Operations Management

BITS Pilani Dr Gaurav Kabra

PhD-Indian Institute of Technology Roorkee
Pilani Campus
 BITS Pilani
Pilani Campus

<Operations Management>
Lecture No. 1
Your Expectation from Course

BITS Pilani, Pilani Campus

Your Expectation from Course

BITS Pilani, Pilani Campus

Your Expectation from Course

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Objectives of this course
• Operations Management (OM) focuses on the application of business and
management concepts in the creation of products and services.
• This course would advance the understanding of the role of OM in
the organization and impact of major managerial issues in Production and
Operations.
• Key concepts include forecasting, inventory management, quality management,
lean and six sigma, balance scorecard, sustainability.
• The course provide you with language, concepts, insights and tools to deal with
these issues in order to gain competitive advantage through operations.
• The course also aims to focus on the strategies which organizations generally
adopt to solve operations related problems to provide customer satisfaction which
ultimately has strong implications on organization’s bottom-line.
• A process view of operations will be used to analyze different key operational
dimensions such as capacity management, flow time(cycle time)management,
and supply chain management.

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BITS Pilani, Pilani Campus
Learning Outcomes

• To understand the types of operations decisions

• To appreciate scientific methods for making optimal location
and layout decisions
• To understand the effect of uncertainty in decision-making
(supply and demand)
• To understand techniques for inventory management
• To understand the application of performance management
tools in managing operations
• To understand the importance of sustainability in the current
business scenario

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Course Book
• Jacobs, F Robert, Chase, Richard B, Operations and Supply Chain Management, 15th
edition, McGraw Hill, 2018. [Text Book]
• Heizer, J, and Render, B, “Operations Management”, Pearson 12th Edition. Levi, D. S.,
Kaminsky, P., Levi, E. S., Shankar, R. Designing and managing the supply chain:
Concepts, strategies, and case studies. McGraw-Hill.
• Ballou, R. H. and Srivastava S.K. Business logistics/supply chain management:
planning, organizing, and controlling the supply chain. Pearson Education India.
• Bozarth, C. C., Handfield, R. B., & Chandiran, P. Introduction to operations and
supply chain management. Upper Saddle River, NJ: Pearson Prentice Hall.

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What Can OM (This Course) Do to Help? Step 1:
Help Making Operational Trade-Offs

Example: Call center of a large retail bank

- objective: 80% of incoming calls wait less than 20 seconds
- starting point: 30% of incoming calls wait less than 20 seconds
- Problem: staffing levels of call centers / impact on efficiency

OM helps: Provides tools to support strategic trade-offs

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What Can OM (This Course) Do to Help?
Step 2: Overcome Inefficiencies

Example:
•Benchmarking shows the pattern above
•Don’t just manage the current system… Change it!

Provides tools to identify and eliminate inefficiencies => Define Efficient Frontier Types of inefficiencies:
-Poor process design
- Inconsistencies in activity network

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OM course will be useful in evaluating
Proposed Redesigns/New Technologies

Responsiveness

High

Redesign process

New frontier
Current frontier In the industry

Low

Low labor High labor Labor Productivity

productivity productivity (e.g. $/call)

Example:
• What will happen if we develop / purchase technology X?
• Better technologies are always (?) nice to have, but will they pay?

OM helps: Evaluates system designs before they occur

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Additional Readings:
Articles from leading journals such as
Journal of Operations Management
Production and Operations Management
Supply Chain Management: An International Journal
International Journal of Physical Distribution & Logistics Management
International Journal of Production Economics
Manufacturing & Service Operations Management (INFORMS)
Service Science (INFORMS)
Strategy Science (INFORMS)
International Journal of Operations & Production Management

Academic Integrity
The academic integrity will be strictly adhered to as per the rules and guidelines
of the student Manual of Policy provided by the institution to the students.

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Let's get
started

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Key differences!
Effectiveness v/s Efficiency
Efficiency v/s Productivity

Effectiveness is doing the right things; efficiency is doing

things in a right way; and productivity is doing right
things in a right way.
Productivity = Effectiveness + Efficiency

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 Production v/s Manufacturing
• All sorts of manufacturing is included in production but not all
production is manufacturing.
• Production is simply conversion of inputs into outputs. Raw
material consumption is necessary to call a manufacturing.
• Manufacturing produces products suitable for use; production
describes any production-products such as artworks, paintings etc.
• Tangible products can be produced or manufactured but intangible
products can just be produced.
• Manufacturing can be entirely by machines; production must also
involve individual employees
• In manufacturing, the company makes the final product after
procuring the raw material from outside; this is not necessary for
production in which the company processes the raw material to
make the final product.
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Production v/s Manufacturing

Aspect Production Manufacturing

Broad process of creating Specific process of creating
Definition
goods or services. tangible goods.
Includes both tangible
Only tangible goods
Output (goods) and intangible
(physical products).
(services).
Software, agriculture, Automobiles, electronics,
Examples
mining, consultancy, etc. textiles, etc.
Predominantly involves
May or may not involve
Use of Machinery machinery and
machinery (e.g., services).
automation.
Service sector, agriculture, Industrial and
Industries
and manufacturing sectors. manufacturing sectors.

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Differences Between Goods
and Services
CHARACTERISTICS OF SERVICES CHARACTERISTICS OF GOODS
Intangible: Ride in an airline seat Tangible: The seat itself
Produced and consumed simultaneously: Beauty salon Product can usually be kept in inventory (beauty care
produces a haircut that is consumed as it is produced products)
Unique: Your investments and medical care are unique Similar products produced (iPods)

High customer interaction: Often what the customer is Limited customer involvement in production
paying for (consulting, education)
Inconsistent product definition: Auto Insurance Product standardized (iPhone)
changes with age and type of car
Often knowledge based: Legal, education, and medical Standard tangible product tends to make automation
services are hard to automate feasible
Services dispersed: Service may occur at retail store, Product typically produced at a fixed facility
local office, house call, or via internet.
Quality may be hard to evaluate: Consulting, Many aspects of quality for tangible products are easy
education, and medical services to evaluate (strength of a bolt)
Reselling is unusual: Musical concert or medical care Product often has some residual value

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What Is Operations
Management?

Operations management (OM) is

about organizations effectively and
efficiently using their resources
and activities to transform
materials and information into
goods and services for customers

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Are we all Operations
Managers?

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Recognizing Operations
Management
OM impacted
• Product design
• Assembly line
• Supplier selection
• Employee training
• Sales Outlet
• Troubleshooting support
• Safe disposal

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OM in day to day products

Restaurant you eat at

Furniture that you are
sitting on

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OM in day to day products

Bike you uses News you exchange

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Organizing to Produce Goods
and Services

Essential functions:
1. Marketing – generates demand
2. Production/operations – creates the
product
3. Finance/accounting – tracks how
well the organization is doing, pays
bills, collects the money

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What Operations Managers Do

Basic Management Functions

▶ Planning
▶ Organizing
▶ Staffing
▶ Leading
▶ Controlling

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The Strategic Decisions

1. Design of goods and services

– Defines what is required of operations
– Product design determines quality,
sustainability and human resources
2. Managing quality
– Determine the customer’s quality
expectations
– Establish policies and procedures to
identify and achieve that quality

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The Strategic Decisions

3. Process and capacity design

– How is a good or service produced?
– Commits management to specific technology,
quality, resources, and investment.
4. Location strategy
– Nearness to customers, suppliers, and talent.
– Considering costs, infrastructure, logistics, and
government.

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The Strategic Decisions

5. Layout strategy
– Integrate capacity needs, personnel levels,
technology, and inventory
– Determine the efficient flow of materials, people,
and information.
6. Human resources and job design
– Recruit, motivate, and retain personnel with the
required talent and skills.
– Integral and expensive part of the total system
design.

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The Strategic Decisions

7. Supply-chain management
– Integrate supply chain into the firm’s strategy.
– Determine what is to be purchased, from whom,
and under what conditions.
8. Inventory management
– Inventory ordering and holding decisions.
– Optimize considering customer satisfaction,
supplier capability, and production schedules.

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The Strategic Decisions

9. Scheduling
– Determine and implement intermediate- and
short-term schedules.
– Utilize personnel and facilities while meeting
customer demands.
10. Maintenance
– Consider facility capacity, production demands,
and personnel.
– Maintain a reliable and stable process.

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Certifications
APICS, the Association for Operations Management
American Society for Quality (ASQ)
Institute for Supply Management (ISM)
Project Management Institute (PMI)
Council of Supply Chain Management Professionals
Charter Institute of Purchasing and Supply (CIPS)

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What is Operations
Management?

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Significant Events in OM

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OM: A Process View

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Type of Operation What are the What does the Operations Output
Operations input operation do?
Airline Aircraft Move passengers Transported
Pilots and air crew and freight around passengers and
Passengers the world freight
Department store Goods for sale Display goods Customers and
Staff sales Give sales advice goods assembled
Customers Sell goods together
Police department Police officers Prevent crime Lawful society
Computer systems Solve crime Public with feeling
Information Apprehend of security
Public (Law abiding criminals
and criminal)
Frozen food Fresh food Food preparation Frozen food
manufacturer Operations
Food processing

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 Why Study OM?

1. OM is one of three major functions of any organization; we

want to study how people organize themselves for
productive enterprise
2. We want (and need) to know how goods and services are
produced
3. We want to understand what operations managers do
4. OM is such a costly part of an organization

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Options for Increasing
Contribution

Table

FINANCE/
MARKETING ACCOUNTING
OPTION OPTION OM OPTION
INCREASE REDUCE REDUCE
SALES FINANCE PRODUCTION
CURRENT REVENUE 50% COSTS 50% COSTS 20%
Sales $100,000 $150,000 $100,000 $100,000
Cost of goods –80,000 –120,000 –80,000 –64,000

Gross margin 20,000 30,000 20,000 36,000

Finance costs –6,000 –6,000 –3,000 –6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% –3,500 –6,000 –4,200 –7,500
Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500

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Thank You!!

BITS Pilani, Pilani Campus

 Operations Management
BITS Pilani Dr Gaurav Kabra
PhD-Indian Institute of Technology Roorkee
Pilani Campus
 BITS Pilani
Pilani Campus

<Operations Management>
Lecture No. 2
Productivity Challenge

Productivity is the ratio of outputs (goods and

services) divided by the inputs (resources
such as labor and capital)

The objective is to improve productivity!

Important Note!
Production is a measure of output only
and not a measure of efficiency

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Improving Productivity at
Starbucks

A team of 10 analysts
continually look for ways
to save time. Some
improvements:
Operations improvements have
helped Starbucks
Stop requiring signatures on increase
Saved yearly
8 seconds
revenue
credit card purchases per outlet
under perbytransaction
$250,000 to
$25 $1,000,000 in seven years.
Change the size Productivity
of the ice has improved
Saved 14 by 27%, or
seconds
scoop about 4.5% per year.
per drink
New espresso machines Saved 12 seconds
per shot
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Productivity

Units produced
Productivity =
Input used

▶ Measure of process improvement

▶ Represents output relative to input
▶ Only through productivity increases
can our standard of living improve

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Productivity Calculations

Labor Productivity
Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250

One resource input  single-factor productivity

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Multi-Factor Productivity

Output
Productivity =
Labor + Material + Energy +
Capital + Miscellaneous
► Also known as total factor productivity
► Output and inputs are often expressed in
same units

Multiple resource inputs  multi-factor productivity

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COMPUTING SINGLE-FACTOR AND
MULTIFACTOR GAINS IN PRODUCTIVITY

• Collins Title Insurance Ltd. wants to evaluate its

labor and multifactor productivity with a new
computerized title-search system. The company has a
staff of four, each working 8 hours per day (for a
payroll cost of $640/day) and overhead expenses of
$400 per day. Collins processes and closes on 8 titles
each day. The new computerized title-search system
will allow the processing of 14 titles per day.
Although the staff, their work hours, and pay are the
same, the overhead expenses are now $800 per day.

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Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day

Old labor 8 titles/day

=
productivity 32 labor-hrs

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Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day

Old labor 8 titles/day

productivity = 32 labor-hrs = .25 titles/labor-hr

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Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old labor 8 titles/day

= = .25 titles/labor-hr
productivity 32 labor-hrs

New labor 14 titles/day

productivity = 32 labor-hrs

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Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old labor 8 titles/day

productivity = 32 labor-hrs = .25 titles/labor-hr

New labor 14 titles/day

= = .4375 titles/labor-hr
productivity 32 labor-hrs

BITS Pilani, Pilani Campus

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

=
productivity $640 + 400

BITS Pilani, Pilani Campus

Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

productivity = = .0077 titles/dollar
$640 + 400

BITS Pilani, Pilani Campus

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

= = .0077 titles/dollar
productivity $640 + 400

New multifactor 14 titles/day

productivity =
$640 + 800

BITS Pilani, Pilani Campus

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

= = .0077 titles/dollar
productivity $640 + 400

New multifactor 14 titles/day

= = .0097 titles/dollar
productivity $640 + 800

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BITS Pilani, Pilani Campus
Numerical

• Chuck Sox makes wooden boxes in which to ship

motorcycles. Chuck and his three employees invest a
total of 40 hours per day making the 120 boxes.
a) What is their productivity?
b) Chuck and his employees have discussed redesigning the
process to improve efficiency. If they can increase the rate to
125 per day, what will be their new productivity?
c) What will be their unit increase in productivity per hour?
d) What will be their percentage change in productivity?

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Solutions

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Practice question 1

A team of 5 workers produces 200 units of a product in 8 hours.

a) What is their productivity?
b) If they can increase the rate to 220 units per day, what will be
their new productivity?
c) What will be their unit increase in productivity per hour?
d) What will be their percentage change in productivity?

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Practice question 2

A factory with 10 workers produces 500 widgets in 10 hours.

a) What is their productivity?
b) If they can increase the rate to 550 widgets per day, what will
be their new productivity?
c) What will be their unit increase in productivity per hour?
d) What will be their percentage change in productivity?

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Practice question 3

A small printing company has a staff of three employees, each working 8 hours per day
(for a payroll cost of $480/day) and overhead expenses of $300 per day. The
company prints and binds 60 books each day. The company is considering a new
digital printing system that will allow the printing and binding of 80 books per day.
Although the staff, their work hours, and pay are the same, the overhead expenses
are now $450 per day.

a) What is the labor productivity before the new system?

b) What is the labor productivity after the new system?

c) What is the multifactor productivity before the new system?

d) What is the multifactor productivity after the new system?

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Practice question 4

A small bakery has a staff of five employees, each working 8 hours per day (for a
payroll cost of $800/day) and overhead expenses of $500 per day. The bakery
produces and sells 100 loaves of bread each day. The bakery is considering a new
automated bread-making system that will allow the production and sale of 120
loaves per day. Although the staff, their work hours, and pay are the same, the
overhead expenses are now $600 per day.

a) What is the labor productivity before the new system?

b) What is the labor productivity after the new system?

c) What is the multifactor productivity before the new system?

d) What is the multifactor productivity after the new system?

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Example: Operations Success

Insurance Sector
Faster claims turnaround
Better fraud detection
Lower costs of claims processing

Owed to OM
Customers claims process using mobile vans for
adjusters

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Example: Airlines
Lower cost
Better utilization
Better labor productivity
Faster airplane turnaround
Owed to OM
Point to point routes
One type of aircraft
Cross trained

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Example: Mobile phones
Customized product
Quick delivery

Owed to OM
Combining make to order and make to stock
production
Efficient capacity utilization

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Example: WALMART
Lower prices
Lower costs
Lower inventories

Owed to OM
Cross dockings
Supply chain relationships
Information technology

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Example: ZARA
Keeping up with changing fashions
Consistent reasonable pricing
Fewer inventory clearance discounts

Owed to OM
Quick response from design to production to
distribution
Systematic timing of product release, followed by
frequent updates

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New Challenges in OM
In an intensifying competitive environment characterized by
Demanding customers
Accelerating pace of technological advances
Shorter product life cycles
Fragmenting markets
Constantly changing competition
Global new economy and so on

Companies need to ……

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Reasons to Globalize

1. Improve the supply chain

2. Reduce costs (labor, taxes, tariffs, etc.)
3. Improve operations
4. Understand markets
5. Improve products
6. Attract and retain global talent

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The Nature Of Strategy

•‘Strategy’ is not particularly easy to define. Linguistically the word

derives from the Greek word ‘strategos’ meaning ‘leading an army’.

•Strategy is the direction and scope of an organization over the long-

term, which achieves advantage in a changing environment through its
configuration of resources with the aim of fulfilling stakeholder
expectations (Johnson et al.,2005)

• Strategy exists at three levels:

➢ Corporate – sets the long-term direction and scope of the whole
organization
➢ Business – concerned with how a particular business unit will
compete and what its aims should be
➢Functional - relate to the different functional areas which a
strategic business unit has, such as marketing, production and
operations, finance, and human resources.

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 STRATEGY HIERARCHY

Defines businesses in
which company will
Corporate participate and plans for
Strategy allocation of resources
among them

Families of products with

Strategic Business similar characteristics or
Units Strategy methods of production

Organizes resources to
Function contribute to strategic
Strategy objectives of the business

Decisions, actions, roles,

and activities of operations
Operations that contribute to and
Strategy support the business
strategy
The strategy hierarchy
Key strategic Influences on
decisions decision making
What business to be in? Economic environment
Corporate What to acquire? Social environment
strategy What to divest? Political environment
How to allocate cash? Company values and ethics

What is the mission? Customer/market dynamics

Business What are the strategic Competitor activity
strategy objectives of the firm? Core technology dynamics
How to compete? Financial constraints

How to contribute to the Skills of function’s staff

Functional strategic objectives? Current technology
strategy How to manage the Recent performance of the
function’s resources? function
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BITS Pilani, Pilani Campus
Corporate Strategy

• Actions firms take to gain competitive advantages by

operating in multiple markets or industries
simultaneously. The four key corporate strategies are:

1. Vertical Integration.
2. Corporate Diversification.
3. Strategic Alliances.
4. Mergers and Acquisitions.

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1. Vertical Integration
• Expanding operations along the supply chain to control
more production stages.
• Types:
• Backward Integration: Acquiring or controlling suppliers (e.g., Tesla producing
its own batteries).
• Forward Integration: Moving closer to customers (e.g., Apple opening retail
stores).

• Advantage: Cost reduction, improved control, and

supply chain efficiency.

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2. Corporate Diversification
• Expanding into different markets or industries to reduce
risks and leverage synergies.
• Types:
• Related Diversification: Entering industries related to core business (e.g.,
Google expanding into cloud computing).
• Unrelated Diversification: Expanding into entirely different sectors (e.g., Tata
Group operating in steel, automobiles, and IT).

• Advantage: Spreads risk and enhances market

presence.

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3. Strategic Alliances
• Partnerships between firms to share resources,
knowledge, and market access.
• Types:
• Joint Ventures: Creating a new entity (e.g., Sony and Ericsson's mobile phone
venture).
• Non-equity Alliances: Cooperation without ownership (e.g., airline alliances like
Star Alliance).

• Advantage: Shared risks and access to new

markets/technologies.

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4. Mergers and Acquisitions (M&A)
• Combining firms to achieve strategic goals.
• Types:
• Merger: Two firms combine into one (e.g., Disney and Pixar).
• Acquisition: One firm takes over another (e.g., Facebook acquiring Instagram).

• Advantage: Market expansion, cost efficiency, and

competitive edge.

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Business Strategy

Business strategy focuses on how a firm competes within a

single market or industry to achieve a competitive
advantage. The two primary strategies are: Cost
Leadership and Product Differentiation
Choosing the Right Strategy
• Cost Leadership is ideal for price-sensitive markets
with high competition.
• Product Differentiation works best when customers
value uniqueness over price.
• Some firms use Hybrid Strategies (e.g., Toyota offering
both affordable and premium cars).

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Business Strategy

1. Cost Leadership Strategy

• Goal: Become the lowest-cost producer in the industry
while maintaining acceptable quality.
• How it works:
• Economies of Scale: Mass production to reduce costs.
• Process Efficiency: Streamlining operations and reducing waste.
• Supply Chain Optimization: Lower procurement and logistics costs.
• Cost-cutting Innovation: Using technology to enhance productivity.

• Examples:
• Walmart: Uses bulk purchasing and efficient logistics to offer low prices.
• McDonald's: Standardized processes and economies of scale reduce costs.

• Risk: Price wars can erode profits; cost-cutting may

impact quality.

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Business Strategy

2. Product Differentiation Strategy

• Goal: Offer unique products/services that customers
perceive as superior.
• How it works:
• Branding: Strong brand image (e.g., Apple, Nike).
• Quality & Innovation: Advanced technology, superior design, or exclusive
features.
• Customer Experience: Exceptional service or customization.
• Marketing & Perception: Creating an emotional connection with customers.

• Examples:
• Apple: Premium pricing based on innovation and brand loyalty.
• Tesla: Unique electric vehicle technology and brand appeal.

• Risk: High costs of innovation, changing customer

preferences, and imitation by competitors.
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Functional Strategy

Actions firms take to gain competitive advantages by

operating within the organization.
1. Marketing Strategy.
2. Operation/ Manufacturing Strategy.
3. Human Resource Strategy.
4. Supply Chain Strategy/ Sourcing Strategy.
5. Strategic Finance.

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OM Strategic Decisions

1. Design of goods and services

2. Managing quality
3. Process and capacity design
4. Location strategy
5. Layout strategy
6. Human resources and job design
7. Supply-chain management
8. Inventory management
9. Scheduling
10. Maintenance

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OM Performance objectives

Operations Management
(OM) performance
objectives help
organizations to evaluate
and improve their
operational efficiency.
These objectives ensure
that operations align with
strategic goals and
customer expectations.
The five key OM
performance objectives
are:

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Order Qualifiers and Order Winners

Order Qualifiers

– The minimum characteristics of a firm or its products that a firm

must have to be considered as a source of purchase.

Order Winners

– The characteristics of a firm that distinguish it from its competitors

so that it is selected as the source of purchase.

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Which Dimensions Should Be the
Focus?

Order winners: Criteria that differentiates one firm from

another.
Examples: low cost (RyanAir), service quality
(Narayana Hrudayalaya hospital, India), Flexibility
(Dell)

Order qualifier: Criterion that permits the firm’s

products/services to even be considered for purchase.
Example: basic quality necessary to be considered a
good car

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Order Winners and
Qualifiers
Order winners
– Performance objectives which directly and significantly contribute to winning
businesses from customers
– Considered by customers as key reasons for purchasing a product or service
Qualifiers
– Important but are not major competitive determinants
– Must be at some “threshold” level to be considered by the customer
– Further improvement beyond “threshold level” unlikely to result in competitive
benefit

What are the order winners and order qualifiers for a

student which a recruiter looks for?

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All the performance objectives are important…

why not try to excel along every one?

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Competitive Dimensions and Trade-offs

Trade-offs

Trade-offs: Decisions that arise because of the

inability of processes to excel simultaneously across
all competitive dimensions.
Performance Objectives

High Quality Fast And

Products Reliable Delivery

Innovative Variety of
Products Products

Low-Priced
Products
Operations Performance Objectives

• Quality
• Speed
• Dependability
• Flexibility
• Cost Efficiency
Meaning of quality for different organizations
Hospital Automobile
Plant
• Patients receive • All parts/assemblies made
appropriate treatment to specification
• Treatments are carried out • Product is reliable
in correct manner • Product is attractive and
• Patients are kept informed without blemishes/dents
• Staff are courteous and
helpful

Bus tour Super market

operator
? ?
Meaning of speed for different organizations
Hospital Automobile
Plant
• Time between requiring
treatment and receiving
treatment kept to
minimum ?
• Time for test results to be
returned kept at minimum
• Time from surgery to
discharge kept at
minimum

Super market
• Time taken for a customer
Bus tour
to complete the
operator
transactions and billing
? kept to a minimum
• On-time availability of
goods
Meaning of dependability for different organizations
Automobile
Hospital Plant
• On-time delivery of
vehicles to dealers
? • On-time delivery of spares
to service centres

Bus tour
Super market
operator
Following published timetable
at all times ?
Ensuring availability of seats to
all booked passengers
Meaning of flexibility for different organizations
Hospital Automobile Plant

• Mix- wide range of

products/options
• Volume- ability to adjust
? production volumes
• Delivery- ability to
reschedule manufacturing
priorities
Bus tour
operator
Mix- large number of locations Super market
served
Volume- ability to adjust ?
frequency of services
Delivery- ability to reschedule
trips as needed
Meaning of cost efficiency for different organizations
Automobile
Hospital Plant
• Technology and facility
costs
• Staff costs
• Purchased materials and
services costs

Bus tour
Super market
operator
?

Proportion of the above costs vary by industry

Operations And Strategy

• Operations can contribute to competitiveness through five

objectives:
Cost which leads to Low Price
Quality which leads to High Quality
Speed which leads to Fast Delivery
Dependability which leads to Reliable
Delivery
Flexibility which leads to
Responsiveness
Internal and external benefits of excelling at each
performance objective

Potential internal Performance objective Potential external

benefits benefits
Quality
Speed
Dependability
Flexibility
Cost
Internal and external benefits of excelling at each
performance objective
Potential internal benefits Performance objective Potential external benefits

• Error free processes Quality • Error free products and

• More internal reliability services
• Lower processing costs • Reliable products and
services
• Less inventory Speed • Short delivery times
• Lower processing costs • Fast response to requests
• Fewer contingencies Dependability • On-time delivery of
needed products and services
• More internal stability • Knowledge of delivery
• Lower processing costs times
• Better response to Flexibility • Frequent launch of new
unpredicted events products and services
• Wide range of products
and services
• Easier Volume
adjustments
• Easier delivery
adjustments
• Productive processes Cost • Low prices
• Higher margins
Thank you!

BITS Pilani, Pilani Campus

 Operations Management
BITS Pilani Dr Gaurav Kabra
PhD-Indian Institute of Technology Roorkee
Pilani Campus
 BITS Pilani
Pilani Campus

<Operations Management>
Lecture No. 3
Global Operations Strategy
Options
• Global Operations Strategy Options include different
approaches that multinational companies take when
managing their operations across countries.

• Global Strategy
• Transnational Strategy
• International Strategy
• Multidomestic Strategy

BITS Pilani, Pilani Campus

Global Operations Strategy
Options
High

International
strategy
• Import/export or
Cost Reduction

license existing
product
Examples:
U.S. Steel
Harley-Davidson
Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)

BITS Pilani, Pilani Campus

Global Operations Strategy
Options

High
Cost Reduction

International
strategy
• Import/export or
license existing
product

Examples:
U.S. Steel
Harley-Davidson

Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)

BITS Pilani, Pilani Campus

Global Operations Strategy
Options

High
Global
strategy
• Standardize
product
Cost Reduction

• Economies of scale
•International
Cross-cultural
strategy
learning
• Import/export or
license existing
product
Examples:
Examples:
U.S.Texas
Steel Instruments
Harley-Davidson
Caterpillar
Low
Low
Otis Elevator High
Local Responsiveness
(Quick Response and/or Differentiation)

BITS Pilani, Pilani Campus

Global Operations Strategy
Options

High Global strategy

• Standardize product
• Economies of scale
• Cross-cultural learning

Examples:
Texas Instruments
Cost Reduction

Caterpillar
Otis Elevator

International
strategy
• Import/export or
license existing
product

Examples:
U.S. Steel
Harley-Davidson

Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)

BITS Pilani, Pilani Campus

Global Operations Strategy
Options

High
Multidomestic
Global strategy
• Standardize product
• strategy
Economies of scale
• Cross-cultural learning
• Use existing domestic
Examples:
model globally
Texas Instruments
Cost Reduction

Caterpillar
• Elevator
Otis Franchise, joint
ventures, subsidiaries
International
strategy
• Examples:
Import/export or
license existing
Heinz, McDonald’s
product

Examples:
The Body Shop
Hard Rock Cafe
U.S. Steel
Harley-Davidson

Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)

BITS Pilani, Pilani Campus

Global Operations Strategy
Options

High Global strategy

Figure 2.9
• Standardize product
• Economies of scale
• Cross-cultural learning

Examples:
Texas Instruments
Cost Reduction

Caterpillar
Otis Elevator

Multidomestic
International
strategy strategy
• Use existing
• Import/export or domestic model
license existing globally
product • Franchise, joint
ventures,
Examples: subsidiaries
U.S. Steel
Examples:
Harley-Davidson
Heinz, McDonald’s
The Body Shop
Low Hard Rock Cafe
Low High
Local Responsiveness
(Quick Response and/or Differentiation)

BITS Pilani, Pilani Campus

Global Operations Strategy
Options

High Global strategy

• Transnational
Standardize product
• Economies of scale
• strategy
Cross-cultural learning

• Move material, people,

Examples:
Texas Instruments
or ideas across
Cost Reduction

Caterpillar
Otis Elevator
national boundaries
Economies ofMultidomestic
•International scale
strategy
strategy
•
•Import/export
Cross-cultural
or
• Uselearning
existing
domestic model
license existing globally
Examples:
product • Franchise, joint
Coca-Cola, Nestlé
Examples:
ventures,
subsidiaries
U.S. Steel
Examples:
Harley-Davidson
Heinz, McDonald’s
The Body Shop
Low Hard Rock Cafe
Low High
Local Responsiveness
(Quick Response and/or Differentiation)

BITS Pilani, Pilani Campus

Global Operations Strategy
Options

High Global strategy Transnational

strategy
• Standardize product
• Economies of scale • Move material,
• Cross-cultural learning people, or ideas
across national
Examples: boundaries
Texas Instruments • Economies of scale
Cost Reduction

Caterpillar • Cross-cultural
Otis Elevator learning
Examples:
Coca-Cola, Nestlé
International Multidomestic
strategy strategy
• Import/export or (eg, Heinz, McDonald’s
license existing The Body Shop
product Hard Rock Cafe)
• Use existing
Examples: domestic model
U.S. Steel globally
Harley-Davidson • Franchise, joint
ventures,
Low subsidiaries
Low High
Local Responsiveness
(Quick Response and/or Differentiation)

BITS Pilani, Pilani Campus

Summary
Decision-
Strategy Customization Example 1 Example 2
Making
Low
Global Centralized Apple Microsoft
(Standardized)
Medium (Mix
Transnational of Global & Shared McDonald’s Unilever
Local)
Low (Exports
Harley-
International with Minimal HQ-Controlled Boeing
Davidson
Change)
High (Fully
Multidomestic Decentralized Nestlé Domino’s
Localized)

BITS Pilani, Pilani Campus

OM Strategic Decisions

1. Design of goods and services

2. Managing quality
3. Process and capacity design
4. Location strategy
5. Layout strategy
6. Human resources and job design
7. Supply-chain management
8. Inventory management
9. Scheduling
10. Maintenance

BITS Pilani, Pilani Campus

OM Performance objectives

Operations Management
(OM) performance
objectives help
organizations to evaluate
and improve their
operational efficiency.
These objectives ensure
that operations align with
strategic goals and
customer expectations.
The five key OM
performance objectives
are:

BITS Pilani, Pilani Campus

 The concept of operations strategy
Operations strategy is a plan for developing resources and
configuring processes such that the resulting competencies
maximize net present value.

• What should operations be good at? What competencies

should it nurture?
• Which operational system of resources and processes best
provides these competencies?
What is Operations Strategy

Operations strategy is the total pattern of decisions which shape the long-
term capabilities of any type of operation and their contribution to overall
strategy, through the reconciliation of market requirements with
operations resources.

Operations function may behave differently depending on its role. The

three roles of operations are:

• The implementer of business strategy

• The supporter of business strategy
• The driver of business strategy
 The strategic role of the Operations function
The 3 key attributes
Operations contribution
of Operations
Implementing Be dependable
Operationalize strategy
Explain practicalities

Supporting Be appropriate
Understand strategy
Contribute to decisions

Driving Be innovative
Provide foundation of strategy
Develop long-term capabilities 17
What is the role of the operations function?
Operations as Operations Operations
implementer as as driver
supporter

Operations

Strategy Strategy

Operations Operations

Strategy
Operations Operations supports Operations
implements strategy strategy drives strategy
18
 The four-stage model of Operations
contribution
Redefining industry STAGE 4
expectations Give an
operations
advantage
Increasing strategic impact

STAGE 3
Clearly the best in Link strategy
the industry with operations

STAGE 2
As good as the Adopt best
competitors practice

STAGE 1
Holding the Correct the
organization back worst
problems
Internally Externally Internally Externally
neutral neutral supportive supportive

Increasing operations capabilities

 STRATEGY AND COMPETITIVE
ADVANTAGE

Competitive Advantage Through

Short Lead Superior

Low Cost Differentiation Flexibility And Innovation
Time Service
Variety
The Operations function can provide a competitive advantage
through its performance at the five competitive objectives

Quality Being RIGHT

Speed Being FAST

Dependability Being ON TIME

Flexibility Being ABLE TO CHANGE

Cost Being PRODUCTIVE

Operations strategy is …..
“… the decisions which shape the long-term capabilities of
the company’s operations and their contribution to overall
strategy through the on-going reconciliation of market
requirements and operations resources …”

Strategic
Reconciliation

Operations OPERATIONS Market

Resources STRATEGY Requirements

Operations strategy reconciles the requirements of the

market with the capabilities of operations resources
 The Role of Operations Strategy
• Provide a plan that makes best use of
resources which;
– Specifies the policies and plans for using
organizational resources
– Supports Business Strategy
 Competitive Priorities- The Edge
• Four Key Operations Questions:
Will you compete on –
Cost?
Quality?
Time?
Flexibility?
• All of the above? Some? Tradeoffs?
Competing on Cost

• Offering product at a low price relative to

competition
– Typically high volume products
– Often limit product range & offer little
customization
– May invest in automation to reduce unit costs
– Can use lower skill labor
– Probably uses product focused layouts
– Low cost does not mean low quality
Competing on Quality
• Quality is often subjective
• Quality is defined differently depending on who is defining it
• Two major quality dimensions include
– High performance design:
• Superior features, high durability, & excellent customer service

– Product & service consistency:

• Meets design specifications
• Close tolerances
• Error free delivery
• Quality needs to address
– Product design quality – product/service meets requirements
– Process quality – error free products
Competing on Time
• Time/speed one of most important competition
priorities
• First that can deliver often wins the race
• Time related issues involve
– Rapid delivery:
• Focused on shorter time between order placement and delivery
– On-time delivery:
• Deliver product exactly when needed every time
Competing on Flexibility
• Company environment changes rapidly
• Company must accommodate change by being flexible
– Product flexibility:
• Easily switch production from one item to another
• Easily customize product/service to meet specific requirements of a
customer

– Volume flexibility:
• Ability to ramp production up and down to match market demands
The Need for Trade-offs

• Decisions must emphasize priorities that support business

strategy
• Decisions often required trade offs
• Decisions must focus on order qualifiers and order winners
– Which priorities are “Order Qualifiers”?
Must have excellent quality since everyone expects it

– Which priorities are “Order Winners”?

Dell competes on all four priorities
Southwest Airlines competes on cost
McDonald’s competes on consistency
FedEx competes on speed
Custom tailors compete on flexibility
Location strategies

OM
Learning Objectives

• Identify and explain seven major factors that effect

location decisions
• Compute labor productivity
• Apply the factor-rating method
• Complete a locational break-even analysis
graphically and mathematically
• Use the center-of-gravity method
• Understand the differences between service- and
industrial-sector location analysis

OM 2
 The Strategic Importance of Location

❖ One of the most important decisions a firm makes

❖ Increasingly global in nature
❖ Significant impact on fixed and variable costs
❖ Decisions made relatively infrequently
❖ Long-term decisions
❖ Once committed to a location, many resource and
cost issues are difficult to change

OM 3
Examples
•Maruti Suzuki (Gurugram, Haryana & Manesar, Haryana)
•Located near Delhi, India's largest automobile market.
•Proximity to suppliers and skilled labor helped it become India's largest car
manufacturer.
•Tata Steel (Jamshedpur, Jharkhand)
•Established in a region rich in iron ore and coal, essential raw materials for
steel production.
•Reduced transportation costs and secured raw material supply.
•Reliance Industries (Jamnagar, Gujarat)
•World's largest refinery complex, strategically placed near the coast for
easier crude oil imports and refined product exports.
•Benefited from Gujarat's business-friendly policies.
•Hyderabad IT Hub (HITEC City, Telangana)
•Government support and skilled workforce made Hyderabad a global IT
destination.
•Home to major tech firms like Microsoft, Google, and Facebook.

OM 4
The Strategic Importance of Location

The objective of location strategy is

to maximize the benefit of location
to the firm
Options include
1. Expanding existing facilities
2. Maintain existing and add sites
3. Closing existing and relocating

OM 5
Location and Costs

► Location decisions require careful

consideration
► Once in place, location-related costs
are fixed in place and difficult to
reduce
► Effort spent determining optimal
facility location is a good investment

OM 6
Factors That Affect Location Decisions

▶Globalization adds to complexity

▶Drivers of globalization
▶ Market economics
▶ Communication
▶ Rapid, reliable transportation
▶ Ease of capital flow
▶ Differing labor costs
▶Identify key success factors (KSFs)

OM 7
News

https://www.youtube.com/watch?v=9h4HKlRFiEE

BITS Pilani, Pilani Campus

BITS Pilani, Pilani Campus
BITS Pilani, Pilani Campus
BITS Pilani, Pilani Campus
BITS Pilani, Pilani Campus
Location Decisions
Country Decision Key Success Factors
1. Political risks, government
rules, attitudes, incentives
2. Cultural and economic issues
3. Location of markets
4. Labor talent, attitudes,
productivity, costs
5. Availability of supplies,
communications, energy
6. Exchange rates and currency
risks

OM 13
Location Decisions
Region/ Key Success Factors
Community
Decision 1. Corporate desires
2. Attractiveness of region
3. Labor availability and costs
4. Costs and availability of utilities
5. Environmental regulations
6. Government incentives and fiscal
policies
7. Proximity to raw materials and
customers
8. Land/construction costs
OM 14
Location Decisions
Site Decision Key Success Factors
1. Site size and cost
2. Air, rail, highway, and
waterway systems
3. Zoning restrictions
4. Proximity of services/
supplies needed
5. Environmental impact
issues
6. Customer density and
demographics
OM 15
Factors That Affect Location Decisions

► Labor productivity
► Wage rates are not the only cost
► Lower productivity may increase total cost

Labor cost per day

= Labor cost per unit
Productivity (units per day)

South Carolina Mexico

$70 $25
= $1.17 per unit = $1.25 per unit
60 units 20 units

OM 16
Factors That Affect Location Decisions

► Exchange rates and currency risks

► Can have a significant impact on costs
► Rates change over time
► Costs
► Tangible – easily measured costs such as
utilities, labor, materials, taxes
► Intangible – not as easy to quantify and
include education, public transportation,
community, quality-of-life

OM 17
Factors That Affect Location Decisions

► Exchange rates and currency risks

► Can have a significant impact on costs
► Rates change over time
Location decisions
► Costs
based on costs
► Tangible – easily measured costs such as
alone
utilities, labor, materials, taxes
can create
difficult ethical
► Intangible – not as easy to quantify and
situations
include education, public transportation,
community, quality-of-life

OM 18
Factors That Affect Location Decisions

► Political risk, values, and culture

► National, state, local governments' attitudes
toward private and intellectual property,
zoning, pollution, employment stability may
be in flux
► Worker attitudes toward turnover, unions,
absenteeism
► Globally cultures have different attitudes
toward punctuality, legal, and ethical issues

OM 19
Factors That Affect Location Decisions

► Proximity to markets
► Very important to services
► JIT systems or high transportation costs may
make it important to manufacturers
► Proximity to suppliers
► Perishable goods, high transportation costs,
bulky products

OM 20
Factors That Affect Location Decisions

► Proximity to competitors
► Often driven by resources such as natural,
information, capital, talent
► Found in both manufacturing and service
industries

OM 21
Factor-Rating Method
► Popular because a wide variety of factors
can be included in the analysis
► Six steps in the method
1. Develop a list of relevant factors called key
success factors
2. Assign a weight to each factor
3. Develop a scale for each factor
4. Score each location for each factor
5. Multiply score by weights for each factor and
total the score for each location
6. Make a recommendation based on the highest
point score
OM 22
 Factor-Rating Example
Weights, Scores, and Solution

SCORES
(OUT OF 100) WEIGHTED SCORES
KEY SUCCESS
WEIGHT FRANCE DENMARK FRANCE DENMARK
FACTOR

Labor availability
.25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0
and attitude

People-to-car ratio .05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0

Per capita income .10 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0

Tax structure .39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3

Education and
.21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7
health
Totals 1.00 70.4 68.0

OM 23
Center-of-Gravity Method

► Finds location of distribution center

that minimizes distribution costs
► Considers
► Location of markets
► Volume of goods shipped to those
markets
► Shipping cost (or distance)

OM 24
Center-of-Gravity Method

► Place existing locations on a

coordinate grid
► Grid origin and scale are arbitrary
► Maintain relative distances
► Calculate x and y coordinates for
'center of gravity'
► Assumes cost is directly proportional
to distance and volume shipped

OM 25
Center-of-Gravity Method

åx Q i i
x-coordinate of the = i
center of gravity åQ i
i

åyQ i i
y-coordinate of the
= i
center of gravity åQ i
i

where xi = x-coordinate of location i

yi = y-coordinate of location i
Qi = Quantity of goods moved to or from
location i

OM 26
Center-of-Gravity Method

Demand for Quain's Discount Department Stores

NUMBER OF CONTAINERS
STORE LOCATION SHIPPED PER MONTH
Chicago 2,000
Pittsburgh 1,000
New York 1,000
Atlanta 2,000

OM 27
Center-of-Gravity Method
North-South Figure 8.3

New York (130, 130)

Chicago (30, 120)
120 –
Pittsburgh (90, 110)
90 –

60 – x1 = 30
y1 = 120
30 – Q1 = 2,000
Atlanta (60, 40)

–
| | | | | |
East-West
30 60 90 120 150
Arbitrary
origin
OM 28
 Center-of-Gravity Method

(30)(2000) + (90)(1000) + (130)(1000) + (60)(2000)

x-coordinate =
2000 + 1000 + 1000 + 2000
= 66.7

(120)(2000) + (110)(1000) + (130)(1000) + (40)(2000)

y-coordinate =
2000 + 1000 + 1000 + 2000
= 93.3

OM 29
Center-of-Gravity Method
North-South Figure 8.3

New York (130, 130)

Chicago (30, 120)
120 –
Pittsburgh (90, 110)
90 – + Center of gravity (66.7, 93.3)

60 –

30 –
Atlanta (60, 40)

–
| | | | | |
East-West
30 60 90 120 150
Arbitrary
origin
OM 30
Transportation Model

► Finds amount to be shipped from

several points of supply to several
points of demand
► Solution will minimize total production
and shipping costs
► A special class of linear programming
problems

OM 31
Service Location Strategy
1. Purchasing power of customer-drawing area
2. Service and image compatibility with
demographics of the customer-drawing area
3. Competition in the area
4. Quality of the competition
5. Uniqueness of the firm’s and competitors’
locations
6. Physical qualities of facilities and neighboring
businesses
7. Operating policies of the firm
8. Quality of management

OM 32
Locational Cost-Volume Analysis

► An economic comparison of location

alternatives
► Three steps in the method
1. Determine fixed and variable costs for each
location
2. Plot the cost for each location
3. Select location with lowest total cost for
expected production volume

OM 33
Locational Cost-Volume Analysis Example

Three locations:
Selling price = $120
Expected volume = 2,000 units
Fixed Variable Total
City Cost Cost Cost
Athens $30,000 $75 $180,000
Brussels $60,000 $45 $150,000
Lisbon $110,000 $25 $160,000

Total Cost = Fixed Cost + (Variable Cost x Volume)

OM 34
Locational Cost-Volume Analysis
Example

Crossover point – Athens/Brussels

30,000 + 75(x) = 60,000 + 45(x)
30(x) = 30,000
x = 1,000

Crossover point – Brussels/Lisbon

60,000 + 45(x) = 110,000 + 25(x)

20(x) = 50,000
x = 2,500

OM 35
Locational Cost-Volume Analysis
Example

–
$180,000 –
–
$160,000 –
$150,000 –
–
$130,000 –
Annual cost

–
$110,000 –
–
–
$80,000 –
–
$60,000 –
–
–
$30,000 – Athens Lisbon
Brussels
lowest lowest
– lowest cost
cost cost
$10,000 –
| | | | | | |
–
0 500 1,000 1,500 2,000 2,500 3,000
Volume
OM 36
Example
• Ching-Chang Kuo is considering opening a new foundry in Denton, Texas;
Edwardsville, Illinois; or Fayetteville, Arkansas, to produce high-quality rifle sights.
He has assembled the following fixed-cost and variable-cost data:

a) Graph the total cost lines.

b) Over what range of annual volume is each facility going to have a competitive
advantage?

c) What is the volume at the intersection of the Edwardsville and Fayetteville

cost lines?

OM 37
References

• Jacobs, F Robert, Chase, Richard B, Operations and Supply

Chain Management, 15th edition, McGraw Hill, 2018.
• Heizer, J, and Render, B, “Operations Management”,
Pearson 12th Edition. Levi, D. S., Kaminsky, P., Levi, E. S.,
Shankar, R. Designing and managing the supply chain:
Concepts, strategies, and case studies. McGraw-Hill.
• Ballou, R. H. and Srivastava S.K. Business logistics/supply
chain management: planning, organizing, and controlling
the supply chain. Pearson Education India.
• Bozarth, C. C., Handfield, R. B., & Chandiran, P.
Introduction to operations and supply chain management.
Upper Saddle River, NJ: Pearson Prentice Hall.

OM 38
 Operations Management
BITS Pilani Dr Gaurav Kabra
PhD-Indian Institute of Technology Roorkee
Pilani Campus
 BITS Pilani
Pilani Campus

<Operations Management>
Lecture No. 5
How to manage capacity?

BITS Pilani, Pilani Campus

Capacity

BITS Pilani, Pilani Campus

Capacity Planning

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Design and Effective Capacity

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Example

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Difference!

BITS Pilani, Pilani Campus

Example

BITS Pilani, Pilani Campus

Practice Numerical-1

Scenario:
• An electronics manufacturing plant produces smartphones and aims to
understand its production capabilities.

• Last week, the facility produced 40,000 smartphones.

• The effective capacity is 50,000 smartphones.

• The production line operates 5 days per week, with two 10-hour shifts per
day.

• The line was designed to produce smartphones at a rate of 400 per hour.

• Determine the design capacity, utilization, and efficiency

BITS Pilani, Pilani Campus

Practice Numerical-2
Scenario:
• A bottled water production facility wants to assess its production
capabilities.
• Last week, the facility produced 300,000 bottles of water.
• The effective capacity is 350,000 bottles.
• The production line operates 6 days per week, with four 7-hour
shifts per day.
• The line was designed to produce bottles at a rate of 700 per
hour.
• Determine the design capacity, utilization, and efficiency

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Example-For expansion

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Determinants of Effective
Capacity

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Managing Demand

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Discussion

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Bottleneck Analysis

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Bottleneck Analysis

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Example

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Example- Parallel
Process

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Example- Simultaneous
Process

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Theory of Constraint

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Five (5) Steps to Constraint
Management

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Example

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Thank You!!

BITS Pilani, Pilani Campus

 Operations Management
BITS Pilani Dr Gaurav Kabra
PhD-Indian Institute of Technology Roorkee
Pilani Campus
 BITS Pilani
Pilani Campus

<Operations Management>
Lecture No. 6
One image

BITS Pilani, Pilani Campus

Process Strategy
An organization's structured approach to transforming
resources into goods and services efficiently.

Optimize Efficiency – Ensure smooth production

processes while minimizing waste.

Cost Management – Balance cost constraints while

meeting customer expectations.

Quality Assurance – Maintain high-quality standards in

goods and services.

Flexibility – Adapt production strategies to changing

market demands.
BITS Pilani, Pilani Campus
Key Components

Process Focus – Customization and low-volume

production.

Repetitive Process – Standardized production with

some variation.

Product Focus – High-volume, low-variety

manufacturing.

Mass Customization – Combining flexibility with

efficiency.

BITS Pilani, Pilani Campus

Strategic Importance

Enhances Competitiveness – Efficient

processes lead to cost savings and improved
quality.
Supports Growth – Scalable operations
enable business expansion.
Drives Innovation – Encourages continuous
improvement and technological integration.

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Different types of Process
Strategy

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Process Focus
• A process focus strategy is used in industries where products or services are
highly customized, produced in small quantities, and require skilled labor. It
emphasizes flexibility and efficiency in handling a variety of products or services.
• Small Quantity, Large Variety – Each product or service is unique, tailored to
specific customer needs.
• Broadly Skilled Operators – Workers are highly trained to handle diverse tasks.
• Instruction for Each Job – Every process requires careful planning and
customization.
• High Inventory – Due to customization, businesses may need to store various
materials.
• Made-to-Order Production – Products or services are created only after
receiving an order.
• Complex Scheduling – Requires careful planning to balance different tasks
efficiently.
• Low Fixed Costs (FC) & High Variable Costs (VC) – More investment is needed
in skilled labor than machinery.

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Repetitive Focus
• A Repetitive Focus strategy is used in production environments where
standardized products are created in large volumes using modules or
components. This approach balances efficiency with some flexibility, making
it ideal for businesses that require high consistency in production while
allowing minor variations.
Key Characteristics:
1. Long Runs & Standardized Products from Modules
1. Products are assembled using standardized components in a repetitive process.
2. Example: Motorcycle manufacturing, where different models share common
parts (e.g., frames, engines).

2. Moderately Trained Employees

1. Workers perform specialized tasks but don’t need high-level expertise.
2. Example: Fast-food restaurants like McDonald's, where employees follow
standardized processes.

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Repetitive Focus
Key Characteristics:
•Few Changes in Job Instructions
•Workers follow routine tasks with little variation in daily operations.
•Example: Car assembly lines, where each worker focuses on a specific part of
the production process.
•Made-to-Forecast Production
•Production is based on expected demand rather than custom orders.
•Example: Consumer electronics (TVs, refrigerators, washing machines),
where manufacturers produce units based on sales forecasts.
•Routine Scheduling
•A well-planned production schedule ensures efficiency and avoids downtime.
•Example: Automotive manufacturing plants, where production is scheduled
months in advance.
•Fixed Cost Depends on Flexibility
•Large investments in machinery and facilities are needed, but flexibility exists in
product variation. Example: Bicycle manufacturing, where different models
share the same production line but have slight variations in design.

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Product Focus

• Product Focus, a manufacturing strategy where a company

specializes in producing a large quantity of a small variety of
products.
• Key characteristics
• Large Quantity and Small Variety of Products
• Example: Oil refineries produce large volumes of petroleum
products like gasoline, diesel, and jet fuel but have a limited product
variety.
• Automobile manufacturers like Toyota focus on mass production of
specific car models.Less
• Broadly Skilled Operators
• Example: In an assembly line at a car factory, workers specialize in
a single task (e.g., installing tires) rather than knowing how to build
an entire car.

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Key characteristics

•Standardized Job Instructions

•Example: Fast food chains like McDonald's have strict guidelines for making
a burger, ensuring consistency across all locations.
•Low Inventory
•Example: Just-in-time (JIT) manufacturing in companies like Toyota reduces
raw material storage by ordering components only when needed.
•Finished Goods are Made to Forecast and Store
•Example: FMCG companies like Procter & Gamble (P&G) produce
household products (e.g., detergents) based on demand forecasts and store
them in warehouses for distribution.
•Routine Scheduling
•Example: Pharmaceutical companies follow fixed production schedules to
maintain consistent supply for medicines.
•High Fixed Costs (FC) and Low Variable Costs (VC)
•Example: Steel plants have expensive machinery (high fixed costs) but low
variable costs per unit due to economies of scale.

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Mass Customization

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Make to stock

• Products are manufactured before customer orders, based on

demand forecasts. The finished goods are stored in inventory and
sold when customers place orders.

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Make to stock

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Make to Order

• Products are manufactured only after receiving a

customer order, reducing inventory holding costs but
increasing lead time.

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Make to Order

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Assemble to Order

• Standard components (subassemblies) are

produced in advance, but final assembly occurs after
customer orders, allowing for customization while
maintaining reasonable lead times.

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Assemble to Order

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BITS Pilani, Pilani Campus
Thank You!!

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 BITS Pilani
Pilani Campus

Forecasting
Learning Objectives

1. Understand the role of forecasting for both an enterprise and a supply chain.

2. Identify the components of a demand forecast

3. Forecast demand in a supply chain given historical demand data using time-series
methodologies.

4. Analyze demand forecasts to estimate forecast error.

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Forecasting

??
• Not just a guess

• Definite methods of predicting future events

Why are we interested?

• Forecasts provide helpful information to make better decisions

• Rewards of good forecasting or penalties for bad forecasting can be high

Planning the systems requires predictions of future economic activity

➢ There is time lag in matching supply to demand

• Decisions related to facility location, capacity planning, inventory

management, transportation planning, etc.
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Forecasting and Prediction

Forecasting:
• Definition: Forecasting is the process of estimating future events or
trends based on historical data. It typically uses statistical methods
and models (e.g., time series analysis) to project what might happen
in the future.
• Purpose: The goal of forecasting is to provide a structured, data-
driven estimation of future conditions, often involving uncertainty,
such as future sales, demand, or weather patterns.
• Techniques: Forecasting relies heavily on historical data, trend
analysis, and quantitative models (like ARIMA, exponential
smoothing).
• Example: Using past sales data to forecast demand for a product in
the upcoming quarter.

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Forecasting and Prediction

Prediction:
• Definition: Prediction is broader and involves making statements
about the future, which may or may not be based on historical data.
It can include subjective judgment, intuition, or causal models
beyond just data-driven approaches.
• Purpose: Predictions can be based on a variety of inputs, including
expert opinion, qualitative insights, or machine learning models, and
can aim to estimate a specific outcome or event.
• Techniques: Predictions can use statistical methods, machine
learning algorithms (like regression, neural networks), or even
qualitative assessments.
• Example: Predicting whether a new product will succeed based on
current market trends and consumer preferences.

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Key point!

all forecasting can be considered

a type of prediction, but not all
predictions are forecasting.

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Forecasting Time Horizons

1. Short-range forecast
► Up to 1 year, generally less than 3 months
► Purchasing, job scheduling, workforce levels, job
assignments, production levels
2. Medium-range forecast
► 3 months to 3 years
► Sales and production planning, budgeting
3. Long-range forecast
► 3+ years
► New product planning, facility location, research
and development
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Decisions Based on Forecasts

• The decisions should not be segregated by functional area, as they influence

each other and are best made jointly.

• For example, Coca-Cola considers the demand forecast over the coming quarter
and decides on the timing of various promotions.

• The promotion information is then used to update the demand forecast.

• This plan may require additional investment, hiring, or perhaps subcontracting

of production.

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Forecasting Success Stories

Walmart’s Hurricane Forecasting for Emergency Supplies:

Problem: Walmart wanted to ensure that its stores were well-stocked with the right supplies
before hurricanes hit.
Forecasting Application: Walmart used demand forecasting with data from weather reports,
historical sales patterns during hurricanes, and customer behavior insights to predict what
items would be in high demand (e.g., flashlights, batteries, bottled water).
Result: The company was able to pre-stock stores in hurricane-prone areas, minimizing supply
chain disruptions and meeting consumer demand efficiently. This proactive approach to
forecasting helped Walmart maintain sales and customer satisfaction in crisis situations.

Amazon's Demand Forecasting Using Machine Learning:

Problem: Amazon, with its vast inventory and customer base, needed an accurate forecasting
system to predict customer demand across different product categories.
Forecasting Application: Amazon employed machine learning algorithms to improve the
accuracy of its demand forecasting. By analyzing historical sales data, customer browsing
patterns, and trends, Amazon optimized inventory levels across its warehouses.
Result: The improved forecasting helped Amazon reduce overstocking and stockouts, leading
to significant savings on storage costs and a better customer experience with faster
delivery times.
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Forecasting Success Stories

Dell’s Build-to-Order Model and Supply Chain Forecasting

Problem: Dell pioneered the build-to-order model, but its success hinged on accurate demand
forecasting to ensure a smooth supply of components.
Forecasting Application: Dell implemented a real-time forecasting system that integrated
customer orders with supplier data. By using advanced predictive models, Dell could
anticipate component demand and reduce lead times.
Result: Dell significantly reduced its inventory costs and improved order fulfillment speed. Their
just-in-time production model worked seamlessly because of accurate forecasting,
minimizing wastage and storage costs.

Procter & Gamble’s (P&G) Collaborative Forecasting

Problem: P&G, a global consumer goods company, needed to synchronize supply and
demand forecasts across various markets and products.
Forecasting Application: P&G adopted Collaborative Planning, Forecasting, and
Replenishment (CPFR) with its key retail partners. This allowed both P&G and retailers to
share sales data and forecasts to optimize replenishment and production schedules.
Result: P&G reduced forecast errors by up to 30% and improved product availability while
reducing excess inventory, leading to better profitability and customer satisfaction.

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Characteristics of forecasts

1. Forecasts are always inaccurate, therefore they should include both expected
value and the error

2. Long term forecasts tend to be less accurate than the short term forecast
o The longer the time interval, the greater the probability of unexpected
events

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Characteristics of forecasts

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Components of forecasting methods

• Past demand

• Lead time of production replenishment

• Planned marketing

• Price discounts

• State of the economy

• Competitors actions

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Forecasting methods

1. Qualitative/Judgmental
• Primarily subjective
• Rely on judgment

2. Time Series
• Use historical demand only
• Best with stable demand

3. Causal
• Relationship between demand and some other factor

4. Simulation
• Imitate consumer choices that give rise to demand

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Forecasting

• Consider the following demand table for a product:

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Forecasting

Scenarios:
1. All the values: 28
2. Last four values: 27.25
3. Increase pattern (Highest values): 29
4. Other factors: 30
5. Increase /Decrease pattern: 26
6. Last three values: 28
7. All except 2017: 27

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Forecasting

• Question: Does this data represents a constant or a level? Is there a trend

present in the data?

• Most of the calculated values are centered around the average

• So, we are trying to find out a constant or a number which adequately

represents all these numbers, under the assumption that there is no increasing or
decreasing trend.

BITS Pilani, Pilani Campus

Forecasting

• F = a; a = constant / level

• If this represents a constant, then why do we have these variations in these

values, and not the same constant that comes as a forecast?

o There is a certain inherent variation or inherent variability in the system,

which we call as epsilon (Ɛ)

• This epsilon is the noise or inherent variation or variability in the system

• Observed demand = Systematic component + Random component

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Systematic Component

• Definition: The systematic component represents the

expected value of demand. It consists of predictable
factors that can be modeled over time.
• Subcomponents:
• Level: The current deseasonalized demand, indicating the baseline demand at a
given point in time.
• Trend: The rate of growth or decline in demand over time, showing the long-term
movement in the data.
• Seasonality: The predictable fluctuations in demand that occur at regular
intervals (e.g., increased ice cream sales in summer).

• Purpose: This component is used to establish a

baseline forecast that accounts for known factors
influencing demand.

BITS Pilani, Pilani Campus

Random Component

• Definition: The random component encompasses the

variability in demand that cannot be explained by the
systematic component. It includes unpredictable factors
or "noise."
• Characteristics: This component reflects the random
deviations from the expected demand that can arise due
to unforeseen events (e.g., sudden changes in consumer
preferences, natural disasters).
• Role in Forecasting: The random component is what
forecasting methods aim to minimize or filter out in order
to improve the accuracy of demand estimates.

BITS Pilani, Pilani Campus

Key point!

The primary goal of forecasting is to

estimate the systematic component
while effectively filtering out the
random component (noise). This helps
in creating reliable forecasts that can
aid decision-making.

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Methods

Time series models / time series forecasting

o Simple arithmetic average

o Weighted average

o Moving average

o Weighted moving average

• Causal models

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Advantages / limitations

• Arithmetic average gives equal weights to all the points

• Weighted average has the disadvantage of not being able to arrive at some kind
of a consensus weight

• Moving average tends to ignore or give 0 weight to earlier points and so on

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Causal models

• There is a cause and effect relationship between the forecasted variable that is
independent, and the demand - dependent upon the forecasted variable

• In the example, F is equal to 30 which was based on an increase

• There is an assumption here that the data is exhibiting a trend, a noticeable

increase or decrease which cannot be attributed to randomness or noise.

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Assumptions

1. We are considering all the data points, and we are not leaving out any of the
data points.

2. We give equal weightage to all the data points

Question - Whether the data which is 6 years old is equally important as this data
which is 1 year old?

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Exponential smoothing

• We want a model where we use all the values

• We should give progressively increasing weights to more recent data

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Exponential smoothing

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Exponential smoothing - Example

Consider the following demand table for a product:

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Exponential smoothing - Example

• We know demands for the six periods → D1 to D6

• Simple average for the six periods = 28

• Assume F1 = Simple average for the six periods = 28

• Then, calculate F2

• Once F2 is calculated, F3 can be calculated, and so on.

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Exponential smoothing

Questions:

1. How should the value of α be chosen?

2. Should be consider a larger value of α or smaller value of α?

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Exponential smoothing

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Trend analysis

Question: Why simple average should not be used in this case?

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Trend analysis

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Trend analysis

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Assumptions in Trend analysis

1. Considers all the data points

2. Gives equal weight age to all the data points

3. Minimizes the error sum of squares

• However, we should rather give a little more weightage to the recent points and
lesser weightage to the older points

• Question: Can we have models based on exponential smoothing to do this data

with trend?

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Common Measures of Error

Mean Absolute Deviation (MAD)

MAD =
å Actual - Forecast
n

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Determining the MAD
ACTUAL
TONNAGE FORECAST WITH
QUARTER UNLOADED FORECAST WITH  = .10  = .50
1 180 175 175

2 168 175.50 = 175.00 + .10(180 – 175) 177.50

3 159 174.75 = 175.50 + .10(168 – 175.50) 172.75

4 175 173.18 = 174.75 + .10(159 – 174.75) 165.88

5 190 173.36 = 173.18 + .10(175 – 173.18) 170.44

6 205 175.02 = 173.36 + .10(190 – 173.36) 180.22

7 180 178.02 = 175.02 + .10(205 – 175.02) 192.61

8 182 178.22 = 178.02 + .10(180 – 178.02) 186.30

9 ? 178.59 = 178.22 + .10(182 – 178.22) 184.15

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Determining the MAD
ACTUAL FORECAST ABSOLUTE FORECAST ABSOLUTE
TONNAGE WITH DEVIATION WITH DEVIATION
QUARTER UNLOADED  = .10 FOR a = .10  = .50 FOR a = .50
1 180 175 5.00 175 5.00

2 168 175.50 7.50 177.50 9.50

3 159 174.75 15.75 172.75 13.75

4 175 173.18 1.82 165.88 9.12

5 190 173.36 16.64 170.44 19.56

6 205 175.02 29.98 180.22 24.78

7 180 178.02 1.98 192.61 12.61

8 182 178.22 3.78 186.30 4.30

Sum of absolute deviations: 82.45 98.62

Σ|Deviations|
MAD = 10.31 12.33
n

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Common Measures of Error

Mean Squared Error (MSE)

å (Forecast errors)
2

MSE =
n

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Determining the MSE
ACTUAL
TONNAGE FORECAST FOR 
QUARTER UNLOADED = .10 (ERROR)2
1 180 175 52 = 25
2 168 175.50 (–7.5)2 = 56.25
3 159 174.75 (–15.75)2 = 248.06
4 175 173.18 (1.82)2 = 3.31
5 190 173.36 (16.64)2 = 276.89
6 205 175.02 (29.98)2 = 898.80
7 180 178.02 (1.98)2 = 3.92
8 182 178.22 (3.78)2 = 14.29
Sum of errors squared = 1,526.52

å (Forecast errors)
2

MSE = = 1,526.52 / 8 = 190.8

n

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Common Measures of Error

Mean Absolute Percent Error (MAPE)

n

å100 Actual -Forecast

i i
/ Actuali
MAPE = i=1
n

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Determining the MAPE
ACTUAL
TONNAGE FORECAST FOR  ABSOLUTE PERCENT ERROR
QUARTER UNLOADED = .10 100(ERROR/ACTUAL)
1 180 175.00 100(5/180) = 2.78%
2 168 175.50 100(7.5/168) = 4.46%
3 159 174.75 100(15.75/159) = 9.90%
4 175 173.18 100(1.82/175) = 1.05%
5 190 173.36 100(16.64/190) = 8.76%
6 205 175.02 100(29.98/205) = 14.62%
7 180 178.02 100(1.98/180) = 1.10%
8 182 178.22 100(3.78/182) = 2.08%
Sum of % errors = 44.75%

MAPE =
å absolute percent error 44.75%
= = 5.59%
n 8

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Comparison of Forecast Error
Rounded Absolute Rounded Absolute
Actual Forecast Deviation Forecast Deviation
Tonnage with for with for
Quarter Unloaded  = .10  = .10  = .50  = .50
1 180 175 5.00 175 5.00
2 168 175.5 7.50 177.50 9.50
3 159 174.75 15.75 172.75 13.75
4 175 173.18 1.82 165.88 9.12
5 190 173.36 16.64 170.44 19.56
6 205 175.02 29.98 180.22 24.78
7 180 178.02 1.98 192.61 12.61
8 182 178.22 3.78 186.30 4.30
82.45 98.62

BITS Pilani, Pilani Campus

Comparison of Forecast Error
∑ |deviations|
Rounded Absolute Rounded Absolute
Actual Forecast Deviation Forecast Deviation
MADTonnage
=
Quarter Unloaded
n
with
a = .10
for
a = .10
with
 = .50
for
 = .50
1 For  180
= .10 175 5.00 175 5.00
2 168 175.5 7.50 177.50 9.50
3 159 = 82.45/8
174.75 = 10.31
15.75 172.75 13.75
4 175 173.18 1.82 165.88 9.12
5 For  190
= .50 173.36 16.64 170.44 19.56
6 205 = 98.62/8
175.02 = 29.98
12.33 180.22 24.78
7 180 178.02 1.98 192.61 12.61
8 182 178.22 3.78 186.30 4.30
82.45 98.62

BITS Pilani, Pilani Campus

Comparison of Forecast Error

∑ |deviations|
Rounded Absolute Rounded Absolute
Actual Forecast Deviation Forecast Deviation
MADTonnage
=
Quarter Unloaded
n
with
a = .10
for
a = .10
with
 = .50
for
 = .50
1 For  180
= .10 175 5.00 175 5.00
2 168 175.5 7.50 177.50 9.50
3 159 = 82.45/8
174.75 = 10.31
15.75 172.75 13.75
4 175 173.18 1.82 165.88 9.12
5 For  190
= .50 173.36 16.64 170.44 19.56
6 205 = 98.62/8
175.02 = 29.98
12.33 180.22 24.78
7 180 178.02 1.98 192.61 12.61
8 182 178.22 3.78 186.30 4.30
82.45 98.62

BITS Pilani, Pilani Campus

Comparison of Forecast
Error
∑ (forecast errors)
Rounded
2
Absolute Rounded Absolute
MSE = Tonnage
Actual Forecast Deviation Forecast Deviation

Quarter Unloaded
n
with
a = .10
for
a = .10
with
 = .50
for
 = .50
1 For  180
= .10 175 5.00 175 5.00
2 168 175.5 7.50 177.50 9.50
3 = 1,526.54/8
159 174.75 = 190.82
15.75 172.75 13.75
4 175 173.18 1.82 165.88 9.12
5 For  190
= .50 173.36 16.64 170.44 19.56
6 205 175.02
= 1,561.91/8 = 29.98
195.24 180.22 24.78
7 180 178.02 1.98 192.61 12.61
8 182 178.22 3.78 186.30 4.30
82.45 98.62
MAD 10.31 12.33

BITS Pilani, Pilani Campus

Comparison of Forecast
Error
n
∑100|deviation
Rounded i|/actuali Rounded
Absolute Absolute
Actual Forecast Deviation Forecast Deviation
MAPE = i=1
Tonnage with for with for
Quarter Unloaded a = .10 n a = .10 a = .50  = .50
1 For 180= .10 175 5.00 175 5.00
2 168 175.5 7.50 177.50 9.50
3 159 = 44.75/8
174.75 = 15.75
5.59% 172.75 13.75
4 175 173.18 1.82 165.88 9.12
5 For 190= .50 173.36 16.64 170.44 19.56
6 205 175.02
= 54.05/8 = 29.98
6.76% 180.22 24.78
7 180 178.02 1.98 192.61 12.61
8 182 178.22 3.78 186.30 4.30
82.45 98.62
MAD 10.31 12.33
MSE 190.82 195.24

BITS Pilani, Pilani Campus

Comparison of Forecast
Error
Rounded Absolute Rounded Absolute
Actual Forecast Deviation Forecast Deviation
Tonnage with for with for
Quarter Unloaded  = .10  = .10  = .50  = .50
1 180 175 5.00 175 5.00
2 168 175.5 7.50 177.50 9.50
3 159 174.75 15.75 172.75 13.75
4 175 173.18 1.82 165.88 9.12
5 190 173.36 16.64 170.44 19.56
6 205 175.02 29.98 180.22 24.78
7 180 178.02 1.98 192.61 12.61
8 182 178.22 3.78 186.30 4.30
82.45 98.62
MAD 10.31 12.33
MSE 190.82 195.24
MAPE 5.59% 6.76%

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Seasonal Variations In Data

The multiplicative
seasonal model can
adjust trend data for
seasonal variations
in demand

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Seasonal Variations In Data

Steps in the process for monthly seasons:

1. Find average historical demand for each month

2. Compute the average demand over all months
3. Compute a seasonal index for each month
4. Estimate next year’s total demand
5. Divide this estimate of total demand by the
number of months, then multiply it by the
seasonal index for that month

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Seasonal Index Example
DEMAND
AVERAGE AVERAGE
YEARLY MONTHLY SEASONAL
MONTH YEAR 1 YEAR 2 YEAR 3 DEMAND DEMAND INDEX
Jan 80 85 105 90
Feb 70 85 85 80
Mar 80 93 82 85
Apr 90 95 115 100
May 113 125 131 123
June 110 115 120 115
July 100 102 113 105
Aug 88 102 110 100
Sept 85 90 95 90
Oct 77 78 85 80
Nov 75 82 83 80
Dec 82 78 80 80
Total average annual demand = 1,128

BITS Pilani, Pilani Campus

Seasonal Index Example
DEMAND
AVERAGE AVERAGE
YEARLY MONTHLY SEASONAL
MONTH YEAR 1 YEAR 2 YEAR 3 DEMAND DEMAND INDEX
Jan 80 85 105 90 94
Feb 70 85 85 80 94
Mar 80 93 82 85 94
Apr
Average
90 95 1,128
115 100 94
monthly = = 94
May 113 125 131
12 months 123 94
June
demand
110 115 120 115 94
July 100 102 113 105 94
Aug 88 102 110 100 94
Sept 85 90 95 90 94
Oct 77 78 85 80 94
Nov 75 82 83 80 94
Dec 82 78 80 80 94
Total average annual demand = 1,128

BITS Pilani, Pilani Campus

Seasonal Index Example
DEMAND
AVERAGE AVERAGE
YEARLY MONTHLY SEASONAL
MONTH YEAR 1 YEAR 2 YEAR 3 DEMAND DEMAND INDEX
Jan 80 85 105 90 94 .957( = 90/94)
Feb 70 85 85 80 94
Mar 80 93 82 85 94
Apr 90 95 115 100 94
May 113 125 131 123 94
Seasonal110
June Average
115 monthly
120 demand
115 for past 394
years
=
July index 100 102 Average
113 monthly
105 demand 94
Aug 88 102 110 100 94
Sept 85 90 95 90 94
Oct 77 78 85 80 94
Nov 75 82 83 80 94
Dec 82 78 80 80 94
Total average annual demand = 1,128

BITS Pilani, Pilani Campus

Seasonal Index Example
DEMAND
AVERAGE AVERAGE
YEARLY MONTHLY SEASONAL
MONTH YEAR 1 YEAR 2 YEAR 3 DEMAND DEMAND INDEX
Jan 80 85 105 90 94 .957( = 90/94)
Feb 70 85 85 80 94 .851( = 80/94)
Mar 80 93 82 85 94 .904( = 85/94)
Apr 90 95 115 100 94 1.064( = 100/94)
May 113 125 131 123 94 1.309( = 123/94)
June 110 115 120 115 94 1.223( = 115/94)
July 100 102 113 105 94 1.117( = 105/94)
Aug 88 102 110 100 94 1.064( = 100/94)
Sept 85 90 95 90 94 .957( = 90/94)
Oct 77 78 85 80 94 .851( = 80/94)
Nov 75 82 83 80 94 .851( = 80/94)
Dec 82 78 80 80 94 .851( = 80/94)
Total average annual demand = 1,128

BITS Pilani, Pilani Campus

Seasonal Index Example
Seasonal forecast for Year 4
MONTH DEMAND MONTH DEMAND

Jan 1,200 July 1,200

x .957 = 96 x 1.117 = 112
12 12
Feb 1,200 Aug 1,200
x .851 = 85 x 1.064 = 106
12 12
Mar 1,200 Sept 1,200
x .904 = 90 x .957 = 96
12 12
Apr 1,200 Oct 1,200
x 1.064 = 106 x .851 = 85
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May 1,200 Nov 1,200
x 1.309 = 131 x .851 = 85
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June 1,200 Dec 1,200
x 1.223 = 122 x .851 = 85
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BITS Pilani, Pilani Campus

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BITS Pilani, Pilani Campus