Operations Management Operations and Productivity Chapter 1

Operations Management Operations and Productivity Chapter 1
At this point: 1. Introduce yourself - your students are likely to want to know something about your qualifications and interests - overall, where you are coming from. 2. Have students introduce themselves. Ask why they are taking this class. If you are fortunate enough to have a Polaroid camera, take pictures of each student for later posting on a class “board” so both they and you get to know each other. 3. Discuss both choice of textbook and development of syllabus. 4. If you are expecting students to work in teams, at east introduce the choice of team members. If at all possible, have students participate in a team building or team study exercise. It works wonders. Most student have been told to work in teams in prior classes, but have never examined exactly what a team is and how it works. One hour spent in a team building/examination exercise saves many hours and avoids many problems later on. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Outline PROFILE: HARD ROCK CAFE WHAT IS OPERATIONS MANAGEMENT?
ORGANIZING TO PRODUCE GOODS AND SERVICES WHY STUDY OM? WHAT OPERATIONS MANAGERS DO How This Book Is Organized WHERE ARE THE OM JOBS? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Outline - Continued THE HERITAGE OF OPERATIONS MANAGEMENT
OPERATIONS IN THE SERVICE SECTOR Differences between Goods and Services Growth of Services Service Pay EXCITING NEW TRENDS IN OPERATIONS MANAGEMENT Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Outline - Continued THE PRODUCTIVITY CHALLENGE
Productivity Measurement Productivity Variables Productivity and the Service Sector THE CHALLENGE OF SOCIAL RESPONSIBILITY Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Learning Objectives When you complete this chapter, you should be able to : Identify or Define: Production and productivity Operations Management (OM) What operations managers do Services Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Learning Objectives - Continued
When you complete this chapter, you should be able to : Describe or Explain: A brief history of operations management Career opportunities in operations management The future of the discipline Measuring productivity Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

The Hard Rock Cafe First opened in 1971 Rock music memorabilia
Now – 110 restaurants in over 40 countries Rock music memorabilia Creates value in the form of good food and entertainment 3,500+ custom meals per day How does an item get on the menu? Role of the Operations Manager Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

What Is Operations Management?
Production is the creation of goods and services Operations management is the set of activities that creates value in the form of goods and services by transforming inputs into outputs Two additional points: 1. Any activity is an “operation” 2. No company produces only “goods” - service is a greater or lesser part of any product. (Discuss this in more detail later) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Organizing to Produce Goods and Services
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Organizing to Produce Goods and Services
Essential functions: Marketing – generates demand Operations –creates the product Finance/accounting – tracks organizational performance, pays bills, collects money Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Organizational Functions
Marketing Gets customers Operations creates product or service © 1995 Corel Corp. Finance/Accounting Obtains funds Tracks money Here is the point at which you can add to your discussion of the three business functions. In an effort to encourage student participation, you might allow students to lead the discussion as to the nature of each function, while you lead the discussion as to the relationship of the individual functions to the larger business. Initiate a class discussion about how these functions expand as the firm grows and how new activities have become important (i.e., MIS and Human Resources) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Sample Organization Charts

Functions - Bank Commercial Bank Operations Finance/ Accounting
Marketing Check Clearing Teller Scheduling Transactions Processing Security Commercial Bank © T/Maker Co. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Functions - Airline Airline Operations Finance/ Accounting Marketing
Ground Support Flight Facility Maintenance Catering Airline © T/Maker Co. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Functions - Manufacturer
Operations Finance/ Accounting Marketing Production Control Manufacturing Quality Purchasing Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Organizational Charts
Commercial Bank Operations Teller Scheduling Check Clearing Transactions processing Facilities design/layout Vault operations Maintenance Security Finance Investments Real Estate Accounting Auditing Marketing Loans Commercial Industrial Financial Personal Mortgage Trust Department Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Airline Operations Ground support equipment Maintenance Ground Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications Dispatching Management science Finance & Accounting Accounting Payables Receivables General Ledger Finance Cash control International exchange rates Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Manufacturing Operations Facilities: Construction:maintenance Production & inventory control Scheduling: materials control Supply-chain management Manufacturing Tooling, fabrication,assembly Design Product development and design Detailed product specifications Industrial engineering Efficient use of machines, space, and personnel Process analysis Development and installation of production tools and equipment Finance & Accounting Disbursements/credits Receivables Payables General ledger Funds Management Money market International exchange Capital requirements Stock issue Bond issues and recall Marketing Sales promotions Advertising Sales Market research Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Why Study OM? OM is one of three major functions (marketing, finance, and operations) of any organization. We want (and need) to know how goods and services are produced. We want to understand what operations managers do. OM is such a costly part of an organization. One might ask students to consider: - marketing => deciding what is needed - finance => securing resources - operations => doing it! What are the limitations of this perspective? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Options for Increasing Contribution
Students can do the math! It may be useful to show a more detailed breakdown of cost-of-goods-sold, and illustrate the contribution to cost-of-goods sold of marketing, finance/accounting, and operations. It may also be helpful to use this data to introduce and illustrate fixed and variable costs and their relationship to net contribution. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

What Operations Managers Do
Plan - Organize - Staff - Lead - Control This is the typical breakdown one finds in many business courses. It may be helpful to the students if you discuss each of these elements in relationship to something you or they have done. Work on a group project, for example, can provide a useful vehicle for the discussion. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Ten Critical Decisions
Service, product design…………….. Quality management………………… Process, capacity design………….. Location …………….………………… Layout design ……………………….. Human resources, job design…….. Supply-chain management………… Inventory management ……………. Scheduling …………………………… Maintenance …………………………. Ch. 5 Ch. 6, 6S Ch. 7, 7S Ch. 8 Ch. 9 Ch. 10, 10S Ch. 11,11s Ch. 12, 14, 16 Ch. 3, 13, 15 Ch. 17 This slide introduces the 10 decision areas of Operations Management. These decision areas form the structure of the text. You may either go through this list quickly, and hold an enriched discussion using some of the slides that follow; or ask the students to give you examples of specific decisions from each area. As mentioned before - you may forego looking for precise answers at this point - and simply try to get them thinking and involved. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

The Critical Decisions
Quality management Who is responsible for quality? How do we define quality? Service and product design What product or service should we offer? How should we design these products and services? Using this and subsequent slides, you might go through in more detail the decisions of Operations Management. While greater detail is provided by these slides than the earlier one, you may still decide to have the students contribute examples from their own experience. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

The Critical Decisions - Continued
Process and capacity design What processes will these products require and in what order? What equipment and technology is necessary for these processes? Location Where should we put the facility On what criteria should we base this location decision? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Layout design How should we arrange the facility? How large a facility is required? Human resources and job design How do we provide a reasonable work environment? How much can we expect our employees to produce? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Supply chain management Should we make or buy this item? Who are our good suppliers and how many should we have? Inventory, material requirements planning, How much inventory of each item should we have? When do we re-order? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Intermediate, short term, and project scheduling Is subcontracting production a good idea? Are we better off keeping people on the payroll during slowdowns? Maintenance Who is responsible for maintenance? When do we do maintenance? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Where Are the OM Jobs? Technology/methods Facilities/space utilization
Strategic issues Response time People/team development Customer service Quality Cost reduction Inventory reduction Productivity improvement Ask your students for input here. Look for positions that they or their parents have filled. You might also ask them (a) what positions they are seeking upon graduation; and (b) to “predict” how demand for workers in each of these areas is likely to change over time, and why. Finally, have them consider the skills required of the occupants of each position Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

The Heritage of Operations Management

Significant Events in Operations Management
You should stress that the time-based historical perspective is only one way to look at the development of Operations Management, outcome focus is another. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

The Heritage of Operations Management
Division of labor (Adam Smith 1776 and Charles Babbage 1852) Standardized parts (Whitney 1800) Scientific Management (Taylor 1881) Coordinated assembly line (Ford/Sorenson/Avery 1913) Gantt charts (Gantt 1916) Motion study (Frank and Lillian Gilbreth 1922 Quality control (Shewhart 1924; Deming 1950) Computer (Atanasoff 1938) CPM/PERT (DuPont 1957) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

The Heritage of Operations Management - Continued
Material requirements planning (Orlicky 1960) Computer aided design (CAD 1970) Flexible manufacturing system (FMS 1975) Baldrige Quality Awards (1980) Computer integrated manufacturing (1990) Globalization(1992) Internet (1995) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Eli Whitney © 1995 Corel Corp. Born 1765; died 1825 In 1798, received government contract to make 10,000 muskets Showed that machine tools could make standardized parts to exact specifications Musket parts could be used in any musket You might ask students why standardization is so important. If their answers do not raise the issue, here is a good time to introduce the concept of “setup.” Discussion of Whitney also raises issues of quality control, and even worker training. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Frederick W. Taylor Born 1856; died 1915
Known as ‘father of scientific management’ In 1881, as chief engineer for Midvale Steel, studied how tasks were done Began first motion & time studies Created efficiency principles Some students argue that Taylor’s main objective was to get more from the workers. You might discuss the difference between trying to get more out of the workers and trying to improve their efficiency. © 1995 Corel Corp. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Taylor: Management Should Take More Responsibility for
Matching employees to right job Providing the proper training Providing proper work methods and tools Establishing legitimate incentives for work to be accomplished There are several issues which can be raised here: - the individual nature of individuals (not everyone is suited to the same job) - how does one decide what is “proper” training? - perhaps “a poor workman blames his tools;” but a workman may only be as good as his tools - “a day’s pay for a day’s work” - what is a “day’s work”? How do we decide? How do we arrive at a monetary value for this day’s work? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Frank & Lillian Gilbreth
Husband-and-wife engineering team Further developed work measurement methods Applied efficiency methods to their home & 12 children! (Book & Movie: “Cheaper by the Dozen,” book: “Bells on Their Toes”) © 1995 Corel Corp. Ask the students: So what? Get them to think about task performance at various levels of detail. - How does one determine the most efficient motions to be used? - How does one “balance” the performance of a task so that one limb does not bear an excessive load? - How can one “design a job” before actually performing a task? You might also wish to discuss the book and movies about the Gilbreths and their children. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Henry Ford Born 1863; died 1947 In 1903, created Ford Motor Company
In 1913, first used moving assembly line to make Model T Unfinished product moved by conveyor past work station Paid workers very well for 1911 ($5/day!) © 1995 Corel Corp. ‘Make them all alike!’ Assembly lines are widely accepted and used. Are they actually “God’s gift to repetitive manufacturing?” Have students consider the Volvo experiment where teams were used to build automobiles. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

W. Edwards Deming Born 1900; died 1993 Engineer & physicist
Credited with teaching Japan quality control methods in post-WW2 Used statistics to analyze process His methods involve workers in decisions Have students consider why Dr. Deming’s popularity was so great in Japan, but took such a long time to develop in the U.S. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Contributions From Human factors Industrial engineering
Management science Biological science Physical sciences Information science Here you might try to make two points: - there are many contributions from outside the OM/business disciplines (one of the most important characteristics of an Operations Manager is the ability to work with or within multiple disciplines) - the greater contribution from the information sciences is not to make things occur faster (automation) but to enable the operations manager to look at problems from a different perspective. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Significant Events in OM
Division of labor (Smith, 1776) Standardized parts (Whitney, 1800) Scientific management (Taylor, 1881) Coordinated assembly line (Ford 1913) Gantt charts (Gantt, 1916) Motion study (the Gilbreths, 1922) Quality control (Shewhart, 1924) Gives you a chance to summarize some of the critical events in the evolution of OM. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Significant Events - Continued
CPM/PERT (Dupont, 1957) MRP (Orlicky, 1960) CAD Flexible manufacturing systems (FMS) Manufacturing automation protocol (MAP) Computer integrated manufacturing (CIM) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

New Challenges in OM From To Local or national focus Batch shipments
Low bid purchasing Lengthy product development Standard products Job specialization Global focus Just-in-time Supply chain partnering Rapid product development, alliances Mass customization Empowered employees, teams Use this and the subsequent slide to get students thinking about some of the changes taking place in OM. Try to help them understand both the causes of the changes and the implications. In particular, have them consider the role of information and of information technology. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Operations in the Service Sector

Characteristics of Goods
Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction © 1995 Corel Corp. You might pick a company that produces a physical product that will be familiar to the students, ask students to identify the product, and discuss its characteristics. Once the students have identified the physical characteristics of the product, you can ask “What other characteristics does the company believe its product possesses?” This question will often raise the issue of “service.” Companies which might it be helpful to consider include: Xerox - an information management company (not just copiers) McDonalds, Burger King, Wendys - either compare the viewpoints of the three companies, or contrast them to a gourmet restaurant Volkswagen versus Volvo, Mercedes or Rolls Royce. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Characteristics of Service
Intangible product Produced & consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed © 1995 Corel Corp. Here it is probably useful to look to the students to identify both company and product. You might use the approach of taking one characteristic at a time and asking the students to identify a service that has that characteristic: Unique - wedding planning High customer interaction - health care Inconsistent definition - “consulting” etc. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Service Economies Proportion of Employment in the Service Sector

Goods Versus Services Can be resold Can be inventoried
Goods Service Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service At this point, you might approach this and the next several slides by asking students to identify a product (good or service as appropriate) that illustrates each characteristic. You might also ask them to identify products that violate one or more of these distinctions between goods and services. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Goods Versus Services - Continued
Goods Service Product is transportable Site of facility important for cost Often easy to automate Revenue generated primarily from tangible product Provider, not product is transportable Site of facility important for customer contact Often difficult to automate Revenue generated primarily from intangible service. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Goods Contain Services / Services Contain Goods
Automobile Computer Installed Carpeting Fast-food Meal Restaurant Meal Auto Repair Hospital Care Advertising Agency Investment Management Consulting Service This slide should help you make the point that a “product” is seldom only a “good” or only a “service” but usually includes some of each. You might also raise the point that as companies are reaching the limit of evolution of the physical (good), they are tending to add information (a service) to their product. Finally, it is important that the student be able to cite examples illustrating each of the ranges shown in the slide. Counseling 25 50 75 100 Percent of Product that is a Good Percent of Product that is a Service Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Organizations in Each Sector – Table 1.4
Service Sector Example % of all Jobs Professional services, education, legal, medical New York City PS108, Notre Dame University, San Diego Zoo 24.3 Trade (retail, wholesale) Walgreen’s, Wal-Mart, Nordstroms 20.6 Utilities, transportation Pacific Gas & Electric, American Airlines, Santa Fe R.R, Roadway Express 7.2 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Service Sector Example % of all Jobs Business & Repair Services Snelling & Snelling, Waste Management, Pitney-Bowes 7.1 Finance, Insurance, Real Estate Citicorp, American Express, Prudential, Aetna, Trammel Crow 6.5 Food, Lodging, Entertainment McDonald’s, Hard Rock Café, Motel 6, Hilton Hotels, Walt Disney Paramount Pictures 5.2 Public Administration U.S., State of Alabama, Cook County 4.5 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Manufacturing Sector Example % of all Jobs General General Electric, Ford, U.S. Steel, Intel 14.8 Construction Bechtel, McDermott 7.0 Agriculture King Ranch 2.4 Mining Homestake Mining 0.4 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Organizations in Each Sector – Table 1.4 Summary
% of all Jobs Service 75.4% Manufacturing 24.6% Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Development of the Service Economy
Percent United States Canada France Italy Britain Japan W Germany 1970 2000 Services Industry Farming 250 200 150 100 50 80 %70 60 40 30 20 10 U.S. Employment, % Share Services as a Percent of GDP U.S. Exports of Services In Billions of Dollars Year 2000 data is estimated Have your students consider the U.S. Employment Services/Industry/Farming shares. What factors will ultimately act to limit changes in this graph. What about the other two graphs? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Exciting New Challenges in Operations Management

Changing Challenges for the Operations Manager

The Productivity Challenge

The Economic System Transforms Inputs to Outputs
The economic system transforms inputs to outputs at about an annual 2.5% increase in productivity (capital 38% of 2.5%), labor (10% of 2.5%), management (52% of 2.5%) Land, Labor, Capital, Management Goods and Services Feedback loop Inputs Process Outputs Ask your students to consider why the rate of growth of productivity in the U.S. is so low. As they identify factors, have them link these factors to the resources of capital, labor, and management. This may also be a good point at which to introduce the notions of efficiency (doing a job well), and effectiveness (doing the right job). It may be especially helpful to discuss the conditions under which efficiency or effectiveness becomes the more important. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Typical Impact of Quality Improvement
As productivity improved Costs were pared Wages increased Parts per man hour 95 100 105 110 115 Year A Year B Year C Cost per unit decreased $1.50 $1.75 $2.00 $2.25 Year A Year B Year C Average worker's annual cash compensation increased 24000 25000 26000 27000 Year A Year B Year C This slide may help explain why an increasing productivity is so important if one wishes an increased standard of living. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Productivity Units produced Productivity = Input used
Measure of process improvement Represents output relative to input Only through productivity increases can our standard of living improve Productivity Units produced Input used = The productivity discussion can continue with this slide. One question for students might be: Why is the present rate of productivity improvement in the U.S. less than in the period 1889 to 1973? You might also ask them to consider what happens as the rate of productivity improvement approaches zero. Does this simply mean that the standard of living ceases to rise, or are there more ominous manifestations? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Multi-Product Productivity
Output Labor + material + energy + capital + miscellaneous This slide can be used to introduce multi-factor productivity. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Measurement Problems Quality may change while the quantity of inputs and outputs remains constant External elements may cause an increase or decrease in productivity Precise units of measure may be lacking Ask the students to think about why productivity is so difficult to measure. Have them identify several tasks or jobs, and help them identify some possible productivity measures. Ask them how they would go about making these measurements. Student and faculty productivity certainly provide examples that can generate discussion! You might ask your students if they believe “grades” measure student productivity. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Productivity Variables
Labor - contributes about 10% of the annual increase Capital - contributes about 32% of the annual increase Management - contributes about 52% of the annual increase Here again, faculty and student productivity make useful discussion generators. Students can certainly look at the role of both capital and management in the classroom - and they are likely to be able to tie the three productivity variables to the presentation or teaching methodologies of different faculty. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Key Variables for Improved Labor Productivity
Basic education appropriate for the labor force Diet of the labor force Social overhead that makes labor available Maintaining and enhancing skills in the midst of rapidly changing technology and knowledge You might first ask students to consider the conditions under which each of the key variables is most important. Once the conditions are identified, you might list the conditions on the board or screen and ask students to develop a method for comparing various countries on the basis of these conditions. Where would they place the U.S.? Developing countries? Etc. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Jobs in the U.S You might ask the students, how, in general, they might expect the figures shown in this graph to change over the next twenty years. In addition, initiate a discussion of how we have moved from “hunting and gathering” to “agriculture” to “manufacturing” to “service.” Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Comparison of Productivity

Investment and Productivity in Selected Nations

Service Productivity Typically labor intensive
Frequently individually processed Often an intellectual task performed by professionals Often difficult to mechanize Often difficult to evaluate for quality You can use this slide to frame a discussion of service productivity. Ask students to provide examples of services having each characteristic. Once they have done this, ask if they can think of a way to overcome or change the characteristics for that service so as to increase productivity. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

The Challenge of Social Responsibility
Increasing emphasis on business and social responsibility Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Operations Management Operations Strategy in a Global Environment Chapter 2

Outline GLOBAL COMPANY PROFILE: BOEING
DEVELOPING MISSIONS AND STRATEGIES Mission Strategy ACHIEVING COMPETITIVE ADVANTAGE THROUGH OPERATIONS Competing on Differentiation Competing on Cost Competing on Response TEN STRATEGIC OM DECISIONS You might begin the the thread of a discussion about mission and strategies forming the context for decision making within the company. This discussion can be continued throughout the chapter. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Outline - Continued ISSUES IN OPERATIONS STRATEGY
Research Preconditions Dynamics STRATEGY DEVELOPMENT AND IMPLEMENTATION Identify Critical Success Factors A Global view of Operations Cultural and Ethical Issues Build and Staff the Organization Integrate OM with Other Activities Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Outline - Continued GLOBAL OPERATIONS STRATEGY OPTIONS
International Strategy Multidomestic Strategy Global Strategy Transnational Strategy Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Learning Objectives When you complete this chapter, you should be able to : Identify or Define: Mission Strategy Ten Decisions of OM Multinational Corporations Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Describe or Explain: Specific approaches used by OM to achieve strategies Differentiation Low Cost Response Four Global Operations Strategies Why Global Issues are Important Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Examples of Global Strategies
Boeing – both sales and production are worldwide. Benetton – moves inventory to stores around the world faster than its competitor by building flexibility into design, production, and distribution Sony – purchases components from suppliers in Thailand, Malaysia, and around the world GM is building four similar plants in Argentina, Poland, China, and Thailand Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Boeing Suppliers (777) Firm Country Parts Alenia Italy Wing flaps
AeroSpace Technologies Australia Rudder CASA Spain Ailerons doors, wing section Fuji Japan Landing gear GEC Avionics United Kingdom Flight computers Korean Air Korea Flap supports Menasco Aerospace Canada Landing gears Short Brothers Ireland Landing gear doors Singapore This slide can be used to begin a discussion of the benefits and risks of “going global.” Students should be asked how risk is affected when there is a localized economic downturn such as that in Asia (particularly Japan) in early 1998. Students should also be asked to discuss the role of “paperless” design in such a global arrangement. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

The Role of Maquiladoras World Trade Organization (WTC)
North American Free Trade Agreement (NAFTA) European Union (EU) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Management Issues in Global Operations
Global Strategic Context Differentiation Cost leadership Response Supply Chain Management Location Decisions Logistics Management This slide frames the discussion of management issues in global operations. Subsequent slides expand on the issues in Supply-Chain Management, Location Decisions, and Logistics Management. Students should not only understand these issues, but should also have some concept as to why there are significant differences between global and domestic (or national) operations. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Supply-Chain Management
Sourcing Vertical integration Make-or-buy decisions Partnering Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Location Decisions Country-related issues Product-related issues
Government policy/political risk Organizational issues Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Materials Management Flow of materials
Transportation options and speed Inventory levels Packaging Storage Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Defining Global Operations
International business - engages in cross-border transactions Multinational Corporation - has extensive involvement in international business, owning or controlling facilities in more than one country Global company - integrates operations from different countries, and views world as a single marketplace Transnational company - seeks to combine the benefits of global-scale efficiencies with the benefits of local responsiveness One way to get at the differences between these definitions is to have students visit the web sites of a number of companies and gather information about them, then use these companies as examples. The list of companies could be give out in a prior class, or at the beginning of the semester (we suggest that the list be given at the beginning of the semester - and the information gathered used throughout the semester). Ask the students to identify their company and place it in one of the categories. Seek their justification for its placement. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Some Multinational Corporations
Workforce Company Home Country % Sales Outside % Assets % Foreign Colgate- Palmolive USA 72 63 NA Dow Chemical 60 50 Gillette 62 53 Honda Japan 36 IBM 57 47 51 Citicorp 34 46 This slide can be used to further explore the characteristics of multinational companies Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Some Multinational Corporations
Workforce Company Home Country % Sales Outside % Assets % Foreign ICI Britain 78 50 NA Nestlé Switzerland 98 95 97 Philips Netherlands 94 85 82 Siemens Germany 51 38 Electronics Unilever Britain & Netherlands 70 64 This slide can be used to further explore the characteristics of multinational companies Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Pontiac - the LeMans Included the Following
About $6,000 heads to South Korea for auto’s assembly $3,500 goes to Japan for engines, axles, and electronics $1,500 goes to Germany for design $800 goes to Taiwan, Singapore, and Japan for smaller parts $500 heads to England for marketing $100 goes to Ireland for information technology the rest  $7,600, goes to GM and its US bankers, insurance agents, and attorneys. This slide uses a familiar example to demonstrate the degree of globalization in the production of a common product. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Reasons to Globalize Operations
Tangible Intangible Reduce costs (labor, taxes, tariffs, etc.) Improve the supply chain Provide better goods and services Attract new markets Learn to improve operations Attract and retain global talent This slide can be used to frame a discussion of the benefits of globalization. You should be certain to ask students if they can see any pitfalls. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Trade and Tariff Maquiladoras - Mexican factories located along the U.S.-Mexico border that receive preferential tariff treatment GATT - an international treaty that helps promote world trade by lowering barriers to the free flow of goods across borders NAFTA - a free trade agreement between Canada, Mexico, and the United States You can use this slide to frame a discussion as to the role and impact of trade and tariffs. If time permits, you might ask students to, as preparation for this class, use the World-Wide Web to research the differing opinions of U.S. business and labor regarding the GATT and NAFTA agreements. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Trade Pays GDP (PPP*) per Person 1990 Growth Rates, %
*PPP – Purchasing Power Parity Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Free trade may take us into the era of the floating factory - a six person crew will take a factory from port to port in order to obtain the best market, material, labor and tax advantages This may sound like a strange proposition to students - but is it an extreme example of what may occur if trade is complete unregulated? Ask students what other alternatives to (or extensions of) today’s practices they can think of. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Achieving Global Operations -Four Considerations-
Global product design Global process design and technology Global factory location analysis Impact of Culture and Ethics This slide introduces four considerations required for global operations. Ask students which consideration they believe to present the most difficult problems. The following several slides elaborate on the four considerations. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Global Product Design Remember social and cultural differences
packaging and marketing can help make product seem “domestic” but - “liter” versus “quart” “sweetness” and “taste” In June 1998, a company began marketing caskets (that’s right, caskets) directly to the consumer over the Internet. Ask your students to consider how the design of this product might be impacted if the company begins to offer this product globally. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Global Process Design and Technology
Information technology enables management of integrated, globally dispersed operation Texas Instruments: 50 plants in 19 countries Hewlett-Packard - product development teams in U.S., Japan, Great Britain, and Germany Reduces time-to-market This slide looks at some of the process design benefits of going global. Are there some pitfalls? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Global Facility Location Analysis
Using CSFs for Country Selection Select CSFs based on parent organization;’s strategic or operations objectives Obtain country-specific information on the CSFs Evaluate each country’s CSFs using a 1 (bad) to 5 (good) rating scale Sum the ratings This slide introduces the use of Critical Success Factors in Global Location Analysis. One might ask students to consider the problem of obtaining the information required for such an analysis. How does information technology contribute? What are its limitations? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

You May Wish To Consider
national literacy rate rate of innovation rate of technology change number of skilled workers stability of government product liability laws export restrictions similarity in language work ethic tax rates inflation availability of raw materials interest rates population number of miles of highway This slide presents a list of national characteristics one may wish to consider. Ask students to add to this list. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Global Impact of Culture and Ethics
Cultures differ! Some accept/expect: variations in punctuality long lunch hours expectation of thievery bribery little protection of intellectual property This slide introduces the impact of culture and ethics on management of the global enterprise. Students should be asked “How does a manager of a U.S. firm deal with differing cultural expectations?” One example would be the use of bribery as an element in contract negotiations. U.S law prohibits the use of bribery. What problems or ethical dilemmas does this create for the manager? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Ranking Corruption 1. Finland 9.7 Denmark & New Zealand (Tie) 9.5 …
Canada 10. United Kingdom United States 18. Germany & Israel (Tie) Japan Italy China Egypt India & Russia (Tie) Nigeria Bangladesh Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

To Establish Global Services
Determine if sufficient people or facilities exist to support the service Identify foreign markets that are open - not controlled by governments Determine what services are of most interest to foreign customers Determine how to reach global customers The best approach to this slide may be to present examples to illustrate the points listed. Two examples might be: a lack of infra-structure within many second and third world countries limits the nature or degree of many services; and countries may place special restrictions on the import of particular products (Brazil, at least until recently, required that all computers sold in the country be assembled there). Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Managing Global Service Operations
Must take a different perspective on Capacity planning Location Planning Facilities design and layout Scheduling Here, it is important to at least note why one must take a different perspective on these issues. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Some Definitions International business
A firm that engages in cross-border transactions. Multinational Corporation (MNC) A firm that has extensive involvement in international business, owning or controlling facilities in more than one country Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Some Global Strategies
International Strategy: uses exports and licenses to penetrate the global area Multidomestic Strategy: uses decentralized authority with substantial autonomy at each business Global Strategy: Uses a high degree of centralization, with headquarters coordinating to seek standardization and learning between plants Transnational Strategy: Exploits economies of scale and learning, as well as pressure for responsiveness, by recognizing that core competencies reside everywhere in the organization You might either suggest or ask the students to suggest the names of one or more companies which use one or another of these strategies. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Match Product & Parent Arrow shirts Braun Household Appliances
Burger King Firestone Tires Godiva Chocolate Haagen_dazs Ice Cream Jaguar Autos MGM Movies Lamborghini Autos Goodrich Tires Alpo Petfoods 1. Volkswagen 2. Bidermann International 3. Bridgestone 4. Campbell Soup 5. Credit Lyonnais 6. Ford Motor Company 7. Gillette 8. Grand Metropolitan 9. Michelin 10. Nestlé This and the subsequent slide simply prompt students to think about some of the unexpected relationships. You might ask students to suggest some of the reasons such relationships developed. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Match Product & Country
Arrow shirts Braun Household Appliances Burger King Firestone Tires Godiva Chocolate Haagen_Dazs Ice Cream Jaguar Autos MGM Movies Lamborghini Autos Goodrich Tires Alpo Petfoods 1. France 2. Great Britain 3. Germany 4. Japan 5. United States 6. Switzerland Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Developing Missions and Strategies

Mission Mission - where are you going?
Organization’s purpose for being Provides boundaries & focus Answers ‘What do we provide society?’ © 1995 Corel Corp. You might ask students to prepare for class by visiting several company web sites, and, for each company: locating the company mission, and printing a copy of the mission to bring to class. The students should also be asked to, if possible, determine the strategy used by the company to achieve its avowed mission. You might even ask that a student finding a mission statement that they believe of special interest, bring a copy of the statement on a transparency. You might begin the class by asking students why a company’s mission is so important. Does it really convey important information, or is it, as some cynics might claim, simply an expression of wishful thinking? Among other benefits, the mission provides an “umbrella” under which decisions should be made. This may be especially useful for a global enterprise. If the students have obtained the mission statements of companies with which they are familiar, you might ask if their perception of the company suggests that it is fulfilling it published mission. If the answer is “No,” ask what suggests otherwise. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Mission of FedEx FedEx is committed to our People-Service-Profit philosophy. We will produce outstanding financial returns by providing total reliable, competitively superior, global air-ground transportation of high priority goods and documents that require rapid, time-certain delivery. Equally important, positive control of each package will be maintained using real time electronic tracking and tracing systems. A complete record of each shipment and delivery will be presented with our request for payment. We will be helpful, courteous, and professional to each other and the public. We will strive to have a completely satisfied customer at the end of each transaction. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Sample Mission - Merck The mission of Merck is to provide society with superior products and services - innovations and solutions that improve the quality of life and satisfy customer needs - to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return Ask the students to compare the mission of Circle K with this of Merck (and with those they have located). What does the recognition of employees and investors signify? Is it reasonable to suggest that employees and investors should be recognized in all mission statements? Does such recognition have any significance with regard to employee working conditions, corporate decision making, or corporate attitude toward risk? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Mission of the Hard Rock Café
To spread the spirit of Rock ‘n’ Roll by delivering an exceptional entertainment and dining experience. We are committed to being an important, contributing member of our community and offering the Hard Rock family a fun, healthy, and nurturing work environment while ensuring our long-term success. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Factors Affecting Mission
Philosophy & Values Profitability Environment & Growth Mission Customers Public Image One can obviously discuss the impact of each of these factors on a company mission. An alternative is to have each student take a company mission and identify the connection to each of the factors. In particular, ask students if the connection is uni- or bi-directional, i.e., “The environment within which a company operates may impact its mission, can the mission also impact the environment?” Benefit to Society Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Mission/Strategy Mission - where you are going
Strategy - how you are going to get there; an action plan The distinction between mission and strategy probably requires some discussion. The best approach might be to ask students, who have obtained the mission statements of companies with which they are familiar, to discuss their perception of the company strategy. There may also be companies which publish a statement of strategy as well their mission on their web site. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Strategy Action plan to achieve mission
Shows how mission will be achieved Company has a business strategy Functional areas have strategies © 1995 Corel Corp. Here, you might introduce the hierarchical nature of strategies, and, as prelude to subsequent slides, ask students whether they believe it is better to plan from the top down, or bottom up. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Strategy Process Marketing Decisions Operations Fin./Acct. Company
Mission Business Strategy Functional Area Strategies This slide can be used to frame a discussion of the process of developing strategies. If so, the steps of Environmental and SWOT Analysis should be expanded. You might also ask the students “Whose responsibility is Strategy Planning?” Is participation in this process restricted to upper level management, or does it involve all levels of employees? Might one have different expectations for the answer to this question for a particular company ( Circle K as opposed to Merck)? The contrast between strategy planning for all levels of the organization at once, versus strategy planing for the organization as a whole, with subsequent “rolldown” to lower levels might be discussed. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Strategies for Competitive Advantage
Differentiation Cost leadership Quick response This slide simply opens the discussion on the several modes of competing. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Competing on Differentiation
Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer’s perception of value Ask students for examples of companies competing on the basis of differentiation. If they cannot identify any, you can fall back on a discussion of McDonalds, Burger King, and Wendys. Ask the students to identify the differences between the three franchises. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Competing on Cost Provide the maximum value as perceived by customer
Does not imply low value or low quality One of the major points to be made here is that “competing on cost” does not necessarily mean “having the lowest cost: There is also the notion of value, and in particular, value defined by the customer. There are some drivers who will argue that Volvo competes on cost suggesting that Volvos are “low cost” for a vehicle with such “demonstrated” safety benefits and long life expectancy. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Competing on Response Flexibility Reliability Timeliness
Requires institutionalization within the firm of the ability to respond Most students readily acknowledge that competing on the basis of response involves the notion of quickness or speed, so the discussion should probably concentrate on the other three elements. The concept of and need for “institutionalization” will likely require significant discussion. Here you might point out that “response” is seldom the prerogative of any, single, individual - appropriate response is often the outcome of the work of many. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Competing, Regardless of the Basis,
Requires the institutionalization within the firm of the ability to change, and to adapt You might point out that businesses now operate in a very rapidly changing environment - and that these changes are often in fundamental characteristics of the environment, e.g., use of the world-wide web is enabling some very fundamental changes in the way in which firms do business. Competing on any basis (differentiation, cost, or response) requires the ability to adapt to these changes on a firm-wide basis, not as individuals.. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

OM’s Contribution to Strategy
Quality Product Process Location Layout Human Resource Supply Chain Inventory Scheduling Maintenance HP’s ability to follow the printer market Differentiation (Better) Cost leadership (Cheaper) Southwest Airlines No-frills service Sony’s constant innovation of new products Pizza Hut’s five-minute guarantee at lunchtime Federal Express’s “absolutely, positively on time” Motorola’s automotive products ignition systems Motorola’s pagers IBM’s after-sale service on mainframe computers Fidelity Security’s broad line of mutual funds FLEXIBILITY Design Volume LOW COST DELIVERY Speed Dependability QUALITY Conformance Performance AFTER-SALE SERVICE BROAD PRODUCT LINE Operations Decisions Examples Specific Strategy Used Competitive Advantage Response (Faster) Students can be asked to add to the list of examples shown in this slide. You might also ask students whether OM can contribute in similar ways in all industries. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

10 Strategic OM Decisions
Goods & service design Quality Process & capacity design Location selection Layout design Human resource and job design Supply-chain management Inventory Scheduling Maintenance This slide simply introduces the 10 decisions. You may not wish to do more than “define” the decision area and give one or two examples. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Goods & Services and the 10 OM Decisions
Here again, you might look particularly at the impact of the difference between goods and services. You may be able to get students to consider such consequences as the level of worker skill required, the difficulty in controlling quality, etc. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Goods & Services and the 10 OM Decisions – Continued

Process Design Job Shops Mass Customization Assembly line Continuous
Process-focused Job Shops (Print shop, emergency room , machine shop, fine dining Repetitive (modular) focus Assembly line (Cars, appliances, TVs, fast-food restaurants) Product-focused Continuous (steel, beer, paper, bread, institutional kitchen) Mass Customization Customization at high Volume (Dell Computer’s PC) Low Moderate High Volume High Moderate Low Variety of Products This slide can be used to introduce the process design options, and help students begin to understand the conditions of volume and variety under which they are most useful. Student should be asked to provide and discuss examples. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Operations Strategies for Two Drug Companies
Here it may be helpful to point out that although the strategies are significantly different for the two companies, both successful. If possible, you should have students consider what the missions of the two companies might be. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Operations Strategies for Two Drug Companies - Continued

Characteristics of High ROI Firms
High quality product High capacity utilization High operating effectiveness Low investment intensity Low direct cost per unit This is the first of several slides portraying the results of some fairly recent research. You might point out that these are necessary conditions, perhaps not sufficient. From the PIMS study of the Strategic Planning Institute Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Strategic Options Managers Use to Gain Competitive Advantage
28% - Operations Management 18% - Marketing/distribution 17% - Momentum/name recognition 16% - Quality/service 14% - Good management 4% - Financial resources 3% - Other If one argues that the quality/service categories really belong in OM, the total for OM reaches 44%. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Strategic Options Managers Use to Gain Competitive Advantage
28% Operations Management Low- cost product Product-line breadth Technical superiority Product characteristics/differentiation Continuing product innovation Low-price/high-value offerings Efficient, flexible operations adaptable to consumers Engineering research development Location Scheduling A second study: 248 business were asked to rate thirty two categories. The more general results are given in the next slide Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Preconditions - To Implement a Strategy
One must understand: Strengths & weaknesses of competitors and new entrants into the market Current and prospective environmental, legal, and economic issues The notion of product life cycle Resources available with the firm and within the OM function Integration of OM strategy with company strategy and with other functions. Make the point here that this is a minimum set of “necessary” issues which must be understood. Understanding these alone does not guarantee success. If you have not done it before, here is where you can begin to prod students into looking at the true complexity faced by the operations manager., Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Impetus for Strategy Change
Changes in the organization Stages in the product life cycle Changes in the environment You might begin here to raise the notion that change in strategy is not optional - but must occur when any other factor(s) change(s). The Japanese have come to view strategy as being continually adaptive. The next slide lists the stages in the product life cycle. The several slides following that elaborate on strategic issues over the product life cycle. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Stages in the Product Life Cycle
Introduction Growth Maturity Decline Growth rate The purpose of this slide is simply to introduce the stages of the product life cycle and provide time for the instructor to present brief definitions. A context for further elaboration is provided by the following four slides. The fifth enables a useful summary. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Strategy & Issues During Product Life
Introduction Company Strategy & Issues OM Strategy & Issues Best period to increase market share R&D engineering are critical Product design and development are critical Frequent product and process design changes Over-capacity Short production runs High skilled-labor content High production costs Limited number of models Utmost attentions to quality Quick elimination of market-revealed design defects As you discuss the product life cycle, it may be helpful to ask students to identify products they believe to currently be in the stage under discussion. Ask them what evidence they have to support their conclusions. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Growth Company Strategy & Issues OM Strategy Practical to change prices or quality image Marketing is critical Strengthen niche Forecasting is critical Product and process reliability Competitive product improvements and options Shift toward product oriented Enhance distribution Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Maturity Poor time to increase market share Competitive costs become critical Poor time to change price, image, or quality Defend position via fresh promotional and distribution approaches Standardization Less rapid product changes and more minor annual model changes Optimum capacity Increasing stability of manufacturing process Lower labor skills Long production runs Attention to product improvement and cost cutting Re-examination of necessity of design compromises Company Strategy & Issues OM Strategy Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Decline Company Strategy & Issues OM Strategy Cost control critical to market share Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning Good margin Reduce capacity Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Strategy and Issues During a Product’s Life
This slide can be useful in summarizing strategy changes over the lifecycle of the product. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Strategy Development and Implementation
Identify critical success factors Build and staff the organization It might be helpful here to define “critical success factors.” Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Environmental Analysis Determine Corporate Mission
SWOT Analysis Process Environmental Analysis Determine Corporate Mission This slide can be used to frame a discussion of SWOT analysis. Students should be asked what types of questions might be appropriate at each stage. Form a Strategy Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

SWOT Analysis to Strategy Formulation
Mission Internal External S trengths O pportunities Strategy This slide frames the individual elements of the SWOT analysis process. The notion that SWOT must look at both internal and external issues can be raised here. It may also be worthwhile stressing that the Internal analysis must be: 1. A critical analysis with an honest, open-minded assessment, not politically driven 2. An assessment of strengths and weaknesses in light of the specific corporate mission. Internal External W eaknesses T hreats Competitive Advantage Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Identifying Critical Success Factors
Marketing Service Distribution Promotion Channels of distribution Product positioning (image, functions) Finance/Accounting Leverage Cost of capital Working capital Receivables Payables Financial control Lines of credit Production/Operations Decisions Sample Option Chapter Product Customized, or standardized Quality Define customer expectations and how to achieve them , S6 Process Facility size, technology, capacity , S7 Location Near supplier or customer Layout Work cells or assembly line Human resource Specialized or enriched jobs , S10 Supply chain Single or multiple source suppliers , S11 Inventory When to reorder, how much to keep on hand , 14,16 Schedule Stable or fluctuating productions rate , 15 Maintenance Repair as required or preventive maintenance This slide introduces the notion of Critical Success Factors. Many students seem to perceive Critical Success Factor analysis as an “easy” process. It may help to ask your students to develop a list of critical success factors for a business with which they are familiar. (If all else fails, ask them to develop the critical success factors for the college or university they attend.) Once they have identified a number of factors (the number depending on the time available), make them go back and justify the importance of each factor. As they are in the process of justification, ask “What happens if the business fails to adequately address this factor?” At this point, begin to help them differentiate between factors which will result in sub-optimal performance and those which will result in outright failure. In many colleges/universities, for example, offering a top quality program may not be necessary, while ensuring that each graduate has a job offer upon graduation may be. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Activity Mapping: Southwest Airline’s Low Cost Competitive Advantage
Courteous, but limited passenger service Lean, productive employees Short haul, point-to-point routes, often to secondary airports High aircraft utilization Standardized fleet of Boeing 737 aircraft Frequent, reliable schedules Competitive Advantage: Low Cost Discuss how the individual strategies combine to achieve the overall company mission. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Courteous, but limited passenger service No seat assignments No baggage transfers Automated ticketing machines No meals Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Short haul, point-to-point routes, often to secondary airports Lower gate costs at secondary airports High number of flights, reduces employee idle time between flights Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Frequent, reliable schedules High number of flights reduces employee idle time between flights Saturate a city with flights lowering administrative costs per passenger for that city Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Standardized fleet of Boeing 737 aircraft Pilot training on only one type of aircraft Reduced maintenance inventory required because of only one type of aircraft Excellent supplier relations with Boeing has aided financing Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

High aircraft utilization Flexible employees and standard planes aids scheduling Flexible union contracts Maintenance personnel trained on only one type of aircraft 20 minute gate turnarounds Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Lean, productive employees High level of stock ownership Hire for attitude, then train High employee compensation Empowered employees Automated ticket machines Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Courteous, but limited passenger service Lean, productive employees Short haul, point-to-point routes, often to secondary airports High aircraft utilization Standardized fleet of Boeing 737 aircraft Frequent, reliable schedules Competitive Advantage: Low Cost Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Southwest Airline’s Low Cost Competitive Advantage

Vanguard’s Activity System
A broad array of mutual funds excluding some fund categories Efficient investment management approach offering good consistent performance Straightforward client communication and education Strict cost control Direct distributions Very low expenses passed on to client Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

How It Works If competitive advantage, leads to achieving
Company Mission Business Strategy Functional Area Strategies Marketing Decisions Operations Fin./Acct. If competitive advantage, leads to achieving Distinctive competencies affect This slide can be used to tie coverage of Chapter 2 together. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Four International Operations Strategies

Multidomestic Strategy
Operating decisions are decentralized to each country to enhance local responsiveness Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Global Strategy Operating decisions are centralized and headquarters coordinates the standardization and learning between facilities Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Transnational Strategies
Combines the benefits of global-scale efficiencies with the benefits of local responsiveness Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

International Strategy
Global markets are penetrated using exports and licenses Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Operations Management Project Management Chapter 3

Outline GLOBAL COMPANY PROFILE: BECHTEL GROUP
THE IMPORTANCE OF PROJECT MANAGEMENT PROJECT PLANNING The Project Manager Work Breakdown Structure PROJECT SCHEDULING PROJECT CONTROLLING Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Outline - Continued PROJECT MANAGEMENT TECHNIQUES: PERT AND CPM
The Framework of PERT and CPM Network Diagrams and Approaches Activity on Node Example Determining the Project Schedule Forward Pass Backward Pass Calculating Slack Time and Identifying the Critical Path(s) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Outline - Continued Cost-Time Tradeoffs and Project Crashing
Variability in Activity Times Three Time Estimates in PERT Probability of Project Completion Cost-Time Tradeoffs and Project Crashing A Critique of PERT and CPM Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Learning Objectives When you complete this chapter, you should be able to : Identify or Define: Work breakdown structure Critical path AOA and AON Networks Forward and Backward Passes Variability in Activity Times Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

When you complete this chapter, you should be able to : Describe or Explain: The role of the project manager Program evaluation and review technique (PERT) Critical path method (CPM) Crashing a project The Use of MS Project Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Bechtel Asked by Kuwait to begin rebuilding after Desert Storm
650 wells ablaze, others uncapped No water, electricity, food or facilities Land mines! Bombs! Grenades! Many fires inaccessible because of oil-covered roads It may be helpful here to ask students to compare the effort they believe necessary to manage this project to the effort they believe required to actually perform the physical tasks. Total cost might be a useful unit of comparison. One might expect the management cost to run 10% - 20% of the total. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Bechtel Project required:
Storage, docking, and warehousing facilities at Dubai 125,000 tons of equipment and supplies 150 kilometers of pipeline capable of delivering 20,000,000 gallons of water per day to the fire site more than 200 lagoons with 1,000,000 gals of seawater Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Bechtel Other Projects
Building 26 massive distribution centers in just two years for the internet company Webvan Group Constructing 30 high-security data centers worldwide for Equinix, Inc. Building and running a rail line between London and the Channel Tunnel ($4.6 billion) Developing an oil pipeline from the Caspian Sea region to Russia ($850 million) Expanding the Dubai Airport in the UAE ($600 million), and the Miami Airport in Florida ($2 billion) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Bechtel Other Projects - Continued
Building liquid natural gas plants in Yemen $2 billion) and in Trinidad, West Indies ($1 billion) Building a new subway for Athens, Greece ($2.6 billion) Constructing a natural gas pipeline in Thailand ($700 million) Building a highway to link the north and south of Croatia ($303 million) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Strategic Importance of Project Management
Bechtel Kuwait Project: 8,000 workers 1,000 construction professionals 100 medical personnel 2 helicopter evacuation teams 6 full-service dining halls 27,000 meals per day 40 bed field hospital Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Strategic Importance of Project Management - Continued
Microsoft Windows XP Project: hundreds of programmers millions of lines of code millions of dollars cost Ford Redesign of Mustang Project: 450 member project team Cost $700-million 25% faster and 30% cheaper than comparable project at Ford Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Project Characteristics
Single unit Many related activities Difficult production planning and inventory control General purpose equipment High labor skills It is helpful here to provide an expanded discussion of the activities. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

An Example Research project © 1995 Corel Corp.
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J © Corel Corp.

Management of Large Projects
Planning - goal setting, project definition, team organization Scheduling - relating people, money, and supplies to specific activities and activities to one and other Controlling - monitoring resources, costs, quality, and budgets; revising plans and shifting resources to meet time and cost demands Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Project Management Activities
Planning Objectives Resources Work break-down schedule Organization Scheduling Project activities Start & end times Network Controlling Monitor, compare, revise, action A useful project management technique must contribute in all areas. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Project Organization Works Best When
Work can be defined with a specific goal and deadline The job is unique or somewhat unfamiliar to the existing organization The work contains complex interrelated tasks requiring specialized skills The project is temporary but critical to the organization Students should be asked to explain why these requirements are appropriate. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Project Planning, Scheduling, and Controlling
1. Setting goals 2. Defining the project 3. Tying needs into timed project activities 4. Organizing the team Project Scheduling 1. Tying resources to specific 2. Relating activities to each other 3. Updating and revising on a regular basis Time/cost estimates Budgets Engineering diagrams Cash flow charts Material availability details CPM/PERT Gantt charts Milestone charts Cash flow schedules Project Controlling 1. Monitoring resources, costs, quality, and budgets 2. Revising and changing plans 3. Shifting resources to meet demands Reports budgets delayed activities slack activities Before Project During Project Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Project Planning, Scheduling, and Controlling

Project Planning Establishing objectives Defining project
Creating work breakdown structure Determining resources Forming organization If students have been assigned a term project, this material can be covered early in the semester and the students asked to develop a plan for their project. © 1995 Corel Corp. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Project Organization Often temporary structure
Uses specialists from entire company Headed by project manager Coordinates activities Monitors schedule & costs Permanent structure called ‘matrix organization’ Acct. Eng. Mkt. Mgr. This may be a good time to look, at least briefly, at alternative organizational structures. Certainly hierarchical and matrix structures should be examined. The role of information technology in each of the alternatives should be examined. The following several slides illustrate various organizational structures. © 1995 Corel Corp. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

A Sample Project Organization
President Sales Finance Human Resources Engineering Quality Control Production Project Manager Project 1 Physiologist Propulsion Engineer Test Engineer Technician How does the structure of the project organization compare with the typical structure of the larger organization? Project Manager Project 2 Psychologist Structural Engineer Inspection Technician Technician Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

A Sample Project Organization
President Human Resources Sales Finance Engineering Quality Control Production Project Manager Project 1 Propulsion Engineer Test Engineer Technician How does the structure of the project organization compare with the typical structure of the larger organization? Project Manager Project 2 Structural Engineer Inspection Technician Technician Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

 Matrix Organization Mkt Oper Eng Fin Project 1 Project 2 Project 3

The Role of the Project Manager
Project Plan and Schedule Revisions and Updates Project Manager Team Top Management Resources Performance Reports Information regarding times, costs, problems, delays Feedback Loop Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Work Breakdown Structure
1. Project Major tasks in the project 3. Subtasks in the major tasks Activities (or work packages) to be completed Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Project Scheduling Identifying precedence relationships
Sequencing activities Determining activity times & costs Estimating material & worker requirements Determining critical activities © 1995 Corel Corp. J F M A Month Activity Design Build Test PERT Given that a project is something the firm is relatively unfamiliar with, how does one go about determining the appropriate costs and times? You might point out that specifying the beginning and end points for an activity is often a difficult task. Work breakdown may be the most difficult aspect of many projects. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Purposes of Project Scheduling
Shows the relationship of each activity to others and to the whole project. Identifies the precedence relationships among activities. Encourages the setting of realistic time and cost estimates for each activity. Helps make better use of people, money, and material resources by identifying critical bottlenecks in the project. You might point out to students that there are those who claim that the real benefit of using project management tools comes from the planning and organizing effort, not the actual management of the tasks during the project. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Project Management Techniques
Gantt chart Critical Path Method (CPM) Program Evaluation & Review Technique (PERT) As you discuss the various project scheduling techniques, you should include at least: - the basic assumptions of the technique - problems typically encountered in applying it - the nature of the effort required to keep the tool current - sources of problems - the nature of the decisions supported by the tool - the nature of the management effort and cost associated with using the tool. © T/Maker Co. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Gantt Chart J F M A Time Period Activity Design Build Test

Service Activities for A Delta Jet During a 60 Minute Layover

Project Control Reports
Detailed cost breakdowns for each task Total program labor curves Cost distribution tables Functional cost and hour summaries Raw materials and expenditure forecasts Variance reports Time analysis reports Work status reports Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

PERT and CPM Network techniques Developed in 1950’s
CPM by DuPont for chemical plants (1957) PERT by Booz, Allen & Hamilton with the U.S. Navy, for Polaris missile (1958) Consider precedence relationships and interdependencies Each uses a different estimate of activity times What circumstances lead the two organizations to develop different, yet similar tools for the management of complex projects? In your discussion of PERT/CPM, you should probably note that PERT helps us identify critical tasks/activities and look at the probability of completing the project by a given date; CPM helps us analyze the cost/time tradeoffs possible if we need to speed the project up. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Questions Which May Be Addressed by PERT & CPM
Is the project on schedule, ahead of schedule, or behind schedule? Is the project over or under cost budget? Are there enough resources available to finish the project on time? If the project must be finished in less than the scheduled amount of time, what is the way to accomplish this at least cost? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

The Six Steps Common to PERT & CPM
Define the project and prepare the work breakdown structure, Develop relationships among the activities. (Decide which activities must precede and which must follow others.) Draw the network connecting all of the activities Assign time and/or cost estimates to each activity Compute the longest time path through the network. This is called the critical path Use the network to help plan, schedule, monitor, and control the project Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

A Comparison of AON and AOA Network Conventions

Milwaukee General Hospital’s Activities and Predecessors
Activity Description Immediate Predecessors A Build internal components - B Modify roof and floor C Construct collection stack D Pour concrete and install frame A, B E Build high-temperature burner F Install pollution control system G Install air pollution device D, E H Inspect and test F, G Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

AON Network for Milwaukee General Hospital
Start A B C D F G H Arrows show precedence relationships Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

AOA Network (With Dummy Activities) for Milwaukee General
Construct stack 1 3 2 4 5 6 7 A Build internal components Install controls F Dummy Activity Build burner E H Inspect/Test Modify roof/floor B Install pollution control device G D Pour concrete/ Install frame Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Critical Path Analysis
Provides activity information Earliest (ES) & latest (LS) start Earliest (EF) & latest (LF) finish Slack (S): Allowable delay Identifies critical path Longest path in network Shortest time project can be completed Any delay on critical path activities delays project Critical path activities have 0 slack This and the next several slides illustrate the definitions of terms appropriate to critical path analysis. There are many opportunities for good managers to truly manage a project once they have a PERT network established. For instance, sub-contractors know early start and late start times and the managers know the activities on the critical path upon which to focus effort. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Earliest Start and Finish Steps
Begin at starting event and work forward ES = 0 for starting activities ES is earliest start EF = ES + Activity time EF is earliest finish ES = Maximum EF of all predecessors for non-starting activities Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Latest Start and Finish Steps
Begin at ending event and work backward LF = Maximum EF for ending activities LF is latest finish; EF is earliest finish LS = LF - Activity time LS is latest start LF = Minimum LS of all successors for non-ending activities Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Latest Start and Finish Steps
LS EF LF Earliest Finish Latest Start Earliest Start Activity Name Activity Duration Latest Finish Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Critical Path for Milwaukee General Hospital
Start H B D G Arrows show precedence relationships Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

AON Network for Milwaukee General HospitalIncludes Critical Path
Start A B C D F G H 13 2 15 8 5 4 10 3 7 E 1 Slack=0 Slack=6 Slack=1 Slack=0 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Gantt Chart Earliest Start and Finish
Milwaukee General Hospital A Build internal components B Modify roof and floor C Construct collection stack D Pour concrete and install frame E Build high-temperature burner F Install pollution control system G Install air pollution device H Inspect and test This and the following slide illustrate the translation of Early and Late Start and Finish time to Gantt charts. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Gantt Chart Latest Start and Finish
Milwaukee General Hospital A Build internal components B Modify roof and floor C Construct collection stack D Pour concrete and install frame E Build high-temperature burner F Install pollution control system G Install air pollution device H Inspect and test This and the following slide illustrate the translation of Early and Late Start and Finish time to Gantt charts. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Gantt Chart Latest Start and Finish
1-2 Fdn & frame 1-3 Buy shrubs 2-3 Roof 2-4 Interior work 3-4 Landscape 4 5 6 7 8 9 1 2 3 Activity Build House Project Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

 PERT Activity Times 3 time estimates Follow beta distribution
Optimistic times (a) Most-likely time (m) Pessimistic time (b) Follow beta distribution Expected time: t = (a + 4m + b)/6 Variance of times: v = (b - a)2/6  In your discussion of activity times, you should probably at least make note of the difference between “most likely” and “average” or “ expected” completion times. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Project Times Expected project time (T) Project variance (V)
Used to obtain probability of project completion! Expected project time (T) Sum of critical path activity times, t Project variance (V) Sum of critical path activity variances, v Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

PERT Probability Example
You’re a project planner for General Dynamics. A submarine project has an expected completion time of 40 weeks, with a standard deviation of 5 weeks. What is the probability of finishing the sub in 50 weeks or less? © Corel Corp. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Converting to Standardized Variable
X - T 50 - 40 Z = = = 2 . s 5 Normal Distribution Standardized Normal Distribution s s = 5 = 1 Z T = 40 50 X m = 0 2.0 Z z Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Obtaining the Probability
Standardized Normal Probability Table (Portion) Z .00 .01 .02 s = 1 0.0 .50000 .50399 .50798 Z : : : : 2.0 .97725 .97784 .97831 .97725 m = 0 2.0 Z 2.1 .98214 .98257 .98300 z Probabilities in body Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Variability of Completion Time for Noncritical Paths
Variability of times for activities on noncritical paths must be considered when finding the probability of finishing in a specified time. Variation in noncritical activity may cause change in critical path. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Factors to Consider when Crashing
The amount by which an activity is crashed is, in fact, permissible. Taken together, the shortened activity durations will enable one to finish the project by the due date. The total cost of crashing is as small as possible. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Steps in Project Crashing
Compute the crash cost per time period. For crash costs assumed linear over time: Using current activity times, find the critical path If there is only one critical path, then select the activity on this critical path that (a) can still be crashed, and (b) has the smallest crash cost per period. Note that a single activity may be common to more than one critical path Update all activity times. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Crash and Normal Times and Costs for Activity B

Cost-Time Curves Used in Crashing Analysis

Advantages of PERT/CPM
Especially useful when scheduling and controlling large projects. Straightforward concept and not mathematically complex. Graphical networks aid perception of relationships among project activities. Critical path & slack time analyses help pinpoint activities that need to be closely watched. Project documentation and graphics point out who is responsible for various activities. Applicable to a wide variety of projects. Useful in monitoring schedules and costs. There are those that argue that the Polaris could not have been built without the use of project management techniques (PERT). Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Limitations of PERT/CPM
Assumes clearly defined, independent, & stable activities Specified precedence relationships Activity times (PERT) follow beta distribution Subjective time estimates Over-emphasis on critical path Another issue with respect to the use of PERT/CPM is the cost and amount of management time required to keep the system up to date. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Operations Management Forecasting Chapter 4

Outline GLOBAL COMPANY PROFILE: TUPPERWARE CORPORATION
WHAT IS FORECASTING? Forecasting Time Horizons The Influence of Product Life Cycle TYPES OF FORECASTS THE STRATEGIC IMPORTANCE OF FORECASTING Human Resources Capacity Supply-Chain Management SEVEN STEPS IN THE FORECASTING SYSTEMa Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Outline - Continued FORECASTING APPROACHES TIME-SERIES FORECASTING
Overview of Qualitative Methods Overview of Quantitative Methods TIME-SERIES FORECASTING Decomposition of Time Series Naïve Approach Moving Averages Exponential Smoothing Exponential Smoothing with Trend Adjustment Trend Projections Seasonal Variations in Data Cyclic Variations in Data Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Outline - Continued ASSOCIATIVE FORECASTING METHODS: REGRESSION AND CORRELATION ANALYSIS Using Regression Analysis to Forecast Standard Error of the Estimate Correlation Coefficients for Regression Lines Multiple-Regression Analysis MONITORING AND CONTROLLING FORECASTS Adaptive Smoothing Focus Forecasting FORECASTING IN THE SERVICE SECTOR Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Learning Objectives When you complete this chapter, you should be able to : Identify or Define: Forecasting Types of forecasts Time horizons Approaches to forecasts Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Learning Objectives - continued
When you complete this chapter, you should be able to : Describe or Explain: Moving averages Exponential smoothing Trend projections Regression and correlation analysis Measures of forecast accuracy Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Forecasting at Tupperware
Each of 50 profit centers around the world is responsible for computerized monthly, quarterly, and 12-month sales projections These projections are aggregated by region, then globally, at Tupperware’s World Headquarters Tupperware uses all techniques discussed in text This slide introduces the topic of forecasting at Tupperware. The next several slides elaborate. One might ask students several questions: - “What does a useful forecast consist of at Tupperware? - What problems might a company such as Tupperware experience in developing a useful forecast. As you move through the following two slides, you could point out the application of multiple forecasting techniques to help solve some of the problems identified. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Three Key Factors for Tupperware
The number of registered “consultants” or sales representatives The percentage of currently “active” dealers (this number changes each week and month) Sales per active dealer, on a weekly basis Ask students: “Why does the number of ‘active’ dealers change so often?” and “If the number of ‘active’ dealers changes so often, should not this problem be addressed before attempting to forecast sales?” This question raises the issue of the impact of the distribution chain on one’s ability to forecast. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Tupperware - Forecast by Consensus
Although inputs come from sales, marketing, finance, and production, final forecasts are the consensus of all participating managers. The final step is Tupperware’s version of the “jury of executive opinion” You might take the notion of “problems” one step further and ask students why Tupperware uses a “jury of executive opinion” as part of its forecasting process. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

What is Forecasting? Process of predicting a future event
Underlying basis of all business decisions Production Inventory Personnel Facilities Sales will be $200 Million! Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Types of Forecasts by Time Horizon
Short-range forecast Up to 1 year; usually less than 3 months Job scheduling, worker assignments Medium-range forecast 3 months to 3 years Sales & production planning, budgeting Long-range forecast 3+ years New product planning, facility location At this point, it may be useful to point out the “time horizons” considered by different industries. For example, some colleges and universities look 30 to fifty years ahead, industries engaged in long distance transportation (steam ship, railroad) or provision of basic power (electrical and gas utilities, etc.) also look far ahead (20 to 100 years). Ask them to give examples of industries having much shorter long-range horizons. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Short-term vs. Longer-term Forecasting
Medium/long range forecasts deal with more comprehensive issues and support management decisions regarding planning and products, plants and processes. Short-term forecasting usually employs different methodologies than longer-term forecasting Short-term forecasts tend to be more accurate than longer-term forecasts. At this point it may be helpful to discuss the actual variables one might wish to forecast in the various time periods. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Influence of Product Life Cycle
Introduction, Growth, Maturity, Decline Stages of introduction and growth require longer forecasts than maturity and decline Forecasts useful in projecting staffing levels, inventory levels, and factory capacity as product passes through life cycle stages This slide introduces the impact of product life cycle on forecasting The following slide, reproduced from chapter 2, summarizes the changing issues over the product’s lifetime for those faculty who wish to treat the issue in greater depth. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Strategy and Issues During a Product’s Life
Introduction Growth Maturity Decline Standardization Less rapid product changes - more minor changes Optimum capacity Increasing stability of process Long production runs Product improvement and cost cutting Little product differentiation Cost minimization Over capacity in the industry Prune line to eliminate items not returning good margin Reduce capacity Forecasting critical Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focused Enhance distribution Product design and development critical Frequent product and process design changes Short production runs High production costs Limited models Attention to quality Best period to increase market share R&D product engineering critical Practical to change price or quality image Strengthen niche Cost control critical Poor time to change image, price, or quality Competitive costs become critical Defend market position OM Strategy/Issues Company Strategy/Issues HDTV CD-ROM Color copiers Drive-thru restaurants Fax machines Station wagons Sales 3 1/2” Floppy disks Internet Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Types of Forecasts Economic forecasts Technological forecasts
Address business cycle, e.g., inflation rate, money supply etc. Technological forecasts Predict rate of technological progress Predict acceptance of new product Demand forecasts Predict sales of existing product One can use an example based upon one’s college or university. Students can be asked why each of these forecast types is important to the college. Once they begin to appreciate the importance, one can then begin to discuss the problems. For example, is predicting “demand” merely as simple as predicting the number of students who will graduate from high school next year (i.e., a simple counting exercise)? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Seven Steps in Forecasting
Determine the use of the forecast Select the items to be forecasted Determine the time horizon of the forecast Select the forecasting model(s) Gather the data Make the forecast Validate and implement results A point to be made here is that one requires a forecasting “plan,” not merely the selection of a particular forecasting methodology. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Product Demand Charted over 4 Years with Trend and Seasonality
1 2 3 4 Seasonal peaks Trend component Actual demand line Average demand over four years Demand for product or service Random variation This slide illustrates a typical demand curve. You might ask students why it is important to know more than simply the actual demand over time. Why, for example, would one wish to be able to break out a “seasonality” factor? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Actual Demand, Moving Average, Weighted Moving Average
Actual sales Moving average This slide illustrates one of the simplest forecasting techniques - the moving average. It may be useful to point out the lag introduced by exponential smoothing - and ask how one can actually make use of the forecast. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Realities of Forecasting
Forecasts are seldom perfect Most forecasting methods assume that there is some underlying stability in the system Both product family and aggregated product forecasts are more accurate than individual product forecasts This slide provides a framework for discussing some of the inherent difficulties in developing reliable forecasts. You may wish to include in this discussion the difficulties posed by attempting forecast in a continuously, and rapidly changing environment where product life-times are measured less often in years and more often in months than ever before. One might wish to emphasize the inherent difficulties in developing reliable forecasts. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Forecasting Approaches
Qualitative Methods Quantitative Methods Used when situation is vague & little data exist New products New technology Involves intuition, experience e.g., forecasting sales on Internet Used when situation is ‘stable’ & historical data exist Existing products Current technology Involves mathematical techniques e.g., forecasting sales of color televisions This slide distinguishes between Quantitative and Qualitative forecasting. If you accept the argument that the future is one of perpetual, and perhaps significant change, you may wish to ask students to consider whether quantitative forecasting will ever be sufficient in the future - or will we always need to employ qualitative forecasting also. (Consider Tupperware’s ‘jury of executive opinion.’) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Overview of Qualitative Methods
Jury of executive opinion Pool opinions of high-level executives, sometimes augment by statistical models Delphi method Panel of experts, queried iteratively Sales force composite Estimates from individual salespersons are reviewed for reasonableness, then aggregated Consumer Market Survey Ask the customer This slide outlines several qualitative methods of forecasting. Ask students to give examples of occasions when each might be appropriate. The next several slides elaborate on these qualitative methods. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Jury of Executive Opinion
Involves small group of high-level managers Group estimates demand by working together Combines managerial experience with statistical models Relatively quick ‘Group-think’ disadvantage Ask your students to consider other potential disadvantages. (Politics?) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J © 1995 Corel Corp.

Sales Force Composite Each salesperson projects his or her sales
Combined at district & national levels Sales reps know customers’ wants Tends to be overly optimistic Sales © 1995 Corel Corp. You might ask your students to consider what problems might occur when trying to use this method to predict sales of a potential new product. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Delphi Method Iterative group process 3 types of people
Decision makers Staff Respondents Reduces ‘group-think’ Decision Makers (Sales?) Staff (Sales will be 50!) (What will sales be? survey) You might ask your students to consider whether there are special examples where this technique is required. ( Questions of technology transfer or assessment, for example; or other questions where information from many different disciplines is required.) Respondents (Sales will be 45, 50, 55) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Consumer Market Survey
How many hours will you use the Internet next week? © 1995 Corel Corp. Ask customers about purchasing plans What consumers say, and what they actually do are often different Sometimes difficult to answer You might discuss some of the difficulties with this technique. Certainly there is the issue that what consumers say is often not what they do. There are other problems such as that consumers sometime wish to please the surveyor; and for unusual, future, products, consumers may have a very imperfect frame of reference within which to consider the question. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Overview of Quantitative Approaches
Naïve approach Moving averages Exponential smoothing Trend projection Linear regression Time-series Models Associative models Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Quantitative Forecasting Methods (Non-Naive)
Time Series Associative Models Models A point you may wish to make here is that only in the case of linear regression are we assuming that we know “why” something happened. General time-series models are based exclusively on “what” happened in the past; not at all on “why.” Does operating in a time of drastic change imply limitations on our ability to use time series models? Moving Exponential Trend Linear Average Smoothing Projection Regression Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

What is a Time Series? Set of evenly spaced numerical data
Obtained by observing response variable at regular time periods Forecast based only on past values Assumes that factors influencing past and present will continue influence in future Example Year: Sales: This and subsequent slide frame a discussion on time series - and introduce the various components. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Time Series Components
Trend Seasonal Cyclical Random Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Trend Component Persistent, overall upward or downward pattern
Due to population, technology etc. Several years duration Mo., Qtr., Yr. Response © T/Maker Co. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Seasonal Component Regular pattern of up & down fluctuations
Due to weather, customs etc. Occurs within 1 year Mo., Qtr. Response Summer © T/Maker Co. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Common Seasonal Patterns
Period of Pattern “Season” Length Number of “Seasons” in Pattern Week Day 7 Month 4 – 4 ½ 28 – 31 Year Quarter 4 12 52 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

 Cyclical Component Repeating up & down movements
Due to interactions of factors influencing economy Usually 2-10 years duration Mo., Qtr., Yr. Response Cycle  Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Random Component Erratic, unsystematic, ‘residual’ fluctuations
Due to random variation or unforeseen events Union strike Tornado Short duration & nonrepeating © T/Maker Co. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

General Time Series Models
Any observed value in a time series is the product (or sum) of time series components Multiplicative model Yi = Ti · Si · Ci · Ri (if quarterly or mo. data) Additive model Yi = Ti + Si + Ci + Ri (if quarterly or mo. data) This slide introduces two general forms of time series model. You might provide examples of when one or the other is most appropriate. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Naive Approach Assumes demand in next period is the same as demand in most recent period e.g., If May sales were 48, then June sales will be 48 Sometimes cost effective & efficient © 1995 Corel Corp. This slide introduces the naïve approach. Subsequent slides introduce other methodologies. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

 Moving Average Method MA is a series of arithmetic means
Used if little or no trend Used often for smoothing Provides overall impression of data over time Equation MA n   Demand in Previous Periods At this point, you might discuss the impact of the number of periods included in the calculation. The more periods you include, the closer you come to the overall average; the fewer, the closer you come to the value in the previous period. What is the tradeoff? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Moving Average Example
You’re manager of a museum store that sells historical replicas. You want to forecast sales (000) for 2003 using a 3-period moving average © 1995 Corel Corp. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Moving Average Solution

Moving Average Graph 95 96 97 98 99 00 Year Sales 2 4 6 8 Actual
Forecast This slide shows the resulting forecast. Students might be asked to comment on the useful ness of this forecast. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Weighted Moving Average Method
Used when trend is present Older data usually less important Weights based on intuition Often lay between 0 & 1, & sum to 1.0 Equation Σ(Weight for period n) (Demand in period n) This slide introduces the “weighted moving average” method. It is probably most important to discuss choice of the weights. WMA = ΣWeights Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Actual Demand, Moving Average, Weighted Moving Average
Actual sales Moving average This slide illustrates one of the simplest forecasting techniques - the moving average. It may be useful to point out the lag introduced by exponential smoothing - and ask how one can actually make use of the forecast. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Disadvantages of Moving Average Methods
Increasing n makes forecast less sensitive to changes Do not forecast trend well Require much historical data © T/Maker Co. These points should have been brought out in the example, but can be summarized here. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Exponential Smoothing Method
Form of weighted moving average Weights decline exponentially Most recent data weighted most Requires smoothing constant () Ranges from 0 to 1 Subjectively chosen Involves little record keeping of past data This slide introduces the exponential smoothing method of time series forecasting. The following slide contains the equations, and an example follows. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Exponential Smoothing Equations
Ft = At (1-)At (1- )2·At (1- )3At (1- )t-1·A0 Ft = Forecast value At = Actual value  = Smoothing constant Ft = Ft-1 + (At-1 - Ft-1) Use for computing forecast You may wish to discuss several points: - this is just a moving average wherein every point in included in the forecast, but the weights of the points continuously decrease as they extend further back in time. - the equation actually used to calculate the forecast is convenient for programming on the computer since it requires as data only the actual and forecast values from the previous time point. - we need a formal process and criteria for choosing the “best” smoothing constant. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Exponential Smoothing Example
During the past 8 quarters, the Port of Baltimore has unloaded large quantities of grain. ( = .10). The first quarter forecast was Quarter Actual 6 205 7 180 8 182 9 ? Find the forecast for the 9th quarter. This slide begins an exponential smoothing example. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Exponential Smoothing Solution
Ft = Ft (At-1 - Ft-1) Forecast, F t Quarter Actual ( α = .10) 1 180 (Given) 2 168 3 159 4 175 5 190 6 205 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Ft = Ft (At-1 - Ft-1) Forecast, F t Quarter Actual ( α = .10) 1 180 (Given) 2 168 ( 3 159 4 175 5 190 6 205 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Ft = Ft (At-1 - Ft-1) Forecast, F t Quarter Actual ( α = .10) 1 180 (Given) 2 168 (180 - 3 159 4 175 5 190 6 205 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Ft = Ft (At-1 - Ft-1) Forecast, F t Quarter Actual ( α = .10) 1 180 (Given) 2 168 ( ) 3 159 4 175 5 190 6 205 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Ft = Ft (At-1 - Ft-1) Forecast, F t Quarter Actual ( α = .10) 1 180 (Given) 2 168 ( ) = 3 159 4 175 5 190 6 205 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Ft = Ft (At-1 - Ft-1) Forecast, F t Quarter Actual ( α = .10) 1 180 (Given) 2 168 ( ) = 3 159 ( ) = 4 175 5 190 6 205 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Ft = Ft (At-1 - Ft-1) Forecast, F Actual t Quarter ( α = .10) 1995 180 (Given) 1996 168 ( ) = 1997 159 ( ) = 1998 175 ( )= 1999 190 2000 205 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Ft = Ft (At-1 - Ft-1) Forecast, F t Quarter Actual ( α = .10) 1 180 (Given) 2 168 ( ) = 3 159 ( ) = 4 175 ( ) = 5 190 ( ) = 6 205 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Ft = Ft (At-1 - Ft-1) Forecast, F t Quarter Actual ( α = .10) 1 180 (Given) 2 168 ( ) = 3 159 ( ) = 4 175 ( ) = This slide illustrates the result of the steps used to make the forecast desired in the example. In the PowerPoint presentation, there are additional slides to illustrate the individual steps. 5 190 ( ) = 6 205 ( ) = Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Ft = Ft (At-1 - Ft-1) Forecast, F t Time Actual ( α = .10) 4 175 ( ) = 5 190 ( ) = 6 205 ( ) = 7 180 ( ) = This slide illustrates the result of the steps used to make the forecast desired in the example. In the PowerPoint presentation, there are additional slides to illustrate the individual steps. 8 9 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Ft = Ft (At-1 - Ft-1) Forecast, F t Time Actual ( α = .10) 4 175 ( ) = 5 190 ( ) = 6 205 ( ) = 7 180 ( ) = This slide illustrates the result of the steps used to make the forecast desired in the example. In the PowerPoint presentation, there are additional slides to illustrate the individual steps. 8 182 ( ) = ? ( ) = 9 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Forecast Effects of Smoothing Constant 
Ft =  At (1- )At (1- )2At Weights Prior Period  2 periods ago (1 - ) 3 periods ago (1 - )2 = = 0.10 = 0.90 10% Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Ft =  At (1- ) At (1- )2At Weights Prior Period  2 periods ago (1 - ) 3 periods ago (1 - )2 = = 0.10 = 0.90 10% 9% Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Ft =  At (1- )At (1- )2At Weights Prior Period  2 periods ago (1 - ) 3 periods ago (1 - )2 = = 0.10 = 0.90 10% 9% 8.1% Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Ft =  At (1- )At (1- )2At Weights Prior Period  2 periods ago (1 - ) 3 periods ago (1 - )2 = = 0.10 = 0.90 10% 9% 8.1% 90% Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Ft =  At (1- ) At (1- )2At Weights Prior Period  2 periods ago (1 - ) 3 periods ago (1 - )2 = = 0.10 = 0.90 10% 9% 8.1% 90% 9% Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Ft =  At (1- ) At (1- )2At Weights Prior Period  2 periods ago (1 - ) 3 periods ago (1 - )2 = = 0.10 = 0.90 This slide illustrates the decrease in magnitude of the smoothing constant. In the Power Point presentation, the several previous slides show the steps leading to this slide. 10% 9% 8.1% 90% 9% 0.9% Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Choosing  Seek to minimize the Mean Absolute Deviation (MAD)
If: Forecast error = demand - forecast Then: This slide indicates one method of selecting . Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Exponential Smoothing with Trend Adjustment
Forecast including trend (FITt) = exponentially smoothed forecast (Ft) + exponentially smoothed trend (Tt) This slide introduces exponential smoothing with trend adjustment. The equations and additional material follow. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Exponential Smoothing with Trend Adjustment - continued
Ft = Last period’s forecast + (Last period’s actual – Last period’s forecast) Ft = Ft-1 +  (At-1 – Ft-1) or Tt = (Forecast this period - Forecast last period) + (1-)(Trend estimate last period Tt = (Ft - Ft-1) + (1- )Tt-1 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Exponential Smoothing with Trend Adjustment - continued
Ft = exponentially smoothed forecast of the data series in period t Tt = exponentially smoothed trend in period t At = actual demand in period t  = smoothing constant for the average  = smoothing constant for the trend Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Comparing Actual and Forecasts

Least Squares Actual observation Values of Dependent Variable
Deviation Deviation Deviation Deviation Point on regression line Deviation Values of Dependent Variable Deviation Deviation This slide introduces the topic of least squares. One might try to make the point, using this slide, that the goal of least squares is to minimize the average deviation without regard to the mathematical sign of the deviation. The average of the deviations could be minimized by making their sum equal to zero - but we could still be left with large positive and negative deviations. Minimizing the sum of the square of the deviations produces a more “balanced” set of deviations. Time Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Actual and the Least Squares Line
This slide illustrates a regression line along with the actual demand. You might wish to highlight the actual deviations. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Linear Trend Projection
Used for forecasting linear trend line Assumes relationship between response variable, Y, and time, X, is a linear function Estimated by least squares method Minimizes sum of squared errors i Y a bX = + This slide introduces the equation produced in linear trend progression. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Least Squares Equations
Slope: Y-Intercept: It is probably useful to go through this slide in detail, indicating the differences between the individual values of the variable, and its average. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Computation Table X Y : Σ 2 i 1 n
This slide illustrates how one might do, by hand, the calculations required to solve for the linear trend coefficients. If you are expecting students to solve even the simplest linear trend or regression problems using a computer program, you may wish to skip this slide. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Using a Trend Line The demand for electrical power at N.Y.Edison over the years 1997 – 2003 is given at the left. Find the overall trend. Year Demand Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Finding a Trend Line Year Time Period Power Demand x2 xy 1997 1 74
1998 2 79 4 158 1999 3 80 9 240 2000 90 16 360 2001 5 105 25 525 2002 6 142 36 852 2003 7 122 49 854 x=28 y=692 x2=140 xy=3,063 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

The Trend Line Equation

Actual and Trend Forecast

Monthly Sales of Laptop Computers
Sales Demand Average Demand Month 2000 2001 2002 Monthly Seasonal Index Jan 80 85 105 90 94 0.957 Feb 70 0.851 Mar 93 82 0.904 Apr 95 115 100 1.064 May 113 125 131 123 1.309 Jun 110 120 1.223 Jul 102 1.117 Aug 88 Sept Oct 77 78 Nov 75 72 83 Dec Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

San Diego Hospital – Inpatient Days

Multiplicative Seasonal Model
Find average historical demand for each “season” by summing the demand for that season in each year, and dividing by the number of years for which you have data. Compute the average demand over all seasons by dividing the total average annual demand by the number of seasons. Compute a seasonal index by dividing that season’s historical demand (from step 1) by the average demand over all seasons. Estimate next year’s total demand Divide this estimate of total demand by the number of seasons, then multiply it by the seasonal index for that season. This provides the seasonal forecast. This slide provides a quick view of the development of a multiplicative seasonal model. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Linear Regression Model
Shows linear relationship between dependent & explanatory variables Example: Sales & advertising (not time) Y-intercept Slope ^ Y = a b X + This slide introduces the linear regression model. This can be approached as simply a generalization of the linear trend model where the variable is something other than time and the values do not necessarily occur a t equal intervals. i i Dependent (response) variable Independent (explanatory) variable Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Linear Regression Equations
Slope: Again, this is basically a repeat of the slide for the linear trend problem. Y-Intercept: Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Computation Table X Y : Σ 2 i 1 n This too.

Interpretation of Coefficients
Slope (b) Estimated Y changes by b for each 1 unit increase in X If b = 2, then sales (Y) is expected to increase by 2 for each 1 unit increase in advertising (X) Y-intercept (a) Average value of Y when X = 0 If a = 4, then average sales (Y) is expected to be 4 when advertising (X) is 0 This slide probably merits discussion - additional to that for the linear trend model. You might make the point here that the dependent and independent variable are not necessarily of the same nature - they need not both be dollars, for example. You might also wish to note that setting x = 0 may not have a useful physical interpretation. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Random Error Variation
Variation of actual Y from predicted Y Measured by standard error of estimate Sample standard deviation of errors Denoted SY,X Affects several factors Parameter significance Prediction accuracy Here you may wish to at least begin the discussion of the distinction between explainable and unexplainable, and random and non-random error variation. There are also slides which come later in the presentation that will refer to this topic. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Least Squares Assumptions
Relationship is assumed to be linear. Plot the data first - if curve appears to be present, use curvilinear analysis. Relationship is assumed to hold only within or slightly outside data range. Do not attempt to predict time periods far beyond the range of the data base. Deviations around least squares line are assumed to be random. This slide raises several points: - What does it mean to be “linear”? How does one tell if something is linear or not? Or perhaps, how does one tell if something is sufficiently linear that a linear regression model is appropriate? - If the relationship is assumed to hold only within or slightly outside the data range, how do we use this model to make projections into the future (for which we don’t have data)? - What does it mean for data to be random? How can we tell? You might discuss making scatter plots not only of the original data, but also of the resulting deviations. (Obviously there are more rigorous methods of determining if the deviations are random, but a scatter plot is a good start.) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Standard Error of the Estimate
Again, it is probably useful to point out which elements in the equations represent the actual data values and which the averages of these values. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Correlation Answers: ‘how strong is the linear relationship between the variables?’ Coefficient of correlation Sample correlation coefficient denoted r Values range from -1 to +1 Measures degree of association Used mainly for understanding This slide can frame the start of a discussion of correlation.. You should probably expect to add to this a discussion of cause and effect, emphasizing in particular that correlation does not imply a cause and effect relationship. Ask student to suggest examples of significant correlation of unrelated phenomenon. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Sample Coefficient of Correlation
Here again an explanation of each variable is probably useful. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Coefficient of Correlation and Regression Model
Y X i = a + b ^ This slide presents additional examples of the meaning of the correlation coefficient. r2 = square of correlation coefficient (r), is the percent of the variation in y that is explained by the regression equation Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Guidelines for Selecting Forecasting Model
You want to achieve: No pattern or direction in forecast error Error = (Yi - Yi) = (Actual - Forecast) Seen in plots of errors over time Smallest forecast error Mean square error (MSE) Mean absolute deviation (MAD) ^ This slide introduces overall guideline for selecting a forecasting model. You may also wish to re-emphasize the role of scatter plots, and discuss the role of “understanding what is going on” (especially in limiting one’s choice of model). Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Pattern of Forecast Error
Trend Not Fully Accounted for Desired Pattern Time (Years) Error Time (Years) Error This slide illustrates both possible patterns in forecast error, and the merit of making a scatter plot of forecast error. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Forecast Error Equations
Mean Square Error (MSE) Mean Absolute Deviation (MAD) Mean Absolute Percent Error (MAPE) This slide illustrates the equations for two measures of forecast error. Students might be asked if there is an occasion when one method might be preferred over the other. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Selecting Forecasting Model Example
You’re a marketing analyst for Hasbro Toys. You’ve forecast sales with a linear model & exponential smoothing. Which model do you use? Actual Linear Model Exponential Smoothing Year Sales Forecast Forecast (.9) This slide begins an example of choosing a model. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Linear Model Evaluation
Y i 1 2 4 ^ 0.6 1.3 2.0 2.7 3.4 Year 1998 1999 2000 2001 2002 Total 0.4 -0.3 0.0 -0.7 Error 0.16 0.09 0.00 0.49 0.36 1.10 Error2 0.3 0.7 |Error| Actual 0.40 0.30 0.35 0.15 1.20 MSE = Σ Error2 / n = / 5 = MAD = Σ |Error| / n = / 5 = MAPE = 100 Σ|absolute percent errors|/n= 1.20/5 = 0.240 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Exponential Smoothing Model Evaluation
Year 1998 1999 2000 2001 2002 Total Y i 1 2 4 1.0 0.0 1.9 0.1 2.0 3.8 0.2 0.3 ^ Error 0.00 0.01 0.04 0.05 Error2 |Error| Actual 0.10 MSE = Σ Error2 / n = / 5 = MAD = Σ |Error| / n = / 5 = MAPE = 100 Σ |Absolute percent errors|/n = 0.10/5 = 0.02 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Exponential Smoothing Model Evaluation
Linear Model: MSE = Σ Error2 / n = / 5 = MAD = Σ |Error| / n = / 5 = MAPE = 100 Σ|absolute percent errors|/n= 1.20/5 = 0.240 Exponential Smoothing Model: MSE = Σ Error2 / n = / 5 = MAD = Σ |Error| / n = / 5 = MAPE = 100 Σ |Absolute percent errors|/n = 0.10/5 = 0.02 This slide presents the result of the calculations of MSE and MAD for the Linear and Exponential Smoothing models. Students should be asked to choose the “better” model. Students should also be asked to consider the differences between the values calculated for the error measures for a given model, and between the two models. Do these differences tell us more than simply that one model is preferable to the other? (For example, is the exponential smoothing model 22 times better than the linear model?) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Tracking Signal Measures how well the forecast is predicting actual values Ratio of running sum of forecast errors (RSFE) to mean absolute deviation (MAD) Good tracking signal has low values Should be within upper and lower control limits Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Tracking Signal Equation

Tracking Signal Computation
Mo Fcst Act Error RSFE Abs Cum MAD TS 1 100 90 2 95 3 115 4 5 125 6 140 |Error| Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Mo Forc Act Error RSFE Abs Cum MAD TS 1 100 90 2 95 3 115 4 5 125 6 140 -10 Error = Actual - Forecast = = -10 |Error| Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Mo Forc Act Error RSFE Abs Cum MAD TS 1 100 90 2 95 3 115 4 5 125 6 140 -10 RSFE =  Errors = NA + (-10) = -10 |Error| Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Mo Forc Act Error RSFE Abs Cum MAD TS 1 100 90 2 95 3 115 4 5 125 6 140 -10 10 Abs Error = |Error| = |-10| = 10 |Error| Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Mo Forc Act Error RSFE Abs Cum MAD TS 1 100 90 2 95 3 115 4 5 125 6 140 -10 10 Cum |Error| =  |Errors| = NA + 10 = 10 |Error| Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Mo Forc Act Error RSFE Abs Cum |Error| MAD TS 1 100 90 2 95 3 115 4 5 125 6 140 -10 10 10.0 MAD =  |Errors|/n = 10/1 = 10 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Mo Forc Act Error RSFE Abs Cum MAD TS 1 100 90 2 95 3 115 4 5 125 6 140 -10 10 10.0 -1 TS = RSFE/MAD = -10/10 = -1 |Error| Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Mo Forc Act Error RSFE Abs Cum MAD TS 1 100 90 2 95 3 115 4 5 125 6 140 -10 10 10.0 -1 -5 Error = Actual - Forecast = = -5 |Error| Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Mo Forc Act Error RSFE Abs Cum MAD TS 1 100 90 2 95 3 115 4 5 125 6 140 -10 10 10.0 -1 -5 -15 RSFE =  Errors = (-10) + (-5) = -15 |Error| Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Mo Forc Act Error RSFE Abs Cum MAD TS 1 100 90 2 95 3 115 4 5 125 6 140 -10 10 10.0 -1 -5 -15 Abs Error = |Error| = |-5| = 5 |Error| Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Mo Forc Act Error RSFE Abs Cum MAD TS 1 100 90 2 95 3 115 4 5 125 6 140 -10 10 10.0 -1 -5 -15 15 Cum Error =  |Errors| = = 15 |Error| Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Mo Forc Act Error RSFE Abs Cum MAD TS 1 100 90 2 95 3 115 4 5 125 6 140 -10 10 10.0 -1 -5 -15 15 7.5 MAD =  |Errors|/n = 15/2 = 7.5 |Error| Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Mo Forc Act Error RSFE Abs Cum MAD TS 1 100 90 2 95 3 115 4 5 125 6 140 -10 10 10.0 -1 -5 -15 15 7.5 -2 |Error| TS = RSFE/MAD = -15/7.5 = -2 This slide illustrates the last step in the calculation of a tracking signal for a simple example problem. The PowerPoint slide presentation contains this as the last of a sequence of slides - the others stepping through the actual calculation process. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Plot of a Tracking Signal
Signal exceeded limit Tracking signal Upper control limit + MAD Acceptable range - Lower control limit This slide illustrates a graph of a tracking signal form a “practical” problem. Time Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Tracking Signals Forecast Actual demand Tracking Signal
This slide illustrates actual, forecast, and tracking signal. Students should be asked how they would decide when the tracking signal was out of range. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Forecasting in the Service Sector
Presents unusual challenges special need for short term records needs differ greatly as function of industry and product issues of holidays and calendar unusual events This slide simply raises a few of the forecasting issues peculiar to services. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Forecast of Sales by Hour for Fast Food Restaurant

Operations Management Design of Goods and Services Chapter 5

Outline GLOBAL COMPANY PROFILE: REGAL MARINE
GOODS AND SERVICES SELECTION Product Strategy Options Support Competitive Advantage Product Life Cycles Life Cycle and Strategy Product-by-value Analysis GENERATING NEW PRODUCTS New Product Opportunities Importance of New Products Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Outline - continued PRODUCT DEVELOPMENT ISSUES FOR PRODUCT DESIGN
Product Development System Quality Function Deployment (QFD) Organizing for Product Development Manufacturability and Value Engineering ISSUES FOR PRODUCT DESIGN Robust Design Modular Design Computer-Aided Design (CAD) Computer-Aided Manufacturing Virtual Reality Technology Value Analysis Environmentally Friendly Design Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Outline - continued Time-Based Competition Defining the Product
Purchase of Technology by Acquiring Firm Joint Ventures Alliances Defining the Product Make-or-buy Decisions Group Technology DOCUMENTS FOR PRODUCTION SERVICE DESIGN Documents for Service Application of Decision Trees to Product Design Transition to Production Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Learning Objectives When you complete this chapter, you should be able to : Identify or Define: Product life cycle Product development team Manufacturabililty and value engineering Robust design Time-based competition Modular design Computer aided design Value analysis Group technology Configuration management Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

When you complete this chapter, you should be able to: Explain: Alliances Concurrent engineering Product-by-value analysis Product documentation Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Regal Marine Global market 3-dimensional CAD Assembly line JIT
reduced product development time reduced problems with tooling reduced problems in production Assembly line JIT Regal Marine provides an example where everything fits together. You may wish to discuss the “production line” where: - bows and hulls are individually hand-produced - bows and hulls are joined as they move to an assembly line - wooden decks are delivered one-at-a-time to the installation station - engines (one of few purchased elements) are installed - wiring harnesses (produced in-house) are installed - upholstered items are installed - vessel is moved to test tank for testing - watertight, gauge, and systems Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Humor in Product Design
As the customer wanted it. © T/Maker Co. As Marketing interpreted it. © T/Maker Co. As Operations made it. © T/Maker Co. As Engineering designed it. © T/Maker Co. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

What is a Product? Need-satisfying offering of an organization
Example P&G does not sell laundry detergent P&G sells the benefit of clean clothes Customers buy satisfaction, not parts May be a good or a service This slide provides an opportunity to introduce the complex nature of a product. There are a number of examples one can discuss here: McDonald’s/ Burger King/Wendys (their product is more than hamburgers); your particular college or university; Microsoft; auto manufacturers. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Product Strategy Options
Product differentiation Low cost Rapid response Ask students to identify products or companies which rely on each of these strategies. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Generation of New Product Opportunities
Economic change Sociological and demographic change Technological change Political/legal change Changes in market practice professional standards suppliers and distributors Each of the items listed forms the basis for developing a new product idea. Ask students to provide examples of products fitting each element. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Legislation/ Implementation Date
Stated Purpose Industry Criticism Electrical-Waste directive (2006) Makes electrical equipment easier to recycle in part by banning some hazardous substances Bans some common flame retardants, raising the likelihood of fires Telecom-data-protection directive (mid-2003) Protects privacy on and the internet Makes surfing more onerous by restricting use of “cookies” to remember peoples preferences Biotech-Labeling laws (2003) Strengthens existing food-label laws and introduces labeling for animal feed containing genetically modified content Encourages food processors and supermarkets to avoid using genetically modified ingredients, and farmers could stop growing them Pedestrian-protection initiative ( ) (when all new cars sold in Europe must comply) Reduces injuries and casualties in road accidents Raises costs of cars and restricts automaker’s design freedom Chemicals review (staggered through 2012) Eliminates health hazards due to chemicals Restricts even minute use of dangerous substances, such as ethanol, in products such as cosmetics and detergents Warning Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Product Components Product Brand (Name) Product Idea Package Physical
Good One might remind students that a product is defined not only by what it has, but also by what is missing. Features Quality Level Service (Warranty) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Product Life Cycle Introduction Growth Maturity Decline
This slide begins an in depth study of the product life cycle. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Product Life Cycle Introduction
Fine tuning research product development process modification and enhancement supplier development Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Product Life Cycle Growth
Product design begins to stabilize Effective forecasting of capacity becomes necessary Adding or enhancing capacity may be necessary Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Product Life Cycle Maturity
Competitors now established High volume, innovative production may be needed Improved cost control, reduction in options, paring down of product line Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Product Life Cycle Decline
Unless product makes a special contribution, must plan to terminate offering Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Product Life Cycle, Sales, Cost, and Profit
Cost of Development & Manufacture Sales Revenue Sales, Cost & Profit . Profit Cash flow Loss Previous slides have related the product life cycle to various management issues. This is the first to relate it to cash flow. Ask students for suggestions as to how one might eliminate the loss occurring toward the end of the product’s life cycle. Time Introduction Growth Maturity Decline Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Percent of Sales From New Product
This slide suggests that product innovation is a “way-of-life” for industry leaders. Does this suggest that one of the most important activities in which a company engages is that of “adaptation”? If so, will this become more or less of an issue in the future? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Products in Various Stages of Life Cycle
Sales Growth Maturity Decline Introduction Roller Blades Jet Ski Boeing 727 Virtual Reality This slide gave a reasonable depiction of the growth stage for these products when it was created. Does it still? Ask students to consider the length of the lifetime of each of the products listed. Are the lifetimes similar? What ranges of lifetime would they estimate for these products? Time Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Few Successes Number 2000 1500 1000 500 Development Stage 1000 500 100
Ideas 1750 Design review, Testing, Introduction Market requirement 1500 1000 Functional specifications 1000 500 Product specification 500 This slide suggests the relatively small number of product concepts that actually become successful. Ask students to suggest reasons for such a poor success rate. Can they also suggest ways by which the success rate might be improved? One success! 100 25 Development Stage Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Product-by-Value Analysis
Lists products in descending order of their individual dollar contribution to the firm. Helps management evaluate alternative strategies. Product-by-value analysis helps identify appropriate priorities. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Product Development Stages
Idea generation Assessment of firm’s ability to carry out Customer Requirements Functional Specification Product Specifications Design Review Test Market Introduction to Market Evaluation Scope of product development team Scope of design for manufacturability and value engineering teams This slide indicates the stages in the product development process. It also attempts to indicate organizational teams assigned to accomplish specific elements. Students might be asked to consider the utility of having the process broken down among several work groups. Would success be improved if all these activities were carried out by a single “project team” from start to finish, rather than sequentially by teams of specialists? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Quality Function Deployment
Identify customer wants Identify how the good/service will satisfy customer wants Relate customer wants to product hows Identify relationships between the firm’s hows Develop importance ratings Evaluate competing products Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

House of Quality Sequence Indicates How to Deploy Resources to Achieve Customer Requirements

Idea Generation Stage Provides basis for entry into market
Sources of ideas Market need (60-80%); engineering & operations (20%); technology; competitors; inventions; employees Follows from marketing strategy Identifies, defines, & selects best market opportunities One notion which might be discussed at this stage is the attempts by manufacturers to add information to an existing good rather than develop a new good. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Customer Requirements Stage
Identifies & positions key product benefits Stated in core benefits proposition (CBP) Example: Long lasting with more power (Sears’ Die Hard Battery) House of Quality Customer Requirements Product Characteristics Identifies detailed list of product attributes desired by customer Focus groups or 1-on-1 interviews Here begins the attempt to link the product directly with the customer. You might specify a product and ask students to identify first the attributes of interest to the customer, and second the “benefits” to the customer. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Functional Specification Stage
Defines product in terms of how the product would meet desired attributes Identifies product’s engineering characteristics Example: printer noise (dB) Prioritizes engineering characteristics May rate product compared to competitors’ House of Quality Customer Requirements Product Characteristics At this point we have to start adding precision to our specifications. If we want a product to be “easy to use,” what exactly does that mean? To use by whom? With what level of preparation? Etc. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Product Specification Stage
Determines how product will be made Gives product’s physical specifications Example: Dimensions, material etc. Defined by engineering drawing Done often on computer Computer-Aided Design (CAD) House of Quality Product Characteristics Component Specifications At this point, we have to develop the information necessary to actually produce the product - and, to know that it has been produced appropriately. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Quality Function Deployment
Product design process using cross-functional teams Marketing, engineering, manufacturing Translates customer preferences into specific product characteristics Involves creating 4 tabular ‘Matrices’ or ‘Houses’ Breakdown product design into increasing levels of detail Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

House of Quality Example
You’ve been assigned temporarily to a QFD team. The goal of the team is to develop a new camera design. Build a House of Quality. © T/Maker Co. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

High relationship  Medium relationship  Low Relationship Customer Requirements Importance Target Values Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

High relationship  Medium relationship  Low Relationship Target Values Light weight Easy to use Reliable What the customer desires (‘wall’) Aluminum Parts Auto Focus Exposure Customer Requirements Importance Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Average customer importance rating Customer Requirements Customer Importance Aluminum Parts Auto Focus Auto Exposure Light weight 3 Easy to use 2 Reliable 1 Target Values High relationship  Medium relationship  Low Relationship Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

High relationship  Medium relationship  Low Relationship Customer Requirements Importance Light weight Easy to use Reliable Aluminum Parts Auto Focus Exposure  3 2 1 Relationship between customer attributes & engineering characteristics (‘rooms’) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

 Target values for engineering characteristics (‘basement’); key output Customer Requirements Customer Importance Aluminum Parts Auto Focus Auto Exposure Light weight 3  Easy to use 2   Reliable 1   Target Values 5 1 1 High relationship  Medium relationship  Low Relationship Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

High relationship  Medium relationship  Low Relationship Customer Requirements Importance Target Values Light weight Easy to use Reliable Aluminum Parts Auto Focus Exposure  3 2 1 5  Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Organizing for Product Development
Historically – distinct departments Duties and responsibilities are defined Difficult to foster forward thinking Today – team approach Representatives from all disciplines or functions Concurrent engineering – cross functional team Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Manufacturability and Value Engineering
Benefits: reduced complexity of products additional standardization of products improved functional aspects of product improved job design and job safety improved maintainability of the product robust design Manufacturability and value engineering encompass many issues. You may wish to stress the point that we consider in detail not only what the product is, but how it is to be produced and maintained - the best design is optimized across all these activities, not just one or another. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Cost Reduction of a Bracket via Value Engineering
This slide illustrates changes made over a series of iterations in design. Cost is obviously reduced. You might ask students if the perceive any change in quality as the design iterations progressed and the cost was reduced. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Issues for Product Development
Robust design Time-based competition Modular design Computer-aided design Value analysis Environmentally friendly design This slide introduces some of the issues of product development. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Robust Design Product is designed so that small variations in production or assembly do not adversely affect the product After discussing the concept of robust design, you might identify a product and ask students to identify the use of robust design in its production. (One example is the use of the plastic seal on the inside of soda bottle caps) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Modular Design Products designed in easily segmented components.
Adds flexibility to both production and marketing Ask your students to suggest examples of products that are produced in modular fashion. Certainly microcomputers provide a good example; also cars, motorcycles, and hamburgers. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Computer Aided Design (CAD)
Designing products at a computer terminal or work station Design engineer develops rough sketch of product Uses computer to draw product Often used with CAM CAD can be viewed both as a sophisticated design tool, and as the first step in developing a completely integrated production process. CAD=>CAM=> ... CIM. © 1995 Corel Corp. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Benefits of CAD/CAM Shorter design time Database availability
New capabilities Example: Focus more on product ideas Improved product quality Reduced production costs You might point out here that modern CAD systems with 3D representation and virtual reality capability allow one to “consumer test” a product before it is produced. Students will probably be familiar with some of the televised automobile company ads. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Extensions of CAD Design for Manufacturing and Assembly (DFMA)
3-D Object Modeling CAD/CAM – CAD info is translated into machine control instructions (CAM) CAD can be viewed both as a sophisticated design tool, and as the first step in developing a completely integrated production process. CAD=>CAM=> ... CIM. © 1995 Corel Corp. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Virtual Reality Computer technology used to develop an interactive, 3-D model of a product. Especially helpful in design of layouts (factory, store, home, office) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Value Analysis Focuses on design improvement during production
Seeks improvements leading either to a better product or a product which can be more economically produced. You might suggest that your students view value analysis as value engineering during, rather than prior to, production. Value analysis helps continually improve both design and production methodology. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Environmentally Friendly Designs
Benefits Safe and environmentally sound products Minimum raw material and energy waste Product differentiation Environmental liability reduction Cost-effective compliance with environmental regulations Recognition as good corporate citizen Environmental issues are becoming more important in product design. Ask students for example of companies which stress environmentally sound design and production practices. Also ask them to suggest some examples of companies which have a very poor environmental record. Why does such a difference exist? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

“Green” Manufacturing
Make products recyclable Use recycled materials Use less harmful ingredients Use lighter components Use less energy Use less material Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Time-based Competition
Product life cycles are becoming shorter. Faster developers of new products gain on slower developers and obtain a competitive advantage Ask the students to consider the effect of time-based competition not only on the producer, but also on the customer. Assume that you order two computers, through a catalog, directly from the factory. If you place one order today, and a second two days from now (for the same model, etc.), you may well receive two machines sufficiently different that the installation procedure for one will not work on the second. The producer has to deal with the issue of producing a constantly evolving product, but you also have to manage the problem created by the increasingly short and perhaps in a sense, artificial, product lifetimes. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Product Development Continuum
External Development Strategies Alliances Joint Ventures Purchase Technology or Expertise by Acquiring the Developer Internal Development Strategies Migrations of Existing Products Enhancement to Existing Products New Internally Developed Products Internal  Cost of Product Development  Shared Lengthy  Speed of Product Development Rapid and/or Existing High  Risk of Product Development  Shared Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Product Documents Engineering drawing Bill of Material
Shows dimensions, tolerances, & materials Shows codes for Group Technology Bill of Material Lists components, quantities & where used Shows product structure This slide introduces the concept of “product documents.” Examples will be found in subsequent slides. © T/Maker Co. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Monterey Jack (a) U.S. grade AA. Monterey cheese shall conform to the following requirements: (1)Flavor. Is fine and highly pleasing, free from undesirable flavors and odors. May possess a very slight acid or feed flavor. (2)Body and texture. A plug drawn from the cheese shall be reasonably firm. It shall have numerous small mechanical openings evenly distributed throughout the plug. It shall not possess sweet holes, yeast holes, or other gas holes (3)Color. Shall have a natural, uniform, bright and attractive appearance. (4)Finish and appearance - bandaged and paraffin-dipped. The rind shall be sound, firm, and smooth providing a good protection to the cheese An excerpt from the specifications for Monterey Jack cheese. You might ask students to compare their perception of several other cheese to this excerpt, and note the differences. Code of Federal Regulation, Parts 53 to 109,. Revised as of Jan. 1, 1985, General Service Administration Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Engineering Drawing Example
You might note to the students that the engineering drawing contains all dimensions necessary to produce the product - but specifies nothing about the production process. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Engineering Drawings - Show Dimensions, Tolerances, etc.

Bill of Material Example
© 1995 Corel Corp. Remind students that the Bill of Material indicates all parts or kits required to assemble a unit of the product and that bills of materials at multiple levels are required to fully specify each and every individual part contained in the finished unit. (The bill of material portrayed on the slide specifies a “frame assembly,” but does not tell us what pieces are required to produce the assembly. This information would be contained in a lower level bill of materials.) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Bill of Materials – Manufacturing Plant and Fast-Food Restaurant
Bill of Materials – Manufacturing Plant and Fast-Food Restaurant Bill of Material for a Panel Weldment Hard Rock Café’s Hickory BBQ Bacon Cheeseburger Number Description Qty A60-71 Panel Weldm’t 1 Bun Hamburger Patty Cheddar Cheese Bacon BBQ Onions Hickory BBQ Sauce Burger Set Lettuce Tomato Red Onion Pickle French Fries Seasoned Salt 11-inch Plate HRC Flag 8 oz. 2 slices 2 strips ½ cup 1 oz. 1 leaf 1 slice 4 rings 5 oz. 1 tsp A 60-7 R 60-17 R P 60-2 Lower Roller Assembly Roller Pin Locknet 60-72 R A 60-4 Guide Assem. Rear Support Angle Roller Assem. Bolt A 60-73 A 60-74 R 60-99 Guide Assm, Front Support Weldm’t Wear Plate Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Make-or-Buy Decisions
Decide whether or not you want (or need) to produce an item May be able to purchase the item as a “standard item” from another manufacturer At this point, one can raise the arguments for producing in-house versus purchasing. It might be useful in this instance to look both at manufacturing and services. Useful examples can be developed from: - the publishing industry where the publisher may perform the editing and project management, but contract virtually everything else out; - the role of production in house versus that of purchasing services outside in developing a distance education program, or staffing a hospital; - the procedure followed in the development of the Microsoft Windows 97 operating system, versus that for the Linux operating system. You might also ask your students to consider the relationship between the make-or-buy decision and the concept of the virtual organization. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Group Technology Characteristics
Parts grouped into families Similar, more standardized parts Uses coding system Describes processing & physical characteristics Part families produced in manufacturing cells Mini-assembly lines You might ask your students to consider the requirements necessary for the concept of group technology to be successful. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J © T/Maker Co.

Group Technology Code Example
Round Rod 112mm 60mm 4mm x 45° chamfer 80mm Product Code: Part function (round rod) Material (steel) Max. length (50 < L < 150) Primary machine (lathe) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Group Technology Schemes Enable Grouping of Parts

Group Technology Benefits
Improved product design Reduced purchases Reduced work-in-process inventory Improved routing & machine loading Reduced setup & production times Simplified production planning & control Simplified maintenance You might ask your students to consider the “downside” to group technology. Are the limitations it places on development and production significant or important? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Production Documents Assembly Drawing Assembly chart Route sheet
Work order This slide introduces the notion of production documents. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Assembly Drawing Head Neck End Cap Handle
Shows exploded view of product Head Neck End Cap Handle Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J © T/Maker Co.

Assembly Chart for A Tuna Sandwich
1 2 3 SA1 A1 A2 Tuna Fish Mayonnaise Bread Tuna Assy FG Sandwich One could obviously ask students to give examples of assembly charts for other common “products.” Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Assembly Drawing and Assembly Chart
This slide depicts both an Assembly Drawing and and Assembly Chart. Note that the Chart depicts both the relationship of the pieces and the sequence of assembly. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Route Sheet Lists all operations
Note that the Route Sheet depicts both operations and timing. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Work Order Authorizes producing a given item, usually to a schedule
Dept Oper Date Work Order Approved: JM Manufacturing © T/Maker Co. Authorizes producing a given item, usually to a schedule Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Engineering Change Notice (ECN)
A correction or modification of an engineering drawing or bill of material Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Configuration Management
A system by which a product’s planned and changing components are accurately identified and for which control and accountability of change are maintained One might point out to students that as the market environment tends to evolve more rapidly, configuration management will become an even more important issue. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Service Design - Nature of Customer Participation
Ask students to suggest example of services showing the various degrees of customer interaction in design. You might also ask students whether they would anticipate some the the notions of service design (customization, for example) to become important in manufacturing (mass customization?) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Improving Customer Relations at a Drive-up Window
Be especially discreet when talking with customer through the microphone Provide written instructions for customers who must fill out forms you provide Mark lines to be completed or attach a note with instructions Always say ”please” and “thank you” Establish eye contact with the customer if the distance allows it If the transaction requires that the customer park the car and come into the lobby, apologize for the inconvenience. This illustrates some of the considerations in service design. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Moment-of-Truth at a Computer Company
Experience Detractors I had to call more than once to get through. A recording spoke to me rather than a person While on hold, I get silence,and wonder if I am disconnected. The operator sounded like he was reading a form of routine questions. The operator sounded uninterested I felt the operator rushed me. Standard Expectations Only one local number needs to be dialed I never get a busy signal I get a human being to answer my call quickly and he or she is pleasant and responsive to my problem A timely resolution to my problem is offered The operator is able to explain to me what I can expect to take place Experience Enhancers The operator was sincerely concerned and apologetic about my problem He asked intelligent questions that allowed me to feel confident in his abilities The operator offered various times to have work done, to suit my schedule Ways to avoid future problems were suggested This slide illustrates some lessons learned by GTE You might ask students to cite examples illustrating the application of these lesson in other companies Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Application of Decision Trees to Product Design
Particularly useful when there are a series of decisions and outcomes which lead to other decisions and outcomes. Considerations: Include all possible alternatives and states of nature - including “doing nothing” Enter payoffs at end of branch Approach determining expected values by “pruning” tree This slide should probably be used simply to provide a reason for studying decision trees at a later time (Module A) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Transition to Production
First issue: knowing when to move to production! Second: must view product development as evolutionary, not responsibility of single individual/department Third: expect to need a trial production period to work the bugs out Fourth: recognize that responsibility must also transition This slide introduces the problem of transitioning a product from design and development to production. It would probably be helpful to use this slide as the basis for a discussion of each of the issues. Points to be made might include: - the point in time at which to transition must be chosen by consensus of both design/development and production staff - while we should view product development as evolutionary, we may be required to view the transition as iterative - where, as unforeseen problems develop in production, design changes may be required. - product design/development teams must expect to contribute to problem solving in production - product design/development staff must recognize that once the transition to production has taken place, the main responsibility for the project has also shifted Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Operations Management Maintenance and Reliability

Outline GLOBAL COMPANY PROFILE: NASA
THE STRATEGIC IMPORTANCE OF MAINTENANCE AND RELIABILITY RELIABILITY Improving Individual Components Providing Redundancy MAINTENANCEa Implementing Preventive Maintenance Increasing Repair Capability TOTAL PRODUCTIVE MAINTENANCE TECHNIQUES FOR ESTABLISHING MAINTENANCE POLICIES Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Learning Objectives When you complete this chapter, you should be able to : Identify or Define: Maintenance Mean time between failures Redundancy Preventive maintenance Breakdown maintenance Infant mortality Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Learning Objectives - continued
When you complete this chapter, you should be able to : Describe or Explain: How to measure system reliability How to improve maintenance How to evaluate maintenance performance Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

NASA Maintenance of space shuttles Columbia: Maintenance requires
86,000,000 miles on odometer 3 engines each the size of a VW expected to make dozens more launches Maintenance requires 600 computer generated maintenance jobs 3-month turnaround More than 100 people A point to be made here is that in order for NASA to accomplish the task it has set for itself, the shuttle must be designed for maintainability. Otherwise the problem of maintaining the shuttle would be overwhelming! Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Maintenance Management
All activities involved in keeping a system’s equipment working Objective: Maintain system capability & minimize total costs A major point to be emphasized here is the maintenance should attempt to minimize total cost - not just maintenance cost. A second point is that total cost should be what some call “whole body cost,” and include: - unit purchase cost - cost of training personnel to use the unit - cost of buying a replacement at the end of this unit’s lifetime - cost of disposing of the old unit - cost of maintaining the unit during its useful lifetime - cost of upgrading the unit during its lifetime - etc. © 1995 Corel Corp. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

The Strategic Importance of Maintenance and Reliability
Failure has far reaching effects on a firm’s operation reputation profitability customers product employees profits The effect of failure on the listed items should be discussed. A point to make is that the cost of failure implies more than simply “this unit doesn’t work.” It reduces the likelihood of return customers in many ways. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Maintenance Performance
Maintenance Procedures Employee Involvement Maintenance Performance © 1995 Corel Corp. The performance of maintenance is the responsibility of whom? The worker using the unit in the performance of his/her job? Workers from the “maintenance department”? Outside contractors? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Good Maintenance & Reliability Strategy
Requires: Employee involvement Maintenance and reliability procedures To yield: Reduced inventory Improved quality Improved capacity Reputation for quality Continuous improvement You might stress at this point that employee involvement is crucial. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Employee Involvement Information sharing Skill training Reward system
Power sharing © 1995 Corel Corp. Employee involvement, the key to maintenance? By this time, the student should be gaining the impression that employee involvement is the key to successful OM. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Maintenance & Reliability Procedures
Maintenance Procedures © 1995 Corel Corp. Clean and lubricate Monitor and adjust Minor repair Computerized records Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Maintenance Benefits Lower operating costs Continuous improvement
Faster, more dependable throughput Higher productivity Improved quality Improved capacity Reduced inventory Maintenance Examples demonstrating how each of the benefits is incurred would be worthwhile. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Tactics for Reliability and Maintenance
Reliability Tactics improving individual components providing redundancy Maintenance Tactics implementing preventive maintenance increasing repair capabilities You might discuss the meaning of redundancy. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

System Reliability - Components in Series
Average Reliability of all Components (Percent) Reliability of the System (Percent) 100 80 60 40 20 n=1 n=10 n=50 n=100 n=200 n=300 n=400 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Reliability of Components in Series
R = R1 * R2 * R3 * ... Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Evaluating Maintenance
Reliability Probability that an item will function for a given time Mean time between failures (MTBF) Average time between failures of a repairable item Failure rate Reciprocal of MTBF Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Failure Rate (%) Number of failures FR(%) = * 100%
Number of units tested Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Lifetime Failure Rates
Infant mortality and improper use failure “normal” failure Wearout Failure rate Lifetime This is an interesting figure - but may not mean much to the students. They may be expecting a plot of mean time between failure instead of failure rate. You need to clarify this issue. It is also helpful to discuss some of the practices which stem from this curve: - computers and other electronic devices may be “burned in,” i.e., simply left running for a while to see if they will fail. (for some devices, the burn-in period is several hundred hours.) - replacement of electric motors at a point only one quarter through their estimated life span. Discuss other information we can get from plots of mean time between failures, and/or failure rates. (What does a bimodal mean time between failures plot represent?) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Failures Per Operating Hour
Number of Failures FR(n) = Operating Time Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Mean Time Between Failures
1 MTBF = FR(N) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Probability of first component working
Providing Redundancy Probability of first component working Probability of second component working + Probability of needing second component * = P(R) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Maintenance Decisions
How much preventive & breakdown maintenance Who performs maintenance Centralized, decentralized, operator etc. Contract or in-house When to replace or repair How much to replace Individual or group replacement Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Types of Maintenance Preventive Breakdown
Routine inspection & servicing Prevents failures Bases for doing Time: Every day Usage: Every 300 pieces Inspection: Control chart deviations Non-routine inspection & servicing Remedial Basis for doing Equipment failure Choose several items or processes, and ask students to decide upon what basis they should be maintained. Ask them also to identify some of the costs of an inappropriate maintenance schedule. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Mean Time Between Failure and Preventive Maintenance
Frequency of failure Mean Time Between Failure Candidate for preventive maintenance will have distribution with low variability You might want to discuss, at least briefly, the difference in MTBF charts of mechanical versus electronic systems. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Organizing the Maintenance Function
Centralized maintenance department Does all maintenance (PM & breakdown) Decentralized maintenance department Useful if different equipment used in different areas of company Contract maintenance Used if little equipment or expertise Operator ownership approach Ask students to identify some of the pros and cons of the various possibilities. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Operator-Ownership Approach
Operator does preventive maintenance Equipment condition is their responsibility Learns equipment better Increases worker’s pride Reduces repair time & PM costs Maintenance department is backup Handles non-routine problems Provides maintenance training Has plant-wide responsibilities Is this an example of job enlargement or job enrichment? Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

A Computerized Maintenance System

Maintenance Costs Traditional View
Maintenance Commitment Cost Preventive Maintenance Cost Total Maintenance Cost Breakdown Cost Optimal Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Maintenance Costs Full Cost View
Optimal Total costs Full cost of breakdowns Preventive maintenance costs Maintenance Commitment Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Contract for Preventive Maintenance
Compute the expected number of breakdowns without the service contract Compute the expected breakdown cost per month with no preventive maintenance contract Compute the cost of preventive maintenance Compare the two options Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Increasing Repair Capabilities:Features of A Good Maintenance Facility
Well-trained personnel Adequate resources Ability to establish a repair plan and priorities Ability and authority to do material planning Ability to identify the cause of breakdowns Ability to design ways to extend MTBF Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Operations Manager Must Determine How Maintenance Will be Performed
Operator Maintenance Department Manufacturer’s field service Depot Service (return equipment) Competence is higher as we more to the right Preventive maintenance costs less and is faster as we move to the left Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Total Productive Maintenance
Additional requirements of: Designing machines that are reliable, easy to operate and easy to maintain Emphasizing total cost of ownership when purchasing machines, so that service and maintenance are included in the cost Developing preventive maintenance plans that utilize the best practices of operators, maintenance departments, and depot services Training workers to operate and maintain their own machines Again, a multi-faceted approach! Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

A Key To Success High utilization of facilities, tight scheduling, low inventory and consistent quality demand reliability - total preventive maintenance is the key to reliability. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Techniques for Establishing Maintenance Policies
Simulation - enables one to evaluate the impact of various maintenance policies Expert systems - can be used by staff to help diagnose faults in machinery and equipment One of the main benefits of simulation is that it helps one gain an understanding of the maintenance problem. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J

Operations Management Operations and Productivity Chapter 1

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Operations Management Operations and Productivity Chapter 1

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