Contents

Lesson 1: Operations Strategy ............................................................................................ 3

What Is Operations Management? ...................................................................................................................... 3
Why OM is Important? ................................................................................................................................... 3
The Critical Decisions in Operation ............................................................................................................... 3
Differences between Goods & services .......................................................................................................... 3
New Trends in OM ......................................................................................................................................... 4
Developing Missions and Strategies ................................................................................................................... 4
Strategic Process ............................................................................................................................................. 5
The Role of Operations Strategy..................................................................................................................... 5
Quality and Strategy ....................................................................................................................................... 5
Operations and Productivity ............................................................................................................................... 6
Productivity Challenge.................................................................................................................................... 6
Measuring Productivity................................................................................................................................... 6
How productivity increase? ............................................................................................................................ 6
Measurement Problems ................................................................................................................................... 6
Productivity Variables .................................................................................................................................... 6
Key Variables for Improved Labor Productivity ............................................................................................ 6
Service Productivity ‫إنتاج الخدمة‬........................................................................................................................ 7
Productivity Problems ......................................................................................................................................... 7
Problem 3 ........................................................................................................................................................ 8
Problem 4 ........................................................................................................................................................ 8
Lesson 2: Product Design and Facility Layout Strategies ................................................ 10
Product Decision ............................................................................................................................................... 10
Time-Based Competition .............................................................................................................................. 10
Design Considerations ‫ اعتبارات التصميم‬..................................................................................................... 10
Product Development Stages ‫ مراحل تطوير المنتجات‬................................................................................... 10
Lessons Learned from the Industry: ............................................................................................................. 10
Guidelines for Environmentally Friendly Designs “Green” Manufacturing ................................................ 11
Service Design .............................................................................................................................................. 11
Facility Layout Strategy ‫ استراتيجية تخطيط منشأة‬.......................................................................................... 12
Objectives of Facility Layout........................................................................................................................ 12
Objectives of the Layout Strategy ‫ الأهداف الاستراتيجية للتصميم الداخلي‬.................................................. 12
Process layouts VS Product layouts .............................................................................................................. 12
Layout Problems ............................................................................................................................................... 14
1
Lesson 3: Lean Production and Just-in-Time Systems ..................................................... 19
Lean Production ................................................................................................................................................ 19
Basic Lean Principles .................................................................................................................................... 19
Common Examples of Waste in Organizations ............................................................................................ 19
Lean Tools and Approaches.......................................................................................................................... 19
Just-in-Time Systems (JIT) ............................................................................................................................... 23
Lesson 4: Forecasting Demand ......................................................................................... 24
What is Forecasting? ......................................................................................................................................... 24
Forecasting Time Horizons ........................................................................................................................... 24
Types of Forecasts ........................................................................................................................................ 24
The Realities! ................................................................................................................................................ 24
Forecasting Approaches .................................................................................................................................... 24
Qualitative Methods ...................................................................................................................................... 24
Quantitative Methods .................................................................................................................................... 24
Qualitative Methods Examples ..................................................................................................................... 24
Naïve Approach ............................................................................................................................................ 24
The simple moving average MA................................................................................................................... 24
Weighted Moving Average WMA................................................................................................................ 24
Exponential Smoothing (ES) ........................................................................................................................ 25
Forecast Problem .............................................................................................................................................. 28
Forecasting Errors ......................................................................................................................................... 30
Problem 1 ...................................................................................................................................................... 30
Problem 2 ...................................................................................................................................................... 30

2
 Lesson 1: Operations Strategy
What Is Operations Management?
Production is the creation of goods and services.
Operations management (OM) is the set of activities that create value in the form of goods and services by
transforming inputs into outputs.

Why OM is Important?
1. OM is one of three major functions of any organization; Marketing, Production /operations, and
Finance/accounting.
2. To know how goods and services are produced.
3. To understand what operations managers do.
4. OM is a costly part of any organization.

The Critical Decisions in Operation The Economic System

1. Design of goods and services.
Inputs Transformation Outputs
2. Managing quality.
Labor, The U.S. economic system Goods
3. Process and capacity design. capital,
management
transforms inputs to outputs
at about an annual 2.5%
and
services
increase in productivity per
4. Location strategy. year.

5. Layout strategy.
6. Human resources and job design.
Feedback loop
7. Supply-chain management.
8. Inventory, material requirements planning, and JIT. 1-4

9. Intermediate and short–term scheduling.

10. Maintenance.

Differences between Goods & services

Characteristics of Goods Characteristics of Service
Tangible product Intangible product
Consistent product definition Inconsistent product definition
Production usually separate from consumption Produced & consumed at same time
Can be inventoried Cannot be inventoried
Low customer interaction High customer interaction
- Frequently dispersed (single or unique)
- Often unique
- Often knowledge-based

3
New Trends in OM
1. Ethics and Social Responsibility besides the environmentally sensitive production. So there are some
challenges facing operations managers:
a. Developing and producing safe, quality products
b. Maintaining a clean environment
c. Providing a safe workplace
Reasons to Globalize
d. Honouring stakeholder commitments
2. Global focus: Operations Strategy in a Global Environment

Reasons to Globalize
Tangible 1. Reduce costs (labor, taxes, tariffs, etc.)
Reasons 2. Improve supply chain
3. Provide better goods and services
4. Understand markets
Intangible 5. Learn to improve operations
Reasons 6. Attract and retain global talent
a.
3. Rapid product development Let’s look…

4. Mass customization
5. Empowered ‫ تمكين‬employees 1 - 12

6. Supply-chain partnering
7. Just-in-time performance

Developing Missions and Strategies

 Mission statements tell an organization where it is going.

 Organization’s purpose for being.
 Answers ‘What do we provide society?’
 Provides boundaries and focus.

Factors Affecting Mission

Mission is a “Statement that must
Philosophy
define what the corporation does, who
and Values it serve, how it serve and answer what
do we provide to the society? “
Profitability
Environment
and Growth
Mission
Customers Public Image

Benefit to
Society
4
1 - 15
 The Strategy tells the organization how to get there A strategy is “The overall scope ‫مجال‬
and direction of a corporation, and
 Action plan to achieve mission.
the way in which its various business
 Functional areas have strategies. operations work together to achieve
 Strategies exploit opportunities and strengths, reduce particular goals”.

threats, and avoid weaknesses. (SWOT analysis)

Strategic Process
Strategic Process
Organization’s
Mission

Functional
Area Missions

Finance/
Marketing Operations
Accounting

The Role of Operations Strategy

 Specifies the policies and plans for using organizational resources
 Operations Strategy focuses on specific capabilities which give the organization a competitive advantages :
 Differentiation (better, or at least different)
 Cost leadership (cheaper)
 Response – rapid response (Demand – Time – Volume – Design…)

Quality and Strategy

 The operations manager’s objective is to build a total quality management system that identifies and
satisfies customer needs.
 Managing quality supports differentiation, low cost, and response strategies.
 Quality helps firms increase sales and reduce costs.
 Building a quality organization is a demanding task ‫مهمة شاقة‬.

Examples from Strategies

 Mission: Dell Computer- “to be the most successful computer company in the world at delivering the best
customer experience in markets we serve”
 Environmental Scanning: political trends, social trends, economic trends, market place trends, global trends
 Core Competencies: strength of workers, modern facilities, market understanding, best technologies,
financial, know-how…..

5
Operations and Productivity
Productivity Challenge
 Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labour and
capital)
 The objective is to improve productivity!
 Important Note! Production is a measure of output only and not a measure of efficiency
 Efficiency means doing the job well; with minimum resources and waste

Measuring Productivity
 Total or Multi-factor Productivity Measure:
 Total Productivity = (total output) / (total inputs)
 Single-Factor Productivity Measure:
 Single-Factor Productivity = (total output) / (single input)
How productivity increase?
How productivity increase?
S
 Input decrease while outputs remain the same. _
( Reducing inputs while keeping output constant )

+
 Input remain the same while output increase.
S
( Increasing output while keeping inputs constant )

++
 The increase of outputs more than of inputs.
+
 The decrease of inputs more than of outputs. _
__
 The increase of the output with decrease of in input +/_

Measurement Problems
1. Quality may change while the quantity of inputs and outputs remains constant
1 - 26

2. External elements may cause an increase or decrease in productivity

Productivity Variables
1. Labor - contributes about 10% of the annual increase
2. Capital - contributes about 38% of the annual increase
3. Management - contributes about 52% of the annual increase

Key Variables for Improved Labor Productivity

1. Basic education appropriate for the labor force
2. Diet of the labor force
3. Social overhead that makes labor available ‫النفقات االجتماعية العامة التي تجعل العمالة متاحة‬
6
Challenge is in maintaining and enhancing skills in the midst of ‫ في غمرة‬rapidly changing technology and
knowledge

Service Productivity ‫إنتاج الخدمة‬

1. Labor intensive ‫كثيفة العمالة‬
2. Focused on individual attributes ‫ سمات‬or desires
3. Often an intellectual task performed by professionals
4. Often difficult to mechanize
5. Often difficult to evaluate for quality

Productivity Problems
Problem 1

Three employees process 600 units in a week. They

work 8 hours per day, 5 days per week. What is the
labor productivity

Solution

Unites processed
a. Labor productivity =
Employee hours

600 Units
= = 5 Units/hour
(3 employees)(40 hours/employee)

1 - 32

Problem 2

A team of workers makes 400 units of a product,

which is sold in the market for $10 each. The
accounting department reports that for this job the
actual costs are $400 for labor, $1,000 for materials,
and $300 for overhead. What is the multifactor
productivity?

Solution

a. Multifactor productivity =
Value of output
Labor cost + Materials cost
+ Overhead cost
(400 units)($10/unit) $4,000
= = = 2.35
$400 + $1,000 + $300 $1,700
1 - 33

7
Problem 3
MST factory makes fashionable dresses. During a particular week employees worked 360 hours to
produce a batch of 132 dresses, of which 52 were “seconds” (meaning that they were defective). Seconds
are sold for $90 each at Factory Outlet Store. The remaining 80 dresses are sold to retail distribution at
$200 each. What is the labor productivity ratio of this manufacturing process?

SOLUTION
Value of output = (52 defective  90/defective)
+ (80 dresses  200/ dresses)

= $20,680

Labor hours of input = 360 hours

Output $20,680
Labor productivity = =
Input 360 hours

= $57.44 in sales per hour

1 - 35

Problem 4
You have just determined that your service employees have used a total of 2400 hours of labor this
week to process 560 insurance forms. Last week the same crew used only 2000 hours of labor to process
480 forms. Is productivity increasing or decreasing?

SOLUTION
Last week’s productivity =
480/2000 = 0.24
This week’s productivity =
560/2400 = 0.23
So, productivity is decreasing by
Current productivity – previous productivity
Productivity change = ___________________________________ x 100
previous productivity

0.23 – 0.24 -- 0.01

Pro. decreased by = ______________ x 100 = _____ = -- 4.17%
0.24 0.24

1 - 39

8
 Problem 5
Determine the productivity using the data below, and comment
on the changes in productivity

This Year Last Year

Factory unit sales 2,762,103 2,475,738

Employment (hrs) 112,000 113,000

Sales of manufactured products ($) $49,363 $40,831

Total manufacturing cost of sales ($) $39,000 $33,000

1 - 40

SOLUTION

 Calculate the labor productivity:

This Year Last Year

factory unit 2,762,103 2,475,738

sales
= 24.66/hr = 21.91/hr
112,000 113,000
employment

Current productivity – previous productivity

Productivity change = ___________________________________ x 100
previous productivity

24.66 – 21.91 2.75

Labor Productivity increased by = ______________ x 100 = _____ = 12.55%
SOLUTION
21.91 21.91
1 - 41

 Calculate the multifactor productivity:

This Year Last Year

sales of mfg $49,363 $40,831

products
= 1.27 = 1.24
total mfg cost $39,000 $33,000

1.27 – 1.24 0.03

Multifactor Pro. increased by = ______________ x 100 = _____ = 2.42%
1.24 1.24

1 - 42

9
 Lesson 2: Product Design and Facility Layout Strategies
Product Decision
The objective of the product decision is to develop and implement a product strategy that meets the demands of
the marketplace with a competitive advantage.
Time-base competition: Concept that time
is a resource and a firm that make better
Time-Based Competition use of time (in responding to the
changing market situations and other
 Product life cycles are becoming shorter and the rate of environmental conditions) acquires
a competitive advantage.
technological change is increasing.
 Developing new products faster can result in a competitive advantage.

Design Considerations ‫اعتبارات التصميم‬

 Minimize the risk.  Ensure product and service quality.
 Minimize cost.  Get Customer satisfaction.
 Shorten the time to market. ‫تقصير الوقت الى‬  Take advantages of IT. ‫تأخذ مزايا تكنولوجيا‬
‫السوق‬ ‫المعلومات‬

Product Development Stages ‫مراحل تطوير المنتجات‬

1. Idea generation. .‫توليد الفكرة‬1.
2. Assessment of organization’s ability to carry out. ‫تقييم لقدرة المنظمة على‬2.
.‫القيام بها‬
3. Customer Requirements. .‫متطلبات العملاء‬3.
4. Functional Specification. .‫المواصفات الفنية‬4.
5. Product Specifications. .‫مواصفات المنتج‬5.
6. Design Review. .‫مراجعة التصميم‬6.
7. Test Market. .‫اختبار السوق‬7.
8. Introduction to Market. .‫مقدمة إلى السوق‬8.
9. Evaluation. .‫التقييم‬9.

Lessons Learned from the Industry:

1. Understand what your customer values; what they need, want, and are willing to pay for.
2. be mindful of your competition; what they are doing to gain competitive advantage. ‫أن تضع في اعتبارها‬
‫منافسيك؛ ماذا يفعلون لاكتساب ميزة تنافسية‬
3. Develop a strong focus on product quality; this has not been a moving target but a rising bar.
4. Adopt a culture of continuous improvement; continuous improvement in quality, cost and timing are
essential to survival.
5. Focus on the integration of effort; between product design, engineering, operations and quality
functions.‫ والعمليات و جودة المهام‬،‫ والتصنيع‬،‫ وبين تصميم المنتجات‬،‫التركيز على تكامل الجهود‬

10
6. Redefine “mass production”; by ensuring quality at the source vs. inspecting quality. ‫تعريف "الإنتاج الضخم"؛‬
‫من خلال ضمان الجودة في المصدر مقابل فحص الجودة‬

Strategy and Issues

During a Product’s Life

 Introduction; Best period to increase market share. R&D engineering is critical.

 Growth; Practical to change price or quality image. Strengthen niche (position).
 Maturity; Poor time to change image, price, or quality. Competitive costs become critical, defend market
position.
 Decline; cost control critical.

Guidelines for Environmentally Friendly Designs “Green” Manufacturing

1. Make products recyclable.
2. Use recycled materials.
3. Use less harmful elements. ‫استخدام عناصر أقل ضررا‬
4. Use lighter components. ‫استخدام مكونات أخف وزنا‬
5. Use less energy.
6. Use less material.

Service Design

• Service includes direct interaction with the customer

 Increased opportunity for customization and effected productivity.

• Cost and quality are determined at the design stage

 Delay customization and reduce customer interaction, often through automation. Ex. Lesson
video conference or NASSAGOON Carpet

11
 Facility Layout Strategy ‫استراتيجية تخطيط منشأة‬
Objectives of Facility Layout
 Minimize material handling costs. .‫تقليل تكاليف مناولة المواد‬
 Utilize space efficiently. .‫استخدام الفضاء بكفاءة‬
 Utilize labor efficiently. .‫الاستفادة من العمالة بكفاءة‬
 Eliminate bottlenecks. .‫القضاء على الاختناقات‬
 Facilitate communication and interaction between workers. .‫تسهيل التواصل والتفاعل بين العمال‬
 Reduce manufacturing cycle time or customer service time. ‫تقليل وقت دورة التصنيع أو وقت خدمة‬
.‫العملاء‬

Objectives of the Layout Strategy ‫الأهداف الاستراتيجية للتصميم الداخلي‬

Meet the requirements of:
 Product design and volume (product strategy). ‫تصميم المنتجات وحجم (استراتيجية المنتج‬
 Process equipment and capacity (process strategy). ‫المعدات التكنولوجية والقدرات (الاستراتيجية‬
‫العملية‬
 Quality of work life (human resource strategy). ‫جودة حياة العمل (استراتيجية الموارد البشرية‬
 Building and site constraints (location strategy). ‫القيود المبنى والموقع (استراتيجية الموقع‬

Work
Layout Types Process Layout: Layout that can handle
center Work Work
1 center
2
center
3
varied processing requirements ex.
Hospital
Work Work (a) Process Layout
Work center center
center 6 4
8

Work
Product Layout: Layout that uses
Office
standardized processing operations to
Work
center
center
5
achieve smooth, rapid, high-volume flow
7

ex. Cars manufactures

(b) Product Layout
Station 1 Station 2 Station 3 Station 4

Project Layout What are

Process layouts VS Product layouts
Description Process layouts Product layouts our primary considerations
for a project layout?
Products Large No., Different Small No., Similar Answer: Arranging materials
Volume Low High and equipment concentrated
Resources General Purpose Specialized around the production point.

Facilities More Labor intensive More capital intensive

Hybrid Layout: Group Technology
Flexibility General relative to market Lower relative to market
Machine
One Worker, Multiple Machines 2
Machine
Machine 3

Processing rates Slower Faster

1

Handling Costs High Low

Space requirements Higher Lower Materials in

Finished
goods out

Machine
Machine 4
5

12
13
Layout Problems
Systematic Layout
Problem1
Arrange the departments locations , so that they satisfy the
conditions shown in the following rating grid into 2 × 3 format

A Absolutely necessary DEPT1

A
E Especially important DEPT2 A
E X
I Important DEPT3 U U
X I O
O Ordinary importance DEPT4 A A
O X
U Unimportant DEPT5 A
u
A
X Undesirable DEPT6

Problem 2 (class work)

Arrange the departments locations , so that they satisfy the
conditions shown in the following rating grid into 2 × 3
format

A Absolutely necessary DEPT1

x
A
E Especially important DEPT2 A
x
E
E A
X
DEPT3 U
O A
U
I Important
X
A EI A
O
DEPT4 E
A x
A
O Ordinary importance
A
O xX
DEPT5 O
A
U Unimportant A
A
DEPT6
X Undesirable

14
 Minimizing Transportation Costs
Problem 3
Use the data to assign departments location
to minimize transportation costs

Distance Work Flow

From From
To A B C 1 2 3
To

A --- 20 40 1 --- 10 80
B 20 --- 30 2 20 --- 30
C 40 30 --- 3 90 70 ---

Solution Steps:
1. Determine and arrange the distance in an ascending order
2. Determine the trip between locations (First column)
3. Arrange the work flow in descending order
4. Determine the department relationship according to the work flow
5. Calculate Cost = Distance × Work flow
6. Determine the highest 3 cost numbers because we have 3 departments but sometimes we
find more than 1 with the same value
7. Compare the number of departments, the department with the highest frequency we put
it in the middle of departments' location
8. The department with the highest cost will determine the side arrangement or location of
the second department

15
 Problem 4 (class work)
Use the data to assign departments location
to minimize transportation costs

Distance Work Flow

From From
To A B C 1 2 3
To
A --- 25 20 1 --- 45 100
B 15 --- 18 2 32 --- 60
C 20 12 --- 3 50 40 ---

Problem Symbol:
 OT = Operation Time ‫وقت الانتاج‬ CT = The period required to
 CT = Cycle Time ‫وقت إنتهاء الوحدة في الدقيقة‬ complete one cycle of
an operation; or to complete
 D = Desired Output a function, job, or task from start
to finish
 # of WS = # of Workstation
 ∑t = Sum of task time
 CT = OT / D
 # of WS = ∑t / CT
 Idle Time = CT - (∑t 1 for each W.S) + CT - (∑t 1-n for each W.S)
 Idle Time percentage %:= (Idle Time / {WC X CT})
 Efficiency =∑t / (CT X # of WS) OR = (100 – Idle time)

16
 Problem 5
Use the following information to determine the
following:
1. Draw the precedence diagram.
2. Determine the maximum cycle time for a desired
output of 300 units in a 420 mins.
3. Determine the minimum # of workstations needed.
4. Assign tasks to workstations.
5. Compute the workstations idle time.
6. What is the line efficiency ?

Tasks
A C C B H D F E
Immediate follower
B B H D F E E ---
Tasks time
0.7 0.2 --- 0.2 0.5 0.6 0.4 0.7

17
Problem 6 (class work)
Use the following information to determine the
following:
1. Draw the precedence diagram.
2. Determine the maximum cycle time for a desired
output of 250 units in a 300 mins.
3. Determine the minimum # of workstations needed.
4. Assign tasks to workstations.
5. Compute the percentage of workstations idle time.
6. What is the line efficiency ?

Tasks
A C B D F E G
Immediate follower
B D E F E G ---
Tasks time
0.3 0.6 0.9 0.3 0.5 0.4 0.2

18
Lesson 3: Lean Production and Just-in-Time Systems
Lean Production
 Lean activity refers to approaches that focus on the elimination of waste in all forms, and smooth, efficient
flow of materials and information throughout the value chain to obtain faster customer response, higher
quality, and lower costs.
 Manufacturing and service operations that apply these principles are often called lean operating systems.
 Lean concepts were initially developed and implemented by the Toyota Motor Corporation.

Basic Lean Principles

 Elimination of Waste: eliminate any activities that do not add value. Includes overproduction, waiting
time, processing, inventory, and motion.
 Increased Speed and Response: better process designs allow efficient responses to customers’ and
environment needs.
 Improved Quality: Poor quality creates waste, so improving quality is essential to the lean environment.
 Reduced Cost: simplifying processes and improving efficiency translates to reduced costs.

Common Examples of Waste in Organizations

 Long change over & setup time  Poor communication  Clutter
 Long Unproductive meetings  Incorrect information  Spoilage
 Long distance traveled  Excess inventory  Scarp
 Retraining & learning time and expenses  Excess capacity  Accident
 Excessive Material Handling  Overproduction  Waiting Time
 Unnecessary movement ( Martial, People, Info)  Equipment breakdown  Too much Space
 Non-valued-add process steps  Knowledge bottleneck  Produce too Early
 Planned product obsolescence  Misrouting Jobs  Rework & Repair

Lean Tools and Approaches

(1)Value Stream mapping ‫تخطيط تدفق القيمة‬

 VSM tries to highlight value-added and non-value-added work
Value stream mapping is a lean
activities (the economics of process flow).
manufacturing technique used
 Identifying numerically bottleneck work activities and work to analyze and design the flow
of materials and information
stations.
required to bring a product or
 Evaluating process and wait times. service to a consumer.
 Evaluating information flows that accompany physical goods flows.

(2) Stable Production Schedules ‫جداول انتاج مستقرة‬

 Lean operating systems require uniform and stable production plans and schedules.

19
(3) Small Batch and Single-Piece Flow
 Batching is the process of producing large quantities of items as a group before being transferred
to the next operation.
 A transfer batch is part of the original batch (lot) size that is completed at one workstation and moved to
the next downstream workstation.
 Lean operating systems seek to reduce batch sizes using single-piece flow.
 Single-piece flow allows companies to better match production to customer demand, avoid large
inventory increases.
 To utilize single-piece flow, a company must be able to change between products quickly by reducing
setup times.

Batch versus Single-Piece Flow Processing

(4) Visual Controls

 Visual controls are indicators for operating activities that are
placed in clear sight of all employees so that everyone can Visual control is a business
management technique employed
quickly and easily understand the status and performance of the
in many places where information
work system. is communicated by using visual
 Examples: electronic scoreboards in production processes, painted signals instead of texts or other
written instructions
areas on the floor where certain boxes should be placed, employee
pull strings to stop production, signal lights on machines, and even Kanban cards.

20
(5) Efficient Layout and Standardized Operations
 The layout, process, equipment, workstations, and jobs must be integrated ‫ متكاملة‬and arranged in an
efficient way.

(6) The 5S principles are as follows:

□ Sort: each item is in the proper place. (Sort by type ex. Buttons, zippers.)
□ Set in order: arrange materials so that they are easy-to-use.
□ Shine: clean work area.
□ Standardize: formalize procedures and practices.
□ Sustain: keep the process going. ‫ إبقاء العملية مستمرة‬:‫استدامة‬

(7) Technology
 Expert systems use a set of intelligent rules to make decisions to solve problems or control operations or
machines.

(8) Supplier Relationship Management

 Lean systems require suppliers that will deliver on time and provide high quality products.

(9) Single Minute Exchange of Dies “expire” (SMED) (or a quick changeover)
 SMED refers to quick setup in processes so that multiple products in smaller batches can be run
on the same equipment.
 Reducing setup time frees up capacity that can be producing output, and therefore, generating revenue.

Setup time for a machine to another is very quickly usually less than a minute. The SMED programs is more
popular now than ever due to increased demand for product variability, reduced product life cycles and the
need to significantly reduce inventories.

(10) Lean Six Sigma

 Six Sigma and Lean concepts and methods are often combined into Lean Six Sigma which:
□ Both are driven by customer requirements.
□ Both try to eliminate waste, reduce costs, speed things up, and improve quality.
□ Both focus on cost savings.
□ Both rely on a systematic methodology.
□ Both focuses on quality at the source doing it right the first time.
□ Both assure high-quality output and continuous improvement

Lean Six Sigma is a methodology that combines process speed with quality. The firm will be more
efficient and effective organization in terms of operations and business processes.
The Lean Six Sigma projects comprise the Lean's waste elimination projects and the Six Sigma projects
based on the critical to quality characteristics.

21
Differences between Lean and Six Sigma
 Lean addresses more visible problems in the processes while Six Sigma The 6 Sigma focus
focuses on problems like process variation. in removing the causes
of defects (errors) and
 Lean tools are intuitive ‫بدهي‬, simple, and easy to apply; Six Sigma tools minimizing variability in
manufacturing and busin
include more advanced statistical analysis.
ess processes
 Lean requires less training, whereas Six Sigma requires advance training
and expertise in statistics, control charts.

(11) Total Productive Maintenance (TPM) ‫الصيانة اإلنتاجية الشاملة‬

 TPM is focused on ensuring that operating systems will perform their intended (planned) function
consistently (without fail) ‫باستمرار‬.
 TPM works to prevent equipment failures and breakdown, maximizing equipment effectiveness.
 TPM tries to predict equipment failure rates and perform maintenance before a problem arises.
 The principles of TPM also include employee “ownership” of the equipment.

(12) Push Production/Distribution Systems

 A push system produces finished goods in advance of customer demand using a forecast of sales ‫توقعات‬
‫المبيعات‬.
 Parts and subassemblies ‫ التجميع الثانوي‬are “pushed” through the operating system ‫ من خالل نظام التشغيل‬based
on a predefined schedule that is independent of actual customer demand.
 A traditional automobile factory and distribution system is a good example of a push system.
 In a pull system, employees at a given operation (work station) go to the source of the required parts,
such as machining or subassembly, and withdraw the units as they need them.
 By pulling parts from each preceding workstation, the entire manufacturing process is coordinated to the
final-assembly schedule.
 Finished goods are made to match with the actual rate of customer demand, resulting in minimum
inventories and maximum responsiveness ‫استجابة‬.

22
Just-in-Time Systems (JIT)
• JIT systems are sometimes called a Kanban system.
• A kanban is a flag or a piece of paper that contains all relevant information for an order.
• Slips, called kanban cards, are circulated within the system to initiate withdrawal ‫ سحب‬and production
items through the production process.
• The Kanban cards are simple visual controls.
• The withdraw Kanban authorizes the material handler to transfer empty containers to the storage area.
Next, a production Kanban activates production of parts ‫ينشط إنتاج قطع غيار‬. Finally, the full container is
delivered to the material handler.

Two-Card Kanban JIT Operating System

23
 Lesson 4: Forecasting Demand
FC is underlying basis of all
What is Forecasting? business decisions
Forecasting is the process of predicting a future event.  Production & Inventory
 Personnel & Facilities

Forecasting Time Horizons Short- vs. Long-term Forecasting

 Short-range forecast
□ Up to 1 year but usually less than 3 months Medium & Long range forecasts:
 Long range for design of system.
□ Purchasing, job scheduling or work assignment
 Deal with comprehensive issues.
 Medium-range forecast  Support management decisions regarding
□ 3 months to 3 years planning.
□ Sales, production planning, budgeting
Short-term forecasts:
 Long-range forecast
 To plan detailed use of system.
□ 3+ years
 Usually use quantitative techniques.
□ New product, facility location, R&D  More accurate than longer-term forecasts.

Types of Forecasts
 Economic forecast  business cycle, inflation rate …
 Technological forecasts  Predict new product sales, rate of technological progress
 Demand forecasts  Predict existing product sales

The Realities!
 Forecasts are seldom perfect ‫توقعات نادرا ما تكون مثالية‬
 Assume stability in the system
 Forecast for a single Product family are more accurate
 Short-term forecasts more accurate than longer-term forecasts

Forecasting Approaches
Qualitative Methods Quantitative Methods
 Used when situation is vague ‫غامض‬  Used when situation is ‘stable’ and
and little data exist historical data exist
 Involves intuition, experience  Involves mathematical techniques
o New products
o New technology
Qualitative Methods Examples
1. Executive opinion  Combines managerial experience with statistical models
2. Delphi method  I ask experts in their opinion by making
several surveys Quantitative Approaches
3. Sales force Predict  I ask salesperson about his expectation
for next sales
1. Naïve approach
4. Consumer Market Survey  I ask the customer for his
purchases plan 2. Moving averages
(MA,WMA) time-series
Times series components: models
3. Exponential
Trend – Cyclical – seasonal - random smoothing
4. Trend projection associative
model
24 5. Linear regression
© 2011 Pearson Education, Inc. publishing as Prentice Hall 4-8
 Naïve Approach
 Assumes demand in next period is the same as demand in most recent period
□ If January sales were 68, then February sales will be 68
□ Sometimes can be cost effective & efficient in some small business
The simple moving average MA method uses several demand values during the recent past to
develop a forecast. This tends to dampen, or smooth out, the random increases and decreases of a

forecast. TheAverage
Moving simple moving (MA)
average isExample
useful for forecasting demand that is stable.

Moving average =
∑ demand in previous n periods
n
Problems
(1) What is the approximate forecast for May using
Actual 3-Month
Month Sales Moving Average a four-month moving average?
January 10 Nov. Dec. Jan. Feb. Mar. April
February 12
March 13 39 36 40 42 48 46
April 16 (10
10 + 12 + 13)/3
13 = 11 2/3
May 19 (12 + 13 + 16)/3 = 13 2/3 F May = 46 + 48 + 42 + 40 / 4
June 23 (13 + 16 + 19)/3 = 16 = 176 / 4 = 44 units
July 26 (16 + 19 + 23)/3 = 19 1/3

Weighted Moving Average WMA

The moving average method can be adjusted to more4 -closely
© 2011 Pearson Education, Inc. publishing as Prentice Hall 12 reflect fluctuations in the data
Weighted Moving Average
Weighted Moving Average ∑w = 3+2+1 = 6
© 2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 22
∑ (weight for period n)
Weighted x (demand in period n) Actual 3-Month Weighted
Month Sales Moving Average
moving average = ∑ weights
January 10
February 12
March 13
Weights Applied Period April 16 [(3 x 13)
13 + (2 x 12) 10)]/6 = 121/6
12 + (10
May 19 [(3 x 16) + (2 x 13) + (12)]/6 = 141/3
3 Last month
June 23 [(3 x 19) + (2 x 16) + (13)]/6 = 17
2 Two months ago July 26 [(3 x 23) + (2 x 19) + (16)]/6 = 201/2
1 Three months ago
6 Sum of weights © 2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 15

Problems
(2) John's House of Pancakes uses a weighted moving
average method to forecast pancake sales. It assigns
© 2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 13

a weight of 5 to the previous month's demand, 3 to

demand two months ago, and 1 to demand three
months ago. If sales amounted to 1000 pancakes in
May, 2200 pancakes in June, and 3000 pancakes in
July, what should be the forecast for August?
∑w = 5+3+1 = 9
F August = (3000x 5) + (2200x 3) + (1000x1)/9
= (15000 + 6600 + 1000) / 9
= 22600 / 9 = 2511
© 2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 24

24
Exponential Smoothing (ES)
 Smoothing constant ()
 Ranges from 0 to 1
 when () is high means give more weight to recent data
Exponential Smoothing Example
Exponential Smoothing
Predicted demand is 142 auto, actual demand is
New forecast = 153 and smoothing constant  = 0.2 What is
Last forecast +  (Actual demand – Last forecast) demand for the next period.

Ft = Ft – 1 + (At – 1 - Ft – 1)
New forecast = 142 + 0.2 (153 – 142)

Forecast Errors Forecasts Error (e)

where Ft = new forecast

New forecast = 142 + 0.2(153 – 142)
Ft – 1 = previous forecast = 142 + 2.2
 = smoothing constant (0 ≤  ≤ 1) = 144.2 ≈ 144 auto
© 2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 18

© 2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 17

Common Measures of Error

Mean Absolute Deviation (MAD)
∑ |Actual - Forecast|
MAD =
n
= ∑ |e|
nHomework

(4) Suppose you had the following sales:

Jan Feb Mar Apr May
© 2011 Pearson Education, Inc. publishing as Prentice Hall Jun Jul Aug Sep4 - 20 Oct Nov Dec Forecast error = Actual
15 25 20 35 30 25 20 30 35 40 30 35 demand - Forecast value
F.E. = At - Ft
• Use the models:
– 4MA
– 3WMA [3, 2, 1]
– ES [alpha = 0.1] using 3WMA Forecast
– ES [alpha = 0.5] -------------------------------
• Forecast period 13 for each
• Find the MAD for each
© 2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 40

Months Sales (A) 4MA MAD 3WMA MAD 0.1 MAD 0.5 MAD
January 15
February 25
march 20
April 35 20.8 1.6
may 30 23.8 0.8 28.3 0.2 22.3 1.0 27.9 0.3
June 25 27.5 0.3 30.0 0.6 28.5 0.4 29.2 0.5
July 20 27.5 0.9 28.3 0.9 29.5 1.2 27.5 0.9
august 30 27.5 0.3 23.3 0.7 27.5 0.3 24.2 0.7
September 35 26.3 1.1 25.8 1.0 24.0 1.4 26.7 1.0
October 40 27.5 1.6 30.8 1.0 26.8 1.7 30.4 1.2
November 30 31.3 0.2 36.7 0.7 31.8 0.2 35.4 0.7
December 35 33.8 0.2 34.2 0.1 36.0 0.1 33.3 0.2
January F 13 35.0 5.3 34.2 6.9 34.3 6.3 34.6 5.6

4MA is the best way for forecasting because it has the lowest MAD.

25
 Problem 2
The director of the medical service predicated
6 years ago that demand in year 1 would Exponential Absolute
be 41 surgeries
Year Demand Smoothing  = 0.6 Deviation
1. Use ES withα= 0.6 and α= 0.9
1 45 41 4.0
2. 3MA in years 1 and 6
2 50 41.0 + 0.6(45–41) = 43.4 6.6
3. Trend – projection 3 52 43.4 + 0.6(50–43.4) = 47.4 4.6
4. Which method is best by using MAD 4 56 47.4 + 0.6(52–47.4) = 50.2 5.8
5 58 50.2 + 0.6(56–50.2) = 53.7 4.3
Year 1 2 3 4 5 6
6 ? 53.7 + 0.6(58–53.7) = 56.3 25.3
Demand 45 50 52 56 58 ?  = 25.3/5= 5.06
MAD = 5.06

© 2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 51 © 2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 52
Three-Year Absolute
Exponential Absolute
Year Demand
Year Demand Moving Average Deviation
Smoothing  = 0.9 Deviation
1 45
1 45 41 4.0 2 50
2 50 41.0 + 0.9(45–41) = 44.6 5.4 3 52
3 52 44.6 + 0.9(50–44.6 ) = 49.5 2.5 4 56 (45 + 50 + 52)/3 = 49 7
4 56 49.5 + 0.9(52–49.5) = 51.8 4.2
5 58 (50 + 52 + 56)/3 = 52.7 5.3
5 58 51.8 + 0.9(56–51.8) = 55.6 2.4
6 ? (52 + 56 + 58)/3 = 55.3 12.3
6 ? 55.6 + 0.9(58–55.6) = 57.8 18.5

 = 18.5/5= 3.7  = 12.3/2 = 6.2

MAD = 3.7 MAD = 6.2

© 2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 53

Problem
Forecast Methodology MAD • Use the following data to forecast the demand by
Exponential smoothing,  = 0.6 5.06 using Naïve, 3MA, 3WMA with weights of 7,2,1 and
Exponential smoothing,  = 0.9 3.7 © 2011 Pearson Education, Inc. publishing as Prentice Hall
exponential smoothing withα= 0.1 and α= 0.5
4 - 54

3-year moving average 6.2

• Camper the actual data with forecasting by using
Trend projection 0.64
MAD, What is the best forecasting method?
Based on a mean absolute deviation criterion, the
t 1 2 3 4 5 6 7 8 9 10 11 12 13
trend projection is to be preferred over the other
methods A 11 13 14 15 13 15 17 18 19 15 17 20 ---

© 2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 28

Naïve Forecast Errors

© 2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 57
3MA Forecast Errors
t A Naïve |e| t A 3MA |e|
F A-F F A-F
1 11 1 11
2 13 11.00 2.00 2 13
3 14 13.00 1.00 3 14
4 15 14.00 1.00 4 15 12.67 2.33
5 13 15.00 2.00 5 13 14.00 1.00
6 15 13.00 2.00 6 15 14.00 1.00
7 17 15.00 2.00 n = 11 7 17 14.33 2.67
8 18 17.00 1.00 8 18 15.00 3.00
9 19 18.00 1.00 9 19 16.67 2.33
n=9
10 15 19.00 4.00 10 15 18.00 3.00
11 17 15.00 2.00 11 17 17.33 0.33
12 20 17.00 3.00 12 20 17.00 3.00
13 20.00 13 17.33
21 18.66
MAD: 1.91 MAD: 2.07

ex : F4 = 14+ 13+ 11 = 38/3 = 12.67

MAD = 21/11 =1.91 F5 = 15+ 14+ 13 = 42/3 = 14
MAD = 18.66 / 9 = 2.07
© 2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 33
© 2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 34

26
 3 WMA Forecast Errors
t A 3WMA
[7, 2, 1]
|e|
A-F ES ( 0.1) Forecast Errors
1 11 t A F ES |e|
2 13 (α = 0.1) A-F
3 14 1 11 11 ----
4 15 13.50 1.50 2 13 11 2.00
5 13 14.60 1.60 3 14 11.2 2.80
6 15 13.50 1.50 4 15 11.48 3.52
7 17 14.60 2.40 n=9 5 13 11.83 1.17
8 18 16.20 1.80 6 15 11.95 3.05
9 19 17.50 1.50 7 17 12.25 4.75 n = 11
10 15 18.60 3.60 8 18 12.73 5.27
11 17 16.10 0.90 9 19 13.26 5.74
12 20 16.80 3.20 10 15 13.83 1.17
13 18.90 11 17 13.95 3.05
18 12 20 14.25 5.75
MAD: 2.00 13 14.83
38.27
MAD: 3.48
ex : F4 = (14x7)+(13x2)+(11x1) = 135/10 = 13.5
F5 = (15x7)+(14x2)+(13x1) = 146/10 =14.6 ex : F2 = F1 + α ( A1 – F1) = 11 + 0.1(0) = 11
MAD = 18 / 9 = 2.00
© 2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 35
F3 = F2 + α ( A2 – F2) = 11 + 0.1(13-11) = 11.2
MAD = 38.27 / 11 = 3.48
© 2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 36

ES ( 0.5) Forecast Errors

t A FES |e|
α = 0.5 A-F
1 11 11 ---
2 13 11 2.00
3 14 12 2.00
4 15 13 2.00
5 13 14 1.00
6 15 13.5 1.50
7 17 14.25 2.75
8 18 15.62 2.38 n = 11
9 19 16.81 2.19
10 15 17.91 2.91
11 17 16.45 0.55
12 20 16.73 3.27
13 18.36
22.55
MAD: 2.05

ex : F2 = F1 + α ( A1 – F1) = 11 + 0.5(0) = 11
F3 = F2 + α ( A2 – F2) = 11 + 0.5(13-11) = 12
MAD = 22.55 / 11 = 2.05
© 2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 37

Which Model Is “Best” So Far?

Naïve MAD =1.91
3MA MAD =2.07
3WMA MAD =2.00
ES (α = 0.1) MAD =3.48
ES (α = 0.5) MAD =2.05
The Naïve model has the lowest MAD
(1.91) Therefore, the Naïve model is the
“best” with this data.
© 2011 Pearson Education, Inc. publishing as Prentice Hall 4 - 38

27
Forecast Problem

An electronics manufacturer wants to compare

forecast methods to decided which method is more
accurate with MAD.
Periods 1 2 3 4 5 6
Sales 450 495 518 563 584 ?
Use the models:
• 3-year moving average.
• 3- year weighted moving average using 0.5, 0.3, 0.2
• Exponential smoothing with  = 0.6 and  = 0.3
Given to use ES; the forecast for period (1) is 410
units.

(1) Forecast Three-Year Moving Average ‫المتوسط المتحرك لتالت فترات‬

Forecast Three-Year Absolute
Year Sales
Moving Average (3MA) Deviation
2005 450 ----- I will ignore the
2006 495 ----- sign (A-F)
2007 518 -----
2008 563 (450+495+518)/3=487.7 75.3
2009 584 (563+518+495)/3=525.3 58.7
2010 A‫هتجهلو عشان مفيش‬
 errors = 75.3+58.7 134
MAD = 134/67 (Total| Errors |/n) 67

(2) Forecast Three-Year Weighted Moving Average

Somme of Weight= 0.5+0.3+0.2=1
Forecast Three-Year Absolute
Year Sales
Weighted Moving Average (3WMA) Deviation
2005 450 -----
2006 495 -----
2007 518 -----
2008 563 (518*0.5)+(495*0.3)+(450*0.2)/1= 497.5 65.5
2009 584 (563*0.5)+(518*0.3)+(495*0.2)/1= 535.9 48.1
2010
 errors = 65.5+48.1 113.6
MAD = 113.6/2 56.8

28
 (3) Forecast Exponential Smoothing  = 0.3 {F2=F1+α (A1-F1)}
Forecast Exponential Absolute
Year Sales
Smoothing  = 0.3 Deviation
2005 450 410 (Given) 40
2006 495 410+0.3(450-410)=422 73
2007 518 422+0.3(73)=443.9 74.1
2008 563 443.9+0.3(74.1)=466.1 96.9
2009 584 466.1+0.3(96.9)=495.2 88.8
2010
 errors = 40+73+74.1+96.9+88.8 372.8
MAD = 372.8/5 74.6

(4) Forecast Exponential Smoothing  = 0.6

Forecast Exponential Absolute
Year Sales
Smoothing  = 0.6 Deviation
2005 450 410 40
2006 495 410+0.6(40)=434 61
2007 518 434+0.6*61=470.6 47.4
2008 563 470.6+0.6*47.4=499 64
2009 584 499+0.6*64=537.4 46.6
2010 F2010 {537.4+0.6*46.6} is 565.36

 = 40+61+47.4+64+46.6 259
MAD = 259/5 51.8
MAD of forecast Three-Year Moving Average = 67
MAD of forecast Three-Year Weighted Moving Average = 56.8

MAD of forecast Exponential Smoothing  0.3 = 74.6

MAD of forecast Exponential Smoothing  0.6 = 51.8

Because it gives the lowest MAD, the smoothing constant of  = 0.6 gives the most
accurate forecast.

□ Α between 0 to 1, if it stable so we will calculate the α =1 (it will be naïve)

□ Forecast 2010 = 495.2+1(88.8) = 584 so 2009 = 2010
□ But if there is any exception & fluctuations so I will have to estimate α in low values 0.1….

29
Forecasting Errors

Problem 1
By using the data in the following table compute the forecast errors (SFE, MSE,
Standard deviation, MAD, MAPE).
Periods Sales Forecast Errors Errors 2 | Errors| % Errors
1 217 215 2 4 2 0.9
2 213 216 -3 9 3 1.4
3 216 215 1 1 1 0.5
4 210 214 -4 16 4 1.9
5 213 211 2 4 2 0.9
6 219 214 5 25 5 2.3
7 216 217 -1 1 1 0.5
8 212 216 -4 16 4 1.9
∑ -2 76 22 10.3
Cumulative Forecasting Errors (CFE) = -2
Mean squared Errors (MSE) = 76/n = 76/8= 9.5
Standard deviation of forecast errors () = 3.1
Mean Absolute Deviation (MAD) = 22/8 = 2.75
Mean Absolute percent Errors (MAPE) = 10.3/8=1.3
The following table represents the actual and forecast sales for a company. Compute
the forecast errors (CFE, MSE, Standard deviation of forecast errors, MAD, and
MAPE).

Problem 2
Months 1 2 3 4 5 6 7
Sales 100 120 90 110 125 140 110
Forecast (F1) 110 100 130 100 100 130 100
Forecast (F2) 120 105 125 90 110 110 100
Solution:
(F1) (1) (2) (3)=(1)-(2) (4) |3| | e |/Sales x 100
Months Sales Forecast Errors Errors 2 | Errors | %Errors
1 100 110 -10 100 10 10.0
2 120 100 20 400 20 16.7
3 90 130 -40 1600 40 44.4
4 110 100 10 100 10 9.1
5 125 100 25 625 25 20.0
6 140 130 10 100 10 7.1
7 110 100 10 100 10 9.1
∑ 25 3025 125 116.4

30
Cumulative Forecasting Errors (CFE) = 25 ‫األخطاء تالفي بعدها‬
Mean squared Errors (MSE) = 3025/7 = 432.14
Standard deviation of forecast errors () = √MSE = 20.79
Mean Absolute Deviation (MAD) = 125/7 = 17.86
Mean Absolute percent Errors (MAPE) = 116.4/7= 16.63
(F2) (1) (2) (3)=(1)-(2) (4) |3| | e |/Sales x 100
Months Sales Forecast Errors Errors 2 | Errors | %Errors
1 100 120 -20 400 20 20.0
2 120 105 15 225 15 12.5
3 90 125 -35 1225 35 38.9
4 110 90 20 400 20 18.2
5 125 110 15 225 15 12.0
6 140 110 30 900 30 21.4
7 110 100 10 100 10 9.1
∑ 35 3475 145 132.1

Cumulative Forecasting Errors (CFE) = 35 ‫أخطاء التنبؤ التراكمي‬

Mean squared Errors (MSE) = 3475/7 = 496 ‫متوسط مربع األخطاء‬
Standard deviation of forecast errors () = √MSE = 22.3 ‫االنحراف المعياري ألخطاء التنبؤ‬
Mean Absolute Deviation (MAD) = 145/7 = 20.7 ‫متوسط األخطاء المطلقة‬
Mean Absolute percent Errors (MAPE) = 132.1/7= 18.8 ‫نسبة متوسط األخطاء المطلقة‬
F1 is better than F2 because the errors are less than F2 so F1 is more accurate.
 Back order  A>F ‫أرفض طلبات‬
Error=Actual demand-Forecast
e = 100-80 =20 these 20 will be a back order
 Inventory  A<F
Error=Actual demand-Forecast
e = 80-100 =20 these 20 will enter in the inventory

31