production andor operations management

PRODUCTION &/or OPERATIONS MANAGEMENT Page 1

Saint Louis University SCHOOL OF ACCOUNTANCY AND BUSINESS MANAGEMENT

Department of Entrepreneurship, Human Resources Development and Management, and Marketing Management Baguio City

SYLLABUS

MGMT 6

PRODUCTION &/or OPERATIONS MANAGEMENT (3 units, 3 hours/week)

PRE-REQUISITE:

College Algebra Principles of Organization and Management

COURSE DESCRIPTION:

This course introduces the strategic and tactical decisions involved in production and operations management. It focuses on the concepts and tools that are used in making decisions related to the planning and design, operation, and control of production or operations systems. COURSE OBJECTIVE:

The course aims to: 1. To develop a comprehensive understanding of the production/operations function and

to appreciate its role as well as its interdependency with the other functions in the organization, and

2. To equip with the key concepts and tools of production/operations management in decision-making.

3. To apply the concepts and techniques to enhance organizational effectiveness and competitiveness toward the dynamic industry changes and economic development

COURSE REQUIREMENTS: 1. Quizzes, seat works and class activities 2. Grade Recitations and role playing 3. Problem-solving exercises and assignments 4. Periodical examinations TEACHING METHODOLOGIES: 1. Lecture 2. Class Discussion 3. Group Dynamics 4. Case Analysis and choreography

COURSE OUTLINE: PRELIMS A. Overview of Production and Operations Management (4hrs)

1. Introduction 2. Functions within the Business Organizations 3. Differentiating Features of P/O Systems 4. The Production/Operations Manager and Decision Making 5. System Design and Operations Decision in P/OM 6. Recent Trends in P/O Management

B. Productivity, Competitiveness, and Strategy (4hrs) 1. Productivity

a. Productivity Measures b. Improving Productivity

2. Competitiveness a. Keys to Competitiveness

3. Strategy a. Operations Strategy b. Strategy Formulations

C. Reliability and Availability (4hrs) D. Planning and Design of P/O Systems Part1: Forecasting (5hrs)

1. Overview of Qualitative Forecasting Methods 2. Quantitative Forecasting Techniques

a. Nave, Moving Averages, Exponential Smoothing b. Measuring Forecasting Accuracy

Preliminary Examination (1hr) MIDTERMS E. Planning and Design of P/O Systems Part 2: Facility Layout Design (7hrs)

1. Process Layout: Load-Distance Method 2. Process Layout: Assembly Line Balancing

F. Total Quality Management (4hrs) 1. Concepts 2. Methodologies

G. Operating and Controlling the P/O System Part 1: Inventory Management: Independent Demand (6hrs) 1. Fixed-Order Quantity Model 2. Fixed-Order Interval Model 3. Single Period Model

Midterm Examination (1hr) FINALS H. Operating and Controlling the P/O System Part 2:

1. Inventory Management: Dependent Demand (7hrs) a. Waiting Line Management b. Material Requirement Planning

2. Project Management (10hrs) Final Examination (1hr) (N.B.: Topics may change, add, or modify as deemed necessary to address to the current demands and developments in the industry as well as to the specific needs of the field of specializations.)

SUMMARY UNIT TOPICS HOUR/S

A B C D

E F G

H

PRELIMS Overview of Production and Operations Management Productivity, Competitiveness, and Strategy Reliability and Availability

Planning and Design of P/O Systems Part1: Forecasting PRELIMINARY EXAMINATION

MIDTERMS Planning and Design of P/O Systems Part 2: Facility Layout Design Total Quality Management

Operating and Controlling the P/O System Part1 Inventory Management: Independent Demand

MIDTERM EXAMINATION FINALS

Operating and Controlling the P/O System Part2 Inventory Management: Dependent Demand

Project Management FINAL EXAMINATIONS

04 04 04 05 01

07 04

6 1

7 10 01

TOTAL 54 GRADING SYSTEM:

Prelims % Midterms % Finals % CS Exam

40 60

CS Exam

50 50

CS Exam

60 40

Total 100 Total 100 Total 100 N.B.: CS = Class Standing include quizzes(30%), seat works and class activities (20%), problem solving (30%), graded recitation (10%), role playing (5%), and attendance (5%) REFERENCE: Stevenson, William J., Operations Management, 10th edition, New York, U.S.A., The

McGraw-Hill Companies, Inc. 2009 Jacobs, F. Roberts, Richard B. Chase, and Nicholas J. Aquilano, Operations and Supply

Management, New York, U.S.A., The McGraw-Hill Companies, Inc. 2009 Heizer, Jay and Barry Render, Principles of Operations Management, 5th edition, Upper

Saddle river, New Jersey, Pearson Educational, Inc., 2004 Napoleon I. Barnachea Jr. AY 2011-2012 (07 November 2011) Email address: [email protected]


A. Overview of Production and/or Operations Management (4hrs) Introduction Production conjures up images of factories, machines, and assembly lines.

Production/Operations Management, or more simply, Operations Management, is the management of system or processes that create goods and/or provide service. Further, .. . involve scheduling of activities, motivating employees, ordering and managing supplies, selecting and maintaining equipments, satisfying quality standards, andabove all . through short- and long-term planning.

Functions within the Business Organizations

An organization is a group of people working together to achieve common objectives. This basic definition implies that at least for conditions must exist to have an organization:

a. There must be a .. ... (community ) - two or more individuals; b. These individuals must have .. (common objectives); i.e., they all agree on at least one

objective that is worth pursuing and achieving; c. Each member of the group (cooperation) to the best that he or she can to contribute towards the

achievement of their shared objectives; and d. The group member .. . (coordination), i.e., all of their efforts are interrelated and coordinated,

all aimed at the achievement of their common objectives.

All of these conditions must be present for an organization to exist. If only one or two or even three, but not all, of these conditions exist, the organization, the organization, in its truest sense, does not exist.

Business Organization is formed to pursue goals that are achieved more efficiently by concerted efforts of group of people than by individuals working alone. Business organizations are devoted to producing goods and/or providing services. They may be for-profit or nonprofit organization. The primary activities of business are

1. Commercial or business engages in the . and .. of goods. Its earnings are primarily derived from the markup (profit margin) it adds to the cost of goods that is sold to the customers.

2. Manufacturing business converts . into finished goods that are to be sold for business or personal used.

3. Service business performs or delivers service to clients in for a fee.

A typical business organization has three basic functions: , .. and .. In addition to the three primary functions, many organizations have a number of supporting functions, such as personnel, accounting, and engineering.

Operations The operations function consists of all activities directly related to producing goods or providing services. The production functions exists not only in manufacturing and assembly operations, which are good-oriented, but also in areas such as health care, transportation, food handling and retailing, which are primarily service-oriented

The operations function involves the conversion of inputs into outputs.


Value added is the term used to describe the difference between the cost of inputs and the value or price of output (value to the society, price that customers are willing to pay for those goods or services)

Examples of types of operations

Type of operations Examples Good producing Storage/Transportation Exchange Entertainment Communication

Farming, mining, construction, manufacturing, power generation Warehousing, trucking, mail service, moving taxis, buses, hotels, airlines Retailing, wholesaling, banking, renting or leasing, library loans Films, radio and television, plays, concerts, recording Newspapers, radio and TV newscasts, telephone, satellites

Finance

The finance function comprises activities related to securing resources at favorable prices and allocating those resources throughout the organization.

a. Budgeting. Budget must be periodically prepared to plan financial requirements. Budgets must sometimes be adjusted, and performance relative to a budget must be evaluated.

b. Economic analysis of investment proposals. Evaluation of alternative investment in plant and equipment requires inputs from both operations and finance people.

c. Provision of funds. The necessary funding of operation and the amount and timing of funding can be important and even critical when funds are tight.

Marketing

Marketing consists of selling and/or promoting the goods or services of an organization. Marketing people make advertising and pricing decisions. Marketing is also responsible for assessing customer wants and needs, and for communicating those to operations people (short term) and to design people (long term).

Lead time is the time necessary to deliver an order or perform a service.

The functional areas are interdependent with P/O as the core functions

RESOURCES

Money

Manpower

CUSTOMERS

Needs

Wants

PRODUCTS

Goods

Services P/O

Finance

Accounting

Maintenance

Marketing

Personnel

Purchasing

Industrial

Engineering MIS


THE P/O MANAGER AND THE MANAGEMENT PROCESS

The P/O manager is the key figure in the P/O system: he or she has the ultimate responsibility for the creation of goods or the provision of services. The P/O managers job is essentially MANAGERIAL PROCESS: He or she must coordinate the use of resources through the management process of planning, organizing, directing, staffing, and controlling. Examples of the responsibilities of a P/O manager:

PLANNING Capacity Location Products and services Make or buy Layout Projects Scheduling

DIRECTING Incentive plans Issuance of work orders Job assignments

ORGANIZING Degree of centralization Subcontracting

STAFFING Hiring/laying off Use of temporary employee and/or overtime

work

CONTROLLING Inventory control Quality control

THE P/O MANAGER AND DECISION MAKING The chief role of a P/O manager is that of planner and decision maker. The general approaches to decision making includes the use of quantitative methods, analysis of trade-offs, and the systems approach.

The Use of Models

Model is an abstraction of reality; that is, a model presents a simplified version of something. (e.g., childs toy car, wind tunnels, formulas, graphs and charts, balance sheet and financial statements, and financial ratios. Common statistical models include descriptive statistics such as the mean, median, mode, range, and standard deviation, as well as random sampling, the normal distribution, and regression equation. Models are classified as follows:

a. Physical model looks like their real-life counterparts. Examples include miniature cars, trucks, airplanes, toy animals and trains, and scale-models. The advantage of these models is their visual correspondence with reality.

b. Schematic models are more abstract that their physical counterparts; that is, they have less resemblance to the physical reality. Examples include graphs and charts, blueprints, pictures, and drawings. The advantage of schematic model is that they are often relatively simple to construct and change. Moreover, they have some degree of visual correspondence.

Tips to Understand Models

a. try to learn the purpose; b. how it is used to generate results; c. how these results are interpreted and used;

and d. what assumptions and limitations apply


c. Mathematical models are the most abstract; they do not look at all like their real-life counterparts. Examples include numbers, formulas, and symbols. These models are usually the easiest to manipulate, and they are important forms of inputs for computers and calculators.

Benefits of using models Limitations of using models a. easy to use and less expensive than dealing with

the actual situations; b. organize and sometimes quantify information

and, in the process, often indicate areas where additional information is needed;

c. provide systematic approach to problem solving; d. increase understanding of the problem; e. enable managers to analyze what if? questions; f. require users to be very specific about objectives; g. serve as a consistent tool for evaluation; h. enable users to bring the power of mathematics to

bear on a problem; i. provide a standardized format for analyzing a

problem

a. Quantitative information may be emphasized at the expense of qualitative information;

b. Models may be incorrectly applied and the results misinterpreted. The widespread use of computerized models adds to this risk because highly sophisticated models may be place in the hands of users who are not sufficiently grounded in mathematics to appreciated the subtleties of a particular model; thus, they are unable to fully comprehend the circumstances under which the model can be successfully employed

Quantitative Approaches

Quantitative approaches to problem solving often embody an attempt to obtain mathematically optimum solutions to managerial problems.

a. Linear Programming and related mathematical techniques are widely used for optimum allocation of scarce resources.

b. Queuing Techniques, which originated around 1920 in the telephone industry but remained dormant until the 1950s and 1960d, are useful for analyzing situations in which waiting lines forms.

c. Inventory Model, also popular after some early work, went through long period of low interest but are now widely used to control inventories.

d. Project Models such as PERT (program evaluation and review technique) and CPM (critical path method) are useful for planning, coordinating, and controlling large-scale projects.

e. Forecasting Techniques are widely used in planning and scheduling.

f. Statistical Models are currently used in many areas of decision making.

Analysis of Trade-Offs

Operations managers encounter decisions that can be described as trade-off decisions. For example, in deciding on the amount of inventory stock, the manager must take into account the trade-off between increased level of customer service that the additional inventory would yield and the increased cost required to stock that inventory. Similarly, in selecting a piece of equipment, a manager must evaluate the merits of extra features relative to the cost of those extra features.


Analysis of trade-offs P/O managers often encounter decisions that can be described as trade-off decisions. Examples:

Amount of inventory to stock

Equipment selection

Scheduling of overtime

A System Approach

A system can be defined as a set of interrelated parts that must work together. In a business organization, the organization is viewed as a system composed of subsystems (e.g. marketing subsystem), which in turn are composed of lower subsystems. The system approach emphasizes interrelationships among subsystems, but its main theme is that the whole is greater than the sum of its individual parts (synergy). Hence, from a system viewpoint, the output and objectives of the organization as a whole take precedence over those of any one subsystem and should be optimized even if this requires a less-than-optimum results in one or more subsystem.

Establishing Priorities

Recognition of priorities in problem solving means solving more important problems first. It is axiomatic that a relatively few factors often account for the major share of a problem so that dealing with those factors will generally have a disproportionately large impact on the results achieved. This is referred to as the pareto phenomenon, which means that all things are not equal; some things (a few) will be very important for achieving an objective or solving a problem, and other things (many) will not. The implication is that a manager should examine the situation, searching for the few factors that will contribute the most to improvement, and concentrate in those; little or nothing will be gained by focusing efforts on other, less important factors.

Increased customer service Increased costs to stock inventory

Merits of extra features Cost of extra features

Increased output Higher costs of overtime

e.g., higher labor costs, lower productivity, lower quality, greater risk of accidents


Ethics P/O managers have the responsibility to make ethical decisions. Ethical issues include:

1. Worker safety Providing adequate training, maintaining equipment in good working condition, maintaining a

safe working environment 2. Hiring and firing workers Dont hire under false pretenses; e.g., promising a long-term job when that is not what is intended

3. Workers rights Respecting workers rights, dealing with worker problems quickly and fairly

4. Product safety Providing products that minimize the risk of injury to users or damage to property or the

environment 5. Quality Honoring warranties, avoiding hidden defects

6. The environment Obeying government regulations

7. The community Being a good neighbor and corporate citizen

8. Closing facilities Taking into account the impact on a community, and honoring commitments that have been made

The individual most directly responsible for making an organizations resource productive, by skillfully guiding the operation of productive systems, are managers. Three prominent theories developed to explain the role of managers are: a. Functional is the traditional (classical) approach that holds that managers plan, organize, direct, and control the

activities of an organization. b. Behavioral is human relations approach that emphasizes interpersonal relationships and organizational behavior.

Under it, managers work through other people to lead the activities of an organization. c. Decision-making (system) is an approach that focuses upon the use of data and quantitative techniques for making

decisions that facilitate system goals. Managers are primarily decision makers within an operating system. Managers must, of course, have a blend of functional (and technical) capability, behavioral competence to work with people individually and in groups, and analytical skills to assess the situations. Management is the process of developing decisions and taking actions to direct the activities people within an organization toward common objectives. System Design and Operations Decision in P/OM

Decision Area Basic Question Planning and Design Decisions Decisions pertaining to planning the system

Operating and Control Decisions Decisions pertaining to running the system


Decision Areas in Production/Operations Management Listed below are some of the major decision areas in production/operations management and the primary concern

addressed in each:

Major Decision Areas Primary Concerns

Quality Management

Forecasting

Product or Service Design Process Selection and Design

Capacity

Facility Location Facility Layout

Design of Work System

Inventory Management

Scheduling

Maintenance

Project Management

How do we make sure that our products meet or exceed the requirements of our customers? How many units of our products will be demanded by our customers or how many customers may avail of our service in some future time? What products and product attributes would best satisfy our customers? Whats the most effective and efficient way to create our products or provide out services? How large should our facility be; i.e., how many units of the product should it be able to produce or how many customers should it be able to accommodate at any given time? Where do we locate our facility: near supplier or near customers? How do we arrange the various equipments, departments and workstations in our facility? How do we make a good fit between our workers, their work, and the work environment to maintain their motivation and productivity? Which of the inventory items should we prioritize and closely monitor? How much of each we stock? When do we order or make each item and how much do we order? Which worker, equipment, or workstation will perform which task, and when or in what sequence? How do we maintain our equipment and facilities in good working condition? How do we finish the project on time, at minimum cost, and according to the requirements of the client who commissioned it?

Designing and Operating Production Systems System Design involves decisions that relates to system capacity, the geographic location of facilities, arrangement of departments and placements of equipments within physical structures, product and service planning, and acquisition of equipment. System Operations involves management of personnel, inventory planning and control, scheduling, project management, and quality assurance * Operations managers has a vital stake in system design because system design essentially determines many of the parameters of system operation

Differentiating Features of P/O Systems

a. Degree of Standardization Standardized output means that there is a high degree of uniformity in goods or services. Standardized goods include radios, televisions, computers, newspapers, canned foods, automobiles tires, pens, and pencils. Standardized services include automatic car wash, televised newscasts, taped lectures, and commercial airlines service.


Customized output means that the product or service is designed for a specific case or individual. Customized goods are eyeglasses, custom-fitted clothing, window glass (cut to order), and customized draperies. Customized services include tailoring, taxi rides, and surgery.

b. Type of Operations Project is a set of activities directed toward a unique goal, usually large scale, with a limited time frame (such as construction of a hospital).

Job Shop is an organization that renders unit or lot production or service with varying specifications, according to customer the customer needs. (repair work, health care, tool and die shop)

Batch Processing is a system used to produce moderate volumes of similar items. (food processing; bakeries, canneries; Paint manufacturers and printing press)

Repetitive Production is a production system that renders one or a few highly standardized products or services (often lend themselves to automation or other use of specialized equipments)

Continuous processing is employed when a highly uniform products or service is produce or rendered. Processing of chemicals, photographs films, newsprint, and oil products are all examples of this type of operations.

c. Manufacturing versus Service Operations Manufacturing implies production of a tangible output, such as automobile, a clock radio, a golf ball, and a

refrigeratoranything that we can see or touch. Service, on the other hand, generally implies an act. Such as government, wholesale/retail, health care, personal services, business services, and education.

Manufacturing and service organizations differ chiefly because manufacturing is product-oriented and service is act-oriented. The difference involves the following:

1. Customer contact 2. Uniformity of input 3. Labor content of jobs 4. Uniformity of output 5. Measurement of productivity 6. Quality assurance

Differences between manufacturing and service

Characteristics Manufacturing Service

Output Customer contact Uniformity of input Labor content Uniformity of output Measurement of productivity Opportunity to correct quality problems before

delivery to customer

Tangible

Low High Low High Easy

High

Intangible

High Low High Low

Difficult

Low


Some examples of partial productivity measures Labor Productivity

Units of output per labor hour Units of output per shift Valued-added per labor hour Peso value of output per labor hour

Machine Productivity Units of output per machine hour

Peso value of output per machine hour Capital Productivity

Units of output per peso input Peso value of output per peso input

Energy Productivity Units of output per kilowatt-hour

Peso value of output per kilowatt-hour

Productivity Measure

Productivity = Output (1) Input

FACTORS THAT AFFECTS PRODUCTIVITY

1. Methods 2. Capital 3. Quality 4. Technology 5. Management

Module on Productivity

Productivity Measures Product Yield

B. PRODUCTIVITY, COMPETITIVENESS, and STRATEGY

PRODUCTIVITY Productivity relates to how effective an organization is in the use of its

resource

Productivity is an index that measures output (goods and service) relative to the input (labor, materials, energy, and other resources) used to produce them. It is usually expressed as the ratio of output to input:

Productivity measures can be based on single input (partial productivity), on more than one input (multifactor productivity, on all inputs (total productivity). Some examples of different types of measures of productivity

as shown below:

Partial Measures

Output Output Output Output Labor Machine Capital Energy

Multifactor Measures

Output Output Labor + Machines

Labor + Capital + Energy

Total

Measures Good or services produced

All inputs used to produced them Determine the productivity of these cases:

a. Four workers installed 720 square yards of carpeting in eight hours. b. A machine produced 68 usable pieces in two hours.

Calculations of multifactor productivity measures inputs and outputs using a common unit of measurement, such as cost or value. For instance, the measure might use cost of inputs and price of the outputs or units of output and time of output: Quantity of production at standard price or Quantity of production Labor cost + Material cost + Overhead Labor time + Machine time

Determine the multifactor productivity for the combined input of labor and machine time using the following data: Output 16,000 units Input: Labor 65 hours and Machine 15 hours.

Multifactor Productivity =

Output =

16,000 u =

200 unit/hr

======= Labor + Machine 65 hr + 15 hr

Solutions:

Productivity = Yards of carpet installed = 720 square yards Labor hours worked 4 workers x 8 hours/workers

= 720 yards = 22.5 yards/hour ========== 32 hours

Productivity = Usable pieces = 68 pieces = 34 pieces/hour ========== Production time 2 hours


Negative Impacts on Productivity (Theorists and researches)

1. A lower propensity to save and a higher propensity to consume, which slows capital formation and attracts foreign goods.

2. Increasing government regulations add to the administrative (and nonproductive) burden of many companies. 3. There is increasing demand for services, which are often less productive than manufacturing operations. (e.g.,

Business Process Outsourcing Firms) 4. An emphasis on short-run performance (e.g., annual profits and sales) reduces the incentives to develop long-term

solutions to problems. In addition, in periods of inflation and increased costs of borrowed money, managers are hesitant to commit funds for long periods of time because it reduces their flexibility to take advantage of other opportunities that might arise in the meantime.

IMPROVING PRODUCTIVITY

A company or a department can take a number of key steps toward improving productivity

1. Develop productivity measure for all operations: measurement is the first steps in managing and controlling an operation. 2. The capacity of the bottleneck operations is less than the combined capacities of the operations that provide inputs, so units queue up waiting to be processed. Improvement in the bottleneck

operations will lead to increased productivity up to the point where the output rate of the bottleneck equals the output of the operations feeding it.

3. Develop methods for achieving productivity improvements, such as soliciting ideas from workers (perhaps organizing teams of workers, engineers, and managers), studying how other firms have increased productivity, and reexamining the way work is done.

4. Establish reasonable goals for improvement 5. Make it clear that management supports and encourages productivity improvement. Consider incentives to reward

workers for contributions. 6. Measure improvements and publicize them. 7. Dont confuse productivity with efficiency. Efficiency is a narrower concept that pertains to getting the most out of

a given set of resources; productivity is a broader concept that pertains to effective use of overall resources. For example, an efficiency perspective on mowing a lawn given a hand mower would focus on the best way to use the hand mower; a productivity perspective would include the possibility of using a power mower.

PRODUCTIVITY AND QUALITY

Quality impact on productivity: fewer defects increase output and quality improvement reduces input.

MEASURING PRODUCT YIELD AND PRODUCTIVITY

Product yield is a measure of output used as an indicator of productivity.

1. It can be computed for the entire production process (or for one stage in the process).

2. May include in product manufacturing cost

3. Product quality would be monitored throughout the production process at various stages.

PRODUCT YIELD AND PRODUCTIVITY

Yield = (total input) (% good units) + (total input) (1 - % good units) (% reworked)

Equation 1.1

Product cost =

(direct manufacturing cost per unit) (input) + (rework cost per unit)

(reworked units) Equation 1.2

yield

Y = input (good quality, work-in-process product at stage i) Equation 1.3

Y = (I) (%g1) (%g2) (%g3) (%gn) Equation 1.3a


THE QUALITY-PRODUCTIVITY RATIO (QPR)

QPR = good-quality units

100 (input) (processing cost) + (defective units) (rework cost)

THE QUALITY-PRODUCTIVITY RATIO (QPR)

This measure the effect of quality on productivity combines the concept of quality index number and product yield. It is a quality index number that includes productivity and quality costs. QPR increase if either processing cost or rework costs or both decreases. It increases if more good-quality units are produced relative to total product input.

Sample Problems

1. The NBJ motor company starts production for a particular type of motor with a steel motor housing. The production process begins with 100 motors each day. The percentage of motors produced each day average 80% and the percentage of poor-quality motors that can be reworked is 50%. The company wants to know the daily product yield and the effect on productivity if the daily percentage of good-quality motors is increase to 90%. (90 motors, 95 motors, a 10 percentage-point increase results in a 5.5% increase in productivity output.)

2. The NBJ motor company has direct manufacturing cost per unit of $30, and motors that are of inferior quality can be reworked for $12 per unit. From example item #1. 100 motors are produced daily, 80 % (on average) are good quality and 20% are defective. Of the defective motors, half can be reworked to yield good-quality products. Through its quality-management program, the company has discovered a problem in it production process that, when corrected (at a minimum cost), will increase the good-quality products to 90%. The company wants to assess the impact on the direct cost per unit of improvement in product quality. ($34.67 per motor, $32.21 per motor, The improvement in the production process as a result of the quality-management program will result in a decrease of $2.46 per unit, or 7.1%, in direct manufacturing cost per unit as well as a 5.5% increase in product yield with a minimal investment in labor, plant, or equipment)

3. At the NBJ motor company, motors are produced in four-process. Motors are inspected following each stage, with percentage yield (on average) of good-quality, work-in-process units as follows.

Stage Average Percentage

Good-Quality 1 2 3 4

0.93 0.95 0.97 0.92

The company wants to know the daily product yield for product input of 100 units per day. Furthermore, it would like to know how many input units it would have to start with each day to result in a final daily yield of 100 good-quality unit.(78.8 motors, to achieve output of 100 good-quality motors, the production process must start with approximately 127 motor.)

4. The NBJ motor company produces small motors at a processing cost of $30 per unit. Defective motors can be reworked at a cost of $12 each. The company produces 100 motors per day and average 80% good-quality motors, resulting in 20% defects, 50% of which can be reworked prior to shipping to customers. The company wants to examine the effects of (1) increasing the production rate to 200 motors per day; (2) reducing the process cost to $26 and rework cost to $10; (3) increasing, through quality improvement, the product yield of good-quality products to 95%; and (4) the combination of 2 and 3. (2.89; 1. Increase input to production capacity of 200 units has no effect; 2. Reduce processing cost to $26 and rework cost to $10, increase by 3.33; 3. Increase initial good-quality units to 95%, increase by 3.22; 4. Decrease costs and increase initial good-quality units, increase by 3.71)


Name: Date: Course & Year: Schedule:

Problem Sets on Productivity and Quality

1. A rice milling company has provided the following data. Compare the labor, raw materials and supplies, and total productivity of 2009 and 2010.

2009 2010 Output: Input:

Sales value of production Labor Raw materials and supplies Capital equipment depreciation Other

P 990,000 450,000 360,000

31,500 99,000

P1,575,000 675,000 562,500

54,000 216,000

Which year did the company has a good yield?

2. The Dragon Fly Shoe Company manufactures a number of different styles of athletic shoes. Its biggest seller is the X-Pacer running shoe. In 2008 Dragon Fly implemented a quality-management program. The companys shoe production for the past three years and manufacturing cost are as follows:

Only one-quarter of the defective shoes can be reworked at a cost of P50 a piece. Compute the manufacturing cost per good product for each of the three years and indicate the annual percentage increase or decrease resulting from the quality-management program.

3. The Oriental Heritage Furniture Company manufactures four-drawer oak filling cabinets in six stages. In the first state, the boards forming the wall of the cabinet are cut; in the second stage, the front drawer panels are woodworked; in the third stage, the boards are sanded and finished; in the fourth stage, the boards are cleaned. Stained, and painted with a clear finish; in the fifth stage, the hardware for pulls, runners, and fitting is installed; and in the final stage, the cabinets are assembled. Inspection occurs at each stage of the process, and the average percentage of good-quality units are as follows.

The cabinets are produced in weekly production runs with a product input for 300 units.

a. Determine the weekly product yield of good-quality cabinets.

b. What would weekly product input have to be in order to achieve a final weekly product yield of 300 cabinets?

4. In problem item #3, the Oriental Heritage Furniture Company has investigated the manufacturing process to identify potential improvements that would improve the quality. The company has identified four alternatives, each costing to P750, 000, as follows.

a. Which alternative would result in the greatest increase in product yield?

b. Which alternative would be the most cost effective?

Year 2008 2009 2010 Units produced/input Manufacturing cost Percentage good quality

32,000 P13,900,000

78%

34,600 P14,550,000

83%

35,500 P15,275,000

90%

Alternative Quality Improvement 1 2 3 4

Stage 1: 93% Stage 2: 96%, Stage 4: 97% Stage 5: 97%, Stage 6: 98% Stage 2: 97%

Stage

Average Percentage

Good Quality 1 2 3 4 5 6

87% 91% 94% 93% 93% 96%



Productivity, Learning Curve and Linear Programming

1. A furniture manufacturing company has provided the following data. Compare the labor, raw materials and supplies, and total productivity of 2008 and 2009.

2008 2009 Output: Input:

Sales value of production Labor Raw materials and supplies Capital equipment depreciation Other

P 990,000 450,000 360,000

31,500 99,000

P1,575,000 675,000 562,500

54,000 216,000

2. The Puck and Pawn Company manufacture arnis sticks and chess sets. Each arnis stick yields an incremental profit of P90, and each chess set, P180. An arnis stick requires 4 hours of processing at machine center A and 2 hours at machine center B. A chess set requires 6 hours at machine center A, 6 hours at machine center B, and 1 hour at machine center C. Machine center A has a maximum of 130 hours of available capacity per day, machine center B has 72 hours, and machine center C has 10 hours. If the company wishes to maximize profit, how many arnis sticks and chess sets should be produced per day?

3. A job applicant is being tested for an assembly line position. Management feels that steady state times have been approximately reached after 1,000 performances. Regular assembly-line workers are expected to perform the task within four minutes.

a. If the job applicant performed the first test operation in 10 minutes and the second one is 9 minutes, should this applicant be hired?

b. What is the expected time that the job applicant would take to finish the 10 unit?

c. What is the total expected time that the applicant would take to finish the 15 units?

d. What is a significant limitation of this analysis?


COMPETITIVENESS

Competitiveness is how effectively an organization meets the needs of consumers relative to other that offer similar goods or services. Business organizations compete with one another in a variety of ways. Key among them is price, quality, product or service differentiation, flexibility, and time to perform certain activities.

1. Price is the amount a customer must pay for the product or service. If all other factors are equal, customer will choose the product or service that has the lower price. Organization that compete on price may settle for lower profit margins, but most focus on lower profit margin, but most focus on lowering production costs.

2. Quality refers to materials and workmanship as well as design. Generally, it relates to the buyers perceptions of how well the product or service will serve its purpose.

3. Product differentiation refers to any special features (e.g., design, cost, quality, ease of use, convenient location, warranty) that cause a product or service to be perceived by the buyer as more suitable than a competitors product or service.

4. Flexibility is the ability to respond to change. The better a company or department is at responding to change, the greater this competitive advantages over another company that is not as responsive. The changes might relate to increase or decreases in volume demanded, or to changes in product mix.

5. Time refers to a number of different aspects of an organizations operations. One is how quickly a product or service is delivered to a customer. Another is how quickly new product or services are developed and brought to the market. And another is the rate at which improvement in products or processes are made.

STRATEGY

Mission is the reason for existence of an organization.

Mission statement is a clear statement of purpose that serves as a guide for strategy and decision making. It answers the question, What business are we in?

Strategies and Tactics

Strategy is a plan for achieving organizational goals. Strategies provide focus for decision making. Generally speaking, organizations have overall strategies called organization strategies, which relate to the entire organization, and they also have functional strategies, which relate to each of the functional areas of the organization. The functional strategies should support the overall strategies of the organization, just as the organizational strategies should support the goals and mission of the organization.

Tactics is the methods and actions taken to accomplish strategies. They are more specific in nature than strategies, and they provide guidance and direction for carrying out actual operations, which need the most specific and detailed plan and decision making in an organization.

Figure 2-3

Planning and Decision Making

Is hierarchical in organizations

GOALS

MISSION

ORGANIZATIONAL STRATEGY

FUNCTIONAL STRATEGIES

Finance Marketing Operations

Tactics

Production Operations

Marketing Operations

Finance Operations


Operations Strategy is the approach, consistent with the organization strategy, which is used to guide the operations functions. It is narrower in scope, dealing primary with the operations aspect of the organization.

Management level

Time Horizon Scope

Level of detail Relates to

The Overall organization

Mission Strategy

Top Senior

Long Long

Broad Broad

Low Low

Survival, profitability Growth rate, market share

Production/Operations Strategic Tactical Operational

Senior Middle Low

Moderate to long Moderate Short

Broad Moderate Narrow

Low Moderate High

Product design, choice of location, choice of technology, new facilities

Employment levels, output levels, equipment selection, facility layout

Scheduling personnel, adjusting output rates, inventory management, purchasing

STRATEGIC MANAGEMENT PROCESS

STRATEGY FORMULATION

Distinctive competencies are those special attributes possessed by an organization that gives it a competitive edge. In effect, distinctive competencies relate to the way the organizations compete. As noted previously, these can include price (based on some combination of low cost of resources such as labor and materials, low operating cost, and low production cost); quality (high performance or consistent quality); time (rapid delivery or on-time delivery); flexibility (variety or volume); customer service; and location.

Strategy Formulation Strategy Implementation Evaluation & Control

External

Internal

Policies

Objectives

Strategie

Vision - Mission

Programs

Budgets

Procedures

Performance

Activities needed to

accomplish a plan

What results to accomplish

by when Plan to

achieve the mission and objectives

Broad guidelines

for decision making

Reason for existence

Cost of the programs

Sequence of steps

needed to do the job

Actual results

Environmental Scanning

STRATEGIC MANAGEMENT MODEL

Structure: Chain of Command

Culture:

Beliefs, expectation, values

Resources: Asset, Skills, competencies,

knowledge

Societal Environment:

General Forces

Task Environment: Industry Analysis

Feedback


Environmental scanning is the considering of events and trends that present either threats or opportunities for the organization. Generally these include competitors activity; changing consumer needs; legal, economic, political, and environmental issues; the potential markets for new markets; and the like.

NEW STRATEGIES Traditional strategies of business organization have tended to emphasize cost minimization or product differentiation. While not abandoning those strategies, many organizations are adopting new strategies that are based on quality and/or time. 1. Quality based strategies focus on satisfying customer by integrating quality into all phases of the organization. 2. Time based strategies focus on reducing the time required to accomplish various activities (e.g., develop new

product or service and market them, respond to a change in customer demand, or deliver a product or perform a service). The rationale is that by reducing time, costs are generally less, productivity is higher, quality tends to be higher, product innovation appears on the market sooner, and customer service is improved.

TIME-BASED STRATEGIES Organizations have achieved time reduction in some of the following: 1. Planning time. The time needed to react to a competitive threat, to develop strategies and select tactics, to approve

proposed change to facilities, to adapt to new technologies and so on. 2. Product or service design time: The time needed develop and market new or redesigned products or services 3. Processing time: The time needed to produce goods or provide services. This can involve scheduling, repairing

equipment, wasted efforts, inventories, quality, training and the like. 4. Changeover time: The time needed to change from producing one type of product or service to another. May

involve new equipment setting and attachments, different methods, equipment, schedules, or materials. 5. Delivery time: The time needed to fill orders. 6. Response time for complaints: These might be customer complaint about quality, timing of deliveries, and incorrect

shipments. These might also be complaints from employees about working conditions (e.g., safety, lighting, heat or cold), equipment problems, or quality problems.

LEAN PRODUCTION

Lean Production is a new, time-based approach to the production of manufactured goods. In the earliest days of

manufacturing, goods were produced using craft production: a system in which highly-skilled workers use simple, flexible tools to produce small quantities of customized goods or according to customer specification

All of these factors are external factors. The key factors are:

1. Economic conditions. These include the general health and direction of the economy, inflation and deflation, interest rates, tax laws, and tariffs.

2. Political conditions. These include favorable or unfavorable attitudes towards business, political stability or instability, and insurgencies.

3. Legal environment. This include antitrust laws, government regulations, trade restrictions, minimum wage laws, product liability law and recent court experience, labor laws, and patents.

4. Technology. This can include the rate at which product innovations are occurring, current and future process technology (equipment, materials handling), and design technology.

5. Competition. This includes the number and strength of competitors, the basis of competition (price, quality, special features), and the ease of market entry.

6. Markets. This includes size, location, brand loyalties, ease of entry, and potential for growth, long-term stability, and demographics.

The organization must also take into account various internal factors that relate to possible strengths and weaknesses. Among the key internal factors are;

1. Human Resources. These includes the skills and abilities of managers and workers; special talents (creativity, designing, problem solving); loyalty to the organization; expertise; dedication; and experience.

2. Facilities and equipment. Capacities, location, age, and cost to maintain or replace can have significant impact on operations.

3. Financial resources. Cash flow, access to additional funding, existing debt burden, and cost of capital are important considerations.

4. Customers. Loyalty, existing relationship, and understanding of wants and needs are important.

5. Products and services. These include existing product and services, and the potential for new products and services

6. Technology. This includes existing technology, the ability to integrate new technology, and the probable impact of technology on current and future operations.

7. Suppliers. Supplier relationships, dependability of suppliers, quality, flexibility, and service are typical considerations.

8. Other. Other factors include patent, labor relations, company or product image, distribution channels, relationships with distributors, maintenance of facilities and equipment, access to resources, and access to market.


Module on Learning Curve

Learning Curve

Applying Learning Curve

Strategic Implication of Learning Curve

Customized goods were relatively expensive to produce and did not lend themselves to high-volume production. Over time, those methods were replaced by mass production: a system in which lower-skilled or semi-skilled workers use specialized machinery to produce high volume of standardized goods. Such systems are intolerant to disruption, which greatly increase the cost of operation. Consequently, buffers are built into these systems to offset such disruption.

Lean production system are so named because they use much less of certain resources than mass production system

useless space, less inventory, and fewer workersto produce comparable amount of output. Lean production is a system that uses minimal amount of resources to produce a high volume of high-quality goods with some variety. Lean production system uses a highly skilled workforce and flexible equipment. In effect, they incorporate advantage of both mass production (high volume, low unit cost) and craft production (variety and flexibility). And quality is higher in mass production. Source: William J. Stevenson, Production/Operations Management, 5th edition, IrwinMcGraw-Hill, Boston, Massachusetts, 1996, Chapter 2, pp. 38-59.

LEARNING CURVE

LEARNING CURVE

Learning curves are based on the premise that people and organizations become better at their tasks as the tasks are repeated. A learning curve graph displays labor-hours per unit versus the number of units produced. From it we see that the time needed to produce a unit decreases, usually following a negative exponential curve, as the person or company produces more units. In other words, it takes less time to complete each additional unit a firm produces. However, we also see that the time saving in completing each subsequent unit decreases. These are the major attributes of the learning curves.

Learning curves were first applied to industry in a report by T. P. Wright of Curtis-Wright Corporation in 1936. Wright described how direct labor cost of making a particular airplane decreased with learning, a theory since confirmed by other aircraft manufacturers. Regardless of the time needed to produce the first plane, learning curves are found to apply various categories of airframes (e.g., jet fighters versus passenger planes versus bombers). Learning curves have since been applied not only to labor bur also to a wide variety of other costs, including material and purchased components. The power of the learning curve is so significant that it plays a major role in many strategic related to employment levels, costs, capacity, and pricing. The learning curve is based on the doubling of production. That is, when producing doubles, the decrease in time per unit affects the rate of learning curve. So, if the learning curve is an 80% rate,

the second unit takes 80% of the time of the first unit, the fourth unit takes 80% of the second unit, the eight unit takes 80% of the fourth unit, and so forth. This principle is shown as:

Time required for the nth unit = T x Ln (E-1)

where T =

L = n =

unit cost or unit time of the first unit learning curve rate number of times T is doubled

Cos

t /tim

e pe

r rep

etiti

on

0 Number of repetitions (volume)


If the first unit of a particular product to 10 labor-hours, and if a 70% learning curve is present, the hours the fourth unit will take require doubling twicefrom 1 to 2 to 4. Therefore, the formula is

Hours required for unit 4 = 10 x (.7)2 = 4.9 hours APPLYING THE LEARNING CURVE Arithmetic Approach The arithmetic approach is the simplest approach of learning curve problems. As we noted at the beginning of this module, each time that production doubles, labor per unit declines by a constant factor, known as the learning rate. So, if we know that the learning rate is 80% and that the first unit produced took 100 hours, the hours required the 2nd, 4th, 8th and 16th units are as follows

Nth Unit Produced Hours for Nth Unit 1 2 4 8

16

100.0 80.0 = (.8 x 100) 64.0 = (.8 x 80) 51.2 = (.8 x 64) 41.0 = (.8 x 51.2)

As long as we wish to find the hours required to produce N units and N is one of the doubled values, then this approach works. Arithmetic analysis does not tell us how many hours will be needed to produce other units. For this flexibility, we must turn to the logarithmic approach. Logarithmic Approach The logarithmic approach allows us to determine labor for any unit, TN, by the formula:

TN = T1(N b) (E-2)

where TN =

T1 = N = b =

time for the Nth unit hours to produce the first unit Nth unit (log of the learning rate)/(log 2) = slope of the learning curve

The logarithmic approach allows us to determine the hours required for any unit produced, but there is a simpler method Learning-Curve Coefficient Approach The learning-curve coefficient technique is embodied in Learning Curve Coefficient table and the following equation:

TN = T1C (E-3)

where TN =

T1 = C =

number of labor-hours required to produce the Nth unit number of labor-hours required to produce the first unit learning-curve coefficient, where Coefficient, C = N(log of learning rate/log2)

The learning-curve coefficient, C, depends on both the learning rate (70%, 75%, 80%, and so on) and the unit number of interest.


STRATEGIC IMPLICATIONS OF LEARNING CURVES 1. Following an aggressive pricing policy 2. Focusing on continuing cost reduction and productivity improvement 3. Building on shared experience 4. Keeping capacity growing ahead of demand LIMITATIONS OF LEARNING CURVES 1. Because leaning curves differ from company to company, as well as industry to industry, estimates for each

organization should be developed rather than applying someone elses. 2. Learning curves are both based on the time necessary to complete the early units; therefore, those times must be

accurate. As current information becomes available, reevaluation is appropriate. 3. Any changes in personnel, design, or procedure can be expected to alter the learning curve, causing the curve to

spike up for a short time, even if it is going to drop in the long run. 4. While workers and process may improve, the same learning curves do not always apply to indirect labor and

material. 5. The culture of the workplace, as well as resources availability and changes in the process, may alter the learning

curve. For instance, as a project nears it end, worker interest and effort may drop, curtailing progress down the curve,

Discussion and Review Questions

1. How might the following business specialist use learning curves: accountants, marketers, financial analysts, people managers, and computer programmers?

2. As a manager, which learning percentage would you prefer (other things being equal) 110 percent or 60 percent? Explain.

3. What difference does it make a customer wants a 10,000 unit ordered produced and delivered all at one time or 2,500 unit batches?

Problems-solving Exercises

1. Digitel produces a new telephone system with built-in TV screens. Its learning rate is 80% a. If the first one took 56 hours, how long will it take Digitel to make the eleventh system? b. How long will the first 11 system take in total? c. As a purchasing agent, you expect to buy units 12 through 15 of the new phone system. What would be your

expected cost for the units if Digitel charges P30 for each labor-hour? 2. If the first time you performed a job took 60 minutes, how long will the eight hour job take if you are on an 80%

learning curve? 3. A job applicant is being tested for an assembly line position. Management feels that steady-state times have

approximately reached after 1,000 performances. Regular assembly line workers are expected to perform the task within four minutes. a. If the job applicant performed the first test operation in 10 minutes and the second one in 9 minutes, should this

applicant be hired? b. What is the expected time that the job applicant would finish the tenth unit?

References:

Richard B. Chase, Nicholas J. Aquilano, and F. Robert Jacobs, Production and Operations Management: Manufacturing and Services, 8th edition, Irwin/McGraw-Hill, Boston, 1998

William J. Stevenson, Production/Operations Management, 5th edition, IrwinMcGraw-Hill, Boston, Massachusetts, 1996, Chapter 2, pp. 38-59.


Appendix LC-A Learning Curve Coefficients



Problem Sets on Learning Curve

1. A job applicant is being tested for an assembly line position. Management feels that steady state times have been approximately reached after 1,000 performances. Regular assembly-line workers are expected to perform the task within four minutes. a. If the job applicant performed the first test operation in 10 minutes and the second one is 9

minutes, should this applicant be hired? b. What is the expected time that the job applicant would take to finish the 10 unit? c. What is the total expected time that the applicant would take to finish the 15 units? d. What is a significant limitation of this analysis?

2. A potentially large customer offered to subcontract assembly work which is profitable only if you can perform the operations at an average time of less than 20 hours each. The contract is for 1,000 units. You run a test and do the first one in 50 hours and the second one in 40 hours. a. How long would you expect it take to do the third one? b. Would you take the contract? Explain

3. An initial pilot run of ten unit produces the following times:

Unit Number Time (minutes) Unit Number Time (minutes) 1 2 3 4 5

39 29 23 19 17

6 7 8 9

10

16 15 13 13 12

a. According to this pilot run, what is your estimate of the learning rate? b. How much time will it take for the next 90 units? c. How much time will it take to make the 2,000th unit?

N.B: Use another sheet (coupon bond) paper as deem necessary.


Module on RELIABILITY

Introduction

Quantifying Reliability

C. RELIABILITY AND AVAILABILITY

RELIABILITY

It is the measure of the ability of a product, part, or system to perform its intended function under a prescribed set of conditions (e.g., repeat sale, product image and legal implication).

Introduction

Important aspect of reliability

1. Reliability as a probability Probability is the percentage of chance that product may fail as it was intended to function.

2. Definition of failure Failure is used to describe a situation in which an item does not perform as intended.

3. Prescribed operating condition Normal operating conditions is the set of conditions under which an items reliability is specified. These include load, temperature, and humidity ranges as well as operating procedures and maintenance schedules

Quantifying Reliability

Probability is used in two ways:

1. The probability that the product or system will function on any given unit. 2. The probability that the product or system will function for a given length of time

Independent events or components are events whose occurrence or non-occurrence does not influence each other.

Rule 1: If two or more events are independent and success is defined as the probability that all of the events occur, then the probability of success is equal to the product of the probabilities of the events.

Example. Suppose a room has two lamps, but to have adequate both lamps must work (success) when turned on. One lamp has a probability of working of .90, and the other has a probability of working of .80. The probability that both will work is .90 x .80 = .72.

Lamp 1 Lamp 2

Redundancy involves the use of backup components to increase reliability.

Rule 2: If two events are independent and success is defined as the probability that at least one of the events will occur, the probability of success is equal to the probability of either one plus 1.00 minus that probability multiplied by the other probability.

Example. There are two lamps in a room. One has a probability of lightning when turned on of .90 and the other has a probability of lighting when turned on of .80. Only single lamp is needed to light for success. If one fails to light when turned on, the other lamp is turned on. Hence, one of the lamps is a backup in case the

.90 .80


other one fails. Either lamp can be treated as the backup; the probability of success will be the same. The probability of success is .90 + (1 - .90) x .80 = .98. It the .80 light first, the computation would be .80 + (1 - .80) + .90 = .98.

Lamp 2 (backup)

Lamp 1

Rule 3: If three events are involved and success is defined as the probability that at least one of them occurs, the probability of success is equal to the probability that the first one (any of the events), plus the product of 1.00 minus that probability and the probability of the second event (any of the remaining events), plus the product of 1.00 minus each of the first two probabilities and the probability the third event, and so on.

Example. Three lamps have probabilities of .90, .80, and .70 of lighting when turned on. Only one lighted lamp is need for success; hence two of the lamps are considered to be backups.

The probability of success is .90 + (1 - .90) x .80 + (1 - .90) x (1 - .80) x 70 = .994

Lamp 3 (backup)

Lamp 2 (backup)

Lamp 1

Determine the reliability of the system shown below.

.90

.80

.98

.90

.95 .90

.92

.70

.80

.90


Improving Reliability

1. Improve component design 2. Improve production and/or

assembly techniques 3. Improve testing 4. Use redundancy 5. Improve preventive maintenance

procedures 6. Improve user education 7. Improve design.

The system can be reduced to a series of three components

The system reliability is then the product of this 0.98 x 0.99 x 0.996 = 0.966

Probabilities are determined relative to a specified length of time. This approach is commonly used in product warranties, which pertain to a given period of time after purchase of a product.

Mean of Time Between Failures (MTBF) is the average length of time between failures of a product or component.

P(no failure before T) = e T/MTBF

where: e = Natural logarithm, 2.7183 ; T = Length of service before failure; and

MTBF = Mean time between failure

T/MBTF

e - T/MBTF T/MBTF

e - T/MBTF T/MBTF

e - T/MBTF

0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 1.10 1.20 1.30 1.40 1.50 1.60 1.70 1.80 1.90 2.00

.9048

.8187

.7408

.6703

.6065

.5488

.4966

.4493

.4066

.3679

.3329

.3012

.2725

.2466

.2231

.2019

.1827

.1653

.1496

.1353

2.10 2.20 2.30 2.40 2.50 2.60 2.70 2.80 2.90 3.00 3.10 3.20 3.30 3.40 3.50 3.60 3.70 3.80 3.90 4.00

.1255

.1108

.1003

.0907

.0821

.0743

.0672

.0608

.0550

.0498

.0450

.0408

.0369

.0334

.0302

.0273

.0247

.0224

.0202

.0183

4.10 4.20 4.30 4.40 4.50 4.60 4.70 4.80 4.90 5.00 5.10 5.20 5.30 5.40 5.50 5.60 5.70 5.80 5.90 6.00

.0166

.0150

.0136

.0123

.0111

.0101

.0091

.0082

.0074

.0067

.0061

.0056

.0045

.0041

.0037

.0033

.0030

.0027

.0025

.0022 Values of e T/MTBF

.90 + .90(1 - .90) .98 .95 + .92(1 - .95)

Failu

re r

ate

Failu

re r

ate

Reliability

e T/MTBF


The probability that failure will occur before time T is 1.00 minus that amount;

P(failure before T) = 1 - e T/MTBF Mean Time Between Failure (MTBF)

The theoretical MTBF of a disk drive represents the steady state failure rate of a large population of drives in volume manufacture. This is the expected time after the initial burn-in phase that it will take a hardware component to fail due to normal wear and tear.

Calculating Theoretical MTBFs

The theoretical MTBF of any hardware configuration can be calculated if you have the MTBFs of each component that make up your configuration. For example, you can calculate the MTBF of your server if you have the MTBFs of main CPU board, disk drives, server packaging, etc - a rather daunting task. Most discussions of server MTBF focus on disk drive MTBFs for a several reasons. First of all, components with moving parts (such as disk drive actuators and motors) typically have significantly lower MTBFs than non-moving components (such as memory chips or main CPU boards). Because a server's theoretical MTBF is most influenced by the MTBF of the least reliable component as well as the sheer number of components, disk drive MTBFs typically dominate the overall server configuration theoretical MTBF. Theoretical MTBF decreases in proportion to the number of components that make up the server, so larger configurations containing many disk drives by definition have a lower MTBF. Add to that the fact that disk drives contain data that may be time-consuming or impossible to recreate, it is easy to see why disk drive reliability dominates server reliability discussions.

The following examples illustrate the impact of disk drive MTBF on overall server MTBF.

A server's theoretical MTBF is calculated from the theoretical MTBFs of the components that make up at the server:

where

N = MTBF of each component

x = the number of components in the configuration

If one component, such as a disk drive, has a significantly lower MTBF than the rest of the population, its MTBF dominates the overall server MTBF. For example, examine a server containing one CPU main board with an MTBF of


1,000,000 hours, and a single drive with an MTBF of 300,000 hours (we'll ignore the other components for simplicity's sake). The server's MTBF is calculated as follows:

= 230,769 hours, close to the disk drive's MTBF

Even if all your components have high MTBFs, the overall configuration's overall MTBF is reduced in direct proportion to the number of components in the configuration. For example, the MTBF of a storage subsystem consisting of two disk drives with identical 300,000 hour MTBFs is:

= 150,000 hours, exactly half the MTBF of each disk drive

Similarly, a 10-drive configuration MTBF is one-tenth the MTBF of a single drive, or 30,000 hours, and a 100-drive configuration is reduced to 3,000 hours. http://www.voxtechnologies.com/RAID_Solutions_and_Advanced_CTI_Platform/mtbf.htm Product life can sometimes be modeled by a normal distribution. The table provides areas under a normal curve from (essentially) the left end of the curve to a specified point z, where z is a standardized value computed using the formula:1

z = T Mean wear-out time Standard deviation of wear-out time

AVAILABILITY is the fraction of time a piece of equipment is expected to be available for operation.

Availability = Mean time between failure (MTBF) Mean time between failure (MTBF) + Mean time to repair (MTR)

A copier is expected to be able to operate for 200 hours between repairs, and the mean repair time is expected to be two hours. Determine the availability of the copier. Given that MTBF = 200 hours, and MTR = 2 hours

Availability = 200 hours = .99 200 hours + 2 hours

Implications for design are revealed by the availability formula:

1. Availability increases as the mean time between failures increases. 2. Availability increases as the mean repair time decreases.

1 Refer to the attach standard deviation (z) table.



Problem Set on Reliability

1. A product design engineer must decide if a redundant component is cost-justified in a certain system. The system in question has a critical component with a probability of 0.98 of operating. System failure would involve a cost of P800, 000. For a cost of P4, 000, a switch could be added that would automatically transfer the system to the backup component in the event of a failure. Should the backup be added if the backup is also 0.98?

2. Due to extreme cost of interrupting production, a firm has two standby machines available in case of a particular machine breakdown. The machine in use has a reliability of 0.94, and the backups have reliability of 0.90 and 0.80. In the event of a failure, either backup can be pressed into service. If one fails, the other backup can be used. Compute for the reliability.


3. A hospital has three independent fire alarm systems, with reliability of 0.95, 0.97, and 0.99. In the event of fire, what is the probability that a warning would be given?

4. A weather satellite has an expected life of 10 years from the time it is placed into earth orbit. Determine its probability of no wear-out before each of the following lengths of service. Assume the exponential distribution is appropriate: a) 5 years, b) 12 years, c) 20 years, and d) 30 years.


5. What is the probability that the satellite describe in the problem item 4 will fail between 5 years and 12 years after being placed into the earth orbit?

6. One line of radial tires produced by a large company has a wear-out life that can be made using a normal distribution with a mean of 25,000 miles and a standard deviation of 2,000 miles. Determine each of the following: a) the percentage of tires that can be expected to wear out within 2,000 miles of the average (i.e., between 23,000 miles and 27,000 miles), b) the percentage of tires that can be expected to fail between 26,000 miles and 29,000 miles, and c) for what tire life would you expect 4 percent of the tires to have worn out? Note: (1) miles are analogous to time and are handled in exactly the same way; (2) the term percentage refers to a probability.


STANDARD NORMAL PROBABILITY TABLE The table shows the area to the left of a z-score:

z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09

-3.4 .0003 .0003 .0003 .0003 .0003 .0003 .0003 .0003 .0003 .0002 -3.3 .0005 .0005 .0005 .0004 .0004 .0004 .0004 .0004 .0004 .0003

-3.2 .0007 .0007 .0006 .0006 .0006 .0006 .0006 .0005 .0005 .0005 -3.1 .0010 .0009 .0009 .0009 .0008 .0008 .0008 .0008 .0007 .0007 -3.0 .0013 .0013 .0013 .0012 .0012 .0011 .0011 .0011 .0010 .0010

-2.9 .0019 .0018 .0018 .0017 .0016 .0016 .0015 .0015 .0014 .0014 -2.8 .0026 .0025 .0024 .0023 .0023 .0022 .0021 .0021 .0020 .0019

-2.7 .0035 .0034 .0033 .0032 .0031 .0030 .0029 .0028 .0027 .0026 -2.6 .0047 .0045 .0044 .0043 .0041 .0040 .0039 .0038 .0037 .0036

-2.5 .0062 .0060 .0059 .0057 .0055 .0054 .0052 .0051 .0049 .0048 -2.4 .0082 .0080 .0078 .0075 .0073 .0071 .0069 .0068 .0066 .0064

-2.3 .0107 .0104 .0102 .0099 .0096 .0094 .0091 .0089 .0087 .0084 -2.2 .0139 .0136 .0132 .0129 .0125 .0122 .0119 .0116 .0113 .0110

-2.1 .0179 .0174 .0170 .0166 .0162 .0158 .0154 .0150 .0146 .0143 -2.0 .0228 .0222 .0217 .0212 .0207 .0202 .0197 .0192 .0188 .0183

-1.9 .0287 .0281 .0274 .0268 .0262 .0256 .0250 .0244 .0239 .0233 -1.8 .0359 .0351 .0344 .0336 .0329 .0322 .0314 .0307 .0301 .0294 -1.7 .0446 .0436 .0427 .0418 .0409 .0401 .0392 .0384 .0375 .0367

-1.6 .0548 .0537 .0526 .0516 .0505 .0495 .0485 .0475 .0465 .0455 -1.5 .0668 .0655 .0643 .0630 .0618 .0606 .0594 .0582 .0571 .0559

-1.4 .0808 .0793 .0778 .0764 .0749 .0735 .0721 .0708 .0694 .0681 -1.3 .0968 .0951 .0934 .0918 .0901 .0885 .0869 .0853 .0838 .0823

-1.2 .1151 .1131 .1112 .1093 .1075 .1056 .1038 .1020 .1003 .0985 -1.1 .1357 .1335 .1314 .1292 .1271 .1251 .1230 .1210 .1190 .1170

-1.0 .1587 .1562 .1539 .1515 .1492 .1469 .1446 .1423 .1401 .1379 -0.9 .1841 .1814 .1788 .1762 .1736 .1711 .1685 .1660 .1635 .1611

-0.8 .2119 .2090 .2061 .2033 .2005 .1977 .1949 .1922 .1894 .1867 -0.7 .2420 .2389 .2358 .2327 .2296 .2266 .2236 .2206 .2177 .2148 -0.6 .2743 .2709 .2676 .2643 .2611 .2578 .2546 .2514 .2483 .2451

-0.5 .3085 .3050 .3015 .2s981 .2946 .2912 .2877 .2843 .2810 .2776 -0.4 .3446 .3409 .3372 .3336 .3300 .3264 .3228 .3192 .3156 .3121

-0.3 .3821 .3783 .3745 .3707 .3669 .3632 .3594 .3557 .3520 .3483 -0.2 .4207 .4168 .4129 .4090 .4052 .4013 .3974 .3936 .3897 .3859

-0.1 .4602 .4562 .4522 .4483 .4443 .4404 .4364 .4325 .4286 .4247 0.0 .5000 .4960 .4920 .4880 .4840 .4801 .4761 .4721 .4681 .4641

z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09

0.0 .5000 .5040 .5080 .5120 .5160 .5199 .5239 .5279 .5319 .5359

0.1 .5398 .5438 .5478 .5517 .5557 .5596 .5636 .5675 .5714 .5753 0.2 .5793 .5832 .5871 .5910 .5948 .5987 .6026 .6064 .6103 .6141

0.3 .6179 .6217 .6255 .6293 .6331 .6368 .6406 .6443 .6480 .6517 0.4 .6554 .6591 .6628 .6664 .6700 .6736 .6772 .6808 .6844 .6879

0.5 .6915 .6950 .6985 .7019 .7054 .7088 .7123 .7157 .7190 .7224 0.6 .7257 .7291 .7324 .7357 .7389 .7422 .7454 .7486 .7517 .7549 0.7 .7580 .7611 .7642 .7673 .7704 .7734 .7764 .7794 .7823 .7852

0.8 .7881 .7910 .7939 .7967 .7995 .8023 .8051 .8078 .8106 .8133 0.9 .8159 .8186 .8212 .8238 .8264 .8289 .8315 .8340 .8365 .8389

1.0 .8413 .8438 .8461 .8485 .8508 .8531 .8554 .8577 .8599 .8621 1.1 .8643 .8665 .8686 .8708 .8729 .8749 .8770 .8790 .8810 .8830

1.2 .8849 .8869 .8888 .8907 .8925 .8944 .8962 .8980 .8997 .9015 1.3 .9032 .9049 .9066 .9082 .9099 .9115 .9131 .9147 .9162 .9177

1.4 .9192 .9207 .9222 .9236 .9251 .9265 .9279 .9292 .9306 .9319 1.5 .9332 .9345 .9357 .9370 .9382 .9394 .9406 .9418 .9429 .9441

1.6 .9452 .9463 .9474 .9484 .9495 .9505 .9515 .9525 .9535 .9545 1.7 .9554 .9564 .9573 .9582 .9591 .9599 .9608 .9616 .9625 .9633

1.8 .9641 .9649 .9656 .9664 .9671 .9678 .9686 .9693 .9699 .9706 1.9 .9713 .9719 .9726 .9732 .9738 .9744 .9750 .9756 .9761 .9767 2.0 .9772 .9778 .9783 .9788 .9793 .9798 .9803 .9808 .9812 .9817

2.1 .9821 .9826 .9830 .9834 .9838 .9842 .9846 .9850 .9854 .9857 2.2 .9861 .9864 .9868 .9871 .9875 .9878 .9881 .9884 .9887 .9890

2.3 .9893 .9896 .9898 .9901 .9904 .9906 .9909 .9911 .9913 .9916 2.4 .9918 .9920 .9922 .9925 .9927 .9929 .9931 .9932 .9934 .9936

2.5 .9938 .9940 .9941 .9943 .9945 .9946 .9948 .9949 .9951 .9952 2.6 .9953 .9955 .9956 .9957 .9959 .9960 .9961 .9962 .9963 .9964

2.7 .9965 .9966 .9967 .9968 .9969 .9970 .9971 .9972 .9973 .9974 2.8 .9974 .9975 .9976 .9977 .9977 .9978 .9979 .9979 .9980 .9981

2.9 .9981 .9982 .9982 .9983 .9984 .9984 .9985 .9985 .9986 .9986 3.0 .9987 .9987 .9987 .9988 .9988 .9989 .9989 .9989 .9990 .9990 3.1 .9990 .9991 .9991 .9991 .9992 .9992 .9992 .9992 .9993 .9993

3.2 .9993 .9993 .9994 .9994 .9994 .9994 .9994 .9995 .9995 .9995 3.3 .9995 .9995 .9995 .9996 .9996 .9996 .9996 .9996 .9996 .9997

3.4 .9997 .9997 .9997 .9997 .9997 .9997 .9997 .9997 .9997 .9998

Thanks to: http://www.stat.psu.edu/~herbison/stat200/stat200_model_demo/supplements/NormalTable.html


Make or Buy. A number of factors are usually considered.

1. Available capacity. 2. Expertise 3. Quality considerations 4. The nature of demand 5. Cost

D. PLANNING AND DESIGNING OF PRODUCTION &/or OPERATIONS SYSTEMS Process Selection

It refers to the way an organization chooses to produce its goods or provide its services. Essentially it involves choice of technology and related issues, and it has implications for capacity planning, layout of facilities, equipment, and design of work system.

Figure 7. Process selection and system design

Types of Processing 1. Continuous processing system produces large volume of one highly standardized item. There is little or no processing variety. Sugar is produced by a continuous processing system. 2. Repetitive/assembly operations can be thought of as semi-continuous because they tend to involve long runs of one or few similar items. The output of these operations is fairly standard, involving very little processing variety. 3. Batch processing is sometimes referred to as an intermittent processing system processing system because many jobs are performed with frequent shifting from one job to another. Intermittent system tends to have a high to moderate processing variety range. 4. Job shops are also considered as intermittent processing system because small quantities are produced. 5. Projects are special casea type of processing that is employed to handle a non-routine job encompassing a complex set of activities.

Match the Process and the Product

Product variety High Moderate Low Very low Equipment flexibility

High Moderate Low Very low

Low Volume Job Shop

Moderate Volume Batch

High Volume Repetitive assembly

Very High Volume Continuous flow

Table 1. Matching the process with product variety, equipment flexibility, and volume requirements.


Automation It is the substitution of machinery for human labor. Machinery includes sensing and control devices that enable it to operate automatically.

Computer-Aided Manufacturing (CAM)

It refers to the use of computer in process control, ranging from robots to automated quality control. These systems replace human functions with machine functions.

1. Numerically controlled (N/C) machines are programmed to follow a set of processing instructions based on mathematical relationships that tell the machine the details of the operations to be performed.

2. Computerized numerical control (CNC) where individual machines have their own computer. 3. Direct numerical control (DNC) one computer may control a number of N/C machines. 4. Robot consists of three parts: a mechanical arm, a power supply, and a controller. 5. Flexible manufacturing system (FMS) is a group of machines that includes supervisory computer control,

automatic material handling, and possibly robots, or other automated processing equipment. A group of machines designed to handle intermittent process requirements and produce a variety of similar products.

6. Computer-integrated manufacturing (CIM) is a system for linking a broad range of manufacturing activities through an integrating computer system, including engineering design, flexible manufacturing system, and production planning and control (not all elements are absolutely necessary).

Operation Strategy

Management of technology is where managers must work with technical experts, asking questions and increasing their understanding of the benefits and limitations of sophisticated processing equipment and technology, and ultimately make decisions themselves.

Capacity Planning

The capacity of an operating unit is an important piece of information for planning purposes. It enables managers to quantify production capability in terms of inputs or output, and thereby make other decisions or plan related to those quantities.

Capacity refers to an upper limit or ceiling on the load that an operating unit can handle.

Importance of Capacity Decisions

1. relates to the potential impact on the ability of the organization to meet future demand. 2. stems from the relationship between capacity and operating cost. 3. also lies in the initial cost involved, of which capacity is usually a major determinant. 4. stems from the often required long-term commitment of resources and the fact that, once they are

implemented, it may be difficult or impossible to modify those decisions without incurring major cost.

Defining and Measuring Capacity

Defining capacity:

1. Design capacity: the maximum output that can possibly be attained. 2. Effective capacity: the maximum possible output given a product mix, scheduling difficulties, machine

maintenance, quality factors, ad so on. 3. Actual output; the rate of output actually achieved. It cannot exceed effective capacity and is often less than

effective capacity due to breakdowns, defective output, shortages of materials, and similar factors.


Measures of capacity

Business Inputs Outputs Auto manufacturing Steel mill Oil refinery Farming Restaurant Theater Retail Sales

Labor hours, machine hours Furnace size Refinery size Number of acres, number of cows Number of tables, seating capacity Number of seats Square feet of floor space

Number of car per shift Tons of steel per day Gallons of fuel per day Bushels of grain per acre per year, gallons of milk per day Number of meals served per day Number of tickets sold per performance Revenue generated per day

Measures of system effectiveness

1. Efficiency is the ratio of actual output to effective capacity.

Efficiency = Actual output

Effective capacity

2. Utilization is the ratio of actual output to design capacity.

Utilization = Actual output

Design capacity

Example Problem

Given the information below, compute for the efficiency and the utilization of the vehicle repair department.

Design capacity = Effective capacity = Actual output =

50 trucks per day 40 trucks per day 36 trucks per day

Efficiency = Actual output

=

36 units per day = 90 %

Effective capacity 40 units per day

Utilization =

Actual output =

36 units per day

= 72 %

Design capacity 50 units per day

Thus, compared with the effective capacity of 40 units per day, 36 per day looks pretty good. However, compared with the design capacity of 50 units per day, 36 units per day is much less impressive although probably more meaningful.


Determinants of Effective Capacity

1. Facilities factors such as design of facilities, including size and provision for expansion, transportation cost, distance to market, labor supply, energy sources, room for expansion, likewise, layout of the working area and environmental factors such as heating, lighting, and ventilation.

2. Product/Service Factors can have a tremendous influence on capacity. The particular mix of products or service rendered must also be considered since different items will have different rates of output.

3. Process factors. The quantity capability of a process is an obvious determinant of capacity. A subtler determinant is the influence of output quality.

4. Human Factor. The task that make up a job, the variety of activities involved, and the training, skills, and experience required to perform a job all have an impact on the potential and actual output. Employee motivation has a very basic relationship to capacity, as do absenteeism and labor turnover.

5. Operations Factors. Scheduling problems may occur when an organization has differences in equipment capabilities among alternatives pieces of equipment or differences in job requirements. Inventory stocking decisions, late deliveries, acceptability of purchased materials and parts, and quality inspection and control procedures also can have an impact on effective capacity.

6. External factors. Product standards, especially minimum quality and performance standards can restrict managements options for increasing and using capacity. Thus, pollution standard on products and equipments often reduce-effective capacity, as does paperwork required by government regulatory agencies by engaging employees in nonproductive activities.

A. Facilities 1. Design 2. Location 3. Layout 4. Environment

B. Product or Service 1. Design 2. Product and Service Mix

C. Process 1. Quantity capabilities 2. Quality capabilities

D. Human Factors 1. Job content 2. Job design 3. Training

production andor operations management

Documents

po management

line management

inventory management

project management

operations management

management course description

total quality management

operations strategy