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Operations Management (ME-601)

UNIT 4,5

Prof. S. N. Varma

Ref.

Stevenson WJ; Operations Management; TMH

Hopp WJ and Spearman ML; Factory Physics; McGraw-Hill

Chary SN; Production and OM; TMH

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Location Planningand Analysis

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8-3

Learning Objectives

List some of the main reasons organizations

need to make location decisions.

Explain why location decisions are important.

Discuss the options that are available for

location decisions.

Describe some of the major factors that affect

location decisions.

Outline the decision process for making these

kinds of decisions.

Use the techniques presented to solve typical

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8-4

Need for Location Decisions

Marketing Strategy

Cost of Doing Business

Growth

Depletion of Resources

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8-5

Nature of Location Decisions

Strategic Importance of location decisions Long term commitment/costs

Impact on investments, revenues, and operations

Supply chains

Objectives of location decisions Profit potential

No single location may be better than others

Identify several locations from which to choose

Location Options Expand existing facilities

Add new facilities

Move

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Making Location Decisions

Decide on the criteria Identify the important factors

Develop location alternatives

Evaluate the alternatives

Identify general region

Identify a small number of community alternatives

Identify site alternatives

Evaluate and make selection

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Location Decision Factors

Regional Factors

Site-relatedFactors

Multiple PlantStrategies

CommunityConsiderations

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Location of raw materials

Location of markets

Labor factors

Climate and taxes

Regional Factors

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Quality of life

Services

Attitudes

Taxes

Environmental regulations

Utilities

Developer support

Community Considerations

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Land

Transportation

Environmental

Legal

Site Related Factors

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Product plant strategy Market area plant strategy

Process plant strategy

Multiple Plant Strategies

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Service and Retail Locations

Manufacturers – cost focused

Service and retail – revenue focused

Traffic volume and convenience most important Demographics

Age

Income

Education Location, location, location

Good transportation

Customer safety

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Comparison of Service andManufacturing 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

Table 8.2

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Trends in Locations

Foreign producers locating in U.S.

“Made in USA”

Currency fluctuations

Just-in-time manufacturing techniques

Microfactories

Information Technology

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Global Locations

Reasons for globalization

Benefits

Disadvantages Risks

Global operations issues

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Globalization

Facilitating Factors

Trade agreements

Technology Benefits

Markets

Cost savings

Legal and regulatory Financial

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8-17

Globalization

Disadvantages

Transportation costs

Security

Unskilled labor

Import restrictions

Criticisms

Risks

Political

Terrorism

Legal

Cultural

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8-18

ForeignGovernment

a. Policies on foreign ownership of production facilitiesLocal Content

Import restrictionsCurrency restrictionsEnvironmental regulationsLocal product standardsLiability laws

b. Stability issues

CulturalDifferences

Living circumstances for foreign workers / dependentsReligious holidays/traditions

CustomerPreferences

Possible buy locally sentiment

Labor Level of training and education of workersWork ethicPossible regulations limiting number of foreign employeesLanguage differences

Resources Availability and quality of raw materials, energy,transportation infrastructure

Table 8.3

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Evaluating Locations

Cost-Profit-Volume Analysis

Determine fixed and variable costs

Plot total costs

Determine lowest total costs

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Location Cost-Volume Analysis

Assumptions Fixed costs are constant

Variable costs are linear

Output can be closely estimated

Only one product involved

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Example 1: Cost-Volume Analysis

Fixed and variable costs for four potential locations

L o c a t i o n F i x e d

C o s t

V a r i a b l e

C o s t ABCD

$ 2 5 0 , 0 0 01 0 0 , 0 0 01 5 0 , 0 0 02 0 0 , 0 0 0

$ 1 13 02 03 5

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Example 1: Solution

FixedCosts

VariableCosts

TotalCosts

ABCD

$250,000100,000150,000200,000

$11(10,000)30(10,000)20(10,000)35(10,000)

$360,000400,000350,000550,000

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8-23

Example 1: Solution 800700600

500400300200100

0

Annual Output (000)

$(000)

8 10 12 14 166420

A

B

C

B SuperiorC Superior

A Superior

D

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8-24

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

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TheTransportation Model

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8s-26

Learning Objective

Describe the nature of a transportation problem

Set up transportation problems in the general linear

programming format

Interpret computer solutions

R i t f T t ti

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8s-27

Requirements for Transportation

Model

List of origins and each one’s capacity

List of destinations and each one’s demand

Unit cost of shipping

Note: The DVD that accompanies this book

contains a module that provides detailed

instruction on the transportation model

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8s-28

Transportation Model Assumptions

1. Items to be shipped are homogeneous

2. Shipping cost per unit is the same

3. Only one route between origin and destination

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8s-29

The Transportation Problem

D(demand)

D

(demand)

D(demand)

D(demand)

S(supply)

S

(supply)

S(supply)

Figure 8S.1

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8s-30

A Transportation Table Warehouse

4 7 7 1

100

12 3 8 8

200

8 10 16 5150

450

45080 90 120 160

A B C D

1

2

3

Factory Factory 1cansupply100

units perperiod

Totalsupply

capacityperperiod

Total demandper period

Demand

Warehouse B can use 90units per period

Table 8S.1

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8s-31

Special Problems

Unequal supply and demand

Dummy: Imaginary number added equal to the

difference between supply and demand when

these are unequal

Degeneracy: The condition of too few completed

cells to allow all necessary paths to be

constructed

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8s-32

Summary of Procedure

Make certain that supply and demand are equal Develop an initial solution using intuitive, low-

cost approach

Check that completed cells = R+C-1

Evaluate each empty cell

Repeat until all cells are zero or positive

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Facilities layout

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6-34

Layout : the configuration of departments, workcenters, and equipment, with particular emphasis

on movement of work (customers or materials)

through the system

Product layouts Process layouts

Fixed-Position layout

Combination layouts

Facilities Layout

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Objective of Layout Design1. Facilitate attainment of product or service quality2. Use workers and space efficiently

3. Avoid bottlenecks

4. Minimize unnecessary material handling costs

5. Eliminate unnecessary movement of workers or materials

6. Minimize production time or customer service time

7. Design for safety

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Requires substantial investments of money andeffort

Involves long-term commitments

Has significant impact on cost and efficiency of

short-term operations

Importance of Layout Decisions

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Inefficient operations

For Example:

High Cost

Bottlenecks

Changes in the design

of products or services

The introduction of new

products or services

Accidents

Safety hazards

The Need for Layout Decisions

e ee or ayou es gn

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6-38

Changes inenvironmental

or other legal

requirements

Changes in volume of

output or mix of

products

Changes in methods

and equipment

Morale problems

e ee or ayou es gn(Cont’d)

B i L t T

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Product layouts

Process layouts

Fixed-Position layout

Combination layouts

Basic Layout Types

B i L t T

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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 remainsstationary, and workers, materials, and equipment aremoved as needed

Basic Layout Types

P d t L t

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6-41

Raw

materials

or customer

Finished

itemStation

2

Station

3

Station

4

Material

and/or

labor

Station

1

Material

and/or

labor

Material

and/or

labor

Material

and/or

labor

Used for Repetitive or Continuous Processing

Figure 6.4

Product Layout

Ad t f P d t L t

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6-42

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

Advantages of Product Layout

Di d t f P d t L t

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6-43

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

Disadvantages of Product Layout

A U Shaped Production Line

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6-44

1 2 3 4

5

6

78910

In

Out

Workers

Figure 6.6

A U-Shaped Production Line

Process Layout

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Dept. A

Dept. B Dept. D

Dept. C

Dept. F

Dept. E

Used for Intermittent processing

Job Shop or Batch Processes

Process Layout(functional)

Figure 6.7

Process Layout

Product Layout

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6-46

Work

Station 1

Work

Station 2

Work

Station 3

Figure 6.7 (cont’d)

Product Layout(sequential)

Used for Repetitive Processing

Repetitive or Continuous Processes

Product Layout

Ad t f P L t

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Can handle a variety of processing requirements

Not particularly vulnerable to equipment failures

Equipment used is less costly

Possible to use individual incentive plans

Advantages of Process Layouts

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6-48

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

Disadvantages of Process Layouts

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Fixed Position Layouts

Fixed Position Layout: Layout in which the product or

project remains stationary, and workers, materials,

and equipment are moved as needed.

Nature of the product dictates this type of layout

Weight

Size

Bulk Large construction projects

Cellular Layouts

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6-50

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

Cellular Layouts

Functional vs Cellular Layouts

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Dimension Functional CellularNumber of moves

between departments

many few

Travel distances longer shorter

Travel paths variable fixed

Job waiting times greater shorter

Throughput time higher lower

Amount of work in

process

higher lower

Supervision difficulty higher lower

Scheduling complexity higher lower

Equipment utilization lower higher

Table 6.3

Functional vs. Cellular Layouts

Service Layouts

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Warehouse and storage layouts

Retail layouts

Office layouts

Service layouts must be aesthetically pleasing as

well as functional

Service Layouts

es gn ro uc ayou s: ne

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Line Balancing is the process of assigning

tasks to workstations in such a way that

the workstations have approximately

equal time requirements.

es gn ro uc ayou s: neBalancing

Cycle Time

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Cycle time is the maximum time

allowed at each workstation to

complete its set of tasks on a unit.

Cycle Time

Determine Maximum Output

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6-55

D

OT =timecycle=CT

rateoutputDesired=D

daypertimeoperatingOT

CT

OT =rateOutput

Determine Maximum Output

Determine the Minimum Number

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6-56

task timeof sum=t

CT

t)( =N

of Workstations Required

Precedence Diagram

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Precedence diagram : Tool used in line balancing todisplay elemental tasks and sequence requirements

A Simple Precedence

Diagrama b

c d e

0.1 min.

0.7 min.

1.0 min.

0.5 min. 0.2 min.

Figure 6.11

Precedence Diagram

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6-58

Arrange tasks shown in Figure 6.10 into threeworkstations.

Use a cycle time of 1.0 minute

Assign tasks in order of the most number of

followers

Example 1: Assembly Line Balancing

Example 1 Solution

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6-59

WorkstationTimeRemaining Eligible

AssignTask

RevisedTimeRemaining

StationIdle Time

1 1.0

0.9

0.2

a, c

c

none

a

c

-

0.9

0.2

0.2

2 1.0 b b 0.0 0.0

3 1.0

0.5

0.3

d

e

-

d

e

-

0.5

0.3 0.3

0.5

Example 1 Solution

Calculate Percent Idle Time

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6-60

Percent idle time =Idle time per cycle

(N)(CT)

Efficiency = 1 – Percent idle time

Calculate Percent Idle Time

Line Balancing Rules

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6-61

Assign tasks in order of most following tasks.

Count the number of tasks that follow

Assign tasks in order of greatest positional

weight.

Positional weight is the sum of each task’s time

and the times of all following tasks.

Some Heuristic (intuitive) Rules:

Line Balancing Rules

Example 2

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6-62

c d

a b e

f g h

0.2 0.2 0.3

0.8 0.6

1.0 0.4 0.3

Example 2

Solution to Example 2

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6-63

Station 1 Station 2 Station 3 Station 4

a b e

f

d

g hc

Solution to Example 2

Bottleneck Workstation

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6-64

1 min.2 min.1 min.1 min.30/hr. 30/hr. 30/hr. 30/hr.

Bottleneck

Bottleneck Workstation

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6-65

Parallel Workstations

1 min.

2 min.

1 min.1 min.60/hr.

30/hr. 30/hr.

60/hr.

2 min.

30/hr.

30/hr.

Parallel Workstations

Designing Process Layouts

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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

Designing Process Layouts

Example 3: Interdepartmental Work Flows

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1 3 2

30

170 100

A B C

Figure 6.13

p pfor Assigned Departments

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6-68

PowerPoint Author’s note:

The following three slides are not in the 9e text,

but I like to use them for alternate examples.

Process Layout

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6-69

Process Layout - work travelsto dedicated process centers

Milling

Assembly& Test

Grinding

Drilling Plating

Process Layout

Functional Layout

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6-70

Gear

cutting

Mill Drill

Lathes

Grind

Heat

treat

Assembly

111

333

222

444

222

111

444

111 3331111 2222

222

3333

111

444

111

Functional Layout

Cellular Manufacturing Layout

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6-71

-1111 -1111

222222222 - 2222

A s s e m

b l y

3333333333 - 3333

44444444444444 - 4444

Lathe

Lathe

Mill

Mill

Mill

Mill

Drill

Drill

Drill

Heattreat

Heattreat

Heattreat

Gearcut

Gearcut

Grind

Grind

Cellular Manufacturing Layout

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Capacity Planning

For Products and Services

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Learning Objectives

Explain the importance of capacity planning.

Discuss ways of defining and measuring capacity.

Describe the determinants of effective capacity.

Discuss the major considerations related to

developing capacity alternatives.

Briefly describe approaches that are useful for

evaluating capacity alternatives

Capacity Planning

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Capacity Planning

Capacity is the upper limit or ceiling on the load that

an operating unit can handle. Capacity also includes

Equipment

Space

Employee skills

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

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1. Impacts ability to meet future demands2. 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

Importance of Capacity Decisions

Capacity

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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 personaltime, maintenance, and scrap

Actual output

rate of output actually achieved--cannot

exceed effective capacity.

Efficiency and Utilization

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Efficiency and Utilization

Actual outputEfficiency =Effective capacity

Actual outputUtilization =

Design capacity

Both measures expressed as percentages

Efficiency/Utilization Example

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5-78

Actual output = 36 units/dayEfficiency = =

90%

Effective capacity 40 units/ day

Utilization = Actual output = 36 units/day=

72% Design capacity 50 units/day

Efficiency/Utilization Example

Design capacity = 50 trucks/dayEffective capacity = 40 trucks/day

Actual output = 36 units/day

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Determinants of Effective Capacity

Facilities

Product and service factors

Process factors

Human factors

Policy factors

Operational factors

Supply chain factors

External factors

Strategy Formulation

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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

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Key Decisions of Capacity Planning1. Amount of capacity needed

• Capacity cushion (100% - Utilization)

2. Timing of changes

3. Need to maintain balance

4. Extent of flexibility of facilities

Capacity cushion – extra demand intended to offset uncertainty

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Steps for Capacity Planning

1. Estimate future capacity requirements2. Evaluate existing capacity

3. Identify alternatives

4. Conduct financial analysis5. Assess key qualitative issues

6. Select one alternative

7. Implement alternative chosen

8. Monitor results

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Forecasting Capacity Requirements

Long-term vs. short-term capacity needs

Long-term relates to overall level of capacity such as

facility size, trends, and cycles

Short-term relates to variations from seasonal,

random, and irregular fluctuations in demand

C l l ti P i R i t

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5-84

Calculating Processing Requirements

Product AnnualDemand

Standard

processing timeper unit (hr.)

Processing timeneeded (hr.)

#1

#2

#3

400

300

700

5.0

8.0

2.0

2,000

2,400

1,400

5,800

If annual capacity is 2000 hours, then we need three machines to handle the

required volume: 5,800 hours/2,000 hours = 2.90 machines

Planning Service Capacity

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5-85

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

Planning Service Capacity

In-House or Outsourcing

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In House or Outsourcing

1. Available capacity

2. Expertise

3. Quality considerations4. Nature of demand

5. Cost

6. Risk

Outsource: obtain a good or service

from an external provider

Developing Capacity Alternatives

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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

Bottleneck Operation

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p Figure 5.2

Machine #2Bottleneck Operation

Machine #1

Machine #3

Machine #4

10/hr

10/hr

10/hr

10/hr

30/hr

Bottleneck operation: An operation

in a sequence of operations whose

capacity is lower than that of theother operations

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Bottleneck Operation

Operation 1

20/hr.

Operation 2

10/hr.

Operation 3

15/hr.10/hr.

Bottleneck

Maximum output rate

limited by bottleneck

Economies of Scale

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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

Optimal Rate of Output

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p p

Minimumcost

A v e r a g e c o s t p e r u n i t

0 Rate of output

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

Minimum average cost per unit

Economies of Scale

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Minimum cost & optimal operating rate arefunctions of size of production unit.

A v e r a g e c o s t

p e r u n i t

0

Smallplant Medium

plant Largeplant

Output rate

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Evaluating Alternatives

Cost-volume analysis

Break-even point

Financial analysis

Cash flow

Present value

Decision theory

Waiting-line analysis

Cost-Volume Relationships

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5-94

p

A m o u

n t ( $ )

0Q (volume in units)

Fixed cost (FC)

Figure 5.6a


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p

A m o u n t ( $ )

Q (volume in units)0

Figure 5.6b


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p

A m o u

n t ( $ )

Q (volume in units)0 BEP units

Figure 5.6c

Break-Even Problem with Step FixedC t

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Costs

Quantity

Step fixed costs and variable costs.

1 machine

2 machines

3 machines

Figure 5.7a

Break-Even Problem with Step FixedCosts

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Costs $

TC

TC

TCBEP

2

BEP3

Quantity1

2

3

Multiple break-even points

Figure 5.7b

Assumptions of Cost-VolumeAnalysis

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1.One product is involved2.Everything produced can be sold

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

4.Fixed costs do not change with volume5.Revenue per unit constant with volume

6.Revenue per unit exceeds variable cost per unit

Analysis

Financial Analysis

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y

Cash Flow - the difference between cash received

from sales and other sources, and cash outflowfor labor, material, overhead, and taxes.

Present Value - the sum, in current value, of all

future cash flows of an investment proposal.

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Decision Theory

Helpful tool for financial comparison of alternatives

under conditions of risk or uncertainty

Suited to capacity decisions

See Chapter 5 Supplement

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Waiting-Line Analysis

Useful for designing or modifying service systems

Waiting-lines occur across a wide variety of service

systems

Waiting-lines are caused by bottlenecks in the

process

Helps managers plan capacity level that will be cost-

effective by balancing the cost of having customers

wait in line with the cost of additional capacity

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Aggregate Planning

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Learning Objectives

Explain what aggregate planning is and how it is

useful.

Identify the variables decision makers have to

work with in aggregate planning and some of thepossible strategies they can use.

Describe some of the graphical and quantitative

techniques planners use.

Prepare aggregate plans and compute their costs.

Planning Horizon

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Aggregate planning : Intermediate-rangecapacity planning, usually covering 2 to 12

months.

Shortrange

Intermediaterange

Long range

Now 2 months 1 Year

Overview of Planning Levels

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Short-range plans (Detailed plans)

Machine loading

Job assignments

Intermediate plans (General levels)

Employment Output

Long-range plans

Long term capacity

Location / layout

Planning Sequence

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Business PlanEstablishes operationsand capacity strategies

Aggregate planEstablishes

operations capacity

Master schedule Establishes schedulesfor specific products

Corporatestrategies

and policies

Economic,competitive,and politicalconditions

Aggregatedemand

forecasts

Figure 13.1

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Aggregate Planning Begin with forecast of aggregate demand

Forecast intermediate range

General plan to meet demand by setting

Output levels

Employment

Finished goods inventory level

Production plan is the output of aggregate planning

Update plan periodically – rolling planning horizon always covers the next 12 – 18 months

Aggregate Planning Inputs

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Resources

Workforce

Facilities

Demand forecast

Policies

Subcontracting

Overtime

Inventory levels

Back orders

Costs

Inventory carrying

Back orders

Hiring/firing

Overtime

Inventory changes

Subcontracting

Aggregate Planning Outputs

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Total cost of a plan

Projected levels of inventory

Inventory

Output

Employment

Subcontracting

Backordering

A t Pl i St t i

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Aggregate Planning Strategies Proactive

Alter demand to match capacity

Reactive

Alter capacity to match demand

Mixed Some of each

Demand Options

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Pricing

Promotion

Back orders

New demand

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Aggregate Planning Strategies

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Maintain a level workforce

Maintain a steady output rate

Match demand period by period

Use a combination of decisionvariables

Basic Strategies

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Level capacity strategy: Maintaining a steady rate of regular-time output

while meeting variations in demand by acombination of options.

Chase demand strategy:

Matching capacity to demand; the planned outputfor a period is set at the expected demand for thatperiod.

Chase Approach

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Advantages

Investment in inventory is low

Labor utilization in high

Disadvantages

The cost of adjusting output rates and/or workforce

levels

Level Approach

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Advantages

Stable output rates and workforce

Disadvantages

Greater inventory costs

Increased overtime and idle time

Resource utilizations vary over time

Techniques for Aggregate Planning

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1.Determine demand for each period

2.Determine capacities for each period

3.Identify policies that are pertinent

4.Determine units costs

5.Develop alternative plans and costs

6.Select the best plan that satisfies objectives.

Otherwise return to step 5.

Techniques for Aggregate Planning

Cumulative Graph Fi 13 3

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1 2 3 4 5 6 7 8 9 10

Cumulativeproduction

Cumulativedemand C

u m u l a t i v e o u t p u t / d e m a n d

Figure 13.3

Average Inventory

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Averageinventory

Beginning Inventory + Ending Inventory

2

=

Mathematical Techniques

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Linear programming : Methods for obtaining optimalsolutions to problems involving allocation of scarce resources in terms of cost minimization.

Simulation models : Computerized models that can

be tested under different scenarios to problems.

Summary of Planning TechniquesTable 13 7

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Summary of Planning Techniques

Technique Solution CharacteristicsGraphical/charting Heuristic (trial

and error)Intuitively appealing, easy tounderstand; solution notnecessarily optimal.

Linear

programming

Optimizing Computerized; linear assumptions

not always valid.

Simulation Heuristic (trialand error)

Computerized models can beexamined under a variety ofconditions.

Table 13.7

Aggregate Planning in Services

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Services occur when they are rendered Demand for service can be difficult to predict

Capacity availability can be difficult to predict

Labor flexibility can be an advantage in services

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Master Scheduling

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Master schedule

Determines quantities needed to meet demand

Interfaces with

Marketing

Capacity planning

Production planning

Distribution planning

Master Scheduler

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Evaluates impact of new orders

Provides delivery dates for orders

Deals with problems

Production delays

Revising master schedule Insufficient capacity

Master Scheduling Process Figure 13 6

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Master

Scheduling

Beginning inventory

Forecast

Customer orders

Inputs Outputs

Projected inventory

Master production schedule

Uncommitted inventory

Figure 13.6

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Projected On-hand Inventory

Projected on-hand

inventory

Inventory from

previous week

Current week’s

requirements-=

Projected On-hand Inventory

Figure 13 8

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64 1 2 3 4 5 6 7 8

Forecast 30 30 30 30 40 40 40 40

Customer Orders(committed) 33 20 10 4 2

Projected on-hand

inventory 31 1 -29

JUNE JULY

Beginning

Inventory

Customer orders are

larger than forecast in

week 1

Forecast is larger than

Customer orders in week 2

Forecast is larger than

Customer orders in week 3

Figure 13.8

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Time Fences

Time Fences – points in time

that separate phases of amaster schedule planning

horizon.

Time Fences in MPS Figure 13 12

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Period

“frozen”

(firm or

fixed)

“slushy” somewhat

firm

“liquid”

(open)

Figure 13.12

1 2 3 4 5 6 7 8 9

Solved Problems: Problem 1

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MRP and ERP

Learning Objectives

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Learning Objectives

Describe the conditions under which MRP is most

appropriate.

Describe the inputs, outputs, and nature of MRP

processing. Explain how requirements in a master production

schedule are translated into material requirements

for lower-level items.

Discuss the benefits and requirements of MRP.

Learning Objectives

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Learning Objectives

Explain how an MRP system is useful in capacity

requirements planning.

Outline the potential benefits and some of the

difficulties users have encountered with MRP. Describe MRP II and its benefits.

Describe ERP, what it provides, and its hidden costs.

MRP

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Material requirements planning (MRP): Computer-based information system that translates master

schedule requirements for end items into time-

phased requirements for subassemblies,

components, and raw materials.

Independent and Dependent

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Demand Independent Demand

A

B(4) C(2)

D(2) E(1) D(3) F(2)

Dependent Demand

Independent demand is uncertain.Dependent demand is certain.

Dependant Demand

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Dependent demand : Demand for items that aresubassemblies or component parts to be used

in production of finished goods.

Once the independent demand is known, the

dependent demand can be determined.

Dependent vs Independent Demand Figure 14.1

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Time

Time Time

Time

D e m a n d

D e m a n d

Stable demand“Lumpy” demand

A m o u n t o n h a n d

A m o u n t o n h a n d

Safety stock

gu e

Figure 14.2

Overview of MRP

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MRP Inputs MRP Processing MRP Outputs

Masterschedule

Bill ofmaterials

Inventoryrecords

MRP computerprograms

Changes

Order releases

Planned-orderschedules

Exception reports

Planning reports

Performance-control

reports

Inventorytransaction

Primaryreports

Secondaryreports

g

MPR Inputs

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Master Production Schedule Time-phased plan specifying timing and quantity

of production for each end item.

Material Requirement Planning Process

Master Schedule

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Master schedule : One of three primary inputs inMRP; states which end items are to beproduced, when these are needed, and inwhat quantities.

Cumulative lead time : The sum of the lead timesthat sequential phases of a process require,from ordering of parts or raw materials tocompletion of final assembly.

Planning Horizon Figure 14.4

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1 2 3 4 5 6 7 8 9 10

Procurement

Fabrication

Subassembly

Assembly

g

Time Period (weeks)

Bill-of-Materials

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Bill of materials (BOM): One of the three primary

inputs of MRP; a listing of all of the raw materials,parts, subassemblies, and assemblies needed toproduce one unit of a product.

Product structure tree : Visual depiction of therequirements in a bill of materials, where allcomponents are listed by levels.

Low-level coding : Restructuring the bill of materialsso that multiple occurrences of a component allcoincide with the lowest level the componentoccurs

Product Structure Tree Figure 14.5

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Chair

Seat

Legs (2)Cross

barSide

Rails (2)Cross

barBack

Supports (3)

LegAssembly

BackAssembly

Level0

1

2

3

g

Inventory Records

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One of the three primary inputs in MRP

Includes information on the status of each item bytime period

Gross requirements

Scheduled receipts

Amount on hand Lead times

Lot sizes

And more …

Inventory Requirements

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Inventory Requirements

Net requirements:

Available Inventory:

Net Requirements =

Gross Requirements

– Available Inventory

Available Inventory =

Projected on hand

– Safety stock

– Inventory allocated to other items

Assembly Time Chart Figure 14.7

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1 2 3 4 5 6 7 8 9 10 11

Procurement of

raw material D

Procurement ofraw material F

Procurement of

part C

Procurement ofpart H

Procurement of

raw material I

Fabrication

of part G

Fabricationof part E

Subassembly A

Subassembly B

Final assemblyand inspection

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MPR Processing

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MPR Processing Gross requirements

Total expected demand

Scheduled receipts

Open orders scheduled to arrive

Planned on hand

Expected inventory on hand at the beginning of

each time period

MPR Processing

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MPR Processing Net requirements

Actual amount needed in each time period

Planned-order receipts

Quantity expected to received at the beginning of

the period

Offset by lead time

Planned-order releases

Planned amount to order in each time period

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MRP Primary Reports

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Planned orders - schedule indicating the amountand timing of future orders.

Order releases - Authorization for the execution

of planned orders.

Changes - revisions of due dates or order

quantities, or cancellations of orders.

MRP Secondary Reports

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Performance-control reports Planning reports

Exception reports

Other Considerations

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Safety Stock Lot sizing

Lot-for-lot ordering

Economic order quantity

Fixed-period ordering

MRP in Services

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Food catering service End item => catered food

Dependent demand => ingredients for each recipe,i.e. bill of materials

Hotel renovation

Activities and materials “exploded” into componentparts for cost estimation and scheduling

Benefits of MRP

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Low levels of in-process inventories Ability to track material requirements

Ability to evaluate capacity requirements

Means of allocating production time

Ability to easily determine inventory usage by

backflushing

Backflushing : Exploding an end item’s bill of

materials to determine the quantities of the

components that were used to make the item.

Requirements of MRP

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Computer and necessary software Accurate and up-to-date

Master schedules

Bills of materials

Inventory records

Integrity of data

MRP II

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Expanded MRP with emphasis placed onintegration

Financial planning

Marketing

Engineering

Purchasing

Manufacturing

MRP II Figure 14.14

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MarketDemand

Production

plan

Problems?

Rough-cutcapacity planning

Yes No YesNo

Finance

Marketing

Manufacturing

Adjustproduction plan

Masterproduction schedule

MRP

Capacityplanning

Problems?Requirements

schedules

A d j u s t m a s t e r s

c h e d u l e

Capacity Planning

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Capacity requirements planning : The process

of determining short-range capacity

requirements.

Load reports : Department or work center reports that compare known and

expected future capacity requirements

with projected capacity availability.

Time fences : Series of time intervals during

which order changes are allowed or

restricted.

Capacity Planning Figure 14.15

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Develop a tentative

master productionschedule

Use MRP to

simulate materialrequirements

Convert materialrequirements to

resourcerequirements

Firm up a portionof the MPS

Is shopcapacity

adequate?

Cancapacity be

changed to meetrequirements

Revise tentativemaster production

schedule

Changecapacity

Yes

No

Yes

No

ERP

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Enterprise resource planning (ERP): Next step in an evolution that began with MPR and

evolved into MRPII

Integration of financial, manufacturing, and human

resources on a single computer system.

ERP Software

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ERP software provides a system to capture and make

data available in real time to decision makers and

other users in the organization

Provides tools for planning and monitoring various

business processes

Includes

Production planning and scheduling

Inventory management

Product costing

Distribution

MRP in Services

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Service applications such as:

Professional services

Postal services

Retail Banking

Healthcare

Higher education

Engineering

Logistical services

Real estate

ERP Strategy Considerations

High initial cost

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High initial cost

High cost to maintain Future upgrades

Training

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JIT andLean Operations

Learning Objectives

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Explain what is meant by the term lean

operations system.

List each of the goals of JIT and explain its

importance. List and briefly describe the building blocks of

JIT.

List the benefits of the JIT system. Outline the considerations important in

converting a traditional mode of operations to a

JIT system.

JIT/Lean Production

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Just-in-time (JIT): A highly coordinatedprocessing system in which goods move

through the system, and services are

performed, just as they are needed,

JIT lean production

JIT pull (demand) system

JIT operates with very little “fat”

Goal of JIT

The ultimate goal of JIT is a balanced system

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The ultimate goal of JIT is a balanced system.

Achieves a smooth, rapid flow of materials

through the system

Summary JIT Goals and Building Blocks Figure 15.1

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Product

Design

Process

Design

Personnel

Elements

Manufactur-

ing Planning

Eliminate disruptions

Make the system flexible Eliminate waste

Abalancedrapid flow

UltimateGoal

SupportingGoals

Building

Blocks

Supporting Goals

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Eliminate disruptions

Make system flexible

Eliminate waste, especially excess inventory

Sources of Waste

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Overproduction

Waiting time

Unnecessary transportation

Processing waste

Inefficient work methods

Product defects

Kaizen Philosophy

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Waste is the enemy

Improvement should be done gradually and

continuously

Everyone should be involved Built on a cheap strategy

Can be applied anywhere

Kaizen Philosophy (cont’d)

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Supported by a visual system

Focuses attention where value is created

Process orienteted

Stresses main effort of improvement should comefrom new thinking and work style

The essence of organizational learning is to learn

while doing

Big vs. Little JIT

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Big JIT – broad focus

Vendor relations

Human relations

Technology management

Materials and inventory management

Little JIT – narrow focus

Scheduling materials

Scheduling services of production

JIT Building Blocks

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Product design

Process design

Personnel/organizationalelements

Manufacturingplanning and control

Product Design

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Standard parts

Modular design

Highly capable production systems

Concurrentengineering

Process Design

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Small lot sizes

Setup time reduction

Manufacturing cells

Limited work in process

Quality improvement

Production flexibility

Balanced system

Little inventory storage

Benefits of Small Lot Sizes

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Reduces inventory

Less storage space

Less rework

Problems are more apparentIncreases product flexibility

Easier to balance operations

Single-Minute Exchange

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Single-minute exchange of die (SMED): A system for

reducing changeover time

Categorize changeover activities

Internal – activities that can only be done whilemachine is stopped

External – activities that do not require stopping the

machine

Production Flexibility

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Reduce downtime by reducing changeover

time

Use preventive maintenance to reduce

breakdowns

Cross-train workers to help clear bottlenecks

Production Flexibility (cont’d)

Use many small units of capacity

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Use many small units of capacity

Use off-line buffers Reserve capacity for important customers

Quality Improvement

Autonomation

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Autonomation

Automatic detection of defects during production

Jidoka

Japanese term for autonomation

Production Flexibility

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Balance system: Distributing the workload evenly

among work stations

Work assigned to each work station must be less

than or equal to the cycle time Cycle time is set equal to the takt time

Takt time is the cycle time needed to match

customer demand for final product

Personnel/Organizational Elements

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Workers as assets

Cross-trained workers

Continuous improvement

Cost accounting Leadership/project

management

Manufacturing Planning and Control

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Level loading

Pull systems

Visual systems

Close vendor relationships

Reduced transaction processing

Preventive maintenance

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Kanban Formula

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N = DT(1+X)C

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

Limited Work in Process

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Benefits

Lower carrying costs

Increased flexibility

Aids scheduling Saves cost of rework and scrap

Two general approaches

Kanban – focuses on individual work stations

Constant work in process (CONWIP) – focuses on the

system as a whole

Traditional Supplier Network Figure 15.4a

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Buyer

Supplier Supplier Supplier Supplier

Supplier

Supplier

Supplier

Tiered Supplier Network Figure 15.4b

Buyer

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Supplier

Supplier

Supplier

Supplier Supplier Supplier

Buyer

Supplier First Tier Supplier

Second Tier Supplier

Third Tier Supplier

Preventive Maintenance and

Housekeeping

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Preventative maintenance : Maintaining equipment in

good condition and replacing parts that have a

tendency to fail before they actually fail.

Housekeeping : Maintaining a workplace that is cleanand free of unnecessary materials.

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Comparison of JIT and TraditionalFactor Traditional JIT

Table 15.3

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Inventory Much to offset forecast

errors, late deliveries

Minimal necessary to operate

Deliveries Few, large Many, small

Lot sizes Large Small

Setup; runs Few, long runs Many, short runs

Vendors Long-term relationships

are unusual

Partners

Workers Necessary to do the work Assets

Transitioning to a JIT System

G t t t it t

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Get top management commitment

Decide which parts need most effort

Obtain support of workers

Start by trying to reduce setup times

Gradually convert operations

Convert suppliers to JIT

Prepare for obstacles

Obstacles to Conversion

M t t b itt d

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Management may not be committed

Workers/management may not becooperative

Difficult to change company culture

Suppliers mayresist

Why?

Suppliers May Resist JIT

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Unwilling to commit resources

Uneasy about long-term commitments

Frequent, small deliveries may be difficult

Burden of quality control shifts to supplier Frequent engineering changes may cause JIT

changes

JIT in Services

The basic goal of the demand flow

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g

technology in the service organization is toprovide optimum response to the customer with the highest quality service and lowestpossible cost. Eliminate disruptions Make system flexible

Reduce setup and lead times

Eliminate waste

Minimize WIP

Simplify the process

JIT II: a supplier representative works right in the

JIT II

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JIT II: a supplier representative works right in the

company’s plant, making sure there is an

appropriate supply on hand.

Benefits of JIT Systems

Reduced inventory levels

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Reduced inventory levels

High quality

Flexibility

Reduced lead times Increased productivity

Benefits of JIT Systems (cont’d)

Increased equipment utilization

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Increased equipment utilization

Reduced scrap and rework

Reduced space requirements

Pressure for good vendor relationships Reduced need for indirect labor

Smooth flow of work (the ultimate goal)

Elements of JIT Table 15.4

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Elimination of waste Continuous improvement

Eliminating anything that does not add value

Simple systems that are easy to manage

Use of product layouts to minimize movingmaterials and parts

Quality at the source

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Learning Objectives

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Explain what scheduling involves and the

importance of good scheduling.

Discuss scheduling needs in high-volume and

intermediate-volume systems. Discuss scheduling needs in job shops.

Learning Objectives

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Use and interpret Gantt charts, and use the

assignment method for loading.

Discuss and give examples of commonly used

priority rules. Describe some of the unique problems encountered

in service systems, and describe some of the

approaches used for scheduling service systems.

Scheduling: Establishing the timing of the use of

Scheduling

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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

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Flow system : High-volume system with

Standardized equipment and activities

Flow-shop scheduling : Scheduling for high-

volume flow system

Work Center #1 Work Center #2 Output

JAN FEB MAR APR MAY JUN

Scheduling ManufacturingOperations

High volume

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Build A

A Done

Build B

B Done

Build C

C Done

Build D

Ship

JAN FEB MAR APR MAY JUN

On time!

High-volume

Intermediate-

volume

Low-volumeService

operations

High-Volume Success Factors

Process and product design

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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

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systems and made-to-order job shops Run size, timing, and sequence of jobs

Economic run size:

QDS

H

p

p u

0

2

Scheduling Low-Volume Systems

Loading - assignment of jobs to process

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Loading assignment of jobs to processcenters

Sequencing - determining the order in which jobs will be processed

Job-shop scheduling

Scheduling for low-volumesystems with manyvariationsin requirements

Gantt Load Chart Figure 16.2

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Gantt chart - used as a visual aid for loading andscheduling

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

Infinite loading – jobs are assigned to work centers

Loading

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without regard for the capacity of the work center. Finite loading – jobs are assigned to work centers

taking into account the work center capacity and job processing times

Vertical loading

Horizontal loading

Loading (cont’d)

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Forward scheduling – scheduling ahead from some

point in time.

Backward scheduling – scheduling by working

backwards in time from the due date(s).

Schedule chart – a form of Gantt chart that shows

the orders or jobs in progress and whether they are

on schedule.

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Sequencing

Priority rules : Simple heuristics

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y e p

used to select the order inwhich jobs will be processed.

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

Everything is#1 Priority

Priority Rules

FCFS - first come, first served

Table 16.2

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FCFS first come, first served

SPT - shortest processing time

EDD - earliest due date

CR - critical ratio

S/O - slack per operation

Rush - emergencyTop Priority

Assumptions of Priority Rules

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The setup of jobs is known

Setup time is independent pf processing sequence

Setup time is deterministic

There will be no interruptions in processing such as: Machine breakdowns

Accidents

Worker illness

Average

Example 2 Table 16.4

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3.249.6722.17CR

2.686.3318.33EDD

2.636.6718.00SPT

2.939.0020.00FCFS

Number of Jobs at the

Work Center

AverageTardiness

(days)

AverageFlow Time

(days)Rule

Two Work Center Sequencing

Johnson’s Rule: technique for minimizing

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q g

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

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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 firstwork center before moving to second

Johnson’s Rule Optimum Sequence 1.List the jobs and their times at each work center

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2.Select the job with the shortest time3.Eliminate the job from further consideration

4.Repeat steps 2 and 3 until all jobs have been

scheduled

Scheduling Difficulties Variability in

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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

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Focus on bottleneck operations

Consider lot splitting of large jobs

Theory of Constraints

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The Theory of Constraints Goal is to maximize flow

through the entire system

Emphasizes balancing flow

Improve performance of bottleneck: Determine what is constraining the operation

Exploit the constraint

Subordinate everything to the constraint

Determine how to overcome the constraint Repeat the process for the next constraint

Theory if Constraints Metrics

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Throughput – the rateat which the system generates

money through sales

Physical assets – the total system investment

Inventory Buildings and land

Plant and equipment

Operating expense – money the system spends to

convert inventory into throughput

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Yield Management

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Yield Management – the application of pricingstrategies to allocate capacity among various

categories of demand.

The goal is to maximize the revenue generated by

the fixed capacity

Fixed capacity

Hotel, motel rooms

Airline seats

Unsold rooms or seats cannot be carried over

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