Assignment Cover Sheet

Surname: First Names: Student Number: Subject: Govender Krishna 109662 Operations Management

Assignment Number: 04 Tutors Name: Examination Venue: Johannesburg Date Submitted: Submission: Postal Address: 21 May 2011 First (X) Resubmission :() P.O. Box 20568 Protea Park 0305 devgov12345@gmail.com (Cell) 082 452 4447 Course/Intake: Declaration: MBA 1 July 2011 I hereby declare that the assignment submitted is an original piece of work produced by myself.

Email: Contact Nos:

Table of Contents
Table of Contents Introduction 1. Wastes at St James Hospital. 2. The elements in St. James new approach. 3. Further ideas from Just in Time manufacturing. 4. Main factors that influenced the four location decision. 5. What the companies were trying to improve. 6. Factors that influence the location of design centres compared factors that influence manufacturing operations. 7. Benefits of Materials Requirement Planning. 8. Weighted moving average demand forecast. 9. Costs associated with poor quality. 10. Expected completion time and variance. 11. AON network diagram 12. Limitations of PERT and CPM. 13. Conclusion. 14. Bibliography 13-19. 19-20. 20-22. 22-23. 23. 24. 24-25 25 Page No 3 4 4-7. 8-10. 10-12. 12. 13.

Introduction. Just In Time systems principal goal is the elimination of waste and the principal measure of success is how much or how little inventory there is. Virtually anything that achieves this end can be considered a Just In Time innovation. Just In Time (JIT) purchasing practices uniquely deliver high quality material. A major operational decision is the location strategy, which is the process of determining where the organisation should put its facility and how the organisation should determine the decision. Materials Requirement Planning (MRP) is more commonly regarded as a push system. It is a simple method of projecting the requirements of the individual components of a product.

List of Abbreviations. JIT Just in Time. MRP Materials Requirement Planning. PERT Program Evaluation and Review Technique. CPM Critical Path Method.

Question 1.1 Identify the wastes that initially could be found at St James Hospital. 1.1.1. Excess inventory: Fifteen thousand different products is excessive inventory holding. 1.1.2. The use of expensive items instead of low cost items: The expensive surgeons gloves could be replaced by cheaper alternatives. 1.1.3. Duplicated inventory: Twenty different types of gloves are used, this could be reduced to fewer types. 1.1.4. Purchasing administration: Similar items are supplied by six or more suppliers. 1.1.5. Too many buyers. 1.1.6. Excess materials in standard packs. 1.1.7. Cancelled appointments in Urology surgery. 1.1.8. Process complexity in Urology administration. Applying lean principles [online]. Available from http://www.pearsoned.co.uk. [Accessed 14 March 2012]. 1.1.9. The first six are typical wastes that can be identified in manufacturing, as they involve material management. The last two concern process management in administration systems.

Question 1.2 Describe and explain the elements in St. James new approach which could be seen as deriving from JIT principles of manufacturing. 1.2.1. Origins of JIT JIT is a manufacturing philosophy, which seeks to eliminate the ultimate source of waste in all of its forms throughout the producing process, from purchasing through distribution. By eliminating waste, JIT targets production with the minimum lead time and at the lowest total cost.

1.2.2. Goals and building block of JIT.

Source: Applying Lean Principles [online] available from http://www.pearsoned.co.uk [Accessed 14 March 2012]. Figure 1: An overview of the goals and building block of JIT concept 1.2.2.0. The main emphasis in the case is on the elimination of waste in the purchasing system. Jimmys relationship with suppliers is changing from a medium term commitment towards a more stable long term relationship with fewer suppliers. Available from http://www. pearsoned.co.uk [Accessed 14 March 2012]. JIT purchasing practices are characterized by a small supplier base whose firms will be located close to Jimmys, make frequent deliveries and will be considered long term partners with Jimmys. Under these operating conditions supplier relations are built on a high degree of mutual trust and

openness when entering with a long term relationship it is important that the buyer and the supplier must share information and also protect t its confidentiality. 1.2.2.1. When entering a long term relationship, it is important that the buyer selects suppliers that has consistently exhibited high levels of quality and delivery reliability. 1.2.2.2. The JIT purchasing concept at Jimmys will reduce replenishment lead times by utilizing suppliers close to the hospital and by ordering small quantities, which in turn reduces a suppliers workload per period. 1.2.2.3. The benefits of JIT purchasing at Jimmys includes: reduced inventory carrying costs, reduced costs for materials, few suppliers to contract with, reduced expediting, reduced travel and telephone costs, fast detection of defects, less need for inspection, reduced production control and supervision. 1.2.2.4. Suppliers involvement in the design of products may help improve product quality and minimize costs to both suppliers and Jimmys. Further, sharing accurate scheduling information between the two entities is essential. This removes the uncertainty of demand and improves the understanding of future material requirements. Suppliers should be treated as an integral part of Jimmys. Dennision, R., Kathawala, Y., and Elmuti, D. (1993). Just-in-time: Implications for the hospital industry. Journal of Hospital Marketing, 8(1), pp. 122-129. 1.2.3.0. The main problem appears to be the medical staffs preference for a wide range of different types of materials at Jimmys. To reduce input variety means standardisation and this can be achieved by negotiation, persuasion or by imposition. Suppliers must be assessed for their capability and interest, in order to ensure that they are likely never to fail to deliver as promised. Long term value for money in the overall purchasing and inventory processes is more critical. [online] available from http://www.pearsoned. co.uk [Accessed 14 March 2012]. 1.2.3.1. The standardization of ordering materials is crucial to the elimination of redundant ordering of parts for a particular product or service. Jimmys can create an approved

product list to standardise supplies. More importantly, all information will be stored in a computerized system connecting Jimmys and supplier. This provides accurate and dependable information regarding the needs of Jimmys and supplier.Dennision, R., Kathawala, Y., and Elmuti, D. (1993). Just-in-time: Implications for the hospital industry. Journal of Hospital Marketing, 8(1), pp. 122-129. 1.2.3.2. The use of standard parts at Jimmys means that workers have fewer parts to deal with, and training time and costs are reduced. purchasing, handling and checking quality become more routine and lend themselves to continual improvement. Another important benefit is the capability to use standard processing. 1.2.4.0. Another element of improvement from JIT principles is the use of cellular operations. The application of cellular principles involved making four people responsible for the admissions to urology at Jimmys. According to Barrett, M. (1994). JIT layout is organized in groups called cells where they are laid out in series to serve the workers. These workers possess all necessary skills required to run all workstations in their cell and have the authority and freedom with their own planning and scheduling. Input and output of the patients are usually received and completed within the same location or area. This helps to synchronize the inflow and outflow of patients at Jimmys. 1.2.5.0. The introduction of kanban systems for some inventory management at Jimmys. According to Barrett, M. (1994). kanban is a signalling system and uses cards to signal the need for an item or trigger the movement, production or supply of a unit. For example at Jimmys the kanban system can be used for syringes. The boxes of syringes arrive in one shelf and the empty syringe boxes are placed in another shelf. These shelves act as kanbans and are sized so that it can only hold the number of items that are needed. The outgoing kanban signals the need to order another.

Question 1.3 Discuss further ideas from JIT manufacturing that could be applied in a hospital setting such as St. James. 1.3.1. According to Barrett, M (1994). Using a JIT approach at Jimmys would not only benefit the organization, but also patients. In order to improve the quality of patient care, managers should focus on cycle time per stage of care, interconnections between stages of care, service quality, staffing and patient waiting times. Some other measurable benefits include a reduction of redundant clinical and administrative procedures, a reduction of delays due to inadequate documentation and a reduction in staff waiting time. 1.3.2. Implementation of Flow. According to Manou, O. (2007). In order to establish flow in a system the following must exist: 1.3.2.1. Maintenance, Organization and Housekeeping. A typical cause of setup problems is poor housekeeping, equipment maintenance and incorrect organization of tools. Implementation of flow at Jimmys will enforce proper maintenance, organization and housekeeping of intensive care and X-ray machines, this result in significant benefits for Jimmys. 1.3.2.2. Eliminate Adjustments. A short period of time is required to enforce a new adjustment but a long period of time is required to make this adjustment to function properly. 1.3.2.3. JIT Scheduling. Heizer and Render (2008:651) state that better scheduling improves the ability to meet patients needs and reduces patients waiting. 1.3.3.0. Barret, M. (1994). state that simplicity is one of JITs key components. Hospitals can

eliminate complex billing procedures, which will accelerate the billing process and improve efficiency. the JIT approach can eliminate the need for a separate inspection process after discharging a patient if each case is reviewed and tracked during the patients stay, which will also improve efficiency. 1.3.4.0. In order to successfully implement the JIT system at Jimmys, hospital personnel need to educated about the philosophy behind JIT and their role in the JIT system. 1.3.5.0. Quality at Source. According to Manou, O. (2007). the implementation of Quality at the Source technique at Jimmys will aim to reduce manufacturing costs significantly (e.g. costs occurring by the shorter life cycle of the machines and major equipment repairs.) while upgrading the quality of treatment at the same time. Quality at source rests on two principles: Total Productive Maintenance and Total Quality Management. 1.3.5.1. Total Productive Maintenance. The technique of achieving Total Productive Maintenance focus on: Preventative Maintenance which is the scheduled maintenance to avoid breakdowns. Predictive Maintenance which is the prediction of pending machine breakdowns and appropriate intervention to prevent them. 1.3.5.2. Total Quality Management. According to Manou, O. (2007). time studies and work method techniques are used to determine the amount of work needed to perform a task. Process standardization is applied to expose problems and motivate their solution by implementing new methods. this manner, inherent sources of variation is eliminated. 1.3.5.3. Visual control. Manou, O. (2007). state that visual control is the design of a production system that controls itself by clearly identifying where the problems are and by creating a sense of urgency wherever is necessary. In particular visual means of control should be designed

in order for each worker at Jimmys to assume actions for maintaining the control of the production system. In summary visual controls establishes the means to visualize whether the state of a system is within acceptable limits and to pinpoint waste. 1.3.5.4. Kaizen. According to Manou, O. (2007). Kaizen is a Japanese term meaning continuous and unending improvement in the processes in order to eliminate waste and to enhance value. It is an ongoing process of identifying opportunities for improvement. The Kaizen technique aims in reducing non value added activities such as set up times and unnecessary transport of materials. 1.3.5.5. The frequent and scheduled implementation of the above quality of source techniques at Jimmys have long term benefits. Operators are more recognizable with production equipment and pending problems. Question 2.1. For each of these four location decisions, rank what you think are the main factors that influenced the location decision. 2.1.1. In April 1994, Ford Motor Company announced that product development, previously undertaken independently by each operation, would be integrated into five Vehicle Programme Centres, with each having worldwide responsibility for the design, development and engineering of any vehicle assigned to it. The firm was effectively moving from a multi domestic strategy in which each of its North American and European operations independently developed products to serve its own markets, to a global strategy in which the company would have one operation that develops products for worldwide markets. 2.1.2. Fiats location decision to invest in FSM at Bielsko-Biola seems to have been looking to the future of its sales. Eastern Europe will certainly be a growing market and expects the regions to develop quickly in the wake of Communisms collapse. There are also

10

advantages of locating in Eastern Europe, the most obvious of these are exceptionally low cost, highly skilled labour and proximity to the growing market. Of all the potential Eastern European locations, the one in Poland seems to present Fiat with fewer difficulties than many of the others For Poland, Fiats involvement means new technology, more jobs and management expertise. [online] available from http: //www.pearsoned.co.uk [Accessed 14 March 2012]. 2.1.3. The move by Hyundai to relocate the bulk of its personal computer operations from South Korea to America is an illustration how powerful proximity to a market can be for some operations. When configuring products to what the customer wants, it is an advantage to have those kinds of operations in America, the worlds largest computer market. The California advantage was mainly proximity to the market, which meant shortening the supply chain between the manufacturing plant and its main market, which both saves the cost of inventories in the pipeline and improves the responsiveness of delivery times to the market. [online] available from http: //www.pearsoned.co.uk[Accessed 14 March 2012]. In making the shift Hyundai joins other Asian manufacturers as Taiwans Acer Group in claiming that, while the Far East provides a low cost manufacturing base, a large share of the consumer trend and technologies driving personal computer development still originate in America. It is important to have a local operation closer to the market to react to changes. These advantages clearly outweighs any additional cost of labour and accommodation. The perceived disadvantages of high labour costs may be far less an issue now than they might have been several years ago. [online] available from http: //www. fundinguniverse.com [Accessed 16 March 2012]. 2.1.4. Hoover reorganized its operations in the United Kingdom and Europe into Hoover Europe which was responsible for all manufacturing throughout the region. To increase Hoover Europes competitive position, in 1994 Hoover also consolidated all vacuum cleaner production in Europe at its facility in Scotland, closing its manufacturing facility in France. To remain competitive in the fast emerging global business, Hoover found that it had to concentrate its production facilities into one European plant. The low wage and non

11

wage labour cost of Britain when compared to France also contributed to this decision. The company also reasoned that Scotland would provide a more flexible workforce, an important competitive advantage in many industries. [online] available from http: // www.fundinguniverse. com [Accessed 16 March 2012]. Question 2.2. What do you think the companies described in each of these four location decisions were trying to improve and why? 2.2.1. Ford was trying to put some clarity into its globally complex organisational strategy by identifying certain design responsibilities with specific locations that develops products for worldwide markets. This eliminates the duplication of value chain activities, the firm saves on product development and manufacturing costs. Second, by producing a standard product for the world that uses standard parts, the firm can enjoy economies of scale.

2.2.2. Fiat, in investing in Poland, was looking to secure new and large markets in the future. Establishing experience in what may continue to be a low cost production and highly skilled labour. Fiat expects FSM to expand output substantially by 1993. 2.2.3. Hyundai were getting close to the market to improve responsiveness of supply and responsiveness in product development. Their development operations work with companies like Intel and Advanced Micro Devices. They act as beta test sites for IBM and Microsoft, which allows Hyundai to be up to the minute on new products. if they were far away, that would be impossible. [online] available from http:// www.findarticles.com. [Accessed 18 March 2012]. 2.2.4. Hoover was consolidating their operations in Europe to be more competitive. They were reducing manufacturing costs and were looking at a more flexible workforce.

12

Question 2.3. In the decision by the Ford Motor company to establish vehicle programme centres, do you think the factors influencing the location of design centres are different from those that influence the location of manufacturing operations? Explain your answer. 2.3.1. The Ford location decision is different from manufacturing operations location decision in two important respects. Firstly, it is clearly evident that location of responsibility type decisions are being undertaken in the context of the existing operations within the company. It is not a single location decision, it is a highly complex set of interrelated decisions which include not only location but product development strategy, organisational structure, focus of decision making responsibility and overall operations configuration. [online] available from http: //www.pearsoned.co.uk [Accessed 14 March 2012]. 2.3.2. Secondly the decision as opposed to location of manufacturing operations, concerns location of a service. Although the service is within a manufacturing company but it is a service none the less. Furthermore it is a service which relies on embedded expertise within the existing resources of the company. Ford is making quite a subtle assessment of each alternative sites experience and potential. Not only to do the job of designing motor vehicles, but also co-ordinating the global network in helping them to do so. [online] available from http: //www.pearsoned.co.uk [Accessed 14 March 2012]. Question 3. Discuss the benefits of a MRP system in an organisation. 3.1. MRP is a computer based system designed to organize the timing and ordering of the dependant demand products. The demand for the raw material and components of the final product are calculated by using the demand for the final product and it is determined how much and in what quantity to order from these components and raw material, considering considering the production and lead times and counting back from the delivery time of the product. The dependent technique used in a production environment is called material requirement planning. 3.2. MRP Structure. According to Heizer, J. and Render, B. (2008:568) most MRP systems are computerized,

13

the MRP procedure is straightforward and can be done by hand. The ingredients of a material requirement planning system are master production schedule, bill of material, inventory, purchase records and lead times for each items. Figure 3.2: MRP Structure.

Source: Heizer and Render (2008:568). 3.3. Heizer, J. and Render, B. (2008:562) mention that organizations have found very important benefits in MRP: More effective response to customer orders as a result of improved adherence to schedules, this increases customer satisfaction and orders. Faster and expedient response to market changes increases market share. Vastly improved utilization of facilities and labour improves productivity and return on

14

investment. Reduced inventory levels, frees up holding costs and floor space for other uses. These benefits are the result of a decision to use a dependent inventory scheduling system. Demand for every component is dependent. 3.4. Dependent Demand. According to Heizer, J. and Render, B. (2008:562) dependent demand implies that the demand for one item is related to the demand for another item. Demand for items is dependent when the relationship between items can be determined. Once an organisation receives and order or forecasts demand for the final product, quantities required for all components of the finished product can be computed due to all components being dependent items. The operations manager who schedules production for any order, knows the material requirement down to the last item. The dependent technique used in a . production environment is called material requirement planning.

3.5. Dependent Inventory Model Requirements. According to Heizer, J. and Render, B. (2008:562) effective and efficient use of dependent inventory models require the operations manager to have intensive knowledge with the following: Master production schedule what is to be made and when. Specification or bill of material materials and parts required to make the product. Inventory availability what is in stock. Purchase orders outstanding what is in order and expected delivery date. Lead times how long it takes to get various components. 3.6. Master Production Schedule. The master production schedule drives the system. It states the planned due dates for end items. MRP computer runs involve an interactive process. The master production schedule proposes a tentative schedule. After the MRP run with this schedule. the shop scheduler examines the MRP plan for impractical loads on the productive system, either by stating excessive demands on personnel, equipment or in excessive idle time. The master

15

production schedule is revised and the program is run again. [online] available from http: // www.conestogac.on.ca [Accessed 20 March 2012]. An MRP system generates schedules to meet material needs. It starts with the master schedule and develops a time phased schedule which specifies what, when and how many units of each material are required. Whether this schedule is adhered to, depends first on the master scheduler who may change the schedule. Then on inventory control personnel who may choose to change order quantities or timing. Then on the purchasing department who may make further modifications to a purchase order and finally on the production scheduler who may actually release the work to production, which may be at some time other than that called for in the MRP schedule. [online] available from http: // www.conestogac.on.ca [ Accessed 20 March 2012]. The major demands on the system occur through the master production schedule. From here on throughout the system, the demands are then dependent on the master production schedule. Orders for spare parts and material normally do not go through the master production schedule unless their amounts are large enough to place significant load on the productive system. These demands are fed into the inventory records file by passing the master production schedule. Once there, they are then exploded into the required parts and materials needed during the normal course of the MRP run. the parts and material needed to make the spares and repair parts are therefore dependant demand. [online] available from http: // www.conestogac.on.ca [Accessed 20 March 2012].

3.7. Bills of Material. The Bill of Material file contains information about the product, including listing of parts numbers, quantities needed per unit or product and the assembly or process flow stipulating how the unit is structured. Engineering design changes that affect t the product structure are placed into the Bill of Materials file. Also parts or material changes occur through a change of vendors or material composition are also added to update the file. Bill of

16

Materials not only specify requirements but are also useful for costing and they can serve as a list of items to be issued to production or assembly personnel. when Bill of materials are used in this way, they are usually called pick lists. . According to Heizer, J. and Render, B. (2008:566) Modular Bills. Bill of Materials may be organized around products modules. Modules are not the final finished products to be sold but are components that can be assembled into units. Bill of Materials is sometimes organized as modules, instead of part of a final product because production scheduling and production are often organized around few modules than a large number of final assemblies. According to Heizer, J. and Render, B. (2008:566) there are also two other special kinds of Bill of Materials. Planning Bills are created to assign an artificial parent to the Bill of Materials. These are used to group sub assemblies so that the number of items to be scheduled is reduced and also when kits are issued to the production department. Phantom Bills are Bill of Materials for components of sub assemblies that exist temporarily. These components go directly into another assembly and are never inventoried. They have zero lead times. 3.8. Inventory Record File. It contains the status of an inventory item. it indicates the current stock position, the past timing and sizes of all orders, including open orders for the item and the lead time for each item. It basically happens to be the past experience and serves as a good reference point for planning the future. 3.9. Purchase Orders Outstanding. According to Heizer, J. and Render, B. (2008:567) efficient purchasing and inventory control departments should have a fairly good idea of outstanding orders. When purchase orders are processed, details of those orders and their scheduled delivery dates must be made available to production personnel. This enables managers to prepare good production plans and effectively execute an MRP system.

17

3.10. Lead Time for Components. Heizer, J. and Render, B. (2008:567) state that when products are needed, managers determine when to acquire them. The time that it takes to receive purchased items from suppliers, manufacture or assemble an item is referred to as lead time. Lead time for a manufactured item is made up of move, setup and assembly or run times for each component. 3.11. Closed Loop MRP. .

According to Heizer, J. and Render, B. (2008:579) closed loop material requirement planning provides feedback to scheduling from the inventory control system. A closed MRP system provides information to the capacity plan, master production schedule and production plan. 3.12. Capacity Planning. Heizer, J. and Render, B. (2008:579) state that feedback relating to workload is obtained from each work centre. Load reports indicate the resource requirement in a work centre for all work assigned to a work centre, work planned and expected orders. MRP systems allow production planners to move the work between time periods to smooth the load within capacity. 3.13. Lot Sizing Techniques. According to Heizer, J. and Render, B. (2008:574) MRP systems provide details to determine production schedules and net requirements. Whenever there is a net requirement, a decision has to be taken about how much to order. This decision is known as lot sizing decision. There are a variety of ways of determining lot sizes in an MRP system: Lot for Lot Produce what is exactly required, which meets the requirement of dependent demand. Economic Order Quantity Over time an MRP system reveals the ideal lot sizes that should be purchased for each component item or raw material. By taking into account

18

demand information for an item, carrying costs and transportation cost the most cost effective order amount can be determined with great accuracy. Part Period Balancing A dynamic approach to balance setup and holding costs for a demand. Lot size is changed to reflect requirements of the next lot size in the future. Question 4 4.1. Data collected on the annual number of engine manifold orders are shown in the following table:
Year Applications 1 400 2 600 3 400 4 500 5 1000 6 800 7 700 8 900

Forecast the demand for years 4 to 9 with a three year weighted moving average. The weights are reflected in the table below, are as follows: engine manifold orders in the most recent years are given a weight of two and orders in the other two years are given a weight of one.
Weig hts 2 1 1 4 Period of Orders In the most recent (last year) Two years back Three years back Total

19

Weighted moving average = (weight for period n) (demand in period n) weights Solution 4.1 The result of this weighted moving average forecast are as follows:
Engin e Manif old Order s 400 600 400 500 1000 800 700 900 [(3*400)+(2*600)+(1*400)/4=700 [(3*500)+(2*400)+(1*600)/4=725 [(3*1000)+(2*500)+(1*400)/4=1100 [(3*800)+(2*1000+(1*500)/4=1225 [(3*700)+(2*800+(1*1000)/4=1175 [(3*900)+(2*700+(1*800)/4=1225

Year 1 2 3 4 5 6 7 8 9

Three Year Weighted moving average

4.2. Using relevant examples, discuss the costs associated with poor quality. The costs associated with quality are divided into two categories: costs due to poor quality and costs associated with improving quality. prevention costs and appraisal costs are associated with improving quality, while failure costs result from poor quality. Failure costs are separated into two different categories: internal and external. Worthington, J.C. and Frodge, J.P. (2008) Roadmap to Quality Costs [online].Available from http://www.epa.gov/quality [Accessed 24 March 2012]. 4.2.1. Prevention Costs. These are costs incurred to keep failure and appraisal costs to a minimum. This includes cost of:

20

Quality planning a broad array of activities which create the overall quality plan. Quality audits the costs of evaluating the execution of activities in the quality plan. Training - the costs of preparing and conducting quality related training programs. Worthington, J.C. and Frodge, J.P. (2008) Roadmap to Quality Costs [online].Available from http://www.epa.gov/quality [Accessed 24 March 2012]. 4.2.2. Appraisal Costs. These are costs incurred to determine the degree of conformance to quality requirements. This includes cost of: Product quality audits the cost of performing quality audits on finished products. Maintaining accuracy of test equipment the costs of keeping measuring instruments and equipment in calibration. Incoming inspections and test the cost of determining the quality of purchased product by inspection on receipt or by inspection at source. Worthington, J.C. and Frodge, J.P. (2008) Roadmap to Quality Costs [online].Available from http://www.epa.gov/quality [Accessed 24 March 2012]. 4.2.3. Internal Failure Costs. These are costs associated with defects that are found prior to transfer of the product to the customer. They are costs that would disappear if no defects existed in the product prior to shipment. This includes cost of: Scrap the labour, material and usually overhead on defective product that cannot economically be repaired. Rework the cost of correcting defectives to make them fit for use. Re-inspection the cost of re-inspection of products that have undergone rework or other revision. Worthington, J.C. and Frodge, J.P. (2008) Roadmap to Quality Costs [online]. Available from http://www.epa.gov/quality [Accessed 24 March 2012].

4.2.4. External Failure Costs. These are costs associated with defects that are found after the product is shipped to the

21

customer. These costs would disappear if there were no defects. This includes cost of: Warranty charges the costs involved in replacing or making repairs to products that are still within warranty period. Complaint adjustment the cost of investigation and adjustment of justified complaints attributable to defective product or installation. Returned material the cost associated with receipt and replacement of defective product. Worthington, J.C. and Frodge, J.P. (2008) Roadmap to Quality Costs [online]. Available from http://www.epa.gov/quality [Accessed 24 March 2012]. Question 5. A building project comprises the following list of activities:
Time in days a 3 2 1 6 2 6 1 3 10 14 Immediate predecessor m 6 4 2 7 4 10 2 6 11 16 B 8 4 3 8 6 14 4 9 12 20 C B,D A,E A,E F G H,1

Activity A B C D E F G H I J

The list of activities above show the optimistic times (a), the most likely completion times (m) and the pessimistic completion times (b).

22

5.1. Determine the expected completion time (t) and variance for each activity. Solution 5.1. The result of the expected completion time and variance for the building project.
Optimi stic Activity A B C D E F G H I J a 3 2 1 6 2 6 1 3 10 14 Most Likely m 6 4 2 7 4 10 2 6 11 16 Pessimi stic B 8 4 3 8 6 14 4 9 12 20 Expected Time t=(a+4m+ b)/6 6 4 2 7 4 10 2 6 11 16 Variance [(b-a)/6] [(8-3)/6]=25/36= . 69 [(4-2)/6]=4/36= . 11 [(3-1)/6]=4/36= . 11 [(8-6)/6]=4/36= / 11 [(6-2)/6]=16/36= . 44 [(14-6)/6]=64/36= 1.78 [(4-1)/6]=9/36= . 25 [(9-3)/6]=36/36= 1.00 [(12-10)/6]=4/36= .11 [(2014)/6]=36/36= 1.00

5.2. Construct the AON network diagram for the project. AON network diagram.

23

A(6 )

F(10)

G(2 )

H ) (6 J(1 ) 6

B ) (4

E ) (4

I(1 ) 1 K ) (0

C ) (2

D ) (7

5.3. Outline the limitations of Program evaluation and review technique (PERT) and Critical path method (CPM). Project activities have to be stable in their relationships, the expected completion time of the project is based on ideal situations and does not take into account the possibility of unforeseen events. The expected completion time of all subsequent activities and the project as a whole can become skewed when things go wrong. The technique relies on past data and experience to formulate completion time predictions. New companies may not have any past experience to lean on, putting them at a disadvantage. Managers may place too much emphasis on activities along the critical path, neglecting other activities such as quality and cost control. 6. Conclusion. JIT is a manufacturing concept based on planned elimination of all wastes. This is 24

achieved by providing customers with products in the right place and at the right time. Waste is regarded as any activity that is non value added. JIT is used to establish work flow processes that link work centres together to create an equal flow of materials for its workers. Being in the right location is a key ingredient in an organisations success. A location strategy is a plan for obtaining the optimal location by identifying the needs and objectives of the organisation. Location often play a significant role in profits and market share. In manufacturing situations, the demand for raw materials and components is dependent upon the production plan for the final product. It is therefore possible to determine how many parts or components will be needed in each time period. MRP is a computerised system that exploits this information of the dependence on demand, by managing inventories and controlling production lot sizes of the parts that make the final product. Demand forecasts are projection of demand for a product or service. Forecasts of demand drive decisions in many areas. An organizations main goal is to survive and maintain high quality goods or services, with a comprehensive understanding of costs related to quality this goal can be achieved. PERT and CPM is a well known method that is used to analyze various tasks when it comes to completing a project. 7. Bibliography. Applying Lean Principles [online] available from http://www.pearsoned.co.uk. [Accessed 14 March2012.] Barret, M. (2004) Application of just in Time Philosophy in Healthcare. [online] available from http://www.calstate edu.com [Accessed 15 March 2012]. Company Histories and Profiles. [online] available from http://www. fundinguniverse. com [Accessed 16 March 2012]. Dennision, R., Kathawala, Y. and Elmuti, D. (1993). Just-in-time: Implications for the hospital industry. Journal of Hospital Marketing, 8(1), pp. 122-129. [online] available from http://www.ncbi.nih.gov [Accessed 15 March 2012]. Heizer, J. and Render, B. (2008) Operations Management.9th Edition. Pearson Education:

25

Upper Saddle. Hyundai joins other Asia firms in moving operations. [online] available from http://www. findarticles.com [Accessed 18 March 2012]. Manou, O. (2007) Application of just in Time Principles. [online] available from http://www,labs.fme.aegean.gr. [Accessed 17 March 2012]. Materials Planning for Dependent Demand [online] available from http://www. conestogac.on.ca [Accessed 20 March 2012]. Worthington, J.C. and Frodge, J.P. (2008) Roadmap to Quality Costs [online]. available from http://www,epa.gov/quality [Accessed 24 March 2012].

26