Learning Outcomes:
Understand fundamental supply chain management concepts.
Apply knowledge to evaluate and manage an effective supply chain.
Understand the foundational role of logistics as it relates to transportation and warehousing.
How to align the management of a supply chain with corporate goals and strategies.
Go through the given case scenario
Choose an organization operating in any part of the globe (preferably a super market, hyper market chain (or) a fast-food industry or an electronics equipment manufacturer/distributor, automobile manufacturer or automotive parts or retail products / services.
The organization that you choose should either manufacture or market or distribute some products / services. The competition in these businesses majorly depends upon price, quality, timely delivery and service (which are core aspects of Supply Chain Management). Hence there is immense pressure on all the organizations in these businesses to keep the four aspects mentioned to their supreme best.
As these businesses are the most emerged industries in the recent past, the supply chain has seen huge transformations. These businesses are getting to the maturing stage and so as the transformations in the supply chain management of these business become more and more competitive, the customer gets only the best products / service.
Note: In case your chosen organization is operating in many countries and deals with many products, it is enough you consider the operations in any one country and indicate some materials that are part of the business and select 2 or 3 materials out of them for providing answers to the questions given below.
Students can make use of graphs, tables, illustrations, maps, pictures, images to add clarity to your answers.
Examine and evaluate your chosen organization’s Supply Chain, describe its basic working, strategy used by them, key drivers for achieving an integrated supply chain. What is the SCM model used?(2MM)
Go through the typical Working of the chosen Organization’s logistics process, Is there a role for reverse logistics for your chosen organization’s products / services ? If there is a role, explain the process that is applicable.(2MM)
Analyse and understand the different modes of transportation employed by your chosen organization. Indicate whether the current arrangements are effective. Suggest improvements for making the transportation sustainable and new modes of transportation. (2MM)
What is the Warehouse design used by the chosen organization and provide your idea on the appropriate warehouse design that will be suitable for the future. Justify your choice with proper reason. (2MM)
Given the nature of the products that you have selected for your chosen organization, what is the type of Inventory management control that your chosen organization should adopt? Give reasons. (2MM)
Note:
You must include at least 5 references.
Format your references using APA style.
Each answer must not be less than 300 words
Answers
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Requirements: 1200-1600
College of Administrative and Financial Sciences
Assignment 2
Introduction to Operations Management (MGT 311)
Due Date: 11/11/2023 @ 23:59
For Instructor’s Use only
General Instructions – PLEASE READ THEM CAREFULLY
The Assignment must be submitted on Blackboard (WORD format only) via allocated folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page.
Students must mention question number clearly in their answer.
Late submission will NOT be accepted.
Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.
All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.
Learning Outcomes:
Understand fundamental supply chain management concepts.
Apply knowledge to evaluate and manage an effective supply chain.
Understand the foundational role of logistics as it relates to transportation and warehousing.
How to align the management of a supply chain with corporate goals and strategies.
Go through the given case scenario
Choose an organization operating in any part of the globe (preferably a super market, hyper market chain (or) a fast-food industry or an electronics equipment manufacturer/distributor, automobile manufacturer or automotive parts or retail products / services.
The organization that you choose should either manufacture or market or distribute some products / services. The competition in these businesses majorly depends upon price, quality, timely delivery and service (which are core aspects of Supply Chain Management). Hence there is immense pressure on all the organizations in these businesses to keep the four aspects mentioned to their supreme best.
As these businesses are the most emerged industries in the recent past, the supply chain has seen huge transformations. These businesses are getting to the maturing stage and so as the transformations in the supply chain management of these business become more and more competitive, the customer gets only the best products / service.
Note: In case your chosen organization is operating in many countries and deals with many products, it is enough you consider the operations in any one country and indicate some materials that are part of the business and select 2 or 3 materials out of them for providing answers to the questions given below.
Students can make use of graphs, tables, illustrations, maps, pictures, images to add clarity to your answers.
Examine and evaluate your chosen organization’s Supply Chain, describe its basic working, strategy used by them, key drivers for achieving an integrated supply chain. What is the SCM model used? (2MM)
Go through the typical Working of the chosen Organization’s logistics process, Is there a role for reverse logistics for your chosen organization’s products / services ? If there is a role, explain the process that is applicable. (2MM)
Analyse and understand the different modes of transportation employed by your chosen organization. Indicate whether the current arrangements are effective. Suggest improvements for making the transportation sustainable and new modes of transportation. (2MM)
What is the Warehouse design used by the chosen organization and provide your idea on the appropriate warehouse design that will be suitable for the future. Justify your choice with proper reason. (2MM)
Given the nature of the products that you have selected for your chosen organization, what is the type of Inventory management control that your chosen organization should adopt? Give reasons. (2MM)
Note:
You must include at least 5 references.
Format your references using APA style.
Each answer must not be less than 300 words
Answers
Answer-
Answer-
Answer-
Answer-
Answer-
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.Chapter 1:Introduction to Operations
1-2Chapter 1 Learning Objectives•LO 1.1 Define operations and supply chain management.•LO 1.2 Review the role of operations in the firm and the economy.•LO 1.3 Describe the five main decisions made by operations and supply chain managers.•LO 1.4 Explain the nature of cross-functional decision making with operations.•LO 1.5 Describe typical inputs and outputs of an operations transformation system.•LO 1.6 Analyze trends in operations and supply chain management.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.
1-3Definition of Operations ManagementCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.Operations management focuses on decisions for the internal production of the firm’s products or services.
1-4A Typical Supply Chain (Figure 1.1)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.
1-5Operations and Supply Chain ManagementCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.Deals with the sourcing, production, and distribution of the product or service along with managing the relationships with supply chain partners.
1-6Importance of Operations and Supply ChainCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.Providing the products and services that we use and enjoyConstantly improving both productivity and innovationSustaining our way of life while working to protect the planetCreating revenue from products & services to drive firm profitability
1-7Role of Operations in the EconomyCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.Gross Domestic Product (GDP) – monetary value of all goods and services produced in a country.Productivity – value of goods/services output, relative to input.Productivity = output capital + labor
1-8Productivity ExampleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.A retail (quick) clinic has the following output (revenue) and labor expenses. Did productivity improve from Year 1 to Year 2? (assume equivalent capital costs)AnnualYear 1Year 2InflationOutput (revenue) $thousands $842 $883 2%Labor $thousands $280 $292 4%
1-9Productivity Example – SolutionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.A retail (quick) clinic has the following output (revenue) and labor expenses. Did productivity improve from Year 1 to Year 2? (assume equivalent capital costs)Productivity year 1 = Output year 1 = 842 = 3.01 Labor year 1 280Productivity year 2 = Output year 2 = 883(.98) = 3.09 Labor year 2 292(.96)Change in productivity = 3.09 = 1.027 which is a 2.7% increase 3.01
1-10Why Study Operations Management? Challenging and interesting career opportunities – domestic, international Cross-functional nature of decisions – what every major needs to know Principles of process thinking can be applied across the organizationCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.ammentorp/123RF
1-11Careers in Operations and Supply Chain ManagementCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.Supply Chain AnalystSupply Chain AnalyticsPlant Lead on SustainabilitySourcing SpecialistGlobal Sourcing AnalystTransportation PlannerRisk ConsultantCustoms SpecialistNetPics/Alamy Stock Photo
1-123 Aspects of Operations and Supply Chain ManagementDecisions: The operations manager must decide:•Process, quality, capacity, inventory, and supply chainFunction: Major functional areas in organizations:•Operations, marketing, financeProcess: Planning and controlling the transformation process and its interfaces (internal/external)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.
1-13Let’s Manage Operations at Pizza USA!COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.Managing operations is about making decisions.Steve Mason/Getty Images
1-14Major Decisions at Pizza USA Process◦How should we produce pizzas? Quality◦How do we meet quality standards and ensure a good customer experience? Capacity◦How much output do we need at various times? Inventory◦Which ingredients, when & how much? Supply Chain◦How to source inputs and manage logistics?COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.
1-15Framework for Operations Decisions (Figure 1.2)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.
1-16Cross-Functional Decision Making Operations is critical in every firm. Marketing = create demand Operations = produce and distribute goods and services Finance = acquire and allocate capital Supporting functions: human resources, information systems, accounting Cross-functional decision making – see Table 1.2COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.
1-17Operations as a ProcessCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.Transformation(Conversion)ProcessInputsOutputs
1-18Operations as a Process (Figure 1.3)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.Transformation(Conversion)ProcessEnergyMaterialsLaborCapitalInformationGoods orServicesFeedback information forcontrol of process inputsand process technology
1-19Transformation Process Examples (Table 1.3)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.
1-20Trends in Operations and Supply Chain Management ▪ Sustainability – triple bottom line ▪ Services ▪ Digital Technologies ▪ Integration of Decisions Internally and Externally ▪ Globalization of Operations and the Supply ChainCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.StreetVJ/Shutterstock
1-21Chapter 1 SummaryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.•LO 1.1 Define operations and supply chain management.•LO 1.2 Review the role of operations in the firm and the economy.•LO 1.3 Describe the five main decisions made by operations and supply chain managers.•LO 1.4 Explain the nature of cross-functional decision making with operations.•LO 1.5 Describe typical inputs and outputs of an operations transformation system.•LO 1.6 Analyze trends in operations and supply chain management.
1-22Questions for DiscussionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.•What do you hope to learn in this course?•Review the operations and supply chain trends on slide 1-20. Which of these is most interesting to you and why?•What production systems have you seen in person? How do they produce the intended product or service?•Describe a transformation process that you recently experienced. Think about a medical or dental clinic visit, or a restaurant visit.•Why are global factors important in operations and supply chain?•How is operations and supply chain related to environmental responsibility?
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.Chapter 2:Operations and Supply Chain Strategy McGraw-Hill Education
2-24Chapter 2 Learning ObjectivesLO 2.1 Define operations strategy.LO 2.2 Describe the elements of operations strategy and alignment with business and other functional strategies.LO 2.3 Differentiate the ways to compete with operations objectives.LO 2.4 Compare product imitator and innovator strategies.LO 2.5 Explain the nature of global operations and supply chains.LO 2.6 Analyze two types of supply chain strategies.LO 2.7 Illustrate how operations and supply chain can become more sustainable.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.
2-25Operations Strategy“A consistent pattern of business decisions for operations and the associated supply chain …… that are linked to the business strategy and other functional strategies, leading to a competitive advantage for the firm.”COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.The operations strategy at Southwest Airlines includes using only one type of airplane. This lowers staff training and maintenance costs, and reduces on hand spare parts. These decisions support the business strategy of being a low cost carrier.Markus Mainka/123RF
2-26Operations Strategy Process (Figure 2.1)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.MissionObjectives: (cost, quality, delivery, flexibility, sustainability)Strategic Decisions: (process, quality, capacity, inventory, supply chain)DistinctiveCompetenceOperations StrategyFunctional strategies inmarketing, finance,engineering, human resources, andinformation systemsCorporate strategy
2-27Operations Strategic Objectives Cost – resources used Quality – conformance to customer expectations Delivery – quickly and on time Flexibility – ability to rapidly change operations Sustainability – environmental, social, economicCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.What trade-offs exist among the objectives?How do firms use these objectives to gain competitive advantage?
2-28Examples of Important Strategic Decisions in Operations (Table 2.2)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.
2-29Distinctive CompetenceCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.This operations capability is something an organization does better than any competing organization that adds value for the customer.Examples: •patents, proprietary technology, operations innovations
2-30Linking Operations to Business Strategy Business strategy alternatives◦Product Imitator◦Operations must focus on keeping costs low. ◦Product Innovator◦Operations must maintain flexibility in processes, labor, and suppliers. Customer perspective◦Order Qualifier◦Objective that must be delivered at an acceptable level for customer to consider product/service. Can be an order loser if not met.◦Order Winner◦Objective that causes customer to choose a particular product/service.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.
2-31Linking Operations to Business Strategy◦Product Imitator◦Order Winner = price (low cost)◦Order Qualifiers = flexibility, quality, delivery◦Product Innovator◦Order Winner = flexibility (rapid introduction of new products)◦Order Qualifiers = cost, delivery, quality COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.
2-32Example:McDonald’s Operations Strategy Mission fast product/service, consistent quality, low cost, clean/friendly environment Operations Objectives cost, quality, service Strategic Decisions process, quality, capacity, inventory, supply chain Distinctive Competence today: continuous improvement of the transformation system, and brand (originally: unique service/supply chain)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.
2-33Characteristics of “Global Corporations” Facilities located worldwide, not country by country. Products & services can be shifted among countries. Sourcing on a global basis. Supply chain is global in nature. Product design & process technology are global. Products/service fit global tastes. Demand is considered on worldwide basis. Logistics & inventory control is on worldwide basis.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.
2-34Supply Chain Strategy To achieve competitive advantage for entire supply chain, rather than individual entities. Two supply chain strategies:◦Imitative Products (e.g. commodities)◦Predictable demand◦Efficient, low-cost supply chain◦Innovative Products (e.g. new technologies)◦Unpredictable demand◦Flexible, fast supply chain Firms design supply chain for each product/service or group of products/services◦Avoid “one size fits all” strategyCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.
2-35Supply Chain Strategy (Table 2.4)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.
2-36Sustainability is in OperationsOperations Sustainability: * minimizing or eliminating environmental impact of operations* social and financial viability of the firm for future generationsOperations ‘greening’ may include:◦Curtailing air, water, landfill pollution◦Reducing energy consumption◦Minimizing transportation and total carbon footprint◦Working with suppliers to use recyclable and biodegradable packaging◦Incorporating product reuse, end-of-life return, recyclingCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.British retailer Marks & Spencer has met goals to send zero waste to landfills and is the first major retailer to be carbon neutral. Supply chain partners have been an important source of support for this effort. TEA/123RF
2-38Chapter 2 SummaryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.LO 2.1 Define operations strategy.LO 2.2 Describe the elements of operations strategy and alignment with business and other functional strategies.LO 2.3 Differentiate the ways to compete with operations objectives.LO 2.4 Compare product imitator and innovator strategies.LO 2.5 Explain the nature of global operations and supply chains.LO 2.6 Analyze two types of supply chain strategies.LO 2.7 Illustrate how operations and supply chain can become more sustainable.
2-39Questions for DiscussionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.•Describe operations strategy in your own words.•What is the relationship between a firm’s business strategy and its operations strategy?•Think of examples of manufacturing and service firms that pursue the operations objectives of cost, quality, delivery, flexibility, sustainability. •How do Apple’s operations and supply chain characteristics support their product innovator strategy?•What are some operations or supply chain challenges facing global corporations?•Describe recent examples you have seen in person or in the media that illustrate how operations is closely tied to environmental, social, and financial sustainability.
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.3-40Chapter 3:Product Design
McGraw-Hill/IrwinChapter 3 Learning ObjectivesLO 3.1 Compare the three strategies for new product introduction.LO 3.2 Describe the three phases of new product development.LO 3.3 Evaluate how concurrent engineering deals with misalignment.LO 3.4 Describe the criteria for selecting suppliers for collaboration.LO 3.5 Evaluate an example of Quality Function Deployment. LO 3.6 Explain the benefits of modular design.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.3-41
McGraw-Hill/IrwinProduct Design:Why Does Operations Care? In the past: Throw product design “over the wall” Today:◦Must be able to produce the product (design the process)◦technology◦availability of resources◦Must have the right type and amount of capacity◦Must deliver a quality product or service◦Must have right inventory at right timeCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.3-42The LEGO Group is investing over $100 millionand hiring 100 workers to redesign its product. The goal is to make the product entirely from plant or recycled materials by 2030.Milosh Kojadinovich/12RF
McGraw-Hill/IrwinStrategies for New Product Introduction Market Pull: “Make what we can sell”◦Organize resources to fulfill customer demand◦Food industry Technology Push: “Sell what we can make”◦Develop superior technologies and products◦Electronics Interfunctional View: most difficult◦Cross-functional design team – marketing, engineering, operations, finance◦Challenge to gain cooperation of all functions◦Consider existing and new marketsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.3-43
McGraw-Hill/IrwinCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.3-44
McGraw-Hill/IrwinNew Product Development Process Concept Development◦Idea generation and evaluation of alternative ideas Product Design◦Design of the physical product◦Design of the production process Pilot Production/Testing◦Testing production prototypes (e.g., 3D printing)◦Finalizing production process◦Finalizing ‘information package’ specifying product and process design detailsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.3-45Shutterstock/Gorodenkoff
McGraw-Hill/IrwinNew Product Design Process (Figure 3.2)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.3-46Pilot production/testingFinal process designPreliminary process designConcept developmentProduct design
McGraw-Hill/IrwinProduction PrototypesCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.473D Printing or Additive Manufacturing-Creates physical prototype-Allows rapid production of prototype designs-Software and hardware continue to improve-Now possible to print metal and human cells-Speeds entire product design processRobert Clark/Getty Images
McGraw-Hill/IrwinCross-Functional Product Design Sequential approach◦Functions (marketing, engineering, operations) work independently before passing work to next step. This is the ‘over the wall’ approach.◦Often results in misalignment of market needs, design, and production process. Concurrent approach ◦Also called concurrent engineering.◦Functions cooperate, work together over the same time frame.◦Cross-functional teams are common.◦Not always “best” approach (e.g. high uncertainty of market or technology).COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.3-48
McGraw-Hill/IrwinCross-Functional Product Design (Figure 3.3)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.3-49
McGraw-Hill/IrwinSupply Chain CollaborationRelationships with Customers◦Ask right questions◦Align incentives to share knowledge◦Create collaborative technology platform◦Include as advisors to design teamCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.3-50
McGraw-Hill/IrwinSupply Chain CollaborationRelationships with Suppliers◦Technical expertise◦Capabilities – cost, time, quality targets◦Capacity availability◦Low riskCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.3-51
McGraw-Hill/IrwinQuality Function Deployment (QFD)“House of Quality”Tool for coordinating and communicating between functionsHelps identify tradeoffsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.3-52Engineering Characteristics“Voice of the Engineer”Customer Attributes“Voice of the Customer”
McGraw-Hill/IrwinHouse of Quality (QFD) (Figure 3.4)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.3-53
McGraw-Hill/IrwinHOUSE OF QUALITY (QFD)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.3-54House of Quality (QFD) (Figure 3.5)
McGraw-Hill/IrwinHOUSE OF QUALITY (QFD)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.3-55QFD for Pizza USA Delivery (Figure 3.6)
McGraw-Hill/IrwinModular DesignAllows greater product variety through ‘mixing and matching’ modulesDesign, develop, and manage basic components (modules) to (re)use in multiple productsControls costs while enabling customer choiceSmall number of components creates large number of combinations, e.g., Dell notebooks, IKEA cabinetsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.3-56
McGraw-Hill/IrwinModular Design MINI Cooper’s basic model has many choices: ◦4 body colors◦3 wheel designs◦8 interior finishes◦2 engines◦11 styles The theoretical number of different cars that can be produced: 4 × 3 × 8 × 2 × 11 = 2112 COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.3-57Most automobile manufacturers use modular design. Robert Wilson/123RF
McGraw-Hill/IrwinChapter 3 SummaryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.3-58LO 3.1 Compare the three strategies for new product introduction.LO 3.2 Describe the three phases of new product development.LO 3.3 Evaluate how concurrent engineering deals with misalignment.LO 3.4 Describe the criteria for selecting suppliers for collaboration.LO 3.5 Evaluate an example of Quality Function Deployment. LO 3.6 Explain the benefits of modular design.
McGraw-Hill/IrwinQuestions for DiscussionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.59•Can you think of examples of new products that did not function well for the customers who bought them? What went wrong?•Describe what can happen if product design and process design are approached separately by different work teams.•What are the key activities in pilot production?•What do you know about 3D printing? 4D printing?!•What do marketing, finance, and HR do when they are involved in a cross-function concurrent engineering team?•How can suppliers be involved in new product development?•Can you think of products you own that include modular design elements?
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-60Chapter 4:Process SelectionMcGraw-Hill Education
Chapter 4 Learning ObjectivesLO 4.1 Contrast and compare the five types of product-flow processes.LO 4.2 Describe the differences among order fulfillment processes.LO 4.3 Explain how companies should make process selection decisions.LO 4.4 Correctly place examples of products on the product-process matrix.LO 4.5 Describe the features of focused operations.LO 4.6 Discuss the uses of mass customization and 3D printing.LO 4.7 Contrast pollution prevention, pollution control and pollution practices.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-61
Product-Flow CharacteristicsTypes of Product Flow◦Continuous process◦Assembly line◦Batch flow◦Job shop◦ProjectCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-62
Product-Flow Characteristics:Continuous ProcessHighly standardized and automatedFlexibility limitedHigh volumes of productionCommodity productsLow cost is the ‘Order Winner’Process industries (sugar, paper, oil, electricity, etc.)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-63
Assembly Line: Metal Bracket (Figure 4.1)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-65paintdrillbendTask or work stationProduct flowcut
Product-Flow Characteristics:Batch FlowProduction of batches or lotsBatches flow as a unit (set) from one work center to anotherProcess layout of work centers (by tasks)Flow is jumbled and intermittentFlexible labor and equipment (general purpose)Low to high volume, variety of productsMany types of products (furniture, dishes, boats)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-66
Batch Flow: Metal Brackets (Figure 4.2)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-67CutPaintTask or work stationProduct flowsBendDrillBatch ABatch BBatch C
Product-Flow Characteristics:Job ShopCustomized to customer orderProduction of small batches or lotsLayout/flow similar to Batch FlowFlexible labor and equipment (general purpose)Many types of made-to-order products (plastic parts, machine components, sheet metal parts, custom signs, artificial limbs, etc.)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-68
Product-Flow Characteristics:ProjectProduction of customized single productsLabor and materials brought to sitePlanning, scheduling challengesLittle automation, general purpose equipmentHighly skilled and flexible labor Unique, one of a kind products (bridges, building construction, large aircraft, etc.)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-69
Throughput Ratio: Process efficiencyCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-70TR = Total processing time for the jobTotal time in operationsX 100%Typically: 90-100% in continuous process & assembly line 10-20% in batch flow & job shop
Order Fulfillment Make-to-Stock (MTS) Make-to-Order (MTO) Assemble-to-Order (ATO)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-71
Make-to-Stock (MTS)•Produce finished goods according to production schedule•Customer buys from inventoryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-72DisadvantageInventory holding costs, slower to respond to changes in customer preferencesAdvantageFaster fulfillment of customer demand, lower cost, smooth production rate
Make-to-Stock (Figure 4.3)CustomerProduction ProductCustomer orderProductCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-73Finished goods inventoryForecast orders
MTS Performance MeasuresService level (orders filled when requested)Inventory replenishment timeInventory turnover (sales/avg. inventory)Capacity utilizationTime to fill back orderOthers, such as shrinkage rateCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-74
Make-to-Order (MTO)Start production after customer ordersNo finished goods inventoryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-75DisadvantageIntermittent production (i.e., lumpy demand pattern), slower response to customer demandAdvantageHigher flexibility to customize order; no finished goods inventory costs
Make-to-Order (Figure 4.3)CustomerProduction Product Customer orderCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-76
MTO Performance MeasuresCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-77Lead timeOrders completed on time (%)Customer request datePromise date
Assemble-to-Order (ATO)Produce parts and subassemblies (modules); complete production when customer places orderCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-78AdvantageLess finished goods inventory, faster fulfillment of customer orderDisadvantageWork-in-process inventory
Assemble-to-Order (Figure 4.3)CustomerProduction of subassemblies ProductCustomer orderCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-79Order assemblyForecast ordersHolding inventory of subassemblies
MTS and MTO ComparisonCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-80
Order Penetration Point (Figure 4.4)DistributionAssemblyFabricationRaw materialsMTO MTO ATO MTS∇———-∇ ∇ ∇COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-81
Process Selection Decisions Factors affecting process choice◦Market conditions◦Capital requirements◦Availability and cost of labor◦Technology optionsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-82Produce when?Produce how?Continuous processAssembly lineBatch flowJob shopProjectMTSMTOATO
Process Characteristics Matrix (Table 4.2)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-83
Product-Process Strategy Strategy must consider:◦Product characteristics◦Process capabilities Product life cycle: ◦Often begins in Job shop, then Batch flow, then Continuous/Assembly line. Example:◦Bread was first produced by hand in individual units in traditional bakeries. It is now produced in very large batches in modern automated bakeries.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-84
Product-Process Matrix (Figure 4.5)Low volume, low standardizationPrintingHeavyequipmentAutoassemblySugarrefineryLow volume,multiple productsHigher volumefew major productsHigh volume, highstandardization,commodity Job ShopBatchAssemblyLineContinuousNONENONEUnique, one ofa kind productProjectBuildingCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-85
Focused Operations Focused factory: Meeting one set of goals. Plant-within-a-plant (PWP): Separate products/services with differing goals by production lines/areas within the same facility. Lack of focus = attempting to meet too many goals at one plant or facility. Signs of declining focus = product/service proliferation, different volumes, different levels of standardization.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-86Example:Midwest Orthopedic Specialty Hospital (Milwaukee, WI) specializes in medical treatments on bones and joints.
Mass Customization•Strategy to produce products in lot sizes = 1, high volume.•Flexible manufacturing provides economies of scope.•Traditional mass production provides economies of scale.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-87Produce custom products using a high volume process economies of scale = low unit cost economies of scope = high variety
Forms of Mass Customization Modular production & assemble-to-order (ATO) ◦e.g., assembling modules for Dell computers Fast changeover ◦e.g., zero set-up time at Motorola Postponement of options ◦e.g. power supply for Hewlett-Packard printersCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-88
3D Printing & Additive Manufacturing Based on digital design model ◦Stored in cloud, in not warehouse! Layer plastic, metal, ceramic to build object◦Normal (real) size◦Complex shapes and spaces Uses: medical implants, aerospace, spare parts, etc.◦Complements manufacturing for special needs, rather than replacing production facilities◦Can shorten global supply chain; reduce inventoryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-89cookelma/Getty Images; Maruna Skoropadska/123RF
Environmental ConcernsTechnologies for pollution prevention.Technologies for pollution control.Infrastructure Systems for pollution practices.Other concerns•Recycling outputs•Recycled inputs•Remanufacturing COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-90
Cross-Functional Decision Making Marketing wants fast response to customer demand Finance provides funds to configure the process HR finds/creates the properly skilled workers IT serves various data requirements Accounting evolves in setting performance measuresCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-91Who has a stake in process choice?
Chapter 4 SummaryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-92LO 4.1 Contrast and compare the five types of product-flow processes.LO 4.2 Describe the differences among order fulfillment processes.LO 4.3 Explain how companies should make process selection decisions.LO 4.4 Correctly place examples of products on the product-process matrix.LO 4.5 Describe the features of focused operations.LO 4.6 Discuss the uses of mass customization and 3D printing.LO 4.7 Contrast pollution prevention, pollution control and pollution practices.
Questions for DiscussionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.4-93•In your own words, describe the advantages of each of the product flows: continuous, assembly line, batch, job shop, and project.•Let’s say you are starting a new company that manufacturers customized jewelry. What types of process equipment will you search for? What types of workforce skills will you want?•For your jewelry company, how will you decide between make-to-stock, make-to-order, and assemble-to-order?•Can you think of examples where you have seen processes that are assemble-to-order?•On the product-process matrix, why are there no firms in two of the corners?•Have you purchased any mass customized products? Try to determine how you think they were made.•What examples have you seen of organizations using pollution prevention, pollution control, or other pollution practices?
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.5-94Chapter 5:Service Process DesignMcGraw-Hill Education
Chapter 5 Learning ObjectivesLO 5.1 Differentiate the characteristics of a service organization from a manufacturing organization.LO 5. 2 Explain the elements of a service-product bundle.LO 5.3 Organize a variety of service offerings into the service delivery system matrix.LO 5.4 Describe the effect on the service delivery system of customer contact.LO 5.5 Explain service recovery and service guarantees.LO 5.6 Evaluate the role of technology in service management.LO 5.7 Appraise how globalization has affected services.LO 5.7 Define the attributes of the service-profit chain.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.5-95
The Service EconomySource: Government Accountability Office, 201915 Largest U.S. employersCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.5-962010 3 manufacturers12 services196012 manufacturers3 servicesX
The Service EconomySource: Bureau of Labor Statistics, 2019COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.5-97
Defining Service Intangibility of the offering Simultaneous production and consumption No finished goods inventory Front office vs. back office Cannot be stored/resoldCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.5-98Leonard Zhukovsky/123RF
Service-Product Bundle Service – explicit service◦what the provider does for customer Psychological benefits – implicit service◦how customer feels after service Physical goods – facilitating goods◦used during service or received by customerCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.5-99Pizza deliveryPizzaSpeed/ convenienceDelivery vehicleEnjoyment
Goods and Services Packages (Figure 5.1)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.5-100100%75%50%25%0%100%75%50%25%Self-service groceriesAutomobileInstalled carpetingFast-food restaurantGourmet restaurantAuto maintenanceHaircutConsulting servicesGoodsServices
Service Delivery System Matrix (Figure 5.2)Standard with options, usingmoderately repeatable sequence. Customer has some decision-making power.Co-routed•Stock brokerageProvider Routed•ATMStandardized with highlyrepeatable process sequence. Customer has low decision-making power.Highly customized with unique process sequence.Customer hasgreat decision-making power.Customer Routed•Estate planningMany process pathways. Jumbled flows, complex work with many exceptions.Moderate number of process pathways. Flexible flows with some dominant paths, moderate work complexity.Limited number of process pathways. Line flows, low complexity work.Service Delivery System DesignCustomer Wants and Needs in the Service PackageCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.5-101
Customer Contact Extent of interaction between service organization and customer.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.5-102Lower contact (buffered core)… “provider-routed” (standardized)…Exampleonline shoppingHigher contact (reactive system) …“customer routed” (customized)…Exampledentist appointment
Customer Contact (see Figure 5.3) Low customer contact◦Higher production efficiency◦Lower sales opportunity◦Workers with technical skills◦Focus on routing methods◦Office automationCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.5-103Balancing sales opportunity and production efficiency High customer contact◦Lower production efficiency◦Higher sales opportunity◦Workers with diagnostic skills◦Focus on client mix◦Client/worker teams
Customer-Introduced Variability Arrival ◦Uncertainty in when customers will arrive to consume a service Request ◦Uncertainty in what customers ask for in the service-product bundle Capability ◦Uncertainty in the ability of customers to participate in a service Effort ◦Uncertainty in the willingness of customers to perform appropriate actions Subjective preference ◦Uncertainty in the customer’s intangible preferences in how service is carried outCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.5-104
Service Failure / Service Recovery ◦Taking swift and appropriate action to compensate customer for a failed service.◦Fly in customer’s soup New bowl of soup plus free dessert!COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.5-105UPS recovered from a service failure by not only delivering the package, but bringing flowers, chocolates, and doggy treats as well!roberto galan/123RF
Service Guarantee Benefits to the customer◦Promise of service to be delivered◦Payout to customer if promise not delivered◦FedEx package delivery On time, or it is free! Benefits to the organization◦Focuses on customer (service promise)◦Clearly defines payout◦Improves customer loyaltyCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.5-106
Technology – Artificial Intelligence◦Routine – repetitive tasksExample: conversational phone bots provide customer service◦Analytical – problem solving and learningExample: sports data analytics for player recruiting decisions◦Intuitive – think creativelyExample: helping doctors diagnose patients◦Empathetic – respond emotionallyExample: bot Pepper welcomes and amuses Japanese bank customersCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.5-107Software and hardware programmed to exhibit human intelligenceVTT Studio/Shutterstock
Globalization: Outsourcing & Offshoring Services Outsourcing: ◦An outside firm performs service activities such as workforce recruiting, payroll management, accounting services, and call center functions.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.5-108 Offshoring:◦Export of these service activities to other countries.Advantages:•Lower costs•Focus on core competenciesDisadvantages:•Coordination costs•Loss of direct control
Service Profit Chain (Figure 5.4) Internal service quality drives… Employee satisfaction drives… Employee retention & productivity drives… External service value (to customer) drives… Customer satisfaction drives… Customer loyalty drives… Revenue growth & profitability ◦Feed investment back into internal service qualityCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.5-109
Chapter 5 SummaryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.5-110LO 5.1 Differentiate the characteristics of a service organization from a manufacturing organization.LO 5. 2 Explain the elements of a service-product bundle.LO 5.3 Organize a variety of service offerings into the service delivery system matrix.LO 5.4 Describe the effect on the service delivery system of customer contact.LO 5.5 Explain service recovery and service guarantees.LO 5.6 Evaluate the role of technology in service management.LO 5.7 Appraise how globalization has affected services.LO 5.7 Define the attributes of the service-profit chain.
Questions for DiscussionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.5-111•Which service firms do you think are among the largest of all U.S. employers?•What type of education and training are needed to fill the fastest growing occupations in the U.S.?•Define the elements in the service-product bundle for your most recent service purchase.•Can you think of examples of customer-routed, co-routed, and provider-routed services?•How do firms decide if a service should be delivered in a high contact manner or a low contact manner?•What was the outcome the last time you experienced a service failure?•What ideas do you have for using artificial intelligence in the future?
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.112Chapter 6:Process-Flow Analysis McGraw-Hill Education
Chapter 6 Learning ObjectivesLO 6.1 Describe process thinking and system boundaries. LO 6.2 Explain how the process view of business is cross-functional.LO 6.3 Construct a process flowchart for a given process.LO 6.4 Analyze a process by asking a wide variety of questions informed by the process flowchart.LO 6.5 Calculate process-flow capabilities using analytics.LO 6.6 Explain the principles of process redesign.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-113
Process Thinking All work is a process. All business functions use processes. System: Collection of interrelated elements where…Whole system > Sum of parts Apply systems thinking to business.Define system boundaries Use cross-functional teams for systems analysis.Include all affected functionsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-114
Process View of BusinessCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-115Order fulfillmentCustomer requestMarketingOperationsFinanceCEO
Process Flowcharting Creating a visual diagram to describe (represent) a transformation process Also called (or similar to):◦Process mapping◦Flow-process charting◦Service blueprinting◦Systems flowchartCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-116
Process Flowcharting Second, find ways to improve current process.◦Find repetitive operations◦Identify bottlenecks◦Describe directions and distances of flows (people, material and information)◦Reduce wasteCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-117 First, visually describe current process. Often required for certifications such as ISO9000.
Process Flowcharting1.Select a transformation process to study.2.Form a team to develop flowchart & for analysis (to improve the system).3.Specify the boundaries of transformation process.4.Identify and sequence the operational steps.5.Identify the performance metrics for the steps.- e.g., time to complete each step6.Draw the flowchart, using consistent symbols.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-118
Common Flowcharting SymbolsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-119Process: operation, activity, or taskDecision: evaluation or “IF-THEN”Flow: materials, information, customerTerminator: “START” and “END”
Example: Selecting a Supplier (Figure 6.2)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-120
Service BlueprintCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.121What is the process for selecting and altering a suit at a retail store?What activities involved each of the following?1. Customer2. Sales associate3. TailorEach needs a “swim lane”Pressmaster/Shutterstock
Symbols for Flow-Process ChartCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-122Operation: task or work activityInspection: checking product quantity or qualityTransportation: movement of material from point to pointStorage: inventory of materials awaiting next operationDelay: delay in sequence of operations
Example Picking Operations at Grocery Store Distribution Center(Figure 6.5)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-123
Questions to Ask in Process-Flow Analysis Flow: Is it balanced? Where is the bottleneck? Are all steps necessary? How jumbled is the flow? Time: How long to produce one unit? Can it be reduced? Is set-up time excessive? Is waiting time excessive? Quantity: Theoretical production amount? How easy to change? How many units actually produced? Quality: Historical defect rate? Which steps contribute to defects? Where do errors occur? Cost: How much to produce one unit? What are cost buckets for one unit? Can some cost buckets be reduced or eliminated? COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-124
Measuring Process Flows System Capacity = capacity of the most constraining resource→ The single resource with the least capacity is called the bottleneck Flow rate = minimum (Supply, Demand, Capacity) Throughput time = from when processing begins until product or service is completedCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-125
Measuring Process Flows Little’s LawI = T x RI = average number of things in the system T = average throughput timeR = average flow rate into the process◦Relates number of items in the system (I) to arrival rate (R) and throughput time (T).◦Assumes system is in a ‘steady state.’COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-126
Little’s Law Example◦People are in a line to get through security checks at a music festival. An average of 10 people per minute are processed. People spend 24 minutes in line, on average.◦What is the average number of people in line?COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-127◦I = T x R◦I = 24 x 10 → I = 240 people in line, on average◦Same problem, but an average of 4 people per minute are processed, and the average number of people in line is 240.◦What is the average time spent in line?◦T = I / R◦T = 240 / 4 → T = 60 minutes in line, on average
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-128Pizza U.S.A. example (section 6.6)ActivityMinutesWho/WhatTake the order1AssistantMake the crust3ChefPrepare and add ingredients2ChefBake the pizza24OvenCut pizza and box the order1AssistantTake payment1AssistantDetails:Assume all toppings added to every pizza.Two employees working at a time.Oven can bake up to 4 pizzas at a time.
Map the ProcessCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-129Take orderMake crustPrep/add ingredientsBake pizzaTake paymentCut/box pizzaSTARTEND1 min.3 min.2 min.24 min.1 min.1 min.
What is the Throughput Time?COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-130Throughput time = time to complete one product or servicePizza throughput time? 1 + 3 + 2 + 24 + 1 + 1 = 32 min.
What is Process Capacity?COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-131Assistant:1+1+1=3 min. per pizza, 20 pizzas per hr.Chef: 3+2=5 min. per pizza, 12 pizzas per hr.Oven: 24/4=6 min. per pizza, 10 pizzas per hr.Therefore… process capacity (flow rate) = 10 pizzas/hour3 resources
What is the Process Bottleneck?COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-132At an average process time of 6 min. per pizza… the OVEN is the slowest activity….. and that determines process capacity…. and is, therefore, the bottleneck.The process cannot produce more than the slowest activity. (flow rate = 10 pizzas/hr)
Process Redesign Identify, analyze, improve critical processes. (may cross organizational boundaries) Extreme cases: Complete process reconfiguration. (eliminating many steps) Business Process Reengineering (BPR)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-133Check the text for a successful example from Credit Suisse.
Principles of Process Redesign• Organize around outcomes, not tasks.• Have the people who do the work process their own information.Avoid handoffs, whenever possible.• Put the decision point where work is performed, and build control into the process.Make decisions at lowest possible level.• Eliminate unnecessary steps in the process.Simplify, eliminate non-value-added activities.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-134
Chapter 6 SummaryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.6-135LO 6.1 Describe process thinking and system boundaries. LO 6.2 Explain how the process view of business is cross-functional.LO 6.3 Construct a process flowchart for a given process.LO 6.4 Analyze a process by asking a wide variety of questions informed by the process flowchart.LO 6.5 Calculate process-flow capabilities using analytics.LO 6.6 Explain the principles of process redesign.
Questions for DiscussionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.136•Based on your work experience, can you define a “system” in which you have worked?•Draw a simple process map for a breakfast process such as making coffee or toast.•What sorts of “decisions” are involved in your breakfast process?•What is the bottleneck in your breakfast process?•Have a classmate review your breakfast process map and provide suggestions for improvement!•If you could redesign one of the processes on campus, which would you choose? What are some of your ideas?
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.137Chapter 7:Lean Thinking and Lean SystemsMcGraw-Hill Education
Chapter 7 Learning ObjectivesLO 7.1 Describe the origins and evolution of lean thinking.LO 7.2 Describe the five tenets of lean thinking and the seven forms of waste in a lean system.LO 7.3 Explain why a stabilized master schedule is required for smooth flow.LO 7.4 Explain how setup time, lot size, layout, and maintenance are related to lean thinking.LO 7.5 Differentiate how employees are unique in lean systems.LO 7.6 Design a Kanban system to achieve customer pull.LO 7.7 Compare lean suppliers to traditional manufacturing suppliers.LO 7.8 Explain how to implement a lean system.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-138
Evolution of Lean Toyota Production System (TPS)◦Developed in Japan following WWII (due to limited resources)◦Also known as Just-in-Time (JIT) manufacturing◦Came to U.S. in 1981 at Kawasaki motorcycle plant in Lincoln, NebraskaCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-1391990s book, “The Machine That Changed the World” by Womack, Jones & RoosPopularized a new label: Lean ProductionWalter Cicchetti/123RF
Lean Tenets Create product/service value from customer perspective◦Reduce waste – muda Identify, study, improve the value stream◦Observe the process – gemba Ensure simple, smooth, error-free flow◦Determine takt time Produce only what is pulled by customer◦Use kanbans Strive for perfection◦Hold kaizen events, 5S, 5 WhysCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-140
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-141Create Value: Seven Forms of WasteOverproduction: Producing more than the demand for customers, resulting in unnecessary inventory, handling, paperwork, and warehouse space.Waiting time: Operators and machines waiting for parts or work to arrive from suppliers or other operations. Customers waiting in line.Unnecessary transportation: Double or triple movement of materials due to poor layouts, lack of coordination, and poor workplace organization.Excess processing: Poor design or inadequate maintenance or processes, requiring additional labor or machine time.Too much inventory: Excess inventory due to large lot sizes, obsolete items, poor forecasts, or improper production planning.Unnecessary motion: Wasted movements of people or extra walking to get materials.Defects: Use of material, labor, and capacity for production of defects, sorting out bad parts, or warranty costs with customers.
Value Stream Mapping Value stream is all processing steps to complete product/service Extension of process flowcharting Includes value-adding/non-value-adding activities Requires direct observation of process – gemba “Is this step or task necessary in creating value for the customer?” Change and improve processCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-142
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-143Example: Value Stream Mapping
Ensure Flow:Inventory Hides Problems (Figure 7.2)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-144PoorqualityUnreliablesupplierMachinebreakdownInefficientlayoutBaddesignLengthysetupsWater LevelWater level indicates level of inventory in the system
Lower Inventory Level Exposes ProblemsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-145PoorqualityUnreliablesupplierMachinebreakdownInefficientlayoutBaddesignLengthysetupsWater LevelWater level indicates level of inventory in the system
Water Flows Smoothly… Once Problems ResolvedCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-146Water LevelWater level indicates level of inventory in the systemProblems addressed/solved
Customer Pull:Push versus Pull System (Figure 7.3)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.147Downstream customer signals need for good or service. Signal is sent upstream that production is needed. No upstream process is authorized to produce until customer pulls, thus minimizing inventory in the system.
Strive for Perfection: Quality in a Lean SystemCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-148Defects are waste.No inventory to cover up mistakes.System designed to expose errors; correct them at their source (so not repeated in the future).Continuous improvement of the process.Quality is essential input into lean system.
5 Whys Technique Explores cause-and-effect relationships that underlie problems (root causes) Enables root causes to be identified/resolved Example: Truck won’t start.◦Why? Battery is dead.◦Why? Alternator is not functioning.◦Why? Alternator belt is broken.◦Why? Truck was not maintained as recommended.◦Why? Truck is old; no replacement parts available.◦Solution? Find source for parts, or purchase new truck.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-149
5S Technique Organize workspace to improve employee morale, safety, efficiency. Reduces time looking for “things.”COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-150 Seiri to Sort (keep, toss) Seiton to Straighten or set in order Seiso to Shine, sweep, or clean Seiketsu to Standardize Shitsuke to Sustain (maintain)
Example: 5S TechniqueCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-151Storage of chemicals in production areaBefore•Quantities greater than needed•Difficult to see what is missing•Hard to find anythingAfter•Appropriately sized quantities•Quickly see what is missing•Easy to find anythingSource: The Lean & Chemicals Toolkit/U.S. Environmental Protection Agency
Creating FlowCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.152Stabilize master scheduleReduce setup times and lot sizesChange to cellular layout and preventative maintenanceCross-train and engage workers
Stabilize the Master Schedule Production horizon set according to demand. Production schedule repeated each day. Uniform load: level work load across workers/machines. Takt time: match supply (production rate) to demand rate . Produce planned quantity each day, and no more. These concepts are desirable, but not essential, to a lean system.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-153
Reduce Setup Time and Lot Size Reducing setup time…◦increases available capacity◦increases flexibility to meet schedule changes◦reduces inventory Setup types◦Single (single digit minutes) ◦One-touch (less then 1 min; 2-step process)◦Internal (while machine stopped)◦External (while machine operating) Lot size reduction◦Goal: single unit productionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-154
Cellular Layout (Figure 7.4)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-155•Inventory kept on shop floor close to where it is used. •Eliminates wasted transportation moving materials. •Work centers organized into group technology layout – cellular manufacturing.•U-shape ensures flow without interruption.
Engaging Workers Multifunction, cross-trained workers◦Flexibility to move to busy work centers New pay system to reflect skills variety Workers contribute individually and collaboratively ◦Perform own maintenance and inspection◦Teamwork, problem solving◦Suggestion systemsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-156
Pull:Kanban SystemSignals the need for more partsUses simple cards or signals to control production and inventoryEach work center receives production order (signal or card) from succeeding (downstream) work centerPrevents buildup of inventoryReduces lead time Same concept applies to receiving deliveries from suppliers (supplier must wait for signal)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-157
Kanban System (Figure 7.5)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-158
Kanban System Kanban: “marker” (card, sign, empty container) Visual control system of cards and containers, or other signal.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-159D = Demand rate (at work center)T = Time for container to complete circuitC = Container size (# units)Number of containers:CDTn
Kanban Containers – ExampleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.160Demand at work center B is 5 parts per minute and a standard container holds 50 parts. It takes 90 minutes for a container to make a complete circuit through work center A and work center B (and back to A), including all setup, run, move, and wait times. The number of containers needed: n = 5(90) / 50 = 9 containersThe maximum inventory in the production system, a useful measure of how lean the system is:Maximum inventory = nC = DT = (9 × 50) = (5 × 90)
Supplier Relationships COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED. Viewed as the ‘external factory’ Co-location, frequent deliveries Fewer suppliers No inspection—high quality is assumed (required) Integrated supplier programsEarly supplier selectionFamily-of-parts sourcingLong-term strategic relationshipReduce paperwork and inspection7-161
Implementation: Kaizen EventEstablish a cross-functional teamDetermine what customers valueConstruct value stream mapEliminate waste (non-value-adding activities)Create smooth and error-free flowUse customer demand to pull work thru processImplement team ideas COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-162
Chapter 7 SummaryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.7-163LO 7.1 Describe the origins and evolution of lean thinking.LO 7.2 Describe the five tenets of lean thinking and the seven forms of waste in a lean system.LO 7.3 Explain why a stabilized master schedule is required for smooth flow.LO 7.4 Explain how setup time, lot size, layout, and maintenance are related to lean thinking.LO 7.5 Differentiate how employees are unique in lean systems.LO 7.6 Design a Kanban system to achieve customer pull.LO 7.7 Compare lean suppliers to traditional manufacturing suppliers.LO 7.8 Explain how to implement a lean system.
Questions for DiscussionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.164•Why did lean (Toyota Production System) work so well in Japan after World War II?•Choose one of the Japanese words from the 5 lean tenets and explain it in your own words.•Which of the 7 forms of waste can you observe at your favorite restaurants?•What does it mean to say that “inventory hides problems” in a production system?•Consider what “setup time” looks like in different industries: hospitals, quick oil change shops, restaurants, garment producing factories.•Make a mental list of how you would “5S” your own refrigerator. Then, share your ideas with classmates and compare how they approached this task.
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-165Chapter 8:Managing QualityMcGraw-Hill Education
Chapter 8 Learning ObjectivesLO 8.1 Explain quality, from a customer perspective.LO 8.2 Characterize product quality based on four dimensions.LO 8.3 Distinguish service quality from product quality based on its distinct measurement.LO 8.4 Apply the quality cycle to a product or service.LO 8.5 Explain how mistake-proofing and the supply chain are integrated with quality management planning.LO 8.6 Attribute how cost of quality is related to financial performance.LO 8.7 Recall the two key quality pioneers and their main ideas.LO 8.8 Compare and contrast ISO 9000 standards and the Baldrige Award criteria.LO 8.9 Articulate some key barriers to successful quality improvement efforts.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-166
What is Quality Management? Quality is one of the four key objectives of operations:◦cost, quality, delivery, flexibility Historical development of quality concepts◦Inspection (early 1900s)◦Statistics quality control (Shewhart – 1940s)◦Quality management (1960s)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-167Quality is now viewed as the responsibility of all functions in the organization.
Comair Flight 5191, Lexington, KYCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-168“The Comair Flight 5191 crew began the day by powering up the wrong plane. They took off down the wrong runway. The air traffic controller, working alone in violation of FAA policy, had turned his back to do other duties. Investigators are uncovering a series of mistakes before the plane crashed, killing 49 people.”Source: www.cnn.com, 2006 Quality involves the entire organization and the supply chain.
Definition of QualityCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-169Meaning:Only the customer can determine quality.Meaning:The product or service is fit for customer use.Meeting, or exceeding, customer requirements now and in the future.
Dimensions of Product QualityCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-170QUALITY
Quality of DesignDetermined before the product is producedResponsibility of cross-functional product design teamTranslates customer “wishes” into specificationsDepends on market research, design concept, product specificationsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-171
Quality of Conformance Producing a product (or service) that meets specifications Even ‘cheap’ products can have high conformance quality- May not be durable, but conformance quality is achieved if product matches the design.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-172
The “Abilities”COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-1738-173•Availability •Continuity of usefulness to customers (operational)•Reliability •Useful product/service time until failure•Mean time before failure (MTBF)•Maintainability•Restoration of product/service after failure•Mean time to repair (MTTR)UptimeAvailabilityUptimeDowntimeMTBFAvailabilityMTBFMTTR
Availability ExampleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-1748-174•A piece of medical testing equipment is typically used for 3 hours and then requires 1 hour of maintenance. → Calculate the machine’s availability.•MTBF = 3 hours•MTTR = 1 hour•Availability = 3 / (3 + 1) = .75•The machine’s average availability is 75%. UptimeAvailabilityUptimeDowntimeMTBFAvailabilityMTBFMTTR
Field Service Warranty and repair/replacement of the product after it has been sold Also called customer service, sales service, or just “service” Dimensions◦Promptness◦Competence◦Integrity COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-175
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-176Different Types of Quality (Figure 8.1)Quality of market researchQuality of conceptQuality of specificationTechnologyEmployeesManagementReliabilityMaintainabilityLogistical supportPromptnessCompetenceIntegrityQuality of designQuality of conformanceAvailabilityField serviceCustomersatisfactionFitness for use
Service Quality• Includes explicit and implicit service characteristics• Measures are perceptual/subjectiveCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-177SERVQUAL is most popular measure•Tangibles → appearance•Dependability → promised service•Responsiveness → prompt, helpful•Assurance → knowledge, courtesy•Empathy → caring, individualized
The Quality Cycle (Figure 8.2)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-178MARKETINGInterprets customer needsWorks with customer to design productInterpretation of needsCUSTOMERQuality needsNeedsOPERATIONSProduces the product or servicesQUALITY CONTROLPlans and monitors qualityProductENGINEERINGDefines design conceptPrepares specificationsDefines quality characteristicsSpecificationsCross-functional team
Quality Cycle in Mass Transit System (Figure 8.3)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-179County planningRegional planningState transportation agencyPlannerSchedulerRoutesSchedulesBudgetsMethodFacilitiesEquipmentEvaluationInspectionAuditsSurveysHearingsPublicOperations officeRiders’needs
Quality Improvement Cycle Define quality attributes on the basis of customer needs. Decide how to measure each attribute. Set quality standards. Establish appropriate tests for each standard. Find and correct causes of poor quality. Continue to make improvements.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-180
Poka-Yoke (poh-kah yoh-kay) Developed at Toyota, means ‘mistake proofing’ Design the product or process so that mistakes cannot occur or are immediately detectableCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-181Examples- In manufacturing, 2 parts are notched to only fit together one way- For consumers, snow blower requires that two hand levers be held during operation (so no hands can be in thedangerous moving parts!)
Suppliers Role in Quality Involve in product design◦Prevent design defects; help select materials Supplier certification◦Planning and control system for quality Manage rolled yield (cumulative defect rate)◦10 parts (1% defects in each)◦Rolled yield = (.99)10 = .90◦90% quality yield for final productCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-182Boeing supplier rating system:Red (Unsatisfactory)Yellow (Improvement needed)Bronze (Satisfactory)Silver (Very Good)Gold (Exceptional)
Cost of Quality◦Prevention◦Training, data management, planning◦Appraisal◦Incoming materials inspection, final inspection◦Internal failure◦Scrap, rework, downtime◦External failure◦Warranty, returns, complaintsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-183Control costsFailure costs
Cost of Quality Trade-offs (Figure 8.5)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-184100%defective100%goodCost/unitPrevention & appraisal costsInternal & external failure costs
Quality Pioneer: W. Edwards Deming 14 Management Principles Do not sacrifice quality for short-term profit Emphasis on continuous improvement PDCA Wheel◦Plan, Do, Check, Act http://www.deming.org/COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-185
Quality Pioneer: Joseph Juran Quality “Trilogy”—planning, control and improvement Solve “the vital few” quality problems Stressed quality control methods “Quality Handbook” http://www.juran.comCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-186Juran lived to age 104, shown here with author Roger Schroeder©Roger Schroeder
ISO 9000 Standards Guidelines for designing, manufacturing, selling, and servicing products. Selecting ISO 9000 certified suppliers provides some assurance that they follow accepted quality practices. Many manufacturers require supplier certification, particularly in Europe. www.iso.orgCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-187
ISO 14000 Standards Standards covering environmental management systems, environmental auditing, evaluation of environmental performance, environmental labeling, and life-cycle assessment. Helps organizations improve their environmental performance through documentation control, operational control, control of records, training, statistical techniques, and corrective and preventive actions. ISO 26000 – social responsibility ISO 31000 – risk managementCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-188
Baldrige Award Highest U.S. quality award. Promotes quality management practices and improved quality results by U.S. industry. Award criteria are the standard for “best quality practices” in U.S. Many state and other country awards modeled on award criteria.www.baldrige.govCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-189Source: United States Department of Commerce
Baldrige Criteria Categories1.Leadership2.Strategy3.Customers4.Measurement, Analysis, and Knowledge Management5.Workforce6.Operations7.ResultsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-190
Why Some Quality Improvement Efforts Fail Lack of middle and top management leadership attention Lack of funds for training and time for improvement activities “Blame the employee” rather than the system Belief in “trade-offs” (quality vs. cost) Management interference with teamwork Supplier quality problemsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-191
Chapter 8 SummaryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.8-192LO 8.1 Explain quality, from a customer perspective.LO 8.2 Characterize product quality based on four dimensions.LO 8.3 Distinguish service quality from product quality based on its distinct measurement.LO 8.4 Apply the quality cycle to a product or service.LO 8.5 Explain how mistake-proofing and the supply chain are integrated with quality management planning.LO 8.6 Attribute how cost of quality is related to financial performance.LO 8.7 Recall the two key quality pioneers and their main ideas.LO 8.8 Compare and contrast ISO 9000 standards and the Baldrige Award criteria.LO 8.9 Articulate some key barriers to successful quality improvement efforts.
Questions for DiscussionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.193•Look at a product you are carrying with you today. What design characteristics contribute to its overall quality?•Why does the customer need to define quality for a product or service?•Consider your favorite restaurant or coffee shop. What “tangible” observations contribute to your assessment of quality?•Availability of a system is never 100%! What do you think the availability of wifi on your campus is? Availability of your phone service?•Can you think of examples of poka yokes? Have you designed some of your own?•Why don’t companies spend more on prevention of quality problems?•Look up some Baldrige Award winning organizations. Are you a customer of some of these?
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-1Chapter 9:Quality Control and ImprovementMcGraw-Hill Education
Chapter 9 Learning ObjectivesLO 9.1 Describe the steps in designing a quality control system.LO 9.2 Design a process control system using control charts.LO 9.3 Define and calculate process capability.LO 9.4 Apply continuous improvement concepts using the seven quality tools.LO 9.5 Explain Six Sigma and the DMAIC process.LO 9.6 Differentiate lean and Six Sigma.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-2
Design of Quality Control SystemsBreak down production process into sub-processes and identify internal customers.Identify critical control points where inspection or measurement should take place.Use operator inspection when possible, placing responsibility for quality on workers.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-3
Design of Quality Control SystemsIdentify critical points for inspection and testing•Incoming materials and services•During processes•Finished product or serviceDecide on the type of measurement •Variables: continuous scale•Attributes: discrete count, or good/badDecide on amount of inspection to useDecide who should do inspectionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-4
Types of Measurement Variables measurementProduct/service characteristic that can be measured on a continuous scale:Length, size, weight, height, time, velocity, temperature Examples: dimensions of parts, viscosity of liquids, weight of packaged food, time to load webpage, temperature of coffee when servedCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-5Attributes measurement Product/service characteristic evaluated with a discrete choice: Good/bad, pass/fail, count of defectsExamples: laptop is defective if it fails any functional tests, bank check is/is not deposited in correct account, inspection of fabric reveals the number of defects per 100 yards
Process Quality Control Principles of Process Control:◦Every process has random variation.◦Production processes are not usually in a state of control. “State of Statistical Control” – What does it mean?◦Unnecessary variation has been eliminated.◦Remaining variation is due to random causes.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-6
Process Quality Control Assignable (special) cause variation◦Can be identified and corrected.◦Could be due to machine, worker, materials, etc. Common (random) cause variation◦Reasonable, acceptable variation.◦Within 3 standard deviations ( 3) of mean.◦Cannot be changed unless process is redesigned.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-7
Quality Control ChartCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-8xyTime →
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-9Normal Distribution on Control ChartUCLMeanLCLSamples:Assignable causes likely123
Attribute Control (3)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-10 Calculate center line = mean proportion defective across many samples Calculate upper and lower control limits9-10p-chart(1)3pppn
Variables Control (3)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-11 Calculate center line = mean of sample means Calculate upper and lower control limits Calculate center line = mean of sample ranges Calculate upper and lower control limits9-11x-chartR-chartRDLCL3RDUCL4RAx2
Quality Control Chart Example (Figure 9.2)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12
Using Quality Control Charts If an observation (data point) is outside 3 and/or a pattern is detected, the process is NOT in control. Very likely something is wrong. An assignable cause of variation may exist. This is a signal to take action to eliminate the assignable cause:◦Find it, understand its cause, fix it so it does not occur again!COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-13
Using Quality Control Charts How large should sample be?◦Large enough to detect defects◦Variables can use smaller sample sizes How frequently to sample?◦Depends on cost, production rate Process control vs. Process capability◦Is the process capable of producing to specification?◦Are the specifications appropriate?COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-14
Process Capability Index (Figure 9.3)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-15FrequencyProcess measureProcess measure
Computation of Cpk (Figure 9.4)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-16FrequencyProcess measureProcess measure
Continuous Improvement When process is not meeting customer specifications. Work on processes with strategic importance and low process capability first! Use the seven tools of quality control.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-17
Seven Tools of Quality Control COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-18
Seven Tools of Quality Control A battery manufacturer in NW Ohio, using only the seven tools of quality, decreased defectives from 7.2 per 100 to 2.6 per 100 in just 6 weeks!COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-19
Pareto Analysis (Table 9.4)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-20Note: 40% (2) of the sources cause 78.6% of the defects.
Pareto Diagram (Figure 9.6)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-21
Cause-and-Effect (fishbone, Ishikawa) Diagram (Figure 9.7)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-22LooseconnectionsWorkersMaterialconnectorsInspectionToolsContentNutsKnowledgeFatigueTrainingHoseSizeSurface defectSizeSmallLargeJudgmentMeasurementMeasuringtoolsErrorsInspectorExperienceTrainingWearAdjustmentTorqueAir pressure
Six Sigma Quality Philosophy of 3.4 defects per million. Uses project/team approach. Strategic process is selected for improvement. Cross-functional team is formed. ‘Black belt’ leader is chosen. Team uses DMAIC method (and quality tools) to find root causes and improve processes.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-23
Six Sigma ProcessProcess Improvement steps (DMAIC):1.Define- select process2.Measure- measure relevant variables3.Analyze – determine root causes and alternatives4.Improve – change process5.Control – ensure improvements not lost over timeCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-24
Lean and Six SigmaComplementary approaches to improvement◦Lean seeks to eliminate waste (non-value-added)◦Six Sigma seeks to eliminate defects◦Lean uses part-time leaders and all employees◦Six Sigma uses full-time leaders and selected employees◦Lean requires limited training◦Six Sigma requires extensive training and experts◦Lean focuses on simpler projects◦Six Sigma takes on complex projects◦Lean projects may last a week or less◦Six Sigma projects may last for monthsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-25
Chapter 9 SummaryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.9-26LO 9.1 Describe the steps in designing a quality control system.LO 9.2 Design a process control system using control charts.LO 9.3 Define and calculate process capability.LO 9.4 Apply continuous improvement concepts using the seven quality tools.LO 9.5 Explain Six Sigma and the DMAIC process.LO 9.6 Differentiate lean and Six Sigma.
Questions for DiscussionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.27•In your own words, what is quality control?•Why is quality control needed in manufacturing? In services?•How do you decide which type of control chart may be useful for a particularly situation?•Look at the seven quality tools. Brainstorm various situations in which each of the tools could be useful.•Why is Six Sigma called “Six Sigma”?•How are lean and Six Sigma the same, and how are they different?
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-28Chapter 10:ForecastingMcGraw-Hill Education
Chapter 10 Learning ObjectivesLO 10.1 Describe why forecasting is important.LO 10.2 Describe the four common methods of qualitative forecasting.LO 10.3 Use forecast analytics to calculate a moving average and exponential smoothed average.LO 10.4 Evaluate forecast accuracy using a variety of methods.LO 10.5 Carry out forecast analytics for a causal model.LO 10.6 Evaluate factors that impact forecasting method selection.LO 10.7 Describe how big data analytics are used to forecast.LO 10.8 Explain the benefits and costs of CPFR.LO 10.9 Solve advanced forecasting problems (chapter supplement).COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-29
Forecasting for Decision Making Forecasting demand for operations output◦Forecasting: what we think demand will be◦Planning: what we think demand should be◦Demand: may differ from sales Forecasts are used in all functional areas: ◦marketing, finance, human resources, etc. Forecasts are necessary for operations decision areas: ◦process design, capacity planning, inventory management, schedulingCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-30
Use of Forecasting: Marketing, Finance/Accounting, & HRCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-31
Use of Forecasting: Operations DecisionsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-32
Qualitative Forecasting Methods Major methods:◦Delphi technique◦Market surveys◦Life-cycles analogy◦Informed judgment COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-33Based on managerial judgment when there is a lack of data available.
Time-Series Analytics Demand can be decomposed into:◦Level – average◦Trend – general direction (increasing/decreasing)◦Seasonality – short term recurring cycles◦Cycle – long term business cycle◦Error – random or irregular componentCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-34
Time-Series Analytics Components of demand data:◦Level ◦Trend ◦Seasonality ◦Cycle ◦Error COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-35Snow boarding is an industry that exhibits several demand patterns. It is primarily a seasonal industry, and over many years the industry has experienced a growth trend. Random factors like snowfall cause abrupt variations in demand. Adie Bush/Getty Images
Analytics: Moving Average Assumes no trend, seasonality, or cycle Simple moving average: Weighted moving average:COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-36NDDDANtttt11……ttAF111211……NtNttttDWDWDWAF
Moving Average – ExampleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-37PeriodActual DemandForecast 110 218 329 4 – 19 Compute three period moving average for Period 4 (number of periods is forecaster’s decision)F4 = A3 = (29 + 18 + 10) / 3 = 19F5 = (actual demand for period 4 + 29 + 18) / 3
Time-Series Data (Figure 10.2)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-38Note: The forecast is smoother as the number of periods in the moving average increases.
Analytics: Exponential SmoothingCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-39 The new average is computed from the old average: The value of the smoothing constant () is a choice. It determines the extent to which the new forecast weights recent demand (smooths random variation). Αlpha (α) ranges between 0 and 1, and is usually 0.1 – 0.2.11tttADA
Simple Exponential Smoothing Forecast:F = forecast of demand D = actual demand t = time period Assumes no trend, seasonality, or cycle Note: we are adjusting Ft to get Ft+1COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-40ttttFDFF1
Exponential Smoothing – Example Sept. forecast was 15, but Sept. actual sales were 13. Use alpha (α) of 0.2. What is the October forecast? October forecast= Sept. forecast + α(Sept. actual – Sept. forecast)= 15 + 0.2(13 – 15) = 15 – 0.4 = 14.6COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-41
Time-Series Data (Figure 10.3)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-42Note: The forecast is smoother as the value of alpha (α) is reduced.
Forecast AccuracyFirms should estimate forecast accuracy:To monitor erratic demand observations or “outliers”To determine when the forecasting method is no longer tracking actual demandTo determine the parameter values that provide the forecast with the least errorCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-43
Forecast Accuracy MeasuresCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-44Cumulative sum offorecast errorsMean square errorMean absolutedeviationMean absolutepercentage errorsTracking signal
Advanced Time-Series Forecasting Adaptive exponential smoothing◦Smoothing coefficient () is varied Mathematical models◦Linear or nonlinear Box-Jenkins method◦Requires about 60 periods of past dataCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-45
Causal Forecasting Analytics Examples:◦Use population and location characteristics to forecast restaurant sales.◦Use supply chain data on inventory levels to forecast sales of new generation products such as cell phones.◦Use day of week and attendance of entertainment event at same venue to forecast expected guests at casino.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-46Cause-and-effect model, using a data set of other variables to predict demand (forecast). Steve Allen/Brand X Pictures/Jupiterimages
Causal Forecasting Model The general regression model: Other forms of causal model:◦Econometric◦Input-output◦Simulation modelsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-47
Causal Model – ExampleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-48Yt = a + b(It)F7 = 38.23 + 2.397(37.6) = 128.34 = forecast for Period 7Dt = actual sales in year tFt = forecasted salesIt = median family income (000’s)
Selecting a Forecasting Method Use or decision characteristics◦Scheduling decision? Facility expansion?◦Short range? Long range? Data availability◦Quantity and quality Data pattern◦Level? Unstable?COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-49
Big Data AnalyticsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.50Resources needed:Data•Either firm’s own or acquire from elsewhere•Quantitative (e.g. past demand) or qualitative (e.g. call center recordings)Expertise•Data scientists•Statisticians•Analysists•Technical skills needed but also understanding of industry and key challengesTools•Hardware •Software•Data storage •Tools for analysis
Big Data AnalyticsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.51Walmart collects data on more than one million customer transactions every hour.
Collaborative Planning, Forecasting, and Replenishment (CPFR) Aim is to achieve more accurate forecasts Share information across supply chain with customers and suppliers Compare forecasts If discrepancy observed, look for reason Reach a consensus forecast Works best in B2B with few customers (e.g., a manufacturer supplying a small number of large retailers)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-52
Chapter 10 SummaryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-53LO 10.1 Describe why forecasting is important.LO 10.2 Describe the four common methods of qualitative forecasting.LO 10.3 Use forecast analytics to calculate a moving average and exponential smoothed average.LO 10.4 Evaluate forecast accuracy using a variety of methods.LO 10.5 Carry out forecast analytics for a causal model.LO 10.6 Evaluate factors that impact forecasting method selection.LO 10.7 Describe how big data analytics are used to forecast.LO 10.8 Explain the benefits and costs of CPFR.LO 10.9 Solve advanced forecasting problems (chapter supplement).
Questions for DiscussionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.54•Think of examples of products and services for which demand may be fairly easy to forecast, and that may be quite difficult to forecast. •Why are all firm functional areas – finance, accounting, HR, marketing, IT – involved in forecasting?•How do qualitative forecasting methods translate “information” into quantities?•When should a firm use a weighted moving average forecast, rather than the simple moving average?•What opportunities do big data and analytics create for firms?•Define “analysis paralysis” for forecasting. How does this happen? What can management do about it?
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-55Chapter 11:Capacity PlanningMcGraw-Hill Education
Chapter 11 Learning ObjectivesLO 11.1 Define capacity and utilization.LO 11.2 Illustrate with an example a facilities strategy that considers: amount, size, timing, location and type.LO 11.3 Explain how S&OP is done.LO 11.4 Identify the demand and supply options that are available for S&OP.LO 11.5 Contrast and compare the chase and level strategies.LO 11.6 Define the various costs associated with aggregate planning.LO 11.7 Create an alternative strategy for the Hefty Beer Company example.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-56
Hierarchy of Capacity DecisionsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-57FacilitiesdecisionsAggregateplanningScheduling06121824MonthsPlanning HorizonSchedulingFacilitiesdecisionsAggregateplanning
Definition of CapacityCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-58Theoretical capacity•Labor availability and overtime•Physical assets, delayed maintenance, etc.•Can be used for short-term demand spikesEffective capacity•Used for planning•Subtracts maintenance downtime, shift breaks, absenteeism, etc.Maximum output that can be produced over a given period of time.sattapapan tratong/123RF
Capacity UtilizationActual outputCapacityCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-59x 100%Utilization =→ Utilization is seldom 100%.→ Estimates capacity usage and ‘busyness.’A production facility that builds 1000 cars during the time it can actually produce 1200 cars has utilization = 1000/1200 = 83%A doctor who is busy working for 6 hours during an 8 hour shift has utilization = 6/8 = 75%
Facilities Decisions• How much capacity is needed?• How large should each facility be?• When is the capacity needed?• Where should the facilities be located?• What type of facilities/capacity are needed?COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-60
Facilities Strategy How much? Amount of capacity◦Size of capacity cushion How large? Size of facilities◦Economies/diseconomies of scale When? Timing of facility decisions◦Preemptive, wait-and-see Where? Location of facilities◦Variety of factors to consider What type? Types of facilities◦Product-focused, market-focused, process-focused, general-purposeCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-61
Factors Affecting Facilities Strategy Predicted demand Cost of facilities Likely behavior of competitors Business strategy Global considerationsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-62
How Much? Strategies for Capacity Cushion Capacity cushion = 100% – utilization Three strategies:◦Large cushion ◦e.g., make-to-order◦Moderate cushion ◦cost of running out balanced with cost of excess capacity◦Small cushion◦e.g., make-to-stockCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-63
How Large? Selecting Facility Size Economies of scale◦Production costs are not linear◦Overhead costs spread over more units Diseconomies of scale◦Increased transportation costs◦Cost of more bureaucracy◦Increased organizational complexityCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-64
When? Timing of Facility Additions Preemptive Strategy◦Build capacity ahead of need◦Positive capacity cushion Wait-and-see Strategy◦Small or negative capacity cushion◦Lower-risk strategyCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-65
Where? Facility Location Quantitative Factors◦ROI, NPV◦Transportation, Taxes◦Lead times Qualitative Factors ◦Language, norms◦Worker and customer attitudes◦Proximity to customers, suppliers, competitorsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-66This Bacardi Rum factory supplies the entire North American market from a single distillery in Puerto Rico. Irina Moskalev/123RF
What Type? Types of Facilities Product-focused (55%) ◦One family of products/services (e.g., laptops, credit card processing) Market-focused (30%) ◦Located near sales (e.g., electricity, bakeries) Process-focused (10%) ◦Few technologies (e.g., computer chips, MRI center) General purpose (5%) ◦Several products/services (e.g., furniture, banking)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-67
Sales & Operations Planning (S&OP) Matching supply & demand over a medium time range. Time horizon of about 12 months. Aggregated demand for one or few categories of product. Demand may fluctuate or be uncertain. Possible to change both supply and demand. Variety of management objectives. Facilities are fixed (cannot be expanded or reduced) during this planning timeframe.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-68
Cross-Functional Nature of S&OP Budgeting: closely tied to aggregate plan HR: workforce availability Operations: capacity/inventory planning Accounting: cost analysis Finance: capital investments Marketing: sales planCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-69See Operations Leader box (in text) for how Hostess uses S&OP.bhofack2/Getty Images
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.70Cross-Functional Nature of S&OP (Figure 11.3)
Demand Management Pricing Advertising and promotion Backlogs or reservations (shift demand) Development of complementary offerings◦Seasonal products/service spread demand◦Lawn mower, snowblower◦Ski resort, mountain bikingCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-71Influence demand through:
Supply Management Hiring and layoff of employees Using overtime and undertime Using part-time or temporary labor Carrying inventory Outsourcing/subcontracting Cooperative arrangements ◦Share capacity during demand peaks, e.g., airlines, hotels, utilitiesCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-72Influence (control) supply through:
Aggregate Planning Strategies Level Strategy ◦Constant workforce size◦Inventory as buffer Chase Strategy ◦Vary workforce size◦Produce to meet demand◦Typical for services COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-73Travelers (insurance) uses a level strategy but meets peak demand during disasters (see Operations Leader box in text).FotoKina/Shutterstock
Aggregate Planning Costs Hiring and firing costs (Chase Strategy) Overtime and undertime costs (Chase) Subcontracting costs (Chase) Part-time labor costs (Chase) Inventory-carrying costs (Level Strategy) Cost of stockout or back order (Level)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-74$$
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.75Aggregate Planning Costs:Level WorkforceJanFebMarAprMayJuneJulyAugSeptOctNovDecTotalResources Regular workers454545454545454545454545 Overtime (%)000000000000 Units Produced4504504504504504504504504504504504505400 Sales Forecast3003003504004505006506004754754504505400 Inventory (end of month)20035045050050045025010075505050Costs Regular time$180180180180180180180180180180180180$2,160 Overtime0.00.00.00.00.00.00.00.00.00.00.00.00.0 Hire/Layoff250.00.00.00.00.00.00.00.00.00.00.025 Inventory carrying24425460605430129666363 Total Cost$229222234240240234210192189186186186$2,548Aggregate Planning – Level Strategy
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.76Aggregate Planning – Chase StrategyAggregate Planning CostsChase DemandJanFebMarAprMayJuneJulyAugSeptOctNovDecTotalResources Regular wrkers303035404550656048474545 Overtime (%)000000000000 Units produced3003003504004505006506004804704504505400 Sales Forecast3003003504004505006506004754754504505400 Inventory (end of month)505050505050505055505050Costs Regular time$120120140160180200260240192188180180$2,160 Overtime0.00.00.00.00.00.00.00.00.00.00.00.00.0 Hire/Layoff40.00.025.025.025.025.075.020.048.04.08.00.0295 Inventory carrying6.06.06.06.06.06.06.06.06.66.06.06.072.60 Total Cost$166126171191211231341266246198194186$2,527.60
Chapter 11 SummaryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.11-77LO 11.1 Define capacity and utilization.LO 11.2 Illustrate with an example a facilities strategy that considers: amount, size, timing, location and type.LO 11.3 Explain how S&OP is done.LO 11.4 Identify the demand and supply options that are available for S&OP.LO 11.5 Contrast and compare the chase and level strategies.LO 11.6 Define the various costs associated with aggregate planning.LO 11.7 Create an alternative strategy for the Hefty Beer Company example.
Questions for DiscussionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.78•Think of examples of how capacity might be measured in a variety of industries. •Consider how the hierarchy of capacity decisions may be made at your current school. What is likely included in long, medium, and short term decisions?•Describe instances when you saw a very high utilization rate and a very low utilization rate. What is driving these?•How is S&OP related to each business function? •How would demand and supply management concepts be applied in service industries such as a dental clinic, movie theater, accounting firm?•Read the Operations Leader box on Travelers (insurance). How do they use a level strategy when they face peak demand during a disaster?
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-79Chapter 12:Scheduling Operations McGraw-Hill Education
Chapter 12 Learning ObjectivesLO 12.1 Describe the concept of batch scheduling.LO 12.2 Construct a Gantt chart.LO 12.3 Create work schedules using forward and backward scheduling.LO 12.4 Explain the implications of the theory of constraints for scheduling.LO 12.5 Compare various dispatching rules.LO 12.6 Describe the important factors to consider when designing a scheduling system.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-80
Scheduling Operations Most detailed and most constrained decisions in capacity planning hierarchy Results in a time-phased plan (by hour, week) Allocation of resources (workers, machines) to tasks Trade-offs (conflicting objectives)◦High efficiency◦Low inventories◦Good customer serviceCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-81
Batch Scheduling Network of queues, as job moves from work station to work stationjob = manufacturing parts, customer, paperworkwork station = machine, room, facility, worker Customers or jobs spend most of their time at work stations waiting to be processed Typical for actual work to be 5-20% of total throughput timeCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-82
Batch SchedulingCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-83WS 1WS 2waitmovequeuemovemovewaitqueuemovemovemoveWS = work station“move” = movement of work: parts, customers, paperwork, etc.move queue process wait move…
Challenges of Batch/Job Shop Scheduling Variety of jobs processed Different routing and processing requirements of each job Number of different job orders in the facility at any one time Competition for common (constrained) resourcesCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-84
Gantt Charting Scheduling multiple jobs thru a set of work centers, minimizing completion time Machine performance measures:◦Makespan = total time to complete a set of jobs◦Machine utilization = percent of makespan time machine (or person) is used. Used to monitor progress of jobs Optimal schedule can be computationally intensive for multiple jobs/multiple machinesCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-85
Job Data for Scheduling – ExampleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-86
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-87Scheduling ExampleProcess AProcess CJob 1ACBProcess BIn what sequence should the jobs be done?Job 4Job 2Job 5Job 3
Gantt Chart for ExampleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-88
Shop Performance Measures•Machine Efficiency: Makespan or machine utilization•Customer: Delivery times of the jobs (minimizing job waiting time is complementary measure)Change the job sequence from 1, 4, 5, 2, 3 to improve efficiency and/or delivery times to the customer.Machine(s) could be added to improve both efficiency and delivery times.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-89
Conclusions about Batch Scheduling Performance is highly sequence dependent. Waiting time depends upon job interference in the schedule and available capacity. Finding optimal schedules is challenging, but good heuristics are available.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-90
Finite Capacity Scheduling Scheduling jobs onto work stations, but not exceeding the capacity of any given resource. Used to identify bottlenecks. Forward scheduling◦To determine completion date for all orders. Backward scheduling◦Work backward from due date to determine start dates for orders.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-91
Theory of Constraints (TOC) Proposed by Goldratt in book, The Goal (1983). Goal is to make money from operations. Production does not have value until it is sold! Key elements:Throughput = sales minus cost of raw materialsInventory = raw materials valueOperating expenses = cost of labor and overheadCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-92
Theory of Constraints (TOC) Constraint is anything slowing down production … a bottleneck.◦Machine or workstation◦Market◦Procurement system The bottleneck determines the capacity of the system. Implication: Operations manager should focus on bottleneck to increase capacity and throughput (and make more money).COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-93
Theory of Constraints (TOC)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.94Principles observed in organizations: ∙Companies, departments, and teams have unbalanced capacities. Annual budgets attempt to provide resources to balance capacities, but rarely succeed. ∙There is always a constraint in the system somewhere in the plant, human resources, purchasing, or sales that prevents the company from making more money. ∙One hour of capacity lost at the constraint (bottleneck) is an hour lost to the whole organization and can never be recovered. ∙An hour gained at a nonconstraint does not add to the output or profit of the organization. ∙Constraints must be managed differently than nonconstraints.
Theory of Constraints (TOC) In summary, there are four steps to eliminate constraints: 1. Identify the system constraint that prevents the company from making more money. 2. Decide how to reduce the system’s constraint, so it is no longer a constraint. 3. Subordinate everything else (other tasks, work centers, sales, purchasing or other departments) to reducing the constraint. 4. Once the constraint is eliminated, find the next constraint and start over.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-95
Priority Dispatching Rules Which job should be processed next?◦Rule for selecting the next job from the queue Common in services:◦First come, first served◦Priority rule (first-class customers first)◦Preemptive rule (most severe patient treated next) Common in manufacturing:◦Critical ratio = remaining time until due date remaining processing time◦Shortest processing time (quickest job)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-96
Planning and Control Systems What delivery date should be promised? Where is the bottleneck? When should each activity or task be started? How is on-time job completion ensured? Sometimes referred to as:◦Advanced Planning & Scheduling (APS)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-97
Chapter 12 SummaryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.12-98LO 12.1 Describe the concept of batch scheduling.LO 12.2 Construct a Gantt chart.LO 12.3 Create work schedules using forward and backward scheduling.LO 12.4 Explain the implications of the theory of constraints for scheduling.LO 12.5 Compare various dispatching rules.LO 12.6 Describe the important factors to consider when designing a scheduling system.
Questions for DiscussionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.99•Read the Operations Leader box on setting the schedule for a soccer team. What other constraints, beyond those listed, do you think may be important for scheduling a soccer team?•Make a Gantt Chart for the assignments, projects, and exams that you need to complete in this course. •Challenge! Make a Gantt Chart for your personal workload in all of your current courses.•Describe the Theory of Constraints in your own words.•Consider why bottlenecks are such a problem in both manufacturing and service operations. What happens at the bottleneck?
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-100Chapter 13:Project Planning and SchedulingMcGraw-Hill Education
Chapter 13 Learning ObjectivesLO 13.1 Explain the nature of tradeoffs among the three objectives of project management.LO 13.2 Describe the four activities included in project management.LO 13.3 Distinguish the advantages and disadvantages of a network over a Gantt chart for project scheduling.LO 13.4 Calculate the ES, EF, LS, LF for an example network.LO 13.5 Explain the significance of the critical path and slack.LO 13.6 Calculate the cost of crashing a network by one or two days.LO 13.7 Contrast and compare the use of constant-time and CPM networks.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-101
What is a Project? “A temporary endeavor undertaken to create a unique product/service/result.” – Project Mgmt Institute (PMI) Unique item or event; often a single unit. Begins and ends; not ongoing activity. Work often done on-site. Resources (materials, labor) are brought to the project.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-102
Examples of Projects•Building construction•New product introduction•Research & Development•Computer system design•Installation of equipmentCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-103•Start-up or shutdown of a plant•Manufacture of aircraft, ships, and large machines•Auditing accounts•Planning a military invasion NASA mission Fund-raising campaign Movie making Teaching a course Designing an advertising campaignPlanning for a large fund-raising gala is managed as a project. HIZIR KAYA/123RF
Objectives and TradeoffsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-104Meet performance outcomes Stay on scheduleStay on budget
Project Management Activities & DecisionsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-105PlanningSchedulingClosingControl
Planning Activities & Decisions Identify the project customer Establish the end product/service Set project objectives Estimate total resources and time required Decide on the form of project organization Make key personnel appointments Define major tasks required Establish a budgetCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-106
Scheduling Activities & Decisions Develop a detailed work-breakdown structure Estimated time required for each task Sequence tasks in proper order Develop a start/stop time for each task Develop detailed budget for each task Assign tasks to people, subcontractors, etc.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-107
Example:Work Breakdown Structure (Figure 13.1)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.108
Control Activities and Decisions Monitor actual time, cost, and performance Compare planned to actual figures Determine whether corrective action is needed Evaluate alternative corrective actions Take appropriate corrective actionsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-109
Closing Activities and DecisionsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-110 Finish all work Close contracts Pay all accounts payable Turn the project over to the owners Reassign personnel and equipment
PMI – Body of Knowledge Integration Management Scope Management Schedule Management Cost Management Quality Management Resource Management Communications Management Risk Management Procurement Management Stakeholder ManagementCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-111Project Management Institute topics to understand for certification as a Project Manager.
Scheduling Methods Gantt Chart◦Bar charts◦Does not show interdependencies of activities◦Visual & easy to understand Network Method◦Graphs or networks◦Shows precedence relations◦More complex, difficult to understand, and costly than Gantt chartsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-112
Gantt Chart Project Example (Figure 13.2)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-113
Constant-Time Networks Activity times assumed to be constant Activities represented by nodes Arrows show precedence relationships Notation used to calculate start and finish times:◦ES(a) =early start of activity A (constrained by predecessors)◦EF(a) =early finish of activity A (constrained by early start time)◦LS(a) =late start of activity A (constrained by late finish time)◦LF(a) =late finish of activity A (without delaying successors)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-114
Example: Write a Business Report (Table 13.4)ActivityDescriptionImmediatePredecessorsDurationin DaysADecide topic & scopeNone1BCollect dataA2CSearch the InternetA3DWrite the reportB and C5COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-115
Network Diagram: Write a Business Plan (Figure 13.3)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-116
Forward Pass: Write a Business Plan (Figure 13.4)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-117
Calculating ES, EF, LS, LF, Completion TimeCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-118ES (a) = 0 for the starting activitiesEF (a) = ES(a) + t(a)*ES (a) = Max [EF(all predecessors of a)]Project completion time = Max [EF(all ending activities)]* t(a) denotes the duration of activity aLF (a) = Min [LS(all successors of a)]LS (a) = LF(a) – t(a)*Forward Pass:Backward pass:
Forward and Backward Pass: Write a Business Plan (Figure 13.5)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-119
Critical Path Critical Path = longest path in the network◦All activities for which ES=LS and EF=LF◦Duration of critical path is equal to the project completion time◦Any delay on critical path delays the project (unless ‘corrective actions’ are taken)◦Critical path in example (on previous slide) is A-C-DCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-120
Slack•Slack time = time a path may be delayed without delaying the project•Paths not on the critical path have slack.•Slack = LS – ES = LF – EFCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-121
Precedence and Times for Opening a New Office (Table 13.5)ActivityDescription ImmediatePredecessorsActivityTimeComputedSlack1Lease the siteNone102Hire the workers1503Arrange for furnishings1114Install furnishings3215Arrange for phones1136Install the phones4, 5117Move into the office2, 6, 420COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-122
Network: Open a New Office (Figure 13.6)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-12311254231ES EFLS LF7261511 61 60 10 11 24 51 22 36 86 83 54 55 62 4
Critical Path Method Critical Path Method (CPM) Developed to start-up/shutdown plants. Activity times can be compressed by spending more $. Requires single time estimate for each activity. Looks at time/cost trade-offs:◦Normal activity time◦Normal cost◦Crash time◦Crash costCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-124
Time-Cost Relationship in CPM (Figure 13.8)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-125Crash costCostNormal costCrashtimeNormaltimeTime
Use of Project Management Concepts Scheduling is only part of a complete approach to project management. Trade-off between sophistication and cost of methods. Choice between constant-time, CPM or more advanced techniques. Choice of project management software packages.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-126
Example:Carlsbad Desalination PlantCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.127This plant provides fresh water to the San Diego County Water Authority. The project cost $1 billion for the plant, pipelines, and upgrades to existing facilities. A variety of project management tools were necessary to manage the long and detailed construction schedule – 2500 workers contributed 1.5 million hours.For additional details on this project, see the Operations Leader box in the textbook.Reed Kaestner/Getty Images
Chapter 13 SummaryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.13-128LO 13.1 Explain the nature of tradeoffs among the three objectives of project management.LO 13.2 Describe the four activities included in project management.LO 13.3 Distinguish the advantages and disadvantages of a network over a Gantt chart for project scheduling.LO 13.4 Calculate the ES, EF, LS, LF for an example network.LO 13.5 Explain the significance of the critical path and slack.LO 13.6 Calculate the cost of crashing a network by one or two days.LO 13.7 Contrast and compare the use of constant-time and CPM networks.
Questions for DiscussionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.129•How is taking a class similar to managing a project?•Review the example of work breakdown structure for a banquet. Define the categories for a project such as making a movie.•What are the tradeoffs between the budget and schedule for a project?•In the Project Mgmt Institute Body of Knowledge, the newest category is stakeholder management. Who are the stakeholders?•In your own words, explain the difference between early and late start times. Same for early and late finish times.•Why is the critical path important? Why is slack important?
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-130Chapter 14:Independent Demand InventoryMcGraw-Hill Education
Chapter 14 Learning ObjectivesLO 14.1 Define inventory types and the purpose of inventory.LO 14.2 Explain the costs incurred by inventory.LO 14.3 Differentiate between independent and dependent demand. LO 14.4 Calculate the economic order quantity and identify the underlying assumptions.LO 14.5 Compute the parameters for a continuous review and periodic review inventory control system.LO 14.6 Explain how continuous and periodic review systems are used in practice.LO 14.7 Describe how inventory and service level are related.LO 14.8 Define vendor managed inventory (VMI) and the ABC system.LO 14.9 Solve advanced inventory problems (chapter supplement).COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-131
Definitions Types of inventory◦Raw materials, purchased parts (RM)◦Work in process (WIP)◦Finished goods (FG)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-132InventoryA stock of materials used to facilitate production or satisfy customer demands.
Inventory Management TechnologiesCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-133Bar codingPoint of sale (POS) dataRadio-frequency identification (RFID) Target is an Operations Leader in using technology and point-of-sale (POS) data for inventory management.artzenter/Shutterstock
Materials-Flow Process (Figure 14.1)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-134
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-135Water Tank Analogy for InventorySupply RateInventory LevelDemand RateInventory Level
Purpose of InventoriesTo protect against uncertainties – demand, supply, lead times, schedule changes◦Safety stock To allow economic production and purchase ◦Cycle inventory To cover anticipated changes in demand/supply◦Anticipation inventory To provide for transit◦Pipeline inventoryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-136
Costs of Inventory (1 of 2) Item cost◦Expressed as cost per unit or SKU◦Quantity discounts possible Ordering (or setup) cost◦Paperwork, data entry, worker time for ordering◦Worker time for setup, downtime ◦Transportation costs◦Typically a fixed cost per order (or setup)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-137
Costs of Inventory (2 of 2) Carrying (or holding) cost◦Cost of capital (market rate or internal rate of return)◦Cost of storage (space, insurance, taxes)◦Cost of obsolescence, deterioration, and loss (shrinkage)◦Estimated U.S. average is 35% of SKU cost per year.◦Businesses often use cost of capital (under-estimate of true costs). Stockout cost ◦Back order costs (expressed as a fixed cost per backorder)◦Lost income◦Customer dissatisfaction; loss of future salesCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-138
Types of Demand Independent demand (this chapter)◦Finished goods, spare parts◦Demand comes from the market, independent of other items◦Requires forecasting Dependent demand (Chapter 15)◦Components/parts of the finished (parent) products◦Demand is a known function of (parent) independent demand items◦Calculate, instead of forecastCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-139
Demand Patterns (Figure 14.4)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-140A pattern plus random influences‘Lumpy’ due to production lots
Economic Order Quantity (EOQ) Answers question: “How much should we order?” Used for independent demand items. Objective is to find order quantity (Q) that minimizes total cost (TC) of managing inventory. Must calculate for each SKU. Widely used and very robust (i.e., works well in a variety of situations, even when its assumptions do not perfectly hold). COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-141
EOQ Assumptions1.Demand rate is constant, recurring, and known.2.Lead time is constant and known.3.No stockouts allowed.4.Items are ordered or produced in a lot or batch, and the lot is received all at once.5.Costs are constant:Unit cost (no quantity discounts).Carrying cost is constant per unit.Ordering (setup) cost per order.6.Item is a single product or SKU; demand not influenced by other items.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-142
EOQ Lot Size Intuition There is a trade-off between ordering frequency (i.e., order size) and the inventory level.◦Frequent orders (small lot sizes) lead to a lower average inventory level, i.e., higher total ordering costs and lower total holding costs.◦Less frequent orders (large lot sizes) lead to a higher average inventory level, i.e., lower total ordering costs and higher total holding costs.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-143
EOQ Inventory Levels (Figure 14.5)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-144
Notation in EOQ CalculationCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-145 D =Demand rate, units per year S =Cost per order or setup cost, dollars per order C =Unit cost, dollars per unit i =Carrying rate, percent of dollar value per year Q =Lot size, units TC =Sum of ordering cost & carrying cost, dollars per year
Cost Equations in EOQOrdering cost per year = SD/Q(cost per order) x (orders per year) Carrying cost per year = iCQ/2(annual carrying rate) x (unit cost) x (average inventory level) Total annual cost (TC) = SD/Q + iCQ/2(total ordering cost per year) + (total carrying cost per year)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-146
Total Cost of Inventory (Figure 14.6)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-147
EOQ FormulaAt the EOQ: ordering costs = holding costs S*(D/Q) = iC*(Q/2) EOQ =Note: Although we use annual costs, any time period can be used. Just be consistent throughout the equation! The same is true for currencies.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-14815-148
EOQ ExampleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-149Demand = 10 cases/weekS = $12/orderi = 30% per yearC = $80/case= 2*12*10*52) / (.3*80) = 22.8 cases/orderEOQ = 2SD)/iC
EOQ ExampleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-150TC = ordering cost + holding cost= SD/Q + iCQ/2 = 12*520/22.8 + .3*80*22.8/2= 273.68 + 273.60 = $547.28/yearIf ordering 22 cases/order, TC = $547.64If ordering 23 cases/order, TC = $547.30Demand = 10 cases/weekS = $12/orderi = 30% per yearC = $80/case
EOQ ExampleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-151Total cost curve is quite flat near the optimal EOQ. Order size need not be exactly the EOQ to get cost advantages. Total Inventory Cost02004006008001317212428323640Order SizeDollars
Continuous Review (Q) System Relax assumption of constant demand. Demand is assumed to be random. Check inventory position each time there is demand (i.e., continuously). If inventory position drops below Reorder point, place an order for the EOQ. Also called fixed-order-quantity or Q system. (fixed order size is EOQ)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-152
Continuous Review (Q) System (Figure 14.7)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-153R = Reorder pointQ = Order quantityL = Lead time
Continuous Review (Q) SystemCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-154Amount to order = EOQOrder when inventory position = Reorder pointReorder point is independent of EOQ!EOQ tells how much to order.Reorder point tells when to order.R = Reorder pointm = mean demand during lead times = safety stock
Service Level When demand is random, reorder point must account for desired service level (fill rate). Service level can be defined several ways:◦Probability all customer orders are filled while waiting for supply order to arrive.◦Percentage of demand filled from stock.◦Percentage of time item is on hand.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-155s = safety stockz = safety factor = standard deviation in demand during lead time
Probability Distribution of Demand over Lead Time (Figure 14.8)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-156m = mean demandR = Reorder points = safety stock
Periodic Review (P) System Review inventory position at fixed interval (P). For example, bread delivery truck visits grocery stores on same days each week. Inventory brought up to a Target level. Order quantity varies according to demand. Also called fixed-order-interval system or P system.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-157
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-158Periodic Review (P) System (Figure 14.9)T = target levelQ = order quantitiesL = lead time P = time between orders (period)
Periodic Review (P) SystemCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-159P = time between ordersT = target inventory level
P System Service LevelCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-160Safety stock must cover a longer interval: (P + L)
Service Level versus Inventory Level (Figure 14.10)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-161
Using P and Q System in Practice Use P system when orders must be placed at specified intervals. Use P systems when multiple items ordered from the same supplier (joint-replenishment). Use Q system for expensive items; P for inexpensive. P requires more safety stock (and is more likely to stockout) since the system cannot respond quickly to increased demand. Either may be more costly:P in safety stock, Q in monitoring costs.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-162
P and Q Systems at Home P system: You go to the grocery store on the same day every week. “What will we need for the next week?”•P carries more inventory and is more likely to run out since it cannot respond quickly to increases in demand.•Q system: You go to the grocery store each time you need something. “What do we need?”◦Q may require more unplanned trips to the store.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-163
Vendor Managed Inventory (VMI) Supply chain management initiative shifting responsibility for managing inventory stocks to vendors (suppliers). Vendor must have access to buyer’s demand forecast and inventory records. Managed through contractual arrangement. Supply chain partners share cost savings of collaboration.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-164See the Operations Leader box in the textbook for how P&G, maker of Tide, uses VMI to improve supply chain performance.Roberto Machado Noa/Contributor/Getty Images
ABC Inventory Classification A items: 20% of SKUs, 80% of dollars B items: 30% of SKUs, 15% of dollars C items: 50% of SKUs, 5% of dollars Three classes is arbitrary; could be any number. Percentages are approximate. Danger: ◦Dollar use may not reflect importance of a particular SKU! Some firms classify critical but low value items as A.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-166
Annual Usage of Items by Dollar Value (Table 14.4)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-167
ABC Chart for Table 14.4COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-168ABC0.0%5.0%10.0%15.0%20.0%25.0%30.0%35.0%40.0%45.0%36924110857Item No.Percent Usage0.0%20.0%40.0%60.0%80.0%100.0%120.0%Cumulative % UsagePercentage of Total Dollar UsageCumulative Percentage
Chapter 14 SummaryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.14-169LO 14.1 Define inventory types and the purpose of inventory.LO 14.2 Explain the costs incurred by inventory.LO 14.3 Differentiate between independent and dependent demand. LO 14.4 Calculate the economic order quantity and identify the underlying assumptions.LO 14.5 Compute the parameters for a continuous review and periodic review inventory control system.LO 14.6 Explain how continuous and periodic review systems are used in practice.LO 14.7 Describe how inventory and service level are related.LO 14.8 Define vendor managed inventory (VMI) and the ABC system.LO 14.9 Solve advanced inventory problems (chapter supplement).
Questions for DiscussionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.170•Why do firms have inventory?•Why are different methods used to manage independent and dependent demand inventory items?•Ordering (or setup) and carrying (or holding) costs are generally seen as tradeoffs. Explain this in your own words.•Review the assumptions of the EOQ model. Why is each of them important in this calculation?•How would you decide between using a Q system or a P system?•What inventory items have you observed being stocked by the supplier (vendor managed inventory)? •Considering ABC inventory classification, what types of raw materials do you think would be A items? B items? C items?
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-171Chapter 15:Material Requirements Planning and ERPMcGraw-Hill Education
Chapter 15 Learning ObjectivesLO 15.1 Define the elements, inputs, and outputs of an MRP system.LO 15.2 Contrast and compare MRP vs. order-point systems.LO 15.3 Construct a materials plan given the gross requirements.LO 15.4 Describe in detail each element of an MRP system.LO 15.5 Discuss DRP and different ways to deal with uncertain demand.LO 15.6 Explain the five requirements for a successful MRP system.LO 15.7 Describe what an ERP system does.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-172
Materials Requirements Planning (MRP)• Used to manage dependent demand items•Plans the timing of materials, parts•Plans the quantity of materials, parts • Based on master schedule (which is driven by S&OP)• Parts explosion breaks end (parent) items into requirements for materials, parts based on bill of materials (BOM)• Schedule is offset based on lead times• Push system based on meeting the master scheduleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-173
Firm orders fromCustomersSister plantsStock replenishmentEngineering design changesBill of materialsForecast of demandPurchase ordersSuppliersMRP parts explosionCapacity planningShop ordersShop-floor controlMaster scheduleS&OPOperationsProductRaw materialsInventory recordsInv. transactionsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-174Closed Loop MRP System (Figure 15.1)
Comparison of MRP & Order-Point SystemsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-175
MRP Elements Inputs1.Master schedule2.Bill of materials (BOM)3.Inventory records Outputs1.Capacity planning 2.Purchasing3.Shop-floor controlCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-1763M implemented two applications, JDA Factory Planner and JDA Supply Chain Planner, across all factories in Canada.
MRP ExampleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-177TopLegLong railShort rail
Bill of Materials (BOM)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-178Short rails (2)1 weekTable (end item)1 weekLong rails (2)1 weekLegs (4)1 weekTop (1)2 weeksLeg assembly (1)1 week
Indented BOMLevel CodeComponent0Table (end-item)1Leg assembly (1)2Short rails (2)2Long rails (2)2Legs (4)1Top(1)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-179
Materials plan for BOM Levels 0 and 1 COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-180 Week 123456 TablesOn hand = 50 Gross Requirement200150100LT = 1 wk Scheduled ReceiptsLot size: L4L Projected Ending Inventory50Saftey Stock = 0 Net Requirement Planned order receipts Planned order releases TopsOn hand = 50 Gross RequirementLT = 2 wk Scheduled Receipts50Lot size: L4L Projected Ending Inventory50Saftey Stock = 0 Net Requirement Planned order receipts Planned order releases Leg AssemblyOn hand = 100 Gross RequirementLT = 1 wk Scheduled ReceiptsLot size: L4L Projected Ending Inventory100Saftey Stock = 0 Net Requirement Planned order receipts Planned order releases
Materials plan for BOM Levels 0 and 1 COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-181 Week 123456 TablesOn hand = 50 Gross Requirement200150100LT = 1 wk Scheduled ReceiptsLot size: L4L Projected Ending Inventory505050Saftey Stock = 0 Net Requirement150150100 Planned order receipts150150100 Planned order releases150150100 TopsOn hand = 50 Gross Requirement150150100LT = 2 wk Scheduled Receipts50Lot size: L4L Projected Ending Inventory50100Saftey Stock = 0 Net Requirement50150100 Planned order receipts50150100 Planned order releases50150100 Leg AssemblyOn hand = 100 Gross Requirement150150100LT = 1 wk Scheduled ReceiptsLot size: L4L Projected Ending Inventory100100Saftey Stock = 0 Net Requirement50150100 Planned order receipts50150100 Planned order releases50150100
Materials Plan (previous slide) Gross requirements in level 0 (Tables) come from the master schedule. Gross requirements in level 1 (Tops, Leg assemblies) come from the planned order releases in level 0. Planned order releases are offset by the lead times. Planned order releases are planned! Actual order releases must take available capacity into account. Net requirements are the gross requirements minus the projected ending inventory.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-182
MRP System Elements:Master Schedule Quantities are derived from the aggregate production plan (product families). Schedule should be frozen within production lead time (so all parts can be obtained). Quantities reflect “build” (produce) schedule rather than demand forecasts. Quantities represent what needs to be produced (infinite capacity assumed).COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-183
MRP System Elements:Bill of Materials (BOM) Structured list of all parts and materials. Must be 100 percent accurate. Should be one BOM per product per company. Engineering-change-order (ECO) system used to update BOM as product redesigned.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-184
MRP System Elements:Inventory Records Item master data segment◦Constant info (part number, cost, etc.) Inventory status segment◦Materials plan for each item Subsidiary data segment◦Info on outstanding orders, demand history, etc. Records must be accurate◦Cycle counting: physical count of a few items each day, so that all items are counted on a regular cycleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-185Alistair Berg/Digital Vision/Getty Images
MRP System Elements:Capacity Planning Purpose is to aid management in checking validity of master schedule◦Is there enough capacity to produce as scheduled? Two methods◦Shop loading: assign work to work centers◦Finite capacity scheduling: considers resource limitationsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-186
MRP System Elements:Purchasingo MRP system generates orderso Past due orders mostly eliminatedo Order expediting mostly eliminatedo Can provide suppliers with reports of planned future orderso Can use electronic data interchange (EDI) to communicate directly with suppliersCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-187
MRP System Elements:Shop Floor Control Purposes:◦Release orders to the shop floor◦Manage the orders for on-time completion◦Can use manufacturing execution system (MES) Set job priorities (dispatching rules) Manage lead times on basis of priority◦Expedite and de-expedite orders Minimize inventory while meeting completion datesCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-188
Operating an MRP System Should MRP carry safety stock? How much safety stock should be carried? Safety lead time, safety capacity Expand downstream in supply chain:◦ Distribution Requirements Planning (DRP) Use upstream to give suppliers visibility into schedule.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-189
Successful MRP System1.Implementation planning2.Appropriate and adequate IT support3.Accurate data4.Management support5.User knowledge (all levels of firm)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-190
MRP in Services COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.191MRP systems can be used for services too. In renovating hotel rooms, Marriott develops a bill of materials and a bill of labor for each room type and then “explodes” the bill throughout the hotel facility to summarize its furniture and decorating needs. Onoky/SuperStock
Enterprise Resource Planning (ERP) Systems Extension and integration of all functions through shared data systems.Forces standardized systems throughout firm:Accounting controls systemsMarketing and sales transactionsHuman resource planning and payroll transactions Coordinate decisions along the supply chain. Major software vendors: SAP, OracleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-192
ERP System ExampleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.193Global giant LG Electronics has 114 subsidiaries and more than 82,000 employees across 40 countries. Data management challenges made it difficult for LG to operate as a global company in the past. Their ERP solution supports the following benefits: centrally managed systems, process transparency, sharing best practices, and real-time reporting for upper management for informed decision making. Kobby Dagan/123RF
Chapter 15 SummaryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.15-194LO 15.1 Define the elements, inputs, and outputs of an MRP system.LO 15.2 Contrast and compare MRP vs. order-point systems.LO 15.3 Construct a materials plan given the gross requirements.LO 15.4 Describe in detail each element of an MRP system.LO 15.5 Discuss DRP and different ways to deal with uncertain demand.LO 15.6 Explain the five requirements for a successful MRP system.LO 15.7 Describe what an ERP system does.
Questions for DiscussionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.195•In your own words, what is the purpose of an MRP system?•What information is provided by each of the “inputs” into an MRP system? (Figure 15.1 in the textbook shows these inputs.)•Why is inventory management so different for dependent demand items?•Consider a simple product that you have handy (pen, backpack, etc.). Draw a basic bill of materials for this item.•Describe each of these: safety stock, safety lead time, and safety capacity.•How are ERP systems different from MRP systems?
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.16-196Chapter 16:Supply Chain ManagementMcGraw-Hill Education
Chapter 16 Learning ObjectivesLO 16.1 Define supply chain and supply chain management.LO 16.2 Review key measures of supply chain performance.LO 16.3 Explain the bullwhip effect and how it can be reduced.LO 16.4 Contrast structural and systems improvements.LO 16.5 Evaluate the effect of technology on the supply chain.LO 16.6 Define supply chain risk, resilience, and how risk can be managed.LO 16.7 Describe supply chain sustainability.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.16-197
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.16-198A SUPPLY CHAIN is the set of entities and relationships that cumulatively define material and information flows both downstream toward the customer and upstream toward the very first supplier.“Supply chain management is the design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer.”–Institute for Supply Management
Typical Supply Chain (Figure 1.1)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.16-199
Supply Chain – Focal Firm PerspectiveCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.16-200Focal Firm1st-tiersuppliers2nd-tiersuppliers3rd-tiersuppliersDistribution centers & warehousesRetailersPhysical SupplyPhysical DistributionDownstream or Forward Materials and Information FlowUpstream or Backward Materials and Information Flow
Suppliers’SupplierSupplierPlanCustomerCustomer’sCustomerMakeDeliverSourceMakeDeliverMakeSourceDeliverSourceDeliverInternal or ExternalInternal or ExternalYour CompanySourceReturnReturnReturnReturnReturnReturnReturnReturnSCOR model = Supply Chain Operations Reference COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.16-201
The Five SCOR functions PlanCoordinate the other functions. SourceBring inputs into the transformation process from other organizations. MakeThe operations function responsible for making the product or service. DeliverThe logistics function responsible for the movement and storage of goods across organizations in a supply chain. ReturnReturn and recycle inputs or products in the supply chain.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.16-202
Supply Chain Performance Measures Throughput time Also called cycle time. Sum of throughput time in each supply chain entity (org). Cash-to-cash cycle time Time it takes to get paid, once product is sold. = Days in inventory + days in accounts receivable – days in accounts payable Total delivered cost Unit cost = total manufacturing cost, including materials, labor, and overhead, divided by the number of units produced. Supply chain cost = sum of cost of materials and components from suppliers, cost to fabricate and assemble, cost to ship materials and work-in-progress between firms, and cost to ship finished-goods inventory to customer. COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.16-203
Measure: Throughput Time ExampleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.204SupplierFactoryWholesaleRetailInventory days1030155Accounts receivable days25253010Accounts payable days30402015Sourcing unit cost$25$40$70$90Added unit cost$5$20$5$20Sales unit price$40$70$90$120Q: Calculate the total supply chain throughput time.A: 10 + 30 + 15 + 5 = 60 days
Measure: Cash-to-Cash Cycle Time ExampleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.205SupplierFactoryWholesaleRetailInventory days1030155Accounts receivable days25253010Accounts payable days30402015Sourcing unit cost$25$40$70$90Added unit cost$5$20$5$20Sales unit price$40$70$90$120Q: Compute the cash-to-cash cycle time for each supply chain entity.A:Supplier = 10 + 25 – 30 = 5 daysWholesale = 15 + 30 – 20 = 25 days Factory = 30 + 25 – 40 = 15 daysRetail = 5 + 10 – 15 = 0 days
Measure:Total Delivered Cost ExampleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.206SupplierFactoryWholesaleRetailInventory days1030155Accounts receivable days25253010Accounts payable days30402015Sourcing unit cost$25$40$70$90Added unit cost$5$20$5$20Sales unit price$40$70$90$120Q: Compute the total delivered cost in the supply chain.A: $25 + 5 + 20 + 5 + 20 = $75Note, we start with the sourcing cost (unit + added) and then just sum the added cost at each stage. This calculation takes out all the profit at each stage.
Dynamics: Bullwhip Effect Supply chain is a highly interactive system. Decisions in each part of the chain affect the other entities. Accelerator (bullwhip) effect: Increased variability in upstream orders, resulting in more inventory upstream. Even with perfect information, replenishment lead times lead to accelerator effect. Improve supply chain by reducing total replenishment time, share real demand information with all entities.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.16-207
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.208Bullwhip Effect (Figure 16.2) The farther away a supply chain entity is, the greater is the variability of orders it places. The same pattern of upstream magnification of order variability also describes inventory levels and stockouts across the four entities in this supply chain.
Improving Supply Chain Performance◦Change structure◦Decisions that involve investments in bricks and mortar (facilities, new products, technology, etc.)◦Change systems◦Decisions that involve people, process flow and information systemsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.16-209Requires “coordination” within and across firms.
Structural Improvements Forward and backward integration Major process simplification Supply base reduction Outsourcing, offshoring Major product redesign◦Postponement, modularityCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.16-210
System Improvements Cross-functional teams and partnerships with suppliers and customers to increase coordination. Lean systems for producers, suppliers and distribution Integrated information systems, downstream and upstreamCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.16-211
Technology and Supply Chain Management Growth of e-commerce◦B2B (business-to-business)◦B2C (business-to-consumer) Fundamental processes in supply chains:◦Order placement process◦Information before order (Is product available in stock?)◦Actual order entry◦Order fulfillment process◦Direct link to internal operations & suppliers Use of analytics to improve supply chainsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.16-212
Technology and Supply Chain ManagementCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.16-213E-commerce & Omni-channel“Amazon” effect – pushing other retailers online.Need seamless and error-free interactions across stores and online.Need access via smartphones, tablets, desktop computers, and laptops. BlockchainComplete, shared, secure database of all transactions in the chain as a shipment moves from factory to destination.BiTA (Blockchain in Transport Alliance) – over 200 companies using or considering blockchain.Not yet widely used.
Supply Chain Risk and Resilience Resilience is the ability to quickly respond to unexpected disruptions in supply or demand, either natural or manmade.◦Examples of disruptions: strike, recession, sudden price change, natural disaster, manufacturing failure, unexpected demand. Risk mitigation*◦Stage 1: Build resilience by creating a proactive plan◦Stage 2: Use agility to minimize damage during disruption◦Stage 3: Re-evaluate original plan during post-recovery COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.16-214* Each stage requires strategic and operational planning.
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.215Supply Chain Mitigation Framework
Analysis of Supply Chain Risk • Supply chain risk: probability of supply chain disruption. • Risk can be reduced at each node in the network.•Add inventory at the supplier node or within firm.•Use two geographically dispersed suppliers.•For a sole source, have backup second supplier.• Do not solely focus on the highest spend suppliers. Even missing supplies from small suppliers can add risk.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-216
Analysis of Supply Chain Risk (Figure 16.4) For a given damage scenario, calculate for each supplier: ◦TR = time to recover and meet full demand◦TS = maximum time supplier can meet demand during a disruption, using inventory or alternate supply sources.◦Insure that TS > TR COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-217
Supply Chain Sustainability Sustainability:meeting present needs without sacrificing the needs of future generations. Triple bottom line: environmental, social, economic 3-phase approach: 1. Set environmental, social, and financial goals. 2. Develop long-range plans to meet goals with the suppliers. 3. Implement plans throughout the firm and its supply chain.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-218
Supply Chain SustainabilityCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.10-219Unpackaged is not your typical grocery store. This London organic grocery store tells its customers to bring their own containers when they shop. Customers bring bottles, glass jars, paper bags, plastic bags, and old boxes to carry their goods home. Inside the store, grocery items are stored in barrels, buckets and bins, and black tubs. Cate Gillon/Getty Images
Chapter 16 SummaryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.16-220LO 16.1 Define supply chain and supply chain management.LO 16.2 Review key measures of supply chain performance.LO 16.3 Explain the bullwhip effect and how it can be reduced.LO 16.4 Contrast structural and systems improvements.LO 16.5 Evaluate the effect of technology on the supply chain.LO 16.6 Define supply chain risk, resilience, and how risk can be managed.LO 16.7 Describe supply chain sustainability.
Questions for DiscussionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.221•Explain why there are both downstream and upstream flows in supply chains. What are the differences?•What are each of the activities included in the SCOR model? •The chapter describes three ways to measure supply chain performance. What other ways could performance be measured?•Describe the bullwhip effect in your own words.•Look for examples of forward and backward integration. Why did these firms choose to extend their control of their supply chain?•Have you personally experience supply chain disruptions? Where?•Supply chains play an important role in sustainability. How can supply chains have more positive impact on the triple bottom line?
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-222Chapter 18:LogisticsMcGraw-Hill Education
Chapter 18 Learning ObjectivesCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-223LO 18.1 Define the scope and purpose of logistics.LO 18.2 Explain transportation economics.LO 18.3 Compare the advantages and disadvantages of the five modes of transportation.LO 18.4 Distinguish among the different functions of warehouses. LO 18.5 Describe how to determine the number and location of warehouses.LO 18.6 Consider when a firm should use a third-party logistics provider.LO 18.7 Define logistics strategy and explain why it is needed.
Logistics Definition Includes:◦Inbound to firm◦Outbound from firm◦Warehousing (storage)◦Network designCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-224Plans, implements, and controls the efficient, effective forward and reverse flows and storage of goods and related information between the point of origin and consumption in order to meet customer requirements.
Importance of Logistics Strategic decisions linking marketing and operations Operational decisions defining “place” and movement of goods Integration with other functions ◦Marketing to fulfill customer demand◦Information systems to link firm to suppliers and customers◦Finance for large investments in inventory, warehousingCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-225Boundary spanning activities
Critical Logistics Decisions What modes of transportation to use? What types of warehousing to use? Where should factories and warehouses be located? Should logistics be outsourced to third-party provider (3PL)? What is the strategic role of logistics in creating and supporting competitive advantage?COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-226
Transportation Economics Economies of scale◦Larger shipments cost less per pound (than smaller)◦Full truckloads cost less per pound (than partial)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-227 Economies of distance◦Longer distances cost less per pound (than shorter)◦Longer distances cost less per mile (than shorter) Economies of speed◦Regular shipping costs less per mile (than expedited)◦Regular shipping costs less per pound (than expedited)
Transportation Economics ExampleCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-228A company has three shipments of 10,000 pounds each going from different nearby cities to one retail store. The carrier charges $10 per hundredweight (cwt). If the shipments are consolidated into one truck, the carrier will take the 30,000 pounds for $7 per cwt, but charges $300 each for the two extra stops.Should the company consolidate the three shipments?Cost to ship separately in three trucks is:Cost = 10,000 ($10/100 pounds)*(3 shipments) = $1,000 * 3 = $3,000 Cost to consolidate the three shipments is:Cost = 30,000 ($7/100 pounds) + $300*(2) = $2,100 + $600 = $2,700Consolidating the shipments costs less.
Transportation ModesCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.229MultimodalIntermodalDrones??TrucksRailAirWater•Ocean•InlandPipelinemipan/123RF
Mode Use in U.S. (Figure 18.1)COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.230
Transportation Decisions (Table 18.1)ModeAdvantagesDisadvantagesTruckCan move freight quickly over long distances. Very flexible on locations. Easily linked with rail or air.More expensive for heavy and bulky freight than other modes.RailRelatively inexpensive for long distances. Can be linked with truck or ocean freight.Relatively slow.Water (inland)Low cost for moving bulk commodities. Effective when linked to multimode.Subject to proximity of waterway locations. Relatively slow.Water (ocean)Cost-effective way to ship freight in containers over long distances.Very slow.AirFast way to move freight. Flexible when linked to trucks.Very expensive.PipelineCan move bulk commodities (oil, gas, and chemicals) for long distances.Expensive to install.COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-231
Distribution Centers and WarehousingCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-232Consolidation
Distribution Centers and WarehousingCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-233Break-bulk
Distribution Centers and WarehousingCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-234Cross-docking
Other Purposes ofDistribution Centers and Warehousing Managing seasonal demand Supporting manufacturingIncoming raw materialsOutgoing finished goods Providing value-added services Handling reverse logisticsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-235
Logistics Networks – Location factors• Labor availability• Cost of labor• Cost of construction and maintenance• Cost of transportation• Taxes• Government incentives• Government regulations• Delivery time to customer• Proximity to suppliers• Highway and rail availabilityCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-236
COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-237Logistics Network (Figure 18.3)
Center of Gravity AnalyticsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-238First approximation to locate warehouses based on transportation costs and distances. Model calculates the center-of-gravity based on the distances from warehouses to customers.
Center of Gravity – Example COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-239CustomerX coordinateY CoordinateDemand (lbs)A10105000B20257500C25356000XCG = 10(5000) + 20(7500) + 25(6000) = 18.9 5000 + 7500 + 6000YCG = 10(5000) + 25(7500) + 35(6000) = 24.2 5000 + 7500 + 6000
Center of Gravity – Example COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.240The center of gravity is a logical location for a warehouse to serve Customers A, B, and C.
Number of Warehouses (Figure 18.4) COPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-241
Global LogisticsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.242Complex transportation, usually multimodalComplex information transfer: exporters, importers, freight forwarders, clearing agents, ocean shipping lines, freight companies, intermodal operators, banks, and insurance companies ilfede/123RF
Global LogisticsCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.243
Third-Party Logistics (3PL)• Transportation services• Warehousing services• Inventory management services• Reverse logistics services• Access to logistics expertise• Enhanced flexibility to changing markets/technology• Lower cost than insourcing• Humanitarian aidCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-244Ryder is a major player in 3PL to more than 50,000 business customers, using their 5900 technicians, 7700 drivers, and 800 facilities. Ryder is a 3PL provider to Cisco, helping them keep their warranty promise on 1.5 million parts every year. John Crowe/Alamy Stock Photo
Logistics Strategy Determine objectives◦Cost, delivery, service quality, flexibility Ownership vs. outsourcing logistics function Transportation modes Warehousing network◦Number and location of facilitiesCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-245
Chapter 18 SummaryCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.18-246LO 18.1 Define the scope and purpose of logistics.LO 18.2 Explain transportation economics.LO 18.3 Compare the advantages and disadvantages of the five modes of transportation.LO 18.4 Distinguish among the different functions of warehouses. LO 18.5 Describe how to determine the number and location of warehouses.LO 18.6 Consider when a firm should use a third-party logistics provider.LO 18.7 Define logistics strategy and explain why it is needed.
Questions for DiscussionCOPYRIGHT © 2022 BY THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED.247•Describe different types of logistics that you have personally observed. Where did you see them? What were they doing?•How does a firm choose its modes of transportation to move its goods?•When would a firm use these various types of warehouses: consolidation, break-bulk, cross-docking?•When is reverse logistics used? How does it work?•In your own words, what is a logistics network?•Beyond knowing the ‘center of gravity’ in a network, what other factors should be considered when choosing a warehouse location?•What types of services are carried out by third-party logistics (3PL) providers?