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Forcasting

  1. 1. © 2008 Prentice Hall, Inc. 4 – 1 Operations Management ForecastingForecasting
  2. 2. © 2008 Prentice Hall, Inc. 4 – 2 What is Forecasting?What is Forecasting?  Process ofProcess of predicting a futurepredicting a future eventevent  Underlying basis ofUnderlying basis of all businessall business decisionsdecisions  ProductionProduction  InventoryInventory  PersonnelPersonnel  FacilitiesFacilities ??
  3. 3. © 2008 Prentice Hall, Inc. 4 – 3  Short-range forecastShort-range forecast  Up to 1 year, generally less than 3 monthsUp to 1 year, generally less than 3 months  Purchasing, job scheduling, workforcePurchasing, job scheduling, workforce levels, job assignments, production levelslevels, job assignments, production levels  Medium-range forecastMedium-range forecast  3 months to 3 years3 months to 3 years  Sales and production planning, budgetingSales and production planning, budgeting  Long-range forecastLong-range forecast  33++ yearsyears  New product planning, facility location,New product planning, facility location, research and developmentresearch and development Forecasting Time HorizonsForecasting Time Horizons
  4. 4. © 2008 Prentice Hall, Inc. 4 – 4 Distinguishing DifferencesDistinguishing Differences Medium/long rangeMedium/long range forecasts deal withforecasts deal with more comprehensive issues and supportmore comprehensive issues and support management decisions regardingmanagement decisions regarding planning and products, plants andplanning and products, plants and processesprocesses Short-termShort-term forecasting usually employsforecasting usually employs different methodologies than longer-termdifferent methodologies than longer-term forecastingforecasting Short-termShort-term forecasts tend to be moreforecasts tend to be more accurate than longer-term forecastsaccurate than longer-term forecasts
  5. 5. © 2008 Prentice Hall, Inc. 4 – 5 Influence of Product LifeInfluence of Product Life CycleCycle  Introduction and growth require longerIntroduction and growth require longer forecasts than maturity and declineforecasts than maturity and decline  As product passes through life cycle,As product passes through life cycle, forecasts are useful in projectingforecasts are useful in projecting  Staffing levelsStaffing levels  Inventory levelsInventory levels  Factory capacityFactory capacity Introduction – Growth – Maturity – Decline
  6. 6. © 2008 Prentice Hall, Inc. 4 – 6 Types of ForecastsTypes of Forecasts  Economic forecastsEconomic forecasts  Address business cycle – inflation rate,Address business cycle – inflation rate, money supply, housing starts, etc.money supply, housing starts, etc.  Technological forecastsTechnological forecasts  Predict rate of technological progressPredict rate of technological progress  Impacts development of new productsImpacts development of new products  Demand forecastsDemand forecasts  Predict sales of existing products andPredict sales of existing products and servicesservices
  7. 7. © 2008 Prentice Hall, Inc. 4 – 7 Strategic Importance ofStrategic Importance of ForecastingForecasting  Human Resources – Hiring, training,Human Resources – Hiring, training, laying off workerslaying off workers  Capacity – Capacity shortages canCapacity – Capacity shortages can result in undependable delivery, lossresult in undependable delivery, loss of customers, loss of market shareof customers, loss of market share  Supply Chain Management – GoodSupply Chain Management – Good supplier relations and pricesupplier relations and price advantagesadvantages
  8. 8. © 2008 Prentice Hall, Inc. 4 – 8 Seven Steps in ForecastingSeven Steps in Forecasting  Determine the use of the forecastDetermine the use of the forecast  Select the items to be forecastedSelect the items to be forecasted  Determine the time horizon of theDetermine the time horizon of the forecastforecast  Select the forecasting model(s)Select the forecasting model(s)  Gather the dataGather the data  Make the forecastMake the forecast  Validate and implement resultsValidate and implement results
  9. 9. © 2008 Prentice Hall, Inc. 4 – 9 Forecasting ApproachesForecasting Approaches  Used when situation is vagueUsed when situation is vague and little data existand little data exist  New productsNew products  New technologyNew technology  Involves intuition, experienceInvolves intuition, experience  e.g., forecasting sales on Internete.g., forecasting sales on Internet Qualitative MethodsQualitative Methods
  10. 10. © 2008 Prentice Hall, Inc. 4 – 10 Forecasting ApproachesForecasting Approaches  Used when situation is ‘stable’ andUsed when situation is ‘stable’ and historical data existhistorical data exist  Existing productsExisting products  Current technologyCurrent technology  Involves mathematical techniquesInvolves mathematical techniques  e.g., forecasting sales of colore.g., forecasting sales of color televisionstelevisions Quantitative MethodsQuantitative Methods
  11. 11. © 2008 Prentice Hall, Inc. 4 – 11 Qualitative Forecasting Methods Qualitative Forecasting Models Market Research/ Survey Sales Force Composite Executive Judgement Delphi Method Smoothing
  12. 12. © 2008 Prentice Hall, Inc. 4 – 12 Overview of QualitativeOverview of Qualitative MethodsMethods  Jury of executive opinionJury of executive opinion  Pool opinions of high-level experts,Pool opinions of high-level experts, sometimes augment by statisticalsometimes augment by statistical modelsmodels  Delphi methodDelphi method  Panel of experts, queried iterativelyPanel of experts, queried iteratively
  13. 13. © 2008 Prentice Hall, Inc. 4 – 13 Overview of QualitativeOverview of Qualitative MethodsMethods  Sales force compositeSales force composite  Estimates from individualEstimates from individual salespersons are reviewed forsalespersons are reviewed for reasonableness, then aggregatedreasonableness, then aggregated  Consumer Market SurveyConsumer Market Survey  Ask the customerAsk the customer
  14. 14. © 2008 Prentice Hall, Inc. 4 – 14  Involves small group of high-level expertsInvolves small group of high-level experts and managersand managers  Group estimates demand by workingGroup estimates demand by working togethertogether  Combines managerial experience withCombines managerial experience with statistical modelsstatistical models  Relatively quickRelatively quick  ‘‘Group-think’Group-think’ disadvantagedisadvantage Jury of Executive OpinionJury of Executive Opinion
  15. 15. © 2008 Prentice Hall, Inc. 4 – 15 Sales Force CompositeSales Force Composite  Each salesperson projects his orEach salesperson projects his or her salesher sales  Combined at district and nationalCombined at district and national levelslevels  Sales reps know customers’ wantsSales reps know customers’ wants  Tends to be overly optimisticTends to be overly optimistic
  16. 16. © 2008 Prentice Hall, Inc. 4 – 16 Delphi MethodDelphi Method  Iterative groupIterative group process,process, continues untilcontinues until consensus isconsensus is reachedreached  3 types of3 types of participantsparticipants  Decision makersDecision makers  StaffStaff  RespondentsRespondents Staff (Administering survey) Decision Makers (Evaluate responses and make decisions) Respondents (People who can make valuable judgments)
  17. 17. © 2008 Prentice Hall, Inc. 4 – 17 Consumer Market SurveyConsumer Market Survey  Ask customers about purchasingAsk customers about purchasing plansplans  What consumers say, and whatWhat consumers say, and what they actually do are often differentthey actually do are often different  Sometimes difficult to answerSometimes difficult to answer
  18. 18. © 2008 Prentice Hall, Inc. 4 – 18 Overview of QuantitativeOverview of Quantitative ApproachesApproaches 1.1. Naive approachNaive approach 2.2. Moving averagesMoving averages 3.3. ExponentialExponential smoothingsmoothing 4.4. Trend projectionTrend projection 5.5. Linear regressionLinear regression Time-SeriesTime-Series ModelsModels AssociativeAssociative ModelModel
  19. 19. © 2008 Prentice Hall, Inc. 4 – 19 Trend Seasonal Cyclical Random Time Series ComponentsTime Series Components
  20. 20. © 2008 Prentice Hall, Inc. 4 – 20 Components of DemandComponents of DemandDemandforproductorservice | | | | 1 2 3 4 Year Average demand over four years Seasonal peaks Trend component Actual demand Random variation Figure 4.1Figure 4.1
  21. 21. © 2008 Prentice Hall, Inc. 4 – 21  Persistent, overall upward orPersistent, overall upward or downward patterndownward pattern  Changes due to population,Changes due to population, technology, age, culture, etc.technology, age, culture, etc.  Typically several yearsTypically several years durationduration Trend ComponentTrend Component
  22. 22. © 2008 Prentice Hall, Inc. 4 – 22  Regular pattern of up andRegular pattern of up and down fluctuationsdown fluctuations  Due to weather, customs, etc.Due to weather, customs, etc.  Occurs within a single yearOccurs within a single year Seasonal ComponentSeasonal Component Number of Period Length Seasons Week Day 7 Month Week 4-4.5 Month Day 28-31 Year Quarter 4 Year Month 12 Year Week 52
  23. 23. © 2008 Prentice Hall, Inc. 4 – 23  Repeating up and down movementsRepeating up and down movements  Affected by business cycle,Affected by business cycle, political, and economic factorspolitical, and economic factors  Multiple years durationMultiple years duration  Often causal orOften causal or associativeassociative relationshipsrelationships Cyclical ComponentCyclical Component 00 55 1010 1515 2020
  24. 24. © 2008 Prentice Hall, Inc. 4 – 24  Erratic, unsystematic, ‘residual’Erratic, unsystematic, ‘residual’ fluctuationsfluctuations  Due to random variation orDue to random variation or unforeseen eventsunforeseen events  Short duration andShort duration and nonrepeatingnonrepeating Random ComponentRandom Component MM TT WW TT FF
  25. 25. © 2008 Prentice Hall, Inc. 4 – 25 Naive ApproachNaive Approach  Assumes demand in nextAssumes demand in next period is the same asperiod is the same as demand in most recent perioddemand in most recent period  e.g., If January sales were 68, thene.g., If January sales were 68, then February sales will be 68February sales will be 68  Sometimes cost effective andSometimes cost effective and efficientefficient  Can be good starting pointCan be good starting point
  26. 26. © 2008 Prentice Hall, Inc. 4 – 26  MA is a series of arithmetic meansMA is a series of arithmetic means  Used if little or no trendUsed if little or no trend  Used often for smoothingUsed often for smoothing  Provides overall impression of dataProvides overall impression of data over timeover time Moving Average MethodMoving Average Method Moving average =Moving average = ∑∑ demand in previous n periodsdemand in previous n periods nn
  27. 27. © 2008 Prentice Hall, Inc. 4 – 27 JanuaryJanuary 1010 FebruaryFebruary 1212 MarchMarch 1313 AprilApril 1616 MayMay 1919 JuneJune 2323 JulyJuly 2626 ActualActual 3-Month3-Month MonthMonth Shed SalesShed Sales Moving AverageMoving Average (12 + 13 + 16)/3 = 13(12 + 13 + 16)/3 = 13 22 //33 (13 + 16 + 19)/3 = 16(13 + 16 + 19)/3 = 16 (16 + 19 + 23)/3 = 19(16 + 19 + 23)/3 = 19 11 //33 Moving Average ExampleMoving Average Example 1010 1212 1313 ((1010 ++ 1212 ++ 1313)/3 = 11)/3 = 11 22 //33
  28. 28. © 2008 Prentice Hall, Inc. 4 – 28  Used when trend is presentUsed when trend is present  Older data usually less importantOlder data usually less important  Weights based on experience andWeights based on experience and intuitionintuition Weighted Moving AverageWeighted Moving Average WeightedWeighted moving averagemoving average == ∑∑ ((weight for period nweight for period n)) xx ((demand in period ndemand in period n)) ∑∑ weightsweights
  29. 29. © 2008 Prentice Hall, Inc. 4 – 29 JanuaryJanuary 1010 FebruaryFebruary 1212 MarchMarch 1313 AprilApril 1616 MayMay 1919 JuneJune 2323 JulyJuly 2626 ActualActual 3-Month Weighted3-Month Weighted MonthMonth Shed SalesShed Sales Moving AverageMoving Average [(3 x 16) + (2 x 13) + (12)]/6 = 14[(3 x 16) + (2 x 13) + (12)]/6 = 1411 //33 [(3 x 19) + (2 x 16) + (13)]/6 = 17[(3 x 19) + (2 x 16) + (13)]/6 = 17 [(3 x 23) + (2 x 19) + (16)]/6 = 20[(3 x 23) + (2 x 19) + (16)]/6 = 2011 //22 Weighted Moving AverageWeighted Moving Average 1010 1212 1313 [(3 x[(3 x 1313) + (2 x) + (2 x 1212) + () + (1010)]/6 = 12)]/6 = 1211 //66 Weights Applied Period 3 Last month 2 Two months ago 1 Three months ago 6 Sum of weights
  30. 30. © 2008 Prentice Hall, Inc. 4 – 30  Form of weighted moving averageForm of weighted moving average  Weights decline exponentiallyWeights decline exponentially  Most recent data weighted mostMost recent data weighted most  Requires smoothing constantRequires smoothing constant ((αα))  Ranges from 0 to 1Ranges from 0 to 1  Subjectively chosenSubjectively chosen  Involves little record keeping of pastInvolves little record keeping of past datadata Exponential SmoothingExponential Smoothing
  31. 31. © 2008 Prentice Hall, Inc. 4 – 31 Exponential SmoothingExponential Smoothing t =t = Last period’s forecastLast period’s forecast ++ αα ((Last period’s actual demandLast period’s actual demand –– Last period’s forecastLast period’s forecast)) FFtt = F= Ftt – 1– 1 ++ αα((AAtt – 1– 1 -- FFtt – 1– 1)) wherewhere FFtt == new forecastnew forecast FFtt – 1– 1 == previous forecastprevious forecast αα == smoothing (or weighting)smoothing (or weighting) constantconstant (0(0 ≤≤ αα ≤≤ 1)1)
  32. 32. © 2008 Prentice Hall, Inc. 4 – 32 Exponential SmoothingExponential Smoothing ExampleExample Predicted demandPredicted demand = 142= 142 Ford MustangsFord Mustangs Actual demandActual demand = 153= 153 Smoothing constantSmoothing constant αα = .20= .20
  33. 33. © 2008 Prentice Hall, Inc. 4 – 33 Exponential SmoothingExponential Smoothing ExampleExample Predicted demandPredicted demand = 142= 142 Ford MustangsFord Mustangs Actual demandActual demand = 153= 153 Smoothing constantSmoothing constant αα = .20= .20 New forecastNew forecast = 142 + .2(153 – 142)= 142 + .2(153 – 142)
  34. 34. © 2008 Prentice Hall, Inc. 4 – 34 Exponential SmoothingExponential Smoothing ExampleExample Predicted demandPredicted demand = 142= 142 Ford MustangsFord Mustangs Actual demandActual demand = 153= 153 Smoothing constantSmoothing constant αα = .20= .20 New forecastNew forecast = 142 + .2(153 – 142)= 142 + .2(153 – 142) = 142 + 2.2= 142 + 2.2 = 144.2 ≈ 144 cars= 144.2 ≈ 144 cars
  35. 35. © 2008 Prentice Hall, Inc. 4 – 35 Common Measures of ErrorCommon Measures of Error Mean Absolute DeviationMean Absolute Deviation ((MADMAD)) MAD =MAD = ∑∑ |Actual - Forecast||Actual - Forecast| nn Mean Squared ErrorMean Squared Error ((MSEMSE)) MSE =MSE = ∑∑ ((Forecast ErrorsForecast Errors))22 nn
  36. 36. © 2008 Prentice Hall, Inc. 4 – 36 Common Measures of ErrorCommon Measures of Error Mean Absolute Percent ErrorMean Absolute Percent Error ((MAPEMAPE)) MAPE =MAPE = ∑∑100100|Actual|Actualii - Forecast- Forecastii|/Actual|/Actualii nn nn ii = 1= 1
  37. 37. © 2008 Prentice Hall, Inc. 4 – 37 Seasonal Variations In DataSeasonal Variations In Data The multiplicativeThe multiplicative seasonal modelseasonal model can adjust trendcan adjust trend data for seasonaldata for seasonal variations invariations in demanddemand
  38. 38. © 2008 Prentice Hall, Inc. 4 – 38 Seasonal Variations In DataSeasonal Variations In Data 1.1. Find average historical demand for eachFind average historical demand for each seasonseason 2.2. Compute the average demand over allCompute the average demand over all seasonsseasons 3.3. Compute a seasonal index for each seasonCompute a seasonal index for each season 4.4. Estimate next year’s total demandEstimate next year’s total demand 5.5. Divide this estimate of total demand by theDivide this estimate of total demand by the number of seasons, then multiply it by thenumber of seasons, then multiply it by the seasonal index for that seasonseasonal index for that season Steps in the process:Steps in the process:
  39. 39. © 2008 Prentice Hall, Inc. 4 – 39 Forecasting ErrorForecasting Error • Forecast error is the numericalForecast error is the numerical difference between the actualdifference between the actual demand and the forecasted demanddemand and the forecasted demand for a specific period of timefor a specific period of time
  40. 40. © 2008 Prentice Hall, Inc. 4 – 40 Limitations of ForecastingLimitations of Forecasting • A forecast is never completelyA forecast is never completely accurate; forecasts will alwaysaccurate; forecasts will always deviate from the actual demanddeviate from the actual demand • Effectiveness of a forecast must beEffectiveness of a forecast must be measured in order to evaluatemeasured in order to evaluate alternative forecasting methodsalternative forecasting methods
  41. 41. © 2008 Prentice Hall, Inc. 4 – 41 Monitoring and ControllingMonitoring and Controlling • Compare actual data vs. sample dataCompare actual data vs. sample data • Monitor trends (seasonal andMonitor trends (seasonal and quarterly)quarterly) • Notice irregular variation (outliers)Notice irregular variation (outliers)
  42. 42. © 2008 Prentice Hall, Inc. 4 – 42 Box–Jenkins MethodBox–Jenkins Method Besides the smoothing techniques, what other methods can we use to forecast univariate data? Using Box–Jenkins Methods Capture the past pattern Forecast the future
  43. 43. © 2008 Prentice Hall, Inc. 4 – 43 Why Use The Box–JenkinsWhy Use The Box–Jenkins Method?Method? • When facing very complicated data patterns such as a combination of a trend, seasonal, cyclical, and random fluctuations: e.g. Earning data of a corporation e.g. Forecasting stock price e.g. Sales forecasting e.g. Energy forecasting (electricity, gas) e.g. Traffic flow of a city
  44. 44. © 2008 Prentice Hall, Inc. 4 – 44 Why Use the Box–JenkinsWhy Use the Box–Jenkins Method?Method? • When forecasting is the sole purpose of the model. • Very reliable especially in short term (0– 6 months) prediction; reliable in short- to-mid (6 months–1.5years) -term prediction. • Confidence intervals for the estimates are easily constructed.
  45. 45. © 2008 Prentice Hall, Inc. 4 – 45 ProductivityProductivity • One of the most important responsibilities of an operationsOne of the most important responsibilities of an operations manager is to achieve productive use of organization’s resources.manager is to achieve productive use of organization’s resources. • ProductivityProductivity is an index that measures output (goods and services)is an index that measures output (goods and services) relative to the input (capital, labor, materials, energy, and otherrelative to the input (capital, labor, materials, energy, and other resources) used to produce them.resources) used to produce them. • It is usually expressed as the ratio of output to input:It is usually expressed as the ratio of output to input: OutputOutput Productivity = ---------------Productivity = --------------- InputInput
  46. 46. © 2008 Prentice Hall, Inc. 4 – 46 Ways to Increase ProductivityWays to Increase Productivity • Increase output by using the same or a lesser amount of (input)Increase output by using the same or a lesser amount of (input) resource.resource. • Reduce amount of (input) resource used while keeping outputReduce amount of (input) resource used while keeping output constant or increasing it.constant or increasing it. • Use more resource as long as output increases at a greater rate.Use more resource as long as output increases at a greater rate. • Decrease output as long as resource use decreases at a greaterDecrease output as long as resource use decreases at a greater rate.rate. • ProductionProduction is concerned with the activity of producing goods andis concerned with the activity of producing goods and services.services. • ProductivityProductivity is concerned with the efficiency and effectivenessis concerned with the efficiency and effectiveness with which these goods and services are produced.with which these goods and services are produced.
  47. 47. © 2008 Prentice Hall, Inc. 4 – 47 Efficiency and EffectivenessEfficiency and Effectiveness for productivity improvement.for productivity improvement. • Efficiency is a necessary but not a satisfactory condition forEfficiency is a necessary but not a satisfactory condition for productivity. In fact, both effectiveness and efficiency are necessaryproductivity. In fact, both effectiveness and efficiency are necessary in order to be productive.in order to be productive. • EfficiencyEfficiency is the ratio of actual output generated to the expected (oris the ratio of actual output generated to the expected (or standard) output prescribed.standard) output prescribed. • EffectivenessEffectiveness, on the other hand, is the degree to which the relevant, on the other hand, is the degree to which the relevant goals or objectives are achieved.goals or objectives are achieved. • EffectivenessEffectiveness involves first determining the relevant (right) goals orinvolves first determining the relevant (right) goals or objectives and then achieving them.objectives and then achieving them. – If, for example, nine out of ten relevant goals are achieved, theIf, for example, nine out of ten relevant goals are achieved, the effectiveness is 90%. One can be very efficient and still not beeffectiveness is 90%. One can be very efficient and still not be productive.productive.
  48. 48. © 2008 Prentice Hall, Inc. 4 – 48 Single Factor Approach to MeasuringSingle Factor Approach to Measuring ProductivityProductivity • CapitalCapital - Number of products produced divided by asset- Number of products produced divided by asset valuevalue • MaterialsMaterials - Number of products produced divided by- Number of products produced divided by dollars spent on materialsdollars spent on materials • Direct LaborDirect Labor - Number of products produced divided by- Number of products produced divided by direct labor-hoursdirect labor-hours • OverheadOverhead - Number of products produced divided by- Number of products produced divided by dollars spent on operating costdollars spent on operating cost
  49. 49. © 2008 Prentice Hall, Inc. 4 – 49 Variables Affecting LaborVariables Affecting Labor ProductivityProductivity • Physical work environmentPhysical work environment – Technology, equipment, materials, lighting, layoutTechnology, equipment, materials, lighting, layout • Product qualityProduct quality – Defects, scrap, reworkDefects, scrap, rework • Employee job performanceEmployee job performance – Employee ability, motivationEmployee ability, motivation
  50. 50. © 2008 Prentice Hall, Inc. 4 – 50 Employee Job PerformanceEmployee Job Performance • Behavioral scientists believe that individuals are motivated toBehavioral scientists believe that individuals are motivated to act in a certain way by a desire to satisfy certain needs.act in a certain way by a desire to satisfy certain needs. Maslow ‘s hierarchy of needsMaslow ‘s hierarchy of needs FulfillmentFulfillment RecognitionRecognition AffiliationAffiliation SecuritySecurity PhysiologicalPhysiological
  51. 51. © 2008 Prentice Hall, Inc. 4 – 51 What is Work Study?What is Work Study? • Work Study is the systemeaticWork Study is the systemeatic examination of the methods ofexamination of the methods of carrying outcarrying out • activities such as to improve theactivities such as to improve the effective use of resources and to seteffective use of resources and to set upup • standards of performance for thestandards of performance for the activities carried out.activities carried out.
  52. 52. © 2008 Prentice Hall, Inc. 4 – 52
  53. 53. © 2008 Prentice Hall, Inc. 4 – 53 TECHNIQUES OF WORK STUDY:TECHNIQUES OF WORK STUDY: These are:These are: 1. METHOD STUDY1. METHOD STUDY is the systematic recording andis the systematic recording and critical examination of ways of doing things incritical examination of ways of doing things in order to make improvements.order to make improvements. THUSTHUS it simplifies the job and develops moreit simplifies the job and develops more economical method of doing it.economical method of doing it. 2.WORK MEASUREMENT2.WORK MEASUREMENT is the applicationis the application of techniques designed to establish the time for aof techniques designed to establish the time for a qualified worker to carry out a task at a defined ratequalified worker to carry out a task at a defined rate of working.of working. THUSTHUS it determines how long it should take to carryit determines how long it should take to carry out the work.out the work.
  54. 54. © 2008 Prentice Hall, Inc. 4 – 54 METHODS ANALYSIS AND IMPROVEMENTMETHODS ANALYSIS AND IMPROVEMENT • Specifying the tasks and responsibilities of a job is only the firstSpecifying the tasks and responsibilities of a job is only the first step in the job design process.step in the job design process. • The next step is to determine how to perform the tasks, that is,The next step is to determine how to perform the tasks, that is, determine the bestdetermine the best work methods.work methods. – Best work methods areBest work methods are • the most efficient physical movements of the worker,the most efficient physical movements of the worker, • the best sequence in which to perform movements orthe best sequence in which to perform movements or tasks, andtasks, and • the best way to coordinate the workers actions withthe best way to coordinate the workers actions with those of machines and other workers.those of machines and other workers. • This information must be conveyed to the workers throughThis information must be conveyed to the workers through training and appropriate supervision and feedback.training and appropriate supervision and feedback.
  55. 55. © 2008 Prentice Hall, Inc. 4 – 55 METHODS ANALYSISMETHODS ANALYSIS • A logical approach to deciding what tasks should be done and howA logical approach to deciding what tasks should be done and how they should be done is called methods analysis.they should be done is called methods analysis. • Methods analysis utilizesMethods analysis utilizes – structured data collection,structured data collection, – visual aids and charts, andvisual aids and charts, and – logical procedures to help understand and improve work methods.logical procedures to help understand and improve work methods. • Methods analysis relies on obtaining good observational andMethods analysis relies on obtaining good observational and experimental data.experimental data. • Methods analysis focuses primarily on the activities of individualMethods analysis focuses primarily on the activities of individual workers or groups of related workers.workers or groups of related workers.
  56. 56. © 2008 Prentice Hall, Inc. 4 – 56 Work MeasurementWork Measurement • Work measurementWork measurement is the process of establishing the time that ais the process of establishing the time that a given task would take when performed by a qualified workergiven task would take when performed by a qualified worker working at a defined level of performance.working at a defined level of performance. • A qualified workerA qualified worker is one who has acquired theis one who has acquired the skill, knowledgeskill, knowledge and other attributes to carry out the work in hand to satisfactoryand other attributes to carry out the work in hand to satisfactory standards of quantity, quality and safetystandards of quantity, quality and safety • Work measurementWork measurement also refers to the process of estimating thealso refers to the process of estimating the amount of worker time required to produce one unit of output.amount of worker time required to produce one unit of output. • AA goal of work measurementgoal of work measurement is to develop labor standards thatis to develop labor standards that can be used for planning and controlling operations.can be used for planning and controlling operations.
  57. 57. © 2008 Prentice Hall, Inc. 4 – 57 Labor StandardsLabor Standards • AA labor standardlabor standard is the number of worker-minutes required tois the number of worker-minutes required to complete an element, operation, or product under ordinary operatingcomplete an element, operation, or product under ordinary operating conditions.conditions. • Labor standards are used in:Labor standards are used in: • Cost estimationCost estimation • Pricing of products and servicesPricing of products and services • Incentive pay systemsIncentive pay systems • Capacity planningCapacity planning • Production schedulingProduction scheduling • A labor standard can be determined using one or more of theA labor standard can be determined using one or more of the following approaches:following approaches: • Time studyTime study • Work samplingWork sampling • Predetermined time standardsPredetermined time standards
  58. 58. © 2008 Prentice Hall, Inc. 4 – 58 Time StudyTime Study • Job is performed by a single worker in a fixed locationJob is performed by a single worker in a fixed location • Job involves repetitive short cyclesJob involves repetitive short cycles • Job is expected to continue unchanged for a long periodJob is expected to continue unchanged for a long period • Job produces large quantities of outputJob produces large quantities of output • Resulting time standard must be very accurateResulting time standard must be very accurate • Analysts use stopwatches to time the operation being performedAnalysts use stopwatches to time the operation being performed by workersby workers • These observed times are then converted into labor standardsThese observed times are then converted into labor standards • The labor standards are expressed in minutes per unit of outputThe labor standards are expressed in minutes per unit of output for the operationfor the operation
  59. 59. © 2008 Prentice Hall, Inc. 4 – 59 BASIC PROCEDURE OF WSBASIC PROCEDURE OF WS comprise of followingcomprise of following STEPS:STEPS: 1.1.SELECTSELECT the job/task/process to be studied.the job/task/process to be studied. 2.2.RECORDRECORD all the relevant data/facts about theall the relevant data/facts about the selected job.selected job. 3.3.EXAMINEEXAMINE the recorded facts critically by challengingthe recorded facts critically by challenging its purpose, place, sequence, person, andits purpose, place, sequence, person, and method.method. 4.4.DEVELOPDEVELOP new methods,as alternative methods, ofnew methods,as alternative methods, of doing the selected job.doing the selected job. 5.5.EVALUATEEVALUATE results of different alternative solutions.results of different alternative solutions. 6.6.DEFINEDEFINE the new method and present it to thethe new method and present it to the concerned people.concerned people. 7.7.INSTALINSTAL the new method and provide training tothe new method and provide training to the concerned staff .the concerned staff . 8.8.MAINTAINMAINTAIN the new standard practice and establishthe new standard practice and establish control procedures.control procedures.
  60. 60. © 2008 Prentice Hall, Inc. 4 – 60 Work MeasurementWork Measurement Vital inputs for: • Manpower planning • Reducing labour costs • Scheduling • Budgeting • Designing incentive systems Standard Time Amount of time a qualified worker should spend to complete a specified task, working at sustainable rate, using given methods, tools and equipment, raw material and workplace Most commonly used methods of work measurement: • Time study • Historical times • Predetermined data • Work sampling
  61. 61. © 2008 Prentice Hall, Inc. 4 – 61 Work MeasurementWork Measurement Time Study • Most widely used method of work measurement • Especially appropriate for short, repetitive tasks Average of a few properly trained workers’ performed time are taken as the standard Basic steps: • Define the task to be studied, and inform the worker(s) who will be studied • Determine the number of cycles to be observed • Time the job and rate the performance • Compute the standard time Breakdown of work into elements
  62. 62. © 2008 Prentice Hall, Inc. 4 – 62 Standard Elemental Time (SET) Work Measurement derived from a firm’s own historical time study data • A time study department accumulates a file of elemental times that are common to many jobs • After a certain point, many elemental times can be retrieved from the file • Eliminate need for analysts to go through a complete time study to obtain those Predetermined Time Standards (PDTS) published data on standard elemental times • Commonly used system is Method-Time Measurement (MTM) • MTM tables are based on extensive research of basic elemental times
  63. 63. © 2008 Prentice Hall, Inc. 4 – 63 Work Sampling Two primary uses: • Ratio-delay studies: concern the percentage of worker’s time that involves unavoidable delays appropriate for long, non-repetitive tasks Work Measurement is a technique for estimating the proportion of time that a worker or machine spends on various activities and the idle time. • Analysis of non-repetitive jobs: percentage of time an employee spends doing various jobs
  64. 64. © 2008 Prentice Hall, Inc. 4 – 64 What is Supply-Chain Management? • Supply-chain is a term that describes how organizations (suppliers, manufacturers, distributors, and customers) are linked together. • Supply-chain management is a total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer.
  65. 65. © 2008 Prentice Hall, Inc. 4 – 65 Basic Supply ChainBasic Supply Chain SUPPLIER Sewing shops in Hong Kong FIRM Tommy Hilfiger in Hong Kong May Department Stores in St. Louis CUSTOMER
  66. 66. © 2008 Prentice Hall, Inc. 4 – 66 Extended Supply ChainExtended Supply Chain SUPPLIER CUSTOMER SUPPLIER’S SUPPLIER . . . CUSTOMER’S CUSTOMER FIRM . . . Yarn suppliers in Korea Sewing shops in Hong Kong Tommy Hilfiger in Hong Kong Lord & Taylor in New York May Department Stores in St. Louis
  67. 67. © 2008 Prentice Hall, Inc. 4 – 67 Supply Chain OverviewSupply Chain Overview Warehousing Warehousing Transportation Transportation Vendors/plants/ports Transportation Factory Transportation Customers Information flows
  68. 68. © 2008 Prentice Hall, Inc. 4 – 68 Supply Chain SchematicSupply Chain Schematic
  69. 69. © 2008 Prentice Hall, Inc. 4 – 69 Logistics Management in a Firm ValueLogistics Management in a Firm Value ChainChain
  70. 70. © 2008 Prentice Hall, Inc. 4 – 70 Supply Sources: plants vendors ports Regional Warehouses: stocking points Field Warehouses: stocking points Customers, demand centers sinks Production/ purchase costs Inventory & warehousing costs Transportation costs Inventory & warehousing costs Transportation costs
  71. 71. © 2008 Prentice Hall, Inc. 4 – 71 Reality of SCM ScopeReality of SCM Scope
  72. 72. © 2008 Prentice Hall, Inc. 4 – 72 Supply Chain Management ApproachSupply Chain Management Approach • Three items that flow through the supplyThree items that flow through the supply chain:chain: – InformationInformation – MoneyMoney – MaterialsMaterials • Three areas of decision-making:Three areas of decision-making: – MaterialsMaterials – ProcessesProcesses – LogisticsLogistics • Two types of tools:Two types of tools: – Information TechnologyInformation Technology – Operational AnalysisOperational Analysis
  73. 73. © 2008 Prentice Hall, Inc. 4 – 73 Logistical ComponentsLogistical Components of the Supply Chainof the Supply Chain SupplySupply ChainChain TeamTeam Sourcing & ProcurementSourcing & Procurement Production SchedulingProduction Scheduling Order ProcessingOrder Processing Inventory ControlInventory Control Warehouse & Materials HandlingWarehouse & Materials Handling TransportationTransportation LogisticsInformationSystemLogisticsInformationSystem
  74. 74. © 2008 Prentice Hall, Inc. 4 – 74 Sourcing and ProcurementSourcing and Procurement  Plan purchasing strategiesPlan purchasing strategies  Develop specificationsDevelop specifications  Select suppliersSelect suppliers  Negotiate price and service levelsNegotiate price and service levels  Reduce costsReduce costs The Role of Purchasing:The Role of Purchasing: ©iStockphoto.com/MariaToutoudaki
  75. 75. © 2008 Prentice Hall, Inc. 4 – 75 Production SchedulingProduction Scheduling Push / Pull Strategy Traditional Focus Push Start of Production Manufacturing Inventory- Based Mass Production Customer Focus Pull Customer-Order Based Mass Customization
  76. 76. © 2008 Prentice Hall, Inc. 4 – 76 Just-in-Time ManufacturingJust-in-Time Manufacturing A process that redefines and simplifies manufacturing by reducing inventory levels and delivering raw materials at the precise time they are needed on the production line. JITJIT
  77. 77. © 2008 Prentice Hall, Inc. 4 – 77 Benefits of JITBenefits of JIT  For manufacturers: reduces rawFor manufacturers: reduces raw material inventories; immediatematerial inventories; immediate shipping of productsshipping of products  For suppliers: daily or hourlyFor suppliers: daily or hourly deliveries rather than weeklydeliveries rather than weekly  For customers: lower costs; shorterFor customers: lower costs; shorter lead times; products tailored tolead times; products tailored to customer needscustomer needs
  78. 78. © 2008 Prentice Hall, Inc. 4 – 78 Order Processing Order processing is becoming more automated through the use of computer technology known as ELECTRONIC DATA INTERCHANGE (EDI). a system whereby orders are entered into the supply chain and filled. An Order Processing System is…
  79. 79. © 2008 Prentice Hall, Inc. 4 – 79 Inventory Control Inventory Control System Inventory Control System A method of developing and maintaining an adequate assortment of materials or products to meet a manufacturer’s or a customer’s demand
  80. 80. © 2008 Prentice Hall, Inc. 4 – 80 Inventory Control Tools for managing inventory include:  materials requirement planning (MRP) or materials management – supplier to manufacturer  distribution resource planning (DRP) – manufacturer to end user  automatic replenishment programs – minimal forecasting
  81. 81. © 2008 Prentice Hall, Inc. 4 – 81 Warehousing andWarehousing and Materials HandlingMaterials Handling Most manufacturers today have moved to AUTOMATED materials-handling systems to minimize the amount of handling. a method of moving inventory into, within, and out of the warehouse. A Materials-Handling System is…
  82. 82. © 2008 Prentice Hall, Inc. 4 – 82 TransportationTransportation Airways Water Pipelines Motor Carriers Railroads
  83. 83. © 2008 Prentice Hall, Inc. 4 – 83 Transportation ModeTransportation Mode ChoiceChoice  Cost  Transit time  Reliability  Capability  Accessibility  Traceability

Editor's Notes

  • Notes:
    The supply chain consists of several interrelated and integrated logistical components, as shown on this slide.
    Integrating and linking all of the components is the logistics information system.
    The supply chain team orchestrates the movement of goods, services, and information from the source to the consumer.
    The best supply chain teams move beyond the organization to include external participants, such as suppliers, transportation carriers, and third-party logistics suppliers. Members of the supply chain communicate, coordinate, and cooperate extensively.
  • Notes:
    One of the most important links in the supply chain is that between the manufacturer and the supplier. Purchasing professionals are on the front lines of supply chain management, planning purchasing strategies, developing specifications, selecting suppliers, and negotiating price and service levels.
    The goal of most activities is to reduce the costs of raw materials and supplies. Instead of tough negotiations to get the best possible price, purchasing helps establish and cooperative relationships with vendors.
  • Notes:
    In a traditional mass-marketing manufacturing, production begins when forecasts call for additional products to be made or inventory is low.
    In a customer-focused “pull” manufacturing environment, production of goods is not started until an order is placed by the customer specifying the desired configuration, also known as mass customization or build-to-order.
    In this environment of customer demand and mass customization, supply chains need to be flexible and be able to shift production based on demand.
  • Notes:
    JIT, or lean production, was borrowed from the Japanese. Manufacturers work with suppliers to get necessary items to the assembly line at the precise time they are needed for production.
    For the manufacturer, JIT means that raw materials arrive at the assembly line “just in time” to be installed.
    For the supplier, JIT means supplying customers with products in just a few days rather than weeks.
    For the consumer, JIT means lower costs, shorter lead times, and products that closely meet the consumer’s needs.
  • Notes:
    The benefits of JIT are shown on this slide.
  • Notes:
    As an order enters the system, management must monitor two flows: the flow of goods and the flow of information.
    Shipping incorrect merchandise or partially filled orders can create just as much dissatisfaction as stockouts or slow deliveries.
  • Notes:
    The goal of inventory management is to keep inventory levels as low as possible while maintaining an adequate supply of goods to meet customer demand.
  • Notes:
    Although JIT manufacturing processes may eliminate the need to warehouse many raw materials, manufacturers keep some safety stock on hand in the event of an emergency. Additionally, inventory may be stored for seasonally-demand products.
    Storage helps manufacturers manage supply and demand.
    A materials-handling system moves inventory into, within, and out of the warehouse, performing the functions shown on this slide.
  • Notes:
    Supply chain logisticians must decide which mode of transportation to use to move products from supplier to producer and from producer to buyer. These decisions are related to other logistics decisions. The five major modes of transportation are listed on this slide.
  • Notes:
    Supply chain managers choose a mode of transportation on the basis of the criteria shown on this slide.
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