Lecture-1

Introduction to Operations Management

1
Operation Management

• Operations management is the management of an organization’s

productive resources or its production system.
• A production system takes inputs and converts them into outputs.
• The conversion process is the predominant activity of a production
system.
• The primary concern of an operations manager is the activities of the
conversion process.

2
Process and Operation

• Operation: as an activity or activities performed on a product or

service by a single machine or person.

• Process: a sequence or series of steps for the design, manufacture,

and delivery of a product or service.

• When process consumes resource becomes operation.

3
 Operations
Operations Management

Conversion
Inputs Outputs
Subsystem

Control
Subsystem

4
Operations Management

5
 Inputs of an System

• External
– Legal, Economic, Social, Technological
• Market
– Competition, Customer Desires, Product Info.
• Primary Resources
– Materials, Personnel, Capital, Utilities

6
 Conversion Subsystem

• Physical (Manufacturing)
• Location Services (Transportation)
• Exchange Services (Retailing)
• Storage Services (Warehousing)
• Other Private Services (Insurance)
• Government Services (Federal)

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 Outputs

• Direct
– Products
– Services
• Indirect
– Waste
– Pollution
– Technological Advances

8
9
Operations as heart of an organization

Finance
Sales HRM

Prod
QA
Marketing

MIS Accounting
Engineering

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Operations as heart of an organization

Operations has a major impact on the

quality of the goods and cost of
production.

11
 Classification of Operations

• Technology selection and management

• Capacity management
• Scheduling/Timing/Time allocation
• System Maintenance

12
Objectives of Operations Management

 Primary objectives
Quality
Quantity
Cost/Price , Time, Flexibility , Dependability
 Secondary objectives
Men
Machines
Materials
Services
Techniques

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Responsibilities of Operations Manager

 Production Planning: Factors to be considered in production

planning are –
- Inputs factors
- Identification of alternatives
- Analysis of demand
- Formulating demand schedule for factors of production
 Production control
 Plant layout and location
 Product design and development
 Quality control
 Inventory control and material handling
 Analysis & selection of methods of production

14
What is Operations?

• https://www.youtube.com/watch?v=leMOReAE2hk

15
What is SCM

• https://www.youtube.com/watch?v=UBSOiHUctrY

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Some More Definitions

Supply Chain Management deals with the management of

materials, information, and financial flows in a network
consisting of suppliers, manufacturers, distributors and
customers.
Stanford Supply Chain Forum
Logistics involves “managing the flow of items, information, cash
and ideas through the coordination of supply chain processes
and through the strategic addition of place, period and pattern
values.
MIT Center for Transportation and Logistics

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Supply Chain Management Crusade

• Focus is on entire value chain

• Includes
• lean production
• JIT
• TQM
• purchasing
• product/service design

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Defining Supply Chain Management

• Coordination and integration of all supply chain activities into

seamless process.
• Enables organizations to plan and collaborate across supply chain.
• Goal is to deliver right product to right place at right time in order to
maximize profit.

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Strategic Advantages of Supply Chain

Supply chain management includes the

supply, storage, and movement of materials,
information, personnel, equipment, and
finished goods within the organization and
between its environment.
Goal of supply chain management is to
integrate the entire process of satisfying the
customer’s needs all along the supply chain.

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Strategic Advantages of Supply Chain
Management continued

• Supply chain costs often represent 50% or more of

total operating costs
• Firms that have implemented supply chain
management
• Have 45% supply chain cost advantage
• 50% lower inventory
• 17% faster delivery of final product
• Larger market shares and higher customer loyalty

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Other Factors Driving Need to Better
Manage Supply Chain
• Increasing global competition
• Outsourcing
• E-commerce
• Shorter life cycles
• Greater supply chain complexity

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Supply Chain Design

• The supply chain consists of the network of organizations that supply

inputs to the business unit, the business unit itself, and the customer
network.

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The Supply Chain

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Logistics

• Planning and controlling efficient, effective flows of goods, services,

and information from one point to another.

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Purchasing

Activities to reliably obtain materials by the time

they are needed in the product supply process.
Important considerations include price, quality,
lead times, and reliability.
Manufacturing organizations spend an average of
55 percent of revenue for outside materials and
services.
These same organizations spend only 6 percent
on labor and 3 percent on overhead.

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Purchasing Versus Procurement

• Purchasing implies a monetary transaction.

• Procurement is simply the responsibility for acquiring the goods and

services the organization needs.

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28
Thank you

29
Operations Strategy
Session 2

1
A Story
• There was a couple blessed with a child living at a very remote place outside of
the village. The place was surrounded by hills and on one was living around.

• One day the husband had to go to the city place with some urgent work. He
promised to return same day but could not.

• That night the 8 months old child and the mother was sleeping in their hut.

• Suddenly the child woke up and stared crying badly. No one to help around.

2
Strategy
• Corporate Strategy
• Business Strategy
• Operations Strategy
• Marketing
• Finance
• Human Resource
• IT
• Productions ….

3
Top Down and Bottom Up Perspectives of
Operations Strategy

4
Corporate Strategy
• Mission and Vision of the business
• Business Environment
• Capability / Distinct Competencies

5
Corporate Strategy Cont…

Mission
Relating the Organization’s Efforts to its Long
Term Future.
• What Business are we in?
• Who are Our Customers?
• What are our Concepts and Beliefs?
• How Do We Measure Performance
• Growth?
• Profits?
• Market Share?
• Innovation?

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Corporate Strategy Cont…

Environment:
Scanning the Environment for Opportunities and Threats:
• Competition
• Market
• Economic Trends
• Social and Political Changes

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Corporate Strategy Cont…

Distinct Competencies:
Organization’s Unique Strengths-- those that are
difficult for others to duplicate
Examples:
• Competent Workforce
• Advantageous Location
• Innovative Capability
• Technology

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Business Strategy
• Invest / Divest (BCG Matrix)
• External Forces Evaluation (PESTEL)
• Internal Factors (SWOT and TOWS)
• Business valuation (GE Matrix)……

https://www.youtube.com/watch?v=vKpzQ-E666M
Importance of operations strategy for business?

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Operations Strategy
“Operations strategy is a consistent pattern of business
decisions for the transformation system and associated supply
chain that are linked to the business strategy and other
functional strategies, leading to a competitive advantage for
the firm.”

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Operations Strategy is---

“…..the decision which shape the long-

term capabilities of the company’s
operations and their contribution to overall
strategy through the on-going
reconciliation of market requirements and
operations resources….”

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Operations Strategy Cont…
• Operations Strategy is reconciliation between market
resources and business operations, productive resources.
• Operations are building on capabilities (Excellence and
unique). Capabilities are embedded in operations.

https://www.youtube.com/watch?v=ZRcDVm6G50Y
Operation Strategy Redefined

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Operations strategy is strategic reconciliation of
market requirements with operations resources

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Operations Management and
Operations Strategy

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Operations Corporate strategy

Strategy Model
Business strategy

Operations Strategy
Internal
Mission Functional strategies in
analysis
marketing, finance,
Distinctive engineering, human
Competence resources, and
information systems
External Objectives
analysis (cost, quality, flexibility, delivery)
Policies
(process, quality,
capacity, and inventory)

Consistent pattern of decisions

Results
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 McDonald’s Operations Strategy

• Mission: fast, quality, low cost

• Objectives: process, quality, capacity, inventory

• Strategic decisions: process, quality, capacity, inventory

• Distinctive competence: continuous improvement of the

transformation process

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Competitive Priorities
Companies Compete on the Basis of:
• Quality
• Performance
• Conformance
• Service
• Price
• Time
• Introduction
• Delivery
• Flexibility
• Volume
• Product Mix
• ??

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Operations Strategic Objectives
• Cost
• Quality
• Time
• Delivery
• Flexibility
• Schedule
• Product change
• Reliability
How does a firm use them to gain a competitive
advantage, and how do they trade-off?
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Operations Strategy Trade-Offs
• Cost, time, flexibility, reliability, quality are performance
priorities with major implications for operation
•Designing the operations system requires trade-offs
•The necessary trade-offs will be influenced by the marketing
strategy. Competitive strategy , and the finance strategy
•The state of technology impacts the scope of what can be
achieved at a given point in time.

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Distinctive Competence

“Something an organization does better than

any competing organization that adds value for
the customer.”
“Something that operations does better than
anyone else.”

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 Positioning Trade off

High

Process Focus
Customization Project
Job Shop

Intermediate
Focus
Batch

Product Focus
Line
None Continuous

Low

Low Volume Moderate High

One-of-a-kind Volumes Volume

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 Global Scope of Operations
• “Traditional” versus “Global”
• Operations must have a global distinctive competence.

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 Characteristics of “Global Corporations”

• Facilities & plants located worldwide, not country by country.

• Products & services can be shifted among countries.
• Sourcing is on a global basis.
• Supply chain is global in nature.
• Product design & process technology are global.
• Products fit global tastes.
• Demand is considered on worldwide basis.
• Logistics & inventory control is on worldwide basis.
• Divisions have world-wide responsibility.

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 Supply Chain Strategy

• Should aim at achieving a competitive advantage for

the entire supply chain.

• Two type of supply chain strategies:

• Imitative products (e.g. commodities)
• Innovative products (e.g. new technologies)

• Firms must choose the right supply chain for each

product or group of products and not use “one size
fits all” strategy.
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Supply Chain Strategy
Imitative products (e.g. commodities)
• Predictable demand
• Efficient, low-cost supply chain

Innovative products (e.g. new technologies)

• Unpredictable demand
• Flexible, fast supply chain

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Important Strategic Decisions in Operations

1. Process
2. Quality System
3. Capacity
4. Inventory
Strategic Decision : Process
Decision Type Strategic Choice
Span of process Make or buy
Automation Handmade or machine–made;
flexible or hard automation
Process flow Project, batch, line or continuous
Job specialization High or low specialization
Supervision Centralized or empowered
workers
Strategic Decision : Quality Systems

Approach Prevention or inspection

Training Technical or managerial
training
Suppliers Selected on quality or cost
Strategic Decision : Inventory

Amount High or low levels of

inventory
Distribution Centralized or decentralized
warehouse
Control Systems Control in great detail or less
detail
Strategic Decision : Capacity

Facility One large or several small facilities

size
Location Near markets, low cost or foreign

Investment Permanent or temporary

Linking Operations to Business Strategies
• Business strategy alternatives
• Product imitator
• Operations must focus on keeping costs low.
• Product innovator
• Operations must maintain flexibility in processes, labor
and suppliers.
• Order qualifiers and winners
• Qualifiers: why you consider the
product/service
• Winners: why you choose the
product/service
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Linking Operations to Business Strategies

• Business strategy alternatives

• Product imitator
• Order winner = price (keep cost low)
• Order qualifiers = flexibility, quality,
delivery
• Product innovator
• Order winner = flexibility (rapid
introduction of new products)
• Order qualifiers = cost, delivery, quality

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Environment & Sustainable Operations
Sustainability: minimizing or eliminating the
environmental impact of operations.
The ‘greening’ of operations.
• Product development
• Sourcing
• Manufacturing
• Packaging
• Distribution
• Transportation
• Services
• End-of-life management (e.g. recycling)

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Layouts importance in Operations Strategy

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QhCaZuUeF3j&index=4

34
Thank you

35
Quality
Session 3
History of Quality
WHAT IS QUALITY?
• Deming: "Quality is defined from the customer’s point of view as anything that
enhances their satisfaction".
• Juran: "Fitness for use. Those product features which meet the needs of
customers and thereby provide product satisfaction. Freedom from deficiencies".
• ASQC: "The totality of features and characteristics of a product or service that
bear on its ability to satisfy stated or implied needs".
• ISO: "Degree to which a set of inherent characteristics, of a product or service,
fulfill requirements".
• Simply stated, quality comes from meeting customer expectations. This occurs as
a result of four activities:
Understanding customer requirements.
Designing products and services that satisfy those requirements.
Developing processes that are capable of producing those products and services.
Controlling and managing those processes so they consistently deliver to their capabilities.
https://www.youtube.com/watch?v=-hyJsoPosCE
Why quality
• Customer Satisfaction
• Reputation
• Meeting standards by Regulatory Bodies
• Cost Reduction
• Wastage Reduction
• High Morals of Employees
• Rework and reengineering costs very high
• Protect Environment
• Protect Human life
• High Reliability
• Less return and replacements
• Competitive Edge over others.
• Better the quality higher the safety
• ……….
• ….
Cost of Poor Quality
• NASA, Toyota and BP business cases of compromising on quality

https://www.youtube.com/watch?v=jYj_R4oCTPI
 Definitions of Quality
Transcendent Definition
• Quality is neither mind nor matter, but a third entity independent of the
two…. Even though quality cannot be deigned, you know what it is (R M
Parsig Zen an dArt of Motorcycle Maintenance pp 185, 213)
• “…. A condition of excellence implying fine quality as distinct from poor
quality …. Quality is achieving or reaching for the highest standard as finest
being satisfied with the sloppy or fraudulent “ (B W Tuchman “The Decline
of Quality “ Newyork Times Magazine 1980)

Product Based Definition

• “Difference in quality amount to difference in the quantity of some desired
ingredient of attribute” (L Albert Quality and Competition)
• “Quality refers to the amount of the umpriced attributes contained in
each unit of the priced attribute” (….)
 Cont…
User Based Definition
• Quality consists of the capacity to satisfy wants
• Quality is the degree to which a specific product satisfies the wants of
a specific consumer
• Quality is any aspect of a product, including the service included in
the contract on how well it fits patterns of consumer preferences
• Quality consists of the extent to which a specimen (a product –
brand- model- seller combination) possesses the service
characteristics you desire
• Quality is fitness for use [J M Juran Quality Control Handbook]
 Cont…
Manufacturing based definition
• “Quality [means] conformance to requirements”. [P b Crosby, Quality
is Fine]
• “Quality is the degree to which a specific product conforms to a
design or specification”.
Value Based Definition
• “Quality is the degree of excellence at an acceptable price and the
control of variability at an acceptable cost”.
• “Quality mean best for certain customer conditions. These conditions
are a) the actual use and b) the selling price of the product”.
( A V Feigenbaum Total Quality Control)
Who Defines Quality

• Producer of Goods and Services

• Government / regulatory body
• Customer (Most Important)
https://www.youtube.com/watch?v=lc2SuqipyJY Quality in General

• Design, Conformance and Performance of the product or service to

the ability to satisfy stated and implied needs
https://www.youtube.com/watch?v=ZpFqnefTGA8
Dr Williams Edward Deming
Dr William Edward Deming
14th Oct 1900 to 20th Dec 1993

• 14 Principles by Dr Deming
https://www.youtube.com/watch?v=M2dxglhh3b0

• Dr Deming Defines his 14 principles of sustainable Quality

https://www.youtube.com/watch?v=tsF-8u-V4j4

• Contributors to Quality Edward Deming, Joseph Juran and Philp

Crosby
https://www.youtube.com/watch?v=42UgAS-U1-o
Deming’s 14 Points
Ishikawa’s 11 Points
Ishikawa spent his life working to improve quality in Japan. His ideas were synthesized
into 11 points that made up his quality philosophy
1. Quality begins with education and ends with education.
2. The first step in quality is to know the requirements of the customer.
3. The ideal state of quality control is when inspection is no longer necessary.
4. Remove the root causes, not the symptoms.
5. Quality control is the responsibility of all workers and all divisions.
6. Do not confuse the means with the objectives.
7. Put quality first and set your sights on long-term objectives.
8. Marketing is the entrance and exit of quality.
9. Top management must not show anger when facts are presented to subordinates.
10. Ninety-five percent of the problems can be solved by the seven tools of quality
control in a company .
11. Data without dispersion information are false data.
Correlations of Quality
• Quality and Price
• Quality and advertising
Plot the relation
• Quality and Market Share according to your
perception and
• Quality and Cost experience.

• Quality and Environment

• Quality and Employee Moral
• Quality and Wastage
• Quality and Sustainability
Quality Framework / Dimensions
Service quality Product Quality Dimensions
Dimensions
Tangibles Performance Features
Service reliability Reliability Conformance
Responsiveness Durability
Assurance Serviceability
Empathy Aesthetics
Perceived quality
3 Spheres of Quality
Management, Control and Assurance
Quality management activities such as
• Planning for quality improvement
• Creating a quality organizational culture
• Providing leadership and support
• Providing training and retraining
• Designing an organizational system that
reinforces quality ideals
• Providing employee recognition
• Facilitating organizational communication
Quality control and Quality Assurance
Quality control include the following: Quality assurance activities include tasks
• Monitoring process capability and such as
stability • Failure mode and effects analysis
• Measuring process performance • Concurrent engineering
• Reducing process variability • Experimental design
• Optimizing processes to nominal • Process improvement
measures • Design team formation and
• Performing acceptance sampling management
• Developing and maintaining control • Off-line experimentation
chart
• Reliability/durability product testing
Quality Control Tools
https://www.youtube.com/watch?v=alQJTxolpFA
• Graphs :Histogram, Pia, Line, dots…
• Check Sheets: track the performance, In control and Not in control
• Brainstorming
• Alfredo Pareto (1848): 80 :20 (Vital Few, Useful Many, Others)
• Cause and Effect Diagram: Fishbone
• Correlations
• Regression
• Control Chart: Process Ability in terms of common cause and special
cause
Quality Control Charts
• R Quantitative (Process Control)
• X Bar
• P bar Chart Qualitative (Characteristics / Defectives )
• C Chart
• Statistical Process Control Charts help us
• Monitor how process changes over time
• Reveals the process variability and stability
• Distinguish random and assignable variations.
• How to draw Charts
https://www.youtube.com/watch?v=os17KYZAnd0
P Chart (Attributes / Defectives / Qualitative
Characteristics) Number of Defectives
• https://www.youtube.com/watch?v=LSd-1CJQbs8

P bar = Total Number of Defectives / Total of all Samples

P = Number of Defective in a sample / Samples Size

X (bar) Chart for Process Control
• https://www.youtube.com/watch?v=RiKUZqW41UM

• This chart helps us to know the central tendency of the process. It is

advised to draw both charts X bar and R to understand the whole
process.
R Chart (Range: Process Variability )
• The R chart helps us to investigate if the process variability is in
control. In other words it helps to track the dispersion of the process.
• https://www.youtube.com/watch?v=0CtJJGprG6A
C Chart
• Number of Defects produced in a manufacturing process
Cause and Effect Diagram
Fish Bone Diagram (Ishikawa Diagram)
https://www.youtube.com/watch?v=mfHy6_-vDAc
5 Why
• Repeatedly ask why to reach to root cause of the problem.

• https://www.youtube.com/watch?v=U3w_eIa7Eq0
Quality Concepts
• TQM
• Quality Circles
TQM
• Total quality management ensures that every single employee is working towards the
improvement of work culture, processes, services, systems and so on to ensure long
term success.
Plan Do Check Act (PDCA)
• Planning Phase: Planning is the most crucial phase of total quality management. In this
phase employees have to come up with their problems and queries which need to be
addressed. They need to come up with the various challenges they face in their day to
day operations and also analyze the problem’s root cause. Employees are required to do
necessary research and collect relevant data which would help them find solutions to all
the problems.
• Doing Phase: In the doing phase, employees develop a solution for the problems defined
in planning phase. Strategies are devised and implemented to overcome the challenges
faced by employees. The effectiveness of solutions and strategies is also measured in this
stage.
• Checking Phase: Checking phase is the stage where people actually do a comparison
analysis of before and after data to confirm the effectiveness of the processes and
measure the results.
• Acting Phase: In this phase employees document their results and prepare themselves to
address other problems.
law of diminishing marginal returns.
According to this law,
there is a point at
which investment in
quality improvement
will become
uneconomical
Quality improvement and worker morale
This is just the beginning of quality world of
‘QUALITY’
Thank you
 Session 4
The Design of Services and Products
Role of Operations Manager in Design of
Product and Services
• Services and products are the face of an organisation.
• Operations managers have indirect responsibility towards
development of Product and Services.
• However, operations managers are increasingly expected to take a
more active part in design.
• Unless a service, however well conceived, can be
implemented and unless a product, however well designed,
can be produced to a high standard, the design can never
bring its full benefits.
The design activity is itself a process
What is designed in a service or product?
All services and products can be considered as having three aspects:

● a concept, which is the understanding of the nature, use and value of the
service or product: Thus the articulation, development and testing of the
concept is a crucial stage in the design of products and services.
● a package of ‘component’ services and products that provide those
benefits defined in the concept: It is this collection of services and products
that is usually referred to as the ‘package’ that customers buy.
● the process defines the way in which the component services and products
will be created and delivered to the customer – this is process design
Concept generation
• Ideas from customers.
• Ideas from competitor activity
• Ideas from staff
• Ideas from research and development
• Open-sourcing – using a ‘development community’
Concept screening
• The feasibility of the design option – can we do it?
• Do we have the skills (quality of resources)?
• Do we have the organizational capacity (quantity of resources)?
• Do we have the financial resources to cope with this option?
• The acceptability of the design option – do we want to do it?
• Does the option satisfy the performance criteria which the design is trying to achieve? (These
will differ for different designs.)
• Will our customers want it?
• Does the option give a satisfactory financial return?
• The vulnerability of each design option – do we want to take the risk? That is,
• Do we understand the full consequences of adopting the option?
• Being pessimistic, what could go wrong if we adopt the option? What would be the
consequences of everything going wrong? (This is called the ‘downside risk’ of an option.)
The design funnel – progressively reducing the number
of possibilities until the final design is reached
Specify the components of the package
• Reducing design complexity
• standardization,
• commonality and
• Modularization
• Design evaluation and improvement
The impact of strategic performance objectives on
process design objectives and performance
Different process types imply different
volume–variety characteristics for the process
Some common process mapping symbols
Design Services and Products for whom?
• Past World
• Present World
• Future World
or
• Size
• Shape
• Looks
• ….
• ….
• Outcomes
Creativity -> Product and Service Design ->
Change the world
• Creativity is killed by demotivation and lack of appreciations of
unconventional approach.
• People starts saying I am not the just a creative type.
• Albert Bandoora a well known psychologist has a step by step
approach to cure phobias (snake). The process is called guided
mastery. Leading to high level of confidence taking subjects to
growth.
• A medical practitioner Mr Dough found one day a little girl afraid of
MRI machine. The tears on the little chicks made him think and he
created this.
https://www.youtube.com/watch?v=16p9YRF0l-g How to build your creative confidence | David Kelley
MRI Machine for Kids
Creative Confidence
• Every one is naturally creative

• Promotion of creativity strategies, needs to be developed.

Product and Service Designer Job
• Our job is to improve on every day life of common man.
• It is easy to solve the problems every one sees, hard to solve the problems that
almost no one sees. (Glass wipers, charge before use)
Principles of better product design could be
• Look broader / wider / larger look
• Look Closer / Detail / microscopic
• Products should be easy to install without and expert help
• Think Younger
https://www.youtube.com/watch?v=9uOMectkCCs The first secret of great design | Tony Fadell

• Tortoise and Hare storey again slow and steady-> fast and consistent -> Core
competency-> Team work
https://www.youtube.com/watch?v=kF4Bulj5bcs
Principles of Successful Product / Service
Design
• Translate customers' wants and needs,
• Refine existing products and services,
• Develop new products and services,
• Formulate quality goals,
• Formulate cost targets,
• Construct and test prototypes,
• Document specifications,
• Translate products and service specification into process
specifications
Product Design

involves all those activities

associated with developing
a product from concept
development to final
design and implementation
Product Design
Product Designs has to be different and better to win the market in any
of the following.
• Manufacturing and Distribution(ease and comfort)
• Customer (satisfy stated and implied needs )
• Environment (Care and preservation)
• For Innovation and inspiration only (Fashion)
• Outcomes (Performance / Results)
• Aesthetics and appearances
Principles of Successful Service Design
Service design is an activity of organizing and planning
• people,
• communication
• and material components
A service is anything that is done to or for a client and is created and
delivered simultaneously. The two most important issues in service
design:
• Degree of variation in requirements
• Degree of customer contact
Methods of production
• https://www.youtube.com/watch?v=ZQ0m2dmLLcM
Product Life Cycle
I II III IV
Product High Variety Increasing Emergence of High
Variety Standardisation dominant Standardisation
Design on Commodity
Characteristics
Product Low Increasing High High
Volume
Industry Small Fall out and Few Large Survivors
Structure Competitors consolidations Companies
Form of Product Quality and Price Price
Competition Characteristics Availability
 Product Process Matrix
Process Product I II III IV
Structure
Low Volume Multiple Few Major High Volume,
Low Quality (Std) Products, Low Products, High
One of the Kind Volume Low Volume Standardisation

I Jumbled Flow Printers

(Job Shop)
II Disconnect Heavy
Line Flow equipment's
(Batch)
III Connected Auto
Line flow Industry
(Assembly
Line)
IV Continuous Sugar Refinery
Flow
The Process Life Cycle
Manufa
cturing
Cost /
Unit Job Shop Batch Assembly Line Continuous Flow

Start Up Rapid Growth Maturity Commodity

Matrix of Service
Low Customer Contact High Customer Contact
Capital Intensive Quasi - Manufacturing Customer Shop Services

Automated area Housing Medical Treatment

Postal Services Chartered Travel
Labour Intensive Mass Services Professional Services
Teaching Legal Counselling
Live Entertainment Medical Diagnosis
Cafeteria Tutoring
Rigid Process Technology Flexible Process
Technology
The design consists of:
• Research,
• Design,
• Production,
• Life cycle,
• Safety in use,
• Reliability,
• Maintainability,
• Regulatory and
• Legal issues
Aspects of Sustainable Design
(1) Life Cycle Assessment
(2) Value Analysis
(3) Remanufacturing
(4) Recycling.
The 5 Senses Graph of Product Design

Touch Smell Sound

Session 5
Design of Process
Review of Sessions
Session 5
• Generate Process / Ideas/ Concepts
• Select ‘Best’ process ideas / concept
• Assess Process Risk / Process Control
• Detailed Process Design / Optimisation
• Launch Continuous improvement
Process Design
Why?
• Brickies Labourer carrying 22 bricks, Bangladesh
https://www.youtube.com/watch?v=2XNx_z2il-g
• This Is How You Lay Bricks
https://www.youtube.com/watch?v=5AuK_k980tk
• Understandings mismatch between leader and team
https://www.youtube.com/watch?v=g8bzuLe5p0k
• Funny Teamwork - Engagement
https://www.youtube.com/watch?v=4Rd9zQborxI
Construction Mistakes
https://www.youtube.com/watch?v=qPhVZExcGXg
What is process Design?
• ‘the process by which some functional
requirement of people is satisfied through the
shaping or configuration of the resources and/or
activities that compose a service, a product, or
the transformation process that creates and
delivers them’
Objectives of Process Design
• Quality
• Speed
• Flexibility
• Cost
• Dependability
Process flow performance.
● Throughput rate (or flow rate) is the rate at which units emerge from
the process, i.e. the number of units passing through the process per
unit of time.
● Throughput time is the average elapsed time taken for inputs to
move through the process and become outputs.
● The number of units in the process (also called the ‘work in process’
or in-process inventory), as an average over a period of time.
● The utilization of process resources is the proportion of available
time that the resources within the process are performing useful work.
Environmentally sensitive design
• The sources of inputs to a service or product.
• Quantities and sources of energy consumed in the process.
• The amounts and type of waste material that are created in the
processes.
• The life of the product itself. Discuss: It is argued that if a product has a useful life
of, say, twenty years, it will consume fewer resources than one that only lasts five years
• The end-of-life of the product.
Operations processes have different
characteristics
• Although all operations processes are similar in that they all
transform inputs, they do differ in a number of ways, four of which,
known as the four Vs, are particularly important:
● The volume of their output;
● The variety of their output;
● The variation in the demand for their output;
● The degree of visibility which customers have of the production of
their output.
Different process types imply different
volume–variety characteristics for the process
Operations process implications.
Profile of Operations
Competitive Factors
Process Mapping of Customised Sandwich
QFD / VOC / HOQ
Create Customer Value through Quality
Function Deployment (Yoji Akao 1970)
• Track and communicate • Deep understanding of needs
requirements • Prioritize resources and activities
• Provide a logical structure • Develop good matrices
• Obtain team “buy- in” at all stages • Integrate VOC into Product specs
• Innovate beyond VOC • Documenting requirements
• Reducing development time • Documenting and Prioritising
• Identify conflicting needs Needs
• Listening to your customers
• Ignore some customer needs
Quality Function Deployment / House of Quality:
Flowchart
(Customer Inspired Product Development)
VOC’s Intent and Goal is to:
• Understand Customers: Better than they understand themselves
• Determine in advance specifically How customer will judge product value then
design it in
• Obtain cross – functional agreements and “buy in” on the customer needs
(Marketing Engineering, Management, Manufacturing, Quality, etc…
• Translate customer needs into development goals and technical capabilities.
These are the performance metrics (CTQ’s(, concepts, design characteristics,
process parameters, production controls, etc. )
• Provide documented requirements traceability- Froward / Backward
traceability using “how / Why “ logic
• Provide logic and structure to the front end of product Development
• Prioritise Resources to work on the areas with the biggest impact on customer
and bottom line
Why QFD or VOC
Why QFD or VOC
Top Reasons for Product Delay or Failure
 House of Quality How to fulfil
customer
wants
Strong Positive: ++ We: Circle
Positive: + Correlations Competitor 1: Square
Negative: - between two Competitor 2: Triangle
Strong Negative: -- How
Importance Factor 1 Factor 2 Factor 3 Factor 4 Competition 1 2 3 4 5
of each want

W1 Relationship between
Customer Wants (each) and
W2
company resources /
W3 capabilities (each)
W4
Importance
List of Relationship
Target Strong: Circle (9)
What
Customer Evaluation Medium: Square (3)
Wants Weak: Triangle (1)
What customers want How to fulfil want
Location and Layout
The objectives of the location decision
● the spatially variable costs of the operation (spatially variable means
that something changes with geographical location);
● the service the operation is able to provide to its customers;
● the revenue potential of the operation.
Supply-side and demand-side factors in
location decisions
What is Layout
• The ‘layout’ of an operation or process means how its transformed
resources are positioned relative to each other and how its various
tasks are allocated to these transforming resources.
What makes a good layout?
• Inherent safety.
• Length of flow.
• Clarity of flow.
• Staff conditions.
• Management coordination.
• Accessibility.
• Use of space.
• Long-term flexibility.
The basic layout types
• Fixed-position layout
• Functional layout
• Cell layout
• Line layout (also called product layout)
The relationship between process types and
basic layout types
Thank you
 Session 6
Lean Management

1
Lean Management

2
TPS
• Toyota believes that both just-in-time and jidoka should be applied
ruthlessly to the elimination of waste, where waste is defined as
‘anything other than the minimum amount of equipment, items,
parts and workers that are absolutely essential to production’.

3
The Production Chain

4
Motivation for the introduction of a
resource-efficient manufacturing

5
Global Business GOING LEAN
What is Lean Manufacturing?
Lean manufacturing is a continuous way of producing what the
customer wants, when they want it, at a price they are prepared to
pay and using the least amount of resources.

The core idea behind lean is minimising waste, therefore creating more
value for customers with fewer resources

6
 Contd…
A company can reduce costs and keep prices low without adversely affecting
profits or quality by controlling the amount of waste generated during
production.
Estimates suggest that on an average 95 per cent of manufacturing activities
fall either under non-value adding time or non-value adding cost. Lean
manufacturing tries to minimise this waste and benefit consumers in the
form of lower prices. Toyota, the world’s largest car manufacturer, was the
first company to successfully adopt this model. The company’s steady
growth from a small company to the world’s largest automaker has made
the Japanese carmaker an acknowledged benchmark in lean
manufacturing. Thus, the lean manufacturing process is sometimes also
referred to as the Toyota Production System.

7
8
Lean Value Chain

9
10
11
12
13
14
15
16
Learnings from past

17
• Thank you

18
 Session 7
Location Management and SCM

1
 Location Strategy
• One of the most important decisions a firm
makes
• Increasingly global in nature
• Long term impact and decisions are
difficult to change
• The objective is to maximize the benefit of
location to the firm

2
 Location Decisions

• Long-term decisions
• Decisions made infrequently
• Decision greatly affects both fixed and
variable costs
• Once committed to a location, many
resource and cost issues are difficult to
change

3
 Location Decisions
Country Decision Critical Success Factors
• Political risks, government rules,
attitudes, incentives
• Cultural and economic issues
• Location of markets
• Labor availability, attitudes,
productivity, costs
• Availability of supplies,
communications, energy
• Exchange rates and currency risks
4
 Location Decisions
Critical Success Factors
Region/ • Corporate desires
Community • Attractiveness of region
Decision
• Labor availability, costs, attitudes towards
MN
unions
WI
• Costs and availability of utilities
MI
• Environmental regulations
IL OH
IN
• Government incentives and fiscal policies
• Proximity to raw materials and customers
• Land/construction costs 5
 Location Decisions
Site Decision Critical Success Factors

• Site size and cost

• Air, rail, highway, and waterway
systems
• Zoning restrictions
• Nearness of services/ supplies
needed
• Environmental impact issues
6
 Factors That Affect
Location Decisions
• Labor productivity
 Wage rates are not the only cost
 Lower productivity may increase total cost

Labor cost per day

= cost per unit
Productivity (units per day)

Connecticut Juarez

$70 $25
= $1.17 per unit = $1.25 per unit
60 units 20 units

7
 Factors That Affect
Location Decisions
• Exchange rates and currency risks
 Can have a significant impact on cost
structure
 Rates change over time
• Costs
 Tangible - easily measured costs such as
utilities, labor, materials, taxes
 Intangible - less easy to quantify and
include education, public transportation,
community, quality-of-life
8
 Factors That Affect
Location Decisions
• Attitudes
 National, state, local governments toward
private and intellectual property, zoning,
pollution, employment stability
 Worker attitudes towards turnover, unions,
absenteeism
 Globally cultures have different attitudes
towards punctuality, legal, and ethical
issues

9
 Factors That Affect
Location Decisions
• Proximity to markets
 Very important to services
 JIT systems or high transportation costs
may make it important to manufacturers
• Proximity to suppliers
 Perishable goods, high transportation
costs, bulky products

10
 Factors That Affect
Location Decisions

• Proximity to competitors
 Called clustering
 Often driven by resources such as natural,
information, capital, talent
 Found in both manufacturing and service
industries

11
 Factor-Rating Method
• Popular because a wide variety of factors can be included
in the analysis
• Six steps in the method
 Develop a list of relevant factors called critical success factors
 Assign a weight to each factor
 Develop a scale for each factor
 Score each location for each factor
 Multiply score by weights for each factor for each location
 Recommend the location with the highest point score

12
 Factor-Rating Example
Critical Scores
Success (out of 100) Weighted Scores
Factor Weight France Denmark France Denmark
Labor
availability
and attitude .25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0
People-to
car ratio .05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0
Per capita
income .10 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0
Tax structure .39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3
Education
and health .21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7
Totals 1.00 70.4 68.0

13
 Locational
Break-Even Analysis
• Method of cost-volume analysis used for
industrial locations
• Three steps in the method
 Determine fixed and variable costs for
each location
 Plot the cost for each location
 Select location with lowest total cost for
expected production volume

14
 Locational Break-Even Analysis
Example
Three locations:

Fixed Variable Total

City Cost Cost Cost
Akron $30,000 $75 $180,000
Bowling Green $60,000 $45 $150,000
Chicago $110,000 $25 $160,000
Selling price = $120
Expected volume = 2,000 units

Total Cost = Fixed Cost + Variable Cost x Volume

15
 Locational Break-Even Analysis
Example
–
$180,000 –
–
$160,000 –
$150,000 –
–
$130,000 –
–
Annual cost

$110,000 –
–
–
$80,000 –
–
$60,000 –
–
–
Akron Chicago
$30,000 – lowest
Bowling Green
lowest cost
– cost
lowest cost
$10,000 –
|
– | | | | | |
0 500 1,000 1,500 2,000 2,500 3,000
Volume 16
 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)

17
 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

18
 Center-of-Gravity Method
∑dixQi
i
x - coordinate =
∑Qi
i

∑diyQi
i
y - coordinate =
∑Qi
i

where dix = x-coordinate of location i

diy = y-coordinate of location i
Qi = Quantity of goods moved to or
from location i
19
 Center-of-Gravity Method
North-South
New York (130, 130)
Chicago (30, 120)
120 –
Pittsburgh (90, 110)
90 –

60 –

30 –
Atlanta (60, 40)

|– | | | | |
East-West
30 60 90 120 150
Arbitrary
origin
20
 Center-of-Gravity Method
Number of Containers
Store Location Shipped per Month
Chicago (30, 120) 2,000
Pittsburgh (90, 110) 1,000
New York (130, 130) 1,000
Atlanta (60, 40) 2,000

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

x-coordinate =
2000 + 1000 + 1000 + 2000
= 66.7
(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)
y-coordinate =
2000 + 1000 + 1000 + 2000
= 93.3
21
 Center-of-Gravity Method
North-South
New York (130, 130)
Chicago (30, 120)
120 –
Pittsburgh (90, 110)
90 – + Center of gravity (66.7, 93.3)

60 –

30 –
Atlanta (60, 40)

|– | | | | |
East-West
30 60 90 120 150
Arbitrary
origin
22
 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

23
Worldwide Distribution of
Volkswagens and Parts

Figure 8.4
24
 Service Location Strategy
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

25
What is Supply Network Management
• Supply Chain Management
• Managing Chain of Supplies
• Coordinating and executing timely Input and output to customers
• Right quantity, at right time, to right customer…..

26
Michael Dell
• Dell started in 1984
• The company used to buy unused stock of PCs from local dealers, add
components, and re-sell the higher-specification machines to local
businesses. This model revolutionized the industry’s supply network
management.
• To win over the cost disadvantage against its far bigger competitors,
they decided to sell its computers direct to its customers, bypassing
retailers. This allowed the company to cut out the retailer’s (often
considerable) margin, which in turn allowed Dell to offer lower prices.

27
 Contd…
• However, what is right at one time may become a liability later on.
Two decades later Dell’s growth started to slow down. The irony of
this is that, what had been one of the company’s main advantages, its
direct sales model using the Internet and its market power to squeeze
price reductions from suppliers, were starting to be seen as
disadvantages. Although the market had changed, Dell’s operating
model had not.
• What all commentators agreed on was that in the fast-moving and
cut-throat computer business, where market requirements could
change overnight, operations resources must constantly develop
appropriate new capabilities.

28
The Supply Network Perspective

Supplier’s
Supplier Customer Customer
Supplier Manufacturing
Or or Or
Or / production
First Tier facility First – Tier- Second – Tier-
Second- tier-
Supplier Customer Customer
supplier

Mumbai Dabbawalas: https://www.youtube.com/watch?v=N25inoCea24

29
Why Consider the Whole Supply Network?
• It helps an understanding of competitiveness
• It helps identify significant links in the network
• It helps focus on long-term issues
• It helps focus on cost

30
Designing and Managing Supply Networks
• Quality
• Speed
• Dependability
• Flexibility
• Cost

31
Supply Network Design
1 Who should do what in the network? How many steps should there be in
the network? What is the role of customers, suppliers, complementors and
competitors? This is called the network shape decision.

2 How much of the network should the operation own? This is called the do-
or-buy, outsourcing or vertical integration decision.

3 How should supply networks be configured when operations compete in

different ways in different markets? This is called the supply network
matching decision.

32
The Network Shape Decision
• Supply base reduction (Short Vs Long)
• Disintermediation Another trend in some supply networks is that of
companies within a network bypassing customers or suppliers to
make contact directly with customers’ customers or suppliers’
suppliers. ‘Cutting out the middlemen’ in this way is called
disintermediation.
• Co-opetition: All the players in the supply network, whether they are
customers, suppliers, competitors or complementors, can be both
friends and enemies at different times. The term used to capture this
idea is ‘co-opetition’.

33
‘Do or buy’ decision
• Deciding what to do itself in-house and what to outsource is often
called the ‘do or buy’ decision.

• The reason for doing this is often primarily to reduce cost. However,
there can also be significant gains in the quality and flexibility of
service offered.

34
 Contd…
• The direction of vertical integration.
Should an operation expand by buying one of its suppliers or by buying one
of its customers? The strategy of expanding on the supply side of the
network is sometimes called ‘backward’ or ‘upstream’ vertical integration,
and expanding on the demand side is sometimes called ‘forward’ or
‘downstream’ vertical integration.
• The extent of vertical integration.
How far should an operation take the extent of its vertical integration? Some
organizations deliberately choose not to integrate far, if at all, from their
original part of the network. Alternatively, some organizations choose to
become very vertically integrated.
• The balance among stages.
A totally balanced network relationship is one where an operation produces
only for the next stage in the network and totally satisfies its requirements.

35
Supply Network Alignment
• Efficient supply network policies : The supply network policies which
are seen to be appropriate for functional services and products
• Responsive supply network policies: The supply network policies
which are seen to be appropriate for innovative services and products

Efficient supply network policies include keeping inventories low,

especially in the downstream parts of the network, so as to maintain
fast throughput and reduce the amount of working capital tied up in
the inventory.

36
Types of Relationships in Supply Networks
• We can distinguish between relationships that are the final link in the
supply network, involving the ultimate consumer, and those involving
two commercial businesses. So,
• Business-to-business (B2B)
• Business-to-consumer (B2C)
• Consumer-to-business (C2B)
• Customer-to-customer (C2C) or peer-to-peer (P2P) relationships

37
Selecting Suppliers
• Choosing appropriate suppliers should involve trading off alternative
attributes. Rarely are potential suppliers so clearly superior to their
competitors that the decision is self-evident.

• An important decision facing most purchasing managers is whether to

source each individual product or service from one or more than one
supplier, known, respectively, as single-sourcing and multi-sourcing.

38
Supply Network Dynamics
• The ‘bullwhip effect’ is used to describe how a small disturbance at
the downstream end of a supply network causes increasingly large
disturbances, errors, inaccuracies and volatility as it works its way
upstream.
• Its main cause is an understandable desire by the different links in the
supply network to manage their production rates and inventory levels
sensibly.

39
Thank you

40
Layout Management
Session 8

1
Innovations at McDonald’s

• Indoor seating (1950s)

• Drive-through window (1970s)
• Adding breakfast to the menu
(1980s)
• Adding play areas (1990s)

Three out of the four are layout

decisions!
2
 McDonald’s New Kitchen
Layout
• Fifth major innovation
• Sandwiches assembled in order
• Elimination of some steps, shortening of others
• No food prepared ahead except patty
• New bun toasting machine and new bun formulation
• Repositioning condiment containers
• Savings of $100,000,000 per year in food costs

3
Strategic Importance of Layout
Decisions

• The objective of layout strategy is to

develop an economic layout that will
meet the firm’s competitive
requirements

4
Layout Design Considerations
• Higher utilization of space, equipment,
and people
• Improved flow of information, materials,
or people
• Improved employee morale and safer
working conditions
• Improved customer/client interaction
• Flexibility
5
 Types of Layout
1. Office layout
2. Retail layout
3. Warehouse layout
4. Fixed-position layout
5. Process-oriented layout
6. Work cell layout
7. Product-oriented layout

6
 Types of Layout
1. Office layout - positions workers, their
equipment, and spaces/offices to provide
for movement of information
2. Retail layout - allocates shelf space and
responds to customer behavior
3. Warehouse layout - addresses trade-offs
between space and material handling

7
 Types of Layout
4. Fixed-position layout - addresses the
layout requirements of large, bulky
projects such as ships and buildings
5. Process-oriented layout - deals with low-
volume, high-variety production (also
called job shop or intermittent production)

8
 Types of Layout
6. Work cell layout - a special arrangement of
machinery and equipment to focus on
production of a single product or group of
related products
7. Product-oriented layout - seeks the best
personnel and machine utilizations in
repetitive or continuous production

9
 Good Layouts Consider
1. Material handling equipment
2. Capacity and space requirements
3. Environment and aesthetics
4. Flows of information
5. Cost of moving between various work
areas

10
 Office Layout
• Grouping of workers, their equipment, and
spaces to provide comfort, safety, and
movement of information
• Movement of information is main
distinction
• Typically in state of flux due to frequent
technological changes

11
 Relationship Chart
Value Closeness
Absolutely
1 A
necessary
President 2
Especially
O 3 E
important
Chief Technology Officer U 4
A A 5 I Important
Engineer’s area I I 6 O Ordinary OK
O I I 7
Secretary I I U 8 U Unimportant
A I O O 9 X Not desirable
Office entrance A E U O
X E E U
Central files U A O
O U I
Equipment cabinet O X
U A
Photocopy equipment E
E
Storage room
12
Supermarket Retail Layout

• Objective is to maximize profitability

per square foot of floor space
• Sales and profitability vary directly
with customer exposure

13
 Five Helpful Ideas for
Supermarket Layout
1. Locate high-draw items around the
periphery of the store
2. Use prominent locations for high-impulse
and high-margin items
3. Distribute power items to both sides of an
aisle and disperse them to increase
viewing of other items
4. Use end-aisle locations
5. Convey mission of store through careful
positioning of lead-off department 14
Store Layout

15
 Servicescapes
• Ambient conditions - background
characteristics such as lighting, sound,
smell, and temperature
• Spatial layout and functionality - which
involve customer circulation path
planning, aisle characteristics, and product
grouping
• Signs, symbols, and artifacts -
characteristics of building design that carry
social significance
16
 Retail Slotting
• Manufacturers pay fees to retailers to get
the retailers to display (slot) their product
• Contributing factors
• Limited shelf space
• An increasing number of new products
• Better information about sales through POS
data collection
• Closer control of inventory

17
 Retail Store Shelf Space
Planogram
5 facings
• Computerized tool
for shelf-space

Shampoo

Shampoo

Shampoo

Shampoo

Shampoo
management
• Generated from
store’s scanner data
on sales

Conditioner
Shampoo

Shampoo

Shampoo

Shampoo
Conditioner

Conditioner
• Often supplied by
manufacturer

2 ft.
18
 Warehousing and Storage
Layouts
• Objective is to optimize trade-offs
between handling costs and costs
associated with warehouse space
• Maximize the total “cube” of the
warehouse – utilize its full volume while
maintaining low material handling costs

19
 Warehousing and Storage
Layouts
Material Handling Costs
• All costs associated with the transaction
• Incoming transport
• Storage
• Finding and moving material
• Outgoing transport
• Equipment, people, material, supervision,
insurance, depreciation
• Minimize damage and spoilage
20
 Warehousing and Storage
Layouts
• Warehouse density tends to vary inversely
with the number of different items stored
• Automated Storage and Retrieval Systems
(ASRS) can significantly improve
warehouse productivity
• Dock location is a key design element

21
 Cross-Docking
• Materials are moved directly from
receiving to shipping and are not placed
in storage in the warehouse
• Requires tight scheduling and accurate
shipments, typically with bar code
identification

22
 Random Stocking
• Typically requires automatic identification
systems (AISs) and effective information
systems
• Random assignment of stocking locations
allows more efficient use of space
• Maintain list of open locations
• Maintain accurate records
• Sequence items to minimize travel time
• Combine picking orders
• Assign classes of items to particular areas

23
 Customization
• Value-added activities performed at the
warehouse
• Enable low cost and rapid response
strategies
• Assembly of components
• Loading software
• Repairs
• Customized labeling and packaging

24
 Warehouse Layout
Traditional Layout

Storage racks

Customization

Conveyor

Staging
Office

Shipping and receiving docks 25

 Warehouse Layout
Cross-Docking Layout

Shipping and receiving docks

Office
Shipping and receiving docks

26
 Fixed-Position Layout
• Product remains in one place
• Workers and equipment come to site
• Complicating factors
• Limited space at site
• Different materials required at different
stages of the project
• Volume of materials needed is dynamic

27
 Alternative Strategy

As much of the project as possible is

completed off-site in a product-oriented
facility

This can significantly improve efficiency

but is only possible when multiple similar
units need to be created

28
 Process-Oriented Layout

• Like machines and equipment are

grouped together
• Flexible and capable of handling a wide
variety of products or services
• Scheduling can be difficult, and setup,
material handling, and labor costs can be
high

29
 Computer Software
• Graphical approach only works for small
problems
• Computer programs are available to solve
bigger problems
• CRAFT
• ALDEP
• CORELAP
• Factory Flow

30
 Work Cells
• Reorganizes people and machines into
groups to focus on single products or
product groups
• Group technology identifies products that
have similar characteristics for particular
cells
• Volume must justify cells
• Cells can be reconfigured as designs or
volume changes

31
 Advantages of Work Cells
1. Reduced work-in-process inventory
2. Less floor space required
3. Reduced raw material and finished goods
inventory
4. Reduced direct labor
5. Heightened sense of employee
participation
6. Increased use of equipment and
machinery
7. Reduced investment in machinery and
equipment
32
 Improving Layouts Using
Work Cells

Current layout - workers in

small closed areas. Cannot
increase output without a third
worker and third set of
equipment. Improved layout - cross-trained workers
can assist each other. May be able to
add a third worker as additional output
is needed.

33
 Improving Layouts Using
Work Cells

Current layout - straight lines

make it hard to balance tasks Improved layout - in U shape,
because work may not be divided workers have better access.
evenly Four cross-trained workers were
reduced.

U-shaped line may reduce employee movement and

space requirements while enhancing communication,
reducing the number of workers, and facilitating
inspection
34
 Requirements of Work Cells
1. Identification of families of products
2. A high level of training and flexibility on
the part of employees
3. Either staff support or flexible,
imaginative employees to establish work
cells initially
4. Test (poka-yoke) at each station in the cell

35
 Repetitive and Product-
Oriented Layout
Organized around products or families of similar
high-volume, low-variety products
• Volume is adequate for high equipment
utilization
• Product demand is stable enough to justify high
investment in specialized equipment
• Product is standardized or approaching a phase
of life cycle that justifies investment
• Supplies of raw materials and components are
36
adequate and of uniform quality
 Product-Oriented Layouts
• Fabrication line
• Builds components on a series of machines
• Machine-paced
• Require mechanical or engineering changes to
balance
• Assembly line
• Puts fabricated parts together at a series of
workstations
• Paced by work tasks
• Balanced by moving tasks
• Both types of lines must be balanced so that the time to
37
perform the work at each station is the same
 Product-Oriented Layouts
Advantages
1. Low variable cost per unit
2. Low material handling costs
3. Reduced work-in-process inventories
4. Easier training and supervision
5. Rapid throughput
Disadvantages
1. High volume is required
2. Work stoppage at any point ties up the whole
operation
3. Lack of flexibility in product or production rates
38
 Assembly-Line Balancing
• Objective is to minimize the imbalance
between machines or personnel while
meeting required output
• Starts with the precedence relationships
1. Determine cycle time
2. Calculate theoretical minimum number of
workstations
3. Balance the line by assigning specific tasks
to workstations

39
 Copier Example
Performance Task Must Follow
Time Task Listed
Task (minutes) Below
A 10 —
B 11 A This means that
C 5 B tasks B and E
cannot be done
D 4 B until task A has
E 12 A been completed
F 3 C, D
G 7 F
H 11 E
I 3 G, H
Total time 66

40
 Copier Example
Performance Task Must Follow
Time Task Listed
Task (minutes) Below
A 10 —
B 11 A
C 5 B
D 4 B
E 12 A
F 3 C, D 5

G 7 F 10 11
C
3 7
H 11 E
A B F G
I 3 G, H 4
3
Total time 66 12
D
11 I
E H

Figure 9.13 41
Thank you

42
 Session 9
Capacity Management
Agenda
• Discuss Assessment 2 submission
• What is capacity
• Cost of capacity
• Planning Capacity
Capacity
• Constituents of Capacity Planning
https://www.youtube.com/watch?v=hq5TlzkPNU0
What is capacity
• Capacity is the upper limit or ceiling on the load that an operating unit can
handle
• The capacity of a business is a measure of how much output it can achieve
in a given period.
• Capacity also includes
• Equipment
• Space
• Employee Skills
The basic questions in capacity handling are
What kind of capacity is needed?
How much is needed?
When is it needed?
Importance of Capacity Decisions
• It is a useful measure of productive efficiency: Higher the output rate
reduces the unit cost
• To meet future demands
• Affects operating costs
• Major determinant of initial costs
• Involves long term commitment
• Affects competitiveness
• Affects ease of management
• Globalisation adds complexity
• Impacts long range planning
Capacity
• Design Capacity
• Maximum output rate or service capacity an operation , process, or facility is
designed for
• Effective Capacity
• Design capacity minus allowances such as personal time, maintenance and
scrap
• Actual Output
• Rate of output actually achieved (Cannot exceed effective capacity)
Efficiency and Utilisation

Actual Output
Efficiency = 100 *
Effective Capacity

Actual Output
Utilisation = 100 *
Design Capacity
Determinants of Effective Capacity
• Facilities
• Product and services Factor
• Process Factor
• Human Factor
• Policy Factor
• Operational Factor
• Supply Chain Factors
• External Factors
Cost of Capacity
• Since capacity is all about the output a business can achieve, it is easy
to see what costs are involved in making that capacity available.

• Equipment: Machines, Technology, Material Handling tools, Assembly line….

• Facility: Location, Layout, Overhead costs… fringe benefit
• Labour: Wages, Skills, other benefits….
Capacity is a dynamic concept
• Capacity can change if
• Machine is under maintenance reduces the capacity
• More working shifts increases the capacity
• Capacity Management also needs to pay attention on
• Seasonal Changes
• Unexpected Changes
Why business run below capacity (utilisation
<100%)
Reason Example
Lower than expected market A change in customer tastes
demand
A loss of market share Competitors gain customers
Seasonal variations in demand Weather changes lead to lower
demand
Recent increase in capacity A new production line has been
added
Maintenance and repair Capacity is temporarily
programmes unavailable
Disadvantages of Operating at Low capacity
Utilisation
• Higher unit costs.
• Less likely to reach breakeven outputs.
• Capital tied up in under-utilised assets.
Disadvantages of running business at High
Capacity
• Negative effect on Quality (Possibly)
• Production is rushed
• Less time for quality control
• Employees Suffer
• Adds workloads and Stress
• Demotivating if sustained for too long
• Loss of Sales
• Less able to meet sudden or unexpected increases in demand
• Production equipment may require repair
The objectives of capacity management
● Quality of services or products might be affected
● Speed of response to customer demand could be enhanced,
● Dependability of supply will also be affected by how close demand
levels are to capacity.
● Flexibility, especially volume flexibility,
● Costs will be affected by the balance between capacity and demand.
● Revenues will also be affected by the balance between capacity and
demand,
● Working capital will be affected if an operation decides to build up
finished goods inventory prior to demand.
The steps of capacity management
• First step: measure the aggregate demand and capacity levels for the
planning period.
• The second step: identify the alternative capacity plans which could
be adopted in response to the demand fluctuations.
• The third step: choose the most appropriate capacity plan for their
circumstances.
Steps for Capacity Planning Application
• Estimate future capacity requirements
• Evaluate existing capacity
• Identity alternatives
• Conduct financial analysis
• Assess key qualities issues
• Select one alternative
• Implement alternative chosen
• Monitor results
Planning Services Capacity
• Need to be near customer
• Capacity and location are closely tied
• Inability to store services
• Capacity must be matched with timing of demand
• Degree of Volatility of Demand
• Peak demand periods
Measuring Capacity in terms of I/P and O/P
Capacity Management and Demand Forecast
• It is expressed in terms which are useful for capacity management
• It is as accurate as possible
• It gives an indication of
relative uncertainty
• Seasonality of demand
Operating Equipment Effectiveness

How to solve Capacity Management Problems: https://www.youtube.com/watch?v=HPMRjFEacoQ

Factory Capacity Measurement
Problem 1
Suppose an air-conditioner factory produces three different models of
air-conditioner unit: the deluxe, the standard and the economy. The
deluxe model can be assembled in 1.5 hours, the standard in 1 hour
and the economy in 0.75 hour. The assembly area in the factory has
800 staff hours of assembly time available each week. If demand for
deluxe, standard and economy units is in the ratio 2:3:2, how many
units the factory will be able to produce?
 Contd…
Solution:
• The time needed to assemble 2 + 3 + 2 = 7 units is
: (2 × 1.5) + (3 × 1) + (2 × 0.75) = 7.5 hours
• The number of units produced per week is
: (800 /7.5) × 7 = 746.7 units

If demand changes to a ratio of de luxe, economy, standard units of

1:2:4,
• The time needed to assemble 1 + 2 + 4 = 7 units is
: (1 × 1.5) + (2 × 1) + (4 × 0.75) = 6.5 hours
• Now the number of units produced per week is
: (800 / 6.5) × 7 = 861.5 units
Machines Capacity Measurement
Problem 2)
In a typical 7-day period, the planning department programmes a
particular machine to work for 150 hours – its loading time.
Changeovers and set-ups take an average of 10 hours and breakdown
failures average 5 hours every 7 days.
The time when the machine cannot work because it is waiting for
material to be delivered from other parts of the process is 5 hours on
average and during the period when the machine is running, it
averages 90 per cent of its rated speed.
Three per cent of the parts processed by the machine are subsequently
found to be defective in some way. What is the capacity of the
machine?
Solution
Condt…
Maximum time available = 7 × 24 hours = 168 hours
Design Capacity:
Loading time = 150 hours
Effective Capacity:
Availability losses = 10 hours (set-ups) + 5 hrs (breakdowns) = 15 hours
So, Total operating time = Loading time − Availability = 150 hours − 15 hours = 135 hours
Actual Capacity
Speed losses = 5 hours (idling) + ((135 − 5) × 0.1)(10% of remaining time) = 18 hours
So, Net operating time = Total operating time − Speed losses = 135 − 18 = 117 hours
Quality losses = 117 (Net operating time) × 0.03 (Error rate) = 3.51 hours So,
Valuable operating time = Net operating time − Quality losses = 117 − 3.51 = 113.49 hours

Therefore,
availability rate = a = Total operating time/ Loading time = 135/ 150 = 90% and,
performance rate = p = Net operating time /Total operating time = 117 /135 = 86.67 and
quality rate = q = Valuable operating time Net operating time = 113.49 117 = 97%
Operational Equipment Effectiveness (a × p × q) = 75.6%
The alternative capacity plans
Level capacity plan :Ignore the fluctuations and keep activity levels
constant
Chase demand plan: Adjust capacity to reflect the fluctuations in
demand
Overtime and idle time
Varying the size of the workforce
Using part-time staff
Subcontracting
Demand management: Attempt to change demand to fit capacity
availability
Evaluate alternatives
• Break Even Point
Thank you
 Session 10
Inventory Management
 Agenda
What is inventory?
What are the reasons for holding
inventory and What are the
disadvantages ?
How much inventory should an
operation hold?
When should an operation replenish
its inventory?
How can inventory be managed?
Inventory
 Inventory Management - An
Introduction

• Frito Lay - Inventory Management

https://www.youtube.com/watch?v=TwcRQactKas
 Inventory is created to compensate
for the differences in timing between
supply and demand
Rate of supply from
input process

Rate of demand from

Inventory output process

Input Output
process process
Inventory
 Single-stage and two-stage
inventory systems
Single-stage Two-stage inventory
inventory system system

Stock Sales Central Distribution Local Sales

operation depot distribution operation
point

Suppliers Suppliers
e.g. Local retail store e.g. Automotive parts
distributor
 A Multi-stage inventory system

Input Stage WIP Stage WIP Stage Finished

Stock 1 2 3 goods
stock

Suppliers

e.g. Television manufacturer

Inventory profiles chart the variation
in inventory level
predictable
Order demand (D)
quantity = Q Slope = demand rate (D)
Steady and

Average inventory
Inventory level
=2Q

Q
D Time

Q
Inventory Management
The objective of inventory management is to strike a
balance between inventory investment and
customer service.
It can be defined as stored accumulation of
resources in a transformation system.
When it is customers who are being processed we
normally refer to these ‘stocks’ as ‘queues’.
Household Inventory
• Most families have some stocks of food and drinks, so
that they don’t have to go out to the shops before
every meal
• Some people are short of available cash and/or space,
and so cannot ‘invest’ in large inventories of goods
• How we control our own supplies is therefore a
matter of choice which can affect their quality (e.g.
freshness), availability or speed of response,
dependability of supply, flexibility of choice, and cost.
Why Inventory
Importance of Inventory

 One of the most expensive assets of

many companies representing as
much as 50% of total invested capital
 Operations managers must balance
inventory investment and customer
service
Functions of Inventory
1. To decouple or separate various
parts of the production process
2. To decouple the firm from
fluctuations in demand and provide a
stock of goods that will provide a
selection for customers
3. To take advantage of quantity
discounts
4. To hedge against inflation
Types of Inventory
 Raw material
 Purchased but not processed
 Work-in-process
 Undergone some change but not
completed
 A function of cycle time for a
product
 Contd…

Maintenance/repair/operating (MRO)
Necessary to keep machinery and processes
productive
Finished goods
Completed product awaiting shipment
The Material Flow Cycle

Cycle time

95% 5%

Input Wait for Wait to Move Wait in queue Setup Run Output
inspection be moved time for operator time time
Level of Inventory
Managing Inventory

1. How inventory items can be classified

2. How accurate inventory records can
be maintained
Approaches to Inventory
Management
• The Just-in-Time (JIT) Approach
• Four major elements underlie the JIT approach.
• zero inventories (?)
• short, consistent lead times
• small, frequent replenishment quantities
• high quality, or zero defects
• Materials Requirements Planning
• Deals specifically with supplying materials and
component parts whose demand depends on the demand
for a specific end product.
 Contd…
• Consists of a set of logically related procedures,
decision rules, and records designed to translate a
master production schedule into time-phased net
inventory requirements and the planned coverage of
such requirements for each component item, needed to
implement this plan.
• Uses the following elements:
• Master production schedule (MPS)
• Bill of materials file (BOM)
• Inventory status file (ISF)
• MRP program
• Outputs and reports
An MRP System
Inventory Control Techniques
• ABC analysis (annual Value)
• XYZ Analysis (Current Value in store)
• VED Analysis (Vital, Essential, Desirable)
• FSN Analysis (Fast, Slow, Not Moving)
• HML analysis (High Value, Medium Value, Low Value based on
Unit Value of the item)
• SDE Analysis (Scarce, Difficulty to Produce, Easy to Produce)
• SOS Analysis (Seasonal and Off Seasonal)
• GOLF Analysis (Govt, Open Mkt, Local, Foreign Source)
Quadrant Model (another
technique to classify inventory)
ABC Analysis
 Divides inventory into three classes
based on annual dollar volume
 Class A - high annual dollar volume
 Class B - medium annual dollar volume
 Class C - low annual dollar volume
 Used to establish policies that focus
on the few critical parts and not the
many trivial ones
 ABC Analysis
Percent
Item of Percent
Stock Number Annual Annual of Annual
Numbe of Items Volume Unit Dollar Dollar Clas
r Stocked (units) x Cost = Volume Volume s

#10286 20% 1,000 $ 90.00 $ 90,000 38.8% A

72%
#11526 500 154.00 77,000 33.2% A

#12760 1,550 17.00 26,350 11.3% B

23%
#10867 30% 350 42.86 15,001 6.4% B

#10500 1,000 12.50 12,500 5.4% B

 ABC Analysis
Percent
Item of Percent
Stock Number Annual Annual of Annual
Numbe of Items Volume Unit Dollar Dollar Clas
r Stocked (units) x Cost = Volume Volume s

#12572 600 $ 14.17 $ 8,502 3.7% C

#14075 2,000 .60 1,200 .5% C

5%
#01036 50% 100 8.50 850 .4% C

#01307 1,200 .42 504 .2% C

#10572 250 .60 150 .1% C

ABC Analysis

Percent of annual dollar usage

A Items
80 –
70 –
60 –
50 –
40 –
30 –
20 – B Items
10 – C Items
0 – | | | | | | | | | |

10 20 30 40 50 60 70 80 90 100
Percent of inventory items
Pareto curve for stocked items

Percentage of value of items

100
90
80
70
60
50

40 Class A Class B Class C

items items items
30
20
10

10 20 30 40 50 60 70 80 90 100

Percentage of types of items

Inventory classifications and measures

Class B items – the

Class A items – the next 30% or so of
medium-value items
20% or so of high-
value items which which account for
account for around around 10% of the
80% of the total total stock value
stock value
Class C items – the
remaining 50% or so
of low-value items
which account for
around the last 10%
of the total stock
value
ABC Analysis

 Other criteria than annual dollar

volume may be used
 Anticipated engineering changes
 Delivery problems
 Quality problems
 High unit cost
ABC Analysis

 Policies employed may include

 More emphasis on supplier
development for A items
 Tighter physical inventory control for A
items
 More care in forecasting A items
Record Accuracy
 Accurate records are a critical ingredient
in production and inventory systems
 Allows organization to focus on what is
needed
 Necessary to make precise decisions
about ordering, scheduling, and shipping
 Incoming and outgoing record keeping
must be accurate
 Stockrooms should be secure
Cycle Counting
 Items are counted and records updated
on a periodic basis
 Often used with ABC analysis
to determine cycle
 Has several advantages
1. Eliminates shutdowns and interruptions
2. Eliminates annual inventory adjustment
3. Trained personnel audit inventory
accuracy
4. Allows causes of errors to be identified
and corrected
5. Maintains accurate inventory records
Cycle Counting Example
5,000 items in inventory, 500 A items, 1,750 B items,
2,750 C items
Policy is to count A items every month (20 working
days), B items every quarter (60 days), and C items
every six months (180 days)
Item Number of Items
Class Quantity Cycle Counting Policy Counted per Day
A/ 5 500 Each month 500/20 = 25/day
B/ 4 1,750 Each quarter 1,750/60 = 29/day
C/ 3 2,750 Every 6 months 2,750/180 = 16/day
70/day
Control of Service Inventories
 Can be a critical component
of profitability
 Losses may come from
shrinkage or pilferage
 Applicable techniques include
1. Good personnel selection, training,
and discipline
2. Tight control on incoming shipments
3. Effective control on all goods leaving
facility
Independent Vs Dependent
Demand
 Independent demand - the
demand for item is independent of
the demand for any other item in
inventory
 Dependent demand - the
demand for item is dependent
upon the demand for some other
item in the inventory
Amazone Inventory Management
• Amazone Inventory Management
• https://www.youtube.com/watch?v=dAXdeqcHBp4
• Inventory Handling at the floor of Amazone
• https://www.youtube.com/watch?v=wC4vITSVXoA
Inventory Costs
Holding, Ordering, and Setup
Costs
 Holding costs - the costs of holding
or “carrying” inventory over time
 Ordering costs - the costs of placing
an order and receiving goods
 Setup costs - cost to prepare a
machine or process for manufacturing
an order
Inventory Costs
• https://www.youtube.com/watch?v=qkZQxXJuqKo
Holding Costs
Cost (and range)
as a Percent of
Category Inventory Value
Housing costs (building rent or 6% (3 - 10%)
depreciation, operating costs, taxes,
insurance)
Material handling costs (equipment lease or 3% (1 - 3.5%)
depreciation, power, operating cost)
Labor cost 3% (3 - 5%)
Investment costs (borrowing costs, taxes, 11% (6 - 24%)
and insurance on inventory)
Pilferage, space, and obsolescence 3% (2 - 5%)
Overall carrying cost 26%

Table 12.1
Holding Costs
Cost (and range)
as a Percent of
Category Inventory Value
Housing costs (building rent or 6% (3 - 10%)
depreciation, operating costs, taxes,
insurance)
Material handling costs (equipment lease or 3% (1 - 3.5%)
depreciation, power, operating cost)
Labor cost 3% (3 - 5%)
Investment costs (borrowing costs, taxes, 11% (6 - 24%)
and insurance on inventory)
Pilferage, space, and obsolescence 3% (2 - 5%)
Overall carrying cost 26%

Table 12.1
Traditional view of inventory-related costs
400

350

300

250 Total costs

Costs

200

150 Holding costs

100
Order costs
50
Economic order
quantity (EOQ)

50 100 150 200 250 300 350 400

Order quantity
If the true costs of stock holding are taken into account, and if the
cost of ordering (or changeover) is reduced, the economic order
quantity ( EOQ) is much smaller

Revised total
costs Revised
holding
costs
Costs

Original total
costs

Original
holding costs
Original order
costs

Revised order
costs
Revised Original
EOQ EOQ Order quantity
Inventory Models for Independent
Demand
Need to determine when and how
much to order

1. Economic Order Quantity

Basic EOQ Model
Important assumptions
1. Demand is known, constant, and independent
2. Lead time is known and constant
3. Receipt of inventory is instantaneous and
complete
4. Quantity discounts are not possible
5. Only variable costs are setup and holding
6. Stockouts can be completely avoided
 Inventory Usage Over Time

Usage rate Average

Order inventory
Inventory level
quantity = Q on hand
(maximum
Q
inventory
level) 2

Minimum
inventory

0
Time

Figure 12.3
Minimizing Costs
Objective is to minimize total costs
Total cost of
holding and
setup (order)

Minimum
total cost
Annual cost

Holding cost

Setup (or order)

cost
Optimal order Order quantity
quantity (Q*)
Table 12.4(c)
The EOQ Model Annual setup cost =
D
Q
S

Q = Number of pieces per order

Q* = Optimal number of pieces per order (EOQ)
D = Annual demand in units for the inventory item
S = Setup or ordering cost for each order
H = Holding or carrying cost per unit per year

Annual setup cost = (Number of orders placed per year)

x (Setup or order cost per order)

Annual demand Setup or order

=
Number of units in each order cost per order

= D (S)
Q
The EOQ Model Annual setup cost =
D
Q
S
Q
Q = Number of pieces per order Annual holding cost = H
2
Q* = Optimal number of pieces per order (EOQ)
D = Annual demand in units for the inventory item
S = Setup or ordering cost for each order
H = Holding or carrying cost per unit per year

Annual holding cost = (Average inventory level)

x (Holding cost per unit per year)

Order quantity
= (Holding cost per unit per year)
2

= Q (H)
2
The EOQ Model Annual setup cost =
D
Q
S
Q
Q = Number of pieces per order Annual holding cost = H
2
Q* = Optimal number of pieces per order (EOQ)
D = Annual demand in units for the inventory item
S = Setup or ordering cost for each order
H = Holding or carrying cost per unit per year

Optimal order quantity is found when annual setup cost

equals annual holding cost

D Q
S = H
Q 2
Solving for Q*
2DS = Q2H
Q2 = 2DS/H
Q* = 2DS/H
An EOQ Example
Determine optimal number of needles to order
D = 1,000 units
S = $10 per order
H = $.50 per unit per year

2DS
Q* =
H
2(1,000)(10)
Q* = = 40,000 = 200 units
0.50
An EOQ Example
Determine optimal number of needles to order
D = 1,000 units Q* = 200 units
S = $10 per order
H = $.50 per unit per year

Expected Demand D
number of = N = =
orders Order quantity Q*
1,000
N= = 5 orders per year
200
An EOQ Example
Determine optimal number of needles to order
D = 1,000 units Q* = 200 units
S = $10 per order N = 5 orders per year
H = $.50 per unit per year

Number of working
Expected days per year
time between = T =
orders N
250
T= = 50 days between orders
5
An EOQ Example
Determine optimal number of needles to order
D = 1,000 units Q* = 200 units
S = $10 per order N = 5 orders per year
H = $.50 per unit per year T = 50 days

Total annual cost = Setup cost + Holding cost

D Q
TC = S + H
Q 2
1,000 200
TC = ($10) + ($.50)
200 2

TC = (5)($10) + (100)($.50) = $50 + $50 = $100

Robust Model

 The EOQ model is robust

 It works even if all parameters and
assumptions are not met
 The total cost curve is relatively flat
in the area of the EOQ
Reorder Inventory
Reorder Points
 EOQ answers the “how much” question
 The reorder point (ROP) tells “when” to
order
Demand Lead time for a
ROP = per day new order in days
=dxL
D
d = Number of working days in a year
Reorder Point Curve
Q*

Inventory level (units)

Resupply takes place as order arrives

Slope = units/day = d

ROP
(units)

Time (days)
Figure 12.5
Lead time = L
Reorder Point Example
Demand = 8,000 iPods per year
250 working day year
Lead time for orders is 3 working days
D
d=
Number of working days in a year

= 8,000/250 = 32 units

ROP = d x L
= 32 units per day x 3 days = 96 units
Thank you
Forecasting as a planning
tool
Session 13+
 Forecasting

• Forecasting is the art and science

of predicting future events using
scientific approach

4
 Forecasting as a planning tool

• Forecasting gives lead time which is required for

decisions making in advance of uncertain events.
• Forecasting is important for all strategic and
planning decisions in operations management.
• Forecasts of product demand, materials, labor,
financing are an important inputs to scheduling,
acquiring resources, and determining resource
requirements.

3
 Demand Management

Demand management is the interface between

manufacturing planning and control and the
marketplace.
This is mainly dependent on following activities:
– Forecasting.
– Order Processing.
– Making delivery promises.
4
 Demand Management

Resource Production
Planning Planning

Marketplace Demand Mgt.

Master
Production
Planning

5
 Forecasting Horizons and its implication

• Short Term (0 to 3 months): for inventory

management and scheduling.
• Medium Term (3 months to 2 years): for production
planning, purchasing, and distribution.
• Long Term (2 years and more): for capacity planning,
facility location, and strategic planning.

6
 Principles of Forecasting

• Forecasts tends to be wrong if not measured

considering details.
• Every forecast should include an estimate of the
forecast error.
• The greater the degree of aggregation, the more
accurate the forecast.
• Long-term forecasts are usually less accurate than
short-term forecasts.
7
 Basic Forecasting Approach
• Understand the forecasting objective.
• What decisions will be made from the forecasts? What parties in the
supply chain will be affected by the decision.
• Integrate demand planning and forecasting.
• All planning activities within the supply chain that will use the forecast or
influence demand should be linked.
• Identify factors that influence the demand forecast.
• Is demand growing or declining?
• Is there are relationship (complementary or substitution) between
products?

8
 Forecasting Approach (cont.)
• Understand and Identify customer segments.
• Customer demand can be separately forecast for different segments
based on service requirements, volume, order frequency, volatility, etc.
• Determine the appropriate forecasting technique.
• Typically, using a combination of the different techniques is of the
most effective approach.
• Establish performance and error measures.
• Forecasts need to be monitored for their accuracy and timeliness.

9
 Forecasting and Supply Chain Management

• Accurate forecasting determines how much inventory a company must

keep at various points along its supply chain
• Continuous replenishment
– supplier and customer share continuously updated data
– typically managed by the supplier
– reduces inventory for the company
– speeds customer delivery
• Types of continuous replenishment
– quick response
– JIT (just-in-time)
– VMI (vendor-managed inventory)
– stockless inventory

10
 Forecasting and TQM

• Accurate forecasting customer demand is a key to providing good

quality service
• Continuous replenishment and JIT complement TQM
– eliminates the need for buffer inventory, which, in turn, reduces both
waste and inventory costs, a primary goal of TQM
– smoothens process flow with no defective items
– meets expectations about on-time delivery, which is perceived as good-
quality service

11
 Types of Forecasting

• Depend on
– time frame
– demand behavior
– causes of behavior

12
 Time Frame

• Indicates how far into the future is forecast

– Short- to mid-range forecast
• typically encompasses the immediate future
• daily up to two years
– Long-range forecast
• usually encompasses a period of time longer than two years

13
 Demand Behavior

• Trend
– a gradual, long-term up or down movement of demand
• Random variations
– movements in demand that do not follow a pattern
• Cycle
– an up-and-down repetitive movement in demand
• Seasonal pattern
– an up-and-down repetitive movement in demand occurring periodically

14
 Forms of Forecast Movement

Demand
Demand
Random
movement

Time Time
(a) Trend (b) Cycle

Demand
Demand

Time Time
(c) Seasonal pattern (d) Trend with seasonal pattern
15
 Forecasting Methods
• Qualitative
– use management judgment, expertise, and opinion to predict future demand
• Time series
– statistical techniques that use historical demand data to predict future
demand
• Regression methods
– attempt to develop a mathematical relationship between demand and factors
that cause its behavior

16
 Qualitative Methods

• Management, marketing, purchasing, and engineering

are sources for internal qualitative forecasts
• Delphi method
– involves soliciting forecasts about technological advances
from experts

17
 Forecasting Process
1. Identify the 2. Collect historical 3. Plot data and identify
purpose of forecast data patterns

6. Check forecast 5. Develop/compute 4. Select a forecast

accuracy with one or forecast for period of model that seems
more measures historical data appropriate for data

7.
Is accuracy of No 8b. Select new
forecast forecast model or
acceptable? adjust parameters of
existing model
Yes
9. Adjust forecast based 10. Monitor results
8a. Forecast over
on additional qualitative and measure forecast
planning horizon
information and insight accuracy

18
 Time Series

• Assume that what has occurred in the past will continue to

occur in the future
• Relate the forecast to only one factor - time
• Include
– moving average
– exponential smoothing
– linear trend line

19
 Moving Average

• Naive forecast
– demand the current period is used as next period’s forecast
• Simple moving average
– stable demand with no pronounced behavioral patterns
• Weighted moving average
– weights are assigned to most recent data

20
Moving Average: Naïve Approach
ORDERS
MONTH PER MONTH FORECAST

Jan 120 -
Feb 90 120
Mar 100 90
Apr 75 100
May 110 75
June 50 110
July 75 50
Aug 130 75
Sept 110 130
Oct 90 110
Nov - 90

21
Simple Moving Average


i=1
Di

MAn =
n
where

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

22
 3-month Simple Moving Average

ORDERS MOVING
MONTH PER MONTH AVERAGE
3
Jan 120 –
Feb 90 – 
i=1
Di
Mar 100 – MA3 =
Apr 75 103.3 3
May 110 88.3
June 50 95.0 90 + 110 + 130
July 75 78.3 = 3
Aug 130 78.3
Sept 110 85.0
Oct 90 105.0
= 110 orders
Nov - 110.0 for Nov

23
 5-month Simple Moving Average

ORDERS MOVING
MONTH PER MONTH AVERAGE 5
Jan 120 – 
i=1
Di
Feb 90 –
MA5 =
Mar 100 – 5
Apr 75 –
May 110 – 90 + 110 + 130+75+50
June 50 99.0 = 5
July 75 85.0
Aug 130 82.0
Sept 110 88.0 = 91 orders
Oct 90 95.0 for Nov
Nov - 91.0

24
 Smoothening Effects
150 –

125 – 5-month

100 –
Orders

75 –

50 – 3-month

Actual
25 –

0– | | | | | | | | | | |
Jan Feb Mar Apr May June July Aug Sept Oct Nov
Month
25
 Weighted Moving Average

 Adjusts moving WMAn =  W i Di

i=1
average method to
more closely reflect where

data fluctuations Wi = the weight for period i, between 0 and

100 percent

 W = 1.00
i

26
Weighted Moving Average Example

MONTH WEIGHT DATA

August 17% 130
September 33% 110
October 50% 90

3
November Forecast WMA3 = 
i=1
W i Di

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

= 103.4 orders
27
 Exponential Smoothening

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

28
 Exponential Smoothening (cont.)

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

29
 Effect of Smoothening Constant

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

If  = 0, then Ft +1 = 0 Dt + 1 Ft 0 = Ft
Forecast does not reflect recent data

If  = 1, then Ft +1 = 1 Dt + 0 Ft = Dt
Forecast based only on most recent data

30
 Exponential Smoothening (α=0.30)

PERIOD MONTH DEMAND

1 Jan 37
2 Feb 40
F2 = D1 + (1 - )F1
3 Mar 41
4 Apr 37 = (0.30)(37) + (0.70)(37)
5 May 45 = 37
6 Jun 50
7 Jul 43 F3 = D2 + (1 - )F2
8 Aug 47 = (0.30)(40) + (0.70)(37)
9 Sep 56 = 37.9
10 Oct 52
11 Nov 55
12 Dec 54
31
Exponential Smoothening
(cont.)
FORECAST, Ft + 1
PERIOD MONTH DEMAND ( = 0.3) ( = 0.5)
1 Jan 37 – –
2 Feb 40 37.00 37.00
3 Mar 41 37.90 38.50
4 Apr 37 38.83 39.75
5 May 45 38.28 38.37
6 Jun 50 40.29 41.68
7 Jul 43 43.20 45.84
8 Aug 47 43.14 44.42
9 Sep 56 44.30 45.71
10 Oct 52 47.81 50.85
11 Nov 55 49.06 51.42
12 Dec 54 50.84 53.21
13 Jan – 51.79 53.61
32
 Exponential Smoothening (cont.)
70 –

60 – Actual  = 0.50

50 –

40 –
Orders

 = 0.30
30 –

20 –

10 –

0– | | | | | | | | | | | | |
1 2 3 4 5 6 7 8 9 10 11 12 13
Month
33
Causal Method: Linear Regression
Y Deviation, Regression
Estimate of or error equation:
Y from Y = a + bX
regression
Dependent variable equation
{ Actual
value
of Y

Value of X used
to estimate Y

X
Independent variable
34
Method Study
• Method study is the systematic recording and critical examination of
existing and proposed ways of doing work, as a means of developing
and applying easier and more effective methods and reducing costs.

35
Objectives of Method Study
1. Improvement of processes and procedures
2. Improvement in the design of plant and equipment
3. Improvement of layout
4. Improvement in the use of men, materials and machines
5. Economy in human effort and reduction of unnecessary fatigue
6. Improvement in safety standards
7. Development of better working environment.

36
Method Study Procedure
1. Define
2. Record
3. Examine
4. Develop
5. Define New Method
6. Install
7. Maintain

37
Work Study
Work study is undertaken to find better ways of doing the job and have
better control over the output. It seeks to increase the productivity by
improving ways and means of doing work through the process of
continuous innovations, the benefits of which in turn are available to
employees, consumers and to society at large.

38
Objectives of Work Study
• To save the time and cost.
• To analyze the present method and develop a new improved method
of production.
• To increase the productivity
• To improve the efficiency of work , so the resources can also be
effectively used.

39
Benefits of Work Study
• Leads to production of better-quality product in turn more profits.
• Reduce the cost and time for manufacturing of the product.
• Better working conditions to employees.
• Basis of rewards.
• Provide better control and performance.

40
 Work Measurement/Time study

• Work measurement is a process of analyzing jobs for the

purpose of setting time standards
• Why use it?
– Schedule work and allocate capacity
– Motivate and measure work performance
– Evaluate performance
– Provide benchmarks

41
Objectives of Time Study
• Establish standard times.
• Rate operator performance.
• Information to calculate overall production capabilities and data for
capacity planning.
• Establish the total work content of finished goods.

42
Advantages of Time Study
• Knowledge about standard times to be expected.
• Ability to estimate total work content.
• Operators can be appraised on factual grounds.
• Some labor regulations might require, standard times on the basis of
solving labor disputes.

43
Techniques of Time Study
• Stop watch time study
• Work sampling.

44
 Time Study Normal Time Formulas
• Normal time(NT)=Observed performance time per unit
x (Performance rating)*

*The Performance Rating is usually expressed in decimal form in

these formulas. So a person working 10% faster than normal
would have a Performance Rating of 1.10 or 110% of normal
time. Working 10% slower, 0.90 or 90% of normal.

• NT= Time worked _ x (Performance rating)*

Number of units produced

45
 Time Study Example Problem

• You want to determine the standard time for a job.

The employee selected for the time study has
produced 20 units of product in an 8 hour day. Your
observations made the employee nervous and you
estimate that the employee worked about 10 percent
faster than what is a normal pace for the job.
• Question: What are the normal times for this job?

46
 Time Study Example Solution

Normal time = Time worked x (Perf. rating)

Number of units produced

= (480 minutes/20) x (1.10)

= 26.4 minutes

47
Thank You
Maintenance Management
Session 14
Strategic Importance of
Maintenance and Reliability
 Failure has far reaching effects on a firm’s
 Operation
 Reputation
 Profitability
 Dissatisfied customers
 Idle employees
 Profits becoming losses
 Reduced value of investment in plant and
equipment
Maintenance and Reliability
 The objective of maintenance and
reliability is to maintain the capability
of the system while controlling costs
 Maintenance is all activities involved in
keeping a system’s equipment in
working order
 Reliability is the probability that a
machine will function properly for a
specified time
Important Tactics

 Reliability
1. Improving individual components
2. Providing redundancy
 Maintenance
1. Implementing or improving preventive
maintenance
2. Increasing repair capability or speed
Strategy and Results
Employee Involvement
Information sharing
Skill training
Reward system Results
Power sharing
Reduced inventory
Improved quality
Improved capacity
Reputation for quality
Maintenance and Reliability Continuous improvement
Procedures Reduced variability
Clean and lubricate
Monitor and adjust
Minor repair
Computerize records
Figure 17.1
Reliability
Improving individual components

Rs = R1 x R2 x R3 x … x Rn

where R1 = reliability of component 1

R2 = reliability of component 2
and so on
 Reliability Example

R1 R2 R3

.90 .80 .99 Rs

Reliability of the process is

Rs = R1 x R2 x R3 = .90 x .80 x .99 = .713 or 71.3%

Maintenance

 Two types of maintenance

 Preventive maintenance – routine
inspection and servicing to keep
facilities in good repair
 Breakdown maintenance –
emergency or priority repairs on
failed equipment
Implementing Preventive
Maintenance
 Need to know when a system requires
service or is likely to fail
 High initial failure rates are known as infant
mortality
 Once a product settles in, MTBF generally
follows a normal distribution
 Good reporting and record keeping can aid
the decision on when preventive
maintenance should be performed
Computerized Maintenance
System
Data Files Output Reports
Equipment file
with parts list Inventory and
purchasing reports

Maintenance Equipment
parts list
and work order
schedule

Equipment
Repair history history reports
file

Cost analysis
Data entry (Actual vs. standard)
– Work requests
– Purchase
Inventory of requests
spare parts – Time reporting
– Contract work
Work orders
– Preventive
maintenance
– Scheduled
Personnel data downtime
with skills, wages, – Emergency
etc. maintenance Figure 17.3
Maintenance Costs
 The traditional view attempted to
balance preventive and breakdown
maintenance costs
 Typically this approach failed to
consider the true total cost of
breakdowns
 Inventory
 Employee morale
 Schedule unreliability
Increasing Repair Capabilities
1. Well-trained personnel
2. Adequate resources
3. Ability to establish repair plan and priorities
4. Ability and authority to do material planning
5. Ability to identify the cause of breakdowns
6. Ability to design ways to extend MTBF
Total Productive Maintenance
(TPM)
 Designing machines that are reliable, easy to
operate, and easy to maintain
 Emphasizing total cost of ownership when
purchasing machines so that service and
maintenance are included in the cost
 Developing preventive maintenance plans that
utilize the best practices of operators,
maintenance departments, and depot service
 Training workers to operate and maintain their
own machines
Establishing Maintenance Policies

 Simulation
 Computer analysis of complex situations
 Model maintenance programs before
they are implemented
 Expert systems
 Computers help users identify problems
and select course of action
Thank you
Purchasing and Procurement
Session 15
 Procurement
 Procurement is the process of finding and agreeing to terms,
and acquiring goods, services, or works from an external
source, often via a tendering or competitive bidding process.
 Purchasing
 Purchasing-Obtaining merchandise, capital equipment; raw
materials, services, or maintenance, repair, and operating
(MRO) supplies in exchange for money or its equivalent.
 Merchant Buyers-wholesalers and retailers who purchase for resale.
 Industrial Buyers-purchase raw materials for conversion, services,
capital equipment, & MRO supplies.
 The Role of Purchasing in an Organization

The primary goals of purchasing are:
 Ensure uninterrupted flows of raw materials at the lowest total cost,
 Improve quality of the finished goods produced, and
 Optimize customer satisfaction.
 Purchasing contributes to these objectives by:
 Actively seeking better materials and reliable suppliers,
 Work closely with strategic suppliers to improve quality materials, and
 Involving suppliers and purchasing personnel in new product design
and development efforts.
 The Purchasing Process

Manual Purchasing-Older system, prone to duplication of
effort and error
 Step 1-Material Requisition/Purchase Requisition- stating
product, quantity, and delivery due date are clearly.
 Step 2- The Request for Quotation (RFQ)- Buyer identifies
suppliers & issues a request for quotation (RFQ).
 Step 3- The Purchase Order (PO)- The purchase order is the
buyer’s offer & becomes a binding contract when accepted by
supplier.
Internet Purchasing
Individual initiates Purchasing
requisition department/buyer Supplier
Prepares requisition Buyer reviews Receives
requisition electronic
purchase order

Inputs request into Enters data into

computer system Internet system Ships good;
and transmits to receives
purchasing electronic
department Assigns suppliers
payment
to bid; gives
closing dates
and conditions

Collects/reviews
bids submitted
electronically

Selects a supplier
based on quality,
cost, delivery
performance;
issues purchase
order
Internet Purchasing

 Suppliers get closer to their customers

 Shorter cycle times may improve cash flow
 Capital investment is low
 Buyers enjoy comparison shopping, rapid
ordering, reduced transaction costs, and
lower inventory
 May be part of an integrated Enterprise
Resource Planning (ERP) system
Vendor Selection
 Vendor evaluation
 Critical decision
 Find potential vendors
 Determine the likelihood of them
becoming good suppliers
 Vendor Development
 Training
 Engineering and production help
 Establish policies and procedures
Vendor Selection
 Negotiations
 Cost-Based Price Model - supplier opens
books to purchaser
 Market-Based Price Model - price based
on published, auction, or indexed price
 Competitive Bidding - used for infrequent
purchases but may make establishing
long-term relationships difficult
Vendor Evaluation
Scores Weight
Criteria Weights (1-5) x Score
Engineering/research/innovation skills .20 5 1.0
Production process capability .15 4 .6
(flexibility/technical assistance)
Distribution/delivery capability .05 4 .2
Quality systems and performance .10 2 .2
Facilities/location .05 2 .1
Financial and managerial strength .15 4 .6
(stability and cost structure)
Information systems capability (e- .10 2 .2
commerce, Internet)
Integrity (environmental compliance/ .20 5 1.0
ethics)
Total 1.00 3.9
 Sourcing Decisions: The Make-or-Buy
Decision

Outsourcing -buying materials and components from suppliers
instead of making them in-house.
 Reasons : ??
 Purchasing: Centralized vs. Decentralized

Purchasing Organization dependent on many factors, such as
market conditions & types of materials required.
 Centralized Purchasing- purchasing department located at the
firm’s corporate office makes all the purchasing decisions.
 Decentralized Purchasing- individual, local purchasing
departments, such as plant level, make their own purchasing
decisions.
Thank You