OPERATION

Leadstar College of Management
and
Leadership
Operations Management
Graduate Faculty of Business

Administration and Leadership
12/10/2018 Compiled by: Matiwos Ensermu, PhD 1

Chapter One
Introduction
 What is Operations
Management?Operations Management
is the activity of managing the
resources, which produce and deliver
goods and services (Slack et al., 2010).
 The operations function can be
described as that part of the
organization devoted to the
production or delivery of goods and
services.
Manufacturing and
Service Operations
 Manufacturing organizations produce
physical, tangible items which can be
stored as inventory before delivery to the
customer. Service organizations produce
intangible items that cannot be produced
ahead of time.

The Systems View of
Operations Management
• A system is a group of interrelated items
in which no item studied in isolation will
act in the same way as it would in the
system. A system is divided into a series
of parts or subsystems, and any system is
a part of a larger system.
• The activities in an operations system can
be classified as input, transformation
process and output

Continued
• The operations system is concerned with converting the
transformed resources from inputs into outputs in the
form of goods and services.
• There are three main types of transformed resource of
materials which can be transformed either physically (e.g.
manufacturing), by location (e.g. transportation), by
ownership (e.g. retail) or by storage (e.g. warehousing),
information which can be transformed by property (e.g.
accountants), by possession (e.g. market research), by
storage (e.g. libraries), or by location (e.g.
telecommunications) and customers they can be
transformed either physically (hairdresser), by storage (e.g.
hotels), by location (e.g. airlines), by physiological state (e.g.
hospitals), or by psychological state (e.g. entertainment).

Process View of Organizations
• There has been a move away from considering
business as a set of discrete functional areas
towards a view of the organization as consisting
of sets of processes which link together in order
to meet customer needs. Processes can be
related in one functional area (e.g. production).
• In functional terms the processes would be
situated in areas such as operations, marketing
and finance, but from the customer’s view the
value they gain is dependent on the performance
if the set of linked processes involved in the
delivery of the product/service.

2. Operations Strategy
• What is Strategy?
• Strategic decisions can be classified as those
decisions which make major long term changes
to the resource base of the organization in
response to external factors such as markets,
customers and competitors.
• Operations strategy is concerned with:

• what the operation has to do in order to meet
current and future challenges; and
• also is concerned with the long-term development of
its operations resources and processes so that they
can provide the basis for a sustainable advantage

Levels of Strategy
• Strategy can be seen to exist at three main
levels within the organization:
• At the highest or corporate level the strategy
provides very general long-range guidance for the
whole organization, often expressed as a
statement of its mission
• The second level of strategy is termed a business
strategy and may be for the organization or at the
strategic business unit level in larger diversified
companies

Levels of strategy (cont'd)
 The third level of strategy is termed the
operational or functional strategy were the
functions of the business (e.g. operations,
marketing, finance) make long-range plans
which support the business strategy. Since the
operations function is responsible in large
part for the delivery of the product/service it
has a major responsibility for business
strategy formulation and implementation

The Role of Operations in
Strategy Development
 The operations function plays an
important role in the formulation and
delivery of the organization’s strategy
 The approach is based on the firm’s ability
to forecast future market conditions and
thus identify gaps between future market
needs and organisational capability

Operations Competitive Priorities
 Cost
 If an organization is competing on price
then it is essential that it keeps its cost
base lower than the competition

 Time
 The time delay or speed of operation can
be measured as the time between a
customer request for a product/service
and then receiving that product/service.
Speed is an important factor to the
customer in making a choice about which
organization to use.

• Quality
• Quality covers both the quality of the
product/service itself and the quality of the
process that delivers the product/service.
Quality can be measured by the ‘cost of
quality’ model were costs are categorized as
either the cost of achieving good quality
(the cost of quality assurance) or the cost of
poor quality products (the costs of not
conforming to specifications).
• Flexibility
• There are a number of areas in which flexibility
can be demonstrated. For example it can mean
the ability to offer a wide variety of
products/services to the customer and to be able
to change these products/services quickly.
Flexibility is needed so the organisation can adapt
to changing customer needs in terms of product
range and varying demand and to cope with
capacity shortfalls due to equipment breakdown
or component shortage

Strategy Process
Company
Mission
Business
Strategy
Functional
Functional Area
Area
Strategies
Marketing Operations Fin./Acct.

Decisions Decisions Decisions
2-
Strategies for Competitive Advantage
 Differentiation
 Cost leadership
 Quick response
2-
Competing on Differentiation
Uniqueness can go beyond both the
physical characteristics and service
attributes to encompass everything that
impacts customer’s perception of value

Competing on Cost
Provide the maximum value as perceived by
customer
Does not imply low value or low quality
2-
Competing on Response
 Flexibility
 Reliability
 Timeliness
Requires institutionalization within the firm
of the ability to respond
2-
OM’s Contribution to Strategy
Operations Specific Competitive
Decisions Examples Strategy Used Advantage
Quality FLEXIBILITY
Sony’s constant innovation of new products Design
Product HP’s ability to follow the printer market Volume
Process Southwest Airlines No-frills service LOW COST
Location DELIVERY
Pizza Hut’s five-minute guarantee at lunchtime Speed
Layout Federal Express’s “absolutely, positively on time”
Dependability Differentiation
(Better)
Human Resource
QUALITY
Motorola’s automotive products ignition systems
Conformance Response
Supply Chain Cost (Faster)
Motorola’s pagers Performance leadership
(Cheaper)
Inventory
IBM’s after-sale service on mainframe computers
AFTER-SALE SERVICE
Scheduling
Fidelity Security’s broad line of mutual funds
BROAD PRODUCT LINE
Maintenance

3. Product Design and
Process Selection
 New product designs can provide a
competitive edge by bringing new ideas to
the market quickly, doing a better job of
satisfying customer needs, or being easier
to manufacture, use and repair.

 Generating Ideas
 Ideas for new products and services
should be sought from a variety of
sources including market research,
customer viewpoints, the organization's
research and development (R&D)
department if one exists, competitors or
relevant developments in new technology

 Product Screening
 The screening process consists of market
analysis, economic analysis and technical
analysis.

 Market analysis
 Market analysis consists of evaluating the
product concept with potential customers
through interviews, focus groups and other
data collection methods.
 Economic Analysis
 Economic Analysis consists of developing
estimates of production and demand costs
and comparing them with estimates of
demand

 X = (P + FC)
-----------
(SP – VC)
where
 X = volume (units)
 P = profit
 FC = fixed costs
 SP = selling price
 VC = variable costs

 Technical Analysis
 Technical analysis consists of determining
whether technical capability to
manufacture the product.
 This covers such issues as ensuring
materials are available to make the
product to the specification required, and
ensuring the appropriate machinery and
skills are available to work with these
materials.
 Preliminary Design
 Product concepts that pass the feasibility stage
enter preliminary design. The specification of
the components of the package requires a
product /service structure which describes
the relationship between the components and
a bill of materials or list of component
quantities derived from the product structure.

 Final Design
 The final design stage involves the use of
a prototype to test the preliminary design
until a final design can be chosen.
 Computer Aided Design (CAD) and
Simulation Modeling can be used to
construct a computer-based prototype of
the product design.

Methods for Improving
Product Design
 Design for Manufacture (DFM) is a
concept which provides guidelines on
how this can be achieved using techniques
such as simplification, standardization and
modularization

Concurrent Engineering
 Concurrent engineering is when

contributors to the design effort provide
work throughout the design process as a
team.
 This differs from the traditional design
process when work is undertaken
separately within functional areas such as
engineering and operations

Process Selection
 When considering product design the

issue of the design of the process that is
used to produce that design should be
considered also

 Project
 Processes that produce
products of high variety and
low volume are termed
projects

Jobbing
• Jobbing processes are used to make a

one-off or low volume product to a
customer specification.
• A feature of a jobbing process is that the
product moves to the location of
transforming resources such as
equipment.
• Thus resources such as staff and
equipment can be shared between many
products
Batch
Processes that produce
products of medium variety
and medium volume are
termed batch which denote
that the products are grouped as
they move through the design
process.

Line
 Processes that produce products of high
volume and low variety are termed line
or mass processes

Continuous
 Processes that operate continually to
produce a very high volume of a standard
product are termed continuous.
 The products produced by a continuous
operation are usually a continuous flow
such as oil and gas.
 Continuous processes use a large amount
of equipment specialised and dedicated to
producing a single product (such as an oil
refinery for example).
Total Quality Management
 Total Quality Management (TQM)
requires that the principles of quality
management are applied in all aspects and
at every level in an organization

Quality and Strategy
 Managing quality supports
differentiation, low cost, and
response strategies
 Quality helps firms increase sales
and reduce costs
 Building a quality organization is a
demanding task

Defining Quality
The totality of features and

characteristics of a product or service
that bears on its ability to satisfy stated
or implied needs
American Society for Quality

 For some quality signifies the degree of
perfection. In fact, quality, like beauty, lies
in the beholder’s eyes.
 Quality is often described as getting
things done ‘right first time, every time’

 Quality is not an option in most walks of
life. For example, it would be unthinkable
for airline pilots or hospital midwives to
aim for anything less than perfection in
what they do, and nonsense to think of
only trying for an ‘acceptable’ level of
failure – one plane crash in 100 or one
baby dropped per 500 deliveries!

 One of the annoying factors about quality is that
seemingly unimportant details can have an
astonishing impact on how quality is perceived.
◦ For example, when Concorde crashed it was as a result
of a lack of attention to a piece of debris on the runway
 The issue of safety (the most important element
of travel in our evaluation of service quality) now
became paramount

 It is not always true that a product with
high quality will also be costly. Conversely,
many times an expensive product is low
in quality

Contd.
 Garvin (1983, p. 40) identifies five different
definitions of quality:
 Transcendent quality is ‘innate excellence’ – an
absolute and universally recognizable high level
of achievement. E.g.Artist
 User-based quality ‘lies in the eye of the
beholder’, so that each person will have a
different idea of quality, based on its fitness for
use by the individual.

Contd.
 Manufacturing-based quality is ‘conformance to

requirements’, adhering to a design or
specification
 Value-based quality is performance or
conformance at an acceptable price or cost
 Product-based quality is a precise and measurable
variable, and goods can be ranked according to
how they score on this measure

Different Views
 User-based – better performance,
more features
 Manufacturing-based –
conformance to standards, making it
right the first time
 Product-based – specific and
measurable attributes of the product

Implications of Quality
1. Company reputation
 Perception of new products
 Employment practices
 Supplier relations
2. Product liability
 Reduce risk
3. Global implications
 Improved ability to compete
Key Dimensions of Quality
 Performance  Durability
 Features  Serviceability
 Reliability  Aesthetics
 Conformance  Perceived quality
 Value

Malcom Baldrige National Quality
Award(MBNQA)
 Established in 1988 by the U.S.
government
 Designed to promote TQM practices
 Recent winners
 Premier Inc., MESA Products, Sunny
Fresh Foods, Park Place Lexus, North
Mississippi Medical Center, The Bama
Companies, Richland College, Texas
Nameplate Company, Inc.
Baldrige Criteria
Applicants are evaluated on:
Categories Points
Leadership 120
Strategic Planning 85
Customer & Market Focus 85
Measurement, Analysis, and
Knowledge Management 90
Workforce Focus 85
Process Management 85
Results 450
Costs of Quality
 Prevention costs - reducing the
potential for defects
 Appraisal costs - evaluating products,
parts, and services
 Internal failure - producing defective
parts or service before delivery
 External costs - defects discovered
after delivery
Costs of Quality
Total Total Cost
Cost
External Failure
Internal Failure
Prevention
Appraisal
Quality Improvement

Leaders in Quality
W. Edwards Deming Edwards (1900-1993) 14 Points for Management
Joseph M. Juran (1904-2008) Top management
commitment, fitness for
use
Armand Feigenbaum Total Quality Control
Philip B. Crosby Quality is Free, zero
defects
Kaoru Ishikawa(1915-1989) Company Wide Quality
Control Movement(CWQC)

Juran's Trilogy

Ethics and Quality Management
 Operations managers must deliver

healthy, safe, quality products and
services
 Poor quality risks injuries, lawsuits,
recalls, and regulation
 Organizations are judged by how they
respond to problems
 All stakeholders must be considered

International Quality Standards
 ISO 9000 series (Europe/EC)

 Common quality standards for products sold in Europe
(even if made in U.S.)
 2000 update places greater emphasis on leadership and
customer satisfaction
 ISO 14000 series (Europe/EC)

ISO 14000
Environmental Standard
Core Elements:
 Environmental management
 Auditing
 Performance evaluation
 Labeling
 Life cycle assessment

TQM
Encompasses entire organization, from

supplier to customer; Stresses a
commitment by management to have a
continuing, companywide drive toward
excellence in all aspects of products and
services that are important to the
customer.

Deming’s Fourteen Points
1. Create consistency of purpose
2. Lead to promote change
3. Build quality into the product; stop depending on
inspection
4. Build long-term relationships based on
performance, not price
5. Continuously improve product, quality, and
service
6. Start training on the job
7. Emphasize leadership
Table 6.1
Deming’s Fourteen Points
8. Drive out fear
9. Break down barriers between departments
10. Stop haranguing (to criticize or question
somebody )workers
11. Support, help, improve
12. Remove barriers to pride in work
13. Institute a vigorous program of education and
self-improvement
14. Put everybody in the company to work on the
transformation
Table 6.1
Seven Concepts of TQM
 Continuous improvement
 Six Sigma
 Employee empowerment
 Benchmarking
 Just-in-time (JIT)
 Taguchi concepts
 Knowledge of TQM tools

Continuous Improvement/Kaizen
 Represents continual improvement

of all processes
 Involves all operations and work
centers including suppliers and
customers
People, Equipment, Materials,
Procedures

Shewhart’s PDCA Model
1.Plan
4. Act Identify the
Implement the improvement and make
plan a plan
3. Check 2. Do
Is the plan Test the
working? plan
Figure 6.3

Six Sigma
 Two meanings
 Statistical definition of a process that is
99.9997% capable, 3.4 defects per
million opportunities (DPMO)
 A program designed to reduce defects,
lower costs, and improve customer
satisfaction

Six Sigma
 Two meanings
Lower limits Upper limits
 Statistical
2,700 defects/million
definition of a process that is
99.9997% capable, 3.4 defects per
3.4 defects/million
million opportunities (DPMO)
 A program designed to reduce defects,
lower costs, and improve customer
satisfaction Mean
±3
±6
Figure 6.4

Six Sigma Program
 Originally developed by Motorola,
adopted and enhanced by Honeywell
and GE
 Highly structured approach to process
improvement
 A strategy
 A discipline - DMAIC
12/10/2018
6
Compiled by: Matiwos Ensermu, PhD 66
Six Sigma
1. Define critical outputs
and identify gaps for DMAIC Approach
improvement
2. Measure the work and
collect process data
3. Analyze the data
4. Improve the process
5. Control the new process to
make sure new performance is
maintained
Six Sigma Implementation
 Emphasize defects per million opportunities
as a standard metric
 Provide extensive training
 Focus on corporate sponsor support
(Champions)
 Create qualified process improvement
experts (Black Belts, Green Belts, etc.)
 Set stretch objectives
This cannot be accomplished without a major commitment from
top level management

Employee Empowerment
 Getting employees involved in product and
process improvements
 85% of quality problems are due
to process and material
 Techniques
 Build communication networks
that include employees
 Develop open, supportive supervisors
 Move responsibility to employees
 Build a high-morale organization
 Create formal team structures

Quality Circles
 Group of employees who meet
regularly to solve problems
 Trained in planning, problem
solving, and statistical methods
 Often led by a facilitator
 Very effective when done properly

Benchmarking
Selecting best practices to use as a
standard for performance
 Determine what to
benchmark
 Form a benchmark team
 Identify benchmarking partners
 Collect and analyze benchmarking
information
 Take action to match or exceed the
benchmark
Benchmarking Factors for
Web Sites
Use of meta tags Yes: 70%, No: 30%
Meaningful homepage title Yes: 97%, No: 3%
Unique domain name Yes: 91%, No: 9%
Search engine registration Above 96%
Average loading speed 28K: 19.31, 56K:
10.88, T1: 2.59
Average number of spelling errors 0.16
Visibility of contact information Yes: 74%, No: 26%
Presence of search engine Yes: 59%, No: 41%
Translation to multiple languages Yes: 11%, No: 89%
Table 6.3
Best Practices for Resolving
Customer Complaints
 Make it easy for clients to complain
 Respond quickly to complaints
 Resolve complaints on first contact
 Use computers to manage complaints
 Recruit the best for customer service
jobs

Just-in-Time (JIT)
Relationship to quality:
 JIT cuts the cost of quality

 JIT improves quality
 Better quality means less
inventory and better, easier-to-
employ JIT system

Just-in-Time (JIT)
 ‘Pull’ system of production scheduling

including supply management
 Production only when signaled
 Allows reduced inventory levels

 Inventory costs money and hides process and material
problems
 Encourages improved process and product

quality

Just-In-Time (JIT) Example
Work in process
inventory level
(hides problems)
Unreliable Capacity
Vendors Scrap Imbalances

Just-In-Time (JIT) Example
Reducing inventory reveals
problems so they can be solved
Unreliable Capacity
Vendors Scrap Imbalances

Taguchi Concepts
 Engineering and experimental design
methods to improve product and
process design
 Identify key component and process
variables affecting product variation
 Taguchi Concepts
 Quality robustness
 Quality loss function
 Target-oriented quality
Quality Robustness
 Ability to produce products uniformly

in adverse manufacturing and
environmental conditions
 Remove the effects of adverse
conditions
 Small variations in materials and
process do not destroy product quality
Quality Loss Function
 Shows that costs increase as the
product moves away from what the
customer wants
 Costs include customer
dissatisfaction, warranty
and service, internal
scrap and repair, and costs to society
 Traditional conformance
specifications are too simplistic

Quality Loss Function
High loss
L = D2 C
Unacceptable where
Loss (to L = loss to society
producing Poor
organization, D = distance from
customer, Fair target value
and society) Good C = cost of deviation
Best
Low loss Target-oriented quality
yields more product in
the “best” category
Target-oriented quality
brings product toward
Frequency the target value
Conformance-oriented
quality keeps products
within 3 standard
deviations
Lower Target Upper
Specification Figure 6.5
Tools of TQM
 Tools for Generating Ideas
Check sheets
Scatter diagrams
Cause-and-effect diagrams
 Tools to Organize the Data
Pareto charts
Flowcharts
 Tools for Identifying Problems
Histogram
Statistical process control chart
Seven Tools of TQM
(a) Check Sheet: An organized method of recording data
Hour
Defect 1 2 3 4 5 6 7 8
A /// / / / / /// /
B // / / / // ///
C / // // ////
Figure 6.6
Check Sheets
 A straightforward quality control tool often used to collect
data for fact-finding and solving quality problems, e.g.to
count the number of defects against known causes
Month: May 20xx Steel Stationery Cabinet: Customer Returns
Region Defect Category TOTAL
Scratches Dents Paint Finish Colour Other
A IIII III II 10
B IIII IIII IIII I III II 19
C IIII IIII I III I 15
D IIII I IIII IIII II III 21
E IIII II II I 10
TOTAL 36 21 4 11 3 75
 The data is often used to construct histograms (bar charts) & Pareto
diagrams 12/10/2018 Compiled by: Matiwos Ensermu, PhD 84
Seven Tools of TQM
(b) Scatter Diagram: A graph of the value of one variable
vs. another variable
Productivity
Absenteeism
Figure 6.6
Scatter Diagrams
 Used to establish if there is a correlation between two
variables, i.e. the direction & degree of relationship
between these two variables
 A correlation may assist in pinpointing the source of a
quality problem
V V V
A A A
R R R
I I I
A A A
B B B
L L L
E E E
Y Y Y
VARIABLE X VARIABLE X VARIABLE X
Positive Correlation Negative Correlation No Correlation

Seven Tools of TQM
(c) Cause-and-Effect Diagram: A tool that identifies process
elements (causes) that might effect an outcome
Cause
Materials Methods
Effect
Manpower Machinery
Figure 6.6
Cause-and-Effect (Fishbone) Diagrams
 Developed by Ishikawa – as a structured way in improvement
programmes of finding the source causes of problems
 OM can use the 4 Ms (Machinery, Manpower, Materials & Methods)

as the cause categories or ‘primary bones’. Then, by brainstorming,
individual contributors (‘secondary bones’) are assigned to these
categories...
CAUSE CAUSE
Machinery Manpower
breakdowns poor training

no spares
outdated absenteeism EFFECT
Late Deliveries
poor quality - rejects poor

inventory
supplier stock-outs
system
Materials Methods
CAUSE CAUSE
Cause-and-Effect Diagrams
Material Method
(ball) (shooting process)
Grain/Feel Aiming point
(grip)
Size of ball
Air pressure Bend knees
Hand position
Balance
Lopsidedness
Follow-through
Missed
Training
free-throws
Rim size
Conditioning Motivation Rim height
Consistency Rim alignment Backboard

stability
Concentration
Machine
Manpower
(hoop & Figure 6.7
(shooter)
backboard)
Seven Tools of TQM
(d) Pareto Chart: A graph to identify and plot problems or defects
in descending order of frequency
Frequency
Percent
A B C D E
Figure 6.6
Pareto Charts
Data for October
– 100
70 – – 93
– 88
60 –
54
Frequency (number)
– 72
50 –
Cumulative percent
40 –
Number of
30 –
occurrences
20 –
12
10 –
4 3 2
0 –
Room svc Check-in Pool hours Minibar Misc.
72% 16% 5% 4% 3%
Causes and percent of the total

Pareto Diagrams (80:20 or ABC classification)
 One of management-focusing techniques most
used to identify & isolate key issues, e.g. in:
…quality
…inventory allocation (ABC)
…variety control (e.g. products)
…stratification of customers
 A histogram distributing data

from most significant to least
significant, often as a cumulative
curve
 Example: Pareto diagram for

previous Check Sheet:

Seven Tools of TQM
(e) Flowchart (Process Diagram): A chart that describes the steps
in a process
Figure 6.6
Flow Charts
MRI Flowchart
1. Physician schedules MRI 7. If unsatisfactory, repeat
2. Patient taken to MRI 8. Patient taken back to room
3. Patient signs in 9. MRI read by radiologist
4. Patient is prepped 10. MRI report transferred to
5. Technician carries out MRI physician
6. Technician inspects film 11. Patient and physician discuss
8
80%
1 2 3 4 5 6 7 11
9 10
20%

Flowcharts…
 A visual and sometimes detailed representation of the sequence of
operations that make up a process & their relationships
 Often the first tool in continuous improvement as it enables
understanding the process and identifying where problems occur
Referred back to
customer Does not Conform
Feasible Conforms
Evaluate Produce Evaluate Submit to
Start End
request sample sample Customer
…& Process Mapping

 A more advanced development of flowcharts
 Often includes a time dimension along the horizontal axis - also

known as time-function mapping
 Particularly useful in identifying wasteful delays as well as

unnecessary steps in the process
Seven Tools of TQM
(f) Histogram: A distribution showing the frequency of occurrences
of a variable
Distribution
Frequency
Repair time (minutes)

Figure 6.6
Histograms (or Bar Charts)
 Simple statistical tools that show in graphical form the

frequency or number of observations.
 Very useful to see the spread, variations and

distribution of data and to identify unusual values.
 Example: histogram of the previous Check Sheet

showing the number of defects per category
40
35
30
Number 25
20
of
15
defects 10
5
0
Scratches Dents Paint Colour Other
Finish Variation
Seven Tools of TQM
(g) Statistical Process Control Chart: A chart with time on the
horizontal axis to plot values of a statistic
Upper control limit
Target value
Lower control limit
Time
Figure 6.6
Run Charts…
 Simple line charts where performance data (vertical axis) is
plotted over time (horizontal axis). e.g. the number of patients
visiting a clinic every day for a particular month
 Easy to construct & interpret - trends, unusual patterns, etc. are

easy to spot
…& Control Charts

 A special form of a run chart that uses statistics to show the
mean and the variation in a process
 They incorporate an upper control limit (UCL) and a lower

control limit (LCL)
 Discussed later under Statistical Process Control

Statistical Process Control (SPC)
 Uses statistics and control charts to tell
when to take corrective action
 Drives process improvement
 Four key steps
 Measure the process
 When a change is indicated, find the assignable cause
 Eliminate or incorporate the cause
 Restart the revised process

An SPC Chart
Plots the percent of free throws missed
20% Upper control limit
10% Coach’s target value
0% | | | | | | | | |
Lower control limit
1 2 3 4 5 6 7 8 9
Game number
Figure 6.8

Additional QC tools
 Why or “Why-Why” analysis

Ask “Why?” five times to get to the root of the problem
The 5W1H method asks: What? Where? When?
Why? Who? and How?
 Customer Complaints
Complaints from external & internal customers are a very
valuable way to pinpoint improvements
 “Go to Gemba” or “Genba”

I.e. go to the workplace to collect the data and find out
what the problem is…

Statistical Process Control
A detailed discussion of SPC is beyond our scope, but it
is important to be aware of some of the different
techniques that are used, e.g.:
 Control Charts
 Process Capability
 Sampling

Control Charts
 Show when a particular process may have changed enough to affect the
quality of output, i.e. the variation is no longer random and it is time to
take corrective action
 Can provide a clearly visible record of either attributes (“yes/no”,
“go/no-go”, etc.) or variables (weight, length, diameter, etc.)
corrective action
UPPER CONTROL LIMIT required above this line
UPPER WARNING LINE
X X
X X range of
Mean X
normal
X variation
X
LOWER WARNING LINE
LOWER CONTROL LIMIT corrective action

required below this line
Sample no.
12/10/2018
Time Compiled by: Matiwos Ensermu, PhD 104
Process Capability
 Determines the extent to which a process can produce items
consistently within the limits of the specification
 Asks “what is the capability of a process to meet or exceed the
specification?”
Process capability ratio (Cp) = Specification width
Process width
 Over time, random variations (due to changes in voltage, temperature,

tool wear, etc.) affect output, distributed about a mean - the familiar bell-
shaped distribution curve
specification
supplier X
This graph shows that Supplier X does not supplier Y
have the process capability, whereas Supplier Process Capability
Y meets the required specification
mean
Variation
Sampling
Used because a 100% inspection system is generally impractical or
impossible due to cost, time delays or destructive testing. Two options:
1. Sampling for quality control (qc) during production of the good
or service
2. Acceptance Sampling: a technique to determine whether to
accept or reject an entire batch after inspecting / testing a
sample
 Single sampling plan: acceptance or not of batch based

on the results of one single sample drawn
 Double sampling plan: a second sample is taken if the

first sample is unsatisfactory or inconclusive
 Sequential or multiple sampling plan: an extension of

double sampling
Quality Management Systems: ISO 9000
 Developed by the International Organization for Standardization, Geneva, in 1987
- the best known symbol of quality in the world
 Initially a quality accreditation process, but evolved into a system for quality
management, ISO 9000:2000, reviewed regularly
 Replaced in Nov 2008 by ISO 9001:2008 – no new requirements but

clarifies the requirements of ISO 9001:2000 and improves consistency with
the environmental management system standard IS14001:2004.
 Based on eight quality management principles:

1. Systems approach to management
2. Leadership
3. People involvement
4. Continuous improvement
5. Customer focus
6. Sound supplier relationships
7. Process approach
8. Decisions based on facts 12/10/2018 Compiled by: Matiwos Ensermu, PhD 107
Inspection
 Involves examining items to see if an
item is good or defective
 Detect a defective product
 Does not correct deficiencies in
process or product
 It is expensive
 Issues
 When to inspect
 Where in process to inspect
When and Where to Inspect
1. At the supplier’s plant while the supplier is
producing
2. At your facility upon receipt of goods from the
supplier
3. Before costly or irreversible processes
4. During the step-by-step production process
5. When production or service is complete
6. Before delivery to your customer
7. At the point of customer contact

Inspection
 Many problems
 Worker fatigue
 Measurement error
 Process variability
 Cannot inspect quality into a product
 Robust design, empowered
employees, and sound processes
are better solutions

Source Inspection
 Also known as source control
 The next step in the process is
your customer
 Ensure perfect product
to your customer
Poka-yoke is the concept of foolproof devices or techniques

designed to pass only acceptable product

Service Industry Inspection
What is
Organization Standard
Inspected
Jones Law Office Receptionist Is phone answered by the
performance second ring
Billing Accurate, timely, and
correct format
Attorney Promptness in returning
calls
Table 6.5

What is
Inspected
Hard Rock Hotel Reception Use customer’s name
desk
Doorman Greet guest in less than 30
seconds
Room All lights working, spotless
bathroom
Minibar Restocked and charges
accurately posted to bill
Table 6.5

What is
Inspected
Arnold Palmer Billing Accurate, timely, and
Hospital correct format
Pharmacy Prescription accuracy,
inventory accuracy
Lab Audit for lab-test accuracy
Nurses Charts immediately
updated
Admissions Data entered correctly and
completely
Table 6.5

What is
Inspected
Olive Garden Busboy Serves water and bread
Restaurant within 1 minute
Busboy Clears all entrée items and
crumbs prior to dessert
Waiter Knows and suggest
specials, desserts
Table 6.5

What is
Inspected
Nordstrom Display areas Attractive, well-organized,
Department stocked, good lighting
Store Stockrooms Rotation of goods,
organized, clean
Salesclerks Neat, courteous, very
knowledgeable
Table 6.5

Attributes Versus Variables
 Attributes
 Items are either good or bad, acceptable or
unacceptable
 Does not address degree of failure
 Variables
 Measures dimensions such as weight, speed,
height, or strength
 Falls within an acceptable range
 Use different statistical techniques

TQM In Services
 Service quality is more difficult to
measure than the quality of goods
 Service quality perceptions depend on
 Intangible differences between products
 Intangible expectations customers have
of those products

Service Quality
The Operations Manager must
recognize:
1. The tangible component of
services is important
2. The service process is important
3. The service is judged against the
customer’s expectations
4. Exceptions will occur

Determinants of Service Quality
 Reliability  Credibility
 Responsiveness  Security
 Competence  Understanding/
 Access knowing the
customer
 Courtesy
 Tangibles
 Communication

Service Recovery Strategy
 Managers should have a plan for when

services fail
 Marriott’s LEARN routine
 Listen
 Empathize
 Apologize
 React
 Notify

-----------------------------------------
Supply Chain
Management

Supply Chain Management…
“As the economy changes, as competition becomes

more global, it is no longer company vs. company but
supply chain vs. supply chain”
Harold Sirkin (1994), Boston Consulting Group
 …has captured the imagination of more & more managers and

business organizations
 …requires them to think beyond their organization – to think about

their product in its entirety, from the origin of all goods (Mother Earth),
up to the final customer, consumer or user

outline
 Concept
 Flows in SC
 Objective of SCM
 Strategic SCM
 Effective SCM strategies
▪ Globalization, Outsourcing, Location,
Product Life Cycle, Time-based Competition, e-business,
Collaborative Planning, Forecasting & Replenishment
▪ Supply Chain Risk Management (SCRM):
▪ Cross dcking
▪ Bullwhip effect
▪ Types of SC
▪ GSC
▪ Sustainable SC

1
Materials
Management
Manufacturer
2 Purchasing & Supply Physical Distribution
Supplier Manufacturer Customer
3 Inbound Logistics Outbound Logistics
4 INTEGRATED LOGISTICS
2nd Tier 1st Tier 1st Tier 2nd Tier

Manufacturer
Supplier Supplier Customer Customer
5
Mother Earth SUPPLY CHAIN / SUPPLY NETWORK MANAGEMENT End User
Supply Chain Management…
…is the management of the acquisition, transformation and delivery
processes that enable and direct the flows of products & services – as
well as the supporting reciprocal flows of information & funds – along a
chain leading from the sources of the original inputs up to the end
customers, all aimed at achieving the best possible customer service at
the lowest possible cost.
Fundamentals:
 A supply chain is a dynamic concept that involves the constant flow
of resources (products, information, funds) amongst all the
participants along the chain
 It is essentially a system of interconnecting chains i.e. a supply
network or a supply web

Basic SCM-related tasks
of an organization in a supply chain
PURCHASING
OPERATIONS
LOGISTICS
(& INVENTORY)
(Warehousing &
CONTROL
Transportation)
DEMAND
PLANNING

The Four Interrelated Flows in SCM
1. Product & Service Flows:
The value-adding flow, as products & services
progress along the supply chain from point of
origin to point of final use or consumption.
Generally flow downstream the chain
but also upstream (e.g. reprocessing)
2. Information Flows:
The bi-directional flows of information throughout the chain –
particularly on customer demand which “pulls” the supply chain, but
also on supply conditions & eventual disruptions
3. Funds Flows:
The flows of funds, mainly upstream (payments for goods
& services received) but also in some cases downstream
4. Expertise & Technology Flows:

Sharing in areas such as IT systems, SCM expertise, product design,
marketing, developing joint SC performance
12/10/2018 indicators, etc.Ensermu, PhD
Compiled by: Matiwos 128
The Four Interrelated Flows in SCM: an example
Material Flow
Funds Flow
Information Flow
E&T Flow
Orange Fruit
farm packing
Food Retail
Mother Earth processor
Distributor outlet
Bauxite Aluminium Aluminium Can

mine smelter strip mill maker

Strategic
SCM…
…embraces
& builds upon
TQM and JIT

Strategic SCM (cont’d)
 Key elements are the elimination of waste - especially inventory - and

continuous improvement
 Strategic SCM integrates supply & demand
 Effective SCM strategies can provide a sustainable competitive

advantage. Factors to consider:
Globalization
Outsourcing
Location
Product Life Cycle
Time-based Competition
e-business
Collaborative Planning, Forecasting & Replenishment
Supply Chain Risk Management
1. Globalization:
Globalization has increased competition and
changed the way organizations do business,
making supply chains longer & more complex
2. Outsourcing:
Outsourcing is obtaining a product previously produced
internally from an external supplier – it is occurring more
frequently, especially global outsourcing
3. Location:
The choice of location becomes even more complex when taken
from the perspective of the supply chain

4. Product Life Cycle:

Product life cycles are becoming shorter as customers
demand new and a larger variety of products, leading to
changing requirements and the introduction of new supply
chains
5. Time-based Competition:
Organizations and supply chains compete in reducing delivery
lead-times and increasing the speed to produce new products

6. E-business:
IT – especially electronic communications and e-business – has strongly

stimulated the development of SCM. Electronic information systems such as
ERM, SRM & CRM today play a crucial role in maintaining
the essential links between demand & supply
7. Collaborative Planning, Forecasting &

Replenishment:
A recent development that facilitates information sharing among supply

chain participants in order to:
Improve customer service
Reduce inventories and logistics costs
Increase sales and profits

8. Supply Chain Risk Management (SCRM):
A relatively new concept that has developed due to the risks of supply
globalization, single sourcing, outsourcing, lean systems, distribution,
etc.; it is intended to help identify the risks, protect from the
consequences of these risks and minimize any loss

Other Important Factors in
SCM
1. Purchasing / Procurement:
As SCM evolves, so Purchasing also continues to grow in importance and

today considers strategic supply issues far broader than just purchasing
transactions or buying, making it critical to effective SCM

Other Important Factors in (cont’d)
2. Cross-docking:
SCM
Supplier Supplier Supplier
 Brilliant & simple
concept developed by
Wal-Mart
 Substantially reduces
inventory costs & lead-
times, improving
customer service
 Requires sophisticated
systems to be well-
managed
End-point End-point End-point End-point End-point End-point

delivery delivery delivery delivery delivery delivery

SCM
3. The Bullwhip Effect:
Even where demand is relatively stable, variability of inventory

levels increases considerably as one moves back along the supply
chain. This can be lessened by reducing uncertainty along the
supply chain by:
Sharing information on customer demand &

Using the same supply policies, forecasting
methods, etc.
4. The Type of Supply Chain:
Different types of organizations require different types of supply chains – this

can be shown through a matrix linking uncertainty of demand with
uncertainty of supply
Types of Supply Chains - Examples
 Efficient Supply Chain (functional products and stable process):

e.g. petrol, diesel, cement, groceries
 Agile Supply Chain (innovative products with uncertain demand
and evolving processes): innovative high-tech products, e.g.
“smart” mobile phones
 Risk-hedging Supply Chain (functional products with high supply
uncertainty due to changing processes): seasonal products
 Responsive Supply Chain (innovative products with high demand
uncertainty but stable supply processes): e.g. fashion goods and
music

SCM
5. Procter & Gamble’s Perfect Order System:
Has driven major changes at P&G as an important metric of

customer expectations:
On-time Delivery
Shipped complete
Invoiced correctly
With no damage in transit

Supply Chain Leverage on Profit
One of the most widely used business performance measures

– particularly important in SCM - is the Return on Investment
(ROI) or Return on Capital Employed (ROCE), i.e. the benefit
received from assets, which is calculated as follows:
ROI = Profit (or Net Income)

Total Assets (or Capital Employed)

Supply Chain Leverage on Profit (cont’d)
ROI can be broken down into two other important

financial ratios:
ROI = Profit = Profit x Sales

Total Assets Sales Total Assets
Now: Profit Margin = Profit

Sales
And: Asset Turnover = Sales

Total Assets
Therefore: ROI = Profit Margin x Asset Turnover

Profit margin is a measure of the ability to control costs

Asset turnover is a measure of the ability to use assets
(especially current assets, e.g. inventory), a particularly
important ratio in the fast moving consumer goods
(FMCG) industry where it is often reported as the
number of inventory turns per annum
SC leverage on profit can have a major impact on improving

profit by lowering costs: savings go straight to the bottom-line

Consider the following example of a business organization

where 60% of the annual sales are spent on purchases:
Total Sales = $ 20,000,000
Purchases = $ 12,000,000
Salaries & Wages = $ 6,000,000
Overheads etc. = $ 1,000,000
Profit = $ 1,000,000 (i.e. a 5% profit margin)
Question: How can management double the profit

from $1,000,000 to $2,000,000?
Several options:
 Increase selling prices by 5% - difficult in a competitive
market and probably requiring additional marketing costs
 Double Sales - extremely difficult due to capacity and
other resource constraints
 Decrease salaries by 16.7% or eliminate overheads-
probably impossible.
 Decrease purchasing costs by 8.3% - in most cases the
obvious solution, particularly if extended to reductions in
other SC costs such as transportation, packaging &
materials handling
Greening the Supply Chain:
The Reprocessing Flow
 The Reprocessing Flow is a critical part of

“Greening the Supply Chain”
 The US Environmental Protection Agency (EPA) originally came

up with the concept of the “4Rs of waste management”: Reduce,
Reuse, Reallocate & Recycle
 However, the growth and ongoing development of

Remanufacturing must also be recognized as an important
contributor to the greening of the supply chain

Greening the Supply Chain:
The 5 R’s of Reprocessing
REDUCE: The Reduction in use of materials,
e.g. reduce solid waste, reduce packaging, etc.
REUSE: The Re-use of materials,

e.g. returnable boxes, reusable packaging
RE-ALLOCATE: Extending the use of waste,

e.g. by - products used for another purpose
RECYCLE: Collection and separation of material,

e.g. waste paper, plastics, aluminium beverage cans
REMANUFACTURE: Resource regeneration,

e.g. reconditioning single-use cameras, printer cartridges
The Sustainable Supply Chain
 The concept of a sustainable SC, although relatively recent, is
becoming increasingly important
 It involves managing the SC - from raw materials to the final consumer,

along with the reprocessing of any waste materials - with the objective
of protecting the environment while also being socially responsible
 The champions of sustainable SCM are no longer the manufacturers,

but rather the retailers in response to public concerns

Supply Chain Management
 SCM has resulted in a major change in the way that

we do business.
 Effective supply chain management strategies have

many potential benefits:
 Improved customer service

 Lower inventory & higher inventory turnover
 Higher productivity
 Shorter lead-times
 Improved ROI
 Increased market share

JIT and Lean Systems

Just-in-Time: Definitions
…is an operations philosophy based on the elimination of waste that enables
an organization to consistently produce & deliver products according to
customer demand
 Goods & services are produced / provided just when

needed - neither early nor late - at the right place, in the
right quantity and of the right quality
 SCM has led a shift from JIT within an organization to
JIT along the supply chain
 Today terms such as “lean operations” and “lean
supply chains” are preferred
So JIT has become…

…an operations philosophy of continuous improvement aimed at the
elimination of waste along the entire supply chain

The Foundations of JIT
1 The Elimination of waste
The heart of JIT is eliminating waste, which is the best way to
reduce costs and improve ROI: “Inventory is Evil”; and as
“Inventory is Waste, thus all Waste is Evil”
2 Continuous improvement
JIT is a system of enforced problem-solving to eliminate waste
using continuous improvement (kaizen) to achieve its objectives
3 Respect for people

It requires a supportive & progressive work environment,
demanding respect for all staff, suppliers & customers
4 Long-term strategic vision

Organizations adopting JIT must make it the basis for their mission
and for all their goals

1 Elimination of Waste
Waste is any activity that does not add value

(the Japanese term for waste is “muda”)
 The elimination of waste is at the heart of the Toyota

Production System created by their Chief Engineer,
Taiichi Ohno
 He established seven categories of waste: “The
Seven Wastes”
 More “wastes” have since been added, so they are
now ten !

1
U F D
N P U D A E
N R E N U I
E N P
E O X N F L L
C C C E D U
O E E E
W E E E C C R T
V S S S R E
E A E T I
I S S S S U
R I T O
T A S V T N
P R W I I O
R I A E
N Y A N R L
O I O
D G S V Y P U F
T T E Z S
U R E
T R E N M O E N
C A T D
T I O D A
M N O T U S T.
I S R S U
O E I C
P Y O K P
N T I R
O N S P E
R L L
L S
T Y O
A S
U
T C R
I H C
O A E
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Compiled
Sby: Matiwos Ensermu, PhD 154
N
2 Continuous Improvement
…is a fundamental principle of JIT as well as one of the 3 key
elements of TQM, and is crucial to the elimination of waste
Continuous improvement techniques:

1. Minimization of inventory
2. Reducing set-up times
3. Small lot sizes
4. Uniform plant loading (level
scheduling)/heijunka
5. Push vs. Pull (Kanbans)
6. Quality at source
7. JIT (product) Layout
8. JIT Suppliers
3 Respect for People
 Respect for people is central to JIT because

continuous improvement requires staff participation
 Trust and teamwork are prerequisites for JIT and
Lean systems to work
 Originally this referred only to employees, but today
it has been extended to suppliers and customers – in
fact to all participants along the supply chain

4 JIT Philosophy
Two forms of JIT:
 JIT Philosophy (sometimes called “Big JIT”) include
internal and external; vender relation, human relations,
technology management, inventory and materials
management.
 JIT as an operations technique that typically includes the

use of kanbans (the Japanese word for “signal”) to control
the movements of goods (also known as “Little JIT”)-
internal to organizations; scheduling materials and
scheduling service

4 JIT Philosophy (cont’d)
Parameter JIT/Lean Systems Traditional Systems

Low WIP – can be controlled High WIP. High inventory
by kanbans. Inventory is conceals hidden problems
Inventory waste and must be reduced
to expose problems
Capacity Produce only what is required High capacity utilization
JIT, cellular: Workstations Large space requirement
Layout close together, small space
required
Set-ups Many, short set-up times Few, long set-up times
Lot sizes Small Large
Flexible Relatively inflexible
Flexibility Short production runs. Long production runs
Few or single; collaborative Many; competitive
Suppliers Long-term relationships Short-term relationships
Many, frequent small deliveries Fewer, larger deliveries.
Deliveries Deliver to stores
Deliver directly to shop floor
Employees Human Assets Necessity
Forecasts communicated to Independent forecasts
Forecasting all supply chain participants Not communicated to
customers or suppliers
Maintenance Planned Remedial
Maintenance
…encompasses the various measures undertaken on
equipment and systems to ensure that they function
according to specification and meet quality, output and
safety requirements at the lowest possible cost
 Maintenance is the science of caring for things

 It is vital not only to JIT operations but to all lean
operations along a supply chain, where an
unforeseen failure can have a catastrophic and
knock-on effect throughout the supply chain
 It is equally important in the service sector – e.g. the
maintenance of information systems, transport fleets,
etc.
Maintenance (cont’d)
Maintenance planning:
 Failure Mode and Effect Analysis (FMEA): considers for
each failure type, the mechanism, the risk, and its
effects
 The outcome of failure analysis is maintenance
planning
 Failure analysis often incorporates the well-known
Bathtub Curve

Typical Bath-tub Curve
FAILURE RATE showing levels of reliability over time
Burn-in Normal Wear-out

Phase Phase Phase
(infant) (adult) (aged)
TIME
Categories:
1. Breakdown or Repair (Remedial) Maintenance

This is performed after the equipment or system fails –
a most undesirable situation!
2. Planned Maintenance
A generic term encompassing scheduled maintenance,
preventive maintenance and predictive maintenance, in
order to prevent equipment and systems failure

Categories:
3. Preventive Maintenance
Carried out to ensure that production is not interrupted by
equipment failing or malfunctioning; it is performed before
the equipment or systems break down
4. Predictive Maintenance
Used to predict when equipment is likely to fail by
constantly monitoring it to ascertain when maintenance
should be undertaken

Categories:
5. Total Productive Maintenance (TPM)

The application of JIT and TQM principles to
maintenance:
 “Zero defects, zero breakdowns, zero accidents”
 Includes planned, preventive & predictive
maintenance
 All staff can participate (as in TQM)
 An essential part of lean operations & lean supply
chains
Benefits of JIT
 A substantial reduction in all categories of inventory. As
a result, inventory turnover increases markedly and far
less space is required for inventory.
 Improved quality from suppliers and rapid resolution of
any quality problems.
 Improved relationships with suppliers and lower
purchasing costs.
 More frequent on-time deliveries with reduced lead-
times.
 Due to all of the above, decreased costs, enhanced
supply chain competitiveness, increased sales and
improved ROI.
JIT & Lean Systems…
 JIT is costly and time-consuming, requiring considerable resources, total
commitment by management & staff, and the full support of key suppliers
 Like TQM, everyone in the organization is involved, requiring extensive
training programmes
 Yet the philosophy of JIT & lean operations can be embraced by
organizations of all sizes & sectors
…& Supply Chain Management
 Lean systems are essential to SCM: elimination of inventory & waste

across the supply chain
 As the SCM philosophy develops, so too the importance of JIT & Lean
Systems continues to increase
Capacity Planning
 Comprises the resources to serve
customers, process information or make
products and is a mix of the people,
systems, equipment and facilities needed
to meet the services or products involved

Identifying Capacity Requirements
This stage consists of both estimating

future customer demand but also
determining current capacity levels to meet
that demand.
 Measuring Demand
In a capacity-planning context the business
planning process is driven by two elements;
the company strategy and forecasts of
demand for the product/service the
organization is offering to the market
 Measuring Capacity
When measuring capacity it must be
considered that capacity is not fixed but is a
variable that is dependent on a number of
factors such as the product mix processed
by the operation and machine setup
requirements

 Evaluating Capacity Plans
The organization's ability to reconcile
capacity with demand will be dependent on
the amount of flexibility it possesses
 Level Capacity
This approach fixes capacity at a constant
level throughout the planning period
regardless of fluctuations in forecast
demand.
 Chase Demand
 This strategy seeks to change production
capacity to match the demand pattern
over time. Capacity can be altered by
various policies such as changing the
amount of part-time staff, changing the
amount of staff availability through
overtime working, changing equipment
levels and subcontracting.

 Demand Management
 While the level capacity and chase
demand strategies aim to adjust capacity
to match demand, the demand
management strategy attempts to adjust
demand to meet available capacity

Facility Location and Layout
 Facility Location
 The organization's strategy will need to
address the issue of facility location. This
must be considered in terms of the need
to serve customer markets effectively and
to meet long-range demand forecasts

Location Factors
 Proximity to Customers
 Proximity to suppliers
 Proximity to labor

Layout Design
 Layout design concerns the physical

placement of resources such as
equipment and storage facilities. Layout
design is important because it can have a
significant effect on the cost and efficiency
of an operation and can entail substantial
investment in time and money.

Process layout
 A process layout is one in which

resources (such as equipment and people)
which have similar processes or functions
are grouped together. Process layouts are
used when there is a large variety in the
products or services being delivered and
it may not be feasible to dedicate facilities
to each individual product or service

Product Layout
 Product layouts, also termed line
layouts, arrange the resources required
for a product or service around the needs
of that product or service. In
manufacturing applications such as
assembly lines with a high volume of a
standard product the products will move
in a flow from one processing station to
the next

 Hybrid Layout
 A hybrid layout attempts to combine the
efficiency of a product layout with the
flexibility of a process layout. Hybrid layouts
are created from placing together resources
which service a subset of the total range of
products or services
 The process of grouping the products or
services to create a family is termed group
technology. 12/10/2018 Compiled by: Matiwos Ensermu, PhD 178
Fixed-‐Position layout
 This layout design is used when the
product or service cannot be moved and
so the transforming process must take
place at the location of product creation
or service delivery. In a fixed position
layout all resources for producing the
product, such as equipment and labour
must move to the site of the product or
service

Designing Product
Layouts -‐ Line Balancing
 Line balancing involves ensuring that the
stages of production are coordinated and
bottlenecks are avoided. Because of the
line flow configuration the tasks in the
line must be undertaken in order
(precedence) and the output of the whole
line will be determined by the slowest or
bottleneck process

The steps in line balancing are as
follows
 Draw a precedence diagram
 Determine the cycle time for the line
 Cycle Time = Available Time/Desired
Output
 Assign tasks to workstations
 Calculate the efficiency of the line
 Line Efficiency % = (Sum of the task
times/(number of workstations * desired
cycle time))*100
-------------------------------------------
Work Systems
Design

Labor Planning
Employment Stability Policies
1. Follow demand exactly
 Matches direct labor costs to production
 Incurs costs in hiring and termination,
unemployment insurance, and premium
wages
 Labor is treated as a variable cost

Labor Planning
Employment Stability Policies
2. Hold employment constant
 Maintains trained workforce
 Minimizes hiring, termination, and
unemployment costs
 Employees may be underutilized during
slack periods
 Labor is treated as a fixed cost
Work Schedules
 Standard work schedule
 Five eight-hour days
 Flex-time
 Allows employees, within limits, to determine their own
schedules
 Flexible work week

 Fewer but longer days
 Part-time
 Fewer, possibly irregular, hours

Job Design
 Specifying the tasks that constitute a

job for an individual or a group
1. Job specialization
2. Job expansion
3. Psychological components
4. Self-directed teams
5. Motivation and incentive systems

Labor Specialization
 The division of labor into unique tasks
 First suggested by Adam Smith in 1776
1. Development of dexterity and faster learning
2. Less loss of time
3. Development of specialized tools
 Later Charles Babbage (1832) added

another consideration
4. Wages exactly fit the required skill

Job Expansion
 Adding more variety to jobs

 Intended to reduce boredom
associated with labor specialization
 Job enlargement
 Job rotation
 Job enrichment
 Employee empowerment
 Ergonomics
Job Enlargement
Enriched job
Planning
(Participate in a cross-
function quality
improvement team)
Enlarged job
Task #3 Present job Task #2
(Lock printed circuit (Manually insert and (Adhere labels
board into fixture for solder six resistors) to printed circuit
next operation) board)
Control
(Test circuits after
assembly)
Figure 10.2
Psychological Components of Job
Design
Human resource strategy requires
consideration of the psychological
components
of job design

Hawthorne Studies
 They studied light levels, but discovered
productivity improvement was independent
from lighting levels
 Introduced psychology into the workplace
 The workplace social system and distinct
roles played by individuals may be more
important than physical factors
 Individual differences may be dominant in job
expectation and contribution

Core Job Characteristics
Jobs should include the following
characteristics
 Skill variety
 Job identity
 Job significance
 Autonomy
 Feedback
Job Design Continuum
Self-directed
teams
Increasing
Empowerment reliance on
employee’s
Enrichment contribution
and increasing
Enlargement
responsibility
accepted by
Specialization employee
Job expansion
Figure 10.3

Self-Directed Teams
 Group of empowered individuals
working together to reach a common
goal
 May be organized for long-term or
short-term objectives
 Effective because
 Provide employee empowerment
 Ensure core job characteristics
 Meet individual psychological needs

Self-Directed Teams
To maximize effectiveness, managers should
 Ensure those who have legitimate
contributions are on the team
 Provide management support
 Ensure the necessary training
 Endorse clear objectives and goals
 Financial and non-financial rewards
 Supervisors must release control
Benefits of Teams and Expanded Job
Designs
 Improved quality of work life
 Improved job satisfaction
 Increased motivation
 Allows employees to accept more
responsibility
 Improved productivity and quality
 Reduced turnover and absenteeism
Limitations of Job Expansion
1. Higher capital cost

2. Individuals may prefer simple jobs
3. Higher wages rates for greater skills
4. Smaller labor pool
5. Higher training costs
6. Social loafing/free riding

Motivation and Incentive Systems
 Bonuses - cash or stock options

 Profit-sharing - profits for distribution to
employees
 Gain sharing - rewards for improvements
 Incentive plans - typically based on
production rates
 Knowledge-based systems - reward for
knowledge or skills
Ergonomics and the Work
Environment
 Ergonomics is the study of the
interface between man and
machine
 Often called
human factors
 Operator input
to machines

Ergonomics and Work Methods
 Feedback to operators
 The work environment
 Illumination
 Noise
 Temperature
 Humidity

Levels of Illumination
Task Condition Type of Task Illumination Type of
or Area Level Illumination
Small detail, Sewing, inspecting 100 Overhead
extreme dark materials ceiling lights
accuracy and desk lamp
Normal detail, Reading, parts 20-50 Overhead
prolonged assembly, ceiling lights
periods general office
work
Good contrast, Recreational 5-10 Overhead
fairly large facilities ceiling lights
objects
Large objects Restaurants, 2-5 Overhead
stairways, ceiling lights
warehouses
Table 10.2
Decibel Levels(unit of loud level)
Environment Common Noise
Noises Sources Decibels
Jet takeoff (200 ft) 120
|
Electric furnace area Pneumatic hammer 100 Very annoying
|
Printing press plant Subway train (20 ft) 90
|
Pneumatic drill (50 ft) 80 Ear protection
Inside sports car (50 mph) | required if
Vacuum cleaner (10 ft) 70 exposed for 8
Near freeway (auto traffic) Speech (1 ft) | or more hours
60 Intrusive
Private business office |
Light traffic (100 ft) Large transformer (200 ft) 50 Quiet
|
Minimum levels, Chicago 40
residential areas at night Soft whisper (5 ft) |
Studio (speech) 30 Very quiet
Table 10.3
The Visual Workplace
 Use low-cost visual devices to share
information quickly and accurately
 Displays and graphs replace
printouts and paperwork
 Able to provide timely information in
a dynamic environment
 System should focus on
improvement

The Visual Workplace
Visual signals can take many forms and
serve many functions
 Present the big picture

 Performance
 Housekeeping

Ethics and the Work Environment
 Fairness, equity, and ethics are

important constraints of job design
 Important issues may relate to equal
opportunity, equal pay for equal work,
and safe working conditions
 Helpful to work with government
agencies, trade unions, insurers, and
employees
Labor Standards
 Effective manpower planning is
dependent on a knowledge of the
labor required
 Labor standards are the amount of
time required to perform a job or part
of a job
 Accurate labor standards help
determine labor requirements, costs,
and fair work
Project Management Activities
 Feasibility Analysis
◦ This step involves evaluating the expected cost of resources
needed to execute the project and compare these to
expected benefits
 Plan
◦ This stage estimated the amount and timing of resources
needed to achieve the project objectives.
 The project management method uses a systems
approach to dealing with a complex task in that the
components of the project are broken down
repeatedly into smaller tasks until a manageable
chunk is defined

Control
 This stage involves the monitoring the
progress of the project as it executes over
time.
 This is important so that any deviations from
the plan can be addressed before it is too near
the project completion date to take corrective
action

Network Analysis
The construction of the critical path

method (CPM) and program evaluation
and review (PERT) project networks
Identifying Project Activities
Estimating Activity Durations
Identifying Activity Relationships

 Calculate the earliest finish time (forward
pass)where:-
 Earliest Finish = Earliest Start + Duration
 Calculate the earliest start time of the next
task where:- Earliest Start = Earliest Finish of
task immediately before
 Calculating the Latest Start/Finish times
(backward pass)
 Latest Start = Latest Finish - Duration
Project Crashing
 The use of additional resources to reduce
project completion time is termed
crashing the network.

Inventory Management
 Inventory is the stock of items kept by an
organization to meet internal or external
customer demand
 Dependent Demand
 A dependent demand item has a demand
which is relatively predictable because it is
dependent on other factors

 Independent Demand
 Independent demand is when demand is
not directly related to the demand for any
other inventory item

Types of Inventory
 Generally inventory is classified as either
raw materials, work-in-progress (WIP) or
finished goods
 Buffer/Safety
 Anticipation
 Pipeline/Movement

Inventory Decisions
 The main concern of inventory
management is the trade-off between the cost
of not having an item in stock against the cost
of holding and ordering the inventory.
 The Economic Order
Quantity (EOQ) Model
 Annual Holding Cost = Q * CH
2
 Annual Ordering Cost = D * CO

 Q
 EOQ = √(D * 2 CO) / CH
 The Re-‐Order Point
(ROP) Model
 The EOQ model tells us how much to
order, but not when to order. The
Reorder point model identifies the time
to order when the stock level drops to a
predetermined amount

 Safety Stock and Service
Level Safety stock is used in order to
prevent a stock-out occurring. It provides
an extra level of inventory above that
needed to meet predicted demand, to
cope with variations in demand over a
time period

 The ABC Inventory
Classification System
 following Pareto’s Law, that 10-20% of the
items account for 60-80% of annual
expenditure. These items are called A
items
 The B items account for the next 20-30%
of items and usually account for a similar
percentage of total expenditure
 C items represent the remaining 50-70%
of items but only account for less than
25% of total expenditure

Maintenance
 To ensure that all company assets meet and
continue to meet the design function of the
asset
 Maintenance management is the science,
art, philosophy of managing all assets
owned by a production organization, based
on maximizing the return on investment in
assets and minimizing its life cycle
costs(inception to disposal)
Corrective maintenance steps
 Fault detection
 Fault isolation
 Fault elimination
 Verification that the fault has been
eliminated

Strategic Importance of Maintenance
and Reliability
 Failure has far reaching effects on a firm’s
 Operation
 Reputation
 Profitability
 Dissatisfied customers
 Idle employees
 Profits becoming losses
 Reduced value of investment in plant and
equipment

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

Reliability
Improving individual components
Rs = R1 x R2 x R3 x … x Rn
where R1 = reliability of component 1

R2 = reliability of component 2
and so on

Reliability Example
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
Number of failures
FR(%) = Number of units tested x 100%
Number of failures
FR(N) = Number of unit-hours of operating time
Mean time between failures
1
MTBF = FR(N)

Types of Maintenance
 maintenance
 Proactive maintenance-Failure Mode &

Effect Analysis
 Preventive maintenance – routine
inspection and servicing to keep facilities
in good repair
 Design-out (corrective) maintenance-to
eliminate cause of maintenance
 Breakdown maintenance – emergency or
priority repairs on failed equipment
 Opportunistic maintenance-
Implementing Preventive Maintenance
 Need to know when a system requires

service or is likely to fail
 High initial failure rates are known as infant
mortality
 Once a product settles in, MTBF generally
follows a normal distribution
 Good reporting and record keeping can aid
the decision on when preventive
maintenance should be performed
Computerized Maintenance
System
Data Files Output Reports
Equipment file
with parts list Inventory and
purchasing reports
Maintenance Equipment
parts list
and work order
schedule
Equipment
Repair history reports
history file
Cost analysis
Data entry (Actual vs. standard)
– Work requests
– Purchase
Inventory of requests
spare parts – Time reporting
– Contract work
Work orders
– Preventive
maintenance
– Scheduled
Personnel data downtime
with skills, – Emergency
wages, etc. maintenance

Maintenance Costs
 The traditional view attempted to
balance preventive and breakdown
maintenance costs
 Typically this approach failed to
consider the true total cost of
breakdowns
 Inventory
 Employee morale
 Schedule unreliability

Maintenance Costs
Total
costs
Preventive
maintenance
Costs
costs
Breakdown
maintenance
costs
Maintenance commitment
Optimal point (lowest
cost maintenance policy)
Traditional View Figure 17.4 (a)

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
Total Productive Maintenance (TPM)
 Designing machines that are reliable, easy to

operate, and easy to maintain
 Emphasizing total cost of ownership when
purchasing machines, so that service and
maintenance are included in the cost
 Developing preventive maintenance plans
that utilize the best practices of operators,
maintenance departments, and depot service
 Training workers to operate and maintain their
own machines
Enterprise Resource
Planning (ERP)
 ERP is an information system that aims to
manage the large amounts of data in an
organization.
 ERP integrates sales, order, inventory,
manufacturing and customer service activities.
 ERP systems provide software, databases,
procedures and job descriptions for
organization wide processes

Manufacturing Requirements
Planning (MRP)
 MRP can calculate the requirements
for component materials needed to
produce end items

Manufacturing Resource
Planning (MRP II)
 Manufacturing Resource Planning (MRP II) extends
the idea of MRP to other areas in the firm such as
marketing and finance.
 Thus central databases hold information on
product structure (i.e. the Bill of
Materials (BOM file which can be updated due to
design changes by engineering for example.

Web-‐integrated ERP
 This involves using the web to integrate

ERP systems with outside stakeholders
such as customers and suppliers.

Agile Operations
 Operations aim to respond quickly to
market demand in order to retain
current markets and gain new market
share.
 As a strategy agile operation can be
seen to embrace uncertainty in markets
and achieve competitive advantage by the
flexibility and speed of their response to
them

Agile Supply Chains
Agile supply chains aim to be shorter and
demand driven in order to overcome lead
time gap.
Benefits;
Visibility
Flexibility
Speed
Predictability
Scalability
Lean Supply Chains
 Lean supply chains adopt the concept
of lean operations across the supply
chain. Lean supply chains emphasize
efficiency.

Leagility–Combining Lean
and Agile
 It is suggested that there are three
ways of bringing lean and agile
together
 Pareto Rule (80/20 rule)
 Postponement

Mass Customization
Mass customization can be seen as an
example of the agile approach.
Mass customization describes the
ability toproduce and distribute what are
perceived to be customized goods and
services within a high volume or mass
market.

OPERATION

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Leadstar College of Management

Graduate Faculty of Business

12/10/2018 Compiled by: Matiwos Ensermu, PhD 1

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• Operations strategy is concerned with:

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Marketing Operations Fin./Acct.

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Does not imply low value or low quality

Process Southwest Airlines No-frills service LOW COST

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 Concurrent engineering is when

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 When considering product design the

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• Jobbing processes are used to make a

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The totality of features and

American Society for Quality

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 Manufacturing-based quality is ‘conformance to

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 Operations managers must deliver

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 ISO 9000 series (Europe/EC)

 ISO 14000 series (Europe/EC)

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Encompasses entire organization, from

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 Represents continual improvement