Chapter 3Product DesignOperations Management in the.docx

Chapter 3:
Product Design
Operations
Management in the
Supply Chain:
Decisions and Cases,
6th edition
Copyright © 2013 by The McGraw-Hill Companies, Inc. All
rights reserved.McGraw-Hill/Irwin
3-2
Chapter 3 Outline
• DESIGN PROCESS
• Strategies for New-Product Introduction
• New-Product Development Process
• Cross-Functional Product Design
• Supply Chain Collaboration
• DESIGN TOOLS

• Quality Function Deployment
• Design for Manufacturing – Value Analysis
• Modular Design
3-3
Product Design:
Why Does Operations Care?
• Traditionally: throw the design “over the wall”
• Today:
• must be able to make the product (process)
• technology
• availability of resources
• must have the right type and amount of capacity
• must deliver a quality product or service
• must have right inventory at right time
3-4
Strategies for New-Product Introduction

• Market Pull - “Make what we can sell”
• Organize resources to fulfill customer demand
• Food industry
• Technology Push - “Sell what we can make”
• Develop superior technologies and products
• Electronics
• Interfunctional View – most difficult
• Cross-functional team design
• Personal computers
3-5
3-6
New Product Development Process
• Concept Development
• Idea generation and evaluation of alternative ideas
• Product Design
• Design of the physical product
• Design of the production process
• Pilot Production/Testing
• Testing production prototypes

• Finalizing production process
• Finalizing ‘information package’ specifying details
3-7
New Product Design Process (Figure 3.2)
Pilot production/testing Final process design
Preliminary process design
Concept development
Product design
3-8
Cross-Functional Product Design
• Sequential approach
• Functions (marketing, engineering, operations) operate
without consulting each other. This is the ‘over the wall’
approach.
• Often results in misalignment.
• Concurrent approach
• Functions cooperate, work together over the same time

frame.
• Cross-functional teams.
• Not always “best” approach.
3-9
Cross-Functional Product Design (Figure 3.3)
3-10
Why Is Functional Cooperation a Challenge?
• They don’t speak the same language.
• They use different performance measures.
• They tend to have different personality types, i.e., they
don’t think alike.
• They can be defensive about their own turfs.
• They may be in different physical locations.
• They “don’t have time.”
3-11

Supply Chain Collaboration
Relationships with Customers
• Ask the right questions
• Provide incentives
• Create collaborative technology
platform
• Include as advisors to design team
3-12
Supply Chain Collaboration
Criteria for Relationships with Suppliers
• Technical expertise
• Capability – cost, time, quality targets
• Capacity
• Low risk
3-13
Quality Function Deployment (QFD)

• “House of Quality”
• Tool for interfunctional cooperation
• Customer Attributes
• “Voice of the Customer”
• Engineering Characteristics
• “Voice of the Engineer”
• Helps identify tradeoffs
• Can include target values and competitive comparison
3-14
House of Quality (QFD)
3-15
HOUSE OF QUALITY (QFD)
3-16
Design for Manufacturing (DFM)
• Value Analysis (usefulness:cost)

• Simplification of products and processes
• Modular Design
• Multiple products using common parts,
processes, and modules
3-17
Objectives of Value Analysis
• Enhance the design of good/service to provide
better quality at the same price.
• Modify the design of production process to lower
the cost of good/service while maintaining or
improving quality.
• In other words, improve the ratio of usefulness
(quality) to cost.
3-18
Value Analysis
• Terms in Value Analysis:
• Objective: primary purpose of the product
• Basic Function: makes the objective possible

• Secondary Function: how to perform the basic function
• Value analysis seeks to improve the secondary
function, e.g., how to open a can or make a tool box.
3-19
DFM: An Example
(c) Final design
Design for push-and-snap
assembly
· 2 total parts
· 2 unique parts
(a) The original design
Assembly using
common fasteners
· 24 total parts
· 7 unique parts
(b) Revised design
One-piece base &

elimination of fasteners
· 4 total parts
· 3 unique parts
3-20
Value Analysis at Toyota
GM has 26 different seat frames.
Toyota has 2.
Toyota’s advantage: $500 million
Source: Businessweek, 31 July 2006, p. 57.
3-21
Value Analysis at GM
Bo Anderson (VP Global Purchasing)
discovered that door hinges on large SUVs
and trucks could be made from 3 parts
instead of 5. Savings = $21 per truck, $100
million total. It took him 3 months to

convince the engineers to change the hinge.
Source: Businessweek, 31 July 2006, p. 57.
3-22
Modular Design
• Allows greater variety through ‘mixing and
matching’ modules
• Develops basic product components (modules) use in
multiple products
• High product variety from limited component variety
• Small number of components enables large number
of combinations, e.g., Dell notebooks
3-23
Modular Design
• Volkswagen A5 Platform
• Audi Q3 crossover SUV
• Audi A3 convertible/hatchback
• Audi TT turbo hatchback
• VW Touran SUV
• VW Caddy light commercial vehicle
• VW Jetta
• Chrysler LX Platform

• Chrysler 300
• Dodge Charger
• Dodge Magnum wagon
• Lancia Thema (Italian)
3-24
Chapter 3 Outline
• DESIGN PROCESS
• Strategies for New-Product Introduction
• New-Product Development Process
• Cross-Functional Product Design
• Supply Chain Collaboration
• DESIGN TOOLS
• Quality Function Deployment
• Design for Manufacturing – Value Analysis
• Modular Design
Chapter 6:
Process-Flow Analysis

Operations
Management in the
Supply Chain:
6th edition
6-2
Chapter 6 Outline
• Process Thinking
• The Process View of Business
• Process Flowcharting
• Process-Flow Analysis as Asking Questions
• Measuring Process Flows
• Measuring Process Flows at Pizza U.S.A.
• Process Redesign
6-3
Process Thinking

• Process thinking: All work is a process.
• System: Collection of interrelated elements, with
Whole > Sum of parts
• Apply systems thinking to businesses
•Defining system boundaries
• Use cross-functional teams for systems analysis
•Include all affected functions
6-4
Process View of Business
Marketing Operations Finance
CEO
6-5
Process Flowcharting
• Process flowcharting: Creating a visual diagram
to describe (represent) a transformation process
• Also called (or similar to):

• Process mapping
• Flow-process charting
• Service blueprinting
• Value stream mapping
6-6
• Purpose: To describe a process visually to find ways
of improving the current process.
• Find repetitive operations
• Identify bottlenecks
• Describe directions and distances of flows
(people, material and information)
• Reduce waste
• Required for certifications such as ISO9000
6-7

1. Select a transformation process to study.
2. Form a team to develop flowchart & for analysis (to
improve the system).
3. Specify the boundaries of transformation process.
4. Identify and sequence the operational steps.
5. Identify the performance metrics for the steps.
- e.g., time to complete each step
6. Draw the flowchart, using consistent symbols.
6-8
Common Flowcharting Symbols
Process, operation, activity, or task
Decision or evaluation
Flow of work (inventory, customers)
Terminator: “START” “END”
6-9
Flowchart Example: Selecting a Supplier (Figure 6.2)

6-10
Symbols for Flow-Process Chart
Operation - task or work activity
Inspection - inspection of product for
quantity or quality
Transportation - movement of material from
one point to another
Storage - inventory or storage of materials
awaiting next operation
Delay - delay in the sequence of operations
6-11
Flow-Process
Chart Example:
Picking Operations
at Grocery Store
Distribution Center

(Figure 6.5)
6-12
Questions to Ask in Process-Flow Analysis
• What does the customer need? What operations are necessary?
Can
some operations be eliminated, combined, or simplified?
• Who is performing the job? Can the operation be redesigned
to use less
skill or less labor? Can operations be combined to enrich jobs?
• Where is each operation conducted? Can layout be improved?
• When is each operation performed? Is there excessive delay
or storage?
Are some operations creating bottlenecks?
• How is the operation done? Can better methods, procedures,
or
equipment be used?
6-13
Questions to Ask in Process-Flow Analysis
• Flow balanced? Where is the bottleneck? Are all steps
necessary? How
jumbled is the flow?

• Time How long to produce one unit? Can it be reduced?
Cycle time?
Excessive set-up time? Excessive waiting time?
• Quantity Theoretical production amount? How easy to
change? How
many units actually produced?
• Quality Historical defect rate? Which step contributes to
defect rate?
Where do errors occur?
• Cost to produce one unit? What are cost buckets for one unit?
Can some
of the buckets be reduced or eliminated?
6-14
Measuring Process Flows
• Capacity of a system = capacity of the most constraining
resource
→ This resource is called the bottleneck.
• The flow rate of a process = minimum (Supply, Demand,
Capacity)
• Throughput time = from when processing begins until
product/service is finished
6-15

Measuring Process Flows
• Little’s Law
• Relates number of items in the system to arrival rate and
throughput time.
• Calculation:
I = T x R
I = average number of things in the system
T = average throughput time
R = average flow rate into the process
• Assumes system is in a ‘steady state.’
6-16
Pizza U.S.A. book example
Activity Minutes Who/What
Take order 1 Assistant
Make crust 3 Chef
Prepare/add
ingredients

2 Chef
Bake pizza 24 Oven
Cut/box pizza 1 Assistant
Take payment 1 Assistant
Details: Assume all toppings added to every pizza
Two employees working at a time
Oven can bake up to 4 pizzas at a time
6-17
Map the process
Take
order
Make
crust
Prep/add
ingredients
Bake
pizza

Take
payment
Cut/box
pizza
Start
End
1 min. 3 min. 2 min.
24 min.1 min.1 min.
6-18
What is the throughput time?
Throughput time = time to complete one
product or service
Pizza throughput time?
1+3+2+24+1+1 = 32 min.
6-19
What is process capacity?
3 resources:

Assistant takes 3 (1+1+1) min. per pizza, can process
20 pizzas per hour.
Chef takes 5 (3+2) min. per pizza, can process
12 pizzas per hour.
Oven takes 6 (24/4) min. per pizza, can process
10 pizzas per hour.
Therefore, process capacity (flow rate) = 10
pizzas/hour
6-20
What is the process bottleneck?
The OVEN is the slowest activity….. that
determines process capacity.
The process cannot produce more than
the slowest activity (flow rate = 10
pizzas/hr).
6-21

Process Redesign
• Identify, analyze, improve critical
processes (may cross organizational
boundaries).
• Extreme cases: Complete process
reconfiguration (eliminating many steps).
• Business Process Reengineering (BPR)
6-22
Principles of Process Redesign
• Organize around outcomes, not tasks.
• Have the people who do the work process their own
information (avoid handoffs).
• Put the decision point where work is performed, and
build control into the process.
• Decisions made at lowest possible level.
• Eliminate unnecessary steps in the process.
• Simplify, eliminate non-value-added activities.

6-23
Chapter 6 Summary
• Process Thinking
• The Process View of Business
• Process Flowcharting
• Process-Flow Analysis as Asking Questions
• Measuring Process Flows
• Measuring Process Flows at Pizza U.S.A.
• Process Redesign
Chapter 9:
Quality Control and
Improvement
Operations
Management in the
Supply Chain:
6th edition

9-2
Chapter 9 Outline
• Design of Quality Control Systems
• Process Quality Control
• Attribute Control Chart
• Variables Control Chart
• Using Control Charts
• Process Capability
• Continuous Improvement
• Six Sigma
• Lean and Six Sigma
• Quality Control and Improvement in Industry
9-3
Design of Quality Control Systems
• Break down production process into subprocesses and

identify internal customers.
• Identify critical control points where inspection or
measurement should take place.
• Use operator inspection when possible, placing
responsibility for quality on workers.
9-4
Steps in Designing QC Systems
• Incoming materials & services
• Work in process
• Finished product or service
• Variables: continuous scale
• Attributes: discrete count, or good/bad

9-5
Types Of Measurement
• Variables measurement
• Product/service characteristic that can be measured
on a continuous scale: Length, size, weight, height, time,
velocity, temperature
• Attributes measurement
• Product/service characteristic evaluated with a discrete
choice: Good/bad, yes/no, count of defects
9-6
Process Quality Control
• Principles of Process Control:
• Every process has random variation.
• Production processes are not usually in a state of control.
• “State of Control” - What does it mean?
• Unnecessary variation has been eliminated.
• Remaining variation is due to random causes.

9-7
Process Quality Control
• Assignable (special) cause variation
• Can be identified and corrected
• Could be due to machine, worker, materials, etc.
• Common (random) cause variation
• Reasonable, acceptable variation
• Cannot be changed unless process is redesigned
9-8
Quality Control Chart
x
y
Time
Upper control limit (UCL)
Center line (CL)

Lower control limit (LCL)
Average + 3
standard
deviations
Quality
measurement
average
Average - 3
standard
deviations
9-9
Normal Distribution on Control Chart
UCL
Mean
LCL
Samples
Assignable
causes likely

1 2 3
9-10
Quality Control Chart
Temperature & Humidity Control in a Museum
9-11
(1 )
3
p p
p
n
-chart
• Calculate center line = mean proportion defective
across many samples
• Calculate upper and lower control limits

9-12
Var
RDLCL
3
• x-chart
• Calculate center line = mean of sample means
• R-chart
• Calculate center line = mean of sample ranges
RDUCL
4
RAx
2
9-13
Using Quality Control Charts

pattern is detected, the process is NOT in a state of
control.
• Very likely something is wrong.
• Conclude assignable cause of variation may exist.
• Signal to take action to eliminate assignable cause – find
it, understand its cause, fix it!
9-14
Using Quality Control Charts
• How large should sample be?
• Large enough to detect defects
• Variables can use smaller sample sizes
• How often to sample?
• Depends upon cost, production rate
• Process control vs. Process capability
• Is the process capable of producing to specification?
• Are the specifications appropriate?

9-15
Process Capability Index Examples (Figure 9.3)
F
re
q
u
e
n
c
y
Process measure Process measure
9-16
Computation of Cpk (Figure 9.4)
F
re
q
u
e
n
c
y
Process measure Process measure

9-17
Continuous Improvement
• When process is not meeting customer specifications.
• Work on processes with strategic importance and low
process capability first!
• Use seven tools of quality control.
9-18
Seven Tools of Quality Control (Figure 9.5)
• Flowchart
• Check Sheet
• Histogram
• Pareto Chart
• Cause-and- Effect (fishbone, Ishikawa) Diagram
• Scatter Diagram
• Control Chart

9-19
Seven Tools of Quality Control
• A battery manufacturer in NW Ohio in
6 weeks, using only the 7 tools of
quality, decreased defectives from 7.2
per 100 to 2.6 per 100.
9-20
Pareto Analysis
Table 9.4
Defect Items
# of
Defectives
Precent
Defective
Cumulative
Percentage
Loose connections 193 46.8% 46.8%

Cracked connectors 131 31.8% 78.6%
Fitting burrs 47 11.4% 90.0%
Improper torque 25 6.1% 96.1%
O-rings missing 16 3.9% 100.0%
Total 412 100.0%
Note: 40% (2) of the sources cause 78.6% of the defects
9-21
Pareto Diagram (Figure 9.6)
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
0
50

100
150
200
250
Loose
connections
Cracked
connectors
Fitting burrs Improper torque O-rings missing
P
e
r
c
e
n
ta
g
e
#
o
f
D
e
fe

c
ti
v
e
s
9-22
Cause-and-Effect (fishbone, Ishikawa) Diagram
(Figure 9.7)
Loose
connections
Workers
Material
connectors
Inspection
Tools
Content
Nuts
Knowledge
Fatigue
Training

Hose
Size
Surface defect
SizeSmall
Large
Judgment
Measurement
Measuring
tools
Errors
Inspector
Experience
Training
Wear
Adjustment
Torque
Air pressure
9-23

Six-Sigma Quality
• Pioneered by Motorola in 1980s
• 3.4 defects per million
• Most process are 4 sigma, e.g., payroll, prescriptions,
baggage handling, restaurant bills
• Airline fatalities are 6.4 sigma
• IRS tax advice is less than 2 sigma
9-24
Six Sigma Quality
• Process Improvement steps (DMAIC):
1. Define – select process
2. Measure – measure relevant variables
3. Analyze – determine root causes and alternatives
4. Improve – change process
5. Control – ensure improvements not lost over time
9-25

Six Sigma Quality
• Uses project/team approach
• Strategic process is selected for improvement
• Cross-functional team is formed
• ‘Black belt’ leader is chosen
• The team uses the DMAIC method (and quality tools)
to find root causes and improving the process
9-26
Lean and Six Sigma
• Complementary approaches to improvement:
• Lean seeks to eliminate waste
• Six sigma seeks to eliminate defects
• Six sigma organization is more formal and training
intensive
• Six sigma is longer-term project focused, with major
financial impacts
• Lean is more broad based, quick projects with less
impact

9-27
Quality Control and Improvement in Industry
• 75% of U.S. firms use process control charts
• More use of variable (x-bar and R) charts than attribute
(p) charts (sample size requirements)
• Six Sigma has broad acceptance
• Quality control in services (SERVQUAL)
• Attention to quality is now pervasive outside of
operations function
9-28
Chapter 9 Summary
• Design of Quality Control Systems
• Process Quality Control
• Attribute Control Chart
• Variables Control Chart
• Using Control Charts

• Process Capability
• Continuous Improvement
• Six Sigma
• Lean and Six Sigma
• Quality Control and Improvement in Industry
Chapter 10:
Supply Chain Management
Operations
Management in the
Supply Chain:
6th edition
10-2
Chapter 10 Outline
• Supply Chain & Supply Chain Management

• Purchasing and Logistics
• Measuring Supply Chain Performance
• Supply Chain Dynamics—the Bullwhip Effect
• Improving Supply Chain Performance
• Supply Chain Structural Improvements
• Supply Chain Infrastructural Improvements
• Technology and Supply Chain Management
• Supply Chain Resilience
10-3
A SUPPLY CHAIN is the set of entities and relationships
that cumulatively define materials and information flows
both downstream toward the customer and upstream
toward the very first supplier.
“Supply chain management is the design and
management of seamless, value-added processes across
organizational boundaries to meet the real needs of the
end customer.”
--Institute for Supply Management
10-4

Typical Supply Chain (Figure 10.1)
10-5
Supply Chain from Manufacturer’s Perspective
Manufacturer
1st-tier
suppliers
2nd-tier
suppliers
3rd-tier
suppliers
Distribution
centers &
warehouses
Retailers
Physical Supply Physical Distribution
Downstream or Forward Materials and Information Flow
Upstream or Backward Materials and Information Flow

10-6
Suppliers’
Supplier Supplier
Plan
Customer
Customer’s
Customer
Make
DeliverSource Make DeliverMakeSourceDeliver SourceDeliver
Internal or External Internal or External
Your Company
Source
SCOR Model
Return Return Return
Return Return Return
Return Return
Building Block Approach
SCOR = Supply Chain Operations Reference model

SCOR is founded on five distinct management processes
10-7
Purchasing and Logistics
• The purchasing function: Sources inputs into the
transformation process from other organizations.
• Challenges and benefits of global sourcing
• The logistics function: Responsible for the movement
and storage of goods across organizations in a supply
chain.
• Challenges of reverse logistics (returns/recycling)
10-8
The Purchasing Cycle (Figure 10.3)
Competitive bidding
or negotiation
Clarification of
specifications
Relationship
management

Make-or-buy
decisions
Supplier
selection
User
requirements
Buy
10-9
Measuring Supply Chain Performance
(1 of 3)
• Delivery
• On time delivery
• Fill rate
• Lead time
• Quality
• Product or service performance
• Conformance to specifications
• Customer satisfaction

10-10
(2 of 3)
• Flexibility
• Time to change volume of output by a fixed amount
• Time to change the mix of products or services
• Time
• Total supply chain throughput time
• Cash-to-cash cycle time = Days in inventory
+ days in accounts receivable
- days in accounts payable
10-11
(3 of 3)
• Cost
• Unit cost = materials + labor + overhead / # units
• Distribution, inventory carrying, accounts receivable

• Total supply chain cost =
• Suppliers (materials and components) +
• Producer (fabrication and assembly) +
• Logistics (shipping and WIP between firms)
10-12
Dynamics: Bullwhip Effect
• Supply chain is highly interactive system. Decisions
in each part of the chain affect the other entities.
• There is an accelerator (bullwhip) effect: Increased
variability in upstream orders, resulting in more
inventory upstream.
• Even with perfect information, replenishment lead
times lead to an accelerator effect.
• Improve supply chain by reducing total
replenishment time, share real demand information
with all levels.
10-13
Improving Supply Chain Performance
Greater coordination within/across organizations:

• Change structure
• Product/service, types/location of facilities, process
technology
and layout, vertical integration
• Change infrastructure
• People’s roles/responsibilities, information systems,
production
and inventory control, quality control systems
10-14
Supply Chain Structural Improvements
• Forward and backward integration
• Major process simplification
• Change configuration of factories, warehouses, or retail
locations
• Outsource, off-shoring, total cost of ownership
• Major product redesign
• Postponement, component swapping modularity
• Working with third-party logistics providers

10-15
Supply Chain Infrastructure Improvements
• Cross-functional teams
• Partnerships with suppliers and customers
• Setup time reduction to reduce lot sizes
• Integrated information systems
• Cross-docking – move goods from factory truck directly
to store truck; no warehouse storage
10-16
Technology and SCM
• Growth of e-commerce
• B2B (business-to-business)
• B2C (business-to-consumer)
• Fundamental processes in supply chains:
• Order placement process
• Information before order (Is product available in stock?)

• Actual order entry
• Order fulfillment process
• Direct link to internal operations & suppliers
10-17
Processes for e-Procurement (Figure 10.6)
Requirement Selection Requisition Approval
REQUEST
Requisition Source Negotiate Contract
BUY
Confirm
Process
Order
Ship Invoice
SUPPLY
Receive Deliver Match Pay
PAYMENT
10-18

Types of e-procurement
• On-line catalogs - listing products, prices, specifications,
delivery terms, etc.
• Third-part auctions - reverse auctions
• Private exchanges to connect suppliers
10-19
Problems with e-procurement
• Too much focus on technology; not enough on systems
(coordination)
• Insufficient concern about joint value propositions so that
both partners benefit
• Fragmented efforts within and across companies
• Record accuracy and data issues
10-20
Supply Chain Resilience
• Ability to quickly respond to unexpected disruptions in
supply or demand, either natural or manmade.

• Examples: strike, recession, price change, natural disaster,
manufacturing failure, unexpected demand.
• Risk mitigation*:
• Stage 1: Proactive plan
• Stage 2: Minimize damage during disruption
• Stage 3: Post-disruption recovery
* Each stage requires strategic and operational planning.
10-21
Chapter 10 Summary
• Supply Chain & Supply Chain Management
• Purchasing and Logistics
• Measuring Supply Chain Performance
• Supply Chain Dynamics—the Bullwhip Effect
• Improving Supply Chain Performance
• Supply Chain Structural Improvements
• Supply Chain Infrastructural Improvements
• Technology and Supply Chain Management

• Supply Chain Resilience
Chapter 4:
Process Selection
Operations
Management in the
Supply Chain:
6th edition
4-2
Chapter 4 Outline
• Product-Flow Characteristics
• Approaches to Order Fulfillment
• Process Selection Decisions
• Product-Process Strategy
• Focused Operations

• Mass Customization
• Environmental Concerns
• Cross-Functional Decision Making
4-3
Product-Flow Characteristics
Types of Product Flow
• Continuous process
• Assembly line
• Batch flow
• Job shop
• Project
4-4
Continuous Process
• Highly standardized and automated
• Flexibility limited

• High volumes of production
• Commodity products
• Low cost is the ‘Order Winner’
• Process industries (sugar, paper, oil, electricity, etc.)
4-5
Assembly Line
• Linear sequence of operations (often paced)
• Large capital investment, use of automation
• Very efficient
• High-volume, standardized products
• Inflexibility in product and volume
• Discrete products (autos, appliances, computers, etc.)
4-6
Assembly Line: Metal Bracket (Figure 4.1)
paintdrill bend

Task or work station
Product flow
cut
4-7
Batch Flow
• Production of batches or lots
• Batches flow as a unit (set) from one work center to
another
• Process layout of work centers (by tasks)
• Flow is jumbled and intermittent
• Flexible labor and equipment (general purpose)
• Low volume, variety of products
• Many types of products (furniture, dishes, boats)
4-8
Batch Flow: Three Metal Brackets (Figure 4.2)
Cut Paint

Task or work station Product flows
Bend
Drill
Batch A
Batch B
Batch C
4-9
Job Shop
• Customized to customer order
• Production of small batches or lots
• Layout/Flow similar to Batch Flow
• Flexible labor and equipment (general purpose)
• Many different types of made-to-order products (plastic
parts, machine components, sheet metal parts, custom
signage, etc.)

4-10
Project
• Production of customized single products
• Labor and materials brought to site
• Planning, scheduling challenges
• Little automation, general purpose equipment
• Highly skilled and flexible labor
• Unique, one of a kind products (bridges, building
construction, large aircraft, etc.)
4-11
Throughput Ratio: Process efficiency
TR =
Total processing time for the job
Total time in operations
X 100%
Typically:
90-100% in Continuous Process and Assembly Line
10-20% in Batch Flow and Job Shop

4-12
Approaches to Order Fulfillment
• Make-to-Stock (MTS)
• Make-to-Order (MTO)
• Assemble-to-Order (ATO)
4-13
Make-to-Stock (MTS)
• Produce finished goods
• Customer buys from inventory
• Advantage: faster fulfillment of customer demand, lower
cost, smooth production rate
• Disadvantage: inventory costs
4-14
Make-to-Stock (Figure 4.3)
Customer

Forecast orders
Production
Finished goods
inventory
Product
Customer Order
Product
4-15
MTS Performance Measures
• Service level (orders filled when requested)
• Inventory replenish time
• Inventory turnover (sales/avg. inventory)
• Capacity utilization
• Time to fill back order
• Others, such as shrinkage rate
4-16

Make-to-Order (MTO)
• Start production after customer orders
• No finished goods inventory
• Advantage: higher flexibility to customize order; no
finished goods inventory costs
• Disadvantage: intermittent production (i.e., lumpy
demand pattern)
4-17
Make-to-Order (Figure 4.3)
customer
Production
Product
Customer Order
4-18
MTO Performance Measures
Lead time

Orders completed on time (%)
– Customer request date
– Promise date
4-19
Assemble-to-Order (ATO)
• Produce parts and subassemblies; complete
production when customer places order
• Advantage: less finished goods inventory, faster
fulfillment of customer order
• Disadvantage: work-in-process inventory
4-20
Assemble-to-Order (Figure 4.3)
Customer
Forecast orders
Production of
subassemblies
Inventory of

subassemblies
Customer order
Product
Assembly of
the order
Subassembly
4-21
MTS and MTO Comparison
Characteristics Make-to-Stock Make-to-Order
Product Producer-specified
Low variety
Inexpensive
Customer-specified
High variety
Expensive
Objectives Balance inventory,
capacity, and service

Manage delivery lead
times and capacity
Main operations
problems
Forecasting
Planning production
Control of invenntory
Delivery promises
Delivery time
4-22
Order Penetration Point (Figure 4.4)
DistributionAssemblyFabricationSupplier
MTO MTO ATO MTS
∇ ------------------∇ ∇ ∇
4-23
Process Selection Decisions

• Process characteristics (product when, produce how)
• MTS vs. MTO/ATO
• Continuous/Assembly Line, Batch/Job Shop, Project
• Factors affecting process choice
• Market conditions
• Capital requirements
• Availability and cost of labor
• State of technology
4-24
Process Characteristics Matrix (Table 4.3)
Characteristics Make-to-Stock
Make-to-Order
ATO
Continuous and
Assembly
Line Flow
Automobile assembly

Oil refinery
Cannery
Cafeteria
Automobile assembly
Dell computers
Motorola pager
Fast food
Batch and Job Shop
Machine shop
Wine
Glassware factory
Costume jewelry
Machine shop
Restaurant
Hospital
Custom jewelry
Project
Speculation homes

Commercial paintings
Noncommissioned art
Buildings
Movies
Ships
4-25
Product-Process Strategy
• Strategy must consider product characteristics process
capabilities.
• Product life cycle:
• Often begins in Job Shop, then Batch Flow, then
Continuous/Assembly Line.
• Example: Bread was first produced in traditional
bakeries, now in modern automated bakeries.
4-26

Product Life Cycle Stages
1. Unique, one of a kind
2. Low volume, low standardization
3. Low-moderate volume, multiple products
4. Higher volume, few major products
5. High volume, high standardization, commodity
4-27
Product-Process Matrix (Figure 4.5)
Low volume,
low
standardization
Printing
Heavy
Equipment
Auto
assembly
Sugar
Refinery
Low volume,
Multiple
products

Higher volume
few major
products
High volume, high
standardization,
commodity
Job Shop
Batch
Assembly
line
Continuous NONE
NONE
Unique, one of
a kind
product
Project
Building
4-28
Focused Operations
• Attempting to accomplish too many goals at one

plant/facility brings lack of focus.
• Example: Product/services proliferation, with various
volumes and levels of standardization.
• Focused facility: Meeting one set of goals.
• Plant-within-a-plant (PWP): Separate products/services
with differing goals by production lines/areas in the same
facility.
4-29
Types of Focus
• Product focus
• Process type
• Technology
• Volume of sales
• Make-to-stock and make-to-order
• New products and mature products
4-30

Mass Customization
• Strategy to provide products in lot sizes = 1, in high
volume.
• Made possible by flexible manufacturing.
• Traditional mass production provides economies of scale.
• Mass Customization means high product variety from a
single process, to achieve economies of scope.
4-31
Forms of Mass Customization
• Modular production & ATO
• e.g., assembling modules for Dell computers
• Fast changeover
• e.g., zero set-up time at Motorola
• Postponement of options
• e.g. power supply for Hewlett-Packard printers
4-32
Environmental Concerns
• Technologies for pollution prevention

• Technologies for pollution control
• Infrastructure Systems for pollution practices
• Other concerns
• Recycling outputs
• Recycled inputs
• Remanufacturing
4-33
Cross-Functional Decision Making:
Who has a stake in process choice?
• Marketing wants fast response to customer demand
• Finance provides funds to configure the process
• HR finds/creates the properly skilled workers
• IT serves various data requirements
• Accounting evolves in setting performance measures
4-34
Chapter 4 Summary

• Product-Flow Characteristics
• Approaches to Order Fulfillment
• Process Selection Decisions
• Product-Process Strategy
• Focused Operations
• Mass Customization
• Environmental Concerns
Chapter 2:
Operations and Supply Chain
Strategy
Operations
Management in the
Supply Chain:
6th edition

2-2
Chapter 2 Outline
Linking Strategies: Strategic Decisions
2-3
Operations Strategy
“A consistent pattern of business decisions for
operations and the associated supply chain …
… that are linked to the business strategy and other
functional strategies, leading to a competitive
advantage for the firm.”

2-4
McDonald’s Operations Strategy
• Mission: fast product/service, consistent quality, low
cost, clean/friendly environment
• Operations Objectives: cost, quality, service
• Strategic decisions: process, quality, capacity, inventory
• Distinctive Competence: today - continuous improvement
of the transformation system, and brand (originally:
unique service/supply chain)
2-5
Operations
Strategy
Process
(Figure 2.1)
Consistent pattern of decisions
Internal

analysis
External
analysis
Mission
Objectives
(cost, quality, flexibility, delivery)
Strategic Decisions (process,
quality system, capacity, and inventory)
Distinctive
Competence
Operations Strategy
Business strategy
Functional strategies in
marketing, finance,
engineering,
human resources,
and
information systems
Results
Corporate strategy
2-6

Operations Strategic Objectives
• Cost – resources used
• Quality – conformance to customer expectations
• Delivery – quickly and on time
• Flexibility – ability to rapidly change operations
How does a firm use these objectives to gain a
competitive advantage?
What trade-offs exist among the objectives?
2-7
Distinctive Competence
•Something an organization does better than any
competing organization that adds value for the
customer.
•Examples: patents, proprietary technology,
operations innovations
2-8
Examples of Important Strategic Decisions in Operations
(Table 2.2)
Strategic Decision Decision Type Strategic Choice

Process Span of process
Automation
Process flow
Job specialization
Supervision
Make or buy
Handmade or machine–made;
flexible or hard automation
Project, batch, line or continuous
High or low specialization
Highly decentralized or centralized
Quality Systems Approach
Training
Suppliers
Prevention or inspection
Technical or managerial training
Selected on quality or cost

Capacity Facility size
Location
Investment
One large or several small facilities
Near markets, low cost or foreign
Permanent or temporary
Inventory
Amount
Distribution
Control Systems
High or low levels of inventory
Centralized or decentralized warehouse
Control in greater detail or less detail

2-9
Linking Operations to Business Strategies
• Business strategy alternatives
• Product Imitator
• Operations must focus on keeping costs low.
• Product Innovator
• Operations must maintain flexibility in processes, labor and
suppliers.
• Customer perspective
• Order Qualifiers: objectives customers consider in the
product/service
• Order Winners: objectives that cause customer to choose a
particular product/service
2-10
Linking Operations to Business Strategies
• Business strategy alternatives
• Product Imitator
• Order Winner = price (low cost)

• Order Qualifiers = flexibility, quality, delivery
• Product Innovator
• Order Winner = flexibility (rapid introduction of new
products)
• Order Qualifiers = cost, delivery, quality
2-11
Global Scope of Operations and Supply Chains
• “Traditional” (multi-country, multi-strategy) versus
“Global” (single-strategy) firm.
• Characteristics of the “Global Corporation” differ from
the traditional company.
• Rethink the supply chain (product design, process design,
location, workforce policies).
2-12
Characteristics of “Global Corporations”
• Facilities & plants located worldwide, not country by
country.

• Products & services can be shifted among countries.
• Sourcing on a global basis.
• Supply chain is global in nature.
• Product design & process technology are global.
• Products/service fit global tastes.
• Demand is considered on worldwide basis.
• Logistics & inventory control is on worldwide basis.
• Divisions have world-wide responsibility.
2-13
Supply Chain Strategy
• To achieve competitive advantage for the entire
supply chain, rather than individual entities.
• Two supply chain strategies:
• Imitative Products (e.g. commodities)
• Predictable demand
• Efficient, low-cost supply chain
• Innovative Products (e.g. new technologies)
• Unpredictable demand
• Flexible, fast supply chain
• Firms must design the right supply chain for each
product or group of products, and avoid a “one size
fits all” strategy.
2-14

Environment & Sustainable Operations
Sustainability: minimizing or eliminating environmental
impact of operations.
The ‘greening’ of operations:
• Product development
• Sourcing
• Manufacturing
• Packaging
• Distribution
• Transportation
• Services
• End-of-life management (e.g. recycling)
2-15
Chapter 2 Summary
Strategy

Sustainable Operations
Chapter 8:
Managing Quality
Operations
Management in the
Supply Chain:
6th edition
8-2
Chapter 8 Outline
• Quality as Customer Judgments
• Manufacturing Quality

• Service Quality
• Quality Planning, Control, and Improvement
• Ensuring Quality in the Supply Chain
• Quality, Cost of Quality, and Financial Performance
• Quality Pioneers
• ISO 9000 Standards
• Malcolm Baldrige Award
• Why Some Quality Improvement Efforts Fail
8-3
Introduction
• Quality is one of the four key objectives of operations
(cost, flexibility, delivery, quality)
• Historical development of quality concepts
• Inspection (early 1900s)
• Statistics quality control (Shewhart - 1940s)
• Quality management (1960s)
• Quality is responsibility of everyone in the organization

8-4
Comair Flight 5191, Lexington, KY
“The Comair Flight 5191 crew began the day by
powering up the wrong plane. They took off
down the wrong runway. The air traffic
controller, working alone in violation of FAA
policy, had turned his back to do other duties.
Investigators are uncovering a series of mistakes
before the plane crashed, killing 49 people.”
Source: www.cnn.com (2006)
Quality involves the entire organization, and the supply chain.
http://www.cnn.com/
http://www.cnn.com/
8-5
Quality
Meeting, or exceeding, customer
requirements now and in the future.

i.e., The product or service is fit for the
customer’s use.
Only the customer can determine quality.
8-6
Dimensions of Quality
QUALITY
Quality of
Conformance
Field
Service
Availability
Quality of
Design
8-7
Quality of Design
• Determined before the product is produced

• Cross-functional team for product design
• Translates the “wishes” of customers into specifications
• Depends on market research, design concept,
specifications
8-8
Quality of Conformance
• Producing a product/service that meets specifications
• Even ‘cheap’ products can have conformance quality
• May not be durable, but conformance quality is achieved if
they match their design
8-9
The “Abilities”
Uptime
Availability
Uptime Downtime

MTBF
Availability
MTBF MTTR
• Availability
• Continuity of usefulness to customers (operational)
• Reliability
• Useful product/service time until failure
• Mean time before failure (MTBF)
• Maintainability
• Restoration of product/service after failure
• Mean time to repair (MTTR)
8-10
Field Service
• Warranty and repair/replacement of the
product after it has been sold
• Also called customer service, sales
service, or just “service”

• Dimensions
• Promptness
• Competence
• Integrity
8-11
Different Types of Quality (Figure 8.1)
Quality of market research
Quality of concept
Quality of specification
Technology
Employees
Management
Reliability
Maintainability
Logistical support
Promptness
Competence
Integrity

Quality of design
Quality of conformance
Availability
Field service
Customer
satisfaction
8-12
Service Quality
• Measures are perceptual/subjective
• SERVQUAL is most popular measure
• Tangibles: appearance
• Reliability: promised service
• Responsiveness: prompt, helpful
• Assurance: knowledge, courtesy
• Empathy: caring, individualized
8-13

The Quality Cycle (Figure 8.2)
MARKETING
Interprets customer needs
Works with customer to
design product
Interpretation of needs
CUSTOMER
Quality needs
Needs
OPERATIONS
Produces the product or
services
QUALITY CONTROL
Plans and monitors
quality
Product
ENGINEERING
Defines design concept
Prepares specifications
Defines quality

characteristics
Specifications
Concurrent
engineering
team
8-14
Quality Cycle in Mass Transit System
(Figure 8.3)
County planning
Regional planning
State transportation agency
Planner
Scheduler
Routes
Schedules
Budgets
Method
Facilities

Equipment
Evaluation
Inspection
Audits
Surveys
Hearings
Public
Operations office
Rider’s
needs
8-15
Quality Improvement through
the Quality Cycle
customer needs

nd and correct causes of poor quality
8-16
Poka-Yoke
(poh-keh yoh-kay)
• Developed at Toyota in the 1960s
• Means ‘mistake proofing’
• Design the product and process so that mistakes cannot occur
or are immediately detectable
• Examples
• In manufacturing, 2 parts are notched to
only fit together one way
• For consumers, snow blower requires
two hand levers to be held during
operation (so no hands can be in the
dangerous moving parts!)

8-17
Suppliers and Quality
• Involve in product design
• Prevent design defects; help select materials
• Supplier certification
• Planning and control system for quality
• Manage rolled yield (cumulative defect rate)
• 10 parts (1% defects in each)
• Rolled yield = (.99)10 = .90
• 90% quality yield for final product
8-18
Cost of Quality
• Control costs
• Prevention
• Training, data management, planning
• Appraisal
• Incoming materials inspection, final good inspection

• Failure costs
• Internal failure
• Scrap, rework, downtime
• External failure
• Warranty, returns, complaints
8-19
Cost of Quality Trade-offs
100%
defective
100%
good
Cost/unit
Prevention
& appraisal
costs
Internal &
external

failure costs
8-20
How Quality Contributes to Profitability
(Figure 8.5)
IMPROVED PROFITABILITY
QUALITY
(design and conformance)
Lower
costs
Reduced
waste
Greater
productivity
Greater
value
Increased market
share
Revenue

growth
Improved
margins
Improved asset
utilization
8-21
Quality Pioneer: W. Edwards Deming
• The 14 Management Principles
• Don’t sacrifice quality for short-term profit
• Emphasis on continuous improvement
• PDCA Wheel
• Plan, do, check, act
• http://www.deming.org/
http://www.deming.org/
8-22
Quality Pioneer: Joseph Juran
• Quality “Trilogy”—planning, control and

improvement
• Solve “the vital few” quality problems
• Stressed quality control methods (Chapter 9)
• “Quality Handbook”
• http://www.juran.com
Juran lived to age 104
http://www.juran.com/
8-23
ISO 9000 Standards
• Guidelines for designing, manufacturing, selling, and
servicing products. Est. 1987.
• Selecting an ISO 9000 certified supplier provides some
assurance that supplier follows accepted quality practices.
• Required by many manufacturers, especially in Europe,
to be a supplier.
• www.iso.org
http://www.iso.org/
8-24

Airports can be
ISO 9000 certified
Hotels can be
ISO 9000 certified
8-25
ISO 14000 Standards
• Series of standards covering environmental
management systems, environmental auditing,
evaluation of environmental performance,
environmental labeling, and life-cycle assessment.
• Intent is to help organizations improve their
environmental performance through documentation
control, operational control, control of records,
training, statistical techniques, and corrective and
preventive actions.
8-26

Malcolm Baldrige Award
• Est. 1987 to promote better quality management
practices and improved quality results by U.S.
industry.
• Award criteria have become standard for “best
quality practice” in U.S.
• Given to at most 3 organizations in each of 6
categories.
• www.baldrige.gov
http://www.baldrige.gov/
8-27
Categories for Baldrige Award
Applicants
• Manufacturing companies
• Service companies
• Small businesses
• Health care organizations
• Education institutions
• Non-profit organizations (including government)

8-28
Baldrige Criteria
1. Leadership
2. Strategic Planning
3. Customer Focus
4. Measurement, Analysis, and Knowledge Management
5. Workforce Focus
6. Process Management
7. Results
8-29
Why Some Quality
Improvement Efforts Fail
• Requires change in values and management philosophy
• Focus on short-term financial results
• “Blame the employee” syndrome
• Belief in “trade-offs” (quality vs. cost)
• Management interference with teamwork

• Reward systems
• Supplier quality problems
8-30
Chapter 8 Summary
• Quality as Customer Judgments
• Manufacturing Quality
• Service Quality
• Quality Planning, Control, and Improvement
• Ensuring Quality in the Supply Chain
• Quality, Cost of Quality, and Financial Performance
• Quality Pioneers
• ISO 9000 Standards
• Malcolm Baldrige Award
• Why Some Quality Improvement Efforts Fail
Chapter 11:
Forecasting

Operations
Management in the
Supply Chain:
6th edition
11-2
Chapter 11 Outline
• Forecasting for Decision Making
• Qualitative Forecasting Methods
• Time-Series Forecasting
• Moving Average
• Exponential Smoothing
• Forecasting Accuracy
• Advanced Time-Series Forecasting
• Causal Forecasting Methods
• Selecting a Forecasting Method

• Collaborative Planning, Forecasting, and Replenishment
11-3
Forecasting for Decision Making
• Forecasting demand for operations output
• Forecasting: what we think demand will be
• Planning: what we think demand should be
• Demand: may differ from sales
• Forecasts are used in all functional areas
• Forecasts necessary for operations decision areas:
process design, capacity planning, inventory
management, scheduling
11-4
Use of Forecasting: Operations Decisions
Time
Horizon
Accuracy

Required
Number of
Forecasts
Management
Level
Forecasting
Method
Process design
Long Medium Single or few Top
Qualitative or
causal
Capacity
planning,
facilities
Long Medium Single or few Top
Qualitative and
causal
Aggregate
planning Medium High Few Middle

Causal and time
series
Scheduling Short Highest Many Lower Time series
Inventory
management Short Highest Many Lower Time series
11-5
Use of Forecasting: Marketing, Finance, & HR
Time
Horizon
Accuracy
Required
Number of
Forecasts
Management
Level
Forecasting

Method
Long-range
marketing
programs
Long Medium Single or few Top Qualitative
Pricing decisions Short High Many Middle Time series
New product
introduction
Medium Medium Single Top Qualitative and
causal
Cost estimating Short High Many Lower Time series
Capital
budgeting
Medium Highest Few Top Causal and time
series
Labor planning Medium Medium Few Lower Qualitative and
time series

11-6
‘Qualitative’ Forecasting Methods
• Based on managerial judgment when there is a lack of
data. No specific model.
• Major methods:
• Delphi technique
• Market surveys
• Life-cycles analogy
• Informed judgment (naïve models)
11-7
Time-Series Forecasting
• Components of data:
• Level - average
• Trend - general direction (up or down)
• Seasonality - short term recurring cycles
• Cycle - long term business cycle

• Error - random or irregular component
11-8
Moving Average
• Assumes no trend, seasonality, or cycle
• Simple moving average:
• Weighted moving average:
N
DDD
A Nttt
t
11
......
tt
AF
11211
......

NtNtttt
DWDWDWAF
11-9
Moving Average Example
Period Actual Demand Forecast
1 10
2 18
3 29
4 - 19
(number of periods is forecaster’s decision)
F4 = A3 = (29 + 18 + 10) / 3 = 19
F5 will be (Actual demand for period 4 + 29 + 18) / 3
11-10
Time-Series Data (Figure 11.2)
Note: The forecast is smoother as the number of periods

in the moving average increases.
11-11
Exponential Smoothing
1
1
ttt
• The new average is computed from the old average:
It determines how much the calculation weights
recent demand (smooths random variation). Αlpha
(α) can be between 0 and 1, but is usually 0.1 - 0.2.
11-12
Simple Exponential Smoothing

• The forecast:
F = forecast of demand (both this period and next)
D = actual demand (this period)
t = time period
• Assumes no trend, seasonality, or cycle
• Note: we are adjusting Ft to get Ft+1
tttt
1
11-13
Exponential Smoothing Example
• September forecast for sales was 15, but actual sales were
13. Use alpha (α) of 0.2.
• What is the forecast for October?
• October forecast = September forecast + α(September
actual - September forecast)

= 15 + 0.2(13 - 15)
= 15 - 0.4 = 14.6
11-14
Forecast Errors
In addition to the forecast, one should compute an
estimate of forecast error. Its uses include:
• To monitor erratic demand observations or
“outliers”
• To determine when the forecasting method is no
longer tracking actual demand
• To determine the parameter values that provide
the forecast with the least error
• To set safety stocks or safety capacity
11-15
Time-Series Data (Figure 11.3)
Note: The forecast is smoother as the value
of alpha (α) is reduced.

11-16
Forecast Accuracy
• Cumulative sum of forecast errors (CFE)
• Mean square error (MSE)
• Mean absolute deviation (MAD)
• Mean absolute percentage errors (MAPE)
• Tracking Signal (TS)
11-17
Forecast Accuracy: Formulas
Cumulative sum of
forecast errors
Mean square error
Mean absolute
deviation
Mean absolute
percentage errors
Tracking signal

Cumulative sum of
forecast errors
Mean square error
Mean absolute
deviation
11-18
Advanced Time-Series Forecasting
• Adaptive exponential smoothing
• Mathematical models
• Linear or nonlinear
• Box-Jenkins method
• Requires about 60 periods of past data
11-19
Causal Forecasting Methods
• Cause-and-effect model, using other data set to predict
demand (forecast).

• Examples:
• Use population to forecast newspaper sales
• Use supply chain data on inventory levels to forecast flat
screen TV sales
11-20
Causal Forecasting Models
• The general regression model:
• Other forms of causal model:
• Econometric
• Input-output
• Simulation models
11-21
Example of Causal Model
I t D t F t
34.6 120 121.15

35.7 124 123.79
36.3 119 125.22
35.2 124 122.59
35.7 125 123.79
36.4 130 125.46
37.6 128.34
Intercept (a) 38.23094
Slope (b) 2.396514
Yt = a + b(t)
F7 = 38.23 + 2.397 (7) = 128.34 = forecast for Period 7
Dt = actual sales in year t
Ft = forecasted sales
It = median family
income (000’s)
11-22
Selecting a Forecasting Method
• User and system sophistication

• People are reluctant to use what they don’t understand
• Time and resources available
• When is forecast needed?
• Use or decision characteristics
• Scheduling decision? Facility expansion?
• Data availability
• Data pattern
• Level? Unstable?
11-23
Collaborative Planning, Forecasting, and
Replenishment (CPFR)
• Aim is to achieve more accurate forecasts
• Share information in the supply chain with customers and
suppliers
• Compare forecasts
• If discrepancy, look for reason
• Agree on consensus forecast
• Works best in B2B with few customers (e.g., a small
number of large retailers)

11-24
Chapter 11 Summary
• Forecasting for Decision Making
• Qualitative Forecasting Methods
• Time-Series Forecasting
• Moving Average
• Exponential Smoothing
• Forecasting Accuracy
• Advanced Time-Series Forecasting
• Causal Forecasting Methods
• Selecting a Forecasting Method
• Collaborative Planning, Forecasting, and Replenishment
Chapter 7:
Lean Thinking and Lean
Systems
Operations
Management in the

Supply Chain:
6th edition
7-2
Chapter 7 Outline
• Evolution of Lean
• Lean Tenets
• Stabilizing the Master Schedule
• Controlling Flow with the Kanban System
• Reducing Setup Time and Lot Sizes
• Changing Layout and Maintaining Equipment
• Cross-Training, Rewarding, and Engaging Workers
• Guaranteeing Quality
• Changing Relationships with Suppliers
• Implementation of Lean

7-3
Evolution of Lean
• Toyota Production System (TPS)
• Developed in Japan (limited resources)
• Also known as Just-in-Time (JIT) manufacturing
• Came to U.S.- 1981 at Kawasaki motorcycle plant in
Lincoln, Nebraska
• Lean Production
• Term coined in late 1980s
• Popularized in 1990s by Womack, Jones & Roos, “The
Machine That Changed the World”
7-4
Lean Tenets
• Create product/service value from customer perspective
• Reduce waste - muda
• Identify, study, improve the value stream
• Observe the process - gemba
• Ensure simple, smooth, error-free flow
• Determine takt time

• Produce only what is pulled by customer
• Use kanbans
• Strive for perfection
• Hold kaizen events, 5S, 5 Whys
7-5
The Seven Forms of Waste
Overproduction: Producing more than the demand for
customers, resulting in
unnecessary inventory, handling, paperwork, and warehouse
space.
Waiting time: Operators and machines waiting for parts or
work to arrive from
suppliers or other operations. Customers waiting in line.
Unnecessary transportation: Double or triple movement of
materials due to
poor layouts, lack of coordination, and poor workplace
organization.
Excess processing: Poor design or inadequate maintenance or
processes,
requiring additional labor or machine time.
Too much inventory: Excess inventory due to large lot sizes,
obsolete items,

poor forecasts, or improper production planning.
Unnecessary motion: Wasted movements of people or extra
walking to get
materials.
Defects: Use of material, labor, and capacity for production of
defects, sorting
out bad parts, or warranty costs with customers.
7-6
Value Stream Mapping
• Value stream is all processing steps to complete
product/service
• Extension of process flowcharting
• Includes value-adding/non-value-adding activities
• Requires direct observation of process – gemba
• “Is this step or task necessary in creating value to the
customer?”
• Change and improve process

7-7
Inventory Covers Problems (Figure 7.2)
Poor
quality
Unreliable
supplier
Machine
breakdown
Inefficient
layout
Bad
design
Lengthy
setups
W
a
te
r
L
e
v

e
l
Water level indicates level of inventory in the system
7-8
Water Level Lowered To Expose Problems
Poor
quality
Unreliable
supplier
Machine
breakdown
Inefficient
layout
Bad
design
Lengthy
setups
W
a

te
r
L
e
v
e
l
7-9
Water Flows Smoothly – once problems are solved
W
a
te
r
L
e
v
e
l
Problems reduced/solved
7-10

5 Whys Technique
• Explores cause-and-effect relationships that underlie problems
(root causes)
• Enables root causes to be identified/resolved
• Example: Truck won’t start
• Why? Battery is dead.
• Why? Alternator not functioning.
• Why? Alternator belt is broken.
• Why? Truck was not maintained as recommended.
• Why? Truck is old; no replacement parts available.
•
Solution
? Find source for parts, or purchase new truck.
7-11
5S Technique

• Organize workspace to improve employee morale, safety,
process efficiency.
• Reduces time looking for “things.”
n)
7-12
Elements of Lean System
• Stabilizing the master schedule
• Controlling flow with kanban system

• Reducing setup time (quick changeover)
• Small lot sizes (lot size one)
• Efficient layout (linear flow, low inventories)
• Preventive maintenance
• Cross-training, rewarding workers
• Quality and continuous improvement
• Close relationships with suppliers (frequent deliveries)
7-13
Stabilizing the Master Schedule
• Production horizon set according to demand
• Production schedule repeated each day

• Uniform load – level work load across workers/machines
• Takt time – match supply (production rate ) to demand
rate
• Produce planned quantity each day - no more
• Desirable, but not essential, to a lean system
7-14
Kanban System
• Kanban - “marker” (card, sign)
• “Pull” production system
• Visual control system of cards and containers, or other
signal type
• Number of containers:
C

DT
D = Demand rate (at work center)
T = Time for container to complete circuit
C = Container size (# units)
7-15
The Kanban System
• Signals the need for more parts
• Uses simple cards or signals to control
production/inventory
• Each work center receives production order
(card) from succeeding work center
• Prevents the buildup of inventory

• Reduces lead time
• Extends to receiving orders from suppliers
7-16
Kanban System (Figure 7.3)
7-17
Kanban Cards (Figure 7.4)
7-18
Reducing Setup Time and Lot Sizes
• Reducing setup time:
• increases available capacity

• increases flexibility to meet schedule changes
• reduces inventory
• Setup types
• Single (single digit minutes)
• One-touch (less then 1 min; 2-step process)
• Internal (while machine stopped)
• External (while machine operating)
• Lot size reduction
• Goal: single-unit production
7-19
Non-Lean Layout (Figure 7.6)

Stockrooms
Supplier A Supplier B
Final
Assembly
Work Centers
7-20
Lean Layout
Final
Assembly
Work Centers
7-21

Lean Layout with Group Technology
(Cellular Manufacturing Layout)
Final
Assembly
Line 1
Line 2
7-22
Engaging Workers
• Multifunction, cross-trained workers
• Flexibility to move to busy work centers
• New pay system to reflect skills variety

• Workers contribute individually and collaboratively
• Perform own maintenance and inspection
• Teamwork – problem solving
• Suggestion systems
7-23
Quality in a Lean System
• Quality is essential input into lean system
• Defects are waste
• No inventory to cover up mistakes
• System designed to expose errors; correct them at their
source (so not repeated)

• Continuous improvement of the process
7-24
Supplier Relationships
• Viewed as the ‘external factory’
• Co-location; frequent deliveries
• Fewer suppliers
• No inspection—high quality is assumed (required)
• Integrated supplier programs
• Early supplier selection
• Family-of-parts sourcing
• Long-term strategic relationship
• Reduce paperwork and inspection

7-25
Implementation of Lean Systems
• Establish a cross-functional team
• Determine what value customers need
• Construct value stream map
• Eliminate waste (non-value-adding activities)
• Use customer demand to pull work thru process
• Implement team’s suggested changes
• Repeat the cycle on another process
7-26
Chapter 7 Summary

• Evolution of Lean
• Lean Tenets
• Stabilizing the Master Schedule
• Controlling Flow with the Kanban System
• Reducing Setup Time and Lot Sizes
• Changing Layout and Maintaining Equipment
• Cross-Training, Rewarding, and Engaging Workers
• Guaranteeing Quality
• Changing Relationships with Suppliers
• Implementation of Lean
Chapter 5:

Service Delivery System
Design
Operations
Management in the
Supply Chain:
6th edition
5-2
Chapter 5 Outline
• Defining Service
• Service-Product Bundle
• Service Delivery System Matrix

• Customer Contact
• Service Recovery and Guarantees
• Globalization of Services
• Employees and Service
5-3
The Service Economy
Sources: Government Accountability Office; Bureau of Labor
Statistics; S&P Capital IQ; iSuppli
Largest 15 U.S. employers
• 1960
• 12 manufacturers
• 3 services
• 2010

• 3 manufacturers
• 12 services
5-4
Services in Europe
“The Service Sector accounts for about
70% of the European economy.”
Source: The Wall Street Journal, 4 March 2005, p. A13
5-5
Defining Service
• Intangibility of the offering
• Simultaneous production and consumption

• No finished goods inventory
• Front office vs. back office
• Cannot be stored/resold
5-6
Service-Product Bundle
• Tangible service - explicit service
• what the provider does for customer
• Psychological benefits - implicit service
• how customer feels after service
• Physical goods - facilitating goods
• used during service or received by customer
Pizza
delivery

Pizza
Speed/
convenience
Delivery
vehicle
Enjoyment
5-7
Goods and Services Packages (Figure 5.1)
100% 75% 50% 25% 0% 100%75%50%25%
Self-service groceries
Automobile

Installed carpeting
Fast-food restaurant
Gourmet restaurant
Auto maintenance
Haircut
Consulting services
Goods Services
5-8
Service Delivery System Matrix (Figure 5.2)
Standard with options, using
moderately repeatable
sequence.

Customer has
some decision-making power.
Co-routed
•Stock brokerage
Provider Routed
•ATM
Standardized with highly
repeatable process
sequence.
Customer has
low decision-making power.
Highly customized with unique

process sequence.
Customer has
great decision-making power.
Customer Routed
•Estate planning
Many process
pathways.
Jumbled flows,
complex work
with many
exceptions.
Moderate number of
process pathways.

Flexible flows with
some dominant
paths, moderate
work complexity.
Limited number of
process
pathways.
Line flows, low
complexity work
S
e
rv
ic
e

D
e
li
v
e
ry
S
y
st
e
m
D
e
si
g
n
Customer Wants and Needs in the Service Package

5-9
Customer Contact
• Definition: Extent of interaction between service
provider and customer
• Lower contact = provide routed (standardized)
• Higher contact = customer routed (customized)
Potential inefficiency = f (degree of customer contact)
5-10
Customer Contact (see Fig. 5.3)
• Low customer contact
• Higher production efficiency

• Lower sales opportunity
• Workers with technical skills
• Focus on paper handling
• Office automation
• High customer contact
• Lower production efficiency
• Higher sales opportunity
• Workers with diagnostic skills, more flexible and personable
• Focus on client mix
• Client/worker teams
5-11
Customer-Introduced Variability
• Arrival

• when customers will arrive to consume a service
• Request
• what customers ask for in the service-product bundle
• Capability
• ability of customers to participate
• Effort
• willingness of customers to participate
• Subjective preference
• preferences of customers in how service is carried out
5-12
Manager’s Tool: Service Recovery
• Failing right before the customer’s eyes!
• Actions to compensate the customer for a failed
service.

• Swift and appropriate action.
dessert!
5-13
Manager’s Tool: Service Guarantee
• Benefits to the customer
• Promise of service to be delivered
• Payout to customer if promise not delivered
• Good for the organization
• Focuses on customer (service promise)

• Clearly defines payout
• Improves customer loyalty
5-14
Technology-Enabled Services
Contrasting Views:
• Production-line approach to service
• Standardization
• Automation
• Employees are the center of service delivery
• Use technology to support front-line employees
• Value investments in both employees & technology
• Place importance on recruiting front-line employees

5-15
Outsourcing & Offshoring Services
• Outsourcing:
• Having an organization outside your own firm perform
service activities such as workforce recruiting, payroll
management, accounting services, and call center functions.
• Offshoring:
• The export of these service activities to other countries.
5-16
Study of Offshoring (Duke and Booz & Co. 2008)
• Transaction-intensive services becoming commoditized (call

centers, etc.)
• Professional services more commonly offshored
• High-end niche providers are globally dispersed
• Firms moving fast to scoop up global talent
• Collaboration and maintaining quality challenging with
globally dispersed providers
5-17
Service Profit Chain (Figure 5.4)
• Internal service quality, leads to…
• Employee satisfaction, leads to…
• Employee retention & productivity, lead to…
• External service value (to customer), leads to…

• Customer satisfaction, leads to…
• Customer loyalty, leads to…
• Revenue growth & profitability (the goal)
• which feeds investment back into internal service
quality
5-18
Chapter 5 Summary
• Defining Service
• Service-Product Bundle
• Service Delivery System Matrix
• Customer Contact
• Service Recovery and Guarantees

• Globalization of Services
• Employees and Service
Chapter 12:
Capacity Planning
Operations
Management in the
Supply Chain:
6th edition

12-2
Chapter 12 Outline
• Facilities Decisions
• Facilities Strategy
• Sales & Operations Planning Definition
• Cross-Functional Nature of S&OP
• Planning Options
• Basic Aggregate Planning Strategies
• Aggregate Planning Costs
• Aggregate Planning Example
12-3
Hierarchy of Capacity Decisions

Facilities
decisions
Aggregate
planning
Scheduling
0 6 12 18 24
Months
Planning Horizon
Scheduling
Facilities
decisions
Aggregate
planning

12-4
Definition of Capacity
Maximum output that can be produced
over a given period of time.
• Theoretical capacity
• Labor availability and overtime
• Physical assets, delayed maintenance, etc.
• Can be used for short-term demand spikes
• Effective capacity
• Should be used in planning
• Subtracts maintenance downtime, shift breaks,
absenteeism, etc.
12-5
Capacity Utilization

Utilization = Actual output
Capacity
Utilization is seldom 100%.
Estimates capacity usage and ‘busyness.’
x 100%
12-6
Facilities Decisions
• How much capacity is needed?
• How large should each facility be?
• When is the capacity needed?
• Where should the facilities be located?

• What type of facilities/capacity are needed?
12-7
Facilities Strategy
Considers:
• Amount of capacity
• Size of capacity cushion
• Size of facilities
• Economies/diseconomies of scale
• Timing of facility decisions
• Preemptive, wait-and-see
• Types of facilities
• Product-focused, market-focused, process-focused, general-
purpose

12-8
Factors Affecting Facilities Strategy
• Predicted demand
• Cost of facilities
• Likely behavior of competitors
• Business strategy
• International considerations
12-9
How Much? Strategies for Capacity Cushion
• Capacity cushion = 100% – utilization
• Three strategies:
• Large cushion (e.g., make-to-order)

• Moderate cushion (cost of running out balanced with cost of
excess capacity)
• Small cushion (e.g., make-to-stock)
12-10
How Large? What is Optimum Facility Size?
• Economies of scale
• Production costs are not linear
• Overhead spread over more units
• Diseconomies of scale
• Increased transportation costs
• Cost of more bureaucracy
• Increased organizational complexity

12-11
When? Timing of Facility Additions
• Preempt the competition
• Build capacity ahead of need
• Positive capacity cushion
• Wait-and-see strategy
• Small or negative capacity cushion
• Lower risk strategy
12-12
Where? Location of Facilities
• Quantitative Factors
• ROI, NPV

• Transportation, Taxes
• Lead times
• Qualitative Factors
• Language, norms
• Worker and customer attitudes
• Proximity to customers, suppliers, competitors
12-13
What Type? Types of Facilities
• Product-focused (55%)
• One family of products/services (e.g., computers)
• Market-focused (30%)

• Located near sales (e.g., electricity, bakeries)
• Process-focused (10%)
• Few technologies (e.g., computer chips, MRI center)
• General purpose (5%)
• Several products/services (e.g., furniture, banking)
12-14
Sales & Operations Planning (S&OP)
• Matching supply & demand over a medium time
range
• Time horizon of about 12 months
• Aggregated demand for one or few categories of
product. Demand may fluctuate or be uncertain.

• Possible to change both supply and demand
• Variety of management objectives
• Facilities are fixed (cannot be expanded or reduced)
12-15
Cross-Functional Nature of S&OP
• Budgeting: closely tied to aggregate plan
• HR: workforce availability
• Operations: capacity/inventory planning
• Accounting: cost analysis
• Finance: capital investments
• Marketing: sales plan

12-16
Options for Managing (Influencing) Demand
• Pricing
• Advertising and promotion
• Backlogs or reservations (shift demand)
• Development of complementary offerings
• Seasonal products/service spread demand
• Lawn mower, snow blower
• Ski resort, mountain biking
12-17
Options for Managing (Influencing) Supply

• Hiring and layoff of employees
• Using overtime and undertime
• Using part-time or temporary labor
• Carrying inventory
• Outsourcing/subcontracting
• Cooperative arrangements
• Share capacity during demand peaks
• Airlines, hotels, utilities
12-18
Aggregate Planning Strategies
• Level strategy
• Constant work force

• Inventory as buffer
• Chase strategy
• Vary workforce
• Produce to demand
• Typical for services
12-19
Comparison of Chase and Level Strategies
(Table 12.1)
Chase
Strategy
Level
Strategy
Level of labor skill required Low High

Job discretion Low High
Compensation rate Low High
Training required per employee Low High
Labor turnover High Low
Hire-layoff cost per employee Low High
Amount of supervision required High Low
Type of budgeting and forecasting required Short-run Long-run
12-20
Aggregate Planning Costs
• Hiring and firing costs (Chase strategy)
• Overtime and undertime costs (Chase)
• Subcontracting costs (Chase)

• Part-time labor costs (Chase)
• Inventory-carrying costs (Level strategy)
• Cost of stockout or back order (Level)
12-21
Chapter 12 Summary
• Facilities Decisions
• Facilities Strategy
• Sales & Operations Planning Definition
• Cross-Functional Nature of S&OP
• Planning Options
• Basic Aggregate Planning Strategies
• Aggregate Planning Costs

• Aggregate Planning Example
Chapter 1:
The Operations Function
Operations
Management in the
Supply Chain:
6th edition
1-2

Chapter 1 Outline
• Why Study Operations Management?
• Definitions of Operations Management and Supply Chains
• Decisions at Pizza U.S.A.
• Operations Decisions - A Framework with Contingencies
• Operations as a Process
• Contemporary Operations Themes
1-3
Why Study Operations Management?
• Cross-functional nature of decisions
• Operations is a major function in every organization

• Principles of process thinking can be applied across the
organization
• Operations Management is an interesting and challenging field
of study
1-4
Definition of Operations Management
The operations function of an organization is
responsible for producing and delivering goods or
services of value to customers of the organization.
Operations managers make decisions to manage
the transformation process that converts inputs
into desired finished goods or services.

1-5
Key Points in OM Definition
Decisions:
The operations manager must decide:
• Process, quality, capacity, inventory
Function:
Major functional areas in organizations:
• Operations, marketing, finance
Process:
Planning and controlling the transformation process and its
interfaces (internal/external)
1-6

Definition of Supply Chain
• Network of manufacturing and service operations that supply
one another
• From raw materials through production to the end consumer
• Flows of materials, money, and information
• Links operations across organizations
1-7
Major Decisions at Pizza USA
• Process
• How should we produce pizzas?
• Quality
• How do we meet quality standards and ensure a good customer

experience?
• Capacity
• How much output do we need, at various times?
• Inventory
• Which ingredients, when & how much?
1-8
Contingencies
Decisions related to process, quality, capacity, inventory
must account for:
- upstream suppliers
- downstream customers
- other functions (marketing, finance)

- support functions (HR, Info systems, accounting)
- situations (supply disruption, seasonal demand peaks)
- conditions (economy, changing customer preferences)
- many other contingencies
In other words, there is no single set of
“best” practices. The best decision-making
will depend on the situation.
1-9
Cross-Functional Decision Making
• Operations as the primary production function.
• Other primary functions:
• Marketing

• Finance
• Supporting functions: all others
• Major cross-functional decision making relationships (See
Table 1.2)
1-10
Operations as a Process
Transformation
(Conversion)
Process
Input Output
1-11

Operations as a Process
Transformation
Fabrication
Input OutputTransformation
Assembly
Fabrication: making the parts
Assembly: putting the parts together
1-12
Operations as a Process (Figure 1.2)
Transformation
(Conversion)
Process
Energy
Materials

Labor
Capital
Information
Goods or
Services
Feedback information for
control of process inputs
and process technology
1-13
Contemporary Operations Themes
• Service and Manufacturing (differences and
implications)
• Customer-Directed Operations (“voice of the customer”)

• Lean Operations
• Integration of Operations with Other Functions
• Environmental Concerns and Sustainability
• Supply Chain Management
• Globalization of Operations
• Contingencies that Impact Operations Decisions
1-14
Chapter 1 Summary
• Why Study Operations Management?
• Definitions of Operations Management and Supply Chains
• Decisions at Pizza U.S.A.
• Operations Decisions - A Framework with Contingencies

• Operations as a Process
• Contemporary Operations Themes

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