Production / Operations Management - MGT613

MGT613 - Production / Operations Management - Lecture Handout 01

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INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT

POMA

Previously called Production Management
Then Production and Operations Management
Often called Operations Management
Should not be confused with Operations Research or Production Management which are the domain of Mechanical and Industrial Engineering.

THE COURSE CONTENT

Tentative Course Content Units of Learning wise

Unit I ( Introduction and Productivity, Strategy and Competitiveness)
Unit II ( Forecasting)
Unit III ( Design of Production Systems)
Unit III ( Quality)
Unit V ( Operating and Controlling the System)

Tentative Course Content Lecture wise

Unit I ( 5 Lectures)
Unit II (3 Lectures)
Unit III ( 12 Lectures)
Unit III ( 10 Lectures)
Unit V ( 15 Lectures)

MGT613 - Production / Operations Management - Lecture Handout 02

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INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT-I

RECAP OF 1ST Lecture

Course Content, Midterm and Final Exam
Organization Definition
Finance, Marketing and Operations
Productive systems, Production and Service Systems
Operations Management (The management of systems or processes that create goods and/or provide services)
Operation Function ( Consists of all activities directly related to producing goods or providing services)

Manufacturing and Service Definitions

Manufacturing is the transformation of raw materials into finished goods for sale, or intermediate processes involving the production or finishing of semi-manufactures.
It is a large branch of industry and of secondary production. Some industries, like semiconductor and steel manufacturer’s use the term fabrication.
Service is defined as either as

Services are deeds, processes, and performances.

A service is a time-perishable, intangible experience performed for a customer acting in the role of a co-producer

MGT613 - Production / Operations Management - Lecture Handout 03

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COMPETITIVENESS, STRATEGY AND PRODUCTIVITY

Meanings of Competitiveness, Strategy and Productivity

We are already familiar with these three terms, for the sake of easy reference, let us revisit their definitions

Competitiveness refers to an aggressive willingness to compete
Strategy is an elaborate and systematic plan of action with defined resources and
Productivity refers to the ratio of the quantity and quality of units produced to the labor per unit of time or simply ratio of output to input.

How Organization Compete against each other

Businesses since the beginning of time have competed against each other. On the basis of competition, various types of market exist for nearly all lines of products and services. We already know that absolute monopoly and perfect competition type of markets are not that pervasive, yet businesses try to avoid perfect competition and strive to go for absolute monopoly so they can enjoy no competition and exploit the customer sentiments for buying. We can identify the following common and widespread ways in which organizations can compete against other organizations.

Price: In our day to day routine observations, we often see that a lower price would attract more customers provided the product or service fulfils its intended use. Lower price helps an organization to increase its customer base.
Quality is an important dimension by which superior raw materials as well as high Skillman ship would ensure that product manufactured or service developed is offered to the customer with something extra. That something extra is nothing else but Quality. Quality is always offered free of cost, we will discuss this when we study in details Quality Management and Total Quality Management.
Product Differentiation refers to special features that make the product or service look more suitable to the customers like an automobile manufacturer decides to provide GPS system to selected customer at an additional price etc.
Flexibility is the ability to respond to changes. It may refer to changes in target sales, product feature like adding GPS device to all automobiles
Time refers to the period required to provide a product or service to a customer from the moment the order is booked to the delivery, also time required to rectify a shortcoming or mistake

MGT613 - Production / Operations Management - Lecture Handout 04

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DISTINCTIVE COMPETENCIES

The special attributes or abilities that give an organization a competitive edge are:

Price
Quality
Time
Flexibility
Service
Location

A. Operations Strategy

·Operations strategy – The approach, consistent with organization strategy that is used to guide the operations function. We first study strategy design process with example for manufacturing and Services.

Strategy Design Process

MGT613 - Production / Operations Management - Lecture Handout 05

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PRODUCTIVITY

Productivity

Productivity is a measure of the effective use of resources, usually expressed as the ratio of output to input .Also called Efficiency at times

Productivity ratios are used for

Planning workforce requirements
Scheduling equipment
Financial analysis

Productivity

Partial measures is output/(single input)
Multi-factor measures is output/(multiple inputs)
Total measure is the output/(total inputs)

Productivity ratios

Labor Productivity	Units of output per labor hour Units of output per shift Value-added per labor hour
Machine Productivity	Units of output per machine hour
Capital Productivity	Units of output per Rs. input Dollar value of output per Rs. input
Energy Productivity	Units of output per kilowatt-hour Rupee value of output per kilowatt-hour

MGT613 - Production / Operations Management - Lecture Handout 06

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THE DECISION PROCESS

Learning Objectives

Decision Process is more or less the fundamental process of Management. Whether a person works in a manufacturing organization or a services side organization, he or she would be asked to carry out the decision process. Normally the decision making process involves the following six important steps

Specify Objectives and the Criteria for decision making
Develop Alternatives
Analyze and compare alternatives.
Select the best alternative.
Implement the chosen Alternative
Monitor the results to ensure the desired results are achieved.

Operations Manager identifies the criteria by which the proposed solutions will be judged. The common criteria often relates to costs, profits, return on investment, productivity, risk, company image, impact on demand, or similar variables. The management is interested that the Operations Manager should be able to focus on parameters that will increase or decrease? Ideally the aim is that

Costs should decrease and Profits should increase
Return on Investment should increase along with increase in Productivity.
Risk should decrease along with increase in Company image.
Demand should increase for the product or service.
Monitor the results to ensure the desired results are achieved.

MGT613 - Production / Operations Management - Lecture Handout 07

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FORECASTING

Forecasting demand is like forecasting weather .Sometimes the forecast or prediction fails completely and sometimes its near the predicted value but still not the exact value. Often scientists call forecasting as an educated guess, but even then forecasting helps us to plan our trips and journeys and most importantly we as farmers make use of forecasting to plant, harvest and take precautionary measures.

Forecasting in business forms the basis for budgeting and planning for capacity, sales, production, inventory, manpower, purchasing and more.

Forecasting allows the manager to anticipate the future so then can plan accordingly. Introduction

There are two major uses for forecasts. One is to help the Operations Manager plan the system and the other one is to help him plan the use of the system. These are important concepts different distinct but at the same time closely lined.
Planning the system refers to planning long term plans about the type of products or services to offer, what facilities and equipment to have, where to locate and so on and so forth. Planning the use of the system relates to short range and intermediate range planning which means planning inventory workforce resources, planning of purchasing and production activities, budgeting and scheduling etc.

Thus it can be said that planning the systems more of a job of a senior manager, birds eye view and has ORGANIZATIONAL STRATEGY in it where as planning the use of the system is an OPERATIONAL STRATEGY

Business Forecasting is more than just predicting demand. Forecasting is also used to predict profits, revenues, costs, productivity changes, prices and availability of energy and raw materials, interest rates, movements of key economic indicators (GNP, inflation and government loans) and prices of stocks and bonds.

Forecasting is not an exact science. Even with the availability of computers, and algorithms, its unable to make an exact prediction it requires Experience, Managerial Judgment and Technical expertise. General Responsibility lies with the Marketing workforce but to this day not a single marketing forecast has been created without the valuable contribution of the Operations side.

MGT613 - Production / Operations Management - Lecture Handout 08

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FORECASTING-I

Roadmap to the Lecture

Discuss the requirements of a good forecast.
Steps in making a forecast.
Fundamental types of forecast.
Finer classification of forecast
Discuss characteristics of Judgmental Forecasts.
Delphi Method.
Time Series Analysis.
Naïve Forecast.

Requirements of a Good Forecast

Timely. The forecast should be timely. Indicating that forecasting horizon should provide enough time to implement possible changes. Capacity cannot be expanded instantly it requires some time to plan, coordinate and increase the required resources.
Reliable. Forecasts should be reliable meaning that it should work consistently. A forecast that is partially correct will succeed at sometime and sometime fail making the end users question the purpose and intent of forecasting.
Accuracy. Forecasts should be accurate. In fact it should carry the degree of accuracy, so the users are aware of the limitations of the forecast. This will also help the end users to plan for possible errors and provide a basis for comparing the forecast with other alternative forecasts.
Meaningful Forecast should be expressed in meaningful units. Financial Planners will use Rupees to show how much capital would be required; Mechanical Project Schedulers would require Forecasts to carry the type of machines and crafts of technicians required.
Written/Documented. The forecasts should be presented in writing. A documented forecast always provides a chance to measure the variance between estimate and actual result at a later stage.
Simple to understand and use meaning that Forecasts should not be dependant upon usage of sophisticated computer techniques or task specific highly qualified technical personnel. A failure or limitation on the part of this can lead to an incorrect decision and less acceptance amongst end users Steps in the Forecasting Process
Determine the purpose of the forecast meaning what is the purpose and when will it be required. This will provide the level of detail for resources required man, machine, time and capital.
Establish a time horizon. We already know that as time increases the accuracy of the Forecast decreases
Select a forecasting technique whether qualitative or quantitative
Gather and analyze the appropriate data. It goes without saying that before a forecast can be delivered data is required. The closer the real life data more realistic would be the forecast. This may be the time when you would like to identify the important assumptions and suppositions.
Prepare the forecast.
Monitor the forecast. A forecast has to be closely monitored to determine whether it is fulfilling its basic purpose. This helps in re-examining the method, assumptions and validity of the data and preparing a revised forecast.

MGT613 - Production / Operations Management - Lecture Handout 09

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FORECASTING-II

Time Series Forecasts

Trend - long-term upward or downward movement in data often relates to population shifts, changing incomes, and cultural changes.
Seasonality - short-term fairly regular variations in data related to factors like weather, festive holidays and vacations. Mostly experienced by supermarkets, restaurants, theatres, theme parks.
Cycle – wavelike variations of more than one year’s duration these occurs because of political, economic and even agricultural conditions
Irregular variations - caused by unusual circumstances such as severe weathers, earthquakes, worker strikes, or major change in product or service. They do not capture or reflect the true behavior of a variable and can distort the overall picture. These should be identified and removed from the data.
Random variations - caused by chance and are in reality are the residual variations that remain after the other behaviors have been identified and accounted for.
Forecast Variations

Techniques for Averaging

Moving average
Weighted moving average
Exponential smoothing

Moving average – A technique that averages a number of recent actual values, updated as new values become available.
Weighted moving average – More recent values in a series are given more weight in computing the forecast.

MGT613 - Production / Operations Management - Lecture Handout 10

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FORECASTING-III

The formula for the moving average is:

The formula for the moving average

Weighted Moving Average Problem (1) Data

Question: Given the weekly demand and weights, what is the forecast for the 4th period or Week 4?

Week	Demand
1	650
2	678
3	720
4

Weights:
t-1	.5
t-2	.3
t-3	.2

Weighted Moving Average Problem (1) Solution

Week	Demand	Forecast
1	650
2	778
3	720
4		693.4

F4 = 0.5(720)+0.3(678)+0.2(650)=693.4
Note: More weight age would be given to recent most values.

MGT613 - Production / Operations Management - Lecture Handout 11

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PRODUCT & SERVICE DESIGN

Product and Service Design together form the very basis of design aspect of operations. If SUPARCO today decides to send a person to space, it would not only develop and construct a rocket or spaceship but would also provide services in the training of the astronaut. The fact is that we cannot leave out services from products or exclude products from service. They both complement and supplement each other. We have to respect this concept and pay attention in identifying how products and services are present in tandem everywhere. A cardiologist carrying out angioplasty may be providing services but its unheard of today at least, that the patient would be carrying with him the spare valves for the heart, so those valves also from the same person who is providing those services. If we go to the bank for some financial services, we end up making use of a cheque (product). Similarly if Virtual University is providing students with an education service, it also supplements the services side by providing products like books, compact discs, handouts, and power point slides. The point we are trying to focus upon is that products and services are found in combination and a service organization can also provide products or a manufacturing organization can also provide a service, like the example we discussed in class about an automobile manufacturer providing after sales service.

From this lecture onwards, we will be embarking on the journey to learn about Design of Productive Systems. This journey would require us to complete various milestones like product and service design, capacity planning, Facilities Layout, Design of Work systems and Locations. Please pay special attention to all those examples you have already covered through your lectures. And try to keep two important things in mind:-

Design aspect requires strategic planning and may fall under the domain of Organizational strategy and senior management, also
Design aspect requires the existing system to be improved or replaced by a better system for this you should always focus on the word Productive. This word reflects the idea of adding value either to the manufacturing or the services System or to be more precise improving the operation system.

MGT613 - Production / Operations Management - Lecture Handout 12

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PRODUCT/SERVICE DESIGN-I

In our last discussion we focused on the objectivity and importance of Product and Service Design. We also went through the primary and secondary reasons due to which organizations opt for designing a new product or offering of a new service. We also talked about the strategy for designing of new products and services. We investigated the legal, ethical and environmental regulations. We also formulated a design strategy and also discussed guidelines, which the organizations must fulfill in order to achieve competitive advantage through designing of effective productive systems.

Critical Issues in Product and Service Design

An organization needs to decide about the following critical issues in developing its product and service design.

How much standardization
Product/service reliability
Range of operating conditions
Product/service life cycles

Standardization

Standardization is the extent to which there is an absence of variety in a product, service or process. Standardized products are immediately available to customers. You go to a market and request for a charger for your cellular phone, the shopkeeper would ask for the model, make and deliver you as special product which is made by your cell phone company or by an independent manufacturer, who provides a standardized compatible model.

MGT613 - Production / Operations Management - Lecture Handout 13

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PRODUCT & SERVICE DESIGN-II

We have covered certain important concepts like standardization and mass customization, through which organizations as well as governments are able to address the requirements of a broad customer population. It is important now to understand how design strategies are applied and how to differentiate between product and service design. There are certain common features to both. An effective operations manager should know both about goods and services. It is also important to understand that a good design should address the issues relating to cost, performance and quality.

Design Strategies

Design strategies have one common characteristic, which is to achieve customer satisfaction, along with reasonable profit in a way which does not go beyond the organizations’ manufacturing abilities. An exaggerated example being that if an automobile car manufacturing organization’s design department decides to design a truck. This would probably mean testing the organizations’ manufacturing capability, as the organization would not have the infrastructure to manufacture a truck. Some of the common design strategies are

Design for Manufacturing (DFM): The designers’ consideration of the organization’s manufacturing capabilities when designing a product. The more general term design for operations encompasses services as well as manufacturing. Manufacturability is the ease of fabrication and/or assembly which is important for:
1. Cost
2. Productivity
3. Quality
Read more: MGT613 - Production / Operations Management - Lecture Handout 13

MGT613 - Production / Operations Management - Lecture Handout 14

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RELIABILITY

We often come across statements similar to these, this bulb (product) is not as reliable as the previous bulb or my newspaper’s analysis and report writing (service) is not as reliable as my friend’s newspaper analysis. These two sentences summarize what human mind is looking for? That is reliability. Reliability is sought by customers from all organizations. Interestingly enough, the personnel working inside the organization whether engineers or managers also seek reliability of operations, management, IT, Accounting and other host of functions that help an organization perform its day to day routine activities effectively. Reliability is no longer that art which was considered to be possessed by a family of skilled craftsman rather has now evolved in to a vast and ever increasing field of Engineering. Reliability in general and reliability engineering in fact play a very critical part in an organizations product or service gaining competitive advantage over the organizations competitors.

Reliability

We often overlook the concept of Reliability and confuse it with the concept of safety. Safety is one small aspect of reliability. Reliability needs to be looked into with the important perspective of failure of a product /service and normal operating conditions for that particular product or service. Lets us briefly look at the definitions of reliability, along with what is termed as failure and what are the normal operating conditions for a product.

· Reliability: The ability of a product, part, or system to perform its intended function under a prescribed set of conditions
Failure: Situation in which a product, part, or system does not perform as intended
Normal operating conditions: The set of conditions under which an item’s reliability is specified e.g. an automobile designed for operation in Europe may not fulfill its intended useful service in Pakistan. SO IT HAS THE POTENTIAL TO FAIL AND BE LESS RELIABLE. Kindly pay more attention to the word potential here, potential refers to something hidden or attached either to the performance or operations of a product. A bank servicing its client if fails to provide reliable normal operating service can lead to disastrous financial consequences for its customers similarly if a pharmacy starts dispensing expired medicines it can cause serious health hazards to its customers. All products and services carry with them the potential of doing something harmful if they are unable to function according to normal operating conditions. The thing or characteristic or quality that avoids something aberrant happening is known as RELIABILITY.

MGT613 - Production / Operations Management - Lecture Handout 15

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CAPACITY PLANNING

After completing discussion on product or service design, organizations end up answering the questions relating to capacity and demand. Since we have already discussed demand forecasting, we should now focus on what capacity planning decisions are. We should also try to understand the importance of capacity.
Capacity decisions are important to all departments of the organization; an accountant would be interested in collecting cost accounting information in order to ensure that correct capacity expansion decision is reached. Similarly a financial manager would be interested in performing the financial analysis of whether the investment decision is justified for a plant or capacity increase. An Information Technology Manager would end up preparing data bases that would aid the organization again to decide about the capacity and last but not the least an operations manager would select strategies that would help the organization achieve the optimum capacity levels to meet the capacity demand.

Learning Objectives

Capacity planning lectures deal with different types of Capacity like Design, Effective; Utilization etc Quite often the operations manager has to identify various determinants of Effective Capacity. The manager has to formulate Strategy with respect to Capacity Planning and plans by looking in to developing Capacity Alternatives and studying Economies of Scale and focusing on Cost Volume Relationship
Hopefully by completing the lecture on Capacity Planning an Operations Management the students would be able to:-

Understand, appreciate and explain the importance of capacity planning.
Discuss ways of defining and measuring capacity.
Describe the factors that determine effective capacity alternatives.
Discuss the major considerations related to developing capacity alternatives.

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CAPACITY PLANNING-I

It is important to realize that managers make capacity decisions at the organizational level and not at the operational level. Often, debottlenecking a process can increase departmental efficiency without increasing or improving the organizational performance. This does not mean that capacity decisions are not taken at the operational level rather managers end up making capacity decisions at the individual process level in accounting, finance, human resources, information technologies, marketing and operations departments.

Operations Mangers must understand capacity measures, economies and diseconomies of scale, capacity cushions and trade off between customer service and capacity utilization.

Efficiency and Utilization

Operations Manager should know what is Capacity? They should be able to identify the terms Design Capacity and Effective capacity before they can understand another important concept of Utilization.

Design capacity is the maximum output rate or service capacity an operation, process, or facility.
Organizations facility or operation is designed for Effective capacity which refers to Design capacity minus allowances such as personal time, maintenance, and scrap
Actual output is the rate of output actually achieved--cannot exceed effective capacity.

Efficiency/Utilization Example
Use the following data to determine the Efficiency and Utilization

Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day

Efficiency and Utilization

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CAPACITY PLANNING-II

In our earlier lectures we talked about importance of capacity planning along with the idea that capacity planning decisions are carried out with certain objectivity in mind both at the individual level as well as at the organizational level. We also learnt the various measures of capacity. We now focus our attention on various alternatives available to us along with cost volume relationship.

Evaluating Alternatives

Explanation of the Cost Curve

The explanation for the shape of the cost curve is that low levels of output (Production), the costs of facilities and equipment must be absorbed (paid for) by few units. Hence the cost per unit is very high. As the output is increased, there are more units to absorb the fixed cost of utilities, facilities and equipment, so unit cost is decreased.

MGT613 - Production / Operations Management - Lecture Handout 18

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PROCESS SELECTION

Process Selection plays an important part in over all design of production and operations management systems. Process Selection allows an organization to offer a safe and reliable product and service through pragmatic design and effective capacity planning. With the help of process selection we can understand the different types of processing including manual, rigid, and flexible as well as various automated approaches to processing. Process selection allows an operations
manager to better understand the need for management of technology. Together with capacity planning it helps an organization to develop different approaches to meet the irregular demand pattern of the customers.

Introduction and Meaning

Process Selection refers to the way an organization chooses to produce its good or services. It takes into account selection of technology, capacity planning, layout of facilities, and design of work systems. Process selection is a natural extension after selection of new products and services.

An organizations process strategy would include

Make or Buy Decisions. The extent to which an organization will produce goods or provide in house as opposed to relying on an outside organization to produce or provide them.
Capital Intensity. The mix of equipment and labor will be used by the government.
Process Flexibility: The degree to which the system can be adjusted to changes in processing requirements due to such factors as changes in product or service design, changes in volume processed, and changes in technology.

MGT613 - Production / Operations Management - Lecture Handout 19

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FACILITIES LAYOUTS

Facilities layout corresponds to configuration of departments, sections, work centers, equipment with focus being on movement of goods or services or works. A traveler making use of the railway platform, or bus station or airport would be a good example of work being moved through a facility. Often poor design of productive system can result in poor design of the facilities layout. After 9, 11, most of the airports in the western world have shown that they are poorly designed to handle air traffic and passengers end up paying a heavy price in the form of long waiting hours and even people visit airports to see of their family or friend travelers end up reaching the lobby area. The reason being no attention
was paid at the time of design or construction to separate boarding lounge form the ticketing counter or lounge. Such short comings plague organizations and it’s the task of the operations manager to ensure that product as well as service layouts match organizations short as well as long term plans.

Basic Layout Types

The common Basic Layout Types are

Product/Service layout. A layout that uses standardized processing operations to achieve smooth, rapid, high-volume flow
Process layout. A Layout that can handle varied processing requirements
Fixed Position layout. A Layout in which the product or project remains stationary, and workers, materials, and equipment are moved as needed
Hybrid/Combination. A Layout that makes use of the combination of Product, Process or Fixed Position Layout.

MGT613 - Production / Operations Management - Lecture Handout 20

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FACILITIES LAYOUTS-I

In our last lecture, we identified Facilities layout as the configuration of departments, sections, work centers, equipment with focus being on movement of goods or services or works. So whether it’s a traveler making use of the railway platform, or bus station or airport, or an automobile or a product during its production stage or a patient needing medical attention, they all would qualify as good examples of work being moved through a facility. Often poor design of productive system can result in poor design of the facilities layout. We discussed product, process and hybrid layouts, we now focus our attention on cellular production. In cellular manufacturing, production work stations and equipment are
arranged in a sequence that supports a smooth flow of materials and components through the production process with minimal transport or delay. Implementation of this lean method often represents the first major shift in production activity, and it is the key enabler of increased production velocity and flexibility, as well as the reduction of capital requirements. The concept of lean production and Just in Time Production Systems would be studied in detail when we will discuss improvement of Productive Systems.

Cellular Layouts

Cellular production techniques reflect a relatively new concept in manufacturing and have yet found immediate acceptance in Pakistani manufacturing industry as well. Organizations which opt for cellular manufacturing follow the lean production strategy. There are two important concepts to understand at the moment, what cellular production is and what group technology is? We will discuss lean production systems in detail towards the end of our semester later, for the time being we can consider lean production systems as systems which focus on high quality process with elimination of waste and effective use of available resources.

MGT613 - Production / Operations Management - Lecture Handout 21

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DESIGN OF WORK SYSTEMS

Objective

Design of Work Systems is an important component in Production and Operations Management. Design of Work Systems forms the basis and explains the importance of work design. Design of Work Systems is used to describe the two basic approaches to job design, the first approach focuses on Efficiency through job specialization and the other focuses behavioral approaches to job design. Design of Work System also entails method analysis which in turn centers on how jobs are performed. Motivation and Trust also form an important dimension in Design of Work systems as this alone provides an opportunity to the Organization to develop effective teams who can achieve organizations short and
long term objectives. Motivation and Trust observations also emphasizes working conditions that in turn lead to work measurements which leads to reward and compensation of the individual working for the organization. In short this topic of Design of Work Systems provides the perfect bridge between Production and Operations Management with Human Resource Management.

Design of Work Systems Introduction

Work System Design consists of job design, work measurement and establishment of time standards and worker compensation.
The interesting fact is that even in decisions in other areas of design can affect the work design system or even a change in the work design system can change the decisions in other areas. Like Product or Service design will affect Design of Work Systems. Layout Decisions will also affect Design of Systems.
It is thus logical to ensure that SYSTEMS approach is followed in a decision for DESIGN, so a decision in one part of the system is equally replicated and acceptable to all the system. E.g. Product or Service Design would require proper people with standardized job description

MGT613 - Production / Operations Management - Lecture Handout 22

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LOCATION PLANNING AND ANALYSIS

Lecture Objectives

By studying location planning and analysis, an operations management student should be able to understand the

Importance of Location Planning and Analysis
Criteria for Manufacturing and Service Location selection considerations
Transportation Model

Importance of Location

Location decisions are not limited to one time strategic planning decisions for building a new manufacturing or service facility rather most of the organizations face the challenge of increasing their capacity through selection of new locations or extension of existing locations.

As an operations management student, we can focus on the importance of location for any organization through various departments of the organization.

Accounting which prepares cost estimates for changing locations as well as operating at new locations.
Distribution which seeks warehouse layouts that make material handling easier and customer response shorter.
Importance of Location
Engineering which considers the impact of product /service location choices.
Finance which performs the financial analysis for investments in new locations.
Human Resources, which hires and trains employees to support new locations or relocations of operations.
Management Information Systems which provide information technologies that link operations at different locations.
Importance of Location
Marketing which assesses new locations and revised locations that are popular with the customers.
Operations Management which seeks and finalizes locations that create, sustains, protect and project the best performance criteria for the whole organization.

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MANAGEMENT OF QUALITY

After completing the lecture on Management of Quality, the POMA students should be able to understand the term quality and the importance of Quality. The student should be able to learn the Determinants of Quality, when they discuss Total Quality management also they should be able to identify the various costs associated with Quality. The students should also be able to appreciate the famous ISO 9000 and ISO 14000 quality systems, which are also actively seen in Pakistan. And last but not the least out of curiosity than academic interest the students should be aware of philosophies of
Quality Gurus.

Introduction

Quality Management can be understood only if we are able to understand the term quality, which is defined as

Quality is the ability of a product or service to consistently meet or exceed customer expectations.

Quality as determinant of Revenue has been often neglected, people tend to associate quality with high price of the product or item they want to purchase, historically speaking this is an incorrect statement. The debate between American and Japanese philosophy proves that quality is offered free of cost and is the prime source of revenue or profit.

When the American industry in 70s and 80s talked about cost cutting and productivity improvement they did not paid heed to Quality Management, which was the “Holy Grail” for the Japanese Industry.
When Japanese manufacturers entered and occupied the American Markets the only thing that made their products and services better than the Americans was the concept of Quality, which led to increase in the revenues and productivity of Japanese manufacturers.

MGT613 - Production / Operations Management - Lecture Handout 24

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SERVICE QUALITY

Learning Objectives

After completing this lecture the students should be able to describe the five dimensions of service quality in detail. This would enable them to use the service quality gap model to diagnose quality problems also understand the quality service by design concepts. This lecture would provide the students with an opportunity to learn and illustrate how Taguchi methods and poka-yoke methods are applied to quality design. The students should be able to at least gain awareness how organizations perform service quality function deployment in order to improve their operations side. The students
should also be able to construct a statistical process control chart.

Moments of Truth

Each customer contact (between the service provider and customer) is called a moment of truth.
An organization has the ability to either satisfy or dissatisfy them when you contact them.
A service recovery is satisfying a previously dissatisfied customer and making them a loyal customer.

Dimensions of Service Quality

Dimensions for Service Quality are more or less the same which we associate with the concept of Quality in General. Also, we as service demanders (customers) are well aware of the fact that we always seek reliability, agility (prompt responsiveness), assurance, tangibility and empathy while being provided with a service. More or less these dimensions help the customer to rate and distinguish one service provider from another; a good service from a bad service. Often organizations use a performance measure matrix using the same service dimensions and they often call it RATE based on the 5 dimensions described below.

MGT613 - Production / Operations Management - Lecture Handout 25

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TOTAL QUALITY MANAGEMENT

Total Quality Management is a philosophy that involves each and every individual in an organization in a continual effort to improve quality and achieve customer satisfaction.

The TQM Approach

TQM is not called philosophy for nothing. It is that common viewpoint as well as attitude shared by the whole organization that helps the organization achieves its prime objective of increase in revenue as well as a continuous relationship with the customer, by providing a quality based service which fulfills the customer’s needs and requirements.

If we apply the TQM approach we can identify the role played by various departments and interfaces of the organization. These roles at the functional and departmental levels if not in line with the organizational strategy would not allow the organization to pursue TQM.

Sr. #	TQM Approach	Department
1	Find out what the customer wants	Marketing
2	Design a product or service that meets or exceeds customer wants	Design Dept
3	Design processes that facilitates doing the job right the first time	Operations Dept
4	Monitor and Audit (Keeping track of) results	Senior/GM Managers
5	Extend these concepts to suppliers	SCM / Logistics/Warehouse /Materials

TQM CRITICISMS

TQM Philosophy is often criticized for reasons which show weak implementation or poor management perspective. The common criticism against TQM is:

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TOTAL QUALITY MANAGEMENT-I

In this lecture we will look into detail TQM. We will initially focus on Six Sigma concept. We will try to understand six sigma concepts in terms of managerial and technical perspective. We will also try to understand the Deming Wheel of Quality and seven common tools of quality. And last but not the least we will also try to understand the concepts of statistical process control and benchmarking with respect to quality.

ISO Certifications

Quality Certification ensures that the organization has been able to achieve TQM philosophy. The two popular certifications which are pursued by the organizations include ISO 14000 and ISO 9000.

ISO 14000: Is a set of international standards for assessing a company’s environmental performance.
ISO 9000: Is a set of international standards on quality management and quality assurance, critical to international business.

Six SIGMA

Statistically speaking a process is said to be in Six Sigma stage if it does not have more than 3 or 4 defects per million. Most of the organizations, measure their quality program in terms of Six Sigma. Conceptually the Six Sigma Program is designed to reduce defects and requires the use of certain tools and techniques.

Six Sigma Programs are always directed towards quality improvement, cost cutting and time saving. Six Sigma Programs are employed in:

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QUALITY CONTROL & QUALITY ASSURANCE

Quality Control or QC as it is popularly referred as “is concerned with quality of conformance of a process”. The prime purpose of QC is to assure that the processes are performing in an acceptable manner. Organizations accomplish QC by monitoring process outputs using statistical techniques. The practical and pragmatic QC based Operations Strategy for a service or manufacturing organization would focus on the principle of quality in design.

Learning Objectives

Introduction to Quality Control and Assurance
Phases of Quality Control
Elements of Control Process
How control charts are used to monitor a process and the concepts that underlie their use.
Use and interpret control charts.
Use of run tests to check for non randomness in process output.

Phases of Quality Assurance

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ACCEPTANCE SAMPLING

Learning Objectives

Acceptance sampling is an important form of inspection applied to lots or batches of items before or after a process, to judge conformance with predetermined standards. Similarly Sampling plans are the plans that specify lot size, sample size, number of samples, and acceptance/rejection criteria

Single-sampling
Double-sampling
Multiple-sampling

Single Sampling Characteristics

One random is drawn from each lot.
Every item in the sample is examined
Each item after examination is classified good or defective.
If the sample contains more than a specified number of defectives say c, then that lot is rejected.

Double Sampling Plan Characteristics

Takes care of limitation of Single Sampling Plan by taking another sample if results of the initial sample are inconclusive.
If results from second sample also indicate poor quality than the lot is rejected or otherwise decision reached on the basis of both samples.
A double sampling plan specifies the lot size, the size of the initial sample, accept/reject criteria for the initial sample, the size of the second sample and a single acceptance number.
With double sampling plan, 2 values are specified for number of defective items, a lower level c1 and an upper level c2. E.g. if we have c1 equal to 2 and c2 to 7, if number of defects is smaller than c1 than sampling is terminated and lot is accepted.
If defects are greater than c2, than lot is rejected.
If it’s between c1 and c2 then second sample is selected and compared to a third value c3 which can be 8 and if the cumulative defects from 1 and 2 does not exceeds c3, the lot is accepted.

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AGGREGATE PLANNING

Learning Objectives

Explain the working and usefulness of Aggregate Planning.
Identify the variable decision makers to work with in aggregate planning and some of the possible strategies they can use.
Describe some of the graphical and quantitative techniques planners use.
Prepare aggregate plans and compare their costs.

Planning Horizon

Aggregate planning: Intermediate-range capacity planning, usually covering 2 to 12 months.

Planning Horizon

As Operations Manager we should be able to understand and identify the various Planning Levels which are Short Range Plans, Intermediate Plans and Long Range Plans.

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AGGREGATE PLANNING-I

Learning Objectives

In this lecture we will cover the basic aggregate planning strategies, Assumptions for Aggregate Planning, different Aggregate Planning Relationships, Master Schedule and Master Scheduler. We will study desegregating the aggregate plans for production control. This discussion would prepare us to take a deeper look into Inventory Management and MRP/ERP. All this would allow us to become effective operations manager to work for improving the operations as well as the systems of the organizations we will work for.

Basic Strategies

Level capacity strategy: Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options.
Chase demand strategy: Matching capacity to demand; the planned output for a period is set at the expected demand for that period.

Chase Approach

Advantages
1. Investment in inventory is low
2. Labor utilization in high
Disadvantages
1. The cost of adjusting output rates and/or workforce levels

Level Approach

Advantages
1. Stable output rates and workforce
Disadvantages
1. Greater inventory costs
2. Increased overtime and idle time
3. Resource utilizations vary over time

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INVENTORY MANAGEMENT

Learning Objectives

Our discussion on Inventory Management would be complete only when we are able to learn and understand the types of Inventories and objectives of Inventory Control. This would ensure that we are able to understand the major reasons for holding inventories. We would be able to differentiate between independent and dependent demand. We will also learn the requirements of an effective inventory management system. We will review both periodic as well as perpetual Inventory systems. We will discuss in detail the ABC approach with a suitable example. Since our discussion would extend over three lectures we will also discuss the objectives of inventory management, describe the basic EOQ model, Economic Run Size, Quantity Discount Model with solved examples.

Types of Inventories

The five common types of inventories are:

Raw materials & purchased parts.
Partially completed goods called work in progress.
Finished-goods inventories:
- (manufacturing firms) or
- merchandise, (retail stores)
Goods-in-transit to warehouses or customers.
Replacement parts, tools, & supplies.

Objective of Inventory Control

To achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds. Operations Managers are well aware of the fact that customer services with respect to Inventory takes into account both the internal customers as well as external customers.

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INVENTORY MANAGEMENT-I

Learning Objectives

Inventory Management is the procurement, use and distribution of Inventory; some text books use the work Inventory control for the same concept. The word control ensures that inputs, the process itself and the outputs are all manageable. This inventory control concept helps us to understand two important concepts of Operations Management i.e. Supply Chain Management and Just In Time Production Systems. In this lecture we will study the ABC classification System, Inventory Ordering and Holding Costs and Economic Order Quantity Model.

Key Inventory Terms

The Key Inventory Terms we should know are Lead time, Holding (carrying) costs, Ordering ( Set up) Costs and Shortage(Stock out) costs

Lead time: Time interval between ordering and receiving the order.
Holding (carrying) costs: Cost to carry an item in inventory for a length of time, usually a year. Costs include Interest, insurance, taxes, depreciation, obsolescence, deterioration, pilferages, breakage, warehousing costs and Opportunity costs. Holding (carrying) costs: Holding costs are stated in two ways
- Percentage of unit price or
- Rupee
Ordering costs: Costs of ordering and receiving inventory. These are the actual costs that vary with the actual placement of the order.
Shortage costs: Costs when demand exceeds supply.

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INVENTORY MANAGEMENT-II

Learning Objectives

Our discussion on Inventory Management would be complete only when we are able to learn and understand the types of Inventories and objectives of Inventory Control. This would ensure that we are able to understand the major reasons for holding inventories. We would be able to differentiate between independent and dependent demand. We will also learn the requirements of an effective inventory management system. We will review both periodic as well as perpetual Inventory systems. We will discuss in detail the ABC approach with a suitable example. Our discussion has focused on the objectives of inventory management, basic EOQ model, Economic Run Size, Quantity Discount Model with solved examples.

Example (In terms of Percentage)

CNG-LPG company in Karachi, purchases 5000 compressors a year at Rs.8,000 each. Ordering costs are Rs. 500 and Annual carrying costs are 20 % of the purchase price. Compute the Optimal price and the total annual cost of ordering and carrying the inventory.
Data
D=Demand =5,000
S=Ordering= Rs. 500
H=Holding/Carrying Cost=0.2 X 8,000=Rs.1600
Example 3 ( In terms of Percentage)
Q0= Sq Root of ( 2(5,000)(500)/(1600))
= 55.9=56 Compressors
TC= Carrying costs + Ordering Costs
=Q0/2 ( H) + D/Q0 (S)
= 56/2 ( 1600) + 5000/56 (500)
= 28 ( 1600)+ 44,643
=44,800+44,643=Rs. 89,443

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MATERIAL REQUIREMENTS PLANNING / ENTERPRISE RESOURCE PLANNING

Learning Objectives

Describe the conditions under which MRP is most appropriate.
Describe the inputs, outputs and nature of MRP processing.
Explain how requirements in a Master Production Schedule are translated into material requirements for lower level items.
Discuss benefits and requirements of MRP.

MRP

Material requirements planning (MRP): Computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials.

MRP

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MATERIAL REQUIREMENTS PLANNING / ENTERPRISE RESOURCE PLANNING- I

Learning Objectives

Discuss benefits and requirements of MRP.
Explain how an MRP system is useful in Capacity Requirements
Benefits and shortcomings of MRP
MRP II and MRP.

MRP: A Recap

Material Requirements Planning (MRP) is software focusing on production planning and inventory control system used to manage manufacturing processes.
An MRP system is intended to simultaneously meet three objectives:
1. Ensure materials and products are available for production and delivery to customers.
2. Maintain the lowest possible level of inventory.
3. Plan manufacturing activities, delivery schedules and purchasing activities.

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JUST IN TIME PRODUCTION SYSTEM

Just In Time Production or Lean Production systems focus on the efficient delivery of products or services. Some of the distinguishing elements of the JIT systems are a pull method to manage material flow, consistently high quantity, small lot sizes, uniform work station loads. The JIT systems provide an organizational structure for improved supplier coordination by integrating the logistics, production and purchasing processes. When Operations Manager focuses on their organization’s competitive advantage they aim for low cost of production, consistent quality with reductions in inventory, space requirements, paperwork and increases in productivity, employee participation and effectiveness.

JIT/Lean Production

Lean Manufacturing: is a management philosophy focusing on reduction of the seven wastes.

Over-production ( Capacity exceeding demand)
Waiting time
Transportation
Processing
Costs
Inventory
Motion ( Lack of coordination of body movements)

JIT/Lean Production Features

By eliminating waste (muda), quality is improved, production time is reduced and cost is reduced.
"Pull" production (by means of Kanban).
While some believe that Lean Manufacturing is a set of problem solving tools.
In addition, experts in this field believe that philosophy-based Lean Manufacturing strategy is the most effective way to launch and sustain lean activities.

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JUST IN TIME PRODUCTION SYSTEM-I

We have progressed our discussion on Lean Production Systems and Just In Time Systems and we will now focus our attention upon Lean Systems in Services, Operational Benefits associated with JIT. We will also note some of the common Implementation Issues along which the Organizational face while implementing JIT. We also need to know what single Kanban System is and solve some examples.

Characteristics of Lean Systems: Just-in-Time

Continuous Improvement with the help of Lean Systems is possible if Operations Managers are able to focus on some of the common characteristics of Lean Systems, which include:

Pull method of materials flow
Consistently high quality
Small lot sizes
Uniform workstation loads
Standardized components and work methods
Close supplier ties
Flexible workforce
Line flows
Maintenance
Automated production
Preventive maintenance

The figure below of a ship sailing through waters is a great representation of an organization carrying its business with hidden rocks (barriers) like scrap, unreliable suppliers and capacity imbalance, carrying the threat of sinking the ship. With proper and effective lean production system philosophy in place, this can be avoided and organization can continue to sail through smooth and calm waters.

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JUST IN TIME PRODUCTION SYSTEM-II

Just In Time system provides an organization a robust structure by improving the relationship between the organization and the supplier by constituting a strategic alliance network between the organization and the suppliers. At the intra organization level, JIT forms a healthy alliance between the management and the workforce, all this contributes in elimination of waste.

JUST IN TIME

Just-In-Time (JIT): JIT can be defined as an integrated set of activities designed to achieve high-volume production using minimal inventories (raw materials, work in process, and finished goods).
JIT also involves the elimination of waste in production effort.
JIT also involves the timing of production resources (i.e., parts arrive at the next workstation “just in time”).

Just-in-time (JIT): A highly coordinated processing system in which goods move through the system, and services are performed, just as they are needed. As operations managers we should remember this point onwards that

JIT is also known as lean production
JIT is the true pull (demand) system
JIT operates with very little “fat”

Summary JIT Goals and Building Blocks

Goal of JIT: The ultimate goal of JIT is a balanced system. JIT achieves a smooth, rapid flow of materials through the system. The ultimate as well as supporting goals are represented below in the form of a pyramid.

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SUPPLY CHAIN MANAGEMENT

Supply Chain: The sequence of organization’s facilities, functions, and activities that are involved in producing and delivering a product or service.

Need for Supply Chain Management

Improve operations
Increasing levels of outsourcing
Increasing transportation costs
Competitive pressures
Increasing globalization
Increasing importance of e-commerce
Complexity of supply chains
Manage inventories

Benefits of Supply Chain Management

Lower inventories
Higher productivity
Greater agility
Shorter lead times
Higher profits
Greater customer loyalty

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SUPPLY CHAIN MANAGEMENT-I

Learning Objective

In this lecture we will focus on certain important parameters of Supply Chain Management. We will discuss the Supply Chain Operational Reference Metrics and Collaborative Planning Forecasting and Replenishment Process, which would help us analyze the Supply chains. This would also help us an operation manager to design effective supply chains. We will try to understand the concepts of Velocity and Bullwhip effect and how they pose a serious challenge to the effectiveness of the Supply Chain.

Supply Chain Operational Reference (SCOR) Metrics

Perspective	Metrics
Reliability	On-time delivery Order fulfillment lead time Fill rate (fraction of demand met from stock) Perfect order fulfillment
Flexibility	Supply chain response time Upside production flexibility Agility to obtain competitiveness
Expenses	Supply chain management costs Warranty cost as a percent of revenue Value added per employee
Assets/utilization	Total inventory days of supply Cash-to-cash cycle time Net asset turns

Supply chain response time often makes or breaks a supply chain.

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SCHEDULING

Learning Objectives

After completing the introductory discussion on Scheduling, the students would be able to understand what scheduling is and how important it is to high volume and intermediate volume systems. It would also help them to learn how to address scheduling needs in Job shops. The students would also learn the use and interpretation of Gantt Charts. They would also use Assignment method for loading along with common Priority Rules. They would also learn the common and unique scheduling problems in Service Systems.

Scheduling

Scheduling: Scheduling is an important tool for manufacturing and service industries where it can have a major impact on the productivity of a process. In manufacturing, the purpose of scheduling is to minimize the production time and costs, by telling a production facility what to make, when, with which staff, and on which equipment. Similarly, scheduling in service industries, such as airlines and public transport, aim to maximize the efficiency of the operation and reduce costs.
Scheduling
Modern computerized scheduling tools greatly outperform older manual scheduling methods. This provides the production scheduler with powerful graphical interfaces which can be used to visually optimize real-time work loads in various stages of the production, and pattern recognition allows the software to automatically create scheduling opportunities which might not be apparent without this view into the data. For example, an airline might wish to minimize the number of airport gates required for its aircraft, in order to reduce costs, and scheduling software can allow the planners to see how this can be done, by analyzing time tables, aircraft usage, or the flow of passengers.
Scheduling
Companies use backward and forward scheduling to plan their human and material resources. Backward scheduling is planning the tasks from the due date to determine the start date and/or any changes in capacity required, whereas forward scheduling is planning the tasks from the start date to determine the shipping date or the due date.

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SEQUENCING

Learning Objectives

After completing today’s lecture, the students should be able to develop a comprehensive understanding of scheduling and sequencing operations with the help of Hungarian Methods and Johnson Rules. The students would be able to understand the priority rules along with the need of effective scheduling and sequencing. The students would be able to develop an Operations Strategy with respect to both Scheduling and Sequencing.

Sequencing

Sequencing: Determine the order in which jobs at a work center will be processed.
Requires order for sequencing at all work centers as well as sequencing at individual work centers.

Workstation: An area where one person works, usually with special equipment, on a specialized job.
Sequencing

Job time: Time needed for setup and processing of a job.

Priority rules: Simple heuristics (Commonsense rules) used to select the order in which jobs will be processed.

Local Rules ( pertaining to single workstation)
Global Rules( pertaining to multiple workstation)
Job processing times and due dates are important pieces of information.
Job time consists of processing time and setup times

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PROJECT MANAGEMENT

Learning Objectives

After completing our lectures 43 and 44, we should be able to understand the Behavioral aspects of projects in terms of project personnel and the project manager. We should be able to appreciate the nature and importance of work breakdown structure in Project Management. We should develop a working knowledge of PERT/CPM techniques.
Construct simple network diagrams and try to assimilate the kind of information that a PERT or CPM analysis can provide. And last but not the least we should be able to analyze networks with probabilistic times and describe activity “crashing” and solve some problems.

Projects

Projects are unique, one-time (temporary) operations designed to accomplish a specific set of objectives in a limited time frame.
This property of being a temporary and a one-time venture contrast with operations, which are permanent or semi-permanent ongoing functional work to create the same product or service over-and-over again.
The management of these two systems is often very different and requires varying technical skills and philosophy, hence requiring the development of project management

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PROJECT MANAGEMENT-I

Learning Objectives

After learning about the network diagrams, the project life cycle and the responsibilities of project manager. We will now learn the important concept of time estimates (which is based on computing algorithms of Early Start, Early Finish, Late Start and Late Finish) and variances which are used to control the project activities. We will consider important aspects like the forward and backward path time estimates, Project Crashing, Time Cost Trade Offs, Project Management Software, Risk Management and develop a project management based Operations Strategy.

Time Estimates

There are two common types of time estimates namely

Deterministic: Time estimates that are fairly certain
Probabilistic: Estimates of times that allow for variation

Example: Hospital

We take the same hospital example and now place the time dimension to it .

time dimension

The activities from locating the facility to making the hospital fully are represented in the form of a network diagram. The student should try to write down the activities along with the activity description then try to draw the network diagram using both the activity on node and activity on arrow as practice.

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WAITING LINES

Learning Objectives

After completing the lecture, we should be able to explain the formation of waiting lines in unloaded systems, identify the goal of queuing ( waiting line) analysis, list the measures of system performance that are used in queuing analysis. We should be able to understand the importance of simulation and at the same time we should look beyond the Production Operations Management class as business graduate professionals adding value to the society.

Visit to a Cricket Stadium

Waiting in lines does not add enjoyment
Waiting in lines does not generate revenue
Waiting Lines
Waiting lines are non-value added occurrences
Are formed at airports, cricket stadiums, post offices.
Formed due to non scheduled random arrivals
Often regarded as poor service quality

Waiting Line Examples

Orders waiting to be filled
Trucks waiting to be loaded or unloaded
Job waiting to be processed
Equipment waiting to be loaded
Machines waiting to be repaired.