Operations Management

Edited by Massimiliano M. Schiraldi

 OPERATIONS
MANAGEMENT

Edited by Massimiliano M. Schiraldi

Operations Management
http://dx.doi.org/10.5772/45775
Edited by Massimiliano M. Schiraldi

Contributors
Filippo De Carlo, Fabio De Felice, Antonella Petrillo, Stanislao Monfreda, Alberto Regattieri, Maria Elena Nenni,
Raffaele Iannone, Giulio Di Gravio, Salvatore Miranda, Stefano Riemma, Valentina Di Pasquale, Fabio Fruggiero, Vito
Introna, Alessio Giuiusa, Francesco Giordano

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Operations Management
Edited by Massimiliano M. Schiraldi
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 Meet the editor

Dr. Massimiliano M. Schiraldi is tenured Assistant

Professor in Operations Management at “Tor Vergata”
University in Rome (Italy) since 2006. He received his
PhD in Engineering and Management in 2003. Every
year he teaches to more than 200 students in the Engi-
neering School, organizing an average of 15 internships
in industrial companies. Up to now, he supervised more
than 200 students in their thesis work on top of the tutorship of 11 PhD
students. He is the lecturer of several courses in the field of Operations
Management in various MBA programs. He is Guest Professor at the
Guizhou University of Finance & Economics in Guiyang, China. He is the
author of more than 60 scientific publications in Operations Management,
and his specialties include Lean Production, Logistics and Supply Chain
Management, Production & Inventory Planning, Warehouse Optimization,
Stock Reduction, Business Process Management.
Contents

Preface XI

Chapter 1 Improving Operations Performance with World Class

Manufacturing Technique: A Case in Automotive Industry 1
Fabio De Felice, Antonella Petrillo and Stanislao Monfreda

Chapter 2 Managing OEE to Optimize Factory Performance 31

Raffaele Iannone and Maria Elena Nenni

Chapter 3 Using Overall Equipment Effectiveness for Manufacturing

System Design 51
Vittorio Cesarotti, Alessio Giuiusa and Vito Introna

Chapter 4 Reliability and Maintainability in Operations Management 81

Filippo De Carlo

Chapter 5 Production Scheduling Approaches for Operations

Management 113
Marcello Fera, Fabio Fruggiero, Alfredo Lambiase, Giada Martino
and Maria Elena Nenni

Chapter 6 On Just-In-Time Production Leveling 141

Francesco Giordano and Massimiliano M. Schiraldi

Chapter 7 Enterprise Risk Management to Drive Operations

Performances 163
Giulio Di Gravio, Francesco Costantino and Massimo Tronci

Chapter 8 The Important Role of Packaging in Operations

Management 183
Alberto Regattieri and Giulia Santarelli
X Contents

Chapter 9 An Overview of Human Reliability Analysis Techniques in

Manufacturing Operations 221
Valentina Di Pasquale, Raffaele Iannone, Salvatore Miranda and
Stefano Riemma
Preface

Generally speaking, Operations Management is an area of business concerned with the pro‐
duction of goods and services. It involves the responsibility of ensuring that business opera‐
tions are efficient in terms of using as few resources as needed, and effective in terms of
meeting customer requirements. It is concerned with managing the process that converts
inputs (in the forms of materials, labour, and energy) into outputs (in the form of goods
and/or services). People involved in the operations function typically deal with capacity
planning, inventory control, quality assurance, workforce scheduling, materials manage‐
ment, equipment maintenance, and whatever else it takes “to get product out the door”. In
this book, we view operations in the broad sense rather than as a specific function: increas‐
ingly complex business environments together with the recent economic swings and sub‐
stantially squeezed margins put extra pressure on companies, and decision makers must
cope with more difficult challenges. Thus, all organizations – not only manufacturing firms
– are pushed to increase operations efficiency.
I am extremely proud to present the contributions of a selected group of researchers, report‐
ing new ideas, original results and practical experiences as well as systematizing some fun‐
damental topics in Operations Management: World Class Manufacturing is introduced and
described along with a case analysis; Overall Equipment Effectiveness is explained both in
the context of performance improvement and of system design; reliability and maintainabili‐
ty theory is discussed, supported by practical examples of interest in operations manage‐
ment; production scheduling meta-heuristics and Just-In-Time levelling techniques are
presented; a specific focus on the importance of packaging is given, as well as insights on
Risk Management and human behaviour in manufacturing activities.
Although it represents only a small sample of the research activity on Operations Manage‐
ment, people from diverse backgrounds, academia, industry and research, can take advant‐
age of this volume. Specifically, the contents of this book should help students and
managers in the field of industrial engineering to deepen their understanding of challenges
in operations management, leading to efficient processes and effective decisions.
Finally, the editor would like to thank all the people who contributed to this book.

Massimiliano Schiraldi
University of Rome
Italy
 Chapter 1

Improving Operations Performance

with World Class Manufacturing Technique:
A Case in Automotive Industry

Fabio De Felice, Antonella Petrillo and

Stanislao Monfreda

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/54450

1. Introduction

Global competition has caused fundamental changes in the competitive environment of

manufacturing industries. Firms must develop strategic objectives which, upon achieve‐
ment, result in a competitive advantage in the market place. However, for almost all manu‐
facturing industries, an increased productivity and better overall efficiency of the
production line are the most important goals. Most industries would like to find the formula
for the ultimate productivity improvement strategy. Industries often suffer from the lack of
a systematic and consistent methodology. In particular the manufacturing world has faced
many changes throughout the years and as a result, the manufacturing industry is constant‐
ly evolving in order to stay ahead of competition [1]. Innovation is a necessary process for
the continuous changes in order to contribute to the economic growth in the manufacturing
industry, especially to compete in the global market. In addition to innovation as a mode for
continued growth and change, there are many other vehicles for growth in the manufactur‐
ing industry [2], [3]. One in particular that has been gaining momentum is the idea of World
Class Manufacturing (WCM) developed by Richard J. Schonberger (in the 80s) who collected
several cases, experiences and testimonies of companies that had embarked on the path of
continuous “Kaizen” improvement for excellence in production, trying to give a systematic
conception to the various practices and methodologies examined. Some of the benefits of in‐
tegrating WCM include increased competitiveness, development of new and improved tech‐
nology and innovation, increased flexibility, increased communication between
management and production employees, and an increase in work quality and workforce

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2 Operations Management

empowerment. This work takes you to the journey of World Class Manufacturing System
(WCMS) adopted by the most important automotive Company located in Italy, the Fiat
Group Automobiles. World class can be defined as a tool used to search and allow a compa‐
ny to perform at a best-on-class level.

The aim of this work is to present establishments of the basic model of World Class Manu‐
facturing (WCM) quality management for the production system in the automotive industry
in order to make products of the highest quality eliminating losses in all the factory fields an
improvement of work standards.

The chapter is organized as follows: Section 2 introduces World Class Manufacturing and
illustrates literature review, mission and principles of WCM, Section 3 describes Tools for
WCM with particular attention on their features and on Key Performance and Key Activities
Indicators and Section 4 describes the research methodology through a real case study in the
largest Italian automotive company. To conclude, results and conclusions are provided.

2. Literature review

Manufacturers in many industries face worldwide competitive pressures. These manufac‐

turers must provide high-quality products with leading-edge performance capabilities to
survive, much less prosper. The automotive industry is no exception. There is intense pres‐
sure to produce high-performance at minimum-costs [4]. Companies attempting to adopt
WCM have developed a statement of corporate philosophy or mission to which operating
objectives are closely tied. A general perception is that when an organization is considered
as world-class, it is also considered as the best in the world. But recently, many organiza‐
tions claim that they are world-class manufacturers. Indeed we can define world class man‐
ufacturing as a different production processes and organizational strategies which all have
flexibility as their primary concern [5]. For example Womack et al. [6] defined a lead for
quantifying world class. Instead Oliver et al. [7] observed that to qualify as world class, a
plant had to demonstrate outstanding performance on both productivity and quality meas‐
ures. Summing up we can state that the term World-Class Manufacturing (WCM) means the
pursuance of best practices in manufacturing. On the other hand we would like to note that
one of the most important definition is due to Schonberger. He coined the term “World
Class Manufacturing” to cover the many techniques and technologies designed to enable a
company to match its best competitors [8].

When Schonberger first introduced the concept of “World Class Manufacturing”, the term
was seen to embrace the techniques and factors as listed in Figure 1. The substantial increase
in techniques can be related in part to the growing influence of the manufacturing philoso‐
phies and economic success of Japanese manufacturers from the 1960s onwards. What is
particularly interesting from a review of the literature is that while there is a degree of over‐
lap in some of the techniques, it is clear that relative to the elements that were seen as consti‐
tuting WCM in 1986, the term has evolved considerably.
 Improving Operations Performance with World Class Manufacturing Technique: A Case in Automotive Industry 3
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Figure 1. The growth of techniques associated with the WCM concept

Figure 2. WCM Model by Schonberger

4 Operations Management

These techniques have been known for a long time, but with Schonberger, a perfectly inte‐
grated and flexible system was obtained, capable of achieving company competitiveness
with products of high quality. The WCM model by Schonberger is illustrated here above in
Figure 2.

According to Fiat Group Automobiles, “World Class Manufacturing (WCM)” is: a struc‐
tured and integrated production system that encompasses all the processes of the plant, the
security environment, from maintenance to logistics and quality. The goal is to continuously
improve production performance, seeking a progressive elimination of waste, in order to en‐
sure product quality and maximum flexibility in responding to customer requests, through
the involvement and motivation of the people working in the establishment.

The WCM program has been made by Prof. Hajime Yamashina from 2005 at the Fiat Group
Automobiles. The program is shown here below in Figure 3.

Figure 3. World Class Manufacturing in Fiat Group Automobiles

Fiat Group Automobiles has customized the WCM approach to their needs with Prof. Ha‐
jime Yamashina from Kyoto University (he is also member of the Royal Swedish Academy
and in particular he is RSA Member of Engineering Sciences), by redesigning and imple‐
menting the model through two lines of action: 10 technical pillars; 10 managerial pillars.

The definition proposed by Yamashina includes a manufacturing company that excels in ap‐
plied research, production engineering, improvement capability and detailed shop floor
knowledge, and integrates those components into a combined system. In fact, according to
Hajime Yamashina the most important thing continues to be the ability to change and quick‐
 Improving Operations Performance with World Class Manufacturing Technique: A Case in Automotive Industry 5
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ly [9]. WCM is developed in 7 steps for each pillar and the steps are identified in three phas‐
es: reactive, preventive and proactive. In figure 4 an example of a typical correlation between
steps and phases is shown, but this correlation could change for each different technical pil‐
lar; in fact each pillar could have a different relation to these phases. The approach of WCM
needs to start from a “model area” and then extend to the entire company. WCM “attacks”
the manufacturing area. WCM is based on a system of audits that give a score that allows to
get to the highest level. The highest level is represented by “the world class level”.

Figure 4. World Class Manufacturing steps

2.1. Mission and principles

The process to achieve “World Class Manufacturing” (WCM) has a number of philosophies
and elements that are common for all companies. Therefore, when applied to the manufac‐
turing field, TQM and WCM are synonymous. We would like to observe that customer
needs and expectations is a very important element in WCM. The manufacturing strategy
should be geared to support these needs. These could be dealing with certification, market
share, company growth, profitability or other global targets. The outcomes should be de‐
fined so that they are measurable and have a definite timetable. These are also a means of
defining employee responsibilities and making them feel involved. Employee education and
training is an essential element in a World Class Manufacturing Company. They must un‐
derstand the company's vision and mission and consequential priorities. As introduced in
World Class Manufacturing, well known disciplines such as: Total Quality Control; Total
6 Operations Management

Productive Maintenance; Total Industrial Engineering; Just In Time and Lean Manufactur‐
ing are taken into account. Thus, World Class Manufacturing is based on a few fundamental
principles:
• the involvement of people is the key to change;

• it is not just a project, but a new way of working,

• accident prevention is a non-derogated “value”;

• the customer's voice should reach all departments and offices;

• all leaders must demand respect for the standards set;

• methods should be applied with consistency and rigor;

• all forms of MUDA waste are not tolerable;

• all faults must be made visible;

• eliminate the cause and not treat the effect.

2.2. Pillars: Description and features

WCM foresees 10 technical pillars and 10 managerial pillars. The levels of accomplishment
in technical fields are indirectly affected by the level of accomplishment in administrative
fields. The pillar structure represents the “Temple of WCM” (Figure 5) and points out that,
to achieve the standard of excellence, a parallel development of all the pillars is necessary.
Each pillar focuses on a specific area of the production system using appropriate tools to
achieve excellence global.

Figure 5. Temple of WCM

Here below in Table 1 features for each technical pillars are illustrated.
 Improving Operations Performance with World Class Manufacturing Technique: A Case in Automotive Industry 7
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Technical Pillar Why Purpose

To reduce drastically the number of accidents.

SAF Continuous improvement To develop a culture of prevention.
Safety of safety To improve the ergonomics of the workplace.
To develop specific professional skills.

To identify scientifically and systematically the main items of loss

Analysis of the losses and in the system production-logistics business.
CD
costs (losses within the To quantify the potential economic benefits and expected.
Cost Deployment
costs) To address the resources and commitment to managerial tasks
with greatest potential.

To reduce drastically the most important losses present in the

Priorities of actions to
system manufacturing plant, eliminating inefficiencies.
FI management the loss
To eliminate non-value-added activities, in order to increase the
Focused Improvement identified by the cost
competitiveness of the cost of the product.
deployment
To develop specific professional skills of problem solving.

It is constituted by two pillars:

AM Autonomous Maintenance. It is used to improve the overall
efficiency of the production system through maintenance policies
AA Continuous improvement through the conductors (equipment specialists).
Autonomous Activities of plant and workplace WO Workplace Organization. It is develops to determine an
improvement in the workplace, because often the materials and
equipment are degrade; in particular because in the process there
are many losses (MUDA)to remove.

To increase the efficiency of the machines using failure analysis

PM techniques.
Continuous improvement
Professional To facilitate the cooperation between conductors (equipment
of downtime and failures
Maintenance specialists) and maintainers (maintenance people) to reach zero
breakdowns.

To ensure quality products.

QC Continuous improvement
To reduce non-compliance.
Quality Control of customers’ needs
To increase the skills of the employees.

LOG To reduce significantly the levels of stocks.

Logistics & Customer Optimization of stocks To minimize the material handling, even with direct deliveries
Service from suppliers to the assembly line.

EEM
Early Equipment Optimization of To put in place new plants as scheduled.
Management installation time and costs To ensure a rapid start-up and stable.
EPM and optimization of To reduce the Life Cycle Cost (LCC).
Early Product features of new products To design systems easily maintained and inspected.
Management
8 Operations Management

Technical Pillar Why Purpose

To ensure, through a structured system of training, correct skills

Continuous improvement
PD and abilities for each workstation.
of the skills of employees
People Development To develop the roles of maintenance workers, technologists,
and workers
specialists such as major staff training.

ENV Continuous improvement To comply with the requirements and standards of environmental
Environment environmental management.
ENE management and reduce To develop an energy culture and to reduce the energy costs and
Energy energy waste losses.

Table 1. Description of pillars

As regards the ten Managerial Pillars there are: 1) Management Commitment; 2) Clarity of
Objectives; 3) Route map to WCM; 4) Allocation of Highly Qualified People to Model Areas;
5) Organization Commitment; 6) Competence of Organization towards Improvement; 7)
Time and Budget; 8)Detail Level; 9) Expansion Level and 10) Motivation of Operators

3. The main tools for World Class Manufacturing: Features and description

WCM requires all decisions to be made based on objective measured data and its analysis.
Therefore, all the traditional data analysis tools such as scatter diagrams, histograms and
checklists are used. Thus, from literature survey it is inferred that it is not possible to use the
specific single tool to achieve world-class performance and address all the manufacturing
components. It is inferred that to address all the components of the manufacturing system
the following tools are necessary (see Table 2):

Main Tools Description

It is a methodology for the description and the analysis of a loss

5G phenomenon (defects, failures malfunctions...). It based on the facts
and the use of the 5 senses

It is used by the list of possible factors (causes, sub-causes) that give

rise to the phenomenon. For the 4M the causes are grouped into 4
4M or 5M categories: Methods; Materials; Machines; Mans.
And for the 5M, there are the same 4M more the fifth that is the
environment.

It is used to achieve excellence through improvement of the workplace

5S in terms of order, organization and cleanliness. The technique is based
on: Seiri (separate and order); Seiton (arrange and organize); Seiso
 Improving Operations Performance with World Class Manufacturing Technique: A Case in Automotive Industry 9
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Main Tools Description

(clean); Seiketsu (standardized); Shitsuke (maintaining and

improving).

It is used to ensure a complete analysis of a problem on all its

5W + 1H fundamental aspects. The questions corresponding to the 5 W and 1 H
are: Who? What? Why? Where? When? How?

It is used to analyze the causes of a problem through a consecutive

series of questions. It is applied in failures analysis, analysis of
5 Whys
sporadic anomalies, analysis of chronic losses arising from specific
causes.

It is a sheet which, suitably completed, is applied on the machine, in

AM Tag
order to report any anomaly detected.

It is a sheet which, suitably completed, is used in order to report any

WO Tag
anomaly detected for Workplace Organization

It is a sheet which, suitably completed, is used in order to report any

PM Tag
anomaly detected for Professional Maintenance.

It is used for classifying the events that have an impact on safety such
Heinrich Pyramid as fatalities, serious, minor, medications, near-accidents, accidents,
dangerous conditions and unsafe practices over time.

It is a sheet which, suitably completed, is used in order to report any

SAF Tag
anomaly detected for Safety.

It is used to classify plants according their priorities of intervention in

Equipment ABC Prioritization
case of failure.

Are used for activities on Autonomous Maintenance, Workplace

Cleaning cycles
Organization and Professional Maintenance.

Are used for activities on Autonomous Maintenance, Workplace

Inspection cycles
Organization and Professional Maintenance.

Are used for activities on Autonomous Maintenance and Professional

Maintenance cycles
Maintenance.

Are used for activities on Autonomous Maintenance, Workplace

Control cycles
Organization and Professional Maintenance.

FMEA-Failure Mode and Effect Analysis It is used to prevent the potential failure modes.

Kanban It is a tag used for programming and production scheduling.

It is a daily process, the purpose of which goes beyond simple

Kaizen
productivity improvement. It is also a process that, when done
(Quick, Standard, Major, Advanced)
correctly, humanizes the workplace, eliminates overly hard work.

It is used to perform the video recording of the transactions in order to

Two Videocamera Method
optimize them.
10 Operations Management

Main Tools Description

MURI Analysis Ergonomic analysis of workstations.

MURA Analysis Analysis of irregular operations.

MUDA Analysis Analysis of losses.

It is a graphical used to detail the actual physical flow and distances

Spaghetti Chart
involved in a work process.

Analysis of work operations in the area that favors the handling in

Golden Zone & Strike zone Analysis
order to minimize movement to reduce fatigue.

It is a technique that allows a simple and effective focus in a short time

OPL (One Point Lesson)
on the object of the training.

SOP (Standard Operation Procedure) Standard procedure for work.

JES (Job Elementary Sheet) Sheet of elementary education.

It is a set of signals that facilitates the work and communication within

Visual Aid
the company.

It is a prevention technique in order to avoid possible human errors in

Poka Yoke
performance of any productive activity.

It is an interview in 4 questions to test the level of training on the

TWTTP (The way to teach people)
operation to be performed.

It is a technique for the investigation of events of interest, in particular

HERCA (Human Error Root Cause Analysis) accidents, which examines what happened researching why it
happened.

RJA (Reconditional Judgment Action

Analysis of judgment, recognition and action phases at work.
Analysis)

Analysis of the process or of the equipment (machine) through five

5Q 0D (Five Questions to Zero Defects)
questions to have zero defect.

It is a techniques enables designers to determine simultaneously the

DOE individual and interactive effects of many factors that could affect the
output results in any design.

It is a collection of statistical models, and their associated procedures,

ANOVA in which the observed variance in a particular variable is partitioned
into components attributable to different sources of variation.

It is used for restore, maintain and improve operational standards of

PPA (Processing Point Analysis)
work by ensuring zero defects.

It is a set of matrices which shows the correlations between the

QA Matrix (Matrix Quality Assurance)
anomalies of the product and the phases of the production system.

It is a tool used to define and maintain the operating conditions of the

QM Matrix (Matrix Maintenance Quality)
machines which ensure performance of the desired quality.
 Improving Operations Performance with World Class Manufacturing Technique: A Case in Automotive Industry 11
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Main Tools Description

QA Network quality assurance network It is used to ensure the quality of the process by eliminating rework.

QuOA quality operation analysis Preventive analysis of the work steps to ensure the quality.

It is a set of techniques to perform operations of development, set-up,

SMED (Single Minute Exchange of Die)
with a duration < 10 minutes.

Rhythmic operation analysis Analysis of the dispersion during the work cycle.

Analysis used to evaluate the efficiency of movement and optimize

Motion Economic Method
them.

It allows to highlight the waste of a process business, helping to

represent the current flow of materials and information that, in
Value Stream Map
relation to a specific product, through the value stream between
customer and suppliers.

Classification of materials according to tree families A – B - C and

Material Matrix
subgroups.

It is a tool for quality improvement, which allows compare two pairs

of lists of items to highlight the correlations between a list, and the two
X Matrix
adjacent lists. X matrix to relate defect mode, phenomenon, equipment
section and quality components.

Table 2. Main Tools and description

3.1. Key Performance Indices and Key Activity Indicators

In World Class Manufacturing the focus is on continuous improvement. As organizations

adopt world class manufacturing, they need new methods of performance measurement to
check their continuous improvement. Traditional performance measurement systems are
not valid for the measurement of world class manufacturing practices as they are based on
outdated traditional cost management systems, lagging metrics, not related to corporate
strategy, inflexible, expensive and contradict continuous improvement [10]. To know the
world class performance, measurement is important because “if you can’t measure it, you can’t
manage it and thus you can’t improve upon it”.

Here below in Table 3 is shown a brief report on different indices and indicators defined by
several authors in order to “measure” WCM.

However, some authors [15; 16] proposed only productivity as a measure of manufacturing
performance. Kennerley and Neely [17] identified the need for a method that could be used
for the development of measures able to span diverse industry groups. From this point of
view we would like to note that it is necessary to develop a more systematic approach in
order to improve a project and process. In particular, in WCM we can use two types of indi‐
cators: Key Performance Indicator (KPI) and Key Activity Indicator (KAI). KPI represents a
result of project improvement, e.g. sales, profit, labor productivity, equipment performance
12 Operations Management

Authors

Kodali et al. Wee and Quazi Digalwar and Metri

Indices/Indicators Utzig [14]
[11] [12] [13]

Broad management/Worker involvement +

Competitive advantage +

Cost/Price + + +

Customer relations/Service + +

Cycle time +

Engineering change notices +

Facility control +

Flexibility + + +

Global competitiveness +

Green product/Process design + +

Innovation and Technology +

Inventory + +

Machine hours per part +

Measurement and information management. +

Morale +

Plant/Equipment/Tooling reliability +

Problem support +

Productivity + +

Quality + + +

Safety + +

Speed/Lead Time + +

Supplier management +

Top management commitment + +

Total involvement of employees +

Training +

Table 3. Main indices/indicators defined by different authors

 Improving Operations Performance with World Class Manufacturing Technique: A Case in Automotive Industry 13
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rate, product quality rate, Mean Time to Failure (MTBF) and Mean Time to Repair (MTTR)
[18, 19]. KAI represents a process to achieve a purpose of project improvement, e.g. a total
number of training cycles for employees who tackle performance improvement projects, a
total number of employees who pass a public certification examination and an accumulative
number of Kaizen cases [20]. A KAI & KPI overview applied step by step is seen in Figure 6.

Figure 6. A KAI & KPI overview applied step by step

4. Industrial case study

The aim of this work is to present establishments of the basic model of World Class Manu‐
facturing (WCM) quality management for the production system at Fiat Group Automobiles
in order to make products of the highest quality eliminating losses in all the factory fields an
improvement of work standards. In fact, World Class Manufacturing is a manufacturing
system defined by 6 International companies including Fiat Group Automobiles with the in‐
tent to raise their performances and standards to World Class level with the cooperation of
leading European and Japanese experts and this includes all the plant processes including
quality, maintenance, cost management and logistics etc. from a universal point of view.
Thus, automotive manufacturing requires the ability to manage the product and its associat‐
ed information across the entire fabricator. Systems must extend beyond their traditional
14 Operations Management

role of product tracking to actively manage the product and its processing. This requires co‐
ordinating the information flow between process equipment and higher level systems, sup‐
porting both manual and automatic interfaces. A case study methodology was used to
collect detailed information on division and plant strategic objectives, performance meas‐
urement systems, and performance measurement system linkages. The result of this re‐
search was to develop principles on strategic objectives, performance measurement systems
and performance measurement system linkages for improved organizational coordination.
The purpose of this study is to examine the relationship between division and plant per‐
formance measurement systems designed to support the firm’s strategic objectives and to
improve organizational coordination. We will focus our attention on the Cost Deployment
Pillar, Autonomous Activities/Workplace Organization Pillar and Logistics/Customers Serv‐
ice Pillar.

4.1. Company background

Fiat Group Automobiles is an automotive-focused industrial group engaged in designing,

manufacturing and selling cars for the mass market under the Fiat, Lancia, Alfa Romeo, Fiat
Professional and Abarth brands and luxury cars under the Ferrari and Maserati brands. It
also operates in the components sector through Magneti Marelli, Teksid and Fiat Powertrain
and in the production systems sector through Comau. Fiat operates in Europe, North and
South America, and Asia. Its headquarters is in Turin, Italy and employs over 137,801 peo‐
ple [21]. Its 2008 revenues were almost € 59 billion, 3.4% of which were invested in R&D.
Fiat’s Research Center (CRF) can be appropriately defined as the “innovation engine” of the
Fiat Group, as it is responsible for the applied research and technology development activi‐
ties of all its controlled companies [22]. The group Fiat has a diversified business portfolio,
which shields it against demand fluctuations in certain product categories and also enables
it to benefit from opportunities available in various divisions.

4.2. Statement of the problem and methodology

The aim of the project is to increase the flexibility and productivity in an ETU (Elementary
Technology Unit) of Mechanical Subgroups in a part of the FGA’s assembling process in the
Cassino Plant through the conventional Plan-Do-Check-Act approach using the WCM meth‐
odology:

- PLAN - Costs Analysis and Losses Analysis starting from Cost Deployment (CD) for the
manufacturing process using the items and tools of Workplace Organization (WO) and for
the handling process the Logistic and Customer Services (LOG) applications.

• DO - Analysis of the non-value-added Activities; analysis of re-balancing line and analysis

of re-balancing of work activities in accordance with the analysis of the logistics flows using
the material matrix and the flows matrix. Study and realization of prototypes to improve
 Improving Operations Performance with World Class Manufacturing Technique: A Case in Automotive Industry 15
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workstation ergonomics and to ensure minimum material handling; Application of

countermeasures found in the production process and logistics (handling).
- CHECK – Analysis of results in order to verify productivity improvement, ergonomic im‐
provement (WO) and the optimization of the internal handling (in the plant) and external
logistics flows (LOG). Check of the losses reduction according to Cost Deployment (CD).

- ACT - Extension of the methodology and other cases.

Here below is a description of the Statement of the Problem and methodology.

4.2.1. PLAN: Costs analysis and losses analysis (CD) for the manufacturing process (WO) and for the
handling process (LOG)

In this first part (PLAN) were analyzed the losses in the assembly process area so as to or‐
ganize the activities to reduce the losses identified in the second part of the analysis (DO).
Object of the study was the Mechanical Subgroups ETU - Elementary Technology Unit (in a
part of the Cassino Plant Assembly Shop). The aim of this analysis was to identify a pro‐
gram allowing to generate savings policies based on Cost Deployment:
• Identify relationships between cost factors, processes generating costs and various types of
waste and losses;

• Find relationships between waste and losses and their reductions.

In fact, in general a production system is characterized by several waste and losses (MUDA),
such as:
• Non-value-added activities;

• Low balancing levels;

• Handling losses;

• Delay in material procurement;

• Defects;

• Troubleshooting Machines;

• Setup;

• Breakdown.
It is important to give a measure of all the losses identified in process examination. The data
collection is therefore the “key element” for the development of activities of Cost Deploy‐
ment. Here below in Figure 7 an example of losses identified from CD from the Assembly
Shop is shown and in Figure 8 is shown an example of CD data collection regarding NVAA
(Non-Value-Added Activities) for WO (for this case study we excluded check and rework
losses) in the Mechanical Subgroups area. Finally Figure 9 shows Analysis of losses Cost De‐
ployment.
16 Operations Management

Figure 7. Analysis of losses Cost Deployment – Stratification of NVAA losses for Mechanical Subgroups ETU - Ele‐
mentary Technology Unit (figure highlights the most critical workstation)

Figure 8. Analysis of losses Cost Deployment – Pareto Analysis NVAA Mechanical Subgroups ETU - Elementary Tech‐
nology Unit
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Figure 9. Analysis of losses Cost Deployment – Pareto Analysis Line Balancing Losses or Insaturation on Mechanical
Subgroups ETU - Elementary Technology Unit

4.2.2. DO - Analysis of non-value-added activities, of the re-balancing line and analysis of re-balancing
of work activities

According to figure 9 and figure 10 were analyzed the losses regarding NVAA and Insatura‐
tion. In fact were analyzed all 4 critical workstations (because they have the worst losses)
and were identified 41 types of non-value-added activities (walking, waiting, turning, pick‐
ing....) in the various sub-phases of the production process. In Table 4 is shown some exam‐
ples of non-value-added activities analyzed (MUDA Analysis).

Some examples of standard tools used to analyze NVAA reduction (MUDA Analysis) for
the 4 workstations are shown here below in Figures 10, 11 and 12) job stratification (VAA -
Value Added Activities; NVAA – Non-Value-Added Activities; LBL - Low Balancing Level;
EAWS - European Assembly Work Sheet – Ergonomy); 2) Spaghetti Chart and 3) Kaizen
Standard.
18 Operations Management

N° Losses identified Solution Non-value-added activities identified

Pick picking list for

1 Complete hub sequencing To pick
sequencing

2 Pick the box for sequencing Complete hub sequencing To pick

Select sheets for the

3 Unification of the sheets from 3 to 1 To select
different model

Pick sheets for the different

4 Unification of the sheets from 3 to 1 To pick
process

5 Pick identification sheet Unification of the sheets from 3 to 1 To pick

Go to the printer to pick up

6 Print sticker To walk
sticker

7 Pick identification hub label Digital label with barcode To pick

 Improving Operations Performance with World Class Manufacturing Technique: A Case in Automotive Industry 19
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N° Losses identified Solution Non-value-added activities identified

Throw liner nameplate into

8 Print labels directly onto sheet unified To trow
the waste container

Pick equipment for reading

9 Automatic reading To pick
labels coupling

Combination of manual
10 Automatic combination To check
pallet

11 Use of a single box Enabling a second workstation To walk

12 Pick hub Pick subgroup (hub+ damper To pick

Use of electrical equipment

13 New air equipment without keyboard To arrange
through keyboard

Use of air equipment

14 New air equipment without keyboard To wait
through keyboard
20 Operations Management

N° Losses identified Solution Non-value-added activities identified

Transport empty box hub

15 sequencing to put the full Complete hub sequencing To transport
box

Walk to the line side to pick

16 Complete hub sequencing To walk
damper

Remove the small parts to

17 Complete hub sequencing To pick
pair with damper

Transport empty box

18 damper sequencing to put Complete damper sequencing To transport
the full box

Pick the hub and put on the

19 Pick subgroup (hub+ damper) To pick
line

Select the work program for

20 Select the work program To select
the next workstation

Use a single workstation after the

Press the feed button for the
21 sequencing of the subgroup in order to To push
damper
press a button once

Use a single workstation after the

Wait for the translational sequencing of the subgroup and match
22 To wait
motion of the pallet processing activities during the
translation of the pallet

Table 4. MUDA Analysis - NVAA

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Figure 10. Details of the 4 workstations

Figure 11. Spaghetti Chart Example

22 Operations Management

Figure 12. Standard Kaizen analysis Example

Figure 13 shows the initial scenario analyzed to identify problems and weaknesses.

Figure 13. Details of the 4 workstations

 Improving Operations Performance with World Class Manufacturing Technique: A Case in Automotive Industry 23
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Figure 14. Material matrix example

At this point was assumed the new flow of the complete damper (corner) = damper + com‐
plete hub sequencing according to the material matrix considering losses relating to han‐
dling (material matrix classification – see figure 14). The material matrix classifies the
commodities (number of drawings) in three main groups: A (bulky, multi-variations, expen‐
sive), B (normal) and C (small parts) and subgroups (a mixture of group A: bulky and multi-
variations or bulky and expensive etc.). For each of these groups was filled out the flow
matrix that defines the correct flow associated: JIS (and different levels), JIT (and different
levels) and indirect (and different levels). After identifying the correct flow, in the JIS case,
was built a prototype of the box (bin) to feed the line that would ensure the right number of
parts to optimize logistic handling. However, the new box (bin) for this new mechanical
subgroup must feed the line in a comfortable and ergonomic manner for the worker in the
workstation, for this reason was simulated the solution before the realization of the box (bin)
(see figure 15).

At the end of the Muda analysis (NVAA analysis) were applied all the solutions found to
have a lean process (the internal target is to achieve 25% of average NVAA losses) and was
reorganized the line through a new line balancing level (rebalancing) to achieve 5% of the
average line balancing losses (internal target). Another important aspect was the logistics
flows analysis (see figure 16) considering advanced warehouses (Figure 17). The simulation
scenario was defined using trucks from the Cassino plant warehouses that also feed other
commodities to achieve high levels of saturation to minimize handling losses.

At the end of the handling analysis (flow, stock level…) thanks to this new “lean” organiza‐
tion of material matrix was used the correct line feed from the Just In Sequence warehouse.
It was reduced the internal warehouse (stock level), the space used for sequencing (square
metres), the indirect manpower used to feed the sequencing area and we obtained zero fork‐
24 Operations Management

Figure 15. Simulation of an ergonomic workstation

Figure 16. Initial logistic flows

lifts on the shopfloor because we used the ro-ro (roll in - roll out) system. Figure 18 shows
the final scenario in which we have 1 operator instead of 4 operators.

4.2.3. Check – Analysis of results to verify productivity and ergonomic improvement and optimization
of logistics flows

In detail the main results and savings can be summarized as follows:

 Improving Operations Performance with World Class Manufacturing Technique: A Case in Automotive Industry 25
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Figure 17. Logistic flows considering advanced warehouses

Figure 18. Details of the final workstation

• Productivity improvement +75% (Figure 19) direct labour;

26 Operations Management

• Ergonomics improvement +85% (Figure 20) according to the rest factor;

• Optimization of logistic flows (Figure 21) according to the flow matrix.

Figure 19. Productivity optimization

Figure 20. Ergonomics improvement

 Improving Operations Performance with World Class Manufacturing Technique: A Case in Automotive Industry 27
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Figure 21. Optimization of logistic flows

4.2.4. Act - Extension of the methodology and other cases

Future developments include the extension of the methodology to the entire plant. Here be‐
low in Table 5 we can see the activities and status adopted. to achieve the results shown in
the “check”. We used traditional tools and methodology for the analysis and new tools to
simulate the sceneries on the line and for the logistic problems we involved other resources
outside the plant (ELASIS and CRF - FIAT Research Center, Fiat Central Department and
Public Universities).

ACTIVITIES TOOL STATUS

NVAA Std analysis +

NVAA Reduction
NVAA Database +

Balance line +
LBL Reduction
Check Saturation (Flexim Software/Plant simulation) +

Jack Software +
Ergonomics Improvement
Excel Human Model +

Value stream map +

Optimization of logistics flow
Check Saturation Flexim/Plant simulation +

Table 5. Activities and status

5. Conclusions

A key industrial policy conclusion is that intelligently designed selective policies can be ef‐
fective in developing production systems. Intelligent industrial policies need to be shaped to
28 Operations Management

respond to contingent factors which are specific to a sector, period and country. Fundamen‐
tally, it is not a question of whether these selective policies work, but under what circum‐
stances they work.

From this point of view, World Class Manufacturing is a “key” concept. This is the reason
why the concept constituting “World Class Manufacturing” has received considerable atten‐
tion in academic literature, even though it has been developed principally in relation to the
needs of larger scale manufacturing organisations. Regards our case study we can conclude
that WCM allows to reduce losses and optimize logistics flows. Thus, the main results can
be summarized as follows:

1. greater efficiency because the inner product is cheaper because it is possible to use external
warehouses or suppliers - outsourcing - specialized and more cost-effective for the
company;

2. greater flexibility because it is possible to work more models (in Cassino with these logical
sequencing and kitting there are 4 different model brands on the same assembly line: Alfa
Romeo Giulietta, Chrysler, Lancia Delta and Fiat Bravo;

3. no space constraint (in this example we get only 1 container already sequenced line side)

Definitely the new process and the internal flows are very lean and efficient. In this case
study it was implemented a servo system using Low Cost Automation. This system ensures
only one picking point in order to have only one container at the side of the production line.

Acknowledgements

We would like to express our gratitude to Fiat Group Automobiles S.p.A. - Cassino Plant, to
the Plant Manager and his staff and other partner and organizations who gave us the possibility
to carry out the necessary research and use their data for the research project “Infrastructures
of advanced logistics for the lines with high flexibility” showed in tiny part, and briefly in this
case study.

Author details

Fabio De Felice1, Antonella Petrillo1* and Stanislao Monfreda2

*Address all correspondence to: [email protected]

1 University of Cassino, Department of Civil and Mechanical Engineering, Cassino, Italy

2 Fiat Group Automobiles EMEA WCM Cassino Plant Coordinator, Cassino, Italy
 Improving Operations Performance with World Class Manufacturing Technique: A Case in Automotive Industry 29
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[8] Schoenberger R.J. World class manufacturing: the lessons of simplicity applied, New
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[13] Digalwar A.K., Metri, B.A. Performance measurement framework for world class
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[16] Schmenner R. W. International factory productivity gains, J. Operations Management

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[17] Kennerley M., Neely A., Adams C. Survival of the fittest measuring performance in a
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 Chapter 2

Managing OEE to Optimize Factory Performance

Raffaele Iannone and Maria Elena Nenni

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/55322

1. Introduction

"If you can not measure it, you can not improve it."(Lord Kelvin)
It is a common opinion that productivity improvement is nowadays the biggest challenge for
companies in order to remain competitive in a global market [1, 2]. A well-known way of
measuring the effectiveness is the Overall Equipment Efficiency (OEE) index. It has been firstly
developed by the Japan Institute for Plant Maintenance (JIPM) and it is widely used in many
industries. Moreover it is the backbone of methodologies for quality improvement as TQM
and Lean Production.
The strength of the OEE index is in making losses more transparent and in highlighting areas
of improvement. OEE is often seen as a catalyst for change and it is easy to understand as a lot
of articles and discussion have been generated about this topic over the last years.
The aim of this chapter is to answer to general questions as what to measure? how to measure?
and how to use the measurements? in order to optimize the factory performance. The goal is to
show as OEE is a good base for optimizing the factory performance. Moreover OEE’s evolu‐
tions are the perfect response even in advanced frameworks.
This chapter begins with an explanation of the difference between efficiency, effectiveness and
productivity as well as with a formal definition for the components of effectiveness. Mathe‐
matical formulas for calculating OEE are provided too.
After the introduction to the fundamental of OEE, some interesting issues concerning the
way to implement the index are investigated. Starting with the question that in calculat‐
ing OEE you have to take into consideration machines as operating in a linked and complex
environment. So we analyze almost a model for the OEE calculation that lets a wider
approach to the performance of the whole factory. The second issue concerns with
monitoring the factory performance through OEE. It implies that information for decision-

©
© 2013
2013 Iannone
IannoneandandNenni;
Nenni;licensee
licenseeInTech. This
InTech. is a
This is paper distributed
an open underdistributed
access article the terms of the Creative
under Commons
the terms of the
Attribution License (http://creativecommons.org/licenses/by/3.0),
Creative Commons which permits unrestricted
Attribution License (http://creativecommons.org/licenses/by/3.0), whichuse,
permits
distribution,
unrestrictedand
use,reproduction
distribution, in any
and medium, provided
reproduction in any the original
medium, work is properly
provided cited.
the original work is properly cited.
32 Operations Management

making have to be guaranteed real-time. It is possible only through automated systems for
calculating OEE and through the capability to collect a large amount of data. So we propose
an examination of the main automated OEE systems from the simplest to high-level
systems integrated into ERP software. Even data collection strategies are screened for
rigorous measurement of OEE.

The last issue deals with how OEE has evolved into tools like TEEP, PEE, OFE, OPE and OAE
in order to fit with different requirements.

At the end of the chapter, industrial examples of OEE application are presented and the results
are discussed.

2. Fundamentals of OEE

Overall equipment efficiency or effectiveness (OEE) is a hierarchy of metrics proposed by

Seiichi Nakajima [3] to measure the performance of the equipment in a factory. OEE is a really
powerful tool that can be used also to perform diagnostics as well as to compare production
units in differing industries. The OEE has born as the backbone of Total Productive Mainte‐
nance (TPM) and then of other techniques employed in asset management programs, Lean
manufacturing [4], Six Sigma [5], World Class Manufacturing [4].

By the end of the 1980’s, the concept of Total Production Maintenance became more widely
known in the Western world [7] and along with it OEE implementation too. From then on an
extensive literature [8-11] made OEE accessible and feasible for many Western companies.

3. Difference between efficiency, effectiveness and productivity

Confusion exists as to whether OEE has indeed been an effectiveness or efficiency measure.
The traditional vision of TMP referred to Overall Equipment Efficiency while now it is
generally recognized as Overall Equipment Effectiveness. The difference between efficiency
and effectiveness is that effectiveness is the actual output over the reference output and
efficiency is the actual input over the reference input. The Equipment Efficiency refers thus to
ability to perform well at the lowest overall cost. Equipment Efficiency is then unlinked from
output and company goals. Hence the concept of Equipment Effectiveness relates to the ability
of producing repeatedly what is intended producing, that is to say to produce value for the
company (see Figure 1).

Productivity is defined as the actual output over the actual input (e.g. number of final
products per employee), and both the effectiveness and the efficiency can influence it.
Regarding to OEE, in a modern, customer-driven “lean” environment it is more useful to
cope with effectiveness.
 Managing OEE to Optimize Factory Performance 33
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Figure 1. Efficiency versus Effectiveness versus Productivity.

4. Formal definition of OEE

According to the previous remark a basic definition of OEE is:

ValuableOperatingTime
OEE = LoadingTime
(1)

where:
• Valuable Operating Time is the net time during which the equipment actually produces an
acceptable product;

• Loading Time is the actual number of hours that the equipment is expected to work in a
specific period (year, month, week, or day).
The formula indicates how much the equipment is doing what it is supposed to do and it
captures the degree of conforming to output requirements. It is clearly a measure of effective‐
ness.

OEE is not only a metric, but it also provides a framework to improve the process. A model
for OEE calculation aims to point out each aspect of the process that can be ranked for
improvement. To maximize equipment effectiveness it is necessary to bring the equipment to
peak operating conditions and then keeping it there by eliminating or at least minimizing any
factor that might diminish its performance. In other words a model for OEE calculation should
be based on the identification of any losses that prevent equipment from achieving its
maximum effectiveness.
34 Operations Management

The OEE calculation model is then designed to isolate losses that degrade the equipment
effectiveness.

5. Losses analysis

Losses are activities that absorb resources without creating value. Losses can be divided by
their frequency of occurrence, their cause and by different types they are. The latter one has
been developed by Nakajima [3] and it is the well-known Six Big Losses framework. The other
ones are interesting in order to rank rightly losses.

According to Johnson et al. [12], losses can be chronic or sporadic. The chronic disturbances
are usually described as “small, hidden and complicated” while the sporadic ones occur quickly
and with large deviations from the normal value. The loss frequency combined with the loss
severity gives a measure of the damage and it is useful in order to establish the order in which
the losses have to be removed. This classification makes it possible to rank the losses and
remove them on the basis of their seriousness or impact on the organization.

Regarding divide losses by their causes, three different ones can be found:
1. machine malfunctioning: an equipment or a part of this does not fulfill the demands;

2. process: the way the equipment is used during production;

3. external: cause of losses that cannot be improved by the maintenance or production team.
The external causes such as shortage of raw materials, lack of personnel or limited demand do
not touch the equipment effectiveness. They are of great importance for top management and
they should be examined carefully because their reduction can directly increase the revenues
and profit. However they are not responsible of the production or maintenance team and so
they are not taken into consideration through the OEE metric.

To improve the equipment effectiveness the losses because of external causes have to be taken
out and the losses caused by machine malfunctioning and process, changeable by the daily
organization, can still be divided into:
• Down time losses: when the machine should run, but it stands still. Most common down‐
time losses happen when a malfunction arises, an unplanned maintenance task must be
done in addition to the big revisions or a set-up/start-up time occurs.

• Speed losses: the equipment is running, but it is not running at its maximum designed
speed. Most common speed losses happen when equipment speed decrease but it is not
zero. It can depend on a malfunctioning, a small technical imperfections, like stuck pack‐
aging or because of the start-up of the equipment related to a maintenance task, a setup or
a stop for organizational reasons.

• Quality losses: the equipment is producing products that do not fully meet the specified
quality requirements. Most common quality losses occur because equipment, in the time
 Managing OEE to Optimize Factory Performance 35
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between start-up and completely stable throughput, yields products that do not conform to
quality demand or not completely. They even happen because an incorrect functioning of
the machine or because process parameters are not tuned to standard.

The framework in which we have divided losses in down time, speed and quality losses
completely fits with the Six Big Losses model proposed by Nakajima [3] and that we summarize
in the Table 1:

Category Big losses

DOWNTIME - Breakdown
- Set-up and adjustments

SPEED - Idling, minor stoppages

- Reduced speed

QUALITY - Quality losses

- Reduced yield

Table 1. Six Big Losses model proposed by Nakajima [3].

On the base of Six Big Losses model, it is possible to understand how the Loading Time
decreases until to the Valuable Operating Time and the effectiveness is compromised. Let’s go
through the next Figure 2.

CALENDAR TIME
LOADING TIME Planned downtime
OPERATING TIME Breakdown
Set-up and
adjustments
NET OPERATING TIME Minor stoppages
Reduced speed
VALUABLE Quality losses
OPERATING Reduced yield
TIME

Figure 2. Breakdown of the calendar time.

At this point we can define:

Operating Time
Availability ( A) = Loading Time
(2)

Net Operating Time

Performance (P ) = Operating Time
(3)
36 Operations Management

Valuable Operating Time

Quality (Q ) = Net Operating Time
(4)

Please note that:

Valuable Operating Time

OEE = Loading Time
(5)

and

Operating Time Net Operating Time Valuable Operating Time

OEE = Loading Time × Operating Time × Net Operating Time
(6)

finally

OEE = Availability × Performance × Quality (7)

So through a bottom-up approach based on the Six Big Losses model, OEE breaks the per‐
formance of equipment into three separate and measurable components: Availability, Per‐
formance and Quality.

• Availability: it is the percentage of time that equipment is available to run during the total
possible Loading Time. Availability is different than Utilization. Availability only includes
the time the machine was scheduled, planned, or assigned to run. Utilization regards all
hours of the calendar time. Utilization is more effective in capacity planning and analyzing
fixed cost absorption. Availability looks at the equipment itself and focuses more on variable
cost absorption. Availability can be even calculated as:

Loading Time - Downtime

Availability = Loading Time
(8)

• Performance: it is a measure of how well the machine runs within the Operating Time.
Performance can be even calculated as:

Actual Output (units ) × theoretical Cycle Time

Performance = Operating Time
(9)

• Quality: it is a measure of the number of parts that meet specification compared to how
many were produced. Quality can be even calculated as:

Actual output (units ) - Defect amount (units )

Quality = Actual output (units )
(10)

After the various factors are taken into account, all the results are expressed as a percentage
that can be viewed as a snapshot of the current equipment effectiveness.
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The value of the OEE is an indication of the size of the technical losses (machine malfunctioning
and process) as a whole. The gap between the value of the OEE and 100% indicates the share
of technical losses compared to the Loading Time.

The compound effect of Availability, Performance and Quality provides surprising results, as
visualized by e.g. Louglin [13].

Let’s go through a practical example in the Table 2.

Availability 86,7%

Performance 93%

Quality 95%

OEE 76,6%

Table 2. Example of OEE calculation.

The example in Table 2 illustrates the sensitivity of the OEE measure to a low and combined
performance. Consequently, it is impossible to reach 100 % OEE within an industrial context.
Worldwide studies indicate that the average OEE rate in manufacturing plants is 60%. As
pointed out by e.g. Bicheno [14] world class level of OEE is in the range of 85 % to 92 % for
non-process industry. Clearly, there is room for improvement in most manufacturing plants!
The challenge is, however, not to peak on those levels but thus to exhibit a stable OEE at world-
class level [15].

6. Attacking the six big losses

By having a structured framework based on the Six Big Losses, OEE lets to track underlying
issues and root causes. By knowing what the Six Big Losses are and some of the causes that
contribute to them, the next step is to focus on ways to monitor and correct them. In the
following let’s see what is the way:
• Breakdown: eliminating unplanned downtime is critical to improving OEE. Other OEE
factors cannot be addressed if the process is down. It is not only important to know how
much and when down time equipment is but also to be able to link the lost time to the specific
source or reason for the loss. With down time data tabulated, the most common approach
is the Root Cause Analysis. It is applied starting with the most severe loss categories.

• Set-up and adjustments: tracking setup time is critical to reducing this loss. The most
common approach to reduce this time is the Single Minute Exchange of Dies program
(SMED).

• Minor stoppages and Reduced speed: minor stoppages and reduced speed are the most
difficult of the Six Big Losses to monitor and record. Cycle Time analysis should be utilized
38 Operations Management

to point out these loss types. In most processes recording data for Cycle Time analysis needs
to be automated since the cycles are as quick as they do not leave adequate time for manual
data logging. By comparing all cycles to the theoretical Cycle Time, the losses can be
automatically clustered for analysis. It is important to analyze Minor stoppages and
Reduced speed separately because the root causes are typically very different.
• Quality losses and Reduced yield: parts that require rework of any kind should be
considered rejects. Tracking when rejects occur and the type is critical to point out potential
causes, and in many cases patterns will be discovered. Often a Six Sigma program, where a
common metric is achieving a defect rate of less than 3.4 defects per million opportunities,
is used to focus attention on a goal of “zero defects”.

7. OEE evolution: TEEP, PEE, OAE, OFE, and OPE

During the last decades, both practitioners and researchers have raised the discussion about
OEE in many ways. One of the most popular has led to modification and enlargement of
individual original OEE tool to fit a broader perspective as supposed important for the
companies [16]. With the evolution of OEE, different definitions have also come up in literature
and in practice, coupled with their changed formulations. Some of these formulations (TEEP
and PEE) are still at the equipment level, while the others (OAE, OFE and OPE) extended OEE
to the factory level. Let’s go through the main features of each formulation.
TEEP stands for Total Equipment Effectiveness Performance and it was proposed firstly by
Invancic [17]. TEEP is a performance metric that shows the total performance of equipment
based on the amount of time the equipment was present. So OEE quantifies how well a
manufacturing unit performs relative to its designed capacity, during the periods when it is
scheduled to run. TEEP measures OEE effectiveness against Calendar Time, i.e.: 24 hours per
day, 365 days per year.

Valuable Operating Time Loading Time

TEEP = Calendar Time = OEE × Calendar Time
(11)

OEE and TEEP are thus two closely related measurements. Typically the equipment is on site
and thus TEEP is metric that shows how well equipment is utilized. TEEP is useful for business
analysis and important to maximize before spending capital dollars for more capacity.
PEE stands for Production Equipment Efficiency and it was firstly proposed by Raouf [18].
The main difference from OEE is that each item is weighted. So Availability, Performance, and
Quality don’t have an equal importance as it happens for OEE.
At the level of the factory we found Overall Factory Effectiveness (OFE), Overall Production
Effectiveness (OPE), and Overall Asset Effectiveness (OAE) metrics. OFE is the most
widespread and well known in literature. It covers the effort to export the OEE tool to the
whole factory. The question is what kind of method should be applied to OEE values from all
pieces of equipment, to derive the factory level metric. There is no standard method or metrics
 Managing OEE to Optimize Factory Performance 39
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for the measurement or analysis of OFE [19]. Huang [20] stated that the factory level metric
can be computed by synthesizing the subsystem level metrics, capturing their interconnectivity
information.

OPE and OAE are extensively implemented in industry under different formulations. They
involve a practical approach developed to fit the specific requirements of different industries.

8. OEE for the factory

As mentioned in the previous section equipment operates in a linked and complex environ‐
ment. So it is necessary to pay attention beyond the performance of individual tools towards
the performance of the whole factory. According to Scott and Pisa [21], the answer to this
requirement is the OFE metric, which is about combining activities and relationships between
different parts of the equipment, and integrating information, decisions, and actions across
many independent systems and subsystems. The problem is that a specific and unique method
to calculate OFE does not exist. There many methodologies and approaches, with different
level of complexity, different information coming from and different lacks.

A first common-sense approach is to measure OEE at the end of the line or process. Following
this approach we can see OEE as

( Actual output - Defect amount ) × theoretical Cicle Time

OEE = Loading Time
(12)

and

Effective output (units )

OEE = theoretical output (units )
(13)

Here OEE measures effectiveness in term of output that is easy to be taken out at factory level
too. So OFE becomes:

Effective output from the factory (units )

OFE = Theoretical output from the factory (units )
(14)

It is not always ideal. The complexity of OEE measurement arises where single or multiple
sub-cells are constrained by an upstream or downstream operation or bottleneck operation.
The flow is always restricted or limited by a bottleneck operation, just as a chain is only as
strong as its weakest link. So according to Goldratt [22] we can measure OEE in real time at
the bottleneck. Any variations at the bottleneck correlate directly to upstream and downstream
process performance. Huang et al. [23] proposed a manufacturing system modeling approach,
which captures the equipment interconnectivity information. It identifies four unique subsys‐
tems (series, parallel, assembly and expansion) as a basis for modeling a manufacturing
system, as shown in Figure 3.
40 Operations Management

Figure 3. Types of manufacturing subsystems.

Muthiah et al. [24] developed the approach to derive OTE metrics for these subsystems based
on a “system constraint” approach that automatically takes into account equipment idle time.

Other methods are based on modeling the manufacturing systems. Some of these notable
approaches are queuing analysis methods [25], Markovian methods [26], Petri net based
methods [27], integrated computer-aided manufacturing definition (IDEF) method [28], and
structured analysis and design technique (SADT) [29]. In addition to them there are several
commercial tools that have been reviewed and categorized by Muthiah and Huang [30].

9. What is OEE for?

OEE provides simple and consolidated formulas to measure effectiveness of the equipment or
production system. Moreover Dal et al. [31] point out that it can also be used as an indicator
of process improvement activities since OEE is directly linked to the losses as well as OEE can
 Managing OEE to Optimize Factory Performance 41
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be even used to compare performance across the factory highlighting poor line performance
or to quantify improvements made [31]. Moreover improving can be pursued by:

• Backtracking to determine what loss reduces effectiveness.

• Identifying bottlenecks as not only the slowest machine, but as the machine both slower and
less effective.

All these goals need of an approach based on the Deming Cycle [32]. It is an improvement
cycle to increase the plant OEE rating until the target goals and world class manufacturing
status are achieved (Figure 4)

Figure 4. Improvement approach to increase the plant OEE.

This approach requires a large amount of data that can be provided both in a static or dynamic
way. In the first case data are picked up only at the end of a certain period and used in the
Diagnosis & Analysis stage.
There is another way to use OEE and it is to know exactly what is happening in real time
through a continuous monitoring to immediately identify possible problems and react in real-
time using appropriate corrective actions. Information on OEE items (maintenance and
42 Operations Management

operational equipment effectiveness, product data accuracy, uptimes, utilization, bottlenecks,

yield and scrap metrics, etc.) is really valuable in environments where making decisions in
near real-time is critical. This second approach requires then a data collection system com‐
pletely automatized and moreover the Diagnosis & Analysis stage should be automatic.
In the next sections we will take into consideration different strategies to acquire data and we
will illustrate main automated tool for the OEE integration.

10. Data collection strategies

The OEE calculations should be based on correct input parameters from the production system
as reported by Ericsson [33]. Data acquisition strategies range from very manual to very
automated. The manual data collection method consists of a paper template, where the
operators fill in the cause and duration of a breakdown and provide comments about minor
stoppages and speed losses. It is a low-tech approach. On the contrary a high-tech approach
runs through an automatic OEE calculation system that is governed by sensors connected to
the equipment, automatically registering the start time and duration of a stoppage and
prompting the operator to provide the system with information about the downtime cause.
An automatic approach usually provides opportunities to set up lists of downtime causes,
scheduling the available operating time and making an automatic OEE calculation for a time
period. A variety of reports of production performance and visualization of the performance
results are even possible to retrieve from the system.
Two approaches have to be compared through opportunity and cost both, in a quantitative as
well as in a qualitative way. Regarding cost, the main figures in case of the manual approach
are derived from the hourly wage cost of operators multiplied by time spent to register data
on paper templates, feed them into a computer system and for generating reports and
performing OEE calculations. In case of the automatic approach cost concerns a yearly license
cost for an automatic OEE calculation system together with an investment cost for hardware.
The introduction of both the manual and automatic data collection methods must be preceded
and then associated with training of the operators on OEE as a performance measure, and on
different parameters affecting the OEE outcome. The purpose of training the operators was
twofold:

1. The quality of the input data is likely to increase in alignment with an increase in the
competence of the staff;
2. The involvement of the operators in identifying performance loss factors is likely to create
a better engagement for providing the system with accurate information.

Another issue to overcome is the balance between the efforts of providing adequate informa‐
tion in relation to the level of detail needed in the improvement process. In fact if a critical
success factor in an improvement project driven by OEE is the retrieval of detailed information
about production losses, however not all the improvement projects require a higher and really
expensive data precision.
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Generally there are many companies in which manual data collection is convenient. In other
companies where each operator is responsible for a number of processing machines, timely
and accurate data collection can be very challenging and a key goal should be fast and efficient
data collection, with data put it to use throughout the day and in real-time, a more desirable
approach would be realized if each machine could indicate data by itself.
An automatic OEE data recording implies:

• better accuracy;
• less labor;
• traceability;
• integrated reporting and analysis;
• immediate corrective action;
• motivation for operators.

In any case the implementation of data collection for OEE has limited value if it is not integrated
in a continuous work procedure, as a part of the improvement initiative. Daily meeting and
sharing information both cross-functionally and bottom-up in the organization hierarchy
become a prerequisite. As well as it is useful integrating OEE into an automated management
system. OEE can be applied when using a total manufacturing information system providing
the detailed historical information that allows thorough diagnoses and improvement plans
but more importantly it gives the summary signals.

11. Automating OEE and integration of OEE into automated management

system

Automating OEE gives a company the ability to collect and classify data from the shop floor
into meaningful information that can help managers understand the root causes of production
inefficiency. Therefore giving greater visibility to make more informed decisions on process
improvement. An automated OEE system addresses the three primary functions of OEE:

• Acquisition: it concerns data collection that as discussed above data will be completely
automatic.
• Analysis: it usually provides algorithms to calculate OEE and other items related to.
Moreover it is often able to support downtime classification via reason trees and other
technical analysis. The more sophisticated the package, the more analysis equipment is
available.
• Visualization: OEE metrics are available through reports or they can be displayed even via
a software interface directly to the operator.

There is a lot of commercial software that provide automated OEE system, but it is possible
even to integrate OEE into general tools as ERP ones. They usually offer a wide range of
44 Operations Management

capabilities. They are able to gather and coordinate the operations of a plant and provide
measurable information. The advantages are that database are completely integrated so the
coordination among different functions involved is better. For example manufacturing can see
the upcoming planned maintenance and maintenance can see the production schedules.
Automated Management systems are naturally and inherently eligible for providing feasible
decision support on plant profitability and establish a foundation for addressing other
manufacturing challenges in the future.

12. OEE applications

At the end of the chapter, industrial examples of OEE application are presented to remark as
different industries and different goals can be all involved through the OOE metric.

12.1. Case study 1

Sigma/Q [34] is a leading manufacturer of quality packaging in Northland Central America

serving various markets across the globe. The company’s primary goal was to improve plant
performance and reduce operational costs.

The solution was to build a foundation for continuous improvement through OEE. The first
step was to automate the data collection and analysis processes and introduce a real-time
strategy. But the real key success factor was operator involvement in the performance
improvement process. The company identified key contributors to reward them appropriately
during performance reviews.

As a result, OEE increased by 40%, variability in run speed due to frequent starts and stops in
the manufacturing process, was dramatically reduced and run speed was increased by 23%.
Last but not least operators aspired to achieve higher levels of operational excellence, pro‐
moting a culture of continuous improvement across the various plants.

12.2. Case study 2

A global pharmaceutical company [35] has shown the will to understand if OEE as a metric
could be used as an ongoing tool of improvement. It has chosen an off-shore plant and as pilot
a packaging line running a full 144-hour weekly cycle and handling more than 90 products
because it allowed the collection of data over both shifts. The line also had counters on most
unit operations that could be easily utilized for the collection of quality data by the line
operators. Twelve weeks of data was collected with operator buy-in. The test has shown that
many of the current metrics were too high-level to extract the causes of issues and therefore
target improvements to them. Therefore the more than 90 products routed through the test
line were divided into six groups based on the highest pack rates. The continuous real-time
monitoring was able to account the 90% of available run time for with little impact running
the line.
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12.3. Case study 3

A company providing a broad range of services to leading original equipment manufacturers
in the information technology and communications industries [36] obtained three new plants
from a major contract electronics manufacturer.
Each plant had distinct ways of identifying and determining downtime, as well as their own
preferred techniques and practices. The goals were then:

• Find a common metric to measure productivity across plants

• Standardized downtime reporting among plants
The manufacturer’s issues were complicated by the fact it makes about 30,000 different
products out of 300,000 different parts, and adds an average of 2,000 new products into its
manufacturing mix every month. With this number of products, frequent changeovers are
necessary. It also becomes vital to have a scientific method to be able to compare all the different
lines. The company was searching for a common framework in order to compare its three
newest plants. The solution was the identification of factors leading to assembly line down‐
time. Companies utilizing this information can make comparisons across plants and assembly
lines to improve effectiveness. The results were:

• OEE increase of 45%

• Identified 25% more downtime not found with previous methods
• Reduced costs

12.4. Case study 4

The Whirlpool Corporation’s Findlay Division manufactures dishwashers for many brands in
the world [37]. The demand for product is at an all-time high. The goal was then how to get
more out of the facility and its equipment without making huge capital investments? And
more specifically how can the maintenance department support the needs of manufacturing
to achieve the company goals?
To make these improvements, the Division used OEE as a measure of their current equipment
efficiency. As the company started tracking individual pieces of equipment’s OEE ratings, it
became apparent that there was room for improvement. The combination of fundamental
maintenance practices such as Root Cause Failure analysis and a preventive and predictive
maintenance system, along with very strong support from Division leadership, enabled the
Findlay Division to get off the ground with the Total Productive Maintenance program. Again
"it was the people that made this change possible" (Jim Dray, TPM Facilitator). The Division
has been able to increase production by 21%, without any significant capital costs.
The OEE measure is an excellent KPI for use on both strategic and operational levels, if it is
used correctly. When an organization holds people with knowledge and experience of the
typical shortages of OEE and its common implementation challenges, the probability of
achieving the intended benefits of OEE will certainly increase. Based on using OEE as an
improvement driver at the case study company, some success factors have been identified:
46 Operations Management

• A standard definition of OEE must be clearly defined and communicated at all levels within
the organization since this is the foundation for its utilization. It is especially important to
determine how the ideal cycle time and planned and unplanned downtime should be
interpreted.
• Involving the operators in the process of defining production loss causes and configuring
the templates and lists to be used for monitoring promotes operator commitment, under‐
standing of the procedure and awareness of the frequency of sporadic and chronic distur‐
bances.
• Driving the OEE implementation as a project with a predefined organization, a structured
working procedure promoting cross-functional and shop floor involvement, and practical
guidance on what activities to execute and in what order, implies resource allocation that
forces management attention and puts OEE on the agenda.
• Viewing and communicating OEE as a driver for improvements rather than a management
measure for follow-up and control of performance (although this is also the case) is one of
the cornerstones for a successful OEE implementation.
• Active involvement of the support functions, especially production engineering and
maintenance, is required, otherwise the level of improvements to increase OEE will not be
enough and the speed of change will consequently be too low.
• Separating improvement actions into those directly having an impact on process stability,
i.e. OEE, from those with indirect impact is necessary especially in the initial implementation
phase to show quick results.
• Including reporting OEE and prioritized daily actions in the routines of daily follow-up
meetings (from team level to department/site level) is an excellent way to integrate OEE as
a driver for improvements in the operations management system.
• Results should be communicated, e.g. by graphical visualization of the OEE improvements
on the boards. Visualizing OEE and process output together are illustrative and motivating.
• Including production performance in the company ́s overall production strategy and
managing this with a continuous follow up of OEE as a KPI on different consolidation levels
is the optimal driver for efficient management. When top management attention is contin‐
uously given to the process of achieving stable production processes the possibilities of
reaching good results certainly increases.

13. Conclusion

There are many challenges associated with the implementation of OEE for monitoring and
managing production performance, for example:

• how it is defined, interpreted and compared

• how the OEE data are collected and analyzed
 Managing OEE to Optimize Factory Performance 47
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• how it is monitored and by whom

• how it aligns with the overall production strategy

• how it could be utilized for sustainability purpose.

Moreover it is remarkable that setting high OEE goals in an environment with excessive
capacity is of less value since it is not possible to utilize the equipment full time. OEE measure
is less suitable as a target KPI, since OEE only measures the efficiency during the time the
equipment is planned to be operating, while equipment and personnel drives manufacturing
costs both when they are in operation and during downtime.

The purpose of measuring OEE can be questioned in the light of the financial crisis. There are
some authors that have reported the need of further research work on linking OEE with
financial measures. Dal et al. [31] asserts “there would appear to be a useful line of research in
exploring the link between OEE and the popular business models such as balanced scorecard”.
Muchiri et al. [16] suggests “Further research should explore the dynamics of translating
equipment effectiveness or loss of effectiveness in terms of cost.” The authors agree with these
statements, there is clearly a missing link between OEE and manufacturing cost. Jonsson et al.
[39] presents a manufacturing cost model linking production performance with economic
parameters. The utilization of this manufacturing cost model in developing industrially
applicable productivity KPI ́s will be elaborated on in future research.

Author details

Raffaele Iannone1 and Maria Elena Nenni2*

*Address all correspondence to: [email protected]

1 Department of Industrial Engineering, University of Salerno, Italy

2 Department of Industrial Engineering, University of Naples Federico II, Italy

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 Chapter 3

Using Overall Equipment Effectiveness for

Manufacturing System Design

Vittorio Cesarotti, Alessio Giuiusa and Vito Introna

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/56089

1. Introduction

Different metrics for measuring and analyzing the productivity of manufacturing systems
have been studied for several decades. The traditional metrics for measuring productivity were
throughput and utilization rate, which only measure part of the performance of manufacturing
equipment. But, they were not very helpful for “identifying the problems and underlying improve‐
ments needed to increase productivity” [1].
During the last years, several societal elements have raised the interest in analyze the phe‐
nomena underlying the identification of productive performance parameters as: capacity,
production throughput, utilization, saturation, availability, quality, etc.
This rising interest has highlighted the need for more rigorously defined and acknowledged
productivity metrics that allow to take into account a set of synthetic but important factors
(availability, performance and quality) [1]. Most relevant causes identified in literature are:

• The growing attention devoted by the management to cost reduction approaches [2] [3];
• The interest connected to successful eastern productions approaches, like Total Productive
Maintenance [4], World Class Manufacturing [5] or Lean production [6];
• The importance to go beyond the limits of traditional business management control
system [7];

For this reasons, a variety of new performance concepts have been developed. The total
productive maintenance (TPM) concept, launched by Seiichi Nakajima [4] in the 1980s, has
provided probably the most acknowledged and widespread quantitative metric for the
measure of the productivity of any production equipment in a factory: the Overall Equip‐
ment Effectiveness (OEE). OEE is an appropriate measure for manufacturing organizations

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52 Operations Management

and it has being used broadly in manufacturing industry, typically to monitor and control
the performance (time losses) of an equipment/work station within a production system
[8]. The OEE allows to quantify and to assign all the time losses, that affect an equip‐
ment whilst the production, to three standard categories. Being standard and widely
acknowledged, OEE has constituted a powerful tool for production systems performance
benchmarking and characterization, as also the starting point for several analysis techni‐
ques, continuous improvement and research [9] [10]. Despite this widespread and rele‐
vance, the use of OEE presents limitations. As a matter of fact, OEE focus is on the single
equipment, yet the performance of a single equipment in a production system is general‐
ly influenced by the performance of other systems to which it is interconnected. The time
losses propagation from a station to another may widely affect the performance of a single
equipment. Since OEE measures the performance of the equipment within the specific
system, a low value of OEE for a given equipment can depend either on little perform‐
ance of the equipment itself and/or time losses propagation due to other interconnected
equipments of the system.

This issue has been widely investigated in literature through the introduction of a new metric:
the Overall Equipment Effectiveness (OTE), that considers the whole production system as a
whole. OTE embraces the performance losses of a production system both due to the equip‐
ments and their interactions.

Process Designers need usually to identify the number of each equipments necessary to realize
each activity of the production process, considering the interaction and consequent time losses
a priori. Hence, for a proper design of the system, we believe that the OEE provides designer
with better information on each equipment than OTE. In this chapter we will show how OEE
can be used to carry out a correct equipments sizing and an effective production system design,
taking into account both equipment time losses and their propagation throughout the whole
production system.

In the first paragraph we will show the approach that a process designer should face when
designing a new production system starting from scratch.

In the second paragraph we will investigate the typical time-losses that affect a production
system, although are independent from the production system itself.

In the third part we will define all the internal time losses that need to be considered when
assessing the OEE, along with the description of a set of critical factors related to OEE assess‐
ment, such as buffer-sizing and choice of the plant layout.

In the fourth paragraph we will show and quantify how time losses of a single equipment
affects the whole system and vice-versa.

Finally, we will show through the simulation some real cases in which a process design have
been fully completed, considering both equipment and time losses propagation.
 Using Overall Equipment Effectiveness for Manufacturing System Design 53
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2. Manufacturing system design: Establish the number of production

machines

Each process designer, when starting the design of a new production system, must ensure that
the number of equipments necessary to carry out a given process activity (e.g. metal milling)
is sufficient to realize the required volume. Still, the designer must generally ensure that the
minimum number of equipment is bought due to elevated investment costs. Clearly, the
performance inefficiencies and their propagation became critical, when the purchase of an
extra (set of) equipment(s) is required to offset time losses propagation. From a price strategy
perspective, the process designer is generally requested to assure the number of requested
equipments is effectively the minimum possible for the requested volume. Any not necessary
over-sizing results in an extra investment cost for the company, compromising the economical
performance.

Typically, the general equation to assess the number of equipments needed to process a
demand of products (D) within a total calendar time C t (usually one year) can be written as
follow (1):

D*ct i
ni = int Ct *ϑ*ηi +1 (1)

Where:
• D is the number of products that must be produced;

• ct i is theoretical cycle time for the equipment i to process a piece of product;

• Ct is the number of hours (or minutes) in one year.

• ϑ is a coefficient that includes all the external time losses that affect a production system,
precluding production.

• η i is the efficiency of the equipment i within the system.

It is therefore possible to define L t , Loading time, as the percentage of total calendar time C
t that is actually scheduled for operation (2):

L t = Ct *ϑ (2)

The equation (1) shows that the process designer must consider in his/her analysis three
parameters unknown a priori, which influence dramatically the production system sizing and
play a key role in the design of the system in order to realize the desired throughput. These
parameters affect the total time available for production and the real time each equipment
request to realize a piece [9], and are respectively:
• External time losses, which are considered in the analysis with ϑ ;
54 Operations Management

• The theoretical time cycle, which depends upon the selected equipment(s);

• The efficiency of the equipment which depends upon the selected equipments and their
interactions, in accordance to the specific design.

This list highlights the complexity implicitly involved in a process design. Several forecasts
and assumptions may be required. In this sense, it is a good practice to ensure that the ratio in
equation (3) is always respected for each equipment:

( D*ct i
L t *η i
) (3)
ni <1

As a good practice, to ensure (3) being properly lower than 1 allows to embrace, among others,
the variability and uncertainty implicitly embedded within the demand forecast.

In the next paragraph we will analyze the External time losses that must be considered during
the design.

3. External time losses

3.1. Background

For the design of a production system several time-losses, of different nature, need to be
considered. Literature is plenty of classifications in this sense, although they can diverge one
each others in parameters, number, categorization, level of detail, etc. [11] [12]. Usually each
classification is tailored on a set of sensible drivers, such as data availability, expected results,
etc. [13].

One relevant classification of both external and internal time losses is provided by Grando et
al. [14]. Starting from this classification and focusing on external time losses only, we will
briefly introduce a description of common time-losses in Operations Management, highlight‐
ing which are most relevant and which are negligible under certain hypothesis for the design
of a production system (Table 1).

The categories LT1 and LT2 don’t affect the performance of a single equipment, nor influence
the propagation of time-losses throughout the production system.

Still, it is important to notice that some causes, even though labeled as external, are complex
to asses during the design. Despite these causes are external, and well known by operations
manager, due to the implicit complexity in assessing them, these are detected only when the
production system is working via the OEE, with consequence on OEE values. For example,
the lack of material feeding a production line does not depend by the OEE of the specific
station/equipment. Nevertheless when lack of material occurs a station cannot produce with
consequences on equipment efficiency, detected by the OEE. (4).
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Symbol Name Description Synonyms

Lt1 Idle times resulting Summer vacations, holidays, shifts, special events System External Causes
from law regulations or (earthquakes, flood);
corporate decisions

Lt2 Unplanned time Lack of demand; System External Causes

Lack of material in stocks;

Lack of orders in the production plan;

Lack of energy;
Lack of manpower (strikes, absenteeism);

Technical tests and manufacturing of nonmarketable

products;
Training of workers;

Lt3 Stand by time Micro-absenteism, shift changes; Machine External

physiological increases; Causes;
man machine interaction; System External Causes

Lack of raw material stocks for single machines;

Unsuitable physical and chemical properties of the
available material;

Lack of service vehicle;

Failure to other machines;

Table 1. Adapted from Grando et al. 2005

3.2. Considerations

The external time losses assessment may vary in accordance to theirs categories, historical
available data and other exogenous factors. Some stops are established for through internal
policies (e.g. number of shift, production system closure for holidays, etc.). Other macro-stops
are assessed (e.g. Opening time to satisfy forecasted demand), whereas others are considered
as a forfeit in accordance to the Operations Manager Experience. It is not possible to provide
a general magnitude order because, the extent of time losses depend from a variety of
characteristic factor connected mainly to the specific process and the specific firm. Among the
most common ways to assess this time losses we found: Historical data, Benchmarking with
similar production system, Operations Manager Experience, Corporate Policies.

The Calendar time Ct is reduced after the external time losses. The percentage of Ct in
which the production system does not produce is expressed by (1- ϑ) , affecting consequent‐
ly the L t (2).

These parameters should be considered carefully by system designers in assessing the loading
time (2). Although these parameters do not propagate throughout the line their consideration
is fundamental to ensure the identification of a proper number of equipments.
56 Operations Management

3.2.1. Idle times

There is a set of idle times that result from law regulations or corporate decisions. These stops
are generally known a-priori, since they are regulated by local law and usually contribute to
the production plant localization-decision process. Only causes external to the production
system are responsible for their presence.

3.2.2. Unplanned times

The unplanned time are generally generated by system external causes connected with
machineries, production planning and production risks.
A whole production system (e.g. production line) or some equipment may be temporarily used
for non marketable product (e.g. prototype), or they may are not supposed to produce, due to
test (e.g. for law requirements), installation of new equipments and the related activities (e.g.
training of workers).
Similarly, a production system may face idle time because of lack of demand, absence of a
production schedule (ineffectiveness of marketing function or production planning activities)
or lack of material in stock due to ineffectiveness in managing the orders. Clearly, the presence
of a production schedule in a production system is independent by the Operations manager
and by the production system design as well. Yet, the lack of stock material, although inde‐
pendent from the production system design is one of the critical responsibility of any OM
(inventory management).
Among this set of time losses we find also other external factors that affect the system availa‐
bility, which are usually managed by companies as a risk. In this sense occurrence of phe‐
nomenon like the lack of energy or the presence of strikes are risks that companies well know
and that usually manage according to one of the four risk management strategy (avoidance,
transfer, mitigation acceptance) depending on their impact and probability.

3.2.3. Stand by time

Finally, the stand-by time losses are a set of losses due to system internal causes, but still
equipment external causes. This time losses may affect widely the OTE of the production line
and depend on: work organization losses, raw material and material handling.
Micro-absenteeism and shift changes may affect the performances of all the system that are
based on man-machine interaction, such as the production equipments or the transportation
systems as well. Lack of performance may propagate throughout the whole system as other
equipment ineffectiveness. Even so, Operations manager can’t avoid these losses by designing
a better production line. Effective strategies in this sense are connected with social science that
aim to achieve the employee engagement in the workplace [15].
Nonetheless Operations Manager can avoid the physiological increases by choosing ergo‐
nomic workstations.
The production system can present other time-losses because of the raw material, both in term
of lack and quality:
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• Lack of raw material causes the interruption of the throughput. Since we have already
considered the ineffective management of the orders in “Unplanned Time”, the other related
causes of time-losses depend on demand fluctuation or in ineffectiveness of the suppliers
as well. In both cases the presence of safety stock allows operations manager to reduce or
eliminate theirs effects.

• Low raw material standard quality (e.g. physical and chemical properties), may affect
dramatically the performance of the system. Production resource (time, equipment, etc) are
used to elaborate a throughput without value (or with a lower value) because of little raw
material quality. Also in this case, this time losses do not affect the design of a production
system, under the hypothesis that Operations Manager ensures the raw material quality is
respected (e.g. incoming goods inspection). The missed detection of low quality raw
materials can lead the Operations Manager to attribute the cause of defectiveness to the
equipment (or set of equipment) where the defect is detected.

Considering the Vehicle based internal transport, a broader set of considerations is requested.
Given two consecutive stations i-j, the vehicles make available the output of station i to station
j (figure 1).

i j
Production System

Figure 1. Vehicle based internal transport: transport the output of station i to the station j

In this sense any vehicle can be considered as an equipment that is carrying out the transfor‐
mation on a piece, moving the piece itself from station i to station j (Figure 2).

i i->j j
Production System

Figure 2. Service vehicles that connect i-j can be represented as a station itself amid i-j

The activity to transport the output from station i to station j is a transformation (position)
itself. Like the equipments, also the service vehicles affect and are affected by the OTE. In this
sense successive considerations on equipments losses categorization, OEE, and their propa‐
gations throughout the system, OTE, can be extended to service vehicles. Hence, the design of
service vehicles would be carried out according to the same guidelines we provide in succes‐
sive section of this chapter.
58 Operations Management

4. The formulation of OEE

In this paragraph we will provide process designer with a set of topics that need to be
addressed when considering the OEE during the design of a new production system. A proper
assessment a-priori of the OEE, and the consequent design and sizing of the system demand
process designer to consider a variety of complex factors, all related with OEE. It is important
to notice that OEE measures not only the internal losses of efficiency, but is also detects time
losses due to external time losses (par.2.1, par.2.2). Hence, in this paragraph we will firstly
define analytically the OEE. Secondly we will investigate, through the analysis of relevant
literature, the relation between the OEE of single equipment and the OEE of the production
system as a set of interconnected equipments. Then we will describe how different time losses
categories, of an equipment, affect both the OEE of the equipment and the OEE of the Whole
system. Finally we will debate how OEE need to be considered with different perspective in
accordance to factors as ways to realize the production and plant layout.

4.1. Mathematical formulation

OEE is formulated as a function of a number of mutually exclusive components, such as

availability efficiency, performance efficiency, and quality efficiency in order to quantify various
types of productivity losses.

OEE is a value variable from 0 to 100%. An high value of OEE indicates that machine is
operating close to its maximum efficiency. Although the OEE does not diagnose a specific
reason why a machine is not running as efficiently as possible, it does give some insight into
the reason [16]. It is therefore possible to analyze these areas to determine where the lack of
efficiency is occurring: breakdown, set-up and adjustment, idling and minor storage, reduced
speed, and quality defect and rework [1] [4].

In literature exist a meaningful set of time losses classification related to the three reported
efficiencies (availability, performance and quality). Grando et al. [14] for example provided a
meaningful and comprehensive classification of the time-losses that affect a single equipment,
considering its interaction in the interaction system. Waters et al. [9] and Chase et al. [17]
showed a variety of acknowledged possible efficiency losses schemes, while Nakajima [4]
defined the most acknowledged classification of the “6 big losses”.

In accordance with Nakajima notations, the conventional formula for OEE can be written as
follow [1]:

OEE = Aeff Pe eff Q eff (4)

Tu
Aeff = Tt
(5)

( )
Tp Ravga
Pe eff = Tu * R (th ) (6)
avg
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Pg
Qeff = Pa
(7)

Table 2 summarizes briefly each factor.

Factor Description

Aeff Availability efficiency. It considers failure and maintenance downtime and time devoted to indirect
production task (e.g. set up, changeovers).

Pe eff Performance efficiency. It consider minor stoppages and time losses caused by speed reduction

Q eff Quality efficiency. It consider loss of production caused by scraps and rework.

Tu Equipment uptime during the T t . It is lower that T t because of failure, maintenance and set up.

Tt Total time of observation.

Tp Equipment production time. It is lower than T t because of minor stoppages, resets, adjustments
following changeovers.
( )
a Average actual processing rate for equipment in production for actual product output. It is lower than
Ravg
(th
theoretical (Ravg ) because of speed/production rate slowdowns.
)

(
th ) Average theoretical processing rate for actual product output.
Ravg

Pg Good product output from equipment during T t .

Pa Actual product units processed by equipment during T t . We assume that for each product rework the
same cycle time is requested.

Table 2. OEE factors description

The OEE analysis, if based on single equipment data, is not sufficient, since no machine is isolated
in a factory, but operates in a linked and complex environment [18]. A set of inter-dependent relations
between two or more equipments of a production system generally exists, which leads to the
propagation of availability, performance and quality losses throughout the system.

Mutual influence between two consecutive stations occurs even if both stations are working
ideally. In fact if two consecutive stations (e.g. station A and station B) present different cy‐
cle times, the faster station (eg. Station A = 100 pcs/hour) need to reduce/stop its production
rate in accordance with the other station production rate (e.g. Station B = 80 pcs/hour).

Station A Station B

100 pcs/hour 80 pcs/hour

In this case, the detected OEE of station A would be 80%, even if any efficiency loss occurs.
This losses propagation is due to the unbalanced cycle time.
60 Operations Management

Therefore, when considering the OEE of equipment in a given manufacturing system, the
measured OEE is always the performance of the equipment within the specific system. This
leads to practical consequence for the design of the system itself.
A comprehensive analysis of the production system performance can be reached by extending
the concept of OEE, as the performance of individual equipment, up to factory level [18]. In
this sense OEE metric is well accepted as an effective measure of manufacturing performance
not only for single machine but also for the whole production system [19] and it is known as
Overall Throughput Effectiveness OTE [1] [20].
We refer to OTE as the OEE of the whole production system.
Therefore we can talk of:
• Equipment OEE, as the OEE of the single equipment, which measures the performance of
the equipment in the given production system.
• System OEE (or OTE), which is the performance of the whole system and can be defined as
the performance of the bottleneck equipment in the given production system.

4.2. An analytical formulation to study equipment and system OEE

Number of good parts produced by system in total time

System OEE = Theoretical number of parts produced by system in total time
(8)

The System OEE measures the systemic performance of a manufacturing system (productive
line, floor, factory) which combines activities, relationships between different machines and
processes, integrating information, decisions and actions across many independents systems
and subsystem [1]. For its optimization it is necessary to improve coordinately many interde‐
pendent activities. This will also increase the focus on the plant-wide picture.
Figure 3 clarify which is the difference between Equipment OEE and System OEE, showing
how the performance of each equipment affects and is affected by the performances of the
other connected equipments. These time losses propagation result on a Overall System OEE.
Considering the figure 3 we can indeed argue that given a set of i=1,..,n equipments, OEE i of
the i th equipment depends on the process in which it has been introduced, due to the availa‐
bility, performance and quality losses propagation.

1 2 i n-1 n
Productive System

Figure 3. A production system composed of n stations

According to the model proposed by Huang et al in [1], the System OEE (OTE) for a series of
th ( )
n connected subsystems, is formulated in function of theoretical production rate Ravg ( F ) relating
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th ( )
to the slowest machine (the bottleneck), theoretical production rate Ravg ( N ) and OEE n of n
th

station as shown in (9):

th
OEEn ´ Ravg ( n)
OTE = th (9)
Ravg (F)

The OEE n computed in (9) is the OEE of nth station introduced in the production system (the
OEE n when n is in the system and it is influenced by the performance of other n-1 equipments).

According to (9) the only measure of OEE n is a measure of the performance of the whole system
(OTE). This is true because performance data on n are gathered when the station n is already
working in the system with the other n-1 station and, therefore, its performance is affected
from the performance of the other n-1 prior stations. This means that the model proposed by
Huang, could be used only when the system exists and it is running, so OEE n could be directly
measured on field.

But during system design, when only technical data of single equipment are known, the same
formulation in (9) can’t be used, since without information on the system OEE n in unknown
a-priori. Hence, in this case the (9) couldn’t provide a correct value of OTE.

4.3. How equipment time-losses influence the system performance and vice-versa

The OEE of each equipment, as isolated machine (independent by other station) is affected only
by (5),(6) and (7) theoretical intrinsic value. But once the equipment is part of a system its
performance depends also upon the interaction with other n-1 equipments and thus on their
performance. It is now more evident why, for a correct estimate and/or analysis of equipment
OEE and system OEE, it is necessary to take into account losses propagation. These differences
between single subsystem and entire system need to be deeply analyzed to understand real
causes of system efficiency looses. In particular their investigation is fundamental during the
design process, because a correct evaluation of OEE and for the study of effective losses
reduction actions (i.e. buffer capacity dimensioning, quality control station positioning); but
also during the normal execution of the operations because it leads to correct evaluation of
causes of efficiency losses and their real impact on the system.

The table 3 shows how efficiency losses of a single subsystem (e.g. an equipment/ machine),
given by Nakajima [4] can spread to other subsystem (e.g. in series machines) and then to
whole system.

In accordance to table 3 a relevant lack of coordination in deploying available factory resources

(people, information, materials, and tools) by using OEE metric (based on single equipment)
exists. Hence, a wider approach for a holistic production system design has to focus also on
the performance of the whole factory [18], resulting by the interactions of its equipments.
62 Operations Management

Single subsystem Entire system

Availability Breakdown losses Downtimes losses of upstream unit could slackening production rate
Set-up and adjustment of downstream unit without fair buffer capacity
Downtimes losses of downstream unit could slackening production
rate of upstream unit without fair buffer capacity

Performance Idling and minor stoppages Minor stoppages and speed reduction could influencing production
Reduced speed rate of the downstream and upstream unit in absence of buffer

Quality Quality defects and rework Production scraps and rework are losses for entire process depends on
Yield losses where the scraps are identified, rejected or reworked in the process

Table 3. Example of propagation of losses in the system

This issue have been widely debated and acknowledged in literature [1] [18]. Several Authors
[8] [21] have recognized and analyzed the need for a coherent, systematic methodology for
design at the factory level.
Furthermore, the following activities, according to [18] [21] have to be considered as OTE is
also started at the factory design level:

• Quality (better equipment reliability, higher yields, less rework, no misprocessing);

• Agility and responsiveness (more customization, fast response to unexpected changes,
simpler integration);
• Technology changes;
• Speed (faster ramp up, shorter cycle times, faster delivery);
• Production cost (better asset utilization, higher throughput, less inventory, less setup, less
idle time);

At present, there is not a common well defined and proven methodology for the analysis of
System OEE [1] [19] during the system design. By the way the effect of efficiency losses propa‐
gation must be considered and deeply analyzed to understand and eliminate the causes before
the production system is realized. In this sense the simulation is considered the most reliable
method, to date, in designing, studying and analyzing the manufacturing systems and its
dynamic performance [1] [19]. Discrete event simulation and advanced process control are the
most representatives of such areas [22].

4.4. Layout impact on OEE

Finally, it is important to consider how the focus of the design may vary according the type of
production system. In flow-shop production system the design mostly focuses on the OTE of
the whole production line, whereas in job-shop production system the analysis may focus
either on the OEE of a single equipment or in those of the specific shop floor, rather than those
of the whole production system. This is due to the intrinsic factors that underlies a layout
configuration choice.
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Flow shop production systems are typical of high volume and low variety production. The
equipment present all a similar cycle time [23] and is usually organized in a product layout
where interoperation buffers are small or absent. Due to similarity among the equipments that
compose the production system, the saturation level of the different equipments are likely to
be similar one each other. The OEE are similar as well. In this sense the focus of the analysis
will be on loss time propagation causes, with the aim to avoid their occurrence to rise the OTE
of the system.
On the other hand, in job shop production systems, due to the specific nature of operations (multi-
flows, different productive paths, need for process flexibility rather than efficiency) charac‐
terized by higher idle time and higher stand-by-time, lower values of performances index are
pursued.
Different products categories usually require a different sequence of tasks within the same
production system so the equipment is organized in a process layout. In this case rather than
focusing on efficiency, the design focuses on production system flexibility and in the layout
optimization in order to ensure that different production processes can take place effectively.
Generally different processes, to produce different products, imply that bottleneck may shift
from a station to another due to different production processes and different processing time
of each station in accordance to the specific processed product as well.
Due to the shift of bottleneck the presence of buffers between the stations usually allows
different stations to work in an asynchronous manner, consecutively reducing/eliminating the
propagation of low utilization rates.
Nevertheless, when the productive mix is known and stable over time, the study of plant layout
can embrace bottleneck optimization for each product of the mix, since a lower flexibility is
demanded.
The analysis of quality propagation amid two or more stations should not be a relevant issue
in job shop, since defects are usually detected and managed within the specific station.
Still, in several manufacturing system, despite a flow shop production, the equipment is
organized in a process layout due to physical attributes of equipment (e.g. manufacturing of
electrical cables showed in § 4) or different operational condition (e.g. pharmaceutical sector).
In this case usually buffers are present and their size can dramatically influence the OTE of the
production system.
In an explicit attempt to avoid unmanageable models, we will now provide process designers
and operations managers with useful hints and suggestion about the effect of inefficiencies
propagation among a production line along with the development of a set of simulation
scenarios (§ 3.5).

4.5. OEE and OTE factors for production system design

OEE is formulated as a function of a number of mutually exclusive components, such as
availability efficiency, performance efficiency, and quality efficiency in order to quantify
various types of productivity losses.
64 Operations Management

During the design of the production system the use of intrinsic performance index for the
sizing of each equipment although wrong could seem the only rational approach for the design.
By the way, this approach don’t consider the interaction between the stations. Someone can
argue that to make independent each station from the other stations through the buffer would
simplify the design and increase the availability. Still, the interposition of a buffer between
two or more station may not be possible for several reason. Most relevant are:
• logistic (space unavailability, huge size of the product, compact plant layout, etc.);

• economic (the creation of stock amid each couple of station increase the WIP and conse‐
quently interest on current assets);

• performance;

• product features (buffer increase cross times, critical for perishable products);
In our model we will show how a production system can be defined considering availability,
performance and quality efficiency (5),(6), (7) of each station along with their interactions. The
method embraces a set of hints and suggestions (best practices) that lead designers in handle
interactions and losses propagation with the aim to rise the expected performance of the
system. Furthermore, through the development of a simulation model of a real production
system for the electrical cable production we provide students with a clear understanding of
how time-losses propagate in a real manufacturing system.

The design process of a new production system should always include the simulation of the
identified solution, since the simulation provides designer with a holistic understanding of the
system. In this sense in this paragraph we provide a method where the design of a production
system is an iterative process: the simulation output is the input of a successive design step,
until the designed system meet the expected performance and performance are validated by
simulation. Each loss will be firstly described referring to a single equipment, than its effect
will be analyzed considering the whole system, also throughout the support of simulation
tools.

4.5.1. Set up availability

Availability losses due to set up and changeover must be considered during the design of the
plant. In accordance with the production mix, the number of set-up generally results as a trade-
off between the set up costs (due to loss of availability + substituted tools, etc.) and the
warehouse cost.

During the design phase some relevant consideration connected with set-up time losses should
be considered. A production line is composed of n stations. The same line can usually produce
more than one product type. Depending on the difference between different product types a
changeover in one or more stations of the line can be required. Usually, the more negligible
the differences between the products, the lower the number of equipments subjected to set up
(e.g. it is sufficient the set up only of the label machine to change the labels of a product
depending on the destination country). In a given line of n equipments, if a set up is requested
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in station i, loss availability can interest only the single equipment I or the whole production
line, depending on the buffer presence, their location and dimension:

• If buffers are not present, the set up of station i implies the stop of the whole line (figure
4). This is a typical configuration of flow shop process realized by one or more production
line as food, beverages, pharmaceutical packaging,....

• If buffers are present (before and beyond the station i) and their size is sufficient to decouple
the station i by the other i-1 and i+1 station during the whole set up, the line continues to
work regularly (figure 5).

1 2 i n-1 n
Production System

Figure 4. Barely decoupled/Coupled Production System (buffer unimportant or null)

1 2 i n-1 n
Production System

Figure 5. Decoupled Production System

Hence, the buffer design plays a key role in the phenomena of losses propagation throughout
the line not only for set-up losses, but also for other availability losses and performance losses
as well. The degree of propagation ranges according to the buffer size amid zero (total
dependence-maximum propagation) and maximum buffer size (total independence-no
propagation). It will be debated in the following (§ 3.5.3), when considering the performance
losses, although the same principles can be applied to avoid propagation of minor set up losses
(mostly for short set-up/changeover, like adjustment and calibrations).

4.5.2. Maintenance availability

Tu
The availability of an equipment [24] is defined as Aeff = Tt . The availability of the whole
production system can be defined similarly. Nevertheless it depends upon the equipment
configurations. Operations Manager, through the choice of equipment configurations can
increase the maintenance availability. This is a design decision, since different equipments
must be bought and installed according to desired availability level. The choice of the config‐
uration usually results as a trade-off between equipment costs and system availability. The
two main equipment configuration (not-redundant system, redundant system) are debated in
the following.
66 Operations Management

Not redundant system

When a system is composed of non redundant equipment, each station produces only if the
equipment is working.

Hence if we consider a line of n equipment connected a s a series we have that the downtime
of each equipment causes the downtime of the whole system.

n
Asystem = ∏ Ai (10)
i=1

n
Asystem = ∏ Ai = 0, 7*0, 8*0, 9 = 0, 504 (11)
i=1

The availability of system composed of a series of equipment is always lower than the
availability of each equipment (figure 6).

0,7 0,8 0,9

Production System

Figure 6. Availability of not redundant System

Total redundant system

Oppositely, to avoid failure propagation amid stations, designer can set the line with a total
redundancy of a given equipment. In this case only the contemporaneous downtime of both
equipments causes the downtime of the whole system.

n
Asystem = 1 - ∏ (1 - Ai ) (12)
i=1

In the example in figure 7 we have two single equipments connected with a redundant system
of two equipment (dotted line system).

Hence, the redundant system availability (dotted line system) rises from 0,8 (of the single
equipment) up to:

n
( )( )
Aparallel = 1 - ∏ (1 - Ai ) = 1 - 0, 8 * 1 - 0, 8 = 0, 96
i=1
(13)

Consequently the availability of the whole system will be:

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n
Asystem = ∏ Ai = 0, 7* 0, 96 *0, 9 = 0, 6048 (14)
i=1

100
0,8

100 100
0,7 0,9

100
0,8

Production System

Figure 7. Availability of totally redundant equipments connected with not redundant equipments

To achieve an higher level of availability it has been necessary to buy two identical equipments
(double cost). Hence, the higher value of availability of the system should be worth econom‐
ically.

Partial redundancy

An intermediate solution can be the partial redundancy of an equipment. This is named K/n
system, where n is the total number of equipment of the parallel system and k is the minimum
number of the n equipment that must work properly to ensure the throughput is produced.
The figure 8 shows an example.

The capacity of equipment b’, b’’ and b’’’ is 50 pieces in the referral time unit. If the three systems
must ensure a throughput of 100 pieces, it is at least necessary that k=2 of the n=3 equipment
produce 50 pieces. The table 4 shows the configuration states which ensure the output is
produced and the relative probability that each state manifests.

b’
50
0,8

a b’’ c
100 50 100
0,7 0,8 0,9

b’’’
50
0,8

Production System

Figure 8. Availability of partially redundant equipments connected with not redundant equipments
68 Operations Management

b’ b’’ b’’’ Probability of [*100]

occurrance

UP UP UP 0,8*0,8*0,8 0,512

UP UP DOWN 0,8*0,8*(1-0,8) 0,128

UP DOWN UP 0,8*(1-0,8)*0,8 0,128

DOWN UP UP (1-0,8)*0,8*0,8 0,128

Total Availability 0,896

Table 4. State Analysis Configuration

In this example all equipments b have the same reliability (0,8), hence the probability the system
of three equipment ensure the output should have been calculated, without the state analysis
configuration (table 4), through the binomial distribution:

n
Rk /n = ∑
j=k
()
n j
j
R 1-R n- j
(15)

R2/3 = ()
3
2
3
()
0, 82 1 - 0, 8 + 0, 83=0,896
3
(16)

Hence, the availability of the system (a, b’-b’’-b’’’, c) will be:

n
Asystem = ∏ Ai = 0, 7* 0, 896 *0, 9 = 0, 56448 (17)
i=1

In this case the investment in redundancy is lower than the previous. It is clear how the choice
of the level of availability is a trade-off between fix-cost (due to equipment investment) and
lack of availability.

In all the cases we considered the buffer as null.

When reliability of the equipments (b in our example) the binomial distribution (16) is not
applicable, therefore the state analysis configuration (table 4) is required.

Redundancy with modular capacity

Another configuration is possible.

The production system can be designed as composed of two equipment which singular
capacity is lower than the requested but which sum is higher. In this case if it is possible to
modulate the production capacity of previous and successive stations the expected throughput
will be higher than the output of a singular equipment.
 Using Overall Equipment Effectiveness for Manufacturing System Design 69
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Considering the example in figure 9 when b’ and b’’ are both up the throughput of the
subsystem b’-b’’ is 100, since capacity of a and c is 100. Supposing that capacity of a and c is
modular, when b’ is down the subsystem can produce 60 pieces in the time unit. Similarly,
when b’’ is down the subsystem can produce 70. Hence, the expected amount of pieces
produced by b’-b’’ is 84,8 pieces (table 5).

When considering the whole system if either a or c are down the system cannot produce. Hence,
the expected throughput in the considered time unit must be reduced of the availability of the
two equipments:

b’
70
0,8
a c
100 100
0,7 0,9
b’’
60
0,8

Production System

Figure 9. Availability of partially redundant equipments connected with not redundant equipments at modular ca‐
pacity

b’ b’’ Maximum Probability of [*100] Expected Pieces

Throughput occurrence Produced

UP UP 100 0,8*0,8 0,64 64

UP DOWN 70 0,8*(1-0,8) 0,16 11,2

DOWN UP 60 (1-0,8)*0,8 0,16 9,6

Expected number of Pieces Produced 84,8

Table 5. State Analysis Configuration

4.5.3. Minor stoppages and speed reduction

OEE theory includes in performance losses both the cycle time slowdown and minor stop‐
pages. Also time losses of this category propagate, as stated before, throughout the whole
production process.
70 Operations Management

A first type of performance losses propagation is due to the propagation of minor stoppages
and reduced speed among machines in series system. From theoretical point of view, between
two machines with the same cycle time 1and without buffer, minor stoppage and reduced
speed propagate completely like as major stoppage. Obviously just a little buffer can mitigate
the propagation.

Several models to study the role of buffers in avoiding the propagation of performance losses
are available in Buffer Design for Availability literature [22]. The problem is of scientific rele‐
vance, since the lack of opportune buffer between the two stations can indeed affect dramat‐
ically the availability of the whole system. To briefly introduce this problem we refer to a
production system composed of two consecutive equipments (or stations) with an interposed
buffer (figure 10).

1 2
Production System

Figure 10. Station-Buffer-Station system. Adapted by [23]

Under the likely hypothesis that the ideal cycle times of the two stations are identical [23], the
variability of speed that affect the stations is not necessarily of the same magnitude, due to its
dependence on several factors. Furthermore Performance index is an average of the T t ,
therefore a same machine can sometimes perform at a reduced speed and sometimes an highest
speed2. The presence of this effect in two consecutive equipments can be mutually compensate
or add up. Once again, within the propagation analysis for production system design, the role
of buffer is dramatically important.

When buffer size is null the system is in series. Hence, as for availability, speed losses of each
equipment affect the performance of the whole system:

n
Psystem = ∏ Pi (18)
i=1

Therefore, for the two stations system we can posit:

1 As shown in par. 3.1. When two consecutive stations present different cycle times, the faster station works with the
same cycle time of slower station, with consequence on equipment OEE, even if any time losses is occurred. On the other
hand, when two consecutive stations are balanced (same cycle time) if any time loss is occurring the two stations OEE
will be 100%. Ideally, the higher value of performance rate can be reached when the two stations are balanced.
2 This time losses are typically caused by yield reduction (the actual process yield is lower than the design yield). This
effect is more likely to be considered in production process where the equipment saturation level affect its yield, like
furnaces, chemical reactor, etc.
 Using Overall Equipment Effectiveness for Manufacturing System Design 71
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2
Psystem = ∏ Pi (19)
i=1

But when the buffer is properly designed, it doesn’t allow the minor stoppages and speed
losses to propagate from a station to another. We define this Buffer size as Bmax. When, in a
production system of n stations, given any couple of consecutive station, the interposed buffer
size is Bmax (calculated on the two specific couple of stations), then we have:

Psystem = Min ni=1(Pi ) (20)

That for the considered 2 stations system is:

Psystem = Min (P1, P2) (21)

Hence, the extent of the propagation of performance losses depends on the buffer size (j) that
is interposed between the two stations. Generally, a bigger buffer increases the performance
of the system, since it increases the decoupling degree between two consecutive stations, up
to j=Bmax is achieved (j =0,..,Bmax).

We can therefore introduce the parameter

()
Rel.P j =
P ( j)
P ( Bmax )
(22)

Considering the model with two station, figure 11, we have that:

()
When j = 0, Rel.P 0 =
P (0)
P(Bmax)
( ) ( )/
= P 1 *P 2 min P 1 ; P 2 ; ( ( ) ( )) (23)

When j = Bmax, Rel.P B max = ( ) P (Bmax)

P(Bmax) = 1; (24)

Figure 11 shows the trend of Rel.P(j) depending on the buffer size (j), when the performance
rate of each station is modeled with an exponential distribution [23] in a flow shop environ‐
ment. The two curves represent the minimum and the maximum simulation results. All the
others simulation results are included between these two curves. Maximum curve represents
the configuration with the lowest difference in performance index between the two stations,
the minimum the configuration with the highest difference.

By analyzing the figure 11 it is clear how an inopportune buffer size affect the performance of
the line and how increase in buffer size allows to obtain improve in production line OEE. By
the way, once achieved an opportune buffer size no improvement derives from a further
increase in buffer. These considerations of Performance index trend are fundamental for an
effective design of a production system.
72 Operations Management

MIN MAX

110.00%

100.00%

90.00%
Rel.P(j)

80.00%

70.00%

60.00%

50.00%
1 21 41 61 81 101 121 141
Buffer Size (j)

Figure 11. Rel OEE depending on buffer size in system affected by variability due to speed losses

4.5.4. Quality losses

In this paragraph we analyze how quality losses propagate in the system and if it is possible
to assess the effect of quality control on OEE and OTE.

First of all we have to consider that quality rate for a station is usually calculated considering
only the time spent for the manufacturing of products that have been rejected in the same
station. This traditional approach focuses on stations that cause defects but doesn’t allow to
point out completely the effect of the machine defectiveness on the system. In order to do so,
the total time wasted by a station due to quality losses should include even the time spent for
manufacturing of good products that will be rejected for defectiveness caused by other stations.
In this sense quality losses depends on where scraps are identified and rejected. For example,
scraps in the last station should be considered loss of time for the upstream station to estimate
the real impact of the loss on the system and to estimate the theoretical production capacity
needed in the upstream station. In conclusion the authors propose to calculate quality rate for
a station considering as quality loss all time spent to manufacture products that will not
complete the whole process successfully.

From a theoretical point of view we could consider the following case for calculation of quality
rate of a station that depends on types of rejection (scraps or rework) and on quality controls
positioning. If we consider two stations with an assigned defectiveness Sj and each station
reworks its scraps with a rework cycle time equal to theoretical cycle time, quality rate could
be formulate as shown in case 1 in figure 12. Each station will have quality losses (time spent
to rework products) due its own defectiveness. If we consider two stations with an assigned
defectiveness Sj and a quality control station at downstream each station, quality rate could
be formulate as shown in case 2 in figure 12. The station 1, that is the upstream station, will
 Using Overall Equipment Effectiveness for Manufacturing System Design 73
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have quality losses (time spent to work products that will be discarded) due to its own and
station 2 defectiveness. If we consider two stations with an assigned defectiveness Sj and
quality control station is only at the end of the line, quality rate quality rate could be formulate
as shown in case 3 in figure 12. In this case both stations will have quality losses due to the
propagation of defectiveness in the line. Case 2 and 3 point out that quality losses could be not
simple to evaluate if we consider a long process both in design and management of system. In
particular in the quality rate of station 1 we consider time lost for reject in the station 2.

Case 1) Case 2) Case 3)

1 2 1 2 1 2 C
rework scraps scraps
Q1 =
(1  s1 ) Q2 =
(1  s 2 ) Q1 =
(1  s1 )(1  s 2 ) Q2 =
(1  s 2 ) Q1 = Q2 = (1  s1 )(1  s 2 )

Figure 12. Different cases of quality rate calculation

Finally, it is important to highlight the different role that the quality efficiency plays during
the design phase and the production.

When the system is producing, Operations Manager focuses his attention on the causes of the
delectability with the aim to reduce it. When it is to design the production system, Operations
Manager focuses on the expected quality efficiency of each station, on the location of quality
control, on the process (rework or scraps) to identify the correct number of equipments or
station for each activity of the process.

In this sense, the analysis is vertical during the production phase, but it follows the whole
process during the design (figure 13).

Production

1 2 i n-1 n

Figure 13. Two approaches for quality efficiency

5. The simulation model

To study losses propagation and to show how these dynamics affect OEE in a complex system
[25] this chapter presents some examples taken from an OEE study of a real manufacturing
system carried out by the authors through a process simulation analysis [19].
74 Operations Management

Simulation is run for each kind of time losses (Availability, Performance and Quality), to
clearly show how each equipment ineffectiveness may compromise the performance of the
whole system.

The simulation model is about a manufacturing plant for production of electrical cable. In
particular we focuses on production of unipolar electrical cable that takes place by a flow-shop
process. In the floor plant the production equipment is grouped in production areas arranged
according to their functions (process layout). The different production areas are located along
the line of product flow (product layout). Buffers are present amongst the production areas to
stock the product in process. This particular plant allows to analyze deeply the problem of
OEE-OTE investigation due to its complexity.

In terms of layout the production system was realized as a job shop system, although the flow
of material from a station to another was continuous and typical of flow shop process. As stated
in (§2) the reason lies on due to the huge size of the products that passes from a station to
another. For this reason the buffer amid station, although present, couldn’t contain huge
amount of material.

The process implemented in the simulation model is shown in figure 14. Entities are unit
quantity of cable that have different mass amongst stations. Parameters that are data input in
the model are equipment speed, defectiveness, equipment failure rate and mean time to repair.
Each parameters is described by a statistical distribution in order to simulate random condi‐
tion. In particular equipment speed has been simulated with a triangular distribution in order
to simulate performance losses due to speed reduction.

The model evaluates OTE and OEE for each station as usually measured in manufacturing
plant. The model has been validated through a plan of tests and its results of OEE has been
compared with results obtained from an analytic evaluation.

Roughing Drawing Bunching Insulating Packaging

Figure 14. ASME representation of manufacturing process

5.1. Example of availability losses propagation

In accordance with the proposed method (§ 3.5) we show how availability losses propagate in
the system and to assess the effect of buffer capacity on OEE through the simulation. We
focuses on the insulating and packaging working stations. Technical data about availability of
equipment are: mean time between failure for insulating is 20000 sec while for packaging is
30000 sec; mean time between repair for insulating is 10000 sec while for packaging is 30000
sec. The cycle time of the working stations are the same equal to 2800 sec for coil. The quality
rates are set to 1. Idling, minor stoppages and reduced speed are not considered and set to 0.
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Considering equipment isolated from the system the OEE for the single machine is equal to
its availability; in particular, relating to previous data, machines have an OEE equal to 0,67
and 0,5 respectively for insulating and packaging. The case points out how the losses due to
major stoppage spread to other station in function of buffer capacity dimension.

A simulation has been run to study the effect of buffer capacity in this case. Capacity of buffer
downstream of insulating has been changed from 0 to 30 coils for different simulations. The
results of simulations are shown in figure 15a. The OEE for both machines is equal to 0,33 with
no buffer capacity. This results is the composition of availability of insulating and packaging
(0,67 x 0,5) as expected. The OEEs increase in function of buffer dimension that avoids the
propagation of major stoppage and availability losses propagation. Also the OTE is equal to
0,33 that is, according to formulation in (1) and as previously explained, equal to OEE of the
last station but assessed in the system.

Insulating and packaging increase rapidly OEEs since a structural limits of buffer capacity of
15 coils; from this value OEEs of two stations converge on value of 0,5. The upstream insulating
station, that has an availability greater than packaging, has to adapt itself to real cycle time of
packaging that is the bottleneck station.

It’s important to point out that in performance monitoring of manufacturing plant the
propagation of the previous losses is often gathered as performance losses (reduced speed or
minor stoppage) in absence of specific data collection relating to major stoppage due to absence
of material flow. So, if we consider also all other efficiency looses ignored in this sample, we
can understand how much could be difficult to identify the real impact of this kind of efficiency
losses monitoring the real system. Moreover simulation supports in system design in order to
dimension buffer capacity (e.g. in this case structural limit for OEE is reached for 16 coils).
Moreover through simulation it is possible to point out that the positive effect of buffer is
reduced with an higher cycle time of machine as shown in figure 15b.

Figure 15. OEE in function of buffer dimension (a) and cycle time (b)
76 Operations Management

5.2. Minor stoppages and speed reduction

We run the simulation also for the case study (§ 4). The simulation shown how two stations,
with the same theoretical cycle time (200 sec/coil) affected by a triangular distribution with a
performance rate of 52% as single machine, have: 48% of performance rate with a capacity
buffer of 1 coil and 50% of performance rate with a capacity buffer of 2 coils. But if we consider
two stations with the same theoretic cycle time but affects by different triangular distributions
so that theoretic performance rates differ, simulation shows how the performance rates of two
stations converge towards the lowest one as expected (19), (20).

Through the same simulation model we considered also the second type of performance
losses propagation, due to the propagation of reduced speed caused by unbalanced line.
Figure 16 shown the effect of unbalanced cycle time of stations relating to insulating and
packaging. The station have the same P as single machine equal to 67% but different
theoretical cycle time. In particular insulating, the upstream station, is faster than packag‐
ing. Availability and quality rate of stations is set to 1. The buffer capacity is set to 1 coil.
A simulation has been run to study the effect of unbalancing station. Theoretical cycle time
of insulating has been changed since theoretical cycle time of packaging that is fixed in
mean. The simulation points out that insulating has to adapt itself to cycle time of packaging
that is the bottleneck station. This results in the model as a lower value for performance
rate of insulating station. The same happens often in real systems where the result is
influenced by all the efficiency losses at the same time. The effect disappears gradually with
a better balancing of two stations as in figure 16.
performance rate

Figure 16. Performance rate of insulating and packaging in function of insulating cycle time

5.3. Quality losses

In relation to the model, this sample focuses on the drawing and bunching working stations
that have defectiveness set to 5%, the same cycle times and no other efficiency losses. The
quality control has been changed simulating case 2 and 3. The results of simulation for the two
 Using Overall Equipment Effectiveness for Manufacturing System Design 77
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cases are shown in table 6 in which the proposal method has compared with the traditional
one. The proposal method allowed to identify the correct efficiency, for example to dimension
the drawing station, because it considers time wasted to manufacture products rejected in
bunching station. The difference between values of Q2 and OTE is explained by the value of
P2=0,95 that is due to the propagation of quality losses for the upstream station in performance
losses for the downstream station. Moreover about positioning of quality control the case 2
has to be prefer because the simulation shows a positive effect on the OTE if the bunching
station is the system bottleneck (as it happens in the real system).

Proposal method Traditional method

Q1 Q2 OTE Q1 Q2 OTE

Case 2) 0,952 0,95 0,952 0,95 0,95 0,952

Case 3) 0,952 0,952 0,952 -- 0,952 0,952

Table 6. Comparison of quality rate calculation and evaluation of impact of quality control positioning on quality rates
and on OTE

6. Conclusions

The evaluation of Overall Equipment Effectiveness (OEE) and Overall Throughput Effective‐
ness (OTE) can be critical for the correct estimation of workstations number needed to realize
the desired throughput (production system design), as also for the analysis and the continuous
improvement of the system performance (during the system management).
The use of OEE as performance improvement tool has been widely described in the literature.
But it has been less approached in system design for a correct evaluation of the system
efficiency (OTE), in order to study losses propagation, overlapping of efficiency losses and
effective actions for losses reduction.
In this chapter, starting by the available literature on time losses, we identified a simplified set
of relevant time-losses that need to be considered during the design phase. Then, through the
simulation, we shown how OEE of single machine and the value of OTE of the whole system
are interconnected and mutually influencing each other, due to the propagation of availability,
performance and quality losses throughout the system.
For each category of time losses we described the effects of efficiency losses propagation from
a station to the system, for a correct estimation and analysis of OEE and OTE during manu‐
facturing system design. We also shown how to avoid losses propagation through adequate
technical solutions which can be defined during system design as the buffer sizing, the
equipment configuration and the positioning of control stations.
The simulation model shown in this chapter was based on a real production system and it used
real data to study the losses propagation in a manufacturing plant for production of electrical
78 Operations Management

cable. The validation of the model ensures the meaningful of the approach and of the identified
set of possible solutions and hints.

By analyzing and each time losses we also shown how the choices taken during the design of
the production system to increase the OTE (e.g. buffer size, maintenance configuration, etc.)
affect the successive management of the operations.

Acknowledgements

The realization of this chapter would not have been possible without the support of a person
whose cooperated with the chair of Operations Management of University of Rome “Tor
Vergata” in the last years, producing valuable research. The authors wish to express their
gratitude to Dr. Bruna Di Silvio without whose knowledge, diligence and assistance this work
would not have been successful.

Author details

Vittorio Cesarotti1, Alessio Giuiusa1,2 and Vito Introna1

1 University of Rome “Tor Vergata”, Italy

2 Area Manager Inbound Operations at Amazon.com

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losses on equipment earning capacity,» International Journal Process Management &
Benchmarking, n. 3, (2008). , 2 , 235-247.
 Chapter 4

Reliability and Maintainability in Operations

Management

Filippo De Carlo

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/54161

1. Introduction

The study of component and process reliability is the basis of many efficiency evaluations in
Operations Management discipline. For example, in the calculation of the Overall Equipment
Effectiveness (OEE) introduced by Nakajima [1], it is necessary to estimate a crucial parameter
called availability. This is strictly related to reliability. Still as an example, consider how, in the
study of service level, it is important to know the availability of machines, which again depends
on their reliability and maintainability.

Reliability is defined as the probability that a component (or an entire system) will perform its
function for a specified period of time, when operating in its design environment. The elements
necessary for the definition of reliability are, therefore, an unambiguous criterion for judging
whether something is working or not and the exact definition of environmental conditions and
usage. Then, reliability can be defined as the time dependent probability of correct operation
if we assume that a component is used for its intended function in its design environment and
if we clearly define what we mean with "failure". For this definition, any discussion on the
reliability basics starts with the coverage of the key concepts of probability.

A broader definition of reliability is that "reliability is the science to predict, analyze, prevent
and mitigate failures over time." It is a science, with its theoretical basis and principles. It also
has sub-disciplines, all related - in some way - to the study and knowledge of faults. Reliability
is closely related to mathematics, and especially to statistics, physics, chemistry, mechanics
and electronics. In the end, given that the human element is almost always part of the systems,
it often has to do with psychology and psychiatry.

In addition to the prediction of system durability, reliability also tries to give answers to other
questions. Indeed, we can try to derive from reliability also the availability performance of a

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82 Operations Management

system. In fact, availability depends on the time between two consecutive failures and on how
long it takes to restore the system. Reliability study can be also used to understand how faults
can be avoided. You can try to prevent potential failures, acting on the design, materials and
maintenance.

Reliability involves almost all aspects related to the possession of a property: cost management,
customer satisfaction, the proper management of resources, passing through the ability to sell
products or services, safety and quality of the product.

This chapter presents a discussion of reliability theory, supported by practical examples of

interest in operations management. Basic elements of probability theory, as the sample space,
random events and Bayes' theorem should be revised for a deeper understanding.

2. Reliability basics

The period of regular operation of an equipment ends when any chemical-physical phenom‐
enon, said fault, occurred in one or more of its parts, determines a variation of its nominal
performances. This makes the behavior of the device unacceptable. The equipment passes from
the state of operation to that of non-functioning.

In Table 1 faults are classified according to their origin. For each failure mode an extended
description is given.

Failure cause Description

Stress, shock, Function of the temporal and spatial distribution of the load conditions and of the response of the
fatigue material. The structural characteristics of the component play an important role, and should be
assessed in the broadest form as possible, incorporating also possible design errors, embodiments,
material defects, etc..

Temperature Operational variable that depends mainly on the specific characteristics of the material (thermal
inertia), as well as the spatial and temporal distribution of heat sources.

Wear State of physical degradation of the component; it manifests itself as a result of aging phenomena
that accompany the normal activities (friction between the materials, exposure to harmful agents,
etc..)

Corrosion Phenomenon that depends on the characteristics of the environment in which the component is
operating. These conditions can lead to material degradation or chemical and physical processes
that make the component no longer suitable.

Table 1. Main causes of failure. The table shows the main cases of failure with a detailed description

To study reliability you need to transform reality into a model, which allows the analysis by
applying laws and analyzing its behavior [2]. Reliability models can be divided into static and
dynamic ones. Static models assume that a failure does not result in the occurrence of other
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faults. Dynamic reliability, instead, assumes that some failures, so-called primary failures,
promote the emergence of secondary and tertiary faults, with a cascading effect. In this text
we will only deal with static models of reliability.

In the traditional paradigm of static reliability, individual components have a binary status:
either working or failed. Systems, in turn, are composed by an integer number n of compo‐
nents, all mutually independent. Depending on how the components are configured in
creating the system and according to the operation or failure of individual components, the
system either works or does not work.

Let’s consider a generic X system consisting of nelements. The static reliability modeling
implies that the operating status of the i - th component is represented by the state function X i
defined as:

Xi = {
1
0
if the i - th component works
if the i - th component fails
(1)

The state of operation of the system is modeled by the state function Φ( X )

Φ( X ) = { 1
0
if the system works
if the system fails
(2)

The most common configuration of the components is the series system. A series system works
if and only if all components work. Therefore, the status of a series system is given by the state
function:

n
Φ( X ) = ∏ X i = min X i (3)
i=1 i∈{1,2,…,n }

where the symbol ∏ indicates the product of the arguments.

System configurations are often represented graphically with Reliability Block Diagrams
(RBDs) where each component is represented by a block and the connections between them
express the configuration of the system. The operation of the system depends on the ability to
cross the diagram from left to right only by passing through the elements in operation. Figure
1 contains the RBD of a four components series system.

Figure 1. Reliability block diagram for a four components (1,2,3,4) series system.
84 Operations Management

The second most common configuration of the components is the parallel system. A parallel
system works if and only if at least one component is working. A parallel system does not
-
work if and only if all components do not work. So, if Φ( X ) is the function that represents the
-
state of not functioning of the system and X i indicates the non-functioning of the i - th element,
you can write:

- n
-
Φ( X ) = ∏ X i (4)
i=1

Accordingly, the state of a parallel system is given by the state function:

n n
Φ( X ) = 1 - ∏ (1 - X i ) = ∐ X i = max X i (5)
i=1 i=1 i∈{1,2,…,n }

where the symbol ∐ indicates the complement of the product of the complements of the
arguments. Figure 2 contains a RBD for a system of four components arranged in parallel.

Figure 2. Parallel system. The image represents the RBD of a system of four elements (1,2,3,4) arranged in a reliability
parallel configuration.

Another common configuration of the components is the series-parallel systems. In these

systems, components are configured using combinations in series and parallel configurations.
An example of such a system is shown in Figure 3.

State functions for series-parallel systems are obtained by decomposition of the system. With
this approach, the system is broken down into subsystems or configurations that are in series
or in parallel. The state functions of the subsystems are then combined appropriately, de‐
pending on how they are configured. A schematic example is shown in Figure 4.
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Figure 3. Series-parallel system. The picture shows the RBD of a system due to the series-parallel model of 9 elementa‐
ry units.

Figure 4. Calculation of the state function of a series-parallel. Referring to the configuration of Figure 3, the state
function of the system is calculated by first making the state functions of the parallel of{1,2}, of {3,4, 5} and of
{6,7, 8 , 9}. Then we evaluate the state function of the series of the three groups just obtained.
86 Operations Management

A particular component configuration, widely recognized and used, is the parallel kout ofn.
A system kout of nworks if and only if at least kof the ncomponents works. Note that a series
system can be seen as a system nout of nand a parallel system is a system 1 out ofn. The state
function of a system kout of nis given by the following algebraic system:

{
n
1 if ∑ X i ≥ k
Φ( X ) = i=1 (6)
0 otherwise

The RBD for a system kout of nhas an appearance identical to the RBD schema of a parallel
system of ncomponents with the addition of a label "k out of n". For other more complex system
configurations, such as the bridge configuration (see Figure 5), we may use more intricate
techniques such as the minimal path set and the minimal cut set, to construct the system state
function.

A Minimal Path Set - MPS is a subset of the components of the system such that the operation
of all the components in the subset implies the operation of the system. The set is minimal
because the removal of any element from the subset eliminates this property. An example is
shown in Figure 5.

Figure 5. Minimal Path Set. The system on the left contains the minimal path set indicated by the arrows and shown in
the right part. Each of them represents a minimal subset of the components of the system such that the operation of
all the components in the subset implies the operation of the system.

A Minimal Cut Set - MCS is a subset of the components of the system such that the failure of all
components in the subset does not imply the operation of the system. Still, the set is called min‐
imal because the removal of any component from the subset clears this property (see Figure 6).

MCS and MPS can be used to build equivalent configurations of more complex systems, not
referable to the simple series-parallel model. The first equivalent configuration is based on the
consideration that the operation of all the components, in at least a MPS, entails the operation
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Figure 6. Minimal Cut Set. The system of the left contains the minimal cut set, indicated by the dashed lines, shown in
the right part. Each of them represents a minimum subset of the components of the system such that the failure of all
components in the subset does not imply the operation of the system.

of the system. This configuration is, therefore, constructed with the creation of a series
subsystem for each path using only the minimum components of that set. Then, these subsys‐
tems are connected in parallel. An example of an equivalent system is shown in Figure 7.

1 2
1 2
1 3 5
3

4 3 2
4 5

4 5

Figure 7. Equivalent configurations with MPS. You build a series subsystem for each MPS. Then such subsystems are
connected in parallel.

The second equivalent configuration, is based on the logical principle that the failure of all the
components of any MCS implies the fault of the system. This configuration is built with the
creation of a parallel subsystem for each MCS using only the components of that group. Then,
these subsystems are connected in series (see Figure 8).

After examining the components and the status of the system, the next step in the static
modeling of reliability is that of considering the probability of operation of the component and
of the system.
88 Operations Management

Figure 8. Equivalent configurations with MCS. You build a subsystem in parallel for each MCS. Then the subsystems
are connected in series.

The reliability Ri of the i - th component is defined by:

Ri = P ( X i = 1) (7)

while the reliability of the systemR is defined as in equation 8:

R = P (Φ( X ) = 1) (8)

The methodology used to calculate the reliability of the system depends on the configuration
of the system itself. For a series system, the reliability of the system is given by the product of
the individual reliability (law of Lusser, defined by German engineer Robert Lusser in the 50s):

n
R = ∏ Ri
i=1
since (i=1
n
) n

i=1
n
R = P ⋂ ( X i = 1) = ∏ P ( X i = 1) = ∏ Ri
i=1
(9)

For an example, see Figure 9.

Figure 9. serial system consisting of 4 elements with reliability equal to 0.98, 0.99, 0.995 and 0.975. The reliability of
the whole system is given by their product: R = 0.98 · 0.99 · 0.995 · 0.975 = 0.941

For a parallel system, reliability is:

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n n
R = 1 - ∏ (1 - R i ) = ∐ Ri (10)
i=1 i=1

In fact, from the definition of system reliability and by the properties of event probabilities, it
follows:

(i=1
n
) (i=1
n
) n

i=1
n

i=1
n

i=1
n
R = P ⋃ ( X i = 1) = 1 - P ⋂ ( X i = 0) = 1 - ∏ P ( X i = 0) = = 1 - ∏ 1 - P ( X i = 1) = 1 - ∏ (1 - R i ) = ∐ Ri
i=1
(11)

In many parallel systems, components are identical. In this case, the reliability of a parallel
system with n elements is given by:

R = 1 - (1 - R i )n (12)

Figure 10. A parallel system consisting of 4 elements with the same reliability of 0.85. The system reliability s given by
their co-product: 1 - (1 - 0.85)4 = 0.9995.

For a series-parallel system, system reliability is determined using the same approach of
decomposition used to construct the state function for such systems. Consider, for instance,
the system drawn in Figure 11, consisting of 9 elements with reliability
R1 = R2 = 0.9; R3 = R4 = R5 = 0.8 and R6 = R7 = R8 = R9 = 0.7. Let’s calculate the overall reliability of the
system.
90 Operations Management

Figure 11. The system consists of three groups of blocks arranged in series. Each block is, in turn, formed by elements
in parallel. First we must calculate R1,2 = 1 - (1 - 0.8)2 = 0.99. So it is possible to estimated R3,4,5 = 1 - (1 - 0.8)3 = 0.992.
Then we must calculate the reliability of the last parallel block R6,7,8,9 = 1 - (1 - 0.7)4 = 0.9919. Finally, we proceed to the
series of the three blocks: R = R1,2 ∙ R3,4,5 ∙ R6,7,8,9 = 0.974.

To calculate the overall reliability, for all other types of systems which can’t be brought back
to a series-parallel scheme, it must be adopted a more intensive calculation approach [3] that
is normally done with the aid of special software.

Reliability functions of the system can also be used to calculate measures of reliability
importance.

These measurements are used to assess which components of a system offer the greatest
opportunity to improve the overall reliability. The most widely recognized definition of
reliability importance I ' i of the components is the reliability marginal gain, in terms of overall
system rise of functionality, obtained by a marginal increase of the component reliability:

∂R
I 'i = ∂ Ri (13)

For other system configurations, an alternative approach facilitates the calculation of reliability
importance of the components. Let R (1i )be the reliability of the system modified so that Ri = 1
and R (0i )be the reliability of the system modified withRi = 0, always keeping unchanged the
other components. In this context, the reliability importance I i is given by:

I i = R ( 1 i ) - R (0 i ) (14)

In a series system, this formulation is equivalent to writing:

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n
Ii = ∏ R j
j=1 (15)
j≠i

Thus, the most important component (in terms of reliability) in a series system is the less
reliable. For example, consider three elements of reliability R1 = 0.9, R2 = 0.8 e R3 = 0.7. It is
therefore: I 1 = 0.8 ∙ 0.7 = 0.56, I 2 = 0.9 ∙ 0.7 = 0.63 and I 3 = 0.9 · 0.8 = 0.72 which is the higher value.

If the system is arranged in parallel, the reliability importance becomes as follows:

n
I i = ∏ (1 - R j )
j=1 (16)
j≠i

It follows that the most important component in a parallel system is the more reliable. With the
same data as the previous example, this time having a parallel arrangement, we can verify Eq. 16
for the first item: I 1 = R (11) - R (01) = 1 - (1 - 1) · (1 - 0.8) ∙ (1 - 0.7) - 1 - (1 - 0) · (1 - 0.8) ∙ (1 - 0.7)
= 1 - 0 - 1 + (1 - 0.8) ∙ (1 - 0.7) = (1 - 0.8) ∙ (1 - 0.7).
For the calculation of the reliability importance of components belonging to complex systems,
which are not attributable to the series-parallel simple scheme, reliability of different systems
must be counted. For this reason the calculation is often done using automated algorithms.

3. Fleet reliability

Suppose you have studied the reliability of a component, and found that it is 80% for a mission
duration of 3 hours. Knowing that we have 5 identical items simultaneously active, we might
be interested in knowing what the overall reliability of the group would be. In other words,
we want to know what is the probability of having a certain number of items functioning at
the end of the 3 hours of mission. This issue is best known as fleet reliability.
Consider a set of midentical and independent systems in a same instant, each having a
reliabilityR. The group may represent a set of systems in use, independent and identical, or
could represent a set of devices under test, independent and identical. A discrete random
variable of great interest reliability isN , the number of functioning items. Under the assump‐
tions specified, N is a binomial random variable, which expresses the probability of a Bernoulli
process. The corresponding probabilistic model is, therefore, the one that describes the
extraction of balls from an urn filled with a known number of red and green balls. Suppose
that the percentage Rof green balls is coincident with the reliability after 3 hours. After each
extraction from the urn, the ball is put back in the container. Extraction is repeated mtimes,
and we look for the probability of finding ngreen. The sequence of random variables thus
obtained is a Bernoulli process of which each extraction is a test. Since the probability of
obtaining N successes in mextractions from an urn, with restitution of the ball, follows the
binomial distribution B(m, R )B, the probability mass function of N is the well-known:
92 Operations Management

m!
P (N = n) = n ! (m - n ) ! R n (1 - R )m-n (17)

The expected value of N is given by: E ( N ) = μN = m ∙ Rand the standard deviation is:
σN = m ∙ R ∙ (1 - R ).

Let’s consider, for example, a corporate fleet consisting of 100 independent and identical
systems. All systems have the same mission, independent from the other missions. Each system
has a reliability of mission equal to 90%. We want to calculate the average number of missions
completed and also what is the probability that at least 95% of systems would complete their
mission. This involves analyzing the distribution of the binomial random variable character‐
ized by R = 0.90andm = 100. The expected value is given by E ( N ) = μN = 100 ∙ 0.9 = 90.

The probability that at least 95% of the systems complete their mission can be calculated as the
sum of the probabilities that complete their mission 95, 96, 97, 98, 99 and 100 elements of the
fleet:
100 m!
P (N ≥ n) = ∑ n ! (m - n ) ! R n (1 - R )m-n = 0,058 (18)
n=95

4. Time dependent reliability models

When reliability is expressed as a function of time, the continuous random variable, not
negative, of interest is T , the instant of failure of the device. Let f (t ) be the probability density
function of T , and let F (t ) be the cumulative distribution function of T . F (t ) is also known as
failure function or unreliability function [4].

In the context of reliability, two additional functions are often used: the reliability and the
hazard function. Let’s define Reliability R (t )as the survival function:

R (t ) = P (T ≥ t ) = 1 - F (t ) (19)

The Mean Time To Failure - MTTF is defined as the expected value of the failure time:

MTTF = E (T ) = ∫0∞t ∙ f (t ) ∙ dt (20)

Integrating by parts, we can prove the equivalent expression:

MTTF = E (T ) = ∫0∞R (t ) ∙ dt (21)

5. Hazard function

Another very important function is the hazard function, denoted by λ (t ), defined as the trend
of the instantaneous failure rate at time t of an element that has survived up to that time t. The
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failure rate is the ratio between the instantaneous probability of failure in a neighborhood of
t- conditioned to the fact that the element is healthy in t- and the amplitude of the same
neighborhood.

The hazard function λ (t ) [5] coincides with the intensity function z (t ) of a Poisson process. The
hazard function is given by:

P (t ≤ T < t + ∆ t | T ≥ t )
λ (t ) = lim ∆t (22)
Δt→0

Thanks to Bayes' theorem, it can be shown that the relationship between the hazard function,
density of probability of failure and reliability is the following:

f (t )
λ (t ) = R (t )
(23)

Thanks to the previous equation, with some simple mathematical manipulations, we obtain
the following relation:

t
-∫λ (u )∙du (24)
R (t ) = e 0

In fact, since ln R (0) = ln 1 = 0, we have:

f (t ) 1 dF (t ) 1 dR (t ) 1
R (t ) = λ (t ) = λ (t ) ∙ dt =- λ (t ) ∙ dt → ( )
R (t ) dR t = - λ (t )dt → ln R (t ) - ln R (0) = - ∫0t λ (u )du (25)

From equation 24 derive the other two fundamental relations:

t t
-∫λ (u )∙du -∫λ (u )∙du (26)
F (t ) = 1 - e 0
f (t ) = λ (t ) ∙ e 0

The most popular conceptual model of the hazard function is the bathtub curve. According
to this model, the failure rate of the device is relatively high and descending in the first part
of the device life, due to the potential manufacturing defects, called early failures. They
manifest themselves in the first phase of operation of the system and their causes are often
linked to structural deficiencies, design or installation defects. In terms of reliability, a system
that manifests infantile failures improves over the course of time.

Later, at the end of the life of the device, the failure rate increases due to wear phenomena.
They are caused by alterations of the component for material and structural aging. The
beginning of the period of wear is identified by an increase in the frequency of failures which
continues as time goes by. The wear-out failures occur around the average age of operating;
the only way to avoid this type of failure is to replace the population in advance.
94 Operations Management

Between the period of early failures and of wear-out, the failure rate is about constant: failures
are due to random events and are called random failures. They occur in non-nominal operating
conditions, which put a strain on the components, resulting in the inevitable changes and the
consequent loss of operational capabilities. This type of failure occurs during the useful life of
the system and corresponds to unpredictable situations. The central period with constant
failure rate is called useful life. The juxtaposition of the three periods in a graph which
represents the trend of the failure rate of the system, gives rise to a curve whose characteristic
shape recalls the section of a bathtub, as shown in Figure 12.

Figure 12. Bathtub curve. The hazard function shape allows us to identify three areas: the initial period of the early
failures, the middle time of the useful life and the final area of wear-out.

The most common mathematical classifications of the hazard curve are the so called Constant
Failure Rate - CFR, Increasing Failure Rate - IFR and Decreasing Failure Rate - DFR.

The CFR model is based on the assumption that the failure rate does not change over time.
Mathematically, this model is the most simple and is based on the principle that the faults are
purely random events. The IFR model is based on the assumption that the failure rate grows
up over time. The model assumes that faults become more likely over time because of wear,
as is frequently found in mechanical components. The DFR model is based on the assumption
that the failure rate decreases over time. This model assumes that failures become less likely
as time goes by, as it occurs in some electronic components.

Since the failure rate may change over time, one can define a reliability parameter that behaves
as if there was a kind of counter that accumulates hours of operation. The residual reliabili‐
ty function R (t + t0 | t0), in fact, measures the reliability of a given device which has already
survived a determined time t0. The function is defined as follows:
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R (t + t0 | t0) = P (T > t + t0 | T > t0) (27)

Applying Bayes' theorem we have:

P (T > t0 | T > t + t0) ∙ P (T > t + t0)

P (T > t + t0 | T > t0) = P (T > t0)
(28)

And, given that P (T > t0 | T > t + t0) = 1, we obtain the final expression, which determines the
residual reliability:

R (t + t0)
R (t + t0 | t0) = R (t0)
(29)

The residual Mean Time To Failure – residual MTTF measures the expected value of the
residual life of a device that has already survived a time t0:

MTTF (t0) = E (T - t0 | T > t0) = ∫0∞R (t + t0 | t0) ∙ dt (30)

For an IFR device, the residual reliability and the residual MTTF, decrease progressively as
the device accumulates hours of operation. This behavior explains the use of preventive actions
to avoid failures. For a DFR device, both the residual reliability and the residual MTTF increase
while the device accumulates hours of operation. This behavior motivates the use of an intense
running (burn-in) to avoid errors in the field.

The Mean Time To Failure –MTTF, measures the expected value of the life of a device and
coincides with the residual time to failure, where t0 = 0. In this case we have the following
relationship:

MTTF = MTTF (0) = E (T | T > 0) = ∫0∞R (t ) ∙ dt (31)

The characteristic life of a device is the time tC corresponding to a reliability R (tC ) equal to
1
e
, that is the time for which the area under the hazard function is unitary:

tC
R (tC ) = e -1 = 0,368 → R (tC ) = ∫ λ (u ) ∙ du = 1 (32)
0

Let us consider a CFR device with a constant failure rate λ. The time-to-failure is an exponential
random variable. In fact, the probability density function of a failure, is typical of an expo‐
nential distribution:
96 Operations Management

t
-∫λ (u )∙du (33)
f (t ) = λ (t ) ∙ e 0
= λe -λ∙t

The corresponding cumulative distribution function F (t )is:

t t
F (t ) = ∫ f (z )dz = ∫ λe -λ∙z dz = 1 - e -λ∙t (34)
-∞ -∞

The reliability function R (t )is the survival function:

R (t ) = 1 - F (t ) = e -λ∙t (35)

For CFR items, the residual reliability and the residual MTTF both remain constant when the
device accumulates hours of operation. In fact, from the definition of residual reliability,
∀ t0 ∈ 0, ∞ , we have:

-λ∙(t +t0)
R (t + t0) e -λ∙(t +t0)+λ∙t0
R (t + t0 | t0) = R (t0) = -λ∙t0 =e = e -λ∙t = R (t ) (36)
e

Similarly, for the residual MTTF, is true the invariance in time:

MTTF (t0) = ∫0∞R (t + t0 | t0) ∙ dt = ∫0∞R (t ) ∙ dt ∀ t0 ∈ 0, ∞ (37)

This behavior implies that the actions of prevention and running are useless for CFR devices.
Figure 13 shows the trend of the function f (t ) = λ ∙ e -λ∙t and of the cumulative distribution
function F (t ) = 1 - e -λ∙t for a constant failure rate λ = 1. In this case, since λ = 1, the probability
density function and the reliability function, overlap: f (t ) = R (t ) = e -t .

The probability of having a fault, not yet occurred at time t, in the next dt, can be written as
follows:

P (t < T < t + dt | T > t ) (38)

Recalling the Bayes' theorem, in which we consider the probability of an hypothesis H, being
known the evidence E:

P (E | H ) ∙ P (H )
P (H | E ) = P (E )
(39)

we can replace the evidence E with the fact that the fault has not yet taken place, from which
we obtain P (E ) → P (T > t ). We also exchange the hypothesis H with the occurrence of the fault
in the neighborhood of t, obtaining P (H ) → P (t < T < t + dt ). So we get:
 Reliability and Maintainability in Operations Management 97
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Figure 13. Probability density function and cumulative distribution of an exponential function. In the figure is seen
the trend of f (t ) = λ ∙ e -λ∙t and of f (t ) = λ ∙ e -λ∙t with λ = 1.

P (T > t | t < T < t + dt ) ∙ P (t < T < t + dt )

P (t < T < t + dt | T > t ) = P (T > t )
(40)

Since P (T > t | t < T < t + dt ) = 1, being a certainty, it follows:

P (t < T < t + dt ) f (t )dt λe -λ∙t dt

P (t < T < t + dt | T > t ) = P (T > t ) = = = λ ∙ dt (41)
e -λ∙t e -λ∙t

As can be seen, this probability does not depend on t, i.e. it is not function of the life time
already elapsed. It is as if the component does not have a memory of its own history and it is
for this reason that the exponential distribution is called memoryless.

The use of the constant failure rate model, facilitates the calculation of the characteristic life of
a device. In fact for a CFR item, tC is the reciprocal of the failure rate. In fact:

-λ∙tC 1
R (t C ) = e = e -1 → tC = λ
(42)

Therefore, the characteristic life, in addition to be calculated as the time value tC for which the
reliability is 0.368, can more easily be evaluated as the reciprocal of the failure rate.

The definition of MTTF, in the CFR model, can be integrated by parts and give:

MTTF = ∫0∞R (t ) ∙ dt = ∫0∞e -λ∙t ∙ dt = - λ e -λ∙t

1
| ∞0 = - λ0 + λ1 = λ1 (43)

In the CFR model, then, the MTTF and the characteristic life coincide and are equal to 1 .
λ
98 Operations Management

Let us consider, for example, a component with constant failure rate equal to λ = 0.0002failures
per hour. We want to calculate the MTTF of the component and its reliability after 10000 hours
of operation. We’ll calculate, then, what is the probability that the component survives other
10000 hours. Assuming, finally, that it has worked without failure for the first 6000 hours, we’ll
calculate the expected value of the remaining life of the component.

From equation 43 we have:

1 1
MTTF = λ = failures = 5000 h (44)
0.0002 h

For the law of the reliability R (t ) = e -λ∙t , you get the reliability at 10000 hours:

R (10000) = e -0.0002∙10000 = 0.135 (45)

The probability that the component survives other 10000 hours, is calculated with the residual
reliability. Knowing that this, in the model CFR, is independent from time, we have:

R (t + t0 | t0) = R (t ) → R (20000 | 10000) = R (10000) = 0.135 (46)

Suppose now that it has worked without failure for 6000 hours. The expected value of the
residual life of the component is calculated using the residual MTTF, that is invariant. In fact:

MTTF (t0) = ∫0∞R (t + t0 | t0) ∙ dt → MTTF (6000) = ∫0∞R (t + 6000 | 6000) ∙ dt = ∫0∞R (t ) ∙ dt = MTTF = 5000 h (47)

6. CFR in series

Let us consider n different elements, each with its own constant failure rate λi and reliability
-λi ∙t
Ri = e , arranged in series and let us evaluate the overall reliability RS . From equation 9 we
have:

n
n n -∑ λi ∙t
-λi ∙t
RS = ∏ Ri = ∏ e = e i=1 (48)
i=1 i=1

-λs ∙t
Since the reliability of the overall system will take the form of the type RS = e , we can
conclude that:

n
-∑ λi ∙t n
-λs ∙t
RS = e i=1
=e → λs = ∑ λi (49)
i=1
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In a system of CFR elements arranged in series, then, the failure rate of the system is equal to
the sum of failure rates of the components. The MTTF can thus be calculated using the simple
relation:

1 1
MTTF = λs = n
(50)
∑ λi
i=1

For example, let me show the following example. A system consists of a pump and a filter,
used to separate two parts of a mixture: the concentrate and the squeezing. Knowing that the
failure rate of the pump is constant and is λP = 1,5 ∙ 10-4 failures per hour and that the failure
rate of the filter is also CFR and is λF = 3 ∙ 10-5, let’s try to assess the failure rate of the system,
the MTTF and the reliability after one year of continuous operation.

To begin, we compare the physical arrangement with the reliability one, as represented in the
following figure:

Figure 14. physical and reliability modeling of a pump and a filter producing orange juice.

As can be seen, it is a simple series, for which we can write:

n failures
λs = ∑ λi = λP + λF = 1.8 ∙ 10-4 h (51)
i=1

MTTF is the reciprocal of the failure rate and can be written:

1 1
MTTF = λs = 1.8 ∙ 10-4
= 5,555 h (52)

As a year of continuous operation is 24 · 365 = 8,760 hours, the reliability after one year is:
-λs ∙t -4
RS = e = e -1.8∙10 ·8760
= 0.2066
100 Operations Management

7. CFR in parallel

If two components arranged in parallel are similar and have constant failure rate λ, the
reliability of the system RP can be calculated with equation 10, wherein RC is the reliability of
the component RC = e -λt :

2
RP = 1 - ∏ (1 - R i ) = 1 - (1 - R 1)2 = 2RC - RC 2 = 2e-λ∙t - e-2λ∙t (53)
i=1

3
The calculation of the MTTF leads to MTTF = 2λ . In fact we have:

MTTF = ∫0∞R (t ) ∙ dt = ∫0∞2e-λ∙t - e-2λ∙t ∙ dt = -

2
λ e -λt +
1
2λ e -2λt | ∞0 = λ2 (0 - 1) + 2λ1 (0 - 1) = 2λ3 (54)

Therefore, the MTTF increases compared to the single component CFR. The failure rate of the
parallel system λP , reciprocal of the MTTF, is:

1 2
λP = MTTF = 3λ (55)

As you can see, the failure rate is not halved, but was reduced by one third.

For example, let us consider a safety system which consists of two batteries and each one is
able to compensate for the lack of electric power of the grid. The two generators are equal and
have a constant failure rate λB = 9 ∙ 10-6 failures per hour. We’d like to calculate the failure rate
of the system, the MTTF and reliability after one year of continuous operation.

As in the previous case, we start with a reliability block diagram of the problem, as visible in
Figure 15.

Figure 15. Physical and reliability modeling of an energy supply system.

It is a parallel arrangement, for which the following equation is applicable:

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2 2 guasti
λP = 3 λ = 3 9 ∙ 10-6 = 6 ∙ 10-6 h
(56)

The MTTF is the reciprocal of the failure rate and is:

1 1
MTTF = λp = 6 ∙ 10-6
= 166,666 h (57)

As a year of continuous operation is 24 · 365 = 8,760 hours, the reliability after one year is:

-λ p∙t -6
RP = e = e -6∙10 ·8,760
= 0.9488 (58)

It is interesting to calculate the reliability of a system of identical elements arranged in a parallel

configuration k out of n. The system is partially redundant since a group of k elements is able
to withstand the load of the system. The reliability is:

Rk out of n = P (k ≤ j ≤ n ) = ∑
n
( nj )R j ∙ (1 - R )n- j (59)
j=k

Let us consider, for example, three electric generators, arranged in parallel and with failure
rate λ = 9 · 10-6. In order for the system to be active, it is sufficient that only two items are in
operation. Let’s get the reliability after one year of operation.

We’ll have: n = 3, k = 2. So, after a year of operation (t = 8760 h ), reliability can be calculated as
follows:

R2 out of 3 = ∑
3
( 3j )R j ∙ (1 - R )3- j = ( 32 )e-2λt (1 - e-λt )3-2 + ( 33 )e-λt (1 - e-λt )3-3 =
j=2

=
3!
2 ! (3 - 2) ! e
-2λt
∙ (1 - e -λt )3-2 + 3!
3 ! (3 - 3) ! e
-λt
∙ (1 - e -λt )3-3 =
= 3 ∙ e -2λt ∙ (1 - e -λt ) + 1 ∙ e -λt ∙ (1 - e -λt )
3-2 3-3
= 0.963

A particular arrangement of components is that of the so-called parallel with stand-by: the
second component comes into operation only when the first fails. Otherwise, it is idle.

Figure 16. RBD diagram of a parallel system with stand-by. When component 1 fails, the switch S activates compo‐
nent 2. For simplicity, it is assumed that S is not affected by faults.
102 Operations Management

If the components are similar, then λ1 = λ2. It’s possible to demonstrate that for the stand-by
parallel system we have:

2
MTTF = λ
(60)

Thus, in parallel with stand-by, the MTTF is doubled.=

8. Repairable systems

The devices for which it is possible to perform some operations that allow to reactivate the
functionality, deserve special attention. A repairable system [6] is a system that, after the
failure, can be restored to a functional condition from any action of maintenance, including
replacement of the entire system. Maintenance actions performed on a repairable system can
be classified into two groups: Corrective Maintenance - CM and Preventive Maintenance -
PM. Corrective maintenance is performed in response to system errors and might correspond
to a specific activity of both repair of replacement. Preventive maintenance actions, however,
are not performed in response to the failure of the system to repair, but are intended to delay
or prevent system failures. Note that the preventive activities are not necessarily cheaper or
faster than the corrective actions.
As corrective actions, preventive activities may correspond to both repair and replacement
activities. Finally, note that the actions of operational maintenance (servicing) such as, for
example, put gas in a vehicle, are not considered PM [7].
Preventative maintenance can be divided into two subcategories: scheduled and on-condi‐
tion. Scheduled maintenance (hard-time maintenance) consists of routine maintenance
operations, scheduled on the basis of precise measures of elapsed operating time.
Condition-Based Maintenance - CBM [8] (also known as predictive maintenance) is one of
the most widely used tools for monitoring of industrial plants and for the management of
maintenance policies. The main aim of this approach is to optimize maintenance by reduc‐
ing costs and increasing availability. In CBM it is necessary to identify, if it exists, a measur‐
able parameter, which expresses, with accuracy, the conditions of degradation of the system.
What is needed, therefore, is a physical system of sensors and transducers capable of moni‐
toring the parameter and, thereby, the reliability performance of the plant. The choice of the
monitored parameter is crucial, as is its time evolution that lets you know when mainte‐
nance action must be undertaken, whether corrective or preventive.
To adopt a CBM policy requires investment in instrumentation and prediction and control
systems: you must run a thorough feasibility study to see if the cost of implementing the
apparatus are truly sustainable in the system by reducing maintenance costs.
The CBM approach consists of the following steps:

• group the data from the sensors;

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• diagnose the condition;

• estimate the Remaining Useful Life – RUL;
• decide whether to maintain or to continue to operate normally.

CBM schedule is modeled with algorithms aiming at high effectiveness, in terms of cost
minimization, being subject to constraints such as, for example, the maximum time for the
maintenance action, the periods of high production rate, the timing of supply of the pieces
parts, the maximization of the availability and so on.
In support of the prognosis, it is now widespread the use of diagrams that do understand, even
graphically, when the sensor outputs reach alarm levels. They also set out the alert thresholds
that identify ranges of values for which maintenance action must arise [9].
Starting from a state of degradation, detected by a measurement at the time tk , we calculate
the likelihood that the system will still be functioning within the next instant of inspection
tk +1. The choice to act with a preventive maintenance is based on the comparison of the expected
value of the cost of unavailability, with the costs associated with the repair. Therefore, you
create two scenarios:

• continue to operate: if we are in the area of not alarming values. It is also possible that being
in the area of preventive maintenance, we opt for a postponement of maintenance because
it has already been established replacement intervention within a short interval of time
• stop the task: if we are in the area of values above the threshold established for preventive
maintenance of condition.

The modeling of repairable systems is commonly used to evaluate the performance of one or
more repairable systems and of the related maintenance policies. The information can also be
used in the initial phase of design of the systems themselves.
In the traditional paradigm of modeling, a repairable system can only be in one of two states:
working (up) or inoperative (down). Note that a system may not be functioning not only for
a fault, but also for preventive or corrective maintenance.

9. Availability

Availability may be generically be defined as the percentage of time that a repairable system
is in an operating condition. However, in the literature, there are four specific measures of
repairable system availability. We consider only the limit availability, defined with the limit
of the probability A(t ) that the system is working at time t, when t tends to infinity.

A = lim A(t ) (61)

t→∞

The limit availability just seen is also called intrinsic availability, to distinguish it from the
technical availability, which also includes the logistics cycle times incidental to maintenance
104 Operations Management

actions (such as waiting for the maintenance, waiting for spare parts, testing...), and from the
operational availability that encompasses all other factors that contribute to the unavailability
of the system such as time of organization and preparation for action in complex and specific
business context [10].

The models of the impact of preventive and corrective maintenance on the age of the compo‐
nent, distinguish in perfect, minimal and imperfect maintenance. Perfect maintenance (perfect
repair) returns the system as good as new after maintenance. The minimal repair, restores the
system to a working condition, but does not reduce the actual age of the system, leaving it as
bad as old. The imperfect maintenance refers to maintenance actions that have an intermediate
impact between the perfect maintenance and minimal repair.

The average duration of maintenance activity is the expected value of the probability distri‐
bution of repair time and is called Mean Time To Repair - MTTR and is closely connected
with the concept of maintainability. This consists in the probability of a system, in assigned
operating conditions, to be reported in a state in which it can perform the required function.

Figure 17 shows the state functions of two repairable systems with increasing failure rate,
maintained with perfect and minimal repair.

Figure 17. perfect maintenance vs minimal repair. In figure are represented the state functions of two systems both
with IFR. Y (t ) is equal to 1 when the system wotks, otherwise it’s 0. The left system is subject to a policy of perfect
repair and shows homogeneous durations of the periods of operation. The right system adopts the minimal repair for
which the durations of the periods of operation are reducing as time goes by.

10. The general substitution model

The general substitution model, states that the failure time of a repairable system is an
unspecified random variable. The duration of corrective maintenance (perfect) is also a random
variable. In this model it is assumed that preventive maintenance is not performed.
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Let’s denote by T i the duration of the i - th interval of operation of the repairable system. For
the assumption of perfect maintenance (as good as new), {T 1, T 2, … , T i , … , T n } is a sequence
of independent and identically distributed random variables.
Let us now designate with Di the duration of the i - th corrective maintenance action and
assume that these random variables are independent and identically distributed. Therefore,
each cycle (whether it is an operating cycle or a corrective maintenance action) has an identical
probabilistic behavior, and the completion of a maintenance action coincides with time when
system state returns operating
Regardless of the probability distributions governing T i and Di , the fundamental result of the
general pattern of substitution is as follows:

E (T i ) MTTF MTTF
A = E (T i ) + E (Di ) = MTTF + MTTR = MTBF
(62)

11. The substitution model for CFR

Let us consider the special case of the general substitution model where T i is an exponential
random variable with constant failure rate λ. Let also Di be an exponential random variable
with constant repair rate μ. Since the reparable system has a constant failure rate (CFR), we
know that aging and the impact of corrective maintenance are irrelevant on reliability
performance. For this system it can be shown that the limit availability is:

μ
A= λ+μ
(63)

Let us analyze, for example, a repairable system, subject to a replacement policy, with failure
and repair times distributed according to negative exponential distribution. MTTF=1000 hours
and MTTR=10 hours.
Let’s calculate the limit availability of the system. The formulation of the limit availability in
this system is given by eq. 63, so we have:

1
μ 0,1
A= λ+μ = 1
10
1 = 0.101 = 0.990 (64)
1000 + 10

This means that the system is available for 99% of the time.

12. General model of minimal repair

After examining the substitution model, we now want to consider a second model for
repairable system: the general model of minimal repair. According to this model, the time of
106 Operations Management

system failure is a random variable. Corrective maintenance is instantaneous, the repair is

minimal, and not any preventive activity is performed.

The times of arrival of faults, in a repairable system corresponding to the general model of
minimal repair, correspond to a process of random experiments, each of which is regulated by
the same negative exponential distribution. As known, having neglected the repair time, the
number of faults detected by time t, { N (t ), t ≥ 0}, is a non-homogeneous Poisson process,
described by the Poisson distribution.

13. Minimal repair with CFR

A well-known special case of the general model of minimal repair, is obtained if the failure
time T is a random variable with exponential distribution, with failure rate λ.

In this case, the general model of minimal repair is simplified because the number E N (t ) of
faults that occur within the time t: { N (t ), t ≥ 0} is described by a homogeneous Poisson process
with intensity z (t ) = λ, and is:

t t
E N (t ) = μN (t ) = Z (t ) = ∫ z (u ) ∙ du = ∫λ ∙ du = λt (65)
0 0

If, for example, we consider λ = 0.1 faults/hour, we obtain the following values at time 100, 1000
and 10000:
E N (100) = 0,1 ∙ 100 = 10; E N (1000) = 0,1 ∙ 1000 = 100; E N (10000) = 0,1 ∙ 10000 = 1000. It
should be noted, as well, a linear trend of the expected number of failures given the width of
the interval taken.

Finally, we can obtain the probability mass function of N (t ), being a Poisson distribution:

Z (t )n (t ) (λt )n
P N (t ) = n = n! e -Z = n! e -λt (66)

Also, the probability mass function of N (t + s ) - N (s ), that is the number of faults in a range of
amplitude t shifted forward of s, is identical:

(λt )n
P N (t + s ) - N (s ) = n = n! e -λt (67)

Since the two values are equal, the conclusion is that in the homogeneous Poisson process
(CFR), the number of faults in a given interval depends only on the range amplitude.

The behavior of a Poisson mass probability distribution, with rate equal to 5 faults each year,
representing the probability of having n ∈ N faults within a year, is shown in Figure 18.
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Figure 18. Poisson distribution. In the diagram you can see the probability of having N faults within a year, having a
homogeneous Poisson process with a rate of 5 faults each year.

Since in the model of minimal repair with CFR, repair time is supposed to be zero (MTTR = 0),
the following relation applies:

1
MTBF = MTTF + MTTR = MTTF = λ
(68)

Suppose that a system, subjected to a repair model of minimal repair, shows failures according
to a homogeneous Poisson process with failure rate λ = 0.0025 failures per hour. We’d like to
estimate the average number of failures that the system will have during 5000 hours. Then,
determine the probability of having not more than 15 faults in a operation period of 5000 hours.

The estimate of the average number of failures in 5000 hours, can be carried out with the
expected value function:

failures
E N (t ) = λ ∙ t → E N (5000) = 0.0025 h ∙ 5000 h = 12.5 failures (69)

The probability of having not more than 15 faults in a period of 5000 hours of operation, is
calculated with the sum of the probability mass function evaluated between 0 and 15:

15 (λt ) n 15 12.5 n
P N (5000) ≤ 15 = ∑ n! e -λ∙t = ∑ n! e -12.5 = 0.806 (70)
n=0 n=0
108 Operations Management

14. Minimal repair: Power law

A second special case of the general model of minimal repair, is obtained if the failure time T
is a random variable with a Weibull distribution, with shape parameter β and scale parameter
α.
In this case the sequence of failure times is described by a Non-Homogeneous Poisson Process
- NHPP with intensity z (t ) equal to the probability density function of the Weibull distribution:

β
z (t ) = αβ
t β-1 (71)

Since the cumulative intensity of the process is defined by:

t
Z (t ) = ∫ z (u ) ∙ du (72)
0

the cumulative function is:

0
β
Z (t ) = ∫ α β u β-1 ∙ du =
β
α β ∙
uβ
β
|=t
0
tβ
αβ
= ( αt )β (73)

As it can be seen, the average number of faults occurring within the time t ≥ 0 of this not
homogeneous poissonian process E N (t ) = Z (t ), follows the so-called power law.
If β > 1, it means that the intensity function z (t ) increases and, being this latter the expression
of the average number of failures, it means that faults tend to occur more frequently over
time. Conversely, if β < 1, faults decrease over time.
In fact, if we take α = 10 hours (λ = 0.1 failures/h) and β = 2, we have:
E N 100 = 0.1 ∙ 100 = 100 = 102;
( ) ( ) 2
E N (1000) = (0.1 ∙ 1000)2 = 10000 = 1002;
2 2
E N (10000) = (0.1 ∙ 10000) = 1000000 = 1000 . We can observe a trend no longer linear but
increasing according to a power law of a multiple of the time width considered.
The probability mass function of N (t ) thus becomes:

Z (t )n -Z (t )
( αt )β∙n -( αt )β (74)
P N (t ) = n = n! e = n! e

For example, let us consider a system that fails, according to a power law, having β = 2.2 and
α = 1500 hours. What is the average number of faults occurring during the first 1000 hours of
operation? What is the probability of having two or more failures during the first 1000 hours
of operation? Which is the average number of faults in the second 1000 hours of operation?
The average number of failures that occur during the first 1000 hours of operation, is calculated
with the expected value of the distribution:
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E N (t ) = μN (t ) = Z (t ) = ( αt )β → E N (1000) = ( 1000
1500
)2.2 = 0.41 (75)

The probability of two or more failures during the first 1000 hours of operation can be
calculated as complementary to the probability of having zero or one failure:

1 ( αt )β∙n -( αt )β 0.410 -0.41 0.411 -0.41

P N (1000) ≥ 2 = 1 - P N (1000) < 2 = 1 - ∑ n! e =1 - 0! e - 1! e =1 - 0.663 - 0.272 = 0.064 (76)
n=0

The average number of faults in the succeeding 1000 hours of operation is calculated using the
equation:

E N (t + s ) - N (s ) = Z (t + s ) - Z (s ) (77)

that, in this case, is:

E N (2000) - N (1000) = Z (2000) - Z (1000) = 1.47 (78)

15. Conclusion

After seeing the main definitions of reliability and maintenance, let's finally see how we can
use reliability knowledge also to carry out an economic optimization of replacement activities.

Consider a process that follows the power law with β > 1. As time goes by, faults begin to take
place more frequently and, at some point, it will be convenient to replace the system.

Let us define with τthe time when the replacement (here assumed instantaneous) takes place.
We can build a cost model to determine the optimal preventive maintenance time τ * which
optimizes reliability costs.

Let’s denote by C f the cost of a failure and with Cr the cost of replacing the repairable system.

If the repairable system is replaced every τ time units, in that time we will have the replacement
costs Cr and so many costs of failure C f as how many are the expected number of faults in the
time range (0; τ . The latter quantity coincides with the expected value of the number of faults
E N (τ ) .

The average cost per unit of time c (τ ), in the long term, can then be calculated using the
following relationship:

C f ∙ E N (τ ) + Cr
c (τ ) = (79)
τ

Then follows:
110 Operations Management

C f ∙ Z (τ ) + Cr
c (τ ) = τ
(80)

Differentiating c (τ ) with respect to τ and placing the differential equal to zero, we can find the
relative minimum of costs, that is, the optimal time τ * of preventive maintenance. Manipulat‐
ing algebraically we obtain the following final result:

1
Cr
τ *=α ∙ β (81)
C f (β - 1)

Consider, for example, a system that fails according to a Weibull distribution with β = 2.2 and
α = 1500 hours. Knowing that the system is subject to replacement instantaneous and that the
cost of a fault C f = 2500 € and the cost of replacing Cr = 18000 €, we want to evaluate the optimal
interval of replacement.

The application of eq. 81 provides the answer to the question:

1 1
Cr 18000
τ *=α ∙ β
= 1500 ∙ 2.2
= 1500 · 2.257 = 3387 h (82)
C f (β - 1) 2500(2.2 - 1)

Nomenclature

RBD: Reliability Block Diagram

CBM: Condition-Based Maintenance

CFR: Constant Failure Rate

CM: Corrective Maintenance

DFR: Decreasing Failure Rate

IFR: Increasing Failure Rate

MCS: Minimal Cut Set

MPS: Minimal Path Set

MTTF: Mean Time To Failure

MTTR: Mean Time To Repair

NHPP: Non-Homogeneous Poisson Process

PM: Preventive Maintenance

 Reliability and Maintainability in Operations Management 111
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Author details

Filippo De Carlo

Address all correspondence to: [email protected]

Industrial Engineering Department, University of Florence, Florence, Italy

References

[1] Nakajima S. Introduction to TPM: Total Productive Maintenance. Productivity Press,

Inc., 1988, 1988:129.

[2] Barlow RE. Engineering Reliability. SIAM; 2003.

[3] De Carlo F. Impianti industriali: conoscere e progettare i sistemi produttivi. New York:
Mario Tucci; 2012.

[4] O’Connor P, Kleyner A. Practical Reliability Engineering. John Wiley & Sons; 2011.

[5] Meyer P. Understanding Measurement: Reliability. Oxford University Press; 2010.

[6] Ascher H, Feingold H. Repairable systems reliability: modeling, inference, misconcep‐

tions and their causes. M. Dekker; 1984.

[7] De Carlo F, Borgia O, Adriani PG, Paoli M. New maintenance opportunities in legacy
plants. 34th ESReDA Seminar, San Sebastian, Spain: 2008.

[8] Gertler J. Fault detection and diagnosis in engineering systems. Marcel Dekker; 1998.

[9] Borgia O, De Carlo F, Tucci M. From diagnosis to prognosis: A maintenance experience

for an electric locomotive. Safety, Reliability and Risk Analysis: Theory, Methods and
Applications - Proceedings of the Joint ESREL and SRA-Europe Conference, vol. 1,
2009, pp. 211–8.

[10] Racioppi G, Monaci G, Michelassi C, Saccardi D, Borgia O, De Carlo F. Availability

assessment for a gas plant. Petroleum Technology Quarterly 2008;13:33–7.
 Chapter 5

Production Scheduling Approaches for Operations

Management

Marcello Fera, Fabio Fruggiero, Alfredo Lambiase,

Giada Martino and Maria Elena Nenni

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/55431

1. Introduction

Scheduling is essentially the short-term execution plan of a production planning model.

Production scheduling consists of the activities performed in a manufacturing company in
order to manage and control the execution of a production process. A schedule is an assignment
problem that describes into details (in terms of minutes or seconds) which activities must be
performed and how the factory’s resources should be utilized to satisfy the plan. Detailed
scheduling is essentially the problem of allocating machines to competing jobs over time,
subject to the constraints. Each work center can process one job at a time and each machine
can handle at most one task at a time. A scheduling problem, typically, assumes a fixed number
of jobs and each job has its own parameters (i.e., tasks, the necessary sequential constraints,
the time estimates for each operation and the required resources, no cancellations). All
scheduling approaches require some estimate of how long it takes to perform the work.
Scheduling affects, and is affected by, the shop floor organization. All scheduling changes can
be projected over time enabling the identification and analysis of starting time, completion
times, idle time of resources, lateness, etc….
A right scheduling plan can drive the forecast to anticipate completion date for each released
part and to provide data for deciding what to work on next. Questions about “Can we do it?”
and/or “How are we doing?” presume the existence of approaches for optimisation. The aim
of a scheduling study is, in general, to perform the tasks in order to comply with priority rules
and to respond to strategy. An optimal short-term production planning model aims at gaining
time and saving opportunities. It starts from the execution orders and it tries to allocate, in the
best possible way, the production of the different items to the facilities. A good schedule starts
from planning and springs from respecting resource conflicts, managing the release of jobs to

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114 Operations Management

a shop and optimizing completion time of all jobs. It defines the starting time of each task and
determines whatever and how delivery promises can be met. The minimization of one or more
objectives has to be accomplished (e.g., the number of jobs that are shipped late, the minimi‐
zation set up costs, the maximum completion time of jobs, maximization of throughput, etc.).
Criteria could be ranked from applying simple rules to determine which job has to be processed
next at which work-centre (i.e., dispatching) or to the use of advanced optimizing methods
that try to maximize the performance of the given environment. Fortunately many of these
objectives are mutually supportive (e.g., reducing manufacturing lead time reduces work in
process and increases probability to meeting due dates). To identify the exact sequence among
a plethora of possible combinations, the final schedule needs to apply rules in order to quantify
urgency of each order (e.g., assigned order’s due date - defined as global exploited strategy;
amount of processing that each order requires - generally the basis of a local visibility strategy).
It’s up to operations management to optimize the use of limited resources. Rules combined
into heuristic1 approaches and, more in general, in upper level multi-objective methodologies
(i.e., meta-heuristics2), become the only methods for scheduling when dimension and/or
complexity of the problem is outstanding [1]. In the past few years, metaheuristics have
received much attention from the hard optimization community as a powerful tool, since they
have been demonstrating very promising results from experimentation and practices in many
engineering areas. Therefore, many recent researches on scheduling problems focused on these
techniques. Mathematical analyses of metaheuristics have been presented in literature [2, 3].
This research examines the main characteristics of the most promising meta-heuristic
approaches for the general process of a Job Shop Scheduling Problems (i.e., JSSP). Being a
NP complete and highly constrained problem, the resolution of the JSSP is recognized as a
key point for the factory optimization process [4]. The chapter examines the soundness and
key contributions of the 7 meta-heuristics (i.e., Genetics Approaches, Ants Colony Optimiza‐
tion, Bees Algorithm, Electromagnetic Like Algorithm, Simulating Annealing, Tabu Search
and Neural Networks), those that improved the production scheduling vision. It reviews
their accomplishments and it discusses the perspectives of each meta approach. The work
represents a practitioner guide to the implementation of these meta-heuristics in schedul‐
ing job shop processes. It focuses on the logic, the parameters, representation schemata and
operators they need.

2. The job shop scheduling problem

The two key problems in production scheduling are „priorities“ and „capacity“. Wight (1974)
described scheduling as „establishing the timing for performing a task“ and observes that, in

1 The etymology of the word heuristic derives from a Greek word heurìsco (єΰρισκω) - it means „to find“- and is considered
the art of discovering new strategy rules to solve problems. Heuristics aims at a solution that is „good enough“ in a
computing time that is „small enough“.
2 The term metaheuristc originates from union of prefix meta (μєτα) - it means „behind, in the sense upper level
methodology“ – and word heuristic - it means „to find“. Metaheuristcs’ search methods can be defined as upper level
general methodologies guiding strategies in designing heuristics to obtain optimisation in problems.
 Production Scheduling Approaches for Operations Management 115
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manufacturing firms, there are multiple types of scheduling, including the detailed scheduling
of a shop order that shows when each operation must start and be completed [5]. Baker (1974)
defined scheduling as „a plan than usually tells us when things are supposed to happen“ [6].
Cox et al. (1992) defined detailed scheduling as „the actual assignment of starting and/or
completion dates to operations or groups of operations to show when these must be done if
the manufacturing order is to be completed on time“[7]. Pinedo (1995) listed a number of
important surveys on production scheduling [8]. For Hopp and Spearman (1996) „scheduling
is the allocation of shared resources over time to competing activities“ [9]. Makowitz and Wein
(2001) classified production scheduling problems based on attributes: the presence of setups,
the presence of due dates, the type of products.
Practical scheduling problems, although more highly constrained, are high difficult to solve
due to the number and variety of jobs, tasks and potentially conflicting goals. Recently, a lot
of Advanced Production Scheduling tools arose into the market (e.g., Aspen PlantTM Sched‐
uler family, Asprova, R2T – Resourse To Time, DS APS – DemandSolutions APS, DMS –
Dynafact Manufacturing System, i68Group, ICRON-APS, JobPack, iFRP, Infor SCM, Schedu‐
lePro, Optiflow-Le, Production One APS, MQM – Machine Queue Management, MOM4, JDA
software, Rob-ex, Schedlyzer, OMP Plus, MLS and MLP, Oracle Advanced Scheduling, Ortec
Schedule, ORTEMS Productionscheduler, Outperform, AIMMS, Planet Together, Preactor,
Quintiq, FactoryTalk Scheduler, SAP APO-PP/DS, and others). Each of these automatically
reports graphs. Their goal is to drive the scheduling for assigned manufacturing processes.
They implement rules and optimise an isolated sub-problem but none of the them will optimise
a multi stage resource assignment and sequencing problem.
In a Job Shop (i.e., JS) problem a classic and most general factory environment, different tasks
or operations must be performed to complete a job [10]; moreover, priorities and capacity
problems are faced for different jobs, multiple tasks and different routes. In this contest, each
job has its own individual flow pattern through assigned machines, each machine can process
only one operation at a time and each operation can be processed by only one machine at a
time. The purpose of the procedure is to obtain a schedule which aims to complete all jobs and,
at the same time, to minimize (or maximize) the objective function. Mathematically, the JS
Scheduling Problem (i.e., JSSP) can be characterized as a combinatorial optimization problem.
It has been generally shown to be NP-hard3 belonging to the most intractable problems
considered [4, 11, 12]. This means that the computation effort may grow too fast and there are
not universal methods making it possible to solve all the cases effectively. Just to understand
what the technical term means, consider the single-machine sequencing problem with three
jobs. How many ways of sequencing three jobs do exist? Only one of the three jobs could be
in the first position, which leaves two candidates for the second position and only one for the
last position. Therefore the no. of permutations is 3!. Thus, if we want to optimize, we need to
consider six alternatives. This means that as the no. of jobs to be sequenced becomes larger
(i.e., n>80), the no. of possible sequences become quite ominous and an exponential function
dominates the amount of time required to find the optimal solution [13]. Scheduling, however,

3 A problem is NP-complete if exists no algorithm that solves the problem in a polynomial time. A problem is NP-hard
if it is possible to show that it can solve a NP-complete problem.
116 Operations Management

performs the definition of the optimal sequence of n jobs in m machines. If a set of n jobs is to
be scheduled on m machines, there are (n!)m possible ways to schedule the job.

It has to undergo a discrete number of operations (i.e., tasks) on different resources (i.e.,
machines). Each product has a fixed route defined in the planning phase and following
processing requirements (i.e., precedence constraints). Other constraints, e.g. zoning which
binds the assignment of task to fixed resource, are also taken into consideration. Each machine
can process only one operation at a time with no interruptions (pre-emption). The schedule
we must derive aims to complete all jobs with minimization (maximization) of an objective
function on the given production plant.

Let:

• J = { J 1, J 2, ......., J n } the set of the job order existing inside the system;

• M = {M 1, M 2, ......., M m} the set of machines that make up the system.

JSSP, marked as Πj , consists in a finite set J of n jobs { J i }ni=1. Each Ji is characterized by a manu‐
facturing cycle C L i regarded as a finite set M of m machines {M k }m
k =1
with an uninterrupted
processing time τik . J i , ∀ i = 1, … , n , is processed on a fixed machine mi and requires a chain
of tasks Oi1, Oi2, ......., Oimi , scheduled under precedence constraints. Oik is the task of job J i
which has to be processed on machine M k for an uninterrupted processing time period τik and
no operations may pre-empted.

To accommodate extreme variability in different parts of a job shop, schedulers separate

workloads in each work-centres rather than aggregating them [14]. Of more than 100 different
rules proposed by researchers and applied by practitioners exist, some have become common
in Operations Management systems: First come- First served, Shortest Processing Time,
Earliest Due Date, Slack Time Remaining, Slack Time Remaining For each Operation, Critical
Ratio, Operation Due Date, etc. [15]. Besides these, Makespan is often the performance feature
in the study of resource allocation [16]. Makespan represents the time elapsed from the start
of the first task to the end of the last task in schedule. The minimisation of makespan arranges
tasks in order to level the differences between the completion time of each work phase. It tries
to smooth picks in work-centre occupancy to obtain batching in load assignment per time.
Although direct time constraints, such as minimization of processing time or earliest due date,
are sufficient to optimize industrial scheduling problems, for the reasons as above the
minimization of the makespan is preferable for general/global optimization performances
because it enhances the overall efficiency in shop floor and reduces manufacturing lead time
variability [17].

Thus, in JSSP optimization variant of Πj , the objective of a scheduling problem is typically to

assign the tasks to time intervals in order to minimise the makespan and referred to as:

*
C max (t ) = f (CLi , t ik , s ik ), "=
i 1...n ; " =
k 1...m (1)
 Production Scheduling Approaches for Operations Management 117
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where t represent time (i.e. iteration steps)

(2)
*
C max (t ) min(=
= C ( t ))
max
min{max [t + s ] : " J Î J , " M Î M }
i ik ik i k
i

and sik ≥ 0 represents the starting time of k-th operation of i-th job. sik is the time value that we
would like to determinate in order to establish the suited schedule activities order.

3. Representation of scheduling instances

The possible representation of a JS problem could be done through a Gantt chart or through a
Network representation.

Gantt (1916) created innovative charts for visualizing planned and actual production [18].
According to Cox et al. (1992), a Gantt chart is „the earliest and best known type of control chart
especially designed to show graphically the relationship between planned performance and
actual performance” [19]. Gantt designed his charts so that foremen or other supervisors could
quickly know whether production was on schedule, ahead of schedule or behind schedule. A
Gantt chart, or bar chart as it is usually named, measures activities by the amount of time
needed to complete them and use the space on the chart to represent the amount of the activity
that should have been done in that time [7].

A Network representation was first introduced by Roy and Sussman [20]. The representation
is based on “disjunctive graph model” [21]. This representation starts from the concept that a
feasible and optimal solution of JSP can originate from a permutation of task’s order. Tasks
are defined in a network representation through a probabilistic model, observing the prece‐
dence constraints, characterized in a machine occupation matrix M and considering the
processing time of each tasks, defined in a time occupation matrix T.

(
M= ⋮ ⋱
M 11 …

M n1 ⋯
M 1n
⋮
M nn
) (
; T=
τ(M 11) …
⋮ ⋱
τ(M n1) ⋯
τ(M 1n )
⋮
τ(M nn )
)
JS processes are mathematically described as disjunctive graph G = (V, C, E). The descriptions
and notations as follow are due to Adams et. al. [22], where:

• V is a set of nodes representing tasks of jobs. Two additional dummy tasks are to be
considered: a source(0) node and a sink(*) node which stand respectively for the Source (S)
task τ0= 0, necessary to specify which job will be scheduled first, and an end fixed sink where
schedule ends (T) τ*= 0;

• C is the set of conjunctive arcs or direct arcs that connect two consecutive tasks belonging
to the same job chain. These represent technological sequences of machines for each job;
118 Operations Management

• m
E=⋃ Dr , where Dr is a set of disjunctive arcs or not-direct arcs representing pair of operations
r=1

that must be performed on the same machine Mr.

Each job-tasks pair (i,j) is to be processed on a specified machine M(i,j) for T(i,j) time units, so
each node of graph is weighted with j operation’s processing time. In this representation all
nodes are weighted with exception of source and sink node. This procedure makes always
available feasible schedules which don’t violate hard constraints4. A graph representation of
a simple instance of JSP, consisting of 9 operations partitioned into 3 jobs and 3 machines, is
presented in fig. 1. Here the nodes correspond to operations numbered with consecutive
ordinal values adding two fictitious additional ones:S = “source node” and T = “sink node”.
The processing time for each operation is the weighted value τij attached to the corresponding
node,v ∈ V , and for the special nodes, τ0 = τ*= 0.

Let sv be the starting time of an operation to a node v. By using the disjunctive graph notation,
the JSPP can be formulated as a mathematical programming model as follows:

Minimize s* subject to:

sw - sv ≥ τv (v, w ) ∈ C (3)

sv ≥ 0v ∈ V (4)

sw - sv ≥ τv ⋁ sv - sw ≥ τw (v, w) ∈ Dr ,1 ≤ r ≤ m, (5)

O11 O12 O13

S O21 O22 O23 T

Source O31 O32 O33 Sink

Conjunctive arc (technological sequences).

Disjunctive arc (pair of operations on the same machine).

Figure 1. Disjunctive graph representation. There are disjunctive arcs between every pair of tasks that has to be proc‐
essed on the same machine (dashed lines) and conjunctive arcs between every pair of tasks that are in the same job
(dotted lines). Omitting processing time, the problem specification is O = {oij , (i, j) ∈ {1, 2, 3}2},
J = { J i = {oij }, (i, j) = 1, 2, 3}, M = {M j = {oij }, (i, j) = 1, 2, 3}. Job notation is used.

4 Hard constraints are physical ones, while soft constraints are generally those related to human factor e.g., relaxation,
fatigue etc…
 Production Scheduling Approaches for Operations Management 119
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s* is equal to the completion time of the last operation of the schedule, which is therefore equal
to Cmax. The first inequality ensures that when there is a conjunctive arc from a node v to a node
w, w must wait of least τv time after v is started, so that the predefined technological constraints
about sequence of machines for each job is not violated. The second condition ensures time to
start continuities. The third condition affirms that, when there is a disjunctive arc between a
node v and a node w, one has to select either v to be processed prior to w (and w waits for at
least τv time period) or the other way around, this avoids overlap in time due to contempora‐
neous operations on the same machine.
In order to obtain a scheduling solution and to evaluate makespan, we have to collect all
feasible permutations of tasks to transform the undirected arcs in directed ones in such a way
that there are no cycles.
The total number of nodes, n = (|O | + 2) - fixed by taking into account the total number of
tasks |O|, is properly the total number of operations with more two fictitious ones. While the
total number of arcs, in job notation, is fixed considering the number of tasks and jobs of
instance:

ænö (|O |) ´ {(|O|)  1}

arcs= ç ÷ + 2´|J | = +2´|J | (6)
è2 ø 2

The number of arcs defines the possible combination paths. Each path from source to sink is
a candidate solution for JSSP. The routing graph is reported in figure 2:

O11 O12 O13

O21 O22 O23 T

S

O31 O32ì O33

Figure 2. Problem routing representation.

4. Meta-heuristics for solving the JSSP

A logic has to be implemented in order to translate the scheduling problem into an algorithm
structure. Academic researches on scheduling problems have produced countless papers [23].
Scheduling has been faced from many perspectives, using formulations and tools of various
disciplines such as control theory, physical science and artificial intelligence systems [24].
Criteria for optimization could be ranked from applying simple priority rules to determine
120 Operations Management

which job has to be processed next at the work-centres (i.e., dispatching) to the use of advanced
optimizing methods that try to maximize the performance of the given environment [25]. Their
way to solution is generally approximate – heuristics – but it constitutes promising alternatives
to the exact methods and becomes the only one possible when dimension and/or complexity
of the problem is outstanding [26].
Guidelines in using heuristics in combinatorial optimization can be found in Hertz (2003) [27].
A classification of heuristic methods was proposed by Zanakis et al. (1989) [28]. Heuristics are
generally classified into constructive heuristics and improvement heuristics. The first ones are
focused on producing a solution based on an initial proposal, the goal is to decrease the solution
until all the jobs are assigned to a machine, not considering the size of the problem [29]. The
second ones are iterative algorithms which explore solutions by moving step by step form one
solution to another. The method starts with an arbitrary solution and transits from one solution
to another according to a series of basic modifications defined on case by case basis [30].
Relatively simple rules in guiding heuristic, with exploitation and exploration, are capable to
produce better quality solutions than other algorithms from the literature for some classes of
instances. These variants originate the class of meta-heuristic approaches [31]. The meta-
heuristics5, and in general the heuristics, do not ensure optimal results but they usually tend
to work well [32]. The purpose of the paper is to illustrate the most promising optimization
methods for the JSSP.
As optimization techniques, metaheuristics are stochastic algorithms aiming to solve a broad
range of hard optimization problems, for which one does not know more effective traditional
methods. Often inspired by analogies with reality, such as physics science, Simulated Anneal‐
ing [33] and Electromagnetic like Methods [34], biology (Genetic Algorithms [35], Tabu Search
[36]) and ethnology (Ant Colony [37,], Bees Algorithm [38]), human science (Neural Networks
[39]), they are generally of discrete origin but can be adapted to the other types of problems.

4.1. Genetic Algorithms (GAs)

The methodology of a GAs - based on the evolutionary strategy- trasforms a population (set) of
individual objects, each with an associated fitness value, into a new generation of the popula‐
tion occurring genetic operations such as crossover (sexual recombination) and mutation (fig. 3).
The theory of evolutionary computing was formalized by Holland in 1975 [40]. GAs are
stochastic search procedures for combinatorial optimization problems based on Darwinian
principle of natural reproduction, survival and environment’s adaptability [41]. The theory of
evolution is biologically explained, the individuals with a stronger fitness are considered better
able to survive.. Cells, with one or more strings of DNA (i.e., a chromosome), make up an
individual. The gene (i.e., a bit of chromosome located into its particular locus) is, responsible
for encoding traits (i.e., alleles). Physical manifestations are raised into genotype (i.e., dispo‐
sition of genes). Each genotype has is physical manifestation into phenotype. According to
these parameters is possible to define a fitness value. Combining individuals through a

5 The term metaheuristics was introduced by F. Glover in the paper about Tabu search.
 Production Scheduling Approaches for Operations Management 121
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crossover (i.e., recombination of genetic characteristics of parents) across the sexual reproduc‐
tion, the chromosomal inheritance process performs to offspring. In each epoch a stochastic
mutation procedure occurs. The implemented algorithm is able to simulate the natural process
of evolution, coupling solution of scheduling route in order to determinate an optimal tasks
assignment. Generally, GA has different basic component: representation, initial population,
evaluation function, the reproduction selection scheme, genetic operators (mutation and
crossover) and stopping criteria. Central to success of any GA is the suitability of its repre‐
sentation to the problem at hand [42]. This is the encoding from the solution of the problem
domain to the genetic representation.

During the last decades, different representation’s schemata for JS have been proposed, such
as permutation with repetition. It uses sequence of repeated jobs identifier (e.g., its corresponding
cardinal number) to represent solutions [43]. According to the instance in issue, each of the N
jobs identifiers will be repeated M times, once for each task. The first time that job’s identifier,
reading from left to right, will appear means the first task of that job. In this way, precedence
constraints are satisfied. The redundancy is the most common caveat of this representation. A
proposal of permutation with repetition applying a Generalized Order crossover (GOX) with
band |2 3 1 1| of parent 1 moves from PARENT1 [3 2 3 1 1 1 3 2 2] and PARENT2 [2 3 2 1 3 3
2 1 1] to CHILD1 [2 3 1 1 3 2 3 2 1] and CHILD2 [3 2 1 3 2 1 1 3 2].

Input: Instance x є I of Пopt

set algorithm parameters () SELECTION
Parents
i←0 MECHANISM

Pop0←Initial population () RECOMBINATION

Start
Evaluate_fitness (Pop0) &
while not termination condition do MUTATION

i←i+1
Create Offspring
Selection Popi from Popi-1 GA Problem's definition Population
Crossover (Popi)
Mutation (Popi) Compute Fitness
Fitness (Popi)
Replacement_procedure
NO Have all epoch YES Optimal
end while REPLACEMENT
runned? solution
Sbest←optimal solution Popi
Output: Sbest “candidate” to be the best found solution x є I

(a) (b)

Figure 3. The Genetic Algorithms (GAs) model; 3a. the pseudo-code of a GA; 3b. the flow chart of a general GA.

A mutation operator is applied changing the genes into the same genotype (in order to generate
only feasible solutions, i.e., without the rejection procedure). Mutation allows to diversify the
search over a broader solution domain and it is needed when there is low level of crossover.
Among solutions, the allocation with favourable fitness will have higher probability to be
selected through the selection mechanisms.

Another important issue for the GA is the selection mechanism (e.g., Tournament Selection
procedure and Roulette Wheel as commonly used [44] - their performances are quite similar
attending in the convergence time). The tournament selection procedure is based on analogy
with competition field, between the genotypes in tournament, the individual which will win
122 Operations Management

(e.g., the one with the best fitness value) is placed in the mating pool. Likewise, in the roulette
wheel selection mechanism each individual of population has a selection’s likelihood propor‐
tional to its objective score (in analogy with the real roulette item) and with a probability equal
to one of a ball in a roulette, one of the solutions is chosen.

It is very important, for the GAs success, to select the correct ratio between crossover and
mutation, because the first one allows to allows to diversify a search field, while a mutation to
modify a solution.

4.2. Ant Colony Optimization (ACO) algorithms

If we are on a pic-nic and peer into our cake bitten by a colony of ants, moving in a tidy way and
caring on a lay-out that is the optimal one in view of stumbling-blocks and length, we discover
how remarkable is nature and we find its evolution as the inspiring source for investigations on
intelligence operation scheduling techniques [45]. Natural ants are capable to establish the
shortest route path from their colony to feeding sources, relying on the phenomena of swarm
intelligence for survival. They make decisions that seemingly require an high degree of co-
operation, smelling and following a chemical substance (i.e. pheromone6) laid on the ground
and proportional to goodness load that they carry on (i.e. in a scheduling approach, the goodness
of the objective function, reported to makespan in this applicative case).

The same behaviour of natural ants can be overcome in an artificial system with an artificial
communication strategy regard as a direct metaphoric representation of natural evolution. The
essential idea of an ACO model is that „good solutions are not the result of a sporadic good
approach to the problem but the incremental output of good partial solutions item. Artificial
ants are quite different by their natural progenitors, maintaining a memory of the step before
the last one [37]. Computationally, ACO [46] are population based approach built on stochastic
solution construction procedures with a retroactive control improvement, that build solution
route with a probabilistic approach and through a suitable selection procedure by taking into
account: (a) heuristic information on the problem instance being solved; (b) (mat-made)
pheromone amount, different from ant to ant, which stores up and evaporates dynamically at
run-time to reflect the agents’ acquired search training and elapsed time factor.

The initial schedule is constructed by taking into account heuristic information, initial
pheromone setting and, if several routes are applicable, a self-created selection procedure
chooses the task to process. The same process is followed during the whole run time. The
probabilistic approach focused on pheromone. Path’s attractive raises with path choice and
probability increases with the number of times that the same path was chosen before [47]. At
the same time, the employment of heuristic information can guide the ants towards the most
promising solutions and additionally, the use of an agent’s colony can give the algorithm: (i)
Robustness on a fixed solution; (ii) Flexibility between different paths.

The approach focuses on co-operative ant colony food retrieval applied to scheduling routing
problems. Colorni et al, basing on studies of Dorigo et al. [48], were the first to apply Ant System

6 It is an organic compound highly volatile that shares on central neural system as an actions’ releaser.
 Production Scheduling Approaches for Operations Management 123
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(AS) to job scheduling problem [49] and dubbed this approach as Ant Colony Optimization
(ACO). They iteratively create route, adding components to partial solution, by taking into
account heuristic information on the problem instance being solved (i.e. visibility) and
“artificial” pheromone trials (with its storing and evaporation criteria). Across the represen‐
tation of scheduling problem like acyclic graph, see fig. 2, the ant’s rooting from source to food
is assimilated to the scheduling sequence. Think at ants as agents, nodes like tasks and arcs as
the release of production order. According to constraints, the ants perform a path from the
row material warehouse to the final products one.

Figure 4. The Ant Colony Optimization (ACO) model; 4a. the pseudo-code of an ACO algorithm; 4b. the flow chart of
a general ACO procedure.

Constraints are introduced hanging from jobs and resources. Fitness is introduced to translate
how good the explored route was. Artificial ants live in a computer realized world. They have
an overview of the problem instance they are going to solve across a visibility factor. In the
Job Shop side of ACO implementation the visibility has chosen tied with the run time of the
task (Eq. 7). The information was about the inquired task’s (i.e., j) completion time Ctimej and
idle time Itimej from the previous position (i.e., i):

1 1
h ij ( t ) = = (7)
(Ctime j  Itime j ) Rtime j

The colony is composed of a fixed number of agents ant=1,…, n. A probability is associated to

each feasible movement (Sant(t)) and a selection procedure (generally based on RWS or
Tournament procedure) is applied.
124 Operations Management

0 ≤ Pijant (t) ≤ 1 is the probability that at time t the generic agent ant chooses edge i → j as next
routing path; at time t each ant chooses the next operation where it will be at time t+1. This
value is valuated through visibility (η) and pheromone (τ) information. The probability val‐
ue (Eq. 8) is associated to a fitness into selection step.
ì [t (t )] [h (t )] a b
ü
ï if j Î Sant ( t ) ï
ij ij

ï ï
Pij (t ) = í å [t ( t )] [h ( t )]
ant
ý (8)
a b

ih ih i

ï h ÎS ( t )
ant ï
ïî 0 otherwise
ïþ

Where: τij (t) represents the intensity of trail on connection (i, j) at time t. Set the intensity of
pheromone at iteration t=0: τij(o) to a general small positive constant in order to ensure the
avoiding of local optimal solution; α and β are user’s defined values tuning the relative
importance of the pheromone vs. the heuristic time-distance coefficient. They have to be chosen
0 < α, β ≤ 10 (in order to assure a right selection pressure).

For each cycle the agents of the colony are going out of source in search of food. When all
colony agents have constructed a complete path, i.e. the sequence of feasible order of visited
nodes, a pheromone update rule is applied (Eq. 9):

t ij
( t + 1)= (1  l )t ( t + 1) + Dt ( t )
ij ij
(9)

Besides ants’ activity, pheromone trail evaporation has been included trough a coefficient
representing pheromone vanishing during elapsing time. These parameters imitate the natural
world decreasing of pheromone trail intensity over time. It implements a useful form of
forgetting. It has been considered a simple decay coefficient (i.e., 0 < λ < 1) that works on total
laid pheromone level between time t and t+1.

The laid pheromone on the inquired path is evaluated taking into consideration how many
agents chose that path and how was the objective value of that path (Eq. 10). The weight of the
solution goodness is the makespan (i.e., Lant). A constant of pheromone updating (i.e., Q), equal
for all ants and user, defined according to the tuning of the algorithm, is introduced as quantity
of pheromone per unit of time (Eq. 11). The algorithm works as follow. It is computed the
makespan value for each agent of the colony (Lant(0)), following visibility and pheromone
defined initially by the user (τij(0)) equal for all connections. It is evaluated and laid, according
to the disjunctive graph representation of the instance in issue, the amount of pheromone on
each arc (evaporation coefficient is applied to design the environment at the next step).

ants

Dt ( t ) =
ij
å Dt ant

ij
(t) (10)

ant = 1
 Production Scheduling Approaches for Operations Management 125
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ì Q ü
ant ï if ant-th followed edge (i,j) ï
í Lant
Dt ij (t ) = ý (11)
ï 0 otherwise ï
î þ

Visibility and updated pheromone trail fixes the probability (i.e., the fitness values) of each
node (i.e., task) at each iteration; for each cycle, it is evaluated the output of the objective
function (Lant(t)). An objective function value is optimised accordingly to partial good solution.
In this improvement, relative importance is given to the parameters α and β. Good elements
for choosing these two parameters are: α / β ≅ 0 (which means low level of α) and little value
of α (0 < α ≤ 2) while ranging β in a larger range (0 < β ≤ 6).

4.3. Bees Algorithm (BA) approach

A colony of bees exploits, in multiple directions simultaneously, food sources in the form of
antera with plentiful amounts of nectar or pollen. They are able to cover kilometric distances
for good foraging fields [50]. Flower paths are covered based on a stigmergic approach – more
nectar places should be visited by more bees [51].
The foraging strategies in colonies of bees starts by scout bees – a percentage of beehive
population. They wave randomly from one patch to another. Returning at the hive, those scout
bees deposit their nectar or polled and start a recruiting mechanism rated above a certain
quality threshold on nectar stored [52]. The recruiting mechanism is properly a launching into
a wild dance over the honeycomb. This natural process is known as waggle dance” [53]. Bees,
stirring up for discovery, flutter in a number from one to one hundred circuits with a waving
and returning phase. The waving phase contains information about direction and distance of
flower patches. Waving phases in ascending order on vertical honeycomb suggest flower
patches on straightforward line with sunbeams. This information is passed using a kind of
dance, that is possible to be developed on right or on left. So through this dance, it is possible
to understand the distance from the flower, the presence of nectar and the sunbeam side to
choose [54].
The waggle dance is used as a guide or a map to evaluate merits of explored different patches
and to exploit better solutions. After waggle dancing on the dance floor, the dancer (i.e. the
scout bee) goes back to the flower patch with follower bees that were waiting inside the hive.
A squadron moves forward into the patches. More follower bees are sent to more promising
patches, while harvest paths are explored but they are not carried out in the long term. A swarm
intelligent approach is constituted [55]. This allows the colony to gather food quickly and
efficiently with a recursive recruiting mechanism [56].
The Bees Algorithm (i.e., BA) is a population-based search; it is inspired to this natural process
[38]. In its basic version, the algorithm performs a kind of neighbourhood search combined
with random search. Advanced mechanisms could be guided by genetics [57] or taboo
operators [58]. The standard Bees Algorithm first developed in Pham and Karaboga in 2006
[59, 60] requires a set of parameters: no. of scout bees (n), no. of sites selected out of n visited
sites (m), no. of best sites out of m selected sites (e), no. of bees recruited for the best e sites (nep),
126 Operations Management

no. of bees recruited for the other m-e selected sites (nsp), initial size of patches (ngh). The
standard BA starts with random search.

The honey bees‘ effective foraging strategy can be applied in operation management problems
such as JSSP. For each solution, a complete schedule of operations in JSP is produced. The
makespan of the solution is analogous to the profitability of the food source in terms of distance
and sweetness of the nectar. Bees, n scouts, explore patches, m sites - initially a scout bee for
each path could be set, over total ways, ngh, accordingly to the disjunctive graph of fig. 2,
randomly at the first stage, choosing the shorter makespan and the higher profitability of the
solution path after the first iteration.

Input: Instance x є I of Пopt Start

set algorithm parameters ()

Initialize Pop0←Initial population () with
Initialize a polulation of n Scout
random solutions. Bees

Evaluate fitness of the population(Pop0).

while not termination condition do
Evaluate fitness of the Population NO
Select sites for neighbourhood search
Neighbourhoood Search

N(s)
Recruit bees for selected sites (more Select msites for the Neighbourhood Search

bees for best e sites) and evaluate Are stopping

Determine the Size of the Neighbourhood
fitnesses. (Patch Size ngh) criteria met ?
YES
Select the fittest bee from each patch. Recruit Bees for Selected Sites
Assign remaining bees to search (more Bees for the Best eSites)

randomly and evaluate their fitnesses. Optimal

solution
Select the Fittest Bees from Each Patch
end while
Generate a new population of scout bees
Sbest←optimal solution Popi Assign the (n-m) Remaining Bees to Random Search

Output: Sbest “candidate” to be the best found solution Generate New Populate of Scout Bees
xєI
(a) (b)

Figure 5. The Bees Algorithm model; 6a. the BA pseudo code; 6b. the flow chart of a general BA procedure.

Together with scouting, this differential recruitment is the key operation of the BA. Once a
feasible solution is found, each bee will return to the hive to perform a waggle dance. The
output of the waggle dance will be represented by a list of “elite solutions”, e best selected
sites, from which recruited bees, nep, are chosen for exploration from the population into the
hive. Researches of patches are conducted, other nsp bees, in the neighbourhood of the selected
sites, m-e sites. System maintains, step repetition: imax, where each bee of the colony of bees
will traverse a potential solution. Flower patches, e sites, with better fitness (makespan) will
have a higher probability for “elite solutions”, promoting the exploitation to an optimal
solution.

4.4. Electromagnetism like Method (EM)

The Electromagnetic Like Algorithm is a population based meta-heuristics proposed by Birbil

and Fang [61] to tackle with combinatorial optimisation problems. Algorithm is based on the
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natural law of attraction and repulsion between charges (Coulomb’s law) [62]. EM simulates
electromagnetic interaction [63]. The algorithm evaluates fitness of solutions considering
charge of particles. Each particle represents a solution. Two points into the space had different
charges in relation to what electromagnetic field acts on them [64]. An electrostatic force, in
repulsion or attraction, manifests between two points charges. The electrostatic force is directly
proportional to the magnitudes of each charge and inversely proportional to the square of the
distance between the charges. The fixed charge at time iteration (t) of particle i is shown as
follows:

æ æ öö
ç ç
è
æm
ç (( )
exp ç n * ç f ( xi , t )  f ( xbest , t ) / ç å f xi , t  f ( xbest , t )
qi (t ) =
è i =1
) ö÷÷ø ÷÷ø ÷÷ "i =1,.., m (12)
è ø

Where t represents the iteration step, qi (t) is the charge of particle i at iteration t, f(xi,,t), f(xbest,t),
and f(xk,t) denote the objective value of particle i, the best solution, and particle k from m
particles at time t; finally, n is the dimension of search space.The charge of each point i, qi(t),
determines point’s power of attraction or repulsion. Points (xi) could be evaluated as a task
into the graph representation (fig. 2).

The particles move along with total force and so diversified solutions are generated. The
following formulation is the resultant force of particle i:

ì ( )
q (t ) * q j (t ) ü
ï
(j i )
ï x (t )  x (t ) * i
2
: ( )
f x j , t < f ( xi , t ) ï
ï
ï x j (t )  xi (t ) ï
Fi (t ) = å í ý , "i =1,..., m (13)
ï ( )
qi (t ) * q j (t ) ï
( )
ï xi (t )  x j (t ) *
ï
2 ( )
: f x j , t ³ f ( xi , t ) ï
ï
x j (t )  xi (t )
î þ

The following notes described an adapted version of EM for JSSP. According to this applica‐
tion, the initial population is obtained by choosing randomly from the list or pending tasks,
as for the feasibility of solution, particles’ path. The generic pseudo-code for the EM is reported
in figure 6. Each particle is initially located into a source node (see disjunctive graph of figure
2). Particle is uniquely defined by a charge and a location into the node’s space. Particle’s
position in each node is defined in a multigrid discrete set. While moving, particle jumps in a
node based on its attraction force, defined in module and direction and way. If the force from
starting line to arrival is in relation of positive inequality, the particles will be located in a plane
position in linear dependence with force intensity. A selection mechanism could be set in order
to decide where particle is directed, based on node force intensity. Force is therefore the
resultant of particles acting in node. A solution for the JS is obtained only after a complete path
from the source to the sink and the resulting force is updated according to the normalized
makespan of different solutions.
128 Operations Management

Input: Instance x є I of Пopt

Start
set algorithm parameters ()
i←0
Initialize: m sample points are selected at random INITIALIZEalgorithm’s
(define algotihm parameter – no. particles and
from the feasible region. MaxIterations)

Evaluate Force and Distance of current state

while not termination condition do SETRandom CHARGEand FORCE

GLOBAL SEARCH
while job is not completed do Update Global OBJ
function
NO
LOCAL SEARCH:
Move the sample points toward
the local minimums (distance and
MOVEParticles along Points
force need to be evaluated).

Local Search
Global Search
Calculate force: F ← CalcF charge Update particles’ POSITION Are stopping
criteria met ?
value is assigned to each point
(qi). Calculate CHARGE
YES
Move (F) points along the total NO

force vector.
Calculate FORCE
Evaluate particles()
end while Optimal
solution
Sbest←optimal solution Are paths along total
completed ?
Update Global Force according to S NO
end while
YES
output: Sbest “candidate” to be the best found solution x є I
Evaluate OBJfunctions
between particles
1
(a) (b)

Figure 6. The Electromagnetic like Method; 6a. the EM pseudo code; 6b. the flow chart of a general EM procedure.

4.5. Simulated Annealing (SA)

The simulated annealing was presented by Scott Kirkpatrick et al. in 1983 [65] and by Vlado
Černý in 1985 [66]. This optimization method is based on works of Metropolis et al., [67] which
allows describing the behaviour of a system in thermodynamic equilibrium at a certain
temperature. It is a generic probabilistic metaheuristic used to find a good approximation to
the global optimum of a given objective function. Mostly it is used with discrete problems such
as the main part of the operations management problems.

Name and inspiration come from annealing in metallurgy, a technique that, through the
heating and a controlled process of cooling, can increase the dimensions of the crystals inside
the fuse piece and can reduce the defects inside the crystals structure. The technique deals with
the minimization of the global energy E inside the material, using a control parameter called
temperature, to evaluate the probability of accepting an uphill move inside the crystals
structure. The procedure starts with an initial level of temperature T and a new random
solution is generated at each iteration, if this solution improves the objective function, i.e., the
E of the system is lower than the previous one. Another technique to evaluate the improvement
of the system is to accept the new random solution with a likelihood according to a probability
exp(-ΔE), where ΔE is the variation of the objective function. Afterwards a new iteration of the
procedure is implemented.

As follows there is the pseudo-code of a general simulated annealing procedure:

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Figure 7. The Simulated Annealing model; 7a. the SA pseudo code; 7b. the flow chart of a general SA procedure

For the scheduling issues, the application of the SA techniques requires the solutions fitness
generated by each iteration, that is generally associated to the cost of a specific scheduling
solution; the cost is represented by the temperature that is reduced for each iteration [68]. The
acceptance probability can be measured as following:

{
Aij = min 1, exp ( - C ( j ) c- C (i ) ) } (14)

Another facet to be analysed is the stopping criteria, which can be fixed as the total number of
iterations of the procedure to be computed.

4.6. Tabu Search (TS)

Tabu search (Glover, 1986) is an iterative search approach characterised by the use of a flexible
memory [69]. The process with which tabu search overcomes local optimality is based on the
evaluation function that chooses the highest evaluation solution at each iteration. The evalu‐
ation function selects the move, in the neighbourhood of the current solution, that produces
the most improvement or the least deterioration in the objective function. Since, movement
are accepted based on a probability function, a tabu list is employed to store characteristics of
accepted moves so to classify them as taboo (i.e., to be avoided) in the later iteration. This is
used to dodge cycling movements. A strategy called forbidding is employed to control and
update the tabu list. This method was formalized by Glover [69]. An algorithm based on tabu
search requires some elements: (i) the move, (ii) the neighbourhood, (iii) an initial solution,
(iv) a search strategy, (v) a memory, (vi) an objective function and (vii) a stop criterion. The of
TS is based on the definition of a first feasible solution S, which is stored as the current seed
130 Operations Management

and the best solution, at each iteration, after the set of the neighbours is selected between the
possible solutions deriving from the application of a movement. The value of the objective
function is evaluated for all the possible movements, and the best one is chosen. The new
solution is accepted even if its value is worse than the previous one, and the movement is
recorded in a list, named taboo list.

For the problem of the scheduling in the job shops, generally a row of assignments of n jobs to
m machines is randomly generated and the cost associated is calculated to define the fitness of
the solution [70]. Some rules of movements can be defined as the crossover of some jobs to
different machines and so on, defining new solutions and generating new values of the
objective functions. The best solution between the new solutions is chosen and the movement
is recorded in a specific file named taboo list. The stopping criterion can be defined in many
ways, but simplest way is to define a maximum number of iterations [71].

In figure 8 are reported the pseudo-code and the flowchart for the application of TS to JSSP.

Figure 8. The Tabu Search approach; 8a. the TS pseudo code; 8b. the flow chart of a general TS procedure.

4.7. Neural Networks (NNs)

Neural networks are a technique based on models of biological brain structure. Artificial
Neural Networks (NN), firstly developed by McCulloch and Pitts in 1943, are a mathematical
model which wants to reproduce the learning process of human brain [72]. They are used to
simulate and analyse complex systems starting from known input/output examples. An
algorithm processes data through its interconnected network of processing units compared to
neurons. Consider the Neural Network procedure to be a “black box”. For any particular set
of inputs (particular scheduling instance), the black box will give a set of outputs that are
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suggested actions to solve the problem, even though output cannot be generated by a known
mathematical function. NNs are an adaptive system, constituted by several artificial neurons
interconnected to form a complex network, those change their structure depending on internal
or external information. In other words, this model is not programmed to solve a problem but
it learns how to do that, by performing a training (or learning) process which uses a record of
examples. This data record, called training set, is constituted by inputs with their corresponding
outputs. This process reproduces almost exactly the behaviour of human brain that learns from
previous experience.

The basic architecture of a neural network, starting from the taxonomy of the problems faceable
with NNs, consists of three layers of neurons: the input layer, which receives the signal from
the external environment and is constituted by a number of neurons equal to the number of
input variables of the problem; the hidden layer (one or more depending on the complexity of
the problem), which processes data coming from the input layer; and the output layer, which
gives the results of the system and is constituted by as many neurons as the output variables
of the system.

The error of NNs is set according to a testing phase (to confirm the actual predictive power of
the network while adjusting the weights of links). After having built a training set of examples
coming from historical data and having chosen the kind of architecture to use (among feed-
forward networks, recurrent networks), the most important step of the implementation of NNs
is the learning process. Through the training, the network can infer the relation between input
and output defining the “strength” (weight) of connections between single neurons. This
means that, from a very large number of extremely simple processing units (neurons), each of
them performing a weighted sum of its inputs and then firing a binary signal if the total input
exceeds a certain level (activation threshold), the network manages to perform extremely
complex tasks. It is important to note that different categories of learning algorithms exists: (i)
supervised learning, with which the network learns the connection between input and output
thank to known examples coming from historical data; (ii) unsupervised learning, in which
only input values are known and similar stimulations activate close neurons otherwise
different stimulations activate distant neurons; and (iii) reinforcement learning, which is a
retro-activated algorithm capable to define new values of the connection weights starting from
the observation of the changes in the environment. Supervised learning by back error propa‐
gation (BEP) algorithm has become the most popular method of training NNs. Application of
BEP in Neural Network for production scheduling is in: Dagli et al. (1991) [73], Cedimoglu
(1993) [74], Sim et al. (1994) [75], Kim et al. (1995) [76].

The mostly NNs architectures used for JSSP are: searching network (Hopfield net) and error
correction network (Multi Layer Perceptron). The Hopfield Network (a content addressable
memory systems with weighted threshold nodes) dominates, however, neural network based
scheduling systems [77]. They are the only structure that reaches any adequate result with
benchmark problems [78]. It is also the best NN method for other machine scheduling
problems [79]. In Storer et al. (1995) [80] this technique was combined with several iterated
local search algorithms among which space genetic algorithms clearly outperform other
implementations [81]. The technique’s objective is to minimize the energy function E that
132 Operations Management

corresponds to the makespan of the schedule. The values of the function are determined by
the precedence and resource constraints which violation increases a penalty value. The Multi
Layer Perceptron (i.e., MLP) consists in a black box of several layers allowing inputs to be
added together, strengthened, stopped, non-linearized [82], and so on [83]. The black box has
a great no. of knobs on the outside which can be filled with to adjust the output. For the given
input problem, the training (network data set is used to adjust the weights on the neural
network) is set as optimum target. Training an MLP is NP-complete in general.
In figure 9 it is possible to see the pseudo-code and the flow chart for the neural networks.

Figure 9. The NNs model; 9a. the implemented NNs pseudo code; 9b. the flow chart of generic NNs.

5. Discussion and conclusions

In this chapter, it was faced the most intricate problem (i.e., Job Shop) in order to explain
approaches for scheduling in manufacturing. The JSP is one of the most formidable issues in
the domain of optimization and operational research. Many methods were proposed, but only
application of approximate methods (metaheuristics) allowed to efficiently solve large
scheduling instances. Most of the best performing metaheuristics for JSSP were described and
illustrated.
The likelihood of solving JSP can be greatly improved by finding an appropriate problem
representation in computer domain. The acyclic graph representation is a quite good way to
model alternatives in scheduling. How to fit approaches with problem domain (industrial
manufacturing system) is generally a case in issue. Approaches are obviously affected by data
 Production Scheduling Approaches for Operations Management 133
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and the results are subject to tuning of algorithm’s parameters. A common rule is: less
parameters generate more stable performances but local optimum solutions. Moreover, the
problem has to be concisely encoded such that the job sequence will respect zoning and
sequence constraints. All the proposed approaches use probabilistic transition rules and fitness
information function of payoff (i.e., the objective function).

ACO and BE manifest common performances in JSSP. They do not need a coding system. This
factor makes the approaches more reactive to the particular problem instance in issue.
Notwithstanding, too many parameters have to be controlled in order to assure diversification
of search. GAs surpasses their cousins in the request for robustness. The matching between
genotype and phenotype across the schemata must be investigated in GAs in order to obtain
promising results. The difficult of GA is to translate a correct phenotype from a starting
genotype. A right balancing between crossover and mutation effect can control the perform‐
ance of this algorithm. The EM approach is generally affected by local stability that avoid global
exploration and global performance. It is, moreover, subject to infeasibility in solutions because
of its way to approach at the problem. SA and TS, as quite simpler approaches, dominate the
panorama of metaheuristics proposal for JS scheduling. They manifest simplicity in imple‐
mentation and reduction in computation effort but suffer in local optimum falls. These
approaches are generally used to improve performances of previous methodologies and they
enhance their initial score. The influence of initial solutions on the results, for overall ap‐
proaches, is marked. Performances of NNs are generally affected by the learning process, over
fitting. Too much data slow down the learning process without improving in optimal solution.
Neural Network is, moreover, affected by difficulties in including job constraints with network
representation. The activating signal needs to be subordinated to the constraints analysis.

Based on authors experience and reported paragraphs, it is difficult to definitively choose any
of those techniques as outstanding in comparison with the others. Measurement of output and
cost-justification (computational time and complexity) are vital to making good decision about
which approach has to be implemented. They are vital for a good scheduling in operations
management. In many cases there are not enough data to compare – benchmark instances, as
from literature for scheduling could be useful - those methods thoroughly. In most cases it is
evident that the efficiency of a given technique is problem dependent. It is possible that the
parameters may be set in such way that the results of the algorithms are excellent for those
benchmark problems but would be inferior for others. Thus, comparison of methods creates
many problems and usually leads to the conclusion that there is no the only best technique.
There is, however, a group of several methods that dominates, both in terms of quality of
solutions and computational time. But this definition is case dependent.

What is important to notice here is: performance is usually not improved by algorithms for
scheduling; it is improved by supporting the human scheduler and creating a direct (visual)
link between scheduling actions and performances. It is reasonable to expect that humans will
intervene in any schedule. Humans are smarter and more adaptable than computers. Even if
users don’t intervene, other external changes will happen that impact the schedule. Contingent
maintenance plan and product quality may affect performance of scheduling. An algorithmic
approach could be obviously helpful but it has to be used as a computerised support to the
134 Operations Management

scheduling decision - evaluation of large amount of paths - where computational tractability

is high. So it makes sense to see what optimal configuration is before committing to the final
answer.

Author details

Marcello Fera1, Fabio Fruggiero2, Alfredo Lambiase1, Giada Martino1 and

Maria Elena Nenni3

1 University of Salerno – Dpt. of Industrial Engineering, Fisciano (Salerno), Italy

2 University of Basilicata – School of Engineering, Potenza, Italy

3 University of Naples Federico II – Dpt. of Economic Management, Napoli, Italy

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 Chapter 6

On Just-In-Time Production Leveling

Francesco Giordano and Massimiliano M. Schiraldi

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/54994

1. Introduction

Since the 80’s, the Japanese production techniques and philosophies spread among the
Western manufacturing companies. This was possible because the Toyota Motor Company
experience was indeed a success. The so-called “Toyota Production System” (TPS) seemed to
be the “one best way” to manage a manufacturing production site.

On the other side, it is also well known that not every implementation of Lean Production was
a success, especially in Western companies: some enterprises – together with the consultancy
firms that should have supported them – forgot that there are some main hypotheses and issues
to comply with, in order to achieve Toyota-like results. On top of this, certain requisites are
not related to a mere managerial approach, but depend on exogenous conditions, e.g. market
behavior or supplier location; thus, not every company can successfully implement a TPS
system.

One critical requirement for a TPS approach to be effective is that the production plan
should be leveled both in quantity and in mix. This is indicated by the Japanese term
heijunka ( 平 準 化 ), which stands for “leveling” or “smoothing”. Here, we will focus our
attention on why leveled production is a key factor for JIT implementation, and specifi‐
cally we will describe and analyze some approaches to deal with the leveling problem.

At first, the original Toyota Production System is briefly recalled, with specific regard to the
Just In Time (JIT) approach to manage inventories in production. JIT is a stock replenishment
policy that aims to reduce final product stocks and work-in-process (WIP); it coordinates
requirements and replenishments in order to minimize stock-buffer needs, and it has reversed
the old make-to-stock production approach, leading most companies to adopt "pull” instead
of “push” policies to manage material and finished product flows. However, in case of
unleveled demand, stock levels in JIT may grow uncontrolled.

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Attribution which permits unrestricted
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142 Operations Management

Secondly, kanban-based production is described: kanban, a Japanese word meaning “visual

record”, is a card that contains information on a product in a given stage of the manufacturing
process, and details on its path of completion. It is acknowledged as one of the most famous
technique for material management in the JIT approach. Here we will present some common
algorithms for managing kanban queues, along with their criticalities in terms of production
smoothing requirements and reduced demand stochasticity. Some of the JIT-derivative
approaches will be recalled as well: CONWIP, Quick Response Manufacturing, Theory of
Constraints and the Just-In-Sequence approach.

Then, a review on the mixed-model JIT scheduling problem (MMJIT), along with the related
solving approaches, is presented. Despite the huge literature on MMJIT mathematical pro‐
gramming approaches, here it will be described why the real-world production systems still
prefer the simpler kanban approach and the old (1983) Goal Chasing Method algorithm. In the
end, an overview on simulators advantages to test alternative heuristics to manage JIT
production is presented.

2. Managing Just-In-Time production systems

Just-in-Time was first proposed within the Toyota Production System (TPS) by Taiichi Ohno after
the 50’s when he conceived a more convenient way to manage inventory and control produc‐
tion systems [1]. Lean Production – the un-branded name of TPS – is a mix of a philosophy for
production systems management and a collection of tools to improve the enterprise perform‐
ances [2]. Its cornerstones are the reduction of muda (wastes), mura (unevenness) and muri
(overburden). Ohno identified seven wastes [3] that should be reduced to maximize the return
of investment of a production site:
• transportation;

• inventory;

• motion;

• waiting;

• over-processing;

• over-producing;

• defects.
The TPS catchphrase emphasizes the “zero” concept: zero machine changeovers (“set-ups”),
zero defects in the finished products, zero inventories, zero production stops, zero bureauc‐
racy, zero misalignments. This result may be reached through a continuous improvement
activity, which takes cue from Deming’s Plan-Do-Check-Act cycle [1]: the kaizen approach.

Just-In-Time is the TPS solution to reduce inventory and waiting times. Its name, according to
[4], was coined by Toyota managers to indicate a method aimed to ensure “the right products,
 On Just-In-Time Production Leveling 143
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in the right quantities, just in time, where they are needed”. Differently from Orlicky’s Material
Requirement Planning (MRP) – which schedules the production run in advance compared to
the moment in which a product is required [5] – JIT approach will replenish a stock only after
its depletion. Among its pillars there are:

• one-piece flow;

• mixed-model production;

• demand-pull production;

• takt time;

Indeed, generally speaking, processing a 10 product-batch requires one tenth of the time
needed for a 100 product-batch. Thus, reducing the batch value (up to “one piece”) would
generate benefits in reducing either time-to-market or inventory level. This rule must come
along with mixed-model production, which is the ability of manufacture different products
alternating very small batches on shared resources. Demand-pull production indicates that
the system is activated only after an order receipt; thus, no semi-finished product is processed
if no downstream workstation asks for it. On top of this, in order to smooth out the material
flow, the process operations should be organized to let each workstation complete different
jobs in similar cycle times. The base reference is, thus, the takt time, a term derived from the
German word taktzeit (cycle time), which is computed as a rapport between the net operating
time, available for production, and the demand in terms of units required. These are the main
differences between the look-ahead MRP and the look-back JIT system. For example, the MRP
algorithm includes a lot-sizing phase, which results in product batching; this tends to generate
higher stock levels compared to the JIT approach. Several studies have been carried out on
MRP lot-sizing [6] and trying to improve the algorithm performance [7, 8, 9]; however, it seems
that JIT can outperform MRP given the heijunka condition, in case of leveled production both
in quantity and in mix. The traditional JIT technique to manage production flow is named
kanban.

3. The kanban technique

A kanban system is a multistage production scheduling and inventory control system [10].
Kanban cards are used to control production flow and inventories, keeping a reduced
production lead time and work-in-process. Clearly, a kanban is not necessarily a physical
paper/plastic card, as it can be either electronic or represented by the container itself.

Since it was conceived as an easy and cheap way to control inventory levels, many different
implementations of kanban systems have been experimented in manufacturing companies all
over the world. In the following paragraphs, the most commonly used “one/two cards” kanban
systems are described.
144 Operations Management

3.1. One-card kanban system

The “one-card” is the simplest implementation of kanban systems. This approach is used when
the upstream and downstream workstations (respectively, the preceding and succeeding
processes) are physically close to each other, so they can share the same stock buffer. The card
is called “Production Order Kanban” (POK) [11, 12]. The stock buffer acts either as the
outbound buffer for the first (A) workstation or as the inbound buffer for the second (B)
workstation. A schematic diagram of a one-card system is shown in Figure 1.

Figure 1. A one-card kanban system

Here, each container (the JIT unit load) has a POK attached, indicating the quantity of a certain
material contained, along with eventual complementary information. The POK also represents
a production order for the Workstation A, indicating to replenish the container with the same
quantity. When a B operator withdraws a container from the buffer, he removes the POK from
the container and posts it on a board. Hence, A operator knows that one container with a
specific part-number must be replenished in the stock buffer.

3.2. Two-card kanban system

In the two-card system, each workstation has separate inbound and outbound buffers [13,
14]. Two different types of cards are used: Production Order Kanbans (POK) and Withdrawal
Kanbans (WK). A WK contains information on how much material (raw materials / semi-
finished materials) the succeeding process should withdraw. A schematic diagram of a two-
card system is shown in Figure 2.

Each work-in-progress (WIP) container in the inbound buffer has a WK attached, as well as
each WIP in the outbound buffer has a POK. WK and POK are paired, i.e. each given part
number is always reported both in n POK and n WK. When a container is withdrawn from the
inbound buffer, the B operator posts the WK on the WK board. Then, a warehouse-keeper
 On Just-In-Time Production Leveling 145
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operator uses the WK board as a picking list to replenish the inbound buffer: he takes the WK
off the board and look for the paired POK in the outbound buffer. Then, he moves the
corresponding quantity of the indicated material from the A outbound to the B inbound buffer,
while exchanging the related POK with the WK on the container, restoring the initial situation.
Finally, he posts the left POK on the POK board. Hence, like in the previous scenario, A
workstation operator knows that one container of that kind must be replenished in the
outbound stock buffer. The effectiveness of this simple technique – which was described in
details by several authors [3, 14, 15, 16] – is significantly influenced by the policy followed to
determine the kanban processing order, in the boards.

Figure 2. A two-card kanban system

3.3. Standard approaches to manage the kanban board

From the previously described procedure, it is clear that the each workstation bases its
production sequence on kanban cards posted on the POK board. In literature, few traditional
ways to manage the board are reported: each of them is quite easy to implement and does not
require significant investments in technology or other expensive assets.
The most commonly used policy [3] requires having a board for each station, and this should
be managed as a single First-In-First-Out (FIFO) queue. The board is usually structured as one
vector (one column, multiple rows): POK are posted on the board in the last row. Rows are
grouped in three zones (red/yellow/green) which indicate three levels of urgency (respectively,
high/medium/low). Kanban are progressively moved from the green to the red zone and the
workstation operator will process the topmost kanban. If a kanban reaches the red rows, it
means that the correspondent material is likely to be requested soon, by the succeeding process.
Thus, it should be urgently replenished in the outbound buffer, in order to avoid stock-outs.
146 Operations Management

Although this policy does not rely on any optimized procedure, it may ensure a leveled
production rate in each workstation, given the fact that other TPS pillars are implemented, e.g.
setup time reduction and mixed model scheduling. Indeed, if the final downstream demand
is leveled, the production plan of the workstations will be leveled as well. Clearly, this policy
is vulnerable to high setup times and differences among workstations cycle times: in this latter
case, indeed, the ideal jobs sequence for a workstation may be far from optimal for the
preceding. It is noticeable that the colored zones on the board only provide a visual support
for the operators and do not influence the jobs processing order.

A heijunka box is a sort of enhanced kanban board: it still acts as a visual scheduling tool to
obtain production leveling at the workstations. However, differently from the traditional
board, it manages to keep evidence of materials distinctions. Usually, it is represented as a
grid-shaped wall schedule. Analogously to the simpler board, each row represents a time
interval (usually, 30-60 minutes), but multiple columns are present, each one associated to a
different material. POKs are placed in the so-called “pigeon-holes” within the box, based on
number of items to be processed in the job and on the material type. Workstation operators
will process all the kanban placed in the current period row, removing them from the box.
Hence, heijunka box not only provides a representation for each job queued for production,
but for its scheduled time as well, and allows operators to pursue production leveling when
inserting new POKs in the boxes.

3.4. Criticism on JIT

During the last decades, Just-In-Time has been criticized from different authors [17]. Indeed,
certain specific conditions – which, though, are not uncommon in manufacturing companies
– can put in evidence some well-known weak points of the Japanese approach. Specifically,
un-steady demand in multi-product environments where differences in processing lead times
are not negligible represent a scenario where JIT would miserably fail, despite the commitment
of the operations managers.

First, we have to keep in mind that one pillar of Lean Production is the “one-piece-flow” diktat.
A one-piece batch would comply with the Economic Production Quantity theory [18] only
when order cost (i.e. setup time) is zero. Having non-negligible setup times hampers JIT
implementation and makes the production leveling problem even more complicated. It is
peculiar that, originally, operations researchers concentrated on finding the best jobs sequence
considering negligible setups time. This bound was introduced into the mixed model kanban
scheduling problem only since 2000. Setups are inevitable in the Lean Production philosophy,
but are considered already optimized as well. Given that setup times are muda, TPS approach
focuses on quickening the setup time, e.g. through technical interventions on workstations or
on the setup process with SMED techniques, not on reducing their frequency: the increased
performance gained through setups frequency reduction is not worth the flexibility loss that
the system may suffer as a consequence. Indeed, the standard kanban management system,
ignoring the job sequencing, does not aim at reducing setup wastes at all. Analogously, the
Heijunka box was developed for leveling production and can only assure that the product mix
in the very short term reproduces that in the long term; in its original application, the decision
 On Just-In-Time Production Leveling 147
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on the job sequence is left to the operator. Only in some enhanced version, the sequence is pre-
defined applying some scheduling algorithm.

Given the fact that JIT is based on stock replenishment, constant production and withdrawal
rates should be ensured in order to avoid either stock outs or stock proliferation. Mixed-model
production requires a leveled Master Production Schedule (MPS) [19], but this is not sufficient
to smooth the production rate in a short time period. While it is easy to obtain a leveled
production in a medium or even medium-short period, it is difficult to do it in each hour, for
each workstation and each material.

Indeed, demand is typically unstable under two points of view: random frequency, which is
the chance that production orders are irregularly received, and random quantities, which is
related to product mix changes. Indeed, since TPS assume minimal stock levels, the only chance
to cope with demand peak is to recur to extra production capacity. However, available
production capacity should be higher than required as the average (as TPS requires), but for
sure cannot be limitless. Thus, the JIT management system should anyway be able to consider
the opportunity of varying the maintenance plan as well as the setup scheduling, in case of
need. On the other hand, if the production site faces a leveled production, changes in product
mix should not represent a problem; however, they increase sequencing problem complexity.
Most of the operational research solutions for JIT scheduling are designed for a fixed product
mix, thus its changes can greatly affect the optimality of solutions, up to make them useless.

On the contrary, kanban board mechanism is not influenced by demand randomness: as long
as demand variations are contained into a certain (small) interval, kanban-managed worksta‐
tions will handle their production almost without any problem. Therefore, in case of unstable
demand, in order to prevent stock-outs, inventory managers can only increase the kanban
number for each product: the greater are the variations, the greater is the need of kanban cards
and, thus, the higher is the stock level. In order to prevent stock level raise, some authors [20,
21] proposed to adopt a frozen schedule to implement JIT production in real companies, where
demand may clearly be unstable. Anyway, this solution goes in the opposite direction
compared to JIT foundations.

Moreover, one-piece-flow conflicts with demand variability: the batch size should be chosen
as its processing time exceeds the inter-arrival time of materials requests. Thus, the leveling
algorithm must find the proper sequencing policy that, at the same time, reduces the batch
size and minimize the inter-arrival time of each material request. This sequence clearly
depends on the total demand of each material in the planning horizon. However, JIT does not
use forecasting, except during system design; thus, scheduling may be refreshed daily. From
a computational point of view, this is a non-linear integer optimization problem (defined
mixed-model just-in-time scheduling problem, MMJIT), which has non-polynomial complexity
and it currently cannot be solved in an acceptable time. Thus, reliable suppliers and a clock‐
work supply chain are absolutely required to implement JIT. Toyota faced this issue using
various approaches [22]:
• moving suppliers in the areas around the production sites, in order to minimize the supply
lead time;
148 Operations Management

• collaborating with the suppliers and helping them to introduce JIT in their factories;

• always relying on two alternative suppliers for the same material, not to be put in a critical
situation.
In the end, it should be noted that, considering that at each stage of the production process at
least one unit of each material must be in stock, in case of a great product variety the total stock
amount could be huge in JIT. This problem was known also by Toyota [1], who addressed it
limiting the product customization opportunities and bundling optional combinations.

4. Alternative approaches

4.1. CONWIP

Many alternatives to JIT have been proposed since TPS appeared in Western countries.
One of the most famous JIT-derivative approaches is CONWIP (CONstant Work-In-Proc‐
ess). This methodology, firstly proposed in the 90’s [23], tries to mix push and pull ap‐
proaches: it schedules tasks for each station – with a push approach – while production
is triggered by inventory events, which is a pull rule. Thus, CONWIP is card-based, as
kanban systems, but cards do not trigger the production of a single component in the
closest upward workstation; conversely, cards are used to start the whole production
line, from beginning downwards. Then, from the first workstation up to the last one, the
process is push-driven; materials are processed as they get to an inbound buffer, not‐
withstanding the stock levels. Only the last workstation has a predetermined stock level,
similar to the JIT outbound buffer. All queues are managed through a FIFO policy. In
order to have a leveled production rate and to avoid production spikes or idle times,
the system is calibrated on the slowest workstation, the bottleneck. Results from simula‐
tions showed [24] that CONWIP could grant shorter lead times and more stable produc‐
tion rate if compared to Kanban; however, it usually needs a higher WIP level. A
CONWIP system is also easier to implement and adjust, since it has only one card set.

4.2. POLCA

Another alternative technique mixing push and pull system is the POLCA (Paired-Cell
Overlapping Loops of Cards with Authorization), which stands at the base of the Quick
Response Manufacturing (QRM) approach, proposed in 1998 [25]. QRM aims to minimize lead
times rather than addressing waste reduction, as TPS does. A series of tools, such as manu‐
facturing critical-path time, cellular organization, batch optimization and high level MRP, are
used to minimize stock levels: the lesser is the lead time, the lesser is the on-hand inventory.
Likewise CONWIP, POLCA handles WIP proliferation originating from multiple products,
since it does not require each station to have a base stock of each component. At first, an MRP-
like algorithm (called HL/MRP) creates some “Release Authorization Times”. That means that
the HL/MRP system defines when each cell may start each job, as MRP defines the “Start
Dates”. However, differently from a standard push system - where a workstation should
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process the job as soon as possible - POLCA simply authorizes the possibility to start the job.
Analogously to CONWIP and Kanban, POLCA uses production control cards in order to
control material flows. These cards are only used between, and not within, work cells. Inside
each work cell, material flows resemble the CONWIP approach. On top of this, the POLCA
cards, instead of being specifically assigned to a product as in a Kanban system, are assigned
to pairs of cells. Moreover, whereas a POK card is an inventory replenishment signal, a POLCA
card is a capacity signal. If a card returns from a downstream cell, it signals that there is enough
capacity to process a job. Thus, the preceding cell will proceed only if the succeeding cell has
available production capacity. According to some authors [20] a POLCA system may overcome
the drawbacks of both standard MRPs and kanban systems, helping in managing both short-
term fluctuation in capacity (slowdowns, failures, setups, quality issues) and reducing
unnecessary stocks, which is always present in any unlevelled replenishment system – i.e.
where heijunka condition is not met.

4.3. Just in sequence

The Just in Sequence approach is an evolution of JIT, which embeds the CONWIP idea of
mixing push/requirement and pull/replenishment production management systems. The
overall goal of JIS is to synchronize the material flow within the supply chain and to reduce
both safety stocks and material handling. Once the optimal production sequence is decided,
it is adopted all along the process line and up to the supply chain. Thus, the suppliers are asked
to comply not only to quantity requirements but also to the product sequence and mix, for a
certain period of time. In this case the demand must be stable, or a frozen period should be
defined (i.e. a time interval, prior to production, in which the demand cannot be changed) [26].
Clearly, when the demand mix significantly changes, the sequence must be re-computed,
similarly to what happens in MRP. This makes the JIS system less flexible compared to JIT.
Research results [27] proved that, applying some techniques to reduce unsteadiness – such as
flexible order assignment or mixed bank buffers – the sequence can be preserved with a low
stock level. Thanks to ad-hoc rescheduling points the sequence can be propagated downstream,
reducing the impact of variability.

4.4. The “Theory of Constraints” approach

Leveraging on the common idea that “a chain is no stronger than its weakest link”, the Israeli
physicist E.M. Goldratt firstly introduced the Theory of Constraints (TOC) in his most famous
business novel “the Goal” [28]. Looking to a production flow-shop as a chain, the weakest link
is represented by the line bottleneck. Compared to the TPS approach of reducing wastes, this
approach is focused on improving bottleneck operations, trying to maximize the throughput
(production rate), minimizing inventory and operational expenses at the same time.
Its implementation is based on a loop of five steps:

1. constraint identification;
2. constraint optimization;
3. alignment of the other operations to the constraint optimization;
150 Operations Management

4. elevation of the constraint (improving throughput);

5. if the constraint after the previous 4 steps has moved, restart the process.

Again, Deming’s concept of “improvement cycle” is recalled. However, improvements are

only focused on the bottleneck, the Critical Constraint Resource (CCR), whereas in the Lean
Production’s Kaizen approach bottom-up, an improvement may arise wherever wastes are
identified; moreover, improvements only aim to increase throughput. It is though noticeable
that the author includes, as a possible throughput constraint, not only machinery problem but
also people (lack of proper skills) and policies (bad working). To this extent, Goldratt coined
the “Drum-Buffer-Rope” (DBR) expression: the bottleneck workstation will define the
production takt-time, giving the beat as with a drum. The remaining upstream and down‐
stream workstations will follow this beat. This requires the drum to have an optimized
schedule, which is imposed to all the production line. Thus, takt-time is not defined from the
final demand anymore, but is set equal to the CCR minimal cycle time, given that the bottleneck
capacity cannot be overcome. A “buffer” stock is only placed before the CCR, assuring that no
upward issue could affect the process pace, reducing line throughput. This helps in reducing
the inventory level in comparison to replenishment approaches, where buffers are placed
among all the workstations. Eventually, other stock buffers may be placed in few synchroni‐
zation points in the processes, besides the final product warehouse, which prevents stock-outs
due to oscillating demand. The “rope” represents the job release authorization mechanism: a
CONWIP approach is used between the CCR and the first phase of the process. Thus, the
advanced entrance of a job in the system is proportional to the buffer size, measured in time.
Failing to comply with this rule is likely to generate too high work-in-process, slowing down
the entire system, or to generate a starvation condition on the CCR, with the risk of reducing
the throughput. Several authors [29, 30, 31] analyzed the DBR rule in comparison to planning
with mathematical linear programming techniques. Results on the most effective approach are
controversial.

5. The mixed-model JIT scheduling problem

The leveling problem in JIT operations research literature was formalized in 1983 as the
“mixed-model just-in-time scheduling (or sequencing) problem” (MMJIT) [32], along with its
first solution approach, the “Goal Chasing Method” (GCM I) heuristic.
Some assumptions are usually made to approach this problem [33]. The most common are:

• no variability; the problem is defined in a deterministic scenario;

• no details on the process phases: the process is considered as a black box, which transforms
raw materials in finished products;
• zero setup times (or setup times are negligible);
• demand is constant and known;
• production lead time is the same for each product.
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Unfortunately, the problem with these assumptions virtually never occurs in industry.
However, the problem is of mathematical interest because of its high complexity (in a theo‐
retical mathematical sense). Because researchers drew their inspiration from the literature and
not from industry, on MMJIT far more was published than practiced.
The objective of a MMJIT is to obtain a leveled production. This aim is formalized in the Output
Rate Variation (ORV) objective function (OF) [34, 35]. Consider a M set of m product models,
each one with a dm demand to be produced during a specific period (e.g., 1 day or shift) divided
into T production cycles, with

∑m∈M dm = T
Each product type m consists of different components p belonging to the set P. The production
coefficients apm specify the number of units of part p needed in the assembly of one unit of
product m. The matrix of coefficients A = (apm) represents the Bill Of Material (BOM). Given
the total demand for part p required for the production of all m models in the planning horizon,
the target demand rate rp per production cycle is calculated as follows:

∑m∈M dm ⋅ apm
rp = , ∀ p∈P
T
Given a set of binary variables xmt which represent whether a product m will be produced in
the t cycle, the problem is modeled as follows [33]:

minZ = ∑
T
( t
∑ ∑ ∑ xmt ⋅ apm − t ⋅ rp
p∈P t=1 m∈M t=1
) 2

subject to

∑m∈M xmt = 1, ∀ t = 1, ..., T

T
∑ xmt = dm, ∀ m ∈ M
t=1

xmt ∈ {0, 1}, ∀ m ∈ M ; t = 1, ..., T

The first and second group of constraints indicate that for each time t exactly one model will
be produced and that the total demand dm for each model will be fulfilled by the time T. More
constraints can be added if required, for instance in case of limited storage space.
A simplified version of this problem, labeled “Product Rate Variation Problem” (PRV) was
studied by several authors [36, 37, 38], although it was found it is not sufficient to cope with
the variety of production models of modern assembly lines [33]. Other adaptations of this
problem were proposed along the years; after 2000, when some effective solving algorithms
were proposed [39], the literature interest moved on to the MMJIT scheduling problem with
setups [40]. In this case, a dual OF is used [41]: the first part is the ORV/PRV standard function,
while the second is simply:
T
minS = 1 + ∑ st
t=2
152 Operations Management

In this equation, st = 1 if a setup is required in position t; while st = 0, if no setup is required. The

assumptions of this model are:

• an initial setup is required regardless of sequence; this is the reason for the initial “1” and
the t index follows on “2”;
• the setup time is standard and it is not dependent from the product type;
• the setup number and setup time are directly proportional each other.

The following sets of bounds must be added in order to shift st from “0” to “1” if the production
switches from a product to another:
xm(t −1) − xmt ≤ st , ∀ t = 2, ..., T , ∀ m ∈ M

st ∈ {0, 1}, ∀ t = 2, ..., T

Being a multi-objective problem, the MMJIT with setups has been approached in different
ways, but it seems that no one succeeded in solving the problem using a standard mathematical
approach. A simulation approach was used in [42]. Most of the existing studies in the literature
use mathematical representations, Markov chains or simulation approaches. Some authors [10,
40] reported that the following parameters may vary within the research carried out in the
recent years, as shown in Table 1 below.

5.1. A review on solving approaches

The MMJIT problem, showing nonlinear OF and binary variables, has no polynomial solutions
as far as we know. However, a heuristic solution approach can be effective. To get to a good
solution, one among dynamic programming, integer programming, linear programming,
mixed integer programming or nonlinear integer programming (NLP) techniques can be used.
However, those methodologies usually require a long time to find a solution, so are infre‐
quently used in real production systems [44]. Just a few studies used other methods such as
statistical analysis or the Toyota formula [45]. The most renowned heuristics are the Milten‐
burg’s [36] and the cited Goal Chasing Method (GCM I) developed in Toyota by Y. Monden.
Given the products quantities to be processed and the associated processing times, GCM I
computes an “average consumption rate” for the workstation. Then, the processing sequence
is defined choosing each successive product according to its processing time, so that the
cumulated consumption rate “chases” its average value. A detailed description of the algo‐
rithm can be found in [32]. GCM I was subsequently refined by its own author, resulting in
the GCM II and the Goal Coordination Method heuristics [46].
The most known meta-heuristics to solve the MMJIT [44, 47, 48] are:

• Simulated Annealing;
• Tabu Search;
• Genetic Algorithms;
• Scalar methods;
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• Interactive methods;

• Fuzzy methods;

• Decision aids methods;

• Dynamic Programming.

Parameter / major alternatives Alternatives

Mathematical
Model structure Simulation Markov Chains Other
programming

Decision variables Kanban number Order interval Safety Stock level Other

Performance measures Kanban number Utilization ratio Leveling effectiveness

Minimize cost Setup cost Inventory holding cost Operating cost Stock-out cost
Objective
Minimize inventory
function
Maximize throughput

Layout Flow-shop Job-shop Assembly tree

Period number Multi-period Single-period

Item number Multi-item Single-item

Setting Stage number Multi-stage Single-stage

Machine number Multiple machines Single machine

Resources
Capacitated Non-capacitated
capacity

Kanban type One-card Two-card

Container size Defined Ignored (container size equals one item)

Random set-up Random lead Random

Stochasticity Random demand Determinism
times times processing times

Production cycles Manufacturing system Continuous production

Assumptions
Material handling Zero withdrawal times Non-zero withdrawal times

Shortages Ignored Computed as lost sales [43]

Breakdowns Imbalance
System reliability Dynamic demand Reworks Scraps
possibility between stages

Table 1. Alternative configurations of most common MMJIT models

In some experiments [44] Tabu Search and Simulated Annealing resulted to be more effective
than GCM; however, the computational complexity of these meta-heuristics – and the
consequent slowness of execution – makes them quite useless in practical cases, as the same
authors admitted.

Another meta-heuristic based on an optimization approach with Pareto-efficiency frontier –

the “multi objective particle swarm” (MOPS) – to solve the MMJIT with setups was proposed
through a test case of 20 different products production on 40 time buckets [47].

In [48], the authors compared a Bounded Dynamic Programming (BPD) procedure with GCM
and with an Ant Colony (AC) approach, using as OF the minimization of the total inventory
154 Operations Management

cost. They found that BDP is effective (1,03% as the average relative deviation from optimum)
but not efficient, requiring roughly the triple of the time needed by the AC approach. Mean‐
while, GCM was able to find the optimum (13% as the average relative deviation from
optimum) on less than one third of the scenarios in which the AC was successful.
A broad literature survey on MMJIT with setups can be found in [49] while a comprehensive
review of the different approaches to determine both kanban number and the optimal sequence
to smooth production rates is present in [10].

6. Criticism on MMJIT problem solution

Assumed that time wastes are a clear example of MUDA in Lean Production [3], complex
mathematical approaches which require several minutes to compute one optimal sequence for
MMJIT [44] should be discarded, given that the time spent calculating new scheduling
solutions does not add any value to products. On the other side, it is notable that MRP
computation requires a lot of time, especially when it is run for a low-capacity process (in
which CRP-MRP or capacitated MRPs are required). However, being MRP a look-ahead
system which considers the demand forecasts, its planning is updated only at the end of a
predefined “refresh period”, not as frequently as it may be required in a non-leveled JIT
context. MRP was conceived with the idea that, merging the Bill-Of-Materials information with
inventory levels and requirements, the production manager could define a short-term work
plan. In most cases, MRP is updated no more than every week; thus, an MRP run may also
take one day to be computed and evaluated, without any consequences for the production
plan. On the contrary, the situation in JIT environment evolves every time a product is required
from downstream. While MRP assumes the Master Production Schedule forecasts as an input,
in JIT nobody may know what is behind the curtain, minute by minute.
Indeed, while a perfect JIT system does not need any planning update – simply because in a
steady environment (e.g. heijunka) the optimal sequence should always be almost the same,
at least in the medium term – real-world short-term variations can deeply affect the optimality
of a fixed schedule production. For instance, a one-day strike of transport operators in a certain
geographical area can entirely stop the production of a subset of models, and the lack of a raw
material for one hour can turn the best scheduling solution into the worst. On top of this, while
MRP relies on its “frozen period”, JIT is exposed to variability because is supposed to effec‐
tively react to small changes in the production sequence. However, some authors noticed that
the JIT sequences [10, 48, 50] are not so resistant to demand changes, so a single variation in
the initial plan can completely alter the best solution. This is particularly true when the required
production capacity gets near to the available. Thus, developing algorithm for solving the
MMJIT problem under the hypothesis of constant demand or constant product mix seems
useless.
JIT was developed for manual or semi-automated assembly line systems, not for completely
automated manufacturing systems. The flexibility of the JIT approach requires a flexible
production environment (i.e. the process bottleneck should not be saturated) and this is not
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an easy condition to be reached in real industries. Consequently, despite the competence of its
operations managers, even a big multinational manufacturer may encounter several problems
in implementing JIT if a significant part of its supplier is made of small or medium-size
enterprises (SMEs), which are naturally more exposed to variability issues. On top of this,
differently from MRP – where the algorithm lies within a software and is transparent for users
– in JIT the product sequencing is performed by the workforce and managed through the use
of simple techniques, such as the heijunka box, the kanban board or other visual management
tools, e.g. andons. Thus, any approach to organize JIT production should be easily compre‐
hensible to the workers and should not require neither expert knowledge nor a supercomputer
to be applied.

7. Using simulations to validate JIT heuristics

As it has been said, finding good solutions for the MMJIT problem with setups using an
algorithmic approach may take too long and, on top of this, the solution can be vulnerable to
product mix changes. Indeed, Kanban technique and GCM I methods are the most used
approaches to manage JIT production thanks to their simplicity [44]. Some companies, where
SMED techniques [51] failed to reduce setup times, use a modified version of the kanban FIFO
board, in order to prevent setups proliferation. Thus, a simple batching process is introduced:
when more than one kanban is posted on the board, the workstation operator shall not start
the job on the first row but, on the contrary, chooses the job which allows the workstation to
skip the setup phase. As an example, given the original job sequence A-B-A-C-A-B for a
workstation, if the operator is allowed to look two positions ahead, he would process A-A-B-
C-A-B, saving one setup time. In such situations, where setup times cannot be reduced under
a certain value, rather than giving up the idea of adopting the Lean Production approach,
heuristics can be developed and tested in order to obtain a leveled production even if coping
with long setup times or demand variability.
The most common method to analyze and validate heuristics is through simulation. Several
authors agree that simulation is one of the best ways to analyze the dynamic and stochastic
behavior of manufacturing system, predicting its operational performance [52, 53, 54].
Simulating, a user can dynamically reproduce how a system works and how the subsystems
interact between each other; on top of this, a simulation tool can be used as a decision support
system tool since it natively embeds the what-if logic [55]. Indeed, simulation can be used to
test the solutions provided by Genetic Algorithms, Simulated Annealing, Ant Colony, etc.
since these algorithms handle stochasticity and do not assume determinism. Simulation can
be used for:

• productivity analysis [56],

• production performances increase [1, 57, 58],
• confrontation of different production policies [59]
• solving scheduling problems [50, 60].
156 Operations Management

In spite of these potentialities, there seem to be few manufacturing simulation software really
intended for industrial use, which go beyond a simple representation of the plant layout and
modeling of the manufacturing flow. On top of some customized simulators – developed and
built in a high-level programming language from some academic or research group in order
to solve specific cases with drastic simplifying hypotheses – the major part of commercial
software implements a graphical model-building approach, where experienced users can
model almost any type of process using basic function blocks and evaluate the whole system
behavior through some user-defined statistical functions [61]. The latters, being multi-purpose
simulation software, require great efforts in translating real industrial processes logic into the
modeling scheme, and it is thus difficult to “put down the simulation in the manufacturing
process” [55]. Indeed, the lack of manufacturing archetypes to model building seems one of
the most remarkable weakness for most simulator tools, since their presence could simplify
the model development process for who speak the "language of business" [62]. Moreover,
commercial simulators show several limitations if used to test custom heuristics, for example
to level a JIT production or to solve a line-balancing problem: some authors report typical
weaknesses in presenting the simulation output [63] or limited functionalities in terms of
statistical analysis [64], on top of the lack of user-friendliness. For instance, most common
commercial simulation software do not embed the most useful random distributions for
manufacturing system analysis, such as the Weibull, Beta and Poisson distribution. When
dealing with these cases, it is often easier to build custom software, despite it requires strong
competences in operations research or statistics that have never represented the traditional
background of industrial companies analysts [64].

In order to widespread simulation software usage among the manufacturing industry, some
authors underline the need of a standard architecture to model production and logistics
processes [65, 66, 67]. Literature suggested to focus on a new reference framework for manu‐
facturing simulation systems, that implement both a structure and a logic closer to real
production systems and that may support industrial processes optimization [68, 69].

Moreover, given hardware increased performances, computational workload of a simulation

tool is not a problem anymore [70] and it seems possible to develop simulators able to run in
less than one minute even complex instances. The complexity of a manufacturing model is
linked both to size and system stochasticity. A careful analysis of time series can provide useful
information to be included in the simulator, in order to model stochastic variables linked to
machine failures or scrap production. This allows a more truthful assessment of key perform‐
ance indicators (KPI) for a range of solutions under test.

8. Conclusions and a roadmap for research

The effective application of JIT cannot be independent from other key components of a lean
manufacturing system or it can “end up with the opposite of the desired result” [71]. Specifi‐
cally, leveled production (heijunka) is a critical factor. The leveling problem in JIT, a mixed-
model scheduling problem, was formalized in 1983 and named MMJIT. Several numbers of
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solving approaches for MMJIT have been developed during the last decades. Most of them
assume constant demand and product mix. Zero setup-times hypothesis has been removed
only since 2000, and few approaches still cope with stochasticity. On top of this, these algo‐
rithms, although heuristic based, usually spend too much time in finding a good solution.
Simplification hypotheses, operations research competences requirements and slow execution
prevented these approaches to widespread in industry. Indeed, the heijunka box or the
standard FIFO kanban approach with the simple Goal-Chasing-Method heuristic are still the
most used tools to manage production in JIT environment. This is acknowledged also by the
proponents of alternatives, and GCM is always used as a benchmark for every new MMJIT
solution. However, these traditional approaches are not so effective in case of long setups and
demand variations, given the fact that they have been conceived in pure JIT environments. In
high stochastic scenarios, in order to prevent stock-outs, kanban number is raised along with
the inventory levels. There are several cases of companies, operating in unstable contexts and
where setup times cannot be reduced over a certain extent, that are interested in applying JIT
techniques to reduce inventory carrying costs and manage the production flow in an effective
and simple way. The development of kanban board / heijunka-box variations, in order to cope
with the specific requirements of these companies, seems to offer better potentialities if
compared to the development of difficult operations research algorithmic approaches. In order
to solve industrial problems, researchers may concentrate in finding new policies that could
really be helpful for production systems wishing to benefit from a JIT implementation but
lacking in some lean production requirements, rather than studying new algorithm for MMJIT
problem.

For instance, kanban board / heijunka-box variations can effectively focus on job preemption
opportunities in order to reduce setups abundance, or on new rules to manage priorities in
case of breakdowns or variable quality rates. The parameters fine-tuning can be performed
through simulation. In this sense, given the limitations of most commercial software, the
development of a simulation conceptual model – along with its requisites – of a model
representation (objects and structures) and some communication rules between the subsys‐
tems (communication protocols) are the main issues that need to be addressed from academics
and developers.

Author details

Francesco Giordano and Massimiliano M. Schiraldi

Department of Enterprise Engineering, “Tor Vergata” University of Rome, Italy

158 Operations Management

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 Chapter 7

Enterprise Risk Management to Drive Operations

Performances

Giulio Di Gravio, Francesco Costantino and

Massimo Tronci

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/54442

1. Introduction

Global competition characterizes the market of the new millennium where uncertainty and
volatility are the main elements affecting the decision making process of managers that need
to determine scenarios, define strategies, plan interventions and investments, develop projects
and execute operations (figure 1).

Figure 1. Decision hierarchy

Risks have been always part of entrepreneurships but a growing attention to the issues related
to Risk Management is nowadays spreading. Along with the financial scandals in the affairs

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164 Operations Management

of some major corporations, the high degree of dynamism and the evolutions of markets need
organizations to rapidly adapt their business models to changes, whether economic, political,
regulatory, technological or social [1].

In particular, managerial trends of business disintegration, decentralization and outsourcing,

pushed organizations towards practices of information sharing, coordination and partnership.
The difficulties that generally arise during the implementation of these practices underline the
impact that critical risk factors can have on corporate governance. Operations, at any level, are
highly affected in their performance by uncertainty, reducing their efficiency and effectiveness
while losing control on the evolution of the value chain.

Studies on risk management have to be extended, involving not only internal processes of
companies but considering also the relationship and the level of integration of supply chain
partners. This can be viewed as a strategic issue of operations management to enable inter‐
ventions of research, development and innovation.

In a vulnerable economy, where the attention to quality and efficiency through cost reduction
is a source of frequent perturbations, an eventual error in understanding the sensibility of the
operations to continuous changes can seriously and irreparably compromise the capability of
fitting customers’ requirements.

Managers need to have personal skills and operational tools to ensure that risk management
strategies can be suitably implemented and integrated in the production and logistics business
environment. In order to face internal and external uncertainty, take advantage of it and exploit
opportunities, it is necessary to identify, analyze and evaluate operational risks through stand‐
ard methodologies that help to:

• classify the different types of risks;

• identify risks in scope;

• assess risks;

• identify possible interventions and relative priorities;

• select, plan and implement interventions, managing actions and collecting feedbacks.

While studies and standards on risk management for health and safety, environment or se‐
curity of information defined a well-known and universally recognized state of the art, cor‐
porate and operational risk management already needs a systematic approach and a common
view. The main contributions in these fields are the reference models issued by international
bodies [2-5].

Starting from the most advanced international experiences, in this chapter some principles are
defined and developed in a framework that, depending on the maturity level of organizations,
may help to adequately support their achievements and drive operations performance.
 Enterprise Risk Management to Drive Operations Performances 165
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2. Corporate governance and risk management

Over the years, the attention to the basic tenets of corporate governance has radically increased.
In response to the requirements of supporting business leaders in managing organizations and
in protecting the various stakeholders towards the evolution of the political, economic and
social environment, guide lines and reference models in the field of corporate governance have
been issued.
Within this body of rules, risk management plays a main role. It relates directly to the recog‐
nition of the strategic connotations of corporate governance as the means to achieve business
targets, according to the rights and expectations of stakeholders.
Since the mid-nineties onwards, the themes of risk management and corporate governance are
strictly intertwined and almost coincident: the systematic management of risks has become a
synonym of a "healthy" management of the business. At the same time, the techniques of risk
analysis, historically associated with assessing financial risks, have been revised or replaced
by methods that pervade the organization in depth. Along with the use of specific and complex
control models (i.e. the experience of the Code of Conduct of the Italian Stock Exchange),
responsibility for risk management is placed at the level of senior management. In some coun‐
tries, such as Germany, Australia and New Zealand, these indications reached the level of
compulsory requirements as national legislation asks all companies to have an operational risk
management system.
From the above, the close link between corporate governance and risk management is abso‐
lutely clear. It has to be considered not only as an operational practice but rather as an essential
component of decision making, based on the continuous development of definition systems
and, therefore, of the top management responsibility.
The management of the company risk profile requires the knowledge of:

• the risk system affecting the enterprise;

• the nature and intensity of the different types of risks;
• the probability of occurrence of each risk and its expected impact;
• the mitigation strategies of the different types of risks.

To ensure that the approved, deliberated and planned risk management strategies are executed
in an effective and efficient way, the company's top management shall periodically review
and, if necessary, implement corrective and/or preventive action with regard to:

• reliability of existing systems for the identification and assessment of risks;

• effectiveness of internal control systems to monitor risks and their possible evolution.

Corporate governance is thus to be seen as the strategic platform on which the tactical and
operational system of risk & control acts, i.e. the set of processes, tools and resources at all
levels of the organization to ensure the achievement of corporate objectives. On these argu‐
166 Operations Management

ments, it is appropriate to consider that the application of a system based on the principles of
risk & control governance allows the creation of a virtuous circle of performances that has a
positive impact on the environment inside and outside the company, beyond regulatory re‐
quirements.
Management has the responsibility to plan, organize and direct initiatives to ensure the ach‐
ievement of company goals, in terms of:

• definition of business and government targets;

• formulation of strategies to reach business and government targets;
• effective and efficient use of the resources of the organization;
• relevance and reliability of financial and operational reporting;
• protection of company assets;
• compliance with laws, regulations, contracts and corporate ethical standards;
• protection of ethical and social values.

The management acts through a regular review of its objectives, changes in processes accord‐
ing to changes in the internal and external environment, promoting and maintaining a busi‐
ness-oriented culture and a climate.

3. Risk classification

Uncertain events can have both a positive and a negative effect: on the one hand, in fact, they
are a threat to the achievement of business objectives, on the other hand can become a signif‐
icant source of opportunities for companies able to understand, anticipate and manage them.
According to [6], risks are “events with negative impacts that can harm the creation of business value
or erode the existing one” while opportunities are “events with positive impact that may offset negative
impacts”. The opportunities are chances that an event will occur and positively affect the ach‐
ievement of objectives, contributing thus to the creation of value or preserving the existing
one. Management needs to assess the opportunities, reconsidering its strategies and processes
of setting goals and developing new plans to catch benefits derived from them.
An inherent risk can so be defined as “the possibility that an event occurs and have a negative
impact on the achievement of objectives” while the control can be defined as “any means used
by management to increase the likelihood that the business objectives set are achieved”, mit‐
igating the risks in an appropriate manner. In this context, a hazard is a “potential source of
risk” while a residual risk is the “risk that still remains after mitigations”.
Along with these definitions, it is possible to organize the different types of risks in different
classes and their possible combinations. In Table 1 a first example of classification is shown,
based on two characteristics that relate the origin and generation of the risk (organizational
perimeter) with the possibilities of intervention (controllability of risk).
 Enterprise Risk Management to Drive Operations Performances 167
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Controllability

Controllable Partially controllable Uncontrollable

Organization

Internal Quality and cost of products Environmental impacts Incidents and accidents

External Technological progress Demand variation Natural disasters

Table 1. Example of risk classification by perimeter

Further classifications can also be taken from the already mentioned risk management models,
where the descriptive categories are represented as a function of different objectives and de‐
cision-making levels (Table 2).

Model Dimension Classes

Risk Management Level of interaction (internal - Strategic risks (partner and market)
Standard [3] and external) - Financial risks (economic-financial cycle)
- Operational risks (process)
- Potential risks (social and territorial environment)

Strategy Survival Guide Decisional level - External risks (PESTLE - Political, Economic, Socio-cultural,
[7] Technological, Legal/regulatory, Environmental)
- Operational risks (delivery, capacity and capability,
performance)
- Change risks (change programs, new projects, new policies)

FIRM Risk Scorecard [8] Area of impact - Infrastructural risks

- Financial risks
- Market risks
- Reputational risks

Enterprise Risk Area of impact - Strategic risks

Management [4] - Operational risks
- Reporting risks
- Compliance risks

Table 2. Example of risk classification by target

Developing the classification to an extended level and considering all the sources of uncer‐
tainty that affects business targets, vulnerability of organizations can be assessed on five dif‐
ferent areas (Table 3).
168 Operations Management

Risk Category Risk factors

Demand (Customers) - Number and size of customers

- Changes in number and frequency of orders
- Changes to orders
- Seasonal and promotional effects
- Forecasting
- Warehouses and inventory
- Level of innovation and competition
- Life cycle of the product
- Timing and mode of payment
- Retention rate

Offer (Suppliers) - Number and size of suppliers

- Level of quality and performance
- Level of flexibility and elasticity
- Duration and variability of lead time
- Length and mode of transfers
- Forecasting and planning
- Just-in-Time or Lean approaches
- Cost efficiency
- Price levels
- Outsourcing
- Internationalization
- Disruption

Processes (Organization) - Flexibility of production-distribution systems

- Variability in process management
- Variability in process performance
- Level of productivity
- Capacity
- Handling
- Operational and functional failures
- Redundancy of backup systems (quantity and quality)
- Profit margins
- Technological standards
- Technological innovation of product and process
- Product customization

Network and collaboration - Trust and interdependence among partners

(Relations) - Level of collaboration
- Design and development of relations
- Level of integration
- Level of service
- Opportunism and information asymmetry in transactions
- Bargaining power
 Enterprise Risk Management to Drive Operations Performances 169
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Risk Category Risk factors

- Strategic objectives and mission

- Corporate cultures
- Business Logic
- Relationship and stakeholder engagement
- Social and administrative responsibility
- Availability and reliability of information systems
- Intellectual property

Environment (Externalities) - Regulations

- Policies
- Laws
- Taxes
- Currency
- Strikes
- Natural events
- Social events (i.e. terrorism)

Table 3. Risk classification by organization

4. Enterprise risk management for strategic planning

The competitiveness of an organization depends on its ability to create value for its stake‐
holders. The management maximizes the value when objectives and strategies are formulated
in order to achieve an optimal balance between growth, profitability and associated risks, using
resources in an efficient and effective way. These statements are the basic philosophy of "risk
management business”. As seen, all businesses face uncertain events and the challenge of
management is to determine the amount of uncertainty acceptable to create value. The uncer‐
tainty is both a risk and an opportunity and can potentially reduce or increase the value of the
company.
The Enterprise Risk Management (ERM) is the set of processes that deals with the risks and
opportunities that have an impact on the creation or preservation of value. ERM is put in place
by the Board of Administration, the management and other professionals in an organization
to formulate strategies designed to identify potential events that may affect the business, to
manage risk within the limits of acceptable risk and to provide reasonable assurance regarding
the achievement of business targets. It is an ongoing and pervasive process that involves the
whole organization, acted by people of different roles at all levels and throughout the corporate
structure, both on its specific assets and on the company as a whole.
This definition is intentionally broad and includes key concepts, critical to understand how
companies must manage risk, and provides the basic criteria to apply in all organizations,
whatever their nature. The ERM enables to effectively deal with uncertainty, enhancing the
company's ability to generate value through the following actions:
170 Operations Management

• the alignment of strategy at acceptable risk: management establishes the level of acceptable risks
in evaluating strategies, setting objectives and developing mechanisms to manage the as‐
sociated risks;
• the improvement of the response to identified risks: ERM needs a rigorous methodology to iden‐
tify and select the most appropriate among several alternatives of responses to risks (avoid,
reduce, share, accept the risk);
• the reduction of contingencies and resulting losses: companies, increasing their ability to identify
potential events, assess the risks and formulate responses, reducing the frequency of unex‐
pected events as well as the subsequent costs and losses.
• the identification and management of multiple and correlated risks: every business needs to face
an high number of risks affecting different areas and the ERM facilitates the formulation of
a unique response to clusters of risks and associated impacts;
• the identification of opportunities: through the analysis of all possible events, management is
able to proactively identify and seize the opportunities that emerge;
• the improvement of capital expenditure: the acquisition of reliable information on risks allows
management to effectively assess the overall financial needs, improving the allocation of
resources.
These characteristics help management to achieve performance targets without wasting re‐
sources. Furthermore, it ensures the effectiveness of reporting in compliance with laws and
regulations, so to prevent damages to corporate reputation and relative consequences. Sum‐
marizing, the ERM supports organizations to accomplish their goals while avoiding pitfalls
and unexpected path.

5. The risk management process

The risk management process consists of a series of logical steps for analyzing, in a systematic
way, the hazards, the dangers and the associated risks that may arise in the management of
an organization. The goal is realized in giving maximum sustainable value to any activity,
through a continuous and gradual process that moves from the definition of a strategy along
its implementation. By understanding all potential positive and negative factors that affect the
system, it is possible to increase the probability of success and reduce the level of uncertainty.
In particular, risk management protects and supports the requirements of the organization in
its relationship with stakeholders through:

• a methodological framework that allows a consistent and controlled development of activ‐

ities;
• the improvement of the decision-making process, creating priorities by really understand‐
ing the natural and exceptional variability of activities and their positive or negative effects;
• the contribution to a more efficient use and allocation of resources;
 Enterprise Risk Management to Drive Operations Performances 171
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• the protection and enhancement of corporate assets and image;

• the development and support to the people and to their knowledge base.

Figure 2 represents a process of risk management in its different stages of development that
are detailed in the following sections.

5.1. Risk assessment

Risk assessment is a sequence of various activities aimed at identifying and evaluate the set of
risks that the organization has to face. The international literature offers several techniques of
modeling and decision-making [9-10] that can become part of the analysis.

The results of risk assessment can be summed up in two outputs that address the following
stages of treatment and control:

• the risk profile;

• the risk appetite.

The risk profile represents the level of overall exposure of the organization, defining in a com‐
plete way the complexity of the risks to be managed and their ranking, according to their entity
and significance. A segmentation for entities (areas, functions, people, sites) or decisional levels
and the actual measures of treatment and control complete the profile. This takes to the ex‐
pression of the:

• gross profile: the level of exposure to the events without any measure of treatment;

• net profile: the level of exposure, according to the measures of treatment in place (if effective
or not);

• net future profile: the level of exposure surveyed after all the measures of treatment are im‐
plemented.

The definition of the risk appetite is a key outcome of the assessment process: on the one hand
it is appropriate to draft it before the risk identification (where the level of accuracy of analysis
can also depend on the risk appetite itself), on the other it is absolutely necessary to fix it before
taking any decision about the treatment.

In any case, the risk appetite presents two different dimensions according to the scope of anal‐
ysis:

• threat: the threshold level of exposure considered acceptable by the organization and justi‐
fiable in terms of costs or other performance;

• opportunity: what the organization is willing to risk to achieve the benefits in analysis, com‐
pared with all the losses eventually arising from a failure.

The so defined risk appetite can be adjusted through the delegation of responsibilities,
strengthening the capability of taking decisions at different levels according to cost dynamics.
172 Operations Management

Figure 2. Risk Management process

5.1.1. Scope definition

The target of this stage is the identification of assets and people exposed to the risks and the
identification of factors that determine the risks themselves. The definition of the scope has a
critical importance in order to evaluate internal and external influences on the organization.

As this analysis requires requires a thorough knowledge of the environmental components

(business, market, political, social and cultural issues), it has to be developed for all the deci‐
sion-making levels (strategic, tactical and operational) and for all the stakeholders. Further‐
more, the relationships with the output of the strategic planning have to be determined as the
relevance of a risk and the priorities of interventions can be identified only with reference to
the targets to uncertainty, while the eventual impact can vary widely according to a proper
assignment and commitment of resources.

Despite this stage is found to be of fundamental importance for the effectiveness of the others,
in particular for the identification of risks, it is too often executed with an inappropriate level
of attention or it is not developed at all.

5.1.2. Risk identification

The identification of risks allows to acquire knowledge on possible future events, trying to
measure the level of exposure of the organization. The target is to identify all the significant
 Enterprise Risk Management to Drive Operations Performances 173
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source of uncertainty in order to describe and proactively manage different scenarios. The
identification is the first step to define the risk profile and the risk appetite of the organization.

This activity has to be repeated continuously and can be divided into two distinct stages:
• initial identification of risks: to be developed for organizations without a systematic ap‐
proach to risk management. It is required to gather information on hazards and their pos‐
sible evolutions;

• ongoing identification of risks: to update the risk profile of an organization and its relations,
taking into account the generation of new risks or modifications to the already identified
ones.
All the process mapping techniques are extremely useful to associate and connect risks with
activities (Figure 3). The level of detail is determined by the necessity of identifying the specific
impact associated with risks, of assigning responsibility of management and defining the sub‐
sequent actions to ensure control.

This can be developed with the support of external consultants or through a self-assessment
which, if conducted with adequate methodological tools, provides a better awareness of the
profile and an upgrade of the management system.

Among the others, the most common and widely used (successfully tested in other fields as
for marketing and quality management) are:
• techniques of data collection and statistical analysis;

• techniques of problem finding and problem solving;

• SWOT analysis and Field Force;

• benchmarking with competitors or best in class.

Figure 3. Example of risk identification for collaboration risks

174 Operations Management

5.1.3. Risk description

The results of identification should be developed in an appropriate stage of description by

means of specific information support systems (i.e. Risk Register, table 4). Depending on the
scope, the documentary support can assume different forms to improve the sharing of infor‐
mation and increase efficiency of management. Whatever the solution adopted for the de‐
scription, this has to be dynamically completed with data coming from the different stages of
the risk management process and updated according to changes of internal and external con‐
text. Inheriting the best practices already in use for environmental and safety management
systems, when the risks are in any way related to regulations (i.e. Sarban Oaxley’s act), a Com‐
pliance Register has to be associated to the Risk Register to ensure the conformity to require‐
ments.

5.1.4. Risk estimation

The risk assessment has to end up with the association of a qualitative or quantitative measure
of any risk, in terms of technical, economic or financial intensity. The choice of the methodology
is related to the level of details required by the comparison among risk profile and risk appetite
and to the availability of data and information. The metrics can refer to:
• probability of occurrence and magnitude of the effects and impacts;

• value at risk or vulnerability, which is the possible value of benefits or threats in relation to
the characteristics of the organization.
The estimation of risk can be performed using different qualitative, quantitative or mixed
criteria each with a different level of detail and reliability of the results. While the first are
characterized by a strong subjectivity that only a high level of experience can compensate, the
second need harmonization and conversion of the scales and of the values found. The choice
is also related to the desired output of the stage, typically a hierarchical ordering of the risks
identified (e.g. some types of exposures and tolerability are defined by regulations, especially
for safety and environment). Examples of simple evaluation criteria, according to the already
mentioned reference model, are shown in table 4, 5 and 6.

Identification code ID to associate and create links among information

Category According to the classification adopted

Organizational level Corporate, business unit, site, process or activities involved

Related target Relation to the strategic planning and decisional level

Stakeholders Involvement of the different stakeholders

Regulation Relation to compulsory (laws or directives) or voluntary (procedures)

requirements

Description Extended description of the event and its possible evolutions (hazard)

Causes First, second and third level causes (direct or indirect)

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Consequences Description of impacts (direct or indirect)

Emergency Potential emergency related to the risk and associate plans of

recovery

Inherent risk Combination of the probability (or frequency) of the event and the
impact or relevance of the effects

Risk appetite Threshold level of tolerance of the specific risk

Treatment Extended description of the mitigations

Residual risk Estimation of the risk after the of mitigation

Control Extended description of the control

Risk owner Responsibility of the risk and related activities

Control owner Responsibility of the control and related activities

Table 4. Risk register

High - financial impact on the organization probably higher than xxx €

- notable impact on strategies or operations of the organization
- notable involvement of the stakeholders

Medium - financial impact on the organization probably among yyy € and xxx €
- reasonable impact on strategies or operations of the organization
- reasonable involvement of the stakeholders

Low - financial impact on the organization probably lower than yyy €

- limited impact on strategies or operations of the organization
- limited involvement of the stakeholders

Table 5. Impacts of threats and opportunities [3]

Value Indicator Description

- possible happening of the event in the period of

Probable every year or in more
High (Probable) analysis, with many repetitions
than 25% of cases
- it happened recently

- possible happening of the event in the period of

Probable in 10 years or in less analysis, with some repetitions
Medium (Possible)
than 25% of cases - difficulties in forecasting and controllability
- data on past events exist

Improbable in 10 years or in less - mostly likely it never happens

Low (Remote)
than 2% of cases - it never happened

Table 6. Probability of the event: threats [3]

176 Operations Management

Value Indicator Description

Probable advantages in the year - clear opportunity with reasonable certainty

High (Probable)
or in more than 75% of cases - to act in the short period with the actual processes

Reasonable advantages in the - achievable opportunity that requires an accurate

Medium (Possible) year or between 75% and 25% of management
cases - opportunity beyond the programs

Possible advantages in the - possible opportunity that has to be deeply examined

Low (Remote) midterm or in less than 25% of - opportunity with low probability of success
cases according to the actual resources involved

Table 7. Probability of the event: opportunities [3]

5.2. Risk evaluation

The evaluation of risks provides a judgment concerning the acceptability or the need of miti‐
gations, according to the comparison between the risk profile and the risk appetite. The stage
is a decision-making process in which, if the risk is acceptable, the assessment can be termi‐
nated, otherwise it goes on to next stage of treatment and management. To verify the accept‐
ability after the interventions, the results of the mitigations have to be iteratively compared to
the expected targets. At this stage it is possible to use, with adaptation when necessary, meth‐
ods and techniques widely tested in safety management:

• Event Tree Analysis (ETA) and Fault Tree Analysis (FTA): analysis of the cause-effect tree of
the risk profile. The top event (an event that is at the end of the shaft) is usually a cause of
loss of value in the organization, related to exclusionary or concurrent events of a lower-
level type;

• Failure Modes Effects Analysis (FMEA) and Failure Modes Effects and Criticality Analysis (FME‐
CA): FMEA is a technique that allows a qualitative analysis of a system, decomposing the
problem in a hierarchy of functions up to a determined level of detail. For each of the con‐
stituents, possible "failure modes" (adverse events) are identified and actions to eliminate
or reduce the effects can be considered. FMECA adds a quantitative assessment of the crit‐
icalities: for each mode, an index is calculated as the combination of the occurrence of the
event, the severity of its effects and the detectability of the symptoms;

• Hazard and Operability (HAZOP) analysis: qualitative methodology that has both deductive
(search for causes) and inductive (consequence analysis) aspects. The method seeks for the
risks and operational problems that degrade system performances and then find solutions
to the problems identified;

• Multi-criteria decision tools (i.e. Analytic Hierarchy Process and Analytic Network Process): deci‐
sion support techniques for solving complex problems in which both qualitative and quan‐
titative aspects have to be considered. Through a hierarchical or network modeling, the
definition of a ranking of the critical aspects of the problem is enabled. Multi-criteria decision
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tools give an effective support mainly where the consequences of an event can be both
positive and negative, applying cost-benefit analysis.

5.3. Risk treatment

Treatment of risks must be determined after a first evaluation and comparison of the risk
profile and the risk appetite of the organization. The actions arising from this decision-making
stage can be classified according to the following scheme:

• terminate: remove, dispose or outsource, where possible, the factors that can cause the risk.
It can take the organization to refuse opportunities if the value at risk is higher than the risk
appetite;

• treat: develop measures of mitigation in order to intervene on the values of significance of

the risk, reducing the probability of occurrence (prevention), the potential impacts of the
effects (protection) or determining actions of restoring (recovery) after damages are occur‐
red. Passing from prevention to protection and recovery, the capability of controlling risks
tends to decrease, while increasing the exposure of the organization;

• tolerate: accept the risk profile as compatible with the risk appetite, in relation to the resource
involved;

• transfer: transfer the impacts to third parties through, for example, insurances or risk sharing
actions. Possible uncertain effects are converted in certain payments;

• neutralize: balance two or more risk, for example increasing the number of unit exposed, so
that they can cancel each other;

• take the opportunity: when developing actions of treatment, opportunities of positive impacts
can be identified and explored.

5.4. Risk review

The key target of the review stage is to monitor the changes in the risk profile and in the risk
appetite of the organization and to provide assurance to all stakeholders that the risk man‐
agement process is appropriate to the context, effectively and efficiently implemented.

The frequency of the review should be determined depending on the characteristics of the risk
management system, to execute:

• a review of the risks, to verify the evolution of already existing risks and the arise of new risks,
assessing their entity;

• a review of the risk management process, to ensure that all activities are under control and to
detect changes in the structure of the process.
178 Operations Management

6. The control system

The conceptual path that characterizes this approach to risk management is strictly related to
the existence of an indissoluble connection between risks and controls. Most current control
systems recognize the risk as part of the corporate governance that has to be:

• continuous, integrating control in the decision-making processes;

• pervasive, spreading the risk management at all decisional levels;

• formalized, through the use of clear and shared methodologies;

• structured, through the adoption of suitable organizational solutions.

The control system traditionally represents a reactive approach in response to adverse events,
fragmented in different areas and occasional frequencies. From a standard dimension, gener‐
ally limited to financial risks or internal audit, it has to evolve towards a proactive continuous
process, results-oriented and with widespread responsibility. The challenge for management
is to determine a sustainable amount of uncertainty to create value in relation to the resources
assigned, facing a costs and benefits trade-off where the marginal cost of control is not greater
than the benefit obtained.

The main components of the control system can be summarized as follows:

• control environment: it is the base of the whole system of controls as it determines the sensi‐
tivity level of management and staff on the execution of processes. The adoption and dis‐
semination of codes of ethics and values, policies and management style, the definition of
a clear organizational structure and responsibilities (including specific bodies of internal
control), the development of professional skills of human resources are the elements that
constitute this environment;

• control activities: it is the operational component of the control system, configured as a set of
initiatives and procedures to be executed, both on process and interfaces, to reduce business
risks to a reasonable level, ensuring the achievement of the targets;

• information and communication: a structured information system at all levels enables the
control on processes, recomposing flows managed by different subsystems and applications
that need to be integrated. Adequate information, synthetic and timely, must be provided
to allow the execution of activities, taking responsibilities and ensuring monitoring;

• monitoring: it is the continuous supervision and periodic evaluation of the performances of

the control system. The scope and techniques of monitoring depend on the results of the
risk assessment and on the effectiveness of the procedures in order to ensure that the controls
are in place to efficiently reduce the risks.
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7. The business continuity

But how can organizations deal with those types of risks generally unknown and not predict‐
able? The answer comes from a different kind of strategic vision that is not only based on the
analysis of identified risks but looks at the possible modes of disruption of processes regardless
of the cause. For example, once defined the logistics distribution as a key factor for the success
of the business, you can evaluate how to recover any link regardless of the specific reasons of
interruption.
The Business Continuity Management is an approach generally used in case of possible serious
consequences related to crisis or emergency [11-13]: an organization that evaluates the effects
of damage to a warehouse caused by a sudden storm or defines actions following the failure
of a partner is performing risk management; when it arranges structured actions related to the
unavailability of a warehouse or a provider moves up to the level of Business Continuity
Management and its main features:

• analysis and identification of the elements of the organization that may be subject to inter‐
ruption, unavailability and related effects;
• definition of action plans and programs to be implemented when an element is missing, to
ensure the continuity of material and information flows or recover as quickly as possible;
• monitoring of processes to anticipate possible crises or to start emergency plans;
• establishment of systematic test of recovery plans;
• once recovered, structured analysis of events to evaluate the success of the initiatives, the
efficiency of the plans and their revision.

The Business Continuity Management accompanies organizations during disaster recovery of

unexpected risks, particularly rare and with high magnitudes of the effects, where the opera‐
tions must be carried out with the utmost speed and effectiveness. Events such as the earth‐
quake in Kobe (Japan) in 1995, that caused more than 6,400 deaths, 100,000 demolished
buildings, closed the major ports of the country for two months, having a general impact on
industries for more than 100 billion dollars, can easily be presented for examples of disasters.
At the same time, also much smaller events can be recognized as a disaster for small and
medium-sized enterprises, such as the loss of a key customer, a huge credit not collected, a
wrong industrial initiative, a failure of the production system or the breakdown of a relation‐
ship with a partner.on dollars, the other much smaller events also can be recognized as a
disaster for small and medium-sized enterprises, such as the loss of a key customer, a huge
credit not collected, a wrong industrial initiative, a system failure or breakdown of a relation‐
ship with a partner. In the same way, any loss related to a failure of an infrastructure can
generate adverse effects as well as an incorrect definition of strategic processes or the indis‐
criminate and uncoordinated introduction of new methods such as just-in-time: the majority
of negative events come from managerial mistakes that could be avoided rather than from the
effects of real and unexpected emergencies.
A recovery plan must therefore meet the following requirements:
180 Operations Management

• ensure the physical integrity of employees, customers, visitors and in any case all subjects
interacting with current activities;

• protect as much as possible facilities and resources to ensure a rapid recovery;

• implement procedures to restore a minimum level of service, while reducing the impact on
the organization;

• work with partners to redefine the appropriate services: once reorganized the internal ac‐
tivities, it is necessary to seek outside to assess the effects and consequences of actions taken;

• return all processes to performance standard in time and at reasonable cost: the speed with
which the repairs must be carried out is balanced with the associated costs.

8. Conclusions

The main advantages that companies could obtain from Enterprise Risk Management were
deeply investigated in the sections above. Anyway, this novel approach could present some
difficulties, common to many businesses, related to the absence of a culture of strategic plan‐
ning aimed at prevention rather than response, to a general lack of professionals and of ap‐
propriate tools capable to really integrate processes. But while complexity is becoming a part
of the corporate governance system, absorbing a great amount of time and resources, the need
for competitiveness requires a specific attention to performances and results. A new attitude
of organizations towards risk-sensitive areas, able to ensure the coordination among all its
components, helps to transform the management of risk from a cost factor to an added value.
This business view, allows, with a little effort, to reduce the overall risk of the company and
helps the dialogue among business functions and with the stakeholders.

Author details

Giulio Di Gravio*, Francesco Costantino and Massimo Tronci

*Address all correspondence to: [email protected]

Department of Mechanical and Aerospace Engineering, University of Rome “La Sapienza”,

Italy

References

[1] Minahan T.A. The Supply Risk Benchmark Report. Aberdeen Group; 2005.

[2] UK HM Treasury. Orange book management of risk – principles and concepts. 2004.
 Enterprise Risk Management to Drive Operations Performances 181
http://dx.doi.org/10.5772/54442

[3] Association of Insurance and Risk Managers (AIRMIC), GB Institute of Risk Manage‐

ment (IRM), ALARM National Forum for Risk Management. A Risk Management

Standard. 2002

[4] AU Committee of Sponsoring Organizations of the Treadway Commission. Enterprise

Risk Management – Integrated Framework. 2004.

[5] European Foundation for Quality Management. EFQM framework for risk manage‐

ment. EFQM; 2005.

[6] ISO Guide 73:2009 - Risk Management - Vocabulary. ISO; 2009

[7] UK Prime Minister’s Strategy Unit. Strategy survival guide. 2004.

[8] Information Security Forum. Fundamental Information Risk Management (FIRM). ISF;

2000.

[9] ISO 31000:2009. Risk management - Principles and guidelines. ISO; 2009

[10] ISO/IEC 31010:2009. Risk Management - Risk Assessment Techniques. ISO; 2009

[11] British Standard Institute. PAS56: Guide to Business Continuity Management. BSI;

2006.

[12] Chartered Management Institute. Business Continuity Management. CMI; 2005.

[13] Department of Trade and Industry. Information Security: Understanding Business

Continuity Management. Stationery Office; 2006.

 Chapter 8

The Important Role of Packaging in Operations

Management

Alberto Regattieri and Giulia Santarelli

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/54073

1. Introduction

The chapter focuses on the analysis of the impact of packaging in Operations Management
(OM) along the whole supply chain. The product packaging system (i.e. primary, secondary
and tertiary packages and accessories) is highly relevant in the supply chain and its impor‐
tance is growing because of the necessity to minimize costs, reduce the environmental im‐
pact and also due to the development of web operations (i.e. electronic commerce).
A typical supply chain is an end-to-end process with the main purpose of production, trans‐
portation, and distribution of products. It is relative to the products’ movements normally
from the supplier to the manufacturer, distributor, retailer and finally the end consumer. All
products moved are contained in packages and for this reason the analysis of the physical
logistics flows and the role of packaging is a very important issue for the definition and de‐
sign of manufacturing processes, improvement of layout and increase in companies’ effi‐
ciency.
In recent years, companies have started to consider packaging as a critical issue. It is neces‐
sary to analyse the packages’ characteristics (e.g. shape, materials, transport, etc.) in order to
improve the performance of companies and minimize their costs. Packaging concerns all ac‐
tivities of a company: from the purchasing of raw materials to the production and sale of
finished products, and during transport and distribution.
In order to manage the activities directly linked with the manufacturing of products (and
consequently with the packaging system), the OM discipline is defined. It is responsible for
collecting various inputs and converting them into desired outputs through operations [1].
Recently, more and more companies have started to use web operations. Electronic com‐
merce (e-commerce) is the most promising application of information technology witnessed

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184 Operations Management

in recent years. It is revolutionising supply chain management and has enormous potential
for manufacturing, retail and service operations. The role of packaging changes with the in‐
crease in the use of e-commerce: from the traditional “shop window” it has become a means
of information and containment of products.

The purpose of the chapter is to briefly describe a model of OM discipline usable to high‐
light the role of packaging along the supply chain, describing different implications of an
efficient product packaging system for successful management of operations. Particular at‐
tention is paid to the role of product packaging in modern web operations.

The chapter is organised as follows: Section 2 presents a brief description of OM in order to

engage the topic of packaging. The packaging logistics system is described in Section 3, be‐
fore presenting experimental results of studies dealing with packaging perception by both
companies and customers [2; 3]. Moreover, Section 3 introduces the packaging logistics sys‐
tem also including the analysis of the role of packaging in OM and a description of a com‐
plete mathematical model for the evaluation of total packaging cost is presented. Section 4
presents background about modern e-commerce and its relationship with OM. Packaging
and e-commerce connected with OM is described in Section 5 and a case study on packaging
e-commerce in operations is analysed in Section 6. Finally, the conclusion and further re‐
search are presented.

2. Operations management in brief

The brief introduction to OM wants to introduce the important role of packaging in all activ‐
ities of a company. This section will describe a model of OM discipline that the authors have
taken as a reference for dealing with the packaging topic.

According to Drejer et al. [4], the “Scientific Management” approach to industrial engineer‐
ing developed by Frederick Taylor in the 1910s is widely regarded as the basis on which
OM, as a discipline, is founded. This approach involved reducing a system to its simplest
elements, analysing them, and calculating how to improve each element.

OM is the management function applied to manufacturing, service industries and no-profit

organizations [5] and is responsible for all activities directly concerned with making a prod‐
uct, collecting various inputs and converting them into desired outputs through operations
[1]. Thus, OM includes inputs, outputs, and operations. Examples of inputs might be raw
materials, money, people, machines, and time. Outputs are goods, services, staff wages, and
waste materials. Operations include activities such as manufacturing, assembly, packing,
serving, and training [1]. The operations can be of two categories: those that add value and
those with no added value. The first category includes the product processing steps (e.g. op‐
erations that transform raw materials into good products). The second category is actually a
kind of waste. Waste consists of all unnecessary movements for completing an operation,
which should therefore be eliminated. Examples of this are waiting time, piling products, re-
loading, and movements. Moreover, it is important to underline, right from the start, that
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the packaging system can represent a source of waste, but at the same time, a possible
source of opportunities. Before waste-to-energy solutions, for example, it is possible to con‐
sider the use of recycled packages for shipping products. The same package may be used
more than once; for example, if a product is sent back by the consumer, the product package
could be used for the next shipment.
OM can be viewed as the tool behind the technical improvements that make production effi‐
cient [6]. It may include three performance aims: efficiency, effectiveness, and customer sat‐
isfaction. Whether the organization is in the private or the public sector, a manufacturing or
non-manufacturing organization, a profit or a non-profit organization, the optimal utiliza‐
tion of resources is always a desired objective. According to Waters [1], OM can improve ef‐
ficiency of an operation system to do things right and as a broader concept. Effectiveness
involves optimality in the fulfilment of multiple objectives with possible prioritization with‐
in them; it refers to doing the seven right things well: the right operation, right quantity,
right quality, right supplier, right time, right place and right price. The OM system has to be
not only profitable and/or efficient, but must necessarily satisfy customers.
According to Kleinforfer et al. [7], the tools and elements of the management system need to
be integrated with company strategy. The locus of the control and methodology of these
tools and management systems is directly associated with operations. With the growing re‐
alization of the impact of these innovations on customers and profit, operations began their
transformation from a “neglected stepsister needed to support marketing and finance to a
cherished handmaiden of value creation” [8].
According to Hammer [9], a wave of change began in the 1980s called Business Process Re‐
engineering1 (BRP). BPR provided benefits to non-manufacturing processes by applying the
efforts that Total Quality Management2 (TQM) and Just In Time3 (JIT) had applied to manu‐
facturing. Gradually, this whole evolution came to be known as Process Management, a
name that emphasized the crucial importance of processes in value creation and manage‐
ment. Process management is given further impetus by the core competency movement [13],
which stressed the need for companies to develop technology-based and organizational
competencies that their competitors could not easily imitate. The confluence of the core com‐
petency and process management movements led to many of the past decade’s changes in‐
cluding the unbundling of value chains, outsourcing, and innovations in contracting and
supply chains. People now recognize the importance of aligning strategy and operations, a
notion championed by Skinner [14].
As companies developed their core competencies and included them in their business proc‐
esses, the tools and concepts of TQM and JIT have been applied to the development of new
products and supply chain management [7]. Generally, companies first incorporated JIT be‐

1 BRP is the fundamental re-thinking and radical re-design of business processes to achieve improvements in critical
contemporary measures of performance, such as cost, quality, service, and speed [10].
2 TQM is an integrative philosophy of management for continuously improving the quality of products and processes
[11].
3 JIT is a manufacturing program with the primary goal of continuously reducing, and ultimately eliminating all forms
of waste [12].
186 Operations Management

tween suppliers and production units. The 1980s’ introduction of TQM and JIT in manufac‐
turing gave rise to the recognition that the principles of excellence applied to manufacturing
operations could also improve business processes and that organizations structured accord‐
ing to process management principles would improve. According to Kleindorfer et al. [7],
the combination of these process management fundamentals, information and communica‐
tion technologies, and globalization has provided the foundations and tools for managing
today’s outsourcing, contract manufacturing, and global supply chains. In the 1990s compa‐
nies moved over to optimized logistics (including Efficient Consumer Response4 (ECR)) be‐
tween producers and distributors, then to Customer Relationship Management5 (CRM) and
finally to global fulfilment architecture and risk management. These supply chain-focused
trends inspired similar trends at the corporate level as companies moved from lean opera‐
tions to lean enterprises and now to lean consumption [17]. Figure 1 shows these trends and
drivers, based on Kleindorfer et al. [7].

2005
Global Fulfillment Architecture and Risk Management

Distributor
Supplier Producer Customer
/Retailer

1980s 1990s 2000s

TQM-JIT ECR CRM

Figure 1. Trends and drivers of Operations Management (1980-2000) [7]

In order to manage the supply chain, organizations have to make different decisions about
OM that can be classified as strategic, tactical, and operational. A graphical representation of
the three decision levels of OM is shown in Figure 2 [18].
The three decisions’ levels of OM interact and depend on each other: the strategic level is a
prerequisite for the tactical level, and this in turn is a prerequisite for the operational level.
Strategic, tactical, and operational levels of OM are closely connected with the packaging
system. Packaging is cross-functional to all company operations, since it is handled in sever‐
al parts of the supply chain (e.g. marketing, production, logistics, purchasing, etc.). A prod‐
uct packaging system plays a fundamental role in the successful design and management of
the operations in the supply chain. An integrated management of the packaging system
from the strategic (e.g. decision of defining a new packaging solution), tactical (e.g. defini‐
tion of the main packaging requirements) and operational (e.g. development of the physical

4 ECR is an attempt to increase the velocity of inventory in the packaged goods industry throughout the supply chain
of wholesalers, distributors and ultimately end consumers [15].
5 CRM is a widely implemented model for managing company’s interactions with customers. It involves using tech‐
nology to organize, automate, and synchronize business processes [16].
 The Important Role of Packaging in Operations Management 187
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A Strategic level

B Tactical level

C Operational level

Figure 2. Graphical representation of OM’s decision levels [18]

packaging system and respect of the requirements) point of view, allows companies to find
the optimal management of the packaging system and to reduce packaging cost.

A general framework of product packaging and the packaging logistics system will be pre‐
sented in Section 3.

2.1. Sustainable operations management

OM is increasingly connected with the environment and sustainable development (i.e. the
development that meets the needs of the present without compromising the ability of future
generations to meet their own needs), and it now concerns both the operational drivers of
profitability and their relationship with people and the planet.

Following the definition of sustainability by the World Commission on Environment and

Development (WCED), Sustainable Operations Management (SOM) is defined as the set of
skills and concepts that allow a company to structure and manage its business processes in order to
obtain competitive returns on its capital assets without sacrificing the needs of stakeholders and with
regard for the impact of its operations on people and environment.

In order to perform sustainable operations, it is necessary to enlarge the perspective of OM, in‐
cluding people and the planet. According to Kleindorfer et al. [7], SOM integrates the profit
and efficiency orientation of traditional OM with broader considerations of the company’s in‐
ternal and external stakeholders and its environmental impact. SOM helps companies to be‐
come agile, adaptive and aligned, balancing the people and the planet with profits [7].

Figure 1 has shown the evolution of OM since the 1980s. Figure 3 shows the impact of the
SOM in the supply chain [7]. SOM has emerged over recent years and it influences the entire
life cycle of the product (e.g. the management of product, recovery and reverse flows).
188 Operations Management

2005
Global Fulfillment Architecture and Risk Management

Distributor
Supplier Producer Customer
/Retailer

1980s 1990s 2000s

TQM-JIT ECR CRM

2010
Sustainable Operations Management
Lean operations pervade and permeate the entire life of the product, including the management of product
recovery and reverse flows.

Figure 3. The impact of SOM in the supply chain (1980-2010) [7]

Considering the sustainability, environmental responsibility and recycling regulations, the

packaging system plays an increasingly important role. Several environmental aspects are
affected by packaging issues:

• Waste prevention: packages should be used only where needed. Usually, the energy con‐
tent and material usage of the product being packaged are much greater than that of the pack‐
age;
• Material minimization: the mass and volume of packages is one of the criteria to mini‐
mize during the package design process. The use of “reduced” packaging helps to reduce
the environmental impacts;
• Re-use: the re-use of a package or its component for other purposes is encouraged. Re‐
turnable packages have long been used for closed loop logistics systems. Some manufac‐
turers re-use the packages of the incoming parts for a product, either as packages for the
outgoing product or as part of the product itself;
• Recycling: the emphasis focuses on recycling the largest primary components of a pack‐
age: steel, aluminium, paper, plastic, etc.;
• Energy recovery: waste-to-energy and refuse-derived fuel in facilities are able to make
use of the heat available from the packaging components;
• Disposal: incineration, and placement in a sanitary landfill are needed for some materials.

According to the studies conducted by Regattieri et al. [2; 3], users and companies have
shown an interest in the environment and its link with the packaging system. Indeed, they
believe that careful use of packaging can lead to an important reduction in environmental
impact. Companies have begun to use recyclable materials (e.g. cardboard, paper, and plas‐
tic) and to re-use packages for other activities (for example online retailers are beginning to
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re-use secondary packages of back products for future shipments). The next section de‐
scribes the packaging system and its crucial role for the activities along the supply chain,
and then in OM.

3. A theoretical framework of the packaging system

During recent decades, the importance of the packaging system and its different functions
has been increasing. Traditionally, packaging is intended as a means of protecting and pre‐
serving goods, handling, transport, and storage of products [19]. Other packaging functions
like sales promotion, customer attention and brand communication have consistently grown
in importance [20]. It means that when a packaging developer makes a package, it needs to
be designed in order to meet the demand from a sales and a marketing perspective, and not
only from a manufacturing process and transportation network perspective [21].

The European Federation defines packaging as all products made of any materials of any nature
to be used for the containment, protection, delivery and presentation of goods, from raw materials to
processed goods.

Packaging is built up as a system usually consisting of a primary, secondary, and tertiary

level [22]. The primary package concerns the structural nature of the package; it is usually
the smallest unit of distribution or use and is the package in direct contact with the contents.
The secondary package relates to the issues of visual communication and it is used to group
primary packages together. Finally, the tertiary package is used for warehouse storage and
transport shipping [23].

A graphical representation of packaging system is shown in Figure 4:

The packaging system is cross-functional, since it interacts with different industrial depart‐
ments, with their specific requests of how packages should be designed, and these are often
contradictory. Thus, packages have to satisfy several purposes, such as:

• Physical protection: the objects enclosed in the package may require protection from me‐
chanical shock, vibration, electrostatic discharge, compression, temperature, etc.;

• Hygiene: a barrier from e.g. oxygen, water vapour, dust, etc. is often required. Keeping
the contents clean, fresh, sterile and safe for the intended shelf life is a primary function;

• Containment or agglomeration: small objects have to be grouped together in one package

for efficiency reasons;

• Information transmission: packages can communicate how to use, store, recycle, or dis‐
pose of the package or product;

• Marketing: packages can be used by marketers to encourage potential buyers to purchase

the product;
190 Operations Management

Tertiary packaging

Secondary packaging

Primary
packaging

Figure 4. Graphical representation of the packaging system

• Security: packages can play an important role in reducing the risks associated with ship‐
ment. Organizations may install electronic devices like RFID tags on packages, to identify
the products in real time, reducing the risk of thefts and increasing security.

3.1. Packaging system and operations management

In recent years, packaging design has developed into a complete and mature communica‐
tion discipline [24]. Clients now realize that packages can be a central and critical element in
the development of an effective brand identity. The packaging system fulfils a complex ser‐
ies of functions, of which communication is only one. Ease of processing and handling, as
well as transport, storage, protection, convenience, and re-use are all affected by packaging.

The packaging system has significant implications in OM. In order to obtain successful man‐
agement of operations, packaging assumes a fundamental role along the whole supply chain
and has to be connected with logistics, marketing, production, and environment aspects. For
example, logistics requires the packages to be as easy as possible to handle through all proc‐
esses and for customers. Marketing demands a package that looks nice and is the right size.
Packages do not only present the product on the shelf but they also arouse consumers’ ex‐
pectations and generate a desire to try out the product. Once the product is purchased,
packages reassure the consumer of a product’s quality and reinforce confidence [24]. Pro‐
duction requires only one size of packaging for all kinds of products in order to minimize
time and labour cost. The environmental aspect demands the packaging system to be recy‐
 The Important Role of Packaging in Operations Management 191
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clable and to use the least material possible. Figure 5 shows the main interactions of the
packaging system. Logistics
Handle, transport, store,
distribution

Logistics
Handle, transport, store,
distribution

Environment Packaging Production

Containment, protection,
Reduce, re-use, recover, Produce, make,
convenience, communication,
dispose assemble, fit
Environment Packaging
apportionment, unitization Production
Containment, protection,
Reduce, re-use, recover, Produce, make,
convenience, communication,
dispose assemble, fit
apportionment, unitization

Marketing
Sell, differentiate,
Marketing
promote, value, inform
Sell, differentiate,
promote, value, inform
Figure 5. The main interactions of the packaging system
Figure 5. The main interactions of the packaging system
Figure 5. The main interactions of the packaging system
Scholars dealing with packaging disagree about its main function: some researchers emphasize tha
Scholars dealing with packaging disagree about its main function: some researchers emphasize that packaging is a hi
Scholars marketing toolpackaging
dealing with [20], whiledisagree
others consider
about itsitmain
mainly as an integral
function: element of empha‐
some researchers the logistics function [
marketing tool [20], while others consider it mainly as an integral element of the logistics function [19; 25]. It is necessa
size that the
packaging is a highly
technological versatile marketing
and marketing aspects oftool [20], while
packaging, othersit consider
indeed it mainlyimpact on the
has a significant
the technological and marketing aspects of packaging, indeed it has a significant impact on the efficiency of both
as an manufacturing
integral element
manufacturing of the
and logistics function
distribution costs, [19;
time 25]. It is
required necessary
for to balance
completing the techno‐ and packing
manufacturing
and distribution costs, time required for completing manufacturing and packing operations, which ao
logical and
leadmarketing
time and aspects
due date of packaging,
performance indeed
to the it has
customer) a significant
and the impact
marketing on the
function effi‐
(e.g. products’
lead time and due date performance to the customer) and the marketing function (e.g. products’ selling, shelf presenta sel
ciency of both logistics (e.g. manufacturing and distribution costs, time required for
completing
During manufacturing
the recent
During decades,
the recent and
thepacking
decades, operations,
environmental aspect iswhich
the environmental affect
considered
aspect is byproduct lead
companies
considered thattime
by dealand
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deal with th
date performance
to Johansson to
[26] the
the customer)
packaging and the
system marketing
can be divided function
in three (e.g.
mainproducts’
functions, selling,
that shelf
interact
to Johansson [26] the packaging system can be divided in three main functions, that interact each other: flow,
environment
presentation, (Figure 6).
etc.).
environment (Figure 6).

Flow
Flow

Market

Market
Environment

Environment

Figure 6. The main functions of the packaging system [26]

The flow function consists of packaging features that contribute to more efficient handling in distribution. Packag
Figure
Figure internal
6. The main6.functions
materialTheflows,
main functions
of the ofsystem
packaging
distribution, the packaging system
[26] disposal
unpacking, [26]
and return handling are included in this function.

Packaging
The flow logistics is a relatively
function consistsnew discipline that
of packaging in recentthat
features years has been developed
contribute and has gained
to more efficient increasing
handling in d
terms of the strategic role of logistics in delivering competitive advantage by the industrial
internal material flows, distribution, unpacking, disposal and return handling are included in this f and scientific commu
Industry and science attribute different maturity levels to the subject depending on country and culture. According t
the concept of packaging logistics focuses on the synergies achieved by integrating packaging and logistics systems with t
Packaging logistics is a relatively new discipline that in recent years has been developed and ha
increased supply chain efficiency and effectiveness, through the improvement of both packaging and logistics related activities. A
terms ofofpackaging
definition the strategic role
logistics of logistics
is attributed in delivering
to Chan competitive
et al. [27], who advantage
describe packaging by the
logistics industrial
as the interactionand
an
Industry
between logisticsand
and science
packagingattribute different
systems that improve maturity
add-on valueslevels
on thetowhole
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subjectchain,
depending
from raw on country
material andtocu
producers
192 Operations Management

During the recent decades, the environmental aspect is considered by companies that deal with
the packaging system. According to Johansson [26] the packaging system can be divided in
three main functions, that interact each other: flow, market and environment (Figure 6).

The flow function consists of packaging features that contribute to more efficient handling
in distribution. Packaging logistics, internal material flows, distribution, unpacking, dispos‐
al and return handling are included in this function.

Packaging logistics is a relatively new discipline that in recent years has been developed and
has gained increasing attention in terms of the strategic role of logistics in delivering com‐
petitive advantage by the industrial and scientific community [22; 25]. Industry and science
attribute different maturity levels to the subject depending on country and culture. Accord‐
ing to Saghir [22], the concept of packaging logistics focuses on the synergies achieved by inte‐
grating packaging and logistics systems with the potential of increased supply chain efficiency and
effectiveness, through the improvement of both packaging and logistics related activities. A more re‐
cent definition of packaging logistics is attributed to Chan et al. [27], who describe packag‐
ing logistics as the interaction and relationship between logistics and packaging systems that
improve add-on values on the whole supply chain, from raw material producers to end users, and the
disposal of the empty package, by re-use, material recycling, incineration or landfill. Both the defini‐
tions ([22; 27]) focus on the importance of the packaging logistics system, mainly in order to
improve the efficiency of the whole supply chain.

In the market function, things like design, layout, communication, ergonomic aspects that
create value for the product and the brand are important features for the packaging system
[18]. The purpose of the market function is to satisfy customers and to increase product
sales.

During recent decades the link between packaging and marketing is analysed in depth by
several authors, and packaging has been studied as a marketing instrument that can influ‐
ence some specific aspects, such as product positioning, consumer attention, categorization
and evaluation, usage behaviour, intention to purchase or brand communication [28]. The
aspect is significant since the package plays the role of an important interface between the
brand owner and the consumer. The initial impression of product quality by the consumers
is often judged by the impression of the package [29].

In the current operational environment, planning innovations must take into account not
only marketing and logistics functions, but also a factor that is emerging as increasingly im‐
portant: the environmental aspect. It aims to reduce the negative effects of the packaging
system on the environment. Issues like the use of fewer inputs for the same outputs and the
re-use of materials, facilitate the recycling of packaging [18]. Verruccio et al. [28] suggest
that an increasing number of companies are choosing approaches that take care of the envi‐
ronmental aspects. It is further established that the design of the packaging system heavily
influences the environmental aspect of activities in the supply chain [29; 30-32].

With regard to packaging logistics, the use of an appropriate packaging system (in terms of
functions, materials, size and shape) can improve the management of operations [18]:
 The Important Role of Packaging in Operations Management 193
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1. Facilitate goods handling. This function considers the following aspects:

2. a. Volume efficiency: this is a function of packaging design and product shape. In order
to optimize the volume efficiency of a package, this function can be split into two parts,
internal and external filling degree. The first regards how well the space within a pack‐
age is utilized. When using standardized packages with fixed sizes, the internal filling
degree might not always be optimal. The external filling degree concerns the fitting of
the primary packages with secondary and of secondary with tertiary [7]. Packages that
perfectly fill each other can eliminate unnecessary handling and the risk of damage, but
it is important not to be too ambitious. Too much packaging may be too expensive, and
there is a point where it is less costly to allow some damage than to pack for zero dam‐
age;
3. b. Consumption adaptation: the quantity of packages must be adapted to the consump‐
tion in order to keep costs low and not to tie unnecessary capital. Moreover it is desira‐
ble to have flexible packages and a high turnover of the packaging stock [7];
4. c. Weight efficiency: the package must have the lowest possible weight, because volume
and weight limit the possible amount to transport. The weight is even more important
when packages are handled manually [7];
5. d. Handleability: the packaging must be easy to handle for people and automatic sys‐
tems working in the supply chain, and final customers [7]. According to Regattieri et al.
[2; 3], the handleability is considered the most critical packaging quality attribute by
Italian companies and users;
6. Identify the product. The need to trace the position of goods during transport to the final
destination can be achieved in different ways, for example by installing RFID tags in
packages. Thanks to this new technology, it is possible to identify the position of both
packages and products in real time. This system leads to a reduction in thefts, increase
in security, mapping of the path of products and control of the work in progress;
7. Protect the product. The protection of the product is one of the basic functions of packag‐
ing for both companies and users [2; 3]. An unprotected product could cause product
waste, which is negative from both the environmental and the economic point of view.
Packages must protect products during manufacturing and assembly (within the facto‐
ry), storage and picking (within the warehouse) and transport (within the vehicle) from
surrounding conditions, against loss, theft and manipulation of goods.

3.2. The role of packaging along the supply chain

Due to the different implications of the packaging system with all the activities of an organi‐
zation, as underlined in the previous paragraphs, packaging has to be considered an impor‐
tant competitive factor for companies to obtain an efficient supply chain.
The packaging function assumes a crucial role in all activities along the supply chain (e.g.
purchase, production, sales, transport, etc.). It is transversal to other industrial functions
such as logistics, production, marketing and environmental aspects. The packaging function
194 Operations Management

has to satisfy different needs and requirements, trying to have a trade-off between them.
Considering the simplified supply chain of a manufacturing company (Figure 7), it is possi‐
ble to analyse the role of the packaging function for all the parties of the supply chain.

Supplier 1 Supplier 2 Supplier n

Manufacturer

Production Warehousing

Carriers

Wholesaler
Receiving Warehousing Picking Shipping Distributor Centre

Reuse/ Recycling/ Disposal

Carriers

Retailer
Receiving Shipping Replenishing Retail outlet

End consumer 1 End consumer 2 End consumer m

Figure 7. Typical supply chain of a manufacturing company

N suppliers provide raw materials to the manufacturer, which produces the finished prod‐
ucts, sold to the distribution centre, then to the retailer and finally to m end consumers. In
the middle, there are carriers that transport and distribute finished products along the sup‐
ply chain. Each party has different interests and requirements regarding the function of
packaging. Table 1 shows the different role of packaging for the parties to the supply chain.
 The Important Role of Packaging in Operations Management 195
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Party Role of packaging

n Suppliers Suppliers are more interested in the logistics aspect of packaging than in marketing. They have to
send products to the manufacturer and their purpose is the minimization of the logistics costs
(transport, distribution, warehousing), so they prefer a package that is easy to handle and
transport.

Manufacturer The manufacturer produces finished products to sell to the distribution centre and, indirectly, to
end consumers. It is important for the manufacturer to take into account all aspects:
• product protection and safety,
• logistics,
• marketing and the
• environment.
Product protection and safety: the packages have to protect and contain the product,
withstanding mechanical shocks and vibrations;
Logistics: the manufacturer has to handle, store, pick and transport the product to the
distribution centre. He has to make primary, secondary and tertiary packaging that is easy to
transport, minimizes logistics costs and improves the efficiency of the company;
Marketing: the manufacturer has to sell its products to the distribution centre that in turn sells to
the retailer and in turn to end consumers. The manufacturer is indirectly in contact with end
consumers and has to make primary packaging (the package that the users see on the shelf) that
can incite the consumer to buy that product instead of another one. As Pilditch [33] said, the
package is a “silent salesman”, the first thing that the consumer sees when buying a product;
Environment: people are more and more careful about protecting the environment. The
manufacturer has to study a package that minimizes the materials used and can be re-usable or
recyclable.
The manufacturer has to balance the aspects described above in order to obtain an efficient
supply chain.

Wholesaler The wholesaler purchases products from the manufacturer and transports them to the
distribution centre. He is mainly interested in the logistics aspect of packages since the most
important functions are warehousing, picking and shipping the products. The wholesaler needs a
package that is easy to handle and transport rather than one with an attractive shape and design.

Retailer The retailer has to sell products to end consumers and for this reason, needs to consider what
interests the end consumers. Marketing and environmental aspects are important: marketing
because the package is a “shop window” for the product; environment since people are careful
about minimizing pollution preferring to buy products contained in recyclable or re-usable
packages.

m End consumers End consumers are interested in marketing (indeed primary and secondary packages are effective
tools for marketing in real shops [33]) and environmental aspects.

Table 1. The role of packaging for the parties along the supply chain

In conclusion, the packaging system plays a fundamental role along the entire supply chain
where the parties often have opposite requirements and needs. Its design can be considered
196 Operations Management

an element of OM discipline and must be integrated in the product design process taking
into account logistics, production, marketing and environmental needs.

3.3. The perception of packaging by Italian companies and consumers [2; 3]

Regattieri et al. [2; 3] conducted two studies about the perception of packaging by Italian
companies and users. The first deals with how Italian companies perceive and manage the
packaging system, while the second discuss how Italian users perceive packaging quality at‐
tributes. The next two paragraphs briefly present the analysis conducted.

3.3.1. Packaging perception by Italian companies [2]

The study conducted by Regattieri et al. [2] is based on an explorative study of packaging
development and packaging logistics, conducted in several Italian companies, from different
industrial sectors. After the analysis of the Italian situation, the findings have been com‐
pared with the corresponding situation in Sweden. The comparison is mainly based on pre‐
vious research conducted at the packaging logistics division of Lund University [34; 35].

In order to discuss the Italian industrial situation in terms of the packaging system, the au‐
thors implemented a questionnaire on packaging and its relationship with logistics, product
and the environment. The quantitative content analysis of questionnaires allowed the au‐
thors to look in more depth at the Italian situation concerning packaging.

The first interesting data to underline is that more than half of companies (52.1%) think that
packaging and its functions are critical and that their sales even depend on packaging
(52.2%).

Another interesting analysis relates to packaging functions: protection and containment of

the product are considered the most relevant function of packaging since it has effects on all
activities throughout the supply chain, followed by product handling and communication
(Figure 8). Like Italian companies, the packaging function most frequently mentioned by
Swedish industries is the protection of products [34].

In order to obtain significant results on the product handling function, it is necessary to co-
design product and packaging development. Companies are aware of the importance of in‐
tegrating the development of the product with the development of the package: although a
large percentage of Italian companies think the integration packaging and product is impor‐
tant and could reduce costs during the product life cycle, only 34.8% of them develop the
packaging and the product at the same time. Italian companies, unlike Swedish ones, usual‐
ly develop packaging after the designing the product.

In the same way as Swedish industries [34], Italian companies also consider logistics and
transport an important packaging function. Indeed, 86.3% of companies report evaluating
packaging costs from the transport point of view, mainly focusing on compatibility with ve‐
hicles and protection of goods (Figure 9). This data underlines the importance of the link be‐
tween packaging and logistics systems: companies know that packaging (in terms of
material, shape and size) influences storage, transport and distribution of goods. Although
 The Important Role of Packaging in Operations Management 197
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% 40
35,9%

30
25,5%

20

10,3%
10 7,7% 7,7% 7,7%

2,6% 2,6%

Communicate/Inform

Support the assembly

Preserve/Protect the product

Contain the product

Move the product

Trace the product

Insure the product

Guarantee the product
5,6%
Function

Figure 8. Classification ofFigure 8. Classification

packaging functions of packaging functions

In order
the most respondents to obtain
compute significant
packaging results
costs from theonlogistics
the product
point handling function,
of view, only 39.1%it is necessary t
development. Companies are aware
of them report evaluating the total cost of packaging. of the importance of integrating the development of the
package: although a large percentage of Italian companies think the integration packaging
reduce costs during the product life cycle, only 34.8% of them develop the packaging and t
companies, unlike Swedish ones, usually develop packaging after the designing the product.

In the same way as Swedish industries [34], Italian companies also consider logistics and
function. Indeed, 86.3% of companies report evaluating packaging costs from the transpor
compatibility with vehicles and protection of goods (Figure 9). This data underlines the impo
and logistics systems: companies know that packaging (in terms of material, shape and siz
distribution of goods. Although the most respondents compute packaging costs from the lo
them report evaluating the total cost of packaging.

13,7% % 50

40,5%
86,3% 40

32,4%
30

20
13,5%
10 8,2%
5,4%

0
Traceability
Protection of the protect

Anti-theft
Compatibility with the vehicle

Other

Figure 9. Classification of evaluating packaging logistics cost

Companies evaluate packaging logistics costs
Companies dont' evaluate packaging logistics costs

Packaging from transport point of view

Figure 9. Classification of evaluating packaging logistics cost

198 Operations Management

The questionnaire also pointed out the importance of the relationship between packaging and
the environment: 77.3% of Italian companies report using methods and applications in order
to evaluate environmental aspects and 56.5% report recycling packaging materials. It is still a
low percentage compared with Swedish data: in Sweden, consumer packages are largely recy‐
cled (e.g. 90% of glass, 73% of metal and 74% of paper and cardboard packages [36]).

The comparison between Italian and Swedish industries’ perception of packaging has high‐
lighted both Sweden’s long-standing tradition in packaging development and in packaging
logistics research and practice and the increasing attention of Italian industries on the im‐
portance of packaging functions (e.g. logistics and environmental aspects). Italian compa‐
nies are following the Swedish ones in the development of a packaging logistics system and
in the integration of packaging and product development, while maintaining their own
characteristics. For more details, see Regattieri et al. [2].

3.3.2. Packaging perception by Italian customers [3]

The second analysis conducted by Regattieri et al. [3] is based on an explorative study con‐
ducted through a questionnaire distributed to Italian users. In order to understand how cus‐
tomer satisfaction may be increased, the authors analysed Italian consumers’ perception of
packaging quality attributes using the Theory of Attractive Quality, developed by Kano et
al. in 1984 [37]. The findings are then compared with those of Swedish customers [38].

Kano et al. [37] defined a quality perspective in which quality attributes are divided into dif‐
ferent categories, based on the relationship between the physical fulfilment of a quality at‐
tribute and the perceived satisfaction of that attribute. The five categories are attractive, one-
dimensional, must-be, indifferent and reverse quality. All quality attributes can be satisfied
or dissatisfied independently and they can change from one status to another according to
the changes in customers’ perspective. The packaging quality attributes are classified into
three entities: technical (e.g. protection of the product, use of recyclable materials), ergonomic
(everything relating to adaptations to human behaviour when using the product (e.g. ease of
grip, ease of opening, user-friendly)) and communicative (the packaging’s ability to commu‐
nicate with customers (e.g. use of symbols, instructions for using packaging, brand commu‐
nication)).

The questionnaire is made up of three parts:

• General information about the customers;

• Functional and dysfunctional question about packaging quality attributes. The classifica‐
tion into attractive (A), one-dimensional (O), must-be (M), indifferent (I), reverse (R) and ques‐
tionable (Q) (Q responses include sceptical answers (Kano et al., 1984)) is made using an
evaluation table (Figure 10), adapted by Löfgren and Witell [38] from Berger et al. [39].

• Level of importance of packaging characteristics: customers had to assign a value be‐

tween 1 (not important) and 10 (very important) to the packaging quality attributes.
 The Important Role of Packaging in Operations Management 199
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Figure 10. Evaluation table to classify packaging quality attributes (table adapted by [38] from [39])

The analysis of the questionnaires shows that Italian users are mainly interested in the ergo‐
nomic entity, made up of packaging characteristics that permit easy of handling of the prod‐
uct. Italians believe that the most important packaging function is protection of the product,
according to the traditional role that has always been attributed to the packaging function.
For each packaging quality attribute, better and worse average values are calculated, indi‐
cating whether customer satisfaction can be increased by satisfying a certain requirement
(better) or whether fulfilling this requirement may merely prevent customer dissatisfaction
(worse) [39].
n n
∑ (A + O) ∑ (M + O)
Better average = ∀j Worse average = ∀j
i=1 i=1
n n
∑ (A + O + M + I) ∑ (A + O + M + I)
i=1 i=1

i=1,…,n is the number of responses for each packaging quality attribute

j=1,…,m represents packaging quality attributes
Figure 11 shows the Worse-Better Diagram for Italian users.
The Worse-Better Diagram focuses on technical, ergonomic and communicative entities.
Contrary to the ergonomic and communicative entities, it is not possible to identify a defi‐
nite cluster for the technical group, since the packaging quality attributes are scattered in the
diagram, moving from one-dimensional (e.g. recyclable materials) to indifferent (e.g. addi‐
tional functions) to must-be (e.g. protection of the product). Ergonomic and communicative
200 Operations Management

0,8
Attractive One-dimensional
0,7
Ergonomic
0,6

0,5
Technical entities
Communicative Ergonomic entities
Better

0,4
Communicative entities
0,3

0,2

0,1
Indifferent Must-be
0,0
0,0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1,0
Worse

Figure 11. Worse-Better diagram for Italian perception on packaging quality attributes

entities assume definite clusters in the Worse-Better Diagram: the packaging quality attrib‐
utes belonging to the ergonomic entity are mainly classified as one-dimensional. They are
distinctive attributes that customers consider during the purchase of a product, comparing
different brands. Italian customers locate the communicative quality attributes in the middle
of the diagram. They delineate a specific cluster, but the dimension to which they belong is
not clear.

Another important analysis is the level of importance attributed by Italian users to each
packaging quality attribute. The highest values of importance are assigned to the protection
of the product (9.59), open-dating (9.47), and hygiene (9.52). Italian customers seem to be in‐
terested neither in the aesthetics of packaging (attractive and nice looking print and the aes‐
thetic appeal have low levels of importance: 4.52 and 5.00 respectively) nor in the additional
functions (5.80).

From the comparison with the Swedish results [38], both Italians and Swedes have similar
behaviour in terms of perception of packaging quality attributes. They consider the ergo‐
nomic quality characteristics the most significant packaging attributes, and the protection of
the product the most important packaging function. Italians also perceive the use of recycla‐
ble material another important packaging attribute, in line with the growing importance of
environmental considerations. Neither Italians nor Swedes place importance on aesthetics.
For more details, see Regattieri et al. [3].

3.4. A mathematical model for packaging cost evaluation

As the previous paragraphs have underlined, the packaging system has numerous implica‐
tions along the supply chain (e.g. marketing, production, logistics, purchasing, etc.). In order
to define optimal management of the packaging system, it is necessary to evaluate the total
packaging cost, made up of e.g. purchasing cost, manufacturing cost, transport and labour
cost, management cost, etc. The study conducted by Regattieri et al. [2] underlines that most
 The Important Role of Packaging in Operations Management 201
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companies do not estimate the total packaging costs and, to confirm this, literature analysis
shows the lack of a complete function for calculating the total cost of packaging in a compa‐
ny. For this reason, the authors have developed a complete mathematical model, consider‐
ing all the cost parameters regarding the packaging system (primary, secondary and tertiary
packages and accessories) along the whole supply chain of a manufacturing company.
The model represents added value for companies seeking to estimate the total costs of their
packaging system and consequently its impact on total company costs. Moreover, it may be
possible to find out the overlooked and oversized packaging factors. The former should be
introduced in the calculation of the total packaging costs, while the latter could be reduced
or eliminated.
Figure 12 shows the simplified supply chain of a manufacturing company.

END CONSUMERS

SUPPLIER_1 RETAILER_1

MANUFACTURING
COMPANY

SUPPLIER_2 RETAILER_2

BUY it
i Production PF
SUPPLIER_3 Stock it Finished Stock PF RETAILER_3
MAN it Products

SUPPLIER_n RETAILER_r

Figure 12. Simplified supply chain of a manufacturing company

The manufacturing company can rent or purchase packages (primary, secondary and terti‐
ary and accessories) and raw materials (if the manufacturer produces packages internally)
from the supplier n. When goods arrive, they are received in the manufacturer’s receiving
area, sorted and stored in the warehouse. If the company has to produce the packaging, the
raw materials are picked and brought to the manufacturing area, where packages are made
and subsequently stored in the warehouse. The raw materials not used during the manufac‐
turing stage are brought back to the warehouse, creating a reverse flow of materials. When
the finished products are produced, the packages are picked from the warehouse and
brought to the manufacturing area. The packages not used during the manufacturing stage
202 Operations Management

are brought back to the warehouse, creating a reverse flow of materials. The finished prod‐
ucts are packed, put onto a pallet, and delivered to the retailer m. The model considers the
possibility to re-use packages after the delivery of the finished products to the final custom‐
ers and the possible disposal of packages if they are damaged. In addition, the model con‐
siders the possibility for the manufacturer to make a profit from sub-products derived from
the disposal of packages and/or from the sale of tertiary packages to the final customers.

Table 2, 3 and 4 describe the indices, variables and cost parameters used in the model.

Index Domain Description

Level of package:
i=1 (primary package)
i=2 (secondary
i 1,…,4
package)
i=3 (tertiary package)
i=4 (accessories)

Different packages for

t 1,…,m
each level i

n 1,…,s Suppliers

r 1,…,q Retailers

Table 2. Indices of the model

Variable Units Description Domain

Quantity of raw materials

bought by the company from i=1,…,4; t=1,…,m;
xnit [pieces/year]
the supplier n to produce n=1,…,s
package i of type t.

Quantity of package i of type t

produced by the
x’it [pieces/year] i=1,…,4; t=1,…,m
manufacturer company from
raw materials.

Quantity of package i of type t

i=1,…,4; t=1,…,m;
ynit [pieces/year] bought by the company from
n=1,…,s
supplier n.

Quantity of package i of type t

i=1,…,4; t=1,…,m;
wnit [pieces/year] rented by the company from
n=1,…,s
the supplier n.

Quantity of disposed package

rit [pieces/year] i=1,…,4; t=1,…,m
i of type t from which the
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Variable Units Description Domain

company has a profit from

sub-products.

Quantity of package i of type t

i=1,…,4; t=1,…,m;
urit [pieces/year] sold by the company to the
r=1,…,q
retailer r.

Number of orders for buying

[orders/
NORD raw materials and/or
year]
packages i of type t.

Number of trips of raw

materials and/or packages i of i=1,…,4; t=1,…,m;
NEXT TRAN nit [trips/year]
type t from the supplier n to n=1,…,s
the manufacturer.

Number of trips of raw

materials and/or packages i of
NINT TRAN it [trips/year] type t from the i=1,…,4; t=1,…,m
manufacturer’s receiving area
to the warehouse.

Number of trips of raw

materials i of type t from the
NINT TRAN 1 it [trips/year] warehouse to the i=1,…,4; t=1,…,m
manufacturing area to
produce packages from xit.

Number of trips of packages i

of type t produced by the
NINT TRAN 2
it [trips/year] manufacturer and transported i=1,…,4; t=1,…,m
from the production area to
the warehouse.

Number of trips of packages

(produced/bought/rented) i
of type t from the warehouse
NINT TRAN 3 it [trips/year] i=1,…,4; t=1,…,m
to the production area in
order to support finished
products.

Number of trips of packages i

of type t not used during the
production of finished
NREV INT TRAN 2 it [trips/year] i=1,…,4; t=1,…,m
products and transported
from the manufacturing area
to the warehouse.
204 Operations Management

Variable Units Description Domain

Number of trips of the

quantity of raw materials i of
type t not used during the
NREV INT TRAN 1 it [trips/year] production of packages and i=1,…,4; t=1,…,m
transported from the
manufacturing area to the
warehouse.

Number of trips of packages i

i=1,…,4; t=1,…,m;
NREV EXT TRAN rit [trips/year] of type t from the retailer r to
r=1,…,q
the manufacturer.

Table 3. Variables of the model

Parameter Nomenclatures Units Description

Cost of Cost for studying each type of packaging and for making prototypes. It
CENG [€/year]
Engineering includes the labour costs of engineering the product.
Cost for managing the internal purchase orders if the manufacturer
Cost of Purchase produces the packaging internally; otherwise it represents the purchase
CORD [€/order]
Order orders for buying and/or renting packaging from suppliers. It includes the
labour costs for making the order.
Cost of
CPUR [€/piece] Purchase cost of raw materials (to produce packaging) and/or packages.
Purchasing
CRENT Cost of Rent [€/piece] Cost to rent packages.
Cost for transporting raw materials and/or packages from the supplier to
Cost of External
CEXT TRAN [€/travel] the manufacturer: it comprises labour costs, depreciation of vehicles (e.g.
Transport
truck), cost of the distance travelled.
Cost for receiving raw materials and/or packages. It includes the labour
CREC Cost of Receiving [€/year] costs and depreciation of vehicles (e.g. truck, forklift) used to unload
products.
Cost for sorting raw materials and/or packages before storing them in the
Cost of
CCOND [€/year] warehouse. It includes the labour costs and depreciation of mechanical
Conditioning
devices (if used), for example for unpacking and re-packing products.
Cost for transporting raw materials and/or packages from the
Cost of Internal
CINT TRAN [€/travel] manufacturer’s receiving area to the warehouse. It includes the labour
Transport
costs, depreciation of vehicles (e.g. forklift), cost of the distance travelled.
Cost for storing raw materials and/or packages in the warehouse. It
CSTOCK Cost of Stocking [€/piece] includes the labour costs and the cost of the space for storing the
packages.
Cost for picking raw materials from the warehouse for producing the
CPICK Cost of Picking [€/piece] packages. It includes the labour costs and depreciation of vehicles (e.g.
forklift) for picking the products.
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Parameter Nomenclatures Units Description

Cost for transporting raw materials from the warehouse to the

Cost of Internal
CINT TRAN 1 [€/travel] manufacturing area to produce the packages. It includes the labour costs,
Transport1
depreciation of vehicles (e.g. forklift), cost of the distance travelled.
Cost for producing packages internally; it includes the labour costs,
Cost of Packages
CMAN [€/piece] depreciation of production plants and utilities (e.g. electricity, water, gas,
Manufacturing
etc.).
Cost of transport for bringing the raw materials not used during
manufacturing back to the warehouse. It includes:
CREV INT TRAN 1: the cost of transport for coming back to the warehouse. It
Cost of Internal comprises labour costs, depreciation of vehicles used (e.g. forklift), cost of
CREV 1 [€/travel]
Reverse Logistics1 the distance travelled;
CREV INT COND 1: the cost of conditioning packages to make them re-usable. It
comprises the labour costs and depreciation of mechanical devices (if
used), for example for unpacking and re-packing products.
Cost for transporting the packages produced by the company from the
Cost of Internal
CINT TRAN 2 [€/travel] production area to the warehouse. It includes the labour costs,
Transport 2
depreciation of vehicles (e.g. forklift), cost of the distance travelled.
Cost for stocking packages produced internally by the company. It includes
CSTOCK 1 Cost of Stocking1 [€/piece]
the labour costs and cost of the space for storing the packages.
Cost for picking packages (produced/bought/rented) from the
CPICK 1 Cost of Picking1 [€/piece] warehouse. It includes the labour costs and depreciation of vehicles (e.g.
forklift) for picking the packages.
Cost for transporting packages from the warehouse to the manufacturing
Cost of Internal
CINT TRAN 3 [€/travel] area. It includes the labour costs, depreciation of vehicles (e.g. forklift), cost
Transport3
of the distance travelled.
Cost of transport for bringing packages not used during the
manufacturing of finished products back to the warehouse. It includes:
CREV INT TRAN 2: the cost of transport for coming back to the warehouse. It
Cost of Internal comprises the labour costs, depreciation of vehicles used, cost of the
CREV 2 [€/travel]
Reverse Logistics2 distance travelled;
CREV INT COND 2: the cost of conditioning packages to make them re-usable. It
comprises the labour costs and depreciation of mechanical devices (if
used), for example for unpacking and re-packing products.
Cost of re-using packaging after the delivery of finished products to the
customer. It includes:
CREV EXT TRAN: the cost of transport for coming back to the company. It
comprises the labour costs, depreciation of vehicles used (e.g. truck), cost
CRE-USE Cost of Re-Use [€/year]
of the distance travelled;
CREV EXT COND: the cost of conditioning packages to make them re-usable. It
comprises the labour costs and depreciation of mechanical devices (if
used), for example for unpacking and re-packing products.
Cost of disposing of damaged packages during the manufacturing stage. It
comprises the cost of disposal, the cost of transporting damaged packages
CDISP Cost of Disposal [€/piece]
from the company to the landfill (labour costs, depreciation of vehicles
used (e.g. truck), cost of the distance travelled).
206 Operations Management

Parameter Nomenclatures Units Description

Gain from Sub- The parameter identifies the possible gain obtained from the disposal of
RSUB [€/piece]
Product damaged products.
Gain from Direct This parameter identifies the possible gain obtained from the sale of
RUDC [€/piece]
Sale of Pallet tertiary packaging to the final customer.

Table 4. Cost parameters of the model

Equation (1) introduces the general formula of the model.

CTOT = CENG + CORD + CPUR + CRENT + C EXT TRAN

+ CREC +
+CCOND + CINT TRAN + CSTOCK + CPICK + CINT TRAN 1
+ CMAN + C + (1)
REV 1
+CINT TRAN 2
+ CSTOCK 1 + CPICK 1 + CINT TRAN 3
+C +CRE -USE + C DISP - RSUB - RUDC
REV 2

Equation (2) presents the mathematical model, explaining each cost parameter in detail.

( 4 m
) ( ) ( 4 m
CTOT = ∑ ∑ CENG it + N ORD ⋅ ∑ ∑ CORD it + ∑ ∑ ∑ CPUR nit ⋅ ( xnit + ynit ) +
i=1 t=1 i=1 t=1
s 4 m

n=1 i=1 t=1

)
+( ∑ ∑ ∑ C ⋅w ) + (∑ ∑ ∑ C )+
s 4 m s 4 m
RENT nit nit ⋅N EXT TRAN nit EXT TRAN nit
n=1 i=1 t=1 n=1 i=1 t=1

+ (∑ ∑ C ) + (∑ ∑ C ) + (∑ ∑ C )+
4 m 4 m 4 m
REC it COND it ⋅N INT TRAN it INT TRAN it
i=1 t=1 i=1 t=1 i=1 t=1

+ (∑ ∑ C ⋅ ( x + y + w )) + ( ∑ ∑ C ⋅ x )+
4 m 4 m
STOCK it it it it PICK it it
i=1 t=1 i=1 t=1

+ (∑ ∑ C ) + (∑ ∑ C ⋅ x ) +
4 m 4 m
'
⋅N
INT TRAN 1it INT TRAN 1it MAN it it
i=1 t=1 i=1 t=1

+ (( ∑ ∑ C ) + (∑ ∑ C )) +
4 m 4 m
⋅N
REV INT TRAN 1it REV INT TRAN 1it REV INT COND 1it
(2)
i=1 t=1 i=1 t=1

+ (∑ ∑ C ) + (∑ ∑ C ⋅ x )+
4 m 4 m
'
⋅N
INT TRAN 2it INT TRAN 2it STOCK 1it it
i=1 t=1 i=1 t=1

+ (∑ ∑ C ⋅ ( x + y + w )) + ( ∑ ∑ C )+
4 m 4 m
'
PICK 1it it it it ⋅N INT TRAN 3it INT TRAN 3it
i=1 t=1 i=1 t=1

+ (( ∑ ∑ C ) + (∑ ∑ C )) +
4 m 4 m
⋅N
REV INT TRAN 2it REV INT TRAN 2it REV INT COND 2it
i=1 t=1 i=1 t=1

+ (( ∑ ∑ ∑ C ) + (∑ ∑ C )) +
q 4 m 4 m
⋅N
REV EXT TRAN rit REV EXT TRAN riit REV EXT COND it
r=1 i=1 t=1 i=1 t=1

+ (∑ ∑ C ) - (∑ ∑ R ⋅ r ) - ( ∑ ∑ ∑ R ⋅ u )
4 m 4 m q 4 m
DISP it SUB it it UDC rit rit
i=1 t=1 i=1 t=1 r=1 i=1 t=1

The mathematical model allows companies to have a complete tool for analysing the total
packaging costs in order to understand packaging cost reductions and consequently the
minimization of the impact of total packaging cost on total company cost.
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4. E-commerce

Among all operations, web operations are taking on an important role in the global trend of
the purchasing process. During recent years, more and more people have begun to use the
Internet and to buy a wide range of goods online. The World Wide Web (WWW) allows
people to communicate simultaneously or asynchronously easily and effectively, shortening
distance and time between individuals [40].

E-commerce is a new sales tool, in which consumers are able to participate in all the stages
of a purchasing decision, while going through processes electronically rather than in a real
shop. E-commerce is the process of trading goods, information, or services via computer
networks including the Internet [41; 42]. There is an increasing consensus that e-commerce
will represent a large share of retail markets in the future [43].

E-commerce channels in traditional companies have changed their operations and business
strategy. That impact has been described by three main issues: integration, customization,
and internationalization. First, e-commerce networks improve value chain integration by re‐
ducing transaction costs, facilitating JIT delivery, and improving information collection and
processing [41; 42]. Secondly, e-commerce databases and direct links between producers and
customers support high levels of product and service customization [44]. Finally, the Inter‐
net’s international scope allows small companies to reach customers worldwide [45; 46].

As the Internet becomes more popular, e-commerce promises to become a mainstay of mod‐
ern business [47]. There are dozens of e-commerce applications such as home banking, shop‐
ping in online stores and malls, buying stocks, finding a job, conducting an auction and
collaborating electronically on research and development projects [42].

According to Gunasekaran et al. [48], e-commerce supports functional activities in organiza‐

tion: marketing, purchasing, design production, sales and distribution, human resource
management, warehousing and supplier development. For example, the advent of e-com‐
merce has changed marketing practice [48]. E-commerce systems should provide sure access
to use, overcoming differences in time to business, location, and language between suppliers
and customers and at the same time support the entire trading process in Business to Busi‐
ness (B2B) e-commerce [49]. Communication and data collection constraints are reduced
with web-based production of goods and services. Using database management, data ware‐
house, and data mining technologies, the web can facilitate interaction with customers and
suppliers, data collection, and data analysis processes [50].

Table 5 [48] summarises e-commerce applications and e-commerce tools and systems to sug‐
gest how e-commerce might support functional activities.

The open standard of the Internet ensures that large organizations can easily extend their
trading communities, by increasing the efficiency of their business operations. According to
Gunasekaran et al. [48], Internet-based e-commerce enables companies to:
• Shorten procurement cycles through the use of online catalogues, ordering, and payment;
208 Operations Management

Functional areas E-commerce applications E-commerce tools and systems

Marketing Product promotion, new sales channels, direct B2B e-commerce, Internet ordering, website
savings, reduced cycle time, customer services. for the company.
Purchasing Ordering, fund transfer, supplier selection. EDI, Internet-purchasing.
Design Customer feedback, research on customer WWW integrated CAD, Hyperlinks, 3D
requirements, product design, quality function navigation, Internet for data and information
deployment, data mining and warehousing. exchange.
Production Production planning and control, scheduling, B2B e-commerce, MRP, ERP, SAP.
inventory management, quality control.
Sales and distribution Internet sales, selection of distribution Electronic funds transfer, bar-coding system,
channels, transportation, scheduling, third ERP, WWW integrated inventory management,
party logistics. Internet delivery of products and services.
Human resource E-recruitment, benefit selection and E-mails, interactive web sites, WWW based
management management, training and education using multimedia applications.
WWW.
Warehousing Inventory management, forecasting, EDI, WWW integrated inventory management.
scheduling of work force.
Supplier development Partnership, supplier development. WWW assisted supplier selection, e-mails,
research on suppliers and products with WWW
and intelligent agents.

Table 5. E-commerce applications areas, tools and systems [48]

• Reduce development cycles and accelerate time-to-market through collaborative engi‐

neering, product, and process design;
• Gain access to worldwide markets at a fraction of traditional costs;
• Significantly increase the speed of communication, especially international communica‐
tion;
• Drastically reduce purchasing and production cycles;
• Reduce the cost of communication that in turn can reduce inventory and purchasing
costs;
• Promote a closer relationship with customers and suppliers;
• Provide a quick and easy way of exchanging information about a company and its prod‐
ucts, both internally and outside the organization.

5. Packaging and e-commerce in operations management

Every year Internet-based companies ship millions of packages throughout the world [24].
Online shopping influences packaging and its interactions with industrial function, mainly
with marketing. The more people shop online, the more the role and the function of packag‐
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ing change, since the shelf presentation of the product becomes less important [24]. Visser
[24] stated that it is difficult to translate the existing packaging design used for the tradition‐
al way of buying in a real shop and marketing tactics into online retailing. E-commerce re‐
quires a new paradigm for the entire product packaging system. For example, in real shop
the traditional primary package is a good agent for any products, not only because of the
text descriptions, but also for its visual communication. It can effectively deliver product in‐
formation and brand identity, and is a good cognitive agent for recognition. In an online
shop, users cannot directly see the package nor touch the product, but other characteristics
such as protection and re-usability for efficient take-back of products take on great impor‐
tance [40]. The direct feeling with customers is less important since the contact is mediated
by the computer.
The Internet does not determine the design of packages. However, if online shopping is be‐
coming more common, packaging design must be reconsidered [24]. The changing role of
packaging in the purchase of a product makes it desirable and possible to give more atten‐
tion to the consumer’s perception of a brand while the user is using it, and less attention to
its shelf presentation. Retailers that sell online have to consider packages as a means of mar‐
keting and disseminating information instead of a mere covering for a product [24].
Block and Segev [51] suggest the following e-commerce impacts on marketing:

• Product promotion: e-commerce enhances the promotion of products and services

through direct information and interactive contact with customers;
• New sales channels: e-commerce creates a new distribution channel for existing products,
owing to its direct support of research on customers and the bidirectional nature of com‐
munication;
• Direct savings: the cost of delivering information to customers by Internet results in sub‐
stantial savings. Greater savings are also made in the direct delivery of digitized products
compared to the costs of traditional delivery;
• Reduced cycle time: the delivery time for digitized products and services can be reduced.
Also, the administrative work related to physical delivery, especially across international
borders, can be reduced significantly;
• Customer service: it can be greatly enhanced for customers to find detailed information
online. In addition, intelligent agents can answer standard e-mail questions in few sec‐
onds.

The advent of e-commerce has also had several implications on logistics and the environ‐
ment. From the logistics point of view, packaging has to increase its function of protection
and covering of products, since products have to be transported to reach the customer. The
theme of reverse logistics takes on great importance since customers can return wrong
and/or unsuitable products. The advent of Internet distribution produces significant savings
in shipping, and can facilitate delivery. Even those who use transportations can use Internet-
based tools to increase customer service. Web-based order tracking has become common‐
place. It allows customers to trace the shipment of their orders without having to contact the
210 Operations Management

shipper directly [48]. Several electronic tools, like Electronic Data Interchange (i.e. the struc‐
tured transmission of data between organizations by electronic means, EDI) can have a sig‐
nificant impact on the management of online packaging. EDI enables minimal stocks to be
held with the consequent saving in storage, insurance, warehousing and labour costs (re‐
duction in manual processing reduces the need for people) [48]. The packaging system must
ensure secure shipping, reduce the possibility of theft, increase security and identify where
the products are in real time.
From the environmental point of view, packaging in e-commerce has very similar require‐
ments to traditional shopping, such as the use of recyclable materials, reduction of the
amount of materials used, possibility to re-use packages in case of returned products from
customers, disposal of damaged packages with the minimum production of pollution.
Table 6 shows the main interactions between packaging and other industrial issues in both
real and online shopping.

Real shop Online shop

Marketing: Marketing:
Sell, differentiate, promote, value, Brand identity, means of
inform, shelf presentation, visual disseminating information, product
communication promotion,

Logistics: Logistics:
Handle, transport, store, distribution Protection and covering the products,
transport, reverse logistics, security

Environment: Environment:
Reduction of materials used, re-use, Reduction of materials, recyclable
recover, disposal materials, re-use, disposal

Table 6. Packaging and industrial issues in real and online shops

6. A case study: Packaging e-commerce logistics in operations

management

This section presents a case study on an Italian wholesaler; its main activities consist of pur‐
chasing goods from suppliers and selling and distributing them to retailers that in turn sell
to end consumers through a “real shop”.
The wholesaler is interested in starting a new business: the e-commerce activity. The whole‐
saler wants to sell directly to end consumers, bypassing the retailers and, at the same time,
continue the B2B transactions.
Traditionally, the wholesaler receives goods from suppliers in the receiving area; the goods
are unpacked, sorted and stored in the warehouse. When a retailer asks for products, they
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are picked from the shelves and packed according to the retailer’s order. After that, the
products packed in secondary packages are loaded onto the truck and dispatched to the re‐
tailer. Finally, he sells the products to end consumers in real shops. The packages are not
labelled with identification technology (e.g. barcodes, RFID, etc.). Figure 13 shows in detail
the activities of the wholesaler.

Activities:

Quality control RECEIVING Packaging are used

Unpacked and sorted of the for waste-to-energy
product solution

DISPOSAL
Stocked of the product in the WAREHOUSING
shelves

When arrive an order by a

retailer, products are picked PICKING
packed in cardboard boxes

Orders are prepared for the

PREPARING
shipping

The products contained in the

DISPATCHING
packages are shipped

Figure 13. The wholesaler’s activities

The project concerns the study of a new packaging system (in terms of material, shape, ac‐
cessories used for protecting the product) to be used for online shopping. The new package
has to take into account mainly the logistics aspects required by the e-commerce business.

The wholesaler has defined several requirements for the new packaging solution:

• Protection of the product: products contained in secondary packages have to be protected

from mechanical shocks, vibrations, electrostatic discharge, compression, etc.;

• Handleability: the ergonomic aspect, that is everything relating to adaptations to the hu‐
man physique and behaviour when using the product, has to be considered; the package
has to be easy to open, easy to grip and user-friendly;
212 Operations Management

• Security: packages must ensure secure shipping. It is necessary to install identification

technologies, like RFID tags or barcodes, in secondary packages in order to reduce thefts,
increase security, and reduce costs and time spent on the traceability of products;

• Respect for the environment: the package has to be recyclable, in line with the require‐
ments of end consumers and has to have minimum environmental impact;

• Re-use of packages from the supplier when the products back to the wholesaler.

The research activity starts from the study of several typical orders defined by the wholesal‐
er in order to determine the best packaging configurations that optimize the combination of
logistics, protection of the product and re-use of packages. The wholesaler decided to re-use
the cardboard boxes in which the products are sent by suppliers. This solution minimizes
the packaging system costs and reduces the environmental impact. According to these con‐
siderations, Figure 14 shows an example of the secondary package chosen.

Figure 14. The typical cardboard box used as secondary package

After that, the accessories are chosen in order to protect products from mechanical shocks,
vibrations and compression during transport. Pluriball, polystyrene and interior cushioning
are chosen as flexible protective accessories (an example of interior cushioning is shown in
Figure 15).

The authors have analysed the possibility to install RFID tags on secondary packages in or‐
der to find out the position of the products in real time and to increase security during trans‐
port, minimizing the possibility of thefts and loss of products.
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Figure 15. Accessories used for protecting products (courtesy of Soropack Group)

The new packaging solution presents several advantages in terms of:

• Protection of the product: the products inside the packages are protected thanks to the ac‐
cessories used that increase the protection of products, damping the shocks during trans‐
port;

• Handleability: the package is user-friendly, easy to handle and to open;

• Security: the installation of RFID tags in the secondary packages allows the wholesaler to
increase security during transport, reduce the number of thefts, and find out the position
of the package at all times. This aspect may also be important for the end consumer since
he can verify the position of the product he has ordered;

• Respect for the environment: the packages and accessories used for the e-commerce busi‐
ness can be recycled (the cardboard box is paper and the interior cushioning plastic) and
secondary packages are re-used: the wholesaler use the cardboard with which the prod‐
ucts arrive from the suppliers for dispatching products to end consumers.

In order to define a new packaging solution for the e-commerce business and, according to
OM discipline, the strategic, tactical and operational levels have to be analysed. The defini‐
tion of a new packaging solution for the e-commerce business, allowing transactions costs to
be minimized and leading to an increase in business, is a strategic decision. The tactical
management defines the main packaging requirements and the operational level has to im‐
plement the solution. The activities of the operational level are to test the products and pack‐
ages in order to verify the resistance to shocks, build the website from sell by the WWW,
study the shape, materials and accessories for packages, define a package that is as easy as
possible to handle and transport and analyse the installation of RFID tags in secondary
packages. Figure 16 shows in detail the decisions and operations at all levels in the pyramid
of the OM decision levels.
214 Operations Management

New packaging solution

for e-commerce business

A
Minimization of Increase of the
management costs business STRATEGIC LEVEL

Less packaging varieties Definition of the

and sizes as possible packaging requirements:

• Protection of the product

B
• Handleability
TACTICAL LEVEL
• Respect of the environment
• Security

Test of packages in Protection of the

Study of the materials
order to evaluate its product: use interior
and shapes and building
resistance to shocks
during the transport
of the web site
cushioning as
accessories
C
OPERATIONAL LEVEL
Respect of the Security: use of RFID
Handleability: packages
environment: re-use increase security and
are easy to handle, to
and/or recycle know the position of
open and to transport
secondary packages products in real time

Figure 16. The pyramid of OM’s decision levels for the case study

The new solution is implemented by the wholesaler and implies several benefits: an increase
in sales with minimum effort, a reduction in transaction costs and an increase in customer
satisfaction thanks to the environmentally friendly packaging. Moreover, the products are
now traced every time and in real time, thanks to the installation of RFID tags in secondary
packages, reducing thefts, loss and increasing security.

7. Conclusion

Operations Management is defined as the management function responsible for all activities
directly concerned with making a product, collecting various inputs and converting them
into desired outputs through operations [5]; OM discipline can be applied to manufacturing,
service industries and non-profit organizations.
Over the years, new tools and elements such as TQM, JIT, and ECR have become part of the
OM discipline that recognizes the need to integrate these tools and elements of the manage‐
ment system with the company’s strategy. In order to manage all operations, organizations
have to define a strategy, whose decisions are based on three levels: strategic, tactical and
operational. Each level is integrated with the others and has to be interrelated in order to
follow a common purpose. Strategic, tactical and operational decision levels are strictly con‐
nected with packaging features.
Packaging is a multidimensional function that takes on a fundamental role in organizations
to achieve successful management of operations. Johansson [26] stated that the packaging
system (made up of primary, secondary and tertiary packaging and accessories used to pro‐
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tect the products inside) could be divided into three main functions that interact with each
other. They are flow, market and environment. The flow function consists of packaging fea‐
tures that contribute to more efficient handling during transport. The market function con‐
siders the aesthetics aspect in order to create value for the product and finally, the
environment function has the purpose of reducing the negative effects of packaging on the
environment. Packaging has an important role along the whole supply chain: all the parties
(e.g. suppliers, manufacturers, retailers, end consumers) are interested in the packaging fea‐
tures (e.g. protection of the product, aesthetics aspects, reduction of the environmental im‐
pact, etc.).
In order to find the optimal packaging system management, the authors have developed a
complete mathematical model that represents added value for companies seeking to esti‐
mate the total costs of their packaging system and consequently its impact on total company
costs. The model considers all the cost parameters regarding the packaging system, e.g. en‐
gineering cost, warehousing cost, labour cost, transport cost, etc.
The packaging system takes on a fundamental role in online shopping. In recent years,
web operations have evolved and organizations who want to start online business have to
reconsider the role of packaging: from merely “shop window” in real shops, packaging
has to transform into a means of information and transport. The changing role of packag‐
ing in the purchase of a product makes it desirable and possible to give more attention to
the consumer’s perception of a brand while he is using it, and less attention to its shelf
presentation [24].
The correlation between packaging and e-commerce is a relatively new aspect. The case
study described in Section 5 has shown the will of organizations to enter into the new e-
commerce business, but also the changes that they have to make to the packaging system,
since the packaging requirements of online shopping are different from those of a real shop.
Organizations gain important benefits from e-commerce, such as the increase in labour cost
savings.
Several modifications have to be considered for future thinking concerning online packag‐
ing. Communicative and information functions must be built in to help consumers to identi‐
fy the products easily and to assist them in making precise decisions and reinforcing brand
identity for consumers online. In addition, the ability to attract consumers’ attention and in‐
cite their curiosity about the products are important points to analyse in the future in order
to increase the potential development of packages for online shopping.

Author details

Alberto Regattieri1 and Giulia Santarelli2

1 DIN – Department of Industrial Engineering, University of Bologna, Bologna, Italy

2 DTG – Department of Management and Engineering, University of Padova, Padova, Italy

216 Operations Management

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 Chapter 9

An Overview of Human Reliability

Analysis Techniques in Manufacturing Operations

Valentina Di Pasquale, Raffaele Iannone,

Salvatore Miranda and Stefano Riemma

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/55065

1. Introduction

In recent years, there has been a decrease in accidents due to technical failures through
technological developments of redundancy and protection, which have made systems more
reliable. However, it is not possible to talk about system reliability without addressing the
failure rate of all its components; among these components, "man" – because his rate of error
changes the rate of failure of components with which he interacts. It is clear that the contribu‐
tion of the human factor in the dynamics of accidents – both statistically and in terms of severity
of consequences – is high [2].

Although valid values are difficult to obtain, estimates agree that errors committed by man
are responsible for 60–90% of the accidents; the remainder of accidents are attributable to
technical deficiencies [2,3,4]. The incidents are, of course, the most obvious human errors in
industrial systems, but minor faults can seriously reduce the operations performances, in terms
of productivity and efficiency. In fact, human error has a direct impact on productivity because
errors affect the rates of rejection of the product, thereby increasing the cost of production and
possibly reduce subsequent sales. Therefore, there is need to assess human reliability to reduce
the likely causes of errors [1].

The starting point of this work was to study the framework of today’s methods of human
reliability analysis (HRA): those quantitative of the first generation (as THERP and HCR), those
qualitative of second (as CREAM and SPAR-H), and new dynamic HRA methods and recent
improvements of individual phases of HRA approaches. These methods have, in fact, the
purpose of assessing the likelihood of human error – in industrial systems, for a given
operation, in a certain interval of time and in a particular context – on the basis of models that

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222 Operations Management

describe, in a more or less simplistic way, the complex mechanism that lies behind the single
human action that is potentially subject to error [1].
The concern in safety and reliability analyses is whether an operator is likely to make an
incorrect action and which type of action is most likely [5]. The goals defined by Swain and
Guttmann (1983) in discussing the THERP approach, one of the first HRA methods developed,
are still valid: The objective of a human reliability analysis is ‘to evaluate the operator’s
contribution to system reliability’ and, more precisely, ‘to predict human error rates and to
evaluate the degradation to human–machine systems likely to be caused by human errors in
association with equipment functioning, operational procedures and practices, and other
system and human characteristics which influence the system behavior’ [7].
The different HRA methods analysed allowed us to identify guidelines for determining the
likelihood of human error and the assessment of contextual factors. The first step is to identify
a probability of human error for the operation to be performed, while the second consists of
the evaluation through appropriate multipliers, the impact of environmental, and the behav‐
ioural factors of this probability [1]. The most important objective of the work will be to provide
a simulation module for the evaluation of human reliability that must be able to be used in a
dual manner [1]:

• In the preventive phase, as an analysis of the possible situation that may occur and as
evaluation of the percentage of pieces discarded by the effect of human error;
• In post-production, to understand what are the factors that influence human performance
so they can reduce errors.

The tool will also provide for the possibility of determining the optimal configuration of breaks
through use of a methodology that, with assessments of an economic nature, allow identifi‐
cation of conditions that, in turn, is required for the suspension of work for psychophysical
recovery of the operator and then for the restoration of acceptable values of reliability [1].

2. Literature review of HRA methods

Evidence in the literature shows that human actions are a source of vulnerability for industrial
systems, giving rise to HRA that aims to deepen the examination of the human factor in the
workplace [1]. HRA is concerned with identifying, modelling, and quantifying the probability
of human errors [3]. Nominal human error probability (HEP) is calculated on the basis of
operator’s activities and, to obtain a quantitative estimate of HEP, many HRA methods utilise
performance shaping factors (PSF), which characterise significant facets of human error and
provide a numerical basis for modifying nominal HEP levels [24]. The PSF are environmental
factors, personal, or directed to activities that have the potential to affect performance posi‐
tively or negatively; therefore, identifying and quantifying the effects of a PSF are key steps in
the process of HRA [3]. Another key step concerns interpretation and simulation of human
behaviour, which is a dynamic process driven by cognitive and behavioural rules, and
influenced by physical and psychological factors. Human behaviour, although analysed in
 An Overview of Human Reliability Analysis Techniques in Manufacturing Operations 223
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numerous studies, remains difficult to fully represent in describing all the nuances that
distinguish it [1]. It is abundantly clear how complex an effort has been made in the literature
to propose models of human behaviour, favoring numerical values of probability of error to
predict and prevent unsafe behaviours. For this reason, the study of human reliability can be
seen as a specialised scientific subfield – a hybrid between psychology, ergonomics, engineer‐
ing, reliability analysis, and system analysis [4].
The birth of HRA methods dates from the year 1960, but most techniques for assessment of
the human factor, in terms of propensity to fail, have been developed since the mid-’80s. HRA
techniques or approaches can be divided essentially into two categories: first and second
generation. Currently, we come to HRA dynamic and methods of the third generation,
understood as an evolution of previous generations.

2.1. First generation HRA methods

The first generation HRA methods have been strongly influenced by the viewpoint of proba‐
bilistic safety assessment (PSA) and have identified man as a mechanical component, thus
losing all aspects of dynamic interaction with the working environment, both as a physical
environment and as a social environment [33]. In many of these methods – such as Technique
for Human Error Rate Prediction (THERP) [2, 3, 13–15], Accident Sequence Evaluation
Program (ASEP) [16], and Human Cognition Reliability (HCR) [2] – the basic assumption is
that because humans have natural deficiencies, humans logically fail to perform tasks, just as
do mechanical or electrical components. Thus, HEP can be assigned based on the characteristics
of the operator’s task and then modified by performance shaping factors (PSF). In the first
HRA generation, the characteristics of a task, represented by HEPs, are regarded as major
factors; the context, which is represented by PSFs, is considered a minor factor in estimating
the probability of human failure [8]. This generation concentrated towards quantification, in
terms of success/failure of the action, with less attention to the depth of the causes and reasons
of human behaviour, borrowed from the behavioural sciences [1].
THERP and approaches developed in parallel – as HCR, developed by Hannaman, Spurgin,
and Lukic in 1985 – describe the cognitive aspects of operator’s performance with cognitive
modelling of human behaviour, known as model skill-rule-knowledge (SKR) by Rasmussen
(1984) [2]. This model is based on classification of human behaviour divided into skill-based,
rule-based, and knowledge-based, compared to the cognitive level used (see Fig. 1).
The attention and conscious thought that an individual gives to activities taking place
decreases moving from the third to first level. This behaviour model fits very well with the
theory of the human error in Reason (1990), according to which there are several types of errors,
depending on which result from actions implemented according to the intentions or less [2].
Reason distinguishes between: slips, intended as execution errors that occur at the level of skill;
lapses, that is, errors in execution caused by a failure of memory; and mistakes, errors
committed during the practical implementation of the action. In THERP, instead, wrong
actions are divided into errors of omission and errors of commission, which represent, respec‐
tively, the lack of realisation of operations required to achieve the result and the execution of
an operation, not related to that request, which prevents the obtainment of the result [1, 4].
224 Operations Management

Concepts
(Knowledge-based)
Interpretation Evaluation

Rules
(Rule-based) Procedure
Identification
selection

Abilities
(Skill-based)
Stimulus Action

Figure 1. Rasmussen’s SKR model [2].

The main characteristics of the methods can be summarised as follows [9]:

• Binary representation of human actions (success/failure);

• Attention on the phenomenology of human action;
• Low concentration on human cognitive actions (lack of a cognitive model);
• Emphasis on quantifying the likelihood of incorrect performance of human actions;
• Dichotomy between errors of omission and commission;
• Indirect treatment of context.

Among the first generation techniques are: absolute probability judgement (APJ), human error
assessment and reduction technique (HEART), justified human error data information
(JHEDI), probabilistic human reliability analysis (PHRA), operator action tree system (OATS),
and success likelihood index method (SLIM) [31,32]. Among these, the most popular and
effectively method used is THERP, characterised as other first generation approaches by an
accurate mathematical treatment of the probability and error rates, as well as computer
programs well-structured for interfacing with the trees for evaluation of human error of a fault
event and trees [11]. The base of THERP is event tree modelling, where each limb represents
a combination of human activities, influences upon these activities, and results of these
activities [3]. The basic analytical tool for the analysis of human reliability is represented with
the graphics and symbols in Figure 2.
First generation HRA methods are demonstrated with experience and use, not able to provide
sufficient prevention and adequately perform its duties [10]. The criticism of base to the
adequacy of the traditional methods is that these approaches have a tendency to be descriptive
of events in which only the formal aspects of external behaviour are observed and studied in
terms of errors, without considering reasons and mechanisms that made them level of
cognition. These methods ignore the cognitive processes that underlie human performance
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and, in fact, possess a cognitive model without adequate human and psychological realism.
They are often criticised for not having considered the impact of factors such as environment,
organisational factors, and other relevant PSFs; errors of commission; and for not using proper
methods of judging experts [4,10,25]. Swain remarked that “all of the above HRA inadequacies
often lead to HRA analysts assessing deliberately higher estimates of HEPs and greater
uncertainty bounds, to compensate, at least in part, for these problems” [4]. This is clearly not
a desirable solution.

Figure 2. Scheme for the construction of a HRA-THERP event tree [2]: Each node in the tree is related to an action, the
sequence of which is shown from the top downwards. Originating from each node are two branches: The branch to
the left, marked with a lowercase letter, indicates the success; the other, to the right and marked with the capital let‐
ter, indicates the failure.

Despite the criticisms and inefficiencies of some first-generation methods, such as THERP and
HCR, they are regularly used in many industrial fields, thanks to their ease of use and highly
quantitative aspects.

2.2. Second generation HRA methods

In the early 1990s, the need to improve HRA approaches interested a number of important
research and development activities around the world. These efforts led to much progress in
first generation methods and the birth of new techniques, identified as second generation.
These HRA methods have been immediately unclear and uncertain, substantially because the
methods have been defined in terms of what should not be – that is, they should be as the first
generation of HRA methods [5]. While the first generation HRA methods are mostly behav‐
ioural approaches, the second generation HRA methods aspire to be of conceptual type [26].
The separation between generations is evident in the abandonment of the quantitative
approach of PRA/PSA in favour of a greater attention to qualitative assessment of human error.
The focus shifted to the cognitive aspects of humans, the causes of errors rather than their
frequency, the study of the interaction of the factors that increase the probability of error, and
the interdependencies of the PSFs [1].
226 Operations Management

Second generation HRA methods are based on a cognitive model more appropriate to
explain human behaviour. It is evident that any attempt at understanding human perform‐
ance needs to include the role of human cognition, defined as “the act or process of
knowing including both awareness and judgement” by an operator [1]. From the HRA
practitioner’s perspective, the immediate solution to take into consideration human
cognition in HRA methods was to introduce a new category of error: “cognitive error”,
defined both as failure of an activity that is predominantly of a cognitive nature and as
the inferred cause of an activity that fails [4]. For example, in CREAM, developed by Erik
Hollnagel in 1993, maintained division between logical causes and consequences of human
error [5]. The causes of misbehaviour (genotypes) are the reasons that determine the
occurrence of certain behaviours, and the effects (phenotypes) are represented by the
incorrect forms of cognitive process and inappropriate actions [2,17,25].

Moreover, the second generation HRA methods have aimed at the qualitative assessment of
the operator’s behaviour and the search for models that describe the interaction with the
production process. Cognitive models have been developed, which represent the process
logical–rational of the operator and summarise the dependence on personal factors (such as
stress, incompetence, etc.) and by the current situation (normal conduction system, abnormal
conditions, or even emergency conditions), and models of man–machine interface, which
reflect the control system of the production process [33]. In this perspective, man must be seen
in an integrated system, men–technology–organisation (MTO), or as a team of operators (men)
who collaborate to achieve the same objective, intervening in the mechanical process (tech‐
nology) within a system of organisation and management of the company (organisation) and,
together, represent the resources available [1,6].

The CREAM operator model is more significant and less simplistic than that of first generation
approaches. The cognitive model used is the contextual control model (COCOM), based on
the assumption that human behaviour is governed by two basic principles: the cyclical nature
of human cognition and the dependence of cognitive processes from context and working
environment. The model refers to the IPS paradigm and considers separately the cognitive
functions (perception, interpretation, planning and action) and their connection mechanisms
and cognitive processes that govern the evolution [2,4,5,8]. The standardised plant analysis
risk–human reliability analysis method (SPAR-H) [11,12,34] is built on an explicit information-
processing model of human performance, derived from the behavioural sciences literature.
An information-processing model is a representation of perception and perceptual elements,
memory, sensory storage, working memory, search strategy, long-term memory, and decision-
making [34]. The components of the behavioural model of SPAR-H are presented in Figure 3.

A further difference between generations relates to the choice and use of PSF. None of the first
generation HRA approaches tries to explain how PSFs exert their effect on performance;
moreover, PSFs – such as managerial methods and attitudes, organisational factors, cultural
differences, and irrational behaviour – are not adequately treated in these methods. PSFs in
the first generation were mainly derived by focusing on the environmental impacts on
operators, whereas PSFs in the second generation were derived by focusing on the cognitive
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impacts on operators [18]. The PSFs of both generations were reviewed and collected in a single
taxonomy of performance influencing factors for HRA [16].

Figure 3. Model of human performance [12].

Among the methods of the second generation can be mentioned: a technique for human error
analysis (ATHEANA), Cognitive Environmental Simulation (CES), Connectionism Assess‐
ment of Human Reliability (CAHR) and Méthode d’Evaluation de la Réalisation des Missions
Opérateur pour la Sûreté (MERMOS) [31,32].

Many proposed second generation methods still lack sufficient theoretical or experimental
bases for their key ingredients. Missing from all is a fully implemented model of the underlying
causal mechanisms linking measurable PSFs or other characteristics of the context of operator
response. The problem extends to the quantification side, where the majority of the proposed
approaches still rely on implicit functions relating PSFs to probabilities [25]. In short, some of
the key shortcomings that motivated the development of new methods still remain unfulfilled.
Furthermore, unlike first generation methods, which have been largely validated [13–15], the
second generation has yet to be empirically validated [32].

There are four main sources of deficiencies in current HRA methods [3]:
• Lack of empirical data for model development and validation;

• Lack of inclusion of human cognition (i.e. need for better human behaviour modelling);

• Large variability in implementation (the parameters for HRA strongly depend on the
methodology used)

• Heavy reliance on expert judgement in selecting PSFs and use of these PSFs to obtain the
HEP in human reliability analysis.
228 Operations Management

2.3. Last generation

In recent years, the limitations and shortcomings of the second generation HRA methods have
led to further developments related to the improvement of pre-existing methods. The only
method now defined as third generation is nuclear action reliability assessment (NARA) and
is, in fact, an advanced version of HEART for the nuclear field. The shortcomings in the second
generation, highlighted above, have been the starting point of HRA experts for new research
and improvement of existing methods.

Some of the more recent studies have focused on lack of empirical data for development and
validation of an HRA model and were intended to define the database HRA, which may
provide the methodological tools needed to make greater use of more types of information in
future HRAs and reduce uncertainties in the information used to conduct human reliability
assessments. Currently, there are some databases for HRA analysts that contain the human
error data with cited sources to improve the validity and reproducibility of HRA results.
Examples of databases are the human event repository and analysis (HERA) [17] and the
human factors information system (HFIS).

The PSFs are an integral part of the modelling and characterisation of errors and play an impor‐
tant role in the process of human reliability assessment; for this reason in recent years, HRA experts
have focused their efforts on PSFs. Despite continuing advances in research and applications, one
of the main weaknesses of current HRA methods is their limited ability to model the mutual
influence among PSFs, intended both as a dependency among the states of the PSFs’ dependen‐
cy among PSFs’ influences (impacts ) on human performance (Fig. 4) [20,26].

Figure 4. Possible types of dependency among PSFs: (A) dependency between the states (the presence) of the PSFs
and (B) dependency between the state of the PSFj and the impact of PSFi over the HEP [20].
 An Overview of Human Reliability Analysis Techniques in Manufacturing Operations 229
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Some HRA methods – such as CREAM, SPAR-H, and IDAC – try to provide guidance on how
to treat dependencies at the level of the factor assessments but do not consider that a PSF
category might depend on itself and that the presence of a specific PSF might modulate the
impact of another PSF on HEP; therefore, they do not adequately consider the relationships
and dependencies between PSFs [20]. Instead, De Ambroggi and Trucco’s (2011) study deals
with the development of a framework for modelling the mutual influences existing among
PSFs and a related method to assess the importance of each PSF in influencing performance
of an operator, in a specific context, considering these interactions (see Fig. 5).

Figure 5. The procedure for modelling and evaluation of mutual influences among PSFs (De Ambroggi and Trucco
2011)

Another limitation of current HRA methods is the strong dependence on expert opinion to
assign values to the PSFs; in fact, during this assignment process, subjectivity plays an
important role, causing difficulties in assuring consistency. To overcome this problem and
obtain a more precise estimation, Park and Lee (2008) suggest a new and simple method: AHP–
SLIM [19].This method combines the decision-making tool AHP – a multicriteria decision
method for complex problems in which both qualitative and quantitative aspects are consid‐
ered to provide objective and realistic results – with success likelihood index method (SLIM),
a simple, flexible method of the expert judgement for estimating HEPs [6,19]. Therefore
through a type of HEP estimation using an analytic hierarchy process (AHP), it is possible to
quantify the subjective judgement and confirm the consistency of collected data (see Fig. 6).
230 Operations Management

Figure 6. AHP–SLIM procedure scheme [19].

The real development concerns, however, are the so-called methods of reliability dynamics.
Cacciabue [7] outlined the importance of simulation and modelling of human performance for
the field of HRA. Specifically, simulation and modelling address the dynamic nature of human
performance in a way not found in most HRA methods [23]. A cognitive simulation consists
of the reproduction of a cognition model using a numerical application or computation [21,22].

As depicted in Figure 7, simulation and modelling may be used in three ways to capture and
generate data that are meaningful to HRA [23]:
• The simulation runs produce logs, which may be analysed by experts and used to inform
an estimate of the likelihood of human error;

• The simulation may be used to produce estimates PSFs, which can be quantified to produce
human error probabilities (HEPs);

• A final approach is to set specific performance criteria by which the virtual performers in
the simulation are able to succeed or fail at given tasks. Through iterations of the task that
systematically explore the range of human performance, it is possible to arrive at a frequency
of failure (or success). This number may be used as a frequentist approximation of an HEP.
Concurrent to the emergence of simulation and modelling, several authors (e.g. Jae and Park
1994; Sträter 2000) have posited the need for dynamic HRA and begun developing new HRA
methods or modifying existing HRA methods to account for the dynamic progression of
human behaviour leading up to and following human failure events (HFEs) [23]. There is still
not a tool for modelling and simulation that fully or perfectly combines all the basic elements
of simulation HRA. There is, however, a significant work in progress, as for the simulator
PROCOS, developed by Trucco and Leva in 2006 or for the IDAC system, which combines a
realistic plant simulator with a system of cognitive simulation capable of modelling the PSF.
In addition to systems such as MIDAS, in which the modelling of the error was already present,
 An Overview of Human Reliability Analysis Techniques in Manufacturing Operations 231
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further efforts are to instill the PSF of SPAR-H in the simulation system [24]. PROCOS [21,22]
is a probabilistic cognitive simulator for HRA studies, developed to support the analysis of
human reliability in operational contexts complex. The simulation model comprised two
cognitive flow charts, reproducing the behaviour of a process industry operator. The aim is to
integrate the quantification capabilities of HRA methods with a cognitive evaluation of the
operator (see Fig. 8).

Figure 7. Uses of simulation and modelling in HRA [23].

Figure 8. Architecture of PROCOS simulator [21].

The model used for the configuration of the flow diagram that represents the operators is based
on a combination of PIPE and SHELL. The two combined models allow for representation of
the main cognitive processes that an operator can carry out to perform an action (PIPE) and
232 Operations Management

describe the interaction among procedures, equipment, environment and plants present in the
working environment, and the operator, as well as taking into account the possibility of
interaction of the operator with other operators or supervisors (SHELL).

The IDAC model [25–30] is an operator behaviour model developed based on many relevant
findings from cognitive psychology, behavioural science, neuroscience, human factors, field
observations, and various first and second generation HRA approaches. In modelling cogni‐
tion, IDAC combines the effects of rational and emotional dimensions (within the limited scope
of modelling the behaviour of operators in a constrained environment) through a small number
of generic rules-of-behaviour that govern the dynamic responses of the operator. The model
constrained behaviour, largely regulated through training, procedures, standardised work
processed, and professional discipline. This significantly reduces the complexity of the prob‐
lem, as compared to modelling general human response. IDAC covers the operator’s various
dynamic response phases, including situation assessment, diagnosis, and recovery actions in
dealing with an abnormal situation. At a high level of abstraction, IDAC is composed of models
of information processing (I), problem-solving and decision-making (D), and action execution
(A) of a crew (C). Given incoming information, the crew model generated a probabilistic re‐
sponse, linking the context to the action through explicit causal chains. Due to the variety, quantity,
and details of the input information, as well as the complexity of applying its internal rules, the
IDAC model can only be presently implemented through a computer simulation (see Fig. 9).

Information
in Input

(I) Information Elaboration

(MS) Mental Status

(D) Problem-solving and

decision-making

(A) Action

Input
Actions in
Influence Ouput External
Environment

Figure 9. IDAC model of operator cognitive flow (Chang and Mosleh 2007).
 An Overview of Human Reliability Analysis Techniques in Manufacturing Operations 233
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Figure 10. High-level vision of the IDAC dynamic response [25].

3. Literature review of rest breaks

One of the most important factors influencing the physical and mental condition of an
employee – and, thus, his or her ability to cope with work – is the degree to which employees
are able to recover from fatigue and stress at work. Recovery can be defined as the period of
time that an individual needs to return to prestressor level of functioning following the
termination of a stressor [35]. Jansen argued that fatigue should not be regarded as a discrete
disorder but as a continuum ranging from mild, frequent complaints seen in the community
to the severe, disabling fatigue characteristics of burnout, overstrain, or chronic fatigue
syndrome [35]. It is necessary that recovery is properly positioned within this continuum not
only in the form of lunch breaks, rest days, weekends or summer holidays, but even in the
simple form of breaks or micro-pauses in work shifts.

Work breaks are generally defined as “planned or spontaneous suspension from work on a task
that interrupts the flow of activity and continuity” [36]. Breaks can potentially be disruptive to
the flow of work and the completion of a task. The potential negative consequences of breaks for
the person being interrupted include loss of available time to complete a task, a temporary
234 Operations Management

disengagement from the task, procrastination (i.e. excessive delays in starting or continuing work
on a task), and the reduction in productivity; the break can lead to a loss of time to complete
activities. However, breaks can serve multiple positive functions for the person being interrupt‐
ed, such as stimulation for the individual performing a job that is routine or boring, opportuni‐
ties to engage in activities that are essential to emotional wellbeing, job satisfaction, sustained
productivity, and time for the subconscious to process complex problems that require creativity
[36]. In addition, regular breaks seem to be an effective way to control the accumulation of risk
during the industrial shift. The few studies on work breaks indicate that people need occasional
changes... the shift or an oscillation between work and recreation, mainly when fatigued or
working continuously for an extended period [36]. A series of laboratory studies in the work‐
place have been conducted to evaluate the effects of breaks in more recent times; however, there
appears to be a single recent study that examined in depth the impact of rest breaks, focusing on
the risk of injury. Tucker’s study [37,38] focused attention on the risk of accidents in the work‐
place, noting that the inclusion of work breaks can reduce this risk. Tucker examined accidents in
a car assembly plant, where workers were given a 15-minute break after each 2-hour period of
continuous work. The number of accidents within each of four periods of 30 minutes between
successive interruptions was calculated, and the risk in each period of 30 minutes was ex‐
pressed in the first period of 30 minutes immediately after the break. The results are shown in
Figure 5, and it is clear that the accident risk increased significantly, and less linearly, between the
successive breaks. The results showed that rest breaks neutralise successfully accumulation of
risk over 2 hours of continuous work. The risk immediately after a pause has been reduced to a
rate close to that recorded at the start of the previous work period. However, the effects of the
breaks are short-term recovery.

3.00
Relative Risk

2.00
1.00
0.00
0‐30 31‐60 61‐90 91‐120

Minutes Since Last Break

Figure 11. The trend in relative risk between breaks [38].

Figure 11. The trend in relative risk between breaks [38].
A 2006 study by Folkard and Lombardi showed the impact of frequent pauses of different shift
A The
systems [39]. 2006 study
results by Folkard
of these and Lombardi
studies confirm showed
that breaks, even for the impact
a short periodof frequent
of time, are pauses of d
studies from
positively reflected confirm thatand
physical breaks,
psychiceven for a short
viewpoints period ofwork
on the operator’s time, are
(see Fig.positively
12). reflected
operator’s work (see Fig. 12).
 An Overview of Human Reliability Analysis Techniques in Manufacturing Operations 235
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Figure 12. Effect of breaks in different shift systems [39].

Proper design of work–rest schedule that involves frequency, duration, and timing of rest
breaks may be effective in improving workers’ comfort, health, and productivity. But today,
work breaks are not taken into proper consideration, and there are ongoing efforts to create
systems that better manage the business in various areas, especially in manufacturing. From
the analysis of the literature, in fact, there has been the almost total lack of systems for the
management of work breaks in an automatic manner. The only exception is the software that
stimulates workers at VDT to take frequent breaks and recommend performing exercises
during breaks. The validity and effectiveness of this type of software has been demonstrated
by several studies, including one by Van Den Heuvel [41] that evaluated the effects of work-
related disorders of the neck and upper limbs and the productivity of computer workers
stimulated to take regular breaks and perform physical exercises with the use of an adapted
version of WorkPace, Niche Software Ltd., New, and that of McLean (2001) [40] that examined
the benefits of micro-breaks to prevent onset or progression of cumulative trauma disorders
for the computerised environment, mediated using the program Ergobreak 2.2.
In future, therefore, researchers should focus their efforts on the introduction of management
systems of breaks and countering the rates of increase in the risk of accidents during long
periods of continuous work to improve productivity.

4. Research perspectives in HRA

different shift
Thesystems
previous[39]. The results
paragraphs of these
described the development of HRA methods from their origin to the
d from physical and psychic
last generation. viewpoints
In this generation,on theare literally dozens of HRA methods from which to
there
236 Operations Management

choose. However, many difficulties remain: Most of the techniques, in fact, do not have solid
empirical bases and are essentially static, unable to capture the dynamics of an accident in
progress or general human behaviour. Therefore, the limitations of current methods are
natural starting point for future studies and work.
As described in this paper, the path has been paved for the next generation of HRA through
simulation and modelling. The human performance simulation reveals important new data
sources and possibilities for exploring human reliability, but there are significant challenges
to be resolved, both as regards the dynamic nature of HRA versus the mostly static nature of
conventional first and second generation HRA methods both for the weakness of the simula‐
tors themselves [23]. The simulator PROCOS, in particular, requires further optimisation, as
evidenced by the same Trucco and Leva in [21]. Additionally, in its development, some
sensitivity analysis has still to be performed on the main elements on which the simulator is
based – blocks of the flow chart, decision block criteria, PSF importance – to test the robustness
of the method [21]. Mosleh and Chang, instead, are conducting their studies to eliminate the
weak points of IDAC as outlined in [25]. First of all, is development of an operator behaviour
model more comprehensive and realistic; it can be used not only for nuclear power plants but
also for more general applications. This is a subject of current research effort by the authors.
Many researchers are moving to the integration of their studies with those of other researchers
to optimise HRA techniques. Some future plans include, for example, extending AHP–SLIM
into other HRAs methods to exploit its performance [19]. The method proposed by De
Ambroggi and Trucco for modelling and assessment of dependent performance shaping
factors through analytic network process [20] is moving towards better identification of
dependencies among PSFs using the simulator PROCOS or Bayesian networks.
Bayesian networks (BN) represent, in particular, an important field of study for future
developments. Many experts are studying these networks with the aim of exploiting the
features and properties in the techniques HRA [44,45]. Bayesian methods are appealing since
they can combine prior assumptions of human error probability (i.e. based on expert judge‐
ment) with available human performance data. Some results already show that the combina‐
tion of the model conceptual causal model with a BN approach can not only qualitatively
model the causal relationships between organisational factors and human reliability but can
also quantitatively measure human operational reliability, identifying the most likely root
causes or prioritisation of root causes of human error [44]. This is a subject of current research
effort by the authors of the IDAC model as an alternative way for calculating branch probability
and representing PIF states as opposed to the current method; in the current method, branch
probabilities are dependent on the branch scores that are calculated based on explicit equations
reflecting the causal model built, based on the influence of PIFs and other rules of behaviour.
Additional research and efforts are related to the performance shaping factors (PSFs). Cur‐
rently, there are more than a dozen HRA methods that use PIFs/PSFs, but there is no standard
set of PIFs used among methods. The performance shaping factors at present are not defined
specifically enough to ensure consistent interpretation of similar PIFs across methods. There
are few rules governing the creation, definition, and usage of PIF sets. Within the HRA
community, there is a widely acknowledged need for an improved HRA method with a more
 An Overview of Human Reliability Analysis Techniques in Manufacturing Operations 237
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robust scientific basis. Currently, there are several international efforts to collect human
performance data that can be used to improve HRA [46].

Of course, many studies that are being carried out are aimed at improving the application of
HRA methods in complex environments, such as nuclear power plants. The methods already
developed in these areas are adapting to different situations by expanding their scope.

Author details

Valentina Di Pasquale, Raffaele Iannone*, Salvatore Miranda and Stefano Riemma

Dept. of Industrial Engineering – University of Salerno, Italy

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 Edited by Massimiliano M. Schiraldi

Operations Management is an area of business concerned with managing the process

that converts inputs into outputs, in the form of goods and/or services. Increasingly
complex environments together with the recent economic swings and substantially
squeezed industrial margins put extra pressure on companies, and decision makers
are pushed to increase operations efficiency and effectiveness. This book presents the
contributions of a selected group of researchers, reporting new ideas, original results and
practical experiences as well as systematizing some fundamental topics in Operations
Management. Although it represents only a small sample of the research activity on
Operations Management, people from diverse backgrounds, academia, industry and
research as well as engineering students can take advantage of this volume.

ISBN 978-953-51-6318-3
978-953-51-1013-2

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