Atty. Micah Danielle S.

Tormon, CPA

OPERATIONS MANAGEMENT Example: Subway or Chipotle,

AND TOTAL QUALITY ingredients are arranged to build
MANAGEMENT MIDTERMS the burrito
REVIEWER
 Facility design must be
Chapter 6: Facility and Work integrated with and support
Design job and process design

FACILITY LAYOUT Advantages of product layout:

- Refers to specific higher output rates, lower WIP
arrangement of physical inventories, less materials
facilities handling, higher labor and
equipment utilization, and simple
Facility layout studies are planning and control systems
necessary whenever:
(1)A new facility is constructed Disadvantages of product
(2)There is a significant change layout:
in demand or throughput  breakdown of one piece of
volume equipment can cause the
(3)A new good or service is entire process to shut down
introduced to the customer  Change in product design or
benefit package introduction of new products
(4)Different processes, may require major changes in
equipment, and/or the layout (flexibility is
technology are installed limited) less flexible and
expensive to change
Objective of layout studies:  Require more costly,
minimize delays in materials specialized equipment
handling and customer movement,  Provide little job satisfaction –
maintain flexibility, use labor and high division of labor often
space effectively, promote high required, leads to monotony
employee morale and customer
satisfaction

 A good layout should support

the ability of operations to
accomplish its mission

FOUR MAJOR LAYOUT

PATTERNS:

1. Product Layout – arrangement 2. Process Layout – consists of a

based on the sequence of functional grouping of
operations that is performed equipment or activities that do
during the manufacturing of a similar work
good or delivery of a service
- Smooth and logical flow where Example: all drill presses or fax
all goods or services move in a machines may be grouped together
continuous path from one in one department and all milling or
process stage to the next, using data entry machines in another
the same sequence of work
tasks and activities Examples: Job Shops handle a wide
variety of customized orders
Atty. Micah Danielle S. Tormon, CPA

improve overall level of

 Provide more flexibility and quality
generally require lower
investment in equipment  Machine are closely linked,
additional floor space
 If piece of equipment fails, it
generally does not affect the  Because workers have
entire system greater responsibility in a
cellular manufacturing
 Diversity of jobs leads to system, they become more
increased worker satisfaction aware of their contribution to
the final product
Limitations:
 Low equipment utilization
 High materials-handling costs
 More complicated planning
and control systems
 Higher worker skill
requirements

4. Fixed-position Layout –
consolidates the resources
necessary to manufacture a
good or deliver a service, such
as people, materials, and
equipment, in one physical
3. Cellular Layout – design is not location
according to the functional
characteristics of equipment,  Stationary work in process
but rather is based on self-
contained groups of equipments  Synonymous with “project”
(called cells) needed for classification of processes
producing a particular set of
goods or services Examples: major hardware and
software installations, sporting
 Developed by Toyota Motor events, and concerts
Company
FACILITY LAYOUT IN SERVICE
Group technology – cellular ORGANIZATIONS
layouts facilitate the processing of
families of parts with similar
processing requirements

 Materials-handling
requirements are reduced,  the basic tradeoff between
enabling workers to product and process layouts
concentrate on production concern the degree of
rather than moving parts specialization versus
between machines flexibility

 Quicker response to quality

problems within sells -
Atty. Micah Danielle S. Tormon, CPA

 must consider volume of - Worker must remain idle until

demand, range of types of storage space becomes
services offered, degree of available
personalization of the
services offered, degree of 2. Lack-of-work delay – occurs
personalization, skill of whenever one stage completes
employees and cost work and no units from the
previous stage are awaiting
 need the ability to provide a processing
wide variety of services use a - Described as “starving” the
process layout immediate successor
workstation
 service organizations that - Cause bottlenecks limiting
provide highly standardized the throughput of the entire
services tend to use product process
layouts
Important type of product layout:
 the design of service facilities Assembly line
requires the clever - Product layout dedicated to
integration of layout with the combining the components of
servicescape and process a good or service that has
design to support service been created previously
encounters

DESIGNING PRODUCT LAYOUT Assembly-Line Balancing

 In flow shops generally - Technique to group tasks
consist of a fixed sequence of among workstations so that
workstations each workstation has- in the
ideal case- the same amount
Workstations – separated by of work
buffers (queues of WIP) to store - Focuses on organizing work
work waiting for processing, and efficiently in flow shops
are often linked by gravity
conveyors to allow easy transfer of  No idle time per workstation,
work and the output of the first
station becomes the input of
the next station
 Flow is constant and
continuous and no bottleneck
workstation

Three types of information to

know:
Two sources of delay: 1. The set of tasks to be
performed and the time
1. Flow-blocking delay – blocking required to perform each task
delay, occurs when a work 2. The precedence relations
center completes a unit but among the task – the
cannot release it because the in- sequence in which tasks
process storage at the next must be performed
stage is full 3. The desired output rate or
forecast of demand for the
assembly line
Atty. Micah Danielle S. Tormon, CPA

imbalance among
Important concept in assembly-line workstations
balancing: Cycle time
- Interval between successive
outputs coming off the
assembly line
- Could be manufactured
goods or services-related
outcomes

 Cycle time (CT) cannot be

smaller than the largest Line Balancing Approaches
operation time, nor can it be  With a large number of tasks,
larger than the sum of all the number of possible
operation time workstation configurations
can be very large, making
Maximum operation time ≤ CT ≤ the balancing problem very
Sum of operation times complex

CT = AR The longest task time rule can be

formalized as follows:
A = available time to produce the  Choose a set of “assignable
output tasks” — those for which all
R = normally the demand forecast immediate predecessors
have already been assigned
 If the required cycle time is  Assign the assignable task
smaller than the largest task with the longest task time
time, then the work content first. Break ties by choosing
must be redefined by the lowest task number
splitting some tasks into  Construct new set of
smaller elements assignable candidates

Minimum number of DESIGNING PROCESS LAYOUTS

workstations required:  Concerned with the
= sum of task times / cycle time arrangement of departments
or work centers relative to
Additional equations about the each other
performance of an assembly line:
Two approaches commonly used:
Total available time = (no. of 1. Focuses on costs associated
workstations)(cycle time) with moving materials or the
inconvenience that customers
Total idle time = total available might experience in moving
time – minimum no. of workstations between physical locations

Assembly-line efficiency =  Widely used in manufacturing

minimum no. of workstations / (no.  Starts with an initial layout
of workstations x cycle time) and data on the historical or
forecasted volume between
Balance delay = 1 – Assembly- departments and materials-
line efficiency handling costs
 Represents the amount of
idle time that results from
Atty. Micah Danielle S. Tormon, CPA

2. When it is difficult to obtain  Operations managers who

data on costs or volumes design jobs for individual
moved between departments workers need to understand
how the physical
 Useful in many service environment can affect
applications such as offices, people
laboratories, retail stores,
and so on Benefits of Proper Workplace
 User constructs preference  Increased engagement
table that specifies how  Reduced absenteeism
important it is for two  Enhanced creativity and
departments to be close to innovation
one another  Cost savings
 Optimize the total closeness
rating of the layout JOB DESIGN
Job – set of tasks an individual
WORKPLACE AND JOB DESIGN performs

Workplace design – planning and Job Design – involves determining

arrangement of physical spaces the specific job tasks and
within an organization to optimize responsibilities, the work
workflow, collaboration and environment, and the methods by
employee well-being which the tasks will be carried out
to meet the goals of operations
 Well designed workplace
should allow maximum Two Broad Objectives that must be
efficiency and effectiveness satisfied:
as the work task or activity is
performed and may also 1.) Meet the firm’s competitive
need to facilitate service priorities (cost, efficiency,
management skill flexibility, quality, and time)
2.) Make the job safe, satisfying,
Key Questions to ask when and motivating for the worker
Designing the Workplaces:
Sociotechnical approach – to job
1. Who will use the workplace? Will design and and provides useful
the workstation be shared? How ideas for operations managers
much space is required?
2. How will the work be performed? Job enlargement – horizontal
What tasks are required? How expansion of the job to give the
much time does each task take? worker more variety-although not
How much time is required to set necessarily more responsibility
up for the workday or for a
particular job? Job enrichment – vertical
3. What technology is needed? expansion of job duties to give the
4. What must the employee be able worker more responsibility
to see?
5. What environmental and safety Common teams:
issues need to be addressed? Are  Natural work teams –
all employees trained on performs entire job, rather
emergency evacuation than specialized, assembly
procedures and plans? line work
Atty. Micah Danielle S. Tormon, CPA

 Virtual team – members WORKFORCE ETHICS AND

communicate by computer, GLOBAL SUPPLY CHAINS
take turns as leaders, and
join and leave the team as Ethical trade – retailers, brands,
necessary and their suppliers take
 Self-managed team – responsibility for improving the
empowered work teams that working conditions of the people
also assume many traditional who make the products they sell
management responsibilities
Ethical Trade Initiative (ETI) –
 Teams not only enrich jobs; leading alliance of companies,
they also provide numerous trade unions, and non-
benefits for quality and governmental organizations that
productivity promotes respect for workers’
rights around the globe
SAFETY, ERGONOMICS, AND
THE WORK ENVIRONMENT 1. Employment is freely chosen
2. Freedom of association and
Safety – one of the most important the right to collective
aspects of workplace design bargaining are respected
3. Working conditions are safe
Occupational Safety and Health and hygienic
Act (OSHA) 1970 – to provide safe 4. Child labor shall not be used
and healthful working conditions 5. Living wages are paid
and reduce hazards in the work 6. Working hours are not
environment excessive
- Requires employers to furnish 7. No discrimination is practices
to each of their employees a 8. Regular employment is
place of employment free provided
from recognized hazards that 9. No harsh or inhumane
cause death or serious treatment is allowed
physical harm

 Safety is a function of the

job, the person performing
the job, and the surrounding
environment

Ergonomics – concerned with

improving productivity and safety
by designing workplace,
equipment, instruments,
computers, workstations, and so on
that take into account the physical
capabilities of people

Objectives: reduce fatigue, the cost

of training, human errors, the cost
of doing the job, and energy
requirements while increasing
accuracy, speed, reliability, and
flexibility
Atty. Micah Danielle S. Tormon, CPA

 Good forecasts are needed in

all organizations to drive
analyses and decisions
related to operations

 Poor forecasting can result to

poor inventory and staffing
decisions, resulting in part
shortages, inadequate
customer service, and many
customer complaints

 Many firms integrate

forecasting with value chain
and capacity management
systems to make better
operational decisions

FORECASTING AND DEMAND

PLANNING

o Organizations make many

different types of forecasts

Top managers: need long range

forecasts expressed in total sales
dollars for use in financial planning
and for sizing and locating new
facilities

Lower organizational levels:

managers need to aggregate
forecasts of sales volume for their
products in units that is more
meaningful to them

Accurate forecasts – needed

OPERATIONS MANAGEMENT throughout the value chain and are
AND TOTAL QUALITY used by all functional areas of an
MANAGEMENT MIDTERMS organization
REVIEWER

Chapter 7: Forecasting and

Demand Planning

Forecasting
- Process of projecting the
values of one or more
variables into the future
- Key component in many
types of integrated operating
systems BASIC CONCEPTS IN
FORECASTING
Atty. Micah Danielle S. Tormon, CPA

Forecast Planning Horizon – time or over successive periods of

length of time on which a forecast time
is based - Provides the date for
understanding how the
Long-range forecasts variable that we wish to
 cover a planning horizon to 1 forecast change historically
to 10 years and are  Statistical methods of
necessary to plan for the forecasting are based on this
expansion of facilities and to analysis of historical data
determine needs for land,
labor, and equipment Five Characteristics: trend,
seasonal, cyclical, random
Intermediate-range forecasts variation, and irregular (one-time)
 cover a 3-to-12 month period variation
are needed to plan workforce
levels, allocate budget Trend – underlying pattern of
among divisions, schedule growth or decline in a time series
jobs and resources, and - Shows gradual shifts or
establish purchasing plans movements to relatively
higher or lower values over a
Short-range forecasts longer period of time
 focus on the planning horizon - Increasing / decreasing,
of up to three months and linear / nonlinear
are used by operations
managers to plan production
schedules and assign workers
to jobs, determine short-term
capacity requirement and aid
shipping requirements

 Forecasts of future demand

are needed at all levels of
organizational decision
making

Time bucket – unit of measure for Seasonal patterns –

the time period used in a forecast characterized by repeatable
- Might be a year, quarter, periods of ups and downs over a
month, week, day, hour or short periods of time
even a minute - Generally think they occur
over a year, but similar
 Long-term planning horizon - repeatable patterns might
> a firm might forecast in occur over the weeks during
yearly time buckets a month, over days during a
 Short-range planning horizon week, or hours during a day
-> time bucket might be an
hour or less Cyclical patterns – regular
patterns in a data series that take
Data Patterns in Time Series place over long periods of time

Time Series – set of observations Random variation (noise) –

measured at successive points in unexplained deviation of a time
series from a predictable pattern
Atty. Micah Danielle S. Tormon, CPA

such as a trend, seasonal, or STATISTICAL FORECASTING

cyclical pattern MODELS
- Caused by short term,  Can be classified as either
unanticipated, and non statistical or judgemental
recurring factors and is
unpredictable Statistical forecasting – based
on the assumption that the future
Irregular variation – one-time will be an extrapolation of the past
variation that is explainable
 Categorized as time series
 Selecting the right planning methods (extrapolate
horizon length and time historical time-series data)
bucket size for the right and regression methods
situation is an important part (extrapolate historical time
of forecasting series data)

Forecast Errors and Accuracy Simple Moving Average

 Based on the idea of
 All forecasts are subject to averaging fluctuations in a
error, and understanding the time series to identify the
nature and size of errors is underlying direction in which
important to making good the time series is changing
decisions
Moving Average (MA) Forecast
Forecast error – difference - An average of the most
between the observed value of the recent “k” observations in a
time series and the forecast time series

 MA methods work best for

short planning horizons when
there is no major trend,
seasonal, or business cycle
pattern.
 As the value “k” increases,
MSE is influenced much more by the forecast reacts slowly to
large forecasts errors than by small recent changes in the time
errors (because the errors are series data
squared)  As the “k” vale decreases,
 The measurement scale the forecasts reacts more
factor in MAPE is eliminated quickly
by dividing the absolute error
by the time-series data value, Single Exponential Smoothing
making it easier to interpret - Forecasting technique that
 The selection of the best uses a weighted average of
measure of forecast accuracy past time-series values to
is not a simple matter; forecast the value of the time
indeed, forecasting experts series in the next period
often disagree on which
measure should be used  Forecasts are based on
averages using and
weighting the most recent
Atty. Micah Danielle S. Tormon, CPA

actual demand more than

older demand data  When no historical data is
available, judgmental
forecasting is possible

Several Approaches:
 Do not try to include trend or
seasonal effects
Grassroots forecasting – asking
those who are close to the end
Disadvantage: if the time series
consumer, such as salespeople,
exhibit a positive trend, the
about the customers’ purchasing
forecast will lag the actual values
plans
and overshoot the actual values if a
negative trend exists
Delphi method – complicated
method
REGRESSION AS A
- Consists of forecasting by
FORECASTING APPROACH
expert opinion by gathering
judgments and opinions of
Regression Analysis
key personnel based on their
- Method for building a
experience and knowledge of
statistical model that defines
the situation
a relationship between a
- Group of people, possibly
single dependent variable
from both inside and outside
and one or more independent
the organization, is asked to
variables, all of which are
make a prediction
numerical
FORECASTING IN PRACTICE

 Managers use a variety of

 Simple linear regression finds judgmental and quantitative
the best values of a and b forecasting techniques
using the method of least
squares  Forecasters should also
monitor a forecast to
Causal Forecasting Models with determine when it might be
Multiple Regression advantageous to change or
update the model
Multiple Linear Regression
Model – a linear regression model  Statistical methods alone
with more than one independent cannot account for such
variable factors as sales promotions,
competitive strategies,
 Multiple regression provides a unusual economic
technique for building disturbances, new products,
forecasting models that not large one-time orders, labor
only forecasting models that complications, etc.
not only incorporate time but
other potential causal  Statistical forecasts are often
variables adjusted to account for
qualitative factors
JUDGMENTAL FORECASTING
- Relies upon opinions and  Forecasters should also
expertise of people in monitor a forecast to
developing forecasts
Atty. Micah Danielle S. Tormon, CPA

determine when it might be

advantageous to change or
update the model

A tracking signal provides a

method for doing this by
quantifying bias
 The tendency of forecasts to
consistently be larger or
smaller than the actual
values of the time series

Ten Practical Principles of

Forecasting:

1. Use quantitative rather

qualitative methods
2. Limit subjective adjustments
of quantitative forecasts
3. Adjust for events expected in
the future
4. Ask experts to justify their
forecasts in writing
5. Use structured procedures to
integrate judgmental and
quantitative methods
6. Combine forecasts from
approaches that differ
7. If combining forecasts, begin
with equal weights
8. Compare past performance of
various forecasting methods
9. Seek feedback about
forecasts
10. Use multiple measures
of forecast accuracy