CO – 4

 Planning and Managing Operations

 Demand Forecasting
 Supply Chain Management
 Purchasing
 Job Sequencing
 Transportation problems
 Assignment problems
 Advanced Operations Management
 Constraint management (TOC-
Theory of Constraints)
 Computer Integrated Manufacturing
 DSS for Operations Management

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 PLANNING AND MANAGING OPERATIONS
What is Operations Management Planning?
Business operations are the set of activities or tasks that are carried out on a daily basis to run a
company. These activities and tasks are what a company engages in to accomplish its business
goals and turn a profit. It includes all aspects of running a company, from marketing and sales to
accounting and finance.
Operations management planning is the process of deciding a company's strategic objectives
and how best to use its resources to achieve those strategic objectives. It can be thought of as the
connecting link between a company's strategy and its daily operations. The operations
management planning process begins with an understanding of the company's strategic
objectives. Once these objectives have been identified, the company's resources must be aligned
with these objectives. This includes both human and financial resources. The process of
operations management planning also includes the development of plans and policies that will
guide the day-to-day operations of the company. These plans and policies must be designed to
help the company achieve its strategic objectives.
It is important to note that operations management planning is not a one-time event, but rather is a
continuous process that should be revisited on a regular basis to ensure that the company's
resources are being used in the most effective and efficient way possible.
A basic example of an operation and management plan can be seen in a manufacturing company.
The company must decide how many products to produce, what type of products to produce, and
when to produce them. It must also create a production schedule that outlines when each product
will be made and how many will be produced. This schedule must take into account the time it
takes to make each product, the amount of raw materials and labor needed, and the availability of
these resources.
Operations management planning is a critical part of running a business. It helps managers make
decisions about how to best use a company's resources to achieve its objectives. The creation of
plans and schedules helps to ensure that these decisions are carried out in a timely and efficient
manner.
Strategic Planning & Operations
Operations managers must understand the connection between strategic planning and operations
in order to make decisions that align with the company's goals and objectives. Strategic
planning is the process of creating a vision for the future and setting goals to achieve that vision.
It involves making decisions about what markets to enter, what products or services to offer, how
to create these products or services, and what resources are needed to achieve these goals.
There are a few main steps of the strategic planning and plan ops process including product
design, production processes, and facility design. Product design is the process of creating a new
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product or service. This includes deciding what the product will be, how it will be made, and what
materials will be used. Production processes are the methods and procedures used to create a
product or service. This includes deciding how the product will be assembled, how it will be tested,
and what quality standards it must meet. Facility design is the process of creating a plan for how
the company's facilities will be laid out and used. All of these steps are important in the strategic
planning process and must be considered in order to make decisions that are in line with the
company's goals.
One example of a strategic decision that is made during the planning process is the decision to
build a new facility. This is a substantial investment of time and capital, and it is a decision that
should not be made lightly. The company must consider the location of the new facility, the type of
equipment that will be needed, and the workforce that will be required to operate it. Together these
variables will determine the cost of the new facility and the time it will take to get it up and running.
This decision must be made carefully in order to ensure that the new facility is able to meet the
company's goals and objectives.
What is Tactical Planning?
Tactical planning focuses on ensuring that all of the important variables and factors are in place
in order to achieve the company's strategic objectives. It is a more detailed and specific type of
planning that takes into account all of the different moving parts of the business. The main goal of
tactical planning is to make sure that all of the resources and inputs needed to achieve the
company's objectives are available when they are needed. Inputs can include things such as raw
materials and labor.
Tactical planning also includes creating schedules and plans for how these inputs will be used.
This type of planning is important in order to ensure that the company is able to meet its
production goals. It also helps to ensure that the company does not run into any shortages of
materials or labor. For example, the tactical planning team may have calculated the estimated
number of man-hours needed for a production run and created a schedule to make sure that the
necessary amount of labor and raw materials are available when they are needed. All of these
decisions must be made in alignment with the company's strategic objectives.
Tactical Planning vs. Strategic Planning
Strategic planning focuses on the big picture of the company's goals, while tactical planning is
focused on determining the resources needed to achieve the larger strategic objectives. In other
words, strategic planning determines what the company wants to achieve and tactical planning
determines how those objectives will be met.

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 DEMAND FORECASTING
What is Demand Forecasting?
Demand forecasting is the process of understanding and predicting customer demand in
order to make smart decisions about supply chain operations, profit margins, cash flow, capital
expenditures, capacity planning, and more. Demand forecasting helps businesses estimate the
total sales and revenue for a future period of time, often – but not always – by looking at historical
data.
The demand forecasting methodology is important for almost all businesses to avoid
overproduction and underproduction. To conduct a systematic and scientific demand forecast,
analysts need to determine what they’re measuring and the time perspective, select a type and
method of demand forecasting, and then collect, analyze, and interpret results.
Factors Influencing Demand Forecasting
There are a number of factors that can significantly impact demand which need to be taken
into account prior to forecasting. Here are the five most common influencers impacting forecasting
and demand management.
Seasonality
As seasons change, so can demand. A highly seasonal brand, or a cyclical business, may
have a peak season when sales are booming followed by off-seasons when sales are steady or
even very slow. Some demand forecasting examples based on seasonality include products used
during specific seasons (boating gear during the summer), holidays (costumes and candy on
Halloween) or events (wedding season, for example).
Competition
When competition enters or exits the scene, demand can drop or skyrocket. For example, if
a new player enters the market and starts vying for its share of the pie, established businesses
may suffer; on the other hand, if an existing competitor folds, or begins losing ground because of
bad product, service, or PR, other businesses will be in greater demand as consumers make a
switch.
Geography
Where your customers reside and where you manufacture, store, and fulfill orders from can
have a huge impact on inventory forecasting (not to mention shipping costs). So, it pays to be
strategic when choosing geographic locations of your supply chain. For example, if you sell
swimwear, you’ll probably want to store the majority of your product in a state like Florida where
they are ordered most; that way, you don’t have to ship to faraway locations.
Economy
Economic conditions can have a big impact on forecasting product demand. For example, if
an economy enters into depression or recession, and fewer people are working, the demand for
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high-priced, luxury products is likely to fall, while demand for low-priced, generic products is likely
to increase.
Types of Goods
Different products and services have very different demand forecasting. For example,
forecasting demand for perishable goods with a short shelf-life must be very precise or a lot of
inventory could be lost. On the other hand, demand can more or less be predicted for a
subscription box service that’s shipped to the same customers at the same time each month
(assuming customer retention and attrition are relatively steady).
Six Types of Demand Forecasting
Demand forecasting can be conducted in a number of ways; to achieve the most accurate,
well-rounded picture of future sales, you might even consider conducting more than one of these
six types of demand forecasting.
1. Passive Demand Forecasting
Passive demand forecasting doesn’t require statistical methods or analysis of economic
trends; it simply involves using past sales data to predict future sales data. So, while this makes
passive data forecasting fairly easy, it’s really only useful for businesses that have a lot of historical
data to pull from.
Because the passive model assumes this year’s sales data will be similar to last year’s sales data,
it should only be used by companies that aim for steady sales rather than rapid sales growth.
2. Active Demand Forecasting
Active demand forecasting is typically used by startup businesses and companies that are
growing rapidly. The active approach takes into account aggressive growth plans such as
marketing or product development and also the general competitive environment of the industry,
including the economic outlook, market growth projections, and more.
3. Short-Term Demand Forecasting
Short-term demand forecasting looks at a small window of time in order to inform the day-
to-day (e.g., it may be used to look at inventory planning for a Black Friday promotion). It’s also
useful for managing a just-in-time (JIT) supply chain or a product lineup that changes frequently.
However, most businesses will only use it in conjunction with longer-term projections.
4. Long-Term Demand Forecasting
Long-term demand forecasting is conducted for a period greater than a year, which helps to
identify and plan for seasonality, annual patterns, and production capacity. A long-term projection
is like a blueprint; by forecasting farther out into the future, businesses can focus on shaping the
growth trajectory of their brands, creating their fulfillment marketing plan, planning capital
investments and expansion strategies, and more to prepare for future demand.

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 5. Macro & Micro Demand Forecasting
Demand forecasting at a macro level looks at external forces disrupting commerce such as
economic conditions, competition, and consumer trends. Understanding these forces help
businesses identify product or service expansion opportunities, predict upcoming financial
challenges or raw material shortages, and more. Even if your company is more interested in
stability than growth, a look at external market forces can still keep you in the loop when it comes
to issues that could impact your supply chain.
Demand at a micro level is still external, however, it drills down to the particulars of a
specific industry or customer segment (for example, projecting demand for an organic peanut
butter among millennial parents in Austin, Texas).
6. Internal Demand Forecasting
A limiting factor for business growth is internal capacity; say you project that customer
demand will triple in the next three years; does your business have the capacity to meet that
demand? With internal forecasting, the needs of all operations that may impact future sales are
identified. For example, in human resources, demand forecasting could help identify how many
people will need to be hired within those next three years to keep things running smoothly and fill
future customer demand.
Eight Demand Forecasting Methods
Choosing the type (or types) of demand forecasting or eCommerce demand forecasting
you’ll use for your business is just part of the process. Next is determining the method you’ll use to
create the forecast. Here are five popular methods of achieving a demand forecast.
1. Statistical Method
Using statistical methods is a reliable and often cost-effective method of demand
forecasting. A few ways to employ the statistic method include:
 Trend projection, which is probably the easiest method of demand forecasting. Simply put, you
look at the past to predict the future. Of course, be sure to remove any anomalies. For example, if
you had a brief sales spike the previous year because a story about your product went viral for a
month, or your eCommerce site was hacked and sales temporarily dropped as customers heard
the news. Both of these events are unlikely to repeat, so they should not be factored into the trend
projection.
 Regression Analysis, which enables companies to identify and analyze the relationships between
different variables such as sales, conversions, and email signups. Taking a holistic view of how
each impacts the other can help a company allocate resources to the right area in order to boost
sales.

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 2. Market Research/Surveying
Market research is another form of demand forecasting, with customer surveys being
important demand forecasting tools. Today, online surveys make it easy to target your audience
and survey software makes analysis much less time-consuming than in the past.
Using surveys, forecasters can gain a lot of valuable insights that simply can’t be mined from a
sales figure. They can help paint a better picture of your customer and their needs, inform
marketing efforts, and identify opportunities.
Some of the most popular surveys with sales and marketing teams include:
 Sample surveys, in which a select sample of potential buyers are interviewed to determine their
buying habits.
 Complete enumeration surveys, in which the largest possible sample of potential buyers are
interviewed to gather a broader data set.
 End-use surveys, in which other companies are surveyed to determine their view on end-use
demand. Surveys can be easily conducted online using platforms such as Survey Legend, So Go
Survey, and Qualtrics.
3. Sales Force Composite Method
Also known as the "collective opinion," the sales force composite is a demand forecasting
method in which sales agents forecast demand in their territories. This data is consolidated at the
branch, region, or area level, and then the aggregate of all factors is considered to develop an
overall company demand forecast. This “bottom-up” approach is valuable because salespeople
are very close to the market and can often provide more accurate predictions based on their direct
experience with customers.
When using this method, remember that factors like product price, marketing campaigns,
customer affluence, and competitors can differ based on region, so it’s important to take this into
account when forecasting. Some inventory management platforms have built-in features allowing
sales executives to gather and send this data electronically, while others will use market research
surveys to gather data.
4. Expert Opinion
A collective opinion is valuable, but let’s face it, sometimes you need advice from an expert.
Companies engaging in this demand forecasting method may hire an outside contractor to predict
future activity. It usually begins with a brainstorming session between the company and the
contractor(s) in which assumptions are made that can inform leadership on what to expect in the
coming weeks, months, or even years.
5. Delphi Method

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 Often used in conjunction with an expert opinion, the Delphi Method was developed by the RAND
Corporation in the 1950s and still popular today. The Delphi method of forecasting leverages the
opinion of industry experts to make a demand forecast. Here’s how it works, in a nutshell:
 A panel of industry experts is compiled.
 A questionnaire is sent to each expert on the panel.
 Results of the questionnaire are summarized by a facilitator who returns the summary to
each member of the panel.
 The panel is re-questioned on their forecasts and encouraged to revise their earlier answers
in light of the replies of other members of their panel.
 This may continue for another round or two.
Because the Delphi method allows the experts to build on each other’s knowledge and opinions,
the end result is considered a more informed consensus.
6. Barometric
This forecasting method uses three indicators to predict trends.
 Leading indicators attempt to predict future events. For example, an increase in customer
complaints due to shipping delays or backorders could lead to a decrease in sales.
 Lagging indicators analyze the impact of past events. For example, a spike in sales the month
prior could indicate a growing trend that needs to be watched closely for inventory purposes.
 Coincidental indicators measure events happening right now. For example, real-time inventory
turnover demonstrates current sales activity.
Each indicator can be used to conduct better inventory planning and improve supply chain
management.
7. Econometric Method
The econometric demand forecasting method accounts for relationships between economic
factors. For example, when the COVID-19 pandemic became widespread in 2020, there was an
increased demand for online shopping as customers locked down and avoided the in-store
experience. Another economic example could be an increase in disposable income coinciding with
an increase in travel, as more people book vacations with their extra money.
While it may sound simple in theory, the econometric demand forecasting methodology can
be extremely challenging, as forecasters are rarely able to conduct controlled experiments in which
only one variable is changed and the response of the subject to that change is measured. Instead,
econometrics are determined using a complex system of related equations, in which all variables
may change at the same time. There’s a reason those that employ this method aren’t just
forecasters. They have their own title: Econometricians.

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8. A/B Experimentation
Customer behavior can sometimes be informed through market experiments conducted
under controlled conditions. This may include A/B testing of different promotions, features, website
imagery or features, email subject lines, and much more. If consumers strongly favor one over the
other, companies gain a better understanding of what appeals to them in order to forecast
demand. For example, one experiment found that companies experience more sales when
offering prices ending in odd numbers!
Benefits of Demand Forecasting
Is all this number-crunching worth it? Absolutely! Whether you’re a scrappy eCommerce
startup or an established retail giant, demand forecasting offers numerous benefits.
Preparing Your Budget
It’s hard to prepare a budget without demand forecasting. How else will you be able to plan
other purchases? For example, let’s say you overestimate the amount of inventory you’ll need due
to poor demand forecasting. The more money you invest in inventory, the less cash you have to
spend. So, when there’s an opportunity to invest in a new product line, or it’s time to develop that
new ad campaign, the cash flow to do so may be tied up in inventory.
Developing a Pricing Strategy
Understanding on demand strategy for your product or service can help you price it
appropriately. While this will also require an understanding of the market and your competition, it
can pay off handsomely. For example, if you’re sitting on a large inventory and know a newer
model is coming out, you might slash prices to reduce inventory quickly and make room for the
new models. Or, if there is a limited supply of a high-demand product, you can use the scarcity
principle to increase the price as an exclusive offer.
Storing Inventory
The more inventory you carry, the more expensive it is to store. And, the longer you keep it,
the more likely it is to decrease in value. Demand forecasting can help you spend less money on
both inventory purchase orders and warehousing by informing you of what you’ll need and when
you’ll need it. By not keeping too much inventory on hand, you also reduce the chance of it
becoming dated if something “new and improved” comes along.
Reducing Backorders
While unexpected surges in demand are always possible (for example, a previously low-
demand product becomes a fad, is featured on television, or is endorsed by an influencer), proper
demand forecasting can help reduce backorders. Backorders happen when you don’t have enough
product to meet demand, and can lead to frustrated customers who may turn to a competitor. If
they wind up liking the competitor, you could lose them for good. Demand planning helps you
reduce your chances of running out of popular products (and running off your customers).

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Saving on Restocking
Lack of demand forecasting can not only cost you customers, but it can really eat into your
profits too. To fill these orders and new orders, you’ll need to restock quickly, which could mean
24/7 production or paying rush charges or expedited shipping fees to your suppliers. On top of
that, to meet customer expectations (or to make good with frustrated customers), you might have
to pay for expedited shipping to them as well.
How To Start Demand Forecasting
New to demand forecasting but ready to reap the rewards of doing it? Here are some steps
you can take to get started!
Set Your Goals
Make planning a priority! Before you even begin collecting or analyzing data, you need to
decide what you hope to accomplish. Data collection for the sake of data collection will not boost
your bottom line. So, ask yourself some of the following questions and center them around a
particular timeframe:
 How many products in each line will we sell?
 Is demand for certain lines going to fluctuate?
 Are there any external factors that might impact demand?
 Could changing consumer trends impact sales?
 If demand drops significantly, what action will we take?
Inform Stakeholders
Once you’ve set your goals and objectives, be sure to get buy-in from everyone involved.
This means roping in your sales team, marketers, research and development, and leadership.
When everyone is on the same page, it's time to start forecasting!
Collect and Record Data
Choose your demand forecasting method or methods from the list we provided earlier, and
then gather as much data as you can. The more data, the better the forecast will be. Don't forget
that internal and external factors influence product demand so it's a good idea to gather data from
inside your organization (utilizing your CRM platform or sales team) and outside your organization
(conducting market research or surveys).
Analyze Data
Once you've collected some data, it's time to do some analysis, finding patterns and trends
that will enable you to make predictions. For small eCommerce businesses, this could be done
manually; otherwise, the most efficient way to analyze data is through an AI platform.
These solutions use machine learning to provide insights from your data quickly.

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Make Any Necessary Adjustments
What you do with your findings is crucial – this is the part that is going to benefit your
business! So, plan to make some adjustments to your business operations to put them in line with
your forecasts. For example, say you forecast an increase in demand for a certain product based
on market trends; you'll want to increase your inventory of that product to reduce backorders or
stockouts. Or, let's say you discover that a product only picks up sales at certain times of the year;
then, you may choose to only maintain high levels of inventory at those times to free up costly
warehouse space.
An Ecommerce Demand Forecasting Example
A trendy new online brand of athletic wear is really taking off, with about 12,000 orders per
month for all six SKUs. Looking at past sales data, a planned PPC ad campaign, an increase in
social media followers, and general market conditions in the industry, they're forecasting to triple
their orders by the same period next year, reaching 36,000 per month.
Currently, they stock a total of 50,000 units across all six SKUs, about the maximum
inventory they can hold, and they restock each every 90 days. Some months, they are
dangerously close to running out of a particular SKU.
Based on their forecast, they know that to maximize their space they will need to order
inventory based on each particular SKU which will add more complexity to the process. However,
with the expected additional revenue in the coming year, they're now considering leasing
warehouse space or outsourcing fulfillment to a third-party fulfillment center. This way, they will
have more space to house inventory and won't have cut things so close and risk stockouts and
backorders.

How The Fulfillment Lab’s Global Fulfillment Software Can Help with Demand Forecasting
Proper demand forecasting can make or break a company. By understanding demand,
ecommerce businesses can monitor what they’ve got coming in, and what they’ve got going out. If
it sounds daunting, The Fulfillment Lab can help.
When you trust fulfillment duties to The Fulfillment Lab, you’ll have access to our
proprietary Global Fulfillment Software (GFS™). Unlike other warehouse management platforms,
our technology allows you to see exactly what’s going on in our distribution centers where your
products are stored, even if it’s in one of our facilities across the globe! This provides a historical
perspective on demand over time, which helps you to plan for the future.
Not only does GFS provide demand insights, but it also takes data from the front end of the
sales funnel to gain more data on end-consumer purchases. It’s all done to help you grow your
business and your knowledge of your customers.

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Learn more about The Fulfillment Lab and our founder, or contact us to learn more about what we
can do for you!
SUPPLY CHAIN MANAGEMENT
Supply Chain Management and Operations Management go hand in hand
What is Supply Chain Management?
The supply chain management discipline oversees how companies distribute their goods
and services to clients. Supply chains, which include inventory management, warehouse
management, and supplier management, are how organisations distribute what they sell to clients.
Professionals who oversee this procedure for their organisations are called supply chain
managers.
Supply chain management may collaborate with a supplier to ensure the appropriate
amount of goods is delivered at the appropriate time. They might oversee the warehouse
personnel that receives deliveries and arranges for storage. Additionally, they ensure that the
supplies and stock in the warehouse are used for any production requirements of the company
before storing and shipping the finished product to clients.
So that their organisation can produce the computers as needed, a supply chain manager,
for instance, may be in charge of identifying vendors, placing orders, and coordinating component
delivery with suppliers. The manager would oversee the computerised inventory and shipping
orders to clients and retailers.
Various positions in Supply Chain Management

Although not every organisation will offer every role, the following are some of the supply chain-
related positions that are open:

Position Description

Inventory
They keep track of all the inventory that a business has and needs, and to mak
Clerk

Logistics They manage the flow and distribution of goods, as well as oversee the deliver

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 Position Description

Coordinator

Inventory
They keep the inventory of a company up to date, and make sure that no item
Associate

Warehouse
They are responsible for ensuring that their warehouses are safe and secure.
Manager

Logistics
They plan, organise, and oversee the transportation of goods from one place to
Manager

Supply Chain
They manage the flow of goods and materials within a company.
Supervisor

 Inventory Clerk
A warehouse clerk’s main responsibilities include shipping and receiving goods, including
orders for the company’s clients and supplies for the company. Under management’s guidance,
they might assist with tracking inventory, arranging the warehouse, and packing and unpacking
trucks.
 Logistics Coordinator
A logistics coordinator’s main responsibilities include overseeing the logistics portion of the
supply chain, organising shipments with suppliers, and ensuring that colleagues are informed of
logistics-related information. They might also examine purchase orders as they attempt to maintain
all orders on schedule.
 Inventory Associate
An inventory associate’s main responsibilities include keeping track of new shipments,
maintaining inventory process, and managing inventory data on a computer to manage the
inventory in their area or warehouse. They may also use technology to track and enhance
inventory procedures more precisely.
 Warehouse Manager
To ensure everything in the warehouses is correctly handled and structured, a warehouse
manager is a supply chain expert who supervises other warehouse staff. They might oversee
workers, teach them, handle incoming or outgoing cargo, and ensure quality.
 Logistics Manager

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 The main responsibilities of a logistics manager, often known as a distribution manager, are
controlling the flow of goods into and out of a warehouse. They might coordinate the sending and
receiving of goods, oversee the management of warehouse workers, keep up in contact with
suppliers and clients, and manage inventories.
 Supply Chain Supervisor
A supply chain manager’s main responsibilities include overseeing a company’s whole
supply chain operation. This position may be integrated with operations, the supply chain specialist
may be the only one in the organisation, or they may be in charge of a sizable group of supply
chain specialists. They coordinate client shipments, manage inventory, plan supply chain process
improvements, manage business partnerships, and supervise workers.
What is Operations Management?
The field of operations management oversees a company’s day-to-day operations, including
how its facilities are maintained, how its manufacturing processes function, and how to guarantee
that orders are fulfilled on schedule through efficient production of goods and services. Operations
in the context of a business refer to anything about how the company runs, particularly how people
spend their time in the office.
In order to increase the company’s production output, an operations manager could develop
more effective manufacturing procedures. They may also oversee the company’s hiring
requirements and financial demands. They might collaborate with the other managers to plan the
company’s long-term objectives and business strategy. To ensure that proactive maintenance
results in equipment that lasts longer and experiences fewer issues, they might develop a
timetable for upkeep of manufacturing equipment.
The importance of operations management at a firm can be easily illustrated. They might
find that streamlining the production process would speed up the process of making the computers
and collaborate with their coworkers to put that change into place. They work in tandem with
supply chain management to ensure stock will be provided and adhere to the company budget.
They oversee the manufacturing area’s workforce to ensure enough workers create computers to
satisfy client demand. They collaborate with other business managers to develop a plan for the
company’s future.
Various positions in Operations Management

Although they are related to supply chain employment, the following occupations fall under the
category of operations; however, not all businesses provide these kinds of positions:

Position Description

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 Position Description

Operations Coordinator They make sure that everything goes smoothly at your company.

Operations Manager They are in charge of hiring employees, training them, and making sure

Business Analyst They gather and analyse data, then use it to construct solutions for prob

Operations Director They are high-level executives at a company that manages the day-to-d

Principal Operating
They oversee the day-to-day operations of a company. They are respon
Officer

 Operations Coordinator
Primary responsibilities: The operations coordinator is indeed a person who frequently
supports the operations management process by organising office activities, providing clerical
assistance, enhancing efficiency, and interacting with clients.
 Operations Manager
The operations manager is a professional in operations who could be the most senior
member of the department. They oversee personnel, handle finances for the company, decide on
strategies, interact with employees and business partners, and establish plans for the organisation.
 A Operations Analyst
An operations analyser is an analytical expert who maintains pertinent data as an
operations team member. They might be in charge of streamlining workflows, developing
operational procedures, suggesting workforce adjustments, analysing data, and making
suggestions based on it.
 The Operations Director
The director of operations is an operating expert who frequently works for larger
organisations with a larger operations management department. They typically supervise a group
of operations personnel. They oversee personnel, offer suggestions for corporate staffing plans,
plan for the company’s future, streamline workflow, and analyse operational data.
 Principal Operating Officer
The chief operating officer is a senior operations executive typically found in large
organisations with a large operations workforce and various operational challenges. They typically
oversee business plans, develop performance reports and analyse relevant data, formulate
business objectives, and collaborate with other executives to operate the company.
ALSO READ: MBA Operations Management course syllabus
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Why is supply chain management important in operations management?
Overall operations and supply chain management are generally anticipated to enhance the
company’s operations, promote more productive procedures, and ultimately increase income. In
actuality, the two positions are intimately connected to achieving those goals. Operations
management wouldn’t have a product to monitor operations without supply chain management,
which manages the process of getting the product created.
Whether the organisation is transferring services, commodities, raw materials, information,
or money into the hands of its consumers, many sectors require supply chain management and
operations management simultaneously.
Because the required skill set for both professions is comparable, it is also possible for both roles
to overlap in smaller organisations or be filled by a single individual or department.
Difference between supply chain management and operations management

Recent happening in the field

Most freight companies are not just focusing on the distribution side. They also aim to
increase the value of the products offered to their customers. While modern SCM allows any
business organisation to experience the value of building partnerships, traditional SCM allows
public companies to follow a single path.
Organisations operating under modern SCM create and deliver value to products that the
end-customers consume. In contrast, traditional SCM has no such strategy to increase the value of
the final product. The latest technology and strategy flow into the modern SCM. However,
traditional SCM follows the old method.

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 To further explain, consider the example of a book that has not yet been published.
Traditional systems collect raw materials, deliver them to manufacturers, create books, print
content, pack, ship, and deliver. Modern supply chain management simply shuts down all of these
processes by publishing an ebook. The latest SCM enables faster progress than traditional SCM.
Future of SCM and OM
Various aspects of the supply chain might be expected to increase personalisation. Your
supply chain may need to be segmented, with a unique strategy and method developed for each
segment.
As more customers place a higher value on the environment, more companies have
stepped up their sustainability initiatives, which are now permeating the supply chain. You’ll need
to customise your efforts to meet your company’s particular requirements since there are various
ways to concentrate on sustainability.
Automation and the usage of artificial intelligence are becoming more prevalent in many
supply chains. Automation makes it possible to streamline routine operations, and AI, which makes
an effort to imitate human intellect and “learn,” can help with trickier, more difficult tasks.
The Internet of Things (IoT) is a connection of actual physical things that are linked to the
internet via sensors and software. Even if the IoT now contributes significantly to the supply chain,
notably in terms of logistics, its significance is anticipated to increase in the future due to its more
varied uses. IoT and other cutting-edge technologies may be used by 50% of major corporations to
assist supply chain operations within only a few short years
PURCHASING

Purchasing: it’s Meaning, Definition, Importance and Objectives | Material Management

Meaning and Definition:
Purchasing is the first phase of Materials Management. Purchasing means procurement of
goods and services from some external agencies. The object of purchase department is to arrange
the supply of materials, spare parts and services or semi-finished goods, required by the
organisation to produce the desired product, from some agency or source outside the organisation.
The purchased items should be of specified quality in desired quantity available at the
prescribed time at a competitive price. In the words of Alford and Beatty, ”Purchasing is the
procuring of materials, supplies, machines, tools and services required for equipment,
maintenance, and operation of a manufacturing plant”.
According to Walters, purchasing function means ‘the procurement by purchase of the
proper materials, machinery, equipment and supplies for stores used in the manufacture of a
product adopted to marketing in the proper quality and quantity at the proper time and at the
lowest price, consistent with quality desired.”
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 Thus, purchasing is an operation of market exploration to procure goods and services of
desired quality, quantity at lowest price and at the desired time. Supplier who can provide standard
items at the competitive price are selected.
Purchasing in an enterprise has now become a specialized function. It was experienced that
by giving the purchase responsibility to a specialist, the firm can obtain greater economies in
purchasing. Moreover purchasing involves more than 50% of capital expenditure budgeted by the
firm.
According to Westing, Fine and Zenz “Purchasing is a managerial activity that goes beyond
the simple act of buying. It includes research and development for the proper selection of materials
and sources, follow-up to ensure timely delivery; inspection to ensure both quantity and quality; to
control traffic, receiving, storekeeping and accounting operations related to purchases.” The
modern thinking is that Purchasing is a strategic managerial function and any negligence will
ultimately result into decrease in profits.
Importance of Purchasing:
1. Purchasing function provides materials to the factory without which wheels of machines cannot
move.
2. A one percent saving in materials cost is equivalent to a 10 percent increase in turnover.
Efficient buying can achieve this.
3. Purchasing manager is the custodian of his firm’s is purse as he spends more than 50 per cent
of his company’s earnings on purchases.
4. Increasing proportion of one’s requirements are now bought instead of being made as was the
practice in the earlier days. Buying, therefore, assumes significance.
5. Purchasing can contribute to import substitution and save foreign exchange.
6. Purchasing is the main factor in timely execution of industrial projects.
7. Materials management organisations that exist now have evolved out or purchasing
departments.
8. Other factors like:
(i) Post-war shortages,
(ii) Cyclical swings of surpluses and shortages and the fast rising materials costs,
(iii) heavy competition, and
(iv) Growing worldwide markets have contributed to the importance of purchasing.
Objectives of Purchasing:
The purchasing objective is sometimes understood as buying materials of the right quality, in the
right quantity, at the right time, at the right price, and from the right source. This is a broad
generalisation, indicating the scope of purchasing function, which involves policy decisions and
analysis of various alternative possibilities prior to their act of purchase.

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The specific objectives of purchasing are:
1. To pay reasonably low prices for the best values obtainable, negotiating and executing all
company commitments.
2. To keep inventories as low as is consistent with maintaining production.
3. To develop satisfactory sources of supply and maintain good relations with them.
4. To secure good vendor performance including prompt deliveries and acceptable quality.
5. To locate new materials or products as required.
6. To develop good procedures, together with adequate controls and purchasing policy.
7. To implement such programmes as value analysis, cost analysis, and make-or-buy to reduce
cost of purchases.
8. To secure high caliber personnel and allow each to develop to his maximum ability.
9. To maintain as economical a department as is possible, commensurate with good performance.
10. To keep top management informed of material development which could affect company profit
or performance.
11. To achieve a high degree of co-operation and co-ordination with other departments in the
organisation.
TRANSPORTATION PROBLEM AND ASSIGNMENT PROBLEM
Transportation problem is a special kind of Linear Programming Problem (LPP) in which
goods are transported from a set of sources to a set of destinations subject to the supply and
demand of the sources and destination respectively such that the total cost of transportation is
minimized. It is also sometimes called as Hitchcock problem.
Types of Transportation problems:
Balanced: When both supplies and demands are equal then the problem is said to be a
balanced transportation problem.
Unbalanced: When the supply and demand are not equal then it is said to be an unbalanced
transportation problem. In this type of problem, either a dummy row or a dummy column is
added according to the requirement to make it a balanced problem. Then it can be solved
similar to the balanced problem.
Methods to Solve:
To find the initial basic feasible solution there are three methods:
1. NorthWest Corner Cell Method.
2. Least Call Cell Method.
3. Vogel’s Approximation Method (VAM).
Basic structure of transportation problem:
In the above table D1, D2, D3 and D4 are the
destinations where the products/goods are to be
19
delivered from different sources S1, S2, S3 and S4. Si is the supply from the source Oi. dj is the
demand of the destination Dj. Cij is the cost when the product is delivered from source Si to
destination Dj.
a) Transportation Problem : (NorthWest Corner Method)
An introduction to Transportation problem has been discussed in the previous Section, in this,
finding the initial basic feasible solution using the NorthWest Corner Cell Method will be
discussed.

Explanation: Given three sources O1, O2

and O3 and four destinations D1, D2, D3 and
D4. For the sources O1, O2 and O3, the
supply is 300, 400 and 500 respectively.
The destinations D1, D2, D3 and D4 have
demands 250, 350, 400 and 200
respectively.
Solution: According to North West Corner
method, (O1, D1) has to be the starting point i.e. the north-west corner of the table. Each and
every value in the cell is considered as the cost per transportation. Compare the demand for
column D1 and supply from the source O1 and allocate the minimum of two to the cell (O1, D1)
as shown in the figure.
The demand for Column D1 is completed so the entire column D1 will be canceled. The supply
fromthe source O1 remains 300 – 250 = 50.

Now from the remaining table i.e. excluding column D1, check the north-west corner i.e. (O1,
D2) and allocate the minimum among the supply for the respective column and the rows. The
supply from O1 is 50 which is less than the demand for D2 (i.e. 350), so allocate 50 to the
cell (O1, D2).
Since the supply from row O1 is completed cancel the row O1. The demand for
column D2 remain 350 – 50 = 50.
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From the remaining table the north-west corner cell is (O2, D2). The minimum among the supply
from source O2 (i.e 400) and demand for column D2 (i.e 300) is 300, so allocate 300 to the cell
(O2, D2). The demand for the column D2 is completed so cancel the column and the remaining
supply from source O2 is 400 – 300 = 100.

Now from remaining table find the north-west corner i.e. (O2, D3) and compare the O2supply
(i.e. 100) and the demand for D2 (i.e. 400) and allocate the smaller (i.e. 100) to the cell (O2,
D2). The supply from O2 is completed so cancel the row O2. The remaining

demand for column D3 remains 400 – 100 =

300.
Proceeding in the same way, the final values of the cells will be:

21
 Note: In the last remaining cell the demand for the respective columns and rows are equal
which was cell (O3, D4). In this case, the supply from O3 and the demand for D4 was 200which
was allocated to this cell. At last, nothing remained for any row or column.
Now just multiply the allocated value with the respective cell value (i.e. the cost) and add all of
themto get the basic solution i.e. (250 * 3) + (50 * 1) + (300 * 6) + (100 * 5) + (300 * 3) + (200
* 2) =
4400
b) Transportation Problem: (Least Cost Cell Method)
The North-West Corner method has been discussed in the previous session. In this
session, the Least Cost Cell method will be discussed.

Solution: According to the Least Cost Cell method, the least cost among all the cells in the
table has to be found which is 1 (i.e. cell (O1, D2)).
Now check the supply from the row O1 and demand for column D2 and allocate the smaller
value to the cell. The smaller value is 300 so allocate this to the cell. The supply from O1 is
completed so cancel this row and the remaining demand for the column D2 is 350 – 300 = 50.

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Now find the cell with the least cost among the remaining cells. There are two cells with the
least cost i.e. (O2, D1) and (O3, D4) with cost 2. Lets select (O2, D1). Now find the demand and
supply for the respective cell and allocate the minimum among them to the cell and cancel the
row or column whose supply or demand becomes 0 after allocation.

Now the cell with the least cost is (O3, D4) with cost 2. Allocate this cell with 200 as the demand
is smaller than the supply. So the column gets canceled.

There are two cells among the unallocated cells that have the least cost. Choose any at
random say (O3, D2). Allocate this cell with a minimum among the supply from the respective
row and the demand of the respective column. Cancel the row or column with zero value.

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Now the cell with the least cost is (O3, D3). Allocate the minimum of supply and demand and
cancel the row or column with zero value.

The only remaining cell is (O2, D3) with cost 5 and its supply is 150 and demand is 150 i.e.
demand and supply both are equal. Allocate it to this cell.

Now just multiply the cost of the cell with their respective allocated values and add all of them to
get the basic solution i.e. (300 * 1) + (25 * 2) + (150 * 5) + (50 * 3) + (250 * 3) + (200 * 2) = 2400
c) Transportation Problem: (Vogel’s Approximation Method)
The North-West Corner method and the Least Cost Cell method has been discussed in the
previous session. In this session, the Vogel’s Approximation method will be discussed.

24
Solution:
 For each row find the least value and then the second least value and take the absolute
difference of these two least values and write it in the corresponding row difference as
shown in the image below. In row O1, 1 is the least value and 3 is the second least value
and their absolute difference is 2. Similarly, for row O2 and O3, the absolute differences are
3 and 1 respectively.
 For each column find the least value and then the second least value and take the absolute
difference of these two least values then write it in the corresponding column difference as
shown in the figure. In column D1, 2 is the least value and 3 is the second least value and
their absolute difference is 1. Similarly, for column D2, D3and D3, the absolute
differencesare 2, 2 and 2 respectively.

 These value of row difference and column difference are also called as penalty. Now select
the maximum penalty. The maximum penalty is 3 i.e. row O2. Now find the cell with the
least cost in row O2 and allocate the minimum among the supply of the respective row and
the demand of the respective column. Demand is smaller than the supply so allocate
the column’s demand
i.e. 250 to the cell. Then cancel the column D1.

25
 From the remaining cells, find out the row difference and column difference.

 Again select the maximum penalty which is 3 corresponding to row O1. The least-cost
cell inrow O1 is (O1, D2) with cost 1. Allocate the minimum among supply and demand
from the respective row and column to the cell. Cancel the row or column with zero
value.

26
 Now find the row difference and column difference from the remaining cells.

 Now select the maximum penalty which is 7 corresponding to column D4. The least cost cell
in column D4 is (O3, D4) with cost 2. The demand is smaller than the supply for cell (O3,
D4). Allocate 200 to the cell and cancel the column.

 Find the row difference and the column difference from the remaining cells.

27
  Now the maximum penalty is 3 corresponding to the column D2. The cell with the least
valuein D2 is (O3, D2). Allocate the minimum of supply and demand and cancel the column.

 Now there is only one column so select the cell with the least cost and allocate the value.

Now there is only one cell so allocate the remaining demand or supply to the cell

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  No balance remains. So multiply the allocated value of the cells with their corresponding
cell cost and add all to get the final cost i.e. (300 * 1) + (250 * 2) + (50 * 3) + (250 * 3) +
(200 * 2)
+ (150 * 5) = 2850
Transportation Problem: Unbalanced problem
In this session, the method to solve the unbalanced transportation problem will be discussed.
Below transportation problem is an unbalanced transportation problem.

The problem is unbalanced because the sum of all the supplies i.e. O1, O2, O3 and O4 is not
equal to the sum of all the demands i.e. D1, D2, D3, D4 and D5.
Solution:
In this type of problem, the concept of a dummy row or a dummy column will be used. As in this
case, since the supply is more than the demand so a dummy demand column will be added and
a demand of (total supply – total demand) will be given to that column i.e. 117 – 95 = 22 as
shown in the image below. If demand were more than the supply then a dummy supply row
would have been added.

Now that the problem has been updated to a balanced transportation problem, it can be solved
using any one of the following methods to solve a balanced transportation problem as
discussed in the earlier posts:
1. NorthWest Corner Method
2. Least Cost Cell Method
3. Vogel’s Approximation Method
OPTIMAL SOLUTION: MODI METHOD – UV METHOD
There are two phases to solve the transportation problem. In the first phase, the initial basic
feasible solution has to be found and the second phase involves optimization of the initial basic
feasible solution that was obtained in the first phase. There are three methods for finding an

29
 initial basic feasible solution,
1. NorthWest Corner Method
2. Least Cost Cell Method
3. Vogel’s Approximation Method
Will discuss how to optimize the initial basic feasible solution through an explained example.
Consider the below transportation problem.

Solution:
Step 1: Check whether the problem is balanced or not.
If the total sum of all the supply from sources O1, O2, and O3 is equal to the total sum of all the
demands for destinations D1, D2, D3 and D4 then the transportation problem is a balanced
transportation problem.
Note: If the problem is not unbalanced then the concept of a dummy row or a dummy column to
transform the unbalanced problem to balanced can be followed as discussed.
Step 2: Finding the initial basic feasible solution.
Any of the three aforementioned methods can be used to find the initial basic feasible solution.
Here, NorthWest Corner Method will be used. And according to the NorthWest Corner Method
thisis the final initial basic feasible solution:

Now, the total cost of transportation will be (200 * 3) + (50 * 1) + (250 * 6) + (100 * 5) + (250 * 3) +
(150 * 2) = 3700.
Step 3: U-V method to optimize the initial basic feasible solution.
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The following is the initial basic feasible solution:

– For U-V method the values ui and vj have to be found for the rows and the columns
respectively. As there are three rows so three ui values have to be found i.e. u1 for the first row,
u2 for the second row and u3 for the third row.
Similarly, for four columns four vj values have to be found i.e. v1, v2, v3 and v4. Check the
image below:

There is a separate formula to find ui and vj,

ui + vj = Cij where Cij is the cost value only for the allocated cell.
Before applying the above formula we need to check whether m + n – 1 is equal to the total
number of allocated cells or not where m is the total number of rows and n is the total number
of columns.
In this case m = 3, n = 4 and total number of allocated cells is 6 so m + n – 1 = 6. The case
when m + n – 1 is not equal to the total number of allocated cells will be discussed in the later
posts.
Now to find the value for u and v we assign any of the three u or any of the four v as 0. Let we
assign u1 = 0 in this case. Then using the above formula we will get v1 = 3 as u1 + v1 = 3
(i.e. C11) and v2 = 1 as u1 + v2 = 1 (i.e. C12). Similarly, we have got the value for v2 = 3 so
we get the value for u2 = 5 which implies v3 = 0. From the value of v3 = 0 we get u3 = 3which
implies v4 = -1.

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 Now, compute penalties using the formula Pij = ui + vj – Cij only for unallocated cells. We have
two unallocated cells in the first row, two in the second row and two in the third row. Let’s
compute this one by one.

1. For C13, P13 = 0 + 0 – 7 = -7 (here C13 = 7, u1 = 0 and v3 = 0)

2. For C14, P14 = 0 + (-1) -4 = -5
3. For C21, P21 = 5 + 3 – 2 = 6
4. For C24, P24 = 5 + (-1) – 9 = -5
5. For C31, P31 = 3 + 3 – 8 = -2
6. For C32, P32 = 3 + 1 – 3 = 1
The Rule: If we get all the penalties value as zero or negative values that mean the optimality is
reached and this answer is the final answer. But if we get any positive value means we need to
proceed with the sum in the next step.
Now find the maximum positive penalty. Here the maximum value is 6 which
corresponds to C21 cell. Now this cell is new basic cell. This cell will also be included in the
solution.

32
The rule for drawing closed-path or loop. Starting from the new basic cell draw a closed-path
in such a way that the right angle turn is done only at the allocated cell or at the new basic cell.

Assign alternate plus-minus sign to all the cells with right angle turn (or the corner) in the loop
with plus sign assigned at the new basic cell.

Consider the cells with a negative sign. Compare the allocated value (i.e. 200 and 250 in this

33
case) and select the minimum (i.e. select 200 in this case). Now subtract 200 from the cells with
a minus sign and add 200 to the cells with a plus sign. And draw a new iteration. The work of
the loop is over and the new solution looks as shown below.
Check the total number of allocated cells is equal to (m + n – 1). Again find u values and v
values using the formula ui + vj = Cij where Cij is the cost value only for allocated cell. Assign
u1 = 0 then we get v2 = 1. Similarly, we will get following values for ui and vj.

Find the penalties for all the unallocated cells using the formula Pij = ui + vj –
Cij. 1. For C11, P11 = 0 + (-3) – 3 = -6
2. For C13, P13 = 0 + 0 – 7 = -7
3. For C14, P14 = 0 + (-1) – 4 = -5
4. For C24, P24 = 5 + (-1) – 9 = -5
5. For C31, P31 = 0 + (-3) – 8 = -11
6. For C32, P32 = 3 + 1 – 3 = 1
There is one positive value i.e. 1 for C32. Now this cell becomes new basic cell.

Now draw a loop starting from the new basic cell. Assign alternate plus and minus sign with new
basic cell assigned as a plus sign.

34
Select the minimum value from allocated values to the cell with a minus sign. Subtract this value
from the cell with a minus sign and add to the cell with a plus sign. Now the solution looks as
shown in the image below:

Check if the total number of allocated cells is equal to (m + n – 1). Find u and v values as above.

Now again find the penalties for the unallocated cells as above.
1. For P11 = 0 + (-2) – 3 = -5
2. For P13 = 0 + 1 – 7 = -6
3. For P14= 0 + 0 – 4 = -4
4. For P22= 4 + 1 – 6 = -1
5. For P24= 4 + 0 – 9 = -5
6. For P31= 2 + (-2) – 8 = -8

35
 All the penalty values are negative values. So the optimality is reached.
Now, find the total cost i.e. (250 * 1) + (200 * 2) + (150 * 5) + (50 * 3) + (200 * 3) + (150 * 2) =
2450
Transportation Problem: Degeneracy in Transportation Problem
This session will discuss degeneracy in transportation problem through an explained example.

lution:
This problem is balanced transportation problem as total supply is equal to total demand.
Initial basic feasible solution:
Least Cost Cell Method will be used here to find the initial basic feasible solution. One can
also use NorthWest Corner Method or Vogel’s Approximation Method to find the initial basic
feasible solution.
Using Least Cost Cell Method we get the following solution.

Optimization of the solution using U-V Method:

Check whether m + n – 1 = total number of allocated cells. In this case m + n – 1 = 4 + 5 – 1 = 8
where as total number of allocated cells are 7, hence this is the case of degeneracy in
transportation problem. So in this case we convert the necessary number (in this case it is m +

36
 n – 1 – total number
of allocated cells i.e. 8 – 7 = 1) of unallocated cells into allocated cells to satisfy the above
condition.

Steps to convert unallocated cells into allocated cells:

Start from the least value of the unallocated cell.
Check the loop formation one by one.
There should be no closed-loop formation.
Select that loop as a new allocated cell and assign a value ‘e’.
The closed loop can be in any form but all the turning point should be only at allocated cell or at
the cell from the loop is started.

There are 13 unallocated cells. Select the least value (i.e. 5 in this case) from unallocated cells.
Thereare two 5s here so you can select randomly any one. Lets select the cell with star marked.

Check if there is any closed-loop formation starting from this cell. If a closed-loop is drawn from
this cell following the condition for closed-loop then it can be observed that this cell cannot be
reached to complete the closed-loop. So this cell will be selected and assigned a random value
‘e’.

37
Note: If the closed loop would have been formed from that cell then we would try another cell
with least value and do the same procedure and check whether closed loop is possible or not.
Now total number of allocated cells becomes 8 and m + n – 1 = 4 + 5 – 1 = 8. Now this solution
can be optimized using U-V method. We get the below solution after performing optimization
using U-V method.

The presence of two ‘e’ in the final solution means after doing some iterations during
optimization, the condition for degeneracy will be met once again.
While finding the total cost, just leave the ‘e’ and multiply the allocated value with its cell’s
cost value and add all of them. So, the transportation cost is (35 * 3) + (20 * 5) + (10 * 2) + (10 * 4)
+ (20 * 5) + (5 * 13) + (25 * 8) = 630.

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 ASSIGNMENT PROBLEMS
INTRODUCTION
In Block 1 of this course, we have discussed the basic concepts elated to Linear Programming
Problems and the Simplex method for solving them. The Transportation Problem was also
discussed in Block 1. In this unit, we explain the Assignment problem and discuss various
methods for solving it.
The assignment problem deals with allocating various resources (items) to various activities
(receivers) on a one to one basis, i.e., the number of operations are to be assigned to an equal
number of operators where each operator performs only one operation. For example, suppose
an accounts officer has 4 subordinates and 4 tasks. The subordinates differ in efficiency and
take different time to perform each task. If one task is to be assigned to one person in such a
way that the total person hours are minimized, the problem is called an assignment problem.
Though the assignment problem is a special case of transportation problem, it is not
solved using the methods described in Unit 4. We use another method called the Hungarian
method for solving an assignment problem. It is shorter and easier compared to any method
of finding the optimal solution of a transportation problem. In this unit, we discuss various
types of assignment problems, including travelling salesman problem and apply the Hungarian
method for solving these problems.
In the next unit, we shall discuss the fundamental structure and operating characteristics of a
queuing system and explain a single server M/M/1 queuing model with Poisson input and
exponential service time.
An assignment problem may be considered as a special type of transportation problem in
which the number of sources and destinations are equal. The capacity of each source as well
as the requirement of each destination is taken as 1. In the case of an assignment problem, the
given matrix must necessarily be a square matrix which is not the condition for a transportation
problem.
Suppose there are n persons and n jobs and the assignment of jobs has to be done on a one-
to-one basis. This assignment problem can be stated in the form of an n×n matrix of real
numbers (known as the cost matrix) as given in the following table:
Person Job
1 2 ... j... n

39
 1 C11 C12 .. . C1j … C1n
2 C21 C22 .. . C2j … C2n
.i .Ci1 Ci2 .. . Cij
.
…Cin
.
.
n
.
Cn1 Cn2 .. . Cnj … Cnn

where cij represents the amount of time taken by i th person to complete the jth job. Let xij
denote the jth job assigned to the i th person. Then, mathematically, the assignment problem can
be stated as follows:
subject to
1 if the ith person isassigned the jth job
0 if the ith person is not assigned the j job
xi1 xi2 ... xin 1, i 1, 2,..., n (one job is done by theith
person) x1j x2j ... xnj 1, j 1, 2,….. n (only one person is
1j 2j nj
assigned the jth job)
The constant cij in the above problem represents time. It may be cost or some other parameter
which is to be minimised in the assignment problem under consideration.
Note that an assignment problem is a special type of transportation problem and may be solved
as one. However, we use another method known as the Hungarian method for solving it. This
method is shorter and easier compared to any other method of finding the optimal solution of a
transportation problem. Let us explain the Hungarian method of finding the optimal solution of
an assignment problem.
Hungarian Method of Solving an Assignment Problem
The steps for obtaining an optimal solution of an assignment problem are as follows:
1. Check whether the given matrix is square. If not, make it square by adding a suitable
number of dummy rows (or columns) with 0 cost/time elements.
2. Locate the smallest cost element in each row of the cost matrix. Subtract the smallest
element of each row from every element of that row.
40
 3. In the resulting cost matrix, locate the smallest element in each column and subtract
the smallest element of each column from every element of that column.
4. In the resulting matrix, search for an optimum assignment as follows:
i) Examine the rows successively until a row with exactly one zero is found. Draw a
rectangle around this zero (as 0) and cross out all other zeroes in the corresponding
column. Proceed in this manner until all the rows have been examined. If there is
more than one zero in any row, do not touch that row; pass on to the next row.
ii) Repeat step (i) above for the columns of the resulting cost matrix.
iii) If a row or column of the reduced matrix contains more than one zeroes, arbitrarily
choose a row or column having the minimum number of zeroes. Arbitrarily select any
zero in the row or column so chosen. Draw a rectangle around it and cross out all the
zeroes in the corresponding row and column. Repeat steps (i), (ii) and (iii) until all the
zeroes have either been assigned (by drawing a rectangle around them) or crossed.
iv) If each row and each column of the resulting matrix has one and only one assigned 0,
the optimum assignment is made in the cells corresponding to 0 . The optimum solution
of the problem is attained and you can stop here.
Otherwise, go to the next step.
5. Draw the minimum number of horizontal and/or vertical lines
through all the zeroes as follows:
i) Tick mark ( ) the rows in which assignment has not been made.
ii) Tick mark ( ) columns, which have zeroes in the marked rows.
iii) Tick mark ( ) rows (not already marked) which have assignments in marked
columns. Then tick mark ( ) columns, which have zeroes in newly marked rows, if
any. Tick mark ( ) rows (not already marked), which have assignments in these
newly marked columns.
iv) Draw straight lines through all unmarked rows and marked columns.
6. Revise the cost matrix as follows:
i) Find the smallest element not covered by any of the lines.
ii) Subtract this from all the uncovered elements and add it to the elements at the
intersection of the two lines.
iii) Other elements covered by the lines remain unchanged.
7. Repeat the procedure until an optimum solution is attained.
We now illustrate the procedure with the help of an example.
Example 1: A computer centre has four expert programmers and needs to develop four
application programmes. The head of the computer centre, estimates the computer time (in
minutes) required by the respective experts to develop the application programmes as follows:

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 Programm
es
A B C D
Programmer 1 120 10 80 90
s 0
2 80 90 11 70
0
3 110 14 12 10
0 0 0
4 90 90 80 90
Find the assignment pattern that minimises the time required to develop the application
programmes.
Solution: Let us subtract the minimum element of each row from every element of that row.
Note that the minimum element in the first row is 80. So 80 is to be subtracted from every
element of the first row, i.e., from 120, 100, 80 and 90, respectively. As a result, the
elements of the first row of the resulting matrix would be 40, 20, 0, 10, respectively.
Similarly, we obtain the elements of the other rows of the resulting matrix. Thus, the
resulting matrix is:
A B C D
1 40 20 0 10
2 10 20 40 0
3 10 40 20 0
4 10 10 0 10
Let us now subtract the minimum element of each column from every element of that column in
the resulting matrix. The minimum element in the first column is 10. So 10 is to be subtracted
from every element of the first column, i.e., from 40, 10, 10, and 10, respectively. As a result,
the elements of the first column of the resulting matrix are 30, 0, 0, 0, respectively. Similarly, we
obtain the elements of the other columns of the resulting matrix. Thus, the resulting matrix is:
A B C D
1 30 10 0 10
2 0 10 40 0
3 0 30 20 0
4 0 0 0 10
Now, starting from first row onward, we draw a rectangle around the 0 in each row having a
single zero and cross all other zeroes in the corresponding column. Here, in the very first row
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we find a single zero. So, we draw a rectangle around it and cross all other zeroes in the
corresponding column.
We get
A B C D
1 30 10 0 10
2 0 10 40 0
3 0 30 20 0
4 0 0 0 10
In the second, third and fourth row, there is no single zero. Hence, we move column-wise. In
the second column, we have a single zero. Hence, we draw a rectangle around it and cross all
other zeroes in the corresponding row. We get
A B C D
1 30 10 0 10
2 0 10 40 0
3 0 30 20 0
4 0 0 0 10

In the matrix above, there is no row or column, which has a single zero. Therefore, we first
move row-wise to locate the row having more than one zero. The second row has two zeroes.
So, we draw a rectangle arbitrarily around one of these zeroes and cross the other one. Let us
draw a rectangle around the zero in the cell (2, A) and cross the zero in the cell (2, D). We
cross out the other zeroes in the first column. Note that we could just as well have selected the
zero in the cell (2, D), drawn a rectangle around it and crossed all other zeroes. This would
have led to an alternative solution.
In this way, we are left with only one zero in every row and column around which a rectangle
has been drawn. This means that we have assigned only one operation to one operator.
Thus, we get the optimum solution as follows:
A B C D
1 30 10 0 10
2 0 10 40 0

3 0 30 20 0

4 0 0 0 10

Note that the assignment of jobs should be made on the basis of the cells corresponding to
the zeroes around which rectangles have been drawn. Therefore, the optimum solution for this
problem is:
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 1 C, 2 A, 3 D, 4 B

This means that programmer 1 is assigned programme C, programmer 2 is assigned

programme A, and so on. The minimum time taken in developing the programmes is
= 80 + 80 + 100 + 90 = 350 min.

Example 2: A company is producing a single product and selling it through five agencies
situated in different cities. All of a sudden, there is a demand for the product in five more cities
that do not have any agency of the company.
The company is faced with the problem of deciding on how to assign the existing agencies to
dispatch the product to the additional cities in such a way that the travelling distance is
minimised. The distances (in km) between the surplus and deficit cities are given in the
following distance matrix.
Deficit I II III IV V
City
Surplus city
A 160 130 17 19 200
5 0
B 135 120 13 16 175
0 0
C 140 110 15 17 185
5 0
D 50 50 80 80 110
E 55 35 70 80 105
Determine the optimum assignment schedule.

Solution: Subtracting the minimum element of each row from every element of that row, we
have
I II III IV V
A 30 0 45 60 70
B 15 0 10 40 55
C 30 0 45 60 75
D 0 0 30 30 60
E 20 0 35 45 70

I II III IV V
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 understanding. A 30 0 35 30 15
B 15 0 0 10 0
C 30 0 35 30 20
D 0 0 20 0 5
E 20 0 25 15 15

Theory of Constraints: A Guide for Project Managers

Project management is everywhere—the term is experiencing a moment. People have come
to realize that the discipline of project management offers proven methodologies and tools to get
their jobs done more productively and efficiently.
In fact, project management is such a broad topic that it integrates other management ideas
and applies them. One such idea is the theory of constraints. While the theory of constraints is
typically used in manufacturing, it can be helpful in controlling most any project.

Easily manage your constraints with ProjectManager’s planning software.Learn more!

What Is the Theory of Constraints?
Basically, the theory of constraints says that a number of constraints prevent any
management or manufacturing system from achieving more of its goals. There is always at least
one constraint or limiting factor that creates a bottleneck, and the theory of constraints uses five
focusing steps to identify that constraint and then improve it so that it isn’t a bottleneck anymore.
The theory of constraints (TOC) was invented by Eliyahu Goldratt in 1984 and introduced to
managers through his book titled “The Goal”. Think of it like the old axiom, “A chain is no stronger
than its weakest link.” The theory of constraints works to find that link and lessen its vulnerability.

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That applies to processes, organizations, individual team members, whatever or whoever is a
limiting factor to the successful completion of the project.
Theory of Constraints Elements
The TOC process is made up of the following elements:
 Constraints: A limiting factor that affects a system’s productivity
 Five Focusing Steps: The focusing steps allow managers to identify constraints
and improve systems
 Thinking Processes: The thinking processes are problem-solving tools to improve
constraints and eliminate bottlenecks
 Throughput Accounting: An accounting method that focuses on the throughput of
the business
We’ll explore each of these in more depth once we cover the basics of the TOC theory.
Theory of Constraints Key Assumption
The theory of constraints’ key assumption is that an organization can be managed by measuring
these three things:
1. Throughput: The rate at which the system generates “goal units” (or money)
through sales
2. Operational Expense: Money spent when generating “goal units”
3. Investment: All the money that is invested in the system (inventory, machinery,
etc.)
Before any goal is achieved, however, there are conditions that must be met. Usually, these are
safety, quality, legal obligations and so forth. For-profit organizations have a goal of making
money, but the theory of constraints can be used with nonprofits, whose goals of making money
are secondary.
Benefits of the Theory of Constraints
The main goal of TOC is to streamline management and manufacturing systems to maximize
productivity. But that’s not all, a successful TOC implementation will have other benefits:
 Reduction of operating expenses
 Increased profit and return on investment
 Increased capacity
 Increased throughput rate
What Is a Constraint?
To identify and rectify a constraint, it is crucial to understand what a constraint is. A constraint is
any limiting factor that stops you from achieving your goal, and a constraint can show itself in
various ways. However, TOC maintains that there are not an endless number of constraints, but at
least one and at most only a few affecting your project or system.

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Internal & External Constraints
Constraints can be internal, such as when the market demands more than you can deliver,
or external, such as when you produce more than the market will bear. With the latter, the
organization must focus on ways to create more demand for its product or service.
Some examples of internal constraints are equipment, such as the way the equipment is currently
being used limits your ability to produce more. People are another internal constraint, which can
reveal itself by lack of skills, personnel and behavioral issues. Finally, policy, whether written or
unwritten, can prevent you from making more products or expanding services.
Remember, that a constraint is a limiting factor. Therefore, a problem that occurs in a project or
organization is not by definition a constraint, even if it occurs with equipment, people or policies. A
constraint is something that is preventing you from getting more throughput, even if nothing else is
wrong.
What Are the Five Focusing Steps?
If at least one constraint is limiting the success of a project, then the obvious solution is to
identify that limiting factor. However, even if you remove all the constraints, the project won’t
necessarily succeed. There are always other risks and limiting factors at play. But if one can
remove constraints, then the path to success is that much clearer.
The focusing process is the instrument by which constraints can be found and, therefore, dealt
with. The five focusing steps provide a TOC a project management roadmap to handle the
constraint once it has been discovered.
1. Identify the Constraint
Before you can strengthen the weak link in the chain, you must find it.
2. Exploit the Constraint
Make quick improvements with existing resources.
3. Subordinate Everything to the Above Decision
Make sure all other activities in the process are aligned with the resolution of the constraint.
4. Alleviate the Constraint
If the constraint remains, think about what else can be done to address it, such as adding
resources.
5. Repeat as Needed
This TOC process is a cycle, in that it begins but doesn’t end—one must always be vigilant
about addressing the constraint, wherever it might show up.
These five focusing steps are used in TOC to make sure that there are always improvements and
those efforts are focused on the project constraints.
Thinking Processes in the Theory of Constraints

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 The theory of constraints is a way to solve problems inherent in your project that are
preventing you from achieving more of your goals. Part of TOC is the methodology called the
thinking process, which is made for complex projects with many interdependencies.
The thinking processes are a cause-and-effect tool, which helps you identify the root cause of
undesirable effects (known as UDEs) and remove them without creating new ones. To get started
with the thinking processes, ask yourself these three questions:
1. What needs changing?
2. How should it change?
3. What action will change it?
Goldratt Thinking Processes
When Eliyahu Goldratt created TOC, he defined several thinking processes to manage
different aspects of a project or system. To keep things simple we’ll explain the most widely used
TOC thinking processes.
1. Current reality tree: The current reality tree is a diagram that identifies the
undesirable effects (UDEs) and traces their root cause
2. Evaporating Cloud tree: It’s a diagram that helps identify specific changes to the
undesirable effects identified in the current reality tree. Serves as a transition to the
future reality tree
3. Future reality tree: The future reality tree is a diagram that represents the future
state of the project after the changes to the undesirable effects are made
4. Strategy and tactics tree: The strategy and tactics tree diagram shows an
implementation plan that explains how to apply the changes that will solve the
undesirable effects and will take the project to the future state
Now that we’ve covered the TOC thinking processes, we can dive into the next element of
the theory of constraints, throughput accounting.
What is Throughput Accounting?
Throughput accounting is used for TOC and differs from traditional accounting methods.
The theory of constraints looks at accounting as the counting of bad behaviors. Financial concerns
such as operational expenses are secondary to selling goods or services (throughput).
Remember, throughput accounting focuses on throughput, the rate at which you make money
through sales minus variable costs. Throughput accounting also measures net profit, return on
investment, productivity and investment turns.
Let’s see how those throughput accounting measurements are calculated.
Measuring Throughput
Throughput accounting has these four measurements:
1. Net Profit: throughput minus operating expenses

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 2. Return on Investment: net profit divided by investment
3. Productivity: throughput divided by operating expenses
4. Investment Turns: throughput divided by investment
Constraint management decisions are guided by how well they can achieve improvements
that increase throughput rate, reduce investment and reduce operating expenses. However,
increasing throughput rate is the most important of the three, as the theory of constraints prioritizes
increasing throughput rate through sales over cutting investment and operating expenses.
How the Theory of Constraints Works with Lean Manufacturing
Both TOC and lean manufacturing are methods to improve the effectiveness of your project.
They do, however, have different means to their ends.
While the theory of constraints is about identifying and removing constraints that limit project
throughput with the primary goal of increasing throughput rate and manufacturing capacity, lean
manufacturing is more concerned with removing waste from the process and reducing costs.
Focus on What’s Important
But both share a focus on the customer and can work together. For example, not every
constraint is worth addressing, due to limited resources for one, so the theory of constraints can
help you prioritize while lean manufacturing offers tools and techniques to achieve improvements.
Lean project management tools can also help identify the limiting factor through tools such as
value stream mapping, which engages teams in problem-solving, and Gemba, which encourages
understanding real-world issues. Lean project management tools can also help exploit,
subordinate and evaluate the TOC constraint with a variety of different techniques.
The benefits of hybrid techniques are just another way that project management
cannibalizes methodologies and applies them to controlling work for better results. Having more
tools in your toolbox means you have more options to address process and the problems that arise
during it.
How ProjectManager Helps Execute the Theory of Constraints
Projects are made up of many sub-projects and the theory of constraints is just one more
you’ll have to manage when leading a project. In a sense, it’s a project with the objective of
increasing efficiencies, but it’s structured just as any project would be: plan and execute.
ProjectManager is award-winning software that organizes tasks, teams and projects to give you
greater efficiency when managing a project.
Create Workflows on Kanban
Once you’ve identified the constraint that needs to change and have decided how you’re
going to change it, you need a plan of action by which to change it. Set up that task on our kanban
board. Create a card that describes the action. You can set the priority, even tag it to a department
if applicable to make it easier to find. Add a due date and attach any pertinent files or images.

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Track with Dashboards
Managers can keep an eye on progress without getting in the way of their team’s
productivity. Real-time dashboards offer a high-level view of the project. As teams update their
statuses that data is feed into the software, which automatically calculates the time left on tasks,
the costs associated with the work and you can even see if your team is over allocated.

Keep Stakeholders in the Loop with Reporting

Keep stakeholders abreast of what’s going on with one-click reporting that can be filtered to show
just what they want to see. It’s easy to share reports as PDF attachments or print them out when

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presenting to your stakeholders. Project Manager is the only tool you’ll need for everything related
to project management.

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