Sequencing Example
EDD: Sequence B-A-D-C-E
Job Work
B 2 2 6 0
A 6 8 8 0
D 3 11 15 0
C 8 19 18 1
E 9 28 23 5
28 68 6

Sequencing Example
EDD: Sequence B-A-D-C-E

= 68/5 = 13.6 days
Total job work time


= 68/28 = 2.43 jobs
Total late days


Sequencing Example
LPT: Sequence E-C-A-D-B
Job Work
E 9 9 23 0
C 8 17 18 0
A 6 23 8 15
D 3 26 15 11
B 2 28 6 22
28 103 48

Sequencing Example
LPT: Sequence E-C-A-D-B

= 103/5 = 20.6 days
Total job work time


= 103/28 = 3.68 jobs
Total late days


Sequencing Example
Summary of Rules
Average
Average Number of Average
Completion Utilization Jobs in Lateness
Rule Time (Days) Metric (%) System (Days)
FCFS 15.4 36.4 2.75 2.2
SPT 13.0 43.1 2.32 1.8
EDD 13.6 41.2 2.43 1.2
LPT 20.6 27.2 3.68 9.6

Comparison of
Sequencing Rules
▶ No one sequencing rule excels on all criteria
1. SPT does well on minimizing flow time and number
of jobs in the system
► But SPT moves long jobs to
the end which may result
in dissatisfied customers
2. FCFS does not do especially
well (or poorly) on any
criteria but is perceived
as fair by customers
3. EDD minimizes maximum
lateness
Critical Ratio (CR)
▶ An index number found by dividing the time
remaining until the due date by the work time
remaining on the job
▶ Jobs with low critical ratios are scheduled
ahead of jobs with higher critical ratios
▶ Performs well on average job lateness criteria
Time remaining Due date – Today's date

CR = Workdays remaining = Work (lead) time remaining

Critical Ratio Example
Currently Day 25
JOB DUE DATE WORKDAYS REMAINING

A 30 4
B 28 5
C 27 2
JOB CRITICAL RATIO PRIORITY ORDER

A (30 - 25)/4 = 1.25 3
B (28 - 25)/5 = .60 1
C (27 - 25)/2 = 1.00 2
With CR < 1, Job B is late. Job C is just on schedule and

Job A has some slack time.
Critical Ratio Technique
1. Determine the status of a specific job
2. Establish relative priorities among jobs
on a common basis
3. Adjust priorities automatically for
changes in both demand and job
progress
4. Dynamically track job progress

Sequencing N Jobs on Two
Machines: Johnson's Rule
▶ Works with two or more jobs that
pass through the same two
machines or work centers
▶ Minimizes total production time and
idle time
▶ An N/2 problem, N number of jobs
through 2 workstations

Johnson’s Rule
1. List all jobs and times for each work center
2. Select the job with the shortest activity time.
If that time is in the first work center,
schedule the job first. If it is in the second
work center, schedule the job last. Break ties
arbitrarily.
3. Once a job is scheduled, it is eliminated from
the list
4. Repeat steps 2 and 3 working toward the
center of the sequence

Johnson’s Rule Example
WORK CENTER 1 WORK CENTER 2
JOB (DRILL PRESS) (LATHE)
A 5 2
B 3 6
C 8 4
D 10 7
E 7 12

A 5 2
B 3 6
C 8 4 B E D C A
D 10 7
E 7 12

A 5 2
B 3 6
C 8 4 B E D C A
D 10 7
E 7 12
Time 0 3 10 20 28 33
WC
1 B E D C A
Idle
WC
2
Job
completed

A 5 2
B 3 6
C 8 4 B E D C A
D 10 7
E 7 12
Time 0 3 10 20 28 33
WC
1 B E D C A
Idle
WC
2 B E D C A
Job
Time 0 1 3 5 7 9 10 11 12 13 17 19 21 22 23 25 completed
27 29 31 33 35
B E D C A
Terima kasih

Inventory
Management
1
Heizer, Render, Munson
2
Operations Management, Twelfth Edition, Global Edition
Principles of Operations Management, Tenth Edition, Global Edition

Outline
We will three types of Economic Order
Quantity model:
1. Basic economic order quantity (EOQ)
model
2. Production order quantity model
3. Quantity discount model

Inventory Management
The objective of inventory

management is to strike a balance
between inventory investment and
customer service

Importance of Inventory
▶ One of the most expensive assets of

many companies representing as
much as 50% of total invested capital
▶ Less inventory lowers costs but
increases chances of running out
▶ More inventory raises costs but
always keeps customers happy

Functions of Inventory
1. To provide a selection of goods for
anticipated demand and to separate
the firm from fluctuations in demand
2. To decouple or separate various
parts of the production process
3. To take advantage of quantity
discounts
4. To hedge against inflation and
foreign exchange rate fluctuation.
Types of Inventory
▶ Raw material
▶ Purchased but not processed
▶ Work-in-process (WIP)
▶ Undergone some change but not completed
▶ A function of cycle time for a product
▶ Maintenance/repair/operating (MRO)
▶ Necessary to keep machinery and processes
productive
▶ Finished goods
▶ Completed product awaiting shipment
The Material Flow Cycle
Cycle time
95% 5%
InputWait for Wait to Move Wait in queue Setup Run Output

inspection be moved time for operator time time
Figure 12.1

Managing Inventory
1) How inventory items can be classified

(ABC analysis)
2) How accurate inventory records can
be maintained

ABC Analysis
▶ Divides inventory into three classes based
on annual dollar volume
▶ Class A - high annual dollar volume
▶ Class B - medium annual dollar volume
▶ Class C - low annual dollar volume
▶ Used to establish policies that focus on the
few critical parts and not the many trivial
ones

ABC Analysis
Figure 12.2
Percentage of annual dollar usage
A Items
80 –
70 –
60 –
50 –
40 –
30 –
20 – B Items
10 – C Items
| | | | | | | | | |
0 –
10 20 30 40 50 60 70 80 90 100
Percentage of inventory items

ABC Analysis
ABC Calculation
(1) (2) (3) (4) (5) (6) (7)
PERCENT
OF PERCENT
ITEM NUMBER ANNUAL ANNUAL OF ANNUAL
STOCK OF ITEMS VOLUME UNIT DOLLAR DOLLAR
NUMBER STOCKED (UNITS) x COST = VOLUME VOLUME CLASS
#10286 20% 1,000 $ 90.00 $ 90,000 38.8% A
72%
#11526 500 154.00 77,000 33.2% A
#12760 1,550 17.00 26,350 11.3% B
#10867 30% 350 42.86 15,001 6.4% 23% B
#10500 1,000 12.50 12,500 5.4% B
#12572 600 14.17 8,502 3.7% C
#14075 2,000 .60 1,200 .5% C
#01036 50% 100 8.50 850 .4% 5% C
#01307 1,200 .42 504 .2% C
#10572 250 .60 150 .1% C
8,550 $232,057 100.0%

ABC Analysis
▶ Other criteria than annual dollar volume
may be used
▶ High shortage or holding cost
▶ Anticipated engineering changes
▶ Delivery problems
▶ Quality problems

Inventory Models
▶ Independent demand - the demand for
item is independent of the demand for any
other item in inventory
▶ Dependent demand - the demand for
item is dependent upon the demand for
some other item in the inventory

Inventory Models
▶ Holding costs - the costs of holding or
“carrying” inventory over time
▶ Ordering cost - the costs of placing an
order and receiving goods
▶ Setup cost - cost to prepare a machine or
process for manufacturing an order
▶ May be highly correlated with setup time

Holding Costs
TABLE 12.1 Determining Inventory Holding Costs
COST (AND RANGE)
AS A PERCENT OF
CATEGORY INVENTORY VALUE
Housing costs (building rent or depreciation, 6% (3 -
operating costs, taxes, insurance) 10%)
Material handling costs (equipment lease or 3% (1 -
depreciation, power, operating cost) 3.5%)
Labor cost (receiving, warehousing, security) 3% (3 - 5%)
Investment costs (borrowing costs, taxes, and 11% (6 -
insurance on inventory) 24%)
Pilferage, space, and obsolescence (much 3% (2 - 5%)
higher in industries undergoing rapid change like
tablets and smart phones)
Overall carrying cost 26%

Holding Costs
TABLE 12.1 Determining Inventory Holding Costs
COST (AND RANGE)
AS A PERCENTg o n OF
b ly p e n
deINVENTORYd in
CATEGORY
r y c o n sid e r a VALUE
ing c(building a
osts vrent or depreciation, r es t r a tes6%. (3 -
Holdcosts
Housing
t io n, an d in t e
operating costs,
u s in e s
taxes,s , lo c a
insurance) e h ig h
10%) tech
th e b a n 15% , s o m
ll y g r e a t e r t h s ts g r e a r -
te(1
Materialehandling
G n e r a costs (equipment
v e
lease
h oldin or g c o 3%
depreciation, power,
h io n e m
operating
it s h a
cost) 3.5%)
a n d f a s
Labor cost (receiving,
%. warehousing, security) 3% (3 - 5%)
than 40
Investment costs (borrowing costs, taxes, and 11% (6 -
insurance on inventory) 24%)
Pilferage, space, and obsolescence (much 3% (2 - 5%)
higher in industries undergoing rapid change like
PCs and cell phones)
Overall carrying cost 26%

Inventory Models for
Independent Demand
Need to determine when and
how much to order
1. Basic economic order quantity

(EOQ) model
2. Production order quantity model
3. Quantity discount model

Basic EOQ Model
Important assumptions
1. Demand is known, constant, and independent
2. Lead time is known and constant
3. Receipt of inventory is instantaneous and
complete
4. Quantity discounts are not possible
5. Only variable costs are setup (or ordering)
and holding
6. Stockouts can be completely avoided

Inventory Usage Over Time
Figure 12.3
Total order received

Average
Order quantity Usage rate inventory
=Q
Inventory level
on hand
(maximum Q
inventory
level) 2
Minimum
inventory 0
Time

Minimizing Costs
Objective is to minimize total costs
Table 12.4(c)
Total cost of
holding and
setup (order)
Minimum
total cost
Annual cost
Holding cost
Setup (order) cost
Optimal order Order quantity

quantity (Q*)
Minimizing Costs
▶ By minimizing the sum of setup (or
ordering) and holding costs, total costs are
minimized
▶ Optimal order size Q* will minimize total
cost
▶ A reduction in either cost reduces the total
cost
▶ Optimal order quantity occurs when
holding cost and setup cost are equal
Minimizing Costs
Q = Number of units per order
Q* = Optimal number of units per order (EOQ)
D = Annual demand in units for the inventory item
S = Setup or ordering cost for each order
H = Holding or carrying cost per unit per year
Annual setup cost = (Number of orders placed per year)

x (Setup or order cost per order)
Annual demand Setup or order

= Number of units in each order cost per order

Minimizing Costs
Q = Number of pieces per order
Q* = Optimal number of pieces per order (EOQ)
Annual setup cost = (Number of orders placed per year)

x (Setup or order cost per order)
Annual demand Setup or order

= Number of units in each order cost per order

Minimizing Costs
Annual holding cost = (Average inventory level)

x (Holding cost per unit per year)
Order quantity
= (Holding cost per unit per year)
2

Minimizing Costs
Optimal order quantity is found when annual setup

cost equals annual holding cost
Solving for Q*

An EOQ Example
Determine optimal number of needles to order
D = 1,000 units
S = $10 per order
H = $.50 per unit per year

An EOQ Example
Determine expected number of orders
D = 1,000 units Q* = 200 units
S = $10 per order
Expected Demand
number of = N = =
orders Order quantity
1,000
N= = 5 orders per year
200

An EOQ Example
Determine optimal time between orders
S = $10 per order N = 5 orders/year
Expected time Number of working days per year

between =T =
orders Expected number of orders
250
T= = 50 days between orders
5

An EOQ Example
Determine the total annual cost
S = $10 per order N = 5 orders/year
H = $.50 per unit per year T = 50 days
Total annual cost = Setup cost + Holding cost

The EOQ Model
When including actual cost of material P
Total annual cost = Setup cost + Holding cost + Product cost

Robust Model
▶ The EOQ model is robust
▶ It works even if all parameters and
assumptions are not met
▶ The total cost curve is relatively flat in
the area of the EOQ

An EOQ Example
D = 1,000 units 1,500 = 200 units
Q*1,000units
S = $10 per order T = 50 days
H = $.50 per unit per year Q*1,500 = 244.9 units
N = 5 orders/year
Ordering old Q* Ordering new Q*

An EOQ Example
D = 1,000 units 1,500 = 200 units
Q*1,000units Only 2% less than
S = $10 per order T = 50 days the total cost of
$125
H = $.50 per unit per year Q*1,500 whenunits
= 244.9 the
N = 5 orders/year order quantity was
200
Ordering old Q* Ordering new Q*

Reorder Points
▶ EOQ answers the “how much” question
▶ The reorder point (ROP) tells “when” to order
▶ Lead time (L) is the time between placing and
receiving an order
Demand Lead time for a new

ROP = per day order in days
ROP = d x L
D
d=
Number of working days in a year

Reorder Point Curve
Figure 12.5
Q*
Stock is replenished as order arrives
Inventory level (units)
Slope = units/day = d
ROP
(units)
Time (days)
Lead time = L
Reorder Point Example
Demand = 8,000 iPhones per year
250 working day year
Lead time for orders is 3 working days, may take 4
D
d=
Number of working days in a year
= 8,000/250 = 32 units
ROP = d x L
= 32 units per day x 3 days = 96 units
= 32 units per day x 4 days = 128 units

Production Order Quantity Model
1. Used when inventory builds up over a
period of time after an order is placed
2. Used when units are produced and
sold simultaneously Figure 12.6
Part of inventory cycle during which

Inventory level
production (and usage) is taking place

Demand part of cycle with no
production (only usage takes place)
Maximum
inventory
t Time
The main issue is how to determine maximum inventory level?
Q = Number of units per order p = Daily production rate
H = Holding cost per unit per year d = Daily demand/usage rate
t = Length of the production run in days
The main issue is how to determine maximum inventory level?
1. Annual inventory = (Average inventory level) x Holding cost

holding cost per unit per year
Average = (Maximum inventory level)/2

2.
inventory level
Maximum = Total produced during – Total used during

3. inventory level the production run the production run
= pt – dt
3. Maximum = Total produced during – Total used during

inventory level the production run the production run
= pt – dt
However, Q = total produced = pt ; thus t = Q/p
Maximum Q Q d
inventory level =p –d =Q 1–
p p p
Maximum inventory level Q d

Holding cost = (H) = 1– H
2 2 p


Production Order Quantity
Example
D = 1,000 units p = 8 units per day
S = $10 d = 4 units per day
H = $0.50 per unit per year

Note:
D 1,000
d = 4 = Number of days the plant is in operation =
250
When annual data are used the equation becomes:

Quantity Discount Models
▶ Reduced prices are often available when larger
quantities are purchased
▶ Trade-off is between reduced product cost and
increased holding cost
TABLE 12.2 A Quantity Discount Schedule
PRICE RANGE QUANTITY ORDERED PRICE PER UNIT P

Initial price 0 to 119 $ 100
Discount price 1 200 to 1,499 $ 98
Discount price 2 1,500 and over $ 96

Total annual cost = Setup cost + Holding cost + Product cost
where Q = Quantity ordered P = Price per unit

D = Annual demand in units I = Holding cost per unit per year
S = Ordering or setup cost per order expressed as a percent of price P
Because unit price varies, holding cost is expressed

as a percent (I) of unit price (P)

Steps in analyzing a quantity discount
1. Starting with the lowest possible purchase
price, calculate Q* until the first feasible
EOQ is found. This is a possible best order
quantity, along with all price-break
quantities for all lower prices.
2. Calculate the total annual cost for each
possible order quantity determined in Step
1. Select the quantity that gives the lowest
total cost.
Figure 12.7
Initial
Price Discount Price 1 Discount Price 2
550,000 –
TC for No Discount
540,000 –
Annual Total Cost
TC for Discount 1
530,000 –
Not Feasible TC for Discount 2
520,053 –
517,155 –
Feasible
510,000 –
Not Feasible
Possible Order
500,000 – Quantities
120 1,500
Order Quantity
Quantity Discount Example
Calculate Q* for every discount
starting with the lowest price
2(5,200)($200)
Q$96* = = 278 drones/order
(.28)($96)
Infeasible – calculate Q*
for next-higher price
2(5,200)($200)
Q$98* = = 275 drones/order
(.28)($98)
Feasible

Quantity Discount Example
TABLE 12.3 Total Cost Computations for Chris Beehner Electronics
ANNUAL ANNUAL ANNUAL
ORDER UNIT ORDERING HOLDING PRODUCT TOTAL ANNUAL
QUANTITY PRICE COST COST COST COST
275 $98 $3,782 $3,773 $509,600 $517,155
1,500 $96 $693 $20,160 $499,200 $520,053
Choose the price and quantity that gives the

lowest total cost
Buy 275 drones at $98 per unit

JIT, TPS, and Lean
Operations 1
Heizer and Render
Operations Management, Eleventh Edition
6
Principles of Operations Management, Ninth Edition
© 2014
© 2014
Pearson
Pearson
Education,
Education,
Inc.Inc. 16 - 1
JIT/TPS/Lean Operations
Good production systems require

that managers address three issues
that are pervasive and fundamental
to operations management:
eliminate waste, remove variability,
and improve throughput
© 2014 Pearson Education, Inc. 16 - 2

Just-In-Time, TPS, and
Lean Operations
▶ JIT focuses on continuous forced
problem solving
▶ TPS emphasizes continuous
improvement, respect for people, and
standard work practices in an
assembly-line environment
▶ Lean operations emphasize
understanding the customer

Eliminate Waste
▶ Waste is anything that does not add
value from the customer point of view
▶ Storage, inspection, delay, waiting in
queues, and defective products do not
add value and are 100% waste

Ohno’s Seven Wastes
▶ Overproduction
▶ Queues
▶ Transportation
▶ Inventory
▶ Motion: (1) motions of people involved in
the production process, (2) movement of
materials during production processes
▶ Overprocessing
▶ Defective products
Eliminate Waste
▶ Other resources such as energy, water,
and air are often wasted
▶ Efficient, sustainable production
minimizes inputs, reduces waste
▶ Traditional “housekeeping” has been
expanded to the 5Ss

The 5Ss
▶ Sort/segregate – when in doubt, throw it
out
▶ Simplify/straighten – methods analysis
tools
▶ Shine/sweep – clean daily
▶ Standardize – remove variations from
processes
▶ Sustain/self-discipline – review work and
recognize progress

The 5 Ss
▶ Sort/segregate – when in doubt, throw it
out
▶ Simplify/straighten – methods analysis
tools
Two additional Ss
▶ Shine/sweep – clean daily
►Safety – built in good practices
▶ Standardize – remove variations from
►Support/maintenance – reduce
processes
variability and unplanned downtime
▶ Sustain/self-discipline – review work and
recognize progress

Remove Variability
▶ JIT systems require managers to reduce variability caused by
both internal and external factors
▶ Variability is any deviation from the optimum process, refers
to whether it is positive or negative variations.
▶ Eg. Net weigh of sugar: 1 kg
▶ Positive variation: 1.1 kg; negative variation 0.9 kg.
▶ JIT: not more, not less. You must be precise as the requirement.
▶ Inventory hides variability
▶ Less variability results in less waste

Sources of Variability
▶ Poor production processes resulting
in improper quantities, late, or
non-conforming units
▶ Unknown customer demands
▶ Incomplete or inaccurate drawings,
specifications, or bills of material

Sources of Variability
▶ Poor production processes resulting
in improper quantities, late, or
non-conforming units
▶ Unknown customer demands
▶ Incomplete or inaccurate drawings,
specifications, or bills of material
inventory
JI T a n d o l s i n
B o t h e c t i v e t o
n a re e f f b i l ity
red u c t i o s o f v a r i a
ng c a u se
ide n t i f y i

Improve Throughput
▶ The time it takes to move an order from
receipt to delivery
▶ The time between the arrival of raw
materials and the shipping of the
finished order is called manufacturing
cycle time
▶ A pull system increases throughput

Improve Throughput
▶ By pulling material in small lots,
inventory cushions are removed,
exposing problems and emphasizing
continual improvement
▶ Manufacturing cycle time is reduced
▶ Push systems dump orders on the
downstream stations regardless of the
need

Just-In-Time (JIT)
▶ Powerful strategy for improving operations
▶ Materials arrive where they
are needed when they are
needed
▶ Identifying problems and
driving out waste reduces
costs and variability and
improves throughput
▶ Requires a meaningful
buyer-supplier relationship

JIT and Competitive
Advantage
Figure 16.1
JIT and Competitive
Advantage
Figure 16.1
JIT Partnerships
▶ JIT partnerships exist when a supplier
and purchaser work together to remove
waste and drive down costs
▶ Four goals of JIT partnerships are:
▶ Removal of unnecessary activities
▶ Removal of in-plant inventory
▶ Removal of in-transit inventory
▶ Improved quality and reliability

JIT Partnerships
Figure 16.2
Concerns of Suppliers
▶ Diversification – ties to only one customer
increases risk
▶ Scheduling – don’t believe customers can create
a smooth schedule
▶ Lead time – short lead times mean engineering
or specification changes can create problems
▶ Quality – limited by capital budgets, processes,
or technology
▶ Lot sizes – small lot sizes may transfer costs to
suppliers
JIT Layout
▶ Reduce waste due to movement
TABLE 16.1
JIT LAYOUT TACTICS
Build work cells for families of products
Include a large number operations in a small area
Minimize distance
Design little space for inventory
Improve employee communication
Use poka-yoke devices
Build flexible or movable equipment
Cross-train workers to add flexibility

Distance Reduction
▶ Large lots and long production lines
with single-purpose machinery are
being replaced by smaller flexible cells
▶ Often U-shaped for shorter paths and
improved communication
▶ Often using group technology concepts

Increased Flexibility
▶ Cells designed to be rearranged as
volume or designs change
▶ Applicable in office environments as
well as production settings
▶ Facilitates both product and process
improvement

Impact on Employees
▶ Employees may be cross trained for
flexibility and efficiency
▶ Improved communications facilitate the
passing on of important information
about the process
▶ With little or no inventory buffer, getting
it right the first time is critical

Reduced Space and Inventory
▶ With reduced space, inventory must be

in very small lots
▶ Units are always moving because there
is no storage

JIT Inventory
▶ Inventory is at the minimum level
necessary to keep operations running
TABLE 16.2
JIT INVENTORY TACTICS
Use a pull system to move inventory
Reduce lot sizes
Develop just-in-time delivery systems with suppliers
Deliver directly to point of use
Perform to schedule
Reduce setup time
Use group technology

Reduce Variability
Inventory level
Process
Scrap downtime
Setup Quality
time problems
Late deliveries
Figure 16.3
Reduce Variability
Inventory
level
Process
Scrap downtime
Setup Quality
time problems
Late deliveries
Figure 16.3
Reduce Variability
Inventory
level
No scrap Quality
problems
Setup removed
time
reduced Process
No late downtime
deliveries removed
Figure 16.3
Example of how inventory is the place for hiding for
problems
CASE 1: not adopting JIT
▶You received order of 100 unit products
▶ you have inventory in your warehouse 60
▶You manufacture 100 products, but 30 of them are defect products
▶Can you fulfill the customers’ order: YES
▶So the problem of 30 defect products are hiding in your inventory.
CASE 2: adopting JIT by minimizing inventory
▶You received order of 100 unit products
▶ you have inventory in your warehouse 5 units
▶You manufacture 100 products, but 30 of them are defect products
▶Can you fulfill the customers’ order: NO
▶How many stock out you experience? 30-5= 25 unit product stockout.
▶So the problem of 30 defect products are identifiable when keep inventory at
minimum level.

JIT Scheduling
▶ Better scheduling improves performance
▶ JIT=zero inventory, no inventory, if it is not possible, then
keep it at minimum level.
TABLE 16.3
JIT SCHEDULING TACTICS

Communicate schedules to suppliers
Make level schedules
Freeze part of the schedule
Perform to schedule
Seek one-piece-make and one-piece move
Eliminate waste
Produce in small lots
Use kanbans
Make each operation produce a perfect part

Scheduling Small Lots
Figure 16.7
JIT Level Material-Use Approach

A A B B B C A A B B B C
Large-Lot Approach
A A A A A A B B B B B B B B B C C C
Time
Kanban
▶ Kanban is the Japanese word for card
▶ The card is an authorization for the next
container of material to be produced
▶ A sequence of kanbans
pulls material through
the process
▶ Many different sorts of
signals are used, but
the system is still called
a kanban

Kanban
Figure 16.8
Signal marker hanging on post

for part Z405 shows that
production should start for that
part. The post is located so that
workers in normal locations can
easily see it.
Signal marker on stack of boxes
Part numbers mark location of

specific part

JIT Quality
▶ Strong relationship
▶ JIT cuts the cost of obtaining good quality
because JIT exposes poor quality
▶ Because lead times are shorter, quality
problems are exposed sooner related to
low quality raw materials
▶ Better quality means fewer buffers (lower
inventory level) and allows simpler JIT
systems to be used

JIT Quality Tactics
TABLE 16.4
JIT QUALITY TACTICS
Use statistical process control (SPC)
- lower acceptance level and upper acceptance
level
Empower employees
Build fail-safe methods (poka-yoke, checklists, etc.)
Expose poor quality with small lot JIT
Provide immediate feedback

Glass of aqua: target value 20 centiliter
Statistical process control

Toyota Production System
▶ Continuous improvement
▶ Build an organizational culture and value system
that stresses improvement of all processes, kaizen
▶ Part of everyone’s job
▶ Respect for people
▶ People are treated as
knowledge workers
▶ Engage mental and
physical capabilities
▶ Empower employees

Toyota Production System
▶ Standard work practice
▶ Work shall be completely specified as to content,
sequence, timing, and outcome
▶ Internal and external customer-supplier connection
are direct
▶ Product and service flows must be simple and
direct
▶ Any improvement must be made in accordance
with the scientific method at the lowest possible
level of the organization

Lean Operations
▶ Broader than JIT in that it is externally
focused on the customer
▶ Starts with understanding what the
customer wants
▶ Optimize the entire process from the
customer’s perspective

Building a Lean Organization
▶ Transitioning to a lean system can be
difficult
▶ Lean systems tend to have the following
attributes
▶ Use JIT techniques
▶ Build systems that help employees produce
perfect parts
▶ Reduce space requirements

Building a Lean Organization
▶ Lean systems tend to have the following
attributes
▶ Develop partnerships with suppliers
▶ Educate suppliers
▶ Eliminate all but value-added activities
▶ Develop employees
▶ Make jobs challenging
▶ Build worker flexibility

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The objective of scheduling is to

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ORGANIZATION MANAGERS SCHEDULE THE FOLLOWING

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1. Minimize completion time

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Metalworks Job 349 Job 350

Mechanical Job 349 Job 408

Electronics Job 408 Job 349

Painting Job 295 Job 408 Job 349

Processing Unscheduled Center not available

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▶ A special class of linear programming

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Step 1a - Rows Step 1b - Columns

Typesetter The smallest uncovered number is 2

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Typesetter Start by assigning R-34 to worker C as

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From the original cost table

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Job Work (Processing) Job Due

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Sum of total flow time

Total job work (processing) time

Average number of Sum of total flow time

Total late days

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Sum of total flow time

Total job work time

Average number of Sum of total flow time

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Sum of total flow time

Total job work time

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