Engineering Management

Lesson No. 17 – Operations Management

(continuation)
THE MANAGEMENT OF
OPERATIONS
Once managers have made the strategic planning
about design, layout, process and technology,
location and capacity, the operations management
team needs to develop specific plans for the overall
production activities.
This involves aggregate planning, master
scheduling and structuring the operations.
The Aggregate Plan
 Aggregate planning involves planning production activities
and the resources needed to achieve them.
 It draws the “roadmap” for operating activities for a period
of time up to one year.
 Aggregate planning begins with the consideration of the
demand forecast for products or services and study of the
capacity of the operations.
 By examining demand and capacity, the operations
management team sets production rates, inventory levels,
materials requirements, and labor needs.
 The result of this process is a general operating (aggregate)
plan.
 THE AGGREGATE PLAN (Units/Month)

January February March April May

Electric Ranges 1000 1250 1200 1300 1200

Gas Ranges 75 800 700 1000 1000

Total 1750 2050 1900 2300 2200

The Master Schedule
The master schedule, derived from the aggregate plan,
specifies the quantity and type of each item to be
produced and how, when, and where it should be
produced.
Materials requirements are derived from the master
schedule, and the schedule affects inventory levels.
 The Master Schedule for Electric Ranges
(Units/Week)
January Week No. 1 Week No. 2 Week No. 3 Week No. 4
White 100 100 50 50
Black 100 100 50 100
Gray 100 50 100 100

TOTAL: 1000

February Week No. 1 Week No. 2 Week No. 3 Week No. 4

White 100 100 50 100

Black 100 50 100 100

Gray 150 150 150 150

TOTAL: 1250
The Structure for Implementing
Production
 One more element of operations remains to be planned: the
structure for implementing production.
 In this regard, the operations management team must
decide how to organize the department, whether and how to
incorporate teams, the nature of authority relationships, and
the extent of decentralization.
 The point here is that the operations management team
must address each one in the context of operations.
 The desired result is an integrated, flexible organizational
structure that can respond to changes in the aggregate plan.
CONTROLS FOR QUALITY AND
PRODUCTIVITY
The driving forces in the organization of today are
productivity and quality. Or quality and
productivity. The order is irrelevant; the two
cannot be separated.
Traditionally, managers viewed productivity in
terms of greater output.
They did not give much thought whether the units
of output were usable or not.
Enlightened managers now realize that
productivity is related to saleable high-quality
units of output, whether the outputs are products or
services.
 The costs associated with poor productivity relate to quality.
 These include the costs of scrap, repair, and downtime.
 Such costs are directly observable during production.
 Quality is also related to the costs incurred before
manufacturing begins.
 These expenses include the cost of incoming materials,
purchasing, and inventory.
 All these factors fall within the purview of operations
management.
 To achieve high quality and productivity, managers use a
number of operational controls. These include:
Design Control
The team approach, which was discussed previously,
provides an opportunity for designers to insert quality
and performance controls before a product is
produced.
Design Control focuses on creating new products
engineered for reliability, functionality, and
serviceability.
Materials Control: Purchasing
An integral component of an operations management
control system, materials control is achieved through
effective purchasing.
Purchasing is the acquisition of needed goods and
services.
The goal of the purchasing agent is to acquire them at
optimal costs from competent and reliable sources.
What an organization produces depends on the inputs—
the materials and supplies.
Therefore, purchasing is critical for the following
reasons:
If the materials are not on hand, nothing can be produced.
If the right quantity of materials is not available, the
organization cannot meet demand.
If the materials are of inferior quality, it is difficult or costly
to produce quality products.
The goal of purchasing control is to ensure the
availability and acceptable quality of material while
balancing costs. Maintaining relations with reliable
sources is one strategy for achieving this goal.
Inventory Control
The goods an organization keeps on hand are called
inventory.
Inventory control is critical to operations management
because inventory represents a major investment.
Most organizations have three types of inventory: raw
materials, work-in-process, and finished goods.
The Importance of Inventory
Control
 At one time, managers prided themselves on maintaining large
inventories.
 Inventories were regarded as measures of wealth.
 Today managers realize that a large inventory can indicate
wasted resources.
 Money not tied up in inventory can be used elsewhere.
 The goal of inventory control is to sustain the proper flow of
materials while maintaining adequate inventory levels and
minimum costs.
 With this goal in mind, organizations have four specific
techniques for inventory management.
 They are economic order quantity (EOQ), materials
requirement planning (MRP), manufacturing resource planning
(MRP II), and just-in-time (JIT) inventory systems.
Economic Order Quantity (EOQ)
The economic order quantity (EOQ) is the order
quantity that minimizes ordering and holding cost
based on the rate of inventory use. (Extensive
discussion of this technique will done on succeeding
lessons)
Materials Requirement Planning (MRP)
When demand for one inventory item depends on
other inventory items, materials requirement
planning is one technique for managing this type
of inventory situation.
For example: Such in the case of Boeing: To produce
one hundred 747s, each of which includes some three
million parts. Boeing must have a vast number of
discrete components on hand.
This production planning and inventory system
uses forecasts of customer orders to schedule the
exact amount of materials needed to support the
manufacture of the desired number of products.
MRP results in purchasing on time and according
to actual needs.
In most cases MRP means a reduction in inventory
and fewer production stops due to lack of stock.
These changes save money.
Manufacturing Resource Planning (MRP II)
An even more sophisticated system than MRP is
manufacturing resource planning (MRP II).
MRP is used to manage inventory; MRP II, on the
other hand, is a comprehensive planning system.
It emphasizes planning and controlling all of a firm’s
resources—its finances, capital, and marketing
strategies—as well as production and materials
management.
MRP II creates a model of the overall business,
allowing top managers to control production
scheduling, cash flow, human resources, capacity,
inventory, purchasing, and distribution.
 Just-In-Time (JIT) Inventory System
 Another technique for inventory control is designed to reduce
inventory by coordinating supply deliveries with production.
 This technique, called just-in-time (JIT) inventory system,
originated in Japan.
 The JIT concept is sometimes is called the Kanban system, the
stockless system, or the zero-inventory system.
 With the JIT approach, suppliers deliver exact quantities of
materials directly to manufacturers as the manufacturers need
them.
 There is no buffer of “safety” inventory.
 There is no warehousing or in-process handling. The benefits
derived from JIT include reduced inventory and setup time,
better work flow, shorter manufacturing time, and less
consumption of space.
 Joke of the Day
 2 Reasons Why I Should go to School

 Early one morning, a mother went in to wake up her son.

 "Wake up, son. It's time to go to school!"
 "But why, Mom? I don't want to go."
 "Give me two reasons why you don't want to go."
 "Well, the kids hate me for one, and the teachers hate me also!"
 "Oh, that's no reason not to go to school. Come on now and get
ready."
 "Give me two reasons why I should go to school."
 "Well, for one, you're 52 years old.
 And for another, you're the PRINCIPAL!"
Schedule Control
Another important element of operations control is
schedule control—techniques for scheduling
operation and tracking production.
There are two basic scheduling techniques:
Gantt Charts. An early pioneer in scientific
management, Henry L. Gantt, was the first to device a
reliable method for reserving machine time for jobs in
production. The method promotes the orderly flow of
work from one process to the next, with a minimum of
lost time or delays.
A Gantt chart tracks a project from beginning to end,
comparing the time estimates for the steps involved with the
actual time they require and adjusting the starting and ending
times of steps if necessary.
Gantt charts work best for scheduling and tracking
sequential events, the completion times of which
will determine the total time for an entire project.
Gantt charts are not appropriate for highly
complex projects that require many different kinds
of sequential operations that begin or run
simultaneously.
Network Scheduling
 Managers use network scheduling to schedule and track project
which events and activities are interrelated.
 This technique for scheduling and controlling uses and activities
that have time estimates assigned to them.
 Example of CPM Network for a Computer Design Project

Immediate
Activity Designation Time in Weeks
Predecessors

Design A 21

Build Prototype B A 5

Evaluate Equipment C A 7
Test Prototype D B 2
Write Equipment
E C, D 5
Report
Write Methods Report F C, D 8
Write Final Report G E,F 2
 C F

7 8

A G

21 2

B D E

5 2 5

 Activities are represented by circles, letters and a

corresponding time to complete said activity.
 The arrows indicates the preceding activity.
 Activity A is the starting activity and Activity G is the ending
activity.
 In the diagram, the critical path is the longest possible path,
which are paths A-B-D-F-G and A-C-F-G.
 Given current time estimates, the critical path shows the
longest time a job could take.
 Awareness of the critical path equips manager with the
ability to really control a project.
 For example a delay in the completion of activity E by one
week will not affect the total project’s completion time.
 On the other hand, if activity F will be delayed by one
week, the entire project will be one week off schedule
unless the manager takes some corrective action.
 By maneuvering to ensure that the length of the critical
path does not increase, the manager can maintain effective
control of the project.
 The Program Evaluation and Review Technique (PERT),
an adaptation of network scheduling, assigns three time
estimates to activities: optimistic, most likely time, pessimistic
time.
 The expected time (the amount of time the manager thinks the
activity will actually take) is based on a probability analysis of
the other three time estimates. a  4m  b
Estimated Time (ET) = 6

 The PERT method, originally devised at the Lockheed Corporation for

planning complex aerospace development projects, provides managers with
a graphic view of the details of a project from initiation to completion. It
functions as a control device by helping the manager spot trouble areas and
see when a project is falling behind schedule. The manager can take
corrective action before the delay becomes critical.
 Product Control
At one time, the entire concept of operations control
focused on inspection of the physical product.
With the advent of TQM, inspection was placed in
new perspective, as only one part of controlling.
Now product control encompasses controls from
purchasing to end use.
It involves reducing the probability and cost of poor
quality and unreliable products.
Product controls focus on inspection and testing
techniques.
Acceptance Sampling.
 Any inspection of a representative group of products that takes
place prior to the beginning of a new phase of production
constitutes acceptance sampling.
 The inspection may be done prior to the receipt of raw materials,
when subassemblies are completed, after critical processes of
manufacturing, and prior to shipping finished goods.
 The data from the sample is used to evaluate all items in the
group.
 Acceptance sampling is used to make cost effective evaluation of
large numbers of items.
 The evaluations determine whether entire batches are accepted or
rejected.
Detailed Inspection and Tests.
 Rather than a sampling approach to product control, some
operations conduct detailed inspection and tests on every
finished item.
 Medicines, for example, are tested this way.
 The goal of the technique is to identify all parts that do not meet
standards and to pinpoint inadequate processes.
Control Sampling.
 The purpose of control sampling is to detect variations in
production processes and workmanship.
 The technique involves periodic tests to uncover problems with
equipment, worn tools, bad parts, or personnel.
 When managers know about the problems, they can correct them.
 Unlike acceptance sampling, which is used to decide whether a
batch is accepted or not, control sampling is used to correct
problems as they occur.
Qualification Testing.
 In qualification testing, a sample product is checked for
performance on the basis of reliability and safety.
 New car models are driven hundreds of thousands of miles so that
engineers can test the overall car and its components.
 Thousands of golf balls are hit by automatic golf clubs so that
engineer can check on the quality of the balls and the reliability of
their flight.
 The goal of qualification testing is to ensure that a product, as a
class, performs as it should.
 The purpose of detailed testing is to ensure that each version of a
product meets established standards.
Quote of the Day
“
The quality of a person's life is in direct proportion to t
heir commitment to excellence, regardless of their chos
en field of endeavor.
” 
Vince Lombardi
Miscellaneous Activities
Skill Building Exercise No. 13
Case Study No. 13 – The Downside of JIT