Operations and Supply Chain Management Introduction PDF

CHAPTER 1 As in entertainment. OPERATIONS AND SUPPLY CHAIN MANAGEMENT INTRODUCTION Informational: As in communication. What is Operations Management? Design, operation, and improvement...

CHAPTER 1 As in entertainment. OPERATIONS AND SUPPLY CHAIN MANAGEMENT INTRODUCTION Informational: As in communication. What is Operations Management? Design, operation, and improvement of productive systems. What is Operations? A function or system that transforms inputs into outputs of greater value. What is a Transformation Process? A series of activities along a value chain extending from supplier to customer. Activities that do not add value are How is Operations Relevant to my superfluous and should be Major? eliminated. Accounting ○ "As an auditor, you must understand the fundamentals Physical: of operations management." Information Technology As in manufacturing operations. ○ "IT is a tool, and there’s no Locational: better place to apply it than in operations." As in transportation or warehouse Management operations. ○ "We use so many things you learn in an operations Exchange: class—scheduling, lean production, theory of As in retail operations. constraints, and tons of Physiological: quality tools." As in health care. Psychological: 1  2 How is Operations Relevant to my ○ Systematic analysis of work Major? (cont.) methods. Mass production: Economics ○ High-volume production of a ○ "It’s all about processes. I standardized product for a live by flowcharts and Pareto mass market. analysis." Lean production: Marketing ○ Adaptation of mass ○ "How can you do a good job production that prizes quality marketing a product if you’re and flexibility. unsure of its quality or delivery status?" Finance ○ "Most of our capital HISTORICAL EVENTS IN budgeting requests are from OPERATIONS MANAGEMENT operations, and most of our cost savings, too." Era: Industrial Revolution Steam engine – 1769 – James Watt Evolution of Operations and Supply Division of labor – 1776 – Adam Chain Management Smith Interchangeable parts – 1790 – Eli Craft production: Whitney ○ Process of handcrafting products or services for individual customers. Division of labor: Era: Scientific Management ○ Dividing a job into a series of small tasks, each performed Principles of scientific by a different worker. management – 1911 – Frederick Interchangeable parts: W. Taylor ○ Standardization of parts Time and motion studies – 1911 – initially as replacement parts; Frank and Lillian Gilbreth enabled mass production. Activity scheduling chart – 1912 – Henry Gantt Moving assembly line – 1913 – Henry Ford Evolution of Operations and Supply Chain Management (cont.) Scientific management: Era: Human Relations 2  3 Hawthorne studies – 1930 – Elton Internet, WWW, ERP, supply Mayo chain management – 1990s – Motivation theories: ARPANET, Tim Berners-Lee, ○ 1940s – Abraham Maslow SAP, i2 Technologies, ORACLE ○ 1950s – Frederick Herzberg E-commerce – 2000s – Amazon, ○ 1960s – Douglas McGregor Yahoo, eBay, Google, and others Era: Operations Research Era: Globalization Linear programming – 1947 – WTO, European Union, and other George Dantzig trade agreements, global supply Digital computer – 1951 – chains, outsourcing, BPO, Services Remington Rand Science Simulation, waiting line theory, ○ 1990s, 2000s – Numerous decision theory, PERT/CPM – countries and companies 1950s – Operations research groups MRP, EDI, EFT, CIM – 1960s, 1970s – Joseph Orlicky, IBM, and SUPPLY CHAIN MANAGEMENT others Management of the flow of information, products, and services Era: Quality Revolution ○ Across a network of customers, enterprises, and JIT (just-in-time) – 1970s – Taiichi supply chain partners Ohno (Toyota) TQM (total quality management) – 1980s – W. Edwards Deming, Joseph Juran Strategy and operations – 1980s – Wickham Skinner, Robert Hayes Business process reengineering – 1990s – Michael Hammer, James Champy Six Sigma – 1990s – GE, Motorola Era: Internet Revolution 3  4 GLOBALIZATION AND COMPETITIVENESS Why “go global”? ○ Favorable cost ○ Access to international markets ○ Response to changes in demand ○ Reliable sources of supply ○ Latest trends and technologies Increased globalization PRODUCTIVITY AND ○ Results from the Internet and COMPETITIVENESS (CONT.) falling trade barriers Retrenching ○ Productivity is increasing, but PRODUCTIVITY AND both output and input decrease with input COMPETITIVENESS decreasing at a faster rate. Competitiveness Assumption that more input would ○ Degree to which a nation can cause output to increase at the produce goods and services same rate: that meet the test of ○ Certain limits to the amount international markets of output may not be Productivity considered. ○ Ratio of output to input ○ Output produced is Output emphasized, not output sold; ○ Sales made, products increased inventories. produced, customers served, meals delivered, or calls answered STRATEGY AND OPERATIONS Input ○ Labor hours, investment in Strategy equipment, material usage, or 1. Provides direction for square footage achieving a mission. Five Steps for Strategy Formulation: 1. Defining a primary task 4  5 What is the firm in POSITIONING THE FIRM: COST the business of doing? 2. Assessing core Waste elimination competencies ○ Relentlessly pursuing the What does the firm do removal of all waste. better than anyone Examination of cost structure else? ○ Looking at the entire cost 3. Determining order winners structure for reduction and order qualifiers: potential. What qualifies an Lean production item to be considered ○ Providing low costs through for purchase? disciplined operations. What wins the order? 4. Positioning the firm How will the firm POSITIONING THE FIRM: SPEED compete? 5. Deploying the strategy Fast moves, fast adaptations, tight linkages. Internet ○ Conditioned customers to STRATEGIC PLANNING expect immediate responses. Service organizations ○ Always competed on speed (e.g., McDonald’s, LensCrafters, Federal Express). Manufacturers ○ Time-based competition: build-to-order production and efficient supply chains. POSITIONING THE FIRM Fashion industry ○ Two-week design-to-rack Key Factors: lead time of Spanish retailer, ○ Cost Zara. ○ Speed ○ Quality ○ Flexibility POSITIONING THE FIRM: QUALITY 5  6 Minimizing defect rates or ○ Translates corporate strategy conforming to design specifications into measurable objectives. to please the customer. Hoshins Ritz-Carlton ○ Action plans generated from ○ One customer at a time: the policy deployment Service system process. designed to “move heaven and earth” to BALANCED SCORECARD satisfy the customer. Every employee is Balanced scorecard empowered to satisfy ○ Measuring more than a guest’s wish. financial performance: Teams at all levels set Finances objectives and devise Customers quality action plans. Processes Each hotel has a Learning and growing quality leader. Key performance indicators ○ A set of measures that help managers evaluate performance in critical areas. POSITIONING THE FIRM: FLEXIBILITY Ability to adjust to changes in CHAPTER 1 SUPPLEMENT product mix, production volume, or (DECISION ANALYSIS) design. National Bicycle Industrial Company DECISION ANALYSIS ○ Offers 11,231,862 variations. ○ Delivers within two weeks at Quantitative methods costs only 10% above ○ A set of tools for operations standard models. managers. ○ Mass customization: the mass Decision analysis production of customized ○ A set of quantitative parts. decision-making techniques for decision situations in which uncertainty exists. ○ Example of an uncertain POLICY DEPLOYMENT situation: Demand for a product Policy deployment may vary between 0 6  7 and 200 units, States of Nature depending on the state Decision a b of the market. 1 Payoff 1a Payoff 1b 2 Payoff 2a Payoff 2b DECISION MAKING WITHOUT PROBABILITIES States of nature DECISION MAKING CRITERIA ○ Events that may occur in the UNDER UNCERTAINTY future. ○ Examples of states of Maximax nature: ○ Choose the decision with the High or low demand maximum of the maximum for a product payoffs. Good or bad Maximin economic conditions ○ Choose the decision with the Decision making under risk maximum of the minimum ○ Probabilities can be assigned payoffs. to the occurrence of states of Minimax regret nature in the future. ○ Choose the decision with the Decision making under minimum of the maximum uncertainty regrets for each alternative. ○ Probabilities cannot be Minimin assigned to the occurrence of ○ Choose the decision with the states of nature in the future. minimum of the minimum payoffs. PAYOFF TABLE Hurwicz Payoff table ○ Choose the decision in which ○ A method for organizing and decision payoffs are weighted illustrating payoffs from by a coefficient of optimism, different decisions given alpha. various states of nature. ○ Coefficient of optimism is a Payoff measure of a decision ○ Outcome of a decision. maker’s optimism, from 0 (completely pessimistic) to 1 (completely optimistic). 7  8 Equal likelihood (La Place) ○ Choose the decision in which each state of nature is weighted equally. DECISION MAKING WITH PROBABILITIES Risk ○ Involves assigning probabilities to states of nature. Expected value ○ A weighted average of decision outcomes in which each future state of nature is assigned a probability of occurrence. 8  9 EVPI EXAMPLE Probabilities of Conditions: ○ Good conditions will exist 70% of the time. Choose maintain status quo with a payoff of $1,300,000. ○ Poor conditions will exist 30% of the time. Choose expand with a payoff of $500,000. Expected value given perfect information: Expected Value = $1,300,000 × 0.70 + $500,000 × 0.30 = $1,060,000 Recall that expected value without perfect information was: $865,000 (maintain status quo) EVPI Calculation: EVPI = $1,060,000 - $865,000 = $195,000 CHAPTER 2-QUALITY MANAGEMENT EXPECTED VALUE OF PERFECT INFORMATION (EVPI) WHAT IS QUALITY? EVPI ○ Maximum value of perfect Oxford American Dictionary information to the decision ○ A degree or level of maker. excellence. ○ Maximum amount that would American Society for Quality be paid to gain information ○ Totality of features and that would result in a characteristics that satisfy decision better than the one needs without deficiencies. made without perfect Consumer’s and Producer’s information. Perspective 9  10 WHAT IS QUALITY: CUSTOMER’S ○ How long a product lasts PERSPECTIVE before replacement; with care, L.L.Bean boots may last Fitness for use a lifetime. ○ How well a product or Serviceability service does what it is ○ Ease of getting repairs, speed supposed to. of repairs, courtesy, and Quality of design competence of the repair ○ Designing quality person. characteristics into a product or service. ○ A Mercedes and a Ford are equally “fit for use,” but with DIMENSIONS OF QUALITY: different design dimensions. MANUFACTURED PRODUCTS (CONT.) Aesthetics DIMENSIONS OF QUALITY: ○ How a product looks, feels, MANUFACTURED PRODUCTS sounds, smells, or tastes. Safety Performance ○ Assurance that a customer ○ Basic operating will not suffer injury or harm characteristics of a product; from a product; an especially how well a car handles or its important consideration for gas mileage. automobiles. Features Perceptions ○ “Extra” items added to basic ○ Subjective perceptions based features, such as a stereo CD on brand name, advertising, or a leather interior in a car. etc. Reliability ○ Probability that a product will operate properly within an expected time frame; for DIMENSIONS OF QUALITY: example, a TV will work SERVICES without repair for about seven years. Time and timeliness Conformance ○ How long must a customer ○ Degree to which a product wait for service, and is it meets pre–established completed on time? standards. ○ Is an overnight package Durability delivered overnight? 10  11 Completeness ○ How well is a telephone ○ Is everything the customer operator able to respond to a asked for provided? customer’s questions? ○ Is a mail order from a catalogue company complete when delivered? WHAT IS QUALITY: PRODUCER’S PERSPECTIVE DIMENSIONS OF QUALITY: Quality of conformance SERVICE (CONT.) ○ Making sure a product or service is produced according Courtesy to design. ○ How are customers treated by ○ If new tires do not conform to employees? specifications, they wobble. ○ Are catalogue phone ○ If a hotel room is not clean operators nice, and are their when a guest checks in, the voices pleasant? hotel is not functioning Consistency according to the ○ Is the same level of service specifications of its design. provided to each customer each time? MEANING OF QUALITY ○ Is your newspaper delivered on time every morning? Accessibility and convenience ○ How easy is it to obtain service? ○ Does the service representative answer your calls quickly? Accuracy ○ Is the service performed right every time? ○ Is your bank or credit card statement correct every month? Responsiveness ○ How well does the company react to unusual situations? 11  12 WHAT IS QUALITY: A FINAL and securing breakthrough PERSPECTIVE solutions. Armand V. Feigenbaum Customer’s and producer’s ○ In 1951, introduced concepts perspectives depend on each other. of total quality control and Producer’s perspective: continuous quality ○ Production process and improvement. COST. Philip Crosby Customer’s perspective: ○ In 1979, emphasized that ○ Fitness for use and PRICE. costs of poor quality far Customer’s view must dominate. outweigh the cost of preventing poor quality. ○ In 1984, defined absolutes of quality EVOLUTION OF QUALITY management—conformance MANAGEMENT: QUALITY GURUS to requirements, prevention, and “zero defects.” Walter Shewhart Kaoru Ishikawa ○ In the 1920s, developed ○ Promoted the use of quality control charts. circles. ○ Introduced the term “quality ○ Developed the “fishbone” assurance.” diagram. W. Edwards Deming ○ Emphasized the importance ○ Developed courses during of the internal customer. World War II to teach statistical quality-control techniques to engineers and executives of companies that DEMING’S 14 POINTS were military suppliers. ○ After the war, began teaching 1. Create constancy of purpose. statistical quality control to 2. Adopt a philosophy of prevention. Japanese companies. 3. Cease mass inspection. Joseph M. Juran 4. Select a few suppliers based on ○ Followed Deming to Japan in quality. 1954. 5. Constantly improve the system and ○ Focused on strategic quality workers. planning. 6. Institute worker training. ○ Quality improvement 7. Instill leadership among supervisors. achieved by focusing on 8. Eliminate fear among employees. projects to solve problems 9. Eliminate barriers between departments. 12  13 10. Eliminate slogans. 11. Remove numerical quotas. 12. Enhance worker pride. 13. Institute vigorous training and education programs. 14. Develop a commitment from top management to implement the above 13 points. DEMING WHEEL QUALITY TOOLS Process Flow Chart Cause-and-Effect Diagram Check Sheet Pareto Analysis Histogram Scatter Diagram Statistical Process Control Chart 13  14 TQM AND QMS ○ Employees involved in quality management. Total Quality Management (TQM) ○ Every employee has ○ Customer-oriented, undergone extensive training leadership, strategic planning, to provide quality service to employee responsibility, Disney’s guests. continuous improvement, Kaizen cooperation, statistical ○ Involves everyone in the methods, and training and process of continuous education. improvement. Quality Management System Quality circle (QMS) ○ Group of workers and ○ System to achieve customer supervisors from the same satisfaction that complements area who address quality other company systems. problems. Process/Quality improvement teams (QITs) ○ Focus attention on business FOCUS OF QUALITY processes rather than separate MANAGEMENT—CUSTOMERS company functions. TQM and QMSs QUALITY IN SERVICES ○ Serve to achieve customer satisfaction. Service defects are not always easy Partnering to measure ○ A relationship between a ○ Because service output is not company and its supplier usually a tangible item. based on mutual quality Services tend to be labor-intensive standards. Services and manufacturing Measuring customer satisfaction companies ○ Important component of any ○ Have similar inputs but QMS. different processes and ○ Customer surveys, telephone outputs. interviews. QUALITY ATTRIBUTES IN ROLE OF EMPLOYEES IN SERVICES QUALITY IMPROVEMENT Principles of TQM Participative problem solving 14  15 ○ Apply equally well to SIX SIGMA: BLACK BELTS AND services and manufacturing. GREEN BELTS Timeliness ○ How quickly is a service Black Belt provided? ○ Project leader. Benchmark Master Black Belt ○ “Best” level of quality ○ A teacher and mentor for achievement in one company Black Belts. that other companies seek to Green Belts achieve: “quickest, ○ Project team members. friendliest, most accurate service available.” SIX SIGMA SIX SIGMA Design for Six Sigma (DFSS) ○ A systematic approach to A process for developing and designing products and delivering virtually perfect processes that will achieve products and services. Six Sigma. Measure of how much a process Profitability deviates from perfection: ○ Typical criterion for selecting ○ 3.4 defects per million a Six Sigma project. opportunities. ○ One of the factors Six Sigma Process distinguishing Six Sigma ○ Four basic steps of Six from TQM. Sigma: align, mobilize, ○ “Quality is not only free; it is accelerate, and govern. an honest-to-everything profit Champion maker.” ○ An executive responsible for project success. COST OF QUALITY Cost of Achieving Good Quality ○ Prevention Costs Costs incurred during product design. ○ Appraisal Costs Costs of measuring, testing, and analyzing. Cost of Poor Quality 15  16 ○ Internal Failure Costs Inspection and Testing Include scrap, rework, ○ Costs of testing and process failure, inspecting materials, parts, downtime, and price and products at various stages reductions. and at the end of the process. ○ External Failure Costs Test Equipment Costs Include complaints, ○ Costs of maintaining returns, warranty equipment used in testing claims, liability, and quality characteristics of lost sales. products. Operator Costs ○ Costs of time spent by operators to gather data for PREVENTION COSTS testing product quality, to make equipment adjustments Quality Planning Costs to maintain quality, and to ○ Costs of developing and stop work to assess quality. implementing a quality management program. Product-Design Costs ○ Costs of designing products INTERNAL FAILURE COSTS with quality characteristics. Process Costs Scrap Costs ○ Costs expended to ensure the ○ Costs of poor-quality productive process conforms products that must be to quality specifications. discarded, including labor, Training Costs material, and indirect costs. ○ Costs of developing and Rework Costs implementing quality training ○ Costs of fixing defective programs for employees and products to conform to management. quality specifications. Information Costs Process Failure Costs ○ Costs of acquiring and ○ Costs of determining why the maintaining data related to production process is quality, and developing and producing poor-quality analyzing reports on quality products. performance. Process Downtime Costs ○ Costs of shutting down the productive process to fix a problem. APPRAISAL COSTS Price-Downsizing Costs 16  17 ○ Costs of discounting Labor Index poor-quality products—that Ratio of is, selling products as quality cost to “seconds.” labor hours. Cost Index Ratio of quality cost to EXTERNAL FAILURE COSTS manufacturing cost. Customer Complaint Costs Sales Index ○ Costs of investigating and Ratio of satisfactorily responding to a quality cost to customer complaint resulting sales. from a poor-quality product. Production Index Product Return Costs Ratio of ○ Costs of handling and quality cost to replacing poor-quality units of final products returned by the product. customer. Warranty Claims Costs ○ Costs of complying with product warranties. QUALITY–COST RELATIONSHIP Product Liability Costs ○ Litigation costs resulting Cost of Quality from product liability and ○ Difference between the price customer injury. of nonconformance and Lost Sales Costs conformance. ○ Costs incurred because ○ Cost of doing things wrong: customers are dissatisfied 20% to 35% of revenues. with poor-quality products ○ Cost of doing things right: and do not make additional 3% to 4% of revenues. purchases. EFFECT OF QUALITY MANAGEMENT ON PRODUCTIVITY MEASURING AND REPORTING QUALITY COSTS Productivity ○ Ratio of output to input. Index Numbers Quality Impact on Productivity ○ Ratios that measure quality costs against a base value: 17  18 ○ Fewer defects increase output, and quality improvement reduces inputs. Yield ○ A measure of productivity. Yield Formula: Yield = (Total Input) × (% Good Units) + (Total Input) × (1 - % Good Units) × (% Reworked) Or Y = (I) × (G) + (I) × (1 - G) × (R) Where: I = Total Input G = Percentage of Good Units R = Percentage of Reworked Units ISO 9000 A set of procedures and policies for international quality certification of suppliers. Standards ○ ISO 9000:2000 Quality Management Systems—Fundament als and Vocabulary. Defines fundamental terms and definitions used in the ISO 9000 family. ○ ISO 9001:2000 18  19 Quality Management simplest and least costly Systems—Requireme manner. nts. ○ Reduces time required to Standard to assess the design a new product or ability to achieve service. customer satisfaction. ○ Minimizes revisions ○ ISO 9004:2000 necessary to make a design Quality Management workable. Systems—Guidelines for Performance Design Process (cont.) Improvements. Product Design: Guidance to a ○ Defines the appearance of the company for product. continual ○ Sets standards for improvement of its performance. quality-management ○ Specifies which materials are system. to be used. ISO 9000 Certification, Implications, and ○ Determines dimensions and Registrars tolerances. ISO 9001:2000 is the only standard Idea Generation that carries third-party certification. Sources of idea generation include: Many overseas companies will not ○ Company’s own R&D do business with a supplier unless it department. has ISO 9000 certification. ○ Customer complaints or ISO 9000 Accreditation suggestions. ISO Registrars ○ Marketing research. ○ Suppliers. CHAPTER 4- DESIGNING PRODUCTS ○ Salespersons in the field. ○ Factory workers. ○ New technological Design Process developments. ○ Competitors. Effective design can provide a competitive edge: Idea Generation (cont.) ○ Matches product or service characteristics with customer Perceptual Maps: requirements. ○ Visual comparison of ○ Ensures that customer customer perceptions. requirements are met in the Benchmarking: 19  20 ○ Comparing product/process COMPUTING RELIABILITY against best-in-class. Reverse Engineering: ○ Dismantling competitor’s product to improve your own product. Feasibility Study Components of a Feasibility Study: ○ Market analysis. ○ Economic analysis. ○ Technical/strategic analyses. ○ Performance specifications. Rapid Prototyping Testing and revising a preliminary design model: ○ Build a Prototype: Form design. Functional design. Production design. ○ Test prototype. ○ Revise design. ○ Retest. Form and Functional Design Form Design: ○ How will the product look? Functional Design: ○ How will the product perform? Reliability. Maintainability. Usability. 20  21 Reducing the number of parts, assemblies, or options in a product. ○ Standardization: Using commonly available and interchangeable parts. ○ Modular Design: Combining standardized building blocks, or modules, to create unique finished products. ○ Design for Manufacture (DFM): Designing a product so that it can be produced easily and economically. Final Design and Process Plans Final Design: ○ Detailed drawings and Usability specifications for new product or service. Ease of use of a product or service: Process Plans: ○ Ease of learning. ○ Workable instructions: ○ Ease of use. Necessary equipment ○ Ease of remembering how to and tooling. use. Component sourcing ○ Frequency and severity of recommendations. errors. Job descriptions and ○ User satisfaction with procedures. experience. Computer programs for automated Production Design machines. How the product will be made: ○ Simplification: 21  22 Concurrent Design A software system for collaborative design and development among A new approach to design that trading partners. involves simultaneous design of With PML, manages product data, products and processes by design sets up project workspaces, and teams. follows the lifecycle of the product. Improves the quality of early design Accelerates product development, decisions. helps to resolve product launch Involves suppliers. issues, and improves the quality of Incorporates production processes. design. Uses a price-minus system. Designers can: Scheduling and management can be ○ Conduct virtual review complex as tasks are done in parallel. sessions. Uses technology to aid design. ○ Test “what if” scenarios. ○ Assign and track design issues. Technology in Design ○ Communicate with multiple tiers of suppliers. Computer Aided Design (CAD): ○ Create, store, and manage ○ Assists in creation, project documents. modification, and analysis of a design. Computer-Aided Engineering Design Review (CAE): ○ Tests and analyzes designs on Review designs to prevent failures computer screen. and ensure value: Computer-Aided Manufacturing ○ Failure Mode and Effects (CAD/CAM): Analysis (FMEA): ○ Ultimate A systematic method design-to-manufacture of analyzing product connection. failures. Product Life Cycle Management ○ Fault Tree Analysis (FTA): (PLM): A visual method for ○ Managing the entire lifecycle analyzing of a product. interrelationships Collaborative Product Design among failures. (CPD). ○ Value Analysis (VA): Helps eliminate unnecessary features Collaborative Product Design (CPD) and functions. 22  23 Design for Environment and Extended Producer Responsibility Quality Function Deployment (QFD) Design for Environment: ○ Designing a product from Translates voice of customer into material that can be recycled. technical design requirements. ○ Design from recycled Displays requirements in matrix material. diagrams: ○ Design for ease of repair. ○ First matrix called “house of ○ Minimize packaging. quality.” ○ Minimize material and ○ Series of connected houses. energy used during manufacture, consumption, and disposal. Extended Producer Responsibility: ○ Holds companies responsible for their product even after its useful life. Sustainability Ability to meet present needs without compromising those of future generations. Green Product Design: ○ Use fewer materials. ○ Use recycled materials or Benefits of QFD recovered components. ○ Don’t assume natural Promotes better understanding of materials are always better. customer demands. ○ Don’t forget energy Promotes better understanding of consumption. design interactions. ○ Extend the useful life of the Involves manufacturing in the design product. process. ○ Involve the entire supply Provides documentation of the chain. design process. ○ Change the paradigm of design. Design for Robustness 23  24 Robust Product: ○ Tangible objects. ○ Designed to withstand Facilitating Services: variations in environmental ○ Accompany almost all and operating conditions. purchases of goods. Robust Design: Facilitating Goods: ○ Yields a product or service ○ Accompany almost all designed to withstand service purchases. variations. Services are: Controllable Factors: ○ Intangible. ○ Design parameters such as ○ Variable in output. material used, dimensions, ○ Higher in customer contact. and form of processing. ○ Perishable. Uncontrollable Factors: ○ Inseparable from delivery. ○ User’s control (length of use, ○ Decentralized and dispersed. maintenance, settings, etc.). ○ Consumed more often than products. ○ Easily emulated. Service Concept: Design for Robustness (cont.) ○ Purpose of a service; defines Tolerance: target market and customer ○ Allowable ranges of variation experience. in the dimension of a part. Service Package: Consistency: ○ Mixture of physical items, ○ Consistent errors are easier to sensual benefits, and correct than random errors. psychological benefits. ○ Parts within tolerances may Service Specifications: yield assemblies that are not ○ Performance specifications. within limits. ○ Design specifications. ○ Consumers prefer product ○ Delivery specifications. characteristics near their ideal Tools for Service Design values. Service Blueprinting: ○ Line of influence. CHAPTER 5 - DESIGNING SERVICES ○ Line of interaction. ○ Line of visibility. Characteristics of Services ○ Line of support. Front-office/Back-office Activities. Services: Servicescapes: ○ Acts, deeds, or performances. ○ Space and function. Goods: ○ Ambient conditions. 24  25 ○ Signs, symbols, and artifacts. Grocery stores: Express lanes for Quantitative Techniques. customers with few purchases. Airlines/Car rental agencies: Special cards for frequent users or for an additional fee. Elements of Waiting Line Analysis Phone retailers: Route calls based on Channels: customer’s sales history. ○ Number of parallel servers for servicing customers. Phases: Critical Service Providers ○ Number of servers in sequence a customer must go Services like police and fire through. departments. Waiting is unacceptable; cost is not important. Traditional Cost Relationships As service improves, cost increases. Service Improvement Analysis Waiting time (8 min.) is too long: ○ Hire an assistant for the Psychology of Waiting cashier? (Increased service Waiting Rooms: rate). ○ Magazines and newspapers. ○ Hire another cashier? ○ Televisions. (Reduced arrival rate). Bank of America: Is improved service worth the cost? ○ Mirrors. Supermarkets: ○ Magazines. CHAPTER 6 - PROCESS DESIGN AND ○ “Impulse purchases.” TECHNOLOGY DECISIONS Disney: ○ Costumed characters. ○ Mobile vendors. Process Planning ○ Accurate wait times. ○ Special passes. Process: ○ A group of related tasks with specific inputs and outputs. Process Design: Preferential Treatment in Waiting ○ What tasks need to be done and how they are coordinated 25  26 among functions, people, and Capacity. organizations. Quality. Process Strategy: Speed. ○ An organization’s overall Reliability. approach for physically Expertise. producing goods and services. Process Planning: Process Selection ○ Converts designs into workable instructions for Projects: manufacture or delivery. ○ One-of-a-kind production of a product to customer order. Batch Production: Process Strategy ○ Processes many different jobs at the same time in groups or Vertical Integration: batches. ○ Extent to which a firm will Mass Production: produce inputs and control ○ Produces large volumes of a outputs of each stage of the standard product for a mass production process. market. Capital Intensity: Continuous Production: ○ Mix of capital (i.e., ○ Used for very high-volume equipment, automation) and commodity products. labor resources used in the production process. Process Selection with Break-Even Process Flexibility: Analysis ○ Ease with which resources Examines cost trade-offs can be adjusted in response to associated with demand volume. changes in demand, Cost: technology, products or ○ Fixed Costs: services, and resource Constant regardless of availability. the number of units Customer Involvement: produced. ○ Role of customer in the ○ Variable Costs: production process. Vary with the volume of units produced. Revenue: Outsourcing ○ Price at which an item is sold. Cost. Total Revenue: 26  27 ○ Is price times volume sold. Profit: ○ Difference between total revenue and total cost. Process Plans Set of documents that detail manufacturing and service delivery specifications: ○ Assembly charts ○ Operations sheets ○ Quality-control check-sheets 27  28 Process Analysis Process Innovation Building a flowchart: Breakthrough ○ Determine objectives ○ Total redesign of a process ○ Define process boundaries for breakthrough ○ Define units of flow improvements. ○ Choose type of chart Improvement ○ Observe process and collect ○ Continuous improvement data refines the breakthrough. ○ Map out process ○ Continuous improvement ○ Validate chart activities peak; time to reengineer the process. Principles for Redesigning Processes Process Flowcharts Remove waste, simplify, and Look at the manufacture of a product consolidate similar activities. or delivery of a service from a broad Link processes to create value. perspective. Let the swiftest and most capable Incorporate: enterprise execute the process. ○ Nonproductive activities Flex process for any time, any place, (inspection, transportation, any way. delay, storage) Capture information digitally at the ○ Productive activities source and propagate it through the (operations) process. Principles for Redesigning Processes (cont.) Provide visibility through fresher and richer information about process status. Fit process with sensors and feedback loops that can prompt action. Add analytic capabilities to process. Connect, collect, and create knowledge around the process through all who touch it. 28  29 Personalize process with preferences and habits of participants. Technology Decisions Financial justification of technology: Techniques for Generating Innovative ○ Purchase cost Ideas ○ Operating costs ○ Annual savings Vary the entry point to a problem. ○ Revenue enhancement ○ In trying to untangle fishing ○ Replacement analysis lines, it’s best to start from ○ Risk and uncertainty the fish, not the poles. ○ Piecemeal analysis Draw analogies. ○ A previous solution to an old Technology Primer problem might work. Change your perspective. Computer-aided design (CAD) ○ Think like a customer. ○ Creates and communicates ○ Bring in persons who have no designs electronically. knowledge of the process. Group technology (GT) ○ Classifies designs into families for easy retrieval and modification. Techniques for Generating Innovative Computer-aided engineering Ideas (cont.) (CAE) ○ Tests functionality of CAD Try inverse brainstorming. designs electronically. ○ What would increase cost? Collaborative product commerce ○ What would displease the (CPC) customer? ○ Facilitates electronic Chain forward as far as possible. communication and exchange ○ If I solve this problem, what of information among is the next problem? designers and suppliers. Use attribute brainstorming. ○ How would this process operate if... Our workers were Product Technology mobile and flexible? There were no Product data management (PDM) monetary constraints? ○ Keeps track of design specs We had perfect and revisions for the life of knowledge? the product. 29  30 Product life cycle management (PLM) ○ Integrates decisions of those Process Technology involved in product Computer numerically controlled development, manufacturing, (CNC) sales, customer service, ○ Machines controlled by recycling, and disposal. software code to perform a Product configuration variety of operations with the ○ Defines products help of automated tool “configured” by customers changers; also collects who have selected among processing information and various options, usually from quality data. a website. Flexible manufacturing system (FMS) ○ A collection of CNC A Technology Primer (cont.) machines connected by an automated material handling Standard for exchange of product system to produce a wide model data (STEP) variety of parts. ○ Set standards for Robots communication among ○ Manipulators that can be different CAD vendors; programmed to perform translates CAD data into repetitive tasks; more requirements for automated consistent than workers but inspection and manufacture. less flexible. Computer-aided design and Conveyors manufacture (CAD/CAM) ○ Fixed-path material handling; ○ Electronic link between moves items along a belt or automated design (CAD) and overhead chain; “reads” automated manufacture packages and diverts them to (CAM). different directions; can be Computer-aided process (CAPP) very fast. ○ Generates process plans based on a database of similar requirements. E-procurement Manufacturing Technology ○ Electronic purchasing of Automatic guided vehicle (AGV) items from e-marketplaces, ○ A driverless truck that moves auctions, or company material along a specified websites. path; directed by wire or tape 30  31 embedded in the floor or by facilitates communication radio frequencies; very and data transfer. flexible. Intranet Automated storage and retrieval ○ Communication networks system (ASRS) internal to an organization; ○ An automated warehouse in can be password-protected which items are placed in a sites on the Internet. carousel-type storage system Extranet and retrieved by fast-moving ○ Intranets connected to the stacker cranes; controlled by Internet for shared access computer. with select suppliers, Process Control customers, and trading ○ Continuous monitoring of partners. automated equipment; makes real-time decisions on ongoing operation, Information Technology (cont.) maintenance, and quality. Computer-integrated Bar Codes manufacturing (CIM) ○ A series of vertical lines ○ Automated manufacturing printed on most packages that systems integrated through identifies item and other computer technology; also information when read by a called e-manufacturing. scanner. Radio Frequency Identification tags (RFID) Information Technology ○ An integrated circuit embedded in a tag that can Business-to-Business (B2B) send and receive information; ○ Electronic transactions a twenty-first century bar between businesses usually code with read/write over the Internet. capabilities. Business-to-Consumer (B2C) Electronic Data Interchange (EDI) ○ Electronic transactions ○ A computer-to-computer between businesses and their exchange of business customers usually over the documents over a proprietary Internet. network; very expensive and Internet inflexible. ○ A global information system Extensive Markup Language of computer networks that (XML) 31  32 ○ A programming language ○ A computer system that uses that enables an expert knowledge base to computer-to-computer diagnose or solve a problem. communication over the Artificial Intelligence (AI) Internet by tagging data ○ A field of study that attempts before it is sent. to replicate elements of Enterprise Resource Planning human thought in computer (ERP) processes; includes expert ○ Software for managing basic systems, genetic algorithms, requirements of an enterprise, neural networks, and fuzzy including sales & marketing, logic. finance and accounting, production & materials management, and human CHAPTER 8 - FACILITY LOCATION resources. MODELS Types of Facilities Information Technology (cont.) Heavy-manufacturing facilities Supply Chain Management (SCM) ○ Large, require a lot of space, ○ Software for managing the and are expensive. flow of goods and Light-industry facilities information among a network ○ Smaller, cleaner plants and of suppliers, manufacturers, usually less costly. and distributors. Retail and service facilities Customer Relationship ○ Smallest and least costly. Management (CRM) ○ Software for managing interactions with customers Factors in Heavy Manufacturing and compiling and analyzing Location customer data. Decision Support Systems (DSS) Construction costs. ○ An information system that Land costs. helps managers make Raw material and finished goods decisions; includes a shipment modes. quantitative modeling Proximity to raw materials. component and an interactive Utilities. component for what-if Means of waste disposal. analysis. Labor availability. Expert Systems (ES) 32  33 ○ Quality of life in the community. Factors in Light Industry Location ○ Government regulations and taxes. Land costs. Transportation costs. Proximity to markets (depending on delivery requirements including Global Location Factors frequency of delivery required by customer). Government stability. Government regulations. Political and economic systems. Economic stability and growth. Factors in Retail Location Exchange rates. Culture. Proximity to customers. Climate. Location is everything. Export/import regulations, duties, and tariffs. Raw material availability. Site Selection: Where to Locate Number and proximity of suppliers. Transportation and distribution Infrequent but important: system. ○ Being “in the right place at Labor cost and education. the right time.” Available technology. Must consider other factors, Commercial travel. especially financial considerations. Technical expertise. Location decisions are made more Cross-border trade regulations. often for service operations than Group trade agreements. manufacturing facilities. Location criteria for service: ○ Access to customers. Location criteria for Regional and Community Location manufacturing facility: Factors in U.S. ○ Nature of labor force. Labor (availability, education, cost, ○ Labor costs. and unions). ○ Proximity to suppliers and Proximity of customers. markets. Number of customers. ○ Distribution and Construction/leasing costs. transportation costs. Land cost. ○ Energy availability and cost. Modes and quality of transportation. ○ Community infrastructure. Transportation costs. 33  34 Community government. Geographic Information Systems (GIS) Local business regulations. Government services (e.g., Chamber Computerized system for storing, of Commerce). managing, creating, analyzing, integrating, and digitally displaying geographic (spatial) data. Specifically used for site selection. Regional and Community Location Enables users to integrate large Factors in U.S. (cont.) quantities of information about potential sites and analyze these data Business climate. with many different, powerful Community services. analytical tools. Incentive packages. Government regulations. Location Analysis Techniques Environmental regulations. Raw material availability. Location factor rating. Commercial travel. Center-of-gravity. Climate. Load-distance. Infrastructure (e.g., roads, water, sewers). Quality of life. Location Factor Rating Taxes. Availability of sites. 1. Identify important factors. Financial services. 2. Weight factors (0.00 - 1.00). Community inducements. 3. Subjectively score each factor (0 - Proximity of suppliers. 100). Education system. 4. Sum weighted scores. Location Incentives Tax credits. Relaxed government regulation. Job training. Infrastructure improvement. Money. 34  35 Center-of-Gravity Technique Locate facility at the center of movement in the geographic area. Based on weight and distance traveled; establishes a grid map of the area. Identify coordinates and weights shipped for each location. 35  36 Load-Distance Technique Compute (Load x Distance) for each site. Choose the site with the lowest (Load x Distance). Distance can be actual or straight-line. 36