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Order Fulfillment – the processes involved in responding to customer orders (involves order
processing, billing, inventory management, warehousing, packing, shipping, and delivery)
Engineer-to-Order (ETO) – products are designed and built according to customer
specifications
o Frequently used for large-scale construction projects, custom homebuilding,
home remodeling, and for products made in job shops
o Fulfillment time can be relatively lengthy because of the nature of the project,
as well as the presence of other jobs ahead of the new one
Make-to-Order (MTO) – a standard product design is used, but product of the
final product is linked to the final customer’s specifications
o Used by aircraft manufacturers
o Fulfillment time is generally less that with ETO fulfillment, but still fairly
long
Assemble-to-Order (ATO) – products are assembled to customer specifications
from a stock of standard and modular components
o Used by computer manufacturers (such as Dell)
o Fulfillment times are fairly short, often a week or less
Make-to-Stock (MTS) – production is based on a forecast and products are sold to
the customer from finished goods stock
o Used in department stores and supermarkets
o Order Fulfillment is immediate
o E-Commerce – the use of electronic technology to facilitate business
transactions
Variation of MTS where there is a lag in fulfillment to allow for
shipping
Transportation
Transportation to and from facilities can represent as much as 25% of the product
cost
Total transportation cost in the US is over 10% of GDP
The importance of transportation has grown with increasing globalization of
supply chains, growth in e-commerce and the associated home-delivery of
products, and rising fuel prices
Modes of Transportation
o Air
o Truck
o Rail
o Water
For global trade, intermodal transportation is dominant with containers shipped
via water/rail/truck combinations
Distribution Strategies
Direct Shipment – items are shipped directly from suppliers to retail stores
Warehousing – Items are stocked in warehouses (distribution centers) and are
shipped to stores as required
Cross-docking – warehouses function as shipping coordination points rather than
inventory storage points and items are transferred between trucks so outbound
trucks to retailers have products from multiple suppliers
Key Decisions
o Choice of transportation modes
o Number and location of warehouses
o Extent to which orders are aggregated over time before shipping
Operations Management 13: Location and Layout Planning
Location Decisions
Can impact capacity and flexibility
Are long-term commitments
Can impact investment requirements, operating costs and revenues, and
operations
Poor location decisions can result in excessive transportation costs, a shortage of
qualified labor, loss of competitive advantage, inadequate supplies of raw
materials
Location Options
Expansion
Add new locations while retaining existing ones
Shut down at one location and move to another
Do nothing
Regional Factors
Location of raw materials
o Necessity
o Perish-ability
o Transportation Costs
Location of markets
o Competitive strategy
o Perish-ability
Cost and availability of labor
Taxes
Climate
Geographic Information System (GIS) – a computer-based tool for collecting,
storing, retrieving, and displaying demographic data on maps
Community Considerations
Taxes and environmental regulations
Enticements
o Tax abatements
o Low cost loans
Attitude toward type of business
Quality of life
o Schools
o Cost of Living
o Recreation
Services
o Fire
o Medical
o Police
Cost and availability of utilities
Microfactory – small factory with a narrow product focus, located near major
markets
Site-Related Factors
Land
o Cost
o Conditions
Room for future expansion
Transportation
o Access roads
o Rail spurs
Zoning Restrictions
Industrial parks – land that is already developed for manufacturing operations
(power, water, sewer hookups have been attended to and zoning restrictions do not
require special attention)
Center of Gravity – method for locating a distribution center that minimizes distribution costs
Can include supplier locations too
Treats distribution cost as a linear function of distance and the quantity shipped
Acceptable variation is that quantities are allowed to change, as long as their
relative amounts remain the same
Uses a map that shows the locations of destinations
x iW i y W
x cg y cg i i
W i W i
o xi = x coordinate of destination i
o yi = y coordinate of destination i
o Wi = weight for destination I (ex. Quantity to be shipped)
Factor Rating – general approach to evaluating locations that includes quantitative and
qualitative inputs
Provides a rational basis for evaluation and facilitates comparison among
alternatives by establishing a composite value for each alternative that
summarizes all related factors
Step 3: Decide on a common scale for all factors and set a minimum acceptable score if
necessary
Step 5: Multiply the factor weight by the score for each factor, and sum the results for each
location alternative
Step 6: Choose the alternative that has the highest composite score, unless it fails to meet the
minimum acceptable score
Process Selection – deciding how to organize the production of goods and services
Key Questions
o How much variety in products or services?
o What is the expected volume?
o What degree of flexibility will be needed?
Process Types
Job Shop – operates on a relatively small scale when a low volume of high-variety
goods or services are needed
o Small jobs with somewhat different processing requirements
o High flexibility using general purpose equipment
o Skilled workers
Batch – for when a moderate volume of goods or services and can handle a
moderate variety in products and services
Repetitive – used when for volume of more standardized goods or services
o Also referred to as assembly
Continuous – used for a very high volume of non discrete, highly standardized
output with almost no variety
Project – a non repetitive set of activities directed towards a unique goal within a
limited time frame
Types of Layouts
Product Layout – layout that uses standardized processing operations to achieve
smooth, rapid, high-volume flow
o Repetitive Processing
o Work is divided into a series of standardized tasks, permitting specialization of
equipment and division of labor
o Achieve a high degree of labor and equipment utilization, which tends to offset
their high equipment cost
o Production Line – standardized layout arranged according to a fixed sequence
of production tasks
o Assembly Line – standardized layout arranged according to a fixed sequence of
assembly tasks
o Preventative Maintenance – periodic inspection and replacement of worn parts
or those with high failure rates to reduce the probability of breakdowns during
operations
o Advantages
High utilization of specialized labor and equipment
Low material handling cost and WIP inventory
Routine scheduling, accounting, and inventory control
Low unit cost
U-Shaped Production Line
o More compact
o Often requires half the length of a straight production line
o Increased communication in work assignments
o Materials enter the plant at the same point that finished products leave it
o Advantages
System can handle a variety of processing requirements
Not particularly vulnerable to equipment failures
General purpose equipment often less costly
Possible to use individual incentive systems
Operations Management 15: Process Analysis & Job Design
Process – a means of converting various inputs (land, labor, capital, information) into
outputs (goods and services)
Process Analysis – involves understanding what the process does, how and why it does it,
how effectively it works, and how it might be improved
Diagnostic process that involves technical analysis, observation, and judgment
Assesses the work or conversion activity performed by some working unit
Task or Operation
Flow
Decision Points
Storages or Queues
Work Order – specifies the number of units to be produced at a time and the
sequence of steps required
o Sometimes a weighted average is used
o The maximum time allowed at each workstation to complete its set of tasks on
a unit
o Establishes the output rate of a line
o Minimum cycle time is equal to the longest task time
o Maximum cycle time is equal to the sum of the task times
Work Flow
Bandwidth – the ability of an operating unit to tolerate wide variances in work
order requirements
o General Purpose equipment
o Flexible layouts
o Volume Surges
Balance – when capacities of different work centers are similar
o Line Balancing – the process of assigning tasks to workstations in such a way
that the workstations have approximately equal time requirements
Minimizes the idle time along the line and results in a high utilization of
labor and equipment
Unbalanced lines are undesirable in terms of inefficient utilization of
labor and equipment and can also cause morale problems at the slower
stations for workers who much work continuously
Factors that prevent a perfectly balanced line
Not feasible to combine certain activities into the same bundle
Differences among elemental task length cannot always be
overcome by grouping tasks
Requires technological sequences
Bottleneck – the work center with the least capacity and longest task time
o Limits system capacity
o Defines the cycle time for the process
Time Standards – the expected amount of time to perform a task, given that the
work center is available for working on that operation, based on some expectation
of worker and machine efficiency
o Work Measurement – a field of study encompassing analytical methods for
studying work to find improvements, maximum efficiency, and good time
estimates for various tasks
Job Shop – uses general purpose equipment and personnel to deal with small
batch sizes,
o Great bandwidth for routing and product diversity
o Long throughput times
o Low machine capacity utilization
o Many storage steps
o High ratio of setup time to run time
o Random bottlenecking at different work centers
Flow Shop – an operating unit where the process is turned on at some point and
runs continuously
o Neither individual units nor batches are produced
o Highly specialized equipment
o Relatively small groups of products
o Work centers are dominated by machines rather than people
o Throughput times are very short
o WIP inventory levels are low
o Virtually no setups done
Measuring Performance
Yield – percent of good items
Input Quantity
o Yield =
Output Quantity
Scrap Rate – percent of bad items
o Scrap Rate = 1 - Yield
Precedence Diagram – a diagram that shows elemental tasks and their precedence
requirements
Visually portrays the tasks that are to be performed along with the sequential
requirements
Job Design – the act of specifying the contents and methods of jobs
What will be done (tasks)
Who will do what (division of labor)
How the job will be done
o Ergonomics – incorporation of human factors in the design of the workplace
The scientific discipline concerned with the understanding of
interactions among human s and other elements of a system, and the
profession that applies theory, principles, data and methods to design
in order to optimize human well-being and overall system performance
o Technology
o Principals of Motion Economy
Where the job will be done (layout)
Two Philosophies
o Efficiency – emphasizes a systematic, logical approach to job design
o Behavioral – emphasizes satisfaction of wants and needs
Behavioral Approach
Job Enlargement – giving a worker a larger portion of the total task, by horizontal
loading
o Horizontal Loading – the additional work is on the same level of skill and
responsibly as the original job
o Goal is to make the job more interesting by increasing the variety of skills
required and by providing the worker with a more recognizable contribution to
the overall output
Job Rotation – having workers periodically exchange jobs
o Used to avoid having one or a few employees stuck in monotonous jobs
o Allows workers to broaden their learning experience and enables them to fill in
for others in the event of sickness or absenteeism
Job Enrichment – increasing responsibility for planning and coordination of tasks,
by vertical loading
o Focuses on the motivating potential of worker satisfaction
Lean operations – uses job enlargement and job enrichment, where workers are
cross-trained to be able to perform a wider variety of tasks and given more
authority to manage their jobs
Self-Direct Teams – groups empowered to make certain changes in their work processes
Designed to achieve a higher level of teamwork and employee involvement
Benefits
o Fewer Managers
o Quicker implementation
o Higher Quality
o Greater work satisfaction
Challenges
o Managers threatened
o Conflicts between team members
o When should supervisor intervene?
Motion Study – systematic study of the human motions used to perform an operation
Purpose is to eliminate unnecessary motions and to identify the best sequence of
motions for maximum efficiency
Techniques
o Motion Study Principles – guidelines for designing motion-efficient work
procedures divided into three categories
Principles for use of the body
Principles for arrangement of the workplace
Principles for the design of tools and equipment
o Therbligs – basic elemental motions that make up a job
Improvements are made based on an analysis of therbligs by
eliminating, combining, or rearranging them
Search
Select
Grasp
Hold
Inspect
Etc.
o Micromotion Study – the use of motion pictures and slow motion to study
motions that otherwise would be too rapid to analyze
o Simo Chart – used to study simultaneous motions of the hands; invaluable in
studying operations such as data entry, sewing, surgical procedures, etc.
Operations Management 16: Aggregate Planning
Sales and Operations Planning – intermediate-range decisions to balance supply and demand,
integrating financial and operations planning
Choosing a Strategy
Company policy
Flexibility
Costs
Informal Trial-and-Error
o Consists of developing simple tables or graphs that enable planners to visually
compare projected demand requirements with existing capacity
o Alternatives are usually evaluated based on overall costs
o Does not necessarily result in the optimal aggregate plan
Linear Programming – technique that optimizes the results by maximizing or
minimizing a function such as profit or cost subject to additional constraints on
the resources used
o Decision Variables – represent the choices available to the decision maker
# Of full time employees in each period
# Of full time employees hired
# Of full time employees fired
Full time output in each period
Overtime output in each period
Part time output in each period
Ending inventory in each period
Backorders in each period
o Objective function – a mathematical expression that can be used to determine
performance
Full time cost per unit x Full time output
Part time cost per unit x Part time output
Overtime cost per unit x Overtime output
Hire cost per employee x # of full time employees hired
Fire cost per employee x # of employees fired
Inventory carrying cost per unit x Average inventory units
Backorder cost per unit x # of backorders
o Constraints – the limitations that restrict the alternatives available to the
decision maker
Inventory Balance equations: Current Inventory – Current Backorder
= Previous Inventory – Previous Backorders + Current total
production output – Current demand
Employee Balance Equations: Current Full time Employees = Previous
Full time Employees + Current # hired – Current # fired
Regular Capacity Constraints: Current full time output ≤ output per
full time employee x # of full time employees
Overtime Capacity Constraints: Current Overtime output ≤ maximum
use of overtime (%) x Output per full time employee x # of Full time
employees
Full Time Worker Constraints: Current full time output ≥ Minimum
utilization of full time employees (%) x Output per full time employee
x # of full time employees
Safety Stock Constraints: Current Ending Inventory ≥ Safety Stock
Target (units)
End of Year Inventory Constraint: Ending inventory in final period ≥
Year-end target (units)
o Linearity – optimization problems can only be formulated as linear programs
when the objective function and all constraints are linear functions of the
decision variables
o Divisibility – the decision variables can take on fractional values and are not
restricted to integer values
o Certainty – the values of all parameters such as costs and demands are known
and not random
Inputs of MRP
Master schedule – states which end items are to be produced, when these are
needed, and in what quantities
o Cumulative Lead Time – the sum of the lead times that sequential phases of a
process require, from ordering of parts or raw materials to completion of final
assembly
Bill of Materials – a listing of all the raw materials, parts, subassemblies, and
assemblies needed to produce one unit of a product
o Product structure tree – a visual depiction of the requirements in a bill of
materials, where all components are listed by levels
o Low-level Coding – restructuring the bill of materials so that multiple
occurrences of a component all coincide with the lowest level at which the
component occurs
Inventory records – stored information on the status of each item by period of
time
o Gross requirements – total expected demand for an item or raw material in a
time period
o Scheduled receipts – open orders scheduled to arrive from vendors or elsewhere
in the pipeline
o Projected On Hand – expected amount of inventory that will be on hand at
the beginning of each time period
o Net requirements – the actual amount needed in each period
o Planned-order Receipts – quantity expected to be received by the beginning of
the period in which it is shown
o Planned-order releases – planned amount to order in each time period; offset
by lead time
o Information about raw materials and suppliers
o Changes due to stock receipts and withdrawals, canceled orders, etc.
MRP Processing
Takes the end item requirements specified by the master schedule and “explodes”
them into time-phased requirements for assemblies, parts, and raw materials using
the bill of materials offset by lead times
Pegging – the process of identifying the parent items that have generated a given
set of material requirements for an item
o Enables managers to determine which products will be affected if orders are
late due to late deliveries, quality problems, or other problems
Updating the System
o Regenerative System – approach that updates MRP records periodically
Batch-type system
Compiles all changes that occur within the time interval and
periodically updates the system
Less expensive
o Net-change System – approach that updates MRP records continuously
Modify to reflect changes as they occur
Only the changes are exploded through the system, level by level so the
entire plan does not need to be regenerated
Outputs of MRP
Planned-order – a schedule indicating the amount and timing of future orders
Order releases – authorization for the execution of planned orders
Changes – revisions of due dates or order quantities, or cancellation of orders
Performance-control reports – evaluation of system operation, including
deviations from plans and cost information
Planning reports – data useful for assessing future material requirements
Exception reports – data on any major discrepancies encountered
Inventory Transaction
Safety Stock
Identify activities or operations that are subject to variability and determine the
extent of that variability
Lot sizing – choosing a lot size for ordering or production
o Managers can realize economies by grouping orders
o Combining period demands into a single order has a cascading effect down
through the product tree so lower levels in the tree need to be considered as
well as their setup and holding costs
o Uneven period demand and the relatively short planning horizon require a
continua recalculation and updating of lot sizes
o Lot-for-lot ordering – the order or run size for each period is set equal to
demand for that period, minimizing investment in inventory
o Economic Order Quantity Model – minimizes cost if usage is fairly uniform;
less useful for end items than for items and materials at lower levels
o Fixed-Period Ordering – provides coverage for some predetermined number of
periods
Sustainability
Life Cycle Assessment (LCA) – the assessment of the environmental impact of a
product or service throughout its useful life
Reduce
o Value Analysis – examination of the function of parts and materials in an
effort to reduce cost and/or improve product performance
Reuse
o Remanufacturing – refurbishing used products by replacing worn-out or
defective components
o Design for Disassembly (DFD) – design so that used products can easily be
taken apart
Recycle
o Recycling – recovering materials for future use (cost savings, environmental
concerns, environmental regulations
o Design for Recycling (DFR) – Design that facilitates the recovery of materials
and components in used products for reuse
Environmentally Friendly Production
o Efficient use of resources
o Reduction of waste by-products
o Control of emissions
Automation – machinery that has sensing and control devices that enables it to operate
automatically
Quality Certification
ISO 9000 – a set of international standards on quality management and quality
assurance, critical to international business
o System requirements
o Management requirements
o Resource requirements
o Realization of requirements
o Remedial requirements
ISO 14000 – a set of international standards for assessing a company’s
environmental performance
o Management systems – systems development and integration of environmental
responsibilities into business planning
o Operations – consumption of natural resources and energy
o Environmental Systems – measuring, assessing, and managing emissions,
effluents, and other waste streams
ISO 24700 – a set of international standards that pertain to the quality and
performance of office equipment that contains reused components