Leadstar College of

Management and
Leadership
Operations Management

Graduate Faculty of Business

Administration and
Leadership

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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.
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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.

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 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
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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).

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 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.
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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
both 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

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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

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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
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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
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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

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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.

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• 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).

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• 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
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 Strategy Process
Company
Mission

Business
Strategy

Functional
Functional Area
Area
Strategies

Marketing Operations Fin./Acct.

Decisions Decisions Decisions

2-
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Strategies for Competitive
Advantage

Differentiation

Cost leadership

Quick response

2-
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Competing on
Differentiation
Uniqueness can go beyond both
the physical characteristics and
service attributes to encompass
everything that impacts
customer’s perception of value

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Competing on Cost
Provide the maximum value as
perceived by customer

Does not imply low value or low

quality

2-
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Competing on Response
Flexibility
Reliability
Timeliness
Requires institutionalization within
the firm of the ability to respond

2-
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 OM’s Contribution to
Operations
Strategy 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 Dependability
Federal Express’s “absolutely, positively on time” Differentiation
(Better)
Human Resource QUALITY
Conformance
Motorola’s automotive products ignition systems Response
Cost (Faster)
Supply Chain 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

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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.

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

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

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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.
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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.

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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.

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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

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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

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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

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

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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
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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.

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

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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).
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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

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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

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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

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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’

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

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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.

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 Contd.

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
Manufacturing-based quality is
‘conformance to requirements’,
adhering to a design or specification
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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

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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
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Key Dimensions of Quality

 Performance  Durability
 Features  Serviceability
 Reliability  Aesthetics
 Conformance  Perceived
quality
 Value

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Malcom Baldrige National
Quality Award
 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.
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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
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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
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Costs of Quality
Total Total Cost
Cost
External Failure

Internal Failure

Prevention

Appraisal
Quality Improvement

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Leaders in Quality
W. Edwards Deming Edwards (1900-1993)

14 Points for Management

Joseph M. Juran 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)

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Juran's Trilogy

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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

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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)

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

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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.
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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
7. Emphasize leadership

Table 6.1
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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
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Seven Concepts of TQM
 Continuous improvement
 Six Sigma
 Employee empowerment
 Benchmarking
 Just-in-time (JIT)
 Taguchi concepts
 Knowledge of TQM tools

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Continuous
Improvement/Kaizen
 Represents continual improvement
of all processes
 Involves all operations and work
centers including suppliers and
customers
 People, Equipment, Materials,
Procedures

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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

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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

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Six Sigma
 Two meanings
Lower limits Upper limits

 Statistical definition of a process that is

2,700 defects/million

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

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Six Sigma Program
 Originally developed by Motorola,
adopted and enhanced by Honeywell
and GE
 Highly structured approach to process
improvement

6
 A strategy
 A discipline - DMAIC

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 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
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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

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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

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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

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Benchmarking
Selecting best practices to use as a
standard for performance tern
al
if
e in ing
Us mark ugh
 Determine what to en ch g eno
b e bi
’r
benchmark you

 Form a benchmark team

 Identify benchmarking partners
 Collect and analyze benchmarking
information
 Take action to match or exceed the
benchmark
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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
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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

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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

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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

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Just-In-Time (JIT) Example

Work in process
inventory level
(hides problems)

Unreliable Capacity
Vendors Scrap Imbalances

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Just-In-Time (JIT) Example
Reducing inventory reveals
problems so they can be solved

Unreliable Capacity
Vendors Scrap Imbalances

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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
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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
Target-
 Costs include customer or ien t ed
dissatisfaction, warranty qu al it y
and service, internal
scrap and repair, and costs to
society
 Traditional conformance
specifications are too simplistic
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 Quality Loss Function
High loss
L = D2C
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
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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
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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
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Seven Tools of TQM
(b) Scatter Diagram: A graph of the value of one variable
vs. another variable
Productivity

Absenteeism

Figure 6.6
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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
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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
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Seven Tools of TQM
(e) Flowchart (Process Diagram): A chart that describes the steps
in a process

Figure 6.6
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Seven Tools of TQM
(f) Histogram: A distribution showing the frequency of occurrences
of a variable

Distribution
Frequency

Repair time (minutes)

Figure 6.6
12/05/24 Compiled by: Matiwos Ensermu, PhD 88
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
12/05/24 Compiled by: Matiwos Ensermu, PhD 89
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)
12/05/24 Compiled by: Matiwos Ensermu, PhD 90
Pareto Charts
Data for October
– 100
70 – – 93
– 88
60 – 54
Frequency (number)

– 72

Cumulative percent
50 –
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

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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%

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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

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 An SPC Chart
Plots the percent of free throws missed

Upper control limit

20%

Coach’s target value

10%

| | | | | | | | | Lower control limit

0% 1 2 3 4 5 6 7 8 9

Game number
Figure 6.8

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 The Tools of QC/
Statistical Process Control (SPC)
The seven original quality control tools used in
quality improvement programmes are:

 Flowcharts
 Check Sheets
 Histograms
 Pareto Diagrams
 Run / Control Charts
 Scatter Diagrams
 Cause-and-Effect Diagrams.

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 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
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 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
Regio Defect Category TOTAL
n
Scratches Dents Paint Colour Other
Finish

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 12/05/24 Compiled by: Matiwos Ensermu, PhD 97
 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
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areto 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:
12/05/24 Compiled by: Matiwos Ensermu, PhD 99
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

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 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

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

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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

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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.
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Time Compiled by: Matiwos Ensermu, PhD 105
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
This graph shows that Supplier X supplier X
supplier Y
does not have the process
capability, whereas Supplier Y Process Capability
meets the required specification

mean
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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
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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 12/05/24 Compiled by: Matiwos Ensermu, PhD 108
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
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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

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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

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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

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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

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Service Industry Inspection
What is
Organization Standard
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

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Service Industry Inspection
What is
Organization Standard
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

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Service Industry Inspection
What is
Organization Standard
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

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Service Industry Inspection
What is
Organization Standard
Inspected
Nordstrom Display areas Attractive, well-organized,
Department stocked, good lighting
Store Rotation of goods,
Stockrooms
organized, clean
Salesclerks Neat, courteous, very
knowledgeable

Table 6.5

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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

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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

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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

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

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Service Recovery Strategy

 Managers should have a plan for

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

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-----------------------------------------

Supply Chain
Management

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 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

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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

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 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
12/05/24 Compiled by: Matiwos Ensermu, PhD 126
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

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 Basic SCM-related tasks
of an organization in a supply chain

PURCHASIN
G
OPERATIONS
LOGISTICS
(& INVENTORY)
(Warehousing &
CONTROL
Transportation)

DEMAND
PLANNING

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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,
12/05/24 Compiled by:product design,
Matiwos Ensermu, PhD 129
he Four Interrelated Flows in SCM: an exampl
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

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Strategi
c SCM…

…embraces
& builds upon
TQM and JIT

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 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
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 Strategic SCM (cont’d)

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

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 Strategic SCM (cont’d)

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

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 Strategic SCM (cont’d)

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

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 Strategic SCM (cont’d)

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

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 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

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

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 Other Important Factors in (cont’d)

3. The Bullwhip Effect: SCM

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
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 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

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 Other Important Factors in (cont’d)

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

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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)

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 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

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Supply Chain Leverage on Profit
(cont’d)

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

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 Supply Chain Leverage on Profit
(cont’d)

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?
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 Supply Chain Leverage on Profit
(cont’d)

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
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 Greening the Supply
Chain:
The Reprocessing
 The Reprocessing Flow is Flow
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

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 Greening the Supply Chain:
The 5 R’s of Reprocessing
REDUCEThe
: 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

Collection and separation of material,

RECYCLE:
e.g. waste paper, plastics, aluminium beverage cans

Resource regeneration,
REMANUFACTURE:
e.g. reconditioning single-use cameras, printer cartridges
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 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

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 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

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JIT and Lean Systems

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 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

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 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

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 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 !

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1

U F D
N P U D A E
N R E N U I
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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
N 12/05/24 I Sby: Matiwos Ensermu, PhD
Compiled 155
N
 2Continuous 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)
5. Push vs. Pull
6. Quality at source
7. JIT Layout
8. JIT Suppliers
12/05/24 Compiled by: Matiwos Ensermu, PhD 156
 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

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 4 JIT Philosophy

Two forms of JIT:

JIT Philosophy (sometimes called “Big JIT”)

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”)

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 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
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 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
12/05/24 Compiled by: Matiwos Ensermu, PhD 160
 Maintenance (cont’d)

Maintenance planning:
 Failure Mode and Effect Analysis (FMEA): considers for
each failure the 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

12/05/24 Compiled by: Matiwos Ensermu, PhD 161

 Typical Bath-tub Curve
showing levels of reliability
over time
FAILURE RATE

Burn-in Normal Wear-out

Phase Phase Phase
(infant) (adult) (aged)

TIME
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 Maintenance (cont’d)

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

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 Maintenance (cont’d)

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

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 Maintenance (cont’d)

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

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 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.
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 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
12/05/24 Compiled by: Matiwos Ensermu, PhD 167
 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

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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
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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

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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.
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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.
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 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

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 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

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Location Factors

Proximity to Customers
Proximity to suppliers
Proximity to labor

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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.

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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
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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
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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
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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
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 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
12/05/24 Compiled by: Matiwos Ensermu, PhD 181
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
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-----------------------------------------
--

Work Systems
Design

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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

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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

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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

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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

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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

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Job Expansion
 Adding more variety to jobs
 Intended to reduce boredom
associated with labor specialization
 Job enlargement
 Job rotation
 Job enrichment
 Employee empowerment
 Ergonomics
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 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
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Psychological Components
of Job Design
Human resource strategy requires
consideration of the psychological
components
of job design

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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

12/05/24 Compiled by: Matiwos Ensermu, PhD 192

Core Job Characteristics
Jobs should include the following
characteristics
 Skill variety
 Job identity
 Job significance
 Autonomy
 Feedback
12/05/24 Compiled by: Matiwos Ensermu, PhD 193
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

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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

12/05/24 Compiled by: Matiwos Ensermu, PhD 195

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
12/05/24 Compiled by: Matiwos Ensermu, PhD 196
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
12/05/24 Compiled by: Matiwos Ensermu, PhD 197
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

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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

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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
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Ergonomics and the Work
Environment
 Ergonomics is the study of the
interface between man and
machine
 Often called
human factors
 Operator input
to machines

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

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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
12/05/24 Compiled by: Matiwos Ensermu, PhD 203
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
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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

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The Visual Workplace
Visual signals can take many forms and
serve many functions

 Present the big picture

 Performance
 Housekeeping

12/05/24 Compiled by: Matiwos Ensermu, PhD 206

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
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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
12/05/24 Compiled by: Matiwos Ensermu, PhD 208
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

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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

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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
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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

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Project Crashing
The use of additional resources
to reduce project completion time
is termed crashing the network.

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

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

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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
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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
12/05/24 Compiled by: Matiwos Ensermu, PhD 218
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

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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
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Citems represent the remaining
50-70% of items but only account
for less than 25% of total
expenditure

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 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
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Corrective maintenance
steps
Fault detection
Fault isolation
Fault elimination
Verification that the fault has
been eliminated

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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

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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

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Important Tactics
 Reliability
1. Improving individual components
2. Providing redundancy

 Maintenance
1. Implementing or improving preventive maintenance
2. Increasing repair capability or speed

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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

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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%

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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)

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Types of Maintenance
 maintenance
 Preventive maintenance – routine
inspection and servicing to keep facilities
in good repair
 Breakdown maintenance – emergency or
priority repairs on failed equipment
 Opportunistic maintenance-
 Design-out maintenance-to eliminate
cause of maintenance
 Proactive maintenance-FMEA

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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

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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
– Time reporting
spare parts – Contract work
Work orders
– Preventive
maintenance
– Scheduled
Personnel data downtime
with skills, – Emergency
wages, etc. maintenance

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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

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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)

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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

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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

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Enterprise Resource
Planning (ERP)
 ERP is an information system that
aims to manage the large
amounts ofdata 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

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

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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.

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Web-­‐integrated ERP

This involves using the

web to integrate ERP systems
with outside
stakeholders such as
customers and suppliers.

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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 embraceuncertainty in
markets and achieve competitive
advantage by the flexibility and
speed of their response to them

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 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
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Lean Supply Chains
Lean supply chains adopt the
concept of lean operations
across the supply chain.
Lean supply chains emphasize
efficiency.

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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

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