OPERATION MANAGEMENT FIREHUN.pdf

OPERATION MANAGEMENT Course code : BMgt 3082
Credit Hours: 3

OM
OBJECTIVE OF THE COURSE
By the end of this course students will be able to:
ØUnderstand the meaning of Productions Operations Management
ØHighlight the historical development of Productions Operations Management
ØDescribe the scientific nature of Productions Operations Management
ØIdentify the importance and uses of Productions Operations Management
ØState the limitations of Productions Operations Management
ØDifferentiate the terms Operations Management & Productions Management
ØRelation of Operation Management fields with Human Resource Management fields
ØDescribe Raw Materials Management, Product (Output) & Job design.
ØProcessing steps used & Management control information’s for Market researches.
ØDescribe Equipment (tools) & Suppliers.
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CHAPTER ONE: NATURE OF OPERATIONS
MANAGEMENT (10 hours)
Introduction
Operation/Production is defined as “the step-by-step conversion of
one form of material into another form through chemical or
mechanical process to create or enhance the utility of the product to
the user.”
Operations are that part of a business organization that is
responsible for producing goods and/or services.
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Business organizations have three basic functional areas,
ØFinance - is responsible for securing financial resources
ØMarketing - is responsible for assessing consumer wants and
needs, and selling and promoting
ØOperations -responsible for producing the goods or providing the
services
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Definition of operation /production management
Production management is the process of effectively planning and regulating
the operations of that part of an enterprise which is responsible for the actual
transformation of materials into finished products
Operations management is the management of systems or processes that create
goods and/or provide services. Operations and supply chains are intrinsically
linked, and no business organization could exist without both.
A supply chain is the sequence of organizations—their facilities, functions, and
activities that are involved in producing and delivering a product or service.
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A Framework for Managing Operations
Operation managers are concerned with planning, organizing, and
controlling the activities, which affect human behavior through
models.
Planning:- Activities that establishes a course of action and guide
future decision-making is planning.
Organizing:- An activity that establishes a structure of tasks and
authority
Controlling:- Activities that assure the actual performance in
accordance with planned performance.
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Operations Management overview
Operations management is
qImportant- since it is concerned with creating the services and
products upon which we all depend.
qExciting – since it is at the center of so many of the changes
affecting the business world.
qChallenging-since Promoting the creativity which will allow
organizations to respond to so many changes is becoming the prime
task of OM
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Operations Management Objectives
vQuality: goods and services that are reliable and perform
correctly.
vEfficiency: the amount of input to produce a given output.
vResponsiveness to customers: actions taken to respond to
customer needs.
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Scope of Operations Management
Following are the activities which are listed under production and operations
management functions:
Ø Product selection and design
ØProcess selection and planning
ØFacilities (plant) location, Facilities layout and material handling
ØCapacity planning
ØProduction planning and control (PPC)
ØInventory control
ØQuality assurance and control
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Managing Global Operations
The term ‘globalization’ describes businesses’ deployment of
facilities and operations around the world.
There are four developments, which have spurred the trend toward
globalization:
1. Improved transportation and communication technologies;
2. Opened financial systems;
3. Increased demand for imports; and
4. Reduced import quotas and other trade barriers.
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Managing global operations would focus on the following key issues:
ØTo associate global historical events to key drivers in global operations from different
perspectives.
ØTo develop criteria for conceptualization and evaluation of different global operations.
ØTo associate success and failure cases of global operations to political, social, economic
and technological environments.
ØTo envision trends in global operations.
ØTo develop an understanding of the world vision regardless of their country of origin,
residence or studies in a respectful way of perspectives of people from different races,
studies, preferences, religion, politic affiliation, place of origin, etc.
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Historical Evolution of Production and Operations Management
For over two century’s operations and production management has been recognized as
an important factor in a country’s economic growth. The traditional view of
manufacturing management began in eighteenth century when Adam Smith recognized
the economic benefits of specialization of labor.
In the early twentieth century, F.W. Taylor implemented Smith’s theories and developed
scientific management. From then till 1930, many techniques were developed prevailing
the traditional view. Production management becomes the acceptable term from
1930s to 1950s. As F.W. Taylor’s works become more widely known, managers
developed techniques that focused on economic efficiency in manufacturing.
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Workers were studied in great detail to eliminate wasteful efforts and achieve greater
efficiency. At the same time, psychologists, socialists and other social scientists
began to study people and human behavior in the working environment. In addition,
economists, mathematicians, and computer socialists contributed newer, more
sophisticated analytical approaches.
With the 1970s, emerge two distinct changes in our views. The first most of these,
reflected in the new name operations management was a shift in the service and
manufacturing sectors of the economy. As service sector became more prominent, the
change from ‘production’ to ‘operations’ emphasized the broadening of our field to
service organizations. The second, more suitable change was the beginning of an
emphasis on synthesis, rather than just analysis, in management practices.
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Contemporary and core issues in Operations management(operation
today)
§Service and Manufacturing (differences and implications)
§Customer-Directed Operations
§Time Reduction (Lean Operations)
§Integration of Operations and Other Functions
§Environmental Concerns
§Supply Chain Management
§Globalization of Operations
§Economic conditions
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1.3 Manufacturing operations and service operations
Although goods and services often go hand in hand, there are some
very basic differences as well as many similarities between the two
that impact the management of the goods portion versus
management of the service portion.
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Production of goods results in a tangible output, such as an
automobile, eyeglasses, a golf ball, a refrigerator—anything that we
can see or touch. It may take place in a factory, but it can occur
elsewhere. For example, farming and restaurants produce non
manufactured goods.
Delivery of service, on the other hand, generally implies an act. A
physician’s examination, TV and auto repair, lawn care, and the
projection of a film in a theater are examples of services.
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The majority of service jobs fall into these categories:
ØProfessional services (e.g., financial, health care, legal).
ØMass services (e.g., utilities, Internet, communications).
ØService shops (e.g., tailoring, appliance repair, car wash, auto repair/maintenance).
ØPersonal care (e.g., beauty salon, spa, barbershop).
ØGovernment (e.g., Medicare, mail, social services, police, fire).
ØEducation (e.g., schools, universities).
ØFood service (e.g., catering).
ØServices within organizations (e.g., payroll, accounting, maintenance, IT, HR, janitorial).
ØRetailing and wholesaling.
ØShipping and delivery (e.g., truck, railroad, boat, air).
ØResidential services (e.g., lawn care, painting, general repair, remodeling, interior design).
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Manufacturing and service are often different in terms of what is done but quite
similar in terms of how it is done. Consider these points of comparison:
üDegree of customer contact
üLabor content of jobs
üUniformity of inputs/outputs
üMeasurement of productivity
üQuality assurance
üInventory
üWages
üAbility to patent
üEvaluation of output
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Characteristics Goods Services
Output Tangible Intangible
Customer contact Low High
Labor content Low High
Uniformity of input High Low
Measurement of
productivity
Easy Difficult
Opportunity to correct
problems
High Low
Inventory Much Little
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Wages Narrow range Wide range
Patentable Usually Not usually
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1. 4 Operation Decision Making
The 10 decisions of OM that support missions and implement strategies are as
follows:-
1. Goods and service design
2. Quality
3. Process and capacity design
4. Location selection
5. Layout design
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Within the operations function, management
decisions can be divided into three broad areas:
ØStrategic (long-term) decisions
ØTactical (intermediate-term) decision
ØOperational planning and control(short-term) decision
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1.5 Productivity Measuring
Productivity is a measure of how efficiently inputs are converted to outputs
Productivity = output/input
vThe use of just one resource input to measure productivity, as shown above, is
known as single-factor productivity.
However, a broader view of productivity is multifactor productivity, which
includes all inputs (e.g., labor, material, energy, capital).
vPartial Productivity Measure
Partial Productivity = unit produced/single unit used
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Measuring service sector productivity is a
unique challenge
ØTraditional measures focus on tangible outcomes
ØService industries primarily produce intangible outcomes
ØMeasuring intangibles is challenging
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ASSIGNMENT
1. Identify the Classification of Production System
2. Define each through discussing their basic importance
and limitation
3. Take one company that you or your colleagues
working for. Then Try to assess the over all
operational performance in terms of Quality,
Efficiency and Responsiveness for its customer. And
which production system is implemented there?
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CHAPTER HAPTER APTER PTER TER ER R 2 - OPERATIONS PE
NESS (12 hours)
Competitiveness refers to how effectively an organization meets the
wants and needs of customers relative to others that offer similar
goods or services.
Operations influences competitiveness through product and
service design, cost, location, quality, response time, flexibility,
inventory and supply chain management, and service.
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2.1. Introduction to Operations Strategy.
If the mission of the company is about stating what the firm is
about, then strategy is about how the firm will achieve the mission.
In order to have a sense of what the organization can and cannot do,
the senior-level strategists need to have a good understanding of
operations capabilities.
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There is no one best way to formulate strategy and the debate on
whether strategy should be internal, resource-based or fully
externally market-driven may be seen as of intellectual interest
only.
In practice, many organizations will combine both internal and
external considerations in the same way that they tend to innovate as
a result of both ‘push technology’ (from internal developments) and
‘pull demand’ (from market requirements).
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Every firm must be aware of external issues, including macro-
economic factors, social and technological changes. The PEST
model (Political, Economic, Social and Technical elements) is a
convenient – but hardly exhaustive – approach to scanning external
issues.
However, the firm must also pay great attention to internal
capabilities and to link these with opportunities and threats that may
influence the firm.
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In the same way that there is no fixed way in the process of strategy, it is also
best to see the content of strategy as a dynamic rather than fixed entity.
However, it is suggested that the content should include at least the following:
vprocess choice -selection of the right approach to producing goods or
delivering service
vInnovation- adaptation or renewal of the organization’s processes or
outputs to ensure they adapt to changes in the external environment
vsupply chain management -relationships with suppliers to ensure the
effective and efficient supply
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vcontrol of resources - the internal management of inventories
vproduction control - the effective and efficient management of processes
vwork organization -the management and organization of the workforce within
the organization
vCustomer satisfaction - management of quality.
If any of these imperatives are mismanaged the future of the
organization is placed in jeopardy.
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What is operations strategy?
Operations strategy concerns the pattern of strategic decisions and
actions which set the role, objectives and activities of the operation.
operations’ are not the same as ‘operational'. ‘Operations’ are the
resources that create products and services. ‘Operational’ is the
opposite of strategic, meaning day-to-day and detailed.
operations strategy is the specific decisions and actions which set
the operations role, objectives and activities.
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Nor is there universal agreement on how an operations strategy should be
described. Different authors have slightly different views and definitions of the
subject.
Between them, four ‘perspectives’ emerge:
®operation strategy is a top-down reflection of what the whole group or business
wants to do;
® operations strategy is a bottom-up activity where operations improvements
cumulatively build strategy;
®operations strategy involves translating market requirements into operations
decisions;
®Operations strategy involves exploiting the capabilities of operations
resources in chosen markets.
None of these four perspectives alone gives the full picture of what operations
strategy is, But together
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But together
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Top-down
perspective
What
the
business
wants
operations
to
do
Operations resources
Perspective
What operations
resources can do
Market
requirements
perspective
What
the
market
Position
requires
operations
to
do
What
day-to-day
experience
suggests
operations
should
do
Bottom-up
perspective
Operations
strategy

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2.2. Operations strategy in Manufacturing
A manufacturing operations strategy consists of a sequence of
decisions that, over time, enables a business unit to achieve a
desired manufacturing structure, infrastructure and set of specific
capabilities.
The scope of structural/infrastructure areas that can form part of
manufacturing strategy is wide-ranging and can include quality
capabilities (including quality requirements that a plant might
demand from its supplier base), manufacturing processes,
investment requirements, skills audits, capacity requirements,
inventory management throughout the supply chain and new product
innovation.
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Manufacturing strategy is concerned with combining responsibility for resource
management (internal factors) as well as achieving business (external)
requirements
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Manufacturing strategy must match manufacturing capability with market
requirements in three key areas:
1. Manufacturing strategy must support the goals of the strategic business unit
(SBU) through being aligned with business-level competitive strategy
2. Manufacturing strategy must align with other functional-level strategies,
particularly the marketing and human resources strategies of the SBU
3. Manufacturing strategy must lead to internal consistency within the
manufacturing function
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2.3. Operations strategy in Services
Fundamental to the service profit chain is the idea that in order to achieve
profits and growth for the firm, an operations strategy must be in place.
In their terms, this strategy identifies where the most effort will be placed, how
quality and cost will be controlled, and how performance will be measured
against the competition.
Derived from this is developed a so-called ‘service delivery system’, which is
the specific combination of facilities, layout, equipment, procedures, technology
and employees needed to achieve this strategy.
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Operations as a ‘core competence’ and ‘distinctive capability’
Some organizations view the abilities of their operations as a ‘core competence’
and a ‘distinctive capability’. These two terms are quite similar because both
emphasize the need to focus on, and build upon, those capabilities that the
organization has which might provide competitive advantage. The firms need to
have a bundle of skills in place that will enable them to create leverage or, at
least, to be able to compete at all, against competitors. Such skills can have an
important input in planning strategy.
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Hamel and Prahalad (1994) define core competence as:
"...a bundle of skills and technologies rather than a single discrete skill or
technology. As an example, Motorola’s competence in fast cycle time
production … rests on a broad range of underlying skills… and a core
competence is also a tapestry, woven from the threads of distinct skills and
technologies." First, core competencies can provide a competitive advantage
based around operations capability.
A core competence should be difficult for competitors to imitate. And it will be
difficult if it is a complex harmonization of individual technologies and
production skills.
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Second, the cultivation of these skills is a major challenge for, and
increasingly a requirement of, CEOs, who will … be judged on their
ability to identify, cultivate, and exploit core competencies.
If such CEOs know and appreciate little of operations capabilities,
then clearly there will be problems.
Third, core competencies have to be part of the organizational
learning of the firm and, again, these impacts on operations.
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Core competencies are the collective learning in the organization,
especially how to co-ordinate diverse production skills and integrate
multiple streams of technologies.
Fourth, core competencies in operations capability enable the firm to
be agile, able to exploit these capabilities in a number of different
industry applications. Exploiting internal capabilities does not mean
that strategy is therefore fixed and rigid
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CHAPTER –3:DESIGN OF THE OPERATIONS SYSTEM.
Product and Service Design.
Organizations have a vital stake in achieving good product and service design.
Product and service design plays a strategic role in the degree to which an
organization is able to achieve its goal. It is a major factor in customer
satisfaction, product and service quality, and production cost.
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Product Design
Consumers respond to a product’s appearance, color, texture,
performance. All of its features, summed up, are the product’s
design.
Product design: defines a product’s characteristics, such as its
appearance, the materials it is made of, its dimensions and
tolerances, and its performance standards.
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Service Design
Service is an act, something that is done to or for a customer
(client, patient, etc.).
It is provided by a service delivery system, which includes the
facilities, processes, and skills needed to provide the service.
Service design: is the process of establishing all the characteristics
of service including physical, sensual and psychological benefits.
ØPhysical (facilitating good)
ØSensual (explicit service)
ØPsychological( implicit service)
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The Service Package
vThe successful service organizations do not happen spontaneously.
vThey are carefully thought out and planned, down to every
employee action.
vTo design a successful service we must first start with a service
concept or idea, which needs to be very comprehensive.
vWe have learned that when purchasing a service, customers
actually buy a service package or service bundle.
vThe service package is a grouping of features that are purchased
together as part of the service.
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There are three elements of the service package:
1. The physical goods -In a fine-dining restaurant the
physical goods are the food consumed, as well as
facilities such as comfortable tables and chairs and table
cloths.
2. The sensual benefits are the sights, smell, and sound of
the experience all the items we experience through our
senses.
3. psychological benefits- include the status, comfort, and
well-being of the experience.
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Service Design Models
There is no one model of successful service design. The three very different
service designs that have worked well for the companies that adopted them are:
1. Substitute Technology for People - to reduce the uncertainty of service
delivery is to use technology to develop a production-line approach to
services.
2. Get the Customer Involved - The idea here is to take advantage of the
customer’s presence during the delivery of the service and have him or her
become an active participant. This approach is advantageous since it
ütakes a large burden away from the service provider,
üempowers customers and gives them a greater sense of control in terms of
getting what they want and
üprovides a great deal of customer convenience and increases satisfaction
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vThe first approach discussed automates the service and makes it
more like manufacturing.
vThe second approach requires greater participation and
responsibility from the customer.
vThe third approach is different from the first two in that it does not
standardize the service and does not get the customer involved.
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3. High Customer Attention Approach - it is based on customizing
the service needs unique to each customer and having the customer
be the passive and pampered recipient of the service.
This approach relies on developing a personal relationship with each
customer and giving the customer precisely what he or she wants.
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Reasons for product and service Design or Redesign
Product and service design has typically had strategic implications for the success and
prosperity of an organization as well as it has an impact on future activities.
The main forces that initiate design or redesign are market opportunities and threats.
The factors that give rise to market opportunities and threats can be one or more
changes:-
vEconomic (low demand, excessive warranty claims, the need to reduce costs).
vSocial and demographic (Aging baby boomers, population shifts).
vPolitical, Liability, or Legal(Government changes, safety issues, new regulations)
vCompetitive (new or changed products or services, new advertising/promotions).
vCost or availability( raw materials, components, labor)
vTechnological (product components, processes).
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Objectives of product and service design
The main focus of product and service design is customer
satisfaction.
Secondary focuses in product design and service design relate to
function, cost and potential profit (in for - profit organizations),
quality, appearance, forecasted volume, ease of production, ease
of assembly, and ease of maintenance or service.
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In general, design, operations, and marketing
must work closely together, keeping each other
informed and taking into account the wants and
needs of the customer.
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The product design process
Step 1: Idea Development
üThe idea might come from a product manager who spends time
with customers and has a sense of what customers want, from an
engineer with a flair for inventions, or from anyone else in the
company.
ü To remain competitive, companies must be innovative and bring
out new products regularly.
Sources of product ideas
ØCustomers, Competitors, and Suppliers
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Step 2: Product Screening
After a product idea has been developed it is evaluated to determine
its likelihood of success this is called product screening.
company’s product screening team evaluates the product design idea
according to the needs of the major business functions like:-
üOperations
üMarketing
üFinance
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Step 3: Preliminary Design and Testing
vAt this stage, design engineers translate general performance
specifications into technical specifications.
vChanges are made based on test results, and the process of
revising, rebuilding a prototype, and testing continues.
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Step 4: Final Design
The final specifications are then translated into specific processing
instructions to manufacture the product, which include selecting
equipment, outlining jobs that need to be performed, identifying
specific materials needed and suppliers that will be used, and all the
other aspects of organizing the process of product production.
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Classification of service
Services are classified in to three categories based on the degree of
customer contact.
1. Quasi-manufacturing: Services with low customer contact are
called “quasi-manufacturing.”
ØThese firms have a high degree of service standardization,
ØHave higher sales volumes, and are typically less labor intensive.
ØThese firms have almost no face-to-face contact with customers
and are in many ways similar to manufacturing operations.
ØExamples include warehouses, distribution centers, environmental
testing laboratories, and back-office operations.
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2. Pure services: Services with high customer contact are called
“pure services.”
ØThese firms have high face-to-face contact and are highly labor
intensive.
ØExamples include hospitals, restaurants, barber shops, and beauty
salons.
3. Mixed Services: combines elements of both quasi and pure
services
Some parts of their operation have face-to-face customer contact,
though others do not.
They include offices, banks, and insurance firms.
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For example, companies should specifically hire people-
oriented workers for high contact areas, whereas technical
skills are more important in low-contact areas.
Also, no contact activities should be partitioned from the
customer to avoid disruptions in the flow of work.
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3.2. Process Selection.
Process selection refers to the way an organization chooses to
produce its goods or provide its services.
Essentially it involves the choice of technology and related issues,
and it has major implications for capacity planning, layout of
facilities, equipment, and design of work systems.
Process selection occurs as a matter of course when new products or
services are being planned. However, it also occurs periodically due
to technological changes in equipment.
Make or Buy The very first step in process planning is to consider
whether to make or buy some or all of a product or to subcontract
some or all of a service.
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In make or buy decisions, a number of factors are usually considered:
1. Available capacity.
2. Expertise- If a firm lacks the expertise to do a job satisfactorily, buying
might be a reasonable alternative
3. Quality considerations- the ability to closely monitor quality may cause an
organization to perform a job itself.
4. The nature of demand- When demand for an item is high and steady, the
organization is often better off doing the work itself. However, wide
fluctuations in demand or small orders are usually better handled by
specialists who are able to combine orders from multiple sources
5. Cost. Any cost savings achieved from buying or making must be weighed
against the preceding factors.
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3.3. Strategic Capacity Planning.
3.3.1 Meaning of capacity
Capacity refers to an upper limit or ceiling on the load that an
operating unit can handle.
Capacity can also be defined as the maximum output rate that can
be achieved by a facility.
Capacity planning is the process of establishing the output rate that
can be achieved by a facility.
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3.3.2 Importance of Capacity Decisions
1. Having capacity to satisfy demand can allow a company to take
advantage of tremendous opportunities
2. Capacity decisions affect operating costs
3. Capacity is usually a major determinant of initial cost
4. Capacity decisions often involve long-term commitment of
resources and the fact that, once they are implemented, it may be
difficult or impossible to modify those decisions without
incurring major costs.
5. Capacity decisions can affect competitiveness
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3.3.3 Measuring Capacity
Design capacity is the maximum output rate that can be achieved by a
facility under ideal conditions.
Effective capacity is the maximum output rate that can be sustained
under normal conditions. These conditions include realistic work
schedules and breaks, regular staff levels, scheduled machine
maintenance, and none of the temporary measures that are used to
achieve design capacity. Note that effective capacity is usually lower than
design capacity.
Measuring Effectiveness of Capacity Use Regardless of how much
capacity we have, we also need to measure how well we are utilizing it.
Capacity utilization simply tells us how much of our capacity we are
actually using
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3.3.4 Capacity considerations
Important implications of capacity that a company needs to consider when changing its
capacity are:
ØEconomies of scale- A condition in which the average cost of a unit produced is reduced
as the amount of output is increased.
ØBest operating level: As the number of units produced is increased, the average cost
per unit drops. These costs include the fixed costs of buildings and facilities, the costs of
materials, and processing costs.
ØDiseconomies of scale: A condition in which the cost of each additional unit made
increases. Diseconomies of scale occur at a point beyond the best operating level, when
the cost of each additional unit made increases.
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Making a capacity planning decision
The three-step procedure for making capacity planning decisions is as follows:
Step 1: Identify Capacity Requirements
Factors affecting capacity requirement
vForecasting Capacity- forecasts of future demand.
vCapacity cushion- is an amount of capacity added to the needed capacity in order to
provide greater flexibility.
vStrategic Implications- a company needs to consider how much capacity its competitors
are likely to have.
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Step 2 develop capacity alternatives - is to develop alternative ways to modify its
capacity.
Capacity Alternatives:
1.Do nothing
2. Expand large now
3. Expand small now, with option to add later
Step 3 Evaluate capacity alternatives - One of the most popular tools to evaluate our
capacity alternatives is decision tree.
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OM
Decision tree:
Modeling tool used to evaluate independent decisions that must be made
in sequence. It is a diagram that models the alternatives being considered
and the possible outcomes. Decision trees help by giving structure to a
series of decisions and providing an objective way of evaluating
alternatives.
Decision trees contain the following information:
ØDecision points
ØDecision alternatives
ØChance events
ØOutcomes
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OM
3.4. Facility Location and Layout
3.4.1 Facility location
Facility location is determining the best geographic location for a
company’s facility.
Facility location decisions are particularly important for two reasons.
vFirst, they require long-term commitments in buildings and facilities,
which means that mistakes can be difficult to correct.
vSecond, these decisions require sizable financial investment and
can have a large impact on operating costs and revenues.
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OM
3.4.2. Factors affecting location decisions
The main factors that affect location decisions are presented as
follows
üProximity to Sources of Supply
üProximity to Customers
üProximity to Source of Labor
üCommunity Considerations
üQuality-of-Life Issues
üOther Considerations
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OM
3.4.3. Making location decision
managers need to follow a three-step procedure when making facility location
decisions.
1. Step 1 Identify Dominant Location Factors
2. Step 2 Develop Location Alternatives
3. Step 3 Evaluate Location Alternatives- Factor rating can be used to evaluate
multiple alternative locations based on a number of selected factors.
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OM
The following steps are used to develop a factor rating:
üStep 1 Identify dominant factors
üStep 2 Assign weights to factors
üstep 3 Select a scale by which to evaluate each location relative to each
factor.
üStep 4 Evaluate each alternative relative to each factor, using the scale
selected in Step 3.
üStep 5 For each factor and each location, multiply the weight of the factor
by the score for that factor and sum the results for each alternative.
üStep 6 Select the alternative with the highest score.
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OM
3.4.4. Facility layout
Facility layout decision entails determining the placement
of departments, workstations, machines, and stockholding
points within a productive facility.
The general objective of layout decision is to ensure a
smooth flow of work, material, people, and information
through the system.
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OM
The Need for Layout Decisions- arises both in the process of
designing new facilities and in redesigning existing facilities. The
most common reasons for redesign of layouts include:
1. Inefficient operations (e.g., high cost, bottlenecks).
2. Accidents or safety hazards.
3. Changes in the design of products or services.
4. Introduction of new products or services.
5. Changes in the volume of output or mix of outputs.
6. Changes in methods or equipment.
7. Changes in environmental or other legal requirements.
8. Morale problems (e.g., lack of face-to-face contact).
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OM
Strategic importance of layout decisions
An effective layout can help a firm to achieve the following:
ØHigher utilization of space, equipment, and people.
ØMore convenience to the customer.
ØImproved employee morale and safer working conditions
ØMinimize material handling costs
ØEliminate bottlenecks
ØFacilitate communication and interaction between workers, between
workers and supervisors ,or between workers and customers
ØReduce manufacturing cycle time and customer service time
ØEliminate wastage or redundant movement
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OM
Types of layouts
A. Process layouts: are layouts that group resources based on similar
processes or functions. It is more efficient to group resources based on
their function. The products are then moved from one resource to
another, based on their unique needs. A hospital and university is an
example of process layout.
Advantage of process layout
ØFlexibility of equipment and labor assignment
ØBreakdown of one machine does not stop the whole process
Disadvantage of process layout
ØOrders take more time and money
ØHigh labor skill increases required level of training and experience
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PROCESS LAYOUT
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PRODUCT LAYOUTS
Product Layouts: are layouts that arrange resources in a
straight-line fashion to promote efficient production.
This type of layout is used by companies that have
repetitive processing systems and produce one or a few
standardized products in large volume.
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PRODUCT LAYOUTS
Advantage of product layout
ØHigh rate of output
ØLow unit cost due to high volume
ØLabor specialization reduces training costs and time
ØHigh utilization of labor and equipment
Disadvantage of product layout
ØPoorly skilled workers exhibit little interests in maintaining
equipment or in the quality of output
ØThe system is inflexible in response to changes in the volume of
output or changes in product or process design (costly).
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PRODUCT LAYOUTS
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C. COMBINATION (HYBRID) LAYOUT
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D. FIXED-POSITION LAYOUT
is used when the product is large and cannot be moved due to its
size. It include building construction, dam or bridge construction,
shipbuilding, or large aircraft manufacture.
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JOB DESIGN AND WORK MEASUREMENT
Job design
specifies the work activities of an individual or a group in
support of an organization’s objectives.
You design a job by answering questions such as:
vWhat is your description of the job?
vWhat is the purpose of the job?
v Where is the job done?
vWho does the job?
v What background, training, or skills does an employee need to do
the job?
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JOB DESIGN
Let’s look at three additional factors in job
design:
Øtechnical feasibility - is the degree to which an individual or
group of individuals is physically and mentally able to do the job.
Øeconomic feasibility - is the degree to which the value a job
adds and the cost of having the job done create profit for the
company.
Ø Behavioral feasibility- is the degree to which an employee
derives intrinsic satisfaction from doing the job.
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THE ADVANTAGES AND DISADVANTAGES OF SPECIALIZATION IN JOB
DESIGN.
Specialization from management’s perspective
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Advantages Disadvantages
ü Readily available labor ü Lack of flexibility
ü Minimal training needed ü Workers dissatisfaction characterized
by
ü Reasonable wage cost High absenteeism
ü High productivity High turnover rate
High scrap rate

OM
Specialization from employees perspective
Advantages Disadvantages
üMinimal credentials needed üBoredom
üMinimal responsibilities üLittle growth opportunity
üMinimal mental effort needed üLittle control over work
üReasonable wages üLittle room for initiative
üLittle intrinsic satisfaction
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ELIMINATING EMPLOYEE BOREDOM
Companies that choose highly specialized job design have
several options for reducing worker boredom, including
1. job enlargement - A horizontal expansion of the job
through increasing the scope of the work assigned.
2. job enrichment - A vertical expansion of the job through
increased worker responsibility.
3. job rotation - Workers shift to different jobs to increase
understanding of the total process.
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TEAM APPROACHES TO JOB DESIGN
Another option for job design is using teams rather than individuals
for certain assignments. There are three different kinds of employee
teams
1. Problem solving teams - are small groups of employees who meet
to identify, analyze, and solve operational problems.
2. special-purpose teams - address issues of major significance to the
company. They are often short-term, special task forces with a
focused agenda.
3. self-directed teams- integrated teams empowered to control
portions of their process.
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WORK MEASUREMENT
Work measurement is the process of estimating the
amount of worker time required to produce one unit
of output.
Goal of work measurement is to develop labor
standards that can be used for planning and
controlling operations.
Work measurement techniques are used to set a standard
time for a specific job.
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STANDARD TIME
standard time is the time it should take a qualified
operator, working at a sustainable pace and using the
appropriate tools and process, to do the job.
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EXAMPLE: LABOR STANDARD
In a time study of a manufacturing operation, the average time observed
to complete a product was 8.6 minutes. The performance rating applied
to the observed worker was 0.95 and the allowance during an 8-hour
shift was 12.5% or 60 minutes. Compute the labor standard.
Observed time = 8.6 minutes
Performance rating = 0.95
Allowance fraction = 0.125
Normal time = Observed time x Performance rating
= 8.6 x 0.95
= 8.17 minutes
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OM
Standard Time = Normal time / (1 - Allowance)
= 8.17 / (1 - .125)
= 8.17 / (0.875)
= 9.337 minutes
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CHAPTER 4 – OPERATIONS/PRODUCTION
PLANNING & CONTROL
Production planning and control is a tool available to
the management to achieve the stated objectives.
Thus, a production system is encompassed by the four
factors. i.e., quantity, quality, cost and time.
And also production planning and control can be
defined as the “direction and coordination of firms’
resources towards attaining the prefixed goals.”
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NEED FOR PRODUCTION PLANNING AND CONTROL
Production planning and control is needed to achieve:
ØEffective utilization of firms’ resources.
ØTo achieve the production objectives with respect to
quality, quantity, cost and timeliness of delivery
ØTo obtain the uninterrupted production flow in order to
meet customers varied demand with respect to quality and
committed delivery schedule.
ØTo help the company to supply good quality products to
the customer on the continuous basis at competitive rates.
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OM
“Production planning is the determination, acquisition
and arrangement of all facilities necessary for future
production of products.”
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PRODUCTION CONTROL
Some of the factors that affect are:
1. Non-availability of materials (due to shortage, etc.);
2. Plant, equipment and machine breakdown;
3. Changes in demand and rush orders;
4. Absenteeism of workers; and
5. Lack of coordination and communication between various
functional areas of business.
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PRODUCTION CONTROL
The essential steps in production control activity are:
1. Initiating the production,
2. Progressing, and
3. Corrective action based upon the feedback &
reporting back to the production planning.
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PHASES OF PRODUCTION PLANNING AND CONTROL
1.Planning Phase
2.Action Phase
3.Control Phase
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PLANNING PHASE
It has two categories of planning namely
1. pre-planning- pre-production planning.
2. Active planning.
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MODULES OF PRE-PLANNING
The modules of prior planning are as follows:
1. Product development and design is the process of developing a
new product with all the features, which are essential for effective
use in the field, and designing it accordingly.
2. Forecasting is an estimate of demand, which will happen in future.
3. Aggregate planning aims to find out a product wise planning over
the intermediate planning horizon.
4. Material requirement planning is a technique for determining the
quantity and timing for the acquisition of dependent items needed
to satisfy the master production schedule.
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ACTIVE PLANNING
A. Process planning and routing is a complete determination of the specific
technological process steps and their sequence to produce products at the
desired quality, quantity and cost.
B. material planning is a process which determines the requirements of various
raw materials/subassemblies
C. Tools’ planning determines the requirements of various tools by taking
process specification (surface finish, length of the job, overall depth of cut
etc.), material specifications (type of material used, hardness of the material,
shape and size of the material etc.) and equipment specifications (speed
range, feed range, depth of cut range etc.).
D. Loading is the process of assigning jobs to several machines such that there is
a load balance among the machines.
E. Scheduling is the time phase of loading and determines when and in what
sequence the work will be carried out.
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ACTION PHASE
Action phase has the major step of transition from planning phase to
action phase.
In this phase, the worker is ordered to start manufacturing the
product.
The tasks which are included in dispatching are job order, store issue
order, tool order, time ticket, inspection order, move order etc.
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CONTROL PHASE
The control phase has the following two major
modules:
1. Progress reporting, and
2. Corrective action.
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FUNCTIONS OF PRODUCTION PLANNING AND CONTROL
Functions of production planning and controlling
is classified into:
1. Pre-planning function
2. Planning function
3. Control function
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PLANNING FUNCTION
The planning function starts once the task to be
accomplished is specified, with the analysis of four
M’s (4M’s), i.e.,
vMachines,
vMethods,
vMaterials and
vManpower.
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CONTROL FUNCTION
Control phase is effected by dispatching, inspection and
expediting materials control, analysis of work-in-process.
Finally, evaluation makes the PPC cycle complete and
corrective actions are taken through a feedback from
analysis. A good communication, and feedback system is
essential to enhance and ensure effectiveness of PPC.
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PARAMETERS FOR PPC
The functions of PPC can be explained with the following
parameters:
1. Materials
2. Machines and equipment
3. Methods
4. Process planning (Routing)
5. Estimating
6. Loading and scheduling
7. Dispatching
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OPERATIONS PLANNING AND SCHEDULING SYSTEMS
Operations planning and scheduling systems concern with
the volume and timing of outputs, the utilization of
operations capacity at desired levels for competitive
effectiveness.
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COMPONENTS OF OPERATIONS PLANNING AND SCHEDULING SYSTEM
1. THE BUSINESS PLAN-is a statement of the organization’s overall level of business
activity for the coming six to eighteen months
2. AGGREGATE PRODUCTION (OUTPUT) PLANNING- The process of determining
output levels of product groups over the coming six to eighteen months on a weekly
or monthly basis.
3. AGGREGATE CAPACITY PLANNING-the process of testing the feasibility of
aggregate output plans and evaluating overall capacity utilization.
4. MASTER PRODUCTION SCHEDULING (MPS)-is a schedule showing week by week
how many of each product must be produced according to customer orders and
demand forecasts.
5. RESOURCE REQUIREMENT PLANNING- is the process of testing the feasibility of
master production schedule in terms of capacity.
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COMPONENTS OF OPERATIONS PLANNING AND SCHEDULING SYSTEM
6. MATERIAL REQUIREMENT PLANNING- is a system of planning and scheduling the
time phased material requirements for releasing materials and receiving materials that
enable the master production schedule to be implemented.
7. CAPACITY REQUIREMENT PLANNING- is an iterative process of modifying the MPS
or planned resources to make capacity consistent with the production schedule.
8. SHOP FLOOR CONTROL- involves the activities that execute and control shop
operations namely loading, sequencing, and detailed scheduling and expediting jobs in
production.
9. LOADING
10. SEQUENCING
11. DETAILED SCHEDULING
12. EXPEDITING
13. INPUT/OUTPUT CONTROL
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AGGREGATE PRODUCTION PLANNING
The important components of operations planning and scheduling
system has been explained in detail in the following paragraphs.
Aggregate Planning- is intermediate-range capacity planning that
typically covers a time horizon of 2 to 12 months, although in some
companies it may extend to as much as 18 months.
Within this range, the physical facilities are assumed to be fixed for
the planning period. Therefore, fluctuations in demand must be met
by varying labor and inventory schedule. Aggregate planning seeks
the best combination to minimize costs.
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OM
For example, Seasonal variations in demand are quite
common in many industries and public services, such as air-
conditioning, fuel, public utilities, police and fire
protection, and travel.
Generally speaking, aggregate planning is connected to the
budgeting process.
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OM
Aggregate planning begins with a forecast of aggregate
demand for the intermediate range. This is followed by a
general plan to meet demand requirements by setting
output, employment, and finished-goods inventory levels or
service capacities.
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AGGREGATE PLANNING REQUIRES
vLogical overall unit for measuring sales and outputs
vForecast of demand for intermediate planning period in these aggregate
units
vMethod for determining costs
vModel that combines forecasts and costs so that planning decisions can be
made Planning
vSetting goals & objectives ,Example: Meet demand within the limits of
available resources at the least cost
vDetermining steps to achieve goals ,Example: Hire more workers
vSetting start & completion dates ,Example: Begin hiring in Jan.; finish, Mar.
vAssigning responsibility
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AGGREGATE PLANNING
Ø Provides the quantity and timing of production for intermediate
future
ØUsually 3 to 18 months into future
ØCombines (‘aggregates’) production
Øoften expressed in common units , Example: Hours, dollars,
equivalents (e.g., FTE students)
Ø Involves capacity and demand variables
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WHY DO ORGANIZATIONS NEED TO DO AGGREGATE PLANNING?
The answer is twofold.
One part is related to planning: It takes time to implement plans.
The second part is strategic: Aggregations important because it is
not possible to predict with any degree of accuracy the timing and
volume of demand for individual items.
Finally, aggregate planning is important because it can help
synchronize flow throughout the supply chain; it affects costs,
equipment utilization, employment levels, and customer satisfaction.
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AGGREGATE PLANNING STRATEGIES
The variables of the production system are labor, materials and
capital. More labor effort is required to generate higher volume of
output. Hence, the employment and use of overtime (OT) are the two
relevant variables.
Materials help to regulate output. The alternatives available to the
company are inventories, back ordering or subcontracting of items.
These controllable variables constitute pure strategies by which
fluctuations in demand and uncertainties in production activities can
be accommodated by using the following steps:
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AGGREGATE PLANNING STRATEGIES
1. Vary the size or the workforce: Output is controlled by hiring or
laying off workers in proportion to changes in demand.
2. Vary the hours worked: Maintain the stable workforce, but permit
idle time when there is a slack and permit overtime (OT) when
demand is peak.
3. Vary inventory levels: Demand fluctuations can be met by large
amount of inventory.
4. Subcontract: Upward shift in demand from low level. Constant
production rates can be met by using subcontractors to provide extra
capacity.
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AGGREGATE PLANNING GUIDELINES
The following are the guidelines for aggregate planning:
1. Determine corporate policy regarding controllable variables.
2. Use a good forecast as a basis for planning.
3. Plan in proper units of capacity.
4. Maintain the stable workforce.
5. Maintain needed control over inventories.
6. Maintain flexibility to change.
7. Respond to demand in a controlled manner.
8. Evaluate planning on a regular base.
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AGGREGATE PLANNING AND MASTER SCHEDULING
Demand and Supply. Aggregate planners are concerned with the
quantity and the timing of expected demand. If total expected
demand for the planning period is much different from available
capacity over that same period, the major approach of planners will
be to try to achieve a balance by altering capacity, demand, or both.
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Inputs to Aggregate Planning
ØEffective aggregate planning requires good information
Øforecast of expected demand must be available.
Øplanners must take into account any policies regarding changes in
employment levels (e.g., some organizations view layoffs as
extremely undesirable, so they would use that only as a last resort).
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Aggregate Planning and the Supply Chain
Supply chain partners should be consulted during the
planning stages that any issues or advice they may have can
be taken into account, and they should be informed when
plans have been finalized.
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Demand and Supply Options
Aggregate planning strategies can pertain to demand, capacity, or
both. Demand strategies are intended to alter demand so that it
matches capacity. Capacity strategies involve altering capacity so that
it matches demand. Mixed strategies involve both of these approaches.
As the following:
1. Maintain a level workforce (level capacity).
2. Maintain a steady output rate (level capacity).
3. Match demand period by period (chase demand).
4. Use a combination of decision variables.
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DEMAND AND SUPPLY OPTIONS
The first three strategies are “pure” strategies because each
has a single focal point; the last strategy is “mixed” because
it lacks the single focus. Under a level capacity strategy,
variations in demand are met by using some combination of
inventories, overtime, part-time workers, subcontracting, and
back orders while maintaining a steady rate of output.
Matching capacity to demand implies chase demand
strategy; the planned output for any period would be equal
to expected demand for that period.
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OM
To maintain a constant level of output and still satisfy varying
demand, an organization must resort to some combination of
subcontracting, backlogging, and use of inventories to absorb
fluctuations.
Subcontracting requires an investment in evaluating sources of supply
as well as possible increased costs, less control over output, and
perhaps quality considerations. Backlogs can lead to lost sales,
increased record keeping, and lower levels of customer. Service.
Allowing inventories to absorb fluctuations can entail substantial costs
by having money tied up in inventories, having to maintain relatively
large storage facilities, and incurring other costs related to
inventories.
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OM
Furthermore, inventories are not usually an alternative for service-
oriented organizations. However, there are certain advantages, such
as minimum costs of recruitment and training, minimum overtime and
idle-time costs, fewer morale problems, and stable use of equipment
and facilities.
A chase demand strategy presupposes a great deal of ability and
willingness on the part of managers to be flexible in adjusting to
demand. A major advantage of this approaches that inventories
can be kept relatively low, which can yield substantial savings for
an organization.
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OM
When normal capacity would exceed demand, capacity is cut back
to match demand. Then, when demand exceeds normal capacity,
the chase approach is to temporarily increase capacity to match
demand.
When demand is less than capacity, output continues at normal
capacity, and the excess output is put into inventorying anticipation
of the time when demand exceeds capacity. When demand exceeds
capacity, inventory is used to offset the shortfall in output.
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AGGREGATE PLANNING IN SERVICES
Aggregate planning for services takes into account projected customer
demands, equipment capacities, and labor capabilities. The resulting plan is a
time-phased projection of service staff requirements.
Here are examples of service organizations that use aggregate planning:
vHospitals: Hospitals use aggregate planning to allocate funds, staff, and
supplies to meet the demands of patients for their medical services. For
example, plans for bed capacity, medications, surgical supplies, and personnel
needs are based on patient load forecasts.
vAirlines: Aggregate planning in the airline industry is fairly complex due to the
need to take into account a wide range of factors (planes, flight personnel,
ground personnel) and multiple routes and landing/departure sites. Also,
capacity decisions must take into account the percentage of seats to be
allocated to various fare classes in order to maximize profit or yield.
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OM
Restaurants: Aggregate planning in the case of a high-volume
product output business such as a restaurant is directed toward
smoothing the service rate, determining the size of the workforce,
and managing demand to match a fixed kitchen and eating
capacity. The general approach usually involves adjusting the
number of staff according to the time of day and the day of the
week.
Other services: Financial, hospitality, transportation, and recreation
services provide a high-volume, intangible output. Aggregate
planning for these and similar services involves managing demand
and planning for human resource requirements. The main goals are
to accommodate peak demand and to find ways to effectively use
labor resources during periods of low demand.
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THE DIFFERENCES BETWEEN MANUFACTURING AND SERVICES:
1. Demand for service can be difficult to predict
2. Capacity availability can be difficult to predict
3. Labor flexibility can be an advantage in services
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AGGREGATE PLANNING METHODS
ØGraphical & charting techniques
ØPopular & easy-to-understand
ØTrial & error approach
ØMathematical approaches
ØTransportation method
ØLinear decision rule
ØManagement coefficients model
ØSimulation
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OPERATION SCHEDULING
Scheduling
Scheduling can be defined as “prescribing of when and where each
operation necessary to manufacture the product is to be performed.
The schedule indicates what is to be done, when by whom, and with
what equipment.
Scheduling seeks to achieve several conflicting objectives: high
efficiency, low inventories, and good customer service.
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Principles of Scheduling
1. The principle of optimum task size: Scheduling tends to achieve
maximum efficiency when the task sizes are small, and all tasks of
same order of magnitude.
2. Principle of optimum production plan: The planning should be
such that it imposes an equal load on all plants.
3. Principle of optimum sequence: Scheduling tends to achieve the
maximum efficiency when the work is planned so that work hours
are normally used in the same sequence.
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Inputs to Scheduling
üPerformance standards
üUnits in which loading and scheduling is to be expressed.
üEffective capacity of the work center.
üDemand pattern and extent of flexibility to be provided for rush
orders.
üOverlapping of operations.
üIndividual job schedules.
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Scheduling Strategies
1. Detailed scheduling- for specific jobs that are arrived from
customers is impracticable in actual manufacturing situation.
2. Cumulative scheduling- is useful especially for long range
planning of capacity needs.
3. Cumulative detailed- combination is both feasible and practical
approach if master schedule has fixed and flexible portions.
4. Priority decision rules- are scheduling guides that are used
independently and in conjunction with one of the above strategies,
i.e., first come first serve.
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Types of Scheduling
Types of scheduling can be categorized as forward scheduling and
backward scheduling.
Forward scheduling is commonly used in job shops where customers
place their orders on “needed as soon as possible” basis. Forward
scheduling determines start and finish times of next priority job
Backward scheduling is often used in assembly type industries and
commit in advance to specific delivery dates. Backward scheduling
determines the start and finish times for waiting jobs by assigning
them to the latest available time slot that will enable each job to be
completed just when it is due, but done before.
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Scheduling Methodology
The scheduling methodology depends upon the type of industry,
organization, product, and level of sophistication required. They are:
1. Charts and boards,
2. Priority decision rules, and
3. Mathematical programming methods.
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Gantt Charts and Boards
Gantt charts are extremely easy to understand and can quickly
reveal the current or planned situation to all concerned. They are
used in several forms, namely,
vScheduling or progress charts, which depicts the sequential
schedule;
vLoad charts, which show the work assigned to a group of workers
or machines; &
v Record a chart, which are used to record the actual operating
times and delays of workers and machines.
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Priority Decision Rules
Priority decision rules are simplified guidelines for determining the
sequence in which jobs will be done. In some firms these rules take
the place of priority planning systems such as MRP (Materials
Requirement Planning) systems.
Following are some of the priority rules followed.
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Priority Decision Rules
Following are some of the priority rules followed.
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ID Activities Dates
Symbol Symbol Priority rule
FCFS First come, first served
EDO Earliest due date
LS Least slack (that is, time due less processing time)
SPT Shortest processing time
LPT Longest processing time
PCO Preferred customer order

Mathematical Programming Methods
The following are some of the models used in scheduling and
production control.
1. Linear programming model- Simplex method, transportation
method and assignment methods
2. PERT/CPM network model: PERT (Project Evaluation & Review
Techniques) or CPM (Critical Path Method )
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Operations scheduling decisions allocate available capacity or
resources (equipment, labor and space) to jobs, activities, tasks, or
customers over time.
The schedule indicates what is to be done, when by whom, and with
what equipment.
Scheduling seeks to achieve several conflicting objectives: high
efficiency, low inventories, and good customer service.
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OM
Efficiency is achieved by a schedule that maintains high
utilization of labor, equipment, and space. A trade-off
decision in scheduling between efficiency and inventory
levels is required in the short run.
In long run, efficiency can be increased, customer service
improved, and inventory reduced by cycle time reduction
and quality improvement efforts.
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BATCH SCHEDULING
 In a job shop, a batch corresponds to what the customer
orders and can include one or several parts or items. Each
batch or job is scheduled through the various machines and
work centers according to the equipment needed.
 Each batch flowing the through a batch process moves
along with many starts and stops, not smoothly.
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MASTER PRODUCTION SCHEDULE (MPS)
The master schedule is the heart of production planning
and control. It determines the quantities needed to meet
demand from all sources, and that governs key decisions
and activities throughout the organization The master
schedule interfaces with marketing, capacity planning,
production planning, and distribution planning
It expresses the overall plans in terms of specific end items
or models that can be assigned priorities. It is useful to plan
for the material and capacity requirements.
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FUNCTIONS OF MPS
vTo translate aggregate plans into specific end items
vEvaluate alternative schedules
vGenerate material requirement
vGenerate capacity requirements
vFacilitate information processing
vEffective utilization of capacity
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MATERIAL REQUIREMENT PLANNING (MRP)
The master schedule also drives the material requirements
planning (MRP) system.
MRP refers to the basic calculations used to determine
components required from end item requirements.
“Materials Requirement Planning (MRP) is a technique for
determining the quantity and timing for the acquisition of
dependent demand items needed to satisfy master production
schedule requirements.”
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OBJECTIVES OF MRP
1. Inventory reduction
2. Reduction in the manufacturing and delivery lead times
3. Realistic delivery commitments
4. Increased efficiency
MRP System
The inputs to the MRP system are:
1. A master production schedule,
2. An inventory status file and
3. Bill of materials (BOM).
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THE MASTER SCHEDULER
The central person in the master scheduling process is the master
scheduler.
Most manufacturing organizations have (or should have) a master
scheduler. The duties of the master scheduler generally include
1. Evaluating the impact of new orders.
2. Providing delivery dates for orders.
3. Dealing with problems
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OM
Aggregate Planning and Master Scheduling Once a
tentative master schedule has been developed, it must be
validated. This is an extremely important step. Validation is
referred to as rough-cut capacity planning (RCCP). It
involves testing the feasibility of a proposed master
schedule relative to available capacities, to assure that no
obvious capacity constraints exist. This means checking
capacities of production and warehouse facilities, labor, and
vendors to ensure that no gross deficiencies exist that will
render the master schedule unworkable.
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OM
Time Fences
Changes to a master schedule can be disruptive, particularly changes
to the early, or near, portions of the schedule.
A key component of effective scheduling is the use of time fences to
facilitate order promising and the entry of orders into the system.
Time fences divide a scheduling time horizon into three sections or
phases, sometimes referred to as frozen, slushy, and liquid, in
reference to the firmness of the schedule
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OM
Frozen is the near-term phase that is so soon that delivery of a new
order would be impossible, or only possible using very costly or
extraordinary options such as delaying another order.
Slushy is the next phase, and its time fence is usually a few periods
beyond the frozen phase.
Authority for order entry usually lies with the master scheduler. There
is relative confidence in order-promise dates, and capacity planning
becomes very specific.
Liquid is the farthest out on the time horizon. New orders or
cancellations can be entered with ease.
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OM
A key element in the success of the master scheduling
process is strict adherence to time fence policies and rules. It
is essential that they be adhered to and communicated
throughout the organization.
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CHAPTER 5 - QUALITY MANAGEMENT AND CONTROL (10 HOURS)
Meaning and nature of quality
The word quality does not mean the quality of manufactured product
only. It may refer to the quality of the process (i.e., men, material,
and machines) and even that of management.
quality is a relative term and it is generally used with reference to
the end use of the product.
Juran defined as “Quality is fitness for use”. “The Quality of a
product or service is the fitness of that product or service for meeting
or exceeding its intended use as required by the customer.”
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FUNDAMENTAL FACTORS AFFECTING
QUALITY
The nine fundamental factors (9 M’s), which are affecting the quality
of products and services, are:
1. markets,
2. money,
3. management,
4. men,
5. motivation,
6. materials,
7. machines and mechanization.
8. Modern information methods
9. Mounting product requirements
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QUALITY MANAGEMENT
While quality management is cross functional in nature and involves
the entire organization, operations have special responsibility to
produce a quality product for the customer. This requires the
cooperation of the entire organization and careful attention to
management and control of quality.
Quality management begins before products and services delivered
to customers. Raw materials must meet the appropriate
specification, strength, size, color, finish, appearance, chemical
content and other characteristics. As the materials proceed through
production, the quality of partially completed Work In Progress
(WIP) products monitored to determine whether the production
processes are operating as intended. The finished products and
services are inspected to determine their acceptability.
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IMPLICATIONS OF QUALITY
1. Company reputation- quality will show up in perceptions about
the firm’s
ünew products
üEmployment practices
üSupplier relations
üSelf-promotion is not a substitute for quality products
1. Product liability- Quality reduce risk
2. Global implications- Improved ability to compete
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DIMENSION OF QUALITY
The common dimension of quality includes:
1. Performance: For personal computer, performance characteristics would include speed
and random accessory memory (RAM).
2. Feature: are the ‘belts and whistles’ that are offered with the product.
3. Reliability: The reliability of a product relates to the probability that the product will fail
within a specified time.
4. Durability: relates to the expected operational life of the product.
5. Serviceability: concerned with how readily the product can be repaired and the
response (i.e. speed, competence, and courtesy) associated with that repair.
6. Aesthetic: good quality to one group of customers might even be perceived as poor
quality to another group. Companies, therefore, have an opportunity with this quality
dimension to seek out a very specific market niche.
7. Perceived quality: is directly related to the reputation of the firm that manufactures the
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IMPROVED QUALITY:
ØResults in sales increase
ØAllows costs to drop
ØQuality, or the lack of quality, affects the entire organization
from supplier to customer and from product design to
maintenance.
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TWO WAYS QUALITY IMPROVES PROFITABILITY:
27/05/2022 BY FIREHUN A. 165

OVERVIEW OF TQM.
As per Feigebaum, “Total Quality Management is an effective system
of integrating the quality development, quality maintenance and
quality improvement efforts of various groups in an organization so
as to enable marketing, engineering, production and service at the
most economical levels which allow for full customer satisfaction”.
Total Quality Management (TQM) Programs: - The underlying
principle of TQM is to produce products of high quality in the first
place, rather than depend on detecting defective product later
through inspection.
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ELEMENTS OF TQM INCLUDE
a. Top management policy
b. Quality control for everyone
c. Product design
d. Quality material from suppliers
e. Control in production
f. Distribution, installation and use
TQM is a management of an entire organization so that it
excels/outshines/ in all aspects of products and services that
are important to the customer.
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BENEFITS OF TQM
The benefits of TQM can be classified into the following two
categories:
1. Customer satisfaction oriented benefits.
2. Economic improvements oriented benefits.
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CUSTOMER SATISFACTION ORIENTED BENEFITS
The benefits under this category are listed below:
(a) Improvement in product quality.
(b) Improvement in product design.
(c) Improvement in production flow.
(d) Improvement in employee morale and quality
consciousness.
(e) Improvement of product service.
(f) Improvement in market place acceptance.
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ECONOMIC IMPROVEMENTS ORIENTED BENEFITS
The benefits under this category are as follows:
(a) Reductions in operating costs.
(b) Reductions in operating losses.
(c) Reductions in field service costs.
(d) Reductions in liability exposure.
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SEVEN CONCEPTS OF TQM.
seven concepts for an effective TQM program are :
1. Continuous improvement
2. Six Sigma
3. Employee empowerment
4. Benchmarking
5. Just-in-time (JIT)
6. Taguchi concepts
7. Knowledge of TQM tools.
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CONTINUOUS IMPROVEMENT
TQM requires a never-ending process of continuous
improvement that covers people, equipment, suppliers,
materials, and procedures. The basis of the philosophy is
that every aspect of an operation can be improved. The
end goal is perfection, which is never achieved but always
sought. PDCA is continuous improvement circular model of
plan, do, check, Act.
Kaizen also describes the ongoing process of unending
improvement (Japan).
TQM and zero defects also used to describe continuous
improvement (USA)
27/05/2022 BY FIREHUN A. 172

CONTINUOUS IMPROVEMENT
27/05/2022 BY FIREHUN A. 173

SIX SIGMA
Have two meanings in TQM. In a statistical sense, it
describes a process, product, or service with an extremely
high capability (99.9997% accuracy). The second definition
of Six Sigma is a program designed to reduce defects to
lower costs, save time, and improve customer satisfaction.
Six Sigma is a highly structured approach to process
improvement and comprehensive system.
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EMPLOYEE EMPOWERMENT
Techniques for building employee empowerment include:
ØBuild communication networks that include employees
ØDevelop open, supportive supervisors
ØMove responsibility and authority to employees
ØBuild a high-morale organization
ØCreate formal team structures.
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QUALITY CIRCLES
QC is a group of employees meeting regularly with a
facilitator to solve work-related problems in their work
area. Group of employees who meet regularly to solve
problems. Trained in planning, problem solving, and
statistical methods. Often led by a trained team member,
facilitator, Very effective when done properly.
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BENCHMARKING
Selecting a demonstrated standard of performance that represents
the very best performance for a process or an activity.
The steps for developing benchmarks are:
vDetermine what to benchmark.
vForm a benchmark team
vIdentify benchmarking partners
vCollect and analyze benchmarking information
vTake action to match or exceed the benchmark
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JUST-IN-TIME (JIT)
The philosophy behind JIT is one of continuing improvement and
enforced problem solving. “Pull’ system of production scheduling
including supply management.
Production only when signaled, JIT systems are designed to produce
or deliver goods just as they are needed.
JIT is related to quality in three ways:
qJIT Cuts the Cost of Quality
qJIT improves Quality
qBetter quality means less inventory and better, easier-to-employ
JIT system
27/05/2022 BY FIREHUN A. 178

TAGUCHI CONCEPTS
Engineering and experimental design methods to improve product
and process design. Most quality problems are the result of poor
product and process design. Identify key component and process
variables affecting product variation. Genichi Taguchi has provided
us with three concepts aimed at improving both product and process
quality:
The Three Taguchi Concepts:
1. Quality robustness
2. Target-oriented quality
3. Quality loss function
27/05/2022 BY FIREHUN A. 179

THE SEVEN TQM TOOLS.
Tools for Generating Ideas
ØCheck Sheet
ØScatter Diagram
ØCause-and-Effect Diagram
Tools to Organize the Data
ØPareto Chart
ØFlowchart (Process Diagram)
Tools for Identifying Problems
ØHistogram
ØStatistical Process Control Chart
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TQM IN SERVICES
Service quality is more difficult to measure than the quality of goods.
The personal component of services is more difficult to measure than
the quality of the tangible component of the service. Service quality
perceptions depend:
vIntangible differences between products
vIntangible expectations customers have of those products
vMost of the time these perceptions are poorly defined. Indeed, the
intangible attributes may not be defined at all; they are often
unspoken images in the purchaser’s mind. This is why all of those
marketing issues such as advertising, image, and promotion can make
a difference.
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OM
The manager must expect exceptions - There is a
standard quality level at which the regular service is
delivered. However, there are “exceptions” or
“problems” initiated by the customer or by less-than-
optimal operating conditions (e.g., the computer
“crashed”). This implies that the quality control system
must recognize and have a set of alternative plans
for less-than-optimal operating conditions.
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DETERMINANTS OF SERVICE QUALITY
qReliability involves consistency of performance and dependability.
qResponsiveness concerns the willingness or readiness of employees
to provide service.
qCompetence means possession of the required skills and knowledge
to perform the service
qAccess involves approachability and ease of contact.
qCourtesy involves politeness, respect, consideration, and
friendliness.
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DETERMINANTS OF SERVICE QUALITY
qCommunication means keeping customers informed and listening
to them.
qCredibility involves trustworthiness, believability, and honesty.
qSecurity is the freedom from danger, risk, or doubt.
qUnderstanding/knowing the customer involves making the effort
to understand the customer’s needs.
qTangibles include the physical evidence of the service.
27/05/2022 BY FIREHUN A. 184

THE FLOW OF ACTIVITIES NECESSARY TO ACHIEVE TQM
27/05/2022 BY FIREHUN A. 185

STATISTICAL QUALITY CONTROLS
One of the cornerstones of quality control is the use of statistical
methods to determine how much inspection to use. In many case a
great deal can be saved by taking a sample rather than making
100 percent inspection. In other cases there is no alternative but to
take a sample .e.g. destructive testing. Two distinct types of statistical
methods are available: acceptance sampling and process control.
27/05/2022 BY FIREHUN A. 186

ACCEPTANCE SAMPLING.
Applies to lot inspection where a decision to accept or reject
a lot of materials is made on the basis of random sample
drawn from the lot. This type of inspection is frequently used
for incoming raw materials or for finished goods prior to
shipment.
Generally it can be defined as taking one or more samples
at random from a lot of items, inspecting each of the items in
the sample (s) and deciding – on the basis of inspection
result- whether to accept or reject the entire lot.
27/05/2022 BY FIREHUN A. 187

ACCEPTANCE SAMPLING.
Formally, we let:
n= sample size
c= acceptance number
x= number of defective units found in the sample.
For single sampling, the decision rule whether to accept or
reject the lot after inspecting the sample is as follows:
If x  c, accept the lot
If xc, reject the lot
27/05/2022 BY FIREHUN A. 188

PROCESS CONTROL CHART
Process control chart quality control system
No two products or services are exactly alike because the
processes used to produce them contain many sources of
variation, even if the processes are working as intended. For
example, the time required to process a credit card
application varies because of the load on the credit
department, the financial background of the applicant, and
the skill & attitude of the employees. Nothing can be done
to eliminate variation in process output completely, but
management can investigate the cause of variation.
Generally, the source of variation can be:
27/05/2022 BY FIREHUN A. 189

I. COMMON CAUSES OF VARIATION:
which are purely random, unidentifiable sources of variation
that are unavoidable with the current process. No matter
how perfectly the process is designed, there will be some
variability in quality characteristics from one unit to the next.
For example, a machine filling cereal boxes will not deposit
exactly the same weight in each boxes; the amount filled
will vary around some average figure. The aim of process
control is to find the range of natural variation of the
process and to then ensure that production stays within this
range. Natural variation is usually under the state of control.
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ASSIGNABLE CAUSES:
The second category of variation is assignable sources of
variation also called special cases includes any abnormal
variations which are not usually found in a state of control.
Assignable causes of variation are any variation causing
factor that can be identified and eliminated. Assignable
causes that results abnormal variation may include: lax
(careless) procedures, untrained operators, improper
machine maintenance. The first job of process control
manager is to seek out these sources of unnecessary
variation and bring the process under statistical control,
where the remaining variation is due to random causes.
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OM
A process can be brought to a state of control and
can be maintained in this state through the use of
quality control charts also called process chart or
control chart.
27/05/2022 BY FIREHUN A. 192

OM
27/05/2022 BY FIREHUN A. 193

OM
27/05/2022 BY FIREHUN A. 194

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