Process Strategies ● a production facility organized as

Four basic strategies assembly lines.

● Process focus ● less flexibility than
● Repetitive focus process-focused facilities but more
● Product focus efficient
● Mass customization

Process Focus
● A production facility organized
around processes to facilitate
low-volume, high-variety
production.
● The vast majority of global
production is devoted to making
low-volume, high-variety products
in places called "job shops"
● Such facilities are organized
around specific activities or
processes.
● process focused in terms of
equipment, layout, and
supervision.

Product Focus
● a facility organized around
products; a product-
oriented, high-volume,
low-variety process.
● They are also called
continuous processes
because they have very
long, continuous production
runs.
● Typically high fixed cost but
low variable cost
● Generally less skilled labor

Repetitive Focus
● a product-oriented production
process that uses modules.
Modules are parts or components
previously prepared, often in a
continuous process.
Mass Customization
● is a rapid, low-cost production that
caters to constantly changing
unique customer desires
● Combines the flexibility of a
process focus with the efficiency of
a product focus.

Crossover Charts
● is a chart of costs at the possible
volumes for more than one
process.
Example 1. Kleber Enterprises would like
to evaluate three accounting software
products (A, B,and C) to support changes
in its internal accounting processes. The
resulting processes will have cost
structures similar to the above figure. The
costs of the software for these processes
are:

Solve for the crossover point for software

A and B andthen the crossover point for
software B and C.
Solution: To determine the most ● 4. Process Charts- use
economical volume V1,we set the cost of symbols to show key
Software A equal to cost of software B activities
Total Cost = Fixed Cost + (variable ● 5. Service Blueprinting-
cost/unit)units focuses on
200,000+ 60V1 =300,000 + 25V1 customer/provider
60V1 - 25V2= 300,000-200,000 interaction
V=2,857
This means that software A is most
economical from 0 to 2857 reports

Example 2: Bagot Copy Shop has a

volume of 125,000 black and white copies
per month. Two salesmen have made
presentations to Gordon Bagot for
machines of equal quality and reliability.
The Print Shop 5 has a cost of P2,000 per
month and a variable cost of P0.03. The
other machine (a Speed Copy) will cost
only P1,500 per month but the toner is
more expensive, driving the cost per copy
up to P0.035. If cost and volume are the
only considerations, which machine
should Bagot purchase?

Given: Print Shop 5: FC Speed Copy: FC

P2,000 VC = P0.03 P1,500 VC = P0.035

Required: Which machine to purchase?

Solution: TCPrint Shop 5 = TCSpeed
Copy) 2,000+.03V = 1,500+.035V .035V
0.03V = 2,000-1500 V = 100,000

Therefore, since Bagot expects to

exceed 100,000 units, he should choose
the Print Shop 5.

Process Analysis and Design

The following are the tools of process
analysis:
● 1.Flow Diagrams - shows the
movement of material, product or
people.
● 2. Time-Function Mapping shows
flows and time frame
● 3. Value-Stream Mapping- shows
flows and time and value added
beyond the immediate organization
 Personalized services

Service Factory and Service Shop

● Automation of standardized
services
● Low labor intensity responds well
to process technology and
scheduling
● Tight control required to maintain
standards

SPECIAL CONSIDERATIONS FOR

SERVICE PROCESS DESIGN
• 1. SERVICE FACTORY
• 2. SERVICE SHOP
• 3. MASS SERVICE
• 4. PROFESSIONAL SERVICE

Improving Service Processes

Layout
● Product exposure, customer
Service Process Matrix education, product enhancement
Mass Service and Professional Service
● Labor involvement is high Human Resources
● Selection and training highly ● Recruiting and training
important ● Impact of flexibility
● Focus on human resources
Equipment and Technology
● Often complex decisions
● Possible competitive advantage
● Flexibility
● Stable processes
● May allow enlarging the scope of
the processes
Vision Systems
Production Technology ● Particular aid to inspection
● Machine technology ● Consistently accurate
● Automatic identification systems ● Never bored
(AISS) ● Modest cost
● Process control ● Superior to individuals performing
● Vision system the same tasks
● Robot
● Automated storage and retrieval Robots
systems (ASRSS) ● Perform monotonous or dangerous
● Automated guided vehicles tasks
(AGVs) ● Perform tasks requiring significant
● Flexible manufacturing systems strength or endurance
(FMSs) ● Generally enhanced consistency
● Computer-integrated and accuracy 50
manufacturing (CIM)
Automated Storage and Retrieval
Machine Technology Systems (ASRSs)
● Increased precision ● Automated placement and
● Increased productivity withdrawal of parts and products
● Increased flexibility ● Reduced errors and labor
● Improved environmental impact ● Particularly useful in inventory and
● Reduced changeover time test areas of manufacturing firms
● Decreased size
● Reduced power requirements Automated Guided Vehicle (AGVS)
● Electronically guided and controlled
Automatic Identification Systems carts
(AISS) ● Used for movement of products
● Improved data acquisition and/or individuals
● Reduced data entry errors
● Increased speed Flexible Manufacturing Systems
● Increased scope of process (FMSS)
automation ● Computer controls both the
workstation and the material
Process Control handling equipment
● Increased process stability ● Enhance flexibility and reduced
● Increased process precision waste
● Real-time provision of information ● Can economically produce low
for process evaluation volume at high quality
● Data available in many forms
 ● Can economically produce low Utilities and government
volume at high quality ● Automated one-man garbage
● Reduced changeover time and trucks, optical mail and bomb
increased utilization scanners, flood warning systems
● Stringent communication Restaurants and foods
requirement between components ● Wireless orders from waiters to
kitchen, robot butchering,
Computer-Integrated Manufacturing transponders on cars that track
(CIM) sales at drive-throughs
● Extension of flexible manufacturing Communications
systems ● Electronic publishing, interactive
○ Backwards to engineering TV
and inventory control Hotels
○ Forward into warehousing ● Electronic check-in/check-out,
and shipping electronic key/lock system
○ Can also include financial Wholesale/retail trade
and customer service ● ATM-like kiosks, point-of-sale
areas (POS) terminals, e-commerce,
● Reducing the distinction between electronic communication between
low- volume/high-variety, and high- store and supplier, bar coded data
volume/low-variety production Transportation
● Automatic toll booths,
satellite-directed navigation
systems
Health care
● Online patient-monitoring, online
medical information systems,
robotic surgery
Airlines
● Ticketless travel, scheduling,
Internet purchases

Ethics and Environmentally Friendly

Processes
● Reduce the negative impact on the
environment
○ Encourage recycling
○ Efficient use of resources
○ Reduction of waste
Technological Services
by-products
Service Industry and Examples
○ Use less harmful
Financial Services
ingredients
● Debit cards, electronic funds
○ Use less energy
transfer, ATMs, Internet stock
trading
Education
● Electronic bulletin boards, on-line
journals, WebCT and Blackboard
Lesson 8: Location Strategies

Location Strategies
● One of the most important
strategic decisions made by many
companies is where to locate their
operations.
● The location decision has a direct
effect an operation’s costs - fixed
cost and the variable cost.
● Location has a major impact on the
overall risk and profit of the
company. as well as its ability to
serve customers (and therefore its
revenues).
● Firms make location decisions
relatively infrequently, usually
because demand has outgrown the
current plant’s capacity or because
of changes in labor productivity,
exchange rates, costs, or local
attitudes.

Location options include

1. expanding an existing facility
instead of moving,
2. maintaining current sites while
adding another facility elsewhere,
3. closing the existing facility and
moving to another location

The location decision often depends on the

Factors That Affect Location Decisions
type of business. For industrial location
● Labor Productivity
decisions, the strategy is usually
● Exchange Rates and Currency
minimizing costs, although innovation and
Risks
creativity may also be critical. For retail
● Costs
and professional service organizations,
● Political Risk, Values, and Culture
the strategy focuses on maximizing
● Proximity to Markets
revenue,
● Proximity to Suppliers
● Proximity to Competitors
● The objective of location strategy is
(Clustering)
to maximize the benefit of
location to the firm.
● Location decisions once made, are
difficult and costly to undo.
 ● Proximity to suppliers
- Perishable goods, high
transportation costs, bulky
products
● Proximity to competitors
- Called clustering; Often driven by
resources such as natural,
information, capital, talent
- Found in both manufacturing and
service industries

Factors That Affect Location Decisions

● Exchange rates and currency risks

can have a significant impact on
cost structure

● Costs
- Location decisions based on costs
alone can create difficult ethical

Tangible - easily measured costs

such as utilities, labor, materials,
taxes
Intangible - less easy to quantify
and include education, public
transportation, community
quality-of-life

● Political risk, values, and culture

- National, state, local governments
attitudes toward private and
intellectual property zoning,
pollution, employment stability may
Methods of Evaluating Location
be in flux
Alternatives
- Worker attitudes towards turnover,
unions, absenteeism
● Factor-Rating Method
- Globally cultures have different
- Popular because a wide variety of
attitudes towards punctuality, legal,
factors can be included in the
and ethical issues
analysis
● Proximity to markets
Six steps in the method
- Very important to services
1. Develop a list of relevant factors called
- JIT systems or high transportation
critical success factors
costs may make it important to
2. Assign a weight to each factor
manufacturers
3. Develop a scale for each factor
4. Score each location for each factor ● Center-of-Gravity Method
5. Multiply score by weights for each - Finds location of distribution center
factor for each location that minimizes distribution costs
6. Recommend the location with the - Considers
highest point HIBA score ● Location of markets
● Volume of goods shipped to
those markets
● Shipping cost (or distance)
- Place existing locations on a
coordinate grid
● Grid origin and scale is
arbitrary
● Maintain relative distances
- Calculate X and Y coordinates for
'center of gravity'
● Assumes cost is directly
proportional to distance and
● Locational Break-Even Analysis volume shipped
- Method of cost-volume analysis
used for industrial locations

Three steps in the method

1. Determine fixed and variable costs for
each location
2. Plot the cost for each location
3. Select location with lowest total cost for
expected production volume
 ● Transportation Model ● Geographic Information
- Finds amount to be shipped from Systems (GIS)
several points of supply to several - Important tool to help in location
points of demand analysis
- Solution will minimise total - Enables more complex
production and shipping costs demographic analysis
- A special class of linear - Available data bases include
programming problems ● Detailed census data
● Detailed maps
● Service Location Strategy ● Utilities
- While the focus in industrial-sector ● Geographic features
location is on minimizing cost, the ● Locations of major services
focus in the service sector is on
maximizing revenue since the For example, retailers, banks, food chains,
service firms find that location gas stations, and print shop franchises
often has more impact on revenue can all use geographically coded files from
than cost. a GIS to conduct demographic analyses.

Major determinants of volume and Summary of location strategies for

revenue for the service firm: both service and goods-producing
organizations:
1. Purchasing power of
customer-drawing area
2. . Service and image compatibility
with demographics of the
customer-drawing area
3. Competition in the area
4. Quality of the competition
5. Uniqueness of the firm's and
competitors' locations
6. Physical qualities of facilities and
neighboring businesses
7. Operating policies of the firm
8. Quality of management

The techniques used in the service

sector include:

1.Correlational analysis
2. Traffic counts
3. Demographic analysis
4. Purchasing power analysis
5. The factor-rating method
6. The center-of-gravity method
7.Geographic information systems (GIS)
LESSON 9: Layout strategies Types of Layout
1. Office layout
Layout 2. Retail layout
● Refers to the specific configuration 3. Warehouse layout
of physical facilities in an 4. Fixed-position layout
organization. 5. Process-oriented layout
● It has numerous strategic 6. Work-cell layout
implications because it establishes 7. Product-oriented layout
an organization’s competitive
priorities in regard to capacity, 1. Office layout: Positions workers, their
processes, flexibility, and cost, as equipment, and spaces/offices to provide
well as quality of work life, for movement of information
customer contact, and image. 2. Retail layout: Allocates shelf space
and responds to customer behavior
An effective layout can help an 3. Warehouse layout: Addresses trade-
organization achieve a strategy that offs between space and material handling
supports differentiation, low cost, or 4. Fixed-position layout: Addresses the
response layout requirements of large, bulky
Examples: projects such as ships and buildings
1. Benetton supports a differentiation 5. Process-oriented layout: Deals with
strategy by heavy investment in low-volume, high-variety production (also
warehouse layouts that contribute to fast, called job shop or intermittent production)
accurate sorting andshipping to its 5,000 6. Work cell layout: Arranges machinery
outlets and equipment to focus on production of a
2. Wal-Mart store layouts support a single product or group of related products
strategy of low cost, as do its warehouse 7. Product-oriented layout: Seeks the
layouts. best personnel and machine utilizations in
3. Hallmark’s office layouts, where many repetitive or continuous production
professionals operate with open
communication in work cells, support
response strategy through it rapid
development of greeting cards.

Good Layouts Considers

1. Material Handling Equipment
Managers must decide about
equipment to be used, including
conveyors, cranes, automated
storage and retrieval systems, and
automatic carts to deliver and store
material.
2. Capacity and space requirements Office Layout
Only when personnel, machines, ● Grouping of workers, their
and equipment requirements are equipment, and spaces to
known can managers proceed with provide comfort, safety, and
layout and provide space for each movement of information
component. In the case of office ● Movement of information is
work, operations managers must main distinction
make judgments about the space ● Typically in state of flux due
requirements for each employee. It to frequent technological
may be a 6x6-foot cubicle plus changes
allowance for hallways, aisles, rest
rooms, cafeterias, stairwells,
elevators, and so forth, or it may
be spacious executive offices and
conference rooms. Management
must also consider allowances for
requirements that address safety,
noise, dust, fumes, temperature,
and space around equipment and
machines.
3. Environment and aesthetics
Layout concerns often require
decisions about windows, planters, Supermarket Retail Layout
and height of partitions to facilitate ● Objective is to maximize
air flow, reduce noise, provide profitability per square foot
privacy, and so forth. of floor space
4. Flows of information ● Sales and profitability vary
Communication is important to any directly with customer
organization and must be facilitated exposure
by the layout. This issue may
require decisions about proximity Five Helpful Ideas for
as well as decisions about open Supermarket Layout
spaces versus half-height dividers 1. Locate high-draw items around
versus private offices. the periphery of the store
5. Cost of moving between various 2. Use prominent locations for
work areas high-impulse and high-margin
There may be unique items
considerations related to moving 3. Distribute power items to both
materials or to the importance of sides of an aisle and disperse
having certain areas next to each them to increase viewing of other
other. For example, moving items
molten steel is more difficult than 4. Use end-aisle locations
moving cold steel. 5. Convey mission of store through
careful positioning of lead-off
department
 Spatial layout and functionality -
which involve customer circulation
path planning, aisle characteristics,
and product grouping

Signs, symbols, and artifacts -

characteristics of building design
that carry social significance

Warehousing and Storage

Layouts
Retail Slotting
● Objective is to optimize
trade-offs between handling
● Manufacturers pay fees to
costs and costs associated
retailers to get the retailers
with warehouse space
to display (slot) their
● Maximize the total "cube" of
product
the warehouse - utilize its
● Contributing factors
full volume while
● Limited shelf space
maintaining low material
● An increasing number of
handling costsWarehousing
new products
and Storage Layouts
● Better information about
sales through POS data
Material Handling Costs
collection
● All costs associated with
● Closer control of inventory
the transaction
● Incoming transport
Retail Store Shelf Space
● Storage
Planogram
● Finding and moving
● Computerised tool for shelf-
material
space management
● Outgoing transport
● Generated from store's
● Equipment, people,
scanner data on sales
material, supervision,
● Often supplied by
insurance, depreciation
manufacturer
● Minimize damage and
spoilage
Servicescapes
Describes the physical
Warehouse density tends to vary
surroundings in which the service
inversely the number of different
is delivered and how the
items stored
surroundings have a humanistic
effect on customers and
Automated Storage and Retrieval
employees.
Systems (ASRSS) can
significantly improve warehouse
Ambient conditions - background
productivity by an estimated 500%
characteristics such as lighting,
Dock location is a key design
sound, smell, and temperature
element
Cross-Docking
● Materials are moved
directly from receiving to
shipping and are not placed
in storage in the warehouse
● Requires tight scheduling
and accurate shipments,
bar code or RFID
identification used for
advanced shipment
notification as materials are
unloaded
● System in place for
information exchilinge and
product

Random Stocking
● Typically requires
automatic identification
systems (AISs) and
Fixed-Position Layout
effective information
● Product remains in one
systems
place
● Random assignment of
● Workers and equipment
stocking locations allows
come to site
more efficient use of space
● Complicating factors
○ Limited space at
Key tasks
site
1. Maintain list of open locations
○ Different materials
2. Maintain accurate records
required at different
3. Sequence items to minimize
stages of the project
travel, pick time
○ Volume of materials
4. Combine picking orders
needed is dynamic
5. Assign classes of items to
particular areas

Alternative Strategy
Customizing
● As much of the project as
● Value-added activities
possible is completed
performed at the
off-site in a product-
warehouse
oriented facility
● Enable low cost and rapid
● This can significantly
response strategies
improve efficiency but is
● Assembly of
only possible when multiple
components
similar units need to be
● Loading software
created
● Repairs
● Customized labeling
and packaging
Process-Oriented Layout
● Like machines and
equipment are grouped
together
● Flexible and capable of
handling a wide variety of
products or services
● Scheduling can be difficult
and setup, material
handling, and labor costs
can be high
Process Layout Example
Arrange six departments in a
factory to minimize the material
handling costs. Each department is
20 x 20 feet and the building is 60
feet long and 40 feet wide.
1. Construct a "from-to matrix"
2. Determine the space
requirements
3. Develop an initial schematic
diagram
4. Determine the cost of this layout
5. Try to improve the layout
6. Prepare a detailed plan

● Arrange work centers so as

to minimize the costs of
material handling
● Basic cost elements are
○ Number of loads (or
people) moving
between centers
○ Distance loads (or
people) move
between centers
 Advantages of Work Cells
1. Reduced work-in-process
inventory
2. Less floor space required
3. Reduced raw material and
finished goods inventory
4. Reduced direct labor
5. Heightened sense of employee
participation
6. Increased use of equipment and
machinery
7. Reduced investment in
machinery and equipment

Work Cells

● Reorganizes people and

machines into groups to Requirements of Work Cells
focus on single products or 1. Identification of families of
product groups products
● Group technology identifies 2. A high level of training, flexibility
products that have similar and empowerment of employees
characteristics for particular 3. Being self-contained, with its
cells own equipment and resources
● Volume must justify cells 4. Test (poka-yoke) at each station
● Cells can be reconfigured in the cell
as designs or volume
changes
 Focused Work Center and
Focused Factory
● Focused Work Center
○ Identify a large
family of similar
products that have a
large and stable
demand
○ Moves production
from a
general-purpose,
process-oriented
facility to a large
work cell

Focused Factory
● A focused work cell in a
separate facility
● May be focused by product
line, layout, quality, new
product introduction,
flexibility, or other
requirements

Work Balance Charts

● Used for evaluating
operation times in work
cells
Repetitive and Product-
● Can help identify bottleneck
Oriented Layout
operations
Organized around products or
● Flexible, cross-trained
families of similar high-volume,
employees can help
low-variety products
address labor bottlenecks
● 1. Volume is adequate for
● Machine bottlenecks may
high equipment utilization
require other approaches
● 2. Product demand is
stable enough to justify high
investment in specialized
equipment
 ● 3. Product is standardized 3. Lack of flexibility in product or
or approaching a phase of production rates
life cycle that justifies
investment
● 4. Supplies of raw materials
and components are
adequate and of uniform
quality

Product-Oriented Layouts
● Fabrication line
● Builds components
on a series of
machines
● Disassembly Lines
● Machine-paced
● Disassembly is being
● Require mechanical
considered in new product
or engineering
designs
changes to balance
● "Green" issues and
recycling standards are
● Assembly line
important consideration
○ Puts fabricated
● Automotive disassembly is
parts together at a
the 16th largest industry in
series of
the US
workstations
○ Paced by work
Assembly-Line Balancing
tasks
● Objective is to minimize the
○ Balanced by moving
imbalance between
tasks
machines or personnel
while meeting required
Both types of lines must be
output
balanced so that the time to
perform the work at each station is
Starts with the precedence
the same
relationships
● 1. Determine cycle time
Product-Oriented Layouts
● 2. Calculate theoretical
Advantages
minimum number of
1. Low variable cost per unit
workstations
2. Low material handling cost
● 3. Balance the line by
3. Reduced work-in-process
assigning specific tasks to
inventories
workstations
4. Easier training and supervision
5. Rapid throughput

Disadvantages
1. High volume is required
2. Work stoppage at any point ties
up the whole operation
LESSON 10: JOB DESIGN
AND
WORK MEASUREMENT

Human Resource Strategy

The objective of a human resource
is to manage labor and design jobs
so people are effectively and
efficiently utilized.
As we focus on a human resource
strategy, we want to ensure that
people:
● 1.Are efficiently utilized
within the constraints of
other operations
management decisions.
● 2.Have a reasonable quality
of work life in an
atmosphere of mutual
commitment and trust.
Quality of work life – refers to a ● Labor is treated as a
job that is not only reasonably safe variable cost
with equitable pay but that also
achieve an appropriate level of B. Hold employment constant
both physical and psychological
requirement. ● Maintains trained workforce
● Minimizes hiring,
Mutual commitment means that termination, and
both management and employees unemployment costs
strive to meet common objectives. ● Employees may be
underutilized during slack
Mutual trust is reflected in period
reasonable, documented ● Labor is treated as a fixed
employment policies that are cost
honestly and equitably
implemented to the satisfaction of
both management and employees. Work Schedules
Standard work schedule
● Five eight-hour days
Flex-time
● Allows employees, within
limits, to determine their
own schedules
Flexible work week
● Fewer but longer days
Part-time
● Fewer, possibly irregular,
Three distinct areas of human hours
resource strategy:
1. LABOR PLANNING Job Classification and Work
● is determining staffing Rules
policies that deal with ● Specify who can do what
employment stability, work ● Specify when they can do it
schedule, and work rules. ● Specify under what
Employment stability – deals with conditions they can do it
the number of employees ● Often result of union
maintained by an organization at contracts
any given time. ● Restricts flexibility in
assignments and
Employment Stability Policies consequently efficiency of
A. Follow demand exactly production
● Matches direct labor costs
to production 2. JOB DESIGN
● Incurs costs in hiring and – an approach that specifies
termination, unemployment the tasks that constitute a job for
insurance, and premium an individual or group.
wage Components of Job Design
A. Job Specialization
 responsibility that includes some of
The division of labor into unique the planning and control necessary
tasks for job accomplishment; vertical
First suggested by Adam Smith in expansion.
1776 ● Employee empowerment – is the
1. Development of dexterity and practice of enriching jobs so
faster learning employees accept responsibility
2. Less loss of time for a variety of decisions normally
Development of specialized associated with staff specialists.
tools This helps employees take
“ownership” of their jobs so they
Later Charles Babbage (1832) have a personal interest in
added another consideration improving performance.
● Wages exactly fit the
required skill C. Psychological Components of
Job Design
B. Job Expansion ● focus on how to design jobs
● Adding more variety to jobs that meet some minimum
● Intended to reduce psychological
boredom associated with requirements,
labor specialization
● Job enlargement Hawthorne Studies
● Job rotation ● They studied light levels,
● Job enrichment but discovered productivity
● Employee empowerment improvement was
independent from lighting
Job enlargement – occurs when levels
the employee is allowed to move ● Introduced psychology into
from one specialized job to the workplace
another. The grouping of a variety ● The workplace social
of tasks about the same skill level; system and distinct roles
horizontal enlargement. played by individuals may
be more important than
physical factors
● Individual differences may
be dominant in job
expectation and
contribution

Core Job Characteristics

● Jobs should include the
following characteristics
● Job rotation – a system in which ● Skill variety
an employee is moved from one ● Job identity
specialized job to another. ● Job significance
● Job enrichment – a method of ● Autonomy
giving an employee more ● Feedback
 ● Provide management
support
Jobs should include the ● Ensure the necessary
following characteristics training
● Skill variety ● Endorse clear objectives
● Job identity and goals
● Job significance ● Financial and non-financial
● Autonomy rewards
● Feedback ● Supervisors must release
control

D. Benefits of Teams and

Expanded Job Designs
● Improved quality of work
life
● Improved job satisfaction
● Increased motivation
● Allows employees to
accept more responsibility
● Improved productivity and
quality
● Reduced turnover and
Self-Directed Team absenteeism
● a group of empowered
individuals working together E. Limitations of Job Expansion
to reach a common goal. 1. Higher capital cost
Self-Directed Teams 2. Individuals may prefer simple
● Group of empowered jobs
individuals working together 3. Higher wages rates for greater
to reach a common goal skills
● May be organized for 4. Smaller labor pool
long-term or short-term 5. Higher training costs
objectives
5. Motivation and Incentive
Effective because Systems
● Provide employee
empowerment Motivation and Incentive
● Ensure core job Systems
characteristics ● Bonuses cash or stock
● Meet individual options
psychological needs Profit-sharing - profits for
distribution to employees
To maximize effectiveness,
managers should Gain sharing - rewards for
● Ensure those who have improvements
legitimate contributions are
on the team Incentive plans - typically based
on production rates
Knowledge-based systems -
reward for knowledge or skills

● Ergonomics and the Work

Environment
● Ergonomics is the study of
the interface between man
and machine
● Often called human factors
● Operator input to machines

Ergonomics and Work Methods

● Feedback to operators
● The work environment
● Illumination
● Noise Activity Chart
● Temperature ● is used to study and
● Humidity improve the utilization of an
● Focuses on how task is operator and a machine or
performed some combination of
operators and machines.
Used to analyze
1. Movement of individuals or
material
● Flow diagrams and process
charts
2. Activities of human and machine
and crew activity
● Activity charts
3. Body movement
● Micro-motion charts

Flow Diagram – is a schematic

drawing used to investigate The Visual Workplace
movement of people or material. ● A visual workplace uses
low-cost visual devices to
share information quickly
and accurately.
● Use low-cost visual
devices to share
information quickly and
accurately
● Displays and graphs
replace printouts and
paperwork
● Able to provide timely
information in a dynamic
environment
 ● System should focus on Ways of establishing labor
improvement standards:
1. Historical Experience
The Visual Workplace ● determining the labor-hours
● Visual signals can take required to do a task based
many forms and serve on the last time it was
many functions performed.
● Present the big picture 2. Time Study
● Performance timing a sample of a worker’s
● Housekeeping performance and using it as a
basis for setting a standard time.

Steps in establishing a standard

time:
1. Define the task to be studied
(after methods analysis has been
conducted).
2. Divide the task into precise
clements (parts of a task that often
take no more than a few seconds).
3. Decide how many times to
measure the task (the number of
job cycles or samples needed).
4. Time and record elemenital
times and ratings of performance.
5. Compute the average observed
(actual) time. The average
observed time is the arithmetic
mean of the times for each
element measured, adjusted for
3. Labor Standards unusual influence for each element
● Are the amount of time Average observed time = Sum of
required to perform a job or the times recorded to perform
part of a job. each element divided by Number
● Effective manpower of Observations
planning is dependent on a 6. Determine performance rating
knowledge of the labor (work pace) and then compute the
required. normal time for each
● Accurate labor standards element.
help determinelabor Normal time = (Average
requirements, costs, and observed time) x (Performance
fair work rating factor)
7. Add the normal times for each
element to develop a total normal
time for the task.
8. Compute the standard time. This
adjustment to the total normal time
provides for allowances such as
personal needs, unavoidable work
delays, and worker fatigue:
Standard time= Total Normal
Time divided by 1-Allowance
Factor

The work-sampling procedure can be

summarized in five steps:
1. Take a preliminary sample to obtain an
estimate of the parameter value (e.g.,
percent of time a worker is busy).
2. Compute the sample size required.
3. Prepare a schedule for observing the
worker at appropriate times. The concept
of random numbers is used to provide for
random observation. For example, let's
say we draw the fol- lowing five random
numbers from a table: 07, 12, 22, 25, and
49. These can then be used to create an
observation schedule of 9:07 A.M., 9:12,
9:22, 9:25, 9:49.
4. Observe and record worker activities.
5. Determine how workers spend their
time (usually as a percentage).
 INVENTORY

● A physical resource that a firm

holds in stock with the intent of
selling it or transforming it into a
more valuable state.

TYPES OF INVENTORY
● Raw Material Inventory
● Work-in-process(WIP)
● Inventory Maintenance, Repair,
and Operating Materials (MRO)
● Finished-goods
●
Raw Material Inventory
● Materials that are usually
purchased but have yet to nter the
manufacturing process

Work-in-process(WIP) Inventory
● Products or components that are
no longer raw materials but have
yet to become finished products
A function of cycle time for a product

区 One of the most expensive assets of Maintenance, Repair, and Operati ng

Materials (MRO)
many companies representing as much ● Inventories devoted to
as 50% of total invested maintenance, repair, and operating
capital materials
M Operations managers must balance
inventory investment and customer Finished-goods
service ● An end item ready to be sold, but
still an asset on the company's
Functions of Inventory books
1. To decouple or separate various parts of
the production process
2. To decouple the firm from LESSON 11
fluctuations in demand and provide a MANAGING INVENTORY
stock of goods that will provide a selection ABC Analysis
for customers ● A method for diving on-hand
3. To take advantage of quantity inventory into three classifications
discounts based on annual dollar volume
4. To hedge against inflation A-items are goods which annual
consumption value is the highest The top
IMPORTANCE OF INVENTORY 70-80% of the annual consumption value
● How much to order of the company ally accounts for only
● When to order 10-20% of total inventory items.
● Track inventory
B-items are the interclass items, with a
medium consumption value. Th ose
15-25% of annual consumption value
typically accounts for 30% of total
inventory items.
C-items are, on the contrary, items with ● PILFERAGE
the lowest consumption valu e.The lower ○ A small amount of theft
5% of the annual consumption value
typically nts for 50% of total inventory Inventory Models
items. account Assume that demand for an item is either
idependent of or dependent on the demand
for other items
1. Dependent Demand Model
● the demand for item is dependent
upon the demand for some other
item in the inventory
2. Independent Demand Model
● the demand for item is independent
of the demand for any other item in
inventory

Independent Control Model

The demand for an item that is unrelated
to the demand for other items.

The annual consumption value is

calculated with the formula: (Annual
demand) x (item cost per unit). Holding, Ordering, Setup Costs
Pareto Principle ● Holding costs
● Vilfredo Pareto ○ The cost to keep or carry
● "critical few and trivial many” inventory in stocks
● Ordering Costs
○ The Cost of the ordering
Cycle Counting process
A-items are will be counted frequently, ● Setup Cost
once amonth ○ The cost to prepare a
B-items are will be counted less machine or process for
frequently, once a quarter production
C-items are will be counted once every 6 ● Setup Time
months ○ The time required to
prepare a machine or
CONTROL OF SERVICE process for production
INVENTORIES.
● Can be a critical component of INVENTORY MODELS FOR
profitability INDEPENDENT DEMAND
● Losses may come from shrinkage In this section, we introduce three
or pilferage inventory models that address two
● SHRINKAGE important questions: when to order and
○ Retail Inventory that is how much to order. These in dependent
unaccounted for between demand models are:
eceipt and sale
 ● 1. Basic economic order quantity
(EOQ) model
● 2. Production order quantity model
● 3. Quantity discount model

EOQ Model Basic Economic Quantity

It is one of the most commonly used
inventory-control techniques that
minimizes the total of ordering and holding
costs.

This technique is relatively easy to use but

is based on several a ssumptions:
● 1. Demand for an item is
reasonably constant.
● 2. Lead time-that is, the time
between placement and receipt of
the order i s known and consistent.
● 3. Receipt of inventory is
instantaneous and complete.
● 4. Quantity discounts are not
possible.
● 5. The only variable costs are the
setup cost and the holding cost.
● 6. Stockouts (shortages) can be
completely avoided if orders are
placed at the right time.

With the EOQ model, the optimal order

quantity will occur at a point where the
total setup cost is equal to the total holding
cost. We use this fact to develop
equations that solve directly for Q*. The
necessary steps are:
1. Develop an expression for setup cost.
2. Develop an expression for holding cost.
3. Set setup cost equal to holding cost.
4. Solve the equation for the optimal order
quantity.

Using the following variables, we can

determine setup and holding costs and
solve for Q*:
Q= Number of units per order
Q*= Optimum number of units per order
(EOQ)
D= Annual demand in units for the
inventory item
S= Setup cost for each order
H= Holding or carrying cost per unit per
year
Production Order Quantity Model
● An economic order quantity
technique applied to production
orders.
● This model is applicable under two
situations:
○ when an inventory
continuously flows or builds
up over a period of time
after an order has been
placed or
○ when units are produced
and sold simultaneously.

LESSON 11.1
In this section, we introduce three
inventory models that address two
important questions: when to order and
how much to order. These independent
demand models are:
1. Basic economic order quantity (EOQ)
model
2. Production order quantity model
3. Quantity discount model
 Ch =$1
d= 30 units
p=125 units

The F. W. Harris Company sells an

industrial cleaner to a large number of
manufacturing plants in the Houston area.
An analysis of the demand and costs has
resulted in a policy of ordering 300 units of
this product every time an order is placed.
The demand is constant, at 25 units per
day. In an agreement with the supplier, F.
W. Harris is willing to accept a lead time of
20 days since the supplier has provided
an excellent price. What is the reorder
point? How many units are actually in
inventory when an order should be
placed?

Flemming Accessories produces paper

slicers used in offices and in art stores.
The minislicer has been one of its most
popular items: Annual demand is 6,750
units and is constant throughout the year.
Kristen Flemming, owner of the firm,
produces the minislicers in batches. On
average, Kristen can man ufacture 125
minislicers per day. Demand for these Leonard Presby, Inc., has an annual
slicers during the production process is 30 demand rate of 1,000 units butcan
per day. The setup cost for the equipment produce at an average production rate of
necessary to produce the minislicers is 2,000 units. Setupcost is $10, carrying
$150. Carrying costs are 51 per minislicer cost is $1. What is the optimal number of
per year. How many minislicers should units to be produced each time?
Kristen manufacture in each batch?

Solution:
The data for Flemming Accessories are
summarized as follows:
D=6.750 units
C=$150
Quantity Discount Models
● Reduced prices are often available
when larger quantities are
purchased

● Trade-off is between reduced

product cost and increased holding
cost

Total cost = Setup cost + Holding cost

+ Product cost

Steps in analyzing a quantity discount

1. For each discount, calculate Q*
2. If Q* for a discount doesn't qualify,
choose the smallest possible order size to
get the discount
3. Compute the total cost for each Q* or
adjusted value from Step 2
4. Select the Q* that gives the lowest total
cost