MODULE 1A Bird view of Production System Research Plant Marketing Engineering & Engineering department Department Development Department Customer Materials In Management Division Production Target Market Department Raw (shop floor) Vendor/ Materials Suppliers Stores Quality Factory Assurance Sales Management Department Department & Liasioning Management Customer Human Information Finance System Support Resource Department Department Department Department
Introduction • Production and operations management (POM) is the management of an organization’s production system. • A production system takes inputs and converts them into outputs. • The conversion process is the predominant activity of a production system. • The primary concern of an operations manager is the activities of the conversion process.Todays Factors Affecting POM • Global Competition • U.S. Quality, Customer Service, and Cost Challenges • Computers and Advanced Production Technology • Growth of U.S. Service Sector • Scarcity of Production Resources • Issues of Social ResponsibilityDifferent Ways to Study POM • Production as a System • Production as an Organization Function • Decision Making in POM
Production as a System Production System Conversion Inputs Outputs Subsystem Control SubsystemInputs of a Production System • External – Legal, Economic, Social, Technological • Market – Competition, Customer Desires, Product Info. • Primary Resources – Materials, Personnel, Capital, UtilitiesConversion Subsystem • Physical (Manufacturing) • Location Services (Transportation) • Exchange Services (Retailing) • Storage Services (Warehousing) • Other Private Services (Insurance) • Government Services (Federal, State, Local)
Outputs of a Production System • Direct – Products – Services • Indirect – Waste – Pollution – Technological AdvancesProduction as an Organization Function•U.S. companies cannot compete using marketing, finance,accounting, and engineering alone.•We focus on POM as we think of global competitiveness, becausethat is where the vast majority of a firm’s workers, capital assets, andexpenses reside.•To succeed, a firm must have a strong operations function teamingwith the other organization functions.Decision Making in POM•Strategic Decisions•Operating Decisions•Control DecisionsStrategic Decisions•These decisions are of strategic importance and have long-termsignificance 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 goodsand 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 monthControl Decisions•These decisions concern the day-to-day activities of workers, qualityof products and services, production and overhead costs, andmachine maintenance.•Examples include deciding:–labor cost standards for a new product–frequency of preventive maintenance–new quality control acceptance criteriaWhat Controls the Operations System?•Information about the outputs, the conversions, and the inputs is fedback to management.•This information is matched with management’s expectations•When there is a difference, management must take corrective actionto maintain control of the systemWhat is Operations Management?Defined Operations management (OM) is defined as the design, operation,and improvement of the systems that create and deliver the firm’sprimary products and services
Why Study Operations Management? Systematic Approach to Org. Processes Business Education Operations Career Opportunities Management Cross-Functional Applications•The Future of Operations–Outsourcing everything–Smart factories–Talking inventory–Industrial army of robots–What’s in the box–Mass customization–Personalized recommendations–Sign here, please
Operations Management Decision Types•Strategic (long-term)•Tactical (intermediate-term)•Operational planning and control (short-term)What is a Transformation Process?Defined A transformation process is defined as a use of resources totransform inputs into some desired outputs Transformations•Physical--manufacturing•Location--transportation•Exchange--retailing•Storage--warehousing•Physiological--health care•Informational--telecommunications
Core Services Performance Objectives Quality Operations Flexibility Speed Management Price (or cost Reduction)The Importance of Operations Management•Synergies must exist with other functional areas of the organization•Operations account for 60-80% of the direct expenses that burden afirm’s profit.
The Basics of Operations Management•Operations Management–The process of managing the resources that are needed to producean organization’s goods and services.–Operations managers focus on managing the “five Ps” of the firm’soperations:•People, plants, parts, processes, and planning and control systems.The Production System•Input–A resource required for the manufacture of a product or service.•Conversion System–A production system that converts inputs (material and humanresources) into outputs (products or services); also the productionprocess or technology.•Output–A direct outcome (actual product or service) or indirect outcome(taxes, wages, salaries) of a production system.
Types of Production system Manufacturing System Service System Intermittent ProductionContinuous Production Batch Production Job Production Mass production( Flow) Processing ProductionBasic Types of Production Processes•Intermittent Production System–Production is performed on a start-and-stop basis, such as for themanufacture of made-to-order products.•Mass Production–A special type of intermittent production process using standardizedmethods and single-use machines to produce long runs ofstandardized items.
Mass Customization–Designing, producing, and delivering customized products tocustomers for at or near the cost and convenience of mass-produceditems.–Mass customization combines high production volume with highproduct variety.–Elements of mass customization:•Modular product design•Modular process design•Agile supply networksContinuous Production Processes–A production process, such as those used by chemical plants orrefineries, that runs for very long periods without the start-and-stopbehavior associated with intermittent production.–Enormous capital investments are required for highly automatedfacilities that use special-purpose equipment designed for highvolumes of production and little or no variation in the type of outputs.Mass Production System (Flow)Continuous Production•Anticipation of demand•May not have uniform production•Standardized Raw material•Big volume of limited product line•Standard facility- high standardization.•Fixed sequence of operation•Material handling is easier•High skilled operator not required•More Human problem is foreseen•Huge investment.•High raw material inventory.
Processing Production System•Extended form of mass production system•F.G of one stage is fed to next stage•More automatic machines•One basic raw material is transferred into several products at severalstages.•Less highly skilled workers required•More human problems foreseen•Highly standardized systemBatch Production System•Highly specialized Human resource is required•Highly specialized multi tasking machines•Machines are shared.•Production in batches•Production lots are based on customer demand or order.•No single sequence of operation•Finished goods are heterogeneousCustom built / job order production system•Highly specialized Human resource is required•Highly specialized multi tasking machines•Machines are shared•Raw material is not standardized•Process is not standardized•No scope for repetition of production
Comparative study of different production systemsType Mass/ Flow Process Job BatchParameterPer unitHigh Low High Highmanf.costSize & Large V. Large Small MediumCapital Less High Low HighInvest.Flexibility No No More MoreTechnical Less Less High Highability SkillsOrgn. Line staff Line staff Functional FunctionalStructureIndustrial Automobile Chemical Construction Consumerapplication Sugar Petroleum Bridges prod. Refinery Milk proces.SPM M/c. ToolsCompetitiveness, Strategy, and ProductivityCompetitiveness:How effectively an organization meets the wants and needs ofcustomers relative to others that offer similar goods or servicesBusinesses Compete Using Marketing•Identifying consumer wants and needs•Pricing•Advertising and promotion
Businesses Compete Using Operations•Product and service design•Cost•Location•Quality•Quick responseBusinesses Compete Using Operations•Flexibility•Inventory management•Supply chain management•ServiceWhy 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 strategyWhy Some Organizations Fail•Too much emphasis in product and service design and not enoughon improvement•Neglecting investments in capital and human resources•Failing to establish good internal communications•Failing to consider customer wants and needs
Mission/Strategy/Tactics Mission Strategy Tactics How does mission, strategies and tactics relate to decision making and distinctive competencies?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
Planning and Decision Making Mission Goals Organizational Strategies Functional Goals Operations Finance Strategies Marketing Strategies Strategies Tactics Tactics Tactics Operating procedures Operating procedures Operating proceduresStrategy and Tactics • Distinctive CompetenciesThe special attributes or abilities that give an organization acompetitive edge. – Price – Quality – Time – Flexibility – Service – Location
Examples of Distinctive U.S. first-class postage Price Low Cost Motel-6, Red Roof Inns High-performance design Sony TV Quality or high quality Consistent Lexus, Cadillac quality Pepsi, Kodak, Motorola Rapid delivery On-time Express Mail, Fedex, Time delivery One-hour photo, UPS Variety Burger King Flexibility Volume Supermarkets Superior customer Disneyland Service service Nordstroms Location Convenience Banks, ATMsOperations Strategy•Operations strategy – The approach, consistent with organizationstrategy, which is used to guide the operations function.Strategy Formulation•Distinctive competencies•Environmental scanning•SWOT•Order qualifiers•Order winners
Strategy Formulation•Order qualifiers–Characteristics that customers perceive as minimum standards ofacceptability to be considered as a potential purchase•Order winners–Characteristics of an organization’s goods or services that cause itto be perceived as better than the competitionKey External Factors•Economic conditions•Political conditions•Legal environment•Technology•Competition•MarketsKey Internal Factors•Human Resources•Facilities and equipment•Financial resources•Customers•Products and services•Technology•SuppliersQuality and Time Strategies•Quality-based strategies–Focuses on maintaining or improving the quality of an organization’sproducts or services–Quality at the source
•Time-based strategies–Focuses on reduction of time needed to accomplish tasksOperations Strategy and Competitiveness•Operations Strategy•A Framework for Operations Strategy•Meeting the Competitive Challenge•Productivity Measurement Operations Strategy – Strategic Alignment Customer Needs Corporate Strategy Alignmen t Core Operations Strategy Competencie s Decision s Processes, Infrastructure, and Capabilities 3
Operations Priorities • Cost • Quality • Delivery Speed (Also, New Product Introduction Speed) • Delivery Flexibility • Greenness • Delivery Reliability • Coping with Changes in Demand • Other Product-Specific Criteria
A Framework for Organizational Strategy Customer Needs Strategic New and Current Products Vision Performance Priorities and Requirements Quality, Dependability, Service Speed, Flexibility, and Enterprise Capabilities Operations & Supplier Capabilities Technology Systems People R&D CIM JIT TQM Distribution Support Platforms Financial Management Human Resource Management Information Management 8OPERATIONS STRATEGY OBJECTIVES u TRANSLATE MARKET REQ’M’TS TO SPECIFIC OPERATIONS PRIMARY MISSIONS u ASSURE OPERATIONS IS CAPABLE TO ACCOMPLISH PRIMARY MISSION.1) SEGMENT MARKET BY PRODUCT GROUPS2) IDENTIFY PRODUCT REQUIREMENTS3) DETERMINE ORDER WINNERS AND QUALIFIERS4) CONVERT ORDER WINNERS INTO SPECIFIC PERFORMANCEREQMTS
DEVELOPING PRODUCTION AND OPERATION STRATEGY Economic Corporate Mission Dis -advantage in Legal Social capturing market Political Assessment Distinctive Competencies Business Strategy of business condition Or Weaknesses Competition Market Product / Service Plans Hi-tech Analysis MachinesLow prod. cost Skilled HRDelivery performance Competitive prioritiesHigh quality products &service Cost, Time, Quality & AutomationCustomer service & FlexibilityFlexibility Worn out Prod. System Production / operation Strategy Positioning the production system Product / service plans Process and technology plans Strategic allocation of resources Facility Plan, Capacity Plan, Location and Layout.Elements of operation strategy Positioning the production systemA. Product FocusedB. Process Focused • Product / Service plans • Out sourcing plans • Process technology plans • Strategic allocation of resources • Facility plans*Capacity plans*Location*Layout
ProductivityA measure of the effective use of resources, usually expressed as theratio of output to input Productivity ratios are used for Planningworkforce requirements Scheduling equipmentfinancial analysisMIT Commission on Industrial Productivity1985 Recommendations - Still Very Accurate Today•Less emphasis on short-term financial payoffs and invest more inR&D.•Revise corporate strategies to include responses to foreigncompetition.–greater investment in people and equipment•Knock down communication barriers within organizations andrecognize mutuality of interests with other companies and suppliers.MIT Commission on Industrial Productivity1985 Recommendations•Recognize that the labor force is a resource to be nurtured, not just acost to be avoided.•Get back to basics in managing production/ operations.–Build in quality at the design stage.–Place more emphasis on process innovations rather than focusingsole attention on product innovations - dramatically improve costs,quality, speed, & flex.
U. S. Competitiveness Drivers•Product/Service Development - NPD–Teams speed development and enhance manufacturability•Waste Reduction (LEAN/JIT Philosophy)–WIP, space, tool costs, and human effort•Improved Customer-Supplier Relationships–Look for Win-Win! Taken from Japanese Keiretsu•Early Adoption of IT Technology Including–PC Technology – WWW - ERPSProductivity Outputs Productivity = Inputs • Partial measures – output/(single input) • Multi-factor measures – output/(multiple inputs) • Total measure
– output/(total inputs) Productivity Growth Productivity Growth = Current Period Productivity – Previous Period Productivity Previous Period ProductivityExamples of Partial Productivity Measures Labor Units of output per labor hour Units of output per shift Productivity Value-added per labor hour Machine Units of output per machine hour Productivity machine hour Capital Units of output per dollar input Dollar value of output per dollar input Productivity Energy Units of output per kilowatt-hour Dollar value of output per kilowatt- Productivity hour
Factors Affecting Productivity Capita Qualit l y Technolog Managemen y tOther Factors Affecting Productivity•Standardization•Quality•Use of Internet•Computer viruses•Searching for lost or misplaced items•Scrap rates•New workers•Safety•Shortage of IT workers•Layoffs•Labor turnover•Design of the workspace•Incentive plans that reward productivity
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
MODULE 2Typical Phases of Product Development•Planning•Concept Development•System-Level Design•Design Detail•Testing and Refinement•Production Ramp-upEconomic Analysis of Project Development Costs•Using measurable factors to help determine:–Operational design and development decisions–Go/no-go milestones•Building a Base-Case Financial Model–A financial model consisting of major cash flows–Sensitivity Analysis for “what if” questions Designing for the Customer House of Quality Ideal Quality Function Customer Value Analysis/ Deployment Value Product Engineering
Designing for the Customer: Quality Function Deployment•Interventional teams from marketing, design engineering, andmanufacturing•Voice of the customer•House of QualityDesigning for the Customer: Value Analysis/Value Engineering•Achieve equivalent or better performance at a lower cost whilemaintaining all functional requirements defined by the customer–Does the item have any design features that are not necessary?–Can two or more parts be combined into one?–How can we cut down the weight?–Are there nonstandard parts that can be eliminated?Design for Manufacturability•Traditional Approach–“We design it, you build it” or “Over the wall”Concurrent Engineering–“Let’s work together simultaneously”Design for Manufacturing and Assembly•Greatest improvements related to DFMA arise from simplification ofthe product by reducing the number of separate parts:•During the operation of the product, does the part move relative to allother parts already assembled?•Must the part be of a different material or be isolated from other partsalready assembled?•Must the part be separate from all other parts to allow thedisassembly of the product for adjustment or maintenance?
Measuring Product Development Performance Performance Measures DimensionTime-to-market Freq. of new products introduced Time to market introduction Number stated and number completed Actual versus plan Percentage of sales from new products Productivity Engineering hours per project Cost of materials and tooling per project Actual versus plan Quality Conformance-reliability in use Design-performance and customer satisfaction Yield-factory and fieldProduct Design • Standard parts • Modular design • Highly capable production systems • Concurrent engineeringProcess Design
• Small lot sizes • Setup time reduction • Manufacturing cells • Limited work in process • Quality improvement • Production flexibility • Little inventory storage Benefits of Small Lot Sizes Reduces inventory Less rework storage Less space Problems are more apparent Increases product flexibility Easier to balance operationsProduction Flexibility•Reduce downtime by reducing changeover time•Use preventive maintenance to reduce breakdowns•Cross-train workers to help clear bottlenecks•Use many small units of capacity•Use off-line buffers•Reserve capacity for important customers
Quality Improvement•Autonomation–Automatic detection of defects during production•Jidoka–Japanese term for autonomationPersonnel/Organizational Elements•Workers as assets•Cross-trained workers•Continuous improvement•Cost accounting•Leadership/project managementManufacturing Planning and Control•Level loading•Pull systems•Visual systems•Close vendor relationships•Reduced transaction processing•Preventive maintenancePull/Push Systems•Pull system: System for moving work where a workstation pullsoutput from the preceding station as needed. (e.g. Kanban)•Push system: System for moving work where output is pushed to thenext station as it is completed
Kanban Production Control System•Kanban: Card or other device that communicates demand for workor materials from the preceding station•Kanban is the Japanese word meaning “signal” or “visible record”•Paperless production control system•Authority to pull, or produce comesfrom a downstream process.Kanban Formula DT(1+X) N = CN = Total number of containersD = Planned usage rate of using work centerT = Average waiting time for replenishment of parts plus average production time for a container of partsX = Policy variable set by management - possible inefficiency in the systemC = Capacity of a standard container
Traditional Supplier Network Buyer Suppl Suppl SupplSuppl Suppl Suppl Suppl
Product and Service Design • Major factors in design strategy – Cost – Quality – Time-to-market – Customer satisfaction – Competitive advantageProduct and service design – or redesign – should beclosely tied to an organization’s strategyProduct or Service Design Activities•Translate customer wants and needs into product and servicerequirements•Refine existing products and services•Develop new products and services•Formulate quality goals•Formulate cost targets•Construct and test prototypes•Document specificationsReasons for Product or Service Design•Economic•Social and demographic•Political, liability, or legal•Competitive•Technological
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/serviceDesigning For OperationsTaking into account the capabilities of the organization in designinggoods and servicesLegal, Ethical, and Environmental Issues•Legal–Product liability–Uniform commercial code•Ethical–Releasing products with defects•Environmental–EPARegulations & Legal Considerations•Product Liability - A manufacturer is liable for any injuries ordamages caused by a faulty product.•Uniform Commercial Code - Products carry an implication ofmerchantability and fitness.
Standardization•Standardization–Extent to which there is an absence of variety in a product, serviceor process•Standardized products are immediately available to customersAdvantages 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•Orders fallible from inventory•Opportunities for long production runs and automation•Need for fewer parts justifies increased expenditures on perfectingdesigns 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.•Mass customization:–A strategy of producing standardized goods or services, butincorporating some degree degree of customization–Delayed differentiation–Modular designDelayed Differentiation•Delayed differentiation is a postponement tactic–Producing but not quite completing a product or service untilcustomer preferences or specifications are known
Modular DesignModular design is a form of standardization in which component partsare 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 assemblyReliability•Reliability: The ability of a product, part, or system to perform itsintended function under a prescribed set of conditions•Failure: Situation in which a product, part, or system does notperform as intended•Normal operating conditions: The set of conditions under which anitem’s reliability is specifiedImproving Reliability • Component design • Production/assembly techniques • Testing • Redundancy/backup • Preventive maintenance procedures • User education • System designProduct Design•Product Life Cycles•Robust Design•Concurrent Engineering•Computer-Aided Design•Modular Design
Robust Design: Design that results in products or services thatcan function over a broad range of conditionsTaguchi Approach Robust Design•Design a robust product–Insensitive to environmental factors either in manufacturing or inuse.•Central feature is Parameter Design.•Determines:–factors that are controllable and those not controllable–their optimal levels relative to major product advancesDegree of Newness•Modification of an existing product/service•Expansion of an existing product/service•Clone of a competitor’s product/service•New product/serviceDegree of Design ChangeType of DesignNewness of theNewness to theChange organization marketModification Low LowExpansion Low LowClone High LowNew High HighPhases in Product Development Process
1. Idea generation 2. Feasibility analysis 3. Product specifications 4. Process specifications 5. Prototype development 6. Design review 7. Market test 8. Product introduction 9. Follow-up evaluation Idea Generation Supply chain based Ideas Competitor based Research basedReverse Engineering
Reverse engineering is the dismantling and inspecting of acompetitor’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.Manufacturability • Manufacturability is the ease of fabrication and/or assembly which is important for: – Cost – Productivity – QualityDesigning for Manufacturing Beyond the overall objective to achievecustomer satisfaction while making a reasonable profit is:Design for Manufacturing (DFM)The designers’ consideration of the organization’s manufacturingcapabilities when designing a product.The more general term design for operations encompasses servicesas well as manufacturingConcurrent EngineeringConcurrent engineering is the bringing together of engineering designand 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 designsProduct design • Design for manufacturing (DFM) • Design for assembly (DFA) • Design for recycling (DFR) • Remanufacturing • Design for disassembly (DFD) • Robust designRecycling•Recycling: recovering materials for future use•Recycling reasons–Cost savings–Environment concerns–Environment regulationsService Design•Service is an act•Service delivery system–Facilities–Processes–Skills•Many services are bundled with products•Service design involves
–The physical resources needed–The goods that are purchased or consumed by the customer–Explicit services–Implicit services•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 serviceDifferences between Product and Service Design•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 servicePhases in Service Design•Conceptualize•Identify service package components•Determine performance specifications•Translate performance specifications into design specifications•Translate design specifications into delivery specificationsService Blueprinting
•Service blueprinting–A method used in service design to describe and analyze aproposed service•A useful tool for conceptualizing a service delivery systemMajor Steps in Service Blueprinting•Establish boundaries•Identify steps involved•Prepare a flowchart•Identify potential failure points•Establish a time frame•Analyze profitabilityCharacteristics of Well Designed Service Systems•Consistent with the organization mission•User friendly•Robust•Easy to sustain•Cost effective•Value to customers•Effective linkages between back operations•Single unifying theme•Ensure reliability and high qualityChallenges of Service Design•Variable requirements•Difficult to describe•High customer contact•Service – customer encounter
Quality Function Deployment•Quality Function Deployment–Voice of the customer–House of qualityQFD: An approach that integrates the “voice of the customer” into theproduct and service development process.Operations Strategy 1. Increase emphasis on component commonality 2. Package products and services 3. Use multiple-use platforms 4. Consider tactics for mass customization 5. Look for continual improvement 6. Shorten time to marketShorten Time to Market 1. Use standardized components 2. Use technology 3. Use concurrent engineeringProcess Selection
• Variety – How much • Flexibility – What degree • Volume – Expected outputProcess Types • Job shop – Small scale • Batch – Moderate volume • Repetitive/assembly line – High volumes of standardized goods or services • Continuous – Very high volumes of non-discrete goodsProcess designThe complete delineation and description of specific steps in theproduction process and the linkage among the steps that will enablethe production system to produce products of the • desired quality • required quantity • at required time • at the economical costExpected by the customer
Process Design Product Idea Feasibility Studies Interrelationship of Product and Process Design Design Product Process Design Advanced Product Planning Organizing the process flow Advanced Design Relation of process Design to Production Process Design process FlowProduct evaluation and improvement Evaluating the Process Design Product use and support To Produce and Market New ProductsTypes of Process • Project • Job Shop • Batch • Assembly line • Continuous
Production Technology • The method or Technique used in Converting the Raw material into SFG or FG Economically, Effectively and efficiently is termed as Production Technology.The Selection of Technology • Time • Cost • Type of Product • Volume of production • Expected Productivity • Technical Complexity involved • Degree of Human skill required • Degree of Quality required • Availability of Technology • The Degree of Obsolescence expected.
MODULE 3Facility Planning • Long range capacity planning, • Facility location • Facility layoutStrategic Capacity PlanningDefined • Capacity can be defined as the ability to hold, receive, store, or accommodate. • Strategic capacity planning is an approach for determining the overall capacity level of capital intensive resources, including facilities, equipment, and overall labor force size.Capacity Utilization • Capacity utilization rate = Capacity used Best operating level • Capacity used – rate of output actually achieved • Best operating level – capacity for which the process was designed
Best Operating LevelAverageunit costof output Underutilization Overutilization Best Operating Level VolumeExample of Capacity Utilization • During one week of production, a plant produced 83 units of a product. Its historic highest or best utilization recorded was 120 units per week. What is this plant’s capacity utilization rate? • Answer: Capacity utilization rate = Capacity used . Best operating level = 83/120 =0.69 or 69%
Economies & Diseconomies of Scale Economies of Scale and the Experience Curve working 100-unitAverage plantunit cost 200-unitof output plant 400-unit 300-unit plant plant Diseconomies of Scale start working Volume
The Experience Curve As plants produce more products, they gain experience in the best production methods and reduce their costs per unit. Cost or price per unit Total accumulated production of unitsCapacity Focus • The concept of the focused factory holds that production facilities work best when they focus on a fairly limited set of production objectives. • Plants Within Plants (PWP) (from Skinner) – Extend focus concept to operating levelCapacity Flexibility • Flexible plants • Flexible processes
• Flexible workers Capacity Planning: Balance Stage 1 Stage 2 Stage 3 Units per 6,000 7,000 4,500 month Maintaining System BalanceCapacity Planning • Frequency of Capacity Additions • External Sources of CapacityDetermining Capacity Requirements • Forecast sales within each individual product line. • Calculate equipment and labor requirements to meet the forecasts. • Project equipment and labor availability over the planning horizon.
Example of Capacity RequirementsA manufacturer produces two lines of mustard, Fancy Fine andGeneric line. Each is sold in small and family-size plastic bottles.The following table shows forecast demand for the next four years. Year: 1 2 3 4FancyFineSmall (000s) 50 60 80 100Family (000s) 35 50 70 90GenericSmall (000s) 100 110 120 140Family (000s) 80 90 100 110Example of Capacity Requirements: Equipment and LaborRequirements Year: 1 2 3 4Small (000s) 150 170 200 240Family (000s) 115 140 170 200Three 100,000 units-per-year machines are available for small-bottleproduction. Two operators required per machine.Two 120,000 units-per-year machines are available for family-sized-bottle production. Three operators required per machine.
Importance of Capacity Decisions 1. Impacts ability to meet future demands 2. Affects operating costs 3. Major determinant of initial costs 4. Involves long-term commitment 5. Affects competitiveness 6. Affects ease of management 7. Globalization adds complexity 8. Impacts long range planningCapacity • 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 Utilization Actual output Efficiency = Effective capacity Actual output Utilization = Design capacity
Both measures expressed as percentages Determinants of Effective Capacity • Facilities • Product and service factors • Process factors • Human factors • Operational factors • Supply chain factors • External factorsStrategy 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 inputsKey Decisions of Capacity Planning 1. Amount of capacity needed 2. Timing of changes 3. Need to maintain balance 4. Extent of flexibility of facilitiesCapacity cushion – extra demand intended to offset uncertainty
Steps for Capacity Planning 1. Estimate future capacity requirements 2. Evaluate existing capacity 3. Identify alternatives 4. Conduct financial analysis 5. Assess key qualitative issues 6. Select one alternative 7. Implement alternative chosen 8. Monitor resultsMake or Buy 1. Available capacity 2. Expertise 3. Quality considerations 4. Nature of demand 5. Cost 6. RiskDeveloping 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 levelEconomies 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 Evaluating Alternatives Production units have an optimal rate of output for minimal cost. Average cost per Minimum average cost per unit unit Minimu m cost 0 Rate of output
Evaluating Alternatives Average cost per unit Minimum cost & optimal operating rate are functions of size of production unit. Small plant Medium plant Large plant 0 Output ratePlanning Service Capacity • 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 periodsAssumptions of Cost-Volume Analysis 1. One product is involved 2. Everything produced can be sold 3. Variable cost per unit is the same regardless of volume
4. Fixed costs do not change with volume 5. Revenue per unit constant with volume 6. Revenue per unit exceeds variable cost per unitFinancial 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 Standard Annual processing time Processing time Product Demand per unit (hr.) needed (hr.) #1 400 5.0 2,000 #2 300 8.0 2,400 #3 700 2.0 1,400 5,800
Location Planning and AnalysisNeed for Location Decisions • Marketing Strategy • Cost of Doing Business • Growth • Depletion of ResourcesNature of Location Decisions • Strategic Importance – Long term commitment/costs – Impact on investments, revenues, and operations – Supply chains • Objectives – Profit potential – No single location may be better than others – Identify several locations from which to choose • Options – Expand existing facilities – Add new facilities – MoveMaking Location Decisions • Decide on the criteria • Identify the important factors • Develop location alternatives
• Evaluate the alternatives • Make selectionLocation Decision Factors1. Regional Factors • Location of raw materials • Location of markets • Labor factors • Climate and taxes2. Community Considerations • Quality of life • Services • Attitudes • Taxes • Environmental regulations • Utilities • Developer support3. Multiple Plant Strategies • Product plant strategy • Market area plant strategy • Process plant strategy4. Site-related Factors • Land • Transportation • Environmental • LegalComparison of Service and Manufacturing Considerations
Manufacturing/Distribution Service/RetailCost Focus Revenue focusTransportation modes/costs Demographics: age,income,etcEnergy availability, costs Population/drawing areaLabor cost/availability/skills CompetitionBuilding/leasing costs Traffic volume/patterns Customer access/parkingEvaluating Locations • Cost-Profit-Volume Analysis – Determine fixed and variable costs – Plot total costs – Determine lowest total costsLocation Cost-Volume Analysis • Assumptions – Fixed costs are constant – Variable costs are linear – Output can be closely estimated – Only one product involvedEvaluating Locations • Transportation Model – Decision based on movement costs of raw materials or finished goods • Factor Rating – Decision based on quantitative and qualitative inputs
• Center of Gravity Method – Decision based on minimum distribution costsFacility LayoutLayout: the configuration of departments, work centers, andequipment, with particular emphasis on movement of work(customers or materials) through the systemImportance of Layout Decisions • Requires substantial investments of money and effort • Involves long-term commitments • Has significant impact on cost and efficiency of short-term operationsThe Need for Layout Decisions Inefficient operations For Example: Changes in the High Cost design Bottleneck of products or s Accident The introduction of s new products or services Safety hazards
The Need for Layout Design Changes in environmenta Changes in volume l of or other legal output or mix of requirements products Morale Changes in problems methods and equipmentBasic Layout Types • Product layouts • Process layouts • Fixed-Position layout • Combination layoutsBasic Layout Types • 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
Advantages of Product LayoutFigure 6.4 Product Layout Raw Station Station Station Station Finished materials 1 2 3 4 item or customer Material Material Material Material and/or and/or and/or and/or labor labor labor labor Used for Repetitive or Continuous ProcessingAdvantages of Product Layout • 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 purchasingDisadvantages 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
Figure 6.7 Process Layout Process Layout (functional) Dept. A Dept. C Dept. E Dept. B Dept. D Dept. F Used for intermittent processing Job Shop or Batch Product Layout Product Layout (sequential) Work Work Work Station 1 Station 2 Station 3 Used for Repetitive Processing Repetitive or ContinuousAdvantages of Process Layouts • Can handle a variety of processing requirements
• Not particularly vulnerable to equipment failures • Equipment used is less costly • Possible to use individual incentive plansDisadvantages 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 involvedCellular Layouts • 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 Functional vs. Cellular LayoutsDimension Functional CellularNumber of movesmany fewbetweendepartmentsTravel distances longer shorterTravel paths variable fixedJob waiting times greater shorterThroughput time higher lowerAmount of work inhigher lowerprocessSupervision higher lowerdifficultyScheduling higher lowercomplexityEquipment lower higher
utilizationOther Service Layouts • Warehouse and storage layouts • Retail layouts • Office layoutsDesign Product Layouts: Line BalancingLine Balancing is the process of assigning tasks to workstations insuch a way that the workstations have approximatelyequal time requirements.Cycle TimeCycle time is the maximum time allowed at each workstation tocomplete its set of tasks on a unit.Determine Maximum Output OT Output capacity = CT OT = operating time per day D = Desired output rate OT CT = cycle time = D
Determine the Minimum Number of Workstations Required (D)(∑ t)N= OT∑ t = sum of task timesCalculate Percent Idle Time Idle time per cyclePercent idle time = (N)(CT)Efficiency = 1 – Percent idle timeDesigning Process LayoutsInformation Requirements: 1. List of departments 2. Projection of work flows 3. Distance between locations 4. Amount of money to be invested 5. List of special considerations 6. Location of key utilities
Process Layout Millin g Assembl y & Test Grindin g Drillin Platin g gProcess Layout - work travels to dedicated process centers
MODULE 4 (08 Hours)Capacity Management:Job Design, Ergonomics,Methods Study and Work Measurement, Employee Productivity,Learning Curve, Short-term Capacity Planning Aggregate planning and Capacity requirement planning(Problems in Work Measurement and Short term Capacity Planning) Design of Work Systems Job Design, Ergonomics, Methods Study and Work Measurement, Employee Productivity,Job Design • Job design involves specifying the content and methods of job – What will be done – Who will do the job – How the job will bob will be done – Where the job will be done – ErgonomicsDesign of Work Systems • Specialization • Behavioral Approaches to Job Design • Teams • Methods Analysis • Motions Study • Working conditionsJob Design SuccessSuccessful Job Design must be: • Carried out by experienced personnel with the necessary training and background • Consistent with the goals of the organization • In written form • Understood and agreed to by both management and employees
Specialization in Business: AdvantagesTable 7.1 For Management For Labor 1. Simplifies 1. Low education skill 2. High 2 Minimu 3. Low wage responsibilitie 3 Little mental needeDisadvantages For Management: For Labor: 1. Difficult to motivate 1. Monotonous work quality 2. Limited opportunities 2. Worker dissatisfaction, for advancement possibly resulting in 3. Little control over work absenteeism, high 4. Little opportunity for turnover, disruptive self-fulfillment tactics, poor attention to qualityBehavioral Approaches to Job Design • Job Enlargement – Giving a worker a larger portion of the total task by horizontal loading • Job Rotation – Workers periodically exchange jobs • Job Enrichment – Increasing responsibility for planning and coordination tasks, by vertical loading
Motivation and Trust • Motivation – Influences quality and productivity – Contributes to work environment • Trust – Influences productivity and employee-management relationsTeams • Benefits of teams – Higher quality – Higher productivity – Greater worker satisfaction • Self-directed teams – Groups of empowered to make certain changes in their work processMethods Analysis • Methods analysis – Analyzing how a job gets done – Begins with overall analysis – Moves to specific detailsMethods AnalysisThe need for methods analysis can comefrom a number of different sources: • Changes in tools and equipment • Changes in product design or new products • Changes in materials or procedures • Other factors (e.g. accidents, quality problems)Methods Analysis Procedure 1. Identify the operation to be studied 2. Get employee input 3. Study and document current method 4. Analyze the job 5. Propose new methods 6. Install new methods 7. Follow-up to ensure improvements have been achievedAnalyzing the Job • Flow process chart – Chart used to examine the overall sequence of an operation by focusing on movements of the operator or flow of materials • Worker-machine chart – Chart used to determine portions of a work cycle during which an operator and equipment are busy or idle
Figure 7-2 tion nt tion FLOW PROCESS CHART ANALYST PAGE me age pec Job Requisition of petty cash ay D. Kolb 1 of 2 e ra ve Stor Del Ins Mo Op Details of Method Requisition made by department head Put in “pick-up” basket To accounting department Account and signature verified Amount approved by treasurer Amount counted by cashier Amount recorded by bookkeeper Petty cash sealed in envelope Petty cash carried to department Petty cash checked against requisition Receipt signed Petty cash stored in safety boxMotion StudyMotion study is the systematic study of the human motions used to perform an operation.Motion Study Techniques • Motion study principles - guidelines for designing motion-efficient work procedures • Analysis of therbligs - basic elemental motions into which a job can be broken down • Micromotion study - use of motion pictures and slow motion to study motions that otherwise would be too rapid to analyze • ChartsDeveloping Work Methods 1. Eliminate unnecessary motions 2. Combine activities 3. Reduce fatigue 4. Improve the arrangement of the workplace 5. Improve the design of tools and equipment
Working Conditions Temperature & Ventilation Humidity Illumination Color Noise & Work Vibration Breaks Safet Causes of y AccidentsWork Measurement • Standard time • Stopwatch time study • Historical times • Predetermined data • Work Sampling
Compensation • Time-based system – Compensation based on time an employee has worked during a pay period • Output-based (incentive) system – Compensation based on the amount of output an employee produces during a pay periodForm of Incentive Plan • Accurate • Easy to apply • Consistent • Easy to understand • FairCompensation • Individual Incentive Plans • Group Incentive Plans • Knowledge-Based Pay System • Management CompensationLearning Curves • Learning curves: the time required to perform a task decreases with increasing repetitionsLearning Effect
Time per repetition Number of repetitionsLearning with Improvements
Time per unit Average Improvements may create a scallop effect in the curve. TimeApplications of Learning Curves 1. Manpower planning and scheduling 2. Negotiated purchasing 3. Pricing new products 4. Budgeting, purchasing, and inventory planning 5. Capacity PlanningWorker Learning Curves
Time/cycle A (underqualified)s B (average) Standard time C (overqualified) One Training week timeCautions and Criticisms • Learning rates may differ from organization to organization • Projections based on learning curves should be viewed as approximations • Estimates based the first unit should be checked for valid times • At some point the curve might level off or even tip upward • Some improvements may be more apparent than real • For the most part, the concept does not apply to mass productionAggregate Planning • Operations Planning Overview • The hierarchical planning process • Aggregate production planning • Examples: Chase and Level strategiesOperations Planning Overview • Long-range planning – Greater than three year planning horizon – Usually with yearly increments • Intermediate-range planning
– 1 to 3 years – Usually with monthly or quarterly increments • Short-range planning – One year – Usually with weekly increments Strategic Planning Long- range Sales Planning Intermediate- Aggregate Planning range Master Production Scheduling Product/Service Schedule Resource Requirements Planning Workforce & Mat’ls, Capacity, Manpower Customer Scheduling Short- Order Scheduling Daily Workforce & range Production/Purchases Customer SchedulingHierarchical Production Planning
Exhibit 12.2Decision Level Decision Process Forecasts needed Allocates Annual demand by production Corporate item and by region among plants Determines Monthly demand Plant manager seasonal plan by for 15 months by product type product type Determines Monthly demand Shop monthly for 5 months by item production superintendent schedules itemAggregate Planning • Goal: Specify the optimal combination of – production rate (units completed per unit of time) – workforce level (number of workers) – inventory on hand (inventory carried from previous period) • Product group or broad category (Aggregation) • Intermediate-range planning period: 6-18 monthsBalancing Aggregate Demand and Aggregate Production Capacity
10000 Suppose the figure to the 10000 right represents forecast 8000 7000 8000 demand in units. 5500 6000 6000 4500 4000Now suppose this lowerfigure represents the 2000aggregate capacity of the 0company to meet Jan Feb Mar Apr May Jundemand. 10000 9000What we want to do is 8000balance out the production 8000 6000rate, workforce levels, and 6000 4500 4000 4000inventory to make these 4000figures match up. 2000 0 Feb Jan Mar Apr May JunKey Strategies for Meeting Demand • Chase • Level • Some combination of the twoSTRATEGIES ACTIVE WRT DEMAND • USE MARKETING TO SMOOTH DEMAND • EXAMPLES • PRICE • PRODUCT • PLACE • PROMOTIONProactive Demand Management to Equate Supply and Demand
10000SEASONAL 8000DEMAND - 6000SNOW SKIIS 4000 2000 0 10000 CONTRA- 8000 SEASONAL 6000 DEMAND - 4000 _______________ 2000 0Proactive Demand Management to Equate Supply and Demand 10000CYCLICAL 8000DEMAND - 6000NEW CARS 4000 2000 0 10000CONTRA-CYCLICAL 8000DEMAND - 6000__________________ 4000 2000 0Jason Enterprises Aggregate Planning Examples: Unit Demand and Cost Data
Suppose we have the following unit demand and cost information: Demand/mo Jan Feb Mar Apr May Jun 500 600 650 800 900 800 Days per month 22 19 21 21 22 Materials $100/unit Holding costs $10/unit per mo. Marginal cost of stockout $20/unit per mo. Hiring and training cost $50/worker Layoff costs $100/worker Labor hours required . 4 hrs/unit Straight time labor cost/OT $12.50/18.75/hour Beginning inventory 200 units Productive hours/worker/day 8.00 Paid straight hrs/day 8Capacity 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?Importance of Capacity Decisions 1. Impacts ability to meet future demands 2. Affects operating costs 3. Major determinant of initial costs 4. Involves long-term commitment 5. Affects competitiveness 6. Affects ease of management 7. Globalization adds complexity 8. Impacts long range planningCapacity • 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 Utilization Actual outputEfficiency = Effective capacity Actual outputUtilization = Design capacityBoth measures expressed as percentagesEfficiency/Utilization ExampleDesign capacity = 50 trucks/dayEffective capacity = 40 trucks/dayActual output = 36 units/day Actual output = 36 units/day Efficiency = = 90% Effective capacity 40 units/ day Utilization = Actual output = 36 units/day = 72% Design capacity 50 units/dayDeterminants of Effective Capacity • Facilities
• Product and service factors • Process factors • Human factors • Operational factors • Supply chain factors • External factorsStrategy 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 inputsKey Decisions of Capacity Planning 1. Amount of capacity needed 2. Timing of changes 3. Need to maintain balance 4. Extent of flexibility of facilitiesCapacity cushion – extra demand intended to offset uncertaintySteps for Capacity Planning 1. Estimate future capacity requirements 2. Evaluate existing capacity 3. Identify alternatives 4. Conduct financial analysis 5. Assess key qualitative issues 6. Select one alternative 7. Implement alternative chosen 8. Monitor resultsMake or Buy 1. Available capacity 2. Expertise 3. Quality considerations 4. Nature of demand 5. Cost 6. RiskDeveloping 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 levelEconomies 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 costsEvaluating AlternativesFigure 5.3 Production units have an optimal rate of output for minimal cost. Average cost per Minimum average cost per unit unit Minimu m cost 0 Rate of outputEvaluating Alternatives
Figure 5.4 Average cost per unit Minimum cost & optimal operating rate are functions of size of production unit. Small plant Medium plant Large plant 0 Output ratePlanning Service Capacity • 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 periodsCost-Volume Relationships
C+Amount ($) V t= t o s cos lc le Tota riab C va F tal To C) (V Fixed cost (FC) 0 Q (volume in units)Cost-Volume Relationships
Amount ($) al u e ot en T v re 0 Q (volume in units)Cost-Volume Relationships ue en ofi t Amount ($) v re VC PrT C = a l C+ ot F st TC l co =T T ota + VC FC 3 machines T C C= C +V 2 machines FBreak-Even Problem with Step Fixed Costs 1 machine 0 BEP units Q (volume in units) Quantity Step fixed costs and variable costs.
Break-Even Problem with Step Fixed Costs
$ BEP 3 T BE 2 C T P C 3 T C 2 T 1 R Quantit Multiple break-even y pointsAssumptions of Cost-Volume Analysis 1. One product is involved 2. Everything produced can be sold 3. Variable cost per unit is the same regardless of volume 4. Fixed costs do not change with volume 5. Revenue per unit constant with volume 6. Revenue per unit exceeds variable cost per unitFinancial 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
Standard Annual processing time Processing timeProduct Demand per unit (hr.) needed (hr.) #1 400 5.0 2,000 #2 300 8.0 2,400 #3 700 2.0 1,400 5,800
MODULE 5 (10 Hours)Materials Management:Scope of Materials Management, functions,information systems for Materials Management, Purchasing functions, Stores Management, Inventory Management, Materials requirement planning, Just in Time (JIT) and Enterprise Resource Planning (ERP),(Problems in Inventory Management and Vendor Selection)Inventory ManagementInventory • Types of Inventory Items – Raw materials and purchased parts from outside suppliers. – Components: subassemblies that are awaiting final assembly. – Work in process: all materials or components on the production floor in various stages of production. – Finished goods: final products waiting for purchase or to be sent to customers. – Supplies: all items needed but that are not part of the finished product, such as paper clips, duplicating machine toner, and tools.The Role of Inventory Management • Inventory Management – The process of ensuring that the firm has adequate inventories of all parts and supplies needed, within the constraint of minimizing total inventory costs. • Inventory Costs – Ordering (setup) costs – Acquisition costs – Holding (carrying) costs – Stockout costsInventory Costs • Ordering (Setup) Costs – The costs, usually fixed, of placing an order or setting up machines for a production run. • Acquisition Costs – The total costs of all units bought to fill an order, usually varying with the size of the order. • Inventory-Holding (Carrying) Costs – All the costs associated with carrying parts or materials in inventory.
• Stockout Costs – The costs associated with running out of raw materials, parts, or finished- goods inventory.Basic Inventory Management Systems • ABC Inventory Management • Inventory is divided into three dollar-volume categories—A, B, and C—with the A parts being the most active (largest dollar volume). – Inventory surveillance concentrates most on checking the A parts to guard against costly stockouts. – The idea is to focus most on the high-annual-dollar-volume A inventory items, to a lesser extent on the B items, and even less on the C items.Economic Order Quantity (EOQ) • Economic Order Quantity (EOQ) – An inventory management system based on a simple formula that is used to determine the most economical quantity to order so that the total of inventory and setup costs is minimized. – Assumptions: • Constant per unit holding and ordering costs • Constant withdrawals from inventory • No discounts for large quantity orders • Constant lead time for receipt of ordersThe Economic Order Quantity Model
Controlling For Quality And Productivity • Quality – The extent to which a product or service is able to meet customer needs and expectations. • Customer’s needs are the basic standard for measuring quality • High quality does not have to mean high price. • ISO 9000 – The quality standards of the International Standards Organization. • Total Quality Management (TQM) – A specific organization-wide program that integrates all the functions and related processes of a business such that they are all aimed at maximizing customer satisfaction through ongoing improvements. – Also called: Continuous improvement, Zero defects, Six-Sigma, and Kaizen (Japan) • Malcolm Baldridge Award – A prize created in 1987 by the U.S. Department of Commerce to recognize outstanding achievement in quality control management.Inventory: a stock or store of goods Independent Demand A Dependent Demand B(4 C(2 ) ) D(2 E(1 D(3 F(2 ) ) ) ) Independent demand is uncertain. Dependent demand is certain.
Types of Inventories • Raw materials & purchased parts • Partially completed goods called work in progress • Finished-goods inventories – (manufacturing firms) or merchandise (retail stores) • Replacement parts, tools, & supplies • Goods-in-transit to warehouses or customersFunctions of Inventory • To meet anticipated demand • To smooth production requirements • To decouple operations • To protect against stock-outs • To take advantage of order cycles • To help hedge against price increases • To permit operations • To take advantage of quantity discountsObjective of Inventory Control • To achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds – Level of customer service – Costs of ordering and carrying inventoryEffective Inventory Management • A system to keep track of inventory • A reliable forecast of demand • Knowledge of lead times • Reasonable estimates of – Holding costs – Ordering costs – Shortage costs • A classification system
Inventory Counting Systems • Periodic SystemPhysical count of items made at periodic intervals • Perpetual Inventory System System that keeps track of removals from inventory continuously, thus monitoring current levels of each item • Two-Bin System - Two containers of inventory; reorder when the first is empty • Universal Bar Code - Bar code printed on a label that has information about the item to which it is attached 0 214800 232087768Key Inventory Terms • Lead time: time interval between ordering and receiving the order • Holding (carrying) costs: cost to carry an item in inventory for a length of time, usually a year • Ordering costs: costs of ordering and receiving inventory • Shortage costs: costs when demand exceeds supply
ABC Classification SystemClassifying inventory according to some measure of importance and allocating controlefforts accordingly.A - very importantB - mod. importantC - least important Hig h A Annual $ value B of items Lo C w Few Man Number of y ItemsCycle Counting • A physical count of items in inventory • Cycle counting management – How much accuracy is needed? – When should cycle counting be performed? – Who should do it?Economic Order Quantity Models • Economic order quantity model • Economic production model • Quantity discount modelAssumptions of EOQ Model • Only one product is involved • Annual demand requirements known • Demand is even throughout the year • Lead time does not vary • Each order is received in a single delivery • There are no quantity discountsThe Inventory Cycle
Profile of Inventory Level Over Time Q UsageQuantity rateon hand Reorder point Time Receive Place Receive Place Receive order order order order order Lead timeTotal Cost Annual Annual Total cost = carrying + ordering cost cost Q DS TC = H + 2 QCost Minimization Goal
The Total-Cost Curve is U-Shaped Q D TC = H+ S 2 Q Annual Cost Ordering Costs Order Quantity QO (optimal order quantity) (Q)Deriving the EOQUsing calculus, we take the derivative of the total cost function and set the derivative(slope) equal to zero and solve for Q. 2DS 2(Annual Demand)(Order or Setup Cost) Q OPT = = H Annual Holding CostMinimum Total Cost The total cost curve reaches its minimum where the carrying and ordering costsare equal. 2DS 2(Annual Demand)(Order or Setup Cost) Q OPT = = H Annual Holding CostEconomic Production Quantity (EPQ) • Production done in batches or lots
• Capacity to produce a part exceeds the part’s usage or demand rate • Assumptions of EPQ are similar to EOQ except orders are received incrementally during productionEconomic Production Quantity Assumptions • Only one item is involved • Annual demand is known • Usage rate is constant • Usage occurs continually • Production rate is constant • Lead time does not vary • No quantity discountsEconomic Run Size 2 DS p Q0 = H p− uTotal Costs with Purchasing Cost Annual AnnualTC carrying + ordering + Purchasing cost cost cost Q DSTC = 2 H + Q + PD
Total Costs with PDCost Adding Purchasing cost TC with PD doesn’t change EOQ TC without PD PD 0 EOQ Quantity
Total Cost with Constant Carrying Costs
TCa Total Cost TCb Decreasin TCc g Price CC a,b,c O C EO Quantity QWhen to Reorder with EOQ Ordering • Reorder Point - When the quantity on hand of an item drops to this amount, the item is reordered • Safety Stock - Stock that is held in excess of expected demand due to variable demand rate and/or lead time. • Service Level - Probability that demand will not exceed supply during lead time.
Determinants of the Reorder Point • The rate of demand • The lead time • Demand and/or lead time variability • Stockout risk (safety stock)Safety Stock Quantit Maximum probable demand y during lead time Expected demand during lead timeROP Safety stock Tim L T eReorder Point
The ROP based on a normal Distribution of lead time demand Service level Risk of a stockout Probability of no stockout ROP Quantity Expecte d Safety demand stock 0 z z- scaleFixed-Order-Interval Model • Orders are placed at fixed time intervals • Order quantity for next interval? • Suppliers might encourage fixed intervals • May require only periodic checks of inventory levels • Risk of stockoutFixed-Interval Benefits • Tight control of inventory items • Items from same supplier may yield savings in: – Ordering – Packing – Shipping costs • May be practical when inventories cannot be closely monitoredFixed-Interval Disadvantages • Requires a larger safety stock • Increases carrying cost • Costs of periodic reviewsSingle Period Model
• Single period model: model for ordering of perishables and other items with limited useful lives • Shortage cost: generally the unrealized profits per unit • Excess cost: difference between purchase cost and salvage value of items left over at the end of a period • Continuous stocking levels • Identifies optimal stocking levels • Optimal stocking level balances unit shortage and excess cost • Discrete stocking levels • Service levels are discrete rather than continuous • Desired service level is equaled or exceededOperations Strategy • Too much inventory – Tends to hide problems – Easier to live with problems than to eliminate them – Costly to maintain • Wise strategy – Reduce lot sizes – Reduce safety stockEconomic Production Quantity Production Production & Usage & Usage Usage Usage In ve nt or yL ev elMaterial Requirement Planning and Just In TimeMaterial Requirements Planning Information System • Inventory control & production planning
• Schedules component items when they are needed - no earlier and no later – Contrast with “order point” replenishment systemsWhen to Use MRP • Job shop production • Assemble-to-order • Any dependent demand environmentMRP Inputs & Outputs Master Production Schedule Material Product Inventory Requirements Structure Master Planning File File Planned Order Releases Shop Orders Purchase OrdersMaster Production Schedule
Body Axles WheelsAssumption: “wheel assembly” is produced as a work-in-process itemToy Car Product Structure Tree Toy Car Wheel Assembly Body (2) (1) Axel (1) Wheel (2)Toy Car Production Schedule Example
Product Structure Tree Toy Car (includes Bill of Materials info) Lead time = 1 Wheel Assembly (2) Body(1) Lead time = 1 Lead time = 4 Axel (1) Wheel (2) Lead time = 2 Lead time = 1 Master Production Schedule: Period Item 1 2 3 4 5 6 7 8 9 Car 0 0 0 0 0 0 6 8 0 Example Order Release ScheduleItem Number PeriodWheels 28 3Axles 14 3Wheel assembly 14 5Bodies 6 2Bodies 8 4Final assembly 6 6Final assembly 8 8 Production Schedule Period 1 2 3 4 5 6 7 8 9 10 Final Assembly X 6 X 8 Bodies X X 6 8 Wheel Assemblies X 14 Axles X 14 Wheels X 28Rules for Evaluating Toy Car Production Schedules • Final product cannot ship before the required date – ASAP orders can ship as soon as done
• Cost of 4 units for every week late on every car – For ASAP orders, credit of 4 for every week earlier than 5, charge of 4 for every week later than 5 • Carrying cost of one unit for every part from the time it arrives until the final product ships • Carrying cost of one unit for every assembly operation from the time it is finished until the final product shipsCost for Example ScheduleMaster Production Schedule: PeriodItem 1 2 3 4 5 6 7 8 9Car 0 0 0 0 0 0 6 8 0 Production Schedule Period 1 2 3 4 5 6 7 8 9 10 Final Assembly X 6 X 8 Bodies X X 6 8 Wheel Assemblies X 14 Axles X 14 Wheels X 28 Cost = (28+28+28+16+16) + (14+14+8+8) + (14+8+8) +(6+8) + 4*8 Cost = 236Toy Car Exercise
Toy Car Lead time = 1 Wheel Assembly (2) Body(1) Lead time = 1 Lead time = 4 Axel (1) Wheel (2) Lead time = 2 Lead time = 1 Master Production Schedule: Period Item 1 2 3 4 5 6 7 8 9 Car 0 0 0 10? 0 0 0 20 0Car Production Schedule Your Names: Product Structure Tree Work sheet 1 2 3 4 5 6 7 8 9 10 Final Assembly Toy Car Lead time = Bodies Wheel Assemblies Wheel Assembly (2) Lead time = 1 Body(1) Lead time = 4 Axles Wheels Axel (1) Wheel (2) Lead time = 2 Lead time = 1 Answer sheet Cost = 1 2 3 4 5 6 7 8 9 10 Master Production Schedule Final Assembly Bodies Period Wheel Assemblies AxlesItem 1 2 3 4 5 6 7 8 9 WheelsCar 0 0 0 10? 0 0 0 20 0Find the least cost order release and production schedule
Toy Car Lead time = 1 Wheel Assembly (2) Body(1) Lead time = 1 Lead time = 4 Axel (1) Wheel (2) Lead time = 2 Lead time = 1 Master Production Schedule: Period Item 1 2 3 4 5 6 7 8 9 Car 0 0 0 10? 0 0 0 20 0Least Cost Production Schedule 1 2 3 4 5 6 7 8 9 10Final Assembly X 10 X 20Bodies X X 10 20Wheel Assemblies X 20 X 40Axles X 20,X 40Wheels X 40 X 80For one car: • Wheels(4) and axles(2) wait 2 periods, wheel assemblies(2) and bodies wait one period: cost=15For 10 ASAP cars add 40 (for 1 week later than target) to 150 to get 190For 20 week 8 cars, cost is 300Least cost total = 490Real World MRP Inputs – Bill of materials/ Product structure tree, lead times, costs (as in our exercise) – Existing inventory – Capacity – Lots sizes for efficient production – Equipment downtime – Other uncertaintiesCapacity Requirements Planning (CRP)
• Computerized system that projects load from material requirements plan • Creates load profile • Identifies under-loads and over-loadsCapacity Requirements Planning: Inputs and outputs MRP planned order releases Capacity Open Routing requirements orders file planning file Load profile for each machine centerOpen Loop MRP (MRP I)
Production Plan Priority Planning Desired Master Production Schedule No Realistic? Material Requirements (detailed) Priority Control Dispatch List Is specific No capacity adequate? YesMatching Load to Capacity
Hours of Work ancapacity extra shift Overtime Push back Pull ahead Push back 1 2 3 4 5 6 Time (weeks)Closed Loop MRP (MRP II) Production Plan Priority Planning Capacity Planning Desired Master Resource Production Planning Schedule No First Cut Realistic? Capacity Material Capacity Requirements Requirements (detailed) (detailed) Priority Control Capacity Control Dispatch List Input/Output Is Is specific No No average capacity capacity adequate? adequate? Yes YesEnterprise Resource Planning (ERP) • Extension of MRP
• Integrates information on all resources needed for running a business – Especially sales, purchasing, and human resourcesJust-In-Time • Like MRP – aim is to minimize inventory • But people focus is different – MRP – computer optimization – JIT – empowerment of workers doing the job • And inventory technical approach is different – MRP – “push” by computer schedule – JIT – “pull” by need for replenishment as parts are used up • Experience (e.g. Toyota) favors JIT in many situations – Job shop vs repetitiveVideo • JIT implementation at Federal Signal – Specialty lights for emergency vehicles • During the video, make a list of JIT elements in two categories: – Technical stuff (e.g. use of Kanban system) – People stuff (e.g. worker ownership)“Pull” system Production Control Send more widgets Send more widgetsInformation Flow Information Flow Production Production Step 2 Step 3 Material Flow Material Flow Production at Step “2” in controlled by step “3”Kanban - Visual Production Control • Kanban maintains discipline of pull production • Kanban card moves with empty and full containers of parts • Production Kanban authorizes production – And contains production informationThe Broader Sense of JIT • Producing only what is needed, when it is needed
– - eliminate all waste, not just unproductive inventory • An integrated management system. – JIT’s objective: Improve Profits and R.O.I – “World Class” cost, quality, deliveryOverlap with Quality Philosophies (e.g. TQM)Some Examples of Waste • Waiting for parts • Counting parts • Multiple inspections • Over-runs in production • Moving parts over long distances • Storing and retrieving inventory • Looking for tools • Machine breakdown • ReworkEffect of JIT on Workers • Multifunction workers • Cross-training • New pay system to reflect skills variety • Teamwork • Suggestion system
MODULE 6 08 Hours)Production scheduling:Master Production scheduling, detailed scheduling,facility loading sequencing operations, priority sequencing techniques, line balancing and line of balance (LOB),(Problems in Priority sequencing, Johnson’s rule and Line Balancing)Scheduling • Scheduling: Establishing the timing of the use of equipment, facilities and human activities in an organization • Effective scheduling can yield – Cost savings – Increases in productivityHigh-Volume Systems • Flow system: High-volume system with Standardized equipment and activities • Flow-shop scheduling: Scheduling for high-volume flow system Work Center #1 Work Center #2 OutputScheduling Manufacturing Operations JAN FEB MAR APR MAY JUNHigh-volumeIntermediate- Build A A Done volume Build B B Done Build C C DoneLow-volume Build D ShipService operations On time!High-Volume Success Factors
• Process and product design • Preventive maintenance • Rapid repair when breakdown occurs • Optimal product mixes • Minimization of quality problems • Reliability and timing of suppliesIntermediate-Volume Systems • Outputs are between standardized high-volume systems and made-to-order job shops – Run size, timing, and sequence of jobs • Economic run size: 2DS p Q0 = H p− uScheduling Low-Volume Systems • Loading - assignment of jobs to process centers • Sequencing - determining the order in which jobs will be processed • Job-shop scheduling – Scheduling for low-volume systems with many variations in requirementsGantt Load Chart • Gantt chart - used as a visual aid for loading and scheduling Work Mon. Tues. Wed. Thurs. Fri. Center 1 Job 3 Job 4 2 Job 3 Job 7 3 Job 1 Job 6 Job 7 4 Job 10Loading
• Infinite loading • Finite loading • Vertical loading • Horizontal loading • Forward scheduling • Backward scheduling • Schedule chartSequencing • Sequencing: Determine the order in which jobs at a work center will be processed. • Workstation: An area where one person works, usually with special equipment, on a specialized job. • Priority rules: Simple heuristics used to select the order in which jobs will be processed. • Job time: Time needed for setup and processing of a job.Priority Rules • FCFS - first come, first served • SPT - shortest processing time • EDD - earliest due date • CR - critical ratio • S/O - slack per operation • Rush - emergency Top PriorityExample 2
Average Average Average Number of Jobs Rule Flow Time Tardiness at the Work (days) (days) Center FCFS 20.00 9.00 2.93 SPT 18.00 6.67 2.63 EDD 18.33 6.33 2.68 CR 22.17 9.67 3.24Two Work Center Sequencing • Johnson’s Rule: technique for minimizing completion time for a group of jobs to be processed on two machines or at two work centers. • Minimizes total idle time • Several conditions must be satisfiedJohnson’s Rule Conditions • Job time must be known and constant • Job times must be independent of sequence • Jobs must follow same two-step sequence • Job priorities cannot be used • All units must be completed at the first work center before moving to secondJohnson’s Rule Optimum Sequence 1. List the jobs and their times at each work center 2. Select the job with the shortest time 3. Eliminate the job from further consideration 4. Repeat steps 2 and 3 until all jobs have been scheduledScheduling Difficulties • Variability in
– Setup times – Processing times – Interruptions – Changes in the set of jobs • No method for identifying optimal schedule • Scheduling is not an exact science • Ongoing task for a managerMinimizing Scheduling Difficulties • Set realistic due dates • Focus on bottleneck operations • Consider lot splitting of large jobsScheduling Service Operations • Appointment systems – Controls customer arrivals for service • Reservation systems – Estimates demand for service • Scheduling the workforce – Manages capacity for service • Scheduling multiple resources – Coordinates use of more than one resourceCyclical Scheduling • Hospitals, police/fire departments, restaurants, supermarkets • Rotating schedules – Set a scheduling horizon – Identify the work pattern – Develop a basic employee schedule – Assign employees to the scheduleService Operation Problems • Cannot store or inventory services • Customer service requests are random • Scheduling service involves – Customers – Workforce – Equipment
MODULE 7 (08 Hours)Quality Management:Inspection and Quality control,Statistical Quality Control Techniques(Control Charts and acceptance sampling),quality circles Introduction to Total Quality Management (TQM),(Problems in Control Charts)Objectives • To introduce the quality management process and key quality management activities • To explain the role of standards in quality management • To explain the concept of a software metric, predictor metrics and control metrics • To explain how measurement may be used in assessing software quality and the limitations of software measurementQuality ControlControlling For Quality And Productivity • Quality – The extent to which a product or service is able to meet customer needs and expectations. • Customer’s needs are the basic standard for measuring quality • High quality does not have to mean high price. • ISO 9000 – The quality standards of the International Standards Organization.Controlling For Quality And Productivity • Total Quality Management (TQM) – A specific organization-wide program that integrates all the functions and related processes of a business such that they are all aimed at maximizing customer satisfaction through ongoing improvements. – Also called: Continuous improvement, Zero defects, Six-Sigma, and Kaizen (Japan) • Malcolm Baldridge Award – A prize created in 1987 by the U.S. Department of Commerce to recognize outstanding achievement in quality control management.
Checklist 15.1How to Win a Baldridge Award Is the company exhibiting senior executive leadership? Is the company obtaining quality information and analysis? Is the company engaging in strategic quality planning? Is the company developing its human resources? Is the company managing the entire quality process? How does the company measure operational results? Does the company exhibit a customer focus?Quality Control Methods • Acceptance Sampling – a method of monitoring product quality that requires the inspection of only a small portion of the produced items.Example of a Quality Control Chart
Commonly Used Tools for Problem Solving and Continuous Improvement
Fishbone Chart (or Cause-and-Effect Diagram) for Problems with Airline CustomerService
Pareto Analysis ChartPhases of Quality Assurance Inspection and Inspection corrective Quality built before/after action during into the production production process Acceptance Process Continuous sampling control improvemen tThe least The mostprogressive progressive
Inspection • How Much/How Often • Where/When • Centralized vs. On-site Input Transformatio Output s n s Acceptance Process Acceptance sampling control samplingInspection Costs Inspection Costs Cost Total Cost Cost of inspection Cost of passing defectives Optimal Amount of InspectionWhere to Inspect in the Process • Raw materials and purchased parts • Finished products • Before a costly operation • Before an irreversible process • Before a covering process
Examples of Inspection Points Type of Inspection Characteristics business points Fast Food Cashier Accuracy Counter area Appearance, productivity Eating area Cleanliness Building Appearance Kitchen Health regulations Hotel/motel Parking lot Safe, well lighted Accounting Accuracy, timeliness Building Appearance, safety Main desk Waiting times Supermarket Cashiers Accuracy, courtesy Deliveries Quality, quantity • Statistical Process Control: Statistical evaluation of the output of a process during production • Quality of Conformance: A product or service conforms to specificationsControl Chart • Control Chart – Purpose: to monitor process output to see if it is random – A time ordered plot representative sample statistics obtained from an on going process (e.g. sample means) – Upper and lower control limits define the range of acceptable variation
Control Chart Abnormal variation Out of due to assignable sources control UCL Mean Normal variation due to chance LCL Abnormal variation due to assignable sources 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Sample numberStatistical Process Control • The essence of statistical process control is to assure that the output of a process is random so that future output will be random.Statistical Process Control • The Control Process – Define – Measure – Compare – Evaluate – Correct – Monitor resultsStatistical Process Control • Variations and Control – Random variation: Natural variations in the output of a process, created by countless minor factors – Assignable variation: A variation whose source can be identified
Sampling Distribution Sampling distribution Process distribution MeanNormal Distributionσ = Standard −3 −2 +2 +3 Mean 95.44 % 99.74 %Control Limits
Sampling distribution Process distribution Mean Lower control Upper control limit limitSPC Errors • Type I error – Concluding a process is not in control when it actually is. • Type II error – Concluding a process is in control when it is not.Type I Error α/ α/ Mean LC UC α = Probability of L L Type I errorObservations from Sample Distribution
UCLLCL 1 2 3 4 Sample numberControl Charts for VariablesVariables generate data that are measured. • Mean control charts – Used to monitor the central tendency of a process. – X bar charts • Range control charts – Used to monitor the process dispersion – R chartsMean and Range Charts Mean and Range Charts (process mean is shifting upward) Sampling Distribution UCL x-Chart Detects shi ft LCL UCL Doe s not R-chart LCL detect shift
Mean and Range Charts Sampling Distribution (process variability is increasing) UCL Doe s not x-Chart LCL reveal increase UCL R-chart Reveals increase LCLControl Chart for Attributes • p-Chart - Control chart used to monitor the proportion of defectives in a process • c-Chart - Control chart used to monitor the number of defects per unitAttributes generate data that are counted.Use of p-Charts • When observations can be placed into two categories. – Good or bad – Pass or fail – Operate or don’t operate • When the data consists of multiple samples of several observations eachUse of c-Charts • Use only when the number of occurrences per unit of measure can be counted; non-occurrences cannot be counted. – Scratches, chips, dents, or errors per item – Cracks or faults per unit of distance – Breaks or Tears per unit of area – Bacteria or pollutants per unit of volume – Calls, complaints, failures per unit of timeUse of Control Charts • At what point in the process to use control charts • What size samples to take • What type of control chart to use – Variables – Attributes
Run Tests • Run test – a test for randomness • Any sort of pattern in the data would suggest a non-random process • All points are within the control limits - the process may not be randomNonrandom Patterns in Control charts • Trend • Cycles • Bias • Mean shift • Too much dispersion Counting Runs Figure 10.12 Counting Above/Below Median Runs (7 runs) B A A B A B B B A A B Figure 10.13 Counting Up/Down Runs (8 runs) U U D U D U D U U D Process Capability • Tolerances or specifications – Range of acceptable values established by engineering design or customer requirements • Process variability – Natural variability in a process • Process capability – Process variability relative to specification
Figure 10.15 Process Capability Lower Upper Specification Specification A. Process variability matches specifications Lower Upper Specification Specification B. Process variability Lower Upper well w ithin specifications Specification Specification C. Process variability exceeds specificationsProcess Capability Ratio specification widthProcess capability ratio, Cp = process width Cp = Upper specification – lower specification 6σ
3 Sigma and 6 Sigma Quality Lower Upper specificati on specificati on 1350 ppm 1350 ppm 1.7 ppm 1.7 ppm Process mean +/- 3 Sigma +/- 6 SigmaImproving Process Capability • Simplify • Standardize • Mistake-proof • Upgrade equipment • Automate
Figure 10.17 Taguchi Loss Function Tr aditional cost function Cost Taguchi cost function Lower Target Upper spec specLimitations of Capability Indexes 1. Process may not be stable 2. Process output may not be normally distributed 3. Process not centered but Cp is usedAdditional PowerPoint slidescontributed byGeoff Willis,University of Central OklahomaStatistical Process Control (SPC) • Invented by Walter Shewhart at Western Electric • Distinguishes between – common cause variability (random) – special cause variability (assignable) • Based on repeated samples from a process
Empirical Rule -3σ -2σ -1σ µ +1σ +2σ +3σ 68% 95% 99.7%Control Charts in General • Are named according to the statistics being plotted, i.e., X bar, R, p, and c • Have a center line that is the overall average • Have limits above and below the center line at ± 3 standard deviations (usually) Upper Control Limit (UCL) Center line Lower Control Limit (LCL)
Variables Data Charts Variables Data Charts • Process Centering n – X bar chart ∑X i – X bar is a sample mean X = i =1 n • Process Dispersion (consistency) – R chart – R is a sample range R = max( X i ) − min( X i ) X bar charts • Center line is the grand mean (X double bar) m • Points are X bars σx =σ / n ∑Xj j =1 X = m UCL = X + zσ x LCL = X − zσ x -OR- UCL = X + A2 R LCL = X − A2 R
R Charts • Center line is the grand mean (R bar) • Points are R • D3 and D4 values are tabled according to n (sample size) UCL = D4 R LCL = D3 RUse of X bar & R charts • Charts are always used in tandem • Data are collected (20-25 samples) • Sample statistics are computed • All data are plotted on the 2 charts • Charts are examined for randomness • If random, then limits are used “forever” Attribute Charts • c charts – used to count defects in a constant sample size n UCL = c + z c ∑c c= i =1 = centerline LCL = c − z c m
Attribute Charts• p charts – used to track a proportion (fraction) n defective ∑x i pi = i =1 n m ∑p ∑x p= j =1 = ij = centerline m nm p (1 − p ) p (1 − p ) UCL = p + z LCL = p − z n n Process Capability The ratio of process variability to design specifications Natural data spread Text Text Text Text Text Text The natural spread -3σ -2σ -1σ µ +1σ +2σ +3σ of the data is 6σ Title Lower Upper Spec Spec
TrainingMQ4Job rotation/quality fatigue at HondaQuality Measurement
Services/MeasurementSTAO3Survey/Efficiency, Admission/DischargeInspection Acceptance SamplingSampling Plans • Acceptance sampling: Form of inspection applied to lots or batches of items before or after a process, to judge conformance with predetermined standards • Sampling plans: Plans that specify lot size, sample size, number of samples, and acceptance/rejection criteria – Single-sampling – Double-sampling – Multiple-sampling
Operating Characteristic Curve 1 Probability of accepting lot 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 3% 0.1 0 0 .05 .10 .15 .20 .25 Lot quality (fraction defective)Figure 10S.2 Decision Criteria 1.00 Probability of accepting lot Ideal Not very discriminating “Good” “Bad” 0 Lot quality (fraction defective)
Sampling Terms • Acceptance quality level (AQL): the percentage of defects at which consumers are willing to accept lots as “good” • Lot tolerance percent defective (LTPD): the upper limit on the percentage of defects that a consumer is willing to accept • Consumer’s risk: the probability that a lot contained defectives exceeding the LTPD will be accepted • Producer’s risk: the probability that a lot containing the acceptable quality level will be rejected Consumer’s and Producer’s Figure 10S.3 Risk 1 α = .10 Probability of accepting lot 0.9 0.8 0.7 0.6 0.5 LTPD 0.4 0.3 0.2 “Good” Indifferent “Bad” 0.1 β = .10 0 0 .05 .10 .15 .20 .25 AQL Lot quality (fraction defective)
QC Curve for n = 10, c = 1Figure 10S.4 1 .9139 0.9 Probability of acceptance 0.8 .7361 0.7 0.6 .5443 0.5 0.4 .3758 0.3 .2440 0.2 .1493 0.1 .0860 0 0 .10 .20 .30 .40 .50 Fraction defective in lot Average Quality • Average outgoing quality (AOQ): Average of inspected lots (100%) and uninspected lots N − n AOQ = Pac × p N Pac = Probability of accepting lot p = Fraction defective N = Lot size n = Sample size
Example 2: AOQ 0 0 0.05 0.046 0.1 0.1 0.074 AOQ (Fraction defective out) Approximate AOQL = .082 0.080.15 0.082 0.2 0.075 0.060.25 0.061 0.04 0.3 0.045 0.35 0.03 0.02 0.4 0.019 0 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 Incoming fraction defective 100% OC Curves OC Curves come in various shapes depending on theProbability of Accepting Lot 75% sample size and risk of α and β errors 50% This curve is more discriminating 25% This curve is less discriminating .03 .06 .09 Lot Quality (Fraction Defective)
100% The Perfect OC Curve Probability of Accepting Lot 75% This curve distinguishes perfectly between good and bad lots. 50% What would allow you to achieve a curve like 25% this? .03 .06 .09 Lot Quality (Fraction Defective)OC Curve Terms • Acceptable Quality Level (AQL) – Percentage of defective items a customer is willing to accept from you (a property of mfg. process) • Lot Tolerance Percent Defective (LTPD) – Upper limit on the percentage of defects a customer is willing to accept ( a property of the consumer) • Average Outgoing Quality (AOQ) – Average of rejected lots and accepted lots • Average Outgoing Quality Limit (AOQL) – Maximum AOQ for a range of fractions defective
OC Definitions on the Curve 100% α = 0.10 90% Probability of Accepting Lot 75% 50% 25% LTPD AQL β = 0.10 Go od Indifferent Bad .03 .06 .09 Lot Quality (Fraction Defective)Statistical Quality Control TechniquesTopics covered • Process and product quality • Quality assurance and standards • Quality planning • Quality controlSoftware quality management • Concerned with ensuring that the required level of quality is achieved in a software product. • Involves defining appropriate quality standards and procedures and ensuring that these are followed. • Should aim to develop a ‘quality culture’ where quality is seen as everyone’s responsibility.What is quality? • Quality, simplistically, means that a product should meet its specification. • This is problematical for software systems – There is a tension between customer quality requirements (efficiency, reliability, etc.) and developer quality requirements (maintainability, reusability, etc.); – Some quality requirements are difficult to specify in an unambiguous way; – Software specifications are usually incomplete and often inconsistent.
The quality compromise • We cannot wait for specifications to improve before paying attention to quality management. • We must put quality management procedures into place to improve quality in spite of imperfect specification.Scope of quality management • Quality management is particularly important for large, complex systems. The quality documentation is a record of progress and supports continuity of development as the development team changes. • For smaller systems, quality management needs less documentation and should focus on establishing a quality culture.Quality management activities • Quality assurance – Establish organisational procedures and standards for quality. • Quality planning – Select applicable procedures and standards for a particular project and modify these as required. • Quality control – Ensure that procedures and standards are followed by the software development team. • Quality management should be separate from project management to ensure independence.Quality management and software development Software d evelopm ent D1 D2 D3 D4 D5 process Q uality m anagem ent process Stand ard s and Q uality Q uality review repor ts proced ures planProcess and product quality • The quality of a developed product is influenced by the quality of the production process. • This is important in software development as some product quality attributes are hard to assess. • However, there is a very complex and poorly understood relationship between software processes and product quality.
Process-based quality • There is a straightforward link between process and product in manufactured goods. • More complex for software because: – The application of individual skills and experience is particularly imporant in software development; – External factors such as the novelty of an application or the need for an accelerated development schedule may impair product quality. • Care must be taken not to impose inappropriate process standards - these could reduce rather than improve the product quality.Process-based quality D evelop Assess product D efine process product quality Im prove No Q uality Y es Standar dise process OK processPractical process quality • Define process standards such as how reviews should be conducted, configuration management, etc. • Monitor the development process to ensure that standards are being followed. • Report on the process to project management and software procurer. • Don’t use inappropriate practices simply because standards have been established.Quality assurance and standards • Standards are the key to effective quality management. • They may be international, national, organizational or project standards. • Product standards define characteristics that all components should exhibit e.g. a common programming style. • Process standards define how the software process should be enacted.Importance of standards
• Encapsulation of best practice- avoids repetition of past mistakes. • They are a framework for quality assurance processes - they involve checking compliance to standards. • They provide continuity - new staff can understand the organisation by understanding the standards that are used.Product and process standards Product and process standards Product standa rds Process standa rds Design review form Design review conduct Requirements document structure Submission of documents to CM Method header format Version release process Java programming style Project plan approval process Project plan format Change control process Change request form Test recording processProblems with standards • They may not be seen as relevant and up-to-date by software engineers. • They often involve too much bureaucratic form filling. • If they are unsupported by software tools, tedious manual work is often involved to maintain the documentation associated with the standards.Standards development
• Involve practitioners in development. Engineers should understand the rationale underlying a standard. • Review standards and their usage regularly. Standards can quickly become outdated and this reduces their credibility amongst practitioners. • Detailed standards should have associated tool support. Excessive clerical work is the most significant complaint against standards.ISO 9000 • An international set of standards for quality management. • Applicable to a range of organisations from manufacturing to service industries. • ISO 9001 applicable to organisations which design, develop and maintain products. • ISO 9001 is a generic model of the quality process that must be instantiated for each organisation using the standard. ISO 9001 Management responsibility Quality system Control of non-conforming products Design control Handling, storage, packaging and Purchasing delivery Purchaser-supplied products Product identification and traceability Process control Inspection and testing Inspection and test equipment Inspection and test status Contract review Corrective action Document control Quality records Internal quality audits Training Servicing Statistical techniquesISO 9000 certification
• Quality standards and procedures should be documented in an organisational quality manual. • An external body may certify that an organisation’s quality manual conforms to ISO 9000 standards. • Some customers require suppliers to be ISO 9000 certified although the need for flexibility here is increasingly recognised.ISO 9000 and quality management ISO 9000 quality m od els instantia ted as d ocum ents Organisa tion Organisa tion quality m an ual quality pr ocess is used to d e velop instantia ted as Proj 1 ect Proj 2 ect Proj 3 ect Proj ct quality e quality plan quality plan quality plan m ana gem e nt Suppor tsDocumentation standards • Particularly important - documents are the tangible manifestation of the software. • Documentation process standards – Concerned with how documents should be developed, validated and maintained. • Document standards – Concerned with document contents, structure, and appearance. • Document interchange standards – Concerned with the compatibility of electronic documents.Documentation process
I ncorporate Cr eate Review Re-draft review initial d r aft draft d ocum ent com m entsStage 1:C reation Approved docum ent Proofread Prod uce Check text final draft final draftStage 2:Polishing Approved docum ent Layout Review Prod uce Print text layout print m asters copiesStage 3:ProductionDocument standards • Document identification standards – How documents are uniquely identified. • Document structure standards – Standard structure for project documents. • Document presentation standards – Define fonts and styles, use of logos, etc. • Document update standards – Define how changes from previous versions are reflected in a document.Document interchange standards • Interchange standards allow electronic documents to be exchanged, mailed, etc. • Documents are produced using different systems and on different computers. Even when standard tools are used, standards are needed to define conventions for their use e.g. use of style sheets and macros. • Need for archiving. The lifetime of word processing systems may be much less than the lifetime of the software being documented. An archiving standard may be defined to ensure that the document can be accessed in future.Quality planning
• A quality plan sets out the desired product qualities and how these are assessed and defines the most significant quality attributes. • The quality plan should define the quality assessment process. • It should set out which organisational standards should be applied and, where necessary, define new standards to be used.Quality plans • Quality plan structure – Product introduction; – Product plans; – Process descriptions; – Quality goals; – Risks and risk management. • Quality plans should be short, succinct documents – If they are too long, no-one will read them.Software quality attributes Software quality attributes Safety Understandability Portability Security Testability Usability Reliability Adaptability Reusability Resilience Modularity Efficiency Robustness Complexity Lea rnabilityQuality control • This involves checking the software development process to ensure that procedures and standards are being followed. • There are two approaches to quality control – Quality reviews; – Automated software assessment and software measurement.Quality reviews
• This is the principal method of validating the quality of a process or of a product. • A group examines part or all of a process or system and its documentation to find potential problems. • There are different types of review with different objectives – Inspections for defect removal (product); – Reviews for progress assessment (product and process); – Quality reviews (product and standards). Types of review Review type Principal purpose Design or program To detect detailed errors in the requirements, design or code. A checklist of inspections possible errors should drive the review. Progress reviews To provide information for management about the overall progress of the project. This is b oth a process and a product review and is concerned with costs, plans and schedules. Quality reviews To carry out a technical analysis of product components or documentation to find mismatches between the specification and the component design, code or documentation and to ensure that defined quality standards have been followed.Quality reviews
• A group of people carefully examine part or all of a software system and its associated documentation. • Code, designs, specifications, test plans, standards, etc. can all be reviewed. • Software or documents may be signed off at a review which signifies that progress to the next development stage has been approved by management.Review functions • Quality function - they are part of the general quality management process. • Project management function - they provide information for project managers. • Training and communication function - product knowledge is passed between development team members.Quality reviews • The objective is the discovery of system defects and inconsistencies. • Any documents produced in the process may be reviewed. • Review teams should be relatively small and reviews should be fairly short. • Records should always be maintained of quality reviews.Review results • Comments made during the review should be classified – No action. No change to the software or documentation is required; – Refer for repair. Designer or programmer should correct an identified fault; – Reconsider overall design. The problem identified in the review impacts other parts of the design. Some overall judgement must be made about the most cost-effective way of solving the problem; • Requirements and specification errors may have to be referred to the client.Software measurement and metrics • Software measurement is concerned with deriving a numeric value for an attribute of a software product or process. • This allows for objective comparisons between techniques and processes. • Although some companies have introduced measurement programmes, most organisations still don’t make systematic use of software measurement. • There are few established standards in this area.Software metric
• Any type of measurement which relates to a software system, process or related documentation – Lines of code in a program, the Fog index, number of person-days required to develop a component. • Allow the software and the software process to be quantified. • May be used to predict product attributes or to control the software process. • Product metrics can be used for general predictions or to identify anomalous components.Predictor and control metrics Softw are Softw are process prod uct Control Pred ictor m easur em ents m easur em ents M anagem ent d ecisionsMetrics assumptions • A software property can be measured. • The relationship exists between what we can measure and what we want to know. We can only measure internal attributes but are often more interested in external software attributes. • This relationship has been formalised and validated. • It may be difficult to relate what can be measured to desirable external quality attributes.Internal and external attributes
N um ber of proced ur e param eters M aintaina bility Cyclom atic com ple xity Reliability Prog r siz e in lines am of cod e Portability N um ber of error m essa ges U sability L ength of user m an ualThe measurement process • A software measurement process may be part of a quality control process. • Data collected during this process should be maintained as an organisational resource. • Once a measurement database has been established, comparisons across projects become possible.Product measurement process Choose Analyse m easur em ents anom alous to be m ad e com ponents Select I d entify com ponents to anom alous be assessed m easur em ents M easure com ponent characteristicsData collection
• A metrics programme should be based on a set of product and process data. • Data should be collected immediately (not in retrospect) and, if possible, automatically. • Three types of automatic data collection – Static product analysis; – Dynamic product analysis; – Process data collation.Data accuracy • Don’t collect unnecessary data – The questions to be answered should be decided in advance and the required data identified. • Tell people why the data is being collected. – It should not be part of personnel evaluation. • Don’t rely on memory – Collect data when it is generated not after a project has finished.Product metrics • A quality metric should be a predictor of product quality. • Classes of product metric – Dynamic metrics which are collected by measurements made of a program in execution; – Static metrics which are collected by measurements made of the system representations; – Dynamic metrics help assess efficiency and reliability; static metrics help assess complexity, understandability and maintainability.Dynamic and static metrics • Dynamic metrics are closely related to software quality attributes – It is relatively easy to measure the response time of a system (performance attribute) or the number of failures (reliability attribute). • Static metrics have an indirect relationship with quality attributes – You need to try and derive a relationship between these metrics and properties such as complexity, understandability and maintainability.Software product metrics
Soft ware metric DescriptionFan in/Fan-out Fan-in is a measure of the number of functions or methods that call some other function or method (say X). Fan-out is the number of functions that are called by function X. A high value for fan-in means that X i s tightly coupled to the rest of the design and changes to X will have extensive knock-on effects. A high value for fan-out suggests that the overall complexity of X m ay be high because of the complexity of the control logic needed to coordinate the called components.Length of code This is a measure of the size of a program. Generally, the larger the size of the code of a component, the more complex and error-prone that component is likely to be. Length of code has been shown to be one of the most reliable metrics for predicting error- proneness in components.Cyclomatic complexity This is a m easure of the control complexity of a p rogram. This control complexity may be related to program understandabil ity. I discuss how to compute cyclomatic complexity in Chapter 22.Length of identifiers This is a measure of the average length of distinct identifiers in a p rogram. The longer the identifiers, the more likely they are to be m eaningful and hence the more understandable the program.Depth of conditional This is a measure of the depth of nesting of if-statements in a program. Deeply nested ifnesting statements are hard to understand and are potentially error-prone.Fog index This is a measure of the average length of words and sentences in documents. The higher the value for the Fog index, the more difficult the document is to understand.Object-oriented metrics
Object-orient ed Description m etric Dep th of inhe ritance This represents the nu m be r of discrete leve ls in the inher itance tree whe re sub- tree classes inhe rit a ttributes and operations (methods ) from supe r-classes. The deep er the inhe ritance tree, the more complex the design . Many di fferent ob ject classes m ay have to be unde rstood to unde rstand the ob ject classes at the leave s of the tree. Method fan-in/fan - This is directly related to fan-in and fan-ou t as de scribed abo ve and m eans out essentially the sam e thing . How ever , it m ay be app ropriate to make a distinction between calls from other methods w ithin the object and calls from external method s. Weigh ted m ethods This is the num ber of m ethods that are inc luded in a class we ighted by the pe r class com plexity o f each m ethod. The refore, a simple method m ay hav e a co m plexity of 1 and a large and complex m ethod a m uch high er va lue . The larger the va lue for this m etric, the m ore co mplex the ob ject class. Comp lex ob jects are m ore likely to be more difficult to under stand . They m ay not be logically cohesive so canno t be reused effective ly as sup er-classes in an inhe ritance tree. Num ber of This is the num ber of ope rations in a super -class that are ove r-ridden in a sub - ove rriding class. A h igh va lue f or this metric ind icates that the sup er-class used may no t be ope rations an app ropr iate parent for the sub -class.Measurement analysis • It is not always obvious what data means – Analysing collected data is very difficult. • Professional statisticians should be consulted if available. • Data analysis must take local circumstances into account.Measurement surprises • Reducing the number of faults in a program leads to an increased number of help desk calls – The program is now thought of as more reliable and so has a wider more diverse market. The percentage of users who call the help desk may have decreased but the total may increase; – A more reliable system is used in a different way from a system where users work around the faults. This leads to more help desk calls.
Key points • Software quality management is concerned with ensuring that software meets its required standards. • Quality assurance procedures should be documented in an organisational quality manual. • Software standards are an encapsulation of best practice. • Reviews are the most widely used approach for assessing software quality. • Software measurement gathers information about both the software process and the software product. • Product quality metrics should be used to identify potentially problematical components. • There are no standardised and universally applicable software metrics.
MODULE 8 (06 Hours)Technology Management:Advanced Manufacturing Technology,Automation and Robotics,Managing Technological Change,Applications of Information Technology in POM,Maintenance Managementand Total Productive MaintenanceDesign for Manufacturability • Designing for Manufacturability (DFM) – Designing products with ease of manufacturing and quality in mind. DFM Goals: • Exhibit the desired level of quality and reliability. • Be designed in the least time with the least development cost. Make the quickest and smoothest transition into production. • Be produced and tested with the minimum cost in the minimum amount of time. • Satisfy customers’ needs and compete in the marketplace. • Concurrent Engineering – Designing products in multidisciplinary teams so that all departments involved in the product’s success contribute to its design.
Just-In-Time (JIT) • Just-In-Time (JIT) – A production control method used to attain minimum inventory levels by ensuring delivery of materials and assemblies just when they are to be used. – A philosophy of lean or value-added manufacturing manufacturing that aims to optimize production processes by continuously reducing waste. – A management philosophy that assumes that any manufacturing process that does not add value to the product for the customer is wasteful. • Seven Wastes and Their Solutions – Overproduction: reduce by producing only what is needed as it is needed. – Waiting: synchronize the workflow. – Transportation: minimize transport with better layouts. – Processing: “Why do we need this process at all?” – Stock: reduce inventories. – Motion: reduce wasted employee motions. – Defective products: improve quality to reduce rework.Computer-Aided Design and Manufacturing • Computer-Aided Design (CAD) – A computerized process for designing new products, modifying existing ones, or simulating conditions that may affect the designs. • Computer-Aided Manufacturing (CAM) – A computerized process for planning and programming production processes and equipment.Flexible Manufacturing Systems • Flexible Manufacturing System (FMS) – The organization of groups of production machines that are connected by automated materials-handling and transfer machines, and integrated into a computer system for the purpose of combining the benefits of made-to- order flexibility and mass-production efficiency. • Automation – The automatic operation of a system, process, or machine.Computer-Integrated Manufacturing • Computer-Integrated Manufacturing (CIM) – The total integration of all production-related business activities through the use of computer systems. – Automation, JIT, flexible manufacturing, and CAD/CAM are integrated into one self-regulating production system.
The Elements of CIMSupply Chain Management • Supply Chain Management – The integration of the activities that procure materials, transform them into intermediate goods and final product, and deliver them to customers.Trends in Supply Chain Management • Supplier Partnering – Choosing to do business with a limited number of suppliers, with the aim of building relationships that improve quality and reliability rather than just improve costs. • Channel assembly – Organizing the product assembly process so that the company doesn’t send finished products to its distribution channel partners, but instead sends the partners components and modules. Partners become an extension of the firm’s product assembly process.
• Channel Assembly – Organizing the product assembly process so that a company sends its distribution channel partners components and modules rather than finished products. The partners then become an extension of the firm’s product assembly process. • Internet Purchasing (e-Procurement) – Vendors interact with other firms via the Internet to accept, place and acknowledge orders via the Web.The Supply ChainManaging Services • Service Management – A total organization-wide approach that makes quality of service the business’s number one driving force. • Why Service Management Is Important – Service is a competitive advantage. – Bad service leads to lost customers. – Customer defections drain profits. • Moment of Truth – The instant when the customer comes into contact with any aspect of a business and, based on that contact, forms an opinion about the quality of the service or product. • Cycle of Service – Includes all of the moments of truth experienced by a typical customer, from first to last.
The Service Triangle (Karl Albrecht) Well-Conceived Service Strategy Customer- Oriented Customer-Friendly Front-line People SystemsHow to Implement a Service Management Program Step I: The Service Audit Step 2: Strategy Development Step 3: Education Step 4: Implementation Step 5: Maintenance— Making the Change Permanent
Chapter 5Production Technology: Selection and ManagementOverview • Introduction • Proliferation of Automation • Types of Automation • Automated Production Systems • Factories of the Future • Automation in Services • Automation Issues • Deciding Among Automation Alternatives • Wrap-Up: What World-Class Producers DoIntroduction • In the past, automation meant the replacement of human effort with machine effort. • Today, automation means integrating a full range of advanced information and engineering discoveries into production processes for strategic purposes.Advanced Production Technology • Types of Automation • Automated Production Systems • Factories of the Future • Automation in Services • Automation Issues • Decision ApproachesTypes of Automation • Machine Attachments - one operation • Numerically Controlled (N/C) - reads computer or tape inputs • Robots - simulates human movements • Automated Quality Control - verifies conformance to specifications • Auto ID Systems - automatic acquisition of data • Automated Process Control - adjusts processes per set parametersAutomated Production Systems • Automated Flow Lines (Fixed Automation) – Automated processes linked by automated material transfer • Automated Assembly Systems – Automated assembly processes linked by automated material transfer • Flexible Manufacturing Systems (FMS) – Groups of processes, arranged in sequence, connected by automated material transfer, and integrated by a computer system
Volume & Variety of Products Volume & Variety Low Volume High Repetitive High Volume Low of products Variety Process process Variety Process (Intermittent) (modular) (Continuous) One or very few Project Poor strategy units per lot (Fixed costs and cost of changing to other products Very small runs, Job shop are high) high variety Modest runs, Disconnected modest variety Repetitive Long runs, Connected modest Poor Strategy Repetitive variations Very long runs, (High variable Continuous changes in costs) attributes Equipment 5%-25% 20%-75% 70%-80% utilization
Process Design Depends on Product Diversity and Batch Size Product This is an area of today’s Focused, automation programs Dedicated Systems Batch Size Product Focused, Batch System Cellular Manufacturing Process-Focused, Job Shop Number of Product Designs
Flexible Manufacturing System Products General purpose 1000 Work cells CIM 100 Flexible Manufacturing Focused System automation 10 Dedicated automation 1 1 10 100 1000 10000 100000 1000000 VolumeDesign Products for Automation • Reduce amount of assembly required..fewer parts • Reduce number of fasteners needed • Design parts to be automatically delivered/positioned • Design for layered assembly... base to top • Design parts to self-align • Design parts into major modules • Increase quality of components to avoid jamsMaterial-Handling Automation • Automated Storage & Retrieval System (ASRS) – Receive orders, pick parts, maintain inventory records – Benefits: increase storage density and throughput, reduce labor costs, improve product quality – Drawbacks: added maintenance costs • Automated Guided Vehicle (AGVS) – Follows wire or track in floor. Newer versions use sensors placed around the factory to figure out where they are. • Don’t build monuments to manage inventory! – Most factories moving towards point-of-use stocks – Receiving docks built all around the exterior of buildings
Computer-Based Systems • Computer-Aided Design (CAD) - Use of computer in interactive engineering drawing and storage of designs • Computer-Aided Manufacturing (CAM) - Use of computers to program, direct and control processes • CAD/CAM - merger and interaction between the two systemsComputer Integrated Manufacturing (CIM) ASRS AGV AutomatedIncorporates all manufacturing processes NC Assembly Machining Order Entry CAD/CAMCharacteristics of Factories of the Future • High product quality • High flexibility • Fast delivery of customer orders • Changed production economics • Computer-driven and computer-integrated systems • Organization structure changesAutomation in Services • Trend developing toward more-standardized services and less customer contact. • Service standardization brings trade-offs: – Service not custom-designed for each customer – Price of service reduced, or at least contained • Banking industry is becoming increasingly automated • Service firm can have a manual/automated mix: – Manual - “front room” operations – Automated - “back room” operations
Automation Issues • Not all automation projects are successful. • Automation cannot make up for poor management. • Economic analysis cannot justify automation of some operations. • It is not technically feasible to automate some operations. • Automation projects may have to wait in small and start-up businesses.Automation Questions • What level of automation is appropriate? • How would automation affect the flexibility of an operation system? • How can automation projects be justified? • How should technological change be managed? • What are some of the consequences of implementing an automation project?Watch Out For !!! • Success .... many projects are not... high tech skills required to manage advanced technologies • Technical feasibility.... There always are bugs with new technology • Economic analysis ... include both qualitative and quantitativeManaging Technological Change • Have a master plan for automation. • Recognize the risks in automating. • Establish a new production technology department • Allow ample time for completion of automation. • Do not try to automate everything at once. • People are the key to making automation successful. • Don’t move too slowly in adopting new production technology; you might loose your competitive edge.Deciding Among Automation AlternativesThree approaches commonly used in industry: • Economic Analysis • Rating Scale Approach • Relative-Aggregate-Scores ApproachEconomic Analysis • Provides an idea of the direct impact of automation alternatives on profitability. • Break-even analysis and financial analysis are frequently used. • Focus might be on: – cash flows – variable cost per unit – annual fixed costs – average production cost per unit
Rating Scale ApproachAutomation alternatives are rated using, say, a five-point scale on a variety of factors such as: • Economic measures • Effect on market share • Effect on quality • Effect on manufacturing flexibility • Effect on labor relations • Amount of time required for implementation • Effect on ongoing productionRelative-Aggregate-Scores Approach • Similar to Rating Scale Approach, but weights are formally assigned to each factor which permits the direct calculation of an overall rating for each alternative.Wrap-Up: World-Class Practice • World-Class producers utilize the latest technologies/practices. For example: – Design products to be automation-friendly – Use CAD/CAM for designing products – Convert fixed automation to flexible automation – Move towards smaller batch sizes – Plan for automation – Build teams to develop automated systems – Justify automation based on multiple factorsMaintenanceIntroduction • Maintenance – All activities that maintain facilities and equipment in good working order so that a system can perform as intended • Breakdown maintenance – Reactive approach; dealing with breakdowns or problems when they occur • Preventive maintenance – Proactive approach; reducing breakdowns through a program of lubrication, adjustment, cleaning, inspection, and replacement of worn partsMaintenance Reasons • Reasons for keeping equipment running – Avoid production disruptions – Not add to production costs – Maintain high quality – Avoid missed delivery dates
Breakdown Consequences • Production capacity is reduced – Orders are delayed • No production – Overhead continues – Cost per unit increases • Quality issues – Product may be damaged • Safety issues – Injury to employees – Injury to customersTotal Maintenance Cost Total CostCost Preventive maintenance cost Breakdown and repair cost Optimum Amount of preventive maintenancePreventive Maintenance • Preventive maintenance: goal is to reduce the incidence of breakdowns or failures in the plant or equipment to avoid the associated costs • Preventive maintenance is periodic
– Result of planned inspections – According to calendar – After predetermined number of hoursExample S-1 Frequency of breakdown Number of 0 1 2 3 breakdowns Frequency of . . . . occurrence 20 30 40 10 If the average cost of a breakdown is $1,000, and the cost of preventative maintenance is $1,250 per month, should we use preventive maintenance?Example S-1 SolutionNumber of Frequency of Expected number ofBreakdowns Occurrence Breakdowns0 .20 01 .30 .302 .40 .803 .10 .30 1.00 1.40Expected cost to repair = 1.4 breakdowns per month X $1000 = $1400Preventive maintenance = $1250PM results in savings of $150 per month
Predictive Maintenance • Predictive maintenance – An attempt to determine when best to perform preventive maintenance activities • Total productive maintenance – JIT approach where workers perform preventive maintenance on the machines they operateBreakdown Programs • Standby or backup equipment that can be quickly pressed into service • Inventories of spare parts that can be installed as needed • Operators who are able to perform minor repairs • Repair people who are well trained and readily available to diagnose and correct problems with equipmentReplacement • Trade-off decisions – Cost of replacement vs cost of continued maintenance – New equipment with new features vs maintenance – Installation of new equipment may cause disruptions – Training costs of employees on new equipment – Forecasts for demand on equipment may require new equipment capacity • When is it time for replacement?