Production & Operations Mangement Master Slide

Amity International Business School

1


PG Sem IIProduction & Operations Management

Col Sharad Khattar

Amity International Business SchoolCourse Objectives

• The aim of this course is to develop understanding of the strategic and functional issues in the operational environment of any organization, of the various decisions involving the operational activities, and of the methods which enable taking the best possible alternative decision.

2

Amity International Business SchoolGroup Project• Introduction of the subject and explanation of the assignments and

projects to be undertaken as part of the course.• Briefing on requirement of group assignment (to be done on own time,

outside college hours):• Each group to identify one company, in either manufacturing or

services sector that has gained major competitive advantage through effective and efficient operations. Companies that have excelled on the basis of their processes or quality management alone may also be chosen for the study.

• The short summary of the report (max 1000 words) will be presented to the class on an assigned date.

• Group projects are to be done as part of field work and would have major impact on internal assessment and attendance

3

Amity International Business SchoolText and References

• Evans & Collier (2007), Operations Management: An Integrated Goods and Service Approach, Cengage

• Gaither & Frazer (2008), Operation Management, Cengage Publication.

• Heizer, Render, Jagadeesh (2009), Operations Management, Pearson Education, India

• Mahadevan (2007), Operations Management: Theory and Practice, Pearson Education, India

• Martinich, J (2005), Production and Operations Management, Wiley Publication

• Russell and Taylor (2009), Operations Management along the Supply Chain, Wiley

• Meredith, Jack and Shafer, Scott M, Operations Management for MBA’s , Wiley Asia (2004)

4


Session Planning and Evaluation Scheme

• 34 sessions over 4 Modules

• Examination Scheme:

• Class Test will be held in mid term

5

Components Group Study

Case Presentation and Discussion

Attendance

CT EE

Weightage (%)

5 5 5 10 70


Introduction to Operations Management


Introduction

• Operations management is the management of an organization’s productive resources or its production system.

• A production system takes inputs and converts them into outputs.

• The conversion or transformation process is the predominant activity of a production system.

• The primary concern of an operations manager is the activities of the conversion process.

• Material moves up the value chain during the process


The operations functionConsists of all activities directly related to producing goods or

providing services


Scientific Management

• Frederick Taylor is known as the father of scientific management. His shop system employed these steps:– Each worker’s skill, strength, and learning ability were

determined.– Stopwatch studies were conducted to precisely set

standard output per worker on each task.– Material specifications, work methods, and routing

sequences were used to organize the shop.– Supervisors were carefully selected and trained.– Incentive pay systems were initiated.


Scientific Management• In the 1920s, Ford Motor Company’s

operation embodied the key elements of scientific management:– standardized product designs– mass production– low manufacturing costs– mechanized assembly lines– specialization of labor– interchangeable parts


Human Relations and Behavioralism

• In the 1927-1932 period, researchers in the Hawthorne Studies realized that human factors were affecting production.

• Researchers and managers alike were recognizing that psychological and sociological factors affected production.

• From the work of behavioralists came a gradual change in the way managers thought about and treated workers.


Operations Research

• During World War II, enormous quantities of resources (personnel, supplies, equipment, …) had to be deployed.

• Military operations research (OR) teams were formed to deal with the complexity of the deployment.

• After the war, operations researchers found their way back to universities, industry, government, and consulting firms.

• OR helps operations managers make decisions when problems are complex and wrong decisions are costly.


The Service Revolution

• The creation of services organizations accelerated sharply after World War II.

• Today, more than two-thirds of the US workforce is employed in services.

• About two-thirds of the US GDP is from services.• There is a huge trade surplus in services.• Investment per office worker now exceeds the

investment per factory worker.• Thus there is a growing need for service operations

management.


The Computer Revolution• Explosive growth of computer and communication

technologies• Easy access to information and the availability of more

information• Advances in software applications such as Enterprise

Resource Planning (ERP) software• Widespread use of email• More and more firms becoming involved in E-Business

using the Internet• Result: faster, better decisions over greater distances


Significant Events in POM

• Coordinated assembly line (Henry Ford 1863 -1947)

• Gantt charts (Henry Gantt 1861-1919)• Motion studies (Frank and Lillian Gilbreth, 1922)• Quality control (Shewhart, Juran, Feigenbaum,

Deming, Taguchi, etc.)• CAD• Flexible manufacturing systems (FMS)• Computer integrated manufacturing (CIM)


New Challenges in OM

• Local or national focus• Batch shipments• Low bid purchasing

• Lengthy product development cycles

• Standardized products• Job specialization

Global focus Just-in-time Supply chain

partnering Rapid product

development Strategic alliances Mass customization Empowered

employees Teams

FromFrom ToTo


Organizational Model

MarketingMarketing

MISMISEngineeringEngineering

HRMHRM

QAQA

AccountingAccounting

SalesSalesFinanceFinance

OMOM


Interaction

18

Operations

Sup

plie

rs

Finance/Accounting

Marketing

Human resources

Production and Inventory data

Capital Budgeting requests

Capacity Expansion Technology Plans

BudgetsCost analysisCapital InvestmentsStockholder requirements

Orders for materialProduction and delivery schedulesQuality requirementsDesign/performance specs

Material AvailabilityQuality dataDelivery schedulesDesign collaboration

Sales forecastsCustomer

requirementsCustomer feedback

Promotions and Discounts

Product/service availability

Lead time estimatesStatus of orders

Delivery schedules

Personnel NeedsSkill sets

Performance EvaluationsJob design

Work measurement

Hiring/ separationTrainingLegal requirementsUnion contract negotiations


Operations as a System

InputsInputsMaterialMaterialMachinesMachinesLaborLaborManagementManagementCapitalCapital

InputsInputsMaterialMaterialMachinesMachinesLaborLaborManagementManagementCapitalCapital

OutputsOutputsGoodsGoodsServicesServices

OutputsOutputsGoodsGoodsServicesServices

TransformationTransformationProcessProcess

TransformationTransformationProcessProcess

Production SystemProduction System

ControlControlSubsystemSubsystem

ControlControlSubsystemSubsystem

FeedbackRequirements


Studying Operations Management

• Operations as a System – Transformations are:-• Physical as in manufacturing• Locational as in transportation/warehousing• Exchange as in retail• Physiological as in healthcare• Psychological as in entertainment• Informational as in communication


Types of OperationsTypes of Operations

Operations ExamplesGoods Producing Farming, mining, construction,

manufacturing, power generationStorage/Transportation Warehousing, trucking, mail

service, moving, taxis, buses,hotels, airlines

Exchange Retailing, wholesaling, banking,renting, leasing, library, loans

Entertainment Films, radio and television,concerts, recording

Communication Newspapers, radio and televisionnewscasts, telephone, satellites


Decision Making in OM

–Tech selection and mgt

–Capacity mgt and resource allocation

–Scheduling/timing/time allocation

–System maintenance

22


Governing Dynamics of an Operations System• External

– PESTLE – non controllable

• Market– Competition, Customer Desires, Product Info.

• Primary Resources– Materials, Personnel, Capital, Utilities

Over the years, the earlier product centric focus has shifted towards people centric as the key differentiator. Today the combination of the elements of people, process, technology, infrastructure (under the overall influence of environment) determines the planning and execution of operations.


Outputs of an Operations System

• Direct– Products– Services

• Indirect– Taxes– Salaries – Waste and Pollution– Technological Advances– Employee impact– Societal impact


Decision Making in OM• Strategic Decisions

• Operating Decisions

• Control Decisions


Strategic Decisions• These decisions are of strategic

importance and have long-term significance for the organization.

• Examples include deciding:– the design for a new product’s production

process– where to locate a new factory– whether to launch a new-product development

plan


Operating Decisions• These decisions are necessary if the

ongoing production of goods and services is to satisfy market demands and provide profits.

• Examples include deciding:– how much finished-goods inventory to carry– the amount of overtime to use next week– the details for purchasing raw material next

month


Control Decisions• These decisions concern the day-to-day

activities of workers, quality of products and services, production and overhead costs, and machine maintenance.

• Examples include deciding:– labor cost standards for a new product– frequency of preventive maintenance– new quality control acceptance criteria


What Controls the Operations System?

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

• This information is matched with management’s expectations

• When there is a difference, management must take corrective action to maintain control of the system


Scope of Operations Management -- Airlines

• Forecasting-weather & landing conditions, seat demand and growth in air travel

• Capacity Planning – essential for maintaining cash flow and make a profit

• Scheduling-planes for flights and maintenance, pilots , cabin crew, ground staff for duties

• Managing Inventories – of food and beverages, first aid equipment, pillows blankets and other equipment

• Assuring Quality- adhering to time plan, dealing with customers at check in counters and In flight, quality in food etc

• Motivating and training employees – complete staff in their respective fields

• Locating of Facilities- which city to provide service for, where to locate service and maintenance Facilities, location of major/minor hubs


Responsibilities of Operations ManagementResponsibilities of Operations Management

Products & services

Planning– Capacity– Location–– Make or buy– Layout– Projects– Scheduling

Controlling/Improving– Inventory– Quality

Organizing– Degree of centralization– Process selection

Staffing– Hiring/laying off– Use of Overtime

Directing– Incentive plans– Issuance of work orders– Job assignments

– Costs– Productivity


Key Decisions of Operations Managers

• WhatWhat resources/what amounts

• WhenNeeded/scheduled/ordered

• WhereWork to be done

• HowDesigned

• WhoTo do the work


The Critical Decisions

• Quality management– Who is responsible for quality?– How do we define quality?

• Service and product design– What product or service should we offer?– How should we design these products and

services?


The Critical Decisions - Continued

• Process and capacity design– What processes will these products require and

in what order?– What equipment and technology is necessary

for these processes?

• Location– Where should we put the facility– On what criteria should we base this location

decision?



• Layout design– How should we arrange the facility?– How large a facility is required?

• Human resources and job design– How do we provide a reasonable work

environment?– How much can we expect our employees to

produce?



• Supply chain management– Should we make or buy this item?– Who are our good suppliers and how many

should we have?

• Inventory, material requirements planning, – How much inventory of each item should we

have?– When do we re-order?



• Intermediate, short term, and project scheduling– Is subcontracting production a good idea?– Are we better off keeping people on the

payroll during slowdowns?

• Maintenance– Who is responsible for maintenance?– When do we do maintenance?


Quantitative Methods…employ mathematical models to reach a wide

variety of business decisions.– They give modern managers a competitive edge– Managers do not need to have great mathematical

skills– Familiarity allows one to:

• Ask the right questions• Recognize when additional analysis is necessary• Evaluate potential solutions• Make informed decisions


Qualitative Methods

…like more traditional methods, however, qualitative methods come in many varieties. Different researchers focus on different sources of data:– One's own immediate experience– Others' experiences, which we might seek to

understand through: • their speech or writing,• their other behaviors,• their products - technology, artwork, footprints, etc.


40

New Challenges in Operations Management


Today's Factors Affecting OM• Global Competition

• Quality, Customer Service, and Cost Challenges

• Rapid Expansion of Advanced Technologies

• Continued Growth of the Service Sector

• Scarcity of Operations Resources

• Social-Responsibility Issues


Other Important Trends

• Ethical behavior

• Operations strategy

• Working with fewer resources

• Cost control and productivity

• Quality and process improvement

• Increased regulation and product liability

• Lean production


Changing Challenges for the Operations Manager

Past Causes Future Local or national focus

Low-cost, reliable worldwide communication and transportation networks

Global Focus

Batch (large) shipments

Cost of capital puts pressure on reducing investment in inventory

Just-in-time shipments

Low-bid purchasing

Quality emphasis requires that suppliers be engaged in product improvement

Supply-chain partners

Lengthy product development

Shorter life cycles, rapid international communication, computer-aided design, and international collaboration

Rapid product development, alliances, collaborative designs


Changing Challenges for the Operations Manager

Past Causes Future Standardized products

Affluence and worldwide markets; increasingly flexible production processes

Mass customization

Job specialization

Changing sociocultural milieu. Increasingly a knowledge and information society.

Empowered employees, teams, and lean production

Low cost focus

Environmental issues, ISO 14000, increasing disposal costs

Environmentally sensitive production, Green manufacturing, recycled materials, remanufacturing


45




Operations Viewed As a System

• Operations should best be viewed as a system rather than a process or series of processes. It is the system and subsystems that link the various inputs including the external environment and deliver the desired output(s). Essentially there are four main systems (Processes) of conversion/ transformation:

• Alter• Transport• Store• Inspect

46


Operations as a System

47

EnvironmentCustomers Competitors SuppliersGovt regs Technology Economy

Output• Facilitating

goods• Services

Monitoring &

Control

Inputs•Capital•Materials•Equipment•Facilities•Suppliers•Labour•Knowledge•Time

Transformation System

•Alteration•Transportation•Storage•Inspection

Action

Data Action

Data Data


Conversion Subsystem

• Physical (Manufacturing/ Alter)

• Locational Services (Transportation)

• Exchange Services (Retailing)

• Storage Services (Warehousing/ Store)

• Other Private Services (Insurance)

• Government Services (Federal)


A Process ViewExternal environment

Information on performance

Internal and external customers

Processes and operations

1

2

3

4

5

Inputs• Workers• Managers• Equipment• Facilities• Materials• Land• Energy

Outputs• Goods• Services


A Process View

• Physical, durable output• Output can be inventoried• Low customer contact• Long response time• Capital intensive• Quality easily measured

• Intangible, perishable output• Output cannot be inventoried• High customer contact• Short response time• Labor intensive• Quality not easily measured

More like a manufacturing

process

More like a service process


The Supply Chain View

Support Processes

Ext

ern

al s

up

pli

ers

Exte

rnal cu

stom

ers

Supplier relationship process

New service/ product development

Order fulfillment process

Customer relationship management


The Supply Chain View• Core processes are sets of activities that

deliver value to external customers

1. Supplier relationship process

2. New service/product development process

3. Order fulfillment process

4. Customer relationship process

• Support processes provide vital resources and inputs to the core processes


Support ProcessesTABLE | EXAMPLES OF SUPPORT PROCESSES

Capital acquisition The provision of financial resources for the organization to do its work and to execute its strategy

Budgeting The process of deciding how funds will be allocated over a period of time

Recruitment and hiring The acquisition of people to do the work of the organization

Evaluation and compensation The assessment and payment of people for the work and value they provide to the company

Human resource support and development

The preparation of people for their current jobs and future skills and knowledge needs

Regulatory compliance The processes that ensure that the company is meeting all laws and legal obligations

Information systems The movement and processing of data and information to expedite business operations and decisions

Enterprise and functional management

The systems and activities that provide strategic direction and ensure effective execution of the work of the business


Competitive PrioritiesTABLE |DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE

PRIORITIES

COST Definition Process Considerations Example

1. Low-cost operations

Delivering a service or a product at the lowest possible cost

Processes must be designed and operated to make them efficient

Costco

QUALITY

2. Top quality Delivering an outstanding service or product

May require a high level of customer contact and may require superior product features

Ferrari

3. Consistent quality

Producing services or products that meet design specifications on a consistent basis

Processes designed and monitored to reduce errors and prevent defects

McDonald’s

TIME

4. Delivery speed Quickly filling a customer’s order

Design processes to reduce lead time

Dell

5. On-time delivery

Meeting delivery-time promises

Planning processes to increase percent of customer orders shipped when promised

United Parcel Service (UPS)

6. Development speed

Quickly introducing a new science or a product

Cross-functional integration and involvement of critical external suppliers

Li & Fung


Competitive PrioritiesTABLE | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF

COMPETITIVE PRIORITIES

FLEXIBILITY Definition Process Considerations Example

7. Customization

Satisfying the unique needs of each customer by changing service or products designs

Low volume, close customer contact, and easily reconfigured

Ritz Carlton

8. Variety Handling a wide assortment of services or products efficiently

Capable of larger volumes than processes supporting customization

Amazon.com

9. Volume flexibility

Accelerating or decelerating the rate of production of service or products quickly to handle large fluctuations in demand

Processes must be designed for excess capacity

The United States Postal Service (USPS)


Economics of Physical and Information Outputs

Physical Outputs Information Outputs

Seller no longer owns once sold Seller continues to possess and can sell over and over again

Replication requires manufacturing Replication at negligible cost and with no limits

Output exists in single location Output can exist in multiple locations simultaneously

Subject to diminishing returns Subject to increasing returns

Wears out Does not wear out


The Experience Economy -- Evolution of Offerings

57

Org Inputs Transformation system

Outputs Monitor/ Control

Environment

Post office

LabourEquipmentTrucks

TransportationPrinting

Mail deliveryStamps

WeatherMail VolumesSorting/ Loss Errors

Transportation networkWeatherCivil service

Bank ChequesDepositsVaultATM

SafekeepingInvestmentStatements

InterestEFTLoansStatements

Interest RatesWage ratesLoan defaults

RegulatoryEconomy

Cinema FilmsFoodPeopleTheater

Film projectionFood Preparation

EntertainmentSnacks

Film ratingDisposable incomes

EconomyEntertainment industry

Manufacturer

MaterialsLabourEquipmentTechnology

CuttingFormingJoiningMixing

MachinesChemicalsFMCGScrap

Material flowsProduction volumes

EconomyCommodity PricesConsumer mkt


Comparison of Alternative Economic offerings

Economic offering

Commodities Goods Services Experiences

Value added by

Extracting Producing Delivering Staging

Form of output

Fungible Tangible Intangible Memorable

Key characteristic

Natural Standardised Customized Personalised

Buyer Market User Client Guest


Evolution of Offerings

Commodities

Goods

Services

Experiences

Commoditisation

Customisation


60




Operations Strategy

61


Competitive Advantage Through Operations

Management


Competitiveness:Competitiveness:

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


Competitive advantage is dependent on:Meaningful differentiationFlexibilityCost Leadership

Operations strategies dwell on:Improved responsivenessReduced pricesImproved quality.


Businesses Compete Using Marketing

• ?????


Businesses Compete Using Marketing

• Identifying consumer wants and needs

• Pricing

• Advertising and promotion


Businesses Compete Using Operations

• ??????



• Product and service design

• Cost

• Location

• Quality

• Quick response



• Flexibility

• Inventory management

• Supply chain management

• Service

• Managers and work force


Why Some Organizations Fail

• Too much emphasis on short-term financial performance

• Failing to take advantage of strengths and opportunities

• Failing to recognize competitive threats

• Neglecting operations strategy


Why Some Organizations Fail

• Too much emphasis in product and service design and not enough on improvement

• Neglecting investments in capital and human resources

• Failing to establish good internal communications

• Failing to consider customer wants and needs


Strategy• Strategies

–Plans for achieving organizational goals

• Mission– The reason for existence for an organization

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

• Goals– Provide detail and scope of mission

• Tactics– The methods and actions taken to accomplish strategies


Mission/Strategy/Tactics

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

StrategyStrategy TacticsTacticsMissionMission

Amity International Business SchoolStrategy• Is a common vision that unites an organization, provides

consistency in decisions, and keeps the organization moving in the right direction. Strategy formulation consists of four basic steps

– 1. Defining a primary task. The primary task represents the purpose of a firm – what the firm is in the business of doing

– 2. Assessing the core competencies – is what a firm does better than anyone else, its distinctive competence. It could be exceptional service, higher quality or lower cost

• Core competencies are more likely to be processes , a company’s ability to do certain things better than a competitor. It is not a product.

• Core competencies are not static

Amity International Business SchoolStrategy• 3. Determining order winners and order qualifiers

– Order qualifiers

• Characteristics that customers perceive as minimum standards of acceptability to be considered as a potential purchase

– Order winners

• Characteristics of an organization’s goods or services that cause it to be perceived as better than the competition

• E.g., while purchasing a CD player , customer may determine a price range (order qualifier) and then choose the product with the most features(order winner)within the price range

Amity International Business SchoolStrategy–Or …they may have a set of features in mind (order

qualifiers) and then select the least expensive CD player (order winner) that has all the required features

• 4. Positioning the firm . No firm can be all things to all people. Strategic positioning involves making choices i.e., choosing one or more important things on which to concentrate and doing them extremely well.

–A firm’s positioning strategy defines how it will compete in the ,market place, what unique value it will deliver to the customer. An effective positioning strategy will consider strengths, weakness, opportunities and threats



• Let us look at companies that have positioned themselves to compete on cost, quality, flexibility band speed

• 1. Competing on Cost . Companies that compete on cost relentenlessly pursue the elimination of all waste . In the past the companies in this category produced standardized products for large markets. They improved yield by stabilizing the production process, tightening productivity standards and investing in automation.

– Today the entire cost structure is examined for reduction potential, nor just labour costs. High volume production may or may not provide most cost effective alternative


COMPETITIVE PRIORITIES• E.g., South west Airlines strategy of low cost

and controlled growth is supported by carefully designed service, efficient operations and committed personnel.

–It uses only one type of plane. This leads to streamlining training, record keeping, less maintenance costs and inventory costs.

–Turn around time between flights is 15 minutes. Since flights are limited to short routes ( about an hour), all flights are direct. This means no baggage transfers, no meals.


COMPETITIVE PRIORITIES• E.g., South west Airlines strategy of low cost contd…

–There are no assigned seats, no printed boarding passes for flights. Passengers show their ID at gate are checked off the reservation list, are issued plastic boarding passes that the airlines can use over and over again

–There are no agents. The bookings are done direct with company.

–SW Airlines boasts the lowest cost per passenger mile and the highest number of passengers per employee in the industry as well as most arrivals on time and negligible complaints about mishandled baggage


COMPETITIVE PRIORITIES• Companies that compete successfully on cost

realize that low cost cannot be sustained as a competitive advantage if increases in productivity are solely by short term cost reductions.

• A long term productivity portfolio is required that trades off current expenditures for future reductions in operating costs. This portfolio consists of investments in updated facilities and infrastructure, equipment, programs and systems to streamline operations and training and development that enhances the skills and capabilities of people



• Competing on Quality–Most companies approach quality in a defensive or

reactive mode i.e., quality is confined to minimizing defect rate or conforming to design specifications. To compete on quality the companies must view it as an opportunity to please the customer , nor just a way to avoid problems or reduce rework costs

–To please customer one must understand customers attitude towards and expectation of quality


COMPETITIVE PRIORITIES• Competing on Quality…

–E.g., Ritz Carlton Hotels, is a recognized symbol of quality. The entire service system is designed to understand the individual expectations of more than 5,00,000 customers and to move ‘ heaven and earth‘ to satisfy them

–Every employee is empowered to take immediate action to satisfy a guest’s wish or resolve a problem. Teams of workers at all levels set objectives and devise quality action plans. Each hotel has a quality leader who serves as a resource person and advocates for development and implements of those plans.



• Competing on Quality….–Daily quality reports submitted from 720 work

systems track such measures as guest room preventive maintenance cycles, percentage of check in’s with no waiting and to achieve industry best clean room appearance.

–Guest Incident action reports completed by every employee help to identify patterns of problems so that they can be resolved permanently.

–Guest preference reports are recorded in a sophisticated customer database for service delivery throughout the company



• Competing on Flexibility–Marketing always wants more variety to offer its

customers. Manufacturing resists this trend because variety upsets this stability of a production system and increases costs.

–The ability to respond to variation has opened up a new level of competition. Flexibility has become a competitive weapon. It includes the ability to produce a wide variety of products, to introduce new products and modifying existing ones quickly and to respond to customer needs



• Competing on Flexibility…–E.g., ‘Custom Foot store’ offer custom sculpted

models called ‘lasts’. At Custom Foot Shoe store a customer’s feet are scanned electronically to capture 12 different 3-D measurements. These measurements are then sent to a factory in Italy where a library of 3000 computerized ‘lasts’ can be modified digitally instead of manually and then milled by a machine out of plastic. Custom’s shoes are mailed to customer’s home in weeks.

–Sine the shoe store carries no inventory the prices are competitive’



• Competing on Flexibility…–E.g., ‘National Bicycle Industrial Company fits

bicycles to exact customers measurements.

–Bicycle manufacturers typically offer 20-30 models. National offers 11,231,862 variations and delivers within 2 weeks at costs only 10 5 above standard models



• Competing on Speed (Time)–Speed is fast becoming a source of competitive

advantage. The internet has conditioned customers to expect immediate response and rapid product shipment.

–Service organizations like McDonalds, Fed Ex have always competed on speed.

–Citicorp advertises a 15 minute mortgage approval

–Walmart replenishes its stock twice a week instead of industry average of 2 weeks.

Amity International Business SchoolCOMPETITIVE PRIORITIES

• Competing on Speed (Time)

–In the garment industry, Saks Fifth Avenue has terminals from the French national Videotex system that link retailers to manufactures abroad. Tailors in New york send suit measurements via satellite to France, where a laser cuts the cloth and tailors begin their work. The suit is completed and shipped back to New York within 4 days. That’s about the same time required for alteration in most retailing store. The standard for custom made suits is 10 weeks.


Time-based Strategies

JAN FEB MAR APR MAY JUN

Planning

Processing

Changeover On time!

Designing

Delivery


OPERATIONS ROLE IN CORPORATE STRATEGY

• Effective strategy can be achieved in two ways –By performing different activities from those of

competitors OR–by performing the better than competitors same

activities better• Operations plays an important role in either

approach. It can provide for a differentiated strategy and it can serve as a firm’s distinctive competencies in executing similar strategies

• The operations functions helps strategy evolve by creating new and better ways of delivering a firm’s competitive priorities to the customer



• Once a firm’s competitive priorities have been established, its operating system must be configured and managed to provide for those priorities

• This involves a whole series of interrelated decisions e.g., moving to a low wage country is not a sustainable advantage unless the firm is skilled at setting up and managing such a facility



• Strategic advantage built on operations expertise are frequently underestimated or ignored by competitors. Competencies that take years to develop can emerge with considerable force. Walmart built its skills in retailing slowly over a dozen years in rural areas of South before going head to head with competition in large urban areas.



• United Airlines tried to emulate Southwest's success by eliminating meals and baggage service adding more direct routes, but they could not replicate fast turnover, on time arrivals, committed employees .Southwest had built and nurtured this over time



• E.g Walmart

• Mission – Provide value for our customer

• Competitive Priority – Low prices everyday

• Operations Strategy- Low inventory levels, short flow times

• Operations Structure- Linked Communications between stores, Fast transportation system

• Enabling Processes and Technologies – Cross docking, Focused locations


STRATEGIC DECISIONS IN OPERATIONS

• These involve

• 1. Products and services

• 2. Process and Technologies

• 3.Capacity and Facilities

• 4. Human Resources

• 5. Quality

• 6. Sourcing

• 7. Operating Systems



• 1. Products and services–Make to order . Products & services are made to

customer specifications after an order has been received e.g., wedding invitation cards, custom built houses.

–Make to stock . Products and services are made in anticipation of demand e.g., ready to wear apparel, tv’s

–Assemble to order . Products and services add options according to customers specifications e.g., computer systems, corporate training , industrial systems



• 2. Processes and Technologies–Project. Is a one time production of a product to

customer order e.g., ship building–Batch production . These systems process many

different jobs at the same time in gropus ( orders) e.g. printers, bakeries, machine shops , furniture shops

–Mass production . Produces large volume of a standard product for a mass market

–Continuous Production . Is used for very high volume commodity products e.g., refined oil, treated water , paints.



• 3. Capacity and Facilities. Capacities decisions affect – product and lead times,– customer responsiveness– operating costs and– firm’s ability to compete.– Inadequate capacities can lose customers and limit

growth . Excess capacity can drain a company’s resources and prevent investments

– Overall capacity must then be divide into individual facilities



• 3. Capacity and Facilities. Capacities decisions affect – Strategic decision must include whether demand

should be met with few large facilities or several small facilities

• 4. Human Resources. Strategic issues involve determining skills levels, degree of autonomy rehired to operate the production systems, outlining training requirements etc..



• 5. Quality . This permeates every strategic decision. What is the target level of quality for products and services. How will be employees be involved with quality– what is types of training necessary– Responsibility for quality teams – Whether to go for quality certifications etc?



• 6. Sourcing. A firm that sells products , assembles the product , makes all parts and extracts raw material is completely vertical integrated. – But most of companies cannot do all this – Hence major strategic decisions as to how

much of work will be done by outside firms?



• 7. Operating Systems. These execute strategic decisions on a day to day basis so it is important that they be designed to support how the firm competes in market place. – E.g., IT system must be able to support both

customer and worker demand for rapid access , storage and retrieval of information


Planning and Decision MakingMission

Goals

Organizational Strategies

Functional Goals

Finance Strategies

MarketingStrategies

OperationsStrategies

Tactics Tactics Tactics

Operatingprocedures

Operatingprocedures

Operatingprocedures


Examples of Strategies

• Low cost

• Scale-based strategies

• Specialization

• Flexible operations

• High quality

• Service


Operations Strategy FrameworkENVIRONMENT AND INDUSTRY

CORPORATE RESOURCES

CORPORATE STRATEGY

EFFICIENCYDEPENDABILITYQUALITYFLEXIBILITY

Facility mission

ProcessAutomationProduct/service SpecificityInterconnectedness

CapacityLoadingLead/Lag

FacilitiesSizeLocation

Vertical IntegrationSupplier controlCustomer ControlInterdependencies

InfrastructurePlanning and ControlWork ForceQuality Control


The key success factors, SWOT analysis and 5 forces model must be examined in relation to ones company to decide Ops strategy

For detailed evaluation, companies have to examine their:• Primary tasks• Core competencies• Order qualifiers and order winners• Strategic positioning


The strategic decisions are required to be taken for:

• Make to order/ make to stock/ assemble to order• Classification of processes to be decided:

– Projects– Batch– Mass– Continuous


Strategy Formulation

• Distinctive competencies

• Environmental scanning

• SWOT

• Order qualifiers

• Order winners


Strategy and Tactics

• Distinctive CompetenciesThe special attributes or abilities that give anorganization a competitive edge.– Price– Quality– Time– Flexibility– Service– Location


Banks, ATMs, Street foodConvenienceLocationLocation

DisneylandSuperior customer service

ServiceService

Burger KingSupermarkets

VarietyVolume

FlexibilityFlexibility

Express Mail, Fedex,One-hour photo,

Rapid deliveryOn-time delivery

TimeTime

Sony TVLexus, Cadillac

Pepsi, Nokia

High-performance design or high quality

Consistent quality

QualityQuality

low cost airlines, NANO car

Low CostPricePrice

Examples of Distinctive Competencies


THREATS?

OPPORTUNITIES?

STRENGTHS?

WEAKNESSES?

Central / RBI Intervention

Population Characteristics

Interest Rates

Exchange Rates

Improved Communications

Competitors Plans

Changes in Govt Policy

New Products

New markets

Motivation

Quality

Flexibility

Cost Structure

Resource Availability Technology

SkillsCapacity

Industrial relationsManagement Systems

Employee AgeEquipment Age

New Technologies

New Competitors

SWOT ANALYSIS


• Economic conditions – include general health & direction of economy, inflation & deflation, interest rates etc

• Political conditions – favourable / unfavourable attitude towards business

• Legal environment – includes govt regulations, trade restrictions , labour laws etc

• Technology-include rate at which product innovations are occurring, current & future technologies

Key External Factors


Key External Factors

• Competition –includes number & strength of competitors, basis of competition (price, quality, special features)

• Markets – includes size, location, brand loyalities, ease of entry, potential of growth, long time stability


• Products and services – includes existing products or services &potential for new products or services

• Technology – includes existing technology, ability to integrate new technology and probable impact of technology on current & future operations

• Suppliers – dependability, quality & flexibility of suppliers

Key Internal Factors


• Human Resources – includes skills and abilities of managers, loyalty to organisation

• Facilities and equipment – capacity, location ,age, cost to maintain or replace

• Financial resources – cas flow, access to additional funding, existing debt burden

• Customers – loyalty, existing relationship, and understandings wants and needs of customers

Key Internal Factors


Porter’s Five Forces

Rivalry among established firms

Risk of entry by potential competitors

Bargaining Power of suppliers

Bargaining Power of buyers

Threat of substitute products


Strategy Formulation

• Order qualifiers – Characteristics that customers perceive as

minimum standards of acceptability to be considered as a potential purchase

• Order winners– Characteristics of an organization’s goods or

services that cause it to be perceived as better than the competition


Order Winners and QualifiersS

ales

($)

Achievement of competitive priority

Low High

Order Winner

Sal

es (

$)

Achievement of competitive priority

Low High

Order Qualifier

Threshold


Comparison of mission , organizational strategy and operational strategy

Management level

Time horizon

Scope Level of details

Relates to

The overall organization

Mission

Strategy

Top

Senior

Long

Long

Broad

Broad

Low

Low

Survival ,ProfitabilityGrowth rate, market share

Production/Operation

Strategic Senior Moderate to long

Broad Low Product design, location choice, tech choice

Tactical Middle Moderate Moderate Moderate Employment levels , output levels , equipment selection , facility layout

Operational

Low Short narrow High Scheduling personnel, adjusting output rate , inventory mgmt


PRODUCTIVITY

120


Productivity

• Productivity– A measure of the effective use of resources, usually

expressed as the ratio of output to input– Productivity is an index that measures output ( goods

& services ) relative to input used to produce them (labour , materials, energy etc)

• Productivity ratios are used for– Planning workforce requirements– Scheduling equipment

– Financial analysis


Productivity• Partial measures– output/(single input)

• Multi-factor measures– output/(multiple inputs)

• Total measure– output/(total inputs)

Productivity = Outputs

Inputs


Productivity GrowthProductivity Growth

Current Period Productivity – Previous Period ProductivityPrevious Period Productivity

Productivity Growth =


Measures of ProductivityMeasures of Productivity

Partial Output Output Output Output

measures Labor Machine Capital Energy

Multifactor Output Output

measures Labor + Machine Labor + Capital + Energy

Total Goods or Services Produced

measure All inputs used to produce them


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

Energy Productivity

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

Capital Productivity

Units of output per machine hourmachine hour

Machine Productivity

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

Labor Productivity

Examples of Partial Productivity Examples of Partial Productivity MeasuresMeasures


Example 37040 Units Produced

Sold for $1.10/unit

Cost of labor of $1,000

Cost of materials: $520

Cost of overhead: $2000

What is the multifactorproductivity?

Ans. 2.20


Example 3 SolutionMFP = Output

Labor + Materials + Overhead

MFP = (7040 units)*($1.10)$1000 + $520 + $2000

MFP = 2.20


Factors Affecting Productivity

Capital Quality

Technology Management


• Standardization – of processes wherever possible to reduce variability

• Quality – quality in all fields across the organisation can help

• Use of Internet – can lower wide range of transactions

• Searching for lost or misplaced items –these wastes time hence negatively affecting productivity

Other Factors Affecting Productivity



• Scrap rates – have an adverse effect on productivity signaling inefficient use of resources

• New workers – have lower productivity• Safety – accidents take a toll on productivity• Shortage of skilled workers – hampers ability of companies

to generate and sustain growth• Layoffs – effect can be positive & negative. Initially

productivity may increase after a layoff as workload remains same and fewer workers do same work. After a while the workers may experience burnout. Good workers may leave.


• Labor turnover - has a negative effect, replacements need time to catch up

• Design of the workspace – a well designed workplace can have a positive impact

• Incentive plans that reward productivity



Bottleneck Operation

Machine #2Machine #2BottleneckOperation

BottleneckOperation

Machine #1Machine #1



10/hr

10/hr

10/hr

10/hr

30/hr


Improving Productivity

• Develop productivity measures

• Determine critical (bottleneck) operations

• Develop methods for productivity improvements

• Establish reasonable goals

• Get management support

• Measure and publicize improvements

• Don’t confuse productivity with efficiency


A Forced Choice Model of Ops Strategic Planning

134


A Forced Choice Model of Ops Strategic Planning

Broad economic assumption

Key Govt/ regulatory threats

Major Technological forces

Significant marketing opportunities / threats Forecast of Operations: profits

and cash flows

Statement of strengths and weaknesses

Interrelation set of financial and non financial objectives

Statement of mission

Explicit competitive strategies for each major competitor Major Future Programs

STRATEGIC OPTIONS:•Strategic options (at least two)•Requirements for implementing each strategy•Contingency plans

ENVIRONMENTAL ASSESSMENT ORGANISATION’S POSITION


Criteria for SuccessEFFICIENCY

QUALITY

EFFECTIVENESS

FLEXIBILITY

Fast introduction of new products and servicesWide product /service range

Low Price

HighConsistent

Availability (from stock)Design competenceTechnical capability

Delivery ReliableRapid

Low CostHigh productivity Labour

MaterialEnergy


THANK YOU





4

Product and Service Design

McGraw-Hill/Irwin


INTRODUCTION

• New products & services are lifeblood of an org• Designs can provide competitive edge by bringing new

ideas to the market quickly , doing a better job of satisfying customer’s needs or being easier to manufacture ,repair

• Design is a critical process for the firm. It defines a firm’s customers as well its competitors


INTRODUCTION

• Design capitalizes on a firm’s core competencies & determines what core competencies need to be developed

• It is the most obvious driver of change-new products & services can rejuvenate an org, define new markets & inspire new technologies


INTRODUCTION

• Design is benefecial because it makes organisation to look outside their boundaries, bring in new ideas, challenge convential thinking

• Product & service design provide a natural way of learning, breaking down barriers, working in teams & integrating across functions


• Major factors in design strategy– Cost– Quality– Time-to-market– Customer satisfaction– Competitive advantage

Product and Service DesignProduct and Service Design

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


• Translate customer wants and needs into product and service requirements (marketing & operations)

• Refine existing products and services (marketing)• Develop new products and services(marketing , operations)• Formulate quality goals(marketing,operations)• Formulate cost targets( finance , operation)• Construct and test prototypes (operations, marketing )• Document specifications (operations)

Product or Service Design Activities


Reasons for Product or Service Design

• Economic (need to reduce cost)

• Social and demographic( population shifts)

• Political, liability, or legal (new regulations)

• Competitive

• Cost(cost components)

• Technological (technology advancements)


Objectives of Product and Service Design

• Main focus– Customer satisfaction

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


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

• Failure to take this into considerationcan result in reduced productivity , reduced quality and increased costs

• For this reason it is wise to solicit input from operations people through out the design process

• Design ,operations and marketing people must work together

Designing For Operations


• Legal– FDA, OSHA– Product liability– Uniform commercial code

• Ethical– Releasing products with defects

• Environmental

Legal, Ethical, and Environmental Issues


Regulations & Legal Considerations

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

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


Designers Adhere to Guidelines

• Organisers want designers to adhere to guidelines such asProduce designs that are consistent with

the goals of the companyGive customers the value they expectMake health and safety a primary concernConsider potential harm to the environment


Other Issues in Product and Service Design

• Product/service life cycles

• How much standardization

• Product/service reliability

• Range of operating conditions


Life Cycles of Products or Services

Time

Introduction

Growth

Maturity

Saturation

Decline

Dem

and


• Mass customization:– A strategy of producing standardized

goods or services, but incorporating some degree of customization

– Delayed differentiation– Modular design

Mass Customization


• Delayed differentiation is a postponement tactic– Producing but not quite completing a

product or service until customer preferences or specifications are known e.g veh truck chassis, men’s trousers as part of apparel being sold

Delayed Differentiation


Phases in Product Development Process1. Idea generation

2. Feasibility study

3. Form Design

4. Functional Design

5. Production Design

6. Pilot run and final Test

7. Final design and Process plan

8. Product introduction

9. Follow-up evaluation


PHASE 1 :Idea Generation

Ideas Competitor based

Supply chain based

Research based


Reverse Engineering

Reverse engineering is the

dismantling and inspecting of a competitor’s product to discover product improvements.


Research & Development (R&D)

• Organized efforts to increase scientific knowledge or product innovation & may involve:– Basic Research advances knowledge about

a subject without near-term expectations of commercial applications.

– Applied Research achieves commercial applications.

– Development converts results of applied research into commercial applications.


PHASE 2: FEASIBILITY STUDY• Marketing takes the ideas that are generated and the

customers needs that are identified from the first stage of design process and formulates alternative product and service concepts

• The promising concept undergoes a series of studies• Market Analysis – this assesses whether there is enough

demand in the market• Economic Analysis – it looks at the estimate of

production and development costs and compares them to estimated sales volume


FEASIBILITY STUDY

• Technical and Strategic Analysis – it answers the following questions- Does the new product require new technology? Is the capital investment excessive ?Does the company have sufficient labour and

management skills to support the required technology? Is sufficient capacity available for production?Does the new product provide competitive advantage to

the company? Is it compatible with core business of the firm?


PHASE 3: FORM DESIGN

• Refers to the physical appearance of the product – shape , colour, size,style

• Aesthetics such as image, market appeal and personal identification also form part of form design


PHASE4 : FUNCTIONAL DESIGN

• Functional design is concerned with how the product performs

• It seeks to meet the performance specification of fitness to use by the customer

• Three performance characteristics considered during this phase are – reliability, maintainability and usability


Reliability

• Reliability: The ability of a product, part, or system to perform its intended function under a prescribed set of conditions

• Failure: Situation in which a product, part, or system does not perform as intended

• Normal operating conditions: The set of conditions under which an item’s reliability is specified


Improving ReliabilityImproving Reliability• Fundamental question is how much reliability is

needed? Answer to this depends on potential benefits and costs

• Component design

• Production/assembly techniques

• Testing

• Redundancy/backup

• Preventive maintenance procedures

• User education

• System design


RELIABILITY

• A product’s or system’s reliability is a function of reliability of the functions parts and how are they arranged

• R(sys)=R1xR2x...

• Reliability can also be expressed as MTBF

• MTBF=1/failure rate


MAINTAINABILITY

• Also called serviceability refers to ease and/or cost with which a product or service is maintained or repaired

• One quantitative measure of maintainability is MTTR

• Products can be made easier to maintain/repair by placing them correctly, modular construction

• System availability = MTBF/MTBF+MTTR


USABILITY

• All of us have encountered products or services that are difficult or cumbersome to useLevers for popping the trunk of a car & unlocking the

gas cap located too close togetherUnwieldy and big sized remotesCups with small handles

Usability is what makes a product easy to use and a good fit for its targeted customer


PHASE 5: PRODUCTION DESIGN

• Production design is concerned how products will be made. Tendency to overdesign a product with too many features and parts.

• Lack of knowledge of manufacturing capabilities can result in designs that are impossible to make and skills that are not available

• Many times production people have to redesign the product • Late changes in design are both costly & disruptive • That’s why production design is considered in preliminary stage


PRODUCTION DESIGN

• Recommended approaches to production design include – simplification, standardisation, modularity, and design for manufacture

• Simplification-attempts to reduce number of parts, subassemblies and options in a product. It also means avoiding tools, fasteners and adjustments


Standardization

• Standardization – Extent to which there is an absence of

variety in a product, service or process

• Standardized products are immediately available to customers


Advantages of Standardization

• Fewer parts to deal with in inventory & manufacturing

• Design costs are generally lower

• Reduced training costs and time

• More routine purchasing, handling, and inspection procedures


Advantages of Standardization (Cont’d)

• Orders fillable from inventory

• Opportunities for long production runs and automation

• Need for fewer parts justifies increased expenditures on perfecting designs and improving quality control procedures.


Disadvantages of Standardization

• Designs may be frozen with too many imperfections remaining.

• High cost of design changes increases resistance to improvements.

• Decreased variety results in less consumer appeal.


Modular Design

Modular design is a form of standardization in which component parts are subdivided into modules that are easily replaced or interchanged. It allows:

– easier diagnosis and remedy of failures

– easier repair and replacement

– simplification of manufacturing and assembly


Manufacturability

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

– Cost

– Productivity

– Quality


Designing for Manufacturing

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

Design for Manufacturing(DFM)

The designers’ consideration of the organization’s manufacturing capabilities when designing a product.

The more general term design for operations encompasses services as well as manufacturing


Concurrent Engineering

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


Computer-Aided Design

• Computer-Aided Design (CAD) is product design using computer graphics.– increases productivity of designers, 3 to 10

times

– creates a database for manufacturing information on product specifications

– provides possibility of engineering and cost analysis on proposed designs


RECYCLING

• Recycling-means recovering materials for future use . This not only applies to manufactured parts but also to oils and lubricants. Reasons could beCost savingsEnvironmental concernEnvironmental regulations


PHASE 6: PILOT RUN AND FINAL TEST

• A series of tests are required to be carried out for testing all final specifications , functionality and other details .


PHASE 7:FINAL DESIGN & PROCESS PLANS

• This consists of detailed drawings & specifications for the new product or service

• The accompanying process plans are workable instructions for manufacture including necessary equipment and tooling, component sourcing recommendations, job descriptions and procedures for workers and computer programs for automated machines


PHASE 8 :PRODUCT INTRODUCTION & FOLLOWUP EVALUATION

• Product introduction is the phase when it is introduced in the market. Market response analysis is very important at this stage

• Follow up evaluation is based on the response of the customers


THANKYOU





Location Planning and Analysis


Center-of-Gravity MethodCenter-of-Gravity Method


Center-of-Gravity MethodCenter-of-Gravity Method Finds location of distribution center Finds location of distribution center

that minimizes distribution coststhat minimizes distribution costs

ConsidersConsiders Location of marketsLocation of markets

Volume of goods shipped to those Volume of goods shipped to those marketsmarkets

Shipping cost (or distance)Shipping cost (or distance)


Center-of-Gravity MethodCenter-of-Gravity Method Place existing locations on a Place existing locations on a

coordinate gridcoordinate grid Grid origin and scale is arbitrary Grid origin and scale is arbitrary

Maintain relative distancesMaintain relative distances

Calculate X and Y coordinates for Calculate X and Y coordinates for ‘center of gravity’‘center of gravity’ Assumes cost is directly proportional Assumes cost is directly proportional

to distance and volume shippedto distance and volume shipped


Center-of-Gravity MethodCenter-of-Gravity Method

x - coordinate =x - coordinate =∑∑ddixixQQii

∑∑QQii

ii

ii

∑∑ddiyiyQQii

∑∑QQii

ii

ii

y - coordinate =y - coordinate =

wherewhere ddixix == x-coordinate of x-coordinate of location ilocation i

ddiyiy == y-coordinate of y-coordinate of location ilocation i

QQii == Quantity of goods Quantity of goods moved to or from location imoved to or from location i

n

n

Amity International Business SchoolEXAMPLE 1

• FIND A DISTRIBUTION CENTRE FOR FOUR PRODUCING CENTRES LOCATED AT CHICAGO, PITTSBURG, NEW YORK AND ATLANTA . COORDINATES ARE AS SHOWN


Center-of-Gravity MethodCenter-of-Gravity MethodNorth-SouthNorth-South

East-WestEast-West

120 120 –

90 90 –

60 60 –

30 30 –

–| | | | | |

3030 6060 9090 120120 150150Arbitrary Arbitrary originorigin

Chicago (30, 120)Chicago (30, 120)New York (130, 130)New York (130, 130)

Pittsburgh (90, 110)Pittsburgh (90, 110)

Atlanta (60, 40)Atlanta (60, 40)


Center-of-Gravity MethodCenter-of-Gravity MethodNumber of ContainersNumber of Containers

Store LocationStore Location Shipped per MonthShipped per Month

Chicago (30, 120)Chicago (30, 120) 2,0002,000Pittsburgh (90, 110)Pittsburgh (90, 110) 1,0001,000New York (130, 130)New York (130, 130) 1,0001,000Atlanta (60, 40)Atlanta (60, 40) 2,0002,000

x-coordinate =x-coordinate =(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)

2000 + 1000 + 1000 + 20002000 + 1000 + 1000 + 2000= 66.7= 66.7

y-coordinate =y-coordinate =(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)

2000 + 1000 + 1000 + 20002000 + 1000 + 1000 + 2000= 93.3= 93.3


Center-of-Gravity MethodCenter-of-Gravity MethodNorth-SouthNorth-South

East-WestEast-West

120 120 –

90 90 –

60 60 –

30 30 –

–| | | | | |

3030 6060 9090 120120 150150Arbitrary Arbitrary originorigin

Chicago (30, 120)Chicago (30, 120)New York (130, 130)New York (130, 130)

Pittsburgh (90, 110)Pittsburgh (90, 110)

Atlanta (60, 40)Atlanta (60, 40)

Center of gravity (66.7, 93.3)Center of gravity (66.7, 93.3)+

Amity International Business SchoolExample 2

• The Burger Doodle Restaurant chain purchases ingredients from four different suppliers . The company wants to construct a new central distribution centre to process and package the ingredients before shipping them to various restaurants . The suppliers ingredient items in 40 foot truck trailers each with a capacity of 38,000 kg.. The location of 4 suppliers A,B ,C and D and annual number of trailers loads are shown


100 200 300 400 500 600 700 800

800

700

600

500

400

300

200

100

A 75

B 105

C 160

C135

MILES

MILES


A B C D

Xi 200 100 250 500

Yi 200 500 600 300

Qi 75 105 135 60


X= (200)(75)+(100)(105)+(250)(135)+(500)(60)

75+105+135+60

= 238

Y =(200)(75)+(500)(105)+(600)(135)+(300)(60)

75+105+135+60

=444

Hence the location of the centre should have these coordinates


100 200 300 400 500 600 700 800

800

700

600

500

400

300

200

100

A 75

B 105

C 160

C135

MILES

MILES


LOAD DISTANCE TECHNIQUE

Amity International Business SchoolLOAD DISTANCE TECHNIQUE

• A variation of centre of gravity method for determining for determining coordinates of facility location.

• In this, a single set of location coordinates is not identified. Instead various locations are evaluated using a load distance value that is a measure of weight and distance



• For a single potential location a load distance value is computed as follows

LD = Σ lidi

Where LD =load distance value

li= load expressed as a weight , number of trips or units being shipped from the proposed site to location I

di= distance between proposed site and location

n

i=1



• The distance di in this formula can be the travel distance, if that value is known or can be determined from a map. It can also be computed using the following formula for the straight line distance between two points which is the hypotenuse

di = √(xi – x)² + (yi – y)²

Where (x,y) = coordinates of proposed site

(xi,yi) = coordinates of existing facility



• The load distance technique is applied by computing a load distance value for each potential facility location.

• The implication is the location with lowest value would result in minimum transportation cost and thus would be preferable


• Burger Doodle has to evaluate three different sites it has identified for its new distribution centre relative to four suppliers identified in previous example The coordination of three sites under consideration are

• Site 1: x1= 360, y1= 180• Site 2: x2=420, y2=450• Site 3; x3=250, y3= 400


• Solution

• First the distances between the proposed sites (1,2 and 3) and each existing facility (A,B,C and D)are computed using the straight formula)

• Site 1: da = √(xa-x1)² + (ya -y1)²

= √(200-360)² + (200-180)² = 161.2

db = √(xb- x1)²+ ( yb – y1)²

= √(100-360)² + (500-180)² = 412.3

205


• Site 1: dc = √(xc-x1)² + (yc -y1)²

= √(250-360)² + (600-180)² = 434.2

dd = √(xd- x1)²+ ( yd – y1)²

= √(500-360)² + (300-180)² = 184.4

Site 2: da= 333, db = 323.9, dc = 226.7, dd= 170

Site 3: da= 206, db = 180.3, dc = 200, dd= 269.3


• Next the formula for load distance for each proposed site is calculated

• LD(site1) = Σ lidi

= (75)(161.2) + (105)(412.3) + (135)(434.4) + (60)(184.4) = 1,25,063

• LD(site2)

=(75)(333)+(105)(323.9)(135)(226.7)+(60)(170) = 99,789• LD(site 3)

=(75)(206.2)+(105)(180.3)+(135)(200)+60)(269.3)

= 77,555

D

I= A


• Since site 3 has the lowest LD value , this location would minimize transportation cost

• Notice site 3 is also close to location determined using centre of gravity method in previous example


Transportation ModelTransportation Model


Transportation ModelTransportation Model Finds amount to be shipped from Finds amount to be shipped from

several points of supply to several several points of supply to several points of demandpoints of demand

Solution will minimize total production Solution will minimize total production and shipping costsand shipping costs

A special class of linear programming A special class of linear programming problemsproblems


Thank you





4

Product and Service Design

McGraw-Hill/Irwin


SERVICE DESIGN


WHAT IS SERVICE• Service are acts , deeds ,performances or relationships that

produce time, place , form or psychological utilities for customers.

• Service can also be defined in contrast to goods. A good is a tangible product that can be created or sold or used later. A service is intangible and perishable

• In reality almost all purchases of goods are accompanied by facilitating services and almost every service purchased is accompanied by facilitating goods


CHARACTERISTICS OF SERVICE

• Services are intangible• Service output is variable• Service have higher customer contact• Services are perishable• Service and service provider are inseparable• Services tend to be decentralised & geographical

dispersed• Services are consumed more often than products• Services can be easily emulated


Service Design

• Service is an act

• Service delivery system– Facilities– Processes– Skills

• Many services are bundled with products


Service Design

• Service design involves– The physical resources needed– The goods that are purchased or consumed

by the customer– Explicit services– Implicit services


Service Design• Service

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

– The facilities, processes, and skills needed to provide a service

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

customer• Service package

– The physical resources needed to perform the service


• Tangible – intangible

• Services created and delivered at the same time

• Services cannot be inventoried

• Services highly visible to customers

• Services have low barrier to entry

• Location important to service

Differences Between Product Differences Between Product and Service Designand Service Design


Phases in Service Design

1.Conceptualize

2.Identify service package components

3.Determine performance specifications

4.Translate performance specifications into design specifications

5.Translate design specifications into delivery specifications


PHASE 1 : SERVICE CONCEPT

• It defines the target customer and desired customer experience

• It also defines how our service is different than others and how will it compete in the market


PHASE 2 : SERVICE PACKAGE

• From the concept a service package is created• The package consists of physical items, sensual benefits and

psychological benefits• In a restaurant...

The physical items consist of facility , food , drinks, tableware, napkin etc

The sensual benefits include taste and aroma of tha food and the sights and sounds

The psychological benefits are rest and relaxation, comfort, status and a sense of well being


PHASE 3 : PERFORMANCE SPECIFICATION

• From the service package , service specifications are developed for performance ,design and delivery

• Performance specifications outline expectations and requirements for general and specific customers

• Performance specification are converted into design specification and delivery specifications


PHASE 4 : DESIGN & DELIVERY SPECIFICATIONS

• Design specification must describe in detail the desired service experience to be replicated for different individuals at numerous locations

• The specifications typically include activities to be performed , skill requirement & guidelines for the service provider & cost & time estimates

• Also include are facility size ,location & layout & equipment needs

• Delivery specifications outline the steps required in the work process including the work schedule,

deliverables , location etc


LABOUR

INTENSITY

CUSTOMISATION

SERVICE FACTORY

LOW

LOWHIGH

HIGH

SERVICE PROCESS MATRIX

MASS SERVICE

SERVICE SHOP

PROFESSIONAL SERVICE


Service Blueprinting

• Service blueprinting– A method used in service design to describe

and analyze a proposed service

• A useful tool for conceptualizing a service delivery system


Service Blueprinting• In service blueprinting...

Line of influence shows activities designed to influence the customer

Line of interactions where the customer interacts with the service provider and other customers

Line of visibility separates front office activities from backstage

Line of support is where the service provider interacts with backstage support personnel to complete their tasks


Major Steps in Service Blueprinting

1. Establish boundaries

2. Identify steps involved

3. Prepare a flowchart

4. Identify potential failure points

5. Establish a time frame

6. Analyze profitability


LINE OFINFLUENCE

LINE OF INTERAC-TION

LINE OFVISIBILITY

LINE OF SUPPORT

CUSTOMER PASSES TODAY’S SPECIAL SIGN

CUSTOMERPLACES ORDER

BARISTA READIES ORDER

BARISTA GOES TOSTOCKROOM GETS LAST BAGS OF CUPS

B TELLS MANAGER HE IS OUT OF CUPS

B COMPLETES ORDER

CUSTOMERPAYS

TOUR BUS STOPS

CUSTOMERS POUR IN

B ASKS FOR HELP UPFRONT

SERVCE BLUEPRINT FOR A COFFEE SHOP


Characteristics of Well Designed Service Systems

1. Consistent with the organization mission

2. User friendly

3. Robust

4. Easy to sustain

5. Cost effective

6. Value to customers

7. Effective linkages between back operations

8. Single unifying theme

9. Ensure reliability and high quality


Challenges of Service Design

• Variable requirements

• Difficult to describe

• High customer contact

• Service – customer encounter


THANKYOU


234


MBA IBProduction & Operations Management


FACILITY LAYOUT

235

Amity International Business SchoolWe will Study......

• Various types of layouts

• Factors affecting layout decision

• Qualities of a good Layout

236


• Layout: the configuration of departments, work centers, and equipment, with particular emphasis on movement of work (customers or materials) through the system

Facilities Layout


• Requires substantial investments of money and effort

• Involves long-term commitments

• Has significant impact on cost and efficiency of operations

Importance of Layout Decisions


Inefficient operations

For Example:

High CostBottlenecks

Changes in the designof products or services

The introduction of newproducts or services

Accidents

Safety hazards

The Need for Layout Decisions


Changes inenvironmentalor other legalrequirements

Changes in volume ofoutput or mix of

products

Changes in methodsand equipment

Morale problems

The Need for Layout Design (Cont’d)

Amity International Business SchoolLayout StrategiesLayout Strategies

OfficeOffice RetailRetailWarehouse Warehouse

(storage)(storage)

ExamplesExamples

Allstate InsuranceAllstate Insurance

Microsoft Corp.Microsoft Corp.

Kroger’sKroger’s Supermarket Supermarket

Walgreen’sWalgreen’s

Bloomingdale’sBloomingdale’s

Federal-Mogul’sFederal-Mogul’s warehouse warehouse

The Gap’sThe Gap’s distribution center distribution center

Problems/IssuesProblems/Issues

Locate workers Locate workers requiring frequent requiring frequent contact close to contact close to one anotherone another

Expose customer Expose customer to high-margin to high-margin itemsitems

Balance low-cost Balance low-cost storage with low-storage with low-cost material cost material handlinghandling


Layout StrategiesLayout Strategies

Project Project (fixed position)(fixed position)

Job Shop Job Shop (process oriented)(process oriented)

ExamplesExamples

Ingall Ship BuildingIngall Ship Building Corp. Corp.

Trump PlazaTrump Plaza

Pittsburgh AirportPittsburgh Airport

Arnold Palmer HospitalArnold Palmer Hospital

Hard Rock CaféHard Rock Café

Olive GardenOlive Garden


Move material to the Move material to the limited storage areas limited storage areas around the sitearound the site

Manage varied material Manage varied material flow for each productflow for each product

Amity International Business SchoolLayout StrategiesLayout Strategies

Work Cells Work Cells (product families)(product families)

Repetitive/ Continuous Repetitive/ Continuous (product oriented)(product oriented)

ExamplesExamples

Hallmark CardsHallmark Cards

Wheeled CoachWheeled Coach

Standard AeroStandard Aero

Sony’s TV assemblySony’s TV assembly line line

Toyota ScionToyota Scion


Identify a product family, Identify a product family, build teams, cross train team build teams, cross train team membersmembers

Equalize the task time at Equalize the task time at each workstationeach workstation


Plant Layout Factors

1. Manpower factors

2. Machinery factors

3. Movement factors

4. Material factors

5. Waiting factors

6. Service factors

7. Factory building factors

8. Change related factors.

Amity International Business SchoolTypes of LayoutTypes of Layout

•Product layouts

•Process layouts

•Fixed-Position layout

•Combination layouts

•Office layout

•Retail layout

•Warehouse layout

•Work-cell layout


• Product layout – Layout that uses standardized processing

operations to achieve smooth, rapid, high-volume flow

• Process layout– Layout that can handle varied processing

requirements• Fixed Position layout

– Layout in which the product or project remains stationary, and workers, materials, and equipment are moved as needed

Basic Layout Types


Raw materialsor customer

Finished item

Station 2

Station 2

Station 3

Station 3

Station 4

Station 4

Material and/or labor

Station 1




Used for Repetitive or Continuous Processing

Product Layout


Product Layout

Amity International Business SchoolProduct Layout

• Better known as assembly lines arrange activities in a line according to sequence of operations that need to be performed to assemble a particular product

• The flow of work is orderly and efficient moving from one workstation to another

• The product or service is standard one made for a general market in which demand is stable and volume high


• High rate of output

• Low unit cost

• Labor specialization

• Low material handling cost

• High utilization of labor and equipment

• Established routing and scheduling

• Routing accounting and purchasing

Advantages of Product Layout


• Creates dull, repetitive jobs

• Poorly skilled workers may not maintain equipment or quality of output

• Fairly inflexible to changes in volume

• Highly susceptible to shutdowns

• Needs preventive maintenance

• Individual incentive plans are impractical

Disadvantages of Product Layout


Process Layout• Also known as functional layout• It groups similar activities together in

departments, or work centers e.g., all drills , lathes located in same place. In an apparel shop all women’s clothes, all children’s clothes is located at same place

• A process layout is characteristic of intermittent operations , service shops, job shops, or batch production which serve different customers with different needs.


Dept. A

Dept. B Dept. D

Dept. C

Dept. F

Dept. E

Used for Intermittent processingJob Shop or Batch

Process Layout(functional)

Process Layout


• Can handle a variety of processing requirements

• Not particularly vulnerable to equipment failures

• Equipment used is less costly

• Possible to use individual incentive plans

Advantages of Process Layouts


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

Disadvantages of Process Layouts


Surgery

Radiology

ER triage room

ER Beds Pharmacy

Emergency room admissions

Billing/exit

Laboratories

Process-Oriented LayoutProcess-Oriented LayoutPatient A - broken leg

Patient B - erratic heart pacemaker


E.G. Process Layout Process Layout


Process-Oriented LayoutProcess-Oriented Layout

Arrange work centers so as to Arrange work centers so as to minimize the costs of material minimize the costs of material handlinghandling

Basic cost elements areBasic cost elements are Number of loads (or people) moving Number of loads (or people) moving

between centersbetween centers

Distance loads (or people) move Distance loads (or people) move between centersbetween centers


Fixed-Position LayoutFixed-Position Layout

Product remains in one place Product remains in one place

Workers and equipment come to siteWorkers and equipment come to site

Complicating factorsComplicating factorsLimited space at siteLimited space at site

Different materials Different materials required at different required at different stages of the projectstages of the project

Volume of materials Volume of materials needed is dynamicneeded is dynamic


• Cellular Production– Layout in which machines are grouped into

a cell that can process items that have similar processing requirements

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

similar design or manufacturing characteristics

Cellular Layouts


Work CellsWork Cells Reorganizes people and machines Reorganizes people and machines

into groups to focus on single products into groups to focus on single products or product groupsor product groups

Group technology identifies products Group technology identifies products that have similar characteristics for that have similar characteristics for particular cellsparticular cells

Volume must justify cellsVolume must justify cells

Cells can be reconfigured as designs Cells can be reconfigured as designs or volume changesor volume changes


Advantages of Work CellsAdvantages of Work Cells1. Reduced work-in-process inventory2. Less floor space required3. Reduced raw material and finished

goods inventory4. Reduced direct labor5. Heightened sense of employee

participation6. Increased use of equipment and

machinery7. Reduced investment in machinery and

equipment


Improving Layouts Using Improving Layouts Using Work CellsWork Cells

Current layout - workers in Current layout - workers in small closed areas. Cannot small closed areas. Cannot increase output without a increase output without a third worker and third set of third worker and third set of equipment.equipment. Improved layout - cross-trained Improved layout - cross-trained

workers can assist each other. May workers can assist each other. May be able to add a third worker as be able to add a third worker as additional output is needed.additional output is needed.


Improving Layouts Using Improving Layouts Using Work CellsWork Cells

Current layout - straight lines Current layout - straight lines make it hard to balance tasks make it hard to balance tasks because work may not be because work may not be divided evenlydivided evenly

Improved layout - in U shape, Improved layout - in U shape, workers have better access. workers have better access. Four cross-trained workers Four cross-trained workers were reduced.were reduced.

U-shaped line may reduce employee movement and space requirements while enhancing communication, reducing the number of workers, and facilitating inspection


Requirements of Work CellsRequirements of Work Cells1.1. Identification of families of productsIdentification of families of products

2.2. A high level of training, flexibility and A high level of training, flexibility and empowerment of employeesempowerment of employees

3.3. Being self-contained, with its own Being self-contained, with its own equipment and resourcesequipment and resources

4.4. Test (poka-yoke) at each station in the Test (poka-yoke) at each station in the cellcell

Amity International Business SchoolAdvantages of Cellular Layout

• Reduced material handling and transit time

• Reduced setup time

• Reduced WIP inventory

• Better use of human resources

• Easier to control

• Easier to automate

Amity International Business SchoolDisadvantages of Cellular Layout

• Inadequate part families

• Poorly balanced cells

• Expanded training and scheduling of workers

• Increased capital investment

Amity International Business SchoolSystematic Layout Planning (SLP)

Procedure


Other LayoutsOther Layouts

1.1. Office layout: Positions workers, their Office layout: Positions workers, their equipment, and spaces/offices to equipment, and spaces/offices to provide for movement of informationprovide for movement of information

2.2. Retail layout: Allocates shelf space and Retail layout: Allocates shelf space and responds to customer behavior responds to customer behavior

3.3. Warehouse layout: Addresses trade-Warehouse layout: Addresses trade-offs between space and material offs between space and material handlinghandling


Office LayoutOffice Layout Grouping of workers, their equipment, Grouping of workers, their equipment,

and spaces to provide comfort, safety, and spaces to provide comfort, safety, and movement of informationand movement of information

Movement of Movement of information is main information is main distinctiondistinction

Typically in state of Typically in state of flux due to frequent flux due to frequent technological technological changeschanges


Supermarket Retail LayoutSupermarket Retail Layout

Objective is to maximize Objective is to maximize profitability per square foot of floor profitability per square foot of floor spacespace

Sales and profitability vary directly Sales and profitability vary directly with customer exposurewith customer exposure


Five Helpful Ideas for Five Helpful Ideas for Supermarket LayoutSupermarket Layout

1.1. Locate high-draw items around the periphery of the Locate high-draw items around the periphery of the storestore

2.2. Use prominent locations for high-impulse and high-Use prominent locations for high-impulse and high-margin itemsmargin items

3.3. Distribute power items to both sides of an aisle and Distribute power items to both sides of an aisle and disperse them to increase viewing of other itemsdisperse them to increase viewing of other items

4.4. Use end-aisle locationsUse end-aisle locations

5.5. Convey mission of store through careful positioning Convey mission of store through careful positioning of lead-off departmentof lead-off department

Amity International Business SchoolE.g. Store LayoutE.g. Store Layout


THANK YOU


275




5

Capacity PlanningFor Products and Services


Capacity Planning

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

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


CapacityCapacity The throughput, or the number of units The throughput, or the number of units

a facility can hold, receive, store, or a facility can hold, receive, store, or produce in a period of timeproduce in a period of time

Determines Determines fixed costsfixed costs

Determines if Determines if demand will demand will be satisfiedbe satisfied

Three time horizonsThree time horizons


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

Importance of Capacity Decisions

Amity International Business SchoolStrategy Formulation

• Capacity strategy for long-term demand

• Demand patterns

• Growth rate and variability

• Facilities– Cost of building and operating

• Technological changes– Rate and direction of technology changes

• Behavior of competitors

• Availability of capital and other inputs


Determinants of Effective Capacity

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


Key Decisions of Capacity Planning

1. Amount of capacity needed

2. Timing of changes

3. Need to maintain balance

4. Extent of flexibility of facilities

Capacity cushion – extra demand intended to offset uncertainty


Modify capacityModify capacity Use capacityUse capacity

Planning Over a Time HorizonPlanning Over a Time Horizon

Intermediate-Intermediate-range range planningplanning

Subcontract Add personnelAdd equipment Build or use inventory Add shifts

Short-range Short-range planningplanning

Schedule jobsSchedule personnel Allocate machinery*

Long-range Long-range planningplanning

Add facilitiesAdd long lead time equipment *

* Limited options exist* Limited options exist


Capacity• Design capacity

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

• Effective capacity– Design capacity minus allowances such as

personal time, maintenance, and scrap

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

exceed effective capacity.


Efficiency and UtilizationActual output

Efficiency =Effective capacity

Actual outputUtilization =

Design capacity

Both measures expressed as percentages


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

Effective capacity 40 units/ day

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

Design capacity 50 units/day

Efficiency/Utilization Example

Design capacity = 50 trucks/day

Effective capacity = 40 trucks/day

Actual output = 36 units/day


Capacity ConsiderationsCapacity Considerations Forecast demand accurately Understand the technology and

capacity increments Find the optimum

operating level (volume)

Build for change


Economies of Scale

• Economies of scale– If the output rate is less than the optimal level,

increasing output rate results in decreasing average unit costs

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

level, increasing the output rate results in increasing average unit costs


Economies and Diseconomies Economies and Diseconomies of Scaleof Scale

Economies Economies of scaleof scale

Diseconomies Diseconomies of scaleof scale

25 - room 25 - room roadside motelroadside motel 50 - room 50 - room

roadside motelroadside motel

75 - room 75 - room roadside motelroadside motel

Number of RoomsNumber of Rooms2525 5050 7575

Ave

rag

e u

nit

cost

Ave

rag

e u

nit

cost

(dol

lars

per

ro

om

pe

r n

igh

t)(d

olla

rs p

er r

oo

m p

er

nig

ht)


Steps for Capacity Planning1. Estimate future capacity requirements

2. Evaluate existing capacity

3. Identify alternatives, including outsourcing

4. Conduct financial analysis

5. Assess key qualitative issues

6. Select one alternative

7. Implement alternative chosen

8. Monitor results


Developing Capacity Alternatives 1.Design flexibility into systems

2.Take stage of life cycle into account

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

4.Prepare to deal with capacity “chunks”

5.Attempt to smooth out capacity requirements

6.Identify the optimal operating level


Evaluating Alternatives

Minimumcost

Av

era

ge

co

st

per

un

it

0 Rate of output

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

Minimum average cost per unit


Evaluating AlternativesMinimum cost & optimal operating rate are

functions of size of production unit.A

ve

rag

e c

os

t p

er u

nit

0

Smallplant Medium

plant Largeplant

Output rate


• Need to be near customers– Capacity and location are closely tied

• Inability to store services– Capacity must be matched with timing of

demand

• Degree of volatility of demand– Peak demand periods

Planning Service Capacity


Cost-Volume Relationships

Am

ou

nt

($)

0Q (volume in units)

Total cost = VC + FC

Total variable cost (V

C)

Fixed cost (FC)



Am

ou

nt

($)

Q (volume in units)0

Total r

evenue



Am

ou

nt

($)

Q (volume in units)0 BEP units

Profit

Total r

even

ue

Total cost


Break-Even Problem with Step Fixed Costs

Quantity

FC + VC = TC

FC + VC = TC

FC + VC =

TC

Step fixed costs and variable costs.

1 machine

2 machines

3 machines


Break-Even Problem with Step Fixed Costs

$

TC

TC

TCBEP2

BEP3

TR

Quantity

1

2

3

Multiple break-even points


Thank You


FACILITY LAYOUT

301

Amity International Business SchoolRetail SlottingRetail Slotting Manufacturers pay fees to retailers to Manufacturers pay fees to retailers to

get the retailers to display (slot) their get the retailers to display (slot) their productproduct

Contributing factorsContributing factors Limited shelf spaceLimited shelf space

An increasing number of new productsAn increasing number of new products

Better information about sales through Better information about sales through POS data collectionPOS data collection

Closer control of inventoryCloser control of inventory

Amity International Business SchoolServicescapesServicescapes

Ambient conditions - background characteristics Ambient conditions - background characteristics such as lighting, sound, smell, and temperaturesuch as lighting, sound, smell, and temperature

Spatial layout and functionality - which involve Spatial layout and functionality - which involve customer customer circulation path planning, circulation path planning, aisle characteristics, and aisle characteristics, and product groupingproduct grouping

Signs, symbols, and Signs, symbols, and artifacts - characteristics artifacts - characteristics of building design that of building design that carry social significancecarry social significance

Amity International Business SchoolWarehousing and Storage Warehousing and Storage LayoutsLayouts

Objective is to optimize trade-offs Objective is to optimize trade-offs between handling costs and costs between handling costs and costs associated with warehouse spaceassociated with warehouse space

Maximize the total “cube” of the Maximize the total “cube” of the warehouse – utilize its full volume warehouse – utilize its full volume while maintaining low material while maintaining low material handling costshandling costs


All costs associated with the transactionAll costs associated with the transaction Incoming transportIncoming transport

StorageStorage

Finding and moving materialFinding and moving material

Outgoing transportOutgoing transport

Equipment, people, material, supervision, insurance, Equipment, people, material, supervision, insurance, depreciationdepreciation

Minimize damage and spoilageMinimize damage and spoilage

Material Handling CostsMaterial Handling Costs


Warehousing and Storage Warehousing and Storage LayoutsLayouts

Warehouse density tends to vary inversely Warehouse density tends to vary inversely with the number of different items storedwith the number of different items stored

Automated Storage and Automated Storage and Retrieval Systems (ASRSs) Retrieval Systems (ASRSs) can significantly improve can significantly improve warehouse productivity by warehouse productivity by an estimated 500%an estimated 500%

Dock location is a key Dock location is a key design elementdesign element


Cross-DockingCross-Docking Materials are moved directly from Materials are moved directly from

receiving to shipping and are not placed receiving to shipping and are not placed in storage in storage in the warehousein the warehouse

Requires tight Requires tight scheduling and scheduling and accurate shipments, accurate shipments, bar code or RFIDbar code or RFIDidentification used foridentification used foradvanced shipmentadvanced shipmentnotification as materialsnotification as materialsare unloadedare unloaded

Amity International Business SchoolRandom StockingRandom Stocking Typically requires automatic identification Typically requires automatic identification

systems (AISs) and effective information systems (AISs) and effective information systemssystems

Random assignment of stocking locations Random assignment of stocking locations allows more efficient use of spaceallows more efficient use of space

Key tasksKey tasks

1.1. Maintain list of open locationsMaintain list of open locations

2.2. Maintain accurate recordsMaintain accurate records

3.3. Sequence items to minimize travel, pick timeSequence items to minimize travel, pick time

4.4. Combine picking ordersCombine picking orders

5.5. Assign classes of items to particular areasAssign classes of items to particular areas

Amity International Business SchoolE.G. Warehouse LayoutE.G. Warehouse Layout

Traditional LayoutTraditional Layout


Warehouse LayoutWarehouse Layout

Cross-Docking LayoutCross-Docking Layout

Shipping and receiving docks

Off

ice

Shipping and receiving docks


Alternative StrategyAlternative Strategy As much of the project as possible is As much of the project as possible is

completed off-site in a product-oriented completed off-site in a product-oriented facilityfacility

This can This can significantly significantly improve efficiency improve efficiency but is only but is only possible when possible when multiple similar multiple similar units need to be createdunits need to be created


THANK YOU


313




5

Capacity PlanningFor Products and Services


1.One product is involved2.Everything produced can be sold3.Variable cost per unit is the same

regardless of volume4.Fixed costs do not change with volume5.Revenue per unit constant with volume6.Revenue per unit exceeds variable cost

per unit

Assumptions of Cost-Volume Analysis


Financial Analysis

• Cash Flow - the difference between cash received from sales and other sources, and cash outflow for labor, material, overhead, and taxes.

• Present Value - the sum, in current value, of all future cash flows of an investment proposal.


Calculating Processing Requirements

P r o d u c tA n n u a l

D e m a n d

S t a n d a r dp r o c e s s i n g t i m e

p e r u n i t ( h r . )P r o c e s s i n g t i m e

n e e d e d ( h r . )

# 1

# 2

# 3

4 0 0

3 0 0

7 0 0

5 . 0

8 . 0

2 . 0

2 , 0 0 0

2 , 4 0 0

1 , 4 0 0 5 , 8 0 0

P r o d u c tA n n u a l

D e m a n d

S t a n d a r dp r o c e s s i n g t i m e

p e r u n i t ( h r . )P r o c e s s i n g t i m e

n e e d e d ( h r . )

# 1

# 2

# 3

4 0 0

3 0 0

7 0 0

5 . 0

8 . 0

2 . 0

2 , 0 0 0

2 , 4 0 0

1 , 4 0 0 5 , 8 0 0


Managing DemandManaging Demand Demand exceeds capacityDemand exceeds capacity

Curtail demand by raising prices, scheduling longer lead timeCurtail demand by raising prices, scheduling longer lead time

Long term solution is to increase capacityLong term solution is to increase capacity

Capacity exceeds demandCapacity exceeds demand Stimulate marketStimulate market

Product changesProduct changes

Adjusting to seasonal demandsAdjusting to seasonal demands Produce products with complementary demand patternsProduce products with complementary demand patterns

Amity International Business SchoolTactics for Matching Capacity Tactics for Matching Capacity to Demandto Demand

1.1. Making staffing changesMaking staffing changes

2.2. Adjusting equipmentAdjusting equipment

Purchasing additional machineryPurchasing additional machinery

Selling or leasing out existing equipmentSelling or leasing out existing equipment

3.3. Improving processes to increase throughputImproving processes to increase throughput

4.4. Redesigning products to facilitate more Redesigning products to facilitate more throughputthroughput

5.5. Adding process flexibility to meet changing Adding process flexibility to meet changing product preferencesproduct preferences

6.6. Closing facilitiesClosing facilities


Demand and Capacity Management in Demand and Capacity Management in the Service Sectorthe Service Sector

Demand management Appointment, reservations, FCFS rule

Capacity management Full time,

temporary, part-time staff

Amity International Business SchoolApproaches to Capacity Approaches to Capacity ExpansionExpansion

(a)(a) Leading demand with Leading demand with incremental expansionincremental expansion

Dem

and

Dem

and Expected Expected

demanddemand

New New capacitycapacity

(b)(b) Leading demand with Leading demand with one-step expansionone-step expansion

Dem

and

Dem

and


Expected Expected demanddemand

(d)(d) Attempts to have an average Attempts to have an average capacity with incremental capacity with incremental expansionexpansion

Dem

and

Dem

and

New New capacitycapacity Expected Expected

demanddemand

(c)(c) Capacity lags demand with Capacity lags demand with incremental expansionincremental expansion

Dem

and

Dem

and




(a)(a) Leading demand with incremental Leading demand with incremental expansionexpansion



Dem

and

Dem

and

Time (years)Time (years)11 22 33


(b)(b) Leading demand with one-step Leading demand with one-step expansionexpansion



Dem

and

Dem

and



(c)(c) Capacity lags demand with incremental Capacity lags demand with incremental expansionexpansion


Dem

and

Dem

and




(d)(d) Attempts to have an average capacity with Attempts to have an average capacity with incremental expansionincremental expansion



Dem

and

Dem

and



Decision Trees

1

Low demand [0.40]

High demand [0.60]

Low demand [0.40]

High demand [0.60]

$70,000

$220,000

$40,000

$135,000

$90,000

Small expansion

Large expansion

Don’t expand

Expand2

Fig – A Decision Tree for Capacity Expansion

$135,000

$109,000

$148,000

$148,000


Thank You


FACILITY LAYOUT

328


All costs associated with the transactionAll costs associated with the transaction Incoming transportIncoming transport

StorageStorage

Finding and moving materialFinding and moving material

Outgoing transportOutgoing transport

Equipment, people, material, supervision, insurance, Equipment, people, material, supervision, insurance, depreciationdepreciation

Minimize damage and spoilageMinimize damage and spoilage

Material Handling CostsMaterial Handling Costs


Computer SoftwareComputer Software Three dimensional visualization software

allows managers to view possible layouts and assess process, material handling, efficiency, and safety issues

Amity International Business SchoolMcDonald’s Assembly LineMcDonald’s Assembly Line

Amity International Business SchoolDESIGNING PROCESS

LAYOUTS• Aim – To minimize material handling costs

1. Block Diagramming– Firstly we draw a flow chart and work out the unit

load(unit load is quantity in which material is normally moved). Unit load can be a single pellet, a bin of material etc.

– Next step is to calculate composite movements from departments to departments and rank them from most to least movements

– Finally trial layouts are placed on a grid that graphically represents relative distance between departments

Amity International Business SchoolDESIGNING PROCESS LAYOUTS• 2.Relationship Diagram . Is a format for

displaying manager preferences for departments– In situations for which quantitative data are

difficult to obtain , this method is used.– A relationship diagram is made showing

preferences and layout is done

Amity International Business SchoolDESIGNING PRODUCT LAYOUT• Aim – To balance the assembly line

Product layouts or assembly lines are used for high volume production. To obtain the required output rate jobs are broken down into smallest parts called work elements

A workstation is any area along the assembly line that requires workstations so products flow through the assembly line smoothly

This is a done by line balancing

Amity International Business SchoolDESIGNING PRODUCT LAYOUT• If workstation on the assembly line takes

the same amount of time to perform the work elements that have been assigned then products will move successively from one work station to workstation with no need for a product to watt or a worker to be idle

• The process of equalizing the amount of work at each workstation is called line balancing


Assembly-Line BalancingAssembly-Line Balancing Objective is to minimize the imbalance Objective is to minimize the imbalance

between machines or personnel while between machines or personnel while meeting required outputmeeting required output

Starts with the precedence relationshipsStarts with the precedence relationships1.1. Determine cycle timeDetermine cycle time

2.2. Calculate theoretical Calculate theoretical minimum number of minimum number of workstationsworkstations

3.3. Balance the line by Balance the line by assigning specific assigning specific tasks to workstationstasks to workstations


Line Balancing is the process of assigning tasks to workstations in such a way that the workstations have approximately equal time requirements.

Line Balancing


Cycle Time


Work Balance ChartsWork Balance Charts Used for evaluating operation times in

work cells Can help identify bottleneck

operations Flexible, cross-trained employees can

help address labor bottlenecks Machine bottlenecks may require

other approaches


Relationship ChartRelationship Chart

Amity International Business SchoolFlexible Manufacturing System

• This consists of numerous programmable machines tools connected by a automated handling system and controlled by a common computer network

• It is different from traditional automation which is fixed for a specific task

• Fixed automation is very efficient and can produce a very high volume but is not flexible

Amity International Business SchoolFlexible Manufacturing System

• FMS combines flexibility and efficiency• Tools change automatically from a large

carousels at each machine which holds of tools

• The material handling system carries work pieces on pallets which can be locked on a machine for processing

• Pallets are transferred onto machines automatically


THANK YOU


Quality Function Deployment

Amity International Business SchoolQuality Function Deployment

• Introduction

• Imagine two engineers are working on two different components of a car simultaneously . The insulation and sealing engineer develops a new seal that will keep out rain, even during a blinding rainstorm.

• The ‘ handle, knob and levers’ engineer is working on a simpler lever that will make the roof easier to open

345


• The new lever is tested and works well with the old seal. Neither engineer is aware of the activities of activities of other

• As it turns out the combination of heavier roof (because of insulation)and lighter lever means driver can no longer open the sunroof with one hand….!!!!

• Hopefully this problem will be detected in prototype testing


• Otherwise cars already produced will have to be reworked and cars already sold would have to be recalled.

• Could these problems could have been avoided .

• Even in design teams it is not sot sure that all decisions will be coordinated


– Voice of the customer– Quality Function Deployment– House of quality

Quality Function Deployment

QFD: An approach that integrates the “voice of the customer” into the product and service development process.


• QFD is a series of of matrix diagrams ( also called quality tables) that resemble connected houses.

• The first matrix dubbed the house of quality converts customer requirements into product design characteristics

Amity International Business SchoolThe House of Quality

Correlation matrix

Designrequirements

Customerrequire-ments

Competitiveassessment

Relationshipmatrix

Specificationsor

target values


351

QFD Template


STEPS IN MAKING OF A QFD

352


353

Step Function

1

Enter the WHAT Customer VOC (Voice of the Customer) into the VOC Prioritized Comments fields - Add rows as needed (Note: Check formula totals to ensure added field weights are calculated for added fields)

2

Enter the Critical Customer Requirements (CCR's) on HOW the customer VOC (WHAT) will be measured - Add columns as needed (Note: Check formula totals to ensure added field weights are calculated for added fields)

3Quantify the VOC requirements into a measurable CCR - enter values into the process requirements field for each VOC captured

4

Complete the VOCPrioritization rating by using a 1-5 scale where 5 is the highest and 1 is the lowest - enter values into the VOC Prioritization Rating Fields - these ratings should come from the customer

5

Using the Importance Rating Legend where 9 = High Impact, 3 = Moderate Impact, 1 = Low Impact and Blank = No Impact - rate each WHAT's (VOC) impact with each How (CCR)

6 Target values can be entered for each CCR (For example SLA's or CCR goals)

7The correlation matrix can be used to identify CCR relationships that can for example, strongly or negatively impacts customer requirements

8The competitor comparison can be used to determine how your current product/services compare in your customers perspective to other competitors


Customer Requirements

Importance to Cust.

Easy to close

Stays open on a hill

Easy to open

Doesn’t leak in rain

No road noise

Importance weighting

Engineering Characteristics

Ene

rgy

need

ed

to c

lose

doo

r

Che

ck f

orce

on

leve

l gro

und

Ene

rgy

need

ed

to o

pen

door

Wat

er r

esis

tanc

e

63 105 45 27 6 27

7

5

3

3

2

X

X

X

X

X

Correlation:Strong positive

Positive

NegativeStrong negative

X*

Competitive evaluationX = UsA = Comp. AB = Comp. B(5 is best)

1 2 3 4 5

X AB

X AB

XAB

A X B

X A B

Relationships:Strong = 9

Medium = 3

Small = 1Target values

Red

uce

ener

gy

leve

l to

7.5

ft/lb

Red

uce

forc

eto

9 lb

.

Red

uce

ener

gy to

7.5

ft/l

b.

Mai

ntai

ncu

rren

t lev

elTechnical evaluation(5 is best)

54321

B

A

X

BAX B

A

X

B

X

A

BXABA

X

Doo

r se

al

resi

stan

ce

Acc

oust

. Tra

ns.

Win

dow

Mai

ntai

ncu

rren

t lev

el

Mai

ntai

ncu

rren

t lev

el

House of Quality ExampleHouse of Quality Example


• In comparison with traditional design approaches, QFD forces management to spend more time defining the new product changes and examining the ramifications of those changes

• More time spemnt early in design means less time is required later to revise the design and make it work


• In summary QFD is a communications and planning tool that– promotes better understanding of customer

demands– Promotes better understanding of design

interactions, – involves manufacturing in design process– Provides documentation of design process


Kano Model

Customer Needs

Cu

sto

mer

Sati

sfa

cti

on

Excitement

Expected

Must Have

Kano Model

Customer Needs

Cu

sto

mer

Sati

sfa

cti

on

Excitement

Expected

Must Have

The Kano ModelThe Kano Model


THANK YOU

Documents

Production & Operations Mangement Master Slide