McGraw-Hill/Irwin Copyright 2011 The McGraw-Hill Companies, All Rights Reserved

Chapter 1
Operations and
Supply Chain
Management (OSCM)
1-2
L1a: Learning Objectives
1. Why is it important to study OSCM?
2. Categorize operations and supply chain
management.
3. Contrast differences between goods and
services.
4. Define efficient and effective operations.
5. Identify OSCM career opportunities.
6. Describe historical development and current
issues.
1-3
Importance of OSCM
A key element in the improvement in
productivity in global business
A significant competitive weapon
LO 1
Organization of OSCM: The Integration of Strategy
, Processes and Planning
LO 1
1-5
What is OSCM?
Operations refer to the conversion process
which transforms inputs into outputs.
Supply chain refers to the efficient and
effective movement of material and
information from the suppliers, through the
manufacturing and service processes, to
satisfy customers wants and needs.
LO 2
Process Steps for Mens Nylon Supplex Parka
1-7
Understanding the Global Supply Chain
Success in todays global markets requires a
business strategy that matches the preferences
of customers with the realities of supply
networks
A sustainable strategy is critical
Meets the needs of shareholders and
employees
Preserves the environment
1-8
Stage of Production
Value
Added
Value of
Product
Farmer produces and harvests wheat $0.25 $0.25
Wheat transported to mill $0.08 $0.33
Mill produces flour $0.15 $0.48
Flour transported to baker $0.08 $0.56
Baker produces bread $0.44 $1.00
Bread transported to grocery store $0.08 $1.08
Grocery store displays and sells bread $0.21 $1.29
Total Value-Added $1.29
A Supply Chain for Bread
1-9
Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 124
The Value Chain and Its Support Functions
The Value Chain and Its Support Functions The Value Chain and Its Support Functions
Exhibit 1.10
Supply Chain Processes
1-11
Work Involved in Each Type of Process
Planning: the processes needed to operate an existing
supply chain strategically
Sourcing: the selection of suppliers that will deliver the
goods and services needed to create the firms
product
Making: Where the major product is produced or the
service provided
Delivering: carriers are picked to move products to
warehouses and customers
Returning: the processes for receiving worn-out
, defective, and excess products back from customers
1-12
Differences Between Services and Goods
1. Goods do not require interaction with the
customer (separability)
2. Services are inherently heterogeneous
3. Services are intangible
4. Services are perishable and time
dependent
LO 3
The Goods-Services Continuum
International Growth in Services
1-15
Challenges of Managing Services
Service jobs are often less structured than
manufacturing jobs
Customer contact is higher
Worker skill levels are lower
Services hire many low-skill, entry-level workers
Employee turnover is higher
Input variability is higher
Service performance can be affected by
workers personal factors
1-16
Efficiency, Effectiveness, and Value
Efficiency: Doing something at the lowest
possible cost
Effectiveness: Doing the right things to
create the most value for the company
Value: quality divided by price
LO 4
1-17
Careers in OSCM
Plant manager
Hospital
administrator
Branch manager
Call center manager
Supply chain
manager
Purchasing
manager
Business process
improvement
analyst
Quality control
manager
Lean improvement
manager
Project manager
Production control
analyst
Facilities manager
LO 5
1-18
Recent Development of OSCM
Manufacturing strategy paradigm (late 70s)
Lean manufacturing, JIT, and TQC (early 80s)
Service quality and productivity (mid 80s)
Total quality management (TQM) and quality
certifications (early 90s)
Business process reengineering (mid 90s)
Six-sigma quality (mid 90s)
Supply chain management (late 90s)
Electronic commerce (early 2000s)
Service science (early 2000s)
Business analytics (mid 2010s)
LO 6
1-19
Current Issues in OSCM
1. Coordinating the relationship between mutually
supportive but separate organizations (SRM)
2. Optimizing global suppliers, production, and
distribution networks (OR)
3. Managing customer touch points (CRM)
4. Raising senior management awareness of
operations as a significant competitive weapon (SM)
5. Sustainability and the triple bottom line (SEE; PPP)
6. Trends : G E T S
Historical Summary of Operations
management
Industrial revolution (1770s)
Scientific management (1911)
Mass production
Interchangeable parts
Division of labor
Human relations movement (192060)
Decision models (1915, 196070s)
Influence of Japanese manufacturers
1-21
Characteristic Goods Service
Customer contact
Uniformity of input
Labor content
Uniformity of output
Output
Measurement of productivity
Opportunity to correct problems
Inventory
Evaluation
Patentable
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Chapter 2
Strategy and
Sustainability
1-23
L1b: Learning Objectives
1. Understand the competitive dimensions of
OSCM.
2. Identify order winners and order qualifiers.
3. Understand the concept of strategic fit.
4. Describe how productivity is measured and
how it relates to OSCM.
1-24
Triple Bottom Line
LO 1
1-25
Triple Bottom Line Continued
Social: pertains to fair and beneficial business
practices toward labor, the community, and
the region in which a firm conducts is business
Economic: the firms obligation to
compensate shareholders who provide capital
via competitive returns on investment
Environmental: the firms impact on the
environment
1-26
What is Operations and Supply Chain
Strategy?
Operations and supply chain strategy
: The broad policies and plans for using the
resources of a firm to best support its
corporate strategy
Part of a planning process that coordinates
operational goals with those of the larger
organization
Operations effectiveness relates to the core
business processes needed to run the
business
Closed-Loop Strategy Process
LO 2
1-28
Closed-Loop Strategy Process Continued
Activity 1 is performed at least yearly and is
where the overall strategy is developed
Activity 2 is where the overall strategy is
refined and updated as often as four times a
year
Activity 3 is where operational plans that relate
to functional areas such as marketing
, manufacturing, and so on, are coordinated
1-29
Competitive Dimensions
Price: make the product or deliver the service
cheap
Quality: make a great product or deliver a great
service
Delivery speed: make the product or deliver the
service quickly
Delivery reliability: deliver it when promised
Coping with changes in demand: change its
volume
Flexibility and new product introduction
speed: change it
Skinner (1966)
1-30
Which of the following discount stores do you most closely associate as being the
best at each of the following aspects of the shopping experience?
Wal-Mart K-Mart Target
Price 84% 6% 11%
Selection of products 70% 5% 25%
In-stock merchandise 66% 5% 28%
Convenience 57% 14% 29%
Parking 48% 14% 38%
Service 48% 6% 46%
Source: Shoppers Rank Wal-Mart, Target And Kmart, Consumer Technographics
north America, July 23, 2003
-- Competitive Advantage
1-31
Compromise is Unavoidable
Which of the following discount stores do you most closely associate as being
the best at each of the following aspects of the shopping experience?
Wal-Mart K-Mart Target
Quality of products 44% 5% 51%
Cleanliness 30% 3% 67%
Checkout 40% 10% 50%
Convenience 57% 14% 29%
Parking 48% 14% 38%
Service 48% 6% 46%
Source: Shoppers Rank Wal-Mart, Target And Kmart, Consumer Technographics
north America, July 23, 2003
1-32
Other Product-Specific Criteria
1. Technical liaison and support
2. Meeting a launch date
3. Supplier after-sale support
4. Environmental impact
5. Other dimensions
1-33
Dealing with Trade-offs
For example, if we reduce costs by reducing
product quality inspections, we might reduce
product quality
For example, if we improve customer service
problem solving by cross-training personnel to
deal with a wider-range of problems, they may
become less efficient at dealing with
commonly occurring problems
1-34
Order Qualifiers and Winners

Order qualifiers: the basic criteria that permit
the firms products to be considered as
candidates for purchase by customers
Order winners: the criteria that differentiates
the products and services of one firm from
Wal-mart order winners: Low price; Good product
selection; Convenience
LO 2
1-35
Product-service bundling
To build service activities into its product
offerings for its current users (e.g., IBM)
Maintenance, spare parts, training, and etc.
Success starts by drawing together the
service aspects of the business under one
roof to create a consolidated service
organization
may not be the best approach for all
companies in terms of marginal benefit
1-36
Strategic Fit: Fitting Operational
Activities to Strategy
All the activities that make up a firms
operation relate to one another
To be efficient, must minimize total cost
without compromising on customer needs
e.g. EOQ model
Activity-system maps show how a companys
strategy is delivered through a set of tailored
activities
LO 3
Mapping Activity Systems at IKEA
1-38
Productivity Measurement
Productivity is a common measure of how well
an organization is using its resources
Fundamental to understanding operations-related
performance
Productivity is outputs divided by inputs
Larger is better unless at non-bottleneck operation
and insufficient demand
LO 4
1-39
Productivity Measurement Continued
Productivity is a relative measure
Can be compared with similar operations within
its industry
Can be compared over time
Productivity may be expressed as:
1. Partial measures: output to one input
2. Multifactor measures: output to a group of inputs
3. Total measures: output to all inputs
Examples of Productivity Measures
LO 5
1-41
Partial Measures of Productivity
LO 5
Lecture 2 Product and Service Design
1. Explain how design can ameliorate cost.
2. Understand the new product development (NPD)
processes for outputs.
3. Align design with the desires of the customer by using
quality function deployment (QFD) concepts.
4. Understand VA, VE and DFMA
5. Be introduced to NPD performance measures
6. Other issues

1
Explain how design can significantly
impact operational performance
! 80 percent of manufacturing costs (Fleischer and
Liker, 1992)
! Design also affects quality, delivery, customer
satisfaction and etc.

LO 1
2
Case: The Trofe mug of Ikea
! 30 to 50 % cheaper than competitors
! The designer shortened the mug and changed
the handle
! Better use of kiln and cost-effective
! Lighter in color : more environmentally friendly
! From 864 mugs to 2024 mugs per pallet:
shipping cost cut 60%
! Average fill-rate per container increase to 65%
! Self-service in a predetermined path
3
The Product Design Process
Companies continuously, quickly and efficiently
bring new products to market (to remain and
retain) because:
- increase global competition
- IT advancement
- customers preference
- PLC becomes shorter
- Order winner becomes order qualifier much
sooner
4
Order winner becomes order qualifier
5
The Product Design Process
! Product design is integral to success
! new products often represent the majority of a
firms sales
! Gain market share
! Charge premium price
! Set industry standard
! A barrier to entry (Windows of Microsoft)
6
The Product Design Process
! Product design differs significantly depending on
the industry (commodity vs. pharmaceutical
goods)
! Companies often outsource major functions (e.g.
Apple computer, Inc.)
! Contract manufacturer: an organization
capable of manufacturing and/or purchasing all
the components needed to produce a finished
product
7
Core Competency
! Core competency: the one thing a company can
do better than its competitors (orange peel and
pulp)
! A core competency has three characteristics:
1. It provides potential access to a wide variety of
markets
2. It increases perceived customer benefits
3. It is hard for competitors to imitate (Barney,
1991) (non-substitutable, inimitable, rare and
valuable)
8
Categories of new products
! Derivative products
- only cost-reduced or feature-added version
- minimal design and process change to market quickly
- e.g. yearly car model change
! Platform products
- major model changeover like iPhone, Pentium
- New system solutions for next generation
! Breakthrough products (e.g. iPhone 1)
- new core competency
- first personal computer, mobile phone
- average development times :10 - 50 months.
9
Six Phases of the Generic Development
Process
! Phase 0: Planning
! Phase 1: Concept development
! Phase 2: System-level design
! Phase 3: Design detail
! Phase 4: Testing and refinement
! Phase 5: Production ramp-up
! Alternatively, 4P model
Will look at each in more detail
10
LO 2
Phase 0: Planning
! Precedes project approval
! Begins with corporate strategy
! Includes assessment of technology developments
and market objectives (e.g. A7 chips, ios 7)
! Output is the project mission statement specifies
1. Target market
2. Business goals
3. Key assumptions and constraints under PESTLE
11
Phase 1: Concept Development
! Needs of the target market are identified
! Alternative product concepts are generated and
evaluated
! One or more concepts are selected for further
development and testing based on
manufacturability and profitability
! Concept: A description of the form, function, and
features of a product


12
Phase 2: System-Level Design
! Definition of the product architecture
! Decomposition of the product into
subsystems and components
! Final assembly scheme for the production
system is usually defined
! Output:
! Geometric layout of the product
! Functional specifications for each subsystem
! Preliminary process flow diagram
http://www.gsmarena.com/
apple_iphone_5-4910.php

13
Phase 3: Design Detail
! Complete specification of the geometry, materials,
and tolerances for all parts
! Identification of all the standard parts to be
purchased from suppliers
! Process plan is established
! Tooling is designed
! Output: drawings
14
Phase 4: Testing and Refinement
! Construction and evaluation of multiple
preproduction versions of product
! Same geometry and material as production
version
! Not necessarily fabricated with the actual
production processes
! Prototypes (3R) tested to determine if the product
will work as designed to meet legal regulations and
customer needs
3R rough (not perfect); rapid (build fast), right (build many
models base on specific demand)
15
Phase 5: Production Ramp-Up
! Product is made using the intended production
system
! Want to train workers and resolve any remaining
problems
! Products may be supplied to preferred customers
for evaluation
! Transition to ongoing production is gradual
16
Generic Product Development Process
17
Product Process Design Matrix (PPDM)
1. Project one-of-a-kind, low FC, high VC, highly
skilled personnel (e.g. Burj Khalifa);
2. Job shop produce a specified quantity but only
once (e.g. concert)
3. Batch - produce a specified quantity repeatedly
(e.g. McDonalds)
4. Assembly individual , discrete products (e.g.
cars)
5. Continuous not discrete products (e.g.
petroleum)
- PJBAC - a tradeoff between volume and variety
18
Quality Function
Deployment
Value Analysis/
Value Engineering
Ideal
Customer
Product
House of Quality
Designing for the Customer
LO 3
19
Quality Function Deployment
! Cross-functional teams from marketing, design
engineering, purchasing and manufacturing
! Begins with listening to the voice of customer
! Uses market research
! Customer preferences are defined and broken
down into customer requirements
! House of quality
20
House of Quality Matrix for a Car Door
21
Value Analysis (VA)/ Value Engineering (VE)
! Value = ? by Larry Miles at General Electric in 1940s
! Purpose is to simplify products and processes
! Objective is to achieve better performance at a lower cost
while maintaining all functional requirements defined by
the customer;
! i.e. + output, - input
! Does the item have any design features that are not necessary?
! Can two or more parts be combined into one?
! How can we cut down the weight?
! Are there nonstandard parts that can be eliminated?
! Thus, use standard components and processes ; relax spec.;
use newer, better and cheaper materials
LO 4
22
Designing Products for Manufacture
and Assembly (DFMA)
! Traditional approach
! We design it, you build it or over the wall
! Concurrent engineering
! Lets work together simultaneously
! Manufacturability is the ease of fabrication and/or
assembly, which is important for:
! Cost
! Productivity
! Quality
23
DFMA
! Greatest improvements related to DFMA arise from
simplification of the product by reducing the number of
separate parts:
1. During the operation of the product, does the part move relative
to all other parts already assembled?
2. Must the part be of a different material or be isolated from other
parts already assembled?
3. Must the part be separate from all other parts to allow the
disassembly of the product for adjustment or maintenance?
24
Proposed Motor Drive Design
25
Redesign of Motor Drive Assembly
Following Design for Assembly Analysis
26
Designing Service Products
! Service products are very different
! Direct customer involvement introduces significant
variability in the process
! Questions to address:
! How will this variability be addressed?
! What are the implications for operational cost
and the customer service experience?
! Service level and service cost relationship?
27
Three General Factors Test for Fit
1. Service experience fit
The new service should fit into the current
service experience for the customer
2. Operational fit
Existing processes should be able to support
the operation of the new service
3. Financial impact
Introducing a new service should be financially
justified
28
Measuring Product Development
Performance
! A steady stream of new products is important to
competitiveness
! Firms must respond to changing customer needs
and competitor moves
! Ability to identify opportunities and bring new
products to market is critical
! Must also be efficient
LO 5
29
Performance measures for development
projects
30
Copyright 2014 by McGraw-Hill Education (Asia). All rights reserved.
4
Product and
Service Design
Other Issues in Product and Service
Design
! Product/service life cycles
! Degree of standardization
! Mass customization
! Global Product Design
32
LO 6
Life Cycles of Products or Services
Time
Introduction
Growth
Maturity
Saturation
Decline
D
e
m
a
n
d

33
Standardization
! Standardization
! Extent to which there is an absence of variety in
a product, service, or process
! Standardized products are immediately available
to customers at the last stage
! By 1918, half of all cars in America were Model
T's. All new cars were black; as Ford wrote in his
autobiography, "Any customer can have a car
painted any color that he wants so long as it is
black".
34
Advantages of Standardization
! Fewer parts to deal with in inventory and
manufacturing
! Design costs are generally lower
! Reduced training costs and time
! More routine purchasing, handling, and inspection
procedures
! Quality is more consistent
! Orders can be filled from inventory
! Opportunities for long production runs and
automation
35
Disadvantages of Standardization
! Designs may be frozen with too many
imperfections remaining
! High cost of design changes increases
resistance to improvements
! Decreased variety results in less consumer
appeal
36
! Mass customization:
! A strategy of producing standardized goods
or services, but incorporating some degree
of customization
! Delayed differentiation
! Modular design
Mass Customization
37
! Delayed differentiation or postponement
! Producing but not quite completing a product
or service until customer preferences or
specifications are known
! (e.g. Dell computer)
Delayed Differentiation
38
Modular Design
It is a form of standardization in which component
parts are subdivided into modules that are easily
replaced or interchanged. It allows:
! easier diagnosis and remedy of failures
! easier repair and replacement
! simplification of manufacturing and assembly
39
Global Product Design
! Virtual teams
! Uses combined efforts of a team of designers
working in different countries
! Provides a range of comparative advantages
over traditional teams such as:
! Engaging the best human resources around
the world
! Possibly operating on 24/7
! Global customer needs assessment for
cultural differences
! Global design can increase marketability
40
Global Product Design
! Original Equipment Manufacturer (OEM)
! manufactures a product based on its own
specifications and sells to another company for
branding and distribution
! Original Design Manufacturer (ODM)
! Designs and manufactures a product for another
company but keep the patent
41
Idea Generation
Ideas
Competitor based
Supply-chain based
Research based
42
Idea Generation
Ideas
+ others
Suppliers (0 59%)
Customers (23%)
Internal R&D (3%)
43
Competitor-based
Reverse engineering is the
dismantling and inspecting
of a competitors product to
discover product improvements.
44
Research based (R & D)
! Organized efforts to increase scientific knowledge
or product innovation, and may involve:
! Basic Research: advances knowledge about a
subject without near-term expectations of
commercial applications.
! Applied Research: achieves commercial
applications.
! Development: converts results of applied
research into commercial applications.
45
Service Design
! Service (e.g. medical)
! Something that is done to or for a customer
! Service delivery system
! The facilities, processes, and skills needed to
provide a service (ambulance, wheelchair, trolley)
! Product bundle
! The combination of goods and services
provided to a customer (ward, operating theatre)
! Service package
! The physical resources needed to perform
the service (drugs, physical therapy)
46
! SHIP
! Services have low barrier to entry and exit
! Location is important to service design
! Range of service systems
! Demand variability
Differences Between Product & Service
Design
47
Service Systems
! Service systems range from those with little or no
customer contact to very high degree of customer
contact such as:
! Insulated technical core (software development)
! Production line (automatic car wash)
! Personalized service (hair cut, medical service)
! Consumer participation (diet program)
! Self-service (supermarket)
48
Service Demand Variability
! Demand variability creates waiting lines and idle
service resources
! Customer participation makes quality and demand
variability hard to manage
! Attempts to achieve high efficiency may
depersonalize service and change customers
perception of quality
49
Phases in Service Design
1. Conceptualize
2. Identify service package components
3. Determine performance specifications
4. Translate performance specifications into design
specifications
5. Translate design specifications into delivery
specifications
Alternatively 4D (discover, design, develop,
deliver)
50
Service Blueprinting
! Service blueprinting
! A method used in service design to describe
and analyze a proposed service
! A useful tool for conceptualizing a service
delivery system
51
Major Steps in Service Blueprinting
1. Establish boundaries
2. Identify sequence of customer
interactions
! Prepare a flowchart
3. Develop time estimates
4. Identify potential failure points
52
Service Blueprinting
53
Characteristics of Well-Designed Service
Systems
1. Consistent with the corporate strategy
2. Reliability or robust
3. Assurance add value to customers
4. Tangibles and effective linkages between
back operations
5. Empathy - user friendly
6. Responsive to exceptions or easy to sustain
7. Standardization and Cost-effective
54
Challenges of Service Design
1. Variable requirements
2. Difficult to describe
3. High customer contact
4. Service customer encounter
5. procedures to handle exceptions
55
1. Increase emphasis on component commonality
2. Package products and services
3. Employ multiple-use platforms
4. Consider tactics for mass customization
5. Look for continual improvement
6. Shorten time to market
- Use standardized components
- Use technology
- Use concurrent engineering
Operations Strategy
56
Lecture 2 Summary
! The importance of design
! 3 types of new products
! 6 phases of NPD
! QFD, VA, VE, DFMA
! Mass customization- postponement; modular
design
! Good service system design (7
characteristics)
57
Lecture 3
Project Management
Learning Objectives
1. Explain what project management is and why it is
important.
2. Identify the different ways projects can be
structured.
3. Describe how projects are categorized.
4. Determine the critical path for a project.
5. Demonstrate how to crash, or reduce the length
of, a project.
What is Project Management?
Project: a series of related jobs usually directed
toward some major output (e.g., Burj Al Arab)
and requiring a significant period of time to
perform
Project management: the management
activities of resources (3M) to meet triple
constraints or iron triangle (i.e. time, cost, quality
or scope) of a project
LO 1
Why is it important?

Special needs
Pressures for new or improved products
or services
Unique, one-time operations designed to accomplish a
specific set of objectives in a limited time frame.
Build A
A Done
Build B
B Done
Build C
C Done
Build D
Ship
JAN FEB MAR APR MAY JUN
On time!
Projects
Types of Development Projects
What are the Key Success Factors?
Top-down commitment
Having a capable project manager
Having time to plan
Careful tracking and control
Good communications
Structuring Projects
Pure project
Functional project
Matrix project
LO 2
Pure Project
Advantages
The project manager has full authority
Team members report to one boss
Shortened communication lines
Team pride, motivation, and commitment are high
Disadvantages
Duplication of resources
Organizational goals and policies are ignored
Lack of technology transfer
Team members have no functional area "home"
Functional Project
Functional Project Continued
Advantages
A team member can work on several projects
Technical expertise maintained in functional area
Functional area is home after project completed
Critical mass of specialized knowledge
Disadvantages
Aspects of the project that are not directly related to the
functional area get short-changed
Motivation of team members is often weak
Needs of the client are secondary and are responded to
slowly
Matrix Project

Matrix Project Continued
Advantages
Better communications between functional areas
Project manager held responsible for success
Duplication of resources is minimized
Functional home for team members
Policies of the parent organization are followed
Disadvantages
Too many bosses
Depends on project managers negotiating skills
Potential for sub-optimization
Work Breakdown Structure
Statement of work (SOW): a written
description of the objectives to be achieved
Task: a further subdivision of a project
Usually shorter than several months
Performed by one group or organization
Work package: a group of activities combined
to be assignable to a single organizational unit
LO 3
Work Breakdown Structure
Continued
Project milestones: specific events on the
project
Work breakdown structure (WBS): defines
the hierarchy of project tasks, subtasks, and
work packages
Activities: pieces of work that consume time
Defined within the context of the WBS
An Example of a Work Breakdown
Structure
LO 3
Work Breakdown Structure
Project X
Level 1
Level 2
Level 3
Level 4
Work Breakdown Structure, Large
Optical Scanner Design
Project Control Charts
Charts are useful because their visual
presentation is easily understood
Software is available to create
Gantt chart: a bar chart showing both
the amount of time involved and the
sequence in which activities can be
performed
Sample of Graphic Project Reports
Network-Planning Models
A project is made up of a sequence of activities that
form a network representing a project
The path taking longest time through this network of
activities is called the critical path
The critical path provides a wide range of scheduling
information useful in managing a project
Critical path method (CPM) helps to identify the critical
path(s) in the project networks
PERT and CPM
PERT: Program Evaluation and Review Technique
CPM: Critical Path Method

PERT and CPM are two common techniques (1950s)
PERT uses probabilistic time estimates that allow for
variation while CPM uses deterministic time estimates
that are fairly certain
Graphically displays project activities
Estimates how long the project will take
Indicates most critical activities
Shows where delays will not affect project
The Network Diagram
Network (precedence) diagram: diagram of project
activities that shows sequential relationships by the
use of arrows and nodes.
Activity-on-arrow (AOA): a network diagram
convention in which arrows designate activities.
Activity-on-node (AON): a network diagram
convention in which nodes designate activities.
Activities: steps in the project that consume
resources and/or time by nodes in the AON
convention..
Events: the starting and finishing of activities,
designated by arrows in the AON convention.
The Network Diagram
Path
Sequence of activities that leads from the starting
node to the finishing node
Critical path
The longest path; determines expected project
duration
Critical activities
Activities on the critical path
Slack
Allowable slippage for path; the difference
between the length of path and the length of
critical path
Network: Activity on Node (AON)
Move in
1
2
3
5
6
Locate
facilities
Order
furniture
Furniture
setup
Interview
Remodel
4
Hire and
train
7 S
Critical Path Method (CPM)
1. Identify each activity to be done and estimate
how long it will take
2. Determine the requires sequence and
construct a network diagram
3. Determine the critical path
4. Determine the early start/finish and late start/
finish schedule
LO4
Example: Activity Sequencing and
Network Construction
Network activities
ES: early start
EF: early finish
LS: late start
LF: late finish
Used to determine
Expected project duration
Slack time
Critical path
Computing Algorithm
Example: Finished Schedule
Three Activity Time Estimates
If a single time estimate is not reliable, then use
three time estimates
Minimum (Optimistic)
Maximum (Pessimistic)
Most likely
Allows us to obtain a probability estimate for
completion time for the project
Probabilistic Estimates
Activity
start
Optimistic
time
Most likely
time (mode)
Pessimistic
time
t
o
t
p
t
m
t
e
Beta Distribution
Finding Activity Time and Variance
time expected ET
maximum b
likely most m
minimum
6
6
4
2
2
=
=
=
=
!
"
#
$
%
&
'
=
+ +
=
a
a b
b m a
ET
(
Example: Activity Expected Times and Variances
Example: Network with Three Time Estimates
_______ p ; 87 . 0
89 . 11
38 35 T D
Z
Weeks 35 in Finishing of y Probabilit
2
cp
E
= ! =
!
=
"
!
=
#
Z 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09
0.0 0.0000 0.0040 0.0080 0.0120 0.0160 0.0199 0.0239 0.0279 0.0319 0.0359
0.1 0.0398 0.0438 0.0478 0.0517 0.0557 0.0596 0.0636 0.0675 0.0714 0.0753
0.2 0.0793 0.0832 0.0871 0.0910 0.0948 0.0987 0.1026 0.1064 0.1103 0.1141
0.3 0.1179 0.1217 0.1255 0.1293 0.1331 0.1368 0.1406 0.1443 0.1480 0.1517
0.4 0.1554 0.1591 0.1628 0.1664 0.1700 0.1736 0.1772 0.1808 0.1844 0.1879
0.5 0.1915 0.1950 0.1985 0.2019 0.2054 0.2088 0.2123 0.2157 0.2190 0.2224
0.6 0.2257 0.2291 0.2324 0.2357 0.2389 0.2422 0.2454 0.2486 0.2517 0.2549
0.7 0.2580 0.2611 0.2642 0.2673 0.2704 0.2734 0.2764 0.2794 0.2823 0.2852
0.8 0.2881 0.2910 0.2939 0.2967 0.2995 0.3023 0.3051 0.3078 0.3106 0.3133
0.9 0.3159 0.3186 0.3212 0.3238 0.3264 0.3289 0.3315 0.3340 0.3365 0.3389
1.0 0.3413 0.3438 0.3461 0.3485 0.3508 0.3531 0.3554 0.3577 0.3599 0.3621
1.1 0.3643 0.3665 0.3686 0.3708 0.3729 0.3749 0.3770 0.3790 0.3810 0.3830
1.2 0.3849 0.3869 0.3888 0.3907 0.3925 0.3944 0.3962 0.3980 0.3997 0.4015
1.3 0.4032 0.4049 0.4066 0.4082 0.4099 0.4115 0.4131 0.4147 0.4162 0.4177
1.4 0.4192 0.4207 0.4222 0.4236 0.4251 0.4265 0.4279 0.4292 0.4306 0.4319
1.5 0.4332 0.4345 0.4357 0.4370 0.4382 0.4394 0.4406 0.4418 0.4429 0.4441
1.6 0.4452 0.4463 0.4474 0.4484 0.4495 0.4505 0.4515 0.4525 0.4535 0.4545
1.7 0.4554 0.4564 0.4573 0.4582 0.4591 0.4599 0.4608 0.4616 0.4625 0.4633
1.8 0.4641 0.4649 0.4656 0.4664 0.4671 0.4678 0.4686 0.4693 0.4699 0.4706
1.9 0.4713 0.4719 0.4726 0.4732 0.4738 0.4744 0.4750 0.4756 0.4761 0.4767
2.0 0.4772 0.4778 0.4783 0.4788 0.4793 0.4798 0.4803 0.4808 0.4812 0.4817
2.1 0.4821 0.4826 0.4830 0.4834 0.4838 0.4842 0.4846 0.4850 0.4854 0.4857
2.2 0.4861 0.4864 0.4868 0.4871 0.4875 0.4878 0.4881 0.4884 0.4887 0.4890
2.3 0.4893 0.4896 0.4898 0.4901 0.4904 0.4906 0.4909 0.4911 0.4913 0.4916
2.4 0.4918 0.4920 0.4922 0.4925 0.4927 0.4929 0.4931 0.4932 0.4934 0.4936
2.5 0.4938 0.4940 0.4941 0.4943 0.4945 0.4946 0.4948 0.4949 0.4951 0.4952
2.6 0.4953 0.4955 0.4956 0.4957 0.4959 0.4960 0.4961 0.4962 0.4963 0.4964
2.7 0.4965 0.4966 0.4967 0.4968 0.4969 0.4970 0.4971 0.4972 0.4973 0.4974
2.8 0.4974 0.4975 0.4976 0.4977 0.4977 0.4978 0.4979 0.4979 0.4980 0.4981
2.9 0.4981 0.4982 0.4982 0.4983 0.4984 0.4984 0.4985 0.4985 0.4986 0.4986
3.0 0.4987 0.4987 0.4987 0.4988 0.4988 0.4989 0.4989 0.4989 0.4990 0.4990
Time-Cost Models and Project
Crashing
Basic assumption: Relationship between
activity completion time and project cost
Time cost models: Determine the optimum
point in time-cost tradeoffs
Activity direct costs
Project indirect costs
Activity completion times
LO 5
Procedure for Project Crashing
1. Prepare a CPM-type network diagram
2. Determine the cost per unit of time to
expedite each activity
3. Compute the critical path
4. Shorten the critical path at the least cost
5. Plot project direct, indirect, and total-cost
curves and find the minimum-cost schedule
Managing Resources
In addition to scheduling each task, must
assign resources
Software can spot over-allocation
Allocations exceed resources
Must either add resources or reschedule
Moving a task within slack can free up resources
Tracking Progress
Actual progress on a project will be different
from the planned progress
Planned progress is called the baseline
A tracking Gantt chart superimposes the current
schedule onto a baseline so deviations are
visible
Project manager can then manage the
deviations
Limitations of CPM/ PERT
Important activities may be omitted
Precedence relationships may not be
correct
Estimates may include
a fudge factor
May focus solely
on critical path
1
2
3
4
5 6
142 weeks
Temptation to understate costs
Withhold information
Misleading status reports
Falsifying records
Compromising workers safety
Approving substandard work
Ethical Issues
Q1. The following represents a plan for a project:
a. Construct the appropriate network diagram.
b. Identify the Critical Path (CP).
c. What is the expected completion time for the project?
d. What is the probability that the project will be completed in 30 days or less?.





Job Predecessor Optimistic
Most
Likely Pessimistic ET Variance
No. Job(s) a m b
1 - 2 3 4
2 1 1 2 3
3 1 4 5 12
4 1 3 4 11
5 2 1 3 5
6 3 1 2 3
7 4 1 8 9
8 5,6 2 4 6
9 8 2 4 12
10 7 3 4 5
11 9,10 5 7 8
Q1. solution
Q2. The following represents a plan for a project:
Activity Predecessor Normal Normal Crash Crash Crash
Time Cost Time Cost Cost / week

A - 6 $ 6,000 4 $12,000
B A 10 $10,000 9 $11,000
C A 8 $ 8,000 7 $10,000
D B 12 $12,000 10 $14,000
E B 10 $10,000 7 $12,000
F C 14 $14,000 12 $19,000
G D 7 $ 7,000 5 $10,000
H E,F 9 $ 9,000 6 $15,000
I G,H 6 $ 6,000 5 $ 8,000
Q2. The network diagram
!
"
#
$
%
&
'
(
)
b. Reduce the EF by four weeks. Assume a linear cost
per day shortened and show how you arrived at your
schedule.

Duration Crash Cost




McGraw-Hill/Irwin Copyright @ 2011 The McGraw-Hill Companies, All Rights Reserved
Lecture 4
Manufacturing and Service
Processes
6-2
Learning outcomes
1. Understand basic flowcharting of processes &
Littles law
2. Understand 4 types of firms ( __, __,__,__ )
3. Demonstrate 5 types of production system
designs (_____)
4. Demonstrate how to configure service
encounters (____)
5. Service blueprinting
6. Poka-yokes

6-3
Process (I)
Process: any part of an organization that takes
inputs and transforms them into outputs
Cycle time: the average successive time
(months) between completions of successive
units (Dyer, 1996).

Chrysler Ford G.M. Nissan Toyota
80.7 77.7 86.5 51.4 50.0
6-4
Efficiency and Utilization
Actual output
Efficiency =
Effective capacity


Actual output
Utilization =
Design capacity
Both measures expressed as percentages
6-5
Actual output = 36 units/day
Efficiency = = 90%
Effective capacity 40 units/ day


Utilization = Actual output = 36 units/day
= 72%
Design capacity 50 units/day
Example 1
Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day
6-6
Process Flowcharting
a diagram to present the major elements of a
process: (1) tasks or operations, (2) flows of
materials or customers, (3) decision points,
and (4) storage areas or queues
It is an ideal methodology by which to begin
analyzing a process
LO 1
6-7
Flowchart Symbols
6-8
Buffering, Blocking, and Starving
Buffer: a storage area between stages where
the output of a stage is placed prior to being
used in a downstream stage
Blocking: occurs when the activities in a stage
must stop because there is no place to deposit
the item
Starving: occurs when the activities in a stage
must stop because there is no work
Bottleneck: stage that limits the capacity of the
process
6-9
Bottleneck Operation
Operation 1
20/hr.
Operation 2
10/hr.
Operation 3
15/hr.
10/hr.
Bottleneck
Maximum output rate
limited by bottleneck
6-10
Process Flowchart Example (Slot Machine)
LO 2
6-11
Littles Law (John D.C. Little, 1961)
There is a long-term relationship between inventory,
throughput rate and flow time (IFF)

Inventory = Flow rate * Flow time
I = FF

Flow (Throughput ) rate = the expected output rate
per a period of time
Flow time = the average time for a unit to pass
through the process

Littles Law (IFF)
Immigration Red wine BBA program Electronics
Flow unit Applications Bottle of red
wine
Student TV
Flow rate/
Throughput rate
Approved or
rejected cases
Bottles sold per
year
Graduating
class
Sales per year
Flow time Processing time Time in the
cellar
4 years 50 days
Inventory Pending cases No. of bottles in
the cellar
Total campus
population
Inventory
6-13
Example
Between the hours of 1pm and 2 pm, 50
customers enter Tea house and 30 leave.
What is Tea houses inventory of customers
at 2pm assuming it was zero at 1 pm?
6-14
Littles Law

Inventory turns = Cost of goods sold / inventory






Dyer J.H.
(1996)
Process velocity = VA time/ Flowtime


Chrysler Ford G.M. Nissan Toyota
Inventory
/ Sales
9.8% 8.4% 8.1% 5.1% 2.3%
Inventory
turns
6-15
Manufacturing Processes (II)
Terms
Lead time: the time needed to respond to a
customer order
Customer order decoupling point: where
inventory is positioned to allow entities in the
supply chain to operate independently
LO 2
6-16
Positioning Inventory in the Supply Chain
6-17
4 Types of Firms
Make-to-stock (MS) firms: firms that serve
customers from finished goods inventory
Assemble-to-order (AO) firms: firms that combine a
number of preassembled modules to meet a
customers specifications
Make-to-order (MO) firms: firms that make the
customers product from raw materials, parts, and
components
Engineer-to-order (EO) firm: firm that will work with
the customer to design and then make the product
6-18
Make-to-Stock
E.g. TV, Clothing, Packaged food products
Essential issue in satisfying customers is to
balance the level of inventory against the
customer service level (CSL)
Easy with unlimited inventory but inventory
costs money
Trade-off between the costs of inventory and
level of customer service must be made
Use lean manufacturing to achieve higher CSL
for a given inventory level
6-19
Assemble-to-Order
A primary task is to define a customers order in
terms of alternative components since these are
carried in inventory
e.g. Dell Computer
One capability required is a design that enables
as much flexibility as possible in combining
components
There are significant advantages from moving
the customer order decoupling point from
finished goods to components
6-20
Make-to-Order and Engineer-to-
Order
E.g. Boeings aircraft
Customer order decoupling point could be in
either raw materials at the manufacturing site or
the supplier inventory
Depending on how similar the products are it
might not even be possible to pre-order parts
6-21
Manufacturing process designs
Project: the product remains in a fixed location
but manufacturing equipment move
Job shop (Workcenter ): similar equipment or
functions are grouped together
Batch: a dedicated area where products that are
similar in processing requirements are produced
Mass (Assembly line): work processes are
arranged according to the progressive steps by
which the product is made
Continuous process: assembly line only the
flow is continuous
(PJBMC)
LO 3
Product Process Design Matrix (PPDM)
6-23
Importance of PPDM
70 percent of product defects result from the
design process and poor product/process fit
in the auto industry (Rommel et al., 1990:58).
6-24
Project Layout
The product remains in a fixed location
A high degree of task ordering is common
A project layout may be developed by arranging
materials according to their assembly priority
http://www.youtube.com/watch?v=MDoldpzZ21I
6-25
Job Shop (workcenter)
to arrange workcenters in a way that optimizes
the movement of material - often means placing
workcenters with large interdepartmental traffic
adjacent to each other
focused on a particular type of operation
6-26
Workcenter arrangement
6-27
Batch (Manufacturing Cell)
1. Group parts into families that follow a common
sequence of steps (GT)
2. Identify dominant flow patterns for each part
family
3. Machines and the associated processes are
physically regrouped into cells
6-28
Original workcenter layout
Routing matrix based upon flow of parts
6-29
To manufacturing cell
Reallocating machines to form cells according to part
family processing requirements
6-30
Mass (Assembly line )
Manufacturing Process Flow Design
A method to evaluate the specific processes that
material follow as they move through the plant
Focus on the identification of activities that can
be minimized or eliminated
Movement and storage
The fewer the moves, delays, and storage,
the better the flow
6-32
The Charts
Assembly drawing: An exploded view of the
product showing its component parts
Assembly chart: defines how parts go together,
their order of assembly and overall flow pattern
Operation and route sheet: specifies
operations and process routing
Process flowchart: denotes what happens to
the product as it progresses through the
production facility
6-33
Sample Assembly Drawing
6-34
Sample Assembly Chart
6-35
Sample Operation and Route Sheet
6-36
Sample Flowchart
6-37
Service Process (III)
1. Demonstrate how services are classified
(SSDM)
2. Construct a service blueprint
3. Explain the involvement of the customer in
services
- Poke-yoke or fail-safe
- 5 types of variability
- 3 service designs (PLA, SSA, PAA)
6-38
International Growth in Services
6-39
The Nature of Services
The customer is the focal point of all decisions
and actions i.e. customer-oriented
Service operation is responsible for managing
service triangle
6-40
The Service Triangle
6-41
Service Package
1. Facility : The physical resources that must be in
place before a service can be offered
2. Information : Data provided by the users
3. Goods : The material purchased by the buyer or
the items provided to the customer
4. Service :
explicit - benefits that are observable by the senses
implicit - psychological benefits the customer may
sense only vaguely
6-42
An Operational Classification of
Services
Extent of customer contact: the percentage
of time the customer must be in the system
relative to service time
Services with a high degree of customer
contact are more difficult to control
6-43
Major Differences between High and Low-Contact
Systems in a Bank
6-44
Designing Service systems
Cannot inventory services
Must meet demand as it arises
Service capacity is a dominant issue
What capacity should I aim for?
Marketing can adjust demand
Cannot separate the operations management
function from marketing in services
Waiting lines management can also help with
capacity
6-45
How Service Design is
Different from Product Design
1. The process and the product must be developed
simultaneously
The process is the product
2. A service operation lacks the legal protection
commonly available to products
3. The service package constitutes the major output of
the development process
4. Many parts of the service package are defined by
the training individuals receive
5. Many service organizations can change their service
offerings virtually overnight
6-46

Structuring the Service Encounter:
Service-System Design Matrix


Service encounters can be configured in a
number of different ways
1. Mail contact
2. Internet and on-site technology
3. Phone contact
4. Face-to-face tight specs
5. Face-to-face loose specs
6. Face-to-face total customization
More customer contact , production efficiency
decreases; sales opportunity increases
LO 4
Service-System Design Matrix (SSDM)
6-48
Characteristics Relative to the Degree of
Customer/Service Contact
6-49
Strategic Uses of the Matrix
1. Enabling systematic integration of operations
and marketing strategy
2. Clarifying exactly which combination of service
delivery the firm is providing
3. Permitting comparison of how other firms
deliver specific services
4. Indicating life cycle changes as the firm grows
6-50
Virtual Service
Customers no longer just physically interact with
the business
Pure virtual customer contact: customers
interact in an open environment, e.g. eBay,
SecondLife
Mixed virtual and actual customer contact:
customers interact with one another in a server-
moderated environment, e.g. YouTube,
Wikipedia
6-51
Service Blueprinting
The standard tool for service process design is
a service blueprint or a flowchart
A unique feature is the distinction between high
customer contact aspects of the service and
those activities the customer does not see
Made by a line of visibility
LO 5
Major Steps in Service Blueprinting
1. Establish boundaries
2. Identify sequence of customer interactions
Prepare a flowchart
3. Develop time estimates
4. Identify potential failure points
6-53
Sample of a Service Operation Blueprint
6-54
Service Poka-Yokes
Poka-yokes: proactive procedures that block a
mistake from becoming a service defect also
common in factories
Warning methods
Physical or visual contact methods
Must often fail-safe actions of the customer as
well as the service workers
LO 6
6-55
Three Contrasting Service Designs
1. The production line approach (McDonalds)
Service delivery is treated much like manufacturing
2. The self-service approach (ATM machines)
Customer takes a greater role in the production of
the service
3. The personal attention approach (Ritz-Carlton
Hotel Company) - hotline for VIPs
6-56
Characteristics of Well-Designed
Service Systems
1. Consistent with the corporate strategy
2. Reliable or robust
3. Assured add value to customers
4. Tangibles and effective linkages between
back operations
5. Empathic - user friendly
6. Responsive to exceptions or easy to sustain
7. Standardization and Cost-effective
6-57
Five Types of Variability
1. Capability - a patient is unable to explain
symptoms to doctor
2. Arrival - customers arrive at random
3. Request - travelers request a room with a view
4. Effort - shoppers do not put up carts
5. Subjective preference - customers interpret
service action differently
6-58
Strategies for Managing Variability
6-59
Tutorial 4
Good Time fast-food sells 5,000 of chicken wings
per week on average. Normally, 2,500 chicken
wings are kept in the refrigerator. What is the
average flow time of a chicken wing? What is
the inventory turnover ratio?
Think about the last time that you visited a theme
park. Were your expectations met? Please
provide some specific examples.