MODULE 1
CHAPTER 1
Operations Management Concepts
Chapter Outline
1 Learning Objectives
2. TOPICS:
1.1 INTRODUCTION
1.2 HISTORICAL DEVELOPMENT
1.3 CONCEPT OF PRODUCTION
1.4 PRODUCTION SYSTEM
1.5 CLASSIFICATION PRODUCTION SYSTEM
1.6 PRODUCTION MANAGEMENT
1.7 OPERATIONS SYSTEM
1.8 OPERATIONS MANAGEMENT
1.9 OPERATIONS MANAGEMENT OBJECTIVES
1.10 THE STRATEGIC ROLES OF OPERATIONS
1.11 THE STRATEGIC PLANNING
1.12 THE TREND: INFORMATION AND NON MANUFACTURING
SYSTEMS
1.13 PRODUCTIVITY
1.14 FACTORS AFFECTING PRODUCTIVITY
1.15 SCOPE OF OPERATIONS MANAGEMENNT
3
Let’s Sum Up
Learning Objectives
Define different operations management concepts
Discuss historical development and the importance to business and organizations,
Determine the effectiveness to the organization.
Explain the concept of production, system and management
Describe the different operations Management objectives and strategic roles in
operations.’
Explain the different information and non manufacturing systems
Determine the concept of productivity
Define the scope of operations management
1.1 Introduction
Operation is that part of as organization, which is concerned with the
transformation of a range of inputs into the required output (services) having the
requisite quality level. Management is the process, which combines and transforms
various resources used in the operations subsystem of the organization into value added
services in a controlled manner as per the policies of the organization.
The set of interrelated management activities, which are involved in
manufacturing certain products, is called as production management. If the same
concept is extended to services management, then the corresponding set of management
activities is called as operations management.
1.2 Historical Development
The traditional view of manufacturing management began in eighteenth century
when Adam Smith recognized the economic benefits of specialization of labor. He
recommended breaking of jobs down into subtasks and recognizes workers to
specialized tasks in which they would become highly skilled and efficient. In the early
twentieth century, F.W. Taylor implemented Smith’s theories and developed scientific
management. From then till 1930, many techniques were developed prevailing the
traditional view.
Production Management becomes the acceptable term from 1930s to 1950s. As
F.W. Taylor’s works become more widely known, managers developed techniques that
focused on economic efficiency in manufacturing. Workers were studied in great detail
to eliminate wasteful efforts and achieve greater efficiency. At the same time,
psychologists, socialists and other social scientists began to study people and human
behavior in the working environment.
With the 1970s emerge two distinct changes in our views. The most obvious of
these, reflected in the new name Operations Management was a shift in the service and
manufacturing sectors of the economy. As service sector became more prominent, the
change from ‘production’ to ‘operations’ emphasized the broadening of our field to
service organizations.
Historical summary of operations management
Date
Contr ibuti on
1776
Specialization of labour in manufacturing
Adam Smith
1799
Interchangeable parts, cost accounting
Eli Whitney & others
1832
Division of labour by skill; assignment of jobs by Skill; basics of
time study
Charles Babbage
1900
Scientific management time study and work study Developed;
dividing planning and doing of work
Frederick W.Taylor
1900
Motion of study of jobs
Frank B. Gilbreth
1901
Scheduling techniques for employees, machines Jobs in
manufacturing
Henry L. Gantt
1915
Economic lot sizes for inventory control
F.W. Harris
1927
Human relations; the Hawthorne studies
Elton Mayo
1931
Statistical inference applied to product quality: quality control
charts
W.A. Shewart
1935
Statistical Sampling applied to quality control: inspection
sampling plans
H.F.Dodge & H.G.Rom ing
1940
Operations research applications in world war II
P.M.Blacker & others
1946
Digital Computer
John Mauchlly and J.P.Eckert
1947
Linear Programming
G.B.Dantzig, Williams & others
1950
Mathematical programming, on-linear and stochastic processes
A .C h a r n e s , W .W . C o o p e r & o th e r s
1951
Commercial digital computer: large-scale computations available
Sperry Univac
1960
Organisational behaviour: continued study of people at work
L.Cummings, L.Porter
1970
Integrating operations into overall strategy and policy Computer
applications to manufacturing, scheduling, and control, Material
Requirement Planning (MRP)
W.Skinner J.Orlicky & G. Wright
1980
Quality and productivity applications from Japan: robotics,
CAD-CAM
Contr ibuto r
W.E. Deming & J.Juran
1.3 Concept of Production
Production function is ‘the part of an organization, which is concerned with the
transformation of a range of inputs into the required outputs (products) having the
requisite quality level’.
Production is defined as ‘the step-by-step conversion of one form of material into
another form through chemical or mechanical process to create or enhance the utility
of the product to the user’
Edwood Buffa defines production as ‘a process by which goods and services are
created’. Some examples of production are: manufacturing custom-made products like,
boilers with a specific capacity, constructing flats, some structural fabrication works
for selected customers, etc.,and manufacturing standardized products like, car, bus,
motor cycle, radio, television, etc.
1.4 Production System
The production system is ‘that part of an organization, which produces products of
an organization. It is that activity whereby resources, flowing within a defined system,
are combined and transformed in a controlled manner to add value in accordance with
the policies communicated by management’.
1.5 Classification of production System
Production systems can be classified as Job-shop, Batch, Mass and Continuous
production systems.
Job-Shop Production
Job-shop production are characterized by manufacturing one or few quantity of
products designed and produced as per the specification of customers within prefixed
time and cost.
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High variety of products and low volume.
Use of general purpose machines and facilities.
Highly skilled operators
Large inventory of materials, tools, parts.
Detailed planning for sequencing the requirements of each product.
Advantages
1. Because of general purpose machines and facilities variety of products can be
produced.
2. Operators will become more skilled and competent, as each job gives them learning
opportunities.
3. Full potential of operators can be utilized.
4. Opportunity exists for Creative methods and innovative ideas.
Batch Production
It is characterized by the manufacture of limited number of products produced at
regular intervals and stocked awaiting sales.
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Shorter production runs.
Plant and machinery are flexible.
Plant and machinery set up is used for the production of item in a batch.
Manufacturing lead-time and cost are lower ..
Advantages
1. Better utilization of plant and machinery.
2. Promotes functional specialization.
3. Cost per unit is lower as compared to job order production.
4. Lower investment in plant and machinery.
5. Flexibility to accommodate and process number of products.
6. Job satisfaction exists for operators.
Mass Production
Manufacture of discrete parts or assemblies using a continuous process are called
Mass Production. This production system is justified by very large volume of
production.
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Standardization of product and process sequence.
Machines having higher production capacities and output rates.
Large volume of products.
Shorter cycle time of production.
Lower in process inventory.
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Perfectly balanced production lines.
Flow of materials, components and parts is continuous.
Production planning and control is easy.
Material handling can be completely automatic
Advantages
1. Higher rate of production with reduced cycle time.
2. Higher capacity utilization due to line balancing.
3. Less skilled operators are required.
4. Low process inventory.
5. Manufacturing cost per unit is low.
Continuous Production
Production facilities are arranged as per the sequence of production operations
from the first operations to the finished product. The items are made to flow through
the sequence of operations through material handling devices such as conveyors,
transfer devices, etc.
 Dedicated plant and equipment with zero flexibility.

Material handling is fully automated.
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Process follows a predetermined sequence of operations.
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Component materials cannot be readily identified with final product.

Planning and scheduling is a routine action.
Advantages
1. Standardization of product and process sequence.
2. Higher rate of production with reduced cycle time.
3. Higher capacity utilization due to line balancing.
4. Manpower is not required for material handling as it is completely automatic.
1.6 Production Management
Production management is ‘a process of planning, organizing, directing and
controlling the activities of the production function. It combines and transforms various
resources used in the production subsystem of the organization into value added product
in a controlled manner as per the policies of the organization’.
E.S.Buffa defines production management as follows:
‘Production management deals with decision-making related to production
processes so that the resulting goods or services are produced according to
specifications, in the amount and by the schedule demanded and out of minimum cost’.
Objectives of production Management
1. Right Quality
2. Right Quantity
3. Right Time
4. Right Manufacturing Cost
1.7 Operations System
Operations system converts inputs in order to provide outputs, which are required
by a customer.
It converts physical resources into outputs, the function of which is to satisfy
customer wants.
(a) Manufacturing Operations
(b) Service Operations
Everett E. Adam & Ronald J. Ebert defines as ‘An operating system is the part of
an organization that produces the organization’s physical goods and services’.
Ray Wild defines operations system as ‘a configuration of resources combined for
the provision of goods or services’.
A departmental store's has an input like land upon which the building is located,
labor as a stock clerk, capital in the form of building, equipment and merchandise,
management skills in the form of the stores manager. Output will be serviced customer
with desired merchandise. Random fluctuations will be from external or internal
sources, monitored through a feedback system.
Operations system for department stores
A Framework of Managing Operations
Planning
The activity that establishes a course of action and guide future decision-making.
Organizing
They determine the activities required to achieve the goals and assign authority and
responsibility for carrying them out.
Controlling
The activities that assure the actual performance in accordance with planned
performance.
1.8 Operations Management
Joseph G .Monks defines Operations Management as the process whereby
resources, flowing within a defined system, are combined and transformed by a
controlled manner to add value in accordance with policies communicated by
management.
The definition of the operations Management contains following keywords:
Resources
Resources are the human, material and capital inputs to the production process.
Human resources are the key assets of an organization.
Systems\
Systems are the arrangement of components designed to achieve objectives
according to the plan. The business systems are subsystem of large social systems.
Transformation and Value Adding Activities
The objective of combining resources under controlled conditions is to transform
them into goods and services having a higher value than the original inputs. The
transformation process applied will be in the form of technology to the inputs
Schematic model for operations/production system
1,9 Operations Management Objectives
1. CUSTOMER SERVICE
The first objective of operating systems is to utilize resources for the satisfaction
of customer wants. Therefore, customer service is a key objective of operations
management. The operating system must provide something to a specification, which
can satisfy the customer in terms of cost and timing. Thus, providing the ‘right thing at
a right price at the right time’ can satisfy primary objective.
Principal
Principal customer wants
function
Primary considerations
Other considerations
Manufacture
Goods of a given, requested
Cost, i.e. purchase price or cost of obtaining
or acceptable specification
goods. Timing, i.e. delivery delay from order or
request to receipt of goods.
Transport
Management of a given,
Cost, i.e. cost of movements. Timing, i.e.
requested or acceptable
1. Duration or time to move.
specification
2. Wait or delay from requesting to its
commencement.
Supply
Goods of a given, requested or
Cost, i.e. purchase price or cost of obtaining
acceptable specification
goods. Timing, i.e. delivery delay from order or
request to receipt of goods.
Service
Treatment of a given, requested
Cost, i.e. cost of movements. Timing, i.e.
or acceptable specification
1. Duration or time required for treatment.
2. Wait or delay from requesting treatment to its
commencement.
2. RESOURCE UTILIZATION
Another major objective of operating systems is to utilize resources for the
satisfaction of customer wants effectively. Customer service must be provided with the
achievement of effective operations through efficient use of resources. Inefficient use
of resources or inadequate customer service leads to commercial failure of an operating
system.
The customer service objective
The resource utilizations objective
i.e. to provide agreed/adequate levels of customer
i.e. to achieve adequate levels of resource
service (and hence customer satisfaction) by providing
utilizations (or productivity) e.g. to achieve
goods or services with the right specification, at the right
agreed levels of utilizations of materials,
cost and at the right time.
machines and labour.
1.10 Strategic Role of Operations
(a) A STRATEGIC PERSPECTIVE
Overall organizational strategy must be developed:
 Quality (product performance).
 Cost efficiency (low product price).
 Dependability (reliable, timely delivery of orders to customers).
 Flexibility (responding rapidly with new products or changes in volume).
(b) OPERATIONS OBJECTIVES
Product/service characteristics.
Process characteristics.
Product/service quality.
Efficiency
Effective employee relations and cost control of labor.
Cost control of material.
Cost control in facility utilization.
Customer service (schedule)
Producing quantities to meet expected demand.
Meeting the required delivery date for goods or services.
Adaptability for future survival.
(c) OPERATIONS ALTERNATIVES AND TRADEOFFS
The operations sub-goals can be attained through the decisions that are made in the
various operations areas. Once a decision is made, it leads to many choices.
Where should facilities be located?
How large should they be?
What degree of automation should be used?
How skilled must labor be to operate the automated equipment?
Will the product be produced on site?
How do these decisions impact quality, efficiency, schedule (customer
service), and adaptability?
Are we prepared for changes in product or service, or do these decisions lock
in our operations?
1.11 The Strategic Planning
Strategic Planning for Production and Operations
In the production or operations function, strategic planning is the broad, overall
planning that precedes the more detailed operational planning. Executives who head
the production and operations function are actively involved in strategic planning,
developing plans that are consistent with the firm’s overall strategies as well as such
functions as marketing, finance accounting and engineering. Production and operations
strategic plans are the basis for (1) operational planning of facilities (design) and (2)
operational planning for the use of these facilities.
Strategic Planning—Forced Choice Model
One of many planning models that have been used in strategic planning is a forced
choice model, shown in figure. In-group sessions or individually, analysts assess
environmental considerations together with the organization’s current
production/operations position, thus forcing management to develop strategic options
for operations.
A forced choice model of strategic planning for operations
Strategic Planning Approaches for Production/Operations
There are many approaches to strategic planning. The key point is that operations
strategies must be consistent with the overall strategies of the firm. Operations typically
utilize the overall corporate approach to strategic planning, with special modifications
and a focus upon operations issues and opportunities. One general approach to strategic
planning is a forced choice model given by Adam and Ebert.
A Strategic Planning Operations Model
One feature of this approach that is crucial to competitiveness is market-based view
of strategic planning. It suggests that any strategic business unit of a company operates
in the context of its corporate resources, the general and competitive industry
environment, and the specific corporate goals of the company. In any area in which the
company chooses to compete is a set of specific market-based criteria for success.
1.12 The Trend: Information and Non Manufacturing Systems
Manufacturing is characterized by tangible outputs (products). Consumption of
outputs at overtime.
Following characteristics can be considered for distinguishing Manufacturing
Operations with Service Operations:
 Tangible/Intangible nature of output
 Production and consumption
 Nature of work (job)
 Degree of customer contact
 Customer participation in conversion
 Measurement of performance
 Quality of output
 Inventory accumulated
1.13 Productivity
Productivity is defined in terms of utilization of resources, like material and labor.
In simple terms, productivity is the ratio of output to input.
Productivity can be improved by
(a) controlling inputs
(b) improving process so that the same input yields higher output, and
(c) by improvement of technology.
Modern Dynamic Concept of Productivity
1.14 Factors Affecting Productivity
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Capital/labor ratio
 Scarcity of some resources
 Work-force changes
 Innovations and technology
 Regulatory effects
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Bargaining power
Managerial factors
Quality of work life
1.16 Scope of Operations Management
 Location of facilities.
 Plant layouts and Material Handling
 Product Design.
 Process Design.
 Production and Planning Control.
 Quality Control
 Materials Management.
 Maintenance Management.
Let’s Sum Up
Operation is that part of as organization, which is concerned with the
transformation of a range of inputs into the required output (services) having the
requisite quality level.
Management is the process, which combines and transforms various resources used
in the operations subsystem of the organization into value added services in a controlled
manner as per the policies of the organization.
Production function is ‘the part of an organization, which is concerned with the
transformation of a range of inputs into the required outputs (products) having the
requisite quality level’.
Production is defined as ‘the step-by-step conversion of one form of material into
another form through chemical or mechanical process to create or enhance the utility
of the product to the user’.
The production system is ‘that part of an organization, which produces products of
an organization. It is that activity whereby resources, flowing within a defined system,
are combined and transformed in a controlled manner to add value in accordance with
the policies communicated by management.
Production management is ‘a process of planning, organizing, directing and
controlling the activities of the production function. It combines and transforms various
resources used in the production subsystem of the organization into value added product
in a controlled manner as per the policies of the organization’.
Joseph G. Monks defines Operations Management as the process whereby
resources, flowing within a defined system, are combined and transformed by a
controlled manner to add value in accordance with policies communicated by
management.
MODULE 1
CHAPTER 2
Operations Decision-Making
Chapter Outline
1 Learning Objectives
3. TOPICS:
2.1 INTRODUCTION
2.2 MANAGEMENT AS A SCIENCE
2.3 CHARACTERISCTICS OF DECISION MAKING
2.4 FRAMEWORK OF DECISION MAKING
2.5DECISION METHODOLOGY
2.5.1 COMPLETE CERTAINLY METHODS
2.5.2 RISKS AND UNCERTAINTY METHODS
2.5.3 EXTREME UNCERTAINTY METHODS
2.5.4 DECISION -MAKING UNDER UNCERTAINTY
2.5.5 DECISION -MAKING UNDER RISKS
2.6 DECISION SUPPORT SYSTEM
2.7 ECONOMIC MODELS (BREAK EVEN ANALYSIS
2.8 STATISTICAL MODELS
2.9 DECISION TREE
3
Let’s Sum Up
Learning Objectives;
Discuss the different concepts of decision-making in operations.
Explain management of science.
Define the different characteristics of decisions.
Identify the framework for decision making and its methodology
Explain the different economic models and ways on how to solve.
Define what is decision tree and its importance to operations management decision
making.
4. Introduction
Thousand of business decisions are made everyday. Not all the decisions will
make or break the organization. But each one adds a measure of success or failure to
the operations. Hence decision-making essentially involves choosing a particular
course of action, after considering the possible alternatives. This chapter examines
management as a science and the characteristics of decisions. The use of economic
and statistical models is discussed along with decision trees.
5. Management as a Science
Management scientists hold that, education, scientific training and experience
can improve a person’s ability to make decisions. Scientific decision -making rests
upon organized principles of knowledge and depends largely upon the collection of
empirical data and analysis of the data in a way that repeatable results will be
obtained.
Thus management as a science is characterized by
1. Organized principle of knowledge.
2. Use of empirical data.
3. Systematic analysis of data.
4. Repeatable results.
6. Characteristics of decisions-making
Operations decision range from simple judgments to complex analyses, which
also involves judgment. Judgment typically incorporates basic knowledge,
experience, and common sense. They enable to blend objectives and sub-objective
data to arrive at a choice.
The appropriateness of a given type of analysis depends on:
a. The significant or long lasting decisions,
b. The time availability and the cost of analysis, and
c. The degree of complexity of the decision.
The significant or long lasting decisions deserve more considerations than
routine ones. Plant investment, which is a long-range decision, may deserve more
thorough analysis. The time availability and the cost of analysis also influence the
amount of analysis. The degree of complexity of the decision increases when many
variables are involved, variables are highly independent and the data describing the
variables are uncertain.
Business decision-makers have always had to work with incomplete and
uncertain data. Figure on the right depicts the information environment of decisions.
In some situations a decision-maker has complete information about the decision
variables; at the other extremes, no information is available. Operations
management decisions are made all along this continuum.
7. Framework of Decision-Making
An analytical and scientific framework for decision implies the following systematic
steps
 Defining the problem.
 Establish the decision criteria.
 Formulation of a model.
 Generating alternatives .
 Evaluation of the alternatives.
 Implementation and monitoring.
DEFINING THE PROBLEM
Defining the problem enables to identify the relevant variables and the cause of
the problem. Careful definition of the problem is crucial. Finding the root cause of a
problem needs some questioning and detective work. If a problem defined is too
narrow, relevant variable may be omitted. If it is broader, many tangible aspects may
be included which leads to the complex relationships.
ESTABLISH THE DECISION CRITERIA
Establish the decision criterion is important because the criterion reflects the
goals and purpose of the work efforts. For many years profits served as a convenient
and accepted goal for many organizations based on economic theory. Nowadays
organization will have multiple goals such as employee welfare, high productivity,
stability, market share, growth, industrial leadership and other social objectives.
FORMULATION OF A MODEL
Formulation of a model lies at the heart of the scientific decision-making
process. Model describes the essence of a problem or relationship by abstracting
relevant variables from the real world situation. Models are used to simplify or
approximate reality, so the relationships can be expressed in tangible form and
studied in isolation.
Modeling a decision situation usually requires both formulating a model and
collecting the relevant data to use in the model. Mathematical and statistical models
are most useful models for understanding the complex business of the problem.
Mathematical models can incorporate factor that cannot readily be visualized. With
the aid of computers and simulation techniques, these quantitative models
reflexible.
GENERATING ALTERNATIVES
Alternatives are generated by varying the values of the parameters.
Mathematical and statistical models are particularly suitable for generating
alternatives because they can be easily modified. The model builder can experiment
with a model by substituting different values for controllable and uncontrollable
variable.
EVALUATION OF THE ALTERNATIVES
Evaluation of the alternatives is relatively objective in an analytical decision
process because the criteria for evaluating the alternatives have been precisely
defined. The best alternative is the one that most closely satisfies the criteria. Some
models like LPP model automatically seek out a maximizing or minimizing solution. In
problems various heuristic and statistical techniques can be used to suggest the best
course of action.
IMPLEMENTATION AND MONITORING
Implementation and monitoring are essential for completing the managerial
action. The best course of action or the solution to a problem determined through a
model is implemented in the business world. Other managers have to be convinced
of the merit of the solution. Then the follow-up procedures are required to ensure
about appropriate action taken. This includes an analysis and evaluation of the
solution along with the recommendations for changes or adjustments.
8. Decision Methodology
The kind and amount of information available helps to determine which
analytical methods are most appropriate for modeling a given decision.
This illustrates some useful quantitative methods that are classified according to
the amount of certainty that exists with respect to the decision variables and
possible outcomes. These analytical techniques often serve as the basis for
formulating models, which help to reach operational decisions.
The degree of certainty is classified as complete certainty, risk and uncertainty
and extreme uncertainty.
2.5.1Complete Certainty methods
Under complete certainty conditions, all relevant information about the decision
variables and outcomes is known or assumed to be known. Following are some of
the methods used:
Algebra:
This basic mathematical logic is very useful for both certainty and
uncertainty analysis. With valid assumptions, algebra provides deterministic
solutions such as break-even analysis and benefit cost analysis.
Calculus:
The branch of mathematics provides a useful tool for determining optimal
value where functions such as inventory costs, are to be maximized or
minimized.
Mathematical programming:
Programming techniques have found extensive applications in making a
product mix decisions; minimizing transportation costs, planning and scheduling
production and other areas.
(All information)
(Some information)
(No information)
Algebra:
Statistical analysis:
Game theory
Break-even
z Objective
Flip coin
Benefit/cost
z Estimation
Calculus
z Bayesian
statistics
Mathematical programming:
z Decision
theory
Linear
z Correlation
Non-linear
z Analysis
Integer
z Non-parametric
Dynamic
Queuing theory
Goal
Simulation
and subjective probabilities
and tests of hypothesis
and regression
of variance
methods
Heuristic methods
Network analysis techniques:
Decision trees
PERT and CPM
Utility theory
Quantitative methods as a function of degree of certainty
2.5.2 Risks and uncertainty Methods
In risk and uncertainty situations, information about the decision variables or
the outcomes is probabilistic. Following are some of the useful approaches:
Statistical analysis:
Objective and subjective probabilities with the use of probability and probability
distribution, Estimation and tests of hypothesis, Bayesian statistics, Decision theory,
Correlation and regression technique for forecasting demand and Analysis of
variance are some of the techniques used for decision-making.
Queuing theory:
The analysis of queues in terms of waiting-time length and mean waiting time is
useful in analyzing service systems, maintenance activities, and shop floor control
activities.
Simulation:
Simulation duplicates the essence of an activity. Computer simulations are
valuable tools for the analysis of investment outcomes, production processes,
scheduling and maintenance activities.
Heuristic methods:
Heuristic methods involve set of rules, which facilitate solutions of scheduling,
layout and distribution problems when applied in a consistent manner.
Network analysis techniques:
Network approaches include decision trees, CPM and PERT methods. They are
helpful in identifying alternative course of action and controlling the project
activities.
Utility theory:
Utility theory or preference theory allows decision-makers to incorporate their
own experience and values into a relatively formalized decision structure.
2.5.3 extreme Uncertainty Methods
Under extreme uncertainty, no information is available to assess the likelihood
of alternative outcomes.
Following are some of strategies to solve this:
1. Game theory:
Game theory helps decision-makers to choose course of action when
there is no information about what conditions will prevail.
2. Coin flip:
Flipping a coin is sometimes used in situation where the decisionmakers are wholly indifferent.
2.5.4 Decision-Making Under Uncertainty
No information is available on how likely the various states of nature are under
those conditions.
Four possible decision criteria are :
1. Maximin,
2. Maximax,
3. Laplace, and
4. Minimax regret.
Maximin:
Determine the worst possible pay-off for each alternative, and choose the
alternative that has the “best worst.” The Maximin approach is essentially a
pessimistic one because it takes into account only the worst possible outcome for
each alternative. The actual outcome may not be as bad as that, but this approach
establishes a “guaranteed minimum.
Maximax:
Determine the best possible pay-off, and choose the alternative with that payoff. The Maximax approach is an optimistic, “go for it” strategy; it does not take into
account any pay-off other than the best
.
Minimax regret:
Determine the worst regret for each alternative, and choose the alternative with
the “best worst.” This approach seeks to minimize the difference between the payoff that is realized and the best pay-off for each state of nature.
Laplace:
Determine the average pay-off for each alternative, and choose the alternative
with the best average. The Laplace approach treats the states of nature as equally
likely.
2.5.5 Decision-Making Under Risks
Between the two extremes of certainty and uncertainty lies the case of risk: The
probability of occurrence for each state of nature is known. (Note that because the
states are mutually exclusive and collectively exhaustive, these probabilities must
add to 1.00.) A widely used approach under such circumstances is the expected
monetary value criterion.
The expected value is computed for each alternative, and the one with the
highest expected value is selected. The expected value is the sum of the pay-offs for
an alternative where each pay-off is weighted by the probability for the relevant
state of nature.
9. Decision Support System
Decision support system (DSS)
is computer-based systems designed to aid decision-makers of any stage of the
decision process in the development of alternatives and evaluation of possible
course of action. Their purpose is to provide the information and analytical support
that enables managers to better control and guide the decision process. Emphasis is
given for giving useful information and appropriate quantitative models that support
the manager’s skills. Thus, DSS are a logical extension of the managerial decision
processes. This helps the managers to learn better, how to apply data processing and
modeling capabilities of computers to the analysis of ill-structured and value based
decisions.
10. Economic Models ( Break Even Analysis)
Break-even Analysis
One of the techniques to study the total cost, total revenue and output
relationship is known as Break -even Analysis. ‘A Break-even Analysis indicates at
what level of output, cost and revenue are in equilibrium’. In other words, it
determines the level of operations in an enterprise where the undertaking neither
gains a profit nor incurs a loss.
Break-even chart (BEC):
It is a graph showing the variation in total costs at different levels of output (cost
line) as well as the variation in the total revenues at various levels of output
Break-even point:
It is that point of activity (sales volume) where total revenues and total expenses
are equal. It is point of zero profit, i.e. stage of no profit and no loss. BEP can be used
to study the impact of variations in volume of sales and cost of production on profits.
Angle of incidence:
It is an angle at which total revenue line intersects total cost line. The
magnitude, of this angle indicates the level of profit. Larger the angle of incidence,
higher will be the profits per unit increase in sales and vice versa.
Margin of safety:
It is excess of budgeted or actual sales over the break-even sales volume i.e.
margin of safety = (actual sales minus sales at BEP)/actual sales. A high margin of
safety would mean that even with a lean period, where sales go down, the company
would not come in loss area. A small margin of safety means a small reduction in sale
would take company to cross BEP and come in red zone.
CALCULATION OF BEP
Relationship between costs and activity level (AL) is also assumed to be linear.
For every elemental cost, actual cost figures at different activity levels are plotted,
and by ‘least square analysis’ a ‘line of best fit’ is obtained. This would give a fixed
cost component and a variable cost component for the elemental cost.
This analysis is carried out for all elemental costs. The total cost function would
give total fixed cost and total variable cost for the company. The Break-even Point is
that volume where the fixed and variable costs are covered. But no profit exists.
Thus at BEP, the total revenues equal to the total costs.
Profit volume ratio (PVR) is defined as the ratio between Contribution Margin and
Sales Revenue.
i.e.
Profit Volume Ratio (f) = Contribution ⋅ Margin /Sales. Revenue
Margin of safety (MOS)
is defined as the ratio between Operating Profit and Contribution Margin. It signifies
the fractional reduction in the current activity level required to reach the break-even
point.
Sales turnover (STO) is defined as ratio between Sales Revenue and the Capital
Employed. It represents the number of times capital employed is turned over to
reach the sales revenue level that is called Operating management performance
[OMP].
IMPROVING OMP
A company interested in improving its OMP will have to improve its operating profit.
Following any of the strategies given below or a combination of them can do this:
(a) By reducing variable costs
(b) By reducing fixed costs
(c) By increasing sales price
(d) By increasing the activity level.
A) Reduction in variable costs will bring down BEP, increase PV ratio and increase
margin of safety.
To achieve a required Targeted Profit (Z), variable cost would have to be controlled
at
V=SR – (F+Z )
b) A reduction in fixed costs will bring down BEP and increase margin of safety. It will
have no effect on PV ratio. To achieve a required TP by controlling fixed cost alone,
the fixed cost would have to be controlled as
F=(SR – V) – Z
c) An increase in selling price will bring BEP down, it will increase PV ratio and it will
also increase the margin of safety. To get the targeted profit level the increase
required in selling price is given by
b'=
(F+Z ) x b
(b-a)
2.8 Statistical Models
Most business decisions are made with only limited or incomplete information.
Statistical theory can help to control error associated with the amount of data used
in the decision process. Decision makers utilize probabilities, which are the most
basic measures of uncertainty. Probabilities attach a quantitative value (between 0
and 1) to the occurrence of an event. Events are called independent if the
occurrence of one in no way affects any other one. Mutually exclusive events
automatically preclude each other, such as classifying an item as good or defective.
Following are the rules for applying probabilities.
There are three types of probabilities.
(a) Classical probabilities are based upon equally likely outcomes that can be
calculated prior to an event on the basis of mathematical logic.
(b) Empirical probabilities are based upon observed data and express the relative
frequency of an event in the long run.
(c) Subjective probabilities are based upon personal experience or judgment and are
sometimes used to analyze one-time occurrences.
11. Decision Tree
A decision tree is a schematic representation of the alternatives available to a
decision maker and their possible consequences. The term gets its name from the
tree like appearance of the diagram (see Figure 2.8 below). Although tree diagrams
can be used in place of a pay-off table, they are particularly useful for analyzing
situations that involve sequential decisions.
A decision tree is composed of a number of nodes that have branches
emanating from them (see Figure 2.8 below). Square nodes denote decision points,
and circular nodes denote chance events. Read the tree from left to right. Branches
leaving square nodes represent alternatives; branches leaving circular nodes
represent chance events (i.e., the possible states of nature).
A schematic representation of the available alternatives and their possible
consequences
Let’s Sum Up
Management scientists hold that, education, scientific training and experience
can improve a person’s ability to make decisions. Scientific decision -making rests
upon organized principles of knowledge and depends largely upon the collection of
empirical data and analysis of the data in a way that repeatable results will be
obtained.
The degree of certainty is classified as complete certainty, risk and uncertainty
and extreme uncertainty.
Scientific framework for decision implies the following systematic steps are :
Defining the problem, Establish the decision criteria, Formulation of a model,
Generating alternatives, Evaluation of the alternatives and Implementation and
monitoring.
‘A Break-even Analysis indicates at what level of output, cost and revenue are in
equilibrium’. In other words, it determines the level of operations in an enterprise
where the undertaking neither gains a profit nor incurs a loss.
A decision tree is a schematic representation of the alternatives available to a
decision maker and their possible consequences.
MODULE 1
CHAPTER 3
Project Management
Chapter Outline
1 Learning Objectives
12. TOPICS:
3.1 INTRODUCTION
3.2 PROJECT LIFE CYCLE
3.2.1 THE INITIATION PHASE
3.2.2 THE PLANNING PHASE
3.2.3 THE EXECUTION PHASE
3.2.4 THE TERMINATION PHASE
3.3 BEHAVIORAL AS[ECT OF PROJECT MANAGEMENT
3.3.1ORGANIZATION CULTURES INFLUENCE
3.3.2 PEOPLE CENTRIC PROJECT MANAGEMENT
3.3.3INSTRUMENTAL
ELEMENTS
FOR
SUCCESSFUL
IMPLEMENTATION OF PEOPLE CENTRIC PROJECT MANAGEMENT (PCPM)
3.4 WORK BREAKDOWN STRUCTURE
3.4.1 RESOURCE BREAKDOWN STRUCTURE (rbs)
3.4.2 HOW TO CREATE A WORK BREAKDOWN STRUCTURE
3.5 PLANNING AND SCHEDULING WITH GANTT CHART
3.5.1 WHAT IS A GANTT CHART
3.6 PERT AND CPM
` 3.6.1 DEFINITION OF PERT
3.6.2 DEFINITION OF CPM
3.6.3 ADVANTAGES OF PERT
3.7 DETERMINISTIC AND PROBABILISTIC SCHEDULING
3.7.1 DETERMINISTIC SCHEDULING
3.7.2 PROBABILISTIC SCHEDULING
3.8 BUDGET CONTROL
3.8.1 PLANNING ISSUE
3.8.2 TOP-DOWN AND BOTTOM-UP SCHEDULING
3.8.3 ROLLING BUDGET
3.8.4 ACTUAL AND BUDGETED PERFORMANCE* (in thousands of
dollars) * Income taxes ignored.
3,9 RISK MANAGEMENT’
3.9.1 PROJECT RISK MANAGEMENT
3.10 PROJECT MANAGEMENT SOFTWARE
3.10.1 TYPES OF PROJECT MANAGEMENT SOFTWARE
3
Let’s Sum Up
Learning Objectives
Discuss the different concepts of project management and its life cycle.
Determine the behavioral aspect of project management.
Explain the different work breakdown and how to create its components.
Describe the importance and uses of Gantt Chart in proper scheduling.
Differentiate PERT to CPM and its importance to operations.
Determine other project management ways and risk management to operations.
Define the different project management software.
3.1 INTRODUCTION
Project management, then, is the application of knowledge, skills, tools, and
techniques to project activities to meet the project requirements.
Project management brings a unique focus shaped by the goals, resources and
schedule of each project. The value of that focus is proved by the rapid, worldwide
growth of project management:
A, As a recognized and strategic organizational competence
B. As a subject for training and education
C. As a career path
3.2 PROJECT LIFE CYCLE
A project life cycle is the sequence of phases that a project goes through from its
initiation to its closure. The number and sequence of the cycle are determined by the
management and various other factors like needs of the organization involved in the
project, the nature of the project, and its area of application. The phases have a definite
start, end, and control point and are constrained by time. The project life cycle can be
defined and modified as per the needs and aspects of the organization.
3.2.1 THE INITIATION PHASE
The initiation phase aims to define and authorize the project. The project
manager takes the given information and creates a Project Charter. The Project
Charter authorizes the project and documents the primary requirements for the
project. It
Project’s purpose, vision, and mission
Measurable objectives and success criteria
Elaborated project description, conditions, and risks
Name and authority of the project sponsor
3.2.2 THE PLANNING PHASE
The purpose of this phase is to lay down a detailed strategy of how the project
has to be performed and how to make it a success.
Project Planning consists of two parts:
1. Strategic Planning
2. Implementation Planning
In strategic planning, the overall approach to the project is developed. In
implementation planning, the ways to apply those decisions are sought.
3.2.3 THE EXECUTION PHASE
In this phase, the decisions and activities defined during the planning phase
are implemented. During this phase, the project manager has to supervise the
project and prevent any errors from taking place. This process is also termed
as monitoring and controlling. After satisfaction from the customer, sponsor, and
stakeholder’s end, he takes the process to the next step.
3.2.4 THE TERMINATION PHASE
This is the last phase of any project, and it marks the official closure of the
project.
The generic life cycle structure commonly exhibits the following characteristics:

At the start, cost and staffing levels are low and reach a peak when the work is in
progress. It again starts to drop rapidly as the project begins to halt.
 The typical cost and staffing curve does not apply to all projects. Considerable
expenses are required to secure essential resources early in its life cycle.
 Risk and uncertainty are at their peak at the beginning of the project. These
factors drop over the lifecycle of the project as decisions are reached, and
deliverables are accepted.
 The ability to affect the final product of the project without impacting the cost
drastically is highest at the start of the project and decreases as the project advances
towards completion.
3.3 BEHAVIORAL AS[ECT OF PROJECT MANAGEMENT
The behavioral aspects of project management consist of many different areas that
a project manager must master. The organizational culture is one area that can take time
to master for many project managers. The culture of an organization can be the success
or the failure of a project. Management must share common beliefs and values and be
willing to stand by them at the most critical times.
To build and manage a successful project team the project manager must be skilled
in many areas. The project manager has to be able to select team members that will fit
in with the team, manage meetings skillfully, establish a team identity and vision,
establish ways of rewarding the team as well as individuals, manage conflicts within
and outside the team, and be able to rejuvenate the team over long projects.
3.3.1ORGANIZATION CULTURES INFLUENCE
Organizational culture research has identified ten primary characteristics that
lead to successful or unsuccessful teams within an organization. These
characteristics will in turn affect the selection, sponsorship, prioritization, and
ultimate success of all projects in an organization (Gray, Larson, 2011).
1. Member Identity
2. Team Emphasis
3. Management focus
4. Unit integration
5. Control
6. Risk tolerance
7. Reward criteria
8. Conflict tolerance
3.3.2 PEOPLE CENTRIC PROJECT MANAGEMENT
People centric project management emphasizes that project management
should be based on Experience, Dynamics, Human Psychology rather than solely
on Processes. Wise project managers focus on learning and understanding how
people function in an organization – both as individuals – and as a team. It is
important to figure out during project initiation how people in the performing
organization behave and adapt.
The aspect of projects that gives project managers sleepless nights is people
behavior – especially factors emerging from them – such as push-back, resistance
to change, acceptance, trust etc. There are several real life scenarios project
managers encounter – that emanate from these aspects. Project managers are
encouraged to implement people centric management techniques that will
eventually will help them implement processes as well as manage behavioral
aspects of people successfully.
3.3.3INSTRUMENTAL
ELEMENTS
FOR
SUCCESSFUL
IMPLEMENTATION OF PEOPLE CENTRIC PROJECT MANAGEMENT
(PCPM)
1. UNDERSTAND CULTURE – PEOPLE VS PROCESSES
Culture is something that comes with people as a baggage along with them. It is
imperative that a project manager understand and interpret what the culture of the
performing organization is. This becomes increasingly challenging with virtual global
teams. When a team member responds swiftly “It is impossible for us to carry out this
work” without analyzing the work assigned – it is likely that employees are striving
within an organizational culture that is not supportive of their efforts!
Study: People will likely not understand this concept at the outset – since PCPM
focuses on how people function and how they apply project management to be people
centric. Managing triple constraints (Scope, Time and Cost) is the objective of healthy
project management.
Analyze: How you go about implementing PCPM varies from one organization to
another. It needs to be a part of the organizational strategy. Organizations would be
project based – where large parts of the workforce is involved in multiple projects.
Analyzing how the organization is structured helps the project manager make some of
the most important people related decisions in an effective manner.
Adjust or Adapt?: Most project managers tend to enforce processes without
understanding the culture and capabilities of the project team and stakeholders. In
PCPM – focus should be on adjusting processes to fit the culture and behavioral
responses rather than trying to adapt human nature to follow processes. Adjust the role
and processes for people – do not enforce processes on people.
Propose Changes: Create a governance committee or steering committee that is
part of the leadership team. Ensure that the PMO, Senior Management are on board and
devise a strategy on how you will move from rational to behavior centric project
management.
Gain Buy-In: The challenge for most project managers is to work with senior
management and the team in tandem, to gain buy-in and decide on adjusting or
adapting. Adjusting or adapting does not happen overnight.
Implement (Kaizen): PCPM will not happen overnight but will require a cultural
transformation. PMs should quickly identify strengths and weaknesses of team
members and encourage people to identify their strengths and work with their strengths.
Some people will have competitive strengths and it is important to leverage their
competitive skills.
Introspect: It is essential that project managers introspect how PCPM is being
implemented. The introspection frequency will depend on several factors such as the
team size, stakeholder size, location of teams and stakeholders, senior management
demands etc.
2. ENGAGE TEAM MEMBERS
Engaging project team members is the foundation to project success. In PCPM, it
is extremely important that the groundwork be laid to engage team members and
stakeholders and finally sustain in the short and long term. Focus should be setting key
performance/productivity indicators for the performing team as a whole. The level of
engagement of team and stakeholders should be monitored and strategies be devised to
maximize the engagement levels of both at the same time. Performance, Productivity,
Efficiency and Efficacy must be maximized or at a minimum balanced.
2. IMPORTANCE OF EMOTIONS & MOTIVATION
Emotions have to do with hormones and neurotransmitters in the human body.
Emotions drive employee motivation positively or negatively. Oh boy! Isn’t it difficult
to psycho-physio-bio-logically scan a person’s mind and body to anticipate what the
Expressions, Feelings, Body Language, and Actions he or she may exhibit e.g.– they
are sometimes Happy, Sad, Angry, Excited, Tender, Scared etc. This has been a long
standing challenge for most people managers, especially project managers!
Feelings, Moods and Actions affect the manner in which team members and
stakeholders carry out their work on projects and so management of emotional aspects
is supreme for successful project management. A good project manager should not just
be a technical person but should be a rare breed of individual who should be able to
manage both the technical and emotional factors.
4. IDENTFY BEHAVIORAL RISKS USING INTUITIVE MIND-READING
Behavior refers to the range of actions and mannerisms exhibited – in this case –
by people. Certain desired behavior is assumed by project managers when they stitch
and integrate several of the established project management processes. This assumption
is based on factors such as Culture, Attitudes, Emotions, Perceptions, Values, Ethics,
Authority, Rapport, Hypnosis, Mindset and Persuasion, among others.
On most occasions some of these assumptions don’t hold quite valid. When people
don’t behave like the way we originally assumed them to, their behavior seems
unpredictable to us. And, when people behavior becomes unpredictable – project
outcome is inevitably affected – either positively (success) or negatively (failure).
5. …AND LASTLY:
COMMUNICATION!
COMMUNICATION,
COMMUNICATION
&
In PCPM, it must be the daily duty for project managers to maintain the line of
communication very open so that they keep catering to the basic needs to employees.
What needs to get communicated across and top things project managers need to
keep in mind while implementing PCPM?
 Understand and believe that project managers have the most impact in opening up
communication channels.
 Communicate what is expected of each team member
 Establish a clear sense of what each team member’s duty or role is.
 Provide recognition – this is actually part of communication!
 Empower team members’ with the right tools and techniques to do the job
 Keep your ears open to suggestions
 Have open conversations about every aspect that requires the PCPM
framework to be adjusted.
 Frequently talk to team members about their progress and provide feedback –
 Learn from people on how they think they connect to the mission of the project
team and compare that with how you think they connect.
 Communicate between the current state future state the gap and how is the
team member is doing.
 Make Action Plans for the longer term to ensure you are actively managing
the emotional and motivational aspects of ALL the people
 Gather feedback and inputs on how are people interact with each other on their
communication channel.
 Finally, it is the project managers duty to ensure that interactions on ALL
communication channels yield positive results!
3.4 WORK BREAKDOWN STRUCTURE
A work-breakdown
structure (WBS)in project
management and systems
engineering, is a deliverable-oriented breakdown of a project into smaller components.
A work breakdown structure is a key project deliverable that organizes the team's work
into manageable sections.
A work-breakdown structure element may be a product, data, service, or any
combination thereof. A WBS also provides the necessary framework for detailed cost
estimating and control along with providing guidance for schedule development and
control
A construction project WBS example
This is a three-tier WBS with each level denoted with numerical notation (such as
“1.1.2”). For each subsequent level, you’d add another decimal to the notation (such as
“1.1.2.1”).
Also note how the WBS is organized into broad deliverables and sub-deliverables,
all of which are nouns, not activities. Further, if you were to add up all the deliverables
together, you’d get the first level in the WBS, i.e. the 100% rule.
This is the key defining trait of a good WBS.
3.4.1 RESOURCE BREAKDOWN STRUCTURE (rbs)
A resource breakdown structure consists of both the material and human
resources required to complete a deliverable.
3.4.2 HOW TO CREATE A WORK BREAKDOWN STRUCTURE
The output of the WBS development process might seem simple: a short
document with a list of deliverables. To create it, however, you need a thorough
understanding of the project’s scope, your team’s capabilities, and your
stakeholders’ requirements.
1. Understand the Project’s Scope
2. Determine Major Deliverables
Once you have an understanding of the project scope, start the WBS development
process by figuring out the key deliverables.
3. Determine Work Packages
A work package, as you learned above, is a deliverable at the lowest level of a
WBS.
This is one of the most important parts of the WBS development process and one
that will require extensive input from your project team and stakeholders.
Your goal is to pick a major deliverable, then identify all the work necessary to
complete it. This work package must be:
Independent: The work package must be mutually exclusive and have no
dependence on other ongoing elements.
Definable: The work package should have a definite beginning and end, and should
be understood by all project participants.
Estimable: You should be able to estimate the work package's duration and
resource requirements.
Manageable: The package must represent a "meaningful unit of work", i.e. it must
accomplish something concrete, and can be assigned to an individual or team. It should
also be measurable.
Integratable: The package must integrate with other elements to create the parent
level. Adaptable: Ideally, the package must be able to accommodate changes in scope
as per the project's requirements.
4. Create a WBS Dictionary
The WBS dictionary is a document that outlines the definition and scope of each
element contained in the WBS. It is a supporting document meant to help incoming
project teams understand each work package better.
Here's an example of a more simplified WBS dictionary with element ID, name,
and description:
5. Use the Right WBS Format
There are several WBS formats you can follow. The simplest way to do this is to
create text-based hierarchical groupings. By convention, you use numbers and
decimal points to indicate the level of the element.
Visual tabular structure
flowchart
3.5 PLANNING AND SCHEDULING WITH GHANTT CHART
Nowadays it's possible to use modern Gantt chart planning to better manage your
project resources and control for unexpected situations. There's a reason why we still
use this solution, because even after a century, we still haven't been able to think of
anything better. In this article we'll give your a comprehensive guide to using Gantt
charts for scheduling and planning. What exactly they are, the elements of classic and
modern day versions, and what kind of advantages you'll see when using them.
3.5.1 WHAT IS A GHANTT CHART
A Gantt chart is a visual project management tool that helps to plan and
schedule projects of every size.
Gantt charts look like a horizontal bar chart that shows project
management timelines, task starting and ending dates, dependencies between
different tasks, and general project task flow.
It is a visual interpretation of the project which gives an overview of the
project’s progress, timeline, and tasks over its entire time frame.
A classic Gantt chart consists of
Projects dates and timeline - this gives project managers an overview of all the
project dates. From the start, to dates connected with project tasks, and to the finish.
You have the complete time frame at your fingertips!
Gantt chart bars as project tasks - projects normally consist of different tasks
and the Gantt chart is a great way to see them all in one place. A visual overview
helps you make sure that everything is in the right place on the timeline and nothing
is forgotten. Task names are normally set on the Gantt chart. Luckily, modern
charts are made so that you can easily change the location and the length of the task
bar.
Milestones - milestones are the little “wins” of the projects. They are normally
at the end of the task and hold some significance for the project. Usually,
milestones are displayed as diamond-shaped - which feels like a bonus after the
completion of the task. TIP: Always celebrate your little “wins”. They help to
break your project into more achievable pieces.
Dependencies - there are always tasks in your projects that need to be
completed before the next task can begin or end. So one task is dependent on the
other’s start or finish. In Gantt charts, dependencies between the tasks are shown
with little arrows. TIP: dependencies can help you focus on the base tasks that are
directly connected with the general project flow.
Resources - In a classic Gantt chart, you can add a resource to your task to see
who’s responsible for the task and who’s working on it. In modern Gantt charts,
there are ways to make it more visual and understandable. It’s not rare to use Gantt
charts for resource planning and project portfolio management, in addition to single
project planning.
Here are the TOP advantages of Gantt chart in scheduling management with
Gantt chart software :
Get a visual overview about the whole project
All project-related issues in a single place
Use your resources more effectively
Agile and real-time changes
Keep an eye on future, long-term planning
Solve the problems before they happen
Handle the dependencies between the tasks
They can be used in every industry
3.6 PERT AND CPM
Project management can be understood as a systematic way of planning,
scheduling, executing, monitoring, controlling the different aspects of the project,
so as to attain the goal made at the time of project formulation. PERT and CPM
are the two network-based project management techniques, which exhibit the flow
and sequence of the activities and events. Program (Project) Management and
Review Technique (PERT) is appropriate for the projects where the time needed
to complete different activities are not known.
`
3.6.1 DEFINITION OF PERT
PERT is an acronym for Program (Project) Evaluation and Review Technique, in
which planning, scheduling, organizing, coordinating and controlling uncertain
activities take place. The technique studies and represents the tasks undertaken to
complete a project, to identify the least time for completing a task and the minimum
time required to complete the whole project. It was developed in the late 1950s. It is
aimed to reduce the time and cost of the project.
3.6.2 DEFINITION OF CPM
Developed in the late 1950s, Critical Path Method or CPM is an algorithm used
for planning, scheduling, coordination and control of activities in a project. Here,
it is assumed that the activity duration is fixed and certain. CPM is used to compute
the earliest and latest possible start time for each activity.
The process differentiates the critical and non-critical activities to reduce the
time and avoid the queue generation in the process. The reason for the identification
of critical activities is that, if any activity is delayed, it will cause the whole process
to suffer. That is why it is named as Critical Path Method.
The following steps are required for using CPM and PERT for planning and
scheduling:
(i) Each project consists of several independent jobs or activities. All these
jobs or activities must be separately listed. It is important to identify and distinguish
the various activities required for the completion of the project and list them
separately.
(ii) Once the list of various activities is ready the order of precedence for these
jobs has to be determined. We must see which jobs have to be completed before
others can be started. Obviously, certain jobs will have to be done first.
Many jobs may be done simultaneously and certain jobs will be dependent
upon the successful completion of the earlier jobs. All these relationships between
the various jobs have to be clearly laid down.
(iii) The next step is to draw a picture or a graph which portrays each of these
jobs and shows the predecessor and successor relations among them. It shows
which job comes first and which next. It also shows the time required for
completion of various jobs. This is known as the project graph or the arrow
diagram.
In this graph jobs are shown as arrows leading from one circle on the graph to
another. Thus, the arrow connecting the two circles represents a job. Circle one and
two represent job a i.e. forecasting of units sale which would take 14 days.
Circles 2 and 4 represent job b which will take ten days and so on. It would be
seen that job c is not dependent upon job b and therefore, the two jobs can be done
simultaneously. Once we reduce the project to network of activities and events and
we estimate activity durations, we are in a position to determine the minimum time
required for completion of the whole project.
To do so, we must find the longest path or sequence connecting the activities
through the network. This is called the ‘critical path’ of the project. The longest
path is the critical path. In our example, there are two paths. One is connecting
circle numbers 1, 2, 4 and 5. This path will take 14+10 + 10 = 34 days.
The other path, is connecting circles 1,2,3,4 and 5, this path will takes 14 + 7
+ 4+ 10 = 35 days. Obviously the 2nd path is the critical path and the project of
budget presentation will take this much of time. The students will however notice
that this time is shorter than the total time listed under Table 1 which will be 45
days. This is because jobs b and c can be done simultaneously.
3.6.3 ADVANTAGES OF PERT
1. It compels managers to plan their projects critically and analyse all factors
affecting the progress of the plan. The process of the network analysis requires that
the project planning be conducted on considerable detail from the start to the finish.
2. It provides the management a tool for forecasting the impact of schedule
changes and be prepared to correct such situations. The likely trouble spots are
located early enough so as to apply some preventive measures or corrective actions.
3. a lot of data can be presented in a highly ordered fashion. The task
relationships are graphically represented for easier evaluation and individuals in
different locations can easily determine their role in the total task requirements.
4. The PERT time (Te) is based upon 3-way estimate and hence is the most
objective time in the light of uncertainties and results in greater degree of accuracy
in time forecasting.
5. It results in improved communication; the network provides a common
ground for various parties such as designers, contractors, project managers etc. and
they must all understand each other’s role and contributions.
3.7 DETERMINISTIC AND PROBABILISTIC SCHEDULING
3.7.1 DETERMINISTIC SCHEDULING
Deterministic scheduling is the most commonly used scheduling technique. In this
method, the schedule developed is a network of activities linked by dependencies.
The values such as duration, start and finish dates for activities, are deterministic
in nature and thus each one is allocated a single value estimation. The estimated values
roll up to the project level to define project duration, along with start and finish dates.
The statistical tool generally used is Critical Path Method (CPM).
3.7.2 PROBABILISTIC SCHEDULING
This scheduling technique involves same activities as in deterministic scheduling,
such as listing
of tasks, allocating resources, estimating duration, defining start and completion dates,
and
based on the inputs develop a Gantt chart. The only difference lies in the way of
estimating
duration and statistical tool used to develop the schedule.
3.8 BUDGET CONTROL
The term “budget” tends to conjure up in the minds of many managers images of
inaccurate estimates, produced in tedious detail, which are never exactly achieved but
whose shortfalls or overruns require explanations. And that is what budgets are like for
many smaller businesses. This wasteful way of using budgets overlooks important
managerial objectives that budgeting can help achieve.
3.8.1 PLANNING ISSUE
It harmonizes the enterprise’s strategy with its organizational structure, its management
and personnel, and the tasks that need to be done to implement strategy.
3.8.2 TOP-DOWN AND BOTTOM-UP SCHEDULING
The top-down approach allows the owner-manager and others at the top to put
forward their comprehensive views of the organization and its economic and
competitive environments. Top management knows the company’s goals, strategies,
and available resources. Indeed, in a small company the owner-manager may be the
only one with such knowledge as others are almost totally involved with day-to-day
operations.
The bottom-up approach, on the other hand, makes use of operating management’s
detailed knowledge of the environment and the marketplace, knowledge that is
available only to those who are involved on a daily basis. The more responsibility unit
managers have for innovation, the more their inputs are needed in budget formulation,
for they are best able to decide courses of action and targets for their units. They know
what must be done, where the opportunities lie, what weaknesses need to be addressed,
and where resources should be allocated.
3.8.3 ROLLING BUDGET
The advantage of a rolling budget is its coverage. As one company president stated
in early 1983:
“We would have cut our inventories and production early last fall if we then had a
budget that looked out into the first quarter of this year. As it was, we moved too late
and it cost us a lot of money. That’s why we’re changing to a rolling budget as of next
July 1.”
On the negative side, a rolling budget takes more of management’s time to prepare
and, moreover, operations are disrupted four times a year, rather than once, for
planning.
Those who prefer rolling budgets argue that managers get better at budgeting with
practice, and therefore need no more time to do quarterly budgets than one annual
budget. And, as operating managers should always be engaged in planning, budgeting
four times a year is not a disruptive process for them.
3.8.4 ACTUAL AND BUDGETED PERFORMANCE* (in thousands of
dollars) * Income taxes ignored.
Contribution to overhead and profit—the direct costs and revenues that each
manager controls in the short run.
Department profit—contribution to overhead and profit less the fixed costs that are
directly attributable to each department’s operation. The department manager may
control these fixed costs either by deciding to replace equipment or to move to a new
location or by increasing or decreasing the department’s use of a corporate resource
such as a central computer, legal department, or building space.
Corporate profit—the final “bottom line” after all costs have been deducted,
including costs over which department managers have no control and for which they
have no direct responsibility.
Budgets enhance the skills of operating managers not only by educating them about
how the company functions, but also by giving them the opportunity, and the spur, to
manage their subordinates in a more professional manner. This aspect of budgeting is
often overlooked because the budget is viewed essentially as a tool for the owners and
top management of a company. A business unit manager can use the budget, for
instance, to encourage salespeople to think about their customers in terms of long-term
strategic goals.
Budgets also have various ramifications, some subtle and some not so subtle. For
maximum effect, keep the following in mind:
A budget is a plan.
A budget is a control.
It can guide corporate operations.
It can extend the reach of top management by supporting delegation.
It can coordinate company activities.
It can communicate company objectives and activities during its preparation
and serve as a basis for communication throughout its term.
It can direct, guide, and reward operating managers and form a basis for
performance evaluation.
It can educate company employees as to what is to be done and assist them in
doing it.
It can lead to “games” involving false estimates and other counter-productive
behavior.
How it works depends on other management systems in place.
Its effectiveness depends on the way it is used by top management.
3,9 RISK MANAGEMENT’
Risks can come from various sources including uncertainty in financial markets,
threats from project failures (at any phase in design, development, production, or
sustaining of life-cycles), legal liabilities, credit risk, accidents, natural causes and
disasters, deliberate attack from an adversary, or events of uncertain or
unpredictable root-cause. There are two types of events i.e. negative events can be
classified as risks while positive events are classified as opportunities.
For the most part, these methods consist of the following elements, performed,
more or less, in the following order.
Identify the threats
Assess the vulnerability of critical assets to specific threats
Determine the risk (i.e. the expected likelihood and
consequences of specific types of attacks on specific assets)
Identify ways to reduce those risks
Prioritize risk reduction measures
The International Organization for Standardization (ISO) identifies the following
principles of risk management:[
Risk management should:
Create value – resources expended to mitigate risk should be less than the
consequence of inaction
Be an integral part of organizational processes
Be part of decision making process
Explicitly address uncertainty and assumptions
Be a systematic and structured process
Be based on the best available information
Be tailorable
Take human factors into account
Be transparent and inclusive
Be dynamic, iterative and responsive to change
Be capable of continual improvement and enhancement
Be continually or periodically re-assessed
3.9.1 PROJECT RISK MANAGEMENT
Project risk management must be considered at the different phases of acquisition.
In the beginning of a project, the advancement of technical developments, or threats
presented by a competitor's projects, may cause a risk or threat assessment and
subsequent evaluation of alternatives (see Analysis of Alternatives). Once a decision is
made, and the project begun, more familiar project management applications can be
used:
Planning how risk will be managed in the particular project. Plans should include
risk management tasks, responsibilities, activities and budget.
Assigning a risk officer – a team member other than a project manager who is
responsible for foreseeing potential project problems. Typical characteristic of risk
officer is a healthy skepticism.
Maintaining live project risk database. Each risk should have the following
attributes: opening date, title, short description, probability and importance. Optionally
a risk may have an assigned person responsible for its resolution and a date by which
the risk must be resolved.
Creating anonymous risk reporting channel. Each team member should have the
possibility to report risks that he/she foresees in the project.
Preparing mitigation plans for risks that are chosen to be mitigated. The purpose of
the mitigation plan is to describe how this particular risk will be handled – what, when,
by whom and how will it be done to avoid it or minimize consequences if it becomes a
liability.
Summarizing planned and faced risks, effectiveness of mitigation activities, and
effort spent for the risk management.
3.10 PROJECT MANAGEMENT SOFTWARE
Miscommunication and inefficiencies in your project management process can lead
to confusing and stressful experiences for your employees, and hinder your company's
ability to satisfy your clients' needs or hit end-of-year goals. This can lead to major
losses over time.
Fortunately, there are plenty of free project management software options to keep
your team on-track without breaking the bank. To streamline your process and ensure
everyone on your team is on the same page, take a look at these ten exceptional free
project management tools.
Project management software (PMS)
Project management software (PMS) has the capacity to help plan, organize, and
manage resource tools and develop resource estimates. Depending on the sophistication
of the software, it can manage estimation and planning, scheduling, cost control and
budget management, resource allocation, collaboration software, communication,
decision-making, quality management, time management and documentation or
administration systems. Today, numerous PC and browser-based project management
software and contract management software solutions exist, and are finding
applications in almost every type of business.
Scheduling
One of the most common project management software tool types is scheduling
tools. Scheduling tools are used to sequence project activities and assign dates and
resources to them. The detail and sophistication of a schedule produced by a scheduling
tool can vary considerably with the project management methodology used, the features
provided and the scheduling methods supported. Scheduling tools may include support
for:
 Multiple dependency relationship types between activities.
 Resource assignment and leveling Critical path
 Activity duration estimation and probability-based simulation
 Activity cost accounting.
Providing Information
Project planning software can be expected to provide information to various people
or stakeholders, and can be used to measure and justify the level of effort required to
complete the project(s). Typical requirements might include:
 Overview information on how long tasks will take to complete.
 Early warning of any risks to the project.
 Information on workload, for planning holidays.
 Evidence.
 Historical information on how projects have progressed, and in particular, how
actual and planned performance are related.
 Optimum utilization of available resource.
 Cost maintenance.
 Collaboration with each teammates and customers.
 Instant communication to collaborators and customers.
3.10.1 TYPES OF PROJECT MANAGEMENT SOFTWARE
Desktop
Project management software has been implemented as a program that runs on
the desktop of each user. Project management tools that are implemented as
desktop software are typically single-user applications used by the project manager
or another subject matter expert, such as a scheduler or risk manager.
Web-based
Project management software has been implemented as a web application to be
accessed using a web browser. This may also include the ability to use a smartphone
or tablet to gain access to the application. Software as a service (SaaS) is also webbased and has become a common delivery model for many business applications,
including project management, project management information system (PMIS) and
project portfolio management (PPM). SaaS is typically accessed by users using a thin
client via a web browser.
Single user
A single-user system is programmed with the assumption that only one person
will ever need to edit the project plan at once. This may be used in small companies,
or ones where only a few people are involved in top-down project planning. Desktop
applications generally fall into this category.
Collaborative
A collaborative system is designed to support multiple users modifying different
sections of the plan at once; for example, updating the areas they personally are
responsible for such that those estimates get integrated into the overall plan. Webbased tools, including extranets, generally fall into this category, but have the
limitation that they can only be used when the user has live Internet access. To
address this limitation, some software tools using client–server architecture provide
a rich client that runs on users' desktop computer and replicates project and task
information to other project team members through a central server when users
connect periodically to the network.
Let’s Sum Up
Project management, then, is the application of knowledge, skills, tools, and
techniques to project activities to meet the project requirements.
A project life cycle is the sequence of phases that a project goes through from its
initiation to its closure. The number and sequence of the cycle are determined by the
management and various other factors like needs of the organization involved in the
project, the nature of the project, and its area of application.
To build and manage a successful project team the project manager must be skilled
in many areas. The project manager has to be able to select team members that will fit
in with the team, manage meetings skillfully, establish a team identity and vision,
establish ways of rewarding the team as well as individuals, manage conflicts within
and outside the team, and be able to rejuvenate the team over long projects.
A work-breakdown
structure (WBS)in project
management and systems
engineering, is a deliverable-oriented breakdown of a project into smaller components.
A work breakdown structure is a key project deliverable that organizes the team's work
into manageable sections.
Gantt charts look like a horizontal bar chart that shows project management
timelines, task starting and ending dates, dependencies between different tasks, and
general project task flow.
PERT is an acronym for Program (Project) Evaluation and Review Technique, in
which planning, scheduling, organizing, coordinating and controlling uncertain
activities take place.
Developed in the late 1950s, Critical Path Method or CPM is an algorithm used for
planning, scheduling, coordination and control of activities in a project. Here, it is
assumed that the activity duration is fixed and certain. CPM is used to compute the
earliest and latest possible start time for each activity.
Risks can come from various sources including uncertainty in financial markets,
threats from project failures (at any phase in design, development, production, or
sustaining of life-cycles), legal liabilities, credit risk, accidents, natural causes.
References:
Everett, E. Adam, Jr.Ronald J.Ebert, Production and Operations Management,
Prentice-Hall of India Private Limited, 5th Edition, 1994.
R. Pannerselvam, Production and Operations Management, Prentice-Hall of
India Private Limited, 9th print, 2004.
Joseph, G. Monks, Theory and Problems of Operations Management, Tata
McGraw-Hill Publishing Company Limited, 2nd Edition, 2004.
Joseph, G. Monks, Operations Management, McGraw-Hill International Edition,
3rd Edition.
S. Anil Kumar, N. Suresh, Production and Operations Management, New Age
International (P) Limited Publishers, 2nd Edition, 2008.
https://www.pmi.org/about/learn-about-pmi/what-is-project management
https://www.projecttimes.com/articles/does-people-behavior-impact-projectshow-and-what-do-we-do-about-it.html
https://www.workamajig.com/blog/guide-to-work-breakdown-structures-wbs
https://keydifferences.com/difference-between-pert-and-cpm.html
https://hbr.org/1984/07/budget-choice-planning-versus-control
https://en.wikipedia.org/wiki/Risk_management
https://blog.hubspot.com/marketing/free-project-management-software
MODULE 2
Intended Learning Outcomes
1. Discuss the concepts and factors to consider in designing quality products.
2. Explain the principles of quality management, inspection and the importance
of statistical process control.
3. Analyze the concepts of plant location, the factors to be considered in
selecting plant location, its strategic importance and various models.
Quality is vital in achieving the goals of any organization. Thus, it should be a
continuous process of quality improvement to reach the maximum satisfaction of the
changing demands of the market. This module will let you explore the concepts of
product design, the quality management system, and the facility location decisions.
Chapter 5 considers the strategic implications of product design to the overall plan and
policies of the organization. Chapter 6 focuses on quality management as part of every
business organization and quality tools that can be used for improvement. Particular
emphasis is placed on the application of the Total Quality Management approach as a
continuous quest for quality improvements. Chapter 7 reviews the plant location
strategic decisions which also have long-term implications on the business
organization.
CHAPTER 5
PRODUCT DEVELOPMENT AND DESIGN
Chapter Outline
5.1
5.2
5.3
5.4
Introduction
Purpose of a Product Design
Product Analysis
A Framework for Process Design
5.5
5.6

Design for Manufacture (DFM)
Design for Excellence
References
5.1 INTRODUCTION
For any business organization, the product design is the primary step in
manufacturing venture. The processes for manufacture, the planning of production, the
processes and checks for quality, or even the logistics are structured based on the
product design. Hence, great product design is the key to success. The development of
products provides an opportunity for growing the business but this can have impacts
and changes throughout the organization and the entire supply chain.
5.2 PURPOSE OF PRODUCT DESIGN
Organizations are more likely to achieve their goals with well-designed
products. They should serve their purpose while being creative with the design. Design
is usually more concerned with the process of applying scientific principles and
inventions (Roy and Weild, 1993). The needs and expectations of the customers or
marketplace are the basis of design conceptualization and effort. Marketing gathers
information from customers and potential customers to identify customer needs and
expectations and to position the company differently amongst competitors. Thus,
marketing is also impacted by product design.
Product design has strategic implications with the company’s overall plans and
policies. This may include decisions with respect to the specification of the
requirements on each material to be used, the suppliers or networks to be involved, the
technology requirement and processes, warehousing, and the supply chain system.
Product development and design are primarily governed by management decisions in
formulating quality goals and cost targets, and pricing policy.
5.3 PRODUCT ANALYSIS
Every product is designed in a particular way - product analysis enables us to
understand the factors in connection with product development and design,
characteristics, and factors associated with different fields which are required before
any product can be manufactured. All these factors are interrelated and each presents many
issues that have to be carefully considered, as indicated by Figure 5.1.
Some of these factors may be grouped as follows:
1. Marketing aspect 2. Product characteristics
(i) Functional aspect,
(ii) Operational aspect,
(iii) Durability and dependability aspects, and
(iv) Aesthetic aspect.
3. Economic analysis
(i) The profit consideration,
(ii) The effect of standardization, simplification, and specialization, and
(iii) The break-even analysis.
4. Production aspect
Figure 5.1 Some interrelations involved in product design
Source: Adapted from Product Development and Design (p.131) by S.A. Kumar and N. Suresh,
Operations Management 2009, New Delhi, New Age International
Marketing Aspect
The marketers of the organizations evaluate the strength of the market demand
for the product, the environment, and how this adapts the possible changes that might
affect the product's future sales and costs.
Product Characteristics
As the customers’ needs and expectations are to be satisfied, the design of the
product should be functionally sound. It is important to understand the difference
between product functions and product features. As to function is the purpose for which
the product is designed while the feature is something added to the product as a special
attraction. Another aspect is the components that should be within the reach of the
organization. Moreover, the quality and durability of the materials should also be
specified.
Economic Analysis
Having obtained sufficient information about customers’ requirements and market
potentialities, the next important factor is the product feasibility on the economic ground which
involves capital expenditures, cost vale and functional value of the product
Production Aspect
It is also important to consider the operational convenience of the
manufacturer and the availability of the materials.
5.4 A FRAMEWORK FOR PROCESS DESIGN
One of the reasons why some organizations fail is that they place most of their
attention to product design and not enough on process design. The design process is a
series of steps that product teams follow during the formulation of a product from start
to finish. It is viewed as an interactive exercise, mean to say, issues are solved
sequentially. Then after each stage, or perhaps after several stages, the previous stages
are reexamined to see if later steps have affected the best way in which these steps
should have been designed. This process is shown in Fig. 5.2.
Product Planning
Product planning and process design are integrated so that at the end of the
design stage there is a product with the optimum qualities, and a process to produce it.
There are many activities to be first recognized and then coordinated; some activities
are worked in sequence. In the early stage, the perceived needs of the customers are
identified and will be reflected in the product's proposed quality, cost, function,
reliability, and appearance.
Process Design
Process planning is a very essential and primary part of project management in
the field of manufacturing. The macro perspective of the process design is consists of
work station selection and a workflow analysis. Whereas, the choice of work station
pertains to the selection of machines to be used in the production process while the
choice of workflow is about the progress between stages.
Fig. 6.13 The process
planning
task
Source: Adapted from Product Development and Design (p.131) by S.A. Kumar and N. Suresh,
Operations Management 2009, New Delhi, New Age International. Adapted with permission.
The micro perspective of the process design comprises the operational content
and the operational method. Operational Content concerns with the proper
arrangement of the process that should be assigned to a work station. On the other
hand, the operational method focuses on ensuring the maximum productivity of the
process.
5.5 DESIGN FOR MANUFACTURE (DFM)
Manufacturability is one of the key attributes of a system in manufacturing
goods: ease of fabrication and/or assembly is important for cost, productivity, and
quality.
Design for manufacturing (DFM) is the idea of modifying or improving the
design and process of the product considering the company’s capabilities to
manufacture the same easier, quicker, and less cost without compromising the quality.
It is considered to be a competitive benchmarking tool.
Another related concept in manufacturing is the design for assembly (DFA)
which focuses on reducing the number of parts and simplification processes in an
assembly. Each component in the design is examined how it is to be oriented and moved
for assembly. Table 5.1 presents some DFM principles for assemblies.
I. Minimize the number of parts
(i) Reduce the absolute requirement of a variety of parts.

Design the product in such a way that it consists of very few parts.
 Use a different technology, if necessary.
(ii) Combine parts where feasible
Parts can be combined with other parts when:
 They are of the same material.
 They do not move relative to other parts of the assembly.
 Their combination would not affect the assembly of other parts.
 After-sales service does not require these to be separated.
II. Standardize designs
Standardize wherever possible:
 Parts, modules, sub-assemblies, manufacturing processes, and systems may
be standardized.
 Where the parts cannot be the same, see if they can be similar.
 Apply ‘group technology’ concept of ‘families’ of parts.
 Where possible use standard catalog components.
III. Minimize the number of operations is the assembly
IV. Modify the part/s with the simplification of assembling in mind
Even minor modifications yield greater Assembly simplification
 Slight changes in a part's geometry can reduce the difficulty in grasping,
positioning, and inserting a part. The effort and time taken can reduce
significantly. Human errors of putting a wrong part or of orienting it
wrongly can be reduced.
V. Use modules
This allows for more standardization and speeds up the assembly process.
VI. Minimize ‘new’-ness
Minimize:
 new parts
 new processes
 new suppliers
 new machines
New things—particularly too many new things—introduce many imponderables and
increase uncertainty and, consequently, errors resulting in unacceptable quality and
time delays in assembling.
VII. Use ‘Poka Yoke’ or fool-proofing
Design in such a way that the parts cannot be assembled incorrectly.
Table 5.1 DFM Principles for Assemblies
Note: Adapted from “Forecasting Demand” by S.A. Kumar, N. Suresh, Operations Management
(p.106)) 2009, New Delhi, New Age International
5.6 DESIGN FOR EXCELLENCE
Customer service should drive the designers’ effort in creating better quality
products. Thus, the efforts should be towards design for excellence or DFx. Design for
excellence is a combination of Six sigma principles, methods on how the product has
been designed, and standards for quality contributing to the overall excellence of the
company.
References:
J.R. Evans. And W.M. Lindsay, “Total Quality Management”, Cengage Learning
Asia, 2013.
J. Heizer, B. Render, Operations Management, 10th Global Edition. New Jersey:
Pearson Education, 2011.
Roy, R. and Weild, D, Product Design and Technological Innovation, Open
University Press, Milton Keynes, 1993.
S. Anil Kumar, N. Suresh, Operations Management, New Delhi, New Age
International, 2009
S. Kale, Production and Operations Management, New Delhi, McGraw-hill
education, 2013.
W.J. Stevenson, “Operations Management”. 12th Edition. New York: McGraw-hill
education, 2015.
W.J Stevenson and S.C. Chuong, "Operations Management". 2nd Edition. New
York: McGraw-hill education, 2014.
CHAPTER 6
MANAGEMENT OF QUALITY
Chapter Outline
6.1
6.2
6.3
6.4
6.5
6.6
6.7
Evolution of Quality Management
The Foundations of Modern Quality
Management: The Gurus
Insights of Quality Management
Quality Awards
Quality Certifications
Total Quality Management
Problem Solving and Process Improvement
6.8
Quality Tools
6.9
Quality Control
6.10
6.11
6.12

Inspection
Statistical Process Control
Process Capability
References
INTRODUCTION
Quality is a measure of the company's excellence. Quality refers to the ability of a
product or service to consistently meet or exceeds stated requirements or expectations
of the customers (Stevenson, 2015). It is important to understand the different
perspectives from which quality is viewed to fully appreciate the role it plays in the
many parts of a business organization.
6.1 EVOLUTION OF QUALITY MANAGEMENT
During the middle ages, the skilled craftsperson all stages of production. Quality
assurance was informal; one person or a small group of people were responding to the
final product they produced. These themes were lost in the advent of the Industrial
Revolution where each worker was then responsible for only a small portion of each
product.
In the early 1900s, the “Father of Scientific Management”, Frederick W. Taylor
led to a new philosophy of production and inspection as primary means of quality
control. G.S Radford improved Taylor’s method by considering quality early in the
product design stage.
In 1924, Bell Telephone Laboratories introduced Statistical process control
charts, which became a popular means of identifying quality problems in production
processes and ensuring consistency of output. H.F. Dodge and H.G. Romig developed
the sampling inspection tables in the early 1930s.
During the 1950’s, quality control evolved to quality assurance with emphasis
on problem avoidance rather than problem detection and involvement of upper
management in quality.
In the 1960’s, Philip Crosby introduced the philosophy of Zero defect
management which focused on employee motivation and awareness and the expectation
of perfection form each employee.
During the 1970’s, quality assurance methods gained to focus on services.
Japanese products had a significant global impact on the market as they integrated
quality in their organizations and developed a culture of continuous improvement.
6.2 THE FOUNDATIONS OF MODERN QUALITY MANAGEMENT: THE
GURUS
Walter Shewhart was an American statistician and known as the “father of
statistical quality control”. Shewhart’s work focused on how the manufacturing process
could be monitored in such a way as to reduce variations and determine when corrective
action was necessary.
W. Edwards Deming, an American professor and statistician, who helped in
Japan's recovery after World War II through his statistical knowledge and methods in
improving quality and productivity. Dr. Deming’s famous 14 points that he believed
were the prescription needed to achieve quality in an organization.
Joseph M. Juran was a Romanian-born American engineer and management
consultant and known as the "father of modern-day quality management". Like
Deming, he was also invited and assist Japanese manufacturers on how to improve the
quality of their products, he too, can be regarded as a major force in Japan's success in
quality. It is his view that quality begins by considering what customers want. A key
element of his philosophy is the commitment of the organization to continuous
improvement.
Armand Feigenbaum was an American quality control expert who recognized
that quality was not simply a collection of tools and techniques, but a “total field” that
integrated the process of the organization. According to Feigenbaum, it is the customer
who defines quality.
Philip B. Crosby was a legend in the discipline of quality. He is widely
recognized in his concept of “zero defects” and he believed that there is absolutely no
reason for having errors or defects in any products or services.
Kaoru Ishikawa is considered the Father of Japanese Quality. He developed
the fishbone or the cause-and-effect diagram where users can see all possible causes of
a result which can help for problem-solving and the implementation of quality circles,
which involve workers in quality improvement. His
Genichi Taguchi made a significant contribution to his methodology in
improving the quality and reducing the cost. Taguchi loss function involves a formula
for determining the cost of the poor quality.
Taiichi Ohno and Shigeo Shingo both developed the philosophy and methods
of kaizen or rapid improvement process which focuses on eliminating waste, improving
productivity, and achieving sustained continual improvement.
6.3 INSIGHTS OF QUALITY MANAGEMENT
One way to define the concept of quality is the degree to which the performance
of a product or service meets or exceeds the customer’s expectations. Customer
expectations can be broken down into several dimensions that customers use to evaluate
the quality of a product or service.
David A. Gavin suggests that products and services have many dimensions of
quality.
The Dimensions of Quality – Product
Performance - primary operating characteristics of the product.
Aesthetics - appearance, feel, smell, taste or sounds of a product
Special Features - extra characteristics.
Conformance – the degree to which a product corresponds to design
specifications.
Reliability - dependable performance.
Durability - ability to perform over time.
Perceived Quality - indirect evaluation of the quality
Serviceability – speed, courtesy, and competence in the handling of complaints
or repairs.
The Dimensions of Quality – Service
Convenience - the availability and accessibility of the service
Reliability - the ability to perform what was promised of a service, dependably,
consistently, and accurately.
Responsiveness - the willingness of service providers to help customers to deal
with problems.
Time - the speed with which service is delivered.
Assurance - the knowledge and courtesy by personnel who come into contact
with a customer and their ability to convey trust and
confidence
Courtesy - the way customers are treated by employees who come into contact
with them
Tangibles - the physical appearance of facilities, equipment, and personnel
Note: Adapted from “Management of Quality” by W.J. Stevenson, Operations Management (12th Edition) 2015,
New York, McGraw-hill Education. Adapted with permission.
Assessing Service Quality
SERVQUAL is a multi-dimensional research instrument designed to
obtain feedback on an organization’s ability to provide quality service to
customers. It focuses on consumer expectations and perceptions of a service
along the five dimensions: tangibles, reliability, responsiveness, assurance, and
empathy.
The Determinants of Quality
1. Design.
2. How well the product or service conforms to the design.
3. Ease of use.
4. Service after delivery.
Quality of design refers to the intention of the producer or supplier to include
or exclude certain features in a product or service.
Quality of conformance - refers to the level to which goods and services meet
their design specifications
Implications of Quality
Company Reputation – quality will show up in the perception of the firm's
products, employment practices, and network relations.
Product liability – the organization must pay special attention to damages
or injuries resulting in the use of their faulty products or poor
workmanship.
Global implications – inferior products harm a firm's profitability, a
nation's balance of payments, and may become a major issue
nationwide.
6.4 QUALITY AWARDS
The philosophies of Deming, Juran, Crosby, and others serve much help in the
form of "best practices" to managers around the world, leading to the development and
a lot of awards and certifications for the effective application of Total Quality
principles.
The Malcolm Baldrige National Quality Award
The Baldrige Award annually administered by the National Institute of
Standards and Technology. The award’s Criteria for Performance Excellence is
designed to encourage companies to enhance their competitiveness and recognize
quality achievements of integrating total quality principles and practices in any
organization.
The European Quality Award
Europe's most prestigious award was designed to increase awareness of the growing
importance of quality to the competitiveness of the business in the increasingly global
market and the standards of life.
The International Asia Pacific Quality Award
This award is given to organizations in countries bordering the Pacific Ocean
and the Indian Ocean, dedicated to achieving continuous quality improvement of goods
and services and life for people around the world.
The Deming Prize
This award is Japan’s highly coveted award recognizing successful quality
efforts. It is given annually to all companies that meet the prescribed standard. The
major focus of the criteria is on statistical quality control which also reflects the
involvement of senior management and employees, customer satisfaction, and training.
6.5 QUALITY CERTIFICATIONS
As quality became a major focus of many firms that do business internationally,
various organizations developed standards and guidelines.
International Organization for Standardization (ISO)
The International Organization for Standardization promotes worldwide standards to
achieve, maintain, and seek to continuously improve product quality through a series
of standards and guidelines. Two of the most well-known are ISO 9000 and ISO 14000
which both relate to an organization's processes and stressing continual improvement.
ISO 9000 is a set of standards that pertains to quality management that helps
what an organization does to ensure that its products or services meet its customer’s
and stakeholder’s needs. Its standards include the following categories:
•
•
•
•
•
System requirements
Management requirements
Resource requirements
Realization requirements
Remedial requirements
ISO 14000 concerns the standards related to environmental management to help
the organizations minimize the negative effects of its operations on the environment.
•
•
•
•
•
•
•
•
Eight quality management principles form the basis of the latest version of ISO
9000:
A customer focus
Leadership
Involvement of people
A process approach
A system approach to management
Continual improvement
Use of a factual approach to decision making
Mutually beneficial supplier relationships
6.6 TOTAL QUALITY MANAGEMENT
The use of quality management has become widespread in every organization’s
daily operations. The aims of the businesses may differ, but the importance of
customers is a matter of common interest and the ability of organizations to adapt to
new customer requirements on a global market is of vital importance for long-term
success. Thus, quality has become an important factor to achieve the goals of the
businesses.
Total Quality Management (TQM)
Total - made up of the whole and every aspect of its business
Quality - degree of excellence a product or service provides
Management - act, art or manner of planning, controlling, directing and organizing
Therefore, TQM is the art of managing the whole to achieve excellence.
Total quality management is an approach that organizations use continuously to
quest for quality and improve their internal processes and increase customer
satisfaction. Stevenson (2014) pointed out that, “there are three key philosophies in this
approach: continuous improvement, the involvement of everyone in the organization,
and the goal of customer satisfaction”.
Six Sigma
Six Sigma is a set of management techniques that focuses on improving quality,
reducing cost, and increasing customer satisfaction by minimizing the occurrence of
defects and errors. It can be integrated with design, service, production, inventory
management, and delivery.
In many ways, six sigma provides a blueprint for the implementation of a total
quality system. Although they have a different approach and can be used independently,
they are compatible to be used together and increase the output of improvement.
6.7 PROBLEM SOLVING AND PROCESS IMPROVEMENT
Problem-solving is the act of defining a problem and finding solutions in an
orderly manner using appropriate tools and techniques. It is one of the basic procedures
of TQM where the users of this approach eliminate the cause so that the problem does
not recur. It is also an important factor for users to think of problems as "opportunities
for improvement" to be successful.
Basic steps in problem-solving
Step 1
Define the problem and establish an improvement goal.
Step 2
Develop performance measures and collect data
Step 3
Analyze the problem
Step 4
Generate potential solutions
Step 5
Choose a solution
Step 6
Implement the solution
Step 7
Monitor the solution to see if it accomplishes the goal
Note: Adapted from “Management of Quality” by W.J. Stevenson, Operations Management (12th Edition) 2015,
New York, McGraw-hill Education
The Plan-Do-Check-Act Cycle
The Plan-Do-Check-Act Cycle, developed by Walter Shewhart, is a four-step
circular conceptual model used as a basis for improving a process, solving a problem,
and continuous improvement. The PDCA cycle is shown in Figure 6.1 as a circle to
stress that continuous improvement is a never-ending process.
Figure 6.1 Shewharts PDCA Model
Note: Adapted from “Quality Management and International Standards” by J. Heizer and B. Render,
Operations Management (10th Edition) 2011, New Jersey, Pearson Education
Process Improvement
Process Improvement is a proactive task of improving the process. It involves
documentation, measurement, and analysis to improve the functioning of a process.
Typical goals of process improvement include increasing customer satisfaction,
achieving higher quality, reducing waste, reducing cost, increasing productivity, and
reducing processing time.
Note: Adapted from “Management of Quality” by W.J. Stevenson, Operations Management (12th Edition) 2015,
New York, McGraw-hill Education
6.8 QUALITY TOOLS
Numerous tools that an organization can use for improvement have been
proposed over the years. The tools aid in data gathering and analysis and provide the
basis for decision making. These are the seven basic quality tools.
Flowcharts are a graphical representation of a process or step. These are best developed
by having all levels involved in the process.
Check sheets are simple tools frequently used for organizing and collecting data.
The histogram is a basic statistical tool that graphically shows an empirical frequency
distribution.
Pareto Diagrams, named after an Italian economist Vilfredo Pareto, often used to
analyze data collected in check sheets by classifying problem areas according to the
degree of importance.
Cause-and-Effect Diagrams offer a structured approach to assist the generation of
ideas for causes of the problem and serve as the basis for finding the solution.
Scatter Diagrams are useful in deciding if there are important relationships between
two variables
Control Charts are a statistical process control tool used to monitor how a process
changes over time.
6.9 QUALITY CONTROL
Quality control is a process that evaluates the quality of factors involved in
production to ensure that the output adheres to a standard of quality or meets the
requirements of the customers. It is similar to, but not identical with, quality assurance.
Quality assurance can be defined as the systematic activities implemented to
provide a confident confirmation that the product or service fulfilled the specified
requirements.
6.10 INSPECTION
Inspection involves measuring, examining, and testing of products or services
and comparing them to the standard. This separates good and It can occur before,
during, and after the production. Inspection performed either before (raw materials
inspection) and after production (pre-shipment inspection) often involves acceptance
sampling procedures; inspection during the production process is referred to as process
control. Figure 6.2 shows an overview of the acceptance sampling and process control
in the production process.
Figure 6.2 Acceptance sampling and process control
Source: Adapted from Management of Quality (p.412) by W.J. Stevenson, Operations Management (12th
Edition) 2015, New York, McGraw-hill Education
The rate at which a process may go out of control or the volume of the batches
being inspected is one of the most important factors to consider in determining the
frequency of inspection.
Cent Percent Inspection or 100 percent inspection involves inspecting every item
produced and incoming material to ensure that no defective product would go to market.
6.11 STATISTICAL PROCESS CONTROL
Statistical process control (SPC) is a statistical technique applied to the
control of the processes with a certain degree of variability to ensure that processes
meet the standard.
Control chart, developed by Walter Shewhart, is a simple but powerful tool;
it is a time-ordered plot of process data over time used to determine if a manufacturing
process is within the range of acceptable or out of control. The control chart is shown
in Figure 6.3 which consists of a mean value with two boundary lines, the upper control
limit (UCL) and the lower control limit (LCL). The purpose of the control chart is to
determine the capability of a process on quality measures, to picture the current status
of process quality and ensure its smooth flow.
Figure 6.3 Example of Control Chart
Source: Adapted from Management of Quality (p.420) by W.J. Stevenson, Operations Management (12th
Edition) 2015, New York, McGraw-hill Education
6.12 PROCESS CAPABILITY
Process capability is the ability of the resources and process to produce a
product which consistently meets the design specifications set by the customer
requirements and expectation (Kale, 2013). It is the range of the performance level in
which the natural variations of the process must be stable under the statistical control.
There are two popular statistics index that can be used to measure the
capability of the process that uses both process variability and process control
specification: process capability ratio (Cp) and process capability index (Cpk).
The process capability ratio, Cp, is computed using the following formula:
Cp is a ratio that determines whether a process fall inside the specification limits.
Example 6.1:
Computation of Cp
Adapted from Statistical Process Control (p.263) by J. Heizer and B. Render, Operations
Management (10th Edition) 2011, New Jersey: Pearson Education
The capable process has a Cp of at least 1.0, but if the Cp is less that 1.0 the
process produces products outside the specifications. Therefore, the process from the
Example 6.1 is capable.
The process capability index, (Cpk), is computed as:
where: x = process mean
 = standard deviation of the process population
Cpk index is used to determine the number of defects by taking the difference
between the desired and the actual dimensions of products being produced. A capable
process must have a Cpk of at least 1.0.
Example 6.2: Computation of Cpk
Adapted from Statistical Process Control (p.264) by J. Heizer and B. Render, Operations
Management (10th Edition) 2011, New Jersey: Pearson Education
Example 6.2 shows an application of Cpk. Because the machine has a Cpk of
only 0.67, the new machine is not capable. Therefore, the new machine should not
replace the existing one.
CHAPTER 7
Facility Location and Layout
Chapter Outline
1
2
3
4
5
Learning Objectives
Topic 1 Concept of Facility Location
Topic 2 Concept of Facility Layout
Topic 3 Service Facility Layouts
Let’s Sum Up
Learning Objectives
Explain the concept of facility location
Discuss factors affecting facility location decisions
Explain the procedures and techniques for selecting facility location
Explain the concept of facility layout
List the types of facility layouts
Describe service facility layouts
Concept of Facility Location
Facility location may be defined as a place where the facility will be set up for
producing goods or services. The need for location selection may arise under any of the
following conditions:
a. When a business is newly started.
b. When the existing business unit has outgrown its original facilities and
expansion is not possible; hence a new location has to be found.
c. When the volume of business or the extent of market necessitates th
establishment
of branches.
d. When the lease expires and the landlord does not renew the lease.
e. Other social or economic reasons.
Need for Facility Location Planning
Facility location planning is also required for providing a cost benefit
to the organization.
The location planning should help in reducing the transportation cost
for the organization. This ultimately helps in decreasing the cost of production
and
generating cost advantage for the organization.
It is also needed to identify proximity to the sources of raw materials
and
transportation facilities.
A facility should ideally be located at a place where raw materials are
available. This is necessary for maintaining continuity in the production
process.
Factors Affecting Facility Location Decisions
While selecting a facility location, an organisation should consider
various factors that may have significant impact on its performance.
These factors are explained below:
➢ Availability of power
➢ Transportation
➢ Suitability of climate
➢ Government policy
➢ Competition between states
➢ Availability of labor
Factors Affecting Facility Location Decisions
➢ Civic amenities for workers
➢ Existence of complementary and competing industries
➢ Finance and research amenities
➢ Availability of water and fire-fighting facilities
Procedures and Techniques for Selecting Facility Location
An organisation follows certain steps to make a correct location choice.
These steps are:
Procedures and Techniques for Selecting Facility Location
Following are some main techniques used in making location decisions:
➢ Location rating factor technique: In this technique, first of all an
organization needs to identify the factors that influence its location decision. Next, each
factor is provided a weight between ‘0’ to ‘1’ according to the level of importance,
where ‘0’denotes least important and ‘1’denotes most important.
cost
on
➢ Centre-of-gravity technique: This technique emphasizes on transportation
in the determination of facility location. Transportation cost mainly depends
distance, weight of merchandise and the time required for transportation.
Centre- of-gravity maps various supplier locations on a Cartesian plane and suggests
a
central facility location with respect to the locations of suppliers
Procedures and Techniques for Selecting Facility Location
➢ Transportation technique: In simple words, the transportation technique
evaluates multiple transportation routes of shipping goods from multiple
origins to multiple destinations and finds or develops the least cost route. The
technique is often used in determining facility locations for evaluating transportation
costs of routes by selecting different facility locations. In the transportation technique,
multiple facility locations fits are identified and their relative transportation
costs
are calculated. Finally, the location that is related to the lowest cost routes is
selected.
➢Facility layout may be defined as the arrangement of machinery,
equipment, and other amenities in a facility, which should ensure a smooth movement
of materials.
➢ According to Moore, facility layout is the plan of or the act of planning an
optimum
arrangement of facilities, including personnel, operating equipment,
storage space, material handling equipment, and all other supporting services along
with the design of
the best structure to contain these facilities.
Objectives of an Effective Facility Layout
Types of Facility Layouts
Types of Facility Layouts
➢Process layout: Process layout, also called functional layout or batch
production layout, is characterised by the grouping together of similar machines,
based upon their operational characteristics.
➢ Product layout: In product layout, also called straight line layout,
machinery is
arranged in one line as per the sequence of production operations.
Materials are
fed into the first machine and finished products come out of the last
machine.
➢Fixed position layout: This type of facility layout is used to assemble
products that are too large, heavy or fragile to move to a location for completion. In the
fixed position layout, machinery, men, as well as other pieces of material,
are
brought to the location where the product is to be assembled.
➢ Cellular manufacturing layout: In Cellular Manufacturing (CM) layout,
machines are grouped into cells, which function somewhat like a product layout in
a larger shop
or a process layout. Each cell in the CM layout is formed to produce
a single part family, that is, a few parts with common characteristics.
➢ Combination or hybrid layout: It is difficult to use the principles of product
layout, process layout, or fixed location layout in facilities that involve fabrication of
parts and
assembly. Fabrication tends to employ the process layout, while assembly
areas often employ the product layout.
Factors Affecting a Facility Layout
 Materials
 Product
 Machinery
 Type of Industry
 Management Policies
Prerequisites for Developing a Facility Layout
Developing process charts: A process chart is the graphical representation of
production activities performed by an organization. Process charts facilitate a
systematic analysis and demonstration of the entire production process. These
charts are further classified into two categories, namely operation process chart and
flow process chart.
Making process flow diagrams: A process flow diagram represents the
movement of materials on a floor layout. These diagrams help an organization in
avoiding needless material movement and rearranging facility operations.
Developing machine data cards: A machine data card helps in developing
equipment layout (pieces of equipment layout in relation to everything including
the persons using them) by providing information related to power and materials
handling requirements and capacity and dimensions of different machines.
Visualizing the layout: It represents the most common technique that is deployed
for layout planning. It involves creating duplication of machines and equipment
and arranging them in two- or three-dimensional plans for determining the
effectiveness of a layout.
Process of Facility Layout Designing
Techniques for Designing a Facility Layout
Two main techniques of designing a facility layout are:
Techniques for Designing a Facility Layout
Block diagramming: The block diagram can be prepared by following the steps given
below:
1. Analyze the unit load summary that provides information about the average
number of unit loads moved between different departments of an organization.
2. Calculate the composite movements (back-and-forth movement) of the unit
load
between the departments and rank them from the highest movement to the
lowest movement.
3. Place the trial layouts, which are designed using the ranking between
departments,
on a grid. This grid represents the relative distance between
the
departments.
Richard Muther’s systematic layout planning (SLP): In this technique, a grid displays
the ratings of the relative importance of the distance between different departments
of an
organization. This grid is also called ‘closeness rating chart’. In this chart, the
rating for
department A relative to department B is similar to the rating of
department B to department A. Closeness ratings are given to departments in the form
of codes, which depict the desired closeness of the departments according to the
relative strength of their closeness.
New Approaches to Layout Design
Revision of a Current Layout
The following developments necessitate the revision of the existing layout:
 Expansion
 Technological Advancement
 Improvement of the Layout
Service Facility Layouts
 The objectives of service facility layouts differ from those of manufacturing
facility layouts.
 This is because a manufacturing facility aims to make on-time delivery of
products to customers, whereas customers come to a service facility to receive
services.
 Therefore, customers usually prefer a service facility that is close to them,
especially when the service delivery process requires considerable customer
contact. For example, if you are hungry, you would prefer to go to a restaurant
near you.

Service facility layouts are often categorized under three heads, which are:
➢ Product layout: This type of layout is used only in cases where services are
organized in a sequence.
➢ Process layout: These layouts are highly common in service facilities as they
successfully deal with the varied customer processing requirements.
➢ Fixed position layout: In this type of service layout, materials, labor and equipment
are brought to the customer’s place. This layout is used in services like appliance repair,
landscaping, home remodeling, etc.
Types of Service Facility Layouts
Warehouse and storage layouts:
The layouts of warehouse and storage facilities are designed by considering
the frequency of order. Items that are ordered frequently are placed near the facility
entrance. However, items that are not ordered frequently are placed at the rear of the
facility. Apart from this, correlation between two merchandises is also important while
designing a layout for a warehouse and storage facility.
Retail layouts: A retail store layout refers to a systematic arrangement of merchandise
groups within a store. A well-planned retail store layout provides a description of the
size and location of each department of the store, fixture locations, and traffic patterns.
It also helps consumers find products of their choice in a short time. Different retail
layouts are:
➢ Grid layout
➢ Free-form layout
➢ Loop layout
➢ Spine layout
Office layouts: Designing of office layouts is witnessing revolutionary changes as
paperwork is now replaced with different modes of electronic communications. Today,
office layouts focus more on creating an image of openness. Low-rise partitions are
preferred between departments to facilitate easy communication among workers.
Let’s Sum Up
 A facility location may be defined as the place where a facility will be set up for
producing goods or services.
 Selection of a suitable facility location is important as it decides the fate of a
business. A good location may reduce the cost of production and distribution to
a considerable extent.
 Once established, a location cannot be changed frequently as it incurs huge
costs.
 A facility layout is defined as the arrangement of machinery, equipment and
other amenities in a facility to ensure the smooth movement of materials.
 The objectives of service facility layouts differ from those of manufacturing
facility layouts. This is because a service operation aims to organise all activities
and processes to deliver services to customers.
References:
J.R. Evans. And W.M. Lindsay, “Total Quality Management”, Cengage Learning
Asia, 2013.
J. Heizer, B. Render, Operations Management, 10th Global Edition. New Jersey:
Pearson Education, 2011.
Roy, R. and Weild, D, Product Design and Technological Innovation, Open
University Press, Milton Keynes, 1993.
S. Anil Kumar, N. Suresh, Operations Management, New Delhi, New Age
International, 2009
S. Kale, Production and Operations Management, New Delhi, McGraw-hill
education, 2013.
W.J. Stevenson, “Operations Management”. 12th Edition. New York: McGraw-hill
education, 2015.
W.J Stevenson and S.C. Chuong, "Operations Management". 2nd Edition. New
York: McGraw-hill education, 2014.
Facility
Planning
and
Management
Retrieved
https://www.mitsde.com/media/student%20corner/Next-GenLearning/Sample%20PPT_Facility%20Location%20and%20Layout.pdf
from:
ASSESSMENT
DISCUSSION QUESTIONS:
1.
2.
3.
4.
5.
6.
7.
Explain what is meant by product design.
Discuss the factors involved in product design.
What is the concept of Design for Manufacturing?
What are the strategic advantages of product design?
Explain the role of inspection in quality management.
What are the control charts? How they can be used to control quality?
What is Six Sigma philosophy? Give the advantages of implementing six
sigma?
8. Discuss in brief total quality management.
9. Explain how improving quality can lead to reduced costs.
10. What is meant by Design for Excellence in the context of quality management?
ACTIVITY 1
Video to watch: Product Strategy at Regal Marine
Link: https://www.youtube.com/watch?v=24zvqPuHHTs
Guide Questions:
1. Describe the strategies of Regal that keep them competitive?
2. What are the likely benefits for Regal investing in the research and
development of advanced technologies?
ACTIVITY 2
To watch: The Culture and Quality at Arnold Palmer Hospital
Link: https://www.youtube.com/watch?v=U_GnYwReTzc
Guide Question:
Describe the strategies of Arnold Palmer Hospital in its effort towards quality
and continuous improvement?
MODULE 3
Intended Learning Outcomes
4. Discuss the concepts and impacts of supply chain management, OEE,
Aggregate Planning and Master Scheduling to the organization
5. Explain the principles of OEE, MRP, CRP and ERP to the performance of the
organization
6. Analyze the concepts of JIT and lean production and its relation to scheduling
and planning
Introduction
Supply Chain Management can be defined as the management of flow of products
and services, which begins from the origin of products and ends at the product's
consumption. It also comprises movement and storage of raw materials that are
involved in work in progress, inventory and fully furnished goods.
Aggregate planning is the process of developing, analyzing, and maintaining a
preliminary, approximate schedule of the overall operations of an organization. The
aggregate plan generally contains targeted sales forecasts, production levels, inventory
levels, and customer backlogs.
Material requirements planning (MRP) is a system for calculating the materials and
components needed to manufacture a product. It consists of three primary steps: taking
inventory of the materials and components on hand, identifying which additional ones
are needed and then scheduling their production or purchase.
Scheduling is the process of arranging, controlling and optimizing work and
workloads in a production process or manufacturing process. Scheduling is used to
allocate plant and machinery resources, plan human resources, plan production
processes and purchase materials.
OEE (Overall Equipment Effectiveness) is the gold standard for measuring
manufacturing productivity. Simply put – it identifies the percentage of manufacturing
time that is truly productive. An OEE score of 100% means you are manufacturing only
Good Parts, as fast as possible, with no Stop Time.
CHAPTER 8
Supply Chain Management
Chapter Outline
1
2
3
4
5
6
7
8
9
10
11
12
What is a Supply Chain
What is Supply Chain Management
Supply vs Demand
Supply Chain Stories
Performance Measures
Inventory Turns
Inventory Productivity
Wal-Mart’s Success and Supply Chain
Efficient Supply Chain Procurement
Efficient Supply Chain Distribution
Product Assortment
Supply Chain Design
What is a Supply Chain?
A supply chain is the system of organizations, people, activities, information and
resources involved in moving a product or service from supplier to customer. Supply
chain activities transform raw materials and components into a finished product that
is delivered to the end customer.
Supply Chain Management
Supply Chain Management is the design and management of processes
across organizational boundaries with the goal of matching supply and demand in the
most cost effective way.
Why so Difficult to Match Supply and Demand?
• Uncertainty in demand and/or supply
• Changing customer requirements
• Decreasing product life cycles
• Fragmentation of supply chain ownership
• Conflicting objectives in the supply chain
• Conflicting objectives even within a single firm
– Marketing/Sales wants: more FGI inventory, fast delivery, many
package types, special wishes/promotions
– Production wants: bigger batch size, depots at factory, latest ship date,
decrease changeovers, stable production plan
– Distribution wants: full truckload, low depot costs, low distribution
costs, small # of SKUs, stable distribution plan
Three Flows in SC
There are three kinds of flows in a supply chain: material, information, capital.
 Downstream – Material: Products, Parts – Information: Capacity, Delivery
Schedules – Finance: Invoices, Pricing, Credit Terms
 Upstream – Material: Returns, Repairs, After-sales Services – Information:
Orders, Point-of-sale Data – Finance: Payments
Push vs. Pull in supply chains
Push or Building-to-stock(BTS): Producing stock on the basis of anticipated
demand. Demand forecasting can be done via a variety of sophisticated techniques
(some from the Operations Research area and some using Data Mining).
Pull or Building-to-order(BTO): Producing stock in response to actual
demand (firm orders).  The Push-Pull Point: In many supply chains, upstream units
employ BTS, while downstream units employ BTO strategies. The point in the supply
chain where the switch-over (from BTS to BTO) occurs is called the Push-Pull point.
Optimally locating the Push-Pull point is a key determinant of supply chain
performance.
Supply Chain Management (SCM)
 A set of processes and sub-processes which attempt to implement
and optimize the functions, connected entities, and interacting
elements of a supply chain.
 Involves: – Organizations, procedures, people. – Activities:
Purchasing, delivery, packaging, checking, warehousing, etc. –
Establishment of long-term relationships with suppliers (supply
alliances) and distributors – Effective flow of information through the
supply chain
Losing Sight of the Common Objective
Supply Chain Management is about the integrated activities and processes
of the organization. When one area fails, it affects the performance of other areas as
well. It is important to ensure the success of each area and their contribution in the
entire orgazational perfromance.
Supply Chain Story III (On Internal communication and collaboration)
In the mid-1990s, the Swedish car manufacturer Volvo found itself with excessive
stocks of green cars. To move them along, the sales and marketing departments began
offering attractive special deals, so green cars started to sell. But nobody had told the
manufacturing department about the promotions. It noted the increase in sales, read it
as a sign that consumers had started to like green, and ramped up production.
Supply Chain Story VII (Gaining Competitive Advantage)
In the late 1970s, with about 200 stores, Wal-Mart was a relatively small
retailer. At that time, Sears and Kmart dominated the retail market. Since then, WalMart gained significant market share from these retailers and became the largest and
most profitable retailer in the world. Today, Wal-Mart is admired for its collaboration
and technology driven supply chain practices and is leading the retailing industry with
its innovative supply chain practices.
Supply Chain Performance Measures
Cost
• Total Supply Chain Cost is the sum of all supply chain costs for all
products processed through a supply chain during a given period
• Inventory Turnover is the ratio of the cost of goods sold to the value of
average inventory.
• Weeks of inventory is the ratio of average inventory to the average
weekly sales
Customer Service
• Average Response Time is the sum of delays of ordering, processing,
and transportation between the time an order is placed at a customer
zone and the time the order arrives at the customer zone
What do these measures mean?
• Inventory Turnover: how often the company replenishes inventory. High value
of inventory turnover means that the inventory was not sitting around a long
time.
•
Weeks of Supply: how many weeks worth of inventory does the company have
on hand. High value of weeks of supply means that the firm has a lot of
inventory sitting around.
Inventory Turns
Inventory Turns is a common benchmark in retailing. Inventory turns
measures the number of times inventory is sold or used in a strictly defined time period.
The equation for inventory turnover equals the cost of goods sold divided by the
average inventory. The result displays the ratio showing how many times a company's
inventory is sold and replaced over a period.
Inventory Productivity
Inventory productivity at its simplest can be defined as the amount of sales
and gross profit dollars an inventory investment generates over a given period of time,
usually a year. And the most basic measures of inventory productivity are inventory
turnover and gross margin return on investment (GMROI).
Wal-Mart: Efficient Supply Chain




Procurement
Distribution
Product Assortment
Pricing
Efficient Supply Chain: Procurement
• In 90s, Wal-Mart began to bypass wholesalers
• Expanded private label business (used unbranded suppliers)
• Build partnerships with many suppliers
• Retail Link: suppliers could access POS and inventory
– What are the benefits?
• Example: Wal-Mart and P&G partnership (JIT II)
Wal-Mart and P&G Partnership
Consumer-Products Giant Helps Huge Retailer Make Specialty Items
Mainstream, Jan 31, 2005. Early on, P&G employees, who relocated to Fayetteville to
be close to Wal-Mart, called their adopted home Fayette-nam, and often griped about
Wal-Mart's demands. Still, P&G and Wal-Mart came up with specific goals. In their
first collaboration, Wal-Mart complained that Pampers diapers sat for too long in its
warehouses, costing it money. Wal-Mart buyers were shipping diapers from the factory
every two weeks. After gaining access to Wal-Mart's sales data, P&G assigned one
manager to monitor the data and order just enough Pampers to meet sales but not too
much so that the diapers sat in the warehouse.
Efficient Supply Chain: Distribution
• At the end of 2003: 84 Wal-Mart DCs
• DC’s functioned as the hubs in a hub-and-spoke network
• Distribution costs accounted for 2-3% of Wal-Mart’s revenues compared to 45% for other retailers
• Wal-Mart mastered large scale “Cross Docking”
• Automation of distribution: RFID technology
• Inventory turns were a key measure of the overall performance of the supply
chain
Efficient Supply Chain: Product Assortment
• Stocked mix of nationally branded and private label products
– What are the pros and cons of nationally branded and private label
products?
• Product assortment managed by store ⇒ more variety
– What are the pros and cons of offering more variety?
– Pro: More variety than competitors ⇒ customer satisfaction
– Con: More variety than competitors ⇒ higher costs
Pricing Strategy: EDLP
How Wal-Mart Got Ready Early, Nov 28, 2005
Another aggressive move: Wal-Mart announced early last week that it would
match competitors' prices on promoted items -- even the after-rebate price -- provided
Wal-Mart had the identical item in stock. While this isn't a new policy for Wal-Mart, it
was the first time the company repeatedly advertised it. "By reminding people we match
prices, shoppers will know they don't have to run around." said Mr. [Sonny Littlefield],
the Arlington store manager.
•
Wal-Mart: every day low price (EDLP) retailer
– What are the advantages of EDLP?
• Store managers allowed to match or beat the lowest competing price
• What is really allowing Wal-Mart to have lowest prices?
Wal-Mart: Market Position
• First: Small town rural strategy
– Only 55% compete directly with Kmart and 23% with Target
– Have displaced small local merchants
– Only competition is the Wal-Mart in the next town
• Second: Clearly defined competitive position: emphasis on nationally branded
products and EDLP
– Reinforce EDLP by posting competitors’ prices weekly
How usual purchase works in a brick world
Unique feature of catalog and Internet business: information and product flow
disintermediation.
Some companies use DS some not. Why?
Supply Chain Design is a big pain for retailer and wholesaler. Where was it used before
the invention of the Internet?
About a year ago, Forbes had an article titled “CHEAP TRICKS”. This article
described Spun.com, a CD retailer on the Internet. Star-up capital about $800,000 –
might seem a lot. But on the Internet, a major dimension of competition is product
variety, and Spun.com hence offers 200,000 CD titles available for immediate
shipment. If stocking an average of 5 CDs for each title at an average wholesale price
$7, this would require an invest in inventory alone at about $7,000,000 – in addition to
all other start-up investments required. So how does Spun.com do it?
Examples of outsourcing
• Toshiba has outsourced manufacturing to Solectron
• GM has outsourced its interior design to Delphi
• Many firms outsource problem solving to McKinsey & Co.
• Advertising is often outsourced completely.
• Many companies outsource logistics and transportation.
Why do firms outsource?
• Organizational reasons
- Focus on service
- Focus on core capabilities
- Transform the organization
- Increase flexibility
• Operational reasons
- Improve performance (quality, productivity, etc.)
•
•
•
- Obtain expertise, skill, and technology
- Risk management
Financial reasons
- Transfer assets to the outsourcing partner.
- Free up resources for investment in other purposes.
Cost driven reasons
- Transform fixed costs into variable costs.
- Reduce costs through outsourcing partner efficiencies.
Revenue driven reasons
- Expand and grow with the help of another organization.
- Obtain access to outsourcing partner’s network.
References:
J.R. Evans. And W.M. Lindsay, “Total Quality Management”, Cengage Learning
Asia, 2013.
J. Heizer, B. Render, Operations Management, 10th Global Edition
S. Anil Kumar, N. Suresh, Operations Management, New Delhi, New Age
International, 2009
W.J. Stevenson, “Operations Management”. 12th Edition. New York: McGraw-hill
education, 2015.
W.J Stevenson and S.C. Chuong, "Operations Management". 2nd Edition. New
York: McGraw-hill education, 2014.
Ghose, A. (2005). Supply Chain Management. Retrieved
https://www.slideshare.net/hazman/supply-chain-management
from:
Supply
Chain
Management
Retrieved
from:
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2a
hUKEwjkn9iD64zrAhVhF6YKHf6YBlAQFjAMegQIBhAB&url=http%3A%2F
%2Fwww.prism.gatech.edu%2F~bt71%2Fmgt3501%2FSupply%2520Chain%252
0Management_08.ppt&usg=AOvVaw3NJszUOHSEP1SCzavrHsle
CHAPTER 9
Materials and Inventory Management
Chapter Outline
9.1
9.2
9.3
9.4
9.5
9.6
9.8
9.11
9.12
9.13
Introduction and Meaning
Scope or Functions of Materials Management
Material Planning and Control
Purchasing
Stores Management
Inventory Control or Management
9.7 The Nature and Importance of Inventories
Requirements for Effective Inventory
9.9. Inventory Ordering Policies
9.10 How Much to Order: Economic Order Quantity
Reorder Point Ordering
How Much to Order: Fixed Interval Model
The Single-Period Model
Introduction and Meaning
(i) ‘Materials Management’ is a term used to connote “controlling the kind,
amount, location, movement and timing of various commodities used in production by
industrial enterprises”.
(ii) Materials Management is the planning, directing, controlling and
coordinating those activities which are concerned with materials and inventory
requirements, from the point of their inception to their introduction into the
manufacturing process.
Scope or Functions of Material Management
Materials management is concerned with management functions supporting
the complete cycle of material flow, from the purchase and internal control of
production materials to planning and control of work in process, to warehousing,
shipping and distribution of the finished product. An effective materials management
process ensures that the right kinds of materials are at the right place whenever needed.
Materials management is concerned with planning, directing and controlling
the kind, amount, location, movement and timing of various flows of materials used in
and produced by the process.
Objectives of Materials Management:
Materials management objectives are categorized into:
1. Primary objective
2. Secondary objectives
Primary Objectives
“Making available (supply) of materials in specified quantity and quality at
economic cost and maintaining the continuity of supply. Minimization of investments
in materials and inventory costs, and assuring high inventory turnover.”
Secondary Objectives
Secondary objectives help to achieve the primary objectives. Purchasing the
items from a reliable source at economic price. Reduction of costs by using various cost
reduction techniques such as variety reduction, standardization and simplification,
value analysis, inventory control, purchase research etc. Co-ordination of the functions
such as planning, scheduling, storage and maintenance of materials.
Scope of Materials Management:
Materials management encompasses all the aspects of the materials i.e. material costs,
material supply and material utilization. Materials management is concerned with
material planning and materials control activities. The details of planning and control
activities are represented in table 1.3.
Integrated Materials Management:
Materials required for production purpose are normally procured and stored
in the plant and issued to manufacturing when there is a requisition. Materials are to be
purchased in advance and stored to ensure uninterrupted supply.
There should be a proper co-ordination and co-operation among different
functional heads of materials department to optimize the operations of materials
management. The materials function to be effective, the objective must be to maximize
materials productivity. An integrated approach to materials management i.e. materials
planning and control must look in to the problem areas in a co- coordinated manner in
order to maximize the effectiveness of materials management.
An integrated materials management will result in the following advantages:
a. Better accountability for materials and material concerned costs.
b. Better co-ordination within the materials functions and also other functional areas of
business.
c. Better performance and effectiveness.
d. Adaptability to automated and computerized systems.
The important areas to improve materials planning and control are:
1. Value analysis and purchase price analysis.
2. Materials planning and control (Inventory Control).
3. Stores control.
4. Waste management.
5. Materials handling.
Various elements of integrated materials management are represented in table 1.4.
Flow of Materials in Manufacturing:
In any manufacturing organization, there is a flow of materials at various
stages of manufacturing i.e. from input to output. The flow of tangible materials from
input through manufacturing to output of a manufacturing operation is represented in
the fig (1.10).
The flow with reference to inputs involves such activities as purchasing,
traffic control and receiving. The activities associated with flow within the factory
include the material handling activities at different workstations as per the order of
processing. Output related activities include packaging, shipping and distribution.
Irrespective of the type of the organization, the basic material related functions
performed at the organization are:
1. Purchasing
2. Inbound traffic from suppliers to company
3. Receiving
4. Inventory Control
5. Production control
6. In plant storage
7. Material handling
8. Packaging and shipping
9. Outbound traffic
10. Warehousing and distribution
Materials Management: Objectives, Scope and Functions!
Materials management is concerned with management functions supporting
the complete cycle of material flow, from the purchase and internal control of
production materials to planning and control of work in process, to warehousing,
shipping and distribution of the finished product. An effective materials management
process ensures that the right kinds of materials are at the right place whenever needed.
Materials management is concerned with planning, directing and controlling
the kind, amount, location, movement and timing of various flows of materials used in
and produced by the process.
Purchasing:
Purchasing plays a crucial role in the materials management because it is concerned
from input stage up to the consumption in manufacturing. Purchasing functions as a
monitor, clearing house and a pipeline to supply materials needed for production.
Dr. Walters defines scientific purchasing as:
“Procurement by purchase of the proper materials, machinery and equipment and
supplies of stores used in manufacturing of the product, adopted to marketing in the
proper quantity and quality at the proper time and at the lowest price consistent
with quality desired.”
Purchasing Cycle:
The purchase procedure followed varies from company to company and also from
one industry to other. The purchasing cycle is represented as shown in fig (1.11).
The basic elements in purchasing are:
1. The origin of demand for materials and components based upon the requisitions made
to purchase department by user departments with all the details like descriptions,
quantity and quality specifications.
2. Specifications are checked and verified and purchase plan is made for items
demanded
3. Selection of source of supply.
4. Preparation of purchase order by supplier (order acceptance) and acceptance of terms
and conditions.
5. Follow up to ensure prompt delivery of right quality and quantity of materials.
6. Incoming inspection of materials (both to check quality and quantity) to ensure
correct material as per specification.
7. Checking supply invoice against purchase order and goods received and payments
are made.
Methods of Buying:
Methods of purchasing will vary according to the nature of demand and the market
conditions.
The principle methods of buying are:
1. Purchasing by requirement (Hand to mouth buying).
2. Purchasing for a specified future period.
3. Market purchasing.
4. Speculative buying.
5. Contract buying.
6. Group purchasing of small items.
7. Forward buying.
8. Hedging.
Source Selection (Vendor Selection):
The selection of right source of supply is an important aspect in materials
management. The vendor is to be examined with respect to his capability and
competency to supply right quality of material at right time and at a competitive
price.
The buyer looks for the following details before a decision regarding vendor
selection is made:
1. Production Capabilities:
(a) Capacity to manufacture the products as per the specifications and required
quantities.
(b) Availability of spare capacity.
(c) Capability to understand the needs of Buyer Company both technical and
commercial.
2. Financial Position of the Vendor:
(d) The type of the company – Private limited, Partnership or Sole proprietorship.
(e) Company’s capital structure.
(f) Financial position and profitability of the company since last 3-4 years.
3. Technical Capabilities:
(g) Whether the available plant and equipment’s ere in a position to meet the quality
and quantity specifications of the customer.
(h) Whether there are enough technically skilled and trained people.
(i) Whether R&D facilities are available.
(j) What is the market standing of the vendor with respect to quality and delivery
commitments (Reliability of supply).
(k) Whether he has enough storing and warehousing facilities.
(l) Quality control procedures – whether an ISO-9000 certified supplier.
4. Other Conditions:
(m) Working conditions in the vendor company.
(n) Industrial relations and bargaining power of unions.
(o) Possible reasons for interruptions in supply.
Vendor Relations:
Purchase department should establish a sound relationship with vendors based
on mutual trust and benefit to ensure smooth supply of materials/parts as per the
quality and quantity required. So, apart from a formal commercial relationship as a
customer, a long lasting and mutually rewarding relationship is to be established.
A strategic partnership between the buyer and supplier is defined as a continuing
relationship involving a commitment over an extended time period, an exchange of
information and acknowledgment of risks and rewards of the partnership. A sound
relationship emerges from the proper help and co-ordination on the part of both
buyer and supplier.
The expectations from buyers include:
a. Promptness in delivery.
b. Meets the quality and quantity requirements.
c. Entertains occasional rush orders.
d. Flexibility in quantity to be supplied.
e. Can wait for the bills.
f. Competitive pricing.
The expectations from the vendors:
a. Consistent orders
b. Prompt payment of the bills.
c. Extend help during difficulty both financial and technical.
d. Continuity of orders.
Vendor Rating (Evaluation of Suppliers):
The appraisal of the vendor performance is a continues process.
The vendor can be rated on various characteristics such as:
1. Delivery (To deliver as on time as per the order).
2. Quality (To delivery as per specifications).
3. Price.
4. Other factors such as capability to meet urgent/rush orders readiness to try out
new designs or new methods etc.
In vendor rating, one usually gives weightage to these various characteristics and
measures the performance of the vendors periodically on the basis of certain norms
and procedures. Every company should have a formal vendor rating system. It is not
only beneficial to the buyer company but also for the supplier company. Vendors will
get the feed-back based on objective evaluation and can compare its own
performance with that of competitors. It is a fair evaluation since the rating is based
on facts and not on opinions or prejudices. Vendor Companies can know their
shortcomings and improve upon them.
Generally, there are three methods of vendor rating:
1. Categorical plan
2 Weighted point method
3. Cost ratio method.
Just In Time (JIT) Purchasing:
Just in time purchasing is a major component of JIT manufacturing system. The basic
concept of JIT purchasing is to establish agreement with vendors to deliver small
quantities of materials/parts just in time for production. This approach is quite
contrast to traditional approach of bulk buying.
The features of JIT purchasing are:
a. Reduced lot sizes
b. Frequent and. reliable delivery schedules.
c. Reduced and highly reliable lead times.
d. High quality level of purchased parts.
The JIT purchasing aims at a single reliable source for each item and consolidation of
several items from each supplier.
The reduction of number of suppliers in JIT purchasing has the following
advantages:
1. Consistent quality
2. Minimum investment and resources such as buyer’s time, travel and engineering
3. Focused attention on vendors
4. Savings on tooling
5. Establishment of long-term relationship.
For making JIT work, the following conditions are put on purchasing department:
1. Reduction in number of suppliers.
2. Locating the suppliers who are nearby.
The success of JIT purchasing depends on how well the firm establishes the strategy
of single sourcing. The suppliers should be seen as “Outside” partners who can
contribute to the long run well fare buying firm.
References:
J.R. Evans. And W.M. Lindsay, “Total Quality Management”, Cengage Learning
Asia, 2013.
J. Heizer, B. Render, Operations Management, 10th Global Edition
S. Anil Kumar, N. Suresh, Operations Management, New Delhi, New Age
International, 2009
W.J. Stevenson, “Operations Management”. 12th Edition. New York: McGraw-hill
education, 2015.
W.J Stevenson and S.C. Chuong, "Operations Management". 2nd Edition. New
York: McGraw-hill education, 2014.
Ghose, A. (2005). Supply Chain Management. Retrieved
https://www.slideshare.net/hazman/supply-chain-management
from:
Materials
Management
Retrieved
from:
https://www.yourarticlelibrary.com/material-management/materials-managementobjectives-scope-andfunctions/57432#:~:text=Scope%20of%20Materials%20Management%3A%20M
aterials%20management%20encompasses%20all,and%20control%20activities%2
0are%20represented%20in%20table%201.3.
CHAPTER 11
Overall Equipment Effectiveness
Chapter Outline
1. What is OEE?
2. What is the benefits of using OEE to improve operational performance?
3. How does OEE build and support a culture of Lean Manufacturing?
4. How is OEE used?
5. From where and when did OEE originate?
6. What are the benefits of an automated data collection?
7. How is the OEE Model implemented?
What is OEE?
The Overall Equipment Effectiveness (OEE) of a machine or set of equipment
is a Key Performance Indicator (KPI) that indicates the equipment’s overall operational
performance. In essence, OEE is a measure of the actual output that was produced
with a machine, compared with the maximum output that could be expected from the
machine over the same period of time. OEE takes into consideration the cumulative
impact of three factors: the equipment's availability (percent of scheduled production
time in which units are actually produced, also called the Machine Operating Time),
its performance rate (percent of material produced compared to standard), and the
quality of its output (percent of good material produced compared to all material
produced during the Machine Operating Time). In equation form, OEE is the
multiplication of these three factors: OEE = % Availability x % Performance x % Quality
Many manufacturers are already using OEE, both as a KPI and as a catalyst
for change.
OEE is a standard metric used to evaluate manufacturing performance by taking a broad
view of all aspects of production. By using its three factors, OEE provides a
manufacturer with the best measure of machine utilization and helps them focus on
improvements that most directly impact their profits. As part of the lean manufacturing
tool kit, OEE does this by identifying and driving all elements of waste out of
manufacturing processes.
What is the benefits of using OEE to improve operational performance?
Continuously and visibly monitoring and reporting OEE provides the basis for
achieving optimum operational efficiency. When implemented on key manufacturing
equipment, all levels of the manufacturing organization will be able to take greater
control of the daily management, and improve the utilization of those plant assets. In
short, this will save the company money while increasing production output. In
addition, utilizing automated data collection and OEE measuring systems that are
highly visible and easy to use, such as OEM Partner’s Remote Monitoring solutions,
saves enormous effort and delivers highly visible, real-time intelligence on the overall
equipment effectiveness of a machine, a work cell, or a plant. This allows operators
and supervisors to proactively track, monitor and respond to operational issues as well
as measure and justify ongoing improvement efforts.
Typically, manufacturers are able to achieve rapid improvements upon the
initial implementation of such systems, and when done well, small improvements can
result in a big impact to the bottom line:
• An increase in OEE of around 10-15% can often be realized in the first year; this can
translate to a 50% improvement in Return on Assets (ROA). [R. Hansen, OEE for
Operators]
• OEE initiatives are generally ten times more cost-effective than purchasing
additional equipment capacity, and over time can reduce major capital expenditures
by 50%.
• In many major industries, an improvement of 1% in reduced downtime of a high
value asset can translate to over $1 million in annual savings.
• As machine OEE increases, total energy consumption per unit produced is reduced.
The manufacturer’s carbon footprint is reduced, while they enjoy lower costs.
How does OEE build and support a culture of Lean Manufacturing?
The OEE metric provides for several critical elements of the most successful
Lean Manufacturing initiatives. In these cases, OEE is used by lean practitioners on the
shop floor to identify and eliminate the sources of losses in all areas of the operation.
Everyone in the organization from upper management down to the shop floor is
actively and highly visibly engaged in supporting the teams and giving them the
resources needed to be successful. In the most successful companies, measurements
become consistent, accessible, widely understood and accepted. To achieve this, they
use clearly communicated standards and automated systems for collecting and
interpreting data, as well as for reporting and distribution. In some cases, additional
incentives are created in compensation systems that incorporate an element of OEE
improvements.
When used properly, OEE is used to educate and train the workforce, to gain
a common sense of purpose; it provides an accepted system of measurement that
drives a common understanding for team problem-solving. Further, with the
completion of each project, visible OEE improvements provide a source of motivation
for the workforce by clearly showing the benefits of their efforts.
In particular, OEE dashboards and reports provide a platform for
organizations to:
• Increase output by quickly identifying and responding to the highest
priority sources of losses, thereby producing more in the same amount of time with
the same
equipment, with less energy consumed;
• Empower shop floor personnel by providing clear and visible measures of
their
performance compared to goals; and
• Support continuous improvement.
How is OEE used?
OEE can be evaluated for a single piece of equipment or machine, or for
multiple pieces of equipment, over a discrete period of time, or for a particular job or
product. Like many standardized metrics, OEE has a set of basic rules to follow in its
implementation, and the application of these rules can vary. The most important
consideration to follow in an implementation of OEE metrics is to be consistent in the
application of its rules, so that comparison and trending analysis from machine to
machine and in tracking improvement efforts provides valid results.
The most important aspect, which is universally recognized, is that the
practitioner should know how their particular organization’s interpretations and
definitions are applied so that they can effectively use them to obtain improvements.
Then, within a consistent framework and terminology that is accepted across the
company, OEE is used to identify losses associated with each of its components:
Availability, Performance, and Quality. Analysis of the respective losses is performed
to prioritize improvement projects and determine root causes, and then the
improvements are tracked for verification and further actions as needed. For smaller
projects, formal process improvement tools and techniques may be used, such as
FMEA, DOE, 8D, DMAIC, and Plan-Do-Check-Act. More substantial opportunities
would benefit from more systemic, business process improvement tools such as Value
Stream Mapping and Kaizen, and sometimes from department- or company-level
initiatives such as modified work schedules or supply chain changes.
Our platform is flexible enough to provide for different interpretations, and
robust enough to properly implement those differences consistently and accurately in
both how it calculates OEE components and how it displays the results. For example,
some companies differ in how they interpret what constitutes planned or unplanned
down times in the measurement of their machines’ Availability or Performance. More
advanced users of the application can tailor and automate them to fit such local
customs and interpretations from within the Downtime Tracking module, with its
assignment of individual downtime codes to different categories of downtime.
From where and when did OEE originate?
The concept of OEE was developed as a metric and tool to be used for
improving operating efficiency of manufacturing plants. Its origins come from the
framework of Total Production Maintenance (TPM), introduced by Seiichi Nakajima’s
Introduction to Total Productive Maintenance in 1988. Since then, OEE has become
widely known as the best metric from which to gain control, and then optimize the
overall operational performance, and financial return on high value manufacturing
assets
What are the benefits of an automated data collection?
If done properly, manually executed OEE systems will identify losses and
opportunities for improvement. However, collecting and interpreting data for
evaluating OEE this way is a time-intensive process that is wrought with risk of error
and inconsistency. The time and effort spent doing it this way would be much more
efficiently used to work on actual improvement projects. In addition, at higher levels
of OEE, it becomes more difficult to obtain further gains, which makes the time and
effort in manual systems seem less worthwhile. In some cases, this is because the
losses are occurring at very high rates but also in very small amounts, and these are
extremely difficult to capture with any manual data collection process.
Inevitably, most manufacturing continuous improvement projects and
facilities using a manual collection method will quickly discover the value of
automated systems. There are many benefits of automated OEE systems. They are
powerful tools used to provide automated data collection, analysis and reporting of
accurate and consistent, data-based OEE evaluation summaries and details. The
following table provides a comparison of these two methods, and shows the powerful
and cost-effective benefits of using the OEE productivity tools in OEM Partner’s
Remote Monitoring platform.
How is the OEE Model implemented?
The platform uses a cross-industry standardized model for OEE productivity
data. It provides a visual illustration for each component of OEE (Availability,
Performance, and Quality) and the component’s respective value, in a horizontal bar
format. The model is designed to visually represent the calculated value of OEE as the
amount of Good Material produced as its appropriate equivalent proportion of total
calendar time. To accomplish this, the maximum values of the components
Performance and Quality are graphically aligned with respect to their respective
parent component. For example, the theoretical maximum speed of the machine for
the amount of material produced is graphically aligned with the Machine Operating
Time. This is intuitively logical as well because Performance is measured only over the
period of time the machine is considered to be producing actual production material.
Each of the three components itself is then divided by the proportional percentages
of its respective elements, e.g. Good Material is shown graphically as the respective
percentage of the Total Material produced.
Using this model, reporting of OEE productivity data in the remote monitoring
platform is provided in two levels. The top level is an executive summary view, using
an aggregate, simplified horizontal bar chart as shown in Figure 2. This is provided any
time that a platform user requests a summary of OEE data for a discrete, i.e. nontrending, time period. The calculated value of OEE is provided in bold font at the top
of the chart, with the equation of its components appended for reference. Then only
one bar is provided to illustrate a summary of each of the OEE components of
Availability, Performance, and Quality, with each of the components’ associated value
labeled above it. The top bar represents the full calendar time period for which the
Availability of the machine is evaluated. It is divided proportionately by color for each
of the standard types of downtime, with planned and unplanned downtime combined
into one color (grey) for simplicity. Each additional component of OEE is then
graphically aligned with its parent component as described in the model above, and is
similarly divided proportionately by its respective elements. A more detailed
description of this format is provided below.
The second level of OEE reporting provided by the remote monitoring system
is a detailed breakdown of OEE component elements with their respective values. This
format, shown here in Figure 3, provides the equivalent detailed summary data,
numerically by component, and is color coded to match the top level bar chart. This is
provided for the lean manufacturing practitioner to drill down into the details for
further analysis toward the design and execution of actionable improvement plans.
Figure 4: Example of format for OEE component details The top level summary of data
shown in Figure 2 provides the value of calculated OEE for the selected time period at
the top of the chart, above the component bars. Each component bar is defined and
formatted as follows:
Availability:
The numerical value of Availability is a measure of the time a machine has
been up and running and making any production material. This metric is dependent
upon the time that the machine has been scheduled for production. Data acquired
directly from the machine is used to compute the downtime called the Availability
Loss, as the amount of time that the machine has not been creating production
material during the Plant Operating Time. The Plant Operating Time is defined by the
operating shift schedule for the machine, and does not include Scheduled Downtime.
Availability Loss may be further sectioned into Planned and Unplanned Downtime.
This is accomplished either automatically or manually by the practitioner, through the
use of downtime codes that are acquired either directly from the machine or through
manual assignment using the platform. Planned Downtime such as operator breaks or
planned maintenance during normal operating hours are included in Availability Loss
because this is fully burdened time that is available to operate the machine. For
example, in cellular work flow designs, special arrangements can be made to rotate
break periods and operators so planned bottlenecks don’t stop running during breaks,
and maintenance can be planned during scheduled plant shutdown periods.
The Machine Operating Time is shown in a light green color, with the
remaining time portion of the Plant Operating Time shown in grey. All loss in Available
time, whether planned or unplanned downtime, is shown in this grey portion. Time
that the machine or plant is not scheduled to operate, if there is any such time in the
selected calendar time period, is shown in white (no color) on the right side of the bar.
The total length of the bar represents the calendar time period selected for the report.
Performance:
The performance portion of the OEE Metric represents the average speed at
which the machine was operated during the Machine Operating Time of the calendar
time period chosen, as a percentage of the theoretical maximum speed that the
machine can operate. It is a measure of the quantity of units actually produced as a
percentage of the quantity of units that would have been produced in that same time
period if the machine were running at maximum speed. This method is equivalent to
an evaluation in which a machine’s performance is represented by the ideal, or
minimum time it should take to produce a unit of material as a proportion of the
average time it actually took to produce a unit of material during the Machine
Operating Time of the selected calendar time period.
The maximum speed can be defined by the machine “nameplate” speed,
which is the maximum design speed of the machine. This is the default method of
evaluating OEE, which can be used for benchmarking productivity analyses across
work cells or plants. Alternately, OEE can be evaluated for specific jobs, products or
materials being produced on the machine. In this case, the maximum speed can be
defined as the “standard” or ideal speed for a particular job, product or material being
produced as determined by the manufacturing or process engineer who developed
the process for the machine. This product- or job-based method of evaluating OEE can
also be informally called the “Rated OEE”, to reflect that the evaluation was rated to
a specific product or job, and to differentiate from the default, machine nameplate
speed based OEE evaluation. In the platform, the Rated OEE is administered using the
Job Management tools.
The total quantity of units produced during the Machine Operating Time is
represented as the entire bar (light blue + grey), with the portion shown in light blue
representing the ideal time it would have taken to produce the same quantity of units
at the theoretical maximum machine speed. The type of units of production are
defined by the particular machine and its available control parameters, and set up by
the platform administrator.
Quality:
The numerical value of Quality is the quantity of Good Material produced as
a percentage of the Total Material produced during the Machine Operating Time of
the time period chosen. This is commonly referred to as First Pass Yield. More
sophisticated monitoring systems will take into account relevant, on-machine quality
assurance or inspection steps, to better represent the Quality performance of the
machine operation. In some cases, downstream inspection devices can be monitored
and directly related to production on the machine. Once the material being produced
is off the machine, however, care must be taken to consider only the quality aspects
of the particular machine operation being measured.
CHAPTER 12
MATERIAL AND CAPACITY REQUIREMENTS PLANNING
Chapter Outline
12.1
12.2
12.3
12.4
12.5
12.6
12.7
MRP and CRP Objectives
MRP Inputs and Outputs
MRP Logic
System Refinements
Safety Stock, Lot Sizing and System Updating
CRP Inputs and Outputs
Loading
12.8
12.9
12.10
12.11
12.12
12.13
Just In Time and Lean Operations
Building Blocks
Lean Tools
Transitioning to Lean Tool System
Lean Services
JIT II
12.1 MRP AND CRP OBJECTIVES
Material Requirements Planning (MRP) is a dependent demand technique used
for determining the schedule of requirements for the acquisition of subassemblies,
components and raw materials needed to satisfy the production.
By identifying precisely what, how many, and when components are needed, MRP
systems are able to reduce inventory costs improve scheduling effectiveness, and
respond quickly to market changes.
Capacity Requirements Planning (CRP) is the process of determining shortrange capacity of personnel and equipment to meet the production objectives embodied
in the master schedule and the material requirements plan.
MRP focuses upon the priorities of materials, whereas CRP focuses primarily upon
time. Through CRP, variances are projected, with this the managers might consider
remedies such as alternative routings, changing or eliminating of lot sizing or safety
stock requirements, and lot splitting.
Following are some of the terminologies used to describe the functioning of MRP
systems.
Dependent demand: Demand for subassemblies to be used in the production of
finished goods.
Parent and component items: A parent is an assembly made up of basic parts, or
components.
Bill of materials: A listing of all the raw materials parts, subassemblies, and assemblies
that go into an assembled item.
Level code: The level on which an item occurs in the structure, or bill-of-materials format.
Requirements explosion: The breaking down (exploding) of parent items into
component parts that can be individually planned and scheduled.
Time phasing: Scheduling to produce or receive an appropriate amount (lot) of
material so that it will be available in the time periods when needed-not before or after.
Time bucket: The time period used for planning purposes in MRP-usually a week.
Lot size. The quantity of items required for an order. The order may be either purchased
from a vendor or produced in-house. Lot sizing is the process of specifying the order
size.
Lead-time offset: The supply time, or number of time buckets between releasing an
order and receiving the materials.
Figure 12.1 describes MRP and CRP activities in schematic form.
Figure 12.1 Material and capacity planning flowchart
Source: Adapted from Material and Capacity Requirements Planning (p.218) by S.A. Kumar and N.
Suresh, Operations Management 2009, New Delhi, New Age International
12.2 MRP INPUTS AND OUTPUTS
An MRP system has three major sources of information: master production
schedule of end items required, inventory records file, and the bill-of-materials. Whilst
the essential outputs are classified as: primary reports, which are the main reports
(planned orders, releases and revisions of data to MPS , and secondary reports, which
are optional outputs (management reports and inventory updates).
The master production schedule specifies which end items are to be made, in
what quantities and when these are needed in accordance to the production plan. The
production plan sets the over-all level of the output.
A bill of material is the list of quantities of all the raw materials parts,
subassemblies, and assemblies that go into an assembled item to make a unit of product.
Thus, each finished product has its own bill of materials. The listing in the bill of
materials is hierarchical which shows the needed quantity for each item to produce the
parent product. Figure 12.2 shows an assembly diagram for a chair and a simple product
structure tree for the chair. The product structure tree provides hierarchical
decomposition of items form a product.
Figure 12.2 Assembly diagram and product structure tree for chair assembly
Source: Adapted from “Management of Quality” by W.J. Stevenson, Operations Management (12th
Edition) 2015 New York, McGraw-hill Education
When an MRP system calculates requirements, computer scan the bill of
materials level-by-level and the item is coded at the lowest level at which it occurs, this
referred to as low-level coding. Figure 12.3 shows the level coding information. Level
0 is the highest and level 3 the lowest for this product structure three.
Figure 12.3 Product structure tree
Source: Adapted from Material and Capacity Requirements Planning (p.220) by S.A. Kumar and N.
Suresh, Operations Management 2009, New Delhi, New Age International
12.3 MRP LOGIC
MRP processing takes the final product requirements specified by the master
production schedule and “explodes” them into time-phased requirements for
components using the bill of materials offset by lead times.
Following are some of the terms frequently used on MRP planning forms.
Gross requirements: The total expected demand for raw materials, components,
subassemblies, or finished goods by the end of the period. For end items, these
quantities are come from the master schedule (for end items) or from the combined
needs of other items.
Scheduled receipts: Materials have been placed (open order) and are scheduled to
arrive from vendors or in-house shop due to be received at the beginning of the period.
On hand/available: The expected amount of inventory to be available at the end of the
time period in which it is shown. This includes amount available from scheduled
receipts plus available inventory from last period.
Net requirements: Net amount required in each time period. This result of adjusting
requirements for projected inventory available from the previous period with any
scheduled receipts.
Planned-order receipt: Quantity of materials from a vendor or in-house shop expected
to be received at the beginning of the period in which it is shown.
Planned-order release: indicates a planned amount to be ordered in each time period
adjusted by the lead-time offset so that materials will be received on scheduled date.
When the orders are executed, the “planned-order releases” are deleted and changed to
scheduled receipts.
The quantities that are generated by exploding the bill of materials are gross
requirements; they do not take into account any inventory that is currently on hand or
due to be received. The inventory on hand at the end of a period is the sum of the
previous period on-hand amount plus any receipts (planned or scheduled) less the gross
requirements.
On hand/available = on hand at end of previous period + receipts – gross
requirements
The materials that a firm must actually acquire to meet the demand generated
by the master schedule are the net material requirements. The determination of the net
requirements is the core of MRP processing. One accomplishes it by subtracting from
gross requirements the sum of existing inventory and items already on order as recorded
in the inventory status file.
Net requirements = gross requirements – (on hand/available + scheduled
receipts)
12.4 SYSTEM REFINEMENTS
Key features of MRP systems are: the generation of lower-level requirements time
phasing of those requirements, and the planned-order releases that flow from them.
Extra highlights of numerous MRP frameworks are their ability handle:
Simulation: The simulation capability permits organizers to "preliminary fit" an
initial calendar onto the MRP framework before the timetable is really acknowledged
and delivered. With this element, an organizer can "attempt" a potential client request
on the framework to check whether materials and conveyance dates can be met even
before the request is acknowledged. On the off chance that lead times, materials, and
limits are adequate, the request can be acknowledged; something else, changes in
amounts or conveyance times must be arranged, or the request must be turned down.
Firm-Planned Orders: Firm-planned order capability necessities, indeed in spite
of the fact that ordinary MRP rationale would naturally delay or reschedule such
orders.
By assigning certain
orders
as
“firm-planned
orders,” organizers can guarantee that
the
computer
will
not consequently alter the discharge date, the planned-order receipt date, or
the arrange quantity
Pegging: Pegging introduces to the capacity to work in reverse from part to
distinguish the parent thing, or things that produced those prerequisites. For instance,
assume a car producer discovered that a portion of the brake materials were damaged.
The "where utilized" pegging record would permit creation investigators to follow
prerequisites upward in the item structure tree to figure out what end-thing models
contained the damaged segments.
Modular and Planning Bills: Particular bills of materials depict the item structure
for essential subassemblies of parts that are normal to various end things. For instance,
a few models of a producer's cars may contain a similar transmission, drive train,
cooling, and stopping mechanisms. By booking these things as (normal) modules,
creation can once in a while be all the more successfully "smoothed" and stock venture
limited.
12.5 SAFETY STOCK, LOT SIZING AND SYSTEM UPDATING
Safety stock: In an ideal world, there is no requirement for safety stock as this is one
reason for utilizing MRP approach in overseeing subordinate interest stock things. Be
that as it may, firms may choose for convey stock on certain things for an assortment
of reasons. For instance, deficiencies may happen if orders are late or manufacture or
gathering times are longer than anticipated and this condition carried them to the
utilization of wellbeing stock to keep up smooth tasks. In this way, holding security
stock, delude the primary reason for MRP approach
Lot sizing: Request amounts are not generally indicated ahead of time. Distinctive part
measuring techniques are being used, they are (1) fixed-request amount sums; (2) EOQ
or ERL sums; (3) parcel for part, which is requesting the specific measure of the net
necessities for every period; (4) fixed period prerequisites and (5) different least-cost
draws near, e.g., least-unit cost, least-all out expense.
The part-time frame calculation is a technique that utilizes a proportion of requesting
expenses to conveying costs per period, which yields a section period number. At that
point prerequisites for current and future periods are cumulated until the total holding
cost (to a limited extent period terms) is as close as conceivable to this number
Framework refreshing: MRP framework structures regularly utilize one of two
strategies to process information, update records, and guarantee that the framework data
is substantial and adjusts with genuine: (1) regenerative preparing or (2) net change
handling
System updating: MRP framework structures regularly utilize one of two strategies to
process information, update records, and guarantee that the framework data is
substantial and adjusts with real: (1) regenerative preparing or (2) net change handling.
Regenerative MRP frameworks: use cluster preparing to rethink the entire framework
(full blast everything being equal) all the time (e.g., week after week). Net change MRP
frameworks: are on the web and respond ceaselessly to changes from the ace timetable,
stock record, and different exchanges.
Early MRP establishments were to a great extent of the regenerative sort, however then
as net change frameworks got consummated, more firms started introducing them. Be
that as it may, being "movement driven," net change frameworks are here and there
"apprehensive" and will in general go overboard to changes. The significant
inconvenience of regenerative frameworks is the delay that exists until refreshed data
is joined into the framework.
Framework application: Although MRP frameworks are generally utilized, they are
generally valuable in assembling conditions where items are produced to request, or
amassed to arrange or to stock. MRP doesn't give as much bit of leeway in low-volume,
exceptionally complex applications or in constant stream forms, for example,
processing plants. It does, be that as it may, appreciate wide application in metals,
paper, food, substance, and other handling applications.
12.6 CRP INPUTS AND OUTPUTS
Capacity is a measure of the productive capability of a facility per unit of time. In terms
of the relevant time horizon, capacity management decisions are concerned with the
following:
l. Long range-resource planning of capital facilities, equipment, and human
resources.
2. Medium range-requirements planning of labor and equipment to meet MPS
needs.
3. Short range-control of the flow (input-output) and sequencing of operations.
Capacity-requirements planning (CRP) applies primarily to medium-range
activities. The CRP system receives planned and released orders from the materialrequirements planning system and attempts to develop loads for the firm’s work centers
that are in good balance with the work-center capacities. Like MRP, CRP is an iterative
process that involves planning, revision of capacity (or revision of the master schedule),
and replanning until a reasonably good load profile is developed. Planned-order
releases (in the MRP system) are converted to standard hours of load on key work
centers in the CRP system. Following are the essential inputs and outputs in a CRP
system:
12.7 LOADING
There are two fundamental methods for arranging the control of a creation framework.
One of these is stacking; the other is planning. Of the two stacking is the simpler to do.
In any case, planning can give more control and is more point by point, in spite of the
fact that it is generally accomplished for a shorter timespan. A heap is the measure of
work allocated to an office work focus or administrator, and stacking is the task of
work. Stacking doesn't determine the succession wherein the work is done or when it is
to be finished. Stacking is the total task of employments to explicit elements. Sources
of info fundamental for stacking include:
• Routing
• Standard hours per activity or work focus
• Gross machine/man-hour accessible
• Efficiency factors
• Due date. Stacking is intently attached to scope quantification as in stacking
is the main sign that limit levels need modifying.
Ordinarily, the stacking procedure considered as a six stage methodology. Step
I through 4 is administrative choice advances that generally don't change week to week
or month to month. The last two stages are required on an occasional premise as a
contribution to booking.
There are two essential methods for arranging the control of a creation
framework. One of these is stacking; the other is booking. Of the two stacking is the
simpler to do. In any case, planning can give more control and is more itemized, in spite
of the fact that it is generally accomplished for a shorter timeframe. A heap is the
measure of work doled out to an office work focus or administrator, and stacking is the
task of work. Stacking doesn't determine the grouping where the work is done or when
it is to be finished. Stacking is the total task of employments to explicit substances.
Sources of info vital for stacking include:
12.8
JUST IN TIME AND LEAN OPERATIONS
As trade organizations endeavor to preserve competitiveness in an everchanging
worldwide economy,
they
are progressively looking
for modern and superior ways of working. For a few, this implies changing from
the conventional ways of working to what is presently referred to as incline operation.
A
lean
operation could
be
an adaptable framework of
operation
that employments significantly less assets (i.e., exercises, individuals, stock, and
floor space) than a conventional framework. Additionally, incline frameworks tend to
attain more prominent efficiency, lower costs, shorter cycle times, and higher quality
than non lean frameworks.
Lean frameworks are now
and
then referred to
as
just-in-time
(JIT) frameworks owing
to
their
exceedingly
facilitated exercises and conveyance of merchandise that happen fair as
they
are required. The incline approach was led by Toyota’s originator, Taiichi Ohno, and
Shigeo
Shingo
as
a
much
quicker and
less expensive way
of creating automobiles. Taking after its victory, nowadays the incline approach is
being connected in a wide run of fabricating and benefit operations. Incline is both
a logic and a technique that centers on killing squander (non value-added exercises)
and
streamlining
operations
by
closely planning all exercises. Incline frameworks have three essential components:
They are request driven, are centered on squander diminishment, and have a
culture that's committed to brilliance and persistent advancement. This
chapter portrays the incline production approach, counting the fundamental elements
of these frameworks and what it takes to form them work viably. It too focuses out the
benefits of these frameworks
By going to these wastes, the change is accomplished.
1. Waste of over generation dispose of by lessening set-up times,
synchronizing amounts and timing between forms, format issues. Make as it
were what is required now.
2. Waste of land up distribute with bottlenecks and adjust uneven loads
by adaptable work constrain and hardware.
3. Waste of transportation set up formats and areas to create taking care of and
transport surplus in case conceivable. Limit transportation and dealing with on the
off chance that not conceivable to kill.
4. Waste of preparing itself address with respect to the reasons for existence of
the item and after that why each handle is vital.
5. Waste of stocks decreasing all other wastes decreases stocks.
6. Waste of movement thinks about for economy and consistency. Economy moves
forward efficiency and consistency progresses quality. First move
forward the movements, at that point motorize or computerize something
else. There's risk of robotizing the waste.
7. Waste in Operations .Waste of
making imperfect items create the generation handle to avoid abandons from
being delivered, so as to dispense with assessment. At
each handle, don't acknowledge surrenders and makes no defects. Make the
method fail-safe. An evaluate handle continuously surrender quality product.
Figure 12.4 Waste in Operation
Source: Adapted from Material and Capacity Requirements Planning (p.189) by S.A. Kumar and N.
Suresh, Operations Management 2009, New Delhi, New Age International
Benefits of JIT
The most significant benefit is to improve the receptiveness of the firm to the
changes in the market place thus providing an advantage in competition.
Following are the benefits of JIT:
1. Product cost— is enormously decreased due to lessening of fabricating cycle
time, decrease of squander and inventories and disposal of nonvalue included operation.
2. Quality—is improved because of continuous quality improvement programmes.
3. Design— Due to quick reaction to building alter, elective plans can
be rapidly brought on the shop floor.
4. Productivity improvement.
5. Higher production system flexibility.
6. Administrative and ease and simplicity.
12.9 BUILDING BLOCKS
The plan and activity of a lean framework give the establishment to achieving
the previously mentioned objectives.
1. Item structure.
2. Procedure plan.
3. Staff/hierarchical components.
4. Assembling arranging and control. Speed and effortlessness are two ongoing
themes that go through these structure squares.
Item Design
Four components of item configuration are significant for a lean creation
framework:
1. Standard parts.
2. Secluded plan.
3. Exceptionally competent creation frameworks with quality inherent.
4. Simultaneous designing.
The initial two components identify with speed and straightforwardness. The
utilization of standard parts implies that laborers have less parts to manage, and
preparing times and expenses are diminished. Buying, taking care of, and checking
quality are more daily schedule and loan themselves to ceaseless improvement. Another
significant advantage is the capacity to utilize standard preparing. Measured plan is an
augmentation of standard parts. Modules are bunches of parts treated as a self-contained
unit. This significantly lessens the quantity of parts to manage, rearranging get together,
buying, taking care of, preparing, etc. Normalization has the additional advantage of
diminishing the quantity of various parts contained in the bill of materials for different
items, in this manner disentangling the bill of materials.
12.10 LEAN TOOLS
This section describes several tools that are used for process improvement in lean
systems.
Value Stream Mapping
Value stream mapping could be a visual device to efficiently look at the flow of
materials and data included in bringing an item or advantage to a customer. The
procedure begun at Toyota, where it is alluded to as “Material and Information
Flow Mapping.” The map may be a outline of a whole handle that regularly ranges
from approaching products from
suppliers
to
shipment
of
an item or conveyance of benefit to
the client.
The outline appears all
processes within the esteem stream, from entries of supplies to the shipping of
the item.
The
objective
is to
extend appreciation to
the client,
where approval is regularly characterized in terms of quality, time, taken a toll,
or adaptability .Information collected amid the
mapping prepare might incorporate times (e.g., cycle time, setup time, changeover
time, touch time, lead time), separations traveled (e.g., by parts, specialists, printed
material), botches (e.g., item surrenders, information section mistakes), wasteful wo
rk strategies (e.g., additional movements, over the top lifting or moving.
1. Map the value stream in person.
2. Begin with a quick walk through of the system from beginning to end to get a
sense of the system.
3. Then do a more thorough walkthrough following the actual pathway to collect
current information on material or information flow.
4. Record elements of the system such as cycle times, scrap rates, amounts of
inventory, downtimes, number of operators, distances between processes, and
transfer times.
Value improvement for a product or a service embodies the five lean principles
described earlier and repeated here. It begins by specifying value from the customer’s
standpoint. You can see where value stream mapping can help process improvement:
1. Specify value from the standpoint of the end customer.
2. Identify all the steps in the value stream and create a visual (map) of the value
stream.
3. Eliminate steps that do not create value to create flow.
4. Use next-customer-in-the-process demand to pull from each preceding process
as needed to control the flow.
5. Repeat this process as long as waste exists in the system.
Once a value stream map is completed, data analysis can uncover improvement
opportunities by asking key questions, such as:
Where are the process bottlenecks?
Where do errors occur?
Which processes have to deal with the most variation?
Where does waste occur?
All business organizations, whether they are primarily engaged in service or
manufacturing, can benefit by applying lean principles to their office operations.
This includes purchasing, accounting, order entry, and other office functions.
Office wastes might include:
1. Excess inventory —excess supplies and equipment.
2. Over processing —excess paperwork and redundant approvals.
3. Waiting times —orders waiting to be processed, requests for information
awaiting answers.
4. Unnecessary transportation —inefficient routing.
5. Processing waste —using more resources than necessary to accomplish a
task.
6. Inefficient work methods —poor layout design, unnecessary steps,
inadequate training.
7. Mistakes —order entry errors, lost files, miscommunications.
8. Underused people—Not tapping all of the mental and creative capabilities
of workers.
12.11 TRANSITIONING TO LEAN TOOL SYSTEM
The success of incline frameworks in Japan and joined together states
has pulled
in sharp interested among
other conventional producers. Arranging a fruitful transformation to
extend the likelihood of fruitful move,
companies ought
to embrace a
carefully arranged approach that incorporates the taking after components:
1.
Make beyond
any
uncertainty beat administration is
committed
to
the change which they know what will be required. Make beyond any
hesitation that administration is involved within the handle and knows what it'll taken
a toll, how long it'll take to total the conversion, and what comes about can
be anticipated.
2. Think about the operations carefully; choose which
foremost exertion to change over.
parts
will require the
3. Get the back and participation of laborers. Plan preparing programs
that incorporate sessions
in
setups, support of gear,
cross-training
for numerous assignments, participation, and issue understanding. Make beyond any
doubt specialists are completely educated around what incline is and why it
is alluring.
4. Start by attempting
to diminish setup
times whereas keeping
up the
current framework. Enroll the help of specialists in recognizing and killing existing is
sues (e.g.,bottlenecks, destitute quality).
5. Continuously change over operations, starting at the conclusion of the method and
working in reverse. At each arrange, make beyond any doubt the conversion has
been generally
effective
some
time
recently moving
on. Don't start to diminish inventories until major issues have been settled.
6. As one of the final steps, change over providers to JIT and be arranged to work
closely with them. Begin by narrowing the list of merchants, distinguishing those who
are willing to grasp the incline reasoning. Donate inclination to sellers who have longterm track records of unwavering quality. Utilize merchants found adjacent in
case fast reaction time
is imperative.
Set
up long-term
commitments
with merchants. Demand on tall guidelines of
quality
and
adherence
to
strict conveyance plans.
7.
Be arranged to
come
across deterrents to transformation. Deterrents to transformation conversion and
converting from a traditional system to a lean system may not be smooth. Also,
manufacturers that operate with large amounts of inventory to handle varying customer
demand may have difficulty acclimating themselves to less inventory.
Some other challenges include the following:
1. Administration may not be completely committed or may be unwilling
to give the
fundamental assets to transformation. Usually maybe the
foremost genuine
obstruction
since the transformation is likely destined without genuine commitment.
2. Laborers and/or administration may
not show a agreeable emotion.
The framework is
predicated
on participation. Directors may stand
up
to since incline shifts a few of the duty from administration to specialists and
gives specialists more control over the work. Laborers may stand up to since of
the expanded duty and stretch.
3. It can be exceptionally troublesome to alter the culture of the organization to
one steady with the incline logic.
4. Providers may stand up to for a few reasons:
a. Buyers may not be willing to commit the assets essential to
assist them adjust to the incline systems.
b. They may be uneasy around long-term commitments to a buyer.
c. Visit, little conveyances may be troublesome, particularly on the off chance
that the provider has. The burden of quality control will move to the provider.
e. Visit building changes may result from proceeding incline advancements by
the buyer.
12.12 LEAN SERVICES
The discussionof incline frameworks have centered on manufacturing basicall
y since that'swhere it was created, and where it has been utilized most regularly. It
is imperative to
recognize
that the
total ranges
of incline benefits
are
more troublesome to realize in benefit operations. In any case, services can and
do advantage from numerous incline concepts. When just-in-time is utilized within
the setting of administrations, the center is regularly on the time required to perform a
service—because
speed
is regularly a vital arrange victor for administrations. A
few administrations do have inventories of a few sorts, so inventory decrease is
another angle of incline that can apply to administrations. Illustrations of rapid
conveyance (“available when requested”) are Domino’s Pizza, FedEx and Express
Mail, fastfood eateries, and crisis administrations. Other cases incorporate just-intime distributing and
work
cells
at
fast-food eateries.
In expansion to
speed, incline administrations emphasize reliable,
high-quality,
standard
work strategies; adaptable specialists; and near supplier relationships. Process
improvement and problem solving can contribute to streamlining a system, resulting in
increased customer satisfaction and higher productivity.
Below are the manners in which lean advantages can be accomplished in
administrations:
• Eliminate disturbances. For instance, attempt to abstain from having laborers who
are adjusting clients likewise answer phones.
• Make the framework adaptable. This can cause issues except if drew nearer
cautiously. Regularly, it is alluring to normalize work since that can yield high
efficiency. Then again, having the option to manage assortment in task necessities can
be an upper hand. One methodology may be to prepare laborers with the goal that they
can deal with more assortments. Another may be to appoint work as per claims to fame,
with specific laborers taking care of various kinds of work as indicated by their forte.
• Reduce arrangement times and preparing times. Have as often as possible utilized
apparatuses and extra parts promptly accessible. Moreover, for administration calls,
attempt to evaluate what parts and supplies may be required so they will be close by,
and abstain from conveying gigantic inventories.
• Simplify the process. This incorporates mistakes and copy work. Keep the
accentuation on quality and uniform assistance.
• Minimize work-in-process. Models incorporate requests holding back to be handled,
calls standing by to be replied, bundles holding on to be conveyed, trucks holding on to
be emptied or stacked, applications holding on to be prepared.
• Simplify the procedure. This works particularly when clients are a piece of the
framework (self-administration frameworks including retail activities, ATMs and
candy machines, administration stations, and so forth.).
12.13 JIT II
In certain occurrences, organizations permit providers to oversee restocking of
stock got from the providers. A provider delegate works directly in the organization's
plant, ensuring there is a fitting flexibly close by. The term JIT II is utilized to introduce
to this training. JIT II was promoted by the Bose Corporation. It is often referred to as
vendor-managed inventory (VMI).
References
J.R. Evans. And W.M. Lindsay, “Total Quality Management”, Cengage Learning
Asia, 2013.
J. Heizer, B. Render, Operations Management, 10th Global Edition. New Jersey:
Pearson Education, 2011.
S. Anil Kumar, N. Suresh, Operations Management, New Delhi, New Age
International, 2009
W.J. Stevenson, “Operations Management”. 12th Edition. New York: McGraw-hill
education, 2015.
W.J Stevenson and S.C. Chuong, "Operations Management". 2nd Edition. New
York: McGraw-hill education, 2014.S.
CHAPTER 13
SCHEDULING AND CONTROLLING PRODUCTION ACTIVITIES
Chapter Outline
13.1
13.2
13.3
13.4
13.5
13.6
13.7
13.8
Introduction
Concept of Single Machine Scheduling
Measures of Performance
Shortest Processing Time (SPT) Rule
WSPT Rule
Earliest Due Date (EDD) Rule
Minimizing the Number of Tardy Jobs
Flow Shop Scheduling
13.9
13.9.1
13.9.2
13.10
13.11
13.12
13.13
13.14
13.15
Johnson’s Problem
Johnson’s Algorithm
Extension of Johnson’s Rule
I CDS Heuristic
Job-Shop Problem
Types of Schedules
Heuristic Procedures
Priority Dispatching Rules
Two Jobs and M Machines Scheduling
13.1 INTRODUCTION
Scheduling
is
the portion of begins and wrap
up time
to
each specific arrange. Subsequently scheduling can bring efficiency in shop floor
by giving a calendar for handling a set of jobs. The single machinescheduling issue comprises of n employments with the same single operation on each
of
the occupations, whereas the stream shop-scheduling issue
comprises
of
n occupations with m operations on each of the employments. In this issue, all
the occupations will
have
the
same handle arrangements.
The workshop
scheduling issue contains
n occupations with m operations on each of
the occupations; but, in this case, the process groupings of the employments will
be diverse from each other.
13.2 CONCEPT OF SINGLE MACHINE SCHEDULING
The essential single machine agreement issue is described by the accompanying
conditions:
1. A lot of independent, single-activity occupations is accessible for preparing at
time zero.
2. Set-up season of each activity is free of its situation in employments grouping.
Along these lines, the set-up season of each activity can be remembered for its
handling time.
3. Employment descriptors are known ahead of time.
4. One machine is constantly accessible and is never kept inactive when work is
pausing.
5. Each activity is handled till its consummation without break.
Under these conditions, one can see balanced correspondence between a
succession of the n occupations and a change of the activity files 1, 2, ... n. The all out
number of groupings in the essential single machine issue is n! which is the quantity of
various stage of n components. The three fundamental information are important to
depict employments in a deterministic single machine-booking problem.
Processing time (t j ): It is the time required to process job j. The processing time, tj
will normally include both actual processing time and set-up time. It is the time required
to process work j. The preparing time, tj will typically incorporate both real handling
time and set-up time.
Ready time (rj ): It is the time at which job j is available for processing. The ready time
of a job is the difference between the arrival time of that job and the time at which that
job is taken for processing. In the basic model, as per condition I, rj = 0 for all jobs.
It is the time at which work j is accessible for preparing. The prepared season
of an occupation is the contrast between the appearance season of that activity and the
time at which that activity is taken for handling. In the fundamental model, according
to condition I, rj = 0 for all employments.
Due date (dj ): It is the time at which the job j is to be completedIt is the time at which
the activity j is to be finished.
Completion time (Cj ): It is the time at which the job j is completed in a sequence.
Performance measures for evaluating schedules are usually function of job completion
time. Some, sample performance measures are Flow time, Lateness, Tardiness, etc
Fulfillment time (Cj ): It is the time at which the activity j is finished in an arrangement.
Execution measures for assessing plans are typically capacity of employment finish
time. A few, example execution measures are Flow time, Lateness, Tardiness, and so
forth.
Flow time (Fj ): It is the amount of time job j spends in the system. Flow time is a
measure, which indicates the waiting time of jobs in a system. This in turn gives some
idea about in-process inventory due to a schedule. It is the difference between the
completion time and the ready time of the job j i.e. Fj = Cj – rj .
Delay (Lj ): It is the measure of time by which the fruition season of employment j
varies from the due date (Lj = Cj – d). Delay is a measure which gives a thought
regarding congruity of the employments in a timetable to a given arrangement of due
dates of the occupations. Delay can be either positive delay or negative delay. Positive
delay of a vocation implies that the activity is finished after its due date. Negative delay
of work implies that the activity is finished before its due date. The positive delay is a
proportion of helpless assistance. The negative delay is a proportion of better help.
Much of the time, particular punishments and different expenses are related with
positive delay, yet by and large, no advantages are related with negative delay. In this
way, it is frequent.
Tardiness (Tj ): Tardiness is the lateness of job j if it fails to meet its due date, or zero,
otherwise Tj = max {O, Cj – dj } = Max {O, Lj }.
13.3 MEASURES OF PERFORMANCE
The different measures of performance which are used in the single machine
scheduling are listed below with their formula. The various proportions of execution
which are utilized in the single machine booking are recorded below with their
equations.
13.4
SHORTEST PROCESSING TIME (SPT) RULE
In single machine scheduling problem, sequencing the jobs in increasing order
of processing time is known as the shortest processing time (SPT) sequencing.
Sometimes we may be interested in minimizing the time spent by jobs in the system.
This, in turn, will minimize the in-process inventory. Also, we may be interested in
rapid turnaround/throughput times of the jobs.
The time spent by a job in the system is nothing but its flowtime, and the
‘rapid turnaround time’ is its mean flow time (F). Shortest processing time (SPT) rule
minimizes the mean flow time
In single machine booking issue, sequencing the employments in expanding request of
preparing time is known as the most limited preparing time (SPT) sequencing.
Here and there we might be keen on limiting the time spent by employments
in the framework. This, thusly, will limit the in-process stock. Additionally, we might
be keen on fast turnaround/throughput seasons of the employments. The time spent by
work in the framework is only its flowtime, and the 'fast turnaround time is its mean
stream time (F). Most brief handling time (SPT) rule limits the mean stream time.
13.5 WSPT Rule
Sometimes, the jobs in a single machine-scheduling problem will not have
equal importance. Under such situation, each job is assigned a weight, wj . The mean
flow time, which is computed after considering wj is called, weighted mean flow time,
which is shown below:
Now and then, the employments in a solitary machine-planning issue won't
have equivalent significance. Under such circumstance, each activity is allocated a
weight, wj . The mean stream time, which is registered after considering wj is called,
weighted mean stream time, which is demonstrated as follows:
13.6 Earliest Due Date (EDD) Rule
The lateness (Lj ) of a job is defined as the difference between the completion time
and the due date of that job. Lj can be either positive or negative values. Lj = Cj – dj. The
maximum job lateness (Lmax) and the maximum job tardiness (Tmax) are minimized by Earliest
Due Date sequencing. In a single machining scheduling p.
13.7
Minimizing the Number of Tardy Jobs
If a job is completed beyond its due date, then it is called tardy job; otherwise it is called
non-tardy job. In many organizations, the objective may be to minimize the total number of tardy
jobs. 242 Operations Management If the EDD sequence yields zero tardy, or it yields exactly one
tardy job, then it is an optimal sequence for minimizing the total number of tardy jobs (NT), If it
yields more than one tardy job, the EDD sequence may not yield the optimal solution. An exact
algorithm for the general case is given below.
(a) First, a set (E) of early jobs, in EDD order.
(b) Then, a set (L) of late jobs, in any order.
This algorithm gives optimal sequence, which will result in minimum number of tardy
jobs (NT).
HODGSON’S ALGORITHM TO MINIMIZE NT
Step 1: Arrange the jobs in EDD order and assume this, as set E. Let set L be empty.
Step 2: If no jobs in E are late, then stop. Find the union of E and L (Note: The remaining
jobs in E should be in EDD order. But the jobs in L can be in any order); otherwise, identify
the first late job in E. Let it be job K.
Step 3: Identify the longest job, among the first K jobs in the sequence. Remove this job from
E and place it in L. Revise the completion times of the jobs remaining in E and return, to
Step 2. This algorithm is demonstrated using the following problem.
13.8 FLOW SHOP SCHEDULING
In flow shop scheduling problem, there are n jobs; each require processing on m different machines.
The order in which the machines are required to process a job is called process sequence of that job.
The process sequences of all the jobs are the same. But the processing times for various jobs on a
machine may differ. If an operation is absent in a job, then the processing time of the operation of
that job is assumed as zero.
The flow-shop scheduling problem can be characterized as given below:
1. A set of multiple-operation jobs is available for processing at time zero (Each job requires m
operations and each operation requires a different machine).
2. Set-up times for the operations are sequence independent, and are included in processing
times.
3. Job descriptors are known in advance.
4. m different machines are continuously available.
5. Each individual operation of jobs is processed till its completion without break. The main
difference of the flow shop scheduling from the basic single machine scheduling is that the
inserted idle time may be advantageous in flow shop scheduling. Though the current machine
is free, if the job from the previous machine is not released to the current machine, we cannot
start processing on that job. So, the current machine has to be idle for some time. Hence, inserted
idle time on some machines would lead to optimality.
13.9 JOHNSON’S PROBLEM
As mentioned in the earlier section, the time complexity function for a general flow shop
problem is exponential in nature. This means, the function grows exponentially with an increase in
the problem size. But, for a problem with 2 machines and n jobs, Johnson had developed a
polynomial algorithm to get optimal solution, i.e., in a definite time, one can get the optimal solution.
13.9.1 Johnson’s Algorithm
Step 1: Find the minimum among various ti1 and t.
Step 2a: If the minimum processing time requires machine 1, place the associated job
in the first i2 available position in sequence. Go to Step 3.
Step 2b: If the minimum processing time requires machine 2, place the associated job
in the last available position in sequence. Go to Step 3.
Step 3: Remove the assigned job from consideration and return to Step 1 until all
positions in
sequence are filled. (Ties may be broken randomly.)
13.9.2 Extension of Johnson’s Rule
Table 13.1 Three machines and n jobs’ flow shop scheduling
One can extend Johnson’s algorithm to the problem shown in Table 13.1 if anyone of
the following two conditions is satisfied.
If min t i1 ≤ max ti2 or
if min t i3 ≤ max t i2
If anyone of the above conditions is satisfied then, we can extend the Johnson’s
algorithm in the following way. Create a hypothetical problem with two machines and n jobs as
shown in Table 13.2. The objective is to obtain optimal sequence for the data given in the Table
13.2. Later, the makespan is to be determined for the optimal sequence by using the data of the
original problem shown in table. This concept of extending Johnson’s algorithm to this type of
problem is demonstrated using an example problem.
Table 13.2
problem for Table
Hypothetical
13.1
13.10 CDS HEURISTIC
For expansive measure issues,
it
would
be troublesome to
urge ideal arrangement in limited time, since the flow shop planning could be
a combinatorial issue. This implies the time complexity work of flow shop issue is
exponential in nature. Thus, we got to utilize proficient heuristics for large size
problems. CDS (Campbell, Dudek and Smith) heuristic is one such
heuristic utilized for stream shop scheduling. The CDS heuristic compares to
multistage utilize of Johnson’s run the show connected to a modern issue formed
from the first handling time.
At stage 1
In other words, Johnson’s rule is applied to the first and mth operations and intermediate
operations are ignored.
At stage 2
That is, Johnson’s rule is applied to the sum of the first two and the last two operation
processing times.
In general at stage i,
For each stage i (i =
1, 2, ... m – 1), the job
order obtained is used to calculate a makespan for the original problem. After m – 1,
stages, the best makespan among the m – 1 schedule is identified. (Some of the m – 1
sequences may be identical).
13.11 THE JOB-SHOP PROBLEM
In Job shop issue, we expect that each work has m unmistakable activities. In
case a couple of the occupations are having not as much as m tasks, required number
of fraud activities with zero get ready occasions is expected. By this doubt, the state of
ascend to number of tasks for all the occupations is guaranteed. In work shop arranging
issue, the strategy groupings of the jobs are not the equivalent. Therefore, the
progression of each activity in work shop arranging isn't unidirectional.
The time unpredictability work of the work shop issue is combinatorial in
nature. Thus, heuristic methodologies are predominant around there. Dissimilar to the
stream shop illustrate, there's no starting machine that proceeds in a manner of speaking
the essential activity of a work nor there's a terminal machine that proceeds in a manner
of speaking the last activity of a vocation.
In the stream shop, an activity number inside the activity gathering of a work
might be same as the position number of the ideal machine. Thus, there's no should
perceive between them. Be that as it may, in the work shop case, different businesses
will have particular activity courses of action. Along these lines, we can't expect a
straight stream for the work shop issue. Every activity j inside the activity gathering of
the work I in the activity shop issue will be depicted with triplet (I, j, k) where k is the
predefined machine for handling the jth activity of the ith work. Consider the taking after
data of a work shop arranging including four jobs, three tasks and henceforth three
machines. The in the first place table involves operation
13.12 TYPES OF SCHEDULES
In like manner, immeasurable number of feasible plans is possible for any
work shop issue, since one can insert any abstract whole of sit despite everything time
at any machine between abutting sets of tasks. These sit out of apparatus times are not
significant in any sense. In truth, these will prompt non-ideal course of action while
limiting makespan measure.
Changing the start season of a couple of activities towards left without
impacting the tasks groupings will limit the unwanted sit still time. Adjusting the
beginning season of a couple of activities along these lines is equivalent to moving an
activity piece to the got out of the Gantt Chart though securing the activity game plans.
Such an adjustment is called local-left -shift, or a limited-left-shift.
Given an operation plan for each machine, there are procedures on different
machines. Inside the past case, where the finishing of an earlier procedure on a similar
machine is obliged, it might in any case be possible to find undeniable infers of
progress. In any event, when no nearby moves are possible, far off better; a much better;
a higher; a stronger; an improved and a more grounded arrangement can unmistakably
be defined by moving tasks to the got out and past different activities starting at now
anticipated a couple of machine. Such a modification in which a couple of activity is
begun earlier without deferring some other activity is known as an overall left-shift or
essentially a left-shift. The arrangement of all plans wherein no overall left-move can
be made is known as the arrangement of dynamic plans. It is plainly a subset of the
arrangement of semi-dynamic calendars.
The arrangement of dynamic plans manages the arrangement of semi-dynamic
plans as far as enhancing any standard level of execution. So it is sufficient to consider
in a manner of speaking unique timetables. In the event that no machine is kept sit out
of rigging when it may begin taking care of a couple of activity by then it is known as
a non-delay.
Figure 13.12 Venn Diagram showing different schedules
13.13
HEURISTIC PROCEDURES
Since, the work shop issue comes beneath combinatorial category, the time
taken to get optimum solution will be exponential in nature. In this sort of issue, the
number
of doable plans will
grow
exponentially, indeed for little increase in issue measure.
As
a
result, it'll be inconceivable to
solve huge measure issues ideally. Subsequently,
we ought to resort to heuristic approach to urge near optimal arrangement
13.14
PRIORITY DISPATCHING RULES
In total identification method or department and bound method, the number
of plans generated
before coming
to an ideal plan would
be gigantic.
But,
heuristic methods will generally aim to produce as it were one full plan. At whatever
point, there's a tie (conflict) in selecting an operation from among competing
operations, we are going ought to utilize a need run the show. On the off chance
that there are ties at different levels, at that point we require more than one need run the
show to break profound ties.
For a given need run the show R, a heuristic based on the dynamic plan era is given
below:
Heuristic Active Schedule Generation
Step 1: Let t = and assume Pt = {φ}.
St = {All operations with no predecessors}.
Step 2: Decide q* = min {qj } and the comparing machine m* on which q* may well
be realized. j E S.
Step 3: For each operation which has a place to S, that requires machine m*
and fulfills the condition
Pj< q*, recognize an operation concurring to
a particular need and include this operation.
13.15
TWO JOBS AND M MACHINES SCHEDULING
Two occupations and
m
machines planning may
be
a uncommon issue beneath
work shop planning. The problem consists of
2 occupations, which require preparing on M machines. The handling arrangements of
the
jobs
are
not
the
same.
Since, this
can
be a uncommon kind beneath the work shop planning like, Johnson’s problem (n jobs
and 2 machines) beneath stream shop planning, we have a graphical method to
urge ideal schedule.
The graphical strategy comprises of the taking after steps:
Step 1: Develop a two dimensional chart in which x-axis speaks to the work 1, its
sequence of operations and their preparing times, and y-axis speaks to the work 2,
its arrangement of operations and their handling times (utilize same scale for both xaxis and y-axis).
Step 2: Shade each locale where a machine would be involved by the
two employments simultaneously. Step 3: The handling of both employments can
be appeared by a persistent line comprising of horizontal, vertical and 45degree corner to corner lines. The line is drawn from the root and proceeded
References:
J.R. Evans. And W.M. Lindsay, “Total Quality Management”, Cengage Learning
Asia, 2013.
J. Heizer, B. Render, Operations Management, 10th Global Edition. New Jersey:
Pearson Education, 2011.
Roy, R. and Weild, D, Product Design and Technological Innovation, Open
University Press, Milton Keynes, 1993.
S. Anil Kumar, N. Suresh, Operations Management, New Delhi, New Age
International, 2009
S. Kale, Production and Operations Management, New Delhi, McGraw-hill
education, 2013.
W.J. Stevenson, “Operations Management”. 12th Edition. New York: McGraw-hill
education, 2015.
W.J Stevenson and S.C. Chuong, "Operations Management". 2nd Edition. New
York: McGraw-hill education, 2014.
Overall Equipment Effectiveness (2017). Retrieved from: https://cp.energy/wpcontent/uploads/2017/09/OEE-Overview-v2.pdf
ASSESSMENT
DISCUSSION QUESTIONS:
11. Explain what is meant by ERP and Supply Chain Management
12. Discuss the factors involved in Aggregate Planning?
13. What is the concept of OEE and its relation to organizational success?
14. What are the strategic advantages of Master Scheduling and proper inventory
management?
15. Explain the role of inspection in material handling?
16. What is lean production and how is it achieved?
17. What is flowshop scheduling and discuss the importance of performance
measures?
18. Discuss in brief what is forecasting?
19. Explain how improving transportation may reduce cost?
20. What is meant by Lean Production and how does it improve the organizational
performance?
21. What is MRP? CRP?
22. Differentiate JIT and JIT II.
23. Give one example of office waste and how JIT can help in reducing this waste?
24. How can the use of MRP contribute to productivity?
25. What are two fundamental methods for arranging the control of a creation
framework?
26. Compare Johnsons problem to Job shop problem.
27. What are the main decision areas of job-shop scheduling?
28. What are Gantt charts? How are they used in scheduling?
29. What are the advantages of using Gantt charts?
30. Why do handling arrangements of the jobs are not the same in Two Jobs and M
Machines Scheduling?
ACTIVITY 1
Video to watch: OEE
Link: https://www.youtube.com/watch?v=pPqfXK8WQCc&t=909s
Guide Questions:
3. Describe the OEE for organization?
4. How does it improve the organizational performance?
ACTIVITY 2
To watch: Culture and Lean Production/ DAbbawalas of India
Link: https://www.youtube.com/watch?v=Z4foWqVHqsE
Guide Question:
Describe the role of dabbawalas and how they achieved 100 percent accuracy
in their field of work
ACTIVITY 3
VIDEO: MRP AT WHEELED COACH AMBULANCES
Link: https://www.youtube.com/watch?v=SLuQeOgRi0c
Guide Question: Describe how important an accurate inventory system for Wheeled
Coach.
MODULE 4
CHAPTER 14
Linear Programming
Chapter Outline
1 Learning Objectives
13. TOPICS:
14.1 INTRODUCTION
14.2 REQUIREMENTS OF A LINEAR PROGRAMMING PROBLEM
14.3 FORMULATING LINEAR PROGRAMMING PROBLEMS
14.4 GRAPHICAL SOLUTIONS TO A LINEAR PROGRAMMING
14.4.1 GRAPHICAL REPRESENTATIONS OF CONSTRAINTS
14.4.2 ISO-PROFIT LINE SOLUTIONS METHOD
14.4.3 CORNER-POINT SOLUTION METHOD
14.5 SENSITIVITY ANALYSIS
14.6 SOLVING MINIMIZATION PROBLEMS LINEAR PROGRAMMING
APPLICATIONS
14.6.1 EXAMPLE PROBLEM AXIMIZATION AND MINIMIZATION
14.7 SIMPLEX METHOD OF LINEAR PROGRAMMING
14.8 TRANSPORTATION PROBLEM OF LINEAR PROGRAMMING
14.8.1 NORTHWEST CORNER METHOD
14.8.2 STEPPING STONE METHOD
14.8.3 MODIFIED DISTRIBUTION
14.8.4 VOGEL’S
3 Let’s Sum Up
Learning Objectives
Describe the importance of Liner problem techniques to operations in the organizations.
Identify and formulate a linear program techniques that involves developing a
mathematical model to solve LP problems.
Discuss the different techniques in Solving Linear Problems using graphical methods
and other related techniques.
Discuss the different structure special LP problems using the transportation and
assignment models.
14.1 INTRODUCTION
Linear programming is an optimization technique for a system of linear constraints and a
linear objective function. An objective function defines the quantity to be optimized, and the
goal of linear programming is to find the values of the variables that maximize or minimize the
objective function.
Many operations management decisions involve trying to make the most effective use of an organization’s resources. Resources typically include machinery (such as planes, in the case of an airline), labor
(such as pilots), money, time, and raw materials (such as jet fuel). These resources may be used to
produce products (such as machines, furniture, food, or clothing) or services (such as airline schedules,
advertising policies, or investment decisions). Linear programming (LP) is a widely used mathematical
technique designed to help operations managers plan and make the decisions necessary to allocate
resources.
A few examples of problems in which LP has been successfully applied in operations
manage-ment are
1. Scheduling school buses to minimize the total distance traveled when carrying
students.
2. Allocating police patrol units to high crime areas to minimize response time to
911 calls.
3. Scheduling tellers at banks so that needs are met during each hour of the day
while minimizing the total cost of labor.
4. Selecting the product mix in a factory to make best use of machine- and laborhours avail-able while maximizing the firm’s profit.
5. Picking blends of raw materials in feed mills to produce finished feed
combinations at minimum cost
6. Determining the distribution system that will minimize total shipping cost from
several warehouses to various market locations.
7. Developing a production schedule that will satisfy future demands for a firm’s
product and at the same time minimize total production and inventory costs.
8. Allocating space for a tenant mix in a new shopping mall so as to maximize
revenues to the leasing company. (See the OM in Action box “Using LP to Select
Tenants in a Shopping Mall.”)
Linear Programming Assumptions
Linearity: the impact of decision variables is linear in constraints and objective
function
Divisibility: noninteger values of decision variables are acceptable
Certainty: values of parameters are known and constant
Nonnegativity: negative values of decision variables are unacceptable
14.2 REQUIREMENTS OF A LINEAR PROGRAMMING PROBLEM
All LP problems have four properties in common:
1. LP problems seek to maximize or minimize some quantity (usually profit or cost).
We refer to this property as the objective function of an LP problem. The major
objective of a typi-cal firm is to maximize dollar profits in the long run. In the case of
a trucking or airline dis-tribution system, the objective might be to minimize shipping
costs.
2. The presence of restrictions, or constraints, limits the degree to which we can pursue our objective.
For example, deciding how many units of each product in a firm’s product line to manufacture is restricted by
available labor and machinery. We want, therefore, to maximize or minimize a quantity (the objective
function) subject to limited resources (the constraints).
3. There must be alternative courses of action to choose from. For example, if a
company produces three different products, management may use LP to decide how to
allocate among them its limited production resources (of labor, machinery, and so on).
If there were no alternatives to select from, we would not need LP.
4. The objective and constraints in linear programming problems must be
expressed in terms of linear equations or inequalities.
14.3 FORMULATING LINEAR PROGRAMMING PROBLEMS
One of the most common linear programming applications is the product-mix problem.
Two or more products are usually produced using limited resources. The company
would like to determine how many units of each product it should produce to maximize
overall profit given its limited resources.
Formulating a linear program involves developing a mathematical model to represent
the managerial problem
The steps in formulating a linear program are
1. Completely understand the managerial problem being faced
2. Identify the objective and constraints
3. Define the decision variables
4. Use the decision variables to write mathematical expressions for the
objective function and the constraints
Example:
The Flair Furniture Company produces inexpensive tables and chairs. The production
process for each is similar in that both require a certain number of hours of carpentry
work and a certain number of labour hours in the painting and varnishing. Each table
takes 4 hours of carpentry and 2 hours in the painting and varnishing. Each chair
requires 3 hours in carpentry and 1 hours in painting and varnishing. During the current
production period, 240 hours of carpentry time and 100 hours in painting and varnishing
time are available. Each table sold yields a profit of $7; each chair produced is sold for
a $5 profit.
Flair Furniture’s problem is to determine the best possible combination of tables and
chairs to manufacture in order to reach the maximum profit
The objective is to
Maximize profit
The constraints are
The hours of carpentry time used cannot exceed 240 hours per week
The hours of painting and varnishing time used cannot exceed 100 hours per
week
The decision variables representing the actual decisions we will make are
X1 = number of tables to be produced per week
X2 = number of chairs to be produced per week
Suppose, X1 = number of tables to be produced
X2 = number of chairs to be produced
We can covert the above information to formulate the problem which is as follows:
14.4.1 GRAPHICAL REPRESENTATIONS OF CONSTRAINTS
Graphical solution is limited to linear programming models containing only two
decision variables (can be used with three variables but only with great difficulty).
Graphical methods provide visualization of how a solution for a linear programming
problem is obtained.
Graphical methods can be classified under two categories:
1. Iso-Profit(Cost) Line Method
2. Extreme-point evaluation Method
Graphical Solution of a Maximization Model
Coordinate Axes
Maximize
Z=$40x1 + 50x2
subject to
1x1 + 2x2  40 hours of labor
Graphical Solution
The objective is to
Maximize profit
14.4.2 ISO-PROFIT LINE SOLUTIONS METHOD
We suppose profit equal to some arbitrary but small dollar amount. For the
Flair Furniture problem we may choose a profit of $210.
$210 = 7X1+5X2
We then find (X1, X2) ={(0, 42); (30, 0)}
$280=7X1+5X2
We find (X1, X2) = {(0, 56); (40,0)}
Following the same way we draw a series of parallel isoprofit lines (iso-profit
map) until we find the highest isoprofit line, that is, the one with the optimal
solution.
14.4.3 CORNER-POINT SOLUTION METHOD
Alternatively, we can solve the LP problem by using corner point method. It
involves looking at every corner point of the feasible region. Optimal solution will
lie at one (or more) of them.
Graphical Solution of a Maximization Model
Corner Point Solutions
In point (4), we need to find the value in the intersection point of two constraints.
4X1 + 3X2 = 240 [Carpentry equation]
2X1 + 1X2 = 100 [Painting equation]
Solving them gives the values of X1 and X2, which is (X1, X2) = (30, 40)
So, the total profit is, π = 7 (30) + 5 (40) = $ 410
Because point (4) produces the highest profit of any corner point, the product mix
of X1=30 tables and X2=40 chairs is the optimal solution to Flair Furniture’s problem.
has the coordinates (X1 = 30, X2 = 40). We can compute its profit
Thus,
point
level to complete
the
analysis:
Point : (X1 = 30, X2 = 40
Point : (X1 = 30, X2 = 40
14.5 SENSITIVITY ANALYSIS
Operations managers are usually interested in more than the optimal solution to an
LP problem. In addition to knowing the value of each decision variable (the Xis) and
the value of the objective func-tion, they want to know how sensitive these answers are
to input parameter changes. For example, what happens if the coefficients of the
objective function are not exact, or if they change by 10% or 15%? What happens if
right-hand-side values of the constraints change? Because solutions are based on the
assumption that input parameters are constant, the subject of sensitivity analysis comes
into play. Sensitivity analysis, or postoptimality analysis, is the study of how sensitive
solutions are to parameter changes.
There are two approaches to determining just how sensitive an optimal solution is to
changes. The first is simply a trial-and-error approach. This approach usually involves
resolving the entire problem, preferably by computer, each time one input data item or
parameter is changed. It can take a long time to test a series of possible changes in this
way.
14.6 SOLVING MINIMIZATION PROBLEMS LINEAR PROGRAMMING
APPLICATIONS
Many linear programming problems involve minimizing an objective such as cost
instead of maxi-mizing a profit function. A restaurant, for example, may wish to
develop a work schedule to meet staffing needs while minimizing the total number of
employees. Also, a manufacturer may seek to distribute its products from several
factories to its many regional warehouses in such a way as to minimize total shipping
costs.
Minimization problems can be solved graphically by first setting up the feasible
solution region and then using either the corner-point method or an iso-cost line
approach (which is analogous to the iso-profit approach in maximization problems) to
find the values of X1 and X2 that yield the min-imum cost.
Two brands of fertilizer available - Super-gro, Crop-quick.
Field requires at least 16 pounds of nitrogen and 24 pounds of phosphate.
Super-gro costs $6 per bag, Crop-quick $3 per bag.
Problem : How much of each brand to purchase to minimize total cost of fertilizer given
following data ?
Decision variables
x1 = bags of Super-gro
x2 = bags of Crop-quick
Model constraints:
2x1 + 4x2 16 lb (nitrogen constraint)
4x1 + 3x2 24 lb (phosphate constraint)
x1, x2 0 (nonnegativity constraint)
The objective function:
minimize Z = $6x1 + 3x2
where $6x1 = cost of bags of Super-gro
3x2 = cost of bags of Crop-quick
Four special cases and difficulties arise at times when using the graphical approach to
solving LP problems:
Infeasibility
Unboundedness
Redundancy
Alternate Optimal Solutions.
Special Cases I (No Feasible Region)
No feasible solution
Exists when there is no solution to the problem that satisfies all the constraints.
No feasible solution region exists.
This is a common occurrence in the real world.
Generally one or more constraints are relaxed until a solution is found.
Special Cases I (Unboundedness)
Unboundedness
Sometimes a linear program will not have a finite solution.
In a maximization problem, one or more solution variables, and the profit, can be
made infinitely large without violating any constraints.
In a graphical solution, the feasible region will be open ended.
This usually means the problem has been formulated improperly.
Special Cases III (Redundancy)
Redundancy
A redundant constraint is one that does not affect the feasible solution region.
One or more constraints may be more binding.
This is a very common occurrence in the real world.
It causes no particular problems, but eliminating redundant constraints
simplifies the model.
Special Cases IV (Ununiqueness)
Alternate Optimal Solutions
Occasionally two or more optimal solutions may exist.
Graphically this occurs when the objective function’s iso-profit or iso-cost line
runs perfectly parallel to one of the constraints.
This actually allows management great flexibility in deciding which
combination to select as the profit is the same at each alternate solution.
14.7 SIMPLEX METHOD OF LINEAR PROGRAMMING
Simplex: a linear-programming algorithm that can solve problems having more
than two decision variables.
The simplex technique involves generating a series of solutions in tabular form,
called tableaus. By inspecting the bottom row of each tableau, one can immediately tell
if it represents the optimal solution.
Each tableau corresponds to a corner point of the feasible solution space.
The first tableau corresponds to the origin.
Subsequent tableaus are developed by shifting to an adjacent corner point in the
direction that yields the highest (smallest) rate of profit (cost).
This process continues as long as a positive (negative) rate of profit (cost) exists.
Steps:
1. Initialization:
a. transform all the constraints to equality by introducing slack, surplus, and
artificial variables as follows:
b. Construct the initial simplex tableau
2. Test for optimality:
Case 1: Maximization problem
the current BF solution is optimal if every coefficient in the objective function
row is nonnegative
Case 2: Minimization problem
the current BF solution is optimal if every coefficient in the objective function
row is nonpositive
3. Iteration
Step 1: determine the entering basic variable by selecting the variable
(automatically a nonbasic variable) with the most negative value (in case of
maximization) or with the most positive (in case of minimization) in the last row (Zrow). Put a box around the column below this variable, and call it the “pivot column”
Step 2:
Determine the leaving basic variable by applying the minimum ratio test as
following:
1. Pick out each coefficient in the pivot column that is strictly positive (>0)
2. Divide each of these coefficients into the right hand side entry for the same row
3. Identify the row that has the smallest of these ratios
4. The basic variable for that row is the leaving variable, so replace that variable
by the entering variable in the basic variable column of the next simplex tableau. Put a
box around this row and call it the “pivot row”
Step 3:
Solve for the new BF solution by using elementary row operations (multiply or
divide a row by a nonzero constant; add or subtract a multiple of one row to another
row) to construct a new simplex tableau, and then return to the optimality test. The
specific elementary row operations are:
Divide the pivot row by the “pivot number” (the number in the intersection of the
pivot row and pivot column)
For each other row that has a negative coefficient in the pivot column, add to this
row the product of the absolute value of this coefficient and the new pivot row.
For each other row that has a positive coefficient in the pivot column, subtract from
this row the product of the absolute value of this coefficient and the new pivot row.
Example (All constraints are )
Solve the following problem using the simplex method
 Maximize
Z = 3X1+ 5X2
Subject to
X1
 4
2 X2  12
3X1 +2X2  18
X1 , X2  0
Solution
Initialization
Standard form
Maximize Z,
Subject to
Z - 3X1- 5X2
X1
=0
+ S1
+ S2
= 4
2 X2
= 12
3X1 +2X2
+ S3 = 18
X1 , X2, S1, S2, S3
0
A basic solution is an augmented corner point solution.
A basic solution has the following properties:
Each variable is designated as either a nonbasic variable or a basic variable.
The number of basic variables equals the number of functional constraints. Therefore, the number of nonbasic
variables equals the total number of variables minus the number of functional constraints.
The nonbasic variables are set equal to zero.
The values of the basic variables are obtained as simultaneous solution of the system of equations (functional
constraints in augmented form). The set of basic variables are called “basis”
If the basic variables satisfy the nonnegativity constraints, the basic solution is a Basic Feasible (BF) solution.
Initial tableau
Notes:
The basic feasible solution at the initial tableau is (0, 0, 4, 12, 18) where:
X1 = 0, X2 = 0, S1 = 4, S2 = 12, S3 = 18, and Z = 0
Where S1, S2, and S3 are basic variables
X1 and X2 are nonbasic variables
The solution at the initial tableau is associated to the origin point at which all the
decision variables are zero.
Optimality test
By investigating the last row of the initial tableau, we find that there are some
negative numbers. Therefore, the current solution is not optimal
Iteration
Step 1: Determine the entering variable by selecting the variable with the most
negative in the last row.
From the initial tableau, in the last row (Z row), the coefficient of X1 is -3 and the
coefficient of X2 is -5; therefore, the most negative is -5. consequently, X2 is the
entering variable.
X2 is surrounded by a box and it is called the pivot column
Iteration
Step 2: Determining the leaving variable by using the minimum ratio test as
following:
Step 3: solving for the new BF solution by using the eliminatory row operations as
following:
New pivot row = old pivot row
pivot number
This solution is not optimal, since there is a negative numbers in the last row
Apply the same rules we will obtain this solution:
This solution is optimal; since there is no negative solution in the last row:
basic variables are X1 = 2, X2 = 6 and S1 = 2; the nonbasic variables are S2 = S3
=0
Z = 36
14.8 TRANSPORTATION PROBLEM OF LINEAR PROGRAMMING
The transportation problem deals with the distribution of goods from several points
of supply (sources) to a number of points of demand (destinations)
Usually we are given the capacity of goods at each source and the requirements at
each destination
Typically the objective is to minimize total transportation and production costs
Setting Up a Transportation Problem
The first step is setting up the transportation table . Its purpose is to summarize all
the relevant data and keep track of algorithm computations
Transportation costs per desk for Executive Furniture
In this table, total factory supply exactly equals total warehouse demand
When equal demand and supply occur, a
balanced problem is said to exist
This is uncommon in the real world and we have techniques to deal with
unbalanced problems
14.8.1 NORTHWEST CORNER METHOD
Once we have arranged the data in a table, we must establish an initial feasible solution
One systematic approach is known as the
northwest corner rule
Start in the upper left-hand cell and allocate units
to shipping routes as follows
1. Exhaust the supply (factory capacity) of each row before moving down to the
next row
2. Exhaust the demand (warehouse) requirements of each
column before moving to the right to the next column
3. Check that all supply and demand requirements are met.
In this problem it takes five steps to make the initial shipping assignments
1. Beginning in the upper left hand corner, we assign 100 units from Des Moines to
Albuquerque. This exhaust the supply from Des Moines but leaves Albuquerque 200
desks short. We move to the second row in the same column.
2. Assign 200 units from Evansville to Albuquerque. This meets Albuquerque’s
demand. Evansville has 100 units remaining so we move to the right to the next column
of the second row.
3. Assign 100 units from Evansville to Boston. The Evansville supply has now been
exhausted but Boston is still 100 units short. We move down vertically to the next
row in the Boston column.
4. Assign 100 units from Fort Lauderdale to Boston. This fulfills Boston’s demand
and Fort Lauderdale still has 200 units available.
.5. Assign 200 units from Fort Lauderdale to Cleveland. This exhausts Fort
Lauderdale’s supply and Cleveland’s demand. The initial shipment schedule is now
complete.
We can easily compute the cost of this shipping assignment
14.8.2 STEPPING STONE METHOD
The stepping-stone method is an iterative technique for moving from an
initial feasible solution to an optimal feasible solution
There are two distinct parts to the process
Testing the current solution to determine if improvement is possible
Making changes to the current solution to
obtain an improved solution
This process continues until the optimal solution is reached
The stepping-stone method works by testing each unused square in the transportation
table to see what would happen to total shipping costs if one unit of the product were
tentatively shipped on an unused route
There are five steps in the process
1. Select an unused square to evaluate
2. Beginning at this square, trace a closed path back to the original square
via squares that are currently being used with only horizontal or vertical
moves allowed
3. Beginning with a plus (+) sign at the unused square, place alternate
minus (–) signs and plus signs on each corner square of the closed path just
traced
4. Calculate an improvement index by adding together the unit cost
figures found in each square containing a plus sign and then subtracting the
unit costs in each square containing a minus sign
5. Repeat steps 1 to 4 until an improvement index has been calculated for
all unused squares. If all indices computed are greater than or equal to zero,
an optimal solution has been reached. If not, it is possible to improve the
current solution and decrease total shipping costs.
Obtaining an Improved Solution
14.8.3 MODIFIED DISTRIBUTION
The MODI (modified distribution) method allows us to compute improvement
indices quickly for each unused square without drawing all of the closed paths
Because of this, it can often provide considerable time savings over the steppingstone method for solving transportation problems
If there is a negative improvement index, then only one stepping-stone path must
be found
This is used in the same manner as before to
obtain an improved solution
The initial northwest corner solution is repeated
in Table 10.10
Note that to use the MODI method we have added the Ris (rows) and Kjs (columns)
The first step is to set up an equation for each
occupied square
By setting R1 = 0 we can easily solve for K1, R2, K2, R3, and K3
The steps we follow to develop an improved solution after the improvement indices
have been computed are
1. Beginning at the square with the best improvement index, trace a closed path
back to the original square via squares that are currently being used
2. Beginning with a plus sign at the unused square, place alternate minus signs and
plus signs on each corner square of the closed path just traced
3. Select the smallest quantity found in those squares containing the minus signs
and add that number to all squares on the closed path with plus signs; subtract the
number from squares with minus signs
4. Compute new improvement indices for this new solution using the MODI
method
Note that new Ri and Kj values must be calculated
Follow this procedure for the second and third solutions
14.8.4 VOGEL’S APPROXIMATION METHOD (VAM)
Vogel’s Approximation Method (VAM) is not as simple as the northwest corner
method, but it provides a very good initial solution, often one that is the optimal
solution
VAM tackles the problem of finding a good initial solution by taking into account
the costs associated with each route alternative
This is something that the northwest corner rule does not do
To apply VAM, we first compute for each row and column the penalty faced if we
should ship over the second-best route instead of the least-cost route
VAM Step 1. For each row and column of the transportation table, find the difference
between the distribution cost on the best route in the row or column and the second
best route in the row or column
This is the opportunity cost of not using the best route
VAM Step 2. identify the row or column with the greatest opportunity cost, or
difference (column A in this example)
VAM Step 3.Assign as many units as possible to the lowest-cost square in the row or
column selected
VAM Step 4. Eliminate any row or column that has been completely satisfied by the
assignment just made by placing Xs in each appropriate square
VAM Step 5. Recompute the cost differences for the transportation table, omitting
rows or columns eliminated in the previous step
VAM Step 6. Return to step 2 for the rows and columns remaining and repeat the steps
until an initial feasible solution has been obtained
Unbalanced Transportation Problems
In real-life problems, total demand is frequently not equal to total supply
These unbalanced problems can be handled easily by introducing dummy sources
or dummy destinations
If total supply is greater than total demand, a dummy destination (warehouse),
with demand exactly equal to the surplus, is created
If total demand is greater than total supply, we introduce a dummy source (factory)
with a supply equal to the excess of demand over supply
In either case, shipping cost coefficients of zero are assigned to each dummy
location or route as no goods will actually be shipped
Any units assigned to a dummy destination represent excess capacity
Any units assigned to a dummy source represent unmet demand
Let’s Sum Up
Linear programming is an optimization technique for a system of linear constraints and
a linear objective function. An objective function defines the quantity to be optimized, and the
goal of linear programming is to find the values of the variables that maximize or minimize the
objective function.
Graphical solution is limited to linear programming models containing only two
decision variables (can be used with three variables but only with great difficulty).
Graphical methods provide visualization of how a solution for a linear programming
problem is obtained.
Simplex: a linear-programming algorithm that can solve problems having more
than two decision variables.
The stepping-stone method is an iterative technique for moving from an initial
feasible solution to an optimal feasible solution.
The MODI (modified distribution) method allows us to compute improvement
indices quickly for each unused square without drawing all of the closed paths
Vogel’s Approximation Method (VAM) is not as simple as the northwest corner
method, but it provides a very good initial solution, often one that is the optimal
solution.
References:
Taylor, Bernard. Introduction to Management Science, 8th ed. Upper Saddle
River, NJ: Prentice Hall, 2005.
Render, B., R. M. Stair, and Michael Hanna. Quantitative Analysis for
Management, 9th ed. Upper Saddle River, NJ: Prentice Hall (2006).
Le Blanc, Larry J., et al. “Nu-Kote's Spreadsheet Linear Programming Models for Optimizing Transportation.”
Interfaces 34 (March–April 2004): 139–146.
https://brilliant.org/wiki/linear-programming/
https://en.wikipedia.org/wiki/Linear_programming
https://www.analyticsvidhya.com/blog/2017/02/lintroductory-guide-o
n-linear-programming-explained-in-simple-english/
http://people.brunel.ac.uk/~mastjjb/jeb/or/morelp.html