WEEK 5

FALL

2

PROJECT MANAGEMENTAND OPERATIONS

PROJECT PROJECT MANAGEMENTMANAGEMENT

First Essay on Project Management:1697 – “An Essay Upon Projects”

1959 HBR Article – “The Project Manager”

Air Force Manual 1964

PROJECT MANAGEMENT

In today’s global marketplace, complexity and speed are certainties. In such an environment, a good axiom for project management is, Do It, Do It Right, Do It Right Now. Creating clear direction, efficiency, timely response, and quality outcomes requires project managers who are agile -- adept at change. The associated disciplinary areas are clearly spelled out in the following PMI definition.

“Project management is the application of knowledge, skills, tools, and techniques to a broad range of activities in order to meet the requirements of a particular project. Project management is comprised of five Project Management Process Groups – Initiating Processes, Planning Processes, Executing Processes, Monitoring and Controlling Processes, and Closing Processes.

Source: Project Management Institute - http://www.pmi.org/info/PP_AboutProfessionOverview.asp?nav=0501

ELEMENTS OF PROJECT MANAGEMENT

Project team Individuals from different departments within

company

Matrix organization Team structure with members from different

functional areas depending on skills needed

Project manager - Leader of project team Project Charter – high level description of

what is to be accomplished in a project and delegates authority to project manager to implement actions to complete project

PROJECT PLANNING Statement of work

Written description of goals, work & time frame of project

Activities require labor, resources & time Precedence relationship shows sequential relationship of

project activities

ELEMENTS OF PROJECT PLANNING

Define project objective(s) Identify activities Establish precedence relationships Make time estimates Determine project completion time Compare project schedule objectives Determine resource requirements to meet objective

WORK BREAKDOWN STRUCTURE

Hierarchical organization of work to be done on a project

Project broken down into modules

Modules subdivided into subcomponents, activities, and tasks

Identifies individual tasks, workloads, and resource requirements

PROJECT CONTROL

All activities identified and included

Completed in proper sequence

Resource needs identified

Schedule adjusted

Maintain schedule and budget

Complete on time

A GANTT CHART

Popular tool for project scheduling Graph with bar for representing

the time for each task Provides visual display of project

schedule Also shows slack for activities -

Amount of time activity can be delayed without delaying project

Around since 1912

GANTT CHARTS

Gantt charts were employed on major infrastructure projects including the Hoover Dam and Interstate highway system and still are an important tool in project management.

Gantt described two principles for his charts:

1. measure activities by the amount of time needed to complete them

2. the space on the chart can be used the represent the amount of the activity that should have been done in that time.

A GANTT CHART| | | | |

Activity

Design house and obtain financing

Lay foundation

Order and receive materials

Build house

Select paint

Select carpet

Finish work

00 22 44 66 88 1010MonthMonth

MonthMonth11 33 55 77 99

CPM/PERT

Critical Path Method (CPM) DuPont & Remington-Rand (1956) Deterministic task times

Project Eval. & Review Technique (PERT) US Navy, Lockheed Multiple task time estimates

PERT/CPM

Program Evaluation and Review Technique (PERT): developed in conjunction with the development of the Polaris missile program for submarines – developed by the US Navy with Lockheed as the lead contractor

Critical Path Method (CPM): developed through a joint venture between the DuPont Corporation and the Remington Rand Corporation – the original purpose was to monitor and evaluate plant maintenance management projects.

PROJECT NETWORK FOR A HOUSE

3322 00

11

33

11 1111

1 2 4 6 7

3

5

Lay Lay foundationfoundation

Design Design house and house and obtain obtain financingfinancing

Order Order and and receive receive materialmaterialss

DummyDummy

Finish Finish workwork

Select Select carpetcarpet

Select Select paintpaint

Build Build househouse

Figure 6.4Figure 6.4

CRITICAL PATH

A path is a sequence of connected activities running from start to end node in network

The critical path is the path with the longest duration in the network

Project cannot be completed in less than the time of the critical path

THE CRITICAL PATH

A: 1-2-3-4-6-73 + 2 + 0 + 3 + 1 = 9 months

B: 1-2-3-4-5-6-73 + 2 + 0 + 1 + 1 + 1 = 8 months

C: 1-2-4-6-73 + 1 + 3 + 1 = 8 months

D: 1-2-4-5-6-73 + 1 + 1 + 1 + 1 = 7 months

33

22 00

11

33

11 11

111 2 4 6 7

3

5

Lay Lay foundatiofoundationn

Design Design house and house and obtain obtain financingfinancing

Order Order and and receive receive materialmaterialss

DummyDummy

Finish Finish workwork

Select Select carpetcarpet

Select Select paintpaint

Build Build househouse

PROJECT CRASHING

Crashing is reducing project time by expending additional resources

Crash time is an amount of time an activity is reduced

Crash cost is the cost of reducing the activity time

Goal is to reduce project duration at minimum cost

THE CRITICAL PATH 33

22 00

11

33

11 11

111 2 4 6 7

3

5

Lay Lay foundatiofoundationn

Design Design house and house and obtain obtain financingfinancing

Order Order and and receive receive materialmaterialss

DummyDummy

Finish Finish workwork

Select Select carpetcarpet

Select Select paintpaint

Build Build househouse

1 2 4 6 7

3

5

32 0

1

31 1

Start at 3 months

Start at 5 months

1

Finish at 9 months

Start at 8 months

Figure 6.6

Activity Start Times

Crashing costs increase as project duration decreases

Indirect costs increase as project duration increases

Reduce project length as long as crashing costs are less than indirect costs

TIME-COST RELATIONSHIP

LIFE CYCLE MANAGEMENTLong term view of projects to guide

decision making – solutions that provide life time success vice short term

Acquisition; development; production; introduction; sustainment; disposal

Links system costs to big picture; better use of resources; minimize total cost of ownership

FORECASTINGFORECASTING

FORECASTING SURVEY

How far into the future do you typically project when trying to forecast the health of your industry? less than 4 months 3%4-6 months 12% 7-12 months 28% > 12 months 57%

Fortune Council survey, Nov 2005

INDICES TO FORECAST HEALTH OF INDUSTRY Consumer price index 51% Consumer Confidence index 44% Durable goods orders 20% Gross Domestic Product 35% Manufacturing and trade inventories

and sales 27% Price of oil/barrel 34% Strength of US $ 46% Unemployment rate 53% Interest rates/fed funds 59%

Fortune Council survey, Nov 2005

FORECASTING IMPORTANCE Improving customer demand forecasting and sharing the information downstream will allow more efficient scheduling and inventory management

Boeing, 1987: $2.6 billion write down due to “raw material shortages, internal and supplier parts shortages” Wall Street Journal, Oct 23, 1987

FORECASTING IMPORTANCE“Second Quarter sales at US Surgical

Corporation decline 25%, resulting in a $22 mil loss…attributed to larger than anticipated inventories on shelves of hospitals.” US Surgical Quarterly, Jul 1993

“IBM sells out new Aetna PC; shortage may cost millions in potential revenue.” Wall Street Journal, Oct 7, 1994

PRINCIPLES OF FORECASTING

Forecasts are usually wrong

every forecast should include an estimate of error

Forecasts are more accurate for families or groups

Forecasts are more accurate for nearer periods.

IMPORTANT FACTORS TO IMPROVE FORECASTING• Record Data in the same terms as

needed in the forecast – production data for production forecasts; time periods

• Record circumstances related to the data

• Record the demand separately for different customer groups

FORECAST TECHNIQUES

• Extrinsic Techniques – projections based on indicators that relate to products – examples

• Intrinsic – historical data used to forecast (most common)

FORECASTING

Forecasting errors can increase the total cost of ownership for a product

- inventory carrying costs- obsolete inventory- lack of sufficient inventory- quality of products due to

accepting marginal products to prevent stockout

FORECASTING

• Essential for smooth operations of business organizations

• Estimates of the occurrence, timing, or magnitude of uncertain future events

• Costs of forecasting: excess labor; excess materials; expediting costs; lost revenues

FORECASTING

• Predicting future events• Usually demand behavior

over a time frame• Qualitative methods

• Based on subjective methods

• Quantitative methods• Based on mathematical formulas

TIME FRAME• Short-range to medium-range

• Daily, weekly monthly forecasts of sales data

• Up to 2 years into the future

• Long-range• Strategic planning of goals,

products, markets• Planning beyond 2 years into

the future

DEMAND BEHAVIOR• Trend

• gradual, long-term up or down movement

• Cycle• up & down movement repeating over

long time frame• Seasonal pattern

• periodic oscillation in demand which repeats

• Random movements follow no pattern

FORMS OF FORECAST MOVEMENT

TimeTime(a) Trend(a) Trend

TimeTime(d) Trend with seasonal pattern(d) Trend with seasonal pattern

TimeTime(c) Seasonal pattern(c) Seasonal pattern

TimeTime(b) Cycle(b) Cycle

Dem

and

Dem

and

Dem

and

Dem

and

Dem

and

Dem

and

Dem

and

Dem

and

Random Random movementmovement

FORECASTING METHODS

• Time series• Regression or causal modeling

• Qualitative methods• Management judgment, expertise,

opinion• Use management, marketing,

purchasing, engineering• Delphi method

• Solicit forecasts from experts

TIME SERIES METHODS• Statistical methods using historical data

• Moving average• Exponential smoothing• Linear trend line

• Assume patterns will repeat• Naive forecasts

• Forecast = data from last period

MOVING AVERAGE

Average several periods of data

Dampen, smooth out changes

Use when demand is stable with no trend or seasonal pattern

Sum of Demand In n Periods

n

SIMPLE MOVING AVERAGE

JanJan 120120FebFeb 9090MarMar 100100AprApr 7575MayMay 110110JuneJune 5050JulyJuly 7575AugAug 130130SeptSept 110110OctOct 9090

ORDERSORDERSMONTHMONTH PER MONTHPER MONTH

JanJan 120120FebFeb 9090MarMar 100100AprApr 7575MayMay 110110JuneJune 5050JulyJuly 7575AugAug 130130SeptSept 110110OctOct 9090

ORDERSORDERSMONTHMONTH PER MONTHPER MONTH

MAMAnovnov = = 33

==90 + 110 + 13090 + 110 + 130

33

= 110 orders for Nov

SIMPLE MOVING AVERAGE

Daug+Dsep+Doct

JanJan 120120 ––FebFeb 9090 – –MarMar 100100 – –AprApr 7575 103.3103.3MayMay 110110 88.388.3JuneJune 5050 95.095.0JulyJuly 7575 78.378.3AugAug 130130 78.378.3SeptSept 110110 85.085.0OctOct 9090 105.0105.0NovNov – – 110.0110.0

ORDERSORDERS THREE-MONTHTHREE-MONTHMONTHMONTH PER MONTHPER MONTH MOVING AVERAGEMOVING AVERAGE

SIMPLE MOVING AVERAGE

JanJan 120120 ––FebFeb 9090 – –MarMar 100100 – –AprApr 7575 103.3103.3MayMay 110110 88.388.3JuneJune 5050 95.095.0JulyJuly 7575 78.378.3AugAug 130130 78.378.3SeptSept 110110 85.085.0OctOct 9090 105.0105.0NovNov – – 110.0110.0

ORDERSORDERS THREE-MONTHTHREE-MONTHMONTHMONTH PER MONTHPER MONTH MOVING AVERAGEMOVING AVERAGE

Example 8.1Example 8.1

==90 + 110 + 130 + 75 + 5090 + 110 + 130 + 75 + 5055

= 91 orders for Nov= 91 orders for Nov

SIMPLE MOVING AVERAGE

SIMPLE MOVING AVERAGE

JanJan 120120 –– – –FebFeb 9090 – – – –MarMar 100100 – – – –AprApr 7575 103.3103.3 – –MayMay 110110 88.388.3 – –JuneJune 5050 95.095.0 99.099.0JulyJuly 7575 78.378.3 85.085.0AugAug 130130 78.378.3 82.082.0SeptSept 110110 85.085.0 88.088.0OctOct 9090 105.0105.0 95.095.0NovNov – – 110.0110.0 91.091.0

ORDERSORDERS THREE-MONTHTHREE-MONTH FIVE-MONTHFIVE-MONTHMONTHMONTH PER MONTHPER MONTH MOVING AVERAGEMOVING AVERAGE MOVING AVERAGEMOVING AVERAGE

WEIGHTED MOVING AVERAGE

Adjusts moving average method to more closely reflect data fluctuations

WEIGHTED MOVING AVERAGE

WMAn = i = 1Wi Di

where

Wi = the weight for period i,

between 0 and 100 percent

Wi = 1.00

Adjusts moving average method to more closely reflect data fluctuations

WEIGHTED MOVING AVERAGE EXAMPLE

MONTH WEIGHT DATA

August 17% 130September 33% 110October 50% 90

WEIGHTED MOVING AVERAGE EXAMPLE

MONTH WEIGHT DATA

August 17% 130September 33% 110October 50% 90

November forecast

WMA3 = 3

i = 1Wi Di

= (0.50)(90) + (0.33)(110) + (0.17)(130)

= 103.4 orders

3 Month = 110 5 month = 91

• Averaging method • Weights most recent data

more strongly• Reacts more to recent

changes• Widely used, accurate

method

EXPONENTIAL SMOOTHING

Ft +1 = Dt + (1 - )Ft

where

Ft +1 =forecast for next period

Dt =actual demand for present period

Ft =previously determined forecast for present period

= weighting factor, smoothing constant

Averaging method

Weights most recent data more strongly

Reacts more to recent changes

Widely used, accurate method

EXPONENTIAL SMOOTHING

FORECAST FOR NEXT PERIODForecast = (weighting

factor)x(actual demand for period)+(1-weighting factor)x(previously determined forecast for present period)

0 > <= 1Lesserreactionto recent demand

Greaterreactionto recent demand

FORECAST ACCURACY

• Find a method which minimizes error

• Error = Actual - Forecast

FORECAST CONTROL

Reasons for out-of-control forecasts• Change in trend• Appearance of cycle• Weather changes• Promotions• Competition• Politics

REVERSE LOGISTICS: IMPORTANT OR IRRITANT?

Estimated $100 billion industry in 2006

Survey shows considerable spending on Returns

“In an ideal world, reverse logistics would not exist.”

Jim Whalen, “In Through the Out Door,”Warehousing Management, March 2001

“Now, more than ever, reverse logistics is seen as being important.”

Dale Rogers, Going Backwards, 1999

REVERSE LOGISTICS - WHAT IS IT?THE ARMY’S DEFINITION

The return of serviceable supplies that are surplus to the needs of the unit or are unserviceable and in need of rebuild or remanufacturing to return the item to a serviceable status

REVERSE LOGISTICS - WHAT IS IT?THE COMMERCIAL PERSPECTIVEReverse Logistics is the process of

moving products from their typical final destination to another point, for the purpose of capturing value otherwise unavailable, or for the proper disposal of the products.

Any activity that takes money from the company after the sale of the product

TYPICAL REVERSE LOGISTICS ACTIVITIES

Processing returned merchandise - damaged, seasonal, restock, salvage, recall, or excess inventory

Recycling packaging materials/containers

Reconditioning, refurbishing, remanufacturing

Disposition of obsolete stuff

Hazmat recovery

WHY REVERSE LOGISTICS?

Competitive advantageCustomer service

- Very Important: 57%

- Important: 18%

- Somewhat/unimportant:23%Bottom line profits

REVERSE LOGISTICS - NEW PROBLEM?

Sherman Montgomery Ward’s - 1894 Recycling/remanufacturing in 1940s World War II - 77,000,000 square feet of

storage across Europe with over $6.3 billion in excess stuff

Salvage and reuse of clothing and shoes in the Pacific Theater World War II

KEY DATES IN REVERSE LOGISTICS

World War II – the advent of refurbished automobile parts due to shortages

1984 - Tylenol Scare - Johnson and Johnson

1991 - German ordinance that put teeth in environmental reverse pipeline

Summer 1996 – UK Packaging and Packaging Waste Legislation

1998 - first real study of reverse logistics in the US - University of Nevada, Reno

2001 – EU goal of 50-65% recovering or recycling of packaging waste

REVERSE LOGISTICS

A US A

RMY PE

RSPECTI

VE

OPERATION IRAQI FREEDOM

The US Army moved the equivalent of 150 Wal-Mart Supercenters to Kuwait in a matter of a few months

MILITARY OPERATIONS AND EXCESS

“In battle, troops get temperamental and ask for things which they really do not need. However, where humanly possible, their requests, no matter how unreasonable, should be answered.” George S. Patton, Jr.

JANE’S DEFENCE WEEKLY

“Recent report (Aug 2003): There is a 40 hectare (~100 acres) area in Kuwait with items waiting to be retrograded back to the US.”

From GAO Audit Report

Does this create a problem?

From GAO Audit Report

REVERSE LOGISTICS

THE C

OMMERCIAL P

ERSPECTI

VE

REVERSE LOGISTICSRate of returns?

Cost to process a return?

Time to get the item back on the shelf if resaleable?

COSTS - ABOVE THE COST OF THE ITEM

Merchandise credits to the customers. The transportation costs of moving the items from the

retail stores to the central returns distribution center. The repackaging of the serviceable items for resale. The cost of warehousing the items awaiting disposition. The cost of disposing of items that are unserviceable,

damaged, or obsolete.

COSTS

• Process inbound shipment at a major distribution center = 1.1 days

• Process inbound return shipment = 8.5 days

• Cost of lost sales• Wal-Mart: Christmas 2003 -

returns = 4 Days of Supply for all of Wal-Mart = 2000 Containers

MORE COSTS

Hoover - $40 Million per year Cost of processing $85 per itemUnnamed Distribution Company -

$700K items on reverse auction2001 - over $60 billion in returns;

$52 billion excess to systems; $40 billion to process

2010 – majority of cell phones -

Estimate of 2004 holiday returns: $13.2 billion

% of estimated 2004/2005 holiday returns: 25%

Wal-Mart: $6 Billion in annual returns = 17,000 truck loads (>46 trucks a day)

Electronics: $10 Billion annually in returns

Personal Computers: $1.5 Billion annually = approximately $95 per PC sold

79% of returned PCs have no defects

Home Depot ~ $10 million in returns in the stores alone

Local Wal-Mart ~ $1 million a month in returns

IS IT A PROBLEM?

European influence – spread to US - Green Laws

Estee Lauder - $60 million a year into land fills

FORTUNE 500 Company - $200 million over their $300 million budget for returns

Same Provider - 40,000 products returned per month; 55% no faults noted

K-Mart - $980 million in returns 1999

Warranty vice paid repairs

Recent survey of FORTUNE 500 Companies = 12% of companies:

MORE CONSEQUENCES

Increased Customer Wait Times

Loss of Confidence in the Supply System

Multiple orders for the same items

Excess supplies in the forward pipeline

Increase in “stuff” in the reverse pipeline

Constipated supply chain

IMPACT?

• Every resaleable item that is in the reverse supply chain results in a potential stock out or “zero balance” at the next level of supply.

• Creates a “stockout” do-loop

RESULTS?

This potential for a stock out results in additional parts on the shelves at each location to prevent a stock out from occurring.

More stocks = “larger logistics footprint” = the need for larger distribution centers and returns centers.

REVERSE LOGISTICS

According to the Reverse Logistics Executive Council, the percent increase in costs for processing a return, as compared to a forward sale, is an astounding 200-300%.

Typically, as many as 8-12 more steps per item in the reverse pipeline than items in the forward pipeline

“The truth is, for one reason or another, materials do come back and it is up to those involved in the warehouse to effectively recover as much of the cost for these items as possible.”

- Whalen, “In Through the Out Door”

RFID AND RETURNS

• Visibility Tracking

• Component tracking

• Data Warehouse on what, why, when

• Altered products

• Not for every product

IMPACTS OF REVERSE LOGISTICS

• Forecasting• Carrying costs• Processing costs• Warehousing• Distribution• Transportation• Personnel• Marketing