Operations

Management
MBAZG526

Sajin John
2020HB58042
TABLE OF CONTENTS
MODULE 1 – OPERATIONS AND PRODUCTIVITY ................................................................................................................................3
OPERATIONS ............................................................................................................................................................................................................................. 3
COURIER SERVICE .................................................................................................................................................................................................................... 4
POPULATION CENSUS IN INDIA ........................................................................................................................................................................................... 5
OPERATIONS MANAGEMENT ................................................................................................................................................................................................. 5
GOODS AND SERVICES ............................................................................................................................................................................................................. 6
PRODUCTIVITY .......................................................................................................................................................................................................................... 6
NUMERICAL ............................................................................................................................................................................................................................... 7
HISTORICAL MILESTONES IN OPERATIONS MANAGEMENT ............................................................................................................................................ 7
METHOD STUDY IN A GARMENT FACTORY ......................................................................................................................................................................... 9
MODULE 2 – OPERATIONS STRATEGY IN A GLOBAL ENVIRONMENT ..................................................................................... 10
GLOBALISATION OF OPERATIONS ...................................................................................................................................................................................... 10
COMPETITIVE AND OPERATIONS STRATEGIES ................................................................................................................................................................ 10
OPERATION STRATEGIES – EXAMPLES.............................................................................................................................................................................. 11
PRODUCT LIFE CYCLE .......................................................................................................................................................................................................... 13
MODULE 5 – DESIGN OF GOODS AND SERVICES............................................................................................................................... 14
GENERATING NEW PRODUCTS ........................................................................................................................................................................................... 14
PRODUCT DEVELOPMENT CONTINUUM............................................................................................................................................................................ 15
ISSUES FOR PRODUCT DESIGN ............................................................................................................................................................................................ 15
DEFINING A PRODUCT .......................................................................................................................................................................................................... 17
DOCUMENTS FOR PRODUCTION ......................................................................................................................................................................................... 17
SERVICE DESIGN .................................................................................................................................................................................................................... 17
MODULE 7 – PROCESS STRATEGY ......................................................................................................................................................... 19
FOUR PROCESS STRATEGIES ............................................................................................................................................................................................... 19
SELECTION OF EQUIPMENT ................................................................................................................................................................................................. 20
PROCESS ANALYSIS AND DESIGN ....................................................................................................................................................................................... 21
PROCESS REDESIGN (PERFORMANCE OF A PROCESS) ................................................................................................................................................... 22
PRODUCTION TECHNOLOGY................................................................................................................................................................................................ 23
MODULE 7.1 – CAPACITY AND CONSTRAINT MANAGEMENT ..................................................................................................... 25
INTRODUCTION ...................................................................................................................................................................................................................... 25
MATCHING DEMAND AND CAPACITY ................................................................................................................................................................................ 26
BOTTLENECK ANALYSIS ....................................................................................................................................................................................................... 26
THEORY OF CONSTRAINTS (TOC)..................................................................................................................................................................................... 27
BREAKEVEN ANALYSIS ......................................................................................................................................................................................................... 27
OM IN PRACTICE ................................................................................................................................................................................................................... 28
MODULE 8 - LOCATION STRATEGIES ................................................................................................................................................... 29
IMPORTANCE OF FACILITY LOCATION............................................................................................................................................................................... 29
GIS FOR LOCATING FACILITIES .......................................................................................................................................................................................... 29
SERVICE LOCATION STRATEGY........................................................................................................................................................................................... 29
FACILITY LOCATION METHODS – 1 ................................................................................................................................................................................... 30
FACILITY LOCATION METHODS – 2 ................................................................................................................................................................................... 31
MODULE 9 – LAYOUT STRATEGIES ....................................................................................................................................................... 33
IMPORTANCE OF LAYOUTS .................................................................................................................................................................................................. 33
LAYOUTS 1 – SUPERMARKET LAYOUT AND OFFICE LAYOUT ....................................................................................................................................... 33
LAYOUTS 2 – FIXED POSITION LAYOUT, WAREHOUSING AND STORAGE LAYOUT................................................................................................... 34
LAYOUTS 3 – PROCESS LAYOUT ......................................................................................................................................................................................... 34
LAYOUTS 4 – REPETITIVE AND PRODUCT ORIENTED LAYOUT .................................................................................................................................... 35
LAYOUTS 5 – WORK CELLS................................................................................................................................................................................................. 37
MODULE 10 – HUMAN RESOURCES, JOB DESIGN, AND WORK MEASUREMENT .................................................................. 38
LABOR PLANNING AND JOB DESIGN .................................................................................................................................................................................. 38
LABOR STANDARDS .............................................................................................................................................................................................................. 39
WORK SAMPLING .................................................................................................................................................................................................................. 41
METHOD ANALYSIS............................................................................................................................................................................................................... 41
ERGONOMICS AND THE WORK ENVIRONMENT, VISUAL WORKSPACE ....................................................................................................................... 42
VISUAL WORKSPACE ............................................................................................................................................................................................................ 43
MODULE 12 – INVENTORY MANAGEMENT ........................................................................................................................................ 44
INVENTORY – INTRODUCTION ............................................................................................................................................................................................ 44
MANAGING INVENTORY – ABC ANALYSIS ........................................................................................................................................................................ 45
INVENTORY HOLDING AND ORDERING COSTS ................................................................................................................................................................. 45
MANAGING INVENTORY – EOQ MODEL ........................................................................................................................................................................... 46
MANAGING INVENTORY – A PROBABILISTIC MODEL .................................................................................................................................................... 47
MODULE 13 – AGGREGATE PLANNING AND S & OP ....................................................................................................................... 47
PRODUCTION PLANNING PROCESS & SALES AND OPERATIONS PLANNING .............................................................................................................. 48
AGGREGATE PLANNING OPTIONS : ADVANTAGES AND DISADVANTAGES .................................................................................................................. 49
AGGREGATE PLANNING – EXAMPLE .................................................................................................................................................................................. 50
MODULE 14 – MATERIAL REQUIREMENT PLANNING (MRP) AND ERP .................................................................................. 52
DEPENDENT DEMAND AND BILL OF MATERIALS (BOM) ............................................................................................................................................. 52
MRP STRUCTURE.................................................................................................................................................................................................................. 53
LOT-SIZING TECHNIQUES .................................................................................................................................................................................................... 55
EXTENSIONS OF MRP ........................................................................................................................................................................................................... 56
MODULE 15 – SHORT-TERM SCHEDULING ........................................................................................................................................ 58
INTRODUCTION ...................................................................................................................................................................................................................... 58
SCHEDULING PERFORMANCE CRITERIA............................................................................................................................................................................ 58
SEQUENCING OF JOBS – EXAMPLE ...................................................................................................................................................................................... 59
CRITICAL RATIO (CR) .......................................................................................................................................................................................................... 60
MODULE 6 – MANAGING QUALITY ........................................................................................................................................................ 61
DEFINING QUALITY AND COSTS OF QUALITY................................................................................................................................................................... 61
QUALITY GURUS AND ISO 9000 ....................................................................................................................................................................................... 61
APPROACHES TO QUALITY ................................................................................................................................................................................................... 62
TOTAL QUALITY MANAGEMENT (TQM) ......................................................................................................................................................................... 63
SEVEN QUALITY TOOLS ........................................................................................................................................................................................................ 64
SERVICE QUALITY.................................................................................................................................................................................................................. 65
MODULE 16 – LEAN OPERATIONS......................................................................................................................................................... 66
LEAN OPERATIONS AND JIT ................................................................................................................................................................................................ 66
JIT TECHNIQUES .................................................................................................................................................................................................................... 66
MODULE 3 – PROJECT MANAGEMENT ................................................................................................................................................. 68
INTRODUCTION ...................................................................................................................................................................................................................... 68

SAJIN JOHN 2
MODULE 1 – OPERATIONS AND PRODUCTIVITY

O PERATIONS

P RODUCTION T RANSFORMATION
Production is the creation of goods and services.

O PERATIONS
Operations is the management of systems that produce
products and services.
It’s the management of how we get the things done.
Operations/Production is one of the three functions
that every organization performs. (other two are
finance/accounting and marketing)
Transformation by:
Operations in Banking: - Fan, Windmill, Computer, Micro-processor, PCB,
Engine, Tree, Bacteria, y=f(x), companies, etc.

S UPPLY C HAIN
A network of organizations and activities that
transform inputs into outputs.

Operations in Airline:

O PERATIONS M ANAGEMENT (OM)

Operations management (OM) is the set of activities
that creates value in the form of good and services by
transforming inputs into outputs.
Operations Management includes Production
Management. OM Consists of:

Performance

Operations in Manufacturing:
Activities OM Resources

Management

Some of the current challenges for operations

managers include:
Global focus; international collaboration
Supply chain partnering; joint ventures; alliances
Sustainability; green products; recycle, reuse
Rapid product development; design collaboration
Mass customization; customized products
Lean operations; continuous improvement and
elimination of waste
C OURIER S ERVICE
Operations/Activities Activities
Collect, Weigh, Sort, Bag, Load, Transport, Unload, Collection, Sorting, Transportation, Delivery,
Data entry, Billing, Paste barcode, Scan barcode, Funds flow….
Deliver … Resources
Materials, Resources and Technology Delivery boys, aircraft, trucks, machines-
Manpower, Offices, Warehouses, Conveyors, Forklift, weighing, bar coding, sorting; funds….
Pallets, Weighing machines, Aircraft, Trucks, Barcode Performance
printers, RFID, Computers, Paper, Schedules, Work Delivery in 36 hours. (Loan in 2 days, 200
allocation… cars/day.)
Objective: Execute the operations with few
resources, fast, error free, few losses….
Management
Here, OM Consists: Design, Plan, and Control….
P OPULATION C ENSUS IN INDIA
Preparatory Work
Enumeration
Data Processing
Evaluation of results
Analysis of results
Dissemination of results
First census- 1872. Geography: 35 States/Union
Territories, 640 Districts, 5,767 Sub-Districts,
7,742 Towns and 608,786 Villages, 240 million
Households individually visited. Manpower:
About 2.7 million functionaries.
Two phases- House listing and Housing Census
(April to September 2010) and Population
Enumeration (9th February to 28th February
2011 and a revision round 1-5 March 2011).
Questionnaire design- Census 2011: Unique
features like special quality paper created, bar
O PERATIONS M ANAGEMENT
Operations Management is a set of activities to
efficiently transform inputs into goods and services.
Efficiently means:
Using fewer inputs, Producing higher outputs, Doing
faster, Higher quality
Example:
In case of courier service: more packets, fewer
resources, cheaper resources, faster delivery, timely
delivery, avoid damages and losses, …
I MPORT ANCE OF O PERATIONS
Every organisation does operation; it may not do
marketing.
(Even celling fans, µP and PCBs do operations).
Employees engaged in operations- 40 to 90%.
Survival of several industries depends on
operations speed enabled by operations- Fire and
Ambulance service, Pizza delivery, Military.…
Profitability of several industries depends on low
cost enabled by operations- Low cost airlines,
Ordinary post.…
Profitability of several industries depends on
high-profit margins enabled by operations-
FedEx; Speed Post; iPhone .…
coding, unique form numbering, special drop-out
colors and pre-printing of certain data fields.
Canvassing Census Schedule in 18 languages,
Instruction Manuals in 16 languages.
Printing: Schedules (34 crores) printed in high-
end presses- state of the art equipment used for
digital variable printing with consistent quality
(for accurate image recognition). Other material
like Instruction manuals, training materials (54
lakhs) printed in Government and private presses
all over the country.
Distribution: Dispatch of material from printing
presses to 17,000 locations- it required accurate
database of the exact quantity of forms in different
languages, precise packing, labelling of the boxes,
correct addressing, loading and transportation.
Uniform standard of training to 2.7 million
functionaries; through 90 Trainers at the National
level, 725 Trainers at State level, 54,000 trainers
at District level.
Training aids: Instruction Manuals, Training
Guides, PowerPoint presentations, e-Learning
Modules, Role Plays and Practice sheets.
Detailed mapping of 33 Capital Cities using
Satellite.
Publicity campaign- Mass media, Public outreach
and use of Digital promotion.
W HY S TUDY OM?
To understand how people organize themselves
for productive enterprise
To understand what operation managers do
To know how goods and services are produced
OM is a costly part of an organization.
T EN S TRATEGIC OPERATIONS MANAGEMENT
D ECISIONS
An operations manager must successfully address the
10 decisions around which this text is organized.
1. Design of goods and services
2. Managing quality
3. Process and Capacity strategy
4. Location strategy
5. Layout strategy
6. Human resources and job design
7. Supply chain management
8. Inventory Management
9. Scheduling
10. Maintenance
G OODS AND S ERVICES
CHARACTERISTICS OF CHARACTERISTICS OF GOODS EXCEPTIONS
SERVICES
Intangible Tangible Services can be tangible
Insurance, Education…. Cars, Garments, Chemicals, Steel…. Construction, making portraits.…

Produced and consumed Product can usually be kept in Services are not produced and
simultaneously, no inventory inventory consumed simultaneously
Electricity, Theatre, Lectures…. Cars, Garments, Chemicals, Steel…. Repair, Dry cleaning….

Services are unique Similar products produced Services need not be unique
Eye care, Health, Consulting…. Cars, Garments, Chemicals, Steel…. Internet/TV, Classroom teaching….

High customer interaction Ltd customer involvement Zero customer interaction

Health, Education, Consulting.… Cars, Garments, Chemicals, Steel…. Radio/TV, Cinema….

P RODUCTIVITY
The ratio of outputs (goods and services) divided by one
or more inputs (such as labor, capital, or management)
The operations manager’s job is to enhance (improve)
this ration of outputs to inputs. Improving
productivity means improving efficiency.
𝑎𝑙𝑙 𝑜𝑢𝑡𝑝𝑢𝑡𝑠 𝑈𝑛𝑖𝑡𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑
𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 = = than Multi-factor productivity
𝑎𝑙𝑙 𝑖𝑛𝑝𝑢𝑡𝑠 𝐼𝑛𝑝𝑢𝑡 𝑢𝑠𝑒𝑑
Data entry operator – forms/shift.
Programmer – no of lines/day.
Doctor – patients seen/hour.
Judge – cases heard/month.
When only one input is changed-
Every day same machines but the number of
workers report vary.
Trained or untrained person- different method.
Different fertiliser- different input.
Calculator or Slide rule- different technology.
Single factor productivity is used more frequently

Single-factor Productivity Multi-factor Productivity

Indicates the ratio of goods and services produced
(outputs) to one resource (input).
Most productivity measures are single factor.
And labour productivity is used more often that
machine productivity.
Almost all financial ratios are single factor
productivity ratios.
Indicates the ratio of goods and service produced
(outputs) to many or all resources (inputs).
Multifactor productivity is also known as total factor
productivity.
Inputs are expressed in monetary units (Rs, Dollars,
Yen, etc,) since Labour, Material Energy are measured
in different units.

𝑜𝑛𝑒 𝑜𝑢𝑡𝑝𝑢𝑡𝑠 𝑀𝑢𝑙𝑡𝑖𝑓𝑎𝑐𝑡𝑜𝑟 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦

𝑆𝑖𝑛𝑔𝑙𝑒 𝐹𝑎𝑐𝑡𝑜𝑟 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 = 𝑂𝑛𝑒 𝑚𝑎𝑗𝑜𝑟 𝑜𝑢𝑝𝑢𝑡
𝑜𝑛𝑒 𝑖𝑛𝑝𝑢𝑡𝑠 =
Example: 𝐿𝑎𝑏𝑜𝑟 + 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 + 𝐸𝑛𝑒𝑟𝑔𝑦 + 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 + ⋯ 𝑖𝑛 𝑅𝑠
Laptops produced/day/manpower
Trucks loaded/day/manpower
Packets sorted/hour I MPROVING P RODUCTIVITY – M ETHODS
Road roller – kms/day Hard technology
Land – tons of wheat/hectare Calculations by hand to Calculator,
Labour productivity measures Copying by hand to Photocopy.
Painter – square ft/day. Incandescent bulb to LED bulb.
Cleaning staff – square ft/hour. Paper ballots to Electronic Voting Machine.
Factory worker – assemblies/shift. Flood irrigation to Drip irrigation.
Call centre staff – calls handled/shift. Google maps, Payment by BHIM.
Soft technology (method) Seed drill was invented by Jehtro Tull in 1701.
Hub-and-Spoke vs. Direct connections It planted seeds in a straight line and spaced them out.
Collection & Distribution – milk run. The crops were
Scheduling planted in an
Example: orderly fashion
THE FLYING SHUTTLE and the seeds did
The flying shuttle invented not have to
by John Kay in 1733 A.D. anymore fight
Allowed thread to be woven over space to
into cloth faster. grow. No seeds
Doubled the amount of were wasted. The seed drill is still used today.
cloth output per worker / More seeds germinated so higher crops yield.
per day.

SEED DRILL

N UMERICAL
An example, comparison of methods/options (marketing, finance, OM) used to increase the contribution or
outcome of a simple firm:

PRODUCTIVITY CALCULATION OF A PUBLISHING FIRM USING OLD & NEW SYSTEM

System Output Overhead Cost Staff Payroll Cost
Old 8 tiles/day $400/day 4 no’s, 8 hrs/day $640/day
New 14 tiles/day $800/day 4 no’s, 8 hrs/day $640/day

Single Factor Productivity Multi Factor Productivity

8 8
𝑂𝑙𝑑 𝑙𝑎𝑏𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 = 𝑂𝑙𝑑 𝑚𝑢𝑙𝑡𝑖𝑓𝑎𝑐𝑡𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
(4 × 8) 640 + 400
= 0.2500 𝑡𝑖𝑙𝑒𝑠⁄𝑙𝑎𝑏𝑜𝑟 ℎ𝑟 = 0.0077 𝑡𝑖𝑙𝑒𝑠⁄𝑑𝑜𝑙𝑙𝑎𝑟
14 14
𝑁𝑒𝑤 𝑙𝑎𝑏𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 = 𝑁𝑒𝑤 𝑚𝑢𝑙𝑡𝑖𝑓𝑎𝑐𝑡𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
(4 × 8) 640 + 800
= 0.4375 𝑡𝑖𝑙𝑒𝑠⁄𝑙𝑎𝑏𝑜𝑟 ℎ𝑟 = 0.0097 𝑡𝑖𝑙𝑒𝑠⁄𝑑𝑜𝑙𝑙𝑎𝑟
𝑁𝑒𝑤 𝑙𝑎𝑏𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 > 𝑂𝑙𝑑 𝑙𝑎𝑏𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝑁𝑒𝑤 𝑚𝑢𝑙𝑡𝑖𝑓𝑎𝑐𝑡𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦
> 𝑂𝑙𝑑 𝑚𝑢𝑙𝑡𝑖𝑓𝑎𝑐𝑡𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦

H ISTORICAL M ILESTONES IN O PERATIONS M ANAGEMENT

Significant events in modern OM can be classified into 3. Mass production (1910–1980)—Assembly line
six eras: (Ford/Sorensen), statistical sampling (Shewhart),
1. Early concepts (1776–1880)—Labor economic order quantity (Harris), linear
specialization (Smith, Babbage), standardized programming (Dantzig), PERT/CPM (DuPont),
parts (Whitney) material requirements planning
2. Scientific management (1880–1910)—Gantt 4. Lean production (1980–1995)—Just-in-time,
charts (Gantt), motion and time studies (Gilbreth), computer-aided design, electronic data
process analysis (Taylor), queuing theory (Erlang)

SAJIN JOHN 7
 interchange, total quality management, Baldrige Measuring Work
Award, empowerment, kanbans FW Taylor – 1890s
5. Mass customization (1995–2005)—Internet/e- Coal and Pig Iron Shovelling.
commerce, enterprise resource planning, Original daily output increased from 12.5 tons per
international quality standards, finite scheduling, day to 47.5 tons per day, after studying the work
supply-chain management, mass customization, procedure and using redesigned tools and
build-to-order, radio frequency identification procedures. This required 140 workers, 500
(RFID) earlier.
6. Globalization era (2005–2020)—Global supply Taylor’s
chains, growth of transnational organizations, major
instant communications, sustainability, ethics in a contribution
global work force, logistics and shipping Study the
work-
I DEAS AND P EOPLE
1. Division of Labour – Adam Smith(1776) and
Charles Babbage (1830s)
2. Standardisation of parts – Eli Whitney, early
1800.
3. Work measurement – FW Taylor, 1890s. management responsibility.
4. Time and Motion Study – Frank and Lilian Design the procedure to do the work and train the
Gilbreth, 1910s. worker.
5. Assembly lines – Henry Ford, 1910s. Matching employees to right job.
Measure the work
Division of Labour Incentive system started based on work.
Adam Smith(1776) and Charles Babbage (1830s)
Manufacturing Pins – 1770s Time and Motion Study
Operations in manufacturing of pins- drawing, Frank and Lilian Gilbreth – 1910s
straightening, pointing, twisting, cutting heads, Bricklaying
heading and tinning.
Division of labour – one worker does only one
specific operation – tremendously improves
productivity.

Standardisation of Parts
Eli Whitney – early 1800
Parts of Musket No. of motions
reduced from 18 to 45.
Output increased from 120 bricks/hr to 350
bricks/hr.

Eli Whitney introduced the idea of Assembly lines

interchangeable parts to the U.S.
Built ten guns and disassembled them before the
U.S. Congress. He placed the parts in a mixed pile
and was able to reassemble all of the guns back.
Before, everything was made by hand, now parts
were made by machines.
The parts could be used in any musket.
Henry Ford – 1910s
Slaughter house “disassembly” line – 1873
Assembly line at Ford, 1910s
o Moving assembly line to make Model T
o Unfinished product moved by conveyor
past work station.

SAJIN JOHN 8
M ETHOD S TUDY IN A G ARMENT F ACTORY
Improving Productivity using Method Study
Total manpower- 62. Operators-45, Supervisors 2,
Final checkers-2, Inline checkers-2, Roving QC-2,
and Helpers-9.
Time available for production/day, 58 x 8 x 60=
27,840 minutes. (Excluding supervisors and
Roving Q/C.). Output rate- Highest output in a day
in recent times- 333 pcs or 27,840/333 = 83.6
min/piece.
Of 133 pieces were inspected, 15 required
reworks.
Operators hardly had space to sit. Distance
between some machines less than 14’’; ideal
distance 22 to 24’’.
Workplace very hot.
Each completed garment gets passed to the next
operator, not in a batch. No control of the work
passing through the line.
Low WIP inventory on production line, but plenty
of WIP waits at the helping tables, indicating the
line is not balanced.
Big-size scissors used leads to inaccurate cutting,
requires trimming.
Baby overlock- 4 sides are done whereas only 3
sides are needed.
Frills are graded but all sizes are cut as one size.
Thus, requires trimming.
Wrong cuff pattern. Requires trimming, and extra
person.
To put stamp on the garment, the operator
removes the sticker on the panel which is
unnecessary.
Slow pace of the operators; operators have jerky
motions instead of smooth and steady bursts.
Helpers (9) do not work on the production line;
they do a lot of matching work. Each operator is
given a sequential workplace and matching
operation now assigned to the operators
The factory starts at 9.00 am, but the work starts
at 9.15 am. Senior staff also arrive late;
indiscipline, urgency of work missing.
Only 40, down from 52, workers required for same
output.
MODULE 2 – OPERATIONS STRATEGY IN A GLOBAL ENVIRONMENT

G LOBALISATION OF O PERATIONS

G LOBALISATION
Globalization means customers, talent, and suppliers
are worldwide.
The new standards of global competitiveness impact
quality, variety, customization, convenience,
timeliness, and
cost.
Source, produce, assemble and sell locally
Globalization strategies contribute efficiency, adding
o Local production: Since 1980s
value to products and services, but they also
o Maruti-Suzuki, Hero-Honda, Eicher-
complicate the operations manager’s job. Complexity,
Mitsubishi, BPL-Sanyo, Coca Cola
risk, and competition are intensified, forcing
companies to adjust for a shrinking world.
We have identified six reasons domestic business
operations decide to change to some form
of international operation. They are:
1. Improve the supply chain.
2. Reduce costs and exchange rate risk.
3. Improve operations.
4. Understand markets.
5. Improve products. Source from “j” countries, produce in “k”
6. Attract and retain global talent. countries, assemble in “m” countries and sell in “n”
countries
T YPES OF G LOBAL M ANUFACTU RING AND o All activities global, including design and
O PERATION engineering
Source raw material globally, produce and o Toyota, hp, Ford, LG, Samsung
assemble in one country and sell globally
o Exporting goods. Till 1980s
o Ford-US, Toyota-Japan, Rolex-Switzerland,
VW-Germany, Cigars-Cuba

C OMPETITIVE AND O PERATIONS S TRATEGIES

Mission statement of Arnold Palmer Hospital:
Arnold Palmer Hospital for Children provides state of
M ISSION
the art, family-centred healthcare focused on
restoring the joy of childhood in an environment of
The purpose or rationale for an organisation’s
compassion, healing, and hope.
existence.
Mission statement of Merck: The mission of Merck is
Mission statements provide boundaries and focus for
to provide society with superior products and
organizations and the concept around which the firm
services—innovations and solutions that improve the
can rally.
quality of life and satisfy customer needs—to provide
Mission statement of PepsiCo: Our mission is to be
employees with meaningful work and advancement
the world's premier consumer products company
opportunities and investors with a superior rate of
focused on convenient foods and beverages. We seek
return.
to produce financial rewards to investors as we
provide opportunities for growth and enrichment to
our employees, our business partners and the
communities in which we operate. And in everything S TRATEGY
we do, we strive for honesty, fairness and integrity. Strategy is an organization’s action plan to achieve the
mission.

SAJIN JOHN 10
Firms achieve missions in three conceptual ways: RESPONSE: A set of values related to rapid, flexible,
1. Differentiation (i.e., better, or at least different) and reliable performance.
2. Cost leadership (i.e., cheaper) Example: Competitive Strategies
3. Response (i.e., more responsive) Industry Differentiation Low Cost
Each of the three strategies provides an opportunity Courier DHL, FedEx, Speed Post Ordinary
for operations managers to achieve competitive post
advantage.
COMPETITIVE ADVANTAGE implies the creation of Credit Diners, American SBI, ICICI
a system that has a unique advantage over competitors. cards Express
DIFFERENTIATION: Distinguishing the offerings of Hotel Taj, Westin Ginger
an organization in a way that the customer perceives as
Cars Mercedes, Rolls Royce, Nano, Alto
adding value.
Ciaz
Differentiation through delivery speed,
responsiveness, reliability, safety, quality, features, Mobile GoldVish Le Million, Micromax
positioning. phones Vertu, iPhone
EXPERIENCE DIFFERENTIATION: Engaging a Watches Rolex Timex
customer with a product through imaginative use of the
file senses, so the customer “experiences” the product. Groceries ITC Patanjali
LOW-COST LEADERSHIP: Achieving maximum Cosmetics Lakme Patanjali
value, as perceived by the customer

O PERATION STRATEGIES – E XAMPLES

Differentiation and Cost leadership through
Operations with the aim of Profit (= Revenue – Cost)
C OMPETING ON P RODUCT D ESIGN
1. Competing on Product design
“Flat” packable furniture – IKEA
2. Competing on Mass customization
Operational impact – Low storage and transport
3. Completing on Quality
cost, No assembly cost, Modular design- large variety
4. Competing on Response
of final products and also lower inventory and fewer
5. Competing on Cost
suppliers....
6. Competing on Project Management
7. Competing on ……

C OMPETING ON M ASS C USTOMIZATION

SAJIN JOHN 11
 Military- Surgical strikes
Rescue operations
AmEx credit cards
Responsive can be-
Responsive Product development
Responsive production
Responsive delivery
Responsive is achieved by – Process
optimization, excess capacity, high inventory,
faster machines, standard offerings – low
variety, less bureaucracy, empowerment,
extensive training…

C OMPETING ON C OST
Southwest Airlines

Assemble-to-order customised computers, Dell 1990s

to mid-2000s

Fly Hub and spoke,

instead of connecting
Operational impact – Lower inventory, lower
the cities directly.
obsolescence, larger delivery time, higher delivery
Single type of aircraft.
cost, lower distribution cost, higher volume, higher
No in-flight food.
price.…
No check-in baggage.
Use of cheaper airports, outside the city.
C OMPETING ON Q UALITY No boarding pass.

Operational impact – Lower scrap, lower capacity

requirement, lower rework, lower handling costs….

C OMPETING ON R ESPONSE
Pizza Hut
Fire and Ambulance service

SAJIN JOHN 12
P RODUCT L IFE C YCLE

D IFFUSION OF P RODUCTS

Product Life Cycle has four stages as below:

SAJIN JOHN 13
MODULE 5 – DESIGN OF GOODS AND SERVICES

G ENERATING N EW P RODUC TS

P RODUCT D EVELOPMENT S TAGES Q UALITY F UNCTION D EPLOYMENT (QFD)

Determine what will satisfy the customer.
Translate those customer desires into the
target design.
QFD is NOT for improving quality.

1. Identify customer wants

2. Identify how the good/service will satisfy
customer wants
3. Relate customer wants to product hows
4. Identify relationships between the firm’s hows
5. Develop our importance ratings
6. Evaluate competing products
7. Compare performance to desirable technical
attributes

H OUSE OF QUALITY
A planning matrix to relate customer wants to
how the firm is going to meet those wants.
House of quality are NOT for improving
quality.

P RODUCT L IFE C OSTS

SAJIN JOHN 14
P RODUCT D EVELOPMENT C ONTINUUM
O RGANIZING FOR P RODUCT D EVELOPMENT –
A PPROACHES
Traditionally – distinct departments
o Duties and responsibilities are defined,
Difficult to foster forward thinking
A Champion
o Product manager drives the product through
the product development system and related
organizations
Team approach
o Cross functional representatives from all
functions, Product development teams, design
for manufacturability teams,
engineering teams
Japanese “whole organization” approach
o No organizational divisions
Product development teams
o Market requirements to product success,
Cross functional teams often involving
vendors, Open, highly participative
environment
Concurrent engineering
o Simultaneous performance of product
development stages
D ESIGN DRIVEN COMPANIES
Apple, Samsung
Google (205+ products), Microsoft
3M- over 60K products
Rubbermaid- ‘00s of products
I SSUES FOR P RODUCT D ESIGN
M ODULAR D ESIGN
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 production and marketing
• A very large number of final products from few
components.
• Operational benefits- lower inventory, fewer
machines, high-capacity utilization, economics of
scale in production, fewer vendors, lower product
development cost, shorter assembly time.
Product life cycles are becoming shorter and the rate
of technological change is increasing.
Time-based competition from price-based
competition.
Developing new products faster can result in a
competitive advantage.
Shortening Product Life Cycle
New technology and changes in the tastes is
reducing product life cycle
o TV, Incandescent bulbs, Watches, Fans…
o Shoes, Garments, Jewelry…
Product life
value o Maruti- 800: 25+ yrs, Ambassador- 40+ yrs.
o Light vehicles, platforms introduced during
the 1980s lasted 8.6 years’ those introduced
1990s and 2000s existing for an average of 7.6
years.
Product development time
o The development of a new therapeutic
product 10 to 12 years from product
identification to commercialization.
External Development Strategies
• Alliances
• Join Ventures
• Purchase technology or expertise by acquiring
the developer
Internal Development Strategies
• Migrations of existing products
• Enhancements to existing products
• New internally developed products.
R OBUST D ESIGN
A design that can be produced to requirements even
with unfavourable conditions in the production process.
• Robust design exploits
non-linear
relationship between
input and output.
• Robust performance
to large variations-
higher quality at lower
cost. For example,
higher precision can
also be achieved
by using materials of poor quality (large
variation).
Example: Pendulum
length to minimize
variation in the
period
𝐿
𝑇 = 2𝜋√
𝑔
V ALUE A NALYSIS
A review of successful products that takes place during
the production process.
• Seeks improvements in product design that leads
to a better product which can be produced more
economically.
• Focuses on function of the product.
o Same function can be achieved from different
designs.
o Choose the design with lowest cost.
• Benefits of Value Analysis – Fewer components,
fewer processes, standard components…lower
material cost, lower manufacturing cost, lower
assembly cost.
Design for Manufacturability and Assembly
(DFMA)
Manufacturability at DESIGN stage – DFMA
Software that allows designers to look at the effect of
design on manufacturing of the product.
Benefits:
• Improve ease of manufacture.
• Improve ease of assembly.
• Reduced complexity of the product.
• Additional standardization of components.
• Improved job design and job safety.
• Improved maintainability (serviceability) of the
product.
Example:
C OMPUTER A IDED D ESIGN (CAD)
Using computers to design products and prepare
engineering documentation.
• Operational benefits – Shorter development cycle,
improved accuracy, can be used in CAM.
• Popular CAD software – AutoCAD, Alibre Design,
Geometric Design, CATIA, Femap, Fusion 360,
Kompas 3D, Key Creator, LightWave, Solidworks,
SketchUp, SolidFace…..
• Additional Example:
o 3D Object Modeling for heat, stress, vibration
analysis
SAJIN JOHN
o 3D printing – complex design, low volume,
remote/product anywhere
Standard for the exchange of product data
(STEP)
A standard that provides a format allowing the
electronic transmission of three-dimensional data.
The European Community (EU) has developed a
standard for the exchange of product data (STEP; ISO
10303)
STEP permits 3-D product information to be
expressed in a standard format so it can be exchanged
internationally.
C OMPUTER -A IDED M ANUFACTURING (CAM)
• Utilizing specialized computers and program to
control manufacturing equipment.
• Often driven by the CAD system (CAD/CAM).
Operational benefits -
o Shorter production time.
o Complex design
o Database availability.
o New range of capabilities.
V IRTUAL R EALITY T ECHNOLOGY
A visual form of communication in which images
substitute for reality and typically allow the user to
respond interactively.
• Computer technology used to develop an
interactive, 3-D model of a product from the basic
CAD data.
• Allows people to ‘see’ the finished design before a
physical model is built.
• Very effective in large-scale designs such as plant
layout.
S USTAINABILITY AND L IFE C YCLE A SSESSMENT
(LCA)
• Sustainability means meeting the needs of the
present without compromising the ability of
future generations to meet their needs.
• LCA is an evaluation of the environmental impact
of a product.
16
D EFINING A P RODUCT
Product documents A product and component coding system that specifies
• Engineering drawing- manufacturing the size, shape, and type of processing; it allows similar
o Shows dimensions, tolerances, and materials. products to be grouped.
o Shows codes for Group Technology. • Parts grouped into families with similar
• Engineering “drawing”- Other industries characteristics.
A drawing that shows the dimensions, tolerances, • Coding system describes processing and physical
materials, and finishes of a component. characteristics.
o Movies- scripts; Food- recipes. • Part families can be produced in dedicated
o Chemicals- chemical formula, % of chemical manufacturing cells.
mixture.
• Bill of Material (BOM)
A list of the hierarchy of components, their
description, and the quantity of each required to
make one unit of a product
o Lists components, quantities and where used.
o Shows product structure.

G ROUP T ECHNOLOGY

D OCUMENTS FOR P RODUCTION

A SSEMBLY D RAWING W ORK O RDER

An explode view of the product. An instruction to make a given quantity of a particular
• Detail’s relative locations to item, usually to a schedule.
show how to assemble the
product.
• A 3-D drawing, known as
an isometric drawing

A SSEMBLY C HART
A graphic means of
identifying how E NGINEERING C HANGE N OTICES (ECN S )
components flow into A correction or modification (to a products definition)
subassemblies and final of an engineering drawing or bill of material.
products. Configuration Management
A schematic form how a • The need to manage ECNs has led to the
product is assembled. development of configuration management
systems.
• A product’s planned and changing components
R OUTE S HEET are accurately identified.
A listing of operations necessary to produce a • Control and accountability for change are
component with the material specified in the bill of identified and maintained.
material.
P RODUCT L IFE -C YCLE M ANAGEMENT (PLM)
Software programs that tie together many phases of
product design and manufacture.
PLM is an umbrella of software programs that
attempts to bring together phases of product design
and manufacture, like Product design, CAD/CAM,
DFMA, Product routing, Materials, Layout, Assembly,
Maintenance, Environmental, etc.

S ERVICE D ESIGN

SAJIN JOHN 17
• A service typically includes direct interaction with
the customer.
• Process–Chain–Network (PCN) analysis focuses
on the ways in which processes can be designed to
optimize interaction between firms and their
customers.
P ROCESS -C HAIN -N ETWORK (PCN) A NALYSIS
1. Direct interaction region includes process steps
that involve interaction between participants.
2. The surrogate (substitute) interaction region
includes process steps in which one participant is
acting on another participant’s resources.
3. The independent processing region includes steps
in which the supplier and/or the customer is
acting on resources where each has maximum
control.
• All three regions have similar operating issues but
the appropriate way of handling the issues differs
across regions –service operations exist only
within the area of direct and surrogate interaction
• PCN analysis provides insight to aid in positioning
and designing processes that can achieve strategic
objectives
Adding Service Efficiency
Service Productivity is notoriously low partially
because of customer involvement in the design or
delivery of the service, or both
• Complicates product design
• Limit the options
o Improves efficiency and ability to meet
customer expectations.
o Delay customization
• Modularization
o Ease’s customization of a service
• Automation
o Reduces cost, increases customer service
• Moment of truth
o Critical moments between the customer and
the organization that determine customer
satisfaction
Documents for Services
• High levels of customer interaction necessitate
different documentation
• Often explicit job instructions
• Scripts and storyboards are other techniques
MODULE 7 – PROCESS STRATEGY

F OUR P ROCESS S TRATEGIES

A Process strategy is an organization’s approach to
transforming resources into goods and services.
The objective is to create a process that can produce
offerings that meet customer requirements within
cost and other managerial constraints.
Virtually every good or service is made by using some
variation on one of four process strategies:
3. PRODUCT FOCUS
A facility organized around products; a product-
oriented, high-volume, low-variety process.
• Facilities are organized by product.
• High volume but low variety of products
• Long, continuous production runs enable
efficient processes.
• Typically, high fixed cost but low variable cost
• Generally, less skilled labor
• High-volume, low-variety, continuous process
• Example: Coca cola, Juice, milk plants,
refineries, cement plants.

1. PROCESS FOCUS 4. MASS CUSTOMIZATION

A production facility organized around processes to Rapid, low-cost production that caters to constantly
facilitate low-volume, high-variety production changing unique customer desires.
• Facilities are organized around specific • The rapid, low-cost production of goods and
activities or processes service to satisfy increasingly unique
• General purpose equipment and skilled customer desires.
personnel • Combines the flexibility of a process focus
• High degree of product flexibility with the efficiency of a product focus.
• Typically, high cost and low equipment • Mass customisation – High volume, High
utilization. variety.
• Product flows mat vary considerably making • Example: Dell computers in 1990s
planning and scheduling a challenge
• Example: Hospitals
Process, Volume, and Variety
Process selected must fit with volume and variety.
2. REPETITIVE FOCUS
A product-oriented production process that uses
modules
• Facilities often organized as assembly lines.
• Characterized by modules with parts and
assemblies made previously.
• Modules may be combined for many output
options.
• Less flexibility than process-focused facilities
but more efficient.
• For high volume production.
• Example: Cars, Bikes, …

C OMPARISON OF P ROCESSES
 Process Focus Repetitive Focus Product Focus Mass Customization
(Low-volume, High- (Modular) - Cars (High-volume, low (High-volume, high variety) –
variety) – Hospitals variety) – Coca cola Dell Computer on 1990s
Small quantity and large Long runs, a standardized Large quantity and small Large quantity and large
variety of products product from modules variety of products variety of products
Broadly skilled Moderately trained Less broadly skilled Flexible operators
operators employees operators
Instructions for each job Few changes in the Standardized job Custom orders requiring
instructions instructions many job instructions
High inventory Low inventory Low inventory Low inventory relative to the
value of the product
Finished goods are Finished goods are made Finished goods are made Finished goods are build-to-
made to order and not to frequent forecasts to a forecast and stored order (BTO)
stored
Scheduling ins complex Scheduling is routine Scheduling is routine Sophisticated scheduling
accommodates customer
orders
Fixed costs are low and Fixed costs are dependent Fixed costs are high and Fixed costs tend to be high
variable cost high on flexibility of the facility variable costs low and variable costs low

S ELECTION OF E QUIPMENT

C ROSSOVER C HARTS FOR P ROCESS S ELECTION

The comparison of processes can be further enhanced
by looking at the point where the total cost of the
process’s changes. For instance, below figure shows
three alternative processes compared on a single
chart, known as crossover chart.
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 = 𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡 × 𝑈𝑛𝑖𝑡 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡
× 𝑉𝑜𝑙𝑢𝑚𝑒

Most economical process,

• If Volume < V1, Process A
• If Volume > V2, Process C
• If Moderate Volume, Process B
Flexibility is the ability to respond with little penalty
in time, cost, or customer value.

SAJIN JOHN 20
P ROCESS A NALYSIS AND D ESIGN
Business Processes A flow chart with time added on the horizontal axis.
• Recruitment
• Order fulfilment
• Sanctioning loan
• Credit card approval
• Insurance claim processing
Manufacturing Processes
• Car production
• Tyre production
• Steel production
• Fertiliser production
• Footwear production

𝑃𝑟𝑜𝑐𝑒𝑠𝑠 = ∑ 𝑎𝑐𝑡𝑖𝑣𝑖𝑡𝑖𝑒𝑠
Activities P ROCESS C HART
• Unload passengers Charts that use symbols to analyze the movement of
• Unload bags people or material.
• Refuel Mainly used for repetitive discrete manufacturing
• Clean operations.
• Restock catering supplies
• Maintenance
• Change crew
• Reload bag
• Reload passengers
• Typical TAT (Turnaround Time) – 30 minutes.
Following tools helps us understand the complexities
of process design and redesign.
1. Flowchart – Sequence of activities.
2. Time-Function Mapping – Activities + Time +
Who does the activity.
3. Process chart – Five activities.
4. Value Stream Mapping – Activities of Suppliers +
Company + Customers.
5. Service Blueprinting – Customer and Service
provider interaction.

F LOWCHARTS
A drawing used to analyse movement of people or
material. Example: Clay Pot Making -
Used for Process
Improvement.
• Reduce time
• Reduce resources
• Merge activities
• Change sequence of
activities
• Eliminate redundant
activities
• Reduce number of
stations/ persons who do the work
• Reduce interaction between customer and
employee (single window)

V ALUE -S TREAM M APPING (VSM)

T IME -F UNCTION M AP

SAJIN JOHN 21
A process that helps managers understand how to add
value in the flow or material and information through
the entire production process.
• Where value is added in the entire production
process, including the supply chain.
• Extends from the customer back to the suppliers.
• Company + Suppliers + Customers
• Value-stream mapping extends beyond the
immediate organization to customers and
suppliers.
1. Begin with symbols for customer, supplier, and
production to ensure the big picture
2. Enter customer order requirements
3. Calculate the daily production requirements
4. Enter the outbound shipping requirements and
delivery frequency
5. Determine inbound shipping method and delivery
frequency
P ROCESS R EDESIGN (P ERFORMANCE OF A P ROCESS )
Managerial
Costs, Revenues
Technical
Process time, Resource requirement, Capacity
utilization, Backlog, Rework, Waste, No of stages, …
P ROCESS I MPROVEMENT
1. Reduce activity time.
2. Do the activities faster.
3. Activities in parallel.
4. Change location of the activity.
5. Split the activities
6. Merge activities.
7. Change the sequence of activities.
8. Eliminate redundant activities.
9. Reduce number of activities.
10. Reduce no. of stations/persons who do the work.
11. Change the layout.
12. Create additional inspection stage.
13. Cheaper resource.
14. Automate.
SAJIN JOHN
6. Add the process steps (i.e., machine, assemble) in
sequence, left to right
7. Add communication methods, add their
frequency, and show the direction with arrows
8. Add inventory quantities between every step of
the entire flow
9. Determine total working time (value-added time)
and delay (non-value-added time)
S ERVICE B LUEPRINT
A process analysis technique that lends itself to a focus
on the customer and the provider’s interaction with the
customer.
Products with a high service content may warrant use
of this process technique.
Service blueprinting is designed to help us focus on the
customer interaction part of the process.
15. Change tools.
16. Reduce changeover time.
17. Reduce interaction between customer – employee
S PECIAL C ONSIDERATION FOR S ERVICE P ROCESS
D ESIGN
• Some interaction with customer is necessary, but
this often affects performance adversely
• The better these interactions are accommodated
in the process design, the more efficient and
effective the process
• Find the right combination of cost and customer
interaction
S ERVICE P ROCESS M ATRIX
22
 Self- Service-service so Supermarkets
service customers and department
examine, compare, stores Internet
and evaluate at ordering
their own pace
Postpone Customizing at Customizing vans
ment delivery at delivery rather
than at
production
Focus Restricting the Limited-menu
offerings restaurant
Modules Modular selection Investment &
of service Modular insurance
production selection,
Prepacked food
modules.
Automati Separating Automatic teller
on services that may machines
lend themselves to
some type of
automation
T ECHNIQUES FOR I MPROVING S ERVICE Schedulin Precise personnel Scheduling ticket
P RODUCTIVITY g scheduling counter person at
Strategy Technique Example 15-min internals
Separatio Structuring customers go to a Training Clarifying the Investment
n service so manager to open service options. counsellor,
customers must a new account, to Explaining how to funeral directors,
go where the load officers for avoid problems After-sale
service is offered loans, to tellers maintenance
for deposits personnel

P RODUCTION T ECHNOLOGY

1. A UTOMATIC I DENTIFICATION S YSTEMS 2. A UTOMATED S TORAGE AND R ETRIEVAL

(AIS S ) AND RFID S YSTEMS (ASRS S )
AIS is a system for transforming data into electronic • Automated placement
form, for example, bar codes. and withdrawal of parts
• Improved data acquisition and products
• Reduced data entry errors Reduced errors and labor.
• Increased speed Computer-controlled
• Increased scope of process warehouses that provide for
automation the automatic placement of
Radio frequency Identification (RFID) – A wireless parts into and form designated places in a warehouse.
system in which integrated circuits with antennas send
radio waves. 3. F LEXIBLE M ANUFACTURING S YSTEMS
(FMS)
A system that uses electronic signals from a centralized
computer to automate production and material flow.
Computer controls both the workstation and the
material handling equipment.
Visual systems – Systems that use video cameras and • Enhance flexibility and reduced waste.
computer technology in inspection roles. • Can economically produce low volume but high
Robot – A flexible machine with the ability to hold, variety.
move, or grab items. It functions through electronic • Reduced changeover time & increased utilization.
impulses that activate motors and switches. • Stringent communication requirement between
components

SAJIN JOHN 23
 4. A UTOMATED G UIDED V EHICLE (AGV S )
Electronically guided and controlled carts used to
move materials.
5. C OMPUTER -I NTEGRATED M ANUF ACT URING
(CIM)
A manufacturing system in which CAD, FMS, inventory
control, warehousing, and shipping are integrated.
Extends flexible manufacturing
• Backward to engineering and inventory control
• Forward into warehousing and shipping
• Can also include financial and customer service
areas
• Reducing the distinction between low-
volume/high-variety, and high-volume/low-
variety production
SERVICE EXAMPLE
INDUSTRY
Financial Debit cards, electronic funds transfer,
Services ATMs, Internet stock trading, online
banking via cell phone
Education Online newspapers and journals,
interactive assignments via WebCT,
Blackboard, and smartphones
Utilities and Automated one-person garbage trucks,
government optical mail scanners, flood-warning
systems, meters that allow homeowners
to control energy usage and costs
Restaurants and Wireless orders from waiters to kitchen,
foods robot butchering, transponders on cars
that track sales at drive-throughs
Communications Interactive TV, e-books via Kindle

Hotels Electronic check-in/check-out,

electronic key/lock systems, mobile
Web bookings
Wholesale/retail Point-of-sale (POS) terminals, e-
trade commerce, electronic communication
between store and supplier, bar-coded
data, RFID
Transportation Automatic toll booths, satellite-directed
navigation systems, Wi-Fi in
automobiles
Health care Online patient-monitoring systems,
online medical information systems,
robotic surgery
Airlines Ticketless travel, scheduling, Internet
purchases, boarding passes downloaded
as two-dimensional bar codes on smart
phones
T ECHNOLOGY IN S ERVICES

SAJIN JOHN 24
MODULE 7.1 – CAPACITY AND CONSTRAINT MANAGEMENT

I NTRODUCTION

C APACITY Design capacity

The throughput, or the number of units a facility can The theoretical output of a system in a given period
hold, receive, store, or produce in a period of time. under ideal conditions.
Determines if demand will be satisfied. • Normally expressed as a rate. Nos/day,
Determines fixed costs. tons/month.
Three-time horizons- • Example: If machines at Frito-Lay are designed to
Long range (1-10 years). produce 1,000 bags of chips/hr., and the plant
Intermediate range (3 months to 2 years). operates 16 hrs./day.
Short range (1 week to 6 months). 𝐷𝑒𝑠𝑖𝑔𝑛 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 = 1000 𝑏𝑎𝑔𝑠⁄ℎ𝑟 × 16 ℎ𝑟𝑠
= 16,000 𝑏𝑎𝑔𝑠⁄𝑑𝑎𝑦
Time Horizons and Capacity Options
Time Options for adjusting capacity Effective capacity
horizon The capacity a firm can expect to achieve, given its
product mix, methods of scheduling, maintenance, and
Modify (+ or -) Use capacity
standards of quality.
capacity
• Capacity after considering current operating
Long-range Design new Difficult to constraints.
planning production adjust capacity • It accounts for lost output because of planned
processes as limited resource. unavailability (preventive maintenance,
Add (or sell existing) options exist machine setups/changeovers, scheduled breaks,
long-lead-time etc.).
equipment • It is lower
Acquire or sell than the design capacity.
facilities • Example: If Frito-Lay loses 3 hours of
Acquire competitors output per day (namely 0.5 hrs./day on preventive
Intermediate- Subcontract Build or use maintenance + 1 hr./day on employee breaks + 1.5
range Add or sell inventory hrs./day setting up machines for different
planning equipment Training products). On average, if machines at Frito-Lay are
(aggregate Add or reduce shifts Add or reduce not running 1 hr./day due to late parts and
planning) personnel machine breakdowns.
Short-range Difficult to adjust Schedule jobs 𝐸𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦
planning capacity as limited Schedule = (16 ℎ𝑟𝑠 − 3 ℎ𝑟𝑠) × 1000 𝑏𝑎𝑔𝑠⁄ℎ𝑟
(scheduling) options exist personnel = 13,000 𝑏𝑎𝑔𝑠⁄𝑑𝑎𝑦
Allocate 𝐴𝑐𝑡𝑢𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡 = 13000 − 1000 = 12000 𝑏𝑎𝑔𝑠⁄𝑑𝑎𝑦
machinery
Utilization
Output capacity Actual output as a percent of design capacity.
• Units of output capacity- tons/day, cars/day, 𝑨𝒄𝒕𝒖𝒂𝒍 𝒐𝒖𝒕𝒑𝒖𝒕
litres/min. 𝑼𝒕𝒊𝒍𝒊𝒛𝒂𝒕𝒊𝒐𝒏 =
𝑫𝒆𝒔𝒊𝒈𝒏 𝒄𝒂𝒑𝒂𝒄𝒊𝒕𝒚
• Output capacity is used when the variety of So, in above examples –
products produced is narrow. 12000 𝑏𝑎𝑔𝑠⁄𝑑𝑎𝑦
• Examples: Refineries, Cement factories, 𝑈𝑡𝑖𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 = = 0.75 = 75%
16000 𝑏𝑎𝑔𝑠⁄𝑑𝑎𝑦
Automobile factories, Desktop printers, Bottling
plants.…
Efficiency
Actual output as a percent of effective capacity.
Input capacity 𝑨𝒄𝒕𝒖𝒂𝒍 𝒐𝒖𝒕𝒑𝒖𝒕
• Units of input capacity- Standard time, in hours. 𝑬𝒇𝒇𝒊𝒄𝒊𝒆𝒏𝒄𝒚 =
𝑬𝒇𝒇𝒆𝒄𝒕𝒊𝒗𝒆 𝒄𝒂𝒑𝒂𝒄𝒊𝒕𝒚
• Input capacity is used when a large variety of So, in above examples –
outputs is produced. 12000 𝑏𝑎𝑔𝑠⁄𝑑𝑎𝑦
• Examples: Capacity of General purpose machine, 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 = = 0.92 = 92%
13000 𝑏𝑎𝑔𝑠⁄𝑑𝑎𝑦
Job shops, Printing shops, and Audit, Law,
Example:
Consulting and Software companies….
Design capacity = 1200 rolls per hour

SAJIN JOHN 25
Bakery operates 7 days/week, 3 shifts of 8 hour Thus, Design capacity = (7 × 3 × 8) × 1200 = 201600
Effective capacity = 175000 rolls/day Utilization = 148000/201600 = 73.4%
Actual production last week = 148000 rolls/day Efficiency = 148000/175000 = 84.6%

M ATCHING D EMAND AND C APACITY

Demand exceeds capacity
• Curtail demand by raising prices, scheduling
P RODUCTION RATE ( OR CAPACITY ) FOR FOLLOWING
longer lead times
DEMAND ?
• Long-term solution is to increase capacity
Capacity exceeds demand
• Stimulate market – promotion & pricing.
• Product changes
Adjusting to seasonal demands
• Produce products with complementary demand
patterns

M ATCHING C APACITY TO D EMAND R EDUCING RISK WITH I NCREMENTAL CHANGES

1. Making staffing changes
2. Adjusting equipment
3. Purchasing additional machinery.
4. Selling or leasing out existing equipment.
5. Improving processes to increase throughput
6. Redesigning products to facilitate more
throughput
7. Closing facilities
Service-Sector Demand and Capacity Management
• Demand management: Appointment,
reservations, FCFS rule.
• Capacity management: Full time, temporary, part-
time staff.

M ATCHING D EMAND TO C APACITY

B OTTLENECK A NALYSIS
Capacity analysis – A means of determining through- o Throughput time = 2 + 4 + 3 = 9 min/unit
put capacity of workstations or an entire production o Bottleneck: Operation B, minimum capacity
system o Bottleneck time: 4 min
Bottleneck – The o System capacity = 15 units/hr
limiting factor or
constraint in a system. Example 2: Two identical sandwich assembly lines.
The bottleneck has the Total 4 workers – one for order taking; two at
lowest effective capacity assembly lines, and one for wrap/delivery
in a system/
Process time – The time to produce a unit (or specified
batch of units) at a workstation.
Bottleneck time – The process time of the longest
(slowest) process, i.e. the bottleneck.
Throughput time – The time it takes for a product to
go through the production process with no waiting. It is
the time of the longest path through the system. o The two lines are identical, so parallel processing
can occur.
Example 1: In a system o At 40 seconds, the toaster has the longest
with three operations processing time and is the bottleneck for each line.
A, B, C each take 2, 4, 3 o At 40 seconds for two sandwiches, the bottleneck
min/unit respectively. time of the combined lines = 20 secs.
o Operation A, B, C process 30, 15, 20 units/hr

SAJIN JOHN 26
o At 37.5 seconds/sandwich, wrapping and delivery is (Cleaning), Dentist (X Ray exam + Dentist advice),
the bottleneck for the entire operation. Receptionist – same receptionist for Checkout).
𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 = 1 𝑠𝑎𝑛𝑑𝑤𝑖𝑐ℎ 𝑖𝑛 37.5 𝑠𝑒𝑐𝑜𝑛𝑑𝑠 Cleaning and examining of X-rays happen
= 1⁄37.5 𝑠𝑎𝑛𝑑𝑤𝑖𝑐ℎ𝑒𝑠 ⁄𝑠𝑒𝑐𝑜𝑛𝑑 simultaneously.
= 3600⁄37.5 𝑠𝑎𝑛𝑑𝑤𝑖𝑐ℎ𝑒𝑠 ⁄ℎ𝑜𝑢𝑟
= 96 𝑠𝑎𝑛𝑑𝑤𝑖𝑐ℎ𝑒𝑠⁄ℎ𝑜𝑢𝑟
𝑇ℎ𝑟𝑜𝑢𝑔ℎ𝑝𝑢𝑡 𝑡𝑖𝑚𝑒 = 30 + 15 + 20 + 40 + 37.5
= 142.5 𝑠𝑒𝑐𝑜𝑛𝑑𝑠

o Bottleneck: Wrap/Delivery
o Bottleneck Time: 37.5 seconds
o System capacity = 96 sandwiches/hour
Example 3: Four persons - Receptionist (Check-in),
Technician (Takes X ray + Develops X ray), Hygienist
o Bottle neck: Hygienist cleaning
o Bottleneck Time: 24 minutes/patients
o System capacity = 60/24 = 2.5 patients/hour
o Throughput time = max (path1, path2) =
2+2+4+24+8+6 = 46 minutes

T HEORY OF C ONSTRAINTS (TOC)

D RUM -B UF FER -R OPE T HEORY OF C ONSTRAINTS (TOC)

1. Release work orders to the system at the pace of
set by the bottleneck’s capacity (Drum).
2. Lost time at the bottleneck represents lost
capacity for the whole system.
3. Increasing the capacity of a non-bottleneck station
is a mirage.
4. Increasing the capacity of a bottleneck increases
the capacity of the whole system.
A body of knowledge that deals with anything that
limits an organization’s ability to achieve its goals.
Recognizing and managing these limitations through a
five-step process is the basis of TOC.
STEP 1: Identify the constraints.
STEP 2: Develop a plan for overcoming the identified
constraints.
STEP 3: Focus resources on accomplishing Step 2.
STEP 4: Reduce the effects of the constraints by off-
loading work or by expanding capability. Make sure
that the constraints are recognized by all those who
can have an impact on them.
STEP 5: When one set of constraints is overcome, go
back to Step 1 and identify new constraints.

B REAKEVEN A NALYSIS
A means of finding the point, in dollars and units, at
which costs equal revenues.
• A technique that can be used to choose equipment
alternatives based on the volume of demand.
• The objective is to find the volume of demand at
which the alternative becomes financially viable.

Breakeven analysis requires estimation of fixed costs,

variable costs, and revenue.
• Fixed costs – costs incurred even if no units are
produced
• Depreciation, taxes, debt, mortgage payments.
• Variable costs – costs that vary with the volume
of units produced
• Labor, materials, portion of utilities.
Thus, Breakeven happens when Total Cost is same as
that of Total Revenue. i.e., at Zero profit.
𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑜𝑟 𝑈𝑛𝑖𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
× 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 = 𝑈𝑅 × 𝑋

SAJIN JOHN 27
 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡, 𝑇𝐶 = 𝑇𝐹𝐶 + (𝑈𝑉𝐶 × 𝑋) • Increasing Volume (X)
At breakeven, TC = TR Thus,
𝑈𝑅 × 𝑋 = 𝑇𝐹𝐶 + (𝑈𝑉𝐶 × 𝑋) 𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠
𝑻𝑭𝑪 𝐵𝑟𝑒𝑎𝑘𝑒𝑣𝑒𝑛 𝑣𝑜𝑙𝑢𝑚𝑒 (𝑈𝑛𝑖𝑡𝑠) =
𝑿= 𝑈𝑛𝑖𝑡 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛
𝑼𝑹 − 𝑼𝑽𝑪 𝐵𝑟𝑒𝑎𝑘𝑒𝑣𝑒𝑛 𝑣𝑜𝑙𝑢𝑚𝑒(𝑅𝑒𝑣𝑒𝑛𝑢𝑒)
𝑻𝑭𝑪 𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠
𝒊. 𝒆. , 𝑸 = =
𝑨𝑹 − 𝑨𝑽𝑪 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑃𝑒𝑟𝑐𝑒𝑛𝑡
From, Profit-graph the profit performance can be 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑃𝑒𝑟𝑐𝑒𝑛𝑡
increased by = 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑎𝑠 𝑎 𝑝𝑒𝑟𝑐𝑒𝑛𝑡 𝑜𝑓 𝑟𝑒𝑣𝑒𝑛𝑢𝑒𝑠
• Increasing selling price (UR) (𝑈𝑅 − 𝑈𝑉𝐶)
=
• Decreasing variable cost (UVC) 𝑈𝑅
• Decreasing Fixed cost (TFC)

OM IN P RACTICE

P ROCESS FLOW – H OT DIP G ALVANIZING

Existing Process:

𝑃𝑟𝑜𝑐𝑒𝑠𝑠 (𝑡ℎ𝑟𝑜𝑢𝑔ℎ𝑝𝑢𝑡)𝑡𝑖𝑚𝑒 = 1 + 2 + 2 + 1 + 15 + 3 + 1 + 1 + 20 = 46 𝑚𝑖𝑛𝑢𝑡𝑒𝑠⁄𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡

Thus, for 2 components = 46 x 2 = 92 minutes

New Process:

Process (throughput) time for 1 component remains 46 min.

For 2 components the throughput time is 46 min- earlier 92 min.- because of certain parallel operations.

SAJIN JOHN 28
MODULE 8 - LOCATION STRATEGIES

I MPORTANCE OF F ACILITY L OCATION

F ACILITIES
• Storage facilities
o Transhipment centres, Warehouses,
Distribution centres, Retail stores….
• Production facilities
o Manufacturing plant, Assembly plant, Repair
facility….
• Business processes- R&D centres, Call centres….
• Service firms- Bank branch, ATM, Hotel…...
• Police station, Hospital, Airport, Fire station…..
Closer to supply (Raw Material) points – Steel,
Cement and Power plants, Dams.
Closer to demand points – Post office, ATM, Hospital,
Retail stores, Restaurants.
Between supply points and demand points –
Warehouses.
Closer to competitors’ facilities – Auto plants,
Pharma plants, Pizza Hut/Subway.
Closer to complementary facility – Steel plans near
coal mines.
Within industry clusters – Automobile, IT, Pharma,
Semiconductor industry clusters.
I MPORTANCE OF FACILITY L OCATION
• May affect demand
• Service delivery time- Fire, Police, Pizza,
Hospitals, ATM.
• Costs- Facility cost (highly location specific) +
Transportation cost
• Significant impact on fixed and variable costs.
• Long-term decisions; made relatively infrequently
• Once committed, many resources and costs
difficult to change
• Increasingly global in nature
Location options include –
• Expanding capacity of existing facilities.
• Maintain existing and add sites.
• Closing existing and relocating.

GIS FOR L OCATING F ACILITIES

G EOGRAPHIC I NFORMATION S YSTEM (GIS)

• Used in location analysis
• Enables more complex demographic analysis
• Using databases like,
Census data.
Maps.
Location of utilities, services.
Geographic features.

GIS FOR LOCATING FACILITIES

How many facilities (e.g. Warehouses) are required to
service the market in X time period?
Location of the facilities?

S ERVICE L OCATION S TRATEGY

1. Purchasing power of customer drawing area 8. Quality of management
2. Service and image compatibility with
demographics of the customer drawing area
3. Competition in the area
4. Quality of the competition
5. Uniqueness of the firm’s and competitors’
locations
6. Physical qualities of facilities and neighbouring
businesses
7. Operating policies of the firm

SAJIN JOHN 29
S ERVICE V / S G OODS -P RODUCING O RGANIZATIONS - Costs are relatively - Low customer contact
Service / Retail / Goods Producing constant for a given allows focus on the
Professional area; therefore, the identifiable costs
revenue function is - Intangible costs can be
Techniques Techniques critical evaluated
- Regression models to - Transportation
determine importance method Revenue Focus Cost Focus
of various factors - Factor-rating method Volume/revenue Tangible costs
- Factor-rating method - Locational cost– - Drawing area; - Transportation cost of
- Traffic counts volume analysis purchasing power raw material
- Demographic analysis - Crossover charts Competition; - Shipment cost of
of drawing area advertising / pricing finished goods
- Purchasing power Physical quality - Energy and utility
analysis of area - Parking/access; cost; labor; raw
- Centre-of-gravity security/lighting; material; taxes, and so
method appearance/ image on
- Geographic Cost determinants Intangible and future
information systems - Rent costs
- Management calibre - Attitude toward union
Assumptions Assumptions - Operation policies - Quality of life
- Location is a major - Location is a major (hours, wage rates) - Education
determinant of determinant of cost expenditures by state
revenue/ service - Most major costs can - Quality of state and
- High customer be identified explicitly local government
contact issues are for each site
critical

F ACILITY L OCATION M ETHODS – 1

1. Factor-Rating method
Extensively used because a wide variety of
factors can be included in the analysis.
2. Cost-Volume analysis
Location alternatives based on volume of
material handled.
3. Centre-of-Gravity method
Finds location of distribution center that
minimizes distribution costs.
4. Transportation models
• Corporate desires
• Attractiveness of region
• Labor availability and costs
• Costs and availability of utilities
• Environmental regulations
• Government incentives and fiscal
policies
• Proximity to raw materials and customers
• Land/construction costs

Location selection process – Site Decision

Region Country State City/Town
L OCATION D ECISIONS
Country Decision
• Political risks, government rules,
incentives
• Exchange rates and currency risks
• Cultural and economic issues
• Location of markets – outputs
• Labor talent, attitudes, productivity,
costs – inputs
• Availability of supplies, energy – inputs
Region/Community Decision
Locality • Site size and cost
• Air, rail, highway, and waterway
systems
• Zoning restrictions
• Proximity of services/ supplies
needed
• Environmental impact issues
• Customer density and demographics
F ACTORS THAT A FFECT L OCATION D ECISIONS
Exchange rates and currency risks Country risks
• Can have a significant impact on costs
• Rates change over time
Political risk, values, and culture
• National, state, local governments' attitudes
toward private and intellectual property,

SAJIN JOHN 30
 zoning, pollution, employment stability may C OST -V OLUME A NALYSIS
be in flux An economic comparison of location alternatives
• Worker attitudes toward turnover, unions, based on volume of material handled.
absenteeism Steps-
• Globally cultures have different attitudes 1. Determine fixed and variable costs for each
toward punctuality, legal, and ethical issues location.
Costs that affect location decisions 2. Plot the cost for each location.
• Tangible costs– easily measured costs. 3. Select location with lowest total cost for expected
Utilities, labor, materials, taxes… production volume.
• Intangible costs– not as easy to quantify.
Education, public transportation, community,
quality-of-life, political risk, ease of doing
business, labor laws, unions, absenteeism, culture,
Proximity to markets
• Very important in certain services
• JIT systems or high transportation costs may
make it important to manufacturers
Proximity to suppliers
• Perishable goods, high transportation costs,
bulky products
Proximity to competitors (clustering)
• Often driven by resources such as natural,
information, capital, talent.
Example:
Three locations: Athens, Brussels and Lisbon.
F ACTOR -R ATING M ETHOD
Selling price = $120.
Popular because a wide variety of factors can be
Expected volume = 2,000 units.
included in the analysis
Six steps in the method
1. Develop a list of relevant factors called key success
factors
2. Assign a weight to each factor
3. Develop a scale for each factor
4. Score each location for each factor
5. Multiply score by weights for each factor and total
the score for each location
6. Make a recommendation based on the highest 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 = 𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡 + 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡 × 𝑉𝑜𝑙𝑢𝑚𝑒
point score Crossover point: Athens/Brussels
Example: Factor-RATING 30000 + 75(𝑥) = 60000 + 45(𝑥)
30(𝑥) = 30000
𝑥 = 1000
Crossover point: Brussels/Lisbon
60000 + 45(𝑥) = 110000 + 25(𝑥)
20(𝑥) = 50000
𝑥 = 2500

F ACILITY L OCATION M ETHODS – 2

Finds location of distribution or production center
that minimizes distribution costs.
C ENTRE OF G RAVITY M ETHOD
This method considers-
Location of markets.

SAJIN JOHN 31
 Volume of goods shipped to those markets.
Shipping cost (or distance).

Where to locate the new production facility?

• Place existing locations on a coordinate grid
• Calculate x and y coordinates, ‘center of gravity’.
• Assume cost is directly proportional to the
distance and volume shipped.
Centre of gravity is calculated as below:
∑ 𝒙𝒊 𝑸𝒊
𝒙 − 𝒄𝒐𝒐𝒓𝒅𝒊𝒏𝒂𝒕𝒆 𝒐𝒇 𝑪𝑶𝑮 =
∑ 𝑸𝒊
∑ 𝒚𝒊 𝑸𝒊
𝒚 − 𝒄𝒐𝒐𝒓𝒅𝒊𝒏𝒂𝒕𝒆 𝒐𝒇 𝑪𝑶𝑮 =
∑ 𝑸𝒊
Where xi = x-coordinate of location i 𝑥 − 𝑐𝑜𝑜𝑟𝑑𝑖𝑛𝑎𝑡𝑒
yi = y-coordinate of location i (30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)
Qi = Quantity of goods moved to or from =
2000 + 1000 + 1000 + 2000
location i. = 66.7
𝑦 − 𝑐𝑜𝑜𝑟𝑑𝑖𝑛𝑎𝑡𝑒
Example: (120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)
Chicago, Q1=2,000 containers/month =
2000 + 1000 + 1000 + 2000
Pittsburgh, Q2=1,000 containers/month = 93.3
New York, Q3=1,000 containers/month
Atlanta, Q4 =2,000 containers/month
T RANSPORTATION M ODELS
• Find amount to be shipped from several points of
supply to several points of demand.
• Minimize total production and shipping costs.
• A special class of linear programming problems.

SAJIN JOHN 32
MODULE 9 – LAYOUT STRATEGIES
I MPORTANCE OF L AYOUTS
• Revenue
o Sales- Retail shops, Airports.
o Customer interaction.
• Costs
o Requirement and utilization of material
handling equipment, space and people-
flow of materials and people.
o Flexibility in making the changes.
o Safer working conditions.
L AYOUTS 1 – S UPERMARKET L AYOUT AND O FFICE L AYOUT
F IVE IDEAS USED IN SUPERMARKET LAYOUT
1. Locate high-draw items around the periphery of
the store.
2. Use prominent locations for high-impulse and
high-margin items.
3. Distribute power items to both sides of an aisle
and disperse them to increase viewing of other
items.
4. Use end-aisle locations because they have a very
high exposure rate.
5. Convey the mission of store by carefully selecting
the position of the lead-off department.
SAJIN JOHN
T YPES OF L AYOUT AND ITS L AYOUT OBJECTIVES
Layout Objectives
Office Locate workers requiring frequent
contact close to one another-
proximity, privacy.
Retail Maximize profitability per sq-ft
area expose customer to high-
margin items.
Warehouse Balance storage with material
(Storage) handling costs.
Project Ease of movement of material to the
(Fixed position) limited storage around the site.
Job Shop Manage varied material flow for
(Process oriented) each product.
Work Cell Identify a product family, build
(Product families) teams, cross-train team members.
Repetitive/ Equalize the task time at each
Continuous workstation.
(Product oriented)
O FFICE L AYOUT – R ELATIONSHIP C HART
Office layout – The grouping of workers, their
equipment, and spaces/offices to provide for comfort,
safety, and movement of information.
Relationship Chart (using tool) – also known as
Muther Grid - indicates that operations must e near
accounting and marketing, but it does not need to be
near graphic arts staff.
Workspace can inspire informal and productive
encounters if it balances three physical and social
aspects:
Proximity: Spaces should naturally bring people
together.
Privacy: People must be able to control access to their
conversations.
Permission: The culture should signal that nonwork
interactions are encouraged.
33
L AYOUTS 2 – F IXED P OSITION L AYOUT , W AREHOUSING AND S TORAGE L AYOUT

F IXED -P OSITION L AYOUT

• The product remains in one place- workers and
equipment come to the site.
• Complicating factors-
Limited space at site,
different materials and
machines required at
Random Stocking
different stages of the
project. • Typically requires automatic identification
systems (AISs) and effective information systems.
• Thus, as much of the
Customizing
project as possible is completed off-site in a
product-oriented facility. • Value-added activities performed at the
warehouse- assembly of components, loading
software, repairs, customized labeling and
W AREHOUSE AND S TORAGE L AYOUTS packaging. Enable low cost and rapid response
• Objective is to find the strategies.
optimum trade-offs Cross-Docking
between handling costs • The incoming material is moved directly from
and costs associated receiving to shipping and are not placed in
with warehouse space. storage.
• Maximize the total • It requires tight scheduling and accurate
"cube" of the shipments, bar code or RFID identification and
warehouse– utilize its advanced shipment notification as materials are
full volume while maintaining low material unloaded.
handling costs.

L AYOUTS 3 – P ROCESS L AYOUT

• Process layout – Similar activities done at one Example:
place. Arrange the six department in a factory to minimize
• Machinery and workers are flexible and grouped material handling costs, Each department is 20 x 20
according to function. feet and building is 60 feet
• Routings of jobs are not fixed, depends on the long and 40 feet wide.
order (or patient). Steps
• Process layout is used when volumes are low 1. Construct a material
volume and there are many variations in product flow "from-to matrix.”
design, process requirements, order quantities, 2. Develop an initial
such as in job shops, furniture, garments, printing. schematic diagram.
• Flow of work is varied; 3. Determine the cost of
Workflow not this layout.
balanced; Capacity 4. Try to improve the
required depends on layout.
product mix;
Throughput times are
long; Production Activity Control is a major and
complex activity.
• Need to arrange work centers so as to minimize
the costs of material handling.
• Graphical approach only works for small
problems; else computer programs are available.
𝒏 𝒏

𝑴𝒊𝒏𝒊𝒎𝒊𝒛𝒆 𝒄𝒐𝒔𝒕 = ∑ ∑ 𝑿𝒊𝒋 𝑪𝒊𝒋

𝒊=𝟏 𝒋=𝟏
n=total number of work centers or departments
i, j=individual departments
Xij=no. of loads moved from department i to j
Cij=cost to move a load between department i & j

SAJIN JOHN 34
Cost for adjacent transfer= $ 1/load
Cost for diagonal transfer= $ 2/load
𝐶𝑜𝑠𝑡 = 50 × 1 + 100 × 2 + 20 × 2 + 30 × 1 + 50 × 1
+ 10 × 1 + 20 × 2 + 100 × 1
+ 50 × 1 = $570/𝑤𝑒𝑒𝑘

Revised Interdepartmental Flow Graph

(Painting and Assembly interchanged)

𝑅𝑒𝑣𝑖𝑠𝑒𝑑 𝐶𝑜𝑠𝑡 = 50 × 1 + 100 × 1 + 20 × 1 + 30 × 2

+ 50 × 1 + 10 × 1 + 20 × 2
+ 100 × 1 + 50 × 1 = $480/𝑤𝑒𝑒𝑘
Thus, rearranging the departments has reduced the
cost.

L AYOUTS 4 – R EPETITIVE AND P RODUCT O RIENTED L AYOUT

• Repetitive and Product-Oriented Layouts are • Starts with the precedence relationships
organized around products. • Determine cycle
• Special purpose machines are used; machines are time.
arranged in the sequence of operation. • Calculate theoretical
• Product layout is used when volumes are high and minimum number of
variety of outputs is low such as in the workstations.
manufacturing of automobiles, home appliances, • Balance the line by
cement, bottled milk. assigning specific
• Flow of work is smooth; Throughput times are tasks to
short; Production Activity Control is simple. workstations.
• Need to balance the production line.
Advantages S TAFFING
• Low variable cost per unit Takt Time: Time between successive units.
• Low material handling costs 𝑻𝒐𝒕𝒂𝒍 𝒘𝒐𝒓𝒌 𝒕𝒊𝒎𝒆 𝒂𝒗𝒂𝒊𝒍𝒂𝒃𝒍𝒆
• Reduced work-in-process inventories 𝑻𝒂𝒌𝒕 𝒕𝒊𝒎𝒆 =
𝑼𝒏𝒊𝒕𝒔 𝒓𝒆𝒒𝒖𝒊𝒓𝒆𝒅 𝒕𝒐 𝒔𝒂𝒕𝒊𝒔𝒇𝒚 𝒅𝒆𝒎𝒂𝒏𝒅
• Easier training and supervision
• Rapid throughput 𝑾𝒐𝒓𝒌𝒆𝒓𝒔 𝒓𝒆𝒒𝒖𝒊𝒓𝒆𝒅
Disadvantages 𝑻𝒐𝒕𝒂𝒍 𝒐𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏 𝒕𝒊𝒎𝒆 𝒓𝒆𝒒𝒖𝒊𝒓𝒆𝒅
• High volume is required =
𝑻𝒂𝒌𝒕 𝒕𝒊𝒎𝒆
• Work stoppage at any point ties up the whole Mirror production
operation operations
• Lack of flexibility in product or production rates 1. Assemble- 50 secs
2. Paint- 45 secs
A SSEMBLY -L INE B ALANCING 3. Test- 10 secs
The objective is to minimize work imbalance on the 4. Label- 20 secs
assembly line while meeting required output. 5. Pack- 15 secs
McDonald’s Assembly Line – (work not balanced): Mirror production
scheduled for 8 hours per
day.
Mirrors required per day – 600 mirrors

𝑇𝑜𝑡𝑎𝑙 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛 𝑡𝑖𝑚𝑒 = 50 + 45 + 10 + 20 + 15

= 140 𝑠𝑒𝑐𝑜𝑛𝑑𝑠
8 × 60
𝑇𝑎𝑘𝑡 𝑇𝑖𝑚𝑒 = = 0.8 𝑚𝑖𝑛 = 48 𝑠𝑒𝑐𝑠
600
140
𝑊𝑜𝑟𝑘𝑒𝑟𝑠 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑑 = = 2.92 ≈ 3
48

SAJIN JOHN 35
W ING C OMPONENT E XAMPLE Several useful approaches to assign task to
𝑪𝒚𝒄𝒍𝒆 𝑻𝒊𝒎𝒆 workstation
𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒐𝒏 𝒕𝒊𝒎𝒆 𝒂𝒗𝒂𝒊𝒍𝒂𝒃𝒍𝒆 𝒑𝒆𝒓 𝒅𝒂𝒚
=
𝑼𝒏𝒊𝒕𝒔 𝒓𝒆𝒒𝒖𝒊𝒓𝒆𝒅 𝒑𝒆𝒓 𝒅𝒂𝒚

𝑴𝒊𝒏𝒊𝒎𝒖𝒎 𝒏𝒐. 𝒐𝒇 𝒘𝒐𝒓𝒌𝒔𝒕𝒂𝒕𝒊𝒐𝒏

∑𝒏𝒊=𝟏 𝒕𝒊𝒎𝒆 𝒇𝒐𝒓 𝒕𝒂𝒔𝒌 𝒊
=
𝑪𝒚𝒄𝒍𝒆 𝒕𝒊𝒎𝒆
• Output required- 40 units/day.
• Each day- 8 hours x 60 = 480 min.
• The assembly line has 9 tasks.
• Assembly time of each task is given in the table.
• Precedence relationships of the tasks are given in
the table.

Longest Task Time: 11 B, E, H

Task Assembly No. Of Can the Share
Time following task be task
tasks shared with
A 10 5 N
B 11 4 N
C 5 3 Y C, D, F
D 4 3
E 11 2 N
Try to create network/process diagram using F 3 2
relationship table (do note that certain task are G 7 1 Y G, I
dependent on other or multiple tasks) H 11 1 N
I 3 0 N

So, 6 stations required to fulfil the requirement.

480
𝐶𝑦𝑐𝑙𝑒 𝑡𝑖𝑚𝑒 = = 12 𝑚𝑖𝑛𝑢𝑡𝑒𝑠 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
40
65
𝑚𝑖𝑚. 𝑛𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑠𝑡𝑎𝑡𝑖𝑜𝑛 = = 5.42 ≈ 6 𝑠𝑡𝑎𝑡𝑖𝑜𝑛𝑠
12

SAJIN JOHN 36
L AYOUTS 5 – W ORK C ELLS
An arrangement of machines and personnel that focuses
on making a single product or family of related IMPROVING LAYOUTS USING WORK CELLS
products.
• Organizes people and machines into groups to
focus on single products or product groups.
• Group technology identifies products that have
similar characteristics for particular cells.
• Volume must justify cells. Current layout – straight lines make it hard to balance
• Cells can be reconfigured as designs or volume tasks because work may not be divided evenly.
changes.
Improved layout - in U shape, workers have better
access. Four cross-
trained workers
were reduced to
three.

U-shaped line may reduce employee movement and

space requirements while enhancing communication,
reducing the number of workers, and facilitating
inspection.

SAJIN JOHN 37
MODULE 10 – HUMAN RESOURCES, JOB DESIGN, AND WORK MEASUREMENT

L ABOR P LANNING AND J OB D ESIGN

The objective of a human resource strategy is to manage
labor and design jobs so people are effectively and
efficiently utilized.
J OB D ESIGN
As we focus on a human resource strategy, we want to
Job design is specifying the tasks that constitute a job for
ensure that people:
an individual or a group.
1. Are efficiently utilized within the constraints of
Job design involves
other operations management decisions.
1. Job specialization – The division of labor into
2. Have a reasonable quality of work life in an
unique “special” task
atmosphere of mutual commitment and trust.
2. Job expansion
o Job enlargement – The grouping of a
L ABOR P LANNING – E MPLOYMENT S TABILITY variety of tasks about the same skill level;
P OLICIES horizontal enlargement.
Labor Planning – A means of determining staffing o Job enrichment – A method of giving an
policies dealing with employment stability, work employee more responsibility that includes
schedules and work rules. some of the planning and control necessary
1. Follow demand exactly – Direct labor always for job accomplishment, vertical expansion
matches requirements 3. Job rotation – A system in which an employee
o Incurs costs in hiring and termination, is moved from one specialized job to another.
unemployment 4. Employee empowerment – Enlarging
insurance, and employee jobs so that the added responsibility
premium wages. and authority are moved to the lowest level
o Labor is treated as a possible.
variable cost. 5. Psychological components – Human
resource strategy requires consideration of the
2. Hold employment constant – Maintain constant psychological components of job design.
workforce 6. Self-directed teams – A group of empowered
o Minimizes hiring, layoff, and unemployment individuals working together to reach a
costs. common goal.
o Employees may be 7. Motivation and incentive systems.
underutilized during
slack periods or
overworked during
busy periods.
o Labor is treated as a fixed cost.

M OTIVATION AND I NCENTIVE S YSTEMS

• Bonuses – cash or stock options.
• Profit-sharing – profits for distribution to
employees.
• Gain sharing – rewards for improvements.
• Incentive systems – typically based on production
rates.
• Knowledge-based systems – reward for knowledge
or skills.

SAJIN JOHN 38
L ABOR S TANDARDS
Labor standards – amount of time required to perform 4. Time and record element times and rating of
a job or part of a job. performance.
Started in early 20th century. 5. Compute average observed time.
Uses of Labor standards - 6. Determine performance rating and normal time.
1. Staffing needs/ Manpower planning. 7. Add the normal times for each element to develop
2. Forecast expected production. total normal time for the task.
3. Make cost and time estimates. 8. Compute the standard time.
4. Estimate crew size.
5. Work balance.
R EST A LLOWANCES
6. Fair work.
• Personal time allowances
7. Basis of wage-incentive plans.
o Around 5% of total time for use of restroom,
8. Measure efficiency of employees.
water fountain, etc.
Labor Standards may be set in four ways:
1. Time studies • Fatigue allowance
2. Work sampling o Based on human energy expenditure.
3. Historical experience • Delay allowance
4. Predetermined time standards. o Based upon actual delays that occur.
Allowance Factors
T IME S TUDY Class of Work %
Time study involves timing a sample of a worker's 1. Constant allowances:
performance and using it to set a standard. (A) Personal allowance 5
(B) Basic fatigue allowance 4
Observed Time Normal Time (adjusted for speed) 2. Variable allowances:
Standard Time (adjusted for allowance) (A) Standing allowance 2
(B) Abnormal position
• Involves timing a sample of a worker's
(i) Awkward (bending) 2
performance and using it to set a standard
• Requires trained and experienced observers (ii) Very awkward (lying, stretching) 7
• Cannot be set before the work is performed (C) Use of force or muscular energy in lifting,
pulling, pushing Weight lifted
Average Observed time – The arithmetic means of the 20 pounds 3
times for each element measured, adjusted for unusual 40 pounds 9
influence for each element. 60 pounds 17
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝒐𝒃𝒔𝒆𝒓𝒗𝒆𝒅 𝒕𝒊𝒎𝒆 (D) Bad light:
𝑺𝒖𝒎 𝒐𝒇 𝒕𝒉𝒆 𝒕𝒊𝒎𝒆𝒔 𝒓𝒆𝒄𝒐𝒓𝒅𝒆𝒅
(i) Well below recommended 2
𝒕𝒐 𝒑𝒆𝒓𝒇𝒐𝒓𝒎 𝒆𝒂𝒄𝒉 𝒆𝒍𝒆𝒎𝒆𝒏𝒕
= (ii) Quite inadequate 5
𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒐𝒃𝒔𝒆𝒓𝒗𝒂𝒕𝒊𝒐𝒏𝒔
(E) Noise level:
Normal Time – The average observed time adjusted for (i) Intermittent–loud 2
pace (ii) Intermittent–very loud or high pitched 5
𝑵𝒐𝒓𝒎𝒂𝒍 𝒕𝒊𝒎𝒆 = 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝒐𝒃𝒔𝒆𝒓𝒗𝒆𝒅 𝒕𝒊𝒎𝒆
× 𝑷𝒆𝒓𝒇𝒐𝒓𝒎𝒂𝒏𝒄𝒆 𝒓𝒂𝒕𝒊𝒏𝒈 𝒇𝒂𝒄𝒕𝒐𝒓

Standard Time – An adjustment to the total normal

time; the adjustment provides allowances for personal
needs, unavoidable work delays, and fatigue.
𝑻𝒐𝒕𝒂𝒍 𝒏𝒐𝒓𝒎𝒂𝒍 𝒕𝒊𝒎𝒆
𝑺𝒕𝒂𝒏𝒓𝒅𝒂𝒓𝒅 𝒕𝒊𝒎𝒆 =
𝟏 − 𝑨𝒍𝒍𝒐𝒘𝒂𝒏𝒄𝒆 𝒇𝒂𝒄𝒕𝒐𝒓

T IME S TUDY P ROCEDURE

1. Define the task to be studied.
2. Divide the task into precise elements.
3. Decide how many times to measure the task.

SAJIN JOHN 39
Example 1: Example 2:
Average observed time = 4.0 minutes.
Worker rating = 85% (slow worker). OBSERVATIONS (MIN)
Allowance factor = 13%.
𝑁𝑜𝑟𝑚𝑎𝑙 𝑇𝑖𝑚𝑒 = 𝐴𝑣𝑔 𝑜𝑏𝑠𝑒𝑟𝑣𝑒𝑑 𝑡𝑖𝑚𝑒 Perf
RAT-
× 𝑅𝑎𝑐𝑡𝑖𝑛𝑔 𝑓𝑎𝑐𝑡𝑜𝑟 = 4.0 × 0.85 JOB ELEMENT 1 2 3 4 5 ING
= 3.4 𝑚𝑖𝑛𝑢𝑡𝑒𝑠
𝑁𝑜𝑟𝑚𝑎𝑙 𝑇𝑖𝑚𝑒 3.4
𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑇𝑖𝑚𝑒 = =
1 − 𝐴𝑙𝑙𝑜𝑤𝑎𝑛𝑐𝑒 𝑓𝑎𝑐𝑡𝑜𝑟 1 − 0.13 (A) Compose 8 10 9 21* 11 120%
3.4 and type letter
= = 3.9 𝑚𝑖𝑛𝑢𝑡𝑒𝑠
0.87
(B) Type 2 3 2 1 3 105%
envelope
address

(C) Stuff, stamp, 2 1 5* 2 1 110%

seal, and sort
envelopes
Allowance factor = 15%
1. Delete unusual high or low observations (marked
with *)
2. Compute average time for each element
8 + 10 + 9 + 11
𝐴𝑣𝑔. 𝑡𝑖𝑚𝑒 𝑓𝑜𝑟 𝐴 = = 9.5 𝑚𝑖𝑛𝑢𝑡𝑒𝑠
4
2+3+2+1+3
𝐴𝑣𝑔. 𝑡𝑖𝑚𝑒 𝑓𝑜𝑟 𝐵 = = 2.2 𝑚𝑖𝑛𝑢𝑡𝑒𝑠
5
2+1+2+1
𝐴𝑣𝑔. 𝑡𝑖𝑚𝑒 𝑓𝑜𝑟 𝐶 = = 1.5 𝑚𝑖𝑛𝑢𝑡𝑒𝑠
4
3. Compute the normal time for each element
𝑁𝑜𝑟𝑚𝑎𝑙 𝑡𝑖𝑚𝑒 = 𝑎𝑣𝑔. 𝑜𝑏𝑠𝑒𝑟𝑣𝑎𝑡𝑖𝑜𝑛 𝑡𝑖𝑚𝑒 × 𝑟𝑎𝑡𝑖𝑛𝑔
𝑁𝑜𝑟𝑚𝑎𝑙 𝑡𝑖𝑚𝑒 𝑓𝑜𝑟 𝐴 = 9.5 × 1.20 = 11.4 𝑚𝑖𝑛𝑢𝑡𝑒𝑠
𝑁𝑜𝑟𝑚𝑎𝑙 𝑡𝑖𝑚𝑒 𝑓𝑜𝑟 𝐵 = 2.2 × 1.05 = 2.31 𝑚𝑖𝑛𝑢𝑡𝑒𝑠
𝑁𝑜𝑟𝑚𝑎𝑙 𝑡𝑖𝑚𝑒 𝑓𝑜𝑟 𝐶 = 1.5 × 1.10 = 1.65 𝑚𝑖𝑛𝑢𝑡𝑒𝑠
4. Add the normal times to find the total normal time
𝑇𝑜𝑡𝑎𝑙 𝑁𝑜𝑟𝑚𝑎𝑙 𝑇𝑖𝑚𝑒 = 11.4 + 2.31 + 1.65
= 15.36 𝑚𝑖𝑛𝑢𝑡𝑒𝑠
5. Compute the standard time for the job
𝑇𝑜𝑡𝑎𝑙 𝑛𝑜𝑟𝑚𝑎𝑙 𝑡𝑖𝑚𝑒 15.36
𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑇𝑖𝑚𝑒 = =
1 − 𝐴𝑙𝑙𝑜𝑤𝑎𝑛𝑐𝑒 𝑓𝑎𝑐𝑡𝑜𝑟 1 − 0.15
15.36
= = 18.07 𝑚𝑖𝑛𝑢𝑡𝑒𝑠
0.85

SAJIN JOHN 40
W ORK S AMPLING
• Estimates percent of time a worker spends on
various tasks.
• Requires random observations to record worker P REDETERMINED T IME S TANDARDS ARE
activity. AVAILABLE
• Determines how employees allocate their time.
• Divide manual work into small basic elements that
• Can be used to set staffing levels, reassign duties, have established times.
estimate costs, and set delay allowances.
• Can be done in a laboratory away from the actual
production operation.
• Can be set before the work is actually performed.
• No performance ratings are necessary.

M ETHOD A NALYSIS
Methods Analysis – A system that involves developing
work procedures that are safe and produce quality
products efficiently
How the task is performed.
Used to analyze
1. Movement of individuals or material
o Flow diagrams and Process charts
2. Activities of human and machine and crew activity
o Activity charts
3. Body movement
o Operations charts

Activity Chart: Man (Crew) – Machine activities

A way of improving utilization of an operator and a
machine of some combination of operators (a crew) and
machines.

Operations Chart – LEFT- AND RIGHT-HAND

motions
A chart depicting right- and left- hand motions.

SAJIN JOHN 41
Flow Diagram Process Chart
A drawing used to analyse movement of people or Graphic representations that depict a sequence of steps
material. for a process.

E RGONOMICS AND THE W ORK E NVIRONMENT , V ISUAL W ORKSPACE

Ergonomics ILLUMINATION AND DECIBLE LEVELS

The study of the human interface with the environment
and machines.
• Ergonomics means “the study of work.” (Ergon is
the Greek word for “work.”)
• Also called human factors.
• Product Design
• Method of working
• The work environment
o Illumination
o Noise
o Temperature
o Humidity

SAJIN JOHN 42
V ISUAL W ORKSPACE
Uses a variety of visual communication techniques to
rapidly communicate information to stakeholders.
• uses low-cost visual devices to share information
quickly and accurately.
Labor Standards
The amount of time required to perform a job or part
of a job
• exists formally or informally
• effective manpower planning is dependent on a
knowledge of the labor required.
Effective operations management requires
meaningful standards that help a firm determine:
1. Labor content of items produced (the labor cost)
2. Staffing needs (how many people it will take to meet
required production)
3. Cost and time estimates prior to production (to
assist in a variety of decisions, from cost estimates
to make-or-buy decisions)
4. Crew size and work balance (who does what in a
group activity or on an assembly line)
5. Expected production (so that both manager and
worker know what constitutes a fair day’s work)
6. Basis of wage-incentive plans (what provides a
reasonable incentive)
7. Efficiency of employees
MODULE 12 – INVENTORY MANAGEMENT

I NVENTORY – I NTROD UCTION

The objective of inventory High RM Food processing- Apples, Food
management is to strike a balance inventory grains, Wool, Cotton…
between inventory investment and High WIP Job shops, Construction,
customer service. inventory Shipping.…
𝑅𝑎𝑡𝑒 𝑜𝑓 𝑐ℎ𝑎𝑛𝑔𝑒 𝑜𝑓 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 Low WIP Food processing- Biscuit
= 𝑖𝑛𝑓𝑙𝑜𝑤 𝑟𝑎𝑡𝑒 − 𝑜𝑢𝑡𝑓𝑙𝑜𝑤 𝑟𝑎𝑡𝑒 inventory manufacturing, Mineral water….
𝑑𝑦 High FG Consumer goods- Refrigerators,
=𝑖−𝑜
𝑑𝑡 inventory ACs, Garments, Umbrellas,
𝑖𝑛𝑓𝑙𝑜𝑤 𝑟𝑎𝑡𝑒 > 𝑜𝑢𝑡𝑓𝑙𝑜𝑤 𝑟𝑎𝑡𝑒, 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑔𝑜𝑒𝑠 𝑢𝑝. Crackers, Room heaters,
𝑖𝑛𝑓𝑙𝑜𝑤 𝑟𝑎𝑡𝑒 Fertilizers.…
< 𝑜𝑢𝑟𝑓𝑙𝑜𝑤 𝑟𝑎𝑡𝑒, 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑐𝑜𝑚𝑒𝑠 𝑑𝑜𝑤𝑛
𝑖𝑛𝑓𝑙𝑜𝑤 𝑟𝑎𝑡𝑒 Low FG Made-to-order goods- Wind
= 𝑜𝑢𝑡𝑓𝑙𝑜𝑤 𝑟𝑎𝑡𝑒, 𝑛𝑜 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 inventory mills, Industrial machinery…
High Groceries, Consumer goods….
Function of Inventory Distribution
1. To provide a selection of goods for anticipated inventory
customer demand and to separate the firm from High MRO Mining, Process Industry,
fluctuations in that demand. Such inventories are Inventory Aviation, Power generation….
typical in retail establishments.
2. To decouple various parts of the production
process. For example, if a firm’s supplies fluctuate,
extra inventory may be necessary to decouple the Inventory – Another classification
production process from suppliers. 1. Cycle inventory
3. To take advantage of quantity discounts, because • Inventory that is carried due to mismatch
purchases in larger quantities may reduce the cost between inflow and outflow rates
of goods or their delivery. • i.e., cycle inventory is created since purchases
4. To hedge against inflation and upward price are made infrequently in large lots, but sales
changes. happen frequently in small lots.
2. Safety inventory
Type of Inventory • Inventory that is carried to cope with
uncertainty in demand or uncertainty in
1. Raw Material (RM)
supply.
• Materials that are usually purchased but have
yet to enter the manufacturing process.
2. Work-in-Progress (WIP) Inventory Measures
• Products or components that are no longer raw 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
materials but have yet to become finished 𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + 𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
=
products. 2
3. Finished Goods (FG) 𝑁𝑒𝑡 𝐴𝑛𝑛𝑢𝑎𝑙 𝑆𝑎𝑙𝑒𝑠
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑠 =
• An end item. Ready to be sold, but still an asset 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
on the company’s books. 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
𝐷𝑎𝑦𝑠 𝑜𝑓 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 =
4. Pipeline inventory 𝑁𝑒𝑡 𝐴𝑛𝑛𝑢𝑎𝑙 𝑆𝑎𝑙𝑒𝑠 ⁄365
• Inventory in trucks/ships and warehouses 𝐶𝑎𝑟𝑟𝑦 𝑐𝑜𝑠𝑡/𝑦𝑒𝑎𝑟 = 0.20 ∗ 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
outside the factory.
5. Maintenance/Repair/Operating (MRO)
• Maintenance, repair, and operating materials.

Inventory Industry/Item
type Inventory Management

SAJIN JOHN 44
• Low inventory means low inventory carrying • The objective of inventory management is to
costs but high chances of stock-out or loss of sales. strike a balance between inventory carrying cost
• High inventory keeps customers happy but and customer service.
inventory carrying costs increases.

M ANAGING I NVENTORY – ABC ANALYSIS

A method for dividing on-hand inventory into three
classifications based on annual dollar volume.
• A factory keeps inventories of hundreds of items.
• ABC analysis classifies the large number of items
in inventory into three categories- A-class, B-class,
and C-class items. The classification is based on
annual usage in dollar value.
• A-class items- which are few- are tightly
controlled and their inventory is kept low. A-class
items are purchased when required and in small
quantities.
• C-class items- which are numerous- is not tightly
controlled. C-class items are purchased in bulk
quantities.
• ABC analysis aims to reduce the cost of managing
inventory by controlling the inventory of few high
value items.

I NVENTORY H OLDING AND O RDERING C OSTS

Holding Cost – The cost to keep or carry inventory in 210
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = = 23.3
stock. 9
Ordering Cost – The cost of the ordering process. i.e.,
cost of placing an order and receiving goods. Components of Inventory holding costs
Setup Cost – The cost to prepare a machine or process 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑑𝑒𝑝𝑡. 𝑐𝑜𝑠𝑡
for production or manufacturing an order. 𝑂𝑟𝑑𝑒𝑟𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 =
𝑛𝑜 𝑜𝑓 𝑜𝑟𝑑𝑒𝑟𝑠 𝑝𝑟𝑜𝑐𝑒𝑠𝑠𝑒𝑑
Setup Time – The time required to prepare a machine
𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑑𝑒𝑝𝑡. 𝑐𝑜𝑠𝑡
or process for production.
= (𝑁𝑜. 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑖𝑛 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒)
∗ (𝑡ℎ𝑒𝑖𝑟 𝑎𝑣𝑔 𝑠𝑎𝑙𝑎𝑟𝑦)
IMPACT ON HOW MUCH TO ORDER… + 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑟𝑒𝑙𝑎𝑡𝑒𝑑 𝑎𝑐𝑡𝑖𝑣𝑖𝑡𝑒𝑠 𝑎𝑛𝑑 𝑖𝑛𝑓𝑟𝑎𝑠𝑡𝑟𝑢𝑡𝑢𝑟𝑒
1. Lot for Lot

𝑁𝑜. 𝑜𝑓 𝑜𝑟𝑑𝑒𝑟𝑠 𝑝𝑙𝑎𝑐𝑒𝑑 = 9

0
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = = 0
9
2. Fixed Order Quantity (say, 30 units)

𝑁𝑜. 𝑜𝑓 𝑜𝑟𝑑𝑒𝑟𝑠 𝑝𝑙𝑎𝑐𝑒𝑑 = 6

60
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = = 6.7
9
3. Fixed Period Quantity (say, for 3 periods)

𝑁𝑜. 𝑜𝑓 𝑜𝑟𝑑𝑒𝑟𝑠 𝑝𝑙𝑎𝑐𝑒𝑑 = 3

SAJIN JOHN 45
M ANAGING I NVENTORY – EOQ M ODEL
𝑄 ∶ 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑖𝑒𝑐𝑒𝑠 𝑝𝑒𝑟 𝑜𝑟𝑑𝑒𝑟
Inventory Models 𝑄 ∗ ∶ 𝑂𝑝𝑡𝑖𝑚𝑎𝑙𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑖𝑒𝑐𝑒𝑠 𝑝𝑒𝑟 𝑜𝑟𝑑𝑒𝑟 (𝐸𝑂𝑄)
1. Independent demand – the demand for an item is 𝐷 ∶ 𝐴𝑛𝑛𝑢𝑎𝑙 𝑑𝑒𝑚𝑎𝑛𝑑 𝑖𝑛 𝑢𝑛𝑖𝑡𝑠 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑖𝑡𝑒𝑚
independent of the demand for any other item in the 𝑆 ∶ 𝑆𝑒𝑡𝑢𝑝 𝑜𝑓 𝑜𝑟𝑑𝑒𝑟𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 𝑓𝑜𝑟 𝑒𝑎𝑐ℎ 𝑜𝑟𝑑𝑒𝑟
inventory. 𝐻 ∶ 𝐻𝑜𝑙𝑑𝑖𝑛𝑔 𝑜𝑟 𝑐𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
• Demand for laptops, garments, shampoos,
books, chairs, socks, jewellery, etc, in a store.
2. Dependent demand – the demand for an item is
dependent upon the demand for some other item in
the inventory.
• Demand for Engines, tyres, transmissions,
seats (Car manufacturer); Hard disk, mouse,
keyboard, microprocessor, monitor (Desktop
computer manufacturer).
𝑇𝑜𝑡𝑎𝑙 𝑎𝑛𝑛𝑢𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝑂𝑟𝑑𝑒𝑟𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 + 𝐻𝑜𝑙𝑑𝑖𝑛𝑔 𝑐𝑜𝑠𝑡
= (𝑁𝑜. 𝑜𝑓 𝑜𝑟𝑑𝑒𝑟𝑠/𝑦𝑒𝑎𝑟) × (𝑐𝑜𝑠𝑡
EOQ Model /𝑦𝑒𝑎𝑟)
Economic Order Quantity (EOQ) model. + 𝐴𝑣𝑔. 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 × 𝐶𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝑐𝑜𝑠𝑡
An inventory-control technique that minimizes the total 𝐷 𝑄
of ordering and holding costs. = ×𝑆+ ×𝐻
𝑄 2
EOQ answers the “how much” question Differentiating equation with respect to Q and setting
This technique is relatively easy to use but is based on it equal to 0.
several assumptions: 𝜕 𝐷𝑆 𝑄𝐻
1. Demand for an item is known, reasonably ( + )=0
𝜕𝑥 𝑄 2
constant, and independent of decisions for other 𝐷𝑆 𝐻
items. − 2+ =0
𝑄 2
2. Lead time—that is, the time between placement 2𝐷𝑆
and receipt of the order—is known and 𝑄2 =
𝐻
consistent.
3. Receipt of inventory is instantaneous and 2𝐷𝑆
𝑄∗ = √
complete. In other words, the inventory from an 𝐻
order arrives in one batch at one time. Expected number of orders,
4. Quantity discounts are not possible. 𝐷𝑒𝑚𝑎𝑛𝑑 𝐷
5. The only variable costs are the cost of setting up 𝑁= = ∗
𝑂𝑟𝑑𝑒𝑟 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑄
or placing an order (setup or ordering cost) and Expected time between orders,
the cost of holding or storing inventory over time 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 𝑑𝑎𝑦𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
(holding or carrying cost). These costs were 𝑇=
𝑁
discussed in the previous section. Example: Determine optimal number of needles to
6. Stockouts (shortages) can be completely avoided order.
if orders are placed at the right time. 𝐷 = 1000 𝑢𝑛𝑖𝑡𝑠/𝑦𝑒𝑎𝑟
𝑆 = $10 𝑝𝑒𝑟 𝑜𝑟𝑑𝑒𝑟
𝐻 = $0.50 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 𝑑𝑎𝑦𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 = 250
2𝐷𝑆 2(1000)(10)
𝑄∗ = √ =√ = √40000 = 200 𝑢𝑛𝑖𝑡𝑠
𝐻 0.50
𝐷 1000
𝑁= ∗= = 5 𝑜𝑟𝑑𝑒𝑟𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
𝑄 200
250
𝑇= = 50 𝑑𝑎𝑦𝑠 𝑏𝑒𝑡𝑤𝑒𝑒𝑛 𝑜𝑟𝑑𝑒𝑟𝑠
5

Reorder Point – When to order?

SAJIN JOHN 46
The inventory level (point) at which action is taken to • Trade-off is between reduced product cost and
replenish the stocked item. increased holding cost.
• The reorder point • The EOQ model can be extended to consider
(ROP) tells “when” to quantity discounts.
order.
• Lead time (L) is the time
between placing and
receiving an order.

𝑅𝑂𝑃
= [𝐷𝑒𝑚𝑎𝑛𝑑 𝑝𝑒𝑟 𝑑𝑎𝑦] Fixed-Period (P) Systems
∗ [𝐿𝑒𝑎𝑑 𝑡𝑖𝑚𝑒 𝑓𝑜𝑟 𝑎 𝑛𝑒𝑤 𝑜𝑟𝑑𝑒𝑟 𝑖𝑛 𝑑𝑎𝑦𝑠]
A system in which inventory orders are made at
𝑅𝑂𝑃 = 𝑑 × 𝐿
regular time intervals.
𝐷, 𝑑𝑒𝑚𝑎𝑛𝑑 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
𝑤ℎ𝑒𝑟𝑒, 𝑑 = EOQ is a Fixed-quantity model. The quantity
𝑁𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 𝑑𝑎𝑦𝑠 𝑖𝑛 𝑎 𝑦𝑒𝑎𝑟 ordered is same in each order. EOQ model
Example: requires continuous monitoring of inventory. In
• Demand = 8,000 iPhones per year Fixed-quantity model the quantity of order is fixed
• 250 working days in a year but the timing or order is not fixed.
• Lead time for orders, L=3 days A company or retailer often places orders after a
8000 fixed period- weekly, fortnightly, etc., especially
𝑑= = 32
250 when it buys several items from the same
𝑅𝑂𝑃 = 𝑑 × 𝐿 = 32 × 3 = 96 𝑢𝑛𝑖𝑡𝑠 supplier. Models that compute how much to order
i.e. order iPhones when 96 units are left in the after a fixed period are called fixed-period
inventory. models. In fixed-period models the time between
two orders is fixed but the quantity of order is not
QUANTITY DISCOUNT MODELS fixed.
• Reduced prices are often available when larger The average inventory carried in fixed period
quantities are purchased. systems is higher than Fixed quantity period
systems like EOQ.

M ANAGING I NVENTORY – A P ROBABILISTIC M ODEL

Average demand, 𝜇=
120 𝑛𝑒𝑤𝑠𝑝𝑎𝑝𝑒𝑟𝑠/𝑑𝑎𝑦
S INGLE – P ERIOD M ODEL
Standard deviation, 𝜎=
A system for ordering items that have little or no value
15 𝑛𝑒𝑤𝑠𝑝𝑎𝑝𝑒𝑟
at the end of a sale period (perishables)
Distribution of demand:
For Instance, Newspaper boy problem.
Normal distribution
• Daily demand is uncertain
Newspaper Selling Price =
• Orders are placed every day $1.25
• Unsold newspapers have little or no value at Newspaper Cost Price = $0.70
the end of the sale period. Newspaper Salvage value = $0.30
If an item is not available but demand exists, 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑠ℎ𝑜𝑟𝑡𝑎𝑔𝑒, 𝐶𝑠 = $1.25 − $0.70 = $0.55
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑠ℎ𝑜𝑟𝑡𝑎𝑔𝑒, 𝐶𝑠 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑜𝑣𝑒𝑟𝑎𝑔𝑒, 𝐶𝑜 = $0.70 − $0.30 = $0.40
= 𝑆𝑎𝑙𝑒𝑠 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝐶𝑠 0.55
− 𝐶𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑂𝑝𝑡𝑖𝑚𝑎𝑙 𝑠𝑒𝑟𝑣𝑖𝑐𝑒 𝑙𝑒𝑣𝑒𝑙 = =
𝐶𝑠 + 𝐶𝑜 0.55 + 0.40
If an item remains unsold,
= 0.579 = 57.9%
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑜𝑣𝑒𝑟𝑎𝑔𝑒, 𝐶𝑜
From Standard Normal Distribution table, for the area
= 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 − 𝑆𝑎𝑙𝑣𝑎𝑔𝑒 𝑣𝑎𝑙𝑢𝑒
= 0.579, Z~0.20
Thus,
𝐶𝑠 𝑇ℎ𝑒 𝑜𝑝𝑡𝑖𝑚𝑎𝑙 𝑠𝑡𝑜𝑐𝑘𝑖𝑛𝑔 𝑙𝑒𝑣𝑒𝑙 = 120 + (0.20)(𝜎)
𝑂𝑝𝑡𝑖𝑚𝑎𝑙 𝑆𝑒𝑟𝑣𝑖𝑐𝑒 𝐿𝑒𝑣𝑒𝑙 = = 120 + (0.20)(15) = 123
𝐶𝑠 + 𝐶𝑜 To achieve 57.9% service level, the newspaper boy
Here, service level means % of orders that are fulfilled should by 123 newspapers every day.
from the inventory. 𝑆𝑡𝑜𝑐𝑘𝑜𝑢𝑡 𝑟𝑖𝑠𝑘 = 1 − 𝑠𝑒𝑟𝑣𝑖𝑐𝑒 𝑙𝑒𝑣𝑒𝑙 = 1 − 0.579
= 0.422 = 42.2%

MODULE 13 – AGGREGATE PLANNING AND S & OP

SAJIN JOHN 47
P RODUCTION P LANNING P ROCESS & S ALES AND O PERATIONS P LANNING
P RODUCTION P LANNING P ROCESS
2. Back ordering during high-demand periods
S ALES AND O PERATION P LANNING (S & OP)
A process of balancing resources and forecasted
demand, aligning an organization’s competing
demands from supply chain to final customer, while
linking strategic planning with operations over all
planning horizons.
AGGREGATE PLAN
A plan that includes forecast levels for families of
products of finished goods, inventory, shortages, and
changes in the workforce.
Coordination of demand forecasts with functional
areas and the supply chain.
Determine which plans are feasible.
Provides warning when resources do not match
expectations.
Output of Sales and Operations planning is an
aggregate plan.
A GGREGATE P RODUCTION P LAN
• Demand forecast of the product category or family
(not specific models) is given in the table.
• How much to produce each month?
• The objective of aggregate planning is to meet
forecast demand while minimizing cost over the
planning period.
• Aggregate Planning Strategies
o Demand Options
o Capacity Options
Demand Options
1. Influencing demand
Use advertising or promotion to increase
demand in low periods.
SAJIN JOHN
May not be sufficient to balance demand and
capacity.
Requires customers to wait for an order
without loss of goodwill or the order. It may
result in lost sales.
3. Counter-seasonal product and service mixing
Develop a product mix of counter-seasonal
items.
Capacity Options
1. Changing inventory levels
Increase inventory during low demand
periods to meet high demand in the future. It
increases costs associated with storage,
insurance, handling, obsolescence, pilferage,
and capital investment.
2. Vary workforce size by hiring or layoffs
Match production rate to demand. Training
and separation costs for hiring and laying off
workers; new workers may have lower
productivity.
3. Vary production rates through overtime or
idle time
Allows constant workforce. It may be difficult
to meet large increases in demand. Overtime
can be costly and may drive down
productivity. Absorbing idle time may be
difficult.
4. Subcontracting
Often used during periods of peak demand. It
may be costly; assuring quality and timely
delivery may be difficult; exposes the
customer to a possible competitor.
5. Using part-time workers
Useful for filling unskilled or low skilled
positions, especially in services.
Three Production Plans
Capacity-based strategies
Chase strategy
A planning strategy that sets production
equal to forecast demand.
Match output rates to demand forecast for
each period- by varying workforce levels
or production rate.
Favored by many service organizations.
Level strategy
Maintaining a constant output rate,
production rate, or workforce level over the
planning horizon.
Daily production is uniform. Use
inventory or idle time as buffer.
Mixed Strategy
48
 A planning strategy that uses two or more
controllable variables to set a feasible
production plan.
Some combination of capacity options, a
mixed strategy, might be the best
solution

A GGREGATE P LANNING O PTIONS : A DVANTAGES AND D ISADVANTAGES

SAJIN JOHN 49
A GGREGATE P LANNING – E XAMPLE
ROOFING SUPPLIER EXAMPLE 𝑊𝑜𝑟𝑘𝑓𝑜𝑟𝑐𝑒 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑑 𝑡𝑜 𝑝𝑟𝑜𝑑𝑢𝑐𝑒 50 𝑢𝑛𝑖𝑡𝑠 𝑝𝑒𝑟 𝑑𝑎𝑦
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡 50
= =
𝑙𝑎𝑏𝑜𝑢𝑟 ℎ𝑜𝑢𝑟𝑠 5
= 10 𝑤𝑜𝑟𝑘𝑒𝑟𝑠/𝑑𝑎𝑦

Cost Information Provided,

Inventory carrying cost
Subcontracting cost per unit
Average pay rate
Overtime pay rate
Labor-hours to produce a unit
Cost of increasing daily
production rate
(hiring and training)
Cost of decreasing daily
production rate (layoffs)
$ 5 per unit per
month 𝑇𝑜𝑡𝑎𝑙 𝑢𝑛𝑖𝑡𝑠 𝑜𝑓 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑐𝑎𝑟𝑟𝑖𝑒𝑑 𝑜𝑣𝑒𝑟
$20 per unit 𝑓𝑟𝑜𝑚 𝑜𝑛𝑒 𝑚𝑜𝑛𝑡ℎ 𝑡𝑜 𝑡ℎ𝑒 𝑛𝑒𝑥𝑡 = 1850 𝑢𝑛𝑖𝑡𝑠
Cost Calculation
$10 per hour
($80 per day) 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝐶𝑎𝑟𝑟𝑦𝑖𝑛𝑔 = 1850 𝑢𝑛𝑖𝑡𝑠 × $5 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
$17 per hour (above = $9250
8 hours/ day) 𝑅𝑒𝑔𝑢𝑙𝑎𝑟 𝑡𝑖𝑚𝑒 𝑙𝑎𝑏𝑜𝑟
1.6 hours per unit = 10 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 × 124 𝑑𝑎𝑦
(= 5 units/day) × $80 𝑝𝑒𝑟 𝑑𝑎𝑦 = $99,200
$300 per unit 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = $9250 + $99200 = $108,450
Plan 2 – Constant Workforce + Subcontracting
$600 per unit Considering the lowest monthly forecast demand, i.e.
38 as per provided data.

Plan 1 - Constant Workforce, Level Production

Monthly Forecast
Month Expected Production Demand
Demand, Days, b Per day
a (=a/b)
Jan 900 22 41
Feb 700 18 39
Mar 800 21 38
Apr 1200 21 57
May 1500 22 68 𝐼𝑛 ℎ𝑜𝑢𝑠𝑒 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛
June 1100 20 55 = 38 𝑢𝑛𝑖𝑡𝑠 𝑝𝑒𝑟 𝑑𝑎𝑦 × 124 𝑑𝑎𝑦𝑠
6200 124 = 4712 𝑢𝑛𝑖𝑡𝑠
𝑇𝑜𝑡𝑎𝑙 𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝐷𝑒𝑚𝑎𝑛𝑑 𝑆𝑢𝑏𝑐𝑜𝑛𝑡𝑟𝑎𝑐𝑡 𝑈𝑛𝑖𝑡𝑠
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡 =
𝑁𝑜. 𝑜𝑓 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑑𝑎𝑦𝑠 = 𝑇𝑜𝑡𝑎𝑙 𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝐷𝑒𝑚𝑎𝑛𝑑
6200 − 𝐼𝑛 ℎ𝑜𝑢𝑠𝑒 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛
= = 50 𝑢𝑛𝑖𝑡𝑠 𝑝𝑒𝑟 𝑑𝑎𝑦 = 6200 − 4712 = 1,488 𝑢𝑛𝑖𝑡𝑠
124

SAJIN JOHN 50
 𝑊𝑜𝑟𝑘𝑓𝑜𝑟𝑐𝑒 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑑 𝑡𝑜 𝑝𝑟𝑜𝑑𝑢𝑐𝑒 50 𝑢𝑛𝑖𝑡𝑠 𝑝𝑒𝑟 𝑑𝑎𝑦 Comparison of Three Plans
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡 38
= =
𝑙𝑎𝑏𝑜𝑢𝑟 ℎ𝑜𝑢𝑟𝑠 5
= 7.6 𝑤𝑜𝑟𝑘𝑒𝑟𝑠/𝑑𝑎𝑦
Cost Calculation
𝑅𝑒𝑔𝑢𝑙𝑎𝑟 𝑡𝑖𝑚𝑒 𝑙𝑎𝑏𝑜𝑟
= 7.6 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 × 124 𝑑𝑎𝑦𝑠
× $80 𝑝𝑒𝑟 𝑑𝑎𝑦 = $75,392
𝑆𝑢𝑏𝑐𝑜𝑛𝑡𝑟𝑎𝑐𝑡𝑖𝑛𝑔 = 1,488 𝑢𝑛𝑖𝑡𝑠 × $20 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
= $29,760 Plan 2 (Constant workforce with subcontracting) is
𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = $75,392 + $29,760 = $105,152 the lowest cost option.

Plan 3 – Chase Strategy

M ATHEMATIC AL A PPROACHES
Linear Programming
It produces an optimal plan.
Other Models
Simulation.

R EVENUE M ANAGEMENT
Maximizing profit by maximizing revenue when
costs are fixed.
Selling the same product/service to different
segments at different prices.

SAJIN JOHN 51
MODULE 14 – MATERIAL REQUIREMENT PLANNING (MRP) AND ERP

D EPENDENT D EMAND AND B ILL OF M ATERIALS (B O M)

MATERIAL REQUIREMENT PLANNING (MRP)
A dependent demand technique that uses a bill-of-
material, inventory, expected receipts, and a master
production schedule to determine material
requirements.
• When and how many parts of each model of
amplifier should be ordered/produced?
MASTER PRODUCTION SCHEDULE (MPS)
A timetable that specifies what is to be made (usually
finished goods) and when.

P ARTS OF A P RODUC T
BILL OF MATERIAL (BOM) No of parts in a product- hundreds/thousands.
A listing of the components, their description, and the Number of suppliers of parts- dozens/hundreds.
quantity of each required to make one unit of a product Lead time to procure parts- days to months.
MODULAR BILLS The product/subassemblies are produced in
Bills of material organized by major subassemblies or batches- days to weeks.
by product options
PLANNING BILLS (OR KITS)
Material groupings created in order to assign an
artificial parent to a bill of material; also called
“pseudo” bills.
PHANTOM BILLS OF MATERIAL
Bills of material for components, usually assemblies,
that exist only temporarily; they are never inventoried.
LOW-LEVEL CODING
A number that identifies items at the lowest level at
which they occur.
LEAD TIME
In purchasing systems, the time between recognition of
the need for an order and receiving it; in production
systems, it is the order, wait, move, queue, setup, and run
times for each component. D EPENDENT & I NDEPENDENT D EMANDS
PLANNING PROCESS Independent demand
the demand for an item is independent of the
demand for any other item in the inventory.
Demand for laptops, garments, shampoos,
books, chairs, socks, jewelry, etc., in a store.
Dependent demand
the demand for an item is dependent upon the
demand for some other item in a factory.
Demand for Engines, tyres, transmissions,
seats (Car manufacturer); Hard disk, mouse,
keyboard, microprocessor, monitor (Desktop
computer manufacturer).
Covered in this chapter- Materials
Requirements Planning (MRP).

SAJIN JOHN 52
B ILL OF M ATERIAL – B O M
A listing of the components, their description, and the
quantity of each required to make one unit of a product

• BoM = List of parts + Assembly Tree

• Items above a given level are called parents.
• Items below a given level are called children
• Importance of BoM - Lead time to procure or
produce parts/subassemblies- days to weeks.
BOM – TRUCK

LIST OF PARTS: VACUUM PULP WASHER

ASSEMBLY

MRP S TRUCTURE
GROSS MATERIAL REQUIREMENT PLAN
A schedule that shows the total demand for an item
(prior to subcontracting of on-hand inventory and
scheduled receipts) and (1) when it must be ordered
from suppliers, or (2) when production must be started
to meet its demand by a particular date.
𝐺𝑟𝑜𝑠𝑠 𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡𝑠 (𝐺𝑅)
= 𝑀𝑎𝑠𝑡𝑒𝑟 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑆𝑐ℎ𝑒𝑑𝑢𝑙𝑒 (𝑀𝑃𝑆) + 𝐵𝑜𝑀
𝑆𝑐ℎ𝑒𝑑𝑢𝑙𝑒𝑑 𝑅𝑒𝑐𝑒𝑖𝑝𝑡𝑠 = 𝑆ℎ𝑖𝑝𝑚𝑒𝑛𝑡𝑠 𝑡𝑜 𝑏𝑒 𝑟𝑒𝑐𝑒𝑖𝑣𝑒𝑑
𝑂𝑛 ℎ𝑎𝑛𝑑 = 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑎𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒

NET REQUIREMENT PLAN

The result of adjusting gross requirements for inventory
on hand and scheduled receipts.
𝑁𝑒𝑡 𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡
= 𝐺𝑟𝑜𝑠𝑠 𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡𝑠
− 𝑆𝑐ℎ𝑒𝑑𝑢𝑙𝑒𝑑 𝑅𝑒𝑐𝑒𝑖𝑝𝑡𝑠 − 𝑂𝑛 ℎ𝑎𝑛𝑑

PLANNED ORDER RECEIPT B O M OF A S PEAKER K IT

The quantity planned to be received at a future date.
𝑃𝑙𝑎𝑛𝑛𝑒𝑑 𝑂𝑟𝑑𝑒𝑟 𝑅𝑒𝑐𝑒𝑖𝑝𝑡𝑠
= 𝐷𝑒𝑐𝑖𝑑𝑒 𝑤ℎ𝑒𝑛 𝑖𝑠 𝑚𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑑
PLANNED ORDER RELEASE
The scheduled date for an order to be released
𝑃𝑙𝑎𝑛𝑛𝑒𝑑 𝑂𝑟𝑑𝑒𝑟 𝑅𝑒𝑙𝑒𝑎𝑠𝑒
= 𝑊ℎ𝑒𝑛 𝑡𝑜 𝑟𝑒𝑙𝑒𝑎𝑠𝑒 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑜𝑟𝑑𝑒𝑟 𝑏𝑎𝑠𝑒𝑑 𝑜𝑛 𝐿𝑒𝑎𝑑 𝑡𝑖𝑚𝑒

SAJIN JOHN 53
 T IME -P HASED P RODUCT S TRUCTU RE

2Ds and 2Es are required to produce 1 B.

2Bs and 3Cs are required to produce 1 A. And so
on….
Items A, B, C and F have child parts. They are
produced. Hint – its tilted view of Product structure. And start
Items D, F and G do not have child parts. They are drawing from right (i.e., from topmost position)
purchased.
G ROSS R EQUIREMENT P LAN
R EQUIREMENT OF P ARTS
Requirement of each part and subassembly for 50 nos
of Speaker Kits, A?
Parts Dependency Calculation Nos
Part A 50
Part B 2(A) (2)(50) 100
Part C 3(A) (3)(50) 150
Part E 2(B)+2(C) 2(100) + 2(150) 500
Part F 2(C) 2(150) 300
Part G 1(F) 1(300) 300
Part D 2(B)+2(F) 2(100) + 2(300) 800

L EAD T IME
The time required to purchase, produce, or assemble
an item.
For production– sum of move, setup, and N ET R EQUIREMENTS P LAN
The Gross requirement remains 50 units in week 8.
assembly or run times.
For purchased items– time between the
recognition of a need and when it is available for Scheduled receipts -
production. Items ordered in the
past that will be
received.
Planned Order Receipts
- When to receive the shipment.
Planned Order Release- When to release the purchase
order.

SAJIN JOHN 54
L OT -S IZING T ECHNIQUES
1. Lot-for-lot technique
Order exactly what is required for production
based on the net requirements. May not
always be feasible.
If ordering/setup costs are high, lot-for-lot
can be expensive.
2. Economic order quantity (EOQ)
Order a fixed quantity every time. The order
quantity is determined by ordering and
inventory holding costs and demand.
EOQ expects a known constant demand but
MRP systems often deal with unknown and
variable demand.
3. Periodic order quantity (POQ)
Order’s quantity needed for a predetermined
time period. The order quantity is set to cover
a predetermined interval.
Interval = EOQ / average demand per period.
The order quantity is recalculated at the time
of the order release.
4. Many more
Example:
Given: Holding cost = $1/week
Setup or Ordering cost = $100
Delivery lead time = 1 week
Cost of 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑐𝑎𝑟𝑟𝑖𝑒𝑑
- Lot for Lot? = (43 + 3 + 3 + 66 + 26 + 69 + 69
- EOQ? + 39) + 73 − 16375
- POQ? 𝑇𝑜𝑡𝑎𝑙 𝐻𝑜𝑙𝑑𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 = 375 × $1 = $375
There were 4 setup or orders in this plan,
Lot for Lot 𝑇𝑜𝑡𝑎𝑙 𝑆𝑒𝑡𝑢𝑝 𝑜𝑟 𝑂𝑟𝑑𝑒𝑟𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 = 4 × $100 = $400
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 = $375 + $400 = $775

POQ
From earlier calculation, EOQ = 73 units
270
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑤𝑒𝑒𝑘𝑙𝑦 𝑔𝑟𝑜𝑠𝑠 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡𝑠 = = 27
10
𝐸𝑂𝑄
𝑃𝑂𝑄 𝑖𝑛𝑡𝑒𝑟𝑣𝑎𝑙 =
𝐴𝑣𝑔. 𝑤𝑒𝑒𝑘𝑙𝑦 𝑔𝑟𝑜𝑠𝑠 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡𝑠
Net required = Gross requirement – On hand. 73
No on-hand inventory is carried through the system, = ~3 𝑤𝑒𝑒𝑘𝑠
27
𝑇𝑜𝑡𝑎𝑙 𝐻𝑜𝑙𝑑𝑖𝑛𝑔 𝐶𝑜𝑠𝑡 = $0
There were 7 setup or orders in this plan,
𝑇𝑜𝑡𝑎𝑙 𝑆𝑒𝑡𝑢𝑝 𝑜𝑟 𝑂𝑟𝑑𝑒𝑟𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 = 7 × $100 = $700

EOQ Lot Size

Here,
𝐷𝑒𝑚𝑎𝑛𝑑 𝑓𝑜𝑟 10 𝑤𝑒𝑒𝑘𝑠 = 270
52 𝑤𝑒𝑒𝑘𝑠 𝑎 𝑦𝑒𝑎𝑟. 𝑠𝑜, 𝑇𝑜𝑡𝑎𝑙 𝐻𝑜𝑙𝑑𝑖𝑛𝑔 𝐶𝑜𝑠𝑡
270 = (40 + 0 + 0 + 70 + 30 + 0 + 0
𝐴𝑛𝑛𝑢𝑎𝑙 𝑑𝑒𝑚𝑎𝑛𝑑, 𝐷 = × 52 = 1,404 + 55) × $1 = $195
10
𝑆𝑒𝑡𝑢𝑝 𝑜𝑟 𝑂𝑟𝑑𝑒𝑟𝑖𝑛𝑔 𝑐𝑜𝑠𝑡, 𝑆 = $100 𝑇𝑜𝑡𝑎𝑙 𝑆𝑒𝑡𝑢𝑝 𝑜𝑟 𝑂𝑟𝑑𝑒𝑟𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 = 3 × $100 = $300
𝐻𝑜𝑙𝑑𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 𝑓𝑜𝑟 𝑎 𝑦𝑒𝑎𝑟, 𝐻 = $1 × 52𝑤𝑒𝑒𝑘𝑠 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 = $300 + $195 = $495
= $52 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
EOQ, Lot-Sixing cost Summary
2𝐷𝑆 2(1404)(100) COSTS
𝑄∗ = √ =√ = 73.48 ~73 𝑢𝑛𝑖𝑡𝑠 SETUP HOLDING TOTAL
𝐻 52
Lot-for-lot $700 $0 $700
EOQ $400 $375 $775
POQ $300 $195 $495
Thus, Periodic Ordering Quantity (POQ) has least cost
and thus can be considered for this scenario.

E XTENSIONS OF MRP
MRP: Material Requirements Planning It is about companywide resources and
It is about material requirement. activities.
Extensions of MRP
1. MRP-II: Manufacturing Resource Planning
It is about manufacturing resources.
Used for purchasing, production scheduling,
capacity planning, inventory, warehouse
management…
2. DRP- Distribution Requirements Planning
It is about outbound logistics and
warehouses.
3. ERP- Enterprise Resource Planning

SAJIN JOHN 56
E NTERPRISE R ESOURCE P LANNING (ERP)
ERP modules include
1. MRP
2. Finance
3. Human resources
4. Supply-Chain Management (SCM)
5. Customer Relationship Management (CRM)
6. Other modules- Design, Sustainability…

SAP’ S ERP M ODULES

SAJIN JOHN 57
MODULE 15 – SHORT-TERM SCHEDULING

I NTRODUCTION
Planning charts used to schedule resources and allocate
time.
S CHEDULING C RITERIA
The correct scheduling technique depends on the
volume of orders, the nature of operations, and the
overall complexity of jobs, as well as the importance
placed on each of four criteria:
1. Minimize completion time: Evaluated by Three jobs, Job0, Job1 and Job3 are received on the
determining the average completion time. same day, day=0.
2. Maximize utilization: Evaluated by determining Three machines are available. Each machine does a
the percent of the time the facility is utilized. different operation- say cutting, milling, grinding.
3. Minimize work-in-process (WIP) inventory: Sequence of operations required by the jobs-
Evaluated by determining the average number of Job-0: M0>M1>M2
jobs in the system. The relationship between the Job-1: M0>M2>M1
number of jobs in the system and WIP inventory Job-2: M1>M2.
will be high. Therefore, the fewer the number of
jobs that are in the system, the lower the
I MPACTS OF A S CHEDULE
inventory.
Loss of revenue
4. Minimize customer waiting time: Evaluated by
Delayed delivery- Penalty, Order cancellation.
determining the average number of lateperiods
High cost
(e.g., days or hours).
Capital cost- High resource requirement,
Operating cost- low utilization of resources.
A SCHEDULE ON G ANTT C HART

S CHEDULING P ERFORMANCE C RITERIA

Capacities need
to be adjusted.
F ORWARD AND B ACKWARD S CHEDULING
Finite loading
Forward scheduling
It assigns work
Forward scheduling starts as
up to the
soon as the requirements are
capacity of the
known.
workstation
Produces a feasible schedule
The due dates
though it may not meet due
may have to be
dates.
pushed out.
Results in buildup of work-in-process inventory.
Backward scheduling
Backward scheduling P ERFORMANCE C RITERIA
begins with the due date 1. Minimize avg. completion time.
and schedules the final 2. Maximize avg. utilization of facilities.
operation first. 3. Minimize avg. work-in-process (WIP) inventory.
Schedule is produced by 4. Minimize avg. customer waiting time.
working backwards 5. Maximize order fulfilments by due dates.
though the processes. 6. Peak resource requirement be low.
Resources may not be available to accomplish the 7. Combinations of above- Low completion time and
schedule. high utilization of facilities.
SEQUENCING
Determining the order in which job should be done at
F INITE AND I NFINITE L OADING
each work center
Loading- Assigning jobs to work stations.
PRIORITY RULES
Infinite loading-
Rules used to determine the sequence of jobs in process-
It does not consider capacity. Therefore, all due
oriented facilities
dates are met.
FLOW TIME
The time between the release of a job to a work center
until the job is finished.

SAJIN JOHN 58
 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑜𝑚𝑝𝑙𝑒𝑡𝑖𝑜𝑛 𝑡𝑖𝑚𝑒 𝑇𝑜𝑡𝑎𝑙 𝑙𝑎𝑡𝑒 𝑑𝑎𝑦𝑠
𝑆𝑢𝑚 𝑜𝑓 𝑡𝑜𝑡𝑎𝑙 𝑓𝑙𝑜𝑤 𝑡𝑖𝑚𝑒 𝐴𝑣𝑔. 𝑗𝑜𝑏 𝑙𝑎𝑡𝑒𝑛𝑒𝑠𝑠 =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑗𝑜𝑏𝑠
=
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑗𝑜𝑏𝑠
𝑇𝑜𝑡𝑎𝑙 𝑗𝑜𝑏 𝑤𝑜𝑟𝑘 (𝑝𝑟𝑜𝑐𝑒𝑠𝑠𝑖𝑛𝑔) 𝑡𝑖𝑚𝑒 𝐽𝑜𝑏 𝑙𝑎𝑡𝑒𝑛𝑒𝑠𝑠 = 𝑀𝑎𝑥(0, 𝑦𝑒𝑠𝑡𝑒𝑟𝑑𝑎𝑦 + 𝑓𝑙𝑜𝑤 𝑡𝑖𝑚𝑒
𝑈𝑡𝑖𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 = − 𝑑𝑢𝑒 𝑑𝑎𝑡𝑒)
𝑆𝑢𝑚 𝑜𝑓 𝑡𝑜𝑡𝑎𝑙 𝑓𝑙𝑜𝑤 𝑡𝑖𝑚𝑒
𝐴𝑣𝑔. 𝑛𝑜. 𝑜𝑓 𝑗𝑜𝑏𝑠 𝑖𝑛 𝑡ℎ𝑒 𝑠𝑦𝑠𝑡𝑒𝑚
𝑆𝑢𝑚 𝑜𝑓 𝑡𝑜𝑡𝑎𝑙 𝑓𝑙𝑜𝑤 𝑡𝑖𝑚𝑒
=
𝑇𝑜𝑡𝑎𝑙 𝑗𝑜𝑏 𝑤𝑜𝑟𝑘 (𝑝𝑟𝑜𝑐𝑒𝑠𝑠𝑖𝑛𝑔) 𝑡𝑖𝑚𝑒

S EQUENCING OF J OBS – E XAMPLE

Priority rules are especially applicable for process- 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑜𝑚𝑝𝑙𝑒𝑡𝑖𝑜𝑛 𝑡𝑖𝑚𝑒
focused facilities such as clinics, print shops, 𝑆𝑢𝑚 𝑜𝑓 𝑡𝑜𝑡𝑎𝑙 𝑓𝑙𝑜𝑤 𝑡𝑖𝑚𝑒 77
and manufacturing job shops. The most popular = =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑗𝑜𝑏𝑠 5
priority rules are: = 15.4 𝑑𝑎𝑦𝑠
◆ FCFS: first come, first served. Jobs are completed in 28
𝑈𝑡𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 𝑚𝑒𝑡𝑟𝑖𝑐 = = 0.365 = 36.4%
the order they arrived. 77
◆ SPT: shortest processing time. Jobs with the 77
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑜. 𝑜𝑓 𝑗𝑜𝑏𝑠 𝑖𝑛 𝑠𝑦𝑠𝑡𝑒𝑚 = = 2.75 𝑗𝑜𝑏𝑠
shortest processing times are assigned first. 28
11
◆ EDD: earliest due date . Earliest due date jobs are 𝐴𝑣𝑔. 𝐽𝑜𝑏 𝐿𝑎𝑡𝑒𝑛𝑒𝑠𝑠 = = 2.2 𝑑𝑎𝑦𝑠
assigned first. 5
◆ LPT: longest processing time. Jobs with the longest
processing time are assigned first.
Example: SPT – Shortest Processing Time
Apply the four sequencing rules- FCFS, SPT, EDD, SPT Sequence: B-D-A-C-E
LPT- to following five jobs. Job Job Work Flow Job Job
The jobs arrived on the same day, within a short (Processing) Time Due Lateness
interval in the sequence- A, B, C, D and E. Time Date
The jobs are to process on a single workstation. (Days) (Days)
Job Job Work (Processing) Job Due B 2 2 6 0
Time Date
D 3 5 15 0
(Days) (Days)
A 6 11 8 3
A 6 8
C 8 19 18 1
B 2 6
E 9 28 23 5
C 8 18
28 65 9
D 3 15
E 9 23 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑜𝑚𝑝𝑙𝑒𝑡𝑖𝑜𝑛 𝑡𝑖𝑚𝑒
𝑆𝑢𝑚 𝑜𝑓 𝑡𝑜𝑡𝑎𝑙 𝑓𝑙𝑜𝑤 𝑡𝑖𝑚𝑒 65
= =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑗𝑜𝑏𝑠 5
FCFS – First Come First Served = 13 𝑑𝑎𝑦𝑠
28
FCFS Sequence: A – B – C – D – E 𝑈𝑡𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 𝑚𝑒𝑡𝑟𝑖𝑐 = = 0.431 = 43.1%
65
Job Job Work Flow Job Job 65
(Processing) Time Due Lateness 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑜. 𝑜𝑓 𝑗𝑜𝑏𝑠 𝑖𝑛 𝑠𝑦𝑠𝑡𝑒𝑚 = = 2.32 𝑗𝑜𝑏𝑠
28
Time Date 9
(Days) (Days) 𝐴𝑣𝑔. 𝐽𝑜𝑏 𝐿𝑎𝑡𝑒𝑛𝑒𝑠𝑠 = = 1.8 𝑑𝑎𝑦𝑠
5
A 6 6 8 0
B 2 8 6 2 EDD – Earliest Due Date
EDD Sequence – B-A-D-C-E
C 8 16 18 0
Job Job Work Flow Job Job
D 3 19 15 4 (Processing) Time Due Lateness
E 9 28 23 5 Time Date
(Days) (Days)
28 77 11
B 2 2 6 0
A 6 8 8 0

SAJIN JOHN 59
 D 3 11 15 0 28
𝑈𝑡𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 𝑚𝑒𝑡𝑟𝑖𝑐 = = 0.272 = 27.2%
C 8 19 18 1 103
103
E 9 28 23 5 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑜. 𝑜𝑓 𝑗𝑜𝑏𝑠 𝑖𝑛 𝑠𝑦𝑠𝑡𝑒𝑚 = = 3.68 𝑗𝑜𝑏𝑠
28
28 68 6 45
𝐴𝑣𝑔. 𝐽𝑜𝑏 𝐿𝑎𝑡𝑒𝑛𝑒𝑠𝑠 = = 9.6 𝑑𝑎𝑦𝑠
5
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑜𝑚𝑝𝑙𝑒𝑡𝑖𝑜𝑛 𝑡𝑖𝑚𝑒
𝑆𝑢𝑚 𝑜𝑓 𝑡𝑜𝑡𝑎𝑙 𝑓𝑙𝑜𝑤 𝑡𝑖𝑚𝑒 68 Sequencing Summary
= =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑗𝑜𝑏𝑠 5 Rule Average Utilization Average Average
= 13.6 𝑑𝑎𝑦𝑠 Completion Metric Number Lateness
28 Time (%) of Jobs (Days)
𝑈𝑡𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 𝑚𝑒𝑡𝑟𝑖𝑐 = = 0.412 = 41.2% (Days) in
68
68 System
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑜. 𝑜𝑓 𝑗𝑜𝑏𝑠 𝑖𝑛 𝑠𝑦𝑠𝑡𝑒𝑚 = = 2.43 𝑗𝑜𝑏𝑠
28 FCFS 15.4 36.4 2.75 2.2
6
𝐴𝑣𝑔. 𝐽𝑜𝑏 𝐿𝑎𝑡𝑒𝑛𝑒𝑠𝑠 = = 1.2 𝑑𝑎𝑦𝑠 SPT 13.0 43.1 2.32 1.8
5
EDD 13.6 41.2 2.43 1.2
LPT 20.6 27.2 3.68 9.6
LPT – Longest Processing Time
Best performance on each criterion (column) is in red
LPT Sequence: E-C-A-D-B color
Job Job Work Flow Job Job
(Processing) Time Due Lateness No sequencing rule excels on all criteria
Time Date 1. SPT (Shortest Processing Time) does well on
(Days) (Days) minimizing average completion time, Utilization
E 9 9 23 0 and Average number of jobs in system. However,
it moves long jobs to the end which may result in
C 8 17 18 0
dissatisfied customers.
A 6 3 8 15 2. FCFS (First Come First Served) does not do well
D 3 26 15 11 on any criteria but is perceived as fair by
customers.
B 2 28 6 22
3. EDD (Earliest Due date) minimizes average
28 103 48 lateness. Good when due dates have been
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑜𝑚𝑝𝑙𝑒𝑡𝑖𝑜𝑛 𝑡𝑖𝑚𝑒 committed.
𝑆𝑢𝑚 𝑜𝑓 𝑡𝑜𝑡𝑎𝑙 𝑓𝑙𝑜𝑤 𝑡𝑖𝑚𝑒 103
= =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑗𝑜𝑏𝑠 5
= 20.6 𝑑𝑎𝑦𝑠

C RITICAL R ATIO (CR)

A sequencing rule that is an index number computed Example:
by dividing the time remaining until due date by the Current Day 25,
work remaining. JOB Due Date Workdays Remaining
𝑇𝑖𝑚𝑒 𝑟𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔 A 30 4
𝐶𝑅 =
𝑤𝑜𝑟𝑘 𝑑𝑎𝑦𝑠 𝑟𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔 B 28 5
(𝑑𝑢𝑒 𝑑𝑎𝑡𝑒 − 𝑡𝑜𝑑𝑎𝑦𝑠 𝑑𝑎𝑡𝑒) C 27 2
=
𝑤𝑜𝑟𝑘 (𝑙𝑒𝑎𝑑)𝑡𝑖𝑚𝑒 𝑟𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔
• As opposed to the priority rules, the critical ratio JOB Critical Ratio Priority
is dynamic and easily updated. A (30 – 25)/4 = 1.25 3
• It tends to perform better than FCFS, SPT, EDD, or B (28 – 25)/5 = 0.60 1
LPT on the average job lateness criterion C (27 – 25)/2 = 1.00 2
• Jobs with low critical ratios are scheduled ahead With CR < 1, Job B is late.
of jobs with higher critical ratios. That, is jobs that With CR = 1, Job C is on schedule.
are late are expedited. With CR > 1, Job A has slack time.

Critical Ration Technique

1. Establish relative priorities among jobs.
2. Adjust priorities automatically for changes in
both demand and job progress.
3. Dynamically track job progress.

SAJIN JOHN 60
MODULE 6 – MANAGING QUALITY

D EFINING Q UALITY AND C OSTS OF Q UALITY

Improved safety, productivity.
D IFFERENT VIEWS OF Q UALITY
User based- Customer Cost of Quality
Better performance, more features. The cost of doing things wrong – that is, the price of
Manufacturing based- Production nonconformance.
Conformance to standards, making it right the Prevention costs
first time. Reducing the potential for defects- Training,
Product based- Design statistical process control, maintenance,
Specific and measurable attributes of the quality planning.
product. Appraisal costs
Evaluating products and parts- Inspection,
quality audits, testing, calibration.
D EFINING Q UALITY Internal failure costs
The ability of a product or service to meet customer
Producing defective parts before delivery-
needs. Scrap, rework.
Objective is to build a total quality management
External failure costs
system that identifies and satisfies customer needs. Defects discovered after delivery- Warranty
1. Conformance to Specifications.
costs, field service.
2. Meeting Customer’s Requirements.
3. Meeting or Exceeding Customer Expectations.
4. Fitness for use.
5. Right First Time.
6. American Society for Quality
“The totality of features and characteristics of
a product or service that bears on its ability to
satisfy stated or implied needs.”

Benefits of Quality
Higher sales
Reduced costs
Production, inspection, rework, scrap,
warranty, product recall, product liability.

Q UALITY G URUS AND ISO 9000

Leaders in the Field of Quality Management:
Leader Philosophy/Contribution
W. Edwards Deming insisted management accept responsibility for building good systems. The employee
Deming cannot produce products that on average exceed the quality of what the process is capable of
producing. His 14 points for implementing quality improvement are presented
Joseph M. A pioneer in teaching the Japanese how to improve quality, Juran believed strongly in top-
Juran management commitment, support, and involvement in the quality effort. He was also a believer
in teams that continually seek to raise quality standards. Juran varies from Deming somewhat in
focusing on the customer and defining quality as fitness for use, not necessarily the written
specifications.
Armand His 1961 book Total Quality Control laid out 40 steps to quality improvement processes. He
Feigenbaum viewed quality not as a set of tools but as a total fi eld that integrated the processes of a company.
His work in how people learn from each other’s successes led to the field of cross-functional
teamwork.
Philip B. Quality Is Free was Crosby’s attention-getting book published in 1979. Crosby believed that in the
Crosby traditional trade-off between the cost of improving quality and the cost of poor quality, the cost of
poor quality is understated. The cost of poor quality should include all of the things that are
involved in not doing the job right the first time. Crosby coined the term zero defects and stated,
“There is absolutely no reason for having errors or defects in any product or service.”

SAJIN JOHN 61
 A set of quality standards developed by the
International Organization for Standardization (ISO)
D EMING ’ S 14 POINTS TO IMPROVE QUALITY
First published in 1987.
1. Create consistency of purpose.
Certification by an independent agency.
2. Lead to promote change.
Avoids multiple quality assurance requirements.
3. Build quality into the product; stop depending on
Over 1 million organizations worldwide are ISO
inspections to catch problems.
certified.
4. Build long-term relationships based on
Management principles
performance instead of awarding business on the
Top management leadership
basis of price.
Customer satisfaction
5. Continuously improve product, quality, and
Continual improvement
service.
Involvement of people
6. Start training.
Process analysis
7. Emphasize leadership.
Use of data-driven decision making
8. Drive out fear.
A systems approach to management
9. Break down barriers between departments.
Mutually beneficial supplier relationships
10. Stop haranguing workers.
11. Support, help, and improve.
12. Remove barriers to pride in work. M ALCOLM B ALDRIGE N ATIONAL Q UALITY A W ARD
13. Institute a vigorous program of education and Established in 1988 by the U.S. government.
self-improvement. Designed to promote TQM practices
14. Put everybody in the company to work on the CATEGORIES POINTS
transformation.
Leadership 120
H ISTORY OF Q UALITY Strategic Planning 85
Customer Focus 85
Measurement, Analysis and Knowledge 90
Management
Workforce Focus 85
Operations Focus 85
Results 450

ISO 9000 I NTERNATIONAL Q UALITY S TANDARDS

A PPROACHES TO Q UALITY
After production Poka-Yoke
100% Inspection/Testing or Sampling. Literally translated,
During production “mistake proofing”; it has
Statistical Control Charts come to mean a device or
See Chapter-6, Supplement, not in the technique that ensures the
syllabus. production of a good unit
Before production- During design every time.
Robust design Making
Covered in Chapter-5: Design of Goods and system/device/process fool
Services. proof, or mistake proof by
eliminating reliance on
human experience and
100% Inspection/Testing
knowledge.
Time consuming and Expensive-
Types of Poka-Yoke-
Requires large manpower and equipment-
Mistake cannot happen- Type-I.
go/no-go gauges extensively used.
Mistakes
are easy to
Source Inspection
detect-
• Controlling or monitoring at the point of
Type-II.
production or purchase – at the source.

SAJIN JOHN 62
Inspection and Sampling
Car manufacturer
Engine & Transmission- 100% inspection.
Welded body- 100% inspection.
Painted body- 100% inspection.
Shower test- 100% inspection.
Car final inspection- 100% inspection.
Test track inspection- 100% inspection.
Final vehicle testing, before dispatch- 100%
inspection.
Bumper and Headlamps- Single inspection at
supplier end.
Other child parts- Single inspection at supplier
end.
Dash panel and Steering assembly- Supplier
certification.
Paints- Batch sampling inspection.
T OTAL Q UALITY M ANAGEMENT (TQM)
Management of an entire organization so that it excels
in all aspects of products and services that are
important to the customer.
Encompasses 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.
C ONCEPTS OF TQM
Here are 7 concepts that make up the heart of an
effective TQM program:
1. Continuous Improvement
• PDCA – A continuous improvement model of
Plan-Do-Check-Act
2. Six Sigma
• A program to save time, improve quality, and
lower costs.
• 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 (Define, Measures, Analyses,
Improves, Controls)
• It is a set of seven tools: check sheets, scatter
diagrams, cause-and-effect diagrams, Pareto
SAJIN JOHN
Compressor manufacturer-Projects
100% inspection-
Done for project items, high value & critical
items like coolers, dampers, valves, couplings,
motors, panels, junction boxes, Air dryers,
canopy, consoles etc.
Inspection done by company’s QA engineer
along with purchase engineer or TPI (Third
Party Inspector) appointed at supplier end.
Sampling-
Sampling for standard items, low value &
noncritical items like hardware, O-rings,
clamps, gearbox, CO2 flooding nozzles, Fans,
Bearings, Solenoid valves, shims, gaskets,
foundation bolts, orifices, sight flow glass etc.
at the company or at supplier end by QA
engineer or TPI.
charts, flowcharts, histograms, and statistical
process control.
3. Employee Empowerment
• Enlarging employee jobs so that the added
responsibility and authority is moved to the
lowest level possible in the organization.
4. Knowledge of TQM Tools
5. Taguchi Concepts
• Genichi Taguchi has provided us with three
concepts aimed at improving both product
and process quality: quality robustness,
target-oriented quality, and the quality loss
function.
• Quality Robust - Products that are consistently
built to meet customer needs despite adverse
conditions in the production process.
• Target-oriented Quality - A philosophy of
continuous improvement to bring a product
exactly on target.
63
 • Quality loss function (QLF) - A mathematical
function that identifies all costs connected with
poor quality and shows how these costs
increase as output moves away from the target
value.
6. Benchmarking
• Selecting a demonstrated standard of
performance that represents the very best
performance for a process or an activity.
• steps for developing benchmarks are:
i. Determine what to benchmark.
ii. Form a benchmark team.
iii. Identify benchmarking partners.
iv. Collect and analyze benchmarking
information.
v. Take action to match or exceed the
benchmark.
7. Just-In-Time (JIT)
• The philosophy behind just-in-time (JIT) is
one of continuing improvement and enforced
problem solving.
• JIT systems are designed to produce or deliver
goods just as they are needed.
• JIT is related to quality in three ways:
i. JIT cuts the cost of quality
ii. JIT improves quality
iii. Better quality means less inventory and a
better, easier-to-employ JIT system

S EVEN Q UALITY T OOLS

C HECK SHEET
An organized method of recording data.

Example: Castings – Cause and Effect Diagram

The data is used to detect patterns, as an input to
Pareto charts, Cause-and-effect analysis, Scatter
charts, etc.

S CATTER D IAG RAM

A graph of the value of one variable vs. another
variable.

P ARETO C HART
A graph to identify and plot problems or defects in
descending order of frequency.

C AUSE - AND -E FFECT D IAGRAM

A systematic approach to capture potential causes
of a quality problem.
There can be several causes of a quality problem.
H ISTOGRAM
The causes are arranged by category- Man,
A distribution showing the frequency of
Machine, Material, Method, Measurement,
occurrences of a variable.
Environment, etc.
Used in Statistical Process
Cause and Effect diagram is also known as
Control charts.
Fishbone diagram and Ishikawa diagram.
Shape of the histogram-
symmetric or not.
Spread of the histogram-
flatness. (Whether the variation
is small or large; acceptable or not?).

SAJIN JOHN 64
S TATISTICAL P ROCESS C ONTROL C HART F LOW C HART (P ROCESS D IAGRAM )
A chart with time on the horizontal axis to plot values A chart that describes the steps in a process.
of a statistic.
The plotted valued
should be totally
random, no pattern.
If a pattern appears,
an assignable cause
is at work and it
needs to be
identified and removed. Search for assignable cause-
if any value is large- touches or crosses LCL or
UCL.
if there is a trend or a cycle in the plot.

S ERVICE Q UALITY
has to adjust its language for different
consumers—increasing the level of sophistication
D ETERMINANTS OF S ERVICE Q UALITY
with a well-educated customer and speaking
• Reliability involves consistency of performance
simply and plainly with a novice.
and dependability. It means that the fi rm
• Credibility involves trustworthiness,
performs the service right the first time and that
believability, and honesty. It involves having the
the fi rm honours its promises.
customer’s best interests at heart.
• Responsiveness concerns the willingness or
• Security is the freedom from danger, risk, or
readiness of employees to provide service. It
doubt.
involves timeliness of service.
• Understanding/knowing the customer
• Competence means possession of the required
involves making the effort to understand the
skills and knowledge to perform the service.
customer’s needs.
• Access involves approachability and ease of
• Tangibles include the physical evidence of the
contact.
service.
• Courtesy involves politeness, respect,
Now only 5: RATER
consideration, and friendliness of contact
Reliability
personnel (including receptionists, telephone
Assurance
operators, etc.).
Tangibility
• Communication means keeping customers Empathy
informed in language they can understand and Responsiveness
listening to them. It may mean that the company

SAJIN JOHN 65
MODULE 16 – LEAN OPERATIONS

L EAN O PERATIONS AND JIT

Lean Operations supply the customer with exactly • Single – Piece flow system
what the customer wants when the customer wants it,
without waste, through continuous improvement.
T RADITIONAL M ANUFAC TURING S YSTEMS
Also known as –
Keep large inventory
• Lean operations
Poor production planning, unreliable supplies,
Eliminates waste through continuous
machine breakdowns, high rejections,
improvement and focus on exactly what the
absenteeism, capacity mismatch, push production,
customer wants.
maximise capacity utilisation….
• Just-in-time (JIT)
Over production and Inventory hide causes of
Continuous and forced problem solving via a focus
Waste
on throughput and reduced inventory.
Do not do late.
Do not do early
Do Just-In-Time – Production, Inspection,
Purchase, Delivery, Transport, Hiring, Payment.
Lower investment- inventory, machines,
facilities…
Lower operating cost- inventory, labour,
waste, quality, maintenance…
• Toyota Production System (TPS)
Focus on continuous improvement, respect for
people, and standard work practices.
• Waster Elimination System
Waste is anything that does not add value from the
customer point of view. Large batch sizes
Seven wastes- Overproduction, Queues, Production, ordering, inspection, movement to
Transportation, Inventory, Motion, next machine…
Overprocessing, Defective product By specialists
• Zero Inventory System Inspection, maintenance, improvements,
• Pull Production System production……
A concept that results in material being produced Suppliers
only when requested and moved to where it is Us vs them, multiple suppliers, purchase on
needed just as it is needed. price…

JIT T ECHNIQUES

SAJIN JOHN 66
 Push vs Pull
S UPPLY M ANAGEMENT
Locate/prefer local suppliers.
Delivery of parts- frequent and small quantities,
on assembly lines.
Quality- eliminate inspection of parts.
Supplier certification.
Supplier selection.
Few, not many, suppliers for each part.
Supplier on JIT.
Do not buy on price alone- delivery and quality.
Establish long-term relationships-Financial stake.
Contribution to JIT-
Frequent deliveries in small lot size-
lower cycle inventory, higher quality-
lower safety inventory.

L AYOUTS – C ELLULAR P REVENTIVE M AINTENANCE

Contribution to From breakdown maintenance to Preventive
JIT maintenance
Shorter cycle time, Minor maintenance by operators- not specialists.
lower inventory, Early resolution.
higher utilisation Contribution to JIT-
of manpower Higher output, lower safety inventory.

Q UALITY P RODUCTION
I NVENTORY (C YCLE I NVENTORY ) 7-quality tools: Cause-and-effect (Fishbone)
Buy in small quantities. diagrams, Flow charts, Check sheets, Pareto
Ship/move in small batches. diagrams, Histograms, Control charts and Scatter
Inspect after small batch is produced. diagrams.
Produce in small batches- quick changeover, Involve workers- quality circles.
SMED (Single Minute Exchange of Dies). Involve the suppliers.
Contribution to JIT-
Higher production, lower safety
inventory.

E MPLOYEE E MPOWERMENT
Multi-skilling
Job rotation
Involve the workers in
Contribution to JIT- Continuous improvement
Smaller batches hence lower WIP, larger Problem solving
variety, smooth production. Quality circles, self-Inspection of work
Contribution to JIT-
S CHEDULING Higher productivity, higher quality, lower
Pull, not Push based production- using Kanban safety inventory.
cards.
Level schedules- frequent, small batches. O THER T ECHNIQUES
Lean scheduling. Stopping the production line.
Contribution to JIT- Visual controls.
Smaller batches and hence lower WIP. Poka-Yoke- avoiding/reducing mistakes.
Continuous improvement- Kaizen.
Autonomation.
Waste elimination.
Many of the JIT techniques are suitable for low
variety, high volume production systems, like cars,
computers.

SAJIN JOHN 67
MODULE 3 – PROJECT MANAGEMENT

I NTRODUCTION
PROJECT ORGANIZATION
An organization formed to ensure that programs Determining minimum duration of project
(projects) receive the proper management and For the projects with a large number of activities a
attention. systematic approach is required to identify the longest
path(s) in the network and other details.
P ROJECT Steps
A complex, non-routine, one-time effort limited by time, Forward Pass: Determine ES and EF.
budget, resources, and performance specifications Backward Pass: Determine LF and LS.
designed to meet customer needs. Find slack of activities: Slack = LS-ES (= LF-EF).
Notable characteristics of a project Path(s) that do not have slack activities are
Has a defined life span with a beginning and an longest path(s).
end. ES- Early Start: earliest time at which an activity can
Involves doing most things never been done start, assuming all predecessors have been completed
before. EF- Early Finish: earliest time at which an activity can
Requires across-the-organizational participation. be finished.
Has specific time, cost, and performance LS- Late Start: latest time at which an activity can start
requirements. so as to not delay the completion time of the entire
Project management project
Project identification, Feasibility studies- Technical and LF- Late Finish: latest time by which an activity has to
Marketing, Financial analysis, Project financing, Risk be finished so as to not delay the completion time of the
analysis, Project planning and scheduling, Project entire project
implementation, Project Monitoring and Control,
Project handover…. C RITICAL P ATH
The longest path from Start to Finish is called
P ROJECT P LANN ING critical path. A network can have multiple critical
paths; if so, then their durations are equal.
Critical path gives the minimum duration to
complete the project.
Activities on the Critical path are called critical
activities. Slack of the critical activities is zero.
Activities not on the critical path are called non-
critical activities. Slack of the non-critical
activities is greater than zero.
Delay in the completion of activities on the critical
path delays the project.
Delay in the completion of non-critical activities
do not delay the project if the delay is within slack.
Non critical activities provide flexibility to the
manager in resource scheduling and thus reducing
the costs.
Critical activities are few, hence monitor and
control them closely.
Project Network
Activities Basic Rules
Activity durations An activity cannot begin until all preceding
Sequential dependency connected activities are complete.
Network- CPM/PERT Arrows indicate precedence, and arrows can cross
CPM- Critical Path Method over one another.
PERT-Program Evaluation & Review Technique Looping of activities is not allowed.
Activities on the network will be shown on Nodes Conditional statements are not allowed.
and not on Links. Advice: Include a common Start and a common
Outputs Finish node.
Critical activities and Critical path
Project schedule

SAJIN JOHN 68
Example:
Planning of Construction Project (11 activities)
Activity Description
Start
Site Clearing
Removal of Trees
General Excavation
Grading General Area
Excavation of trenches Start to Finish Paths
Placing formwork & reinforcement of concrete 1. Start-A-D-H-Finish 16 (=0+4+7+5+0)
Install Sewer Lines 2. Start-A-D-G-I-Finish 19
Installing other utilities 3. Start-A-C-E-H-Finish 26
Pouring concrete 4. Start-A-C-G-I-Finish 29
Finish 5. Start-A-C-F-I=Finish 30
6. Start-B-E-H-Finish 17
Precedence relationship of activities 7. Start-B-E-G-I-Finish 20
8. Start-B-F-I-Finish 21 weeks
Activity Activity Description Imme - So, minimum time to complete the project – 30 weeks
diate
Pred -
ecessor(s) Forward Pass – Early Start, Early Finish
Start Start - [ES,EF] : [Early Start, Early Finish]
A Site Clearing Start
B Removal of Trees Start
C General Excavation A
D Grading General Area A
E Excavation of trenches B, C
F Placing formwork & B, C
reinforcement of concrete
G Install Sewer Lines D, E
H Installing other utilities D, E
I Pouring concrete F,G
Finish Finish H,I Backward Pass – Late Start, Late Finish
Start as late as possible, from the last activity, and
Project Network with activity duration finish as early as possible.
Activity Activity Description IP(s) Time [LS,LF] : [Late Start, Late Finish]
(wk)
Start Start - 0
A Site Clearing Start 4
B Removal of Trees Start 3
C General Excavation A 8
D Grading General Area A 7
E Excavation of trenches B, C 9
F Placing formwork & B, C 12
reinforcement of
concrete
G Install Sewer Lines D, E 2
Network with ESEF and LSLF times
H Installing other utilities D, E 5
I Pouring concrete F,G 6
Finish Finish H,I 0

SAJIN JOHN 69
Critical Path
An activity is critical if its LS=ES (or LF=EF).
Critical path(s)- Path on which all activities are critical. Implementation Schedules – Gantt Charts
Slack= LS - ES = LF - EF.

ESEF GANTT CHART

Week
Activity 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Start
A
B
C
D
E
F
G
H
Critical path: Start-A-C-F-I-Finish I
Finish
Critical activities- Start, A, C, F, I, Finish
Non-critical activities- B, D, E, G, H
Minimum time to complete the project- 30 weeks.
LSLF GANTT CHART
Week
Activity IP(s) Time ES EF LS LF Slack Criti
(wk) (wk) cal? Activity 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Start
Start - 0 0 0 0 0 0 Y
A
A Start 4 0 4 0 4 0 Y
B
B Start 3 0 3 9 12 9 N
C
C A 8 4 12 4 12 0 Y
D
D A 7 4 11 15 22 11 N
E
E B, C 9 12 21 13 22 1 N
F
F B, C 12 12 24 12 24 0 Y
G
G D, E 2 21 23 22 24 1 N
H
H D, E 5 21 26 25 30 4 N
I
I F,G 6 24 30 24 30 0 Y
Finish
Finish H,I 0 30 30 30 30 0 Y

SAJIN JOHN 70