MODULE 1 Figure1.

Managing this conversion

process is the role of operations
LESSON PRESENTATION management.
This module discusses the introduction to
operations management, specifically, Goods are physical products that can be
operations and productivity. Operations seen, touch, or possibly consume.
management will be defined in many
ways as well as goods and services. Services are primary or complementary
Differences between goods and services activities that does not directly produce
will be identified as well as production physical products
and productivity. Problems related to
productivity will also be analyzed and Characteristics of Goods
solved.
• Tangible Product
INPUTS (Factors of production) • Consistent product definition
• Production usually separate from
• Natural Resources consumption
• Human Resources • Can be inventoried
• Raw Materials • Low customer interaction
• Capital
Characteristics of service
Conversion Process
• Intangible product
Outputs
• Produced and consumed at the
• Products same time
• Services • Often unique
• High customer interaction
Operations management is a discipline • Inconsistent product definition
that applies to all industries. Regardless • Often knowledge-based
of whether it is a restaurant, a
• Frequently dispersed
manufacturing company, a hotel, a
hospital, or a department store - the Goods versus Services
production of goods and services needs
operation management. And the Attributes of
Attributes of
effective and efficient production of Services
Goods (Tangible
goods and services requires application (Intangible
Product)
of the concepts, tools and techniques of Product)
operations management. Before we
proceed to our main topic, let us first Can be resold Reselling unusual
define some terms. Can be Difficult to
inventoried inventory
Production is the creation of goods and Some aspects of
Quality difficult to
services. It turns inputs, such as natural quality
measure
resources, raw materials, human measurable
resources, and capital, into outputs, Selling is distinct Selling is part of
which are goods and services. This from production service
process is shown in the above
 Provider, not 2. Production control. At this stage,
Product is
product, is often the decision-making process
transportable
transportable focuses on controlling quality and
Site of facility costs, scheduling, and the actual
Site of facility day-to-day operations of running a
important for
important for cost factory or service facility.
customer contact
Often easy to Often difficult to 3. Improving production and
automate automate operations. The final stage of
Revenue Revenue operations management focuses on
generated generated developing more efficient methods
primarily from primarily from the of producing the firm’s goods or
tangible product intangible service services.
Why study OM?
Production management deals with
decision making related to production • OM is one of three major functions
processes so that the resulting goods or (marketing, finance and
services are produced according to operations) of any organization
specifications, in the amount and by the • We want (and need) to know how
schedule demanded and out of minimum goods and services are produced
cost.”E.S. Buffa • we want to understand what
operations managers do
Production management is the process • OM is such a costly part of an
of planning and regulating the operations organization
of that part of a business which is
responsible for actual transformation of Organizing to produce Goods and
materials into finished products. Services
A.W.Field
Essential Functions:
Production management is concerned
with the process which convert the inputs • Marketing – Generates demand
into outputs such as men, material, • Production / operations –
money, method etc. and the output such Creates the product
as goods or services. H.A.Harding • Finance / Accounting – Tracks
how well the organization is doing,
Operations management involves pays bills, collects the money
three main types of decisions, typically
made at three different stages:

1. Production planning. The first

decisions facing operations
managers come at the planning
stage. At this stage, managers
decide where, when, and how
production will occur. They
determine site locations and obtain
the necessary resources.
ORGANIZATIONAL CHARTS Significant events in Operation
Management

THE HERITAGE OF OPERATIONS

MANAGEMENT
• Division of labor (Adam Smith
1776 and Charles Babbage 1852)
• Standardized parts (Whitney
1800)
• Scientific Management (Taylor
1881)
• Coordinated assembly line (Ford /
Sorenson / Avery 1913)
• Gantt Charts (Gantt 1916)
• Motion Study (Frank and Lillian
Gilbreth 1922)
• Quality Control (Shewhart 1924;
Deming 1950)
• Computer (Atanasoff 1938)
• CRM / PERT (DuPont 1957)
• Material requirements planning
(Orticky 1960)
• Computer aided design (CAD
1970)
• Flexible manufacturing system
(FMS 1975)
• Baldrige Quality Awards (1980)
• Computer Integrated
manufacturing (1990)
• Globalization (1992)
• Internet (1995)
PRODUCTIVITY CHALLENGE day. The company recently purchased a
computerized title-search system that will
Productivity is the ratio of outputs (goods allow the processing of 14 titles per day.
and services) divided by the inputs Although the staff, their work hours, and
(resources such as labor and capital) pay are the same, the overhead
The objective is to improve productivity expenses are now P800 per day. What
will be the impact on productivity of the
Important note: production is a measure new system?
of output only and not a measure of Given:
efficiency Old New
PRODUCTIVITY System System
4 working 4 working
𝒖𝒏𝒊𝒕𝒔 𝒑𝒓𝒐𝒅𝒖𝒄𝒆𝒅 No of staff
8 hrs/day 8 hrs/day
𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒊𝒕𝒚 =
𝒊𝒏𝒑𝒖𝒕 𝒖𝒔𝒆𝒅 Payroll
P640/day P640/day
cost
• Measure of process improvement Overhead
• Represents output relative to input P400/day P800
Expenses
• only through productivity No. of 14 titles
increases can our standard of 8 titles /day
closes /day
living improve
PRODUCTIVITY CALCULATIONS
Labor Productivity Required: Impact on productivity
Solution:
𝒖𝒏𝒊𝒕𝒔 𝒑𝒓𝒐𝒅𝒖𝒄𝒆𝒅
𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒊𝒕𝒚 = COLLINS TITLE PRODUCTIVITY
𝒍𝒂𝒃𝒐𝒓 − 𝒉𝒐𝒖𝒓𝒔 𝒖𝒔𝒆𝒅 Old System:
One resource input – single factor Staff of 4 works 8 hrs/day
productivity 8 titles/day
Payroll cost = $640 / day
Multi-factor Productivity Overhead = $400 / day
𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒊𝒕𝒚 = New System:
𝒐𝒖𝒕𝒑𝒖𝒕
𝒍𝒂𝒃𝒐𝒓+𝑴𝒂𝒕𝒆𝒓𝒊𝒂𝒍+𝑬𝒏𝒆𝒓𝒈𝒚+𝑪𝒂𝒑𝒊𝒕𝒂𝒍+𝑴𝒊𝒔𝒄𝒆𝒍𝒍𝒂𝒏𝒆𝒐𝒖𝒔
14 titles/day

• also known as total factor Overhead = $800/day

productivity 𝟖 𝒕𝒊𝒕𝒍𝒆𝒔/𝒅𝒂𝒚
𝒐𝒍𝒅 𝒍𝒂𝒃𝒐𝒓 𝒑𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒊𝒕𝒚 =
• output and inputs are often 𝟑𝟐 𝒍𝒂𝒃𝒐𝒓 − 𝒉𝒓𝒔
expressed in dollars = . 𝟐𝟓 𝒕𝒊𝒕𝒍𝒆𝒔 𝒍𝒂𝒃𝒐𝒖𝒓 − 𝒉𝒓
Multiple resource inputs – multi-factor 𝟏𝟒 𝒕𝒊𝒕𝒍𝒆𝒔/𝒅𝒂𝒚
productivity 𝒏𝒆𝒘 𝒍𝒂𝒃𝒐𝒓 𝒑𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒊𝒕𝒚 =
𝟑𝟐 𝒍𝒂𝒃𝒐𝒓 − 𝒉𝒓𝒔
Example 1. = . 𝟒𝟑𝟕𝟓 𝒕𝒊𝒕𝒍𝒆𝒔 𝒍𝒂𝒃𝒐𝒖𝒓 − 𝒉𝒓
Collins title Company has a staff of 4
Labor productivity has increased from .25
each, each working 8 hours per day (for
to .4375. The change is .4375/.25 = 1.75,
a payroll cost of P640/day) and overhead
or a 75% increase in labor productivity.
expenses of P400 per day. Collins
COLLINS TITLE PRODUCTIVITY
processes and closes on 8 titles each
Old System:
Staff of 4 works 8 hrs/day
8 titles/day
Payroll cost = $640 / day
Overhead = $400 / day
New System:
14 titles/day
Overhead = $800/day
𝟖 𝒕𝒊𝒕𝒍𝒆𝒔/𝒅𝒂𝒚
𝒐𝒍𝒅 𝒎𝒖𝒍𝒕𝒊𝒇𝒂𝒄𝒕𝒐𝒓 𝒑𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒊𝒕𝒚 =
$𝟔𝟒𝟎 + 𝟒𝟎𝟎
= . 𝟎𝟎𝟕𝟕 𝒕𝒊𝒕𝒍𝒆𝒔/𝒅𝒐𝒍𝒍𝒂𝒓
𝟏𝟒 𝒕𝒊𝒕𝒍𝒆𝒔/𝒅𝒂𝒚
𝒏𝒆𝒘 𝒎𝒖𝒍𝒕𝒊𝒇𝒂𝒄𝒕𝒐𝒓 𝒑𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒊𝒕𝒚 =
$𝟔𝟒𝟎 + 𝟖𝟎𝟎
= . 𝟎𝟎𝟗𝟕 𝒕𝒊𝒕𝒍𝒆𝒔/𝒅𝒐𝒍𝒍𝒂𝒓
Multifactor productivity has increased
from .0077 to .0097. This change is
0.0097/.0077 = 1.26 or a 26% increase in
multifactor productivity.
Example 2.
Productivity can be measured in a variety
of ways, such as by labor, capital,
energy, material usage, and so on. At
Modern Lumber, Inc. Art Binley,
president and producer of apple crates
sold to growers, has been able, with his
current equipment, to produce 240 crates
per 100 logs. He currently purchases
100 logs per day, and each log requires
3 labor-hours to process. He believes
that he can hire a professional buyer who
can buy a better-quality log at the same
cost. If this is the case, he can increase
his production to 260 crates per 100logs.
His labor-hours will increase by 8 hours
per day.
What will be impact on productivity
(measured in crates/labor-hour) if the
buyer is hired?
Given:
Current units produced per
100 logs = 240
Current Labor-hours per
100logs = 3
Units produced per
100 logs with buyer = 260
Labor-hours with buyer = 8
Required: impact on productivity
Solution:
Current labor productivity,
240crates
P=
100logsx3h ours/log
= .8 crates/labor-hour
Labor productivity with buyer,
260crates
P1 =
(100logs)(3hours/log) + 8hours
= .844crates/labor-hour
Using current productivity as a base, the
increase will be .844/.8 =1.055 or a 5.5%
Example 3.
Art Binley has decided to look at his
productivity from a multifactor (total factor
productivity) perspective. To do so, he
has determined his labor, capital, energy.
And material usage and decided to use
dollars as the common denominator. His
total labor-hours are now 300 per day
and will increase to 308 per day. His
capital and energy costs will remain
constant at P350 and P150 per day,
respectively. Material costs for the 100
logs per day are P1,000 and will remain
the same. If he pays an average of P10
per hour (with fringes), determine the
impact on the productivity.
 Given: These functions are necessary in order
for the organization to survive. These are
Labor-hour/day = 300 marketing, which generates the demand,
Material cost for 100 logs/day = P1,000 or at least takes the order for a product or
service, operations, which creates the
Capital = P350 product, and finance or accounting,
Energy = 150 which tracks how well the organization is
doing, pays bills and collects the money.
Pay/hour = P10 The field of operations management is
relatively young, but its history is quiet
interesting. Our lifestyle and the field of
Required Impact on Productivity operations have been greatly enhanced
by the innovations and contributions of
Solution: many individuals, where majority came
Current System System with from the twentieth century. Operations
Buyer managers are key players to improve
productivity. Although productivity
Labor 300hrs x P10 308 x 10 improvements are difficult to achieve,
= P3,000 = P3,080
operations managers are doing their best
since they are the primary vehicle for
making improvements.
Material 100 logs/day P1,000
= P1,000
MODULE 2

Capital 350 350 LESSON PRESENTATION

Energy 150 150 This module discusses operations
P 4,500 P 4,580 strategy in a global environment. We
Multifactor 240 𝑐𝑟𝑎𝑡𝑒𝑠 240 𝑐𝑟𝑎𝑡𝑒𝑠 start by discussing first the mission and
= =
𝑃 4,500 𝑝𝑒𝑠𝑜 strategy followed by identifying and
Productivity = 0.0533 crates/ = 0.0568 explaining the three strategic approaches
peso
to competitive advantage. Furthermore,
Using the current productivity, the increase will the ten decisions of operations
be 0.0568/0.0533 = 1.066 or 6.6% increase management will be discussed as well as
the five OM strategy insights provided by
PIMS research.

To summarize, Production management A Global View of Operations

according to E.S.Buffa, deals with
decision making related to production
processes so that the resulting goods or
services are produced according to
specifications, in the amount and by the
schedule demanded and out of minimum
cost. To create goods and services, all
organizations perform three functions.
The term ‘globalization’ describes
businesses’ deployment of facilities and
operations around the world. This means
that domestic production and exporting
may no longer be feasible business
model and that local production and
exportation may no longer guarantee
success or even survival. As what Prof
Thomas Sewell claimed “ No great
civilization has developed in isolation”.
The globalization of strategy contributes
efficiency and adds value to goods and
services, however it also complicates the
work of operations managers. The
following are identified reasons why
domestic business operations decide to
change to some form of global operations
Reasons to Globalize
1. Reduce Costs Foreign locations
with lower wage rates and tariffs
can lower direct and indirect costs.
2. Improve the Supply Chain The
supply chain can be improved by
locating facilities closer to
countries with unique resources
3. Provide Better Goods and
Services In order to provide
better goods and services, we
need a better understanding of
differences in culture and of the
way business is done in different
countries
4. Understand Markets Interacting
with foreign customers and
suppliers can lead to new
opportunities. Knowledge of the
markets not only helps industries
understand where the market is
going but also helps them diversify
their customer base, add
production flexibility, and smooth
the business cycle.
5. Learn to improve operations.
Learning cannot be done alone.
Industries are able to serve their
customers well when they are
open to free flow of ideas
6. Attract and Retain Global Talent
Global organizations can attract
and retain better employees by
offering more employment
opportunities. During economic
downturns in one country, a global
firm has the means to relocate
unneeded personnel to more
prosperous country
Missions and Strategies
An effective operations management
effort must have a mission so it knows
where it is going and a strategy so it
knows how to succeed.
Mission states the purpose or rationale
for organization’s existence. This provide
boundaries and focus for organizations
and the concept around which the
industry can rally. Once an
organization’s mission has been decide,
each department within the firm
determines their own mission that is in
line with the firm’s mission. Below are
some examples of a firm’s mission.
EXAMPLES:
Hard Rock Café’s Mission
To spread the spirit of Rock ‘n’ Roll by
delivering an exceptional entertainment
and dining experience. We are
committed to being an important,
contributing member of our community
and offering the Hard Rock family a fun,
healthy, and nurturing our long-term
success.
Arnold Palmer Hospital
Arnold Palmer Hospital for Children
provides state-of-the-art, family centered
healthcare focused on restoring the Joy
of childhood in an environment of
compassion, healing, and hope.
NETAS’s Mission
To provide excellent telecommunication
solutions within the framework of Total
Quality Management philosophy
Sample OM Department Missions providing a broad product line, by
offering excellent after-sale
service, or through adding a
sensory experience to the product
or service offering. In the service
sector, one option for
differentiation is through
experience. The idea of
experience differentiation is to
engage the customer to use
people’s five senses so they
become immersed, or even an
active participant in the product.
Example on this are Disney with
its Magic Kingdom and Hard Rock
Cafe with its classic rock music,
big screen rock videos,
memorabilia, etc.
2. Cost leadership - achieving
maximum value, as perceived by
the customer. This can be
attained, for example, via low
overhead, effective capacity use,
or efficient inventory
management. A low cost strategy
does not imply low quality
3. Response - also referred to as
flexible response, is a set of
values related to rapid, flexible,
Strategy on the other hand is an
and reliable performance. This
organization’s action plan to achieve the
can be attained, for example, by
mission. Each department has a strategy
offering a flexible product line,
for achieving its own mission and at the
reliable scheduling, or speedy
same time helping the firm attain the
delivery. In practice, these three
overall mission. There are three strategic
approaches can increase
approaches to competitive advantage -
productivity and generate a
differentiation, cost leadership and
sustainable competitive
response. When we say competitive
advantage, as shown in the figure
advantage, we are referring to the
below. Correct implementation of
creation of a unique advantage over
the following decisions by
competitors.
operations managers will allow
these advantages to be achieved
Achieving Competitive Advantage
1. Differentiation - is concerned
with providing uniqueness. This
can be attained, for example,
through innovative design, by
OM’s CONTRIBUTION TO STRATEGY management to specific
technology, quality, human
resources, and capital
investments that determine much
of the firm’s basic cost structure
4. Location Strategy – requires
judgments regarding nearness to
customers, suppliers, and talent,
while considering costs,
infrastructure, logistics, and
government
5. Layout Strategy – requires
integrating capacity needs,
personnel levels, technology, and
inventory requirements to
determine the efficient flow of
materials, people, and
information.
6. Human resources and job
Ten Strategic OM Decisions
design – determines how to
The three approaches to competitive
recruit, motivate, and retain
advantages can be achieved when
personnel with the required talent
managers make effective decisions in ten
and skills. People are an integral
areas of operations management. These
and expensive part of the total
are known as the operations decisions.
system design.
The ten decisions of operations
7. Supply chain management –
management that support missions and
decides how to integrate the
implement strategies are:
supply chain into the firm’s
1. Design of goods and services –
strategy, including decisions that
defines much of what is required
determine what is to be
of operations in each of the other
purchased, from whom, and under
OM decisions. For instance,
what conditions
product design usually determines
8. Inventory Management –
the lower limits of cost and the
considers inventory ordering and
upper limits of quality, as well as
holding decisions and how to
major implications for
optimize them as customer
sustainability and the human
satisfaction, supplier capability,
resources required
and production schedules are
2. Managing quality – determines
considered.
the customer’s quality
9. Scheduling – determines and
expectations and establishes
implements intermediate and
policies and procedures to identify
short-term schedules that
and achieve that quality
effectively and efficiently utilize
3. Process and capacity design –
both personnel and facilities while
determines how a good or service
meeting customer demands
is produced (i.e., the process for
production) and commits
 10. Maintenance – requires decisions
that consider facility capacity,
production demands, and
personnel necessary to maintain a
reliable and stable process
This ten strategic operations
management are implemented in ways
that provide competitive advantage.
Issues in Operations Strategy
Whether the operations management
strategy is differentiation, cost or
response, OM is a critical player. Hence
before establishing and attempting to
implement a strategy, some alternative
perspective may be utilized.
1. Resources view. This is a
method used to evaluate the
resources at their disposal and
manage or alter them to achieve
competitive challenge. This
means OM should think in terms
of financial, physical, human, and
technological resources available
and ensure that the potential
strategy matches with those
resources.
2. Value-chain analysis. This is a
method that is used to identify
activities that represent strengths,
or potential strengths
3. Five forces method. This is a
method of analyzing the five
forces-immediate rivals, potential
entrants, customers, suppliers,
and substitute products, in the
competitive environment.
Strategy Development and
Implementation
Once OM understands the firm itself and
the environment, a SWOT analysis
should follow, then the key success
factors should be identified as well as the
core competencies.
SWOT Analysis is a formal review of the
internal strengths and weakness and the
external opportunity and threats. This
provides an excellent model for
evaluating a strategy.
Key Success Factors (KSF) are those
activities that necessary for a firm to
achieve its goals.
Core competencies. Are the set of
unique skills, talents, and capabilities that
a firm dies at a world-class standard.
Strategy Development Process
• Analyse the environment
• determine the corporate mission
• form a strategy
Global Operations Strategy Options
As was previously discussed many
operations strategies require an
international dimension. A firm with an
international dimension is called
international business or a multinational
corporation. When we talk of an
international business we are referring to
a firm that engages in international trade
or investment, while a multinational
corporation is a firm with extensive
international business involvement.
Multinational Corporation applies to most
of the world’s large, well-known
businesses. The following are the
operation strategies that operations
managers of international and
multinational firms could utilized :( Heizer
and Render, 10th ed)
INTERNATIONAL OPERATIONAL
STRATEGIES
Global Strategy
• standardize product
• economies of scale
• cross-cultural learning
• has a high degree of
centralization, with headquarters
coordinating the organization to
seek out standardization and
learning between plants, thus
generating economies of scale
• appropriate when the strategic
focus is cost reduction, but has
little to recommend it when the
demand for local responsiveness
is high
• examples include caterpillar and
Texas instruments
Transnational Strategy
• move material, people, ideas
across national boundaries
• economies of scale
• cross-cultural learning
• exploits the economies of scale
and learning, as well as pressure
for responsiveness, by
recognizing that core competence
does not reside in just the “home”
country, but can exist anywhere in
the organization
• describes a condition in which
material, people, and ideas cross
– or transgress – national
boundaries
• These firms have the potential to
pursue all three operations
strategies (i.e. differentiation, low
cost, and response). Such firms
can be thought of as “world
companies” whose country
identity is not as important as its
interdependent network of
worldwide operations
• Key activities in a transnational
company are neither centralized in
the parent company nor
decentralized so that each
subsidiary can carry out its own
tasks on a local basis. Instead, the
resources and activities are
dispersed, but specialized, so as
to be both efficient and flexible in
an interdependent network
• examples include Nestle, Asea
Brown Boveri, Reuters,
Bertelsmann and Citicorp.

International Strategy
• import / export , or license existing
product
• uses exports and licenses to
penetrate the global arena
• suggests being the least
advantageous due to little local
responsiveness and little cost
advantage
• there is little responsiveness
because the firm is exporting or
licensing a good from the home
country
• cost advantages may be few
because the firm is using existing
production process at some
distance from the new market
• often the easiest, as exports can
require little change in existing
operations and licensing
agreements often leave much of
the risk to the licensee
Multidomestic strategy
• Use existing domestic model
globally
• Franchise, joint ventures,
subsidiaries
• Has decentralized authority
with substantial autonomy at
each business
• Organizationally these are
typically subsidiaries,
franchises, or joint ventures
with substantial independence
• An advantage is being able to
maximize a competitive
response for the local market
• Has little or no cost advantage,
however
• Examples include Heinz and
McDonalds
The saying “no man is an island”
can be applied also in industries. No firm
will survive alone. For the firm to grow, it
has to tie up with other firms, most
especially outside the country.
International operations provide a
significant increase in both the
challenges and opportunities for different
firms. Although the job is challenging to
operations managers, international or
global operations could improve
productivity. There are six reasons why
domestic business operations decide to
change to international operation. They
are 1) reduce cost, 2) improve the supply
chain, 3) provide better goods and
services, 4) understand markets, 5)
learn to improve operations, and 6)
attract and retain global talent.
Establishing a business firm requires a
mission and strategy for it to succeed.
Mission is needed so that it will know
where it is going and a strategy so it will
know how to get there. Business firms
achieve mission in three conceptual
ways: 1) differentiation, 2) cost
leadership, and 3) response. These three
conceptual ways can be achieved when
managers make effective decisions in ten
areas which are called operations
decisions. Business firms, in order to be
successful, need to identify its strengths
and weaknesses and complement the
opportunities and threats in the
environment. If this process is performed
well, the firm can have competitive
advantage through some combination of
product differentiation, low cost, and
response. This is often achieved through
a move to international, multi domestic,
global, or transnational strategies.
MODULE 3
LESSON PRESENTATION
This module discusses the project
management. According to Jay Heizer
and Barry Render, authors of the book
titled Principles of Operations
Management, “wherever your career
takes you, one of the most useful tools
you can have, as a manager, is the ability
to manage a project”. So it is of utmost
importance that we master this topic.
A project refers to a series of related
tasks directed toward some major
output that requires to be completed
in a specified time considering costs
and quality constraints. Many require a
significant period of time to execute.
Projects entail different levels of
uncertainty and therefore carry risks.
While often thought to be one-time
occurrences, some projects can be
repeated or transferred to other settings
or products resulting to another output
Examples of Projects
• Building construction
• Research project
Structuring Projects
Before any project starts, management
decides on how the project will be
structured and looks at the
characteristics of the project leader. The
three organizational structures are pure
project, function project or matrix project.
Pure Project - is a self-contained team
works full time on the project. It is a small
project oriented team that is
autonomous, an entrepreneurial center
of opportunity and characterized by
speed and flexibility (Tom Peters).
Advantages
• Only the project manager has full
authority over the project.
• Team members report to only one
boss.
• Lines of communication are
shorter so that decisions are
quick.
• Team pride, motivation and
commitment are high.
Disadvantages
• Resources are duplicated
because equipment and people
are not shared across projects.
• Team members are often both
physically and psychologically
removed from headquarters so
that organizational goals and
policies are ignored.
• Organization lags in its knowledge
of new technology due to
weakened functional divisions.
• Team members have no
functional area home, they Team
members worry about life-after-
project because they have no
functional area home; project
termination may be delayed.
Functional Project
At the other end of the project
organization spectrum is the functional
project, housing the project within a
functional division. The organizational
structure might look like the one shown
below:
Advantages
• Team members can work on
several projects.
• Technical expertise is maintained
within the functional area even if
individuals leave the project or
organization.
• There is a functional area where
team members go back to after
completing the project. Functional
specialists can advance vertically.
• A critical mass of specialized
functional area experts creates
synergistic solutions to a project’s
technical problems.
Disadvantages
• Aspects of the project that are not
directly related to the functional
area get shortchanged.
• Motivation of team members is
often weak.
• Needs of the client are secondary
and are responded to slowly.
Matrix Project
• This attempts to blend the
properties of functional and pure
project structures.
• Each project utilizes people from
different functional areas.
• The project manager decides
what tasks and when they need to
be performed but functional
managers control which people
and technologies are to be used.
• Different projects (rows of the
matrix) borrow resources from
functional areas (columns).
• Senior management decides
whether a weak, balanced or
strong form of a matrix. This refers
to whether project managers have
little, equal or more authority than
the functional managers who
control the resources.
• The organizational structure might
look like the one shown below
Advantages
• Communication between
functional divisions is enhanced.
• A project manager is held
responsible for successful
completion of the project.
• Duplication of resources is
minimized.
• Team members have a functional
"home" after project completion,
so they are less worried about life-
after-project than if they were a
pure project organization.
• Policies of the parent organization
are followed increasing support for
the project.
Disadvantages
• There are two bosses. Who is
listened to first, the functional
manager or the project manager?
• Requires strong negotiating skills
from the project manager.
• Sub-optimization is a danger as
project managers might hoard
resources for their own project
and consequently harming other
projects.
It should be noted that the project
manager is the primary contact point with
the customer no matter which
organizational form is chosen.
Consequently, communication and
flexibility are enhanced due to one
person having the responsibility for the
successful completion of the project.
Project management involves
planning, directing and controlling
resources (people, equipment and
material) to meet the technical, cost
and time constraints of the project. The
primary challenge of project
management is to achieve all of the
project goals within the given
constraint.
Importance of Project Management
1. Strategic Alignment. Ensures what
is being delivered is right and will
deliver real value against the business
opportunity.
2. Clear Focus and Objectives.
Ensures there’s a proper plan for
executing on strategic goals.
3. Quality Control. Ensures the quality
of whatever is being delivered,
consistently hits the mark.
4. Leadership. Brings leadership and
direction to projects.
5. Risk Management. Ensues risks are
properly managed and mitigated
against to avoid becoming issues.
6. Orderly Process. Ensures proper
project process is followed throughout
the project life cycle.
7. Subject Matter Expertise. Someone
needs to be able to understand if
everyone’s doing what they should.
8. Continuous Oversight. Ensures a
project’s progress is tracked and
reported properly.
9. Managing and Learning from Failure
and Success. It learn from the
successes and failures of the past.
Management of projects involves three
phases. These are the following:
1. Planning. This includes goal
setting, defining the project, and
team organization
2. Scheduling. This phase relates
people, money, and supplies to
specific activities and relates these
activities to each other.
3. Controlling. Here the firm
monitors resources, costs, quality,
 and budgets. It also revises or
changes plans and shifts resources
to meet time and cost demands.

Project Management Activities

4. The project is temporary but

critical to the organization.
5. The project cuts across
organizational lines.

Project Planning
In this phase a project organization is
usually formed to make sure existing
programs continue to run smoothly on a
day to day basis while new projects are
successfully completed.
Project Scheduling
This phase involves sequencing and
allotting time to all project activities. The
manager decides how long each activity
will take and compute how many people
and materials will be needed at each
stage of production. Managers also chart
separate schedules for personnel needs
by type of skill. Gantt charts are also used
in scheduling.

The project organization works best

when:
1. Work can be defined with a
specific goal and deadline. Gantt charts are low-cost planning charts
2. The job is unique or somewhat used in scheduling resources and
unfamiliar to the existing allotted time.
organization.
3. The work contains complex
interrelated tasks requiring
specialized skills.
 Project Life Cycle
Projects vary in size, length and scope
according to its nature and purpose.
Nevertheless, projects go through the
same series of stages. These phases
include project definition, planning,
execution of major activities and project
phase-out. A graphical representation is
shown below that also shows where the
bulk of the work (effort level) might be.

Project Controlling
This phase involves close monitoring of
resources, cost, quality, and budgets by
using a feedback loop to revise the
project plan and shift resources to where
they are needed most.

Definition
• This stage has two parts. The first
part involves conceptualizing the
project. The organization, here,
may recognize the need for the
project or respond to a request for
a proposal from a potential
customer or client. The second
part involves conducting the
feasibility studies. This examines
 the expected costs, benefits and
risks of undertaking the project.
• Goals, specifications, tasks,
responsibilities and teams for the
project are set; the project
manager is also appointed.
• This stage is sometimes referred
to as the initiation stage. A
business problem (or an
opportunity) is usually identified
and might solicit several solutions.
The feasibility then is conducted to
explore the ability of different
solutions in solving the problem or
taking advantage of the
opportunity at hand.
Planning
• This stage spells out details of the
work and the risks involved. This
entails preparing specifics for the
following:
▪ Project Plan: Outlines the
activities, tasks,
dependencies and
timeframes.
▪ Resource Plan: Lists the
labor, equipment and
materials required.
▪ Financial Plan: Identifying
the labor, equipment and
materials costs.
▪ Quality Plan: Provide
quality targets, assurance
and control measures.
▪ Risk Plan: Highlight
potential risks and actions
taken to mitigate them.
▪ Acceptance Plan: List the
criteria to be met to gain
customer acceptance.
▪ Communications Plan: List
the information needed to
inform stakeholders.
▪ Procurement Plan: Identify
products to be sourced
from suppliers.
▪ The project is now ready for
execution after all these
plans are put in place.
Execution
• Involves implementing each of the
activities and tasks in project plan.
• Monitoring and controlling
activities are executed to ensure
that the deliverables of the project
are met. Changes, risks and
issues are identified and reviewed
against the acceptance criteria.
• This phase often accounts for the
majority of time and resources
consumed by a project.
Delivery
• Involves delivering the final
deliverables to the customer,
handing over project
documentation, terminating
supplier contracts, releasing
project resources (reassigning
personnel and dealing with any
leftover materials and equipment)
and communicating the closure of
the project to all stakeholders.
• A post implementation review is
undertaken to quantify the overall
success of the project and list any
lessons learned for future
projects.
• Closure is achieved.
It should be noted that the phases can
overlap so that firms are able to reduce
the time necessary to move through the
life cycle and, consequently, generate
some competitive advantage and cost
savings. Careful coordination of activities
will minimize the risk of wastages that
may occur.
MODULE 4
LESSON PRESENTATION
This module discusses project
management. According to Jay Heizer
and Barry Render, authors of the book
titled Principles of Operations
Management, “wherever your career
takes you, one of the most useful tools
you can have, as a manager, is the ability
to manage a project”. so it is of utmost
importance that we master this topic.
Project manage ment requires people
and technical skills. The management
activities related to motivating people,
and resolving conflicts and leading a
team to get the work (project) done are
the components of people skills. Though
this is undoubtedly important, this
module focuses on the technical aspects
of project management - structuring
project networks and calculating for the
critical path.
Network-Planning Models
Two of the most commonly used
network planning models to fast track
planning and monitoring of projects were
developed in the 1950s: the Critical
Path Method (CPM) and the Program
Evaluation and Review Technique
(PERT). The two were developed for
different purposes but, through the years,
distinguishing features of CPM and
PERT have diminished.
CPM and PERT owe their
development from the Gantt chart.
Relationships of activities to time are
easy to see in a Gantt chart for small
projects. These interrelationships,
however, become extremely difficult to
visualize and to work with for projects
when the number of activities is
increased (as include more than 25
activities). It has no direct procedure also
for determining the critical path (CP),
which is of great practical value when
identified.
The CP in a project refers to the
sequence of activities that form the
longest chain in terms of completion time.
Delaying an activity in the critical path
means a delay in the entire project. It is
also important then that scheduling
information and the time for each of the
activities are determined properly. Both
CPM and PERT calculate when an
activity must start and end. This, in turn,
determines whether the activity belongs
to the critical path.
Critical path method (CPM)
• This was developed for
scheduling maintenance
shutdowns at chemical processing
plants owned by Du Pont. Since
maintenance projects are
performed often in this industry,
reasonably accurate time
estimates for activities are
available.
• CPM is based on the assumptions
that project activity times can be
estimated accurately and that they
do not vary
Project Evaluation & Review
Technique
• This was developed for the US
Navy’s Polaris missile project, a
massive project involved 3,000
contractors
• Because most of the activities had
never been done before, PERT
was developed to handle
uncertain time estimates
• When a single estimate of the time
required to complete an activity is
not reliable, the best procedure is
to use 3 time estimates. These 3
times allows one to estimate the
activity time and obtain a
probability estimate of the entire
network’s completion time. The
estimated activity time (expected
completion time) is calculated
using a weighted average of a
minimum (a) maximum (b) and
most likely time estimates (m). a =
optimistic time: the minimum
reasonable period of time in which
the activity can be completed; m =
most likely time: the best guess of
the time required. Since would be
the time thought most likely to
appear, it is also the mode of the
beta distribution; b = pessimistic
time: the maximum reasonable
period of time the activity would
take to be completed. Typically,
this information is gathered from
those people who are to perform
the activity. These three time
estimates permit the
straightforward computation of the
activity mean and standard
deviation.
• Using estimates of variability for
the activities on the critical path,
the probability of completing the
project by particular times can be
estimated. This is the
distinguishing feature of this
approach. A valuable feature of
using three times estimates is that
it enables the analyst to assess
the effect of uncertainty on project
completion time.
SIX STEPS PERT & CPM
1. Define the project and prepare the
work breakdown structure
2. Develop relationships among the
activities – decide which activities
must precede and which must
follow others
3. Draw the network connecting all of
the activities
4. Assign time and/or cost estimates
to each activity
5. Compute the longest time path
through the network – this is called
the critical path
6. Use the network to help plan,
schedule, monitor, and control the
project.
Questions PERT & CPM can answer
1. When will the entire project be
completed?
2. What are the critical activities or
tasks in the project?
3. Which are the noncritical
activities?
4. What is the probability the project
will be completed by a specific
date?
5. Is the project on schedule, behind
schedule, or ahead of schedule?
6. Is the money spent equal to, less
than, or greater than the budget
7. Are there enough resources
available to finish the project on
time?
8. If the project must be finished in a
shorter time, what is the way to
accomplish this at least cost?
Example1. CPM with a Single Time
Estimate2
Assume that you have a group
assignment that requires a decision on
whether you should invest in a company.
You are instructed to perform the
analysis in the following four steps:
1. Select a company. Your group of
4 people decides to divide the
project into 4 activities. Team
members will be involved in
selecting the company and it
should take one week to complete
this activity. You will meet at the
end of the week to decide what
company the group will consider.
2. Obtain the company’s annual
report and perform a ratio
analysis. Two members of the
group will be responsible for the
annual report and ratio analysis.
Your group expects to take 2
weeks to get the annual report and
perform the ratio analysis.
3. Collect technical stock price data
and construct charts. The other 2
will collect the technical data and
construct the charts which will
take a week to finish.
as follows: A(1), B(2), C(1), D(1) in
our simple project. The numbers
represent the expected duration of
the activity.
2. Determine the required sequence
of activities and construct a
network reflecting the precedence
relationships. First, identify
the immediate
predecessors associated with an
activity. Activity A needs to be
completed before activities B and
C can start. B and C need to be
completed before D can start.
Information from steps 1 & 2 can
be translated into the following
network and table:

Individually review the data and make a

team decision on whether to buy the ACTIVITY DESIGNATION
IMMEDIATE TIME
PREDECESSORS (WEEKS)
stock. The two groups will work
independently. But, before you meet as a Select company A None 1
team to make a purchase decision, you
Obtain annual
want to allow one week for each team report and perform B A 2
member to review all the data. ratio analysis
Collect stock price
data and perform C A 1
technical analysis
Find the CP
Review data and
D B and C 1
make a decision
Solution:
3. Determine the CP. Consider each
Below are the steps in computing for sequence of activities that runs
the CP. from the beginning to the end of
the project. The simple project
1. Identify each activity to be done in here shows two paths: A-B-D and
the project and estimate how long A-C-D. Since CP is the path where
it will take to complete each the sum of the activity times is the
activity. We identify the activities longest, A-B-D with 4 days,
 therefore is the CP. Any activity
that is delayed along this CP will
delay the entire project.
4. Determine the early start/finish
and late start/finish schedule.
Scheduling the project requires
finding when each activity needs
to start and finish. For some
activities, there may be a slack
time or some leeway in terms of
when it can start and finish. For
each of the activity, we calculate
the early start (ES), early finish
(EF), late start (LS) and the late
finish (LF) times. The difference
between the late start time and
early start time is the slack time.
These are usually represented as
shown in the figure below.
Calculating the Numbers:
1. To find ES and EF, start from the
beginning of the network and work
to the end.
1.1 Start counting with the current
period, designated as period 0. Activity A
has an ES of 0 and an EF of 1. Activity
B�s ES is A�s EF or 1. Similarly, C�s
ES is 1.
1.2 The EF for B is 3, and the EF for
C is 2.
1.3 Now consider activity D. D
cannot start until both B and C
are done. Because B cannot be
done until 3, D cannot start until
that time. The ES for D,
therefore, is 3, and the EF is 4.
The network diagram now looks
like the one below.
2. To find LF and LS times, start from
the end of the network and work
toward the front.
1.1. Consider activity D. The
earliest that it can be done is at
time 4; and if we do not want to
delay the completion of the
project, the LF needs to be set to
4. With a duration of 1, the latest
that D can start is 3.
1.2. Now consider activity C. must
be done by time 3 so that D
can start, so C�s LF is 3
and its LS is 2. Notice the
difference between the ES
and LS and LF: This activity
has one week of slack time.
Activity B must be done by
time 3 so that D can start, so
its LF is 3 and LS is 1. There
is no slack in B.
1.3. Finally, activity A must be
done so that B and C can
start. Because B must start
earlier than C, and A must
get done in time for B to
start, the LF for A is 1.
 Finally, the LS for A is 0. Write methods
Notice there is no slack in F 7 8 9
report
activities A, B and D. The
Write final
final network should look like report
G 2 2 2
the one below.

1. Calculate the expected (ET)

and variances (σ2) for each of the
activities. The formula for these
calculations are

2. Determine the critical path. Using

Example 2 Three Times Estimates the expected times, a critical path
is calculated in the same way as
We use the same information the single time case. Following the
in Example 1. Except that the activities steps just outlined, the table
have three time estimates as shown in shows the computed expected
the table below. times and variances.
As in the CPM, TIME
ESTIMATES
ACTIVITY EXPECTED ACTIVITY
a) Each of the activities to be done in the ACTIVITY
DESIGNATION TIMES (ET) VARIANCES
a m b
project is identified.
b) The sequence of activities is to be Design A 10 22 28 21 9

determined. Build
B 4 4 10 5 1
c) A network reflecting the precedence prototype

relationships is to be constructed. Evaluate

C 4 6 14 7 2 7⁄9
equipment

Then, find the three estimates for each of Test

D 1 2 3 2 1⁄9
prototype
the activities as shown in the table.
Write
E 1 5 9 5 1 7⁄9
ACTIVITY TIME report

ACTIVITY DESIGNATIO ESTIMATES

Write
N methods F 7 8 9 8 1⁄9
a m b report

Design A 10 22 28 Write final

G 2 2 2 2 0
report

Build prototype B 4 4 10

Evaluate Below is the updated project network

C 4 6 14
equipment
3. Determine the probability of
Test prototype D 1 2 3
completing the project on a given
Write report E 1 5 9 date, based on the application of
the standard normal distribution.
 Below is the mechanics on how to
derive this probability.
Mechanics
1. Sum the variance values
associated with each activity on
the critical path.
2. Substitute this figure, along with
the project due date and the
project expected completion time,
into the Z transformation formula.
This formula is
3. Calculate the value of Z, which is
the number of standard deviations
(of a standard normal distribution)
that the project due date is from
the expected completion time.
The project network was created
the same as we did previously. The CP is
determined in the same way it was
computed for the one-time example
above. The difference is that the activity
times are weighted averages and, hence,
there is a difference in computing
probabilities of completion.
Because there are two critical paths in
the network, we use the information on
variances in deciding which is CP is more
likely to be completed. A conservative
approach dictates using the path with the
largest total variance to focus
management’s attention on the activities
most likely to exhibit broad variations. On
this basis, the variances associated with
activities A, C, F and G would be used to
find the probability of completion.
Thus, Σσ2cp = 9 + 2 7⁄9 + 1⁄9 + 0 = 11.89.
Suppose management asks for the
probability of completing the project in 35
weeks. D, then, is 35. The expected
completion time was found to be 38.
Substituting into the equation and
solving, we
A value of -0.87 yields a probability of
0.1922. This means that the project
manager has only about a 19% chance
of completing the project in 35 weeks.
Cautions on Critical Path Analysis
We have so far seen the utility of both
CPM and PERT in project management.
It should be noted that several
assumptions need to be made to use
these. We have listed below some of
these assumptions and the
corresponding criticisms.
ASSUMPTIONS & CRITICISMS ABOUT
THE CPM
Assumptions
1. Activities as entities – project
activities can be identified as
entities with a clear beginning and
ending point
Criticisms
• Complex projects change in
content over time so a network
created at the beginning will be
rendered inaccurate later,
• The fact that activities are
specified and a network is
formalized limits the flexibility
 required to handle changing
situations as the project
progresses.
Assumptions
2. Specified and networked activities
– project activity sequence
relationships can be specified and
networked
Criticisms
• Sequence relationships cannot
always be specified beforehand
• CPM, in its basic form, usually
does not have provisions probable
different outcomes from activities
Assumptions
3. Focus on critical path – project
control should focus on the critical
path
Criticisms
• The longest path (zero-slack path)
may not necessarily what
determines project completion
time. Some activities not on the
critical path may be delayed to
such a degree that it prolongs the
entire project
• It has been suggested that a
“critical activity” concept replace
the critical path concept for
managerial control. Here,
attention would center on activities
that have high potential variation
and lie on the critical path or on a
“near critical path” (one that does
not share any activities with the
critical path)
Assumptions
4. Beta distribution – the activity time
estimates, when using the 3-time
approach, follow the beta
distribution, with the variance of
the project assumed to equal the
sum of the variances along the
critical path
Criticisms
• Each component of the statistical
treatment has been questioned.
First, the formulas, in reality, are
modifications of the beta
distribution mean and variance,
which, when compare, to the basic
formulas, could be expected to
lead to absolute errors on the
order of 10% for the entire project
and 5% for the individual activity
variances. Second, given that the
activity-time distributions have the
properties of modality, continuity
and finite positive end points,
other distributions with the same
properties would yield different
means and variances. Third,
obtaining three “valid” time
estimates to put into the formulas
presents operational problems; it
is often difficult to arrive at one
activity time estimate, let alone 3,
and the subjective definitions of
the optimistic and pessimistic
times do not help the matter
Network Diagrams and Approaches
The first step in a PERT or CPM is to
divide the entire project into significant
activities in accordance with the work
breakdown structure.
Approaches for drawing a project
network:

1. Activity on node (AON) - a network

diagram in which nodes designate
activities. Activities consume time and
resources.
2. Activity on arrow (AOA) - a network
diagram in which arrows designate
activities. The nodes here represent
the starting and finishing times of an
activity and are also called events. So
the nodes here do not consume time
and resources

Figure 3.5 below illustrates both

conventions for a small portion of the
airline turnaround Gantt Chart in Figure
3.4. In Figure 3.5(a), activity A must
finished before activity B is started, and B
must, in turn, be completed before C
begins. Activity A represents “deplaning
passengers,” while B is “cabin cleaning,”
and C is “boarding new
passengers.” Figures 3.5(e) and 3.5(f)
show that the AOA approach sometimes Example 1.
needs the addition of a dummy activity to
clarify relationships. It does not Milwaukee Paper Manufacturing, Inc.,
consumes time or resources, but is has long been delaying the expense of
required when a network has two installing air pollution control equipment
activities with identical starting and in its facility. The EPA has recently
ending events, or when two or more given the manufacturer 16 weeks to
follow some, but not all, “preceding” install a complex air filter
activities. system. Milwaukee Paper has been
warned that it may be forced to close the
A comparison of AON and AOA facility unless the device is installed in
network conventions the allotted time. The plant manager
wants to make sure that installation of
the filtering system progresses smoothly
and on time.

Given the following information, develop

a table showing activity precedence
relationships
AON Example

DETERMINING THE PROJECT

SCHEDULE

Perform a Critical Path Analysis

• The critical path is the longest
path through the network
• The critical path is the shortest
time in which the project can be
completed
• Any delay in critical path activities
delays the project
• Critical path activities have no
slack time

Earliest start (ES) = earliest time at

which an activity can start, assuming all
predecessors have been completed

Earliest Finish (EF) = Earliest time at

which an activity can be finished
Latest Start (LS) = Latest time at which
an activity can start so as to not delay the
completion time of the entire project

Latest Finish (LF) = latest time by which

an activity has to be finished so as to not
delay the completion time of the entire
project
Backward Pass
Begin with the last event and work
backwards
Latest Start Time Rule:
The latest start time (LS) of an
activity is the difference of its latest finish
time (LF) and its activity time
LS = LF – Activity Time
Computing Slack Time
After computing the ES, EF, LS and LF
times for all activities, compute the slack
or free time for each activity
Slack is the length of time an
activity can be delayed without delaying
the entire project,
Slack = LS – ES or Slack = LF – EF
MODULE 5
LESSON PRESENTATION
This module discusses basic
forecasting, in which the main purpose is
to make good estimates. Almost
everyday OM managers make decisions
with uncertain outcomes or results. No
one can see what will happen tomorrow,
yet managers need to come up with a
wise decisions and implement them in
order to move the organization forward.
What is Forecasting?
Forecasting is the art and science of
predicting what will happen in the future.
Sometimes that is determined by a
mathematical method; sometimes it is
based on the intuition of the operations
manager. Most forecasts and end
decisions are a combination of both
Forecasting time horizons
A forecast is usually classified by the
future time horizon that it covers. It falls
into three categories:
1. Short range forecast. While it can be
up to one year, this forecast is usually
used for three months or less. It is used
for planning purchases, hiring, job
assignments, production levels, and the
like.
2. Medium range forecast. This is
generally three months to three years.
Medium range forecasts are used for
sales and production planning,
budgeting, and analysis of different
operating plans.
3. Long range forecast. Generally three
years or more in time span, it is used for
new products, capital expenditures,
facility expansion, relocation, and
research and development
Types of Forecasts
There are three major types of
forecasting, regardless of time horizon,
that are used by organizations.
1. Economic forecasts address the
business cycle by predicting housing
starts, inflation rates, money supplies,
and other planning indicators.
2. Technological forecasts monitor
rates of technological progress. This
keeps organizations abreast of trends
and can result in exciting new products.
New products may require new facilities
and equipment, which must be planned
for in the appropriate time frame.
3. Demand forecasts deal with the
company's products and estimate
consumer demand. These are also
referred to as sales forecasts, which
have multiple purposes. In addition to
driving scheduling, production, and
capacity, they are also inputs to financial,
personnel, and marketing future plans
Strategic Importance of Forecasts
Operations managers have two tools at
their disposal by which to make
decisions: actual data and forecasts. The
forecast is the only estimate of demand
until actual demand becomes known. Let
us discuss the impact of product demand
forecast on the following:
1. Human Resources. Hiring, training,
and laying off workers all depend ion
anticipated demand. If the human
resources department hire additional
workers without warning, the amount of
training declines and the quality of the
workforce suffers.
2. Capacity. When capacity is
inadequate, the resulting shortage can
lead to loss of customers and market
share.
3. Supply-Chain Management. Good
supplier relations and the ensuing price
advantages for materials and parts
depend on accurate forecasts
Forecasting System
These seven steps can generate
forecasts.
1. Determine the use of the forecast
2. Select the items for the forecasted.
3. Determine the time horizon of the
forecast.
4. Select the forecast model type.
5. Gather data to be input into the model.
6. Make the forecast.
7. Verify and implement the results
Routinely repeat these steps, regardless
of the time horizon, to stay abreast of
changes in regard to internal and
external factors
Forecasting Approaches
There are two predominant approaches
to forecasting: qualitative approach and
quantitative analysis. A qualitative
approach uses factors such as
experience, instinct and emotion while
the quantitative analysis relies heavily on
mathematics, historical data and casual
variables.
Qualitative methods include:
1. Jury of executive opinion. This is
based on the inputs and decisions of
high-level experts or management.
2. Delphi method. Decision makers,
staff, and respondents all meet to
develop the forecast. Every shareholder
in the process provides input.
3. Sales force composite. Each sales
person provides an individual estimate
which is reviewed for realism by
management, and then combined for a
big picture view.
4. Consumer market survey. This is
surveying the prospective customer base
to determine demand for existing
products and can also be used for new
products.
Quantitative methods are in two
categories
1. Time-Series Models. Time-series
models attempt to predict the future by
using historical data.
This is based on a sequence of
evenly spaced (weekly, monthly,
quarterly, etc.) data points.
A. Naive approach is a forecasting
technique which assumes that demand
in the next period is equal to demand
in the most recent period.
B. Moving Average is a forecast
technique that uses a number of
historical actual data values to
generate a forecast. This is useful if we
can assume that market demands will
stay fairly steady over time. The
formula is as follows:
Σ demand in previous 𝑛 periods
𝑀𝑜𝑣𝑖𝑛𝑔 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 =
𝑛
Where:
n – is the number of periods in the
moving average
Example1. Donna’s garden Supply Example: Donna’s Garden Supply wants
wants a 3-month moving -average to forecast storage shed sales by
forecast, including a forecast for next weighing the past 3 months, with more
January, for shed sales. weight given to recent data to make them
more significant
Month Actual 3-Month Moving
Shed Sales Average Month Actual 3-Month Moving Average
Shed
January 10
Sales
February 12
March 13
January 10
April 16 (10 +12 + 13)/3 =
11.7 February 12
March 13
May 19 (12 +13 + 16)/3 =
13.7 April 16 [(10 x 1) +(12 x 2) + (13 x 3)]/6
= 12.2
June 23 (13 + 16 + 19)/3 = 16 May 19 [(12 x 1) + (13 x 2) + (16 x
July 26 (16 +19 + 23)/3 = 3)]/6 = 14.3
19.3 June 23 [(13 x 1) + (16 x 2) + (19 x
3)]/6 = 17
August 30 (19 + 23 + 26)/3 = July 26 [(16 x 1) + (19 x 2) + (23 x
22.7 3)]/6 = 20.5
August 30 [(19 x 1) + (23 x 2) + (26 x
September 28 (23 + 26 + 30)/3 = 3))/6 = 23.8
26.3 September 28 [(23 x 1) + (26 x 2) + (30 x
October 18 (26 + 30 +38)/3 = 28 3)]/6 = 27.5
October 18 [(26 x 1) + (30 x 2) + (38 x
November 16 (30 + 28 + 18)/3 = 3)]/6 = 28.3
25.3 November 16 [(30 x 1)+ (28 x 2) + (18 x 3)]/6
= 23.3
December 14 (28 +18 +16)/3 = 20.7
December 14 [(28 x 1) + (18 x 2) +(16 x 3)]/6
= 18.7
January forecast = (18 + 16 + 14)/3 = 16
Exponential Smoothing. A weighted-
Weighted Moving Average. moving-average forecasting technique in
which data points are weighted by an
When a detectable trend or pattern exponential function. This involves very
exists, weights can be used to give more little record keeping of past data. The
emphasis on recent values. This practice basic exponential smoothing formula is
makes forecasting techniques more as follows:
responsive to changes because more New forecast = Last period’s forecast + α
recent periods may be more heavily (Last period’s actual demand - Last
weighted. A weighted moving average period’s forecast)
may be expressed mathematically as:
Ft = Ft-1 + α (At-1 - Ft-1)
𝑤𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑚𝑜𝑣𝑖𝑛𝑔 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 = Where α = smoothing constant (0 ≤ α ≥ 1)
Σ(weight for period 𝑛)(Demand in period n)
Σ Weights Example1.
In January, a car dealer predicted
February demand for 142 Ford Mustang.
Actual February demand was 153 autos.
 Using a smoothing constant chosen by Trend Projection. Trend projection is a
management of α = .20, find the forecast technique that fits a trend line to a series
March demand using the exponential of historical data points and then projects
smoothing model the line into the future for medium to long-
range forecasts. We shall be using the
Solution: least-squares method whose formula is
as follows:
Ft = Ft-1 + α (At-1 - Ft-1)
yˆ = a + bx
FMarch = 142 + .2(153 - 142) = 144.2
Where a = y intercept, a = y − bx
Hence, the March demand forecast for
Ford Mustang is 144.
b = slope, b =
 xy − nxy
Example2: During the past 8 quarters,  x2 − nx 2
the Port of Baltimore has unloaded large
quantities of grain from ships. The port’s Example: Using the previous example,
operations manager wants to test the use determine the trend equation and
of exponential smoothing to see how well forecast actual tonnage unloaded on the
the technique works in predicting first quarter of 2020.
tonnage unloaded. He guesses that the
forecast of grain loaded in the first quarter Solution:
was 175 tons. Make a forecast using two
values of α: α = .10 and α = .50 Actual
Time
Quarter Actual Forecast Forecast Quarter Tonnage x2 xy
Period, x
Tonnage α = .10 α = .50 Unloaded, y
Unloaded 2018, 1st 180 1 1 180
1 180
175 175 2nd 168 2 4 336
2 168 175.00 +.10(180 175.00 +.50(180
- 175) - 175.00) 3rd 159 3 9 477
= 175.50 = 177.50
3 159 175.50 +.10(168 177.50 +.50(168 4th 175 4 16 700
- 175.50) - 177.50)
= 174.75 = 172.75 2019, 1st 190 5 25 950
4 175 174.75 +.10(159 172.75 +.50(159 2nd 205 6 36 1230
- 174.75) - 172.75)
= 173.18 = 165.88 3rd 180 7 49 1260
5 190 173.18 +.10(180 165.88 +.50(180
- 173.18) - 165.88) 4th 182 8 64 1456
= 173.36 = 170.44
2020 1st
6 205 173.36 +.10(180 170.44 +.50(180
- 173.36) - 170.44)
= 175.02 = 180.22
n=8 Σy = 1439 Σx = 36 Σx2= 204 Σxy= 6589
7 180 175.02 +.10(180 180.22 +.50(180
- 175.02) - 180.22)
= 178.02 = 192.61
8 182 178.02 +.10(180 192.61 +.50(180
- 178.02) - 192.61)
= 178.22 = 186.30
9 ? 178.22 +.10(180 186.30 +.50(180
- 178.22) - 186.30)
= 178.59 = 184.15
x̅ = 36/8 = 4.5 ASSOCIATIVE FORECASTING
Used when changes in one or more
y̅ = 1439/8 = 179.9 independent variables can be used to
predict the changes in the dependent

b=
 xy − nxy = [(6589 - 8(4.5) (179.9)] / variable
Most common technique is linear
 x2 − nx 2 regression analysis
[204 - 8(4.5)2] = 2.68
We apply this technique just as we did in
a = y − bx = 179.9 - 2.68(4.5) = 167.8 the time series example

Trend equation: Causal Methods Linear Regression

yˆ = a + bx = 167.8 + 2.68x
Y (1st Q, 2020) = 167.8 + 2.68(9) Causal methods – are used when
= 191.92 historical data are available and the
relationship between the factor to be
forecasted and other external or internal
MODULE 6 factor can be identified.

QUANTITATIVE FORECASTING Linear Regression – a causal method in

METHOD which one variable (the dependent
variable) is related to one or more
independent variables by a linear
equation

Dependent Variable – the variable that

one wants to forecast

Independent Variables – variables that

are assumed to affect the dependent
variable and thereby “cause” the results
observed in the past.

Lesson Presentation
This module discusses causal or Causal Methods Linear Regression
associative forecasting method, in which
the main purpose is to make good
estimates.

In the previous lesson, we have learned

the different time series forecasting
methods. Today we will learn another
method of forecasting which the causal
or associative forecasting method.
Regression equation: Y = a + bX ∑y = 855 ∑x = 8.2
Y – Dependent variable ∑y^2 = 164,259
X – Independent variable ∑x^2 = 14.9
A – Y-intercept of the line ∑xy = 1560.8
B – Slope of the line n= 5
𝑛𝛴𝑥𝑦 − ∑𝑥∑𝑦
Regression Line Formula: 𝑏=
𝑛∑𝑥 2 − (∑𝑥)2
𝑦̂ = 𝑎 + 𝑏𝑥
Where: 5(1560.8) − 8.2(855)
𝑛𝛴𝑥𝑦 − ∑𝑥∑𝑦 𝑏=
𝑏= 5(14.9) − (8.2)2
𝑛∑𝑥 2 − (∑𝑥)2
∑𝑦 − 𝑏∑𝑥 b = 109.23
𝑎=
𝑛 ∑𝑦 − 𝑏∑𝑥
Linear Regression Example 13.1 𝑎=
The following are sales and advertising 𝑛
data for the past 5 months for brass door 855 − 109.23(8.2)
𝑎=
hinges, the marketing manager says that 5
next month the company will spend
$1.750 on advertising for the product. 𝑎 = -8.137
Use linear regression to develop an
equation and a forecast for this product. ̂ = −𝟖. 𝟏𝟑𝟕 + 𝟏𝟎𝟗. 𝟐𝟑𝒙
𝒚
When x = 1.75
y = -8.137 + 109.23(1.75)
y = 183

y x y2 x2 xy
26
1 4 2.5 69,696 6.25 660
11
2 6 1.3 13,456 1.69 150.8
16
3 5 1.4 27,225 1.96 231
10
4 1 1 10,201 1 101
20
5 9 2 43,681 4 418
Sum 855 8.2 164,259 14.9 1560.8
6 ? 1.75
Simple Linear Regression: Example Associative Forecasting Example

You wish to examine the linear

dependency of the annual sales of
produce stores on their sizes in square
footage. Sample data for 7 stores were
obtained. Find the equation of the
straight line that fits the data best.
Standard error of the estimate

• A forecast is just a point estimate

of a future value
• This point is actually the mean of
a probability distribution

CORRELATION

• How strong is the linear

relationship between the
variables?
• Correlation does not necessarily
imply causality
• Coefficient of correlation, r,
measures degree of association
• Values range from -1 to +1

Correlation coefficient

𝛴(𝑦 − 𝑦𝑐 )2
𝑆𝑌,𝑋 = √
𝑛−2

Where:

y = y-value of each data point

yc = computed value of the dependent

variable, from the regression equation

n = number of data points

Correlation Criteria of an Effective Product
Strategy:
• Coefficient of determination, r^2,
measures the percent of change 1. Selection of Goods and Services
in y predicted by the change in x
• Values ranges from 0 to 1 Product selection is choosing the good or
• Easy to interpret service to provide customers or clients by
developing a competitive advantage
For the Nodel Construction example: through differentiation, low cost, rapid
response or a combination of them.
r = .901
Product Life Cycle
2
𝑟 = .81
Products, just like human beings are
born. They live and die and are cast aside
by a changing society. The product’s life
MODULE 7 cycle is divided into four phases:

Lesson Presentation

One of the most important strategic

decisions of operations managers
involves designing and developing new
goods and services and the value chain
structure and process that make and
deliver them.
It is common knowledge to firms Introduction:
that the basis for an organization’s
existence is the good or service it Fine tuning may warrant unusual
provides to the society. Great products expense for:
are the keys to success and to maintain
the success of a firm, it should • Research
continuously improve its product. • Product development
• Process modification and
An effective product strategy enhancement
connects product decisions with
• Supplier development
investment, market phase and product
life cycle, and defines the breadth of the
Growth:
product line.
• Product design begins to stabilize
Product decision refers to the selection,
definition, and design of products. Its • Effective forecasting of capacity
objective is to develop and implement a becomes necessary
product strategy that meets the demands • Adding or enhancing capacity may
of the marketplace with a competitive be necessary
advantage.
Maturity:
• Competitors now established
• High volume, innovative
production may be needed
• Improved cost control, reduction in
options, paring down of product
line
Decline:
• Unless product makes a special
contribution to the organization,
must plan to terminate offering
Product-by-Value Analysis
Is a list of products, in descending order
of their individual peso contribution to the
firm, as well as the total annual peso
contribution of the product. A product-by-
value report allows management to
evaluate.
2. Generating New Products
Because products die; must be weeded
out and replaced; and since firms
generate most of their revenue and profit
from new products - product selection,
definition and design takes place on a
continuous basis. Knowing how to
successfully find and develop new
products is a requirement.
One technique to generate new product
ideas is brainstorming. Brainstorming is a
technique in which a diverse group of
people share, without criticism, ideas on
a particular topic. However, operations
manager must be aware of the following
factors and be able to anticipate changes
in product opportunities, the product
themselves, product volume, and product
mix.
New Product Opportunities
1. Understanding the customer
2. Economic change
3. Sociological and demographic
change
4. Technological change
5. Political / legal change
6. Market practice, professional
standards, suppliers, distributors
1. Understanding the customer is
the premier issue in new-product
development. Many products are
initially thought of and even
prototyped by users rather than
producers. Hence operations
managers must be “tuned in” to
the market and particularly these
innovative lead users.
2. Economic change brings
increasing levels of affluence in
the long run but economic cycles
and price changes in the short run.
In the long run, for instance, more
and more people can afford
automobiles, but in the short run,
a recession may weaken the
demand for automobiles.
3. Sociological and demographic
change may appear in such
factors as decreasing family
size. This trend alters the size
preference for homes,
apartments, and automobiles.
4. Technological change makes
possible everything from cell
phones to iPods to artificial hearts.
5. Political/legal change brings
about new trade agreements,
tariffs, and government
requirements.
6. Other changes may be brought
about through market practice,
professional standards,
suppliers, and distributors.
Stages of Product Development
An effective product strategy links
product decisions with cash flow, market
dynamics, product life cycle, and the
organization’s capabilities. An
organization must have cash flow for
product development, understand the
changes constantly taking place in the
marketplace, and have the necessary
talents and resources available. The
product development system may well
determine not only product success but
also the firm’s future. The figure below
shows the stages of product
development.
Product Development System
Quality Function Deployment (QFD)
Quality function deployment is a process
for determining customer requirements
(customer “wants”) and translating them
into the attributes (the “hows”) that each
functional area can understand and act
on.
One of the tools of QFD is the house of
quality. The house of quality is a
graphic technique for defining the
relationship between customer desires
and product (or service). To build the
house of quality, we perform seven basic
steps:
Quality Function Deployment
• Identify customer wants
• Identify how the goods/service
will satisfy customer wants
• Relate customer wants to
produce hows
• Identify relationships between the
firm’s hows
• Develop importance ratings
• Evaluate competing products
• Compare performance to
desirable technical attributes
QFD House of Quality
Example of Constructing a House of
Quality
House of Quality Example
Your team has been charged with
designing a new camera for Great
Cameras, Inc. The first auction is to
construct a House of Quality
Completed House of Quality
Issues for Product Development
The following are the techniques
in the design of a product:
• Robust design
• Modular design
• Computer-aided design (CAD)
• Computer-aided manufacturing
(CAM)
• Virtual reality technology
• Value analysis
• Environmentally friendly design
1. Robust Design – is a design that
can be produced to requirements
even with unfavorable conditions
in the production process.
• Product is designed so that
small variations in
production or assembly do
not adversely affect the
product.
• Typically results in lower
cost and higher quality
2. Modular Design – is a design in
which parts or components of a
product are subdivided into
modules that are easily
interchanged or replaced.
• Products designed in easily
segmented components
• Adds flexibility to both
production and marketing
• Improved ability to satisfy
customer requirements
3. Computer-Aided Design (CAD)
– is the use of computers to
interactively design products and
prepare engineering
documentation
• Using computers to design
products and prepare
engineering documentation
• Shorter development
cycles, improved accuracy,
lower cost
• Information and designs
can be deployed worldwide
Extensions of CAD
Design for manufacturing and Assembly
(DFMA)
• Solve manufacturing problems
during the design stage
3-D Object Modeling
• Small prototype development
CAD through the Internet
International data exchange through
STEP
4. Computer-Aided Manufacturing
(CAM) – refers to the use of
specialized computer programs to
direct and control manufacturing
equipment
• Utilizing specialized
computers and program to control
manufacturing equipment
• Often driven by the CAD
system (CAD/CAM)
Benefits of CAD/CAM 5. Be recognized as a good
corporate citizen
1. Product Quality
2. Shorter design time Guidelines for Environmentally
3. Production cost reduction Friendly Designs
4. Database availability
5. New range of capabilities 1. Make products recyclables
2. Used recycled materials
5. Virtual Reality Technology – is a 3. Use less harmful ingredients
visual form of communication in 4. Use lighter components
which images substitute for the 5. Use less energy
real thing but still allow the user to 6. Use less material
respond interactively Time-Based Competition
• Computer technology used
to develop an interactive, 3- • Product life cycles are becoming
D model of a product from shorter and the rate of
the basic CAD data technological change is increasing
• Allows people to ‘see’ the • Developing new products faster
finished design before a can result in a competitive
physical model is built advantage
• Very effective in large- Defining the Product
scale designs such as plant • First definition is in terms of
layout functions
• Rigorous specifications are
6. Value Analysis – is a review of developed during the design
successful products that takes place
phase
during the production process
• Manufactured products will have
• Focuses on design
an engineering drawing
improvement during
production • Bill of material (BOM) lists the
components of a product
• Seeks improvements
leading either to a better
Monterey Jack Cheese
product or a product which
(a) U.S. grade AA. Monterey cheese
can be produced more
shall conform to the following
economically
requirements:
Goals for Ethical and Environmentally 1) Flavor. Is fine and highly pleasing,
Friendly Designs free from undesirable flavors and
odors. May possess a very slight
1. Develop safe and more acid or feed flavor
environmentally sound products 2) Body and Texture. A plug drawn
2. Minimize waste of raw materials from the cheese shall be
and energy reasonably firm. It shall have
3. Reduce environmental liabilities numerous small mechanical
4. Increase cost-effectiveness of openings evenly distributed
complying with environmental throughout the plug. It shall not
regulations
 possess sweet holes, yeast holes, Documents for Production
or other gas holes • Assembly drawing
3) Color. Shall have a natural, • Assembly chart
uniform, bright and attractive • Route sheet
appearance • Work order
4) Finish and appearance. • Engineering change notices
Bandaged and paraffin-dipped. (ECNs)
The rind shall be sound, firm, and
smooth providing a good Assembly Drawing
protection to the cheese • Shows exploded view of product
• Details relative locations to show
Product Documents how to assemble the product
Engineering drawing
• Shows dimensions, tolerances, Assembly Chart
and materials Identifies the point of production where
• Shows codes for Group components flow into subassemblies and
Technology ultimately into the final product
Bill of Material
• Lists of components, quantities
and where used
• Shows product structure

Engineering drawings

Route Sheet
Lists the operations and times required to
produce a component
Bills of Material
Work Order • Modularization
Instructions to produce a given quantity • Reduce customer interaction,
of a particular item, usually to a schedule often through automation

a) Customer participation in design

such as pre-arranged funeral
services or cosmetic surgery
b) Customer participation in delivery
such as stress test for cardiac
exam or delivery of a baby
c) Customer participation in design
and delivery such as counselling,
college education, financial
management of personal affairs,
or interior decorating
Engineering Change Notice (ECN)
A correction or modification to a product’s
Moments of Truth
definition or documentation
• Concept created by Jan Carizon
• Engineering drawings
of Scandinavian Airways
• Bill of material
• Critical moments between the
customer and the organization
Quite common with long product life
that determine customer
cycles, long manufacturing lead times, or
satisfaction
rapidly changing technologies
• There may be many of these
moments
Service Design
• These are opportunities to gain or
lose business

Moments of Truth Computer Company

Service typically includes direct

interaction with the customer
• Increased opportunity for
customization
• Reduced productivity
Hotline
Cost and quality are still determined at
the design stage
• Delay customization
Documents for Services Two ways Quality Improves
Profitability
• High levels of customer interaction
necessitates different
documentation
• Often explicit job instructions for
moments-of-truth
• Scripts and storyboards are often
techniques

MODULE 8

Lesson Development

Many organizations have found out

that quality is a wonderful tonic for
improving operations. Managing quality
helps build successful strategies of
differentiation, low cost, and response.
For instance, defining customer quality
expectations has helped Bose Corp.
Successfully differentiate its stereo
speakers as among the best in the
world. Nucor has learned to produce
quality steel at low cost by developing
efficient processes that produce
consistent quality. And Dell Computers
rapidly responds to customer orders
because quality systems, with little
rework, have allowed it to achieve rapid
throughput in its plants.
As can be seen from the figure
below, improvements in quality help firms
increase sales and reduce costs, both of
which can increase profitability.
Increases in sales often occur as firms
speed response, increase or lower
selling prices, and improve their
reputation for quality products. Similarly,
improved quality allows costs to drop as
firms increase productivity and lower
rework, scrap, and warranty costs.
Quality, or the lack of quality, affects the
entire organization from supplier to
customer and from product design to
maintenance. The figure below lays out
the flow of activities for an organization to
use to achieve total quality management
(TQM). A successful quality strategy
begins with an organizational culture that
fosters quality, followed by an
understanding of the principles of quality,
and then engaging employees in the
necessary activities to implement quality.
When these things are done well, the
organization typically satisfies its
customers and obtains a competitive
advantage. The ultimate goal is to win
customers.
The Flow of Activities
 • Organizational Practices
Leadership, Mission statement,
effective operating procedures, staff
support, training
Yields: what is important and what is to
be accomplished
• Quality Principles
Customer focus, continuous
improvement, benchmarking, just-in-
time, tools of TQM
Yields: how to do, what is important and
to be accomplished
• Employee Fulfillment
Empowerment, organizational
commitment
Yields: employee attitudes that can
accomplish, what is important
• Customer Satisfaction
Winning orders, repeat customers
Yields: an effective organization with a
competitive advantage
Definition of Quality
An operations manager’s
objective is to build a total quality
management system that identifies and
satisfies customer needs. Total quality
management takes care of the customer.
Definition of Quality
If we look to some famous experts in the
subject, we find that they define “quality”
in the following ways:
• “Meeting of customers’ needs” (W.
Edwards Deming);
• “Fitness for use” (J.M. Juran);
• “Conformance to requirements”
(Philip B. Crosby)
Quality, according to the American
Society for Quality, is the totality of
features and characteristics of a product
or service that bears on its ability to
satisfy stated or implied needs.
Others, however, believe that the
definition of quality fall into several
categories:
For user based: quality lies in the eyes
of the beholder, and higher quality means
better performance, nicer features, and
other improvements.
For manufacturing based: Quality
means conforming to standards and
“making it right the first time.”
For Product based: Quality is a precise
and measurable variable.
Implications of Quality:
The following are the reasons why quality
is important:
1. Company reputation:
An organization can expect its reputation
for quality-be it good or bad-to follow it.
Quality will show up in perceptions about
the firm’s new products, employment
practices, and supplier relations.
2. Product liability:
The courts increasingly hold
organizations that design, produce, or
distribute faulty products or services
liable for damages or injuries resulting
from their use.
3. Global implications:
For both company and a country to
compete effectively in the global
economy, products must meet global
quality, design, and price expectations.
Inferior products harm a firm’s profitability
and the country’s balance of payments
Cost of Quality (COQ)
The cost of quality refers to the cost
of doing things wrong--that is, the price of
non-conformance. There are four major
categories associated with cost of
quality, they are:
• Prevention costs - costs associated
with reducing the potential for
defective parts or services (e.g.,
training, quality improvement
programs).
• Appraisal costs - costs related to
evaluating products, processes, parts
or services (e.g., testing, labs,
inspectors)
• Internal failure - costs that occur
before delivery of defective parts or
services (e.g., rework, returned
goods, liabilities, lost goodwill, costs
to society).
• External costs - costs that occur after
delivery of defective parts or services
(e.g., rework, returned goods,
liabilities, lost goodwill, costs to
society)
Leaders in the Field of Quality
Management
W. Edwards Deming (1900 – 1993)
• Father of Quality
• Understanding of the system
• Understanding human behaviour
• Understanding variation
• WWII success credited to his
quality approach
• Taught Japan after WWII and
transformed quality
• In 1980 Transformed American
quality revolution
• The Foundations of Six Sigma
Joseph M. Juran
• Born: December 20, 1904
• Died: February 28, 2008
• American
• Joseph Juran is an internationally
acclaimed quality guru, similar to
Edward Deming, strongly
influencing Japanese
manufacturing practices
• Joseph Juran’s belief that “quality
does not happen by accident” gae
rise to the quality trilogy
Armand V. Feigenbaum (April 6, 1922
– November 13, 2014)
• TQC = Feigenbaum
• Founder and President of General
System Company that designs,
implements and installs Total
Quality Control systems
Philip B. Crosby
• Known as The Fun Uncle of the
Quality Revolution
• Born: June 18, 1926
 • Died: August 18, 2001
• American
• Where Philip Crosby excellence
was in finding a terminology for
quality that mere mortals could
understand
• He popularized the idea of the
“cost of poor quality”, that is,
figuring out how much it really
costs to do things badly.
Ethics and Quality Management
• Operations manager must deliver
healthy, safe, quality products and
services
• Poor quality risk injuries, lawsuits,
recalls, and regulation
• Organizations are judged by how
they respond to problems
• All stakeholders much be
considered
International Quality Standards
ISO 9000 - is a set of quality standards
developed by the International
Organization for Standardization
(ISO). The focus is to establish quality
management procedures, through
leadership, detailed documentation, work
instructions, and recordkeeping.
To become ISO 9000 certified,
organizations go through a 9- to 18-
month process that involve documenting
quality procedures, an on-site
assessment, and an ongoing series of
audits of their products or services.
ISO 14000 - is a series of environmental
management standards that contain five
core elements:
1. Environmental
management
2. Auditing
3. Performance Evaluation
4. Labeling
5. Life cycle assessments
Total Quality Management (TQM)
• Refers to a quality emphasis that
encompasses the entire
organization, from supplier to
customer.
• Stresses a commitment by
management to have a
continuing companywide drive
toward excellence in all aspects
of products and services that
are important to the customer.
W. Edwards Deming used 14 points to
indicate how he implemented TQM
Deming’s Fourteen Points
1. Create consistency of purpose
2. Lead to promote change
3. Build quality into the product; stop
depending on inspection
4. Build long-term relationships
based on performance, not price
5. Continuously improve product,
quality, and service
6. Start training
7. Emphasize leadership
8. Drive out fear
9. Breakdown barriers between
departments
10. Stop haranguing workers
11. Support, help, improve
12. Remove barriers to pride in work
13. Institute a vigorous program of
education and self-improvement
14. Put everybody in the company to
work on the transformation
SEVEN CONCEPTS FOR AN
EFFECTIVE TQM PROGRAM
1. Continuous Improvement
TQM requires a never-ending process of
continuous improvement that covers
people, equipment, suppliers, materials,
and procedures. The basis of the
philosophy is that every aspect of an
operation can be improved. The end
goal is perfection, which is never
achieved but always sought
Plan-Do-Check-Act (PDCA Model)
developed by Walter Shewhart as his
version of continuous improvement
The Japanese use the word Kaizen to
describe this ongoing process of
unending improvement
In the U.S., TQM and zero defects are
also used to describe continuous
improvement efforts.
Shewhart’s PDCA Model
1. Plan – identify the improvement
and make a plan
2. Do – test the plan
3. Check – Is the plan working?
4. Act – implement the plan
2. Six Sigma
The term SIX SIGMA, popularized
by Motorola, Honeywell, and General
Electric, has two meanings in TQM.
A. In Statistical sense, it describes a
process, product, or service with
an extremely high capability
(99.9997% accuracy), and 3.4
defects per million opportunities
(DPMO).
B. It is a program designed to reduce
defects to help lower costs, save
time, and improve customer
satisfaction. Six Sigma is a
comprehensive system -- a
strategy, a discipline, and a set of
tools -- for achieving and
sustaining business success.
• It is a strategy because it
focuses on total customer
satisfaction
• It is a discipline because it
follows the formal Six
Sigma Improvement Model
known as DMAIC. The five-
step process of the
improvement model are as
follows:
SIX SIGMA
1. Define critical outputs and identify
gaps for improvement
2. Measure the work and collect
process data
3. Analyze the data
4. Improve the process
 5. Control the new process to make 1. Building communication
sure new performance is networks that include
maintained employees
2. Developing open,
supportive supervisors
3. Moving responsibility from
both managers and staff to
production employees
4. Building high-morale
organizations
5. Creating such formal
organization structures as
teams and quality circles

Quality circle is a group of employees

SIX SIGMA IMPLEMENTATION
• Emphasize defects per million
opportunities as a standard metric
• Provide extensive training
• Focus on corporate sponsor
support (Champions)
• Create qualified process
improvement experts (Black Belts,
Green Belts, etc.,)
• Set stretch objectives
This cannot be accomplished without a
major commitment from top level
management
3. Employee Empowerment
This means involving employees
in every step of the production
process. Enlarging employee
jobs so that the added
responsibility and authority is
moved to the lowest level possible
in the organization. Techniques
for building employee
empowerment include the
following:
who meet regularly with a facilitator to
solve work-related problems in their work
areas. They are trained in planning,
problem solving, and statistical methods
4. Benchmarking
Involves selecting a
demonstrated standard of
products, services, costs, or
practices that represent the
very best performance for a
process or activity. The steps
for developing benchmarks are:
Selecting best practices to use as a
standard for performance
• Determine what to benchmark
• Form a benchmark team
• Identify benchmarking partners
• Collect and analyze
benchmarking information
• Take action to match or exceed
the benchmark
5. Just-in-Time (JIT)
• ‘Pull’ system of production
scheduling including
supply management
▪ Produced only when
signaled
 • Allows reduced inventory product quality moves from what the
levels customer wants.
▪ Inventory costs
• Target-oriented quality
money and hides
• Shows that costs increase as the
process and
material problems product moves away from what
• Encourages improved the customer wants
• Costs include customer
process and product quality
dissatisfaction, warranty and
service, internal scrap and repair,
Relationship to quality:
and costs to society
• Traditional conformance
• JIT cuts the cost of quality
specifications are too simplistic
• JIT improves quality
• Better quality means less
inventory and better,
easier-to-employ JIT
system

6. Taguchi Concepts

These are engineering and

experimental design methods to improve
product and process design. The goal is
to identify the key component and
process variables affecting product
variation. Genichi Taguchi provided us
with three concepts aimed at improving
both product and process quality. These
are: Target-Oriented Quality is a philosophy
of continuous improvement to bring a
Quality robust are products that can be product exactly on target.
produced uniformly and consistently in
adverse manufacturing and 7. Knowledge of Tools of Tqm
environmental conditions. Taguchi’s
idea is to remove the effects of adverse The TQM tools that are
conditions instead of removing the particularly helpful in the TQM are
causes. Taguchi suggests that removing as follow:
the effects is often cheaper than • Tools for generating ideas
removing the causes and more effective ▪ Check sheets
in producing a robust product. ▪ Scatter diagrams
▪ Cause-and-effect
diagram
• Tools to organize the data
Quality loss function (QLF) is a
▪ Pareto charts
mathematical function that identifies all
▪ Flowcharts
costs connected with poor quality and
• Tools for identifying
shows how these costs increase as
problems
 ▪ Histogram
▪ Statistical process
control chart
SEVEN TOOLS OF TQM
a) Check sheet: an organized
method of recording data

b) Scatter Diagram: a graph of the

value of one variable vs. another d) Pareto Chart: a graph to identify
variable and plot problems or defects in
descending order of frequency

c) Cause-and-effect Diagram: a
tool that identifies process
elements (causes) that might
effect an outcome

e) Flowchart (Process Diagram): a
chart that describes the steps in a
process
MRI FLOWCHART
f) Histogram: a distribution showing
the frequency of occurrences of a
variable
g) Statistical Process Control
Chart: a chart with time on the
horizontal axis to plot values of a
statistic
PRE – ASSESSMENT, EVALUATION
AND FORMATIVE ASSESSMENT:
Production – By definition, Operations is
primarily concerned with:
Planning adequate production
capability to meet the forecasts from
sales – You have assumed a VP
Operations position at a medium-sized
frozen foods company. Your job would
focus on:
Mechanic staff availability to ensure
most services are complete in one
working day – You are the Operations
manager for a large auto dealership
services department. Which of the
following would you be most concerned
with?
Many are difficult to measure – Which
one of the following is not a characteristic
of goods?
Ratio of output to input – Which of the
following best describes productivity?
Production – What do you call the
creation of goods and services?
Operations Management – What
activities relate to creation of goods and
services through the transformation of
inputs to outputs?
Recruitment – Which one of the
following is not a function of an
organization?
Forecasting – All of the choices below
are basic functions of the management
process except
Repair – The following are critical
decisions of operations management
except
2 valves – Riverside Metal Works
produces cast bronze valves on a 10-
person assembly line. On a recent day,
160 valves were produced during an 8-
hour shift. What is the labor productivity
of the line?
2.25 valves – Riverside Metal Works
produces cast bronze valves on a 10-
person assembly line. On a recent day,
160 valves were produced during an 8-
hour shift. The manager at Riverside
changed the layout and was able to
increase production to 180 units per 8-
hour shift. What is the new labor
productivity per labor-hour?
1.125% – Riverside Metal Works
produces cast bronze valves on a 10-
person assembly line. On a recent day,
160 valves were produced during an 8-
hour shift. The manager at Riverside
changed the layout and was able to
increase production to 180 units per 8-
hour shift. What is the percentage of
productivity increase?
9.3% – Eric Johnson makes billiard balls
in his Bulacan plant. With recent
increases in his costs, he has a new
found interest in efficiency. Eric is
interested in determining the productivity
of his organization. He would like to
know if his organization is maintaining
the manufacturing average of 3%
increase in productivity. He has the
following data representing a month from
last year and an equivalent month this
year:
Last Year Now
Units produced 1,000 1,000
Labor (hours) 300 275
Resin (pounds) 50 45
Capital invested (P) 10,000 11,000
Energy (BTU) 3,000 2,850
-10.0% – What is the productivity
percentage change of capital?
Frederick W. Taylor – Who is the father
of scientific management who
contributed to personnel selection,
planning and scheduling, motion study
and ergonomics?
Low customer interaction – The
following are characteristics of services
except
Productivity – What do you call the ratio
of outputs divided by one or more inputs?
Marketability – Which one of the
following is not a factor in improving
productivity?
Site of facility is important for
customer contact – The following are
attributes of goods except
11.1% – What is the productivity
percentage change of resin?
6.1% – What is the productivity
percentage change of energy?
27 boxes/hour – Lake Charles Seafood
makes 500 wooden packing boxes for
fresh seafood per day, working in two 10-
hour shifts. Due to increased demand,
plant managers have decided to operate
three 8-hour shifts instead. The plant is
now able to produce 650 boxes per day.
What is the company’s productivity after
the change in work rules?
8% – Lake Charles Seafood makes 500
wooden packing boxes for fresh seafood
per day, working in two 10-hour
shifts. Due to increased demand, plant
managers have decided to operate three
8-hour shifts instead. The plant is now
able to produce 650 boxes per day. What
is the percentage increase in
productivity?
It is a statement of the organization’s
purpose – Which of the following is the
reason why mission statement is
beneficial to an organization?
Productivity – Which of the following is
not one of the strategic approaches to
competitive advantage?
Key success factors – What do you call
a relatively few activities that makes a
difference between a firm having and not
having a competitive advantage?
Are functional areas of the firm –
Which of the following best describes the
10 decisions of operations management?
Mutidomestic strategy – What type of
strategy is used by a company that is
organized across international
boundaries, with decentralized authority
and substantial autonomy at each
business via subsidiaries, franchises, or
joint ventures?
Stockholders approval ratings – Which
of the following did the authors not
suggest as a reason for globalization?
All of the above (To gain
improvements in the supply chain, to
improve operations, to expand a
product’s life cycle, and to attract and
retain global talent) – Which of the
following represent reasons for
globalizing operations?
Strategy – What term describes how an
organization expects to achieve its
missions and goals.
Global Strategy – Which of the
international operations strategies
involves a focus on high cost reductions
and low local responsiveness?
Broad product line – Which of the
following is least likely to be a Cost
Leadership competitive advantage?
Competing on differentiation – The
ability of an organization to produce
goods or services that have some
uniqueness in their characteristics is
Multidomestic strategy – Which of the
international operations strategies
involves a focus on low cost reductions
and high local responsiveness?
A firm offers more reliable products
than its competitors do – Which of the
following is an example of competing on
the basis of differentiation?
Price – Which of the following is not an
operations strategic decision?
Layout Design – Which of the following
OM decisions pertains to sensible
location of processes?
Strengths, opportunities,
weaknesses, and threats – SWOT
analysis refers to
Concerned with uniqueness –
Competing on differentiation is
Engages in international trade or
investment – An international business
is a firm that
Based upon low-cost leadership –
Competing on cost is
For the multinational firm, the
business done outside the country is
especially significant – The difference
between a multinational corporation
(MNC) and an international business is
Global – Which of the following
international operations strategies
involves a high degree of centralization?
Multidomestic – Which of the following
international operations strategies uses
decentralized authority with substantial
autonomy at each business?
Transnational – Which of the following
international operations strategies allows
a firm to pursue all three operations
strategies?
Is a statement of the organization’s
purpose – A mission statement is
beneficial to an organization because it
Key success factors – The relatively
few activities that make a difference
between a firm having and not having a
competitive advantage are known as:
Gantt charts are visual devices that
show the duration of activities in a
project – Which of the following
statements regarding Gantt charts is
true?
All of the above (Activities consume
time and resources, In AON, nodes
represent activities, In AOA, arrows
represent activities) – Which of the
following is true about AOA and AON
networks?
Longest-time path through the
network – The critical path of a network
is the
The sum of the variances of all
activities on the critical path – PERT
analysis computes the variance of the
total project completion time as:
It involves planning, directing and
controlling resources to meet the
technical, cost and time constraints of
the project – Which of the following best
describes project management?
Project – A ____ is a set of activities
which are networked in an order and
aimed towards achieving the goals of a
project
All of the above (Manpower,
Machinery and Materials) – Resources
refers to
Project – Developing a technology is an
example of
All of the above (Understanding the
scope of the project, Objectives of the
project, Formulation and planning
various activities) – The project life
cycle consists of
All of the above (Budgeting and cost
control, Allocating resources,
Tracking project expenditure) –
Following is(are) the responsibility(ies) of
the project manager
3-2-1-4 – Following are the phases of
Project Management Life Cycle. Arrange
them in correct order 1. Design, 2.
Marketing, 3. Analysis and evaluation, 4.
Inspection, testing and delivery
Both (A) and (B) (Input received and
Output received) – Design phase
consist of
All of the above (Time, Cost, and
Quality) – Project performance consists
of
Features, Quality, Cost, Schedule,
Staff – Five dimensions that must be
managed on a project
80 to 95% – Resource requirement in
project becomes constant while the
project is in its _____ progress stage.
Matrix Project – The type of
organizational structure shown by the
picture is
Functional Project – The type of
organizational structure shown by the
picture is
Project Coordinator – You have just
started a new position as a project
manager with your new company. Upon
starting your job you are informed by the
line manager that all budgetary decisions
rest with her and that all key project
decisions will be her responsibility as
well. Most likely, PMI would say you are
functioning as a ____?
He is asking about the status of the
product – Two junior project managers
who are working on the same project are
having a heated discussion (an
argument) on the difference between the
project management life cycle and the
project life cycle. The first project
manager is saying there is essentially no
difference between the two while the
second project manager is saying that
there is a significant difference between
the two. While this debate is occurring, a
senior vice president from your division
interrupts the two and asks them the
following question: "When the project is
completed what is the expected lifetime
of the deliverable?" Essentially, what is
the vice president asking them?
The project life cycle consists of five
distinct phases – All of the statements
about the project life cycle are true except
which of the following:
Product – Projects can intersect with
operations at various points in the
__________ lifecycle
The ‘project’ is really operations – The
project team has been arguing about
what should go into the project
management plan. They've built the
same product over a hundred times
before and have always been bothered
that the project management plan never
seemed to get completed. They were
determined to get it done right this time.
The team has come to you for advice
regarding the project management plan.
The most appropriate response you can
give them is:
Not really. A portfolio can be a group
of programs, projects, or sub-projects
designed to help the organization
meet specific business goals – The
portfolio manager from your division
thought it might be helpful to the project
teams if she delivered a short
presentation on the elements in her
portfolio. A number of team members,
after receiving the e-mail announcement
for the presentation, come to you and ask
if this meeting is worth their time. After all
isn’t a portfolio just a big project? As a
Senior Project manager your best
response would be:
Functional organization – You are the
Project Managers of XYZ consultants.
The Project team members are from
Finance and HR departments. The team
members report to Finance and HR
Managers respectively, and you have
limited control over them. What type of
organizational hierarchy does XYZ
consultants follow?
Pilot aircraft for a United flight – Which
of the following is not a project?
Gantt charts are visual devices that
show the duration of activities in a
project – Which of the following
statements regarding Gantt charts is
true?
All of the above (Activities consume
time and resources, In AON, nodes
represent activities, In AOA, arrows
represent activities) – Which of the
following is true about AOA and AON
networks?
Longest-time path through the
network – The critical path of a network
is the:
The sum of the variances of all
activities on the critical path – PERT
analysis computes the variance of the
total project completion time as:
Is the difference in costs divided by
the difference in times (crash and
normal) – The crash cost per period:
Gantt charts are visual devices that
show the duration of activities in a
project – Which of the following
statements regarding Gantt charts is
true?
None of the above are true – The main
difference between PERT and CPM is
that
PERT – A project manager is interested
in crashing a project with variable activity
times. Which of the following tools should
he/she employ?
All of the above are true (AOA
networks sometimes require dummy
activities, nodes consume no
resources or time in AOA networks,
both are acceptable in practice,
however Microsoft Project uses AON)
– The difference between AON and AOA
networks is that
On a specific project, there can be
multiple critical paths, all with exactly
the same duration – Which of the
following statements regarding critical
paths is true?
All activities on the critical path have
their LS equal to the maximum EF of
all immediate predecessors – Which of
the following statements regarding CPM
is true?
The critical path is A-B-C, duration 15
– A simple CPM network has three
activities, A, B, and C. A is an
immediate predecessor of B and of C. B
is an immediate predecessor of C. The
activity durations are A=4, B=3, C=8
The critical path is D-E-F, duration 15
– A simple CPM network has three
activities, D, E, and F. D is an
immediate predecessor of E and of F. E
is an immediate predecessor of F. The
activity durations are D=4, E=3, F=8
There are four paths in this network –
A simple CPM network has five activities,
A, B, C, D, and E. A is an immediate
predecessor of C and of D. B is also an
immediate predecessor of C and of D. C
and D are both immediate predecessors A-C-E; 10 – The critical path for the
of E network activities shown below is ______
with duration ______.
Is critical and has zero slack – Activity
D on a CPM network has predecessors B Activity Duration ImmediatePredecessors
and C, and has successor F. D has
duration 6. B’s earliest finish is 18, while
C’s is 20. F’s late start is 26. Which of the
following is definitely true? A 2 —
If a specific project has multiple B 4 —
critical paths, all of them will have the
same duration – Which of the following C 6 A,B
statements regarding CPM networks is
true?
D 1 A,B
The set of given times cannot all be
possible – Activity R on a CPM network E 2 B,C,D
has predecessors M and N, and has
successor S. R has duration 5. N’s late
finish is 18, while M’s is 20. S’s late start The weighted average of a, m, and b,
is 14. Which of the following is definitely with m weighted 4 times as heavily as
true? a and b – The expected activity time in
The late finish of an activity is the PERT analysis is calculated as
earliest late start of all preceding A-D-E; 19 – The critical path for the
activities – Which of the following network activities shown below is _____
statements concerning CPM activities is with duration ______
false?
A-D-E; 13 – The critical path for the Activity Duration ImmediatePredecessors
network activities shown below is
_______ with duration _______.
A 10 —
Activity Duration ImmediatePredecessors

A 4 —
B 8 —

B 2 A C 2 A

C 7 — D 4 A
D 4 A
E 5 B,C, D
E 5 B,C,D
0.8413 – A project being analyzed by
PERT has 60 activities, 13 of which are
on the critical path. If the estimated time
along the critical path is 214 days with a
project variance of 100, the probability
that the project will take 224 days or more
to complete is
5.33 – An activity on a PERT network has
these time estimates: optimistic = 2, most
likely = 5, and pessimistic = 10. Its
expected time is
3.67; 1 – An activity on a PERT network
has these time estimates: optimistic = 2,
most likely = 3, and pessimistic = 8. Its
expected time and variance (if it is a
critical activity) are
Forecasting – It is the art and science of
predicting future events
Economic forecast – A type of forecast
that predicts inflation rates, money
supplies, housing starts, and other
planning indicators
Delphi method – A forecast technique
that uses a group process that allows
experts to make forecasts
Quantitative – A forecast that employs
one or more mathematical models that
rely on historical data and/or causal
variables to forecast demand
Trend projection – A time series
forecasting method that fits a trend line to
a series of historical data points and then
projects the line into the future forecasts
Qualitative and quantitative – The two
general approaches to forecasting are
It is based on the assumption that the
analysis of past demand helps
predict future demand – Which of the
following statements about time-series
forecasting is true?
Associative models – Which of the
following techniques uses variables such
as price and promotional expenditures,
which are related to product demand, to
predict demand?
Naïve approach – Which time-series
model below assumes that demand in
the next period will be equal to the most
recent period's demand?
0.10 – Which of the following values of
alpha would cause exponential
smoothing to respond the SLOWEST to
forecast errors?
Use weights to place more emphasis
on recent data – If Brandon Edward
were working to develop a forecast using
a moving averages approach, but he
noticed a detectable trend in the
historical data, he should:
410 – Weekly sales of ten-grain bread at
the local organic food market are
provided in the table below. Based on
these data, forecast week 9 using a five-
week moving average
Week Sales
1 415
2 389
3 420
4 382
5 410
6 432
7 405
8 421
In trend projection the independent
variable is time; in linear regression
the independent variable need not be
time, but can be any variable with
explanatory power – A fundamental
distinction between trend projection and
linear regression is that:
6.12 – Suppose that the demand in
period 1 was 7 units and the demand in
period 2 was 9 units. Assume that the
forecast for period 1 was for 5 units. If the
firm uses exponential smoothing with an
alpha value of .20, what should be the
forecast for period 3? (Round answers
to two decimal places.
40.0 – A time-series trend equation is
25.3 + 2.1x. What is your forecast for
period 7?
Exponential smoothing – Quantitative
methods of forecasting include
Sales force composite – The
forecasting model that is based upon
salesperson's estimates of expected
sales is
44 – What is the forecast for May using a
four-month moving average?
Nov. Dec. Jan. Feb. Mar. April
39 36 40 42 48 46
Exponential smoothing – Which time-
series model uses BOTH past forecasts
and past demand data to generate a new
forecast
1.2 – A forecasting method has produced
the following over the past five months.
What is the mean absolute deviation?
Actual Forecast Error |Error|
10 11 -1 1 millions of pesos. What is the regression
8 10 -2 2 line equation?
10 8 2 2
6 6 0 0
9 8 1 1
Measure forecast accuracy – The
primary purpose of the mean absolute
deviation (MAD) in forecasting is to:
The trend projection method of
forecasting – Linear regression is most
similar to
Short-range, medium-range, and
long-range – Forecasts are usually
classified by time horizon into three
categories
Economic forecast – A type of forecast
that predicts inflation rates, money
supplies, housing starts, and other
planning indicators
Delphi method – A forecast technique
that uses a group process that allows
experts to make forecasts
4,004,000 – Solve the problem below:
Arnold Tofu owns and operates a chain
of 12 vegetable protein “hamburger”
restaurants in Bulacan. Sales figures
and profits for the stores are given in the
table below. Profits are in hundreds of
thousands of dollars while Sales are in
millions of pesos. What is your forecast
of profit for a store with sales of 24million
pesos?
y-hat = 5.936 +1.421x – Arnold Tofu
owns and operates a chain of 12
vegetable protein “hamburger”
restaurants in Bulacan. Sales figures
and profits for the stores are given in the
table below. Profits are in hundreds of
thousands of dollars while Sales are in

1.421 – Arnold Tofu owns and operates
a chain of 12 vegetable protein
“hamburger” restaurants in Bulacan.
Sales figures and profits for the stores
are given in the table below. Profits are
in hundreds of thousands of dollars
while Sales are in millions of pesos.
What is the value of the slope b in the
regression line equation?
5.936 – Arnold Tofu owns and operates
a chain of 12 vegetable protein
“hamburger” restaurants in Bulacan.
Sales figures and profits for the stores
are given in the table below. Profits are
in hundreds of thousands of dollars
while Sales are in millions of pesos.
What is the value of the y-intercept a in
the regression line equation?
4,856,000 – Solve the problem below:
Tofu owns and operates a chain of 12
vegetable protein “hamburger”
restaurants in Bulacan. Sales figures
and profits for the stores are given in the
table below. Profits are in hundreds of
thousands of dollars while Sales are in
millions of pesos. What is your forecast
of profit for a store with sales of 30
million pesos?
Negative – If two variables are inversely
correlated, its r is
26.82 – A firm has modelled its
experience with industrial accidents and
found that the number of accidents per
year (y-hat) is related to the number of
employees (x) by the regression
equation y-hat = 3.3 + 0.049x. The r-
squared value is 0.68. The regression is
based on 20 annual observations. The
firm intends to employ 480 workers next
year. How many accidents do you
project?
Php3,861,000 – An innovative
restaurateur owns and operates a dozen
“Ultimate-Carb” restaurants. His
signature item is a cheese-encrusted
beef medallion wrapped in lettuce. Sales
x, in millions of pesos is related to
Profits, y-hat, in hundreds of thousands
of dollars by the regression equation y-
hat = 8.21 + 0.76x. What is your forecast
profit for a store with sales of 40million
pesos?
Multiple regression – Which of the
following is a causal forecasting model?
1 or -1 – If two variables were perfectly
correlated, what would the coefficient of
correlation r equal?
In trend projection the independent
variable is time; in linear regression
the independent variable need not be
time, but can be any variable with
explanatory power – A fundamental
distinction between trend projection and
linear regression is that:
Coefficient of correlation – The degree
or strength of a relationship between two
variables is shown by
Php4,621,000 – An innovative
restaurateur owns and operates a dozen
“Ultimate-Carb” restaurants. His
signature item is a cheese-encrusted
beef medallion wrapped in lettuce. Sales
x, in millions of pesos is related to
Profits, y-hat, in hundreds of thousands
of dollars by the regression equation y-
hat = 8.21 + 0.76x. What is your forecast
profit for a store with sales of 50million
pesos?
0 – If two variables are not correlated,
what would the coefficient of correlation
r equal?
Associative forecasting – Linear
regression is known as a(n)
_______model because it incorporate
variables or factors that might influence
the quantity being forecast
Moving new products to market more
quickly – Time-based competition
focuses on
Ensure that customization is done as
late in the process as possible,
modularize the product, reduce
customer interaction, and focus on
the moment of truth – Four techniques
available when a service is designed are:
Products and services are usually the
first thing customers see of a
company, so they should have an
impact – Why is good product and
service design important?
True – Quality function deployment
(QFD) is used for design evaluation and
improvement and focuses on ensuring
that the eventual design of a product or
service meets the needs of its customers
All of the above (Introduction,
Maturity, and Growth) – A product’s life
cycle is divided into four phases,
including:
Functional specifications – Product
development systems include
Three waiters and a chef – The
following is NOT part of a service concept
for a restaurant?
With the customer – Where should
product or service design start?
Gathering information from
customers and non-customers in
order to understand needs or
expectations. – What is the task in
product or service design?
A matrix relating customer “wants” to
the firm’s “how” – A house of quality is
Engineering Drawing – A drawing that
shows the dimensions, tolerances,
materials, and finished of a component
All of the choices (Delaying
customization, Modularizing, and
Automating) – The following are
techniques to reduce costs and enhance
the service offering except
Identify customer wants – The first step
in building a house of quality is
Route sheet – A list of operations
necessary to produce a component with
the material specified in the bill of
material
All of the choices (Cash flow, Product
life cycle, Organization’s capability) –
An effective product strategy links
product decisions with
Virtual Reality – A visual form of
communication in which images
substitute for reality and typically allow
the user to respond interactively.
Computer-Aided Manufacturing – A
technique in designing a product that
uses computers to interactively design
products and prepare engineering
documentation
All of the choices (Understanding
customer, economic change, political
change) – The following are product
opportunities except
Buy or sell decision – The choice
between producing a component or a
service and purchasing it from an outside
source.
Bill of material – Which of the following
is used in defining a product?
Bill of material – Which of the following
is different?
Plier – _____ is not a process tools for
TQM systems
3.4 – Processes that operate with "six
sigma quality" over the short term are
assumed to produce long-term defect
levels below ______________ defects
per million opportunities (DPMO).
Internal costs – Inspection, scrap, and
repair are examples of ______________
Correct – Assured quality is necessary
for building customer confidence
A user-based definition of quality –
"Quality is defined by the customer" is
3.4 – If 1 million passengers pass
through the Jacksonville Airport with
checked baggage each year, a
successful Six Sigma program for
baggage handling would result in how
many passengers with misplaced
luggage?
Employee Involvement – The Taguchi
method includes all except which of the
following major concepts?
Environmental management – ISO
14000 is an international standard that
addresses.
Cost of Quality – the cost of doing
things wrong is called
Benchmarking – this involves selecting
a demonstrated standard of
performance that represents the very
best performance for a process or an
activity
The totality of features and
characteristics of a product or
service that bears on its ability to
satisfy stated or implied needs –
American Society for Quality (ASQ)
defines quality as
Poka – yoke – the following are tools of
total quality management except
Ishikawa diagram – a diagram used to
discover possible locations of quality
problems
Employee empowerment – this means
involving employees in every step of the
production process
George Dantzig – the following are
leaders in quality management except
Ishikawa concepts – the following are
concepts of an effective TQM program
except
Quality circle – a group of employees
meeting regularly with a facilitator to
solve work-related problems in their
work area
Reliability, durability, and
maintainability – the most important
dimensions of performance are:
Inspection – a means of ensuring that
an operation is producing at the quality
level expected
Minimum, less – quality in
manufacturing means that at a ___, all
production must be within specification
limits and the ___ variation from the
nominal, the better the quality
Just-in-Time – this involves continuing
improvement and enforced problem
solving. Its systems are designed to
produce or deliver goods just as they are
needed
All of the choices (Product policy,
product design and manufacturing,
final use of the product) – to achieve
quality, organizations must consider:
External Failure – ___ costs are the
costs of correcting problems after goods
or services have been delivered to the
customers. (They include warranty
costs, field serving of customer goods,
and all the other costs associated with
trying to satisfy customer complaints)
All of the choices (Differentiation, low
cost, and response) – managing
quality helps build successful strategies
of
Internal costs – inspection, scrap, and
repair are examples of
QUIZ
External Costs – Costs that occur after
delivery of defective parts or services
(e.g., rework, returned goods, liabilities,
lost goodwill, costs to society).
ISO 9000 – The focus is to establish
quality management procedures,
through leadership, detailed
documentation, work instructions, and
recordkeeping
Causal Methods – Used when historical
data are available and the relationship
between the factor to be forecasted and
other external factors can be identified
Economic Forecasts – Address the
business cycle by predicting housing
starts, inflation rates, money supplies,
and other planning indicators.
Project Management – Involves
planning, directing and controlling
resources (people, equipment and
material) to meet the technical, cost and
time constraints of the project. The
primary challenge of project
management is to achieve all of the
project goals within the given constraint
Project Controlling – This phase
involves close monitoring of resources,
cost, quality, and budgets by using a
feedback loop to revise the project plan
and shift resources to where they are
needed most
Production Control – This stage, the
decision-making process focuses on
controlling quality and costs, scheduling,
and the actual day-to-day operations of
running a factory or service facility.
Mission – States the purpose or
rationale for organization’s existence
Response – A set of values related to
rapid, flexible, and reliable performance.
This can be attained, for example, by
offering a flexible product line, reliable
scheduling, or speedy delivery
Value-chain analysis – This is a
method that is used to identify activities
that represent strengths, or potential
strengths
Probabilistic Time estimates –
Estimates of times that allow for variation
Activity-on-node (AON) – Network
diagram convention in which designate
activities.
Project execution – During and which
the project itself done, this phase often
accounts for the majority of time and
resources consumed by the project
Delphi Method Managers and staff
complete a series of questionnaires,
each developed from the previous 0ne, to
achieve a consensus forecast.
Moving average – Techniques that
averages a number of recent actual
values, updated as new values become
available
Labour Productivity – Units of output
per labour hour, units of output per shift,
value-added per labour hour, dollar value
of output per labour hour
26.57 yards/hour – Determine the
productivity for the four workers installed
850 square yards of carpeting in eight
hour
32.67 pieces/hour – Determine the
productivity if a machine produced 98
usable pieces in three hours
Synthetic manufacturing – This
manufacturing process combines the
various raw materials to produce a
product which is very different from any
of the original parts, generally many
inputs required to produce only one
output
Improving production and operations
– The final stage of operations
management focuses on developing
more efficient methods of producing the
firm’s goods or services
Quality Function Deployment (QFD) –
A process for determining customer
requirements (customer “wants”) and
translating them into the attributes (the
“hows”) that each functional area can
understand and act on
Quality loss function (QLF) – A
mathematical function that identifies all
costs connected with poor quality and
shows how these costs increase as
product quality moves from what the
customer wants
Robust Design – A design that can be
produced to requirements even with
unfavourable conditions in the production
process
250 cases per hour per worker – If a
company processes fruits and
vegetables is able to produce 750 cases
of canned peaches in one-half hour with
6 workers. What is labour productivity.
Conservative Approach – Dictates
using the path with the largest total
variance to focus management’s
attention on the activities most likely to
exhibit broad variations
Jury of Execution Opinion – This is
based on the inputs and decisions of
high-level experts or management.
Total Quality Management – Requires
a never-ending process of continuous
improvement that covers people,
equipment, suppliers, materials, and
procedures
Prevention Costs – Associated with
reducing the potential for defective parts
or services (e.g., training, quality
improvement programs)
Virtual Reality Technology – A visual
form of communication in which images
substitute for the real thing but still allow
the user to respond interactively
Pure Project – A self-contained team
works full time on the project
Scheduling – This phase relates people,
money, and supplies to specific activities
and relates these activities to each other
Intermittent manufacturing – It
produces multiple product output at
irregular interval and in variable
quantities, depending on customer and
order
Management Information System – Is
concerned with providing management
with the information it needs to effectively
manage. This occurs mainly through
designing systems to capture relevant
information and designing reports
Understand Markets – Interacting with
foreign customers and suppliers can lead
to new opportunities. Knowledge of the
markets not only helps industries
understand where the market is going but
also helps them diversify their customer
base, add production flexibility, and
smooth the business cycle
Cost Leadership – Achieving maximum
value, as perceived by customer. This
can be attained, for example, via low
overhead, effective capacity use, or
efficient inventory management. A low
cost strategy does not imply low quality
Location Strategy – Requires
Judgements regarding nearness to
customers, suppliers, and talent, while
considering costs, infrastructure,
logistics, and government
Layout Strategy – Requires integrating
capacity needs, personnel levels,
technology, and inventory requirements
to determine the efficient flow of
materials, people, and information
International Strategy – Often the
easiest, as exports can require little
change in existing operations and
licensing agreements often leave much
of the risk to the licensee