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Industrial Organization & Management

CH-407
Final Year Chemical Engineering
Department of Chemical Engineering

Lecture No. 1 Introduction


Dr. Zahoor Ul Hussain Awan
Industrial Organization & Management
Course Contents
 Introduction and History
 Company and Organization
 Facility Location and Layout Planning
 Operation Planning and Control
 Marketing and Distribution
 Total Quality Management
 Project Management
 Maintenance Management
 Financial Management
 Human Resources
 Other Topics and Recent Trends in Management
Text Book(s):
• “Operations Management” (8th Edition), Jay Heizer,
Barry Render
• “A Guide to the Project Management Body of
Knowledge” (PMBOK Guide), 4th Edition,
Project Management Institute (PMI)

Reference Books:
• “Head First PMP: A Brain-Friendly Guide to Passing the
Project Management Professional Exam”,
Jennifer Greene, Andrew Stellman, O'Reilly Media, Inc.
• “Operations Management”, S. Anil Kumar, Kumar S.
Anil, Suresh N., N. Suresh
• “Project Management: A Systems Approach to Planning,
Scheduling, and Controlling”, Harold Kerzner
Industrial Organization & Management
Introduction
Organization

Distinct
Purpose

Deliberate
People
Structure
Industrial Organization & Management
Introduction
Organization:
An organization is a deliberate arrangement of
people to accomplish some specific purpose.
 College
 Universities
 Hospitals
 CNG Stations
Industrial Organization & Management
Introduction

All organization three common characteristics


Distinct Purpose : Goal or set of goals that
organization hopes to accomplish.
Organization is composed of people….one
person working alone is not an organization.
Deliberate Structure: All organizations develop
some deliberate structure so that their
members can do their work. Structure may be
more traditional with clearly and careful
defined rules, regulations and job descriptions
Industrial Organization & Management
Introduction
Management

Management is the process of reaching organizational goals by working with and


through people and other organizational resources.

Management has the following 3 characteristics:

 It is a process or series of continuing and related activities.


 It involves and concentrates on reaching organizational goals.
 It reaches these goals by working with and through people and other
organizational resources.
Industrial Organization & Management
Introduction

Management Functions
The basic management functions that make up the management process are
described in the following sections:
 Planning
 Organizing
 Staffing
 Leading
 Controlling
Industrial Organization & Management
Introduction

Planning Organizing Leading Controlling

 Defining Goals  Determining what needs  Directing and  Monitoring activities to


 Establishing strategy to be done motivating all involved ensure that they are
 Developing subplans  How it will be done parties and resolving accomplished as
to coordinate activities  Who is to do it. conflicts planned.
Industrial Organization & Management
Introduction
Manager
A manager is an organizational member who integrates and
coordinates the work of others.
 That may mean direct responsibility of a group of people
in one department OR supervising a single person.
 It could also involve coordinating the work activities of a
team composed of people from several department.
Industrial Organization & Management
Introduction

Top
Managers
First-line
managers /
Middle Managers

Non managerial employees


Industrial Organization & Management
Introduction
First line Manager
Lowest level of management and are often
called supervisors/Foreman.
Middle line Manager
It includes all level of management between the
supervisory level and the top level of
organization.
Project leader, Plant Manager, Unit Manager,
and Division Manager
Industrial Organization & Management
Introduction

Top Manager
Responsible for making organization-wide
decisions and establishing policies and strategies
that affect the organization.
Vice Presidents, President, managing director,
Chief Operating officers, Chief Executive Officer
(CEO)
Industrial Organization & Management
Introduction
Skills needed at different management levels

Lower Level • Technical Skills


Management

Middle • Interpersonal Skills


Management

Top • Conceptual Skills


Management
Industrial Organization & Management
Leader v/s Manager
Industrial Organization & Management
Leader v/s Manager
LEADER MANAGER
Leader innovator Manager administrates
A person who leads is someone who is full of new the manager is someone who is already established
ideas and believes in experimenting and creating and is responsible for every organizational activity
new things from top to bottom. He is the main control of the
firm
A leader has to be someone who can be the they are responsible for maintaining law and order.
inspiration for others, on whom the team can show
its trust and confidence. He has to be the one who
can appropriately set the tempo and pace of his
group.
A leader asks questions about what and why a manager questions in how and when
If anything goes wrong or if it is not done up to the a manager is the one who will ask for the reasons as
expectation of the company then it will be the his job is to keep his vision on the company’s goals
leader who will ask the question in what and why as and objectives
he has to answer the higher authorities.
Leader ensures that the right things are being done Manager ensures that things are done right

Leader empowers Manager ensures that rules are followed


Industrial Organization & Management
Leader v/s Manager
LEADER MANAGER
Leaders give solutions managers create strategies
A leader will simply look at the problems and Manager will create policies and teams for
will devise new solutions to bring out the better smooth functioning of the organization.
by motivating his co-workers

Leaders make followers managers look for subordinates


The working of the leader reflects from the Manager is the one who has subordinates, formal
number of true followers he has. This shows his authority and the position
way of working and the level of trust his team
has on him.
Leader take responsibility Manager take credit
Chapter No. 1
FACILITY LOCATION AND LAYOUT

Facilities:
• Fixed assets like building structures and inanimate resource
that support the operations of given activity.
• Facility put together with human and/or with material, energy
results in activity.

New Facilities = why??


Location of New Facility = Where?

Example:
• (Production Facility)
• Health care, Education, Food, Commercial/Residential.
Chapter No. 1
FACILITY LOCATION AND LAYOUT
• Reason for New Facility??

Facility Design Projects:


• New Facility: Fewer Restrictions and constraint on the layout since it is new.
• New Product: Integration of new product into existing process and layout.
• Design Changes: Incorporate the impact of design changes into manufacturing
process.
• Cost Reduction: Redesign the existing layout of facilities cost reduction program
and layout.
• Retrofit: Similar to the new facility layout except with the constraint present.
Factors that affect location decision
• Market Economics,
• Better International
Communication,
• More rapid, reliable travel
• and shipping.
• Ease of capital flow between
countries
Chapter No. 1
FACILITY LOCATION AND LAYOUT
The Strategic Importance of Location
• Plant location or the facilities location problem is an important strategic
level decision making for an organization.
• One of the key features of a conversion process (manufacturing system) is
the efficiency with which the products (services) are transferred to the
customers.
• This fact will include the determination of where to place the plant or facility.
• The selection of location is a key-decision as large investment is made in
building plant and machinery.
• The plant location should be based on the company’s expansion plan and
policy, diversification plan for the products, changing market conditions, the
changing sources of raw materials and many other.
• The purpose of the location study is to find an optimum location one that
will result in the greatest advantage to the organization.
• Location has a major impact on the overall risk and profit of the company.
• For Instance, depending upon the product and type of production service
taking place, transportation costs alone can total as much as 25% of the
product’s selling price.
Chapter No. 1
FACILITY LOCATION AND LAYOUT
The Strategic Importance of Location
• That is one-fourth of a firm’s total revenue may be needed just to cover freight
expenses of the raw materials coming in and finished product going out.
• Other cost may that may be influenced by location include taxes, raw material costs,
and rents.
• Companies make Location Decision relatively because,
 Demand has out-grown the current plant’s capacity.
 Change in labor productivity.
 Exchange rates.
 Costs
 Local attitudes.
• Company may also relocate their manufacturing service facilities because of shifts in
demographics and customer demand.
• Location options includes,
 Expanding an existing facility instead of moving.
 Maintaining current sites while adding another facility elsewhere
 Closing the existing facility and moving to another location.

The objective of location strategy is to maximize the benefits of location to the firm.
Chapter No. 1
FACILITY LOCATION AND LAYOUT
Factors Influencing Plant Location/Facility Location
• Facility location is the process of determining a geographic site for a firm’s operations.
• Managers of both service and manufacturing organizations must weigh many factors when
assessing the desirability of a particular site, including proximity to customers and suppliers,
labor costs, and transportation costs.
• Location conditions are hard to measure.
• It is appropriate to divide the factors, which influence the plant location or facility location on
the basis of the nature of the organization as:

• General locational factors: It includes controllable and uncontrollable factors for


all type of organizations.
• Specific locational factors: specifically required for manufacturing and service
organizations.
1. General Locational Factors:
CONTROLLABLE FACTORS
1. Proximity to markets
2. Supply of materials
3. Transportation facilities
4. Infrastructure availability
5. Labor and wages
6. External economies
7. Capital.
Chapter No. 1
FACILITY LOCATION AND LAYOUT

• UNCONTROLLABLE FACTORS
8. Government policy
9. Climate conditions
10. Supporting industries and services
11. Community and labor attitudes
12. Community Infrastructure.
Chapter No. 1
FACILITY LOCATION AND LAYOUT
LOCATION MODELS
Various models are available which help to identify the ideal location. Some of the popular
models are:
1. Factor rating method
2. Weighted factor rating method
3. Load-distance method
4. Centre of gravity method
5. Break-even analysis.

Factor Rating Method


The process of selecting a new facility location involves a series of following steps:
1. Identify the important location factors.
2. Rate each factor according to its relative importance, i.e., higher the ratings is
indicative of prominent factor.
3. Assign each location according to the merits of the location for each factor.
4. Calculate the rating for each location by multiplying factor assigned to each location
with basic factors considered.
5. Find the sum of product calculated for each factor and select best location having
highest total score.
LOCATION MODELS
1. Factor Rating Method
Problem 1: Assume that a new medical facility, Health-care, is to be located in Montreal. The
location factors, factor rating and scores for two potential sites are shown in the following
table. Which is the best location based on factor rating method?
LOCATION MODELS
2. Weighted Factor Rating Method
In this method to merge quantitative and qualitative factors, factors are assigned weights
based on relative importance and weightage score for each site using a preference matrix is
calculated. The site with the highest weighted score is selected as the best choice.
Problem 2: Let us assume that a new medical facility, Health-care, is to be located in
Montreal. The location factors, weights, and scores (1 = poor, 5 = excellent) for two potential
sites are shown in the following table. What is the weighted score for these sites? Which is
the best location?
LOCATION MODELS
3. Load-Distance Method
To calculate a load-distance for any potential location, we use either of the distance
measures and simply multiply the loads flowing to and from the facility by the distances
travelled. These loads may be expressed as tones or number of trips per week.
Problem 3: The new Health-care facility is targeted to serve seven census tracts in Delhi.
The table given below shows the coordinates for the centre of each census tract, along with
the projected populations, measured in thousands. Customers will travel from the seven
census tract centres to the new facility when they need health-care. Two locations being
considered for the new facility are at (5.5, 4.5) and (7, 2), which are the centres of census
tracts C and F. Details of seven census tract centres, co-ordinate distances along with the
population for each centre are given below. If we use the population as the loads and use
rectilinear distance, which location is better in terms of its total load-distance score?
LOCATION MODELS
4. Centre of Gravity Method
Centre of gravity is based primarily on cost considerations.
The centre of gravity is defined to be the location that minimizes the weighted distance
between the warehouse and its supply and distribution points, where the distance is
weighted by the number of tones supplied or consumed.
The first step in this procedure is to place the locations on a coordinate system.
The origin of the coordinate system and scale used are arbitrary, just as long as the relative
distances are correctly represented.
This can be easily done by placing a grid over an ordinary map. The centre of gravity is
determined by the formula.
Example:
LOCATION MODELS
4. Centre of Gravity Method
Problem 4: The new Health-care facility is targeted to serve seven census tracts in Delhi.
The table given below shows the coordinates for the centre of each census tract, along with
the projected populations, measured in thousands. Customers will travel from the seven
census tract centres to the new facility when they need health-care. Two locations being
considered for the new facility are at (5.5, 4.5) and (7, 2), which are the centres of census
tracts C and F. Details of seven census tract centres, coordinate distances along with the
population for each centre are given below. Find the target area’s centre of gravity for the
Health-care medical facility.
Example:
Problem
:
LOCATION MODELS
5. Break-Even Analysis.
Break even analysis implies that at some point in the operations, total revenue equals total
cost. Break even analysis is concerned with finding the point at which revenues and costs
agree exactly. It is called ‘Break-even Point’.

Problem 5: Potential locations X, Y and Z have the cost structures shown below. The ABC
company has a demand of 1,30,000 units of a new product. Three potential locations X, Y
and Z having following cost structures shown are available. Select which location is to be
selected and also identify the volume ranges where each location is suited?
LOCATION MODELS
5. Break-Even Analysis.

Example:
Example:
Solution:
Problem:
Problem:
PLANT LAYOUT
• Plant layout refers to the physical arrangement of production facilities.
• It is the configuration of departments, work centres and equipment in the
conversion process.
• It is a floor plan of the physical facilities, which are used in production.
• “Plant layout is a plan of an optimum arrangement of facilities including
personnel, operating equipment, storage space, material handling equipment
and all other supporting services along with the design of best structure to
contain all these facilities”. “Moore”

Objectives of Plant Layout


The objectives of plant layout are:
1. Streamline the flow of materials through the plant.
2. Facilitate the manufacturing process.
3. Maintain high turnover of in-process inventory.
4. Minimise materials handling and cost.
5. Effective utilisation of men, equipment and space.
6. Make effective utilisation of cubic space.
PLANT LAYOUT
Objectives of Plant Layout
7. Flexibility of manufacturing operations and arrangements.
8. Provide for employee convenience, safety and comfort.
9. Minimize investment in equipment.
10. Minimize overall production time.
11. Maintain flexibility of arrangement and operation.
12. Facilitate the organizational structure
PLANT LAYOUT
In all cases, layout design must consider how to achieve
the following
 Higher utilization of space, equipment, and people.
 Improved flow of information, materials or people.
 Improved employee morale and safer working conditions.
 Improved customer/client interaction.
 Flexibility (whatever the layout is now, it will need to change).
 Principle of safety, security and satisfaction.
 Principle of minimum handling.
Outline
► Global Company Profile:
McDonald’s
► Types of Layout
► Office Layout
► Retail Layout
► Warehousing and Storage Layouts
Outline - Continued

► Fixed-Position Layout
► Process-Oriented Layout
► Repetitive and Product-
Oriented Layout
Innovations at McDonald’s

► Indoor seating (1950s)


► Drive-through window (1970s)
► Adding breakfast to the menu (1980s)
► Adding play areas (late 1980s)
► Redesign of the kitchens (1990s)
► Self-service kiosk (2004)
► Now three separate dining sections
Innovations at McDonald’s

► Indoor seating (1950s)


► Drive-through window (1970s)
► Adding breakfast to the menu (1980s)
► Adding play areas (late 1980s)
► Redesign of the kitchens (1990s)
► Self-service kiosk (2004)
► Now three separate dining sections
McDonald’s New Layout
▶ Seventh major innovation
▶ Redesigning all 30,000 outlets around the
world
▶ Three separate dining areas
▶ Linger zone with comfortable chairs and Wi-Fi
connections
▶ Grab and go zone with tall counters
▶ Flexible zone for kids and families
▶ Facility layout is a source of competitive
advantage
Strategic Importance of Layout
Decisions

The objective of layout strategy


is to develop an effective and
efficient layout that will meet the
firm’s competitive requirements
Layout Design Considerations
► Higher utilization of space, equipment, and
people
► Improved flow of information, materials, or
people
► Improved employee morale and safer
working conditions
► Improved customer/client interaction
Types of Layout
1. Office layout
2. Retail layout
3. Warehouse layout
4. Fixed-position layout
5. Process-oriented layout
6. Product-oriented layout
Types of Layout
1. Office layout: Positions workers, their
equipment, and spaces/offices to
provide for movement of information
2. Retail layout: Allocates shelf space
and responds to customer behavior
3. Warehouse layout: Addresses trade-
offs between space and material
handling
Types of Layout

4. Fixed-position layout: Addresses the


layout requirements of large, bulky
projects such as ships and buildings
5. Process-oriented layout: Deals with
low-volume, high-variety production
(also called job shop production)
Types of Layout

6. Product-oriented layout: Seeks the


best personnel and machine
utilizations in repetitive or continuous
production
Good Layouts Consider
► Material handling equipment
► Capacity and space requirements
► Environment and aesthetics
► Flows of information
► Cost of moving between various work
areas
Office Layout
► physical and social aspects
► Proximity
► Privacy

► Two major trends


► Information technology
► Dynamic needs for space and services
Supermarket Retail Layout

▶ Objective is to maximize profitability


per square foot of floor space
▶ Sales and profitability vary directly
with customer exposure
Warehousing and Storage Layouts

▶ Objective is to optimize trade-offs


between handling costs and costs
associated with warehouse space
▶ Maximize the total “cube” of the
warehouse – utilize its full volume
while maintaining low material
handling costs
Cross-Docking
▶ Materials are moved directly from receiving to
shipping and are not placed in storage in the
warehouse
Warehousing and Storage Layouts

Material Handling Costs


► All costs associated with the transaction
► Incoming transport
► Storage
► Finding and moving material
► Outgoing transport
► Equipment, people, material, supervision,
insurance, depreciation
► Minimize damage and spoilage
PLANT LAYOUT

Good layout requires determining the following


Material handling equipment: Managers must decide about
equipment to be used, including conveyors, cranes and
automatic carts to deliver and store material.
Capacity and space requirements: Only when personnel,
machines, equipment requirements are known, can managers
proceed with layout provide space for each component. In case
of office work, operations managers must make judgments
about the space requirements for each employee. It may be 6 x
6 cubicle plus allowance for rest rooms, cafeterias, stairways,
elevators, or it may be spacious executive offices and
conference rooms. Managers must also consider allowances for
safety requirement that address noise, dust, fumes,
temperature, and space around equipment and machines.
Process-Oriented Layout
▶ Like machines and equipment are
grouped together
▶ Flexible and capable of handling a
wide variety of products or services
Process-Oriented Layout
Surgery ER triage room Emergency room admissions
Patient A - broken leg

Patient B - erratic heart


pacemaker

Laboratories

Radiology ER Beds Pharmacy Billing/exit

Figure 9.3
Process-Oriented Layout
▶ Arrange work centers so as to minimize
the costs of material handling
▶ Basic cost elements are
▶ Number of loads (or people) moving
between centers
▶ Distance loads (or people) move between
centers
Process-Oriented Layout
n n
Minimize cost = åå X ijCij
i=1 j=1

where n = total number of work centers or departments


i, j = individual departments
Xij = number of loads moved from
department i to department j
Cij = cost to move a load between
department i and department j
Process Layout Example
Arrange six departments in a factory to
minimize the material handling costs. Each
department is 20 x 20 feet and the building
is 60 feet long and 40 feet wide.
1. Construct a “from-to matrix”
2. Determine the space requirements
3. Develop an initial schematic diagram
4. Determine the cost of this layout
5. Try to improve the layout
6. Prepare a detailed plan
Process Layout Example

Number of loads per week


Department Assembly Painting Machine Receiving Shipping Testing
(1) (2) Shop (3) (4) (5) (6)

Assembly (1) 50 100 0 0 20

Painting (2) 30 50 10 0

Machine Shop (3) 20 0 100

Receiving (4) 50 0

Shipping (5) 0

Testing (6)
Process Layout Example
Area A Area B Area C

Assembly Painting Machine Shop


Department Department Department
(1) (2) (3)

40’

Receiving Shipping Testing


Department Department Department
(4) (5) (6)

Area D Area E Area F


60’
Process Layout Example
Interdepartmental Flow Graph
100

Assembly 50 Painting 30 Machine


(1) (2) Shop (3)

10
100

Receiving Shipping Testing


(4) (5) (6)
50
Process Layout Example
n n
Cost = åå X ijCij
i=1 j=1

Cost = $50 + $200 + $40


(1 and 2) (1 and 3) (1 and 6)
+ $30 + $50 + $10
(2 and 3) (2 and 4) (2 and 5)
+ $40 + $100 + $50
(3 and 4) (3 and 6) (4 and 5)
= $570
Process Layout Example
Area A Area B Area C

Painting Assembly Machine Shop


Department Department Department
(2) (1) (3)

40’

Receiving Shipping Testing


Department Department Department
(4) (5) (6)

Area D Area E Area F


60’
Process Layout Example
Revised Interdepartmental Flow Graph
30

Painting 50 Assembly 100 Machine


(2) (1) Shop (3)

50 100

Receiving Shipping Testing


(4) (5) (6)
50
Process Layout Example
n n
Cost = åå X ijCij
i=1 j=1

Cost = $50 + $100 + $20


(1 and 2) (1 and 3) (1 and 6)
+ $60 + $50 + $10
(2 and 3) (2 and 4) (2 and 5)
+ $40 + $100 + $50
(3 and 4) (3 and 6) (4 and 5)
= $480
Repetitive and Product-
Oriented Layout
Organized around products or families of
similar high-volume, low-variety products
1. Volume is adequate for high equipment utilization
2. Product demand is stable enough to justify high
investment in specialized equipment
3. Product is standardized or approaching a phase of
life cycle that justifies investment
4. Supplies of raw materials and components are
adequate and of uniform quality
Product-Oriented Layouts
Advantages
1. Low variable cost per unit
2. Low material handling costs
3. Reduced work-in-process inventories
4. Easier training and supervision
5. Rapid throughput
Disadvantages
1. High volume is required
2. Work stoppage at any point ties up the whole
operation
3. Lack of flexibility in product or production rates
McDonald’s Assembly Line

Figure 9.11
Fixed-Position Layout
▶ Product remains in one place
▶ Workers and equipment come to site
▶ Complicating factors
▶ Limited space at site
▶ Different materials
required at different
stages of the project
▶ Volume of materials
needed is dynamic
PLANT LAYOUT

5. SERVICE LAYOUT

Layout for Hospitality Service


Industrial Organization & Management
CH-407
Final Year Chemical Engineering
Department of Chemical Engineering

Project Management
Industrial Organization & Management
Project Management
What is a Project?
• A project is a temporary endeavour undertaken to create a unique product,
service, or result.
• The temporary nature of projects indicates a definite beginning and end.
• The end is reached when the project’s objectives have been achieved or when
the project is terminated because its objectives will not or cannot be met, or
when the need for the project no longer exists.
• Temporary does not necessarily mean short in duration.
• Temporary does not generally apply to the product, service, or result created by
the project; most projects are undertaken to create a lasting outcome.
• For example, a project to build a national monument will create a result
expected to last centuries.
• Projects can also have social, economic, and environmental impacts that far
outlast the projects themselves.
Industrial Organization & Management
Project Management
What is a Project?
• Every project creates a unique product, service, or result. Although repetitive
elements may be present in some project deliverables, this repetition does not
change the fundamental uniqueness of the project work.
• For example, office buildings are constructed with the same or similar materials
or by the same team, but each location is unique—with a different design,
different circumstances, different contractors, and so on.
 A project can create:
• A product that can be either a component of another item or an end item in
itself,
• A capability to perform a service (e.g., a business function that supports
production or distribution), or
• A result such as an outcome or document (e.g., a research project that develops
knowledge that can be used to determine whether a trend is present or a new
process will benefit society).
Industrial Organization & Management
Project Management
 Examples of projects include, but are not limited to:
• Developing a new product or service,
• Effecting a change in the structure, staffing, or style of an organization,
• Developing or acquiring a new or modified information system,
• Constructing a building or infrastructure, or
• Implementing a new business process or procedure.

 A Project can be considered to be any series of activities and tasks that:


• Have a specific objective to be completed within certain specifications
• Have defined start and end dates
• Have funding limits (if applicable)
• Consume resources (i.e., money, people, equipment)
Industrial Organization & Management
Project Management
 Characteristics of Project:
• Include start and end time.
• Creates something new or fixes/improving something that already exists.
• Proposes changes and supports temporary
• Performed by people and teams
• Constrained by resources
• Planned, Executed, Controlled.

 What Project is NOT?


• Day-to-day work
• Routine Activities
• Repetitive Tasks
• On-going Work
Industrial Organization & Management
Project Management
 Characteristics of Project:
• Include start and end time.
• Creates something new or fixes/improving something that already exists.
• Proposes changes and supports temporary
• Performed by people and teams
• Constrained by resources
• Planned, Executed, Controlled.

 What Project is NOT?


• Day-to-day work
• Routine Activities
• Repetitive Tasks
• On-going Work
Industrial Organization & Management
Project Management
 Definition of a Program
• A collection of related projects, services and resources with related goals,
vision and objective.

 Characteristics of a program
• Ongoing.
• Provides structure for project.
• Multiple projects, services and resources.
• A program can include a number of projects.
• Ex: A Construction Program might includes projects to develop new housing
and other projects to renovate existing homes.
Industrial Organization & Management
Project Management
Program management focuses on the project interdependencies and helps to
determine the optimal approach for managing them. Actions related to these
interdependencies may include:
• Resolving resource constraints and/or conflicts that affect multiple projects
within the program,
• Aligning organizational/strategic direction that affects project and program goals
and objectives, and
• Resolving issues and change management within a shared governance structure.

An example of a program is

A new communications satellite system with projects for design of the satellite and
the ground stations, the construction of each, the integration of the system, and the
launch of the satellite.
Industrial Organization & Management
Project Management

 What is Project Management?


• Project management is the application of knowledge, skills, tools, and
techniques to project activities to meet the project requirements. Project
management processes comprising the 5 Process Groups. These 5 Process
Groups are:
• Initiating,
• Planning,
• Executing,
• Monitoring and Controlling, and
• Closing.
Industrial Organization & Management
Project Management

 Managing a project typically includes:


• Identifying requirements,
• Addressing the various needs, concerns, and expectations of the stakeholders
as the project is planned and carried out,
• Balancing the competing project constraints including, but not limited to:
• Scope,
• Quality,
• Schedule,
• Budget,
• Resources, and
• Risk.
Industrial Organization & Management
Project Management
The relationship among these factors is such that if any one factor changes, at
least one other factor is likely to be affected.
For example, if the schedule is shortened
often the budget needs to be increased to add additional resources to complete the
same amount of work in less time

If a budget increase is not possible, the scope or targeted quality may be reduced to
deliver the project’s end result in less time within the same budget amount.

Project stakeholders may have differing ideas as to which factors are the most
important, creating an even greater challenge.

Changing the project requirements or objectives may create additional risks


Industrial Organization & Management
Project Management

 Successful Project Management:


• Delivery of What’s Expected:
• On Time
• Within Budget
• With Quality
• With Productive Relationship
• At the desired performance/technology level
• While utilizing the assigned resources effectively and efficiently
• With acceptance by the customer or user
• When you can use the customer’s name as reference
Task No. 01: Process or Project?
Industrial Organization & Management
Project Management
Industrial Organization & Management
Project Management

 OBSTACLES IN PROJECT MANAGEMENT


• Project Complexity
• Customer’s special requirements
• Organizational Restructuring
• Project Risks
• Changes in Technology
• Forward planning and Pricing
Industrial Organization & Management
Project Management
PLANNING
Definition of work requirements
Definition of quantity and quality of work
Definition of Resources needed

SCHEDULING
Routing planned work
Use of optimization techniques like Gantt
Use of Techniques like PERT/CPM

CONTROLLING
Tracking Progress
Compare actual with predicted
Analyzing impact
Make adjustments
Industrial Organization & Management
Project Management
 Role of a Project Manager
 The project manager is the person assigned by the performing organization to
achieve the project objectives.
 The role of a project manager is distinct from a functional manager or
operations manager. Typically the functional manager is focused on providing
management oversight for an administrative area, and operations managers
are responsible for a facet of the core business.
 Depending on the organizational structure, a project manager may report to a
functional manager.
 Many of the tools and techniques for managing projects are specific to project
management. However, understanding and applying the knowledge, tools, and
techniques that are recognized as good practice is not sufficient for effective
project management.
Industrial Organization & Management
Project Management
 Role of a Project Manager

1. Knowledge: This refers to what the project manager knows about project
management
2. Performances: This refers to what the project manager is able to do or
accomplish while applying their project management knowledge.

3. Personal: This refers to how the project manager behaves when performing the
project or related activity. Personal effectiveness encompasses attitudes, core
personality characteristics and leadership—the ability to guide the project team
while achieving project objectives and balancing the project constraints.
Industrial Organization & Management
Project Management
 The Project Life Cycle “Overview”
A project life cycle is a collection of generally sequential and sometimes overlapping
project phases whose name and number are determined by the management and
control needs of the organization or organizations involved in the project, the nature
of the project itself, and its area of application.

 Characteristics of the Project Life Cycle


Projects vary in size and complexity. No matter how large or small, simple or complex, all
projects can be mapped to the following life cycle structure:

 Starting the project


 Organizing and preparing
 Carrying out the project work, and
 Closing the project.
Industrial Organization & Management
Project Management
PROJECT LIFE CYCLE AND ORGANIZATION

Typical Cost and Staffing Levels across the Project Life Cycle
Industrial Organization & Management
Project Management
Project Management Techniques: PERT and CPM
Program Evaluation and Review Techniques (PERT):
A project Management Techniques that employs three times estimates for each
activity.

Critical Path Method (CPM):


A Project Management techniques that uses only one time factor per activity.

• Network techniques
• Developed in 1950’s
• CPM by DuPont for chemical plants (1957)
• PERT by Booz, Allen & Hamilton with the U.S. Navy, for Polaris missile (1958)
• Consider precedence relationships and interdependencies
• Each uses a different estimate of activity times
Industrial Organization & Management
Project Management
Project Management Techniques: PERT and CPM
Six Steps PERT & CPM
1. Define the project and prepare the work breakdown structure.
2. Develop relationships among the activities - decide which activities must
precede and which must follow others.

3. Draw the network connecting all of the activities.


4. Assign time and/or cost estimates to each activity.
5. Compute the longest time path through the network – this is called the
critical path.
6. Use the network to help plan, schedule, monitor, and control the project.
Industrial Organization & Management
Project Management
Project Management Techniques: PERT and CPM
Finding the critical path is a major part of controlling a
project.
• The activities on the critical path represent tasks that
will delay the entire project if they are not completed
on time.
• Managers can gain the flexibility needed to complete
critical tasks by identifying noncritical activities and
replanning, rescheduling, and reallocating labor and
financial resources.
Industrial Organization & Management
Project Management
Project Management Techniques: PERT and CPM
Although PERT and CPM differ to some extent in terminology
and in the construction of the network, their objectives are the
same.
• The major difference is that PERT employs three time
estimates for each activity. These time estimates are used to
compute expected values and standard deviations for the
activity.
• CPM makes the assumption that activity times are known
with certainty and hence requires only one time factor for
each activity.
Industrial Organization & Management
Project Management
Project Management Techniques: PERT and CPM
 Questions PERT & CPM Can Answer
1. When will the entire project be completed?
2. What are the critical activities or tasks in the project?
3. Which are the noncritical activities?
4. What is the probability the project will be completed by a specific date?
5. Is the project on schedule, behind schedule, or ahead of schedule?
6. Is the money spent equal to, less than, or greater than the budget?

7. Are there enough resources available to finish the project on time?


8. If the project must be finished in a shorter time, what is the way to
accomplish this at least cost?
Industrial Organization & Management
Project Management Techniques: PERT and CPM
Network diagram and approaches
The first step in a PERT or CPM network is to divide the entire project
into significant activities in accordance with the work breakdown
structure.
There are two approaches for drawing a project network:
Activity on node (AON) and activity on arrow (AOA).
Under the AON convention, nodes designate activities.
Under AOA, arrows represent activities. Activities consume time and
resources
The basic difference between AON and AOA is that the nodes in an
AON diagram represent activities. In an AOA network, the nodes
represent the starting and finishing times of an activity and are also
called events.
Industrial Organization & Management
Project Management
Project Management Techniques: PERT and CPM
AON/AOA Example
Milwaukee Paper Manufacturing's Activities and Predecessors
Industrial Organization & Management
Project Management
Project Management Techniques: PERT and CPM
AON/AOA Example
Milwaukee Paper Manufacturing's Activities and Predecessors
Industrial Organization & Management
Project Management
Project Management Techniques: PERT and CPM
AON Example
Milwaukee Paper Manufacturing's Activities and Predecessors
Industrial Organization & Management
Project Management
Project Management Techniques: PERT and CPM
AOA Example
Milwaukee Paper Manufacturing's Activities and Predecessors
Industrial Organization & Management
Project Management
Project Management Techniques: PERT and CPM

Determining the Project Schedule


“Perform a Critical Path Analysis”
 The critical path is the longest path through the network.
 Any delay in critical path activities delays the project.

 Critical path activities have no slack time.


Industrial Organization & Management
Project Management
Project Management Techniques: PERT and CPM
Perform a Critical Path Analysis
Industrial Organization & Management
Project Management
Project Management Techniques: PERT and CPM
• Earliest start (ES) = Earliest time at which an activity can start,
assuming all predecessors have been completed
• Earliest finish (EF) =Earliest time at which an activity can be
finished
• Latest start (LS) =Latest time at which an activity can start so as
to not delay the completion time of the entire project
• Latest finish (LF) =Latest time by which an activity has to be
finished so as to not delay the completion time of the entire
project
Industrial Organization & Management
Project Management
Project Management Techniques: PERT and CPM
Forward Pass

Begin at starting event and work forward


Earliest Start Time Rule:
• If an activity has only a single immediate predecessor, its ES
equals the EF of the predecessor
• If an activity has multiple immediate predecessors, its ES is the
maximum of all the EF values of its predecessors.
ES = Max {EF of all immediate predecessors}
Earliest Finish Time Rule:
• The earliest finish time (EF) of an activity is the sum of its earliest
start time (ES) and its activity time.
EF = ES + Activity time
Industrial Organization & Management
Project Management
Project Management Techniques: PERT and CPM
Backward Pass

Begin with the last event and work backwards


Latest Finish Time Rule:
• If an activity is an immediate predecessor for just a single
activity, its LF equals the LS of the activity that immediately
follows it.
• If an activity is an immediate predecessor to more than one
activity, its LF is the minimum of all LS values of all activities that
immediately follow it.
LF = Min {LS of all immediate following activities}
Latest Start Time Rule:
• The latest start time (LS) of an activity is the difference of its
latest finish time (LF) and its activity time
LS = LF – Activity time
Industrial Organization & Management
Project Management
Project Management Techniques: PERT and CPM
Computing Slack Time

• After computing the ES, EF, LS, and LF times for all activities,
compute the slack or free time for each activity.
• Slack is the length of time an activity can be delayed without
delaying the entire project.

Slack = LS – ES or Slack = LF – EF
Industrial Organization & Management
Project Management Techniques: PERT and CPM
Determining the Project Schedule
Perform a Critical Path Analysis
Industrial Organization & Management
Project Management Techniques: PERT and CPM
ES/EF Network for Milwaukee Paper
Industrial Organization & Management
Project Management Techniques: PERT and CPM
ES/EF Network for Milwaukee Paper
Industrial Organization & Management
Project Management Techniques: PERT and CPM
ES/EF Network for Milwaukee Paper
Industrial Organization & Management
Project Management Techniques: PERT and CPM
ES/EF Network for Milwaukee Paper
Industrial Organization & Management
Project Management Techniques: PERT and CPM
LS/LF Time for Milwaukee Paper
Industrial Organization & Management
Project Management Techniques: PERT and CPM
LS/LF Time for Milwaukee Paper
Industrial Organization & Management
Project Management Techniques: PERT and CPM
LS/LF Time for Milwaukee Paper
Industrial Organization & Management
Project Management Techniques: PERT and CPM
LS/LF Time for Milwaukee Paper
Industrial Organization & Management
Project Management Techniques: PERT and CPM
LS/LF Time for Milwaukee Paper
Industrial Organization & Management
Project Management Techniques: PERT and CPM
Computing Slack Time
Industrial Organization & Management
Project Management Techniques: PERT and CPM
Critical path for Milwaukee Paper
Industrial Organization & Management
Project Management Techniques: PERT and CPM
Common PERT Network Sybolism
Industrial Organization & Management
Project Management Techniques: PERT and CPM
EXAMPLE:
Industrial Organization & Management
Project Management Techniques: PERT and CPM
EXAMPLE:
Industrial Organization & Management
Project Management Techniques: PERT and CPM
PERT Network is as follows:
Industrial Organization & Management
Project Management Techniques: PERT and CPM
1. What is the critical path for the small maintenance
project which consists of the following job activities?
Industrial Organization & Management
Project Management Techniques: PERT and CPM
2. What is the earliest project completion time for the
project listed below?
Industrial Organization & Management
Project Management Techniques: PERT and CPM
3. What is the critical path time for the following network?
Industrial Organization & Management
Project Management Techniques: PERT and CPM
4.
Industrial Organization & Management
Variability in Activity Times
CPM assumes we know a fixed time estimate for each
activity and there is no variability in activity times.
PERT uses a probability distribution for activity times to
allow for variability.

Three time estimates are required


Optimistic time (a) – if everything goes according to
plan
Pessimistic time (b) – assuming very unfavorable
conditions
Most likely time (m) – most realistic estimate
Industrial Organization & Management
Variability in Activity Times

Estimate follows beta distribution


Expected time:
t = (a + 4m + b)/6
Variance of times:
v = [(b – a)/6]2
Industrial Organization & Management
Variability in Activity Times
Estimate follows beta distribution
Variability in Activity Times
Industrial Organization & Management
Computing Variance
Industrial Organization & Management
Probability of Project Completion

Project variance is computed by summing the


variances of critical activities

δ2p = Project variance


=Σ(variances of activities on critical
path)
Industrial Organization & Management
Probability of Project Completion
Projected Variance is computed by
Industrial Organization & Management
Probability of Project Completion

PERT makes two more assumptions:


• Total project completion times follow a
normal probability distribution.
• Activity times are statistically
independent
Industrial Organization & Management
Probability of Project Completion
Industrial Organization & Management
Probability of Project Completion
What is the probability this project can be
completed on or before the 16 week deadline?
Industrial Organization & Management
Probability of Project Completion
What is the probability this project can be
completed on or before the 16 week deadline?

= 0.57 Where Z is the number of standard


deviations the due date or target date
lies from the mean or expected date
Industrial Organization & Management
Probability of Project Completion
Industrial Organization & Management
Industrial Organization & Management
Determining Project Completion Time
Industrial Organization & Management
What Project Management Has Provided So Far
 The project’s expected completion time is 15
weeks
 There is a 71.57% chance the equipment will be
in place by the 16 week deadline
 Five activities (A, C, E, G, and H) are on the
critical path
 Three activities (B, D, F) are not on the critical
path and have slack time
 A detailed schedule is available
Industrial Organization & Management

Project Crashing
It is not uncommon to face the following
situations:
 The project is behind schedule
 The completion time has been
moved forward
Shortening the duration of the project is
called project crashing
Industrial Organization & Management
Factors to Consider When Crashing A Project
 The amount by which an activity
is crashed is, in fact, permissible.
 Taken together, the shortened
activity durations will enable us
to finish the project by the due
date.
 The total cost of crashing is as
small as possible
Industrial Organization & Management
Steps in Project Crashing
1.Compute the crash cost per time
period:

2.Using current activity times, find the


critical path and identify the critical
activities
Industrial Organization & Management
Steps in Project Crashing
3.If there is only one critical path, then select
the activity on this critical path that (a) can
still be crashed, and (b) has the smallest
crash cost per period. If there is more than
one critical path, then select one activity
from each critical path such that (a) each
selected activity can still be crashed, and (b)
the total crash cost of all selected activities is
the smallest. Note that the same activity may
be common to more than one critical path.
Industrial Organization & Management
Steps in Project Crashing
4.Update all activity times. If the desired due
date has been reached, stop. If not, return to
Step 2.
Industrial Organization & Management
Crashing The Project
Industrial Organization & Management
Industrial Organization & Management
Industrial Organization & Management
Industrial Organization & Management
Material Requirements Planning
(MRP)
Outline
 Dependent Inventory Model Requirements
Master Production Schedule
Bills of Material
Lead Times for Components
 MRP Structure
 MRP Management
 MRP In Services
Learning Objectives
1. Develop a product structure
2. Build a gross requirements plan
3. Build a net requirements plan
4. Describe MRP II
5. Describe closed-loop MRP
Wheeled Coach
 Largest manufacturer of ambulances
 12 major ambulance designs
 18,000 different inventory items
 6,000 manufactured parts
 12,000 purchased parts

 Four Key Tasks


 Material plan must meet both the requirements of the
customer and the capabilities of production
 Plan must be executed as designed
 Minimize inventory investment
 Maintain excellent record integrity
Dependent Demand
 The demand for one item is related to
the demand for another item
 Given a quantity for the end item, the
demand for all parts and components
can be calculated
 In general, used whenever a schedule
can be established for an item
 MRP is the common technique
Dependent Demand
Effective use of dependent demand
inventory models requires the following

1. Master production schedule


2. Specifications or bill of material
3. Inventory availability
4. Purchase orders outstanding
5. Lead times
The Planning Process
Production Marketing Finance
Capacity Customer Cash flow
Inventory demand

Procurement Human resources


Supplier Manpower
performance planning

Management Engineering
Return on Aggregate Design
investment production completion
Capital plan

Change
production
Master production plan?
schedule

Figure 14.1
The Planning Process
Master production
schedule Change
master
Change production
requirements? Material schedule?
requirements plan
Change capacity?
Capacity
requirements plan

No Is capacity Is execution
Realistic? plan being meeting the
met? plan?
Yes
Execute capacity
plans

Execute
material plans

Figure 14.1
MPS Examples
For Nancy’s Specialty Foods

Gross Requirements for Crabmeat Quiche


Day 6 7 8 9 10 11 12 13 14 and so on
Amount 50 100 47 60 110 75

Gross Requirements for Spinach Quiche


Day 7 8 9 10 11 12 13 14 15 16 and so on
Amount 100 200 150 60 75 100

Table 14.1
Bills of Material
 List of components, ingredients, and
materials needed to make product
 Provides product structure
 Items above given level are called
parents
 Items below given level are called
children
Bill of materials
BOM Example
Level Product structure for “Awesome” (A)
0 A

Std. 12” Speaker kit w/


1 B(2) Std. 12” Speaker kit C(3) amp-booster

2 E(2) E(2) F(2) Std. 12” Speaker


booster assembly

Packing box and installation


3 D(2) kit of wire, bolts, and screws G(1) D(2)

Amp-booster

12” Speaker 12” Speaker


BOM Example
Level Product structure for “Awesome” (A)
0 A

Part B: 2 x number of As = (2)(50) = Std. 12” Speaker kit100


w/
1 BPart
(2) Std.
C: 12” Speaker kit
3 x number of As = C
(3)(50) = amp-booster
(3) 150
Part D: 2 x number of Bs
+ 2 x number of Fs = (2)(100) + (2)(300) = 800
2 Std. 12” Speaker
Part E:E(2) 2 x number of Bs E(2) F(2)
booster assembly
+ 2 x number of Cs = (2)(100) + (2)(150) = 500
Part F: 2Packing
x number
box andofinstallation
Cs = (2)(150) = 300
3 D(2) Part G: 1kitxofnumber
wire, bolts, and screws
of Fs = G(1) =
(1)(300) D(2) 300

Amp-booster

12” Speaker 12” Speaker


Lead Times
 The time required to purchase,
produce, or assemble an item
 For production – the sum of the order,
wait, move, setup, store, and run times
 For purchased items – the time
between the recognition of a need and
the availability of the item for
production
Time-Phased Product Structure
Must have D and E
Start production of D completed here so
production can begin
on B
1 week
2 weeks to
D produce
B
2 weeks
E
A
2 weeks 1 week
E
2 weeks 1 week
G C
3 weeks
F
1 week
D
| | | | | | | |

1 2 3 4 5 6 7 8 Figure 14.4
Time in weeks
MRP Structure
Data Files Output Reports

MRP by period
BOM Master report
production schedule
MRP by date
report

Lead times
(Item master file) Planned order
report

Inventory data
Purchase advice
Material
requirement
planning
programs
(computer and Exception reports
Purchasing data software)
Order early or late or
not needed

Order quantity too


small or too large
Figure 14.5
Determining Gross Requirements

 Starts with a production schedule for the end


item – 50 units of Item A in week 8
 Using the lead time for the item, determine the
week in which the order should be released – a
1 week lead time means the order for 50 units
should be released in week 7
Determining Gross Requirements
 From the BOM, every Item A requires 2 Item Bs
– 100 Item Bs are required in week 7 to satisfy
the order release for Item A
 The lead time for the Item B is 2 weeks –
release an order for 100 units of Item B in week
5
 The timing and quantity for component
requirements are determined by the order
release of the parent(s)
Gross Requirements Plan
Week
1 2 3 4 5 6 7 8 Lead Time
A. Required date 50
Order release date 50 1 week
B. Required date 100
Order release date 100 2 weeks
C. Required date 150
Order release date 150 1 week
E. Required date 200 300
Order release date 200 300 2 weeks
F. Required date 300
Order release date 300 3 weeks
D. Required date 600 200
Order release date 600 200 1 week
G. Required date 300
Order release date 300 2 weeks

Table 14.3
Net Requirements Plan
Net Requirements Plan
Determining Net Requirements

 Starts with a production schedule for the end


item – 50 units of Item A in week 8
 Because there are 10 Item As on hand, only 40
are actually required – (net requirement) =
(gross requirement - on- hand inventory)
 The planned order receipt for Item A in week 8
is 40 units – 40 = 50 - 10
Determining Net Requirements
 Following the lead time offset procedure, the
planned order release for Item A is now 40
units in week 7
 The gross requirement for Item B is now 80
units in week 7
 There are 15 units of Item B on hand, so the net
requirement is 65 units in week 7
 A planned order receipt of 65 units in week 7
generates a planned order release of 65 units in
week 5
Determining Net Requirements
 A planned order receipt of 65 units in week 7
generates a planned order release of 65 units in
week 5
 The on-hand inventory record for Item B is
updated to reflect the use of the 15 items in
inventory and shows no on-hand inventory in
week 8
 This is referred to as the Gross-to-Net
calculation and is the third basic function of the
MRP process
MRP Management
 MRP is a dynamic system
 Time fences put limits on replanning
 Pegging links each item to its parent
 MRP II
 Closed-Loop MRP
 Capacity Planning
Closed-Loop MRP System
Aggregate Production Plan

OK?
NO Priority Management Capacity Management

Develop Master Production Evaluate Resource Availability


Schedule (Rough Cut)
OK?
NO OK? YES Planning
Prepare Materials Determine Capacity Availability
Requirements Pan
OK? YES
Execution
Detailed Production Implement Input/Output Control (in repetitive
Activity Control systems JIT
(Shop Scheduling/Dispatching) techniques are
used)

Figure 14.8
MRP in Services
 Some services or service items are
directly linked to demand for other
services
 These can be treated as dependent
demand services or items
 Restaurants
 Hospitals
 Hotels
MRP in Services
(a) PRODUCT STRUCTURE TREE
Veal
picante
#10001 Chef;
Work
Center #1

Cooked Prepared veal


linguini Spinach and sauce
#20002 #20004 #20003
Helper one; Asst. Chef;
Work Work
Center #2 Center #3

Uncooked
Sauce Veal
linguini
#30006 #30005
#30004
Figure 14.10
In-Class Problems from the Lecture Guide
Practice Problems
Problem 1:
The Hunicut and Hallock Corporation makes two versions of the same basic file
cabinet, the TOL (Top-of-the-line) five drawer file cabinet and the HQ (High-
quality) five drawer filing cabinet.

The TOL and HQ use the same cabinet frame and locking mechanism. The
drawer assemblies are different although both use the same drawer frame
assembly. The drawer assemblies for the TOL cabinet use a sliding assembly
that requires four bearings per side whereas the HQ sliding assembly requires
only two bearings per side. (These bearings are identical for both cabinet
types.) 100 TOL and 300 HQ file cabinets need to be assembled in week #10.
No current stock exists.

Develop a material structure tree for the TOL and the HQ file cabinets.
In-Class Problems from the Lecture Guide
Practice Problems
In-Class Problems from the Lecture Guide
Practice Problems
Solve the product structure for Alpha in previous
problem, and the following lead times, quantity on
hand, master production schedule, prepare a net MRP
table for Alpha
In-Class Problems from the Lecture Guide
Practice Problems
CASE STUDIES
HILL’S AUTOMOTIVE INC
Industrial Organization & Management
CH-407
Final Year Chemical Engineering
Department of Chemical Engineering

Total Quality Management


What’s in Your Mind?
What is Quality?
Total Quality Management
Total Quality Management

 A management philosophy that quality and customer


are fundamental business principles for the
organization.
 Quality means providing external and internal
customers with the products and services that fully
satisfy their requirements.
 It aims at continuous improvement through systematic
company-wide employee involvement and team work
that will deliver the best product and service with total
customer satisfaction at the lowest cost.
TQM Tells us…
Industrial Organization & Management
Introduction to Total Quality Management
Why TQM?
Ford Motor Company had operating losses of $3.3
billion between 1980 and 1982.
Xerox market share dropped from 93% in 1971 to
40% in 1981.
Attention to quality was seen as a way to combat
the competition.
Industrial Organization & Management
TQM: Losing Popularity

• For many companies, the term TQM is associated


with corporate programs (mid 1980s ~ early 1990s)
aimed at implementing employee teams and
statistical process control.
• Unfortunately, many companies were dissatisfied
with the perceived results of these programs,
concluding TQM does not work.

Question: Why were they dissatisfied?


Were they justified?
Industrial Organization & Management
TQM
• Total - made up of the whole
• Quality - degree of excellence a product or
service provides
• Management - act, art or manner of planning,
controlling, directing,….

Therefore, TQM is the art of managing the whole


to achieve excellence.
Industrial Organization & Management
TQM

• Quality system involving entire organization


from supplier to customer
• Objective: Meet or exceed customer needs
through company-wide continuous
improvement
• Early proponents
– W. Edwards Deming
– J. M. Juran
– Philip B. Crosby
Industrial Organization & Management
What does TQM mean?

Total Quality Management means that the


organization's culture is defined by and
supports the constant attainment of customer
satisfaction through an integrated system of
tools, techniques, and training. This involves
the continuous improvement of organizational
processes, resulting in high quality products and
services.
DIFINITION OF QUALITY

• The concept and vocabulary of quality are elusive.


Different people interpret quality differently. Few can
define quality in measurable terms that can be proved
operationalized. When asked what differentiates their
product or service;
The banker will answer” service”
The healthcare worker will answer “quality health
care”
The hotel employee will answer “customer
satisfaction”
The manufacturer will simply answer “quality
product”
The Three Quality Gurus

• Deming: the best known of the “early” pioneers, is


credited with popularizing quality control in Japan in early
1950s.Today, he is regarded as a national hero in that
country and is the father of the world famous Deming prize
for quality.
JURAN
• Juran, like Deming was invited to Japan in 1954 by the
union of Japanese Scientists and engineers.

• Juran defines quality as fitness for use in terms of design,


conformance, availability, safety and field use. He focuses
on top-down management and technical methods rather than
worker pride and satisfaction.
Philip Crosby: author of popular book Quality is
Free. His absolutes of quality are:

• Quality is defined as conformance to requirements, not


“goodness”
• The system for achieving quality is prevention, not
appraisal.
• The performance standard is zero defects, not “that’s close
enough”.
Commonality of Themes of Quality Gurus

• Inspection is never the answer to quality improvement, nor


is “policing”.

• Involvement of leadership and top management is essential


to the necessary culture of commitment to quality.

• A program for quality requires organization-wide efforts


and long term commitment, accompanied by the necessary
investment in training.

• Quality is first and schedules are second.


Industrial Organization & Management

 Costs & market


share Market
MarketGains
Gains
Reputation
Reputation
• Company’s Volume
Volume
reputation Price
Price
Improved
Improved Increased
Increased
• Product Quality Profits
Quality Profits
liability Lower
LowerCosts
Costs
• International Productivity
Productivity
Rework/Scrap
Rework/Scrap
implications
Warranty
Warranty
Industrial Organization & Management

International Quality Standards


• Industrial Standard Z8101-1981 (Japan)
– Specification for TQM
• ISO 9000 series (Europe/EC)
– Common quality standards for products sold in
Europe (even if made in U.S.)
• ISO 14000 series (Europe/EC)
– Standards for environmental management,
auditing, recycling, performance evaluations etc.
Traditional
Quality Process (Mfg.)

Customer Marketing Engineering Operations

Specifies Interprets Designs Produces


Need Need Product Product
Defines Plans
Quality Quality
Monitors
Quality is customer driven! Quality
Industrial Organization & Management
Seven Concepts for an effective TQM Program

• Continuous improvement
• Six Sigma
• Employee empowerment
• Benchmarking
• Just-in-time (JIT)
• Taguchi Concept
• Knowledge of TQM tools
Deming’s 14 points for Implementing
quality improvement
Industrial Organization & Management

What’s the goal of TQM?


“Do the right things right the first
time, every time.”
Industrial Organization & Management
Another way to put it?

• At it’s simplest, TQM is all managers leading and


facilitating all contributors in everyone’s two
main objectives:
(1) total client satisfaction through quality
products and services; and
(2) continuous improvements to processes,
systems, people, suppliers, partners, products,
and services.
Industrial Organization & Management
Productivity and TQM

• Traditional view:
– Quality cannot be improved without significant
losses in productivity.
• TQM view:
– Improved quality leads to improved productivity.
Industrial Organization & Management
Basic Tenets of TQM

• 1. The customer makes the ultimate determination


of quality.
• 2. Top management must provide leadership and
support for all quality initiatives.
• 3. Preventing variability is the key to producing
high quality.
• 4. Quality goals are a moving target, thereby
requiring a commitment toward continuous
improvement.
• 5. Improving quality requires the establishment of
effective metrics. We must speak with data and
facts not just opinions.
Industrial Organization & Management
Total Quality Management
and Continuous Improvement
• TQM is the management process used to make
continuous improvements to all functions.
• TQM represents an ongoing, continuous
commitment to improvement.
• The foundation of total quality is a
management philosophy that supports meeting
customer requirements through continuous
improvement.
Benefits of TQM

• Greater customer loyalty


• Market share improvement
• Higher stock prices
• Reduced service calls
• Higher prices
• Greater productivity
Industrial Organization & Management
Continuous Improvement versus
Traditional Approach
Traditional Approach Continuous Improvement

• Market-share focus • Customer focus


• Individuals • Cross-functional teams
• Focus on ‘who” and • Focus on “what” and
“why” “how”
• Short-term focus • Long-term focus
• Status quo focus • Continuous improvement
• Product focus • Process improvement
• Innovation focus
• Fire fighting • Incremental improvements
• Problem solving
PDCA Cycle repeated to create
Performance continuous improvement

Plan
Do
Act
Check
“Continuous”
improvement

Time
Industrial Organization & Management
Continuous Improvement

• Represents continual improvement of


process & customer satisfaction
• Involves all operations
& work units
• Other names
– Kaizen (Japanese)
– Zero-defects
– Six sigma
Six Sigma
Six Sigma is a method that provides organizations tools to
improve the capability of their business processes. This
increase in performance and decrease in process variation
lead to defect reduction and improvement in profits,
employee morale, and quality of products or services.
Employee Empowerment

• Getting employees involved in product &


process improvements
– 85% of quality problems are due to process &
material
• Techniques
– Talk to workers
– Support workers
– Let workers make decisions
– Build teams & quality circles
Quality Circles

• Group of 6-12 employees from same work


area
• Meet regularly to solve work-related
problems
– 4 hours/month

• Facilitator trains
& helps with
meetings
Bench Marking

• Selecting best practices to use


as a standard for performance
• Steps
– Determine what to
benchmark
– Form benchmarking team
– Identify benchmarking partners
– Collect benchmarking information
– Take action to meet or exceed benchmark
Just in Time (JIT)

• ‘Pull’ system of production/purchasing


• Involves ‘vendor partnership programs’ to
improve quality of purchased items
• Reduces all inventory levels
– Inventory hides process & material problems
• Improves process & product quality
Taguchi Concept
TQM Tools
• Check Sheets
• Scatter Diagram
• Pareto charts
• Process charts
• Cause & effect diagrams
• Statistical process control (SPC)
Check Sheets
Scatter Diagram
Cause & Effect Diagram

• Used to find problem sources/solutions


• Other names
– Fish-bone diagram, Ishikawa diagram
• Steps
– Identify problem to correct
– Draw main causes for problem as ‘bones’
– Ask ‘What could have caused problems in these
areas?’ Repeat for each sub-area.
Cause & Effect Diagram
Cause & Effect Diagram
Example

Method Manpower

Tired Problem
Drill
Over
Slow Time
Too many
defects
Old
Wood
Steel Lathe

Material Machinery
Main Cause
Pareto Chart
• Vertical bar chart showing relative
importance of problems or defects
– Makes identifying & solving them easier
• Based on Pareto Principle
– Most effects have relatively few causes
– e.g., 80% of quality problems come from 20% of
machines, materials, or operators
• Focus on ‘vital few’ 20% causes

• Called 80-20 rule


Pareto Chart
Thinking Challenge
You’re a quality analyst for
Corning Glass. You’ve
collected data on 100 rejected
glasses:
Nicks 80
Cuts 11
Scratches 3
Porosity 3
Misc. 3
Prepare a Pareto Chart.

Alone Group Class


Pareto Chart
Solution
# of Defects
100
80
60
40
20
0
Nicks Cuts Scratches Porosity Misc.

Cause
Process Chart

• Shows sequence of events in process


• Depicts activity relationships
• Has many uses
– Identify data collection points
– Find problem sources
– Identify places for improvement
Statistical
Process Control (SPC)

• Uses statistics & control charts to tell when


to adjust process
• Developed by Shewhart in 1920’s
• Involves
– Creating standards (upper & lower limits)
– Measuring sample output.
– Taking corrective action (if necessary)
• Done while product is being produced
Statistical Process Control Steps

Produce Good
Start
Provide Service
No
Assign.
Take Sample Causes?
Yes
Inspect Sample
Stop Process

Create
Find Out Why
Control Chart
Control Chart Example

X UCL
80
60
40
20
0 LCL

11
1

9
Time
Inspection

• Involves examining items to see if an item is


good or defective
• Objective: Detect a defective product
– Does not correct deficiencies in process or
product
• Issues
– When to inspect
– Where in process to inspect
When & Where to Inspect in Mfg.
• At supplier’s plant while producing
• Upon receipt of goods
from supplier
• Before costly or
irreversible processes
• During production process
• When production is complete
• Before shipment
© 1995 Corel Corp.
When & Where
to Inspect in Services

Business Where Variable


Bank Teller station Speed, courtesy
Checking Accuracy
Store Stockrooms Stock rotation
Display areas Attractiveness
Counters Courtesy,
knowledge
TQM in Services

• Service quality is more difficult to measure


than for goods
• Service quality perceptions depend on
– Expectations vs. reality
– Process & outcome
• Types of service quality
– Normal: Routine service delivery
– Exceptional: How problems are handled
Industrial Organization & Management
The TQM System
Industrial Organization & Management
CH-407
Final Year Chemical Engineering
Department of Chemical Engineering

Human Resource Management


Industrial Organization & Management
Introduction to Human Resource Management
• The process of attracting, developing and maintaining
a talented and energetic workforce to support
organizational mission, objectives and strategies.
• A distinctive approach to employment management
which seeks to achieve competitive advantage
through the strategic deployment of a highly
committed and capable workforce, using an
integrated array of cultural, structural and personnel
techniques.
Industrial Organization & Management
What is HR?
 Human Resources is the part of the organization that
deals with people
 Managing the human resource
 This means acquiring developing and supporting staff
as well as ensuring they fulfill their role at work
Industrial Organization & Management
HRM Function
Industrial Organization & Management
Functional Areas Within HR
EMPLOYMENT / STAFFING
 RECRUITMENT
 SELECTION

TRAINING AND DEVELOPMENT


 APPRAISAL
 EDUCATION AND DEVELOPMENT
COMPENSATION
 SALARIES, WAGES AND BENEFITS
 INCENTIVE PLANS
Industrial Organization & Management
Functional Areas Within HR
EMPLOYEE RELATIONS
GRIEVANCE RESOLUTION
UNION RELATIONS
HR PLANNING AND RESEARCH
FORECASTING
JOB ANALYSIS
ATTITUDE SURVEYS
Industrial Organization & Management
Job of HR
So the Human Resource Manager job includes:
• Conducting Job analysis (determining the nature of each
job)
• Planning labour needs and recruiting job candidates
• Selecting Job candidates
• Orienting and training new employees
• Managing wages and salaries (compensating employees)
• Providing incentives and benefits
• Appraising performance
• Communicating ( interviewing, counselling, disciplining)
• Training and development
Industrial Organization & Management
Human Resource Management Plan
The human resource management plan,
 a part of the project management plan,
 provides guidance on how project human resources should be
defined, staffed and managed
 The human resource management plan and any subsequent
revisions are also inputs into the Develop Project Management
Plan process.

 The human resource management plan includes, but is not


limited to
Industrial Organization & Management
Human Resource Management Plan
Roles and responsibilities. The following should be addressed when
listing the roles and responsibilities needed to complete a project
• Role. The function assumed by or assigned to a person in the project.
Examples of project roles are civil engineer, business analyst, and testing
coordinator. Role clarity concerning authority, responsibilities, and
boundaries should also be documented.
• Authority. The right to apply project resources, make decisions, sign
approvals, accept deliverables, and influence others to carry out the
work of the project.
• Examples of decisions that need clear authority include
 The selection of a method for completing an activity, quality acceptance,
and
 how to respond to project variances. Team members operate best when
their individual levels of authority match their individual responsibilities.
Industrial Organization & Management
Human Resource Management Plan

• Responsibility. The assigned duties and work that a project


team member is expected to perform in order to complete the
project’s activities.
• Competency. The skill and capacity required to complete
assigned activities within the project constraints. If project
team members do not possess required competencies,
performance can be jeopardized. When such mismatches are
identified, proactive responses such as training, hiring,
schedule changes, or scope changes are initiated.
Industrial Organization & Management
Human Resource Management Plan
Staffing management plan.

 The staffing management plan is a component of the human


resource management plan that describes when and how project
team members will be acquired and how long they will be needed.

 It describes how human resource requirements will be met. The


staffing management plan can be formal or informal, highly
detailed, or broadly framed, depending upon the needs of the
project.

 The plan is updated continually during the project to direct ongoing


team member acquisition and development actions. Information in
the staffing management plan varies by application area and project
size.
Industrial Organization & Management
Human Resource Management Plan

Staff acquisition.
 A number of questions arise when planning the
acquisition of project team members. For example,
 whether the human resources come from within the
organization or from external, contracted sources;
 whether the team members need to work in a central
location or may work from distant locations;
 costs associated with each level of expertise needed
for the project; and level of assistance that the
organization’s human resource department and
functional managers are able to provide to the project
management team.
Industrial Organization & Management
Human Resource Management Plan
Resource calendars.
 Calendars that identify the working days and shifts on which each
specific resource is available.
 The staffing management plan describes necessary time frames for
project team members, either individually or collectively, as well as
when acquisition activities such as recruiting should start.
 One tool for charting human resources is a resource histogram,
used by the project management team as a means of providing a
visual representation or resources allocation to all interested
parties. This chart illustrates the number of hours a person,
department, or entire project team that will be needed each week or
month over the course of the project.
 The chart can include a horizontal line that represents the maximum
number of hours available from a particular resource. Bars that
extend beyond the maximum available hours identify the need for a
resource optimization strategy such as adding more resources or
modifying the schedule.
Resource Histogram
Industrial Organization & Management
Human Resource Management Plan

Staff release plan.


Determining the method and timing of releasing
team members benefits both the project and team
members. When team members are released from
a project, the costs associated with those
resources are no longer charged to the project,
thus reducing project costs.
Morale is improved when smooth transitions to
upcoming projects are already planned.
Industrial Organization & Management
Human Resource Management Plan

Training needs.
If it is expected that the team members to be
assigned will not have the required competencies,
a training plan can be developed as part of the
project.
The plan can also include ways to help team
members obtain certifications that would support
their ability to benefit the project.
Industrial Organization & Management
Human Resource Management Plan

Recognition and rewards.


 Clear criteria for rewards and a planned system for their use
help promote and reinforce desired behaviors.
 To be effective, recognition and rewards should be based on
activities and performance under a person’s control. For
example,
 A team member who is to be rewarded for meeting cost
objectives should have an appropriate level of control over
decisions that affect expenses.
 Creating a plan with established times for distribution of
rewards ensures that recognition takes place and is not
forgotten. Recognition and rewards are part of the Develop
Project Team process.
Industrial Organization & Management
Human Resource Management Plan

Compliance.
 The staffing management plan can include strategies
for complying with applicable government
regulations, union contracts, and other established
human resource policies.
Safety.
 Policies and procedures that protect team members
from safety hazards can be included in the staffing
management plan as well as in the risk register.
Develop Project Team: Tools and
Techniques
Interpersonal Skills
 Interpersonal skills, sometimes known as “soft skills,” are
behavioral competencies that include proficiencies such as
communication skills, emotional intelligence, conflict
resolution, negotiation, influence, team building, and group
facilitation.
 These soft skills are valuable assets when developing the
project team. For example, the project management team
can use emotional intelligence to reduce tension and
increase cooperation by identifying, assessing, and
controlling the sentiments of project team members,
anticipating their actions, acknowledging their concerns,
and following up on their issues.
Develop Project Team: Tools and
Techniques
Training
 Training includes all activities designed to enhance the competencies
of the project team members. Training can be formal or informal.
 Examples of training methods include classroom, online, computer-
based, on-the-job training from another project team member,
mentoring, and coaching.
 If project team members lack the necessary management or technical
skills, such skills can be developed as part of the project work.
 Scheduled training takes place as stated in the human resource
management plan.
 Unplanned training takes place as a result of observation,
conversation, and project performance appraisals conducted during
the controlling process of managing the project team.
 Training costs could be included in the project budget, or supported by
performing organization if the added skills may be useful for future
projects. It could be performed by in-house or external trainers.
Develop Project Team: Tools and
Techniques
Team-Building Activities
 As an ongoing process, team building is crucial to project
success. While team building is essential during the initial
stages of a project, it is a never-ending process.
 Changes in a project environment are inevitable, and to
manage them effectively, a continued or a renewed team-
building effort should be applied. The project manager
should continually monitor team functionality and
performance to determine if any actions are needed to
prevent or correct various team problems.
Industrial Organization & Management
HRM Includes

Employment Issues
• Discrimination
• Equal Employment Opportunity
• Harassment
• Affirmative Action
• Diversity Management
• Occupational Health and Safety
• Industrial Relations
Industrial Organization & Management
Why is it Important?
• Staff are the largest revenue cost of any organization.
•Staff are a volatile resource, they can leave you any
time.
•Staff are a store of corporate knowledge and the means
of service delivery.
•Retaining and developing good staff allows you to use
skills and develop as a business.
•Individuals should contribute more than they cost.
•In the industry customer care critical and delivered by
staff as representatives.
Maintenance Management
Maintenance and Reliability
 The objective of maintenance and
reliability is to maintain the capability
of the system while controlling costs
 Maintenance is all activities involved in
keeping a system’s equipment in
working order
 Reliability is the probability that a
machine will function properly for a
specified time
Important Tactics

 Reliability
1. Improving individual components
2. Providing redundancy
 Maintenance
1. Implementing or improving preventive
maintenance
2. Increasing repair capability or speed
Maintenance Strategy
Employee Involvement
Information sharing
Skill training
Reward system Results
Employee empowerment
Reduced inventory
Improved quality
Improved capacity
Reputation for quality
Maintenance and Reliability Continuous improvement
Procedures Reduced variability
Clean and lubricate
Monitor and adjust
Make minor repair
Keep computerized records
Reliability
Improving individual components

Rs = R 1 x R 2 x R 3 x … x R n

where R1 = reliability of component 1


R2 = reliability of component 2
and so on
Reliability Example
The National Bank of Pakistan processes loan applications through
three clerks set up in series, with reliabilities of 0.90, 0.80 and 0.99.
It wants to find out the system reliability.

R1 R2 R3

.90 .80 .99 Rs

Reliability of the process is


Rs = R1 x R2 x R3 = .90 x .80 x .99 = .713 or 71.3%
Product Failure Rate (FR)
Basic unit of measure for reliability
Failure Rate Example
20 air conditioning units designed for use in NASA space
shuttles operated for 1,000 hours One failed after 200
hours and one after 600 hours
Failure Rate Example
20 air conditioning units designed for use in NASA space
shuttles operated for 1,000 hours One failed after 200
hours and one after 600 hours

Failure rate per trip

FR = FR(N)(24 hrs)(6 days/trip)


FR = (.000106)(24)(6)
FR = .153 failures per trip
Maintenance Cost Example

Should the firm contract for maintenance on their


printers?
Number of Number of Months That
Breakdowns Breakdowns Occurred
0 2
1 8
2 6
3 4
Total: 20

Average cost of breakdown = $300


Maintenance Cost Example
Maintenance Cost Example
Maintenance Cost Example
Increasing Repair Capabilities

1. Well-trained personnel
2. Adequate resources
3. Ability to establish repair plan and priorities
4. Ability and authority to do material planning
5. Ability to identify the cause of breakdowns
6. Ability to design ways to extend MTBF
Industrial Organization & Management
What is Maintenance?
• Maintenance is the actions associated with
equipment repair after it is broken.
• Maintenance involves actions taken to prevent a
device or component from failing or to repair
normal equipment degradation experienced
with the operation of the device to keep it in
proper working order.
Industrial Organization & Management
Equipment Malfunctions
• Equipment malfunctions have a direct
impact on:
• Production capacity
• Production costs
• Product and service quality
• Employee or customer safety
• Customer satisfaction
Industrial Organization & Management
Maintenance Departments
A maintenance manager typically is a
plant engineer who reports to a plant or
manufacturing manager
Maintenance departments are usually split into
two groups:
1. Buildings and Grounds
2. Equipment
Industrial Organization & Management
Types of Maintenance
1. Breakdown maintenance
It means that people waits until equipment fails and
repair it. Such a thing could be used when the
equipment failure does not significantly affect the
operation or production or generate any significant loss
other than repair cost.
Industrial Organization & Management
2. Preventive maintenance
It is a daily maintenance (cleaning, inspection, oiling
and re-tightening), design to retain the healthy
condition of equipment and prevent failure through
the prevention of deterioration, periodic inspection or
equipment condition diagnosis, to measure
deterioration. It is further divided into periodic
maintenance and predictive maintenance. Just like
human life is extended by preventive medicine, the
equipment service life can be prolonged by doing
preventive maintenance.
Industrial Organization & Management
i. Periodic maintenance ( Time based maintenance - TBM)
Time based maintenance consists of periodically inspecting,
servicing and cleaning equipment and replacing parts to prevent
sudden failure and process problems.
ii. Predictive maintenance
This is a method in which the service life of important part is
predicted based on inspection or diagnosis, in order to use the
parts to the limit of their service life. Compared to periodic
maintenance, predictive maintenance is condition based
maintenance. It manages trend values, by measuring and
analysing data about deterioration and employs a surveillance
system, designed to monitor conditions through an on-line system.
Industrial Organization & Management
3. Corrective maintenance
It improves equipment and its components so that
preventive maintenance can be carried out reliably.
Equipment with design weakness must be redesigned to
improve reliability or improving maintainability.

4. Maintenance prevention
It indicates the design of new equipment. Weakness of
current machines are sufficiently studied (on site
information leading to failure prevention, easier
maintenance and prevents of defects, safety
Industrial Organization & Management
and ease of manufacturing) and are incorporated before
commissioning a new equipment.
Based on a study, maintenance can be divided into
following types along with the usage ratio in the
industry
1) Reactive maintenance >55%
2) Preventive maintenance 31%
3) Predictive maintenance 12%
4) Others 2%
Industrial Organization & Management
REACTIVE MAINTENANCE
Run it till it breaks
Advantages
• Low cost.
• Less staff.

Disadvantages
• Increased cost due to unplanned downtime of
equipment.
• Increased labor cost, especially if overtime is needed.
Industrial Organization & Management
• Cost involved with repair or replacement of
equipment.
• Possible secondary equipment or process damage
from Equipment failure.
• Inefficient use of staff resources.

PREVENTIVE MAINTENANCE
Actions performed on a time- or machine-run-based
schedule that detect, prevent, or mitigate degradation of
a component or system with the aim of sustaining or
extending its useful life through controlling degradation
to an acceptable level
Industrial Organization & Management
Advantages
• Cost effective in many capital-intensive processes.
Flexibility allows for the adjustment of maintenance
periodicity.
• Increased component life cycle.
• Energy savings.
• Reduced equipment or process failure.
• Estimated 12% to 18% cost savings over reactive
maintenance program.
Industrial Organization & Management
Disadvantages
• Catastrophic failures still likely to occur.
• Includes performance of unneeded maintenance.
• Potential for incidental damage to components in
conducting unneeded maintenance.

CONDITION BASED MAINTENANCE


CBM is a set of maintenance actions based on real-time or
near-real time assessment of equipment condition which
is obtained from embedded sensors and/or external tests
& measurements taken by portable equipment
Industrial Organization & Management
Repair Programs
Objectives
• Get equipment back into operation as quickly as
possible.
• Control cost of repairs crews.
• Control cost of the operation of repair shops.
• Control the investment in replacement spare parts.
• Control the investment in standby or backup machines.
• Perform the appropriate amount of repairs at each
malfunction
Industrial Organization & Management
Extent of Repairs
• Do just enough repairs to get equipment running again.
• Repair the malfunction and replace some parts that are
worn.
• Perform a major overhaul of the equipment.
• Replace the old equipment with new.
Industrial Organization & Management
Determining the Size of Repair Crews
Problem 1: A factory has 200 machines and the
maintenance engineer supervises the repair crews who
repair malfunctioning machines. The maintenance policy
is to repair the broken down machine and bring back in
production within 2 hours on the average. If average
breakdown rate is 3.5 machines/hour and each repair
crew can repair 0.25 machine per hour on the average.
How many repair crews are required?
Industrial Organization & Management
The formula for average repair rate (μ) is

Where μ = repair rate


λ = arrival rate of malfunctioning machines
ts = average time arrivals in the system
Industrial Organization & Management
Problem 2: Sewing machines break down at an
average rate of 12 per hour and the average repair
time is .75 hours. The plant manager at The Shirt
Factory has specified that a malfunctioning
machine should be out of production for no more
than 2 hours as an average. How many sewing
machine repair specialists should TSF have on
duty?
Industrial Organization & Management
Problem 1
Determining the Size of Repair Crews
Compute the implied average service rate per repair
specialist.
= 1/(Hours per machine per specialist)
= 1/.75
= 1.333 machines per hour
Compute the necessary number of repair specialists.
= m/(Machines per hour per specialist)
= 12.5/1.333
= 9.375 or 10 specialists
Industrial Organization & Management
Problem 2
Required average repair rate
μ = 3.5 + 1 / 2 = 4 machines / hour
No. of Crews = μ ÷ machines/hour a crew can
repair
= 4 ÷ 0.25 = 16 repair crews required
Operations
Management
Transportation Models
Outline
 Transportation Modeling
 Developing an Initial Solution
 The Northwest-Corner Rule
 The Intuitive Lowest-Cost Method
 The Stepping-Stone Method
 Special Issues in Modeling
 Demand Not Equal to Supply
 Degeneracy
Learning Objectives
When you complete this module you should
be able to:
1. Develop an initial solution to a
transportation models with the
northwest-corner and intuitive lowest-
cost methods
2. Solve a problem with the stepping-
stone method
3. Balance a transportation problem
4. Solve a problem with degeneracy
Transportation Modeling
 An interactive procedure that finds the
least costly means of moving products
from a series of sources to a series of
destinations
 Can be used to
help resolve
distribution
and location
decisions
Transportation Modeling
 A special class of linear
programming
 Need to know
1. The origin points and the capacity or
supply per period at each
2. The destination points and the
demand per period at each
3. The cost of shipping one unit from
each origin to each destination
Transportation Problem
To
From Albuquerque Boston Cleveland
Des Moines $5 $4 $3
Evansville $8 $4 $3
Fort Lauderdale $9 $7 $5

Table C.1
Transportation Problem
Boston
Cleveland (200 units
(200 units required)
Des Moines required)
(100 units
capacity)

Albuquerque
(300 units
required) Evansville
(300 units
capacity)

Fort Lauderdale
(300 units
Figure C.1 capacity)
Transportation Matrix
Figure C.2
To Factory Des Moines
Albuquerque Boston Cleveland capacity capacity
From constraint
$5 $4 $3
Des Moines 100
Cell
representing a
$8 $4 $3 possible
Evansville 300 source-to-
destination
shipping
$9 $7 $5 assignment
Fort Lauderdale 300
(Evansville to
Cleveland)
Warehouse
requirement 300 200 200 700

Cost of shipping 1 unit from Fort Cleveland Total demand


Lauderdale factory to Boston warehouse warehouse demand and total supply
Northwest-Corner Rule
 Start in the upper left-hand cell (or northwest
corner) of the table and allocate units to
shipping routes as follows:
1. Exhaust the supply (factory capacity) of each
row before moving down to the next row
2. Exhaust the (warehouse) requirements of each
column before moving to the next column
3. Check to ensure that all supplies and demands
are met
Northwest-Corner Rule
1. Assign 100 tubs from Des Moines to Albuquerque
(exhausting Des Moines’s supply)
2. Assign 200 tubs from Evansville to Albuquerque
(exhausting Albuquerque’s demand)
3. Assign 100 tubs from Evansville to Boston
(exhausting Evansville’s supply)
4. Assign 100 tubs from Fort Lauderdale to Boston
(exhausting Boston’s demand)
5. Assign 200 tubs from Fort Lauderdale to Cleveland
(exhausting Cleveland’s demand and Fort
Lauderdale’s supply)
Northwest-Corner Rule
To (A) (B) (C) Factory
From Albuquerque Boston Cleveland capacity

$5 $4 $3
(D) Des Moines 100 100

$8 $4 $3
(E) Evansville 200 100 300

$9 $7 $5
(F) Fort Lauderdale 100 200 300

Warehouse
requirement 300 200 200 700

Means that the firm is shipping 100 bathtubs from


Figure C.3 Fort Lauderdale to Boston
Northwest-Corner Rule
Computed Shipping Cost
Route
From To Tubs Shipped Cost per Unit Total Cost
D A 100 $5 $ 500
E A 200 8 1,600
E B 100 4 400
F B 100 7 700
F C 200 5 $1,000
Total: $4,200

This is a feasible solution


Table C.2
but not necessarily the
lowest cost alternative
Intuitive Lowest-Cost Method
1. Identify the cell with the lowest cost
2. Allocate as many units as possible to that
cell without exceeding supply or demand;
then cross out the row or column (or both)
that is exhausted by this assignment
3. Find the cell with the lowest cost from the
remaining cells
4. Repeat steps 2 and 3 until all units have
been allocated
Intuitive Lowest-Cost Method
To (A) (B) (C) Factory
From Albuquerque Boston Cleveland capacity

$5 $4 $3
(D) Des Moines 100 100

$8 $4 $3
(E) Evansville 300

$9 $7 $5
(F) Fort Lauderdale 300

Warehouse
requirement 300 200 200 700

First, $3 is the lowest cost cell so ship 100 units from Des Moines
to Cleveland and cross off the first row as Des Moines is satisfied

Figure C.4
Intuitive Lowest-Cost Method
To (A) (B) (C) Factory
From Albuquerque Boston Cleveland capacity

$5 $4 $3
(D) Des Moines 100 100

$8 $4 $3
(E) Evansville 100 300

$9 $7 $5
(F) Fort Lauderdale 300

Warehouse
requirement 300 200 200 700

Second, $3 is again the lowest cost cell so ship 100 units from
Evansville to Cleveland and cross off column C as Cleveland is
satisfied
Figure C.4
Intuitive Lowest-Cost Method
To (A) (B) (C) Factory
From Albuquerque Boston Cleveland capacity

$5 $4 $3
(D) Des Moines 100 100

$8 $4 $3
(E) Evansville 200 100 300

$9 $7 $5
(F) Fort Lauderdale 300

Warehouse
requirement 300 200 200 700

Third, $4 is the lowest cost cell so ship 200 units from Evansville to
Boston and cross off column B and row E as Evansville and Boston
are satisfied
Figure C.4
Intuitive Lowest-Cost Method
To (A) (B) (C) Factory
From Albuquerque Boston Cleveland capacity

$5 $4 $3
(D) Des Moines 100 100

$8 $4 $3
(E) Evansville 200 100 300

$9 $7 $5
(F) Fort Lauderdale 300 300

Warehouse
requirement 300 200 200 700

Finally, ship 300 units from Albuquerque to Fort Lauderdale as this


is the only remaining cell to complete the allocations

Figure C.4
Intuitive Lowest-Cost Method
To (A) (B) (C) Factory
From Albuquerque Boston Cleveland capacity

$5 $4 $3
(D) Des Moines 100 100

$8 $4 $3
(E) Evansville 200 100 300

$9 $7 $5
(F) Fort Lauderdale 300 300

Warehouse
requirement 300 200 200 700

Total Cost = $3(100) + $3(100) + $4(200) + $9(300)


= $4,100
Figure C.4
Intuitive Lowest-Cost Method
To (A) (B) (C) Factory
From Albuquerque Boston Cleveland capacity

This is Moines $5
a feasible solution, $4 $3
(D) Des 100 100
and an improvement over
the previous solution, but $8 $4 $3
necessarily the lowest 200
(E) Evansville
not 100 300

cost alternative $9 $7 $5
(F) Fort Lauderdale 300 300

Warehouse
requirement 300 200 200 700

Total Cost = $3(100) + $3(100) + $4(200) + $9(300)


= $4,100
Figure C.4
Stepping-Stone Method
1. Select any unused square to evaluate
2. Beginning at this square, trace a closed
path back to the original square via
squares that are currently being used
3. Beginning with a plus (+) sign at the
unused corner, place alternate minus and
plus signs at each corner of the path just
traced
Stepping-Stone Method
4. Calculate an improvement index by first
adding the unit-cost figures found in each
square containing a plus sign and
subtracting the unit costs in each square
containing a minus sign
5. Repeat steps 1 though 4 until you have
calculated an improvement index for all
unused squares. If all indices are ≥ 0, you
have reached an optimal solution.
Stepping-Stone Method
To (A) (B) (C) Factory
From Albuquerque Boston Cleveland capacity

$5 $4 $3
(D) Des Moines 100
- +
100 Des Moines-
(E) Evansville 200
$8
100
$4 $3
300 Boston index
+ -
(F) Fort Lauderdale
$9
100
$7
200
$5
300 = $4 - $5 + $8 - $4
Warehouse
requirement 300 200 200 700 = +$3

99 $5 1 $4
100
- +

+ -
201 $8 99 $4
Figure C.5 200 100
Stepping-Stone Method
To (A) (B) (C) Factory
From Albuquerque Boston Cleveland capacity

$5 $4 Start $3
(D) Des Moines 100 100
- +
$8 $4 $3
(E) Evansville 200 100 300
+ -
$9 $7 $5
(F) Fort Lauderdale 100 200 300
+ -
Warehouse
requirement 300 200 200 700

Des Moines-Cleveland index


Figure C.6 = $3 - $5 + $8 - $4 + $7 - $5 = +$4
Stepping-Stone Method
To (A) (B) (C) Factory
From Albuquerque Boston Cleveland capacity

$5 $4 $3
(D) Des Moines 100 100

$8 $4 $3
(E) Evansville Evansville-Cleveland
200 100 index 300

= $3 - $4$9+ $7 - $5
$7 = +$1 $5
(F) Fort Lauderdale 100 200 300
(Closed path = EC - EB + FB - FC)
Warehouse
requirement
Fort300
Lauderdale-Albuquerque
200 200 index
700
= $9 - $7 + $4 - $8 = -$1
(Closed path = FA - FB + EB - EA)
Stepping-Stone Method
1. If an improvement is possible, choose the
route (unused square) with the largest
negative improvement index
2. On the closed path for that route, select
the smallest number found in the squares
containing minus signs
3. Add this number to all squares on the
closed path with plus signs and subtract it
from all squares with a minus sign
Stepping-Stone Method
To (A) (B) (C) Factory
From Albuquerque Boston Cleveland capacity

$5 $4 $3
(D) Des Moines 100 100

$8 $4 $3
(E) Evansville 200 100 300
- +
$9 $7 $5
(F) Fort Lauderdale 100 200 300
+ -
Warehouse
requirement 300 200 200 700
1. Add 100 units on route FA
2. Subtract 100 from routes FB
3. Add 100 to route EB
Figure C.7 4. Subtract 100 from route EA
Stepping-Stone Method
To (A) (B) (C) Factory
From Albuquerque Boston Cleveland capacity

$5 $4 $3
(D) Des Moines 100 100

$8 $4 $3
(E) Evansville 100 200 300

$9 $7 $5
(F) Fort Lauderdale 100 200 300

Warehouse
requirement 300 200 200 700

Total Cost = $5(100) + $8(100) + $4(200) + $9(100) + $5(200)


= $4,000
Figure C.8
Special Issues in Modeling

 Demand not equal to supply


 Called an unbalanced problem
 Common situation in the real world
 Resolved by introducing dummy
sources or dummy destinations as
necessary with cost coefficients of
zero
Special Issues in Modeling
Total Cost = 250($5) + 50($8) + 200($4) + 50($3) + 150($5) + 150(0)
= $3,350
To (A) (B) (C) Factory
Dummy capacity
From Albuquerque Boston Cleveland

$5 $4 $3 0
(D) Des Moines 250 250

$8 $4 $3 0
(E) Evansville 50 200 50 300

$9 $7 $5 0
(F) Fort Lauderdale 150 150 300

Warehouse
requirement 300 200 200 150 850

New
Figure C.9 Des Moines
capacity
Special Issues in Modeling

 Degeneracy
 To use the stepping-stone
methodology, the number of occupied
squares in any solution must be equal
to the number of rows in the table plus
the number of columns minus 1
 If a solution does not satisfy this rule it
is called degenerate
Special Issues in Modeling
To Customer Customer Customer Warehouse
From 1 2 3 supply

$8 $2 $6
Warehouse 1 100 100

$10 $9 $9
Warehouse 2 0 100 20 120

$7 $10 $7
Warehouse 3 80 80

Customer
demand 100 100 100 300

Initial solution is degenerate


Place a zero quantity in an unused square and
Figure C.10 proceed computing improvement indices
Find the initial solution to the following transportation problem

(a)Use the NorthWest Corner method. What is total cost?


(b)Use the Intuitive Lowest-Cost approach. What is total cost?
(c)Use the stepping stone method. Find the optimum solution.
Compare the total cost
Consider the transportation table below. Unit costs for
each shipp9ng route are in dollars. What is the total cost of
the basic feasible solution that the intuitive least cost
method would find for this problem.

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