Supply Chain Approach - Full
Supply Chain Approach - Full
Supply Chain Approach - Full
ISC - MSC
Ingredients:
Mandarin: Comes from China
Pear: Comes from Europe
Violet (leaves): Comes from the hills of Venice
Heart: blackberry + wild strawberry
Imprint: Vanilla (around the Indian Ocean),
Amber (semi solid mass of tree resins and
gums, mostly come from India from the
resinous tree Liquidamber oriantalis) and Musk
(strong smelling granules contained in a pocket
under the belly of a dear in the mating season)
Understanding the Supply Chain of
Fragonard
Quality Quality
Insurance Insurance
Suppliers:
Essences
Market Manufacturing
Manufacturing/Assembly Wharehouse Delivery
Study Assembly
Suppliers:
Packaging
Purchasing: Raw Materials
Supplier 1: World
Crop of Raw Materials
ers
d
Or
Fragonard Supplier 2: World
Transformation
(Tourraine S.A)
Supplier 3: Grasse
Purchase of essences
A map of the raw materials:
Purchasing: Packaging
Supplier 1: Grasse
Bottle called “Estagnon”
Supplier 2: Grasse
Pumps & Tops
Fragonard Orders
Supplier 3: Grasse
Tags
Supplier 4: Grasse
Water & Alcohol
Flows in a Supply Chain
The Objective of a Supply Chain
Cross-Functional
Applications
What is a Transformation Process?
Defined
• Storage--warehousing
• Physiological--health care
• Informational--telecommunications
What is a Service and What is a
Good?
Quality
Operations
Flexibility Speed
Managemen
t
Problem Solving
Field Support
The Importance of Operations Management
• Electronic Commerce
Current Issues in OM
• Coordinate the relationships between
mutually supportive but separate
organizations.
End of Chapter 1
Decisions on Processes
and Infrastructure Build New Factory
Competitive Dimensions
• Cost or Price
– Make the Product or Deliver the Service Cheap
• Quality
– Make a Great Product or Deliver a Great Service
• Delivery Speed
– Make the Product or Deliver the Service Quickly
• Delivery Reliability
– Deliver It When Promised
• Coping with Changes in Demand
– Change Its Volume
• Flexibility and New Product Introduction Speed
– Change It
• Other Product-Specific Criteria
– Support It
Dealing with Trade-offs
For example, if we reduce costs by reducing product quality
inspections, we might reduce product quality.
1. Product leadership
2. Customer intimacy
3. Operational excellence
Kaplan and Norton’s Generic Strategy Map
(Continued)
In the Kaplan and Norton’s Generic Strategy Map,
under the Learning and Growth Perspective, there
are three principle categories of intangible assets
needed for learning:
1. Strategic competencies
2. Strategic technologies
3. Climate for action
Operations Strategy Framework
Customer Needs
Competitive
dimensions & requirements
Enterprise capabilities
Operations and& Supplier
Operations Capabilities
Supplier capabilities
R&DR&D Technology Systems
Technology People
Systems People Distribution Distribution
Support Platforms
Financial management Human resource management Information management
Steps in Developing a Manufacturing
Strategy
or
= Goods and services produced
All resources used
Partial Measure Productivity
• Output .
Labor + Capital + Energy
or
• Output .
Labor + Capital + Materials
Example of Productivity Measurement
• 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.
• Which productivity measure should be used?
• Answer: Could be classified as a Total Measure or
Partial Measure.
• Is productivity increasing or decreasing?
• Answer: Last week’s productivity = 480/2000 = 0.24, and this
week’s productivity is = 560/2400 = 0.23. So, productivity is
decreasing slightly.
End of Chapter 2
75
Technical Note 2
• A Maximization Problem
• A Minimization Problem
Linear Programming Essential Conditions
• Is used in problems where we have
limited resources or constrained
resources that we wish to allocate
• The model must have an explicit
objective (function)
– Generally maximizing profit or minimizing
costs subject to resource-based, or other,
constraints
Common Applications
Where
Z = the monthly profit from Max and Multimax
X1 = the number of Max produced each month
X 2 = the number of Multimax produced each month
Constraints
Given the resource information below from the problem:
Hasbeen
GENTRO
Constraints
Given the demand information below from the problem:
Project Management
OBJECTIVES
Activity 1
Activity 2
Activity 3
Activity 4
Activity 5
Activity 6
Time
Horizontal Axis: Always Time
Pure Project
A pure project is where a self-contained team
works full-time on the project
Research and
Engineering Manufacturing
Development
Research and
Engineering Manufacturing Marketing
Development
Manager
Project A
Manager
Project B
Manager
Project C
Structuring Projects
Matrix: Advantages
• Pinpointed responsibility
1 Project 1 Project 2
A None 2
B A 1
C B 1
D C 2
E C 5
D(2)
F D,E 5
G F 1
E(5)
Determine early starts and early finish times
ES=4
EF=6
LS=4
LF=9
Critical Path & Slack
ES=4
EF=6 Slack=(7-4)=(9-6)= 3 Wks
LS=4
Duration=15 weeks
LF=9
Example 2. CPM with Three Activity Time
Estimates
Immediate
Task Predecesors Optimistic Most Likely Pessimistic
A None 3 6 15
B None 2 4 14
C A 6 12 30
D A 2 5 8
E C 5 11 17
F D 3 6 15
G B 3 9 27
H E,F 1 4 7
I G,H 4 19 28
Example 2. Expected Time
Calculations ET(A)= 3+4(6)+15
6
Immediate Expected
Task Predecesors Time
A None 7 ET(A)=42/6=7
B None 5.333
C A 14 Immediate
Task Predecesors Optimistic Most Likely Pessimistic
D A 5 A None 3 6 15
E C 11 B None 2 4 14
C A 6 12 30
F D 7 D A 2 5 8
E C 5 11 17
G B 11 F D 3 6 15
H E,F 4 G B 3 9 27
H E,F 1 4 7
I G,H 18 I G,H 4 19 28
Duration = 54 Days
C(14) E(11)
A(7) H(4)
D(5) F(7)
I(18)
B G(11)
(5.333)
Example 2. Probability Exercise
What is the probability of finishing this project in
less than 53 days?
p(t < D)
D=53
t
TE = 54
D - TE
Z =
å cp
s 2
P essim . - O ptim . 2
A ctivity variance, s 2
= ( )
6
t
D=53 TE = 54
D - TE 53 - 54
Z = = = -.156
å cp
s 2 41
p(t < D)
t
TE = 54
D=56
D - TE 56 - 54
Z = = = .312
å cp
s 2 41
• Concept Development
• System-Level design
• Design Detail
• Production Ramp-up
Economic Analysis of Project
Development Costs
• Using measurable factors to help
determine:
– Operational design and development
decisions
– Go/no-go milestones
• Building a Base-Case Financial Model
– A financial model consisting of major cash
flows
– Sensitivity Analysis for “what if” questions
Designing for the Customer
House of Quality
Ideal Customer
Quality Function Product Value Analysis/
Deployment Value Engineering
Designing for the Customer:
Quality Function Deployment
• Interfunctional teams from marketing, design
engineering, and manufacturing
• House of Quality
133
Designing for the Customer:
The House of Quality
Correlation:
X Strong positive
Positive
X X
X X Negative
Water resistance
X
* Strong negative
Energy needed
level needed
Accoust. Trans.
to close door
open door
Im Engineering
resistance
Door seal
Competitive evaluation
p
Cu or Characteris
force on
Window
X = Us
st. tantics
ground
Energy
A = Comp. A
Check
Customer ce t B = Comp. B
(5 is best)
o
to
Requirement 1 2 3 4 5
sEasy to close 7 X AB
A XB
requirements Doesn’t leak in rain 3
Reduce energy
Strong = 9
Reduce force
current level
current level
current level
to 7.5 ft/lb.
matrix, used to Target values
Medium = 3
Maintain
Maintain
Maintain
Small = 1
to 9 lb.
translate them into
operating or 5 B BA BA
4 B B BXA X
engineering goals. Technical evaluation 3 A
X
A X
(5 is best) 2 X
X A
1
• Concurrent Engineering
– “Let’s work together simultaneously”
Design for Manufacturing and Assembly
• Greatest improvements related to DFMA arise from
simplification of the product by reducing the
number of separate parts:
1. During the operation of the product, does the part
move relative to all other parts already assembled?
2. Must the part be of a different material or be
isolated from other parts already assembled?
3. Must the part be separate from all other parts to
allow the disassembly of the product for
adjustment or maintenance?
Measuring Product Development Performance
Performance Measures
Dimension •Freq. Of new products introduced
•Time to market introduction
•Number stated and number completed
Time-to-market •Actual versus plan
•Percentage of sales from new products
•Conformance-reliability in use
Quality •Design-performance and customer satisfaction
•Yield-factory and field
End of Chapter 4
Technical Note 4
Learning Curves
OBJECTIVES
• Underlying Principles of Learning Curves
• Learning Curve Example
• Types of Learning
• From Learning Curves to Performance
Improvement
Underlying Principles of Learning Curves
1. Each time you perform a task it takes
less time than the last time you
performed the same task
2. The extent of task time decreases over
time
3. The reduction in time will follow a
predictable pattern
Example of a Learning Curve
120
Time(Minutes)
100
Production
80
60
40
20
0
0 1000 2000 3000 4000 5000
Unit
Types of Learning
• Individual Learning
Improvement when individuals gain a skill or
efficiency by repetition of a job
• Organizational Learning
Improvement from the groups of individuals
from repetition and changes in
administration, equipment, and product
design
From Learning Curves to Performance Improvement
(Part 1)
Process Analysis
OBJECTIVES
• Process Analysis
• Process Flowcharting
• Types of Processes
Go to Yes
Drive to Walk to
school
school class
today?
No
Goof
off
Types of Processes
Single-stage Process
Stage 1
Multi-stage Process
Stage 1 Stage 2
Other Process Terminology
• Blocking
– Occurs when the activities in a stage must stop because
there is no place to deposit the item just completed
– If there is no room for an employee to place a unit of work
down, the employee will hold on to it not able to continue
working on the next unit
• Starving
– Occurs when the activities in a stage must stop because
there is no work
– If an employee is waiting at a work station and no work is
coming to the employee to process, the employee will
remain idle until the next unit of work comes
Other Process Terminology (Continued)
• Bottleneck
– Occurs when the limited capacity of a process
causes work to pile up or become unevenly
distributed in the flow of a process
– If an employee works too slow in a multi-stage
process, work will begin to pile up in front of that
employee. In this is case the employee represents
the limited capacity causing the bottleneck.
• Pacing
– Refers to the fixed timing of the movement of
items through the process
Other Types of Processes
• Make-to-order
– Only activated in response to an actual order
– Both work-in-process and finished goods inventory
kept to a minimum
• Make-to-stock
– Process activated to meet expected or forecast
demand
– Customer orders are served from target stocking
level
Process Performance Metrics
• Throughput rate = 1 .
Cycle time
• Productivity = Output
Input
• Reduce interruptions
End of Chapter 5
Technical Note 5
Organizational
Mental and Geographic
Time of day; rationale for Method of
physical locale of the
Tasks to be time of the job; object- performance
characteristics organization;
performed occurrence in ives and mot- and
of the location of
the work flow ivation of the motivation
work force work areas
worker
Ultimate
Job
Structure
Trends in Job Design
• Quality control as part of the worker's job
Task Variety
Process Skill Variety
Feedback Worker/Group
Technology
Task Identity Needs
Needs
Task Autonomy
Physical Considerations in Job Design
A Production
Process
Ultimate
Ultimate
Job Design
Workers Interacting Job Worker at a Fixed
with Other Workers Workplace
Design
Worker Interacting
with Equipment
Work Measurement
Defined
• Work measurement is a process of
analyzing jobs for the purpose of
setting time standards
• Why use it?
– Schedule work and allocate capacity
– Motivate and measure work
performance
– Evaluate performance
– Provide benchmarks
Time Study Normal Time Formulas
• Normal time(NT)=Observed performance time per unit
x (Performance rating)*
• Standard time = NT .
1 - Allowances
Time Study Example Problem
• You want to determine the standard time for a job.
The employee selected for the time study has
produced 20 units of product in an 8 hour day. Your
observations made the employee nervous and you
estimate that the employee worked about 10 percent
faster than what is a normal pace for the job.
Allowances for the job represent 25 percent of the
normal time.
= 26.4 minutes
Standard time = NT .
1 – Allowances
= (26.4)/(1-0.25)
= 35.2 minutes
Work Sampling
• Straight Salary
• Piece Rate
• Commissions
Financial Incentive Plans
• Individual and Small-Group Plans
– Output measures
– Quality measures
– Pay for knowledge
• Organization-wide Plans
– Profit-sharing
– Gain-sharing
• Bonus based on controllable costs or units of output
• Involve participative management
Scanlon Plan
Basic Elements Total labor cost
Ratio =
Sales value of production
• The ratio
– Standard for judging business performance
• The bonus
– Depends on reduction in costs below the
preset ratio
Inspection
Example: Process Flow Chart
No,
Material Inspect Continue…
Received
Material for
from
Supplier Defects Defects
found?
Yes
Return to
Supplier for
Credit
End of Chapter 6
Technical Note 6
Facility Layout
OBJECTIVES
• Process Layout
• Layout Planning
• Service Layout
Facility Layout
Defined
Facility layout can be defined as the process by which the placement
of departments, workgroups within departments, workstations,
machines, and stock-holding points within a facility are
determined
This process requires the following inputs:
– Specification of objectives of the system in terms of output and
flexibility
– Estimation of product or service demand on the system
– Processing requirements in terms of number of operations and
amount of flow between departments and work centers
– Space requirements for the elements in the layout
– Space availability within the facility itself
Basic Production Layout Formats
• Fixed-Position Layout
Process Layout: Interdepartmental Flow
• Given
– The flow (number of moves) to and from all
departments
– The cost of moving from one department to
another
– The existing or planned physical layout of the
plant
• Determine
– The “best” locations for each department, where
best means maximizing flow, which minimizing
costs
Process Layout: CRAFT Approach
• It is a heuristic program; it uses a simple rule of
thumb in making evaluations:
– "Compare two departments at a time and
exchange them if it reduces the total cost of the
layout."
Code Reason
1 Type of customer
2 Ease of supervision
3 Common personnel
4 Contact necessary
6 Psychology
Example of Systematic Layout Planning:
Importance of Closeness
Line Numerical
Value Closeness
code weights
A Absolutely necessary 16
E Especially important 8
I Important 4
O Ordinary closeness OK 2
U Unimportant 0
X Undesirable 80
Example of Systematic Layout Planning: Relating Reasons
and Importance
Area
From To
2 3 4 5 (sq. ft.)
I U A U
1. Credit department 100
6 -- 4 --
U I A
2. Toy department 400
-- 1 1,6
Note here that the
(1) Credit Dept. U X
3. Wine department 300
and (2) Toy Dept. -- 1
Note here that the (2)
are given a high X
Toy Dept. and the (5)
4. Camera department rating of 6. Candy Dept. are 100
given a
1
high rating of 6.
5. Candy department 100
5 2 4 2
3 20 ft
3 1 5 1 4
Note in the Final
Layout that
50 ft Depts. (1) and (5)
are not both
Initial Layout Final Layout placed directly
next to Dept. (2).
Ignoring space and Adjusted by square
building constraints footage and building
size
Assembly Lines Balancing Concepts
B A F E
C None G B
D A, C H E, G
A B G
C D E F
Example of Line Balancing: Precedence Diagram
Question: Which process step defines the maximum rate of
production?
2 1 1
1.4
A B G
H
C D E F
3.25 1.2 .5 1
Answer: Task C is the cycle time of the line and therefore, the
maximum rate of production.
Example of Line Balancing: Determine Cycle Time
Question: Suppose we want to assemble 100
fans per day. What would our cycle time
have to be?
Answer:
Idle= .2
Task Followers Time (Mins)
A 6 2
2 1 1
1.4 C 4 3.25
A B G
H D 3 1.2
B 2 1
E 2 0.5
C D E F
F 1 1
3.25 1.2 .5 1
G 1 1
H 0 1.4
Idle= .2
Task Followers Time (Mins)
A 6 2
2 1 1
1.4 C 4 3.25
A B G
H D 3 1.2
B 2 1
E 2 0.5
C D E F
F 1 1
3.25 1.2 .5 1
G 1 1
H 0 1.4
Service Process
Selection and Design
OBJECTIVES
• The Nature of Services
• Service Strategy: Focus & Advantage
• Service-System Design Matrix
• Service Blueprinting
• Service Fail-safing
• Characteristics of a Well-Designed
Service Delivery System
The Nature of Services
1. Everyone is an expert on services
Internal Supplier
Internal
Customer
External
Customer
Internal Supplier
Exhibit 7.1
The
Customer
The The
Systems People
Service Strategy: Focus and Advantage
Performance Priorities
• Treatment of the customer
• Speed and convenience of service delivery
• Price
• Variety
• Quality of the tangible goods
• Unique skills that constitute the service offering
Service-System Design Matrix
Exhibit 7.6
Degree of customer/server contact
Buffered Permeable Reactive
High core (none) system (some) system (much) Low
Face-to-face
total
customization
Face-to-face
Sales loose specs Production
Opportunity Face-to-face Efficiency
tight specs
Phone
Internet & Contact
on-site
Mail contacttechnology
Low High
Example of Service Blueprinting
Standard Brush Apply Collect
execution time Buff
shoes polish payment
2 minutes
30 30 45 15
secs secs secs secs
Total acceptable
execution time
Wrong
5 minutes
color wax
Clean Fail
shoes point Materials
Seen by
(e.g., polish, cloth)
customer 45
secs
1. Task
2. Treatment
3. Tangible
Three Contrasting Service Designs
2. It is user-friendly
3. It is robust
7. It is cost-effective
Applying Behavioral Science to Service Encounters
1. The front-end and back-end of the encounter
are not created equal
2. Segment the pleasure, combine the pain
3. Let the customer control the process
4. Pay attention to norms and rituals
5. People are easier to blame than systems
6. Let the punishment fit the crime in service
recovery
Service Guarantees as Design Drivers
Technical Note 7
Waiting Line
Management
Servicing System
Servers
Queue or
Customer Waiting Line
Arrivals Exit
Customer Service Population Sources
Population Source
Finite Infinite
Example: Number Example: The
of machines number of people
needing repair who could wait in
when a company a line for
only has three gasoline.
machines.
Service Pattern
Service
Pattern
Constant Variable
Example: Items Example: People
coming down an spending time
automated shopping.
assembly line.
The Queuing System
Length
Queuing
Number of Lines &
Queue Discipline System
Line Structures
Service Time
Distribution
Examples of Line Structures
Single
Multiphase
Phase
One-person
Single Channel Car wash
barber shop
No Way! No Way!
BALK RENEG
Suggestions for Managing Queues
Source
Model Layout Population Service Pattern
1 Single channel Infinite Exponential
2 Single channel Infinite Constant
3 Multichannel Infinite Exponential
4 Single or Multi Finite Exponential
l = 25 cust / hr
1 customer
µ = = 30 cust / hr
2 mins (1hr / 60 mins)
l 25 cust / hr
r = = = .8333
µ 30 cust / hr
Example: Model 1
Lq
Wq = = .1667 hrs = 10 mins
l
E) What is the average waiting time in the system?
Ls
Ws = = .2 hrs = 12 mins
l
Example: Model 1
l l n
pn = (1 - )( )
µ µ
25 25 2
p 2 = (1- )( ) = .1157
30 30
Example: Model 2
An automated pizza vending machine
heats and
dispenses a slice of pizza in 4 minutes.
l 2
(10) 2
Lq = = = .6667
2µ ( µ - l ) (2)(15)(15 - 10)
B) The average total waiting time in the system.
Lq .6667
Wq = = = .06667 hrs = 4 mins
l 10
1 1
Ws = Wq + = .06667 hrs + = .1333 hrs = 8 mins
µ 15/hr
Example: Model 3
Recall the Model 1 example:
Drive-up window at a fast food restaurant.
Customers arrive at the rate of 25 per hour.
The employee can serve one customer
every two minutes.
Assume Poisson arrival and exponential
service rates.
T 10 m in
X = = = .077
T+ U 10 m in + 120 m in
Define:
Standard deviation of X
Cx = coefficient of variation for r.v. X =
Mean of X
Variance
Cx2 = squared coefficient of variation (scv) = (Cx ) =
2
mean2
Queue Approximation
l
Compute r =
Sµ
2( S +1)
r Ca2 + Cs2 Lq
Lq = × Ls
1- r 2 as before, Wq = , and Ws =
l l
Ls = Lq + S r
Approximation Example
• Consider a manufacturing process (for example making plastic
parts) consisting of a single stage with five machines.
Processing times have a mean of 5.4 days and standard
deviation of 4 days. The firm operates make-to-order.
Management has collected date on customer orders, and
verified that the time between orders has a mean of 1.2 days
and variance of 0.72 days. What is the average time that an
order waits before being worked on?
Quality Management
OBJECTIVES
Appraisal Costs
Costs of
External Failure
Quality Prevention Costs
Costs
Internal Failure
Costs
Six Sigma Quality
Number of defects
DPMO = x 1,000,000
é Number of ù
ê opportunities ú
ê for error per ú x No. of units
ê unit ú
ë û
Batch size
Six Sigma Quality (Continued)
Example of Defects Per Million So, for every one
million letters
Opportunities (DPMO) calculation. delivered this
Suppose we observe 200 letters delivered city’s postal
incorrectly to the wrong addresses in a managers can
expect to have
small city during a single day when a 1,000 letters
total of 200,000 letters were delivered. incorrectly sent to
What is the DPMO in this situation? the wrong
address.
200
DPMO = x 1,000,000 = 1, 000
[ 1 ] x 200,000
Cost of Quality: What might that DPMO mean in terms
of over-time employment to correct the errors?
Six Sigma Quality: DMAIC Cycle
• Define, Measure, Analyze, Improve, and
Control (DMAIC)
• Developed by General Electric as a means of
focusing effort on quality using a
methodological approach
• Overall focus of the methodology is to
understand and achieve what the customer
wants
• A 6-sigma program seeks to reduce the
variation in the processes that lead to these
defects
• DMAIC consists of five steps….
Six Sigma Quality: DMAIC Cycle (Continued)
What percentage of boxes are defective (i.e. less than 15.2 oz)?
–Decrease Variation
–Center Process
–Increase Specifications
Step 4 – Improve – How good is good enough?
Motorola’s “Six Sigma”
12s
6s
3 2 1 0 1 2 3
Motorola’s “Six Sigma”
12s
3 2 1 0 1 2 3
Step 5 – Control
• Statistical Process Control (SPC)
– Use data from the actual process
– Estimate distributions
– Look at capability - is good quality
possible
– Statistically monitor the process over
time
Analytical Tools for Six Sigma and Continuous
Yes
Can be used to
find quality Return to
problems Supplier for
Credit
Analytical Tools for Six Sigma and Continuous
Improvement: Run Chart
Can be used to identify
when equipment or
processes are not
behaving according to
Diameter
specifications
0.58
0.56
0.54
0.52
0.5
0.48
0.46
0.44
1 2 3 4 5 6 7 8 9 10 11 12
Time (Hours)
Analytical Tools for Six Sigma and Continuous Improvement:
Pareto Analysis
to find when
80% of the
problems
may be Frequency
attributed to
20% of the
causes
Wrong Account
Wrong Amount
A/R Errors
Wrong Account
Wrong Amount
Analytical Tools for Six Sigma and Continuous
Improvement: Histogram
Can be used to identify the frequency of quality
Number of Lots
0 1 2 3 4 Defects
Data Ranges in lot
Analytical Tools for Six Sigma and Continuous
Improvement: Cause & Effect Diagram
Environment Effect
Method Material
1020
1010
UCL
1000
990
980 LCL
970
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Other Six Sigma Tools
• Shingo’s argument:
– SQC methods do not prevent defects
– Defects arise when people make errors
– Defects can be prevented by providing workers with
feedback on errors
• Poka-Yoke includes:
– Checklists
– Special tooling that prevents workers from making
errors
ISO 9000
Technical Note 8
Process Capability and
Statistical Quality Control
High High
Incremental Incremental
Cost of Cost of
Variability Variability
Zero Zero
• Specification limits
As a production process
produces items small
shifts in equipment or
systems can cause
differences in
production performance
from differing samples.
A simple ratio:
Specification Width
_________________________________________________________
C pk = Min{.4253; .5829}
C pk = .4253
What does a Cpk of .4253 mean?
• Variable (Continuous)
– Usually measured by the mean and the standard
deviation.
– X-bar and R chart applications
Statistical UCL
1 2 3 4 5 6 Samples
over time
UCL
LCL
1 2 3 4 5 6 Samples
over time
UCL
LCL
1 2 3 4 5 6 Samples
over time
Control Limits are based on the Normal
Curve
x
µ
z
-3 -2 -1 0 1 2 3
Standard
deviation units or
“z” units.
Control Limits
We establish the Upper Control Limits (UCL) and the
Lower Control Limits (LCL) with plus or minus 3
standard deviations from some x-bar or mean value.
Based on this we can expect 99.7% of our sample
observations to fall within these limits.
99.7%
x
LCL UCL
Example of Constructing a p-Chart:
Required Data
Sample No. of Number of
defects found
No. Samples in each sample
1 100 4
2 100 2
3 100 5
4 100 3
5 100 6
6 100 4
7 100 3
8 100 7
9 100 1
10 100 2
11 100 3
12 100 2
13 100 2
14 100 8
15 100 3
Statistical Process Control Formulas:
Attribute Measurements (p-Chart)
Given: T o ta l N u m b e r o f D e fe c tiv e s
p =
T o ta l N u m b e r o f O b s e rv a tio n s
p (1 - p)
sp =
n
Compute control limits:
UCL = p + z sp
LCL = p - z sp
Example of Constructing a p-chart: Step 1
Sample n Defectives p
1. Calculate the 1 100 4 0.04
sample proportions, 2 100 2 0.02
3 100 5 0.05
p (these are what 4 100 3 0.03
can be plotted on the 5 100 6 0.06
p-chart) for each 6 100 4 0.04
7 100 3 0.03
sample
8 100 7 0.07
9 100 1 0.01
10 100 2 0.02
11 100 3 0.03
12 100 2 0.02
13 100 2 0.02
14 100 8 0.08
15 100 3 0.03
Example of Constructing a p-chart: Steps 2&3
55
p = = 0.036
1500
3. Calculate the standard deviation of the
sample proportion
p (1 - p) .036(1- .036)
sp = = = .0188
n 100
Example of Constructing a p-chart: Step 4
UCL = p + z sp
LCL = p - z sp
.036 ± 3(.0188)
UCL = 0.0924
LCL = -0.0204 (or 0)
Example of Constructing a p-Chart: Step 5
0.16
0.14
0.12
0.1 UCL
p 0.08
0.06
0.04
0.02
0 LCL
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Observation
Example of x-bar and R Charts:
Required Data
Sample Obs 1 Obs 2 Obs 3 Obs 4 Obs 5
1 10.68 10.689 10.776 10.798 10.714
2 10.79 10.86 10.601 10.746 10.779
3 10.78 10.667 10.838 10.785 10.723
4 10.59 10.727 10.812 10.775 10.73
5 10.69 10.708 10.79 10.758 10.671
6 10.75 10.714 10.738 10.719 10.606
7 10.79 10.713 10.689 10.877 10.603
8 10.74 10.779 10.11 10.737 10.75
9 10.77 10.773 10.641 10.644 10.725
10 10.72 10.671 10.708 10.85 10.712
11 10.79 10.821 10.764 10.658 10.708
12 10.62 10.802 10.818 10.872 10.727
13 10.66 10.822 10.893 10.544 10.75
14 10.81 10.749 10.859 10.801 10.701
15 10.66 10.681 10.644 10.747 10.728
Example of x-bar and R charts: Step 1. Calculate sample
means, sample ranges, mean of means, and mean of
ranges.
Sample Obs 1 Obs 2 Obs 3 Obs 4 Obs 5 Avg Range
1 10.68 10.689 10.776 10.798 10.714 10.732 0.116
2 10.79 10.86 10.601 10.746 10.779 10.755 0.259
3 10.78 10.667 10.838 10.785 10.723 10.759 0.171
4 10.59 10.727 10.812 10.775 10.73 10.727 0.221
5 10.69 10.708 10.79 10.758 10.671 10.724 0.119
6 10.75 10.714 10.738 10.719 10.606 10.705 0.143
7 10.79 10.713 10.689 10.877 10.603 10.735 0.274
8 10.74 10.779 10.11 10.737 10.75 10.624 0.669
9 10.77 10.773 10.641 10.644 10.725 10.710 0.132
10 10.72 10.671 10.708 10.85 10.712 10.732 0.179
11 10.79 10.821 10.764 10.658 10.708 10.748 0.163
12 10.62 10.802 10.818 10.872 10.727 10.768 0.250
13 10.66 10.822 10.893 10.544 10.75 10.733 0.349
14 10.81 10.749 10.859 10.801 10.701 10.783 0.158
15 10.66 10.681 10.644 10.747 10.728 10.692 0.103
n A2 D3 D4
UCL = x + A 2 R 2 1.88 0 3.27
3 1.02 0 2.57
LCL = x - A 2 R 4 0.73 0 2.28
5 0.58 0 2.11
6 0.48 0 2.00
R Chart Control Limits 7 0.42 0.08 1.92
8 0.37 0.14 1.86
UCL = D 4 R 9 0.34 0.18 1.82
10 0.31 0.22 1.78
LCL = D 3 R 11 0.29 0.26 1.74
Example of x-bar and R charts: Steps 3&4. Calculate x-bar
Chart and Plot Values
1 0 .8 5 0 UCL
1 0 .8 0 0
1 0 .7 5 0
M eans
1 0 .7 0 0
1 0 .6 5 0
1 0 .6 0 0
LCL
1 0 .5 5 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Sam ple
Example of x-bar and R charts: Steps 5&6. Calculate R-chart
and Plot Values
UCL = D 4 R = ( 2.11)( 0.2204 ) = 0.46504
LCL = D 3 R = (0)( 0.2204 ) = 0
0 .8 0 0
0 .7 0 0
0 .6 0 0
0 .5 0 0
UCL
R 0 .4 0 0
0 .3 0 0
0 .2 0 0
0 .1 0 0
0 .0 0 0
LCL
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
S a m p le
Basic Forms of Statistical Sampling for Quality
Control
• Disadvantages
– Risks of accepting “bad” lots and rejecting
“good” lots
– Added planning and documentation
– Sample provides less information than 100-
percent inspection
Acceptance Sampling:
Single Sampling Plan
A simple goal
1 The shape or
0.9 a = .05 (producer’s risk) slope of the
0.8 curve is
0.7 dependent on a
n = 99 particular
Probability of acceptance
Then find the value for “c” by selecting the value in the
TN7.10 “n(AQL)”column that is equal to or just greater than
the ratio above.
c = 6, from Table
n (AQL) = 3.286, from Table
AQL = .01, given in problem
Sampling Plan:
Take a random sample of 329 units from a lot.
Reject the lot if more than 6 units are defective.
356
Finders
Who find new business
Partners
Issue trees
Customer surveys
Gap analysis
Employee surveys
Data Gathering
Plant tours/audits
Work sampling
Flow charts
Organizational charts
Operations Consulting Tool Kit: Category 3
Bottleneck analysis
Computer simulation
Statistical tools
Operations Consulting Tool Kit: Category 4
Decision trees
Balanced scorecard
Stakeholder analysis
Operations Consulting Tool Kit: Category 5
Implementation
Responsibility charts
• Fundamental
– Why do we do what we do
– Ignore what is and concentrate on what
should be
• Radical
– Business reinvention vs. business
improvement
Key Words in the Reengineering Definition
(Continued)
• Dramatic
– Reengineering should be brought in “when a need
exits for heavy blasting”
• Companies in deep trouble
• Companies that see trouble coming
• Companies that are in peak condition
• Business Process
– a collection of activities that takes one or more
kinds of inputs and creates an output that is of
value to a customer
Principles of Reengineering
Chapter 10
Supply Chain Strategy
• Supply-Chain Management
• Measuring Supply-Chain Performance
• Bullwhip Effect
• Outsourcing
• Value Density
• Mass Customization
What is a Supply Chain?
• Supply-chain is a term that describes how
organizations (suppliers, manufacturers,
distributors, and customers) are linked
together
Inputs Localization
Transformation Output
Supply networks
Suppliers Distribution
Manufacturing Manufacturing Customers
What is Supply Chain Management?
Quantity
Quantity
Order
Order
Order
Time Time Time
• Organizationally-driven
• Improvement-driven
• Financially-driven
• Revenue-driven
• Cost-driven
• Employee-driven
Value Density
Chapter 11
Strategic Capacity
Management
Capacity used
Capacity utilization rate =
Best operating level
• Where
• Capacity used
– rate of output actually achieved
• Best operating level
– capacity for which the process was designed
Best Operating Level
Example: Engineers design engines and assembly lines to operate at an ideal or “best
operating level” to maximize output and minimize ware
Average
unit cost
of output
Underutilization Overutilization
Best Operating
Level
Volume
Example of Capacity Utilization
• Answer:
Capacity utilization rate = Capacity used .
Best operating level
= 83/120
=0.69 or 69%
Economies & Diseconomies of Scale
100-unit
Average plant
unit cost 200-unit
of output plant 400-unit
300-unit
plant
plant
Volume
As plants produce more products, they
The Experience gain experience in the best production
methods and reduce their costs per unit
Curve
Yesterday
Cost or Today
price Tomorrow
per unit
• Flexible plants
• Flexible processes
• Flexible workers
Capacity Planning: Balance
Unbalanced stages of production
Units
Stage 1 Stage 2 Stage 3
per
month
6,000 7,000 5,000
Maintaining System Balance: Output of one stage is the
exact input requirements for the next stage
Balanced stages of production
Units
Stage 1 Stage 2 Stage 3
per
month
6,000 6,000 6,000
Capacity Planning
The following table shows forecast demand for the next four
years.
Year: 1 2 3 4
FancyFine
Small (000s) 50 60 80 100
Family (000s) 35 50 70 90
Generic
Small (000s) 100 110 120 140
Family (000s) 80 90 100 110
Example of Capacity Requirements (Continued): Product from a
Capacity Viewpoint
Year: 1 2 3 4
Small (000s) 150 170 200 240
Family (000s) 115 140 170 200
Small
Percent capacity used 50.00% 56.67% 66.67% 80.00%
1.70 2.00 2.40
Machine requirement 1.50 3.40 4.00 4.80
Labor requirement 3.00
Family-size
Percent capacity used 47.92% 58.33% 70.83% 83.33%
1.17 1.42 1.67
Machine requirement 0.96 3.50 4.25 5.00
Labor requirement 2.88
©The McGraw-Hill Companies, Inc., 2004
Example of a Decision Tree Problem
C
Example of Decision Tree Problem (Continued):
Step 2. Add our possible states of nature,
probabilities, and payoffs
High demand (0.4) $90k
EVA=0.4(90)+0.5(50)+0.1(10)=$62k
Example of Decision Tree Problem (Continued): Step 4.
Make decision
High demand (0.4) $90k
End of Chapter 11
Technical Note 11
Facility Location
• Proximity to Customers
• Business Climate
• Total Costs
• Infrastructure
• Quality of Labor
• Suppliers
• Other Facilities
Issues in Facility Location
• Free Trade Zones
• Political Risk
• Government Barriers
• Trading Blocs
• Environmental Regulation
• Host Community
• Competitive Advantage
Plant Location Methodology: Factor Rating
Method Example
Two refineries sites (A and B) are assigned the
following range of point values and respective points,
where the more points the better for the site location.
Sites
Major factors for site location Pt. Range A B
Fuels in region 0 to 330 123 156
150 100
Power availability and reliability 0 to 200 54 63
Labor climate 0 to 100 24 96
Living conditions 0 to 100 45 50
4 5
Transportation 0 to 50 8 4
Water supply 0 to 10 5 50
Climate 0 to 50 5 20
Supplies 0 to 60
Best Site is
Tax policies and laws 0 to 20
B
Total pts. 418 544
Plant Location Methodology: Transportation Method of
Linear Programming
Cx =
åd V ix i
Cy =
åd V iy i
åV i åV i
Where:
Cx = X coordinate of centroid
Cy = X coordinate of centroid
dix = X coordinate of the ith location
diy = Y coordinate of the ith location
Vi = volume of goods moved to or from ith
location
Plant Location Methodology: Example of
Centroid Method
• Centroid method example
– Several automobile showrooms are located according to
the following grid which represents coordinate locations for
each showroom
Y S ho wro o m No o f Z-Mo b ile s
Q s o ld p e r mo nth
(790,900)
D A 1250
(250,580)
A
D 1900
(100,200)
Q 2300
(0,0) X
(0,0) X
Q 2300
Plant Location Methodology: Example of Centroid Method
(Continued): Determining the Coordinates of the New Facility
You then compute the new coordinates using the formulas:
100(1250) + 250(1900) + 790(2300) 2,417,000
Cx = = = 443.49
1250 + 1900 + 2300 5,450
Y
New location S ho wro o m No o f Z-Mo b ile s
Q
(790,900) of facility Z s o ld p e r mo nth
Z about
D
(250,580) (443,627) A 1250
A D 1900
(100,200)
(0,0) X Q 2300
431
Chapter 12
Lean Production
• Lean Services
Lean Production
• Lean Production can be defined as an integrated
set of activities designed to achieve high-
volume production using minimal inventories
(raw materials, work in process, and finished
goods)
• Lean Production also involves the elimination of
waste in production effort
• Lean Production also involves the timing of
production resources (i.e., parts arrive at the
next workstation “just in time”)
Here the customer starts the
process, pulling an inventory item
from Final Assembly…
Pull System
Sub
Fab Vendor
Final
Customers Assembly
Fab Vendor
Features of Lean Production
• Employee participation
• Industrial engineering/basics • Stable environment
• Continuing improvement
• Total quality control
• Small lot sizes
The Toyota Production System
Heat Treat
Grinder 1 2
Saw Lathe Lathe Press
Heat Treat
Grinder
Saw Lathe A B Lathe Press
Minimizing Waste:
Uniform Plant Loading (heijunka)
Suppose we operate a production plant that produces a single
product. The schedule of production for this product could be
accomplished using either of the two plant loading schedules
below.
or
Example: By
Paperwork Inspection Decision identifying defective
backlog backlogs backlogs work by employees
upstream, the
downstream work is
saved
Minimizing Waste: Kanban Production Control
ThisSystems
puts the
system back
Once the Production kanban is
Withdrawal were it was
received, the Machine Center kanban before the item
produces a unit to replace the
was pulled
one taken by the Assembly Line
people in the first place
Storage Storage
Machine Part A Part A Assembly
Center
Line
Production kanban
Material Flow
The process begins by the Assembly Line
people pulling Part A from Storage Card (signal) Flow
Determining the Number of Kanbans
Needed
• Setting up a kanban system requires
determining the number of kanbans cards (or
containers) needed
• Each container represents the minimum
production lot size
• An accurate estimate of the lead time
required to produce a container is key to
determining how many kanbans are required
The Number of Kanban Card Sets
Expected demand during lead time + Safety stock
k=
Size of the container
DL(1 + S )
=
C
k = Number of kanban card sets (a set is a card)
D = Average number of units demanded over some time
period
L = lead time to replenish an order (same units of time as
demand)
S = Safety stock expressed as a percentage of demand
during leadtime
C = Container size
Example of Kanban Card Determination: Problem
Data
• A switch assembly is assembled in batches of 4 units
from an “upstream” assembly area and delivered in
a special container to a “downstream” control-panel
assembly operation
• The control-panel assembly area requires 5 switch
assemblies per hour
• The switch assembly area can produce a container of
switch assemblies in 2 hours
• Safety stock has been set at 10% of needed
inventory
Example of Kanban Card Determination:
Calculations
DL (1+ S ) 5(2)(1.1)
= = = 2.75, or 3
C 4
• Subcontractor networks
• Measure SQC
• Enforce compliance
• Fail-safe methods
• Automatic inspection
Lean Implementation Requirements: Stabilize
Schedule
• Level schedule
• Underutilize capacity
• Demand pull
• Backflush
• Frequent deliveries
• Quality expectations
Lean Implementation Requirements: Reduce
Inventory More
• Look for other areas
• Stores
• Transit
• Carousels
• Conveyors
Lean Implementation Requirements: Improve
Product Design
• Quality expectations
Lean Implementation Requirements: Concurrently
Solve Problems
• Root cause
• Solve permanently
• Team approach
• Continual education
Lean Implementation Requirements: Measure
Performance
• Emphasize improvement
• Track trends
Lean in Services (Examples)
• Upgrade Housekeeping
• Upgrade Quality
End of Chapter 12
Managerial Briefing 13
Enterprise Resource
Planning Systems
Financial
Accounting
R/3 System
Sales & Distribution Functional Human Resources
Components
Manufacturing
& Logistics
Financial Accounting
• Financials
• Controlling
• Asset management
Human Resources
• Payroll
• Benefits administration
• Applicant data administration
• Personnel development planning
• Workforce planning
• Schedule & shift planning
• Time management
• Travel expense accounting
Manufacturing & Logistics
• Materials management
• Plant maintenance
• Quality management
Chapter 13
Demand Management
Independent Demand:
Finished Goods
A Dependent Demand:
Raw Materials,
Component parts,
B(4) C(2) Sub-assemblies, etc.
• Qualitative (Judgmental)
• Quantitative
– Time Series Analysis
– Causal Relationships
– Simulation
Components of Demand
Seasonal variation
x
x x Linear
x x
x x Trend
x x
Sales
x x x
x
x
xx
x xx x x
x
x
x x x x x x
x x xxx x
x x x
x x x x xx
x
x x
1 2 3 4
Year
Qualitative Methods
950
900
850
d 800 Demand
n
a 750
m 700 3-Week
e
D 650 6-Week
600
550 Note how the 3-
500 Week is smoother
1 2 3 4 5 6 7 8 9 10 11 12 than the Demand,
Week and 6-Week is even
smoother
Simple Moving Average Problem (2) Data
Ft = w 1 A t -1 + w 2 A t - 2 + w 3 A t -3 + ...+ w n A t - n
n
wt = weight given to time period “t”
occurrence (weights must add to one)
åw
i=1
i =1
Weighted Moving Average Problem (1) Data
Question: Given the weekly demand and weights, what is the forecast for the 4th
period or Week 4?
Note that the weights place more emphasis on the most recent data,
that is time period “t-1”
Weighted Moving Average Problem (1) Solution
F4 = 0.5(720)+0.3(678)+0.2(650)=693.4
Weighted Moving Average Problem (2) Data
Question: Given the weekly demand information and weights, what is the
weighted moving average forecast of the 5th period or week?
F5 = (0.1)(755)+(0.2)(680)+(0.7)(655)= 672
Exponential Smoothing Model
850
800
d 750 Demand
n
a 700 0,1
m 650
e
D 600 0,6
550
500
1 2 3 4 5 6 7 8 9 10
Week
Exponential Smoothing Problem (2) Data
40
n
Note that by itself, the MAD
åA
t=1
t - Ft
40 only lets us know the mean
MAD = = = 10 error in a set of forecasts
n 4
Tracking Signal Formula
• The Tracking Signal or TS is a measure that indicates
whether the forecast average is keeping pace with
any genuine upward or downward changes in
demand.
• Depending on the number of MAD’s selected, the TS
can be used like a quality control chart indicating
when the model is generating too much error in its
forecasts.
• The TS formula is:
0 1 2 3 4 5 x (Time)
a = y - bx
å xy - n(y)(x)
b= 2 2
å x - n(x )
Simple Linear Regression Problem Data
Question: Given the data below, what is the simple linear regression model that can be
used to predict sales in future weeks?
Week Sales
1 150
2 157
3 162
4 166
5 177
508
Answer: First, using the linear regression formulas, we can compute “a”
and “b”
b=
å xy - n( y)(x) 2499 - 5(162.4)(3) 63
= = = 6.3
å x - n(x )
2 2
55 - 5(9 ) 10
180
175
170
165
160 Sales
Sales
155 Forecast
150
145
140
135
1 2 3 4 5
Period
Web-Based Forecasting: CPFR
• Collaborative Planning, Forecasting, and
Replenishment (CPFR) a Web-based tool used to
coordinate demand forecasting, production and
purchase planning, and inventory replenishment
between supply chain trading partners.
• Used to integrate the multi-tier or n-Tier supply chain,
including manufacturers, distributors and retailers.
• CPFR’s objective is to exchange selected internal
information to provide for a reliable, longer term
future views of demand in the supply chain.
• CPFR uses a cyclic and iterative approach to derive
consensus forecasts.
Web-Based Forecasting:
Steps in CPFR
End of Chapter 13
Intermediate Forecasting
range & demand Sales and operations (aggregate) planning
managemen
t Sales plan Aggregate operations plan
Manufacturing
Services
Master scheduling
• Medium-range planning
– Six to eighteen months
– Usually with weekly, monthly or quarterly increments
• Short-range planning
– One day to less than six months
– Usually with weekly or daily increments
The Aggregate Operations Plan
• Main purpose: Specify the optimal
combination of
– production rate (units completed per unit
of time)
– workforce level (number of workers)
– inventory on hand (inventory carried from
previous period)
• Product group or broad category
(Aggregation)
• This planning is done over an intermediate-
range planning period of 3 to18 months
Balancing Aggregate Demand
and Aggregate Production Capacity
10000
Suppose the figure to 10000
8000
the right represents 8000 7000
6000
forecast demand in 6000 5500
4500
units
4000
inventory to make 0
these figures match up Jan Feb Mar Apr May Jun
Required Inputs to the Production Planning System
Competitors’behavi Raw material Market
or availability demand
External to
firm
External Economic
capacity Planning for
conditions
production
• Chase
• Level
$260,408.62
Level Workforce Strategy (Surplus and Shortage
Allowed)
Lets take the same problem as
before but this time use the
Level Workforce strategy Jan
Demand 4,500
This time we will seek to use
a workforce level of 6 workers Beg. inv. 250
Net req. 4,250
W orkers 6
P roduction 6,380
Ending inventory 2,130
Surplus 2,130
Shortage
Below are the complete calculations for the remaining months in the six
month planning horizon
$241,600.00
End of Chapter 14
Chapter 15
Inventory Control
OBJECTIVES
• Inventory System Defined
• Inventory Costs
• Independent vs. Dependent Demand
• Single-Period Inventory Model
• Multi-Period Inventory Models: Basic Fixed-
Order Quantity Models
• Multi-Period Inventory Models: Basic Fixed-Time
Period Model
• Miscellaneous Systems and Issues
Inventory System
• Inventory is the stock of any item or resource
used in an organization and can include: raw
materials, finished products, component
parts, supplies, and work-in-process
• An inventory system is the set of policies and
controls that monitor levels of inventory and
determines what levels should be maintained,
when stock should be replenished, and how
large orders should be
Purposes of Inventory
1. To maintain independence of operations
2. To meet variation in product demand
3. To allow flexibility in production scheduling
4. To provide a safeguard for variation in raw
material delivery time
5. To take advantage of economic purchase-
order size
Inventory Costs
• Holding (or carrying) costs
– Costs for storage, handling, insurance, etc
• Setup (or production change) costs
– Costs for arranging specific equipment
setups, etc
• Ordering costs
– Costs of someone placing an order, etc
• Shortage costs
– Costs of canceling an order, etc
Independent vs. Dependent Demand
Dependent
Demand
(Derived demand
items for
E(1) component
parts,
subassemblies,
Component parts raw materials,
etc)
Inventory Systems
• Single-Period Inventory Model
– One time purchasing decision (Example: vendor selling
t-shirts at a football game)
– Seeks to balance the costs of inventory overstock and
under stock
• Multi-Period Inventory Models
– Fixed-Order Quantity Models
• Event triggered (Example: running out of stock)
– Fixed-Time Period Models
• Time triggered (Example: Monthly sales call by
sales representative)
Single-Period Inventory Model
This model states that we should
Nous ne pouvons pas afficher l’image. continue to increase the size of the
P£
selling the last unit added is equal to or
greater than the ratio of: Cu/Co+Cu
Co + Cu
Where :
Co = Cost per unit of demand over estimated
Cu = Cost per unit of demand under estimated
P = Probability that the unit will be sold
Single Period Model Example
Number
of units
on hand Q Q Q
R
2. Your start using them L L
up over time. 3. When you reach down to a level
Time of inventory of R, you place your
R = Reorder point next Q sized order.
Q = Economic order quantity
L = Lead time
Cost Minimization Goal
By adding the item, holding, and ordering costs
together, we determine the total cost curve, which in
turn is used to find the Qopt inventory order point that
minimizes total costs
Total Cost
C
O
S
T Holding
Costs
Annual Cost of
Items (DC)
Ordering Costs
QOPT
Order Quantity (Q)
Basic Fixed-Order Quantity (EOQ) Model TC=Total annual
cost
Formula
D =Demand
Total Annual Annual Annual C =Cost per unit
Annual = Purchase + Ordering + Holding Q =Order quantity
Cost Cost Cost Cost S =Cost of placing
an order or setup
cost
R =Reorder point
L =Lead time
H=Annual holding
Q 2
Deriving the EOQ
Using calculus, we take the first derivative of the
total cost function with respect to Q, and set the
derivative (slope) equal to zero, solving for the
optimized (cost minimized) value of Qopt
_
R eorder p oint, R = d L = 2.74units / day (7days) = 19.18 or 20 u n its
_
R = d L = 2 7 .3 9 7 u n its / d ay (1 0 d ays) = 2 7 3 .9 7 o r 2 7 4 u n its
Place an order for 366 units. When in the course of using the
inventory you are left with only 274 units, place the next order of 366
units.
Fixed-Time Period Model with Safety Stock Formula
q = Average demand + Safety stock – Inventory currently on hand
q = d(T + L) + Z s T + L - I
Where :
q = quantitiy to be ordered
T = the number of days between reviews
L = lead time in days
d = forecast average daily demand
z = the number of standard deviations for a specified service probability
s T + L = standard deviation of demand over the review and lead time
I = current inventory level (includes items on order)
Multi-Period Models: Fixed-Time Period Model:
Determining the Value of s T+L
å (s )
T+ L 2
s T+ L = di
i =1
q = d(T + L) + Z s T + L - I
D Q
TC = DC + S+ iC
Q 2
TC(0-2499)=(10000*1.20)+(10000/1826)*4+(1826/2)(0.02*1.20)
= $12,043.82
TC(2500-3999)= $10,041
TC(4000&more)= $9,949.20
Finally, we select the least costly Qopt, which is this problem occurs in the
4000 & more interval. In summary, our optimal order quantity is 4000 units
Miscellaneous Systems:
Optional Replenishment System
Maximum Inventory Level, M
q=M-I
Order Enough to
Refill Bin
Periodic Check
ABC Classification System
• Items kept in inventory are not of equal
importance in terms of:
60
– dollars invested % of
– profit potential
$ Value 30 A
0 B
– sales or usage volume % of 30 C
Use 60
– stock-out penalties
So, identify inventory items based on percentage of total dollar value, where
“A” items are roughly top 15 %, “B” items as next 35 %, and the lower 65%
are the “C” items
Inventory Accuracy and Cycle Counting
Chapter 16
Materials
Requirements
Planning
©The McGraw-Hill Companies, Inc., 2006
OBJECTIVES
• Material Requirements Planning (MRP)
• MRP Logic and Product Structure Trees
• Time Fences
• MRP Example
• MRP II and Lot Sizing
Material Requirements Planning
• Materials requirements planning (MRP) is a
means for determining the number of parts,
components, and materials needed to
produce a product
• MRP provides time scheduling information
specifying when each of the materials, parts,
and components should be ordered or
produced
• Dependent demand drives MRP
• MRP is a software system
Example of MRP Logic and Product Structure
Tree
Given the product structure tree for “A” and the lead time and demand information
below, provide a materials requirements plan that defines the number of units of each
component and when they will be needed
Day: 1 2 3 4 5 6 7 8 9 10
A Required 50
Order Placement 50
LT = 1 day
Next, we need to start scheduling the components that make up “A”. In the case of
component “B” we need 4 B’s for each A. Since we need 50 A’s, that means 200 B’s.
And again, we back the schedule up for the necessary 2 days of lead time.
D ay : 1 2 3 4 5 6 7 8 9 10
A R equired 50
O rder P lac em ent 50
B R equired 20 200
O rder P lac em ent 20 200
LT = 2
Spares
A 4x50=200
B(4) C(2)
Day: 1 2 3 4 5 6 7 8 9 10
A Required 50
LT=1 Order Placement 50
B Required 20 200
LT=2 Order Placement 20 200
C Required 100
LT=1 Order Placement 100
D Required 55 400 300
LT=3 Order Placement 55 400 300
E Required 20 200
LT=4 Order Placement 20 200
F Required 200
LT=1 Order Placement 200
A
Part D: Day 6
B(4) C(2) 40 + 15 spares
Aggregate Plan
(Product Groups)
MPS
(Specific End Items)
Types of Time Fences
• Frozen
– No schedule changes allowed within this
window
• Moderately Firm
– Specific changes allowed within product
groups as long as parts are available
• Flexible
– Significant variation allowed as long as
overall capacity requirements remain at
the same levels
Exhibit 15.5
Example of Time Fences
Moderately
Frozen Firm Flexible
Capacity
Forecast and available
capacity
Firm Customer Orders
8 15 26
Weeks
Material Requirements Planning System
Aggregate Forecasts
Firm orders product of demand
from known plan from random
customers
customers
• Pegging
– Identify each parent item that created demand
Primary MRP Reports
• Planned orders to be released at a future time
• Order release notices to execute the planned
orders
• Changes in due dates of open orders due to
rescheduling
• Cancellations or suspensions of open orders
due to cancellation or suspension of orders on
the master production schedule
• Inventory status data
Secondary MRP Reports
• Planning reports, for example,
forecasting inventory requirements
over a period of time
• Performance reports used to determine
agreement between actual and
programmed usage and costs
• Exception reports used to point out
serious discrepancies, such as late or
overdue orders
Additional MRP Scheduling Terminology
• Gross Requirements
• Scheduled receipts
• Projected available balance
• Net requirements
No
Realistic? Feedback
Feedback
Yes
Execute:
Capacity Plans
Material Plans
Manufacturing Resource Planning
(MRP II)
End of Chapter 16
Chapter 17
Operations
Scheduling
What is the SOT schedule? Do all the jobs get done on time?
In order to do this schedule the CR’s have be calculated No, but since
for each job. If we let today be Day 1 and allow a total of there is three-
15 days to do the work. The resulting CR’s and order way tie, only
schedule are: the first job or
CR(A)=(5-4)/15=0.06 (Do this job last) two will be on
CR(B)=(10-7)/15=0.20 (Do this job first, tied with C and D) time
CR(C)=(6-3)/15=0.20 (Do this job first, tied with B and D)
CR(D)=(4-1)/15=0.20 (Do this job first, tied with B and C)
Example of Job Sequencing:
Last-Come First-Served
Jobs (in order Processing Due Date
Suppose you have the four of arrival) Time (days) (days hence)
jobs to the right arrive for A 4 5
processing on one machine B 7 10
C 3 6
D 1 4
What is the LCFS schedule? Do all the jobs get done on time?
Time in Hours
Jobs Stage 1 Stage 2
A 1.50 1.25
B 2.00 3.00
C 2.50 2.00
D 1.00 2.00
Example of Job Sequencing: Johnson’s Rule (Part 2)
First, select the job with the
Time in Hours
smallest time in either stage.
Jobs Stage 1 Stage 2
That is Job D with the smallest A 1.50 1.25
time in the first stage. Place that B 2.00 3.00
job as early as possible in the C 2.50 2.00
unfilled job sequence below. D 1.00 2.00
Drop D out, select the next smallest time (Job A), and place it 4th in the job
sequence.
Drop A out, select the next smallest time. There is a tie in two stages for
two different jobs. In this case, place the job with the smallest time in the
first stage as early as possible in the unfilled job sequence.
Then place the job with the smallest time in the second stage as late as
possible in the unfilled sequence.
Job Sequence 1 2 3 4
Job Assigned D B C A
Shop-Floor Control:
Major Functions
1. Assigning priority of each shop order
Work
Input Output
Center
End of Chapter 17
Technical Note 17
Simulation
Evaluate results
Validation
• Specification of Time-Incrementing
Procedure
Data Collection & Random No. Interval Example
Suppose you timed 20 athletes running the 100-yard dash
and tallied the information into the four time intervals below
• By computer
• Manually
Evaluate Results
• Conclusions depend on
– the degree to which the model reflects the real
system
– design of the simulation (in a statistical sense)
• Flowcharting
• Coding
• Data generation
• Output reports
• Validation
Types of Simulation Models
• Continuous
– Based on mathematical equations
– Used for simulating continuous values for
all points in time
– Example: The amount of time a person
spends in a queue
• Discrete
– Used for simulating specific values or
specific points
– Example: Number of people in a queue
Desirable Features of Simulation Software
• Be capable of being used interactively as well as allowing
complete runs
• Be user-friendly and easy to understand
• Allow modules to be built and then connected
• Allow users to write and incorporate their own routines
• Have building blocks that contain built-in commands
• Have macro capability, such as the ability to develop
machining cells
Desirable Features of Simulation Software
• Have material-flow capability
• Output standard statistics such as cycle times,
utilization, and wait times
• Allow a variety of data analysis alternatives for both
input and output data
• Have animation capabilities to display graphically
the product flow through the system
• Permit interactive debugging
Advantages of Simulation
• Often leads to a better understanding of the
real system
• Years of experience in the real system can
be compressed into seconds or minutes
• Simulation does not disrupt ongoing
activities of the real system
• Simulation is far more general than
mathematical models
• Simulation can be used as a game for
training experience
Advantages of Simulation (Continued)
• Simulation provides a more realistic replication of
a system than mathematical analysis
• Simulation can be used to analyze transient
conditions, whereas mathematical techniques
usually cannot
Chapter 18
Synchronous Manufacturing
and
Theory of Constraints
• Performance Measurement
• Synchronous Manufacturing
Goldratt’s Rules of Production Scheduling
• Do not balance capacity balance the flow
• The level utilization of a nonbottleneck resource
is not determined by its own potential but by
some other constraint in the system
• Utilization and activation of a resource are not
the same
• An hour lost at a bottleneck is an hour lost for the
entire system
• An hour saved at a nonbottleneck is a mirage
Goldratt’s Rules of Production Scheduling
(Continued)
• Bottlenecks govern both throughput and
inventory in the system
• Transfer batch may not and many times
should not be equal to the process batch
• A process batch should be variable both
along its route and in time
• Priorities can be set only by examining the
system’s constraints and lead time is a
derivative of the schedule
Goldratt’s Theory of Constraints (TOC)
• Identify the system constraints
• Decide how to exploit the system
constraints
• Subordinate everything else to that decision
• Elevate the system constraints
• If, in the previous steps, the constraints
have been broken, go back to Step 1, but do
not let inertia become the system constraint
Goldratt’s Goal of the Firm
• Return on investment
– a relative measure based on investment
• Cash flow
– a survival measurement
Performance Measurement:
Operational
• 1. Throughput
– the rate at which money is generated by the
system through sales
• 2. Inventory
– all the money that the system has invested in
purchasing things it intends to sell
• 3. Operating expenses
– all the money that the system spends to turn
inventory into throughput
Productivity
10
6 8 10 12 14
Case A 25% in Y
X Y Market
X Y
Bottleneck Nonbottleneck
Demand/month 200 units 200 units
Process time/unit 1 hour 45 mins
Avail. time/month 200 hours 200 hours
Capacity Example Situation 2
Is there is going to be a build up of unnecessary production
in Y?
Yes, 25% in Y
Case B
Y X Market
X Y
Bottleneck Nonbottleneck
Demand/month 200 units 200 units
Process time/unit 1 hour 45 mins
Avail. time/month 200 hours 200 hours
Capacity Example Situation 3
Case C
Is there going Market Yes, 25% in Y
to be a build up
in unnecessary
Assembly
production in
Y?
X Y
X Y
Bottleneck Nonbottleneck
Demand/month 200 units 200 units
Process time/unit 1 hour 45 mins
Avail. time/month 200 hours 200 hours
Capacity Example Situation 4
If we run both X and Yes, 25% in Y
Y for the same time,
will we produce any
unneeded Case D
production?
Market Market
X Y
X Y
Bottleneck Nonbottleneck
Demand/month 200 units 200 units
Process time/unit 1 hour 45 mins
Avail. time/month 200 hours 200 hours
Time Components of Production Cycle
• Setup time is the time that a part spends
waiting for a resource to be set up to work
on this same part
• Process time is the time that the part is being
processed
• Queue time is the time that a part waits for a
resource while the resource is busy with
something else
Time Components of Production Cycle (Continued)
• Wait time is the time that a part waits
not for a resource but for another part
so that they can be assembled together
Bottleneck Nonbottleneck
Bottleneck (Drum)
A B C D E F Market
Inventory
buffer
Communication
(time buffer)
(rope)
Quality Implications
• More tolerant than JIT systems
– Excess capacity throughout system
• One?
• Infinity?
Bottlenecks and CCRs:
Flow-Control Situations
• A bottleneck
– (1) with no setup required when changing from
one product to another
– (2) with setup times required to change from one
product to another
• A capacity constrained resource (CCR)
– (3) with no setup required to change from one
product to another
– (4) with setup time required when changing from
one product to another
Inventory Cost Measurement:
Dollar Days
• Dollar Days is a measurement of the
value of inventory and the time it stays
within an area
Value of inventory
Dollar Days =
Number of days within a department
Benefits from Dollar Day Measurement
• Marketing
– Discourages holding large amounts of finished
goods inventory
• Purchasing
– Discourages placing large purchase orders that
on the surface appear to take advantage of
quantity discounts
• Manufacturing
– Discourage large work in process and producing
earlier than needed
Comparing Synchronous Manufacturing to MRP
• MRP uses backward scheduling
• Accounting’s influence
End of Chapter 18
Supplement A
Financial Analysis
Labor-hour Pooled
allocation based
on activities
End product cost Cost pools
Cost-driver
allocation
• Short-term debt
• Long-term debt
Interest Rate Effects
• Compound value of a single amount
• Payback period
End of Supplement A
Supplement B
Operations
Technology
• Machining centers
• Industrial robots
I
P=
L - E + q(L + Z)
Where
P = Payback period in years
I = Total capital investment required in robot and accessories
L = Annual labor costs replaced by the robot (wage and
benefit costs per worker times the number of shifts per day)
E = Annual maintenance cost for the robot
Z = Annual depreciation
q = Fractional speedup (or slowdown) factor (in decimals).
Example: If robot produces 150 % of what the normal worker is
capable of doing, the fractional speedup factor is 1.5.
Example of Evaluating a Robot Investment
P= I = 120,000 =1.47years
L–E+q(L + Z) 35,000–5,000+1.1(35,000+12,000)
Software Systems
• Computer-aided-design (CAD)
– Computer-aided engineering (CAE)
– Computer-aided process planning (CAPP)
• Organizational risks
• Environmental risks
• Market risks
690
End of Supplement B