Chapter One

NATURE OF OPERATIONS MANAGEMENT

Time allotted: 4hrs

 NATURE OF OPERATIONS MANAGEMENT
OBJECTIVES

After studying this chapter, you should be able to:

 Define operations management

 Elucidate the historical development of operations

management
LEARNING

 Discuss manufacturing and service operations

 Explain operations decision making tools

Introduction to Operations Management

 Operations is often defined as a transformation process. As

shown in Figure below, inputs (such as material, machines,
labor, management, and capital) are transformed into
outputs (goods and services).
Viewing Operations as a Transformation Process
Conti…
Conti…

The transformation process can be:

Physical Manufacturing operations
Locational Transportation or warehouse
operations
Exchange Retail operations
Physiological Health care
Psychological Entertainment
Informational Communication
Thus, operations management is defined as the design,
operation, and improvement of the systems that create and
deliver the firm’s primary products and services to the final
consumers.
The operations functions
Objectives of Production Management

 The objective of the production management is ‘to

produce goods and services of:

 Right Quality
 Right Quantity
 Right time
 and Right manufacturing cost.
Historical development of operations management
Concept Time Explanation
Industrial Late Brought in innovations that changed
revolution 1700s production by using machine power
instead of human power.
Scientific Early Brought the concepts of analysis and
management 1900 measurement of the technical aspects of
work design and development of moving
assembly lines and mass production.
Human 1930s - Focused on understanding human
relations 1960s elements of job design, such as worker
movement motivation and job satisfaction.
Management 1940s - Focused on the development of
science 1960s quantitative techniques to solve
operations problems.
Conti…

Computer age 1960s Enabled processing of large amounts of

data and allowed widespread use of
quantitative procedures.

Environmenta 1970s Considered waste reduction, the need

l issues for recycling, and product reuse.

Just-in- time 1980s Designed to achieve high-volume

systems(JIT) production with minimal inventories.

Total quality 1980s Sought to eliminate causes of

management production defects.
(TQM)
Conti…

Reengineerin 1980s Required redesigning a company’s

g processes in order to provide greater
efficiency and cost reduction.
Global 1980s Designed operations to compete in the
competition global market.
Flexibility 1990s Offered customization on a mass scale.
Time based 1990s Based on time, such as speed of delivery.
competition
Supply chain 1990s Focused on reducing the overall cost of
management the system that manages the flow of
materials and information from suppliers
to final customers.
Conti…

Electronic 2000s Uses the Internet and World Wide Web for
commerce conducting business activity.

Outsourcing 2000s Convergence of technology has enabled

and outsourcing of virtually any job imaginable
flattening of from anywhere around the globe, therefore,
the world ”flattening” the world.
Manufacturing operations and service operation

 An operating system (function) of an organization is the part

of an organization that produces the organization’s physical
goods and services.

 Operations in an organization can be categorized into

manufacturing operations and service operations.

 Manufacturing operations that includes manufacturing

and yields a tangible output: a product, whereas, a
conversion process that includes service yields an
intangible output: a deed, a performance, an effort.
Characteristics distinguishing manufacturing operations with service operations

 Tangible/Intangible nature of output

 Production and consumption
 Nature of work (job)
 Degree of customer contact
 Customer participation in conversion
 Measurement of performance
 Quality of output
 Inventory accumulated
Conti…

Criteria Manufacturing Service

Products Tangible Intangible

Consumption's Later Immediate

Work (job) Equipment intensive Labor intensive

Consumer contact Low High

Consumer participation Usually none High

Measures Sophisticated Elementary

Operations decision making

 Thousands of business decisions are made every day. Not all

decisions will make or break the organization.

 But each one adds a measure of success or failure to the

operations.

 Hence decision making essentially involves choosing a

particular course of action, after considering the possible
alternatives.

 In operations management, there are quantitative models and

techniques available that help managers make decisions.
Conti…

 Some techniques simply provide information that the

operations manager might use to help make a decision;
other techniques recommend a decision to the manager.

 Some techniques are specific to a particular aspect of

operations management; others are more generic and can
be used to a variety of decision-making categories.

 These different models and techniques are the “tools” of

the operations manager.
Characteristics of decision

The appropriateness of a given type of analysis depends on

 The significant or long lasting decisions,

 The time availability and the cost of analysis, and
 The degree of complexity of the decision.

 Operations management decisions are made all along this

continuum.

 Complete certainty in decision-making requires data on all

elements in the population. If such data are not available, large
samples lend more certainty than do small ones. Beyond this,
subjective information is likely to be better than no data at all.
Conti…
Conti…

 An analytical and scientific framework for decision implies

the following systematic steps

 Defining the problem

 Establish the decision criteria

 Formulation of a model

 Generating alternatives

 Evaluation of the alternatives

 Implementation and monitoring

Decision methodology
Conti…

The degree of certainty is classified as complete certainty,

risk and uncertainty and extreme uncertainty.

Complete Certainty Methods

 All relevant information about the decision variables and

outcomes is known or assumed to be known.

Some of the methods used

 Algebra (A)

 Calculus

 Mathematical programming
Complete Certainty Method(Algebra)

 Example 1: ABC trading leases document storage facilities

to government agencies on a multiyear contract basis. The
company is considering three potential locations(A,B, and
C) for a new facility that will have annual costs of Br
27,500, Br 25,400, and Br 29,000 respectively. The annual
revenue from leasing the facility to a county government is
known in advance to be Br 40,000 for location A, Br 36,000
for B, and Br 42,000 for C.

 Which location will maximize the net return per year?

Conti…

Solution
Location Revenue - Cost Net return
A Br 40,000 – Br 27,500 Br 12,500
B Br 36,000 – Br 25,400 Br 10,600
C Br 42,000 – Br 29,000 Br 13,000

Decision: C is optimal
Break-even (or cost-volume) analysis

 BEP is an algebraic and/or graphic model for describing

the relationship between costs and revenues for different
volumes of production.

PQ = FC + VC (Q)

 Where VC is the variable cost per unit. The quantity at the

break-even point is then

QBEP =
Conti…
Conti…

Example 2: Annual fixed costs at a small textile shop are Br

46,000, and variable costs are estimated at 50% of the Br 40
per unit selling price.

 Find the BEP.

 What profit (or loss would result from a volume of Br
3,000 units?
 Find the contribution
Conti…

Solution
QBEP = FC/P- VC =

Profit = TR – (FC + TVC) = PQ – (FC+VC.Q)

= (Br 40). (3000) – (Br 46,000 + Br 20(3000)
= Br 14,000

C = P - VC = Br 40 – (0.50) (Br 40) = Br 20 per unit

Class work

Example 2: For an existing product that sells for SP =

Br. 650 per unit, FC = Br. 82,000 and VC = Br. 240 per
unit.

(a) What is the BEP?

(b) What volume is needed to generate a profit of
Br.10,250?
Answer to the class work question

Solution:

Note: For volumes > BEP, all contribution of (650 – 240) =

Br.410/unit) goes into profit. Thus the additional volume needed
is Br.10,250 . Br.410/unit = 25 units.
Risk and Uncertainty Methods

 Information about the decision variables or the outcomes

is probabilistic.

 Following are some of the useful approaches:

 Statistical analysis(A)
 Queuing theory

 Simulation

 Heuristic methods

 Network analysis techniques(A)

 Utility theory
Extreme Uncertainty Methods

Here no information is available to assess the likelihood of

alternative outcomes.

Some of the strategies to solve this:

 Game theory: helps decision-makers to choose course of

action when there is no information

 Coin flip: Flipping a coin is sometimes used in situation

where the decision-makers are wholly indifferent
Decision-Making under Uncertainty

 No information is available on how likely the various states

of nature are under those conditions.

 Four possible decision criteria are

1) Maximin,

2) Maximax,

3) Laplace, and

4) Minimax regret
Conti…

 Maximin: Determine the worst possible pay-off for each alternative,

and choose the alternative that has the “best worst.” It is a pessimistic
approach.

 Maximax: Determine the best possible pay-off, and choose the

alternative with that pay-off. The Maximax approach is an optimistic
approach.

 Laplace: Determine the average pay-off for each alternative, and

choose the alternative with the best average. The Laplace approach
treats the states of nature as equally likely.

 Minimax regret: Determine the worst regret for each alternative, and
choose the alternative with the “best worst.”
Conti…

Example1: Referring to the pay-off table, determine which

alternative would be chosen under each of these strategies:
(a) Maximin, (b) Maximax, and (c) Laplace

Possible future demand

Alternatives Low Moderate High
Small facility 10 10 10
Medium facility 7 12 12
Large facility (4) 2 16
Conti…

(a) Using Maximin, the worst pay-offs are:

 Small facility: 10 million, Medium facility: 7 million, Large facility: –

4 million
 Hence, 10 million is the best,

Decision: build the small facility

(b) Using Maximax, the best pay-offs are:

 Small facility: 10 million, Medium facility: 12 million, Large facility:

16 million
 The best overall pay-off is the 16 million

Decision: building a large facility

Conti…

(c) For the Laplace criterion, first find the row totals, and
then divide each of those amounts by the number of states of
nature (three in this case). Then
Raw total Raw average
Small facility 30 10
Medium facility 31 10.33
Large facility 14 4.67

 The medium facility has the highest average and therefore

choose to build medium facility.
Conti…

Example 2: Determine which alternative would be chosen using a

Minimax regret approach to the capacity-planning program

 First step to prepare a table of opportunity losses, or regrets. To

do this, subtract every pay-off in each column from the best pay-
off in that column

 For instance, in the first column, the best pay-off is 10, so each of
the three numbers in that column must be subtracted from 10.
Going down the column, the regrets will be 10 – 10 = 0, 10 – 7 = 3,
and 10 – (– 4) = 14. In the second column, the best pay-off is 12.
Subtracting each pay-off from 12 yields 2, 0, and 10. In the third
column, 16 is the best pay-off. The regrets are 6, 4, and 0.
Conti…

Alternatives Regrets

Low Medium High Worst

Small facility 0 2 6 6

Medium facility 3 0 4 4

Large facility 14 10 0 14
Conti…

Regrets
Alternatives Low Medium High Worst
Small facility 0 2 6 6
Medium facility 3 0 4 4
Large facility 14 10 0 14

 The second step is to identify the worst regret for each alternative.
For the first alternative, the worst is 6; for the second, the worst is
4; and for the third, the worst is 14. The best of these worst regrets
would be chosen using Minimax regret. The lowest regret is 4.

 Decision: Medium is the best and selected.

Risk and uncertainty

 Determine the expected pay-off of each alternative, and

choose the alternative that has the best-expected pay-off.
Using the expected monetary value criterion, identify the
best alternative for the previous pay-off table for these
probabilities: low = 0.30, moderate = 0.50, and high = 0.20.

 Find the expected value of each alternative by multiplying

the probability of occurrence.
Conti…

Solution: For each state of nature by the pay-off for that

state of nature and summing them:

 EVsmall = 0.30 (10) + 0.50 (10) + 0.20 (10) = 10

 EVmedium = 0.30 (7) + 0.50 (12) + 0.20 (12) = 10.5

 EVlarge = 0.30 (–4) + 0.50 (2) + 0.20 (16) = 3

Decision: Medium is the largest and selected.

 What is a Decision Tree?

• A Visual Representation of
Choices, Consequences,
Probabilities, and Opportunities.
• A Way of Breaking Down
Complicated Situations Down to
Easier-to-Understand Scenarios.

Decision Tree
Conti…

 A decision tree is a model of the sequence of steps in a

problem and the conditions and consequences of each step.

 Decision trees are composed of decision nodes with

branches to and from them. Usually squares represent
decision points and circles represent chance events.

 Branches from decision points show the choices available

to the decision maker; branches from chance events show
the probabilities for their occurrence.
Easy Example

 A Decision Tree with two choices

Go to Graduate School to
get my master in CS.

Go to Work “in the Real

World”
 Notation Used in Decision Trees

• A box is used to show a choice that the

manager has to make.

• A circle is used to show that a probability

outcome will occur.

• Lines connect outcomes to their choice

or probability outcome.
Conti…

 In solving decision tree problems, we work from the end of

the tree backward to the start of the tree.

 As we work back, we calculate the expected values at each

step. In calculating the expected value, the time value of
money is important.

 Once the calculations are made, we prune the tree by

eliminating from each decision point all branches except
the one with the highest payoff. This process continues to
the first decision point, and the decision problem is thereby
solved.
Procedure for Drawing a Decision Tree

 Draw a decision tree from left to right. Use squares to

indicate decisions and circles to indicate chance events.

 Write the probability of each chance event in parentheses.

 Write out the outcome for each alternative in the right

margin.
Conti…

The procedure for solving a decision tree is

 To solve a decision tree, work from right to left. At each

circle representing chance events, compute the expected
value (EV).

 Write the EV’s below each circle.

 Select the alternative with the highest EV.

Example of a decision tree

A glass factory specializing in crystal is experiencing a substantial

backlog, and the firm's management is considering three courses of
action:

A) Arrange for subcontracting

B) Construct new facilities
C) Do nothing (no change)

The correct choice depends largely upon demand, which may be low,
medium, or high.

By consensus, management estimates the respective demand

probabilities as 0.1, 0.5, and 0.4.
Conti…

 The management also estimates the profits when choosing

from the three alternatives (A, B, and C) under the
differing probable levels of demand. These profits, in
thousands of birr are presented in the table below:

0.1 0.5 0.4

Low Medium High
A 10 50 90
B -120 25 200
C 20 40 60
Step 1. We start by drawing the three decisions

A
B

C
Step 2. Add our possible states of nature, probabilities,
and payoffs

High demand (0.4) Br 90

Medium demand (0.5) Br 50
Low demand (0.1) Br 10

A High demand (0.4) Br 200

B Medium demand (0.5) Br 25
Low demand (0.1) -Br120
C
High demand (0.4) Br 60
Medium demand (0.5) Br 40
Low demand (0.1) Br 20
Step 3. Determine the expected value of each decision

High
Highdemand
demand(0.4)
(0.4) Br
Br90
90
Medium
Mediumdemand
demand(0.5)
(0.5) Br
Br50
50
Br
Br62
62
Low
Lowdemand
demand(0.1)
(0.1) Br
Br10
10
AA
EV
EVAA=0.4(90)+0.5(50)+0.1(10)=Br
=0.4(90)+0.5(50)+0.1(10)=Br 62
62
Conti…

High
Highdemand
demand(0.4)
(0.4) Br
Br200
200
Medium
Mediumdemand
demand(0.5)
(0.5) Br
Br 25
25
Br
Br80.5
80.5
Low
Lowdemand
demand(0.1)
(0.1) Br
Br-120
-120
BB
EV
EVBB=0.4(200)+0.5(25)+0.1(-120)=Br
=0.4(200)+0.5(25)+0.1(-120)=Br 80.5
80.5
Conti…

High
Highdemand
demand(0.4)
(0.4) Br
Br60
60
Medium
Mediumdemand
demand(0.5)
(0.5) Br
Br40
40
Br
Br46
46
Low
Lowdemand
demand(0.1)
(0.1) Br
Br20
20
CC
EV
EVCC=0.4(60)+0.5(40)+0.1(20)=Br
=0.4(60)+0.5(40)+0.1(20)=Br 46
46
Step 4. Make decision

High demand (0.4) Br 90

Medium demand (0.5) Br 50
Br 62 Low demand (0.1) Br 10

A High demand (0.4) Br 200

Br 80.5
B Medium demand (0.5) Br 25
Low demand (0.1) -Br 120
C
High demand (0.4) Br 60
Br 46 Medium demand (0.5) Br 40
Low demand (0.1) Br 20
Alternative
AlternativeBBgenerates
generatesthe
thegreatest
greatestexpected
expectedprofit,
profit,so
so
our
ourchoice
choiceis
isBBor
orto
toconstruct
constructaanew
newfacility
facility
End of Chapter 1
 Chapter Two

OPERATIONS STRATEGY AND

COMPETITIVENESS

Time allotted: 4hrs

 OPERATIONS STRATEGY AND
COMPETITIVENESS
After pursuing this chapter, you should be able to:
OBJECTIVES

 Define operations strategy

 Explain operations strategy and competitiveness

LEARNING

 Identify operations strategy in Manufacturing and Services

 Productivity measurement
Introduction to operations strategy

 The long-range plan of a business, designed to provide and

sustain shareholder value, is called the business strategy.

 For a company to succeed, the business strategy must be

supported by each of the individual business functions, such as
operations, finance, and marketing.

 Operations strategy is a long-range plan for the operations

function that specifies the design and use of resources to
support the business strategy. Just as the players on a football
team support the team’s strategy, the role of everyone in the
company is to do his or her job in a way that supports the
business strategy.
Operations strategy in Manufacturing and Services

 Strategy as ‘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:

1. the organization’s external environment,

2. its resources and
3. its objectives (in meeting the expectations of its
stakeholders).
Strategy can exist at three levels in an organization

 Corporate level strategy: is the highest level of strategy. It

sets the long-term direction and scope for the whole
organization.

 Business level strategy: is primarily concerned with how a

particular business unit should compete within its
industry, and what its strategic aims and objectives should
be.

 Functional level strategy: The bottom level of strategy is

that of the individual function (operations, marketing,
finance, etc.)
Competitive dimensions

 Cost or price: “Make the product or deliver the service

cheap” To successfully compete in dynamic market, a firm
must be the low cost producer, but even this does not
always guarantee profitability and success.
Conti…

 Quality: “Make a great product or deliver a great

service” Two characteristics of a product or service
that define quality:

1) Design quality This relates directly to the design of the

product or service. The goal is to focus on the
requirements of the customer.
2) Process quality relates to the reliability of the product or
service. The goal is to produce defect-free products.
Conti…

 Delivery speed: “Make the product or deliver the service

quickly” a firm’s ability to deliver more quickly than its
competitors.
Conti…

 Delivery reliability: “Deliver it when promised” the firm’s

ability to supply the product or service on or before a
promised delivery due date.

 Coping with changes in demand: “Change its volume” a

company’s ability to respond to increases and decreases in
demand.
Conti…

 Flexibility and new product introduction speed: “Change

it” the ability of a company to offer a wide variety of
products to its customers.
Volume of production

Time taken to produce

 Flexibility
Mix of different products or services produced

Innovate and introduce new products and services

Operations excellence and competitive factors
Strategy formulation

 Strategy is how the mission of a company is accomplished.

 It unites an organization, provides consistency in decisions, and

keeps the organization moving in the right direction.

 Strategy formulation consists of five basic steps:

 Defining a primary task

 Assessing core competencies
 Determining order winners and order qualifiers
 Positioning the firm and
 Deploying the strategy
Primary task

 The primary task represents the purpose of a firm - what the

firm is in the business of doing.

 It also determines the competitive arena. As such, the

primary task should not be defined too narrowly.

 The primary task is usually expressed in a firm’s mission

statement.

 For example: Amazon’s business is providing the fastest,

easiest, and most enjoyable shopping experience, while
Disney’s is making people happy!
Conti…

 Pepsi seeks customers and suppliers all over the

globe.
Conti…
Core competency

 Core competency is what a firm does better than anyone

else, its distinctive competence.

 A firm’s core competence can be exceptional service,

higher quality, faster delivery, or lower cost.

 One company may strive to be first to the market with

innovative designs, whereas another may look for success
arriving later but with better quality.
Conti…

allow the firm to exploit opportunities or

Valuable neutralize threats in its external
environment

possessed by few, if any, current and

Rare potential competitors

when other firms cannot obtain them or

Costly to imitate must obtain them at a much higher cost

the firm is organized appropriately to

Non substitutable obtain the full benefits of the resources in
order to realize a competitive advantage
Conti…

Resources and Capabilities

Valuable

Rare
Core Competencies
Costly to imitate

Non -substitutable
Core Competencies are the basis for a firm’s

Competitive
advantage
Value creation
Core Competencies

Ability to earn
above-average
returns
Organizational Core Competencies
Order winners and order qualifiers

 Order qualifiers are the basic criteria that permit the

firms products to be considered as candidates for
purchase by customers.

 Order winners are the criteria that differentiates the

products and services of one firm from another.

 Consider a simple restaurant that makes and delivers

pizzas.
Conti…

 Order qualifiers might be low price (say, less than $10.00)

and quick delivery (say, under 15 minutes) because this is a
standard that has been set by competing pizza restaurants.

 The order winners may be “fresh ingredients” and “home-

made taste.” These characteristics may differentiate the
restaurant from all the other pizza restaurants.

 However, regardless of how good the pizza, the restaurant

will not succeed if it does not meet the minimum standard
for order qualifiers.
Conti…

 For example, when purchasing a DVD player, customers

may determine a price range (order qualifier) and then
choose the product with the most features (order winner)
within that price range.

 (Or) they may have a set of features in mind (order

qualifiers) and then select the least expensive player (order
winner) that has all the required features.
Conti…

 Order winners and order qualifiers can evolve over time,

just as competencies can be gained and lost.

 For example Japanese and Korean automakers initially

competed on price but had to ensure certain levels of
quality before the U.S. consumer would consider their
product.
Conti…

 Over time, the consumer was willing to pay a higher price

(within reason) for the assurance of a superior-quality
Japanese car. Price became a qualifier, but quality won
the orders.

 Today, high quality, as a standard of the automotive

industry, has become an order qualifier, and innovative
design or superior gas mileage wins the orders.
Positioning the firm

 Positioning involves making choices - choosing one or

two important things on which to concentrate and
doing them extremely well.

 A firm’s positioning strategy defines how it will

compete in the marketplace - what unique value it will
deliver to the customer.
 Conti…

Competing on Cost

Positioning
Competing on Speed

Competing on Quality

Competing on Flexibility
Productivity measurement

 Competitiveness as “the degree to which a nation can

produce goods and services that meet the test of
international markets while simultaneously maintaining or
expanding the real incomes of its citizens.” The most
common measure of competitiveness is productivity.

 Productivity is calculated by dividing units of output by

units of input. Output can be expressed in a variety of
scenarios, such as sales made, products produced,
customers served, meals delivered, or calls answered.
Conti…

 Single-factor productivity compares output to individual

inputs, such as labor hours, investment in equipment, and
material usage.

 Multifactor productivity relates output to a combination of

inputs, such as (labor + capital) or (labor + capital + energy
+ materials). Capital can include the value of equipment,
facilities, inventory, and land.

 Total factor productivity compares the total quantity of goods

and services produced with all the inputs used to produce
them.
Conti…
 Conti…

Example 1. BGI Ethiopia is compiling the monthly productivity report for its Board of Directors.
From the following data, calculate (a) labor productivity, (b) machine productivity, and (c) the
multifactor productivity of dollars spent on labor, machine, materials, and energy. The average
labor rate is $15 an hour, and the average machine usage rate is $10 an hour.
 Units produced 100,000, Labor hours 10,000, Machine hours
5,000, Cost of materials $35,000
 Cost of energy $15,000
Conti…
End of Chapter 2
 Chapter Three

DESIGN OF THE OPERATION SYSTEM

Time allotted: 8hrs

 DESIGN OF THE OPERATION SYSTEM

After completing this chapter, you should be able to:

OBJECTIVES

 Explain design of the operation system

 Discuss product and service design

 Elucidate the process selection

LEARNING

 Discuss strategic capacity planning

 Elucidate facility location and layout

 Describe job design and work measurement

DESIGN

 Designs can provide a competitive edge by bringing new

ideas to the market quickly, doing a better job of satisfying
customer needs, (or) being easier to manufacture, use, and
repair.

 It capitalizes on a firm’s core competencies and determines

what new competencies need to be developed.

 It is also the most obvious driver of change new products

and services can rejuvenate an organization, define new
markets, and inspire new technologies.
Product and service design

 Consumers respond to a product’s appearance, color,

texture, and performance.

 All of its features, summed up, are the product’s design.

Someone came up with the idea of what this product will
look like, taste like, or feel like so that it will appeal to you.
This is the purpose of product design.

 Product design defines a product’s characteristics, such as

its appearance, the materials it is made of, its dimensions
and tolerances, and its performance standards.
Conti…

 Service design is unique in that both the service and the

entire service concept are being designed.

 As with a tangible product, the service concept is based on

meeting customer needs. The service design, however,
adds the aesthetic and psychological benefits of the
product.

 Service design defines the characteristics of a service, such

as its physical elements, and the aesthetic and
psychological benefits it provides.
Classification of service operations
Process selection

 Process: Is any part of an organization that takes inputs

and transforms them into outputs.

Types of processes
 All processes can be grouped into two broad categories:
intermittent operations and repetitive operations.

Intermittent Operations
 Intermittent operations are used to produce a variety of
products with different processing requirements in lower
volumes.
Conti…

 Think about a healthcare facility. Each patient, “the

product,” is routed to different departments as needed.

 One patient may need to get an X-ray, go to the lab for

blood work, and then go to the examining room. Another
patient may need to go to the examining room and then to
physical therapy.

 To be able to produce products with different processing

requirements, intermittent operations tend to be labor
intensive rather than capital intensive.
Example of an intermittent operation
Repetitive Operations

 Repetitive operations are used to produce one or a few

standardized products in high volume.

 Examples are a typical assembly line, cafeteria, or automatic

car wash.

 Resources are organized in a line flow to efficiently

accommodate production of the product.

 To efficiently produce a large volume of one type of product,

these operations tend to be capital intensive rather than
labor intensive.
Example of a repetitive operation
Conti…

 The most common differences between intermittent and

repetitive operations relate to two dimensions:

(1) The amount of product volume produced, and

(2) The degree of product standardization

Conti…

 Product volume can range from making a unique product

one at a time to producing a large number of products at
the same time.

 Product standardization refers to a lack of variety in a

particular product. Examples of standardized products are
white undershirts, calculators, and television sets.
Conti…
Types of processes

 Dividing processes into two fundamental categories of

operations is helpful in our understanding of their general
characteristics.

 To be more detailed, we can further divide each category

according to product volume and degree of product
standardization.

 Intermittent operations can be divided into project

processes and batch processes. Repetitive operations can be
divided into line processes and continuous processes.
Conti…

o Project processes are used to make one-of-a-kind products

exactly to customer specifications.

o These processes are used when there is high customization

and low product volume, because each product is different.

o Examples can be seen in construction, ship building, medical

procedures, and creation of artwork, custom tailoring, and
interior design.

o The artistic baker you hired to bake a wedding cake to your

specifications uses a project process.
Conti…

 Batch processes are used to produce small quantities of

products in groups or batches based on customer orders or
product specifications.

 They are also known as job shops. The volumes of each

product produced are still small, and there can still be a
high degree of customization.

 Examples can be seen in bakeries, education, and printing

shops. The classes you are taking at the university use a
batch process.
Conti…

 Line processes are designed to produce a large volume of a

standardized product for mass production.

 They are also known as flow shops, flow lines, or assembly

lines.

 With line processes the product that is produced is made in

high volume with little or no customization.

 Think of a typical assembly line that produces everything

from cars, computers, television sets, shoes, candy bars,
even food items.
Conti…

 Continuous processes operate continually to produce a

very high volume of a fully standardized product.

 Examples include oil refineries, water treatment plants,

and certain paint facilities.

 The products produced by continuous processes are

usually in continual rather than discrete units, such as
liquid or gas. They usually have a single input and a
limited number of outputs. Also, these facilities are usually
highly capital intensive and automated.
Conti…
Other Types of Processes

 Make-to-order
 Only activated in response to an actual order

 Both work-in-process and finished goods inventory kept

to a minimum

 Make-to-stock
 Process activated to meet expected or forecast demand

 Customer orders are served from target stocking level

Process performance metrics
Conti…

 Example 1. Zehara Dry Cleaners has collected the

following data for its processing of dress shirts: It takes an
average of 3.5 hours to dry clean and press a dress shirt,
with value-added time estimated at 110 minutes per shirt.
Workers are paid for a 7-hour workday and work 5.5
hours per day on average, accounting for breaks and
lunch; labor utilization is 75 percent in the industry. The
dry cleaner completes 25 shirts per day, with an industry
standard of 28 shirts per day for a comparable facility.

 Determine process velocity, labor utilization, and efficiency

for the company
Conti…

Solution
 Process velocity = Throughput time ÷ value added time

= 210 minutes/shirt ÷ 110 minutes/shirt

= 1.90
 Labor utilization = 5.5 hours/day ÷ 7 hours/day

= 0.786 or 78.6%
 Efficiency = 25 shirts/day ÷ 28 shirts/day

= 0.89 or 89%

 Process velocity shows room for process improvement, as

throughput time is almost twice that of value-added time. Labor
utilization is just above the industry standard, though overall
efficiency is below.
Strategic capacity planning

 Capacity can be defined as the maximum output rate

that can be achieved by a facility.

 Planning for capacity in a company is usually performed

at two levels, each corresponding to either strategic or
tactical decisions.

 The first level of capacity decisions is strategic and long-

term in nature. The second level of capacity decisions is
more tactical in nature, focusing on short-term issues
that include planning of workforce, inventories, and day-
to-day use of machines.
Process of capacity planning

 Capacity planning is concerned with defining the long-

term and the short-term capacity needs of an organization
and determining how those needs will be satisfied.

 Capacity planning decisions are taken based upon the

consumer demand and this is merged with the human,
material and financial resources of the organization.
Conti…

1. Long-term capacity strategies:

 Long-term capacity requirements are more difficult to

determine because the future demand and technology are

uncertain.

 Following parameters will affect long-range capacity

decisions.

1) Multiple products
2) Phasing in capacity
3) Phasing out capacity
Conti…

 Multiple products: Company’s produce more than one

product using the same facilities in order to increase the
profit.

 The manufacturing of multiple products will reduce the

risk of failure. Having more than one product helps the
capacity planners to do a better job.

 Because products are in different stages of their life cycles,

it is easy to schedule them to get maximum capacity
utilization.
Conti…

 Phasing in capacity: In high technology industries, and in

industries where technology developments are very fast, the rate
of obsolescence is high.

 The products should be brought into the market quickly. The

time to construct the facilities will be long and there is no much
time, as the products should be introduced into the market
quickly.

 Here the solution is phase in capacity on modular basis. Some

commitment is made for building funds and men towards
facilities over a period of 3-5 years. This is an effective way of
capitalizing on technological breakthrough.
Conti…

 Phasing out capacity: The outdated manufacturing facilities

cause excessive plant closures and down time. The impact of
closures is not limited to only fixed costs of plant and
machinery.

 Thus, the phasing out here is done with humanistic way

without affecting the community. The phasing out options
makes alternative arrangements for men like shifting them
to other jobs or to other locations, compensating the
employees, etc.
Conti…

2. Short-term capacity strategies: Managers often use

forecasts of product demand to estimate the short-term
workload the facility must handle.

 Managers looking ahead up to 12 months, anticipate

output requirements for different products, and services.

 Managers then compare requirements with existing

capacity and then take decisions as to when the capacity
adjustments are needed.
The short-term capacity strategies

 Inventories: Stock finished goods during slack periods to

meet the demand during peak period.

 Backlog: During peak periods, the willing customers are

requested to wait and their orders are fulfilled after a peak
demand period.

 Employment level: Hire additional employees during peak

demand period and lay off employees as demand
decreases.
Conti…

 Employee training: Develop multi skilled employees

through training so that they can be rotated among
different jobs. The multi skilling helps as an alternative to
hiring employees.

 Sub-contracting: During peak periods, hire the capacity of

other firms temporarily to make the component parts or
products.

 Process design: Change job contents by redesigning the

job.
Importance of capacity decisions

 Capacity decisions have a real impact on the ability of the

organization to meet future demands for products and
services; capacity essentially limits the rate of output
possible.

 Capacity decisions affect operating costs. Ideally, capacity

and demand requirements will be matched, which will tend
to minimize operating costs.

 Capacity is usually a major determinant of initial cost.

Typically, the greater the capacity of a productive unit, the
greater its cost.
Conti…

 Capacity decisions often involve long-term commitment of

resources and the fact that, once they are implemented, it
may be difficult or impossible to modify those decisions
without incurring major costs.

 Capacity decisions can affect competitiveness. If a firm has

excess capacity, or can quickly add capacity, that fact may
serve as a barrier to entry by other firms.

 Capacity affects the ease of management; having

appropriate capacity makes management easier than when
capacity is mismatched.
Measuring Capacity

 The most common measures of capacity are:

 Design capacity is the maximum output rate that can be

achieved by a facility under ideal conditions.

A company achieves this output rate by using many

temporary measures, such as overtime, overstaffing,
maximum use of equipment, and subcontracting.
Conti…

 Effective capacity is the maximum output rate that can be

sustained under normal conditions.

 These conditions include realistic work schedules and breaks,

regular staff levels, scheduled machine maintenance, and
none of the temporary measures that are used to achieve
design capacity.

 Note that effective capacity is usually lower than design

capacity.
Measuring Effectiveness of Capacity

 Capacity utilization simply tells us how much of our capacity we

are actually using.

Example 1: Given the information below, compute the efficiency and

the utilization of the vehicle repair.

Department: Design capacity = 50 trucks per day

Effective capacity = 40 trucks per day
Actual output = 36 trucks per day
Conti…

Solution

Example 2: The design capacity for engine repair in our

company is 80 trucks per day. The effective capacity is 40
engines per day and the actual output is 36 engines per day.

Q1. Calculate the utilization and efficiency of the operation. If

the efficiency for next month is expected to be 82%,
Q2. What is the expected output?
Conti…

Solution

Utilization = Actual output ÷ Design capacity = 36/80 = 45%

Efficiency = Actual output ÷ Effective capacity = 36/40 = 90%

Expected output = (Effective capacity) (Efficiency)

= (40)(0.82)
= 32.8 engines per day
Facility location and layout

 Plant location problem is an important strategic level

decision making for an organization.

 The plant location should be based on the company’s

expansion plan and policy, diversification plan for the
products, changing market conditions, the changing
sources of raw materials and many other factors that
influence the choice of the location decision.

 Therefore, Facility location is the process of determining a

geographic site for a firm’s operations.
Factors influencing plant location/facility location

 Managers of both service and manufacturing organizations

must weigh many factors when assessing the desirability of a
particular site, including proximity to customers and
suppliers, labor costs, and transportation costs.

 The factors that can influence the plant location can be:

 General locational factors, which include controllable and

uncontrollable factors.

 Specific locational factors required for manufacturing and

service organizations.
General Locational Factors

Controllable factors Uncontrollable factors

Proximity to markets Government policy

Supply of materials Climate conditions

Transportation facilities Supporting industries and services

Infrastructure availability Community and labor attitudes

Labor and wages Community Infrastructure

External economies

Capital
Specific Locational Factors for Manufacturing Organization

Dominant factors

 Factors dominating location decisions can be broadly

classified in six groups

 Favorable labor climate

 Proximity to markets
 Quality of life
 Proximity to suppliers and resources
 Utilities, taxes, and real estate costs
Location models

 Various models are available which help to identify the

ideal location. Some of the popular models are:

 Factor rating method

 Weighted factor rating method
 Load-distance method
 Centre of gravity method and
 Break-even analysis
Factor Rating Method

The process of selecting a new facility location involves a

series of following steps:

 Identify the important location factors.

 Rate each factor according to its relative importance, i.e.,

higher the ratings is indicative of prominent factor.

 Assign each location according to the merits of the

location for each factor.
Conti…

 Calculate the rating for each location by multiplying

factor assigned to each location with basic factors
considered.

 Find the sum of product calculated for each factor and

select best location having highest total score.

Example 1: Let us assume that a new medical facility,

Health-care, is to be located in Awada. The location factors,
factor rating and scores for two potential sites are shown in
the following table. Which is the best location based on factor
rating method?
Conti…

No Location factor Factor Rating

rating
Location 1 Location 2

1 Facility utilization 8 3 5
2 Total patient per month 5 4 3
3 Average time per emergency 6 4 5
trip

4 Land and construction costs 3 1 2

5 Employee preferences 5 5 3
Solution

No Location factor Factor Rating

rating Location 1 Location 2
(1) Rating Total Rating Total
(2) (1).(2) (3) (1).(3)

1 Facility utilization 8 3 24 5 40
2 Total patient per month 5 4 20 3 15
3 Average time per 6 4 24 5 30
emergency trip
4 Land and construction 3 1 3 2 6
costs
5 Employee preferences 5 5 25 3 15
Total 96 106

Decision: The total score for location 2 is higher than that of

location 1. Hence location 2, is the best choice.
Weighted Factor Rating Method

 In this method to merge quantitative and qualitative

factors, factors are assigned weights based on relative
importance and weightage score for each site using a
preference matrix is calculated. The site with the highest
weighted score is selected as the best choice.

 Example 1: Let us assume that a new medical facility,

Health - care, is to be located in Yiregalem Town. The
location factors, weights, and scores (1 = poor, 5 =
excellent) for two potential sites are shown in the following
table. What is the weighted score for these sites? Which is
the best location?
Conti…

No Location factor Weight Scores

Location 1 Location 2

1 Facility utilization 25 3 5
2 Total patient per month 25 4 3
3 Average time per 25 3 3
emergency trip

4 Land and construction 15 1 2

costs

5 Employee preferences 10 5 3
Conti…

Solution: The weighted score for this particular site is calculated

by multiplying each factor’s weight by its score and adding the
results:

Weighted score location 1 = 25 × 3 + 25 × 4 + 25 × 3 + 15 × 1 + 10 × 5

= 75 + 100 + 75 + 15 + 50 = 315

Weighted score location 2 = 25 × 5 + 25 × 3 + 25 × 3 + 15 × 2 + 10 × 3

= 125 + 75 + 75 + 30 + 30 = 335

Decision: Location 2 is the best site based on total weighted

scores.
Load-distance Method

 The load-distance method is a mathematical model used to

evaluate locations based on proximity factors.

 The objective is to select a location that minimizes the total

weighted loads moving into and out of the facility.

 The distance between two points is expressed by assigning

the points to grid coordinates on a map. An alternative
approach is to use time rather than distance.
Conti…

A (10, 15)
Y

B (30, 10)

X
Distance between point A and point B
Conti…

 The point A on the grid represents the supplier’s location in Abosto,

and the point B represents the possible warehouse location at
Yiregalem. The distance between points A and B is the length of the
hypotenuse of a right triangle, or

dAB = Sqrt ((XA – XB)² + (YA – YB)²)

Where: dAB = distance between points A and B

XA = x-coordinate of point A
YA = y-coordinate of point A
XB = x-coordinate of point B
YB = y-coordinate of point B
Conti…

 The distance travelled in the x-direction is the absolute

value of the difference in x-coordinates.

 Adding this result to the absolute value of the difference in

the y-coordinates gives

DAB = |XA – XB| + |YA – YB|

Conti…

Example 1: The new Health-care facility is targeted to serve seven

census tracts in Awada. The table given below shows the
coordinates for the centre of each census tract, along with the
projected populations, measured in thousands. Customers will
travel from the seven census tract centres to the new facility when
they need health-care. Two locations being considered for the new
facility are at (5.5, 4.5) and (7, 2), which are the centres of census
tracts C and F. Details of seven census tract centres, co-ordinate
distances along with the population for each centre are given
below. If we use the population as the loads and use rectilinear
distance, which location is better in terms of its total load-distance
score?
Conti…

No Census tract (x, y) Population(I)

1 A (2.5, 4.5) 2
2 B (2.5, 2.5) 5
3 C (5.5, 4.5) 10
4 D (5, 2) 7
5 E (8, 5) 10
6 F (7, 2) 20
7 G (9, 2.5) 14
Conti…

 Solution: Calculate the load-distance score for each

location. Using the coordinates from the above table.
Calculate the load-distance score for each tract.

Using the formula DAB = |XA – XB| + |YA – YB|

Conti…
Census (X, Y) Popn(I) Locate at (5.5, 4.5) Locate at(7,2)
Distance(d) Load Distance(d) Load

A (2.5, 4.5) 2 3+0=3 6 4.5 + 2.5 = 7 14

B (2.5, 2.5) 5 3+2=5 25 4.5 + 0.5 = 5 25

C (5.5, 4.5) 10 0+0=0 0 1.5 + 2.5 = 4 40

D (5, 2) 7 0.5 + 2.5 = 3 21 2+0=2 14

E (8, 5) 10 2.5 + 0.5 = 3 30 1+3=4 40

F (7, 2) 20 1.5 + 2.5 = 4 80 0+0=0 0

G (9, 2.5) 14 3.5 + 2 = 5.5 77 2 + 0.5 = 2.5 35

Total 239 Total 168
Conti…

Decision: Summing the scores for all tracts gives a total load-
distance score of 239 when the facility is located at (5.5, 4.5)
versus a load-distance score of 168 at location (7, 2).

Tract F is a better location.

Centre of Gravity

 Centre of gravity is based primarily on cost considerations.

 It takes into account the locations of plants and markets,

the volume of goods moved, and transportation costs in
arriving at the best location for a single intermediate
warehouse.

 The Centre of gravity is determined by the formula.

Conti…

Where: Cx = x-coordinate of the Centre of gravity

Cy = y-coordinate of the Centre of gravity
Dix = x-coordinate of location i
Diy = y-coordinate of location i
Conti…

Example 1: The new Health-care facility is targeted to serve

seven census tracts in Hawassa. The table given below shows
the coordinates for the centre of each census tract, along with
the projected populations, measured in thousands.
Customers will travel from the seven census tract centres to
the new facility when they need health-care. Two locations
being considered for the new facility are at (5.5, 4.5) and (7,
2), which are the centres of census tracts C and F. Details of
seven census tract centres, coordinate distances along with
the population for each centre are given below. Find the
target area’s centre of gravity for the Health-care medical
facility.
Conti…

No Census (x, y) Population(I)

tract
1 A (2.5, 4.5) 2
2 B (2.5, 2.5) 5
3 C (5.5, 4.5) 10
4 D (5, 2) 7
5 E (8, 5) 10
6 F (7, 2) 20
7 G (9, 2.5) 14
Conti…

Solution: To calculate the Centre of gravity, start with the

following information, where population is given in
thousands.
No Census tract (x, y) Population(L) Lx Ly
1 A (2.5, 4.5) 2 5 9
2 B (2.5, 2.5) 5 12.5 12.5
3 C (5.5, 4.5) 10 55 45
4 D (5, 2) 7 35 14
5 E (8, 5) 10 80 50
6 F (7, 2) 20 140 40
7 G (9, 2.5) 14 126 35
Total 68 453.5 205.5
Conti…

Next we find Cx and Cy

Cx = 453.5/68 = 6.67
Cy = 205.5/68 = 3.02

The centre of gravity is (6.67, 3.02). Using the centre of

gravity as starting point, managers can now search in its
vicinity for the optimal location.
Classification of layout

 Layout refers to the arrangement of activities, processes,

departments, workstations, storage areas, and common
areas within an existing or proposed facility.

 Layouts can be classified into the following five categories:

 Process layout
 Product layout
 Combination layout
 Fixed position and
 Group layout
Objectives of layout

 Modernize the flow of materials through the plant.

 Facilitate the manufacturing process.
 Maintain high turnover of in-process inventory.
 Minimize materials handling and cost.
 Effective utilization of men, equipment and space.
 Make effective utilization of cubic space.
Conti…

 Flexibility of manufacturing operations and arrangements.

 Provide for employee convenience, safety and comfort.
 Minimize investment in equipment.
 Minimize overall production time.
 Maintain flexibility of arrangement and operation.
 Facilitate the organizational structure.
1. Process layout /for job-shops/

 Also known as functional layouts, group similar

activities together in departments or work centers
according to the process or function they perform.

 A hospital is an example of process layout. Departments

are grouped based on their function, such as cardiology,
radiology, laboratory, oncology, and pediatrics.
2. Product or Line Layout

 Product layout focuses on the sequence of production

or assembly operation required for producing a part
or a product of cement, oil refining, auto assembly and
the so on.

 In contrast to process layouts, product layouts are not

flexible since they are designed specifically for making
one product.
Example of product layout
Conti…

Examples of product layout

Conti…
3. Combination Layout

 A combination of process and product layouts combines

the advantages of both types of layouts.

 A combination layout is possible where an item is being

made in different types and sizes.

 Here machinery is arranged in a process layout but the

process grouping is then arranged in a sequence to
manufacture various types and sizes of products. It is to be
noted that the sequence of operations remains same with
the variety of products and sizes.
Example of a combination layout
4. Fixed position Layout

 Unlike the three other basic layout options, fixed position

layouts require that both people and machine be brought
to the product being made, assembled, or tested.

 Are typical of projects in which the product produced is

too fragile, bulky, or heavy to move. For example, ship
building, dam construction, power generating, bridge, etc.

 The fixed position nature of the layout minimizes the

amount of product movement required.
Example of fixed position layout
5. Group Layout (or Cellular Layout)

 There is a trend now to bring an element of flexibility

into manufacturing system as regards to variation in
batch sizes and sequence of operations.

 A grouping of equipment for performing a sequence of

operations on family of similar components or
products has become all the important.
Example of group layout
Job Design and Work Measurement

 Job design is the function of specifying the work

activities of an individual or group in an
organizational setting.

 The objective of job design is to develop jobs that meet

the requirements of the organization and its
technology and that satisfy the jobholder’s personal
and individual requirements.
Job Design Decisions

Who What Where When Why How

Organizational
Mental and Geographic
Time of day; rationale for Method of
physical locale of the
Tasks to be time of the job; object- performance
characteristics organization;
performed occurrence in ives and mot- and
of the location of
the work flow ivation of the motivation
work force work areas
worker

Ultimate
Job
Structure
The job design principles

 Task variety. An attempt must be made to provide an

optimal variety of tasks within each job. Too much
variety can be inefficient for training and frustrating for
the employee. Too little can lead to boredom and fatigue.

 Skill variety. Research suggests that employees derive

satisfaction from using a number of skill levels.

 Feedback. There should be some means for informing

employees quickly when they have achieved their
targets.
Conti…

 Task identity. Sets of tasks should be separated from other

sets of tasks by some clear boundary. Whenever possible, a
group or individual employee should have responsibility
for a set of tasks that is clearly defined, visible, and
meaningful. In this way, work is seen as important by the
group or individual undertaking it, and others understand
and respect its significance.

 Task autonomy. Employees should be able to exercise

some control over their work. Areas of discretion and
decision making should be available to them.
Physical Considerations in Job Design

 Work physiology sets work-rest cycles according to

the energy expended in various parts of the job.

 The harder the work, the more the need for rest
periods.

 Ergonomics is a term used to describe the study of the

physical arrangement of the work space together with
tools used to perform a task.

 Fit the work to the body rather than forcing the body
to conform to the work.
Work methods

A Production
Process

Workers Interacting Worker at a Fixed

with Other Workers Ultimate Workplace

Job
Design

Worker Interacting
with Equipment
Work Measurement

 Work measurement is a process of analyzing jobs for

the purpose of setting time standards.

 Why use it?

– Schedule work and allocate capacity
– Motivate and measure work performance
– Evaluate performance
– Provide benchmarks
Time Study Normal Time Formulas

 Normal time(NT) = Observed performance time per unit

x (Performance rating)*

*The Performance Rating is usually expressed in

decimal form in these formulas. So a person working
10% faster than normal would have a Performance
Rating of 1.10 or 110% of normal time. Working
10% slower, 0.90 or 90% of normal.

 NT= Time worked x (Performance

rating)* Number of units produced
Time Study Standard Time Formulas


 Standard
Standard time
time == Normal
Normal time
time
++ (Allowances
(Allowances xx Normal
Normal times)
times)


 Standard
Standard time
time == NT(1
NT(1 ++Allowances)
Allowances)


 Standard
Standard time
time == NT______
NT______
11 --Allowances
Allowances
Time Study Example

 You want to determine the standard time for a job.

The employee selected for the time study has produced
20 units of product in an 8 hour day. Your
observations made the employee nervous and you
estimate that the employee worked about 10 percent
faster than what is a normal pace for the job.
Allowances for the job represent 25 percent of the
normal time.

 Question: What are the normal and standard times for

this job?
Solution

Normal time = Time worked x (Performance. rating)

Number of units produced

= (480 minutes/20) x (1.10)

= 26.4 minutes

Standard time = NT_____

1 – Allowances

= (26.4)/(1- 0.25)

= 35.2 minutes
 Group Assignment (15%)

1. Write a brief note on work measurement. The discussion

should include:
 Definition of job design and work measurement.

 Principles of job design and work measurement.

 Time study (Support the discussion by providing at least
three practical quantitative examples on Time study which
includes normal and standard time.)

2. Discuss the different facility layout with their advantages

and disadvantages.

 Submission date: December 10, 2009 E.C.

End of Chapter 3

DESIGN OF THE OPERATION

SYSTEM
 Chapter Four

OPERATIONS PLANNING AND CONTROL

Time allotted: 6hrs

 OPERATIONS PLANNING AND CONTROL
OBJECTIVES

After completing this chapter, you should be able to:

 Discuss Aggregate production planning

 Elucidate Operations Scheduling

LEARNING
Aggregate production planning

 Aggregate planning: Intermediate-range capacity

planning, usually covering 3 to 12 months. The goal of
aggregate planning is to achieve a production plan that
will effectively utilize the organization’s resources to
satisfy expected demand.

Long range

Intermediate
range
Short
range

Now 3months 1 Year

Conti…

 Long-range planning
 Greater than one year planning horizon
 Usually performed in annual increments

 Medium-range planning
 Six to eighteen months
 Usually with weekly, monthly or quarterly increments

 Short-range planning
 One day to less than six months
 Usually with weekly or daily increments
The Aggregate Operations Plan

 Main purpose: Specify the optimal combination of

 production rate (units completed per unit of time)

 workforce level (number of workers needed in
production)
 inventory on hand (unused inventory carried over the
previous period)

 Product group or broad category (Aggregation).

 This planning is done over an intermediate-range planning

period of 3 to18 months.
Production planning environment
Production planning strategies

1. Chase strategy: Match the production rate to the

order rate by hiring and laying off employees as the
order rate varies.

2. Stable work force-variable work hours: Vary the

output by varying the number of hours worked through
flexible work schedules or overtime.

3. Level strategy: Maintain a stable workforce working

at a constant output rate.
Conti…

 When just one of these variables is used to absorb

demand fluctuations, it is termed as a pure strategy;
two or more used in combination constitute a mixed
strategy.

 Subcontracting
 In addition to these strategies, managers also may
choose to subcontract some portion of production.
This strategy is similar to the chase strategy, but
hiring and laying off are translated in to
subcontracting and not subcontracting.
Conti…

 Some level of subcontracting can be desirable to

accommodate demand fluctuations.

 However, unless the relationship with the supplier is

particularly strong, a manufacturer can lose some
control over schedule and quality.

 For this reason, extensive subcontracting may be

viewed as a high-risk strategy.
Scheduling

 A work center is an area in a business in which productive

resources are organized and work is completed.
 Can be a single machine, a group of machines, or an area
where a particular type of work is done.

Capacity and Scheduling

 Infinite loading
 Finite loading
 Forward scheduling
 Backward scheduling
Conti…

 Infinite loading: occurs when work is assigned to a work

center simply based on what is needed over time.

 A finite loading: In essence, the system determines exactly

what will be done by each resource at every moment during
the working day.
Conti…

 Forward scheduling: refers to the situation in which the

system takes an order and then schedules each operation
that must be completed forward in time. A system that
forward schedules can tell the earliest date that an order
can be completed.

 Backward scheduling: starts from some date in the future

(possibly a due date) and schedules the required operations
in reverse sequence. The backward schedule tells when an
order must be started in order to be done by a specific
date.
Work-Center Scheduling Objectives

 Meet due date

 Minimize lead time: Lead time is the gap between when
an order is placed and when it is received.
 Minimize setup time or cost

 Minimize work in process inventory

 Maximize machine or labor utilization

 It is unlikely, and often undesirable, to simultaneously

satisfy all these objectives. For example, keeping all
equipment and or employees busy may result in having to
keep too much inventory.
Priority Rules for Job Sequencing

1. First-come, first-served (FCFS)

2. Shortest operating time (SOT)
3. Earliest due date first (EDD)
4. Slack time remaining (STR) first
Time remaining before due date – remaining Process time
5. Slack time remaining per operation (STR/OP)
6. Critical ratio (CR) (Due date - Current date)
CR 
Number of days remaining

7. Last come, first served (LCFS)

8. Random order or whim
Example of Job Sequencing: First-Come First-Served
Conti…

 Total flow time = 4+11+14+15 = 44 days

 Mean flow time = 11 days which is 44/4

 Comparing the due date of each job with its flow time, we
observe that only Job A will be on time. Jobs B,C and D
will be late by 1,8 and 11 days, respectively.

 On average, a job will be late by(0+1+8+11)/4 = 5days

Example of Job Sequencing: Shortest Operating Time
Conti…

 Total flow time = 1+4+8+15= 28 days

 Mean flow time = 28/4 = 7 days

 SOT results in lower average flow time than the FCFS

rule. In addition, Jobs D and C will be ready before the
due date, and Job A(3 days) and Job B(5 days).

 On average, a job will be late by (0+0+3+5)/4 = 2 days.

Example of Job Sequencing: Earliest Due Date First
Conti…

 Total completion time = 1+5+8+15 = 29

 Mean flow time = 29/4 = 7.25 days

 In this case, Jobs C and B will be late.

 On average, a job will be late 0+0+2+5)/4 = 1.75 days.

Example of Job Sequencing: Critical Ratio Method
Example of Job Sequencing: Last-Come First-Served
Conti…

 Total completion time = 1+4+11+15 = 31

 Mean flow time = 31/4 = 7.75 days

 In this case, Jobs B and A will be late.

 On average, a job will be late 0+0+1+10)/4 = 2.75 days.

Example of Job Sequencing: Johnson’s Rule (Part 1)
Johnson’s rule consists of the following steps

 Step 1: List the operation time for each job on both

machine.

 Step 2: Select the shortest operation time.

 Step 3: If the shortest time is for the first machine, do the

job first; if it is for the second machine, do the job last. In
the case of a tie, do the job on the first machine.

 Step 4: Repeat Steps 2 and 3 for each remaining job until

the schedule is complete.
Example of Job Sequencing: Johnson’s Rule (Part 2)
Principles of Work Center Scheduling

 There is a direct equivalence between work flow and cash

flow

 The effectiveness of any job shop should be measured by

speed of flow through the shop

 Schedule jobs as a string, with process steps back-to-back

 A job once started should not be interrupted

Conti…

 Speed of flow is most efficiently achieved by focusing on

bottleneck work centers and jobs

 Reschedule every day

 Obtain feedback each day on jobs that are not completed at

each work center

 Match work center input information to what the worker

can actually do
Conti…

 When seeking improvement in output, look for

incompatibility between engineering design and process
execution

 Certainty of standards, routings, and so forth is not

possible in a job shop, but always work towards achieving
it
Network-Planning Models

 A project is made up of a sequence of activities that form a

network representing a project.

 The path taking longest time through this network of

activities is called the “critical path”.

 The critical path provides a wide range of scheduling

information useful in managing a project.

 Critical Path Method (CPM) helps to identify the critical

path(s) in the project networks.
Prerequisites for Critical Path Methodology

A project must have:

 well-defined jobs or tasks whose completion marks the end

of the project;

 independent jobs or tasks;

 and tasks that follow a given sequence.

Types of Critical Path Methods

 CPM with a Single Time Estimate

 Used when activity times are known with certainty

 Used to determine timing estimates for the project, each
activity in the project, and slack time for activities

 CPM with Three Activity Time Estimates

 Used when activity times are uncertain

 Used to obtain the same information as the Single Time
Estimate model and probability information
Conti…

 Time-Cost Models

 Used when cost trade-off information is a major

consideration in planning
 Used to determine the least cost in reducing total
project time
Steps in the CPM with Single Time Estimate

Step 1: Activity Identification

Step 2: Activity Sequencing and Network Construction

Step 3: Determine the critical path

 From the critical path all of the project and activity

timing information can be obtained
CPM with Single Time Estimate

Consider the following consulting project:

Activity Designation Immed. Pred. Time (Weeks)
Assess customer's needs A None 2
Write and submit proposal B A 1
Obtain approval C B 1
Develop service vision and goals D C 2
Train employees E C 5
Quality improvement pilot groups F D, E 5
Write assessment report G F 1

Develop a critical path diagram and determine the

duration of the critical path and slack times for all
activities.
First draw the network
Determine early starts and early finish times
Determine late starts and late finish times
Critical Path & Slack

ES=4
Slack=(7-4)=(9-6)= 3 Wks
EF=6

ES=0 ES=2 ES=3 D(2) ES=9 ES=14

EF=2 EF=3 EF=4 LS=7 EF=14 EF=15
LF=9
A(2) B(1) C(1) F(5) G(1)
ES=4
LS=0 LS=2 LS=3 EF=9 LS=9 LS=14
LF=2 LF=3 LF=4 LF=14 LF=15
E(5)

LS=4 Duration=15 weeks

LF=9
Example 2. CPM with Three Activity Time Estimates

Immediate
Task Predecesors Optimistic Most Likely Pessimistic
A None 3 6 15
B None 2 4 14
C A 6 12 30
D A 2 5 8
E C 5 11 17
F D 3 6 15
G B 3 9 27
H E,F 1 4 7
I G,H 4 19 28
Example 2. Expected Time Calculations
Example 2. Expected Time Calculations
Example 2. Expected Time Calculations
Example 2. Network

Duration = 54 Days
C(14) E(11)

A(7) H(4)
D(5) F(7)

I(18)

B G(11)
(5.333)
End of Chapter 4
Chapter Five

QUALITY MANAGEMENT AND CONTROL

Time allotted: 6hrs

 QUALITY MANAGEMENT AND CONTROL
OBJECTIVES

At the end of this chapter, you should be able to:

 Explain quality management and control

 Elucidate the nature of quality management

 Discuss quality specification, continuous improvement,

LEARNING

statistical quality control and process control charts

Definition

 Quality as “a subjective term for which each person

has his or her own definition. In technical usage,
quality can have two meanings:

 (1) The characteristics of a product or service that bear

on its ability to satisfy stated or implied needs and

 (2) A product or service free of deficiencies.

Conti…

 To sum it up, Quality is defined as:

 Quality can be derived as conformance to specification.

Fitness for use (satisfies customer needs).

 Managing the entire organization so that it excel on all

dimension products and services that are important to
customers.
Dimensions of quality for manufactured products

 Performance: The basic operating characteristics of a product;

for example, how well a car handles or its gas mileage.

 Features: The “extra” items added to the basic features, such

as a stereo CD or a leather interior in a car.

 Reliability: The probability that a product will operate

properly within an expected time frame; that is, a TV will
work without repair for about seven years.

 Conformance: The degree to which a product meets pre

established standards.
Conti…

 Durability: How long the product lasts; its life span

before replacement.

 Serviceability: The ease of getting repairs, the speed of

repairs, and the courtesy and competence of the repair
person.

 Aesthetics: How a product looks, feels, sounds, smells, or

tastes.
Conti…

 Safety: Assurance that the customer will not suffer injury

or harm from a product; an especially important
consideration for automobiles.

 Other perceptions: Subjective perceptions based on brand

name, advertising, and the like.
Dimensions of quality for services

 Time and timeliness: How long must a customer wait for

service, and is it completed on time?

 Completeness: Is everything the customer asked for

provided?

 Courtesy: How are customers treated by employees?

 Consistency: Is the same level of service provided to each

customer each time? Is your newspaper delivered on time
every morning?
Conti…

 Accessibility and convenience: How easy is it to obtain the

service?

 Accuracy: Is the service performed right every time? Is

your bank or credit card statement correct every month?

 Responsiveness: How well does the company react to

unusual situations, which can happen frequently in a
service company?
Conti…

A Mercedes and a Ford pickup

truck are equally “fit for use,”
different purchase prices.
The Meaning of Quality
Quality specifications

 The term “specification” refers to a description of the

characteristics of a commodity or service required or
desired.

 Specifically, it is defined as the explicit requirement

furnished with a solicitation upon which a purchase order
or contract is to be based.

 Specifications set forth the characteristics of the property

and services to be purchased so as to enable the vendor to
determine and understand that which is to be supplied.
Conti…

 This information may be in the form of a description of the

physical, functional, or performance characteristics, a
reference brand name or both.

 It may include a description of any requirement for inspecting,

testing, or preparing a material, equipment, supplies, or
service for delivery. Specifications may be incorporated by
reference and/or through attachment to the solicitation.

 Specifications are written so as to not restrict bidding but

encourage open competition. The goal is to invite maximum
reasonable competition.
Continuous improvement

 is the philosophy of continually seeking improvements

in processes through the use of team efforts.

 One of the techniques of assisting in continuous

improvement is by generating new ideas. This is
achieved by 5W2H method.

 The 5W2H method is described in the next page with

brief discussion in Table.
Conti…

Type 5W2H Description Counter measure

Subject What? What is being done? Identify the focus of

matter Can this task being eliminated? analysis

Purpose Why? Why is the task necessary? Eliminate unnecessary

Clarify the purpose tasks
Conti…

Location Where? Where is it being done? Improve the location

Why is it done there?
Would it be better to do it
someplace else?
Does it have to be done there?
Sequence When? When is it done? Improve the sequence
Would it be better to do it at
another time?
People Who? Who is doing it? Change the sequence
Should someone else do it better? or output
Why I am doing it?
Conti…

Method How? How is it being done? Simplify tasks, improve

Is this the best method? output
Is there some other way?

Cost How much? How much does it cost now? Select

What would the new cost be? an improvement method
Conti…
Kaizen umbrella concept
Use of Quality Tools

 Cause-and-effect diagram: A chart that identifies

potential causes of particular quality problems.
Flowchart

 Is a schematic of the sequence of steps involved in

an operation or process.
A checklist

 is a list of common defects and the number of observed

occurrences of these defects.
Control charts

 Are charts used to evaluate whether a process is

operating within set expectations.
Scatter diagrams

 Are graphs that show how two variables are related to

each other.

 They are particularly useful in detecting the amount of

correlation, or the degree of linear relationship, between
two variables.
Pareto analysis

 is a technique used to identify quality problems based on

their degree of importance.

 In quality management the logic behind Pareto’s principle is

that most quality problems are a result of only a few causes.
The trick is to identify these causes.
Histogram

 Is a chart that shows the frequency distribution of observed

values of a variable.
Statistical quality control

 Statistical quality control (SQC) is the term used to

describe the set of statistical tools used by quality
professionals.

 Statistical quality control can be divided into three

broad categories:

1) Descriptive statistics are used to describe quality

characteristics and relationships. Included are
statistics such as the mean, the standard deviation, the
range, and a measure of the distribution of data.
Conti…

2) Statistical process control (SPC) involves inspecting a

random sample of the output from a process and
deciding whether the process is producing products
with characteristics that fall within a predetermined
range. SPC answers the question of whether or not the
process is functioning properly.

3) Acceptance sampling is the process of randomly

inspecting a sample of goods and deciding whether to
accept the entire lot based on the results. Acceptance
sampling determines whether a batch of goods should
be accepted or rejected.
Statistical process control

 Statistical process control methods employ descriptive

statistics to monitor the quality of the product and process.

 Using statistical process control, we want to determine the

amount of variation that is common or normal. Then we
monitor the production process to make sure production
stays within this normal range.

 The most commonly used tool for monitoring the

production process is a control chart.
Conti…

 Different types of control charts are used to monitor

different aspects of the production process. Here you will
learn how to develop and use control charts
Developing control charts

 Control charts are graphs that visually show if a

sample is within statistical control limits.

 They have two basic purposes: to establish the control

limits for a process and then to monitor the process to
indicate when it is out of control.

 Control charts exist for attributes and variables;

within each category there are several different types
of control charts.
Quality measures: Attributes and Variables

 The quality of a product or service can be evaluated using

either an attribute of the product or service or a variable
measure.

 An attribute: is a product characteristic such as color,

surface texture, cleanliness, or perhaps smell or taste.
Attributes can be evaluated quickly with a discrete response
such as good or bad, acceptable or not, or yes or no.

 A variable: measure is a product characteristic that is

measured on a continuous scale such as length, weight,
temperature, or time.
Conti…

 Since a variable evaluation is the result of some form of

measurement, it is sometimes referred to as a quantitative
classification method.

 An attribute evaluation is sometimes referred to as a

qualitative classification, since the response is not
measured.

 We will present four commonly used control charts, two in

each category: p-charts and c-charts for attributes and
mean (X) and range (R) control charts for variables.
Process Control Chart
p-CHART

 With a p-chart a sample of n items is taken periodically

from the production or service process, and the proportion
of defective items in the sample is determined to see if the
proportion falls within the control limits on the chart.

 A p-chart employs a discrete attribute measure (i.e.,

number of defective items) and thus is not continuous, it is
assumed that as the sample size (n) gets larger, the normal
distribution can be used to approximate the distribution of
the proportion defective.
Conti…

 To compute the upper control limit (UCL) and lower

control limit (LCL) of a p-chart the following formula
should be employed:

Where:
Conti…

 The sample standard deviation is computed as

 Where n is the sample size.

Example 5.1

 The Western Jeans Company produces denim jeans. The

company wants to establish a p-chart to monitor the
production process and maintain high quality. Western
believes that approximately 99.74% of the variability in
the production process (corresponding to 3-sigma limits, or
z = 3.00) is random and thus should be within control
limits, whereas 0.26% of the process variability is not
random and suggests that the process is out of control. The
company has taken 20 samples (one per day for 20 days),
each containing 100 pairs of jeans (n = 100), and inspected
them for defects, the results of which are as follows.
Conti…
Conti…

 The proportion defective for the population is not known.

The company wants to construct a p-chart to determine
when the production process might be out of control.

Solution
 Since p is not known, it can be estimated from the total
sample:
Conti…

The p-chart, including sample points, is shown in the following

figure:
Conti…
c-CHART

 A c-chart is used when it is not possible to compute a

proportion defective and the actual number of defects
must be used.

 The process average for the c-chart is the mean

number of defects per item, , computed by dividing the
total number of defects by the number of samples. The
sample standard deviation, c, isC. The following
formulas for the control limits are used:
Example 5.2

 Haile resort has 240 rooms. The hotel’s housekeeping

department is responsible for maintaining the quality of
the rooms’ appearance and cleanliness. Each individual
housekeeper is responsible for an area encompassing 20
rooms. Every room in use is thoroughly cleaned and its
supplies, toiletries, and so on are restocked each day. Any
defects that the housekeeping staff notice that are not part
of the normal housekeeping service are supposed to be
reported to hotel maintenance. Every room is briefly
inspected each day by a housekeeping supervisor.
Conti…

 However, hotel management also conducts inspection tours

at random for a detailed, thorough inspection for quality-
control purposes. The management inspectors not only
check for normal housekeeping service defects like clean
sheets, dust, room supplies, room literature, or towels, but
also for defects like an inoperative or missing TV remote,
poor TV picture quality or reception, defective lamps, a
malfunctioning clock, tears or stains in the bedcovers or
curtains, or a malfunctioning curtain pull. An inspection
sample includes 12 rooms, that is, one room selected at
random from each of the twelve 20-room blocks serviced by
a housekeeper. Following are the results from 15 inspection
samples conducted at random during a one-month period:
Conti…
Conti…

 The hotel believes that approximately 99% of the defects

(corresponding to 3-sigma limits) are caused by natural,
random variations in the housekeeping and room
maintenance service, with 1% caused by non-random
variability. They want to construct a c-chart to monitor the
housekeeping service.

Solution
 Because c, the population process average, is not known,
the sample estimate, , can be used instead:
Conti…

 The control limits are computed using z 3.00, as follows:

 The resulting c-chart, with the sample points, is shown in

the following figure:
Conti…
Conti…

 Decision: All the sample observations are within the

control limits, suggesting that the room quality is in
control. This chart would be considered reliable to monitor
the room quality in the future.
Control charts for variables

 Variable control charts are used for continuous variables

that can be measured, such as weight or volume. Two
commonly used variable control charts are the range
chart, or R-chart, and the mean chart, or chart.

 A range (R-) chart reflects the amount of dispersion

present in each sample; a mean () chart indicates how
sample results relate to the process average or mean. These
charts are normally used together to determine whether a
process is in control.
Mean () chart

 The formulas for computing the upper control limit (UCL)

and lower control limit (LCL) are

 Where:
Example 5.3

 The Goliath Tool Company produces slip-ring bearings,

which look like flat doughnuts or washers. They fit around
shafts or rods, such as drive shafts in machinery or motors.
At an early stage in the production process for a particular
slip-ring bearing, the outside diameter of the bearing is
measured. Employees have taken 10 samples (during a 10-
day period) of 5 slip-ring bearings and measured the
diameter of the bearings. The individual observations from
each sample (or subgroup) are shown as follows:
Conti…
Conti…

 From past historical data it is known that the process

standard deviation is .08. The company wants to develop a
control chart with 3-sigma limits to monitor this process in
the future. The process average is computed as:

 The control limits are:

Conti…

 Decision: None of the sample means () falls outside

these control limits, which indicates that the process is
in control and this is an accurate control chart.

 In the second approach to developing an chart, the

following formulas are used to compute the control
limits:
Conti…

 Where is the average of the sample means and is the

average range value. A2 is a tabular value that is used to
establish the control limits. Values of A2 are included in
Table 5.1. They were developed specifically for determining
the control limits for charts and are comparable to three-
standard deviation (3) limits. These table values are
frequently used to develop control charts.
Table 5.1 Factors for determining control limits for and
R-charts
Example 5.4

 The Goliath Tool Company desires to develop an chart using

table values. The sample data collected for this process with
ranges is shown in the following table.

 The company wants to develop an chart to monitor the process.

Conti…

Solution
 is computed by first determining the range for each
sample by computing the difference between the highest
and lowest values as shown in the last column in our table
of sample observations. These ranges are summed and
then divided by the number of samples, k, as follows:
Conti…

 Using the value of A2 = 0.58 for n =5 from Table 5.1 and = 0.115,
we compute the control limits as

 The chart defined by these control limits is shown in the

following figure. Notice that the process is on the UCL for
sample 9; in fact, samples 4 to 9 show an upward trend. This
would suggest that the process variability is subject to
nonrandom causes and should be investigated.
Conti…
Range (R-) Chart

 In an R-chart, the range is the difference between the smallest and

largest values in a sample. This range reflects the process variability
instead of the tendency toward a mean value. The formulas for
determining control limits are:

 is the average range (and center line) for the samples,

Where

 R = range of each sample

 k = number of samples (subgroups)
Conti…

 D3 and D4 are table values like A2 for determining control

limits that have been developed based on range values
rather than standard deviations. Table 5.1 also includes
values for D3 and D4 for sample sizes up to 25.

 The Goliath Tool Company from Examples 5.3 and 5.4

wants to develop an R-chart to control process variability.
From Example 5.4, = 0.115; from Table 5.1 for n = 5, D3
= 0 and D4 = 2.11. Thus, the control limits are,
Conti…

 These limits define the R-chart shown in the following

figure. It indicates that the process appears to be in
control; any variability observed is a result of natural
random occurrences.
Conti…
Conti…

 This example illustrates the need to employ the R-chart

and the chart together. The R-chart in this example
suggests that the process is in control, since none of the
ranges for the samples are close to the control limits.
However, the chart in Example 5.4 suggests that the
process is not in control. In fact, the ranges for samples 8
and 10 were relatively narrow, whereas the means for these
samples were relatively high. The use of both charts
together provided a more complete picture of the overall
process variability.

 Decision: All samples are under the control limits.

 End of Chapter 5

QUALITY MANAGEMENT AND CONTROL

T hank yo u ! ! !