Professional Documents
Culture Documents
COMPILED BY:
Page 2 of 156
TABLE OF CONTENTS
INTRODUCTION..................................................................................................................... 2
COURSE OUTCOMES ........................................................................................................... 7
LESSON 1 – OPERATIONS AND PRODUCTIVITY ............................................................... 8
Introduction to Operations Management ................................................................................. 8
Historical Development........................................................................................................... 9
Goods-Service Continuum.....................................................................................................11
Manufacturing Vs. Service .....................................................................................................11
Supply Chain .........................................................................................................................12
Concept of Production ...........................................................................................................13
Production System ................................................................................................................13
Role of the Operations Manager ............................................................................................16
Systems Approach ................................................................................................................19
Ethical Issues in Operations ..................................................................................................19
LESSON 2 – THE GLOBAL ENVIRONMENT AND OPERATIONS STRATEGY ..................20
Competitiveness ....................................................................................................................20
Marketing’s Influence.............................................................................................................20
Businesses Compete Using Operations ................................................................................20
Why Some Organizations Fail ...............................................................................................20
Hierarchical Planning.............................................................................................................21
Strategy Formulation .............................................................................................................22
Environmental Scanning ........................................................................................................22
Strategic OM Decision Areas.................................................................................................23
The Balanced Scorecard Approach .......................................................................................24
Why Productivity Matters .......................................................................................................25
LESSON 3 – MANAGING PROJECTS..................................................................................27
The Nature of Projects...........................................................................................................27
Project Management Decisions .............................................................................................27
Work Breakdown Structure (WBS) ........................................................................................28
Program Evaluation And Review Technique (PERT) And Critical Path Method (CPM) ..........29
LESSON 4 – FORECASTING DEMAND ...............................................................................31
Forecasting ...........................................................................................................................31
Elements of a Good Forecast ................................................................................................31
Steps in the Forecasting Process ..........................................................................................32
Forecasting Approaches ........................................................................................................32
LESSON 5 - PRODUCT DESIGN ..........................................................................................40
Reasons Design or Re-Design ..............................................................................................40
Legal Considerations .............................................................................................................41
Life Cycle Assessment (LCA) ................................................................................................42
Product or Service Life Stages ..............................................................................................43
Designing for Mass Customization ........................................................................................44
Component Commonality ......................................................................................................48
Reliability ...............................................................................................................................50
LESSON 6 – QUALITY MANAGEMENT ...............................................................................51
Quality Management .............................................................................................................51
Dimensions of Product Quality ..............................................................................................52
Assessing Service Quality .....................................................................................................52
Determinants of Quality .........................................................................................................53
Responsibility for Quality .......................................................................................................53
Costs of Quality .....................................................................................................................53
Ethics and Quality .................................................................................................................54
Baldrige Criteria.....................................................................................................................54
Quality Certification ...............................................................................................................55
Total Quality Management.....................................................................................................55
LESSON 7 - PROCESS DESIGN ..........................................................................................66
Process Selection ..................................................................................................................66
Process Strategy ...................................................................................................................67
Technology for Competitive Advantage .................................................................................67
Product and Service Profiling ................................................................................................69
LESSON 8 – LOCATION DECISIONS ..................................................................................71
The Need For Location Decisions..........................................................................................71
Location Decisions: Objectives ..............................................................................................71
Location Decision: General Procedure ..................................................................................72
Global Location: Facilitating Factors ......................................................................................72
Managing Global Operations .................................................................................................73
Geographic Information System (GIS) ...................................................................................75
Service and Retail Locations .................................................................................................76
Factor Rating .........................................................................................................................77
LESSON 9 – LAYOUT DECISIONS ......................................................................................79
Facilities Layout.....................................................................................................................79
Repetitive Processing ............................................................................................................80
Service Layout.......................................................................................................................83
Designing Process Layouts ...................................................................................................85
LESSON 10 – JOB DESIGN AND WORK MEASUREMENT ................................................86
Quality of Work Life ...............................................................................................................86
Job Design ............................................................................................................................88
Ergonomics ...........................................................................................................................90
Methods Analysis ..................................................................................................................90
Developing Work Methods.....................................................................................................93
Work Sampling ......................................................................................................................94
LESSON 11 – SUPPLY CHAIN MANAGEMENT ..................................................................96
Supply Chain .........................................................................................................................96
Supply Chain Management ...................................................................................................97
Flow Management .................................................................................................................98
Global Supply Chains ............................................................................................................98
Procurement ..........................................................................................................................98
Supplier Management .........................................................................................................101
Inventory Management ........................................................................................................102
Logistics ..............................................................................................................................103
LESSON 12 – MANAGING INVENTORY ............................................................................108
Inventory .............................................................................................................................108
Inventory Counting Systems ................................................................................................109
Abc Classification System ...................................................................................................110
Cycle Counting ....................................................................................................................110
When to Reorder .................................................................................................................114
Fixed-Quantity Vs. Fixed-Interval Ordering ..........................................................................117
LESSON 13 – AGGREGATE PLANNING ...........................................................................119
Sales and Operations Planning ...........................................................................................119
Techniques for Aggregate Planning .....................................................................................123
Aggregate Planning in Services ...........................................................................................124
Disaggregating the Aggregate Plan .....................................................................................125
LESSON 14 – MATERIAL REQUIREMENTS PLANNING (MRP) AND ENTERPRISE
RESOURCE PLANNING (ERP) ...........................................................................................129
Dependent Demand ............................................................................................................129
Overview of MRP ................................................................................................................130
MRP Lot Sizing Rules..........................................................................................................134
Using the MRP ....................................................................................................................134
Capacity Requirements Planning.........................................................................................137
Enterprise Resource Planning .............................................................................................138
LESSON 15 – SCHEDULING ..............................................................................................140
Scheduling ..........................................................................................................................140
High Volume Systems .........................................................................................................141
Loading Approaches............................................................................................................143
LESSON 16 – LEAN OPERATIONS ...................................................................................144
Lean Operations: The Beginning .........................................................................................144
Lean: Ultimate Goal .............................................................................................................145
Lean: Supporting Goals .......................................................................................................145
Lean: Building Blocks ..........................................................................................................146
Value Stream Mapping ........................................................................................................152
Transitioning to Lean Systems ............................................................................................152
Lean Services......................................................................................................................153
REFERENCES ....................................................................................................................156
Course Outcomes
• Understand the application of managerial functions to effective and efficient operations
management
• Understand the operative functions involve in operations management
• Analyze operational problems and apply appropriate techniques to address them
• Evaluate effective and efficient operational strategy applicable to different business
situations
• Create an effective and efficient operational strategy to different business situations
Page 7 of 156
LESSON 1 – OPERATIONS AND PRODUCTIVITY
OVERVIEW
Effective operations management helps with employee engagement and defines the roles and
responsibilities within an organization. No matter what challenges that an organization faces, a
strategic operations management plan in place will ensure that employees’ workflow and
company production remain unaffected.
LEARNING OUTCOMES
After this lesson, students will be able to:
✓ Appreciate and learn the concept of operations management and the functions associated
with it.
✓ Describe the operations management for goods and services.
✓ Determine the challenges in achieving sustainable production while ensuring the
company’s ethical and social responsibilities.
COURSE MATERIALS
Introduction to Operations Management
• What is operations?
The part of a business organization that is responsible for producing goods or
services
• How can we define operations management?
The management of systems or processes that create goods and/or provide
services.
• Scope of Operations Management
The scope of operations management ranges across the organization.
The operations function includes many interrelated activities such as:
➢ Forecasting
➢ Capacity planning
➢ Scheduling
➢ Managing inventories
➢ Assuring quality
➢ Motivating employees
➢ Deciding where to locate facilities
➢ And more
Organization
Page 8 of 156
Marketing refers to activities a company undertakes to promote the buying or selling of a product
or service. Marketing includes advertising, selling, and delivering products to consumers or other
businesses. Some marketing is done by affiliates on behalf of a company. (Source:
Investopedia.com)
Financial Management means planning, organizing, directing and controlling the financial
activities such as procurement and utilization of funds of the enterprise. It means applying general
management principles to financial resources of the enterprise. (Source:
Managementstudyguide.com)
Historical Development
Industrial Revolution
Pre-Industrial Revolution
➢ Craft production - System in which highly skilled workers use simple, flexible tools
to produce small quantities of customized goods
• Some key elements of the industrial revolution
➢ Began in England in the 1770s
➢ Division of labor - Adam Smith, 1776
➢ Application of the “rotative” steam engine, 1780s
➢ Cotton Gin and Interchangeable parts - Eli Whitney, 1792
• Management theory and practice did not advance appreciably during this period
Scientific Management
• The human relations movement emphasized the importance of the human element in job
design
Page 9 of 156
➢ Lillian Gilbreth
➢ Elton Mayo – Hawthorne studies on worker motivation, 1930
➢ Abraham Maslow – motivation theory, 1940s; hierarchy of needs, 1954
➢ Frederick Hertzberg – Two Factor Theory, 1959
➢ Douglas McGregor – Theory X and Theory Y, 1960s
➢ William Ouchi – Theory Z, 1981
Page 10 of 156
Goods-service Continuum
• Products are typically neither purely service- or purely goods-based.
Page 11 of 156
Managing Services is Challenging
1. Jobs in services are often less structured than in manufacturing
2. Customer contact is generally much higher in services compared to manufacturing
3. In many services, worker skill levels are low compared to those of manufacturing
employees
4. Services are adding many new workers in low-skill, entry-level positions
5. Employee turnover is high in services, especially in low-skill jobs
6. Input variability tends to be higher in many service environments than in manufacturing
7. Service performance can be adversely affected by many factors outside of the manager’s
control (e.g., employee and customer attitudes)
Supply Chain
• Supply Chain – a sequence of activities and organizations involved in producing and
delivering a good or service.
Page 12 of 156
➢ Oscillating inventory levels
➢ Inventory stockouts
➢ Late deliveries
➢ Quality problems
Concept of Production
Production System
The production system is ‘that part of an organization, which produces products of an
organization. It is that activity whereby resources, flowing within a defined system, are combined
and transformed in a controlled manner to add value in accordance with the policies
communicated by management’.
Page 13 of 156
A simplified production system is shown below:
Page 14 of 156
Objectives of Operations Management can be categorized into Customer Service and
Resource Utilization.
Customer Service. The first objective of operating systems is to utilize resources for the
satisfaction of customer wants. Therefore, customer service is a key objective of operations
management. The operating system must provide something to a specification, which can satisfy
the customer in terms of cost and timing. Thus, providing the ‘right thing at a right price at the right
time’ can satisfy primary objective.
These aspects of customer service – specification, cost and timing – are described for four
functions in Exhibit 1.7. They are the principal sources of customer satisfaction and must therefore
be the principal dimension of the customer service objective for operations managers.
Generally, an organization will aim reliably and consistently to achieve certain standards
and operations manager will be influential in attempting to achieve these standards. Hence, this
objective will influence the operations manager’s decisions to achieve the required customer
service.
Page 15 of 156
the extent to which the potential or capacity of such resources is utilized. This is referred as the
objective of resource utilization.
Operations management is concerned with the achievement of both satisfactory customer
service and resource utilization. An improvement in one will often give rise to deterioration in the
other. Often both cannot be maximized, and hence a satisfactory performance must be achieved
on both objectives. All the activities of operations management must be tackled with these two
objectives in mind, and because of this conflict, operations managers will face many of the
problems. Hence, operations managers must attempt to balance these basic objectives.
The Exhibit 1.8 summarizes the twin objectives of operations management. The type of
balance established both between and within these basic objectives will be influenced by market
considerations, competitions, the strengths and weaknesses of the organization, etc. Hence, the
operations managers should make a contribution when these objectives are set.
Page 16 of 156
The Decline in Manufacturing Employment
• Productivity
- Increasing productivity allows companies to maintain or increase their output
using fewer workers
• Outsourcing
- Some manufacturing work has been outsourced to more productive companies
• A Statistical Artifact
- Manufacturers are increasingly using contract and temporary labor which no
longer show up in the statistics as manufacturing employment
Decision Making
• Most operations decisions involve many alternatives that can have quite different impacts
on costs or profits
• Typical operations decisions include:
➢ What: What resources are needed, and in what amounts?
➢ When: When will each resource be needed? When should the work be scheduled?
When should materials and other supplies be ordered?
➢ Where: Where will the work be done?
➢ How: How will he product or service be designed? How will the work be done?
How will resources be allocated?
➢ Who: Who will do the work?
Understanding Models
Benefits of Models
• Models are generally easier to use and less expensive than dealing with the real system
• Require users to organize and sometimes quantify information
• Increase understanding of the problem
Page 17 of 156
• Enable managers to analyze “What if?” questions
• Serve as a consistent tool for evaluation and provide a standardized format for analyzing
a problem
• Enable users to bring the power of mathematics to bear on a problem.
Model Limitations
• Quantitative information may be emphasized at the expense of qualitative information
• Models may be incorrectly applied and the results misinterpreted
- This is a real risk with the widespread availability of sophisticated,
computerized models are placed in the hands of uninformed users.
• The use of models does not guarantee good decisions.
Quantitative Methods
A decision-making approach that frequently seeks to obtain a mathematically optimal
solution
• Linear programming
• Queuing techniques
• Inventory models
• Project models
• Forecasting techniques
• Statistical models
Performance Metrics
- All managers use metrics to manage and control operations
• Profits
• Costs
• Productivity
• Forecast accuracy
•
Analysis of Trade-Offs
- A trade-off is giving up one thing in return for something else
• Carrying more inventory (an expense) in order to achieve a greater level of customer
service
Degree of Customization
Relative to other standardized products and services customized products:
• Tend to be more labor intensive
• Tend to be more time consuming
• Tend to require more highly-skilled people
• Tend to require more flexible equipment
• Have much lower volume of output
• Have higher price tags
Degree of customization has a significant influence on the entire organization
• Process selection
• Job design
• Affects marketing, sales, accounting, finance, and information systems
Page 18 of 156
Establishing Priorities
1. In nearly all cases, certain issues or items are more important than others
2. Recognizing this allows managers to focus their attention to those efforts that will do the
most good
ACTIVITIES/ASSESSMENT
Page 19 of 156
LESSON 2 – THE GLOBAL ENVIRONMENT AND OPERATIONS
STRATEGY
OVERVIEW
LEARNING OUTCOME
After the end of this lesson, students will be able to:
✓ Analyze the operations strategy applicable to a global business environment.
Competitiveness:
How effectively an organization meets the wants and needs of customers relative to others that
offer similar goods or services
– Organizations compete through some combination of their marketing and operations
functions
• What do customers want?
• How can these customer needs best be satisfied?
Marketing’s Influence
• Identifying consumer wants and/or needs
• Pricing
• Advertising and promotion
Page 20 of 156
• Failing to establish good internal communications and cooperation
• Failing to consider customer wants and needs
Hierarchical Planning
Vision
Mission
Goals
Organizational Strategies
Functional Strategies
Tactics
Vision- how the company sees itself in the future.
- the vision statement describes the company’s future
Mission- the reason for an organization’s existence
- the mission statement states the purpose of the organization
- the mission statement should answer the question of “What business are
we in?”
- the mission statement serves as the basis for organizational goals
Goals
– provide detail and the scope of the mission
– can be viewed as organizational destinations
– goals serve as the basis for organizational strategies
– Organizations have
• Organizational strategies
– Overall strategies that relate to the entire organization
Page 21 of 156
– Support the achievement of organizational goals and mission
• Functional level strategies
– Strategies that relate to each of the functional areas and that support
achievement of the organizational strategy
Tactics and Operations
• Tactics
– The methods and actions taken to accomplish strategies
– The “how to” part of the process
• Operations
– The actual “doing” part of the process
Core Competencies
• Core Competencies
The special attributes or abilities that give an
organization a competitive edge
• To be effective core competencies and strategies need to be aligned
Strategy Formulation
• Effective strategy formulation requires taking into account:
– Core competencies
– Environmental scanning
• SWOT
• Successful strategy formulation also requires taking into account:
– Order qualifiers
– Order winners
• Order qualifiers
– Characteristics that customers perceive as minimum standards of acceptability to be
considered as a potential purchase
• Order winners
– Characteristics of an organization’s goods or services that cause it to be perceived as
better than the competition
Environmental Scanning
• Environmental Scanning is necessary to identify
– Internal Factors
• Strengths and Weaknesses
– External Factors
• Opportunities and Threats
Page 22 of 156
• Legal environment
• Technology
• Competition
• Markets
• Operations strategy
– The approach, consistent with organization strategy, that is used to guide the
operations function.
Product and service design Costs, quality, liability, and environmental issues
Process selection and layout Costs, flexibility, skill level needed, capacity
Page 23 of 156
Quality-based strategy
– Strategy that focuses on quality in all phases of an organization
• Pursuit of such a strategy is rooted in a number of factors:
– Trying to overcome a poor-quality reputation
– Desire to maintain a quality image
– A part of a cost reduction strategy
Time-based strategies
– Strategies that focus on the reduction of time needed to accomplish tasks
• It is believed that by reducing time, costs are lower, quality is higher, productivity
is higher, time-to-market is faster, and customer service is improved
Time-Based Strategies
Areas where organizations have achieved time reductions:
– Planning time
– Product/service design time
– Processing time
– Changeover time
– Delivery time
– Response time for complaints
Agile operations
– A strategic approach for competitive advantage that emphasizes the use of flexibility to
adapt and prosper in an environment of change
• Involves the blending of several core competencies:
– Cost
– Quality
– Reliability
– Flexibility
Page 24 of 156
The Balanced Scorecard
Productivity
– A measure of the effective use of resources, usually expressed as the ratio of output to
input
–
• Productivity measures are useful for
– Tracking an operating unit’s performance over time
– Judging the performance of an entire industry or country
Page 25 of 156
Improving Productivity
1. Develop productivity measures for all operations
2. Determine critical (bottleneck) operations
3. Develop methods for productivity improvements
4. Establish reasonable goals
5. Make it clear that management supports and encourages productivity improvement
6. Measure and publicize improvements
Don’t confuse productivity with efficiency.
ACTIVITIES/ASSESSMENT
Page 26 of 156
LESSON 3 – MANAGING PROJECTS
OVERVIEW
LEARNING OUTCOME
• Projects
– Unique, one-time operations designed to accomplish a specific set of objectives
in a limited time frame
Examples:
• The Olympic Games
• Producing a movie
• Software development
• Product development
• ERP implementation
Page 27 of 156
Project Manager
• The project manager is ultimately responsible for the success or failure of the project
• The project manager must effectively manage:
– The work
– The human resources
– Communications
– Quality
– Time
– Costs
Gantt Chart
- a management technique for scheduling and planning small projects. It is a graph or bar chart
enumerating the different activities and the time for each activity in the project.
Page 28 of 156
Program Evaluation and Review technique (PERT) and Critical Path Method
(CPM)
PERT and CPM are two techniques used to manage large-scale projects
• Managers can obtain:
1. A graphical display of project activities
2. An estimate of how long the project will take
3. An indication of which activities are most critical to timely project completion
4. An indication of how long any activity can be delayed without delaying the project
Advantages:
• Among the most useful features of PERT-CPM:
1. It forces the manager to organize and quantify available information and to
identify where additional information is needed
2. It provides a graphic display of the project and its major activities
3. It identifies
a. Activities that should be closely watched
b. Activities that have slack time
Page 29 of 156
Project Management Software
• Technology has benefited project management
– CAD
• To produce updated prototypes on construction and product-development
projects
– Communication software
• Helps to keep project members in close contact
• Facilitates remote viewing of projects
ACTIVITIES/ASSESSMENT
Describe the different project management techniques to guide project managers in the
implementation of projects.
Page 30 of 156
LESSON 4 – FORECASTING DEMAND
OVERVIEW
Forecasts are important basis for budgetary planning and cost control. Good forecasts are
an essential part of efficient service and manufacturing operations. In this chapter, different
types and models of forecasts are presented. Production and operations personnel use
forecast to make periodic and continual decisions in the organization. Qualitative and
quantitative techniques will be presented in this chapter.
LEARNING OUTCOMES
After the end of this lesson, students will be able to:
✓ Describe forecasting and determine the elements of a good forecast.
✓ Identify the importance of forecasting in making decisions.
COURSE MATERIALS
Forecasting
1. Techniques assume some underlying causal system that existed in the past will persist into
the future
2. Forecasts are not perfect
3. Forecasts for groups of items are more accurate than those for individual items
4. Forecast accuracy decreases as the forecasting horizon increases
The forecast:
• should be timely
• should be accurate
• should be reliable
• should be expressed in meaningful units
• should be in writing
Page 31 of 156
• technique should be simple to understand and use
• should be cost effective
Forecasting Approaches
• Qualitative Forecasting
– Qualitative techniques permit the inclusion of soft information such as:
• Human factors
• Personal opinions
• Hunches
– These factors are difficult, or impossible, to quantify
• Quantitative Forecasting
– Quantitative techniques involve either the projection of historical data or the
development of associative methods that attempt to use causal variables to make a
forecast
– These techniques rely on hard data
Page 32 of 156
Judgmental Forecasts
• Forecasts that use subjective inputs such as opinions from consumer surveys, sales staff,
managers, executives, and experts
– Executive opinions
– Salesforce opinions
– Consumer surveys
– Delphi method
Time-Series Forecasts
• Forecasts that project patterns identified in recent time-series observations
Time-Series Behaviors
• Trend
• Seasonality
• Cycles
• Irregular variations
• Random variation
• Trend
– A long-term upward or downward movement in data
• Population shifts
• Changing income
• Seasonality
– Short-term, fairly regular variations related to the calendar or time of day
– Restaurants, service call centers, and theaters all experience seasonal demand
• Cycle
– Wavelike variations lasting more than one year
• These are often related to a variety of economic, political, or even agricultural
conditions
• Random Variation
– Residual variation that remains after all other behaviors have been accounted for
Page 33 of 156
• Irregular variation
– Due to unusual circumstances that do not reflect typical behavior
• Labor strike
• Weather event
• Naïve Forecast
– Uses a single previous value of a time series as the basis for a forecast
• The forecast for a time period is equal to the previous time period’s value
– Can be used when
• The time series is stable
• There is a trend
• There is seasonality
Moving Average
• Technique that averages a number of the most recent actual values in generating a forecast
Moving Average
• As new data become available, the forecast is updated by adding the newest value and
dropping the oldest and then recomputing the the average
• The number of data points included in the average determines the model’s sensitivity
– Fewer data points used-- more responsive
– More data points used-- less responsive
Page 34 of 156
Weighted Moving Average
• The most recent values in a time series are given more weight in computing a forecast
– The choice of weights, w, is somewhat arbitrary and involves some trial and error
Exponential Smoothing
• A weighted averaging method that is based on the previous forecast plus a percentage of
the forecast error
Page 35 of 156
• Non-linear trends
– Parabolic trend equation
– Exponential trend equation
– Growth curve trend equation
Page 36 of 156
• Done in order to get a clearer picture of the nonseasonal components of the data
series
• Divide each data point by its seasonal relative
– To incorporate seasonality in a forecast
• Obtain trend estimates for desired periods using a trend equation
• Add seasonality by multiplying these trend estimates by the corresponding
seasonal relative
Page 37 of 156
Standard Error
• Standard error of estimate
– A measure of the scatter of points around a regression line
– If the standard error is relatively small, the predictions using the linear equation will
tend to be more accurate than if the standard error is larger
Correlation Coefficient
• Correlation
– A measure of the strength and direction of relationship between two variables
– Ranges between -1.00 and +1.00
• r2, square of the correlation coefficient
– A measure of the percentage of variability in the values of y that is “explained” by the
independent variable
– Ranges between 0 and 1.00
Issues to consider:
• Always plot the line to verify that a linear relationships is appropriate
• The data may be time-dependent.
– If they are
• use analysis of time series
• use time as an independent variable in a multiple regression analysis
• A small correlation may indicate that other variables are important
Page 38 of 156
• Proactive approach
– Seeks to actively influence demand
• Advertising
• Pricing
• Product/service modifications
– Generally requires either and explanatory model or a subjective assessment of the
influence on demand
ACTIVITIES/ASSESSMENT
Answer the following: (15 pts.)
1. What is forecasting?
2. What are the elements of a good forecast?
3. Why is forecasting important in making decisions?
Page 39 of 156
LESSON 5 - PRODUCT DESIGN
OVERVIEW
An effective product strategy links product decision with investment, market share, and
product life cycle, and defines the breadth of the production line. The objective of the product
decision is to develop and implement a product strategy that meets the demands of the
marketplace with a competitive advantage via differentiation, low cost, rapid response, or a
combination of these.
LEARNING OUTCOME
At the end of this lesson, students will be able to:
✓ Determine the interrelatedness of the product design to a successful operations
strategy.
COURSE MATERIALS
Product and Service Design
Reasons Design or Re-Design
• The driving forces for product and service design or redesign are market opportunities or
threats:
– Economic
– Social and Demographic
– Political, Liability, or Legal
– Competitive
– Cost or Availability
– Technological
Key Questions
• Is there a demand for it?
– Market size
– Demand profile
• Can we do it?
– Manufacturability - the capability of an organization to produce an item at an
acceptable profit
– Serviceability - the capability of an organization to provide a service at an acceptable
cost or profit
• What level of quality is appropriate?
– Customer expectations
– Competitor quality
– Fit with current offering
Page 40 of 156
• Does it make sense from an economic standpoint?
– Liability issues, ethical considerations, sustainability issues, costs and profits
Legal Considerations
– Product liability
• The responsibility a manufacturer has for any injuries or damages caused by as
faulty product
• Some of the concomitant costs
– Litigation
– Legal and insurance costs
– Settlement costs
– Costly product recalls
– Reputation effects
– Uniform Commercial Code
• Under the UCC, products carry an implication of merchantability and fitness
Normative Behavior
• Produce designs that are consistent with the goals of the organization
– e.g., Do not compromise on quality, or cut corners, even in areas that are not apparent
to the customer
• Give customers the value they expect
• Make health and safety a concern
– Do not place employees, customers, or third parties at risk because of faulty products
and services
Sustainability
– Using resources in ways that do not harm ecological systems that support human
existence
• Key aspects of designing for sustainability
– Life cycle assessment
– Reduction of costs and materials used
– Re-using parts of returned products
– Recycling
Page 41 of 156
Life Cycle Assessment (LCA)
• LCA
– The assessment of the environmental impact of a product or service throughout its
useful life
• Focuses on such factors as
– Global warming
– Smog formation
– Oxygen depletion
– Solid waste generation
• LCA procedures are part of the ISO 14000 environmental management
procedures
Re-Use: Remanufacturing
• Remanufacturing
– Refurbishing used products by replacing worn-out or defective components
• Can be performed by the original manufacturer or another company
– Design for disassembly (DFD)
• Designing a product to that used products can be easily taken apart
Recycle
• Recycling
– Recovering materials for future use
• Applies to manufactured parts
• Also applies to materials used during production
– Why recycle?
• Cost savings
• Environmental concerns
Page 42 of 156
• Environmental regulations
– Design for recycling (DFR)
• Product design that takes into account the ability to disassemble a used product
to recover the recyclable parts
Other Considerations
• Product or service life cycles
• Standardization
• Product or service reliability
• Product or service robustness
Standardization
– Extent to which there is an absence of variety in a product, service, or process
Advantages of Standardization
1. Fewer parts to deal with in inventory & manufacturing
6. Need for fewer parts justifies increased expenditures on perfecting designs and improving
quality control procedures
Page 43 of 156
Disadvantages of Standardization
1. Designs may be frozen with too many imperfections remaining.
Delayed Differentiation
• Delayed Differentiation
– The process of producing, but not quite completing, a product or service until customer
preferences are known
– It is a postponement tactic
• Produce a piece of furniture, but do not stain it; the customer chooses the stain
Modular Design
– A form of standardization in which component parts are grouped into modules that are
easily replaced or interchanged
• Advantages
– easier diagnosis and remedy of failures
– easier repair and replacement
– simplification of manufacturing and assembly
• Disadvantages
– Limited number of possible product configurations
– Limited ability to repair a faulty module; the entire module must often
be scrapped
Reliability
– The ability of a product, part, or system to perform its intended function under a
prescribed set of conditions
– Failure
• Situation in which a product, part, or system does not perform as intended
Page 44 of 156
– Normal operating conditions
• The set of conditions under which an item’s reliability is specified
Robust design
– A design that results in products or services that can function over a broad range of
conditions
– Pertains to product as well as process design
Idea Generation
1. Supply-chain based
2. Competitor based
3. Research based
Page 45 of 156
Supply-Chain Based
• Ideas can come from anywhere in the supply chain:
– Customers
– Suppliers
– Distributors
– Employees
– Maintenance and repair personnel
Competitor-Based
• By studying how a competitor operates and its products and services, many useful ideas
can be generated
• Reverse engineering
– Dismantling and inspecting a competitor’s product to discover product improvements
Research Based
• Research and Development (R&D)
– Organized efforts to increase scientific knowledge or product innovation
– Basic research
• Has the objective of advancing the state of knowledge about a subject without
any near-term expectation of commercial applications
– Applied research
• Has the objective of achieving commercial applications
– Development
• Converts the results of applied research into useful commercial applications.
Page 46 of 156
Concurrent Engineering
• Concurrent engineering
– Bringing engineering design and manufacturing personnel together early in the design
phase
• Also may involve marketing and purchasing personnel
• Views of suppliers and customers may also be sought
Production Requirements
• Designers must take into account production capabilities
– Equipment
– Skills
– Types of materials
– Schedules
– Technologies
Manufacturability
– Ease of fabrication and/or assembly
– It has important implications for
• Cost
• Productivity
• Quality
Page 47 of 156
• Design for assembly (DFA)
– Design that focuses on reducing the number of parts in a product and on assembly
methods and sequence
Component Commonality
• When products have a high degree of similarity in features and components, a part can be
used in multiple products
• Benefits:
– Savings in design time
– Standard training for assembly and installation
– Opportunities to buy in bulk from suppliers
– Commonality of parts for repair
– Fewer inventory items must be handled
Page 48 of 156
Kano Model
• Basic quality
– Refers to customer requirements that have only limited effect on customer satisfaction
if present, but lead to dissatisfaction if absent
• Performance quality
– Refers to customer requirements that generate satisfaction or dissatisfaction in
proportion to their level of functionality and appeal
• Excitement quality
– Refers to a feature or attribute that was unexpected by the customer and causes
excitement
Service Design Definitions
• Service
– Something that is done to, or for, a customer
• Service delivery system
– The facilities, processes, and skills needed to provide a service
• Product bundle
– The combination of goods and services provided to a customer
Service Design
• Begins with a choice of service strategy, which determines the nature and focus of the
service, and the target market
– Key issues in service design
• Degree of variation in service requirements
• Degree of customer contact and involvement
Service Blueprint
Page 49 of 156
Reliability
• Reliability
– The ability of a product, part, or system to perform its intended function under a
prescribed set of conditions
– Reliability is expressed as a probability:
• The probability that the product or system will function when activated
• The probability that the product or system will function for a given length of time
Availability
• Availability
– The fraction of time a piece of equipment is expected to be available for operation
ACTIVITIES/ASSESSMENT
Answer the following: (20 pts.)
1. What is the most important driving force for product design or redesign? Why?
2. How often do you think should a company engage in newness of their product? Why?
Page 50 of 156
LESSON 6 – QUALITY MANAGEMENT
OVERVIEW
LEARNING OUTCOMES
At the end of this lesson, students will be able to:
✓ Discuss and appreciate the importance of quality to the whole organization
✓ Identify the benefits of good quality to goods and services.
Course materials
Quality Management
• Quality
– The ability of a product or service to consistently meet or exceed customer expectations
• Prior to the 1970s and 1980s, quality was not a focal point of U.S. companies
• Foreign competition, due in part to a focus on quality, was able to capture
significant shares of U.S. markets
• Since the 1980s, quality has been increasingly embraced by U.S. executives
Quality Contributors
• Walter Shewart
– “Father of Statistical Quality Control”
– Control charts
– Variance reduction
• W. Edwards Deming
– Special vs. common cause variation
– The 14 points
• Joseph Juran
– Quality Control Handbook, 1951
– Viewed quality as fitness-for-use
– Quality trilogy– quality planning, quality control, quality improvement
• Armand Feigenbaum
– Quality is a “total field”
– The customer defines quality
• Philip B. Crosby
– Zero defects
Page 51 of 156
– Quality is Free, 1979
• Kaoru Ishikawa
– Cause-and-effect diagram
– Quality circles
– Recognized the internal customer
• Genichi Taguchi
– Taguchi loss function
• Taiichi Ohno and Shigeo Shingo
– Developed philosophy and methods of kaizen
• Quality Assurance
– Reactive
– Emphasis is on finding and correcting defects before they reach the market
• Strategic Approach
– Proactive
– Focuses on preventing mistakes from occurring
– Greater emphasis on customer satisfaction
– Involves all manager and workers in a continuing effort to improve quality
Page 52 of 156
2. Management perceptions customer expectations and service-quality specifications
3. Service quality and service actually delivered
4. Customers’ expectations of the service provider and their perceptions of provider
delivery
Determinants of Quality
• Quality of design
– Intention of designers to include or exclude features in a product or service
• Quality of conformance
– The degree to which goods or services conform to the intent of the designers
• Ease-of-Use and user instructions
– Increase the likelihood that a product will be used for its intended purpose and in such
a way that it will continue to function properly and safely
• After-the-sale service
– Taking care of issues and problems that arise after the sale
Costs of Quality
Page 53 of 156
• All costs incurred to fix problems that are detected after the product/service is
delivered to the customer
• Appraisal Costs
– Costs of activities designed to ensure quality or uncover defects
• Prevention Costs
– All TQ training, TQ planning, customer assessment, process control, and quality
improvement costs to prevent defects from occurring
Having knowledge of this and failing to correct and report it in a timely manner is
unethical.
Quality Awards
▪ Deming Prize
▪ EFQM Excellence Award
▪ Baldrige Award
Baldrige Criteria
I. Leadership (120 points)
– Senior leadership
– Governance and social responsibilities
II. Strategic planning (85 points)
– Strategy development
– Strategy deployment
III. Customer and market focus (85 points)
– Customer and market knowledge
– Customer relationships and satisfaction
IV. Measurement, Analysis, and Knowledge Management (90 points)
– Measurement, analysis, and improvement of organizational performance
– Management of information, information technology, and knowledge
V. Workforce focus (90 points)
– Workforce engagement
– Workforce environment
VI. Process management (85 points)
– Work systems design
– Work process management and improvement
VII. Results (450 points)
– Product and service outcomes
– Customer-focused outcomes
– Financial and market outcomes
– Workforce-focused outcomes
– Process effectiveness outcomes
– Leadership outcomes
Page 54 of 156
Quality Certification
International Organization for Standardization
• ISO 9000
– Set of international standards on quality management and quality assurance, critical to
international business
• ISO 14000
– A set of international standards for assessing a company’s environmental performance
• ISO 24700
– Pertains to the quality and performance of office equipment that contains reused
components
• ISO 9000: 2000
– Quality Principles:
• Principle 1 Customer focus
• Principle 2 Leadership
• Principle 3 Involvement of people
• Principle 4 Process approach
• Principle 5 System approach to management
• Principle 6 Continual improvement
• Principle 7 Factual approach to decision making
• Principle 8 Mutually beneficial supplier relationships
TQM Approach
1. Find out what the customer wants
2. Design a product or service that meets or exceeds customer wants
3. Design processes that facilitate doing the job right the first time
4. Keep track of results
5. Extend these concepts throughout the supply chain
TQM Elements
1. Continuous improvement
2. Competitive benchmarking
3. Employee empowerment
4. Team approach
5. Decision based on fact, not opinion
6. Knowledge of tools
7. Supplier quality
8. Champion
9. Quality at the source
10. Suppliers are partners in the process
Continuous Improvement
• Continuous Improvement
– Philosophy that seeks to make never-ending improvements to the process of converting
inputs into outputs
Page 55 of 156
– Kaizen
• Japanese word for continuous improvement.
Six Sigma
• Six Sigma
– A business process for improving quality, reducing costs, and increasing customer
satisfaction
– Statistically
• Having no more than 3.4 defects per million
– Conceptually
• Program designed to reduce defects
• Requires the use of certain tools and techniques
THE WHAT
Total Quality Management aims at continuous quality improvement of the product or
service offered by a business through continuous feedback.
Its simple objective is to do the right thing the first time, and every subsequent time so that
resources are not wasted fixing mistakes and broken processes.
Page 56 of 156
At this point of time you may feel that TQM in HR sets unrealistic expectations and
probably is too rigid.
But the philosophy piece is prominent too since Total Quality Management relies on the
truth that processes repeated for a long enough duration of time have the power to shape
culture.
The traditional top down approach first sets culture parameters and then trickles this
culture down from the C suite to the employees in the form of dos and don’ts.
Through Total Quality Management, the tables are turned. The processes and practices
which are being constantly tweaked based on data and feedback produce small changes
which accrue over time to positively impact culture and business vision.
This sets up an effective loop where culture and processes benefit from each other, the
nuts and bolts of ensuring customer satisfaction are regularly optimized and the business
can boldly prepare for the future.
THE WHY
Total Quality Management acknowledges the fact that where humans are involved, there
is always room for error.
But the rules that control processes should step in to compensate.
1. First and foremost, there should be provisions to ensure that mistakes are not made.
2. Second, if they do creep in, there should be a system to detect errors efficiently and swiftly.
3. Third, if an error is somehow propagated down the value chain, there must be authority
vested in individuals or processes to shut down the production flow so that more errors
aren’t added the mix resulting in faulty units or poor service delivery for future clients.
The three-pronged approach springboards off of mundane, well-defined processes.
But it also necessitates a culture of honest communication where each employee acts as
a sensor gathering feedback and using it to plug the holes in the current process set,
without fear of repercussions.
THE HOW
Total Quality Management stands on 8 key pillars.
1. Focus on Customer – Customers are the true North Star and barometer of a business.
In the TQM approach, customer sentiments and feedback are closely monitored through
call tracking and surveys.
2. Employee Involvement – Employees must understand why the obsession with
improvement ultimately gives them the freedom to innovate on their jobs. TQM not only
Page 57 of 156
boosts the financial health of a business, it also improves talent connectedness and
communication.
3. Process Centeredness – The 8 requirements are met by defining processes. There
should be processes to collect and integrate customer and employee feedback. There
should be distinct processes to course correct on the TQM journey by adjusting strategy
and tactics. And even a set of processes to measure the process centeredness of the
implementation.
4. Integrated Structure – Silos stymie Total Quality Management. As discussed, though the
concept advocates structure and processes, isolation is not favoured. Different
departments in the organization need to learn from each other and refine their processes
in collaboration.
5. Strategic Approach – Begin with the company vision and objectives to achieve. Set the
processes according to this overarching strategy. Then let the TQM changes manifest as
changes in culture, vision and objectives.
6. Clear Communication – Without clear, unhesitant communication between employees
and between a business and its customers, gathering authentic feedback and driving
improvements is impossible. In any power dynamic, the final say should be in favour of
the approach dictated by data and honest feedback.
7. Iterative Improvement – TQM is capable of ushering changes because when an
organizational sensor actually “senses” a gap, action is taken according to defined
processes and improvements are made to eliminate the errors. The best feedback loop is
useless if continuous improvement isn’t prioritized.
By now you realize that processes underpin the success of Total Quality Management.
The actual definition of these processes is governed by models like the Deming Way and
DMAIC process.
The Deming Way is also known as the Plan-Do-Check-(Re)Act (PDCA) cycle where
scheduled improvements are made, the impact measured and further changes planned
accordingly.
Page 58 of 156
Here’s why.
• Human Resource management makes the talent in an organization more receptive to the
suggestion of continuous improvement. Buy-in is crucial in the early stages of Total Quality
Management implementation. If employees feel that their freedom is being curtailed in any
way, or if they sense that their feedback may be viewed as being “adversarial” by the
management, TQM comes to a screeching halt.
• Human Resource Management gives employees the skills they need to be great TQM
sensors. This includes clear communication, parsing constructive criticism and feedback
from interactions with people of different cultures and backgrounds, overall better
productivity and strategic planning.
• The HR department is closely associated with the culture of an organization. It sets
boundaries, limits and incentivizes conformance with best practices. Total Quality
Management reshapes culture. So, without HRM and HR evangelism, TQM is just a
disruption and will never come across as the vehicle of enhanced employee freedom.
TQM advocates customer orientation, process management and leadership development.
This is the domain of HRM.
And HRM in return prepares employees to be better TQM practitioners.
The two are intertwined and both contribute to the overall competitiveness and morale
building of organizational talent.
5 Steps to Total Quality Management Implementation:
Total Quality Management works.
But since the process of permeation of improvement consciousness is delicate and time
consuming, some organizations are predisposed to be better TQM adopters.
Businesses that:
• Have a track record of quickly identifying external change
• Crafting a response plan
• Implementing the action steps
Are more likely to taste success with TQM.
In siloed and rigid organizations employee buy-in is difficult to build and scepticism
impedes progress.
Here are the 5 steps that must be taken to institute a culture of Total Quality Management:
1⃣ Management Audit
Total Quality Management is a journey of going from where a business and its processes
are, to where it would ideally like to be. The very first item on the agenda of TQM
implementation is thus a management audit to take full inventory of the processes that do
exist, the results they yield and what gaps have already been identified.
Page 59 of 156
trained employees who understand that every interaction with the brand is a chance to
cement customer loyalty and thus follow-up with a review request.
Once the feedback is received, it has to be processed. Positive indications are used to
strengthen what the brand already does well. Negative inputs open up new areas of
improvement.
The what, why, who and how of meeting the 8 requirements have to be crystal clear.
4⃣ Being Data-driven
Data doesn’t lie.
Often the feedback collected from customers and employees shake the status quo.
Change isn’t easy and TQM is all about constant change. The discipline to never avoid
data advocated shifts – no matter how uncomfortable they are – is the fourth and
penultimate step in the process.
5⃣ Being Relentless
Last but not the least, an organization has to relentlessly keep “doing”. No change is
insignificant and making improvements in small but consistent steps is what brings the
real benefits of TQM.
Total Quality Management done right is done for the lifetime of the employees who
embrace it.
Something that has such far reaching effect should be given a great deal of time and
thought during and after implementation.
Having the HR department and the employees onboard is non-negotiable. (Norberts)
PDSA Cycle
• Plan-Do-Study-Act (PDSA) Cycle
– Plan
• Begin by studying and documenting the current process.
• Collect data on the process or problem
• Analyze the data and develop a plan for improvement
• Specify measures for evaluating the plan
– Do
• Implement the plan, document any changes made, collect data for analysis
– Study
• Evaluate the data collection during the do phase
• Check results against goals formulated during the plan phase
– Act
• If the results are successful, standardize the new method and communicate it to
the relevant personnel
• Implement training for the new method
• If unsuccessful, revise the plan and repeat the process
Page 60 of 156
Problem Solving
Process Improvement
• Process Improvement
– A systematic approach to improving a process
Page 61 of 156
Basic Quality Tools
Quality Circles
• Quality Circles
– Groups of workers who meet to discuss ways of improving products or processes
• Less structured and more informal than teams involved in continuous improvement
• Quality circle teams have historically had relatively little authority to make any but
the most minor changes
– Work best when decisions are based on consensus
• Methods:
– List reduction
– Balance sheet approach
– Paired comparisons
Benchmarking Process
• Identify a critical process that needs improving
Page 62 of 156
• Identify an organization that excels in this process
• Contact that organization
• Analyze the data
• Improve the critical process
5W2H
Quality Control
• Inspection
– An appraisal activity that compares goods or services to a standard
– Inspection issues:
1. How much to inspect and how often?
2. At what points in the process to inspect?
3. Whether to inspect in a centralized or on-site location?
4. Whether to inspect attributes or variables?
Page 63 of 156
How Much to Inspect?
Process Variability
• Two basic questions: concerning variability:
1. Are the variations random?
• Process control
2. Given a stable process, is the inherent variability of the process within a range that
conforms to performance criteria
• Process capability
Page 64 of 156
• Variation
– Random (common cause) variation:
• Natural variation in the output of a process, created by countless minor factors
– Assignable (special cause) variation:
• A variation whose cause can be identified
Control Process
• Sampling and corrective action are only a part of the control process
• Steps required for effective control:
– Define
– Measure
– Compare
– Evaluate
– Correct
– Monitor
ACTIVITIES/ASSESSMENT
1. What is quality?
2. Why is quality important to an organization?
Page 65 of 156
LESSON 7 - PROCESS DESIGN
OVERVIEW
Layout is one of the key decisions that determines the long-run efficiency of operations.
Layout has numerous strategic implications because it establishes an organization’s
competitive priorities in regard to capacity, processes, flexibility, and cost, as well as quality
of work life, customer contact, and image. An effective layout can help an organization achieve
a strategy that supports differentiation, low cost, or response.
LEARNING OUTCOME
After the end of this lesson, students will be able to:
✓ Appreciate the importance of process strategies in producing quality goods and
services.
COURSE MATERIALS
Process Selection and Facilities Layout
Process Selection
• Process selection
– Refers to the deciding on the way production of goods or services will be organized
– It has major implications for
• Capacity planning
• Layout of facilities
• Equipment
• Design of work systems
Page 66 of 156
Process Strategy
• Key Aspects of Process Strategy:
– Capital Intensity
• The mix of equipment and labor that will be used by the organization
– Process flexibility
• The degree to which the system can be adjusted to changes in processing
requirements due to such factors as
– Product and service design changes
– Volume changes
– Changes in technology
Technology
• Technology
– The application of scientific discoveries to the development and improvement of
products and services and operations processes
• Technological Innovation
– The discovery and development of new or improved products, services, or processes
for producing or providing them
Kinds of Technology
• Operations Management is concerned with:
– Product and service technology
• Discovery and development of new products and services
– Process technology
• Methods, procedures, and equipment used to produce goods and provide
services
– Information technology
• The science and use of computers and other electronic equipment to store,
process, and send information
Page 67 of 156
Process Selection
1. Variety
– How much?
2. Equipment flexibility
– To what degree?
3. Volume
– Expected output?
Types of Processing
Page 68 of 156
Product-Process Matrix
Page 69 of 156
Automation
– Machinery that has sensing and control devices that enable it to operate automatically
• Fixed automation
• Programmable automation
• Flexible automation
Automation Questions
1. What level of automation is appropriate?
2. How would automation affect system flexibility?
3. How can automation projects be justified?
4. How should changes be managed?
5. What are the risks of automating?
6. What are the likely effects of automating on:
– Market share
– Costs
– Quality
– Customer satisfaction
– Labor relations
– Ongoing operations
ACTIVITIES/ASSESSMENT
Answer the following: (15 pts.)
Why are process strategies important in producing quality goods and services?
Page 70 of 156
LESSON 8 – LOCATION DECISIONS
OVERVIEW
Firms throughout the world are using concepts and techniques to address the location
decision because location greatly affects both fixed and variable costs. Location has a major
impact on the overall risk and profit of the company. This chapter illustrates techniques
organization use to locate plants, warehouses, store and office.
LEARNING OUTCOME
After the end of this lesson, students will be able to:
✓ Appreciate and discuss the importance of strategic location in operations
management.
COURSE MATERIALS
The Need for Location Decisions
Page 71 of 156
are important
• Middle: locate near suppliers or markets
• Beginning: locate near the source of raw materials
– Web-based retail organizations are effectively location independent
– Supply chain management issues such as supply chain configuration
• Centralized vs. decentralized distribution
Location: Options
• Existing companies generally have four options available in location planning:
1. Expand an existing facility
2. Add new locations while retaining existing facilities
3. Shut down one location and move to another
4. Do nothing
Page 72 of 156
Global Location: Benefits
• A wide range of benefits have accrued to organizations that have globalized operations:
– Markets
– Cost savings
– Legal and regulatory
– Financial
– Other
Page 73 of 156
Location: Identifying a Country
– Labor factors
• Cost of labor
• Availability of suitably skilled workers
• Wage rates in the area
• Labor productivity
• Attitudes toward work
• Whether unions pose a serious potential problem
– Other factors
• Climate and taxes may play an important role in location decisions
Page 74 of 156
Geographic Information System (GIS)
• GIS
– A computer-based tool for collecting, storing, retrieving, and displaying demographic
data on maps
– Aids decision makers in
• Targeting market segments
• Identifying locations relative to their market potential
• Planning distribution networks
– Portraying relevant information on a map makes it easier for decision makers to
understand
Page 75 of 156
– Process plant strategy
• Different plants focus on different aspects of a process
– automobile manufacturers – engine plant, body stamping plant, etc.
• Coordination across the system becomes a significant issue
– General-purpose plant strategy
• Plants are flexible and capable of handling a range of products
Page 76 of 156
Locational Cost-Profit-Volume Analysis
• For a cost analysis, compute the total cost for each alternative location:
Factor Rating
• Factor Rating
– General approach to evaluating locations that includes quantitative and qualitative
inputs
Procedures:
1. Determine which factors are relevant
2. Assign a weight to each factor that indicates its relative importance compared with
all other factors.
• Weights typically sum to 1.00
3. Decide on a common scale for all factors, and set a minimum acceptable score if
necessary
4. Score each location alternative
5. Multiply the factor weight by the score for each factor, and sum the results for each
location alternative
6. Choose the alternative that has the highest composite score, unless it fails to meet
the minimum acceptable score
Page 77 of 156
ACTIVITIES/ASSESSMENT
Answer the following question: (15pts)
Discuss the importance of strategic location in operations management.
Page 78 of 156
LESSON 9 – LAYOUT DECISIONS
OVERVIEW
Layout is one of the key decisions that determines the long-run efficiency of operations.
Layout has numerous strategic implications because it establishes an organization’s
competitive priorities in regard to capacity, processes, flexibility, and cost, as well as quality
of work life, customer contact, and image. An effective layout can help an organization achieve
a strategy that supports differentiation, low cost, or response.
LEARNING OUTCOME
After the end of this lesson, students will be able to:
✓ Demonstrate ability to discuss different lay out decisions and the underlying factors
of considering them.
COURSE MATERIALS
Facilities Layout
• Layout
– the configuration of departments, work centers, and equipment, with particular
emphasis on movement of work (customers or materials) through the system
– Facilities layout decisions arise when:
• Designing new facilities
• Re-designing existing facilities
Page 79 of 156
Layout Design Objectives
• Basic Objective
– Facilitate a smooth flow of work, material, and information through the system
• Supporting objectives
– Facilitate product or service quality
– Use workers and space efficiently
– Avoid bottlenecks
– Minimize material handling costs
– Eliminate unnecessary movement of workers or material
– Minimize production time or customer service time
– Design for safety
Repetitive Processing
Product Layouts
• Product layout
– Layout that uses standardized processing operations to achieve smooth, rapid, high-
volume flow
Page 80 of 156
• Established routing and scheduling
• Routine accounting, purchasing, and inventory control
Page 81 of 156
• Special attention for each product or customer
• Accounting and purchasing are more involved
Combination Layouts
• Some operational environments use a combination of the three basic layout types:
– Hospitals
– Supermarket
– Shipyards
• Some organizations are moving away from process layouts in an effort to capture the
benefits of product layouts
– Cellular manufacturing
– Flexible manufacturing systems
Page 82 of 156
Computer Integrated Manufacturing (CIM)
• CIM
– A system for linking a broad range of manufacturing activities through an integrated
computer system
• Activities include
– Engineering design
– FMS
– Purchasing
– Order processing
– Production planning and control
Service Layout
• Service layouts can be categorized as: product, process, or fixed position
• Service layout requirements are somewhat different due to such factors as:
– Degree of customer contact
– Degree of customization
• Common service layouts:
– Warehouse and storage layouts
– Retail layouts
– Office layouts
Line Balancing
• Line balancing
– The process of assigning tasks to workstations in such a way that the workstations
have approximately equal time requirements
– Why is line balancing important?
1. It allows us to use labor and equipment more efficiently.
2. To avoid fairness issues that arise when one workstation must work harder
than another.
Cycle Time
• Cycle time
– The maximum time allowed at each workstation to complete its set of tasks on a unit
– Cycle time also establishes the output rate of a line
Page 83 of 156
How Many Workstations are Needed?
• The required number of workstations is a function of
– Desired output rate
– Our ability to combine tasks into a workstation
• Theoretical minimum number of stations
Precedence Diagram
• Precedence diagram
– A diagram that shows elemental tasks and their precedence requirements
Page 84 of 156
Measuring Effectiveness
• Balance delay (percentage of idle time)
– Percentage of idle time of a line
• Efficiency
– Percentage of busy time of a line
Information Requirements
• In designing process layouts, the following information is required:
– A list of departments to be arranged and their dimensions
– A projection of future workflows between the pairs of work centers
– The distance between locations and the cost per unit of distance to move loads
between them
– The amount of money to be invested in the layout
– A list of any special considerations
– The location of key utilities, access and exit points, etc.
ACTIVITIES/ASSESSMENT
Page 85 of 156
LESSON 10 – JOB DESIGN AND WORK MEASUREMENT
OVERVIEW
By reasonable quality of work life, we mean a job that is not only reasonably safe and for
which the pay is equitable but that also achieves an appropriate level of both physical and
psychological requirements. Mutual commitment means that both management and employee
strive to meet common objectives. Mutual trust is reflected in reasonable, documented
employment policies that are honestly and equitably implemented to the satisfaction of both
management and employee. When management has a genuine respect for its employees and
their contributions to the firm, establishing a reasonable quality of work life and mutual trust is not
difficult.
LEARNING OUTCOME
After the end of this lesson, students will be able to:
✓ Discuss the importance of the role of human resources in delivering effective and
efficient operations through job design and work measurement.
COURSE MATERIALS
Quality of Work Life
• Quality of work life affects workers’ overall sense of well-being and contentment, but also
their productivity
• Important aspects of quality of work life:
– How a worker gets along with co-workers
– Quality of management
– Working conditions
– Compensation
• Quality of work life affects workers’ overall sense of well-being and contentment, but also
their productivity
• Important aspects of quality of work life:
– How a worker gets along with co-workers
– Quality of management
– Working conditions
– compensation
Working Conditions
Page 86 of 156
Compensation
• It is important for organizations to develop suitable compensation plans for their employees
• Compensation approaches
– Time-based systems
– Output-based systems
– Incentive systems
– Knowledge-based systems
Compensation Systems
• Time-based system
– Compensation based on time an employee has worked during the pay period
• Output-based (incentive) system
– Compensation based on amount of output an employee produced during the pay
period
Page 87 of 156
Knowledge-Based Pay Systems
• Knowledge-based pay
– A pay system used by organizations to reward workers who undergo training that
increases their skills
– Three dimensions:
• Horizontal skills
– Reflect the variety of tasks the worker is capable of performing
• Vertical skills
– Reflect the managerial skills the worker is capable of
• Depth skills
– Reflect quality and productivity results
Management Compensation
• Many organizations used to reward managers based on output
• New emphasis is being placed on other factors of performance
– Customer service
– Quality
• Executive pay is increasingly being tied to the company or division for which the executive is
responsible
Job Design
• Job design
– The act of specifying the contents and methods of jobs
• What will be done in a job?
• Who will do the job?
• How the job will be done?
• Where the job will be done?
– Objectives
• Productivity
• Safety
• Quality of work life
Job Design Success
• Job design success factors:
– Carried out by personnel with appropriate training and background
– Consistent with the goals of the organization
– In written form
– Understood and agreed to by both management and employees
Page 88 of 156
Designing Work Systems
• Efficiency vs. Behavioral approaches to job design
– Specialization
• Motivation
• Teams
• Ergonomics
• Methods analysis
• Motion studies
• Working conditions
Specialization
• Specialization
– Work that concentrates on some aspect of a product or service
Motivation
• Motivation is a key factor in many aspects of work life
– Influences quality and productivity
– Contributes to the work environment
• Trust is an important factor that affects motivation
Page 89 of 156
Teams
• Teams take a variety of forms:
– Short-term team
• Formed to collaborate on a topic or solve a problem
– Long-term teams
• Self-directed teams
– Groups empowered to make certain changes in their work processes
• Benefits of teams
– Higher quality
– Higher productivity
– Greater worker satisfaction
• Team problems
– Some managers feel threatened
– Conflicts between team members
Ergonomics
• Ergonomics (human factors)
– The scientific discipline concerned with the understanding of interactions among
human and other elements of a system
• Three domains of ergonomics
– Physical (repetitive movements, layout, health, safety)
– Cognitive (mental workload, decision making, HCI, and work stress)
– Organizational (communication, teamwork, work design, and telework)
Methods Analysis
• Methods Analysis
– Analyzing how a job gets done
– It begins with an analysis of the overall operation
– It then moves from general to specific details of the job concentrating on
• Workplace arrangement
• Movement of workers and/or materials
Page 90 of 156
– Changes in materials and procedures
– Government regulations or contractual agreements
– Accidents or quality problems
• Quality problems
• Processing bottlenecks
Page 91 of 156
Analyzing the Job: Worker-Machine Chart
• Worker machine chart
– Chart used to determine portions of a work cycle during which an operator and
equipment are busy or idle
Motion Study
• Motion study
– Systematic study of the human motions used to perform an operation
Page 92 of 156
– Micromotion study– use of motion pictures and slow motion to study motions that
otherwise would be too rapid to analyze
– Charts– activity or process charts, simo charts (simultaneous motions)
Work Measurement
• Work measurement is concerned with how long it should take to complete a job.
• It is not concerned with either job content or how the job is to be completed since these are
considered a given when considering work measurement.
• Commonly used work measurement techniques
– Stopwatch time study
– Historical times
– Predetermined data
– Work sampling
Standard Time
• Standard time
– The amount of time it should take a qualified worker to complete a specified task,
working at a sustainable rate, using given methods, tools and equipment, raw material
inputs, and workplace arrangement.
Page 93 of 156
Historical Times
• Standard Elemental Times are derived from a firm’s own historical time study data.
– Over time, a file of accumulated elemental times that are common to many jobs will be
collected.
– In time, these standard elemental times can be retrieved from the file, eliminating the
need to go through a new time study to acquire them.
Procedure:
2. Check the file for elements that have historical times and record them. Use time
studies to obtain others, if necessary.
4. Sum the elemental times to obtain the normal time, and factor in allowances to
obtain the standard time.
• The MTM tables are based on extensive research of basic elemental motions and
times.
• To use this approach, the analyst must divide the job into its basic elements (reach,
move, turn, etc.) measure the distances involved, and rate the difficulty of the
element, and then refer to the appropriate table of data to obtain the time for that
element
Work Sampling
• Work sampling is a technique for estimating the proportion of time that a worker or machine
spends on various activities and idle time.
– work sampling does not require timing an activity or involve continuous observation
of the activity
– Uses:
Page 94 of 156
ACTIVITIES/ASSESSMENT
Answer the following: (15 pts.)
Discuss the importance of the role of human resources in delivering effective and efficient
operations through job design and work measurement.
Page 95 of 156
LESSON 11 – SUPPLY CHAIN MANAGEMENT
OVERVIEW
A supply chain consists of all parties involved, directly or indirectly in fulfilling a customer
request. The supply chain not only includes the manufacturer and the supplier but also
transporters, warehouses, retailers, and customers themselves. Within each organization, such
as a manufacturer, the supply chain includes all the functions involved in receiving and filling a
customer request. A typical supply chain may involve a variety of stages.
LEARNING OUTCOMES
After this lesson, students will be able to:
✓ Discuss the importance of supply chain in operations management.
✓ Demonstrate ability to relate logistics and supply chain to operations management.
COURSE MATERIALS
Supply Chain
• Supply Chain:
– the sequence of organizations - their facilities, functions, and activities - that are
involved in producing and delivering a product or service
Facilities
• The sequence of the supply chain begins with basic suppliers and extends all the way to the
final customer
– Warehouses
– Factories
– Processing centers
– Distribution centers
– Retail outlets
– Offices
Page 96 of 156
– Production and delivery
– Customer service
• SCM Managers
– People at various levels of the organization who are responsible for managing supply
and demand both within and across business organizations.
– Involved with planning and coordinating activities
• Sourcing and procurement of materials and services
• Transformation activities
• Logistics
Page 97 of 156
Key SCM Issues
• The goal of SCM is to match supply to demand as effectively and efficiently as possible
• Key issues:
– Determining appropriate levels of outsourcing
– Managing procurement
– Managing suppliers
– Managing customer relationships
– Being able to quickly identify problems and respond to them
– Managing risk
Flow Management
Procurement
• The purchasing department is responsible for obtaining the materials, parts, and supplies
and services needed to produce a product or provide a service.
• The goal of procurement
Page 98 of 156
– Develop and implement purchasing plans for products and services that support
operations strategies
Duties of purchasing
• Identifying sources of supply
• Negotiating contracts
• Managing supplies
Purchasing Interfaces
Page 99 of 156
Ethics in Purchasing
• E-business
– the use of electronic technology to facilitate business transactions
– Applications include
• Internet buying and selling
• E-mail
• Order and shipment tracking
• Electronic data interchange
• Product and service promotion
• Provide information about products and services
Advantages of E-Business
• Companies can:
– Have a global presence
– Improve competitiveness and quality
– Analyze customer interests
– Collect detailed information
– Shorten supply chain response times
– Realize substantial cost savings
• Also allows the:
– Creation of virtual companies
– Leveling of the playing field for small companies
Supplier Management
• Choosing suppliers
– Supplier audits
– Supplier certification
• Supplier relationship management
• Supplier partnerships
– CPFR
– Strategic partnering
Choosing Suppliers
• Vendor analysis
– Evaluating the sources of supply in terms of price, quality, reputation, and service
Supplier Audits and Certification
• Supplier audit
– A means of keeping current on suppliers’ production (or service) capabilities, quality
and delivery problems and resolutions, and performance on other criteria
• Supplier certification
– Involves a detailed examination of a supplier’s policies and capabilities
– The process verifies the supplier meets or exceeds the requirements of a buyer
CFPR
• Collaborative Forecasting, Planning, and Replenishment (CFPR)
– A supply chain initiative that focuses on information sharing among supply chain
trading partners in planning, forecasting, and inventory
Inventory Management
• Inventory issues in SCM
– Inventory location
• Centralized inventories
• Decentralized inventories
– Inventory velocity
• The speed at which goods move through a supply chain
– The bullwhip effect
• Inventory oscillations that become increasingly larger looking backward through
the supply chain
Order Fulfillment
• Order fulfillment
– The process involved in responding to customer orders
– Often a function of the degree of customization required
• Common approaches
– Engineer-to-order (ETO)
– Make-to-order (MTO)
– Assemble-to-order (ATO)
– Make-to-stock (MTS)
Logistics
• Logistics
– Refers to the movement of materials and information within a facility and to incoming
and outgoing shipments of goods and materials in a supply chain
RFID
• Radio frequency identification (RFID)
– A technology that uses radio waves to identify objects, such as goods in supply chains
– Similar to barcodes but
• Are able to convey much more information
• Do not require line-of-sight for reading
• Do not need to be read one at a time
– Types:
• Active
• Passive
Managing Returns
• Reverse Logistics
– The process of transporting returned items
• Products are returned to companies or third-party handlers for a variety of reasons and in a
variety of conditions
– Elements of return management
• Gatekeeping
– Screening returned goods to prevent incorrect acceptance of goods
• Avoidance
– Finding ways to minimize the number of items that are returned
• Small businesses
• Response time
• Inventory-transportation costs
– Suppliers prefer to ship full truckloads instead of partial loads to spread shipping costs
over as many units as possible. This leads to greater holding costs for customers
– Cross-docking
• A technique whereby goods arriving at a warehouse from a supplier are
unloaded from the supplier’s truck and loaded onto outbound truck, thereby
avoiding warehouse storage
• Lead time-transportation costs
– Suppliers like to ship in full loads, but waiting for sufficient orders and/or production to
achieve a full load may increase lead time
• Product variety-inventory
– Greater product variety usually means smaller lot sizes and higher setup costs, as well
as higher transportation and inventory management costs
– Delayed differentiation
• Production of standard components and subassemblies which are held until late
in the process to add differentiating features
• Cost-customer service
– Producing and shipping in large lots reduces costs, but increases lead time
– Disintermediation
• Reducing one or more steps in a supply chain by cutting out one or more
intermediaries
OVERVIEW
Organizations from small to large businesses can make use of inventory management to
manage their flow of goods. There are numerous inventory management techniques and using
the correct one can lead to providing the correct goods at the correct amount, place and time.
Inventory control is a separate area of inventory management that is concerned with
minimizing the total cost of inventory while maximizing the ability to provide customers with
products in a timely manner.
LEARNING OUTCOME
After the end of this lesson, students will be able to:
✓ Appreciate and discuss the importance of managing inventory.
COURSE MATERIALS
Inventory
– A stock or store of goods
• Independent demand items
– Items that are ready to be sold or used
Types of Inventory
• Raw materials and purchased parts
• Work-in-process
• Finished goods inventories or merchandise
• Maintenance and repairs (MRO) inventory, tools and supplies
• Goods-in-transit to warehouses or customers (pipeline inventory)
Inventory Functions
• Inventories serve a number of functions such as:
1. To meet anticipated customer demand
2. To smooth production requirements
3. To decouple operations
4. To protect against stockouts
5. To take advantage of order cycles
6. To hedge against price increases
7. To permit operations
8. To take advantage of quantity discounts
• Periodic System
– Physical count of items in inventory made at periodic intervals
• Perpetual Inventory System
– System that keeps track of removals from inventory continuously, thus monitoring
current levels of each item
• Two-bin system
– Two containers of inventory; reorder
when the first is empty
Inventory Counting Technologies
• Universal product code (UPC)
– Bar code printed on a label that has information about the item to which it is attached
• A-B-C approach
– Classifying inventory according to some measure of importance, and allocating control
efforts accordingly
– A items (very important)
• 10 to 20 percent of the number of items in inventory and about 60 to 70 percent
of the annual dollar value
– B items (moderately important)
– C items (least important)
• 50 to 60 percent of the number of items in inventory but only about 10 to 15
percent of the annual dollar value
Cycle Counting
• Cycle counting
– A physical count of items in inventory
• Cycle counting management
– How much accuracy is needed?
• A item: ± 0.2 percent
Deriving EOQ
• Using calculus, we take the derivative of the total cost function and set the derivative (slope)
equal to zero and solve for Q.
• The total cost curve reaches its minimum where the carrying and ordering costs are equal.
EPQ
Quantity Discounts
When to Reorder
• Reorder point
– When the quantity on hand of an item drops to this amount, the item is reordered.
– Determinants of the reorder point
1. The rate of demand
2. The lead time
Safety Stock
• As the amount of safety stock carried increases, the risk of stockout decreases.
– This improves customer service level
• Service level
– The probability that demand will not exceed supply during lead time
– Service level = 100% - Stockout risk
FOI Model
OI* represents the optimal time between orders. Time-frame of interest is an appropriate period
(e.g., days or weeks). This is usually based on the time-frame expressed by the average
demand rate, d-bar.
Single-Period Model
• Single-Period Model
– Model for ordering perishables and other items with limited useful lives
Single-Period Model
• The goal of the single-period model is to identify the order quantity that will minimize the
long-run excess and shortage costs
• Two categories of problem:
– Demand can be characterized by a continuous distribution
– Demand can be characterized by a discrete distribution
Stocking Levels
ACTIVITIES/ASSESSMENT
Answer the following questions: (20 pts.)
1. What is the relationship between inventory management and the supply chain?
2. Why is there a need to balance the inventory needs with customers’ needs?
OVERVIEW
The aggregate plan generally contains targeted sales forecasts, production levels, inventory
levels, and customer backlogs. This schedule is intended to satisfy the demand forecast at a
minimum cost. Properly done, aggregate planning should minimize the effects of shortsighted,
day-to-day scheduling. Longer-term perspective on resource-use can help minimize short-term
requirement changes with a resulting cost savings.
LEARNING OUTCOME
After the end of this lesson, students will be able to:
➢ Discuss aggregate planning and the planning levels.
COURSE MATERIALS
Aggregate planning
– Intermediate-range capacity planning that typically covers a time horizon of 2 to 18
months
– Useful for organizations that experience seasonal, or other variations in demand
– Goal:
• Achieve a production plan that will effectively utilize the organizations’ resources
to satisfy demand
Planning Levels
Aggregation
• The plan must be in units of measurement that can be understood by the firm’s non-
operations personnel
Demand Options
• Pricing
– Used to shift demand from peak to off-peak periods
– Price elasticity is important
• Promotion
– Advertising and other forms of promotion
• Back orders
– Orders are taken in one period and deliveries promised for a later period
• New demand
Supply Options
• Hire and lay off workers
• Overtime/slack time
• Part-time workers
• Inventories
• Subcontracting
Chase Approach
• Capacities are adjusted to match demand requirements over the planning horizon
– Advantages
• Investment in inventory is low
• Labor utilization in high
– Disadvantages
• The cost of adjusting output rates and/or workforce levels
Level Approach
• Capacities are kept constant over the planning horizon
• Advantages
– Stable output rates and workforce
• Disadvantages
– Greater inventory costs
– Increased overtime and idle time
– Resource utilizations vary over time
6. Select the plan that best satisfies objectives. Otherwise return to step 5.
Cumulative Graph
Mathematical Techniques
• Linear programming models
• Simulation models
– Computerized models that can be tested under different scenarios to identify
acceptable solutions to problems
Yield Management
• Yield management
– An approach to maximizing revenue by using a strategy of variable pricing; prices are
set relative to capacity availability
• During periods of low demand, price discounts are offered
• During periods of peak demand, higher prices are charged
• Users of yield management include
– Airlines, restaurants, hotels, restaurants
Disaggregation
Aggregate Plan → Disaggregation → Master Schedule
• Rough cut capacity planning (RCCP) is a tool used in the validation process
– Involves checking the capacities of production and warehouse facilities, labor, and
vendors to ensure no gross deficiencies exist that will render the MPS unworkable
Time Fences
Period
1 2 3 4 5 6 7 8 9
ACTIVITIES/ASSESSMENT
Answer the following: (20 pts.)
Discuss aggregate planning and the different planning levels.
OVERVIEW
Most manufacturers use an organizational system called material requirements planning
(MRP). Others use an enterprise resource planning (ERP) system instead. In addition to meeting
material requirements, ERP systems integrate organizational needs such as accounting,
marketing, human resources, and supply chain management. In this chapter, differences between
MRP versus ERP will be explored.
LEARNING OUTCOME
After the end of this lesson, students will be able to:
✓ Discuss the elements of Material Requirements Planning and Enterprise Resource
Planning.
COURSE MATERIALS
MRP and ERP
Dependent Demand
• Dependent demand
– Demand for items that are subassemblies or component parts to be used in the
production of finished goods.
– Dependent demand tends to be sporadic or “lumpy”
• Large quantities are used at specific points in time with little or no usage at other
times
Overview of MRP
– One of three primary inputs in MRP; states which end items are to be produced, when
these are needed, and in what quantities.
– Managers like to plan far enough into the future so they have reasonable estimates of
upcoming demands
– The master schedule should cover a period that is at least equivalent to the cumulative
lead time
Gross requirements
• Quantity expected to receive at the beginning of the period offset by lead time
Planned-order releases
MRP: Development
• The MRP is based on the product structure tree diagram
• Requirements are determined level by level, beginning with the end item and working down
the tree
– The timing and quantity of each “parent” becomes the basis for determining the timing
and quantity of the children items directly below it.
– The “children” items then become the “parent” items for the next level, and so on
MRP Considerations
• Safety Stock
– Theoretically, MRP systems should not require safety stock
– Variability may necessitate the strategic use of safety stock
• A bottleneck process or one with varying scrap rates may cause shortages in
downstream operations
Page 133 of 156
• Shortages may occur if orders are late or fabrication or assembly times are
longer than expected
• When lead times are variable, the concept of safety time is often used
– Safety time
» Scheduling orders for arrival or completions sufficiently ahead
of their need that the probability of shortage is eliminated or
significantly reduced
MRP Lot Sizing Rules
– Lot-for-Lot (L4L) ordering
• The order or run size is set equal to the demand for that period
• Minimizes investment in inventory
• It results in variable order quantities
• A new setup is required for each run
– Economic Order Quantity (EOQ)
• Can lead to minimum costs if usage of item is fairly uniform
– This may be the case for some lower-level items that are common to
different ‘parents’
– Less appropriate for ‘lumpy demand’ items because inventory
remnants often result
• Hotel renovation
– Activities and materials “exploded” into component parts for cost estimation and
scheduling
MRP Benefits
• Enables managers to easily
– determine the quantities of each component for a given order size
– To know when to release orders for each component
– To be alerted when items need attention
• Additional benefits
– Low levels of in-process inventories
– The ability to track material requirements
– The ability to evaluate capacity requirements
– A means of allocating production time
– The ability to easily determine inventory usage via backflushing
MRP II
• Manufacturing resources planning (MRP II)
– Expanded approach to production resource planning, involving other areas of the firm
in the planning process and enabling capacity requirements planning
System Stability
• Stability in short-term plans is very important
– Without stability, changes in order quantity and/or timing can render material
requirements plans virtually useless
Time Fences
• Time fences
– Series of time intervals during which order changes are allowed or restricted
• The nearest fence is most restrictive
• The farthest fence is least restrictive
Load Reports
• Load reports
– Department or work center reports that compare known and expected future capacity
requirements with projected capacity availability.
– ERP was the next step in an evolution that began with MRP and evolved into MRPII
ERP Considerations
• How can ERP improve a company’s business performance?
• How long will an ERP implementation project take?
• How will ERP affect current business processes?
• What is the ERP total cost of ownership?
• What are the hidden costs of ERP ownership?
ACTIVITIES/ASSESSMENT
Answer the following: (20 pts.)
Compare and contrast MRT from ERP.
OVERVIEW
Scheduling is the last stage of planning before production. It specifies when labor, equipment
and facilities are needed to produce a product or provide a service. Scheduling techniques vary
by type of production process.
LEARNING OUTCOME
COURSE MATERIALS
Scheduling:
• Establishing the timing of the use of equipment, facilities and human activities in an
organization
• Effective scheduling can yield
• Cost savings
• Increases in productivity
Objectives of scheduling:
• Flow System
– High-volume system with standardized equipment and activities
– Flow system scheduling
• Scheduling for flow systems
• The goal is to achieve a smooth rate of flow of goods or customers through
the system in order to get high utilization of labor and equipment
Intermediate-Volume Systems
• Output fall between the standardized-type output of high-volume systems and the make-
to-order output of job shops
• Output rates are insufficient to warrant continuous production
– Rather, it is more economical
to produce intermittently
• Work centers periodically shift from one product to
another
Intermediate-Volume Systems
• Three basic issues:
– Run size of jobs
– The timing of jobs
– The sequence in which jobs will be produced
• Important considerations
– Setup cost
– Usage is not always as smooth as assumed in the economic lot size model
• Alternative scheduling approach
– Base production on a master schedule developed from customer orders and
forecasted demand
Low-Volume Systems
• Job shop scheduling
– Scheduling for low-volume systems with many variations in requirements
• Make-to-order products
• Processing requirements
• Material requirements
Loading Approaches
• Infinite loading
– Jobs are assigned to workstations without regard to the capacity of the work
center.
• Finite loading
– Jobs are assigned to work centers taking into account the work center capacity
and job processing times.
Activities/Assessment
Answer the following: (15 pts.)
Why is scheduling important in planning and production?
OVERVIEW
Lean operations is a means of running an organization by focusing on providing greater
customer satisfaction while using as few resources as possible. Lean management is an
approach to managing an organization that supports the concept of continuous improvement, a
long-term approach to work that systematically seeks to achieve small, incremental changes in
processes in order to improve efficiency and quality.
LEARNING OUTCOME
COURSE MATERIALS
• Lean operation
– A flexible system of operation that uses considerably less resources than a traditional
system
• Tend to achieve
– Greater productivity
– Lower costs
– Shorter cycle times
– Higher quality
Waste
– Represents unproductive resources
– Seven sources of waste in lean systems:
1. Inventory
2. Overproduction
3. Waiting time
4. Unnecessary transporting
5. Processing waste
6. Inefficient work methods
7. Product defects
• Eight aspects of process design that are important for lean systems:
1. Small lot sizes
2. Setup time reduction
3. Manufacturing cells
4. Quality improvement
5. Production flexibility
6. A balanced system
7. Little inventory storage
8. Fail-safe methods
Personnel/Organizational: Leadership
• Leadership/project management
– Managers are expected to be leaders and facilitators, not order givers
– Lean systems encourage two-way communication between workers and managers
• Lean systems place a strong emphasis on achieving stable, level daily mix schedules
1. MPS – developed to provide level capacity loading
2. Mixed model scheduling
MPC: Communication
• Communication moves backward through the system from station to station
– Each workstation (customer) communicates its need for more work to the preceding
workstation (supplier)
• Assures that supply equals demand
– Work moves “just in time” for the next operation
• Flow of work is coordinated
• Accumulation of excessive inventories is avoided
– Card or other device that communicates demand for work or materials from the
preceding station
Obstacles to Conversion
• Management may not be fully committed or willing to devote the necessary resources to
conversion
• It can be difficult to change the organizational culture to one consistent with the lean
philosophy
• Suppliers may
resist
JIT II
• A supplier representative works right in the company’s plant, making sure there is an
appropriate supply on hand
• It is often referred to as vendor managed inventory (VMI)
ACTIVITIES/ASSESSMENT
Answer the following: (15 pts.)
How does lean operations lead to improved goods and services based on what customers
want and value?