Layout strategy- is to develop an economic layout that Focused Factory- A focused work cell in a separate

will meet the firm’s competitive requirements. facility.

Office Layout- Grouping of workers, their equipment, and Repetitive and Product Oriented Layout- Organized
spaces to provide comfort, safety, and movement of around products or families of similar high-volume, low-
information. Movement of information is main distinction. variety products

Supermarket Retail Layout- Goal is to maximize Product-Oriented Layouts- Fabrication line Builds
profitability per square foot of floor space. Sales and components on a series of machines.
profitability vary directly with-customer exposure.
Assembly line- Puts fabricated parts together at a series
Retail Slotting- Manufacturers pay fees to retailers to get of workstations.
the retailers to display (slot) their product.
Assembly-Line Balancing- Objective is to minimize the
Warehousing and Storage Layouts- Objective is to imbalance between machines or personnel while
optimize trade-offs between handling costs and costs meeting required output.
associated with warehouse space.
INVENTORY MANAGEMENT
Cross-Docking- Materials are moved directly from
Inventory- One of the most expensive assets of many
receiving to shipping and are not placed in storage in the
companies representing as much as 50% of total invested
warehouse.
capital.
Random Stocking- Typically requires automatic
Operations managers must balance inventory investment
identification systems (AISs) and effective information
and customer service.
systems.
Types of Inventory
Customization- Value-added activities performed at the
warehouse. Raw material- Purchased but not processed.

Fixed-Position Layout- Product remains in one place. Work-in-process- Undergone some change but not
Workers and equipment come to site completed. A function of cycle time for a product.

Process-Oriented Layout- Like machines and Maintenance/repair/operating (MRO)- Necessary to

equipment are grouped together. Flexible and capable of keep machinery and processes productive.
handling a wide and variety of products or services.
Finished goods- Completed product awaiting shipment
Computer Software- Graphical approach only works for
small problems. Computer programs are available to Inventory Management- How inventory items can be
solve bigger problems. classified. ✓ How accurate inventory records can be
maintained
Work Cells- Reorganizes people and machines into
groups to focus on single products or product groups. ABC Analysis- Divides inventory into three classes based
on annual dollar volume Class A - high annual dollar
Improving Layouts Using Work Cells volume ▪ 15% of the total inventory items and 70-80% of
the total dollar usage. Class B - medium annual dollar
Current layout – workers in small, closed areas. Cannot
volume 30% of the total inventory items and 15-20% of
increase output without a third worker and third set of
the total dollar usage. Class C - low annual dollar volume
equipment.
▪ 5% of the total inventory items and 55% of the total
Current layout – straight lines make it hard to balance dollar usage.
tasks because work may not be divided evenly.
✓ Used to establish policies that focus on the few critical
Work Balance Charts- Used for evaluating operation parts and not the many trivial ones (Pareto Principle).
times in work cells. Can help identify bottleneck
✓ Annual Dollar Usage (Volume) is in Descending order
operations. Flexible, cross-trained employees can help
(Hi-Lo)
address labor bottlenecks.
ABC Analysis- Other criteria than annual dollar volume
Focused Work Center and Focused Factory
may be used.
Focused Work Center- Identity of a large family of
Record Accuracy- Accurate records are critical
similar products that have a large and stable demand.
ingredient in production and inventory systems.
PERIODIC SYSTEM (regular checking of inventory to Reorder Points- EOQ answers the “how much” question.
determine the quantity on hand) or Downside: Lack of The reorder point (ROP) tells when to Order
Control, Extra Inventories to protect against shortage.
Production Order Quantity Model- Used when inventory
PERPETUAL SYSTEM (Tracking)
builds up over a period of time after an order is placed.
Cycle Counting- Items are counted and records updated
Quantity Discount Models- Reduced prices are often
on a periodic basis. Often used with ABC analysis to
available when larger quantities are purchased
determine cycle.
Probabilistic Models and Safety Stock- Used when
Control of Service Inventories- Can be a critical
demand is not constant or certain. ✓Use safety stock to
component of profitability. ✓ Losses may come from
achieve a desired service level and avoid stockouts.
shrinkage or Pilferage.
Probabilistic Demand- Use prescribed service levels to
Independent Versus Dependent Demand
set safety stock when the cost of stockouts cannot be
Independent demand – the demand for item is determined
independent of the demand for any other item in inventory
Fixed-Period (P) Systems- Orders placed at the end of a
(Demand for the Finished Product)
fixed period. ✓ Inventory counted only at end of period.
Dependent demand – the demand for item is dependent
AGGREGATE PLANNING- Determine the quantity and
upon the demand for some other item in the inventory
timing of production for the immediate future (Depends
(Demand for component parts or sub- assemblies)
on Production rate).
Ex. Demand of Microchips dependent in the part of
✓ Objective is to minimize cost over the planning period
Computer. Holding, Ordering, and Setup Costs
by adjusting Production rates, Labor levels, Inventory
Holding costs - the costs of holding or “carrying” levels, Overtime work, Subcontracting
inventory over time. CAPITAL, STORAGE – space cost, no.
The Planning Process
of workers, equipments.
1. Top Executive
RISK COST – obsolescence, damage of items, theft,
deterioration, insurance, tax 2. Operation Managers

Ordering costs - the costs of placing an order and 3. Operation managers Supervisor
receiving goods (Fixed)
Aggregate Planning- Combines appropriate resources
Setup costs - cost to prepare a machine or process for into general terms. ✓ Part of a larger production
manufacturing an order. Testing initial output to identify if planning-system. ✓ Disaggregation breaks the plan
it satisfies the required conditions. Batch level cots. down into greater detail. ✓ Disaggregation results in a
master production schedule. ✓ Develop production
Inventory Models for Independent Demand- Need to
rate.
determine when and how much to order
Aggregate Planning Strategies
Basic EOQ Model
1. Use inventories to absorb changes in demand
Important assumptions
2. Accommodate changes by varying workforce size
1. Demand is known, constant, and independent
3. Use part-timers, overtime, or idle time to absorb
2. Lead time is known and constant
changes
3. Receipt of inventory is instantaneous and complete
4. Use subcontractors and maintain a stable workforce
4. Quantity discounts are not possible
5. Change prices or other factors to influence demand
5. Only variable costs are setup and holding
Capacity Options (8 options)
6. Stockouts can be completely avoided
1. Changing inventory levels
Robust Model- The EOQ model is robust. It works even if
a. Increase inventory in low demand periods to meet high
all parameters and assumptions are not met.
demand in the future
b. Increases costs associated with storage, insurance, b. May lead to products or services outside the
handling, obsolescence, and capital investment company’s areas of expertise

c. Shortages can mean lost sales due to long lead times Methods for Aggregate Planning
and poor customer service
✓ A mixed strategy may be the best way to achieve
2. Varying workforce size by hiring or layoffs minimum costs

a. Match production rate to demand Level strategy- Daily production is uniform, Use
inventory or idle time as buffer
b. Training and separation costs for hiring and laying off
workers Graphical and Charting Methods

c. New workers may have lower productivity 1. Determine the demand for each period

d. Laying off workers may lower morale and productivity 2. Determine the capacity for regular time, overtime, and
subcontracting each period
3. Varying production rate through overtime or idle time
Mathematical Approaches
a. Allows constant workforce
✓ Useful for generating strategies. Transportation Method
b. May be difficult to meet large increases in demand
of Linear Programming
c. Overtime can be costly and may drive down
▪ Produces an optimal plan
productivity
Management Coefficients Model
d. Absorbing idle time may be difficult
▪ Model built around manager’s experience and
4. Subcontracting
performance
a. Temporary measure during periods of peak demand
✓ Other Models (Linear Decision Rule, Simulation)
b. May be costly

c. Assuring quality and timely delivery may be difficult

MATERIAL REQUIREMENTS PLANNING (MRP) AND ERP
d. Exposes your customers to a possible competitor
Benefits of MRP
5. Using part-time workers
1. Better response to customer orders
a. Useful for filling unskilled or low
2. Faster response to market changes
skilled positions, especially in services
3. Improved utilization of facilities and labor
Demand Options
4. Reduced inventory levels
6. Influencing demand
Dependent Demand- The demand for one item is related
a. Use advertising or promotion to increase demand in to the demand for another item.
low periods
- Given a quantity for the end item, the demand for all
b. May not be sufficient to balance demand and capacity parts and components can be calculated

7. Back ordering during high-demand periods ✓ In general, used whenever a schedule can be
established for an item
a. Requires customers to wait for an order without loss of
goodwill or the order ✓ MRP is the common technique

b. Most effective when there are few if any substitutes for Effective use of dependent demand
the product or service
inventory models requires the following
c. Often results in lost sales
1. Master production schedule
8. Counter-seasonal product and service mixing
2. Specifications or bill of material
a. Develop a product mix of counter seasonal items
3. Inventory availability
4. Purchase orders outstanding ✓ Lot-for-lot techniques order just what is required for
production based on net requirements (EOQ)
5. Lead times
Extensions of MRP
Master Production Schedule (MPS)
✓ Closed-Loop MRP
✓ Specifies what is to be made and when
o MRP system provides input to the capacity plan, MPS,
✓ Must be in accordance with the aggregate production
and production planning process
plan
✓ Capacity Planning
✓ Aggregate production plan sets the overall level of
output in broad terms o MRP system generates a load report which details
capacity requirements.
Bills of Material
SHORT-TERM SCHEDULING
✓ List of components, ingredients, and materials needed
to make product Strategic Importance of Short-Term Scheduling

Modular Bills- Modules are not final products but ✓ Effective and efficient scheduling can be a competitive
components that can be assembled into multiple end advantage
items. Can significantly simplify planning and scheduling
✓ Faster movement of goods through a facility means
Planning Bills- Created to assign an artificial parent to better use of assets and
the BOM
lower costs
o Used to group subassemblies to reduce the number of
✓ Additional capacity resulting from faster throughput
items planned and scheduled
improves customer service through faster delivery
o Used to create standard “kits” for production
✓ Good schedules result in more reliable Deliveries
Phantom Bills
Forward Scheduling
o Describe subassemblies that exist only temporarily
✓ Forward scheduling starts as soon as the requirements
o Are part of another assembly and never go into inventory are known

✓ Low-Level Coding- Item is coded at the lowest level at ✓ Produces a feasible schedule though itmay not meet
which it occurs. due dates

o BOMs are processed one level at a time ✓ Frequently results in excessive work in-process
inventory
Accurate Records
Backward Scheduling
✓ Accurate inventory records are absolutely required for
MRP (or any dependent demand system) to operate ✓ Backward scheduling begins with the due date and
correctly schedules the final operation first

✓ Generally MRP systems require 99% accuracy ✓ Schedule is produced by working backwards though
the processes
✓ Outstanding purchase orders must accurately reflect
quantities and schedule receipts Lead Times Scheduling Criteria

✓ The time required to purchase, produce, or assemble 1. Minimize completion time

an item
2. Maximize utilization of facilities
o For purchased items – the time between the recognition
3. Minimize work-in-process (WIP) inventory
of a need and the availability of the item for production
4. Minimize customer waiting time
o For production – the sum of the order, wait, move, setup,
store, and run times ✓ Optimize the use of resources so that production
objectives are met
Lot-Sizing Techniques
Loading Jobs
✓ Assign jobs so that costs, idle time, or completion time are
minimized

✓ Two forms of loading

o Capacity oriented

o Assigning specific jobs to work centers

Input-Output Control Example

Options available to operations personnel include:

1. Correcting performances

2. Increasing capacity

3. Increasing or reducing input to the work center

Gantt Charts

✓ Load chart shows the loading and idle times of departments,

machines, or facilities

✓ Displays relative workloads over time

✓ Schedule chart monitors jobs in process

✓ All Gantt charts need to be updated frequently

Assignment Method

✓ A special class of linear programming models that assign

tasks or jobs to resources

✓ Objective is to minimize cost or time

✓ Only one job (or worker) is assigned to one machine (or project