CHAPTER ONE

Operations Management
 Evaluation
1) Attendance--------------------------------------------------------------- 10%
2) Group assignment (Last submission Date: 11 Sep 2021) ------ 20%
3) Test (chapter one and two: date- 11 Sep 2021)------------------ 20%
4) Final exam (All Chapters: Date-decide by department) ------- 50%
 What is Operations Management?
• OM is composed of two words:
– Operations
– Management
• Production/Operations
– is an intentional act of producing something
in an organized manner.
– is the creation of goods and services
– is the act of transformation i.e. inputs are
processed and transformed into some
outputs.
 Cont’d …
• Management
– is the art and science concerned with planning,
directing and controlling the work of human
beings towards a common aim.
• Combining these two concepts we can say
that ‘the management of the transformation
process of the inputs into outputs is operation
or production management
 Cont’d…
• Operations management is about getting the
day to day work done quickly, efficiently ,
without errors and at lowest cost.
• The primary objectives of Operations
management:
– Make a process work right
– Improve customer service
– Reduce wastage/cost
 Cont’d …
In a more comprehensive manner - operations
management is the activity whereby resources in a
defined system, are combined and transformed in
a controlled manner to add value in accordance
with policies communicated by management.
• Key concepts in the above definition:
– Resources
– Systems
– Transformation
 The first key element is resources
• There are two types of resources
• Transforming resources – like staff and facility
• Transformed resources - which give the operation system
its purpose or goal like
– Physical – manufacturing
– By location – transportation
– By ownership- Retail
– By physiological state – health services
– By psychological state – entertainment
– Information - accountant
The second Key element is System
• What is a system?
• A system is arrangement of interdependent,
interactive and interrelated components
designed to achieve an objective according to
the plan.
• What are the two major working principles of a
system?
• Synergy
• Entropy
The third key element is value addition

• Add value/Tramsformation
• The essence of operations function is to add
value during the transformation process
 Difference between the operations system of a service and
manufacturing …

• Quality Assurance is more challenging in services

• Measurement of productivity is more challenging in service
operations
• Service operations are much more slow and awkward
• Manufacturing systems have more inventory on hand than service
firms
• Higher labor content in services due to on site consumption and
variability of inputs
• Product designs are often easier to patent than service design
• Service by nature involves higher degree of customer contact.
Performance of a service typically occurs at the point of
consumption
 Goods & Services

• Manufacturing • Services
– Tangible product – Intangible product
– Product can be – Service cannot be
inventoried inventoried
– Low customer – High customer
contact contact
– Capital intensive – Labor intensive

11
 PRODUCTION Vs PRODUCTIVITY

• Production is an organized activity of

transforming raw materials into finished
products which have higher value.
• Production in an industry can be increased by:
– Employing more labor
– Installing more machinery, and
– Putting in more materials, regardless of the cost of
production.
• But increase of production does not necessarily mean
increase in productivity
 Cont’d …
 Higher productivity results when we put in a
production system an element of efficiency with
which the resources are employed.

Productivity: the reduction in wastage of resources

such as labor, machines, materials, power, space,
time, capital, etc.
  
Cont’d …

• Higher productivity leads to:

– a reduction in cost of production
– reduces the sales price of an item
– expands markets and
– enables the goods to compete
effectively in the world market.
 Chapter Two

Operations strategy
and
Competitiveness
 What is Strategy?

• Strategy is the direction and scope of an organization

over the long-term, which achieves advantage in a
changing environment through its configuration of
resources with the aim of fulfilling stakeholder
expectations.
• Strategy involves the interplay of three elements:
external environment, resources and objectives
 Levels of strategy
• There are three levels of strategy:
– The corporate level strategy
– Business level strategy
– Functional strategy
 Strategy development

• The business strategy of a company can be

developed after considering factors like:
– Mission of the company
– Environmental scanning
– Core competencies
 Operations strategy
• Operations strategy is the plan that specifies the
design and use of resources to support the
business strategy.
• Operations strategy can be truly effective if it is
linked with organizational strategy
• Operations strategy deals with:
– Products, processes, methods, operating resources,
quality, costs, lead times and scheduling
Productivity, competitiveness and strategy

• Productivity relates to how effective an

organization is in use of its resources
• Competitiveness relates to how effective an
organization in the market place compared with
other organizations that offer similar products
or services
• Strategy shapes the plans that determine the
direction an organization takes in pursuing
goals.
 Competitive Priorities
• There are four major groups of competitive
priorities: cost, quality, time and flexibility

1. Cost - the role of operation strategy is to

develop a plan for the use of resources to
support such kind of competition
 Cont’d …
2. Quality - as a competitive priority has two
dimensions:
– High performance design
– Product and service consistency
• A company that competes on this dimension
needs to implement quality in every area of the
organization
– Product design
– Process Design
 Cont’d …
3. Time - Companies in all industries are
competing to deliver high-quality products
in as short a time as possible.
– The job of the operations function is to
critically analyze the system and combine or
eliminate processes in order to save time.
– Use technology to speed up processes and
flexible work forces to meet peak demands
 Cont’d …
4. Flexibility- the ability of a company to readily
accommodate the changes in the environment
can be a winning strategy.
• There are two dimensions of flexibility.
– Product mix flexibility
– Volume flexibility
• To carry out this strategy, flexible companies tend
to have
– More general-purpose equipment
– Skilled and semiskilled workers
 CHAPTER THREE
SUPPLY CHAIN MANAGEMENT
3.1 Concepts of Supply chain management

3.2 Basic functions of organizations in the SCM (production,

Inventory, Location, transportation)
 transportation (Ship, rail, pipeline, truck and airplane)

3.3 Supply chain management objectives (quality, speed,

dependability, flexibility and cost)
3.1 Concepts of Supply chain management
 Supply chain management is the management of the interconnection
of organizations that relate to each other through upstream and
downstream linkages between the processes that produce value to
the ultimate consumer in the form of products and services.
 Supply chain management is the coordination of production,
inventory, location, and transportation among the participants
in a supply chain to achieve the best mix of responsiveness and
efficiency for the market being served
 It is a holistic approach to managing across company boundaries
 Stock items passed through supply chain to reach customer
 On the journey through the supply chain pipeline, products are
processed by different operations in the chain and also stored at
different points.
 3.2 Basic functions of organizations in the supply chain management

1. Productions:
 Production refers to the capacity of a supply chain
to make and store products.
 The facilities of production are factories and warehouses.
 The fundamental decision that managers face when making
production decisions is how to resolve the trade-off between
responsiveness and efficiency.

 Excess capacity can be flexible and respond quickly but it is costly-

some idle

 Fully utilized capacity are not capable of responding easily to

fluctuations in demand-but it is efficient
2. Inventory:
 Inventory is spread throughout the supply chain and includes
everything from raw material to work in process to finished goods
that are held by the manufacturers, distributors, and retailers in a
supply chain.

 Again, managers must decide where they want to position

themselves in the trade-off between responsiveness and efficiency.

 Holding large amounts of inventory vs holding small amount of

inventory (advantages and disadvantages)
3. Location:
 Locations refers to the geographical siting of supply chain facilities.
 It also includes the decisions related to which activities should be
performed in each facility.
 The responsiveness versus efficiency trade-off

 centralizing activities in fewer locations helps to gain economies of

scale and efficiency,

 decentralizing activities in many locations close to customers and

suppliers helps the company to be more responsive.
4. Transportations
 Transportations refers to the movement of everything from raw material
to finished goods between different facilities in a supply chain.

 In transportation the trade-off between responsiveness and efficiency is

manifested in the choice of transport mode.

 Fast modes of transport such as airplanes are very responsive but also
more costly.

 Slower modes such as ship and rail are very cost efficient but not as
responsive.
There are five basic modes of transport that a company can choose from:
A. Ship: this is very cost efficient but also the slowest mode of
transport.
It is limited to use between locations that are situated
next to navigable waterways and facilities such as harbors and canals.
B. Rail: this is also very cost efficient but can be slow.
This mode is also restricted to use between locations that are served by rail lines.
C. Pipelines: this can be very efficient but are restricted to commodities that are liquids or gases such as water,
oil, and natural gas.
D. Trucks: these are a relatively quick and very flexible mode of transport. Trucks can go almost anywhere.
E. Airplanes
these are a very fast mode of transport and are very responsive.
This is also the most expensive mode and it is somewhat
limited by the availability of appropriate airport facilities.
 Supply chain management ---

3.3 Supply chain management objectives

 All supply chain management shares one common and central
objective – to satisfy the end customer.

 All stages in a chain must eventually include consideration of the

final customer, no matter how far an individual operation is from
the end-customer.

 Each operation in the chain should be satisfying its own customer,

but also making sure that eventually the end-customer is also
satisfied.
 Supply chain management ---
1. Quality – the quality of a product or service when it reaches the
customer is a function of the quality performance of every operation
in the chain that supplied it.
 Errors in each stage of the chain can multiply in their effect on end-
customer service
2. Speed has two meanings in a supply chain context.
 The first is how fast customers can be served and the second is the
time taken for goods and services to move through the chain.
3. Dependability – like speed, one can almost guarantee ‘on-time’ delivery
by keeping excessive resources, such as inventory, within the chain.
4. Flexibility – in a supply chain context is usually taken to mean the
chain’s ability to cope with changes and disturbances.
5. Cost – in addition to the costs incurred within each operation, the
supply chain as a whole incurs additional costs that derive from each
operation in a chain doing business with each other
 Participants in the supply chain

 In its simplest form, a supply chain is composed of a company and the

suppliers and customers of that company.
 This is the basic group of participants that creates a simple supply
chain.
 Extended supply chains contain three additional types of participants.
 Supplier’s supplier or the ultimate supplier at the beginning of an
extended supply chain.
 Customer’s customer or ultimate customer at
the end of an extended supply chain.
 Finally, there is a whole category of companies who are service
providers to other companies in the supply chain.
 These are companies who supply services in logistics, finance,
marketing, and information technology.
 Participants---
In any given supply chain there is some combination of companies
who perform different functions.

There are companies that are producers, distributors or wholesalers, retailers, and
companies or individuals who are the customers, the final consumers of a product.
Supporting these companies there will be other companies that are service
providers that provide a range of needed services.
1.Producers: Producers or manufacturers are organizations that make a product.
Example raw materials and finished goods producer
2. Distributors: Distributors are companies that take inventory in bulk from
producers and deliver a bundle of related product lines to customers.
Distributors are also sell to other businesses and they sell products in larger
quantities than an individual consumer would usually buy.
Functions performed by distributors: product promotion and sales, inventory
management, product transportation, customer support and post-sales service.
 Participants---
3.Retailers: Retailers stock inventory and sell in smaller quantities to
the general public.

 This organization also closely tracks the preferences and demands

of the customers that it sells to.

4. Customers: Customers or consumers are any organization that purchases and

uses a product.

 A customer organization may purchase a product in order to incorporate it into

another product that they in turn sell to other customers.

 Or a customer may be the final end user of a product who buys

the product in order to consume it.
 Participants---
4. Service Providers: These are organizations that provide services to producers,
distributors, retailers, and customers.
 Service providers have developed special expertise and skills that focus on a
particular activity needed by a supply chain.

 Some common service providers in any supply chain are providers
of transportation services and warehousing services, Financial service providers
(banks, credit rating companies)
 WHAT IS INVENTORY
 Inventory, or stock is defined as the stored accumulation of material resources in a
transformation system
 Usually the term refers only to transformed resources. For example, information, materials,
customers (queue)
WHY IS INVENTORY NECESSARY?
 Because of a difference in the timing or rate of supply and demand
 To match supply with demand
 If the supply of any item occurred exactly when it was demanded, the item would never be
stored.
 When the rate of supply exceeds the rate of demand, inventory increases;
 When the rate of demand exceeds the rate of supply, inventory decreases.
 So if an operation can match supply and demand rates, it will also succeed in reducing its
inventory levels.
 Inventory ---

Types of inventory
 The various reasons for an imbalance b/n the rates of supply and
demand at different points in any operation lead to the different types of
inventory.
 Some of these inventories are buffer, cycle , de-coupling, anticipation
and pipeline.
1) Buffer (safety)inventory: it is the minimum amount of inventory hold to
minimize the risk of uncertainty of supply or unexpected fluctuation in
demand
• This minimum level of inventory is there to cover against the possibility
that demand will be greater than expected during the time taken to
deliver the goods or to compensate for the uncertainties in the process of
the supply of goods
 Inventory ---
2) Cycle inventory: this occurs because one or more stages in the
process cannot supply all the items it produces simultaneously
 It only results from the need to produce products in batches
3) De-coupling Inventory: this is work-in-progress inventory joins a queue,
awaiting its turn in the schedule for the next processing stage.
4) Anticipation inventory: it is the type of inventory hold for anticipation of
fluctuation in demand
 It is used to compensate for differences in the timing of supply and
demand
 It is used when demand fluctuations are large but relatively predictable.
 It might also be used when supply variations are significant, such as in
the canning or freezing of seasonal foods.
5) Pipeline inventory: exists because material cannot be transported
instantaneously between the point of supply and the point of demand
 Inventory ---

Costs of Inventory
 In making a decision on how much to purchase, operations
managers must try to identify the costs which will be affected
by their decision.
 Several types of costs are directly associated with order size.
1) Cost of placing the order: clerical tasks of preparing the order
and all the documentation associated with it, arranging for
the delivery to be made, arranging to pay the supplier for the
delivery, and the general costs of keeping all the information
which allows us to do this.
 Inventory ---

2) Quantity discount costs: In many industries suppliers offer

discounts on the normal purchase price for large quantities;
alternatively they might impose extra costs for small orders.
3) Stock-out costs: lost sales, dissatisfied customers: Idle time and
inefficiency for internal customers
4) Working capital costs: costs related to interest paid to bank for
borrowed money , or the opportunity costs of not investing it
elsewhere.
5) Storage costs: Renting, heating and lighting the warehouse, as well
as insuring the inventory.
6) Obsolescence costs: because of change in fashion or passage of
time
 Inventory ---

Inventory Decision
The economic order quantity (EOQ) formula
 The most common approach to deciding how much of any particular item to order
when stock needs replenishing is called the economic order quantity (EOQ) approach.
 This approach attempts to find the best balance between the advantages and
disadvantages of holding stock.
 To calculate the minimum cost of stocking the item, total cost of holding one unit and
total cost of placing an order must be first known.
 Holding cost include;
 working capital costs
 storage costs
 obsolescence risk costs.
 Inventory ---

 Order costs are calculated by taking into account:

 cost of placing the order (including transportation of items
from suppliers if relevant);

 The economic order quantity is the point at which the sum of

ordering and holding cost becomes a minimum
 At this point, holding cost and ordering cost becomes equal
 At this point, the difference between these two costs become
zero.
 Inventory ---

Assumptions of EOQ Model

 Only one product is involved
 Annual demand requirements known
 Demand is even throughout the year
 Lead time does not vary
 Each order is received in a single delivery
 There are no quantity discounts
 Inventory ---

Annual Annual
Total cost = carrying + ordering
cost cost
Q + D S
TC = H
2 Q
 Inventory ---

 The total cost curve reaches its minimum where the carrying
and ordering costs are equal.
Q = D S
H
2 Q
 Using calculus, we take the derivative of the total cost
function and set the derivative (slope) equal to zero and solve
for Q.
2DS 2( Annual Demand )(Order or Setup Cost )
Q OPT = =
H Annual Holding Cost
 Exercise

1) A local distributor for a national tire company expects to sell

approximately 9,600 steel belted radial tires next year.
Annual carrying cost is Birr16 per tire and ordering cost is
Birr 75. The distributor operates 288 days a year.

a) What is the Economic Order Quantity?

b) How many times per year does the store Re-order?
c) What is the length of an order cycle?
d) What is the total annual cost if the EOQ quantity is
ordered?
 Exercise
2) Assume that the quantity demanded (D) per year is 12000, quantity ordered at a
time is 1000, holding cost per unit is Birr 2 and ordering cost per order placed is Birr
4
 Calculate
a) Total holding cost
b) Total ordering cost
c) Frequency of delivery
d) The time interval between delivery
e) Average inventory
3) Jimma University uses approximately 32,000 reams of paper annually. The papers
are used at a steady rate during the 240 days a year that the plant operates.
Annual holding cost is Br.1.25 per ream and ordering cost is Br.20 per order.
Determine:
f) What is the EOQ?
g) How many times per year does the store reorder?
h) What is the length of an order cycle?
i) What is the total cost if the EOQ quantity is ordered?
 Exercise ---
4) Assume that the ordering cost per order is Birr 2, the holding cost per unit is
Birr 4 and annual demand is 40,000 units
 Based on these information, calculate the following
a) Economic order quantity (EOQ)
b) What is total cost (holding cost plus ordering cost) of inventory at EOQ?
c) Average inventory
d) Total holding cost
e) Total ordering cost
f) Frequency of delivery
g) The time interval between delivery
h) The quantity at which the sum of ordering and holding cost is minimum.
i) What is the total cost of inventory if 220 quantities is ordered at a time?
j) What is the total cost of inventory if 180 quantities is ordered at a time?
 Inventory ---
Economic Production Quantity (EPQ)
 Production done in batches or lots
 Capacity to produce a part exceeds the part’s usage or demand rate
 Assumptions of EPQ are similar to EOQ except orders are received
incrementally during production
Economic production quantity assumption
 Only one item is involved
 Annual demand is known
 Usage rate is constant
 Usage occurs continually
 Production rate is constant
 Lead time does not vary
 Inventory ---

 D   I MAX 
TC EPQ   S   H
Q   2 

 d
I MAX  Q 1  
 p
Maximum inventory
2DS p
Q0 
Calculating EPQ or H p u
(economic run size) =
 Exercise

1) Ethiopian Airlines produce sub components at a rate of 300 per day. And it uses
these subcomponents at a rate of 12,500 per year of 250 working days. Holding
costs are Birr 2 per item per year and setup costs are Birr 30 per order.
a) What is the Optimal run size?
b) What is the total cost for carrying and setup cost?
c) What is the cycle time for the optimal run size?
d) What is the run time?
2) HP Ltd. Produces its premium plant food in 50# bags. Demand is 100,000 lbs. per
week and they operate 50 wks. each year and HP can produce 250,000 lbs. per
week. The setup cost is Birr 200 and the annual holding cost rate is Birr 0.55 per
bag. Calculate the EPQ. Determine the maximum inventory level. Calculate the
total cost of using the EPQ policy.
 Based on these information calculate,
a) The Economic production quantity (EPQ)
b) The maximum inventory level
c) The total cost of using the EPQ policy
 Exercise ---
3) A toy Manufacturing uses 48,000 rubber wheels per year for its popular dump
truck series. The firm makes its own wheels, which it can produce at a rate of
800 per day. The toy trucks are assembled uniformly over the entire year.
Carrying cost is Birr1 per wheel a year. Setup cost for a production run of a
wheels is Birr 45. The firm operates 240 days per year. Determine the :-
1) Optimal run size (optimal quantity produced) 2) usage rate per day
3) Minimum total annual cost for carrying cost and setup.
4) Cycle time for the optimal run size? 5) Run time 6) Maximum inventory
4) A car manufacturing company produces sub components at a rate of 300 per
day. And it uses these subcomponents at a rate of 12,500 per year of 250
working days. Holding costs are Birr 2 per item per year and setup costs are
Birr 30 per order.
a) What is the Optimal run size?
b) What is the total cost for carrying and setup cost?
c) What is the cycle time for the optimal run size?
d) What is the run time?
 CHAPTER 6
THE NATURE OF PLANNING AND CONTROL

 Planning and control is concerned with managing the ongoing activities of the
operation so as to satisfy customer demand.
 Planning and control is the process of reconciling demand with supply
 Planning is a formalization of what is intended to happen at some time in the
future.
 But a plan does not guarantee that an event will actually happen. Therefore, the
control activity is very important.
 Control is the process of coping with changes in different variables.
 It may mean that plans need to be redrawn in the short term.
 It may also mean that an ‘intervention’ will need to be made in the operation to
bring it back ‘on track’
 All operations require plans and require controlling, although the degree of
formality and detail may vary.
 CHAPTER FIVE
BALANCING CAPACITY AND DEMAND

WHAT IS CAPACITY?
 The capacity of an operation is defined as the maximum level of
value-added activity over a period of time that the process can
achieve under normal operating conditions.

 For example, The operating capacity of a machine could be 200

units per hour

 The capacity of “X” cinema could be 500 seat at a time etc

 CAPACITY---

Measuring capacity
 The main problem with measuring capacity is the complexity of most
operations.
 An appropriate measure of capacity can be an output or an input measure
 When the operation is highly standardized and repetitive, output capacity
measures are an appropriate measure of capacity.
 When a much wider range of outputs places varying demands on the
process, input capacity measures are an appropriate measure of capacity
o The most appropriate measure of capacity, for example, for the following operations are
• Air conditioning plant ( output capacity measure)-- number of units per week
• Brewery (output capacity measure) --- litres per week
• University ( input capacity measure) ---number of students
• Air line ( input capacity measure) --- number of seats available
 CAPACITY ---

Design capacity and effective capacity

 The theoretical capacity of an operation – the capacity which its technical
designers had in mind when they commissioned the operation – cannot
always be achieved in practice.
 For example, the theoretical designed capacity of a machine may be 200
units per hour and 4800 units per day.
 But in reality the line cannot be run continuously at its maximum rate.
 There is lost time because of fault or because of market and technical
demands on the operation.
 Time lost because of technical demand on the operation, for example, are
maintenance, shift changes time, product change over (set-up)
 Time lost because of operation managers fault, for example, are stock out,
labour shortage, quality problems, machine breakdowns, absenteeism etc
 CAPACITY ---

 The actual capacity which remains after time losses because

of technical operation is called the effective capacity of
operation.
 The actual capacity which remain after lost production time
because of operation managers’ fault is actual output
 This means that the actual output of the line will be even
lower than the effective capacity.
 The ratio of the output actually achieved by an operation to
its design capacity, and the ratio of output to effective
capacity are called, respectively, the utilization and the
efficiency of the plant:
 Exercise-I
A Photocopier machine manufacture has a production line with a design
capacity of 50 units per day and the line is operated on a 24-hour a day, 30
days per month basis. The records for a month’s production shows the
following lost production time:
• Time lost because of shortage of materials used as input------ 30 hours
• Time lost because of shift change-------------------------------- 150 hours
• Time lost because of machine breakdown due to lack of preventive
maintenance -------------------------------------------------------- 60 hours
• Time lost due to regular preventive maintenance --------------- 60 hours
• Time lost due to labor shortage------------------------------------ 40 hours
• Time lost due to product changeover (set-ups)------------------- 80 hours
Based on the above data, compute the followings:
1) The total time lost due to technical demand
2) The total time lost due to management fault
 Exercise-I
3) The effective capacity
4) The actual output
5) The design capacity
6) The utilization rate
7) The efficiency rate
8) The efficiency rate, if manager avoids labor shortage
9) The overall lost time (due to technical demand and management fault)
10) If the operation manager can make careful planning
and control,
what percent of the overall lost time can be
avoided?
 Solution for exercise-I
A) Time lost due to technical demand
 Shift change----------- 150 hours
 Preventive maintenance---- 60 hours
 Changeover (set-ups) ------- 80 hours/total lost time–-290 hours
B) Time lost due to management fault
 Material shortages ------- 30 hours
 Machine breakdown ------ 60 hours
 Labor shortages ------------ 40 hours/total lost time –130 hours
1) The total time lost due to technical demand= 150+60+80=290 hours
2) The total time lost due to management faults=30+60+40= 130 hours
3) The effective capacity= design capacity minus time lost due to
technical demand
= 24 hours x 30 days minus (150+60+80)
= 720-290 = 430 hours
 Solution for exercise-I
4)The actual out-put= effective capacity minus lost time due to management fault
= 430-(30+60+40) = 300 hours
5) The design capacity= 24 hours x 30 days = 720 hours
6) The utilization rate= actual output/design capacity
= 300/720x100= 41.67%
7) The efficiency rate= actual output/effective capacity
= 300/430x100= 69.77%
8) The efficiency rate, if manager avoids labor shortage
lost time due to management fault if manager avoids lost time due to
labor shortages= 30+60= 90 0r 130-40 (lost time duet labor shortages)

Therefore, the efficiency rate, if manager avoids labor shortage is,

= 430-90/430x100
=340/430x100= 79%
This indicates that if managers avoid their faults, efficiency rate can be
improved (in this case from 69.77% to 79%).
 Solution for exercise-I
9) The overall lost time (due to technical demand and management
fault) = lost time due to technical demand plus lost time due
to management problem
= 290 hours +130 hours = 420 hours
10) If the operation manager can make careful planning and control,
what percent of the overall lost time can be avoided?
 Managers can avoid all of their fault by making careful planning and
control. In out example case, they can avoid time lost due to
material and labor shortages as well as time lost because of machine
breakdown which happened due to lack of preventive maintenance.
Therefore, they can avoid 30+60+40= 130 time loss
 The percent of lost time can be avoided, therefor, is 130/420x100
=31%
 CAPACITY ---

Overall equipment effectiveness (OEE)

 Loading is the amount of work that is allocated to a work center.
 For example, a machine on the shop floor of a manufacturing
business is available, in theory, 168 hours a week.
 However, this does not necessarily mean that 168 hours of work can
be loaded onto that machine.
 For some periods the machine cannot be worked; for example, it
may not be available on holidays and weekends.
 Therefore, the load put onto the machine must take this into
account.
 Of the time that the machine is available for work, other losses
further reduce the available time.
 For example, time may be lost while changing over from making one
component to another.
 CAPACITY ---
 The overall equipment effectiveness measure is an increasingly
popular method of judging the effectiveness of operations equipment.
 It is based on three aspects of performance:
 the time that equipment is available to operate;
 the quality of the product or service it produces;
 the speed, or throughput rate, of the equipment.
 Overall equipment effectiveness is calculated by multiplying an
availability rate by a performance (or speed) rate multiplied by a
quality rate
Reduction in available capacity is caused by
 set-up and changeover losses and breakdown failures when the machine is being
repaired
 speed loss is caused by ideal equipment and when equipment is being run below its
optimum work rate.
 OEE = qxpxq
 Exercise-II
 A machine on the shop floor of a manufacturing company is available
for maximum time of 24 hours a-day and 7 days a week of which 120
hours of work is loaded onto the machine. The machine is not available
8 hours for set-ups, 4 hours for shift time, 6 hours for statutory holiday,
10 hours for preventive maintenance and 2 hours for absence of
operators per week. On average, the machine is waiting for parts to
arrive for 5 hours and is being run for 10 hours below optimum speed
per week. During the period when the machine is running, it produced
defective items which takes 5 hours on average. Based on these data,
compute the following:
1) Availability loss
2) Quality loss
3) Net operating time
4) Speed loss
5) Total operating time
6) Availability rate
 Exercise-II

7) Loading time
8) Valuable operating time
9) Quality rate
10) Performance rate
11) Overall Equipment effectiveness
 Solution for exercise-II
Loading time= 120 hours
Availability loss= 8 hrs set-ups + 4 hrs shift time + 6 hrs holiday +
10 hrs maintenance + 2 hrs absence of operator= 30 hrs
Speed loss= 5 hrs idle time + 10 hrs running below optimum speed= 15 hours
quality loss= time lost for producing defective items----- 5 hours
Required:
1) Availability loss = 30 hours
2) Quality loss = 5 hours
3) Net operating time= total operating time –speed loss= 90 hrs-15 hour = 75 hours
4) Speed loss= 15 hours
5) Total operating time = loading time less availability loss= 120-30= 90 hours
6) Availability rate = (total operating time/loading time)x100= (75/120)x100= 75%
7) Loading time = 120 hours
8) Valuable operating time = Net operating time less quality loss= 75-5= 70 hours
 Solution for exercise-II
9) Quality rate = (valuable operating time/net-operating time)x100
70/75x100= 93.33%
10) Performance rate = (net-operating time/total operating time)x100
(75/90)x100= 83.33%
11) Overall Equipment effectiveness= 75%x93.33%x83.33%= 58.33%
THANK YOU !