15-1 Scheduling

Operations Management

William J. Stevenson

8th edition
 15-2 Scheduling

CHAPTER
1

Scheduling

Operations Management, Eighth Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
15-3 Scheduling

Scheduling

 Scheduling: Establishing the timing of the

use of equipment, facilities and human
activities in an organization
 Effective scheduling can yield
 Cost savings
 Increases in productivity
15-4 Scheduling

High--Volume Systems
High

 Flow system: High-volume system with

Standardized equipment and activities
 Flow-shop scheduling: Scheduling for high-
volume flow system

Work Center #1 Work Center #2 Output

15-5 Scheduling

Scheduling Manufacturing Operations

High-volume JAN FEB MAR APR MAY JUN

Build A
Intermediate- A Done
volume Build B

B Done
Low-volume Build C

Service C Done
On time!
operations Build D

Ship
15-6 Scheduling

High--Volume Success Factors

High

 Process and product design

 Preventive maintenance
 Rapid repair when breakdown occurs
 Optimal product mixes
 Minimization of quality problems
 Reliability and timing of supplies
15-7 Scheduling

Intermediate--Volume Systems
Intermediate

 Outputs are between standardized high-

volume systems and made-to-order job shops
 Run size, timing, and sequence of jobs
 Economic run size:

2DS p
Q0 
H p u
15-8 Scheduling

Scheduling Low-
Low-Volume Systems

 Loading - assignment of jobs to process

centers
 Sequencing - determining the order in
which jobs will be processed
 Job-shop scheduling
 Scheduling for low-volume
systems with many
variations
in requirements
15-9 Scheduling

Gantt Load Chart

Figure 15.2

 Gantt chart - used as a visual aid for loading

and scheduling
Work Mon. Tues. Wed. Thurs. Fri.
Center
1 Job 3 Job 4
2 Job 3 Job 7
3 Job 1 Job 6 Job 7
4 Job 10
15-10 Scheduling

Loading

 Infinite loading
 Finite loading
 Vertical loading
 Horizontal loading
 Forward scheduling
 Backward scheduling
 Schedule chart
15-11 Scheduling

Sequencing

 Sequencing: Determine the order in which

jobs at a work center will be processed.

 Workstation: An area where one person

works, usually with special equipment, on a
specialized job.
15-12 Scheduling

Sequencing

 Priority rules: Simple heuristics

used to select the order in
which jobs will be processed.
Everything is
#1 Priority

 Job time: Time needed for

setup and processing of a job.
15-13 Scheduling

Priority Rules
Table 15.2
 FCFS - first come, first served
 SPT - shortest processing time
 EDD - earliest due date
 CR - critical ratio
 S/O - slack per operation
 Rush - emergency Top Priority
15-14 Scheduling

Example 2
Table 15.4
Average
Average Average Number of
Flow Time Tardiness Jobs at the
Rule (days) (days) Work Center
FCFS 20.00 9.00 2.93
SPT 18.00 6.67 2.63
EDD 18.33 6.33 2.68
CR 22.17 9.67 3.24
15-15 Scheduling

Scheduling Difficulties

 Variability in
 Setup times
 Processing times

 Interruptions

 Changes in the set of jobs

 No method for identifying optimal schedule

 Scheduling is not an exact science

 Ongoing task for a manager

15-16 Scheduling

Minimizing Scheduling Difficulties

 Set realistic due dates

 Focus on bottleneck operations
 Consider lot splitting of large jobs
15-17 Scheduling

Scheduling Service Operations

 Appointment systems
 Controls customer arrivals for service
 Reservation systems
 Estimates demand for service
 Scheduling the workforce
 Manages capacity for service
 Scheduling multiple resources
 Coordinates use of more than one
resource
15-18 Scheduling

Cyclical Scheduling

 Hospitals, police/fire departments, restaurants,

supermarkets
 Rotating schedules
 Set a scheduling horizon
 Identify the work pattern

 Develop a basic employee schedule

 Assign employees to the schedule

15-19 Scheduling

Service Operation Problems

 Cannot store or inventory services

 Customer service requests are random

 Scheduling service involves

 Customers
 Workforce
 Equipment
15-20 Scheduling

Aggregate Planning

PowerPoint presentation to accompany

Heizer/Render
Heizer /Render
Principles of Operations Management, 7e
Operations Management, 9e
15-21 Scheduling

Outline
 Global Company Profile: Anheuser-
Anheuser-
Busch
 The Planning Process
 The Nature of Aggregate Planning
 Aggregate Planning Strategies
 Capacity Options
 Demand Options
 Mixing Options to Develop a Plan
15-22 Scheduling

Outline – Continued

 Methods for Aggregate Planning

 Graphical Methods
 Mathematical Approaches
 Comparison of Aggregate Planning
Methods
15-23 Scheduling

Outline – Continued
 Aggregate Planning in Services
 Restaurants
 Hospitals
 National Chains of Small Service Firms
 Miscellaneous Services
 Airline Industry
 Yield Management
15-24 Scheduling

Learning Objectives
When you complete this chapter you should be
able to:

1. Define aggregate planning

2. Identify optional strategies for
developing an aggregate plan
3. Prepare a graphical aggregate plan
15-25 Scheduling

Learning Objectives
When you complete this chapter you should be
able to:

4. Solve an aggregate plan via the

transportation method of linear
programming
5. Understand and solve a yield
management problem
15-26 Scheduling

Anheuser--Busch
Anheuser

 Anheuser-
Anheuser-Busch produces nearly 40% of
the beer consumed in the U.S.
 Matches fluctuating demand by brand to
plant, labor, and inventory capacity to
achieve high facility utilization
 High facility utilization requires
 Meticulous cleaning between batches
 Effective maintenance
 Efficient employee and facility scheduling
15-27 Scheduling

Anheuser--Busch
Anheuser

 Product-
Product-focused facility with high fixed
costs
 High utilization requires effective
aggregate planning of the four basic
stages of production
 Selection and delivery of raw materials
 Brewing process from milling to aging
 Packaging
 Distribution
15-28 Scheduling

Aggregate Planning

Determine the quantity and timing of

production for the immediate future
 Objective is to minimize cost over the
planning period by adjusting
 Production rates
 Labor levels
 Inventory levels
 Overtime work
 Subcontracting rates
 Other controllable variables
15-29 Scheduling

Aggregate Planning

Required for aggregate planning

 A logical overall unit for measuring sales
and output
 A forecast of demand for an intermediate
planning period in these aggregate terms
 A method for determining costs
 A model that combines forecasts and costs
so that scheduling decisions can be made
for the planning period
15-30 Scheduling

The Planning Process

Long-range plans
(over one year)
Research and Development
New product plans
Capital investments
Facility location/expansion

Top
executives Intermediate-range plans
(3 to 18 months)
Sales planning
Production planning and budgeting
Operations Setting employment, inventory,
managers subcontracting levels
Analyzing operating plans

Short-range plans
(up to 3 months)
Job assignments
Operations Ordering
managers, Job scheduling
supervisors, Dispatching
foremen Overtime
Part-time help

Responsibility Planning tasks and horizon Figure 13.1

15-31 Scheduling

Aggregate Planning

Quarter 1
Jan Feb Mar
150,000 120,000 110,000

Quarter 2
Apr May Jun
100,000 130,000 150,000

Quarter 3
Jul Aug Sep
180,000 150,000 140,000
15-32 Scheduling

Aggregate
Planning

Figure 13.2
15-33 Scheduling

Aggregate Planning

 Combines appropriate resources into

general terms
 Part of a larger production planning
system
 Disaggregation breaks the plan down
into greater detail
 Disaggregation results in a master
production schedule
15-34 Scheduling

Aggregate Planning Strategies

1. Use inventories to absorb changes in

demand
2. Accommodate changes by varying
workforce size
3. Use part
part--timers, overtime, or idle time to
absorb changes
4. Use subcontractors and maintain a stable
workforce
5. Change prices or other factors to influence
demand
15-35 Scheduling

Capacity Options

 Changing inventory levels

 Increase inventory in low demand
periods to meet high demand in the
future
 Increases costs associated with
storage, insurance, handling,
obsolescence, and capital investment
15% to 40%
 Shortages can mean lost sales due to
long lead times and poor customer
service
15-36 Scheduling

Capacity Options

 Varying workforce size by hiring or

layoffs
 Match production rate to demand
 Training and separation costs for
hiring and laying off workers
 New workers may have lower
productivity
 Laying off workers may lower morale
and productivity
15-37 Scheduling

Capacity Options

 Varying production rate through

overtime or idle time
 Allows constant workforce
 May be difficult to meet large
increases in demand
 Overtime can be costly and may drive
down productivity
 Absorbing idle time may be difficult
15-38 Scheduling

Capacity Options

 Subcontracting
 Temporary measure during periods of
peak demand
 May be costly
 Assuring quality and timely delivery
may be difficult
 Exposes your customers to a
possible competitor
15-39 Scheduling

Capacity Options

 Using part-
part-time workers
 Useful for filling unskilled or low
skilled positions, especially in
services
15-40 Scheduling

Demand Options

 Influencing demand
 Use advertising or promotion to
increase demand in low periods
 Attempt to shift
demand to slow
periods
 May not be
sufficient to
balance demand
and capacity
15-41 Scheduling

Demand Options

 Back ordering during high-

high- demand
periods
 Requires customers to wait for an
order without loss of goodwill or the
order
 Most effective when there are few if
any substitutes for the product or
service
 Often results in lost sales
15-42 Scheduling

Demand Options

 Counterseasonal product and

service mixing
 Develop a product mix of
counterseasonal items
 May lead to products or services
outside the company’s areas of
expertise
15-43 Scheduling

Aggregate Planning Options

Option Advantages Disadvantages Some Comments

Changing Changes in Inventory Applies mainly to
inventory human holding cost production, not
levels resources are may increase. service,
gradual or Shortages may operations.
none; no abrupt result in lost
production sales.
changes.

Varying Avoids the costs Hiring, layoff, Used where size

workforce of other and training of labor pool is
size by alternatives. costs may be large.
hiring or significant.
layoffs

Table 13.1
15-44 Scheduling

Aggregate Planning Options

Option Advantages Disadvantages Some Comments

Varying Matches Overtime Allows flexibility
production seasonal premiums; tired within the
rates fluctuations workers; may aggregate plan.
through without hiring/ not meet
overtime or training costs. demand.
idle time

Sub-
Sub- Permits Loss of quality Applies mainly in
contracting flexibility and control; production
smoothing of reduced profits; settings.
the firm’s loss of future
output. business.

Table 13.1
15-45 Scheduling

Aggregate Planning Options

Option Advantages Disadvantages Some Comments

Using part-
part- Is less costly High turnover/ Good for
time and more training costs; unskilled jobs in
workers flexible than quality suffers; areas with large
full--time
full scheduling temporary labor
workers. difficult. pools.

Influencing Tries to use Uncertainty in Creates

demand excess demand. Hard marketing
capacity. to match ideas.
Discounts draw demand to Overbooking
new customers. supply exactly. used in some
businesses.

Table 13.1
15-46 Scheduling

Aggregate Planning Options

Option Advantages Disadvantages Some Comments

Back May avoid Customer must Many companies
ordering overtime. be willing to back order.
during Keeps capacity wait, but
high--
high constant. goodwill is lost.
demand
periods

Counter-
Counter- Fully utilizes May require Risky finding
seasonal resources; skills or products or
product allows stable equipment services with
and service workforce. outside the opposite
mixing firm’s areas of demand
expertise. patterns.

Table 13.1
15-47 Scheduling

Methods for Aggregate Planning

 A mixed strategy may be the best way

to achieve minimum costs
 There are many possible mixed
strategies
 Finding the optimal plan is not always
possible
15-48 Scheduling

Mixing Options to
Develop a Plan

 Chase strategy
 Match output rates to demand forecast
for each period
 Vary workforce levels or vary production
rate
 Favored by many service organizations
15-49 Scheduling

Mixing Options to
Develop a Plan

 Level strategy
 Daily production is uniform
 Use inventory or idle time as buffer
 Stable production leads to better quality
and productivity
 Some combination of capacity
options, a mixed strategy, might be
the best solution
15-50 Scheduling

Graphical Methods

 Popular techniques
 Easy to understand and use
 Trial
Trial--and
and--error approaches that do
not guarantee an optimal solution
 Require only limited computations
15-51 Scheduling

Graphical Methods

1. Determine the demand for each period

2. Determine the capacity for regular time,
overtime, and subcontracting each period
3. Find labor costs, hiring and layoff costs, and
inventory holding costs
4. Consider company policy on workers and
stock levels
5. Develop alternative plans and examine their
total costs
15-52 Scheduling

Roofing Supplier Example 1

Production Demand Per Day
Month Expected Demand Days (computed)
Jan 900 22 41
Feb 700 18 39
Mar 800 21 38
Apr 1,200 21 57
May 1,500 22 68
June 1,100 20 55
6,200 124
Table 13.2
Average Total expected demand
requirement =
Number of production days
6,200
= = 50 units per day
124
15-53 Scheduling

Roofing Supplier Example 1

Forecast demand
Production rate per working day

70 –
Level production using average
monthly forecast demand
60 –

50 –

40 –

30 –

0 –
Jan Feb Mar Apr May June = Month
     
22 18 21 21 22 20 = Number of
Figure 13.3 working days
15-54 Scheduling

Roofing Supplier Example 2

Cost Information
Inventory carrying cost $ 5 per unit per month
Subcontracting cost per unit $10 per unit
Average pay rate $ 5 per hour ($40 per day)
day)
$ 7 per hour
Overtime pay rate
(above 8 hours per day)
day)
Labor--hours to produce a unit
Labor 1.6 hours per unit
Cost of increasing daily production rate $300 per unit
(hiring and training)
Cost of decreasing daily production rate $600 per unit
(layoffs)

Table 13.3
15-55 Scheduling

Roofing Supplier Example 2

Monthly
Cost Information
Production at Demand Inventory Ending
Month carry
Inventory 50 Units
cost per Day Forecast $ 5Change
per unit per Inventory
month
Jan
Subcontracting 1,100
cost per unit 900 $10 +200
per unit 200
Feb pay rate 900
Average 700 +200
$ 5 per 400
hour ($40 per day)
day)
Mar 1,050 800 +250
$ 7 per hour 650
Overtime pay rate
(above 8 hours per day)
day)
Apr 1,050 1,200 -150 500
Labor--hours to produce a unit
Labor 1.6 hours per unit
May 1,100 1,500 -400 100
Cost of increasing daily production rate $300 per unit
June 1,000
(hiring and training)
1,100 -100 0
Cost of decreasing daily production rate $600 per unit 1,850
(layoffs)
Total units of inventory carried over from one
Table 13.3 month to the next = 1,850 units
Workforce required to produce 50 units per day = 10 workers
15-56 Scheduling

Roofing Supplier Example 2

Monthly
Costs
Cost Information
Production at Demand Calculations
Inventory Ending
Month carry
Inventory
Inventory 50 Units
cost per Day $9,250
carrying Forecast $ 5Change
perunits
(= 1,850 unit per Inventory
month
carried x $5
Jan
Subcontracting 1,100
cost per unit 900 per $10unit)
+200
per unit 200
Regular-time
Feb pay rate
Average labor
900 49,600
700 (= 10
$ 5 workers
+200
per x $40per
hour ($40 per
400
day)
day)
Mar 1,050 800 day x+250
124 days) 650
$ 7 per hour
Overtime pay rate
Other (above 8 hours per day)
day)
Apr costs (overtime,
1,050 1,200 -150 500
hiring,
Labor-
Labor layoffs,
-hours to produce a unit 1.6 hours per unit
May
subcontracting) 1,100 1,500
0 -400 100
Cost of increasing daily production rate $300 per unit
June
Total cost
(hiring
1,000
and training)
1,100
$58,850 -100 0
Cost of decreasing daily production rate $600 per unit 1,850
(layoffs)
Total units of inventory carried over from one
Table 13.3 month to the next = 1,850 units
Workforce required to produce 50 units per day = 10 workers
15-57 Scheduling

Roofing Supplier Example 2

7,000 –

6,000 – Reduction
of inventory
Cumulative demand units

5,000 – 6,200 units

Cumulative level
production using
4,000 – average monthly
forecast
requirements
3,000 –

2,000 – Cumulative forecast

requirements
1,000 –
Excess inventory

–
Jan Feb Mar Apr May June
Figure 13.4
15-58 Scheduling

Roofing Supplier Example 3

Production Demand Per Day
Month Expected Demand Days (computed)
Jan 900 22 41
Feb 700 18 39
Mar 800 21 38
Apr 1,200 21 57
May 1,500 22 68
June 1,100 20 55
6,200 124
Table 13.2

Minimum requirement = 38 units per day

15-59 Scheduling

Roofing Supplier Example 3

Forecast demand
Production rate per working day

70 –
Level production
60 – using lowest
monthly forecast
50 – demand

40 –

30 –

0 –
Jan Feb Mar Apr May June = Month
     
22 18 21 21 22 20 = Number of
working days
15-60 Scheduling

Roofing Supplier Example 3

Cost Information
Inventory carrying cost $ 5 per unit per month
Subcontracting cost per unit $10 per unit
Average pay rate $ 5 per hour ($40 per day)
day)
$ 7 per hour
Overtime pay rate
(above 8 hours per day)
day)
Labor--hours to produce a unit
Labor 1.6 hours per unit
Cost of increasing daily production rate $300 per unit
(hiring and training)
Cost of decreasing daily production rate $600 per unit
(layoffs)

Table 13.3
15-61 Scheduling

Roofing Supplier Example 3

Cost Information
Inventory carry cost $ 5 per unit per month
Subcontracting cost per unit $10 per unit
Average pay rate $ 5 per hour ($40 per day)
day)
$ 7 per hour
Overtime pay rate
(above 8 hours per day)
day)
Labor--hours to produce a unit
Labor 1.6 hours per unit
Cost of increasing daily production rate $300 per unit
(hiring and training)
Cost of decreasing daily production rate $600 per unit
(layoffs)

Table 13.3
15-62 Scheduling

Roofing Supplier Example 3

Cost Information
Inventory carry cost $ 5 per unit per month
In-housecost
Subcontracting production
per unit = 38$10units per day
per unit
Average pay rate x 124
$ 5 perdays
hour ($40 per day)
day)

Overtime pay rate

= 4,712
$ 7 perunits
hour
(above 8 hours per day)
day)
Labor
Labor- Subcontract
Costs-hours units
to produce a unit = 6,200 - 4,712
Calculations
1.6 hours per unit
Regular-time
Cost labor
of increasing $37,696
daily production =
rate 1,488
(= units
7.6 workers
$300 per unit x $40 per
(hiring and training) day x 124 days)
Cost of decreasing daily production
Subcontracting 14,880rate (= $600
1,488per unitx $10 per
units
(layoffs)
unit)
Table 13.3
Total cost $52,576
15-63 Scheduling

Roofing Supplier Example 4

Production Demand Per Day
Month Expected Demand Days (computed)
Jan 900 22 41
Feb 700 18 39
Mar 800 21 38
Apr 1,200 21 57
May 1,500 22 68
June 1,100 20 55
6,200 124
Table 13.2

Production = Expected Demand

15-64 Scheduling

Roofing Supplier Example 4

Forecast demand and
Production rate per working day

monthly production
70 –

60 –

50 –

40 –

30 –

0 –
Jan Feb Mar Apr May June = Month
     
22 18 21 21 22 20 = Number of
working days
15-65 Scheduling

Roofing Supplier Example 4

Cost Information
Inventory carrying cost $ 5 per unit per month
Subcontracting cost per unit $10 per unit
Average pay rate $ 5 per hour ($40 per day)
day)
$ 7 per hour
Overtime pay rate
(above 8 hours per day)
day)
Labor--hours to produce a unit
Labor 1.6 hours per unit
Cost of increasing daily production rate $300 per unit
(hiring and training)
Cost of decreasing daily production rate $600 per unit
(layoffs)

Table 13.3
15-66 Scheduling

Roofing Supplier Example 4

Basic
Cost Information Production
Cost Extra Cost of Extra Cost of
Inventory carrying cost (demand x
Daily $ 5 perDecreasing
Increasing unit per month
Forecast Prod 1.6 hrs/unit x Production Production
Subcontracting
Month (units) cost
Rate per unit
$5/hr) $10
(hiring cost) per unitcost) Total Cost
(layoff
Average
Jan pay
900 rate 41 $ 7,200 — $ 5 per hour
— ($40 per$ 7,200
day)
day)
Feb 700 $ 7 per hour
$1,200
Overtime pay rate39 5,600 —
(= 2 x $600)
6,800
(above 8 hours per day)
day)
$600
Mar -hours
Labor
Labor- 800 to produce
38 6,400
a unit — 1.6 hours per
(= 1 x unit
$600)
7,000

Cost
Apr of increasing
1,200 57daily production
9,600 rate
$5,700$300 per unit
— 15,300
(hiring and training) (= 19 x $300)
$3,300
Cost
May of decreasing
1,500 68daily production
12,000 rate $600 per unit
(= 11 x $300)
— 15,300
(layoffs)
$7,800
June 1,100 55 8,800 — 16,600
(= 13 x $600)
Table 13.3
$49,600 $9,000 $9,600 $68,200

Table 13.4
15-67 Scheduling

Comparison of Three Plans

Cost Plan 1 Plan 2 Plan 3

Inventory carrying $ 9,250 $ 0 $ 0
Regular labor 49,600 37,696 49,600
Overtime labor 0 0 0
Hiring 0 0 9,000
Layoffs 0 0 9,600
Subcontracting 0 14,880 0
Total cost $58,850 $52,576 $68,200

Plan 2 is the lowest cost option Table 13.5

15-68 Scheduling

Mathematical Approaches
 Useful for generating strategies
 Transportation Method of Linear
Programming
 Produces an optimal plan

 Management Coefficients Model

 Model built around manager’s experience and
performance

 Other Models
 Linear Decision Rule

 Simulation
15-69 Scheduling

Transportation Method
Sales Period
Mar Apr May
Demand 800 1,000 750
Capacity:
Regular 700 700 700
Overtime 50 50 50
Subcontracting 150 150 130
Beginning inventory 100

tires

Costs
Regular time $40 per tire
Overtime $50 per tire
Subcontracting $70 per tire
Carrying $2 per tire per month

Table 13.6
15-70 Scheduling

Transportation Example
Important points
1. Carrying costs are $2/tire/month. If goods
are made in one period and held over to
the next, holding costs are incurred
2. Supply must equal demand, so a dummy
column called “unused capacity” is added
3. Because back ordering is not viable in this
example, cells that might be used to satisfy
earlier demand are not available
15-71 Scheduling

Transportation Example
Important points
4. Quantities in each column designate the
levels of inventory needed to meet demand
requirements
5. In general, production should be allocated
to the lowest cost cell available without
exceeding unused capacity in the row or
demand in the column
15-72 Scheduling

Transportation
Example

Table 13.7
15-73 Scheduling

Management Coefficients
Model
 Builds a model based on manager’s
experience and performance
 A regression model is constructed to
define the relationships between
decision variables
 Objective is to remove inconsistencies
in decision making
15-74 Scheduling

Other Models
Linear Decision Rule
 Minimizes costs using quadratic cost curves
 Operates over a particular time period

Simulation
 Uses a search procedure to try different combinations of variables
 Develops feasible but not necessarily optimal solutions
15-75 Scheduling

Summary of Aggregate
Planning Methods
Solution
Techniques Approaches Important Aspects
Graphical Trial and Simple to understand and
methods error easy to use. Many
solutions; one chosen
may not be optimal.
Transportation Optimization LP software available;
method of linear permits sensitivity
programming analysis and new
constraints; linear
functions may not be
realistic.

Table 13.8
15-76 Scheduling

Summary of Aggregate
Planning Methods
Solution
Techniques Approaches Important Aspects
Management Heuristic Simple, easy to implement;
coefficients tries to mimic manager’s
model decision process; uses
regression.
Simulation Change Complex; may be difficult
parameters to build and for managers
to understand.

Table 13.8
15-77 Scheduling

Aggregate Planning in
Services
Controlling the cost of labor is critical
1. Accurate scheduling of labor-
labor-hours to
assure quick response to customer
demand
2. An on-
on-call labor resource to cover
unexpected demand
3. Flexibility of individual worker skills
4. Flexibility in rate of output or hours of
work
15-78 Scheduling

Five Service Scenarios

 Restaurants
 Smoothing the production process
 Determining the optimal workforce
size
 Hospitals
 Responding to patient demand
15-79 Scheduling

Five Service Scenarios

 National Chains of Small Service

Firms
 Planning done at national level and
at local level
 Miscellaneous Services
 Plan human resource requirements
 Manage demand
15-80 Scheduling

Law Firm Example

Labor--Hours Required
Labor Capacity Constraints
(2) (3) (4) (5) (6)
(1) Forecasts Maximum Number of
Category of Best Likely Worst Demand in Qualified
Legal Business (hours) (hours) (hours) People Personnel
Trial work 1,800 1,500 1,200 3.6 4
Legal research 4,500 4,000 3,500 9.0 32
Corporate law 8,000 7,000 6,500 16.0 15
Real estate law 1,700 1,500 1,300 3.4 6
Criminal law 3,500 3,000 2,500 7.0 12
Total hours 19,500 17,000 15,000
Lawyers needed 39 34 30

Table 13.9
15-81 Scheduling

Five Service Scenarios

 Airline industry
 Extremely complex planning
problem
 Involves number of flights, number
of passengers, air and ground
personnel, allocation of seats to fare
classes
 Resources spread through the entire
system
15-82 Scheduling

Yield Management
Allocating resources to customers at
prices that will maximize yield or revenue
1. Service or product can be sold in
advance of consumption
2. Demand fluctuates
3. Capacity is relatively fixed
4. Demand can be segmented
5. Variable costs are low and fixed costs
are high
15-83 Scheduling

Yield Management Example

Room sales Demand
Curve
Potential customers exist who are
100 willing to pay more than the $15
variable cost of the room

Passed-up Some customers who paid

contribution $150 were actually willing to
Total 50 pay more for the room
$ contribution
= (Price) x (50
rooms)
= ($150 - $15)
x (50) Money left
= $6,750 on the table

$15 $150 Price

Variable cost Price charged Figure 13.5
of room for room
15-84 Scheduling

Yield Management Example

Room sales Demand
Curve
Total $ contribution =
100 (1st price) x 30 rooms + (2nd price) x 30 rooms =
($100 - $15) x 30 + ($200 - $15) x 30 =
$2,550 + $5,550 = $8,100

60

30

$15 $100 $200 Price

Variable cost Price 1 Price 2 Figure 13.6
of room for room for room
15-85 Scheduling

Yield Management Matrix

Price
Tend to be fixed Tend to be variable
Quadrant 1: Quadrant 2:
Predictable

Movies Hotels
Stadiums/arenas Airlines
Convention centers Rental cars
Duration of use

Hotel meeting space Cruise lines

Quadrant 3: Quadrant 4:
Unpredictable

Restaurants Continuing care

Golf courses hospitals
Internet service
providers

Figure 13.7
15-86 Scheduling

Making Yield Management Work

1. Multiple pricing structures must be

feasible and appear logical to the
customer
2. Forecasts of the use and duration of
use
3. Changes in demand
 15-87 Scheduling

CHAPTER
3

Capacity Planning
For Products and Services

Operations Management, Eighth Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
15-88 Scheduling

Capacity Planning

 Capacity is the upper limit or ceiling on the

load that an operating unit can handle.
 The basic questions in capacity handling are:
 What kind of capacity is needed?
 How much is needed?
 When is it needed?
15-89 Scheduling

Importance of Capacity Decisions

1. Impacts ability to meet future demands

2. Affects operating costs
3. Major determinant of initial costs
4. Involves long-term commitment
5. Affects competitiveness
6. Affects ease of management
7. Globalization adds complexity
8. Impacts long range planning
15-90 Scheduling

Capacity

 Design capacity
 maximum output rate or service capacity an
operation, process, or facility is designed for
 Effective capacity
 Design capacity minus allowances such as
personal time, maintenance, and scrap
 Actual output
 rate of output actually achieved--cannot
exceed effective capacity.
15-91 Scheduling

Efficiency and Utilization

Actual output
Efficiency =
Effective capacity

Actual output
Utilization =
Design capacity

Both measures expressed as percentages

15-92 Scheduling

Efficiency/Utilization Example

Design capacity = 50 trucks/day

Effective capacity = 40 trucks/day
Actual output = 36 units/day

Actual output = 36 units/day

Efficiency = = 90%
Effective capacity 40 units/ day

Utilization = Actual output = 36 units/day

= 72%
Design capacity 50 units/day
15-93 Scheduling

Determinants of Effective Capacity

 Facilities
 Product and service factors
 Process factors
 Human factors
 Operational factors
 Supply chain factors
 External factors
15-94 Scheduling

Strategy Formulation

 Capacity strategy for long-term demand

 Demand patterns

 Growth rate and variability

 Facilities
 Cost of building and operating
 Technological changes
 Rate and direction of technology changes
 Behavior of competitors
 Availability of capital and other inputs
15-95 Scheduling

Key Decisions of Capacity Planning

1. Amount of capacity needed

2. Timing of changes
3. Need to maintain balance
4. Extent of flexibility of facilities

Capacity cushion – extra demand intended to offset uncertainty

15-96 Scheduling

Steps for Capacity Planning

1. Estimate future capacity requirements

2. Evaluate existing capacity
3. Identify alternatives
4. Conduct financial analysis
5. Assess key qualitative issues
6. Select one alternative
7. Implement alternative chosen
8. Monitor results
15-97 Scheduling

Make or Buy

1. Available capacity
2. Expertise
3. Quality considerations
4. Nature of demand
5. Cost
6. Risk
15-98 Scheduling

Developing Capacity Alternatives

1. Design flexibility into systems

2. Take stage of life cycle into account
3. Take a “big picture” approach to capacity
changes
4. Prepare to deal with capacity “chunks”
5. Attempt to smooth out capacity requirements
6. Identify the optimal operating level
15-99 Scheduling

Economies of Scale

 Economies of scale
 If the output rate is less than the optimal level,
increasing output rate results in decreasing
average unit costs
 Diseconomies of scale
 If the output rate is more than the optimal level,
increasing the output rate results in increasing
average unit costs
15-100 Scheduling

Evaluating Alternatives
Figure 5.3
Production units have an optimal rate of output for minimal cost.
Average cost per unit

Minimum average cost per unit

Minimum
cost

0 Rate of output
15-101 Scheduling

Evaluating Alternatives
Figure 5.4
Minimum cost & optimal operating rate are
functions of size of production unit.
Average cost per unit

Small
plant Medium
plant Large
plant

0 Output rate
15-102 Scheduling

Planning Service Capacity

 Need to be near customers

 Capacity and location are closely tied
 Inability to store services
 Capacity must be matched with timing of
demand
 Degree of volatility of demand
 Peak demand periods
15-103 Scheduling

Cost--Volume Relationships
Cost
Figure 5.5a

Amount ($)

Fixed cost (FC)

0
Q (volume in units)
15-104 Scheduling

Cost--Volume Relationships
Cost
Figure 5.5b

Amount ($)

0
Q (volume in units)
15-105 Scheduling

Cost--Volume Relationships
Cost
Figure 5.5c

Amount ($)

0 BEP units
Q (volume in units)
15-106 Scheduling

Assumptions of Cost-
Cost-Volume Analysis

1. One product is involved

2. Everything produced can be sold
3. Variable cost per unit is the same regardless
of volume
4. Fixed costs do not change with volume
5. Revenue per unit constant with volume
6. Revenue per unit exceeds variable cost per
unit
15-107 Scheduling

Financial Analysis

 Cash Flow - the difference between cash

received from sales and other sources, and
cash outflow for labor, material, overhead,
and taxes.
 Present Value - the sum, in current value, of
all future cash flows of an investment
proposal.
15-108 Scheduling

Calculating Processing Requirements

#1 400 5.0 2,000

#2 300 8.0 2,400

#3 700 2.0 1,400

5,800
 15-109 Scheduling

CHAPTER
4

Quality Control

Operations Management, Eighth Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
15-110 Scheduling

Phases of Quality Assurance

Figure 10.1

Inspection and
Inspection corrective Quality built
before/after action during into the
production production process

Acceptance Process Continuous

sampling control improvement

The least The most

progressive progressive
15-111 Scheduling

Inspection
Figure 10.2
 How Much/How Often
 Where/When

 Centralized vs. On-site

Inputs Transformation Outputs

Acceptance Process Acceptance

sampling control sampling
15-112 Scheduling

Inspection Costs
Figure 10.3
Cost

Total Cost
Cost of
inspection

Cost of
passing
defectives

Optimal
Amount of Inspection
15-113 Scheduling

Where to Inspect in the Process

 Raw materials and purchased parts

 Finished products
 Before a costly operation
 Before an irreversible process
 Before a covering process
15-114 Scheduling

Examples of Inspection Points

Table 10.1
Type of Inspection Characteristics
business points
Fast Food Cashier Accuracy
Counter area Appearance, productivity
Eating area Cleanliness
Building Appearance
Kitchen Health regulations
Hotel/motel Parking lot Safe, well lighted
Accounting Accuracy, timeliness
Building Appearance, safety
Main desk Waiting times
Supermarket Cashiers Accuracy, courtesy
Deliveries Quality, quantity
15-115 Scheduling

 Statistical Process Control:

Statistical evaluation of the output of a process
during production
 Quality of Conformance:
A product or service conforms to
specifications
15-116 Scheduling

Control Chart

 Control Chart
 Purpose: to monitor process output to see if
it is random
 A time ordered plot representative sample
statistics obtained from an on going process
(e.g. sample means)
 Upper and lower control limits define the
range of acceptable variation
15-117 Scheduling

Control Chart
Figure 10.4

Abnormal variation Out of

due to assignable sources control
UCL

Mean
Normal variation
due to chance
LCL
Abnormal variation
due to assignable sources

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Sample number
15-118 Scheduling

Statistical Process Control

 The essence of statistical process control is

to assure that the output of a process is
random so that future output will be random.
15-119 Scheduling

Statistical Process Control

 The Control Process

 Define
 Measure
 Compare
 Evaluate
 Correct
 Monitor results
15-120 Scheduling

Statistical Process Control

 Variations and Control

 Random variation: Natural variations in the
output of a process, created by countless
minor factors
 Assignable variation: A variation whose
source can be identified
15-121 Scheduling

Sampling Distribution
Figure 10.5

Sampling
distribution

Process
distribution

Mean
15-122 Scheduling

Normal Distribution
Figure 10.6

Standard deviation

   

Mean
95.44%

99.74%
15-123 Scheduling

Control Limits
Figure 10.7
Sampling
distribution

Process
distribution

Mean

Lower Upper
control control
limit limit
15-124 Scheduling

Control Charts for Variables

Variables generate data that are measured
measured..
 Mean control charts
 Used to monitor the central tendency of a
process.
 X bar charts
 Range control charts
 Used to monitor the process dispersion
 R charts
15-125 Scheduling

Mean and Range Charts

Figure 10.10A

(process mean is
shifting upward)
Sampling
Distribution

UCL

x-Chart Detects shift

LCL

UCL

Does not
R-chart
detect shift
LCL
15-126 Scheduling

Mean and Range Charts

Figure 10.10B

Sampling
Distribution (process variability is increasing)

UCL

x-Chart Does not

LCL
reveal increase

UCL

R-chart Reveals increase

LCL
15-127 Scheduling

Control Chart for Attributes

 p-Chart - Control chart used to monitor the

proportion of defectives in a process
 c-Chart - Control chart used to monitor the
number of defects per unit

Attributes generate data that are counted

counted..
15-128 Scheduling

Use of p-
p-Charts
Table 10.3
 When observations can be placed into two
categories.
 Good or bad
 Pass or fail
 Operate or don’t operate
 When the data consists of multiple samples
of several observations each
15-129 Scheduling

Use of c-
c-Charts
Table 10.3
 Use only when the number of occurrences per
unit of measure can be counted; non-
occurrences cannot be counted.
 Scratches, chips, dents, or errors per item
 Cracks or faults per unit of distance
 Breaks or Tears per unit of area
 Bacteria or pollutants per unit of volume
 Calls, complaints, failures per unit of time
15-130 Scheduling

Use of Control Charts

 At what point in the process to use control

charts
 What size samples to take
 What type of control chart to use
 Variables
 Attributes
15-131 Scheduling

Process Capability

 Tolerances or specifications
 Range of acceptable values established by
engineering design or customer requirements
 Process variability
 Natural variability in a process
 Process capability
 Process variability relative to specification
15-132 Scheduling

Process Capability
Figure 10.15
Lower Upper
Specification Specification

A. Process variability
matches specifications
Lower Upper
Specification Specification

B. Process variability
Lower Upper
well within specifications Specification Specification

C. Process variability
exceeds specifications
15-133 Scheduling

Process Capability Ratio

specification width
Process capability ratio, Cp =
process width

Cp = Upper specification – lower specification

6
15-134 Scheduling

3 Sigma and 6 Sigma Quality

Lower Upper
specification specification

1350 ppm 1350 ppm

1.7 ppm 1.7 ppm

Process
mean
+/- 3 Sigma

+/- 6 Sigma
15-135 Scheduling

Improving Process Capability

 Simplify
 Standardize

 Mistake-proof

 Upgrade equipment

 Automate
15-136 Scheduling

Limitations of Capability Indexes

1. Process may not be stable

2. Process output may not be normally
distributed
3. Process not centered but Cp is used
15-137 Scheduling

Additional PowerPoint slides

contributed by
Geoff Willis,
University of Central Oklahoma.
15-138 Scheduling

Control Charts in General

 Are named according to the statistics being

plotted, i.e., X bar, R, p, and c
 Have a center line that is the overall average

 Have limits above and below the center line

at ± 3 standard deviations (usually)
Upper Control Limit (UCL)
Center line

Lower Control Limit (LCL)

15-139 Scheduling

Variables Data Charts

 Process Centering
n
 X bar chart
X i
 X bar is a sample mean X i 1
n
 Process Dispersion (consistency)
 R chart
 R is a sample range R  max( X i )  min( X i )
15-140 Scheduling

X bar charts

 Center line is the grand mean (X double bar)

 Points are X bars m

x  / n
X
j 1
j

X
m
UCL  X  z x LCL  X  z x
-OR-

UCL  X  A2 R LCL  X  A2 R
15-141 Scheduling

R Charts

 Center line is the grand mean (R bar)

 Points are R

 D3 and D4 values are tabled according to n

(sample size)

UCL  D4 R LCL  D3 R
15-142 Scheduling

Use of X bar & R charts

 Charts are always used in tandem

 Data are collected (20-25 samples)

 Sample statistics are computed

 All data are plotted on the 2 charts

 Charts are examined for randomness

 If random, then limits are used “forever”

15-143 Scheduling

Attribute Charts

 c charts – used to count defects in a constant

sample size

n
UCL  c  z c
c
c i 1
 centerline LCL  c  z c
m
15-144 Scheduling

Attribute Charts
n
p charts – used to track a
x

proportion (fraction) i

defective pi  i 1
n
m

p x
p j 1
 ij
 centerline
m nm

p (1  p ) p (1  p )
UCL  p  z LCL  p  z
n n
15-145 Scheduling

Process Capability

The ratio of process variability to design specifications

Natural data
spread

The natural spread

-3σ -2σ -1σ µ +1σ +2σ +3σ of the data is 6σ
Lower Upper
Spec Spec
 15-146 Scheduling

13

Chapter 5
MRP and ERP

Operations Management, Eighth Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
15-147 Scheduling

MRP

 Material requirements planning (MRP):

Computer-based information system that
translates master schedule requirements
for end items into time-phased
requirements for subassemblies,
components, and raw materials.
15-148 Scheduling

Independent and Dependent Demand

Independent Demand

A Dependent Demand

B(4) C(2)

D(2) E(1) D(3) F(2)

Independent demand is uncertain.

Dependent demand is certain.
15-149 Scheduling

Dependant Demand

 Dependent demand: Demand for

items that are subassemblies or
component parts to be used in
production of finished goods.
 Once the independent demand is
known, the dependent demand can be
determined.
15-150 Scheduling

MRP Inputs MRP Processing MRP Outputs

Changes
Order releases
Master
schedule Planned-order
schedules
Primary
reports Exception reports
Bill of Planning reports
materials MRP computer Secondary
Performance-
programs reports control
reports

Inventory
records Inventory
transaction
15-151 Scheduling

MPR Inputs

 Master Production Schedule

 Time-phased plan specifying timing and
quantity of production for each end item.
 Material Requirement Planning Process
15-152 Scheduling

Master Schedule

Master schedule: One of three primary

inputs in MRP; states which end items are
to be produced, when these are needed,
and in what quantities.
Cumulative lead time: The sum of the lead
times that sequential phases of a process
require, from ordering of parts or raw
materials to completion of final assembly.
15-153 Scheduling

Planning Horizon

Assembly

Subassembly

Fabrication

Procurement

1 2 3 4 5 6 7 8 9 10
15-154 Scheduling

Bill--of
Bill of--Materials

Bill of materials (BOM): One of the three

primary inputs of MRP; a listing of all of the raw
materials, parts, subassemblies, and assemblies
needed to produce one unit of a product.
Product structure tree: Visual depiction of
the requirements in a bill of materials, where all
components are listed by levels.
15-155 Scheduling

Product Structure Tree

Level Chair
0

1 Leg Back
Assembly Seat Assembly

Cross Side Cross Back

2 Legs (2)
bar Rails (2) bar Supports (3)

3
15-156 Scheduling

Inventory Records
 One of the three primary inputs in MRP
 Includes information on the status of each
item by time period
 Gross requirements
 Scheduled receipts

 Amount on hand

 Lead times

 Lot sizes

 And more …
15-157 Scheduling

Assembly Time Chart

Procurement of
raw material D Fabrication
of part E
Subassembly A
Procurement of Final assembly
raw material F and inspection
Procurement of
part C

Procurement of
part H
Subassembly B

Procurement of Fabrication
raw material I of part G

1 2 3 4 5 6 7 8 9 10 11
15-158 Scheduling

MRP Processing

 Gross requirements
 Schedule receipts
 Projected on hand
 Net requirements
 Planned-order receipts
 Planned-order releases
15-159 Scheduling

MPR Processing

 Gross requirements
 Total expected demand
 Scheduled receipts
 Open orders scheduled to arrive
 Planned on hand
 Expected inventory on hand at the
beginning of each time period
15-160 Scheduling

MPR Processing

 Net requirements
 Actual amount needed in each time period
 Planned-order receipts
 Quantity expected to received at the beginning of the
period
 Offset by lead time
 Planned-order releases
 Planned amount to order in each time period
15-161 Scheduling

Updating the System

 Regenerative system
 Updates MRP records periodically
 Net-change system
 Updates MPR records continuously
15-162 Scheduling

MRP Outputs

 Planned orders - schedule indicating the

amount and timing of future orders.
 Order releases - Authorization for the
execution of planned orders.
 Changes - revisions of due dates or order
quantities, or cancellations of orders.
15-163 Scheduling

MRP Secondary Reports

 Performance-control reports
 Planning reports
 Exception reports
15-164 Scheduling

MRP in Services

 Food catering service

 End item => catered food
 Dependent demand => ingredients for each
recipe, i.e. bill of materials
 Hotel renovation
 Activities and materials “exploded” into
component parts for cost estimation and
scheduling
15-165 Scheduling

Benefits of MRP

 Low levels of in-process inventories

 Ability to track material requirements
 Ability to evaluate capacity requirements
 Means of allocating production time
15-166 Scheduling

Requirements of MRP

 Computer and necessary software

 Accurate and up-to-date
 Master schedules
 Bills of materials
 Inventory records
 Integrity of data
15-167 Scheduling

MRP II

 Expanded MRP with emphasis placed on

integration
 Financial planning
 Marketing
 Engineering
 Purchasing
 Manufacturing
15-168 Scheduling

MRP II

Market Master
Finance Manufacturing production schedule
Demand

Adjust master schedule

Marketing
Production
plan MRP

Rough-cut
Rough- Capacity
capacity planning planning
Adjust
production plan
Yes No Requirements No Yes
Problems? schedules Problems?
15-169 Scheduling

Capacity Planning

Capacity requirements planning: The process

of determining short-range capacity
requirements.
Load reports: Department or work center
reports that compare known and expected
future capacity requirements with projected
capacity availability.
Time fences: Series of time intervals during
which order changes are allowed or restricted.
15-170 Scheduling

Capacity Planning
Develop a tentative Use MRP to
master production simulate material
schedule requirements

Convert material Revise tentative

requirements to master production
resource requirements schedule
No
Can
Is shop capacity be
capacity No
changed to meet
adequate? requirements
Yes Yes

Firm up a portion Change

of the MPS capacity
15-171 Scheduling

ERP

 Enterprise resource planning (ERP):

 Next step in an evolution that began
with MPR and evolved into MRPII
 Integration of financial, manufacturing,
and human resources on a single
computer system.
15-172 Scheduling

ERP Strategy Considerations

 High initial cost

 High cost to maintain

 Future upgrades

 Training
15-173 Scheduling

 Another one chapter will be discusses from the

reference book.
 We will try to solve numerical problem from the
text and reference books.
15-174 Scheduling

Thank You