Business Excellence

and
Organizational Improvement

ConSolution PLC
May 27, 2017

Daniel Kitaw (Professor)

School of Mechanical and Industrial Engineering
Addis Ababa Institute of Technology
Addis Ababa University

Founding Fellow, Ethiopian Academy of Sciences

 Climate Setting

• Knowing each other

• Setting ground rules

• Notes

• Cell phones

2
 Reflections
 What comes to your mind when you hear the term
• Product design
• Material management
• Productivity and efficiency
• Production Capacity planning
• Why do we need to undertake THESE in our daily
business?
• What questions about THESE would you like to be
answered for you during this training?

3
 Objective:
• After the training, you are expected to:

 Understand and know why

• Product design
• Material management
• Productivity and efficiency
• Capacity planning

is so important?
 Understand and apply principles
 Understand other issues related to THESE

4
 What You are Getting is
• A gift of life-long value from your
organisation.

• A gift you can take with you

wherever your career leads you.
Product Design
 Product Design

The design of the product is the foundation

upon which a plant layout is built.

 Design for function: in order to create a

satisfied customer or to attract customers, a
product must perform the function for which
its customer intends to.
 Cont’d

 Design for manufacturing: a product that

solves the functional problem nicely, but is
impossible to manufacture, is worthless.

 Design for selling: a product that functions

well and easy to make, but wanted by no one is
useless.
 The design process

• Recognition of need realizes a problem that

exists for which some action can be taken.
• Definition of the problem involves a thorough
specification of the item to be designed.
• Synthesis, Analysis are closely related and
highly interactive in the design process
 Cont’d

• Evaluation is measuring the design against the

specifications in the problem definition phase.

• Presentation is the documentation of the

design by means of drawings, material
specifications, assembly lists, and so on.
 Design process
Recognition of
Computer-aided
need The design Process design

Recognition
Definition of of need
Problem

Problem
Definition
Synthesis

Geometric
Synthesis Modeling

Analysis and
Optimization Engineering
Analysis and Analysis
Optimization

Evaluation Design Review

Evaluation and evaluation

Automated
Presentation Presentation
Drafting

Design process Using CAD

The general design process
 Cont’d

CAD is used in the phases of the design process.

 Synthesis (geometric modeling)

 Analysis and optimization (engineering
analysis)
 Evaluation (design review and evaluation)
 Presentation (automated drafting)
 Cont’d
Geometric modeling is the use of a CAD system
to develop a mathematical description of the
geometry of an object.
Two-dimensional models are best utilized
for design problems in two dimensions, such
as flat objects and layouts of buildings.
Three-dimensional CAD systems are
capable of modeling an object in three
dimensions
 Cont’d
Geometric models in CAD can also be
classified as being either
•A wire frame model uses interconnecting
lines to depict an object.
•Solid models are a more recent development
in geometric modeling and an object is modeled
in solid three dimensions, providing the user
with a vision of the object very much like it
would be seen in real life.
 Cont’d

• Color capability enhances the ability of the user to

visualize the object on the graphics screen.
• Animation capability permits the operation of
mechanisms and other moving objects to be
displayed on the graphics monitor.
 Cont’d

Computer-aided engineering analysis helps the

designer’s to perform a thorough analysis.
 Mass properties analysis involves the
computing of solid object as its volume,
surface area, weight, and center of gravity.
 Finite-element analysis is available on most
CAD systems to aid in heat transfer
stress-strain, and other engineering
computations.
 Cont’d
CAD for evaluating and reviewing a design include:
Automatic dimensioning routines, which
determine precise distance, measures between
surfaces on the geometric model.
Interference checking routines, identify
whether, two objects occupy the same space.
Kinematics routines, used to test the operation
of mechanical linkages.
 Cont’d

CAD for design presentation

•CAD systems can be used as automated
drafting machines to prepare highly accurate
engineering drawings quickly.
Material Management
 Inventory control

• Inventories are those materials and supplies

carried on hand by a business or institution
either for sale or to provide inputs or supplies
to the production process.
• Inventory management is responsible for
planning and controlling inventory from the
raw material stage until it reaches the
consumer.
 Cont’d

 Raw materials , they include purchased

materials, component parts, and
subassemblies.
 Work in process (WIP): Raw materials
that have entered the manufacturing
process and are being worked on or are
waiting to be worked on.
 Cont’d
 Finished goods: The finished products of the
production process that are ready to be sold
as completed items.
 Distribution inventories: Finished goods that
are located in the distribution.
 Maintenance, repair, and operational supplies
(MROs): Items that are used in production
but do not become part of the product.
 Cont’d
Inventories can be classified according to the
function they perform.
i) Anticipation Inventory: These inventories are
built up in advance of a peak selling season, a
promotion program, vacation shutdown, or possibly the
threat of a strike. ii) Fluctuation Inventory:
Inventory is held to cover random unpredictable
fluctuations in supply and demand or lead time.
 Cont’d

iii) Lot Size Inventory: Items that are

purchased or manufactured in quantities
greater than needed immediately create lot size
inventories. Items will be ordered in lots or
batches to get quantity discounts.
iv) Transportation Inventory: They are
sometimes referred to as pipeline or movement
inventories.
 Cont’d

• v) Hedge Inventory: Some products such as

minerals and commodities (e.g., grains or
animal products) are traded on a worldwide
market. The price for these products
fluctuates according to world supply and
demand. If buyers expect that prices will
rise, they can purchase hedge inventory when
prices are low.
 Cont’d
Costs that are relevant to inventory
management decisions are:-
item cost, The price paid for a purchased
item consists of the cost of the item and
any other direct costs associated in getting
the item into the plant.
carrying costs, These costs include all
expenses incurred by the firm because of
the volume of inventory carried.
 Cont’d
ordering costs, These are costs associated with
the placing of an order either with the factory or
a supplier.
stock out costs, If demand during the lead time
exceeds forecast, then we can expect a stock
out.
capacity-related costs, When output levels
change, costs are incurred for overtime, hiring,
training, extra shifts, and layoff.
 Cont’d
The ABC principle is based on the observation that
relatively few items often dominate the results
achieved in any situation. (Pareto's law)
"A" class about 20% of the items account for
about 80% of the Birr usage.
"B" class about 30% of the items account for about
15% of the Birr usage.
"C" class about 50% of the items account for about
5% of the Birr usage.
 Cont’d

 A - items: high priority: tight control

including complete accurate records, regular
and frequent review by management, frequent
review of demand forecasts, and close follow-
up and expediting to reduce lead time.  
 B - items: medium priority: normal controls
involving good records, regular attention and
normal forecasting.
 C - items: lowest priority: simplest possible
controls make sure there are plenty.
 Economic Order Quantities (EOQ)

• The major costs associated with procuring

and holding inventories are discussed in
inventory cost.
• The total cost (TC) is the sum of all the costs.

Total Cost  Ordering cost  Carrying cost  Purchase cost

 Stockout cost  Capacity related costs
 Cont’d

• Model 1
• For a simplified model assuming that stockout
& capacity related costs are zero, the cost
reduces to the following.
Co order D units
Ordering cost   
order Q units year

Cc Q units
Carrying cost  
unit  year 2
 Cont’d

P Birr D units
Purchase cost  
unit year
Where
D  Demand in units on an annual basis
Co  Cost to prepare or setup an order
Cc  Cost to carry a unit in stock for a given time period
P  Purchase cost
Q  Lot size, and Q 2 is average inventory.
 Cont’d

D Q
TC  C o  Cc  PD
Q 2

Differentiating with respect to the order

quantity Q.
 

dTC D Cc
 Co 2 
dQ Q 2
 Cont’d

• Setting this first derivative equal to zero

identifies the point where the TC is minimum.

D Cc
0  C o 
Q2 2

• Solving for Q results the Economic Order

Quantity (EOQ):
Cont’d
 Cont’d

Inventory Pattern of Instantaneous Replenishment and

Constant Demand
 Safety Stock

• Safety stocks (SS) are the primary means of

allowing for random variations in demand and
lead time.
• The order point (OP) is the inventory level at
which a replenishment order Q is placed.
• It should include a sufficient quantity to
handle demand during the lead time (DLT) plus
a designated margin of safety stock.
 Cont’d

Causes of Stock out and the Buffer Provided by Safety Stock

 Quantity Discounts

• Quantity discounts are lower unit prices

offered to buyers who purchase in large
volumes.
• The most expedient approach to finding if the
discounted is favorable is to follow the
following steps.
 Cont’d

Typical Quantity Discount Pattern

Productivity and efficiency
Productivity concept
“Productivity is a state of mind… an attitude
that seeks the continuous improvement of
what exists. It is a conviction that one can do
better today than yesterday and that
tomorrow will be better than today.”

European Productivity Agency(1959)

Productivity concept
“Productivity is an attitude of mind that
strives for and achieves the habit for
improvements, as well as the systems and the
set of practices that translate the attitude
into action…”
National Productivity Board, Singapore
Productivity concept
• Tripartism
– Tripartite involvement in productivity
movement
– Harmonious labour management relation
• Sharing of productivity gains
– Fruits of higher productivity shared among
stakeholders
 Productivity concept

Output
Firm-level Productivity =
Worker

Gross Domestic Product

National-level Productivity =
Workforce
 Productivity concept
Productivity Growth = Total Factor Productivity Growth(TFP)
+
Capital Intensity(CI) Growth

TFP = A measure of how well resources are used

CI = Capital per Worker
Productivity concept

Global

Higher Higher Higher International

Quality productivity competitiveness
multinational

Export
Productivity concept
Standard of living

Economic Growth

Productivity Growth + Employment Growth

TFP Growth + Capital Intensity Growth

Productivity concept
Factor Contributing to Higher TFP
• Skill level of the workforce
• Technical progress as indicated by
 Innovation, advances in knowledge, better
management systems, positive work attitudes
and teamwork
• Industrial Restructuring
 Shifting of resources - more productive
sector
Productivity
Productivity … Cont’d
Productivity … Cont’d
Productivity … Cont’d
Productivity … Cont’d
Productivity … Cont’d
Productivity … Cont’d
Productivity … Cont’d
 Production
and
Capacity Planning
 Contents

 Introduction
 Business Planning
 Production Plan
 Aggregate Planning
 Master Production Schedule
 Capacity Planning
 Introduction
 A business will need sufficient people with the
proper skills, building space, power,
telephones, and perhaps computers and other
equipment necessary to serve its customers
well.

 Top management determines in general terms

the target to be met and the level of business
to be carried out.
 Cont’d

 Each function then plans the resources it will

require to perform at the planned level.

 A part of good planning, includes developing

plans to provide sufficient, but not excessive,
amounts of all the right resources when they
are needed.
 Business planning

 Business planning addresses both the long-

and intermediate-range decisions for running
the business.

 The conditions and decisions are evaluated in

terms of their financial impact on the
business, and the plans are expressed in
financial terms.
 Production Plan

 The production plan states, in general terms,

the total amount of output that is the
responsibility of manufacturing to produce
for each period in the planning horizon.
Development of More Detailed Levels of Plans
 Aggregate planning

 Aggregate planning is the process of

aggregating (i.e., consolidating or grouping of)
all the requirements for capacity for each
period in the intermediate horizon and
determining the best way to provide the
needed capacity.
 Cont’d
 Aggregate planning considers the variables that
can be used to adjust the capacity within the
intermediate horizon
 The most common variables are:-
 work force size,
 production rate in terms of the number of
hours worked per day or week, and
 inventory
 Cont’d
 If only one variable is adjusted to deal with non
uniform demand within the planning horizon, it is
called a "pure strategy"; the adjustment of more
than one variable is called "mixed strategy."
 Aggregate planning can be performed by a
variety of methods.
 The most common method is the trial- and-error
or intuitive approach.
 Master Production Schedule

 The master production schedule (MPS) is the

plan that states what is to be produced, how
many are to be completed, and when they are
to be completed
 It should include all planned production that
will place significant demands on
manufacturing resources.
 Cont’d

 A good master schedule should make enough

products to serve customer demand but
should not overproduce and create excessive
inventory.
 The sum of the specific items in the MPS
should be consistent with the rate of
production promised by manufacturing in the
overall business plans.
 Material Requirements Planning

 Material requirements planning (MRP) is a

computational technique master schedule that
converts the master schedule for end
products into a detailed schedule.
 The detailed schedule identifies the
quantities of each raw material and
component item.
 Capacity Planning

 Capacity management is responsible for

determining the capacity needed to achieve
the priority plans and with providing,
monitoring, and controlling that capacity so the
priority plan can be met.
 There are two phases,
 capacity planning and
 capacity control.
 Cont’d
 Capacity planning is the process of
determining the resources required to meet
the priority plan and methods of making that
capacity available.
 It links the various production priority
schedules to manufacturing resources.
 If the capacity cannot be made available, then
the priority plans have to be changed.
 Rough-cut capacity planning
 The master production schedule is the primary
information source.
 The purpose is:-
 to check the feasibility of the MPS,
 provide warning of any bottlenecks,
 ensure utilization of work centers,
 and advise vendors of capacity requirements.
Priority and Capacity Planning and Control
 Cont’d

 The available capacity is affected by the

followings:
 Product specification
 Product mix
 Work effort
 Plant and equipment
 Cont’d
 There are at least three levels at which
capacity needs to be measured:
 Machine or individual worker.
 Work center
 Plant
 Capacity Planning Procedures

 Determining Available Time

 Utilization
 Efficiency
 Rated Capacity
 Demonstrated Capacity
 Required Capacity
 Capacity Requirements Planning
 The capacity requirements plan (CRP) occurs at
the level of the MRP.
 It takes planned orders from the MRP and open-
shop orders (scheduled receipts) and converts
these into demand for time in each work center in
each time period.
 It takes into consideration lead times for
operations and offsets the operations at work
centers accordingly.
 Cont’d

 The inputs needed for a CRP are:-

 open-shop orders,
 planned order releases,
 routings,
 time standards,
 lead times, and
 work center capacities.