15-1
Scheduling
Operations Management
William J. Stevenson
8th edition
15-2
Scheduling
CHAPTER
1
Scheduling
McGraw-Hill/Irwin
Operations Management, Eighth Edition, by William J. Stevenson
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
15-3
Scheduling
Scheduling

Scheduling: Establishing the timing of the
use of equipment, facilities and human
activities in an organization

Effective scheduling can yield

Cost savings

Increases in productivity
15-4
Scheduling

High--Volume Systems
High
Flow system: High-volume system with
Standardized equipment and activities

Flow-shop scheduling: Scheduling for highvolume flow system
Work Center #1
Work Center #2
Output
15-5
Scheduling
Scheduling Manufacturing Operations
High-volume
Intermediatevolume
Low-volume
Service
operations
JAN
FEB
MAR
APR
MAY
JUN
Build A
A Done
Build B
B Done
Build C
C Done
Build D
Ship
On time!
15-6
Scheduling
High--Volume Success Factors
High

Process and product design

Preventive maintenance

Rapid repair when breakdown occurs

Optimal product mixes

Minimization of quality problems

Reliability and timing of supplies
15-7
Scheduling
Intermediate--Volume Systems
Intermediate

Outputs are between standardized highvolume systems and made-to-order job shops


Run size, timing, and sequence of jobs
Economic run size:
Q0 
2DS
p
H p u
15-8
Scheduling
Scheduling LowLow-Volume Systems
Loading - assignment of jobs to process
centers
 Sequencing - determining the order in
which jobs will be processed
 Job-shop scheduling


Scheduling for low-volume
systems with many
variations
in requirements
15-9
Scheduling
Gantt Load Chart
Figure 15.2

Gantt chart - used as a visual aid for loading
and scheduling
Work Mon. Tues. Wed. Thurs. Fri.
Center
1
Job 3
Job 4
2
Job 3 Job 7
3
Job 1
Job 6 Job 7
4
Job 10
15-10 Scheduling
Loading

Infinite loading

Finite loading

Vertical loading

Horizontal loading

Forward scheduling

Backward scheduling

Schedule chart
15-11 Scheduling
Sequencing

Sequencing: Determine the order in which
jobs at a work center will be processed.

Workstation: An area where one person
works, usually with special equipment, on a
specialized job.
15-12 Scheduling

Sequencing
Priority rules: Simple heuristics
used to select the order in
which jobs will be processed.
Everything is
#1 Priority

Job time: Time needed for
setup and processing of a job.
15-13 Scheduling
Priority Rules
Table 15.2

FCFS - first come, first served

SPT - shortest processing time

EDD - earliest due date

CR - critical ratio

S/O - slack per operation

Rush - emergency
Top Priority
15-14 Scheduling
Example 2
Table 15.4
Rule
Average
Flow Time
(days)
Average
Tardiness
(days)
Average
Number of
Jobs at the
Work Center
FCFS
20.00
9.00
2.93
SPT
18.00
6.67
2.63
EDD
18.33
6.33
2.68
CR
22.17
9.67
3.24
15-15 Scheduling

Scheduling Difficulties
Variability in
Setup times
 Processing times
 Interruptions
 Changes in the set of jobs

No method for identifying optimal schedule
 Scheduling is not an exact science
 Ongoing task for a manager

15-16 Scheduling
Minimizing Scheduling Difficulties

Set realistic due dates

Focus on bottleneck operations

Consider lot splitting of large jobs
15-17 Scheduling
Scheduling Service Operations

Appointment systems


Reservation systems


Estimates demand for service
Scheduling the workforce


Controls customer arrivals for service
Manages capacity for service
Scheduling multiple resources

Coordinates use of more than one
resource
15-18 Scheduling
Cyclical Scheduling
Hospitals, police/fire departments, restaurants,
supermarkets
 Rotating schedules

Set a scheduling horizon
 Identify the work pattern
 Develop a basic employee schedule
 Assign employees to the schedule

15-19 Scheduling
Service Operation Problems
Cannot store or inventory services
 Customer service requests are random
 Scheduling service involves

Customers
 Workforce
 Equipment

15-20 Scheduling
Aggregate Planning
PowerPoint presentation to accompany
Heizer/Render
Heizer
/Render
Principles of Operations Management, 7e
Operations Management, 9e
15-21 Scheduling
Outline
 Global Company Profile: AnheuserAnheuserBusch
 The Planning Process
 The Nature of Aggregate Planning
 Aggregate Planning Strategies
 Capacity Options
 Demand Options
 Mixing Options to Develop a Plan
15-22 Scheduling
Outline – Continued
 Methods for Aggregate Planning
 Graphical Methods
 Mathematical Approaches
 Comparison of Aggregate Planning
Methods
15-23 Scheduling
Outline – Continued
 Aggregate Planning in Services
 Restaurants
 Hospitals
 National Chains of Small Service Firms
 Miscellaneous Services
 Airline Industry
 Yield Management
15-24 Scheduling
Learning Objectives
When you complete this chapter you should be
able to:
1. Define aggregate planning
2. Identify optional strategies for
developing an aggregate plan
3. Prepare a graphical aggregate plan
15-25 Scheduling
Learning Objectives
When you complete this chapter you should be
able to:
4. Solve an aggregate plan via the
transportation method of linear
programming
5. Understand and solve a yield
management problem
15-26 Scheduling
Anheuser--Busch
Anheuser
 AnheuserAnheuser-Busch produces nearly 40% of
the beer consumed in the U.S.
 Matches fluctuating demand by brand to
plant, labor, and inventory capacity to
achieve high facility utilization
 High facility utilization requires
 Meticulous cleaning between batches
 Effective maintenance
 Efficient employee and facility scheduling
15-27 Scheduling
Anheuser--Busch
Anheuser
 ProductProduct-focused facility with high fixed
costs
 High utilization requires effective
aggregate planning of the four basic
stages of production
 Selection and delivery of raw materials
 Brewing process from milling to aging
 Packaging
 Distribution
15-28 Scheduling
Aggregate Planning
Determine the quantity and timing of
production for the immediate future
 Objective is to minimize cost over the
planning period by adjusting
 Production rates
 Labor levels
 Inventory levels
 Overtime work
 Subcontracting rates
 Other controllable variables
15-29 Scheduling
Aggregate Planning
Required for aggregate planning
 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 costs
 A model that combines forecasts and costs
so that scheduling decisions can be made
for the planning period
15-30 Scheduling
The Planning Process
Long-range plans
(over one year)
Research and Development
New product plans
Capital investments
Facility location/expansion
Top
executives
Operations
managers
Intermediate-range plans
(3 to 18 months)
Sales planning
Production planning and budgeting
Setting employment, inventory,
subcontracting levels
Analyzing operating plans
Short-range plans
(up to 3 months)
Operations
managers,
supervisors,
foremen
Responsibility
Job assignments
Ordering
Job scheduling
Dispatching
Overtime
Part-time help
Planning tasks and horizon
Figure 13.1
15-31 Scheduling
Aggregate Planning
Jan
150,000
Quarter 1
Feb
120,000
Mar
110,000
Apr
100,000
Quarter 2
May
130,000
Jun
150,000
Jul
180,000
Quarter 3
Aug
150,000
Sep
140,000
15-32 Scheduling
Aggregate
Planning
Figure 13.2
15-33 Scheduling
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
15-34 Scheduling
Aggregate Planning Strategies
1. Use inventories to absorb changes in
demand
2. Accommodate changes by varying
workforce size
3. Use part
part--timers, overtime, or idle time to
absorb changes
4. Use subcontractors and maintain a stable
workforce
5. Change prices or other factors to influence
demand
15-35 Scheduling
Capacity Options
 Changing inventory levels
 Increase inventory in low demand
periods to meet high demand in the
future
 Increases costs associated with
storage, insurance, handling,
obsolescence, and capital investment
15% to 40%
 Shortages can mean lost sales due to
long lead times and poor customer
service
15-36 Scheduling
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
15-37 Scheduling
Capacity Options
 Varying production rate through
overtime or idle time
 Allows constant workforce
 May be difficult to meet large
increases in demand
 Overtime can be costly and may drive
down productivity
 Absorbing idle time may be difficult
15-38 Scheduling
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
15-39 Scheduling
Capacity Options
 Using partpart-time workers
 Useful for filling unskilled or low
skilled positions, especially in
services
15-40 Scheduling
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
15-41 Scheduling
Demand Options
 Back ordering during highhigh- 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
15-42 Scheduling
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
15-43 Scheduling
Aggregate Planning Options
Option
Advantages
Disadvantages
Some Comments
Changing
inventory
levels
Changes in
Inventory
human
holding cost
resources are
may increase.
gradual or
Shortages may
none; no abrupt result in lost
production
sales.
changes.
Applies mainly to
production, not
service,
operations.
Varying
workforce
size by
hiring or
layoffs
Avoids the costs Hiring, layoff,
of other
and training
alternatives.
costs may be
significant.
Used where size
of labor pool is
large.
Table 13.1
15-44 Scheduling
Aggregate Planning Options
Option
Advantages
Disadvantages
Some Comments
Varying
production
rates
through
overtime or
idle time
Matches
seasonal
fluctuations
without hiring/
training costs.
Overtime
premiums; tired
workers; may
not meet
demand.
Allows flexibility
within the
aggregate plan.
SubSubcontracting
Permits
flexibility and
smoothing of
the firm’s
output.
Loss of quality
control;
reduced profits;
loss of future
business.
Applies mainly in
production
settings.
Table 13.1
15-45 Scheduling
Aggregate Planning Options
Option
Advantages
Disadvantages
Some Comments
High turnover/
training costs;
quality suffers;
scheduling
difficult.
Good for
unskilled jobs in
areas with large
temporary labor
pools.
Using partparttime
workers
Is less costly
and more
flexible than
full--time
full
workers.
Influencing
demand
Tries to use
Uncertainty in
excess
demand. Hard
capacity.
to match
Discounts draw demand to
new customers. supply exactly.
Creates
marketing
ideas.
Overbooking
used in some
businesses.
Table 13.1
15-46 Scheduling
Aggregate Planning Options
Option
Advantages
Disadvantages
Some Comments
Back
ordering
during
high-high
demand
periods
May avoid
overtime.
Keeps capacity
constant.
Customer must
be willing to
wait, but
goodwill is lost.
Many companies
back order.
CounterCounterseasonal
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.
Table 13.1
15-47 Scheduling
Methods for Aggregate Planning
 A mixed strategy may be the best way
to achieve minimum costs
 There are many possible mixed
strategies
 Finding the optimal plan is not always
possible
15-48 Scheduling
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
15-49 Scheduling
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
15-50 Scheduling
Graphical Methods
 Popular techniques
 Easy to understand and use
 Trial
Trial--and
and--error approaches that do
not guarantee an optimal solution
 Require only limited computations
15-51 Scheduling
Graphical Methods
1. Determine the demand for each period
2. Determine the capacity for regular time,
overtime, and subcontracting each period
3. Find labor costs, hiring and layoff costs, and
inventory holding costs
4. Consider company policy on workers and
stock levels
5. Develop alternative plans and examine their
total costs
15-52 Scheduling
Roofing Supplier Example 1
Production
Days
22
18
Month
Jan
Feb
Expected Demand
900
700
Mar
Apr
May
June
800
1,200
1,500
1,100
21
21
22
20
6,200
124
Average
requirement
=
Demand Per Day
(computed)
41
39
Total expected demand
Number of production days
6,200
=
= 50 units per day
124
38
57
68
55
Table 13.2
15-53 Scheduling
Roofing Supplier Example 1
Production rate per working day
Forecast demand
70 –
60 –
Level production using average
monthly forecast demand
50 –
40 –
30 –
0 –
Jan
Feb
Mar
Apr
May
June
22
18
21
21
22
20

Figure 13.3





= Month
= Number of
working days
15-54 Scheduling
Roofing Supplier Example 2
Cost Information
Inventory carrying cost
$ 5 per unit per month
Subcontracting cost per unit
$10 per unit
Average pay rate
$ 5 per hour ($40 per day)
day)
Overtime pay rate
Labor--hours to produce a unit
Labor
Cost of increasing daily production rate
(hiring and training)
Cost of decreasing daily production rate
(layoffs)
Table 13.3
$ 7 per hour
(above 8 hours per day)
day)
1.6 hours per unit
$300 per unit
$600 per unit
15-55 Scheduling
Roofing Supplier Example 2
Cost Information
Production at
Month carry
50 Units
Inventory
cost per Day
Monthly
Demand Inventory
Ending
Forecast $ 5Change
per unit per Inventory
month
Subcontracting
cost
per unit
Jan
1,100
900
Feb pay rate 900
700
Average
Mar
1,050
800
Overtime pay rate
Apr
1,050
1,200
Labor--hours to produce a unit
Labor
May
1,100
1,500
Cost of increasing daily production rate
June
1,000
1,100
(hiring and training)
Cost of decreasing daily production rate
(layoffs)
$10 +200
per unit
200
$ 5 per
hour ($40 per
day)
day)
+200
400
+250
650
$ 7 per
hour
(above 8 hours per day)
day)
-150
500
1.6 hours per unit
-400
100
$300 per unit
-100
0
1,850
$600 per unit
Total units of inventory carried over from one
month to the next = 1,850 units
Table 13.3
Workforce required to produce 50 units per day = 10 workers
15-56 Scheduling
Roofing Supplier Example 2
Monthly
Costs
Calculations
Cost Information
Production at
Demand
Inventory
Ending
Month carry
50
Units
Forecast
Inventory
$ 5Change
perunits
unit per
month
Inventory
cost per Day $9,250
Inventory
carrying
(= 1,850
carried
x $5
unit)
$10
per unit
Subcontracting
cost
per unit
Jan
1,100
900 per
+200
200
Regular-time
labor
49,600
x $40per
per
$ 5 workers
per
hour ($40
day)
day)
Feb pay rate
900
700 (= 10
+200
400
Average
x+250
124 days) 650
Mar
1,050
800 day
$ 7 per
hour
Overtime pay rate
(above 8 hours per day)
day)
Other
Apr costs (overtime,
1,050
1,200
-150
500
hiring,
layoffs,
1.6 hours per unit
LaborLabor
-hours
to produce a unit
May
1,100
1,500
-400
100
subcontracting)
0
Cost of increasing daily production rate
$300 per unit
June
1,000
1,100
-100
0
Total
cost
$58,850
(hiring
and training)
1,850
Cost of decreasing daily production rate $600 per unit
(layoffs)
Total units of inventory carried over from one
month to the next = 1,850 units
Table 13.3
Workforce required to produce 50 units per day = 10 workers
15-57 Scheduling
Roofing Supplier Example 2
7,000 –
Cumulative demand units
6,000 –
5,000 –
4,000 –
Reduction
of inventory
6,200 units
Cumulative level
production using
average monthly
forecast
requirements
3,000 –
2,000 –
Cumulative forecast
requirements
1,000 –
Excess inventory
–
Jan
Figure 13.4
Feb
Mar
Apr
May
June
15-58 Scheduling
Roofing Supplier Example 3
Production
Days
22
18
Month
Jan
Feb
Expected Demand
900
700
Mar
Apr
May
June
800
1,200
1,500
1,100
21
21
22
20
6,200
124
Demand Per Day
(computed)
41
39
38
57
68
55
Table 13.2
Minimum requirement = 38 units per day
15-59 Scheduling
Roofing Supplier Example 3
Production rate per working day
Forecast demand
70 –
Level production
using lowest
monthly forecast
demand
60 –
50 –
40 –
30 –
0 –
Jan
Feb
Mar
Apr
May
June
22
18
21
21
22
20






= Month
= Number of
working days
15-60 Scheduling
Roofing Supplier Example 3
Cost Information
Inventory carrying cost
$ 5 per unit per month
Subcontracting cost per unit
$10 per unit
Average pay rate
$ 5 per hour ($40 per day)
day)
Overtime pay rate
Labor--hours to produce a unit
Labor
Cost of increasing daily production rate
(hiring and training)
Cost of decreasing daily production rate
(layoffs)
Table 13.3
$ 7 per hour
(above 8 hours per day)
day)
1.6 hours per unit
$300 per unit
$600 per unit
15-61 Scheduling
Roofing Supplier Example 3
Cost Information
Inventory carry cost
$ 5 per unit per month
Subcontracting cost per unit
$10 per unit
Average pay rate
$ 5 per hour ($40 per day)
day)
Overtime pay rate
Labor--hours to produce a unit
Labor
Cost of increasing daily production rate
(hiring and training)
Cost of decreasing daily production rate
(layoffs)
Table 13.3
$ 7 per hour
(above 8 hours per day)
day)
1.6 hours per unit
$300 per unit
$600 per unit
15-62 Scheduling
Roofing Supplier Example 3
Cost Information
Inventory carry cost
In-housecost
production
Subcontracting
per unit
Average pay rate
Overtime pay rate
$ 5 per unit per month
= 38$10units
per day
per unit
x 124
$ 5 perdays
hour ($40 per day)
day)
= 4,712
$ 7 perunits
hour
Costs-hours
Labor
Laborto produce a unit
Subcontract
units
(above 8 hours per day)
day)
1.6 hours
per unit
Calculations
6,200
- 4,712
=
Regular-time
labor
$37,696
(=
7.6 workers
Cost
of increasing
daily production
rate
$300
per
unit x $40 per
=
1,488
units
(hiring and training)
day x 124 days)
Cost
of decreasing daily production
unitx $10 per
Subcontracting
14,880rate (= $600
1,488per
units
(layoffs)
unit)
Table 13.3
Total cost
$52,576
15-63 Scheduling
Roofing Supplier Example 4
Production
Days
22
18
Month
Jan
Feb
Expected Demand
900
700
Mar
Apr
May
June
800
1,200
1,500
1,100
21
21
22
20
6,200
124
Demand Per Day
(computed)
41
39
38
57
68
55
Table 13.2
Production = Expected Demand
15-64 Scheduling
Production rate per working day
Roofing Supplier Example 4
Forecast demand and
monthly production
70 –
60 –
50 –
40 –
30 –
0 –
Jan
Feb
Mar
Apr
May
June
22
18
21
21
22
20






= Month
= Number of
working days
15-65 Scheduling
Roofing Supplier Example 4
Cost Information
Inventory carrying cost
$ 5 per unit per month
Subcontracting cost per unit
$10 per unit
Average pay rate
$ 5 per hour ($40 per day)
day)
Overtime pay rate
Labor--hours to produce a unit
Labor
Cost of increasing daily production rate
(hiring and training)
Cost of decreasing daily production rate
(layoffs)
Table 13.3
$ 7 per hour
(above 8 hours per day)
day)
1.6 hours per unit
$300 per unit
$600 per unit
15-66 Scheduling
Roofing Supplier Example 4
Basic
Production
Cost
Inventory carrying
cost (demand x
Daily
Forecast
Prod
1.6 hrs/unit x
Subcontracting
cost
per
unit
Month
(units)
Rate
$5/hr)
Cost Information
Jan
900 rate
Average
pay
Extra Cost of
Extra Cost of
$ 5 perDecreasing
unit per month
Increasing
Production
Production
$10
per
unitcost) Total Cost
(hiring cost)
(layoff
41
$ 7,200
—
Feb
700
Overtime
pay rate39
5,600
—
Mar -hours
800 to produce
38
6,400
Labor
Labora unit
—
$ 5 per hour
day)
day)
— ($40 per$ 7,200
$1,200
$ 7 per hour
6,800
(= 2 x $600)
(above 8 hours per day)
day)
$600
7,000
1.6 hours
per
unit
(= 1 x
$600)
$5,700$300 per unit
Cost
rate
Apr of increasing
1,200
57daily production
9,600
—
(=
19
x $300)
(hiring and training)
$3,300
Cost
rate
$600 per unit
May of decreasing
1,500
68daily production
12,000
—
(= 11 x $300)
(layoffs)
June
1,100
Table 13.3
55
8,800
$49,600
15,300
15,300
—
$7,800
(= 13 x $600)
16,600
$9,000
$9,600
$68,200
Table 13.4
15-67 Scheduling
Comparison of Three Plans
Cost
Plan 1
Plan 2
Inventory carrying
$ 9,250
$
Regular labor
49,600
37,696
49,600
Overtime labor
0
0
0
Hiring
0
0
9,000
Layoffs
0
0
9,600
Subcontracting
0
14,880
0
$58,850
$52,576
$68,200
Total cost
Plan 2 is the lowest cost option
0
Plan 3
$
0
Table 13.5
15-68 Scheduling
Mathematical Approaches
 Useful for generating strategies
 Transportation Method of Linear
Programming

Produces an optimal plan
 Management Coefficients Model

Model built around manager’s experience and
performance
 Other Models

Linear Decision Rule

Simulation
15-69 Scheduling
Transportation Method
Sales Period
Mar
Apr
800
1,000
Demand
Capacity:
Regular
Overtime
Subcontracting
Beginning inventory
700
50
150
100
700
50
150
May
750
700
50
130
tires
Regular time
Overtime
Subcontracting
Carrying
Costs
$40
$50
$70
$2
per tire
per tire
per tire
per tire per month
Table 13.6
15-70 Scheduling
Transportation Example
Important points
1. Carrying costs are $2/tire/month. If goods
are made in one period and held over to
the next, holding costs are incurred
2. Supply must equal demand, so a dummy
column called “unused capacity” is added
3. Because back ordering is not viable in this
example, cells that might be used to satisfy
earlier demand are not available
15-71 Scheduling
Transportation Example
Important points
4. Quantities in each column designate the
levels of inventory needed to meet demand
requirements
5. In general, production should be allocated
to the lowest cost cell available without
exceeding unused capacity in the row or
demand in the column
15-72 Scheduling
Transportation
Example
Table 13.7
15-73 Scheduling
Management Coefficients
Model
 Builds a model based on manager’s
experience and performance
 A regression model is constructed to
define the relationships between
decision variables
 Objective is to remove inconsistencies
in decision making
15-74 Scheduling
Other Models
Linear Decision Rule

Minimizes costs using quadratic cost curves

Operates over a particular time period
Simulation

Uses a search procedure to try different combinations of variables

Develops feasible but not necessarily optimal solutions
15-75 Scheduling
Summary of Aggregate
Planning Methods
Techniques
Graphical
methods
Solution
Approaches
Trial and
error
Transportation
Optimization
method of linear
programming
Important Aspects
Simple to understand and
easy to use. Many
solutions; one chosen
may not be optimal.
LP software available;
permits sensitivity
analysis and new
constraints; linear
functions may not be
realistic.
Table 13.8
15-76 Scheduling
Summary of Aggregate
Planning Methods
Techniques
Solution
Approaches
Important Aspects
Management
coefficients
model
Heuristic
Simple, easy to implement;
tries to mimic manager’s
decision process; uses
regression.
Simulation
Change
parameters
Complex; may be difficult
to build and for managers
to understand.
Table 13.8
15-77 Scheduling
Aggregate Planning in
Services
Controlling the cost of labor is critical
1. Accurate scheduling of laborlabor-hours to
assure quick response to customer
demand
2. An onon-call labor resource to cover
unexpected demand
3. Flexibility of individual worker skills
4. Flexibility in rate of output or hours of
work
15-78 Scheduling
Five Service Scenarios
 Restaurants
 Smoothing the production process
 Determining the optimal workforce
size
 Hospitals
 Responding to patient demand
15-79 Scheduling
Five Service Scenarios
 National Chains of Small Service
Firms
 Planning done at national level and
at local level
 Miscellaneous Services
 Plan human resource requirements
 Manage demand
15-80 Scheduling
Law Firm Example
(1)
Category of
Legal Business
Labor--Hours Required
Labor
(2)
(3)
(4)
Forecasts
Best
Likely
Worst
(hours)
(hours)
(hours)
Trial work
Legal research
Corporate law
Real estate law
Criminal law
1,800
4,500
8,000
1,700
3,500
1,500
4,000
7,000
1,500
3,000
1,200
3,500
6,500
1,300
2,500
Total hours
Lawyers needed
19,500
39
17,000
34
15,000
30
Capacity Constraints
(5)
(6)
Maximum
Number of
Demand in
Qualified
People
Personnel
3.6
9.0
16.0
3.4
7.0
4
32
15
6
12
Table 13.9
15-81 Scheduling
Five Service Scenarios
 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
15-82 Scheduling
Yield Management
Allocating resources to customers at
prices that will maximize yield or revenue
1. Service or product can be sold in
advance of consumption
2. Demand fluctuates
3. Capacity is relatively fixed
4. Demand can be segmented
5. Variable costs are low and fixed costs
are high
15-83 Scheduling
Yield Management Example
Demand
Curve
Room sales
Potential customers exist who are
willing to pay more than the $15
variable cost of the room
100
Passed-up
contribution
50
Total
$ contribution
= (Price) x (50
rooms)
= ($150 - $15)
x (50)
= $6,750
$15
Variable cost
of room
Some customers who paid
$150 were actually willing to
pay more for the room
Money left
on the table
$150
Price charged
for room
Price
Figure 13.5
15-84 Scheduling
Yield Management Example
Demand
Curve
Room sales
100
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
60
30
$15
Variable cost
of room
$100
Price 1
for room
$200
Price 2
for room
Price
Figure 13.6
15-85 Scheduling
Yield Management Matrix
Predictable
Unpredictable
Duration of use
Price
Tend to be fixed
Tend to be variable
Quadrant 1:
Quadrant 2:
Movies
Stadiums/arenas
Convention centers
Hotel meeting space
Hotels
Airlines
Rental cars
Cruise lines
Quadrant 3:
Quadrant 4:
Restaurants
Golf courses
Internet service
providers
Continuing care
hospitals
Figure 13.7
15-86 Scheduling
Making Yield Management Work
1. Multiple pricing structures must be
feasible and appear logical to the
customer
2. Forecasts of the use and duration of
use
3. Changes in demand
15-87 Scheduling
CHAPTER
3
Capacity Planning
For Products and Services
McGraw-Hill/Irwin
Operations Management, Eighth Edition, by William J. Stevenson
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
15-88 Scheduling
Capacity Planning
Capacity is the upper limit or ceiling on the
load that an operating unit can handle.
 The basic questions in capacity handling are:

What kind of capacity is needed?
 How much is needed?
 When is it needed?

15-89 Scheduling
Importance of Capacity Decisions
1.
2.
3.
4.
5.
6.
7.
8.
Impacts ability to meet future demands
Affects operating costs
Major determinant of initial costs
Involves long-term commitment
Affects competitiveness
Affects ease of management
Globalization adds complexity
Impacts long range planning
15-90 Scheduling

Design capacity


maximum output rate or service capacity an
operation, process, or facility is designed for
Effective capacity


Capacity
Design capacity minus allowances such as
personal time, maintenance, and scrap
Actual output

rate of output actually achieved--cannot
exceed effective capacity.
15-91 Scheduling
Efficiency and Utilization
Efficiency =
Utilization =
Actual output
Effective capacity
Actual output
Design capacity
Both measures expressed as percentages
15-92 Scheduling
Efficiency/Utilization Example
Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day
Efficiency =
Utilization =
Actual output
=
36 units/day
Effective capacity
Actual output
Design capacity
40 units/ day
=
36 units/day
50 units/day
= 90%
= 72%
15-93 Scheduling
Determinants of Effective Capacity
Facilities
 Product and service factors
 Process factors
 Human factors
 Operational factors
 Supply chain factors
 External factors

15-94 Scheduling
Strategy Formulation
Capacity strategy for long-term demand
 Demand patterns
 Growth rate and variability
 Facilities



Cost of building and operating
Technological changes

Rate and direction of technology changes
Behavior of competitors
 Availability of capital and other inputs

15-95 Scheduling
Key Decisions of Capacity Planning
1.
2.
3.
4.
Amount of capacity needed
Timing of changes
Need to maintain balance
Extent of flexibility of facilities
Capacity cushion – extra demand intended to offset uncertainty
15-96 Scheduling
Steps for Capacity Planning
1.
2.
3.
4.
5.
6.
7.
8.
Estimate future capacity requirements
Evaluate existing capacity
Identify alternatives
Conduct financial analysis
Assess key qualitative issues
Select one alternative
Implement alternative chosen
Monitor results
15-97 Scheduling
1.
2.
3.
4.
5.
6.
Make or Buy
Available capacity
Expertise
Quality considerations
Nature of demand
Cost
Risk
15-98 Scheduling
Developing Capacity Alternatives
1.
2.
3.
4.
5.
6.
Design flexibility into systems
Take stage of life cycle into account
Take a “big picture” approach to capacity
changes
Prepare to deal with capacity “chunks”
Attempt to smooth out capacity requirements
Identify the optimal operating level
15-99 Scheduling

Economies of scale


Economies of Scale
If the output rate is less than the optimal level,
increasing output rate results in decreasing
average unit costs
Diseconomies of scale

If the output rate is more than the optimal level,
increasing the output rate results in increasing
average unit costs
15-100 Scheduling
Evaluating Alternatives
Figure 5.3
Average cost per unit
Production units have an optimal rate of output for minimal cost.
Minimum average cost per unit
Minimum
cost
0
Rate of output
15-101 Scheduling
Evaluating Alternatives
Figure 5.4
Average cost per unit
Minimum cost & optimal operating rate are
functions of size of production unit.
0
Small
plant
Medium
plant
Large
plant
Output rate
15-102 Scheduling
Planning Service Capacity

Need to be near customers


Inability to store services


Capacity and location are closely tied
Capacity must be matched with timing of
demand
Degree of volatility of demand

Peak demand periods
15-103 Scheduling
Cost--Volume Relationships
Cost
Amount ($)
Figure 5.5a
Fixed cost (FC)
0
Q (volume in units)
15-104 Scheduling
Cost--Volume Relationships
Cost
Amount ($)
Figure 5.5b
0
Q (volume in units)
15-105 Scheduling
Cost--Volume Relationships
Cost
Amount ($)
Figure 5.5c
0
BEP units
Q (volume in units)
15-106 Scheduling
Assumptions of CostCost-Volume Analysis
1.
2.
3.
4.
5.
6.
One product is involved
Everything produced can be sold
Variable cost per unit is the same regardless
of volume
Fixed costs do not change with volume
Revenue per unit constant with volume
Revenue per unit exceeds variable cost per
unit
15-107 Scheduling
Financial Analysis

Cash Flow - the difference between cash
received from sales and other sources, and
cash outflow for labor, material, overhead,
and taxes.

Present Value - the sum, in current value, of
all future cash flows of an investment
proposal.
15-108 Scheduling
Calculating Processing Requirements
#1
400
5.0
2,000
#2
300
8.0
2,400
#3
700
2.0
1,400
5,800
15-109 Scheduling
CHAPTER
4
Quality Control
McGraw-Hill/Irwin
Operations Management, Eighth Edition, by William J. Stevenson
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
15-110 Scheduling
Phases of Quality Assurance
Figure 10.1
Inspection
before/after
production
Acceptance
sampling
The least
progressive
Inspection and
corrective
action during
production
Process
control
Quality built
into the
process
Continuous
improvement
The most
progressive
15-111 Scheduling
Inspection
Figure 10.2
How Much/How Often
 Where/When
 Centralized vs. On-site

Inputs
Acceptance
sampling
Transformation
Process
control
Outputs
Acceptance
sampling
15-112 Scheduling
Inspection Costs
Cost
Figure 10.3
Total Cost
Cost of
inspection
Cost of
passing
defectives
Optimal
Amount of Inspection
15-113 Scheduling
Where to Inspect in the Process

Raw materials and purchased parts

Finished products

Before a costly operation

Before an irreversible process

Before a covering process
15-114 Scheduling
Examples of Inspection Points
Table 10.1
Type of
business
Fast Food
Inspection
points
Cashier
Counter area
Eating area
Building
Kitchen
Hotel/motel Parking lot
Accounting
Building
Main desk
Supermarket Cashiers
Deliveries
Characteristics
Accuracy
Appearance, productivity
Cleanliness
Appearance
Health regulations
Safe, well lighted
Accuracy, timeliness
Appearance, safety
Waiting times
Accuracy, courtesy
Quality, quantity
15-115 Scheduling

Statistical Process Control:
Statistical evaluation of the output of a process
during production

Quality of Conformance:
A product or service conforms to
specifications
15-116 Scheduling

Control Chart
Control Chart

Purpose: to monitor process output to see if
it is random

A time ordered plot representative sample
statistics obtained from an on going process
(e.g. sample means)

Upper and lower control limits define the
range of acceptable variation
15-117 Scheduling
Control Chart
Figure 10.4
Abnormal variation
due to assignable sources
Out of
control
UCL
Mean
Normal variation
due to chance
LCL
Abnormal variation
due to assignable sources
0
1
2
3
4
5
6
7
8
9
Sample number
10 11 12 13 14 15
15-118 Scheduling

Statistical Process Control
The essence of statistical process control is
to assure that the output of a process is
random so that future output will be random.
15-119 Scheduling

Statistical Process Control
The Control Process
Define
 Measure
 Compare
 Evaluate
 Correct
 Monitor results

15-120 Scheduling

Statistical Process Control
Variations and Control
Random variation: Natural variations in the
output of a process, created by countless
minor factors
 Assignable variation: A variation whose
source can be identified

15-121 Scheduling
Sampling Distribution
Figure 10.5
Sampling
distribution
Process
distribution
Mean
15-122 Scheduling
Normal Distribution
Figure 10.6
Standard deviation


Mean
95.44%
99.74%


15-123 Scheduling
Control Limits
Figure 10.7
Sampling
distribution
Process
distribution
Mean
Lower
control
limit
Upper
control
limit
15-124 Scheduling
Control Charts for Variables
Variables generate data that are measured
measured..


Mean control charts

Used to monitor the central tendency of a
process.

X bar charts
Range control charts

Used to monitor the process dispersion

R charts
15-125 Scheduling
Mean and Range Charts
Figure 10.10A
(process mean is
shifting upward)
Sampling
Distribution
UCL
Detects shift
x-Chart
LCL
UCL
R-chart
LCL
Does not
detect shift
15-126 Scheduling
Mean and Range Charts
Figure 10.10B
Sampling
Distribution
(process variability is increasing)
UCL
x-Chart
LCL
Does not
reveal increase
UCL
R-chart
Reveals increase
LCL
15-127 Scheduling
Control Chart for Attributes

p-Chart - Control chart used to monitor the
proportion of defectives in a process

c-Chart - Control chart used to monitor the
number of defects per unit
Attributes generate data that are counted
counted..
15-128 Scheduling
Use of pp-Charts
Table 10.3


When observations can be placed into two
categories.

Good or bad

Pass or fail

Operate or don’t operate
When the data consists of multiple samples
of several observations each
15-129 Scheduling
Use of cc-Charts
Table 10.3

Use only when the number of occurrences per
unit of measure can be counted; nonoccurrences cannot be counted.
Scratches, chips, dents, or errors per item
 Cracks or faults per unit of distance
 Breaks or Tears per unit of area
 Bacteria or pollutants per unit of volume
 Calls, complaints, failures per unit of time

15-130 Scheduling
Use of Control Charts

At what point in the process to use control
charts

What size samples to take

What type of control chart to use

Variables

Attributes
15-131 Scheduling

Tolerances or specifications


Range of acceptable values established by
engineering design or customer requirements
Process variability


Process Capability
Natural variability in a process
Process capability

Process variability relative to specification
15-132 Scheduling
Process Capability
Figure 10.15
Lower
Specification
Upper
Specification
A. Process variability
matches specifications
Lower
Specification
Upper
Specification
B. Process variability
Lower
Upper
well within specifications Specification Specification
C. Process variability
exceeds specifications
15-133 Scheduling
Process Capability Ratio
specification width
Process capability ratio, Cp =
process width
Cp =
Upper specification – lower specification
6
15-134 Scheduling
3 Sigma and 6 Sigma Quality
Upper
specification
Lower
specification
1350 ppm
1350 ppm
1.7 ppm
1.7 ppm
Process
mean
+/- 3 Sigma
+/- 6 Sigma
15-135 Scheduling
Improving Process Capability
Simplify
 Standardize
 Mistake-proof
 Upgrade equipment
 Automate

15-136 Scheduling
Limitations of Capability Indexes
1.
Process may not be stable
2.
Process output may not be normally
distributed
3.
Process not centered but Cp is used
15-137 Scheduling
Additional PowerPoint slides
contributed by
Geoff Willis,
University of Central Oklahoma.
15-138 Scheduling
Control Charts in General
Are named according to the statistics being
plotted, i.e., X bar, R, p, and c
 Have a center line that is the overall average
 Have limits above and below the center line
at ± 3 standard deviations (usually)

Upper Control Limit (UCL)
Center line
Lower Control Limit (LCL)
15-139 Scheduling

Variables Data Charts
Process Centering
X bar chart
 X bar is a sample mean
n


X
X
i 1
i
n
Process Dispersion (consistency)
R chart
 R is a sample range

R  max( X i )  min( X i )
15-140 Scheduling
X bar charts
Center line is the grand mean (X double bar)
m
 Points are X bars

x  / n
UCL  X  z x
X
LCL  X  z x
-OR-
UCL  X  A2 R
LCL  X  A2 R
X
j 1
m
j
15-141 Scheduling
R Charts
Center line is the grand mean (R bar)
 Points are R
 D3 and D4 values are tabled according to n
(sample size)

UCL  D4 R
LCL  D3 R
15-142 Scheduling
Use of X bar & R charts
Charts are always used in tandem
 Data are collected (20-25 samples)
 Sample statistics are computed
 All data are plotted on the 2 charts
 Charts are examined for randomness
 If random, then limits are used “forever”

15-143 Scheduling

Attribute Charts
c charts – used to count defects in a constant
sample size
UCL  c  z c
n
c
c
i 1
m
 centerline
LCL  c  z c
15-144 Scheduling

Attribute Charts
n
p charts – used to track a
proportion (fraction)
defective
m
p
p
j 1
m

p (1  p )
UCL  p  z
n
pi 
x
ij
nm
x
i 1
i
n
 centerline
p (1  p )
LCL  p  z
n
15-145 Scheduling
Process Capability
The ratio of process variability to design specifications
Natural data
spread
-3σ
-2σ -1σ
µ
+1σ +2σ +3σ
Lower
Upper
Spec
Spec
The natural spread
of the data is 6σ
15-146 Scheduling
13
Chapter 5
MRP and ERP
McGraw-Hill/Irwin
Operations Management, Eighth Edition, by William J. Stevenson
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
15-147 Scheduling
MRP

Material requirements planning (MRP):
Computer-based information system that
translates master schedule requirements
for end items into time-phased
requirements for subassemblies,
components, and raw materials.
15-148 Scheduling
Independent and Dependent Demand
Independent Demand
Dependent Demand
A
C(2)
B(4)
D(2)
E(1)
D(3)
F(2)
Independent demand is uncertain.
Dependent demand is certain.
15-149 Scheduling
Dependant Demand

Dependent demand: Demand for
items that are subassemblies or
component parts to be used in
production of finished goods.

Once the independent demand is
known, the dependent demand can be
determined.
15-150 Scheduling
MRP Inputs
MRP Processing
MRP Outputs
Changes
Order releases
Master
schedule
Planned-order
schedules
Primary
reports
Bill of
materials
Inventory
records
MRP computer
programs
Secondary
reports
Exception reports
Planning reports
Performancecontrol
reports
Inventory
transaction
15-151 Scheduling
MPR Inputs



Master Production Schedule
Time-phased plan specifying timing and
quantity of production for each end item.
Material Requirement Planning Process
15-152 Scheduling
Master Schedule
Master schedule: One of three primary
inputs in MRP; states which end items are
to be produced, when these are needed,
and in what quantities.
Cumulative lead time: The sum of the lead
times that sequential phases of a process
require, from ordering of parts or raw
materials to completion of final assembly.
15-153 Scheduling
Planning Horizon
Assembly
Subassembly
Fabrication
Procurement
1
2
3
4
5
6
7
8
9
10
15-154 Scheduling
Bill--of
Bill
of--Materials
Bill of materials (BOM): One of the three
primary inputs of MRP; a listing of all of the raw
materials, parts, subassemblies, and assemblies
needed to produce one unit of a product.
Product structure tree: Visual depiction of
the requirements in a bill of materials, where all
components are listed by levels.
15-155 Scheduling
Product Structure Tree
Level
0
1
Chair
Leg
Assembly
2 Legs (2)
3
Cross
bar
Seat
Back
Assembly
Side Cross
Back
Rails (2) bar Supports (3)
15-156 Scheduling
Inventory Records
One of the three primary inputs in MRP
 Includes information on the status of each
item by time period

Gross requirements
 Scheduled receipts
 Amount on hand
 Lead times
 Lot sizes
 And more …

15-157 Scheduling
Assembly Time Chart
Procurement of
raw material D Fabrication
of part E
Subassembly A
Procurement of
raw material F
Procurement of
part C
Final assembly
and inspection
Procurement of
part H
Fabrication
of part G
Procurement of
raw material I
1
2
3
Subassembly B
4
5
6
7
8
9
10
11
15-158 Scheduling
MRP Processing

Gross requirements

Schedule receipts

Projected on hand

Net requirements

Planned-order receipts

Planned-order releases
15-159 Scheduling

Gross requirements


Total expected demand
Scheduled receipts


MPR Processing
Open orders scheduled to arrive
Planned on hand

Expected inventory on hand at the
beginning of each time period
15-160 Scheduling

Net requirements



MPR Processing
Actual amount needed in each time period
Planned-order receipts

Quantity expected to received at the beginning of the
period

Offset by lead time
Planned-order releases

Planned amount to order in each time period
15-161 Scheduling
Updating the System

Regenerative system


Updates MRP records periodically
Net-change system

Updates MPR records continuously
15-162 Scheduling
MRP Outputs

Planned orders - schedule indicating the
amount and timing of future orders.

Order releases - Authorization for the
execution of planned orders.

Changes - revisions of due dates or order
quantities, or cancellations of orders.
15-163 Scheduling
MRP Secondary Reports

Performance-control reports

Planning reports

Exception reports
15-164 Scheduling
MRP in Services


Food catering service

End item => catered food

Dependent demand => ingredients for each
recipe, i.e. bill of materials
Hotel renovation

Activities and materials “exploded” into
component parts for cost estimation and
scheduling
15-165 Scheduling
Benefits of MRP

Low levels of in-process inventories

Ability to track material requirements

Ability to evaluate capacity requirements

Means of allocating production time
15-166 Scheduling
Requirements of MRP

Computer and necessary software

Accurate and up-to-date


Master schedules

Bills of materials

Inventory records
Integrity of data
15-167 Scheduling
MRP II

Expanded MRP with emphasis placed on
integration

Financial planning

Marketing

Engineering

Purchasing

Manufacturing
15-168 Scheduling
MRP II
Manufacturing
Master
production schedule
Marketing
Production
plan
MRP
Rough-cut
Roughcapacity planning
Capacity
planning
Adjust
production plan
Yes
Problems?
No Requirements
schedules
No
Problems?
Adjust master schedule
Market
Demand
Finance
Yes
15-169 Scheduling
Capacity Planning
Capacity requirements planning: The process
of determining short-range capacity
requirements.
Load reports: Department or work center
reports that compare known and expected
future capacity requirements with projected
capacity availability.
Time fences: Series of time intervals during
which order changes are allowed or restricted.
15-170 Scheduling
Capacity Planning
Develop a tentative
master production
schedule
Use MRP to
simulate material
requirements
Convert material
requirements to
resource requirements
Revise tentative
master production
schedule
No
Is shop
capacity
adequate?
Yes
Firm up a portion
of the MPS
No
Can
capacity be
changed to meet
requirements
Yes
Change
capacity
15-171 Scheduling
ERP

Enterprise resource planning (ERP):
Next step in an evolution that began
with MPR and evolved into MRPII
 Integration of financial, manufacturing,
and human resources on a single
computer system.

15-172 Scheduling
ERP Strategy Considerations
High initial cost
 High cost to maintain
 Future upgrades
 Training

15-173 Scheduling
Another one chapter will be discusses from the
reference book.
 We will try to solve numerical problem from the
text and reference books.

15-174 Scheduling
Thank You