Chapter 1-17

Operations Management

Roberta Russell & Bernard W. Taylor, III

Organization of This Text: Part I Operations Management

Intro. to Operations and Supply Chain Management: Quality Management: Statistical Quality Control: Product Design: Service Design: Processes and Technology: Facilities: Human Resources: Project Management: Chapter 1 (Slide 5) Chapter 2 (Slide 67) Chapter 3 (Slide 120) Chapter 4 (Slide 186) Chapter 5 (Slide 231) Chapter 6 (Slide 276) Chapter 7 (Slide 321) Chapter 8 (Slide 402) Chapter 9 (Slide 450)
1 -2

Organization of This Text: Part II Supply Chain Management

Supply Chain Strategy and Design: Global Supply Chain Procurement and Distribution: Forecasting: Inventory Management: Sales and Operations Planning: Resource Planning: Lean Systems: Scheduling: Chapter 10 (Slide 507) Chapter 11 (Slide 534) Chapter 12 (Slide 575) Chapter 13 (Slide 641) Chapter 14 (Slide 703) Chapter 15 (Slide 767) Chapter 16 (Slide 827) Chapter 17 (Slide 878)
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Learning Objectives of this Course

Gain an appreciation of strategic importance of operations and supply chain management in a global business environment Understand how operations relates to other business functions Develop a working knowledge of concepts and methods related to designing and managing operations and supply chains Develop a skill set for quality and process improvement
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Chapter 1
Introduction to Operations and Supply Chain Management
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
What Operations and Supply Chain Managers Do Operations Function Evolution of Operations and Supply Chain Management Globalization and Competitiveness Operations Strategy and Organization of the Text Learning Objectives for This Course
1 -6

What Operations and Supply Chain Managers Do

What is Operations Management?
design, operation, and improvement of productive systems

What is Operations?
a function or system that transforms inputs into outputs of greater value

What is a Transformation Process?

a series of activities along a value chain extending from supplier to customer activities that do not add value are superfluous and should be eliminated

1 -7

Transformation Process
Physical: as in manufacturing operations Locational: as in transportation or warehouse operations Exchange: as in retail operations Physiological: as in health care Psychological: as in entertainment Informational: as in communication
1 -8

Operations as a Transformation Process

INPUT Material Machines Labor Management Capital

TRANSFORMATION PROCESS

OUTPUT Goods Services

Feedback & Requirements 1 -9

Operations Function
Operations Marketing Finance and Accounting Human Resources Outside Suppliers
1-10

How is Operations Relevant to my Major?

Accounting Information Technology Management
As an auditor you must understand the fundamentals of operations management. IT is a tool, and theres no better place to apply it than in operations. We use so many things you learn in an operations class class scheduling, lean production, theory of constraints, and tons of quality tools.
1-11

How is Operations Relevant to my Major? (cont.)

Economics Marketing
Its all about processes. I live by flowcharts and Pareto analysis. How can you do a good job marketing a product if youre unsure of its quality or delivery status? Most of our capital budgeting requests are from operations, and most of our cost savings, too.
1-12

Finance

Evolution of Operations and Supply Chain Management

Craft production
process of handcrafting products or services for individual customers

Division of labor
dividing a job into a series of small tasks each performed by a different worker

Interchangeable parts
standardization of parts initially as replacement parts; enabled mass production

1-13

Evolution of Operations and Supply Chain Management (cont.)

Scientific management
systematic analysis of work methods

Mass production
highhigh-volume production of a standardized product for a mass market

Lean production
adaptation of mass production that prizes quality and flexibility
1-14

Historical Events in Operations Management

Era
Industrial Revolution

Events/Concepts
Steam engine Division of labor Interchangeable parts Principles of scientific management

Dates
1769 1776 1790 1911 1911 1912 1913

Originator
James Watt Adam Smith Eli Whitney Frederick W. Taylor Frank and Lillian Gilbreth Henry Gantt Henry Ford

Time and motion studies Scientific Management Activity scheduling chart Moving assembly line

1-15

Historical Events in Operations Management (cont.)

Era
Human Relations

Events/Concepts
Hawthorne studies Motivation theories Linear programming Digital computer Simulation, waiting line theory, decision theory, PERT/CPM MRP, EDI, EFT, CIM

Dates
1930 1940s 1950s 1960s 1947 1951 1950s 1960s, 1970s

Originator
Elton Mayo Abraham Maslow Frederick Herzberg Douglas McGregor George Dantzig Remington Rand Operations research groups Joseph Orlicky, IBM and others
1-16

Operations Research

Historical Events in Operations Management (cont.)

Era Events/Concepts Dates Originator
1970s 1980s 1980s 1990s 1990s Taiichi Ohno (Toyota) W. Edwards Deming, Joseph Juran Wickham Skinner, Robert Hayes Michael Hammer, James Champy GE, Motorola JIT (just-in-time) TQM (total quality management) Strategy and Quality Revolution operations Business process reengineering Six Sigma

1-17

Historical Events in Operations Management (cont.)

Era
Internet Revolution

Events/Concepts

Dates Originator
ARPANET, Tim Berners-Lee SAP, i2 Technologies, ORACLE Amazon, Yahoo, eBay, Google, and others Numerous countries and companies

Internet, WWW, ERP, 1990s supply chain management

E-commerce

2000s

Globalization WTO, European Union, 1990s and other trade 2000s agreements, global supply chains, outsourcing, BPO, Services Science

1-18

Evolution of Operations and Supply Chain Management (cont.)

Supply chain management
management of the flow of information, products, and services across a network of customers, enterprises, and supply chain partners

1-19

Globalization and Competitiveness

Why go global?
favorable cost access to international markets response to changes in demand reliable sources of supply latest trends and technologies

Increased globalization
results from the Internet and falling trade barriers
1-20

Globalization and Competitiveness (cont.)

Hourly Compensation Costs for Production Workers Source: U.S. Bureau of Labor Statistics, 2005.
1-21

Globalization and Competitiveness (cont.)

World Population Distribution Source: U.S. Census Bureau, 2006.

1-22

Globalization and Competitiveness (cont.)

Trade in Goods as % of GDP (sum of merchandise exports and imports divided by GDP, valued in U.S. dollars)
1-23

Productivity and Competitiveness

Competitiveness
degree to which a nation can produce goods and services that meet the test of international markets

Productivity
ratio of output to input

Output
sales made, products produced, customers served, meals delivered, or calls answered

Input
labor hours, investment in equipment, material usage, or square footage

1-24

Productivity and Competitiveness (cont.)

Measures of Productivity

1-25

Productivity and Competitiveness (cont.)

Average Annual Growth Rates in Productivity, 1995-2005. 1995Source: Bureau of Labor Statistics. A Chartbook of International Labor Comparisons. January 2007, p. 28.
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Productivity and Competitiveness (cont.)

Average Annual Growth Rates in Output and Input, 1995-2005 1995Source: Bureau of Labor Statistics. A Chartbook of International Labor Comparisons, January 2007, p. 26.

Dramatic Increase in Output w/ Decrease in Labor Hours

1-27

Productivity and Competitiveness (cont.)

Retrenching
productivity is increasing, but both output and input decrease with input decreasing at a faster rate

Assumption that more input would cause output to increase at the same rate
certain limits to the amount of output may not be considered output produced is emphasized, not output sold; sold; increased inventories
1-28

Strategy and Operations

Strategy
Provides direction for achieving a mission

Five Steps for Strategy Formulation

Defining a primary task
What is the firm in the business of doing?

Assessing core competencies

What does the firm do better than anyone else?

Determining order winners and order qualifiers

What qualifies an item to be considered for purchase? What wins the order?

Positioning the firm

How will the firm compete?

Deploying the strategy

1-29

Strategic Planning
Mission and Vision

Corporate Strategy

Marketing Strategy

Operations Strategy

Financial Strategy
1-30

Order Winners and Order Qualifiers

Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan Betts, Operations and Process Management, Prentice Hall, 2006, p. 47 Management, 1-31

Positioning the Firm

Cost Speed Quality Flexibility

1-32

Positioning the Firm: Cost

Waste elimination
relentlessly pursuing the removal of all waste

Examination of cost structure

looking at the entire cost structure for reduction potential

Lean production
providing low costs through disciplined operations

1-33

Positioning the Firm: Speed

fast moves, fast adaptations, tight linkages Internet
conditioned customers to expect immediate responses

Service organizations
always competed on speed (McDonalds, LensCrafters, and Federal Express)

Manufacturers
timetime-based competition: build-to-order production and build-toefficient supply chains

Fashion industry
twotwo-week design-to-rack lead time of Spanish retailer, Zara design-to-

1-34

Positioning the Firm: Quality

Minimizing defect rates or conforming to design specifications; please the customer RitzRitz-Carlton - one customer at a time
Service system is designed to move heaven and earth to satisfy customer Every employee is empowered to satisfy a guests wish Teams at all levels set objectives and devise quality action plans Each hotel has a quality leader
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Positioning the Firm: Flexibility

ability to adjust to changes in product mix, production volume, or design National Bicycle Industrial Company
offers 11,231,862 variations delivers within two weeks at costs only 10% above standard models mass customization: the mass production of customization: customized parts

1-36

Policy Deployment
Policy deployment
translates corporate strategy into measurable objectives

Hoshins
action plans generated from the policy deployment process

1-37

Policy Deployment

Derivation of an Action Plan Using Policy Deployment

1-38

Balanced Scorecard
Balanced scorecard
measuring more than financial performance
finances customers processes learning and growing

Key performance indicators

a set of measures that help managers evaluate performance in critical areas
1-39

Balanced Scorecard
Balanced Scorecard Worksheet

1-40

Balanced Scorecard

Radar Chart

Dashboard

1-41

Operations Strategy
Services Products Human Resources Process and Technology

Capacity

Quality

Facilities

Sourcing

Operating Systems

1-42

Chapter 1 Supplement
Decision Analysis
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Decision Analysis Decision Making without Probabilities Decision Analysis with Excel Decision Analysis with OM Tools Decision Making with Probabilities Expected Value of Perfect Information Sequential Decision Tree
Supplement 1-44 1-

Decision Analysis
Quantitative methods
a set of tools for operations manager

Decision analysis
a set of quantitative decision-making decisiontechniques for decision situations in which uncertainty exists Example of an uncertain situation
demand for a product may vary between 0 and 200 units, depending on the state of market

Supplement 1-45 1-

Decision Making Without Probabilities

States of nature
Events that may occur in the future Examples of states of nature:
high or low demand for a product good or bad economic conditions

Decision making under risk

probabilities can be assigned to the occurrence of states of nature in the future

Decision making under uncertainty

probabilities can NOT be assigned to the occurrence of states of nature in the future
Supplement 1-46 1-

Payoff Table
Payoff table
method for organizing and illustrating payoffs from different decisions given various states of nature

Payoff
outcome of a decision

States Of Nature Decision a b 1 Payoff 1a Payoff 1b 2 Payoff 2a Payoff 2b

Supplement 1-47 1-

Decision Making Criteria Under Uncertainty

Maximax
choose decision with the maximum of the maximum payoffs

Maximin
choose decision with the maximum of the minimum payoffs

Minimax regret
choose decision with the minimum of the maximum regrets for each alternative
Supplement 1-48 1-

Decision Making Criteria Under Uncertainty (cont.)

Hurwicz
choose decision in which decision payoffs are weighted by a coefficient of optimism, alpha coefficient of optimism is a measure of a decision makers optimism, from 0 (completely pessimistic) to 1 (completely optimistic)

Equal likelihood (La Place)

choose decision in which each state of nature is weighted equally
Supplement 1-49 1-

Southern Textile Company

STATES OF NATURE
Good Foreign Poor Foreign Competitive Conditions

DECISION Expand Maintain status quo Sell now

Competitive Conditions

$ 800,000 1,300,000 320,000

$ 500,000 -150,000 320,000

Supplement 1-50 1-

Maximax Solution
STATES OF NATURE
Good Foreign Poor Foreign Competitive Conditions

DECISION Expand Maintain status quo Sell now Expand: Status quo: Sell:

Competitive Conditions

$ 800,000 1,300,000 320,000 $800,000 1,300,000 320,000

$ 500,000 -150,000 320,000

Maximum
Decision: Maintain status quo
Supplement 1-51 1-

Maximin Solution
STATES OF NATURE
Good Foreign Poor Foreign Competitive Conditions

DECISION Expand Maintain status quo Sell now

Competitive Conditions

$ 800,000 1,300,000 320,000

$ 500,000 -150,000 320,000

Expand: Status quo: Sell:

$500,000 -150,000 320,000

Maximum

Decision: Expand
Supplement 1-52 1-

Minimax Regret Solution

Good Foreign Competitive Conditions Poor Foreign Competitive Conditions

$1,300,000 - 800,000 = 500,000 $500,000 - 500,000 = 0 1,300,000 - 1,300,000 = 0 500,000 - (-150,000)= 650,000 1,300,000 - 320,000 = 980,000 500,000 - 320,000= 180,000

Expand: Status quo: Sell:

$500,000 650,000 980,000

Minimum

Decision: Expand
Supplement 1-53 1-

Hurwicz Criteria
STATES OF NATURE
Good Foreign Poor Foreign Competitive Conditions

DECISION Expand Maintain status quo Sell now

Competitive Conditions

$ 800,000 1,300,000 320,000 1 - = 0.7

$ 500,000 -150,000 320,000

= 0.3

Expand: $800,000(0.3) + 500,000(0.7) = $590,000 Maximum Status quo: 1,300,000(0.3) -150,000(0.7) = 285,000 Sell: 320,000(0.3) + 320,000(0.7) = 320,000 Decision: Expand
Supplement 1-54 1-

Equal Likelihood Criteria

STATES OF NATURE
Good Foreign Poor Foreign Competitive Conditions

DECISION Expand Maintain status quo Sell now

Competitive Conditions

$ 800,000 1,300,000 320,000

$ 500,000 -150,000 320,000

Two states of nature each weighted 0.50 Expand: $800,000(0.5) + 500,000(0.5) = $650,000 Maximum Status quo: 1,300,000(0.5) -150,000(0.5) = 575,000 Sell: 320,000(0.5) + 320,000(0.5) = 320,000 Decision: Expand
Supplement 1-55 1-

Decision Analysis with Excel

Supplement 1-56 1-

Decision Analysis with OM Tools

Supplement 1-57 1-

Decision Making with Probabilities

Risk involves assigning probabilities to states of nature Expected value
a weighted average of decision outcomes in which each future state of nature is assigned a probability of occurrence

Supplement 1-58 1-

Expected value
EV (x) = (x p(xi)xi
where xi = outcome i p(xi) = probability of outcome i

i =1

Supplement 1-59 1-

Decision Making with Probabilities: Example

STATES OF NATURE
Good Foreign Poor Foreign Competitive Conditions

DECISION Expand Maintain status quo Sell now

Competitive Conditions

$ 800,000 1,300,000 320,000 p(poor) = 0.30

$ 500,000 -150,000 320,000

p(good) = 0.70

EV(expand): $800,000(0.7) + 500,000(0.3) = $710,000 EV(status quo): 1,300,000(0.7) -150,000(0.3) = 865,000 Maximum EV(sell): 320,000(0.7) + 320,000(0.3) = 320,000

Decision: Status quo

Supplement 1-60 1-

Decision Making with Probabilities: Excel

Supplement 1-61 1-

Expected Value of Perfect Information

EVPI
maximum value of perfect information to the decision maker maximum amount that would be paid to gain information that would result in a decision better than the one made without perfect information

Supplement 1-62 1-

EVPI Example
Good conditions will exist 70% of the time
choose maintain status quo with payoff of $1,300,000

Poor conditions will exist 30% of the time

choose expand with payoff of $500,000

Expected value given perfect information = $1,300,000 (0.70) + 500,000 (0.30) = $1,060,000 Recall that expected value without perfect information was $865,000 (maintain status quo) EVPI= EVPI= $1,060,000 - 865,000 = $195,000

Supplement 1-63 1-

Sequential Decision Trees

A graphical method for analyzing decision situations that require a sequence of decisions over time Decision tree consists of
Square nodes - indicating decision points Circles nodes - indicating states of nature Arcs - connecting nodes

Supplement 1-64 1-

Evaluations at Nodes
Compute EV at nodes 6 & 7
EV(node 6)= 0.80($3,000,000) + 0.20($700,000) = $2,540,000 EV( 6)= EV(node 7)= 0.30($2,300,000) + 0.70($1,000,000)= $1,390,000 EV( 7)=

Decision at node 4 is between

$2,540,000 for Expand and $450,000 for Sell land

Choose Expand Repeat expected value calculations and decisions at remaining nodes

Supplement 1-65 1-

Decision Tree Analysis

$1,290,000 0.60 2 0.40 $225,000 $2,540,000 0.80 $1,740,000 1 $1,160,000 4 6 0.20 $700,000 $3,000,000 Market growth $2,000,000

$450,000 0.60 3 $1,360,000 0.40 $790,000 5 $210,000 Supplement 1-66 17 0.70 $1,000,000 $1,390,000 0.30 $2,300,000

Chapter 2
Quality Management
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
What Is Quality? Evolution of Quality Management Quality Tools TQM and QMS Focus of Quality Management Management Customers Role of Employees in Quality Improvement Quality in Service Companies Six Sigma Cost of Quality Effect of Quality Management on Productivity Quality Awards ISO 9000
2-68

What Is Quality?
Oxford American Dictionary
a degree or level of excellence

American Society for Quality

totality of features and characteristics that satisfy needs without deficiencies

Consumers and producers perspective

2-69

What Is Quality: Customers Perspective

Fitness for use
how well product or service does what it is supposed to

Quality of design
designing quality characteristics into a product or service A Mercedes and a Ford are equally fit for use, but with different design dimensions.

2-70

Dimensions of Quality: Manufactured Products

Performance
basic operating characteristics of a product; how well a car handles or its gas mileage

Features
extra items added to basic features, such as a stereo CD or a leather interior in a car

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

2-71

Dimensions of Quality: Manufactured Products (cont.)

Conformance
degree to which a product meets preestablished pre standards

Durability
how long product lasts before replacement; with care, [Link] boots may last a lifetime

Serviceability
ease of getting repairs, speed of repairs, courtesy and competence of repair person

2-72

Dimensions of Quality: Manufactured Products (cont.)

Aesthetics
how a product looks, feels, sounds, smells, or tastes

Safety
assurance that customer will not suffer injury or harm from a product; an especially important consideration for automobiles

Perceptions
subjective perceptions based on brand name, advertising, and like
2-73

Dimensions of Quality: Services

Time and timeliness
how long must a customer wait for service, and is it completed on time? is an overnight package delivered overnight?

Completeness:
is everything customer asked for provided? is a mail order from a catalogue company complete when delivered?

2-74

Dimensions of Quality: Service (cont.)

Courtesy:
how are customers treated by employees? are catalogue phone operators nice and are their voices pleasant?

Consistency
is same level of service provided to each customer each time? is your newspaper delivered on time every morning?

2-75

Dimensions of Quality: Service (cont.)

Accessibility and convenience
how easy is it to obtain service? does service representative answer you calls quickly?

Accuracy
is service performed right every time? is your bank or credit card statement correct every month?

Responsiveness
how well does company react to unusual situations? how well is a telephone operator able to respond to a customers questions?

2-76

What Is Quality: Producers Perspective

Quality of conformance
making sure product or service is produced according to design
if new tires do not conform to specifications, they wobble if a hotel room is not clean when a guest checks in, hotel is not functioning according to specifications of its design
2-77

Meaning of Quality

2-78

What Is Quality: A Final Perspective

Customers and producers perspectives depend on each other Producers perspective:
production process and COST

Customers perspective:
fitness for use and PRICE

Customers view must dominate

2-79

Evolution of Quality Management: Quality Gurus

Walter Shewart
In 1920s, developed control charts Introduced term quality assurance quality

W. Edwards Deming
Developed courses during World War II to teach statistical quality-control techniques to engineers and qualityexecutives of companies that were military suppliers After war, began teaching statistical quality control to Japanese companies

Joseph M. Juran
Followed Deming to Japan in 1954 Focused on strategic quality planning Quality improvement achieved by focusing on projects to solve problems and securing breakthrough solutions
2-80

Evolution of Quality Management: Quality Gurus (cont.)

Armand V. Feigenbaum
In 1951, introduced concepts of total quality control and continuous quality improvement

Philip Crosby
In 1979, emphasized that costs of poor quality far outweigh cost of preventing poor quality In 1984, defined absolutes of quality management management conformance to requirements, prevention, and zero defects

Kaoru Ishikawa
Promoted use of quality circles Developed fishbone diagram Emphasized importance of internal customer
2-81

Demings 14 Points
1. Create constancy of purpose 2. Adopt philosophy of prevention 3. Cease mass inspection 4. Select a few suppliers based on quality 5. Constantly improve system and workers
2-82

Demings 14 Points (cont.)

6. Institute worker training 7. Instill leadership among supervisors 8. Eliminate fear among employees 9. Eliminate barriers between departments 10. Eliminate slogans
2-83

Demings 14 Points (cont.)

11. Remove numerical quotas 12. Enhance worker pride 13. Institute vigorous training and education programs 14. Develop a commitment from top management to implement above 13 points
2-84

Deming Wheel: PDCA Cycle

2-85

Quality Tools

Process Flow Chart Cause-andCause-andEffect Diagram Check Sheet Pareto Analysis

Histogram Scatter Diagram Statistical Process Control Chart

2-86

Flow Chart

2-87

Cause-andCause-and-Effect Diagram
Cause-andCause-and-effect diagram (fishbone diagram)
chart showing different categories of problem causes

2-88

Cause-andCause-and-Effect Matrix
Cause-andCause-and-effect matrix
grid used to prioritize causes of quality problems

2-89

Check Sheets and Histograms

2-90

Pareto Analysis
Pareto analysis
most quality problems result from a few causes

2-91

Pareto Chart

2-92

Scatter Diagram

2-93

Control Chart

2-94

TQM and QMS

Total Quality Management (TQM)
customercustomer-oriented, leadership, strategic planning, employee responsibility, continuous improvement, cooperation, statistical methods, and training and education

Quality Management System (QMS)

system to achieve customer satisfaction that complements other company systems
2-95

Focus of Quality Management Management Customers

TQM and QMSs
serve to achieve customer satisfaction

Partnering
a relationship between a company and its supplier based on mutual quality standards

Measuring customer satisfaction

important component of any QMS customer surveys, telephone interviews
2-96

Role of Employees in Quality Improvement

Participative problem solving
employees involved in qualityquality-management every employee has undergone extensive training to provide quality service to Disneys guests

Kaizen
involves everyone in process of continuous improvement
2-97

Quality Circles and QITs

Organization

Quality circle
group of workers and supervisors from same area who address quality problems
Presentation
Implementation Monitoring

8-10 members Same area Supervisor/moderator

Training
Group processes Data collection Problem analysis

Process/Quality improvement teams (QITs)

focus attention on business processes rather than separate company functions

Solution
Problem results

Problem Identification
List alternatives Consensus Brainstorming

Problem Analysis
Cause and effect Data collection and analysis

2-98

Quality in Services
Service defects are not always easy to measure because service output is not usually a tangible item Services tend to be labor intensive Services and manufacturing companies have similar inputs but different processes and outputs

2-99

Quality Attributes in Services

Principles of TQM apply equally well to services and manufacturing Timeliness
how quickly a service is provided?

Benchmark
best level of quality achievement in one company that other companies seek to achieve quickest, friendliest, most accurate service available.

2-100

Six Sigma
A process for developing and delivering virtually perfect products and services Measure of how much a process deviates from perfection 3.4 defects per million opportunities Six Sigma Process
four basic steps of Six Sigmaalign, Sigma mobilize, accelerate, and govern

Champion
an executive responsible for project success
2-101

Six Sigma: Breakthrough StrategyDMAIC Strategy

DEFINE MEASURE ANALYZE IMPROVE CONTROL

3.4 DPMO

67,000 DPMO cost = 25% of sales

2-102

Six Sigma:
Black Belts and Green Belts

Black Belt
project leader

Master Black Belt

a teacher and mentor for Black Belts

Green Belts
project team members

2-103

Six Sigma
Design for Six Sigma (DFSS)
a systematic approach to designing products and processes that will achieve Six Sigma

Profitability
typical criterion for selection Six Sigma project one of the factors distinguishing Six Sigma from TQM Quality is not only free, it is an honest-tohonest-to-everything profit maker.
2-104

Cost of Quality
Cost of Achieving Good Quality
Prevention costs
costs incurred during product design

Appraisal costs
costs of measuring, testing, and analyzing

Cost of Poor Quality

Internal failure costs
include scrap, rework, process failure, downtime, and price reductions

External failure costs

include complaints, returns, warranty claims, liability, and lost sales
2-105

Prevention Costs
Quality planning costs
costs of developing and implementing quality management program

Training costs
costs of developing and putting on quality training programs for employees and management

ProductProduct-design costs
costs of designing products with quality characteristics

Information costs
costs of acquiring and maintaining data related to quality, and development and analysis of reports on quality performance

Process costs
costs expended to make sure productive process conforms to quality specifications

2-106

Appraisal Costs
Inspection and testing
costs of testing and inspecting materials, parts, and product at various stages and at end of process

Test equipment costs

costs of maintaining equipment used in testing quality characteristics of products

Operator costs
costs of time spent by operators to gather data for testing product quality, to make equipment adjustments to maintain quality, and to stop work to assess quality

2-107

Internal Failure Costs

Scrap costs
costs of poor-quality poorproducts that must be discarded, including labor, material, and indirect costs

Process downtime costs

costs of shutting down productive process to fix problem

Rework costs
costs of fixing defective products to conform to quality specifications

PricePrice-downgrading costs
costs of discounting poorpoorquality productsthat is, products selling products as seconds

Process failure costs

costs of determining why production process is producing poor-quality poorproducts

2-108

External Failure Costs

Customer complaint costs
costs of investigating and satisfactorily responding to a customer complaint resulting from a poor-quality product poor-

Product liability costs

litigation costs resulting from product liability and customer injury

Product return costs

costs of handling and replacing poorpoor-quality products returned by customer

Lost sales costs

costs incurred because customers are dissatisfied with poorpoor-quality products and do not make additional purchases

Warranty claims costs

costs of complying with product warranties

2-109

Measuring and Reporting Quality Costs

Index numbers
ratios that measure quality costs against a base value labor index
ratio of quality cost to labor hours

cost index
ratio of quality cost to manufacturing cost

sales index
ratio of quality cost to sales

production index
ratio of quality cost to units of final product
2-110

Quality QualityCost Relationship

Cost of quality
difference between price of nonconformance and conformance cost of doing things wrong
20 to 35% of revenues

cost of doing things right

3 to 4% of revenues

2-111

Effect of Quality Management on Productivity

Productivity
ratio of output to input

Quality impact on productivity

fewer defects increase output, and quality improvement reduces inputs

Yield
a measure of productivity
Yield=(total input)(% good units) + (total input)(1-%good units)(% reworked)

or Y=(I)(%G)+(I)(1Y=(I)(%G)+(I)(1-%G)(%R)
2-112

Computing Product Cost per Unit

Product Cost

(Kd )(I) +(Kr )(R) = Y

where: Kd = direct manufacturing cost per unit I = input Kr = rework cost per unit R = reworked units Y = yield

2-113

Computing Product Yield for Multistage Processes

Y = (I)(%g1)(%g2) (%gn)

where: I = input of items to the production process that will result in finished products gi = good-quality, work-in-process products at stage i

2-114

Quality QualityProductivity Ratio

QPR
productivity index that includes productivity and quality costs
(good-quality units) (input) (processing cost) + (reworked units) (rework cost)

QPR =

(100)

2-115

Malcolm Baldrige Award

Created in 1987 to stimulate growth of quality management in United States Categories
Leadership Information and analysis Strategic planning Human resource focus Process management Business results Customer and market focus
2-116

Other Awards for Quality

National individual awards
Armand V. Feigenbaum Medal Deming Medal E. Jack Lancaster Medal Edwards Medal Shewart Medal Ishikawa Medal

International awards
European Quality Award Canadian Quality Award Australian Business Excellence Award Deming Prize from Japan

2-117

ISO 9000
A set of procedures and policies for international quality certification of suppliers Standards ISO 9000:2000
Quality Management Systems SystemsFundamentals and Vocabulary defines fundamental terms and definitions used in ISO 9000 family

ISO 9001:2000
Quality Management Systems SystemsRequirements standard to assess ability to achieve customer satisfaction

ISO 9004:2000
Quality Management Systems SystemsGuidelines for Performance Improvements guidance to a company for continual improvement of its qualityquality-management system

2-118

ISO 9000 Certification, Implications, and Registrars

ISO 9001:2000only 9001:2000 standard that carries thirdthirdparty certification Many overseas companies will not do business with a supplier unless it has ISO 9000 certification ISO 9000 accreditation ISO registrars

2-119

Chapter 3
Statistical Process Control
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Basics of Statistical Process Control Control Charts Control Charts for Attributes Control Charts for Variables Control Chart Patterns SPC with Excel and OM Tools Process Capability
3-121

Basics of Statistical Process Control

Statistical Process Control (SPC)
monitoring production process to detect and prevent poor quality
UCL

Sample
subset of items produced to use for inspection
LCL

Control Charts
process is within statistical control limits

3-122

Basics of Statistical Process Control (cont.)

Random
inherent in a process depends on equipment and machinery, engineering, operator, and system of measurement natural occurrences

NonNon-Random
special causes identifiable and correctable include equipment out of adjustment, defective materials, changes in parts or materials, broken machinery or equipment, operator fatigue or poor work methods, or errors due to lack of training
3-123

SPC in Quality Management

SPC
tool for identifying problems in order to make improvements contributes to the TQM goal of continuous improvements

3-124

Quality Measures: Attributes and Variables

Attribute
a product characteristic that can be evaluated with a discrete response good bad; yes - no

Variable measure
a product characteristic that is continuous and can be measured weight - length
3-125

SPC Applied to Services

Nature of defect is different in services Service defect is a failure to meet customer requirements Monitor time and customer satisfaction

3-126

SPC Applied to Services (cont.)

Hospitals
timeliness and quickness of care, staff responses to requests, accuracy of lab tests, cleanliness, courtesy, accuracy of paperwork, speed of admittance and checkouts

Grocery stores
waiting time to check out, frequency of out-of-stock items, out-ofquality of food items, cleanliness, customer complaints, checkout register errors

Airlines
flight delays, lost luggage and luggage handling, waiting time at ticket counters and check-in, agent and flight attendant checkcourtesy, accurate flight information, passenger cabin cleanliness and maintenance

3-127

SPC Applied to Services (cont.)

FastFast-food restaurants
waiting time for service, customer complaints, cleanliness, food quality, order accuracy, employee courtesy

CatalogueCatalogue-order companies
order accuracy, operator knowledge and courtesy, packaging, delivery time, phone order waiting time

Insurance companies
billing accuracy, timeliness of claims processing, agent availability and response time

3-128

Where to Use Control Charts

Process has a tendency to go out of control Process is particularly harmful and costly if it goes out of control Examples
at the beginning of a process because it is a waste of time and money to begin production process with bad supplies before a costly or irreversible point, after which product is difficult to rework or correct before and after assembly or painting operations that might cover defects before the outgoing final product or service is delivered
3-129

Control Charts
A graph that establishes control limits of a process Control limits
upper and lower bands of a control chart

Types of charts
Attributes
p-chart c-chart

Variables
mean (x bar chart) range (R-chart) (R-

3-130

Process Control Chart

Out of control Upper control limit Process average Lower control limit

10

Sample number
3-131

Normal Distribution

95% 99.74% - 3 - 2 - 1 =0 1 2 3

3-132

A Process Is in Control If
1. no sample points outside limits 2. most points near process average 3. about equal number of points above and below centerline 4. points appear randomly distributed

3-133

Control Charts for Attributes

p-chart
uses portion defective in a sample

c-chart
uses number of defective items in a sample

3-134

p-Chart
UCL = p + zp LCL = p - zp
z = number of standard deviations from process average p = sample proportion defective; an estimate of process average p = standard deviation of sample proportion p(1 - p) n
3-135

p =

Construction of p-Chart pSAMPLE NUMBER OF DEFECTIVES PROPORTION DEFECTIVE

1 2 3 : : 20

6 0 4 : : 18 200

.06 .00 .04 : : .18

20 samples of 100 pairs of jeans

3-136

Construction of p-Chart (cont.) pp= total defectives total sample observations p(1 - p) n = 200 / 20(100) = 0.10 0.10(1 - 0.10) 100

UCL = p + z UCL = 0.190 LCL = p - z LCL = 0.010

= 0.10 + 3

p(1 - p) n

= 0.10 - 3

0.10(1 - 0.10) 100

3-137

0.20 0.18 0.16 Proportion defective UCL = 0.190

Construction of p-Chart p(cont.)

0.14 0.12 0.10 0.08 0.06 0.04 0.02 2 LCL = 0.010 4 6 8 10 12 14 Sample number 16 18 20 p = 0.10

3-138

c-Chart

UCL = c + zc LCL = c - zc
where

c =

c = number of defects per sample

3-139

c-Chart (cont.)
Number of defects in 15 sample rooms
NUMBER OF DEFECTS SAMPLE

1 2 3

12 8 16

c=

190 15

= 12.67

: :
15 15 190

: :

UCL = c + zc = 12.67 + 3 = 23.35 LCL = c - z c = 12.67 - 3 = 1.99

12.67

12.67

3-140

24 UCL = 23.35 21 18 c = 12.67 15 12 9 6 3 LCL = 1.99

c-Chart (cont.)

Number of defects

10

12

14

16

Sample number

3-141

Control Charts for Variables

Range chart ( R-Chart ) Ruses amount of dispersion in a sample

Mean chart ( x -Chart )

uses process average of a sample

3-142

x-bar Chart: Standard Deviation Known

= UCL = x + zx = x = where LCL = = - zx x

x1 + x2 + ... xn n

x = average of sample means

3-143

x-bar Chart Example: Standard Deviation Known (cont.)

3-144

x-bar Chart Example: Standard Deviation Known (cont.)

3-145

x-bar Chart Example: Standard Deviation Unknown

= UCL = x + A2R = LCL = x - A2R

where

x = average of sample means

3-146

Control Limits

3-147

x-bar Chart Example: Standard Deviation Unknown

OBSERVATIONS (SLIP- RING DIAMETER, CM) (SLIPSAMPLE k 1 2 3 4 5 6 7 8 9 10
Example 15.4

1 5.02 5.01 4.99 5.03 4.95 4.97 5.05 5.09 5.14 5.01

2 5.01 5.03 5.00 4.91 4.92 5.06 5.01 5.10 5.10 4.98

3 4.94 5.07 4.93 5.01 5.03 5.06 5.10 5.00 4.99 5.08

4 4.99 4.95 4.92 4.98 5.05 4.96 4.96 4.99 5.08 5.07

5 4.96 4.96 4.99 4.89 5.01 5.03 4.99 5.08 5.09 4.99

x 4.98 5.00 4.97 4.96 4.99 5.01 5.02 5.05 5.08 5.03 50.09

R 0.08 0.12 0.08 0.14 0.13 0.10 0.14 0.11 0.15 0.10 1.15
3-148

x-bar Chart Example: Standard Deviation Unknown (cont.)

R=
x k R k

1.15 10

= 0.115

= x=

50.09 5.01 cm = 10

= UCL = x + A2R = 5.01 + (0.58)(0.115) = 5.08 LCL = x = A2R = 5.01 - (0.58)(0.115) = 4.94 Retrieve Factor Value A2
3-149

5.10 5.08 5.06 5.04 Mean 5.02 5.00 = x = 5.01 UCL = 5.08

x- bar Chart Example (cont.)

4.98 4.96 4.94 4.92 | 1 | 2 | 3 | | | | 4 5 6 7 Sample number | 8 | 9 | 10 LCL = 4.94

3-150

R- Chart
UCL = D4R R=
where R = range of each sample k = number of samples
3-151

LCL = D3R R k

R-Chart Example
OBSERVATIONS (SLIP-RING DIAMETER, CM) (SLIPSAMPLE k 1 2 3 4 5 6 7 8 9 10
Example 15.3

1 5.02 5.01 4.99 5.03 4.95 4.97 5.05 5.09 5.14 5.01

2 5.01 5.03 5.00 4.91 4.92 5.06 5.01 5.10 5.10 4.98

3 4.94 5.07 4.93 5.01 5.03 5.06 5.10 5.00 4.99 5.08

4 4.99 4.95 4.92 4.98 5.05 4.96 4.96 4.99 5.08 5.07

5 4.96 4.96 4.99 4.89 5.01 5.03 4.99 5.08 5.09 4.99

x 4.98 5.00 4.97 4.96 4.99 5.01 5.02 5.05 5.08 5.03 50.09

R 0.08 0.12 0.08 0.14 0.13 0.10 0.14 0.11 0.15 0.10 1.15
3-152

R-Chart Example (cont.)

UCL = D4R = 2.11(0.115) = 0.243 LCL = D3R = 0(0.115) = 0
Retrieve Factor Values D3 and D4

Example 15.3
3-153

R-Chart Example (cont.)

0.28 0.24 0.20 Range 0.16 0.12 0.08 0.04 0 LCL = 0 | | | 1 2 3 | | | | 4 5 6 7 Sample number | 8 | 9 | 10 R = 0.115 UCL = 0.243

3-154

Using x- bar and R-Charts xRTogether

Process average and process variability must be in control It is possible for samples to have very narrow ranges, but their averages might be beyond control limits It is possible for sample averages to be in control, but ranges might be very large It is possible for an R-chart to exhibit a distinct downward Rtrend, suggesting some nonrandom cause is reducing variation

3-155

Control Chart Patterns

Run sequence of sample values that display same characteristic Pattern test determines if observations within limits of a control chart display a nonrandom pattern To identify a pattern: 8 consecutive points on one side of the center line 8 consecutive points up or down 14 points alternating up or down 2 out of 3 consecutive points in zone A (on one side of center line) 4 out of 5 consecutive points in zone A or B (on one side of center line)

3-156

Control Chart Patterns (cont.)

UCL

UCL LCL Sample observations consistently below the center line

LCL Sample observations consistently above the center line

3-157

Control Chart Patterns (cont.)

UCL

UCL LCL Sample observations consistently increasing

LCL Sample observations consistently decreasing

3-158

Zones for Pattern Tests

UCL Zone A
= 2 2 sigma = x + (A (A2R) 3 = 3 sigma = x + A2R

Zone B
= 1 1 sigma = x + (A (A2R) 3

Zone C Process average

= x

Zone C
= 1 1 sigma = x - (A2R) 3

Zone B
= 2 2 sigma = x - (A2R) 3

Zone A LCL
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13

= 3 sigma = x - A2R

Sample number 3-159

Performing a Pattern Test

SAMPLE 1 2 3 4 5 6 7 8 9 10 x 4.98 5.00 4.95 4.96 4.99 5.01 5.02 5.05 5.08 5.03 ABOVE/BELOW B B B B B A A A A UP/DOWN U D D U U U U U D ZONE B C A A C C C B A B

3-160

Sample Size Determination

Attribute charts require larger sample sizes 50 to 100 parts in a sample Variable charts require smaller samples 2 to 10 parts in a sample

3-161

SPC with Excel

3-162

SPC with Excel and OM Tools

3-163

Process Capability
Tolerances
design specifications reflecting product requirements

Process capability
range of natural variability in a process process what we measure with control charts

3-164

Process Capability (cont.)

Design Specifications (a) Natural variation exceeds design specifications; process is not capable of meeting specifications all the time. Process Design Specifications (b) Design specifications and natural variation the same; process is capable of meeting specifications most of the time. Process
3-165

Process Capability (cont.)

Design Specifications (c) Design specifications greater than natural variation; process is capable of always conforming to specifications. Process Design Specifications (d) Specifications greater than natural variation, but process off center; capable but some output will not meet upper specification. Process
3-166

Process Capability Measures

Process Capability Ratio
Cp = tolerance range process range upper specification limit lower specification limit = 6
3-167

Computing Cp
Net weight specification = 9.0 oz 0.5 oz Process mean = 8.80 oz Process standard deviation = 0.12 oz

Cp =

upper specification limit lower specification limit 6 9.5 - 8.5 = 1.39 6(0.12)

3-168

Process Capability Measures

Process Capability Index
= Cpk = minimum x - lower specification limit 3 3

,
=

upper specification limit - x

3-169

Computing Cpk
Net weight specification = 9.0 oz 0.5 oz Process mean = 8.80 oz Process standard deviation = 0.12 oz = x - lower specification limit Cpk = minimum

3 = upper specification limit - x 3 8.80 - 8.50 9.50 - 8.80 3(0.12) = 0.83

= minimum

3(0.12) ,

3-170

Process Capability with Excel

3-171

Process Capability with Excel and OM Tools

3-172

Chapter 3 Supplement
Acceptance Sampling
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
SingleSingle-Sample Attribute Plan Operating Characteristic Curve Developing a Sampling Plan with Excel Average Outgoing Quality Double - and Multiple-Sampling Plans Multiple-

Supplement 3-174 3-

Acceptance Sampling
Accepting or rejecting a production lot based on the number of defects in a sample Not consistent with TQM or Zero Defects philosophy
producer and customer agree on the number of acceptable defects a means of identifying not preventing poor quality percent of defective parts versus PPM

Sampling plan
provides guidelines for accepting a lot
Supplement 3-175 3-

Single SingleSample Attribute Plan

Single sampling plan
N = lot size n = sample size (random) c = acceptance number d = number of defective items in sample

If d c, accept lot; else reject

Supplement 3-176 3-

Producers and Consumers Risk

AQL or acceptable quality level or producers risk
proportion of defects consumer will accept in a given lot probability of rejecting a good lot

LTPD or lot tolerance percent defective

limit on the number of defectives the customer will accept

or consumers risk
probability of accepting a bad lot
Supplement 3-177 3-

Producers and Consumers Risk (cont.)

Accept Good Lot Reject

No Error

Type I Error Producer Risk

Bad Lot

Type II Error Consumers Risk

No Error

Sampling Errors

Supplement 3-178 3-

Operating Characteristic (OC) Curve

shows probability of accepting lots of different quality levels with a specific sampling plan assists management to discriminate between good and bad lots exact shape and location of the curve is defined by the sample size (n) and (n acceptance level (c) for the sampling (c plan
Supplement 3-179 3-

OC Curve (cont.)
1.00 = 0.05 0.80 Probability of acceptance, Pa

0.60

OC curve for n and c

0.40

0.20 = 0.10

0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 0.18 0.20

AQL

Proportion defective

LTPD Supplement 3-180 3-

Developing a Sampling Plan with OM Tools

ABC Company produces mugs in lots of 10,000. Performance measures for quality of mugs sent to stores call for a producers risk of 0.05 with an AQL of 1% defective and a consumers risk of 0.10 with a LTPD of 5% defective. What size sample and what acceptance number should ABC use to achieve performance measures called for in the sampling plan?

N = 10,000 = 0.05 ? = 0.10 AQL = 1% LTPD = 5%

n=? c=

Supplement 3-181 3-

Average Outgoing Quality (AOQ)

Expected number of defective items that will pass on to customer with a sampling plan Average outgoing quality limit (AOQL)
maximum point on the curve worst level of outgoing quality
Supplement 3-182 3-

AOQ Curve

Supplement 3-183 3-

DoubleDouble-Sampling Plans
Take small initial sample
If # defective lower limit, accept If # defective > upper limit, reject If # defective between limits, take second sample

Accept or reject based on 2 samples Less costly than single-sampling plans single-

Supplement 3-184 3-

MultipleMultiple-Sampling Plans
Uses smaller sample sizes Take initial sample
If # defective lower limit, accept If # defective > upper limit, reject If # defective between limits, resample

Continue sampling until accept or reject lot based on all sample data
Supplement 3-185 3-

Chapter 4
Product Design
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Design Process Concurrent Design Technology in Design Design Reviews Design for Environment Design for Robustness Quality Function Deployment
4-187

Design Process
Effective design can provide a competitive edge
matches product or service characteristics with customer requirements ensures that customer requirements are met in the simplest and least costly manner reduces time required to design a new product or service minimizes revisions necessary to make a design workable
Copyright 2009 John Wiley & Sons, Inc.
4-188

Design Process (cont.)

Product design
defines appearance of product sets standards for performance specifies which materials are to be used determines dimensions and tolerances

4-189

Design Process (cont.)

4-190

Idea Generation
Companys own R&D department Customer complaints or suggestions Marketing research Suppliers Salespersons in the field Factory workers New technological developments Competitors

4-191

Idea Generation (cont.)

Perceptual Maps
Visual comparison of customer perceptions

Benchmarking
Comparing product/process against best-in-class best-in-

Reverse engineering
Dismantling competitors product to improve your own product

4-192

Perceptual Map of Breakfast Cereals

4-193

Feasibility Study
Market analysis Economic analysis Technical/strategic analyses Performance specifications

4-194

Rapid Prototyping
testing and revising a preliminary design model Build a prototype
form design functional design production design

Test prototype Revise design Retest

4-195

Form and Functional Design

Form Design
how product will look?

Functional Design
how product will perform?
reliability maintainability usability

4-196

Computing Reliability

Components in series 0.90 0.90 0.90 x 0.90 = 0.81

4-197

Computing Reliability (cont.)

Components in parallel 0.90 R2 0.95 R1 0.95 + 0.90(1-0.95) = 0.995 0.90(1-

4-198

System Reliability
0.90

0.98

0.92

0.98

0.98

0.92+(10.92+(1-0.92)(0.90)=0.99

0.98

0.98 x 0.99 x 0.98 = 0.951

4-199

System Availability (SA)

SA =

MTBF MTBF + MTTR

where: MTBF = mean time between failures MTTR = mean time to repair

4-200

System Availability (cont.)

PROVIDER A B C MTBF (HR) 60 36 24 MTTR (HR) 4.0 2.0 1.0

SAA = 60 / (60 + 4) = .9375 or 94% SAB = 36 / (36 + 2) = .9473 or 95% SAC = 24 / (24 + 1) = .96 or 96%

4-201

Usability
Ease of use of a product or service
ease of learning ease of use ease of remembering how to use frequency and severity of errors user satisfaction with experience

4-202

Production Design
How the product will be made
Simplification
reducing number of parts, assemblies, or options in a product

Standardization
using commonly available and interchangeable parts

Modular Design
combining standardized building blocks, or modules, to create unique finished products

Design for Manufacture (DFM) Designing a product so that it can be produced easily and
economically
4-203

Design Simplification
(a) Original design

Source: Adapted from G. Boothroyd and P. Dewhurst, Product Design. Key to Successful Robotic Assembly. Assembly Engineering (September 1986), pp. 909093. (c) Final design

(b) Revised design

Assembly using common fasteners

OneOne-piece base & elimination of fasteners

Design for push-andpush-and-snap assembly

4-204

Final Design and Process Plans

Final design
detailed drawings and specifications for new product or service

Process plans
workable instructions
necessary equipment and tooling component sourcing recommendations job descriptions and procedures computer programs for automated machines

4-205

Design Team

4-206

Concurrent Design
A new approach to design that involves simultaneous design of products and processes by design teams Improves quality of early design decisions Involves suppliers Incorporates production process Uses a price-minus pricesystem Scheduling and management can be complex as tasks are done in parallel Uses technology to aid design

4-207

Technology in Design
Computer Aided Design (CAD)
assists in creation, modification, and analysis of a design computercomputer-aided engineering (CAE)
tests and analyzes designs on computer screen

computercomputer-aided manufacturing (CAD/CAM)

ultimate design-to-manufacture connection design-to-

product life cycle management (PLM)

managing entire lifecycle of a product

collaborative product design (CPD)

4-208

Collaborative Product Design (CPD)

A software system for collaborative design and development among trading partners With PML, manages product data, sets up project workspaces, and follows life cycle of the product Accelerates product development, helps to resolve product launch issues, and improves quality of design Designers can
conduct virtual review sessions test what if scenarios assign and track design issues communicate with multiple tiers of suppliers create, store, and manage project documents
4-209

Design Review
Review designs to prevent failures and ensure value
Failure mode and effects analysis (FMEA)
a systematic method of analyzing product failures

Fault tree analysis (FTA)

a visual method for analyzing interrelationships among failures

Value analysis (VA)

helps eliminate unnecessary features and functions
4-210

FMEA for Potato Chips

Failure Mode
Stale

Cause of Failure
low moisture content expired shelf life poor packaging too thin too brittle rough handling rough use poor packaging outdated receipt process not in control uneven distribution of salt

Effect of Failure
tastes bad wont crunch thrown out lost sales cant dip poor display injures mouth chocking perceived as old lost sales eat less drink more health hazard lost sales

Corrective Action
add moisture cure longer better package seal shorter shelf life change recipe change process change packaging

Broken

Too Salty

experiment with recipe experiment with process introduce low salt version

4-211

Fault tree analysis (FTA)

4-212

Value analysis (VA)

Can we do without it? Does it do more than is required? Does it cost more than it is worth? Can something else do a better job? Can it be made by
a less costly method? with less costly tooling? with less costly material?

Can it be made cheaper, better, or faster by someone else?

4-213

Value analysis (VA) (cont.)

Updated versions also include:
Is it recyclable or biodegradable? Is the process sustainable? Will it use more energy than it is worth? Does the item or its by-product harm the byenvironment?

4-214

Design for Environment and Extended Producer Responsibility

Design for environment
designing a product from material that can be recycled design from recycled material design for ease of repair minimize packaging minimize material and energy used during manufacture, consumption and disposal

Extended producer responsibility

holds companies responsible for their product even after its useful life

4-215

Design for Environment

4-216

Sustainability
Ability to meet present needs without compromising those of future generations Green product design
Use fewer materials Use recycled materials or recovered components Dont assume natural materials are always better Dont forget energy consumption Extend useful life of product Involve entire supply chain Change paradigm of design
Source: Adapted from the Business Social Responsibility Web site, [Link], [Link], accessed April 1, 2007.

4-217

Quality Function Deployment (QFD)

Translates voice of customer into technical design requirements Displays requirements in matrix diagrams
first matrix called house of quality series of connected houses

4-218

House of Quality
Importance 5 TradeTrade-off matrix 3 Design characteristics 4 Relationship matrix 2 Competitive assessment

1 Customer requirements

Target values

4-219

Competitive Assessment of Customer Requirements

Competitive Assessment Customer Requirements Presses quickly Removes wrinkles Irons well Doesnt stick to fabric Provides enough steam Doesnt spot fabric Doesnt scorch fabric Easy and safe to use Heats quickly Automatic shut-off shutQuick cool-down coolDoesnt break when dropped Doesnt burn when touched Not too heavy 9 8 6 8 6 9 6 3 3 5 5 8 X AB AB X X A A B X
4-220

2 B A AB X

3 X

X BA AB X AB A XB X

A ABX ABX

Time to go from 450 to 100

Material used in soleplate

Flow of water from holes

Energy needed to press

Thickness of soleplate

Customer Requirements Presses quickly Removes wrinkles Irons well Doesnt stick to fabric Provides enough steam Doesnt spot fabric Doesnt scorch fabric Easy and safe to use Heats quickly Automatic shut-off shutQuick cool-down coolDoesnt break when dropped Doesnt burn when touched Not too heavy

- + + + + + + + + + + + + + + + + + -

+ +

+ - + + +

- +

+ + + + + -4-221

+ + + + + - +

Automatic shutoff

Number of holes

Size of soleplate

Weight of iron

Size of holes

From Customer Requirements to Design Characteristics

Protective cover for soleplate

Time required to reach 450 F

Tradeoff Matrix

Energy needed to press Weight of iron

Size of soleplate Thickness of soleplate Material used in soleplate

Number of holes Size of holes Flow of water from holes Time required to reach 450 Time to go from 450 to 100 4-222 Protective cover for soleplate Automatic shutoff

Protective cover for soleplate

Y Y Y 0 2

Time to go from 450 to 100

Time required to reach 450

Material used in soleplate

Targeted Changes in Design

Energy needed to press Thickness of soleplate Size of soleplate Weight of iron

Flow of water from holes

Objective measures

Units of measure Iron A Iron B Our Iron (X)

ft-lb ft3 4 2 3 3

lb 1.4 1.2 1.7 4 3 1.2 *

in. 8x4 8x4 9x5 4 3 8x5 *

cm 2 1 4 4 3 3 *

ty SS MG T 5 4 SS *

ea 27 27 35 4 3 30 *

mm oz/s sec sec Y/N Y/N 15 15 15 3 3 0.5 0.3 0.7 2 3 45 35 50 5 4 30 * 500 350 600 5 4 500 * N N N 3 5

Estimated impact Estimated cost Targets Design changes

4-223

Automatic shutoff

Number of holes

Size of holes

Completed House of Quality

SS = Silverstone MG = Mirorrglide T = Titanium

4-224

A Series of Connected QFD Houses

Product characteristics Customer requirements

A-1
Product characteristics

Part characteristics

Part characteristics

House of quality

A-2
Parts deployment

Process characteristics

A-3
Process characteristics

Operations

Process planning

A-4

Operating requirements
4-225

Benefits of QFD
Promotes better understanding of customer demands Promotes better understanding of design interactions Involves manufacturing in design process Provides documentation of design process

4-226

Design for Robustness

Robust product
designed to withstand variations in environmental and operating conditions

Robust design
yields a product or service designed to withstand variations

Controllable factors
design parameters such as material used, dimensions, and form of processing

Uncontrollable factors
users control (length of use, maintenance, settings, etc.)

4-227

Design for Robustness (cont.)

Tolerance
allowable ranges of variation in the dimension of a part

Consistency
consistent errors are easier to correct than random errors parts within tolerances may yield assemblies that are not within limits consumers prefer product characteristics near their ideal values
4-228

Taguchis Quality Loss Function

Quantifies customer preferences toward quality Emphasizes that customer preferences are strongly oriented toward consistently Design for Six Sigma (DFSS)

Quality Loss Lower tolerance limit

Target

Upper tolerance limit

4-229

Copyright 2009 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for backdistribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.

4-230

Chapter 5
Service Design
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Service Economy Characteristics of Services Service Design Process Tools for Service Design Waiting Line Analysis for Service Improvement
5-232

Service Economy

Source: U.S. Bureau of Labor Statistics, IBM Almaden Research Center

5-233

5-234

Characteristics of Services
Services
acts, deeds, or performances

Goods
tangible objects

Facilitating services
accompany almost all purchases of goods

Facilitating goods
accompany almost all service purchases
5-235

Continuum from Goods to Services

Source: Adapted from Earl W. Sasser, R.P. Olsen, and D. Daryl Wyckoff, Management of Service Operations (Boston: Allyn Bacon, 1978), p.11.
5-236

Characteristics of Services (cont.)

Services are intangible Service output is variable Services have higher customer contact Services are perishable Service inseparable from delivery Services tend to be decentralized and dispersed Services are consumed more often than products Services can be easily emulated

5-237

Service Design Process

5-238

Service Design Process (cont.)

Service concept
purpose of a service; it defines target market and customer experience

Service package
mixture of physical items, sensual benefits, and psychological benefits

Service specifications
performance specifications design specifications delivery specifications
5-239

Service Process Matrix

5-240

High v. Low Contact Services

Design Decision
Facility location Facility layout

High-Contact Service
Convenient to customer Must look presentable, accommodate customer needs, and facilitate interaction with customer

Low-Contact Service
Near labor or transportation source Designed for efficiency

Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Compensative Advantage (New York:McGraw-Hill, 2001), p. 210

5-241

High v. Low Contact Services (cont.)

Design Decision
Quality control

High-Contact Service
More variable since customer is involved in process; customer expectations and perceptions of quality may differ; customer present when defects occur Excess capacity required to handle peaks in demand

Low-Contact Service
Measured against established standards; testing and rework possible to correct defects

Capacity

Planned for average demand

Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Compensative Advantage (New York:McGraw-Hill, 2001), p. 210

5-242

High v. Low Contact Services (cont.)

Design Decision
Worker skills

High-Contact Service
Must be able to interact well with customers and use judgment in decision making Must accommodate customer schedule

Low-Contact Service
Technical skills

Scheduling

Customer concerned only with completion date

Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Compensative Advantage (New York:McGraw-Hill, 2001), p. 210

5-243

High v. Low Contact Services (cont.)

Design Decision
Service process

High-Contact Service
Mostly front-room activities; service may change during delivery in response to customer

Low-Contact Service
Mostly back-room activities; planned and executed with minimal interference Fixed, less extensive

Service package

Varies with customer; includes environment as well as actual service

Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Compensative Advantage (New York:McGraw-Hill, 2001), p. 210

5-244

Tools for Service Design

Service blueprinting
line of influence line of interaction line of visibility line of support

Servicescapes
space and function ambient conditions signs, symbols, and artifacts

Front-office/BackFront-office/Backoffice activities

Quantitative techniques

5-245

Service Blueprinting

5-246

Service Blueprinting (Cont)

5-247

Elements of Waiting Line Analysis

Operating characteristics
average values for characteristics that describe performance of waiting line system

Queue
a single waiting line

Waiting line system

consists of arrivals, servers, and waiting line structure

Calling population
source of customers; infinite or finite
5-248

5-249

Elements of Waiting Line Analysis (cont.)

Arrival rate () (
frequency at which customers arrive at a waiting line according to a probability distribution, usually Poisson

Service time () (
time required to serve a customer, usually described by negative exponential distribution

Service rate must be shorter than arrival rate ( < ) ( Queue discipline
order in which customers are served

Infinite queue
can be of any length; length of a finite queue is limited

5-250

Elements of Waiting Line Analysis (cont.)

Channels
number of parallel servers for servicing customers

Phases
number of servers in sequence a customer must go through
5-251

Operating Characteristics
Operating characteristics are assumed to approach a steady state

5-252

Traditional Cost Relationships

as service improves, cost increases

5-253

Psychology of Waiting
Waiting rooms
magazines and newspapers televisions

Disney
costumed characters mobile vendors accurate wait times special passes

Bank of America
mirrors

Supermarkets
magazines impulse purchases
5-254

Psychology of Waiting (cont.)

Preferential treatment
Grocery stores: express lanes for customers with few purchases Airlines/Car rental agencies: special cards available to frequent-users or for an additional fee frequentPhone retailers: route calls to more or less experienced salespeople based on customers sales history

Critical service providers

services of police department, fire department, etc. waiting is unacceptable; cost is not important
5-255

Waiting Line Models

SingleSingle-server model
simplest, most basic waiting line structure

Frequent variations (all with Poisson arrival rate)

exponential service times general (unknown) distribution of service times constant service times exponential service times with finite queue exponential service times with finite calling population

5-256

Basic Single-Server Model SingleAssumptions

Poisson arrival rate exponential service times firstfirst-come, firstfirstserved queue discipline infinite queue length infinite calling population

Computations
= mean arrival rate = mean service rate n = number of customers in line

5-257

Basic Single-Server Model (cont.) Singleprobability that no customers are in queuing system P0 = average number of customers in queuing system L=

( )
1
n

probability of n customers in queuing system Pn =

average number of customers in waiting line Lq = 2 ( )

( ) ( )( )

P0 =

5-258

Basic Single-Server Model (cont.) Singleaverage time customer spends in queuing system W= 1 = L probability that server is busy and a customer has to wait (utilization factor) = probability that server is idle and customer can be served I=1 =1 = P0
5-259

average time customer spends waiting in line Wq = ( )

Basic Single-Server Model SingleExample

5-260

Basic Single-Server Model SingleExample (cont.)

5-261

Service Improvement Analysis

waiting time (8 min.) is too long
hire assistant for cashier?
increased service rate

hire another cashier?

reduced arrival rate

Is improved service worth the cost?

5-262

Basic Single-Server Model SingleExample: Excel

5-263

Advanced Single-Server Models SingleConstant service times

occur most often when automated equipment or machinery performs service

Finite queue lengths

occur when there is a physical limitation to length of waiting line

Finite calling population

number of customers that can arrive is limited

5-264

Advanced Single-Server SingleModels (cont.)

5-265

Basic Multiple-Server Model Multiplesingle waiting line and service facility with several independent servers in parallel same assumptions as single-server model singles >
s = number of servers servers must be able to serve customers faster than they arrive

5-266

Basic Multiple-Server Model Multiple(cont.)

probability that there are no customers in system 1 P0 = n = s 1 1 n 1 s s

n=0

()
n!

( )( )
s!

s -

probability of n customers in system 1 n P0, for n > s ns s!s Pn = 1 n P0, for n s n!

() ()

5-267

Basic Multiple-Server Model Multiple(cont.)

probability that customer must wait
Pw = 1 s!

()

P0

Lq = L

L=

(/)s (s 1)! (s )2 (s L W=

P0 +

Wq = W

Lq

= s
5-268

Basic Multiple-Server Model MultipleExample

5-269

Basic Multiple-Server Model MultipleExample (cont.)

5-270

Basic Multiple-Server Model MultipleExample (cont.)

5-271

Basic Multiple-Server Model MultipleExample (cont.)

5-272

Basic Multiple-Server Model MultipleExample (cont.)

5-273

Basic Multiple-Server Model MultipleExample (cont.)

To cut wait time, add another service representative
now, s = 4

Therefore:

5-274

MultipleMultiple-Server Waiting Line in Excel

5-275

Chapter 6
Processes and Technology
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Process Planning Process Analysis Process Innovation Technology Decisions

6-277

Process Planning
Process
a group of related tasks with specific inputs and outputs

Process design
what tasks need to be done and how they are coordinated among functions, people, and organizations

Process strategy
an organizations overall approach for physically producing goods and services

Process planning
converts designs into workable instructions for manufacture or delivery
6-278

Process Strategy
Vertical integration
extent to which firm will produce inputs and control outputs of each stage of production process

Capital intensity
mix of capital (i.e., equipment, automation) and labor resources used in production process

Process flexibility
ease with which resources can be adjusted in response to changes in demand, technology, products or services, and resource availability

Customer involvement
role of customer in production process

6-279

Outsourcing
Cost Capacity Quality Speed Reliability Expertise

6-280

Process Selection
Projects
one-of-a-kind production of a product to customer order

Batch production
processes many different jobs at the same time in groups or batches

Mass production
produces large volumes of a standard product for a mass market

Continuous production
used for very-high volume commodity products

6-281

Sourcing Continuum

6-282

ProductProduct-Process Matrix

Source: Adapted from Robert Hayes and Steven Wheelwright, Restoring the Competitive Edge Competing through Manufacturing (New York, John Wiley & Sons, 1984), p. 209.

6-283

Types of Processes
PROJECT BATCH Made-toMade-toorder
(customized)

MASS Made-toMade-tostock
(standardized )

CONT. CONT.

Type of product

Unique

Commodity

Type of customer

One-atOne-at-atime

Few individual customers

Mass market

Mass market

Product demand

Infrequent

Fluctuates

Stable

Very stable

Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive Advantage (New York:McGraw-Hill, 2001), p. 210 York:McGraw-

6-284

Types of Processes (cont.)

PROJECT BATCH MASS CONT. CONT.

Demand volume No. of different products Production system

Very low

Low to medium

High

Very high

Infinite variety

Many, varied

Few

Very few

LongLong-term project

Discrete, job shops

Repetitive, assembly lines

Continuous, process industries

Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive Advantage (New York:McGraw-Hill, 2001), p. 210 York:McGraw-

6-285

Types of Processes (cont.)

PROJECT BATCH MASS CONT. CONT.

Equipment

Varied

GeneralGeneralpurpose

SpecialSpecialpurpose

Highly automated Mixing, treating, refining Equipment monitors

Primary type of work Worker skills

Specialized contracts Experts, craftscraftspersons

Fabrication

Assembly

Wide range of skills

Limited range of skills

Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive Advantage (New York:McGraw-Hill, 2001), p. 210 York:McGraw-

6-286

Types of Processes (cont.)

PROJECT BATCH MASS
Efficiency, speed, low cost Capital investment; lack of responsiveness Automobiles, televisions, computers, fast food

CONT. CONT.
Highly efficient, large capacity, ease of control Difficult to change, far-reaching errors, farlimited variety

Advantages

Custom work, latest technology

Flexibility, quality

DisDisadvantages

NonNon-repetitive, small customer base, expensive

Costly, slow, difficult to manage Machine shops, print shops, bakeries, education

Examples

Construction, shipbuilding, spacecraft

Paint, chemicals, foodstuffs

Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for Competitive Advantage (New York:McGrawYork:McGraw-Hill, 2001), p. 210

6-287

Process Selection with BreakBreak-Even Analysis

examines cost trade-offs associated with demand volume Cost Fixed costs
constant regardless of the number of units produced

Variable costs
vary with the volume of units produced

Revenue price at which an item is sold Total revenue is price times volume sold Profit difference between total revenue and total cost
6-288

Process Selection with BreakBreak-Even Analysis (cont.)

Total cost = fixed cost + total variable cost TC = cf + vcv Total revenue = volume x price TR = vp Profit = total revenue - total cost Z = TR TC = vp - (cf + vcv)

6-289

Process Selection with BreakBreak-Even Analysis (cont.)

TR = TC vp = cf + vcv vp - vcv = cf v ( p - c v) = c f v= cf

p - cv

Solving for Break-Even Point (Volume) Break6-290

BreakBreak-Even Analysis: Example

Fixed cost = cf = $2,000 Variable cost = cv = $5 per raft Price = p = $10 per raft BreakBreak-even point is v= cf p - cv = 2000 10 - 5
6-291

= 400 rafts

BreakBreak-Even Analysis: Graph

Dollars Total cost line

$3,000

$2,000

$1,000 Total revenue line 400 BreakBreak-even point Units

6-292

Process Plans
Set of documents that detail manufacturing and service delivery specifications
assembly charts operations sheets quality-control check-sheets

6-293

Process Selection
Process A Process B

$2,000 + $5v = $10,000 + $3v $5v $3v $2v = $8,000 $2v v = 4,000 rafts

Below or equal to 4,000, choose A Above or equal to 4,000, choose B

6-294

Process Analysis

systematic examinatio n of all aspects of process to improve operation

6-295

An Operations Sheet for a Plastic Part

Part name Part No. Usage Crevice Tool 52074 Hand-Vac Hand-

Assembly No. 520 Oper. No. 10 20 30 40 50 60 Description Pour in plastic bits Insert mold Check settings & start machine Collect parts & lay flat Remove & clean mold Break off rough edges Dept. 041 041 041 051 042 051 Machine/Tools Injection molding #076 113, 67, 650 Plastics finishing Parts washer Plastics finishing Time 2 min 2 min 20 min 10 min 15 min 10 min

6-296

Process Analysis
Building a flowchart
Determine objectives Define process boundaries Define units of flow Choose type of chart Observe process and collect data Map out process Validate chart
6-297

Process Flowcharts
look at manufacture of product or delivery of service from broad perspective Incorporate
nonproductive activities (inspection, transportation, delay, storage) productive activities (operations)

6-298

Process Flowchart Symbols

Operations Inspection Transportation Delay Storage
6-299

Process Flowchart of Apple Processin g

6-300

6-301

Simple Value Chain Flowchart

6-302

Process Innovation
Continuous improvement refines the breakthrough

Breakthrough Improvement

Total redesign of a process for breakthrough improvements

Continuous improvement activities peak; time to reengineer process

6-303

From Function to Process

Product Development Manufacturing Purchasing Accounting Sales Order Fulfillment Supply Chain Management Customer Service Function Process

6-304

Process Innovation

Strategic Directives Goals for Process Performance High - level Process map Detailed Process Map Pilot Study of New Design

Customer Requirements

Baseline Data Benchmark Data Innovative Ideas Model Validation Design Principles Key Performance Measures

No

Goals Met?

Yes

Full Scale Implementation

6-305

HighHigh-Level Process Map

6-306

Principles for Redesigning Processes

Remove waste, simplify, and consolidate similar activities Link processes to create value Let the swiftest and most capable enterprise execute the process Flex process for any time, any place, any way Capture information digitally at the source and propagate it through process
6-307

Principles for Redesigning Processes (cont.)

Provide visibility through fresher and richer information about process status Fit process with sensors and feedback loops that can prompt action Add analytic capabilities to process Connect, collect, and create knowledge around process through all who touch it Personalize process with preferences and habits of participants

6-308

Techniques for Generating Innovative Ideas

Vary the entry point to a problem
in trying to untangle fishing lines, its best to start from the fish, not the poles

Draw analogies
a previous solution to an old problem might work

Change your perspective

think like a customer bring in persons who have no knowledge of process

6-309

Techniques for Generating Innovative Ideas (cont.)

Try inverse brainstorming
what would increase cost what would displease the customer

Chain forward as far as possible

if I solve this problem, what is the next problem

Use attribute brainstorming

how would this process operate if. . .
our workers were mobile and flexible there were no monetary constraints we had perfect knowledge

6-310

Technology Decisions
Financial justification of technology
Purchase cost Operating Costs Annual Savings Revenue Enhancement Replacement Analysis Risk and Uncertainty Piecemeal Analysis

6-311

Components of e-Manufacturing e-

6-312

A Technology Primer
Product Technology
Computer-aided design (CAD) Group technology (GT) Computer-aided engineering (CAE) Collaborative product commerce (CPC) Creates and communicates designs electronically Classifies designs into families for easy retrieval and modification Tests functionality of CAD designs electronically Facilitates electronic communication and exchange of information among designers and suppliers

6-313

A Technology Primer (cont.)

Product Technology
Product data management (PDM) Product life cycle management (PLM) Product configuration Keeps track of design specs and revisions for the life of the product Integrates decisions of those involved in product development, manufacturing, sales, customer service, recycling, and disposal Defines products configured by customers who have selected among various options, usually from a Web site

6-314

A Technology Primer (cont.)

Process Technology
Standard for exchange of product model data (STEP) Computer-aided design and manufacture (CAD/CAM) Computer aided process (CAPP) E-procurement Set standards for communication among different CAD vendors; translates CAD data into requirements for automated inspection and manufacture Electronic link between automated design (CAD) and automated manufacture (CAM) Generates process plans based on database of similar requirements Electronic purchasing of items from eemarketplaces, auctions, or company websites

6-315

A Technology Primer (cont.)

Manufacturing Technology
Computer numerically control (CNC) Flexible manufacturing system (FMS) Robots Conveyors
Machines controlled by software code to perform a variety of operations with the help of automated tool changers; also collects processing information and quality data A collection of CNC machines connected by an automated material handling system to produce a wide variety of parts Manipulators that can be programmed to perform repetitive tasks; more consistent than workers but less flexible FixedFixed-path material handling; moves items along a belt or overhead chain; reads packages and diverts them to different directions; can be very fast

6-316

A Technology Primer (cont.)

Manufacturing Technology
Automatic guided vehicle (AGV) Automated storage and retrieval system (ASRS) Process Control Computer-integrated manufacturing (CIM) A driverless truck that moves material along a specified path; directed by wire or tape embedded in floor or by radio frequencies; very flexible An automated warehousesome 26 stores high warehouse high in which items are placed in a carousel-type carouselstorage system and retrieved by fast-moving faststacker cranes; controlled by computer Continuous monitoring of automated equipment; makes real-time decisions on ongoing operation, realmaintenance, and quality Automated manufacturing systems integrated through computer technology; also called eemanufacturing

6-317

A Technology Primer (cont.)

Information Technology
Business to Business (B2B) Business to Consumer (B2C) Internet Intranet
Electronic transactions between businesses usually over the Internet Electronic transactions between businesses and their customers usually over the Internet A global information system of computer networks that facilitates communication and data transfer Communication networks internal to an organization; can be password (i.e., firewall) protected sites on the Internet Intranets connected to the Internet for shared access with select suppliers, customers, and trading partners
6-318

Extranet

A Technology Primer (cont.)

Information Technology
Bar Codes Radio Frequency Identification tags (RFID) Electronic data interchange (EDI) Extensive markup language (XML) Enterprise resource planning (ERP)
A series of vertical lines printed on most packages that identifies item and other information when read by a scanner An integrated circuit embedded in a tag that can send and receive information; a twenty-first century bar code twentywith read/write capabilities A computer-to-computer exchange of business computer-todocuments over a proprietary network; very expensive and inflexible A programming language that enables computer to computer communication over the Internet by tagging data before its is sent Software for managing basic requirements of an enterprise, including sales & marketing, finance and accounting, production & materials management, and human resources

6-319

A Technology Primer (cont.)

Information Technology
Supply chain management (SCM) Customer relationship management (CRM) Decision support systems (DSS) Expert systems (ES) Artificial intelligence (AI) Software for managing flow of goods and information among a network of suppliers, manufacturers and distributors Software for managing interactions with customers and compiling and analyzing customer data An information system that helps managers make decisions; includes a quantitative modeling component and an interactive component for what-if analysis whatA computer system that uses an expert knowledge base to diagnose or solve a problem A field of study that attempts to replicate elements of human thought in computer processes; includes expert systems, genetic algorithms, neural networks, and fuzzy logic

6-320

Chapter 7

Capacity and Facilities

Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Capacity Planning Basic Layouts Designing Process Layouts Designing Service Layouts Designing Product Layouts Hybrid Layouts

Capacity
Maximum capability to produce Capacity planning
establishes overall level of productive resources for a firm

3 basic strategies for timing of capacity expansion in relation to steady growth in demand (lead, lag, and average)

Capacity Expansion Strategies

Capacity (cont.)
Capacity increase depends on
volume and certainty of anticipated demand strategic objectives costs of expansion and operation

Best operating level

% of capacity utilization that minimizes unit costs

Capacity cushion
% of capacity held in reserve for unexpected occurrences

Economies of Scale
it costs less per unit to produce high levels of output
fixed costs can be spread over a larger number of units production or operating costs do not increase linearly with output levels quantity discounts are available for material purchases operating efficiency increases as workers gain experience

Best Operating Level for a Hotel

Machine Objectives of Facility Layout

Arrangement of areas within a facility to:
Minimize material-handling costs Utilize space efficiently Utilize labor efficiently Eliminate bottlenecks Facilitate communication and interaction Reduce manufacturing cycle time Reduce customer service time Eliminate wasted or redundant movement Increase capacity Facilitate entry, exit, and placement of material, products, and people Incorporate safety and security measures Promote product and service quality Encourage proper maintenance activities Provide a visual control of activities Provide flexibility to adapt to changing conditions

BASIC LAYOUTS
Process layouts
group similar activities together according to process or function they perform

Product layouts
arrange activities in line according to sequence of operations for a particular product or service

Fixed-position layouts
are used for projects in which product cannot be moved

Process Layout in Services

Womens lingerie Shoes Housewares

Womens dresses

Cosmetics and jewelry

Childrens department

Womens sportswear

Entry and display area

Mens department

Manufacturing Process Layout

A Product Layout
In

Out

Comparison of Product and Process Layouts

Product
Description Sequential arrangement of activities Continuous, mass production, mainly assembly Standardized, made to stock Stable High Special purpose

Process
Functional grouping of activities Intermittent, job shop, batch production, mainly fabrication Varied, made to order Fluctuating Low General purpose

Type of process

Product Demand Volume Equipment

Comparison of Product and Process Layouts

Product
Workers Inventory Storage space Material handling Aisles Scheduling Layout decision Goal Advantage Limited skills Low in-process, high infinished goods Small Fixed path (conveyor) Narrow Part of balancing Line balancing Equalize work at each station Efficiency

Process
Varied skills High in-process, low infinished goods Large Variable path (forklift) Wide Dynamic Machine location Minimize material handling cost Flexibility

FixedFixed-Position Layouts
Typical of projects in which product produced is too fragile, bulky, or heavy to move Equipment, workers, materials, other resources brought to the site Low equipment utilization Highly skilled labor Typically low fixed cost Often high variable costs
7-335

Designing Process Layouts

Goal: minimize material handling costs Block Diagramming
minimize nonadjacent loads use when quantitative data is available

Relationship Diagramming
based on location preference between areas use when quantitative data is not available

Block Diagramming
Unit load
quantity in which material is normally moved STEPS create load summary chart calculate composite (two way) movements develop trial layouts minimizing number of nonadjacent loads

Nonadjacent load
distance farther than the next block

Block Diagramming: Example

Load Summary Chart
1 2 3 FROM/TO DEPARTMENT

Department 1 1 2 3 4 5 60

2 100 100

3 50 200 50

4 50 40

50 60

Block Diagramming: Example (cont.)

2 2 1 1 4 3 2 3 1 1 3 4 3 2 5 5 5 4 4 5 200 loads 150 loads 110 loads 100 loads 60 loads 50 loads 50 loads 40 loads 0 loads 0 loads Nonadjacent Loads: 110+40=150 0
110 100 150 200

3 4

4
Grid 1 2

150 200 50 50 40 60 50 110 50 60

3 5

40

Block Diagramming: Example (cont.)

Block Diagram
type of schematic layout diagram; includes space requirements
(a) Initial block diagram (b) Final block diagram

1 2

Relationship Diagramming

Schematic diagram that uses weighted lines to denote location preference Muthers grid
format for displaying manager preferences for department locations

Relationship Diagramming: Excel

Relationship A Absolutely necessary E Especially important Diagramming: Example I Important

Production O Offices U Stockroom A Shipping and receiving Locker room O Toolroom U U O O O X U A I E A O Okay U Unimportant X Undesirable

Relationship Diagrams: Example (cont.)

(a) Relationship diagram of original layout

Offices

Locker room

Shipping and receiving Key: A E I Production O U X

Stockroom

Toolroom

Relationship Diagrams: Example (cont.)

(b) Relationship diagram of revised layout

Stockroom

Offices

Shipping and receiving

Toolroom

Production

Locker room

Key: A E I O U X

Computerized layout Solutions

CRAFT
Computerized Relative Allocation of Facilities Technique

CORELAP
Computerized Relationship Layout Planning

PROMODEL and EXTEND

visual feedback allow user to quickly test a variety of scenarios

Three-D modeling and CAD

integrated layout analysis available in VisFactory and similar software

Designing Service Layouts

Must be both attractive and functional Types Free flow layouts
encourage browsing, increase impulse purchasing, are flexible and visually appealing

Grid layouts
encourage customer familiarity, are low cost, easy to clean and secure, and good for repeat customers

Loop and Spine layouts

both increase customer sightlines and exposure to products, while encouraging customer to circulate through the entire store

Types of Store Layouts

Designing Product Layouts

Objective
Balance the assembly line

Line balancing
tries to equalize the amount of work at each workstation

Precedence requirements
physical restrictions on the order in which operations are performed

Cycle time
maximum amount of time a product is allowed to spend at each workstation

Cycle Time Example

production time available desired units of output (8 hours x 60 minutes / hour) (120 units)

Cd = Cd =

Cd =

480 120

= 4 minutes

Flow Time vs Cycle Time

Cycle time = max time spent at any station Flow time = time to complete all stations
1 4 minutes 2 4 minutes 3 4 minutes

Flow time = 4 + 4 + 4 = 12 minutes Cycle time = max (4, 4, 4) = 4 minutes

Efficiency of Line and Balance Delay

Efficiency
i

Minimum number of workstations

E=
where
i=1

ti

N=
i=1

ti

Balance delay
total idle time of line calculated as (1 efficiency)

nCa

Cd

ti j n Ca Cd

= completion time for element i = number of work elements = actual number of workstations = actual cycle time = desired cycle time

Line Balancing Procedure

1. Draw and label a precedence diagram 2. Calculate desired cycle time required for line 3. Calculate theoretical minimum number of workstations 4. Group elements into workstations, recognizing cycle time and precedence constraints 5. Calculate efficiency of line 6. Determine if theoretical minimum number of workstations or an acceptable efficiency level has been reached. If not, go back to step 4.

Line Balancing: Example

WORK ELEMENT A B C D Press out sheet of fruit Cut into strips Outline fun shapes Roll up and package 0.2 PRECEDENCE A A B, C TIME (MIN) 0.1 0.2 0.4 0.3

B 0.1 A C

0.3

0.4

Line Balancing: Example (cont.)

WORK ELEMENT A B C D Press out sheet of fruit Cut into strips Outline fun shapes Roll up and package PRECEDENCE A A B, C TIME (MIN) 0.1 0.2 0.4 0.3

Cd =

40 hours x 60 minutes / hour 6,000 units 0.1 + 0.2 + 0.3 + 0.4 0.4 = 1.0 0.4

2400 6000

= 0.4 minute

N=

= 2.5

3 workstations

Line Balancing: Example (cont.)

WORKSTATION 1 2 3 ELEMENT A B C D B 0.1 A C REMAINING TIME 0.3 0.1 0.0 0.1 0.2 REMAINING ELEMENTS B, C C, D D none Cd = 0.4 N = 2.5 D 0.3

0.4

Line Balancing: Example (cont.)

Work station 1 Work station 2 Work station 3

A, B
0.3 minute

C
0.4 minute

D
0.3 minute

Cd = 0.4 N = 2.5

E=

0.1 + 0.2 + 0.3 + 0.4 3(0.4)

1.0 1.2

= 0.833 = 83.3%

Computerized Line Balancing

Use heuristics to assign tasks to workstations
Longest operation time Shortest operation time Most number of following tasks Least number of following tasks Ranked positional weight

Hybrid Layouts
Cellular layouts
group dissimilar machines into work centers (called cells) that process families of parts with similar shapes or processing requirements

Production flow analysis (PFA)

reorders part routing matrices to identify families of parts with similar processing requirements

Flexible manufacturing system

automated machining and material handling systems which can produce an enormous variety of items

Mixed-model assembly line

processes more than one product model in one line

Cellular Layouts
1. Identify families of parts with similar flow paths 2. Group machines into cells based on part families 3. Arrange cells so material movement is minimized 4. Locate large shared machines at point of use

Parts Families

A family of similar parts

A family of related grocery items

Original Process Layout

Assembly

5 2 1 3 10

8 12 11

Raw materials

Part Routing Matrix

Parts A B C D E F G H 1 x 2 x x x x x x x x x x x x x x x x x 3 Machines 4 5 6 7 x x x x x x x x 8 x 9 10 11 12 x x x

Figure 5.8

Revised Cellular Layout

Assembly

10

12 11

Cell 1

Cell 2

Cell 3 7

A B C Raw materials

Reordered Routing Matrix

Parts A D F C G B H E 1 x x x 2 x x 4 x x x Machines 8 10 3 6 x x x x x x x x x x x x x x x x x x 9 5 7 11 12

x x x x

Advantages and Disadvantages of Cellular Layouts

Advantages
Reduced material handling and transit time Reduced setup time Reduced work-inwork-inprocess inventory Better use of human resources Easier to control Easier to automate

Disadvantages
Inadequate part families Poorly balanced cells Expanded training and scheduling of workers Increased capital investment

Automated Manufacturing Cell

Source: J. T. Black, Cellular Manufacturing Systems Reduce Setup Time, Make Small Lot Production Economical. Industrial Engineering (November 1983)

Flexible Manufacturing Systems (FMS)

FMS consists of numerous programmable machine tools connected by an automated material handling system and controlled by a common computer network FMS combines flexibility with efficiency FMS layouts differ based on
variety of parts that the system can process size of parts processed average processing time required for part completion

Full-Blown FMS

Mixed Model Assembly Lines

Produce multiple models in any order on one assembly line Issues in mixed model lines
Line balancing U-shaped lines Flexible workforce Model sequencing

Balancing U-Shaped Lines UPrecedence diagram: A B C

Cycle time = 12 min

(a) Balanced for a straight line

A,B C,D E

(b) Balanced for a U-shaped line UA,B

9 min Efficiency =

12 min 24 3(12) = 24 36

3 min = .6666 = 66.7 %

C,D

Efficiency =

24 2(12)

24 24

= 100 % 12 min

12 min

Chapter 7 Supplement
Facility Location Models
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Types of Facilities Site Selection: Where to Locate Location Analysis Techniques

Supplement 7-374 7-

Types of Facilities
HeavyHeavy-manufacturing facilities
large, require a lot of space, and are expensive

LightLight-industry facilities
smaller, cleaner plants and usually less costly

Retail and service facilities

smallest and least costly
Supplement 7-375 7-

Factors in Heavy Manufacturing Location

Construction costs Land costs Raw material and finished goods shipment modes Proximity to raw materials Utilities Means of waste disposal Labor availability
Supplement 7-376 7-

Factors in Light Industry Location

Land costs Transportation costs Proximity to markets
depending on delivery requirements including frequency of delivery required by customer

Supplement 7-377 7-

Factors in Retail Location

Proximity to customers Location is everything

Supplement 7-378 7-

Site Selection: Where to Locate

Infrequent but important
being in the right place at the right time

Location criteria for manufacturing facility

nature of labor force labor costs proximity to suppliers and markets distribution and transportation costs energy availability and cost community infrastructure quality of life in community government regulations and taxes

Must consider other factors, especially financial considerations Location decisions made more often for service operations than manufacturing facilities Location criteria for service
access to customers

Supplement 7-379 7-

Global Location Factors

Government stability Government regulations Political and economic systems Economic stability and growth Exchange rates Culture Climate Export/import regulations, duties and tariffs Raw material availability Number and proximity of suppliers Transportation and distribution system Labor cost and education Available technology Commercial travel Technical expertise CrossCross-border trade regulations Group trade agreements
Supplement 7-380 7-

Regional and Community Location Factors in U.S.

Labor (availability, education, cost, and unions) Proximity of customers Number of customers Construction/leasing costs Land cost Modes and quality of transportation Transportation costs Community government Local business regulations Government services (e.g., Chamber of Commerce)

Supplement 7-381 7-

Regional and Community Location Factors in U.S. (cont.)

Business climate Community services Incentive packages Government regulations Environmental regulations Raw material availability Commercial travel Climate Infrastructure (e.g., roads, water, sewers) Quality of life Taxes Availability of sites Financial services Community inducements Proximity of suppliers Education system

Supplement 7-382 7-

Location Incentives
Tax credits Relaxed government regulation Job training Infrastructure improvement Money

Supplement 7-383 7-

Geographic Information Systems (GIS)

Computerized system for storing, managing, creating, analyzing, integrating, and digitally displaying geographic, i.e., spatial, data Specifically used for site selection enables users to integrate large quantities of information about potential sites and analyze these data with many different, powerful analytical tools

Supplement 7-384 7-

GIS Diagram

Supplement 7-385 7-

Location Analysis Techniques

Location factor rating Center-ofCenter-of-gravity LoadLoad-distance

Supplement 7-386 7-

Location Factor Rating

Identify important factors Weight factors (0.00 - 1.00) Subjectively score each factor (0 - 100) Sum weighted scores

Supplement 7-387 7-

Location Factor Rating: Example

SCORES (0 TO 100) LOCATION FACTOR Labor pool and climate Proximity to suppliers Wage rates Community environment Proximity to customers Shipping modes Air service WEIGHT .30 .20 .15 .15 .10 .05 .05 Site 1 80 100 60 75 65 85 50 Site 2 65 91 95 80 90 92 65 Site 3 90 75 72 80 95 65 90

Weighted Score for Labor pool and climate for Site 1 = (0.30)(80) = 24

Supplement 7-388 7-

Location Factor Rating: Example (cont.)

WEIGHTED SCORES Site 1 24.00 20.00 9.00 11.25 6.50 4.25 2.50 77.50 Site 2 19.50 18.20 14.25 12.00 9.00 4.60 3.25 80.80 Site 3 27.00 15.00 10.80 12.00 9.50 3.25 4.50 82.05
Site 3 has the highest factor rating

Supplement 7-389 7-

Location Factor Rating with Excel and OM Tools

Supplement 7-390 7-

Center-ofCenter-of-Gravity Technique
Locate facility at center of movement in geographic area Based on weight and distance traveled; establishes grid-map of gridarea Identify coordinates and weights shipped for each location

Supplement 7-391 7-

GridGrid-Map Coordinates
y 2 (x2, y2), W2 (x

xiWi
i=1 x=

yiWi
i=1 y=

y2 1 (x1, y1), W1 (x

Wi
i=1

Wi
i=1

y1

y3

3 (x3, y3), W3 (x

where, x, y = coordinates of new facility at center of gravity xi, yi = coordinates of existing facility i Wi = annual weight shipped from facility i

x1

x2

x3

x
Supplement 7-392 7-

Center-ofCenter-of-Gravity Technique: Example

y 700 600 500 Miles 400 300 200 100 0 100 200 300 400 500 600 700 x Miles
Supplement 7-393 7-

A C B (105) D A (75) (60) (135) x y Wt 200 200 75

B 100 500 105

C 250 600 135

D 500 300 60

Center-ofCenter-of-Gravity Technique: Example (cont.)

x=
i=1 n

xiWi
=

(200)(75) + (100)(105) + (250)(135) + (500)(60) 75 + 105 + 135 + 60

= 238

i=1 n

Wi

y=

i=1 n

yiWi
=

(200)(75) + (500)(105) + (600)(135) + (300)(60) 75 + 105 + 135 + 60

= 444

i=1

Wi

Supplement 7-394 7-

Center-ofCenter-of-Gravity Technique: Example (cont.)

y 700 600 500 Miles 400 300 200 100 0 100 200 300 400 500 600 700 x Miles
Supplement 7-395 7-

A C B (105) (135) x y Wt 200 200 75

B 100 500 105

C 250 600 135

D 500 300 60

Center of gravity (238, 444) D (60)

(75)

Center-ofCenter-of-Gravity Technique with Excel and OM Tools

Supplement 7-396 7-

LoadLoad-Distance Technique

Compute (Load x Distance) for each site Choose site with lowest (Load x Distance) Distance can be actual or straight-line straight-

Supplement 7-397 7-

LoadLoad-Distance Calculations
LD =
where, LD = li di di = = = loadload-distance value load expressed as a weight, number of trips or units being shipped from proposed site and location i distance between proposed site and location i (xi - x)2 + (yi - y)2 (y

ld
i

i=1

where, (x,y) = coordinates of proposed site x,y) (xi , yi) = coordinates of existing facility
Supplement 7-398 7-

LoadLoad-Distance: Example
Potential Sites Site X 1 360 2 420 3 250 Y 180 450 400 A 200 200 75 Suppliers B C 100 250 500 600 105 135 D 500 300 60

X Y Wt

Compute distance from each site to each supplier Site 1 dA = dB = (xA - x1)2 + (yA - y1)2 = (200(200-360)2 + (200-180)2 = 161.2 (200(100(100-360)2 + (500-180)2 = 412.3 (500-

(xB - x1)2 + (yB - y1)2 =

dC = 434.2

dD = 184.4

Supplement 7-399 7-

LoadLoad-Distance: Example (cont.)

Site 2 dA = 333 dB = 323.9 dC = 226.7 dD = 170 dD = 269.3 Site 3 dA = 206.2 dB = 180.3 dC = 200 Compute load-distance load-

LD =

ld
i

i=1
Site 1 = (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(434.4) = 125,063 Site 2 = (75)(333) + (105)(323.9) + (135)(226.7) + (60)(170) = 99,789 Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555*

* Choose site 3
Supplement 7-400 7-

LoadLoad-Distance Technique with Excel and OM Tools

Supplement 7-401 7-

Chapter 8
Human Resources
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Human Resources and Quality Management Changing Nature of Human Resources Management Contemporary Trends in Human Resources Management Employee Compensation Managing Diversity in Workplace Job Design Job Analysis Learning Curves
8-403

Human Resources and Quality Management

Employees play important role in quality management Malcolm Baldrige National Quality Award winners have a pervasive human resource focus Employee training and education are recognized as necessary long-term investments Employees have power to make decisions that will improve quality and customer service Strategic goals for quality and customer satisfaction require teamwork and group participation

8-404

Changing Nature of Human Resources Management

Scientific management
Breaking down jobs into elemental activities and simplifying job design

Assembly-line
Production meshed with principles of scientific management

Jobs
Comprise a set of tasks, elements, and job motions (basic physical movements)

Advantages of task specialization

High output, low costs, and minimal training

In a piece-rate wage system, pay is based on output

Disadvantages of task specialization

Boredom, lack of motivation, and physical and mental fatigue
8-405

Employee Motivation
Motivation
willingness to work hard because that effort satisfies an employee need

Improving Motivation (cont.)

design of jobs to fit employee work responsibility empowerment restructuring of jobs when necessary rewards based on company as well as individual performance achievement of company goals

Improving Motivation
positive reinforcement and feedback effective organization and discipline fair treatment of people satisfaction of employee needs setting of work-related goals

8-406

Evolution of Theories of Employee Motivation

Abraham Maslows Pyramid of Human Needs
Douglas McGregors Theory X and Theory Y Theory X Employee
Dislikes work Must be coerced Shirks responsibility Little ambition Security top motivator

Frederick Herzbergs Hygiene/Motivation Theories

Hygiene Factors Company policies Supervision Working conditions Interpersonal relations Salary, status, security Motivation Factors Achievement Recognition Job interest Responsibility Growth Advancement
8-407

SelfSelfactualization Esteem Social Safety/Security Physiological (financial)

Theory Y Employee
Work is natural Self-directed Self Controlled Accepts responsibility Makes good decisions

Contemporary Trends in Human Resources Management

Job training
extensive and varied two of Demings 14 points refer to employee education and training

Empowerment
giving employees authority to make decisions

Cross Training
an employee learns more than one job

Teams
group of employees work on problems in their immediate work area

Job rotation
horizontal movement between two or more jobs according to a plan

8-408

Contemporary Trends in Human Resources Management (cont.)

Job enrichment
vertical enlargement
allows employees control over their work

Alternative workplace
nontraditional work location

Telecommuting
employees work electronically from a location they choose

horizontal enlargement
an employee is assigned a complete unit of work with defined start and end

Flexible time
part of a daily work schedule in which employees can choose time of arrival and departure

Temporary and part-time employees

mostly in fast-food and restaurant chains, retail companies, package delivery services, and financial firms

8-409

Employee Compensation
Types of pay
hourly wage
the longer someone works, the more s/he is paid

individual incentive or piece rate

employees are paid for the number of units they produce during the workday

straight salary
common form of payment for management

commissions
usually applied to sales and salespeople

8-410

Employee Compensation (cont.)

Gainsharing
an incentive plan joins employees in a common effort to achieve company goals in which they share in the gains

Profit sharing
sets aside a portion of profits for employees at years end

8-411

Managing Diversity in Workplace

Workforce has become more diverse
4 out of every 10 people entering workforce during the decade from 1998 to 2008 will be members of minority groups In 2000 U.S. Census showed that some minorities, primarily Hispanic and Asian, are becoming majorities

Companies must develop a strategic approach to managing diversity

8-412

Affirmative Actions vs. Managing Diversity

Affirmative action
an outgrowth of laws and regulations government initiated and mandated contains goals and timetables designed to increase level of participation by women and minorities to attain parity levels in a companys workforce not directly concerned with increasing company success or increasing profits

Managing diversity
process of creating a work environment in which all employees can contribute to their full potential in order to achieve a companys goals voluntary in nature, not mandated seeks to improve internal communications and interpersonal relationships, resolve conflict, and increase product quality, productivity, and efficiency
8-413

Diversity Management Programs

Education Awareness Communication Fairness Commitment

8-414

Global Diversity Issues

Cultural, language, geography
significant barriers to managing a globally diverse workforce

E-mails, faxes, Internet, phones, air travel

make managing a global workforce possible but not necessarily effective

How to deal with diversity?

identify critical cultural elements learn informal rules of communication use a third party who is better able to bridge cultural gap become culturally aware and learn foreign language teach employees cultural norm of organization
8-415

Attributes of Good Job Design

An appropriate degree of repetitiveness An appropriate degree of attention and mental absorption Some employee responsibility for decisions and discretion Employee control over their own job Goals and achievement feedback A perceived contribution to a useful product or service Opportunities for personal relationships and friendships Some influence over the way work is carried out in groups Use of skills
8-416

Factors in Job Design

Task analysis
how tasks fit together to form a job

Worker analysis
determining worker capabilities and responsibilities for a job

Environment analysis
physical characteristics and location of a job

Ergonomics
fitting task to person in a work environment

Technology and automation

broadened scope of job design

8-417

Elements of Job Design

8-418

Job Analysis
Method Analysis (work methods)
Study methods used in the work included in the job to see how it should be done Primary tools are a variety of charts that illustrate in different ways how a job or work process is done

8-419

Process Flowchart Symbols

Operation: An activity directly contributing to product or service Transportation: Moving the product or service from one location to another Inspection: Examining the product or service for completeness, irregularities, or quality Delay: Process having to wait Storage: Store of the product or service

8-420

Process Flowchart

8-421

Job Photo-Id Cards PhotoTime (min) Operator Time (min)

Date Photo Machine

10/14

Key in customer data on card Feed data card in

2.6

Idle

WorkerWorkerMachine Chart

2
0.4 Accept card Idle Begin photo process

3 4 5

Position customer for photo 1.0 Take picture 0.6

Idle

3.4

Photo/card processed

6 7 8 9
8-422

Inspect card & trim edges

1.2

Idle

WorkerWorker-Machine Chart: Summary

Summary Operator Time Work Idle Total 5.8 3.4 9.2 min % 63 37 100% Photo Machine Time 4.8 4.4 9.2 Min % 52 48 100%

8-423

Motion Study
Used to ensure efficiency of motion in a job Frank & Lillian Gilbreth Find one best way to do task Use videotape to study motions

8-424

General Guidelines for Motion Study

Efficient Use Of Human Body
Work simplified, rhythmic and symmetric Hand/arm motions coordinated and simultaneous Employ full extent of physical capabilities Conserve energy use machines, minimize distances, use momentum Tasks simple, minimal eye contact and muscular effort, no unnecessary motions, delays or idleness
8-425

General Guidelines for Motion Study

Efficient Arrangement of Workplace
Tools, material, equipment - designated, easily accessible location Comfortable and healthy seating and work area

Efficient Use of Equipment

Equipment and mechanized tools enhance worker abilities Use foot-operated equipment to relieve hand/arm stress footConstruct and arrange equipment to fit worker use

8-426

Learning Curves
Illustrates improvement rate of workers as a job is repeated Processing time per unit decreases by a constant percentage each time output doubles
Processing time per unit

Units produced

8-427

Learning Curves (cont.)

Time required for the nth unit = tn = t1n b
where: tn = t1 = n= b= time required for nth unit produced time required for first unit produced cumulative number of units produced ln r where r is the learning curve percentage ln 2 (decimal coefficient)

8-428

Learning Curve Effect

Contract to produce 36 computers. t1 = 18 hours, learning rate = 80% What is time for 9th, 18th, 36th units? t9 = (18)(9)ln(0.8)/ln 2 = (18)(9)-0.322 = (18)/(9)0.322 = (18)(0.493) = 8.874hrs t18 = (18)(18)ln(0.8)/ln 2 = (18)(0.394) = 7.092hrs t36 = (18)(36)ln(0.8)/ln 2 = (18)(0.315) = 5.674hrs
8-429

Learning Curve for Mass Production Job

Processing time per unit

End of improvement

Standard time

Units produced

8-430

Learning Curves (cont.)

Advantages
planning labor planning budget determining scheduling requirements

Limitations
product modifications negate learning curve effect improvement can derive from sources besides learning industry-derived learning curve rates may be inappropriate

8-431

Chapter 8 Supplement
Work Measurement
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Time Studies Work Sampling

Supplement 8-433 8-

Work Measurement
Determining how long it takes to do a job Growing importance in service sector
Services tend to be labor-intensive laborService jobs are often repetitive

Time studies
Standard time
is time required by an average worker to perform a job once

Incentive piece-rate wage system based on time piecestudy

Supplement 8-434 8-

Stopwatch Time Study Basic Steps

1. 2. 3. 4. 5. Establish standard job method Break down job into elements Study job Rate workers performance (RF) Compute average time (t)

Supplement 8-435 8-

Stopwatch Time Study Basic Steps (cont.)

6. Compute normal time
Normal Time = (Elemental average) x (rating factor) Nt = (t )(RF) )(RF) Normal Cycle Time = NT = Nt

7. Compute standard time

Standard Time = (normal cycle time) x (1 + allowance factor) ST = (NT)(1 + AF)
Supplement 8-436 8-

Performing a Time Study

Time Study Observation Sheet Identification of operation Sandwich Assembly Operator Smith Cycles 1 Grasp and lay 1 out bread slices 2 Spread mayonnaise on both slices Place ham, cheese, and lettuce on bread t 2 3 4 5 6 7 8 9 10 t Approval Jones Date 5/17 Observer Russell Summary t RF Nt

.04 .05 .05 .04 .06 .05 .06 .06 .07 .05 .38 .72 1.05 1.40 1.76 2.13 2.50 2.89 3.29 .06 .07 .08 .07 .07 .08 .10 .09 .08

.53 .053 1.05 .056

R .04 t .07 R .11 t .12

.77 .077 1.00 .077

.44 .79 1.13 1.47 1.83 2.21 2.60 2.98 3.37 .11 .14 .12 .13 .13 .13 .12 .14 .14 1.28 1.28 1.10 .141

R .23 .55

.93 1.25 1.60 1.96 2.34 2.72 3.12 3.51

Place top on sandwich, t .10 .12 .08 .09 .11 .11 .10 .10 .12 .10 1.03 1.03 1.10 .113 Slice, and stack R .33 .67 1.01 1.34 1.71 2.07 2.44 2.82 3.24 3.61

Supplement 8-437 8-

Performing a Time Study (cont.)

Average element time = t = 0.53 t = = 0.053 10 10

Normal time = (Elemental average)(rating factor) Nt = ( t )(RF) = (0.053)(1.05) = 0.056 )(RF) Normal Cycle Time = NT = Nt = 0.387 ST = (NT) (1 + AF) = (0.387)(1+0.15) = 0.445 min

Supplement 8-438 8-

Performing a Time Study (cont.)

How many sandwiches can be made in 2 hours? 120 min 0.445 min/sandwich

= 269.7 or 270 sandwiches

Example 17.3
Supplement 8-439 8-

Number of Cycles
To determine sample size: zs n= where z = number of standard deviations from the mean in a normal distribution reflecting a level of statistical confidence s= (xi - x)2 = sample standard deviation from sample time study n-1 eT
2

T = average job cycle time from the sample time study e = degree of error from true mean of distribution

Supplement 8-440 8-

Number of Cycles: Example

Average cycle time = 0.361 Computed standard deviation = 0.03 Company wants to be 95% confident that computed time is within 5% of true average time

zs n= eT

(1.96)(0.03) = 10.61 or 11 (0.05)(0.361)

Supplement 8-441 8-

Number of Cycles: Example (cont.)

Supplement 8-442 8-

Developing Time Standards without a Time Study

Elemental standard time files
predetermined job element times

Advantages
worker cooperation unnecessary workplace uninterrupted performance ratings unnecessary consistent

Predetermined motion times

predetermined times for basic micro-motions micro-

Time measurement units

TMUs = 0.0006 minute 100,000 TMU = 1 hour

Disadvantages
ignores job context may not reflect skills and abilities of local workers

Supplement 8-443 8-

MTM Table for MOVE

TIME (TMU) WEIGHT ALLOWANCE DISTANCE MOVED (INCHES) A 3/4 or less 2.0 1 2.5 2 3.6 3 4.9 4 6.1 20 19.2 Hand in motion B 2.3 2.9 3.6 4.3 15.6 Weight (lb) up to: 2.5 7.5 Dynamic factor 1.00 1.06 Static constant TMU 0 2.2

B 2.0 2.9 4.6 5.7 6.9 18.2

C 2.0 3.4 5.2 6.7 8.0 22.1

37.5

1.39

12.5

A. Move object to other hand or against stop B. Move object to approximate or indefinite location Source: MTM Association for Standards and Research. C. Move object to exact location
Supplement 8-444 8-

Work Sampling
Determines the proportion of time a worker spends on activities Primary uses of work sampling are to determine
ratio delay
percentage of time a worker or machine is delayed or idle

analyze jobs that have non-repetitive tasks non-

Cheaper, easier approach to work measurement

Supplement 8-445 8-

Steps of Work Sampling

1. 2. Define job activities Determine number of observations in work sample
n= where n = sample size (number of sample observations) z = number of standard deviations from mean for desired level of confidence e = degree of allowable error in sample estimate p = proportion of time spent on a work activity estimated prior to calculating work sample
Supplement 8-446 8-

z e p(1 - p)

Steps of Work Sampling (cont.)

3. Determine length of sampling period 4. Conduct work sampling study; record observations 5. Periodically re-compute number reof observations

Supplement 8-447 8-

Work Sampling: Example

What percent of time is spent looking up information? Current estimate is p = 30% Estimate within +/- 2%, with 95% confidence +/2

n=

z e

p(1 - p) =

1.96 0.02

(0.3)(0.7) = 2016.84 or 2017

After 280 observations, p = 38% z e

2 2

n=

p(1 - p) =

1.96 0.02

(0.38)(0.62) = 2263

Supplement 8-448 8-

Supplement 8-449 8-

Chapter 9
Project Management
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Project Planning Project Scheduling Project Control CPM/PERT Probabilistic Activity Times Microsoft Project Project Crashing and Time-Cost Trade-off
9-451

Project Management Process

Project
unique, one-time operational activity or effort

9-452

Project Management Process (cont.)

9-453

Project Management Process (cont.)

9-454

Project Elements
Objective Scope Contract requirements Schedules Resources Personnel Control Risk and problem analysis
9-455

Project Team and Project Manager

Project team
made up of individuals from various areas and departments within a company

Matrix organization
a team structure with members from functional areas, depending on skills required

Project manager
most important member of project team

9-456

Scope Statement and Work Breakdown Structure

Scope statement
a document that provides an understanding, justification, and expected result of a project

Statement of work
written description of objectives of a project

Work breakdown structure (WBS)

breaks down a project into components, subcomponents, activities, and tasks
9-457

Work Breakdown Structure for Computer Order Processing System Project

9-458

Responsibility Assignment Matrix

Organizational Breakdown Structure (OBS)
a chart that shows which organizational units are responsible for work items

Responsibility Assignment Matrix (RAM)

shows who is responsible for work in a project
9-459

Global and Diversity Issues in Project Management

In existing global business environment, project teams are formed from different genders, cultures, ethnicities, etc. In global projects diversity among team members can add an extra dimension to project planning Cultural research and communication are important elements in planning process

9-460

Project Scheduling
Steps
Define activities Sequence activities Estimate time Develop schedule

Techniques
Gantt chart CPM/PERT Microsoft Project

9-461

Gantt Chart
Graph or bar chart with a bar for each project activity that shows passage of time Provides visual display of project schedule Slack
amount of time an activity can be delayed without delaying the project

9-462

Example of Gantt Chart

0
Activity Design house and obtain financing Lay foundation Order and receive materials Build house

Month 4

10

Select paint

Select carpet

1
Finish work

3 Month

9
9-463

Project Control
Time management Cost management Quality management Performance management
Earned Value Analysis
a standard procedure for numerically measuring a projects progress, forecasting its completion date and cost and measuring schedule and budget variation

Communication Enterprise project management

9-464

CPM/PERT
Critical Path Method (CPM)
DuPont & Remington-Rand (1956) RemingtonDeterministic task times Activity-onActivity-on-node network construction

Project Evaluation and Review Technique (PERT)

US Navy, Booz, Allen & Hamilton Multiple task time estimates; probabilistic Activity-onActivity-on-arrow network construction
9-465

Project Network
Activity-on-node (AON)
nodes represent activities, and arrows show precedence relationships Node
1 2 3

Activity-on-arrow (AOA)
arrows represent activities and nodes are events for points in time

Event
completion or beginning of an activity in a project

Branch

Dummy
two or more activities cannot share same start and end nodes
9-466

AOA Project Network for a House

3
2 0 1 Order and receive materials

Lay foundation 3 Design house and obtain financing

Dummy Build house Finish work

4
Select paint 1

3 1

6
Select carpet

9-467

Concurrent Activities
Lay foundation

3
Lay foundation Dummy 2 1 Order material (b) Correct precedence relationship 0

3 2

Order material

(a) Incorrect precedence relationship

9-468

AON Network for House Building Project

Lay foundations Build house

2 2 Start 1 3 3 1 5 1

4 3

Finish work

7 1 6 1
Select carpet

Design house and obtain financing

Order and receive materials

Select paint

9-469

Critical Path
2 2 Start 1 3 3 1 5 1 6 1 4 3 7 1

A: B: C: D:

1-2-4-7 3 + 2 + 3 + 1 = 9 months 1-2-5-6-7 3 + 2 + 1 + 1 + 1 = 8 months 1-3-4-7 3 + 1 + 3 + 1 = 8 months 1-3-5-6-7 3 + 1 + 1 + 1 + 1 = 7 months

Critical path Longest path through a network Minimum project completion time
9-470

Activity Start Times

Start at 5 months

2 2
Start

4 3

Finish at 9 months

1 3 3 1
Start at 3 months

7 1 6 1
Start at 6 months

Finish

5 1

9-471

Node Configuration
Activity number Earliest start

Earliest finish 1 3 0 0 3 3 Latest finish

Activity duration

Latest start

9-472

Activity Scheduling
Earliest start time (ES)
earliest time an activity can start ES = maximum EF of immediate predecessors

Forward pass
starts at beginning of CPM/PERT network to determine earliest activity times

Earliest finish time (EF)

earliest time an activity can finish earliest start time plus activity time EF= ES + t

9-473

Earliest Activity Start and Finish Times

Lay foundations Build house Start

2 2 1 1 0 3

5 4 3 7 1 6 6 7
Finish work

Design house and obtain financing

3 1

4 5 1
Select pain

1 5 6
Select carpet

Order and receive materials

9-474

Activity Scheduling (cont.)

Latest start time (LS)
Latest time an activity can start without delaying critical path time LS= LF - t

Latest finish time (LF)

latest time an activity can be completed without delaying critical path time LF = minimum LS of immediate predecessors

Backward pass
Determines latest activity times by starting at the end of CPM/PERT network and working forward

9-475

Latest Activity Start and Finish Times

Lay foundations Build house Start

2 2 1 1 0 0 3 3

3 3

5 5 4 3 5 5 8 8 7 1 6 6 7 7 8 8 8 9 9

Design house and obtain financing

Finish work

3 1

3 4

4 5 5 1 5 6 6 7

Select carpet

Order and receive materials

Select pain

9-476

Activity Slack
Activity
*1 *2 3 *4 5 6 *7 * Critical Path

LS
0 3 4 5 6 7 8

ES
0 3 3 5 5 6 8

LF
3 5 5 8 7 8 9

EF
3 5 4 8 6 7 9

Slack S
0 0 1 0 1 1 0

9-477

Probabilistic Time Estimates

Beta distribution
a probability distribution traditionally used in CPM/PERT
Mean (expected time): t= a + 4m + b 4m 6
2

Variance: where

=
2

b-a 6

a = optimistic estimate m = most likely time estimate b = pessimistic time estimate

9-478

Examples of Beta Distributions

P(time) P(time)

t
Time

a
Time

P(time)

m=t
Time

b
9-479

Project Network with Probabilistic Time Estimates: Example

Equipment installation

1
6,8,10 System development

Equipment testing and modification System training Final debugging 10 1,4,7 11

2,4,12

8
Manual testing 3,7,11

Start

2
3,6,9 Position recruiting

Finish

5
2,3,4 Job Training

9
2,4,6 System testing

1,10,13 System changeover

3
1,3,5

6
3,4,5 Orientation

7
2,2,2

9-480

Activity Time Estimates

TIME ESTIMATES (WKS) ACTIVITY MEAN TIME VARIANCE

a 6 3 1 2 2 3 2 3 2 1 1

m 8 6 3 4 3 4 2 7 4 4 10

b 10 9 5 12 4 5 2 11 6 7 13

t 8 6 3 5 3 4 2 7 4 4 9

2 0.44 1.00 0.44 2.78 0.11 0.11 0.00 1.78 0.44 1.00 4.00
9-481

1 2 3 4 5 6 7 8 9 10 11

Activity Early, Late Times, and Slack

ACTIVITY

t 8 6 3 5 3 4 2 7 4 4 9

2 0.44 1.00 0.44 2.78 0.11 0.11 0.00 1.78 0.44 1.00 4.00

ES

EF

LS

LF

1 2 3 4 5 6 7 8 9 10 11

0 0 0 8 6 3 3 9 9 13 16

8 6 3 13 9 7 5 16 13 17 25

1 0 2 16 6 5 14 9 12 21 16

9 6 5 21 9 9 16 16 16 25 25

1 0 2 8 0 2 11 0 3 8 0
9-482

Earliest, Latest, and Slack

1 0 8 1
8

4 8 5 16 21 8 9 7 9 5 6 3 6 6 3 4 5
9 16

13

Critical Path
10 13 17

1 0

3
Finish

Start

2 0 6 0

16
13 11 16 25

9
7

3 0 3 2

9 9 4 12 16

9 16 25

7 3 5 2 14 16

9-483

Total project variance 2 = 22 + 52 + 82 + 112 = 1.00 + 0.11 + 1.78 + 4.00 = 6.89 weeks

9-484

9-485

Probabilistic Network Analysis

Determine probability that project is completed within specified time Z= where x-

= tp = project mean time = project standard deviation

x = proposed project time Z = number of standard deviations x is from mean
9-486

Normal Distribution of Project Time

Probability

= tp

Time

9-487

Southern Textile Example

What is the probability that the project is completed within 30 weeks?

P(x 30 weeks)

= 25 x = 30

= 6.89 weeks = 6.89

Z = =

x-

= 2.62 weeks

30 - 25 2.62

= 1.91

Time (weeks)

From Table A.1, (appendix A) a Z score of 1.91 corresponds to a probability of 0.4719. Thus P(30) = 0.4719 + 0.5000 = 0.9719
9-488

Southern Textile Example

What is the probability that the project is completed within 22 weeks?
P(x 22 weeks)

= 6.89 weeks = 6.89

Z = =

x-

= 2.62 weeks

22 - 25 2.62

= -1.14

x = 22 = 25

Time (weeks)

From Table A.1 (appendix A) a Z score of -1.14 corresponds to a probability of 0.3729. Thus P(22) = 0.5000 - 0.3729 = 0.1271
9-489

Microsoft Project
Popular software package for project management and CPM/PERT analysis Relatively easy to use

9-490

Microsoft Project (cont.)

9-491

Microsoft Project (cont.)

9-492

Microsoft Project (cont.)

9-493

Microsoft Project (cont.)

9-494

Microsoft Project (cont.)

9-495

Microsoft Project (cont.)

9-496

PERT Analysis with Microsoft Project

9-497

PERT Analysis with Microsoft Project (cont.)

9-498

PERT Analysis with Microsoft Project (cont.)

9-499

Project Crashing
Crashing
reducing project time by expending additional resources

Crash time
an amount of time an activity is reduced

Crash cost
cost of reducing activity time

Goal
reduce project duration at minimum cost
9-500

Project Network for Building a House

2 8 1
12

4
12

7 4 3 4 6 4

5 4

9-501

Normal Time and Cost vs. Crash Time and Cost

$7,000 $6,000 $5,000 $4,000
Normal activity

Crash cost Crashed activity Slope = crash cost per week

$3,000
Normal cost

$2,000 $1,000 0 | 2
Crash time Normal time

| 4

| 6

| 8

| 10

| 12

| 14

Weeks
9-502

Project Crashing: Example

NORMAL TIME (WEEKS) CRASH TIME (WEEKS) TOTAL ALLOWABLE CRASH TIME (WEEKS) CRASH COST PER WEEK

ACTIVITY

NORMAL COST

CRASH COST

1 2 3 4 5 6 7

12 8 4 12 4 4 4

7 5 3 9 1 1 3

$3,000 2,000 4,000 50,000 500 500 15,000 $75,000

$5,000 3,500 7,000 71,000 1,100 1,100 22,000 $110,700

5 3 1 3 3 3 1

$400 500 3,000 7,000 200 200 7,000

9-503

$500 2 8 1
12

$7000 4
12

$700 7 4 6 4 $200 $500 2 8

Project Duration: 36 weeks FROM

$400

3 4 $3000

5 4 $200

$7000 4
12

$700 7 4 6 4 $200

TO Project Duration: 31 weeks Additional Cost: $2000

1
7

$400

3 4 $3000

5 4 $200

9-504

TimeTime-Cost Relationship
Crashing costs increase as project duration decreases Indirect costs increase as project duration increases Reduce project length as long as crashing costs are less than indirect costs

9-505

TimeTime-Cost Tradeoff
Minimum cost = optimal project time Total project cost Indirect cost Cost ($)

Direct cost Crashing Project duration

9-506

Time

Chapter 10
Supply Chain Management Strategy and Design
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
The Management of Supply Chains Information Technology: A Supply Chain Enabler Supply Chain Integration Supply Chain Management (SCM) Software Measuring Supply Chain Performance
10-508 10-

Supply Chains
All facilities, functions, and activities associated with flow and transformation of goods and services from raw materials to customer, as well as the associated information flows An integrated group of processes to source, make, and deliver products

10-509 10-

Supply Chain Illustration

10-510 10-

Supply Chain for Denim Jeans

10-511 10-

Supply Chain for Denim Jeans (cont.)

10-512 10-

Supply Chain Processes

10-513 10-

Supply Chain for Service Providers

More difficult than manufacturing Does not focus on the flow of physical goods Focuses on human resources and support services More compact and less extended

10-514 10-

Value Chains
Value chain
every step from raw materials to the eventual end user ultimate goal is delivery of maximum value to the end user

Supply chain
activities that get raw materials and subassemblies into manufacturing operation ultimate goal is same as that of value chain

Demand chain
increase value for any part or all of chain

Terms are used interchangeably Value

creation of value for customer is important aspect of supply chain management
10-515 10-

Supply Chain Management (SCM)

Managing flow of information through supply chain in order to attain the level of synchronization that will make it more responsive to customer needs while lowering costs Keys to effective SCM
information communication cooperation trust

10-516 10-

Supply Chain Uncertainty and Inventory

One goal in SCM:
respond to uncertainty in customer demand without creating costly excess inventory

Factors that contribute to uncertainty

inaccurate demand forecasting long variable lead times late deliveries incomplete shipments product changes batch ordering price fluctuations and discounts inflated orders

Negative effects of uncertainty

lateness incomplete orders

Inventory
insurance against supply chain uncertainty

10-517 10-

Bullwhip Effect
Occurs when slight demand variability is magnified as information moves back upstream

10-518 10-

Risk Pooling
Risks are aggregated to reduce the impact of individual risks
Combine inventories from multiple locations into one Reduce parts and product variability, thereby reducing the number of product components Create flexible capacity

10-519 10-

Information Technology: A Supply Chain Enabler

Information links all aspects of supply chain E-business
replacement of physical business processes with electronic ones

Electronic data interchange (EDI)

a computer-to-computer exchange of business documents

Bar code and point-of-sale

data creates an instantaneous computer record of a sale

10-520 10-

Information Technology: A Supply Chain Enabler (cont.)

Radio frequency identification (RFID)
technology can send product data from an item to a reader via radio waves

Internet
allows companies to communicate with suppliers, customers, shippers and other businesses around the world instantaneously

Build-to-order (BTO)
direct-sell-to-customers model via the Internet; extensive communication with suppliers and customer

10-521 10-

Supply Chain Enablers

10-522 10-

RFID Capabilities

10-523 10-

RFID Capabilities (cont.)

10-524 10-

Supply Chain Integration

Information sharing among supply chain members
Reduced bullwhip effect Early problem detection Faster response Builds trust and confidence

Collaborative planning, forecasting, replenishment, and design

Reduced bullwhip effect Lower costs (material, logistics, operating, etc.) Higher capacity utilization Improved customer service levels

10-525 10-

Supply Chain Integration (cont.)

Coordinated workflow, production and operations, procurement
Production efficiencies Fast response Improved service Quicker to market

Adopt new business models and technologies

Penetration of new markets Creation of new products Improved efficiency Mass customization

10-526 10-

Collaborative Planning, Forecasting, and Replenishment (CPFR)

Process for two or more companies in a supply chain to synchronize their demand forecasts into a single plan to meet customer demand Parties electronically exchange
past sales trends point-of-sale data on-hand inventory scheduled promotions forecasts
10-527 10-

Supply Chain Management (SCM) Software

Enterprise resource planning (ERP)
software that integrates the components of a company by sharing and organizing information and data

10-528 10-

Key Performance Indicators

Metrics used to measure supply chain performance
Inventory turnover
Inventory turns = Cost of goods sold Average aggregate value of inventory

Total value (at cost) of inventory

Average aggregate value of inventory = (average inventory for item i ) (unit value item i )

Days of supply
Days of supply = Average aggregate value of inventory (Cost of goods sold)/(365 days)

Fill rate: fraction of orders filled by a distribution center within a specific time period

10-529 10-

Computing Key Performance Indicators

10-530 10-

Process Control and SCOR

Process Control
not only for manufacturing operations can be used in any processes of supply chain

Supply Chain Operations Reference (SCOR)

a cross industry supply chain diagnostic tool maintained by the Supply Chain Council

10-531 10-

SCOR

10-532 10-

SCOR (cont.)

10-533 10-

Chapter 11
Global Supply Chain Procurement and Distribution
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Procurement E-Procurement Distribution Transportation The Global Supply Chain

11-535 11-

Procurement
The purchase of goods and services from suppliers Cross enterprise teams
coordinate processes between a company and its supplier

OnOn-demand (direct-response) delivery (directrequires the supplier to deliver goods when demanded by the customer

Continuous replenishment
supplying orders in a short period of time according to a predetermined schedule

11-536 11-

Outsourcing
Sourcing
selection of suppliers

Outsourcing
purchase of goods and services from an outside supplier

Core competencies
what a company does best

Single sourcing
a company purchases goods and services from only a few (or one) suppliers
11-537 11-

Categories of Goods and Services...

11-538 11-

E-Procurement
Direct purchase from suppliers over the Internet, by using software packages or through e-marketplaces, e-hubs, and eetrading exchanges Can streamline and speed up the purchase order and transaction process

11-539 11-

E-Procurement (cont.)
What can companies buy over the Internet?
Manufacturing inputs
the raw materials and components that go directly into the production process of the product

Operating inputs
maintenance, repair, and operation goods and services
11-540 11-

E-Procurement (cont.)
E-marketplaces (e-hubs) (eWebsites where companies and suppliers conduct business-to-business activities business-to-

Reverse auction
process used by e-marketplaces for buyers eto purchase items; company posts orders on the internet for suppliers to bid on

11-541 11-

Distribution
Encompasses all channels, processes, and functions, including warehousing and transportation, that a product passes on its way to final customer Order fulfillment process of ensuring on-time delivery of an order onLogistics transportation and distribution of goods and services Driving force today is speed Particularly important for Internet dot-coms dot-

11-542 11-

Distribution Centers (DC) and Warehousing

DCs are some of the largest business facilities in the United States Trend is for more frequent orders in smaller quantities FlowFlow-through facilities and automated material handling Postponement final assembly and product configuration may be done at the DC
11-543 11-

Warehouse Management Systems

Highly automated system that runs day-to-day day-tooperations of a DC Controls item putaway, picking, packing, and shipping Features transportation management order management yard management labor management warehouse optimization

11-544 11-

A WMS
11-545 11-

VendorVendor-Managed Inventory
Manufacturers generate orders, not distributors or retailers Stocking information is accessed using EDI A first step towards supply chain collaboration Increased speed, reduced errors, and improved service

11-546 11-

Collaborative Logistics and Distribution Outsourcing

Collaborative planning, forecasting, and replenishment create greater economies of scale InternetInternet-based exchange of data and information Significant decrease in inventory levels and costs and more efficient logistics Companies focus on core competencies
11-547 11-

Transportation
Rail
low-value, high-density, bulk products, raw materials, intermodal containers not as economical for small loads, slower, less flexible than trucking

Trucking
main mode of freight transport in U.S. small loads, point-to-point service, flexible More reliable, less damage than rails; more expensive than rails for long distance

11-548 11-

Transportation (cont.)
Air
most expensive and fastest, mode of freight transport lightweight, small packages <500 lbs high-value, perishable and critical goods less theft

Package Delivery
small packages fast and reliable increased with e-Business primary shipping mode for Internet companies
11-549 11-

Transportation (cont.)
Water
low-cost shipping mode primary means of international shipping U.S. waterways slowest shipping mode

Intermodal
combines several modes of shippingtruck, water and rail key component is containers

Pipeline
transport oil and products in liquid form high capital cost, economical use long life and low operating cost
11-550 11-

Internet Transportation Exchanges

Bring together shippers and carriers Initial contact, negotiations, auctions Examples [Link] [Link]

11-551 11-

Global Supply Chain

International trade barriers have fallen New trade agreements To compete globally requires an effective supply chain Information technology is an enabler of global trade

11-552 11-

Obstacles to Global Chain Transactions

Increased documentation for invoices, cargo insurance, letters of credit, ocean bills of lading or air waybills, and inspections Ever changing regulations that vary from country to country that govern the import and export of goods Trade groups, tariffs, duties, and landing costs Limited shipping modes Differences in communication technology and availability

11-553 11-

Obstacles to Global Chain Transactions (cont.)

Different business practices as well as language barriers Government codes and reporting requirements that vary from country to country Numerous players, including forwarding agents, custom house brokers, financial institutions, insurance providers, multiple transportation carriers, and government agencies Since 9/11, numerous security regulations and requirements

11-554 11-

Duties and Tariffs

Proliferation of trade agreements Nations form trading groups
no tariffs or duties within group charge uniform tariffs to nonmembers

Member nations have a competitive advantage within the group Trade specialists
include freight forwarders, customs house brokers, export packers, and export management and trading companies

11-555 11-

Duties and Tariffs (cont.)

11-556 11-

Landed Cost
Total cost of producing, storing, and transporting a product to the site of consumption or another port Value added tax (VAT)
an indirect tax assessed on the increase in value of a good at any stage of production process from raw material to final product

Clicker shock
occurs when an ordered is placed with a company that does not have the capability to calculate landed cost
11-557 11-

WebWeb-based International Trade Logistic Systems

International trade logistics web-based software systems reduce obstacles to global trade
convert language and currency provide information on tariffs, duties, and customs processes attach appropriate weights, measurements, and unit prices to individual products ordered over the Web incorporate transportation costs and conversion rates calculate shipping costs online while a company enters an order track global shipments

11-558 11-

Recent Trends in Globalization for U.S. Companies

Two significant changes
passage of NAFTA admission of China in WTO

Mexico
cheap labor and relatively short shipping time

China
cheaper labor and longer work week, but lengthy shipping time Major supply chains have moved to China
11-559 11-

Chinas Increasing Role in the Global Supply Chain Worlds premier sources of supply Abundance of low-wage labor lowWorlds fastest growing market Regulatory changes have liberalized its market Increased exporting of higher technology products
11-560 11-

Models in Doing Business in China

Employ local third-party trading agents thirdWhollyWholly-owned foreign enterprise Develop your own international procurement offices

11-561 11-

Challenges Sourcing from China

Getting reliable information in more difficult than in the U.S. Information technology is much less advanced and sophisticated than in the U.S. Work turnover rates among low-skilled lowworkers is extremely high
11-562 11-

Effects of 9/11 on Global Chains

Increase security measures
added time to supply chain schedules Increased supply chain costs

24 hours rules for risk screening

extended documentation extend time by 3-4 days 3-

Inventory levels have increased 5% Other costs include:

new people, technologies, equipment, surveillance, communication, and security systems, and training necessary for screening at airports and seaports around the world
11-563 11-

Chapter 11 Supplement
Transportation and Transshipment Models
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Transportation Model Transshipment Model

Supplement 11-565 11-

Transportation Model
A transportation model is formulated for a class of problems with the following characteristics
a product is transported from a number of sources to a number of destinations at the minimum possible cost each source is able to supply a fixed number of units of product each destination has a fixed demand for product

Solution Methods
steppingstepping-stone modified distribution Excels Solver

Supplement 11-566 11-

Transportation Method: Example

Supplement 11-567 11-

Transportation Method: Example

Supplement 11-568 11-

Problem Formulation Using Excel

Total Cost Formula

Supplement 11-569 11-

Using Solver from Tools Menu

Supplement 11-570 11-

Solution

Supplement 11-571 11-

Modified Problem Solution

Supplement 11-572 11-

Transshipment Model

Supplement 11-573 11-

Transshipment Model: Solution

Supplement 11-574 11-

Chapter 12
Forecasting
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Strategic Role of Forecasting in Supply Chain Management Components of Forecasting Demand Time Series Methods Forecast Accuracy Time Series Forecasting Using Excel Regression Methods
12-576 12-

Forecasting
Predicting the future Qualitative forecast methods
subjective

Quantitative forecast methods

based on mathematical formulas

12-577 12-

Forecasting and Supply Chain Management

Accurate forecasting determines how much inventory a company must keep at various points along its supply chain Continuous replenishment
supplier and customer share continuously updated data typically managed by the supplier reduces inventory for the company speeds customer delivery

Variations of continuous replenishment

quick response JIT (just-in-time) (just-inVMI (vendor-managed inventory) (vendorstockless inventory
12-578 12-

Forecasting
Quality Management
Accurately forecasting customer demand is a key to providing good quality service

Strategic Planning
Successful strategic planning requires accurate forecasts of future products and markets

12-579 12-

Types of Forecasting Methods

Depend on
time frame demand behavior causes of behavior

12-580 12-

Time Frame
Indicates how far into the future is forecast
Short- midShort- to mid-range forecast
typically encompasses the immediate future daily up to two years

LongLong-range forecast
usually encompasses a period of time longer than two years
12-581 12-

Demand Behavior
Trend
a gradual, long-term up or down movement of longdemand

Random variations
movements in demand that do not follow a pattern

Cycle
an up-and-down repetitive movement in demand up-and-

Seasonal pattern
an up-and-down repetitive movement in demand up-andoccurring periodically
12-582 12-

Forms of Forecast Movement

Demand Demand Random movement Time (a) Trend Time (b) Cycle Time (c) Seasonal pattern Demand Time (d) Trend with seasonal pattern 12-583 12-

Demand

Forecasting Methods
Time series
statistical techniques that use historical demand data to predict future demand

Regression methods
attempt to develop a mathematical relationship between demand and factors that cause its behavior

Qualitative
use management judgment, expertise, and opinion to predict future demand
12-584 12-

Qualitative Methods
Management, marketing, purchasing, and engineering are sources for internal qualitative forecasts Delphi method
involves soliciting forecasts about technological advances from experts

12-585 12-

Forecasting Process
1. Identify the purpose of forecast 2. Collect historical data 3. Plot data and identify patterns 6. Check forecast accuracy with one or more measures 5. Develop/compute forecast for period of historical data 4. Select a forecast model that seems appropriate for data

7. Is accuracy of forecast acceptable?

No

8b. Select new forecast model or adjust parameters of existing model

Yes
8a. Forecast over planning horizon 9. Adjust forecast based on additional qualitative information and insight 10. Monitor results and measure forecast accuracy

12-586 12-

Time Series
Assume that what has occurred in the past will continue to occur in the future Relate the forecast to only one factor - time Include
moving average exponential smoothing linear trend line

12-587 12-

Moving Average
Naive forecast
demand in current period is used as next periods forecast

Simple moving average

uses average demand for a fixed sequence of periods stable demand with no pronounced behavioral patterns

Weighted moving average

weights are assigned to most recent data

12-588 12-

Moving Average: Nave Approach

MONTH ORDERS PER MONTH Jan Feb Mar Apr May June July Aug Sept Oct Nov 12-589 12-

FORECAST 120 90 120 100 90 75 100 110 75 50 110 75 50 130 75 110 130 90 110 90

Simple Moving Average

n

MAn =
where

i=1

D i

n = number of periods in the moving average Di = demand in period i

12-590 12-

3-month Simple Moving Average

ORDERS PER MONTH 120 90 100 75 110 50 75 130 110 90 MOVING AVERAGE 103.3 88.3 95.0 78.3 78.3 85.0 105.0 110.0

MONTH Jan Feb Mar Apr May June July Aug Sept Oct Nov

MA3 =

i=1

Di

3 90 + 110 + 130 3

= 110 orders for Nov

12-591 12-

5-month Simple Moving Average

ORDERS PER MONTH 120 90 100 75 110 50 75 130 110 90 MOVING AVERAGE 99.0 85.0 82.0 88.0 95.0 91.0

MONTH Jan Feb Mar Apr May June July Aug Sept Oct Nov

MA5 =

i=1

Di

90 + 110 + 130+75+50 5 = 91 orders for Nov

12-592 12-

Smoothing Effects
150 125 100 Orders 75 50 25 0 | Jan | Feb | Mar Actual 3-month 5-month

| | | | Apr May June July Month

| | Aug Sept

| Oct

| Nov

12-593 12-

Weighted Moving Average

Adjusts moving average method to more closely reflect data fluctuations

WMAn =
where

i=1

Wi Di
n

Wi = the weight for period i,

between 0 and 100 percent

Wi = 1.00
12-594 12-

Weighted Moving Average Example

MONTH August September October WEIGHT 17% 33% 50%
3

DATA 130 110 90

November Forecast WMA3 =

1 Wi Di i=

= (0.50)(90) + (0.33)(110) + (0.17)(130) = 103.4 orders

12-595 12-

Exponential Smoothing

Averaging method Weights most recent data more strongly Reacts more to recent changes Widely used, accurate method

12-596 12-

Exponential Smoothing (cont.)

Ft +1 = Dt + (1 - )Ft

where: Ft +1 = forecast for next period Dt = actual demand for present period Ft = previously determined forecast for present period = weighting factor, smoothing constant

12-597 12-

Effect of Smoothing Constant

0.0 1.0 If = 0.20, then Ft +1 = 0.20 Dt + 0.80 Ft If = 0, then Ft +1 = 0 Dt + 1 Ft = Ft

Forecast does not reflect recent data

If = 1, then Ft +1 = 1 Dt + 0 Ft = Dt

Forecast based only on most recent data

12-598 12-

Exponential Smoothing (=0.30) (

PERIOD 1 2 3 4 5 6 7 8 9 10 11 12 MONTH Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec DEMAND 37 40 41 37 45 50 43 47 56 52 55 54 F2 = D1 + (1 - )F1 = (0.30)(37) + (0.70)(37) = 37 F3 = D2 + (1 - )F2 = (0.30)(40) + (0.70)(37) = 37.9 F13 = D12 + (1 - )F12 = (0.30)(54) + (0.70)(50.84) = 51.79

12-599 12-

Exponential Smoothing (cont.)

PERIOD 1 2 3 4 5 6 7 8 9 10 11 12 13 MONTH Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan DEMAND 37 40 41 37 45 50 43 47 56 52 55 54 FORECAST, Ft + 1 ( = 0.3) ( = 0.5) 37.00 37.90 38.83 38.28 40.29 43.20 43.14 44.30 47.81 49.06 50.84 51.79 37.00 38.50 39.75 38.37 41.68 45.84 44.42 45.71 50.85 51.42 53.21 53.61
12-600 12-

Exponential Smoothing (cont.)

70 60 50 Orders 40 = 0.30 30 20 10 0 | 1 | 2 | 3 | 4 | 5 | 6 Month
12-601 12-

Actual

= 0.50

| 7

| 8

| 9

| 10

| 11

| 12

| 13

Adjusted Exponential Smoothing

where T = an exponentially smoothed trend factor Tt +1 = (Ft +1 - Ft) + (1 - ) Tt where Tt = the last period trend factor = a smoothing constant for trend

AFt +1 = Ft +1 + Tt +1

12-602 12-

Adjusted Exponential Smoothing (=0.30) (

PERIOD 1 2 3 4 5 6 7 8 9 10 11 12 MONTH Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec DEMAND 37 40 41 37 45 50 43 47 56 52 55 54

T3 = (F3 - F2) + (1 - ) T2 = (0.30)(38.5 - 37.0) + (0.70)(0) = 0.45 AF3 = F3 + T3 = 38.5 + 0.45 = 38.95 T13 = (F13 - F12) + (1 - ) T12 = (0.30)(53.61 - 53.21) + (0.70)(1.77) = 1.36

AF13 = F13 + T13 = 53.61 + 1.36 = 54.97

12-603 12-

Adjusted Exponential Smoothing: Example

PERIOD 1 2 3 4 5 6 7 8 9 10 11 12 13 MONTH Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan DEMAND 37 40 41 37 45 50 43 47 56 52 55 54 FORECAST Ft +1 37.00 37.00 38.50 39.75 38.37 38.37 45.84 44.42 45.71 50.85 51.42 53.21 53.61 TREND ADJUSTED Tt +1 FORECAST AFt +1 0.00 0.45 0.69 0.07 0.07 1.97 0.95 1.05 2.28 1.76 1.77 1.36 37.00 38.95 40.44 38.44 38.44 47.82 45.37 46.76 58.13 53.19 54.98 54.96
12-604 12-

Adjusted Exponential Smoothing Forecasts

70 Adjusted forecast ( = 0.30) ( 60 Actual 50 Demand 40 30 20 10 0 | 1 | 2 | 3 | 4 | 5 | | 6 7 Period | 8 | 9 | 10 | 11 | 12 | 13
12-605 12-

Forecast ( = 0.50) (

Linear Trend Line

y = a + bx

xy - nxy b = 2 - nx2 x a = y-bx where n = number of periods x x = n = mean of the x values y y = n = mean of the y values
12-606 12-

where a = intercept b = slope of the line x = time period y = forecast for demand for period x

Least Squares Example

x(PERIOD) 1 2 3 4 5 6 7 8 9 10 11 12 78 43 47 56 52 55 54 557 y(DEMAND) 73 40 41 37 45 50 xy 37 80 123 148 225 300 301 376 504 520 605 648 3867 x2 1 4 9 16 25 36 49 64 81 100 121 144 650

12-607 12-

Least Squares Example (cont.)

78 12 557 12 xy - nxy b = 2 x - nx2 x = y = = 6.5 = 46.42 =1.72

3867 - (12)(6.5)(46.42) = 650 - 12(6.5)2 a = y - bx = 46.42 - (1.72)(6.5) = 35.2

12-608 12-

Linear trend line y = 35.2 + 1.72x Forecast for period 13 y = 35.2 + 1.72(13) = 57.56 units
70 60 50 Demand 40 Linear trend line 30 20 10 0 | 1 | 2 | 3 | 4 | 5 | | 6 7 Period | 8 | 9 | 10 | 11 | 12 | 13

Actual

12-609 12-

Seasonal Adjustments
Repetitive increase/ decrease in demand Use seasonal factor to adjust forecast Di D

Seasonal factor = Si =

12-610 12-

Seasonal Adjustment (cont.)

YEAR 2002 2003 2004 Total DEMAND (1000S PER QUARTER) 1 2 3 4 Total 12.6 14.1 15.3 42.0 8.6 10.3 10.6 29.5 6.3 7.5 8.1 21.9 17.5 18.2 19.6 55.3 45.0 50.1 53.6 148.7

D1 42.0 S1 = = = 0.28 D 148.7 D2 29.5 S2 = = = 0.20 D 148.7

D3 21.9 S3 = = = 0.15 D 148.7 D4 55.3 S4 = = = 0.37 D 148.7

12-611 12-

Seasonal Adjustment (cont.)

For 2005 y = 40.97 + 4.30x = 40.97 + 4.30(4) = 58.17 4.30x SF1 = (S1) (F5) = (0.28)(58.17) = 16.28 (S (F SF2 = (S2) (F5) = (0.20)(58.17) = 11.63 (S (F SF3 = (S3) (F5) = (0.15)(58.17) = 8.73 (S (F SF4 = (S4) (F5) = (0.37)(58.17) = 21.53 (S (F

12-612 12-

Forecast Accuracy
Forecast error
difference between forecast and actual demand MAD
mean absolute deviation

MAPD
mean absolute percent deviation

Cumulative error Average error or bias

12-613 12-

Mean Absolute Deviation (MAD)

| Dt - Ft | MAD = n
where t = period number Dt = demand in period t Ft = forecast for period t n = total number of periods = absolute value
12-614 12-

MAD Example
PERIOD 1 2 3 4 5 6 7 8 9 10 11 12 DEMAND, Dt Ft ( =0.3) (Dt - Ft) |Dt - Ft| 3.00 3.10 1.83 6.72 9.69 0.20 3.86 11.70 4.19 5.94 3.15 53.39 37 37.00 40 37.00 3.00 41 | D37.90 t | 3.10 t - F 37 38.83 1.83 MAD = 38.28 -6.72 n 45 50 40.29 9.69 53.39 = 43.20 -0.20 43 47 43.14 3.86 11 56 = 4.85 44.30 11.70 52 47.81 4.19 55 49.06 5.94 54 50.84 3.15 557 49.31

12-615 12-

Other Accuracy Measures

Mean absolute percent deviation (MAPD)

|Dt - Ft| MAPD = Dt

Cumulative error E = et Average error E=

et
n
12-616 12-

Comparison of Forecasts

FORECAST

MAD

MAPD

(E) 4.48 3.02 1.92

Exponential smoothing ( = 0.30) 4.85 ( 9.6% 49.31 Exponential smoothing ( = 0.50) 4.04 ( 8.5% 33.21 Adjusted exponential smoothing 3.81 7.5% 21.14 ( = 0.50, = 0.30) Linear trend line 2.29 4.9%

12-617 12-

Forecast Control
Tracking signal
monitors the forecast to see if it is biased high or low Tracking signal = (Dt - Ft) E = MAD MAD

1 MAD 0.8 Control limits of 2 to 5 MADs are used most frequently

12-618 12-

Tracking Signal Values

PERIOD DEMAND Dt FORECAST, Ft ERROR Dt - Ft E = (Dt - Ft) TRACKING MAD SIGNAL

1 2 3 4 5 6 7 8 9 10 11 12

37 40 41 37 45 50 43 47 56 52 55 54

37.00 37.00 3.00 3.00 37.90 3.10 6.10 38.83 -1.83 4.27 38.28 6.72 10.99 Tracking signal for period 3 40.29 9.69 20.68 43.20 -0.20 20.48 6.10 43.14 = 3.86 = 2.00 24.34 TS3 3.05 44.30 11.70 36.04 47.81 4.19 40.23 49.06 5.94 46.17 50.84 3.15 49.32

3.00 1.00 3.05 2.00 2.64 1.62 3.66 3.00 4.87 4.25 4.09 5.01 4.06 6.00 5.01 7.19 4.92 8.18 5.02 9.20 4.85 10.17

12-619 12-

Tracking Signal Plot

3 Tracking signal (MAD) 2 1 0 -1 -2 -3 | 0 | 1 | 2 | 3 | 4 | 5 | 6 Period | 7 | 8 | 9 | 10 | 11 | 12 Linear trend line Exponential smoothing ( = 0.30)

12-620 12-

Statistical Control Charts

= (Dt - Ft)2 n-1

Using we can calculate statistical control limits for the forecast error Control limits are typically set at 3

12-621 12-

Statistical Control Charts

18.39 12.24 6.12 Errors 0 -6.12 -12.24 -18.39 | 0 LCL = -3 | 1 | 2 | 3 | 4 | 5 | 6 Period | 7 | 8 | 9 | 10 | 11 | 12 UCL = +3

12-622 12-

Time Series Forecasting using Excel

Excel can be used to develop forecasts:
Moving average Exponential smoothing Adjusted exponential smoothing Linear trend line

12-623 12-

Exponentially Smoothed and Adjusted Exponentially Smoothed Forecasts

12-624 12-

Demand and exponentially smoothed forecast

12-625 12-

Data Analysis option

12-626 12-

Computing a Forecast with Seasonal Adjustment

12-627 12-

OM Tools

12-628 12-

Regression Methods
Linear regression
a mathematical technique that relates a dependent variable to an independent variable in the form of a linear equation

Correlation
a measure of the strength of the relationship between independent and dependent variables

12-629 12-

Linear Regression
y = a + bx

a = y-bx xy - nxy 2 - nx2 b = x where a = intercept b = slope of the line x x =n y y =n = mean of the x data = mean of the y data
12-630 12-

Linear Regression Example

(WINS) 4 6 6 8 6 7 5 7 49 x (ATTENDANCE) 36.3 40.1 41.2 53.0 44.0 45.6 39.0 47.5 346.7 y xy 145.2 240.6 247.2 424.0 264.0 319.2 195.0 332.5 2167.7 x2 16 36 36 64 36 49 25 49 311

12-631 12-

Linear Regression Example (cont.)

49 x= 8 346.9y = 8 = 6.125 = 43.36

xy - nxy2 b = x2 - nx2
= (2,167.7) - (8)(6.125)(43.36) (311) - (8)(6.125)2 = 4.06 a = y - bx = 43.36 - (4.06)(6.125) = 18.46

12-632 12-

Linear Regression Example (cont.)

Regression equation y = 18.46 + 4.06x
60,000 50,000 40,000 30,000 20,000 10,000 | 0 | 1 | 2 | 3 | 4 | | 5 6 Wins, x | 7 | 8 | 9 | 10
12-633 12-

Attendance forecast for 7 wins y = 18.46 + 4.06(7) = 46.88, or 46,880

Attendance, y

Linear regression line, y = 18.46 + 4.06x 4.06x

Correlation and Coefficient of Determination

Correlation, r

Measure of strength of relationship Varies between -1.00 and +1.00

Coefficient of determination, r2

Percentage of variation in dependent variable resulting from changes in the independent variable

12-634 12-

Computing Correlation
r= n xy - x y [n x2 - ( x)2] [n y2 - ( y)2] [n (8)(2,167.7) - (49)(346.9) [(8)(311) - (49)2] [(8)(15,224.7) - (346.9)2] r = 0.947 Coefficient of determination r2 = (0.947)2 = 0.897
12-635 12-

r=

Regression Analysis with Excel

12-636 12-

Regression Analysis with Excel (cont.)

12-637 12-

Regression Analysis with Excel (cont.)

12-638 12-

Multiple Regression
Study the relationship of demand to two or more independent variables

y = 0 + 1x1 + 2x2 + kxk where 0 = the intercept 1, , k = parameters for the independent variables x1, , xk = independent variables

12-639 12-

Multiple Regression with Excel

12-640 12-

Chapter 13
Inventory Management
Operations Management - 6th Edition
Roberta Russell & Bernard W. Taylor, III

Beni Asllani University of Tennessee at Chattanooga

Lecture Outline
Elements of Inventory Management Inventory Control Systems Economic Order Quantity Models Quantity Discounts Reorder Point Order Quantity for a Periodic Inventory System
13-642 13-

What Is Inventory?
Stock of items kept to meet future demand Purpose of inventory management
how many units to order when to order

13-643 13-

Inventory and Supply Chain Management

Bullwhip effect
demand information is distorted as it moves away from the end-use customer endhigher safety stock inventories to are stored to compensate

Seasonal or cyclical demand Inventory provides independence from vendors Take advantage of price discounts Inventory provides independence between stages and avoids work stoppages
13-644 13-

Inventory and Quality Management in the Supply Chain

Customers usually perceive quality service as availability of goods they want when they want them Inventory must be sufficient to provide high-quality customer service in QM

13-645 13-

Types of Inventory
Raw materials Purchased parts and supplies Work-in-process (partially completed) products (WIP) Items being transported Tools and equipment

13-646 13-

Two Forms of Demand

Dependent
Demand for items used to produce final products Tires stored at a Goodyear plant are an example of a dependent demand item

Independent
Demand for items used by external customers Cars, appliances, computers, and houses are examples of independent demand inventory

13-647 13-

Inventory Costs
Carrying cost

cost of holding an item in inventory

Ordering cost

cost of replenishing inventory

Shortage cost

temporary or permanent loss of sales when demand cannot be met

13-648 13-

Inventory Control Systems

Continuous system (fixed-order(fixed-orderquantity)
constant amount ordered when inventory declines to predetermined level

Periodic system (fixed-time(fixed-timeperiod)

order placed for variable amount after fixed passage of time

13-649 13-

ABC Classification
Class A
5 15 % of units 70 80 % of value

Class B
30 % of units 15 % of value

Class C
50 60 % of units 5 10 % of value

13-650 13-

ABC Classification: Example

PART 1 2 3 4 5 6 7 8 9 10 UNIT COST $ 60 350 30 80 30 20 10 320 510 20 ANNUAL USAGE 90 40 130 60 100 180 170 50 60 120

13-651 13-

ABC Classification: Example (cont.)

PART

PART VALUE
$30,6001 16,0002 14,000 3 5,400 4,8004 3,9005 3,6006 3,000 CLASS 7 2,400 A 8 1,700 B 9 C 10

TOTAL % OF TOTAL % TOTAL UNIT COSTQUANTITY OF% CUMMULATIVE ANNUAL USAGE VALUE

9 8 2 1 4 3 6 5 10 7

35.9 $ 60 6.0 18.7 350 5.0 16.4 4.0 30 6.3 9.0 80 5.6 6.0 4.6 30 10.0 4.2 % OF TOTAL 18.0 20 3.5 10VALUE 13.0 ITEMS 2.8 12.0 320 71.0 9, 8, 2 2.0 17.0 1, 4, 3 510 16.5 $85,400 6, 5, 10, 720 12.5

90 6.0 40 11.0 A 130 15.0 24.0 60 30.0 B 100 40.0 %180TOTAL OF 58.0 170 71.0 QUANTITY 83.0 C 50 100.0 15.0 60 25.0 120 60.0
Example 10.1
13-652 13-

Economic Order Quantity (EOQ) Models

EOQ
optimal order quantity that will minimize total inventory costs

Basic EOQ model Production quantity model

13-653 13-

Assumptions of Basic EOQ Model

Demand is known with certainty and is constant over time No shortages are allowed Lead time for the receipt of orders is constant Order quantity is received all at once

13-654 13-

Inventory Order Cycle

Order quantity, Q Inventory Level

Demand rate

Average inventory

Q 2

Reorder point, R

Lead time Order Order placed receipt

Lead time Order Order placed receipt

Time

13-655 13-

EOQ Cost Model

Co - cost of placing order Cc - annual per-unit carrying cost perAnnual ordering cost = Annual carrying cost = Total cost = CoD + Q D - annual demand Q - order quantity CoD Q CcQ 2 CcQ 2

13-656 13-

EOQ Cost Model

Deriving Qopt CcQ CoD TC = + Q 2 CoD Cc TC = 2 + Q 2 Q C0D Cc 0= 2 + Q 2 Qopt = 2CoD Cc Proving equality of costs at optimal point CoD CcQ = Q 2 Q2 2CoD = Cc 2CoD Cc

Qopt =

13-657 13-

EOQ Cost Model (cont.)

Annual cost ($) Slope = 0 Minimum total cost CcQ Carrying Cost = 2 Total Cost

CoD Ordering Cost = Q Optimal order Qopt Order Quantity, Q

13-658 13-

EOQ Example
Cc = $0.75 per gallon Qopt = Qopt = 2CoD Cc
2(150)(10,000) (0.75)

Co = $150

D = 10,000 gallons

CcQ CoD TCmin = + Q 2 TCmin

(150)(10,000) (0.75)(2,000) = + 2 2,000

Qopt = 2,000 gallons

Orders per year = D/Qopt = 10,000/2,000 = 5 orders/year

TCmin = $750 + $750 = $1,500

Order cycle time = 311 days/(D/Qopt) days/(D = 311/5 = 62.2 store days
13-659 13-

Production Quantity Model

An inventory system in which an order is received gradually, as inventory is simultaneously being depleted
AKA non-instantaneous receipt model assumption that Q is received all at once is relaxed

p - daily rate at which an order is received over time, a.k.a. production rate d - daily rate at which inventory is demanded
13-660 13-

Production Quantity Model (cont.)

Inventory level Maximum inventory level Average inventory level

Q(1-d/p) (1-d/p)

Q (1-d/p) (1-d/p) 2

0 Order receipt period Begin End order order receipt receipt Time

13-661 13-

Production Quantity Model (cont.)

p = production rate Q Maximum inventory level = Q - p d d = Q 1 -p d = demand rate

2CoD Qopt = Cc 1 - d p

Q d Average inventory level = 1p 2 CoD CcQ d TC = Q + 2 1 - p

13-662 13-

Production Quantity Model: Example

Cc = $0.75 per gallon Co = $150 d = 10,000/311 = 32.2 gallons per day 2C o D Qopt = Cc 1 - d p = D = 10,000 gallons p = 150 gallons per day

2(150)(10,000) 0.75 1 - 32.2 150 = 2,256.8 gallons

CoD CcQ d TC = Q + 2 1 - p

= $1,329

2,256.8 Q Production run = p = = 15.05 days per order 150

13-663 13-

Production Quantity Model: Example (cont.)

10,000 D Number of production runs = Q = 2,256.8 = 4.43 runs/year d Maximum inventory level = Q 1 - p 32.2 150

= 2,256.8 1 -

= 1,772 gallons

13-664 13-

Solution of EOQ Models with Excel

13-665 13-

Solution of EOQ Models with Excel (Cont)

13-666 13-

Solution of EOQ Models with OM Tools

13-667 13-

Quantity Discounts
Price per unit decreases as order quantity increases
CcQ CoD TC = + + PD 2 Q where P = per unit price of the item D = annual demand
13-668 13-

Quantity Discount Model (cont.)

ORDER SIZE 0 - 99 100 199 200+ PRICE $10 8 (d1) 6 (d2)

TC = ($10 ) TC (d1 = $8 ) TC (d2 = $6 )

Inventory cost ($)

Carrying cost

Ordering cost Q(d1 ) = 100 Qopt Q(d2 ) = 200

13-669 13-

Quantity Discount: Example

QUANTITY 1 - 49 50 - 89 90+ Qopt = For Q = 72.5 PRICE $1,400 1,100 900 2C o D = Cc Co = $2,500 Cc = $190 per TV D = 200 TVs per year

2(2500)(200) = 72.5 TVs 190

CcQopt CoD TC = + + PD = $233,784 2 Qopt CcQ CoD TC = + + PD = $194,105 2 Q

13-670 13-

For Q = 90

QuantityQuantity-Discount Model Solution with Excel

13-671 13-

Reorder Point
Level of inventory at which a new order is placed

R = dL where d = demand rate per period L = lead time

13-672 13-

Reorder Point: Example

Demand = 10,000 gallons/year Store open 311 days/year Daily demand = 10,000 / 311 = 32.154 gallons/day Lead time = L = 10 days R = dL = (32.154)(10) = 321.54 gallons

13-673 13-

Safety Stocks
Safety stock
buffer added to on hand inventory during lead time

Stockout
an inventory shortage

Service level
probability that the inventory available during lead time will meet demand

13-674 13-

Variable Demand with a Reorder Point

Q Inventory level

Reorder point, R

0 LT Time LT

13-675 13-

Reorder Point with a Safety Stock

Inventory level

Q
Reorder point, R

Safety Stock

0 LT Time
13-676 13-

LT

Reorder Point With Variable Demand

R = dL + zd L
where d = average daily demand L = lead time d = the standard deviation of daily demand z = number of standard deviations corresponding to the service level probability zd L = safety stock

13-677 13-

Reorder Point for a Service Level

Probability of meeting demand during lead time = service level

Probability of a stockout

Safety stock zd L dL Demand R

13-678 13-

Reorder Point for Variable Demand

The paint store wants a reorder point with a 95% service level and a 5% stockout probability
d = 30 gallons per day L = 10 days d = 5 gallons per day For a 95% service level, z = 1.65 R = dL + z d L = 30(10) + (1.65)(5)( 10) = 326.1 gallons Safety stock = z d L = (1.65)(5)( 10) = 26.1 gallons
13-679 13-

Determining Reorder Point with Excel

13-680 13-

Order Quantity for a Periodic Inventory System

Q = d(tb + L) + zd where d = average demand rate tb = the fixed time between orders L = lead time d = standard deviation of demand zd tb + L = safety stock I = inventory level
13-681 13-

tb + L - I

Periodic Inventory System

13-682 13-

FixedFixed-Period Model with Variable Demand

d = 6 packages per day d = 1.2 packages tb = 60 days L = 5 days I = 8 packages z = 1.65 (for a 95% service level) Q = d(tb + L) + zd tb + L - I 60 + 5 - 8

= (6)(60 + 5) + (1.65)(1.2)

= 397.96 packages

13-683 13-

FixedFixed-Period Model with Excel

13-684 13-

Chapter 13 Supplement
Simulation
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline

Monte Carlo Simulation Computer Simulation with Excel Areas of Simulation Application

Supplement 13-686 13-

Simulation
Mathematical and computer modeling technique for replicating real-world problem situations Modeling approach primarily used to analyze probabilistic problems
It does not normally provide a solution; instead it provides information that is used to make a decision

Physical simulation
Space flights, wind tunnels, treadmills for tires

Mathematical-computerized simulation
Computer-based replicated models

Supplement 13-687 13-

Monte Carlo Simulation

Select numbers randomly from a probability distribution Use these values to observe how a model performs over time Random numbers each have an equal likelihood of being selected at random

Supplement 13-688 13-

Distribution of Demand
LAPTOPS DEMANDED PER WEEK, x 0 1 2 3 4 FREQUENCY OF DEMAND 20 40 20 10 10 100 PROBABILITY OF DEMAND, P(x) 0.20 0.40 0.20 0.10 0.10 1.00

Supplement 13-689 13-

Roulette Wheel of Demand

0 90 x=4 x=0 80 x=3 20

x=2

x=1 60

Supplement 13-690 13-

Generating Demand from Random Numbers

DEMAND, x 0 1 2 3 4 RANGES OF RANDOM NUMBERS, r 0-19 20-59 2060-79 6080-89 8090-99 90r = 39

Supplement 13-691 13-

Random Number Table

Supplement 13-692 13-

15 Weeks of Demand
WEEK r DEMAND (x) (x REVENUE (S)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

39 73 72 75 37 02 87 98 10 47 93 21 95 97 69

1 2 2 2 1 0 3 4 0 1 4 1 4 4 2 = 31

4,300 8,600 8,600 8,600 4,300 0 12,900 17,200 0 4,300 17,200 Average demand 4,300 = 31/15 17,200 = 2.07 laptops/week 17,200 8,600 $133,300
Supplement 13-693 13-

Computing Expected Demand

E(x) = (0.20)(0) + (0.40)(1) + (0.20)(2) + (0.10)(3) + (0.10)(4) = 1.5 laptops per week
Difference between 1.5 and 2.07 is due to small number of periods analyzed (only 15 weeks) Steady-state result Steadyan average result that remains constant after enough trials

Supplement 13-694 13-

Random Numbers in Excel

Supplement 13-695 13-

Simulation in Excel

Supplement 13-696 13-

Simulation in Excel (cont.)

Supplement 13-697 13-

Decision Making with Simulation

Supplement 13-698 13-

Decision Making with Simulation (cont.)

Supplement 13-699 13-

Areas of Simulation Application

Waiting Lines/Service
Complex systems for which it is difficult to develop analytical formulas Determine how many registers and servers are needed to meet customer demand

Inventory Management
Traditional models make the assumption that customer demand is certain Simulation is widely used to analyze JIT without having to implement it physically

Supplement 13-700 13-

Areas of Simulation Application (cont.)

Production and Manufacturing Systems
Examples: production scheduling, production sequencing, assembly line balancing, plant layout, and plant location analysis Machine breakdowns typically occur according to some probability distributions

Capital Investment and Budgeting

Capital budgeting problems require estimates of cash flows, often resulting from many random variables Simulation has been used to generate values of cash flows, market size, selling price, growth rate, and market share

Supplement 13-701 13-

Areas of Simulation Application (cont.)

Logistics
Typically include numerous random variables, such as distance, different modes of transport, shipping rates, and schedules to analyze different distribution channels

Service Operations
Examples: police departments, fire departments, post offices, hospitals, court systems, airports Complex operations that no technique except simulation can be employed

Environmental and Resource Analysis

Examples: impact of manufacturing plants, waste-disposal facilities, nuclear power plants, waste and population conditions, feasibility of alternative energy sources

Supplement 13-702 13-

Chapter 14
Sales and Operations Planning
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
The Sales and Operations Planning Process Strategies for Adjusting Capacity Strategies for Managing Demand Quantitative Techniques for Aggregate Planning Hierarchical Nature of Planning Aggregate Planning for Services
14-704 14-

Sales and Operations Planning

Determines the resource capacity needed to meet demand over an intermediate time horizon
Aggregate refers to sales and operations planning for product lines or families Sales and Operations planning (S&OP) matches supply and demand

Objectives
Establish a company wide game plan for allocating resources Develop an economic strategy for meeting demand

14-705 14-

Sales and Operations Planning Process

14-706 14-

The Monthly S&OP Planning Process

14-707 14-

Meeting Demand Strategies

Adjusting capacity
Resources necessary to meet demand are acquired and maintained over the time horizon of the plan Minor variations in demand are handled with overtime or under-time under-

Managing demand
Proactive demand management

14-708 14-

Strategies for Adjusting Capacity

Level production
Producing at a constant rate and using inventory to absorb fluctuations in demand

Overtime and under-time underIncreasing or decreasing working hours

Subcontracting
Let outside companies complete the work

Chase demand
Hiring and firing workers to match demand

PartPart-time workers
Hiring part time workers to complete the work

Peak demand
Maintaining resources for highhigh-demand levels

Backordering
Providing the service or product at a later time period

14-709 14-

Level Production
Demand Production Units

Time

14-710 14-

Chase Demand
Demand Production Units

Time

14-711 14-

Strategies for Managing Demand

Shifting demand into other time periods
Incentives Sales promotions Advertising campaigns

Offering products or services with countercyclical demand patterns Partnering with suppliers to reduce information distortion along the supply chain
14-712 14-

Quantitative Techniques For AP

Pure Strategies Mixed Strategies Linear Programming Transportation Method Other Quantitative Techniques

14-713 14-

Pure Strategies
Example: QUARTER Spring Summer Fall Winter SALES FORECAST (LB) 80,000 50,000 120,000 150,000

Hiring cost = $100 per worker Firing cost = $500 per worker Inventory carrying cost = $0.50 pound per quarter Regular production cost per pound = $2.00 Production per employee = 1,000 pounds per quarter Beginning work force = 100 workers

14-714 14-

Level Production Strategy

Level production (50,000 + 120,000 + 150,000 + 80,000) = 100,000 pounds 4 SALES FORECAST 80,000 50,000 120,000 150,000 PRODUCTION PLAN INVENTORY

QUARTER Spring Summer Fall Winter

100,000 20,000 100,000 70,000 100,000 50,000 100,000 0 400,000 140,000 Cost of Level Production Strategy (400,000 X $2.00) + (140,00 X $.50) = $870,000
14-715 14-

Chase Demand Strategy

QUARTER SALES PRODUCTION FORECAST PLAN WORKERS WORKERS WORKERS NEEDED HIRED FIRED

Spring Summer Fall Winter

80,000 50,000 120,000 150,000

80,000 50,000 120,000 150,000

80 50 120 150

0 0 70 30 100

20 30 0 0 50

Cost of Chase Demand Strategy (400,000 X $2.00) + (100 x $100) + (50 x $500) = $835,000

14-716 14-

Level Production with Excel

14-717 14-

Chase Demand with Excel

14-718 14-

Mixed Strategy
Combination of Level Production and Chase Demand strategies Examples of management policies
no more than x% of the workforce can be laid off in one quarter inventory levels cannot exceed x dollars

Many industries may simply shut down manufacturing during the low demand season and schedule employee vacations during that time
14-719 14-

Mixed Strategies with Excel

14-720 14-

Mixed Strategies with Excel (cont.)

14-721 14-

General Linear Programming (LP) Model

LP gives an optimal solution, but demand and costs must be linear Let
Wt = workforce size for period t Pt =units produced in period t It =units in inventory at the end of period t Ft =number of workers fired for period t Ht = number of workers hired for period t
14-722 14-

LP MODEL
Minimize Z = $100 (H1 + H2 + H3 + H4) + $500 (F1 + F2 + F3 + F4) + $0.50 (I1 + I2 + I3 + I4) + $2 (P1 + P2 + P3 + P4)
Subject to

Demand constraints Production constraints

Work force constraints

P1 - I1 I1 + P2 - I2 I2 + P3 - I3 I3 + P4 - I4 1000 W1 1000 W2 1000 W3 1000 W4 100 + H1 - F1 W1 + H2 - F2 W2 + H3 - F3 W3 + H4 - F4

= 80,000 = 50,000 = 120,000 = 150,000 = P1 = P2 = P3 = P4 = W1 = W2 = W3 = W4

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)

14-723 14-

Setting up the Spreadsheet

14-724 14-

The LP Solution

14-725 14-

Transportation Method
EXPECTED QUARTER DEMAND REGULAR OVERTIME SUBCONTRACT CAPACITY CAPACITY CAPACITY

1 2 3 4

900 1500 1600 3000

1000 1200 1300 1300

100 150 200 200

500 500 500 500

Regular production cost per unit $20 Overtime production cost per unit $25 Subcontracting cost per unit $28 Inventory holding cost per unit per period $3 Beginning inventory 300 units
14-726 14-

Transportation Tableau
PERIOD OF USE Unused Capacity Capacity 6 26 31 34 23 28 31 1300 200 20 25 28 150 250 500 1300 200 500 900 1500 1600 100 29 34 37 26 31 34 23 28 31 20 25 28 3000 250 250 9 300 1000 100 500 1200 150 500 1300 200 500 1300 200 500 PERIOD OF PRODUCTION Beginning Inventory 1 Regular Overtime Subcontract 2 Regular Overtime Subcontract 3 Regular Overtime Subcontract 4 Regular Overtime Subcontract Demand 300 600 20 25 28 1200 300 23 28 31 20 25 28 1 2 0 100 3 3 4

14-727 14-

Burruss Production Plan

REGULAR SUBSUBENDING PERIOD DEMAND PRODUCTION OVERTIME CONTRACT INVENTORY

1 2 3 4 Total

900 1500 1600 3000 7000

1000 1200 1300 1300 4800

100 150 200 200 650

0 250 500 500 1250

500 600 1000 0 2100

14-728 14-

Using Excel for the Transportation Method of Aggregate Planning

14-729 14-

Other Quantitative Techniques

Linear decision rule (LDR) Search decision rule (SDR) Management coefficients model

14-730 14-

Hierarchical Nature of Planning

Items
Product lines or families

Production Planning
Sales and Operations Plan

Capacity Planning
Resource requirements plan

Resource Level
Plants

Individual products

Master production schedule

Rough-cut capacity plan

Critical work centers

Components

Material requirements plan

Capacity requirements plan

All work centers

Manufacturing operations

Shop floor schedule

Input/ output control

Individual machines

Disaggregation: process of breaking an aggregate plan into more detailed plans

14-731 14-

Collaborative Planning
Sharing information and synchronizing production across supply chain Part of CPFR (collaborative planning, forecasting, and replenishment)
involves selecting products to be jointly managed, creating a single forecast of customer demand, and synchronizing production across supply chain

14-732 14-

Available-to-Promise (ATP)
Quantity of items that can be promised to customer Difference between planned production and customer orders already received
AT in period 1 = (On-hand quantity + MPS in period 1) (CO until the next period of planned production) ATP in period n = (MPS in period n) (CO until the next period of planned production)

Capable-to-promise
quantity of items that can be produced and mad available at a later date
14-733 14-

ATP: Example

14-734 14-

ATP: Example (cont.)

14-735 14-

ATP: Example (cont.)

Take excess units from April

ATP in April = (10+100) 70 = 40 = 30 ATP in May = 100 110 = -10 =0 ATP in June = 100 50 = 50

14-736 14-

Rule Based ATP

Product Request

Yes

Is the product available at this location?

Is an alternative product available at an alternate location? No Capable-topromise date

Yes

Availableto-promise

No

Allocate inventory

Availableto-promise

Yes

Is an alternative product available at this location?

Allocate inventory Yes

No

Is the customer willing to wait for the product?

Yes

Revise master schedule

Is this product available at a different location? No

No Lose sale

Trigger production

14-737 14-

Aggregate Planning for Services

1. Most services cannot be inventoried 2. Demand for services is difficult to predict 3. Capacity is also difficult to predict 4. Service capacity must be provided at the appropriate place and time 5. Labor is usually the most constraining resource for services

14-738 14-

Yield Management

14-739 14-

Yield Management (cont.)

14-740 14-

Yield Management: Example

NO-SHOWS NO0 1 2 3 PROBABILITY .15 .25 .30 .30 Optimal probability of no-shows noP(n < x) P(n Cu 75 = = .517 Cu + Co 75 + 70 P(N < X) .00 .15 .40 .70

.517

Hotel should be overbooked by two rooms

14-741 14-

Chapter 14 Supplement
Linear Programming
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Model Formulation Graphical Solution Method Linear Programming Model Solution Solving Linear Programming Problems with Excel Sensitivity Analysis

Supplement 14-743 14-

Linear Programming (LP)

A model consisting of linear relationships representing a firms objective and resource constraints

LP is a mathematical modeling technique used to determine a level of operational activity in order to achieve an objective, subject to restrictions called constraints

Supplement 14-744 14-

Types of LP

Supplement 14-745 14-

Types of LP (cont.)

Supplement 14-746 14-

Types of LP (cont.)

Supplement 14-747 14-

LP Model Formulation
Decision variables
mathematical symbols representing levels of activity of an operation

Objective function
a linear relationship reflecting the objective of an operation most frequent objective of business firms is to maximize profit most frequent objective of individual operational units (such as a production or packaging department) is to minimize cost

Constraint
a linear relationship representing a restriction on decision making

Supplement 14-748 14-

LP Model Formulation (cont.)

Max/min subject to: a11x1 + a12x2 + ... + a1nxn (, =, ) b1 a21x1 + a22x2 + ... + a2nxn (, =, ) b2 : an1x1 + an2x2 + ... + annxn (, =, ) bn xj = decision variables bi = constraint levels cj = objective function coefficients aij = constraint coefficients z = c1x1 + c2x2 + ... + cnxn

Supplement 14-749 14-

LP Model: Example
RESOURCE REQUIREMENTS PRODUCT Bowl Mug Labor (hr/unit) 1 2 Clay (lb/unit) 4 3 Revenue ($/unit) 40 50

There are 40 hours of labor and 120 pounds of clay available each day Decision variables x1 = number of bowls to produce x2 = number of mugs to produce

Supplement 14-750 14-

LP Formulation: Example
Maximize Z = $40 x1 + 50 x2 Subject to x1 + 4x1 + 2x2 40 hr 3x2 120 lb x1 , x2 0 (labor constraint) (clay constraint) x2 = 8 mugs

Solution is x1 = 24 bowls Revenue = $1,360

Supplement 14-751 14-

Graphical Solution Method

1. Plot model constraint on a set of coordinates in a plane 2. Identify the feasible solution space on the graph where all constraints are satisfied simultaneously 3. Plot objective function to find the point on boundary of this space that maximizes (or minimizes) value of objective function

Supplement 14-752 14-

Graphical Solution: Example

x2 50 40 30 20 10 0 | 10 | 20 | 30 | 40 Area common to both constraints x1 + 2 x2 40 hr | 50 | 60 x1
Supplement 14-753 14-

4 x1 + 3 x2 120 lb

Computing Optimal Values

x2 40 4 x1 + 3 x2 = 120 lb 30 20 10 8 0 | 10 | 24 | 20 30 | x1 40 Z = $40(24) + $50(8) = $1,360
Supplement 14-754 14-

x1 + 4x1 + 4x1 + -4x1 -

2x 2 = 3x 2 = 8x 2 = 3x 2 = 5x 2 = x2 =

40 120 160 -120 40 8 40 24

x1 + 2 x2 = 40 hr

x1 + 2(8) = x1 =

Extreme Corner Points

x2
40 30 20 10 0 | 10 | 20

x1 = 0 bowls x2 = 20 mugs Z = $1,000

A B
| C| 30 40

x1 = 224 bowls x2 = 8 mugs Z = $1,360 x1 = 30 bowls x2 = 0 mugs Z = $1,200

x1

Supplement 14-755 14-

Objective Function
x2 40 4x1 + 3x2 = 120 lb 3x Z = 70x1 + 20x2 70x 20x Optimal point: x1 = 30 bowls x2 = 0 mugs Z = $2,100 B x1 + 2x2 = 40 hr 2x | C | 30 40 x
1

30 A 20

10 | 10 | 20

Supplement 14-756 14-

Minimization Problem
CHEMICAL CONTRIBUTION Brand GroGro-plus CropCrop-fast Nitrogen (lb/bag) 2 4 Phosphate (lb/bag) 4 3

Minimize Z = $6x1 + $3x2 subject to 2x1 + 4x2 16 lb of nitrogen 4x1 + 3x2 24 lb of phosphate x 1, x 2 0
Supplement 14-757 14-

Graphical Solution
x2 14 x1 = 0 bags of Gro-plus GroCrop12 x2 = 8 bags of Crop-fast Z = $24 10 A 8 6 4 2 0 | 2 | 4 B | 6 | 8 C | 10 | 12 | 14 Z = 6x1 + 3x2 6x 3x

x1
Supplement 14-758 14-

Simplex Method
A mathematical procedure for solving linear programming problems according to a set of steps Slack variables added to constraints to represent unused resources
x1 + 2x2 + s1 =40 hours of labor 40 4x1 + 3x2 + s2 =120 lb of clay 120

Surplus variables subtracted from constraints to represent excess above resource requirement. For example,
2x1 + 4x2 16 is transformed into 4x 16 2x1 + 4x2 - s1 = 16 4x 16

Slack/surplus variables have a 0 coefficient in the objective function

Z = $40x1 + $50x2 + 0s1 + 0s2

Supplement 14-759 14-

Solution Points with Slack Variables

Supplement 14-760 14-

Solution Points with Surplus Variables

Supplement 14-761 14-

Solving LP Problems with Excel

Supplement 14-762 14-

Solving LP Problems with Excel (cont.)

Supplement 14-763 14-

Solving LP Problems with Excel (cont.)

Supplement 14-764 14-

Sensitivity Range for Labor Hours

Supplement 14-765 14-

Sensitivity Range for Bowls

Supplement 14-766 14-

Chapter 15
Resource Planning
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Material Requirements Planning (MRP) Capacity Requirements Planning (CRP) Enterprise Resource Planning (ERP) Customer Relationship Management (CRM) Supply Chain Management (SCM) Product Lifecycle Management (PLM)

15-768 15-

Resource Planning for Manufacturing

15-769 15-

Material Requirements Planning (MRP)

Computerized inventory control and production planning system When to use MRP?
Dependent demand items Discrete demand items Complex products Job shop production Assemble-to-order environments
15-770 15-

Demand Characteristics
Independent demand Dependent demand

100 x 1 = 100 tabletops

100 tables

100 x 4 = 400 table legs

Continuous demand
400 400 No. of tables 300 200 100
1 2 3 4 Week 5

Discrete demand

No. of tables

300 200 100

M T W Th F M T W Th F

15-771 15-

Material Requirements Planning

Product structure file

Master production schedule

Material requirements planning

Item master file

Planned order releases

Work orders

Purchase orders

Rescheduling notices

15-772 15-

MRP Inputs and Outputs

Inputs
Master production schedule Product structure file Item master file

Outputs
Planned order releases
Work orders Purchase orders Rescheduling notices

15-773 15-

Master Production Schedule

Drives MRP process with a schedule of finished products Quantities represent production not demand Quantities may consist of a combination of customer orders and demand forecasts Quantities represent what needs to be produced, not what can be produced Quantities represent end items that may or may not be finished products

15-774 15-

Master Production Schedule (cont.)

MPS ITEM Pencil Case Clipboard Lapboard Lapdesk 1 125 85 75 0 2 125 95 120 50 PERIOD 3 4 125 120 47 0 125 100 20 50 5 125 100 17 0

15-775 15-

Product Structure File

15-776 15-

Product Structure
Clipboard

Top clip (1)

Bottom clip (1)

Pivot (1)

Spring (1)

Rivets (2) Finished clipboard Pressboard (1)

15-777 15-

Product Structure Tree

Clipboard Level 0

Pressboard (1)

Clip Assy (1)

Rivets (2)

Level 1

Top Clip (1)

Bottom Clip (1)

Pivot (1)

Spring (1)

Level 2

15-778 15-

Multilevel Indented BOM

LEVEL ITEM UNIT OF MEASURE QUANTITY

0----1----2---2---2---2--1---1---

Clipboard Clip Assembly Top Clip Bottom Clip Pivot Spring Rivet Press Board

ea ea ea ea ea ea ea ea

1 1 1 1 1 1 2 1

15-779 15-

Specialized BOMs
Phantom bills
Transient subassemblies Never stocked Immediately consumed in next stage

K-bills
Group small, loose parts under pseudo-item pseudonumber Reduces paperwork, processing time, and file space

15-780 15-

Specialized BOMs (cont.)

Modular bills
Product assembled from major subassemblies and customer options Modular bill kept for each major subassembly Simplifies forecasting and planning X10 automobile example
3 x 8 x 3 x 8 x 4 = 2,304 configurations 3 + 8 + 3 + 8 + 4 = 26 modular bills

15-781 15-

Modular BOMs
X10 Automobile

Engines (1 of 3)

Exterior color (1 of 8)

Interior (1 of 3)

Interior color (1 of 8)

Body (1 of 4)

4-Cylinder (.40) 6-Cylinder (.50) 8-Cylinder (.10)

Bright red (.10) White linen (.10) Sulphur yellow (.10) Neon orange (.10)

Leather (.20) Tweed (.40) Plush (.40)

Grey (.10) Light blue (.10) Rose (.10) Off-white (.20) Off-

Sports coupe (.20) Two-door (.20) TwoFour-door (.30) FourStation wagon (.30) Black (.20) Brown (.10) B/W checked (.10)

Metallic blue (.10) Emerald green (.10) Jet black (.20) Champagne (.20)

Cool green (.10)

15-782 15-

Time-phased Bills
an assembly chart shown against a time scale

Forward scheduling: start at todays date and schedule forward to determine the earliest date the job can be finished. If each item takes one period to complete, the clipboards can be finished in three periods Backward scheduling: start at the due date and schedule backwards to determine when to begin work. If an order for clipboards is due by period three, we should start production now
15-783 15-

Item Master File

DESCRIPTION Item Pressboard Item no. 7341 Item type Purch Product/sales class Comp Value class B Buyer/planner RSR Vendor/drawing 07142 Phantom code N Unit price/cost 1.25 Pegging Y LLC 1 INVENTORY POLICY Lead time Annual demand Holding cost Ordering/setup cost Safety stock Reorder point EOQ Minimum order qty Maximum order qty Multiple order qty Policy code 1 5000 1 50 0 39 316 100 500 1 3

15-784 15-

Item Master File (cont.)

PHYSICAL INVENTORY On hand Location On order Allocated Cycle Last count Difference 150 W142 100 75 3 9/5 -2 USAGE/SALES YTD usage/sales MTD usage/sales YTD receipts MTD receipts Last receipt Last issue CODES 1100 75 1200 0 8/25 10/5

Cost acct. Routing Engr

00754 00326 07142

15-785 15-

MRP Processes
Exploding the bill of material Netting out inventory Lot sizing TimeTime-phasing requirements Netting
process of subtracting ononhand quantities and scheduled receipts from gross requirements to produce net requirements

Lot sizing
determining the quantities in which items are usually made or purchased

15-786 15-

MRP Matrix

15-787 15-

MRP: Example
Master Production Schedule 1 Clipboard Lapdesk 85 0 2 95 60 3 120 0 4 100 60 5 100 0

Item Master File On hand On order LLC Lot size Lead time CLIPBOARD LAPDESK 25 20 175 (Period 1) 0 (sch receipt) 0 0 L4L Mult 50 1 1 PRESSBOARD 150 0 1 Min 100 1
15-788 15-

MRP: Example (cont.)

Product Structure Record Clipboard Level 0

Pressboard (1)

Clip Assy (1)

Rivets (2)

Level 1

Lapdesk

Level 0

Pressboard (2)

Trim (3)

Beanbag (1)

Glue (4 oz)

Level 1

15-789 15-

MRP: Example (cont.)

ITEM: CLIPBOARD LOT SIZE: L4L Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases 25 LLC: 0 LT: 1 1 85 2 95 3 120 175 PERIOD 4 100 5 100

15-790 15-

MRP: Example (cont.)

ITEM: CLIPBOARD LOT SIZE: L4L Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases 25 115 0 LLC: 0 LT: 1 1 85 2 95 3 120 175 PERIOD 4 100 5 100

(25 + 175) = 200 units available (200 - 85) = 115 on hand at the end of Period 1

15-791 15-

MRP: Example (cont.)

ITEM: CLIPBOARD LOT SIZE: L4L Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases 25 115 0 LLC: 0 LT: 1 1 85 2 95 3 120 175 20 0 PERIOD 4 100 5 100

115 units available (115 - 85) = 20 on hand at the end of Period 2

15-792 15-

MRP: Example (cont.)

ITEM: CLIPBOARD LOT SIZE: L4L Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases 100 25 115 0 20 0 LLC: 0 LT: 1 1 85 2 95 3 120 175 0 100 100 PERIOD 4 100 5 100

20 units available (20 - 120) = -100 100 additional Clipboards are required Order must be placed in Period 2 to be received in Period 3
15-793 15-

MRP: Example (cont.)

ITEM: CLIPBOARD LOT SIZE: L4L Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases 100 25 115 0 20 0 LLC: 0 LT: 1 1 85 2 95 3 120 175 0 100 100 100 0 100 100 100 0 100 100 PERIOD 4 100 5 100

Following the same logic Gross Requirements in Periods 4 and 5 develop Net Requirements, Planned Order Receipts, and Planned Order Releases
15-794 15-

MRP: Example (cont.)

ITEM: LAPDESK LOT SIZE: MULT 50 Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases 20 LLC: 0 LT: 1 1 0 2 60 3 0 PERIOD 4 60 5 0

15-795 15-

MRP: Example (cont.)

ITEM: LAPDESK LOT SIZE: MULT 50 Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases 50 20 20 0 10 40 50 50 10 0 50 50 0 LLC: 0 LT: 1 1 0 2 60 3 0 PERIOD 4 60 5 0

Following the same logic, the Lapdesk MRP matrix is completed as shown

15-796 15-

MRP: Example (cont.)

ITEM: CLIPBOARD LLC: 0 LOT SIZE: L4L LT: 1 Planned Order Releases ITEM: LAPDESK LOT SIZE: MULT 50 LLC: 0 LT: 1 1 50 1 2 1 2 100 2 PERIOD 3 4 100 100 5 PERIOD 3 4 50 PERIOD 3 4 5 5

Planned Order Releases ITEM: PRESSBOARD LLC: 0 LOT SIZE: MIN 100 LT: 1 Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases

150

15-797 15-

MRP: Example (cont.)

ITEM: CLIPBOARD LLC: 0 LOT SIZE: L4L LT: 1 Planned Order Releases ITEM: LAPDESK LOT SIZE: MULT 50 LLC: 0 LT: 1 1 2 100 PERIOD 3 4 100 100 PERIOD x1 3 4 50 PERIOD 3 4 200 100 5 0 5

x1
1 50 2

x1
5

Planned Order Releases

x2 x2 ITEM: PRESSBOARD LLC: 0 LOT SIZE: MIN 100 LT: 1 1 2 Gross Requirements 100 100 Scheduled Receipts Projected on Hand 150 Net Requirements Planned Order Receipts Planned Order Releases

15-798 15-

MRP: Example (cont.)

ITEM: CLIPBOARD LLC: 0 LOT SIZE: L4L LT: 1 Planned Order Releases ITEM: LAPDESK LOT SIZE: MULT 50 LLC: 0 LT: 1 1 50 1 100 50 2 100 50 50 100 150 1 2 100 2 PERIOD 3 4 100 100 5 PERIOD 3 4 50 PERIOD 3 4 200 100 0 150 150 100 0 100 100 5 0 0 5

Planned Order Releases ITEM: PRESSBOARD LLC: 0 LOT SIZE: MIN 100 LT: 1 Gross Requirements Scheduled Receipts Projected on Hand 150 Net Requirements Planned Order Receipts Planned Order Releases

100

15-799 15-

MRP: Example (cont.)

Planned Order Report PERIOD ITEM Clipboard Lapdesk Pressboard 1 2 3 4 5

100 100 100 50 50 100 150 100

15-800 15-

Lot Sizing in MRP Systems

Lot-for-lot ordering policy Fixed-size lot ordering policy
Minimum order quantities Maximum order quantities Multiple order quantities Economic order quantity Periodic order quantity
15-801 15-

Using Excel for MRP Calculations

15-802 15-

Advanced Lot Sizing Rules: L4L

Total cost of L4L = (4 X $60) + (0 X $1) = $240

15-803 15-

Advanced Lot Sizing Rules: EOQ

EO Q = 2(30)(60 = 60 1

minimum order quantity

Total cost of EOQ = (2 X $60) + [(10 + 50 + 40) X $1)] = $220

15-804 15-

Advanced Lot Sizing Rules: POQ

POQ = Q / d = 60 / 30 = 2 periods worth of requirements

Total cost of POQ = (2 X $60) + [(20 + 40) X $1] = $180

15-805 15-

Planned Order Report

Item #2740 On hand 100 On order 200 Allocated 50 DATE ORDER NO. 9-26 9-30 10-01 10SR 7542 10-10 1010-15 1010-23 10GR 6473 GROSS REQS. AL 4416 AL 4174 GR 6470 CO 4471 GR 6471 GR 6471 50 Date 9 - 25 - 05 Lead time 2 weeks Lot size 200 Safety stock 50 SCHEDULED PROJECTED RECEIPTS ON HAND ACTION 25 25 50 200 75 50 25 - 50 WO = work order SR = scheduled receipt GR = gross requirement
15-806 15-

10-08 10-

150

10-27 10-

50 25 0 - 50 Expedite SR 10-01 1075 25 0 Release PO 10-13 10-

Key: AL = allocated CO = customer order PO = purchase order

MRP Action Report

Current date 9-25-08 9-25ITEM
#2740 #3616 #2412 #3427 #2516 #2740 #3666

DATE

ORDER NO. QTY.

7542 200 Expedite Move forward Move forward Move backward De-expedite DeRelease Release

ACTION
SR PO PO PO SR PO WO 10-01 1010-07 1010-05 1010-25 1010-30 1010-13 1010-24 10-

10-08 1010-09 1010-10 1010-15 1010-20 1010-27 1010-31 10-

7648

100 200 50

15-807 15-

Capacity Requirements Planning (CRP)

Creates a load profile Identifies under-loads and over-loads Inputs
Planned order releases Routing file Open orders file

15-808 15-

CRP
MRP planned order releases

Routing file

Capacity requirements planning

Open orders file

Load profile for each process

15-809 15-

Calculating Capacity
Maximum capability to produce Rated Capacity
Theoretical output that could be attained if a process were operating at full speed without interruption, exceptions, or downtime

Effective Capacity
Takes into account the efficiency with which a particular product or customer can be processed and the utilization of the scheduled hours or work
Effective Daily Capacity = (no. of machines or workers) x (hours per shift) x (no. of shifts) x (utilization) x ( efficiency)
15-810 15-

Calculating Capacity (cont.)

Utilization
Percent of available time spent working

Efficiency
How well a machine or worker performs compared to a standard output level

Load
Standard hours of work assigned to a facility

Load Percent
Ratio of load to capacity
load Load Percent = capacity x 100%

15-811 15-

Load Profiles
graphical comparison of load versus capacity Leveling underloaded conditions:
Acquire more work Pull work ahead that is scheduled for later time periods Reduce normal capacity
15-812 15-

Reducing Over-load Conditions Over1. Eliminating unnecessary requirements 2. Rerouting jobs to alternative machines, workers, or work centers 3. Splitting lots between two or more machines 4. Increasing normal capacity 5. Subcontracting 6. Increasing efficiency of the operation 7. Pushing work back to later time periods 8. Revising master schedule
15-813 15-

Initial Load Profile

120 110 100 90 80 70 60 50 40 30 20 10 0 1 2 3 4 5

Hours of capacity

Normal capacity

Time (weeks)

15-814 15-

Adjusted Load Profile

120 110 100 90 80 70 60 50 40 30 20 10 0 1

Hours of capacity

Pull ahead Overtime

Work an extra shift

Push back Push back

Normal capacity

Time (weeks)

Load leveling
process of balancing underloads and overloads
15-815 15-

Relaxing MRP Assumptions

Material is not always the most constraining resource Lead times can vary Not every transaction needs to be recorded Shop floor may require a more sophisticated scheduling system Scheduling in advance may not be appropriate for on-demand production.
15-816 15-

Enterprise Resource Planning (ERP)

Software that organizes and manages a companys business processes by
sharing information across functional areas integrating business processes facilitating customer interaction providing benefit to global companies

15-817 15-

Organizational Data Flows

Source: Adapted from Joseph Brady, Ellen Monk, and Bret Wagner, Concepts in Enterprise Resource Planning (Boston: Course Technology, 2001), pp. 712
15-818 15-

ERPs Central Database

15-819 15-

Selected Enterprise Software Vendors

15-820 15-

ERP Implementation
Analyze business processes Choose modules to implement
Which processes have the biggest impact on customer relations? Which process would benefit the most from integration? Which processes should be standardized?

Align level of sophistication Finalize delivery and access Link with external partners
15-821 15-

Customer Relationship Management (CRM)

Software that
Plans and executes business processes Involves customer interaction Changes focus from managing products to managing customers Analyzes point-of-sale data for patterns point-ofused to predict future behavior

15-822 15-

Supply Chain Management

Software that plans and executes business processes related to supply chains Includes
Supply chain planning Supply chain execution Supplier relationship management

Distinctions between ERP and SCM are becoming increasingly blurred

15-823 15-

Product Lifecycle Management (PLM)

Software that
Incorporates new product design and development and product life cycle management Integrates customers and suppliers in the design process though the entire product life cycle

15-824 15-

ERP and Software Systems

15-825 15-

Connectivity
Application programming interfaces (APIs)
give other programs well-defined ways of speaking to wellthem

Enterprise Application Integration (EAI) solutions EDI is being replaced by XML, business language of Internet ServiceService-oriented architecture (SOA)
collection of services that communicate with each other within software or between software

15-826 15-

Chapter 16
Lean Systems
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Basic Elements of Lean Production Benefits of Lean Production Implementing Lean Production Lean Services Leaning the Supply Chain Lean Six Sigma Lean and the Environment Lean Consumption

16-828 16-

Lean Production
Doing more with less inventory, fewer workers, less space Just-in-time (JIT)
smoothing the flow of material to arrive just as it is needed JIT and Lean Production are used interchangeably

Muda
waste, anything other than that which adds value to product or service

16-829 16-

Waste in Operations

16-830 16-

Waste in Operations (cont.)

16-831 16-

Waste in Operations (cont.)

16-832 16-

Basic Elements
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Flexible resources Cellular layouts Pull system Kanbans Small lots Quick setups Uniform production levels Quality at the source Total productive maintenance Supplier networks

16-833 16-

Flexible Resources
Multifunctional workers
perform more than one job general-purpose machines perform several basic functions

Cycle time
time required for the worker to complete one pass through the operations assigned

Takt time
paces production to customer demand

16-834 16-

Standard Operating Routine for a Worker

16-835 16-

Cellular Layouts
Manufacturing cells
comprised of dissimilar machines brought together to manufacture a family of parts

Cycle time is adjusted to match takt time by changing worker paths

16-836 16-

Cells with Worker Routes

16-837 16-

Worker Routes Lengthen as Volume Decreases

16-838 16-

Pull System
Material is pulled through the system when needed Reversal of traditional push system where material is pushed according to a schedule Forces cooperation Prevent over and underproduction While push systems rely on a predetermined schedule, pull systems rely on customer requests

16-839 16-

Kanbans
Card which indicates standard quantity of production Derived from two-bin inventory system twoMaintain discipline of pull production Authorize production and movement of goods

16-840 16-

Sample Kanban

16-841 16-

Origin of Kanban
a) Two-bin inventory system TwoBin 1 Kanban Bin 2 Reorder card Q-R R R b) Kanban inventory system

Q = order quantity R = reorder point - demand during lead time

16-842 16-

Types of Kanban
Production kanban
authorizes production of goods

Signal kanban
a triangular kanban used to signal production at the previous workstation

Withdrawal kanban
authorizes movement of goods

Material kanban
used to order material in advance of a process

Kanban square
a marked area designated to hold items

Supplier kanban
rotates between the factory and suppliers
16-843 16-

16-844 16-

16-845 16-

16-846 16-

Determining Number of Kanbans

No. of Kanbans = average demand during lead time + safety stock container size dL + S C where

N =

N = number of kanbans or containers d = average demand over some time period L = lead time to replenish an order S = safety stock C = container size

16-847 16-

Determining Number of Kanbans: Example

d = 150 bottles per hour L = 30 minutes = 0.5 hours S = 0.10(150 x 0.5) = 7.5 C = 25 bottles (150 x 0.5) + 7.5 dL + S N= = 25 C = 75 + 7.5 = 3.3 kanbans or containers 25 Round up to 4 (to allow some slack) or down to 3 (to force improvement)
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Small Lots
Require less space and capital investment Move processes closer together Make quality problems easier to detect Make processes more dependent on each other
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Inventory Hides Problems

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Less Inventory Exposes Problems

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Components of Lead Time

Processing time
Reduce number of items or improve efficiency

Move time
Reduce distances, simplify movements, standardize routings

Waiting time
Better scheduling, sufficient capacity

Setup time
Generally the biggest bottleneck
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Quick Setups
Internal setup
Can be performed only when a process is stopped

SMED Principles
Separate internal setup from external setup Convert internal setup to external setup Streamline all aspects of setup Perform setup activities in parallel or eliminate them entirely

External setup
Can be performed in advance

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Common Techniques for Reducing Setup Time

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Common Techniques for Reducing Setup Time (cont.)

16-855 16-

Common Techniques for Reducing Setup Time (cont.)

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Uniform Production Levels

Result from smoothing production requirements on final assembly line Kanban systems can handle +/- 10% +/demand changes Reduce variability with more accurate forecasts Smooth demand across planning horizon MixedMixed-model assembly steadies component production
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MixedMixed-Model Sequencing

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Quality at the Source

Visual control
makes problems visible

Jidoka
authority to stop the production line

Poka-yokes
prevent defects from occurring

Andons
call lights that signal quality problems

Kaizen
a system of continuous improvement; change for the good of all

Under-capacity scheduling
leaves time for planning, problem solving, and maintenance

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Examples of Visual Control

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Examples of Visual Control (cont.)

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Examples of Visual Control (cont.)

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5 Whys
One of the keys to an effective Kaizen is finding the root cause of a problem and eliminating it A practice of asking why? repeatedly until the underlying cause is identified (usually requiring five questions) Simple, yet powerful technique for finding the root cause of a problem
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Total Productive Maintenance (TPM)

Breakdown maintenance
Repairs to make failed machine operational

Preventive maintenance
System of periodic inspection and maintenance to keep machines operating

TPM combines preventive maintenance and total quality concepts

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TPM Requirements
Design products that can be easily produced on existing machines Design machines for easier operation, changeover, maintenance Train and retrain workers to operate machines Purchase machines that maximize productive potential Design preventive maintenance plan spanning life of machine

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5S Scan
Seiri(sort)

Goal
Keep only what you need

Eliminate or Correct
Unneeded equipment, tools, furniture; unneeded items on walls, bulletins; items blocking aisles or stacked in corners; unneeded inventory, supplies, parts; safety hazards Items not in their correct places; correct places not obvious; aisles, workstations, & equipment locations not indicated; items not put away immediately after use Floors, walls, stairs, equipment, & surfaces not clean; cleaning materials not easily accessible; lines, labels, signs broken or unclean; other cleaning problems Necessary information not visible; standards not known; checklists missing; quantities and limits not easily recognizable; items cant be located within 30 seconds Number of workers without 5S training; number of daily 5S inspections not performed; number of personal items not stored; number of times job aids not available or up-to-date

Seiton(set in order) Seisou (shine)

A place for everything and everything in its place Cleaning, and looking for ways to keep clean and organized Maintaining and monitoring the first three categories Sticking to the rules

Seiketsu (standardize) Shisuke (sustain)

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Supplier Networks
Long-term supplier contracts Synchronized production Supplier certification Mixed loads and frequent deliveries Precise delivery schedules Standardized, sequenced delivery Locating in close proximity to the customer

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Benefits of Lean Production

Reduced inventory Improved quality Lower costs Reduced space requirements Shorter lead time Increased productivity

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Benefits of Lean Production (cont.)

Greater flexibility Better relations with suppliers Simplified scheduling and control activities Increased capacity Better use of human resources More product variety

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Implementing Lean Production

Use lean production to finely tune an operating system Somewhat different in USA than Japan Lean production is still evolving Lean production is not for everyone

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Lean Services
Basic elements of lean production apply equally to services Most prevalent applications
lean retailing lean banking lean health care
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Leaning the Supply Chain

pulling a smooth flow of material through a series of suppliers to support frequent replenishment orders and changes in customer demand Firms need to share information and coordinate demand forecasts, production planning, and inventory replenishment with suppliers and suppliers suppliers throughout supply chain
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Leaning the Supply Chain (cont.)

Steps in Leaning the Supply Chain:
Build a highly collaborative business environment Adopt the technology to support your system

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Lean Six Sigma

Lean and Six Sigma are natural partners for process improvement Lean
Eliminates waste and creates flow More continuous improvement

Six Sigma
Reduces variability and enhances process capabilities Requires breakthrough improvements
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Lean and the Environment

Leans mandate to eliminate waste and operate only with those resources that are absolutely necessary aligns well with environmental initiatives Environmental waste is often an indicator of poor process design and inefficient production
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EPA Recommendations
Commit to eliminate environmental waste through lean implementation Recognize new improvement opportunities by incorporating environmental, heath and safety (EHS) icons and data into value stream maps Involve staff with EHS expertise in planning Find and drive out environmental wastes in specific process by using lean process-improvement tools processEmpower and enable workers to eliminate environmental wastes in their work areas

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Lean Consumption
Consumptions process involves locating, buying, installing, using, maintaining, repairing, and recycling. Lean Consumption seeks to:
Provide customers what they want, where and when they want it Resolve customer problems quickly and completely Reduce the number of problems customers need to solve

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Chapter 17
Scheduling
Operations Management
Roberta Russell & Bernard W. Taylor, III

Lecture Outline
Objectives in Scheduling Loading Sequencing Monitoring Advanced Planning and Scheduling Systems Theory of Constraints Employee Scheduling

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What is Scheduling?
Last stage of planning before production occurs Specifies when labor, equipment, and facilities are needed to produce a product or provide a service

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Scheduled Operations
Process Industry
Linear programming EOQ with non-instantaneous nonreplenishment

Batch Production
Aggregate planning Master scheduling Material requirements planning (MRP) Capacity requirements planning (CRP)

Mass Production
Assembly line balancing

Project
Project -scheduling techniques (PERT, CPM)

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Objectives in Scheduling
Meet customer due dates Minimize job lateness Minimize response time Minimize completion time Minimize time in the system Minimize overtime Maximize machine or labor utilization Minimize idle time Minimize work-inwork-inprocess inventory

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Shop Floor Control (SFC)

scheduling and monitoring of day-to-day production day-toin a job shop also called production control and production activity control (PAC) usually performed by production control department
Loading
Check availability of material, machines, and labor

Sequencing
Release work orders to shop and issue dispatch lists for individual machines

Monitoring
Maintain progress reports on each job until it is complete
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Loading
Process of assigning work to limited resources Perform work with most efficient resources Use assignment method of linear programming to determine allocation

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Assignment Method
1. Perform row reductions 4. If number of lines equals number of rows in matrix, then optimum subtract minimum value in each solution has been found. Make row from all other row values assignments where zeros appear 2. Perform column reductions
subtract minimum value in each column from all other column values Else modify matrix
subtract minimum uncrossed value from all uncrossed values add it to all cells where two lines intersect other values in matrix remain unchanged

3. Cross out all zeros in matrix

use minimum number of horizontal and vertical lines

5. Repeat steps 3 and 4 until optimum solution is reached

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Assignment Method: Example

Initial Matrix Bryan Kari Noah Chris Row reduction 5 4 2 5 0 0 1 1 1 2 0 0 5 4 1 6 1 10 6 7 9 2 5 2 6 5 PROJECT 3 4 6 10 4 6 5 6 4 10 Cover all zeros 3 2 0 3 0 0 1 1 1 2 0 0 4 3 0 5

Column reduction 3 2 0 3 0 0 1 1 1 2 0 0 4 3 0 5

Number lines number of rows so modify matrix

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Assignment Method: Example (cont.)

Modify matrix 1 0 0 1 0 0 3 1 1 2 2 0 2 1 0 3 Cover all zeros 1 0 0 1 0 0 3 1 1 2 2 0 2 1 0 3

Number of lines = number of rows so at optimal solution PROJECT Bryan Kari Noah Chris 1 1 0 0 1 2 0 0 3 1 3 1 2 2 0 4 2 1 0 3 Bryan Kari Noah Chris 1 10 6 7 9 PROJECT 2 5 2 6 5 3 6 4 5 4 4 10 6 6 10

Project Cost = (5 + 6 + 4 + 6) X $100 = $2,100

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Sequencing
Prioritize jobs assigned to a resource If no order specified use first-come first-served (FCFS) Other Sequencing Rules FCFS - first-come, first-served LCFS - last come, first served DDATE - earliest due date CUSTPR - highest customer priority SETUP - similar required setups SLACK - smallest slack CR - smallest critical ratio SPT - shortest processing time LPT - longest processing time
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Minimum Slack and Smallest Critical Ratio

SLACK considers both work and time remaining
SLACK = (due date todays date) (processing time)

CR recalculates sequence as processing continues and arranges information in ratio form

time remaining CR = remaining work due date - todays date = remaining processing time

If CR > 1, job ahead of schedule If CR < 1, job behind schedule If CR = 1, job on schedule
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Sequencing Jobs through One Process

Flow time (completion time)
Time for a job to flow through system

Makespan
Time for a group of jobs to be completed

Tardiness
Difference between a late jobs due date and its completion time
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Simple Sequencing Rules

JOB

PROCESSING TIME

DUE DATE

A B C D E

5 10 2 8 6

10 15 5 12 8

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Simple Sequencing Rules: FCFS

FCFS START PROCESSING COMPLETION SEQUENCE TIME TIME TIME DATE DUE TARDINESS

A B C D E Total Average

0 5 15 17 25

5 10 2 8 6

5 15 17 25 31 93 93/5 = 18.60

10 15 5 12 8

0 0 12 13 23 48 48/5 = 9.6

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Simple Sequencing Rules: DDATE

DDATE START PROCESSING COMPLETION SEQUENCE TIME TIME TIME DATE DUE TARDINESS

C E A D B Total Average

0 2 8 13 21

2 6 5 8 10

2 8 13 21 31 75 75/5 = 15.00

5 8 10 12 15

0 0 3 9 16 28 28/5 = 5.6

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Simple Sequencing Rules: SLACK

A(10-0) 5 = 5 B(15-0) 10 = 5 C(5-0) 2 = 3 D(12-0) 8 = 4 E(8-0) 6 = 2

DUE TARDINESS

SLACK START PROCESSING COMPLETION SEQUENCE TIME TIME TIME DATE

E C D A B Total Average

0 6 8 16 21

6 2 8 5 10

6 8 16 21 31 82 82/5 = 16.40

8 5 12 10 15

0 3 4 11 16 34 34/5 = 6.8

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Simple Sequencing Rules: SPT

SPT START PROCESSING COMPLETION SEQUENCE TIME TIME TIME DATE DUE TARDINESS

C A E D B Total Average

0 2 7 13 21

2 5 6 8 10

2 7 13 21 31 74 74/5 = 14.80

5 10 8 12 15

0 0 5 9 16 30 30/5 = 6

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Simple Sequencing Rules: Summary

RULE AVERAGE COMPLETION TIME AVERAGE TARDINESS NO. OF JOBS TARDY MAXIMUM TARDINESS

FCFS DDATE SLACK SPT

18.60 15.00 16.40 14.80

9.6 5.6 6.8 6.0

3 3 4 3

23 16 16 16

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Sequencing Jobs Through Two Serial Process

Johnsons Rule
1. List time required to process each job at each machine. Set up a one-dimensional matrix to represent desired onesequence with # of slots equal to # of jobs. 2. Select smallest processing time at either machine. If that time is on machine 1, put the job as near to beginning of sequence as possible. 3. If smallest time occurs on machine 2, put the job as near to the end of the sequence as possible. 4. Remove job from list. 5. Repeat steps 2-4 until all slots in matrix are filled and all 2jobs are sequenced.

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Johnsons Rule

JOB A B C D E

PROCESS 1 6 11 7 9 5

PROCESS 2 8 6 3 7 10

A D

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Johnsons Rule (cont.)

E
E 5 A 11 D 20

D
B

C
C 31 38
Process 1 (sanding)

Idle time E 5 15 A 23 D 30 B 37 C 41
Process 2 (painting)

Completion time = 41 Idle time = 5+1+1+3=10

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Guidelines for Selecting a Sequencing Rule

1. 2. 3. 4. 5. 6. SPT most useful when shop is highly congested Use SLACK for periods of normal activity Use DDATE when only small tardiness values can be tolerated Use LPT if subcontracting is anticipated Use FCFS when operating at low-capacity levels lowDo not use SPT to sequence jobs that have to be assembled with other jobs at a later date

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Monitoring
Work package
Shop paperwork that travels with a job

Gantt Chart
Shows both planned and completed activities against a time scale

Input/Output Control
Monitors the input and output from each work center
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Gantt Chart
Job 32B 3 Job 23C 2 Job 11C 1 Ahead of schedule Job 12A On schedule Behind schedule

Facility

1 Key:

6 8 Todays Date

10

11

12

Days

Planned activity Completed activity

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Input/Output Control
Input/Output Report PERIOD Planned input Actual input Deviation Planned output Actual output Deviation Backlog 1 65 2 65 3 70 4 70 TOTAL 270 0 0 300 0 0 0

75

75

75

75

30

20

10

17-903 17-

Input/Output Control (cont.)

Input/Output Report PERIOD Planned input Actual input Deviation Planned output Actual output Deviation Backlog 1 65 60 -5 75 75 -0 30 2 65 60 -5 75 75 -0 15 3 70 65 -5 75 65 -10 0 4 70 65 -5 75 65 -10 0 TOTAL 270 250 -20 300 280 -20 0

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Advanced Planning and Scheduling Systems

Infinite - assumes infinite capacity
Loads without regard to capacity Then levels the load and sequences jobs

Finite - assumes finite (limited) capacity

Sequences jobs as part of the loading decision Resources are never loaded beyond capacity
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Advanced Planning and Scheduling Systems (cont.)

Advanced planning and scheduling (APS)
AddAdd-ins to ERP systems ConstraintConstraint-based programming (CBP) identifies a solution space and evaluates alternatives Genetic algorithms based on natural selection properties of genetics Manufacturing execution system (MES) monitors status, usage, availability, quality

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Theory of Constraints

Not all resources are used evenly Concentrate on the bottleneck resource Synchronize flow through the bottleneck Use process and transfer batch sizes to move product through facility

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Drum-Buffer-Rope
Drum
Bottleneck, beating to set the pace of production for the rest of the system

Buffer
Inventory placed in front of the bottleneck to ensure it is always kept busy Determines output or throughput of the system

Rope
Communication signal; tells processes upstream when they should begin production

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TOC Scheduling Procedure

Identify bottleneck Schedule job first whose lead time to bottleneck is less than or equal to bottleneck processing time Forward schedule bottleneck machine Backward schedule other machines to sustain bottleneck schedule Transfer in batch sizes smaller than process batch size

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B B3 1 7

C C3 2 15

D D3 3 5

B2 2 3

C2 1 10

D2 2 8

B1 1 5
Key: i

C1 3 2
Item i

D1 3 10

Synchronous Manufacturing

ij k l

Operation j of item i performed at machine center k takes l minutes to process

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Synchronous Manufacturing (cont.)

Demand = 100 As Machine setup time = 60 minutes MACHINE 1 MACHINE 2 MACHINE 3 B1 B3 C2 Sum 5 7 10 22 B2 C3 D2 3 15 8 26* C1 D3 D1 2 5 10 17

* Bottleneck

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Synchronous Manufacturing (cont.)

Machine 1 C2 2 Idle Machine 2 C3 12 Machine 3 Setup C1 0 200 D1 1260 1512 Setup B2 1872 Setup D2 2732 1002 Setup B1 1562 Setup B3 2322

Setup Idle 1940 D3 Completion time 2737

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Employee Scheduling
Labor is very flexible resource Scheduling workforce is complicated, repetitive task Assignment method can be used Heuristics are commonly used

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Employee Scheduling Heuristic

1. Let N = no. of workers available Di = demand for workers on day i X = day working O = day off 2. Assign the first N - D1 workers day 1 off. Assign the next N - D2 workers day 2 off. Continue in a similar manner until all days are have been scheduled 3. If number of workdays for full time employee < 5, assign remaining workdays so consecutive days off are possible 4. Assign any remaining work to part-time employees part5. If consecutive days off are desired, consider switching schedules among days with the same demand requirements

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Employee Scheduling
DAY OF WEEK WORKERS REQUIRED Taylor Smith Simpson Allen Dickerson M T W MIN NO. OF 3 3 4 TH 3 F 4 SA 5 SU 3

17-915 17-

Employee Scheduling (cont.)

DAY OF WEEK WORKERS REQUIRED Taylor Smith Simpson Allen Dickerson M T W MIN NO. OF 3 3 4 X X O O X X X X X O TH 3 O O X X X F 4 X X O X X SA 5 X X X X X SU 3 X X X O O O O X X X

Completed schedule satisfies requirements but has no consecutive days off

17-916 17-

Employee Scheduling (cont.)

DAY OF WEEK WORKERS REQUIRED Taylor Smith Simpson Allen Dickerson M T W MIN NO. OF 3 3 4 O O X X X X X O X X TH 3 X X O O X F 4 X X X X O SA 5 X X X X X SU 3 X X X O O

O O X X X

Revised schedule satisfies requirements with consecutive days off for most employees

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Automated Scheduling Systems

Staff Scheduling Schedule Bidding Schedule Optimization

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Thank You
[Link]

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