Om 2022

Operaations Management
Select College
School of Graduate Studies
8/27/2022
Chapter outlines
1. Overview of Operations Management
2. Operations Forecasting
3. Goods and Services Design
4. Quality Management
5. Process Design and Selection
6. Capacity Planning, Layout and Location
7. Inventory Planning and Control
8. Production Planning and Control
9. Supply Chain Management
10.Human Resources, Job Design, and Work Measurement
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Chapter 1: Overview of Operations Management
• Definition
• Historical Evolution of Production and Operations Management
• Goods and services
• Productivity and its measures
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Definition
§ Production/operations management is the process, which combines and
transforms various resources used in the production/operations subsystem of the
organization into value added product/services in a controlled manner as per the
policies of the organization.
§ The set of interrelated management activities, which are involved in
manufacturing certain products, is called as production management. If the
same concept is extended to services management, then the corresponding set of
management activities is called as operations management (Kumar and Suresh,
2009).
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Historical Evolution of Production & Operations Management (Kumar &
Suresh, 2009)
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Historical Evolution of Production & Operations Management (Kumar &

Suresh, 2009)
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Goods & Services

§ All organizations rely on three major functions to create goods and services. These
functions are (Heizer and Render, 2012):
1. Marketing, which generates the demand, or at least takes the order for a product or
service (nothing happens until there is a sale).
2. Production/operations, which creates the product.
3. Finance/accounting, which tracks how well the organization is doing, pays the
bills, and collects the money.
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Difference between goods & services
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Goods Services
Tangible Intangible
Often produced and consumed Often produced and consumed

separately simultaneously
Have similar characteristics Are unique
Have low customer interaction (easy to Have high customer interaction

standardize) (difficult to standardize)
Have relatively consistent definition Have inconsistent definition
Relatively easy to automate Often knowledge based and difficult to

automate
Frequently deposited in a single place Frequently dispersed

(warehouse)
Changing challenges for OM
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Current Challenges
High ethical & social responsibility; increased legal & professional standards
Global focus; international collaboration
Rapid product development; design collaboration
Environmentally sensitive production; green manufacturing; sustainability
Mass customization
Empowered employees; enriched jobs
Supply-chain partnering; joint ventures; alliances
Just-in-time performance; lean; continuous improvement

Productivity & its measure
§ Productivity is the ratio of outputs (goods and services) divided by the inputs
(resources, such as labour and capital).
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Example
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• For example, if units produced = 1000 and labor-hours used is 250, then:
productivity = 1000/250 = 4 units per labor hour
Example
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Q A
End of chapter 1
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Chapter 2: Operations Forecasting
§ Definition
§ Forecasting time horizons
§ Steps in forecasting
§ Forecasting approaches
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2. Definition
§ Forecasting may involve taking historical data and projecting them into the future
with some sort of mathematical model.
§ It may be a subjective, intuitive prediction or it may involve a combination of these
—that is, a mathematical model adjusted by a manager’s good judgment.
§ Forecasting is the art and science of predicting future events.
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Forecasting time horizons
§ A forecast is usually classified by the future time horizon that it covers.
§ Time horizons fall into three categories:
ü Short-range forecast (up to 1 year but is generally less than 3 months)
ü Medium-range forecast (generally spans from 3 months to 3 years)
ü Long-range forecast (generally 3 years or more in time span)
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Forecasting types
1. Economic forecasts address the business cycle by predicting inflation rates,
money supplies, housing starts, and other planning indicators
2. Technological forecasts are concerned with rates of technological progress, which
can result in the birth of exciting new products, requiring new plants and
equipment
3. Demand forecasts are projections of demand for a company’s products or
services. These forecasts, also called sales forecasts, drive a company’s production,
capacity, and scheduling systems and serve as inputs to financial, marketing, and
personnel planning
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Steps in forecasting
§ Forecasting follows the following seven basic steps;
Ø Determine the use of the forecast
Ø Select the items to be forecasted
Ø Determine the time horizon of the forecast
Ø Select the forecasting model(s)
Ø Gather the data needed to make the forecast
Ø Make the forecast
Ø Validate and implement the results
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Forecasting approaches
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§ There are two general approaches to forecasting:
ü Quantitative approach: use a variety of mathematical models that rely on historical
data and/or associative variables to forecast demand
ü Subjective or qualitative approach: incorporate such factors as the decision maker’s
intuition, emotions, personal experiences, and value system in reaching a forecast.
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§ Qualitative techniques
ü Jury of executive opinion
ü Delphi technique
ü Sales force composite
ü Consumer market survey
§ Quantitative techniques
ü Time-series models
§ Naïve approach
§ Moving averages
§ Exponential smoothing
ü Associative models
§ Linear regression
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Examples
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Examples
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New forecast = Last period’s forecast + α (Last period’s actual demand - Last
period’s forecast)
Measures of forecast error
• Mean Absolute Deviation (MAD): is computed by taking the sum ofthe absolute
values of the individual forecast errors (deviations) and dividing by the number of
periods of data (n):
• Mean Squared Error (MSE): is the average of the squared differences between
the forecasted and observed values.
• Mean Absolute Percent Error (MAPE): is computed as the average of the
absolute difference between the forecasted and actual values, expressed as a
percentage of the actual values.
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Measures of forecast error
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• Example
During the past 8 quarters the port of Baltimore has unloaded large quantities of
grain from ships. The ports operations manager wants to test the use of exponential
smoothening to see how well the technique works in predicting tonnage unloaded.
The manager guesses that the forecast of grain unloaded in the first quarter was
175 tones. Two values of ɑ are to be examined ɑ= 0.10 and ɑ=0.50.
Measures of forecast error (MAD)
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Quarters Actual tonnage
1 180
2 168
3 159
4 175
5 190
6 205
7 180
8 182
Sum
MAD
Forecast (ɑ = 0.10)
175
175.50=175.0+0.10(180-175)
174.75=175.50+0.10(168-175.50)
173.18=174.75+0.10(159-174.75)
173.36=173.18+0.10(175-173.18)
175.02=173.36+0.10(190-173.36)
178.02=175.02+0.10(205-175.02)
178.22=178.02+0.10(180-178.02)
Absolute deviation
ɑ = 0.10 ɑ = 0.50
5.00 5.00
7.50 9.50
15.75 13.75
1.82 9.12
16.64 19.56
29.98 24.78
1.98 12.61
3.78 4.30
82.45 98.62
10.31 12.32
175
177.50
172.75
165.88
170.44
180.22
192.61
186.30
10.31
Measures of forecast error (MSE)
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1 180
2 168
3 159
4 175
5 190
6 205
7 180
8 182
Sum
MSE
Absolute deviation (ɑ = 0.10)
-7.50
-15.75
1.82
16.64
29.98
1.98
3.78
(error)2
25
56.25
248.06
3.33
276.89
898.70
3.92
14.31
1526.46
190.8
(error)2
25
90.25
189.06
83.17
382.59
614.04
159.01
18.49
1561.61
195.2
190.8
(ɑ = 0.50)
-9.50
-13.75
9.12
19.56
24.78
12.61
4.30
Measures of forecast error (MAPE)
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1 180
2 168
3 159
4 175
5 190
6 205
7 180
8 182
Sum
MAPE
Absolute % error
100(5/180)=2.78%
4.46%
9.90%
1.05%
8.76%
14.62%
1.10%
2.08%
44.75%
5.59%
175
175.50
174.75
173.18
173.36
175.02
178.02
178.22
175
177.50
172.75
165.88
170.44
180.22
192.61
186.30
Absolute % error
2.78%
5.65%
8.64%
5.21%
10.29%
12.08%
7.01%
2.36%
54.02%
6.75%
5.59%
Q A
End of chapter 2
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Chapter 3: Goods & Services Design
§ Introduction
§ Objectives of good and service design
§ Factors to be considered in goods and service design
§ Philosophies in goods and service design
§ Goods and service design approaches
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Introduction
§ Product design is a key concern for the operations managers.
§ Product design is the mother of all operations processes in an organization.
§ Product and service design plays a strategic role in the degree to which an
organization is able to achieve its goals.
§ It is a major factor in customer satisfaction, product and service quality, and
production costs.
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Objectives of good & service design
§ The objectives of product and service design may vary somewhat from situation to
situation. Generally, however, the objectives are:
ü To bring new or revised products or services to the market as quickly as possible
ü To design products and/or services that has customer appeal
ü To increase the level of customer satisfaction
ü To increase quality
ü To reduce costs
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Factors to be considered in goods & service design
§ Marketing Aspect: demand for the product.
§ Product Characteristics: functional aspect, operational aspect, durability and
dependability aspect, aesthetic and other related aspects.
§ Economic Aspects: profit consideration, standardization, simplification,
specification and the break even analysis.
§ Production Aspect: capability of translating into manufacturing process.
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Philosophies in goods & service design
§ There are three philosophies/strategies for product design and development:
ü Market pull approach
ü Technology-push approach, and
ü Inter-functional approach.
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Goods & service design approaches
§ Concurrent engineering
I. Design for manufacturability (DFM)
II. Design for Procurement
III. Design for Environment
§ Robust design
§ Taguchi’s approach
§ Modular design
§ Quality function deployment (QFD)
§ Computer aided design (CAD)
§ Value analysis (VA)
§ Group technology (GT)
§ Designing for quality
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Q A
End of chapter 3
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Chapter 4: Quality Management
§ Definition
§ ISO international quality standards
§ Total quality management (TQM) and the seven tools
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4. Definition
§ The totality of features and characteristics of a product or service that bears on its
ability to satisfy stated or implied needs (American Society for Quality).
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Definition categories Proposition Who is interested
User based quality lies in the eyes of Marketing people and

the beholder customers
Manufacturing based quality means Production managers

conforming to standards
Product based Quality involves precise Quality inspectors and

and measurable variable controllers
Transcendent quality Quality is something Art persons

which can be understood
in mind but cannot be
explained verbally.
Value-based quality performance or Sponsors and finance unit

conformance at an
acceptable price or cost.
4. Definition
§ Quality is often described as getting things done ‘right first time, every time’.
§ Quality is not an option in most walks of life.
§ One of the annoying factors about quality is that seemingly unimportant details can
have an astonishing impact on how quality is perceived.
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ISO international quality standards
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§ Quality is so important globally that the world is uniting around a single quality
standard, ISO 9000.
§ To become ISO 9000 certified, organizations go through a 9- to 18-month process
that involves documenting quality procedures, an on-site assessment, and an
ongoing series of audits of their products or services.
§ The continuing internationalization of quality is evident with the development of
ISO 14000. ISO 14000 is a series of environmental management standards
Total quality management (TQM)
§ Refers to a quality emphasis that encompasses the entire organization, from
supplier to customer.
§ TQM stresses a commitment by management to have a continuing companywide
drive toward excellence in all aspects of products and services that are important to
the customer.
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§ Quality expert W. Edwards Deming used 14 points to indicate how he implemented
TQM.
§ Reduced into seven concepts for an effective TQM program:
1. continuous improvement
2. Six Sigma
3. Employee empowerment
4. Benchmarking
5. just-in-time (JIT)
6. Taguchi concepts, and
7. Knowledge of TQM tools.
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1. continuous improvement
§ Represents continual improvement of all processes
§ Involves all operations and work centers including suppliers and customers
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Shewhart’s PDCA Model
2. Six Sigma
§ Statistical definition of a process that is 99.9997% capable, 3.4 defects per million
opportunities (DPMO).
§ Six sigma uses DMAIC as a discipline.
§ Six sigma implementation requires focus on corporate sponsor support
(Champions), creating qualified process improvement experts (Black Belts, Green
Belts, etc.).
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3. Employee Empowerment
§ Getting employees involved in product and process improvements
§ Build communication networks that include employees
§ Develop open, supportive supervisors
§ Move responsibility to employees
§ Build a high-morale organization
§ Create formal team structures
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Techniques
4. Benchmarking
§ Refers to selecting best practices to use as a standard for performance.
§ Determine what to benchmark
§ Form a benchmark team
§ Identify benchmarking partners
§ Collect and analyze benchmarking information
§ Take action to match or exceed the benchmark
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Steps
5. Just in Time (JIT)
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Work in process inventory level(hides problems)

6. Taguchi concepts
§ Engineering and experimental design methods to improve product and
process design
§ Identify key component and process variables affecting product variation
§ Taguchi Concepts
§ Quality robustness
§ Quality loss function
§ Target-oriented quality
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7. TQM tools
Check Sheet
Scatter Diagram
Flowchart
Cause-and-Effect Diagram
Pareto Chart
Histogram
Statistical Process Control Chart
Q A
End of chapter 4
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Chapter 5: Process Design & Selection
§ Introduction
§ Process performance metrics
§ Process selection decisions
§ Features of service process design and selection
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Introduction
§ The best way to understand a process is by analyzing it.
§ This is true whether the process is actually in use or the process is in the planning
stage.
§ The best way to begin analyzing a process is by diagramming the basic process
elements-typically tasks, inputs and outputs, flows, storage or buffer areas, and
decision points.
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Introduction
§ A number of tools help us understand the complexities of process design and
redesign. They are;
ü Flowcharts
ü Time-function mapping
ü Value-stream mapping
ü Process charts, and
ü Service blueprinting
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Introduction
ü Flowcharts: are drawings used to analyze movement of people or material.
ü Time-function mapping: is a flowchart, but with time added on the horizontal
axis.
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Introduction
ü Value-stream mapping: is a process that helps managers understand how to add
value in the flow of material and information through the entire production
process.
ü As with time-function mapping, the idea is to start with the customer and
understand the production process, but value-stream mapping extends the analysis
back to suppliers.
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Introduction
ü Process charts: use symbols to analyze the movement of people and material.
ü Use symbols, time, and distance to provide an objective and structured way to
analyze and record the activities that make up a process.
ü Service blueprinting: is a process analysis technique that focuses on the customer
and the provider’s interaction with the customer.
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Introduction
ü Service blueprinting: is a process analysis technique that focuses on the customer
and the provider’s interaction with the customer.
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Process performance metrics

§ An important way of ensuring that a process is functioning properly is to regularly
measure its performance.
§ Some of the basic process performance metrics used by operations managers
includes the following;
ü Throughput time: average amount of time a product to move through the system.
ü Process velocity: a measure of wasted time in the system.
Process velocity = throughput time/value-added time.
ü Productivity: a measure of how well a company uses its resources.
Productivity = output/input
ü Utilization: the proportion of time a resource is actually used.
Utilization = time a resource used/time a resource available.
ü Efficiency: a measure of performance relative to standard.
Efficiency = actual output/standard output.
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Process selection decisions
§ Process selection decisions determine the type of productive process to be used and
the appropriate span of the process.
§ Process decisions affect the costs, quality, delivery and flexibility of operations.
§ Process classifications
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Features of service process design & selection
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§ Designing services is challenging because they often have unique characteristics.
§ Because of the differences between services and products, the design of services
must take into account different elements than the design of products. The designer
must consider the following differences:
§ Intangibility
§ Inseparability
§ Inventoriablity
§ Visibility
§ Entry and Exit Barriers
§ Plant Location
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§ It is possible to make a distinction between different types of services or service
delivery systems. These could be based on:
§ The volume of an activity
§ The degree of professional skills and/or knowledge required
§ The type of the service takers i.e. for who the service is intended to be delivered
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§ Therefore based on volume, services could be classified into service factory and
shops.
§ Based on the type of service takers, services could be classified into mass and
personal service, and
§ Finally, based on the degree of skills/knowledge required, service could be
classified as professional and nonprofessional services.
Q A
End of chapter 5
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Chapter 6: Capacity Planning, Layout & Location
§ Introduction
§ Factors affecting capacity planning
§ Types of facility layout and their strength and weakness
§ Alternative capacity, layout and locations using quantitative tools
§ Factors affecting location decision
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Capacity Planning
§ Capacity can be defined as ability to produce certain out put within a specified
time period or the rate of output that can be achieved from a process.
§ Capacity is related to the equipment and process selection decision in that a
selection of specific equipment and processes represents a selection of both
technological flexibility and capacity.
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Capacity Planning
§ Decisions related to capacity have to answer:
ü How much capacity do we have and how much future capacity should we provide
(process)?
ü What form should the capacity take?
ü How should people or processes be physically related to one another within the
facility?
ü What is the optimal location for the facilities?
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Capacity Planning (time horizons)
§ Capacity planning can be viewed in three time horizons.
ü Long-range capacity: (greater than 1 year) is a function of adding facilities and
equipment that have a long lead time.
ü Intermediate range: (3 to 18 months), we can add equipment, personnel, and
shifts; we can subcontract; and we can build or use inventory. This is the
“aggregate planning” task.
ü Short run: (usually up to 3 months), we are primarily concerned with scheduling
jobs and people, as well as allocating machinery. Modifying capacity in the short
run is difficult, as we are usually constrained by existing capacity.
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Important concepts of capacity decision
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§ Design capacity: represents the maximum output that can be achieved in a specific
time-period under ideal (not real) condition.
§ Effective capacity: represents the maximum output per unit time given a particular
product mix, labour skills, supervision, product quality level, material quality,
available maintenance, and time between setups.
§ Actual or Operating capacity: is defined as the average output per unit of time
over a preceding time-period adjusted to reflect actual reject levels and scheduling
and maintenance losses.
Capacity Measures
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§ Though there is no single measure of capacity, the two measures frequently cited to
justify investments in equipment and processes are:
1) Efficiency and
2) Utilization
Capacity Measures
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Factors affecting capacity planning

§ Product Design
§ Layout of facilities
§ Job design
§ Output standards
§ The quality of and variation in the materials used
§ Employee attitude and motivation
§ Operational factors
§ External factors
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Capacity & level of operations
§ The best operating level is the level of capacity for which the average unit cost is at
a minimum. This level of operation is shown in the figure below:
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Capacity planning decisions
§ Capacity planning normally involves the following steps.
1. Assessing existing capacity
2. Forecasting capacity needs
3. Identifying alternative ways to modify capacity
4. Evaluating financial, economical and technological capacity alternatives
5. Selecting a capacity alternative most suited to achieving strategic mission
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Ways of changing long range capacity
§ Expansion: would take one of or a combination of the following ways;
§ Sub-contract with other companies to become suppliers of the expanding firm’s
components or entire products
§ Acquire other companies, facilities or resources
§ Develop sites, build buildings, buy equipment
§ Expand, update, or modify existing facilities or
§ Reactivate facilities on standby status.
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Ways of changing long range capacity
§ Reduction: this strategy requires managers to take the following actions when
expansion is not appropriate due low demand or any other internal and external
factors.
§ Sell of existing facilities, sell inventories, and lay off or transfer employees
§ Delay facilities and standby status, sell inventories, and layoff or transfer
employees
§ Develop and produce new products as other products decline
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Evaluating capacity alternatives
§ A number of techniques are useful for evaluating capacity alternatives from an
economic standpoint.
§ Some of the more common are cost-volume analysis (Break-even analysis),
financial analysis, decision theory, and waiting line analysis.
§ Only cost volume analysis and decision tree are described hereafter.
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Break-Even Analysis (example)
§ ABC Company is now contemplating to add new line of product, which require
leasing new machine for a monthly payment of Br. 6000. Variable costs would be
Br.2.00 per unit, and the product would be sold for Br.7.00 each.
Required:
1. What should be the monthly production capacity of a machine for achieving a
breakeven point?
2. What should be a production capacity so that a firm can achieve a profit target of
Br. 4000?
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Solution:
Given:
§ Fixed cost (FC) = Br.6000
§ Variable cost per unit (V) = Br. 2.00
§ Price per unit (P) = Br.7.00
§ Breakeven point (Q) =?
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At a breakeven point, a firm earns zero normal profit. That is total revenue equals
total cost and hence profit becomes zero. Thus, Total profit = total revenue (TR) –
Total cost (TC)
Total profit = TR – TC
TR = P X Q
TC = Total variable cost (which is V x Q) + FC, hence
Total profit = (P X Q) – (V X Q + FC)
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At break-even point total profit is zero. Thus,
0 = PQ – VQ – FC
0 = Q (P – V) – FC
FC = Q (P – V)
Q = FC/(P – V)
Q = FC / (p – v) = Br. 6000 / (7.00 – 2.00) = 1,200 units of pies per month. In order
to achieve the break even goal a firm must lease a machine that has a monthly
production capacity of 1,200 units.
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2. Given:
Total profit = Br.4000
P = Br.7.00
V = Br.2.00
FC = Br. 6000
The quantity level required to achieve any profit level is obtained as follows:
Total profit (TP) = TR – TC
TP = PQ – VQ – FC
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TP + FC = PQ – VQ
TP + FC = Q(P – C)
Q = (TP + FC) / (P – V)
Q = (Br.4000 + Br.6000) / (Br.7.00 – Br. 2.00) = 2,000 units.
To achieve this profit level per month, a firm must lease a machine with the
monthly production capacity of 2,000 units.
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§ The following graph depicts the example just presented above.
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Decision Tree (example)

§ A firm that plans to expand its product line must decide whether to build a small or
a large facility to produce the new products. If it builds a small facility and demand
is low, the net present value (NPV) after deducting for building costs will be Br.
400,000. If demand is high, the firm can either maintain the small facility or
expand it. Expansion would have a net present value of Br. 450,000 and
maintaining the small facility would have a net present value of Br. 50,000. If a
large facility is build and demand is high, the estimated NPV is Br. 800,000. If
demand turns out to be low, the NPV will be Br. -10,000. The problem that demand
will be high is estimated to be 0.60, and the problem of low demand is estimated to
be 0.4.
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Required:
A. Draw the tree diagram.
B. Which alternative capacity should be build? What is the expected NPV of the
alternative chosen?
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B. The expected NPV
i. Build small facility: ii. Build large facility
High demand = 0.6 x 450,000 High demand = 0.6 x 800,000
= 270,000 = 480,000
Low demand = 0.4 x 400,000 Low demand = 0.4 x -10,000
= 160,000 = -4,000
Expected value = 270,000 + 160,000 Expected value = 480,000 - 4000
= 430,000 Br =476,000 Br
Decision: The firm should build the large facility with the highest expected profit
i.e., Br. 476,000.
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Facility layout
§ The overall objective in designing a layout is to provide a smooth work flow and
control; reducing cost of material through the factory or uncomplicated pattern for
both consumers and workers in a service organization.
§ There are four basic types of plant or facility layouts.
1. Process layout /for job-shops/
2. Product or Line Layout
3. Cellular Manufacturing (CM) Layouts
4. Fixed position Layout
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Facility layout
1. Process layout /for job-shops/
• Process layout can simultaneously handle a wide variety of products or services.
• This is the traditional way to support a product differentiation strategy.
• It is most efficient when making products with different requirements or when
handling customers, patients, or clients with different needs.
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Facility layout
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Facility layout
2. Repetitive and Product layout
• Product-oriented layouts are organized around products or families of similar high-
volume, low variety products.
• Repetitive production and continuous process use product layouts.
• In contrast to process layouts, product layouts are not flexible since they are
designed specifically for making one product.
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Facility layout
3. Cellular layout
• A work cell reorganizes people and machines that would ordinarily be dispersed in
various departments into a group so that they can focus on making a single product
or a group of related products.
• Processes are grouped into cells using a technique known as group technology
(GT).
• Cellular layout is a combination of the product layout and process layout.
• For example, instead of having all the hammers hanging against the far wall, in a
cellular layout each workstation will have its own hammer. The workers won't
have to leave their workstations to look for tools. Each workstation will have all
the tools the worker needs.
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Facility layout
3. Cellular layout
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Facility layout
4. Fixed position layout
• In a fixed-position layout, the project remains in one place and workers and
equipment come tothat one work area.
• Examples of this type of project are a ship, a highway, a bridge, a house etc…
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Facility layout
4. Fixed position layout
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Developing & analyzing facility layouts
§ Important inputs to the layout decision are:
1. Specification of objectives of the system in terms of output and flexibility
2. Estimation of product or service demand on the system
3. Processing requirements in terms of number of operations and amount of
flow between departments and work centers.
4. Space availability with in the facility itself.
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Facility layout techniques
§ Operations Sequence Analysis
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From Numbe To
department r department
(name)
1 2 3 4 5 6 7
Assembly 1 350/1 400/3
Inspection 2 100/2 500/3
Painting 3 500/1
Stamping 4 300/1
Casting 5 300/2
Drilling 6 300/2 250/2 100/1
Shipping 7 400/3
and
Receiving
1200
1200
500
350
300
2
600
3
1
4
5
500
100
7
600
200
1500
6
• The above 1st layout reveals a number of costly non-adjacent loads. The non-
adjacent load cost is as follows:
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From department To department Cost
1 4 1200
2 4 200
5 3 600
6 4 500
6 2 600
7 5 1200
2 7 1500
Total cost 5800

• The improved layout and cost of non-adjacent load could be as follows:
Further improvement can also be done.
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1200
350
500
200
300
From department To department Cost
1 4 1200
2 4 200
6 2 600
Total cost 2000
1500
1200
600
600
500
100
§ Block Diagram Analysis
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Department Minimal area Minimal dimension
Assembly 800 20X40
Inspection 1800 30X60
Painting 1500 30X50
Stamping 2400 40X60
Casting 1500 30X50
Drilling 1500 30X50
Shipping and receiving 1500 30X50
2 4
1
7 5
2
1
7
5
3
6
4
§ Systematic Layout Planning (SLP)
Step I. Develop a chart to rate the relative importance of each department being
close to every other department. The rating range from the extremes of absolutely
necessary to undesirable. The ratings are based on various reasons such as:
• types of customers
• ease of supervision
• common personnel
• common equipment etc.
Step II. An initial schematic diagram, similar to the one in operation sequence
analysis is developed. This initial schematic diagram is modified through trial and
error until departments with high closeness ratings are adjacent to one another and
department and space limitations are satisfied
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§ Systematic Layout Planning (SLP)
§ Load Distance Analysis
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Layout A
8 4 10 2 5
3 7 1 9 6
Layout B
7 1 9 6 3
4 10 2 5 8
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§ Choose the layout alternative that minimizes total travel distance. Based on the
above analysis, Layout B results are the least total distance travelled per month
through the facility by the products.
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Facility location
§ The Need for location Decisions
ü Opportunity for expanding market share
ü Business growth in demand
ü Depletion of Basic resources
ü Shift in Market /demand
ü Operating Costs
ü Merge of companies
ü Introduction of new product.
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Characteristics of location decision
§ Long-term commitment
§ The selection of multiple acceptable location alternatives instead of identifying the
“One best” location
§ Location decision involves options like expanding an existing facility, addition of
new location, shutting down and doing nothing
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Factors Affecting Location Decisions
§ Regional factors
§ Proximity to customers
§ Business Climate
§ Total Costs
§ Infrastructure (water, electricity, etc…)
§ Quality of Labor
§ Suppliers
§ Location of raw materials
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§ Community factors
§ Facilities for education, shipping, recreation transportation , religious workshop,
entertainment, the quality of policy, and medical services
§ Attitude towards the company
§ The size of the community
§ Cost and availability of utilities
§ Environmental regulations
§ Taxes and
§ Existence of development support or incentive
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§ Site factors
§ Land (size, cost)
§ Transportation and zoning or other restrictions
§ Utilities etc…
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Facility Location Methods /Models
1. Breakeven analysis (cost – profit - volume analysis)
2. Factor rating method
3. The Center of gravity method and
4. Linear programming (transportation model)
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Factor rating method
Example : ABC shoe factory intends to open a new branch store. The exhibit below
contains information on two potential locations, A and B. Which location is
promising?
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The Factor-rating method
is a location method that instills objectivity into the process of identifying hard-to-
evaluate costs.
B is better than A because it has the higher composite score (211) mangers
sometimes may set a minimum standard, if it goes below that they can reject all
alternatives.

Center of gravity method
Example : Quain’s Discount Department Stores, a chain of four large Target-type
outlets, has store locations in Chicago, Pittsburgh, New York, and Atlanta; they are
currently being supplied out of an old and inadequate warehouse in Pittsburgh, the
site of the chain’s first store. The firm wants to find some “central” location in
which to build a new warehouse
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The center-of gravity method
is a mathematical technique used for finding the location of a distribution center
that will minimize distribution costs.
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Q A
End of chapter 6
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Chapter 7: Inventory planning & Control
§ Introduction
§ Functions of inventory
§ Inventory management models
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Introduction
§ Good inventory management is essential to the successful operation of most
organizations for a number of reasons.
§ One is the amount of money inventory represents and the other is the impact that
inventories have on the daily operations of an organization.
§ An inventory is a stock or store of goods.
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Functions of inventory
§ Decoupling production processes
§ Stabilizing Employment
§ Production stoppage protection
§ Taking advantage of quantity discounts
§ Protection against stock-outs
§ Level capacity plans
§ Provide a stock of goods that will provide a selection for customers
§ To hedge against inflation
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Types of inventory
• Raw material: inventory has been purchased but not processed.
• Work-in-process (WIP) inventory: is components or raw material that have
undergone some change but are not completed.
• Maintenance/repair/operating materials (MROs) are inventories devoted to
supplies necessary to keep machinery and processes productive.
• Finished-goods inventory is completed product awaiting shipment. Finished
goods may be inventoried because future customer demands are unknown.
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Inventory management models
• INVENTORY MODELS: Inventory control models assume that demand for an
item is either independent of or dependent on the demand for other items.
• For example, the demand for refrigerators is independent of the demand for toaster
ovens. However, the demand for toaster oven components is dependent on the
requirements of toaster ovens.
• The following are independent demand models;
1. Basic economic order quantity (EOQ) model: is one of the most commonly used
inventory control techniques (Model I).
2. Production order quantity model (Model II)
3. Quantity discount model (Model III)
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Model I: Economic order Quantity Model (independent inventory model)
assumptions:
1. Demand for an item is known, reasonably constant, and independent of
decisions for other items.
2. Lead time—that is, the time between placement and receipt of the order—is
known and consistent.
3. Receipt of inventory is instantaneous and complete. In other words, the
inventory from an order arrives in one batch at one time.
4. Quantity discounts are not possible.
5. The only variable costs are the cost of setting up or placing an order (setup or
ordering cost) and the cost of holding or storing inventory over time (holding or
carrying cost).
6. Stock outs (shortages) can be completely avoided if orders are placed at the right
time.
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POQ for production lot /Model II
• This model is applicable under two situations: (1) when inventory continuously
flows or builds up over a period of time after an order has been placed or (2) when
units are produced and sold simultaneously.
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Example 1
Nathan Manufacturing, Inc., makes and sells specialty hubcaps for the retail
automobile aftermarket. Nathan’s forecast for its wire-wheel hubcap is 1,000 units
next year, with an average daily demand of 4 units. However, the production
process is most efficient at 8 units per day. So the company produces 8 per day but
uses only 4 per day. The company wants to solve for the optimum number of units
per order. (Note: This plant schedules production of this hubcap only as needed,
during the 250 days per year the shop operates). Additionally, experts estimated the
holding and set up costs to be 0.5 and 10 respectively.
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D = 1,000
C = 0.5
S = 10
d = 4 units/day i.e. 1000/4=250 working days/year
p = 8 units/day
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Model III, EOQ with quantity Discount
Example: The manufacturer of plumping material (brass valve) has offered a
distributor quantity discounts if the distributer purchases more than present order
quantities. The inventory carrying cost is 20% of the cost.
• The new volume and price are
Range of order quantities Acquisition cost per valve (ac)
• 1-399 2.20
• 400-699 2.00
• Greater than 700 1.80
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The inventory analyst investigate the prices under two sets of assumptions
1) Orders are received all at once and
2) Deliveries are gradual
Assume the following
D = 10000
S = 5.5
C = prices
I = 0.2
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=
The analyst noted that only EOQ 2.00 is feasible because 524.4 valves per order
can be purchased at 2Br/valve.
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ABC Inventory Management Method
§ The ABC classification method suggests that inventories should be grouped into
three categories A, B and C. If more than three groups can be justified in a
particular case, they should be used.
§ A typical application of ABC inventory management would classify.
§ 75 to 80% of the value and 20% of the materials into class A
§ 15 to 20% of the value and 30% of the materials into class B
§ 5 to 10% of the value and 50% of the materials in to class C
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Inventory management models (Example)
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Item % of no. Annual Unit cost Annual % of Class

stock no. of items volume dollar annual
stocked (units) volume dollar
volume
#10286 11.7% 1000 90.00 90,000 38.8% A
#11526 5.8% 500 154.00 77,000 33.2% A
#12760 18.1% 1550 17.00 26,350 11.3% B
#10867 4.1% 350 42.86 15,001 6.4% B
#10500 11.7% 1000 12.5 12,500 5.4% B
#12572 7.01% 600 14.17 8,502 3.7% C
#14075 23.4% 2000 0.60 1,200 0.5% C
#01036 1.2% 100 8.50 850 0.4% C
#01307 14% 1200 0.42 504 0.2% C
#10572 2.9% 250 0.60 150 0.1% C
Total 8550 232,057
17.5%
33.9%
72%
23.1%
48.6%
4.9%
ABC Inventory Management Method
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Q A
End of chapter 7
8/27/2022
Chapter 8: Production planning & Control
§ Production planning classifications
§ Describe the production planning strategies and techniques
§ List out the production control functions
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Production planning classifications
§ Based on time dimension planning can be long range (over one year), medium
range (3 to 18 months) and short range (up to 3 months).
Long-range planning
• Corporate strategic planning
• Business forecasts
• Product and market planning
• Financial planning
• Resource planning
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Specific long range plans include
iii. Process plans
• Development of new production technology
• New production process
• New system of automation
iv. Product plans
• Quality
• Price
I.Facility plans
• Plant location
• Layouts
• Size
• Capacities
ii. Major suppliers plan
• Vertical integration plans
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Medium Range Planning
• Aggregate production planning

• Master production scheduling
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• Aggregate production planning: combining appropriate resources into general, or
overall, terms.
• An aggregate plan for BMW tells the auto manufacturer how many cars to make
but not how many should be two-door vs. four-door or red vs. green.
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• Three focused aggregate planning strategies are:
1. Vary production to match demand by changes in employment (Chase
demand strategy): This strategy permits hiring and layoff of workers, use of
overtime, and subcontracting as required in each period. However, inventory build-
up is not used.
2. Produce at a constant rate and use inventories. (Level production strategy):
This strategy retains a stable work force producing at a constant output rate.
Inventory can be accumulated to satisfy peak demands. In addition, subcontracting
is allowed and back orders can be accepted. Promotional programs may also be
used to shift demand.
3. Produce with stable workforce but vary the utilization rate (Stable
workforce strategy): This strategy retains a stable work force but permits
overtime, part-time, and idle time. Some versions of this strategy permit back
orders, subcontracting, and use of inventories.
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• Master production scheduling: disaggregation (the process of breaking an
aggregate plan into greater detail) results in a master production schedule, which is
a timetable that specifies what is to be made and when
Aggregate plan and master production schedule
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Short-range production planning
• May extend up to a year but is usually less than 3 months.
• This plan is also the responsibility of operations personnel, who work with
supervisors and foremen to “disaggregate” the intermediate plan into weekly, daily,
and hourly schedules.
• Tactics for dealing with short-term planning involve loading, sequencing,
expediting, job scheduling and dispatching
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Production control function
§ The role of production control in any organization producing goods or services is
to separate those directly responsible for operating the production function from
the none operating function of planning, scheduling, coordinating and record
keeping.
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Paper communications for authorization & control
§ The production/work order: is an instruction to make a given quantity of a
particular item, usually to a given schedule.
§ The Route Sheet: lists the operations necessary to produce the component with the
material specified in the bill of material.
§ Bill of material (BOM): a listing of all components (subassemblies and materials)
that go into an assembled item. It frequently includes the part numbers and
quantity required per assembly.
§ The job Ticket or production card: created for a single production, and the work
and time that goes into that production is then recorded on the card.
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Sample production/work order Job ticket

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The product structure tree shown in the Figure is for wheelbarrow W099 and the
table represents an indented bill of materials.
Q A
End of chapter 8
8/27/2022
Chapter 9: Supply chain management
§ The importance of supply chain management
§ Supply chain strategies
§ Major issues in logistics management
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The importance of supply chain management
§ Supply chain management is the integration of the activities that procure
materials and services, transform them into intermediate goods and final products,
and deliver them to customers.
§ These activities include purchasing and outsourcing activities, plus many other
functions that are important to the relationship with suppliers and distributors.
§ The objective of supply chain management is to build a chain of suppliers that
focuses on maximizing value to the ultimate customer.
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Supply chain strategies
§ Many suppliers
§ Long-term “partnering” relationships with a few suppliers
§ Vertical integration
§ Joint venture
§ Keiretsu (combination of few suppliers and vertical integration)
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§ Many suppliers: a supplier responds to the demands and specifications of a
“request for quotation,” with the order usually going to the low bidder. This
strategy plays one supplier against another and places the burden of meeting the
buyer’s demands on the supplier.
§ Long-term “partnering” relationships with a few suppliers: implies that rather
than looking for short-term attributes, such as low cost, a buyer is better off
forming a long-term relationship with a few dedicated suppliers.
§ Vertical integration: deals with developing the ability to produce goods or
services previously purchased or actually buying a supplier or a distributor
(forward or backward).
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§ Joint venture: firms engage in collaboration to secure supply or reduce costs.
Firms cooperate without diluting the brand or conceding a competitive advantage
so that they can satisfy the required supplies.
§ Keiretsu (combination of few suppliers and vertical integration): the supplier
becomes part of a company coalition known as a keiretsu. Members of the keiretsu
are assured long term relationships and are therefore expected to collaborate as
partners, providing technical expertise and stable quality production to the
manufacturer.
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Logistics management
§ Logistics management is an approach that seeks efficiency of operations through
the integration of all material acquisition, movement, and storage activities.
§ When logistics issues are significant or expensive, many firms opt for
outsourcing the logistics function.
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Major issues in logistics
§ Distribution Systems
§ Trucking
§ Railroads
§ Airfreight
§ Waterways
§ Pipelines
8/27/2022
Major issues in logistics
§ Third-Party Logistics: supply chain managers may find that outsourcing logistics
is advantageous in driving down inventory investment and costs while improving
delivery reliability and speed. Specialized logistics firms support this goal by
coordinating the supplier’s inventory system with the service capabilities of the
delivery firm.
§ Cost of Shipping Alternatives: the longer a product is in transit, the longer the
firm has its money invested. But faster shipping is usually more expensive than
slow shipping. A simple way to obtain some insight into this trade-off is to evaluate
holding cost against shipping options.
§ Security and Just in Time (JIT): Technology is now capable of knowing truck
and container location, content, and condition. New devices can detect whether
someone has broken into a sealed container and can communicate that information
to the shipper or receiver via satellite or radio.
§ Government Regulations: Carriers face significant compliance regulations
imposed by federal, state and local authorities.
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Q A
End of chapter 9
8/27/2022
Chapter 10: Human Resources, Job Design, & Work Measurement
§ Human resource strategy and operations
§ The importance of ergonomics in workplace
§ Time study
8/27/2022
Human resource strategy & operations
§ The objective of a human resource strategy is to manage labor and design jobs so
people are effectively and efficiently utilized.
§ Many decisions made about people are constrained by other decisions.
§ The product mix may determine seasonality and stability of employment.
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§ Technology, equipment, and processes may have implications for safety and job
content.
§ The location decision may have an impact on the ambient environment in which
the employees work.
§ Layout decisions, such as assembly line versus work cell, influence job content.
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Constraints on HR strategy
Ergonomics & the work environment
§ Ergonomics means “the study of work.” (Ergonis the Greek word for “work.”) The
term human factors is often substituted for the word ergonomics.
§ Therefore, design of tools and the workplace depends on the study of people to
determine what they can and cannot do.
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Ergonomics & the work environment
8/27/2022
Time Studies
§ The classical stopwatch study, or time study, originally proposed by Frederick W.
Taylor in 1881, involves timing a sample of a worker’s performance and using it to
set a standard.
§ A trained and experienced person can establish a standard by following these eight
steps:
1. Define the task to be studied (after methods analysis has been conducted).
2. Divide the task into precise elements (parts of a task that often take no more than
a few seconds).
3. Decide how many times to measure the task (the number of job cycles or
samples needed).
4. Time and record elemental times and ratings of performance.
5. Compute the average observed (actual) time.
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Time Studies
8/27/2022
Time Studies
§ Example: The time study of a work operation at a Red Lobster restaurant yielded
an average observed time of 4.0 minutes. The analyst rated the observed worker at
85%. This means the worker performed at 85% of normal when the study was
made. The firm uses a 13% allowance factor. Red Lobster wants to compute the
normal time and the standard time for this operation.
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Time Studies
8/27/2022
Q A
End of chapter 10
8/27/2022
References
Heizer, Jay and Render, Barry (2011). Operations Management. Pearson
Education, Inc., New Jersey.
Kumar, S., Anil and Suresh, N. (2009). Operations Management. New Age
International (P) Limited, Publishers, New Delhi.
8/27/2022

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Operaations Management

Historical Evolution of Production & Operations Management (Kumar &

Goods & Services

Often produced and consumed Often produced and consumed

Have similar characteristics Are unique

Have low customer interaction (easy to Have high customer interaction

Have relatively consistent definition Have inconsistent definition

Relatively easy to automate Often knowledge based and difficult to

Frequently deposited in a single place Frequently dispersed

Global focus; international collaboration

Rapid product development; design collaboration

Environmentally sensitive production; green manufacturing; sustainability

Empowered employees; enriched jobs

Supply-chain partnering; joint ventures; alliances

Just-in-time performance; lean; continuous improvement

Quarters Actual tonnage

Quarters Actual tonnage

Absolute deviation (ɑ = 0.10)

Quarters Actual tonnage

Definition categories Proposition Who is interested

User based quality lies in the eyes of Marketing people and

Manufacturing based quality means Production managers

Product based Quality involves precise Quality inspectors and

Transcendent quality Quality is something Art persons

Value-based quality performance or Sponsors and finance unit

Work in process inventory level(hides problems)

Process performance metrics

Factors affecting capacity planning

Decision Tree (example)

Decision Tree (example)

Assembly 1 350/1 400/3

Inspection 2 100/2 500/3

Drilling 6 300/2 250/2 100/1

From department To department Cost

Total cost 5800

From department To department Cost

Total cost 2000

Department Minimal area Minimal dimension

Assembly 800 20X40

Inspection 1800 30X60

Painting 1500 30X50

Stamping 2400 40X60

Casting 1500 30X50

Drilling 1500 30X50

Shipping and receiving 1500 30X50

Facility layout techniques

Facility Location Methods /Models

Facility Location Methods /Models

Inventory management models

Item % of no. Annual Unit cost Annual % of Class

#10286 11.7% 1000 90.00 90,000 38.8% A

#11526 5.8% 500 154.00 77,000 33.2% A

#12760 18.1% 1550 17.00 26,350 11.3% B

#10867 4.1% 350 42.86 15,001 6.4% B

#10500 11.7% 1000 12.5 12,500 5.4% B

#12572 7.01% 600 14.17 8,502 3.7% C

#14075 23.4% 2000 0.60 1,200 0.5% C

#01036 1.2% 100 8.50 850 0.4% C

#01307 14% 1200 0.42 504 0.2% C

#10572 2.9% 250 0.60 150 0.1% C

Total 8550 232,057

• Aggregate production planning

Production planning classifications