OPERATIONS

MANAGEMENT
7th Ed. By Slack

SESSION 5
PART I I I: Chapter 10

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PART III: DELIVER – PLANNING & CONTROLLING OPERATIONS

CHAPTER 10: THE NATURE OF PLANNING & CONTROLLING

CHAPTER 11: CAPACITY MANAGEMENT
CHAPTER 12: INVENTORY MANAGEMENT
CHAPTER 13: SUPPLY CHAIN MANAGEMENT
CHAPTER 14: ENTERPRISE RESOURCES PLANNING
* Supplement: Material Requirement Planning (MRP)
CHAPTER 15: LEAN SYNCHRONIZATION
CHAPTER 16: PROJECT MANAGEMENT
CHAPTER 17: QUALITY MANAGEMENT

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 SUMMARY ANSWERS TO KEY QUESTIONS
1) What is planning and control?

Planning and control is the reconciliation of the potential of the operation to supply products and services, and the
demands of its customers on the operation. It is the set of day-today activities that run the operation on an ongoing basis.

2) What is the difference between planning and control?

 A plan is a formalization of what is intended to happen at some time in the future. Control is the process of coping with
changes to the plan and the operation to which it relates. Although planning and control are theoretically separable,
they are usually treated together.

 The balance between planning and control changes over time. Planning dominates in the long term and is usually done
on an aggregated basis. At the other extreme, in the short term, control usually operates within the resource constraints
of the operation but makes interventions into the operation in order to cope with short-term changes in circumstances.

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 3) How do supply and demand affect planning and control?

 The degree of uncertainty in demand affects the balance between planning and control. The greater the uncertainty, the
more difficult it is to plan, and so greater emphasis must be placed on control.
 This idea of uncertainty is linked with the concepts of dependent and independent demand. Dependent demand is
relatively predictable because it is dependent on some known factor. Independent demand is less predictable because
it depends on the chances of the market or customer behavior.
 The different ways of responding to demand can be characterized by differences in the P : D ratio of the operation. The
P : D ratio is the ratio of total throughput time of services or products to demand time.

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4) What are the activities of planning and control?

In planning and controlling the volume and timing of activity in operations, four distinct activities are necessary:

 loading, which dictates the amount of work that is allocated to each part of the operation;
 sequencing, which decides the order in which work is tackled within the operation;
 scheduling, which determines the detailed timetable of activities and when activities are started and finished;
 monitoring and control, which involve detecting what is happening in the operation, re-planning if necessary, and
intervening in order to impose new plans. Two important types are ‘pull’ and ‘push’ control.
 Pull control is a system whereby demand is triggered by requests from a work center’s (internal) customer.
 Push control is a centralized system whereby control (and sometimes planning) decisions are issued to work
center’s which are then required to perform the task and supply the next workstation. In manufacturing, ‘pull’
schedules generally have far lower inventory levels than ‘push’ schedules.
 The ease with which control can be maintained varies between operations.

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INTRODUCTION
The design of an operation determines the resources with which it creates its services and products, but the operation
then has to deliver those services and products on an ongoing basis. And central to an operation’s ability to deliver is
the way it plans its activities and controls them so that customers’ demands are satisfied.

WHAT IS PLANNING AND CONTROL?

Planning and control is concerned with the activities that attempt to reconcile the demands of the market and the
ability of the operation’s resources to deliver. It provides the systems, procedures and decisions which bring different
aspects of supply and demand together. Ex. A scheduled surgery starts when the patient arrives and is admitted to the
hospital.

The difference between planning and control

 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. Rather it is a statement of intention. Customers may change their mind, suppliers
may not deliver on time, technology process may fail, workers may be absent due to illness.
 Control is the process of coping with these types of change – may need to re-drawn the plans or fill in a substitute in
place of the absentee, correct technical failure immediately – to stop operation’s down time to a minimum.

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Long-, medium- and short-term planning and control

The nature of planning and control activities changes over time.

 In the very long term, operations managers make plans concerning what they intend to do, what resources they need,
and what objectives they hope to achieve (focus mainly on volume and financial targets). They will use forecasts of
likely demand described in aggregated terms. For example, a hospital will make plans for ‘2,000 patients’ without
necessarily going into the details of the individual needs of those 2,000 patients; gross number of serving staffs of 100
nurses and 20 doctors without attributes (types of nurses/doctors).
 Medium-term planning and control is more detailed – different types of demand (accidents, emergency cases, etc.)
along with different categories of staff.
 Short-term planning and control, many of the resources will have been set and it will be difficult to make large
changes. However, short-term interventions are possible if things are not going to plan. By this time, demand will be
assessed on a totally disaggregated basis, with all types of surgical procedures treated as individual activities.

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The volume–variety effect on planning and control
The volume and variety characteristics of an operation will have an effect on its planning and control activities.

 An architects’ practice: low volume and high variety of customized services – can’t pre-design packages until requested
(designed to the client’s requirements).
 The electricity utility: high volume, production is continuous, zero variety. Demand is seasonal-fluctuated but easily
forecasted.

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THE EFFECT OF SUPPLY AND DEMAND ON PLANNING AND CONTROL

Uncertainty in supply and demand

 Supply: Local village carnivals rarely work to plan. Events take longer than expected, some of the acts scheduled in
the program may be delayed en-route , and some traders may not even arrive.
In other operations, supply is relatively predictable, and the need for control is minimal – cable TV services
provide programs to a schedule into subscribers’ homes.
 Demand: A fast-food outlet inside a shopping center does not know how many people will arrive, when they will
arrive and what they will order. It may be possible to predict certain patterns, such as an increase in demand over
the lunch and tea-time periods, but a sudden rainstorm that drives shoppers indoors into the center could
significantly and unpredictably increase demand in the very short term.
Demand may be more predictable – in a school, for example, once classes are fixed and the term or semester has
started, a teacher knows how many pupils are in the class.

Both supply and demand uncertainty make planning and control more difficult, but a combination of supply and
demand uncertainty is particularly difficult.

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 Dependent and independent demand
Dependent demand: Some operations can predict demand with relative certainty because demand for their services or
products is dependent upon some other factor which is known. For example, the demand for tires and other parts in an
automobile factory is not random (by examining the manufacturing schedules to derive the number of tires/other parts
needed). Planning and control in dependent demand situations is largely concerned with how the operation should
respond when demand has occurred.
Independent demand: some operations are subject to independent demand. They need to provide (forecasting under
uncertainty) future demand without knowing exactly what that demand will be (they do not have firm ‘forward visibility’
of customer orders). Ex. A drive-in tire replacement service provider would need to make decisions on how many and
what type of tires to stock, based on demand forecasts.

Responding to demand
The nature of planning and control in any operation depends on how it responds to demand, which is in turn related to
the type of services or products it produces.
 An advertising company will not create the advertising campaign until it understand the “spec.” & a contract is signed.
 A hamburger shop will keep the beef-patties in its freezer but will not start the process until it receives the order.
 A home builder who has standard designs might choose to build each house only when a firm order is received.
 Dell Computers where customers can ‘specify’ their computer by selecting between various components through the
company’s website. These components will have already been created (usually by suppliers) but assembled to a
specific customer order.

There is a relationship between how operations respond to demand and their volume–variety characteristics.
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PLANNING AND CONTROL ACTIVITIES
Planning and control requires the reconciliation of supply and demand in terms of volumes, timing and quality. There are
four overlapping activities: loading, sequencing, scheduling, and monitoring and control

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 (say 168 hours/week). However, this does not necessarily mean that 168 hours of
work can be loaded onto that machine – must take into account of break-down, change in set-up (variety products),

holidays, idling, etc. would reduce available time.

(more in Chapter 11: the measurement of capacity)

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Sequencing
Whether the approach to loading is finite (standard working hours/shifts) or infinite (not likely – use overtime, bonus
[short-term], additional equipment [long term]), when work arrives, decisions must be taken on the order in which the
work will be tackled. The priorities given to work in an operation are often determined by some predefined set of rules,

Physical constraints in an operation using paints or dyes, lighter shades will be sequenced before darker shades
(batch mode).
Customer priority Most banks give priority to important customers. Hotels, complaining customers gets priority –
adverse effect to others. Emergency services prioritize on case-by-case basis.
Due date (DD) means that work is sequenced according to when it is ‘due’ for delivery irrespective of the size
of each job or the importance of each customer. (Dependability objective)
Last in first out (LIFO) unloading an elevator is more convenient on a LIFO basis BUT patients at hospital clinics
may be infuriated if they see newly arrived patients examined first.
First in first out (FIFO) Waiting line at a bank, theme park, check-out line at Wal-Mart.

Longest operation time (LOT) may feel obliged to sequence their longest jobs first.
Shortest operation time first (SOT) Most operations at some stage become cash constrained

Judging sequencing rules All five performance objectives, or some variant of them, could be used to judge the
effectiveness of sequencing rules.

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Scheduling Is the detailed timetable showing at what time or date jobs should start and when they should end.
For example: a bus schedule shows that more buses are put on routes at more frequent intervals during rush-hour periods.
The bus schedule shows the time each bus is due to arrive at each stage of the route.

The complexity of scheduling

Schedulers must deal with several different types of resource simultaneously. Ex. Machines will have different capabilities
and capacities; staff will have different skills. The number of possible schedules increases rapidly as the number of
activities and processes increases. For example, suppose one machine has five different jobs to process. Any of the five
jobs could be processed first and, following that, any one of the remaining four jobs, and so on. This means that there are:
5 x 4 x 3 x 2 x 1 = 120 different possible schedules
In other words, for n jobs there are n! (factorial n) different ways of scheduling the jobs through a single process. But
when there are (say) two machines, there is no reason why the sequence on machine 1 would be the same as the
sequence on machine 2. If we consider the two sequencing tasks to be independent of each other, for two machines there
would be: 120 x 120 = 14,400 possible schedules of the two machines and five jobs. OR (n!)m where n = number of
jobs and m is the number of machines.

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Forward and backward scheduling
Forward scheduling involves starting work as soon as it arrives. Backward scheduling involves starting jobs at the last
possible moment to prevent them from being late. For example: assume that it takes six hours for a contract laundry to
wash, dry and press a batch of overalls. If the work is collected at 8.00 am and is due to be picked up at 4.00 pm, there are
more than six hours available to do it (see Table 10.3). The choice of backward or forward scheduling depends largely
upon the circumstances (see Table 10.4).

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Gantt charts
represents time as a bar, or channel, on a chart. The start and finish times for activities can be indicated on the chart and
sometimes the actual progress of the job is also indicated. The advantages of Gantt charts are that they provide a simple
visual representation both of what should be happening and of what actually is happening in the operation. Figure 10.11
illustrates a Gantt chart for a specialist software developer.

Additional info about Gantt chart

can be found in Krajewski book:
Chapter 2: Managing Effective
Projects – pages 79 – 80

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Pages 309 - 310

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Scheduling work patterns
Where the dominant resource in an operation is its staff, then the schedule of work times effectively determines the
capacity of the operation itself. The main task of scheduling, therefore, is to make sure that sufficient numbers of people
are working at any point in time to provide a capacity appropriate for the level of demand at that point in time.
Operations such as call centers, postal delivery, policing, holiday couriers, retail shops and hospitals will all need to
schedule the working hours of their staff with demand in mind (high visibility: can not store their outputs). Figure 10.14
shows the scheduling of shifts for a small technical ‘hot line’ support service for a small software company (with the
assumption that all staff have the same level and type of skill.

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 Monitoring and controlling the operation
to ensure that planned activities are happening. Any deviation from the plans can then be rectified through some kind of
Intervention. Figure 10.15 illustrates a simple view of control.
Push and pull control
 In a push system of control, activities are scheduled by means of a central
system and completed in line with central instructions, such as an MRP
system (see Chapter 14). Each work center theoretically pushes out work
without considering whether the succeeding work center can make use
of it.
In practice, however, there are many reasons why actual conditions differ
from those planned. As a consequence, idle time, inventory and queues
often characterize push systems.

 In a pull system of control, the pace and specification of what is done are set by the ‘customer’ workstation, which ‘pulls’
work from the preceding (supplier) workstation. The customer acts as the only ‘trigger’ for movement and prompt the
supplying stage to request for additional delivery. If a request isn’t passed back from the customer to the supplier, the
supplier cannot produce anything or move any materials. Pull systems are far less likely to result in inventory build-up and
are therefore favored by lean operations ( see Chapter 15).

Consider an analogy: the ‘gravity’ analogy illustrated in Figure 10.16

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Consider an analogy: the ‘gravity’ analogy illustrated in Figure 10.16

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Drum, buffer, rope
The drum, buffer, rope concept comes from the Theory of Constraints (TOC) and a concept called Optimized Production
Technology (OPT) originally described by Eli Goldratt in his novel “The Goal”. Goldratt argued that the bottleneck in the
process should be the control point of the whole process. It is called the drum because it sets the ‘beat’ for the rest of the
process to follow. Because it does not have sufficient capacity, a bottleneck is (or should be) working all the time. Therefore,
it is sensible to keep a buffer of inventory in front of it to make sure that it always has something to work on. Because it
constrains the output of the whole process, any time lost at the bottleneck will affect the output from the whole process. So
it is not worthwhile for the parts of the process before the bottleneck to work to their full capacity. All they would do is
produce work which would accumulate further along in the process up to the point where the bottleneck is constraining the
flow. Therefore, some form of communication between the bottleneck and the input to the process is needed to make sure
that activities before the bottleneck do not overproduce (called the rope).

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Managing Bottlenecks in Service Processes – Example 7.1 - Identifying the Bottleneck in a Service Process from
Krajewski Chapter 7: pages 267 - 268
Managers at the First Community Bank are attempting to shorten the time it takes customers with approved loan
applications to get their paperwork processed. The flowchart for this process, consisting of several different activities, each
performed by a different bank employee, is shown in Figure 7.1. Approved loan applications first arrive at activity or step 1,
where they are checked for completeness and put in order. At step 2, the loans are categorized into different classes
according to the loan amount and whether they are being requested for personal or commercial reasons. While credit
checking commences at step 3, loan application data are entered in parallel into the information system for record-keeping
purposes at step 4. Finally, all paperwork for setting up the new loan is finished at step 5. The time taken in minutes is
given in parentheses. Which single step is the bottleneck, assuming that market demand for loan applications exceeds the
capacity of the process? The management is also interested in knowing the maximum number of approved loans this
system can process in a 5-hour work day.

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SOLUTION
We define the bottleneck as step 2, which has the highest time per loan processed. The throughput time to complete an
approved loan application is 15 + 20 + max (15, 12) + 10 = 60 minutes. Although we assume no waiting time in front of any
step, in practice such a smooth process flow is not always the case. So the actual time taken for completing an approved loan
will be longer than 60 minutes due to non-uniform arrival of applications, variations in actual processing times, and the
related factors.
The capacity for loan completions is derived by translating the “minutes per customer” at the bottleneck step to “customer
per hour.” At First Community Bank, it is 3 customers per hour because the bottleneck step 2 can process only 1 customer
every 20 minutes (60/3).

DECISION POINT

Step 2 is the bottleneck constraint. The bank will be able to complete a maximum of only 3 loan accounts per hour, or 15 new
loan accounts in a 5-hour day. Management can increase the flow of loan applications by increasing the capacity of step 2 up
to the point where another step becomes the bottleneck.

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 Krajewski book, Chapter 7: page 268 - 272
Managing Bottlenecks in Manufacturing Processes
Bottlenecks can exist in all types of manufacturing processes, including the job process, batch process, line process, and
continuous process. Since these processes differ in their design, strategic intent, and allocation of resources identification
and management of bottlenecks will also differ accordingly with process type.

 Identifying Bottlenecks Manufacturing processes often pose some complexities when identifying bottlenecks. If
multiple services or products are involved, extra setup time at a workstation is usually needed to change over from one
service or product to the next, which in turn increases the overload at the workstation being changed over. Setup times
and their associated costs affect the size of the lots traveling through the job or batch processes. Management tries to
reduce setup times because they represent unproductive time for workers or machines and thereby allow for smaller,
more economic, batches. Nonetheless, whether setup times are significant or not, one way to identify a bottleneck
operation is by its utilization. Example 7.2 illustrates how a bottleneck can be identified in a manufacturing setting
where setups are negligible.

Diablo Electronics manufactures four unique products (A, B, C, and D) that are fabricated and assembled in five different workstations (V, W, X, Y, & Z) using a
small batch process. Each workstation is staffed by a worker who is dedicated to work a single shift per day at an assigned workstation. Batch setup times have
been reduced to such an extent that they can be considered negligible. A flowchart denotes the path each product follows through the manufacturing process as
shown in Figure 7.2, where each product’s price, demand per week, and processing times per unit are indicated as well. Inverted triangles represent purchased
parts and raw materials consumed per unit at different workstations. Diablo can make and sell up to the limit of its demand per week, and no penalties are
incurred for not being able to meet all the demand. Which of the five workstations (V, W, X, Y, or Z) has the highest utilization, and thus serves as the bottleneck
for Diablo Electronics?
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SOLUTION
Because the denominator in the utilization ratio is the same for every workstation, with one worker per machine at each
step in the process, we can simply identify the bottleneck by computing aggregate workloads at each workstation.
The firm wants to satisfy as much of the product demand in a week as it can. Each week consists of 2,400 minutes
(5 workers x 40 hours x 60 minutes) of available production time. Multiplying the processing time at each station for a given
product with the number of units demanded per week yields the workload represented by that product. These loads are
summed across all products going through a workstation to arrive at the total load for the workstation, which is then
compared with the others and the existing capacity of 2,400 minutes.

DECISION POINT
Workstation X is the bottleneck for Diablo Electronics because the aggregate workload at X is larger than the aggregate
workloads of workstations V, W, Y, and Z and the maximum available capacity of 2,400 minutes per week.
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 Product Mix DecisionsManagers might be tempted to produce the products with highest contribution margins or unit sales.
Contribution margin (aka traditional method) is the amount each product contributes to profits and overhead; no fixed costs
are considered when making the product mix decision. The problem with this approach is that the firm’s actual throughput
and overall profitability depend more upon the contribution margin generated at the bottleneck (bottleneck method) than
by the contribution margin of each individual product produced. Example 7.3 illustrates both of these methods.

The senior management at Diablo Electronics (see Exercise 7.2) wants to improve profitability by accepting the right set of
orders, and so collected some additional financial data. Variable overhead costs are $8,500 per week. Each worker is paid
$18 per hour and is paid for an entire week, regardless of how much the worker is used. Consequently, labor costs are fixed
expenses. The plant operates one 8-hour shift per day, or 40 hours each week. Currently, decisions are made using the
traditional method, which is to accept as much of the highest contribution margin product as possible (up to the limit of its
demand), followed by the next highest contribution margin product, and so on until no more capacity is available. Pedro
Rodriguez, the newly hired production supervisor, is knowledgeable about the theory of constraints and bottleneck-based
scheduling. He believes that profitability can indeed be improved if bottleneck resources were exploited to determine the
product mix. What is the change in profits if, instead of the traditional method used by Diablo Electronics, the bottleneck
method advocated by Pedro is used to select the product mix?

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END OF EXCERPTS FROM KRAJEWSKI TEXT FOR BOTTLENECK

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CONTROLLING OPERATIONS IS NOT ALWAYS ROUTINE
 Are strategic objectives (Sr. Management) clear and unambiguous? Many operations are just too complex, therefore,
not always agreed by Sr. Management (some have different and conflicting interests).

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