Supply Management Training
SMT – Operations Management
Participant’s Manual
Copyright © 2021 (V.21.3) by Supply Chain Canada
This material is the property of Supply Chain Canada and use of this material is restricted to Supply
Chain Canada and its Provincial/Territorial Institutes for the express purpose of delivering the Supply
Management Training (SMT) Program. No other use is authorized, expressed or implied. This material
must be used in its entirety. Requests to reproduce the material must be made in writing to:
Supply Chain Canada, 1 Dundas Street West, Suite 2704, PO Box 64, Toronto, Ontario M5G 1Z3
Table of Contents
General Information .......................................................................................................................................................... 1
Course Overview ..............................................................................................................................................................2
Lesson and Reading Topics and Activities Summary ..................................................................................................... 5
Participant Evaluation ....................................................................................................................................................... 7
Lesson One: Operations Management in the Organization .................................................... 9
Overview ......................................................................................................................................................................... 10
Introduction ...................................................................................................................................................................... 11
Operations Management Organizational Charts ............................................................................................................ 12
Operations Management Activities ................................................................................................................................ 12
Operations Management for Goods and Services ........................................................................................................ 13
Operations Management Development and Challenges................................................................................................ 15
Lesson Two: Operations Management across Organizations ............................................... 16
Overview ......................................................................................................................................................................... 17
Introduction ..................................................................................................................................................................... 19
Value Chain...................................................................................................................................................................... 19
Supply Chain ................................................................................................................................................................... 19
Outsourcing and Integration ........................................................................................................................................... 19
Push-Pull Systems and Postponement ........................................................................................................................ 20
Lesson Three: Quality Management ......................................................................................21
Overview ........................................................................................................................................................................ 22
Introduction .................................................................................................................................................................... 24
Quality Management and Quality................................................................................................................................... 24
The GAP Model .............................................................................................................................................................. 25
Quality Management Program Basics........................................................................................................................... 25
Lesson Four: Operations Management Strategy ................................................................. 28
Overview ........................................................................................................................................................................ 29
Introduction ..................................................................................................................................................................... 31
Customer Requirements ................................................................................................................................................. 31
Competitive Priorities .....................................................................................................................................................33
Corporate to Operations Strategy ................................................................................................................................. 34
McDonald’s Strategic Framework .................................................................................................................................35
Lesson Five: Goods and Service Designs ............................................................................ 37
Overview .........................................................................................................................................................................38
Introduction .....................................................................................................................................................................39
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Integrative Framework for Goods and Service Design ................................................................................................39
Product and Process Design for Goods ........................................................................................................................ 41
Service Delivery and Service Design ........................................................................................................................... 42
In-Class Case Study – LensCrafters ............................................................................................................................. 43
Lesson Six: Assessment Day ............................................................................................... 44
Overview ........................................................................................................................................................................ 45
Test 1 .............................................................................................................................................................................. 46
Introduction .................................................................................................................................................................... 46
Process Choice Decisions ..............................................................................................................................................47
Product-Process Matrix .................................................................................................................................................47
The Product-Process Matrix ......................................................................................................................................... 49
Service-Positioning Matrix ............................................................................................................................................ 50
Lesson Seven: Facility and Capacity Designs ....................................................................... 51
Overview ........................................................................................................................................................................ 52
Introduction .....................................................................................................................................................................53
Facility and Product Layouts ......................................................................................................................................... 54
Capacity and Capacity Measurements .......................................................................................................................... 55
Long-term and Short-term Capacity Strategies .......................................................................................................... 56
Capacity Expansion ........................................................................................................................................................ 56
Theory of Constraints .....................................................................................................................................................57
Lesson Eight: Forecasting .................................................................................................... 58
Overview .........................................................................................................................................................................59
Exercise: BankUSA: Forecasting Help Desk Demand by Day ...................................................................................... 61
Introduction ..................................................................................................................................................................... 61
Basic Concepts in Forecasting ...................................................................................................................................... 62
Data Patterns ..................................................................................................................................................................63
Forecasting Errors and Accuracy................................................................................................................................. 64
Other Forecasting Models ............................................................................................................................................. 65
Corporate Forecast Model ............................................................................................................................................. 65
Lesson Nine: Managing Inventories ..................................................................................... 67
Overview ........................................................................................................................................................................ 68
Discussion Questions..................................................................................................................................................... 69
Assignment 2 ................................................................................................................................................................. 69
Introduction .................................................................................................................................................................... 70
Inventory Concepts ........................................................................................................................................................ 70
Inventory Characteristics ...............................................................................................................................................72
ABC Analysis ...................................................................................................................................................................72
Inventory Re-order Systems .......................................................................................................................................... 73
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Lesson Ten: Resource Management .................................................................................... 77
Overview .........................................................................................................................................................................78
Exercise ........................................................................................................................................................................... 79
Introduction .................................................................................................................................................................... 80
Resource Planning Framework..................................................................................................................................... 80
Aggregate Planning and Strategies ...............................................................................................................................83
Aggregate Planning Strategies ..................................................................................................................................... 84
Master Production Schedule ......................................................................................................................................... 85
Time Phasing and Lot Sizing......................................................................................................................................... 89
Lesson Eleven: Resource Management (Capacity Requirements) & Operations Scheduling
.............................................................................................................................................. 93
Overview ........................................................................................................................................................................ 94
Introduction .................................................................................................................................................................... 96
Capacity Requirements Planning .................................................................................................................................. 96
Scheduling, Applications and Approaches ................................................................................................................... 96
Sequencing Using Single and Dual Resource Problems ..............................................................................................99
Lesson Twelve: Assessment Day ....................................................................................... 103
Overview ....................................................................................................................................................................... 104
Test 2............................................................................................................................................................................. 104
Introduction ................................................................................................................................................................... 104
Lesson Thirteen: Final Exam .............................................................................................. 105
Overview ....................................................................................................................................................................... 106
Final Exam Format........................................................................................................................................................ 106
Appendix A: Powerpoint Slides ........................................................................................................................ 108
Appendix B: Plagiarism Policy ......................................................................................................................... 109
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General Information
About Supply Management Training
Today’s global market demands skilled entry- to mid-level practitioners to support the management of
increasingly complex upstream and downstream components of extended supply chains. This series of
courses and seminars in supply management meets this need for proficiency in functional area
processes and technical competencies.
Supply management training consists of four introductory technical courses, three soft skills
workshops and three business management courses. Participants can access either a single course or
seminar or they can complete the entire package and earn a Diploma or Certificate (depending on the
Province) in Supply Management.
The intended audience is junior and intermediate practitioners requiring technical competency in supply
management. The training will also be of interest to others seeking knowledge of supply management
at an introductory level.
Supply management training is distinct from the Supply Chain Management Designation Program.
To be successful in the program, it is recommended that participants meet the minimum English
proficiency requirement per IELTS Band score of 6. For more information, please go to
https://www.ielts.org/about-the-test/how-ielts-is-scored.
Workload
As a general rule, participants should expect to spend an average of three hours of preparation and
classroom follow-up time for each lesson. Some lessons will require less work, while others may
require more. Preparation time will consist mostly of reading textbook materials as well as preparing
exercises.
Self-Study students may require additional time per week to research topics as they don’t have the
benefit of classroom discussions and group work.
Please note that the amount of time spent on each lesson will be influenced by present knowledge and
experience, as well such factors as reading skills and comprehension skills.
Participant Responsibilities
In order to be successful in this course, it is important that all participants complete the required work
and be prepared for each lesson. Participants who are prepared contribute to a dynamic and vibrant
learning environment that allows for a more effective transfer of knowledge. To ensure their success,
participants are expected to do the following:
• Complete all the required readings and assignments for each lesson prior to attending the lesson.
• Arrive at class on time. In particular, there are some activities that require a significant portion of
the class time. If you miss the start of these activities, it is generally impossible to catch up, meaning
that you will not be able to participate effectively in the class.
• Read and prepare for class discussions, and participate in class discussions by providing relevant
and timely information that will enhance learning.
• Contribute to and participate in all group assignments and discussions.
• Share knowledge and experiences to help illustrate the principles and concepts being presented and
to enhance the learning environment. This is perhaps the area in which your learning, and that of
others, will be the richest. Taking a concept from a lecture and making it real is very valuable.
Course Overview
Introduction
Operations management is the art and science of ensuring that goods and services are created and
delivered successfully to customers. This course will cover the basic aspects of this field of study at
the tactical level.
The goal of this course is to help participants understand that the selected operations process
determines many of the capabilities of the organization and cannot be changed easily.
A calculator will be required for some of the lessons.
About This Course
The focus of this course is on matters of tactical significance to operations management staff who
would be employed at factories, warehouses, and service operations.
The lessons in this course are interrelated. The first two lessons situate operations management within
organizations and within their respective value/supply chains. Lessons 3 to 5 provide an overview of
strategic level decisions and how these decisions impact managers in manufacturing and service
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operations. Lessons 7 through to 11 are concerned with the design and flow of information — taking the
product transformation or service rendering process from forecast to delivery.
Lessons 6 and 12 are assessment days with tests. Lesson 13 is the final examination.
Course Goals
Upon completion of this course, participants should be able to do the following:
• Explain operations management responsibilities in the organization and within their respective
value/supply chains.
• Describe quality and outline the various quality management programs.
• Understand how operations management strategies are linked with goods and service processes
within facilities to achieve a competitive advantage.
• Describe the importance of a forecast and its process. Understand how the forecast results are
managed within the organization by varying inventory levels and by amending AP, MPS, MRP and
scheduling for both goods and services.
• Understand resource management and operations scheduling in the context of the participant’s
organization.
Course and Lesson Organization and Materials
This course consists of 13 three-hour lessons. The course objectives are covered in Lessons 1 to 11,
with Lessons 6 and 12 being evaluation lessons, and Lesson 13 being the final exam.
This course includes the following materials:
1. Participant’s Manual (this manual), which is the guide for the course
2. Textbook, which contains the readings for the course
Each lesson in this manual will contain the following sections as required:
• Overview — a brief description of the contents of the lesson
• Objectives — what participants are expected to learn from the lesson
• Required Reading — reading assignments for the lesson
• Discussion Questions — questions for preparation for class discussion
• Lesson Notes — notes on the specific concept or issue covered in the lesson as required
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• Exercise Instructions — instructions for completing the exercise for the lesson (or the activity for
the lesson)
Excerpts from Operations and Supply Chain Management, by David Allan Collier, James R. Evans,
South-Western, CENGAGE Learning, 2nd Edition, are referenced in the materials for this course.
Learning Activities
Participants will learn the materials in this course through the following activities:
• Interactive lectures
• Facilitated group discussions and activities
• Individual assignments and tests, and an exam
• Readings
The Instructor reserves the right to deduct marks for late assignments, as late assignments may
impact the format and content of subsequent lessons and activities.
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Lesson and Reading Topics and Activities Summary
The course is based on the text Operations and Supply Chain Management 2E, by David Allan Collier
and James R. Evans, 2021 Edition, South-Western CENGAGE Learning.
The table below provides a summary of all the readings, topics and activities in this course for easy
reference.
Lesson
1
2
3
Topics and Activities
Operations Management in the Organization
­ Organizational charts
­ Basic operations management concepts
­ Development and challenges of operations management
­ Customer Benefits Package (CBP)
Operations Management Across Organizations
­ Value chains
­ Supply chains
­ Challenges in global value and supply chains
Quality Management
− Quality
− The GAP Model
− Deming’s 14 Points and continuous improvement
− ISO 9000:2000
− Six Sigma
­ Assignment 1 Issued
Readings
Chapter 1
Chapter 2
Chapter 16
4
Operations Management Strategy
− Competitive advantage and customers’ viewpoint
− Competitive priorities
− Corporate to operations strategies
Chapters
3&4
5
Goods and Services Processing
− Designing goods and services
− Product and process processes
− Service system design
− Assignment 1 Due
Chapter 5
6
Assessment Day / Process Choices and Matrices
− Test 1
− Return of Assignment 1
­ Process choices and matrices
Chapter 7
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Lesson and Reading Topics and Activities Summary, (cont’d)
Lesson
Topics and Activities
Readings
7
Facility and Capacity Designs
− Facility design and designing products layout
− Capacity and capacity measurements
− Long-term and short-term capacity strategies
− Theory of constraints
Chapters
8&10
8
Forecasting
− Basic concepts in forecasting
− Basic statistical forecasting
− Judgmental forecasting
− A forecasting model
Chapter 9
9
Managing Inventories
− Understanding inventory and key concepts
− Inventory characteristics
− ABC inventory analysis
− Reordering systems
Chapter 12
10
Resource Management
− Resource planning framework
− Aggregate planning
− Disaggregation in manufacturing
− Assignment 2 Issued
Chapter 14
11
Resource Management (Capacity Req.) and Operations Scheduling
− Capacity requirements planning
− Scheduling applications and approaches
− Sequencing and sequencing rules
− Assignment 2 Due
Chapters
14&15
12
Assessment Day / Examination Preparation
− Test 2
− Return of Assignment 2
Review for Final Exam
No
Readings
13
Assessment Day – Final Exam
Total scheduled time for each lesson is three hours. The final exam is in Lesson 13.
The Instructor reserves the right to vary this schedule in order to complete the required content
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Participant Evaluation
Introduction
Participants will be evaluated on their individual performance through a variety of methods. These
include assignments, discussions, tests, and the final exam. Below is a breakdown of the mark
allocation, as well as a description of each evaluation method. A minimum grade of 60 per cent is
required to pass this course.
Mark Allocation
The following table shows the mark allocation for each method of evaluation used in this course.
SMT Operations Management
Assignment 1 (Lesson 3)
15%
Test 1 (Lesson 6)
15%
Assignment 2 (Lesson 9)
15%
Test 2 (Lesson 12)
15%
In-class/Online Participation
10%
Final Exam (Lesson 13)
30%
Total
100%
Assignments
There are individual assignments for evaluation. Each is worth 15 per cent of the course.
Please see Lessons 3 and 9 for details.
The Instructor reserves the right to deduct marks for late assignments, as late assignments may
impact the format and content of subsequent lessons and activities.
Tests
There are two individual tests for evaluation. Each test is worth 15 per cent of the course. Please see
Lessons 6 and 12 for details.
Tests are open book. You may bring in your notes and textbook for reference.
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Course Final Exam
There is one final exam in the course consisting of short answer questions. The exam is worth 30 per
cent of the course. It will be administered during Lesson 13 (the final lesson) of this course.
The final exam is open book. You may bring in your notes and textbook for reference.
A minimum grade of 60 per cent is required on the final exam in order to pass the course.
Participants found cheating or copying in any way will receive a zero on the final exam. The Instructor
or the exam invigilator has sole discretion to enforce this policy.
Course Evaluation
At the end of the course you will be required to submit an evaluation form to your Provincial or
Territorial Institute rating the course content and format.
The Instructor and/or your Institute will provide the evaluation form and the instructions for
submission.
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Lesson One
Operations Management in the Organization
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Overview
This lesson will provide the participants with the basic knowledge of the operations management field
of activities and responsibilities across a number of industries. Particular attention will be paid to the
manufacturing and service environments.
The key terms to be emphasized are:
• Operations management
• Goods (durable and non-durable products)
• Service
• Customer benefit package (CBP)
• Process
Agenda
Topics
•
•
•
•
Organizational Charts
Basic Operations Management Concepts
Development & Challenges of Operations Management
Customer Benefits Package (CBP)
Learning Goals and Objectives
Goals
•
•
Understand the processes involved and the linkages between value creation, support and
general management processes
Understand the development of operations management and its future challenges
Objectives
Upon completion of this lesson, participants will:
 Discuss the position titles found within a manufacturing environment
 Define and differentiate between goods and services, including their attributes
 Explain the customer benefit package to the manufacturing and service industry
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Required Reading
Read the following:
• Collier, David A., and James R. Evans, Operations and Supply Chain Management 2E, Chapter
1.
Discussion Questions
Be prepared to discuss the following questions:
1.
Are the directors in a line or an advisory position? Do the directors issue orders to the plant
managers directly or do they recommend orders to be issued by the vice-president of
operations?
2. With respect to operations management activities, which type of product (goods or service) is
more challenging? Why?
3. Define the customer benefit package (CBP) of professional associations in relation to formal
education.
4. Explain the interrelationships between the key processes for the operations of a fast food
restaurant (e.g., McDonald’s or Wendy’s).
5. Which of the processes in operations management is the most challenging for the production of
fast-moving consumer goods (e.g., toilet paper, pens and toothpaste)?
Exercises
Zappos Case Study
Participants will complete the Zappos Case Study (chapter1) in the textbook.
Introduction
This lesson will provide the participants with a basic understanding of the operations management
activities and form an elementary understanding of the environment in which operations managers
work.
The key points are:
• Operations management organizational charts
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•
•
•
•
•
Operations management activities
Operations management for goods and services
Customer benefit package (CBP)
Processes
Challenges in operations management
Operations Management Organizational Charts
The first chart depicts the organization of operations management and shows the strategic level of
management with four functional vice-presidents. There is the possibility for many more directors, but
this depends on the complexity of the organization’s operations. Directors are not the superiors of the
plant managers, but rather provide advice and assistance to the vice-president. In addition, the
directors may provide assistance and guidance to the plant managers.
The second chart depicts the plant manager’s three direct reports and the manager of operations’
three direct reports. This represents the tactical levels of management.
The third chart depicts the manager of inbound operations’ three direct reports. These direct reports
are at the tactical and operational levels of management.
The fourth chart depicts the three direct reports of the manager of production. These direct reports
are at the tactical and operational levels of management.
The fifth chart depicts the three direct reports of the manager of outbound operations. These direct
reports are at the tactical and operational levels of management.
It should be noted that these charts are only a generic representation of the operations management
structure within an organization. As well, the structure is “scalable” as such position titles could be for
the manager instead of the supervisor or for senior manager instead of the manager.
Furthermore, due to the volume of production, some of the supervisory positions could be combined,
e.g., supervisors of receiving and shipping or supervisors of inventory.
Operations Management Activities
Operations management, a definition:
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The science and the art of ensuring that goods and services are created and delivered
successfully to customers.
Activities include:
• Quality
• Customer service
• Performance measurement and evaluation
• Managing inventory
• Planning budgeting
• Scheduling and capacity
Operations Management for Goods and Services
A good is a “physical product that you can see, touch, or possibly consume.”
A durable good is a product that lasts for more than three years; while, a non-durable good lasts for
less than three years.
“A service is any primary or complementary activity that does not directly produce a physical product.”
Differences between goods and services operations management:
• Goods are tangible while services are intangible.
• Customers participate in many service processes, activities and transactions.
• Demand for services is more difficult to predict than the demand for goods.
• Services cannot be stored in inventory.
• Service management (interaction between customer and service provider) skills are
paramount.
• Services are generally in close proximity to customers.
• Patents do not protect services.
Services are delivery through “service management.” Service management integrates marketing,
human resources and operations to plan, create and deliver goods and services and their associated
service encounters.
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Customer Benefit Package
“A customer benefit package (CBP) is a clearly defined set of tangible and intangible features that the
customer recognizes and pays for, uses or experiences.”
CBP has these components:
• Primary good or service “is the core offering that attracts customers and responds to their
basic needs.”
• Peripheral goods or services “are those that are not essential to the primary good or service,
but enhance it.”
Processes
Processes are sequences of activities that are intended to create a certain result.
Key processes are:
• Value creation processes focus on primary goods or services.
• Support processes involve purchasing materials and contacting suppliers, managing inventory,
installation, customer support, technology, acquisition, and research and development.
• General management processes include accounting and information systems, human resource
management and marketing.
Operations Management Development and Challenges
Developments in operations management have these key components:
• Efficiency
• Quality
• Customization and design
• Time-based competition
• Service revolution
Challenges in operations management have these key components:
• Integration of technology
• Globalization
• CBP expectations
• Workforce management
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Lesson Two
Operations Management across Organizations
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Overview
All manufacturing and service organizations have suppliers that provide raw materials for the
production of goods and customers who purchase the finished goods or products. The management of
the relationships between these organizations can give that group of companies a competitive
advantage in their niche market.
This lesson covers the value chain and supply chain relationships between organizations.
It should be noted that the delineation between a value chain and a supply chain made by the
supporting text is not commonly used in the business lexicon, and the term “supply chain” is more
commonly used to refer to both chains.
The key terms to be emphasized are:
• Value chain
• Supply chain
• Outsourcing and vertical integration
• Push and pull systems
• Postponement
Agenda
Topics
•
•
•
Value Chains
Supply Chains
Challenges in Global Value & Supply Chains
Learning Goals and Objectives
Goals
•
•
Understand push and pull systems with postponement
Understand some of the challenges of global value and supply chains
Objectives
Upon completion of this lesson, participants will:
 Define value and value chains
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 Define supply chains and differentiate between value and supply chains
 Explain outsourcing and vertical integration
Required Reading
Read the following:
• Collier, David A., and James R. Evans, Operations and Supply Chain Management 2E,,
Chapter 2
Discussion Questions
Be prepared to discuss the following questions:
1.
How are the concepts of value and the customer benefit package related to each other? What
about features?
2. Are the value and supply chains at Dell non-reproducible? Could most of these same activities
be used if by an electronic retailer such as Chapters or L.L. Bean?
3. What is the next wave in outsourcing or will it return to an internal activity?
4. Where is the push-pull boundary at a McDonald’s restaurant?
Exercise
American Textiles
One study that focused on the impact of trade from China on the US textile industry noted that 19
American textile factories were closed and 26,000 jobs lost in 2004 and 2005. If these factories had
not closed, it would have cost the American consumers $6 billion more in higher textile prices.
Assuming that these facts are true, prepare an argument for or against the outsourcing of these jobs to
foreign countries.
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Introduction
This lesson will provide the participants with a basic understanding of value chains and supply chains
and how they are reflected in today’s organizational activities. As well, it will provide an overview as to
why outsourcing is a popular option.
The key points are:
• Value chain
• Supply chain
• Outsourcing and vertical integration
• Push and pull systems
• Postponement
Value Chain
Value chain is a network of facilities and processes that describes the flow of goods, services,
information and financial transactions from suppliers through the facilities and processes that create
goods and services and deliver them to the customer.
Value is the perception of the benefits associated with goods and services, or a bundle of goods and
services (i.e., the customer benefit package), in relation to what buyers are willing to pay for them.
Supply Chain
Supply chain is the portion of the value chain that focuses primarily on the physical movement of goods
and materials, supporting the flow of information and financial transactions through the supply,
production and distribution processes.
Outsourcing and Integration
There are three waves of outsourcing:
• First, goods that produce jobs (parts suppliers, FMCG suppliers)
• Second, simple service work (call centres, bookkeeping operations)
• Third, skilled knowledge work (designing, reading medical imagery)
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Integration vs. Outsourcing
Integration of the acquiring processes for greater control is balanced against the outsourcing of goods
and services that were previously provided internally.
The results are to backward integrate and/or to forward integrate.
With cost pressures and trade liberalization, new countries became available for international business
(most noticeably, China and India). This resulted in offshoring.
The offshoring of a facility’s processes can have six variations. These variations are:
• Offshore factories
• Outpost factories
• Server factories
• Source factories
• Contributor factories
• Lead factories
Push-Pull Systems and Postponement
Push – produced in advance of a forecast, e.g., FMCG.
Pull – produced only when needed with signals from the customer, e.g., customized wedding rings.
The push-pull boundary – the point when the system changes.
Postponement – the process of delaying customization until the product is closer to the customer at
the end of the supply chain.
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Lesson Three
Quality Management
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Overview
In operations management activities, quality is a main determinant of the success of the organization.
Quality management is part of the job description for operations managers because the cost of noncompliance is greater than the cost of compliance.
The key terms to be emphasized are:
• Quality
• The GAP Model
• Deming’s 14 Points and continuous improvement
• ISO 9000:2000
• Six Sigma
Agenda
Topics
•
•
•
•
Understanding Quality
The GAP Model
Modern Quality Programs
Assignment 1
Learning Goals and Objectives
Goals
•
Understand the sources of non-conformance (the GAP Model)
Objectives
Upon completion of this lesson, participants will:
 Define quality management and quality
 Explain the basics of quality management systems (ISO 9000:2000 and Six Sigma)
 Discuss the costs of quality
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Required Reading
Read the following:
• Collier, David A., and James R. Evans, Operations and Supply Chain Management 2E, Chapter
16.
Discussion Questions
Be prepared to discuss the following questions:
1.
Explain how service quality is measured. How does it differ from manufacturing?
2. For a McDonald’s restaurant, what are three sources of non-conformance when ordering an
extra value meal (Quarter Pounder with Cheese) without condiments?
3. What are the main similarities between Deming’s 14 Points and his continuous improvement
philosophy and the philosophy of ISO 9000:2000?
4. What are the costs associated with a customer’s purchase of a car that proves itself to be a
“lemon”?
Discussion Exercise
Reflective Thought on Shoddiness (Poor Quality)
Discuss the sum causes and sum effects for the following problems:
a. Poor exam grade
b. No job offers
c. Too many speeding tickets
d. Late for work or school
Assignment 1
The Instructor will hand out the requirements for Assignment 1. Assignment 1 is due on or before
Lesson 5, as directed by the Instructor.
The assignment is done on an individual basis. Any participant found cheating or copying in any way
will receive a zero on the assignment. The Instructor has sole discretion to enforce this policy.
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Introduction
Quality management is an essential aspect of operations management. A CBP (customer benefits
package) is based upon the processes that transform and support the goods or services.
If these processes are shoddy, then the perceived CBP will be of lower value than anticipated.
At the corporate level is the director of quality who is generally responsible for setting the quality
standards of the processes.
The key points are:
• Definition of quality
• The GAP Model
• Quality management program’s philosophies
• Costs of quality
Quality Management and Quality
Quality management refers to systematic policies, methods and procedures used to ensure that goods
and services are produced with appropriate levels of quality to meet the needs of the customer.
Customers’ expectations are high.
Quality has different levels, e.g., a customer will have higher expectations for a BMW and lower
expectations for a Ford.
Quality aspects include perceptions of:
• Perfection
• Consistency
• Eliminating waste
• Speed of delivery
• Compliance with policies and procedures
• Providing a good, usable product
• Doing it right the first time
• Delighting or pleasing customers
• Total customer service and satisfaction
Specifications are targets and tolerances to achieve conformance to quality.
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Service quality is consistently meeting or exceeding customer expectations (external focus) and
service delivery system performance criteria (internal focus) during all service encounters.
Principles of total quality are:
• A focus on customers and stakeholders
• A process that is supported by continuous improvement and learning
• Participation and teamwork by everyone in the organization
Identify the vice-president of operations responsible for quality with the director of quality being the inhouse expert and advisor.
The plant manager is also held responsible for quality even though quality is the responsibility of all
within the plant. (See Organization Charts, Lesson 3.)
The GAP Model
A GAP is the difference between a customer comparing goods and services received against the
expectations of those goods and services as promulgated by the organization’s marketing efforts.
The GAP Model recognizes several ways to misspecify and mismanage the creation and delivery of
high levels of quality.
•
GAP 1 – gap between customers’ expectations and management perception of those
expectations
•
GAP 2 – gap between management’s perceptions of target features and translating them into
specifications
•
GAP 3 – gap between quality specifications documented in manuals and their implementation
•
GAP 4 – gap between actual manufacturing or service delivery performance and external
communications to customers
•
GAP 5 – gap between customers’ expectations and perceptions
Quality Management Program Basics
There are three programs to be reviewed: Deming’s 14 Points, ISO 900:2000 and Six Sigma.
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Deming’s 14 Points
Point 1 – Create a Vision and Demonstrate Commitment
Point 2 – Learn the Philosophy
Point 3 – Understand Inspection
Point 4 – Stop Making Decisions Purely on the Basis of Costs
Point 5 – Improve Constantly and Forever
Point 6 – Institute Training (how to do things)
Point 7 – Institute Leadership
Point 8 – Drive Out Fear
Point 9 – Optimize the Efforts of Teams
Point 10 – Eliminate Exhortations
Point 11 – Eliminate Numerical Quotas
Point 12 – Remove Barriers to Pride in Work
Point 13 – Encourage Education (why things are done) and Self-Improvement
Point 14 – Take Action
Point 5 – can be broken into the Deming Cycle: Plan, Do, Study and Act (PDSA)
ISO 9000:2000
ISO = International Organization for Standardization
9000 = quality system standards
2000 = issued year
Accepted in over 100 countries, the ISO has been adopted by the American National Standards Institute
ANSI and endorsed by American Society for Quality (ASQ).
The Standards are based on eight principles:
Principle 1 – Customer-Focused Organization
Principle 2 – Leadership
Principle 3 – Involved People
Principle 4 – Process Approach
Principle 5 – System Approach to Management
Principle 6 – Continuous Improvement
Principle 7 – Factual Approach to Decision Making
Principle 8 – Mutually Beneficial Supplier Relationships
Six Sigma
Six Sigma is a notional standard of 3.4 defects per 1,000,000 opportunities to make a defect. An
unrealistically high standard for most business processes.
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Six Sigma has five steps in its problem-solving approach (DMAIC):
1. Define
2. Measure
3. Analyze
4. Improve
5. Control
This system works on a problem, develops the process to solve the problem and the measures to close
the gap.
Costs of Quality
Costs of quality refer specifically to the costs associated with avoiding poor quality or those incurred as
a result of poor quality.
There are four categories to the costs of quality:
1. Prevention costs – costs to keep non-conforming goods or services from the customer.
2. Appraisal costs – costs associated with testing of the product to determine conformity.
3. Internal failure costs – costs associated with unsatisfactory products before delivery.
4. External failure costs – costs associated with unsatisfactory products after delivery.
The total quality costs are the total of these costs.
In his book Quality Is Free (New York: McGraw-Hill, 1979), Philip Bayard Crosby put forward the case
that the costs of shoddiness are greater than the costs of providing a quality product or service.
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Lesson Four
Operations Management Strategy
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Overview
This lesson will provide the participants with a basic knowledge of the operations management field.
We will examine the activities and responsibilities related to how operations management strategies are
integrated within the corporate strategy in order to achieve a competitive advantage based upon
customer requirements.
It should be noted that most of these decisions are made at the corporate level with the plant managers
implementing pre-determined operations management strategies.
The key terms to be emphasized are:
• Competitive advantage
• Customer requirements
• Attributes of goods and services
• Competitive priorities
• Corporate strategy
• Operations strategy
• Operating design choices
• Infrastructure
• Strategic alignment
Agenda
Topics
•
•
•
Competitive Advantage & Customers Viewpoint
Competitive Priorities
Corporate to Operations Strategies
Learning Goals and Objectives
Goals
•
Understand customer requirements and attributes for both goods and services
Objectives
Upon completion of this lesson, participants will:
 Define competitive advantage and apply this definition to well-known corporations
 Distinguish between the five competitive priorities
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 Outline the relationship between the corporate strategies and the functional strategies
Required Reading
Read the following:
• Collier, David A., and James R. Evans, Operations and Supply Chain Management 2E, Chapters
3 & 4.
Discussion Questions
Be prepared to discuss the following questions:
1.
For all business activities, is a competitive advantage necessary? What about monopolies?
What about government-provided services?
2. Describe the relationship between a CBP with the concept of order winners and the classes of
customer requirements.
3. Personal recommendations from friends and acquaintances are an excellent marketing activity.
Why is it more important for services as compared to manufactured goods?
4. Strategic alignment occurs when the corporate strategy through to the priorities of supervisors
support each other. Explain a situation where the strategies at the corporate level and the
activities at the lower levels were misaligned.
Exercise: The Lawn Care Company Case Study
Participants will complete the Lawn Care Company Case Study found in Chapter 3, page 81. Questions
#1 to #5.
The Instructor may provide assistance for answering Question #1.
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Introduction
This lesson will provide the participants with a basic understanding of the operations management
strategic activities and their framework for implementation.
The key points are:
• Competitive advantage
• Customer requirements
• Attributes for goods and services
• Competitive priorities
• Corporate to operations strategies
Competitive Advantage
Competitive advantage – denotes a firm’s ability to achieve market and financial superiority over its
competitors.
Achieving a competitive advantage is the reason behind corporate strategies for the firm’s target
market. This is one of the vice-president of operations’ primary concerns (applies to free market and
oligopolistic competitions).
It is usually short term unless protected by a patent or by government regulation.
Customer Requirements
Customer requirements should be the main part of the CBP (customer benefits package) with the
goods or service. The objective is to have many satisfiers, some exciters, few or no dissatisfiers to
become order qualified and correspondingly the order winner.
Satisfiers – requirements that customer say they want.
Exciters/Delighters – new or innovative goods or service features that customers do not expect but
they are excited/delighted once they know about them.
Dissatisfiers – requirements that are expected to be included in goods or services and if these
features are not present the customer is dissatisfied.
Order qualifies – basic customer expectations of satisfiers and dissatisfiers that keeps an organization
viable (and in business).
Order winners – goods and service features and performance characteristics that differentiate one
CBP from another CBP and win the customer’s business.
Note: This assumes that the customer acts rationally and does not make impulse buys.
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Attributes of Goods and Services
Goods and services are evaluated by customers in a combination of three attributes:
•
•
•
Search attributes
Experience attributes
Credence attributes
Search attributes – those that can be determined prior to purchasing the good and/or service (colour,
price, freshness, style, fit).
Experience attributes – those that can be discerned only after purchase or during consumption or use
(friendliness, taste, safety, fun, customer satisfaction).
Credence attributes – aspects of goods and services that the customer must believe in but cannot
personally evaluate even after purchase and consumption.
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Competitive Priorities
To help achieve a competitive advantage, the vice-president of operations helps define the firm’s CBP
by selecting the strategic emphasis for its operations and the associated value or supply chain.
Competitive priorities represent the strategic emphasis that a firm places on certain performance
measures and operational capabilities within a value chain.
There are five key competitive priorities:
• Cost
• Quality
• Time
• Flexibility
• Innovation
Of these five priorities, cost is optimized and the other four are sub-optimized.
Cost:
• By high productivity
• High capacity utilization
• High quality
Quality:
• Positively and significantly related to a higher return on investments for most market situations
• Strategy of quality improvement adds long-term market share at the cost of short-term
profitability
• Producers of quality items can charge a premium price
Time:
• Flow time reductions (speeds up processes and reduces non-value-added activities)
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Flexibility:
• In both design and demand (to meet the customers’ changing tastes)
Innovation:
• Focusing a firm’s research and development activities as a core component of its strategy
• Leading new products or new processes to make new products or services
Corporate to Operations Strategy
Strategic planning is the process of determining long-term goals, policies and plans for an organization.
The operations strategy defines how an organization will execute its chosen business strategies.
Corporate strategy defines the business in which the organization will participate and develops plans
for the acquisition and allocation of resources. This is completed by the president.
Strategic business unit (SBU) strategy defines which markets to pursue and which competitive
advantages to follow to best compete in those markets, and is completed by the president. Functional
strategy is a set of decisions in one functional area, operations, and is completed by the vice-president
of operations.
Operations design choices are decisions that management must make about what type of process
structure is best suited to produce goods or create services. Infrastructure focuses on the non-process
features and capabilities of the organization, including the workforce, operating plan, control systems,
quality control, organizational structure, compensation systems, learning and innovation systems and
support services.
Participants should review “Operations Strategy at McDonald’s” Chapter 3, page 72-76.
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McDonald’s vision is to offer the world’s best fast food restaurant experience.
Three strategies support this vision:
• Be the best employer
• Deliver operational excellence
• Achieve enduring success
McDonald’s Restaurants CBP
McDonald’s Strategic Framework
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McDonald’s restaurants are organized on a “template” style system with each restaurant being the
same and having the same operating design choices and infrastructures. One reproduces the template
when opening a new restaurant.
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Lesson Five
Goods and Service Design
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Overview
This lesson will provide the participants with the basic knowledge of how goods and services are
designed. This design is normally a strategic level function but understandings of the attributes are
necessary at the tactical level. The framework discussed has a common structure with two options,
one for goods and one for services.
The key terms to be emphasized are:
• Robust design
• Reliability
• Qualify function deployment
• Quality engineering
• “Servicescape”
• Service encounter design
Agenda
Topics
•
•
•
Designing Goods & Services
Product & Process Processes
Service System Design
Learning Goals and Objectives
Goals
•
Understand the common framework for the design of goods and services
Objectives
Upon completion of this lesson, participants will:
 Define the framework’s differences for the design of goods
 Discuss the framework‘s differences for the design of services
Required Reading
Read the following:
Collier, David A., and James R. Evans, Operations and Supply Chain Management 2E, Chapter 5
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Discussion Questions
Be prepared to discuss the following questions:
1.
The successful selection of an achievable and wanted CBP is key to an organization’s success.
Which position titles design the CBP and which titles provide the CBP?
2. Describe the relationship between quality and reliability.
3. In the automotive industry, when a new model of a specific car is introduced and when minor
changes are made in order to increase reliability over the following years, what is this called?
Why do more options become standard equipment in the remaining years of a specific model?
4. In service recovery, why is it important to address the issue quickly?
Exercise
NO EXERCISE
Prepare for the test next week.
Introduction
This lesson will provide a basic understanding of the design of goods and services.
The key points are:
• Integrated framework for goods and service design
• Robust design, reliability and quality functional deployment (QFD)
• Product and process design for goods
• Service delivery and service design
Integrative Framework for Goods and Service Design
It is a six-step process that explains the framework for taking the organization’s strategic mission and
vision from design to its successful marketplace deployment and evaluation.
Step 1 – strategic mission (mission statement) and vision (vision statement)
Step 2 – from statements, research and development to marketing, engineering, operations and sales
with involvement of the value chain/supply chain partners’ input to design of the CBP
Step 3 – CBP design and configuration (configuration attributes time, place, information, entertainment,
exchange and form)
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Step 4 – detailed goods and services process design to the CBP
Step 5 – market introduction and deployment of product or service
Step 6 – marketplace evaluation (customer feedback)
Note: For some services, the service itself is the product, e.g., massage therapy.
See next page for diagram.
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Robust Design, Reliability and QFD
Robust Design – goods that are insensitive to external sources of variance (e.g., limited in scope
activities).
Reliability – is the probability that a manufactured good, piece of equipment or system performs its
intended function for a stated period of time under specified operating conditions (implies design
obsolescence).
Quality function deployment (QFD) – is both a philosophy and a set of planning and communication
tools that focuses on customer requirements in coordinating the design, manufacturing and marketing
of goods or services.
Product and Process Design for Goods
Steps 4A and 4B – Goods Research and Development Activities
Quality Focused
• Prototype Testing – is the process by which a model (real or simulated) is constructed to test
the good’s physical properties or use under actual operating conditions, as well as consumer
reactions to the prototypes (e.g., beta versions of computer programs).
• Quality Engineering – refers to the process of designing quality into a manufactured good
based on a prediction of potential quality problems prior to production. (Murphy’s Law: What
can go wrong will go wrong. And O’Toole’s Observation: Murphy was an optimist!)
• Failure-Mode-and-Effects Analysis (FMEA) – is a technique in which each component of a
product is listed along with the way it may fail, the cause of failure and how it can be corrected
by improving the design.
Cost Focused
• Value Engineering – refers to the cost avoidance or cost prevention before a good or service is
created.
• Value Analysis – refers to cost reduction of the manufactured good or service process.
Environment Focused
• Green Manufacturing – a focus on improving the environment by better good or service design.
• Design for Environment – is the explicit consideration of environmental concerns during the
design of goods, services and processes, and includes such practices as designing for
recycling and disassembly (e.g., ISO 14000 series).
Process Activities
• Product and Process Simplification – is the process of trying to simplify designs to reduce
complexity and costs and thus improve productivity, quality, flexibility and customer
satisfaction.
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Service Delivery and Service Design
Steps 4A and 4B – Services
Service Delivery System Design – includes facility location and layout, the servicescape, service
process, job design, technology and information support systems, and organizational structures.
Facility Location – near the customers.
Facility Layout – affects process flow, costs, customer perception and satisfaction.
Servicescape – is all the physical evidence a customer might use to form an impression. The
servicescape also provides the behavioural setting where service encounters take place (lean = simple,
or elaborate = complex).
Service Process Design – is the activity of developing an efficient sequence of activities to satisfy both
internal and external customer requirements.
Technology and Information Support System – ERP systems.
Organizational Structure – either functional or process (process is quicker for responding to service
upsets).
Service Encounter Design – focuses on the interaction, directly or indirectly, between the service
provider(s) and the customer.
Principals
• Customer contact behaviour and skills
• Service provider selection, development and empowerment
• Recognition and rewards
• Service recovery and guarantees
Customer Contact – refers to the physical or virtual presence of the customer in the service delivery
system during a service experience.
• Either high or low contact
• Based upon the customer contact requirements – measurable performance levels that define
the quality of customer contact with representatives of an organization
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Empowerment – simply means giving people authority to make decisions based on what they feel is
right, to have control over their work, to take risks and learn from mistakes and to promote change
(trust between the employee and the employer must be present).
Recognition and Rewards – for motivational reasons to achieve a high performance workplace
(includes wages, benefit packages and discounts).
Service Guarantee – is a promise to reward and compensate a customer if a service upset occurs
during the service experience.
Service Upset – is any problem a customer has – real or perceived – with the service delivery system
and includes terms such as service failure, error, defect, mistake or crisis.
Service recovery – is the process of correcting a service upset and satisfying the customer.
In-Class Case Study – LensCrafters
Participants will review the six steps in the framework in class and apply these steps to the
LensCrafters Case Study on page 126.
Remember that strategic planning is the process of determining long-term goals, policies and plans for
an organization.
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Lesson Six
Assessment Day
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Overview
The first two sections of this lesson are dedicated to testing and to the return and feedback on the first
assignment.
The third section of this lesson will provide the participants with basic knowledge of process choices
and the product process matrix and the service positioning matrix.
The key terms to be emphasized are:
• Make-to-order
• Assemble-to-order
• Make-to-stock
• Project
• Job shop
• Flow shop
• Continuous flow
• Service routed
• Customer routed
Agenda
Topics
•
•
•
Test 1
Return of Assignment 1
Process Choices & Matrices
Learning Goals and Objectives
Goals
•
Understand the basic product choices, the product-process matrix and the service-positioning
matrix
Objectives
Upon completion of this lesson, participants will:
 Complete Test 1
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Required Reading
Read the following:
Collier, David A., and James R. Evans, Operations and Supply Chain Management 2E, Chapter 7
Discussion Questions
Be prepared to discuss the following questions:
1.
What type of process – project, job shop, flow shop and continuous flow – would most likely be
used to produce the following?
• Air conditioners
• Weddings
• Paper
• Many flavours of ice cream
Exercise
There is no exercise for this class.
Test 1
The Instructor will hand out Test 1, which is to be completed in class as directed by the Instructor.
The test is done on an individual basis and is open book.
Any participant found cheating or copying in any way will receive a zero on the test. The Instructor has
sole discretion to enforce this policy.
Introduction
This lesson will provide a basic understanding of the design of goods and services.
The key points are:
• Process choice decisions
• Product-process matrix
• Service-positioning matrix
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Process Choice Decisions
Process choice decisions are based on how the organization responds to customer demand; either the
products are made in response to demand or in anticipation of demand.
This leads to three possible options for production:
• Make-to-order or custom
• Assemble-to-order or option
• Make-to-stock or standard
There are four principal process types:
• Projects
• Job shop
• Flow shop
• Continuous flow
Product-Process Matrix
The product-process matrix is a model that describes the alignment of process choice with the
characteristics of the manufactured goods.
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Characteristics
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The Product-Process Matrix
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Service-Positioning Matrix
Pathway – a unique route through a service system.
Customer-routed services – offer customers the freedom to select the pathways that are best suited
for their immediate needs and wants from many possible pathways through the delivery system.
Provider-routed services – constrain customers to follow a very small number of possible and predefined pathways through the service system.
Service encounter activity sequence – consists of all the process steps and associated service
encounters necessary to complete a service transaction and fulfill a customer’s wants and needs. It
depends upon:
• the degree of customer discretion, freedom and decision-making power to select the service
encounter activity sequence in any order they choose, and
• the degree of repeatability of the service encounter activity sequence.
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Lesson Seven
Facility and Capacity Designs
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Overview
This lesson will provide the participants with the basic knowledge of a facility layout.
The key terms to be emphasized are:
• Product layouts
• Layouts in service organizations
• Assembly line balancing
• Capacity
• Capacity measurement
• Theory of constraints
Agenda
Topics
•
•
•
•
Facility Design & Designing Product Layouts
Capacity & Capacity Measurements
Long-Term & Short-Term Capacity Strategies
Theory of Constraints
Learning Goals and Objectives
Goals
•
•
Understand both long-term and short-term capacity strategies
Apply the theory of constraints to a process
Objectives
Upon completion of this lesson, participants will:
 Explain capacity and capacity measurement systems
 Discuss the basic layouts for goods and service industries
Required Reading
Read the following:
Collier, David A., and James R. Evans, Operations and Supply Chain Management 2E, Chapters
8 & 10
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Discussion Questions
Be prepared to discuss the following questions:
1.
Describe the facility layout of a typical fast food franchise such as McDonald’s. What type of
layout is it? How does it support productivity? In service recovery, why is it important to
address the issue quickly?
2. Define capacity measures for a(n)
a. Brewery
b. Airline
c. Movie theatre
d. Restaurant
3. For the confectionary industry (formed chocolate treats for Christmas, Halloween, etc.), how
could manufacturers match their demand to capacity based on short-term strategies?
4. How would you apply theory of constraints to a quick automobile oil change service? Explain.
Exercise
There is no exercise for this class.
Introduction
This lesson will provide a basic understanding of the layout of facilities, capacity and capacity
measurements, and how organizations can change their management capacity in both the long and
short term.
The key points are:
• Facility and product layouts
• Capacity and capacity measurements
• Long-term capacity strategies
• Short-term capacity strategies
• Theory of constraints (TOC)
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Facility and Product Layouts
Facility layout refers to the specific arrangement of physical facilities.
Facility layout studies are required for:
• Newly constructed facilities (if different in design)
• A significant change in throughput or demand
• Introduction of a new CBP
• Newly installed equipment
Product layout – an arrangement based on the sequence of operations that is performed during the
manufacturing of a good or delivery of a service, e.g., paper manufacturers.
Process layout – consists of a functional grouping of equipment or activities that do similar work, e.g.,
legal offices.
Cellular layout – consists of self-contained groups of equipment (called cells) needed for producing a
particular set of goods or services (can be called factory within a factory), e.g., Toyota.
Fixed position layout – consolidates the resources necessary to manufacture a good or deliver a
service, such as people, materials and equipment in one physical location, e.g., Boeing Aircraft.
Facility layout for service organizations are usually a combination of all the possible goods producing
layouts. Most common are a combination of process and product layouts. Refer back to LensCrafters
Case Study in Lesson 5.
Product Layout
Assembly line – a layout dedicated to the combining the components of a good or service that has been
previously created.
Flow blocking delay – occurs when a work centre completes a unit but cannot release it because the
in-process storage at the next stage is full.
Lack-of-work delay – occurs whenever one stage completes work and no units from the previous
stage are waiting to be processed.
Assembly line balancing – a technique that groups tasks among workstations so that each workstation
has the same amount of work.
Cycle time – the interval between successive outputs coming off the assembly line.
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Capacity and Capacity Measurements
Capacity is the capability of manufacturing or service resources such as a facility, process, workstation
or piece of equipment to accomplish its purpose over a specified time period. Expressed as either
maximum rate of output or units of resource availability.
Economies of scale – achieved when the average unit cost of a good or service decreases as the
capacity and/or volume of throughput increases.
Diseconomies of scale – occur when the average unit cost of the good or service begins to increase as
the capacity and/or volume of throughput increase.
Focused factory – a way to achieve economies of scale without extensive investment in facilities and
capacity by focusing on a narrow range of goods or services, target market segments and/or dedicated
processes to maximize efficiency and effectiveness.
Capacity Measurements
Safety capacity – the amount of capacity reserved for unanticipated events such as demand surges,
material shortages and equipment breakdown.
Demand versus Capacity Problem Structure
Capacity Measurement in Job Shops Processes
Capacity = Setup Time + (Processing Time X Order Size)
Be sure to review Chapter 10-2C in the OM5/OM6, “Using Capacity Measures for Operations Planning,”
and understand the calculations for capacity management.
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Long-term and Short-term Capacity Strategies
Long-term Capacity Strategies
Complementary goods and services – goods and services that can be produced or delivered using the
same resources available to the firm, but whose seasonal demand patterns are out of phase with each
other.
Seasonal Demand and Complementary Goods or Services
Capacity Expansion
Capacity expansion options:
•
•
•
•
One large capacity increase
Small capacity increases that match average demand (straddle strategy)
Small capacity increases that lead demand (lead strategy)
Small capacity increases that lag demand (lag strategy)
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Theory of Constraints
Theory of constraints (TOC) is a set of principles that focus on increasing total process throughput by
maximizing the utilization of all bottleneck work activities and stations.
A constraint is anything that limits throughput.
Types of constraints:
• Physical (results of employees, machines or workstations)
• Bottleneck work activity (the activity that effectively limits the capacity of the entire process)
• Non-bottleneck work activity (where idle capacity exists)
• Non-physical (in an environment or an organization where low demand or inefficient
management policies exist)
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Lesson Eight
Forecasting
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Overview
The purpose of this lesson is to introduce the participants to basic concepts of statistical modelling and
a model for forecasting.
A forecast is the reference used to make numerous operations management decisions within the
organization. The organization’s forecast is normally a responsibility shared between the vice-president
of operations and the vice-president of marketing.
The key terms to be emphasized are:
• Planning horizons
• Trends
• Moving average
• Judgemental forecasting
• Forecasting models
Agenda
Topics
•
•
•
•
Basic Concepts in Forecasting
Basic Statistical Forecasting
Judgemental Forecasting
A Forecasting Model
Learning Goals and Objectives
Goals
•
•
Understand the basics concepts used in forecasting
Understand judgemental forecasting
Objectives
Upon completion of this lesson, participants will:
 Describe the trends lines
 Produce a forecasting using the model provided and basic statistical calculations
 Describe an organization’s forecasting model
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Required Reading
Read the following:
Collier, David A., and James R. Evans, Operations and Supply Chain Management 2E, Chapters 9
Discussion Questions
Be prepared to discuss the following questions:
1.
Discuss some forecast issues that you encounter in your daily life. How do you make your
forecasts? How is forecasting part of your current job?
2. In the stock market, e.g., the TSX, which data trends are apparent?
3. Forecasts and actual sales of portable CD players at Just Say Music are as follows:
Month
March
April
May
June
July
August
September
October
November
Forecast
150
220
205
256
250
260
270
280
296
Actual Sales
170
229
192
271
238
255
290
279
301
1) What is the forecast for December, using a three-period moving average?
2) What is the forecast for December, using a four-period moving average?
3) Compute the MAPE for questions (1) and (2).
4. How would you want to amend your retail store’s forecast of discretionary sales items under
the following circumstances?
• The unemployment rate is increasing
• The bank’s interest rates are decreasing
• A new competitor comes into your target marketplace
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Exercise
BankUSA: Forecasting Help Desk Demand by Day
See textbook OM5/OM6
Overview
The case describes a telephone call centre (contact centre) where 98 per cent of the call volume is
internal customers (i.e., the bank’s sales force, trust administrators, branch managers, wealth advisors,
etc.). Accurate and quick answers are expected from the customer service representatives (CSRs). Staff
call centre scheduling is critical for maximizing service and minimizing costs. Of course, the first step is
an accurate short-term forecast of call volume by day.
A small sample of call volume data is presented in the case. The participant or participant team is asked
to determine the best method or methods to forecast these data. This data can be evaluated using simple
graphs, time series or regression analysis. Although the focus is forecasting, there are several other
operations management issues.
The four-step demand-capacity-schedule framework is as follows:
1.
Forecasting
2. Set service standards
3. Compute capacity requirements to meet demand (using equation 7.2 or queuing models), and
4. Develop a resource (staff) schedule and associated issues
This case focuses only on the forecasting step, but you might want to frame in what happens after a
good forecast of demand is generated.
Introduction
This lesson will provide a basic understanding of the concepts and applications of forecasting. An
understanding of higher-level mathematics is not required for this course.
The key points are:
• Basic concepts in forecasting
• Data patterns
• Forecasting errors and accuracy
• Judgemental forecasting
• Corporate forecast model
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Basic Concepts in Forecasting
Forecasting is the process of projecting the values of one or more variables into the future.
• It is often integrated with value and/or supply chains as capacity management systems.
• Inaccurate forecasting results in excessive unnecessary expenditures while accurate
forecasting leads efficiencies.
• It includes not only the basic product but also the desirability of any options with the basic
product.
• It depends on the need for forecasts.
Forecasting Range
Forecasting has planning horizons. These horizons are the range of time on which a forecast is based.
•
•
•
Long range – 1 to 10 years
Intermediate range – 3 to 12 months
Short range – up to 3 months
Time frames are commodity dependent.
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Data Patterns
•
•
•
•
•
•
A time bucket is the unit of measure for the time period used in a forecast, e.g., year, quarter,
daily, minute.
A time series is a set of observations measured at successive points in time or over successive
periods of time.
A time series gives individual points on a graph but the points are not as important as the
trend.
Trend is the underlying pattern of growth or decline in a time series.
Trends are gradual shifts due to long-term factors such as performance, technology,
productivity, customer preferences.
Trends can be linear or non-linear.
Examples of Linear and Non-linear Trend Patterns
Other trend descriptors include:
• Seasonal patterns – characterized by repeatable periods of up and downs over a short period
of time.
•
•
Cyclical patterns – regular patterns in a data series that take place over a long period of time.
Random variations (noise) – the unexplained deviation of a time series from a predictable
pattern, such as a trend, seasonal or cyclical pattern.
Irregular variation – a one-time variation that is explainable.
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Forecasting Errors and Accuracy
Forecasting Errors
All forecasts are subject to errors. Forecast errors are the difference between the observed value of
the time series and the forecast value.
Three general types of metrics are used to calculate forecast error:
•
•
•
Mean square error (MSE) is identified but not calculated.
Mean average deviation (MAD) is identified but not calculated.
Mean absolute percentage error (MAPE) is to be reviewed in detail. MAPE results give the
average forecast error as a percentage.
Step 1
Take the actual amount and subtract the forecast (assume the value to always be positive) = X.
Step 2
Take X and divide by the actual amount and express this as a percentage.
Step 3
Repeat Steps 1 and 2 for each time period, and add the percentages and then divide this total by the
total number of time periods.
Forecasting Accuracy
Forecasting is either statistical or judgemental.
Statistical forecasting is based on the assumption that the future will be an extrapolation of the past.
There are two types of techniques:
1. Time-series methods that extrapolate historic time series data, e.g., moving average, single
exponential smoothing
2. Regression methods that extrapolate time-series data but can also include other potential
factors, e.g., regression analysis, multiple linear regression.
The only model of interest is the moving average (MA) model. It involves the following steps:
Step 1
Determine the model’s time frame, e.g., 3 months.
Step 2
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Add the first 3 observations (equal to the model’s timeframe) together and divide by the model’s time
frame (3). The answer is the forecast for the fourth time frame. No values for the first time frames
equal to the model’s time frame.
Step 3
To progress further, add the observation numbers 2, 3 and 4 together and divide by the model’s time
frame. The answer is the forecast for the fifth timeframe. Repeat Step 3 as necessary.
Other Forecasting Models
Single exponential smoothing – a forecasting technique that uses a weighted average of past timeseries values to forecast the value of the time series in the next period.
Regression analysis – a method for building a statistical model that defines a relationship between a
single dependent variable and one or more independent variables, all of which are numerical.
Multiple linear regression model – a regression model with more than one independent variable.
Judgemental forecasting – relies upon opinions and expertise of people in developing forecasts.
Delphi method – consists of forecasting by gathering judgements and opinions of key personnel based
on their experience and knowledge of the situation.
Bias – the tendency of forecasts to consistently be larger or smaller than the actual values of the time
series.
Corporate Forecast Model
This forecast model is not discussed in Operations and Supply Chain Management 2E,
The organization of this forecast model follows a two-step method to determine forecasts.
Step 1
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The vice-president of operations determines from items sold the observations per time period. From
these periods, the statistical model that fits best is applied.
Step 2
The vice-president of marketing determines if any factors have recently occurred or are expected to
occur and amends the forecast through judgemental forecasting methods. This amended forecast is
then used as the organization’s forecast.
The forecast is used by the organization to make operations management decisions.
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Lesson Nine
Managing Inventories
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Overview
The purpose of this lesson is to introduce the participants to the basic concepts of inventory, its
characteristics and its re-ordering systems. Inventory control is normally a function conducted at the
plant or factory level.
The key terms to be emphasized are:
• Inventory types
• Independent and dependent demand
• Fixed quality systems
• Fixed period systems
Agenda
Topics
•
•
•
•
•
Understanding Inventory & Key Concepts
Inventory Characteristics
ABC Inventory Analysis
Reordering Systems
Assignment 2
Learning Goals and Objectives
Goals
•
•
Understand the basics concepts used in inventory control
Understand the ABC inventory analysis process
Objectives
Upon completion of this lesson, participants will:
 Discuss the various types of inventory terminology
 Explain fixed quality and fixed time period systems
Required Reading
Read the following:
• Collier, David A., and James R. Evans, Operations and Supply Chain Management 2E, Chapter
12.
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Discussion Questions
Be prepared to discuss the following questions:
1.
Which characteristic of inventory makes it more challenging to manage?
• Dynamic or constant
• Deterministic or stochastic
• Constant deterministic or dynamic stochastic
2. The Welsh Organization uses 10 key components in one of its manufacturing plants. Perform
an ABC analysis from the data worksheet C12P3, Workbook on CourseMate website.
3. Discuss some of the issues that a small pizza restaurant might face in inventory management.
Would a pizza restaurant use a fixed order quantity or period system for fresh dough
(purchased from a bakery on contract)? What would be the advantages and disadvantages of
each in this situation? Provide 1 or 2 inventory challenges that a small pizza restaurant might
face. Give an example of how you would address them.
4. Crew Soccer Shoes Company is considering a change in its current inventory control system
for soccer shoes. The information for the shoes is as follows:
Demand = 100 pairs/week
Lead time = 3 weeks
Order cost = $35/order
Holding cost = $2.00/pair/yr
Number of weeks per year = 52
If the company decides to use a fixed order quantity system, what would be the economic
order quantity?
Assignment 2
The Instructor will hand out the requirements for Assignment 2. Assignment 2 is due on or before
Lesson 11, as directed by the Instructor.
The assignment is done on an individual basis. Any participant found cheating or copying in any way
will receive a zero on the assignment. The Instructor has the sole discretion to enforce this policy.
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Introduction
This lesson will provide a basic understanding of the concepts and applications of inventory
management. An understanding of higher-level mathematics is not required for this course.
The key points are:
• Inventory concepts
• Inventory characteristics
• ABC inventory analysis
• Inventory re-ordering systems
Inventory Concepts
Inventory is any asset held for future use or sale.
Inventory management involves planning, coordinating and controlling the acquisition, storage, handling,
movement, distribution and possible sale of raw materials, component parts and subassemblies,
supplies and tools, replacement parts and other assets that are needed to meet customer wants and
needs.
Conflicting interests in inventory holdings – marketing high levels, accounting low levels, customers
high levels.
Main Types of Inventory
Raw materials, component parts, subassemblies and supplies are inputs to manufacturing and the
service-delivery process.
Work-in-process (WIP) inventory consists of partially finished products in various stages of completion
that are waiting further processing.
Finished goods inventory is completed products ready for distribution or sale to customers.
Safety stock is an additional amount of inventory that is kept over and above the average amount
required to meet demand (just-in-time inventory).
Role of Inventory in the Value Chain.
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Inventory Management Decision and Costs
Inventory managers base their decisions on two fundamental considerations:
1.
When to order items from a supplier or when to initiate production runs if the firm makes its
own items.
2. How much to order or produce each time a supplier or production order is placed.
Inventory costs trade-offs:
1.
Ordering and set-up costs – incurred as a result of the work involved in placing orders with
suppliers or configuring tools, equipment and machines within a factory to produce an item.
2. Inventory holding costs – the expenses associated with carrying the inventory.
3. Shortage costs – costs associated with an item being unavailable when needed to meet
demand.
4. Unit cost of the item – the price paid for purchased goods or the internal cost of producing
them.
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Inventory Characteristics
The terminology used to describe inventory characteristics is broken down into two main categories:
Number of Items and Nature of Demand. The key terms are as follows:
Number of Items
Stock-keeping unit (SKU) – a single item or asset stored at a particular location.
Nature of Demand
Independent demand – demand for an SKU that is unrelated to the demand for other SKUs and needs
to be forecasted.
Dependent demand – demand for an SKU that is directly related to the demand for other SKUs and
can be calculated without the need to be forecasted.
Deterministic demand – demand when uncertainty is not included in its characterization.
Stochastic demand – demand that incorporates uncertainty by using probability distributions to
characterize the nature of demand.
Static demand – stable demand.
Dynamic demand – demand that varies over time.
Lead time – the time between placement of an order and its receipt.
Stock-out – the inability to satisfy the demand for an item. A stock-out results in two situations: the
customer is willing to wait for the item on back order, or the customer is unwilling to wait and
purchases the item elsewhere.
ABC Analysis
ABC analysis is based on the Pareto principle that determined the law of the “vital few” – that is, 80
per cent of sales comes from 20 per cent of products. The ABC analysis categorizes inventory
according to the total annual usage of an item.
“A” items account for a large dollar volume but a relatively small percentage of total items.
“C” items account for a small dollar volume but a high percentage of total items.
“B” items are between A and C items.
“A” items account for 60%–80% of dollar usage and 10%–30% of items.
“C” items account for 5%–15% of total dollar value and 50% of items.
“A” items are controlled by operations managers.
“C” items are controlled by an automated computer system.
“B” items are somewhere in the middle.
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ABC Analysis Histogram
Inventory Re-order Systems
There are four types of inventory re-order systems:
• Fixed quantity systems
• Economic order quantity
• Fixed period systems
• Single period inventory model
Fixed Quantity Systems
• The order quality or lot size is fixed; but the re-ordering time is variable.
• These are used in department stores when items are scanned and removed from inventory
once they are purchased, and once the inventory position falls below the re-order point, more
items are re-ordered.
• Inventory position is defined as the on-hand quantity, plus any orders placed that have not yet
been received (called scheduled receipts) minus any backorders.
IP = OH + SR – BO
The re-order point is based upon the product’s lead time and the average demand during the lead time.
If the demand is not constant, the time between orders will vary.
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Fixed Quantity System with a Stable Demand
Fixed Quantity System under a Highly Variable Demand
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Economic Order Quantity
The economic order quantity (EOQ) model minimizes the total cost, which is the sum of the inventoryholding cost and the ordering cost.
The key assumptions are:
• Only one SKU is considered
• Entire quantity arrives in one shipment
• Only order/setup and inventory holding costs are relevant
• No stock-outs permitted
• Demand is deterministic and continuous
• Lead time is constant
EOQ Formula = sq root of (2 X annual demand X cost of placing order / Cost of Storage for 1 year).
Fixed Period Systems
Fixed period systems require that the inventory position be checked only at fixed intervals rather than
on a continuous basis.
There are two principal decisions to be made with fixed period systems:
• The time interval between reviews
• The replenishment level
EOQ provides the economic time interval as:
• Time = EOQ/ annual demand
The optimal replenishment level is:
• Optimal replenishment level = average demand per time period X (time + lead time)
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Operation of a Fixed Period System
Single Period Inventory Model (Marginal Economic Analysis)
The single period inventory model applies to situations of uncertainty and one either sells out or has
scrap to be sold.
Demand (greater than or equal to EOQ) = the cost of underestimation / (the cost of underestimation +
the cost of overestimation).
Examples are newspaper sales vendors and Christmas tree sales vendors.
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Lesson Ten
Resource Management
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Overview
The purpose of this lesson is to introduce the participants to basic concepts of resource management
within a framework of aggregation and disaggregation planning. This lesson provides the planning basis
for execution after the forecast has been determined.
The key terms to be emphasized are:
• Aggregate and disaggregate planning
• Strategies for aggregate planning
• Master production schedule (MPS)
• Materials requirements planning (MRP)
• Time phasing and lot sizing
Agenda
Topics
•
•
•
Resource Planning Framework
Aggregate Planning
Disaggregation in Manufacturing
Learning Goals and Objectives
Goals
•
•
Understand the resource planning framework for goods and services
Understand the application of the master production schedule and the materials requirements
plan
Objectives
Upon completion of this lesson, participants will:
 Describe the aggregate planning options and strategies
 Produce a master production schedule and materials requirement plan for a given situation
 Explain how time phasing and lot sizing affect resource management
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Required Reading
Read the following:
Collier, David A., and James R. Evans, Operations and Supply Chain Management 2E, Chapter
14
Discussion Questions
Be prepared to discuss the following questions:
1.
The forecast demand for fudge for the next four months is 120, 160, 20 and 70 pounds.
a. What is the recommended production rate if a level strategy is adopted with no
backorders or stock-outs? What is the ending inventory for month #4 under this plan?
b. What is the level production rate with no ending inventory in month #4?
2. Draw a simple bill of materials (BOM) for an automobile given the following requirements:
a. Clearly label the end item and each component
b. BOM must contain no more than ten items
c. BOM must contain at least three levels (you may count the end-item level 0)
Assignment
Assignment 2 Issued and due next week.
Exercise
Exercise #1:
Given the bill of materials for the printer cartridge (A) shown below, a gross requirement to build 200
units of A, an on-hand inventory level for end-item A of 80 units, and assuming zero lead-times for all
items A, B, C, D and E, compute the net requirements for each item.
A
B
D
C
D (2)
E
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Item
On-Hand Inventory
A
B
C
D
E
Dependent Demand Calculations
30
50
90
70
15
Exercise #2:
The BOM for product “A” and data from the inventory records have been provided in Exercise #1. The
lead time for production of “A” is zero weeks. Develop the material requirements plan for item “D.”
Introduction
This lesson will provide a basic understanding of the concepts and applications of resource
management.
The key points are:
• Resource planning framework
• Aggregate planning and strategies
• Master production schedule
• Materials requirements plan
• Time phasing and lot sizing
Resource Planning Framework
Resource management deals with the planning, execution and control of all resources that are used to
produce goods or provide services in a value/supply chain.
Resources include:
• Materials
• Equipment
• Facilities
• Information
• Technical knowledge
• Skills
• People
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Typical objectives of resource management are:
• To maximize profits and customer satisfaction
• To minimize costs
• To maximize benefits to their stakeholders
A resource planning framework has three levels:
• Level 1 aggregate planning – vice-presidents
• Level 2 disaggregate planning – plant managers, production managers
• Level 3 execution – supervisors
Level 1 aggregate planning (AP) is the development of a long-term output and resource planning in
aggregate units of measure:
• Normal planning horizon is two years
• Subdivided into either monthly or quarterly time buckets
• Focuses on family of products or total capacity requirements
• Defines budget allocations and associated resource requirements
• Driven by corporate forecast
Level 2 disaggregate planning (DP) is the process of transacting aggregate plans into short-term
operational plans that provide the basis for weekly and daily schedules and detailed resource
requirements:
• Plans for the creation of specific goods or services
• Plans for the allocation of capacity to specific time periods
• Determines order assizes and schedules for individual subassemblies and resources
Level 3 execution refers to moving work from one workstation to another, assigning people to tasks,
setting priorities for jobs, scheduling equipment and controlling processes. It is often called shop floor
control (and will be addressed in the next lesson).
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Framework for Resource Planning for Goods and Services
Generally speaking, resource management for pure service-providing firms has fewer levels of
planning. Basically because service providers take AP and DP to the execution level as represented by
service encounters. There are two reasons for this:
•
•
Goods are discrete and assembled from raw materials while services are instantaneous or
continuous and non-discrete.
Services do not have inventory to act a safety stock therefore they must have sufficient
capacity at the right place and the right time to provide good-quality service to customers –
making short-term forecasting and resource scheduling absolutely critical.
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Two Levels of Disaggregation for Many Service Organizations
Aggregate Planning and Strategies
The aggregate planning (level 1 in the framework) option has five main areas for changes:
1.
2.
3.
4.
5.
Demand management
Production rate
Workforce
Inventory
Facilities, equipment and transportation
Demand management – to shift demand to times when unused capacity exists and/or to reduce
demand during times of over commitment.
Production rate – to increase capacity either by working longer hours or speeding up the processes, to
decrease capacity by working shorter hours, and contracting out the extra capacity or slowing down to
processes.
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Workforce – by hiring or laying off workers and by shifting workers to or from part-time or full-time
status.
Inventory – build-up inventory during slack periods and hold it for peak periods or adjust the policy on
lost sales and backorders.
Facilities, equipment and transportation – generally long-term investments or decisions to reflect the
long-term forecast, but it may include the leasing of facilities, equipment or transportation to meet peak
demands.
Examples of Aggregate Planning Variables and Revenue/Cost Implications
Aggregate Planning Strategies
Aggregate planning strategies are plans that utilize product capacity to meet demand.
There are two options for aggregate planning strategies:
1. Level production strategy plans for the same production rate in each time period.
2. Chase demand strategy sets the production rate equal to the demand in each time period.
Level Production Strategy:
• Avoids complications in planning
• Labour and equipment availability is stable and repetitive
• Easier plan execution
• Easiest to integrate with other value/supply chain partners
• Generally provides the high quality products
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•
Difficult to determine optimal rate for variable demand situations therefore inventories could be
built or sales could be lost
Chase Demand Strategy:
• Difficult to plan for as demand changes, therefore more opportunities for errors occur
• Could have substantial overtime costs and lost sales costs
• More challenging to integrate with value/supply partners
Master Production Schedule
From Aggregation Comes Disaggregation Planning
Disaggregation planning is reflected in three operations plans for different purposes.
The three disaggregation plans are:
1. Master production schedule (MPS)
2. Materials requirements planning (MRP)
3. Capacity requirements planning (CRP) (this will be discussed in the next lesson)
Master Production Schedule (MPS)
The master production schedule (MPS) is a statement of how many finished items are to be produced
and when they are to be produced.
The MPS is usually the responsibility of the plant manager:
• Generally developed for weekly time periods for 6 to 12 months into the future
• Purpose is to translate AP into separate plans for each SKU
• Provides a means to evaluate alternative schedules in terms of capacity requirements
• Provides input to the MRP
• Permits managers to generate priorities for scheduling by setting start dates
In make–to-order industries, the customers’ demands determine the MPS.
In assemble-to-order industries, a final assembly schedule (FAS) is used. The final assembly schedule
defines the quantity and timing for assembling subassemblies and components parts into a final
finished good.
In make-to-stock industries, the MPS is preset.
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Disaggregation Framework for Manufacturing Plans and Schedules
Materials Requirements Planning (MRP)
Materials requirements planning is a forward looking, demand-based approach for planning the
production of manufactured goods and ordering materials, components to minimize unnecessary
inventories and to reduce costs.
MRP
•
•
Translates the number of individual parts or subassemblies that must be manufactured or
purchased and assemblies to make the required number of products
Eases scheduling pressures if using a level production strategy
MRP inputs provide
• The numbers of items to be made as determined from MPS
• The number of individual parts or assemblies needed to make these items
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MRP outputs are a time phased report that gives
• The purchasing department a schedule for obtaining raw material and purchasing parts
• The production managers a detailed schedule for manufacturing the product and controlling
manufacturing inventories
• The accounting and finance departments production information that drives cash flow and
budgets
MRP depends upon
• Dependent demand
• Time-phasing
• Lot-sizing
Dependent demand – demand that is directly related to the demand of other SKUs and can be
calculated without the need to be forecasted.
Bill of material (BOM) or product structure – the hierarchic relationship between all items that
comprise a finished good, such as subassemblies, purchased parts and manufactured in-house parts.
Bill of labour (BOL) – the hierarchical record analogous to a BOM that defines labour inputs necessary
to create a good or service.
Bill of resources (BOR) – the hierarchical record that includes labour, information, equipment,
instruments and parts.
Final assembly schedule (FAS) – the quantity and timing for assembling subassemblies and component
parts into the finished goods.
End items – the finished goods scheduled in the MPS or FAS that must be forecasted.
The hierarchy of items
• The parent item is manufactured from one or more components (top).
• The components are any items (raw material, manufactured parts, purchased parts) other than
an end item that goes into a higher level parent item(s) (one up).
• The subassemblies always have at least one immediate parent and also have at least one
immediate component (one up and one down).
MRP explosion – the process of using the logic of dependent demand to calculate the quantity and
timing of orders for all subassemblies and components that go into and support the production of the
end item(s).
Level 0 is always the finished good.
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Example of a Bill of Material and Dependent Demand
Dependent Demand Calculations
Note: D appears twice, once under B and once under H.
Note: E appears twice, both times under D.
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Time Phasing and Lot Sizing
The key terms for time phasing and lot sizing are as follows:
Time buckets – the time period size used in the MRP explosion process that is usually one week in
length.
Gross requirements (GR) – the total demand for an item derived from all of its parents.
Scheduled or planned receipts (S/PR) – orders that are due or planned to be delivered.
Planned order receipt (PORec) – specifies the quantity of an order and the time in which it is to be
received.
Planned order release (PORel) – specifies the planned quantity of an order and the time in which it is
to be released to the factory or a supplier.
Projected on-hand inventory (POH) – the expected amount of inventory on-hand at the beginning of
the time period considering on-hand inventory from the previous period plus scheduled receipts or
planned order receipts minus the gross requirements. The formula is: POH = OH(from previous time
bucket) + S/PR – GR.
Lot sizing – the process of determining the appropriate amount and timing of ordering to reduce costs.
There are three options for time phasing and lot sizing:
1. Lot-for-lot (LFL)
2. Fixed order quantity (FOQ)
3. Periodic order quantity (POQ)
Lot-for-Lot (LFL)
LFL is an ordering schedule that covers the gross requirements for each week.
Consider this example of an LFL calculation:
Calculate for Item C
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Note formula is POH = OH(from previous time bucket) + S/PR – GR
This method reduces the amount of inventory but it ignores the costs associated with purchase orders
or production setups.
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Best applied when inventory carrying costs are high and setup/order costs are low.
Action bucket is the current time period.
Fixed Order Quantity (FOQ)
FOQ rule uses a fixed order size for every order or production run.
Item B Fixed Order Quantity Lot Sizing and MRP Record
Periodic Order Quantity (POQ)
POQ orders a quantity equal to the gross requirement quantity in one or more predetermined time
periods minus the projected on-hand quantity of the previous time period.
Item D Fixed Period Quantity Lot Sizing and MRP Record
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POQ is best applied when inventory carrying costs and setup costs are moderate.
The vice-president of operations determines from items sold the observations per time period. From
these periods, the best fit statistical model is applied.
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Lesson Eleven
Resource Management (Capacity Requirements) & Operations Scheduling
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Overview
The purpose of this lesson is to introduce the participants to basic concepts of capacity requirements
planning and scheduling. This lesson contains information required for any supervisor or manager who
is required to prioritize work.
The key terms to be emphasized are:
•
•
•
•
Capacity requirements
Scheduling and sequencing
Appointment system
Flow time, makespan, lateness and tardiness
Agenda
Topics
•
•
•
Capacity Requirements Planning
Scheduling Applications & Approaches
Sequencing & Sequencing Rules
Learning Goals and Objectives
Goals
•
Understand the concept of capacity requirements planning
Objectives
Upon completion of this lesson, participants will
 Apply staff scheduling techniques to scheduling problems
 Select performance criteria and apply it to single and dual resource sequencing problems
Required Reading
Read the following:
Collier, David A., and James R. Evans, Operations and Supply Chain Management 2E, Chapters 14 &
15.
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Assignment 2 due.
Exercise: Study for Test 2 next week.
Discussion Questions
Be prepared to discuss the following questions:
1.
Discuss how you decide to schedule your school assignments or how you balance
your course work and working and family life. Do your informal scheduling rules
correspond to any of those in this Lesson?
2. A hospital emergency room needs the following numbers of nurses:
Day
M
T
W
T
F
S
S
Min. number
4
3
2
5
7
8
3
Each nurse should have two consecutive days off. How many full-time nurses
are required and what is a good nurse schedule?
3. An insurance claims work area has five claims waiting for processing as follows:
Job
Processing Time
Due Date
A
15
26
B
25
32
C
20
35
D
10
30
E
12
20
Compute the average flow time, tardiness and lateness for the following sequences:
SPT sequence and EDD sequence. Which sequencing rule do you recommend?
4. On Monday morning, Baxter Industries has the following jobs waiting for processing in two
departments, milling and drilling, in that order:
Time Required (hours)
Job
Mill
Drill
216
8
4
327
6
10
462
10
5
519
5
6
258
3
8
617
6
2
Develop a minimum schedule using Johnson’s Rule.
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Introduction
This lesson will provide a basic understanding of the concepts and applications of capacity resource
requirements planning and operations scheduling.
The key points are:
• Capacity requirements planning
• Scheduling applications and approaches
• Sequencing using a single and dual resource problems
Capacity Requirements Planning
Capacity requirements planning is the process of determining the amount of labour and machine
resources required to accomplish the tasks of production on a more detailed level, taking into account
all component parts and end items in the material plan.
Capacity Required = Setup Time + (Processing Time per unit X Order Size).
With higher levels of demand, constraints appear in physical ways. For example, shortage of a machine,
an employee or a workstation.
MPS may have to be revised because of capacity limits a certain workstations as determined by work
centre load reports.
Attempts to level off by trade-offs occur. Such trade-offs include over time, realignment of activities or
scheduling work in advance of requirement.
Unsolved capacity requirements issues increase the cost of lost sales.
Capacity requirements planning for services are critical. Lack of capacity results in longer waiting
times, as in hospital Emergency Rooms.
Scheduling, Applications and Approaches
Scheduling refers to the assignment of start and completion times to particular jobs, people or
equipment.
There are two options:
• Staff scheduling
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•
Appointment systems
Staff Scheduling
Staff scheduling is the process of attempting to match available personnel with the needs of the
organization. The process involves:
•
•
•
•
Accurately forecasting demand and translating it into the quantity and timing of work to be done
Determining the staffing required to perform the work by time period
Determining the personnel available and the full- and part-time mix
Matching capacity to demand requirements, and developing a work schedule that maximizes
service and minimizes costs
Staff Scheduling Steps
•
•
•
•
Step 1 – converting demand to a capacity measure
Step 2 – determining the quantity and timing of work to be done
Step 3 – determining the staffing required taking in to account productivity factors, personal
allowances, vacations, sickness
Step 4 – matching capacity to demand requirements
Scheduling by Demand
•
•
Step 1 – identify the time frames with the smallest requirements and assign the first worker to
work the other days’ reduce the requirements on days when a worker is assigned by 1
Step 2 – repeat with identification of the two days with the smallest requirements and assign
the worker to the other days, reduce the requirements on days when a worker is assigned by 1
Repeat until all requirements are covered.
The schedule depends upon requirements and days off rules. Extra workers may be on some days, but
the solution minimizes the number of employees added.
Scheduling Procedure
Day
Mon
Requirements
8
Tue
6
Wed
6
Thur
6
Fri
9
Sat
5
Sun
3
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Final Accounting Schedule
Appointment Systems
Appointment systems are another method to match capacity and requirements.
Decisions required when designing an appointment system:
• Determine the appointment time interval
• Determine the length of each workday and the time off-duty
• Decide how to handle overbooking for each day of the week
• Develop customer appointment rules
© Supply Chain Canada | 98
Sequencing Using Single and Dual Resource Problems
Sequencing
Sequencing refers to determining the order in which job or tasks are processed. These are determined
by a set of rules. Sequencing is necessary when sharing a common resource.
Sequencing Criteria
Sequencing rules are based on criteria from one of three categories:
1. Process-focused performance criteria
2. Customer-focused due date criteria
3. Cost-based criteria
Process-Focused Performance Criteria
• These criteria measure (define). There are two main measurements:
• Work flow: the amount of time on the job that is spent in the shop or factory.
• Makespan: the time needed to process a given set of jobs.
Customer-Focused Due Date Criteria
These criteria measure customer satisfaction and service. There are two main measurements:
• Lateness: the difference between the completion time and the due date (either positive or
negative).
• Tardiness: the amount of time by which the completion time exceeds the due date (no negative
values).
Cost-Based Criteria
These criteria include costs for inventory, setup and processing material handling. These are difficult to
identify unless the factory is using an activity-based costing approach.
Sequencing Rules
There are several sequencing rules that can be used in the processing order.
The most popular rules are:
• Shortest processing time (SPT)
• Earliest due date (EDD)
Other rules are:
• First-come-first-served (FCFS)
• Fewest number of operations remaining (FNO)
• Least work remaining (LWR) – sum of all processing times for operations not yet performed
© Supply Chain Canada | 99
•
Least amount of work at the next process queue (LWNQ) – amount of work awaiting the next
process in a job’s sequence
SPT – minimizes average flow time, work in process inventory and maximizes resource utilization.
EDD – minimizes the maximum of jobs past due.
FCFS – focuses only on the arrival time of the customer.
FNO – does not consider the length of time for each operation.
LWNQ – tries to keep the downstream workstations and associated resources busy.
Single-Resource Sequencing Problem – a single constraint or resource to be shared.
Five tax analysis jobs are waiting to be processed by Martha at T.R. Accounting Service. Use the
shortest processing time (SPT) and earliest due date (EDD) sequencing rules to sequence the jobs.
Compute the flow time, tardiness and lateness for each job, and the average flow time, average
tardiness and average lateness for all jobs. Which rule do you recommend? Why?
Job
1
2
3
4
5
Processing Time (days)
7
3
5
2
6
Due Date
11
10
8
5
17
The SPT sequence is 4-2-3-5-1.
Job
Flow (Fi)
4
2
3
5
1
2
2+3=5
5 + 5 = 10
10 + 6 = 16
16 + 7 = 23
Average
Due
Date (Di)
Lateness
(Li)
Tardiness
(Max (0, Li)
5
10
8
17
11
-3
-5
2
-1
12
0
0
2
0
12
11.2
+ 1.0
2.8
The EDD sequence is 4-3-2-1-5.
© Supply Chain Canada | 100
Job
Flow (Fi)
4
3
2
1
5
2
2+5=7
7 + 3 = 10
10 + 7 = 17
17 + 6 = 23
Avg
Due
Date (Di)
5
8
10
11
17
Lateness
(Li = Ci – Di)
-3
-1
0
6
6
Tardiness
(Max (0, Li)
0
0
0
6
6
11.8
1.6
2.4
Given the nature of the data, this is not an easy decision. The SPT rule minimizes average flow time
and average lateness, but Job 5 is extremely late by 12 days. The EDD rule minimizes the maximum job
tardiness and lateness. Jobs 1 and 5 are tardy by 6 days. If Job 5 is a big client with significant
revenue potential, then the EDD rule is probably best.
Two-Resource Sequencing Problem
One has two workstations, each job must be processed on the Resource #1 and then on Resource #2.
Processing times for both resources are known.
One must look at the makespan for the sequencing.
Johnson’s Rule
• List the jobs and their processing times on Resource #1 and Resource #2.
• Find the job with the short processing time (on either resource).
• If this time corresponds to Resource #1, sequence the job first; if it corresponds to Resource
#2, sequence the job last.
• Repeat the previous 2 steps using the next-shortest processing time and working inward from
both ends of the sequence until all jobs have been scheduled.
Application of Two-Resource Sequencing
In the following example, we assume that each job must be processed first on Resource #1 and then
on Resource #2.
Hirsch Products manufactures custom parts that first require a shearing operation (Resource #1) and
then a punch-press operation (Resource #2). Order information is provided below.
© Supply Chain Canada | 101
Job
Shear (days)
Punch (days)
1
4
5
2
4
1
3
10
4
4
6
10
5
2
3
If jobs are completed by order number, the punch press often experiences idle time awaiting the next
job as shown below, and in the textbook. The makespan is 37 days.
Johnson’s Rule results in a reduction in makespan from 37 days to 27 days. So smart scheduling is
important for customer service and process efficiency!
Gantt Charts
Gantt Charts are used for sequencing as they show the time required at each resource per job and
when the job is available to go to the next resource and if the next resource is available.
Gantt Chart for the Hirsch Products Sequence
© Supply Chain Canada | 102
Lesson Twelve
Assessment Day
© Supply Chain Canada | 103
Overview
The first section of this lesson is dedicated to the return and commentary on the second assignment.
The second session is Capacity Requirements Planning, Scheduling Applications & Approaches and
Sequencing & Sequencing Rules. The third section is to help the participants start their reviews for the
final exam.
Agenda
Topics
•
•
•
Test 2
Return of Assignment 2
Review for Final Examination
Learning Goals and Objectives
Objectives
Upon completion of this lesson, participants will:
 Complete Test 2
 Review course materials in preparation for the final exam
Required Reading
No readings for this lesson. You may want to review the course materials and text in preparation for
the final exam in Lesson 13.
Discussion Questions
None.
Test 2
The Instructor will hand out the test, which is to be completed in class as directed by the Instructor.
The test is done on an individual basis and is open book. Any participant found cheating or copying in
any way will receive a zero on the test. The Instructor has sole discretion to enforce this policy.
Introduction
This lesson is for testing, reviewing and commenting on assignments. Also, you will review materials in
preparation for the final exam.
© Supply Chain Canada | 104
Lesson Thirteen
Final Exam
© Supply Chain Canada | 105
Overview
The final exam is the last step to successfully completing this course. This lesson will provide you with
information on the process involved in writing the final exam.
Required Reading -
No readings for this lesson.
Final Exam Format
The final exam is three hours long and worth 30 per cent of the final grade, and has the following
format:
• Short Answer Questions
• Case study Questions
You must arrange the exact date, time and location of the final exam with your Provincial or
Territorial Institute.
The Instructor, or your Institute, will send you a list of requirements prior to the exam.
The exam is an individual effort. Participants caught cheating, or otherwise copying, will receive a zero
on the exam. The Instructor or invigilator of the exam has sole discretion to enforce this policy.
A total mark of 60 per cent on the final exam and 60 per cent for the overall evaluation is
necessary to successfully complete this course.
What to Bring to the Exam
The following items can be taken into the exam room:
•
•
•
•
•
•
The textbook and any course materials needed for reference. Although the exam is an “open
book” format, you should know where to look in the materials for information. Prepare in
advance by using “Post-it” tabs to mark important topics and label them.
A (quiet) calculator
A wristwatch to keep track of your time
Correction fluid or eraser to make corrections easier
A ruler and a highlighter
Extra pages of loose-leaf regular-lined writing paper
© Supply Chain Canada | 106
The final exam for the course will be conducted during the final lesson of this course (Lesson 13). This
is a three-hour exam.
Exam instructions to the participants and an evaluation guide for the Marker are provided in electronic
form. To access the course exam materials and the Instructor evaluation guide, contact your Provincial
or Territorial Institute.
The final exam is worth 30 per cent (30 points) of the participant’s total grade. The information below
indicates five levels of marks (0 marks are awarded if no effort is made). Use this as a general
guideline for marking the final exam:
•
•
•
•
Duration: 3 hours
100 marks
30% of final grade
Evaluating the exam
Final Marks
Final marks are mailed to participants approximately four to six weeks after the final exam is written.
All enquiries about marks should be made to your Provincial or Territorial Institute. To ensure
confidentiality, marks are not given over the telephone by staff.
Course Evaluation Form
At the end of the course, participants are required to submit an evaluation form, rating the course
content and format.
The Instructor or the Provincial/Territorial Institute will provide the evaluation form and instructions
for submission.
© Supply Chain Canada | 107
Appendix
PowerPoint slides
© Supply Chain Canada | 108
Lesson Agenda
SMT Operations Management
Lesson 1:
Operations Management in the Corporation
Lesson Objectives 1/2
1. Organizational Charts
2. Basic OM Concepts
•
•
•
•
Activities
For Goods & Services
Customer Benefit Packages
Processes
3. Development & Challenges of OM
4. Introduce the Zappos Case
Lesson Objectives 2/2
• Outline the position titles found within a
manufacturing and distribution environments.
• Understand what is a process and the linkages
between value creation, support and general
management processes.
• Define and differentiate between goods and
services including their attributes.
• Comprehend the development of OM and its future
challenges.
• Apply the customer benefit package to the
manufacturing and service industry.
Organizational Chart - President to
Plant Manager Levels
Organizational Chart - Plant Manager
to First Line Managers
Plant Manager
President
Vice President
Accounting
Vice President
Accounting
Vice President
Operations
Director Quality
Plant Manager
Plant 1
Vice President
Marketing
Manager of
Human Resources
Manager of
Operations
Manager of
Accounting
Manager of
Inbound Operations
Manager of
Production
Manager of
Outbound Operations
Director Planning
Plant Manager
Plant 2
Plant Manager
Plant 3
Organizational Chart - Manager of
Inbound Operations to Supervisors
Organizational Chart - Manager of
Production to Supervisors
Manager of
Production
Manager of
Inbound Operations
Supervisor
Purchasing
Supervisor
Inventory
(Raw Materials)
Supervisor
Receiving
Supervisor
Production Control
Supervisor
Scheduling
Supervisor
Assembly Line
Organizational Chart - Manager of
Outbound Operations
Discussion Question - 1
• Are the directors in line or advisory positions?
Manager of
Outbound Operations
Supervisor
Distribution
Supervisor
Inventory
(Finished Goods)
• Do the directors issue orders to the plant managers
directly or do they recommend orders to be issued by
the Vice President Operations?
Supervisor
Shipping
OM Definition
• OM is the science and art of the ensuring that
goods and services are created and delivered
successfully to customers.
OM Activities
• Quality
• Customer service
• Performance measurement and evaluation
• Managing inventory
• Planning budgeting
• Scheduling and capacity
Differences Between OM With Goods
And Services
Examples of Goods and Services
• Goods are tangible while services are intangible
• Customers participate in many service processes,
activities and transactions
• Demand for services is more difficult to predict than
the demand for goods
• Services cannot be stored in inventory
• Service management (interaction between customer
and service provider) skills are paramount
• Services are generally in close proximity to customers
• Patents do not protect services
OM Activities with Goods and Services
Discussion Question - 2
• With respect to OM activities, which type of product
(good or service) is more challenging? Why?
Service Management Definition
• Service Management integrates marketing, human
resources, and operations functions to plan, create,
and deliver goods and services, and their associated
service encounters.
Customer Benefit Package
Components
Customer Benefit Package (CBP)
Definition
• A Customer Benefit Package (CBP) is a clearly defined
set of tangible (goods-content) and intangible
(service-content) features that the customer
recognizes, pays for, uses, or experiences.
Discussion Question - 3
• Primary Good Or Service:
• “is the core offering that attracts customers and responds to
their basic needs”
• Peripheral Goods Or Services:
• “are those that are not essential to the primary good or
service, but enhance it”
• Define the CBP for customers with young children for
McDonald’s Restaurants.
Process - Definition
• Process is a sequence of activities that is intended to
create a certain result.
Key Processes
• Value Creation Processes focus on primary goods or
service.
• Support Processes such as purchasing materials and
suppliers, managing inventory, installation, customer
support, technology, acquisition, and research and
development.
• General Management Processes including
accounting, and information systems, human
resource management and marketing.
Discussion Question - 4
OM Changes
• Explain the inter-relationships between the key
processes for the operations of a fast food restaurant
(e.g. McDonald’s, or Wendy’s)
• Efficiency
• Quality
• Customization and design
• Time-based competition
• Service revolution
OM Challenges
• Integration of technology
• Globalization
Discussion Question - 5
• Which of the challenges in OM is the most challenging
for the production of fast moving consumer goods
(e.g. toilet paper, pens, toothpaste)?
• CBP expectations
• Work force management
Zappos Case Study
• Read the Zappos Case Study in lesson 1
• Answer question 1 in class
• For next day complete the Zappos Case.
Zappos Case Study Exercise
• Question #1
• Clearly identify the tangible & intangible features:
• Tangible: shoes, handbags, apparel, sunglasses,
watches and electronics
• Intangible: Provide customers with WOW service
Zappos Case Study Exercise
(con’t)
• Primary Value Creation: availability of product,
supported by a very strong level of customer
service.
• Value Creation: call centre and on-line support
• General Management Value: customer service cost
is allocated to marketing budget as these expenses
will generate additional repeat customers
Lesson Wrap-up
• Material Covered
Organizational Charts
Basic OM Concepts
Development and Challenges in OM
• Next Lesson
Value and Supply Chains
Zappos Case Study Exercise
• Details of CBP:
• Suppliers: availability of product
• Marketing: promote customer service
• Call Centres: internally controlled
• Information System: ‘GENGHIS System’
• Customers: wide selection of product and
customer service guarantee
(con’t)
Lesson Objectives
SMT Operations Management
Lesson 2:
Operations Management Across Organizations
• Discuss Zappos Case (from previous lesson)
• Value Chain Concept
• Supply Chain Concept
• Outsourcing and Vertical Integration
• Push and Pull Systems and Postponement
• Challenges of Global Value and Supply Chains
Zappos Case Study Exercise
Zappos Case Study Exercise
Question #2
Question #2
• Explain the role of service encounters and service management skills at
Zappos.
1. Call Centre internally controlled
• How do they create superior customer service?
2. 95% of transactions processed via web
3. Technological support (GENGHIS)
4. Guarantee
5. Call Centre agents freedom
Zappos Case Study Exercise
(con’t)
Zappos Case Study Exercise
(con’t)
Question #3
Question #3
• Describe how any 3 of the OM activities in the box
“What Do Operation Managers Do?” (page 4)
impact both the goods and services provided by
Zappos?
The answer must address three (3) of the following for
both tangible and intangible products:
Value Chain Definition
The Value Chain
• A value chain is a network of facilities and
processes that describes the flow of goods,
services, information, and financial transactions
from suppliers through the facilities and processes
that create goods and services and deliver them to
the customer.
1.
2.
3.
4.
5.
Focus on cost efficiency
Focus on quality
Focus on customization & design
Focus on time
Focus on service & value
Pre- and Postservice View of the
Value Chain
Value Definition
• Value is the perception of the benefits associated
with a good, service, or bundle of goods and
services (i.e. the customer service package) in
relation to what buyers are willing to pay for them.
Discussion Question - 1
Supply Chain Definition
• How are the concepts of value and the customer
benefit package related to each other?
• What about features?
• A supply chain is the portion of the value chain that
focuses primarily on the physical movement of the
goods and materials, supporting flows of
information, and financial transactions through the
supply, production, and distribution processes.
Typical Goods-Producing Supply
Chain Structure
Discussion Question - 2
• Is the value and supply chain at Dell nonreproducible?
• Could most of these same activities be used if by
an electronic retailer such as Chapters, or L.L.
Bean?
Value Chain Model at Dell Inc.
Outsourcing Definition
• Outsourcing is the process of having suppliers
provide goods and services that were previously
provided internally.
• Foreign or domestic.
Waves of Outsourcing (Foreign)
• First, goods producing jobs (parts suppliers, FMCG
suppliers)
• Second, simple service work (call centres,
bookkeeping operations)
• Third, skilled knowledge work (designing, reading
medical imagery)
Offshoring Definition
• Offshoring is the building, acquiring, or moving of
process capabilities from a domestic location to
another country location while maintaining
ownership and control.
Integration Definitions
• Vertical Integration
• Refers to the process of acquiring and consolidating
elements of a value chain to achieve more control
• Backward Integration
• Refers to acquiring capabilities at the front of the supply
chain (reverse to the flow of the product or service)
• Forward Integration
• Refers to acquiring capabilities toward the back-end of the
supply chain (with the flow of the product)
Foreign Factories Classification
• Offshore – low cost area, limit influence on operations
• Source – low cost area, has influence on operations
• Server – to supply a national or regional market, limited influence on
operations
• Contributor – to supply a national or local market, has influence on
operations
• Lead – established to innovate and create new processes, products,
and technology
• Outpost – established to gain access to local employee skills and
knowledge
Discussion Question - 3
• What is the next wave in outsourcing or will it
return to an internal activity?
Configuration Of Supply Chains –
Push Or Pull
• Push System – produces goods in advance of
customer demand using forecasts of sales and
moves them through the supply chain to points of
sale where they are stored as finished goods
inventory.
• Pull System – produces only what is needed at
upstream stages in the supply chain in response to
customer demand signals from downstream stages.
Push-Pull Boundary Definition
• Push-Pull boundary is the point in the supply chain
that separates the push system from the pull system
Supply Chain Push-Pull Systems and
Boundaries
Postponement Definition
Discussion Question - 4
• Postponement is the process of delaying product
customization until the product is closer to the
customer at the end of the supply chain.
• Where is the push-pull boundary at a McDonald’s
Restaurant?
American Textile Case
Lesson Wrap-up
One study that focused on the impact of China
trade on the U.S. textile industry noted that 19
American textile factories were closed and
26,000 jobs lost in 2004 and 2005. If these
factories had not closed, it would have cost the
American consumers $6 billion more in higher
textile prices. Assuming these facts are true,
offer an argument for or against outsourcing of
these jobs to foreign countries.
• Material Covered
• Value Chains
• Supply Chains
• Outsourcing and Vertical Integration
• Push-pull System and Postponement
• Next Lesson
Quality Management
Lesson Objectives
• Define Quality Management and Quality
SMT Operations Management
Lesson 3:
Quality Management
• Comprehend the sources of non-conformance
(The GAP Model).
• Understand the basics of quality management
systems (ISO 9000:2000 and Six Sigma).
• Explain the costs of quality.
Quality Management Definition
• Quality Management refers to systematic policies,
methods and procedures used to ensure that goods
and services are produced with appropriate levels of
quality to meet the needs of the customer
Quality Perceptions
Quality includes perceptions of:
•
•
•
•
•
•
•
•
•
Perfection
Consistency
Eliminating waste
Speed of delivery
Compliance with policies and procedures
Providing a good, usable product
Doing it right the first time
Delighting or pleasing customers
Total customer service and satisfaction
Service Quality Definition
• Service Quality is consistently meeting or
exceeding customer expectations (external focus)
and service delivery system performance criteria
(internal focus) during all service encounters.
Principles of Total Quality
• A focus on customers and stakeholders (value
chain)
• A process focus supported by continuous
improvement and learning
• Participation and teamwork by everyone in the
organization
Discussion Question - 1
The GAP Model 1/2
• Explain how service quality is measured.
• Customers compare goods and services to expectations
which may be promulgated by marketing efforts and this
difference is a Gap.
• How does it differ from manufacturing?
• The GAP model recognizes several ways to misspecify
and mismanage the creation and delivery of high levels
of quality.
• There are 5 Gaps.
The GAP Model 2/2
GAP Model of Quality
• GAP 1 – gap between customers’ expectations and management
perception of those expectations
• GAP 2 – gap between management’s perceptions of target features and
translating them into specifications
• GAP 3 – gap between quality specifications documented in manuals and
their implementation
• GAP 4 – gap between actual manufacturing or service delivery
performance and external communications to customers
• GAP 5 – gap between customers’ expectations and perceptions
Discussion Question - 2
Quality Program Models Basics
The three models:
• For a McDonald’s Restaurant, what are 3 sources of
non-conformance when order an extra value meal
(Quarter Pounder with Cheese) without
condiments?
-
Deming’s 14 points
-
ISO 9000:2000
-
Six Sigma
Deming’s 14 Points 1/2
•
•
•
•
•
•
•
Point 1 – Create a Vision and Demonstrate
Commitment
Point 2 – Learn the Philosophy
Point 3 – Understand Inspection
Point 4 – Stop Making Decisions Purely on the Basis
of Costs
Point 5 – Improve Constantly and Forever (PDCA)
Point 6 – Institute Training
Point 7 – Institute Leadership
Deming’s Point 5 Continuous
Improvement
Point 5 – can be broken into the Deming Cycle Plan,
Do, Study, and Act (PDSA)
Deming’s 14 Points 2/2
•
•
•
•
•
•
•
Point 8 – Drive Out Fear
Point 9 – Optimize the Efforts of Teams
Point 10 – Eliminate Exhortations
Point 11 – Eliminate Numerical Quotas
Point 12 – Remove Barriers to Pride in Work
Point 13 – Encourage Education and Self-Improvement
Point 14 – Take Action
ISO 9000:2000
• ISO = International Organization for
Standardization
• 9000 = quality system standards
• 2000 = issued year
• Accepted in over 100 countries adopted by
American National Standards Institute (ANSI) and
endorsed by American Society for Quality (ASQ)
ISO 9000:2000 Standards are based
on 8 Principles
• Principle 1 – Customer-Focused Organization
• Principle 2 – Leadership
ISO 9000:2000 Standards are based
on 8 Principles 1/2
• Principle 5 – System Approach to Management
• Principle 6 – Continuous Improvement
• Principle 7 – Factual Approach to Decision Making
• Principle 3 – Involved People
• Principle 8 – Mutually Beneficial; Supplier Relationships
• Principle 4 – Process Approach
Discussion Question - 3
What are the main similarities between Deming’s
14 points and his continuous improvement
philosophy and the philosophy of ISO
9000:2000?
Six Sigma Definition
• Six Sigma is a business approach that seeks to find
and eliminate causes of defects and errors in
manufacturing and service processes by focusing
on outputs that are critical to customers and
results in a clear financial return for the
organization.
Six Sigma
Six Sigma’ Problem Solving
Approach (DMAIC)
• Six Sigma is a notional standard of 3.4 defects per
1,000,000 opportunities to make an defect. An
unrealistically high standard for most business
processes.
• Define (D)
• A defect is any mistake or error that is passed on
to the customer
• Analyze (A)
• This system works with a problem, a process to
solve the problem, and measures to close the gap.
Costs of Quality Definition
Costs of Quality refers specifically to the costs
associated with avoiding poor quality or those
associated incurred as a result of poor quality.
• Measure (M)
• Improve (I)
• Control (C)
Costs of Quality Categories
• Prevention Costs - costs to keep non-conforming
goods or services from the customer
• Appraisal Costs - costs associated with testing of the
product to determine conformity
• Internal Failure Costs - costs associated unsatisfactory
products before delivery
• External Failure Costs - costs associated with
unsatisfactory products after delivery
Crosby – Quality is Free
Crosby, in the book “Quality is Free,” put forward
the case that the costs of shoddiness are greater
than the costs of providing a quality product or
service.
Reflective Thought on Shoddiness
(Poor Quality)
Group Question - 4
• What are the costs associated with the final
customer purchase of a car that proves itself to be a
“lemon”?
Assignment – 1 – 15%
Discuss the some causes and some effects for the
following problems:
a.
b.
c.
d.
poor exam grade
no job offers
too many speeding tickets
late for work or school
Review the requirements for
Assignment 1
Lesson Wrap-up
• Material Covered
•
•
•
•
•
•
Quality
The GAP Model
Deming’s 14 points and continuous improvement
ISO 9000:2000
Six Sigma
Cost of Quality
• Next Lesson
Operations Strategy
Lesson Objectives
SMT Operations Management
Lesson 4:
Operations Management Strategy
•
Define competitive advantage and apply this definition to
well known corporations.
•
Comprehend customer requirements and attributes for both
goods and services.
•
Distinguish between the five competitive priorities.
•
Outline the relationship between the corporate strategies to
the functional strategies.
Competitive Advantage Definition
Competitive Advantage Definition
• Competitive Advantage denotes a firm’s ability to
achieve market and financial superiority over its
competitors.
• Competitive Advantage denotes a firm’s ability to
achieve market and financial superiority over its
competitors.
• First – understand your customer’s needs and
expectations. Use your Value Chain to design and
deliver a CBP to meet these needs.
Competitive Advantage Definition
Competitive Advantage Definition
• Competitive Advantage denotes a firm’s ability to
achieve market and financial superiority over its
competitors.
• First – understand your customer’s needs and
expectations. Use your Value Chain to design and
deliver a CBP to meet these needs.
• Second – leverage your company’s strengths to
give your company an area of focus to gain a
competitive advantage.
• Gaining Competitive Advantage is the reason behind
corporate strategies aimed at the firm’s target market.
Discussion Question - 1
Competitive Priorities
• Falls to the VP of Operations
• Can be short-term unless protected by a patent or
government regulation
• Competitive advantage applies to free market and
oligopolistic markets.
• Cost
• For all business activities, is a competitive
advantage necessary?
• Quality
• What about monopolies?
• Flexibility
• What about government provided services?
• Innovation
• Time
Competitive Priorities - Cost
Competitive Priorities - Quality
Achieved by:
Quality achieves:
• High productivity
• Long term market share at the cost of short term
profitability
• High capacity utilization
• Positive and significantly higher return on
investments for most market situations
• High quality
• Producers of quality items can charge a premium
price
Competitive Priorities – Quality
Competitive Priorities – Time
Achieved by:
• Flow time reductions by speeding up processes
and this reduces the frequency of non-value added
activities.
Competitive Priorities Flexibility
Competitive Priorities Innovation
Achieved by:
Achieved by:
• Both in design and demand to meet the customers’
changing tastes and demands
• Focusing a firm’s research and development
activities as a core component of their strategy
• Standardizing core processes
• Leading with new products or processes in the
market place
Customer Requirements
Customer Requirements
Terminology 1/2
• Customer requirements should be the main part of
the CBP with the goods or service. The objective
is to have many satisfiers, some exciters, few or no
dissatisfiers to become order qualified and
correspondingly the order winner
• Dissatisfiers – requirements that are expected in a
good or service and if these features are not present
the customer is dissatisfied.
• Satisfiers – requirements that customer say they want.
• Exciters / Delighters – new or innovative goods or
service features that customers do not expect but they
are excited / delighted once known
Customer Requirements
Terminology 2/2
Discussion Question - 2
• Order Qualifiers – basic customer expectations of
satisfiers and dissatisfiers to keep a company in
business.
• Describe the relationship between a CBP with the
concept of order winners and the classes of
customer requirements.
• Order Winners – goods and service features and
performance characteristics that differentiate one
CBP from another CBP and win the customer’s
business.
Attributes of Goods and Services
• Search Attributes – determined before purchase
(e.g. colour, price, style)
• Experience Attributes – determined only after
purchase or during consumption (friendliness,
taste, safety, fun)
• Credence Attributes – aspects that the customer
must believe in but cannot evaluate (medical
services, resume writing services)
Attribution of Goods and
Services Continuum
Discussion Question - 3
• Personal recommendations from friends and
acquaintances are an excellent marketing activity.
• Why is it more important for services as compared
to manufactured goods?
Levels of Strategic Planning
• Corporate Strategy – defines the business in which the
corporation will participate and develop plans for
acquisitions and allocations of resources.
• Strategic Business Unit (SBU) strategy – defines the
focus on which markets to pursue and which
competitive advantages to follow to best compete in
those markets.
• Functional Strategy – a set of decisions made at the
functional level (Operations) to support the SBU
strategy.
Strategic Planning Definition
• Strategic Planning is the process of determining
long term goals, policies, and plans for an
organization
Operations Strategy Choices
• Operations Design Choices – decisions management
must make as to what type of process structure is best
suited to produce goods or create services (value
creation)
• Infrastructure – focuses on the non-process features
and capabilities of the organization including the
workforce, operating plan, control systems, quality
control, organizational structure, compensation
systems, learning and innovation systems, and support
services (value chain)
Hill’s Strategic Development
Framework
McDonald’s CBP
Strategic Framework – McDonald’s 1/2
Strategic Framework – McDonald’s 2/2
Discussion Question - 4
• Strategic alignment occurs when the corporate
strategy through to the priorities of supervisors
support each other.
• Explain a situation where the strategies of the
corporate level and the activities of lower levels
were mis-aligned.
The Lawn Care Company Case
Study
• Read The Lawn Care Company case in the
textbook.
• Discuss Question 1.
• For next week, read and prepare to discuss
questions
numbers 2 to 5.
Lesson Wrap-up
• Competitive advantage
• Customer requirements
• Attributes for goods and services
• Competitive priorities
• Corporate to operations strategies
Lesson Agenda
• Integrated Framework for Goods and Service Design
SMT Operations Management
Lesson 5:
• Robust Design, Reliability and Quality Functional
Deployment (QFD)
• Product and Process Design for Goods
Goods and Service Design
• Service Delivery and Service Design
The Lawn Care Company
Customer Benefit Package
Peripheral Service
Claims Services
Peripheral Goods
Packaging
Primary Good
Grass Seed and
Fertilizer
Peripheral Good
Retail Store
Display Cases
Integrative Framework for Goods
and Services
• A 6 step process that explains the process for design
from the corporation’s strategic mission and vision to
its successful marketplace deployment and
evaluation.
Steps 1- 3 – Strategic Mission to
Planning
• Step 1 - Strategic mission (mission statement) and
vision (vision statement)
Steps 4 – 6 – Designs to
Marketing
• Step 4 - detailed goods and service process design
to the CBP
• Step 2 - From these statements, research and
development, marketing, engineering, operations, and
sales with involvement of value chain/supply chain
partners input to design of the CBP
• Step 5 - market introduction and deployment of
product or service
• Step 3 - CBP design and configuration (configuration
attributes time, place, information, entertainment,
exchange and form)
• Step 6 - marketplace evaluation (customer
feedback)
Framework Steps 1-4
Framework Steps 4A- 6
Discussion Question - 1
• The successful selection of an achievable and
wanted CBP is key to a corporation’s success.
Characteristics of Manufactured
Goods Design
• Robust Design
• Reliability
• What position titles design the CBP and which
titles provide the CBP?
• Quality Functional Deployment
Robust Design
Robust Design
Examples of robust design include:
• Robust Design are goods that are insensitive to
external sources of variance (e.g. generally goods that
have a limited scope of activities)
• Robust product design is a concept from the teachings
of Dr. Genichi Taguchi, a Japanese Engineer and
quality specialist. It is defined as reducing variation in a
product without eliminating the causes of the variation.
• Umbrella fabric that will not deteriorate when exposed
to varying environments (external variation)
• Food products that have long shelf lives (internal
variation)
• Replacement parts that will fit properly (unit to unit
variation).
• The goal of robust design is to come up with a way to
make the final product consistent when the process is
subject to a variation.
Reliability
• Reliability is the probability that a manufactured
good, piece of equipment, or system performs its
intended function for a stated period of time under
specified operating conditions
Quality Function Deployment
(QFD)
• Quality Function Deployment (QFD) is both a
philosophy and a set of planning and
communication tools that focuses on customer
requirements in coordinating the design,
manufacturing, and marketing of goods or
services. …or…
• An approach to guide the design, creation, and
marketing of goods and services by integrating the
voice of the customer into all decisions.
Discussion Question - 2
Process Activities - Quality
Focused
• In your own words, describe the relationship
between quality and reliability.
• Prototype Testing
• Quality Engineering
• Failure-mode-and-effects analysis (FMEA).
Process Activities – Cost
Focused
Value Analysis
• Use it to analyze and understand the detail of specific situations.
Process Activities –
Environment Focused
• Green Manufacturing
• Use it to find a focus on key areas for innovation.
• Design for Environment
Value Engineering (opposite of analysis)
• Use it to identify specific solutions to detail problems.
• It is particularly suited to physical and mechanical problems
Process Activities – Process
Focused
Product And Process Simplification
• The process of simplifying designs to reduce
complexity and cost which improve productivity,
quality, flexibility, and customer satisfaction.
Discussion Question - 3
• What is it called when a new model of car is
introduced that has minor changes made in order
to increase reliability a few years later?
• Why do more options become standard equipment
in the remaining years of a specific model?
Service Delivery and Service
Design
1) Attributes
1) Attributes
• Facility Location (Car Rentals, Starbucks)
2) Service Design Process
3) Service Design Encounters
• Servicescape – physical evidence a customer uses
to form an opinion and the environment where the
service encounter takes place.
2) Service Process Design
3) Service Design Encounters
Technology and Information Support System
• Access to information in a complete and timely
manner
Organizational Structure
• Offers flexibility to meet individual customer needs
and to correct errors as needed. (CrossFunctional)
• Service Design Principals:
• Customer contact behaviour and skills for both high and
low contact systems. (training)
• Service provider selection, development, and
empowerment (employee selection)
• Recognition and rewards (motivation and retention)
• Service recovery and guarantees (customer)
Discussion Question - 4
• In service recovery, why is it important to address
the issue quickly?
Lesson Wrap-up
• Integrated Framework for Goods and Service Design
• Robust Design, Reliability and Quality Functional
Deployment (QFD)
• Product and Process Design for Goods
• Service Delivery and Service Design
Next Lesson….
• Test
• Return and Discussion of Assignment 1
• Process Design
In Class Exercise
• Discuss how this 6 step framework applies to
McDonald’s Restaurants?
Lesson Agenda
SMT Operations Management
• Test
• Return and Discussion of Assignment 1
• Process Design
Lesson 6:
Assessment – Test 1
Test - 1
Assignment 1
Worth 15% of course
Duration – 80 minutes
Assignment
Return
Process Designs
Principal Types of Processes
• Make-to-order or Customized
• Projects
• Assemble-to-order or Option
• Job Shop Processes
• Make-to-stock or Standardized
• Flow Shop Process
• Continuous Flow Processes
Characteristics of Process Types
Product Process Matrix
Service Positioning Matrix 1/2
Service Positioning Matrix 2/2
• Pathways – are unique route through a service system
(physical or information)
• Customer-routed Services – those that offer broad
freedom to the customer to select from pathways
• Provider-routed Services – those that constrain
customers to follow a very small number of possible and
predefined pathways
• Service Encounter Activity Sequence – based upon:
• Degree of customer freedom
• Degree of repeatability
Discussion Question - 1
Lesson Objective & Wrap-up
• What type of process – project, job shop, flow
shop, and continuous flow – would most likely be
used to produce the following?
Material Covered
• Process Choices and Matrixes
•
•
•
•
Air conditioners
Weddings
Paper
Many favours of ice cream
Next Lesson
• Facility, Work and Capacity Designs
• Readings
Lesson Objectives
• Understand the basic layouts for goods and service
industries.
SMT Operations Management
• Explain capacity and capacity measurement
systems.
Lesson 7:
Facility and Capacity Designs
• Comprehend both the long-term and the shortterm capacity strategies.
• Apply the Theory of Constraints to a process.
Facility and Product Layouts
• Facility layout studies are required for:
•
•
•
•
Newly constructed facilities (if different in design)
A significant change in through put or demand
Introduction of a new CBP
Newly installed equipment
Facility Layouts 1/2
• Product Layout – is an arrangement based on the
sequence of operations that is performed during
the manufacturing of a good or delivery of a
service. e.g. paper manufacturers (wine producer
– chapter 8 in the textbook)
• Process Layout – consists of a functional grouping
of equipment or activities that do similar work. e.g.
legal offices (job shop)
Facility Layouts 2/2
Facility Layout for Services
• Cellular Layout – consists of self-contained groups
of equipment (called cells) needed for producing a
particular set of goods or services. (can be called
factory within a factory) e.g. Toyota
• Facility Layout for service organizations are a
normally combination of all the possible goods
producing layouts. Most common are a
combination of process and product layouts.
• Fixed Position Layout – consolidates the resources
necessary to manufacture a good or deliver a
service, such as people, materials, and equipment
in one physical location. e.g. Boeing Aircraft
(projects)
Product Layout 1/2
• Assembly line – is a layout dedicated to the combining
the components of a good or service that has been
previously created
• Flow Blocking Delay – occurs when a work centre
completes a unit but cannot release it because the inprocess storage at the next stage is full
• Lack-of-work Delay – occurs when ever one stage
completes work and no units from the previous stage
are awaiting processing
Product Layout 2/2
• Assembly Line Balancing – is a technique to group
tasks among workstations so that each workstation
has the same amount of work
• Cycle Time – is the interval between successive
outputs coming off the assembly line.
Discussion Question - 1
• Describe the facility layout of a typical fast food
franchise such as McDonald’s. What type of layout
is it? How does it support productivity?
Capacity Definition
Capacity is the capability of manufacturing or
service resources such as a facility, process,
workstation, or piece of equipment to accomplish its
purpose over a specified time period. Expressed as
either maximum rate of output or units of resource
availability.
Capacity Required = Setup Time + (Processing Time X Order Size)
Capacity and Economies of Scale
• Economies of Scale – are achieved when the average unit cost of a
good or service decreases as the capacity and/or volume of throughput
increases. (Flow/Continuous process benefits)
• Diseconomies of Scale – occur when the average unit cost of the good
or service begins to increase as the capacity and/or volume of
throughput increase.
• Focused Factory – is a way to achieve economies of scale without
extensive investment in facilities and capacity by focusing on a narrow
range of goods or services, target market segments, and/or dedicated
processes to maximize efficient and effectiveness.
Diseconomy of Scale
Capacity Measurements
Demand versus Capacity
Problem Structure
Safety Capacity – is the amount of capacity
reserved for unanticipated events such as demand
surges, material shortages, and equipment
breakdown (contingency)
1) To respond to the fluctuating needs of the
customer
2) To avoid manufacture of unwanted inventory.
Discussion Question - 2
• Define capacity measures for a(n):
a) Brewery
b) Airline
c) Movie theater
d) Restaurant
Seasonal Demand and
Complementary Goods or Services
Capacity Expansion Options
Short –Term Capacity Strategies
Two Options:
• Adjust short-term capacity, and/or
• Shift and stimulate demand
Short-Term Capacity Options 1/2
Short-Term Capacity Options
2/2
Adjust Short-Term Capacity by:
Shift and Stimulate Demand by:
• Adding or sharing equipment
• Selling unused capacity
• Changing labour capacity and schedules
• Changing the labour skill mix
• Shifting work to slack periods
• Varying the price of the goods or service
• Providing customers with information
• Advertising or promotional activities
Discussion Question - 3
Theory of Constraints
• For the confectionary industry (formed chocolate
treats, for Christmas, Halloween etc.), how could
they match their demand to capacity based short
term strategies?
• Theory of Constraints is a set of principles that
focus on increasing total process throughput by
maximizing the utilization of all bottleneck work
activities and stations.
• A constraint is anything that limits throughput.
Theory of Constraints
Group Discussion Question - 4
Types of Constraints:
• Physical (machine, people, workspace)
• Bottleneck work activity (limits total processing
capacity)
• Non bottleneck work activity (idle capacity)
• Nonphysical (P & P, environmental, safety,
management inefficiencies)
• How would you apply Theory of Constraints to a
quick service automobile oil change service?
Explain.
• Refer to Exhibit 10.7 of text.
Questions for Next Week
Lesson Wrap-up
• Discussion Question # 1 in chapter 8 of the textbook.
• Discuss the type of facility layout that would be most
appropriate for:
• Printing books
• Performing hospital laboratory tests
• Manufacturing home furniture
• A hospital
• A photography studio
• A library
Material Covered
• Facility and Product Layouts
• Capacity and Capacity Measurements
• Long-Term Capacity Strategies
• Short-Term Capacity Strategies
• Theory of Constraints
Next Lesson
• Forecasting and Demand Planning
• Readings – see candidate manual
Questions from Last Week
Discussion Question # 1 in chapter 8 of the textbook.
SMT Operations Management
Lesson 8:
Forecasting
Discuss the type of facility layout that would be most
appropriate for:
• Printing books
• Performing hospital laboratory tests
• Manufacturing home furniture
• A hospital
• A photography studio
• A library
Lesson Objectives
Forecasting
• Understand the basics concepts used in forecasting
Forecasting is the process of projecting the values of
one or more variables into the future.
• Describe the trends lines
• Produce a forecast using the model provided and basic
statistical calculations
• Comprehend judgmental forecasting
• Describe an organization’s forecasting model.
- Often integrated with value and/or supply chains
as capacity management systems
- Inaccurate forecasting results in excessive
unnecessary expenditures while accurate
forecasting leads efficiencies
- Forecasting includes not only the basic product but
includes the desirability of any options with the
basic product
The Need for Forecasts in a Value/Supply Chain
Discussion Question - 1
• Discuss some forecasts issues that you encounter
in your daily life.
• How do you make your forecasts?
Data Patterns 1/4
• A time bucket is the unit of measure for the time period
used in a forecast. e.g. year, quarter, daily, minute
• A time series is a set of observations measured at
successive points in time or over successive periods of
time.
• A time series gives individual points on a graph but the
points are not as important as the trend.
Data Patterns 2/4
Data Patterns 3/4
Examples of Linear and Nonlinear
Trend Data Patterns
• Trend is the underlying pattern of growth or
decline in a time series.
• Trends are gradual shifts due to long term factors
such as performance, technology, productivity
customer preferences.
• Trends can be linear or nonlinear.
Other Data Trends Descriptors
Discussion Question - 2
• Seasonal Patterns – predictable over the short-term.
• In the stock market e.g. TSX, which data trends are
apparent?
• Cyclical Patterns – long-term regular patterns.
• Random Variations (noise) – unexplained change from
a predictable pattern.
• Irregular Variation – one time explainable variation.
Forecasting Errors and Accuracy
• All forecasts are subject to errors.
• Forecast errors are the difference between the
observed value of the time series and the forecast
value.
• Three general types of metrics to calculate
forecast error. (MSE, MAD, and MAPE)
Mean Absolute Percentage Error
Calculation
• Step 1
• Take actual amount and subtract the Forecast (assume the value to
always be positive) = X
• Step 2
• Take X and divide by the actual amount and express this as a
percentage.
• Step 3
• Repeat Steps 1 and 2 for each time period, and add the percentages;
then divide this total by the total number of time periods.
Forecasting Accuracy
Moving Average Forecasting
Calculations
• Forecasting is either statistical or judgmental
• Step 1
• Determine the model’s time frame. e.g. 3 month
• Statistical Forecasting
• Two Main Technique Types:
• time-series methods which extrapolate historic time series
data
• regression methods which extrapolate time-series data but can
also include other potential factors
• Step 2
• Add the first 3 observations (equal to the model’s timeframe) together and
divide by the model’s time frame (3). The answer is the forecast for the
fourth time frame. No values for the first time frames equal to the model’s
timeframe.
• Step 3
• To progress further, add the observation numbers 2, 3, and 4 together and
divide by the model’s time frame. The answer is the forecast for the fifth
timeframe. Repeat step 3 as necessary.
Other Statistical Models
Discussion Question 3 - 1 /2
• Single Exponential Smoothing is a forecasting
technique that uses a weighted average of past timeseries values to forecast the value of the time series in
the next period.
Forecasts and actual sales of portable CD players at Just Say Music are as
follows:
• Regression Analysis is a method for building a
statistical model that defines a relationship between a
single dependent variable and one or more
independent variables all of which are numerical.
• Multiple Linear Regression Model is a regression model
with more than one independent variable.
•
•
•
•
•
•
•
•
•
Month
March
April
May
June
July
August
September
October
November
Forecast
150
220
205
256
250
260
270
280
296
Actual Sales
170
229
192
271
238
255
290
279
301
Discussion Question 3 - 2/2
Judgmental Forecasting
1. What is the forecast for December, using a threeperiod moving average?
• Judgmental Forecasting relies upon opinions and
expertise of people in developing forecasts.
2. What is the forecast for December, using a fourperiod moving average?
• Delphi Method – consists of forecasting by gathering
judgments and opinions of key personnel based on
their experience and knowledge of the situation.
3. Compute the MAPE for questions 1 and 2.
• Bias – is the tendency of forecasts to consistently be
larger or smaller than the actual values of the time
series.
Corporate Forecasting Model
• Corporations follow a two step method to determine forecasts.
Step 1
• The Vice President Operations determines from items sold the
observations per time period. From these periods, the best fit
statistical model is applied.
Step 2
Discussion Question - 4
• How would you want to amend your retail store’s
forecast of discretionary sales items under the
following circumstances:
- The unemployment rate is increasing
- The bank’s interest rates are decreasing
- A new competitor comes into your target marketplace
• The Vice President of Marketing determines if any factors that
have recently occurred or are expected to occur and amends the
forecast through judgmental forecasting methods. This amended
forecast is them used as the corporation’s forecast.
BankUSA Case Study for Next
Week
• Read the Bank USA Case study in the textbook.
• Be prepared to answer questions 1 – 3 and using
the information in the exhibit, what type of time
bucket would one use?
• Why?
Lesson Wrap-up
Material Covered
• Forecasting Concepts
• Data Patterns
• Forecasting Errors and Accuracy
• Judgmental Forecasting
• Corporate Forecasting Model
Next Lesson
• Managing Inventories
• Readings
Lesson Agenda
SMT Operations Management
• Inventory Concepts
• Inventory Characteristics
• ABC Inventory Analysis
• Inventory Re-ordering Systems
• BankUSA Case Study
Lesson 9:
Managing Inventories
Lesson Objectives
• Understand the basics concepts used in inventory
control
• Utilize the various types of inventory terminology
• Understand the ABC inventory analysis process
• Comprehend some fixed quantity and fixed time
period systems
BankUSA: Forecasting Help Desk
Demand by Day
• The case describes a telephone call center (contact center) where 98%
of the call volume is internal customers (i.e., the bank's sales force, trust
administrators, branch managers, wealth advisors, etc.).
• Accurate and quick answers are expected from the customer service
representatives (CSRs).
• Staff call center scheduling is critical to maximizing service and
minimizing costs.
• The first step is an accurate short-term forecast of call volume by day.
A small sample of call volume data is presented and the student or
student team is asked to determine the best method or methods to
forecast these data.
• This data can be evaluated using simple graphs, time series, or
regression analysis. Although the focus is forecasting, there are several
other OM issues.
Inventory Basics
Main Types of Inventory
• Inventory is any asset held for future use or sale.
• Raw materials, component parts, subassemblies,
and supplies are inputs to manufacturing and the
service-delivery process.
• Inventory Management involves planning,
coordinating, and controlling the acquisition, storage,
handling, movement, distribution and possible sale
of raw materials, component parts and
subassemblies, supplies and tools, replacement
parts, and other assets that are needed to meet
customer wants and needs.
• Work-in-process (WIP) inventory consists of
partially finished products in various stages of
completion that are waiting further processing.
• Finished goods inventory is completed products
ready for distribution or sale to customers.
Role of Inventory in the
Value/Supply Chain
Basic Inventory Management
Decisions
• When to order items from a supplier or when to
initiate production runs if the firm makes its own
items, and
• How much to order or produce each time a
supplier or production order is placed.
Inventory Costs Trade-offs
• Ordering and set-up costs – are incurred as a result of the work
involved in placing orders with suppliers or configuring tools,
equipment, and machines within a factory to produce an item.
• Inventory holding costs – are the expenses associated with carrying the
inventory
• Shortage costs – are costs associated with an item being unavailable
when needed to meet demand
Inventory Characteristics 1/2
• Stock-keeping unit (SKU)
• Independent Demand – unrelated to other SKU’s and
needs to be forecasted.
• Dependent Demand – directly related to another SKU
(calculated, not forecasted).
• Deterministic Demand – when uncertainty is not
included. (no randomness, tight parameters)
• Stochastic Demand – includes uncertainty to
determine nature of demand. (sporadic, random,
includes probability)
• Unit cost of the item – is the price paid for purchased goods or the
internal cost of producing them
Inventory Characteristics 2/2
Discussion Question - 1
• Static Demand – Stable.
Which characteristic of inventory makes it more
challenging to manage?
• Dynamic Demand – varies over time.
• Lead Time – time between order placement and
delivery.
• Stock-out – inability to satisfy demand.
• Dynamic or constant
• Deterministic or stochastic
• Constant deterministic or dynamic stochastic
ABC Inventory Analysis
• “A” items account for a large dollar volume but a
relatively small percentage of total items (typically
controlled at a higher level).
ABC Inventory Analysis
Histogram
• “C” items account for a small dollar volume but a
high percentage of total items (automated ordering
system).
• “B” items are between A and C items combination
of A & C).
Discussion Question - 2
• The Welsh Corporation uses 10 key components in
one of its manufacturing plants.
• Perform an ABC analysis from the data worksheet
C12P3, Workbook on CourseMate website.
• Explain your decisions and logic.
Inventory Re-order Systems
1) Fixed Quantity System
2) Economic Order Quality
3) Fixed Period System
4) Single-Period Inventory Model
1) Fixed Quantity System
• The order quality or lot size is fixed; but the re-ordering time is
variable
Fixed Quantity System with a
Stable Demand
• Used in department stores as items are scanned and removed
from inventory once purchased, and once the inventory position
falls below the re-order point, more is re-ordered.
• Inventory position is defined as the on hand quantity, plus any
orders placed that have not yet been received (called scheduled
receipts) minus any backorders. IP = OH + SR - BO
Fixed Quantity System Under an
Highly Variable Demand
2) Economic Order Quantity
(EOQ)
• Economic Order Quantity (EOQ) model is that minimizes
the total cost, which is the sum of the inventory-holding
cost and the ordering cost.
Key assumptions:
• Only one SKU considered
• Entire quantity arrives in one shipment
• Only order/setup and inventory-holding costs are relevant
• No stock-outs permitted
• Demand is deterministic and continuous
• Lead time is constant
Economic Order Quantity
Formula
• EOQ Formula = sq root of (2 X annual demand X
cost of placing order / Annual Carrying Cost per
Unit)
3) Fixed Period Systems 1/2
• Fixed period systems the inventory position is
check only at fixed intervals, rather than on a
continuous basis.
Two Principal decisions with fixed period systems:
• The time interval between reviews
• The replenishment level
Fixed Period Systems 2/2
EOQ provides the economic time interval as:
• Time = EOQ/ annual demand
Optimal replenishment level is:
• Optimal replenishment level = average demand per
time period X (time + lead time)
Operation of a Fixed Period
System
4) Single Period Inventory Model
(Marginal Economic Analysis)
Discussion Question - 3
•
• Applies to situations of uncertainty and one either
sells out or has scrap to be sold
• Demand (greater than or equal to EOC) = the cost
of under estimation / (the cost of underestimation
+ the cost of overestimation)
Discuss some of the issues that a small pizza
restaurant might face in inventory management.
Would a pizza restaurant use a fixed order quantity or
period system for fresh dough (purchased from a
bakery on contract)?
•
What would be the advantages and disadvantages
of each in this situation?
Discussion Question - 4
Discussion Question - 4
• Crew Soccer Shoes Company is considering a change
of their current inventory control system for soccer
shoes. The information regarding the shoes is given
below.
1. The company decides to use a fixed order quantity
system. What would be the economic order
quantity?
•
•
•
•
•
Demand = 100 pairs/week
Lead time = 3 weeks
Order cost = $35/order
Holding cost = $2.00/pair/yr
Number of weeks per year = 52
2. What is the Fixed Period (Economic Time Period)?
3. What is the Optimal Replenishment Level?
Hardy Hospital Case Study
• Read the Hardy Hospital Case Study in the textbook.
• Be prepared to answer questions 1 – 4.
Hardy Hospital Case Study
Exercise
Question #1
EOQ calculates a lot size considered to be the optimal quantity
whereby ordering and carrying costs are at their lowest value.
Assumptions to be assumed for any inventory item considering
EOQ lot sizing:
1. Single SKU is considered
2. Entire order quantity arrives at one time
3. Only order & holding costs are relevant
4. Stock-outs not allowed
5. Continuous demand projected
6. Constant lead time
Hardy Hospital Case Study
Exercise
Hardy Hospital Case Study
Exercise
Question #2
Question #3
EOQ = 139 units
Total Annual Ordering Cost = D / Q (C)
Total Annual Inventory Holding Cost = ½ Q (c)
(cont.)
= (square root of) 2 x Annual Demand x Cost to Process Order
divided by the Annual Carrying Cost per unit
(cont.)
Current Ordering Quantity
1. D / Q (C) = $90.00 (rounded out)
2. ½ Q (c) = $187.00 (rounded out)
EOQ Calculation
3. D / Q (C) = $120.00 (rounded out)
4. ½ Q (c) = $129.97 (rounded out)
Hardy Hospital Case Study
Exercise
Assignment 2A – 15%
(cont.)
Question #4
Total Annual Ordering & Carrying Costs favours the EOQ
quantity by $27.03.
Other factors to consider are:
a. Shelf life of the product
b. Availability of storage space
If these are not factors, all other concerns being equal
we would choose the less expensive of the options.
Lesson Wrap-up
Material Covered
• Inventory Concepts
• Inventory Characteristics
• ABC Inventory Analysis
• Inventory Re-ordering Systems
Next Lesson
• Resource Management
• Readings
• Review the requirements for the assignment
Lesson Objectives
• Understand the resource planning framework for
goods and services
SMT Operations Management
• Describe the aggregate planning options and strategies
• Comprehend the application of the master production
schedule and the material requirements plan
Lesson 10:
Resource Management
• Produce a master production schedule and materials
requirements plan for a given situation
• Understand how time phasing and lot sizing affect
resource management
Resource Planning Framework
• Resource Management deals with the planning,
execution, and control of all resources that are used
to produce goods or provide services in a
value/supply chain.
• Resources include:
•
•
•
•
•
•
•
Materials
Equipment
Facilities
Information
technical knowledge
Skills
People
Resource Management
Objectives
• Typical objectives of Resource Management:
• To maximize profits and customer satisfaction
• To minimize costs
• To maximize benefits to their stakeholders
Resource Management
Framework Levels
• Resource Planning Framework has 3 levels:
• Level 1 aggregation, strategic level - Vice Presidents
• Level 2 disaggregation, tactical level - Plant Managers,
Production Managers
• Level 3 execution, operational level – Supervisors
Level 1 - Aggregate
• Aggregate Planning (AP)– is the development of a long-term output
and resource plan in aggregate units of measure
• Normal planning horizon is 2 years
• Subdivided into either monthly or quarterly time buckets
• Focus on family of products or total capacity requirements
• Define budget allocations and associated resource requirements
• Driven from corporate forecast
Level 2 - Disaggregate
•
Disaggregate Planning (DP) – is the process of transacting aggregate
plans into short-term operational plans that provide the basis for
weekly, daily schedules, and detailed resource requirements
•
Plans for the creation of specific goods or services
•
Plans for the allocation of capacity to specific time periods
•
Determines order sizes and schedules for individual subassemblies
and resources
Level 3 - Execution
• Execution – refers to moving work from one
workstation to another, assigning people to tasks,
setting priorities for jobs, scheduling equipment, and
controlling processes. Often called shop floor
control. This will be addressed in the next session.
Framework for Resource Planning for
Goods and Services
Aggregate Planning And
Strategies
Aggregate Planning has 5 main areas for planned
changes:
•
•
•
•
•
Demand management
Production rate
Workforce
Inventory
Facilities, equipment, and transportation
Two Levels of Disaggregation for
Many Service Organizations
Examples of Aggregate Planning
Variables and Revenue/Cost
Implications
Aggregate Planning Strategies
Level Strategy
• Aggregate Planning Strategies – are plans to utilize
product capacity to meet demand.
• Level Strategy:
• Two Options for Aggregate Planning Strategies
• Level production strategy plans for the same production
rate in each time period or
• Chase demand strategy sets the production rate equal to
the demand in each time period
Chase Demand Strategy
Chase Demand Strategy:
• Difficult to plan for as demand changes therefore more
opportunities for errors to occur
• Could have substantial overtime and lost sales costs
• More challenging to integrate with value/supply partners
• Avoids complications in planning
• Labour and equipment availability is stable and
repetitive
• Easier plan execution
• Easiest to integrate with other value/supply chain
partners
• Generally provides the high quality products
• Difficult to determine optimal rate for variable demand
situations therefore inventories could be built or sales
could be lost
Discussion Question - 1
• The forecast demand for fudge for the next four
months is 120, 160, 20, and 70 pounds.
a) What is the recommended production rate if a
level strategy is adopted with no backorders or
stock outs? What is the ending inventory for
Month #4 under this plan?
b) What is the level production rate with no ending
inventory in month #4?
Master Production Schedule
(MPS)
Disaggregation Framework for
Manufacturing Plans and Schedules
• From Aggregation comes Disaggregation Planning
• Disaggregation planning is reflected in 3 operations
plans for different purposes.
• The 3 Disaggregation Plans are:
• Master Production Schedule (MPS)
• Materials Requirements Planning (MRP)
• Capacity Requirements Planning (CRP)
Master Production Schedule
(MPS)
• MPS:
• Normally the responsibility of the Plant Manager
• Generally developed for weekly time periods for 6 – 12
months in the future
• Purpose is to translate AP into separate plans for each
SKU
• Provides a means to evaluate alternative schedules in
terms of capacity requirements
• Provides input to the MRP
• Permits managers to generate priorities for scheduling
by setting start dates
Materials Requirements Planning
(MRP) 1/2
• Materials requirements planning is a forward looking, demand-based
approach for planning the production of manufactured goods, ordering
materials and components to minimize unnecessary inventories, and
reduce costs.
• MRP
• Translates the number of individual parts or subassemblies that must be
manufactured or purchased and assemblies to make the required number of
products
• Easiest for scheduling if using a level production strategy
Materials Requirements Planning
(MRP) 2/2
MRP inputs:
• The numbers of items to be made as determined from MPS
• The number of individual parts or assemblies needed to make these
items
MRP outputs are a time phased report that gives:
• The Purchasing Department a schedule for obtaining raw material and
purchased parts
• The Production Managers a detailed schedule for manufacturing the
product and controlling manufacturing inventories
MRP Terminology 1/2
• Dependent Demand is demand that is directly
related to the demand of other SKUs and can be
calculated without the need to be forecasted.
• Bill of Material (BOM) or Product Structure
defines the hierarchic relationship between all
items that comprise a finished good, such as
subassemblies, purchased parts, and
manufactured in-house parts.
• Accounting and Finance departments production information that
drives cash flow and budgets
MRP Terminology 2/2
MRP Explosion Definition
Hierarchy of Items:
• Parent item is assembled from one or more
components (top)
• Components are any items (raw material, manufactured
parts, purchased parts or services) other than a parent
item which contributes to a higher level parent item(s)
(one up)
• Subassemblies always have at least one immediate
parent and also have at least one immediate component
(one up and one down)
• An MRP Explosion is the process of using the logic
of dependent demand to calculate the quantity and
timing of orders for all subassemblies and
components that go into and support the
production of the end item(s).
Example of a Bill of Material and
Dependent Demand – page 282 to
284
Dependent Demand Calculations
Group Question - 2
Time Phasing and Lot Sizing
Terminology 1/2
Draw a simple bill-of-materials (BOM) for an
automobile given the following requirements:
(a) clearly label the end item and each component
•
Time Buckets is the time period size used in the MRP
explosion process and usually are one week in length
•
Gross Requirements (GR) are the total demand for an
item derived from all of its parents
•
Scheduled or Planned Receipts (S/PR) are orders that
are due or planned to be delivered
(b) BOM must contain no more than ten items
(c) BOM must contain at least 3 levels count the
end-item Level 0).
Time Phasing and Lot Sizing
Terminology 2/2
• Planned Order Receipt (PORec) specifies the quantity and time an order
is to be received
• Planned Order Release (PORel) specifies the planned quantity and time
an order is to be released to the factory or a supplier
• Projected On-hand Inventory (POH) is the expected amount of
inventory on-hand at the beginning of the time period considering onhand inventory from the previous period plus scheduled receipts or
planned order receipts minus the gross requirements
Time Phasing and Lot Sizing
Three options:
• Lot-for-lot (LFL) Lot-for-lot is an ordering schedule that
covers the gross requirements for each week.
• Fixed order quantity (FOQ of which EOQ is a tool)
• Periodic order quantity (POQ)
POH = OH(from previous time bucket) + S/PR – GR
LFL Example 1/3 – Bill of
Material
LFL Example 2/3
– Item Inventory File and Example MPS
LFL Example 3/3 – MRP Record
Card
Fixed Order Quantity and Periodic
Order Quantity
Fixed Order Quantity (FOQ)
• FOQ rule uses a fixed order size for every order or
production run.
Periodic Order Quantity (POQ) (topping up)
• POQ orders a quantity equal to the gross requirement
quantity in one or more predetermined time periods
minus the projected on-hand quantity of the previous
time period. Quantity will differ in each time period
depending on demand.
Exercises To Be Discussed Next
Week
• From the textbook, do exercises 8 & 11 at the end
of Chapter 13.
• Be prepared to discuss your answers next week.
Lesson Wrap-up
Material Covered
•
•
•
•
•
Resource Planning Framework
Aggregate Planning And Strategies
Master Production Schedule
Materials Requirements Plan
Time Phasing And Lot Sizing
Next Lesson - Resource Management continued and Operations
Scheduling and Sequencing
• Readings
• Assignment 2 Due Next Week
Lesson Objectives
• Understand the concept of capacity requirements
planning
SMT Operations Management
• Apply staff scheduling techniques to scheduling
problems
Lesson 11:
Resource Management (Capacity Requirements
Planning) and Operations Scheduling
Exercises From Last Week
Hand In Assignment 2
• Select performance criteria and apply it to single
and dual resource sequencing problems
Capacity Requirements Planning
1/2
• Capacity Requirements Planning – is the process of
determining the amount of labour and machine
resources required to accomplish the tasks of
production on a more detailed level, taking into
account all component parts and end items in the
material plan.
• Capacity Required = Setup Time + (Processing Time
per Unit X Order Size)
Capacity Requirements Planning
2/2
• MPS may have to be revised because of capacity
limits at certain workstations as determined by
work center load reports.
• Attempts to level off by trade offs. Such trades off
include overtime, realignment of activities, or
scheduling work in advance of requirement.
• Unsolved capacity requirements issues increase
the cost of lost sales.
• Capacity requirements planning for services is
critical. Lack of capacity results in longer waiting
times. e.g. Hospital Emergency Room
Definition of 2 Methods
• Scheduling refers to the assignment of start and
completion times to particular jobs, people or
equipment.
• Two methods under discussion:
• staff scheduling
• appointment systems
Staff Scheduling
Staff Scheduling Steps
Attempts to match available personnel with the needs of
the organization by:
• Step 1 – converting demand to a capacity measure
•
•
•
accurately forecasting demand and translating it into the
quantity and timing of work to be done
determining the staffing required to perform the work by
time period
determining the personnel available and the full- and parttime mix matching capacity to demand requirements, and
developing a work schedule that maximizes service and
minimizes costs
• Step 2 – determining the quantity and timing of work to
be done
• Step 3 – determining the staffing required taking in to
account productivity factors, personal allowances,
vacations sickness
• Step 4 – matching capacity to demand requirement
Scheduling by Demand
• Step 1 – identify the time frames with the smallest requirements and that
worker works the other days, reduce the requirements on days when a
worker is assigned by 1
• Step 2 – repeat with identification of the two days with the smallest
requirements and assign the worker to the other days, reduce the
requirements on days when a worker is assigned by 1
T.R. Accounting Service 1/3
• Scheduling Procedure – (page 304)
Day
Requirement
Mon
Tue
Wed
Thur
Fri
Sat
Sun
8
6
6
6
9
5
3
• Repeat until all requirements are covered.
T.R. Accounting Service 2/3
T.R. Accounting Service 3/3
Appointment System – page 306
Decisions required when designing an appointment
system:
• determine the appointment time interval
• determine the length of each workday and the time offduty
• decide how to handle overbooking for each day of the
week
• develop customer appointment rules that maximizes
customer satisfaction.
Discussion Question - 2
Discussion Question - 1
Discuss how you decide to schedule your school
assignments or balancing course work and
working and family life.
Do your informal scheduling rules correspond to
any of those in this chapter?
Sequencing
A hospital emergency room needs the following
numbers of nurses.
Rules are based upon criteria from one of the categories:
1. process-focused performance criteria
Day
Min. #
M
4
T
3
W
2
T
5
F
7
S
8
Each nurse should have two consecutive days
off.
How many full-time nurses are required and
what is a good nurse schedule?
S
3
2. customer-focused due date criteria
3. cost-based criteria
1) Process Focused Performance
Criteria
2) Customer Focused Due Date
Criteria
• Workflow is the amount of time a job spent in the
shop or factory.
• Lateness is the difference between the completion
time and the due date (either positive or negative).
• Makespan is the time needed to process a given
set of jobs
• Tardiness is the amount of time by which the
completion time exceeds the due date. (no negative
values)
3) Cost-Based Criteria
Sequencing Rules
• Costs includes inventory, setup, and processing
material handling.
Most popular:
• Difficult to identify unless the factory is using
activity based costing approach.
• shortest processing time (SPT)
• earliest due date (EDD)
Others are:
•
•
•
•
first-come-first-served (FCFS)
fewest number of operations remaining (FNO)
least work remaining (LWR)
least amount of work at the next process queue
(LWNQ)
Single-Resource Sequencing
Problem 1/3
Single-Resource Sequencing
Problem 2/3
• Five tax analysis jobs are waiting to be processed by Martha at T.R.
Accounting Service. Use the Shortest processing Time (SPT) and
Earliest Due Date (EDD) sequencing rules to sequence the jobs.
Compute the flow time, tardiness, and lateness for each job, and the
average flow time, average tardiness, and average lateness for all jobs.
Which rule do you recommend? Why?
Job
1
2
3
4
5
Processing Time (days)
7
3
5
2
6
Due Date
11
10
8
5
17
Single-Resource Sequencing
Problem 3/3
Due Date
Flow (Fi)
(Di)
Lateness
Tardiness
(Li = Ci - Di) (Max (0, Li)
4
2
5
-3
0
3
2+5=7
8
-1
0
2
7 + 3 = 10
10
1
10 + 7 = 17
5
17 + 6 = 23
Average
Job Flow (Fi)
4
2
2
2+3=5
3
5 + 5 = 10
5
10 + 6 = 16
1
16 + 7 = 23
Average
Due
Date (Di)
5
10
8
17
11
11.2
Lateness
(Li)
-3
-5
2
-1
12
+1.0
Tardiness
(Max (0, Li)
0
0
2
0
12
2.8
Discussion Question - 3
The Earliest Due Date (EDD) sequence is 4-3-2-1-5.
Job
The Shortest Processing Time (SPT) sequence is 4-2-3-5-1.
0
0
11
6
6
17
6
6
11.8
- 1.6
2.4
An insurance claims work area has five claims waiting for processing as
follows.
Job
Processing Time
Due Date
A
15
26
B
25
32
C
20
35
D
10
30
E
12
20
Compute the average flowtime, tardiness, and lateness for the following
sequences: SPT sequence and EDD sequence. What sequencing rule do
you recommend?
Two Resource Sequencing
Problem 1/2
Two Resource Sequencing
Problem 2/2
Johnson’s Sequencing Rules:
• One has two workstations, each job must be
processed on the Resource #1 and then on
Resource #2. Processing times for both resources
are known.
• One must look at the makespan for the sequencing.
• list the jobs and their processing times on Resource # 1 and
Resource # 2.
• find the job with the short processing time (on either
resource)
• if this time corresponds to Resource # 1, sequence the job
first; if it corresponds to Resource #2, sequence the job last
• repeat the previous 2 steps using the next-shortest processing
time and working inward from both ends of the sequence until
all jobs have been scheduled.
Application of Two Resource
Sequencing 1/3
• In the following example, we assume that each job
must be processed first on Resource #1 and then
on Resource #2
• Hirsch Products manufactures custom parts that
first require a shearing operation (Resource #1)
and then a punch-press operation (Resource #2).
Application of Two Resource
Sequencing 2/3
Job
Shear
(Resource #1)
(days)
Punch
(Resource #2)
(days)
5
1
4
2
4
1
3
10
4
4
6
10
5
2
3
Application of Two Resource
Sequencing 3/3
• Jobs are completed by order number, the punch
press often experiences idle time awaiting the next
job. The makespan is 37 days.
Gantt Charts
Gantt Charts are used for sequencing as they show
the time required at each resource per job and
when the job is available to go top the next
resource and if the next resource is available.
• Johnson’s Rule results in a reduction in makespan
from 37 days to 27 days. So, smart scheduling is
important for customer service and process
efficiency!
Gantt Chart for the Hirsch
Products Sequence
Discussion Question - 4
Monday morning Baxter Industries has the following jobs waiting for
processing in two departments, milling and drilling, in that order:
Job
216
327
462
519
258
617
Time Required (hours)
Mill
8
6
10
5
3
6
Drill
4
10
5
6
8
2
Develop a minimum makespan schedule using Johnson’s rule.
Test 2: Review
Questions to Class
Questions from Class
Lesson Wrap-up
Material Covered
• Capacity requirements planning
• Scheduling applications and approaches
• Sequencing using a single and dual resource
problems
Next Lesson
• Test 2
• Review for Final Exam
Lesson Agenda
SMT Operations Management
• Test
• Return and Discussion of Assignments
• Review for Final Examination
Lesson 12:
Assessment – Test 2
Test - 2
Lesson Objectives & Wrap-Up
• Worth 15% of course
• Duration – 90 minutes
Material Covered
•
Test – 2
•
Return of Assignment - 2
•
Start Review Process
Next week
• Final Exam
Appendix
Plagiarism Policy
© Supply Chain Canada | 109
National Policy 2021-1 [May 2021]
Principle 3
Citations for quotes and substantial information from a single source should be properly credited to
that source. There are four common methods of referring to a source document. These methods are
direct quotation from another source, paraphrasing or summarising material, and citing the whole of a
source document. All methods are deemed to be acceptable.
Principle 4
Both learners and instructors require awareness of the policy in order to adhere to, or enforce it. All
parties will be provided with a penalty scale that will escalate from minor infractions of failing to properly
cite work, to blatant copying of someone else's output.
Principle 5
Instructors, Markers or Coaches have the right and the responsibility to determine if a learner has failed
to present their own work and will assign penalties accordingly.
Principle 6
Those accused of plagiarism will be given an option to defend their work.
INFRACTIONS OF PROFESSIONAL INTEGRITY
In its broadest sense, a breach of professional integrity refers to an intentional or unintentional or
improper attempt to obtain an advantage, credential or admission to a program through deception
and/or fraudulent means. Instances of infractions include but are not limited to the following:
1.
Cheating: the attempt to gain an improper advantage. Forms of cheating include but are not limited
to the following.
2.
•
•
•
Dishonest or inappropriate behaviour or activities during a test or the Final Exam;
•
Offering for sale assignments or work, in whole or in part, with the expectation that these
works will be submitted by an SCMP candidate for appraisal; and
•
Preparing work in whole or in part with the expectation that this work will be submitted by
another student for appraisal.
Obtaining a copy of a test or examination in advance of the date and time of the writing;
Submitting work prepared in whole or in part by another person or source and
representing that work as one's own;
Plagiarism: to present another person's ideas, writing, etc. as one's own. This includes the
presentation of all or part of another person's work as something one has written, paraphrasing
another's writing without proper acknowledgement, or representing another's work as one's own.
Any use of the work of others, whether published, unpublished or posted electronically or on the
web, attributed or anonymous, must include proper acknowledgement.
3.
Self-Plagiarism: to recycle or reuse the work one has done for one class to a second class, or as a
second project without the prior consent of the faculty member receiving the assignment. It should
be widely understood that each assignment should include new knowledge and results that
advance the learner's understanding of the course.
4.
Collusion: to have someone impersonate oneself in class, in a test, examination or at any other
stage in the learning process, or in connection with any other type of assignment associated with a
course. Both the impersonator and the individual impersonated will be subject to discipline.
RESPONSIBILITIES OF LEARNERS
Students should be aware of the Professional Integrity and Plagiarism policy and how it will be upheld.
Students should also be aware of their rights and responsibility for dealing with issues associated with
plagiarism and keep copies of their drafts, notes and literature sources so that they are familiar with the
details of their submissions.
RESPONSIBILITIES OF INSTRUCTORS
All instructors will provide a learning environment that upholds professional integrity. It is the instructor's
responsibility to remind learners of the Professional Integrity and Plagiarism policy at the beginning
of each course.
Instructors will take all reasonable steps to detect cheating, plagiarism, self-plagiarism and collusion. Use
of plagiarism detection software should be used where appropriate.
If a suspected plagiarism incident is identified, the instructor has a responsibility to notify the learner of the
suspected infraction, the investigation process and timelines, and the right of the learner to participate.
Investigations and the assignment of penalties must ensure:
•
•
Procedural fairness.
•
•
Penalties that reflect that a range of factors have been considered, weighed and balanced.
Reasonable and probable grounds based on evidence that an infraction has occurred on a
balance of probabilities.
Penalties that are not applied before an infraction has been confirmed and the process
completed.
PROCEDURAL FAIRNESS
In the handling of any infraction, the process will involve all of the following elements of fairness:
1.
The learner must have the opportunity to be informed of the nature and substance of any allegation
and of all information used in arriving at the decisions; and to respond to that information.
2.
The right to an independent, unbiased decision-maker - not the instructor of the course.
3.
A final decision must be based solely on the relevant evidence.
4.
Reasons must be given for the decision.
INVESTIGATIVE PROCESS
1.
Report infraction
The instructor reports the suspected infraction to the learner and the Institute.
2.
Initial determination
The instructor determines what sort of response is to be taken. In the case of plagiarism or self-plagiarism,
the instructor will assign the penalty as prescribed by this policy.
Where the infraction involves an allegation of cheating or collusion, the learner may be asked to attend a
meeting with the instructor to discuss the implication. The learner must be warned that a formal allegation
of academic misconduct may flow on from the meeting. The instructor will advise the learner of the outcome
of this initial determination and the penalty to be applied.
If it appears during the discussion that deliberate professional misconduct has occurred, the instructor
must end the meeting and advise the learner that a formal investigation will be initiated. The matter is then
referred to the National Office for resolution.
3.
Investigating allegations
The National Office will form a committee of 2 members of the Professional Review Committee to investigate
the allegations at a hearing attended by the student. The committee makes a decision, imposes any penalties
deemed appropriate and reports back to the student, the instructor and the National Office. All decisions of
the Professional Review Committee will be final.
4.
Appeals
The learner may wish to file an appeal of a penalty prescribed by an instructor. The request for an appeal
must be submitted within 10 days of the notification from the instructor and include details of the allegation,
the penalty applied and rationale for the appeal. Appeals will be considered by the Professional Review
Committee. Decisions of the committee will be final.
PENALTIES FOR INFRACTIONS
The penalties associated with infractions are designed to impose penalties that reflect the seriousness
of the commitment of Supply Chain Canada to professional integrity. Penalties may include revising and
resubmitting assessment work, receiving a result of zero for the assessment, failing the course, or
sanctions.
Infractions and the penalties prescribed shall be recorded on the candidate's profile. The instructor will
also report the incidence to the National Office. If more than two infractions occur, the National Office
will notify the Professional Review Committee to consider possible sanctions.
After due process, infractions of professional integrity may lead to one or more of the following
remedies or sanctions:
•
•
Written reprimand or warning.
Failure to cite quotations for up to 30% of the submitted assignment, test or exam - deduction
of 10% from the assessed grade.
•
Failure to cite a substantial portion of work between 31% - 50% of the submitted assignment,
test or exam - deduction of 20% from the assessed grade.
•
•
•
•
Failure to cite anything above 50% of the submitted assignment, test or exam - zero grade.
•
Submission of a self-plagiarized assignment - requirement to submit a new piece of work that
will be subject to a 20% deduction.
•
•
Cheating and collusion - zero grade.
Repeat offences - possible sanction from applying for courses for a specified period of time or
permanently.
Copying more than 50% of the work even when citing references - deduction of 20% from the
assessed grade.
Copying the work of another learner or independent author and submitting it as one's own. - zero
grade for that assignment, test or exam up to expulsion from the program.
SCMA members may be subject to further disciplinary action as noted in the SCMA Code of Ethics,
to which compliance is an obligation of all members.
RIGHTS OF THE LEARNER
This policy is complementary to and does not alter a learner's rights or responsibilities under the
laws of Canada or any provincial or territorial government.