Production, Operation & Management

MODULE 1

EngineeringDepartment

FinanceDepartment

HumanResource

Department

ManagementInformation

SystemDepartment

Raw Materials

Stores

MaterialsManagement

Division

Research&

Development

Plant EngineeringDepartment

Marketing department

CustomerIn

Target Market

Vendor/Suppliers

ProductionDepartment(shop floor)

QualityAssuranceDepartment

CustomerSupport

Department

SalesDepartment

Factory Management

&Liasioning

A Bird view of Production System

Introduction

• Production and operations management (POM) is the

management of an organization’s production system.

• A production system takes inputs and converts them into

outputs.

• The conversion process is the predominant activity of a

production system.

• The primary concern of an operations manager is the activities

of the conversion process.

Today's Factors Affecting POM

• Global Competition

• U.S. Quality, Customer Service, and Cost Challenges

• Computers and Advanced Production Technology

• Growth of U.S. Service Sector

• Scarcity of Production Resources

• Issues of Social Responsibility

Different Ways to Study POM

• Production as a System

• Production as an Organization Function

• Decision Making in POM

Inputs of a Production System

• External– Legal, Economic, Social, Technological

• Market– Competition, Customer Desires, Product Info.

• Primary Resources– Materials, Personnel, Capital, Utilities

Conversion Subsystem

• Physical (Manufacturing)• Location Services (Transportation)• Exchange Services (Retailing)• Storage Services (Warehousing)• Other Private Services (Insurance)• Government Services (Federal, State, Local)

Production as a System

InputsInputsInputsInputs OutputsOutputsOutputsOutputsConversionConversionSubsystemSubsystemConversionConversionSubsystemSubsystem

Production SystemProduction System

ControlControlSubsystemSubsystem

ControlControlSubsystemSubsystem

Outputs of a Production System

• Direct– Products– Services

• Indirect– Waste– Pollution– Technological Advances

Production as an Organization Function

• U.S. companies cannot compete using marketing, finance, accounting, and engineering alone.

• We focus on POM as we think of global competitiveness, because that is where the vast majority of a firm’s workers, capital assets, and expenses reside.

• To succeed, a firm must have a strong operations function teaming with the other organization functions.

Decision Making in POM

• Strategic Decisions• Operating Decisions• Control Decisions

Strategic Decisions

• These decisions are of strategic importance and have long-term significance for the organization.

• Examples include deciding:

– the design for a new product’s production process– where to locate a new factory– whether to launch a new-product development plan

Operating Decisions

• These decisions are necessary if the ongoing production of goods and services is to satisfy market demands and provide profits.• Examples include deciding:– how much finished-goods inventory to carry– the amount of overtime to use next week– the details for purchasing raw material next month

Control Decisions

• These decisions concern the day-to-day activities of workers, quality of products and services, production and overhead costs, and machine maintenance.• Examples include deciding:– labor cost standards for a new product– frequency of preventive maintenance– new quality control acceptance criteriaWhat Controls the Operations System?

• Information about the outputs, the conversions, and the inputs is fed back to management.

• This information is matched with management’s expectations• When there is a difference, management must take corrective action to maintain control of the system

What is Operations Management?

Defined

Operations management (OM) is defined as the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services

• The Future of Operations

– Outsourcing

everything

– Smart factories

– Talking inventory

– Industrial army of

robots

– What’s in the box

– Mass customization

Why Study Operations Management?

Business Education

Systematic Approach to Org. Processes

Career Opportunities

Cross-Functional Applications

OperationsManagement

– Personalized

recommendations

– Sign here, please

Operations Management Decision Types

• Strategic (long-term)

• Tactical (intermediate-term)

• Operational planning and control (short-term)

What is a Transformation Process?

Defined

A transformation process is defined as a use of resources to

transform inputs into some desired outputs Transformations

• Physical--

manufacturing

• Location--

transportation

• Exchange--retailing

• Storage--

warehousing

• Physiological--health

care

• Informational--

telecommunications

Core Services Performance Objectives

OperationsManagement

Flexibility

Quality

Speed

Price (or cost Reduction)

The Importance of Operations Management

• Synergies must exist with other functional areas of the organization

• Operations account for 60-80% of the direct expenses that burden a firm’s profit.

The Basics of Operations Management

• Operations Management

– The

process of managing the resources that are needed to produce an

organization’s goods and services.

– Operat

ions managers focus on managing the “five Ps” of the firm’s

operations:

• People

, plants, parts, processes, and planning and control systems.

The Production System

• Input

– A

resource required for the manufacture of a product or service.

• Conve

rsion System

– A

production system that converts inputs (material and human

resources) into outputs (products or services); also the production

process or technology.

• Output

– A

direct outcome (actual product or service) or indirect outcome (taxes,

wages, salaries) of a production system.

Basic Types of Production Processes

• Intermi

ttent Production System

– Produc

tion is performed on a start-and-stop basis, such as for the

manufacture of made-to-order products.

• Mass Production

– A

special type of intermittent production process using standardized

Types of Production system

Manufacturing System Service System

Continuous ProductionIntermittent Production

Batch Production Job Production

Mass production( Flow) Processing Production

methods and single-use machines to produce long runs of

standardized items.

Mass Customization

– Designing, producing, and delivering customized products to customers for at or near the cost and convenience of mass-produced items.

– Mass customization combines high production volume with high product variety.

– Elements of mass customization:

• Modular product design• Modular process design• Agile supply networks

Continuous Production Processes

– A production process, such as those used by chemical plants or refineries, that runs for very long periods without the start-and-stop behavior associated with intermittent production.

– Enormous capital investments are required for highly automated facilities that use special-purpose equipment designed for high volumes of production and little or no variation in the type of outputs.Mass Production System (Flow)

Continuous Production

• Anticipation of demand• May not have uniform production• Standardized Raw material• Big volume of limited product line• Standard facility- high standardization.• Fixed sequence of operation• Material handling is easier• High skilled operator not required• More Human problem is foreseen• Huge investment.• High raw material inventory.Processing Production System

• Extend

ed form of mass production system

• F.G of

one stage is fed to next stage

• More

automatic machines

• One

basic raw material is transferred into several products at several

stages.

• Less

highly skilled workers required

• More

human problems foreseen

• Highly

standardized system

Batch Production System

• Highly specialized Human resource is required• Highly specialized multi tasking machines• Machines are shared.• Production in batches• Production lots are based on customer demand or order.• No single sequence of operation• Finished goods are heterogeneous

Custom built / job order production system

• Highly specialized Human resource is required• Highly specialized multi tasking machines• Machines are shared• Raw material is not standardized

• Process is not standardized• No scope for repetition of production

Comparative study of different production systems

TypeParameter

Mass/ Flow Process Job Batch

Per unit manf.cost

High Low High High

Size &Capital Invest.

LargeLess

V. LargeHigh

SmallLow

MediumHigh

Flexibility No No More More

Technical ability Skills

Less Less High High

Orgn. Structure

Line staff Line staff Functional Functional

Industrial application

AutomobileSugarRefinery

ChemicalPetroleumMilk proces.

ConstructionBridgesSPM

Consumer prod.M/c. Tools

Competitiveness, Strategy, and Productivity

Competitiveness:

How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services

Businesses Compete Using Marketing• Identifying consumer wants and needs• Pricing• Advertising and promotion

Businesses Compete Using Operations

• Produc

t and service design

• Cost

• Locati

on

• Quality

• Quick

response

Businesses Compete Using Operations• Flexibility• Inventory management• Supply chain management• Service

Why Some Organizations Fail

• Too

much emphasis on short-term financial performance

• Failing

to take advantage of strengths and opportunities

• Failing

to recognize competitive threats

• Neglec

ting operations strategy

Why Some Organizations Fail

• Too

much emphasis in product and service design and not enough on

improvement

• Neglec

ting investments in capital and human resources

• Failing

to establish good internal communications

• Failing

to consider customer wants and needs

Strategy

• Strategies

– Plans for achieving organizational goals

• Mission

– The reason for existence for an organization

• Mission Statement

– Answers the question “What business are we in?”

• Goals

– Provide detail and scope of mission

• Tactics

– The methods and actions taken to accomplish strategies

Mission/Strategy/Tactics

How does mission, strategies and tactics relate todecision making and distinctive competencies?

StrategyStrategy TacticsTacticsMissionMission

Strategy and Tactics

• Distinctive Competencies

The special attributes or abilities that give an organization a competitive edge.

– Price– Quality– Time– Flexibility– Service– Location

Planning and Decision Making

Mission

Goals

Organizational Strategies

Functional Goals

Finance Strategies

MarketingStrategies

OperationsStrategies

Tactics Tactics Tactics

Operatingprocedures

Operatingprocedures

Operatingprocedures

Operations Strategy

• Operations

strategy – The approach, consistent with organization strategy, which

is used to guide the operations function.

Strategy Formulation

• Distinctive

competencies

• Environmental

scanning

• SWOT

• Order qualifiers

Banks, ATMsConvenienceLocationLocation

DisneylandNordstroms

Superior customer service

ServiceService

Burger KingSupermarkets

VarietyVolume

FlexibilityFlexibility

Express Mail, Fedex,One-hour photo, UPS

Rapid deliveryOn-time delivery

TimeTime

Sony TVLexus, CadillacPepsi, Kodak, Motorola

High-performance design or high quality Consistent quality

QualityQuality

U.S. first-class postageMotel-6, Red Roof Inns

Low CostPricePrice

Examples of Distinctive Competencies

• Order winners


• Order qualifiers – Characteristics that customers perceive as minimum standards of acceptability to be considered as a potential purchase• Order winners– Characteristics of an organization’s goods or services that cause it to be perceived as better than the competition

Key External Factors

• Economic conditions• Political conditions• Legal environment• Technology• Competition• Markets

Key Internal Factors

• Human Resources• Facilities and equipment• Financial resources

• Customers• Products and services• Technology• Suppliers

Quality and Time Strategies

• Quality-based strategies– Focuses on maintaining or improving the quality of an organization’s products or services– Quality at the source• Time-based strategies– Focuses on reduction of time needed to accomplish tasks

Operations Strategy and Competitiveness

• Operations

Strategy

• A Framework

for Operations Strategy

• Meeting the

Competitive Challenge

• Productivity

Measurement

Operations Priorities

• Cost

• Quality

• Delivery Speed (Also, New Product Introduction Speed)

• Delivery Flexibility

• Greenness

• Delivery Reliability

• Coping with Changes in Demand

3

Operations Strategy – Strategic Alignment

Customer Needs Corporate Strategy

Operations Strategy

Alignment

CoreCompetencies

Decisions

Processes, Infrastructure, and Capabilities

• Other Product-Specific Criteria

OPERATIONS STRATEGY OBJECTIVES

u TRANSLATE MARKET REQ’M’TS TO SPECIFIC OPERATIONS PRIMARY MISSIONS

u ASSURE OPERATIONS IS CAPABLE TO ACCOMPLISH PRIMARY MISSION.

1) SEGMENT MARKET BY PRODUCT GROUPS2) IDENTIFY PRODUCT REQUIREMENTS3) DETERMINE ORDER WINNERS AND QUALIFIERS4) CONVERT ORDER WINNERS INTO SPECIFIC PERFORMANCE REQMTS

8

A Framework for Organizational Strategy

Customer Needs

New and CurrentProducts

Performance Prioritiesand Requirements

Quality, Dependability, Service

Speed, Flexibility, and Price

Operations & Supplier Capabilities

Technology PeopleSystems R&D CIM JIT TQM Distribution

Support Platforms

Financial Management Human Resource Management Information Management

Enterprise Capabilities

Strategic Vision

Elements of operation strategy

Positioning the production system

A. Product FocusedB. Process Focused

• Product / Service plans• Out sourcing plans• Process technology plans• Strategic allocation of resources• Facility plans

*Capacity plans*Location

Economic DEVELOPING PRODUCTION AND OPERATION STRATEGY

Corporate Mission

Assessment of business condition

Business StrategyDistinctive CompetenciesOr Weaknesses

Product / Service Plans

Competitive priorities

Cost, Time, Quality & Flexibility

Production / operation Strategy

Positioning the production systemProduct / service plansProcess and technology plansStrategic allocation of resourcesFacility Plan, Capacity Plan, Location and Layout.

PoliticalLegal

Social

Market Analysis

Competition

Worn out Prod. System

Automation

Skilled HR

Hi-tech Machines

Dis -advantage in capturing market

Low prod. costDelivery performanceHigh quality products & serviceCustomer service & Flexibility

*Layout

Productivity

A measure of the effective use of resources, usually expressed as the ratio of output to input Productivity ratios are used for Planning workforce requirements Scheduling equipmentfinancial analysis

MIT Commission on Industrial Productivity1985 Recommendations - Still Very Accurate Today

• Less emphasis on short-term financial payoffs and invest more in R&D.• Revise corporate strategies to include responses to foreign competition.– greater investment in people and equipment• Knock down communication barriers within organizations and recognize mutuality of interests with other companies and suppliers.

MIT Commission on Industrial Productivity1985 Recommendations

• Recognize that the labor force is a resource to be

nurtured, not just a cost to be avoided.

• Get back to basics in managing production/

operations.

– Build in quality at the design stage.

– Place more emphasis on process innovations

rather than focusing sole attention on product innovations -

dramatically improve costs, quality, speed, & flex.

U. S. Competitiveness Drivers

• Product/Service Development - NPD

– Teams speed development and enhance

manufacturability

• Waste Reduction (LEAN/JIT Philosophy)

– WIP, space, tool costs, and human effort

• Improved Customer-Supplier Relationships

– Look for Win-Win! Taken from Japanese Keiretsu

• Early Adoption of IT Technology Including

– PC Technology – WWW - ERPS

Productivity

• Partial measures

– output/(single input)

• Multi-factor measures

– output/(multiple inputs)

• Total measure

– output/(total inputs)

Productivity GrowthProductivity Growth

Current Period Productivity – Previous Period Productivity

Previous Period Productivity

Productivity Growth =

Units of output per kilowatt-hourDollar value of output per kilowatt-hour

Energy Productivity

Units of output per dollar inputDollar value of output per dollar input

Capital Productivity

Units of output per machine hourmachine hour

Machine Productivity

Units of output per labor hourUnits of output per shiftValue-added per labor hour

Labor Productivity

Examples of Partial Productivity Examples of Partial Productivity MeasuresMeasures

Factors Affecting Productivity

Capital

Quality

Technology Management

Other Factors Affecting Productivity

• Standardization• Quality• Use of Internet• Computer viruses• Searching for lost or misplaced items• Scrap rates• New workers• Safety• Shortage of IT workers• Layoffs• Labor turnover• Design of the workspace• Incentive plans that reward productivity

Improving Productivity

• Develop

productivity measures

• Determine critical

(bottleneck) operations

• Develop methods

for productivity improvements

• Establish

reasonable goals

• Get management

support

• Measure and

publicize improvements

• Don’t confuse

productivity with efficiency

MODULE 2

Typical Phases of Product Development

• Planning• Concept Development• System-Level Design• Design Detail• Testing and Refinement• 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

Quality FunctionDeployment

Value Analysis/Value Engineering

Ideal Customer Product

House of Quality

Designing for the Customer: Quality Function Deployment

• Interventional teams from marketing, design engineering, and manufacturing• Voice of the customer• House of Quality

Designing for the Customer: Value Analysis/Value Engineering

• Achieve equivalent or better performance at a lower cost while maintaining all functional requirements defined by the customer

– Does the item have any design features that are not necessary?– Can two or more parts be combined into one?– How can we cut down the weight?– Are there nonstandard parts that can be eliminated?

Design for Manufacturability• Traditional Approach– “We design it, you build it” or “Over the wall”

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:

• During the operation of the product, does the part move relative to all other parts already assembled?

• Must the part be of a different material or be isolated from other parts already assembled?

• Must the part be separate from all other parts to allow the disassembly of the product for adjustment or maintenance?

Product Design

• Standard parts

• Modular design

• Highly capable production systems

• Concurrent

engineering

Measuring Product Development Performance

Measures

Freq. of new products introducedTime to market introductionNumber stated and number completedActual versus planPercentage of sales from new products

Freq. of new products introducedTime to market introductionNumber stated and number completedActual versus planPercentage of sales from new products

Time-to-marketTime-to-market

ProductivityProductivity

QualityQuality

Engineering hours per projectCost of materials and tooling per projectActual versus plan

Engineering hours per projectCost of materials and tooling per projectActual versus plan

Conformance-reliability in useDesign-performance and customer satisfactionYield-factory and field

Conformance-reliability in useDesign-performance and customer satisfactionYield-factory and field

Performance Dimension

Process Design

• Small lot sizes• Setup time reduction• Manufacturing cells• Limited work in process• Quality improvement• Production flexibility• Little inventory storage

Production Flexibility

• Reduce downtime by reducing changeover time• Use preventive maintenance to reduce breakdowns• Cross-train workers to help clear bottlenecks• Use many small units of capacity• Use off-line buffers• Reserve capacity for important customers

Benefits of Small Lot Sizes

Reduces inventory

Less storage space

Less rework

Problems are more apparent

Increases product flexibilityEasier to balance

operations

Quality Improvement

• Autonomation – Automatic detection of defects during production

• Jidoka– Japanese term for autonomation

Personnel/Organizational Elements

• Workers as assets• Cross-trained workers• Continuous improvement• Cost accounting• Leadership/project management

Manufacturing Planning and Control

• Level loading• Pull systems• Visual systems• Close vendor relationships• Reduced transaction processing• Preventive maintenance

Pull/Push Systems

• Pull system : System for moving work where a workstation pulls output from the preceding station as needed. (e.g. Kanban)

• Push system : System for moving work where output is pushed to the next station as it is completed

Kanban Production Control System

• Kanban : Card or other device that communicates demand for work or materials from the preceding station

• Kanban is the Japanese word meaning “signal” or “visible record”

• Paperless production control system

• Authority to pull, or produce comes from a downstream process.

Kanban Formula

N = Total number of containers

D = Planned usage rate of using work center

T = Average waiting time for replenishment of parts plus average production time for a container of parts

X = Policy variable set by management - possible inefficiency in the system

C = Capacity of a standard container

N = DT(1+X)C

Traditional Supplier NetworkTraditional Supplier Network

BuyerBuyer

Supplier

Supplier

Supplier

Supplier Suppl

ierSuppl

ierSuppl

ierSuppl

ier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Product and Service Design

• Major factors in design strategy

– Cost– Quality– Time-to-market– Customer satisfaction– Competitive advantage

Product and service design – or redesign – should be closely tied to an organization’s strategy

Product or Service Design Activities

• Translate customer wants and needs into product and service

requirements

• Refine existing products and services

• Develop new products and services

• Formulate quality goals

• Formulate cost targets

• Construct and test prototypes

• Document specifications

Reasons for Product or Service Design

• Economic• Social and demographic• Political, liability, or legal

• Competitive• Technological

Objectives of Product and Service Design

• Main focus– Customer satisfaction

• Secondary focus– Function of product/service– Cost/profit– Quality– Appearance– Ease of production/assembly– Ease of maintenance/service

Designing For Operations

Taking into account the capabilities of the organization in designing goods and services

Legal, Ethical, and Environmental Issues

• Legal– Product liability– Uniform commercial code

• Ethical– Releasing products with defects

• Environmental– EPA

Regulations & Legal Considerations

• Product Liability - A manufacturer is liable for any injuries or damages caused by a faulty product.

• Uniform Commercial Code - Products carry an implication of merchantability and fitness.

Standardization

• Standardization – Extent to which there is an absence of variety in a product, service or process

• Standardized products are immediately available to customers

Advantages of Standardization

• Fewer parts to deal with in inventory & manufacturing• Design costs are generally lower• Reduced training costs and time• More routine purchasing, handling, and inspection procedures• Orders fallible from inventory• Opportunities for long production runs and automation• Need for fewer parts justifies increased expenditures on perfecting designs and improving quality control procedures.

Disadvantages of Standardization

• Designs may be frozen with too many imperfections remaining.• High cost of design changes increases resistance to improvements.• Decreased variety results in less consumer appeal.

• Mass customization:– A strategy of producing standardized goods or services, but incorporating some degree degree of customization– Delayed differentiation– Modular design

Delayed Differentiation• Delayed differentiation is a postponement tactic– Producing but not quite completing a product or service until customer preferences or specifications are known

Modular Design

Modular design is a form of standardization in which component parts are subdivided into modules that are easily replaced or interchanged. It allows:– easier diagnosis and remedy of failures– easier repair and replacement – simplification of manufacturing and assembly

Reliability

• Reliability : The ability of a product, part, or system to perform its intended function under a prescribed set of conditions• Failure : Situation in which a product, part, or system does not perform as intended• Normal operating conditions : The set of conditions under which an item’s reliability is specified

Improving Reliability

• Component design• Production/assembly techniques• Testing• Redundancy/backup• Preventive maintenance procedures• User education• System design

Product Design

• Product Life Cycles• Robust Design• Concurrent Engineering

• Computer-Aided Design• Modular Design

Robust Design: Design that results in products or services that can function over a broad range of conditions

Taguchi Approach Robust Design

• Design a robust product– Insensitive to environmental factors either in manufacturing or in use.

• Central feature is Parameter Design.

• Determines:– factors that are controllable and those not controllable– their optimal levels relative to major product advances

Degree of Newness

• Modification of an existing product/service• Expansion of an existing product/service• Clone of a competitor’s product/service• New product/service

Degree of Design ChangeType of Design Change

Newness of the organization

Newness to the market

Modification Low Low

Expansion Low Low

Clone High Low

New High High

Phases in Product Development Process

1. Idea generation

2. Feasibility analysis

3. Product specifications

4. Process specifications

5. Prototype development

6. Design review

7. Market test

8. Product introduction

9. Follow-up evaluation

Idea Generation

Ideas Competitor based

Supply chain based

Research based

Reverse Engineering

Reverse engineering is the dismantling and inspecting of a competitor’s product to discover product improvements.

Research & Development (R&D)

• Organized efforts to increase scientific knowledge or product innovation & may involve:

– Basic Research advances knowledge about a subject without near-term expectations of commercial applications.

– Applied Research achieves commercial applications. – Development converts results of applied research into

commercial applications.

Manufacturability

• Manufacturability is the ease of fabrication and/or assembly which is important for:

– Cost– Productivity– Quality

Designing for Manufacturing Beyond the overall objective to achieve customer satisfaction while making a reasonable profit is:

Design for Manufacturing (DFM)

The designers’ consideration of the organization’s manufacturing capabilities when designing a product.The more general term design for operations encompasses services as well as manufacturing

Concurrent Engineering

Concurrent engineering is the bringing together of engineering design and manufacturing personnel early in the design phase.

Computer-Aided Design

• Computer-Aided Design (CAD) is product design using computer graphics.

– increases productivity of designers, 3 to 10 times– creates a database for manufacturing information on

product specifications– provides possibility of engineering and cost analysis on

proposed designs

Product design

• Design for manufacturing (DFM)• Design for assembly (DFA)• Design for recycling (DFR)• Remanufacturing• Design for disassembly (DFD)• Robust design

Recycling

• Recycling: recovering materials for future use• Recycling reasons– Cost savings– Environment concerns– Environment regulations

Service Design

• Service is an act

• Service delivery system– Facilities– Processes– Skills• Many services are bundled with products

• Service design involves– The physical resources needed– The goods that are purchased or consumed by the customer– Explicit services– Implicit services

• Service– Something that is done to or for a customer

• Service delivery system– The facilities, processes, and skills needed to provide a service

• Product bundle– The combination of goods and services provided to a customer

• Service package– The physical resources needed to perform the service

Differences between Product and Service Design

• Tangible – intangible

• Services created and delivered at the same time• Services cannot be inventoried• Services highly visible to customers• Services have low barrier to entry• Location important to service

Phases in Service Design

• Conceptualize• Identify service package components• Determine performance specifications• Translate performance specifications into design specifications• Translate design specifications into delivery specifications

Service Blueprinting

• Service blueprinting– A method used in service design to describe and analyze a proposed service

• A useful tool for conceptualizing a service delivery system

Major Steps in Service Blueprinting

• Establish boundaries

• Identify steps involved• Prepare a flowchart• Identify potential failure points• Establish a time frame• Analyze profitability

Characteristics of Well Designed Service Systems

• Consistent with the organization mission• User friendly• Robust• Easy to sustain• Cost effective• Value to customers• Effective linkages between back operations• Single unifying theme• Ensure reliability and high quality

Challenges of Service Design

• Variable requirements• Difficult to describe• High customer contact• Service – customer encounter

Quality Function Deployment

• Quality Function

Deployment

– Voice of the customer

– House of quality

QFD: An approach that integrates the “voice of the customer” into the

product and service development process.

Operations Strategy

1. Increase emphasis on component commonality

2. Package products and services

3. Use multiple-use platforms

4. Consider tactics for mass customization

5. Look for continual improvement

6. Shorten time to market

Shorten Time to Market

1. Use standardized components

2. Use technology

3. Use concurrent engineering

Process Selection

• Variety– How much

• Flexibility

– What degree• Volume

– Expected output

Process Types

• Job shop– Small scale

• Batch– Moderate volume

• Repetitive/assembly line– High volumes of standardized goods or services

• Continuous– Very high volumes of non-discrete goods

Process design

The complete delineation and description of specific steps in the

production process and the linkage among the steps that will enable

the production system to produce products of the

• desired quality

• required quantity

• at required time

• at the economical cost

Expected by the customer

Types of Process

• Project

• Job Shop

• Batch

• Assembly line

• Continuous

Process Design Interrelationship of Product and Process

Design

Feasibility StudiesFeasibility Studies

Product IdeaProduct Idea

Product DesignProduct DesignProcess DesignProcess Design

Advanced Product PlanningAdvanced Design

Production Process DesignProduct evaluation and improvement

Product use and support

Advanced Product PlanningAdvanced Design

Production Process DesignProduct evaluation and improvement

Product use and support

Organizing the process flowRelation of process Design to

process FlowEvaluating the Process Design

Organizing the process flowRelation of process Design to

process FlowEvaluating the Process Design

To Produce and Market New ProductsTo Produce and Market New Products

Production Technology

• The method or Technique used in Converting the Raw material

into SFG or FG Economically, Effectively and efficiently is

termed as Production Technology.

The Selection of Technology

• Time

• Cost

• Type of Product

• Volume of production

• Expected Productivity

• Technical Complexity involved

• Degree of Human skill required

• Degree of Quality required

• Availability of Technology

• The Degree of Obsolescence expected.

MODULE 3

Facility Planning

• Long range capacity planning,

• Facility location

• Facility layout

Strategic Capacity Planning

Defined

• Capacity can be defined as the ability to hold, receive, store, or

accommodate.

• Strategic capacity planning is an approach for determining

the overall capacity level of capital intensive resources,

including facilities, equipment, and overall labor force size.

Capacity Utilization

Capacity utilization rate = Capacity used Best operating level

• Capacity used

– rate of output actually achieved

• Best operating level

– capacity for which the process was designed

Example of Capacity Utilization

• During one week of production, a plant produced 83 units of a

product. Its historic highest or best utilization recorded was 120

units per week. What is this plant’s capacity utilization rate?

• Answer:

Capacity utilization rate = Capacity used .

Best operating level

= 83/120

=0.69 or 69%

Best Operating Level

Underutilization

Best OperatingLevel

Averageunit costof output

Volume

Overutilization

Economies & Diseconomies of Scale

100-unitplant

200-unitplant 300-unit

plant

400-unitplant

Volume

Averageunit costof output

Economies of Scale and the Experience Curve working

Diseconomies of Scale start working

Capacity Focus

• The concept of the focused factory holds that production

facilities work best when they focus on a fairly limited set of

production objectives.

• Plants Within Plants (PWP) (from Skinner)

– Extend focus concept to operating level

Capacity Flexibility

• Flexible plants

• Flexible processes

• Flexible workers

The Experience Curve

Total accumulated production of units

Cost orpriceper unit

As plants produce more products, they gain experience in the best production methods and reduce their costs per unit.

Capacity Planning

• Frequency of Capacity Additions• External Sources of Capacity

Determining Capacity Requirements

• Forecast sales within each individual product line.• Calculate equipment and labor requirements to meet the

forecasts.• Project equipment and labor availability over the planning

horizon.

Capacity Planning: Balance

Maintaining System Balance

Stage 1 Stage 2 Stage 3

Unitsper

month

6,000 7,000 4,500

Example of Capacity Requirements

A manufacturer produces two lines of mustard, Fancy Fine and Generic line. Each is sold in small and family-size plastic bottles.

The following table shows forecast demand for the next four years.

Year: 1 2 3 4FancyFine

Small (000s) 50 60 80 100Family (000s) 35 50 70 90Generic

Small (000s) 100 110 120 140Family (000s) 80 90 100 110

Example of Capacity Requirements: Equipment and Labor Requirements

Year: 1 2 3 4Small (000s) 150 170 200 240Family (000s) 115 140 170 200

Three 100,000 units-per-year machines are available for small-bottle

production. Two operators required per machine.

Two 120,000 units-per-year machines are available for family-sized-

bottle production. Three operators required per machine.

5-16 Capacity Planning


Small Mach. Cap. 300,000 Labor 6Family-size Mach. Cap. 240,000 Labor 6

Small

Percent capacity used 50.00%Machine requirement 1.50Labor requirement 3.00Family-size

Percent capacity used 47.92%Machine requirement 0.96Labor requirement 2.88

Question: What are the Year 1 values for capacity, machine, and labor?

150,000/300,000=50% At 1 machine for 100,000, it takes 1.5 machines for 150,000

At 2 operators for 100,000, it takes 3 operators for 150,000

©The McGraw-Hill Companies, Inc., 2001

16

5-17 Capacity Planning


Small Mach. Cap. 300,000 Labor 6Family-size Mach. Cap. 240,000 Labor 6

Small

Percent capacity used 50.00%Machine requirement 1.50Labor requirement 3.00Family-size

Percent capacity used 47.92%Machine requirement 0.96Labor requirement 2.88

Question: What are the values for columns 2, 3 and 4 in the table below?

56.67%1.703.40

58.33%1.173.50

66.67%2.004.00

70.83%1.424.25

80.00%2.404.80

83.33%1.675.00

17

©The McGraw-Hill Companies, Inc., 2001

Planning Service Capacity

• Time• Location• Volatility of Demand

Capacity Utilization & Service Quality

• Best operating point is near 70% of capacity• From 70% to 100% of service capacity, what do you think

happens to service quality?

Capacity Planning

• Capacity is the upper limit or ceiling on the load that an operating unit can handle.

• The basic questions in capacity handling are:– What kind of capacity is needed?– How much is needed?– When is it needed?

Importance of Capacity Decisions

1. Impacts ability to meet future demands

2. Affects operating costs

3. Major determinant of initial costs

4. Involves long-term commitment

5. Affects competitiveness

6. Affects ease of management

7. Globalization adds complexity

8. Impacts long range planning

Capacity

• Design capacity– maximum output rate or service capacity an operation,

process, or facility is designed for• Effective capacity

– Design capacity minus allowances such as personal time, maintenance, and scrap

• Actual output– rate of output actually achieved--cannot

exceed effective capacity.

Efficiency and UtilizationActual output

Efficiency =Effective capacity

Actual outputUtilization =

Design capacityBoth measures expressed as percentages

Determinants of Effective Capacity

• Facilities

• Product and service factors

• Process factors

• Human factors

• Operational factors

• Supply chain factors

• External factors


• Capacity strategy for long-term demand• Demand patterns• Growth rate and variability• Facilities

– Cost of building and operating• Technological changes

– Rate and direction of technology changes• Behavior of competitors• Availability of capital and other inputs

Key Decisions of Capacity Planning

1. Amount of capacity needed2. Timing of changes3. Need to maintain balance4. Extent of flexibility of facilities

Capacity cushion – extra demand intended to offset uncertainty

Steps for Capacity Planning

1. Estimate future capacity requirements

2. Evaluate existing capacity

3. Identify alternatives

4. Conduct financial analysis

5. Assess key qualitative issues

6. Select one alternative

7. Implement alternative chosen

8. Monitor results

Make or Buy

1. Available capacity

2. Expertise

3. Quality considerations

4. Nature of demand

5. Cost

6. Risk

Developing Capacity Alternatives

1. Design flexibility into systems

2. Take stage of life cycle into account

3. Take a “big picture” approach to capacity changes

4. Prepare to deal with capacity “chunks”

5. Attempt to smooth out capacity requirements

6. Identify the optimal operating level

Economies of Scale

• Economies of scale

– If the output rate is less than the optimal level, increasing

output rate results in decreasing average unit costs

• Diseconomies of scale

– If the output rate is more than the optimal level, increasing

the output rate results in increasing average unit costs

Evaluating Alternatives

Minimumcost

Ave

rag

e co

st p

er

un

it

0 Rate of output

Production units have an optimal rate of output for minimal cost.

Minimum average cost per unit

Evaluating AlternativesMinimum cost & optimal operating rate are

functions of size of production unit.

Ave

rag

e co

st p

er u

nit

0

Smallplant Medium

plant Largeplant

Output rate

Planning Service Capacity

• Need to be near customers

– Capacity and location are closely tied

• Inability to store services

– Capacity must be matched with timing of demand

• Degree of volatility of demand

– Peak demand periods

Assumptions of Cost-Volume Analysis

1. One product is involved

2. Everything produced can be sold

3. Variable cost per unit is the same regardless of volume

4. Fixed costs do not change with volume

5. Revenue per unit constant with volume

6. Revenue per unit exceeds variable cost per unit

Financial Analysis

• Cash Flow - the difference between cash received from sales

and other sources, and cash outflow for labor, material,

overhead, and taxes.

• Present Value - the sum, in current value, of all future cash

flows of an investment proposal.

Calculating Processing Requirements

Location Planning and Analysis

Need for Location Decisions

• Marketing Strategy

• Cost of Doing Business

• Growth

• Depletion of Resources

Product

Annual

Demand

Standard processing time

per unit (hr.)

Processing time

needed (hr.)

#1

#2

#3

400

300

700

5.0 8.0 2.0

2,000 2,400 1,400 5,800

Product

Annual

Demand


per unit (hr.)

Processing time

needed (hr.)

#1

#2

#3

400

300

700

5.0 8.0 2.0

2,000 2,400 1,400 5,800

Nature of Location Decisions

• Strategic Importance– Long term commitment/costs– Impact on investments, revenues, and operations– Supply chains

• Objectives– Profit potential– No single location may be better than others– Identify several locations from which to choose

• Options– Expand existing facilities– Add new facilities– Move

Making Location Decisions

• Decide on the criteria• Identify the important factors• Develop location alternatives• Evaluate the alternatives• Make selection

Location Decision Factors

1. Regional Factors• Location of raw materials• Location of markets• Labor factors• Climate and taxes

2. Community Considerations• Quality of life• Services• Attitudes• Taxes• Environmental regulations• Utilities • Developer support

3. Multiple Plant Strategies

• Product plant strategy

• Market area plant strategy

• Process plant strategy

4. Site-related Factors

• Land

• Transportation

• Environmental

• Legal

Comparison of Service and Manufacturing Considerations

Manufacturing/Distribution Service/Retail

Cost Focus Revenue focus

Transportation modes/costs Demographics: age,income,etc

Energy availability, costs Population/drawing area

Labor cost/availability/skills Competition

Building/leasing costs Traffic volume/patterns

Customer access/parking

Evaluating Locations• Cost-Profit-Volume Analysis

– Determine fixed and variable costs– Plot total costs– Determine lowest total costs

Location Cost-Volume Analysis• Assumptions

– Fixed costs are constant– Variable costs are linear– Output can be closely estimated– Only one product involved

Evaluating Locations• Transportation Model

– Decision based on movement costs of raw materials or finished goods

• Factor Rating– Decision based on quantitative and qualitative inputs

• Center of Gravity Method– Decision based on minimum distribution costs

Facility Layout

Layout: the configuration of departments, work centers, and

equipment, with particular emphasis on movement of work

(customers or materials) through the system

Importance of Layout Decisions• Requires substantial investments of money and effort• Involves long-term commitments• Has significant impact on cost and efficiency of short-term

operations

The Need for Layout Decisions

Basic Layout Types

Inefficient operationsFor Example:

High CostBottlenecks

Changes in the designof products or services

The introduction of newproducts or services

Accidents

Safety hazards

Changes inenvironmentalor other legalrequirements

Changes in volume of

output or mix ofproducts

Changes in methods

and equipment

Morale problems

The Need for Layout Design

• Product layouts

• Process layouts

• Fixed-Position layout

• Combination layouts

Basic Layout Types• Product layout

– Layout that uses standardized processing operations to achieve smooth, rapid, high-volume flow

• Process layout– Layout that can handle varied processing requirements

• Fixed Position layout– Layout in which the product or project remains stationary,

and workers, materials, and equipment are moved as needed

Advantages of Product Layout

Advantages of Product Layout

Raw materialsor customer

Finished itemStation

2

Station 2

Station 3

Station 3

Station 4

Station 4

Material and/or labor

Station 1




Used for Repetitive or Continuous Processing

Figure 6.4 Product Layout

• High rate of output• Low unit cost• Labor specialization• Low material handling cost• High utilization of labor and equipment• Established routing and scheduling• Routing accounting and purchasing

Disadvantages of Product Layout

• Creates dull, repetitive jobs• Poorly skilled workers may not maintain equipment or quality of

output• Fairly inflexible to changes in volume• Highly susceptible to shutdowns• Needs preventive maintenance• Individual incentive plans are impractical

Dept. A

Dept. B Dept. D

Dept. C

Dept. F

Dept. E

Used for intermittent processingJob Shop or Batch

Process Layout(functional)

Figure 6.7 Process Layout

Advantages of Process Layouts• Can handle a variety of processing requirements• Not particularly vulnerable to equipment failures• Equipment used is less costly• Possible to use individual incentive plans

Disadvantages of Process Layouts• In-process inventory costs can be high• Challenging routing and scheduling• Equipment utilization rates are low• Material handling slow and inefficient• Complexities often reduce span of supervision• Special attention for each product or customer• Accounting and purchasing are more involved

Cellular Layouts• Cellular Production

– Layout in which machines are grouped into a cell that can process items that have similar processing requirements

• Group Technology– The grouping into part families of items with similar design

or manufacturing characteristics

Work Station 1

Work Station 2

Work Station 3

Product Layout(sequential)

Used for Repetitive ProcessingRepetitive or Continuous

Product Layout

Functional vs. Cellular Layouts

Dimension Functional Cellular

Number of moves between departments

many few

Travel distances longer shorterTravel paths variable fixedJob waiting times greater shorterThroughput time higher lowerAmount of work in process

higher lower

Supervision difficulty

higher lower

Scheduling complexity

higher lower

Equipment utilization

lower higher

Other Service Layouts

• Warehouse and storage layouts

• Retail layouts

• Office layouts

Design Product Layouts: Line Balancing

Line Balancing is the process of assigning tasks to workstations in

such a way that the workstations have approximately

equal time requirements.

Cycle Time

Cycle time is the maximum time allowed at each workstation to

complete its set of tasks on a unit.

Determine Maximum Output

Determine the Minimum Number of Workstations Required

Calculate Percent Idle Time

Efficiency = 1 – Percent idle time

Designing Process Layouts

Information Requirements:

1. List of departments

2. Projection of work flows

3. Distance between locations

4. Amount of money to be invested

5. List of special considerations

6. Location of key utilities

Process Layout - work travels to dedicated process centers

Milling

Assembly

& Test

Grinding

Drilling

Plating

Process Layout

MODULE 4 (08 Hours)Capacity Management:Job Design, Ergonomics, Methods Study and Work Measurement, Employee Productivity, Learning Curve, Short-term Capacity Planning Aggregate planning and Capacity requirement planning (Problems in Work Measurement and Short term Capacity Planning)

Design of Work Systems

Job Design, Ergonomics,Methods Study and Work Measurement,

Employee Productivity,

Job Design• Job design involves specifying the content and methods of job

– What will be done– Who will do the job– How the job will bob will be done– Where the job will be done– Ergonomics

Design of Work Systems• Specialization• Behavioral Approaches to Job Design• Teams• Methods Analysis• Motions Study• Working conditions

Job Design SuccessSuccessful Job Design must be:

• Carried out by experienced personnel with the necessary training and background• Consistent with the goals of the organization• In written form• Understood and agreed to by both management and employees

Specialization in Business: AdvantagesTable 7.1

Disadvantages

Behavioral Approaches to Job Design• Job Enlargement

– Giving a worker a larger portion of the total task by horizontal loading• Job Rotation

– Workers periodically exchange jobs• Job Enrichment

– Increasing responsibility for planning and coordination tasks, by vertical loading

For Management:1. Simplifies

training2. High productivity3. Low wage costs

For Labor:

1. Low education andskill requirements2

. Minimumresponsibilities3

. Little mental effortneeded

For Management:

1. Difficult to motivatequality

2. Worker dissatisfaction,possibly resulting inabsenteeism, highturnover, disruptivetactics, poor attentionto quality

For Labor:1. Monotonous work

2. Limited opportunitiesfor advancement

3. Little control over work

4. Little opportunity forself-fulfillment

Motivation and Trust• Motivation

– Influences quality and productivity– Contributes to work environment

• Trust– Influences productivity and employee-management relations

Teams• Benefits of teams

– Higher quality– Higher productivity– Greater worker satisfaction

• Self-directed teams– Groups of empowered to make certain changes in their work process

Methods Analysis• Methods analysis

– Analyzing how a job gets done– Begins with overall analysis– Moves to specific details

Methods AnalysisThe need for methods analysis can come from a number of different sources:

• Changes in tools and equipment• Changes in product design

or new products• Changes in materials or procedures• Other factors (e.g. accidents, quality problems)

Methods Analysis Procedure1. Identify the operation to be studied2. Get employee input3. Study and document current method4. Analyze the job5. Propose new methods6. Install new methods7. Follow-up to ensure improvements have been achieved

Analyzing the Job• Flow process chart

– Chart used to examine the overall sequence of an operation by focusing on movements of the operator or flow of materials

• Worker-machine chart– Chart used to determine portions of a work cycle during which an operator

and equipment are busy or idle

Motion StudyMotion study is the systematic study of the human motions used to perform an operation.

Motion Study Techniques• Motion study principles - guidelines for designing motion-efficient work

procedures• Analysis of therbligs - basic elemental motions into which a job can be broken

down• Micromotion study - use of motion pictures and slow motion to study motions that

otherwise would be too rapid to analyze• Charts

Developing Work Methods1. Eliminate unnecessary motions2. Combine activities3. Reduce fatigue4. Improve the arrangement of the workplace5. Improve the design of tools and equipment

FLOW PROCESS CHARTJob Requisition of petty cash

Details of Method

ANALYST D. Kolb

PAGE1 of 2

Op

erat

ion

M

ove

men

t

Insp

ecti

on

Del

ay

Sto

rag

e

Requisition made by department headPut in “pick-up” basketTo accounting departmentAccount and signature verifiedAmount approved by treasurerAmount counted by cashierAmount recorded by bookkeeperPetty cash sealed in envelopePetty cash carried to departmentPetty cash checked against requisitionReceipt signedPetty cash stored in safety box

Figure 7-2

Working Conditions

Work Measurement • Standard time• Stopwatch time study• Historical times• Predetermined data• Work Sampling

Temperature & Humidity

Ventilation

Illumination

Color

Noise & Vibration

Causes of AccidentsSafety

Work Breaks

Compensation• Time-based system

– Compensation based on time an employee has worked during a pay period• Output-based (incentive) system

– Compensation based on the amount of output an employee produces during a pay period

Form of Incentive Plan• Accurate• Easy to apply• Consistent• Easy to understand• Fair

Compensation• Individual Incentive Plans• Group Incentive Plans• Knowledge-Based Pay System• Management Compensation

Learning Curves• Learning curves : the time required to perform a task decreases with increasing

repetitions

Learning Effect

Tim

e p

er r

epet

itio

n

Number of repetitions

Learning with Improvements

Applications of Learning Curves1. Manpower planning and scheduling2. Negotiated purchasing3. Pricing new products4. Budgeting, purchasing, and inventory planning5. Capacity Planning

Worker Learning Curves

Cautions and Criticisms

Tim

e p

er u

nit

Time

Average Improvements may create ascallop effect in the curve.

A (underqualified)

B (average)

C (overqualified)

Tim

e/cy

cles

One week

Standard time

Training time

• Learning rates may differ from organization to organization• Projections based on learning curves should be viewed as approximations• Estimates based the first unit should be checked for valid times• At some point the curve might level off or even tip upward• Some improvements may be more apparent than real• For the most part, the concept does not apply to mass production

Aggregate Planning• Operations Planning Overview• The hierarchical planning process • Aggregate production planning • Examples: Chase and Level strategies

Operations Planning Overview• Long-range planning

– Greater than three year planning horizon– Usually with yearly increments

• Intermediate-range planning– 1 to 3 years – Usually with monthly or quarterly increments

• Short-range planning– One year – Usually with weekly increments

Master Production SchedulingProduct/Service Schedule

Resource Requirements PlanningMat’ls, Capacity, Manpower

Order SchedulingProduction/Purchases

Workforce &Customer Scheduling

Daily Workforce &Customer Scheduling

Strategic Planning

Sales Planning

Aggregate Planning

Long-range

Intermediate-range

Short-range

Hierarchical Production Planning

Aggregate Planning• Goal: 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)• Intermediate-range planning period: 6-18 months

Balancing Aggregate Demand and Aggregate Production Capacity

Annual demand byitem and by region

Monthly demandfor 15 months by

product type

Monthly demandfor 5 months by

item

Forecasts needed

Allocatesproduction

among plants

Determinesseasonal plan by

product type

Determines monthly

item productionschedules

Decision ProcessDecision Level

Corporate

Plant manager

Shopsuperintendent

Exhibit 12.2Exhibit 12.2

Key Strategies for Meeting Demand• Chase• Level • Some combination of the two

STRATEGIES ACTIVE WRT DEMAND• USE MARKETING TO SMOOTH DEMAND • EXAMPLES• PRICE

• PRODUCT

• PLACE

• PROMOTION

Proactive Demand Management to Equate Supply and Demand

0

2000

4000

6000

8000

10000

Jan Feb Mar Apr May Jun

45005500

7000

10000

8000

6000

0

2000

4000

6000

8000

10000

Jan Feb Mar Apr May Jun

4500 4000

90008000

4000

6000

Suppose the figure to the right represents forecast demand in units.

Now suppose this lower figure represents the aggregate capacity of the company to meet demand.

What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up.

Proactive Demand Management to Equate Supply and Demand

Jason Enterprises Aggregate Planning Examples: Unit Demand and Cost Data

0

2000

4000

6000

8000

10000

0

2000

4000

6000

8000

10000

SEASONAL DEMAND - SNOW SKIIS

CONTRA-SEASONAL DEMAND -_______________

0

2000

4000

6000

8000

10000

0

2000

4000

6000

8000

10000

CYCLICAL DEMAND - NEW CARS

CONTRA-CYCLICAL DEMAND -__________________

Capacity Planning• Capacity is the upper limit or ceiling on the load that an operating unit can handle.• The basic questions in capacity handling are:

– What kind of capacity is needed?– How much is needed?– When is it needed?

Importance of Capacity Decisions1. Impacts ability to meet future demands2. Affects operating costs3. Major determinant of initial costs4. Involves long-term commitment5. Affects competitiveness6. Affects ease of management7. Globalization adds complexity8. Impacts long range planning

Capacity• Design capacity

Materials $100/unitHolding costs $10/unit per mo.Marginal cost of stockout $20/unit per mo.Hiring and training cost $50/workerLayoff costs $100/workerLabor hours required . 4 hrs/unitStraight time labor cost/OT $12.50/18.75/hourBeginning inventory 200 unitsProductive hours/worker/day 8.00Paid straight hrs/day 8

Suppose we have the following unit demand and cost information:

Demand/mo Jan Feb Mar Apr May Jun500 600 650 800 900 800

Days per month 22 19 21 21 22

– maximum output rate or service capacity an operation, process, or facility is designed for

• Effective capacity– Design capacity minus allowances such as personal time, maintenance,

and scrap• Actual output

– rate of output actually achieved--cannot exceed effective capacity.

Efficiency and UtilizationActual output

Efficiency =Effective capacity

Actual outputUtilization =

Design capacity

Both measures expressed as percentages

Efficiency/Utilization Example

Determinants of Effective Capacity• Facilities

Actual output = 36 units/day Efficiency = = 90%

Effective capacity 40 units/ day

Utilization = Actual output = 36 units/day = 72%

Design capacity 50 units/day

Design capacity = 50 trucks/dayEffective capacity = 40 trucks/dayActual output = 36 units/day

• Product and service factors• Process factors• Human factors• Operational factors• Supply chain factors• External factors

Strategy Formulation• Capacity strategy for long-term demand• Demand patterns• Growth rate and variability• Facilities

– Cost of building and operating• Technological changes

– Rate and direction of technology changes• Behavior of competitors• Availability of capital and other inputs

Key Decisions of Capacity Planning1. Amount of capacity needed2. Timing of changes3. Need to maintain balance4. Extent of flexibility of facilities

Capacity cushion – extra demand intended to offset uncertainty

Steps for Capacity Planning1. Estimate future capacity requirements2. Evaluate existing capacity3. Identify alternatives4. Conduct financial analysis5. Assess key qualitative issues6. Select one alternative7. Implement alternative chosen8. Monitor results

Make or Buy1. Available capacity2. Expertise3. Quality considerations4. Nature of demand5. Cost6. Risk

Developing Capacity Alternatives 1. Design flexibility into systems

2. Take stage of life cycle into account3. Take a “big picture” approach to capacity changes4. Prepare to deal with capacity “chunks”5. Attempt to smooth out capacity requirements6. Identify the optimal operating level

Economies of Scale• Economies of scale

– If the output rate is less than the optimal level, increasing output rate results in decreasing average unit costs

• Diseconomies of scale– If the output rate is more than the optimal level, increasing the output rate

results in increasing average unit costs



Minimumcost

Ave

rag

e co

st p

er

un

it

0 Rate of output

Production units have an optimal rate of output for minimal cost.

Figure 5.3

Minimum average cost per unit

Planning Service Capacity• Need to be near customers

– Capacity and location are closely tied• Inability to store services

– Capacity must be matched with timing of demand • Degree of volatility of demand

– Peak demand periods

Cost-Volume Relationships

Minimum cost & optimal operating rate are functions of size of production unit.

Ave

rag

e co

st p

er u

nit

0

Smallplant Medium

plant Largeplant

Output rate

Figure 5.4


Am

ou

nt

($)

0Q (volume in units)

Total cost = VC + FC

Total variable cost (V

C)

Fixed cost (FC)


Break-Even Problem with Step Fixed Costs

Am

ou

nt

($)

Q (volume in units)

0

Tota

l revenue

Am

ou

nt

($)

Q (volume in units)0 BEP units

Profit

Tota

l rev

enue

Total cost

Quantity

FC + VC = TC

FC + VC = TC

FC + VC = TC

Step fixed costs and variable costs.

1 machine

2 machines

3 machines

Break-Even Problem with Step Fixed Costs

Assumptions of Cost-Volume Analysis1. One product is involved2. Everything produced can be sold3. Variable cost per unit is the same regardless of volume4. Fixed costs do not change with volume5. Revenue per unit constant with volume6. Revenue per unit exceeds variable cost per unit

Financial Analysis• Cash Flow - the difference between cash received from sales and other sources,

and cash outflow for labor, material, overhead, and taxes.• Present Value - the sum, in current value, of all future cash flows of an investment

proposal.

Calculating Processing Requirements

$

TC

TC

TCBE

P2

BEP3

TR

Quantity

1

2

3

Multiple break-even points

Product

Annual

Demand


per unit (hr.)

Processing time

needed (hr.)

#1

#2

#3

400

300

700

5.0 8.0 2.0

2,000 2,400 1,400 5,800

Product

Annual

Demand


per unit (hr.)

Processing time

needed (hr.)

#1

#2

#3

400

300

700

5.0 8.0 2.0

2,000 2,400 1,400 5,800

MODULE 5 (10 Hours)Materials Management:Scope of Materials Management, functions, information systems for Materials Management, Purchasing functions, Stores Management, Inventory Management, Materials requirement planning, Just in Time (JIT) and Enterprise Resource Planning (ERP), (Problems in Inventory Management and Vendor Selection)

Inventory ManagementInventory

• Types of Inventory Items– Raw materials and purchased parts from outside suppliers.– Components: subassemblies that are awaiting final assembly.– Work in process: all materials or components on the production floor in

various stages of production.– Finished goods: final products waiting for purchase or to be sent to

customers.– Supplies: all items needed but that are not part of the finished product,

such as paper clips, duplicating machine toner, and tools.

The Role of Inventory Management• Inventory Management

– The process of ensuring that the firm has adequate inventories of all parts and supplies needed, within the constraint of minimizing total inventory costs.

• Inventory Costs– Ordering (setup) costs– Acquisition costs– Holding (carrying) costs– Stockout costs

Inventory Costs• Ordering (Setup)

Costs– The costs, usually fixed, of placing an order or setting up machines for

a production run.• Acquisition Costs

– The total costs of all units bought to fill an order, usually varying with the size of the order.

• Inventory-Holding (Carrying) Costs– All the costs associated with carrying parts or materials in inventory.

• Stockout Costs

– The costs associated with running out of raw materials, parts, or finished-goods inventory.

Basic Inventory Management Systems• ABC Inventory Management• Inventory is divided into three dollar-volume categories—A, B, and C—with the

A parts being the most active (largest dollar volume). – Inventory surveillance concentrates most on checking the A parts to guard

against costly stockouts.– The idea is to focus most on the high-annual-dollar-volume A inventory

items, to a lesser extent on the B items, and even less on the C items.

Economic Order Quantity (EOQ)• Economic Order Quantity (EOQ)

– An inventory management system based on a simple formula that is used to determine the most economical quantity to order so that the total of inventory and setup costs is minimized.

– Assumptions:• Constant per unit holding and ordering costs• Constant withdrawals from inventory• No discounts for large quantity orders• Constant lead time for receipt of orders

The Economic Order Quantity Model

Controlling For Quality And Productivity• Quality

– The extent to which a product or service is able to meet customer needs and expectations.

• Customer’s needs are the basic standard for measuring quality• High quality does not have to mean high price.

• ISO 9000– The quality standards of the International Standards Organization.

• Total Quality Management (TQM)– A specific organization-wide program that integrates all the functions and

related processes of a business such that they are all aimed at maximizing customer satisfaction through ongoing improvements.

– Also called: Continuous improvement, Zero defects, Six-Sigma, and Kaizen (Japan)

• Malcolm Baldridge Award– A prize created in 1987 by the U.S. Department of Commerce to recognize

outstanding achievement in quality control management.

Inventory: a stock or store of goodsIndependent Demand

A

B(4)

C(2)

D(2)

E(1)

D(3)

F(2)

Dependent Demand

Independent demand is uncertain. Dependent demand is certain.

Types of Inventories• Raw materials & purchased parts• Partially completed goods called

work in progress• Finished-goods inventories

– (manufacturing firms) or merchandise (retail stores)

• Replacement parts, tools, & supplies• Goods-in-transit to warehouses or customers

Functions of Inventory• To meet anticipated demand• To smooth production requirements• To decouple operations• To protect against stock-outs• To take advantage of order cycles• To help hedge against price increases • To permit operations• To take advantage of quantity discounts

Objective of Inventory Control• To achieve satisfactory levels of customer service while keeping inventory costs

within reasonable bounds– Level of customer service– Costs of ordering and carrying inventory

Effective Inventory Management• A system to keep track of inventory• A reliable forecast of demand• Knowledge of lead times• Reasonable estimates of

– Holding costs– Ordering costs– Shortage costs

• A classification system

Inventory Counting Systems• Periodic System

Physical count of items made at periodic intervals• Perpetual Inventory System

System that keeps track of removals from inventory continuously, thus monitoringcurrent levels of each item

• Two-Bin System - Two containers of inventory; reorder when the first is empty• Universal Bar Code - Bar code

printed on a label that hasinformation about the item to which it is attached

Key Inventory Terms• Lead time : time interval between ordering and receiving the order• Holding (carrying) costs : cost to carry an item in inventory for a length of time,

usually a year• Ordering costs : costs of ordering and receiving inventory• Shortage costs : costs when demand exceeds supply

0

214800 232087768

ABC Classification SystemClassifying inventory according to some measure of importance and allocating control efforts accordingly.A - very importantB - mod. importantC - least important

Cycle Counting• A physical count of items in inventory• Cycle counting management

– How much accuracy is needed?– When should cycle counting be performed?– Who should do it?

Economic Order Quantity Models• Economic order quantity model• Economic production model• Quantity discount model

Assumptions of EOQ Model• Only one product is involved• Annual demand requirements known• Demand is even throughout the year• Lead time does not vary• Each order is received in a single delivery• There are no quantity discounts

The Inventory Cycle

Annual $ value of items

AA

BB

CC

High

Low Few Man

yNumber of Items

Total Cost

Cost Minimization Goal

Profile of Inventory Level Over Time

Quantityon hand

Q

Receive order

Placeorder

Receive order

Placeorder

Receive order

Lead time

Reorderpoint

Usage rate

Time

Annualcarryingcost

Annualorderingcost

Total cost = +

Q2

H DQ

STC = +

Deriving the EOQUsing calculus, we take the derivative of the total cost function and set the derivative (slope) equal to zero and solve for Q.

Minimum Total CostThe total cost curve reaches its minimum where the carrying and ordering costs

are equal.

Economic Production Quantity (EPQ)• Production done in batches or lots• Capacity to produce a part exceeds the part’s usage or demand rate• Assumptions of EPQ are similar to EOQ except orders are received incrementally

during production

Economic Production Quantity Assumptions• Only one item is involved• Annual demand is known• Usage rate is constant

Order Quantity (Q)

The Total-Cost Curve is U-Shaped

Ordering Costs

QO

An

nu

al C

ost

(optimal order quantity)

TCQ

HD

QS

2

Q = 2DS

H =

2(Annual Demand)(Order or Setup Cost)

Annual Holding CostOPT

Q = 2DS

H =

2(Annual Demand)(Order or Setup Cost)

Annual Holding CostOPT

• Usage occurs continually• Production rate is constant• Lead time does not vary• No quantity discounts

Economic Run Size

Total Costs with Purchasing Cost

Total Costs with PD

Annualcarryingcost

Purchasingcost

TC =

+

Q2

H DQ

STC = +

+Annualorderingcost

PD +

QDS

H

p

p u0

2

Total Cost with Constant Carrying Costs

Co

st

EOQ

TC with PD

TC without PD

PD

0 Quantity

Adding Purchasing costdoesn’t change EOQ

When to Reorder with EOQ Ordering• Reorder Point - When the quantity on hand of an item drops to this amount, the

item is reordered• Safety Stock - Stock that is held in excess of expected demand due to variable

demand rate and/or lead time.• Service Level - Probability that demand will not exceed supply during lead time.

Determinants of the Reorder Point• The rate of demand• The lead time• Demand and/or lead time variability• Stockout risk (safety stock)

OC

EOQ

Quantity

Tota

l Co

st

TCa

TCc

TCb

Decreasing Price

CC a,b,c

Safety Stock

Reorder Point

LT Time

Expected demandduring lead time

Maximum probable demandduring lead time

ROP

Qu

anti

ty

Safety stock

ROP

Risk ofa stockout

Service level

Probability ofno stockout

Expecteddemand

Safetystock

0 z

Quantity

z-scale

The ROP based on a normalDistribution of lead time demand

Fixed-Order-Interval Model• Orders are placed at fixed time intervals• Order quantity for next interval?• Suppliers might encourage fixed intervals• May require only periodic checks of inventory levels• Risk of stockout

Fixed-Interval Benefits• Tight control of inventory items• Items from same supplier may yield savings in:

– Ordering– Packing– Shipping costs

• May be practical when inventories cannot be closely monitored

Fixed-Interval Disadvantages• Requires a larger safety stock• Increases carrying cost• Costs of periodic reviews

Single Period Model• Single period model : model for ordering of perishables and other items with

limited useful lives• Shortage cost : generally the unrealized profits per unit• Excess cost : difference between purchase cost and salvage value of items left over

at the end of a period• Continuous stocking levels

• Identifies optimal stocking levels• Optimal stocking level balances unit shortage and excess cost

• Discrete stocking levels• Service levels are discrete rather than continuous• Desired service level is equaled or exceeded

Operations Strategy• Too much inventory

– Tends to hide problems– Easier to live with problems than to eliminate them– Costly to maintain

• Wise strategy– Reduce lot sizes– Reduce safety stock

Economic Production Quantity

Material Requirement Planning and Just In TimeMaterial Requirements Planning Information System

• Inventory control & production planning• Schedules component items when they are needed - no earlier and no later

– Contrast with “order point” replenishment systems

When to Use MRP• Job shop production• Assemble-to-order• Any dependent demand environment

MRP Inputs & Outputs

Inventory Level

Usage UsageP

rodu

ctio

n&

Usa

ge

Pro

duct

ion

& U

sage

Master Production Schedule

Toy Car


MaterialRequirements

Planning

Planned Order Releases

Shop Orders Purchase Orders

ProductStructure

File

InventoryMaster

File

MPS PeriodItem 1 2 3 4 5 6 7 8Clipboard 86 93 119 100 100 100 100 100Lapboard 0 50 0 50 0 50 0 50Lapdesk 75 120 47 20 17 10 0 0Pencil Case 125 125 125 125 125 125 125 125

Assumption: “wheel assembly” is produced as a work-in-process item

Toy Car Product Structure Tree

Toy Car Production Schedule Example

BodyAxles

Wheels

Toy Car

Axel (1)

Wheel Assembly (2)

Body (1)

Wheel (2)

Example Order Release ScheduleItem Number Period

Wheels 28 3

Axles 14 3

Wheel assembly 14 5

Bodies 6 2

Bodies 8 4

Final assembly 6 6

Final assembly 8 8

Rules for Evaluating Toy Car Production Schedules• Final product cannot ship before the required date

– ASAP orders can ship as soon as done

Toy CarLead time = 1

Axel (1)Lead time = 2

Wheel Assembly (2)Lead time = 1

Body(1)Lead time = 4

Wheel (2)Lead time = 1

PeriodItem 1 2 3 4 5 6 7 8 9Car 0 0 0 0 0 0 6 8 0

Master Production Schedule:

Product Structure Tree (includes Bill of Materials info)

Production Schedule

1 2 3 4 5 6 7 8 9 10Final Assembly X 6 X 8Bodies X X 6 8Wheel Assemblies X 14Axles X 14Wheels X 28

Period

• Cost of 4 units for every week late on every car– For ASAP orders, credit of 4 for every week earlier than 5, charge of 4 for

every week later than 5

• Carrying cost of one unit for every part from the time it arrives until the final product ships

• Carrying cost of one unit for every assembly operation from the time it is finished until the final product ships

Cost for Example ScheduleMaster Production Schedule:

Toy Car Exercise

Production Schedule

1 2 3 4 5 6 7 8 9 10Final Assembly X 6 X 8Bodies X X 6 8Wheel Assemblies X 14Axles X 14Wheels X 28

Period

Cost = (28+28+28+16+16) + (14+14+8+8) + (14+8+8) +(6+8) + 4*8Cost = 236

Car Production Schedule

Find the least cost order release and production schedule






PeriodItem 1 2 3 4 5 6 7 8 9Car 0 0 0 10? 0 0 0 20 0


1 2 3 4 5 6 7 8 9 10Final AssemblyBodiesWheel AssembliesAxlesWheels

1 2 3 4 5 6 7 8 9 10Final AssemblyBodiesWheel AssembliesAxlesWheels

Toy CarLead time =

1





PeriodItem 1 2 3 4 5 6 7 8 9Car 0 0 0 10? 0 0 0 20 0


Product Structure Tree

Your Names:

Work sheet

Answer sheet Cost =

Least Cost Production Schedule

For one car:• Wheels(4) and axles(2) wait 2 periods, wheel assemblies(2) and bodies

wait one period: cost=15For 10 ASAP cars add 40 (for 1 week later than target) to 150 to get 190For 20 week 8 cars, cost is 300Least cost total = 490

Real World MRP Inputs– Bill of materials/ Product structure tree, lead times, costs (as in our

exercise)– Existing inventory– Capacity– Lots sizes for efficient production– Equipment downtime– Other uncertainties

Capacity Requirements Planning (CRP)






PeriodItem 1 2 3 4 5 6 7 8 9Car 0 0 0 10? 0 0 0 20 0


1 2 3 4 5 6 7 8 9 10Final Assembly X 10 X 20Bodies X X 10 20Wheel Assemblies X 20 X 40Axles X 20,X 40Wheels X 40 X 80

• Computerized system that projects load from material requirements plan

• Creates load profile

• Identifies under-loads and over-loads

Capacity Requirements Planning: Inputs and outputs

Open Loop MRP (MRP I)

MRP plannedorder

releases

Routingfile

Capacityrequirements

planning

Openorders

file

Load profile foreach machine center

Matching Load to Capacity

Dispatch List

Isspecificcapacity

adequate?


(detailed)

Desired MasterProductionSchedule

Realistic?

Priority Control

Priority PlanningProduction Plan

No

Yes

No

Closed Loop MRP (MRP II)

Enterprise Resource Planning (ERP)• Extension of MRP

1 2 3 4 5 6

Time (weeks)

Work an extra shift

Push back

Push back

Pull ahead

Overtime

Hours ofcapacity

Dispatch List

Isspecificcapacity

adequate?

Isaveragecapacity

adequate?


(detailed)

CapacityRequirements

(detailed)

Input/Output

Desired MasterProductionSchedule

Realistic?

Priority Control

Capacity PlanningPriority Planning

Capacity Control

ResourcePlanning

First CutCapacity

Production Plan

NoNo

No

Yes Yes

• Integrates information on all resources needed for running a business– Especially sales, purchasing, and human resources

Just-In-Time• Like MRP – aim is to minimize inventory• But people focus is different

– MRP – computer optimization– JIT – empowerment of workers doing the job

• And inventory technical approach is different– MRP – “push” by computer schedule– JIT – “pull” by need for replenishment as parts are used up

• Experience (e.g. Toyota) favors JIT in many situations– Job shop vs repetitive

Video• JIT implementation at Federal Signal

– Specialty lights for emergency vehicles• During the video, make a list of JIT elements in two categories:

– Technical stuff (e.g. use of Kanban system)– People stuff (e.g. worker ownership)

“Pull” system Production Control

Kanban - Visual Production Control• Kanban maintains discipline of pull production• Kanban card moves with empty and full containers of parts• Production Kanban authorizes production

– And contains production information

The Broader Sense of JIT • Producing only what is needed, when it is needed

Production at Step “2” in controlled by step “3”

Production Step 3

Information Flow

Material Flow

Send more widgets

Production Step 2

Information Flow

Material Flow

Send more widgets

– - eliminate all waste, not just unproductive inventory • An integrated management system.

– JIT’s objective: Improve Profits and R.O.I– “World Class” cost, quality, delivery

Overlap with Quality Philosophies (e.g. TQM)

Some Examples of Waste• Waiting for parts• Counting parts• Multiple inspections• Over-runs in production• Moving parts over long distances• Storing and retrieving inventory• Looking for tools• Machine breakdown• Rework

Effect of JIT on Workers• Multifunction workers• Cross-training• New pay system to reflect skills variety• Teamwork• Suggestion system

MODULE 6 08 Hours)

Production scheduling:Master Production scheduling, detailed scheduling, facility loading sequencing operations, priority sequencing techniques, line balancing and line of balance (LOB),(Problems in Priority sequencing, Johnson’s rule and Line Balancing)

Scheduling • Scheduling: Establishing the timing of the use of equipment, facilities and human

activities in an organization• Effective scheduling can yield

– Cost savings– Increases in productivity

High-Volume Systems• Flow system : High-volume system with Standardized equipment and activities• Flow-shop scheduling : Scheduling for high-volume flow system

Scheduling Manufacturing Operations

High-Volume Success Factors

Work Center #1 Work Center #2 Output

Build AA DoneBuild BB DoneBuild CC DoneBuild DShip

JAN FEB MAR APR MAY JUN

On time!

High-volumeIntermediate-volume

Low-volume Service operations

• Process and product design• Preventive maintenance• Rapid repair when breakdown occurs• Optimal product mixes• Minimization of quality problems• Reliability and timing of supplies

Intermediate-Volume Systems• Outputs are between standardized high-volume systems and made-to-order job

shops– Run size, timing, and sequence of jobs

• Economic run size:

Scheduling Low-Volume Systems• Loading - assignment of jobs to process centers• Sequencing - determining the order in which jobs will be processed• Job-shop scheduling

– Scheduling for low-volume systems with many variations in requirements

Gantt Load Chart• Gantt chart - used as a visual aid for loading and scheduling

Loading

Work Center

Mon. Tues. Wed. Thurs. Fri.

1 Job 3 Job 4 2 Job 3 Job 7 3 Job 1 Job 6 Job 7 4 Job 10

QDS

H

p

p u0

2

• Infinite loading• Finite loading• Vertical loading• Horizontal loading• Forward scheduling• Backward scheduling• Schedule chart

Sequencing• Sequencing : Determine the order in which jobs at a work center will be processed.

• Workstation : An area where one person works, usually with special equipment, on a specialized job.

• Priority rules : Simple heuristics used to select the order in which jobs will be processed.

• Job time : Time needed for setup and processing of a job.

Priority Rules• FCFS - first come, first served• SPT - shortest processing time• EDD - earliest due date• CR - critical ratio• S/O - slack per operation• Rush - emergency

Example 2

Top Priority

Two Work Center Sequencing• Johnson’s Rule : technique for minimizing completion time for a group of jobs to

be processed on two machines or at two work centers.• Minimizes total idle time• Several conditions must be satisfied

Johnson’s Rule Conditions• Job time must be known and constant• Job times must be independent of sequence• Jobs must follow same two-step sequence• Job priorities cannot be used• All units must be completed at the first

work center before moving to second

Johnson’s Rule Optimum Sequence1. List the jobs and their times at each work center2. Select the job with the shortest time3. Eliminate the job from further consideration4. Repeat steps 2 and 3 until all jobs have been scheduled

Scheduling Difficulties• Variability in

3.249.6722.17CR

2.686.3318.33EDD

2.636.6718.00SPT

2.939.0020.00FCFS

AverageNumber ofJobs at theWork Center

AverageTardiness(days)

AverageFlow Time(days)Rule

– Setup times– Processing times– Interruptions– Changes in the set of jobs

• No method for identifying optimal schedule• Scheduling is not an exact science• Ongoing task for a manager

Minimizing Scheduling Difficulties• Set realistic due dates• Focus on bottleneck operations• Consider lot splitting of large jobs

Scheduling Service Operations • Appointment systems

– Controls customer arrivals for service• Reservation systems

– Estimates demand for service• Scheduling the workforce

– Manages capacity for service• Scheduling multiple resources

– Coordinates use of more than one resource

Cyclical Scheduling• Hospitals, police/fire departments, restaurants, supermarkets• Rotating schedules

– Set a scheduling horizon– Identify the work pattern– Develop a basic employee schedule– Assign employees to the schedule

Service Operation Problems• Cannot store or inventory services• Customer service requests are random• Scheduling service involves

– Customers– Workforce– Equipment

MODULE 7 (08 Hours)

Quality Management:Inspection and Quality control, Statistical Quality Control Techniques (Control Charts and acceptance sampling), quality circles Introduction to Total Quality Management (TQM), (Problems in Control Charts)

Objectives• To introduce the quality management process and key quality management

activities• To explain the role of standards in quality management• To explain the concept of a software metric, predictor metrics and control metrics• To explain how measurement may be used in assessing software quality and the

limitations of software measurement

Quality Control

Controlling For Quality And Productivity• Quality

– The extent to which a product or service is able to meet customer needs and expectations.

• Customer’s needs are the basic standard for measuring quality• High quality does not have to mean high price.

• ISO 9000– The quality standards of the International Standards Organization.

Controlling For Quality And Productivity• Total Quality Management (TQM)

– A specific organization-wide program that integrates all the functions and related processes of a business such that they are all aimed at maximizing customer satisfaction through ongoing improvements.

– Also called: Continuous improvement, Zero defects, Six-Sigma, and Kaizen (Japan)

• Malcolm Baldridge Award– A prize created in 1987 by the U.S. Department of Commerce to recognize

outstanding achievement in quality control management.

Checklist 15.1How to Win a Baldridge Award Is the company exhibiting senior executive leadership? Is the company obtaining quality information and analysis? Is the company engaging in strategic quality planning? Is the company developing its human resources? Is the company managing the entire quality process? How does the company measure operational results? Does the company exhibit a customer focus?

Quality Control Methods• Acceptance Sampling

– a method of monitoring product quality that requires the inspection of only a small portion of the produced items.

Example of a Quality Control Chart

Commonly Used Tools for Problem Solving and Continuous Improvement

Fishbone Chart (or Cause-and-Effect Diagram) for Problems with Airline Customer Service

Pareto Analysis Chart

Phases of Quality Assurance

Acceptancesampling

Processcontrol

Continuousimprovement

Inspectionbefore/afterproduction

Inspection andcorrective

action duringproduction

Quality builtinto theprocess

The leastprogressive

The mostprogressive

Inspection• How Much/How Often• Where/When • Centralized vs. On-site

Inspection Costs

Co

st

OptimalAmount of Inspection

Inspection Costs

Cost of inspection

Cost of passingdefectives

Total Cost

Where to Inspect in the Process• Raw materials and purchased parts• Finished products• Before a costly operation• Before an irreversible process• Before a covering process

Inputs

Transformation

Outputs

Acceptancesampling

Processcontrol

Acceptancesampling

Examples of Inspection Points

• Statistical Process Control : Statistical evaluation of the output of a process during production

• Quality of Conformance: A product or service conforms to specifications

Control Chart• Control Chart

– Purpose: to monitor process output to see if it is random– A time ordered plot representative sample statistics obtained from an on

going process (e.g. sample means)– Upper and lower control limits define the range of acceptable variation

Type of business

Inspection points

Characteristics

Fast Food Cashier Counter area Eating area Building Kitchen

Accuracy Appearance, productivity Cleanliness Appearance Health regulations

Hotel/motel Parking lot Accounting Building Main desk

Safe, well lighted Accuracy, timeliness Appearance, safety Waiting times

Supermarket Cashiers Deliveries

Accuracy, courtesy Quality, quantity

Control Chart

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

UCL

LCL

Sample number

Mean

Out ofcontrol

Normal variationdue to chance

Abnormal variationdue to assignable sources

Abnormal variationdue to assignable sources

Statistical Process Control• The essence of statistical process control is to assure that the output of a process is

random so that future output will be random.

Statistical Process Control• The Control Process

– Define– Measure– Compare– Evaluate– Correct– Monitor results

Statistical Process Control• Variations and Control

– Random variation : Natural variations in the output of a process, created by countless minor factors

– Assignable variation : A variation whose source can be identified

Sampling Distribution

Normal Distribution

Control Limits

Samplingdistribution

Processdistribution

Mean

Mean

95.44%99.74%

Standard deviation

SPC Errors• Type I error

– Concluding a process is not in control when it actually is.• Type II error

– Concluding a process is in control when it is not.

Type I Error

Observations from Sample Distribution

Samplingdistribution

Processdistribution

Mean

Lowercontrol

limit

Uppercontrol

limit

Mean

LCL

UCL

/2

/2

Probabilityof Type I error

Control Charts for VariablesVariables generate data that are measured.

• Mean control charts– Used to monitor the central tendency of a process.– X bar charts

• Range control charts– Used to monitor the process dispersion– R charts

Mean and Range Charts


UCL

LCL

UCL

LCL

R-chart

x-Chart Detects shift

Doe s notdetect shift

(process mean is shifting upward)

SamplingDistribution

Sample number

UCL

LCL

1 2 3 4

x-Chart

UCL

Doe s notreveal increase


UCL

LCL

LCL

R-chart Reveals increase

(process variability is increasing)SamplingDistribution

Control Chart for Attributes• p-Chart - Control chart used to monitor the proportion of defectives in a process• c-Chart - Control chart used to monitor the number of defects per unit

Attributes generate data that are counted.

Use of p-Charts• When observations can be placed into two categories.

– Good or bad– Pass or fail– Operate or don’t operate

• When the data consists of multiple samples of several observations each

Use of c-Charts• Use only when the number of occurrences per unit of measure can be counted;

non-occurrences cannot be counted.– Scratches, chips, dents, or errors per item– Cracks or faults per unit of distance– Breaks or Tears per unit of area– Bacteria or pollutants per unit of volume– Calls, complaints, failures per unit of time

Use of Control Charts• At what point in the process to use control charts• What size samples to take• What type of control chart to use

– Variables– Attributes

Run Tests• Run test – a test for randomness• Any sort of pattern in the data would suggest a non-random process• All points are within the control limits - the process may not be random

Nonrandom Patterns in Control charts• Trend• Cycles• Bias• Mean shift• Too much dispersion

Counting Above/Below Median Runs (7 runs)

Counting Up/Down Runs (8 runs)

U U D U D U D U U D

B A A B A B B B A A B

Figure 10.12

Figure 10.13

Counting RunsCounting Runs

Process Capability• Tolerances or specifications

– Range of acceptable values established by engineering design or customer requirements

• Process variability– Natural variability in a process

• Process capability– Process variability relative to specification

Process CapabilityLowerSpecification

UpperSpecification

A. Process variability matches specifications

LowerSpecification

UpperSpecification

B. Process variabilitywell w ithin specifications

LowerSpecification

UpperSpecification

C. Process variability exceeds specifications

Figure 10.15

Process Capability Ratio

Process capability ratio, Cp = specification widthprocess width

Upper specification – lower specification6

Cp =

Processmean

Lowerspecification

Upperspecification

1350 ppm 1350 ppm

1.7 ppm 1.7 ppm

+/- 3 Sigma

+/- 6 Sigma

3 Sigma and 6 Sigma Quality3 Sigma and 6 Sigma Quality

Improving Process Capability• Simplify• Standardize• Mistake-proof• Upgrade equipment• Automate

Taguchi Loss Function

Cost

TargetLowerspec

Upperspec

Traditionalcost function

Taguchicost function

Figure 10.17

Limitations of Capability Indexes1. Process may not be stable2. Process output may not be normally distributed3. Process not centered but Cp is used

Additional PowerPoint slides contributed by Geoff Willis, University of Central Oklahoma

Statistical Process Control (SPC)• Invented by Walter Shewhart at Western Electric• Distinguishes between

– common cause variability (random)– special cause variability (assignable)

• Based on repeated samples from a process

Empirical Rule

-3 -1-2 +1 +2 +3

68%

95%

99.7%

Control Charts in General• Are named according to the statistics being plotted, i.e., X bar, R, p, and c• Have a center line that is the overall average• Have limits above and below the center line at ± 3 standard deviations (usually)

Center line

Lower Control Limit (LCL)

Upper Control Limit (UCL)

Variables Data Charts

Variables Data Charts• Process Centering

– X bar chart

– X bar is a sample mean

• Process Dispersion (consistency)– R chart

– R is a sample range

n

XX

n

ii

1

)min()max( ii XXR

X bar charts• Center line is the grand mean (X double

bar)

• Points are X bars

xzXUCL

nx

/

xzXLCL

m

X

X

m

jj

1

RAXUCL 2 RAXLCL 2

-OR-

R Charts• Center line is the grand mean (R bar)• Points are R• D3 and D4 values are tabled according to n (sample size)

Use of X bar & R charts• Charts are always used in tandem• Data are collected (20-25 samples)• Sample statistics are computed• All data are plotted on the 2 charts• Charts are examined for randomness• If random, then limits are used “forever”

Attribute Charts

• c charts – used to count defects in a constant sample size

centerlinem

cc

n

i 1

czcUCL

czcLCL

Attribute Charts• p charts – used to track

a proportion (fraction) defective

centerlinenm

x

m

pp ij

m

j

1

n

ppzpUCL

)1( n

ppzpLCL

)1(

n

xp

n

ii

i

1

Process Capability

The ratio of process variability to design specifications

Upper

Spec

Lower

Spec

Natural data spread

The natural spread of the data is 6σ-1σ +2σ-2σ +1σ +3σ-3σ µ

Training

MQ4Job rotation/quality fatigue at Honda

Quality Measurement

Services/Measurement

STAO3Survey/Efficiency, Admission/Discharge

Inspection Acceptance Sampling

Sampling Plans• Acceptance sampling : Form of inspection applied to lots or batches of items

before or after a process, to judge conformance with predetermined standards• Sampling plans : Plans that specify lot size, sample size, number of samples, and

acceptance/rejection criteria– Single-sampling– Double-sampling– Multiple-sampling

Operating Characteristic Curve

00.10.20.30.40.50.60.70.80.9

1

0 .05 .10 .15 .20 .25

Pro

babi

lity

of

acce

ptin

g lo

t

Lot quality (fraction defective)

3%

Decision Criteria

0

1.00

Pro

babi

lity

of

acce

ptin

g lo

t


“Good” “Bad”

Ideal

Not verydiscriminating

Figure 10S.2

Sampling Terms• Acceptance quality level (AQL) : the percentage of defects at which consumers

are willing to accept lots as “good”• Lot tolerance percent defective (LTPD) : the upper limit on the percentage of

defects that a consumer is willing to accept• Consumer’s risk : the probability that a lot contained defectives exceeding the

LTPD will be accepted• Producer’s risk : the probability that a lot containing the acceptable quality level

will be rejected

Consumer’s and Producer’s Risk

00.10.20.30.40.50.60.70.80.9

1

0 .05 .10 .15 .20 .25

Pro

babi

lity

of

acce

ptin

g lo

t


= .10

= .10

“Good”

AQL

“Bad”Indifferent

LTPD

Figure 10S.3

QC Curve for n = 10, c = 1QC Curve for n = 10, c = 1Figure 10S.4

00.10.20.30.40.50.60.70.80.9

1

0 .10 .20 .30 .40 .50

Pro

babi

lity

of

acce

pta

nce

Fraction defective in lot

.9139

.7361

.5443

.3758

.2440.1493

.0860

Average Quality

• Average outgoing quality (AOQ): Average of inspected lots (100%) and uninspected lots

AOQ Pac pN n

N

Pac = Probability of accepting lotp = Fraction defectiveN = Lot sizen = Sample size

Example 2: AOQ0 0

0.05 0.0460.1 0.074

0.15 0.0820.2 0.075

0.25 0.0610.3 0.045

0.35 0.030.4 0.019

0

0.02

0.04

0.06

0.08

0.1

0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4

Approximate AOQL = .082

AO

Q (

Fra

cti

on

de

fec

tive

ou

t)

Incoming fraction defective

OC Curves

Pro

ba

bili

ty o

f A

cc

ep

tin

g L

ot

Lot Quality (Fraction Defective)

100%

75%

50%

25%

.03 .06 .09

OC Curves come in various shapes depending on the sample size and risk of and errors

This curve is more discriminating

This curve is less discriminating

Pro

ba

bili

ty o

f A

cc

ep

tin

g L

ot


100%

75%

50%

25%

.03 .06 .09

This curve distinguishes perfectly between good and bad lots.

The Perfect OC Curve

What would allow you to achieve a curve like this?

OC Curve Terms• Acceptable Quality Level (AQL)

– Percentage of defective items a customer is willing to accept from you (a property of mfg. process)

• Lot Tolerance Percent Defective (LTPD)– Upper limit on the percentage of defects a customer is willing to accept ( a

property of the consumer)• Average Outgoing Quality (AOQ)

– Average of rejected lots and accepted lots• Average Outgoing Quality Limit (AOQL)

– Maximum AOQ for a range of fractions defective

OC Definitions on the CurveP

rob

ab

ility

of

Ac

ce

pti

ng

Lo

t


100%

75%

50%

25%

.03 .06 .09

= 0.1090%

= 0.10

AQ

L

LT

PD

IndifferentGood Bad

Statistical Quality Control Techniques

Topics covered• Process and product quality• Quality assurance and standards• Quality planning• Quality control

Software quality management• Concerned with ensuring that the required level of quality is achieved in a

software product.• Involves defining appropriate quality standards and procedures and ensuring that

these are followed.• Should aim to develop a ‘quality culture’ where quality is seen as everyone’s

responsibility.

What is quality?• Quality, simplistically, means that a product should meet its specification.• This is problematical for software systems

– There is a tension between customer quality requirements (efficiency, reliability, etc.) and developer quality requirements (maintainability, reusability, etc.);

– Some quality requirements are difficult to specify in an unambiguous way;– Software specifications are usually incomplete and often inconsistent.

The quality compromise• We cannot wait for specifications to improve before paying attention to quality

management.• We must put quality management procedures into place to improve quality in

spite of imperfect specification.

Scope of quality management• Quality management is particularly important for large, complex systems. The

quality documentation is a record of progress and supports continuity of development as the development team changes.

• For smaller systems, quality management needs less documentation and should focus on establishing a quality culture.

Quality management activities• Quality assurance

– Establish organisational procedures and standards for quality.• Quality planning

– Select applicable procedures and standards for a particular project and modify these as required.

• Quality control– Ensure that procedures and standards are followed by the software

development team.• Quality management should be separate from project management to ensure

independence.

Quality management and software development

Software developmentprocess

Quality managementprocess

D1 D2 D3 D4 D5

Standards andprocedures

Qualityplan

Quality review reports

Process and product quality• The quality of a developed product is influenced by the quality of the production

process.• This is important in software development as some product quality attributes are

hard to assess.• However, there is a very complex and poorly understood relationship between

software processes and product quality.

Process-based quality• There is a straightforward link between process and product in manufactured

goods.• More complex for software because:

– The application of individual skills and experience is particularly imporant in software development;

– External factors such as the novelty of an application or the need for an accelerated development schedule may impair product quality.

• Care must be taken not to impose inappropriate process standards - these could reduce rather than improve the product quality.

Process-based quality

Define processDevelopproduct

Assess productquality

Standardiseprocess

Improveprocess

QualityOK

No Yes

Practical process quality• Define process standards such as how reviews should be conducted,

configuration management, etc.

• Monitor the development process to ensure that standards are being followed.

• Report on the process to project management and software procurer.• Don’t use inappropriate practices simply because standards have been established.

Quality assurance and standards• Standards are the key to effective quality management.• They may be international, national, organizational or project standards.• Product standards define characteristics that all components should exhibit e.g.

a common programming style.• Process standards define how the software process should be enacted.

Importance of standards

• Encapsulation of best practice- avoids repetition of past mistakes.

• They are a framework for quality assurance processes - they involve checking compliance to standards.

• They provide continuity - new staff can understand the organisation by understanding the standards that are used.

Product and process standards

Product and process standards

Product standards Process standards

Design review form Design review conduct

Requirements document structure Submission of documents to CM

Method header format Version release process

Java programming style Project plan approval process

Project plan format Change control process

Change request form Test recording process

Problems with standards• They may not be seen as relevant and up-to-date by software engineers.• They often involve too much bureaucratic form filling.• If they are unsupported by software tools, tedious manual work is often involved

to maintain the documentation associated with the standards.

Standards development

• Involve practitioners in development. Engineers should understand the rationale underlying a standard.

• Review standards and their usage regularly. Standards can quickly become outdated and this reduces their credibility amongst practitioners.

• Detailed standards should have associated tool support. Excessive clerical work is the most significant complaint against standards.

ISO 9000• An international set of standards for quality management.• Applicable to a range of organisations from manufacturing to service industries.• ISO 9001 applicable to organisations which design, develop and maintain

products.• ISO 9001 is a generic model of the quality process that must be instantiated for

each organisation using the standard.

ISO 9001

Management responsibility Quality system

Control of non-conforming products Design control

Handling, storage, packaging anddelivery

Purchasing

Purchaser-supplied products Product identification and traceability

Process control Inspection and testing

Inspection and test equipment Inspection and test status

Contract review Corrective action

Document control Quality records

Internal quality audits Training

Servicing Statistical techniques

ISO 9000 certification

• Quality standards and procedures should be documented in an organisational quality manual.

• An external body may certify that an organisation’s quality manual conforms to ISO 9000 standards.

• Some customers require suppliers to be ISO 9000 certified although the need for flexibility here is increasingly recognised.

ISO 9000 and quality management

Project 1quality plan



Project qualitymanagement

Organisationquality manual

ISO 9000quality models

Organisationquality process

is used to develop instantiated as

instantiated as

documents

Supports

Documentation standards• Particularly important - documents are the tangible manifestation of the software.• Documentation process standards

– Concerned with how documents should be developed, validated and maintained.

• Document standards– Concerned with document contents, structure, and appearance.

• Document interchange standards– Concerned with the compatibility of electronic documents.

Documentation process

Createinitial draft

Reviewdraft

Incorporatereview

comments

Re-draftdocument

Proofreadtext

Producefinal draft

Checkfinal draft

Layouttext

Reviewlayout

Produceprint masters

Printcopies

Stage 1:Creation

Stage 2:Polishing

Stage 3:Production

Approved document

Approved document

Document standards• Document identification standards

– How documents are uniquely identified.• Document structure standards

– Standard structure for project documents.• Document presentation standards

– Define fonts and styles, use of logos, etc.• Document update standards

– Define how changes from previous versions are reflected in a document.

Document interchange standards• Interchange standards allow electronic documents to be exchanged, mailed, etc. • Documents are produced using different systems and on different computers.

Even when standard tools are used, standards are needed to define conventions for their use e.g. use of style sheets and macros.

• Need for archiving. The lifetime of word processing systems may be much less than the lifetime of the software being documented. An archiving standard may be defined to ensure that the document can be accessed in future.

Quality planning

• A quality plan sets out the desired product qualities and how these are assessed and defines the most significant quality attributes.

• The quality plan should define the quality assessment process.• It should set out which organisational standards should be applied and, where

necessary, define new standards to be used.

Quality plans• Quality plan structure

– Product introduction;– Product plans;– Process descriptions;– Quality goals;– Risks and risk management.

• Quality plans should be short, succinct documents– If they are too long, no-one will read them.

Software quality attributes

Software quality attributes

Safety Understandability Portability

Security Testability Usability

Reliability Adaptability Reusability

Resilience Modularity Efficiency

Robustness Complexity Learnability

Quality control• This involves checking the software development process to ensure that

procedures and standards are being followed.• There are two approaches to quality control

– Quality reviews;– Automated software assessment and software measurement.

Quality reviews

• This is the principal method of validating the quality of a process or of a product.• A group examines part or all of a process or system and its documentation to find

potential problems.• There are different types of review with different objectives

– Inspections for defect removal (product);– Reviews for progress assessment (product and process);– Quality reviews (product and standards).

Types of review

Review type Principal purpose

Design or programinspections

To detect detailed errors in the requirements, design or code. A checklist ofpossible errors should drive the review.

Progress reviews To provide information for management about the overall progress of theproject. This is b oth a process and a product review and is concerned withcosts, plans and schedules.

Quality reviews To carry out a t echnical analysis of product components or documentation tofind mismatches between the specification and the component design, code ordocumentation and to ensure that defined quality standards have been followed.

Quality reviews

• A group of people carefully examine part or all of a software system and its associated documentation.

• Code, designs, specifications, test plans, standards, etc. can all be reviewed.

• Software or documents may be 'signed off' at a review which signifies that progress to the next development stage has been approved by management.

Review functions• Quality function - they are part of the general quality management process.• Project management function - they provide information for project managers.• Training and communication function - product knowledge is passed between

development team members.

Quality reviews• The objective is the discovery of system defects and inconsistencies.• Any documents produced in the process may be reviewed.• Review teams should be relatively small and reviews should be fairly short.• Records should always be maintained of quality reviews.

Review results• Comments made during the review should be

classified– No action. No change to the software or documentation is

required;– Refer for repair. Designer or programmer should correct an identified

fault;– Reconsider overall design. The problem identified in the

review impacts other parts of the design. Some overall judgement must be made about the most cost-effective way of solving the problem;

• Requirements and specification errors may have to be referred to the client.

Software measurement and metrics• Software measurement is concerned with deriving a numeric value for an attribute

of a software product or process.• This allows for objective comparisons between techniques and processes.• Although some companies have introduced measurement programmes, most

organisations still don’t make systematic use of software measurement.• There are few established standards in this area.

Software metric

• Any type of measurement which relates to a software system, process or related documentation

– Lines of code in a program, the Fog index, number of person-days required to develop a component.

• Allow the software and the software process to be quantified.

• May be used to predict product attributes or to control the software process.• Product metrics can be used for general predictions or to identify anomalous

components.

Predictor and control metrics

Managementdecisions

Controlmeasurements

Softwareprocess

Predictormeasurements

Softwareproduct

Metrics assumptions• A software property can be measured.• The relationship exists between what we can

measure and what we want to know. We can only measure internal attributes but are often more interested in external software attributes.

• This relationship has been formalised and validated.

• It may be difficult to relate what can be measured to desirable external quality attributes.

Internal and external attributes

Reliability

Number of procedureparameters

Cyclomatic complexity

Program size in linesof code

Number of errormessages

Length of user manual

Maintainability

Usability

Portability

The measurement process• A software measurement process may be part of a quality control process.• Data collected during this process should be maintained as an organisational

resource.• Once a measurement database has been established, comparisons across projects

become possible.

Product measurement process

Measurecomponent

characteristics

Identifyanomalous

measurements

Analyseanomalous

components

Selectcomponents to

be assessed

Choosemeasurements

to be made

Data collection

• A metrics programme should be based on a set of product and process data.• Data should be collected immediately (not in retrospect) and, if possible,

automatically.• Three types of automatic data collection

– Static product analysis;– Dynamic product analysis;– Process data collation.

Data accuracy• Don’t collect unnecessary data

– The questions to be answered should be decided in advance and the required data identified.

• Tell people why the data is being collected. – It should not be part of personnel evaluation.

• Don’t rely on memory – Collect data when it is generated not after a project has finished.

Product metrics• A quality metric should be a predictor of

product quality.• Classes of product metric

– Dynamic metrics which are collected by measurements made of a program in execution;

– Static metrics which are collected by measurements made of the system representations;

– Dynamic metrics help assess efficiency and reliability; static metrics help assess complexity, understandability and maintainability.

Dynamic and static metrics• Dynamic metrics are closely related to software quality attributes

– It is relatively easy to measure the response time of a system (performance attribute) or the number of failures (reliability attribute).

• Static metrics have an indirect relationship with quality attributes– You need to try and derive a relationship between these metrics and

properties such as complexity, understandability and maintainability.

Software product metrics

Soft ware metric Description

Fan in/Fan-out Fan-in is a measure of the number of functions or methods that call some other functionor method (say X). Fan-out is the number of functions that are called by function X. Ahigh value for fan-in means that X i s tightly coupled to the rest of the design andchanges to X will have extensive knock-on effects. A high value for fan-out suggeststhat the overall complexity of X m ay be high because of the complexity of the controllogic needed to coordinate the called components.

Length of code This is a measure of the size of a program. Generally, the larger the size of the code of acomponent, the more complex and error-prone that component is likely to be. Length ofcode has been shown to be one of the most reliable metrics for predicting error-proneness in components.

Cyclomatic complexity This is a m easure of the control complexity of a p rogram. This control complexity maybe related to program understandabil ity. I discuss how to compute cyclomaticcomplexity in Chapter 22.

Length of identifiers This is a measure of the average length of distinct identifiers in a p rogram. The longerthe identifiers, the more likely they are to be m eaningful and hence the moreunderstandable the program.

Depth of conditionalnesting

This is a measure of the depth of nesting of if-statements in a program. Deeply nested ifstatements are hard to understand and are potentially error-prone.

Fog index This is a measure of the average length of words and sentences in documents. The higherthe value for the Fog index, the more difficult the document is to understand.

Object-oriented metrics

Object-orientedmetric

Description

Depth of inhe ritancetree

This represents the number of discrete leve ls in the inher itance tree whe re sub-classes inhe rit attributes and operations (methods ) from supe r-classes. Thedeeper the inhe ritance tree, the more complex the design. Many di fferent objectclasses may have to be unde rstood to unde rstand the object classes at the leave sof the tree.

Method fan-in/fan-out

This is directly related to fan-in and fan-ou t as described above and meansessentially the same thing. However , it may be app ropriate to make adistinction between calls from other methods within the object and calls fromexternal methods.

Weighted methodsper class

This is the number of methods that are included in a class we ighted by thecomplexity o f each method. The refore, a simple method may hav e a co mplexityof 1 and a large and complex method a much high er va lue. The larger the valuefor this metric, the more complex the object class. Complex objects are morelikely to be more difficult to under stand . They may not be logically cohesive socanno t be reused effectively as super-classes in an inhe ritance tree.

Number ofove rridingoperations

This is the number of ope rations in a super -class that are ove r-ridden in a sub-class. A h igh va lue for this metric indicates that the super-class used may no t bean app ropriate parent for the sub-class.

Measurement analysis• It is not always obvious what data means

– Analysing collected data is very difficult.• Professional statisticians should be consulted if available.• Data analysis must take local circumstances into account.

Measurement surprises• Reducing the number of faults in a program leads to an increased number of help

desk calls– The program is now thought of as more reliable and so has a wider more

diverse market. The percentage of users who call the help desk may have decreased but the total may increase;

– A more reliable system is used in a different way from a system where users work around the faults. This leads to more help desk calls.

Key points

• Software quality management is concerned with ensuring that software meets its required standards.

• Quality assurance procedures should be documented in an organisational quality manual.

• Software standards are an encapsulation of best practice.• Reviews are the most widely used approach for assessing software quality.• Software measurement gathers information about both the software process and

the software product.• Product quality metrics should be used to identify potentially problematical

components.• There are no standardised and universally applicable software metrics.

MODULE 8 (06 Hours)

Technology Management:Advanced Manufacturing Technology, Automation and Robotics, Managing Technological Change, Applications of Information Technology in POM, Maintenance Management and Total Productive Maintenance

Design for Manufacturability• Designing for Manufacturability (DFM)

– Designing products with ease of manufacturing and quality in mind. DFM Goals:

• Exhibit the desired level of quality and reliability.• Be designed in the least time with the least development cost.

Make the quickest and smoothest transition into production.• Be produced and tested with the minimum cost in the minimum

amount of time.• Satisfy customers’ needs and compete in the marketplace.

• Concurrent Engineering– Designing products in multidisciplinary teams so that all departments

involved in the product’s success contribute to its design.

Rapid Plant Assessment Rating Sheet

World-Class Operations Management Methods• Total Quality Management (TQM)• Just-In-Time (JIT) manufacturing• Computer-Aided Design and Manufacturing (CADCAM)• Flexible Manufacturing Systems (FMS) Computer-Integrated Manufacturing

(CIM), Supply-Chain Management• Enterprise Resource Planning (ERP)

Just-In-Time (JIT)• Just-In-Time (JIT)

– A production control method used to attain minimum inventory levels by ensuring delivery of materials and assemblies just when they are to be used.

– A philosophy of lean or value-added manufacturing manufacturing that aims to optimize production processes by continuously reducing waste.

– A management philosophy that assumes that any manufacturing process that does not add value to the product for the customer is wasteful.

• Seven Wastes and Their Solutions– Overproduction: reduce by producing only what is needed as it is needed.– Waiting: synchronize the workflow.– Transportation: minimize transport with better layouts.– Processing: “Why do we need this process at all?”– Stock: reduce inventories.– Motion: reduce wasted employee motions.– Defective products: improve quality to reduce rework.

Computer-Aided Design and Manufacturing• Computer-Aided Design (CAD)

– A computerized process for designing new products, modifying existing ones, or simulating conditions that may affect the designs.

• Computer-Aided Manufacturing (CAM)– A computerized process for planning and programming production

processes and equipment.

Flexible Manufacturing Systems• Flexible Manufacturing System (FMS)

– The organization of groups of production machines that are connected by automated materials-handling and transfer machines, and integrated into a computer system for the purpose of combining the benefits of made-to-order flexibility and mass-production efficiency.

• Automation– The automatic operation of a system, process, or machine.

Computer-Integrated Manufacturing• Computer-Integrated Manufacturing (CIM)

– The total integration of all production-related business activities through the use of computer systems.

– Automation, JIT, flexible manufacturing, and CAD/CAM are integrated into one self-regulating production system.

The Elements of CIM

Supply Chain Management• Supply Chain Management

– The integration of the activities that procure materials, transform them into intermediate goods and final product, and deliver them to customers.

Trends in Supply Chain Management• Supplier Partnering

– Choosing to do business with a limited number of suppliers, with the aim of building relationships that improve quality and reliability rather than just improve costs.

• Channel assembly– Organizing the product assembly process so that the company doesn’t

send finished products to its distribution channel partners, but instead sends the partners components and modules. Partners become an extension of the firm’s product assembly process.

• Channel Assembly– Organizing the product assembly process so that a company sends its

distribution channel partners components and modules rather than finished products. The partners then become an extension of the firm’s product assembly process.

• Internet Purchasing (e-Procurement)– Vendors interact with other firms via the Internet to accept, place and

acknowledge orders via the Web.

The Supply Chain

Managing Services• Service Management

– A total organization-wide approach that makes quality of service the business’s number one driving force.

• Why Service Management Is Important– Service is a competitive advantage.– Bad service leads to lost customers.– Customer defections drain profits.

• Moment of Truth– The instant when the customer comes into contact with any aspect of a

business and, based on that contact, forms an opinion about the quality of the service or product.

• Cycle of Service– Includes all of the moments of truth experienced by a typical customer,

from first to last.

The Service Triangle (Karl Albrecht)

How to Implement a Service Management Program

Well-ConceivedWell-ConceivedServiceServiceStrategyStrategy

Well-ConceivedWell-ConceivedServiceServiceStrategyStrategy

Customer-Customer-OrientedOriented

Front-line PeopleFront-line People

Customer-Customer-OrientedOriented

Front-line PeopleFront-line PeopleCustomer-FriendlyCustomer-Friendly

SystemsSystems

Customer-FriendlyCustomer-Friendly SystemsSystems

Step I: The Service AuditStep I: The Service AuditStep I: The Service AuditStep I: The Service Audit

Step 2: Strategy DevelopmentStep 2: Strategy DevelopmentStep 2: Strategy DevelopmentStep 2: Strategy Development

Step 3: EducationStep 3: EducationStep 3: EducationStep 3: Education

Step 4: ImplementationStep 4: ImplementationStep 4: ImplementationStep 4: Implementation

Step 5:Step 5: Maintenance—Maintenance—Making the Change PermanentMaking the Change Permanent

Step 5:Step 5: Maintenance—Maintenance—Making the Change PermanentMaking the Change Permanent

Chapter 5Production Technology: Selection and ManagementOverview

• Introduction• Proliferation of Automation• Types of Automation• Automated Production Systems• Factories of the Future• Automation in Services• Automation Issues• Deciding Among Automation Alternatives• Wrap-Up: What World-Class Producers Do

Introduction• In the past, automation meant the replacement of human effort with machine

effort.• Today, automation means integrating a full range of advanced information and

engineering discoveries into production processes for strategic purposes.

Advanced Production Technology• Types of Automation• Automated Production Systems• Factories of the Future• Automation in Services• Automation Issues• Decision Approaches

Types of Automation• Machine Attachments - one operation• Numerically Controlled (N/C) - reads computer or tape inputs• Robots - simulates human movements• Automated Quality Control - verifies conformance to specifications• Auto ID Systems - automatic acquisition of data• Automated Process Control - adjusts processes per set parameters

Automated Production Systems• Automated Flow Lines (Fixed Automation)

– Automated processes linked by automated material transfer• Automated Assembly Systems

– Automated assembly processes linked by automated material transfer• Flexible Manufacturing Systems (FMS)

– Groups of processes, arranged in sequence, connected by automated material transfer, and integrated by a computer system

Volume & Variety of ProductsVolume & Variety

of products Low Volume High Variety Process

(Intermittent)

Repetitive process

(modular)

High Volume Low Variety Process

(Continuous) One or very few units per lot

Project Poor strategy (Fixed costs and cost of changing to other products

Very small runs, high variety

Job shop are high)

Modest runs, modest variety

Disconnected Repetitive

Long runs, modest variations

Poor Strategy

Connected Repetitive

Very long runs, changes in attributes

(High variable costs)

Continuous

Equipment utilization

5%-25% 20%-75% 70%-80%

Process Design Depends on Product Diversity and Batch Size

Bat

ch S

ize

Number of Product Designs

ProductProductFocused,Focused,DedicatedDedicatedSystemsSystems

ProductProductFocused,Focused,

BatchBatchSystemSystem

Process-Focused,Process-Focused, Job ShopJob Shop

CellularCellularManufacturingManufacturing

This is an area of today’s This is an area of today’s automation programsautomation programs

Flexible Manufacturing System

Design Products for Automation• Reduce amount of assembly required..fewer parts• Reduce number of fasteners needed• Design parts to be automatically delivered/positioned• Design for layered assembly... base to top• Design parts to self-align• Design parts into major modules• Increase quality of components to avoid jams

Material-Handling Automation• Automated Storage & Retrieval System (ASRS)

– Receive orders, pick parts, maintain inventory records– Benefits: increase storage density and throughput, reduce labor costs,

improve product quality– Drawbacks: added maintenance costs

• Automated Guided Vehicle (AGVS)– Follows wire or track in floor. Newer versions use sensors placed around

the factory to figure out where they are.• Don’t build monuments to manage inventory!

– Most factories moving towards point-of-use stocks – Receiving docks built all around the exterior of buildings

10001000

100100

1010

11

11 1010 100100 10001000 1000010000 100000100000 10000001000000

GeneralGeneralpurposepurpose

Work cellsWork cellsCIMCIM

FlexibleFlexibleManufacturingManufacturing SystemSystem

FocusedFocusedautomationautomation

Dedicated Dedicated automationautomation

ProductsProducts

VolumeVolume

Computer-Based Systems• Computer-Aided Design (CAD) - Use of computer in interactive engineering

drawing and storage of designs• Computer-Aided Manufacturing (CAM) - Use of computers to program, direct

and control processes• CAD/CAM - merger and interaction between the two systems

Computer Integrated Manufacturing (CIM)

Characteristics of Factories of the Future• High product quality• High flexibility• Fast delivery of customer orders• Changed production economics• Computer-driven and computer-integrated systems• Organization structure changes

Automation in Services• Trend developing toward more-standardized services and less customer contact.• Service standardization brings trade-offs:

– Service not custom-designed for each customer– Price of service reduced, or at least contained

• Banking industry is becoming increasingly automated• Service firm can have a manual/automated mix:

– Manual - “front room” operations– Automated - “back room” operations

ASRSASRS

CAD/CAMCAD/CAM

AGVAGV

Order EntryOrder Entry

AutomatedAutomatedAssemblyAssembly NCNC

MachiningMachining

Incorporates all manufacturing processes

Automation Issues• Not all automation projects are successful.• Automation cannot make up for poor management.• Economic analysis cannot justify automation of some operations.• It is not technically feasible to automate some operations.• Automation projects may have to wait in small and start-up businesses.

Automation Questions• What level of automation is appropriate?• How would automation affect the flexibility of an operation system?• How can automation projects be justified?• How should technological change be managed?• What are some of the consequences of implementing an automation project?

Watch Out For !!!• Success .... many projects are not... high tech skills required to manage advanced

technologies• Technical feasibility.... There always are bugs with new technology• Economic analysis ... include both qualitative and quantitative

Managing Technological Change• Have a master plan for automation.• Recognize the risks in automating.• Establish a new production technology department• Allow ample time for completion of automation.• Do not try to automate everything at once.• People are the key to making automation successful.• Don’t move too slowly in adopting new production technology; you might loose

your competitive edge.

Deciding Among Automation AlternativesThree approaches commonly used in industry:

• Economic Analysis • Rating Scale Approach • Relative-Aggregate-Scores Approach

Economic Analysis• Provides an idea of the direct impact of automation alternatives on profitability.• Break-even analysis and financial analysis are frequently used.• Focus might be on:

– cash flows– variable cost per unit– annual fixed costs– average production cost per unit

Rating Scale ApproachAutomation alternatives are rated using, say, a five-point scale on a variety of factors such as:

• Economic measures• Effect on market share• Effect on quality• Effect on manufacturing flexibility• Effect on labor relations• Amount of time required for implementation• Effect on ongoing production

Relative-Aggregate-Scores Approach• Similar to Rating Scale Approach, but weights are formally assigned to each

factor which permits the direct calculation of an overall rating for each alternative.

Wrap-Up: World-Class Practice• World-Class producers utilize the latest technologies/practices. For example:

– Design products to be automation-friendly– Use CAD/CAM for designing products– Convert fixed automation to flexible automation– Move towards smaller batch sizes– Plan for automation– Build teams to develop automated systems– Justify automation based on multiple factors

MaintenanceIntroduction

• Maintenance – All activities that maintain facilities and equipment in good working order

so that a system can perform as intended• Breakdown maintenance

– Reactive approach; dealing with breakdowns or problems when they occur• Preventive maintenance

– Proactive approach; reducing breakdowns through a program of lubrication, adjustment, cleaning, inspection, and replacement of worn parts

Maintenance Reasons• Reasons for keeping equipment running

– Avoid production disruptions– Not add to production costs– Maintain high quality– Avoid missed delivery dates

Breakdown Consequences• Production capacity is reduced

– Orders are delayed• No production

– Overhead continues– Cost per unit increases

• Quality issues– Product may be damaged

• Safety issues– Injury to employees– Injury to customers

Total Maintenance Cost

Preventive Maintenance• Preventive maintenance : goal is to reduce the incidence of breakdowns or

failures in the plant or equipment to avoid the associated costs• Preventive maintenance is periodic

– Result of planned inspections– According to calendar– After predetermined number of hours

Breakdown andrepair cost

Optimum Amount of preventive maintenance

Co

st

Total Cost

Preventivemaintenance cost

Example S-1

Example S-1 SolutionNumber ofBreakdowns

Frequency ofOccurrence

Expected number ofBreakdowns

0123

.20

.30

.40

.101.00

0.30.80.301.40

Expected cost to repair = 1.4 breakdowns per month X $1000 = $1400Preventive maintenance = $1250PM results in savings of $150 per month

Predictive Maintenance• Predictive maintenance

– An attempt to determine when best to perform preventive maintenance activities

• Total productive maintenance– JIT approach where workers perform preventive maintenance on the

machines they operate

Breakdown Programs

Frequency of breakdown

If the average cost of a breakdown is $1,000, and the cost of preventative maintenance is $1,250 per month, should we use preventive maintenance?

Number of breakdowns

0 1 2 3Frequency of occurrence

.20

.30

.40

.10

• Standby or backup equipment that can be quickly pressed into service• Inventories of spare parts that can be installed as needed• Operators who are able to perform minor repairs• Repair people who are well trained and readily available to diagnose and correct

problems with equipment

Replacement• Trade-off decisions

– Cost of replacement vs cost of continued maintenance– New equipment with new features vs maintenance– Installation of new equipment may cause disruptions– Training costs of employees on new equipment– Forecasts for demand on equipment may require new equipment capacity

• When is it time for replacement?

Production, Operation & Management

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