P.O.

M MIDTERM
REVISION Lecturer: N.N.Tung
Prepared & Presented by TA Nguyen Dang Tu Oanh
TABLE OF CONTENTS

01. 02. 05.

Operations and Operations strategy in Design of Goods
Products the Global Environment and Services

06. 07. S7.

Managing Quality Process strategy Capacity Planning
01
OPERATIONS &
PRODUCTS
DIFFERENCES BETWEEN G&S
 1. Competing on Differentiation:
- Uniqueness can go beyond both the physical characteristics and service attributes to encompass
everything that impacts customer’s perception of value.
- Experience differentiation
- Engaging a customer with a product through imaginative use of the five senses, so the customer
“experiences” the product.
- Ex: The Body Shop (Against animal testing)
1. Competing on Cost Leadership:
- Provide the maximum value as perceived by customer. Does not imply low quality.
- Ex: Unilever, P&G, IKEA
1. Competing on Response:
- Delivery Speed is quickly filling a customer’s order.
- On-Time Delivery means meeting the delivery time promises.
- Time-Based Competition is a strategy that focuses on development speed and delivery speed.
- Flexibility is matching market changes in design innovation and volumes.
- Reliability is meeting schedules.
- Ex: HP computer

- Mission: The purpose or rationale for an organization’s existence.

- Strategy: How an organization expects to achieve its mission and goals.

Question: There are three primary strategies for operations managers to achieve the sustainable
competitive advantage? Give explanation and suitable examples.
EXAMPLE 01:
Joanna French is currently working a total of 12 hours per day to produce 240 dolls. She thinks
that by changing the paint used for the facial features and fingernails that she can increase her
rate to 360 dolls per day. Total material cost for each doll is approximately $3.50, she has to
invest $20 in the necessary supplies (expendables) per day, energy costs are assumed to be only
$4.00 per day, and she thinks she should be making $10 per hour for her time. Viewing this from a
total (multifactor) productivity perspective, what is her productivity at present and with the new
paint?
Summary:
Old output: 240 dolls New output: 360 dolls
Labor: 12h * $10 = $120 Material cost: 360 * $3.5 = $1,260
Material cost: 240 * $3.5 = $840
Supplies: $20
Energy cost: $4

Old productivity: 240 / (120 + 840 + 20 + 40) = New productivity: 360 / (120 + 1,260 + 20 +4 ) =
0.2352 dolls/dollar 0.25 dolls/dollar

Percentage change/increase: (New - Old) / Old = (0.25 - 0.2352) / 0.2352 = 0.0629 * 100 = 6.29%
B1: Xác định đề đang nói dạng nào
B2: Áp dụng công thức của dạng đó → Productivity
EXAMPLE 02: Problem 1.2
Chuck Sox makes wooden boxes in which to ship motorcycles. Chuck and his three employees
invest a total of 40 hours per day making the 120 boxes.
a) What is their productivity?
b) Chuck and his employees have discussed redesigning the process to improve efficiency. If they
can increase the rate to 125 per day, what will be their new productivity?
c) What will be their unit increase in productivity per hour?
d) What will be their percentage change in productivity?
*To calculate unit increase:
- Calculate the increase of product produced: 125 - 120 = 5 boxes per day.
- Divide with labor-hour used: 5 / 40 = 0.125 boxes per labor-hour ← Unit increase.
Or: New productivity - Old productivity = 0.125 boxes ← Unit increase.
EXAMPLE 03:
Casumina Coorporation makes a plan to produce 1,000 tires per day with the following resources:
● Labor: 500 hours per day@$12.50 per hour
● Raw material: 20,000 kg per day @$1 per kilo
● Energy: $5,000 per day
● Capital: $10,000 per day
a) What is the labor productivity per labor-hour for these tires at Casumina Co.?
b) What is the multifactor productivity for these tires at Casumina Co.?
c) What is the percent change in multifactor productivity is Casumina Co. can reduce the
energy bill by $1,000 per day without cutting production or changing any other inputs?
02
OPERATIONS
STRATEGY
05
DESIGN OF
G&S
 HOUSE OF
QUALITY
Relationships “How” - “Wants”
 HOUSE OF
QUALITY
Relationships “How” - “Wants”
- All definition: page 200, 201, 202, 203
- Defining a product: Page 205, 206
- Documents for production: Page 208
 Decision (có thể quyết định)

Chances / Probability (không thể tự

DECISION TREE
quyết định)

B1: Xác định dạng:

Variable Cost * Quantity + Fixed Cost = Total Cost
Price * Quantity - Cost = Profit
B2: Vẽ Decision Tree
B3: Tính EMV
→ Profit: Max EMV
Ghi công thức vào các nhánh
Conclusion: [Name company] should choose [option name] -
value analysis team with high profit/EMV of [number].
EXAMPLE 04:
Svarobski, an Austrian company specializing in crystal is experiencing a substantial shortage of
their product. The company management is considering 3 options:
(1) arrange for subcontracting
(2) begin overtime production
(3) construct new facility
The correct decision depends largely upon future demand, which may be low, medium or high. By
consensus, management ranks the respective probabilities as 0.10, 0,50 and 0.40. A cost analysis
reveals the effect upon profits which is shown the the table as follow:

Medium
Alternatives Low demand High demand
demand
Arrange for subcontracting $10,000 $50,000 $50,000
Begin overtime -$20,000 $60,000 $100,000
Construct new facility -$150,000 $20,000 $200,000
Market probability 0.10 0.50 0.40
a. Draw the decision tree for Svarobski company.
b. Determine the best strategy using expected monetary value.
06
MANAGING
QUALITY
 TWO WAYS QUALITY
IMPROVES PROFITABILITY
 COST OF QUALITY
(COQ)
● Prevention costs - reducing the potential for defects
● Appraisal costs - evaluating products, parts, and services
● Internal failure - producing defective parts or service before delivery
● External costs - defects discovered after delivery
TOOLS OF TQM
 SIX CONCEPTS FOR AN EFFECTIVE
TQM PROGRAM
1. Continuous improvement: Plan – Do – Check – Act
- Japanese use the word “ Kaizen” to point ongoing process.
- Six sigma:
+ A program to save time, improve quality and lower costs.
+ 2 meanings: Statistical system – Comprehensive quality system
1. Employee involvement
2. Benchmarking
3. Just-in-Time
4. Taguchi concepts
5. Knowledge of TQM tools.
SCATTER
DIAGRAM
EXAMPLE 05: Problem 6.1
Develop a scatter diagram for two variables of interest [say pages in the newspaper by day of the
week; see the example in Figure 6.6(b)]

Year Growth in Internet use

2000 602%
2001 840%
2002 1,785%
2003 1,123%
2004 2,421%
2005 315%
2006 137%
CAUSE & EFFECT
DIAGRAM
EXAMPLE 06: Problem 6.8
Construct a cause-and-effect diagram to reflect “student dissatisfied with university
registration process.” Use the “four Ms” or create your own organizing scheme. Include at least
12 causes.
FLOW CHART
PARETO CHART
EXAMPLE 07: Problem 6.2
An avant-gardeclothing manufacturer runs a series of high-profile, risqué ads on a billboard on
Highway 101 and regularly collects protest calls from people who are offended by them. The
company has no idea how many people in total see the ads, but it has been collecting statistics on
the number of phone calls from irate viewers:
EXAMPLE 07: Problem 6.2
● Depict this data with a Pareto chart. Also depict the cumulative complaint line.

cumulative %

total: 36
HOW TO DRAW PARETO CHART:

45 = 2cm
66 = ? cm
EXAMPLE 07: Problem 6.2
● What percent of the total complaints can be attributed to the most prevalent complaint.

→ The most prevalent complaint is W, accounting for 38.89% of the total complaints.
EXAMPLE 08:
A company collect information of defect shipments. The form of 280 shipments has been turned
in. The number of defective items in each sample was recorded as follows.

Reasons of defective shipment

Number of
No of Incorrect
shipment Incorrect Damage Trucks
Week shipments truck
defects bill product late
load
1 23 6 2 2 1 1
2 31 8 1 4 1 2
3 28 6 2 3 1
4 37 11 4 4 2 1
5 35 10 3 4 2 1
6 40 14 5 6 3
7 41 12 3 5 3 1
8 45 15 4 6 3 2
EXAMPLE 08:
● Develop a Pareto chart for the type of defects that have occurred.

Number of
Type Description Cumulative data Percentage
shipment defects
I Incorrect truck load 34 34 41.46%
B Incorrect bill 24 58 70.73%
D Damage product 16 74 90.24%
L Trucks late 8 82 100%
EXAMPLE 08:
07
PROCESS
STRATEGY
EXAMPLE 09: CROSS-OVER CHART
The local convenience store makes personal pan pizzas. Currently, its process makes complete
pizzas, fully cooked, for the customer. This process has a fixed cost of $20,000, and a variable cost
of $1.75 per pizza. The owner is considering a different process that can make pizzas in two ways:
completely cooked (as before), or partially cooked and then flash frozen for the customer to
finish heating at home. This alternate process has a fixed cost of $24,000, but a lower variable
cost (because much less energy is used in baking) of $1.25 per pizza.

Summary:
We have: FIXED COST + VARIABLE COST * QUANTITY = TOTAL COST
Process 1: Completely cooked Process 2: Partially cooked, flash frozen
FC = $20,000 FC = $24,000
VC = $1.75 VC = $1.25

a) What is the crossover point between the existing process and the proposed process?
b) If the owner expects to sell 9,000 pizzas, should he get the new oven?
EXAMPLE 09:
● What is the crossover point between the existing process and the proposed process?
EXAMPLE 09:
● If the owner expects to sell 9,000 pizzas, should he get the new oven?
S7
CAPACITY
PLANNING
UTILIZATION & EFFICIENCY
Utilization is the percent of design capacity actually achieved

Utilization = Actual output/Design capacity

Efficiency is the percent of effective capacity actually achieved

Efficiency = Actual output/Effective capacity

Expected Output = (Effective Capacity)*(Efficiency)

UTILIZATION & EFFICIENCY
Facility produces breakfast rolls:
Last week, produced 148,000 rolls = actual ouput
Effective capacity is 175,000 rolls
Line operates 7 days a week with three 8-hour shifts per
day = 24h/day = 168h/week
Line designed to produce 1200 rolls per hour
Determine: Design Capacity, Utilization, Efficiency

Design capacity = (168h/week) x (1,200) = 201,600 rolls

Utilization = 148,000/201,600 = 73.4%

Efficiency = 148,000/175,000 = 84.6%

EXAMPLE 10: PROBLEM S7.1
Southeastern Oklahoma State University’s business program has the facilities and faculty to
handle an enrollment of 2,000 new students per semester. However, in an effort to limit class
sizes to a “reasonable” level (under 200, generally), Southeastern’s dean, Holly Lutze, placed a
ceiling on enrollment of 1,500 new students. Although there was ample demand for business
courses last semester, conflicting schedules allowed only 1,450 new students to take business
courses. What are the utilization and efficiency of this system?

Summary:
- Actual output = 1,450 new students.
- Design capacity = 2,000 new students/semester.
- Effective capacity = 1,500 new students.
BOTTLENECK TIME - THỜI GIAN “TẮC NGHẼN”
► The bottleneck time is the time of the slowest workstation (the one that
takes the longest) in a production system ( System process time )
► The throughput time is the time it takes a unit to go through production
from start to end ( Process cycle time )

The bottleneck time is 4 mins, the slowest workstation.

The throughput time is 2 + 4 + 3 = 9 mins/unit.
EXAMPLE 11: PROBLEM S7.10
A production line at V. J. Sugumaran’s machine shop has three stations. The first station can
process a unit in 10 minutes. The second station has two identical machines, each of which can
process a unit in 12 minutes. (Each unit only needs to be processed on one of the two machines.)
The third station can process a unit in 8 minutes. Which station is the bottleneck station?
BOTTLENECK TIME - PARALLEL PROCESS

● 2 máy GIỐNG NHAU HOÀN TOÀN (chia đôi)

● Wrapping/Delivery has the longest processing time (37.5s) → Bottleneck time.
● 1 sandwich = 37.5s → ? sandwiches = 3,600s.
● Capacity per hour: 3,600 seconds per hour / 37.5 seconds per sandwich = 96 sandwiches per hr.
● Throughput time = 30 + 15 + 20 + 20 + 37.5 = 122.5 seconds.
EXAMPLE 12: PROBLEM S7.11

a) What is the bottleneck time of the system?

b) What is the bottleneck station of this work cell?

c) What is the throughput time?

BOTTLENECK TIME - SIMULTANEOUS
PROCESS

● 2 máy KHÁC NHAU HOÀN TOÀN.

● Bottleneck time is Cleaning which takes 24 minutes.
● Hourly capacity: 60/24 = 2.5 patients.
● Throughput time sẽ lấy process có thời gian DÀI NHẤT.
● X-ray exam path: 2 + 2 + 4 + 5 + 8 + 6 = 27 minutes.
● Cleaning path: 2 + 2 + 4 + 24 + 8 + 6 = 46 minutes. → Longest path → Patient should completed
in 46 minutes.
EXAMPLE 14: PROBLEM S7.17
Markland Manufacturing intends to increase capacity by overcoming a bottleneck operation by
adding new equipment. Two vendors have presented proposals. The fixed costs for proposal A are
$50,000, and for proposal B, $70,000. The variable cost for A is $12.00, and for B, $10.00. The
revenue generated by each unit is $20.00.
Summary:

Machine A: Machine B:

FC = $50,000 FC = $70,000

VC = $12.00 VC = $10.00

P = $20.00/unit P = $20.00/unit

a) What is the break-even point in units for proposal A?

b) What is the break-even point in units for proposal B?
c) At what volume (units) of output would the two alternatives yield the same profit?
Units/Hr ≠ Hrs/Unit
We could change UNITS/HR to HRS/UNIT
BREAK-EVEN POINT (BEP)

● BEPx = FC / (P - VC) (IN UNITS)

● BEP$ = BEPx * P = FC / [ 1 - (VC/P)] (IN DOLLARS)

● PROFIT = TR - TC = (P - VC)x - FC
BREAK-EVEN POINT (BEP)
Fixed costs = $10,000 Material = $0.75/unit
Direct labor = $1.50/unit Selling price = $4.00 per unit
EXAMPLE 13: PROBLEM S7.15
Smithson Cutting is opening a new line of scissors for supermarket distribution. It estimates its
fixed cost to be $500.00 and its variable cost to be $0.50 per unit. The selling price is expected to
average $0.75 per unit.

Summary:

FC = $500.00
VC = $0.50
Selling price = $0.75 per unit.
THANKS
Do you have any questions?
- Nguyễn Đặng Tú Oanh -

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