Lecture 5:

Operational functions
 Outline
I. Product and process design
II. Scheduling
III. Logistics and inventory management
IV. Control and distribution systems
V. Capacity management
 I. Product/process design

1. Definitions:
• Product development is the process of creating a new product to
be sold by an enterprise to its customers.
– Design refers to the activities involved in creating the styling, look and
feel of the product, deciding on the product’s mechanical architecture,
materials and processes.
– Development refers collectively to the entire process of identifying a
market opportunity, creating a product to appeal to the identified market
and finally testing, modifying and refining the product until it is ready for
production.
2. Market pull vs. Technology push products?
• Market pull:
– The view that it is the pull of users in the market that is responsible for
innovation.
– The company first determines a new product to satisfy the needs of a
particular segment of its customers. Then engineering is then asked to
determine the technical feasibility of the new product idea.
– “Lead users” are of particular importance.
• Technology push:
– The view that it is the new knowledge created by technologists or
scientists that pushes the innovation process,
– Opens the way for a new product and marketing then attempts to
determine the idea’s prospects in the marketplace.
Source: Panhuyzen, 2016
• 3. The process:

Source: Cymer LLC, 2016

• 4. Establishing product specifications:
• Identify customer needs
✔ By interviews with potential purchasers, focus groups and by observing similar products in
use.
✔ Customer needs and product specifications are organized into a hierarchical list with
comparative rating value given to each need and specification.
• Analyze competitive products
✔ The evolution of design builds on the successes and failures of prior work.
• Establish target and final specifications
✔ Target specifications are essentially a wish list tempered by known technical constraints.
✔ Final specifications are the result of tradeoffs made between technical feasibility, expected
service life, projected selling price and financial limitations of the development project.
 II. Scheduling
1. Definitions:
• Scheduling: the allocations of resources over time to accomplish
specific tasks.
• Main types of scheduling:
– Demand scheduling: A type of scheduling whereby customers are
assigned to a definite time for order fulfillment.
– Workforce scheduling: A type of scheduling that determines when
employees work.
– Operations scheduling: A type of scheduling in which jobs are assigned
to workstations or employees are assigned to jobs for specific time
periods.
2. Operations scheduling:
• Operations scheduling is critical to the success of an
organization; however, it can be a very complicated task.
Effective schedules are needed to meet promised customer
delivery dates or inventory targets.

• It covers the following areas in particular:

– Assign job to a particular work center/ machine
– Time of assignment of job and completion
– Allocation of resources like manpower and materials
– Time sequence of operations
– Feedback and control function to take care of deviations
a. Objectives of Operations Scheduling:
• Making efficient use of the labor.
• Making best possible use of the equipments that are available for the use
• Increasing the profit.
• Increasing the output.
• Improving the service level.
• Maximizing the delivery performance (i.e. meeting the delivery dates).
• Minimizing the inventory.
• Reducing the manufacturing time.
• Minimizing the production costs.
• Minimizing the worker costs.
b. Functions of Operations Scheduling:
• Allocation of the resources.
• Shop floor control.
• Making maximum use of the plant at minimum possible cost.
• Ensure that the needs of the manpower are optimum.
• Determination of the sequence of the jobs.
• Specifying the start and the end time for each job (actively scheduled).
• Getting quick feedback from the shops regarding the delays and the various
interruptions.
• Possess up – to-date information for the availability of the materials, expected
delivery dates, etc.
• Possess up-to-date data on the machine regarding its breakdown, servicing,
etc.
c. Types of Operations Scheduling:
1. Forward operations scheduling
– Classified on the basis of the time.
– All the activities are scheduled from the date the planned order
release.
– First task of the job is scheduled.
– Its subsequent task is scheduled on the scheduled completion of
the first task.
– Like this, accordingly all the tasks of the job are scheduled.
c. Types of Operations Scheduling:
1. Backward operations scheduling
– Also classified on the basis of time.
– Activities are scheduled from the date or the planned receipt date.
– The last activity is scheduled first.
– Time of the start of the last task is considered as the time for the
start of the previous activity.
3. Shop Floor Control (SFC)
• SFC: Schedule and monitor day-to-day job shop production
(also called production, control and production activity
control – PAC).
• SFC is performed by production control department including
3 main tasks:
– Loading – checking availability of material, machines, and labor.
– Sequencing – release work orders to shop and issue dispatch lists
for individual machines.
– Monitoring – maintain progress reports on each job until it is
complete.
a. Loading
• Process of assigning work to limited resources
• Perform work with the most efficient resources
• Use assignment method of linear programming to
determine allocation
b. Sequencing
• Prioritize jobs assigned to a resource
• If no order specified use first-come-first-served (FCFS)
• Many other sequencing rules exist
• Each attempts to achieve to an objective
 Sequencing rules
▪ FCFS – first come, first served
▪ LCFS – last come, first served
▪ DDATE – earliest due date
▪ CUSTPR – highest customer priority
▪ SETUP – similar required setups
▪ SLACK – smallest slack
▪ CR – critical ratio
▪ SPT – shortest processing time
▪ LPT – longest processing time
 Guidelines for selecting a sequencing
rule
▪ SPT most useful when shop is highly congested
▪ Use SLACK for periods of normal activity
▪ Use DDATE when only small tardiness values can be
tolerated
▪ Use LPT if subcontracting is anticipated
▪ Use FCFS when operating at low-capacity levels
▪ Do not use SPT to sequence jobs that have to be assembled
with other jobs at a later date
c. Monitoring
• Work package
– Shop paperwork that travels with a job
• Gantt Chart
– Show both planned and completed activities against a time
scale
• Input/output Control
– Monitors the input and output from each work center
 Gantt Chart Example (1)
Project Summary Gantt Chart

Source: SAS Institute Inc., 1999

 Gantt Chart Example (2)
Detailed Gantt Chart for WBS = 0.4

Source: SAS Institute Inc., 1999

III. Logistics and Inventory Management
1. Logistics and Supply Chain Management
– Logistics is the process of planning, implementing and controlling the
efficient, cost-effective flow and storage of raw materials, in-process
inventory, finished goods and related information from the point of origin
to point of consumption for the purpose of conforming to customer
requirements. (Council of Logistics Management, 2016)
• Inbound logistics: Receiving, handling and storing inputs to the production
system, including warehousing, transport and stock control.
• Outbound logistics: Storing the product and its distribution to customers,
including packaging, testing, warehousing and delivering.
III. Logistics and Inventory Management
1. Logistics and Supply Chain Management (cont)
– Supply Chain Management is the integration of all activities
associated with the flow and transformation of goods from raw
materials through end user, as well as information flows,
through improved supply chain relationships, to achieve a
sustainable competitive advantage.
(Handfield and Nichols, 1999)
Source: Rohtak, 2012
2. Inbound logistics and Purchasing
• Purchasing – is generally taken to mean the
procurement of the supplies for the enterprise, which
requires the study of
– commodities,
– sources of supply,
– systems and procedures,
– inventory problems and market trends,
– methods of delivery,
– whether maximum discounts are being earned
– the amount and use of waste materials.
2. Inbound logistics and Purchasing (cont)
• Purchasing mix – includes quantity, quality, price and delivery.
The right materials should be in the right place at the right time
and at the right price.
• Purchasing policy may be concerned with:
– Whether to buy when required – limiting the purchases to minimum
requirements
– Whether to buy on contract on a medium or long-term basis –
assuring continuity of supply in very important flow production
– Speculative or bargaining buying – where material is bought with
the hope of future price rises
3. Inventory/stock management
• Most businesses will be concerned with the problem of which items
to have in stock, and how many of each item should be kept.
• The main reasons for holding stock are:
– It acts as a buffer in times when there is an unusually high rate of consumption
– It enables the business to take advantage of quantity discounts by buying in bulk
– Business can take advantage of seasonal and other price fluctuations (e.g. oil is
cheaper in summer)
– Any delay in production caused by lack of parts is kept to a minimum , so
production processes will flow smoothly and efficiently
– It may be necessary to hold stock for a technical reason (e.g. whisky and wine
must be matured)
3. Inventory/stock management (cont)
• Stock control systems (SCS)
– Aims to maintain the quantities of stocks held by a company at a level
that optimizes some predetermined management criterion (e.g.
minimizing costs incurred by the business)
– There are obviously disadvantages in holding either too much or too little
stock, and the problem is to balance these disadvantages against the
benefits obtained.
– There are 2 main types of SCS:
• In a reorder level system, a replenishment order of fixed size is placed when
stock level falls to the fixed reorder level. Thus a fixed quantity is ordered at
variable intervals of time.
• In a periodic review system, the stock levels are reviewed at fixed points in
time, when the quantity to be ordered is decided. By this method, variable
quantities are ordered at fixed times.
IV. Distribution management system
1. Definition:
• The management of
the efficient transfer of
goods from the place of
manufacture to the point
of sale or consumption.
• Distribution management encompasses such activities
as warehousing, materials handling, packaging, stock
control, order processing and transportation.
2. The marketing mix and distribution
Distribution is the Place factor
of the marketing mix (4Ps):
– Distribution channel
– Distribution area
– Point of sale
– Warehouses
– Means of transport
The marketing mix model (4Ps)
Source: Tram, 2015
3. Channels of distribution (direct & indirect)

Source: Lakhani, 2013

a. Selling through direct channels:
• This is the oldest, shorter and the simple channel of distribution. The
producer sells the product directly without involvement of any middle
man.
• Direct distribution is considered when:
– The target market is easily identifiable
– A knowledgeable and personal sales-force is a key ingredient
– The business has a wide variety of products available for the target market
– Sufficient resources are available
– Intermediaries are not available for reaching the target market
– Intermediaries do not possess the capacity to service the requirements of the
target market
b. Selling through indirect channels:
• Product is passed onto the customers through
intermediaries such as wholesalers, agents and
retailers.
• Indirect distribution is considered when:
– Intermediaries can perform distribution functions more
efficiently and at a lower cost
– The target market is hard to reach directly
– The business does not have the resources to perform the
distribution function
4. Patterns of distribution
• Patterns of distribution decides the intensity of the distribution & also
decides the service level provided.
• Types of distribution intensities:
– Intensive distribution: is done through every reasonable outlet available –
FMCG. Strategy is to make sure that the product is available in as many
outlets as possible. Preferred for consumer, pharmaceuticals and
automobile spare.
– Selective distribution: multiple but not all outlets in the market. Only a few
selected outlets are allowed to keep the product. Outlets selected in line
with the image of the company wants to project. Preferred for high value
item like jewelries.
– Exclusive distribution: highly selective choice of outlets, may be only one
in the whole market. Could include outlets set up by the company itself (e.g.
Bata)
 IV. Capacity
management
1. Capacity
• Definition: Capacity is the capability of a worker,
machine, work center, plan or organization to produce
output per period of time. (APICS dictionary)
• It refers to the rate of doing work, not quantity of work
done.
Source: Kabra, 2012
2. Capacity management
• Capacity management: The function of establishing,
measuring, monitoring and adjusting limits or levels of
capacity in order to execute all manufacturing
schedules. (APICS Dictionary)
– Capacity planning: the process of determining the resources
required to meet the priority plan and the methods needed to make
that capacity available.
– Capacity control: the process of monitoring production output,
comparing it with capacity plans, and taking corrective action when
needed.
• Capacity forecast:

•Capacity forecast
•Short term
•Adapt to immediate changes in demand

•Apply technology to maximize capacity

•Long term
•Markets will evolve

•Technologies will evolve

• Modifying capacity:
•Modifying capacity
•Short term
•Inventories

•Backlogs

•Employment

•Work force

•Employee training

•Long term
•Expansion

•Contraction