Operations Management is the implementation of the business plan by developing and executing a system which transforms inputs into finished goods or services. For your final written assignment, choose a company from the top 100 list and analyze their operations management decisions utilizing the following components:
Design of Goods & Services – Chapter Five
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Quality Management – Chapter Six
Product Design – Chapter Seven
Capacity Design – Chapter Seven
Location Strategy – Chapter Eight
Layout Design – Chapter Nine
Supply Chain Management – Chapter Eleven
Inventory Management – Chapter Twelve
Long-range, Intermediate, and Short-term Planning – Chapter Fifteen
Maintenance – Chapter Seventeen
Please utilize your knowledge of these concepts and what you have learned throughout the course and provide a thorough SWOT analysis of the business you have chosen (discussing what the company is doing well and areas you believe the company can improve). The assignment is required to be between 8-10 pages (double-spaced), excluding title and reference pages.
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Supply Chain Management
PowerPoint presentation to accompany
Heizer and Render
Operations Management, Eleventh Edition
Principles of Operations Management, Ninth Edition
PowerPoint slides by Jeff Heyl
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© 2014 Pearson Education, Inc.
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© 2014 Pearson Education, Inc.
Outline
Global Company Profile:
Darden Restaurants
The Supply Chain’s Strategic Importance
Sourcing Issues: Make-or-Buy vs. Outsourcing
Six Sourcing Strategies
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Outline – Continued
Supply Chain Risk
Managing the Integrated Supply Chain
Building the Supply Base
Logistics Management
Distribution Management
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Outline – Continued
Ethics and Sustainable Supply Chain Management
Measuring Supply Chain Performance
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© 2014 Pearson Education, Inc.
Learning Objectives
When you complete this chapter you should be able to:
Explain the strategic importance of the supply chain
Identify six sourcing strategies
Explain issues and opportunities in the supply chain
Describe the steps in supplier selection
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© 2014 Pearson Education, Inc.
When you complete this chapter you should be able to:
Learning Objectives
Explain major issues in logistics management
Compute percent of assets committed to inventory and inventory turnover
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Darden’s Supply Chain
Largest publicly traded casual dining company in the world
Serves over 400 million meals annually in more than 1,900 restaurants in the US and Canada
Annual sales of flagship brands totals $6 billion
Operations is the strategy
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Darden’s Supply Chain
Sources food from five continents and thousands of suppliers
Four distinct supply chains
Over $2 billion spent annually in supply chains
Competitive advantage achieved through superior supply chain
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Supply-Chain Management
The objective of supply chain management is to coordinate activities within the supply chain to maximize the supply chain’s competitive advantage and benefits to the ultimate consumer
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The Supply Chain’s Strategic Importance
The coordination of all supply chain activities, starting with raw materials and ending with a satisfied customer
Includes suppliers, manufacturers and/or service providers, distributors, wholesalers, retailers, and final customer
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The Supply Chain’s Strategic Importance
Large portion of sales dollars spent on purchases
Supplier relationships increasingly integrated and long term
Improve innovation, speed design, reduce costs
Managing supplier relationships has added emphasis
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Supply Chain Costs
TABLE 11.1
Supply Chain Costs as a Percentage of Sales
INDUSTRY % PURCHASED
Automobiles 67
Beverages 52
Chemical 62
Food 60
Lumber 61
Metals 65
Paper 55
Petroleum 79
Restaurants 35
Transportation 62
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Supply Chain vs.
Sales Strategy
Hau Lee Furniture
60% of sales $ in supply chain
Current gross profit = $10,000
Increase profits to $15,000 (50%)
CURRENT SITUATION SUPPLY CHAIN STRATEGY SALES STRATEGY
Sales $100,000 $100,000 $125,000
Cost of materials $60,000 (60%) $55,000 (55%) $75,000 (60%)
Production costs $20,000 (20%) $20,000 (20%) $25,000 (20%)
Fixed costs $10,000 (10%) $10,000 (10%) $10,000 (8%)
Profit $10,000 (10%) $15,000 (15%) $15,000 (12%)
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A Supply Chain for Beer
Figure 11.1
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Supply Chain Management
TABLE 11.2 How Corporate Strategy Impacts Supply Chain Decisions
LOW COST STRATEGY RESPONSE STRATEGY DIFFERENTIATION STRATEGY
Primary supplier selection criteria Cost Capacity
Speed
Flexibility Product development skills
Willing to share information
Jointly and rapidly develop products
Supply chain inventory Minimize inventory to hold down costs Use buffer stocks to ensure speedy supply Minimize inventory to avoid product obsolescence
Distribution network
Inexpensive transportation
Sell through discount distributors/retailers Fast transportation
Provide premium customer service Gather and communicate market research data
Knowledgeable sales staff
Product design characteristics Maximize performance
Minimize cost Low setup time
Rapid production ramp-up Modular design to aid product differentiation
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Sourcing Issues
Make-or-buy vs. outsourcing
Choosing between obtaining products and services externally as opposed to producing them internally
Outsourcing
Transfer traditional internal activities and resources to outside vendors
Efficiency in specialization
Focus on core competencies
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Six Sourcing Strategies
Many suppliers
Few suppliers
Vertical integration
Joint ventures
Keiretsu networks
Virtual companies
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Many Suppliers
Commonly used for commodity products
Purchasing is typically based on price
Suppliers compete with one another
Supplier is responsible for technology, expertise, forecasting, cost, quality, and delivery
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Few Suppliers
Buyer forms longer term relationships with fewer suppliers
Create value through economies of scale and learning curve improvements
Suppliers more willing to participate in JIT programs and contribute design and technological expertise
Cost of changing suppliers is huge
Trade secrets and other alliances
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Vertical Integration
Figure 11.2
Raw material (suppliers) Tree Harvesting
Backward integration Chipmakers Pulpmaking
Current transformation Pepsi Apple International Paper
Forward integration Bottling Retail stores End-User Paper Conversion
Finished goods (customers)
Vertical Integration Examples of Vertical Integration
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Vertical Integration
Developing the ability to produce goods or service previously purchased
Integration may be forward, towards the customer, or backward, towards suppliers
Can improve cost, quality, and inventory but requires capital, managerial skills, and demand
Risky in industries with rapid technological change
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Joint Ventures
Formal collaboration
Enhance skills
Secure supply
Reduce costs
Cooperation without diluting brand or conceding competitive advantage
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Keiretsu Networks
A middle ground between few suppliers and vertical integration
Supplier becomes part of the company coalition
Often provide financial support for suppliers through ownership or loans
Members expect long-term relationships and provide technical expertise and stable deliveries
May extend through several levels of the supply chain
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Virtual Companies
Rely on a variety of supplier relationships to provide services on demand
Fluid organizational boundaries that allow the creation of unique enterprises to meet changing market demands
Relationships may be short- or long-term
Exceptionally lean performance, low capital investment, flexibility, and speed
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Supply Chain Risk
More reliance on supply chains means more risk
Fewer suppliers increase dependence
Compounded by globalization and logistical complexity
Vendor reliability and quality risks
Political and currency risks
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Risk and Mitigation Tactics
Research and assess possible risks
Innovative planning
Reduce potential disruptions
Prepare responses for negative events
Flexible, secure supply chains
Diversified supplier base
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Risk and Mitigation Tactics
TABLE 11.3 Supply Chain Risks and Tactics
RISK RISK REDUCTION TACTICS EXAMPLE
Supplier failure to deliver Use multiple suppliers; effective contracts with penalties; subcontractors on retainer; pre-planning McDonald’s planned its supply chain 6 years before its opening in Russia. Every plant—bakery, meat, chicken, fish, and lettuce—is closely monitored to ensure strong links.
Supplier quality failure Careful supplier selection, training, certification, and monitoring Darden Restaurants has placed extensive controls, including third-party audits, on supplier processes and logistics to ensure constant monitoring and reduction of risk.
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Risk and Mitigation Tactics
TABLE 11.3 Supply Chain Risks and Tactics
RISK RISK REDUCTION TACTICS EXAMPLE
Logistics delays or damage Multiple/redundant transportation modes
and warehouses; secure packaging; effective contracts with penalties Walmart, with its own trucking fleet and numerous distribution centers located throughout the U.S., finds alternative origins and delivery routes bypassing problem areas.
Distribution Careful selection, monitoring, and effective contracts with penalties Toyota trains its dealers around the world, invoking principles of the Toyota Production System to help dealers improve customer service, used-car logistics, and body and paint operations.
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Risk and Mitigation Tactics
TABLE 11.3 Supply Chain Risks and Tactics
RISK RISK REDUCTION TACTICS EXAMPLE
Information loss or distortion Redundant databases; secure IT systems; training of supply chain partners on the proper interpretations and uses of information Boeing utilizes a state-of-the-art international communication system that transmits engineering, scheduling, and logistics data to Boeing facilities and suppliers worldwide.
Political Political risk insurance; cross-country diversification; franchising and licensing Hard Rock Café reduces political risk by franchising and licensing, rather than owning, when the political and cultural barriers seem significant.
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Risk and Mitigation Tactics
TABLE 11.3 Supply Chain Risks and Tactics
RISK RISK REDUCTION TACTICS EXAMPLE
Economic Hedging to combat exchange rate risk; purchasing contracts that address price fluctuations Honda and Nissan are moving more manufacturing out of Japan as the exchange rate for the yen makes Japanese-made autos more expensive.
Natural catastrophes Insurance; alternate sourcing; cross-country diversification
Toyota, after its experience with fires, earthquakes, and tsunamis, now attempts to have at least two suppliers, each in a different geographical region, for each component.
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Risk and Mitigation Tactics
TABLE 11.3 Supply Chain Risks and Tactics
RISK RISK REDUCTION TACTICS EXAMPLE
Theft, vandalism, and terrorism Insurance; patent protection; security measures including RFID and GPS; diversification Domestic Port Radiation Initiative: The U.S. government has set up radiation portal monitors that scan nearly all imported containers for radiation.
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Security and JIT
Shipments get misrouted, stolen, damaged, or excessively delayed
Technological innovations are improving security and inventory management
Location, motion sensors, broken seals, temperature
Tracking can help expedite shipments
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Managing the Integrated Supply Chain
Issues
Local optimization can magnify fluctuations
Incentives push merchandise into the supply chain for sales that have not occurred
Large lots reduce shipping costs but increase inventory holding and do not reflect actual sales
Bullwhip effect occurs when orders are relayed through the supply chain increasing at each step
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Managing the Integrated Supply Chain
Opportunities
Accurate “pull” data, shared information
Lot size reduction, shipping, discounts, reduced ordering costs
Single stage control of replenishment
Single supply chain member responsible for ordering
Vendor managed inventory (VMI)
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Managing the Integrated Supply Chain
Opportunities
Collaborative planning, forecasting, and replenishment (CPFR) through the supply chain
Blanket orders against which actual orders are released
Standardization
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Managing the Integrated Supply Chain
Opportunities
Postponement withholds modification as long as possible
Electronic ordering and funds transfer speed transactions and reduce paperwork
Drop shipping and special packaging bypasses the seller and reduces costs
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Building the Supply Base
Supplier evaluation
Finding potential suppliers
Determine likelihood of their becoming good suppliers
Supplier certification
Qualification
Education
Certification
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Building the Supply Base
Supplier development
Integrate the supplier into the system
Quality requirements
Product specifications
Schedules and delivery
Procurement policies
Training
Engineering and production help
Information transfer procedures
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Building the Supply Base
Negotiation
A significant element in purchasing
Highly valued skills
Cost-based price model
Supplier opens books
Market-based price model
Based on published, auction, or indexed prices
Competitive bidding
Common policy for many purchases
Does not generally foster long-term relationships
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Building the Supply Base
Contracting
Share risks, benefits, create incentives
Centralized purchasing
Leverage volume
Develop specialized staff
Develop supplier relationships
Maintain professional control
Devote resources to selection and negotiation
Reduce duplication of tasks
Promote standardization
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Building the Supply Base
E-Procurement
Speeds purchasing, reduces costs, integrates supply chain
Online catalogs and exchanges
Standard items or industry-specific web sites
Online auctions
Low barriers to entry
Reverse auctions for buyers
Price not always the most important factor
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Logistics Management
Objective is to obtain efficient operations through the integration of all material acquisition, movement, and storage activities
Is a frequent candidate for outsourcing
Allows competitive advantage to be gained through reduced costs and improved customer service
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Shipping Systems
Trucking
Moves the vast majority of manufactured goods
Chief advantage is flexibility
Railroads
Capable of carrying large loads
Little flexibility though containers and piggybacking have helped with this
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Shipping Systems
Airfreight
Fast and flexible for light loads
May be expensive
Waterways
Typically used for bulky, low-value cargo
Used when shipping cost is more important than speed
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Shipping Systems
Pipelines
Used for transporting oil, gas, and other chemical products
Multimodal
Combines shipping methods
Common, especially in international shipments
Aided by standardized containers
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Cost and Speed of Shipments
Faster shipping is generally more expensive than slower shipping
Faster methods tend to involve smaller shipment sizes while slower methods involve very large shipment sizes
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Warehousing
May be expensive, but alternatives may be more so
Fundamental purpose is to store goods
May provide other functions
Consolidation
Break-bulk
Cross-docking
Channel assembly
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Third-Party Logistics (3PL)
Outsourcing logistics can reduce inventory, costs, and improve delivery reliability and speed
Coordinate supplier inventory with delivery services
May provide
warehousing,
assembly, testing,
shipping, customs
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Distribution Management
The outbound flow of products
Rapid response
Product choice
Service
Increasing the number of facilities generally improves response time and customer satisfaction
Total costs are important
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Distribution Management
Figure 11.3
Time
Number of facilities
1 2 3 4 5
Response time
(a) Response Time
$
Number of facilities
1 2 3 4 5
Lowest cost
(b) Cost $
Total logistics cost
Facility costs
Inventory costs
Transportation costs
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Distribution Management
Figure 11.3
$
Number of facilities
1 2 3 4 5
Revenue
(c) Cost, Revenue, and Profit
Total logistics cost
Max profit
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Distribution Management
Facilities, packaging, and logistics
Selection and development of dealers or retailers
Downstream management as important as upstream management
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Ethics and Sustainable Supply Chain Management
Personal ethics
Critical to long term success of an organization
Supply chains particularly susceptible
Ethics within the supply chain
Ethical behavior regarding the environment
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Institute for Supply Management Principles and Standards
Promote and uphold responsibilities to one’s employer; positive supplier and customer relationships; sustainability and social responsibility; protection of confidential and proprietary information; applicable laws, regulations, and trade agreements; and development of professional competence
Avoid perceived impropriety; conflicts of interest; behaviors that negatively influence supply chain decisions; and improper reciprocal agreements
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ISM Ethical Standards
PERCEIVED IMPROPRIETY. Prevent the intent and appearance of unethical or compromising conduct in relationships, actions and communications
CONFLICTS OF INTEREST. Ensure that any personal, business or other activity do not conflict with the lawful interests of your employer
ISSUES OF INFLUENCE. Avoid behaviors or actions that may negatively influence, or appear to influence, supply management decisions
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ISM Ethical Standards
RESPONSIBILITIES TO YOUR EMPLOYER. Uphold fiduciary and other responsibilities using reasonable care and granted authority to deliver value to your employer
SUPPLIER AND CUSTOMER RELATIONSHIPS. Promote positive supplier and customer relationships
SUSTAINABILITY AND SOCIAL RESPONSIBILITY. Champion social responsibility and sustainability practices in supply management
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ISM Ethical Standards
CONFIDENTIAL AND PROPRIETARY INFORMATION. Protect confidential and proprietary information
RECIPROCITY. Avoid improper reciprocal agreements
APPLICABLE LAWS, REGULATIONS AND TRADE AGREEMENTS. Know and obey the letter and spirit of laws, regulations and trade agreements applicable to supply management
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ISM Ethical Standards
PROFESSIONAL COMPETENCE. Develop skills, expand knowledge and conduct business that demonstrates competence and promotes the supply management profession
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Establishing Sustainability in Supply Chains
Return or reverse logistics
Sending returned products back up the supply chain for resale, repair, reuse, remanufacture, recycling, or disposal
Closed-loop supply chain
Proactive design of a supply chain that tries to optimize all forward and reverse flows
Prepares for returns prior to product introduction
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Establishing Sustainability in Supply Chains
TABLE 11.4 Management Challenges of Reverse Logistics
ISSUE FORWARD LOGISTICS REVERSE LOGISTICS
Forecasting Relatively straightforward More uncertain
Product quality Uniform Not uniform
Product packaging Uniform Often damaged
Pricing Relatively uniform Dependent on many factors
Speed Often very important Often not a priority
Distribution costs Easily visible Less directly visible
Inventory management Consistent Not consistent
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Measuring Supply-Chain Performance
Assets committed to inventory
Home Depot had $11.4b inventory, total assets of $44.4b
Total inventory investment
Total assets
Percentage invested in inventory
= x 100
11.4
44.4
Percentage invested in inventory
= x 100 = 25.7%
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Measuring Supply-Chain Performance
TABLE 11.5
Inventory as Percentage of Total Assets
(with examples of exceptional performance)
Manufacturer (Toyota 5%) 15%
Wholesale (Coca-Cola 2.9%) 34%
Restaurants (McDonald’s .05%) 2.9%
Retail (Home Depot 25.7%) 28%
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Measuring Supply-Chain Performance
Inventory turnover
Inventory investment
Average of several periods
(beginning plus ending)/2
Ending inventory
Inventory
turnover
=
Cost of goods sold
Inventory investment
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Measuring Supply-Chain Performance
From PepsiCo, Inc. Annual Report
Net revenue $32.5
Cost of goods sold $14.2
Inventory:
Raw material inventory $.74
Work-in-process inventory $.11
Finished goods inventory $.84
Total inventory investment $1.69
Inventory
turnover
= = 8.4
14.2
1.69
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Measuring Supply-Chain Performance
TABLE 11.6 Examples of Annual Inventory Turnover
FOOD, BEVERAGE, RETAIL
Anheuser Busch 15
Coca-Cola 15
Home Depot 5
McDonald’s 112
MANUFACTURING
Dell Computer 90
Johnson controls 22
Toyota (overall) 13
Nissan (assembly) 150
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Measuring Supply-Chain Performance
Weeks of supply
For PepsiCo
Inventory investment = $1.69b
Average weekly cost of goods sold = $14.2b / 52 = $.273b
Weeks of supply = 1.69 / .273 = 6.19 weeks
Weeks of supply
=
Inventory investment
Annual cost of goods sold
52 weeks
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Benchmarking the Supply Chain
Comparison with benchmark firms
TABLE 11.7 Supply Chain Metrics in the Consumer Packaged Goods Industry
TYPICAL FIRMS BENCHMARK FIRMS
Order fill rate 71% 98%
Oder fulfillment lead time (days) 7 3
Cash-to-cash cycle time (days) 100 30
Inventory days of supply 50 20
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The SCOR Model
Processes, metrics and best practices
Figure 11.4
Plan: Demand/Supply planning and Management
Source: Identify, select, manage, and assess sources
Make: Manage production execution, testing and packaging
Deliver: Invoice, warehouse, transport and install
Return: Raw material
Return: Finished goods
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The SCOR Model
TABLE 11.8 SCOR Model Metrics to Help Firms Benchmark Performance Against the Industry
PERFORMANCE ATTRIBUTE SAMPLE METRIC CALCULATION
Supply chain reliability Perfect order fulfillment (Total perfect orders) / (Total number of orders)
Supply chain responsiveness Average order fulfillment cycle time (Sum of actual cycle times for all orders delivered) / (Total number of orders delivered)
Supply chain agility Upside supply chain flexibility Time required to achieve an unplanned 20% increase in delivered quantities
Supply chain costs Supply chain management costs Cost to plan + Cost to source + Cost to deliver + Cost to return
Supply chain asset management Cash-to-cash cycle time Inventory days of supply + Days of receivables outstanding – Days of payables outstanding
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Benchmarking the Supply Chain
Benchmarking useful
May not be adequate
Audits may be necessary
Continuing communication, Understanding, Trust, Performance, Corporate strategy
Foster a mutual belief that “we are in this together”
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Printed in the United States of America.
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Aggregate Planning and S&OP
PowerPoint presentation to accompany
Heizer and Render
Operations Management, Eleventh Edition
Principles of Operations Management, Ninth Edition
PowerPoint slides by Jeff Heyl
13
© 2014 Pearson Education, Inc.
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© 2014 Pearson Education, Inc.
Outline
Global Company Profile:
Frito-Lay
The Planning Process
Sales and Operations Planning
The Nature of Aggregate Planning
Aggregate Planning Strategies
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Outline – Continued
Methods for Aggregate Planning
Aggregate Planning in Services
Revenue Management
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Learning Objectives
When you complete this chapter you should be able to:
Define sales and operations planning
Define aggregate planning
Identify optional strategies for developing an aggregate plan
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When you complete this chapter you should be able to:
Learning Objectives
Prepare a graphical aggregate plan
Solve an aggregate plan via the transportation method
Understand and solve a revenue management problem
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Aggregate Planning at
Frito-Lay
More than three dozen brands, 15 brands sell more than $100 million annually, 7 sell over $1 billion
Planning processes covers 3 to 18 months
Unique processes and specially designed equipment
High fixed costs require high volumes and high utilization
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Aggregate Planning at
Frito-Lay
Demand profile based on historical sales, forecasts, innovations, promotion, local demand data
Match total demand to capacity, expansion plans, and costs
Quarterly aggregate plan goes to 36 plants in 17 regions
Each plant develops 4-week plan for product lines and production runs
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The Planning Process
Figure 13.1
Long-range plans (over one year)
Capacity decisions critical to long range plans
Issues:
Research and Development
New product plans
Capital investments
Facility location/expansion
Intermediate-range plans (3 to 18 months)
Issues:
Sales and operations planning
Production planning and budgeting
Setting employment, inventory,
subcontracting levels
Analyzing operating plans
Short-range plans (up to 3 months)
Scheduling techniques
Issues:
Job assignments
Ordering
Job scheduling
Dispatching
Overtime
Part-time help
Top executives
Operations managers with sales and operations planning team
Operations managers, supervisors, foremen
Responsibility
Planning tasks and time horizons
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Sales and Operations Planning
Coordination of demand forecasts with functional areas and the supply chain
Typically done by cross-functional teams
Determine which plans are feasible
Limitations must be reflected
Provides warning when resources do not match expectations
Output is an aggregate plan
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S&OP
and the
Aggregate
Plan
Figure 13.2
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Sales and Operations Planning
Decisions must be tied to strategic planning and integrated with all areas of the firm over all planning horizons
S&OP is aimed at
The coordination and integration of the internal and external resources necessary for a successful aggregate plan
Communication of the plan to those charged with its execution
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Sales and Operations Planning
Requires
A logical overall unit for measuring sales and output
A forecast of demand for an intermediate planning period in these aggregate terms
A method for determining relevant costs
A model that combines forecasts and costs so that scheduling decisions can be made for the planning period
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Aggregate Planning
The objective of aggregate planning is usually to meet forecast demand while minimizing cost over the planning period
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Aggregate Planning
QUARTER 1
Jan. Feb. March
150,000 120,000 110,000
QUARTER 2
April May June
100,000 130,000 150,000
QUARTER 3
July Aug. Sept.
180,000 150,000 140,000
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Aggregate Planning
Combines appropriate resources into general terms
Part of a larger production planning system
Disaggregation breaks the plan down into greater detail
Disaggregation results in a master production schedule
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Aggregate Planning Strategies
Should inventories be used to absorb changes in demand?
Should changes be accommodated by varying the size of the workforce?
Should part-timers, overtime, or idle time be used to absorb changes?
Should subcontractors be used and maintain a stable workforce?
Should prices or other factors be changed to influence demand?
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Capacity Options
Changing inventory levels
Increase inventory in low demand periods to meet high demand in the future
Increases costs associated with storage, insurance, handling, obsolescence, and capital investment
Shortages may mean lost sales due to long lead times and poor customer service
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Capacity Options
Varying workforce size by hiring or layoffs
Match production rate to demand
Training and separation costs for hiring and laying off workers
New workers may have lower productivity
Laying off workers may lower morale and productivity
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Capacity Options
Varying production rates through overtime or idle time
Allows constant workforce
May be difficult to meet large increases in demand
Overtime can be costly and may drive down productivity
Absorbing idle time may be difficult
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Capacity Options
Subcontracting
Temporary measure during periods of peak demand
May be costly
Assuring quality and timely delivery may be difficult
Exposes your customers to a possible competitor
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Capacity Options
Using part-time workers
Useful for filling unskilled or low skilled positions, especially in services
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Demand Options
Influencing demand
Use advertising or promotion to increase demand in low periods
Attempt to shift
demand to slow
periods
May not be
sufficient to
balance demand
and capacity
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Demand Options
Back ordering during high-demand periods
Requires customers to wait for an order without loss of goodwill or the order
Most effective when there are few if any substitutes for the product or service
Often results in lost sales
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Demand Options
Counterseasonal product and service mixing
Develop a product mix of counterseasonal items
May lead to products or services outside the company’s areas of expertise
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Aggregate Planning Options
TABLE 13.1 Aggregate Planning Options
OPTION ADVANTAGES DISADVANTAGES COMMENTS
Changing inventory levels Changes in human resources are gradual or none; no abrupt production changes. Inventory holding cost may increase. Shortages may result in lost sales. Applies mainly to production, not service, operations.
Varying workforce size by hiring or layoffs Avoids the costs of other alternatives. Hiring, layoff, and training costs may be significant. Used where size of labor pool is large.
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Aggregate Planning Options
TABLE 13.1 Aggregate Planning Options
OPTION ADVANTAGES DISADVANTAGES COMMENTS
Varying production rates through overtime or idle time Matches seasonal fluctuations without hiring/ training costs. Overtime premiums; tired workers; may not meet demand. Allows flexibility within the aggregate plan.
Sub-contracting Permits flexibility and smoothing of the firm’s output. Loss of quality control; reduced profits; loss of future business. Applies mainly in production settings.
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Aggregate Planning Options
TABLE 13.1 Aggregate Planning Options
OPTION ADVANTAGES DISADVANTAGES COMMENTS
Using part-time workers Is less costly and more flexible than full-time workers. High turnover/ training costs; quality suffers; scheduling difficult. Good for unskilled jobs in areas with large temporary labor pools.
Influencing demand Tries to use excess capacity. Discounts draw new customers. Uncertainty in demand. Hard to match demand to supply exactly. Creates marketing ideas. Overbooking used in some businesses.
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Aggregate Planning Options
TABLE 13.1 Aggregate Planning Options
OPTION ADVANTAGES DISADVANTAGES COMMENTS
Back ordering during high-demand periods May avoid overtime. Keeps capacity constant. Customer must be willing to wait, but goodwill is lost. Many companies back order.
Counter-seasonal product and service mixing Fully utilizes resources; allows stable workforce. May require skills or equipment outside the firm’s areas of expertise. Risky finding products or services with opposite demand patterns.
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Mixing Options to Develop a Plan
A mixed strategy may be the best way to achieve minimum costs
There are many possible mixed strategies
Finding the optimal plan is not always possible
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Mixing Options to Develop a Plan
Chase strategy
Match output rates to demand forecast for each period
Vary workforce levels or vary production rate
Favored by many service organizations
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Mixing Options to Develop a Plan
Level strategy
Daily production is uniform
Use inventory or idle time as buffer
Stable production leads to better quality and productivity
Some combination of capacity options, a mixed strategy, might be the best solution
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Methods for Aggregate Planning
Graphical Methods
Popular techniques
Easy to understand and use
Trial-and-error approaches that do not guarantee an optimal solution
Require only limited computations
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Graphical Methods
Determine the demand for each period
Determine the capacity for regular time, overtime, and subcontracting each period
Find labor costs, hiring and layoff costs, and inventory holding costs
Consider company policy on workers and stock levels
Develop alternative plans and examine their total cost
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Roofing Supplier Example 1
TABLE 13.2 Monthly Forecasts
MONTH EXPECTED DEMAND PRODUCTION DAYS DEMAND PER DAY (COMPUTED)
Jan 900 22 41
Feb 700 18 39
Mar 800 21 38
Apr 1,200 21 57
May 1,500 22 68
June 1,100 20 55
6,200 124
6,200
124
= = 50 units per day
Total expected demand
Number of production days
Average requirement
=
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Roofing Supplier Example 1
Figure 13.3
70 –
60 –
50 –
40 –
30 –
0 –
Jan Feb Mar Apr May June = Month
22 18 21 21 22 20 = Number of
working days
Production rate per working day
Level production using average monthly forecast demand
Forecast demand
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Roofing Supplier Example 2
Plan 1 – constant workforce
TABLE 13.3 Cost Information
Inventory carrying cost $ 5 per unit per month
Subcontracting cost per unit $20 per unit
Average pay rate $10 per hour ($80 per day)
Overtime pay rate $17 per hour
(above 8 hours per day)
Labor-hours to produce a unit 1.6 hours per unit
Cost of increasing daily production rate (hiring and training) $300 per unit
Cost of decreasing daily production rate (layoffs) $600 per unit
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Roofing Supplier Example 2
Total units of inventory carried over from one
month to the next = 1,850 units
Workforce required to produce 50 units per day = 10 workers
MONTH PRODUCTION DAYS PRODUCTION AT 50 UNITS PER DAY DEMAND FORECAST MONTHLY INVENTORY CHANGE ENDING INVENTORY
Jan 22 1,100 900 +200 200
Feb 18 900 700 +200 400
Mar 21 1,050 800 +250 650
Apr 21 1,050 1,200 –150 500
May 22 1,100 1,500 –400 100
June 20 1,000 1,100 –100 0
1,850
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Roofing Supplier Example 2
Total units of inventory carried over from one
month to the next = 1,850 units
Workforce required to produce 50 units per day = 10 workers
MONTH PRODUCTION DAYS PRODUCTION AT 50 UNITS PER DAY DEMAND FORECAST MONTHLY INVENTORY CHANGE ENDING INVENTORY
Jan 22 1,100 900 +200 200
Feb 18 900 700 +200 400
Mar 21 1,050 800 +250 650
Apr 21 1,050 1,200 –150 500
May 22 1,100 1,500 –400 100
June 20 1,000 1,100 –100 0
1,850
COST CALCULATIONS
Inventory carrying $9,250 (= 1,850 units carried x $5 per unit)
Regular-time labor 99,200 (= 10 workers x $80 per day x 124 days)
Other costs (overtime, hiring, layoffs, subcontracting) 0
Total cost $108,450
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Roofing Supplier Example 3
In-house production = 38 units per day
x 124 days
= 4,712 units
Subcontract units = 6,200 – 4,712
= 1,488 units
COST CALCULATIONS
Regular-time labor $75,392 (= 7.6 workers x $80 per day x 124 days)
Subcontracting 29,760 (= 1,488 units x $20 per unit)
Total cost $105,152
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Roofing Supplier Example 3
70 –
60 –
50 –
40 –
30 –
0 –
Jan Feb Mar Apr May June = Month
22 18 21 21 22 20 = Number of
working days
Production rate per working day
Level production using lowest monthly forecast demand
Forecast demand
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Roofing Supplier Example 4
TABLE 13.4 Cost Computations for Plan 3
MONTH FORECAST (UNITS) DAILY PROD RATE BASIC PRODUCTION COST (DEMAND X 1.6 HRS/UNIT X $10/HR) EXTRA COST OF INCREASING PRODUCTION (HIRING COST) EXTRA COST OF DECREASING PRODUCTION (LAYOFF COST) TOTAL COST
Jan 900 41 $ 14,400 — — $ 14,400
Feb 700 39 11,200 — $1,200
(= 2 x $600) 12,400
Mar 800 38 12,800 — $600
(= 1 x $600) 13,400
Apr 1,200 57 19,200 $5,700
(= 19 x $300) — 24,900
May 1,500 68 24,000 $3,300
(= 11 x $300) — 24,300
June 1,100 55 17,600 — $7,800
(= 13 x $600) 25,400
$99,200 $9,000 $9,600 $117,800
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Roofing Supplier Example 4
70 –
60 –
50 –
40 –
30 –
0 –
Jan Feb Mar Apr May June = Month
22 18 21 21 22 20 = Number of
working days
Production rate per working day
Forecast demand and monthly production
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Comparison of Three Plans
Plan 2 is the lowest cost option
TABLE 13.5 Comparison of the Three Plans
COST PLAN 1 PLAN 2 PLAN 3
Inventory carrying $ 9,250 $ 0 $ 0
Regular labor 99,200 75,392 99,200
Overtime labor 0 0 0
Hiring 0 0 9,000
Layoffs 0 0 9,600
Subcontracting 0 29,760 0
Total cost $108,450 $105,152 $117,800
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Mathematical Approaches
Useful for generating strategies
Transportation Method of Linear Programming
Produces an optimal plan
Works well for inventories, overtime, subcontracting
Does not work when nonlinear or negative factors are introduced
Other Models
General form of linear programming
Simulation
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Transportation Method
TABLE 13.6 Farnsworth’s Production, Demand, Capacity, and Cost Data
SALES PERIOD
MAR. APR. MAY
Demand 800 1,000 750
Capacity:
Regular 700 700 700
Overtime 50 50 50
Subcontracting 150 150 130
Beginning inventory 100 tires
COSTS
Regular time $40 per tire
Overtime $50 per tire
Subcontracting $70 per tire
Carrying cost $ 2 per tire per month
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Transportation Example
Important points
Carrying costs are $2/tire/month. If goods are made in one period and held over to the next, holding costs are incurred.
Supply must equal demand, so a dummy column called “unused capacity” is added.
Because back ordering is not viable in this example, cells that might be used to satisfy earlier demand are not available.
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Transportation Example
Quantities in each column designate the levels of inventory needed to meet demand requirements
In general, production should be allocated to the lowest cost cell available without exceeding unused capacity in the row or demand in the column
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Transportation Example
Table 13.7
SUPPLY FROM DEMAND FOR TOTAL CAPACITY AVAILABLE
(supply)
Period 1
(Mar) Period 2
(Apr) Period 3
(May) Unused Capacity
(dummy)
Beginning inventory 0 2 4 0 100
100
Period 1 Regular time 40 42 44 0 700
700
Overtime 50 52 54 0 50
50
Subcontract 70 72 74 0 150
150
Period 2 Regular time 40 42 0 700
X
Overtime 50 52 0 50
X
Subcontract 70 72 0 150
X
Period 3 Regular time 40 0 700
X X
Overtime 50 0 50
X X
Subcontract 70 0 130
X X
TOTAL DEMAND 800 1,000 750 230 2,780
700
50
50 100
700
50
130
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Aggregate Planning in Services
Most services use combination strategies and mixed plans
Controlling the cost of labor is critical
Accurate scheduling of labor-hours to assure quick response to customer demand
An on-call labor resource to cover unexpected demand
Flexibility of individual worker skills
Flexibility in rate of output or hours of work
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Five Service Scenarios
Restaurants
Smoothing the production process
Determining the optimal workforce size
Hospitals
Responding to patient demand
National Chains of Small Service Firms
Planning done at national level and at local level
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Five Service Scenarios
Miscellaneous Services
Plan human resource requirements
Manage demand
Airline industry
Extremely complex planning problem
Involves number of flights, number of passengers, air and ground personnel, allocation of seats to fare classes
Resources spread through the entire system
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Revenue Management
Allocating resources to customers at prices that will maximize revenue
Service or product can be sold in advance of consumption
Demand fluctuates
Capacity is relatively fixed
Demand can be segmented
Variable costs are low and fixed costs are high
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Revenue Management Example
Figure 13.5
Demand Curve
Passed-up contribution
Money left on the table
Potential customers exist who are willing to pay more than the $15 variable cost of the room, but not $150
Some customers who paid $150 were actually willing to pay more for the room
Total
$ contribution
= (Price) x (50
rooms)
= ($150 – $15)
x (50)
= $6,750
Room sales
100
50
$150
Price charged for room
$15
Variable cost
of room
Price
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Total $ contribution =
(1st price) x 30 rooms + (2nd price) x 30 rooms =
($100 – $15) x 30 + ($200 – $15) x 30 =
$2,550 + $5,550 = $8,100
Revenue Management Example
Figure 13.6
Demand Curve
Price
Room sales
100
60
30
$100
Price 1
for room
$200
Price 2
for room
$15
Variable cost
of room
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Revenue Management Approaches
Airlines, hotels, rental cars, etc.
Tend to have predictable duration of service and use variable pricing to control availability and revenue
Movies, stadiums, performing arts centers
Tend to have predicable duration and fixed prices but use seating locations and times to manage revenue
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Revenue Management Approaches
Restaurants, golf courses, ISPs
Generally have unpredictable duration of customer use and fixed prices, may use “off-peak” rates to shift demand and manage revenue
Health care businesses, etc.
Tend to have unpredictable duration of service and variable pricing, often attempt to control duration of service
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Making Revenue Management Work
Multiple pricing structures must be feasible and appear logical to the customer
Forecasts of the use and duration of use
Changes in demand
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Printed in the United States of America.
C H A P T E R 1 3 | AG G R E GAT E P L A N N I N G A N D S & O P 521
the intermediate plan into short-term plans consisting of weekly, daily, and hourly schedules.
Short-term planning techniques are discussed in Chapter 15.
Intermediate planning is initiated by a process known as sales and operations planning
(S&OP).
Sales and Operations Planning
Good intermediate planning requires the coordination of demand forecasts with functional
areas of a !rm and its supply chain. And because each functional part of a !rm and the supply
chain has its own limitations and constraints, the coordination can be dif!cult. This coordi-
nated planning effort has evolved into a process known as sales and operations planning (S&OP). As
Figure 13.2 shows, S&OP receives input from a variety of sources both internal and external to
the !rm. Because of the diverse inputs, S&OP is typically done by cross-functional teams that
align the competing constraints.
One of the tasks of S&OP is to determine which plans are feasible in the coming months
and which are not. Any limitations, both within the !rm and in the supply chain, must be re-
“ected in an intermediate plan that brings day-to-day sales and operational realities together.
When the resources appear to be substantialy at odds with market expectations, S&OP provides
advanced warning to top management. If the plan cannot be implemented in the short run,
the planning exercise is useless. And if the plan cannot be supported in the long run, strategic
changes need to be made. To keep aggregate plans current and to support its intermediate plan-
ning role, S&OP uses rolling forecasts that are frequently updated—often weekly or monthly.
The output of S&OP is called an aggregate plan. The aggregate plan is concerned with determin-
ing the quantity and timing of production for the intermediate future, often from 3 to 18 months
Figure 13.2
Relationships of S&OP and the Aggregate Plan
Sales and operations planning
(S&OP)
A process of balancing resources
and forecasted demand, aligning
an organization’s competing de-
mands from supply chain to final
customer, while linking strategic
planning with operations over all
planning horizons.
Product
decisions
(Ch. 5)
1st
Qtr
D
e
m
a
n
d
2nd
Qtr
3rd
Qtr
4th
Qtr
Demand forecasts, orders
(Ch.4)
Process planning
and
capacity
decisions
(Ch. 7 and S7)
Marketplace
Master
production
schedule and
MRP systems
(Ch.14)
Detailed
work
schedules
(Ch.15)
Sales and operations planning
develops the aggregate plan
for operations
Research and technology
Workforce (Ch.10)
Inventory on hand (Ch.12)
Supply-chain support (Ch.11)
External capacity (subcontractors)
Aggregate plan
A plan that includes forecast levels
for families of products of finished
goods, inventory, shortages, and
changes in the workforce.
LO1 Define sales and
operations planning
M17_HEIZ1145_11_SE_C13.indd 521 12/11/12 4:49 PM
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Layout Strategies
PowerPoint presentation to accompany
Heizer and Render
Operations Management, Eleventh Edition
Principles of Operations Management, Ninth Edition
PowerPoint slides by Jeff Heyl
9
© 2014 Pearson Education, Inc.
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Outline
Global Company Profile:
McDonald’s
The Strategic Importance of Layout Decisions
Types of Layout
Office Layout
Retail Layout
Warehousing and Storage Layouts
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Outline – Continued
Fixed-Position Layout
Process-Oriented Layout
Work Cells
Repetitive and Product-Oriented Layout
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Learning Objectives
When you complete this chapter you should be able to:
Discuss important issues in office layout
Define the objectives of retail layout
Discuss modern warehouse management and terms such as ASRS, cross-docking, and random stocking
Identify when fixed-position layouts are appropriate
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When you complete this chapter you should be able to:
Learning Objectives
Explain how to achieve a good process-oriented facility layout
Define work cell and the requirements of a work cell
Define product-oriented layout
Explain how to balance production flow in a repetitive or product-oriented facility
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Innovations at McDonald’s
Indoor seating (1950s)
Drive-through window (1970s)
Adding breakfast to the menu (1980s)
Adding play areas (late 1980s)
Redesign of the kitchens (1990s)
Self-service kiosk (2004)
Now three separate dining sections
© 2014 Pearson Education, Inc.
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© 2014 Pearson Education, Inc.
Innovations at McDonald’s
Indoor seating (1950s)
Drive-through window (1970s)
Adding breakfast to the menu (1980s)
Adding play areas (late 1980s)
Redesign of the kitchens (1990s)
Self-service kiosk (2004)
Now three separate dining sections
Six out of the seven are layout decisions!
© 2014 Pearson Education, Inc.
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McDonald’s New Layout
Seventh major innovation
Redesigning all 30,000 outlets around the world
Three separate dining areas
Linger zone with comfortable chairs and Wi-Fi connections
Grab and go zone with tall counters
Flexible zone for kids and families
Facility layout is a source of competitive advantage
© 2014 Pearson Education, Inc.
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Strategic Importance of Layout Decisions
The objective of layout strategy is to develop an effective and efficient layout that will meet the firm’s competitive requirements
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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
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Types of Layout
Office layout
Retail layout
Warehouse layout
Fixed-position layout
Process-oriented layout
Work-cell layout
Product-oriented layout
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Types of Layout
Office layout: Positions workers, their equipment, and spaces/offices to provide for movement of information
Retail layout: Allocates shelf space and responds to customer behavior
Warehouse layout: Addresses trade-offs between space and material handling
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Types of Layout
Fixed-position layout: Addresses the layout requirements of large, bulky projects such as ships and buildings
Process-oriented layout: Deals with low-volume, high-variety production (also called job shop or intermittent production)
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Types of Layout
Work cell layout: Arranges machinery and equipment to focus on production of a single product or group of related products
Product-oriented layout: Seeks the best personnel and machine utilizations in repetitive or continuous production
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Layout Strategies
TABLE 9.1 Layout Strategies
OBJECTIVES EXAMPLES
Office Locate workers requiring frequent contact close to one another Allstate Insurance
Microsoft Corp.
Retail Expose customer to high-margin items Kroger’s Supermarket
Walgreen’s
Bloomingdale’s
Warehouse (storage) Balance low-cost storage with low-cost material handling Federal-Mogul’s warehouse
The Gap’s distribution center
Project (fixed position) Move material to the limited storage areas around the site Ingall Ship Building Corp.
Trump Plaza
Pittsburgh Airport
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Layout Strategies
TABLE 9.1 Layout Strategies
OBJECTIVES EXAMPLES
Job Shop (process oriented) Manage varied material flow for each product Arnold Palmer Hospital
Hard Rock Cafe
Olive Garden
Work Cell (product families) Identify a product family, build teams, cross train team members Hallmark Cards
Wheeled Coach Ambulances
Repetitive/ Continuous (product oriented) Equalize the task time at each workstation Sony’s TV assembly line
Toyota Scion
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Good Layouts Consider
Material handling equipment
Capacity and space requirements
Environment and aesthetics
Flows of information
Cost of moving between various work areas
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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
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Relationship Chart
Figure 9.1
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Office Layout
Three physical and social aspects
Proximity
Privacy
Permission
Two major trends
Information technology
Dynamic needs for space and services
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Supermarket Retail Layout
Objective is to maximize profitability per square foot of floor space
Sales and profitability vary directly with customer exposure
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Five Helpful Ideas for Supermarket Layout
Locate high-draw items around the periphery of the store
Use prominent locations for high-impulse and high-margin items
Distribute power items to both sides of an aisle and disperse them to increase viewing of other items
Use end-aisle locations
Convey mission of store through careful positioning of lead-off department
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Store Layout
Figure 9.2
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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
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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
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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
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Warehousing and Storage Layouts
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
Material Handling Costs
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Warehousing and Storage Layouts
Warehouse density tends to vary inversely with the number of different items stored
Automated Storage and Retrieval Systems (ASRSs) can significantly improve
warehouse
productivity by
an estimated 500%
Dock location is a
key design element
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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,
bar code or RFID
identification used for
advanced shipment
notification as
materials are unloaded
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Random Stocking
Typically requires automatic identification systems (AISs) and effective information systems
Allows more efficient use of space
Key tasks
Maintain list of open locations
Maintain accurate records
Sequence items to minimize travel, pick time
Combine picking orders
Assign classes of items to particular areas
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Customizing
Value-added activities performed at the warehouse
Enable low cost and rapid response strategies
Assembly of components
Loading software
Repairs
Customized labeling and packaging
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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
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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
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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
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Process-Oriented Layout
Figure 9.3
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Process-Oriented Layout
Arrange work centers so as to minimize the costs of material handling
Basic cost elements are
Number of loads (or people) moving between centers
Distance loads (or people) move between centers
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Process-Oriented Layout
where n = total number of work centers or departments
i, j = individual departments
Xij = number of loads moved from
department i to department j
Cij = cost to move a load between
department i and department j
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Process Layout Example
Construct a “from-to matrix”
Determine the space requirements
Develop an initial schematic diagram
Determine the cost of this layout
Try to improve the layout
Prepare a detailed plan
Arrange six departments in a factory to minimize the material handling costs. Each department is 20 x 20 feet and the building is 60 feet long and 40 feet wide.
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50 100 0 0 20
30 50 10 0
20 0 100
50 0
0
Process Layout Example
Figure 9.4
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Process Layout Example
Receiving Shipping Testing
Department Department Department
(4) (5) (6)
Figure 9.5
Assembly Painting Machine Shop
Department Department Department
(1) (2) (3)
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Process Layout Example
Interdepartmental Flow Graph
Figure 9.6
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Process Layout Example
Cost = $50 + $200 + $40
(1 and 2) (1 and 3) (1 and 6)
+ $30 + $50 + $10
(2 and 3) (2 and 4) (2 and 5)
+ $40 + $100 + $50
(3 and 4) (3 and 6) (4 and 5)
= $570
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© 2014 Pearson Education, Inc.
Process Layout Example
Revised Interdepartmental Flow Graph
Figure 9.7
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Process Layout Example
Cost = $50 + $100 + $20
(1 and 2) (1 and 3) (1 and 6)
+ $60 + $50 + $10
(2 and 3) (2 and 4) (2 and 5)
+ $40 + $100 + $50
(3 and 4) (3 and 6) (4 and 5)
= $480
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© 2014 Pearson Education, Inc.
Process Layout Example
Receiving Shipping Testing
Department Department Department
(4) (5) (6)
Figure 9.8
Painting Assembly Machine Shop
Department Department Department
(2) (1) (3)
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Computer Software
Graphical approach only works for small problems
Computer programs are available to solve bigger problems
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© 2014 Pearson Education, Inc.
Computer Software
Proplanner analysis
Distance traveled reduced by 38%
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© 2014 Pearson Education, Inc.
Computer Software
Three dimensional visualization software allows managers to view possible layouts and assess process, material
handling, efficiency, and safety issues
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© 2014 Pearson Education, Inc.
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
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Advantages of Work Cells
Reduced work-in-process inventory
Less floor space required
Reduced raw material and finished goods inventories
Reduced direct labor cost
Heightened sense of employee participation
Increased equipment and machinery utilization
Reduced investment in machinery and equipment
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© 2014 Pearson Education, Inc.
Requirements of Work Cells
Identification of families of products
A high level of training, flexibility and empowerment of employees
Being self-contained, with its own equipment and resources
Test (poka-yoke) at each station in the cell
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© 2014 Pearson Education, Inc.
Improving Layouts Using Work Cells
Current layout – workers in small closed areas.
Improved layout – cross-trained workers can assist each other. May be able to add a third worker as additional output is needed.
Figure 9.9 (a)
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© 2014 Pearson Education, Inc.
Improving Layouts Using Work Cells
Current layout – straight lines make it hard to balance tasks because work may not be divided evenly
Improved layout – in U shape, workers have better access. Four cross-trained workers were reduced.
Figure 9.9 (b)
U-shaped line may reduce employee movement and space requirements while enhancing communication, reducing the number of workers, and facilitating inspection
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Staffing and Balancing Work Cells
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Staffing Work Cells Example
600 Mirrors per day required
Mirror production scheduled for 8 hours per day
From a work balance
chart total operation
time = 140 seconds
Figure 9.10
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© 2014 Pearson Education, Inc.
Staffing Work Cells Example
600 Mirrors per day required
Mirror production scheduled for 8 hours per day
From a work balance
chart total operation
time = 140 seconds
Takt time = (8 hrs x 60 mins) / 600 units
= .8 min = 48 seconds
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© 2014 Pearson Education, Inc.
Work Balance Charts
Used for evaluating operation times in work cells
Can help identify bottleneck operations
Flexible, cross-trained employees can help address labor bottlenecks
Machine bottlenecks may require other approaches
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© 2014 Pearson Education, Inc.
Focused Work Center and Focused Factory
Focused Work Center
Identify a large family of similar products that have a large and stable demand
Moves production from a general-purpose, process-oriented facility to a large work cell
Focused Factory
A focused work cell in a separate facility
May be focused by product line, layout, quality, new product introduction, flexibility, or other requirements
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© 2014 Pearson Education, Inc.
Repetitive and Product-Oriented Layout
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 adequate and of uniform quality
Organized around products or families of similar high-volume, low-variety products
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© 2014 Pearson Education, Inc.
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 perform the work at each station is the same
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Product-Oriented Layouts
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McDonald’s Assembly Line
Figure 9.11
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Assembly-Line Balancing
Objective is to minimize the imbalance between machines or personnel while meeting required output
Starts with the precedence relationships
Determine cycle time
Calculate theoretical
minimum number of
workstations
Balance the line by
assigning specific
tasks to workstations
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© 2014 Pearson Education, Inc.
Wing Component Example
TABLE 9.2 Precedence Data for Wing Component
TASK ASSEMBLY TIME (MINUTES) TASK MUST FOLLOW TASK LISTED BELOW
A 10 –
B 11 A
C 5 B
D 4 B
E 11 A
F 3 C, D
G 7 F
H 11 E
I 3 G, H
Total time 65
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© 2014 Pearson Education, Inc.
Wing Component Example
Figure 9.12
480 available mins per day
40 units required
TABLE 9.2 Precedence Data for Wing Component
TASK ASSEMBLY TIME (MINUTES) TASK MUST FOLLOW TASK LISTED BELOW
A 10 –
B 11 A
C 5 B
D 4 B
E 11 A
F 3 C, D
G 7 F
H 11 E
I 3 G, H
Total time 65
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Wing Component Example
TABLE 9.3 Layout Heuristics That May Be Used to Assign Tasks to Workstations in Assembly-Line Balancing
1. Longest task time From the available tasks, choose the task with the largest (longest) task time
2. Most following tasks From the available tasks, choose the task with the largest number of following tasks
3. Ranked positional weight From the available tasks, choose the task for which the sum of following task times is the longest
4. Shortest task time From the available tasks, choose the task with the shortest task time
5. Least number of following tasks From the available tasks, choose the task with the least number of subsequent tasks
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© 2014 Pearson Education, Inc.
Wing Component Example
Figure 9.13
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© 2014 Pearson Education, Inc.
Wing Component Example
TABLE 9.2 Precedence Data for Wing Component
TASK ASSEMBLY TIME (MINUTES) TASK MUST FOLLOW TASK LISTED BELOW
A 10 –
B 11 A
C 5 B
D 4 B
E 11 A
F 3 C, D
G 7 F
H 11 E
I 3 G, H
Total time 65
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© 2014 Pearson Education, Inc.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher.
Printed in the United States of America.
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Minimize cost = XijCij
j=1
n
∑
i=1
n
∑
Minimize cost= X
ij
C
ij
j=1
n
å
i=1
n
å
Cost = XijCij
j=1
n
∑
i=1
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∑
Cost= X
ij
C
ij
j=1
n
å
i=1
n
å
Cost = XijCij
j=1
n
∑
i=1
n
∑
Cost= X
ij
C
ij
j=1
n
å
i=1
n
å
=
Time for task i
i=1
n
∑
Cycle time
=
Time for task i
i=1
n
å
Cycle time
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© 2014 Pearson Education, Inc.
Short-Term Scheduling
PowerPoint presentation to accompany
Heizer and Render
Operations Management, Eleventh Edition
Principles of Operations Management, Ninth Edition
PowerPoint slides by Jeff Heyl
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© 2014 Pearson Education, Inc.
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© 2014 Pearson Education, Inc.
Outline
Global Company Profile:
Delta Air Lines
The Importance of Short-Term Scheduling
Scheduling Issues
Scheduling Process-Focused Facilities
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© 2014 Pearson Education, Inc.
Outline – Continued
Loading Jobs
Scheduling Jobs
Finite Capacity Scheduling (FCS)
Scheduling Services
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© 2014 Pearson Education, Inc.
Learning Objectives
When you complete this chapter you should be able to:
Explain the relationship between short-term scheduling, capacity planning, aggregate planning, and a master schedule
Draw Gantt loading and scheduling charts
Apply the assignment method for loading jobs
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© 2014 Pearson Education, Inc.
When you complete this chapter you should be able to:
Learning Objectives
Name and describe each of the priority sequencing rules
Use Johnson’s rule
Define finite capacity scheduling
Use the cyclical scheduling technique
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© 2014 Pearson Education, Inc.
Delta Airlines
About 10% of Delta’s flights are disrupted per year, half because of weather
Cost is $440 million in lost revenue, overtime pay, food and lodging vouchers
The $33 million Operations Control Center adjusts to changes and keeps flights flowing
Saves Delta $35 million per year
© 2014 Pearson Education, Inc.
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© 2014 Pearson Education, Inc.
Short-Term Scheduling
The objective of scheduling is to allocate and prioritize demand (generated by either forecasts or customer orders) to available facilities
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© 2014 Pearson Education, Inc.
Importance of Short-Term Scheduling
Effective and efficient scheduling can be a competitive advantage
Faster movement of goods through a facility means better use of assets and lower costs
Additional capacity resulting from faster throughput improves customer service through faster delivery
Good schedules result in more dependable deliveries
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© 2014 Pearson Education, Inc.
Scheduling Issues
Scheduling deals with the timing of operations
The task is the allocation and prioritization of demand
Significant factors are
Forward or backward scheduling
Finite or infinite loading
The criteria for sequencing jobs
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Scheduling Decisions
TABLE 15.1 Scheduling Decisions
ORGANIZATION MANAGERS SCHEDULE THE FOLLOWING
Delta Air Lines Maintenance of aircraft
Departure timetables
Flight crews, catering, gate, ticketing personnel
Arnold Palmer Hospital Operating room use
Patient admissions
Nursing, security, maintenance staffs
Outpatient treatments
University of Alabama Classrooms and audiovisual equipment
Student and instructor schedules
Graduate and undergraduate courses
Amway Center Ushers, ticket takers, food servers, security personnel
Delivery of fresh foods and meal preparation
Orlando Magic games, concerts, arena football
Lockheed Martin Factory Production of goods
Purchases of materials
Workers
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© 2014 Pearson Education, Inc.
Figure 15.1
Scheduling Flow
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Forward and Backward Scheduling
Forward scheduling starts as soon as the requirements are known
Produces a feasible schedule though it may not meet due dates
Frequently results in
buildup of work-in-
process inventory
Due Date
Now
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© 2014 Pearson Education, Inc.
Forward and Backward Scheduling
Backward scheduling begins with the due date and schedules the final operation first
Schedule is produced by working backwards though the processes
Resources may not
be available to
accomplish the
schedule
Due Date
Now
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© 2014 Pearson Education, Inc.
Backward scheduling begins with the due date and schedules the final operation first
Schedule is produced by working backwards though the processes
Resources may not
be available to
accomplish the
schedule
Forward and Backward Scheduling
Often these approaches are combined to develop a trade-off between capacity constraints and customer expectations
Due Date
Now
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© 2014 Pearson Education, Inc.
Finite and Infinite Loading
Assigning jobs to work stations
Finite loading assigns work up to the capacity of the work station
All work gets done
Due dates may be pushed out
Infinite loading does not consider capacity
All due dates are met
Capacities may have to be adjusted
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© 2014 Pearson Education, Inc.
Scheduling Criteria
Minimize completion time
Maximize utilization of facilities
Minimize work-in-process (WIP) inventory
Minimize customer waiting time
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Different Processes/
Different Approaches
TABLE 15.2 Different Processes Suggest Different Approaches to Scheduling
Process-focused facilities (job shops)
Scheduling to customer orders where changes in both volume and variety of jobs/clients/patients are frequent
Schedules are often due-date focused, with loading refined by finite loading techniques
Examples: foundries, machine shops, cabinet shops, print shops, many restaurants, and the fashion industry
Repetitive facilities (assembly lines)
Schedule module production and product assembly based on frequent forecasts
Finite loading with a focus on generating a forward-looking schedule
JIT techniques are used to schedule components that feed the assembly line
Examples: assembly lines for washing machines at Whirlpool and automobiles at Ford.
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© 2014 Pearson Education, Inc.
Different Processes/
Different Approaches
TABLE 15.2 Different Processes Suggest Different Approaches to Scheduling
Product-focused facilities (continuous)
Schedule high volume finished products of limited variety to meet a reasonably stable demand within existing fixed capacity
Finite loading with a focus on generating a forward-looking schedule that can meet known setup and run times for the limited range of products
Examples: huge paper machines at International Paper, beer in a brewery at Anheuser-Busch, and potato chips at Frito-Lay
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Focus for Different
Process Strategies
Product-focused
(continuous)
Schedule finished product
Repetitive facilities (assemble lines)
Schedule modules
Process-focused
(job shops)
Schedule orders
Examples: Print shop Motorcycles Steel, Beer, Bread
Machine shop Autos, TVs Lightbulbs
Fine-dining restaurant Fast-food restaurant Paper
Typical focus of the master production schedule
Number of inputs
Number of end items
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Scheduling Process-Focused Facilities
High-variety, low volume
Production differ considerably
Schedule incoming orders without violating capacity constraints
Scheduling can be complex
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© 2014 Pearson Education, Inc.
Loading Jobs
Assign jobs so that costs, idle time, or completion time are minimized
Two forms of loading
Capacity oriented
Assigning specific jobs to work centers
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Input-Output Control
Identifies overloading and underloading conditions
Prompts managerial action to resolve scheduling problems
Can be maintained using ConWIP cards that control the scheduling of batches
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Input-Output Control Example
Figure 15.2
Week Ending 6/6 6/13 6/20 6/27 7/4 7/11
Planned Input 280 280 280 280 280
Actual Input 270 250 280 285 280
Cumulative Deviation –10 –40 –40 –35
Planned Output 320 320 320 320
Actual Output 270 270 270 270
Cumulative Deviation –50 –100 –150 –200
Cumulative Change in Backlog 0 –20 –10 +5
Work Center DNC Milling (in standard hours)
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© 2014 Pearson Education, Inc.
Input-Output Control Example
Figure 15.2
Week Ending 6/6 6/13 6/20 6/27 7/4 7/11
Planned Input 280 280 280 280 280
Actual Input 270 250 280 285 280
Cumulative Deviation –10 –40 –40 –35
Planned Output 320 320 320 320
Actual Output 270 270 270 270
Cumulative Deviation –50 –100 –150 –200
Cumulative Change in Backlog 0 –20 –10 +5
Work Center DNC Milling (in standard hours)
Explanation:
270 input,
270 output implies
0 change
Explanation:
250 input,
270 output implies
–20 change
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© 2014 Pearson Education, Inc.
Input-Output Control Example
Options available to operations personnel include:
Correcting performances
Increasing capacity
Increasing or reducing input to the work center
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© 2014 Pearson Education, Inc.
Gantt Charts
Load chart shows the loading and idle times of departments, machines, or facilities
Displays relative workloads over time
Schedule chart monitors jobs in process
All Gantt charts need to be updated frequently to account for changes
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© 2014 Pearson Education, Inc.
Gantt Load Chart Example
Figure 15.3
Day
Monday
Tuesday
Wednesday
Thursday
Friday
Work Center
Metalworks
Mechanical
Electronics
Painting
Job 349
Job 349
Job 349
Job 408
Job 408
Job 408
Processing
Unscheduled
Center not available
Job 350
Job 349
Job 295
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© 2014 Pearson Education, Inc.
Gantt Schedule Chart Example
Figure 15.4
Job Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8
A
B
C
Now
Maintenance
Start of an activity
End of an activity
Scheduled activity time allowed
Actual work progress
Nonproduction time
Point in time when chart is reviewed
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© 2014 Pearson Education, Inc.
Assignment Method
A special class of linear programming models that assigns tasks or jobs to resources
Objective is to minimize cost or time
Only one job (or worker) is assigned to one machine (or project)
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© 2014 Pearson Education, Inc.
Assignment Method
Build a table of costs or time associated with particular assignments
TYPESETTER
JOB A B C
R-34 $11 $14 $ 6
S-66 $ 8 $10 $11
T-50 $ 9 $12 $ 7
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© 2014 Pearson Education, Inc.
Assignment Method
Create zero opportunity costs by repeatedly subtracting the lowest costs from each row and column
Draw the minimum number of vertical and horizontal lines necessary to cover all the zeros in the table. If the number of lines equals either the number of rows or the number of columns, proceed to step 4. Otherwise proceed to step 3.
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© 2014 Pearson Education, Inc.
Assignment Method
Subtract the smallest number not covered by a line from all other uncovered numbers. Add the same number to any number at the intersection of two lines. Return to step 2.
Optimal assignments are at zero locations in the table. Select one, draw lines through the row and column involved, and continue to the next assignment.
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Assignment Example
A B C
Job
R-34 $11 $14 $ 6
S-66 $ 8 $10 $11
T-50 $ 9 $12 $ 7
Typesetter
A B C
Job
R-34 $ 5 $ 8 $ 0
S-66 $ 0 $ 2 $ 3
T-50 $ 2 $ 5 $ 0
Typesetter
Step 1a – Rows
A B C
Job
R-34 $ 5 $ 6 $ 0
S-66 $ 0 $ 0 $ 3
T-50 $ 2 $ 3 $ 0
Typesetter
Step 1b – Columns
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Assignment Example
Because only two lines are needed to cover all the zeros, the solution is not optimal
The smallest uncovered number is 2 so this is subtracted from all other uncovered numbers and added to numbers at the intersection of lines
A B C
Job
R-34 $ 5 $ 6 $ 0
S-66 $ 0 $ 0 $ 3
T-50 $ 2 $ 3 $ 0
Typesetter
Step 2 – Lines
A B C
Job
R-34 $ 3 $ 4 $ 0
S-66 $ 0 $ 0 $ 5
T-50 $ 0 $ 1 $ 0
Typesetter
Step 3 – Subtraction
Smallest uncovered number
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© 2014 Pearson Education, Inc.
Assignment Example
Because three lines are needed, the solution is optimal and assignments can be made
Start by assigning R-34 to worker C as this is the only possible assignment for worker C.
Job T-50 must go to worker A as worker C is already assigned. This leaves S-66 for worker B.
A B C
Job
R-34 $ 3 $ 4 $ 0
S-66 $ 0 $ 0 $ 5
T-50 $ 0 $ 1 $ 0
Typesetter
Step 2 – Lines
A B C
Job
R-34 $ 3 $ 4 $ 0
S-66 $ 0 $ 0 $ 5
T-50 $ 0 $ 1 $ 0
Typesetter
Step 4 – Assignments
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© 2014 Pearson Education, Inc.
Assignment Example
A B C
Job
R-34 $ 3 $ 4 $ 0
S-66 $ 0 $ 0 $ 5
T-50 $ 0 $ 1 $ 0
Typesetter
A B C
Job
R-34 $11 $14 $ 6
S-66 $ 8 $10 $11
T-50 $ 9 $12 $ 7
Typesetter
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© 2014 Pearson Education, Inc.
Sequencing Jobs
Specifies the order in which jobs should be performed at work centers
Priority rules are used to dispatch or sequence jobs
FCFS: First come, first served
SPT: Shortest processing time
EDD: Earliest due date
LPT: Longest processing time
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© 2014 Pearson Education, Inc.
Sequencing Example
Apply the four popular sequencing rules to these five jobs
Job Job Work (Processing) Time
(Days) Job Due Date
(Days)
A 6 8
B 2 6
C 8 18
D 3 15
E 9 23
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© 2014 Pearson Education, Inc.
Sequencing Example
FCFS: Sequence A-B-C-D-E
Job Sequence Job Work (Processing) Time Flow Time Job Due Date Job Lateness
A 6 6 8 0
B 2 8 6 2
C 8 16 18 0
D 3 19 15 4
E 9 28 23 5
28 77 11
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Sequencing Example
FCFS: Sequence A-B-C-D-E
Sum of total flow time
Number of jobs
Average completion time = = 77/5 = 15.4 days
Total job work time
Sum of total flow time
Utilization metric = = 28/77 = 36.4%
Sum of total flow time
Total job work time
Average number of jobs in the system
= = 77/28 = 2.75 jobs
Total late days
Number of jobs
Average job lateness = = 11/5 = 2.2 days
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© 2014 Pearson Education, Inc.
Sequencing Example
SPT: Sequence B-D-A-C-E
Job Sequence Job Work (Processing) Time Flow Time Job Due Date Job Lateness
B 2 2 6 0
D 3 5 15 0
A 6 11 8 3
C 8 19 18 1
E 9 28 23 5
28 65 9
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© 2014 Pearson Education, Inc.
Sequencing Example
SPT: Sequence B-D-A-C-E
Sum of total flow time
Number of jobs
Average completion time = = 65/5 = 13 days
Total job work time
Sum of total flow time
Utilization metric = = 28/65 = 43.1%
Sum of total flow time
Total job work time
Average number of jobs in the system
= = 65/28 = 2.32 jobs
Total late days
Number of jobs
Average job lateness = = 9/5 = 1.8 days
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© 2014 Pearson Education, Inc.
Sequencing Example
EDD: Sequence B-A-D-C-E
Job Sequence Job Work (Processing) Time Flow Time Job Due Date Job Lateness
B 2 2 6 0
A 6 8 8 0
D 3 11 15 0
C 8 19 18 1
E 9 28 23 5
28 68 6
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© 2014 Pearson Education, Inc.
Sequencing Example
EDD: Sequence B-A-D-C-E
Sum of total flow time
Number of jobs
Average completion time = = 68/5 = 13.6 days
Total job work time
Sum of total flow time
Utilization metric = = 28/68 = 41.2%
Sum of total flow time
Total job work time
Average number of jobs in the system
= = 68/28 = 2.43 jobs
Total late days
Number of jobs
Average job lateness = = 6/5 = 1.2 days
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© 2014 Pearson Education, Inc.
Sequencing Example
LPT: Sequence E-C-A-D-B
Job Sequence Job Work (Processing) Time Flow Time Job Due Date Job Lateness
E 9 9 23 0
C 8 17 18 0
A 6 23 8 15
D 3 26 15 11
B 2 28 6 22
28 103 48
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© 2014 Pearson Education, Inc.
Sequencing Example
LPT: Sequence E-C-A-D-B
Sum of total flow time
Number of jobs
Average completion time = = 103/5 = 20.6 days
Total job work time
Sum of total flow time
Utilization metric = = 28/103 = 27.2%
Sum of total flow time
Total job work time
Average number of jobs in the system
= = 103/28 = 3.68 jobs
Total late days
Number of jobs
Average job lateness = = 48/5 = 9.6 days
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© 2014 Pearson Education, Inc.
Sequencing Example
Summary of Rules
Rule Average Completion Time (Days) Utilization Metric (%) Average Number of Jobs in System Average Lateness (Days)
FCFS 15.4 36.4 2.75 2.2
SPT 13.0 43.1 2.32 1.8
EDD 13.6 41.2 2.43 1.2
LPT 20.6 27.2 3.68 9.6
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Comparison of
Sequencing Rules
No one sequencing rule excels on all criteria
SPT does well on minimizing flow time and number of jobs in the system
But SPT moves long jobs to
the end which may result
in dissatisfied customers
FCFS does not do especially
well (or poorly) on any
criteria but is perceived
as fair by customers
EDD minimizes maximum
lateness
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© 2014 Pearson Education, Inc.
Critical Ratio (CR)
An index number found by dividing the time remaining until the due date by the work time remaining on the job
Jobs with low critical ratios are scheduled ahead of jobs with higher critical ratios
Performs well on average job lateness criteria
Due date – Today’s date
Work (lead) time remaining
Time remaining
Workdays remaining
CR = =
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© 2014 Pearson Education, Inc.
Critical Ratio Example
Currently Day 25
With CR < 1, Job B is late. Job C is just on schedule and Job A has some slack time.
JOB DUE DATE WORKDAYS REMAINING
A 30 4
B 28 5
C 27 2
JOB CRITICAL RATIO PRIORITY ORDER
A (30 - 25)/4 = 1.25 3
B (28 - 25)/5 = .60 1
C (27 - 25)/2 = 1.00 2
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Critical Ratio Technique
Helps determine the status of specific jobs
Establishes relative priorities among jobs on a common basis
Adjusts priorities automatically for changes in both demand and job progress
Dynamically tracks job progress
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Sequencing N Jobs on Two Machines: Johnson’s Rule
Works with two or more jobs that pass through the same two machines or work centers
Minimizes total production time and idle time
An N/2 problem, N number of jobs through 2 workstations
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© 2014 Pearson Education, Inc.
Johnson’s Rule
List all jobs and times for each work center
Choose the job with the shortest activity time. If that time is in the first work center, schedule the job first. If it is in the second work center, schedule the job last.
Once a job is scheduled, it is eliminated from the list
Repeat steps 2 and 3 working toward the center of the sequence
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© 2014 Pearson Education, Inc.
Johnson’s Rule Example
JOB WORK CENTER 1 (DRILL PRESS) WORK CENTER 2 (LATHE)
A 5 2
B 3 6
C 8 4
D 10 7
E 7 12
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Johnson’s Rule Example
JOB WORK CENTER 1 (DRILL PRESS) WORK CENTER 2 (LATHE)
A 5 2
B 3 6
C 8 4
D 10 7
E 7 12
A
C
B
D
E
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Johnson’s Rule Example
JOB WORK CENTER 1 (DRILL PRESS) WORK CENTER 2 (LATHE)
A 5 2
B 3 6
C 8 4
D 10 7
E 7 12
B
A
C
D
E
WC 1
WC 2
Time 0 3 10 20 28 33
B
A
C
D
E
Job completed
Idle
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© 2014 Pearson Education, Inc.
Johnson’s Rule Example
Time 0 3 10 20 28 33
Time 0 1 3 5 7 9 10 11 12 13 17 19 21 22 23 25 27 29 31 33 35
JOB WORK CENTER 1 (DRILL PRESS) WORK CENTER 2 (LATHE)
A 5 2
B 3 6
C 8 4
D 10 7
E 7 12
B
A
C
D
E
B
A
C
D
E
WC 1
WC 2
B
E
D
C
A
B
A
C
D
E
Job completed
Idle
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Limitations of Rule-Based Dispatching Systems
Scheduling is dynamic and rules need to be revised to adjust to changes
Rules do not look upstream or downstream
Rules do not look beyond due dates
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Finite Capacity Scheduling
Overcomes disadvantages of rule-based systems by providing an interactive, computer-based graphical system
May include rules and expert systems or simulation to allow real-time response to system changes
FCS allows the balancing of delivery needs and efficiency
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© 2014 Pearson Education, Inc.
Finite Capacity Scheduling
Figure 15.5
Interactive Finite Capacity Scheduling
Planning Data
Master schedule
BOM
Inventory
Priority rules
Expert systems
Simulation models
Routing files
Work center information
Tooling and other resources
Setups and run time
*
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© 2014 Pearson Education, Inc.
Finite Capacity Scheduling
Figure 15.6
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© 2014 Pearson Education, Inc.
Scheduling Services
Service systems differ from manufacturing
MANUFACTURING SERVICES
Schedules machines
and materials Schedule staff
Inventories used to
smooth demand Seldom maintain inventories
Machine-intensive and demand may be smooth Labor-intensive and demand may be variable
Scheduling may be bound by union contracts Legal issues may constrain flexible scheduling
Few social or behavioral issues Social and behavioral issues may be quite important
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© 2014 Pearson Education, Inc.
Scheduling Services
Hospitals have complex scheduling system to handle complex processes and material requirements
Banks use a cross-trained and flexible workforce and part-time workers
Retail stores use scheduling optimization systems that track sales, transactions, and customer traffic to create work schedules in less time and with improved customer satisfaction
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© 2014 Pearson Education, Inc.
Scheduling Services
Airlines must meet complex FAA and union regulations and often use linear programming to develop optimal schedules
24/7 operations like police/fire departments, emergency hot lines, and mail order businesses use flexible workers and variable schedules, often created using computerized systems
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© 2014 Pearson Education, Inc.
Scheduling Service Employees With Cyclical Scheduling
Objective is to meet staffing requirements with the minimum number of workers
Schedules need to be smooth and keep personnel happy
Many techniques exist from simple algorithms to complex linear programming solutions
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© 2014 Pearson Education, Inc.
Cyclical Scheduling Example
Determine the staffing requirements
Identify two consecutive days with the lowest total requirements and assign these as days off
Make a new set of requirements subtracting the days worked by the first employee
Apply step 2 to the new row
Repeat steps 3 and 4 until all requirements have been met
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© 2014 Pearson Education, Inc.
Cyclical Scheduling Example
M T W T F S S
Employee 1 5 5 6 5 4 3 3
Capacity (Employees)
Excess Capacity
DAY M T W T F S S
Staff required 5 5 6 5 4 3 3
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© 2014 Pearson Education, Inc.
Cyclical Scheduling Example
M T W T F S S
Employee 1 5 5 6 5 4 3 3
Employee 2 4 4 5 4 3 3 3
Capacity (Employees)
Excess Capacity
DAY M T W T F S S
Staff required 5 5 6 5 4 3 3
*
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© 2014 Pearson Education, Inc.
Cyclical Scheduling Example
M T W T F S S
Employee 1 5 5 6 5 4 3 3
Employee 2 4 4 5 4 3 3 3
Employee 3 3 3 4 3 2 3 3
Capacity (Employees)
Excess Capacity
DAY M T W T F S S
Staff required 5 5 6 5 4 3 3
*
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© 2014 Pearson Education, Inc.
Cyclical Scheduling Example
M T W T F S S
Employee 1 5 5 6 5 4 3 3
Employee 2 4 4 5 4 3 3 3
Employee 3 3 3 4 3 2 3 3
Employee 4 2 2 3 2 2 3 2
Capacity (Employees)
Excess Capacity
DAY M T W T F S S
Staff required 5 5 6 5 4 3 3
*
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© 2014 Pearson Education, Inc.
Cyclical Scheduling Example
M T W T F S S
Employee 1 5 5 6 5 4 3 3
Employee 2 4 4 5 4 3 3 3
Employee 3 3 3 4 3 2 3 3
Employee 4 2 2 3 2 2 3 2
Employee 5 1 1 2 2 2 2 1
Capacity (Employees)
Excess Capacity
DAY M T W T F S S
Staff required 5 5 6 5 4 3 3
*
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© 2014 Pearson Education, Inc.
Cyclical Scheduling Example
M T W T F S S
Employee 1 5 5 6 5 4 3 3
Employee 2 4 4 5 4 3 3 3
Employee 3 3 3 4 3 2 3 3
Employee 4 2 2 3 2 2 3 2
Employee 5 1 1 2 2 2 2 1
Employee 6 1 1 1 1 1 1 0
Capacity (Employees)
Excess Capacity
DAY M T W T F S S
Staff required 5 5 6 5 4 3 3
*
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© 2014 Pearson Education, Inc.
Cyclical Scheduling Example
M T W T F S S
Employee 1 5 5 6 5 4 3 3
Employee 2 4 4 5 4 3 3 3
Employee 3 3 3 4 3 2 3 3
Employee 4 2 2 3 2 2 3 2
Employee 5 1 1 2 2 2 2 1
Employee 6 1 1 1 1 1 1 0
Employee 7 1
Capacity (Employees) 5 5 6 5 4 3 3
Excess Capacity 0 0 0 0 0 1 0
DAY M T W T F S S
Staff required 5 5 6 5 4 3 3
*
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© 2014 Pearson Education, Inc.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher.
Printed in the United States of America.
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© 2014 Pearson Education, Inc.
Process Strategy
PowerPoint presentation to accompany
Heizer and Render
Operations Management, Eleventh Edition
Principles of Operations Management, Ninth Edition
PowerPoint slides by Jeff Heyl
7
© 2014 Pearson Education, Inc.
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© 2014 Pearson Education, Inc.
Outline
Global Company Profile:
Harley-Davidson
Four Process Strategies
Selection of Equipment
Process Analysis and Design
Special Consideration for Service Process Design
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© 2014 Pearson Education, Inc.
Outline - Continued
Production Technology
Technology in Services
Process Redesign
*
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© 2014 Pearson Education, Inc.
Learning Objectives
When you complete this chapter you should be able to:
Describe four process strategies
Compute crossover points for different processes
Use the tools of process analysis
Describe customer interaction in service processes
Identify recent advances in production technology
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© 2014 Pearson Education, Inc.
Harley-Davidson
Repetitive manufacturing works
The only major U.S. motorcycle company
Emphasizes quality and lean manufacturing
Materials as Needed system
Many variations possible
Tightly scheduled repetitive production line
© 2014 Pearson Education, Inc.
*
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© 2014 Pearson Education, Inc.
Process Flow Diagram
*
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© 2014 Pearson Education, Inc.
Process Strategy
The objective is to create a process to produce products that meets customer requirements within cost and other managerial constraints
*
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© 2014 Pearson Education, Inc.
Process Strategies
How to produce a product or provide a service that
Meets or exceeds customer requirements
Meets cost and managerial goals
Has long term effects on
Efficiency and production flexibility
Costs and quality
*
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© 2014 Pearson Education, Inc.
Process, Volume, and Variety
Process Focus
projects, job shops (machine, print, hospitals, restaurants)
Arnold Palmer Hospital
Repetitive
(autos, motorcycles, home appliances)
Harley-Davidson
Product Focus
(commercial baked goods, steel, glass, beer)
Frito-Lay
High Variety
one or few units per run,
(allows customization)
Changes in Modules
modest runs, standardized modules
Changes in Attributes (such as grade, quality, size, thickness, etc.)
long runs only
Mass Customization
(difficult to achieve, but huge rewards)
Dell Computer
Poor Strategy (Both fixed and variable costs are high)
Figure 7.1
*
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© 2014 Pearson Education, Inc.
Process Strategies
Four basic strategies
Process focus
Repetitive focus
Product focus
Mass customization
Within these basic strategies there are many ways they may be implemented
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© 2014 Pearson Education, Inc.
Process Focus
Facilities are organized around specific activities or processes
General purpose equipment and skilled personnel
High degree of product flexibility
Typically high costs and low equipment utilization
Product flows may vary considerably making planning and scheduling a challenge
*
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© 2014 Pearson Education, Inc.
Process Focus
Figure 7.2(a)
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© 2014 Pearson Education, Inc.
Repetitive Focus
Facilities often organized as assembly lines
Characterized by modules with parts and assemblies made previously
Modules may be combined for many output options
Less flexibility than process-focused facilities but more efficient
*
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© 2014 Pearson Education, Inc.
Repetitive Focus
Figure 7.2(b)
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© 2014 Pearson Education, Inc.
Product Focus
Facilities are organized by product
High volume but low variety of products
Long, continuous production runs enable efficient processes
Typically high fixed cost but low variable cost
Generally less skilled labor
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© 2014 Pearson Education, Inc.
Product Focus
Figure 7.2(c)
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© 2014 Pearson Education, Inc.
Mass Customization
The rapid, low-cost production of goods and service to satisfy increasingly unique customer desires
Combines the
flexibility of a
process focus
with the efficiency
of a product focus
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© 2014 Pearson Education, Inc.
Mass Customization
TABLE 7.1 Mass Customization Provides More Choices Than Ever
NUMBER OF CHOICES
ITEM 1970s 21ST CENTURY
Vehicle styles 18 1,212
Bicycle types 8 211,000
Software titles 0 400,000
Web sites 0 255,000,000
Movie releases per year 267 744
New book titles 40,530 300,000
Houston TV channels 5 185
Breakfast cereals 160 340
Items (SKUs) in supermarkets 14,000 150,000
LCD TVs 0 102
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© 2014 Pearson Education, Inc.
Mass Customization
Figure 7.2(d)
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© 2014 Pearson Education, Inc.
Mass Customization
Imaginative product design
Flexible process design
Tightly controlled inventory management
Tight schedules
Responsive supply-chain partners
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© 2014 Pearson Education, Inc.
Comparison of Processes
TABLE 7.2 Comparison of the Characteristics of Four Types of Processes
PROCESS FOCUS
(LOW-VOLUME, HIGH-VARIETY) REPETITIVE FOCUS
(MODULAR) PRODUCT FOCUS
(HIGH-VOLUME, LOW-VARIETY) MASS CUSTOMIZATION
(HIGH-VOLUME, HIGH-VARIETY)
Small quantity and large variety of products Long runs, usually a standardized product from modules Large quantity and small variety of products Large quantity and large variety of products
Broadly skilled operators Moderately trained employees Less broadly skilled operators Flexible operators
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© 2014 Pearson Education, Inc.
Comparison of Processes
TABLE 7.2 Comparison of the Characteristics of Four Types of Processes
PROCESS FOCUS
(LOW-VOLUME, HIGH-VARIETY) REPETITIVE FOCUS
(MODULAR) PRODUCT FOCUS
(HIGH-VOLUME, LOW-VARIETY) MASS CUSTOMIZATION
(HIGH-VOLUME, HIGH-VARIETY)
Instructions for each job Few changes in the instructions Standardized job instructions Custom orders requiring many job instructions
High inventory Low inventory Low inventory Low inventory relative to the value of the product
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© 2014 Pearson Education, Inc.
Comparison of Processes
TABLE 7.2 Comparison of the Characteristics of Four Types of Processes
PROCESS FOCUS
(LOW-VOLUME, HIGH-VARIETY) REPETITIVE FOCUS
(MODULAR) PRODUCT FOCUS
(HIGH-VOLUME, LOW-VARIETY) MASS CUSTOMIZATION
(HIGH-VOLUME, HIGH-VARIETY)
Finished goods are made to order and not stored Finished goods are made to frequent forecasts Finished goods are made to a forecast and stored Finished goods are build-to-order (BTO)
Scheduling is complex Scheduling is routine Scheduling is routine Sophisticated scheduling accommodates custom orders
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© 2014 Pearson Education, Inc.
Comparison of Processes
TABLE 7.2 Comparison of the Characteristics of Four Types of Processes
PROCESS FOCUS
(LOW-VOLUME, HIGH-VARIETY) REPETITIVE FOCUS
(MODULAR) PRODUCT FOCUS
(HIGH-VOLUME, LOW-VARIETY) MASS CUSTOMIZATION
(HIGH-VOLUME, HIGH-VARIETY)
Fixed costs are low and variable costs high Fixed costs are dependent on flexibility of the facility Fixed costs are high and variable costs low Fixed costs tend to be high and variable costs low
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© 2014 Pearson Education, Inc.
Crossover Chart Example
Evaluate three different accounting software products
Calculate crossover points between software A and B and between software B and C
TOTAL FIXED COST DOLLARS REQUIRED PER ACCOUNTING REPORT
Software A $200,000 $60
Software B $300,000 $25
Software C $400,000 $10
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© 2014 Pearson Education, Inc.
Crossover Chart Example
Software A is most economical from 0 to 2,857 reports
Software B is most economical from 2,857 to 6,666 reports
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© 2014 Pearson Education, Inc.
Crossover Charts
Figure 7.3
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© 2014 Pearson Education, Inc.
Focused Processes
Focus brings efficiency
Focus on depth of product line rather than breadth
Focus can be
Customers
Products
Service
Technology
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© 2014 Pearson Education, Inc.
Selection of Equipment
Decisions can be complex as alternate methods may be available
Important factors may be
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© 2014 Pearson Education, Inc.
Equipment and Technology
Possible competitive advantage
Flexibility may be a competitive advantage
May be difficult and expensive and may require starting over
Important to get it right
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© 2014 Pearson Education, Inc.
Process Analysis and Design
Is the process designed to achieve a competitive advantage?
Does the process eliminate steps that do not add value?
Does the process maximize customer value?
Will the process win orders?
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© 2014 Pearson Education, Inc.
Process Analysis and Design
Flowcharts
Shows the movement of materials
Harley-Davidson flowchart
Time-Function Mapping
Shows flows and time frame
*
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© 2014 Pearson Education, Inc.
“Baseline” Time-Function Map
Figure 7.4(a)
*
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© 2014 Pearson Education, Inc.
“Target” Time-Function Map
Figure 7.4(b)
*
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© 2014 Pearson Education, Inc.
Process Analysis and Design
Value-Stream Mapping
Where value is added in the entire production process, including the supply chain
Extends from the customer back to the suppliers
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© 2014 Pearson Education, Inc.
Value-Stream Mapping
Begin with symbols for customer, supplier, and production to ensure the big picture
Enter customer order requirements
Calculate the daily production requirements
Enter the outbound shipping requirements and delivery frequency
Determine inbound shipping method and delivery frequency
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© 2014 Pearson Education, Inc.
Value-Stream Mapping
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© 2014 Pearson Education, Inc.
Value-Stream Mapping
Figure 7.5
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© 2014 Pearson Education, Inc.
Process Chart
Figure 7.6
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© 2014 Pearson Education, Inc.
Service Blueprinting
Focuses on the customer and provider interaction
Defines three levels of interaction
Each level has different management issues
Identifies potential failure points
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© 2014 Pearson Education, Inc.
Service Blueprint
Level
#3
Figure 7.7
*
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© 2014 Pearson Education, Inc.
Special Considerations for Service Process Design
Some interaction with customer is necessary, but this often affects performance adversely
The better these interactions are accommodated in the process design, the more efficient and effective the process
Find the right combination of cost and customer interaction
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© 2014 Pearson Education, Inc.
Service Process Matrix
Figure 7.8
*
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© 2014 Pearson Education, Inc.
Service Process Matrix
Labor involvement is high
Focus on human resources
Selection and training highly important
Personalized services
Mass Service and Professional Service
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© 2014 Pearson Education, Inc.
Service Process Matrix
Service Factory and Service Shop
Automation of standardized services
Restricted offerings
Low labor intensity responds well to process technology and
scheduling
Tight control required to
maintain standards
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© 2014 Pearson Education, Inc.
Improving Service Productivity
TABLE 7.3 Techniques for Improving Service Productivity
STRATEGY TECHNIQUE EXAMPLE
Separation Structuring service so customers must go where the service is offered Bank customers go to a manager to open a new account, to loan officers for loans, and to tellers for deposits
Self-service Self-service so customers examine, compare, and evaluate at their own pace Supermarkets and department stores
Postponement Customizing at delivery Customizing vans at delivery rather than at production
Focus Restricting the offerings Limited-menu restaurant
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© 2014 Pearson Education, Inc.
Improving Service Productivity
TABLE 7.3 Techniques for Improving Service Productivity
STRATEGY TECHNIQUE EXAMPLE
Modules Modular selection of service
Modular production Investment and insurance selection
Prepackaged food modules in restaurants
Automation Separating services that may lend themselves to some type of automation Automatic teller machines
Scheduling Precise personnel scheduling Scheduling ticket counter personnel at 15-minute intervals at airlines
Training Clarifying the service options
Explaining how to avoid problems Investment counselor, funeral directors
After-sale maintenance personnel
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© 2014 Pearson Education, Inc.
Production Technology
Machine technology
Automatic identification systems (AISs) and RFID
Process control
Vision systems
Robots
Automated storage and retrieval systems (ASRSs)
Automated guided vehicles (AGVs)
Flexible manufacturing systems (FMSs)
Computer-integrated manufacturing (CIM)
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© 2014 Pearson Education, Inc.
Machine Technology
Increased precision
Increased productivity
Increased flexibility
Improved environmental impact
Reduced changeover time
Decreased size
Reduced power requirements
Computer numerical
control (CNC)
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© 2014 Pearson Education, Inc.
Automatic Identification Systems (AISs)
Improved data acquisition
Reduced data entry errors
Increased speed
Increased scope
of process
automation
Bar codes and RFID
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© 2014 Pearson Education, Inc.
Process Control
Real-time monitoring and control of processes
Sensors collect data
Devices read data
on periodic basis
Measurements translated into digital signals then sent to a computer
Computer programs analyze the data
Resulting output may take numerous forms
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© 2014 Pearson Education, Inc.
Vision Systems
Particular aid to inspection
Consistently
accurate
Never bored
Modest cost
Superior to
individuals performing the same tasks
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© 2014 Pearson Education, Inc.
Robots
Perform monotonous or dangerous tasks
Perform tasks
requiring significant
strength or
endurance
Generally enhanced
consistency and
accuracy
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© 2014 Pearson Education, Inc.
Automated Storage and Retrieval Systems (ASRSs)
Automated placement and withdrawal of parts and products
Reduced errors and labor
Particularly useful in inventory and test areas of manufacturing firms
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© 2014 Pearson Education, Inc.
Automated Guided Vehicle (AGVs)
Electronically guided and controlled carts
Used for movement of products and/or individuals
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© 2014 Pearson Education, Inc.
Flexible Manufacturing Systems (FMSs)
Computer controls both the workstation and the material handling equipment
Enhance flexibility and reduced waste
Can economically produce low volume at high quality
Reduced changeover time and increased utilization
Stringent communication requirement between components
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© 2014 Pearson Education, Inc.
Computer-Integrated Manufacturing (CIM)
Extend flexible manufacturing
Backwards to engineering and inventory control
Forward into warehousing and shipping
Can also include financial and customer service areas
Reducing the distinction between low-volume/high-variety, and high-volume/low-variety production
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© 2014 Pearson Education, Inc.
Computer-Integrated Manufacturing (CIM)
Figure 7.9
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© 2014 Pearson Education, Inc.
Technology in Services
TABLE 7.4 Examples of Technology’s Impact on Services
SERVICE INDUSTRY EXAMPLE
Financial Services Debit cards, electronic funds transfer, ATMs, Internet stock trading, on-line banking via cell phone
Education Electronic bulletin boards, on-line journals, WebCT, Blackboard, and smart phones
Utilities and government Automated one-man garbage trucks, optical mail and bomb scanners, flood warning systems, meters allowing homeowners to control energy usage and costs
Restaurants and foods Wireless orders from waiters to kitchen, robot butchering, transponders on cars that track sales at drive-throughs
Communications Interactive TV, e-books via Kindle
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© 2014 Pearson Education, Inc.
Technology in Services
TABLE 7.4 Examples of Technology’s Impact on Services
SERVICE INDUSTRY EXAMPLE
Hotels Electronic check-in/check-out, electronic key/lock systems, mobile Web bookings
Wholesale/retail trade Point-of-sale (POS) terminals, e-commerce, electronic communication between store and supplier, bar-coded data, RFID
Transportation Automatic toll booths, satellite-directed navigation systems, Wi-Fi in automobiles
Health care Online patient-monitoring systems, online medical information systems, robotic surgery
Airlines Ticketless travel, scheduling, Internet purchases, boarding passes downloaded as two-dimensional bar codes on smart phones
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© 2014 Pearson Education, Inc.
Process Redesign
The fundamental rethinking of business processes to bring about dramatic improvements in performance
Relies on reevaluating the purpose of the process and questioning both the purpose and the underlying assumptions
Requires reexamination of the basic process and its objectives
Focuses on activities that cross functional lines
Any process is a candidate for redesign
*
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© 2014 Pearson Education, Inc.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher.
Printed in the United States of America.
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
200,000+ 60( )V1 = 300,000+ 25( )V1
35V1 =100,000
V1 = 2,857
200,000+60
()
V
1
=300,000+25
()
V
1
35V
1
=100,000
V
1
=2,857
300,000+ 25( )V2 = 400,000+ 10( )V2
15V2 =100,000
V2 = 6,666
300,000+25
()
V
2
=400,000+10
()
V
2
15V
2
=100,000
V
2
=6,666
288 PART 2 | DESIGNING OPERATIONS
Technology in Services
Just as we have seen rapid advances in technology in the manufacturing sector, so we also find
dramatic changes in the service sector. These range from electronic diagnostic equipment at
auto repair shops, to blood- and urine-testing equipment in hospitals, to retinal security scan-
ners at airports. The hospitality industry provides other examples, as discussed in the OM in
Action box “Technology Changes the Hotel Industry.” The McDonald’s approach is to use
self-serve kiosks. The labor savings when ordering and speedier checkout service provide valu-
able productivity increases for both the restaurant and the customer.
In retail stores, POS terminals download prices quickly to re!ect changing costs or market
conditions, and sales are tracked in 15-minute segments to aid scheduling. Drug companies, such
Management decides to make a product
OM runs production process,
purchasing components,
coordinating suppliers,
planning and scheduling
operations, overseeing
quality and the workforce,
and shipping to customers.
Computer-aided manufacturing
(CAM) converts raw materials into
components or products
Robots and specialized
equipment weld, insert,
and assemble components.
Robots test it and box the finished
product.
Information flows
Material flows
ASRS (above) and AGVs
move incoming materials
and parts, work-in-process,
and complete product.
Computer-aided design (CAD)
designs the product and programs
the automated production equipment.
C
om
pu
te
r
in
te
gr
at
ed
m
an
uf
ac
tu
ri
ng
(C
IM
)
Fl
ex
ib
le
m
an
uf
ac
tu
ri
ng
s
ys
te
m
(F
M
S
)
Figure 7.9
Computer-Integrated Manufacturing (CIM)
CIM includes computer-aided design (CAD), computer-aided manufacturing (CAM), flexible manufacturing systems (FMSs), automated storage
and retrieval systems (ASRSs), automated guided vehicles (AGVs), and robots to provide an integrated and flexible manufacturing process.
2123_Heizer_Ch07_pp269-296.indd 288 28/09/12 10:22 PM
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© 2014 Pearson Education, Inc.
Maintenance and Reliability
PowerPoint presentation to accompany
Heizer and Render
Operations Management, Eleventh Edition
Principles of Operations Management, Ninth Edition
PowerPoint slides by Jeff Heyl
Additional content from Gerry Cook
17
© 2014 Pearson Education, Inc.
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© 2014 Pearson Education, Inc.
Outline
Global Company Profile:
Orlando Utilities Commission
The Strategic Importance of Maintenance and Reliability
Reliability
Maintenance
Total Productive Maintenance
*
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© 2014 Pearson Education, Inc.
Learning Objectives
When you complete this chapter you should be able to:
Describe how to improve system reliability
Determine system reliability
Determine mean time between failure (MTBF)
Distinguish between preventive and breakdown maintenance
*
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© 2014 Pearson Education, Inc.
When you complete this chapter you should be able to:
Learning Objectives
Describe how to improve maintenance
Compare preventive and breakdown maintenance costs
Define autonomous maintenance
*
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© 2014 Pearson Education, Inc.
Orlando Utilities Commission
Maintenance of power generating plants
Every year each plant is taken off-line for 1-3 weeks maintenance
Every three years each plant is taken off-line for 6-8 weeks for complete overhaul and turbine inspection
Each overhaul has 1,800 tasks and requires 72,000 labor hours
OUC performs over 12,000 maintenance tasks each year
© 2014 Pearson Education, Inc.
*
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© 2014 Pearson Education, Inc.
Orlando Utilities Commission
Every day a plant is down costs OUC $110,000
Unexpected outages cost between $350,000 and $600,000 per day
Preventive maintenance discovered a cracked rotor blade which could have destroyed a $27 million piece of equipment
© 2014 Pearson Education, Inc.
*
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© 2014 Pearson Education, Inc.
Strategic Importance of Maintenance and Reliability
The objective of maintenance and reliability is to maintain the capability of the system
*
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© 2014 Pearson Education, Inc.
Strategic Importance of Maintenance and Reliability
Failure has far reaching effects on a firm’s
Operation
Reputation
Profitability
Customer satisfaction
Reducing idle time
Protecting investment in plant and equipment
*
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© 2014 Pearson Education, Inc.
Maintenance and Reliability
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
*
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© 2014 Pearson Education, Inc.
Important Tactics
Reliability
Improving individual components
Providing redundancy
Maintenance
Implementing or improving preventive maintenance
Increasing repair capability or speed
*
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© 2014 Pearson Education, Inc.
Maintenance Management
Figure 17.1
Partnering with maintenance personnel
Skill training
Reward system
Employee empowerment
Employee Involvement
Clean and lubricate
Monitor and adjust
Make minor repair
Keep computerized records
Maintenance and Reliability Procedures
Reduced inventory
Improved quality
Improved capacity
Reputation for quality
Continuous improvement
Reduced variability
Results
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© 2014 Pearson Education, Inc.
Reliability
System 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
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© 2014 Pearson Education, Inc.
Overall System Reliability
Figure 17.2
Reliability of the system (percent)
Average reliability of each component (percent)
| | | | | | | | |
100 99 98 97 96
100 –
80 –
60 –
40 –
20 –
0 –
n = 10
n = 1
n = 50
n = 100
n = 200
n = 300
n = 400
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Reliability Example
Reliability of the process is
Rs = R1 x R2 x R3 = .90 x .80 x .99 = .713 or 71.3%
Rs
.99
R3
.80
R2
.90
R1
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Product Failure Rate (FR)
Basic unit of measure for reliability
Number of failures
Number of units tested
FR(%) = x 100%
Number of failures
Number of unit-hours of operating time
FR(N) =
1
FR(N)
MTBF =
Mean time between failures
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Failure Rate Example
20 air conditioning units for use in the international space station operated for 1,000 hours
One failed after 200 hours and one after 600 hours
2
20
FR(%) = (100%) = 10%
2
20,000 - 1,200
FR(N) = = .000106 failure/unit hr
1
.000106
MTBF = = 9,434 hrs
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© 2014 Pearson Education, Inc.
Failure Rate Example
20 air conditioning units for use in the international space station operated for 1,000 hours
One failed after 200 hours and one after 600 hours
2
20
FR(%) = (100%) = 10%
2
20,000 - 1,200
FR(N) = = .000106 failure/unit hr
1
.000106
MTBF = = 9,434 hrs
Failure rate per trip
FR = FR(N)(24 hrs)(6 days/trip)
FR = (.000106)(24)(6)
FR = .0153 failure/trip
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Providing Redundancy
Provide backup components to increase reliability
Probability of first component working
Probability of needing second component
Probability of second component working
+
x
RS =
(.8)
+
(.8)
x
(1 - .8)
= .8
+
.16 = .96
=
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Redundancy Example
A redundant process is installed to support the earlier example where Rs = .713
RS = [.9 + .9(1 - .9)] x [.8 + .8(1 - .8)] x .99
= [.9 + (.9)(.1)] x [.8 + (.8)(.2)] x .99
= .99 x .96 x .99 = .94
Reliability has increased from
.713 to .94
R1
0.90
0.90
R2
0.80
0.80
R3
0.99
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Parallel Redundancy
Increased reliability
through parallel
redundancy
Reliability of new design = 1 – .00012 = .99988
R1
0.95
0.95
R4
0.975
R2
0.975
R3
Reliability for
the middle path
= R2 x R3 = .975 x .975 = .9506
Probability of failure
for all 3 paths
= (1 – 0.95) x (1 – .9506) x (1 – 0.95)
= (.05) x (.0494) x (.05) = .00012
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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
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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
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Computerized Maintenance System
Figure 17.3
Inventory and purchasing reports
Equipment parts list
Equipment
history reports
Cost analysis
(Actual vs. standard)
Work orders
Output Reports
Personnel data with skills, wages, etc.
Equipment file with parts list
Maintenance
and work order schedule
Inventory of spare parts
Repair history file
Data Files
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Maintenance Costs
The traditional view attempted to balance preventive and breakdown maintenance costs
Typically this approach failed to consider the full costs of a breakdown
Inventory
Employee morale
Schedule unreliability
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© 2014 Pearson Education, Inc.
Maintenance Costs
Figure 17.4 (a)
Traditional View
Total costs
Breakdown maintenance costs
Costs
Maintenance commitment
Preventive maintenance costs
Optimal point (lowest
cost maintenance policy)
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Maintenance Costs
Figure 17.4 (b)
Full Cost View
Costs
Maintenance commitment
Optimal point (lowest
cost maintenance policy)
Total costs
Full cost of breakdowns
Preventive maintenance costs
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Maintenance Cost Example
Should the firm contract for maintenance on their printers?
Average cost of breakdown = $300
NUMBER OF BREAKDOWNS NUMBER OF MONTHS THAT BREAKDOWNS OCCURRED
0 2
1 8
2 6
3 4
Total : 20
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Maintenance Cost Example
Compute the expected number of breakdowns
= (0)(.1) + (1)(.4) + (2)(.3) + (3)(.2)
= 0 + .4 + .6 + .6
= 1.6 breakdowns / month
NUMBER OF BREAKDOWNS FREQUENCY NUMBER OF BREAKDOWNS FREQUENCY
0 2/20 = .1 2 6/20 = .3
1 8/20 = .4 3 4/20 = .2
Number of breakdowns
Expected number of breakdowns
Corresponding frequency
∑
=
x
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Maintenance Cost Example
Compute the expected breakdown cost per month with no preventive maintenance
= (1.6)($300)
= $480 per month
Expected breakdown cost
Expected number of breakdowns
Cost per breakdown
=
x
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Maintenance Cost Example
Compute the cost of preventive maintenance
= (1 breakdown / month)($300) + $150 / month
= $450 / month
Hire the service firm; it is less expensive
Preventive maintenance cost
Cost of expected breakdowns if service contract signed
Cost of
service contract
=
+
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© 2014 Pearson Education, Inc.
Increasing Repair Capabilities
Well-trained personnel
Adequate resources
Ability to establish repair plan and priorities
Ability and authority to do material planning
Ability to identify the cause of breakdowns
Ability to design ways to extend MTBF
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Increasing Repair Capabilities
Figure 17.5
Operator
(autonomous maintenance)
Maintenance department
Manufacturer’s field service
Depot service
(return equipment)
Increasing Operator Ownership
Increasing Complexity
Preventive
maintenance costs less and
is faster the more we move to the left
Competence is higher as we
move to the right
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Autonomous Maintenance
Employees accept responsibility for
Observe
Check
Adjust
Clean
Notify
Predict failures, prevent breakdowns, prolong equipment life
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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
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Total Productive Maintenance (TPM)
Developing preventive maintenance plans that utilize the best practices of operators, maintenance departments, and depot service
Training for autonomous maintenance so operators maintain their own machines and partner with maintenance personnel
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More on Maintenance –
A simple redundancy formula
Problems with breakdown and preventive maintenance
Predictive maintenance
Predictive maintenance tools
Maintenance strategy implementation
Effective reliability
Supplemental Material
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Providing Redundancy –
An Alternate Formula
The reliability of one pump =
The probability of one pump not failing = 0.8
P(failing) = 1- P(not failing) = 1 - 0.8 = .2
P(failure of both pumps) =
P(failure) pump #1 x P(failure) pump #2
P(failure of both pumps) = 0.2 x 0.2 = .04
P(at least one pump working) =
1.0 - .04 = .96
If there are two pumps with the same probability of not failing
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Problems With Breakdown Maintenance
Run it till it breaks”
Might be ok for low criticality equipment or redundant systems
Could be disastrous for mission-critical plant machinery or equipment
Not permissible for systems that could imperil life or limb (like aircraft)
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Problems With Preventive Maintenance
Fix it “whether or not it is broken”
Scheduled replacement or adjustment of parts/equipment with a well-established service life
Typical example – plant relamping
Sometimes misapplied
Replacing old but still good bearings
Over-tightening electrical lugs in switchgear
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Another Maintenance Strategy
Predictive maintenance – Using advanced technology to monitor equipment and predict failures
Using technology to detect and predict imminent equipment failure
Visual inspection and/or scheduled measurements of vibration, temperature, oil and water quality
Measurements are compared to a “healthy” baseline
Equipment that is trending towards failure can be scheduled for repair
*
*
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Predictive Maintenance Tools
Vibration analysis
Infrared Thermography
Oil and Water Analysis
Other Tools:
Ultrasonic testing
Liquid Penetrant Dye testing
Shock Pulse Measurement (SPM)
*
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Predictive Maintenance
Vibration Analysis
Using sensitive transducers and instruments to detect and analyze vibration
Typically used on expensive, mission-critical equipment–large turbines, motors, engines or gearboxes
Sophisticated frequency (FFT) analysis can pinpoint the exact moving part that is worn or defective
Can utilize a monitoring service
*
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Predictive Maintenance Infrared (IR) Thermography
Using IR cameras to look for temperature “hot spots” on equipment
Typically used to check electrical equipment for wiring problems or poor/loose connections
Can also be used to look for “cold (wet) spots” when inspecting roofs for leaks
High quality IR cameras are expensive – most pay for IR thermography services
*
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Predictive Maintenance
Oil and Water Analysis
Taking oil samples from large gearboxes, compressors or turbines for chemical and particle analysis
Particle size can indicate abnormal wear
Taking cooling water samples for analysis – can detect excessive rust, acidity, or microbiological fouling
Services usually provided by oil vendors and water treatment companies
*
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Predictive Maintenance
Other Tools and Techniques
Ultrasonic and dye testing – used to find stress cracks in tubes, turbine blades and load bearing structures
Ultrasonic waves sent through metal
Surface coated with red dye, then cleaned off, dye shows cracks
Shock-pulse testing – a specialized form of vibration analysis used to detect flaws in ball or roller bearings at high frequency (32kHz)
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Maintenance Strategy Comparison
MAINTENANCE STRATEGY ADVANTAGES DISADVANTAGES RESOURCES/ TECHNOLOGY REQUIRED APPLICATION EXAMPLE
Breakdown No prior work required Disruption of production, injury or death May need labor/parts at odd hours Office copier
Preventive Work can be scheduled Labor cost, may replace healthy components Need to obtain labor/parts for repairs Plant relamping, machine lubrication
Predictive Impending failures can be detected & work scheduled Labor costs, costs for detection equipment and services Vibration, IR analysis equipment or purchased services Vibration and oil analysis of a large gearbox
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Maintenance Strategy Implementation
Percentage of Maintenance Time by Strategy
Breakdown
Preventive
Predictive
1 2 3 4 5 6 7 8 9 10
Year
100%
80%
60%
40%
20%
0%
*
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Is Predictive Maintenance
Cost Effective?
In most industries the average rate of return is 7:1 to 35:1 for each predictive maintenance dollar spent
Vibration analysis, IR thermography and oil/water analysis are all economically proven technologies
The real savings is the avoidance of manufacturing downtime – especially crucial in JIT
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Predictive Maintenance and Effective Reliability
Effective Reliability (Reff) is an extension of Reliability that includes the probability of failure times the probability of not detecting imminent failure
Having the ability to detect imminent failures allows us to plan maintenance for the component in failure mode, thus avoiding the cost of an unplanned breakdown
Reff = 1 – (P(failure) x P(not detecting failure))
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How Predictive Maintenance Improves Effective Reliability
Example: a large gearbox with a reliability of .90 has vibration transducers installed for vibration monitoring. The probability of early detection of a failure is .70. What is the effective reliability of the gearbox?
Reff = 1 – (P(failure) x P(not detecting failure))
Reff = 1 – (.10 x .30) = 1 - .03 = .97
Vibration monitoring has increased the effective reliability from .90 to .97!
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Effective Reliability Caveats
Predictive maintenance only increases effective reliability if:
You select the method that can detect the most likely failure mode
You monitor frequently enough to have high likelihood of detecting a change in component behavior before failure
Timely action is taken to fix the issue and forestall the failure (in other words you don’t ignore the warning!)
*
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Increasing Repair Capabilities
Well-trained personnel
Adequate resources
Proper application of the three maintenance strategies
Continual improvement to improve equipment/system reliability
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© 2014 Pearson Education, Inc.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher.
Printed in the United States of America.
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d
ucat
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on, Inc.
Location Strategies
PowerPoint presentation to accompany
Heizer and Render
Operations Management, Eleventh Edition
Principles of Operations Management, Ninth Edition
PowerPoint slides by Jeff Heyl
8
© 2014 Pearson Education, Inc.
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© 2014 Pearson Education, Inc.
Outline
Global Company Profile:
FedEx
The Strategic Importance of Location
Factors That Affect Location Decisions
Methods of Evaluating Location Alternatives
Service Location Strategy
Geographic Information Systems
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© 2014 Pearson Education, Inc.
Learning Objectives
When you complete this chapter you should be able to:
Identify and explain seven major factors that effect location decisions
Compute labor productivity
Apply the factor-rating method
Complete a locational break-even analysis graphically and mathematically
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© 2014 Pearson Education, Inc.
When you complete this chapter you should be able to:
Learning Objectives
Use the center-of-gravity method
Understand the differences between service- and industrial-sector location analysis
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Location Provides Competitive Advantage for FedEx
Central hub concept
Enables service to more locations with fewer aircraft
Enables matching of aircraft flights with package loads
Reduces mishandling and delay in transit because there is total control of packages from pickup to delivery
© 2014 Pearson Education, Inc.
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© 2014 Pearson Education, Inc.
The Strategic Importance of Location
One of the most important decisions a firm makes
Increasingly global in nature
Significant impact on f
ix
ed and variable costs
Decisions made relatively infrequently
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The Strategic Importance of Location
Long-term decisions
Once committed to a location, many resource and cost issues are difficult to change
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The Strategic Importance of Location
The objective of location strategy is to maximize the benefit of location to the firm
Options include
Expanding existing facilities
Maintain existing and add sites
Closing existing and relocating
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Location and Costs
Location decisions based on low cost require careful consideration
Once in place, location-related costs are fixed in place and difficult to reduce
Determining optimal facility location is a good investment
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Factors That Affect Location Decisions
Globalization adds to complexity
Market economics
Communication
Rapid, reliable transportation
Ease of capital flow
Differing labor costs
Identify key success factors (KSFs)
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Location Decisions
Country Decision
Key Success Factors
Political risks, government rules, attitudes, incentives
Cultural and economic issues
Location of markets
Labor talent, attitudes, productivity, costs
Availability of supplies, communications, energy
Exchange rates and currency risks
Figure 8.1
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Location Decisions
Region/ Community Decision
Key Success Factors
Corporate desires
Attractiveness of region
Labor availability and costs
Costs and availability of utilities
Environmental regulations
Government incentives and fiscal policies
Proximity to raw materials and customers
Land/construction costs
Figure 8.1
MN
WI
MI
IL
IN
OH
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Location Decisions
Site Decision
Key Success Factors
Site size and cost
Air, rail, highway, and waterway systems
Zoning restrictions
Proximity of services/ supplies needed
Environmental impact issues
Figure 8.1
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Global Competitiveness Index of Countries
TABLE 8.1
Competitiveness of 142 Selected Countries
COUNTRY 2011-2012 RANKING
Switzerland 1
Singapore 2
Sweden 3
Finland 4
USA 5
Japan 9
UK 10
Canada 12
Israel 22
China 26
Mexico 58
Vietnam 65
Russia 66
Haiti 141
Chad 142
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Factors That Affect
Location Decisions
Labor productivity
Wage rates are not the only cost
Lower productivity may increase total cost
Labor cost per day
Productivity (units per day)
=
Cost per unit
= $1.17 per unit
$70
60 units
South Carolina
= $1.25 per unit
$25
20 units
Mexico
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Factors That Affect
Location Decisions
Exchange rates and currency risks
Can have a significant impact on costs
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
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© 2014 Pearson Education, Inc.
Factors That Affect
Location Decisions
Exchange rates and currency risks
Can have a significant impact on costs
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
Location decisions based on costs alone can create difficult ethical situations
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© 2014 Pearson Education, Inc.
Factors That Affect
Location Decisions
Political risk, values, and culture
National, state, local governments attitudes toward private and intellectual property, zoning, pollution, employment stability may be in flux
Worker attitudes towards turnover, unions, absenteeism
Globally cultures have different attitudes towards punctuality, legal, and ethical issues
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Ranking Corruption
Rank Country 2012 CPI Score (out of 100)
1 Demark, Finland, New Zealand 90
4 Sweden 88
5 Singapore 87
6 Switzerland 86
7 Australia, Norway 85
9 Canada, Netherlands 84
13 Germany 79
14 Hong Kong 77
17 Japan, UK 74
19 USA 73
37 Taiwan 61
39 Israel 60
45 South Korea 56
80 China 39
123 Vietnam 31
133 Russia 28
Least Corrupt
Most Corrupt
*
*
CPI is the Corrupt Perceptions Index calculated by Transparency International, an organization dedicated to fighting business corruption. The Index is calculated from up to 13 different individual scores. For details and the methodology, see www.transparency.org.
In 2012 they changed their scoring system from “out of 10” to “out of 100”.
In case students are interested, three countries tied for the lowest score in the 2012 survey with a score of 8 out of 100 – Afghanistan, North Korea, and Somalia.
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© 2014 Pearson Education, Inc.
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
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Factors That Affect
Location Decisions
Proximity to competitors (clustering)
Often driven by resources such as natural, information, capital, talent
Found in both manufacturing and service industries
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Clustering of Companies
TABLE 8.3 Clustering of Companies
INDUSTRY LOCATIONS REASON FOR CLUSTERING
Wine making Napa Valley (US) Bordeaux region (France) Natural resources of land and climate
Software firms Silicon Valley, Boston, Bangalore (India) Talent resources of bright graduates in scientific/technical areas, venture capitalists nearby
Clean energy Colorado Critical mass of talent and information, with 1,000 companies
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Clustering of Companies
TABLE 8.3 Clustering of Companies
INDUSTRY LOCATIONS REASON FOR CLUSTERING
Theme parks (Disney World, Universal Studios, and Sea World) Orlando, Florida A hot spot for entertainment, warm weather, tourists, and inexpensive labor
Electronics firms Northern Mexico NAFTA, duty free export to U.S.
Computer hardware manufacturers Singapore, Taiwan High technological penetration rate and per capita GDP, skilled/educated workforce with large pool of engineers
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Clustering of Companies
TABLE 8.3 Clustering of Companies
INDUSTRY LOCATIONS REASON FOR CLUSTERING
Fast food chains (Wendy’s, McDonald’s, Burger King, and Pizza Hut) Sites within 1 mile of each other Stimulate food sales, high traffic flows
General aviation aircraft (Cessna, Learjet, Boeing, Raytheon) Wichita, Kansas Mass of aviation skills
Athletic footwear, outdoor wear Portland, Oregon 300 companies, many owned by Nike, deep talent pool and outdoor culture
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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 key 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
Make a recommendation based on the highest point score
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Factor-Rating Example
TABLE 8.4 Weights, Scores, and Solution
SCORES
(OUT OF 100) WEIGHTED SCORES
KSF 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
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Locational
Cost-Volume Analysis
An economic comparison of location alternatives
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
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Locational Cost-Volume Analysis Example
Three locations:
Total Cost = Fixed Cost + (Variable Cost x Volume)
Selling price = $120
Expected volume = 2,000 units
Athens $30,000 $75 $180,000
Brussels $60,000 $45 $150,000
Lisbon $110,000 $25 $160,000
Fixed Variable Total
City Cost Cost Cost
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© 2014 Pearson Education, Inc.
Locational Cost-Volume Analysis Example
Crossover point – Athens/Brussels
30,000 + 75(x) = 60,000 + 45(x)
30(x) = 30,000
(x) = 1,000
60,000 + 45(x) = 110,000 + 25(x)
20(x) = 50,000
(x) = 2,500
Crossover point – Brussels/Lisbon
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Locational Cost-Volume Analysis Example
Figure 8.2
–
$180,000 –
–
$160,000 –
$150,000 –
–
$130,000 –
–
$110,000 –
–
–
$80,000 –
–
$60,000 –
–
–
$30,000 –
–
$10,000 –
–
Annual cost
| | | | | | |
0 500 1,000 1,500 2,000 2,500 3,000
Volume
Athens lowest cost
Brussels
lowest cost
Lisbon lowest
cost
Lisbon cost curve
Athens
cost curve
Brussels
cost curve
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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)
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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
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Center-of-Gravity Method
where dix = x-coordinate of location i
d
iy
= y-coordinate of location i
Q
i = Quantity of goods moved to or from location i
x-coordinate of the center of gravity
y-coordinate of the center of gravity
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Center-of-Gravity Method
TABLE 8.5 Demand for Quain’s Discount Department Stores
STORE LOCATION NUMBER OF CONTAINERS
SHIPPED PER MONTH
Chicago 2,000
Pittsburgh 1,000
New York 1,000
Atlanta 2,000
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Center-of-Gravity Method
Figure 8.3
d1x = 30
d1y = 120
Q1 = 2,000
North-South
East-West
120 –
90 –
60 –
30 –
–
| | | | | |
30 60 90 120 150
Arbitrary origin
New York (130, 130)
Pittsburgh (90, 110)
Chicago (30, 120)
Atlanta (60, 40)
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Center-of-Gravity Method
(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)
2000 + 1000 + 1000 + 2000
x-coordinate =
= 66.7
y-coordinate =
(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)
2000 + 1000 + 1000 + 2000
= 93.3
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© 2014 Pearson Education, Inc.
Center-of-Gravity Method
Figure 8.3
North-South
East-West
120 –
90 –
60 –
30 –
–
| | | | | |
30 60 90 120 150
Arbitrary origin
New York (130, 130)
Pittsburgh (90, 110)
Chicago (30, 120)
Atlanta (60, 40)
Center of gravity (66.7, 93.3)
+
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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
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Worldwide Distribution of Volkswagens and Parts
Figure 8.4
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Service Location Strategy
Purchasing power of customer-drawing area
Service and image compatibility with demographics of the customer-drawing area
Competition in the area
Quality of the competition
Uniqueness of the firm’s and competitors’ locations
Physical qualities of facilities and neighboring businesses
Operating policies of the firm
Quality of management
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Location Strategies
TABLE 8.6 Location Strategies – Service vs. Goods-Producing Organizations
SERVICE/RETAIL/PROFESSIONAL GOODS-PRODUCING
REVENUE FOCUS COST FOCUS
Volume/revenue
Drawing area; purchasing power Competition; advertising/pricing
Physical quality
Parking/access; security/lighting; appearance/ image
Cost determinants
Rent
Management caliber
Operation policies (hours, wage rates) Tangible costs
Transportation cost of raw material Shipment cost of finished goods
Energy and utility cost; labor; raw material; taxes, and so on
Intangible and future costs
Attitude toward union
Quality of life
Education expenditures by state Quality of state and local government
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© 2014 Pearson Education, Inc.
Location Strategies
TABLE 8.6 Location Strategies – Service vs. Goods-Producing Organizations
SERVICE/RETAIL/PROFESSIONAL GOODS-PRODUCING
TECHNIQUES TECHNIQUES
Regression models to determine importance of various factors
Factor-rating method
Traffic counts
Demographic analysis of drawing area
Purchasing power analysis of area
Center-of-gravity method
Geographic information systems Transportation method
Factor-rating method
Locational cost–volume analysis
Crossover charts
ASSUMPTIONS ASSUMPTIONS
Location is a major determinant of revenue
High customer-contact issues are critical
Costs are relatively constant for a given area; therefore, the revenue function is critical Location is a major determinant of cost
Most major costs can be identified explicitly for each site
Low customer contact allows focus on the identifiable costs
Intangible costs can be evaluated
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© 2014 Pearson Education, Inc.
How Hotel Chains Select Sites
Location is a strategically important decision in the hospitality industry
La Quinta started with 35 independent variables and worked to refine a regression model to predict profitability
The final model had only four variables
Price of the inn
Median income levels
State population per inn
Location of nearby colleges
r2 = .51
51% of the
profitability is
predicted by
just these
four variables!
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© 2014 Pearson Education, Inc.
Geographic Information Systems (GIS)
Important tool to help in location analysis
Enables more complex demographic analysis
Available data bases include
Detailed census data
Detailed maps
Utilities
Geographic features
Locations of major services
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© 2014 Pearson Education, Inc.
Geographic Information Systems (GIS)
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© 2014 Pearson Education, Inc.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher.
Printed in the United States of America.
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© 2014 Pearson Education, Inc.
Design of Goods and Services
PowerPoint presentation to accompany
Heizer and Render
Operations Management, Eleventh Edition
Principles of Operations Management, Ninth Edition
PowerPoint slides by Jeff Heyl
5
© 2014 Pearson Education, Inc.
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© 2014 Pearson Education, Inc.
Outline
Global Company Profile: Regal Marine
Goods and Services Selection
Generating New Products
Product Development
Issues for Product Design
Product Development Continuum
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© 2014 Pearson Education, Inc.
Outline – Continued
Defining a Product
Documents for Production
Service Design
Application of Decision Trees to Product Design
Transition to Production
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© 2014 Pearson Education, Inc.
Learning Objectives
Define product life cycle
Describe a product development system
Build a house of quality
Explain how time-based competition is implemented by OM
When you complete this chapter you should be able to :
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© 2014 Pearson Education, Inc.
Learning Objectives
Describe how products and services are defined by OM
Describe the documents needed for production
Explain how the customer participates in the design and delivery of services
Apply decision trees to product issues
When you complete this chapter you should be able to :
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© 2014 Pearson Education, Inc.
Global market
3-dimensional CAD system
Reduced product development time
Reduced problems with tooling
Reduced problems in production
Assembly line production
JIT
Regal Marine
© 2014 Pearson Education, Inc.
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© 2014 Pearson Education, Inc.
Organizations exist to provide goods or services to society
Great products are the key to success
Top organizations typically focus on core products
Customers buy satisfaction, not just a physical good or particular service
Fundamental to an organization’s strategy with implications throughout the operations function
Goods and Services Selection
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© 2014 Pearson Education, Inc.
Goods or services are the basis for an organization’s existence
Limited and predicable life cycles requires constantly looking for, designing, and developing new products
New products generate substantial revenue
Goods and Services Selection
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© 2014 Pearson Education, Inc.
Goods and Services Selection
Figure 5.1
The higher the percentage of sales from the last 5 years, the more likely the firm is to be a leader.
Industry leader
Top third
Middle third
Bottom third
Position of firm in its industry
Percent of sales from new products
50% –
40% –
30% –
20% –
10% –
0% –
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© 2014 Pearson Education, Inc.
The objective of the product decision is to develop and implement a product strategy that meets the demands of the marketplace with a competitive advantage
Product Decision
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© 2014 Pearson Education, Inc.
Product Strategy Options
Differentiation
Shouldice Hospital
Low cost
Taco Bell
Rapid response
Toyota
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© 2014 Pearson Education, Inc.
Product Life Cycles
May be any length from a few days to decades
The operations function must be able to introduce new products successfully
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© 2014 Pearson Education, Inc.
Product Life Cycle
Negative cash flow
Figure 5.2
Introduction Growth Maturity Decline
Sales, cost, and cash flow
Cost of development and production
Cash flow
Net revenue (profit)
Sales revenue
Loss
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© 2014 Pearson Education, Inc.
Life Cycle and Strategy
Introductory Phase
Fine tuning may warrant unusual expenses for
Research
Product development
Process modification and enhancement
Supplier development
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© 2014 Pearson Education, Inc.
Product Life Cycle
Growth Phase
Product design begins to stabilize
Effective forecasting of capacity becomes necessary
Adding or enhancing capacity may be necessary
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© 2014 Pearson Education, Inc.
Product Life Cycle
Maturity Phase
Competitors now established
High volume, innovative production may be needed
Improved cost control, reduction in options, paring down of product line
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© 2014 Pearson Education, Inc.
Product Life Cycle
Decline Phase
Unless product makes a special contribution to the organization, must plan to terminate offering
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© 2014 Pearson Education, Inc.
Product Life Cycle Costs
Costs incurred
Costs committed
Ease of change
Concept Detailed Manufacturing Distribution,
design design service,
prototype and disposal
Percent of total cost
100 –
80 –
60 –
40 –
20 –
0 –
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© 2014 Pearson Education, Inc.
Product-by-Value Analysis
Lists products in descending order of their individual dollar contribution to the firm
Lists the total annual dollar contribution of the product
Helps management evaluate alternative strategies
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© 2014 Pearson Education, Inc.
Generating New Products
Understanding the customer
Economic change
Sociological and demographic change
Technological change
Political and legal change
Market practice, professional standards, suppliers, distributors
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© 2014 Pearson Education, Inc.
Product Development Stages
Figure 5.3
Scope for design and engineering teams
Evaluation
Introduction
Test Market
Functional Specifications
Design Review
Product Specifications
Customer Requirements
Feasibility
Concept
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© 2014 Pearson Education, Inc.
Quality Function Deployment
Identify customer wants
Identify how the good/service will satisfy customer wants
Relate customer wants to product hows
Identify relationships between the firm’s hows
Develop customer importance ratings
Evaluate competing products
Compare performance to desirable technical attributes
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© 2014 Pearson Education, Inc.
QFD House of Quality
Relationship
matrix
How to satisfy
customer wants
Interrelationships
Technical
evaluation
Target values
What the customer
wants
Customer importance ratings
Weighted rating
*
1
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© 2014 Pearson Education, Inc.
House of Quality Example
Your team has been charged with designing a new camera for Great Cameras, Inc.
The first action is
to construct a
House of Quality
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© 2014 Pearson Education, Inc.
House of Quality Example
Customer
importance
rating
(5 = highest)
Lightweight 3
Easy to use 4
Reliable 5
Easy to hold steady 2
High resolution 1
What the customer wants
What the Customer
Wants
Relationship
Matrix
Technical
Attributes and
Evaluation
How to Satisfy
Customer Wants
Interrelationships
Analysis of
Competitors
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© 2014 Pearson Education, Inc.
House of Quality Example
What the Customer
Wants
Relationship
Matrix
Technical
Attributes and
Evaluation
How to Satisfy
Customer Wants
Interrelationships
Analysis of
Competitors
Low electricity requirements
Aluminum components
Auto focus
Auto exposure
High number of pixels
Ergonomic design
How to Satisfy
Customer Wants
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© 2014 Pearson Education, Inc.
House of Quality Example
Lightweight 3
Easy to use 4
Reliable 5
Easy to hold steady 2
High resolution 1
What the Customer
Wants
Relationship
Matrix
Technical
Attributes and
Evaluation
How to Satisfy
Customer Wants
Interrelationships
Analysis of
Competitors
High relationship
Medium relationship
Low relationship
Relationship matrix
*
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© 2014 Pearson Education, Inc.
House of Quality Example
Low electricity requirements
Aluminum components
Auto focus
Auto exposure
High number of pixels
Ergonomic design
Relationships between the things we can do
What the Customer
Wants
Relationship
Matrix
Technical
Attributes and
Evaluation
How to Satisfy
Customer Wants
Interrelationships
Analysis of
Competitors
*
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© 2014 Pearson Education, Inc.
House of Quality Example
Weighted rating
Lightweight 3
Easy to use 4
Reliable 5
Easy to hold steady 2
High resolution 1
Our importance ratings 22 9 27 27 32 25
What the Customer
Wants
Relationship
Matrix
Technical
Attributes and
Evaluation
How to Satisfy
Customer Wants
Interrelationships
Analysis of
Competitors
*
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© 2014 Pearson Education, Inc.
House of Quality Example
Company A
Company B
G P
G P
F G
G P
P P
Lightweight 3
Easy to use 4
Reliable 5
Easy to hold steady 2
High resolution 1
Our importance ratings 22 5
How well do competing products meet customer wants
What the Customer
Wants
Relationship
Matrix
Technical
Attributes and
Evaluation
How to Satisfy
Customer Wants
Interrelationships
Analysis of
Competitors
*
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© 2014 Pearson Education, Inc.
House of Quality Example
What the Customer
Wants
Relationship
Matrix
Technical
Attributes and
Evaluation
How to Satisfy
Customer Wants
Interrelationships
Analysis of
Competitors
Target values
(Technical attributes)
Technical evaluation
Company A 0.7 60% yes 1 ok G
Company B 0.6 50% yes 2 ok F
Us 0.5 75% yes 2 ok G
2 circuits
Failure 1 per 10,000
Panel ranking
0.5 A
75%
2’ to ∞
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© 2014 Pearson Education, Inc.
House of Quality Example
Completed House of Quality
Low electricity requirements
Aluminum components
Auto focus
Auto exposure
High number of pixels
Ergonomic design
Company A
Company B
Lightweight 3
Easy to use 4
Reliable 5
Easy to hold steady 2
High resolution 1
Our importance ratings
G P
G P
F G
G P
P P
Target values
(Technical attributes)
Technical evaluation
Company A 0.7 60% yes 1 ok G
Company B 0.6 50% yes 2 ok F
Us 0.5 75% yes 2 ok G
0.5 A
75%
2’ to ∞
2 circuits
Failure 1 per 10,000
Panel ranking
22 9 27 27 32 25
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© 2014 Pearson Education, Inc.
House of Quality Sequence
Figure 5.4
Deploying resources through the organization in response to customer requirements
Production process
Quality plan
House 4
Specific components
Production process
House 3
Design characteristics
Specific components
House 2
Customer requirements
Design characteristics
House 1
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© 2014 Pearson Education, Inc.
Organizing for Product Development
Traditionally – distinct departments
Duties and responsibilities are defined
Difficult to foster forward thinking
A Champion
Product manager drives the product through the product development system and related organizations
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© 2014 Pearson Education, Inc.
Organizing for Product Development
Team approach
Cross functional – representatives from all disciplines or functions
Product development teams, design for manufacturability teams, value engineering teams
Japanese “whole organization” approach
No organizational divisions
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© 2014 Pearson Education, Inc.
Manufacturability and
Value Engineering
Benefits:
Reduced complexity of the product
Reduction of environmental impact
Additional standardization of components
Improvement of functional aspects of the product
Improved job design and job safety
Improved maintainability (serviceability) of the product
Robust design
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© 2014 Pearson Education, Inc.
Cost Reduction of a Bracket via Value Engineering
Figure 5.5
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© 2014 Pearson Education, Inc.
Issues for Product Design
Robust design
Modular design
Computer-aided design (CAD)
Computer-aided manufacturing (CAM)
Virtual reality technology
Value analysis
Sustainability and Life Cycle Assessment (LCA)
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© 2014 Pearson Education, Inc.
Robust Design
Product is designed so that small variations in production or assembly do not adversely affect the product
Typically results in lower cost and higher quality
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© 2014 Pearson Education, Inc.
Modular Design
Products designed in easily segmented components
Adds flexibility to both production and marketing
Improved ability to satisfy customer requirements
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© 2014 Pearson Education, Inc.
Using computers to design products and prepare engineering documentation
Shorter development cycles, improved accuracy, lower cost
Information and designs can be deployed worldwide
Computer Aided Design (CAD)
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© 2014 Pearson Education, Inc.
Design for Manufacturing and Assembly (DFMA)
Solve manufacturing problems during the design stage
3-D Object Modeling
Small prototype
development
CAD through the
internet
International data
exchange through STEP
Extensions of CAD
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© 2014 Pearson Education, Inc.
Computer-Aided Manufacturing (CAM)
Utilizing specialized computers and program to control manufacturing equipment
Often driven by the CAD system (CAD/CAM)
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© 2014 Pearson Education, Inc.
Product quality
Shorter design time
Production cost reductions
Database availability
New range of capabilities
Benefits of CAD/CAM
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© 2014 Pearson Education, Inc.
Virtual Reality Technology
Computer technology used to develop an interactive, 3-D model of a product from the basic CAD data
Allows people to ‘see’ the finished design before a physical model is built
Very effective in large-scale designs such as plant layout
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© 2014 Pearson Education, Inc.
Value Analysis
Focuses on design improvement during production
Seeks improvements leading either to a better product or a product which can be produced more economically with less environmental impact
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© 2014 Pearson Education, Inc.
Sustainability and Life Cycle Assessment (LCA)
Sustainability means meeting the needs of the present without compromising the ability of future generations to meet their needs
LCA is a formal evaluation of the environmental impact of a product
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© 2014 Pearson Education, Inc.
Product Development Continuum
Product life cycles are becoming shorter and the rate of technological change is increasing
Developing new products faster can result in a competitive advantage
Time-Based Competition
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© 2014 Pearson Education, Inc.
Product Development Continuum
Figure 5.6
Internal Cost of product development Shared
Lengthy Speed of product development Rapid and/
or Existing
High Risk of product development Shared
External Development Strategies
Alliances
Joint ventures
Purchase technology or expertise
by acquiring the developer
Internal Development Strategies
Migrations of existing products
Enhancements to existing products
New internally developed products
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© 2014 Pearson Education, Inc.
Product Development Continuum
Purchasing technology by acquiring a firm
Speeds development
Issues concern the fit between the acquired organization and product and the host
Joint Ventures
Both organizations learn
Risks are shared
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© 2014 Pearson Education, Inc.
Product Development Continuum
Through Alliances
Cooperative agreements between independent organizations
Useful when technology is developing
Reduces risks
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© 2014 Pearson Education, Inc.
Defining a Product
First definition is in terms of functions
Rigorous specifications are developed during the design phase
Manufactured products will have an engineering drawing
Bill of material (BOM) lists the components of a product
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© 2014 Pearson Education, Inc.
Monterey Jack Cheese
(a) U.S. grade AA. Monterey cheese shall conform to the following requirements:
(1) Flavor. Is fine and highly pleasing, free from undesirable flavors and odors. May possess a very slight acid or feed flavor.
(2) Body and texture. A plug drawn from the cheese shall be reasonably firm. It shall have numerous small mechanical openings evenly distributed throughout the plug. It shall not possess sweet holes, yeast holes, or other gas holes.
(3) Color. Shall have a natural, uniform, bright and attractive appearance.
(4) Finish and appearance—bandaged and
paraffin-dipped. The rind shall be sound,
firm, and smooth providing a good
protection to the cheese.
Code of Federal Regulation, Parts 53 to 109, General Service Administration
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© 2014 Pearson Education, Inc.
Engineering drawing
Shows dimensions, tolerances, and materials
Shows codes for Group Technology
Bill of Material
Lists components, quantities and where used
Shows product structure
Product Documents
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© 2014 Pearson Education, Inc.
Engineering Drawings
Figure 5.8
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© 2014 Pearson Education, Inc.
Bills of Material
BOM for a Panel Weldment
Figure 5.9 (a)
NUMBER DESCRIPTION QTY
A 60-71 PANEL WELDM’T 1
A 60-7 LOWER ROLLER ASSM. 1
R 60-17 ROLLER 1
R 60-428 PIN 1
P 60-2 LOCKNUT 1
A 60-72 GUIDE ASSM. REAR 1
R 60-57-1 SUPPORT ANGLE 1
A 60-4 ROLLER ASSM. 1
02-50-1150 BOLT 1
A 60-73 GUIDE ASSM. FRONT 1
A 60-74 SUPPORT WELDM’T 1
R 60-99 WEAR PLATE 1
02-50-1150 BOLT 1
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© 2014 Pearson Education, Inc.
Bills of Material
Hard Rock Cafe’s Hickory BBQ Bacon Cheeseburger
Figure 5.9 (b)
DESCRIPTION QTY
Bun 1
Hamburger patty 8 oz.
Cheddar cheese 2 slices
Bacon 2 strips
BBQ onions 1/2 cup
Hickory BBQ sauce 1 oz.
Burger set
Lettuce 1 leaf
Tomato 1 slice
Red onion 4 rings
Pickle 1 slice
French fries 5 oz.
Seasoned salt 1 tsp.
11-inch plate 1
HRC flag 1
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© 2014 Pearson Education, Inc.
Parts grouped into families with similar characteristics
Coding system describes processing and physical characteristics
Part families can be produced
in dedicated manufacturing cells
Group Technology
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© 2014 Pearson Education, Inc.
Group Technology Scheme
Figure 5.10
(a) Ungrouped Parts
(b) Grouped Cylindrical Parts (families of parts)
Grooved Slotted Threaded Drilled Machined
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© 2014 Pearson Education, Inc.
Improved design
Reduced raw material and purchases
Simplified production planning and control
Improved layout, routing, and machine loading
Reduced tooling setup time, work-in-process, and production time
Group Technology Benefits
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© 2014 Pearson Education, Inc.
Documents for Production
Assembly drawing
Assembly chart
Route sheet
Work order
Engineering change notices (ECNs)
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© 2014 Pearson Education, Inc.
Assembly Drawing
Shows exploded view of product
Details relative locations to show how to assemble the product
Figure 5.11 (a)
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© 2014 Pearson Education, Inc.
Assembly Chart
Figure 5.11 (b)
Identifies the point of production where components flow into subassemblies and ultimately into the final product
1
2
3
4
5
6
7
8
9
10
11
SA
1
SA
2
A1
A2
A3
A4
A5
R 209 Angle
R 207 Angle
Bolts w/nuts (2)
R 209 Angle
R 207 Angle
Bolt w/nut
R 404 Roller
Lock washer
Part number tag
Box w/packing material
Bolts w/nuts (2)
Left
bracket
assembly
Right
bracket
assembly
Poka-yoke inspection
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© 2014 Pearson Education, Inc.
Route Sheet
Lists the operations and times required to produce a component
Setup Operation
Process Machine Operations Time Time/Unit
1 Auto Insert 2 Insert Component 1.5 .4
Set 56
2 Manual Insert Component .5 2.3
Insert 1 Set 12C
3 Wave Solder Solder all 1.5 4.1
components
to board
4 Test 4 Circuit integrity .25 .5
test 4GY
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© 2014 Pearson Education, Inc.
Work Order
Instructions to produce a given quantity of a particular item, usually to a schedule
Work Order
Item Quantity Start Date Due Date
Production Delivery
Dept Location
157C 125 5/2/08 5/4/08
F32 Dept K11
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© 2014 Pearson Education, Inc.
Engineering Change Notice (ECN)
A correction or modification to a product’s definition or documentation
Engineering drawings
Bill of material
Quite common with long product life cycles, long manufacturing lead times, or rapidly changing technologies
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© 2014 Pearson Education, Inc.
Configuration Management
The need to manage ECNs has led to the development of configuration management systems
A product’s planned and changing components are accurately identified and control and accountability for change are identified and maintained
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© 2014 Pearson Education, Inc.
Product Life-Cycle Management (PLM)
Integrated software that brings together most, if not all, elements of product design and manufacture
Product design
CAD/CAM, DFMA
Product routing
Materials
Assembly
Environmental
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© 2014 Pearson Education, Inc.
Service Design
Service typically includes direct interaction with the customer
Process – chain – network (PCN) analysis focuses on the ways in which processes can be designed to optimize interaction between firms and their customers
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© 2014 Pearson Education, Inc.
Process-Chain-Network (PCN) Analysis
Figure 5.12
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© 2014 Pearson Education, Inc.
Process-Chain-Network (PCN) Analysis
Direct interaction region includes process steps that involve interaction between participants
The surrogate (substitute) interaction region includes process steps in which one participant is acting on another participant’s resources
The independent processing region includes steps in which the supplier and/or the customer is acting on resources where each has maximum control
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© 2014 Pearson Education, Inc.
Process-Chain-Network (PCN) Analysis
All three regions have similar operating issues but the appropriate way of handling the issues differs across regions
Service operations exist only within the area of direct and surrogate interaction
PCN analysis provides insight to aid in positioning and designing processes that can achieve strategic objectives
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© 2014 Pearson Education, Inc.
Adding Service Efficiency
Service productivity is notoriously low partially because of customer involvement in the design or delivery of the service, or both
Complicates product design
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© 2014 Pearson Education, Inc.
Adding Service Efficiency
Limit the options
Improves efficiency and ability to meet customer expectations
Delay customization
Modularization
Eases customization of a service
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© 2014 Pearson Education, Inc.
Adding Service Efficiency
Automation
Reduces cost, increases customer service
Moment of truth
Critical moments between the customer and the organization that determine customer satisfaction
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© 2014 Pearson Education, Inc.
Documents for Services
High levels of customer interaction necessitates different documentation
Often explicit job instructions
Scripts and storyboards are other techniques
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© 2014 Pearson Education, Inc.
First Bank Corp. Drive-up Teller Service Guidelines
Be especially discreet when talking to the customer through the microphone.
Provide written instructions for customers who must fill out forms you provide.
Mark lines to be completed or attach a note with instructions.
Always say “please” and “thank you” when speaking through the microphone.
Establish eye contact with the customer if the distance allows it.
If a transaction requires that the customer park the car and come into the lobby, apologize for the inconvenience.
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© 2014 Pearson Education, Inc.
Application of Decision Trees to Product Design
Particularly useful when there are a series of decisions and outcomes which lead to other decisions and outcomes
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© 2014 Pearson Education, Inc.
Application of Decision Trees to Product Design
Include all possible alternatives and states of nature – including “doing nothing”
Enter payoffs at end of branch
Determine the expected value of each branch and “prune” the tree to find the alternative with the best expected value
Procedure
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© 2014 Pearson Education, Inc.
Decision Tree Example
Figure 5.13
(.6)
Low sales
(.4)
High sales
(.6) Low sales
(.4)
High sales
Purchase CAD
Hire and train engineers
Do nothing
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© 2014 Pearson Education, Inc.
Decision Tree Example
EMV (purchase CAD system) = (.4)($1,000,000) + (.6)(– $20,000)
Figure 5.13
(.6) Low sales
(.4)
High sales
Purchase CAD
(.6)
Low sales
(.4)
High sales
Hire and train engineers
Do nothing
$2,500,000 Revenue
– 1,000,000 Mfg cost ($40 x 25,000)
– 500,000 CAD cost
$1,000,000 Net
$800,000 Revenue
– 320,000 Mfg cost ($40 x 8,000)
– 500,000 CAD cost
– $20,000 Net loss
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© 2014 Pearson Education, Inc.
Decision Tree Example
$388,000
EMV (purchase CAD system) = (.4)($1,000,000) + (.6)(– $20,000)
= $388,000
Figure 5.13
(.6) Low sales
(.4)
High sales
Purchase CAD
(.6)
Low sales
(.4)
High sales
Hire and train engineers
Do nothing
$2,500,000 Revenue
– 1,000,000 Mfg cost ($40 x 25,000)
– 500,000 CAD cost
$1,000,000 Net
$800,000 Revenue
– 320,000 Mfg cost ($40 x 8,000)
– 500,000 CAD cost
– $20,000 Net loss
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© 2014 Pearson Education, Inc.
Decision Tree Example
Figure 5.13
(.6)
Low sales
(.4)
High sales
(.6) Low sales
(.4)
High sales
Purchase CAD
$388,000
Hire and train engineers
$365,000
Do nothing $0
$0 Net
$800,000 Revenue
– 400,000 Mfg cost ($50 x 8,000)
– 375,000 Hire and train cost
$25,000 Net
$2,500,000 Revenue
– 1,250,000 Mfg cost ($50 x 25,000)
– 375,000 Hire and train cost
$875,000 Net
$2,500,000 Revenue
– 1,000,000 Mfg cost ($40 x 25,000)
– 500,000 CAD cost
$1,000,000 Net
$800,000 Revenue
– 320,000 Mfg cost ($40 x 8,000)
– 500,000 CAD cost
– $20,000 Net loss
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© 2014 Pearson Education, Inc.
Transition to Production
Know when to move to production
Product development can be viewed as evolutionary and never complete
Product must move from design to production in a timely manner
Most products have a trial production period to insure producibility
Develop tooling, quality control, training
Ensures successful production
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© 2014 Pearson Education, Inc.
Transition to Production
Responsibility must also transition as the product moves through its life cycle
Line management takes over from design
Three common approaches to managing transition
Project managers
Product development teams
Integrate product development and manufacturing organizations
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© 2014 Pearson Education, Inc.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher.
Printed in the United States of America.
174 P A R T 2 | D E S I G N I N G O P E R AT I O N S
A process chain is a sequence of steps that accomplishes an activity, such as building a home,
completing a tax return, or preparing a sandwich. A process participant can be a manufac-
turer, a service provider, or a customer. A network is a set of participants.
Each participant has a process domain that includes the set of activities over which it has
control. The domain and interactions between two participants for sandwich preparation are
shown in the PCN diagram (Figure 5.12). The activities are organized into three process
regions for each participant:
1. The direct interaction region includes process steps that involve interaction between par-
ticipants. For example, a sandwich buyer directly interacts with employees of a sandwich
store (e.g., Subway, in the middle of Figure 5.12).
2. The surrogate (substitute) interaction region includes process steps in which one partici-
pant is acting on another participant’s resources, such as their information, materials,
or technologies. This occurs when the sandwich supplier is making sandwiches in the
restaurant kitchen (left side of Figure 5.12) or, alternately, when the customer has access
to buffet ingredients and assembles the sandwich himself (right side of the figure). Under
surrogate interaction, direct interaction is limited.
3. The independent processing region includes steps in which the sandwich supplier and/or
the sandwich customer is acting on resources where each has maximum control. Most
make-to-stock production fits in this region (left side of Figure 5.12; think of the firm that
assembles all those prepackaged sandwiches available in vending machines and conveni-
ence stores). Similarly, those sandwiches built at home occur to the right, in the customer’s
independent processing domain.
All three process regions have similar operating issues—quality control, facility location and lay-
out, job design, inventory, and so on—but the appropriate way of handling the issues differs across
regions. Service operations exist only within the area of direct and surrogate interaction.
From the operations manager’s perspective, the valuable aspect of PCN analysis is insight
to aid in positioning and designing processes that can achieve strategic objectives. A !rm’s
operations are strategic in that they can de!ne what type of business the !rm is in and what
value proposition it desires to provide to customers. For example, a !rm may assume a low-cost
strategy, operating on the left of Figure 5.12 as a manufacturer of premade sandwiches. Other
!rms (e.g., Subway) adopt a differentiation strategy with high customer interaction. Each of
the process regions depicts a unique operational strategy.
Process chain
A sequence of steps that ac-
complishes an identifiable purpose
(of providing value to process
participants).
Figure 5.12
Customer Interaction Is a Strategic Choice
Sandwich supplier
Assemble sandwich
Supplier’s process domain
Prepare sandwiches
at factory for resale
at convenience stores
Make sandwich in restau-
rant kitchen from menu
offerings with modest
modifications
Assemble custom
sandwich at Subway
as customer orders
Customer assembles
sandwich from buffet
offerings
Assemble sandwich at
home using ingredients
from refrigerator
Independent
processing
Independent
processing
Surrogate
interaction
Surrogate
interaction
Direct
interaction
Direct
interaction
Sandwich consumer
Consumer’s process domain
LO7 Explain how the
customer participates in
the design and delivery of
services
M05_HEIZ1145_11_SE_C05.indd 174 07/11/12 7:25 PM
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© 2014 Pearson Education, Inc.
Managing Quality
PowerPoint presentation to accompany
Heizer and Render
Operations Management, Eleventh Edition
Principles of Operations Management, Ninth Edition
PowerPoint slides by Jeff Heyl
6
© 2014 Pearson Education, Inc.
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© 2014 Pearson Education, Inc.
Outline
Global Company Profile:
Arnold Palmer Hospital
Quality and Strategy
Defining Quality
Total Quality Management
Tools of TQM
The Role of Inspection
TQM in Services
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© 2014 Pearson Education, Inc.
Learning Objectives
When you complete this chapter you should be able to:
Define quality and TQM
Describe the ISO international quality standards
Explain what Six Sigma is
Explain how benchmarking is used in TQM
Explain quality robust products and
Taguchi concepts
Use the seven tools of TQM
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© 2014 Pearson Education, Inc.
Managing Quality Provides a Competitive Advantage
Arnold Palmer Hospital
Deliver over 12,000 babies annually
Virtually every type of quality tool is employed
Continuous improvement
Employee empowerment
Benchmarking
Just-in-time
Quality tools
© 2014 Pearson Education, Inc.
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© 2014 Pearson Education, Inc.
Quality and Strategy
Managing quality supports differentiation, low cost, and response strategies
Quality helps firms increase sales and reduce costs
Building a quality organization is a demanding task
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© 2014 Pearson Education, Inc.
Two Ways Quality
Improves Profitability
Figure 6.1
Improved Quality
Increased Profits
Increased productivity
Lower rework and scrap costs
Lower warranty costs
Reduced Costs via
Improved response
Flexible pricing
Improved reputation
Sales Gains via
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© 2014 Pearson Education, Inc.
The Flow of Activities
Organizational Practices
Leadership, Mission statement, Effective operating procedures, Staff support, Training
Yields: What is important and what is to be
accomplished
Figure 6.2
Quality Principles
Customer focus, Continuous improvement, Benchmarking, Just-in-time, Tools of TQM
Yields: How to do what is important and to be
accomplished
Employee Fulfillment
Empowerment, Organizational commitment
Yields: Employee attitudes that can accomplish
what is important
Customer Satisfaction
Winning orders, Repeat customers
Yields: An effective organization with
a competitive advantage
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© 2014 Pearson Education, Inc.
Defining Quality
An operations manager’s objective is to build a total quality management system that identifies and satisfies customer needs
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Defining Quality
The totality of features and characteristics of a product or service that bears on its ability to satisfy stated or implied needs
American Society for Quality
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Different Views
User-based: better performance, more features
Manufacturing-based: conformance to standards, making it right the first time
Product-based: specific and measurable attributes of the product
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Implications of Quality
Company reputation
Perception of new products
Employment practices
Supplier relations
Product liability
Reduce risk
Global implications
Improved ability to compete
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© 2014 Pearson Education, Inc.
Malcolm Baldrige National Quality Award
Established in 1988 by the U.S. government
Designed to promote TQM practices
Recent winners include
Lockheed Martin Missiles and Fire Control, MESA Products Inc., North Mississippi Health Services, City of Irving, Concordia Publishing House, Henry Ford Health System, MEDRAD, Nestlé Purina PetCare Co., Montgomery County Public Schools
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© 2014 Pearson Education, Inc.
Baldrige Criteria
Applicants are evaluated on:
CATEGORIES POINTS
Leadership 120
Strategic Planning 85
Customer Focus 85
Measurement, Analysis, and Knowledge Management 90
Workforce Focus 85
Operations Focus 85
Results 450
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ISO 9000 International Quality Standards
International recognition
Encourages quality management procedures, detailed documentation, work instructions, and recordkeeping
2009 revision emphasized sustained success
Over one million certifications in 178 countries
Critical for global business
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ISO 9000 International Quality Standards
Management principles
Top management leadership
Customer satisfaction
Continual improvement
Involvement of people
Process analysis
Use of data-driven decision making
A systems approach to management
Mutually beneficial supplier relationships
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© 2014 Pearson Education, Inc.
Costs of Quality
Prevention costs – reducing the potential for defects
Appraisal costs – evaluating products, parts, and services
Internal failure costs – producing defective parts or service before delivery
External failure costs – defects discovered after delivery
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Costs of Quality
External Failure
Internal Failure
Total Cost
Quality Improvement
Total Cost
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Takumi
A Japanese character that symbolizes a broader dimension than quality, a deeper process than education, and a more perfect method than persistence
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Leaders in Quality
TABLE 6.1 Leaders in the Field of Quality Management
LEADER PHILOSOPHY/CONTRIBUTION
W. Edwards Deming Deming insisted management accept responsibility for building good systems. The employee cannot produce products that on average exceed the quality of what the process is capable of producing. His 14 points for implementing quality improvement are presented in this chapter.
Joseph M. Juran A pioneer in teaching the Japanese how to improve quality, Juran believed strongly in top-management commitment, support, and involvement in the quality effort. He was also a believer in teams that continually seek to raise quality standards. Juran varies from Deming somewhat in focusing on the customer and defining quality as fitness for use, not necessarily the written specifications.
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Leaders in Quality
TABLE 6.1 Leaders in the Field of Quality Management
LEADER PHILOSOPHY/CONTRIBUTION
Amarnd Feigenbaum His 1961 book Total Quality Control laid out 40 steps to quality improvement processes. He viewed quality not as a set of tools but as a total field that integrated the processes of a company. His work in how people learn from each other’s successes led to the field of cross-functional teamwork.
Philip B. Crosby Quality Is Free was Crosby’s attention-getting book published in 1979. Crosby believed that in the traditional trade-off between the cost of improving quality and the cost of poor quality, the cost of poor quality is understated. The cost of poor quality should include all of the things that are involved in not doing the job right the first time. Crosby coined the term zero defects and stated, “There is absolutely no reason for having errors or defects in any product or service.”
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Ethics and Quality Management
Operations managers must deliver healthy, safe, quality products and services
Poor quality risks injuries, lawsuits, recalls, and regulation
Ethical conduct must dictate response to problems
All stakeholders much be considered
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Total Quality Management
Encompasses entire organization from supplier to customer
Stresses a commitment by management to have a continuing companywide drive toward excellence in all aspects of products and services that are important to the customer
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Deming’s Fourteen Points
TABLE 6.2 Deming’s 14 Points for Implementing Quality Improvement
1. Create consistency of purpose
2. Lead to promote change
3. Build quality into the product; stop depending on inspections to catch problems
4. Build long-term relationships based on performance instead of awarding business on price
5. Continuously improve product, quality, and service
6. Start training
7. Emphasize leadership
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Deming’s Fourteen Points
TABLE 6.2 Deming’s 14 Points for Implementing Quality Improvement
8. Drive out fear
9. Break down barriers between departments
10. Stop haranguing workers
11. Support, help, and improve
12. Remove barriers to pride in work
13. Institute a vigorous program of education and self-improvement
14. Put everyone in the company to work on the transformation
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Seven Concepts of TQM
Continuous improvement
Six Sigma
Employee empowerment
Benchmarking
Just-in-time (JIT)
Taguchi concepts
Knowledge of TQM tools
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Continuous Improvement
Never-ending process of continual improvement
Covers people, equipment, materials, procedures
Every operation can be improved
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Shewhart’s PDCA Model
Figure 6.3
4. Act
Implement the plan, document
2. Do
Test the plan
3. Check
Is the plan working?
Plan
Identify the pattern and make a plan
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© 2014 Pearson Education, Inc.
Continuous Improvement
Kaizen describes the ongoing process of unending improvement
TQM and zero defects also used to describe continuous improvement
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© 2014 Pearson Education, Inc.
Six Sigma
Two meanings
Statistical definition of a process that is 99.9997% capable, 3.4 defects per million opportunities (DPMO)
A program designed to reduce defects, lower costs, save time, and improve customer satisfaction
A comprehensive system for achieving and sustaining business success
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© 2014 Pearson Education, Inc.
Six Sigma
Two meanings
Statistical definition of a process that is 99.9997% capable, 3.4 defects per million opportunities (DPMO)
A program designed to reduce defects, lower costs, save time, and improve customer satisfaction
A comprehensive system for achieving and sustaining business success
Figure 6.4
Mean
Lower limits
Upper limits
±6
3.4 defects/million
2,700 defects/million
±3
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© 2014 Pearson Education, Inc.
Six Sigma Program
Originally developed by Motorola, adopted and enhanced by Honeywell and GE
Highly structured approach to process improvement
A strategy
A discipline – DMAIC
A set of 7 tools
6
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© 2014 Pearson Education, Inc.
Six Sigma
Defines the project’s purpose, scope, and outputs, identifies the required process information keeping in mind the customer’s definition of quality
Measures the process and collects data
Analyzes the data ensuring
repeatability and reproducibility
Improves by modifying or
redesigning existing
processes and procedures
Controls the new process
to make sure performance
levels are maintained
DMAIC Approach
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Implementing Six Sigma
Emphasize defects per million opportunities as a standard metric
Provide extensive training
Focus on corporate sponsor support (Champions)
Create qualified process improvement experts (Black Belts, Green Belts, etc.)
Set stretch objectives
This cannot be accomplished without a major commitment from top level management
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Employee Empowerment
Getting employees involved in product and process improvements
85% of quality problems are due
to process and material
Techniques
Build communication networks
that include employees
Develop open, supportive supervisors
Move responsibility to employees
Build a high-morale organization
Create formal team structures
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© 2014 Pearson Education, Inc.
Quality Circles
Group of employees who meet regularly to solve problems
Trained in planning, problem solving, and statistical methods
Often led by a facilitator
Very effective when done properly
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Benchmarking
Selecting best practices to use as a standard for performance
Determine what to benchmark
Form a benchmark team
Identify benchmarking partners
Collect and analyze benchmarking information
Take action to match or exceed the benchmark
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© 2014 Pearson Education, Inc.
Best Practices for Resolving Customer Complaints
Table 6.3
BEST PRACTICE JUSTIFICATION
Make it easy for clients to complain It is free market research
Respond quickly to complaints It adds customers and loyalty
Resolve complaints on first contact It reduces cost
Use computers to manage complaints Discover trends, share them, and align your services
Recruit the best for customer service jobs It should be part of formal training and career advancement
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© 2014 Pearson Education, Inc.
Internal Benchmarking
When the organization is large enough
Data more accessible
Can and should be established in a variety of areas
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Just-in-Time (JIT)
Relationship to quality:
JIT cuts the cost of quality
JIT improves quality
Better quality means less inventory and better, easier-to-employ JIT system
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Just-in-Time (JIT)
‘Pull’ system of production scheduling including supply management
Production only when signaled
Allows reduced inventory levels
Inventory costs money and hides process and material problems
Encourages improved process and product quality
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© 2014 Pearson Education, Inc.
Taguchi Concepts
Engineering and experimental design methods to improve product and process design
Identify key component and process variables affecting product variation
Taguchi Concepts
Quality robustness
Quality loss function
Target-oriented quality
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Quality Robustness
Ability to produce products uniformly in adverse manufacturing and environmental conditions
Remove the effects of adverse conditions
Small variations in materials and process do not destroy product quality
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Quality Loss Function
Shows that costs increase as the product moves away from what the customer wants
Costs include customer dissatisfaction, warranty
and service, internal
scrap and repair, and costs to society
Traditional conformance specifications are too simplistic
Target-oriented quality
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© 2014 Pearson Education, Inc.
Quality Loss Function
Figure 6.5
Unacceptable
Poor
Good
Best
Fair
High loss
Loss (to producing organization, customer, and society)
Low loss
L = D2C
where
L = loss to society
D2 = square of the distance from target value
C = cost of deviation
Lower
Target
Upper
Specification
Frequency
Target-oriented quality yields more product in the “best” category
Target-oriented quality brings product toward the target value
Conformance-oriented quality keeps products within 3 standard deviations
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TQM Tools
Tools for Generating Ideas
Check Sheet
Scatter Diagram
Cause-and-Effect Diagram
Tools to Organize the Data
Pareto Chart
Flowchart (Process Diagram)
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© 2014 Pearson Education, Inc.
TQM Tools
Tools for Identifying Problems
Histogram
Statistical Process Control Chart
*
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© 2014 Pearson Education, Inc.
Hour
Defect 1 2 3 4 5 6 7 8
A
B
C
Seven Tools of TQM
(a) Check Sheet: An organized method of recording data
Figure 6.6
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
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Seven Tools of TQM
(b) Scatter Diagram: A graph of the value of one variable vs. another variable
Figure 6.6
Absenteeism
Productivity
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© 2014 Pearson Education, Inc.
Seven Tools of TQM
(c) Cause-and-Effect Diagram: A tool that identifies process elements (causes) that might effect an outcome
Figure 6.6
Cause
Materials
Methods
Manpower
Machinery
Effect
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© 2014 Pearson Education, Inc.
Seven Tools of TQM
(d) Pareto Chart: A graph to identify and plot problems or defects in descending order of frequency
Figure 6.6
Frequency
Percent
A B C D E
*
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© 2014 Pearson Education, Inc.
Seven Tools of TQM
(e) Flowchart (Process Diagram): A chart that describes the steps in a process
Figure 6.6
*
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© 2014 Pearson Education, Inc.
Seven Tools of TQM
(f) Histogram: A distribution showing the frequency of occurrences of a variable
Figure 6.6
Distribution
Repair time (minutes)
Frequency
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© 2014 Pearson Education, Inc.
Seven Tools of TQM
(g) Statistical Process Control Chart: A chart with time on the horizontal axis to plot values of a statistic
Figure 6.6
Upper control limit
Target value
Lower control limit
Time
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© 2014 Pearson Education, Inc.
Cause-and-Effect Diagrams
Figure 6.7
Material
(ball)
Method
(shooting process)
Machine
(hoop &
backboard)
Manpower
(shooter)
Missed
free-throws
Rim alignment
Rim size
Backboard stability
Rim height
Follow-through
Hand position
Aiming point
Bend knees
Balance
Size of ball
Lopsidedness
Grain/Feel (grip)
Air pressure
Training
Conditioning
Motivation
Concentration
Consistency
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© 2014 Pearson Education, Inc.
Pareto Charts
Number of occurrences
12
4
3
2
54
Room svc Check-in Pool hours Minibar Misc.
72% 16% 5% 4% 3%
– 100
– 93
– 88
– 72
70 –
60 –
50 –
40 –
30 –
20 –
10 –
0 –
Frequency (number)
Causes and percent of the total
Cumulative percent
Data for October
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© 2014 Pearson Education, Inc.
Flow Charts
MRI Flowchart
Physician schedules MRI
Patient taken to MRI
Patient signs in
Patient is prepped
Technician carries out MRI
Technician inspects film
If unsatisfactory, repeat
Patient taken back to room
MRI read by radiologist
MRI report transferred to physician
Patient and physician discuss
11
10
20%
9
8
80%
1
2
3
4
5
6
7
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© 2014 Pearson Education, Inc.
Statistical Process Control (SPC)
Uses statistics and control charts to tell when to take corrective action
Drives process improvement
Four key steps
Measure the process
When a change is indicated, find the assignable cause
Eliminate or incorporate the cause
Restart the revised process
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© 2014 Pearson Education, Inc.
Control Charts
Figure 6.8
Upper control limit
Coach’s target value
Lower control limit
Game number
| | | | | | | | |
1 2 3 4 5 6 7 8 9
40%
20%
0%
Plot the percent of free throws missed
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Inspection
Involves examining items to see if an item is good or defective
Detect a defective product
Does not correct deficiencies in process or product
It is expensive
Issues
When to inspect
Where in process to inspect
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When and Where to Inspect
At the supplier’s plant while the supplier is producing
At your facility upon receipt of goods from your supplier
Before costly or irreversible processes
During the step-by-step production process
When production or service is complete
Before delivery to your customer
At the point of customer contact
*
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© 2014 Pearson Education, Inc.
Inspection
Many problems
Worker fatigue
Measurement error
Process variability
Cannot inspect quality into a product
Robust design, empowered employees, and sound processes are better solutions
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Source Inspection
Also known as source control
The next step in the process is your customer
Ensure perfect
product to your
customer
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Source Inspection
Poka-yoke is the concept of foolproof devices or techniques designed to pass only acceptable product
Checklists ensure
consistency and
completeness
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© 2014 Pearson Education, Inc.
Service Industry Inspection
TABLE 6.4 Examples of Inspection in Services
ORGANIZATION WHAT IS INSPECTED STANDARD
Jones Law Office Receptionist performance
Billing
Attorney Phone answered by the second ring
Accurate, timely, and correct format
Promptness in returning calls
Hard Rock Hotel Reception desk
Doorman
Room
Minibar Use customer’s name
Greet guest in less than 30 seconds
All lights working, spotless bathroom
Restocked and charges accurately posted to bill
*
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© 2014 Pearson Education, Inc.
Service Industry Inspection
TABLE 6.4 Examples of Inspection in Services
ORGANIZATION WHAT IS INSPECTED STANDARD
Arnold Palmer Hospital Billing
Pharmacy
Lab
Nurses
Admissions Accurate, timely, and correct format
Prescription accuracy, inventory accuracy
Audit for lab-test accuracy
Charts immediately updated
Data entered correctly and completely
Olive Garden Restaurant Busboy
Busboy
Waiter Serves water and bread within 1 minute
Clears all entrée items and crumbs prior to dessert
Knows and suggest specials, desserts
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© 2014 Pearson Education, Inc.
Service Industry Inspection
TABLE 6.4 Examples of Inspection in Services
ORGANIZATION WHAT IS INSPECTED STANDARD
Nordstrom Department
Store Display areas
Stockrooms
Salesclerks Attractive, well-organized, stocked, good lighting
Rotation of goods, organized, clean
Neat, courteous, very knowledgeable
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Attributes Versus Variables
Attributes
Items are either good or bad, acceptable or unacceptable
Does not address degree of failure
Variables
Measures dimensions such as weight, speed, height, or strength
Falls within an acceptable range
Use different statistical techniques
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TQM In Services
Service quality is more difficult to measure than the quality of goods
Service quality perceptions depend on
Intangible differences between products
Intangible expectations customers have of those products
*
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© 2014 Pearson Education, Inc.
Service Quality
The Operations Manager must recognize:
The tangible component of services is important
The service process is important
The service is judged against the customer’s expectations
Exceptions will occur
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Service Specifications
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Determinants of Service Quality
Table 6.5
Reliability involves consistency of performance and dependability
Responsiveness concerns the willingness or readiness of employees to provide service
Competence means possession of the required skills and knowledge to perform the service
Access involves approachability and ease of contact
Courtesy involves politeness, respect, consideration, and friendliness
Communication means keeping customers informed and listening to them
Credibility involves trustworthiness, believability, and honesty
Security is the freedom from danger, risk, or doubt
Understanding/knowing the customer involves making the effort to understand the customer’s needs
Tangibles include the physical evidence of the service
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Service Recovery Strategy
Managers should have a plan for when services fail
Marriott’s LEARN routine
Listen
Empathize
Apologize
React
Notify
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All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher.
Printed in the United States of America.
C H A P T E R 6 | M A N AG I N G Q UA L I T Y 225
range. If a piece of electrical wire is supposed to be 0.01 inch in diameter, a micrometer can be
used to see if the product is close enough to pass inspection.
Knowing whether attributes or variables are being inspected helps us decide which statisti-
cal quality control approach to take, as we will see in the supplement to this chapter.
TQM in Services
The personal component of services is more difficult to measure than the quality of the tangible
component. Generally, the user of a service, like the user of a good, has features in mind that
form a basis for comparison among alternatives. Lack of any one feature may eliminate the
ser-vice from further consideration. Quality also may be perceived as a bundle of attributes in
which many lesser characteristics are superior to those of competitors. This approach to product
com-parison differs little between goods and services. However, what is very different about the
selection of services is the poor definition of the (1) intangible differences between products and
(2) the intangible expectations customers have of those products. Indeed, the intangible attributes
may not be defined at all. They are often unspoken images in the purchaser’s mind. This is why
all of those marketing issues such as advertising, image, and promotion can make a difference.
The operations manager plays a signi!cant role in addressing several major aspects of
service quality. First, the tangible component of many services is important. How well the ser-
vice is designed and produced does make a difference. This might be how accurate, clear, and
complete your checkout bill at the hotel is, how warm the food is at Taco Bell, or how well your
car runs after you pick it up at the repair shop.
Second, another aspect of service and service quality is the process. Notice in Table 6.5 that
9 out of 10 of the determinants of service quality are related to the service process. Such things
as reliability and courtesy are part of the process. An operations manager can design processes
(service products) that have these attributes and can ensure their quality through the TQM
techniques discussed in this chapter.
Third, the operations manager should realize that the customer’s expectations are the stan-
dard against which the service is judged. Customers’ perceptions of service quality result from
a comparison of their “before-service expectations” with their “actual-service experience.” In
VIDEO 6.2
TQM at Ritz-Carlton Hotels
Aircraft 97%
boarded 10 min.
before departure
time
1st bag to
conveyor belt
15 min. after
arrival
First passenger boarded
40 min. before departure
Flight attendants on- board
45 min. before departure
Cargo door opened
1 min. afer arrival
All doors closed
2 min before
departure
On board count-
check-in count
5 min. before
departure
Final load
closeout
2 min. before
departure
Like many service organizations, Alaska Airlines, sets quality standards in areas such as courtesy,
appearance, and time. Shown here are some of Alaska Airlines’s 50 quality checkpoints, based on a
timeline for-each departure.
2123_Heizer_Ch06_pp205-234.indd 225 9/27/12 7:18 PM
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Inventory Management
PowerPoint presentation to accompany
Heizer and Render
Operations Management, Eleventh Edition
Principles of Operations Management, Ninth Edition
PowerPoint slides by Jeff Heyl
12
© 2014 Pearson Education, Inc.
12 – *
© 2014 Pearson Education, Inc.
Outline
Global Company Profile:
Amazon.com
The Importance of Inventory
Managing Inventory
Inventory Models
Inventory Models for Independent Demand
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Outline – Continued
Probabilistic Models and Safety Stock
Single-Period Model
Fixed-Period (P) Systems
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Learning Objectives
When you complete this chapter you should be able to:
Conduct an ABC analysis
Explain and use cycle counting
Explain and use the EOQ model for independent inventory demand
Compute a reorder point and safety stock
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Learning Objectives
When you complete this chapter you should be able to:
Apply the production order quantity model
Explain and use the quantity discount model
Understand service levels and probabilistic inventory models
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Inventory Management at Amazon.com
Amazon.com started as a “virtual” retailer – no inventory, no warehouses, no overhead; just computers taking orders to be filled by others
Growth has forced Amazon.com to become a world leader in warehousing and inventory management
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Inventory Management at Amazon.com
Each order is assigned by computer to the closest distribution center that has the product(s)
A “flow meister” at each distribution center assigns work crews
Lights indicate products that are to be picked and the light is reset
Items are placed in crates on a conveyor, bar code scanners scan each item 15 times to virtually eliminate errors
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Inventory Management at Amazon.com
Crates arrive at central point where items are boxed and labeled with new bar code
Gift wrapping is done by hand at 30 packages per hour
Completed boxes are packed, taped, weighed and labeled before leaving warehouse in a truck
Order arrives at customer within 1 – 2 days
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Inventory Management
The objective of inventory management is to strike a balance between inventory investment and customer service
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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
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Functions of Inventory
To provide a selection of goods for anticipated demand and to separate the firm from fluctuations in demand
To decouple or separate various parts of the production process
To take advantage of quantity discounts
To hedge against inflation
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Types of Inventory
Raw material
Purchased but not processed
Work-in-process (WIP)
Undergone some change but not completed
A function of cycle time for a product
Maintenance/repair/operating (MRO)
Necessary to keep machinery and processes productive
Finished goods
Completed product awaiting shipment
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The Material Flow Cycle
Figure 12.1
Input Wait for Wait to Move Wait in queue Setup Run Output
inspection be moved time for operator time time
Cycle time
95% 5%
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Managing Inventory
How inventory items can be classified (ABC analysis)
How accurate inventory records can be maintained
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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
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ABC Analysis
ABC Calculation
(1) (2) (3) (4) (5) (6) (7)
ITEM STOCK NUMBER PERCENT OF NUMBER OF ITEMS STOCKED ANNUAL VOLUME (UNITS) x UNIT COST = ANNUAL DOLLAR VOLUME PERCENT OF ANNUAL DOLLAR VOLUME CLASS
#10286 20% 1,000 $ 90.00 $ 90,000 38.8% A
#11526 500 154.00 77,000 33.2% A
#12760 1,550 17.00 26,350 11.3% B
#10867 30% 350 42.86 15,001 6.4% B
#10500 1,000 12.50 12,500 5.4% B
#12572 600 $ 14.17 $ 8,502 3.7% C
#14075 2,000 .60 1,200 .5% C
#01036 50% 100 8.50 850 .4% C
#01307 1,200 .42 504 .2% C
#10572 250 .60 150 .1% C
8,550 $232,057 100.0%
72%
23%
5%
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ABC Analysis
Figure 12.2
A Items
B Items
| | | | | | | | | |
10 20 30 40 50 60 70 80 90 100
Percentage of annual dollar usage
80 –
70 –
60 –
50 –
40 –
30 –
20 –
10 –
0 –
Percentage of inventory items
C Items
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ABC Analysis
Other criteria than annual dollar volume may be used
High shortage or holding cost
Anticipated engineering changes
Delivery problems
Quality problems
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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
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Record Accuracy
Accurate records are a critical ingredient in production and inventory systems
Periodic systems require regular checks of inventory
Two-bin system
Perpetual inventory tracks receipts and subtractions on a continuing basis
May be semi-automated
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Record Accuracy
Incoming and outgoing
record keeping must be
accurate
Stockrooms should be secure
Necessary to make precise decisions about ordering, scheduling, and shipping
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Cycle Counting
Items are counted and records updated on a periodic basis
Often used with ABC analysis
Has several advantages
Eliminates shutdowns and interruptions
Eliminates annual inventory adjustment
Trained personnel audit inventory accuracy
Allows causes of errors to be identified and corrected
Maintains accurate inventory records
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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 (120 days)
ITEM CLASS QUANTITY CYCLE COUNTING POLICY NUMBER OF ITEMS COUNTED PER DAY
A 500 Each month 500/20 = 25/day
B 1,750 Each quarter 1,750/60 = 29/day
C 2,750 Every 6 months 2,750/120 = 23/day
77/day
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Control of Service Inventories
Can be a critical component
of profitability
Losses may come from
shrinkage or pilferage
Applicable techniques include
Good personnel selection, training, and discipline
Tight control of incoming shipments
Effective control of all goods leaving facility
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Inventory Models
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
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Inventory Models
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
May be highly correlated with setup time
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Holding Costs
TABLE 12.1 Determining Inventory Holding Costs
CATEGORY COST (AND RANGE) AS A PERCENT OF INVENTORY VALUE
Housing costs (building rent or depreciation, operating costs, taxes, insurance) 6% (3 – 10%)
Material handling costs (equipment lease or depreciation, power, operating cost) 3% (1 – 3.5%)
Labor cost (receiving, warehousing, security) 3% (3 – 5%)
Investment costs (borrowing costs, taxes, and insurance on inventory) 11% (6 – 24%)
Pilferage, space, and obsolescence (much higher in industries undergoing rapid change like PCs and cell phones) 3% (2 – 5%)
Overall carrying cost 26%
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Holding Costs
TABLE 12.1 Determining Inventory Holding Costs
CATEGORY COST (AND RANGE) AS A PERCENT OF INVENTORY VALUE
Housing costs (building rent or depreciation, operating costs, taxes, insurance) 6% (3 – 10%)
Material handling costs (equipment lease or depreciation, power, operating cost) 3% (1 – 3.5%)
Labor cost (receiving, warehousing, security) 3% (3 – 5%)
Investment costs (borrowing costs, taxes, and insurance on inventory) 11% (6 – 24%)
Pilferage, space, and obsolescence (much higher in industries undergoing rapid change like PCs and cell phones) 3% (2 – 5%)
Overall carrying cost 26%
Holding costs vary considerably depending on the business, location, and interest rates. Generally greater than 15%, some high tech and fashion items have holding costs greater than 40%.
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Inventory Models for Independent Demand
Need to determine when and how much to order
Basic economic order quantity (EOQ) model
Production order quantity model
Quantity discount model
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Basic EOQ Model
Demand is known, constant, and independent
Lead time is known and constant
Receipt of inventory is instantaneous and complete
Quantity discounts are not possible
Only variable costs are setup (or ordering) and holding
Stockouts can be completely avoided
Important assumptions
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Inventory Usage Over Time
Figure 12.3
Order quantity = Q (maximum inventory level)
Usage rate
Average inventory on hand
Q
2
Inventory level
Time
0
Minimum inventory
Total order received
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Minimizing Costs
Objective is to minimize total costs
Table 12.4(c)
Annual cost
Order quantity
Total cost of holding and setup (order)
Holding cost
Setup (order) cost
Minimum total cost
Optimal order quantity (Q*)
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Minimizing Costs
By minimizing the sum of setup (or ordering) and holding costs, total costs are minimized
Optimal order size Q* will minimize total cost
A reduction in either cost reduces the total cost
Optimal order quantity occurs when holding cost and setup cost are equal
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Minimizing Costs
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
Number of units in each order
Setup or order cost per order
=
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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
Minimizing Costs
Annual holding cost = (Average inventory level)
x (Holding cost per unit per year)
Order quantity
2
(Holding cost per unit per year)
=
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Minimizing Costs
Optimal order quantity is found when annual setup cost equals annual holding cost
Solving for Q*
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
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An EOQ Example
Determine optimal number of needles to order
D = 1,000 units
S = $10 per order
H = $.50 per unit per year
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An EOQ Example
Determine expected number of orders
D = 1,000 units Q* = 200 units
S = $10 per order
H = $.50 per unit per year
1,000
200
N = = 5 orders per year
Demand
Order quantity
= N = =
Expected number of orders
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An EOQ Example
Determine optimal time between orders
D = 1,000 units Q* = 200 units
S = $10 per order N = 5 orders/year
H = $.50 per unit per year
250
5
T = = 50 days between orders
Number of working days per year
Expected number of orders
= T =
Expected time between orders
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An EOQ Example
Determine the total annual cost
D = 1,000 units Q* = 200 units
S = $10 per order N = 5 orders/year
H = $.50 per unit per year T = 50 days
Total annual cost = Setup cost + Holding cost
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The EOQ Model
When including actual cost of material P
Total annual cost = Setup cost + Holding cost + Product cost
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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
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An EOQ Example
Determine optimal number of needles to order
D = 1,000 units Q* = 200 units
S = $10 per order N = 5 orders/year
H = $.50 per unit per year T = 50 days
Only 2% less than the total cost of $125 when the order quantity was 200
1,500 units
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Reorder Points
EOQ answers the “how much” question
The reorder point (ROP) tells “when” to order
Lead time (L) is the time between placing and receiving an order
= d x L
Lead time for a new order in days
Demand per day
ROP =
D
Number of working days in a year
d =
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Reorder Point Curve
Figure 12.5
Resupply takes place as order arrives
Q*
ROP (units)
Inventory level (units)
Time (days)
Lead time = L
Slope = units/day = d
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Reorder Point Example
Demand = 8,000 iPods per year
250 working day year
Lead time for orders is 3 working days, may take 4
ROP = d x L
= 8,000/250 = 32 units
= 32 units per day x 3 days = 96 units
= 32 units per day x 4 days = 128 units
D
Number of working days in a year
d =
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Production Order Quantity Model
Used when inventory builds up over a period of time after an order is placed
Used when units are produced and sold simultaneously
Figure 12.6
Inventory level
Time
Demand part of cycle with no production (only usage)
Part of inventory cycle during which production (and usage) is taking place
t
Maximum inventory
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Production Order Quantity Model
Q = Number of pieces per order p = Daily production rate
H = Holding cost per unit per year d = Daily demand/usage rate
t = Length of the production run in days
Annual inventory holding cost
Holding cost
per unit per year
= (Average inventory level) x
Annual inventory level
= (Maximum inventory level)/2
Maximum inventory level
Total produced during the production run
Total used during the production run
= –
= pt – dt
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Production Order Quantity Model
Q = Number of pieces per order p = Daily production rate
H = Holding cost per unit per year d = Daily demand/usage rate
t = Length of the production run in days
However, Q = total produced = pt ; thus t = Q/p
Maximum inventory level
Total produced during the production run
Total used during the production run
= –
= pt – dt
Maximum inventory level
Q
p
Q
p
d
p
= p – d = Q 1 –
d
p
Q
2
Maximum inventory level
2
Holding cost = (H) = 1 – H
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Production Order Quantity Model
Q = Number of pieces per order p = Daily production rate
H = Holding cost per unit per year d = Daily demand/usage rate
t = Length of the production run in days
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Production Order Quantity Example
D = 1,000 units p = 8 units per day
S = $10 d = 4 units per day
H = $0.50 per unit per year
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Production Order Quantity Model
When annual data are used the equation becomes
Note:
D
Number of days the plant is in operation
1,000
250
d = 4 = =
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Quantity Discount Models
Reduced prices are often available when larger quantities are purchased
Trade-off is between reduced product cost and increased holding cost
TABLE 12.2 A Quantity Discount Schedule
DISCOUNT NUMBER DISCOUNT QUANTITY DISCOUNT (%) DISCOUNT PRICE (P)
1 0 to 999 no discount $5.00
2 1,000 to 1,999 4 $4.80
3 2,000 and over 5 $4.75
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Quantity Discount Models
Total annual cost = Setup cost + Holding cost + Product cost
where Q = Quantity ordered P = Price per unit
D = Annual demand in units H = Holding cost per unit per year
S = Ordering or setup cost per order
Because unit price varies, holding cost (H) is expressed as a percent (I) of unit price (P)
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Quantity Discount Models
Steps in analyzing a quantity discount
For each discount, calculate Q*
If Q* for a discount doesn’t qualify, choose the lowest possible quantity to get the discount
Compute the total cost for each Q* or adjusted value from Step 2
Select the Q* that gives the lowest total cost
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Quantity Discount Models
Figure 12.7
1,000
2,000
Total cost $
0
Order quantity
Q* for discount 2 is below the allowable range at point a and must be adjusted upward to 1,000 units at point b
a
b
1st price break
2nd price break
Total cost curve for discount 1
Total cost curve for discount 2
Total cost curve for discount 3
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Quantity Discount Example
Calculate Q* for every discount
Q1* = = 700 cars/order
2(5,000)(49)
(.2)(5.00)
Q2* = = 714 cars/order
2(5,000)(49)
(.2)(4.80)
Q3* = = 718 cars/order
2(5,000)(49)
(.2)(4.75)
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Quantity Discount Example
Calculate Q* for every discount
Q1* = = 700 cars/order
2(5,000)(49)
(.2)(5.00)
Q2* = = 714 cars/order
2(5,000)(49)
(.2)(4.80)
Q3* = = 718 cars/order
2(5,000)(49)
(.2)(4.75)
1,000 — adjusted
2,000 — adjusted
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Quantity Discount Example
Choose the price and quantity that gives the lowest total cost
Buy 1,000 units at $4.80 per unit
TABLE 12.3 Total Cost Computations for Wohl’s Discount Store
DISCOUNT NUMBER UNIT PRICE ORDER QUANTITY ANNUAL PRODUCT COST ANNUAL ORDERING COST ANNUAL HOLDING COST TOTAL
1 $5.00 700 $25,000 $350 $350 $25,700
2 $4.80 1,000 $24,000 $245 $480 $24,725
3 $4.75 2,000 $23.750 $122.50 $950 $24,822.50
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Probabilistic Models and
Safety Stock
Used when demand is not constant or certain
Use safety stock to achieve a desired service level and avoid stockouts
ROP = d x L + ss
Annual stockout costs = the sum of the units short x the probability x the stockout cost/unit
x the number of orders per year
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Safety Stock Example
ROP = 50 units Stockout cost = $40 per frame
Orders per year = 6 Carrying cost = $5 per frame per year
NUMBER OF UNITS PROBABILITY
30 .2
40 .2
ROP 50 .3
60 .2
70 .1
1.0
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Safety Stock Example
ROP = 50 units Stockout cost = $40 per frame
Orders per year = 6 Carrying cost = $5 per frame per year
A safety stock of 20 frames gives the lowest total cost
ROP = 50 + 20 = 70 frames
SAFETY STOCK ADDITIONAL HOLDING COST STOCKOUT COST TOTAL COST
20 (20)($5) = $100 $0 $100
10 (10)($5) = $ 50 (10)(.1)($40)(6) = $240 $290
0 $ 0 (10)(.2)($40)(6) + (20)(.1)($40)(6) = $960 $960
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Probabilistic Demand
Figure 12.8
Safety stock
16.5 units
ROP
Place order
Inventory level
Time
0
Minimum demand during lead time
Maximum demand during lead time
Mean demand during lead time
Normal distribution probability of demand during lead time
Expected demand during lead time (350 kits)
ROP = 350 + safety stock of 16.5 = 366.5
Receive order
Lead time
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Probabilistic Demand
Use prescribed service levels to set safety stock when the cost of stockouts cannot be determined
ROP = demand during lead time + ZsdLT
where Z = Number of standard deviations
sdLT = Standard deviation of demand during lead time
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Probabilistic Demand
Safety stock
Probability of
no stockout
95% of the time
Mean demand 350
ROP = ? kits
Quantity
Number of
standard deviations
0
z
Risk of a stockout (5% of area of normal curve)
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Probabilistic Example
m = Average demand = 350 kits
sdLT = Standard deviation of
demand during lead time = 10 kits
Z = 5% stockout policy (service level = 95%)
Using Appendix I, for an area under the curve of 95%, the Z = 1.65
Safety stock = ZsdLT = 1.65(10) = 16.5 kits
Reorder point = Expected demand during lead time + Safety stock
= 350 kits + 16.5 kits of safety stock
= 366.5 or 367 kits
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Other Probabilistic Models
When data on demand during lead time is not available, there are other models available
When demand is variable and lead time is constant
When lead time is variable and demand is constant
When both demand and lead time are variable
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Other Probabilistic Models
Demand is variable and lead time is constant
ROP = (Average daily demand
x Lead time in days) + ZsdLT
where sdLT = sd Lead time
sd = standard deviation of demand per day
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Probabilistic Example
Average daily demand (normally distributed) = 15
Lead time in days (constant) = 2
Standard deviation of daily demand = 5
Service level = 90%
Z for 90% = 1.28
From Appendix I
Safety stock is about 9 computers
ROP = (15 units x 2 days) + ZsdLT
= 30 + 1.28(5)( 2)
= 30 + 9.02 = 39.02 ≈ 39
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Other Probabilistic Models
Lead time is variable and demand is constant
ROP = (Daily demand x Average lead time in days) + Z x (Daily demand) x sLT
where sLT = Standard deviation of lead time in days
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Probabilistic Example
Daily demand (constant) = 10
Average lead time = 6 days
Standard deviation of lead time = sLT = 1
Service level = 98%, so Z (from Appendix I) = 2.055
ROP = (10 units x 6 days) + 2.055(10 units)(1)
= 60 + 20.55 = 80.55
Reorder point is about 81 cameras
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Other Probabilistic Models
Both demand and lead time are variable
ROP = (Average daily demand
x Average lead time) + ZsdLT
where sd = Standard deviation of demand per day
sLT = Standard deviation of lead time in days
sdLT = (Average lead time x sd2)
+ (Average daily demand)2s2LT
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Probabilistic Example
Average daily demand (normally distributed) = 150
Standard deviation = sd = 16
Average lead time 5 days (normally distributed)
Standard deviation = sLT = 1 day
Service level = 95%, so Z = 1.65 (from Appendix I)
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Single-Period Model
Only one order is placed for a product
Units have little or no value at the end of the sales period
Cs = Cost of shortage = Sales price/unit – Cost/unit
Co = Cost of overage = Cost/unit – Salvage value
Cs
Cs + Co
Service level =
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Single-Period Example
Average demand = = 120 papers/day
Standard deviation = = 15 papers
Cs = cost of shortage = $1.25 – $.70 = $.55
Co = cost of overage = $.70 – $.30 = $.40
Service level =
Cs
Cs + Co
.55
.55 + .40
.55
.95
=
= = .579
Service level 57.9%
Optimal stocking level
= 120
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Single-Period Example
From Appendix I, for the area .579, Z .20
The optimal stocking level
= 120 copies + (.20)()
= 120 + (.20)(15) = 120 + 3 = 123 papers
The stockout risk = 1 – Service level
= 1 – .579 = .422 = 42.2%
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Fixed-Period (P) Systems
Orders placed at the end of a fixed period
Inventory counted only at end of period
Order brings inventory up to target level
Only relevant costs are ordering and holding
Lead times are known and constant
Items are independent of one another
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Fixed-Period (P) Systems
Figure 12.9
On-hand inventory
Time
Q1
Q2
Target quantity (T)
P
P
P
Q3
Q4
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Fixed-Period Systems
Inventory is only counted at each review period
May be scheduled at convenient times
Appropriate in routine situations
May result in stockouts between periods
May require increased safety stock
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All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher.
Printed in the United States of America.
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D
Q
*
TC =
D
Q
S +
Q
2
H
=
1,000
200
($10)+
200
2
($.50)
= (5)($10)+(100)($.50)
=$50+$50=$100
TC=
D
Q
S+
Q
2
H
=
1,000
200
($10)+
200
2
($.50)
=(5)($10)+(100)($.50)
=$50+$50=$100
TC =
D
Q
S +
Q
2
H +PD
TC=
D
Q
S+
Q
2
H+PD
TC =
D
Q
S +
Q
2
H
=
1,500
200
($10)+
200
2
($.50)
=$75+$50=$125
TC=
D
Q
S+
Q
2
H
=
1,500
200
($10)+
200
2
($.50)
=$75+$50=$125
=
1,500
244.9
($10)+
244.9
2
($.50)
=6.125($10)+122.45($.50)
=$61.25+$61.22=$122.47
=
1,500
244.9
($10)+
244.9
2
($.50)
=6.125($10)+122.45($.50)
=$61.25+$61.22=$122.47
Setup cost = (D /Q)S
Holding cost = 1
2
HQ 1− d p( )⎡⎣ ⎤⎦
Setup cost = (D/Q)S
Holding cost =
1
2
HQ1-dp
(
)
é
ë
ù
û
D
Q
S = 1
2
HQ 1− d p( )⎡⎣ ⎤⎦
Q2 =
2DS
H 1− d p( )⎡⎣ ⎤⎦
Qp
* =
2DS
H 1− d p( )⎡⎣ ⎤⎦
D
Q
S=
1
2
HQ1-dp
(
)
é
ë
ù
û
Q
2
=
2DS
H1-dp
()
é
ë
ù
û
Q
p
*
=
2DS
H1-dp
()
é
ë
ù
û
Qp
* =
2DS
H 1− d p( )⎡⎣ ⎤⎦
Qp
* =
2(1,000)(10)
0.50 1−(4 8)⎡⎣ ⎤⎦
=
20,000
0.50(1 2)
= 80,000
= 282.8 hubcaps, or 283 hubcaps
Q
p
*
=
2DS
H1-dp
()
é
ë
ù
û
Q
p
*
=
2(1,000)(10)
0.501-(48)
é
ë
ù
û
=
20,000
0.50(12)
=80,000
=282.8 hubcaps, or 283 hubcaps
Qp
* =
2DS
H 1− Annual demand rate
Annual production rate
⎛
⎝
⎜
⎞
⎠
⎟
Q
p
*
=
2DS
H1-
Annual demand rate
Annual production rate
æ
è
ç
ö
ø
÷
Q* =
2DS
IP
Q
*
=
2DS
IP
Q* =
2DS
IP
Q
*
=
2DS
IP
ROP = (150 packs×5 days)+1.65σdLT
σdLT = 5 days×16
2( )+ 1502 ×12( ) = 5× 256( )+ 22,500×1( )
= 1,280( )+ 22,500( ) = 23,780 ≅154
ROP = (150×5)+1.65(154)≅ 750+ 254 =1,004 packs
ROP=(150 packs´5 days)+1.65s
dLT
s
dLT
=5 days´16
2
( )
+150
2
´1
2
( )
=5´256
( )
+22,500´1
( )
=1,280
()
+22,500
( )
=23,780@154
ROP =(150´5)+1.65(154)@750+254=1,004 packs
