OPERATION & SUPPLY CHAIN MANAGEMENT Sec I- strategy & sustainability 1. OSCM 2. strategy & sustainability 3. product & service design Sec II- manufacturing, service & health care processes *4. strategic capacity management *4A. learning curves 5. process analysis 5A. job design & work measurement 6. production process 6A. facility layout *7. service processes *7A. waiting line analysis *8. health care processes 9. six sigma quality 9A. process capability and SPC 10. projects
Sec III- supply chain process *11. global sourcing & procurement (purchasing) 12. location, logistics, & distribution *13. lean & sustainable supply chains *13A. operations consulting & reengineering Sec IV- supply & demand planning 14. enterprise resource planning systems 15. demand management & forecasting 16. sales & operations planning 17. inventory control *18. material requirement planning Sec V- Scheduling *19. scheduling *19A. simulation 20. constraint management trade-off (????? ??????? ) layout (??? ????? ) Chapter 1. OSCM OSCM: design, operation, and improvement of the system that creates and delivers the firm? s primary products and services. * Operation refers to manufacturing, service, and health care process that are used to transform the resources employed by a firm into products desired by the customers. * Supply chain refers to processes that move information and material to and from the manufacturing and service processes of the firm including logistic processes.
Supply refers to providing goods and services to the customer on the output end of the supply chain. OSCM processes: * planning: consists of the processes needed to operate an existing supply chain strategically. * sourcing: involves the selection of suppliers that will deliver the goods and services needed to create the firm? s product; pricing, delivery, payment, metrics (speed, quality, worker productivity)… * making: is where the major products is produced or the service provided. * delivering: is referred to as logistic processes. returning: involves the processes for receiving worn-out, defective, and excess products back from customers and support for customers who have problems with delivered products. Differences between services & goods: * service is an intangible process that can be weighed or measured, whereas good is a tangible output of a process that has physical dimensions; hence service innovation, unlike product innovation, cannot be patented. * service requires some degree of interaction with the customer. Goods are generally produced in a facility separate from the customer. services are inherently heterogeneous – they vary from day to day as a fcn of the attitudes of the customer and the servers. Goods can be produced to meet very tight specifications day-in and day-out with essentially zero variability. * services are perishable and time dependent, and unlike goods, they can? t be stored. * the specifications of a service are defined and evaluated as a package of features that effect the 5 senses. The goods-service continuum: * pure goods: food, chemicals, books * core goods: data storage systems, cars * core services: hotels, airlines pure services: teaching, medical advice, financial consulting Servitization: company building service activities into its product offerings for its current users; maintenance, spare part provisioning, training… * Efficiency: doing something at the lowest possible cost. Doing the things rights! * Effectiveness: doing the right things to create the most value for the company. Doing right things! * Value: quality divided by price. Competitive happiness is being able to increase quality and reduce price while maintaining or improving profit margins.
This is the way that operations can directly increase customer retention and gain market share. Management and staff jobs on OSCM working for Chief Operating Officer (COO): * plant manager: oversees the workforce & physical resources (inventory, equipment, information technology) * hospital administrator: oversees HRM, staffing, finances * branch manager (bank): oversees all aspects of financial transactions * department store manager: oversees all aspects of staffing and customer service * all center manager: oversees staffing & customer service activities * supply chain manager: negotiates contracts with vendors and coordinates the flow of material inputs to the production process and the shipping of finished products to customers * purchasing manager: manages day-to-day aspects of purchasing such as invoicing and follow up * business process improvement analyst: applies the tools of lean production to reduce cycle time and eliminate waste in the process * quality control manager: applies techniques of statistical quality control such as acceptance sampling and control charts to the firm? products * lean improvement manager: trains organizational members in lean production and continuous improvement methods * project manager: plans and coordinates staff activities such as new product development, new technology development, and new facility location * production control analyst: plans and schedules day-to-day production * facilities manager: assures that the building facility design, layout, furniture, and other equipment are operating at peak efficiency Historic development: lean manufacturing: a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination. * just-in-time (JIT) production * total-quality-control (TQC) * manufacturing strategy paradigm (forebild): * focus strategy, focused factory * service quality & productivity * total quality management (TQM) * business process reengineering (BPR) * six sigma quality: as a part of TQM * supply chain management mass customization: producing products to order in lot sizes of one * electronic commerce * service science * service science management and engineering (SSME) Issues in OSCM: * coordinating the relationship between mutually supportive but separate organizations * optimizing global suppliers, production, and distribution networks * managing customer touch points * raising senior management awareness of operations and supply chain management as a significant competitive weapon * sustainability and triple bottom line sustainability: the ability to maintain balance in a system * triple bottom line: economic, employee, and environmental viability of firm Chapter 2. Strategy & Sustainability Essence of OSCM: Creating great value to the customer while reducing the cost of delivering the good or service. Strategy should describe how a firm intends to create and sustain value for its current shareholders. * Shareholders/stockholders: individuals or companies that legally own one or more shares of stock in the company. * Stakeholders: individuals or organizations who are influenced, either directly or indirectly, by the action of the firm.
Triple bottom line: a business strategy that includes economic prosperity, social responsibility, and environmental stewardship (profit, people, planet) (work, folk, place) * economic: the firm is obliged to compensate , who provide capital through stock purchase and other financial instruments, via a competitive RETURN ON INVESTMENT. Company strategy should promote growth and grow long-term value to this group in form of profit. * social: benefit employees, community, and other social entities that are impacted by the firm? s existence * environmental: protect the environment or at least cause no harm, reduce company? ecological footprint by managing its consumption of natural resources and by reducing waste specially toxic waste. OSC strategy: setting broad policies and plans for using the resources of a firm and must be integrated with corporate (long-term competitive) strategy; quality assurance, control initiatives, process redesign, planning and control systems, technology investment. Operations effectiveness: relates to the core business processes needed to run the business; taking customer order, handling return, manufacturing, updating of website, shipping products. It is reflected directly in the cost associated with doing business.
Strategy process: 1- develop/refine strategy (yearly): – define vision, mission, and objectives – conduct strategic analysis – define strategic initiatives 2- translate the strategy (quarterly) – define/revise initiatives – define/revise budgets – define/revise measures and targets 3- plan operation & supply (monthly) – develop sales and operations plans – plan resource capacity – evaluate budgets Competitive dimensions: * cost / price : make the product / deliver the service cheap * quality: make a great product / deliver a great service * design quality: requirements process quality: reliability * delivery speed: make the product / deliver the service quickly * delivery reliability: deliver it when promised * coping with changing in demand: change its volume * flexibility and new-product introduction speed: change it * other product-specific criteria: support it Straddling: occurs when a company seeks to match the benefits of a successful position while maintaining its existing position. This often creates problem if certain trade-offs (exchange, substitution, swap) need to be made.
A well-designed interface between marketing and operations is necessary to provide a business with an understanding of its markets from both perspectives. * order winner: criterion that differentiates the products or services of one firm from those of another; cost/price; quality, reliability… * order qualifier: screening criterion that permits a firm? s product to even be considered as possible candidates for purchase Activity system map: shows how a company? s strategy is delivered through a set of tailored activities. OSC strategy framework Choice of target market is crucial!
Core capabilities/competencies: skills that differentiate the service or manufacturing firm from its competitors; the one thing that it can do better that its competitors. Characteristics: * it provides potential across a wide variety of market * it increases perceived customer benefit * it is hard for competitors to imitate Productivity: a (relative) measure of how well a country, industry, or business unit is using its resources (or factors of production). Productivity = Outputs / Inputs. Productivity = 100% thus no waste EX. : * partial measure: output/labor; output/capital; output/materials; output/energy * multifactor measure total measure Profit can be increased through higher sales and/or reduced cost. Productivity often increases in times of recession. It is also an effect of technological advances. Benchmarking is almost impossible what concerns productivity Maximize output, minimize costs. Chapter 3. Product & Service Design Contract manufacturer: organization capable of manufacturing and/or purchasing all the components needed to produce a finished products or device. Product development process (in a market-pull situation): * phase 0: planning * phase 1: concept development * phase 2: system-level design * phase 3: design detail phase 4: testing and refinement * phase 5: production ramp-up Variants of product development process Concurrent engineering: emphasizes cross-functional integration and concurrent development of a product and its associated processes. Economic analysis of product development projects via a base-case financial model which consists of estimating the timing and magnitude of future cash flow and then computing the net present value (NPV: ex. : -10% period cash flow) of those cash flows. The most basic cash flows for a new-product-development project are: * development cost$ * ramp-up cost$ * marketing and supporting cost$ production cost$/unit * nr. units * sales revenue$/unit * nr. units Sunk cost: are retrospective (past) costs that have already been incurred and cannot be recovered. Sensitivity analysis to understand projects trade-offs: what if! * change in project development time and or cost * change in sales volume * change in product cost or sales price Designing for aesthetics and for the user is generally termed industrial design. * Quality Function Deployment (QFD): a process that helps a company to determine the product characteristics important to the consumer and to evaluate its own product in relation to others.
It involves converting expectations and demands of customers into clear objectives which are then translated to product specification. House of quality: a matrix that helps a product design team translate customer requirements into operating and engineering goals. * Value analysis/ value engineering: analysis with the purpose of simplifying products and processes by achieving equivalent or better performance at a lower price. Design: * aesthetic design: external shape, color… * basic parameters of a system: units in a power plant * detailing of material, shape, tolerance of parts …
Design for manufacturing and assembly (DFMA) Designing service products: * service experience fit * operational fit * complexity: nr of steps involved in a service and possible actions that can be taken at each step * divergence: nr of ways a customer/service provider interaction can vary at each step according to the needs and ability of each * financial impact Ecodesign: incorporation of environmental considerations into the design and development of products or services. These concerns relate to the entire life cycle including materials, manufacturing, distribution and the eventual disposal of waste.
It is an extension of the other important requirements considered in the design process such as quality, cost, manufacturability, functionality, durability, ergonomics, and aesthetics. Performance measures for development projects: * time to market: frequency of new product introductions… * productivity: engineering hours per project… * quality *Chapter 4. Strategic Capacity Management Strategic capacity planning: determining the overall capacity level of capital-intensive resources that best supports the company? s LR competitive strategy.
Capacity: the amount of output that a system is capable of achieving over a specific period of time. Best operating level: the level of capacity for which the process was designed and the volume of output at which average unit cost is minimized. Capacity utilization rate: measure how close a firm is to its best operating level; = capacity used/best operating level. Economies of scale: the notion is that as a plant gets larger and volume increases, the average cost per unit drops. Economies of scope: exist when multiple products can be produced at a lower cost in combination than they can separately.
Focused factory: a facility with a fairly limited set of production objectives. Typically the focus would relate to a specific product or product group. Plant with a plant: a concept that can be used to operationalize a focused factory by designating a specific area in a larger plant. * Long-range: > 1Y * Intermediate-range: monthly/quarterly plans for the next 6-18 months * Short-range: < 1 month (daily/weekly process) *Chapter 4A. Learning Curves Learning curve: a line displaying the relationship between unit production time and the cumulative nr of units produced.
Logarithmic curve: Yx = K xn Individual learning: improvement that results when people repeat a process and gain skill or efficiency from their own experience. Organizational learning: improvement that comes both from experience and from changes in administration, equipment, and product design. Chapter 5. Process Analysis Process: any part of an organization that takes inputs and transform them to outputs that are of greater value than the original inputs. Process flowcharting: – task or operation – decision points – storage area or queues (waiting lines) flows of material or customers Types of processes: 1) -single stage process -multistage process – buffering: refers to a storage area between stages where the output of a stage is placed prior to being used in a downstream stage. It allows the stages to operate independently, otherwise risk for – blocking: occurs when the activities in the stage must stop because there is no place to deposit the item just completed – starving: occurs when the activities in a stage must stop because there is no work -bottleneck: a resource that limits the capacity or maximum output of the process ) – makes to stock (push system): a process that produces std products that are stored in finished good inventory. The product is delivered quickly to the customer where from the inventory. – makes to order (pull system): a process that is activated only in response to an actual order. Here the inventory is kept to a minimum. – hybrid process: combines the features of both. Typically, a generic product is made and stocked at some point in the process. These generic units are customized in a final process to meet actual orders. 3) paced: movement of items through a process is coordinated through a timing mechanism. Most processes are not paced, but assembly lines are usually paced. – nonpaced Measuring process performance: Process performance metrics (flow time: throughput time) Benchmarking: comparing the metrics of one company to another. – utilization: ratio of the time that a resource is actually activated relative to the time that it is available for use. – productivity: =output/input; taking the $ value of output and dividing by the $ value of inputs measures total factor productivity.
Alternatively, partial factor productivity is measured based on an individual input and often is not calculating $ values (ex. units/persons). – efficiency: a ratio of actual output of a process relative to some std. – run time: time required to produce a batch of parts – setup time: time required to prepare a machine to make a particular item – operation time: sum of the setup time and run time for a batch of parts that are run on a machine – cycle time: is average time between completions of successive units. flow time: average time that it takes a unit to move through an entire process. Usually the term lead time is used to refer to the total time that it takes a customer to receive an order (incl. time to process the order, throughput time, and delivery time). – throughput rate [units/h]: the output rate that the process is expected to produce over a period of time. -process velocity/throughput ratio: the ratio of the total flow time to the value-added time – value-added time: time in which useful work is actually being done on the unit. Production process mapping:
Measure in evaluating the performance of a process: – total average value of inventory: total average investment in raw materials, work in process, and finished goods inventory. This is valued at the cost to the firm. -inventory turn: cost of goods sold divided by total average value of inventory -days of supply: nr of days of inventory of an item. If an item were not replenished, this would be the nr of days until the firm would run out of the item. Also, the inverse of inventory turn expressed in days. Little? s law: simple systems can be analyzed quickly using this law.
It says there is a long-term relationship between inventory, throughput, and flow time of a production system in steady state. The relationship is: (work in process) inventory = throughput rate * flow time Process flow time reduction: – perform activities in parallel – change the sequences of the activities – reduce interruptions Chapter 5A. Job Design & Work Measurement Job design: fcn of specifying the work activities of an individual or group in an organizational setting. Jeb design decisions: – who – what: task – where – when – why: objectives and motivations how: method of performance and motivation The decisions are affected by: – quality control – cross-training of workers to perform multi-skilled jobs – employee involvement and team approaches to designing and organizing work – informating of ordinary workers – use of temporary workers – creation of alternative workplaces – automation of heavy manual work – organizational commitment to provide meaningful and rewarding jobs – development of sustainable workplace (a workplace that fully supports the organization without compromising future generations) Behavioral considerations in job design:
Labor specialization: simple, repetitive jobs are assigned to each worker Job enrichment: specialized work is made more interesting by giving the worker a greater variety of tasks (horizontal enlargement) or by getting a worker involved in planning, organization, and inspection (vertical enlargement). Sociotechnical systems: a philosophy that focuses on the interaction between technology and the work group. The approach attempts to develop jobs that adjust the production process technology to the needs of the worker and work group. Job design principles: – task variety skill variety – feedback – task identity – task autonomy Work measurement: job analysis for the purpose of setting time stds. Such stds are necessary for: – to schedule work and allocate capacity – to provide an objective basis for motivating the workforce and measuring worker? s performance – to bid for new contracts and to evaluate performance on existing ones – to provide benchmarks for improvements Work measurement techniques: – direct observational methods – time study: separation of job into measureable parts, with each element times individually.
The individual times are then combined, and allowances are added to calculate a std time. Uses stopwatch! – work sampling: analyzing a work activity by observing an activity at random times. Statements about how time is spent during the activity are made from these observations. – indirect methods – predetermined motion-time data systems: system for deriving a time for a job by summing data from tables of generic movement times developed in the laboratory. -elemental data: used to derive a job time by summing times from a database of similar combinations of movements. Normal time: the time that a normal operator would be expected to take to complete a job without the consideration of allowances. NT= observed performance time * performance rating (measure of speed) = (time worked/ nr of unit produced) * performing rate * Std time: calculated by taking the normal time and adding allowances for personal needs, unavoidable work delays, and worker fatigue. ST= normal time + (allowances * normal time) = NT / (1- allowances) Chapter 6. Production Processes Supply chain view: subcontractor—supplier—manufacturing plant—warehouse—retailer Positioning inventory in supply chain
Lead time: the time needed to respond to a customer order. Customer order decoupling point: the place where inventory is positioned to allow processes or entities in the supply chain to operate independently. * Make-to-stock: a production environment where the customer is served “on-demand” from finished goods inventory. * Assemble-to-order: a production environment where preassembled components, and modules are put together in response to a specific customer order. * Make-to-order: a production environment where the product is built directly from raw materials and components in response to a specific customer order. Engineer-to-order: here the firm works with the customer to design the product, which is then made from purchased materials, parts, and components. Lean manufacturing: the attempt to achieve high customer service with minimum levels of inventory investment. The formats by which a facility is arranged are defined by the general pattern of work flow; there are five basic structures: * Project layout: the product, because of its sheer bulk or weight, remains fixed in a location. Equipment is moved to the product rather than vice versa. Work center (job-shop/functional) layout: a process structure suited for low-volume production of a great variety of nonstandard products. Work centers sometimes are referred to as department and are focused on a particular type of operation. * Manufacturing cell layout: an area where simple items that are similar in processing requirements are produced. * Assembly line (flow-shop) layout: a process structure designed to make discrete parts. Parts are moved through a set of specially designed workstation at a controlled rate. Continuous process: an often automated process that converts raw materials into a finished product in one continuous process. The relationship between layout structures is often depicted on a product-process matrix. It shows relationship between different production units and how they are used depending on product volume and the degree of product standardization. Product-process matrix: framework describing layout strategies Break-even analysis: a std approach to choosing among alternative processes or equipment. A break-even chart visually presents alternative profits and losses due to the nr of units produced or sold.
Chapter 6A. Facility Layout Systematic layout planning: a technique for solving process layout problems when the use of numerical flow data between departments is not practical. The technique uses an activity relationship diagram that is adjusted by trial and error until a satisfactory adjacency pattern is obtained. Assembly line: * Assembly-line balancing: the problem of assigning all the tasks to a series of workstations so that each workstation has no more can be done in the workstation cycle time, and so that idle time across the workstation is minimized. Workstation cycle time: the time between successive units coming off end of assembly line. C=production time per day/required output per day Minimum nr of stationsNt=sum of task times (T) / cycle time (C) Efficiency of the balanceE= T / (actual nr of workstations (Na) * C) * Precedence relationship: the order in which tasks must be performed in the assembly process. Splitting task: – split task – share task – use parallel workstations – use a more skilled worker – work overtime – redesign *Chapter 7. Service Processes
Service package: a bundle of goods and services that is provided in some environment. High and low degree of customer contact: they physical presence of the customer in the system and the % of time the customer must be in the system relative to the total time it takes to perform the service. Service blueprint: the flowchart of a service process, emphasizing what is visible and what is not visible to the customer. Poka-yokes: procedures that prevent mistakes from becoming defects. They are commonly found in manufacturing but also can be used in service processes.
Service guarantee: a promise of service satisfaction backed up by a set of actions that must be taken to fulfill the promise. *Chapter 7A. Waiting Line Analysis Queue: a line of waiting persons, jobs, things, or the like. Queuing system: consists of 3 major components: 1) the source population and the way customers arrive at the system, 2) the serving systems, and 3) how customers exit the system. Arrival rate: the expected nr of customers that arrive each period. Exponential distribution: a probability distribution often associated with inter-arrival times. f(t) =? e-? t where l is the mean nr of arrival per time period.
Poisson distribution: probability distribution often used to describe the nr of arrivals during a given time period. PT(n) = (? T)n e-? t / n! n arrival during T. Service rate: the capacity of a server measured in nr of units that can be processed over a given time period *Chapter 8. Health Care Processes Health care operations management: the design, management, and improvement of the systems that create and deliver health care services. Hospital: a facility whose staff provides services relating to observation, diagnosis, and treatment to cure or lessen the suffering of patients.
Care chains: the flow of work through a hospital consisting of the services for patients provided by various medical specialists and functions, within and across departments. Decoupling points: stages in the process where waiting takes place either before or after the procedure is performed. Diagnosis-related groups: homogenous units of hospital activity for planning and costing surgeries – essentially a bill of labor and materials. Chapter 9. Six-Sigma Quality Total quality management: managing the entire organization so that it excels on all dimensions of products and services that are important to the customer.
It has 2 operational goals: – careful design of the product of service – ensuring that the organization? s system can consistently produce the design Design quality: the inherent value of the product in the market place. Dimensions of design quality: – performance – features – reliability / durability – serviceability – aesthetics – received quality Conformance quality: the degree to which the product or service design specifications are made. Quality at the source: the person who does the work is responsible for ensuring that specifications are met.
Dimension of quality: criteria by which quality is measured. Cost of quality: expenditures (expenses) related to achieve product or service quality such as the cost of prevention (cause of defect, eliminate the cause, training, redesign, new equipment…), appraisal (inspection, testing…) , internal failure (scrap, rework, repair), and external failure (warranty replacement, handling complaints, repair…). QC department: testing reliability, performance data, resolving quality problems Six-Sigma: a statistical term to describe the quality goal of no more than four defects out of every million units.
Also refers to a quality improvement philosophy and program. Constant improvement, mathematical method, reducing defects to zero (thus reduce waste), 3 or 6 sigma each side, when 6-sigma on each side, it is 1000 times lower in defect rate. Defects per million opportunities (DPMO): a metric used to describe the variability of a process. DPMO = [nr of defects / (nr of opportunities for error per unit X nr of units)] X 1,000,000 Defects: any item or event that does not meet the customer? s requirements Opportunity: a chance for a defect to occur Six-sigma methodology
DefineMeasureAnalyzeImproveControl (DMAIC) PlanDoCheckAct (PDCA): Deming cycle or wheel, refers to the PDCA cycle of continuous improvement (Kaizen). Analytical tools for Six-sigma * Flowcharts * Run chart * Pareto charts * Histograms * Checksheets * Cause-and-effect diagrams * Control charts * Failure mode & effect analysis FMEA * Design of experiment DOE Lean six sigma: combines the implementation and quality control tools of six sigma with the materials management concept of lean manufacturing with a focus on reducing cost by lowering inventory to an absolute minimum
Fail-safe or poka-yoke procedures: simple practices that prevent errors or provide feedback in time for the worker to correct error. ISO 9000 (International Organization of Standardization) is international std for quality measurement and assurance. ISO 14000 includes also environmental management. ISO 9000: 2000 document with focus on: – customer focus – leadership – involvement of people – process approach – system approach to management – continual improvement – factual approach to decision making – mutually beneficial supplier relationship 3 forms of certifications: a firm audits itself against ISO 9000 stds – a customer audits its supplier – a qualified national or international stds or certifying agency serves as an auditor External benchmarking: looking outside the company to examine what excellent performers inside and outside the company? s industry are doing in the way of quality. Chapter 9A. Process Capability and SPC Assignable variation: deviation in output of a process that can be clearly identified and managed Common variation: deviation in output of a process that is random and inherent in the process itself. ean X? = i=1Nx/Nwhere xi is observed value and N total nr of observed values. std deviation ? = i=1N(x-X? )2N Upper and lower specification or tolerance limits: the range of value in a measure associated with a process that are allowable given the intended use of the product or service. Capability index (Cpk): the ratio of the range of values produced by a process divided by the range of value allowed by the design specification. Cpk = min [X? -LTL / 3? or UTL-X? / 3? ] Probability of producing a defectZ = X- X? / ? NORMDIST(ZLTL)???????? ORMDIST (ZUTL??????
Statistical process control (SPC): techniques for testing a random sample of output from a process to determine whether the process is producing items within a prescribed range. Attributes: quality characteristics that are classified as either conforming or not conforming to specification. Variables: quality characteristics that are measured in actual eight, volume, inches, cm, or other measures. Chapter 10. Projects Projects should be selected from the following types in order to match the company? s strategy: * Derivative: incremental changes such as new product packaging * Breakthrough: to create new markets Platform: improvement to existing products Projects can be categorized: * Product change * Process change * R&D * Alliance & partnership Types of development projects Project: a series of related jobs usually directed toward some major output and requiring a significant period of time to perform. Similar to process but with start and end time. Project management: planning, directing, and controlling resources (people, equipment, material) to meet the technical, cost, and time constraints of a project. Organizational structure to tie the project to the parent firm: Pure project: a structure for organizing a project where a self-contained team works full time on the project. project manager has full authority over the project team members report to one boss line of communications are shortened. Decisions are made quickly team pride, motivation, and commitment are high. duplication resources organizational goals are ignored the organizations falls behind in its knowledge of new technology team members worry about life-after-project * Functional project: a structure where team members are assigned from the functional units of the organization.
The team members remain a part of their functional units and typically are not dedicated to the project. a team member can work on several project the technical expertise is maintained functional area is a home after the project is completed a critical mass of specialized functional-area experts creates synergetic solutions weal motivation needs of client is secondary and are responded slowly * Matrix project: a structure that blends the functional and pure projects structures. Each project uses people from different functional areas.
A dedicated project manager decides what tasks need to be performed and when, but the functional mangers control which people to use. communication between functional divisions is enhanced a PM is responsible for successful completion of the project duplication of resources is minimized team members have a functional home policies of parent organizations are followed there are 2 bosses PM should have strong negotiation skills sub-optimization is a danger Project milestone: a specific event in a project. Work breakdown structure: the hierarchy of project tasks, subtasks, and work packages.
Program — project — task — subtask — work package Activities: pieces of work within a project that consume time. The completion of all the activities of a project marks the end of the project. Gnatt (bar) chart: shows in a graphic manner the amount of time involved and the sequence in which activities can be performed. Earned value management: technique that combines measures of scope, schedule, and cost for evaluating project progress. Critical path: the sequence of activities in a project that forms the longest chain in terms of their time to complete.
This path contains zero slack time. It is possible for there to be multiple critical paths in a project. Techniques used to find the critical path are called critical path method technique (CPM). * Identify each activity to be done and estimate how long it will take to complete the activity * Determine the required sequences of the activities and construct a network reflecting the precedence relationship Immediate predecessor: activity that needs to be completed immediately before another activity. * Determine the critical path * Determine the early start/finish and late start/finish schedule
Slack time: the time that an activity can be delayed: the difference between the late and early start times of an activity. Break time, opportunity cost, opposite to bottleneck… * Early start schedule: a project schedule that lists all activities by their early start times. * Late start schedule: a project schedule that lists all activities by their late start times. This schedule may create savings by postponing purchase of material and other costs associated with the project. Time-cost models: extension of the critical path models that considers the trade-off between the time required to complete an activity and cost.
This is often referred to as crashing the project. The procedure for project crashing consists of following steps: * prepare a CPM-type network diagram: list * normal cost: the lowest expected activity cost * normal time: associated with NC * crash time: shortest possible activity time * crash cost: associated with CT * determine the cost per unit of time to expedite each activity * compute the critical path * shorten the critical path at the least cost * plot project direct, indirect, and total-cost curves and find the minimum-cost schedule *Chapter 11. Global Sourcing & Procurement (purchasing)
Strategic sourcing: the development and management of supplier relationship to acquire goods and services in a way that aids in achieving the immediate needs of a business. Vendor (seller) managed inventory: when a customer allows the supplier to manage an item or a group of items. Bullwhip effect: the variability in demand is magnified as we move from the customer to the producer in the supply chain. Functional products: include the staples that people buy in a wide range of retail outlets, such as grocery stores and gas stations. They have long life cycle time.
Innovative products: products such as fashionable clothes and personal computers that typically have a life cycle of just a few months. Outsourcing: moving some of the firm? s internal activities and decision responsibilities to outside providers. (Off-shoring: cutting and pasting departments and moving them somewhere else. ) Logistics: management functions that support the complete cycle of material flow: from the purchase and internal control of production materials; to the planning and control of work-in-process; to the purchasing, shipping, and distribution of the finished product.
The total cost of ownership (TCO): estimate of the cost of an item that includes all the costs related to the procurement and use of the item including disposing of the item after its useful life: -acquisition costs: purchase planning costs, quality costs, taxes, purchase price, financing -ownership costs: energy costs, maintenance and repair, financing, supply chain/ supply network costs – post-ownership costs: disposal, environmental costs, warranty costs, product liability costs, customer dissatisfaction costs
Inventory turnover and weeks of supply: measures of supply chain efficiency that are mathematically the inverse of one another. It has to be compared with sales revenue. IT= cost of goods sold/average aggregate inventory value WS= (1/IT) * 52 weeks: time it takes to have inventory sufficient to deliver to customer without shortage Cost of goods sold: the annual cost of a company to produce the goods or services provided to the customers. Average aggregate inventory value: the total value of all items held in inventory for the firm, valued at cost. Weeks of supply: a measure of how many weeks? orth of inventory is the system at a particular point in time. Chapter 12. Location, Logistics, & Distribution Logistics: 1) in an industrial context, the art and science of obtaining, producing, and distributing material and product in the proper place and in the proper quantities 2) in a military sense, its meaning can also include the movement of personnel International logistics: all functions concerned with the movement of materials and finished goods on a global scale. Third-party logistics company: a company that manage all or part of another company? product delivery operations. Companies specialized in logistics: UPS, FedEx, DHL Modes of transportation: * Highways (trucks) * Water (ship) * Air * Rail (trains) * Pipelines * Hand delivery Cross-docking: an approach used in consolidation warehouses where rather than making larger shipments, large shipments are broken down into small shipments for local delivery in area. Hub-and-spoke systems: systems that combine the idea of consolidation and that of cross-docking Criteria that influence manufacturing plant and warehouse location planning: * Proximity to customers Business climate * Total costs * Infrastructure * Quality of labor * Suppliers * Other facilities * Free trade zone: a closed facility (under the supervision of government customs officials) into which foreign goods can be brought without being subject to the payment of normal import duties. * Political risk * Government barrier * Trading bloc: a group of countries that agree on a set of special arrangements governing the trading goods between member countries. Companies may locate in places affected by the agreement to take advantage of new market opportunities. Environmental regulation * Host community * Competitive advantage Plant location methods: * Factor rating system: an approach for selecting a facility location by combining diverse set of factors. Point scales are developed for each criterion. Each potential site is then evaluated on each criterion and the points are combined to calculate a rating for the site. * Transportation method: a special linear programming method that is useful for solving problems involving transporting products from several sources to several destinations. Centroid method: a technique for locating single facilities that considers the existing facilities, the distances between them, and the volumes of goods to be shipped. *Chapter 13. Lean & Sustainable Supply Chains Lean production: integrated activities designed to achieve high-volume, high-quality production using minimal inventories of raw materials, work-in-process, and finished goods. Identifying the source of waste and reducing it to minimum. Customer value: in the context of lean, something for which the customer is willing to pay. Waste: something that does not add value from the customer? perspective. Waste reduction: the optimization of value-adding activities and elimination of non-value-adding activities. Value stream: these are the value-adding and non-value-adding activities required to design, order, and provide a product from concept to launch, order to delivery, and raw materials to customers. Value stream mapping: a graphical way to analyze where value is or is not being added as material flows through a process. Kaizen: Japanese philosophy that focuses on continuous improvement. Preventive maintenance: periodic inspection and repair designed to keep equipment reliable.
Group technology: a philosophy in which similar parts are grouped into families, and the processes required to make the parts are arranged in a specialized work cell. Quality at the source: philosophy of making factory workers personally responsible for the quality of their output. Workers are expected to make the part correctly the first time and to stop the process immediately if there is a problem. Level schedule: a schedule that pulls material into final assembly at a constant rate. Freeze window: a period of time during which the schedule is fixed and no further changes are possible.
Backflush: calculating how many of each part were used in production and using these calculations to adjust actual on-hand inventory balance. This eliminates the need to actually tract each part used in the production. Uniform plant loading: smoothing the production flow to dampen schedule variation. Kanban (sign/instruction card) and the kanban pull system: an inventory or production control system that uses a signaling device to regulate flows. The nr of kanban card sets is: k=(expected demand during lead time + safety stock)/size of the container *Chapter 13A.
Operations Consulting & Reengineering Operations consulting: assisting clients in developing operations strategies and improving production processes. Finders: partners or senior consultants whose primary fcn is sales and client relations. Minders: managers of a consulting firm whose primary fcn is managing consulting projects. Grinders: junior consultants whose primary fcn is to do the work. Reengineering (or business process reengineering): the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in cost, quality, service, and speed.
Chapter 14. Enterprise Resource Planning Systems Enterprise resource planning (ERP): a computer system that integrates application program in accounting, sales, manufacturing, and the other functions in the firm. This integration is accomplished through a database shared by all the application programs. Companies providing ERP software: * SAP * Major functional application * Financial * HRM * Operations * Corporate services * Duet-MS office integration * Special version for SME: SAP Business 1 * Procurement monitoring * Inventory and warehouse management Manufacturing reporting * Order fulfillment analysis * Customer service analysis * Program and project management * Quality management * Enterprise asset management * Sales planning * Sales analysis Database server — application server — front-end server Cloud computing: a term that refers to delivering hosted ERP services over the internet. This can significantly reduce the cost of ERP: Chapter 15. Demand Management & Forecasting * Strategic forecasts: medium and long term forecast that are used to make decisions related to design and plans for meeting demand. Tactical forecasts: short-term forecasts used as input for making day-to-day decisions related to meeting demand. * Dependent demand: requirements for a product or service caused by the demand for other products for services. This type of internal demand does not need a forecast, but can be calculated based on the demand for the other products or services. * Independent demand: demand that cannot be directly derived from the demand for other products. Types of trends Linear regression forecasting: a forecasting technique that assumes that past data and future projections fall around a straight line.
Time series analysis: a type of forecast in which data relating to past demand are used to predict future demand. Guide to select forecasting method Exponential smoothing: a time series forecasting technique in which each increment of past demand data is decreased by (1-? ). * Smoothing constant alpha: the parameter in exponential smoothing equation that controls the speed of reaction to differences between forecasts and actual demand. * Smoothing constant delta: an additional parameter in exponential smoothing equation that includes an adjustment for trend.
Mean absolute deviation: the average forecast error using absolute value of the error of each past forecast. MAD= sum (l actual demand – forecast demand l) / total nr of periods ? = squrt (? /2) * MAD = 1. 25 MAD or 1 MAD= 0. 8 std deviation Mean absolute percent error: the mean absolute deviation divided by the average demand. The average error expressed as a percentage of demand. MAPE= MAD/ average demand Tracking signal: a measure that indicates whether the forecast average is keeping pace with any genuine upward or downward changes in demand. TS= running sum of forecast error / MAD
Causal relationship: a situation in which one event causes another. If the event is far enough in the future, it can be used as a basis for forecasting. Collaborative planning, forecasting, and replenishment: an internet tool to coordinate forecasting, production, and purchasing in a firm? s supply chain. Chapter 16. Sales & operations planning Aggregate operation plan: translating annual and quarterly business plans into labor and production output plans for the intermediate term. The objective is to minimize the cost of resources required to meet the demand.
Sales and operating planning: a term that refers to the process that helps companies keep demand and supply in balance. The terminology is meant to capture the importance of cross-functional work. * Long-range planning: activity typically done annually and focusing on a horizon of a year or more * Intermediate planning: activity that usually covers a period from 1-18 months with weekly, monthly, or quarterly time increments. * Short-range planning: planning that covers a period less than six months with either daily or weekly increments of time. Production rate: the nr of units completed per unit of time.
Workforce level: the nr of production workers needed each period. Inventory on hand: unused inventory carried from a previous period Production planning strategies: plans that involve trade-offs among workforce size, work hours, inventory, and backlogs. * Pure strategy: a plan that uses just one of the options available for meeting demand. Typical options include chasing demand, using a stable workforce with overtime or part-time work, and constant production with shortages and overages absorbed by inventory. * Mixed strategy: a plan that combines options available for meeting demand.
Yield management: allocating the right type of capacity to the right type of customer at the right price and time to maximize revenue or yield. Chapter 17. Inventory Control Inventory: a stick of any item or resource used in an organization. Purposes of inventory: – to maintain independence from operations. – to meet variation in product demand -to allow flexibility in production scheduling – to provide a safeguard for variation in raw material delivery time – to take advantage of economic purchase order size Inventory cost: – holding (carrying) cost – setup (or production change) costs ordering costs – shortage costs * Independent demand: the demand for various items are unrelated to each other. * Dependent demand: the need for any one item is a direct result of the need for some other item, usually an item of which it is a part. * Fixed order quantity model (Q-model): an inventory control model where the amount requisitioned is fixed and the actual ordering is triggered by inventory dropping to a specific level of inventory. * Fixed-time period model (P-model): an inventory control mode that specifies inventory is ordered at the end of a predetermined time period.
The interval between orders is fixed and the order quantity varies. Inventory position: the amount on-hand plus on-order minus backordered quantities. In the case where inventory has been allocated for special purposes, the inventory position is reduced by these allocated amounts Safety stock: the amount of inventory carried in additional to the expected demand. Cycle counting: a physical inventory-taking technique in which inventory is counted on a frequent basis rather than once or twice a year. *Chapter 18. Material Requirements Planning
Material requirements planning (MRP): the logic for determining the nr of parts, components, and materials needed to produce a product. MRP also provides the schedule specifying when each of these materials, parts, and components should be ordered or produced. Master production schedule: a time-phased plan specifying how many and when the firm plans to build each end item. Available to promise: a future of MRP systems that identifies the difference between the nr of units currently included in the master schedule and the actual (firm) customer orders.
Bill of materials: a computer file that contains the complete product description, listing the materials, parts, and components and the sequences in which the product is created. Net change system: an MRP system that calculates the impact of a change in the MRP data (the inventory status, bill of materials, or master schedule) immediately. *Chapter 19. Scheduling Work center: an area in a business in which productive resources are organized and work is completed. Infinite loading: work is assigned to a work center based on what is needed over time.
Capacity is not considered. Finite loading: each resource is scheduled in detail using setup and run time required for each order. The system determines exactly what will be done by each resource at every moment during the working day. Forward scheduling: schedules from now into the future to tell the earliest that an order can be completed. Backward scheduling: starts from some date in the future (typically the due-date) and schedules the required operations in reverse sequence. Tells the latest time when an order can be started so that it is completed by a specific date.
Machine limited process: equipment is the critical resource that is scheduled. Labor limited process: people are the key resource that is scheduled. Dispatching: the activity of initiating scheduled work. Sequencing: the process of determining which job to start first on a machine or work center. Priority rules: the logic used to determine the sequence of jobs in a queue. Jonson? s rule: a sequencing rule used for scheduling any nr of jobs on two machines. The rule is designed to minimize the time required to complete all the jobs.
Assignment method: a special case of the transportation method of linear programming that is used to allocate a specific nr of jobs to the same nr of machines. Shop-floor (production activity) control: a system for utilizing data from the shop floor to maintain and communicate status information on shop orders and work centers. Input/output (I/O) control: work being released into a work center should never exceed the planned work output. When the input exceeds the output, backlogs (accumulations) build up at the work center that increases the lead time. Chapter 19A. Simulation Parameters: properties of a simulation model that are fixed. Variables: properties of a simulation model that are allowed to vary throughout the simulation run. The results of the simulations are analyzed through these variables. Decision rules: logic that controls the behavior of a simulation. Distributions: the probability distributions that are used to model the random events in a simulation. Time incrementing: the process of moving through time in a simulation. Run length: the duration of a simulation in simulated time or nr of events.
Chapter 20. Constraint Management Theory of constraints (Goldratt? s approach) compared to other approaches to continuous improvement, namely six sigma and lean manufacturing: * Both SS and LM focus on cost reduction through the elimination of waste and reduction in variability at every step in a process or component of a system Synchronous manufacturing: a production process coordinated to work in harmony to achieve the goals of the firm. GOAL of a firm is to make money. An organization may have many purposes: * Providing jobs Consuming raw materials * Increasing sales * Increasing share of the market * Developing technology * Producing high-quality products Performance measurements: 1- financial measurements * net profit: an absolute measurement in $ * return on investment: a relative measure based in investment * cash flow: a survival measurement 2- operational measurements * Throughput: the rate at which money is generated by the system through sales. (goods sold) * Inventory: all the money that the system has invested in purchasing things it intends to sell. Operating expenses: all the money that the system spends to turn inventory into throughput Increase throughput while simultaneously reducing inventory and reducing operating expenses. Productivity: all the actions that bring a company closer to its goals. Bottleneck: any resource whose capacity is less than the demand placed upon it. Nonbottleneck: any resource whose capacity is greater than the demand placed upon it. Capacity-constrained resource (CCR): a resource whose utilization is close to capacity and could be a bottle neck if not scheduled carefully. Time components: Setup time: the time that a part spends waiting for a resource to be set up to work on this same part * Processing time * Queue time: the time that a part waits for a resource while a resource is busy with something else. * Wait time: the time that the part waits not for a resource but for another part so that they can be assembled together * Idle time: the unused time, that is, the cycle time less the sum of the setup time, processing time, queue time, and wait time. Saving time on a bottleneck: – better tooling – higher-quality labor – labor – larger batch size – reduction in setup times – …