Shanti Business School

Operations Management Notes (PGDM-2017-19)

Operations management
Operations management deals with the systematic design, direction, and control of processes.
a. “A process is an activity or group of activities that takes one or more inputs, transforms them, and
provides one or more outputs for its customers.”
b. An “Operation is a group of resources performing all or part of one or more processes.”
c. “Supply chain management is the synchronization of a firm’s processes with those of its suppliers and
customers to match flow of materials, services, and information with customer demand.”
Operations Strategy
Operations strategy
a. Specifies the means by which operations implements corporate strategy and helps to build a customer-
driven firm.
b. It links long-term and short-term operations decisions to corporate strategy and develops the capabilities
the firm needs to be competitive.
Competitive Priorities and Capabilities
1. Competitive priorities are the critical operational dimensions a process or supply chain must possess to
satisfy internal or external customer, both now and in the future.
2. Competitive capabilities are the cost, quality, time, and flexibility dimensions that a process or supply
chain actually processes and is able to deliver. An abbreviated list with examples is provided here.

Dimension Definition Example

Low-cost Delivering a service or product at the Costco achieves low costs by designing all
operations lowest cost possible. processes for efficiency.
Top Delivering an outstanding service or Rolex is known globally for top-quality precision
quality product. timepieces
Consistent Producing services or products that McDonald’s standardizes work methods, staff
quality meet design specifications on a training processes, and procurement to achieve
consistent basis. consistency.
Delivery Quickly filling customer orders Dell engineered processes to deliver reliable and
speed inexpensive computers with short lead times.
On-time Meeting delivery-time promises United Parcel Service (UPS) uses expertise in
delivery logistics and warehousing processes to deliver on-
time.
Development Quickly introducing new services or Zara is known by its ability to bring fashions from
 speed products. the runway to market quickly
Customizatio Satisfying unique needs of Ritz Carlton customizes services to individual
n customers customers.
Variety A wide assortment of services or Amazon.com uses information technology along
products. with order fulfillment processes to deliver a vast
variety of items to customers.
Volume Accelerating or decelerating the rate The United States Post Office (USPS) can have
flexibility of production severe demand peak fluctuations.

Using competitive priorities: an airline example (two market segments: first-class passengers and coach
passengers)
a. Customer relationships
 Top quality: High levels of customer contact and lounge service for the first-class passengers
 Consistent quality: The information and service must be error free
 Delivery speed: Customers want immediate information regarding flight schedules and other
ticketing information
 Variety: The process must be capable of handling the service needs of all market segments and
promotional programs
b. New service development
 Developing speed: It is important to get to the market fast to preempt the competition
 Customization: The process must be able to create unique services
 Top quality: New services must be carefully designed because the future of the airline industry
depends on them
c. Order fulfillment
 Low-cost operations: Airlines compete on price and must keep operating costs in check
 Top quality: High quality meal and beverage service delivered by experienced cabin attendants
ensures that the service provided to first-class passengers is kept top notch.
 Consistent quality: Once the quality level is set, it is important to achieve it every time
 On-time delivery: The airline strives to arrive at destinations on schedule, otherwise passengers
might miss connections to other flights
 Variety: Maintenance operations are required for a variety of aircraft models
d. Supplier relationship
 Low-cost operations: Costs of acquiring inputs must be kept to a minimum to allow for competitive
pricing
  Consistent quality: Quality of the inputs must adhere to the required specifications. In addition,
information provided to suppliers must be accurate
 On-time delivery: Inputs must be delivered to tight schedules
 Variety: Many different inputs must be acquired, including maintenance items, meals and beverages.
 Volume flexibility: The process must be able to handle variations in supply quantities efficiently
3. Identifying Gaps Between Competitive Priorities and Capabilities
a. Operations strategy translates service or product plans and competitive priorities for each market
segment into decisions affecting the supply chains that support those market segments.
b. Once managers determine the competitive priorities for a process, it is necessary to assess the
competitive capabilities of the process.
Order winners and qualifiers
c. Order winner is a criterion that customers use to differentiate the services or products of one firm from
those of another, such as cost, quality, time, and flexibility
d. Order qualifier is the minimal requirement for doing business in a particular market segment
Key Performance Indicators
 A set of measures that help managers evaluate a company’s economic performance and spot the
need for change in operation.
 KPIs include financial measures such as days’ cash on hand and operating income by unit or
division, as well as non financial metrics such as average time to respond to service calls, lead
time, or percentage of sales from new products.
What is Productivity?
Productivity is a measure of the effective use of resources, usually expressed as the ratio of output to
input
Productivity = Output / Input
Productivity is a common measure of how well a country, industry or business unit is using its
resources.
Partial measures of productivity = Output/labor, Output/Capital , Output/ Material etc.
Multifactor measures of productivity = Output / (Labor + Capital + Energy)
Goods vs. Services
 Characteristics of Goods
• Tangible product
• Consistent product definition
• Production usually separate from consumption
• Can be inventoried
 • Low customer interaction
 Characteristics of Services
• Intangible product
• Produced & consumed at same time
• Often unique
• High customer interaction
• Inconsistent product definition
• Often knowledge-based
• Frequently dispersed
Manufacturing Operations & Service Operations
Following characteristics can be considered for distinguishing manufacturing operations with service
operations:
1. Tangible/Intangible nature of output
2. Consumption of output
3. Nature of work (job)
4. Degree of customer contact
5. Customer participation in conversion
6. Measurement of performance.

Manufacturing is characterized by tangible outputs (products), outputs that customers consume overtime, jobs
that use less labour and more equipment, little customer contact, no customer participation in the conversion
process (in production), and sophisticated methods for measuring production activities and resource
consumption as product are made.
Product Design
 Product design – the process of defining the product characteristics appearance, materials,
dimensions, tolerances, and performance standards
 Product design must support product manufacturability (the ease with which a product can be made)
Design of Services
 Service design is unique in that the service and entire service concept are being designed must define
both the service and concept
 Physical elements, aesthetic & psychological benefits e.g. promptness, friendliness, ambiance
 Product and service design must match the needs and preferences of the targeted customer group
Service Blueprinting
• Service blueprinting: A method used in service design to describe and analyze a proposed service
 • A useful tool for conceptualizing a service delivery system
• Major Steps in Service Blueprinting
1. Establish boundaries
2. Identify steps involved
3. Prepare a flowchartf
4. Identify potential failure points
5. Establish a time frame
6. Analyze profitability

Physical
Evidences

Customer Line of Influence

Actions

Onstage Line of Interaction

Technology
Actions
Onstage
Employee
Actions
Backstage Line of Customer Visibility
Employee
Actions
Line of Internal Interaction
Support
Process - I

Line of Employee Visibility

Support
Process - II

Physical
A B C D E
Evidences

Customer Line of Influence

Actions 1 2 3 4 5 6 7 8

Onstage Line of Interaction

Technology
Actions
Onstage
Employee 9 10 11 12
Actions
Backstage Line of Customer Visibility
Employee
13 14 15 16 17
Actions
Line of Interaction
Support
Process - I 18 19

Line of Employee Visibility

Support
Process - II 20

Service Quality
Service quality is
–A measure of how well the service delivered matches with expectations
–Pre-dominantly is a function of perceptions of the customers
• Quality evaluations are
– Not made solely on the outcome of the service
– They also involve evaluation of the process of delivery
• (Example of Airline Delays & the way it was handled)
• (Example of e-retailers inability to deliver Christmas Gifts)
• Points to difficulty in Service Recovery (after a failure)
The five gaps model

Gaps in Service Quality

Why do they occur?
• Gap 1: Service firm executives may not always understand
– What the consumer wants?
– What features a service must have?
– What levels of performance?
• Gap 2: Means to meet the expectations absent
– Knowledge of consumer expectations exist but not the perceived means to deliver
– Absence of management commitment to quality
• Gap 3: Variability in employee performance
• Gap 4: Problems arising out of communication
– Firms tend to promise more in communications than what they deliver in reality
– Firms tend to neglect to inform consumers of special efforts to assure quality that are not visible to consumers
Gap 5 = f (Gap 1, Gap 2, Gap 3, Gap 4)
• Service Quality is more challenging than product quality as it is a function of the perceptions of the
customers
• Organizations can use the notion of gaps in service delivery to identify specific improvement
opportunities in the service delivery process

Product Development Process

 Phase 0: Planning: It is referred to be as Phase Zero. The phase begins with corporate strategy and
includes assessment of technology developments and market objectives.
 Phase 1: Concept development: In this phase the needs of the target market are identified, alternative
product concepts are generated and evaluated and no one or more concepts are selected for further
development and testing. A concept is a description of the for, function, and features of a product
and is usually accompanied by a sat of specifications, an analysis of competitive products, and an
economic justification of the project/
 Phase 2: System level design: It includes the definition of the product architecture and the
decomposition of the product into subsystems and components.The output of this phase usually
includes a geometric layout of the product, a functional specification of each subsystems, and a
preliminary process flow diagram.
 Phase 3: Design detailIt includes the complete specification of the geometry, materials , and
tolerances of all the unique parts in the product and the identification of all the standard parts to be
purchased from suppliers. The output of this phase is the drawings or computer files describing the
geometry of each part and production tooling.
 Phase 4: Testing & refinement: It involves the construction and evaluation of multiple preproduction
versions of the product. Early prototypes are usually build and are tested to determine whether the
product will work as designed and whether the product satisfies customer needs.
 Phase 5: Production ramp-up: The product is made using the intended production system. The
purpose of the ramp-up phase is to train the workforce and to work out any remaining problems in
the production process.
Value Analysis/Value Engineering
 Analysis with the purpose of simplifying products and processes by achieving equivalent or better
performance at a lower cost.
 Focuses on design improvement during production
  Seeks improvements leading either to a better product or a product which can be more economically
produced.VA/VE does this by identifying and eliminating unnecessary cost.
 Analysis with the purpose of simplifying products and processes by achieving equivalent or better
performance at a lower cost.
 Focuses on design improvement during production
 Seeks improvements leading either to a better product or a product which can be more economically
produced.
 VA/VE does this by identifying and eliminating unnecessary cost.
VA/VE approach involves brainstorming such questions.
 Does the item have any design features that are not necessary?
 Can two or more parts be combined into one?
 How can we cut down the weight?
 Are there nonstandard parts that can be eliminated?
Concurrent engineering
Concurrent engineering can be defined as the simultaneous development of project design functions, with
open and interactive communication existing among all team members for the purposes of reducing time to
market, decreasing cost, and improving quality and reliability.
 Old “over-the –wall” sequential design process should not be used
 Each function did its work and passed it to the next function
 Replace with a Concurrent Engineering process
 All functions form a design team working together to develop specifications, involve customers
early, solve potential problems, reduce costs, & shorten time to market
Quality Function Deployment
 It is an approach to getting the voice of the customer into the design specification of a product.
Product design process using cross-functional teams Marketing, engineering, manufacturing
 Translates customer preferences into specific product characteristics Involves creating 4 tabular
‘Matrices’ or ‘Houses’
 Breakdown product design into increasing levels of detail
 Identify customer wants
 Identify how the good/service will satisfy customer wants
 Relate customer wants to product how’s.
 Identify relationships between the firm’s how’s.
 Develop importance ratings
  Evaluate competing products
Manufacturing processes convert materials into goods that have a physical form.
1. Product-process matrix
 Three elements
 Volume
 Product customization
 Process characteristics
 A good strategy for a manufacturing structure depends first on volume.
 Customer contact is not normally a consideration for manufacturing processes, although it is a factor for
the service processes in manufacturing organizations.
 Vertical dimension deals with the same two characteristics in the customer-contact matrix: divergence
and flow
2. Manufacturing process structuring
 Process choice: A way of structuring the process by organizing resources around the process or
organizing them around the products
 Four process choices, forming a continuum
 Job shop process, high variety of products
 Batch process, higher volumes, batching of customer orders. Further differentiated as small batch
and large batch processes.
 Line process, high-volumes, standardized products, dedicated resources, repetitive manufacturing
 Continuous production process, the extreme end of high-volumes, rigid line flows. Primary material
moves without stopping.
Job shop production
Job shop production are characterised by manufacturing of one or few quantity of products designed and
produced as per the specification of customers within prefixed time and cost. The distinguishing feature of this
is low volume and high variety of products. A job shop comprises of general purpose machines arranged into
different departments. Each job demands unique technological requirements, demands processing on machines
in a certain sequence.
Characteristics
The Job-shop production system is followed when there is:
1. High variety of products and low volume.
2. Use of general purpose machines and facilities.
3. Highly skilled operators who can take up each job as a challenge because of uniqueness.
4. Large inventory of materials, tools, parts.
5. Detailed planning is essential for sequencing the requirements of each product, capacities for each work
centre and order priorities.
Advantages
Following are the advantages of job shop production:
1. Because of general purpose machines and facilities variety of products can be produced.
2. Operators will become more skilled and competent, as each job gives them learning opportunities.
3. Full potential of operators can be utilised.
4. Opportunity exists for creative methods and innovative ideas.
Limitations
Following are the limitations of job shop production:
1. Higher cost due to frequent set up changes.
2. Higher level of inventory at all levels and hence higher inventory cost.
3. Production planning is complicated.
4. Larger space requirements.
Batch production
Batch production is defined by American Production and Inventory Control Society (APICS) “as a form of
manufacturing in which the job passes through the functional departments in lots or batches and each lot may
have a different routing.” It is characterized by the manufacture of limited number of products produced at
regular intervals and stocked awaiting sales.
Characteristics
Batch production system is used under the following circumstances:
1. When there is shorter production runs.
2. When plant and machinery are flexible.
3. When plant and machinery set up is used for the production of item in a batch and change of set up is
required for processing the next batch.
4. When manufacturing lead time and cost are lower as compared to job order production.
Advantages
Following are the advantages of batch production:
1. Better utilisation of plant and machinery.
2. Promotes functional specialisation.
3. Cost per unit is lower as compared to job order production.
4. Lower investment in plant and machinery.
5. Flexibility to accommodate and process number of products.
6. Job satisfaction exists for operators.
Limitations
Following are the limitations of batch production:
1. Material handling is complex because of irregular and longer flows.
2. Production planning and control is complex.
3. Work in process inventory is higher compared to continuous production.
4. Higher set up costs due to frequent changes in set up.
Line process
Manufacture of discrete parts or assemblies using a continuous process are called mass production.
This production system is justified by very large volume of production. The machines are arranged in a line or
product layout. Product and process standardisation exists and all outputs follow the same path.
Characteristics
Mass production is used under the following circumstances:
1. Standardisation of product and process sequence.
2. Dedicated special purpose machines having higher production capacities and output rates.
3. Large volume of products.
4. Shorter cycle time of production.
5. Lower in process inventory.
6. Perfectly balanced production lines.
7. Flow of materials, components and parts is continuous and without any back tracking.
8. Production planning and control is easy.
9. Material handling can be completely automatic.
Advantages
Following are the advantages of mass production:
1. Higher rate of production with reduced cycle time.
2. Higher capacity utilisation due to line balancing.
3. Less skilled operators are required.
4. Low process inventory.
5. Manufacturing cost per unit is low.
Limitations
Following are the limitations of mass production:
1. Breakdown of one machine will stop an entire production line.
2. Line layout needs major change with the changes in the product design.
3. High investment in production facilities.
4. The cycle time is determined by the slowest operation.
Continuous production
Production facilities are arranged as per the sequence of production operations from the first operations to the
finished product. The items are made to flow through the sequence of operations through material handling
devices such as conveyors, transfer devices, etc.
Characteristics
Continuous production is used under the following circumstances:
1. Dedicated plant and equipment with zero flexibility.
2. Material handling is fully automated.
3. Process follows a predetermined sequence of operations.
4. Component materials cannot be readily identified with final product.
5. Planning and scheduling is a routine action.
Advantages
Following are the advantages of continuous production:
1. Standardisation of product and process sequence.
2. Higher rate of production with reduced cycle time.
3. Higher capacity utilisation due to line balancing.
4. Manpower is not required for material handling as it is completely automatic.
5. Person with limited skills can be used on the production line.
6. Unit cost is lower due to high volume of production.
Limitations
Following are the limitations of continuous production:
1. Flexibility to accommodate and process number of products does not exist.
2. Very high investment for setting flow lines.
3. Product differentiation is limited.

Production and inventory strategies

 Design-to-Order Strategy
 Designing new products that do not currently exist
 Manufacturing to meet unique customer specifications
 Make-to-order strategy
 Make products to customer specifications in low volumes with job or small batch processes,
 Matches up with flexibility (customization) and top quality
 Assemble-to-order strategy
 Producing a wide variety of products from relatively few subassemblies and components after the
customers orders are received
  Allows delivery speed and high process divergence
 Principle of postponement
 Make-to-stock strategy
 Feasible for standardized products with high volumes and reasonably accurate forecasts with line or
continuous flow processes
 Holding items in stock for immediate delivery
 Combined with line process, it is sometimes called mass production
 Choice for delivery speed and low cost
Facilities Location
• It is an integrating phase of production systems of any organization.
• It is defined as a placement of a facility with respect to customers, suppliers, labor and other facilities
with which it interacts.
• Location decisions are critical at several level of geography. e.g. : in case of retailing.
• Location decision is a long term strategic decision because it has a major impact on the organization’s
ability to compete.
Factors affecting Location Decision
Steps in Selection of location
I. Within the Country or Outside?
II. Selection of the Region
III. Selection of the Locality or Community
IV. Selection of the exact Site
Deciding on Domestic or International Location
• Here factors to be considered are :-
– Political Stability
– Export and Import Quotas
– Currency and Exchange rates
– Cultural and Economic peculiarities
– Natural and Physical conditions
Selection of Region
• Here factors to be considered are :-
– Availability of Raw Materials
– Nearness to market
– Availability of Power
– Transport Facilities
 – Suitability of Climate
– Government Policy
– Competition between states
Selection of Community
• Here factors to be considered are :-
– Availability of labor
– Civic amenities for workers
– Existence of complementary and competing industries
– Finance and Research facilities
– Availability of water and fire-fighting facilities
– local taxes and restrictions
– Momentum of an early start
– Personal factors
Selection of the site
• Here factors to be considered are :-
– Soil, size and Topography
– Disposal of waste

Process Structure in Services

1. Nature of Service Processes: Customer Contact
a. A good process strategy for a service process:
 Depends on the type and amount of customer contact.
 Customer contact: the extent to which the customer is present, is actively involved, and receives
personal attention during the service process.
b. Dimensions of customer contact
 Physical presence (face-to-face interaction is sometimes called a moment of truth, or service
encounter)
 What is processed
 People-processing services
 Possession-processing services
 Information-based services
 Contact intensity
 Active contact: the customer is very much a part of the creation of the service, and affects the
service process itself. Dental, psychiatric services for example.
  Passive contact: the customer is not involved in tailoring the process to meet special needs, or in
how the process is performed. Public transportation, theaters, for example.
 Personal attention
 When contact is more personal, the customer “experiences” the service rather than just receiving
it.
 Method of delivery used
 Face-to-face or telephone versus regular mail or standardized e-mail message
2. Customer-contact matrix (fitting the service processes with customer contact)
a. Customer contact and customization
 A key competitive priority is how much customization is needed
 Competitive priorities require more customization, the more the customer is present and actively
involved.
b. Process divergence and flow
 Process divergence: extent to which the process is highly customized with considerable latitude as to
how it is performed
 High divergence involves much judgment and discretion. Consulting and law, for example
 Low divergence is more repetitive and standardized
 Process flow, closely related to divergence, may range from highly diverse to linear.
 Flexible flow means movements in diverse ways.
 Line flow means movement in fixed sequence.
3. Service process structuring (three process structures forming a continuum)
a. Front office: a process with higher customer contact where the service provider interacts directly with
the customer
b. Hybrid office: a process with moderate levels of customer contact and standard services with some
options available
c. Back office: a process with low customer contact where the service provider interacts little with the
customer
Facilities Layout
 Facility layout can be defined as the process by which the placement of departments, workgroups within
departments, workstations, machines, and stock-holding points within a facility are determined
 Each process type (project, job shop, cell, assembly line, continuous) has it corresponding basic layout
 Determine the best layout (one that minimizes flow*distance, or flow*unit flow cost, …, maximizes
throughput, …)
Objectives of Facility Layout
• Minimize material handling costs
• Utilize space efficiently
• Utilize labor efficiently
• Eliminate bottlenecks
• Facilitate communication and interaction between workers, between workers and their supervisors, or
between workers and customers
• Reduce manufacturing cycle time or customer service time **
• Eliminate waste or redundant movement
• Facilitate the entry, exit, and placement of material, products, or people
• Incorporate safety and security measures
• Promote product and service quality
• Encourage proper maintenance activities
• Provide a visual control of operations or activities
Basic Layout/ Structure Types
Process Layout
• A Process Layout (also called a job shop or functional layout) is a format in which similar
equipment or functions are grouped together, such as all lathes in one area and all stamping
machines in another.
• A part being worked on then travels, according to the established sequence of operations from area to
area.
• Ex: Hospitals where areas are dedicated to particular types of medical care such as maternity wards
and intensive care units.
Advantages of Process Layouts

• Can handle a variety of processing requirements

• Not particularly vulnerable to equipment failures
• Equipment used is less costly
• Possible to use individual incentive plans
• Disadvantages of Process Layouts
• In-process inventory costs can be high
• Challenging routing and scheduling
• Equipment utilization rates are low
• Material handling slow and inefficient
• Complexities often reduce span of supervision
• Special attention for each product or customer
 • Accounting and purchasing are more involved
Product Layout
• A Product Layout (also called a flow shop layout) is one in which equipment or work processes are
arranged according to the progressive steps by which the product is made.
• The path for each part is, in effect, a straight line.
• Production line for shoes, chemical plants, and car washes are product layout.
Advantages of Product Layout
• High rate of output
• Low unit cost
• Labor specialization
• Low material handling cost
• High utilization of labor and equipment
• Established routing and scheduling
• Routing accounting and purchasing
Disadvantages of Product Layout
• Creates dull, repetitive jobs
• Poorly skilled workers may not maintain equipment or quality of output
• Fairly inflexible to changes in volume
• Highly susceptible to shutdowns
• Needs preventive maintenance
• Individual incentive plans are impractical
Fixed Position Layout
• Layout in which the product or project remains stationary; workers, materials, and equipment are
moved as needed. This is also called the project type of layout. In this type of layout, the material, or major
components remain in a fixed location and tools, machinery, men and other materials are brought to this
location. This type of layout is suitable when one or a few pieces of identical heavy products are to be
manufactured and when the assembly consists of large number of heavy parts, the cost of transportation of
these parts is very high. Used in projects where the product cannot be moved.
• The major advantages of this type of layout are:
1. Helps in job enlargement and upgrades the skills of the operators.
2. The workers identify themselves with a product in which they take interest and pride in doing the job.
3. Greater flexibility with this type of layout.
4. Layout capital investment is lower.
Combination Layout
 A combination of process and product layouts combines the advantages of both types of layouts. A
combination layout is possible where an item is being made in different types and sizes. Here machinery is
arranged in a process layout but the process grouping is then arranged in a sequence to manufacture various
types and sizes of products. It is to be noted that the sequence of operations remains same with the variety of
products and sizes.
Cellular layouts or Group Layout
 Group technology (GT) is the analysis and comparisons of items to group them into families with
similar characteristics. GT can be used to develop a hybrid between pure process layout and pure
flow line (product) layout. This technique is very useful for companies that produce variety of parts
in small batches to enable them to take advantage and economics of flow line layout.
 The application of group technology involves two basic steps; first step is to determine component
families or groups. The second step in applying group technology is to arrange the plants equipment
used to process a particular family of components. This represents small plants within the plants.
The group technology reduces production planning time for jobs. It reduces the set-up time.
 Thus group layout is a combination of the product layout and process layout. It combines the
advantages of both layout systems.
Service Layout
 The major factors considered for service providers, is an impact of location on sales and customer
satisfaction. Customers usually look about how close a service facility is, particularly if the process
requires considerable customer contact. Hence, service facility layouts should provide for easy
entrance to these facilities from the freeways. Well-organized packing areas, easily accessible
facilities, well designed walkways and parking areas are some of the requirements of service facility
layout.
 Service facility layout will be designed based on degree of customer contact and the service needed
by a customer. These service layouts follow conventional layouts as required. For example, for car
service station, product layout is adopted, where the activities for servicing a car follows a sequence
of operation irrespective of the type of car. Hospital service is the best example for adaptation of
process layout. Here, the service required for a customer will follow an independent path.
Assembly Line Balancing
 Assembly-line balancing often has implications for layout. This would occur when, for balance
purposes, workstation size or the number used would have to be physically modified.
 The steps in balancing an assembly line are:

1. Specify the sequential relationships among tasks using a precedence diagram.

 2. Determine the required workstation cycle time C, using the formula

o C= Production time per day / Required output per day (in units)

3. Determine the theoretical minimum number of workstations (N) required to satisfy the
workstation cycle time constraint using the formula

o Nt=Sum of task times (T) / Cycle time (C)t

4. Select a primary rule by which tasks are to be assigned to workstations, and a secondary rule to
break ties.

5. Assign tasks, one at a time, to the first workstation until the sum of the task times is equal to the
workstation cycle time, or no other tasks are feasible because of time or sequence restrictions.
Repeat the process for workstation 2, workstation 3, and so on until all tasks are assigned.

6. Evaluate the efficiency of the balance derived using the formula

Efficiency = Sum of task times (T) / Actual number of workstations (N) × Workstations cycle time
(C)
7. If efficiency is unsatisfactory, rebalance using a different decision rule.
Inventory Management
• Inventory is the stock of any item or resource used in an organization and includes: raw materials,
finished products, component parts, supplies, and work-in-process (for a manufacturing firm).In
manufacturing everything that contribute to or become part of a firm’s product output.
• In service organizations, inventory generally includes the tangible goods to be sold and the supplies
necessary to administer the service.
• Stock of items kept to meet future demand
• Purpose of inventory management
a) how many units to order
b) when to order
Importance of Inventory Management:
1. Inventories are important to all types of organizations and their employees.
a. Inventories affect everyday operations because they have to be counted, paid for, used in operations,
used to satisfy customers, and managed.
b. Inventories require an investment of funds.
c. Monies invested in inventory are not available for investment in other things.
2. Inventory a boon or bane?
 a. Too much inventory on hand reduces profitability.
b. Too little inventory on hand damages customer confidence.
c. Inventory management involves trade-offs.
Types of Inventory
• Raw materials
• Finished Goods
• Work-in-process (partially completed) products (WIP)
• Spares, Tools and equipment
Inventory System
 An inventory system is the set of policies and controls that monitor levels of inventory and determines
what levels should be maintained, when stock should be replenished, and how large orders should be.
Purposes of Inventory
1. To maintain independence of operations.
2. To meet variation in product demand.
3. To allow flexibility in production scheduling.
4. To provide a safeguard for variation in raw material delivery time.
5. To take advantage of economic purchase-order size.
Inventory Costs
• Holding (or carrying) costs
o Costs for storage, handling, insurance, etc
• Setup (or production change) costs
o Costs for arranging specific equipment setups, etc
• Ordering costs
o Costs of someone placing an order, etc
• Shortage costs
o Costs of canceling an order, etc
Two Forms of Demand
Dependent
 Demand for items used to produce final products
 Tires stored at a Goodyear plant are an example of a dependent demand item
Independent
 Demand for items used by external customers
 Cars, appliances, computers, and houses are examples of independent demand inventory
Multi period Inventory systems
  There are two types:
 Fixed order quantity models(EOQ Model-Q model)
 Fixed time period models(periodic systems or P model)

Supply Chains For Services And Manufacturing

1. The goal is to reduce costs as well increase performance.
2. Supply chains must be managed to coordinate the inputs with the outputs in a firm to achieve the
appropriate competitive priorities of the firm’s enterprise processes.
3. The Internet offers firms an alternative to traditional methods for managing the supply chain.
4. A supply chain strategy is essential for service as well as manufacturing firms.
Every firm or organization is a member of some supply chain.
1. Services
a. Driven by the need to provide support for the essential elements of the various service packages it
delivers.
2. Manufacturing
a. A fundamental purpose of supply chain design for manufacturers is to control inventory by managing
the flow of materials.
b. Suppliers are often identified by their position in the supply chain. It is important to elaborate on the
“tiers” in a supply chain and that supply chains may involve suppliers and customers throughout the
world.
Measuring Supply Chain Performance
1. Inventory measures
a. Average aggregate inventory value

 Total value of all items held in inventory by a firm.

 Expressed in dollar values because the sum of individual items in raw materials, work-in-process,
and finished goods values can be determined.
 It is an average because it usually represents the inventory investment over some period of time.
 This tells managers how much of a firm’s assets are tied up in inventory.
b. Weeks of supply
 Measure obtained by dividing the average aggregate inventory value by sales by sales per week at
cost.
  Formula expressed
Average aggregate inventory value
Weeks of supply=
Weekly sales (at cost )
 This cost is referred to as the cost of goods sold.
 In some low-inventory operations, days or even hours are a better unit of time.
c. Inventory turnover (or turns)
Annual Sales (at cost )
Inventory turnover=
Average aggregate inventory value
 Measure obtained by dividing annual sales at cost by the average aggregate inventory level
maintained during the year.
STRATEGIC OPTIONS FOR SUPPLY CHAIN DESIGN
1. Efficient supply chains
a. Works best in environments where
 Demand: predictable, low forecast errors
 Competitive priorities: low cost, consistent quality, on-time delivery
 New-service/product introduction: infrequent
 Contribution margins: low
 Product variety: low
b. Common Designs: There is one popular design for efficient supply chains.
 Make-to-stock (MTS)
2. Responsive supply chains
a. Designed to react quickly in order to hedge against uncertainties in demand.
b. Common designs: There are three popular designs for responsive supply chains.
 Assemble-to-order (ATO)
 Make-to-order (MTO)
 Design-to-order (DTO)
c. Works best in environments where
 Demand: unpredictable, high forecast errors
 Competitive priorities: development speed, fast delivery times, customization, volume flexibility,
variety, top quality
 New-service/product introduction: frequent
 Contribution margins: high
 Product variety: high
3. Designs for efficient and responsive supply chains
 a. Factors for efficient supply chains
 Common designs: make-to-stock or standardized services or products; emphasize high volumes
 Capacity cushion: low
 Inventory investment: low; enable high inventory turns
 Lead time: shorten, but do not increase costs
 Supplier selection: emphasize low prices, consistent quality, on-time delivery
b. Factors for responsive supply chains
 Common designs: assemble-to-order, make-to-order, or customized services or products; emphasize
variety
 Capacity cushion: high
 Inventory investment: as needed to enable fast delivery time
 Lead time: shorten aggressively
 Supplier selection: emphasize fast delivery time, customization, variety, volume flexibility, top
quality
Mass Customization
1. Competitive advantages
a. Managing customer relationships
b. Eliminating finished goods inventory
c. Increasing perceived value of services or products
2. Supply chain design for mass customization
a. Assemble-to-order strategy
b. Modular design
c. Postponement
 Channel assembly
Outsourcing Process
 Outsourcing: paying suppliers and distributors to perform those processes and provide needed services
and materials
 Offshoring: Involves moving processes to another country.
 Next-shoring: supply chain strategy that involves locating processes in close proximity to customer
demand or product R&D.
2. Decision Factors to outsourcing
 Comparative labor costs
 Rework and product returns
 Logistics costs
  Tariffs and taxes
 Market effects
 Labor laws and unions
 Internet
 Energy costs
 Access to Low Cost Capital
 Supply Chain Complexity
3. Potential Pitfalls
 Pulling the plug too quickly
 decide to outsource a process before making a good-faith effort to fix the existing one.
 Technology transfer
 strategy involves creating a joint venture with a company in another country.
 Process integration
 difficult to fully integrate outsourced processes with the firm’s other processes
4. Vertical integration
 Backward integration—toward the sources of raw materials, parts, and services through acquisitions.
 Forward integration—acquires more channels of distribution.
 A firm chooses vertical integration when it has the skills, volume, and resources to hit the
competitive priorities better than outsiders can.
 Management must identify, cultivate, and exploit its core competencies to prevail in global
competition.
The Three Elements of Supply Chain Sustainability
1. Financial responsibility: improving the financial well-being of the firm increases its chances of survival in
a competitive world.
2. Environmental responsibility: addresses the firm’s stewardship of the natural resources used in the
production of services and products.
a. supply chains can be designed to produce a product and then reprocess them at the end of their lives
to yield value in the form of remanufactured products or recycled materials.
b. Supply routes can be planned to reduce the amount of energy consumed in delivering materials or
products to customers.
3. Social responsibility: addresses the moral, ethical, and philanthropic expectations that society has of an
organization.
Reverse Logistics
1. Reverse Logistics: the process of planning, implementing, and controlling the efficient, cost effective flow
of products, materials, and information from the point of consumption
2. Supply Chain Design for Reverse Logistics
a. A supply chain that integrates forward logistics with reverse logistics is called a closed-loop supply
chain
Energy Efficiency
1. Carbon footprint: The total amount of greenhouse gasses produced to support operations, usually expressed
in equivalent tons of carbon dioxide (CO2).
2. Transportation distance
a. Decrease the amount of energy consumed in moving materials or supplying services by reducing
the distance travelled.
b. Locating service facilities or manufacturing plants in close proximity to customer populations
reduces the distance required to supply the service or product.
c. Reduce transportation distances through route planning
3. Transportation mode.
a. The four major modes of transportation
1. air freight
2. trucking
3. shipping by water
4. rail
b. From an energy perspective, air freight and trucking are much less efficient than shipping or rail.
4. Freight density
a. Reducing the volume that a product displaces while staying within the weight limits of the
conveyance, the firm can use fewer trucks, containers, or rail cars to ship the same number of
units.
Quality Management
Seven Tools for Quality Control
To make rational decisions using data obtained on the product, or process, or from the consumer, organizations
use certain graphical tools. These methods help us learn about the characteristics of a process, its operating state
of affairs and the kind of output we may expect from it. Graphical methods are easy to understand and provide
comprehensive information; they are a viable tool for the analysis of product and process data. These tools are
effect on quality improvement. The seven quality control tools are:
1. Pareto charts
2. Check sheets
3. Cause and effect diagram
4. Scatter diagrams
5. Histogram
6. Graphs or flow charts
7. Control charts
Six Sigma Quality
Generally six sigma quality points to very high quality levels that defects are a rarity in operations
It also points to
 A disciplined way of handling issues in operations
 A structured way of addressing quality issues
 A path to a definite destination in the quality management journey in an organization
The moment we talk about quality, the word six sigma comes to our mind- A number of progressive companies
are working hard to build six sigma quality level
 Motorola and GE are supposed to have pioneered this concept of 6 sigma
 Dabbawallahs of Mumbai has baffled the business world with their six sigma quality standard in
their operations involving delivering 200,000 tiffin boxes from home to work place and again
from work place back home every day.
What is six sigma?
 A mechanism to deliver near zero defect in operations using principles of process control. A defect is
an unacceptable state of a product or a service for a customer
 Defect becomes an extraordinarily a rare event
– For example a few defects in a million potential opportunity in a service
– One or two defective parts in a million that was produced in a manufacturing shop
Why high levels of quality?
In older days, It is often uneconomical to make quality improvements since it brings down productivity,
increases cost and investment. But now a days, Productivity goes up and cost comes down as quality goes up.
This fact is known, but not necessarily to everyone. A better quality management will leads to the following
outputs as explained.
Metrics for Quality Management
 If we want defects to really become an extraordinarily a rare event we can think of two measures:
o Manufacturing: Parts per million (PPM) defect rate
o Services: Defects per Million Opportunities (DPMO)
¿
[ Number of ¿ ][ opportunities ¿ ][ for error per ¿ ] ¿
DPMO=Number of defects ¿ ¿¿ ¿¿¿
¿
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 Six sigma uses these two measures.
Six Sigma Program
A six sigma program requires certain enabling mechanisms for an organization
 A structured program for quality management & improvement
 Facilitating mechanisms for the Operations personnel to own, solve and obliterate the quality
problems
 Organization structure and mandate for quality improvement issue on a continuous basis
 Organization uses DMAIC Methodology for six sigma
DMAIC Methodology
• Define
– Define the problem, the requirements, project scope
– Set goals for improvement
• Measure
– Identify variables to be measured, the type of measurement
– Data collection and synthesis
• Analyze
– Develop a set of tools for analysis
– Apply graphical tools of analysis
– Identify possible sources of variation and “vital” few root causes
– Explore means of eliminating them
• Improve
– Generate & validate improvement alternatives
– Creating new process maps for the process
• Control
– Develop control plan
– Establish revised standard measures to maintain performance
– Develop relevant training plans to maintain standards
SPC (Statistical Process Control) / SQC (Statistical Quality Control) – An Introduction
Statistics is at the core of modern quality management
– Helps operationalize some decisions and keep performance and outcome with in limits
– Provides basic framework to systematically analyze the quality problem in various business processes
– A good mechanism to highlight either an existing quality problem or an impending problem

Variations in Business Processes

Two types of variations occur in business processes; Common Causes & Assignable Causes
• Chance variations due to common causes – causes due to random events that cannot be controlled
• Ambient temperature and humidity
• Normal wear and tear
Non-random variations due to assignable causes
– When observed variations are not statistically found to be due to random events, it clearly points to the
existence of assignable causes
• Errors due to operator skill level differences
• Changes in the operating condition of an equipment
• Changes introduced in the standard operating procedure
Statistical Process Control
• Business processes always exhibit variations
– Filling a 500 gms detergent powder in a sachet
– Guest check-out time in a 5 star hotel
• SPC is a collective set of tools & techniques used to develop a quality assurance system that enables one to
make meaningful sense of these variations
Characteristics of Control Charts
A control chart is a time-ordered diagram to monitor a quality characteristic, consisting of:
1. A nominal value, or centre line, the average of several past samples.
2. Two control limits used to judge whether action is required, an upper control limit (UCL) and a lower control
limit (LCL).
3. Data points, each consisting of the average measurement calculated from a sample taken from the process,
ordered overtime. By the Central Limit Theorem, regardless of the distribution of the underlying individual
measurements, the distribution of the sample means will follow a normal distribution. The control limits are set
based on the sampling distribution of the quality measurement.
Issues addressed thru SPC
• Key issues addressed in SPC based quality assurance system:
– How do we know whether the observed changes are due to random variations or assignable causes?
– How does one ensure that the random events are indeed rare events?
• Centre of specification limits (Target)
• Upper Specification Limit (USL)
• Lower Specification Limit (LSL)
• (USL – LSL): Desired tolerance - This represents the “Voice” of the Customer
Customer check-out time in a 5 star Hotel: 90 ± 20 𝑆𝑒𝑐𝑜𝑛𝑑𝑠
– Target = 90 seconds
– USL = 110 seconds
– LSL = 70 Seconds
– Desired tolerance is 70 – 110 Seconds
• At the outset the questions that we need to address are:
– What is the attribute in a process that needs to be measured for the purpose of quality control?
– How should we measure for the purpose of analysis?

Measurement Methods
Attribute Based
 Simple clustering of the characteristic into a few categories (such as good or bad)
• Measurements are easy to make, quick & less expensive
 • Will reveal very little information about the process
Variable Based
 Detailed observation of the characteristic (such as length, diameter, weight, time)
 This is called variable based…
 Measurement will be expensive and more time consuming
 Will provide a wealth of information about the process
Types of Charts
• For attribute based measures we have
– p chart
– C chart
• For variable based measures we have
– X Chart
– R Chart
Using the Control Charts
There are two questions that come to our mind when it comes to using the control charts:
– Is the process of out of control? What are we supposed to do in that case?
– Is there a way we can detect an impending out of control situation much earlier?
Acceptance Sampling
The objective of acceptance sampling is to take decision whether to accept or reject a lot based on sample’s
characteristics. The lot may be incoming raw materials or finished parts. An accurate method to check the
quality of lots is to do 100% inspection. But, 100% inspection will have the following limitations:
 The cost of inspection is high.
 Destructive methods of testing will result in 100% spoilage of the parts.
 Time taken for inspection will be too long.
 When the population is large or infinite, it would be impossible or impracticable to inspect each unit.
Hence, acceptance-sampling procedure has lot of scope in practical application. Acceptance sampling can be
used for attributes as well as variables.
Quality Circles
The quality circles begun in Japan in 1960s. The concept of quality circles is based on the participating style of
management. It assumes that productivity will improve through an uplift of morale and motivations which are
in turn achieved through consultation and discussion in informal groups. One organizational mechanism for
worker participation in quality is the quality circle. According to Juran, quality circle defined as “a group of
work force level people, usually from within one department, who volunteer to meet weekly (on company time)
to address quality problems that occur within their department.” Quality circle members select the problems and
are given training is problem-solving techniques. A quality circle can be an effective productivity improvement
tool because it generates new ideas and implements them. Where the introduction of quality circle is capably
planned and where the company environment is supporting they are highly successful.
TOTAL QUALITY MANAGEMENT (TQM)
Now-a-days, customers demand products/services with greater durability and reliability at the most economic
price. This forces producers to strictly follow quality procedures right from design till shipment and installation
of the products. So that goal of any competitive industry is to provide a product or service at the most
economical costs, ensuring full customer satisfaction. This can be achieved through Total Quality Management
(TQM), because, quality is not a technical function, but a systemic process extending throughout all phases of
the business, e.g., marketing, design, development, engineering, purchasing, production/operations.
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”.
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.
1. 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.
2. 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.
ISO 9000 SERIES
ISO stands for International Organization for Standardization. It is an international body, which consists of
representatives from more than 90 countries. The national standard bodies of these countries are the members of
this organization. Bureau of Indian Standards (BIS) are the Indian representative to ISO, ISO and International
Electro Technical Commission (IEC)) operate jointly as a single system. These are non-governmental
organizations, which exist to provide common standards on international trade of goods and services.
ISO 9000 standards expect firms to have a quality manual that meets ISO guidelines, documents, quality
procedures and job instructions, and verification of compliance by third-party auditors. ISO 9000 series has five
international standards on quality managements. They are:
1. ISO 9000 — Quality management and Quality assurance standards
2. ISO 9001 — Quality systems: Quality in design
3. ISO 9002 — Quality systems: Production and Installation
4. ISO 9003 — Quality systems: Final inspection and test
5. ISO 9004 — Quality management and systems
Benefits of ISO 9000 Series
ISO 9000 series provides several tangible and intangible benefits which are listed below:
1. This gives competitive advantage in the global market.
2. Consistency in quality, since ISO helps in detecting non-conformity early which makes it possible to take
corrective action.
3. Documentation of quality procedures adds clarity to quality system.
4. ISO 9000 ensures adequate and regular quality training for all members of the organization.
5. ISO helps the customers to have cost effective purchase procedure.
6. The customers while making purchases from companies with ISO certificate need not spend much on
inspection and testing. This will reduce the quality cost and lead-time.
7. This will help in increasing productivity.
8. This will aid to improved morale and involvement of workers.
9. The level of job satisfaction would be more.
ISO 14000
The environmental standards of ISO 14000 deal with how a company manages the environment inside its
facilities and the immediate outside environment. However, the standards also call for analysis of the entire life
cycle of a product, from raw material to eventual disposal. These standards do not mandate a particular level of
pollution or performance, but focus on awareness of the processes and procedures that can effect the
environment. It should be noted that adherence to the ISO 14000 standards does not in anyway release a
company from any national or local regulations regarding specific performance issues regarding the
environment.
Some of the standards in the ISO 14000 series are:
_ ISO 14001—Specification of Environmental Management Systems
_ ISO 14004—Guideline Standard
MRP
MRP refers to the basic calculations used to determine components required from end item requirements. It also
refers to a broader information system that uses the dependence relationship to plan and control manufacturing
operations.
“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.”

JUST-IN-TIME (JIT) MANUFACTURING

Just-In-Time (JIT) Manufacturing is a philosophy rather than a technique. By eliminating all waste and seeking
continuous improvement, it aims at creating manufacturing system that is response to the market needs.
The phase just in time is used to because this system operates with low WIP (Work-InProcess) inventory and
often with very low finished goods inventory. Products are assembled just before they are sold, subassemblies
are made just before they are assembled and components are made and fabricated just before subassemblies are
made. This leads to lower WIP and reduced lead times. To achieve this organizations have to be excellent in
other areas e.g. quality. According to Voss, JIT is viewed as a “Production methodology which aims to improve
overall productivity through elimination of waste and which leads to improved quality”. JIT provides an
efficient production in an organization and delivery of only the necessary parts in the right quantity, at the right
time and place while using the minimum facilities”.
Seven Wastes
1. Waste of over production eliminate by reducing set-up times, synchronizing quantities and timing
between processes, layout problems. Make only what is needed now.
2. Waste of waiting eliminate bottlenecks and balance uneven loads by flexible work force and equipment.
3. Waste of transportation establishes layouts and locations to make handling and transport unnecessary if
possible. Minimise transportation and handling if not possible to eliminate.
4. Waste of processing itself question regarding the reasons for existence of the product and then why each
process is necessary.
5. Waste of stocks reducing all other wastes reduces stocks.
6. Waste of motion study for economy and consistency. Economy improves productivity and consistency
improves quality. First improve the motions, then mechanise or automate otherwise. There is danger of
automating the waste.
7. Waste of making defective products develop the production process to prevent defects from being
produced, so as to eliminate inspection. At each process, do not accept defects and makes no defects.
Make the process fail-safe. A quantify process always yield quality product.

Benefits of JIT
The most significant benefit is to improve the responsiveness of the firm to the changes in the market place thus
providing an advantage in competition. Following are the benefits of JIT:
1. Product cost—is greatly reduced due to reduction of manufacturing cycle time, reduction of waste and
inventories and elimination of non-value added operation.
2. Quality—is improved because of continuous quality improvement programmes.
3. Design—Due to fast response to engineering change, alternative designs can be quickly brought on the
shop floor.
4. Productivity improvement.
5. Higher production system flexibility.
6. Administrative and ease and simplicity.

TOTAL PRODUCTIVE MAINTENANCE (TPM)

 Total productive maintenance (TPM) is a maintenance program, which involves a newly defined
concept for maintaining plants and equipment. The goal of the TPM program is to markedly increase
production while, at the same time, increasing employee morale and job satisfaction. It can be
considered as the medical science of machines.
 TPM brings maintenance into focus as a necessary and vitally important part of the business.
 It is no longer regarded as a non-profit activity. Downtime for maintenance is scheduled as a part of the
manufacturing day and, in some cases, as an integral part of the manufacturing process.
 The goal is to hold emergency and unscheduled maintenance to a minimum.
TPM was introduced to achieve the following objectives. The important ones are listed below.
 Avoid wastage in a quickly changing economic environment.
 Producing goods without reducing product quality.
 Reduce cost.
 Produce a low batch quantity at the earliest possible time.
 Goods send to the customers must be non-defective.