OPERATIONS MANAGEMENT

VIPULESH SHARDEO
Introduction

• Creation of goods or services or both – Production

• Set of activities that creates value from transformation
• Management of production system that transform inputs into
finished goods and services
• The process of managing the resources required to produce
goods and services
• Focus on 5 Ps
Introduction

• The design, operation, and improvement of the systems that

create and delivery the firm’s primary products and services
• Operations and supply chain management (OSCM) is
• A functional field of business
• Clear lines management responsibilities
• Concerned with the management of the entire production/delivery
system
• Process
Steps
for
Men’s
Nylon
Supplex
Parkas
Operations & Supply Chain
Operations & Supply Chain

Supply
Operations
Chain
Manufacturing and
Processes that move
service processes
information and
used to transform
material to and from
resources into
the firm
products
Operations & Supply Chain:
Processes
Process Activities
• Planning – processes needed to operate an existing supply chain
• Sourcing – selection of suppliers that will deliver the goods and
services needed to create the firm’s product
• Making – producing the major product or service
• Delivering – logistics processes such as selecting carriers,
coordinating the movement of goods and information, and
collecting payments from customers
• Returning – receiving worn-out, excess, and/or defective products
back from customers
Production System

• Use of resources to transform inputs into some desired

outputs
• Inputs?
• Transformation process?
• Outputs?
• Pizza Hut
Service vs Manufacturing System

Services Manufacturing

• Intangible Product • Tangible product

• High Customer • Low Customer Contact
Contact • Longer Response
• Short Response Time Time
• Labour Intensive • Capital Intensive
Goods-Services Continuum
Service vs Manufacturing System

• Use of Technology
• Quality
• Productivity
• Response
• Demand forecasting
• Capacity, Layout, Location
• Customers, Suppliers, Scheduling, Staffing
Product-service Bundling

• Company building service activities into its product offerings

• IBM –a pioneer in this area; terats its business as service
business and views physical goods as small part of it
• Might not be the best strategy for all product companies
• Study found that product-service bundles generate higher
revenues but lower profits
OM: Placement and Scope
Career in OM Decisions
Hospital Department
Plant manager Branch manager
administrator store manager

Call center Supply chain Purchasing Quality control

manager manager manager manager

Business process Lean

Production
improvement improvement Project manager
control analyst
analyst manager

Facilities Chief operating

manager officer
OSCM: Conceptual Trends
OM: Current Issues and Trends
• Coordinating the relationships between mutually supportive
but separate organizations
• Optimizing global supplier, production, and distribution
networks
• Managing customer touch points
• Raising senior management awareness of OSCM as a
significant competitive weapon
• Sustainability and the triple bottom line
Productivity

• Efficiency – Doing things right Productivity

• Effectiveness – Doing right things
• Productivity – Ratio of output and
input
• Value - quality divided by price
• Quality - the attractiveness of the
Efficiency Effectiveness
product, considering its features and
durability
Evaluation of Efficiency?
• Earnings growth is largely a function of profitability

• Profits can be increased through higher sales or lower cost

• Highly efficient firms usually do well during recessions

• Benchmarking - a process in which one company studies the

processes of another company (or industry) to identify best
practices
Management Efficiency Ratios

• Higher Receivable Turnover → short lapse of time between

sales and cash collection
• Inventory Turnover → Company’s efficiency in turning its
inventory into sales
• Asset Turnover → efficiency in using its assets in generating
the sales revenue
• High profit margins tend to have low asset turnover
Management Efficiency Ratios
𝐴𝑛𝑛𝑢𝑎𝑙 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠
• 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒

𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑

• 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑉𝑎𝑙𝑢𝑒

𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑜𝑟 𝑆𝑎𝑙𝑒𝑠
• 𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡
 Management Efficiency Ratios: Example

• Comparison of Automobile Companies

Efficiency Measure Toyota (TM) General Motors Ford (F) Industry

(GM)

Income per employee $60,266 $50,255 $17,037 $39,170

Revenue (sales) per $738,754 $1,949,113 $770,465 $799,932

employee
Receivable turnover 3.3 6.4 1.6 3.2

Inventory turnover 10.5 9.7 15.3 9.5

Asset turnover 0.6 0.9 0.7 0.7

Management Efficiency Ratios

• Higher Receivable Turnover → short lapse of time between

sales and cash collection
• Inventory Turnover → Company’s efficiency in turning its
inventory into sales
• Asset Turnover → efficiency in using its assets in generating
the sales revenue
• High profit margins tend to have low asset turnover
Sustainability

Meeting current needs without

compromising tomorrow’s ability
to meet their needs

Sustainability is much more than

“going green”

Environment, Employees,
Customers, Community &
Company
Sustainable Operations

• Operational practices which ensure sustainability within the

system
• Maximize the profit, minimize environmental impact, Maximize
customer satisfaction, employee satisfaction, Improve
employee values
• Carbon Footprint – measure of GHG emissions
 Sustainable Decisions

System View Commons View Triple Bottom Line

Product’s life from design to Common resources People
disposal Planet
Internal system – External Profit
system
Sustainability: 4 R’s

Reduce Reuse Recycle Recover

 Toyota Production System

Reduce
• Requires fewer resources
Sustainability: Reuse
4 R’s
• Reuse water and surplus material from
manufacturing process
contd.
Recycle
• Parts of powertrains

Recover
• Waste residues
 Mission – Purpose of the
organization

Strategy – Plan of action

Operations Does Globalization lead

competition?
Strategy
Three Key Strategic concepts:

• Differentiation (Better)
• Cost leadership (Cheaper)
• Response (Faster)
Sustainable Strategy
• The firm’s strategy describes how it will create and sustain value for
its current shareholders
• Shareholders – individuals or companies that legally own one or more
shares of stock in the company
• Stakeholders – individuals or organizations who are directly or indirectly
influenced by the actions of the firm
• Adding a sustainability requirement means meeting value goals
without compromising the ability of future generations to meet
their own needs
• Triple bottom line – evaluating the firm against social, economic,
and environmental criteria
Sustainable Strategy: Triple Bottom Line

• Social responsibility: this pertains to fair and beneficial

business practices toward labor, the community, and the
region in which a firm conducts its business
• Economic prosperity: the firm is obligated to compensate
shareholders who provide capital
• Environmental stewardship: this refers to the firm’s impact
on the environment
Operations Strategy

Operations
strategy ensures
all tasks
performed are
the right tasks

Source: Wiley (2010)

Supply Chain Strategy

Operations
strategy

Source:
Gartner (2023)
Competitive Dimensions
Price
• Make the product or deliver the service cheap

Quality
• Make a great product or delivery a great service

Delivery Speed
• Make the product or deliver the service quickly

Delivery Reliability
• Deliver it when promised

Coping with Changes in Demand (Responsiveness)

• Change its volume

Flexibility and New-Product Introduction Speed

• Change it
Competitive Dimensions: Others

• Technical Liaison and Support

• Supplier after-sale Support
• Environmental Impact
• Customization Support
• Product mix options …
Competitive Dimensions: Cost

• High volume products

• Focus on reduction in unit cost
• Use lower skill labour (if feasible)
• Product focused layouts
• “Low Cost does not mean low Quality”
Competitive Dimensions: Quality

• Often subjective
• Degree of customer satisfaction
• Major quality dimensions:
• High performance Design
• Product and Service Consistency
Competitive Dimensions: Time

• One of most important

• One who reaches first wins the race
• Issues:
• Rapid Delivery
• On-time Delivery
Competitive Dimensions: Flexibility

• Environment changes rapidly

• Ability to accommodate seamlessly
• Flexibility types – So many reported yet
• Few types:
• Product flexibility
• Volume flexibility
• Delivery flexibility
Competitive Dimensions: Trade-Offs
• Emphasis on priorities that support business strategy
• For example, a firm that is focused on low-cost production may not
be capable of quickly introducing new products
• Straddling: seeking to match a successful competitor while
maintaining its existing position
• It adds features, services, or technology to existing activities
• Often a risky strategy
• Quality – Everyone expects it
• Examples?
Order Qualifiers & Order Winners

• Order qualifiers: those dimensions that are necessary for a

firm’s products to be considered for purchase by customers
• Features customers will not forego
• Order winners: criteria used by customers to differentiate the
products and services of one firm from those of other firms
• Features that customers use to determine which product to ultimately
purchase
Order Winners vs. Qualifiers
Supply Chain Risk

• In 1996 General Motors experienced an 18-day labor strike at

a brake supplier factory ~ estimated $900 million reduction in
earnings
• In 1997 a Boeing supplier’s failure to deliver two critical parts
led to a loss of $2.6 billion
• In 2000, a 10-minute fire at a Phillips plant that supplied
integrated circuits led to a $400 million loss
Supply Chain Risk
• All strategies have an inherent level of risk
• Uncertainty in the environment causes supply chain planners to
evaluate the relative riskiness of their strategies
• Supply chain risk: the likelihood of a disruption that would
impact the ability of a company to continuously supply
products or services
• Supply chain coordination risks are associated with the day-to-day
management of the supply chain
• Disruption risks are caused by natural or manmade disasters
Supply Chain Risk Mitigation
• Identify the sources of potential disruptions
• Focus on highly unlikely events that would cause a significant disruption to
normal operations
• Assess the potential impact of the risk
• Here the goal is to quantify the probability and the potential impact of the
risk
• Could be based on financial impact, environmental impact, ongoing
business viability brand image/reputation, potential human lives, and so on
• Develop plans to mitigate the risk
• A detailed strategy for minimizing the impact of the risk could take many
different forms, depending on the nature of the problem
Supply Chain Risk Mitigation Strategies
Risk Risk Mitigation Strategy

Natural disaster Contingency planning (alternate sites, etc.)

insurance
Country risks Hedge currency, produce/source locally

Supplier failure Use multiple suppliers

Network provider failure Support redundant digital networks

Regulatory risk Up-front and continuing research; good legal

advice, compliance
Commodity price risks Multisource, commodity hedging
 Supply Chain Risk Mitigation Strategies

Risk Risk Mitigation Strategy

Logistics failure Safety stock, detailed tracking and alternate

suppliers
Inventory risks Pool inventory, safety stock

Major quality failure Carefully select and monitor suppliers

Loss of customers Service/product innovation

Theft and vandalism Insurance, security precautions, knowledge of

likely risks, patent protection, etc.
Risk Assessment Matrix
Productivity

• What should be the goal of an operation manager?

• What are the ways to improve the productivity?
• Does high production imply high productivity?
• Higher productivity increases standard of living
• Productivity for service sector is difficult
Starbucks: The game of seconds
• Starbucks has put Silva Peterson and her team of 10 analysts
to improve the productivity of the store.
• Stop requiring signatures on credit card purchase below $25 –
saved 8 seconds.
• Redesign the scoop – 14 seconds
• New espresso machines ~ 12 seconds per espresso shot
• Results in 46% increase in transactions per hour; 27%
increase in overall productivity
Productivity Measurement

• Single Factor Productivity

𝑈𝑛𝑖𝑡𝑠 𝑃𝑟𝑜𝑑𝑢𝑐𝑒𝑑
𝑆𝑖𝑛𝑔𝑙𝑒 𝐹𝑎𝑐𝑡𝑜𝑟 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
𝐼𝑛𝑝𝑢𝑡 𝑈𝑠𝑒𝑑
• Multifactor Productivity or Total Factor Productivity
𝑈𝑛𝑖𝑡𝑠 𝑃𝑟𝑜𝑑𝑢𝑐𝑒𝑑
𝑀𝑢𝑙𝑡𝑖𝑓𝑎𝑐𝑡𝑜𝑟 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
𝐿𝑎𝑏𝑜𝑟 + 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 + 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 + 𝑀𝑖𝑠𝑐.
Productivity Measurement

• Example
 Lillian Fok is president of Lakefront
Manufacturing, a producer of bicycle
tires. Fok makes 1000 tires per day with
the following resources:
Productivity • Labour – 400 hours per day @ $12.50 per hour
• Raw Material – 20000 pounds per day @ $1 per
Measurement pound
• Energy - $5000 per day
Example • Capital Costs - $10000 per day

Labour Productivity? Multifactor

productivity? % change if $1000 per day
energy bill is reduced?
 Labour

• Contributes around 10% of the annual

increase
• Better educated, healthier and nourished

Capital
Productivity • Contributes around 38% of the annual
Variables increase
• Trade-off between labour and capital

Management

• Contributes around 52% of the annual

increase
• Knowledge and Technology
Manufacturing Processes
• Production Processes –
used to make any
manufactured item
• Level view in three
steps:
• Source the parts
needed
• Make the product
• Deliver the product
Production Processes: Terms
Lead time

• The time needed to respond to a customer order

Customer order decoupling point

• Where inventory is positioned to allow entities in the supply

chain to operate independently

Lean manufacturing

• A means of achieving high levels of customer service with

minimal inventory investment
Types of Firms
Make-to-Stock

• Serve customers from finished goods inventory

Assemble-to-Order

• Combine a number of preassembled modules to meet a customer’s

specifications

Make-to-Order

• Make the customer’s product from raw materials, parts, and components

Engineer-to-Order

• Work with the customer to design and then make the product
Make-to-Stock
• Examples of products include the following:
• Televisions
• Clothing
• Packaged food products
• Essential issue in satisfying customers is to balance the level of inventory
against the level of customer service
• Easy with unlimited inventory, but inventory costs money
• Trade-off between the costs of inventory and level of customer service must be
made
• Use lean manufacturing to achieve higher service levels for a given
inventory investment
Assemble-to-Order

• A primary task is to define a customer’s order in terms of

alternative components because these are carried in inventory
• An example is the way Dell Computer makes their desktop
computers
• One capability required is a design that enables as much
flexibility as possible in combining components
• There are significant advantages from moving the customer
order decoupling point from finished goods to components
Make-to-Order/Engineer-to-Order

• Boeing’s process for making commercial aircraft is an example

• Customer order decoupling point could be in either raw
materials at the manufacturing site or the supplier inventory
• Depending on how similar the products are, it might not even
be possible to preorder parts
Production Processes Organization
Project
• The product remains in a fixed location
• Manufacturing equipment is moved to the product

Workcenter (job shop)

• Similar equipment or functions are grouped together

Manufacturing cell
• A dedicated area where products that are similar in processing requirements are
produced

Assembly line
• Work processes are arranged according to the progressive steps by which the
product is made

Continuous process
• Assembly line only the flow is continuous such as with liquids
Product-Process Matrix
Production System Design
Project Layout
• The product remains in a fixed location
• A high degree of task ordering is common
• A project layout may be developed by arranging
materials according to their assembly priority

Workcenter
• Most common approach to developing this type of layout
is to arrange workcenters in a way that optimizes the
movement of material
• Optimal placement often means placing workcenters with
large interdepartmental traffic adjacent to each other
• Sometimes is referred to as a department and is focused
on a particular type of operation
Production System Design
Manufacturing Cell

• Formed by allocating dissimilar machines

to cells that are designed to work on
similar products (shape, processing, etc.)

Assembly Line and Continuous

Layout
• Designed for the special purpose of
building a product by going through a
series of progressive steps
Break-Even Analysis
• Defined as standard approach to choosing among alternative processes or
equipment
• Model seeks to determine the point in units produced where a company will
start making profit on the process
• Model seeks to determine the point in units produced where total revenue and
total cost are equal
𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑝𝑟𝑜𝑐𝑒𝑠𝑠 𝑜𝑟 𝑒𝑞𝑢𝑖𝑝𝑚𝑒𝑛𝑡
• 𝐵𝑟𝑒𝑎𝑘𝑒𝑣𝑒𝑛 𝑑𝑒𝑚𝑎𝑛𝑑 =
𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 − 𝐶𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
or
𝑇𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 𝑜𝑓 𝑝𝑟𝑜𝑐𝑒𝑠𝑠 𝑜𝑟 𝑒𝑞𝑢𝑖𝑝𝑚𝑒𝑛𝑡
• 𝐵𝑟𝑒𝑎𝑘𝑒𝑣𝑒𝑛 𝑑𝑒𝑚𝑎𝑛𝑑 =
𝑈𝑛𝑖𝑡 𝑝𝑟𝑖𝑐𝑒 𝑡𝑜 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟 −𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
Example: Break-Even Analysis

• Buy for $200

• Make on lathe for $75
• Make on machining center for $15
• Buy has no fixed costs
• Lathe has $80,000 fixed costs
• Machining center has $200,000 fixed costs
Example: Total Cost for Each Option
Purchase

• Cost = $200 x Demand

Produce Using Lathe

• Cost = $80,000 + $75 x Demand

Produce Using Machining Center

• Cost = $200,000 + $15 x Demand

Example: Costs Shown Graphically
Example: Finding Points A and B

Point A
$80,000 + $75*Demand = $200,000 + $15*Demand
$80,000 + $60*Demand = $200,000
Demand = 2,000

Point B
$200*Demand = $80,000 + $75* Demand
Demand = 640
Manufacturing Process Flow Design
• Manufacturing process flow design: a method to evaluate
the specific processes that material follow as they move
through the plant
• Common tools are assembly drawings, assembly charts, route sheets,
and flow process charts
• Focus should be on the identification of activities that can be
minimized or eliminated
• Movement and storage
• The fewer the moves, delays, and storage, the better the flow
The Charts
Assembly drawing

• An exploded view of the product showing its component parts

Assembly chart

• Defines how parts go together, their order of assembly, and overall

flow pattern

Operation and route sheet

• Specifies operations and process routing

Process flowchart

• Denotes what happens to the product as it progresses through the

production facility
Sample Assembly Drawing
Sample Assembly Chart
Sample Operation and Route Sheet
Documents for Production

• Work Order
• Given quantity of an item in a given schedule
• Sometimes, formal document used for authorization
• Engineering Change Notices
• Configuration Management
Product Life-Cycle Management

• Bringing together phases of product design and manufacture

• Starts with product design (CAD/CAM)
• Organizations using PLM: Toyota, GE, Procter & Gamble and
so on
• Major Vendors: SAP PLM, Parametric Technology, Siemens
 Process Focus

• Low-volume, high-variety
• Job shops or Intermittent
• High degree of flexibility
• Dedicated departments
Process
Strategies Repetitive Focus

• Use of modules
• Classic assembly line
• Blend of product focus and process
focus
 Product Focus

• High-volume, low-variety
• Continuous process
• High fixed cost, low variable
Process costs
Strategies
Mass Customization

• Rich variety
• Low-cost production that fulfil
customers’ desires
Process Strategies: Volume vs Variety
Process Analysis
• Process is key
• Process Flowchart – a drawing used to analyze the movement
of people or material
• Time-Function Mapping – time added on the horizontal axis
• Process Charts – use symbols to analyze the movement of
people or material
• Value Stream Mapping – helps to understand how to add
value in the flow of material and information
Process Chart
Process Chart
Sample Flowchart
Process Analysis

• Value Added Activities (VA)

• Processing raw materials or semi-finished into finished products
• Non-value-Added Activities (NVA)
• Waiting time, double handling
• Necessary but Non-value-added activities (NNVA)
• Wasteful but necessary
• Cannot eliminate completely
Process Analysis

• Toyota Production System identified seven wastes:

• Overproduction
• Waiting
• Transport
• Inappropriate processing
• Unnecessary inventory
• Unnecessary motion
• Defects
Capacity Management
• Capacity – number of units of products a facility can hold,
produce, store in a given time
• Design Capacity – maximum theoretical output in a given
period under ideal conditions
• Effective Capacity – capacity a firm expects to achieve given
the current operating constraints
• Actual output – output actually achieved; cannot exceed
effective capacity
Capacity Management

• Cycle Time – Maximum time complete the task

• Throughput Time – total time a unit takes for its production
without including waiting time
• Bottleneck time – process time of slowest workstation
• Utilization – actual output as a percent of design capacity
• Efficiency – actual output as a percent of effective capacity
Capacity Management

• Cycle Time – Maximum time complete the task

• Throughput Time – total time a unit takes for its production
without including waiting time
• Bottleneck time – process time of slowest workstation
• Utilization – actual output as a percent of design capacity
• Efficiency – actual output as a percent of effective capacity
Bottleneck Analysis

• Identify the bottleneck

• Throughput time? Any solutions?
Example: Manufacturing Process Analysis

• 15 workers, eight-hour shift; 5 days working in a week

• Assembly line moves at the rate of 150 components per hour
• Incentive pay of 30¢ per good part
• Can hire 15 more workers for second shift if needed
• All but molding from outside vender
Example: Molding
• 11 Machines
• One usually down
• One operator per machine
• 25 parts per hour
• Paid 20¢ per good part
• Overtime is 30¢ per part
• Employment is flexible
• Currently 6 employees
• 4 more available
Example: Remaining Costs
• Raw materials are 10¢ per part
• Electricity is 2¢ per part
• Purchased parts cost 30¢ per component

• Other weekly expenses

• Rent is $100
• Other employees receive $1,000
• Accounting depreciation is $50
Example: Questions to Answer

• Determine the capacity of the process

• Are the capacities balanced?
• If the molding process were to use 10 machines instead of 6,
what would be the capacity of the entire process?
• If the company went to a second shift, what would be the new
capacity?
• Determine the cost per unit output when the capacity is 6,000
per week or 10,000 per week
Example (a) Capacity of Entire Process

• Molding Capacity
• 6 machines x 25 parts per hour x 8 hours x 5 days = 6,000

• Assembly Capacity
• 150 components per hour x 8 hours x 5 days = 6,000

• The capacities are balanced

Example (b) Increasing Molding to 10
Machines
• Molding Capacity
• 10 x 25 x 8 x 5 = 10,000

• Assembly capacity has not changed from 6,000

• The capacities are no longer balanced

Example (c) Increasing Assembly
Capacity
• Molding Capacity
• 10 x 25 x 8 x 5 = 10,000

• Assembly Capacity
• 150 x 16 x 5 = 12,000

• New capacity is 10,000

Example (d) Cost for 6,000 Parts per
Week
Example (d) Cost for 10,000 Parts per
Week
Facility Layout Planning

• Determines the long-run efficiency

• Objective: to develop an efficient and effective layout that will
meet firm’s competitive requirements
• Considerations:
• Higher utilization
• Improved flow of information
• Safer working conditions
• Flexibility
Types of Layout

• Office layout
• Retail layout
• Warehouse layout
• Fixed-position layout
• Process-oriented layout
• Work-cell layout
• Product-oriented layout
Office Layout

• Group of workers, their equipment and spaces

• Movement of information is a key
• Relationship chart – a tool to determine the closeness of the
functional group
• Technology changed the layout as it was earlier – results in
productivity improvement
Office Layout
Retail Layout
• Sales and profitability – customer exposure to products
• Expose customers to as many products as possible
• Objective: to maximize the profitability per square foot of
floor space
• Slotting Fees – fees manufacturer pays to place their products
on shelf
• Walmart – one of the major retailer does not demand slotting
fees
Retail Layout

• Servicescape – physical surrounding where service takes place

• Good service layout should consider:
• Ambient conditions – Starbucks (leather chairs)
• Spatial Layout and functionality – Big Bazaar
• Signs, symbols and artifacts – Walmart’s greeter at the door
Warehouse Layout
• Objective: optimum trade-off between handling costs and
storage cost
• Automated Storage and Retrieval System (ASRS) – modern
warehouse management system
• Stop & Shop grocery chain in New England – largest ASRS in
the world
• 1.3 million square foot distribution center in Freetown
• 77 rotating fork ASRS
• Each access 11,500 pick slots on 90 aisles – 64,000 pallets of food
Warehouse Layout

• Cross Docking – Avoid placing materials or supplies in storage

• Walmart’s crossdocking supports its low-cost strategy
• Random Stocking – stock anywhere in the warehouse
randomly; requires strong identification system
• Customizing – customization can be done at warehouse along
with its storage; works include labelling, packaging, repairing,
etc.
Fixed-Position Layout (Project)

• Projects remain in one place, and workers, equipment come to

that work area
• Three factors:
• Limited space
• Use of different equipment
• Volume of material required is dynamic
Process-Oriented Layout (Work center)

• Can handle variety of products/ services simultaneously

• Most efficient way when products/ services require multiple
processing
• Objective: to minimize the material handling costs
𝑛 𝑛

𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝐻𝑎𝑛𝑑𝑙𝑖𝑛𝑔 𝐶𝑜𝑠𝑡 = ෍ ෍ 𝐶𝑖𝑗 𝑋𝑖𝑗

𝑖=1 𝑗=1
• n = total no. of work centers; i, j = individual department
• 𝑋𝑖𝑗 & 𝐶𝑖𝑗 = no. of loads and cost to be moved from i to j, respectively
Process-Oriented Layout: Example

• Walters Company
wants to arrange 6
departments of its
factory
• Each department is
20 * 20 feet and
building is 60 ft
long and 40 ft wide
Process-Oriented Layout: Example

• Construct material flow matrix

• Determine space requirements
• Develop an initial schematic diagram
• Determine the cost of the layout
• Improve the layout
• Prepare a detailed plan
Process-Oriented Layout: Example

• Determine space requirements

Process-Oriented Layout: Example

• Develop an initial schematic diagram

Process-Oriented Layout: Example

• Determine the cost of the layout

• Suppose cost of moving through forklift is $1 for adjacent
departments and $2 for non-adjacent departments
• Calculate cost
Process-Oriented Layout: Example

• Improve the layout and recalculate the cost

Process-Oriented Layout: Example

• Final Layout
• It may not be optimum one
• 720 possible combinations
Work Cells
• Reorganizes people and machines to work on single product or
group of related products
• Reduce inventories, improves employee participation, less floor
space, better communication among workers
• Requirements:
• Identification of families of products
• High level of training and empowerment of employees
• Being self-contained
• Testing at each station in the cell
Work Cells
Work Cells

• Staffing and Balancing Work cells

• Determine the takt time
• Determine the number of operators required
• Takt time – pace at which products are produced to satisfy the
customer
• Takt Time = total work time available/Units required
• Workers required = total operation time/Takt time
Work Cells
• Stephen Hall’s company in
Dayton makes auto mirrors
• Its customer expects 600
mirrors per day
• Work cell is scheduled for 8
hours per day
• Takt time?
• Workers required?
Work Cells

• Focused Work Center

• Family of similar products
• Production to a large work cell that remains part of the facility
• Toyota’s Texas plant produces bumpers and dashboards
• Focused Factory
• Focused work center in a separate facility
• Facility may focus on its core competence
Product-oriented Layout

• Organized around products or families of high-volume, low-

variety product
• Continuous production system uses product-oriented layout
• Objective: to minimize imbalance in the line
• Types:
• Fabrication line – build components on series of machines
• Assembly line – puts fabricated parts together at a series of
workstations
Product-oriented Layout

• Assembly-Line
Balancing –
balancing the
time taken to
each
workstations
• McDonald’s
Hamburger
assembly line
Assembly Line
• Assembly line: progressive assembly linked by some material handling
device
• Some form of pacing is present and the allowable processing time is equivalent for
all workstations
• Important differences:
• Material handling devices
• Line configuration
• Pacing
• Product mix
• Workstation characteristics
• Length
Assembly Line

• Cycle time: a uniform time interval in which a moving

conveyor passes a series of workstations
• Also the time between successive units coming off the line
• Assembly-line balancing: assigning all tasks to a series of
workstations so that each workstation has no more than can
be done in the cycle time
• Precedence relationship: the order in which tasks must be
performed in the assembly process
Assembly Line Balancing

• Specify the sequential relationships among tasks

• Determine the required cycle time
• Determine the theoretical minimum number of workstations
• Select a primary and secondary assignment rule
• Assign tasks
• Evaluate the efficiency of the balance
• Rebalance if needed
Assembly Line Balancing

• Further Steps:
• Identify the master list of tasks
• Eliminate those tasks that have been assigned
• Eliminate those tasks whose precedence relationship has not been
satisfied
• Eliminate those tasks for which inadequate time is available at the
workstation
• Use one of the heuristics (longest task time, shortest task time, most
following tasks, least following tasks, ranked positional weight)
Assembly Line Balancing
𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑡𝑖𝑚𝑒 𝑝𝑒𝑟 𝑑𝑎𝑦
• 𝐶𝑦𝑐𝑙𝑒 𝑡𝑖𝑚𝑒 𝐶 =
𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑑 𝑜𝑢𝑡𝑝𝑢𝑡 𝑝𝑒𝑟 𝑑𝑎𝑦 (𝑖𝑛 𝑢𝑛𝑖𝑡𝑠)

𝑆𝑢𝑚 𝑜𝑓 𝑡𝑎𝑠𝑘 𝑡𝑖𝑚𝑒𝑠 𝑇

• 𝑇ℎ𝑒𝑜𝑟𝑒𝑡𝑖𝑐𝑎𝑙 𝑚𝑖𝑛𝑖𝑚𝑢𝑚 𝑁𝑡 =
𝐶𝑦𝑐𝑙𝑒 𝑡𝑖𝑚𝑒 𝐶

𝑆𝑢𝑚 𝑜𝑓 𝑡𝑎𝑠𝑘 𝑡𝑖𝑚𝑒𝑠 𝑇

• 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 =
𝐴𝑐𝑡𝑢𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑤𝑜𝑟𝑘𝑠𝑡𝑎𝑡𝑖𝑜𝑛𝑠 𝑁𝑎 ×𝐶𝑦𝑐𝑙𝑒 𝑡𝑖𝑚𝑒 𝐶
Assembly Line Balancing

• Measures of effectiveness of balanced line

𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦
σ 𝑇𝑎𝑠𝑘 𝑇𝑖𝑚𝑒
=
𝑁𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑠𝑡𝑎𝑡𝑖𝑜𝑛 × 𝐿𝑎𝑟𝑔𝑒𝑠𝑡 𝑎𝑠𝑠𝑖𝑔𝑛𝑒𝑑 𝑐𝑦𝑐𝑙𝑒 𝑡𝑖𝑚𝑒

• Idle Time = (No. of workstations * Largest assigned cycle time)

- σ 𝑇𝑎𝑠𝑘 𝑇𝑖𝑚𝑒
Assembly Line Balancing
• Split the task
• Can we split the task into two different tasks
• Share the task
• Can an adjacent workstation do part of the work
• Use parallel workstations
• Using parallel workstations doubles the cycle time available for the task
• Use a more skilled worker
• Can a more skilled worker complete the task faster
• Work overtime
• Use longer cycle time and make up needed production using overtime
• Affects all workstations
• Redesign
• Can we redesign the product to save time
Assembly Line Balancing

• Draw Precedence/Network Diagram (Boeing case)

Task Assembly Time Precedence
A 10 -
B 11 A
C 5 B
D 4 B
E 11 A
F 3 C, D
G 7 F
H 11 E
I 3 G, H
Assembly Line Balancing

• Draw Precedence/Network Diagram

Assembly Line Balancing
• Cycle Time = Production time available/Units required
σ𝑛𝑖=1 𝑇𝑖𝑚𝑒 𝑓𝑜𝑟 𝑡𝑎𝑠𝑘 𝑖
𝑀𝑖𝑛𝑖𝑚𝑢𝑚 𝑛𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑠𝑡𝑎𝑡𝑖𝑜𝑛𝑠 =
𝐶𝑦𝑐𝑙𝑒 𝑡𝑖𝑚𝑒
• n is number of assembly tasks

• Calculate the Cycle Time and Minimum no. of workstations

required for the last example.
• Boeing determines 480 minutes of work available per day
• Requires 40 units of wing to be completed each day
Assembly Line Balancing

• Cycle time – 12
minutes/ unit
• Minimum no. of
workstations
required = 5.42
~6
• Balance the line
Exercise 1
• Draw network
diagram
• Cycle time?
• Theoretical
minimum no. of
workstations?
• Assign tasks
• Idle time?
• Efficiency?
Exercise 1

• Precedence diagram
Exercise 1

Calculations:
Production time per day 60 sec. x 420 min
C= =
Output per day 500 wagons
25,200
= = 50.4
500
T 195 seconds
Nt = = = 3.87  4
C 50.2 seconds
T 195
Efficiency = = = 0.77 = 77%
N a C 5(50.4)
Exercise 1

• Precedence
diagram
Exercise 2
• Draw network
diagram
• Cycle time?
• Theoretical
minimum no. of
workstations?
• Assign tasks
• Idle time?
• Efficiency?
Case Study: Executive Shirt Company

• Output
Demand Forecasting

• Forecasting is a process of prediction a future event based on

past information.
• A good forecast should be accurate, reliable, easy to use,
meaningful and timely.
• Forecasts for shorter period are more accurate than longer
period
• It is rarely perfect
 Important for strategic and planning decisions

Marketing
• Sales force allocation
• New product introduction
Human resources
Demand • Workforce planning
Forecasting: • Hiring
• Layoffs
Importance Capacity Assessment
• Plant/Equipment investment

Production
• Scheduling
• Inventory management
• Aggregate planning
 Forecasting Approaches

Qualitative Quantitative

• Used when little or less data exist • Used when historical data is
• Involves experience or intuition available
• Can be biased • Involves mathematical models
• Mostly used for new products or • Depends upon the quality of data
technology • Used for existing products or
• Example- forecasting sale on technology
internet • Example- forecasting sales of
automatic washing machine
Forecasting Time Horizon

Time range of up to 1 year

Short-term forecast Commonly used for purchasing, job
scheduling, job assignment, production levels

Time ranges from 1 year to 3 years

Mid-term forecast Sales and production planning, Budgeting

Time ranges above 3 years

Long-term forecast New product planning, facility location,
research and development
Demand Forecasting: Steps
Step 1 Step 6 Step 7
• Determine the • Make the • Results
use of forecast forecast validation and
implementation

Step 2 Step 5
• Selection of • Data collection
items to be
forecasted

Step 3 Step 4
• Determination • Selection of
of time horizon forecasting
model
 Jury of executive opinion
• Group of high-level experts
• Combines managerial experience with statistical
models

Delphi method
Overview
• Panel of experts iteratively queried until consensus is
of achieved
• Involves Decision makers, staffs and respondents
Qualitative
Sales Force Composite
Methods • Each salesperson projects his/her sales
• Sales representative knows customer’s requirements
Consumer Market Survey
• Customers are asked about purchasing plans
• Difficult to answer
 Time Series Forecasting
• Decomposition of time series
• Naïve Approach
• Moving Averages
• Exponential Smoothing
• Exponential Smoothing with trend adjustment
Overview of • Trend Projection
• Seasonal and cyclical variations
Quantitative Associative Forecasting methods
Methods • Regression Analysis
• Multiple Regression Analysis
• Correlation coefficients for regression lines
• Standard error of the estimate

Monitoring and Controlling forecasts

• Adaptive Smoothing
• Focus forecasting
Time Series Forecasting
Set of evenly spaced numerical data

Observations of the response variable at regular time periods

Depends on past values

Assumption:- Factors influencing past and present will influence the

future
 Components of Time Series
Forecasting
• Trend
• Upward or Downward
• Due to population, age, culture, etc.
• Cyclical
• Up and Down movements
• Multiple years duration
• Due to Business cycle, political or economic
factors
• Seasonal
• Regular pattern or up and down
• Due to weather, customs, etc
• Within a single year
• Random
• Unsystematic fluctuations
• Due to random variation
• Short duration
Forecast Accuracy
• Forecast Error (FE) σ 𝐹𝑜𝑟𝑒𝑐𝑠𝑡 𝐸𝑟𝑟𝑜𝑟
Mean Absolute Deviation =
• FE = Dt - Ft 𝑛

• Mean Absolute Error (MAE)

σ𝒏𝒊=𝟏 𝑫𝒊 − 𝑭𝒊
𝒏
• Mean Squared Error (MSE)
σ𝒏𝒊=𝟏 𝑫𝒊 − 𝑭𝒊 𝟐

𝒏
• Mean Absolute Percentage Error (MAPE)
σ𝒏
𝒊=𝟏 𝑫𝒊 − 𝑭𝒊 /𝑫𝒊
× 100
𝒏
Time Series Forecasting: Naïve method
• Based on assumption
• Assumed as the last demand would be the next demand
• Cost effective and sometimes efficient
• Can be a good starting point
• It can be mathematically represented as:
Ft+1 = Dt
Time Period Demand (Dt) Forecast (Ft) Forecast Error (Dt - Ft)
1 325
2 402 325 77
3 336 402 -66
Time Series Forecasting: Moving Average
Time Demand Forecast (Ft) Forecast Error
• Series of arithmetic mean Period (Dt) (Dt - Ft)
1 325
• Average the value over the set time period
2 402
• Used when the trend is little
3 336
• It can be mathematically represented as: 4 431 354 77

σ𝑛 5 475
𝑖=1(𝐷𝑡−𝑖 )
• 𝐹𝑡 = 6 446
𝑛
7 502
• Find 3-period Moving Average
8 535
• Calculate the forecast value of 4th time period
• Here, n = 3, t= 4 9 560
10 592
• Find 4-period Moving Average
Time Series Forecasting: Weighted
Moving Average
Time Demand Forecast (Ft) Forecast Error
• Weights are assigned to the time period Period (Dt) (Dt - Ft)
1 325
• Weights assignment is based on intuition
2 402
• All weights must be equal to 1
3 336
• Can be used even trend is there 4 431 353.6 77.4
• It can be mathematically represented as: 5 475
σ𝑛𝑖=1 𝑊𝑡−𝑖 𝐷𝑡−𝑖 6 446
𝐹𝑡 =
σ𝑛𝑖=1 𝑊𝑡−𝑖 7 502

• If w1 = 0.5, w2 = 0.3, w3 = 0.2 8 535

9 560
• Calculate for the 4th time period using 3-period
10 592
• Here, t=4, n=3
Time Series Forecasting: Exponential
Smoothing
Time Demand Forecast (Ft) Forecast Error
• A form of weighted moving average Period (Dt) (Dt - Ft)
1 325 0 325
• Weights declined exponentially
2 402 325 77
• Requires smoothing constant (α) which 3 336 332.7 3.3
ranges from 0 to 1 4 431
• It can be mathematically represented as: 5 475
𝐹𝑡+1 = 𝐹𝑡 + 𝛼(𝐷𝑡 − 𝐹𝑡 ) 6 446
7 502
8 535
• Compare forecasts, If α = 0.1, α = 0.2, α = 0.3
9 560
• Calculate the forecast value of 3rd time period, 10 592
• α = 0.1
Associative Forecasting

• Used when changes in one or more independent variables

affect dependent variable
• Dependent on independent variables
• These models represent association between dependent and
independent variables
• Most used tool is linear regression
• Additional variables require multiple regression
Associative Forecasting: Linear
Regression
• Let X be the independent variables
and Y be the dependent variables
• Equation for linear regression would
be
𝑌 = 𝑎 + 𝑏. 𝑋
• Where the slope of line can be
calculated as
σ 𝑋𝑌 − 𝑛 𝑋ത 𝑌ത
𝑏=
σ 𝑋 2 − 𝑛 𝑋ത 2
• And intercept can be solved by
𝑎 = 𝑌ത − 𝑏. 𝑋ത
Associative Forecasting: Linear
Regression Problem
Manpower
Time Period Resource (X)
Requirement (Y)
1 45 443
2 56 543
3 66 654
4 68 667
5 71 689
6 76 745
7 80 764
8 84 778
9 88 843
10 92 851
11 94 879
12 97 889
Case Study: An Ice-cream seller
• An ice-cream seller has a annual data of ice-cream sales of past 5 years. He
wants to predict his next sales in upcoming year so that he can plan production
process. He is confused and looking for more accurate forecasting model. Can
you help?
Number of customers in (‘000) {forecast of 5th year to check model}
Year Actual Naïve Moving Average Weighted-MA Exponential
(MA) Smoothing
Year 1 86
Year 2 96 86
Year 3 107 96
Year 4 116 107 =(86+96+107)/3 = =(0.5*86+0.3*96+0.
96.3 2*107)/3 = 99.5
Year 5 125 116 =(96+107+116)/3 = =(0.5*96+0.3*107+0 =125*0.7+(1-
106.3 .2*116)/3 = 109.3 0.7)*116 = 113.3
 Case Study: An Ice-cream seller
• Now the same ice-cream seller reveals its quarterly data to forecast
its sales seasonally. Should he use same forecasting model or
other? Why?
Number of customers
in (‘000)
Quarter Year 1 Year 2 Seasonal Index
Fall 13 15
Quarter Year 1 Year 2 Avg.
Winter 22 24
Fall 13/21.5 15/24 0.61
Spring 19 21
Winter 22/21.5 24/24 1.01
Summer 32 36
Spring 19/21.5 21/24 0.87
Average 21.5 24
Summer 32/21.5 36/24 1.49
Average 21.5 24
Case Study: An Ice-cream seller
{Exponential smoothing
seasonality adjusted}

Quarter Avg. demand for Seasonality Forecasted data

year 3 Index
Fall 107/4 = 26.75 0.61 0.61*26.7 = 16.4
Winter 107/4 = 26.75 1.01 1.01*26.7 = 27.0
Spring 107/4 = 26.75 0.87 0.87*26.7 = 23.5
Summer 107/4 = 26.75 1.49 1.49*26.7 = 39.9
Customers? Service Providers?
Services
Introduction
• Every organization is involved in both products and
services
• Service management is need of an hour
• What are services?
• Service(s) – an activity or process or set of steps
• What does Service mean?
• It may differ from the perspective where it is being offered
• Example: Meaning of service may differ for consulting firm from it
is being offered at restaurant or bar
Introduction
• Services can be seen from both perspective: customer and
operation
• Operations perspective (Inside Out)
• Service provided
• Its output designed & created
• Operations and customer meet
• Customer perspective (Outside In)
• Service received (experienced by customer)
• In terms of products, emotions, benefits
• Judgements, intentions
services
Introduction
• Aspects of Customer Experience
• Degree of personal Interaction
• Responsiveness
• Flexibility
• Customer Intimacy
• Ease of access
• Feeling valued
• Courtesy and competence
• Interaction with other customers
Service Package
Supporting facility

• The physical resources that must be in place before a service can be offered

Facilitating goods

• The material purchased by the buyer or the items provided to the customer

Information

• Data provided by the customer

Explicit services

• Benefits that are observable by the senses

Implicit services

• Psychological benefits the customer may sense only vaguely

Service Outcomes
• Products
• Tangible; Ex.- food, pacemaker implantation, spreadsheet
• Benefits
• Gained from the service; Ex.- maximized profit, skills, longer life
• Emotions
• Joy, Sad, Happy, Love, Surprise, Fear, Anger, Shame
• Judgements
• Conscious or unconscious assessment; experience and perceived
benefit
• Intentions
• Judgements results in intentions; repurchase, recommend, complaint
Service Design

• Service design – choice of a service strategy

• Processes or skills needed
• Physical resources required
• Cost and Quality – the main focus
• Delay customization
• Modularization
• Reduce customer interaction – automation
Service Design:
Process Chain
Network
Analysis
To optimize interaction
between firms and their
customers
Service Design: Characteristics

• Deviation from the standard service – Divergence

• Complexities of activities – increases with divergence
• Service Location
• Customer Participation
• Service Itself
• Process based
• Technology based
Service Organizational Design
• Cannot inventory services
• Must meet demand as it arises
• Service capacity is a dominant issue
• “What capacity should I aim for?”
• Marketing can adjust demand
• Cannot separate the operations management function from
marketing in services
• Waiting lines can also help with capacity
Service vs. Product Design
• The process and the product must be developed simultaneously
• The process is the product
• A service operation lacks the legal protection commonly available to
products
• The service package constitutes the major output of the development
process
• Many parts of the service package are defined by the training individuals
receive
• Many service organizations can change their service offerings virtually
overnight
Service System Design Matrix
• Service encounters can be configured in a number of different
ways
• Mail contact
• Internet and on-site technology
• Phone contact
• Face-to-face tight specs
• Face-to-face loose specs
• Face-to-face total customization
• Production efficiency decreases with more customer contact
• Low contact allows the system to work more efficiently
Service System Design Matrix
Characteristics: Customer/Service
Contact
Managing Customer-Introduced
Variability
• How should services accommodate the variation introduced
by the customer?
• Standard approach is to treat this as a trade-off between cost
and quality
• More accommodation → more cost
• Less accommodation → less satisfaction
• Standard approach may overlook ways to accommodate
customer
Five Types of Variability
Arrival variability

• Customers arriving at times when there are not enough service providers

Request variability

• Travelers requesting a room with a view

Capability variability

• A patient being unable to explain symptoms to doctor

Effort variability

• Shoppers not putting up carts

Subjective preference variability

• Interpreting service action differently

Divergence in Service
Divergence in Service

• Mode A: High touch service; most personal care services fall

in this
• Mode B: only service provider has access to technology; X-ray
service
• Mode C: both have same technology
• Mode D: restaurant reservation
• Mode E: self services; ATMs, Self check-in
 Divergence in Service
Degree of Customer Low Divergence (Standardized) High Divergence (Customized)
Contact
Goods Information People Goods Information People
processing processing processing processing processing processing

No Customer Contact Dry Clean Credit Card Auto repair Design

billing Suit building
tailoring
Indirect Customer Grocery ATC
Contact ordering supervising
the landing

Direct Self service Operating ATM Riding Bagging Information Rental car
Custome vending withdrawal escalator groceries search at driving
r Contact machine library

Service firm Food service at Giving Mass Carpet Counselling Haircut

interaction restaurant Lecture vaccination cleaning
Behavioural Science to Service
Encounters
• The front-end and back-end of the encounter are not created
equal
• Segment the pleasure, combine the pain
• Let the customer control the process
• Pay attention to norms and rituals
• People are easier to blame than systems
• Let the punishment fit the crime in service recovery
Service Blueprinting
• Blueprints – design which is captured on architectural
drawings used to see what building or system will look alike
• Service delivery can be captured in same manner
• Service Blueprinting – Focus on customer process flow with
representation of interaction with staff and support services
• Consider an example of attending San Francisco Giant
Baseball Game
• Develop sequence of events experienced by customer
Service Blueprinting
Service Fail-Safing
• Poka-yokes: procedures that block a mistake from becoming a service
defect
• Common in factories
• Many applications in services
• Warning methods
• Physical or visual contact methods
• Three T’s
• Task to be done
• Treatment accorded to the customer
• Tangible features of the service

• Must often fail-safe actions of the customer as well as the service workers
Well Designed Service: Characteristics

• Each element of the service system is consistent with the operating focus
of the firm
• It is user-friendly
• It is robust
• Consistent performance by its people and systems is easily maintained
• It provides effective links between the back office and the front office
• Managing the evidence of service quality so that customers see the
value of service provided
• It is cost-effective
Waiting Line Management
• Cost of waiting – cost of keeping an employee waiting is
unproductive wages; cost of customer waiting is forgone
alternative
• Excessive waiting or expectation of long queue – lost sales
• Strategy – conceal the queue from arriving customers
• Engage the customers
• In service systems, high utilization of resources is purchased at
price of customer waiting
Waiting Line Management
• Queue – line of waiting customers who require service form one
or more than one servers
• Servers need not to be limited to server one customer at a time
• Customer need not always travel to service facility
• Service may consist of stages of queues in a series of network
• Waiting is an integral part of everyone’s life
Waiting Line Management
• Strategies for Managing Customer Waiting
• The psychology of Waiting
• David H. Maister was one of the leading researcher to
investigate the human psychology of waiting
• Suggested two laws of service – first deals with customers’
expectation vs perceptions
• Second deals with the waiting time pleasant or atleast
tolerable
Waiting Line Management
• That Old Empty Feeling
• People dislike empty time; gives feeling of carelessness
• Often, merely providing comfortable chairs may fill the void
• At Romano’s Macaroni Grill, diners waiting for table see chef
preparing food keep them engaging
• A Foot in the Door
• Service-related diversions can also help to fill the gap
• Example, handing out menu to waiting diners, medical form to
patients
Waiting Line Management
• The Light at the End of Tunnel
• Managers should recognize the anxieties of customers and
alleviate them
• Employee acknowledgement of customers’ presence
• Zero-waiting time at check-out corner
• Excuse Me, but I was Next
• Simple way to avoid violations is First Come First Serve rule
Waiting Line Management
• Queuing System

• Calling Population – it may consider several sub-populations

Waiting Line Management
• Arrival process – empirical studies indicate that the
interarrival times are exponentially distributed
Waiting Line Management
• Poisson and Exponential distribution relationship
Waiting Line Management
• Arrival Process
Waiting Line Management
• Queue Configuration – number of queues, their locations,
their spatial requirements and its impact on consumer
behavior
• Jockeying – switching lines
Waiting Line Management
• Queue Discipline
Waiting Line Management
• Service Process
Queuing Models
• Queuing Models
Waiting Line Models
• Operating Characteristics of Queuing model
• Queue length – average number of customers in the queue waiting
for service
• System length – average number of customers in the system (those
who are in queue + who are getting service)
• Waiting time – average time customer has to wait in the queue
• Total time – average time customer spends in the system
• Service idle time – relative frequency with which service system is idle
Waiting Line Models
• Deterministic models – customers arrival is at regular intervals
and service time is known and constant
• Arrival rate is denoted by λ per unit time
• Service rate is denoted by μ per unit time
• The ratio ρ = λ/μ is known as average utilization or traffic
intensity or clearing ratio
• If, λ > μ ; waiting line shall be formed
• If, λ <= μ; no waiting line
Waiting Line Models

• Service Process
Waiting Line Models

• Distribution of arrivals is considered as Poisson distribution

• Poisson probability function
Waiting Line Models

• Consider an example of Burger Dome operation where an

employee takes an order, determines the cost of order,
receives payment from the customer and then fills the
order
• Once the order of first customer is filled, employee takes
order of next customer waiting in the queue
• Example of single-server waiting line
Waiting Line Models

• Suppose the arrival rate at Burger Dome is 45 customers

per hour
• For one-minute time period, the arrival rate would be 45/60
= 0.75 customers per minute
• Probability of 0 customer arrival in one minute?
• Probability of 1 customer arrival in one minute?
• Probability of 2 customers arrival in one minute?
Waiting Line Models

• Distribution of service time is considered as Exponential

distribution
• Exponential probability function
Waiting Line Models

• For the case of Burger Dome, suppose an employee can

process an average of 60 customer orders per hour
• Service rate in one-minute time period = 1 customer per minute
• Probability the order can be processed in 30 seconds or less?
• Probability the order can be processed in 1 minute or less?
• Probability the order can be processed in 2 minutes or less?
Waiting Line Models
• Operating Characteristics
• Probability that no units are in the system
• Average number of units in the waiting line
• Average number of units in the system
• Average time a unit spends in the waiting line
• Average time a unit spends in the system
• Probability that an arriving unit has to wait for service
• Probability of n units in the system
Waiting Line Models

• Consider the Burger Dome problem, find out

• Probability that no units are in the system
• Average number of units in the waiting line
• Average number of units in the system
• Average time a unit spends in the waiting line
• Average time a unit spends in the system
• Probability that an arriving unit has to wait for service
Waiting Line Models

• Consider the Burger Dome problem; = 0.75 customers per

minute, = 1 customer per minute
Waiting Line Models

• How can you increase the customer experience?

• Increase the service rate by creative design
• Add one or more servers

• Suppose the service rate has been increased for Burger

Dome example to 75 customers per hour?
• What change you observe?
Waiting Line Models

• Some basic relationships

• John D. C. Little showed the relationships, thus known as
Little’s flow equations
Waiting Line Models
• Kendall’s Notation A/B/s
• Where,
A = arrival probability distribution; M (Markovian) for Poisson
distribution, D for Deterministic distribution, G for general distribution
B = service time probability distribution; M (Markovian) for
Poisson distribution, D for Deterministic distribution, G for general
distribution
s = number of servers
• M/M/1 → Arrival – Poisson/ Service – Poisson/ single server
Waiting Line Models: M/M/1
• Assumptions
• Arrivals are served on FIFO basis
• Every arrival waits to be served; no balking and reneging
• Arrivals are independent, average number of arrivals is constant
• Arrivals are Poisson distributed and have infinite population
• Service times vary from one unit to other and are independent to each
other
• Service times are exponentially distributed
• Service rate is greater than the average arrival rate (λ < μ)
 Waiting Line Models: Example 1

Ans: a) 2; b) P(0) = 0.135, P(1) = 0.270, P(2) = 0.270, P(3) = 0.180; c) P(x>3) = 1 – 0.857 = 0.143
Waiting Line Models: Example 2

Ans: a) 0.1667 b) 4.1667 c) 0.4167 hours d) 0.50 hours e) 0.8333

 Waiting Line Models: Example 3

Ans: a) 0.375 b) 1.0417 c) 0.833 mins. d) 0.625 e) 50 sec. waiting time seems reasonable
THANK YOU