CHAPTER I

INTRODUCTION TO PRODUCTION AND

OPERATIONS MANAGEMENT

1
 CHAPTER OUTLINE
 INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT
 Definition of Operations Management
 Operations Decisions - A Framework
 Cross-Functional Decision Making
 Operations as a System

1-2
 What is POM?

Production is the creation of goods and services

Production and/or Operations Management
are the activities that transform resources into goods
and services
 Why Study POM?

It is one of the 3 critical parts of any organization:

 Marketing – generates demand
 Operations – creates the product
 Finance/accounting – tracks organizational
performance, pays bills, collects money
It shows us how goods and services are produced
It shows us what POM managers do
It is the most costly part of any organization
 Why Study Operations Management?
Systematic Approach
to Org. Processes

Business Education/
Operations
Increase Competitive
Career Opportunities Management Advantage/Survival

Cross-Functional
Applications
3
 Definition of Operations
Management 1-6
 Operations Management can be defined as the management of
the conversion process, which converts land, labor, capital, and
management inputs into desired outputs of goods and services.

It is also concerned with the design and the operation of systems
for manufacturing, transport, supply or service.

Operations management can also be defined as planning,

organizing and controlling the production process
and its interfaces within the organization and with the external
environment.
 Cont…
7

 OM defined as the design, operation and improvement

of the systems that create and deliver the firm’s
primary products and services

 OM is concerned with the management of entire system

(from input to output) that produces goods or
deliver products. (deals with effective and efficient
transformation process)
 Key OM Concepts

Efficiency - Doing something at the lowest

possible cost

Effectiveness - Doing the right things to create

the most value for the organization

Value - Quality divided by price

8
 Operations Decisions

System Design
 capacity
 location
 arrangement of departments
 product and service planning
 acquisition and placement of equipment
 More Operations Decisions

System operation
 personnel
 inventory
 scheduling
 project management
 quality assurance
 Definition of Production
11

Production is defined as “the step-by-step

conversion of one form of material into another
form through chemical or mechanical process to
create or enhance the utility of the product to the
user.
Edwood Buffa defines production as ‘a process by
which goods and services are created
Thus, production is a value addition process.
At each stage of processing, there will be value
addition.
 Definition of the Operations
Function 12

The operations function can be described as

the part of the organization devoted to the
production or delivery of goods and services.
 Operations Function

 The Operations function consists of all

activities directly related to producing
goods or providing services.

O rganization

F inance P roduction/O perations M arketing

 Key Elements of Operation
Management
14
 Product selection and design
 Process selection and planning
 Facilities (plant) location, Facilities layout
and material handling
 Capacity planning
 Production planning and control (PPC)
 Inventory control
 Quality assurance and control
 Cost reduction and cost control
 Key Points in OM Definition
Operation Management
1-15 is the field of study that

tries to understand, explain, predict and change

organizational and strategic effects of the
transformation process.
Hence, OM deals with the effective and efficient
management of the transformation process
Decisions : the operations manager must make
Decisions (process, quality, capacity, and inventory)
Functions : Operation is the main function in the
organization.
Process: Plan and control Process for producing
goods and services
Major Decisions Framework for
OM
1-16

Process
 How to produce & deliver
Quality
 Criteria, measurement & process for
achieving
Capacity
 Physical facilities & labor
Inventory
 What, when & how much?
Examples of Important Policies in Operations
Policy Type Policy Area Strategic Choices
Process Span of process Make or buy
Automation Handmade or machine–made
Process flow Flexible or specialized
Job specialization Project, batch, line, or continuous
Supervision Centralized or empowered workers

Quality Approach Prevention or inspection

Systems Training Technical or managerial training
Suppliers Selected on quality or cost

Capacity Facility size One large or several small facilities

Location Near markets, labor, or materials
Investment Permanent or temporary

Inventory Amount High or low levels of inventory

Distribution Centralized or decentralized
warehouses
Control Systems Control in great detail or less detail

1-17
 Operations as a System
1-18

Energy
Materials
Labor Transformation
Goods or
(Conversion)
Capital Services
Process
Information

Feedback information for

control of process inputs
and process technology
 Cont…
19
 A system is a group of interrelated elements in

which no item studied in isolation will act in the

same way as it would in the system.
A system is divided into a series of parts or
subsystems, and any system is a part of a larger
system.
 Characteristics of the Production
System
20

Production is an organized activity, so every

production system has an objective.

 The system transforms the various inputs to useful

outputs.

It does not operate in isolation from the other

organization system.

 There exists a feedback about the activities, which is

 Relation of Operations to its
Environment
1-21

SOCIETY
External
Human Environment
Engineering Marketing
Resources

Suppliers Operations transformation system CUSTOMERS

Accounting Finance MIS

COMPETITORS
GOVERNMENT
Distinguishing between Manufacturing and Service
Operation

Characteristics of
Goods
 Tangible product
 Consistent product
definition
 Production usually
separate from
consumption
 Can be inventoried
 Low customer interaction
© 1995 Corel Corp.
 Characteristics of Services

 Intangible product
 Produced & consumed at
same time
 Often unique
 High customer interaction
 Inconsistent product
definition
 Often knowledge-based
 Frequently dispersed
© 1995 Corel Corp.
 Goods vs. Services

Goods Service
 Can be resold  Reselling unusual
 Can be inventoried
 Difficult to
 Some aspects of
inventory
quality measurable
 Selling is distinct  Quality difficult to
from production measure

 Selling is part of
service
 Goods vs. Services - Continued

Goods Service
 Product is  Provider, not product
transportable is transportable
 Site of facility  Site of facility
important for cost important for
customer contact
 Often easy to  Often difficult to
automate automate
 Revenue generated  Revenue generated
primarily from primarily from
tangible product intangible service
 Contemporary Themes in Operations
1-26

1) Service and Manufacturing

2) Customer-Directed Operations

3) Time Reduction (Lean Operations)

4) Integration of Operations and Other

Functions
5) Supply Chain Management

6) Environmental Concerns
 27
7) Globalization of Operations
Forces of Globalization

MARKET DRIVERS

MANUFACTURING
COST PROCESS TECHNOLOGY
DRIVERS GLOBALIZATION DRIVERS
POTENTIAL

POLITICAL AND
ECONOMIC DRIVERS
 1. Global Market Forces 28

 Increased foreign competition

 Implications

 Compete against world class competition

 Even small companies have global concerns

• Growth in foreign demand

 Implications

 Need to target foreign markets for growth potential

 Global presence helps smooth demand fluctuations

 Cont…
29

Changing competitive priorities

 Implications
 Product life cycle approach to international
operations not valid
 Simultaneous product development in all
markets
 Local presence needed for customization and
fast response
 2. Technological Forces
30

Technological advancements in
transportation/communication

 Diffusion of technological knowledge

Technology-driven joint venture

 3. Global Cost Forces
31

Diminishing importance of direct labor cost

in offshore sourcing strategies
New cost priorities drive globalization
Access to markets
 Timely delivery
 Access to skilled workers
 Quality
 Availability of suppliers
Increasing capital intensity of production
facilities
 CHAPTER II
COMPETITIVENESS
AND
OPERATIONS STRATEGY
 Study objectives:
 To understand how a strategy is
developed
 To describe the strategic management
process
 To explain the operations strategy
development process
 To understand the three levels of strategies
 To know the elements of an operations
strategy
 2.1 Competitiveness
A firm obtains competitive advantage from
its functions.
Operations has a major influence on a firm’s
competitiveness through;
 Product and service design
 Facility location
 Quality
 Response time
 Flexibility
 Inventory and supply chain management
 Cont…
Competitiveness of a
company is its ability to
compete and prosper in the
marketplace.

Competitiveness can be
thought of as a measure of
productivity or the
efficiency of converting
natural and human
resources into useful
products and services.
2.2 The Productivity Challenges and its measures
36

The creation of goods and service requires changing

resources into goods and services. The more
efficiently we make this change the more productive
we are.
Productivity is the ratio between the amount
produced and the amount of resources used in the
course of production. The resources may be any
combination of materials, machines, men and space.
 According to Peter Drucker, “productivity means a
balance between all factors of production that will
give the maximum output with the smallest efforts.”
 Definitions of productivity
 European productivity council defines “productivity is an attitude of
mind. It is mentality of progress, of the constant improvement of that
which exists. It is the certainty of progress, of the constant
improvement of that which exists. It is the certainty of being able to
do better than yesterday and continuously. It is the continual effort to
apply new techniques and methods. It is the faith in human
progress.”
 The operations manger’s job is to enhance (improve) this
ratio of outputs to inputs. Improving productivity means
improving efficiency.
 This improvement can be achieved in two ways:
 a reduction in inputs while output remains constant, or
 an increase in output while inputs remain constant.
 Productivity

Productivity is the ratio

38
of outputs to inputs
i.e.
Productivity is a measure of the efficiency of
the system
Partial or Single Factor Productivity
Single factor productivity (SFP)
SFP = Output or Output or Output or Output
Labor Capital Materials Energy
 Total Measure
39
Productivity
Total measure Productivity = Outputs
Inputs
or
 = Goods and services produced
All resources used
 Multifactor Measure
40 Productivity

Multifactor measures of productivity =

or

 Example of Productivity Measurement
41

Tendaho Sugar Factory is compiling the monthly

productivity report for its BOD. The average labor
rate is Birr 15 an hour, and the average machine
usage rate is Birr 10 an hour.

Units produced 100,000

Labor hours 10,000
Machine hours 5,000
Cost of materials Birr 35,000
Cost of energy Birr 15,000
 Con…
42
Solution
(a) Labor productivity=output/labor hour =
100,000/10,000 =10 units /hour
(b) Machine productivity=output/machine
hours=100,000/5,000 =20 units /hour
(c) Multifactor Productivity=Output/ labor
costs+ Machine costs+ Material costs
+Energy costs
=100,000/(10,000xBr.15)+(5,000xBr10)+Br35,0
00+Br.15,000 =100,000/Br250,000 =0.4 unit
per a Birr spent
Examples of Partial Productivity Measures

Labor Units of output per labor-hour

Productivity Dollar value of output per labor-
hour
Machine Units of output per machine-
Productivity hour
Dollar value of output per
machine-hour
Energy Units of output per kilowatt-hour
Productivity Dollar value of output per
kilowatt-hour
 Numerical Example

Output Labor Machine

Units 500 - -
Hours - 26 6
Cost/unit - $8 $3
Price/unit $15 - -
 Partial Measures

Units Produced
Labor Productivity 
Labor hrs.

500
Labor Productivity   19.3
26

Explain meaning?
Partial Measures

Dollar Value of Output

Labor Productivi ty 
Labor hrs.

500 x $15/unit $7,500

Labor Productivi ty    $288.46
26 hrs. 26 hrs.

Explain meaning?
Partial Measures

Units Produced
Labor Productivi ty 
Labor cost

Units Produced

(Labor hrs.) x (Labor cost/hr.)

500
Labor Productivi ty   2.4
26 x $8

Explain meaning?
Partial Measures

Units Produced
Machine Productivi ty 
Machine hrs.

500
Machine Productivi ty   83.3
6

Explain meaning?
 Multi-factor

Units Produced
MFP 
Machine Cost  Labor Cost

Units Produced

(Machine hrs.) x (Machine cost/hr.)  (Labor hrs.) x (Labor cost/hr.)
Multi-factor
Units Produced
MFP 
(Machine hrs.) x (Machine cost/hr.)  (Labor hrs.) x (Labor cost/hr.)

500

6 x $3  26 x $8

 2.21
 A furniture manufacturing company has provided the following data.
Compare the labor, raw materials and supplies and total productivity
of 1996 and 1997.
 Output: Sales value of production in dollar ($) 22,000 (in 1996) and
35,000 (in 1997)
1996 1997
Inputs: Labour 10,000 15,000
Raw materials and Supplies 8,000 12,500
Capital equipment depreciation 700 1,200
Other 2,200 4,800
 Solution:
1996 1997
a. Partial productivities
Labour 2.20 2.33
Raw materials and Supplies 2.75 2.80
 b. Total Productivity 1.05 1.04
 Summary

Output in units/Input in hrs. = Output

per input hour
Output in $/Input in hrs. = X
Produced output worth $X per input hr.
Output in units/Input in $ = Y
Produced Y units per $ spent on input
Output in $/Input in $ = Z
Produced Z units per $ spent on input
 2.3 Productivity measurement approaches at the enterprises level:

From the above total productivity is expressed as the

ratio of aggregate output to the aggregate input.
That is the total overall performance is captured in this
ratio and becomes apparent, if we examine the
relationship between this ratio and the age-old
performance measure of profit. If the outputs and input
for the period for which productivity is measured, are
expressed in rupees, then under such restrictive
assumptions we can write:
Aggregate output =Gross Sales=G
Aggregate input=Cost =C
 2.3 Productivity measurement
approaches……..contd
Total Productivity (P), ……………..(1)
From the definition of profit, we have;
 Profit (π), ………………….(2)
By dividing eqn (2) by C,
So from (1),
For Zero profit (π =0), P=1
For a Loss, (π < 0), P<1
For a profit, (π >0), P>1
 2.3 Productivity measurement approaches……..contd

Zero profit will give a productivity value of 1, while a

loss will give productivity value less than 1.The profit
to cost ratio will determine the increase in
productivity.
The above relationship that demonstrates that
increased profit to cost ratio will lead to increased
overall productivity, is constituent with our
expectation on how an overall performance measure
should behave. However it suffers from a number of
drawbacks. Some of which are listed here,
2.3 Productivity measurement approaches……..contd

a. Given that our objective in productivity measurement is to

capture the efficiency of utilization of resources, the effect of
price variations over time need to be corrected. Thus aggregate
output should be equal to gross sales suitably inflated or
deflated with respect to a base year.
b. Equating output to sales implies, whatever is produced in the
particular period is sold. Possibility of inventory, material
manufactured for own use, etc. are n’t taken in to
consideration.
c. Equating aggregate input to cost raises a host of problems and
involves several restrictive assumptions. How to account for
the fixed investment and working capital, whether to take the
fringe benefits in to account etc. are some of the problems.
The different approaches to measurement have arisen mainly in
the context of correcting the above drawbacks.
 Techniques for Productivity Improvement:

Higher productivity in organization leads to national

prosperity and better standard of living for the whole
community. The methods contribute to the improvement of
productivity are method study and work measurement by
reducing work content and Ineffective time.
Work content means the amount of work “contained in” a
given product or process measured in man-hour or machine-
hour. Except in some cases like in processing industries, actual
operation times are far in excess of the theoretical minimum.
Ineffective time is the time for which the worker or machine or
both are idle due to the shortcomings of the management or
the worker.
 2.4 The need to operations strategy
Neglecting operations strategy
Failing to take advantage of strengths and
opportunities, and/or failing to recognize
competitive threats
Putting too much emphasis on short-term
financial performance at the expense of
research and development
Placing too much emphasis on product
and service design and not enough on
process design and improvement
 Cont…
Neglecting investments in capital and

human resources
Failing to establish good internal and

external communications and cooperation

among different functional areas
 2.5 the Process of Strategy Formulation
Business decisions, especially the strategic ones
need a clear identification of relevant variables .

detailed and an in-depth analysis of the relevant

variables to understand their impact and
implication for the operations function in
particular and the organization at large has to
made.

The environment to analyze can be broken down

into internal and external
Internal Environmental Analysis
Resources available (human
resources, facilities and
equipment, financial
resources)
Existing and potential products
and services
Technology
Stages of life cycles of current
products
 External Environment
The external environment is further divided
into two sub-external environments:
a. Macro environment
The factors include:
i. Political and Legal
Taxation policy
Employment law
Foreign trade regulation
Monopolies legislation
 Cont…
ii. Economic Factors
Gross domestic product

Disposable income

Unemployment

Exchange rate fluctuations

Interest rate
 Cont…
iii. Socio-Cultural Factors
Demographic variables

Income distribution

Social mobility

Attitude to work and leisure

 Cont…
iv. Environmental Factors
Energy consumption
Environmental Protection
Availability of infrastructural facilities

v. Technological Factors
Technology transfer
Pace of technological change
 b. Industry Analysis
Porter’s five competitive forces are:
The competitive pressure among the existing

rivals
Threats from new entrants

Threats from substitute products

Threats from bargaining power of suppliers

Threats from bargaining power of customers

 2.6 Formulating Strategy

Mission

Internal External
strengths opportunities
Strategy

Internal External
weaknesses threats
Competitive
Advantage
Operations Strategy Model: Levels at which a Strategy Operates

Corporate and
Business
Strategies

Internal Operations Strategy Functional Strategies

analysis
in marketing, finance,
Mission
engineering, human
Distinctive Competence
resource, and
External information system
analysis
Objectives
(Cost, Quality, Flexibility, and
Delivery)

Policies
(Process, quality, capacity, and
inventory)

Consistent Pattern
of decisions

Results
 The Mission Statement

Mission
The mission states why a firm exists.
 Mission statements provide boundaries and
focus for organizations and the concept
around which the firm can rely.
It also clarifies and inculcates one with the
nature of a business an organization runs, the
type of products it produces, and the needs it
fills.
 Identification of Distinctive
Competencies
· The special attributes or abilities that give
an organization a competitive edge. What
the firm does better than anyone else
(critical success factors, distinctive
competencies)
· Price
· Quality Develop Distinctive
· Time Competencies based
on customer needs
· Flexibility
and on what the
· Service competitors doing
· Location
 2.7 Strategy
Strategy is a common vision which
provides direction for action in an
organization.
Thamson and Strickland define strategy
as a pattern of actions and business
approaches managers employ to please
customers, build attractive market
position, and achieve organizational
objectives.
 Cont…

A company‘s actual strategy is partly

planned and partly reactive to changing
situations.
Realized
Intended Strategy Actual
Strategy
Strategy

s tr ategy
t
Unrealized strategy Em ergen
 Corporate and Business Level Strategies
Corporate Level Strategy

Corporate strategy expresses how a firm chooses to

compete in the market place over the long-term.

 Expansion
 Stability

Business Level Strategies

 Cost leadership
 Differentiation strategies
 Market niche strategies
 Functional Level Strategies
 Marketing strategy
 Finance Strategy
 Logistics Strategy
 Operations Strategy
 Operations strategy consists of policies and plans
for how to use production resources to meet
corporate strategic goals.
 Operations strategy must be consistent with and
supportive of the corporate strategy.
 It helps the business compete on either:
 Price,
 Quality,
 Time,
 Flexibility? Or
 One, some or all?
 Order Qualifiers and Order Winners

 Order qualifiers- are the characteristics of

a product or service that qualify it to be
considered for purchase by a customer.
 Order winner- is the characteristics of a
product or service that wins orders in
the .

 Thishelps to determine what customers

influence their purchase decision.
 Example
76

A brand name car can

be an “order qualifier”
Others like
reliability, design
features, gas mileage

Repair services can be “order winners”

Examples: Warranty, roadside Assistance,
Leases, etc.
 Operations Objectives

operations Objectives are measures of

performance yardsticks.
 Cost

 Quality

 Delivery

 Flexibility
 Objectives cont…
 Objectives can be:
a) Short-term
b) Medium-term and
c) Long-term
Or
d) Financial and
e) Business
Business objectives measure how the business
performs relative to its rivals and include:
 Leadership in technology
 Overtaking rivals’ customers
 Joining to foreign markets
 Improving quality
 Delivering better post-sales services


Typical Operations Objectives

Objective: Current:
Current 5 years in world-class
year the future competitor
Cost
Manufacturing cost as a percentage of sales 55% 52% 50%
Inventory turnover 4.1 5.2 5.0
Quality
Customer satisfaction (percentage satisfied with
products) 85% 99% 95%
Percentage of scrap and rework 3% 1% 1%
Warranty cost as a percentage of sales 1% 0.5% 1%
Delivery
Percentage of orders filled from stock 90% 95% 95%
Lead time to fill stock 3wk 1wk 3wk
Flexibility
Number of months to introduce new products 10 mo 6 mo 8 mo
Number of months to change capacity 20 % 3 mo 3 mo 3 mo
 Con…

Cost- this is ability to reduce the costs of

production.
 This can include reducing cost of labor,
material, overhead expenses etc.
 This can ensure lower price and higher
profitability

Quality-this includes higher product

performance, superior features, greater
durability, convenient services
 Con…
Time /Delivery
This includes : faster delivery time, on-time
delivery, speedy product development , reliable
delivery.

Flexibility- this is the ability to provide a wide

variety of products , quick changes in volume
of production
This can include:
 customization
 Volume flexibility
 Developing operations policies
Operations policies constitute the fourth
element of operations strategy.
Policies should indicate how the operations
objectives will be achieved.
Operations policies should be developed for
each of the major decision categories
(process, capacity, quality and inventory).
 Example
Policy Type Policy Area Strategic Choice
Process Span of process Make or buy
Automation Handmade or machine-made
Flexible or hard automation
Process flow Project, batch, line, or continuous
Job specialization High or low specialization
Supervision Highly decentralized or centralized
Quality
Approach Prevention or inspection
Training Technical or managerial training
Suppliers Selected on quality or cost

Capacity
Facility size One large or several small facilities
Location Near markets, low cost, or foreign
Investment Permanent or temporary
Inventory
Amount High levels or low levels of inventory
Distribution Centralized or decentralized warehouse
Control systems Control in great detail or less detail
CHAPTER III

QUALITY
MANAGEMENT AND
QUALITY CONTROL
 Different Views

 User-based: better performance,

more features
 Manufacturing-based:
conformance to standards,
making it right the first time
 Product-based: specific and
measurable attributes of the
product
 Cont…

According to Garvin quality is defined in terms of eight product

attributes:

 Performance  Durability
 Features  Serviceability
 Reliability  Perceived
 Conformance quality
 Safety  Value
 Aesthetics
How good does each bus appear relative to the other?
 Cont…
 According to Crosby quality is conformance to requirements or
specifications and Juran defined quality as fitness for use.
 Fitness for use is related to benefits received by the customer
and to customer satisfaction. Only the customer, not the
producer, can determine it (Schroeder, 2000).
 According to Schroeder (2000), customer satisfaction is a
relative concept that varies from one customer to customer
and from time to time given a specified customer.
 Importance of Quality

Market
MarketGains
Gains
Reputation
Reputation
Volume
Volume
Price
Price
Improved
Improved Increased
Increased
Quality
Quality Profits
Profits
Lower
LowerCosts
Costs
Productivity
Productivity
Rework/Scrap
Rework/Scrap
Warranty
Warranty
 Quality and Strategy

An operations manager’s objective

is to build a total quality
management system that identifies
and satisfies customer needs
 Quality and Strategy

 Managing quality supports

differentiation, low cost, and
response strategies
 Quality helps firms increase
sales and reduce costs
 Implications of Quality
1. Company reputation
 Perception of new products
 Employment practices
 Supplier relations
2. Product liability
 Reduce risk
3. Global implications
 Improved ability to compete
 Costs of Quality

 Prevention costs - reducing the

potential for defects
 Appraisal costs - evaluating
products, parts, and services
 Internal failure - producing defective
parts or service before delivery
 External costs - defects discovered
after delivery
 Costs of Quality

Total Total Cost

Cost
External Failure

Internal Failure

Prevention
Appraisal
Quality Improvement
 International Quality Standards

 ISO 9000 series

 Common quality standards for products sold in
Europe (even if made in U.S.)
 2008 update places greater emphasis on
leadership and customer requirements and
satisfaction
 ISO 14000 series
 ISO 14000
Environmental Standard
Core Elements:
 Environmental management
 Auditing
 Performance evaluation
 Labeling
 Life cycle assessment
 ISO 14000
Environmental Standard
Advantages:
 Positive public image and
reduced exposure to liability
 Systematic approach to pollution
prevention
 Compliance with regulatory
requirements and opportunities
for competitive adg
 Total Quality Management
• Quality system involving entire
organization from supplier to customer
• Objective: Meet or exceed customer
needs through company-wide continuous
improvement
• Early proponents
– W. Edwards Deming
– J. M. Juran
– Philip B. Crosby
 Cont…
 Encompasses entire organization, from supplier
to customer
 Stresses a commitment by management to have a
continuing, companywide drive toward
excellence in all aspects of products and services
that are important to the customer
 Principles of TQM

1. Continuous improvement
2. Employee empowerment
3. Benchmarking
4. Just-in-time (JIT)
5. Knowledge of TQM tools
 Continuous Improvement

 Represents continual improvement of

all processes
 Involves all operations and work
centers including suppliers and
customers
 People, Equipment, Materials, Procedures
 Other names
– Kaizen (Japanese)
– Zero-defects
– Six sigma
 Employee Empowerment
 Getting employees involved in
product and process improvements
 85% of quality problems are due
to process and material

 Techniques
 Build communication networks
that include employees
 Develop open, supportive supervisors
 Move responsibility to employees
 Build a high-morale organization
 Create formal team structures
 Quality Circle

• Group of 6-12 employees gathered

voluntarily from same work area
• Meet regularly to solve work-
related problems
– 4 hours/month

• Facilitator trains
& helps with
meetings
 Cont…
Circles were developed by Dr, Kaoru Ishikawa
in Japan in the 1960’s
They operate on the principle that employee
participation in decision-making and problem-
solving improves the quality of work
 Cont…

• Characteristics
– Volunteers
– Set Rules and Priorities
– Decisions made by Consensus
– Use of organized approaches to
Problem-Solving
The Japanese description of the effectiveness
of a quality circle is expressed as:

“It is better for one hundred people to take one step

than for one person to take a hundred’
 The World Turned Upside Down!
.
CONTROL CUSTOMER FOCUSED /
CONTINUOUS IMPROVEMENT
CEO
OPERATORS
SNR MGT
SUPERVISORS
MANAGEMENT
MANAGEMENT

SUPERVISORS SNR MGT

OPERATORS CEO
MASS PRODUCTIVITY / COACH
SCIENTIFIC MANAGEMENT
 Benefits of Quality Circle

• Increase Productivity

• Improve Quality

• Boost Employee Morale

 Quality Improvement Teams
Team formed where there is a specific
problem whose solution is unlikely to reside in
a single department and which is large enough
to justify the establishment of a team to
resolve the problem
For example (the combined actions of
Production, Testing, Technical Departments
as well as the Supplier for persistent
equipment breakdown)
 Characteristics of QITs

Set up by management

Inter-departmental

Group is usually formed to resolve a problem

identified by others.

Team is usually disbanded once the problem

solved
 Benchmarking
Selecting best practices to use as a
standard for performance nal
te r
i n i ng if
Use mark ig
1. Determine what to ch eb
ben you’r gh
u
benchmark eno

2. Form a benchmark team

3. Identify benchmarking partners
4. Collect and analyze benchmarking
information
5. Take action to match or exceed the
benchmark
 Just-in-Time (JIT)
Relationship to quality:

 JIT cuts the cost of quality

 JIT improves quality
 Better quality means less
inventory and easier-to-
employ JIT system
 Allows reduced inventory levels

 Encourages improved process

and product quality
 Just-In-Time (JIT) Example

Work in process
inventory level
(hides
problems)

Unreliable Capacity
Vendors Scrap Imbalances
 Just-In-Time (JIT) Example

Reducing inventory reveals

problems so they can be solved

Unreliable Capacity
Vendors Scrap Imbalances
 Elements for Success
 Mission Statement
 Management Support
 Proper Planning
 Customer and Bottom Line Focus
 Measurement
 Empowerment
 Teamwork/Effective Meetings
 Continuous Process Improvement
 Dedicated Resources
 Tools of TQM
 Tools for Generating Ideas
 Check sheets
 Scatter diagrams
 Cause-and-effect diagrams

 Tools to Organize the Data

 Pareto charts
 Flowcharts

 Tools for Identifying Problems

 Histogram
 Statistical process control chart
 Seven Tools of TQM

( a) Check Sheet: An organized

method of recording data

Hour
Defect 1 2 3 4 5 6 7 8
A /// / / / / /// /
B // / / / // ///
C / // // ////
 Cont…

Purpose: Checksheets
– Tool for collecting and
organizing measured or
counted data
– Data collected can be
used as input data for
other quality tools

Benefits:
– Collect data in a
systematic and organized
manner
– To determine source of
problem
– To facilitate classification
 Seven Tools of TQM
(b)Scatter Diagram:
A graph of the value of one variable vs.
another variable
Two dimensional X/Y plots
Used to show relationship between independent(x)
and dependent(y) variables
Productivity

Absenteeism
 Piza Production Example

Minutes Cooking Defective Pies

10 1
45 8
30 5
75 20
60 14
20 4
25 6

In this simple example, you can find the existing

relationship without much difficulty but…
 Cont…

•Easier to see
direct relationship 25

Defective Pizzas
20

15

10

0
0 20 40 60 80

Time Cooking (minutes)

 Cont…

As a quality tool
• What does this tell Acme
management about their
processes?
• Improvements? 25

Defective Pizzas
20

15

10

0
0 20 40 60 80

Time Cooking (minutes)

 Seven Tools of TQM

(c) Cause-and-Effect Diagram: A tool

that identifies process elements (causes) that might
effect an outcome

Cause

Materials Methods
Effect

Manpower Machinery
Figure 6.6
 Cont…
Purpose: Graphical representation
of the trail leading to the root cause
of a problem
How is it done?
• Decide which quality
characteristic, outcome or effect
you want to examine (may use
Pareto chart)
• Backbone –draw straight line
• Ribs – categories
• Medium size bones –secondary
causes
• Small bones – root causes
 Cont…

Material Method
(ball) (shooting process)
Grain/Feel Aiming
(grip) point
Size of ball
Air pressure Bend knees
Hand position
Balance
Lopsidedness
Follow-through
Missed
Training
free-throws
Rim size

Conditioning Motivation Rim height

Consistency Rim alignment Backboard

stability
Concentratio
n
Machine
Manpower
(hoop &
(shooter)
backboard)
 Cause-and-Effect Diagrams Supplier
Failure – Causes
Environment Equipment People
Business down Strike
Strike Incapable equip Fraud
Lawsuit
Flood Incompetence
Turnover
Earthquake
Fire New employees
Illness
Tornado
Business up

Lack of PM New source

Process upset Commodity allocation
Bad specs Bankruptcy

Different standards Inaccurate PO Mat'l price increase

Measurement Processes Materials

 Other Examples

Absent receiving Working system of

party operators

Absent Too many phone

calls
Out of office Lunchtime

Not at desk Absent

Makes
custom
Not giving er wait
receiving party’s Does not
coordinates Lengthy talk understan
Does not know d customer
Complaining organization
well
Leaving a Takes too much time
message to explain

Customer Operator
 Benefits Gained

 Breaks problems down into bite-size pieces to find root

cause

 Fosters team work

 Common understanding of factors causing the problem

 Road map to verify picture of the process

 Follows brainstorming relationship

 Seven Tools of TQM

(d) Pareto Chart: A graph to identify and plot

problems or defects in descending order of frequency
Frequency

Percent
A B C D E
Figure 6.6
 Cont…
Purpose:
Prioritize problems.

How is it done?
• Create a preliminary list of
problem classifications.
• Tally the occurrences in each
problem classification.
• Arrange each classification in
order from highest to lowest
• Construct the bar chart
 Cont…

Pareto Charts

Benefits: 120

 Pareto analysis
100
helps graphically
display results so 80

the significant
Quantity
few problems 60

emerge from the

40
general
background 20
 It tells you what
to work on first 0
Dent Scratch Hole Others Crack Stain Gap
Defects 104 42 20 14 10 6 4
 Cont…
Pareto Charts
 Weighted Pareto charts
use the quantity of
defects multiplied by 900
their cost to determine
800
the order.
700

Weighted 600
Total Cost
Defect cost
Gap 4 200 800 Weighted Cost 500

Dent 104 2 208

400
Hole 20 5 100
Crack 10 8 80 300
Scratch 42 1 42
Others 14 1 14 200

Stain 6 1 6
100

0
Gap Dent Hole Crack Scratch Others Stain
Weighted cost 800 208 100 80 42 14 6
 Cont…

Data for October

– 100
70 – – 93
– 88
Frequency (number)

60 – 54

Cumulative percent
– 72
50 –
40 –
Number of
30 – occurrences
20 –
12
10 –
4 3 2
0 –
Room svc Check-in Pool hours Minibar Misc.
72% 16% 5% 4% 3%
Causes and percent of the total
 (e) Flowchart (Process Diagram):
Purpose:
Visual illustration of the sequence of operations required to
complete a task
 Schematic drawing of the process to measure or improve.
 Starting point for process improvement
 Potential weakness in the process are made visual.
 Picture of process as it should be.
Benefits:
 Divide complex processes into simple sub-processes.
 Identify process improvements
 Understand the process
 Shows duplicated effort and other non-value-added steps
 Clarify working relationships between people and
organizations
 Target specific steps in the process for improvement.
 Cont…
A chart that describes the steps in a process
Shows sequence of events in process
Depicts activity relationships
Has many uses
Identify data collection points
Find problem sources
Identify places for improvement
Identify where travel distances can be reduced
 Cont…
.
SUBJECT: Request tool purchase
Dist (ft) Time (min) Symbol Description
D Write order
 On desk
75  D To buyer
D Examine

 = Operation;  = Transport;  = Inspect;

D = Delay;  = Storage
 Seven Tools of TQM
(f) Histogram: A distribution showing the frequency of
occurrences of a variable

Distribution
Frequency

Repair time (minutes)

Figure 6.6
 Seven Tools of TQM

(g) Statistical Process Control Chart: A

chart with time on the horizontal axis to plot values of a
statistic.

Upper control limit

Target value

Lower control limit

Time
 Cont…
 Uses statistics and control charts to
tell when to take corrective action
 Drives process improvement
 Four key steps
 Measure the process
 When a change is indicated, find the assignable
cause
 Eliminate the cause
 Restart the revised process
 Inspection
 Involves examining items to see
if an item is good or defective
 Detect a defective product
 Does not correct deficiencies in
process or product
 Issues
 When to inspect
 Where in process to inspect
 When and Where to Inspect
1. At the supplier’s plant while the
supplier is producing
2. At your facility upon receipt of goods
from the supplier
3. Before costly or irreversible processes
4. During the step-by-step production
process
5. When production or service is complete
6. Before delivery to your customer
7. At the point of customer contact
 Developing Control Charts
A control chart (also called process chart or quality
control chart) is a graph that shows whether a sample
of data falls within the common or normal range of
variation.
A control chart has upper and lower control limits that
separate common from assignable causes of variation.
 We say that a process is out of control when a plot of data
reveals that one or more samples fall outside the control limits
 inclusion of all data values between the control limits does not ,
however, necessarily mean that the process is under the
desired state of control.
Cont…
 Zoning and Trend Analysis
Divide the distance between the centerline and
the upper control limit into three equal zones
representing three standard deviations.
 Trends Communicating Process Problems:

Specials are any points above

the UCL or below the LCL
Two out of three consecutive
points are in zone “C”
Four out of five consecutive
points on the same side of the
center line are on zone “B” or
“C”
Only one of 10 consecutive
points is in zone “A”
Cont…

A Run violation is seven or

more consecutive points
above or below the center (20-
25 plot points)

A trend violation is any

upward or downward
movement of five or more
consecutive points (10-20 plot
points)
 Types of Quality Control Charts

I. For Variables
 When variable measurement is used, two control charts are needed:
one for the central tendency, and the other for variability of the
process.

 Measures of such quality characteristics are assumed to form a

normal distribution and hence, have two parameters, mean and
variance.

 Measures of such quality characteristics have to be evaluated using

both parameters.
 Mean Charts and Range charts
Steps:
• Determine the sample size to inspect
• Determine the number of times you are to take the
predetermined sample size
• Conduct the inspection by measuring the quality
characteristic for each unit in the sample
• Calculate the average and range of quality characteristic
measures for each sample
• Calculate the grand average: central line for the mean
chart
• Calculate the average of the sample ranges: the central line
for the range chart.
• Calculate the Upper and lower control limits for both parameters
•
Cont…
Cont…
Cont…
Example
Range Charts
Example
 2. FOR ATTRIBUTES

Control charts for attributes are used to measure

quality characteristics that are counted rather than
measured.

 Attributes are discrete in nature and entail simple

yes-or-no decisions.
i. P-Chart
P-charts are used to measure the proportion of
items in a sample that are defective.
P-charts are appropriate when both the number of
defectives counted and the size of the total sample
can be counted.
A proportion can then be computed and used as
the statistic of measurement.
Cont…
Cont…
 ii. C-Chart
C-charts are used to monitor the number of
defects per unit.
The CL, UL, and LL are calculated as follows:
Example
Cont…
 TQM In Services

 Service quality is more difficult

to measure than the quality of
goods
 Service quality perceptions
depend on
 Intangible differences between
products
 Intangible expectations customers
have of those products
 Service Quality
The Operations Manager must
recognize:
1. The tangible component of
services is important
2. The service process is
important
3. The service is judged against
the customer’s expectations
4. Exceptions will occur
 Determinants of Service Quality

Reliability Responsiveness

Tangibles Competence

Under- Access
standing

Security Courtesy

Credibility Communication
 Cont…
Reliability Consistency of performance and dependability
Responsiveness Willingness or readiness of employees
Competence Required skills and knowledge
Access Approachability and ease of contact
Courtesy Politeness, respect, consideration, friendliness
Communication Keeping customers informed
Credibility Trustworthiness, believability, honesty
Security Freedom from danger, risk, or doubt
Understanding/
Understand the customer’s needs
knowing the customer
Tangibles Physical evidence of the service

Table 6.5
 Service Industry Inspection

What is
Organization Standard
Inspected
Jones Law Office Receptionist Is phone answered by the
performance second ring
Billing Accurate, timely, and
correct format
Attorney Promptness in returning
calls
 Cont…

What is
Organization Standard
Inspected
Hard Rock Hotel Reception Use customer’s name
desk
Doorman Greet guest in less than 30
seconds
Room All lights working, spotless
bathroom
Minibar Restocked and charges
accurately posted to bill
 Cont…

What is
Organization Standard
Inspected
Arnold Palmer Billing Accurate, timely, and
Hospital correct format
Pharmacy Prescription accuracy,
inventory accuracy
Lab Audit for lab-test accuracy
Nurses Charts immediately
updated
Admissions Data entered correctly and
completely
 Cont…

What is
Organization Standard
Inspected
Olive Garden Busboy Serves water and bread
Restaurant within 1 minute
Busboy Clears all entrée items and
crumbs prior to dessert
Waiter Knows and suggest
specials, desserts
 Cont…

What is
Organization Standard
Inspected
Nordstrom Display areas Attractive, well-organized,
Department stocked, good lighting
Store
Stockrooms Rotation of goods,
organized, clean
Salesclerks Neat, courteous, very
knowledgeable
CHAPTER IV
PRODUCT AND SERVICE
DESIGN:PRODUCT
DEVELOPMENT
 4.1.Introduction to product
development
 New-product development is a crucial part of business.

 New products serve to provide growth opportunities and a

competitive advantage for the firm.

 Operations are greatly affected by new product introduction.

 New products must be defined with not only the market in mind but

the production process that will be used to make the product.

 Through close cooperation between operations, marketing, and

other functions, the product design can be integrated with

decisions regarding process, quality, capacity, and inventory.
 It is a prerequisite for production to occur.
 Meaning of Product Development
177
New Product Development can mean:
development of original products
 product improvements
 product modifications
and new brands through the firm’s
own R & D efforts.
 4.2. Benefits of New product
Development
For competing with no or less competitive

pressure.
The need for growth and expansion.

As an alternative against downsizing.

To entertain customer complaints
To minimize or avoid excessive warranty claims,
As tool or means of remarketing an existing
product.
 Cont…

Greater Market Share

 Early entry captures large initial market share.
Price Premiums
 Ability to initially charge more for new products.
Quick Reaction to Competition
 Rapid response to competitor’s new products.
Set Industry Standards
 Initial product sets market/industry standards.
 4.3. Trends in Product and
Service Design
Over the last few years, the designing of
products and services has increased
emphasis on a number of aspects of
design:
Increased emphasis on customer
satisfaction
Increased pressure to competition
Increased emphasis on reducing the
development cycle time
Increased emphasis on production time
 Cont…
 Increased emphasis on reducing production cost

 Greater attention to the capabilities of the

organization to produce or deliver the item
 Increased emphasis on designing products and

services that are user-friendly

 Increased effort to use less material for products

and less packaging

 4.4. Importance of New Product
Introduction
New product is important in that it can:
Create differential advantages
Enhance the firm’s image
Support continued growth
Limit risk through diversification
Capitalize on technological breakthroughs- for customers
Improve the firms’ productivity or be responsive to
recycling issues
Help firms respond to changing demographics and
lifestyles
Help the firm respond to government mandates
 4.5. Product Development Process

A product process is the entire set of activities

required to bring a new concept to a state of
market readiness.

A design process is the set of technical

activities within a product development process.
It does not include business, financial, or
marketing activities.
 Steps:
1. Idea generation
Sources:
a) Internal Sources
Research and development unit
Employees
b) External Sources
Customers
Competitors- reverse engineering
Distributors
Suppliers
 Cont…
2) Idea Screening
 Factors against which each ideas has to be rated
include:
 Market Size
 Stability of demand
 Sustainability of demand
 Product Price
 Development Time
 Manufacturing Costs
 Operations compatibility
 Financial feasibility
 Operational feasibility

Fitness to the overall strategy

 3. Value186Analysis
There is a need to improve constantly the
products and services we produce in order to stay
competitive
Value analysis (or value engineering)–is a
method for improving the usefulness of a product
without increasing its cost or reducing the cost
without reducing the usefulness of the product.
Usefulness can be described by such terms as
product features, performance, or reliability of
the product.
 Cont…
Fair
Far
Product Poor Good Very Excellen Weigh
characteristics Good t t

Selling price  15
Product quality  10
Sales volume  20
Operations compatibility  10

Competitive  10
advantage
Technical capability  15
Fit with strategy  20
100%
 Cont’d
 Typical questions that
188 are asked during

value engineering studies include:

What are the functions of a particular
component?
 Are they necessary?
 Can they be accomplished in a different way?
What materials are used?
 Can a less costly material be substituted?
 How much material is wasted during
manufacturing?
 Can waste be reduced by changing the design?
 Business Analysis

Break-Even Analysis
Breakeven analysis examines the short run
relationship between changes in volume and changes
in total sales revenue, expenses and net profit
Also known as C-V-P analysis (Cost Volume Profit

Analysis)
Key Terminology: Breakeven
Analysis
Break even point-the point at which a

company makes neither a profit or a loss.

Contribution per unit-the sales price minus

the variable cost per unit. It measures the

contribution made by each item of output to the
fixed costs and profit of the organisation.
 Cont…

 Margin of safety-a measure in which the budgeted

volume of sales is compared with the volume of sales

required to break even
 Marginal Cost – cost of producing one extra unit of

output
 Break-even analysis
 Total cost = fixed costs + variable costs (quantity):

TC  F  VC Q
 Revenue = selling price (quantity)

R  SP Q
 Break-even point is where total costs = revenue:

TC  R or F  VC Q  SP Q
F
or Q
SP  VC
 Example
Using the following data, calculate the
breakeven point and margin of safety in
units:
• Selling Price = €50
Variable Cost = €40
Fixed Cost = €70,000
Budgeted Sales = 7,500 units
 Cont…

4) Preliminary product design

5) Prototype construction
Daimler is currently road-testing its prototype
6. Prototype testing
NECAR 5 (New Electric Car)
 Cont…

7) Final product design

8) Production and Commercialization
 4.6. Factors to Consider in Design

Product Lifecycle

Concurrent Engineering

Modular Design

Emphasis on Design for Manufacturing

Degree of standardization
Product Lifecycle
 Introduction Stage of the
PLC
Sales
Sales Low
Low sales
sales

Costs
Costs High
High cost
cost per
per customer
customer

Negative
Profits
Profits Negative

Create product awareness

Marketing Objectives and trial

Product Offer a basic product

Price
Price Use
Use cost-plus
cost-plus

Distribution
Distribution Build
Build selective
selective distribution
distribution

Build
Build product
product awareness
awareness among
among early
Advertising
Advertising adopters
early
adopters and
and dealers
dealers
 Growth
Growth Stage
Stage

Sales
Sales Rapidly
Rapidly rising
rising sales
sales

Costs
Costs Average
Average cost
cost per
per customer
customer

Profits
Profits Rising
Rising profits
profits

Marketing
Marketing Objectives
Objectives Maximize
Maximize market
market share
share

Product
Product Offer
Offer product
product extensions,
extensions, service,
service, warranty
warranty

Price
Price Price
Price to
to penetrate
penetrate market
market

Distribution
Distribution Build
Build intensive
intensive distribution
distribution

Advertising
Advertising Build
Build awareness
awareness and
and interest
interest in
market
in the
the mass
mass
market
 Maturity Stage of the PLC
Sales
Sales Peak
Peak sales
sales

Costs
Costs Low
Low cost
cost per
per customer
customer

Profits
Profits High
High profits
profits

Marketing Maximize
Maximize profit
profit while
while defending
defending
Marketing Objectives
Objectives market
market share
share
Product
Product Diversify
Diversify brand
brand and
and models
models

Price
Price Price
Price to
to match
match or
or best
best competitors
competitors

Distribution
Distribution Build
Build more
more intensive
intensive distribution
distribution

Advertising
Advertising Stress
Stress brand
brand differences
differences and
and benefits
benefits
 Decline Stage of the PLC
Sales
Sales Declining
Declining sales
sales

Costs
Costs Low
Low cost
cost per
per customer
customer

Profits
Profits Declining
Declining profits
profits

Marketing
Marketing Objectives
Objectives Reduce
Reduce expenditure
expenditure and
and milk
milk the
the brand
brand

Product
Product Phase
Phase out
out weak
weak items
items

Price
Price Cut
Cut price
price

Distribution
Distribution Go
Go selective:
selective: phase
phase out
out unprofitable
unprofitable outlets
outlets

Advertising
Advertising Reduce
Reduce to
to level
level needed
needed to
to retain
retain
hard-core loyal customers
hard-core loyal customers
Decisions in terms of Product plan
can include:

A.
A. Enter
EnterEarly
Earlyand
andExit
ExitLate
Late
From
From Introduction
Introductionto
toDecline
Decline


B.
B. Enter
EnterEarly
Earlyand
andExit
ExitEarly
Early
From
FromIntroduction
Introductionto
toMaturity
Maturity


C.
C. Enter
EnterLate
Lateand
andExit
ExitLate
Late
From
FromMaturity
Maturityto
toDecline
Decline
 Concurrent Engineering
A design approach that uses multifunctional teams

to simultaneously design the product & process

Replaces a traditional ‘over-the-wall’ approach
where one group does its part & then hands off the
design to the next group
Sequential Design
Concurrent Engineering
 Concurrent Engineering
Benefits
Representatives from the different groups can
better consider trade-offs in cost & design choices
as each decision is being made

Development time is reduced due to less rework

(traditionally, groups would argue with earlier
decisions & try to get them changed)

Emphasis is on problem-solving (not placing

blame on the ‘other group’ for mistakes)
 Modular Design

Modular design, or "modularity in design", is

a design approach that subdivides a system into

smaller parts called modules, that can be
independently created and then used in different
systems.
Cont…
 Design for Manufacturing
 Choosing manufacturing methods and
materials.
 Minimizing the number of individual parts:
 Reduces assembly time.
 Increases reliability.

 Setting product specifications.

 Output from the design activity that states all criteria for
building a product.
 Design Change to Reduce
the Number of Parts in a Bracket

.
 Cont…
(a) The original design (b) Revised design (c) Final design

Assembly using One-piece base & Design for push-and-snap

common fasteners elimination of fasteners assembly
 Degree of Standardization
 Refers to the extent to which there exists no product variability.

Benefits of Standardization

 Fewer parts to deal within inventory & manufacturing

 Design costs are generally lower

 Reduced training costs and time

 More routine purchasing, handling, and inspection procedures

 Cont…
Orders fillable from inventory

Opportunities for long production runs and

automation

Need for fewer parts justifies increased

expenditures on perfecting designs and improving

quality control procedures.

Quality is more consistent

 Disadvantages of Standardization

Designs may be frozen with too many imperfections

remaining.

High cost of design changes increases resistance to

improvements.

Decreased variety results in less consumer appeal.

 4.7. Service Design
A service is any primary or complementary activity

that does not directly produce a physical product.

Simultaneous production and consumption is a

critical aspect of service, because it implies that the

customer must be in the production system while
production takes place.
 Similarities between Goods and
Services
Goods and services provide value and satisfaction to

customers who purchase and use them.

They both can be standardized and customized to

individual wants and needs.

A process creates and delivers each good or service,

and therefore, OM is a critical skill.

 Distinctive Characteristics of
Service
Customer participation

Simultaneity

Perishability

Intangibility

Heterogeneity

Functional inseparability of sales and production

 Customer Participation

The customer is more involved in the delivery

of services than products

Providing services means that you must pay

attention to the service facility

Customers can play an integral role in the

delivery of the service

 Simultaneity

Services are consumed simultaneously (as they are

provided)
There is no inventory

Services operate as an open system

 Perishability

A service is a perishable commodity (can’t be

saved)
The full utilization of service capacity is a

management concern
Demand for services is often cyclical
 Intangibility

Services are not tangible things

Difficult to patent

Customer relies on reputation since

there is no product to touch or try out

 Heterogeneity

There are variations of service between

customers
Direct customer-employee contact
 Framework of services
225

The framework (the service triangle) shown below,

assumes there are four elements, which must be
considered in producing services: the customer,
people, strategy, and the system.
 The service triangle
226
.
The
service
strategy

The
customer
The The
systems people
 The Service Product
227
Bundle
The service product bundle consists of three

elements:
 The physical goods (facilitating goods)
 The sensual service provided (explicit service)

 The psychological service (implicit service)

 The service system
228
Service recovery
Service guarantee
Service cycle
Moment of truth
Perceived service = f (all previous moments of
truth)
Potential inefficiency =f (degree of customer
contact)
Characteristics of high-and low-contact services:
229
 Low-contact services are used when face-to-face
interaction is not required.
 High-contact operations are used for changing or
uncertain customer demand.
 Low-contact services require employees with technical
skills, efficient processing routines, and
standardization of the product and process.
 High-contact services require employees who are
flexible, personable, and willing to work with the
costumer (the smile factor).
 High-contact services generally require higher prices
and more customization due to the variable nature of
the service required.
 Cont…
230
The demand for services is more difficult to predict
than the demand for goods.
Services cannot be stored as physical inventory.
Service management skills are paramount to a
successful service encounter.
Service facilities typically need to be in close
proximity to the customer.
Patents do not protect services.
Functional Separation of sales and production
units
Mode of contact between producers and customers
CHAPTER FIVE
PROCESS SELECTION
5.1 Process Definition
A process is any part of an organization that
transforms a group of organizational resources into
output which it hoped is of greater value than the
value of the resources.

Process selection refers to the way an organization

chooses to produce its goods or provide its services.
 5.2 Make or Buy decision & Process Selection

Factors to consider in a make or buy decision:

 Availability of extra capacity
 Expertise and Quality Considerations
 Nature of Demand
 Cost comparison
 Speed of delivery
 Technological change pace
 Standardization
 Flexibility
5.3 Types Process

Although there is a continuum of production process

structures, we often classify processes based on their:
 physical configuration
 material and product flow
 flexibility and
 volume expectation
 Processes as production systems
Processes as production systems: A production system refers to how an organization
organizes material flow using different process technologies. There are five types of
production systems:
a. Continuous flow: It is common in the food processing industry, and in industries
involving undifferentiated materials. Most bulk products are manufactured using
continuous flow production; generally, on-line control and continuous system
monitoring is needed.
b. Batch production: Production is in discrete parts that are repeated at regular
intervals. Such a structure is generally employed for relatively stable lines of products,
each of which is produced in medium volume.
c. Job shop: Construction is characterized by processing of small batched of a large
number of products, most of which require a different set or sequence of processing
steps. Production equipment is mostly general purpose to meet the specific customer
orders.
d. Assembly Line: It is a mass production process. On assembly line, production follows
in a predetermined sequence of steps which are continuous rather than discreet. The
product moves from work station to workstation at a controlled rate following the
sequence needed to build the product.
e. Projects: These are one-off projects. It is based on extensive customization that is
suited to the customer’s ‘need. Many construction projects, project management
contract, shipbuilding and civil engineering projects fall in this category.
1.Continuous Process
Continuous flow processes are designed to produce
large volumes of a small variety of uniform
products, such as paper, which require the same
processing activities to be performed in a strict
sequence.
Continuous flow processes have a highly
interconnected structure whereby material
literally moves continuously through the system
and the transformation of the product occurs
continuously.
 Cont…

By their nature, continuous flow processes tend to be

very capital intensive, as well as highly
automated and computerized.

 Although they require large initial costs for

equipment and setup, the direct labor costs and per
unit production costs are relatively low.
Repetitive or Discrete Flow Processes

Repetitive or discrete flow processes also called

semi-continuous processes are similar to

continuous processes in that work stations are
tightly connected, and they are organized
around the sequence of activities required to
produce one general type of product, such as video
cassette players, computers, automobiles, and so
on.
 Advantages Flow Processes

Process specialization
Simplified material
handling
Minimized work-in-
process
Efficient space utilization
 Cont…

 Infrequent changeovers and equipment setups

 Labor specialization
 Requirement of low-skill workers
Better product quality due to:
 Workers’ ability to know requirements of the
narrow range of products
 Ease of production scheduling, and controlling
functions
 Disadvantages of Flow processes

Process inflexibility

Higher investment costs

Tedious and boring work

vulnerable to unplanned work stoppages

 2. Intermittent Processes
Intermittent processes are processes that are capable
of producing lower volumes of items or services with
a greater variety of processing requirements.
Intermittent processes are further classified
into
a. Batch and
b. Job shop operations
a. Disconnected or Batch Processes
Batch processes are
intermittent operations
that are capable of
producing varieties of
products with different
volumes.
 b. Job-Shop Processes

Job-shop processes are processes that render unit or

small lot production or service with varying
specifications, according to customer needs.
What distinguishes job shop operation from batch
processing is that the job requirements often vary
considerably from job to job.
 Cont…
Job-shop processes are
designed to handle a greater
variety of job requirements
than batch processes.
Advantages of Job Shop Operations

Inexpensive equipments

Greater satisfaction form greater job variety

Possibility for effecting individual based incentive

plans
Process flexibility
 Disadvantages of Job Shop Processes

Inefficient equipment utilization

Requirement for high skilled workers
Less conformity to quality requirements
Complexity in planning, scheduling, and
controlling functions
In-process inventory buffering
Cont…
 Differences between Intermittent and Continuous
Operations
Decision Intermittent Continuous
Product Variety Large Small
Degree of Standardization Low High
Path through Facility Varied pattern Line Flow
Critical Resource Labor Equipment
Importance of Work Skills High Low
Type of Equipment General Purpose Specialized
Degree of Automation Low High
Throughput Time Longer Shorter
Work-in-Process Inventory More Less
 3. Project Type Processes
Project form of operations is used for unique or
creative products.
No two units of project output are the same.
It is not the output, but the resources involved in
producing the output which move here and there.
Projects are characterized by difficult planning and
scheduling problems.
Requirement for high skilled labor is very high
Production costs are difficult to estimate and
control.
Very little vertical integration
Continuum of Process Types
 Process Analysis
Process analysis is the systematic examination of all
aspects of a process to improve its operation to make
it:
 faster
 more efficient
 less costly or
 more responsive to the customer
 Cont…
The basic tools of process analysis are:
 process flowcharts
 diagrams, and
maps
Process Performance Metrics
 Metrics Example: At Zelle’s Dry Cleaning, it takes an
average of 3 ½ hours to dry clean & press a shirt, with
value-added time estimated at 110 min. Workers are
paid for a 7-hour workday but work 5 ½ hr/day,
accounting for breaks and lunch. Zelle’s completes 25
shirts per day, while the industry standard is 28 for a
comparable facility.
Process Velocity = (Throughput Time)/(Value-added time)
= (210 minutes/shirt)/(110 minutes/shirt) = 1.90
Labor Utilization = (Time in Use)/(Time Available)
= (5 ½ hr)/(7 hr) = .786 or 78.6%
Efficiency = (Actual Output)/(Standard Output)
= (25 shirts/day)/(28 shirts/day) = .89 or 89%
Example: A product is manufactured in a shop using a five-stage process. The first step
in the process is to cut the sheet metal to required shapes and sizes using a shearing
process.
After the shearing process, the components are subjected to pressing operations to alter
the shape of the flat sheet as per the design. In the third stage of the process, welding is
done to join the components. The next step in the process is a painting operation. After
painting, the components are packed and kept ready for dispatch. The time taken for
each of these operations is 20, 30, 15, 12 and 6 minutes respectively. Presently, each
stage has only one machine for operation. Map the process and analyze the capacity
with respect to the following scenarios.
 If the shop works on an 8-hour shift with an effective available time of 450 minutes,
what is the production capacity of the shop?
 Where is the bottleneck in the system? If we want to add one machine, where should
we make the investment?
 Identify the additional capacity required for a daily production target of 25 units.
Compute the utilization of the machines as per the revised capacity calculations.
 What are the key inferences of this exercise?
 Solutions

Shea Pres Wel Pain Pac

r
The capacity per day of each machine
king
sing ding
For shear M/n =450/20 =22.5units
ting
m/n
For pressing machine=450/30=15units

(6m
For welding m/n=450/15=30units
(30 (15m
For painting m/n=450/12=37.5units
(12m
(20m
For packing M/n=450/6=75units
a. Therefore the capacity as per the current scenario is 15 units per day

in/u min/ in/u in/u in/u

b. The bottleneck of the process is the m/n with least capacity, and it is the
pressing machine, but if we add one machine to the system, it is the

unit) nit) nit)

pressing m/n that is going to be added, then the new capacity of pressing

nit)
m/n= 2*450/30=30units
nit)
c. For daily target production of 25units, the additional investment is
on the m/n which has capacity of less than 25units and this is
the shear m/n that has a capacity of 22.5units less than 25units.
 Shear Shear Pressi Pressi
Weldi Painti Packin
m/n m/n ng ng
ng ng g
Therefore
(20mi the shear
(20mimachine(30mi
will have a(30mi
capacity of =2*450/20=45units
(15min (12min (6min/
Therefore
n/unit the utilization
n/unit of shear
n/unitM/n =25/45=0.556=55.6%
n/unit
/unit) /unit) unit)
) ) ) =20*25/(2*450)
) for two m/n
pressing M/n=25/30=0.8333=83.3%
=30*25/(2*450)
welding M/n =25/30=0.8333=83.3%
=15*25/450
painting M/n =25/37.5=0.667=66.7%
packing M/n =25/75=0.333=33.3%
Utilization =time per unit product*number of product/(No. of M/n*total effective time)
 Chapter six:
FACILITY LOCATIONS AND
FACILITY LAYOUT
Part I. FACILITY LOCATION
6.1 Introduction: Definition

Facility location decision is the process of identifying

the best geographic location for a service or
production facility.
Location decisions are important in that:
They affect firms’ sales potential
Involve long term commitment of resources.
Affect firms’ operating costs
Location Options

Expansion
Adding a new location
Shifting
Factors That Affect Location
Decisions

 Labor productivity
 Wage rates
 Lower production may increase total
cost

Labor cost per day

= Cost per unit
Production (units per day)
Cont….
 Exchange rates and currency
risks
 Can have a significant impact on cost
structure
 Rates change over time

 Costs
 Tangible - easily measured costs such as
utilities, labor, materials, taxes
 Intangible - less easy to quantify and include
education, public transportation, community,
quality-of-life
Cont…

 Political risk, values, and culture

 National, state, local governments attitudes
toward private and intellectual property,
zoning, pollution, employment stability may be
in flux
 Worker attitudes towards turnover, unions,
absenteeism
 Globally cultures have different attitudes
towards punctuality, legal, and ethical issues
 Ranking Corruption

Rank Country 2006 CPI Score (out of 10)

1 Finland 9.6 Least
1 Iceland 9.6 Corrupt
1 New Zealand 9.6
5 Singapore 9.4
7 Switzerland 9.1
11 UK 8.6
14 Canada 8.5
15 Hong Kong 8.3
16 Germany 8.0
17 Japan 7.6
20 USA, Belgium 7.3
34 Israel, Taiwan 5.9
70 Brazil, China, Mexico 3.3 Most
121 Russia 2.5 Corrupt
Cont…

 Proximity to markets
 Very important to services
 JIT systems or high transportation costs may
make it important to manufacturers

 Proximity to suppliers
 Perishable goods, high transportation costs,
bulky products, and some businesses for
which the need to locate their plant at the
source of the raw material is mandatory.
Cont…

Proximity to competitors
 Called clustering
 Often driven by resources such as
natural, information, capital, talent
 Found in both manufacturing and
service industries
 Clustering of Companies
Industry Locations Reason for clustering
Wine making Napa Valley (US) Natural resources of
Bordeaux region land and climate
(France)
Software firms Silicon Valley, Talent resources of
Boston, Bangalore bright graduates in
(India) scientific/technical
areas, venture
capitalists nearby

Race car Huntington/North Critical mass of talent

builders Hampton region and information
(England)
 Clustering of Companies
Industry Locations Reason for clustering
Theme parks Orlando, Florida A hot spot for
(Disney World, entertainment, warm
Universal weather, tourists, and
Studios) inexpensive labor
Electronics Northern Mexico NAFTA, duty free
firms export to US

Computer Singapore, Taiwan High technological

hardware penetration rate and
manufacturers per capita GDP,
skilled/educated
workforce with large
pool of engineers
 Clustering of Companies
Industry Locations Reason for clustering
Fast food Sites within 1 mile Stimulate food sales,
chains of each other high traffic flows
(Wendy’s,
McDonald’s,
Burger King,
and Pizza Hut)

General Wichita, Kansas Mass of aviation skills

aviation aircraft
(Cessna,
Learjet, Boeing)
Orthopedic Warsaw, Indiana Ready supply of
devices skilled workers, strong
U.S. market
Quantitative Evaluation of
Location Alternatives
 Factor-Rating Method
 Popular because a wide variety of factors
can be included in the analysis

 Six steps in the method

1. Develop a list of relevant factors called critical success factors

2. Assign a weight to each factor

3. Develop a scale for each factor

4. Score each location for each factor

5. Multiply score by weights for each factor for each location

6. Recommend the location with the highest point score

 Factor-Rating Example
Critical Scores
Success (out of 100) Weighted Scores
Factor Weight France Denmark France Denmark
Labor
availability
and attitude .25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0
People-to-
car ratio .05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0
Per capita
income .10 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0
Tax structure .39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3
Education
and health .21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7
Totals 1.00 70.4 68.0
Location based Break-Even Analysis

• Break-even analysis can be used for

location analysis especially when the costs
of each location are known
– Step 1: For each location, determine the fixed
and
variable costs
– Step 2: Plot the total costs for each location on
one graph
– Step 3: Identify ranges of output for which each
location
has the lowest total cost
– Step 4: Solve algebraically for the break-
even points over the identified ranges
• Remember the break even equations used
for calculation total cost of each location
and for calculating the breakeven quantity
 Location based Break-Even
Analysis Example
Three locations:
Selling price = $120
Expected volume = 2,000 units
Fixed Variable Total
City Cost Cost Cost
Akron $30,000 $75 $180,000
Bowling Green $60,000 $45 $150,000
Chicago $110,000 $25 $160,000

Total Cost = Fixed Cost + (Variable Cost x Volume)

 Cont…

–
$180,000 –
–
$160,000 –
$150,000 –
– c urve
cos t
$130,000 – a g o
ic
Annual cost

– Ch
$110,000 – n
r ee
– g G r ve
– w t cu
l i n
o
$80,000 – B cos t
– s
co
$60,000 –
r on rve
– Ak cu
–
Akron Chicago
$30,000 – Bowling Green
lowest lowest
– lowest cost
cost cost
$10,000 –
| | | | | | |
–
0 500 1,000 1,500 2,000 2,500 3,000
Volume
 The Center of Gravity Method

 Finds location of distribution

center that minimizes distribution
costs
 Considers
 Location of markets
 Volume of goods shipped to those
markets
 Shipping cost (or distance)
 Cont…

 Place existing locations on a

coordinate grid
 Grid origin and scale is arbitrary
 Maintain relative distances
 Calculate X and Y coordinates
for ‘center of gravity’
 Assumes cost is directly
proportional to distance and
volume shipped
 Cont…

∑d
i ixQi
x - coordinate =
∑Q
i
i

∑d
i iyQi
y - coordinate =
∑Q
i
i
where dix = x-coordinate of
location i
diy = y-coordinate of
location i
Qi = Quantity of goods
moved to or from location i
 Cont…

North-South
New York (130, 130)
Chicago (30, 120)
120 –
Pittsburgh (90, 110)

90 –

60 –

30 – Atlanta (60, 40)

| | | | | |
– East-West
30 60 90 120 150
Arbitrary
origin
 Cont…

Number of Containers
Store Location Shipped per Month

Chicago (30, 120) 2,000

Pittsburgh (90, 110) 1,000
New York (130, 130) 1,000
Atlanta (60, 40) 2,000

(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)

x-coordinate =
2000 + 1000 + 1000 + 2000
= 66.7
(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)
y-coordinate =
2000 + 1000 + 1000 + 2000
= 93.3
 Cont…

North-South
New York (130, 130)
Chicago (30, 120)
120 –
Pittsburgh (90, 110)

90 – + Center of gravity (66.7, 93.3)

60 –

30 – Atlanta (60, 40)

| | | | | |
– East-West
30 60 90 120 150
Arbitrary
origin
 Load-Distance Method
• Load–distance method: A mathematical model used
to evaluate locations based on proximity factors.
• A load may be shipments from suppliers, shipments
between plants or to customers, or it may be customers or
employees traveling to or from the facility.
• The firm seeks to minimize its load–distance (ld) score,
generally by choosing a location, so that large loads go
short distances.
• To calculate ld score for any potential location, we use the
actual distance between any two points using a GIS
system, and simply multiply the loads flowing to and
from the facility by the distances traveled.
ld   li di
i
 Example: Matrix Manufacturing is considering where to locate its
warehouse in order to service its four Ohio stores located in Cleveland,
Cincinnati, Columbus, Dayton. Two sites are being considered;
Mansfield and Springfield, Ohio. Use the load-distance model to make
the decision.

• Calculate the rectilinear distance:

• Multiply by the number of loads between each site and the four cities
Calculating the Load-distance Values

Computing the Load-Distance Score for Springfield

City Load Distance ld
Cleveland 15 20.5 307.5
Columbus 10 4.5 45
Cincinnati 12 7.5 90
Dayton 4 3.5 14
Total Load-Distance Score(456.5)

Computing the Load-Distance Score for Mansfield

City Load Distance ld
Cleveland 15 8 120
Columbus 10 8 80
Cincinnati 12 20 240
Dayton 4 16 64
Total Load-Distance Score(504)

The load-distance score for Mansfield is higher than for

Springfield. The warehouse should be located in Springfield.
Exercise 1
 Factor Rating Example 2

Determine which location has the highest factor

rating given the following information:

Location
Factor Weight A B
Labor cost 0.5 20 40
Material cost 0.3 10 30
Supplier base 0.2 50 10
1.00
Solution

Location Weighted Scores

Factor Weight A B A B
Labor cost 0.5 20 40 0.5(20)=10 0.5(40)=20
Material cost 0.3 10 30 0.3(10)=3 0.3(30)=9
Supplier base 0.2 50 10 0.2(50)=10 0.2(10)=2
Total 1.00 23 31
Example 3

A company is going to construct a new warehouse

served by suppliers A, B, and C. The locations of the
three suppliers and the annual number of truck
carriers that will serve the warehouse are shown in
the following figure.
 Cont…

600

500  C (170)

400
Miles

300
 A (140)
200

100  B(110)

100 200 300 400 500 600

Miles
 Cont…

A B C
XA=150 XB=300 XC=400
YA=250 YB=100 YC=500
WA=140 WB=110 WC=170

• Determine the best site for the warehouse

using the center of gravity technique
 Solution
C

x w i i
(150)(140)  (300)(110 )  (400)(170)
X i A
  290.5miles
C
140  110  170
w
i A
i

y w i i
(250)(140)  (100)(110 )  (500)(170)
Y i A
  311 .9miles
C
140  110  170
w
i A
i

Demonstrate this location in the x-y coordinate

plane
 Break even Example 2

A manufacturing of staplers is about to lose its lease, so it must move to

another location. Two sites are currently under consideration. Fixed
costs wuold be $8,000 per month at site A and $9,400 per month at site
B. Variable costs are expected to be $5 per unit at site A and $4 per unit
at site B. Monthly demadn has been steady at 8,800 units for the last
several years and is not expected to deviate from that amount in the
foreseeable future. Assume staplers sell for $6 per unit. Determine
which location would yield higher profit under these conditions.
Solution
Profit = Q(R-V) –FC

(FC) (V) Monthly

Site Revenue Fixed cost Variable cost Profit

A $52,800 $8,000 $44,000 $800

B $52,800 $9,400 $35,200 $8,200

 Hence, site B is expected to yield higher

monthly profit and it is the best location.
PART II: Facility Layout

ninth edition
 Facility Layout
Facility Layout and Basic Formats

Process Layout

Layout Planning

Assembly Line balancing

 Facility Layout
Defined
Facility layout can be defined as the process by which the
placement of departments, workgroups within departments,
workstations, machines, and stock-holding points within a
facility are determined.
 Facility Layout and its effects

Arrangement of areas within a

facility
 Minimize to:
material-handling  Facilitate entry, exit, and
costs placement of material, products,
 Utilize space efficiently and people
 Utilize labor efficiently  Incorporate safety and security
 Eliminate bottlenecks measures
 Facilitate communication and  Promote product and service
interaction quality
 Reduce manufacturing cycle  Encourage proper maintenance
time activities
 Reduce customer service time  Provide a visual control of
 Eliminate wasted or activities
 Provide flexibility to adapt to
redundant movement
 Increase capacity changing conditions
Copyright 2006 John Wiley & Sons, Inc.
7-302
 BASIC LAYOUTS

Process layouts(Layout for

Intermittent)
 Group similar activities together according to
process or function they perform. Eg. In
machine shop , all drills in one work center,
lathes in another work center and milling
machine in another work center.
Product layouts(Line layout)
 arrange activities in line according to
sequence of operations for a particular product
or service

Copyright 2006 John Wiley & Sons, Inc.

7-303
 Manufacturing Process Layout
Milling
Lathe Department Department Drilling Department
M M D D D D
L L

M M D D D D
L L

G G G P
L L

G G G P
L L
Grinding Painting Department
Department
L L
Receiving and A A A
Shipping Assembly

Copyright 2006 John Wiley & Sons, Inc.

7-304
 A Product Layout
In

Out

Copyright 2006 John Wiley & Sons, Inc.

7-305
 Process Layout:
Systematic Layout Planning
Numerical flow of items between departments
 Can be impractical to obtain
 Does not account for the qualitative factors that may be crucial
to the placement decision
Systematic Layout Planning
 Accounts for the importance of having each department located
next to every other department
 Is also guided by trial and error
 Switching departments then checking the results of the “closeness”
score
 Example of Systematic Layout
Planning: Reasons for Closeness

Code Reason

1 Type of customer

2 Ease of supervision

3 Common personnel

4 Contact necessary

5 Share same price

6 Psychology
Example of Systematic Layout Planning:
Importance of Closeness
Line Numerical
Value Closeness
code weights
A Absolutely necessary 16

E Especially important 8

I Important 4

O Ordinary closeness OK 2

U Unimportant 0

X Undesirable 80
Example of Systematic Layout Planning:
Relating Reasons and Importance
Area
From To
2 3 4 5 (sq. ft.)
I U E U
1. Credit department 100
6 -- 4 --
U I A
2. Toy department 400
-- 1 1,6
U X
3. Wine department 300
-- 1
X
4. Camera department 100
1

5. Candy department 100

Letter Closeness rating

Number Reason for rating
Example of Systematic Layout
Planning:
Initial Relationship Diagram

1 E 3

I 4 U U

2 5
A
 Example of Systematic Layout
Planning:
Initial and Final Layouts
5 2 4 2
3 20 ft
3 1 5 1 4

50 ft

Initial Layout Final Layout

Ignoring space and Adjusted by square

building constraints footage and building
size
 Product Layout: Assembly Balancing

The major concern in a product layout is balancing

the assembly line so that no one workstation
becomes a bottleneck and holds up the flow of work
through the line .

Balancing an assembly line is a procedure in which

tasks are distributed evenly to each assembly station
in the line so that each workstation has the same
amount of the work.
 Con…

The significant thing is to balance the workload of

the operator at every station, reducing the operator
idle time over the task time which means the
decrease of unused idle station capacity.

Assembly –line balancing operates under two

constraints : Precedence requirements and cycle
time restrictions
 Assembly Lines Balancing Concepts

Question: Suppose you load work into the three work stations
below such that each will take the corresponding number of
minutes as shown. What is the cycle time of this line?

Station 1 Station 2 Station 3

Minutes
per Unit 6 7 3
Answer: The cycle time of the line is always determined by
the work station taking the longest time. In this problem,
the cycle time of the line is 7 minutes. There is also going
to be idle time at the other two work stations.
 Example of Line Balancing

You’ve just been assigned the job a setting up an

electric fan assembly line with the following tasks:

Task Time (Mins) Description Predecessors

A 2 Assemble frame None
B 1 Mount switch A
C 3.25 Assemble motor housing None
D 1.2 Mount motor housing in frame A, C
E 0.5 Attach blade D
F 1 Assemble and attach safety grill E
G 1 Attach cord B
H 1.4 Test F, G
 Example of Line Balancing:
Structuring the Precedence Diagram
Task Task
Predecessors
A None Predecessors
E D
B A F E
C None G B
D A, C H E, G

A B G
H

C D E F
 Example of Line Balancing: Precedence
Diagram
Question: Which process step defines the maximum rate of
production?

2 1 1
A B G 1.4
H

C D E F
3.25 1.2 .5 1
Answer: Task C is the cycle time of the line and
therefore, the maximum rate of production.
Example of Line Balancing: Determine
Cycle Time
Question: Suppose we want to assemble 100 fans
per day. What would our cycle time have to be?

Answer:
Production time per period
Required Cycle Time, C =
Required output per period

420 mins / day

C= = 4.2 mins / unit
100 units / day
 Example of Line Balancing: Determine
Theoretical Minimum Number of Workstations

Question: What is the theoretical minimum number of

workstations for this problem?

Answer: Theoretical Min. Number of Workstations, N t

Sum of task times (T)

Nt =
Cycle time (C)

11.35 mins / unit

Nt = = 2.702, or 3
4.2 mins / unit
 Example of Line Balancing: Rules To
Follow for Loading Workstations
 1. Draw the precedence diagram for all tasks

 2.Group the elemental tasks without exceeding the cycle time.

 3.Calculate the efficiency of the line

 Task Followers Time (Mins)
A 6 2
2 1 1
1.4 C 4 3.25
A B G
H D 3 1.2
B 2 1
C D E F
E 2 0.5
F 1 1
3.25 1.2 .5 1
G 1 1
H 0 1.4

Station 1 Station 2 Station 3

 Task Followers Time (Mins)
A 6 2
2 1 1
1.4 C 4 3.25
A B G
H D 3 1.2
B 2 1
C D E F
E 2 0.5
F 1 1
3.25 1.2 .5 1
G 1 1
H 0 1.4

Station 1 Station 2 Station 3

A (2min)
 Task Followers Time (Mins)
A 6 2
2 1 1
1.4 C 4 3.25
A B G
H D 3 1.2
B 2 1
C D E F
E 2 0.5
F 1 1
3.25 1.2 .5 1
G 1 1
H 0 1.4

Station 1 Station 2 Station 3

A (4.2-2=2.2)
B (2.2-1=1.2)
 Task Followers Time (Mins)
A 6 2
2 1 1
1.4 C 4 3.25
A B G
H D 3 1.2
B 2 1
C D E F
E 2 0.5
F 1 1
3.25 1.2 .5 1
G 1 1
H 0 1.4

Station 1 Station 2 Station 3

A (2=2.2)
B (1=1.2)
G (1.2-1= .2)

Idle= .2
 Task Followers Time (Mins)
A 6 2
2 1 1
1.4 C 4 3.25
A B G
H D 3 1.2
B 2 1
C D E F
E 2 0.5
F 1 1
3.25 1.2 .5 1
G 1 1
H 0 1.4

Station 1 Station 2 Station 3

A (4.2-2=2.2) C (4.2-3.25)=.95
B (2.2-1=1.2)
G (1.2-1= .2)

Idle= .2
 Task Followers Time (Mins)
A 6 2
2 1 1
1.4 C 4 3.25
A B G
H D 3 1.2
B 2 1
C D E F
E 2 0.5
F 1 1
3.25 1.2 .5 1
G 1 1
H 0 1.4

Station 1 Station 2 Station 3

A (2) C (4.2-3.25)=.95
B (1)
G (1)

Idle=4.2-4= .2 Idle = .95

 Task Followers Time (Mins)
A 6 2
2 1 1
1.4 C 4 3.25
A B G
H D 3 1.2
B 2 1
C D E F
E 2 0.5
F 1 1
3.25 1.2 .5 1
G 1 1
H 0 1.4

Station 1 Station 2 Station 3

A (2) C (3.25) D (1.2)

B (1)
G (1)

Idle=4.2-4= .2 Idle =4.2-3.25= .95

 Task Followers Time (Mins)
A 6 2
2 1 1
1.4 C 4 3.25
A B G
H D 3 1.2
B 2 1
C D E F
E 2 0.5
F 1 1
3.25 1.2 .5 1
G 1 1
H 0 1.4

Station 1 Station 2 Station 3

A(2min) C (3.25) D (1.2)
B (1min) E (.5)
G (1min
Idle=4.2-4=.2
Idle =4.2-3.25= .95
 Task Followers Time (Mins)
A 6 2
2 1 1
1.4 C 4 3.25
A B G
H D 3 1.2
B 2 1
C D E F
E 2 0.5
F 1 1
3.25 1.2 .5 1
G 1 1
H 0 1.4

Station 1 Station 2 Station 3

A (2min) C (4.2-3.25)=.95 D (1.2min)

B (1min) E (0.5min)
G (1min) F (1min)

Idle=4.2-4.0=0.2 Idle = .95

 Task Followers Time (Mins)
A 6 2
2 1 1
1.4 C 4 3.25
A B G
H D 3 1.2
B 2 1
C D E F
E 2 0.5
F 1 1
3.25 1.2 .5 1
G 1 1
H 0 1.4

Station 1 Station 2 Station 3

A (2min) C (3.25) D (1.2min)
B (1min) E (.5min)
G (1min)
F (1min)
Idle=4.2-4= .2
Idle4.2-3.25 = .95 H (1.4min)
Idle 4.2-
Which station is the bottleneck? What is the effective
4.1= .1 cycle
time?
 Example of Line Balancing: Determine the Efficiency of
the Assembly Line

Sum of task times (T)

Efficiency =
Actual number of workstations (Na) x Cycle time (C)
11.35 mins/unit
Efficiency = = 33.78%
(8)(4.2mins/unit)
Sum of task times (T)
Efficiency =
number of workstations (Ws) x Cycle time (C)

11.35 mins/unit
Efficiency = = 90.1%
(3)(4.2min s/unit)
 Cont…

Balanced delay=100-Efficiency
=100-90.1
=9.9%
Reading assignement

1. Group Technology

2. Fixed position layout

3.Service operations layout

 CHAPTER 7
Job Design and Work
Measurement
 Job Design and Work Measurement
 Job Design Defined

 Job Design Decisions

 Trends in Job Design

 Work Measurement

 Basic Compensation Systems

 Financial Incentive Plans

 What is Job Design?
Defined-It determines the contents of a job.
Job design is the function of specifying the work
activities of an individual or group in an
organizational setting.

The objective of job design is to develop jobs that

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

Who What Where When Why How

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

Ultimate
Job
Structure
 Trends in Job Design

· Quality control as part of the worker's job.

· Cross-training workers to perform multiskilled

jobs.

· Employee involvement and team approaches

to designing and organizing work.

· "Informating" ordinary workers through

telecommunication networks and computers.
 Trends in Job Design (Continued)

· Extensive use of temporary workers.

· Automation of heavy manual work.

· Organizational commitment to providing

meaningful and rewarding jobs for all
employees.
 Approaches to Job Design

 Mechanistic approach
 cater for jobs that are simple, routine, repetitive tasks such as assembly
jobs, packing processes.
 Motivational approach
 cater for jobs that deal with services, tasks that involve much
movements, variety of works
 fulfills 5 core job dimensions: use skills variety, tasks variety, task
identity, task autonomy and feedback
 Biological approach
 consider ergonomics factors: to design a job that fits the worker’s
physiological nature, and not to fit the worker to the job
 Perceptual approach
 consider mental factors and demands that do not exceed the mental
capabilities of the worker
340
 Workplace Changes

Labor/organizational changes.
 More technology, fewer workers and organizational layers.
Increased employee involvement.
Composition (gender/ethnic diversity).
Thus, managers have different roles.
 Mentors or coaches rather than “bosses.”
 Employee Empowerment

Assume roles once owned by managers.

Increases employee motivation and hence
productivity.
Managers must share:
 Organizational performance information.
 Rewards (based on organizational performance).
 Knowledge/expertise needed to enhance organizational
performance.
 Decision-making power.
 Involvement

Increases trust and commitment

Improves employee communications and attitudes
Involved employees are more likely to generate new
ideas
Involved employees achieve a higher quality of work
life which generates higher levels of commitment
leading to higher productivity
 Job Design Feasibility Issues

Technical feasibility:
 Whether the job is within physical & mental capabilities of
the workforce
Economic feasibility:
 Whether the cost of performing the job is less than its added
value
Behavioral feasibility:
 Whether the job is intrinsically satisfying
 Work Methods –How a job is to be performed ?

• Work methods deals with a better ways of

performing jobs and/tasks
• This can be undertaken using: operation charts ,
worker-machine charts , activity charts , etc
• The end result may be:
• improved labour utilization,
• machine utilization,
• material utilization,
• reducing operating cost, and
• standardization of operations and products .
 Con…

Process Flowchart- is used to analyze how the steps

of a job or how a set of jobs fit into the over all flow
of the production process.
Eg. The flow of a product through a manufacturing
assembly process.
Worker-machine Chart –shows the amount of time a
worker and a machine are working or idle in a job.
 Work Methods Studies

Individual/group operations: use charting

(operations charts, worker-machine charts,
simultaneous motion charts, activity charts) with
time studies or standard time data to
analyze/evaluate work efficiency.
Overall operations: identify non-value-adding
(waste) and inefficient activities for
process/productivity improvement
 Cont.. Work Methods Design Aids

Activity Objective of Study Study

Techniques
1 Production Eliminate or combine steps; Flow
process shorten transport charts ,service
distance ;identify delays blue
prints ,process
charts
2 Worker at fixed Simplify method; minimize Operations
workplace motions charts , simo
charts ,
3 Worker’s Minimize idle time; find number Activity chart,
interaction with or combination of machines to worker-machine
equipment balance cost of worker and charts
machine idle time

4 Worker’s Maximize productivity ; Activity charts,

interaction with minimize interference process charts
other workers
 Study the Job

1. Picks up wire in left hand

and moves it to the
terminal
2. Simultaneously picks up
solder iron in right hand
and moves to the terminal
3. Solders wire to terminal
and replaces solder iron in
holder
4. Solders terminal #1, then
#2 - #6, going right to left
Flowchart the Process
 Summary: Work Methods
IN DEVELOPING WORK METHODS THAT ARE MOTION
EFFICIENT , THE ANALYST TRIES TO:
1. ELIMINATE UNNECESSARY MOTIONS
2. COMBINE ACTIVITIES
3. REDUCE FATIGUE
4. IMPROVE THE ARRANGEMENT OF THE WORKPLACE
5. IMPROVE THE DESIGN OF TOOLS AND EQUIPMENT
 Work Measurement
Defined

• Work measurement is a process of analyzing

jobs for the purpose of setting time standards.
•It determines the length of time to complete a job
• Why use it?
– Schedule work and allocate capacity
– Motivate and measure work performance
– Evaluate performance
– Provide benchmarks
 Important Terms
1. OBSERVED TIME (OT) = THE AVERAGE OF
THE RECORDED TIMES . OT=∑XI/N N=NUMBER OF
OBSERVATIONS.
 IT IS THE LENGTH OF TIME A WORKER
SHOULD TAKE TO PERFORM A JOB IF
THERE ARE NO DELAYS OR
INTERRUPTIONS
1. NORMAL TIME(NT) = O T A D J U S T E D
FOR WORKER PERFORMANCE I.E ,
NT=OT X PR PR=PERFORMANCE
RATING PR= IS USED TO ADJUST OT TO
“AVERAGE “PACE
2. STANDARD TIME(ST ) = N O R M A L T I M E
PLUS AN ALLOWANCE FOR DELAYS I.E,
ST= NTX(1+ALLOWANCE FACTOR)AF
 Work Measurement

Standard time:
 The length of time a qualified worker, using appropriate tools
& procedures, will take to complete a job
Standard time is used in:
 Costing the labor component of products
 Tracking employee performance
 Scheduling & planning required resources
 Setting Standard Times

Step 1: Choose the specific job to be studied

Step 2: Inform the worker of the study
Step 3: Break the job into distinguishable
elements
Step 4: Calculate the number of cycles to observe
Step 5: Time each element, record data & rate the
worker’s performance
Step 6: Compute the standard time
 Con…
Compute normal time
Normal Time = (Elemental average or OT) x (rating
factor)
Nt = (t )(RF)

Compute standard
Normaltime
Cycle Time = NT = Nt

Standard Time = (normal cycle time) x (1 + allowance factor)

ST = (NT)(1 + AF)
Copyright 2006 John Wiley & Sons, Inc.
Supplement 8-356
 Con….

Performance Rating
The performance of the worker should be rated by
the person doing the study.
 Hence a performance rating factor of :
 100% reflects normal work performance
 Below 100% represents below average performance
 above 100% indicates performance better than normal
 Usually rating range between 80% and 120%
 Cont..

Allowances includes: Personal needs (washroom and

coffee breaks), unavoidable work delays( equipment
break down or lack of materials ) and worker fatigue
(physical or mental).
Con…

Example : MIE wants to determine the standard

time for a manual solder operation on one of its new
circuit boards. From the following task times
observed during a time study exercise calculate the
standard time for the job . Assume the worker who
has been observed is 10% slower than average at this
task. Assume allowance factor of 20%

Sample observation
1 2 3 4 5 6 7 8 9 10
6.7 7.1 7.3 7.0 7.1 6.8 6.9 6.8 7.1 7.0
sec
 Con…
Cycle time(OT)= average of samples
=∑xi/n=(6.7+7.1+7.3+7+7.1+6.8+6.9+6.8+7.1+7)/10
=69.8/10=6.98 sec
Normal Time=CTxRF=6.98x0.9=6.282 sec
 Where 100% normal work performance =10%+90%
Standard time= Nt x(1+ Allowance)=6.282x1.2=7.54
seconds
Reading Assignment

Read on Work Sampling as method for work Measurement

 Home work

 Operators in the check-processing department of a large

bank must manually enter the amount of each check.
Based on time studies, the standard time is .03 minute per
check. During a typical eight-hour day, operators
experience thirty minutes of unavoidable delays and
require twenty minutes for personal time. Each operator
is allowed three fifteen-minute coffee breaks per day.
a. How many checks would be processed per
day by an operator working at 90 percent of
standard?
b. How many checks would be processed per day
by an operator working at 110 percent of
standard?
 Worker Compensation Systems

 Compensation is the third part of work system design

 Time-based plans (day pay) versus output-based systems
(incentive pay)
 Group incentive plans: profit sharing & gain sharing
 Plans put part of a worker’s salary at risk
 Does the compensation system undermine teamwork?
 Does plan prevent free-riders not doing their fair share?
 Does the incentive plan encourage workers to support the long-term
health of the organization?
 Pay –for-performance
 CHAPTER 8
STRATEGIC CAPACITY
MANAGEMENT, AGGREGATE
PLANNING AND SCHEDULING
 Part I: Strategic Capacity Planning
Strategic Capacity Planning Defined
Capacity Utilization & Best Operating Level
Determining Capacity Requirements
 Strategic Capacity Planning
Defined

 Capacity can be defined as the ability to hold, receive,

store, or accommodate.
 Capacity is the maximum capability to produce .

 It can be measured as units of output, amount of birr, hours

of work, or number of customers processed over a specified
time
 Or the amount of output that a system is capable of
achieving over a specific period of time .
 Examples
 THE NUMBER OF AUTOMOBILES PRODUCED IN A SHIFT
T H E N U M B E R O F C U S T O M E R S S E R V E D I N R E S T A U R A N T
IN A GIVEN TIME
T H E N U M B E R O F S T U D E N T S I N A C L A S S E T C .
Time Durations for capacity Planning
o LONG RANGE PLANNING: GREATER THAN ONE YEAR. EG.
BUILDING, EQUIPMENT, OR FACILITIES
oI N T E R M E D I A T E R A N G E P L A N N I N G : M O N T H L Y O R
QUARTERLY PLANS FOR THE NEXT 6 TO 18 MONTHS . EG.
HIRING, LAYOFFS , NEW TOOLS , SUBCONTRACTING
oS H O R T R A N G E P L A N N I N G : L E S S T H A N O N E M O N T H
EG. WEEKLY OR DAILY SCHEDULING PROCESS
 Capacity Planning

Capacity planning- is the long-term strategic

decision that establishes a firm’s overall level
resources
Strategic capacity planning is an approach for
determining the overall capacity level of capital
intensive resources, including facilities, equipment,
and overall labor force size.
 Type of capacity

1. Rated capacity(Designed capacity) –the theoretical

output that could be attained if a process were
operated at full speed without interruption,
exceptions or downtime .
2. 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.
 Capacity Expansion Strategies

Copyright 2006 John Wiley & Sons, Inc. 6-370

 Capacity Utilization

· Capacity utilization rate = Capacity used x 100

Best operating level

Capacity used
 rate of output actually achieved
Best operating level
 capacity for which the process was designed ( or the volume of
output at which average unit cost is minimized)
 Example of Capacity Utilization

During one week of production, a plant produced 83

units of a product. Its historic highest or best
utilization recorded was 120 units per week. What is
this plant’s capacity utilization rate?
Answer:
Capacity utilization rate = Capacity used .
Best operating level

= 83/120
=0.69 or 69%
 Capacity Planning-

Frequency of Capacity Additions

External Sources of Capacity

 Determining Capacity Requirements

Forecast sales within each individual product line.

Calculate equipment and labor requirements to meet

the forecasts.

Project equipment and labor availability over the

planning horizon.
 Example of Capacity Requirements

A manufacturer produces two lines of bed sheets :

A and B. Each is sold in Single and family-size
packages .

The following table shows forecast demand for

the next four years.
Year: 1 2 3 4
Bimechegn
Small (000s) 50 60 80 100
Family (000s) 35 50 70 90
Abronet
Small (000s) 100 110 120 140
Family (000s) 80 90 100 110
Example of Capacity Requirements: The
Product from a Capacity Viewpoint
Question: Are we really producing two different types
of bed sheets from the standpoint of capacity
requirements?
Answer: No, it’s the same product just packaged
differently.
 Example of Capacity Requirements:
Equipment and Labor Requirements
Year: 1 2 3 4
Small (000s) 150 170 200 240
Family (000s) 115 140 170 200

Three 100,000 units-per-year machines are available

for single bed sheet production. Two operators
required per machine.

Two 120,000 units-per-year machines are available

for family-sized-bed sheet production. Three
operators required per machine.
 Cont…
FOR SINGLE SIZE: YEAR I
• PERCENT CAPACITY USED=ACTUAL
CAPACITY/DESIGNED CAPACITY
= 150,000/300000 =50%
•M A C H I N E R E Q U I R E M E N T = A C T U A L
CAPACITY/DESIGNED CAPACITY PER YEAR
PER MACHINE
= 150,000UNITS/100,000 UNITS/MACHINE
= 1.5 MACHINES
• LABOR REQUIREMENT= NUMBER OF
OPERATORS*ACTUAL CAPACITY/DESIGNED
CAPACITY PER MACHINE
= 2 OPERATORS*150,000
UNITS/100,000UNITS
= 3 OPERATORS OR MACHINE
REQUIREMENT*NUMBER OF OPERATORS=1.5*2=3
OPERATORS
 Cont…
FOR FAMILY SIZE : YEAR I
• PERCENT CAPACITY USED=ACTUAL
CAPACITY/DESIGNED CAPACITY
= 115,000/240,000 =47.92%
•M A C H I N E R E Q U I R E M E N T = A C T U A L
CAPACITY/DESIGNED CAPACITY PER YEAR
MACHINES
= 115,000UNITS/120,000 UNITS/MACHINE
= 0.96 MACHINES
• LABOR REQUIREMENT=MACHINE
REQUIREMENT*NUMBER OF OPERATORS
= .96MACHINES*3
OPERATORS
= 2.88 OPERATORS
 HOME WORK: CALCULATE FOR THE
REMAINING 3 YEARS
 380
Question: What are the values for columns 2, 3 and 4 in the table below?
Year: 1 2 3 4
Small (000s) 150 170 200 240
Family (000s) 115 140 170 200

Single size Mach. Cap. 300,000 Labor 6

Family-size Mach. Cap. 240,000 Labor 6

Small
Percent capacity used 50.00% 56.67% 66.67% 80.00%
Machine requirement 1.50 1.70 2.00 2.40
Labor requirement 3.00 3.40 4.00 4.80
Family-size
Percent capacity used 47.92%58.33% 70.83% 83.33%
Machine requirement 0.961.17 1.42 1.67
Labor requirement 2.883.50 4.25 5.00
©The McGraw-Hill Companies, Inc., 2001
 PART II: Aggregate Planning
Operations Planning Overview

Aggregate production planning

Examples: Chase and Level strategies

 What is Aggregate Planning ?
• AGGREGATE PLANNING IS AN ATTEMPT TO BALANCE
CAPACITY AND DEMAND IN WAYS THAT COSTS ARE
MINIMIZED .
• THE TERM “AGGREGATE “ IS USED BECAUSE PLANNING AT
THIS LEVEL INCLUDES ALL RESOURCES , E.G PRODUCT
LINE OR PRODUCT FAMILY .
•T H E A G G R E G A T E R E S O U R C E S C O U L D B E T O T A L N U M B E R
OF WORKERS , HOURS OF MACHINE TIME , TONS OF RAW
MATERIALS ETC.
 Aggregate Planning Goals
Meet demand
(Sales Forecast)
Use capacity efficiently
Meet inventory policy
Minimize cost
 Labor
 Inventory
 Plant & equipment
 Subcontract
 Aggregate Planning
Strategies
Pure Strategies
Demand Options — change demand:
(options to increase demand
Pricing (e.g. change price)
Promotion –advertising, direct marketing
Backordering during high demand periods
 New demand creation-a new , but complementary
demand is created for a product or service
E.g. in a restaurant customers may demand bar
services due to high waiting time .
 Aggregate Planning
Strategies
Pure Strategies
Capacity Options — change capacity:
(options to increase or decrease capacity)
changing inventory levels
varying work force size by hiring or layoffs
varying production capacity through
overtime or idle time
subcontracting (outsourcing)
using part-time workers
 The Extremes

Level Chase
Strategy Strategy

Production
Production rate
equals sales
is constant
forecast
 Aggregate Planning Strategies
Level scheduling strategy
Produce same amount every day
 Keep work force level constant
 Vary non-work force capacity or demand options( or use inventories,
overtime, part-time workers , subcontracting and back orders to meet
the variation in demand )
 Often results in lowest production costs
Chase scheduling strategy
 Vary the amount of production to match (chase) the sales forecast
 This requires changing the workforce (hiring & firing)
Mixed strategy
 Combines 2 or more aggregate scheduling options
The Trial & Error Approach to Aggregate
Planning
1.Forecast the demand for each period
2. Determine the capacity for regular time,
overtime, and subcontracting, for each
period
2. Determine the labor costs, hiring and
firing costs, and inventory holding costs
3. Consider company policies which may
apply to the workers, overtime,
outsourcing, or to inventory levels
4. Develop alternative plans, and examine
their total costs
 Pure Strategies: Assume the following are sales forecasts & aggregate
planning assumptions in Adey Ababa Textile Co.

Example:

QUARTER SALES FORECAST (LB)

Spring( Tsedey) 80,000
Summer(Kiremt) 50,000
Fall(Belg) 120,000
Winter( Bega) 150,000

Hiring cost = Birr100 per worker

Firing cost = Birr500 per worker
Regular production cost per unit = Birr2.00
Inventory carrying cost = Birr0.50 per quarter
Production per employee = 1,000 units per quarter
Beginning work force = 100 workers

.Kahsu Mebrahtu(Assistant Professor)

 Level Production Strategy

Level production
(50,000 + 120,000 + 150,000 + 80,000)
= 100,000 units
4

SALES PRODUCTION
QUARTER FORECAST PLAN INVENTORY
Spring 80,000 100,000 20,000
Summer 50,000 100,000 70,000
Fall 120,000 100,000 50,000
Winter 150,000 100,000
400,000 140,000
Cost of Level Production Strategy
(400,000 X Birr2.00) + (140,00 X Birr.50) = Birr870,000

.Kahsu Mebrahtu(Assistant Professor)

 Chase Demand Strategy

SALES PRODUCTION WORKERS WORKERS WORKERS

QUARTER FORECAST PLAN NEEDED HIRED FIRED
Spring 80,000 80,000 80 0 20
Summer 50,000 50,000 50 0 30
Fall 120,000 120,000 120 70 0
Winter 150,000 150,000 150 30 0
100 50

Cost of Chase Demand Strategy

(400,000 X Birr2.00) + (100 x Birr100) + (50 x Birr500) = Birr835,000
 Mixed Strategy

Combination of Level Production and

Chase Demand strategies
Examples of management policies
 no more than 20% of the workforce can be
laid off in one quarter
 inventory levels cannot exceed 1million birr
amount
Many industries may simply shut down
manufacturing during the low demand
season and schedule employee
vacations during that time

13-392
PART III .Operations Scheduling
 Work Center
Defined
A work center is an area in a business in which
productive resources are organized and work is
completed.
May be a single machine, a group of machines, or an
area where a particular type of work is done.
 Scheduling and Controlling Functions
1. ALLOCATE ORDERS , EQUIPMENT, AND
PERSONNEL TO WORK CENTERS OR OTHER
SPECIFIED LOCATIONS
2. D E T E R M I N I N G T H E S E Q U E N C E O F O R D E R
PERFORMANCE (THAT IS ESTABLISHING JOB
PRIORITIES )
3. I N I T I A T I N G P E R F O R M A N C E O F T H E S C H E D U L E D
WORK. THIS IS COMMONLY TERMED
DISPATCHING OF ORDERS ( THIS INCLUDES
START DATE, JOB# , DESCRIPTION AND RUN
TIME )
4. S H O P F L O O R C O N T R O L ( O R P R O D U C T I O N
ACTIVITY CONTROL) INVOLVING:
A. REVIEWING THE STATUS AND
CONTROLLING THE PROGRESS OF ORDERS AS
THEY ARE BEING WORKED ON.
B. EXPEDITING LATE AND CRITICAL ORDERS
 Work-Center Scheduling Objectives

Meet due dates

Minimize lead time

Minimize setup time or cost

Minimize work-in-process inventory

Maximize machine utilization

 Schedule Performance Measures

Meeting due dates of customers or downstream

operations.
Minimizing the flow time (the time a job spends in
the process).
Minimizing work-in-process inventory.

Minimizing idle time of machines or workers.

 Priority Rules for Job Sequencing

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

2. Shortest operating time (SOT)

3. Earliest due date first

4. Earliest start date first (due date-lead time)

5. slack time remaining (STR) first: Time remaining before

due date – the processing time remaining. Run the shortest
STR first
6. slack time remaining (per operation as opposed to per job)
first. Run orders with shortest STR/OP.
STR/OP= Time remaining - Remaining processing
before due date Time________
Number of remaining operation
7. Smallest critical ratio (CR) first
(due date-current date)/(number of days remaining)
8. Smallest queue ratio (QR) first
(slack time remaining in schedule)/(planned remaining queue
time)
9. Last come, first served (LCFS)
10. Random order or whim
 Example of Job Sequencing: First-Come First-Served
Jobs (in order Processing Due Date
Suppose you have the four of arrival) Time (days) (days hence)
jobs to the right arrive for A 4 5
processing on one machine. B 7 10
C 3 6
What is the FCFS schedule? D 1 4
Do all the jobs get done on time?

Answer: FCFS Schedule

Jobs (in order Processing Due Date Flow Time
of arrival) Time (days) (days hence) (days) No, Jobs B, C, and D
A 4 5 4 are going to be late.
B 7 10 11
C 3 6 14
D 1 4 15
TOTAL FLOW TIME = 4+11+14+15= 44 DAYS
MEAN FLOW TIME =44DAYS/4JOBS= 11DAYS
AVERAGE LATENESS/JOB=(0+1+8+11)/4JOBS=5 DAYS (I.E
ON THE AVERAGE A JOB WILL BE LATE BY 5 DAYS )
Example of Job Sequencing: Shortest Operating Time
Jobs (in order Processing Due Date
Suppose you have the four of arrival) Time (days) (days hence)
jobs to the right arrive for A 4 5
processing on one machine. B 7 10
C 3 6
What is the SOT schedule? D 1 4
Do all the jobs get done on time?

Answer: Shortest Operating Time Schedule

Jobs (in order Processing Due Date Flow Time
No, Jobs A and
of arrival) Time (days) (days hence) (days)
B are going to
D 1 4 1 be late.
C 3 6 4
A 4 5 8
B 7 10 15
 Example of Job Sequencing:
Last-Come First-Served
Jobs (in order Processing Due Date
Suppose you have the four of arrival) Time (days) (days hence)
jobs to the right arrive for A 4 5
processing on one machine. B 7 10
C 3 6
What is the LCFS schedule? D 1 4
Do all the jobs get done on time?

Answer: Last-Come First-Served Schedule

Jobs (in order Processing Due Date Flow Time
of arrival) Time (days) (days hence) (days) No, Jobs B and
D 1 4 1 A are going to
C 3 6 4 be late.
B 7 10 11
A 4 5 15
 Example of Job Sequencing: Earliest Due Date First
Jobs (in order Processing Due Date
Suppose you have the four of arrival) Time (days) (days hence)
jobs to the right arrive for A 4 5
processing on one machine. B 7 10
C 3 6
What is the earliest due date first D 1 4
schedule?
Do all the jobs get done on time?

Answer: Earliest Due Date First

Jobs (in order Processing Due Date Flow Time No, Jobs C and
of arrival) Time (days) (days hence) (days) B are going to
D 1 4 1 be late.
A 4 5 5
C 3 6 8
B 7 10 15
 Example of Job Sequencing: STR
Jobs (in order Processing Due Date
Suppose you have the four of arrival) Time (days) (days hence)
jobs to the right arrive for A 4 5
processing on one machine. B 7 10
C 3 6
What is the CR schedule? D 1 4
Do all the jobs get done on time?
Answer: STR First
No, Job D,
Jobs (in order Processing Due Date Flow Time C,and B will be
of arrival) Time (days)(days hence) (days) late
A 4 5 4
D 1 4 5
C 3 6 8
B 7 10 15
 Cont…

STR= TIME REMAINING BEFORE DUE DATE MINUS THE

PROCESSING TIME REMAINING
FOR JOB A=4-4= 0
JOB B= 9-7=2 DAYS
JOB C=5-3=2 DAYS
JOB D=3-1=2 DAYS
DECISION: JOB A, JOB D, JOB C, AND JOB B BASED ON
THE MINIMUM OPERATING TIME
 COMPARISON OF PRIORITY RULES

Rule Total Completion Average Average

Time(Days) Completion Time Lateness(Days)
or Mean flow time
(Days)
FCFS 44 11 4.5

SOT 28 7 2

LCFS 31 7.75 2.75

EDDate 29 7.25 1.75

STR 32 8 2
Reading Assignment :
1. Loading: Infinite and finite loading
2. Backward and forward scheduling
2. Scheduling in two machines
3. Employee Scheduling
 Home Work

The following table contains information concerning four jobs that are
awaiting processing at a work center
A. sequence the jobs using FCFS,SPT,DD and CR assume the list is by
order of arrival
B. For each of the methods in A, determine (1) the average job flow time,
(2) average lateness, and (3) the average number of jobs at the work
center
C. Is one method superior to others ? Explain
Job Job Time (days) Due Date (days)
A 14 20
B 10 16
C 7 15
D 6 17