OM Merged
OM Merged
OM Merged
Renfro India
ROAD MAP
Topics to be covered in OM I
▪ Introduction to OM
▪ Project Management
▪ Product Design
▪ Process design and analysis
▪ Facilities Layout
▪ Inventory Management
▪ Statistical Quality Control
▪ Capacity planning
Evaluation Components
Increasing Volume
Increasing customization
▪ Order qualifiers
minimum characteristics of a product or service
required to compete in the marketplace.
▪ Order winners
Product or service characteristics better than
competitors in the marketplace.
Order Winners
and Order Qualifiers
Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan
Betts, Operations and Process Management, Prentice Hall, 2006, p. 47 1-
20
Productivity
▪ Productivity
An index that measures the effective use of organizational
resources, usually expressed as the ratio of output to input.
Higher the productivity, the lower the cost of output
Can be calculated for single operation, a department, an
organization, or an entire country
Productivity
Capital Units of output per rupee input
Rupee value of output per rupee input
Productivity
Energy Units of output per kilowatt-hour
Rupee value of output per kilowatt-hour
Productivity
Productivity
(partial)
▪ Determine productivity where 4 workers
installed 720 sq. yards of carpeting in 8 hours
Productivity: Yards of carpet / labour hrs worked
720/(4 workers × 8 hours/worker)
720 yards/32 hours = 22.5 yards/hour
Productivity
(partial)
▪ A machine produced 68 usable pieces in two
hours
Productivity: usable pieces / production time
68 pieces / 2 hours
34 pieces /hour
Productivity
(Multi-factor)
▪ Given: output: 7,040 units
▪ Input
Labour: Rs 1,000
Materials: Rs 520
Overhead: Rs 2,000
▪ Multi-factor productivity
Output / (Labour + Materials + Overhead)
7,040 / (Rs 1000 + Rs 520 + Rs 2,000)
2 units /Rupee
Factors Affecting Productivity
Quinn et al.
Distinction Between a
Product and a Service
▪ Distinction is hard to make because the purchase of a
product is accompanied by some facilitating service
(e.g., installation of carpets, buying and installing an
air-conditioner) and the purchase of a service often
includes facilitating goods (food and drinks in a
restaurant)
Comparison of Goods and
Services
Goods Services
Self-service groceries
Automobile
Installed carpeting
Fast-food restaurant
Gourmet restaurant
Auto maintenance
Haircut
Consulting services
Distinctive Characteristics
of Services
1. Intangibility
2. Variability (arrival, capability, request, effort,
subjective preference)
3. Inseparability (simultaneous production and
consumption)
A. In other words, services are “consumed”
the instant they are produced
4. Perishability
5. Customer participation in the process
Manufacturing vs. Services
Manufacturing Services
1. Production precedes 1. Production and consumption
consumption takes place simultaneously
Brown field:
Project is of expanding on the existing set up with additional
equipment and installation that is to be set up with all the
intricacies / complexities involved in getting work progress
without affecting running operations of the existing plant
(plant capacity expansion in the same premises, or adding a
new wing in an existing hospital)
Few Examples of Projects
Eradication of COVID-19
Vaccine development
Production of masks, PPEs, sanitisers
Set-up of COVID hospitals nation-wide
Set-up oxygen plant in each hospital
Training of healthcare givers
▪ Project Team
Project work is accomplished by a group of people
often from different functional areas who participate
wherever and whenever they are needed
People work full-time or part-time on one or more
projects
Project Management: The Person,
the Team, the System
▪ Project Management System
Provides the means for
Identification of tasks
Making time estimates
Identification of resource and costs
Establishing priorities
Preparing budgets
Planning and updating schedules
Measuring project performance
Project closure
When to use Project Management?
General Criteria
▪ Project Management can be applied to any ad
hoc undertaking
▪ There are two conditions suggesting when
project management should be applied
1. More unfamiliar or unique the undertaking, the
greater the need for PM to ensure that nothing gets
overlooked
▪ Performance specs:
Boiler : 1500 tons of steam per hour at a pressure of
170 kg/cm sq and temp ….
Turbine: Steam at 1500 tons/hr at 170 kg/sq cm….
Activity-on-Arrow (AOA)
Uses an arrow to depict an activity.
0
to tm te tp
This sum includes only activities on the critical paths(s) or path being
reviewed
Reducing Project Duration
Rationale for Reducing Project
Duration
Rationale
Time-to-market pressures
Delayed project
Incentive contracts (bonuses for early
completion)
Imposed deadlines
Pressure to move resources to other projects
Exceed customer expectations
Options for Accelerating
Project Completion
▪ Options when resources are not constrained
Adding resources
Outsourcing project work
Scheduling overtime without adding people
Establish core project team – undivided attention
Do it twice – Fast and correctly
Pontoon bridges in combat as solution to damaged
bridge
Releasing unfinished software solutions. Subsequent
versions correct bugs and add intended functionality
Additional cost of doing twice are often compensated for by
the benefits of satisfying deadline
PONTOON BRIDGE
Options for Accelerating
Project Completion
▪ Options when resources are constrained
Fast-Tracking
Finish to start TO Start-to-Start relationships
Activities are done in parallel (concurrently) rather than sequentially.
For example, converting finish-to-start relationship to start-to-start
relationship.
Scope Reduction
Reducing or scale back project scope for meeting unattainable
deadlines
Compromise quality
Rarely acceptable
Slope
Crash time
Normal Time
Cost Slope
The slope of the cost line is $80 for each time unit the activity is redu
Constructing a Project Cost–
Duration Graph
▪ Determining Activities to Shorten
Shorten the critical activities with the smallest
increase in cost per unit of time.
Assumptions:
The cost relationship is linear.
Normal time assumes low-cost, efficient
methods to complete the activity.
Crash time represents a limit — the greatest time
reduction possible under realistic conditions.
Slope represents a constant cost per unit of time.
All accelerations must occur within the normal
and crash times.
What if Cost, Not Time Is the
Issue?
▪ Commonly Used Options for Cutting Costs
Reducing project scope
Having owner take on more responsibility
▪ How to start?
1st step in analyzing a process is to describe it. We
need to have a good understanding of the current
process
Activities
Activity times
Sequence of activities, i.e. flow
▪ Single Stage
One machine
▪ Multiple stages
Multiple machines connected in sequence
Process Analysis Terminology
▪ Average Throughput time (or Flow time or
Manufacturing Lead Time)
Total time for a unit to move through the system, from
beginning to end (Proc Time + Transport Time + Wait time)
1 2 3
Customers
Inputs
200 / hr 50 / hr 200 / hr
Bottleneck operation
Four step process – Blocking and
Starving
Task C is the bottleneck, it limits the output of the process. Task A and B could
produce greater output, but that would result in WIP inventory building up in fron
of task C indefinitely, with no increase in process output. When the physical
space for holding WIP in front of task C is full, we say Workstations A and B
are BLOCKED. Task D has to wait for Task C’s five minute cycle to do its
work. We say Task D is a STARVED task.
Capacity Calculation
Four step process
(Sequential Process)
Four step process with bottleneck
Task A Task B Task C Task D
2min/unit 4 min/unit 5 min/unit 3 min/unit
Task C,
5 min/unit
Capacity = 15 units/hour
Doubling the resources at a work station effectively cuts the time at that
station in half. If “n” parallel operations are added, the time of the combined
workstation operation will equal 1/n times the original time
Parallel Processing
Parallel process: Tasks that can be performed at the same time. Outputs from
parallel process are typically integrated into one product at some point in the
process flow.
30 seconds/unit C
20 seconds / unit
10 seconds/unit
Capacity = 20 units/hour
Parallel Process - Chair Making
Output = 4 chairs per day (assuming single shift, 8 hours per shift)
OR
Labor content per cycle = (2+4+5+3) / (5)(4) = 70%
Labour utilization for Task A: (2/5)*100 = 40%; Task B=80%; Task C=100%,
Task D=60%
Labour Utilization Formula
Average Inventory
▪ Average Flow time = ----------------------------------------
Flow Rate (or Average demand)
Questions
4-
11
QFD
▪ QFD is a structured process to define the needs of
the customers and transforming them into
specific product designs and process plans to
produce products.
Importance
Co-relationships
3
Product Attributes
1 4 2
6 Technical Attributes
A Series of Connected QFD
Houses
Product
characteristics
requirement
Customer
Part
A-1 characteristics
characteristics
s
Process
House A-2
Product
characteristics
of
characteristic
quality
Parts A-3 Operations
deployment
Part
characteristic
s
Process A-4
Process
planning
s
Operating
requirements
Benefits of QFD
Raw material
Physical inputs at the start of the
production process.
Finished goods
End item ready to be sold
at the end of routine
Maintenance / Repair /
Operating Supplies (MRO)
Oil, lubricants, cotton
waste, wood dust
Pens, papers, files,
envelopes
Pipeline or Transit Stock
Inventory ordered but
not yet received by
warehouses, distributors,
or customers
Service Inventory
▪ High Levels
Tying more financial capital
High interest charges
▪ Low Levels
Stock outs
Lost sales
Goal of Materials Manager
▪ Key Questions
What should be the size of order to the supplier?
▪ VED Classification
Based on criticality of items
V: Vital, E: essential, D: desirable
▪ ABC Classification
Based on cost of items consumed
ABC Classification System
▪ A items
10 to 20% of # of items
60 to 70% of annual rupee value of total inventory costs
Tight inventory control
▪ B items
Represent 30% of # items and 15% of total inventory value costs
▪ C items
50 to 60% of # of items
10 to 15% of annual rupee value of inventory cost
Less stringent inventory control
ABC Inventory Planning
Item No Annual Rupee Usage ( #units * price) % of Total Value
22 95000 40.69
68 75000 32.13
27 25000 10.71
3 15000 6.43
82 13000 5.57
54 7500 3.21
36 1500 0.64
19 800 0.34
23 425 0.18
41 225 0.1
233,450 100%
ABC Inventory Planning
▪ Types of costs
Ordering costs (costs associated with placing an order and receiving
inventory, independent of order size). Assigned to entire batch
Identification of sources of supply
Price negotiation, purchase order generation
Follow-up and receipt of materials
Inspecting goods upon arrival for quality and quantity
Stationery, postage, telephone and electricity bills
Transportation costs
Set-up Costs
When a firm produces its own inventory, the cost of machine set-up
such as arranging tools, drawings, cleaning the machine, adjusting
the machine are all parts of set-up costs
Inventory Costs
Inventory on hand
Q Demand Rate
Avg. Inventory
(Q/2)
R
Reorder Pt.
L
Time L = Lead Time Time
Order Placed
Order Receipt R = Reorder Point
Average Inventory Levels and
Number of Orders
Total Cost Curve
Minimum Total Cost
Q = DS
H
2 Q
Q Model
2DS
▪ Q opt= H
The square root formula is the EOQ, also referred as economic lot size
Q-Model
TC = PD + (D/Q)×S + (Q/2)×H
Where, TC = Total annual cost
D = Demand
P = Unit cost
Q = Quantity to be ordered
S = Ordering cost or set-up cost
R = reorder point
L = Lead Time
H = Annual holding or storing cost per unit of
Q Model
Average Inventory
▪ Average Flow time = ----------------------------------------
Flow Rate (or Average demand)
▪ Advantages
Practical approach if the inventory withdrawals can’t be closely
monitored
Inventory counted only before the next review period
Convenient administratively
More appropriate for C-items
▪ Disadvantages
No tally of inventory during review period
Possibility of stock out
Large amount of safety stock because need to protect against
shortages during order interval and lead time
Differences (Q vs. P Models)
▪ Q model ▪ P model
Order Qty: Q fixed Order Qty: variable
When order: ROP triggered
(varies each time order
is placed due to demand
Record keep: Each time variability)
material withdrawn
When order: Review
Time to maintain: High period (time triggered)
If Higher than normal Record keep: Counted
demand – Shorter time only at review period
between orders Administration: Easy
Type of items: High priced,
Type of items: Retail,
critical, important items drugs
A items Appropriate when large
number of items ordered from
same supplier resulting in
consolidation and lower
freight rates
Choosing Between Q and P
▪ Q system
Often used for expensive items
Inventory Records and
Accuracy
▪ Inventory records differ from physical count
▪ Inventory accuracy refers to how closely they match
▪ How to keep up-to-date inventory records
Keep storeroom locked
Educating employees
Putting fence up to ceiling around storage area to
prevent unauthorised access to pull items
clandestinely
Cycle counting at regular intervals
Strategic Capacity Planning
Why Capacity Decisions
Important?
▪ Entails huge investment
▪ Can’t be altered in the short-term (last a long time),
especially factories
▪ Enduring impact on a firm’s performance
▪ Expensive to change
▪ To meet market requirements managers should be
Able to change production volume to respond to customer
demand
Produce different variety of products to respond to changing
customer needs (flexible plants)
Alter process technology to remain competitive
▪ Goal of Capacity Planning: Matching supply capabilities with
demand
Capacity Measurement
▪ Capacity/period =
max production rate/hr × hrs worked/period
# units produced
▪ Production rate = ----------------------
Amount of time
Example of Capacity
▪ Given
3 assembly lines
Output 800 units per line per shift
Maximum two shifts, 8 hours per shift
A bakery can make 30 custom cakes per day when pushed at holiday time
On the average this bakery can make 20 custom cakes per day
Difference between Peak and
Effective Capacity
▪ FedEx averages volume of packages
delivered throughout the year is 6 million per
day. However, during Christmas holiday
season of 2007, FedEx projected that
December 17, 2007 would be the busiest
single day ever , with more than 11.3 million
packages moving through the system. Thus
peak capacity is 60% higher than effective
capacity
Types of Capacity
Renfro India
Quality Message
▪ Walter Shewart
▪ W. Edward Deming
▪ Joseph Juran
▪ Armand V. Feigenbaum
▪ Philip Crosby
▪ Kaoru Ishikawa
▪ Taguchi
Key Contributors to Quality
Management
Shewart Control Charts
Deming 14 points, special vs. common cause
variation
▪ Coefficient of Variation, c = σ / µ
Where σ = standard deviation
µ = mean
Crosby
Cost of Quality
▪ Internal failure costs (defects discovered before
shipment)
Scrap
Rework
Process downtime
Retest
Failure analysis
Disposition
▪ External failure costs (defects discovered after
shipment)
Customer complaint
Warranty charges
Liability costs
Returned product/material
External and internal failure costs together accounted for 50%-80% of COQ
Juran
The Costs of Quality
Cost of Quality
Quality Cost Trend Prediction
as a Function of Time
Cost of Quality
It is estimated that the cost to fix a problem at the customer end is about 5 times the
cost to fix a problem at the design stage
Cost of Quality
Ce + Ci + Ca + Cp
▪ Cost of Quality= --------------------------------------
Cb + Ce + Ci + Ca + Cp
Ce = External failure cost
Ci = Internal failure cost
Ca = appraisal cost
Cp = prevention cost
Cb = measured base production cost ( no costs for quality)
Consequences of Poor Quality
▪ Loss of business
▪ Liability
▪ Productivity
▪ Costs
Process Control
▪ Control charts for attributes (quality characteristics that are counted rather
than measured)
p-chart measures % defective items or proportion
defective items in a sample