SEU Operations Management Worksheet

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College of Administrative and Financial Sciences Assignment 2 Introduction to Operations Management (MGT311) Deadline for students: (16th April) The 11TH Week Course Name: INTRODUCTION TO Student’s Name: OPERATIONS MANAGEMENT Course Code: MGT311 Student’s ID Number: Semester: 2nd CRN: 25085 Academic Year: 1442/1443 H, First Semester For Instructor’s Use only Instructor’s Name: Dr. Salem Alanizan Students’ Grade: Marks Obtained/ Out of 10 Level of Marks: Instructions – PLEASE READ THEM CAREFULLY ❖ This assignment is an individual assignment. ❖ The Assignment must be submitted only in WORD format via allocated folder. ❖ Assignments submitted through email will not be accepted. ❖ Students are advised to make their work clear and well presented. This also includes filling your information on the cover page. ❖ Students must mention question number clearly in their answer. ❖ Late submitted assignments will NOT be entertained. ❖ Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions. ❖ All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism). ❖ Place of Submission is Blackboard. ❖ Weight 10 Marks Submissions without this cover page will NOT be accepted. Learning Outcomes 1. Define different perspectives and knowledge of process-flow analysis, process design solutions, lean system, quality controls, Inventory control system and green systems (CLO 1.2) 2. Apply knowledge and skills to optimize production objective of maximizing profits using qualitative and quantitative techniques in related areas of operations management (CLO 2.1) 3. Demonstrate process-flow analysis, process design solutions, operations strategies, Inventory Control System and customer services in the business operation. (CLO 2.2) ARTICLE WRITING This Assignment is based on ‘Lean Manufacturing System’: As we know that 5S is a lean manufacturing approach to “A place for everything, and everything in its place” based on the Toyota Production System. 1. 2. 3. 4. 5. Sort straighten shine standardize sustain To consider these five S, write an ‘Article’ focusing on the following considerations. 1. 2. 3. 4. Employee Morale Safety Efficiency Reduces time for looking 5. Performance evaluation Note: The Article should not be less than 300 words 2 Marks 2 Marks 2 Marks 2 Marks 2 Marks Chapter 1: Introduction to Operations COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. Chapter 1 Learning Objectives •LO 1.1 Define operations and supply chain management. •LO 1.2 Review the role of operations in the firm and the economy. •LO 1.3 Describe the five main decisions made by operations and supply chain managers. •LO 1.4 Explain the nature of cross-functional decision making with operations. •LO 1.5 Describe typical inputs and outputs of an operations transformation system. •LO 1.6 Analyze trends in operations and supply chain management. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-2 Definition of Operations Management Operations management focuses on decisions for the internal production of the firm’s products or services. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-3 A Typical Supply Chain (Figure 1.1) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-4 Operations and Supply Chain Management Deals with the sourcing, production, and distribution of the product or service along with managing the relationships with supply chain partners. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-5 Importance of Operations and Supply Chain Providing the products and services that we use and enjoy Sustaining our way of life while working to protect the planet Constantly improving both productivity and innovation Creating revenue from products & services to drive firm profitability COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-6 Role of Operations in the Economy Gross Domestic Product (GDP) - monetary value of all goods and services produced in a country. Productivity - value of goods/services output, relative to input. Productivity = output capital + labor COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-7 Productivity Example A retail (quick) clinic has the following output (revenue) and labor expenses. Did productivity improve from Year 1 to Year 2? (assume equivalent capital costs) Year 1 Annual Year 2 Inflation Output (revenue) $thousands Labor $thousands $280 $842 $292 $883 4% COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 2% 1-8 Productivity Example Solution A retail (quick) clinic has the following output (revenue) and labor expenses. Did productivity improve from Year 1 to Year 2? (assume equivalent capital costs) Productivity year 1 = Output year 1 = 842 = 3.01 Labor year 1 280 Productivity year 2 = Output year 2 = 883(.98) = 3.09 Labor year 2 292(.96) Change in productivity = 3.09 = 1.027 which is a 2.7% increase 3.01 COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-9 Why Study Operations Management? Challenging and interesting career opportunities – domestic, international Cross-functional nature of decisions – what every major needs to know Principles of process thinking can be applied across the organization ammentorp/123RF COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-10 Careers in Operations and Supply Chain Management Supply Chain Analyst Supply Chain Analytics Plant Lead on Sustainability Sourcing Specialist Global Sourcing Analyst Transportation Planner Risk Consultant NetPics/Alamy Stock Photo Customs Specialist COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-11 3 Aspects of Operations and Supply Chain Management Decisions: The operations manager must decide: • Process, quality, capacity, inventory, and supply chain Function: Major functional areas in organizations: • Operations, marketing, finance Process: Planning and controlling the transformation process and its interfaces (internal/external) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-12 Let’s Manage Operations at Pizza USA! Steve Mason/Getty Images Managing operations is about making decisions. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-13 Major Decisions at Pizza USA Process ◦ How should we produce pizzas? Quality ◦ How do we meet quality standards and ensure a good customer experience? Capacity ◦ How much output do we need at various times? Inventory ◦ Which ingredients, when & how much? Supply Chain ◦ How to source inputs and manage logistics? COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-14 Framework for Operations Decisions (Figure 1.2) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-15 Cross-Functional Decision Making Operations is critical in every firm. Marketing = create demand Operations = produce and distribute goods and services Finance = acquire and allocate capital Supporting functions: human resources, information systems, accounting Cross-functional decision making - see Table 1.2 COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-16 Operations as a Process Inputs Transformation (Conversion) Process COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. Outputs 1-17 Operations as a Process (Figure 1.3) Energy Materials Labor Capital Transformation (Conversion) Process Goods or Services Information Feedback information for control of process inputs and process technology COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-18 Transformation Process Examples (Table 1.3) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-19 Trends in Operations and Supply Chain Management ▪ Sustainability – triple bottom line ▪ Services ▪ Digital Technologies ▪ Integration of Decisions Internally and Externally ▪ Globalization of Operations and the Supply Chain StreetVJ/Shutterstock COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-20 Chapter 1 Summary •LO 1.1 Define operations and supply chain management. •LO 1.2 Review the role of operations in the firm and the economy. •LO 1.3 Describe the five main decisions made by operations and supply chain managers. •LO 1.4 Explain the nature of cross-functional decision making with operations. •LO 1.5 Describe typical inputs and outputs of an operations transformation system. •LO 1.6 Analyze trends in operations and supply chain management. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-21 Questions for Discussion •What do you hope to learn in this course? •Review the operations and supply chain trends on slide 1-20. Which of these is most interesting to you and why? •What production systems have you seen in person? How do they produce the intended product or service? •Describe a transformation process that you recently experienced. Think about a medical or dental clinic visit, or a restaurant visit. •Why are global factors important in operations and supply chain? •How is operations and supply chain related to environmental responsibility? COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 1-22 Chapter 2: Operations and Supply Chain Strategy McGraw-Hill Education COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. Chapter 2 Learning Objectives LO 2.1 Define operations strategy. LO 2.2 Describe the elements of operations strategy and alignment with business and other functional strategies. LO 2.3 Differentiate the ways to compete with operations objectives. LO 2.4 Compare product imitator and innovator strategies. LO 2.5 Explain the nature of global operations and supply chains. LO 2.6 Analyze two types of supply chain strategies. LO 2.7 Illustrate how operations and supply chain can become more sustainable. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 2-24 Operations Strategy “A consistent pattern of business decisions for operations and the associated supply chain … … that are linked to the business strategy and other functional strategies, leading to a competitive advantage for the firm.” The operations strategy at Southwest Airlines includes using only one type of airplane. This lowers staff training and maintenance costs, and reduces on hand spare parts. These decisions support the business strategy of being a low cost carrier. Markus Mainka/123RF COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 2-25 Operations Strategy Process (Figure 2.1) Corporate strategy Operations Strategy Mission Objectives: (cost, quality, delivery, flexibility, sustainability) Strategic Decisions: (process, quality, capacity, inventory, supply chain) Functional strategies in marketing, finance, engineering, human resources, and information systems Distinctive Competence COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 2-26 Operations Strategic Objectives Cost – resources used Quality – conformance to customer expectations Delivery – quickly and on time Flexibility – ability to rapidly change operations Sustainability – environmental, social, economic How do firms use these objectives to gain competitive advantage? What tradeoffs exist among the objectives? COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 2-27 Examples of Important Strategic Decisions in Operations (Table 2.2) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 2-28 Distinctive Competence This operations capability is something an organization does better than any competing organization that adds value for the customer. Examples: • patents, proprietary technology, operations innovations COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 2-29 Linking Operations to Business Strategy Business strategy alternatives ◦ Product Imitator ◦ Operations must focus on keeping costs low. ◦ Product Innovator ◦ Operations must maintain flexibility in processes, labor, and suppliers. Customer perspective ◦ Order Qualifier ◦ Objective that must be delivered at an acceptable level for customer to consider product/service. Can be an order loser if not met. ◦ Order Winner ◦ Objective that causes customer to choose a particular product/service. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 2-30 Linking Operations to Business Strategy ◦ Product Imitator ◦ Order Winner = price (low cost) ◦ Order Qualifiers = flexibility, quality, delivery ◦ Product Innovator ◦ Order Winner = flexibility (rapid introduction of new products) ◦ Order Qualifiers = cost, delivery, quality COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 2-31 Example: McDonald’s Operations Strategy Mission fast product/service, consistent quality, low cost, clean/friendly environment Operations Objectives cost, quality, service Strategic Decisions process, quality, capacity, inventory, supply chain Distinctive Competence today: continuous improvement of the transformation system, and brand (originally: unique service/supply chain) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 2-32 Characteristics of “Global Corporations”  Facilities located worldwide, not country by country.  Products & services can be shifted among countries.  Sourcing on a global basis.  Supply chain is global in nature.  Product design & process technology are global.  Products/service fit global tastes.  Demand is considered on worldwide basis.  Logistics & inventory control is on worldwide basis. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 2-33 Supply Chain Strategy To achieve competitive advantage for entire supply chain, rather than individual entities. Two supply chain strategies: ◦ Imitative Products (e.g. commodities) ◦ Predictable demand ◦ Efficient, low-cost supply chain ◦ Innovative Products (e.g. new technologies) ◦ Unpredictable demand ◦ Flexible, fast supply chain Firms design supply chain for each product/service or group of products/services ◦ Avoid “one size fits all” strategy COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 2-34 Supply Chain Strategy 2.4) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. (Table 2-35 Sustainability is in Operations Operations Sustainability: * minimizing or eliminating environmental impact of operations * social and financial viability of the firm for future generations Operations ‘greening’ may include: ◦ Curtailing air, water, landfill pollution ◦ Reducing energy consumption ◦ Minimizing transportation and total carbon footprint ◦ Working with suppliers to use recyclable and biodegradable packaging ◦ Incorporating product reuse, end-of-life return, recycling COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 2-36 TEA/123RF British retailer Marks & Spencer has met goals to send zero waste to landfills and is the first major retailer to be carbon neutral. Supply chain partners have been an important source of support for this effort. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. Chapter 2 Summary LO 2.1 Define operations strategy. LO 2.2 Describe the elements of operations strategy and alignment with business and other functional strategies. LO 2.3 Differentiate the ways to compete with operations objectives. LO 2.4 Compare product imitator and innovator strategies. LO 2.5 Explain the nature of global operations and supply chains. LO 2.6 Analyze two types of supply chain strategies. LO 2.7 Illustrate how operations and supply chain can become more sustainable. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 2-38 Questions for Discussion •Describe operations strategy in your own words. •What is the relationship between a firm’s business strategy and its operations strategy? •Think of examples of manufacturing and service firms that pursue the operations objectives of cost, quality, delivery, flexibility, sustainability. •How do Apple’s operations and supply chain characteristics support their product innovator strategy? •What are some operations or supply chain challenges facing global corporations? •Describe recent examples you have seen in person or in the media that illustrate how operations is closely tied to environmental, social, and financial sustainability. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 2-39 Chapter 3: Product Design COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 3-40 Chapter 3 Learning Objectives LO 3.1 Compare the three strategies for new product introduction. LO 3.2 Describe the three phases of new product development. LO 3.3 Evaluate how concurrent engineering deals with misalignment. LO 3.4 Describe the criteria for selecting suppliers for collaboration. LO 3.5 Evaluate an example of Quality Function Deployment. LO 3.6 Explain the benefits of modular design. McGraw-Hill/Irwin COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 3-41 Product Design: Why Does Operations Care? In the past: Throw product design “over the wall” Today: ◦ Must be able to produce the product (design the process) ◦ technology ◦ availability of resources ◦ Must have the right type and amount of capacity ◦ Must deliver a quality product or service ◦ Must have right inventory at right time The LEGO Group is investing over $100 million and hiring 100 workers to redesign its product. The goal is to make the product entirely from plant or recycled materials by 2030. McGraw-Hill/Irwin COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. Milosh Kojadinovich/12RF 3-42 Strategies for New Product Introduction Market Pull: “Make what we can sell” ◦ Organize resources to fulfill customer demand ◦ Food industry Technology Push: “Sell what we can make” ◦ Develop superior technologies and products ◦ Electronics Interfunctional View: most difficult ◦ Cross-functional design team – marketing, engineering, operations, finance ◦ Challenge to gain cooperation of all functions ◦ Consider existing and new markets McGraw-Hill/Irwin COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 3-43 McGraw-Hill/Irwin COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 3-44 New Product Development Process Concept Development ◦ Idea generation and evaluation of alternative ideas Product Design ◦ Design of the physical product ◦ Design of the production process Pilot Production/Testing ◦ Testing production prototypes (e.g., 3D printing) ◦ Finalizing production process Shutterstock/Gorodenkoff ◦ Finalizing ‘information package’ specifying product and process design details McGraw-Hill/Irwin COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 3-45 New Product Design Process (Figure 3.2) Concept development McGraw-Hill/Irwin Product design Preliminary process design Pilot production/testing Final process design COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 3-46 Production Prototypes Robert Clark/Getty Images 3D Printing or Additive Manufacturing - McGraw-Hill/Irwin Creates physical prototype Allows rapid production of prototype designs Software and hardware continue to improve Now possible to print metal and human cells Speeds entire product design process COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 47 Cross-Functional Product Design Sequential approach ◦ Functions (marketing, engineering, operations) work independently before passing work to next step. This is the ‘over the wall’ approach. ◦ Often results in misalignment of market needs, design, and production process. Concurrent approach ◦ ◦ ◦ ◦ McGraw-Hill/Irwin Also called concurrent engineering. Functions cooperate, work together over the same time frame. Cross-functional teams are common. Not always “best” approach (e.g. high uncertainty of market or technology). COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 3-48 Cross-Functional Product Design (Figure 3.3) McGraw-Hill/Irwin COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 3-49 Supply Chain Collaboration Relationships with Customers ◦ Ask right questions ◦ Align incentives to share knowledge ◦ Create collaborative technology platform ◦ Include as advisors to design team McGraw-Hill/Irwin COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 3-50 Supply Chain Collaboration Relationships with Suppliers ◦ Technical expertise ◦ Capabilities – cost, time, quality targets ◦ Capacity availability ◦ Low risk McGraw-Hill/Irwin COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 3-51 Quality Function Deployment (QFD) “House of Quality” Tool for coordinating and communicating between functions Helps identify tradeoffs Customer Attributes “Voice of the Customer” McGraw-Hill/Irwin Engineering Characteristics “Voice of the Engineer” COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 3-52 House of Quality (QFD) (Figure 3.4) McGraw-Hill/Irwin COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 3-53 House of Quality (Figure(QFD) HOUSE(QFD) OF QUALITY 3.5) McGraw-Hill/Irwin COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 3-54 HOUSE QUALITY (QFD) QFD for Pizza USAOF Delivery (Figure 3.6) McGraw-Hill/Irwin COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 3-55 Modular Design Allows greater product variety through ‘mixing and matching’ modules Design, develop, and manage basic components (modules) to (re)use in multiple products Controls costs while enabling customer choice Small number of components creates large number of combinations, e.g., Dell notebooks, IKEA cabinets McGraw-Hill/Irwin COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 3-56 Modular Design Most automobile manufacturers use modular design. MINI Cooper’s basic model has many choices: ◦ ◦ ◦ ◦ ◦ 4 body colors 3 wheel designs 8 interior finishes 2 engines 11 styles The theoretical number of different cars that can be produced: 4 × 3 × 8 × 2 × 11 = 2112 McGraw-Hill/Irwin Robert Wilson/123RF COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 3-57 Chapter 3 Summary LO 3.1 Compare the three strategies for new product introduction. LO 3.2 Describe the three phases of new product development. LO 3.3 Evaluate how concurrent engineering deals with misalignment. LO 3.4 Describe the criteria for selecting suppliers for collaboration. LO 3.5 Evaluate an example of Quality Function Deployment. LO 3.6 Explain the benefits of modular design. McGraw-Hill/Irwin COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 3-58 Questions for Discussion •Can you think of examples of new products that did not function well for the customers who bought them? What went wrong? •Describe what can happen if product design and process design are approached separately by different work teams. •What are the key activities in pilot production? •What do you know about 3D printing? 4D printing?! •What do marketing, finance, and HR do when they are involved in a crossfunction concurrent engineering team? •How can suppliers be involved in new product development? •Can you think of products you own that include modular design elements? McGraw-Hill/Irwin COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 59 Chapter 4: Process Selection McGraw-Hill Education COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-60 Chapter 4 Learning Objectives LO 4.1 Contrast and compare the five types of product-flow processes. LO 4.2 Describe the differences among order fulfillment processes. LO 4.3 Explain how companies should make process selection decisions. LO 4.4 Correctly place examples of products on the product-process matrix. LO 4.5 Describe the features of focused operations. LO 4.6 Discuss the uses of mass customization and 3D printing. LO 4.7 Contrast pollution prevention, pollution control and pollution practices. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-61 Product-Flow Characteristics Types of Product Flow ◦ Continuous process ◦ Assembly line ◦ Batch flow ◦ Job shop ◦ Project COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-62 Product-Flow Characteristics: Continuous Process Highly standardized and automated Flexibility limited High volumes of production Commodity products Low cost is the ‘Order Winner’ Process industries (sugar, paper, oil, electricity, etc.) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-63 Product-Flow Characteristics: Assembly Line Linear sequence of operations (often paced) Large capital investment, use of automation Very efficient High-volume, standardized products Low flexibility to product and volume changes Discrete products (autos, appliances, computers, etc.) nikitabuida/Shutterstock COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-64 Assembly Line: Metal Bracket (Figure 4.1) cut drill bend paint Task or work station Product flow COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-65 Product-Flow Characteristics: Batch Flow Production of batches or lots Batches flow as a unit (set) from one work center to another Process layout of work centers (by tasks) Flow is jumbled and intermittent Flexible labor and equipment (general purpose) Low to high volume, variety of products Many types of products (furniture, dishes, boats) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-66 Batch Flow: Metal Brackets 4.2) (Figure Bend Paint Cut Batch A Batch B Batch C Drill Task or work station COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. Product flows 4-67 Product-Flow Characteristics: Job Shop Customized to customer order Production of small batches or lots Layout/flow similar to Batch Flow Flexible labor and equipment (general purpose) Many types of made-to-order products (plastic parts, machine components, sheet metal parts, custom signs, artificial limbs, etc.) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-68 Product-Flow Characteristics: Project Production of customized single products Labor and materials brought to site Planning, scheduling challenges Little automation, general purpose equipment Highly skilled and flexible labor Unique, one of a kind products (bridges, building construction, large aircraft, etc.) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-69 Throughput Ratio: Process efficiency TR = Total processing time for the job X 100% Total time in operations Typically: 90-100% in continuous process & assembly line 10-20% in batch flow & job shop COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-70 Order Fulfillment Make-to-Stock (MTS) Make-to-Order (MTO) Assemble-to-Order (ATO) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-71 Make-to-Stock (MTS) •Produce finished goods according to production schedule •Customer buys from inventory Advantage Faster fulfillment of customer demand, lower cost, smooth production rate Disadvantage Inventory holding costs, slower to respond to changes in customer preferences COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-72 Make-to-Stock (Figure 4.3) Forecast orders Customer Product Customer order Finished goods inventory Product COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. Production 4-73 MTS Performance Measures Service level (orders filled when requested) Inventory replenishment time Inventory turnover (sales/avg. inventory) Capacity utilization Time to fill back order Others, such as shrinkage rate COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-74 Make-to-Order (MTO) Start production after customer orders No finished goods inventory Advantage Higher flexibility to customize order; no finished goods inventory costs Disadvantage Intermittent production (i.e., lumpy demand pattern), slower response to customer demand COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-75 Make-to-Order (Figure 4.3) Customer Customer order Product Production COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-76 MTO Performance Measures Lead time Orders completed on time (%) Customer request date Promise date COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-77 Assemble-to-Order (ATO) Produce parts and subassemblies (modules); complete production when customer places order Advantage Less finished goods inventory, faster fulfillment of customer order Disadvantage Work-in-process inventory COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-78 Assemble-to-Order (Figure 4.3) Forecast orders Customer Product Customer order Order assembly Holding inventory of subassemblies COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. Production of subassemblies 4-79 MTS and MTO Comparison COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-80 Order Penetration Point (Figure 4.4) MTO ∇----------∇ Raw materials MTO ATO ∇ Fabrication MTS ∇ Assembly COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. Distribution 4-81 Process Selection Decisions Produce how? Produce when? Continuous process Assembly line Batch flow Job shop Project MTS MTO ATO Factors affecting process choice ◦ Market conditions ◦ Capital requirements ◦ Availability and cost of labor ◦ Technology options COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-82 Process Characteristics Matrix (Table 4.2) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-83 Product-Process Strategy Strategy must consider: ◦ Product characteristics ◦ Process capabilities Product life cycle: ◦ Often begins in Job shop, then Batch flow, then Continuous/Assembly line. Example: ◦ Bread was first produced by hand in individual units in traditional bakeries. It is now produced in very large batches in modern automated bakeries. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-84 Product-Process Matrix Unique, one of a kind product (Figure 4.5) Low volume, Low volume, Higher volume High volume, high multiple low few major standardization, products standardization products commodity Project Building NONE Job Shop Printing Heavy equipment Batch Auto assembly Assembly Line Continuous NONE COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. Sugar refinery 4-85 Focused Operations Focused factory: Meeting one set of goals. Plant-within-a-plant (PWP): Separate products/services with differing goals by production lines/areas within the same facility. Lack of focus = attempting to meet too many goals at one plant or facility. Signs of declining focus = product/service proliferation, different volumes, different levels of standardization. Example: Midwest Orthopedic Specialty Hospital (Milwaukee, WI) specializes in medical treatments on bones and joints. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-86 Mass Customization Produce custom products using a high volume process economies of scale = low unit cost economies of scope = high variety •Strategy to produce products in lot sizes = 1, high volume. •Flexible manufacturing provides economies of scope. •Traditional mass production provides economies of scale. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-87 Forms of Mass Customization Modular production & assemble-to-order (ATO) ◦ e.g., assembling modules for Dell computers Fast changeover ◦ e.g., zero set-up time at Motorola Postponement of options ◦ e.g. power supply for Hewlett-Packard printers COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-88 3D Printing & Additive Manufacturing Based on digital design model ◦ Stored in cloud, in not warehouse! Layer plastic, metal, ceramic to build object ◦ Normal (real) size ◦ Complex shapes and spaces Uses: medical implants, aerospace, spare parts, etc. ◦ Complements manufacturing for special needs, rather than replacing production facilities ◦ Can shorten global supply chain; reduce inventory cookelma/Getty Images; Maruna Skoropadska/123RF COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-89 Environmental Concerns Technologies for pollution prevention. Technologies for pollution control. Infrastructure Systems for pollution practices. Other concerns • Recycling outputs • Recycled inputs • Remanufacturing COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-90 Cross-Functional Decision Making Who has a stake in process choice? Marketing wants fast response to customer demand Finance provides funds to configure the process HR finds/creates the properly skilled workers IT serves various data requirements Accounting evolves in setting performance measures COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-91 Chapter 4 Summary LO 4.1 Contrast and compare the five types of product-flow processes. LO 4.2 Describe the differences among order fulfillment processes. LO 4.3 Explain how companies should make process selection decisions. LO 4.4 Correctly place examples of products on the product-process matrix. LO 4.5 Describe the features of focused operations. LO 4.6 Discuss the uses of mass customization and 3D printing. LO 4.7 Contrast pollution prevention, pollution control and pollution practices. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-92 Questions for Discussion •In your own words, describe the advantages of each of the product flows: continuous, assembly line, batch, job shop, and project. •Let’s say you are starting a new company that manufacturers customized jewelry. What types of process equipment will you search for? What types of workforce skills will you want? •For your jewelry company, how will you decide between make-to-stock, maketo-order, and assemble-to-order? •Can you think of examples where you have seen processes that are assembleto-order? •On the product-process matrix, why are there no firms in two of the corners? •Have you purchased any mass customized products? Try to determine how you think they were made. •What examples have you seen of organizations using pollution prevention, pollution control, or other pollution practices? COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 4-93 Chapter 5: Service Process Design McGraw-Hill Education COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 5-94 Chapter 5 Learning Objectives LO 5.1 Differentiate the characteristics of a service organization from a manufacturing organization. LO 5. 2 Explain the elements of a service-product bundle. LO 5.3 Organize a variety of service offerings into the service delivery system matrix. LO 5.4 Describe the effect on the service delivery system of customer contact. LO 5.5 Explain service recovery and service guarantees. LO 5.6 Evaluate the role of technology in service management. LO 5.7 Appraise how globalization has affected services. LO 5.7 Define the attributes of the service-profit chain. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 5-95 The Service Economy 15 Largest U.S. employers 1960 12 manufacturers 3 services X 2010 3 manufacturers 12 services Source: Government Accountability Office, 2019 COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 5-96 The Service Economy Source: Bureau of Labor Statistics, 2019 COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 5-97 Defining Service Intangibility of the offering Simultaneous production and consumption No finished goods inventory Front office vs. back office Cannot be stored/resold Leonard Zhukovsky/123RF COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 5-98 Service-Product Bundle Service - explicit service ◦ what the provider does for customer Psychological benefits - implicit service ◦ how customer feels after service Physical goods - facilitating goods ◦ used during service or received by customer Enjoyment Delivery vehicle Pizza delivery Pizza Speed/ convenience COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 5-99 Goods and Services Packages (Figure 5.1) Services Goods 100% 75% 50% 25% 0% 25% 50% 75% 100% Self-service groceries Automobile Installed carpeting Fast-food restaurant Gourmet restaurant Auto maintenance Haircut Consulting services COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 5-100 Service Delivery System Matrix (Figure Customer Wants and Needs in the Service Package Highly customized with unique Standard with options, using Standardized with highly moderately repeatable repeatable process process sequence. sequence. sequence. Customer has Customer has Customer has great decision-making power.some decision-making power. low decision-making power. Many process pathways. Service Delivery System Design 5.2) Jumbled flows, complex work with many exceptions. Moderate number of process pathways. Customer Routed •Estate planning Co-routed •Stock brokerage Flexible flows with some dominant paths, moderate work complexity. Limited number of process pathways. Line flows, low complexity work. Provider Routed •ATM 5-101 COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. Customer Contact Extent of interaction between service organization and customer. Lower contact Higher contact (buffered core) (reactive system) … … “customer routed” (customized) “provider-routed” (standardized) … … Example online shopping Example dentist appointment COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 5-102 Customer Contact Low customer contact (see Figure 5.3) High customer contact ◦ Higher production efficiency ◦ Lower production efficiency ◦ Lower sales opportunity ◦ Higher sales opportunity ◦ Workers with technical skills ◦ Focus on routing methods ◦ Office automation ◦ Workers with diagnostic skills ◦ Focus on client mix ◦ Client/worker teams Balancing sales opportunity and production efficiency COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 5-103 Customer-Introduced Variability Arrival ◦ Uncertainty in when customers will arrive to consume a service Request ◦ Uncertainty in what customers ask for in the service-product bundle Capability ◦ Uncertainty in the ability of customers to participate in a service Effort ◦ Uncertainty in the willingness of customers to perform appropriate actions Subjective preference ◦ Uncertainty in the customer’s intangible preferences in how service is carried out COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 5-104 Service Failure / Service Recovery ◦ Taking swift and appropriate action to compensate customer for a failed service. ◦ Fly in customer’s soup  New bowl of soup plus free dessert! UPS recovered from a service failure by not only delivering the package, but bringing flowers, chocolates, and doggy treats as well! roberto galan/123RF COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 5-105 Service Guarantee Benefits to the customer ◦ Promise of service to be delivered ◦ Payout to customer if promise not delivered ◦ FedEx package delivery  On time, or it is free! Benefits to the organization ◦ Focuses on customer (service promise) ◦ Clearly defines payout ◦ Improves customer loyalty COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 5-106 Technology – Artificial Intelligence Software and hardware programmed to exhibit human intelligence ◦ Routine – repetitive tasks Example: conversational phone bots provide customer service ◦ Analytical – problem solving and learning Example: sports data analytics for player recruiting decisions ◦ Intuitive – think creatively Example: helping doctors diagnose patients ◦ Empathetic – respond emotionally Example: bot Pepper welcomes and amuses Japanese bank customers VTT Studio/Shutterstock COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 5-107 Globalization: Outsourcing & Offshoring Services Outsourcing: ◦ An outside firm performs service activities such as workforce recruiting, payroll management, accounting services, and call center functions. Offshoring: ◦ Export of these service activities to other countries. Advantages: Disadvantages: • • • • Lower costs Focus on core competencies Coordination costs Loss of direct control COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 5-108 Service Profit Chain (Figure 5.4) Internal service quality drives… Employee satisfaction drives… Employee retention & productivity drives… External service value (to customer) drives… Customer satisfaction drives… Customer loyalty drives… Revenue growth & profitability ◦ Feed investment back into internal service quality COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 5-109 Chapter 5 Summary LO 5.1 Differentiate the characteristics of a service organization from a manufacturing organization. LO 5. 2 Explain the elements of a service-product bundle. LO 5.3 Organize a variety of service offerings into the service delivery system matrix. LO 5.4 Describe the effect on the service delivery system of customer contact. LO 5.5 Explain service recovery and service guarantees. LO 5.6 Evaluate the role of technology in service management. LO 5.7 Appraise how globalization has affected services. LO 5.7 Define the attributes of the service-profit chain. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 5-110 Questions for Discussion •Which service firms do you think are among the largest of all U.S. employers? •What type of education and training are needed to fill the fastest growing occupations in the U.S.? •Define the elements in the service-product bundle for your most recent service purchase. •Can you think of examples of customer-routed, co-routed, and providerrouted services? •How do firms decide if a service should be delivered in a high contact manner or a low contact manner? •What was the outcome the last time you experienced a service failure? •What ideas do you have for using artificial intelligence in the future? COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 5-111 Chapter 6: Process-Flow Analysis McGraw-Hill Education COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 112 Chapter 6 Learning Objectives LO 6.1 Describe process thinking and system boundaries. LO 6.2 Explain how the process view of business is cross-functional. LO 6.3 Construct a process flowchart for a given process. LO 6.4 Analyze a process by asking a wide variety of questions informed by the process flowchart. LO 6.5 Calculate process-flow capabilities using analytics. LO 6.6 Explain the principles of process redesign. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-113 Process Thinking  All work is a process.  All business functions use processes.  System: Collection of interrelated elements where… Whole system > Sum of parts  Apply systems thinking to business.  Define system boundaries  Use cross-functional teams for systems analysis.  Include all affected functions COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-114 Process View of Business CEO M a r k e t in g O p e r a t io n s F in a n c e Customer request Order fulfillment COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-115 Process Flowcharting Creating a visual diagram to describe (represent) a transformation process Also called (or similar to): ◦ Process mapping ◦ Flow-process charting ◦ Service blueprinting ◦ Systems flowchart COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-116 Process Flowcharting First, visually describe current process. Second, find ways to improve current process. ◦ Find repetitive operations ◦ Identify bottlenecks ◦ Describe directions and distances of flows (people, material and information) ◦ Reduce waste Often required for certifications such as ISO9000. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-117 Process Flowcharting 1. Select a transformation process to study. 2. Form a team to develop flowchart & for analysis (to improve the system). 3. Specify the boundaries of transformation process. 4. Identify and sequence the operational steps. 5. Identify the performance metrics for the steps. - e.g., time to complete each step 6. Draw the flowchart, using consistent symbols. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-118 Common Flowcharting Symbols Terminator: “START” and “END” Process: operation, activity, or task Decision: evaluation or “IF-THEN” Flow: materials, information, customer COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. Example: Selecting a Supplier (Figure 6.2) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-120 Service Blueprint What is the process for selecting and altering a suit at a retail store? What activities involved each of the following? 1. Customer 2. Sales associate 3. Tailor Pressmaster/Shutterstock Each needs a “swim lane” COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 121 Symbols for Flow-Process Chart Operation: task or work activity Inspection: checking product quantity or quality Transportation: Storage: Delay: movement of material from point to point inventory of materials awaiting next operation delay in sequence of operations COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. Example Picking Operations at Grocery Store Distribution Center (Figure 6.5) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-123 Questions to Ask in Process-Flow Analysis Flow: Is it balanced? Where is the bottleneck? Are all steps necessary? How jumbled is the flow? Time: How long to produce one unit? Can it be reduced? Is set-up time excessive? Is waiting time excessive? Quantity: Theoretical production amount? How easy to change? How many units actually produced? Quality: Historical defect rate? Which steps contribute to defects? Where do errors occur? Cost: How much to produce one unit? What are cost buckets for one unit? Can some cost buckets be reduced or eliminated? COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-124 Measuring Process Flows System Capacity = capacity of the most constraining resource → The single resource with the least capacity is called the bottleneck Flow rate = minimum (Supply, Demand, Capacity) Throughput time = from when processing begins until product or service is completed COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-125 Measuring Process Flows Little’s Law I=TxR I = average number of things in the system T = average throughput time R = average flow rate into the process ◦ Relates number of items in the system (I) to arrival rate (R) and throughput time (T). ◦ Assumes system is in a ‘steady state.’ COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-126 Little’s Law Example ◦ People are in a line to get through security checks at a music festival. An average of 10 people per minute are processed. People spend 24 minutes in line, on average. ◦ What is the average number of people in line? ◦ I=TxR ◦ I = 24 x 10 → I = 240 people in line, on average ◦ Same problem, but an average of 4 people per minute are processed, and the average number of people in line is 240. ◦ What is the average time spent in line? ◦ T=I/R ◦ T = 240 / 4 → T = 60 minutes in line, on average COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-127 Pizza U.S.A. example 6.6) Activity (section Minutes Who/What Take the order 1 Assistant Make the crust 3 Chef Prepare and add ingredients 2 Chef Bake the pizza 24 Oven Cut pizza and box the order 1 Assistant Take payment 1 Assistant Details: Assume all toppings added to every pizza. Two employees working at a time. Oven can bake up to 4 pizzas at a time. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-128 Map the Process STAR T END Take order Make crust 1 min. 3 min. Take payme 1 nt min. Cut/bo x pizza 1 min. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. Prep/add ingredie nts2 min. Bake pizza 24 min. 6-129 What is the Throughput Time? Throughput time = time to complete one product or service Pizza throughput time? 1 + 3 + 2 + 24 + 1 + 1 = 32 min. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-130 What is Process Capacity? 3 resource s Assistant: 1+1+1=3 min. per pizza, 20 pizzas per hr. Chef: hr. 3+2=5 min. per pizza, 12 pizzas per Therefore… Oven: 24/4=6 min. per pizza, 10 pizzas per hr. process capacity (flow rate) = 10 pizzas/hour COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-131 What is the Process Bottleneck? At an average process time of 6 min. per pizza… the OVEN is the slowest activity….. and that determines process capacity…. and is, therefore, the bottleneck. The process cannot produce more than the slowest activity. (flow rate = 10 pizzas/hr) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-132 Process Redesign  Identify, analyze, improve critical processes. (may cross organizational boundaries)  Extreme cases: Complete process reconfiguration. (eliminating many steps)  Business Process Reengineering (BPR) Check the text for a successful example from Credit Suisse. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-133 Principles of Process Redesign • Organize around outcomes, not tasks. • Have the people who do the work process their own information. Avoid handoffs, whenever possible. • Put the decision point where work is performed, and build control into the process. Make decisions at lowest possible level. • Eliminate unnecessary steps in the process. Simplify, eliminate non-value-added activities. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-134 Chapter 6 Summary LO 6.1 Describe process thinking and system boundaries. LO 6.2 Explain how the process view of business is cross-functional. LO 6.3 Construct a process flowchart for a given process. LO 6.4 Analyze a process by asking a wide variety of questions informed by the process flowchart. LO 6.5 Calculate process-flow capabilities using analytics. LO 6.6 Explain the principles of process redesign. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 6-135 Questions for Discussion •Based on your work experience, can you define a “system” in which you have worked? •Draw a simple process map for a breakfast process such as making coffee or toast. •What sorts of “decisions” are involved in your breakfast process? •What is the bottleneck in your breakfast process? •Have a classmate review your breakfast process map and provide suggestions for improvement! •If you could redesign one of the processes on campus, which would you choose? What are some of your ideas? COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 136 Chapter 7: Lean Thinking and Lean Systems McGraw-Hill Education COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 137 Chapter 7 Learning Objectives LO 7.1 Describe the origins and evolution of lean thinking. LO 7.2 Describe the five tenets of lean thinking and the seven forms of waste in a lean system. LO 7.3 Explain why a stabilized master schedule is required for smooth flow. LO 7.4 Explain how setup time, lot size, layout, and maintenance are related to lean thinking. LO 7.5 Differentiate how employees are unique in lean systems. LO 7.6 Design a Kanban system to achieve customer pull. LO 7.7 Compare lean suppliers to traditional manufacturing suppliers. LO 7.8 Explain how to implement a lean system. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-138 Evolution of Lean Toyota Production System (TPS) ◦ Developed in Japan following WWII (due to limited resources) ◦ Also known as Just-in-Time (JIT) manufacturing ◦ Came to U.S. in 1981 at Kawasaki motorcycle plant in Lincoln, Nebraska 1990s book, “The Machine That Changed the World” by Womack, Jones & Roos Popularized a new label: Lean Production Walter Cicchetti/123RF COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-139 Lean Tenets Create product/service value from customer perspective ◦ Reduce waste - muda Identify, study, improve the value stream ◦ Observe the process - gemba Ensure simple, smooth, error-free flow ◦ Determine takt time Produce only what is pulled by customer ◦ Use kanbans Strive for perfection ◦ Hold kaizen events, 5S, 5 Whys COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-140 Create Value: Seven Forms of Waste Overproduction: Producing more than the demand for customers, resulting in unnecessary inventory, handling, paperwork, and warehouse space. Waiting time: Operators and machines waiting for parts or work to arrive from suppliers or other operations. Customers waiting in line. Unnecessary transportation: Double or triple movement of materials due to poor layouts, lack of coordination, and poor workplace organization. Excess processing: Poor design or inadequate maintenance or processes, requiring additional labor or machine time. Too much inventory: Excess inventory due to large lot sizes, obsolete items, poor forecasts, or improper production planning. Unnecessary motion: Wasted movements of people or extra walking to get materials. Defects: Use of material, labor, and capacity for production of defects, sorting out bad parts, or warranty costs with customers. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-141 Value Stream Mapping  Value stream is all processing steps to complete product/service  Extension of process flowcharting  Includes value-adding/non-value-adding activities  Requires direct observation of process – gemba  “Is this step or task necessary in creating value for the customer?”  Change and improve process COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-142 Example: Value Stream Mapping COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-143 Ensure Flow: Inventory Hides Problems (Figure 7.2) Water Level Bad design Poor quality Lengthy setups Inefficient layout Machine breakdown Unreliable supplier Water level indicates level of inventory in the system COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-144 Lower Inventory Level Exposes Problems Water Level Bad design Poor quality Lengthy setups Inefficient layout Machine breakdown Unreliable supplier Water level indicates level of inventory in the system COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-145 Water Flows Smoothly... Once Problems Resolved Water Level Problems addressed/solved Water level indicates level of inventory in the system COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-146 Customer Pull: Push versus Pull System 7.3) (Figure  Downstream customer signals need for good or service.  Signal is sent upstream that production is needed.  No upstream process is authorized to produce until customer pulls, thus minimizing inventory in the system. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 147 Strive for Perfection: Quality in a Lean System Quality is essential input into lean system. Defects are waste. No inventory to cover up mistakes. System designed to expose errors; correct them at their source (so not repeated in the future). Continuous improvement of the process. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-148 5 Whys Technique Explores cause-and-effect relationships that underlie problems (root causes) Enables root causes to be identified/resolved Example: Truck won’t start. ◦ ◦ ◦ ◦ ◦ ◦ Why? Battery is dead. Why? Alternator is not functioning. Why? Alternator belt is broken. Why? Truck was not maintained as recommended. Why? Truck is old; no replacement parts available. Solution? Find source for parts, or purchase new truck. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-149 5S Technique Organize workspace to improve employee morale, safety, efficiency. Reduces time looking for “things.”  Seiri to Sort (keep, toss)  Seiton to Straighten or set in order  Seiso to Shine, sweep, or clean  Seiketsu to Standardize  Shitsuke to Sustain (maintain) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-150 Example: 5S Technique Storage of chemicals in production area Before • Quantities greater than needed • Difficult to see what is missing • Hard to find anything After Source: The Lean & Chemicals Toolkit/U.S. Environmental Protection Age • Appropriately sized quantities • Quickly see what is missing • Easy to find anything COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-151 Creating Flow  Stabilize master schedule  Reduce setup times and lot sizes  Change to cellular layout and preventative maintenance  Cross-train and engage workers COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 152 Stabilize the Master Schedule  Production horizon set according to demand.  Production schedule repeated each day.  Uniform load: level work load across workers/machines.  Takt time: match supply (production rate) to demand rate .  Produce planned quantity each day, and no more.  These concepts are desirable, but not essential, to a lean system. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-153 Reduce Setup Time and Lot Size Reducing setup time… ◦ increases available capacity ◦ increases flexibility to meet schedule changes ◦ reduces inventory Setup types ◦ Single (single digit minutes) ◦ One-touch (less then 1 min; 2-step process) ◦ Internal (while machine stopped) ◦ External (while machine operating) Lot size reduction ◦ Goal: single unit production COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-154 Cellular Layout (Figure 7.4) • Inventory kept on shop floor close to where it is used. • Eliminates wasted transportation moving materials. • Work centers organized into group technology layout - cellular manufacturing. • U-shape ensures flow without interruption. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-155 Engaging Workers Multifunction, cross-trained workers ◦ Flexibility to move to busy work centers New pay system to reflect skills variety Workers contribute individually and collaboratively ◦ Perform own maintenance and inspection ◦ Teamwork, problem solving ◦ Suggestion systems COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-156 Pull: Kanban System Signals the need for more parts Uses simple cards or signals to control production and inventory Each work center receives production order (signal or card) from succeeding (downstream) work center Prevents buildup of inventory Reduces lead time Same concept applies to receiving deliveries from suppliers (supplier must wait for signal) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-157 Kanban System (Figure 7.5) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-158 Kanban System Kanban: “marker” (card, sign, empty container) Visual control system of cards and containers, or other signal. Number of containers: DT n C D = Demand rate (at work center) T = Time for container to complete circuit C = Container size (# units) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-159 Kanban Containers Example  Demand at work center B is 5 parts per minute and a standard container holds 50 parts.  It takes 90 minutes for a container to make a complete circuit through work center A and work center B (and back to A), including all setup, run, move, and wait times. The number of containers needed: n = 5(90) / 50 = 9 containers The maximum inventory in the production system, a useful measure of how lean the system is: Maximum inventory = nC = DT = (9 × 50) = (5 × 90) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 160 Supplier Relationships  Viewed as the ‘external factory’  Co-location, frequent deliveries  Fewer suppliers  No inspection—high quality is assumed (required)  Integrated supplier programs  Early supplier selection  Family-of-parts sourcing  Long-term strategic relationship  Reduce paperwork and inspection COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-161 Implementation: Kaizen Event Establish a cross-functional team Determine what customers value Construct value stream map Eliminate waste (non-value-adding activities) Create smooth and error-free flow Use customer demand to pull work thru process Implement team ideas COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-162 Chapter 7 Summary LO 7.1 Describe the origins and evolution of lean thinking. LO 7.2 Describe the five tenets of lean thinking and the seven forms of waste in a lean system. LO 7.3 Explain why a stabilized master schedule is required for smooth flow. LO 7.4 Explain how setup time, lot size, layout, and maintenance are related to lean thinking. LO 7.5 Differentiate how employees are unique in lean systems. LO 7.6 Design a Kanban system to achieve customer pull. LO 7.7 Compare lean suppliers to traditional manufacturing suppliers. LO 7.8 Explain how to implement a lean system. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 7-163 Questions for Discussion •Why did lean (Toyota Production System) work so well in Japan after World War II? •Choose one of the Japanese words from the 5 lean tenets and explain it in your own words. •Which of the 7 forms of waste can you observe at your favorite restaurants? •What does it mean to say that “inventory hides problems” in a production system? •Consider what “setup time” looks like in different industries: hospitals, quick oil change shops, restaurants, garment producing factories. •Make a mental list of how you would “5S” your own refrigerator. Then, share your ideas with classmates and compare how they approached this task. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 164 Chapter 8: Managing Quality McGraw-Hill Education COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-165 Chapter 8 Learning Objectives LO 8.1 Explain quality, from a customer perspective. LO 8.2 Characterize product quality based on four dimensions. LO 8.3 Distinguish service quality from product quality based on its distinct measurement. LO 8.4 Apply the quality cycle to a product or service. LO 8.5 Explain how mistake-proofing and the supply chain are integrated with quality management planning. LO 8.6 Attribute how cost of quality is related to financial performance. LO 8.7 Recall the two key quality pioneers and their main ideas. LO 8.8 Compare and contrast ISO 9000 standards and the Baldrige Award criteria. LO 8.9 Articulate some key barriers to successful quality improvement efforts. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-166 What is Quality Management? Quality is one of the four key objectives of operations: ◦ cost, quality, delivery, flexibility Historical development of quality concepts ◦ Inspection (early 1900s) ◦ Statistics quality control (Shewhart - 1940s) ◦ Quality management (1960s) Quality is now viewed as the responsibility of all functions in the organization. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-167 Comair Flight 5191, Lexington, KY “The Comair Flight 5191 crew began the day by powering up the wrong plane. They took off down the wrong runway. The air traffic controller, working alone in violation of FAA policy, had turned his back to do other duties. Investigators are uncovering a series of mistakes before the plane crashed, killing 49 people.” Source: www.cnn.com, 2006 Quality involves the entire organization and the supply chain. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-168 Definition of Quality Meeting, or exceeding, customer requirements now and in the future. Meaning: The product or service is fit for customer use. Meaning: Only the customer can determine quality. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-169 Dimensions of Product Quality QUALITY COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-170 Quality of Design Determined before the product is produced Responsibility of cross-functional product design team Translates customer “wishes” into specifications Depends on market research, design concept, product specifications COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-171 Quality of Conformance  Producing a product (or service) that meets specifications  Even ‘cheap’ products can have high conformance quality - May not be durable, but conformance quality is achieved if product matches the design. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-172 The “Abilities” • Availability • Continuity of usefulness to customers (operational) • Reliability • • Useful product/service time until failure Mean time before failure (MTBF) • Maintainability • • Restoration of product/service after failure Mean time to repair (MTTR) Uptime Availability  Uptime  Downtime MTBF Availability  MTBF  MTTR COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-173 8-173 Availability Example • A piece of medical testing equipment is typically used for 3 hours and then requires 1 hour of maintenance. → Calculate the machine’s availability. Uptime Availability  Uptime  Downtime • • • • MTBF Availability  MTBF  MTTR MTBF = 3 hours MTTR = 1 hour Availability = 3 / (3 + 1) = .75 The machine’s average availability is 75%. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-174 8-174 Field Service  Warranty and repair/replacement of the product after it has been sold  Also called customer service, sales service, or just “service”  Dimensions ◦ Promptness ◦ Competence ◦ Integrity COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-175 Different Types of Quality (Figure 8.1) Quality of market research Quality of design Quality of concept Quality of specification Technology Customer satisfaction Quality of conformance Employees Management Reliability Fitness for use Availability Maintainability Logistical support Promptness Field service Competence Integrity COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-176 Service Quality • Includes explicit and implicit service characteristics • Measures are perceptual/subjective SERVQUAL is most popular measure • • • • • Tangibles → appearance Dependability → promised service Responsiveness → prompt, helpful Assurance → knowledge, courtesy Empathy → caring, individualized COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-177 The Quality Cycle Needs Crossfunctional team (Figure 8.2) CUSTOMER Product Quality needs MARKETING Interprets customer needs Works with customer to design product OPERATIONS Interpretation of needs Specifications ENGINEERING Defines design concept Prepares specifications Defines quality characteristics Produces the product or services QUALITY CONTROL Plans and monitors quality COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-178 Quality Cycle in Mass Transit System (Figure 8.3) County planning Regional planning State transportation agency Riders’ needs Operations office Planner Scheduler Routes Schedules Budgets Method Facilities Equipment Evaluation Inspection Audits Surveys Hearings COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. Public 8-179 Quality Improvement Cycle  Define quality attributes on the basis of customer needs.  Decide how to measure each attribute.  Set quality standards.  Establish appropriate tests for each standard.  Find and correct causes of poor quality.  Continue to make improvements. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-180 Poka-Yoke (poh-kah yoh-kay) Developed at Toyota, means ‘mistake proofing’ Design the product or process so that mistakes cannot occur or are immediately detectable Examples - In manufacturing, 2 parts are notched to only fit together one way - For consumers, snow blower requires that two hand levers be held during operation (so no hands can be in the dangerous moving parts!) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-181 Suppliers Role in Quality Involve in product design ◦ Prevent design defects; help select materials Supplier certification ◦ Planning and control system for quality Manage rolled yield (cumulative defect rate) Boeing supplier rating system: Red (Unsatisfactory) Yellow (Improvement needed) Bronze (Satisfactory) Silver (Very Good) Gold (Exceptional) ◦ 10 parts (1% defects in each) ◦ Rolled yield = (.99)10 = .90 ◦ 90% quality yield for final product COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-182 Cost of Quality Control ◦ Prevention ◦ Training, data management, planning costs ◦ Appraisal ◦ Incoming materials inspection, final inspection Failure costs ◦ Internal failure ◦ Scrap, rework, downtime ◦ External failure ◦ Warranty, returns, complaints COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-183 Cost of Quality Trade-offs (Figure 8.5) Cost/unit Internal & external failure costs Prevention & appraisal costs 100% defective 100% good COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-184 Quality Pioneer: W. Edwards Deming 14 Management Principles Do not sacrifice quality for short-term profit Emphasis on continuous improvement PDCA Wheel ◦ Plan, Do, Check, Act http://www.deming.org/ COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-185 Quality Pioneer: Joseph Juran Quality “Trilogy”—planning, control and improvement Solve “the vital few” quality problems Stressed quality control methods ©Roger Schroeder “Quality Handbook” http://www.juran.com Juran lived to age 104, shown here with author Roger Schroeder COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-186 ISO 9000 Standards  Guidelines for designing, manufacturing, selling, and servicing products.  Selecting ISO 9000 certified suppliers provides some assurance that they follow accepted quality practices.  Many manufacturers require supplier certification, particularly in Europe.  www.iso.org COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-187 ISO 14000 Standards Standards covering environmental management systems, environmental auditing, evaluation of environmental performance, environmental labeling, and life-cycle assessment. Helps organizations improve their environmental performance through documentation control, operational control, control of records, training, statistical techniques, and corrective and preventive actions. ISO 26000 – social responsibility ISO 31000 – risk management COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-188 Baldrige Award  Highest U.S. quality award.  Promotes quality management practices and improved quality results by U.S. industry.  Award criteria are the standard for “best quality practices” in U.S.  Many state and other country awards modeled on award criteria. Source: United States Department of Commerce www.baldrige.gov COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-189 Baldrige Criteria Categories 1. Leadership 2. Strategy 3. Customers 4. Measurement, Analysis, and Knowledge Management 5. Workforce 6. Operations 7. Results COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-190 Why Some Quality Improvement Efforts Fail  Lack of middle and top management leadership attention  Lack of funds for training and time for improvement activities  “Blame the employee” rather than the system  Belief in “trade-offs” (quality vs. cost)  Management interference with teamwork  Supplier quality problems COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-191 Chapter 8 Summary LO 8.1 Explain quality, from a customer perspective. LO 8.2 Characterize product quality based on four dimensions. LO 8.3 Distinguish service quality from product quality based on its distinct measurement. LO 8.4 Apply the quality cycle to a product or service. LO 8.5 Explain how mistake-proofing and the supply chain are integrated with quality management planning. LO 8.6 Attribute how cost of quality is related to financial performance. LO 8.7 Recall the two key quality pioneers and their main ideas. LO 8.8 Compare and contrast ISO 9000 standards and the Baldrige Award criteria. LO 8.9 Articulate some key barriers to successful quality improvement efforts. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 8-192 Questions for Discussion •Look at a product you are carrying with you today. What design characteristics contribute to its overall quality? •Why does the customer need to define quality for a product or service? •Consider your favorite restaurant or coffee shop. What “tangible” observations contribute to your assessment of quality? •Availability of a system is never 100%! What do you think the availability of wifi on your campus is? Availability of your phone service? •Can you think of examples of poka yokes? Have you designed some of your own? •Why don’t companies spend more on prevention of quality problems? •Look up some Baldrige Award winning organizations. Are you a customer of some of these? COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 193 Chapter 9: Quality Control and Improvement McGraw-Hill Education COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-1 Chapter 9 Learning Objectives LO 9.1 Describe the steps in designing a quality control system. LO 9.2 Design a process control system using control charts. LO 9.3 Define and calculate process capability. LO 9.4 Apply continuous improvement concepts using the seven quality tools. LO 9.5 Explain Six Sigma and the DMAIC process. LO 9.6 Differentiate lean and Six Sigma. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-2 Design of Quality Control Systems Break down production process into subprocesses and identify internal customers. Identify critical control points where inspection or measurement should take place. Use operator inspection when possible, placing responsibility for quality on workers. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-3 Design of Quality Control Systems  Identify critical points for inspection and testing • • •  Incoming materials and services During processes Finished product or service Decide on the type of measurement • • Variables: continuous scale Attributes: discrete count, or good/bad  Decide on amount of inspection to use  Decide who should do inspection COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-4 Types of Measurement Variables measurement Product/service characteristic that can be measured on a continuous scale: Length, size, weight, height, time, velocity, temperature Examples: dimensions of parts, viscosity of liquids, weight of packaged food, time to load webpage, temperature of coffee when served Attributes measurement Product/service characteristic evaluated with a discrete choice: Good/bad, pass/fail, count of defects Examples: laptop is defective if it fails any functional tests, bank check is/is not deposited in correct account, inspection of fabric reveals the number of defects per 100 yards COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-5 Process Quality Control Principles of Process Control: ◦ Every process has random variation. ◦ Production processes are not usually in a state of control. “State of Statistical Control” - What does it mean? ◦ Unnecessary variation has been eliminated. ◦ Remaining variation is due to random causes. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-6 Process Quality Control Assignable (special) cause variation ◦ Can be identified and corrected. ◦ Could be due to machine, worker, materials, etc. Common (random) cause variation ◦ Reasonable, acceptable variation. ◦ Within 3 standard deviations ( 3) of mean. ◦ Cannot be changed unless process is redesigned. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-7 Quality Control Chart y Time → x COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-8 Normal Distribution on Control Chart UCL Mean LCL Samples: 1 2 Assignable causes likely COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 3 9-9 Attribute Control (3) p-chart Calculate center line = mean proportion defective across many samples Calculate upper and lower control limits p (1  p ) p 3 n COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-10 9-10 Variables Control (3) x-chart Calculate center line = mean of sample means Calculate upper and lower control limits x  A2 R R-chart Calculate center line = mean of sample ranges Calculate upper and lower control limits COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. UCL  D4 R LCL D 3 R 9-11 9-11 Quality Control Chart Example (Figure 9.2) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 12 Using Quality Control Charts  If an observation (data point) is outside  3 and/or a pattern is detected, the process is NOT in control.  Very likely something is wrong.  An assignable cause of variation may exist.  This is a signal to take action to eliminate the assignable cause: ◦ Find it, understand its cause, fix it so it does not occur again! COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-13 Using Quality Control Charts How large should sample be? ◦ Large enough to detect defects ◦ Variables can use smaller sample sizes How frequently to sample? ◦ Depends on cost, production rate Process control vs. Process capability ◦ Is the process capable of producing to specification? ◦ Are the specifications appropriate? COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-14 Process Capability Index Frequency 9.3) (Figure Process measure Process measure COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-15 (Figure 9.4) Frequency Computation of Cpk Process measure Process measure COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-16 Continuous Improvement  When process is not meeting customer specifications.  Work on processes with strategic importance and low process capability first!  Use the seven tools of quality control. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-17 Seven Tools of Quality Control COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-18 Seven Tools of Quality Control A battery manufacturer in NW Ohio, using only the seven tools of quality, decreased defectives from 7.2 per 100 to 2.6 per 100 in just 6 weeks! COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-19 Pareto Analysis (Table 9.4) Note: 40% (2) of the sources cause 78.6% of the defects. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-20 Pareto Diagram (Figure 9.6) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-21 Cause-and-Effect (fishbone, Ishikawa) Diagram (Figure 9.7) M a t e r ia l c o n n e c to rs W o rk e rs S m a ll S iz e L a rg e C o n te n t N u ts T r a in in g S iz e F a tig u e K n o w le d g e Hose Loose c o n n e c t io n s S u rfa c e d e fe c t M e a s u re m e n t M e a s u r in g t o o ls E x p e r ie n c e E rro rs Judgm ent In s p e c to r W ear A d ju s tm e n t T r a in in g In s p e c t io n T o rq u e A ir p r e s s u r e T o o ls COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-22 Six Sigma Quality  Philosophy of 3.4 defects per million.  Uses project/team approach.  Strategic process is selected for improvement.  Cross-functional team is formed.  ‘Black belt’ leader is chosen.  Team uses DMAIC method (and quality tools) to find root causes and improve processes. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-23 Six Sigma Process Process Improvement steps (DMAIC): 1. 2. 3. 4. 5. Define - select process Measure - measure relevant variables Analyze - determine root causes and alternatives Improve - change process Control - ensure improvements not lost over time COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-24 Lean and Six Sigma Complementary approaches to improvement ◦ ◦ Lean seeks to eliminate waste (non-value-added) Six Sigma seeks to eliminate defects ◦ ◦ Lean uses part-time leaders and all employees Six Sigma uses full-time leaders and selected employees ◦ ◦ Lean requires limited training Six Sigma requires extensive training and experts ◦ ◦ Lean focuses on simpler projects Six Sigma takes on complex projects ◦ ◦ Lean projects may last a week or less Six Sigma projects may last for months COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-25 Chapter 9 Summary LO 9.1 Describe the steps in designing a quality control system. LO 9.2 Design a process control system using control charts. LO 9.3 Define and calculate process capability. LO 9.4 Apply continuous improvement concepts using the seven quality tools. LO 9.5 Explain Six Sigma and the DMAIC process. LO 9.6 Differentiate lean and Six Sigma. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 9-26 Questions for Discussion •In your own words, what is quality control? •Why is quality control needed in manufacturing? In services? •How do you decide which type of control chart may be useful for a particularly situation? •Look at the seven quality tools. Brainstorm various situations in which each of the tools could be useful. •Why is Six Sigma called “Six Sigma”? •How are lean and Six Sigma the same, and how are they different? COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 27 Chapter 10: Forecasting McGraw-Hill Education COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-28 Chapter 10 Learning Objectives LO 10.1 Describe why forecasting is important. LO 10.2 Describe the four common methods of qualitative forecasting. LO 10.3 Use forecast analytics to calculate a moving average and exponential smoothed average. LO 10.4 Evaluate forecast accuracy using a variety of methods. LO 10.5 Carry out forecast analytics for a causal model. LO 10.6 Evaluate factors that impact forecasting method selection. LO 10.7 Describe how big data analytics are used to forecast. LO 10.8 Explain the benefits and costs of CPFR. LO 10.9 Solve advanced forecasting problems (chapter supplement). COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-29 Forecasting for Decision Making Forecasting demand for operations output ◦ Forecasting: what we think demand will be ◦ Planning: what we think demand should be ◦ Demand: may differ from sales Forecasts are used in all functional areas: ◦ marketing, finance, human resources, etc. Forecasts are necessary for operations decision areas: ◦ process design, capacity planning, inventory management, scheduling COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-30 Use of Forecasting: Marketing, Finance/Accounting, & HR COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-31 Use of Forecasting: Operations Decisions COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-32 Qualitative Forecasting Methods Based on managerial judgment when there is a lack of data available. Major methods: ◦ Delphi technique ◦ Market surveys ◦ Life-cycles analogy ◦ Informed judgment COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-33 Time-Series Analytics Demand can be decomposed into: ◦ Level - average ◦ Trend - general direction (increasing/decreasing) ◦ Seasonality - short term recurring cycles ◦ Cycle - long term business cycle ◦ Error - random or irregular component COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-34 Time-Series Analytics Components of demand data: ◦ Level ◦ Trend ◦ Seasonality ◦ Cycle ◦ Error Adie Bush/Getty Images Snow boarding is an industry that exhibits several demand patterns. It is primarily a seasonal industry, and over many years the industry has experienced a growth trend. Random factors like snowfall cause abrupt variations in demand. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-35 Analytics: Moving Average Assumes no trend, seasonality, or cycle Simple moving average: D  Dt  1  ......  Dt  N 1 At  t N Ft 1  At Weighted moving average: Ft 1 At W1 Dt  W2 Dt  1  ......  WN Dt  N 1 COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-36 Moving Average - Example Period Actual Demand Forecast 1 10 2 18 3 29 4 - 19  Compute three period moving average for Period 4 (number of periods is forecaster’s decision) F4 = A3 = (29 + 18 + 10) / 3 = 19 F5 = (actual demand for period 4 + 29 + 18) / 3 COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-37 Time-Series Data (Figure 10.2) Note: The forecast is smoother as the number of periods in the moving average increases. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-38 Analytics: Exponential Smoothing The new average is computed from the old average: At  Dt  1    At  1 The value of the smoothing constant () is a choice. It determines the extent to which the new forecast weights recent demand (smooths random variation). Αlpha (α) ranges between 0 and 1, and is usually 0.1 - 0.2. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-39 Simple Exponential Smoothing Forecast: Ft 1 Ft   Dt  Ft  F = forecast of demand D = actual demand t = time period Assumes no trend, seasonality, or cycle Note: we are adjusting Ft to get Ft+1 COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-40 Exponential Smoothing Example Sept. forecast was 15, but Sept. actual sales were 13. Use alpha (α) of 0.2. What is the October forecast? October forecast = Sept. forecast + α(Sept. actual – Sept. forecast) = 15 + 0.2(13 - 15) = 15 - 0.4 = 14.6 COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-41 Time-Series Data (Figure 10.3) Note: The forecast is smoother as the value of alpha (α) is reduced. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-42 Forecast Accuracy Firms should estimate forecast accuracy:  To monitor erratic demand observations or “outliers”  To determine when the forecasting method is no longer tracking actual demand  To determine the parameter values that provide the forecast with the least error COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-43 Forecast Accuracy Measures Cumulative sum of forecast errors Mean absolute percentage errors Mean square error Tracking signal Mean absolute deviation COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-44 Advanced Time-Series Forecasting Adaptive exponential smoothing ◦ Smoothing coefficient () is varied Mathematical models ◦ Linear or nonlinear Box-Jenkins method ◦ Requires about 60 periods of past data COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-45 Causal Forecasting Analytics Cause-and-effect model, using a data set of other variables to predict demand (forecast). Examples: ◦ Use population and location characteristics to forecast restaurant sales. ◦ Use supply chain data on inventory levels to forecast sales of new generation products such as cell phones. ◦ Use day of week and attendance of entertainment event at same venue to forecast expected guests at casino. Steve Allen/Brand X Pictures/Jupiterimages COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-46 Causal Forecasting Model The general regression model: Other forms of causal model: ◦ Econometric ◦ Input-output ◦ Simulation models COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-47 Causal Model - Example Dt = actual sales in year t Ft = forecasted sales It = median family income (000’s) Yt = a + b(It) F7 = 38.23 + 2.397(37.6) = 128.34 = forecast for Period 7 COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-48 Selecting a Forecasting Method Use or decision characteristics ◦ Scheduling decision? Facility expansion? ◦ Short range? Long range? Data availability ◦ Quantity and quality Data pattern ◦ Level? Unstable? COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-49 Big Data Analytics Resources needed: Data • Either firm’s own or acquire from elsewhere • Quantitative (e.g. past demand) or qualitative (e.g. call center recordings) Tools • • • • Hardware Software Data storage Tools for analysis Expertise • • • • Data scientists Statisticians Analysists Technical skills needed but also understanding of industry and key challenges COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 50 Big Data Analytics Walmart collects data on more than one million customer transactions every hour. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 51 Collaborative Planning, Forecasting, and Replenishment (CPFR)  Aim is to achieve more accurate forecasts  Share information across supply chain with customers and suppliers  Compare forecasts  If discrepancy observed, look for reason  Reach a consensus forecast  Works best in B2B with few customers (e.g., a manufacturer supplying a small number of large retailers) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-52 Chapter 10 Summary LO 10.1 Describe why forecasting is important. LO 10.2 Describe the four common methods of qualitative forecasting. LO 10.3 Use forecast analytics to calculate a moving average and exponential smoothed average. LO 10.4 Evaluate forecast accuracy using a variety of methods. LO 10.5 Carry out forecast analytics for a causal model. LO 10.6 Evaluate factors that impact forecasting method selection. LO 10.7 Describe how big data analytics are used to forecast. LO 10.8 Explain the benefits and costs of CPFR. LO 10.9 Solve advanced forecasting problems (chapter supplement). COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 10-53 Questions for Discussion •Think of examples of products and services for which demand may be fairly easy to forecast, and that may be quite difficult to forecast. •Why are all firm functional areas – finance, accounting, HR, marketing, IT – involved in forecasting? •How do qualitative forecasting methods translate “information” into quantities? •When should a firm use a weighted moving average forecast, rather than the simple moving average? •What opportunities do big data and analytics create for firms? •Define “analysis paralysis” for forecasting. How does this happen? What can management do about it? COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 54 Chapter 11: Capacity Planning McGraw-Hill Education COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 11-55 Chapter 11 Learning Objectives LO 11.1 Define capacity and utilization. LO 11.2 Illustrate with an example a facilities strategy that considers: amount, size, timing, location and type. LO 11.3 Explain how S&OP is done. LO 11.4 Identify the demand and supply options that are available for S&OP. LO 11.5 Contrast and compare the chase and level strategies. LO 11.6 Define the various costs associated with aggregate planning. LO 11.7 Create an alternative strategy for the Hefty Beer Company example. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 11-56 Hierarchy of Capacity Decisions Facilities decisions Facilities decisions Aggregate planning Aggregate planning Scheduling Scheduling 0 6 12 18 24 Months Planning Horizon COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 11-57 Definition of Capacity Maximum output that can be produced over a given period of time. Theoretical capacity • • • Labor availability and overtime Physical assets, delayed maintenance, etc. Can be used for short-term demand spikes Effective capacity sattapapan tratong/123RF • • Used for planning Subtracts maintenance downtime, shift breaks, absenteeism, etc. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 11-58 Capacity Utilization Utilization = Actual output x 100% Capacity → Utilization is seldom 100%. → Estimates capacity usage and ‘busyness.’ A production facility that builds 1000 cars during the time it can actually produce 1200 cars has utilization = 1000/1200 = 83% A doctor who is busy working for 6 hours during an 8 hour shift has utilization = 6/8 = 75% COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 11-59 Facilities Decisions • How much capacity is needed? • How large should each facility be? • When is the capacity needed? • Where should the facilities be located? • What type of facilities/capacity are needed? COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 11-60 Facilities Strategy How much? Amount of capacity ◦ Size of capacity cushion How large? Size of facilities ◦ Economies/diseconomies of scale When? Timing of facility decisions ◦ Preemptive, wait-and-see Where? Location of facilities ◦ Variety of factors to consider What type? Types of facilities ◦ Product-focused, market-focused, process-focused, general-purpose COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 11-61 Factors Affecting Facilities Strategy  Predicted demand  Cost of facilities  Likely behavior of competitors  Business strategy  Global considerations COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 11-62 How Much? Strategies for Capacity Cushion Capacity cushion = 100% – utilization Three strategies: ◦ Large cushion ◦ e.g., make-to-order ◦ Moderate cushion ◦ cost of running out balanced with cost of excess capacity ◦ Small cushion ◦ e.g., make-to-stock COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. 11-63 How Large? Selecting Facility Size Economies of scale ◦ Production costs are not linear ◦ Overhead costs sp...
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College of Administrative and Financial Sciences

Assignment 2
Introduction to Operations Management (MGT311)
Deadline for students: (16th April) The 11TH Week

Course Name: INTRODUCTION TO

Student’s Name:

OPERATIONS MANAGEMENT

Course Code:MGT311

Student’s ID Number:

Semester: 2nd

CRN:25085
Academic Year: 1442/1443 H, First Semester

For the Instructor’s Use, only
Instructor’s Name:Dr. Salem Alanizan
Students’ Grade:Marks Obtained/Out of 10

Level of Marks:

Instructions – PLEASE READ THEM CAREFULLY
❖ This assignment is an individual assignment.
❖ The Assignment must be submitted only in WORD format via the allocated
folder.
❖ Assignments submitted through email will not be accepted.
❖ Students are advised to make their work clear and well presented. This also
includes filling your information on the cover page.
❖ Students must mention the question number clearly in their answer.
❖ Late submitted assignm...


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