Article File 1664

Operations Management
. . Ph.d, FCILT, CPIT, CPIM,CCRM
: (Operations Management)
:

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
1-2

(5Ms) 1.1
Operations as a Transformation
Process
INPUT
Material
Machines
Manpower
Management
Money
TRANSFORMATION
PROCESS
OUTPUT
Goods
Services
1.1
(Physical)
(Locational)
(Exchange)
(Physiological)
(Psychological)
(Informational)

(manufacturing)
(transportation/ warehouse)
(retail)
(health care)
(entertainment)
(communications)

1.2
Finance/Accounting
Suppliers
Budgets
Cost analysis
Capital investments
Stockholder
requirements
Product/Service
Availability
Lead-time estimates
Status of order
Delivery schedules
Operations
Material availability
Quality data
Delivery schedules
Designs
Personnel needs
Skill sets
Performance evaluations
Job design/work
measurement
Hiring/firing
Training
Legal requirements
Union contract negotiations
Sales forecasts
Customer orders
Customer feedback
Promotions
Marketing
Production and
Inventory data
Capital budgeting requests
Capacity expansion and
Orders for materials
Technology plans
Production and delivery
Schedules Quality
Requirements Design/
Performance specs
Human Resources
1.2:

(b)
(c)
1.3
A New Value Chain

(a) Traditional Value Chain
Manufacturer
Manufacturer
Wholesaler/
Wholesaler/
distributor
distributor
Retailer
Retailer
Consumer
Consumer
(b) Intermediaries Eliminated (Deintermediation)

Deintermediation)
Manufacturer
Manufacturer
Wholesaler/
Wholesaler/
distributor
distributor
Retailer
Retailer
Consumer
Consumer
(b) New Intermediaries Introduced (Reintermediation)

Reintermediation)
Manufacturer
Manufacturer
Infomediary
Infomediary
E-Retailer
E-Retailer
Aggregator
Aggregator
Portal
Portal
Consumer
Consumer
1.3
(Multinational Corporations)
50
1.1
1.1 :
Company
Country
of Origin
Switzerland
Finland
Netherlands
Germany
Germany
Germany
United States
Netherlands
United States
United States
Nestl
Nokia
Philips
Bayer
ABB
SAP
Exxon Mobil
Royal Dutch/Shell
IBM
McDonalds
Foreign Sales
as %of Total
98.2
97.6
94.0
89.8
87.2
80.0
79.6
73.3
62.7
61.5
(Competitiveness)

Measures of Competitiveness
(Productivity)
GDP (Gross domestic product) growth
(Market capitalization)
(Technological infrastructure)
(Quality of education)
(Efficiency of government)
1.4

Competitiveness of Selected
Countries
100
80
60
40
20
0
US
Singapore Finland
Ireland
Germany
UK
Japan
Mexico
Russia
1.4

(Barriers to Entry)
Economies of scale
Capital investment
Access to supply and distribution channels
Learning curves

4 1.5

The Strategic
Importance of
Operations
1. Introduction to
Operations and
Competitiveness
2. Operations
Strategy
Designing the
Operating
System
3. Products and
Services
4. Processes and
Technologies
5. Facilities
6. Project
Management
Managing the
Supply Chain
7.
8.
9.
10.
11.
12.
13.
Supply Chain
Management
Forecasting
Capacity and
Aggregate
Planning
Inventory
Management
Just-in-Time and
Lean Production
Enterprise
Resource
Planning
Scheduling
Ensuring
Quality
14. Quality
Management
15. Statistical
Process
Control
16. Waiting Line
Models for
Service
Improvement
17. Human
Resources in
Operations
Management
1.5

1.6
Strategic Planning
Mission and
Vision
Voice of the
Business
Marketing
Strategy
Corporate
Strategy
Operations
Strategy
Voice of the
Customer
Financial
Strategy
Figure 2.5
1.6
(Policy Deployment)

1.7
: Action Plan
Reduce production
cycle time by
30%
Reduce queue
time by 50%
Reduce setup
time by 50%
Cut lot sizes in
half
Increase electronic
transactions by 30%
Reduce business
cycle time by 50%
Redesign supplier
quality reporting process
Reduce
purchasing
cycle time by
30%
Set up supplier
education groups
Reduce supplier
base by 50%
What
Who
When
Measure
Resource
Improve
work
flow
Billy
Wray
9-1-03
Average
queue
time per
job
$5,000
...
...
...
...
...
...
...
To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved.
1.7
Balanced Scorecard :

1.8
Mobils Strategy Map

Revenue Growth Strategy
Finances
Customers
Processes
Volume growth
Net margin
Nongasoline products &

services
More premium brands
Delight the customer
Win-win dealer
relations
Clean/
Clean/safe/
safe/fast
Develop business skills
Create new products &

services
Convenience store
Learning and
Growth
Personal growth
Align goals
Build best-in-class
franchise
Teamwork, quality
Functional excellence
Strategic & job skills
Deliver products on
spec, on time
Inventory management
Process improvement
New technology
Figure 2.7
1.8
21 (Issues and Trends)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
10
2S : (Decision Analysis)
1. (States of nature)
2. (Events that may occur in the future)
3. (Decision maker is uncertain which state of
nature will occur)
4. (Decision maker has no control over the states
of nature)
1.9 2
a, b 2 4 1a ,1b, 2a,2b
Payoff Table
Decision
1
2
States Of Nature
a
b
Payoff 1a
Payoff 1b
Payoff 2a
Payoff 2b
1.9 Payoff Table

(Decision Making Criteria Under Uncertainty)
1. Maximax criterion :
2. Maximin criterion :
3. Minimax regret criterion
11
4. Hurwicz criterion () 0
(completely pessimistic) to 1 (completely optimistic)
5. Equal likelihood (La Place) criterion :
(=0.5)
1.1
Southern Textile Company
Example S2.1
S2.1
STATES OF NATURE
Good Foreign
Competitive Conditions
DECISION
Expand
Maintain status quo
Sell now
Poor Foreign
$ 800,000
1,300,000
320,000
$ 500,000
-150,000
320,000

Example S2.1
S2.1
STATES OF NATURE
Good Foreign
DECISION
Poor Foreign
Expand
$ 800,000
Maintain status quo
1,300,000
Maximax Solution
Sell now
320,000
$ 500,000
-150,000
320,000
Expand:
$800,000
Status quo: 1,300,000 Maximum
Sell:
320,000
Decision: Maintain status quo

Example S2.1
S2.1
STATES OF NATURE
DECISION
Good Foreign
Expand
$ 800,000
Maintain status quo
1,300,000
Maximin Solution
Sell now
320,000
Expand:
Status quo:
Sell:
Poor Foreign
$ 500,000
-150,000
320,000
$500,000 Maximum
-150,000
320,000
Decision: Expand
12
1.2
Example S2.1
S2.1
STATES OF NATURE
Minimax Regret Solution

Good Foreign
DECISION
GOOD CONDITIONS
Poor Foreign
POOR CONDITIONS
$1,300,000 - 800,000 = 500,000

0
Expand
$ 800,000$500,000 - 500,000$ =500,000
1,300,000
- 1,300,000
= 0 1,300,000
500,000 - (-150,000) -=150,000
650,000
Maintain
status
quo
1,300,000
320,000
=
980,000
500,000
320,000
=
180,000
Sell now
320,000
320,000
$500,000 Minimum
650,000
980,000
Expand:
Status quo:
Sell:
Decision: Expand
1.3

Example S2.1
S2.1
DECISION
STATES OF NATURE
Good Foreign
Hurwicz Criteria
Expand
Maintain status quo
= 0.3
Sell now
$ 800,000
1,300,000
320,000
Poor Foreign
1-=
$ 500,000
-150,000
0.7 320,000
$800,000(0.3) + 500,000(0.7) = $590,000 Maximum

Expand:
Status quo: 1,300,000(0.3) -150,000(0.7) = 285,000
Sell:
320,000(0.3) + 320,000(0.7) = 320,000
Decision: Expand
1.4
13

Example S2.1
S2.1
STATES OF NATURE
Good Foreign
DECISION
Equal Likelihood Criteria

Expand
$ 800,000
Maintain status quo
1,300,000
Two states of nature
Sell now
320,000each
Poor Foreign
$ 500,000
-150,000
weighted
0.50
320,000
$800,000(0.5) + 500,000(0.5) = $650,000 Maximum

Expand:
Status quo: 1,300,000(0.5) -150,000(0.5) = 575,000
Sell:
320,000(0.5) + 320,000(0.5) = 320,000
Decision: Expand
Expected Value
Expected Value
n
EV (x) =
p(xi)xi
i =1
where
xi = outcome i
p(xi) = probability of outcome i
Expected Value of Perfect Information

EVPI = (expected value given perfect information) - (expected value without perfect information)
1.5
70% $1,300,000
30% $500,000
= $1,300,000 (0.70) + 500,000 (0.30)

= $1,060,000
EVPI = $1,060,000 - 865,000 = $195,000
(Sequential Decision Trees)

14
Square nodes
Circles nodes -
Arcs
1.10
Decision Tree Solution

$2,000,000
$1,290,000
0.60
Market growth
2
0.40
No market
growth
Expand
(-$800,000)
$800,000)
$225,000
Expand
(-$800,000)
$800,000)
$1,740,000
1
Market
growth (3 years,
$0 payoff)
payoff)
Purchase Land
(-$200,000)
$200,000)
3
Market
growth
$1,390,000
0.40
$790,000
$1,360,000
0.20
No market
growth
Sell land
0.60
Warehouse
(-$600,000)
$600,000)
Sell land
$700,000
$2,300,000
0.30
7
0.70
No market
growth (3 years,
$0 payoff)
payoff)
$3,000,000
0.80
6
$1,160,000
Market
growth
$2,540,000
$1,000,000
No market
growth
$210,000
1.10
(Strategy Formulation)
1.
2.
3.
15
4.

(Competing on Cost)

(Competing on Quality)

(Competing on Flexibility)

(Competing on Speed)

(Operations Role in Corporate Strategy)

16

(Strategy and the Internet)

1.11

1.12
Operations
Strategy at
Wal-Mart
WalWal-Mart
Mission
Provide
Provide value
value for
for our
our customers
customers
Competitive
Priority
Low
Low prices,
prices, everyday
everyday
Operations
Strategy
Low
Low inventory
inventory levels
levels
Short
Short flow
flow times
times
Operations
Structure
Linked
Linked communications
communications
between
between stores
stores
Fast
Fast transportation
transportation
system
system
Enabling Process
and Technologies
EDI/satellites
EDI/satellites
Cross-docking
Cross-docking
Focused
Focused
locations
locations
1.11 Operations Strategy at Wal-Mart
17

Products
Services
Capacity
Human
Resources
Facilities
Sourcing
Processes and
Technology
Quality
Operating
Systems
Figure 2.2
1.12
18

Specifies materials
Determines dimensions & tolerances
Defines appearance
Sets performance standards

2.1
The Design Process

Idea
generation
Suppliers
Product or
service concept
Feasibility
study
Performance
specifications
Form design
Customers
R&D
Marketing
Revising and testing

prototypes
Competitors
Production
design
Functional
design
Design
specifications
New product or
service launch
Manufacturing
or delivery
specifications
Pilot run
and final tests
Final design
& process plans
Figure 3.1
19
2.1
(Design Teams)

2.2
1
Figure 3.4
Breaking Down Barriers to Effective

Design
2.2
(DFM Guidelines)
1.
2.
3.
4.
20
5.
2.3
(a) The original design
(b) Revised design
(c) Final design
Assembly using
common fasteners
OneOne-piece base &

elimination of
fasteners
Design for
pushpush-andand-snap
assembly
2.3
(Technology in Design)
1. CAD - Computer Aided Design
2. CAE - Computer Aided Engineering
3. CAD/CAM - Design & Manufacturing CAD
CAD

21

2.4
The Service Design Process

Desired service
experience
Service
Service Concept
Concept
Service
Service Package
Package
Targeted
customer
Physical
items
Sensual
benefits
Psychological
benefits
Performance
Performance Specifications
Specifications
Customer
requirements
Customer
expectations
Design
Design Specifications
Specifications
Customer
Activities
Facility
Provider
skills
Service
Provider
Cost and time

estimates
Delivery
Delivery Specifications
Specifications
Schedule
Deliverables
Location
Service
Figure 3.14
2.4
2.5
22
Figure 3.15 Blueprint for an Installment Lending Operation

Loan
application
Branch
Officer
Pay book
30 min.
min. 1 hr.
hr.
Line of visibility
Receive
payment
Notify
customer
Decline
Deny
Final
payment
Issue
check
Confirm
Print
payment
book
Delinquent
F
Verify
income
data
Credit
check
F
Employer
2 days
Credit
bureau
Close
account
3 days
Confirm
1 day
Initial
screening
Accept
Verify
payor
Branch
records
Bank
accounts
Accounting
Data base
records
Fail point
Customer wait
Employee decision
2.5

2.6
23
From Function to Process
Order Fulfillment
Sales
Manufacturing
Purchasing
Accounting
Product Development
Supply Chain Management

Customer Service
Function
Process
Figure 4.1
2.6
4
(Batch) (Mass) (Continuous)
2.1
2.1
24
Types of Processes
Product
Customer
Demand
Volume
No.
No. of different
products
System
Equipment
Type of work
Skills
Advantages
DisDisadvantages
Example
PROJECT
BATCH
MASS
CONTINUOUS
Unique
OneOne-atat-a-time
Infrequent
Very low
Infinite
Made to order
Few individuals
Fluctuates
Low to med
Many, varied
Made to stock
Mass market
Stable
High
Few
Commodity
Mass market
Very stable
Very high
Very low
LongLong-term
Discrete, job
Repetitive,
assembly lines
Varied
GeneralSpecial-purpose
General-purpose SpecialContracts
Fabrication
Assembly
Experts,
Wide range
Limited range
craftspeople
of skills
of skills
Custom work, Flexibility,
Efficiency,
technology
quality
speed, low cost
Nonrepetitive, Costly, slow,
Capital investment,
small customer difficult to
lack of
base, expensive manage
responsiveness
Construction,
Machine shops, Autos, TV
TVs,
shipbuilding
printing, bakery fast food
Table 4.1
Process industry
Highly automated
Mix, treat, refine
Equipment
monitors
Highly efficient
large capacity
Difficult to
change
Paint, chemicals,
food
(Break-Even Analysis)
Total cost
TC
Total revenue
TR
Profit
Z
cf
v
cv
p
= fixed cost + total variable cost

= cf + vcv
= volume x price
= vp
= total revenue - total cost
= TR - TC
= vp - (cf + vcv)
= fixed cost
= volume (i.e., number of units produced and sold)
= variable cost per unit
= price per unit
2.1
25
Break-Even Analysis
Fixed cost = cf = $2,000
Variable cost = cv = $5 per raft
Price = p = $10 per raft
The break-even point is
cf
2000
v= p-c =
= 400 rafts
v
10 - 5

2.7
Decision Support System

Decision Support System
Management
Management
Information System
Personnel
Accounting
Data
Computer
system:
data
processing
Information:
reports,
model
results
Production
Decisions
Marketing
Distribution
Other areas
Figure 4.12
Quantitative
techniques
What-if? analysis
2.7
(Enterprise Software)
26

ERP - Enterprise Resource Planning

Advanced Communications
Electronic data interchange (EDI)
Internet, extranets
Wireless communications
Teleconferencing & telecommuting
Bar coding, RFT
Virtual reality
Manufacturing Technology
Numerically controlled (NC) machines
Controlled by punched tape
Computer numerical controlled (CNC)
Controlled by attached computer
Direct numerical control (DNC)
Several NC machines controlled by single computer
Flexible manufacturing systems (FMS)
Includes automated material handling
Automated Material Handling
Conveyors
Automated guided vehicle (AGV)
Automated storage & retrieval system (ASRS)

2.8
27
Flexible Manufacturing
System
CNC
Machine
Finished
goods
Computer
control
room
Terminal
Pallet
Automatic
tool changer
Parts
CNC
Machine
Figure 4.13
2.8
(Robotics)

(e-Manufacturing)
Real-time sharing of data with trading partners and customers to drive collaborative decisions
CAD - uses software to create & modify designs
GT- classifies designs to benefit from prior experience
STEP - sets standards for communication
CAPP - creates processing instructions for CAM
CAM - uses programmable automation in manufacturing
28

2.9
Components of e-Manufacturing
CAD
GT
CAE
CPC
PDM
Product
life cycle
Product
Definition
B2B, B2C
Products
Products
Bar codes,
RFT, EDI
STEP
CAD/CAM
ERP
Information
Information
Technology
Technology
eM
eM
Processes
Processes
CAPP
SCM, CRM
DSS/ES/AI
Sourcing &
e-procurement
Manufacture
Manufacture
Internet, Intranet,
extranet,
satellites
CNC
machines
FMS
Robotics
AGV,
ASRS
Process
control
Cells
Multiple factory
and centers sites & suppliers
Figure 4.14
2.9 Components of e-Manufacturing

(Products & Services)
1. Make-to-order
2. Made to customer specifications after order received
3. Make-to-stock
4. Made in anticipation of demand
5. Assemble-to-order
6. Add options according to customer specification
29
(Processes & Technology)
Project
One-time production of product to customer order
Batch production
Process many jobs at same time in batch
Mass production
Produce
large volumes of standard product for mass market
Continuous production
Very high volume commodity product

2.10
Service-Process Matrix
High
Service
Factory
Volume
Mass
Service
Service
Shop
Low
Professional
Service
Low
Figure 2.4
Standardization
High
2.10
Facilities
1. Best size for facility?

2. Large or small facilities
3. Facility focus
4. Facility location
5. Global facility
30
(Types of Layouts)
1. Process Layout :
2. Product Layout
3. Fixed Position Layout
2 2.2
31
2.2
1. Description
2. Type of Process
3. Product
4. Demand
5. Volume
6. Equipment
7. Workers
8. Inventory
9. Storage space
10. Material
11. Aisles
12. Scheduling
13. Layout decision
14. Goal
15. Advantage
PRODUCT LAYOUT
Sequential arrangement
of machines
Continuous, mass
production, mainly
Standardized
Stable
High
Special purpose
Limited skills
Low in-process,
high finished goods
Small
Fixed path
handling(conveyor)
Narrow
Part of balancing
Line balancing
Equalize work at
each station
Efficiency
PROCESS LAYOUT
Functional grouping
of machines
Intermittent, job shop
batch production,assembly
mainly fabrication
Varied, made to stock made to order
Fluctuating
Low
General purpose
Varied skills
High in-process,
low finished goods
Large
Variable path
(forklift)
Wide
Dynamic
Machine location
Minimize material
handling cost
Flexibility
Fixed-Position Layouts
1.
2.
3.
32
4.
5.
(Designing Process Layouts) 2

1. Block Diagramming :
2. Relationship Diagramming
2.2
Process Layout
Load Summary Chart
FROM/
FROM/TO
100
DEPARTMENT
1
Department 1
3
110
Composite
23
24
13
12
45
4
200
150
505
4
40 60
1
100
50
50
5
2
200
50 3
3
60
40
50
4
100
60
Grid 2
Composite
Movements
5Movements
50
200 loads
35
50 loads
150 loads
25
50 loads
110 loads
34
40 loads
100 loads
14
0 loads
60 loads
15
0 loads
2.3
33
Relationship Diagramming
Example A Absolutely
E
Production
I
O
U
X
O
A
Offices
U
Stockroom
Shipping and
receiving
X
U
U
U
necessary
Especially
important
Important
Okay
Unimportant
Undesirable
O
O
Locker room
O
Toolroom
Figure 5.5
2.4
Relationship Diagrams
(b) Relationship diagram of revised layout
Stockroom
Shipping
and
receiving
Offices
Toolroom
Production
Locker
room
Key:
Key: A
E
I
O
U
X
Figure 5.6
2.5
34
Line Balancing
WORKSTATION
Work
ELEMENT
station 1
REMAINING
Work
TIME
station 2
A
B A, B
C
0.3
D minute
2
3
B
0.1
0.3
C
0.1
0.0
0.4
0.1
minute
REMAINING
Work
ELEMENTS
station 3
B, C
D C, D
D
0.3
none
minute
Cd = 0.4
N = 2.5
0.2
D 0.3
C
Example 5.2
0.4

2.11 2.12
Automated
Manufacturing
Cell
Figure 5.11
2.11
35
FMS Layouts
Figure 5.12
2.12
(Elements of Project Management)

1.
2.
3.
4.
36
(Elements of Project Planning)

( 2.13)

Simplified Project Network

Construct
Pour concrete
2.13
Work Breakdown Structure

2.14
1. Hierarchical organization of work to be done on a project
2. Project broken down into modules
3. Modules subdivided into subcomponents, activities, and
tasks
4. Identifies individual tasks,
workloads, and resource requirements
37
Dinner
Work Breakdown
Structure
Pasta
Sauce
Salad
Bread
Wine
Setting
Table
Atmosphere
Set table
Light candles
9 Hierarchical organization of work to

be done on a project
9 Project broken down into modules
9 Modules subdivided into
subcomponents, activities, and tasks
9 Identifies individual tasks,
workloads, and resource
requirements
Purchase
Purchase
Purchase
Purchase
Boil water
Add tomato
sauce/paste
Wash
lettuce
Butter top
Open
Cook
Saut
onion & garlic
Drain
lettuce
Slice
Taste
Drain
Cool
meatballs
Tear
lettuce
Heat
Serve
Serve
Add spices
Add
croutons/
dressing
Cook sauce
Mix
Serve
Serve
Purchase
Turn on music
Serve
2.14
Gantt Chart 2.15
A Gantt Chart
0
Month
4
10
Activity
Design house
and obtain
financing
Lay foundation
Order and
receive
materials
Build house
Select paint
Select carpet
Finish work
Month
2.15 Gantt Chart

CPM/PERT
Critical Path Method (CPM)
DuPont & Remington-Rand (1956)
Deterministic task times
Activity-on-node network construction
Project Eval. & Review Technique (PERT)
US Navy, Booz, Allen & Hamilton
Multiple task time estimates
Activity-on-arrow network construction
38
(Critical Path)

2.6
The Critical
Path
Project Network for a House
Design house
and obtain
financing
2
3
Design house
and obtain
financing
Dummy
Build
house
0
1
4
Order and
receive
materials
Select
paint
Finish
work
3
1
Select
carpet
Lay
foundation
Lay
foundation
3
Dummy
Build
house
0
1
Order and
receive
materials
Select
paint
Finish
work
3
1
A: 1-2-3-4-6-7
3 + 2 + 0 + 3 + 1 = 9 months
B: 1-2-3-4-5-6-7
3 + 2 + 0 + 1 + 1 + 1 = 8 months th
al Pa
C: 1-2-4-6-7
Critic
he
3 + 1 + 3 + 1 =T8
months
D: 1-2-4-5-6-7
3 + 1 + 1 + 1 + 1 = 7 months
Select
carpet
Figure 6.4
(Project Crashing)
Crashing

Crash time
Crash cost
Goal
2.7
39
Normal Activity
and Crash Data
ACTIVITY
NORMAL
TIME
(WEEKS)
WEEKS)
CRASH
TIME
(WEEKS)
WEEKS)
NORMAL
COST
1-2
2-3
2-4
3-4
4-5
4-6
5-6
6-7
12
8
4
0
4
12
4
4
7
5
3
0
1
9
1
3
$3,000
2,000
4,000
0
500
50,000
500
15,000
$5,000
3,500
7,000
0
1,100
71,000
1,100
22,000
$75,000
$110,700
CRASH
COST
TOTAL
ALLOWABLE
CRASH TIME
(WEEKS)
WEEKS)
5
3
1
0
3
3
3
1
CRASH
COST PER
WEEK
$400
500
3,000
0
200
7,000
200
7,000
Example 6.4
40

(The Council of
Logistics Management , 2002)
3.1
COMPONENTS OF LOGISTICS
CUSTOMERS
FIELD WAREHOUSES
SUPPLIERS
PLANT
DISTRIBUTION
CENTRE
order
processing
packaging
sales
forecasting
purchasing
inbound
transport
materials
handling
warehous-ing
inventory
control
production
planning
transport
warehouse
network
planning
customer
service
customer
delivery
3.1
41
Supply Chain Management

(The Council of Logistics
Management,2002)
3.2
THE
THE SUPPLY CHAIN PROCESS
DEMAND
SUPPLY
INFORMATION
INFORMATION FLOWS
(SUPPLIER)
(CUSTOMER)
PURCHASE I
DESIGN
PRODUCTION I
DISTRIBUTION
RM
WIP
FINISHED
GOODS
BUY
MAKE
MOVE
MARKETING
SELL
GOODS
GOODS FLOWS
FLOWS
FINISHED
GOODS
RAW
MATERIALS
SUPPLIERS
SUPPLIER
THE
THE LOGISTICS PROCESS
ULTIMATE
CONSUMER
3.2
Supply Chain Uncertainty
(lead times)
42

(Information in the Supply Chain)
1.
2.
3.
4.
5.
6.
7.
8.
9.
(Electronic Business)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
3.3
43
3.3
IT Issues
Suppliers
JIT
44
Sourcing
1.
2.
3.
4.

E-Procurement

Distribution
Internet dot-coms
Distribution Centers and Warehousing

DCs

DC
45
Vendor-Managed Inventory : VMI

EDI

Collaborative Distribution and Outsourcing
(CPFR)

(The Transportation Method)

3.1
Solution for Grain

Shipment
Transportation
Problem
GRAIN ELEVATOR
SUPPLY
MILL
DEMAND
1. Kansas City
2. Omaha
3. Des Moines
150
175
275
A. Chicago
B. St.
St. Louis
C. Cincinnati
200
100
300
TO
FROM
600 tons
600 tons
MILL
GRAIN
ELEVATOR
Chicago
A
St.
St. Louis
B
Cincinnati
C
Kansas City
Omaha
Des Moines
$6
7
4
$8
11
5
$10
11
12
GRAIN
Chicago St.
St. Louis Cincinnati SUPPLY SHIPPED
Kansas City
Omaha
Des Moines
DEMAND
25
0
175
200
0
0
100
100
125
175
0
300
GRAIN
SHIPPED
200
100
300
COST
150
175
275
600
150
175
275
$4525
Based on Exhibit 7.3
Example 7.1
46
Global Supply Chain

3.4
Linking the Supply Chain with REALTIME
3.4
Duties and Tariffs

APEC
NAFTA
TAFTA
FTAA
ASEAN
CALM
ATPA
MERCOSUR
Figure 7.9
ANZCERTA
47
(Strategic Role of Forecasting)

TQM
Demand Behavior
Trend
Cycle
Seasonal pattern
Random movements
3.5
48
Demand
Demand
Forms of Forecast Movement
Random
movement
Time
(a) Trend
Demand
Demand
Time
(b) Cycle
Time
(d) Trend with seasonal pattern
Time
(c) Seasonal pattern
Figure 8.1
3.5
Forecasting Methods
Time series : Regression or causal modeling
Qualitative methods :Management judgment, expertise, opinion
Use management, marketing, purchasing, engineering
Delphi method :Solicit forecasts from experts

3.6
49
Forecasting Process
1. Identify the
purpose of forecast
2. Collect historical
data
3. Plot data and

identify patterns
6. Check forecast accuracy

with one or more measures
5. Develop/compute forecast
for period of historical data
4. Select a forecast model

that seems appropriate
for data
7.
Is accuracy
of forecast
acceptable?
8a. Forecast over

planning horizon
8b. Select new forecast

model or adjust parameters
of existing model
9. Adjust forecast based

on additional qualitative
information and insight
10. Monitor results and

measure forecast accuracy
Figure 8.2
3.6
3.2
50
Simple Moving Average
Moving Average
9 Average several
periods of data
9 Dampen, smooth out
changes
9 Use when demand is
stable with no trend
or seasonal pattern
MONTH
Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
MAn =
i=1
ORDERS
PER MONTH
Di
where
n = number of periods in
the moving average
Di = demand in period i
120
90
100
75
110
50
75
130
110
90
Di
MA3 =
i=1
90 + 110 + 130
=
3
= 110 orders for Nov
Example 8.1
Simple Moving Average

MONTH
Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
ORDERS
PER MONTH
120
90
100
75
110
50
75
130
110
90
Di
MA3 =
i=1
90 + 110 + 130
=
3
= 110 orders for Nov
Example 8.1
3.3
Weighted Moving
Average Example
MONTH
WEIGHT
DATA
17%
33%
50%
130
110
90
August
September
October
November forecast WMA3 =
W i Di
i=1
= (0.50)(90) + (0.33)(110) + (0.17)(130)

= 103.4 orders
Example 8.2
3.4
51
Exponential Smoothing
9 Averaging method
9 Weights most
recent data more
strongly
9 Reacts more to
recent changes
9 Widely used,
accurate method
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
PERIOD
MONTH
DEMAND
1
2
3
4
5
6
7
8
9
10
11
12
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
37
40
41
37
45
50
43
47
56
52
55
54
F2 = D1 + (1 - )F1
= (0.30)(37) + (0.70)(37)
= 37
F3 = D2 + (1 - )F2
= (0.30)(40) + (0.70)(37)
= 37.9
F13 = D12 + (1 - )F12
= (0.30)(54) + (0.70)(50.84)
= 51.79
PERIOD
MONTH
DEMAND
1
2
3
4
5
6
7
8
9
10
11
12
13
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
37
40
41
37
45
50
43
47
56
52
55
54
FORECAST, Ft + 1
( = 0.3)
( = 0.5)
37.00
37.90
38.83
38.28
40.29
43.20
43.14
44.30
47.81
49.06
50.84
51.79
37.00
38.50
39.75
38.37
41.68
45.84
44.42
45.71
50.85
51.42
53.21
53.61
Example 8.3
Example 8.3
Forecast Accuracy
1. Error = Actual Forecast
2. Mean Absolute Deviation (MAD)
3. Mean Absolute Percent Deviation (MAPD)
4. Cumulative Error (E)
52
3.5
MAD Example
PERIOD
1
2
3
4
5
6
7
8
9
10
11
12
Ft ( =0.3)
DEMAND, Dt
37
40
41
37
MAD
45
50
43
47
56
52
55
54
=
=
=
(Dt - Ft)
|Dt - Ft|
37.00
37.00
3.00
37.90
3.10
| D
t - Ft | -1.83
38.83
n
38.28
6.72
40.29
9.69
53.39
43.20
-0.20
11
43.14
3.86
44.30
11.70
47.81
4.19
4.85
49.06
5.94
50.84
3.15
3.00
3.10
1.83
6.72
9.69
0.20
3.86
11.70
4.19
5.94
3.15
49.31
53.39
557
Example 8.7
3.6
Comparison of
Forecasts
Other Accuracy Measures

9 Mean absolute percent deviation (MAPD)
|Dt - Ft|
MAPD =
Dt
9 Cumulative error
E = et
FORECAST
MAD
MAPD
(E)
Exponential smoothing ( = 0.30)

Exponential smoothing ( = 0.50)
Adjusted exponential smoothing
( = 0.50, = 0.30)
Linear trend line
4.85
4.04
3.81
9.6%
8.5%
8.1%
49.31
33.21
21.14
4.48
3.02
1.92
2.29
4.9%
9 Average error
et
E= n
Table 8.1
53
Capacity Planning

(Capacity Expansion)

Aggregate Production Planning (APP)

6-12

3.7
Average cost per room
Best Operating Levels
Best operating
level
Economies
of scale
250
Diseconomies
of scale
500
1000
# Rooms
54
3.7
3.8
Inputs and Outputs to APP

Capacity
Capacity
Constraints
Constraints
Company
Company
Policies
Policies
Aggregate
Aggregate
Production
Production
Planning
Planning
Demand
Demand
Forecasts
Forecasts
Size
Size of
of
Workforce
Workforce
Strategic
Strategic
Objectives
Objectives
Production
Production
per
per month
month
(in
(in units
units or
or $)
$)
Financial
Financial
Constraints
Constraints
Inventory
Inventory
Levels
Levels
Units
Units or
or dollars
dollars
subcontracted,
subcontracted,
backordered,
backordered, or
or lost
lost
Figure 9.3
3.8
3.7
APP Using Pure Strategies
APP Using Pure Strategies

QUARTER
QUARTER
SALES FORECAST (LB)
Spring
Summer
Fall
Winter
Spring
Summer
Fall
Winter
80,000
50,000
120,000
150,000
Hiring cost
Firing cost
Inventory carrying cost
Production per employee
Beginning work force
SALES FORECAST (LB)

80,000
50,000
120,000
150,000
Level production
Hiring cost = $100 per worker
Firing cost = $500 per worker
(50,000carrying
+ 120,000
+ 150,000
80,000)
Inventory
cost
= $0.50+pound
per quarter
4 = 1,000 pounds per quarter
Production per employee
Beginning work
forcepounds
= 100 workers
= 100,000
= $100 per worker

= $500 per worker
= $0.50 pound per quarter
= 1,000 pounds per quarter
= 100 workers
Example 9.1
Example 9.1
55
Chase Demand Strategy
Level Production Strategy

QUARTER
SALES
FORECAST
Spring
Summer
Fall
Winter
PRODUCTION
PLAN
INVENTORY
80,000
50,000
120,000
150,000
100,000
100,000
100,000
100,000
400,000
20,000
70,000
50,000
0
140,000
QUARTER
SALES PRODUCTION
FORECAST
PLAN
Spring
Summer
Fall
Winter
80,000
50,000
120,000
150,000
80,000
50,000
120,000
150,000
80
50
120
150
100
50
APP by Linear Programming
APP Using Mixed Strategies

DEMAND (CASES)
1000
400
400
400
400
400
MONTH
Minimize Z = $100 (H1 + H2 + H3 + H4)

+ $500 (F1 + F2 + F3 + F4)
+ $0.50 (I1 + I2 + I3 + I4)
DEMAND (CASES)
July
August
September
October
November
December
500
500
1000
1500
2500
3000
Subject to
P1 - I1
I1 + P2 - I2
I2 + P3 - I3
I3 + P4 - I4
Production
1000 W1
constraints
1000 W2
1000 W3
1000 W4
100 + H1 - F1
Work force W1 + H2 - F2
constraints W2 + H3 - F3
W3 + H4 - F4
Demand
constraints
where
Ht = # hired for period t
Ft = # fired for period t
It = inventory at end
of period t
Pt = units produced
in period t
Wt = workforce size
for period t
Production per employee = 100 cases per month

Wage rate = $10 per case for regular production
= $15 per case for overtime
= $25 for subcontracting
Hiring cost = $1000 per worker
Firing cost = $500 per worker
Inventory carrying cost = $1.00 case per month
Beginning work force = 10 workers
Example 9.2
Example 9.3
APP by the Transportation

Method
REGULAR
CAPACITY
OVERTIME
CAPACITY
1000
1200
1300
1300
SUBCONTRACT
CAPACITY
100
150
200
200
Beginning
500
500
500
500
2
0
Inventory
300
Regular
600
Overtime
25
Subcontract
28
Regular
300
$20
$25
$28
$3
300 units
31
1200
20
200
1000
31
100
34
100
23
20
25
37
500
26
1200
150
31
250
500
1300
Overtime
200
Subcontract
500
Demand
29
28
Regular
900
1500
1600
300
31
1300
Subcontract
4
28
28
Regular
Capacity
26
34
25
Overtime
Example 9.4
100
Unused
Capacity
23
28
Overtime
20
Subcontract
Regular production cost per unit

Overtime production cost per unit
Subcontracting cost per unit
Inventory holding cost per unit per period
Beginning inventory
Table 9.2
PERIOD OF USE
900
1500
1600
3000
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
The Transportation Tableau

PERIOD OF PRODUCTION
EXPECTED
DEMAND
= 80,000
= 50,000
= 120,000
= 150,000
= P1
= P2
= P3
= P4
= W1
= W2
= W3
= W4
1
2
3
4
20
30
0
0
QUARTER
0
0
70
30
Example 9.1
Example 9.1
January
February
March
April
May
June
WORKERS WORKERS
HIRED
FIRED
Cost = (100 workers hired x $100) + (50 workers fired x $500)

= $10,000 + 25,000 = $35,000
Cost = 140,000 pounds x 0.50 per pound = $70,000
MONTH
WORKERS
NEEDED
3000
34
150
250
23
500
1300
28
200
31
500
20
1300
25
200
28
500
250
56
Burruss
Production Plan
REGULAR
SUBENDING
PERIOD DEMAND PRODUCTION OVERTIME CONTRACT INVENTORY
1
2
3
4
Total
900
1500
1600
3000
7000
1000
1200
1300
1300
4800
100
150
200
200
650
0
250
500
500
1250
500
600
1000
0
2100
Table 9.3
(Yield Management)
Yield Management
P(n < x)
Cu
Cu + Co
where
n = number of no-shows
x = number of rooms or seats overbooked
Cu = cost of underbooking; i.e., lost sale
Co = cost of overbooking; i.e., replacement cost
P = probability
3.8
57
Yield Management
NO-SHOWS
PROBABILITY
P(N < X)
0
1
2
3
.15
.25
.30
.30
.00
.15
.40
.70
Yield Management
NO-SHOWS
PROBABILITY
P(N < X)
Cost of overbooking
0
.15
.00
[2(.15) + 1(.25)]$70
= $38.50 .25
Cost of bumping customers
1
.15
(.30)$75
=
$22.50
Lost
revenue
from
no-shows.517
2
.30
.40
3
.70
$61.00 .30
Total cost of overbooking
by
2 rooms
Expected number of no shows
Expected savings = ($131.225 - $61) = $70.25 a night
0(.15) + 1(.25) + 2(.30) + 3(.30) = 1.75
.517
Expected number of no shows

0(.15) + 1(.25) + 2(.30) + 3(.30) = 1.75
Optimal probability of no-shows
Cu
75
P(n < x)
=
= .517
Cu + Co
75 + 70
Optimal probability of no-shows

Cu
75
P(n < x)
=
= .517
Cu + Co
75 + 70
Example 9.4
Example 9.4

Linear decision rule (LDR)
Search decision rule (SDR)
Management coefficients model
(Reasons to Hold Inventory)

1.
2.
3.
4.
5.
6.
58
(Forms of Demand)
1. Dependent
2. Independent
(Inventory Costs)
1. Carrying Cost
2. Ordering Cost
3. Shortage Cost
(Inventory Control Systems)

1. Continuous system (fixed-order-quantity)
2. Periodic system (fixed-time-period)
ABC Classification System

3 A B C 3.1
3.1 ABC Inventory Control System

PERCENTAGE
PERCENTAGE
CLASS
OF UNITS
OF DOLLARS
A
B
5 - 15
30
70 - 80
15
59
50 - 60
5 - 10
3.9
ABC Classification
ABC Classification
PART
1
2
3
4
5
6
7
8
9
10
UNIT COST
$ 60
350
30
80
30
20
10
320
510
20
TOTAL
PART
VALUE
PART
ANNUAL USAGE
9
8
2
1
4
3
6
5
10
7
90
40
130
60
100
180
170
50
60
120
$30,600
1
16,000
2
14,000
3
5,400
4
4,800
5
3,900
3,600
6
3,000
7
2,400
8
1,700
9
10
$85,400
% OF TOTAL % OF TOTAL
UNIT
ANNUAL
USAGE
VALUECOSTQUANTITY
% CUMMULATIVE
35.9
$ 60
18.7
350
16.4
30
6.3
5.680
4.630
4.220
3.510
2.8
320
2.0
510
20
6.0
5.0
4.0
9.0
6.0
10.0
18.0
13.0
12.0
17.0
90
A
40
130
60
B
100
180
170
C
50
60
120
6.0
11.0
15.0
24.0
30.0
40.0
58.0
71.0
83.0
100.0
Example 10.1
Example 10.1
(Assumptions of Basic EOQ Model)
EOQ Cost Model

Co - cost of placing order
Cc - annual per-unit carrying cost
D - annual demand
Q - order quantity
Annual ordering cost =
CoD
Q
Annual carrying cost =
CcQ
2
Total cost =
CoD
CcQ
+
Q
2
60
3.10 EOQ
EOQ with
Noninstantaneous Receipt
EOQ Example
Cc = $0.75 per yard
Co = $150
D = 10,000 yards
p = production rate
Qopt =
2CoD
Cc
CcQ
CoD
+
TCmin =
Q
2
Qopt =
2(150)(
10,000))
150)(10,000
(0.75)
0.75)
(150)(
10,,000)
2,000))
150)(10
000) (0.75)(
0.75)(2,000
TCmin =
+
2,000
2
Qopt = 2,000 yards
Maximum inventory level = Q -
2CoD
TC =
Cc 1 - d
p
CoD CcQ
d
Q + 2 1- p
Production run =
32.2
0.75 1 150
Cc 1 -
d
p
Production Quantity
D = 10,000 yards
p = 150 yards per day
Cc = $0.75 per yard

Co = $150
d = 10,000/311 = 32.2 yards per day
2(150)(
10,000))
150)(10,000
=
2CoD
Qopt =
C oD C c Q
d
Q + 2 1- p
TC =
Production Quantity
Qopt =
d
p
Q
d
Average inventory level =
1p
2
Order cycle time = 311 days/(

D/Qopt)
Orders per year = D/Qopt
days/(D
= 10,000/2,000
= 311/5
= 5 orders/
= 62.2 store days
orders/year
Cc = $0.75 per yard

Co = $150
d = 10,000/311 = 32.2 yards per day
Q
d
p
=Q1-
TCmin = $750 + $750 = $1,500
Example 10.2
d = demand rate
= 2,256.8 yards
Qopt =
Number
D = 10,000 yards
p = 150 yards per day
2CoD
2(150)(
10,000))
150)(10,000
10,000 = 2,256.8 yards
D
=
of
runs =
= 32.2
= 4.43 runs/year
Cc production
1- d
0.75Q1 - 2,256.8
150
p
d
32.2
Maximum
inventory
level = Q 1 = 2,256.8 1 C oD C
d
p
cQ
150
TC = Q + 2 1 - p = $1,329
= 1,772 yards
= $1,329
2,256.8
Q
=
= 15.05 days per order
p
150
Production run =
Example 10.3
2,256.8
Q
=
= 15.05 days per order
p
150
Example 10.3
Quantity Discounts
Quantity Discounts
9 Price per unit decreases as order

quantity increases
9 Price per unit decreases as order

quantity increases
TC =
CoD
CcQ
+
+ PD
Q
2
TC =
where
where
P = per unit price of the item

D = annual demand
CoD
CcQ
+
+ PD
Q
2
ORDER SIZE
P = per unit price
0 - of
99the item
D = annual
100demand
- 199
200+
PRICE
$10
8 (d1)
6 (d2)
61
Quantity Discount
QUANTITY
PRICE
1 - 49
50 - 89
90+
$1,400
1,100
900
Qopt =
2CoD
=
Cc
For Q = 72.5
Co = $2,500
Cc = $190 per computer
D = 200
2(2500)(
200))
2500)(200
= 72.5 PCs
190
TC =
CcQopt
CoD
+
+ PD = $233,784
2
Qopt
TC =
Cc Q
CoD
+
+ PD = $194,105
2
Q
For Q = 90
Example 10.4
3.11
When to Order
Reorder Point Example
Reorder Point is the level of inventory

at which a new order is placed
Demand = 10,000 yards/year

Store open 311 days/year
Daily demand = 10,000 / 311 = 32.154 yards/day
Lead time = L = 10 days
R = dL
where
d = demand rate per period
L = lead time
R = dL = (32.154)(10) = 321.54 yards

Example 10.5
JIT
1.Flexible resources
2.Cellular layouts
3.Pull production system
4.Kanban production control
5.Small-lot production
6.Quick setups
62
7.Uniform production levels

8.Quality at the source
9.Total productive maintenance
10.Supplier networks
JIT 3.9
Waste in Operations
Waste in Operations
Figure 11.1
Figure 11.1
Waste in Operations
Figure 11.1
3.9
(The Pull System)

(Kanban Production Control System)

1.
2. 2 (two-bin inventory system)
63
3.
4.
5.
(Types of Kanbans)
Kanban Square
Signal Kanban
Material Kanban
Supplier Kanbans
3.10
The Origin of Kanban
Types of Kanbans
a) TwoTwo-bin inventory system
b) Kanban inventory system
Bin 1
Kanban
Bin 2
Reorder
card
Q-R
R
Q = order quantity
R = reorder point - demand during lead time
Figure 11.5
Figure 11.6
Types of Kanbans
Figure 11.6
64
Types of Kanbans
A Sample Kanban
Figure 11.6
3.10
3.12
Determining the Number

of Kanbans
d
L
S
C
= 150 bottles per hour

= 30 minutes = 0.5 hours
= 0.10(150 x 0.5) = 7.5
= 25 bottles
(150 x 0.5) + 7.5

dL + S
=
25
C
75 + 7.5
=
= 3.3 kanbans or containers
25
N=
Round up to 4 (to allow some slack) or

down to 3 (to force improvement)
1. (Processing time)
2. (Move time)
3. (Waiting time)
4. (Setup time)
65
(Supplier Policies)
1.
2.
3.
4.
5.
(Kaizen)
JIT
(Benefits of JIT)
1.
Visual Control
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
66
Enterprise Resource Planning (ERP)
ERP Modules
ERP
ERPs Central Database
Finance &
Accounting
Sales
&
Marketing
ERP Data
Repository
Production &
Materials
Management
Human
Resources
Figure 12.2
3.11 ERP
ERP

Customer Relationship Management (CRM)

1.
2.
3.

ERP SCM
Collaborative Product Commerce (CPC)
67
Collaborative Product
Commerce (CPC)
Customer Relationship
Management (CRM)
CRM)
Collaborative
Design
Collaborative
Product
Commerce
(CPC)
CPC)
Product
Design
Collaborative
Manufacture
Manufacture
&
Delivery
DFMA
Collaborative
Design
Enterprise
Resource
Planning
(ERP)
ERP)
Collaborative
Manufacture
Time to Customer
Time to Market
Customers
Suppliers
Figure 12.3
Supply Chain
Management (SCM)
SCM)
3.12
(Master Production Schedule)

1. MRP
2.
3.
4.
3.13
3.13
68
Master Production
Schedule
MPS ITEM
Clipboard
Lapdesk
Lapboard
Pencil Case
85
0
75
125
95
50
120
125
PERIOD
3
4
120
0
47
125
100
50
20
125
5
100
0
17
125
ERP MRP
MRP (material requirements planning) ERP

MRP MRP II (manufacturing resource planning)
ERP and MRP II
Material
Requirements
Planning
Product
structure
file
Master
production
schedule
Material
requirements
planning
Item
master
file
Planned
order
releases
Work
orders
Purchase
orders
Rescheduling
notices
3.13 MRP
(MRP Outputs)
(Planned orders)
69
(Work orders)
(Purchase orders)

(Rescheduling notices)
3.14
Planned Order Report

Item
On hand
On order
Allocated
DATE
9-26
9-30
1010-01
1010-08
1010-10
1010-15
1010-23
1010-27
#2740
100
200
50
ORDER NO.
NO.
Date
Lead time
Lot size
Safety stock
SCHEDULED
RECEIPTS
GROSS REQS.
REQS.
AL 4416
AL 4147
GR 6470
SR 7542
CO 4471
GR 6471
GR 6471
GR 6473
PROJECTED
ON HAND
50
25
0
- 50
150
75
25
0
- 50
25
25
50
200
75
50
25
50
Key:
Key: AL = allocated
CO = customer order
PO = purchase order
MRP Action Report
9 - 25 - 02
2 weeks
200
50
ACTION
Expedite SR 1010-01
Current date 9-2525-02

ITEM
DATE
#2740
#3616
#2412
#3427
#2516
#2740
#3666
1010-08
1010-09
1010-10
1010-15
1010-20
1010-27
1010-31
ORDER NO.
NO. QTY.
QTY.
7542
200
7648
100
200
50
ACTION
Expedite
Move forward
Move forward
Move backward
DeDe-expedite
Release
Release
SR
PO
PO
PO
SR
PO
WO
1010-01
1010-07
1010-05
1010-25
1010-30
1010-13
1010-24
Release PO 1010-13
WO = work order
SR = scheduled receipt
GR = gross requirement
Table 12.7
Table 12.6
MRP II (manufacturing resource planning) MRP

3.14
Manufacturing
Resource
Planning
(MRP II)
Aggregate
production
plan
Forecast
No
No
Manufacturing
Resource
Planning
(MRP II)
Customer
orders
Aggregate
production
plan
Forecast
Feasible?
Customer
orders
Master production
schedule
Material requirements
planning
No
Capacity requirements
planning
Feasible?
No
Aggregate
production
plan
Forecast
Yes
Customer
orders
Aggregate
production
plan
Forecast
No
Feasible?
Customer
orders
Yes
Master production
schedule
planning
planning
Feasible?
No
Feasible?
Feasible?
Feedback
Yes
Master
production
schedule
Feedback
Yes
Yes
Purchase
orders
Work
orders
Inventory
Shop floor
control
Master
production
schedule
Manufacture
Purchase
orders
Work
orders
Inventory
Shop floor
control
Manufacture
Figure 12.11
Figure 12.11
Yes
70
Manufacturing
Resource
Planning
(MRP II)
Master production
schedule
No
Manufacturing
Resource
Planning
(MRP II)
Customer
orders
Aggregate
production
plan
Forecast
Feasible?
Yes
Master production
schedule
planning
Purchase
orders
planning
No
No
Feasible?
Yes
Master production
schedule
Work
orders
planning
planning
planning
planning
Shop floor
control
Inventory
Feasible?
Feedback
No
Feasible?
Feasible?
Feedback
Yes
No
Customer
orders
Aggregate
production
plan
Forecast
Yes
Purchase
orders
Work
orders
Inventory
Shop floor
control
Purchase
orders
Work
orders
Inventory
Shop floor
control
Manufacture
Yes
Manufacture
Manufacture
Figure 12.11
Figure 12.11
3.14 Manufacturing Flow
Capacity Requirements Planning (CRP)

(Capacity)
Capacity = (no. machines or workers) x (no. shifts) x (utilization) x (efficiency)
(Capacity Terms)

(Utilization)
71
Capacity Requirements
Planning
MRP planned
order
releases
Routing
file
Capacity
requirements
planning
Open
orders
file
Load profile for

each machine center
3.15
(Scheduling)

(Scheduling by Process Type)

1. Process Industry
2. Linear programming
3. EOQ with noninstantaneous replenishment
4. Mass Production
5. Assembly line balancing
6. Project
7. Project -scheduling techniques (PERT, CPM)
(Scheduling Batch/Job Shop Operations)

(Aggregate planning)
(Master scheduling)
Material requirements planning (MRP)
72
Capacity requirements planning (CRP)
Job Shop

Objectives in Scheduling
1.
2.
3.
4.
5.
6.
7.
8.
9.
Assignment Method
1.
2.
3. 0 2
4.
0
2
5.
73
3.15
Assignment Method
FOOD
Beans
Peaches
Tomatoes
Corn
1
10
6
7
9
COOKER
2
3
5
6
2
4
6
5
5
4
4
10
6
6
10
Row reduction
Column reduction
Cover all zeros
5
4
2
5
3
2
0
3
3
2
0
3
0
0
1
1
1
2
0
0
5
4
1
6
0
0
1
1
1
2
0
0
4
3
0
5
0
0
1
1
1
2
0
0
4
3
0
5
Number lines number of rows so modify matrix

Example 13.1
Assignment Method
Modify matrix
1
0
0
1
0
0
3
1
1
2
2
0
Cover all zeros

2
1
0
3
1
0
0
1
0
0
3
1
1
2
2
0
2
1
0
3
Number of lines = number of rows so at optimal solution

FOOD
Beans
Peaches
Tomatoes
Corn
1
1
0
0
1
COOKER
2
3
0
1
0
2
3
2
1
0
4
2
1
0
3
FOOD
1
Beans
10
Peaches
6
Tomatoes 7
Corn
9
COOKER
2
3
5
6
2
4
6
5
5
4
4
10
6
6
10
Orders completed in 6 hours

Example 13.1
74
(Quality)

4.1
The Meaning of Quality

The
The Meaning
Meaning of
of Quality
Quality
Producers
Producers Perspective
Perspective
Production
Production
Consumers
Consumers Perspective
Perspective
Quality
Quality of
of Conformance
Conformance
Quality
Quality of
of Design
Design
Conformance to
specifications
Cost
Quality characteristics
Price
Marketing
Marketing
Fitness
Fitness for
for
Consumer
Consumer Use
Use
4.1
75
PDAC
4.2
The Deming Wheel

(or PDCA Cycle)
4. Act
1. Plan
Institutionalize
improvement;
continue the
cycle.
Identify the
problem and
develop the
plan for
improvement.
3. Study/Check
2. Do
Assess the plan;

is it working?
Implement the
plan on a test
basis.
4.2 The Deming Wheel (or PDCA Cycle)
(Total Quality Management)

1.Customer defined quality
(Cost of Quality) 2
1. (Prevention) :
2. (Appraisal):
1. Labor index:
2. Cost index
:
76
3. Sales index
4. Production index
:
:
4.1

YEAR
1999
2000
2001
2002
$ 27,000
155,000
386,400
242,000
$ 810,400
41,500
122,500
469,200
196,000
829,200
74,600
113,400
347,800
103,500
639,300
112,300
107,000
219,100
106,000
544,400
Accounting Measures
Sales
$ 4,360,000
Mfg costs
1,760,000
4,450,000
1,810,000
Quality Costs
Prevention
Appraisal
Internal failure
External failure
Total
5,050,000
1,880,000
5,190,000
1,890,000
Quality Productivity Ratio (QPR)

QPR =
Good-quality units x100
(input)(processing cost) + (defective units)(rework cost)
4.2
Direct cost = $30/unit
Rework cost = $12/unit
100 80% , 50% 4
1. 200
2. $26 $10
77
3. 95%
4. 2 , 3
QPR Example
QPR Example
Direct cost = $30/unit

Rework cost = $12/unit
Start with 100 motors per day
80% are good, 50% of defective units can be reworked
Base case:
Case 2: Reduce processing cost to $26 and rework to $10

QPR =
80 + 10
(100)($26) + (10)($10)
(100) = 3.33
Case 3: Increase initial good-quality to 95%
80 + 10
QPR =
(100)($30) + (10)($12)
(100) = 2.89
QPR =
Case 1: Increase input to capacity of 200 units

160 + 10
QPR =
(200)($30) + (20)($12)
95 + 10
(100) = 3.22
(100)($30) + (2.5)($12)
Case 4: Decrease costs and increase initial good-quality
(100) = 2.89
QPR =
95 + 2.5
(100) = 3.71
(100)($26) + (2.5)($10)
ISO 9000
ISO 9001
ISO 9002
ISO 9003
ISO 9004
ISO 9001-2000
ISO Accreditation
European registration
3rd party registrar assesses quality program
European Conformity (CE) mark authorized
United States 3rd party registrars
American National Standards Institute (ANSI)
American Society for Quality (ASQ)
Registrar Accreditation Board (RAB)
78
Statistical Process Control
U
L

1. Common Causes
2. Special Causes

(Types of Data)
1. (Attribute data)

2. (Variable data)

(SPC Applied to Services)

(Control Charts)
(Charts for variables) Mean (x-bar), Range (R)

(Charts for attributes) p , c
79
Control Charts for Attributes

p Charts
c Charts:
4.3
c-Chart
p-Chart
UCL = p + zp
LCL = p - zp
UCL = c + zc
LCL = c - zc
where
z = the number of standard deviations from
the process average
p = the sample proportion defective; an
estimate of the process average
p = the standard deviation of the sample
proportion
c =
where
c = number of defects per sample
p(1 - p)
n
p =
x-Chart Calculations
Range ( R- ) Chart
UCL = D4R
R=
x1 + x2 + ... xk
x= =
k
LCL = D3R
=
UCL = x + A2R
R
k
=
LCL = x - A2R
where
where
=
x = the average of the sample means
R = range of each sample

k = number of samples
1. Queue
2. A single waiting line
3.
80
Arrivals
Servers
Waiting line structures
4.3
Source of
customers
calling
population
Arrivals
Waiting Line
or
Queue
Queue
Server
Served
customers
4.3
(Elements of a Waiting Line)

Calling population
Source of customers
Infinite
Finite
Arrival rate ( )
Service time
<
(Queue discipline)

81
(Basic Waiting Line Structures)

(Channels) 4.4
Single-Channel Structures
Multi-Channel Structures
MultipleMultiple-channel, single phase
SingleSingle-channel, singlesingle-phase
Waiting line
Waiting line
Server
Servers
MultipleMultiple-channel, multiplemultiple-phase
SingleSingle-channel, multiple phases
Waiting line
Servers
Waiting line
Figure 16.2
Figure 16.2
Servers
4.4
(Single-Channel, Single-Phase Models)
1.
2.
Exponential service times
General (or unknown) distribution of service times
Constant service times
Exponential service times with finite queue length
Exponential service times with finite calling population
(Basic Single-Server Model)
1.
82
Poisson arrival rate

Exponential service times
First-come, first-served queue discipline
Infinite queue length
Infinite calling population
= mean arrival rate
= mean service rate
4.4
Probability that no customers

are in the system (either in the
queue or being served)
P0 = 1 -
Pn =
Probability of exactly n
customers in the system
Average number of
customers in the system
L =
?-
Average number of
customers in the waiting line
Lq =
P0
1-
Average time a customer

spends in the queuing system
W =
Average time a customer

spends waiting in line to
be served
Wq =
Probability that the server

is busy and the customer
has to wait
Probability that the server

is idle and a customer can
be served
2
( - )
Average number
of customers in
the system
L =
Average number
of customers
waiting in line
Lq =
= 1-
24
30
I = 1-
= 1-
= P0

Given = 24 per hour, = 30 customers per hour
Given = 24 per hour, = 30 customers per hour

P0 = 1 -
( - )
Probability of no
customers in the
system
1
L
=
-
1
1
=
= 0.167 hour
- 30 - 24
Average time in the

system per customer
W =
Average time waiting

in line per customer
Wq =
Probability that the

server will be busy and
the customer must wait
Probability the
server will be idle
I = 1 - = 1 - 0.80 = 0.20
= 0.20
24
=
=4
30 - 24
-
(24)2
2
=
= 3.2
30(30 - 24)
( - )
24
=
= 0.133
30(30 - 24)
( - )
24
=
= 0.80
30
Example 16.1
83
Customer service area

= 10 customers/area
= 4 customers/hour per service rep
s = (3)(4) = 12
9 Two or more independent

servers
serve
Computing
P0 can
be a
single waiting line time-consuming.
Tables canservice,
used to
9 Poisson arrivals, exponential
find P0 for selected
infinite calling population
values of and s.
9 s >
P0 =
1
n=s-1
n=0
1
n!
+ s!
s
s -
Probability no customers
are in the system
P0 = 0.045
Number of customers in
the service department
L = 6
Waiting time in the

service department
W = L / = 0.60
Example 16.6
Customer service area

= 10 customers/area
= 4 customers/hour per service rep
s = (3)(4) = 12
Number of customers
waiting to be served
Lq = L - / = 3.5
Average time customers

will wait in line
Wq = Lq/ = 0.35 hours
Probability that
customers must wait
Pw = 0.703
9 Add a 4th server to improve service

9 Recompute operating characteristics
9 P0 = 0.073 prob of no customers
9 L = 3.0 customers
9 W = 0.30 hour, 18 min in service
9 Lq = 0.5 customers waiting
9 Wq = 0.05 hours, 3 min waiting, versus 21 earlier
9 Pw = 0.31 prob that customer must wait
Example 16.6
(Human Resources)

3
4.1
84
4.1
TASK ANALYSIS
Description of tasks to be
performed
Task sequence
Function of tasks
Frequency of tasks
Criticality of tasks
Relationship with other
jobs/tasks
Performance requirements
Information requirements
Control requirements
Error possibilities
Tasks duration(s)
Equipment requirements
WORKER ANALYSIS
Capability
requirements
Performance
requirements
Evaluation
Skill level
Job training
Physical requirements
Mental stress
Boredom
Motivation
Number of workers
Level of responsibility
Monitoring level
Quality responsibility
Empowerment level
ENVIRONEMENTAL ANALYSIS
Work place location

Process location
Temperature and humidity
Lighting
Ventilation
Safety
Logistics
Space requirements
Noise
Vibration
(Work Measurement)

4.5
Number of Cycles
Number of Cycles
To determine the sample size:
n=
zs
eT
Average cycle time = 0.361

Computed standard deviation = 0.03
Company wants to be 95% confident that
computed time is within 5% of true average time
where
z = the number of standard deviations from the mean in
a normal distribution reflecting a level of statistical
confidence
s=
(xi n-1
x)2
n=
= sample standard deviation from the

sample time study
zs
eT
(1.96)(0.03)
= 10.61, or 11
(0.05)(0.361)
T = the average job cycle time from the sample time study
e = the degree of error from the true mean of the
distribution
85
(Elemental Times)

Time Measurement Units (TMU)
0.0006 , 100,000
4.6
MTM Table for MOVE

TIME (TMU) WEIGHT ALLOWANCE
DISTANCE
Hand in Weight
MOVED
motion
(lb)
Dynamic
(INCHES)
A
B
C
B
up to:
factor
3/4 or less
1 2.5
2.0
2.9
2.0
3.4
2.0
2.3
2.5
1.00
2 3.6
3 4.9
4 6.1
4.6
5.7
6.9
5.2
6.7
8.0
2.9
3.6
4.3
7.5
1.06
2.2
20 19.2
18.2
22.1
15.6
37.5
1.39
12.5
Static
constant
TMU
A. Move object to other hand or against stop

B. Move object to approximate or indefinite location
C. Move object to exact location
(Learning Curves)

86
Processing time per unit
Learning Curves
Units produced
87

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Operations Management

. . Ph.d, FCILT, CPIT, CPIM,CCRM

A New Value Chain

(b) Intermediaries Eliminated (Deintermediation)

(b) New Intermediaries Introduced (Reintermediation)

Mobils Strategy Map

Nongasoline products &

More premium brands

Delight the customer

Develop business skills

Create new products &

1.9 Payoff Table

Southern Textile Company

Southern Textile Company

Minimax Regret Solution

$1,300,000 - 800,000 = 500,000

Southern Textile Company

$800,000(0.3) + 500,000(0.7) = $590,000 Maximum

Southern Textile Company

Equal Likelihood Criteria

$800,000(0.5) + 500,000(0.5) = $650,000 Maximum

Expected Value of Perfect Information

= $1,300,000 (0.70) + 500,000 (0.30)

Decision Tree Solution

1.11 Operations Strategy at Wal-Mart

The Design Process

Revising and testing

Breaking Down Barriers to Effective

(a) The original design

(b) Revised design

(c) Final design

OneOne-piece base &

The Service Design Process

Cost and time

Figure 3.15 Blueprint for an Installment Lending Operation

From Function to Process

Supply Chain Management

= fixed cost + total variable cost

Decision Support System

2.9 Components of e-Manufacturing

(Processes & Technology)

1. Best size for facility?

(Designing Process Layouts) 2

(Elements of Project Planning)

Simplified Project Network

Work Breakdown Structure

9 Hierarchical organization of work to

2.15 Gantt Chart

Project Network for a House

Supply Chain Management

Distribution Centers and Warehousing

Vendor-Managed Inventory : VMI

Collaborative Distribution and Outsourcing

(The Transportation Method)

Solution for Grain

Based on Exhibit 7.3

Global Supply Chain

Duties and Tariffs

(Strategic Role of Forecasting)

Forms of Forecast Movement

3. Plot data and

6. Check forecast accuracy

4. Select a forecast model

8a. Forecast over