Operations Management.pdf So you can download it
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Oct 13, 2024
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About This Presentation
This is the Course given to MBA students
Slide Content
OPERATIONS MANAGEMENT
January, 2024
January, 2024
OM
Introduction
Meaning and Significance of OM
Competitive strategies
Ways and strategies to make firms competitive
Operation Design
Product and service design, capacity design,
Layout design
Operation Planning
Aggregate planning
Quality Management
Quality meaning, quality assurance, quality
management philosophies
Production scheduling and control
Scheduling production, scheduling rules
01
02
03
04
05
06
Introduction
Meaning and Significance of OM
Competitive strategies
Ways and strategies to make firms competitive
Operation Design
Product and service design, capacity design,
Layout design
Operation Planning
Aggregate planning
Quality Management
Quality meaning, quality assurance, quality
management philosophies
Production scheduling and control
Scheduling production, scheduling rules
01
02
03
04
05
06
Mode of assessment
•Case analysis and presentation (groups)......... 25%
•Article review (individual).............................. 20%
•Test or other .................................................. 15%
•Final examination........................................... 40%
•Case analysis and presentation (groups)......... 25%
•Article review (individual).............................. 20%
•Test or other .................................................. 15%
•Final examination........................................... 40%
Introduction to
Operations Management
January, 2024
Operations Management
January, 2024
What is operations management
•Production is the creation of goods and services.
•Operations management is the set activities that
creates value in the form of goods and services by
transforming inputs into outputs.
•It is the task of designing, establishing, planning,
running, controlling, maintaining and improving
such systems
•Activities of creating goods and services are
pervasive both for manufacturing firms and
service firms.
•In service organizations, the production function
may be less obvious and hidden form the public
and customers.
•Production is the creation of goods and services.
•Operations management is the set activities that
creates value in the form of goods and services by
transforming inputs into outputs.
•It is the task of designing, establishing, planning,
running, controlling, maintaining and improving
such systems
•Activities of creating goods and services are
pervasive both for manufacturing firms and
service firms.
•In service organizations, the production function
may be less obvious and hidden form the public
and customers.
Operations
◼People
◼Capital
◼Material
Products
◼Services
Transformation
Process ◼Goods
◼People
◼Capital
◼Material
Products
◼Services
Transformation
Process ◼Goods
Operations as a Transformation Process
◼Feedback
INPUT
◼Material
◼Machines
◼Labor
◼Management
◼Capital
OUTPUT
◼Goods
◼Services
TRANSFORMATION
◼PROCESS
◼The transformation process should add value such that the
output has financial value greater than the sum of the inputs
◼Feedback
INPUT
◼Material
◼Machines
◼Labor
◼Management
◼Capital
OUTPUT
◼Goods
◼Services
TRANSFORMATION
◼PROCESS
◼The transformation process should add value such that the
output has financial value greater than the sum of the inputs
Goods Versus Services
◼Can be resold
◼Production & consumption is d/t
◼Can be inventoried
◼Some aspects of quality measurable
◼Selling is distinct from production
◼Product is transportable
◼Site of facility important for cost
◼Often easy to automate
◼Revenue generated primarily from tangible product
◼Consistent product definition
◼Low customer interaction
Attributes of Goods
Tangible Product
Attributes of Services
Intangible Product
◼Reselling unusual
◼Produced & consumed simultaneously
◼Difficult to inventory
◼Quality difficult to measure
◼Selling is part of service
◼Provider, not product, is often transportable
◼Site of facility important for customer contact
◼Knowledge based Often difficult to automate
◼Revenue generated primarily from the
intangible service
◼Unique
◼High customer interaction
◼Can be resold
◼Production & consumption is d/t
◼Can be inventoried
◼Some aspects of quality measurable
◼Selling is distinct from production
◼Product is transportable
◼Site of facility important for cost
◼Often easy to automate
◼Revenue generated primarily from tangible product
◼Consistent product definition
◼Low customer interaction
Attributes of Goods
Tangible Product
Attributes of Services
Intangible Product
◼Reselling unusual
◼Produced & consumed simultaneously
◼Difficult to inventory
◼Quality difficult to measure
◼Selling is part of service
◼Provider, not product, is often transportable
◼Site of facility important for customer contact
◼Knowledge based Often difficult to automate
◼Revenue generated primarily from the
intangible service
◼Unique
◼High customer interaction
What do OM managers do?
•As any other manager, operation managers
plan, organize, staff, lead and control.
•Operation managers:
•Design
•Plan and control
•Ensure quality
•They make 1o major OM decisions regarding
operations.
•As any other manager, operation managers
plan, organize, staff, lead and control.
•Operation managers:
•Design
•Plan and control
•Ensure quality
•They make 1o major OM decisions regarding
operations.
OM Decisions
•All organizations make decisions
•First decisions very broad –Strategic decisions
•Strategic Decisions –set the direction for the entire company; they
are broad in scope and long-term in nature
•All organizations make decisions
•First decisions very broad –Strategic decisions
•Strategic Decisions –set the direction for the entire company; they
are broad in scope and long-term in nature
OM Decisions
•Following decisions focus on specifics -Tactical
decision
•Tactical decisions: focus on specific day-to-day issues
like resource needs, schedules, & quantities to produce
•are frequent
•Strategic decisions less frequent
•Tactical and Strategic decisions must align
•Following decisions focus on specifics -Tactical
decision
•Tactical decisions: focus on specific day-to-day issues
like resource needs, schedules, & quantities to produce
•are frequent
•Strategic decisions less frequent
•Tactical and Strategic decisions must align
The Critical Decisions
❖Design of goods and services
Defines much of what is required of operations in each of the
other OM decisions. For instance, product design usually
determines the lower limits of cost and the upper limits of
quality, as well as major implications for sustainability and the
human resources required.
❖Managing quality
Determines the customer’s quality expectations and
establishes policies and procedures to identify and achieve
that quality
❖Process and capacity design
Determines how a good or service is produced (i.e.,
the process for production) and commits
management to specific technology, quality, human
resources, and capital investments that determine
much of the fi rm’s basic cost structure
❖Design of goods and services
Defines much of what is required of operations in each of the
other OM decisions. For instance, product design usually
determines the lower limits of cost and the upper limits of
quality, as well as major implications for sustainability and the
human resources required.
❖Managing quality
Determines the customer’s quality expectations and
establishes policies and procedures to identify and achieve
that quality
❖Process and capacity design
Determines how a good or service is produced (i.e.,
the process for production) and commits
management to specific technology, quality, human
resources, and capital investments that determine
much of the fi rm’s basic cost structure
The Critical Decisions
❖Location strategy
Requires judgments regarding nearness to customers,
suppliers, and talent, while considering costs,
infrastructure, logistics, and government.
❖Layout strategy
Requires integrating capacity needs, personnel levels,
technology, and inventory requirements to determine
the efficient flow of materials, people, and information.
❖Human resources and job design
Determines how to recruit, motivate, and retain
personnel with the required talent and skills. People are
an integral and expensive part of the total system design.
❖Location strategy
Requires judgments regarding nearness to customers,
suppliers, and talent, while considering costs,
infrastructure, logistics, and government.
❖Layout strategy
Requires integrating capacity needs, personnel levels,
technology, and inventory requirements to determine
the efficient flow of materials, people, and information.
❖Human resources and job design
Determines how to recruit, motivate, and retain
personnel with the required talent and skills. People are
an integral and expensive part of the total system design.
The Critical Decisions
❖Supply chain management
❖Decides how to integrate the supply chain into the fi rm’s
strategy, including decisions that determine what is to be
purchased, from whom, and under what conditions.
❖Inventory, material requirements planning, and JIT
Considers inventory ordering and holding decisions and how
to optimize them as customer satisfaction, supplier
capability, and production schedules are considered.
❖Scheduling
Determines and implements intermediate-and short-term
schedules that effectively and efficiently utilize both
personnel and facilities while meeting customer demands.
❖Maintenance
Requires decisions that consider facility capacity, production
demands, and personnel necessary to maintain a reliable and
stable process.
❖Supply chain management
❖Decides how to integrate the supply chain into the fi rm’s
strategy, including decisions that determine what is to be
purchased, from whom, and under what conditions.
❖Inventory, material requirements planning, and JIT
Considers inventory ordering and holding decisions and how
to optimize them as customer satisfaction, supplier
capability, and production schedules are considered.
❖Scheduling
Determines and implements intermediate-and short-term
schedules that effectively and efficiently utilize both
personnel and facilities while meeting customer demands.
❖Maintenance
Requires decisions that consider facility capacity, production
demands, and personnel necessary to maintain a reliable and
stable process.
Current Challenges in Operations Management
•Globalization-global market and global source
•Supply chain partnering-outsourcing and building long-term partnerships
•Sustainability-designing green products and packaging that minimize
resource use, can be recycled or reused, and are generally environmentally
friendly
•Rapid product development-declining life span of products
•Mass customization-product designs and flexible production processes
that cater to the individual whims of consumers
•Lean operations-efficient organizations, employees with enriched jobs,
continuous improvement, production and delivery of products when and
where customers need
•Globalization-global market and global source
•Supply chain partnering-outsourcing and building long-term partnerships
•Sustainability-designing green products and packaging that minimize
resource use, can be recycled or reused, and are generally environmentally
friendly
•Rapid product development-declining life span of products
•Mass customization-product designs and flexible production processes
that cater to the individual whims of consumers
•Lean operations-efficient organizations, employees with enriched jobs,
continuous improvement, production and delivery of products when and
where customers need
Chapter 2
Operations Strategy and
Competitiveness
Operations Management
Operations Strategy and
Competitiveness
Operations Management
Developing mission and strategy
•An effective operation management must have a
mission to know where it is going and strategy to
know how to get there.
•Mission is a purpose-what it contributes to a society.
•Functional areas develop their own mission to support
the firm’s overall mission.
•An effective operation management must have a
mission to know where it is going and strategy to
know how to get there.
•Mission is a purpose-what it contributes to a society.
•Functional areas develop their own mission to support
the firm’s overall mission.
What is operations strategy?
What is Strategy ?:
❖Long term Action plan to achieve mission
❖A plan for achieving organizational goals.
❖Functional areas have strategies
❖Strategies exploit opportunities and strengths,
neutralize threats, and avoid weaknesses
What is Strategy ?:
❖Long term Action plan to achieve mission
❖A plan for achieving organizational goals.
❖Functional areas have strategies
❖Strategies exploit opportunities and strengths,
neutralize threats, and avoid weaknesses
Strategy cont’d
•Firms achieve missions in three conceptual ways:
•Differentiation –better/different/unique -Distinguishing the
offerings of anorganization in a way that the customer
perceives as adding value
•Cost leadership –cheaper
•Response –time and flexibility
•Any combination the strategies can generate a system
that has a unique advantage over competitors-creation
of customer value in an efficient and sustainable way.
•Firms achieve missions in three conceptual ways:
•Differentiation –better/different/unique -Distinguishing the
offerings of anorganization in a way that the customer
perceives as adding value
•Cost leadership –cheaper
•Response –time and flexibility
•Any combination the strategies can generate a system
that has a unique advantage over competitors-creation
of customer value in an efficient and sustainable way.
Operations Strategy Model
Consistent pattern of decisions
Internal
analysis
External
analysis
Mission
Distinctive
Competence
Objectives
(cost, quality, flexibility, delivery)
Policies
(process, quality systems, capacity,
and inventory)
Operations Strategy
Corporate and
business strategy
Functional strategies in
marketing, finance,
engineering, human
resources, and
information systems
Results
Consistent pattern of decisions
Internal
analysis
External
analysis
Mission
Distinctive
Competence
Objectives
(cost, quality, flexibility, delivery)
Policies
(process, quality systems, capacity,
and inventory)
Operations Strategy
Corporate and
business strategy
Functional strategies in
marketing, finance,
engineering, human
resources, and
information systems
Results
Competitive Priorities-The Edge
•Four Important Operations Questions: Will you
compete on –
Cost?
Quality?
Time?
Flexibility?
•Four Important Operations Questions: Will you
compete on –
Cost?
Quality?
Time?
Flexibility?
Differentiation strategy
Innovative design
Broad
product
line
Aster sales services
Exprience
Innovative design
Broad
product
line
Aster sales services
Exprience
Cot leadership
Low overhead
Effective
capacity use
Inventory
management
Low overhead
Effective
capacity use
Inventory
management
Response
Flexibility
Reliability Quickness
Flexibility
Reliability Quickness
Issues in operations strategy
•Resource view -A method managers use to evaluate the resources at their
disposal and manage or alter them to achieve competitive advantage.
•Value chain analysis -A way to identify those elements in the
product/service chain that uniquely add value
•Five force model -A method of analyzing the fiveforces in the competitive
environment
•Key success factors (KSFs) are those activities that are necessary for a firm
to achieve its goals.
•core competencies are the set of unique skills, talents, and capabilities that
a firm does at a world-class standard.
•Resource view -A method managers use to evaluate the resources at their
disposal and manage or alter them to achieve competitive advantage.
•Value chain analysis -A way to identify those elements in the
product/service chain that uniquely add value
•Five force model -A method of analyzing the fiveforces in the competitive
environment
•Key success factors (KSFs) are those activities that are necessary for a firm
to achieve its goals.
•core competencies are the set of unique skills, talents, and capabilities that
a firm does at a world-class standard.
The Need for Trade-offs
•The need to focus more on one competitive
priority than on others.
•Decisions must emphasis priorities that support
business strategy
•Decisions often required trade offs
•Decisions must focus on order qualifiersand order
winners
•The need to focus more on one competitive
priority than on others.
•Decisions must emphasis priorities that support
business strategy
•Decisions often required trade offs
•Decisions must focus on order qualifiersand order
winners
Order Qualifiers and Winners
Order qualifiers
▪are the basic criteria that permit the firm’s
products to be considered as candidates for
purchase by customers.
▪Are the minimum characteristics of a firm or its
products to be considered as a source of purchase .
Order qualifiers
▪are the basic criteria that permit the firm’s
products to be considered as candidates for
purchase by customers.
▪Are the minimum characteristics of a firm or its
products to be considered as a source of purchase .
Order winners
•A characteristics of a firm that distinguish it from
its competitors so that it is selected as the source of
purchase.
•are the criteria that differentiate the products and
services of one firm from another.
What are order qualifiers and order winner criteria
in choosing college for your MBA degree?
•A characteristics of a firm that distinguish it from
its competitors so that it is selected as the source of
purchase.
•are the criteria that differentiate the products and
services of one firm from another.
What are order qualifiers and order winner criteria
in choosing college for your MBA degree?
Global operation strategy
•Operation managers with international or multinational firm
approach global opportunities with:
•International-low local responsiveness and low cost reductions (export/import or
licensing existing product
•Multidomestic –operating decisions are decentralized resulting in high local
responsiveness and low cost reduction (franchising, joint ventures, subsidiaries)
•Global-A strategy in which operating decisions are centralized and headquarters
coordinates the standardization and learning between facilities (high cost
reduction and low local responsiveness)
•Transnational-a strategy that combines the benefits of global-scale efficiencies
with the benefits of local responsiveness.
•Operation managers with international or multinational firm
approach global opportunities with:
•International-low local responsiveness and low cost reductions (export/import or
licensing existing product
•Multidomestic –operating decisions are decentralized resulting in high local
responsiveness and low cost reduction (franchising, joint ventures, subsidiaries)
•Global-A strategy in which operating decisions are centralized and headquarters
coordinates the standardization and learning between facilities (high cost
reduction and low local responsiveness)
•Transnational-a strategy that combines the benefits of global-scale efficiencies
with the benefits of local responsiveness.
Productivity challenge
•The creation of goods and services requires changing resources into
goods and services.
•The efficiency of the transformation process measures productivity-
indicates more value is being added
•Improving productivity implies improving the efficiency
•Productivity determines the standard of living
•Productivity is the ratio of output to one or more inputs
•Production managers job is enhancing the ratio of output to input.
•Increasing returns to labor, capital and management without
increasing productivity results in increase in prices.
•The creation of goods and services requires changing resources into
goods and services.
•The efficiency of the transformation process measures productivity-
indicates more value is being added
•Improving productivity implies improving the efficiency
•Productivity determines the standard of living
•Productivity is the ratio of output to one or more inputs
•Production managers job is enhancing the ratio of output to input.
•Increasing returns to labor, capital and management without
increasing productivity results in increase in prices.
Productivity and its measurs
•A common and seemingly simple but very
complicated measure
•How a country, region, industry, company, business
unit, department, ... uses its resources (relative to
others).
•Productivity =
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•A common and seemingly simple but very
complicated measure
•How a country, region, industry, company, business
unit, department, ... uses its resources (relative to
others).
•Productivity =
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Measuring Productivity
•Productivity is a measure of how efficiently inputs are converted to
outputs
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•Total Productivity Measure
Total Productivity =
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•Single Productivity Measure
Partial Productivity =
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•Multifactor Productivity Measure
Multi-factor Productivity =
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•Productivity is a measure of how efficiently inputs are converted to
outputs
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•Multifactor Productivity Measure
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Productivity Example-An automobile manufacturer has presented
the following data for the past three years in its annual report. As a
potential investor, you are interested in calculating yearly productivity
and year to year productivity gains as one of several factors in your
investment analysis.
2003 2002 2001
Unit car
sales
2,700,00
0
2,400,0002,100,000
Employees112,000113,000115,000
$ Sales
(billions$)
$49,000$41,000$38,000
Cost of
Sales
(billions)
$39,000$33,000$32,000
200320022001
Single Prod. Measure
Unit Car Sales/Employee 24.1 21.2 18.3
Year-to-year Improvement 13.7% 15.8%
Total Prod. Measures
Total Cost Productivity 1.26 1.24 1.19
Year-to-year Improvement 1.6% 4.2%
Which is the best measurement?
the following data for the past three years in its annual report. As a
potential investor, you are interested in calculating yearly productivity
and year to year productivity gains as one of several factors in your
investment analysis.
2003 2002 2001
Unit car
sales
2,700,00
0
2,400,0002,100,000
Employees112,000113,000115,000
$ Sales
(billions$)
$49,000$41,000$38,000
Cost of
Sales
(billions)
$39,000$33,000$32,000
200320022001
Single Prod. Measure
Unit Car Sales/Employee 24.1 21.2 18.3
Year-to-year Improvement 13.7% 15.8%
Total Prod. Measures
Total Cost Productivity 1.26 1.24 1.19
Year-to-year Improvement 1.6% 4.2%
Which is the best measurement?
Improving Productivity
•Reducing inputs while keeping output constant
•Increasing output while keeping inputs constant
•Reducing inputs by a larger amount than the
reduction in output
•Increasing output by more amount than the increase
in input.
•Reducing inputs while keeping output constant
•Increasing output while keeping inputs constant
•Reducing inputs by a larger amount than the
reduction in output
•Increasing output by more amount than the increase
in input.
Productivity (cont’d)
•Increase in productivity increases living standard.
•It reduces prices of goods and services
•Increase in productivity increases living standard.
•It reduces prices of goods and services
CHAPTER THREE
Design of Operation
Design of Operation
New Product Development?
•Products die
•Products must be weeded out and replaced
•Firms generate high revenue from new products
•Products die
•Products must be weeded out and replaced
•Firms generate high revenue from new products
Product Design
•Product design involves:
•Determining the function of the product
•Specifying the design-color, size, location of buttons and
•Documenting the design
•Product design involves:
•Determining the function of the product
•Specifying the design-color, size, location of buttons and
•Documenting the design
Objectives of Product Design
•Main focus
•Customer satisfaction
•Secondary focus
•Function of product/service
•Cost/profit
•Quality
•Appearance
•Ease of production/assembly
•Ease of maintenance/service
•Main focus
•Customer satisfaction
•Secondary focus
•Function of product/service
•Cost/profit
•Quality
•Appearance
•Ease of production/assembly
•Ease of maintenance/service
Reasons for Product Design
The main forces that initiate design or redesign are
market opportunities and treats.
Economic Change
Social and demographic change
Political, liability, or legal change
Competitive
Cost or availability
Technological change
Yet they require open communication with customers,
innovative product development cultures, aggressive
R&D, strong leadership, formal incentives, and
training
The main forces that initiate design or redesign are
market opportunities and treats.
Economic Change
Social and demographic change
Political, liability, or legal change
Competitive
Cost or availability
Technological change
Yet they require open communication with customers,
innovative product development cultures, aggressive
R&D, strong leadership, formal incentives, and
training
Issues in Product Design
❖Product life cycles
❖How much standardization
❖Product reliability
❖Range of operating conditions
❖Product life cycles
❖How much standardization
❖Product reliability
❖Range of operating conditions
Product Life cycles
❖Products are born, they live, and they die.
❖Products life is divided in to four phases: introduction,
growth, maturity and decline.
❖Product life cycles may be a matter of few hours (new
papers), months (seasonal fashions), years (video cassettes),
or decades (cars).
❖Products are born, they live, and they die.
❖Products life is divided in to four phases: introduction,
growth, maturity and decline.
❖Product life cycles may be a matter of few hours (new
papers), months (seasonal fashions), years (video cassettes),
or decades (cars).
Product Life Cycles
Negative
cash flow
Introduction Growth Maturity Decline
Sales, cost, and cash flow
Cost of development and production
Cash
flow
Net revenue (profit)
Sales revenue
Loss
Negative
cash flow
Introduction Growth Maturity Decline
Sales, cost, and cash flow
Cost of development and production
Cash
flow
Net revenue (profit)
Sales revenue
Loss
Product Life Cycle
Introduction
Fine tuning may warrant unusual expenses for
Research
Product development
Process modification and enhancement
Supplier development
Without effective om function at this stage,
products may not be produced efficiently or not at
all.
Introduction
Fine tuning may warrant unusual expenses for
Research
Product development
Process modification and enhancement
Supplier development
Without effective om function at this stage,
products may not be produced efficiently or not at
all.
Product Life Cycle
Growth
Product design begins to stabilize
Effective forecasting of capacity becomes necessary
Adding or enhancing capacity may be necessary
Growth
Product design begins to stabilize
Effective forecasting of capacity becomes necessary
Adding or enhancing capacity may be necessary
Product Life Cycle
Maturity
Mature product & Competitors are now established
High volume, innovative production may be needed
Improved cost control, reduction in options, paring down of
product line
Maturity
Mature product & Competitors are now established
High volume, innovative production may be needed
Improved cost control, reduction in options, paring down of
product line
Product Life Cycle
Decline
Unless product makes a special contribution to the
organization, must plan to terminate offering
Decline
Unless product makes a special contribution to the
organization, must plan to terminate offering
Product-by-value Analysis
•Effective operations managers selects items that show the greatest
promise.
•Pareto principle applied to product mix: resources are to be invested
in the critical few and not the trivial many.
•List products in descending order of their individual dollar
contribution.
•Effective operations managers selects items that show the greatest
promise.
•Pareto principle applied to product mix: resources are to be invested
in the critical few and not the trivial many.
•List products in descending order of their individual dollar
contribution.
Standardization
•Standardization is the absence of variation in the products produced by
organizations.
•Standardization enables firms to produce high volume but no variety of
products.
•Hence, it is characterized by mass production and enhances efficiency of
production at the expense of flexibility.
•Popularly used by firms that produce identical products for all customers.
•If firms decide to produced standardized product there is no need to have
alternative designs and products.
•It is the opposite of customization which is producing different varieties of
products to the customers based on their need.
•Standardization is the absence of variation in the products produced by
organizations.
•Standardization enables firms to produce high volume but no variety of
products.
•Hence, it is characterized by mass production and enhances efficiency of
production at the expense of flexibility.
•Popularly used by firms that produce identical products for all customers.
•If firms decide to produced standardized product there is no need to have
alternative designs and products.
•It is the opposite of customization which is producing different varieties of
products to the customers based on their need.
Mass Customization
•Mass customization:
•A strategy of producing standardized goods or
services, but incorporating some degree of
customization
•Delayed differentiation
•Modular design
•Mass customization:
•A strategy of producing standardized goods or
services, but incorporating some degree of
customization
•Delayed differentiation
•Modular design
Delayed Differentiation
•Delayed differentiation is a postponement tactic
•Producing but not quite completing a product or service
until customer preferences or specifications are known
•Delayed differentiation is a postponement tactic
•Producing but not quite completing a product or service
until customer preferences or specifications are known
Modular Design
Products designed in easily segmented components are
known as modular designs .
Modular designs offer flexibility to both production and
marketing.
Modular design is a form of standardization in which
component parts are subdivided into modules that are
easily replaced or interchanged. It allows:
•easier diagnosis and remedy of failures
•easier repair and replacement
•simplification of manufacturing and assembly
Products designed in easily segmented components are
known as modular designs .
Modular designs offer flexibility to both production and
marketing.
Modular design is a form of standardization in which
component parts are subdivided into modules that are
easily replaced or interchanged. It allows:
•easier diagnosis and remedy of failures
•easier repair and replacement
•simplification of manufacturing and assembly
Product reliability
•Reliability is the probability that the product will not fail.
•If products do have many parts the probability that it fails increases.
•Hence, simplification (reducing the number of component pats) enhances
product reliability.
•Failure probability is high for new products (infant mortality); it
stabilizes overtime (random failure) and increases as the product gets
older (failure due to wear out).
•Reliability is the probability that the product will not fail.
•If products do have many parts the probability that it fails increases.
•Hence, simplification (reducing the number of component pats) enhances
product reliability.
•Failure probability is high for new products (infant mortality); it
stabilizes overtime (random failure) and increases as the product gets
older (failure due to wear out).
Range of operating condition
Robust Design:
❖A design in which small variations in production or
assembly do not adversely affect the product
❖Design that results in products or services that can
function over a broad range of conditions
Robust Design:
❖A design in which small variations in production or
assembly do not adversely affect the product
❖Design that results in products or services that can
function over a broad range of conditions
Phases in Product Development Process
1.Idea generation
2.Feasibility analysis
3.Product specifications
4.Process specifications
5.Prototype development
6.Design review
7.Market test
8.Product introduction
9.Follow-up evaluation
1.Idea generation
2.Feasibility analysis
3.Product specifications
4.Process specifications
5.Prototype development
6.Design review
7.Market test
8.Product introduction
9.Follow-up evaluation
Idea Generation
Ideas
Competitor based
Supply chain based
Research based
Ideas
Competitor based
Supply chain based
Research based
Some issues of product design
•Modular design-A design in which parts or components of a product are
subdivided into modules that are easily interchanged or replaced.
•Computer-aided design and Computer aided manufacturing-interactive
use of a computer to develop and document a product & produce the
products using numerically controlled machines
•Sustainability/life cycle assessment (LCA)-a process to evaluate the
environmental burdens associated with a product, process, or activity by
identifying energy and materials used and wastes released to the
environment, and to evaluate and implement opportunities to affect
environmental improvement.
•Reduce, Reuse and Recycle
•Modular design-A design in which parts or components of a product are
subdivided into modules that are easily interchanged or replaced.
•Computer-aided design and Computer aided manufacturing-interactive
use of a computer to develop and document a product & produce the
products using numerically controlled machines
•Sustainability/life cycle assessment (LCA)-a process to evaluate the
environmental burdens associated with a product, process, or activity by
identifying energy and materials used and wastes released to the
environment, and to evaluate and implement opportunities to affect
environmental improvement.
•Reduce, Reuse and Recycle
Manufacturability
•Involves improvement of design and specifications at the research,
development, design, and preproduction stages of product development.
•In addition to immediate, obvious cost reduction, design for
manufacturability and value engineering may produce other benefits
•Cost
•Productivity
•Quality
•Involves improvement of design and specifications at the research,
development, design, and preproduction stages of product development.
•In addition to immediate, obvious cost reduction, design for
manufacturability and value engineering may produce other benefits
•Cost
•Productivity
•Quality
Designing for Manufacturing
Beyond the overall objective to achieve customer satisfaction while making
a reasonable profit is:
Design for Manufacturing(DFM)
The designers’ consideration of the organization’s manufacturing
capabilities when designing a product.
The more general term design for operationsencompasses services as well
as manufacturing
Beyond the overall objective to achieve customer satisfaction while making
a reasonable profit is:
Design for Manufacturing(DFM)
The designers’ consideration of the organization’s manufacturing
capabilities when designing a product.
The more general term design for operationsencompasses services as well
as manufacturing
Organizing for Product Development
•Traditionally firms have distinct departments
•Assigning product manager to champion the product through product
development
•Using teams for product development: product development teams,
designing for manufacturability teams, value engineering teams
•Concurrent Engineering
•Traditionally firms have distinct departments
•Assigning product manager to champion the product through product
development
•Using teams for product development: product development teams,
designing for manufacturability teams, value engineering teams
•Concurrent Engineering
Concurrent Engineering
Concurrent engineering
is the bringing together
of engineering design and
manufacturing personnel
early in the design phase.
Concurrent engineering
is the bringing together
of engineering design and
manufacturing personnel
early in the design phase.
Quality Function Deployment
•Refers to determining what will satisfy the customers and translating
the customer requirements into the target design.
•Used to capture a rich understanding of customer wants and to
identify alternative process solutions.
•This information is then integrated into the evolving product design.
•House of quality is a part of quality function deployment process that
utilizes a planning matrix to relate customer wants to how the firm is
going to meet those wants.
•Refers to determining what will satisfy the customers and translating
the customer requirements into the target design.
•Used to capture a rich understanding of customer wants and to
identify alternative process solutions.
•This information is then integrated into the evolving product design.
•House of quality is a part of quality function deployment process that
utilizes a planning matrix to relate customer wants to how the firm is
going to meet those wants.
Quality Function Deployment
•Quality Function Deployment
•Voice of the customer
QFD: An approach that integrates the “voice of the
customer” into the product and service development
process.
•Quality Function Deployment
•Voice of the customer
QFD: An approach that integrates the “voice of the
customer” into the product and service development
process.
Steps in building house of quality
•Identify customer wants .
•Identify how the good/service will satisfy
customer wants.
•Relate customer wants to product hows. (Build a
matrix)
•Identify relationships between the firm’s hows.
•Develop importance ratings.
•Evaluate competing products.
•Determine the desirable technical attributes, your
performance, and the competitor’s performance
against these attributes.
•Identify customer wants .
•Identify how the good/service will satisfy
customer wants.
•Relate customer wants to product hows. (Build a
matrix)
•Identify relationships between the firm’s hows.
•Develop importance ratings.
•Evaluate competing products.
•Determine the desirable technical attributes, your
performance, and the competitor’s performance
against these attributes.
Kano Model
•Adopted a different view of quality that is against “more is better”
•According to him there three definitions of quality:
•Basic Quality-customer requirements with limited effects on customer
satisfaction if present but lead to customer dissatisfaction if present
•Performance quality-customer requirement that generate satisfaction and
dissatisfaction in proportion to their functionality and appeal
•Excitement quality-features or attributes that are unexpected by the
customers and that causes excitement to the customers.
•Adopted a different view of quality that is against “more is better”
•According to him there three definitions of quality:
•Basic Quality-customer requirements with limited effects on customer
satisfaction if present but lead to customer dissatisfaction if present
•Performance quality-customer requirement that generate satisfaction and
dissatisfaction in proportion to their functionality and appeal
•Excitement quality-features or attributes that are unexpected by the
customers and that causes excitement to the customers.
Computer-Aided Design
•Computer-Aided Design (CAD) is product design
using computer graphics.
•increases productivity of designers, 3 to 10 times
•creates a database for manufacturing information on
product specifications
•provides possibility of engineering and cost analysis on
proposed designs
•Computer-Aided Design (CAD) is product design
using computer graphics.
•increases productivity of designers, 3 to 10 times
•creates a database for manufacturing information on
product specifications
•provides possibility of engineering and cost analysis on
proposed designs
Benefits of CAD and CAM
•Product quality
•Shorter product design time
•Reduced cost
•Availability of product database
•Product quality
•Shorter product design time
•Reduced cost
•Availability of product database
Time based competition
•As product life cycle shortens, the need for faster product
development increases.
•As sophistication of new products increases, so do the expenses and
risks.
•Time base competition is competition based on time; rapidly
developing products and moving them to market.
•As product life cycle shortens, the need for faster product
development increases.
•As sophistication of new products increases, so do the expenses and
risks.
•Time base competition is competition based on time; rapidly
developing products and moving them to market.
Documents needed for production
•Assembly drawing-An exploded view of the product
•Assembly Chart-how components of a product flow in to sub assemblies
and final products
•Route sheet-A listing of operations necessary to produce a component
material with a material specified in Bill of Materials
•Work order-an instruction to make a given quantity of a particular item
•Engineering change notice-A correction/modification of an engineering
drawings or Bill of Materials
•Configuration Management-A system by which a product is planned &
changing components are accurately identified.
•Assembly drawing-An exploded view of the product
•Assembly Chart-how components of a product flow in to sub assemblies
and final products
•Route sheet-A listing of operations necessary to produce a component
material with a material specified in Bill of Materials
•Work order-an instruction to make a given quantity of a particular item
•Engineering change notice-A correction/modification of an engineering
drawings or Bill of Materials
•Configuration Management-A system by which a product is planned &
changing components are accurately identified.
Value analysis
•Value analysis is defined as “an organized creative approach which
has its objective, the efficient identification of unnecessary cost-cost
which provides neither quality nor use nor life nor appearance nor
customer features.”
•Value analysis focuses engineering, manufacturing and purchasing
attention to one objective equivalent performance at a lower cost.
•Value analysis is defined as “an organized creative approach which
has its objective, the efficient identification of unnecessary cost-cost
which provides neither quality nor use nor life nor appearance nor
customer features.”
•Value analysis focuses engineering, manufacturing and purchasing
attention to one objective equivalent performance at a lower cost.
Cont’d
•Value analysis is concerned with the costs added due to inefficient or
unnecessary specifications and features.
•It makes its contribution in the last stage of product cycle, namely, the
maturity stage.
•Value analysis is concerned with the costs added due to inefficient or
unnecessary specifications and features.
•It makes its contribution in the last stage of product cycle, namely, the
maturity stage.
Designing and Developing New Services
Three general dimensions of service design are:
•Degree of Standardization of the Service
•Custom-fashioned for particular customers or basically the same for all
customers?
•Degree of Customer Contact in Delivering the Service
•High level of contact (dress boutique) or low level (fast-food
restaurant)?
•Mix of Physical Goods and Intangible Services
•Mix dominated by physical goods (tailor’s shop) or by intangible
services (university)?
Three general dimensions of service design are:
•Degree of Standardization of the Service
•Custom-fashioned for particular customers or basically the same for all
customers?
•Degree of Customer Contact in Delivering the Service
•High level of contact (dress boutique) or low level (fast-food
restaurant)?
•Mix of Physical Goods and Intangible Services
•Mix dominated by physical goods (tailor’s shop) or by intangible
services (university)?
Designing and Developing New Services
•DifferencesBetweenNewServiceandNewProductDevelopment
•Unlessservicesaredominatedbyphysicalgoods,theirdevelopmentusually
doesnotrequireengineering,testing,andprototypebuilding.
•Becausemanyservicebusinessesinvolveintangibleservices,marketsensing
tendstobemorebysurveysratherthanbymarkettestsanddemonstrations.
•Servicescannotbeinventoried
•Servicesarehighlyvisibletocustomers
•Lowentryandexitbarrierinservice
•Locationisimportantinservice
•DifferencesBetweenNewServiceandNewProductDevelopment
•Unlessservicesaredominatedbyphysicalgoods,theirdevelopmentusually
doesnotrequireengineering,testing,andprototypebuilding.
•Becausemanyservicebusinessesinvolveintangibleservices,marketsensing
tendstobemorebysurveysratherthanbymarkettestsanddemonstrations.
•Servicescannotbeinventoried
•Servicesarehighlyvisibletocustomers
•Lowentryandexitbarrierinservice
•Locationisimportantinservice
Service Design
•Service design involves
•The physical resources needed
•The goods that are purchased or consumed by
the customer
•Explicit services
•Implicit services
•Service design involves
•The physical resources needed
•The goods that are purchased or consumed by
the customer
•Explicit services
•Implicit services
Service Blueprinting
•Service blueprinting
•A method used in service design to describe and analyze a
proposed service
•It is an operational planning tool that provides guidance on
how aservicewill be provided, specifying the physical
evidence, staff actions, and support systems / infrastructure
needed to deliver theservice across its different channels.
•A useful tool for managing service encounter and have
a clear visualization of the service process
•Service blueprinting
•A method used in service design to describe and analyze a
proposed service
•It is an operational planning tool that provides guidance on
how aservicewill be provided, specifying the physical
evidence, staff actions, and support systems / infrastructure
needed to deliver theservice across its different channels.
•A useful tool for managing service encounter and have
a clear visualization of the service process
Service blueprint components
•Physical evidences: tangibles that the customers are exposed to that
affect their perception of quality
•Customer action: all activities that customers take part in during the
service delivery process
•On stage employee action: Those actions of the front line contact
employees that occur as a part of service encounter
•Back stage employee action: Steps and activities that occur behind the
scenes to support onstage happenings
•Support processes: Internal steps, and interactions that support the
employees in delivering the service.
•Physical evidences: tangibles that the customers are exposed to that
affect their perception of quality
•Customer action: all activities that customers take part in during the
service delivery process
•On stage employee action: Those actions of the front line contact
employees that occur as a part of service encounter
•Back stage employee action: Steps and activities that occur behind the
scenes to support onstage happenings
•Support processes: Internal steps, and interactions that support the
employees in delivering the service.
Major Steps in Service Blueprinting
1.Establish boundaries
2.Identify steps involved
3.Prepare a flowchart
4.Identify potential failure points
5.Establish a time frame
6.Analyze profitability
1.Establish boundaries
2.Identify steps involved
3.Prepare a flowchart
4.Identify potential failure points
5.Establish a time frame
6.Analyze profitability
Service BlueprintingBrush
shoes
Apply
polish
Fail
point
Buff
Collect
payment
Clean
shoes Materials
(e.g., polish, cloth)
Select and
purchase
supplies
Standard
execution time
2 minutes
Total acceptable
execution time
5 minutes
30
secs
30
secs
45
secs
15
secs
Wrong
color wax
Seen by
customer 45
secs
Line of
visibility
Not seen by
customer but
necessary to
performance
shoes
Apply
polish
Fail
point
Buff
Collect
payment
Clean
shoes Materials
(e.g., polish, cloth)
Select and
purchase
supplies
Standard
execution time
2 minutes
Total acceptable
execution time
5 minutes
30
secs
30
secs
45
secs
15
secs
Wrong
color wax
Seen by
customer 45
secs
Line of
visibility
Not seen by
customer but
necessary to
performance
Quiz
•Product/service design and redesign matters companies level of
competencies. How? Why?
•Explain basic difference between product and service design.
•Service design requires due care compared to product design. Why?
•Product/service design and redesign matters companies level of
competencies. How? Why?
•Explain basic difference between product and service design.
•Service design requires due care compared to product design. Why?
4
CHAPTER FOUR
Process Planning
CHAPTER FOUR
Process Planning
Introduction
•Process selection
•Deciding on the way production of goods or services will
be organized
•Major implications
•Capacity planning
•Layout of facilities
•Equipment
•Design of work systems
•Process selection
•Deciding on the way production of goods or services will
be organized
•Major implications
•Capacity planning
•Layout of facilities
•Equipment
•Design of work systems
Process Strategies
Involves deciding on how to produce a product or provide a service that
Meets or exceeds customer requirements
Meets cost and managerial goals
Has long term effects on
Efficiency and production flexibility
Costs and quality
Involves deciding on how to produce a product or provide a service that
Meets or exceeds customer requirements
Meets cost and managerial goals
Has long term effects on
Efficiency and production flexibility
Costs and quality
Process Strategies cont…
Four basic strategies
Process focus (job shop)- many variety (all different variety sometimes) and few volume
Batch
Repetitive focus
Product focus- large volume and few (only one) variety-
Mass customization
Within these basic strategies there are many ways they may be implemented
Four basic strategies
Process focus (job shop)- many variety (all different variety sometimes) and few volume
Batch
Repetitive focus
Product focus- large volume and few (only one) variety-
Mass customization
Within these basic strategies there are many ways they may be implemented
Process Selection
•How much variety in products or services will the
system need to handle?
•What is the expected volume of output?
•What degree of equipment flexibility will be needed?
•How much variety in products or services will the
system need to handle?
•What is the expected volume of output?
•What degree of equipment flexibility will be needed?
•Job Shop:
•A job shop usually operates on a relatively small scale.
•It is used when a low volume of high-variety goods or services will be
needed.
•Processing is intermittent; work includes small jobs, each with somewhat
different processing requirements.
•High flexibility using general-purpose equipment and skilled workers are
important characteristics of a job shop
•Batch.
•Batch processing is used when a moderate volume of goods or services is
desired, and it can handle a moderate variety in products or services.
•The equipment need not be as flexible as in a job shop, but processing is
still intermittent.
•The skill level of workers doesn’t need to be as high as in a job shop
because there is less variety in the jobs being processed.
•A job shop usually operates on a relatively small scale.
•It is used when a low volume of high-variety goods or services will be
needed.
•Processing is intermittent; work includes small jobs, each with somewhat
different processing requirements.
•High flexibility using general-purpose equipment and skilled workers are
important characteristics of a job shop
•Batch.
•Batch processing is used when a moderate volume of goods or services is
desired, and it can handle a moderate variety in products or services.
•The equipment need not be as flexible as in a job shop, but processing is
still intermittent.
•The skill level of workers doesn’t need to be as high as in a job shop
because there is less variety in the jobs being processed.
•Repetitive.
•When higher volumes of more standardized goods or services are needed,
repetitive processing is used.
•The standardized output means only slight flexibility of equipment is
needed.
•Skill of workers is generally low.
•Can also be termed mass customization
•Continuous.
•When a very high volume of non-discrete, highly standardized output is
desired, a continuous system is used.
•These systems have almost no variety in output and, hence, no need for
equipment flexibility.
•Workers’ skill requirements can range from low to high, depending on the
complexity of the system and the expertise that workers need.
•Generally, if equipment is highly specialized, worker skills can be lower.
•When higher volumes of more standardized goods or services are needed,
repetitive processing is used.
•The standardized output means only slight flexibility of equipment is
needed.
•Skill of workers is generally low.
•Can also be termed mass customization
•Continuous.
•When a very high volume of non-discrete, highly standardized output is
desired, a continuous system is used.
•These systems have almost no variety in output and, hence, no need for
equipment flexibility.
•Workers’ skill requirements can range from low to high, depending on the
complexity of the system and the expertise that workers need.
•Generally, if equipment is highly specialized, worker skills can be lower.
Types of Process Strategies
Continuum
Process strategies that follow a continuum
Within a given facility, several strategies may be
used
These strategies are often classified as:
Repetitive-
Focused
Product-FocusedProcess-
Focused
Continuum
Process strategies that follow a continuum
Within a given facility, several strategies may be
used
These strategies are often classified as:
Repetitive-
Focused
Product-FocusedProcess-
Focused
Mass Customization
The rapid, low-cost production of goods and
service to satisfy increasingly unique customer
desires
Combines the
flexibility of a
process focus
with the efficiency
of a product focus
The rapid, low-cost production of goods and
service to satisfy increasingly unique customer
desires
Combines the
flexibility of a
process focus
with the efficiency
of a product focus
Process flow Matrix
Service Process
Mass Service
Service processes that have a high number of transactions,
often involving limited customization
Example mass transportation services, call centers, etc.
A mass service – a call center can
handle a very high volume of
customer
enquiries because it standardizes
its processes
Mass Service
Service processes that have a high number of transactions,
often involving limited customization
Example mass transportation services, call centers, etc.
A mass service – a call center can
handle a very high volume of
customer
enquiries because it standardizes
its processes
Professional Service
•Serviceprocessesthataredevotedtoproducing
knowledge-basedoradvicebasedservices,usually
involvinghighcustomercontactandhigh
customization,
•Examplesincludemanagementconsultants,lawyers,
architects,etc.
•Serviceprocessesthataredevotedtoproducing
knowledge-basedoradvicebasedservices,usually
involvinghighcustomercontactandhigh
customization,
•Examplesincludemanagementconsultants,lawyers,
architects,etc.
Service Process
❖Labor involvement is high
❖Selection and training highly important
❖Focus on human resources
❖Personalized services
Mass Service and Professional Service
❖Labor involvement is high
❖Selection and training highly important
❖Focus on human resources
❖Personalized services
Mass Service and Professional Service
Automation of standardized services
Low labor intensity responds well to process technology
and scheduling
Tight control required to maintain standards
Service Shop
Service processes that are positioned between professional services and
mass services, usually with medium levels of volume and
customization.
Eg. Banks, high street shops, holiday tour operators, car rental
companies, schools, most restaurants, hotels and travel agents
Low labor intensity responds well to process technology
and scheduling
Tight control required to maintain standards
Service Shop
Service processes that are positioned between professional services and
mass services, usually with medium levels of volume and
customization.
Eg. Banks, high street shops, holiday tour operators, car rental
companies, schools, most restaurants, hotels and travel agents
Service shop
Profession
al service
Mass
service
Process
focused
Mass
customiza
tion
Repetitive
Product
focused
Manufacturing process typesService process types
Low Volume High
High Variety Low
Low Volume High
High Variety Low
Intermittent
Process flow
Continuous
Divers/complex
Process tasks
Repeated
Profession
al service
Mass
service
Process
focused
Mass
customiza
tion
Repetitive
Product
focused
Manufacturing process typesService process types
Low Volume High
High Variety Low
Low Volume High
High Variety Low
Intermittent
Process flow
Continuous
Divers/complex
Process tasks
Repeated
Tools for Process Design
•Flow Diagrams
•Process Charts
•Service Blueprinting
•Flow Diagrams
•Process Charts
•Service Blueprinting
Quiz
•Is the process designed to achieve competitive
advantage in terms of differentiation, response, or
low cost?
•Does the process eliminate steps that do not add
value? How?
•Does the process maximize customer value as
perceived by the customer? How?
•Will the process win orders? How?
•Is the process designed to achieve competitive
advantage in terms of differentiation, response, or
low cost?
•Does the process eliminate steps that do not add
value? How?
•Does the process maximize customer value as
perceived by the customer? How?
•Will the process win orders? How?
CHAPTER FOUR
Capacity planning, Location
Decision and Facility layout
Capacity planning, Location
Decision and Facility layout
Introduction
•The maximum level of value-added activity that an
operation, or process, or facility is capable of over a
period of time.
•Capacity refers to an upper limit or ceiling on the load
that an operating unit can handle.
•The number of physical units produced
•The number of services performed
•The goal of strategic capacity planning is to achieve a
match between the long-term supply capabilities of an
organization and the predicted level of long-term
demand.
•The maximum level of value-added activity that an
operation, or process, or facility is capable of over a
period of time.
•Capacity refers to an upper limit or ceiling on the load
that an operating unit can handle.
•The number of physical units produced
•The number of services performed
•The goal of strategic capacity planning is to achieve a
match between the long-term supply capabilities of an
organization and the predicted level of long-term
demand.
Forecast
Demand
Compute
Needed
Capacity
Compute
Rated
Capacity
Evaluate
Capacity
Plans
Implement
Best Plan
Qualitative
Factors
(e.g., Skills)
Select Best
Capacity
Plan
Develop
Alternative
Plans
Quantitative
Factors
(e.g., Cost)
Capacity Planning Process
Demand
Compute
Needed
Capacity
Compute
Rated
Capacity
Evaluate
Capacity
Plans
Implement
Best Plan
Qualitative
Factors
(e.g., Skills)
Select Best
Capacity
Plan
Develop
Alternative
Plans
Quantitative
Factors
(e.g., Cost)
Capacity Planning Process
Schedule Jobs
Schedule Personnel
Allocate Machinery
Sub-Contract
Add Equipment
Add Shifts
Add Personnel
Build or Use Inventory
Long Range
Planning
Intermediate
Range Planning
Short Range
Planning
Modify
Capacity
Use Capacity
*
*
Add Facilities
Types of Planning & Time Horizons
Schedule Personnel
Allocate Machinery
Sub-Contract
Add Equipment
Add Shifts
Add Personnel
Build or Use Inventory
Long Range
Planning
Intermediate
Range Planning
Short Range
Planning
Modify
Capacity
Use Capacity
*
*
Add Facilities
Types of Planning & Time Horizons
Definition & Measures of Capacity
Design
Capacity:
The theoretical maximum “throughput,” or
number of units a facility can hold, receive,
store, or produce in a period of time.
Utilization:Actual output as a percent of design capacity.
Effective
Capacity:
Capacity a firm can expect to receive given its
product mix, methods of scheduling,
maintenance, and standards of quality.
Efficiency:Actual output as a percent of effective capacity.
Design
Capacity:
The theoretical maximum “throughput,” or
number of units a facility can hold, receive,
store, or produce in a period of time.
Utilization:Actual output as a percent of design capacity.
Effective
Capacity:
Capacity a firm can expect to receive given its
product mix, methods of scheduling,
maintenance, and standards of quality.
Efficiency:Actual output as a percent of effective capacity.
Utilization
Measure of planned or actual capacity usage of a
facility, work center, or machine
Utilization
Actual Output
Design Capacity
Planned hours to be used
Total hours available
=
=
Measure of planned or actual capacity usage of a
facility, work center, or machine
Utilization
Actual Output
Design Capacity
Planned hours to be used
Total hours available
=
=
Efficiency
Measure of how well a facility or machine is performing
when used
Efficiency
Actual output
Effective Capacity
Actual output in units
Standard output in units
Average actual time
Standard time
=
=
=
Measure of how well a facility or machine is performing
when used
Efficiency
Actual output
Effective Capacity
Actual output in units
Standard output in units
Average actual time
Standard time
=
=
=
Efficiency/Utilization Example
Actual output = 36 units/day
Efficiency=
= 90%
Effective capacity 40 units/ day
Utilization= Actual output = 36 units/day
= 72%
Design capacity50 units/day
Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day
Actual output = 36 units/day
Efficiency=
= 90%
Effective capacity 40 units/ day
Utilization= Actual output = 36 units/day
= 72%
Design capacity50 units/day
Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day
Quiz
•Sara James Bakery has a plant for processing Deluxe breakfast rolls and wants to better understand its
capability. Last week the facility produced 148,000 rolls. The effective capacity is 175,000 rolls. The
production line operates 7 days per week, with three 8-hour shifts per day. The line was designed to process
the nut-filled, cinnamon flavoredDeluxe roll at a rate of 1,200 per hour.
•Determine the design capacity, utilization, and efficiency for this plant when producing this Deluxe roll.
•Sara James Bakery has a plant for processing Deluxe breakfast rolls and wants to better understand its
capability. Last week the facility produced 148,000 rolls. The effective capacity is 175,000 rolls. The
production line operates 7 days per week, with three 8-hour shifts per day. The line was designed to process
the nut-filled, cinnamon flavoredDeluxe roll at a rate of 1,200 per hour.
•Determine the design capacity, utilization, and efficiency for this plant when producing this Deluxe roll.
Quiz sec2
•The manager of Sara James Bakery (see Example S1) now needs to increase
production of the increasingly popular Deluxe roll. To meet this demand, she will be
adding a second production line. The second line has the same design capacity
(201,600) and effective capacity (175,000) as the first line; however, new workers will
be operating the second line. Quality problems and other inefficiencies stemming
from the inexperienced workers are expected to reduce output on the second line to
130,000 (compared to 148,000 on the first). The utilization and efficiency were 73.4%
and 84.6%, respectively, on the first line.
•Determine the new utilization and efficiency for the Deluxe roll operation after adding
the second line.
•The manager of Sara James Bakery (see Example S1) now needs to increase
production of the increasingly popular Deluxe roll. To meet this demand, she will be
adding a second production line. The second line has the same design capacity
(201,600) and effective capacity (175,000) as the first line; however, new workers will
be operating the second line. Quality problems and other inefficiencies stemming
from the inexperienced workers are expected to reduce output on the second line to
130,000 (compared to 148,000 on the first). The utilization and efficiency were 73.4%
and 84.6%, respectively, on the first line.
•Determine the new utilization and efficiency for the Deluxe roll operation after adding
the second line.
Determinants of Effective Capacity
Facilities
Design
Location
Layout
Environment
Product/service
Design
Product or service mix
Process
Quantity capabilities
Quality capabilities
Human factors
Job content
Job design
Training and experience
Motivation
Compensation
Learning rates
Absenteeism and labor
turnover
Policy
Operational
Scheduling
Materials management
Quality assurance
Maintenance policies
Equipment breakdowns
Supply chain
External factors
Product standards
Safety regulations
Unions
Pollution control standards
Facilities
Design
Location
Layout
Environment
Product/service
Design
Product or service mix
Process
Quantity capabilities
Quality capabilities
Human factors
Job content
Job design
Training and experience
Motivation
Compensation
Learning rates
Absenteeism and labor
turnover
Policy
Operational
Scheduling
Materials management
Quality assurance
Maintenance policies
Equipment breakdowns
Supply chain
External factors
Product standards
Safety regulations
Unions
Pollution control standards
Make Good Capacity Decisions:
•Forecast demand accurately
•Understand the technology and capacity
increments
•Find the optimal operating level (volume)
•Build for change
•Forecast demand accurately
•Understand the technology and capacity
increments
•Find the optimal operating level (volume)
•Build for change
Matching Capacity to Demand
1.Make staffing changes (increasing or decreasing the number of
employees)
2.Adjust equipment and processes –which might include purchasing
additional machinery or selling or leasing out existing equipment
3.Improve methods to increase throughput; and/or
4.Redesign the product to facilitate more throughput
1.Make staffing changes (increasing or decreasing the number of
employees)
2.Adjust equipment and processes –which might include purchasing
additional machinery or selling or leasing out existing equipment
3.Improve methods to increase throughput; and/or
4.Redesign the product to facilitate more throughput
Matching Capacity to Demand
•Demand management
•Vary prices
•Change lead times
•Encourage or discourage business based on their marginal
profitability
•Offer complementary products when there is seasonality in
demand
•Capacity management
•Adjust staffing
•Adjust equipment and processes –buying, selling or leasing
•Change methods to facilitate production
•Redesign the product to facilitate production
•Demand management
•Vary prices
•Change lead times
•Encourage or discourage business based on their marginal
profitability
•Offer complementary products when there is seasonality in
demand
•Capacity management
•Adjust staffing
•Adjust equipment and processes –buying, selling or leasing
•Change methods to facilitate production
•Redesign the product to facilitate production
Service capacity design
•Service capacity is more time-and location-dependent, it is subject to
more volatile demand fluctuations, and utilization directly impacts
service quality.
•Time
•Unlike goods, services cannot be stored for later use.
•The capacity must be available to produce a service when it is needed.
•Volatility of Demand
•The volatility of demand on a service delivery system is much higher than that
on a manufacturing production system for three reasons.
•Service capacity is more time-and location-dependent, it is subject to
more volatile demand fluctuations, and utilization directly impacts
service quality.
•Time
•Unlike goods, services cannot be stored for later use.
•The capacity must be available to produce a service when it is needed.
•Volatility of Demand
•The volatility of demand on a service delivery system is much higher than that
on a manufacturing production system for three reasons.
Capacity design in Service
•When demand and capacity matches:
•appointments,
•reservations, or
•a first come, first-served rule
•“early bird” specials in restaurants,
•discounts for matinee performances or for seats at odd
hours on an airline, and
•cheap weekend hotel rooms
•When demand and capacity matches:
•appointments,
•reservations, or
•a first come, first-served rule
•“early bird” specials in restaurants,
•discounts for matinee performances or for seats at odd
hours on an airline, and
•cheap weekend hotel rooms
Service Capacity
•Planningcapacitylevelsforservicesmustconsider
theday-to-dayrelationshipbetweenservice
utilizationandservicequality.
•Thebestoperatingpointisnear70percentofthe
maximumcapacity.
•Thisis"enoughtokeepserversbusybutallows
enoughtimetoservecustomersindividuallyand
keepenoughcapacityinreservesoasnottocreate
toomanymanagerialheadaches".
•Inthecriticalzone,thelinebuildsupanditislikely
thatmanycustomersmayneverbeserved
•Planningcapacitylevelsforservicesmustconsider
theday-to-dayrelationshipbetweenservice
utilizationandservicequality.
•Thebestoperatingpointisnear70percentofthe
maximumcapacity.
•Thisis"enoughtokeepserversbusybutallows
enoughtimetoservecustomersindividuallyand
keepenoughcapacityinreservesoasnottocreate
toomanymanagerialheadaches".
•Inthecriticalzone,thelinebuildsupanditislikely
thatmanycustomersmayneverbeserved
Quiz 6
•What is the strategic importance of capacity
planning?
•What are the different factors affecting
capacity?
•Capacity planning affects different strategic
operation decisions like facility location.
How does it affects facility location, lay out,
scheduling and other strategic decision
areas?
•What is the strategic importance of capacity
planning?
•What are the different factors affecting
capacity?
•Capacity planning affects different strategic
operation decisions like facility location.
How does it affects facility location, lay out,
scheduling and other strategic decision
areas?
Location Decision
Location Strategy
One of the most important decisions a firm makes
Decisions made relatively infrequently usually
because demand has outgrown the current plant’s
capacity or because of changes in labour
productivity, exchange rates, costs, or local
attitudes.
Companies may also relocate their manufacturing
or service facilities because of shifts in
demographics and customer demand.
The objective is to maximize the benefit of location
to the firm
One of the most important decisions a firm makes
Decisions made relatively infrequently usually
because demand has outgrown the current plant’s
capacity or because of changes in labour
productivity, exchange rates, costs, or local
attitudes.
Companies may also relocate their manufacturing
or service facilities because of shifts in
demographics and customer demand.
The objective is to maximize the benefit of location
to the firm
Location and Costs
Location decisions based on low cost require
careful consideration
Once in place, location-related costs are fixed in
place and difficult to reduce
Determining optimal facility location is a good
investment
Location decisions based on low cost require
careful consideration
Once in place, location-related costs are fixed in
place and difficult to reduce
Determining optimal facility location is a good
investment
Location strategy (continued)
❑Location options include
❑expanding an existing facility instead of moving,
❑maintaining current sites while adding another facility
elsewhere, or
❑closing the existing facility and moving to another
location
❑Globalization has taken place because of the development
of:
❑Market economics;
❑better international communications;
❑more rapid, reliable travel and shipping;
❑ease of capital flow between countries; and
❑high differences in labour costs.
❑Location options include
❑expanding an existing facility instead of moving,
❑maintaining current sites while adding another facility
elsewhere, or
❑closing the existing facility and moving to another
location
❑Globalization has taken place because of the development
of:
❑Market economics;
❑better international communications;
❑more rapid, reliable travel and shipping;
❑ease of capital flow between countries; and
❑high differences in labour costs.
Location Decisions
Country Decision Critical Success Factors (KSFs)
1.Political risks, government
rules, attitudes, incentives
2.Cultural and economic issues
3.Location of markets
4.Labor talent, attitudes,
productivity, costs
5.Availability of supplies,
communications, energy
6.Exchange rates and currency
risks
World Economic Forum biannually ranks
the global competitiveness of countries:
1.Switzerland
2.Singapore
3.USA
4.Finland
5.German
6.Japan
7.Ethiopia ---109
th
Using high rates of saving and
investment, openness to trade, quality
education, and efficient government
as evaluation criteria
Country Decision Critical Success Factors (KSFs)
1.Political risks, government
rules, attitudes, incentives
2.Cultural and economic issues
3.Location of markets
4.Labor talent, attitudes,
productivity, costs
5.Availability of supplies,
communications, energy
6.Exchange rates and currency
risks
World Economic Forum biannually ranks
the global competitiveness of countries:
1.Switzerland
2.Singapore
3.USA
4.Finland
5.German
6.Japan
7.Ethiopia ---109
th
Using high rates of saving and
investment, openness to trade, quality
education, and efficient government
as evaluation criteria
Location Decisions
Region/
Community
Decision
Critical Success Factors
1.Corporate desires
2.Attractiveness of region
3.Labor availability, costs, attitudes towards
unions
4.Costs and availability of utilities
5.Environmental regulations
6.Government incentives and fiscal policies
7.Proximity to raw materials and customers
8.Land/construction costs
❑Once, the firm chooses
a country it then
chooses a region within
the selected country
using the following
evaluation criteria.
❑For example where in
Ethiopia should be the
location?
❖Employees with poor training, poor education, or poor work habits may not be
a good buy even at low wages.
❖Employees who cannot or will not always reach their places of work are not
much good to the organization, even at low wages
Region/
Community
Decision
Critical Success Factors
1.Corporate desires
2.Attractiveness of region
3.Labor availability, costs, attitudes towards
unions
4.Costs and availability of utilities
5.Environmental regulations
6.Government incentives and fiscal policies
7.Proximity to raw materials and customers
8.Land/construction costs
❑Once, the firm chooses
a country it then
chooses a region within
the selected country
using the following
evaluation criteria.
❑For example where in
Ethiopia should be the
location?
❖Employees with poor training, poor education, or poor work habits may not be
a good buy even at low wages.
❖Employees who cannot or will not always reach their places of work are not
much good to the organization, even at low wages
Location Decisions
Site Decision Critical Success Factors
1.Site size and cost
2.Air, rail, highway, and waterway
systems
3.Zoning restrictions
4.Proximity of services/ supplies
needed
5.Environmental impact issues
6.Customer density and demographics
Then the firm chooses specific site
within the selected community.
Site Decision Critical Success Factors
1.Site size and cost
2.Air, rail, highway, and waterway
systems
3.Zoning restrictions
4.Proximity of services/ supplies
needed
5.Environmental impact issues
6.Customer density and demographics
Then the firm chooses specific site
within the selected community.
Critical Success factors for location
❑Labor productivity
❑Exchange rate and currency risk
❑Costs
❑Proximity to markets
❑Proximity to suppliers
❑Proximity to competitors
❑Labor productivity
❑Exchange rate and currency risk
❑Costs
❑Proximity to markets
❑Proximity to suppliers
❑Proximity to competitors
Evaluating Locations
•Cost-Profit-Volume Analysis
•Determine fixed and variable
costs
•Plot total costs
•Determine lowest total costs
•Cost-Profit-Volume Analysis
•Determine fixed and variable
costs
•Plot total costs
•Determine lowest total costs
Locational
Break-Even Analysis
Method of cost-volume analysis used for industrial
locations
Three steps in the method
1.Determine fixed and variable costs for each
location
2.Plot the cost for each location
3.Select location with lowest total cost for
expected production volume
Break-Even Analysis
Method of cost-volume analysis used for industrial
locations
Three steps in the method
1.Determine fixed and variable costs for each
location
2.Plot the cost for each location
3.Select location with lowest total cost for
expected production volume
Location Break-Even Analysis
Example
Three locations:
Akron $30,000 $75 $180,000
Bowling Green $60,000 $45 $150,000
Chicago $110,000 $25 $160,000
Fixed Variable Total
City Cost Cost Cost
Total Cost = Fixed Cost + (Variable Cost x Volume)
Selling price = $120
Expected volume = 2,000 units
Example
Three locations:
Akron $30,000 $75 $180,000
Bowling Green $60,000 $45 $150,000
Chicago $110,000 $25 $160,000
Fixed Variable Total
City Cost Cost Cost
Total Cost = Fixed Cost + (Variable Cost x Volume)
Selling price = $120
Expected volume = 2,000 units
Cont’d
•30,000+75x=60,000+45x
•30x=30,000
•X=1000
•30,000+75x=60,000+45x
•30x=30,000
•X=1000
Location Break-Even Analysis
Example
–
$180,000 –
–
$160,000 –
$150,000 –
–
$130,000 –
–
$110,000 –
–
–
$80,000 –
–
$60,000 –
–
–
$30,000 –
–
$10,000 –
–
Annual cost
| | | | | | |
0 500 1,000 1,500 2,000 2,500 3,000
Volume
Akron
lowest
cost
Bowling Green
lowest cost
Chicago
lowest cost
Example
–
$180,000 –
–
$160,000 –
$150,000 –
–
$130,000 –
–
$110,000 –
–
–
$80,000 –
–
$60,000 –
–
–
$30,000 –
–
$10,000 –
–
Annual cost
| | | | | | |
0 500 1,000 1,500 2,000 2,500 3,000
Volume
Akron
lowest
cost
Bowling Green
lowest cost
Chicago
lowest cost
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
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
1.Labor
availability
and attitude.25 70 60 (.25)(70) = 17.5(.25)(60) = 15.0
2.People-to-
car ratio .05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0
3.Per capita
income .10 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0
4.Tax structure.39 75 70 (.39)(75) = 29.3(.39)(70) = 27.3
5.Education
and health.21 60 70 (.21)(60) = 12.6(.21)(70) = 14.7
Totals 1.00 70.4 68.0
Critical Scores
Success (out of 100) Weighted Scores
Factor Weight France Denmark France Denmark
1.Labor
availability
and attitude.25 70 60 (.25)(70) = 17.5(.25)(60) = 15.0
2.People-to-
car ratio .05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0
3.Per capita
income .10 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0
4.Tax structure.39 75 70 (.39)(75) = 29.3(.39)(70) = 27.3
5.Education
and health.21 60 70 (.21)(60) = 12.6(.21)(70) = 14.7
Totals 1.00 70.4 68.0
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)
Finds location of distribution center
that minimizes distribution costs
Considers
Location of markets
Volume of goods shipped to those markets
Shipping cost (or distance)
Center-of-Gravity Method
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
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
Center-of-Gravity Method
x - coordinate =
∑d
ixQ
i
∑Q
i
i=1
i
∑d
iyQ
i
∑Q
i
i=1
i
y - coordinate =
where d
ix = x-coordinate of location i
d
iy = y-coordinate of location i
Q
i = Quantity of goods moved to or
from location i
x - coordinate =
∑d
ixQ
i
∑Q
i
i=1
i
∑d
iyQ
i
∑Q
i
i=1
i
y - coordinate =
where d
ix = x-coordinate of location i
d
iy = y-coordinate of location i
Q
i = Quantity of goods moved to or
from location i
Center-of-Gravity Method
North-South
East-West
120 –
90 –
60 –
30 –
–| | | | | |
30 60 90 120 150
Arbitrary
origin
Bahardar (30, 120)
Mekelle (130, 130)
Adama (90, 110)
Hawassa (60, 40)
North-South
East-West
120 –
90 –
60 –
30 –
–| | | | | |
30 60 90 120 150
Arbitrary
origin
Bahardar (30, 120)
Mekelle (130, 130)
Adama (90, 110)
Hawassa (60, 40)
Center-of-Gravity Method
Number of Containers
Store Location Shipped per Month
BD (30, 120) 2,000
Adama(90, 110) 1,000
Mekelle (130, 130) 1,000
Hawassa (60, 40) 2,000
x-coordinate =
(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)
2000 + 1000 + 1000 + 2000
= 66.7
y-coordinate =
(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)
2000 + 1000 + 1000 + 2000
= 93.3
Number of Containers
Store Location Shipped per Month
BD (30, 120) 2,000
Adama(90, 110) 1,000
Mekelle (130, 130) 1,000
Hawassa (60, 40) 2,000
x-coordinate =
(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)
2000 + 1000 + 1000 + 2000
= 66.7
y-coordinate =
(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)
2000 + 1000 + 1000 + 2000
= 93.3
Center-of-Gravity Method
North-South
East-West
120 –
90 –
60 –
30 –
–
| | | | | |
30 60 90 120 150
Arbitrar
y origin
Bahir Dar (30, 120)
Mekelle(130, 130)
Adama (90, 110)
Hawassa (60, 40)
Center of gravity 66.7, 93.3)
+
North-South
East-West
120 –
90 –
60 –
30 –
–
| | | | | |
30 60 90 120 150
Arbitrar
y origin
Bahir Dar (30, 120)
Mekelle(130, 130)
Adama (90, 110)
Hawassa (60, 40)
Center of gravity 66.7, 93.3)
+
Transportation Model
Finds amount to be shipped from
several points of supply to several
points of demand
Solution will minimize total
production and shipping costs
A special class of linear
programming problems
Finds amount to be shipped from
several points of supply to several
points of demand
Solution will minimize total
production and shipping costs
A special class of linear
programming problems
Service Location Strategy
The location focus for service firms should be on determining
the volume of customers and revenue
1. Purchasing power of customer-drawing area
2. Service and image compatibility with demographics of the
customer-drawing area
3. Competition in the area
4. Quality of the competition
5. Uniqueness of the firm’s and competitors’ locations
6. Physical qualities of facilities and neighboring businesses
7. Operating policies of the firm
8. Quality of management
The location focus for service firms should be on determining
the volume of customers and revenue
1. Purchasing power of customer-drawing area
2. Service and image compatibility with demographics of the
customer-drawing area
3. Competition in the area
4. Quality of the competition
5. Uniqueness of the firm’s and competitors’ locations
6. Physical qualities of facilities and neighboring businesses
7. Operating policies of the firm
8. Quality of management
Quiz
•Why location decision is difficult to reverse?
•What limitations and strengths do you observe in
Ethiopia with regard to location decision?
•What are the major differences between service and
manufacturing location decisions?
•Why location decision is difficult to reverse?
•What limitations and strengths do you observe in
Ethiopia with regard to location decision?
•What are the major differences between service and
manufacturing location decisions?
Facility Layout
Facilities Layout
•Layout is one of the key decisions that determines the long-run
efficiency of operations.
•Layout has strategic implications because it establishes an
organization’s competitive priorities in regard to capacity,
processes, flexibility, and cost, as well as quality of work life,
customer contact, and image.
•An effective layout can help an organization achieve a strategy that
supports differentiation, low cost, or response
•Layout: the configuration of departments, work centers, and
equipment, with particular emphasis on movement of work
(customers or materials) through the system
•The objective of layout strategy is to develop an effective and
efficient layout that will meet the firm’s competitive requirements.
•Layout is one of the key decisions that determines the long-run
efficiency of operations.
•Layout has strategic implications because it establishes an
organization’s competitive priorities in regard to capacity,
processes, flexibility, and cost, as well as quality of work life,
customer contact, and image.
•An effective layout can help an organization achieve a strategy that
supports differentiation, low cost, or response
•Layout: the configuration of departments, work centers, and
equipment, with particular emphasis on movement of work
(customers or materials) through the system
•The objective of layout strategy is to develop an effective and
efficient layout that will meet the firm’s competitive requirements.
Layout cont’d
❖Layout design must consider how to achieve the following:
❖Higher utilization of space, equipment, and people
❖Improved flow of information, materials, and people
❖Improved employee morale and safer working conditions
❖Improved customer/client interaction
❖Flexibility (whatever the layout is now, it will need to change)
❖layout designs need to be dynamic -small, movable, and flexible equipment.
❖Store displays need to be movable, office desks and partitions modular, and
warehouse racks prefabricated
❖To make quick and easy changes in product models and in production rates,
operations managers must design flexibility into layouts.
❖To obtain flexibility in layout, managers cross-train their workers, maintain
equipment, keep investments low, place workstations close together, and use small,
movable equipment.
❖Layout design must consider how to achieve the following:
❖Higher utilization of space, equipment, and people
❖Improved flow of information, materials, and people
❖Improved employee morale and safer working conditions
❖Improved customer/client interaction
❖Flexibility (whatever the layout is now, it will need to change)
❖layout designs need to be dynamic -small, movable, and flexible equipment.
❖Store displays need to be movable, office desks and partitions modular, and
warehouse racks prefabricated
❖To make quick and easy changes in product models and in production rates,
operations managers must design flexibility into layouts.
❖To obtain flexibility in layout, managers cross-train their workers, maintain
equipment, keep investments low, place workstations close together, and use small,
movable equipment.
Types of Layout
1.Fixed-position layout
2.Process-oriented layout
3.Work-cell layout cellular lay out
4.Product-oriented layout
service layouts
1.Office layout
2.retail layout
3.warehouse layout
1.Fixed-position layout
2.Process-oriented layout
3.Work-cell layout cellular lay out
4.Product-oriented layout
service layouts
1.Office layout
2.retail layout
3.warehouse layout
1.Fixed-position layout: Addresses the layout requirements of large,
bulky projects such as ships and buildings
2.Process-oriented layout: Deals with low-volume, high-variety
production (also called job shop or intermittent production)
3.Work cell layout: Arranges machinery and equipment to focus on
production of a single product or group of related products
4.Product-oriented layout: Seeks the best personnel and machine
utilizations in repetitive or continuous production
5.Office layout: Positions workers, their equipment, and spaces/offices
to provide for movement of information.
6.Retail layout: Allocates display space and responds to customer
behaviour.
7.Warehouse layout: Addresses trade-offs between space and material
handling.
bulky projects such as ships and buildings
2.Process-oriented layout: Deals with low-volume, high-variety
production (also called job shop or intermittent production)
3.Work cell layout: Arranges machinery and equipment to focus on
production of a single product or group of related products
4.Product-oriented layout: Seeks the best personnel and machine
utilizations in repetitive or continuous production
5.Office layout: Positions workers, their equipment, and spaces/offices
to provide for movement of information.
6.Retail layout: Allocates display space and responds to customer
behaviour.
7.Warehouse layout: Addresses trade-offs between space and material
handling.
Services capes
Ambient conditions - background
characteristics such as lighting, sound, smell,
and temperature
Spatial layout and functionality - which
involve customer
circulation path planning,
walkway characteristics, and
product grouping
Signs, symbols, and
artifacts - characteristics
of building design that
carry social significance
Ambient conditions - background
characteristics such as lighting, sound, smell,
and temperature
Spatial layout and functionality - which
involve customer
circulation path planning,
walkway characteristics, and
product grouping
Signs, symbols, and
artifacts - characteristics
of building design that
carry social significance
Quiz
•Why lay out and re-layout is as such important?
•How do you evaluate lay out of most service organizations in Ethiopia.
Show your justification. What happened to these organization due to
their lay out?
•Why lay out and re-layout is as such important?
•How do you evaluate lay out of most service organizations in Ethiopia.
Show your justification. What happened to these organization due to
their lay out?
Chapter 9
Aggregate Planning
Aggregate Planning
Aggregate Planning
Objective is to minimize cost over the
planning period by adjusting
Production rates
Labor levels
Inventory levels
Overtime work
Subcontracting rates
Other controllable variables
Determine the quantity and timing of production for the immediate
future
Objective is to minimize cost over the
planning period by adjusting
Production rates
Labor levels
Inventory levels
Overtime work
Subcontracting rates
Other controllable variables
Determine the quantity and timing of production for the immediate
future
Aggregate Planning
A forecast of demand for an intermediate
planning period in these aggregate terms
A method for determining costs
Required for aggregate planning
A forecast of demand for an intermediate
planning period in these aggregate terms
A method for determining costs
Required for aggregate planning
Aggregate Planning Strategies
1.Use inventories to absorb changes in demand
2.Accommodate changes by varying workforce
size
3.Use part-timers, overtime, or idle time to
absorb changes
4.Use subcontractors and maintain a stable
workforce
5.Change prices or other factors to influence
demand
1.Use inventories to absorb changes in demand
2.Accommodate changes by varying workforce
size
3.Use part-timers, overtime, or idle time to
absorb changes
4.Use subcontractors and maintain a stable
workforce
5.Change prices or other factors to influence
demand
Capacity Options
Changing inventory levels
Increase inventory in low demand
periods to meet high demand in the
future
Increases costs associated with
storage, insurance, handling,
obsolescence, and capital investment
15% to 40%
Shortages can mean lost sales due to
long lead times and poor customer
service
Changing inventory levels
Increase inventory in low demand
periods to meet high demand in the
future
Increases costs associated with
storage, insurance, handling,
obsolescence, and capital investment
15% to 40%
Shortages can mean lost sales due to
long lead times and poor customer
service
Capacity Options
Varying workforce size by hiring or layoffs
Match production rate to demand
Training and separation costs for
hiring and laying off workers
New workers may have lower
productivity
Laying off workers may lower morale
and productivity
Varying workforce size by hiring or layoffs
Match production rate to demand
Training and separation costs for
hiring and laying off workers
New workers may have lower
productivity
Laying off workers may lower morale
and productivity
Capacity Options
Varying production rate through overtime or idle time
Allows constant workforce
May be difficult to meet large increases
in demand
Overtime can be costly and may drive
down productivity
Absorbing idle time may be difficult
Varying production rate through overtime or idle time
Allows constant workforce
May be difficult to meet large increases
in demand
Overtime can be costly and may drive
down productivity
Absorbing idle time may be difficult
Capacity Options
Subcontracting
Temporary measure during periods of
peak demand
May be costly
Assuring quality and timely delivery
may be difficult
Exposes your customers to a possible
competitor
Subcontracting
Temporary measure during periods of
peak demand
May be costly
Assuring quality and timely delivery
may be difficult
Exposes your customers to a possible
competitor
Capacity Options
Using part-time workers
Useful for filling unskilled or low
skilled positions, especially in services
Using part-time workers
Useful for filling unskilled or low
skilled positions, especially in services
Demand Options
Influencing demand
Use advertising or promotion to
increase demand in low periods
May not be
sufficient to
balance demand
and capacity
Influencing demand
Use advertising or promotion to
increase demand in low periods
May not be
sufficient to
balance demand
and capacity
Demand Options
Back ordering during high- demand periods
Requires customers to wait for an
order without loss of goodwill or the
order
Most effective when there are few if
any substitutes for the product or
service
Often results in lost sales
Back ordering during high- demand periods
Requires customers to wait for an
order without loss of goodwill or the
order
Most effective when there are few if
any substitutes for the product or
service
Often results in lost sales
Aggregate Planning Options
Option Advantages Disadvantages Some Comments
Changing
inventory
levels
Changes in human
resources are
gradual or none;
no sudden
production
changes.
Inventory holding
cost may increase.
Shortages may
result in lost sales.
Applies mainly to
production, not
service, operations.
Varying
workforce
size by hiring
or layoffs
Avoids the costs of
other alternatives.
Hiring, layoff, and
training costs may
be significant.
Used where size of
labor pool is large.
Option Advantages Disadvantages Some Comments
Changing
inventory
levels
Changes in human
resources are
gradual or none;
no sudden
production
changes.
Inventory holding
cost may increase.
Shortages may
result in lost sales.
Applies mainly to
production, not
service, operations.
Varying
workforce
size by hiring
or layoffs
Avoids the costs of
other alternatives.
Hiring, layoff, and
training costs may
be significant.
Used where size of
labor pool is large.
Aggregate Planning Options
Option AdvantagesDisadvantages
Some
Comments
Varying
production
rates
through
overtime or
idle time
Matches
seasonal
fluctuations
without hiring/
training costs.
Overtime
premiums;
tired workers;
may not meet
demand.
Allows flexibility
within the
aggregate plan.
Sub-
contracting
Permits
flexibility and
smoothing of
the firm’s
output.
Loss of quality
control;
reduced
profits; loss of
future
business.
Applies mainly
in production
settings.
Option AdvantagesDisadvantages
Some
Comments
Varying
production
rates
through
overtime or
idle time
Matches
seasonal
fluctuations
without hiring/
training costs.
Overtime
premiums;
tired workers;
may not meet
demand.
Allows flexibility
within the
aggregate plan.
Sub-
contracting
Permits
flexibility and
smoothing of
the firm’s
output.
Loss of quality
control;
reduced
profits; loss of
future
business.
Applies mainly
in production
settings.
Aggregate Planning Options
Option Advantages DisadvantagesSome Comments
Using part-
time
workers
Is less costly and
more flexible
than full-time
workers.
High turnover/
training costs;
quality suffers;
scheduling
difficult.
Good for
unskilled jobs in
areas with large
temporary labor
pools.
Influencing
demand
Tries to use
excess capacity.
Discounts draw
new customers.
Uncertainty in
demand. Hard to
match demand
to supply
exactly.
Creates
marketing ideas.
Overbooking
used in some
businesses.
Option Advantages DisadvantagesSome Comments
Using part-
time
workers
Is less costly and
more flexible
than full-time
workers.
High turnover/
training costs;
quality suffers;
scheduling
difficult.
Good for
unskilled jobs in
areas with large
temporary labor
pools.
Influencing
demand
Tries to use
excess capacity.
Discounts draw
new customers.
Uncertainty in
demand. Hard to
match demand
to supply
exactly.
Creates
marketing ideas.
Overbooking
used in some
businesses.
Aggregate Planning Options
Option AdvantagesDisadvantages
Some
Comments
Back
ordering
during
high-
demand
periods
May avoid
overtime.
Keeps capacity
constant.
Customer must
be willing to
wait, but
goodwill is lost.
Many
companies
back order.
Counter-
seasonal
product
and service
mixing
Fully utilizes
resources;
allows stable
workforce.
May require
skills or
equipment
outside the
firm’s areas of
expertise.
Risky finding
products or
services with
opposite
demand
patterns.
Option AdvantagesDisadvantages
Some
Comments
Back
ordering
during
high-
demand
periods
May avoid
overtime.
Keeps capacity
constant.
Customer must
be willing to
wait, but
goodwill is lost.
Many
companies
back order.
Counter-
seasonal
product
and service
mixing
Fully utilizes
resources;
allows stable
workforce.
May require
skills or
equipment
outside the
firm’s areas of
expertise.
Risky finding
products or
services with
opposite
demand
patterns.
Methods for Aggregate Planning
A mixed strategy may be the best way to achieve minimum costs
There are many possible mixed strategies
Finding the optimal plan is not always possible
A mixed strategy may be the best way to achieve minimum costs
There are many possible mixed strategies
Finding the optimal plan is not always possible
Mixing Options to Develop a Plan
Chase strategy
Match output rates to demand forecast
for each period
Vary workforce levels or vary production
rate
Favored by many service organizations
Chase strategy
Match output rates to demand forecast
for each period
Vary workforce levels or vary production
rate
Favored by many service organizations
Level strategy
Daily production is uniform
Use inventory or idle time as buffer
Stable production leads to better quality
and productivity
Some combination of capacity options, a mixed strategy, might be the
best solution
Mixing Options to Develop a Plan
Daily production is uniform
Use inventory or idle time as buffer
Stable production leads to better quality
and productivity
Some combination of capacity options, a mixed strategy, might be the
best solution
Mixing Options to Develop a Plan
Graphical Methods
Popular techniques
Easy to understand and use
Trial-and-error approaches that do not
guarantee an optimal solution
Require only limited computations
Popular techniques
Easy to understand and use
Trial-and-error approaches that do not
guarantee an optimal solution
Require only limited computations
Graphical Methods
1.Determine the demand for each period
2.Determine the capacity for regular time,
overtime, and subcontracting each period
3.Find labor costs, hiring and layoff costs, and
inventory holding costs
4.Consider company policy on workers and stock
levels
5.Develop alternative plans and examine their
total costs
1.Determine the demand for each period
2.Determine the capacity for regular time,
overtime, and subcontracting each period
3.Find labor costs, hiring and layoff costs, and
inventory holding costs
4.Consider company policy on workers and stock
levels
5.Develop alternative plans and examine their
total costs
Roofing Supplier Example 1
MonthExpected Demand
Production
Days
Demand Per Day
(computed)
Jan 900 22 41
Feb 700 18 39
Mar 800 21 38
Apr 1,200 21 57
May 1,500 22 68
June 1,100 20 55
6,200 124
= = 50 units per day
6,200
124
Average
requirement
=
Total expected demand
Number of production days
MonthExpected Demand
Production
Days
Demand Per Day
(computed)
Jan 900 22 41
Feb 700 18 39
Mar 800 21 38
Apr 1,200 21 57
May 1,500 22 68
June 1,100 20 55
6,200 124
= = 50 units per day
6,200
124
Average
requirement
=
Total expected demand
Number of production days
Roofing Supplier Example 1
70 –
60 –
50 –
40 –
30 –
0 –
Jan Feb Mar Apr May June = Month
22 18 21 21 22 20 = Number of
working days
Production rate per working day
Level production using average
monthly forecast demand
Forecast demand
70 –
60 –
50 –
40 –
30 –
0 –
Jan Feb Mar Apr May June = Month
22 18 21 21 22 20 = Number of
working days
Production rate per working day
Level production using average
monthly forecast demand
Forecast demand
Roofing Supplier Example 2
Cost Information
Inventory carrying cost $ 5per unit per month
Subcontracting cost per unit $10per unit
Average pay rate $ 5per hour ($40per day)
Overtime pay rate
$ 7per hour
(above 8hours per day)
Labor-hours to produce a unit 1.6hours per unit
Cost of increasing daily production rate
(hiring and training)
$300per unit
Cost of decreasing daily production rate
(layoffs)
$600per unit
Cost Information
Inventory carrying cost $ 5per unit per month
Subcontracting cost per unit $10per unit
Average pay rate $ 5per hour ($40per day)
Overtime pay rate
$ 7per hour
(above 8hours per day)
Labor-hours to produce a unit 1.6hours per unit
Cost of increasing daily production rate
(hiring and training)
$300per unit
Cost of decreasing daily production rate
(layoffs)
$600per unit
Roofing Supplier Example 2
Table 13.3
Cost Information
Inventory carry cost $ 5per unit per month
Subcontracting cost per unit $10per unit
Average pay rate $ 5per hour ($40per day)
Overtime pay rate
$ 7per hour
(above 8hours per day)
Labor-hours to produce a unit 1.6hours per unit
Cost of increasing daily production rate
(hiring and training)
$300per unit
Cost of decreasing daily production rate
(layoffs)
$600per unit
Month
Production at
50Units per Day
Demand
Forecast
Monthly
Inventory
Change
Ending
Inventory
Jan 1,100 900 +200 200
Feb 900 700 +200 400
Mar 1,050 800 +250 650
Apr 1,050 1,200 -150 500
May 1,100 1,500 -400 100
June 1,000 1,100 -100 0
1,850
Total units of inventory carried over from one
month to the next = 1,850 units
Workforce required to produce 50 units per day = 10 workers
Table 13.3
Cost Information
Inventory carry cost $ 5per unit per month
Subcontracting cost per unit $10per unit
Average pay rate $ 5per hour ($40per day)
Overtime pay rate
$ 7per hour
(above 8hours per day)
Labor-hours to produce a unit 1.6hours per unit
Cost of increasing daily production rate
(hiring and training)
$300per unit
Cost of decreasing daily production rate
(layoffs)
$600per unit
Month
Production at
50Units per Day
Demand
Forecast
Monthly
Inventory
Change
Ending
Inventory
Jan 1,100 900 +200 200
Feb 900 700 +200 400
Mar 1,050 800 +250 650
Apr 1,050 1,200 -150 500
May 1,100 1,500 -400 100
June 1,000 1,100 -100 0
1,850
Total units of inventory carried over from one
month to the next = 1,850 units
Workforce required to produce 50 units per day = 10 workers
Roofing Supplier Example 2
Table 13.3
Cost Information
Inventory carry cost $ 5per unit per month
Subcontracting cost per unit $10per unit
Average pay rate $ 5per hour ($40per day)
Overtime pay rate
$ 7per hour
(above 8hours per day)
Labor-hours to produce a unit 1.6hours per unit
Cost of increasing daily production rate
(hiring and training)
$300per unit
Cost of decreasing daily production rate
(layoffs)
$600per unit
Month
Production at
50Units per Day
Demand
Forecast
Monthly
Inventory
Change
Ending
Inventory
Jan 1,100 900 +200 200
Feb 900 700 +200 400
Mar 1,050 800 +250 650
Apr 1,050 1,200 -150 500
May 1,100 1,500 -400 100
June 1,000 1,100 -100 0
1,850
Total units of inventory carried over from one
month to the next = 1,850 units
Workforce required to produce 50 units per day = 10 workers
Costs Calculations
Inventory carrying$9,250(= 1,850units carried x
$5per unit)
Regular-time labor49,600(= 10workers x $40per
day x 124days)
Other costs (overtime,
hiring, layoffs,
subcontracting) 0
1.6 x 50 =10
8
Total cost $58,850
Table 13.3
Cost Information
Inventory carry cost $ 5per unit per month
Subcontracting cost per unit $10per unit
Average pay rate $ 5per hour ($40per day)
Overtime pay rate
$ 7per hour
(above 8hours per day)
Labor-hours to produce a unit 1.6hours per unit
Cost of increasing daily production rate
(hiring and training)
$300per unit
Cost of decreasing daily production rate
(layoffs)
$600per unit
Month
Production at
50Units per Day
Demand
Forecast
Monthly
Inventory
Change
Ending
Inventory
Jan 1,100 900 +200 200
Feb 900 700 +200 400
Mar 1,050 800 +250 650
Apr 1,050 1,200 -150 500
May 1,100 1,500 -400 100
June 1,000 1,100 -100 0
1,850
Total units of inventory carried over from one
month to the next = 1,850 units
Workforce required to produce 50 units per day = 10 workers
Costs Calculations
Inventory carrying$9,250(= 1,850units carried x
$5per unit)
Regular-time labor49,600(= 10workers x $40per
day x 124days)
Other costs (overtime,
hiring, layoffs,
subcontracting) 0
1.6 x 50 =10
8
Total cost $58,850
Roofing Supplier Example 3
Month
Expected
Demand
Production
Days
Demand Per
Day
(computed)
Jan 900 22 41
Feb 700 18 39
Mar 800 21 38
Apr 1,200 21 57
May 1,500 22 68
June 1,100 20 55
6,200 124
Minimum requirement = 38 units per day
Month
Expected
Demand
Production
Days
Demand Per
Day
(computed)
Jan 900 22 41
Feb 700 18 39
Mar 800 21 38
Apr 1,200 21 57
May 1,500 22 68
June 1,100 20 55
6,200 124
Minimum requirement = 38 units per day
Roofing Supplier Example 3
70 –
60 –
50 –
40 –
30 –
0 –
Jan Feb Mar Apr May June = Month
22 18 21 21 22 20 = Number of
working days
Production rate per working day
Level production
using lowest
monthly forecast
demand
Forecast demand
70 –
60 –
50 –
40 –
30 –
0 –
Jan Feb Mar Apr May June = Month
22 18 21 21 22 20 = Number of
working days
Production rate per working day
Level production
using lowest
monthly forecast
demand
Forecast demand
Roofing Supplier Example 3
Cost Information
Inventory carrying cost $ 5per unit per month
Subcontracting cost per unit$10per unit
Average pay rate
$ 5per hour ($40per
day)
Overtime pay rate
$ 7per hour
(above 8hours per
day)
Labor-hours to produce a unit1.6hours per unit
Cost of increasing daily production
rate (hiring and training)
$300per unit
Cost of decreasing daily production
rate (layoffs)
$600per unit
Cost Information
Inventory carrying cost $ 5per unit per month
Subcontracting cost per unit$10per unit
Average pay rate
$ 5per hour ($40per
day)
Overtime pay rate
$ 7per hour
(above 8hours per
day)
Labor-hours to produce a unit1.6hours per unit
Cost of increasing daily production
rate (hiring and training)
$300per unit
Cost of decreasing daily production
rate (layoffs)
$600per unit
Roofing Supplier Example 3
Cost Information
Inventory carry cost $ 5per unit per month
Subcontracting cost per unit $10per unit
Average pay rate $ 5per hour ($40per day)
Overtime pay rate
$ 7per hour
(above 8hours per day)
Labor-hours to produce a unit 1.6hours per unit
Cost of increasing daily production rate
(hiring and training)
$300per unit
Cost of decreasing daily production rate
(layoffs)
$600per unit
In-house production = 38 units per day
x 124 days
= 4,712 units
Subcontract units = 6,200 - 4,712
= 1,488 units
Cost Information
Inventory carry cost $ 5per unit per month
Subcontracting cost per unit $10per unit
Average pay rate $ 5per hour ($40per day)
Overtime pay rate
$ 7per hour
(above 8hours per day)
Labor-hours to produce a unit 1.6hours per unit
Cost of increasing daily production rate
(hiring and training)
$300per unit
Cost of decreasing daily production rate
(layoffs)
$600per unit
In-house production = 38 units per day
x 124 days
= 4,712 units
Subcontract units = 6,200 - 4,712
= 1,488 units
Table 13.3
Cost Information
Inventory carry cost $ 5per unit per month
Subcontracting cost per unit $10per unit
Average pay rate $ 5per hour ($40per day)
Overtime pay rate
$ 7per hour
(above 8hours per day)
Labor-hours to produce a unit 1.6hours per unit
Cost of increasing daily production rate
(hiring and training)
$300per unit
Cost of decreasing daily production rate
(layoffs)
$600per unit
Roofing Supplier Example 3
In-house production = 38 units per day
x 124 days
= 4,712 units
Subcontract units = 6,200 - 4,712
= 1,488 units
Costs Calculations
Regular-time labor$37,696(= 7.6 workersx $40 per
dayx 124 days)
Subcontracting 14,880(= 1,488 unitsx $10per
unit)
(38 x 1.6)/8=7.6
Total cost $52,576
Cost Information
Inventory carry cost $ 5per unit per month
Subcontracting cost per unit $10per unit
Average pay rate $ 5per hour ($40per day)
Overtime pay rate
$ 7per hour
(above 8hours per day)
Labor-hours to produce a unit 1.6hours per unit
Cost of increasing daily production rate
(hiring and training)
$300per unit
Cost of decreasing daily production rate
(layoffs)
$600per unit
Roofing Supplier Example 3
In-house production = 38 units per day
x 124 days
= 4,712 units
Subcontract units = 6,200 - 4,712
= 1,488 units
Costs Calculations
Regular-time labor$37,696(= 7.6 workersx $40 per
dayx 124 days)
Subcontracting 14,880(= 1,488 unitsx $10per
unit)
(38 x 1.6)/8=7.6
Total cost $52,576
Roofing Supplier Example 4
Month
Expected
Demand
Production
Days
Demand Per
Day (computed)
Jan 900 22 41
Feb 700 18 39
Mar 800 21 38
Apr 1,200 21 57
May 1,500 22 68
June 1,100 20 55
6,200 124
Production = Expected Demand
Month
Expected
Demand
Production
Days
Demand Per
Day (computed)
Jan 900 22 41
Feb 700 18 39
Mar 800 21 38
Apr 1,200 21 57
May 1,500 22 68
June 1,100 20 55
6,200 124
Production = Expected Demand
Roofing Supplier Example 4
70 –
60 –
50 –
40 –
30 –
0 –
Jan Feb Mar Apr May June = Month
22 18 21 21 22 20 = Number of
working days
Production rate per working day
Forecast demand and
monthly production
70 –
60 –
50 –
40 –
30 –
0 –
Jan Feb Mar Apr May June = Month
22 18 21 21 22 20 = Number of
working days
Production rate per working day
Forecast demand and
monthly production
Roofing Supplier Example 4
Cost Information
Inventory carrying cost $ 5per unit per month
Subcontracting cost per unit $10per unit
Average pay rate
$ 5per hour ($40per day)
Overtime pay rate
$ 7per hour
(above 8hours per day)
Labor-hours to produce a unit 1.6hours per unit
Cost of increasing daily production rate
(hiring and training)
$300per unit
Cost of decreasing daily production rate
(layoffs)
$600per unit
Cost Information
Inventory carrying cost $ 5per unit per month
Subcontracting cost per unit $10per unit
Average pay rate
$ 5per hour ($40per day)
Overtime pay rate
$ 7per hour
(above 8hours per day)
Labor-hours to produce a unit 1.6hours per unit
Cost of increasing daily production rate
(hiring and training)
$300per unit
Cost of decreasing daily production rate
(layoffs)
$600per unit
Roofing Supplier Example 4
Table 13.3
Cost Information
Inventory carrying cost $ 5per unit per month
Subcontracting cost per unit $10per unit
Average pay rate $ 5per hour ($40per day)
Overtime pay rate
$ 7per hour
(above 8hours per day)
Labor-hours to produce a unit 1.6hours per unit
Cost of increasing daily production rate
(hiring and training)
$300per unit
Cost of decreasing daily production rate
(layoffs)
$600per unit
Month
Forecast
(units)
Daily
Prod
Rate
Basic
Production
Cost
(demand x
1.6hrs/unit x
$5/hr)
Extra Cost of
Increasing
Production
(hiring cost)
Extra Cost of
Decreasing
Production
(layoff cost)Total Cost
Jan 900
41(900
/22)
$ 7,200 — — $ 7,200
Feb 700 39 5,600 —
$1,200
(= 2 x $600)
6,800
Mar 800 38 6,400 —
$600
(= 1 x $600)
7,000
Apr1,200 57 9,600
$5,700
(= 19 x $300)
— 15,300
May1,500 68 12,000
$3,300
(= 11 x $300)
— 15,300
June1,100 55 8,800 —
$7,800
(= 13 x $600)
16,600
$49,600 $9,000 $9,600 $68,200
Table 13.3
Cost Information
Inventory carrying cost $ 5per unit per month
Subcontracting cost per unit $10per unit
Average pay rate $ 5per hour ($40per day)
Overtime pay rate
$ 7per hour
(above 8hours per day)
Labor-hours to produce a unit 1.6hours per unit
Cost of increasing daily production rate
(hiring and training)
$300per unit
Cost of decreasing daily production rate
(layoffs)
$600per unit
Month
Forecast
(units)
Daily
Prod
Rate
Basic
Production
Cost
(demand x
1.6hrs/unit x
$5/hr)
Extra Cost of
Increasing
Production
(hiring cost)
Extra Cost of
Decreasing
Production
(layoff cost)Total Cost
Jan 900
41(900
/22)
$ 7,200 — — $ 7,200
Feb 700 39 5,600 —
$1,200
(= 2 x $600)
6,800
Mar 800 38 6,400 —
$600
(= 1 x $600)
7,000
Apr1,200 57 9,600
$5,700
(= 19 x $300)
— 15,300
May1,500 68 12,000
$3,300
(= 11 x $300)
— 15,300
June1,100 55 8,800 —
$7,800
(= 13 x $600)
16,600
$49,600 $9,000 $9,600 $68,200
Comparison of Three Plans
Cost Plan 1 Plan 2 Plan 3
Inventory carrying$ 9,250 $ 0$ 0
Regular labor 49,600 37,696 49,600
Overtime labor 0 0 0
Hiring 0 0 9,000
Layoffs 0 0 9,600
Subcontracting 0 14,880 0
Total cost $58,850 $52,576 $68,200
Plan 2 is the lowest cost option
Cost Plan 1 Plan 2 Plan 3
Inventory carrying$ 9,250 $ 0$ 0
Regular labor 49,600 37,696 49,600
Overtime labor 0 0 0
Hiring 0 0 9,000
Layoffs 0 0 9,600
Subcontracting 0 14,880 0
Total cost $58,850 $52,576 $68,200
Plan 2 is the lowest cost option
CHAPTER 11
QUALITY Management
Operations Management
QUALITY Management
Operations Management
Definition
•The ability of a product or service to consistently meet or
exceed customer requirements or expectations.
•Quality is the totality of features and characteristics of a
product or service that bears o its ability to satisfy stated
or implied needs.
•Product quality. Product quality is often judged on nine
dimensions of quality:
•Performance—main characteristics of the product
•Aesthetics—appearance, feel, smell, taste
•Special features—extra characteristics
•Conformance—how well a product corresponds to design
specifications
•Reliability—dependable performance
•Durability—ability to perform over time
•Perceived quality—indirect evaluation of quality (e.g., reputation)
•Serviceability—handling of complaints or repairs
•Consistency—quality doesn’t var
•The ability of a product or service to consistently meet or
exceed customer requirements or expectations.
•Quality is the totality of features and characteristics of a
product or service that bears o its ability to satisfy stated
or implied needs.
•Product quality. Product quality is often judged on nine
dimensions of quality:
•Performance—main characteristics of the product
•Aesthetics—appearance, feel, smell, taste
•Special features—extra characteristics
•Conformance—how well a product corresponds to design
specifications
•Reliability—dependable performance
•Durability—ability to perform over time
•Perceived quality—indirect evaluation of quality (e.g., reputation)
•Serviceability—handling of complaints or repairs
•Consistency—quality doesn’t var
Quality
•Service Quality. The dimensions of product quality don’t
adequately describe service quality. Instead, service
quality is often described using the following dimensions:
•Convenience—the availability and accessibility of the service
•Reliability—the ability to perform a service dependably,
consistently, and accurately
•Responsiveness—the willingness of service providers to help
customers in unusual situations and to deal with problems
•Time—the speed with which service is delivered
•Assurance—the knowledge exhibited by personnel who come into
contact with a customer and their ability to convey trust and
confidence
•Courtesy—the way customers are treated by employees who
come into contact with them
•Tangibles—the physical appearance of facilities, equipment,
personnel, and communication materials
•Consistency—the ability to provide the same level of good quality
repeatedly
•Expectations—meet (or exceed) customer expectations
•Service Quality. The dimensions of product quality don’t
adequately describe service quality. Instead, service
quality is often described using the following dimensions:
•Convenience—the availability and accessibility of the service
•Reliability—the ability to perform a service dependably,
consistently, and accurately
•Responsiveness—the willingness of service providers to help
customers in unusual situations and to deal with problems
•Time—the speed with which service is delivered
•Assurance—the knowledge exhibited by personnel who come into
contact with a customer and their ability to convey trust and
confidence
•Courtesy—the way customers are treated by employees who
come into contact with them
•Tangibles—the physical appearance of facilities, equipment,
personnel, and communication materials
•Consistency—the ability to provide the same level of good quality
repeatedly
•Expectations—meet (or exceed) customer expectations
Two Ways Quality Improves Profitability
Improved
Quality
Increased
Profits
Increased productivity
Lower rework and scrap costs
Lower warranty costs
Reduced Costs via
Improved response
Flexible pricing
Improved reputation
Sales Gains via
Improved
Quality
Increased
Profits
Increased productivity
Lower rework and scrap costs
Lower warranty costs
Reduced Costs via
Improved response
Flexible pricing
Improved reputation
Sales Gains via
Phases of Quality Assurance
Acceptance
sampling
Process
control
Continuous
improvement
Inspection
before/after
production
Inspection and
corrective
action during
production
Quality built
into the
process
The least
progressive
The most
progressive
Acceptance
sampling
Process
control
Continuous
improvement
Inspection
before/after
production
Inspection and
corrective
action during
production
Quality built
into the
process
The least
progressive
The most
progressive
Design of quality control systems
•First identify critical pointin the process where inspection is
needed
•Second decide on the type of measurement to be used at
each inspection point.
❖Variable measurement: utilizes a continuous scale for such factors as
length, height, and weight.
❖Attribute measurement: uses a discrete scale by counting the number of
defective items or the number of defects per units.
•Third decide on the amount of inspection to use
•Finally deciding who should do the inspections.
Steps in designing a quality control system
•First identify critical pointin the process where inspection is
needed
•Second decide on the type of measurement to be used at
each inspection point.
❖Variable measurement: utilizes a continuous scale for such factors as
length, height, and weight.
❖Attribute measurement: uses a discrete scale by counting the number of
defective items or the number of defects per units.
•Third decide on the amount of inspection to use
•Finally deciding who should do the inspections.
Steps in designing a quality control system
Inspection
•How Much/How Often
•Where/When
•Centralized vs. On-site
Inputs Transformation Outputs
Acceptance
sampling
Process
control
Acceptance
sampling
•How Much/How Often
•Where/When
•Centralized vs. On-site
Inputs Transformation Outputs
Acceptance
sampling
Process
control
Acceptance
sampling
Cost
Optimal
Amount of Inspection
Inspection Costs
Cost of
inspection
Cost of
passing
defectives
Total Cost
Optimal
Amount of Inspection
Inspection Costs
Cost of
inspection
Cost of
passing
defectives
Total Cost
Where to Inspect in the Process
•Raw materials and purchased parts
•Finished products
•Before a costly operation
•Before an irreversible process
•Before a covering process
•Raw materials and purchased parts
•Finished products
•Before a costly operation
•Before an irreversible process
•Before a covering process
Examples of Inspection PointsType of
business
Inspection
points
Characteristics
Fast Food Cashier
Counter area
Eating area
Building
Kitchen
Accuracy
Appearance, productivity
Cleanliness
Appearance
Health regulations
Hotel/motel Parking lot
Accounting
Building
Main desk
Safe, well lighted
Accuracy, timeliness
Appearance, safety
Waiting times
Supermarket Cashiers
Deliveries
Accuracy, courtesy
Quality, quantity
business
Inspection
points
Characteristics
Fast Food Cashier
Counter area
Eating area
Building
Kitchen
Accuracy
Appearance, productivity
Cleanliness
Appearance
Health regulations
Hotel/motel Parking lot
Accounting
Building
Main desk
Safe, well lighted
Accuracy, timeliness
Appearance, safety
Waiting times
Supermarket Cashiers
Deliveries
Accuracy, courtesy
Quality, quantity
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
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
External Failure
Internal Failure
Prevention
Costs of Quality
Appraisal
Total Cost
Quality Improvement
Total Cost
Internal Failure
Prevention
Costs of Quality
Appraisal
Total Cost
Quality Improvement
Total Cost
What does Total Quality Management
encompass?
TQM is a management philosophy:
•continuous improvement
•leadership development
•partnership development
encompass?
TQM is a management philosophy:
•continuous improvement
•leadership development
•partnership development
Continuous improvement philosophy
1.Kaizen: Japanese term for continuous improvement.
A step-by-step improvement of business processes.
2.PDCA: Plan-do-check-act as defined by Deming.
PlanDo
ActCheck
3.Benchmarking : what do top performers do?
1.Kaizen: Japanese term for continuous improvement.
A step-by-step improvement of business processes.
2.PDCA: Plan-do-check-act as defined by Deming.
PlanDo
ActCheck
3.Benchmarking : what do top performers do?
QUALITY CERTIFICATION
The International Organization for Standardization (ISO)
promotes worldwide standards for the improvement of quality,
productivity, and operating efficiency through a series of
standards and guidelines.
Used by industrial and business organizations, regulatory
agencies, governments, and trade organizations, the standards
have important economic and social benefits.
They increase the levels of quality and reliability, productivity,
and safety, while making products and services affordable. The
standards help facilitate international trade. They provide
governments with a basis for health, safety, and environmental
legislation
ISO 9000 series (Europe/EC)
pertains to quality management. It concerns what an organization
does to ensure its products or services conform to its customers’
requirements.
ISO 14000 series (Europe/EC)
what an organization does to minimize harmful effects to
the environment caused by its operations.
The International Organization for Standardization (ISO)
promotes worldwide standards for the improvement of quality,
productivity, and operating efficiency through a series of
standards and guidelines.
Used by industrial and business organizations, regulatory
agencies, governments, and trade organizations, the standards
have important economic and social benefits.
They increase the levels of quality and reliability, productivity,
and safety, while making products and services affordable. The
standards help facilitate international trade. They provide
governments with a basis for health, safety, and environmental
legislation
ISO 9000 series (Europe/EC)
pertains to quality management. It concerns what an organization
does to ensure its products or services conform to its customers’
requirements.
ISO 14000 series (Europe/EC)
what an organization does to minimize harmful effects to
the environment caused by its operations.
ISO 9000
•processes rather than its products and services, and both stress
continual improvement.
•the standards are meant to be generic; no matter what the
organization’s business, if it wants to establish a quality management
system or an environmental management system, the system must
have the essential elements contained in ISO 9000.
•They must go through a process that involves documenting quality
procedures and onsite assessment. The process often takes 12 to 18
months.
•must be re-registered every three years.
•processes rather than its products and services, and both stress
continual improvement.
•the standards are meant to be generic; no matter what the
organization’s business, if it wants to establish a quality management
system or an environmental management system, the system must
have the essential elements contained in ISO 9000.
•They must go through a process that involves documenting quality
procedures and onsite assessment. The process often takes 12 to 18
months.
•must be re-registered every three years.
ISO…
•Eight quality management principles form the basis of the latest
version of ISO 9000
•A customer focus
•Leadership
•Involvement of people
•A process approach
•A system approach to management
•Continual improvement
•Use of a factual approach to decision making
•Mutually beneficial supplier relationship
•Eight quality management principles form the basis of the latest
version of ISO 9000
•A customer focus
•Leadership
•Involvement of people
•A process approach
•A system approach to management
•Continual improvement
•Use of a factual approach to decision making
•Mutually beneficial supplier relationship
ISO 14000
Environmental Standard
The standards for ISO 14000 certification bear
upon three major areas:
▪Management systems—systems
development and integration of
environmental responsibilities into
business planning
▪Operations—consumption of natural
resources and energy
▪Environmental systems—measuring,
assessing, and managing emissions,
effluents, and other waste streams
Environmental Standard
The standards for ISO 14000 certification bear
upon three major areas:
▪Management systems—systems
development and integration of
environmental responsibilities into
business planning
▪Operations—consumption of natural
resources and energy
▪Environmental systems—measuring,
assessing, and managing emissions,
effluents, and other waste streams
Statistical Process Control
•SPC is statistical method for determining
whether a particular process is in or out of
control
•The Control Process
•Define
•Measure
•Compare
•Evaluate
•Correct
•Monitor results
•SPC is statistical method for determining
whether a particular process is in or out of
control
•The Control Process
•Define
•Measure
•Compare
•Evaluate
•Correct
•Monitor results
TQM
❖The term total quality management (TQM) refers to a quest for quality in
an organization.
❖There are three key philosophies in this approach.
❖One is a never-ending push to improve, which is referred to as continuous
improvement;
❖the second is the involvement of everyone in the organization; and
❖the third is a goal of customer satisfaction, which means meeting or exceeding
customer expectations.
❖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
❖The term total quality management (TQM) refers to a quest for quality in
an organization.
❖There are three key philosophies in this approach.
❖One is a never-ending push to improve, which is referred to as continuous
improvement;
❖the second is the involvement of everyone in the organization; and
❖the third is a goal of customer satisfaction, which means meeting or exceeding
customer expectations.
❖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
TQM (cont’d)
•Expansion the traditional view of quality—looking only at the quality of the final
product or services—to looking at the quality of every aspect of the process that
produces the product or service.
•TQM systems are intended to prevent poor quality from occurring
•TQM approach
•Find out what customers want.
•Design a product or service that will meet (or exceed) what customers want.
•Design processes that facilitate doing the job right the first time-mistake proofing, fail-safing, foolproofingor
Pokayoke
•Keep track of results, and use them to guide improvement in the system.
•Extend these concepts throughout the supply chain.
•Top management must be involved and committed. Otherwise,
•Expansion the traditional view of quality—looking only at the quality of the final
product or services—to looking at the quality of every aspect of the process that
produces the product or service.
•TQM systems are intended to prevent poor quality from occurring
•TQM approach
•Find out what customers want.
•Design a product or service that will meet (or exceed) what customers want.
•Design processes that facilitate doing the job right the first time-mistake proofing, fail-safing, foolproofingor
Pokayoke
•Keep track of results, and use them to guide improvement in the system.
•Extend these concepts throughout the supply chain.
•Top management must be involved and committed. Otherwise,
Concepts of TQM
Continuous improvement
Six Sigma
Employee empowerment
Benchmarking
Just-in-time (JIT)
Continuous improvement
Six Sigma
Employee empowerment
Benchmarking
Just-in-time (JIT)
Continuous Improvement
The philosophy that seeks to improve all factors related to the process of
converting inputs into outputs on an ongoing basis
Concept recognizes that quality improvement is a journey with no end.
Involves all operations and work centers including suppliers and
customers
People, Equipment, Materials, Procedures
The term kaizen refer to continuous
improvement in many nations including Japan.
The philosophy that seeks to improve all factors related to the process of
converting inputs into outputs on an ongoing basis
Concept recognizes that quality improvement is a journey with no end.
Involves all operations and work centers including suppliers and
customers
People, Equipment, Materials, Procedures
The term kaizen refer to continuous
improvement in many nations including Japan.
Six Sigma
Two meanings
Six Sigma means having no morethan 3.4
defects per million opportunities in any
process, product, or service (DPMO)
A program designed to reduce defects, lower
costs, and improve customer satisfaction
A statistical based structured methodology for
identifying and eliminating causes of errors in
process
Two meanings
Six Sigma means having no morethan 3.4
defects per million opportunities in any
process, product, or service (DPMO)
A program designed to reduce defects, lower
costs, and improve customer satisfaction
A statistical based structured methodology for
identifying and eliminating causes of errors in
process
Six Sigma
•There are management and technical components of Six-Sigma
programs.
•The management component involves
•providing strong leadership,
•defining performance metrics,
•selecting projects likely to achieve business results, and
•selecting and training appropriate people
•The technical component involves
•improving process performance,
•reducing variation,
•utilizing statistical methods, and
•designing a structured improvement strategy, which involves definition,
measurement, analysis, improvement, and control.
•There are management and technical components of Six-Sigma
programs.
•The management component involves
•providing strong leadership,
•defining performance metrics,
•selecting projects likely to achieve business results, and
•selecting and training appropriate people
•The technical component involves
•improving process performance,
•reducing variation,
•utilizing statistical methods, and
•designing a structured improvement strategy, which involves definition,
measurement, analysis, improvement, and control.
Employee Empowerment
Empowerment is strengthening others’ belief
in their own sense of effectiveness and
sharing leadership power with others
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
Empowerment is strengthening others’ belief
in their own sense of effectiveness and
sharing leadership power with others
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 Circles
Group of employees who meet
regularly to solve problems
Trained in planning, problem solving,
and statistical methods
Often led by a facilitator
Very effective when done properly
Group of employees who meet
regularly to solve problems
Trained in planning, problem solving,
and statistical methods
Often led by a facilitator
Very effective when done properly
Benchmarking
Selecting best practices to use as a standard for performance
Determine what to
benchmark
Form a benchmark team
Identify benchmarking partners
Collect and analyze benchmarking
information
Take action to match or exceed the
benchmark
Selecting best practices to use as a standard for performance
Determine what to
benchmark
Form a benchmark team
Identify benchmarking partners
Collect and analyze benchmarking
information
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 better, easier-to-
employ JIT system
Relationship to quality:
JIT cuts the cost of quality
JIT improves quality
Better quality means less inventory and better, easier-to-
employ JIT system
Production planning and Control
PRODUCTION PlANNING
Productionplanning
isapre-production
functionperformedto
matchtheproduction
capacitywiththe
essential market
demandinthemost
feasiblemanner.
Itconsistof1-Production
&2-Planning
Productionplanning
isapre-production
functionperformedto
matchtheproduction
capacitywiththe
essential market
demandinthemost
feasiblemanner.
Itconsistof1-Production
&2-Planning
PRODUCTION CONTROL
Production control
It follows other
functionsofproduction
&helpstodetermine
theperformanceofan
organization.
Production control
It follows other
functionsofproduction
&helpstodetermine
theperformanceofan
organization.
OBJECTIVES OF PRODUCTION PLANNING
➢Tomeetthedemandoftheproducteffectively&
maintainthebalancebetweendifferentproduction
activities.
➢Thebestpossibleutilizationofavailable
resources.
➢Tooperatetheplantatapredeterminedlevelof
efficiency.
➢Toutilizeproductionfacilitiestothemaximum
forgettingtheminimumoperatingcosts&
meetingdeliveryschedules.
➢Toassistworkersengagedinproduction
activitiesformakingright&greaterearnings.
➢Toequipmanagementfortacklinganydifficulty,
whichmayariselateronintheachievingof
productiontarget.
➢Tomeetthedemandoftheproducteffectively&
maintainthebalancebetweendifferentproduction
activities.
➢Thebestpossibleutilizationofavailable
resources.
➢Tooperatetheplantatapredeterminedlevelof
efficiency.
➢Toutilizeproductionfacilitiestothemaximum
forgettingtheminimumoperatingcosts&
meetingdeliveryschedules.
➢Toassistworkersengagedinproduction
activitiesformakingright&greaterearnings.
➢Toequipmanagementfortacklinganydifficulty,
whichmayariselateronintheachievingof
productiontarget.
FUNCTIONs OF PRODUCTION PLANNING
Productionselection&design–thishelpsthe
selectionofmostsuitableproductthatfulfills
marketdemand.Italsoensuresthatdesignofthe
productisaccordingtocustomerrequirements.
Processselection&planning–thishelpsto
chooserighttechnology,equipments,machines,
materialhandlingsystems,automationinvolvedin
productionofproduct.
Facilitylocation–thishelpstominimizethe
costssuchasproduction&distributioncosts.
Facilitylocation&materialshandling–this
helpstomaterialtransfer&processingofproduct
inthemostefficientmannerthroughtheshortest
possibledistancewithminimumtimewages.
Capacityplanning–decidesabouthowmuch
resourceshouldbekepttomeetcurrentmarket
demand.
Procedureplanning–specifiesproduction
proceduretobepracticedforobtainingthedesire
outputatoptimumcost.
Productionselection&design–thishelpsthe
selectionofmostsuitableproductthatfulfills
marketdemand.Italsoensuresthatdesignofthe
productisaccordingtocustomerrequirements.
Processselection&planning–thishelpsto
chooserighttechnology,equipments,machines,
materialhandlingsystems,automationinvolvedin
productionofproduct.
Facilitylocation–thishelpstominimizethe
costssuchasproduction&distributioncosts.
Facilitylocation&materialshandling–this
helpstomaterialtransfer&processingofproduct
inthemostefficientmannerthroughtheshortest
possibledistancewithminimumtimewages.
Capacityplanning–decidesabouthowmuch
resourceshouldbekepttomeetcurrentmarket
demand.
Procedureplanning–specifiesproduction
proceduretobepracticedforobtainingthedesire
outputatoptimumcost.
STEPS INVOLVED IN PP
•Determinationof target(pastexperience/
budget/manpower/productioncapacity).
•Collection&interpretationofinformation(rawmaterial
availability/newtechnology/regulations).
•Developingplan(decidingbatchsize/procedure/process/lead
time).
•Puttingplanintooperations(execution).
•Followupaction(controllingtocorrectdeviationifany)
•Determinationof target(pastexperience/
budget/manpower/productioncapacity).
•Collection&interpretationofinformation(rawmaterial
availability/newtechnology/regulations).
•Developingplan(decidingbatchsize/procedure/process/lead
time).
•Puttingplanintooperations(execution).
•Followupaction(controllingtocorrectdeviationifany)
PRODUCTIION PLANNING hierarchy
Long Term (Capacity Planning)
Capital Intensive in nature
-This deals with Strategic and business issue. In the long term we deal with those
issue which help us to create demand for our products and generating sufficient
revenue for the company.
-Reflect in process choice and equipment selection. Since selection of equipment
and facilities require lot of investment and decision is irreversible, one should pay
utmost care keeping in mind customer requirements.
Medium Term (Aggregate Planning)
-How demand can be met from existing facilities and resources. Here we are trying
to utilizing our existing resources (manpower, machine, facilities etc) to satisfy the
market demand
Long Term (Capacity Planning)
Capital Intensive in nature
-This deals with Strategic and business issue. In the long term we deal with those
issue which help us to create demand for our products and generating sufficient
revenue for the company.
-Reflect in process choice and equipment selection. Since selection of equipment
and facilities require lot of investment and decision is irreversible, one should pay
utmost care keeping in mind customer requirements.
Medium Term (Aggregate Planning)
-How demand can be met from existing facilities and resources. Here we are trying
to utilizing our existing resources (manpower, machine, facilities etc) to satisfy the
market demand
Short Term (operational Planning)
- In short term we monitoring the production activities on day to
day basis and compare the output against the plan and take
corrective action.
Master Production Schedule (MPS)- Is a statement of how many
finished items are to be produced and when they are to be
produced.
Material Requirement Planning (MRP)- System that uses net
demand from the MPS and explodes it using the bill of materials
(BOM).
- In short term we monitoring the production activities on day to
day basis and compare the output against the plan and take
corrective action.
Master Production Schedule (MPS)- Is a statement of how many
finished items are to be produced and when they are to be
produced.
Material Requirement Planning (MRP)- System that uses net
demand from the MPS and explodes it using the bill of materials
(BOM).
Organizational structure of PPC
department
•It differ from organization to organization
•Factory Head
•Production Manager
•Production Supervisor Skilled Worker
•Qc/Qa Manager
•Maintenance Manager
267
department
•It differ from organization to organization
•Factory Head
•Production Manager
•Production Supervisor Skilled Worker
•Qc/Qa Manager
•Maintenance Manager
267
Production Control
ToexecutetheProductionplans&toattainthecompanyobjectives
productionmanagerneedstochecktheworkprogress&correctthe
deviationsbetweenactualperformance&plannedstandardsor
requirementsofcustomers.
Controllingistheprocessthatmeasurestheexistingperformanceofan
organization&guidesittowardspredeterminedobjectives.
ItmeansProductionControlisessentiallythecontrolofquantityin
manufacturingoftherequiredquality.
ToexecutetheProductionplans&toattainthecompanyobjectives
productionmanagerneedstochecktheworkprogress&correctthe
deviationsbetweenactualperformance&plannedstandardsor
requirementsofcustomers.
Controllingistheprocessthatmeasurestheexistingperformanceofan
organization&guidesittowardspredeterminedobjectives.
ItmeansProductionControlisessentiallythecontrolofquantityin
manufacturingoftherequiredquality.
Inventory control – Helps determine the
optimal inventory levels, components, parts,
tools, spares in order to ensure their
availability with minimum capital investment.
(JIT)
Time management – Helps to ensure whether
the manufacturing of product is according to
schedule.
Quality control – Helps ensures that the
services & products produced by company
meet the declared quality standards with
minimum cost.
FUNCTIONS OF PRODN CONTROL
optimal inventory levels, components, parts,
tools, spares in order to ensure their
availability with minimum capital investment.
(JIT)
Time management – Helps to ensure whether
the manufacturing of product is according to
schedule.
Quality control – Helps ensures that the
services & products produced by company
meet the declared quality standards with
minimum cost.
FUNCTIONS OF PRODN CONTROL
Cont…..
Maintenance & replacement – Helps select the optimal
maintenance policy to ensure or availability of
equipments& machines, includes – preventive
inspection, planned lubrication, periodic cleaning,
planned replacement of parts etc.
•Cost reduction & cost control
•Dispatching – Moving of RM among various operations,
collecting fixtures & tools from stores and issuing them
to concern department, issuing route cards etc.
•Follow up or progressing.
FUNCTIONS OF PRODN CONTROL
Maintenance & replacement – Helps select the optimal
maintenance policy to ensure or availability of
equipments& machines, includes – preventive
inspection, planned lubrication, periodic cleaning,
planned replacement of parts etc.
•Cost reduction & cost control
•Dispatching – Moving of RM among various operations,
collecting fixtures & tools from stores and issuing them
to concern department, issuing route cards etc.
•Follow up or progressing.
FUNCTIONS OF PRODN CONTROL
Prodn control aims to make right quantity & quality
of product, accessible to customers at right time &
at minimum cost.
Investment in inventories & finished stock can be
kept minimum.
The firm can capture market share by producing
goods at lowest cost & best quality & may result in
large amount of sales.
The amount of profit will be higher.
The firm can compete in the market with low cost
prodn & higher profits.
ADVANTAGES OF PRODN CONTROL TO
MANAGEMENT
of product, accessible to customers at right time &
at minimum cost.
Investment in inventories & finished stock can be
kept minimum.
The firm can capture market share by producing
goods at lowest cost & best quality & may result in
large amount of sales.
The amount of profit will be higher.
The firm can compete in the market with low cost
prodn & higher profits.
ADVANTAGES OF PRODN CONTROL TO
MANAGEMENT
Techniques of production planning &
control
control
•Routing–is selection of path or route over which each piece
is to travel in being transformed from RM into FG.
•Scheduling –It involves establishing the amount of work to be
done & the time when each element of work will start.
•Determine most feasible sequence of operations.
•Dispatching–is concerned with the issue of orders to shop
floor, instructions, tools are provided, job cards & work force.
•Guiding & controlling the material & operations in processing
on the basis of route sheet & shedule
•Follow up–to see whether the work is being carried on
according to planning & orders & instructions issued.
•Inspection–To check the process or quality
•Correction–Making correction or initiating necessary action to
ensure desired output.
is to travel in being transformed from RM into FG.
•Scheduling –It involves establishing the amount of work to be
done & the time when each element of work will start.
•Determine most feasible sequence of operations.
•Dispatching–is concerned with the issue of orders to shop
floor, instructions, tools are provided, job cards & work force.
•Guiding & controlling the material & operations in processing
on the basis of route sheet & shedule
•Follow up–to see whether the work is being carried on
according to planning & orders & instructions issued.
•Inspection–To check the process or quality
•Correction–Making correction or initiating necessary action to
ensure desired output.
Effectiveness – ensures right kind of goods to fulfill the
customer requirement.
Maximizing output – ensures the prodn of maximum goods
& resources in minimum output.
Quality control – ensures quality of goods/services meet the
quality specification.
Minimizing the output time – ensures reducing delays,
waiting time & ideal time.
Capacity utilization – ensures manpower/machine is fully
utilized.
Maintain inventory level – ensures optimal level of stock.
Flexibility – ensure that flexibility maintain for all operations.
OBJECTIVES OF PRODN PLANNING & CONTROL
customer requirement.
Maximizing output – ensures the prodn of maximum goods
& resources in minimum output.
Quality control – ensures quality of goods/services meet the
quality specification.
Minimizing the output time – ensures reducing delays,
waiting time & ideal time.
Capacity utilization – ensures manpower/machine is fully
utilized.
Maintain inventory level – ensures optimal level of stock.
Flexibility – ensure that flexibility maintain for all operations.
OBJECTIVES OF PRODN PLANNING & CONTROL
Cont…..
Better coordination – between machine & labour.
Reducing bottlenecks – ensures that all the
bottlenecks are removed from all stages of
operations.
Maintaining performance – ensures the proper
standards are maintained by comparing actual
result with planned result.
Prepare production schedules – ensures that
timely production is made according to the
schedule.
OBJECTIVES OF PRODN PLANNING & CONTROL
Better coordination – between machine & labour.
Reducing bottlenecks – ensures that all the
bottlenecks are removed from all stages of
operations.
Maintaining performance – ensures the proper
standards are maintained by comparing actual
result with planned result.
Prepare production schedules – ensures that
timely production is made according to the
schedule.
OBJECTIVES OF PRODN PLANNING & CONTROL
Higher quality,
Better utilization of resources,
Reduced inventories,
Reduced manufacturing cycle time,
Faster delivery,
Better customer services,
Lower production costs,
Lower capital investments,
Higher customer services,
Improve sales turnover,
BENEFITS OF OF PRODN PLANNING &
CONTROL
Better utilization of resources,
Reduced inventories,
Reduced manufacturing cycle time,
Faster delivery,
Better customer services,
Lower production costs,
Lower capital investments,
Higher customer services,
Improve sales turnover,
BENEFITS OF OF PRODN PLANNING &
CONTROL
Improve market share,
Improve profitability,
Flexibility,
Lower prices,
Competitive advantage for firm due to
balance inventory levels & higher quality.
BENEFITS OF OF PRODN PLANNING &
CONTROL
Improve profitability,
Flexibility,
Lower prices,
Competitive advantage for firm due to
balance inventory levels & higher quality.
BENEFITS OF OF PRODN PLANNING &
CONTROL
❖Concerned with timetable of production
Scheduling arranges the different manufacturing
operations in order of priority, fixing the time & date
for the commencement & completion of each
operation.
Types of scheduling
❖Forward scheduling
❖Backward scheduling
Scheduling
Jan-24 278
Scheduling arranges the different manufacturing
operations in order of priority, fixing the time & date
for the commencement & completion of each
operation.
Types of scheduling
❖Forward scheduling
❖Backward scheduling
Scheduling
Jan-24 278
SCHEDULING
•Prescribing of when and where each operation necessary to
manufacture the product is to be performed
•Establishing of times at which to begin and complete each event or
operation comprising a procedure
•Prescribing of when and where each operation necessary to
manufacture the product is to be performed
•Establishing of times at which to begin and complete each event or
operation comprising a procedure
Priority Decision Rule
Measure of effectiveness
•Average flow time = flow time/number of jobs
•Average tardiness = lateness time/number of
jobs
•Average number of jobs at work center = total
flowtime/total processing time
•Average flow time = flow time/number of jobs
•Average tardiness = lateness time/number of
jobs
•Average number of jobs at work center = total
flowtime/total processing time
Schedule the following orders
PT DD
A 2 7
B 8 16
C 4 4
D 10 17
E 5 15
F 12 18
FCFS
PT DD FTLATENESS
A 2 7 2
B 8 16 10
C 4 4 14 10
D 10 17 24 7
E 5 15 29 14
F 12 18 41 23
120 54
Average flow time: 120/6 = 20
Average tardiness: 54/6 = 9
Average number of jobs at work
center: 120/41= 2.93
FCFS
Shortest processing time
Earliest due date
PT DD
A 2 7
B 8 16
C 4 4
D 10 17
E 5 15
F 12 18
FCFS
PT DD FTLATENESS
A 2 7 2
B 8 16 10
C 4 4 14 10
D 10 17 24 7
E 5 15 29 14
F 12 18 41 23
120 54
Average flow time: 120/6 = 20
Average tardiness: 54/6 = 9
Average number of jobs at work
center: 120/41= 2.93
FCFS
Shortest processing time
Earliest due date
Sequencing Jobs through Two Work Centers
•Johnson’s rule is a technique that managers can use to minimize the
make span for a group of jobs to be processed on two machines or at
two successive work centers (sometimes referred to as a two-
machine flow shop)
•Select the job with the shortest time. If the shortest time is at the first work
center, schedule that job first; if the time is at the second work center,
schedule the job last. Break ties arbitrarily.
•Eliminate the job and its time from further consideration.
•Repeat steps 1 and 2, working toward the center of the sequence, until all
jobs have been scheduled
•Johnson’s rule is a technique that managers can use to minimize the
make span for a group of jobs to be processed on two machines or at
two successive work centers (sometimes referred to as a two-
machine flow shop)
•Select the job with the shortest time. If the shortest time is at the first work
center, schedule that job first; if the time is at the second work center,
schedule the job last. Break ties arbitrarily.
•Eliminate the job and its time from further consideration.
•Repeat steps 1 and 2, working toward the center of the sequence, until all
jobs have been scheduled
Cont’d
•A group of six jobs is to be processed through a two-machine
flow shop. The first operation involves cleaning, and the second
involves painting. Determine a sequence that will minimize the
total completion time for this group of jobs. Processing times are
as follows:
JOB Work Center
one
Work Center
Two
A 5 5
B 4 3
C 8 9
D 2 7
E 6 8
F 12 15
D-E-C-F-A-B
•A group of six jobs is to be processed through a two-machine
flow shop. The first operation involves cleaning, and the second
involves painting. Determine a sequence that will minimize the
total completion time for this group of jobs. Processing times are
as follows:
JOB Work Center
one
Work Center
Two
A 5 5
B 4 3
C 8 9
D 2 7
E 6 8
F 12 15
D-E-C-F-A-B
Shop floor Control
Objective
To control flow of work through plant and coordinate
with other activities (e.g., quality control, preventive
maintenance, etc.)
Jan-24 286
Objective
To control flow of work through plant and coordinate
with other activities (e.g., quality control, preventive
maintenance, etc.)
Jan-24 286
Thanks All for Your Tolerance
THIS IS THE END OF THIS COURSE
THIS IS THE END OF THIS COURSE
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