Chapter One

Nature of Operations Management

Introduction
• Operations is that part of a business organization that is responsible for
producing goods and/or services.
• Goods Physical items produced by business organizations
• Services Activities that provide some combination of time, location, form,
and psychological value.
• Production is the creation of goods and services.
– in the past PM focused almost exclusively on manufacturing
management,
– emphasis on the methods and techniques used in operating a factory.
– In recent years, the scope has broadened in services such as:
• health care, food service, recreation, banking, hotel management,
retail sales, education, transportation, and government.
• This broadened scope has given the field the name
production/operations management, or more simply, operations
• Formally stated, therefore,
• Operations management is the management of
systems or processes that create goods and/ or
provide services.
• Production management (POM) is the management
of an organisation’s production/Operation system,
– Production system converts inputs into the
organisation’s products and services.
– This function is essential to systems producing goods
and services in both profit and non-profit organisations.
The operations function involves the conversion of
inputs into outputs

Inputs Transformation/ Outputs

Land Goods
Labor conversion
Services
Capital process
Information
Measurement and Feedback
Measurement and
Measurement and
Feedback
Feedback
Control

Process : One or more actions that transform

inputs into outputs.
 1.2 Historical Development of Operation Management

Date Contribution Contributor

1776 Specialization of labour in manufacturing Adam Smith
1799 Interchangeable parts, cost accounting Eli Whitney
and others
1832 Division of labour by skill; assignment of jobs Charles
by Babbage
skill; basics of time study
19900 Scientific management time study and work Frederick W.
study Taylor
developed; dividing planning and doing of
work

19900 Motion of study of jobs Frank B.

Gilbreth
19901 Scheduling techniques for employees, Henry L.
machines jobs Gantt
in manufacturing
1915 Economic lot sizes for inventory control F.W. Harris
1927 Human relations; the Hawthorne studies Elton Mayo
1931 Statistical inference applied to product quality: W.A.
quality Shewart
control charts

1935 Statistical sampling applied to quality control:

H.F. Dodge
inspection sampling plans &H.G.
Roming
1940 Operations research applications in World War P.M. Blacker
II and others
1946 Digital computer John Mauchlly
and J.P.
• Production management becomes the acceptable
term from 1930s to 1950s. As F.W. Taylor’s
works become more widely known, managers
developed techniques that focused on economic
efficiency in manufacturing.
What is Operation Management?
• Operations management is the set of activities that
– creates goods and services through the transformation of inputs
into outputs
• Regardless of whether the end product is good or service the
production activities that go on in the organization are often referred
to as operations or operations management.
The three major functions of business organizations overlap

 Marketing – generates demand

 Operations – creates the product
 Finance/accounting – tracks how well the
organization is doing, pays bills, collects the
money
• Operations management is the study of decision-making in
the operations function.
• Three points in this definition deserve emphasis:
Decisions- Decision-making is an important element of operations
management.
Function- Operations is a major function in any organization, along
with marketing and finance.
System- The transformation systems produce goods and services.
Using the systems view,
• Operations management is defined as the design, operation, and
improvement of the production system that creates the firm’s
primary products (goods and/or services).
Difference between production and Operations
Management
• Production and operations management are used
interchangeably
• Production Management more frequently used for a system
where tangible goods produced
• Operations management is used for various inputs are
transformed into intangible service
• With evolution production Management used in the ancient
• Operations Management is the term used now a days
The Scope of Operations Management
Operations Management covers such activities
• Forecasting
• Capacity planning
• Scheduling
• Managing Inventories
• Assuring quality
• Motivating employees
• Deciding where to locate facilities
• Design of work system
• Operations planning and control
• Resource requirement planning
• Capacity requirement planning
• Project management
• Quality management e.t.c
1.3. Manufacturing Operations and Service Operations /The
boundary of Operation system
• An operation is defined in terms of:
– Mission it serves, technology it employ, human and managerial
processes it involves.
– Operations can be categorized as:
• Manufacturing operations
• Service operations
Manufacturing Operations
– Refers to a conversion process that includes manufacturing yields a tangible
output: Products/ goods
Service Operations
– a conversion process that yields an intangible output: Services, deed,
performance, efforts
Distinction between Manufacturing Operations and Service
Operations.
Parameter/Base Manufacturing Operations Service Operations
Tangibility of Tangible nature of output Intangible nature of
outputs output
Consumption customers consume customers consumes
overtime, immediately
Nature of Job use less labour and more use more labour and
equipment less equipment
Degree of little customer contact direct consumer
consumer contact
contact
Customer No customer Participation Frequent customer
participation participation
In
Conversion
Measuremen sophisticated methods for elementary methods for
t of measuring measuring conversion
performance. production activities and activities and
resource consumption as resource consumption.
product are made.
1.4 Operations Decision Making
• An operation has responsibility for five major decision
areas:
Process
Decisions determine the physical process or facility
used to produce the product or service.
• physical process be designed on relation to the
long term strategic posture of the business.
Capacity: Decisions aimed at providing:
• the right amount of capacity at right place at the right time.
• Long-range capacity is determined by the size of the physical
facility which are built.
• In the short run, capacity can be augmented by
subcontracting, extra shifts, or rental of space.
• The available capacity must be allocated to specific tasks and
jobs in operations by scheduling people, equipment, and
facilities.
Inventory: Inventory decisions in operations determine:
– what to order, how much to order, and when to order.
– Inventory control systems are used
– to manage materials from purchasing through raw
materials, work in process, and finished goods
inventories.
– They manage the flow of materials within the firm.
Work force: Work force decisions include:
– selection, hiring, firing, training, supervision, and
compensation.
– Managing the work force in a productive and humane way
is a key task for operations today.
Quality: is an important operations responsibility
– requires total organizational support.
– Quality decisions must ensure that quality is built into the
product in:
• all stages of operations,
• standard must be set,
• equipment designed,
• people trained, and
• product or service inspected for quality to result.
1.5. Productivity Measurement
What is Productivity?
• Is a measure of economic efficiency which shows how effectively
economic inputs are converted into output
• is the ratio of outputs (goods and services) to inputs (resources,
such as labor and capital).
• is defined in terms of utilization of resources, like material and
labor.
• In simple terms, it is the ratio of output to input.
• For example, productivity of labor can be measured as units
produced per labor hour worked.
• Productivity is closely linked with quality, technology and
profitability.
• Productivity is a multidimensional phenomenon.
• The modern dynamic concept of productivity looks at
productivity as what may be called “productivity flywheel”.
• Flywheel: A mechanical device which uses the
conservation of angular momentum to store rational
energy.
Productivity and competition
• The productivity is energized by competition.
• Competition leads to higher productivity.
• Higher productivity results in better value for customers,
• these results in higher share of market for the organization,
Productivity Improvement in Competitive Environment
Productivity can be improved by:
a) controlling inputs,
b) improving process so that the same input yields higher
output, and
c) improvement of technology.
 Productivity Improvement Techniques
A. Technology Based
Computer Aided Design (CAD)
– CAD refers to design of products, processes or systems with
the help of computers.
The advantages of CAD are:
– Speed of evaluation of alternative designs,
– Minimization of risk of functioning, and
– Error reduction
Computer Aided Manufacturing( CAM)
• CAM is very much useful to design and control the
manufacturing.
It helps to achieve the effectiveness in production system by
line balancing:
– Production Planning and Control
– Capacity Requirements Planning (CRP),
– Manufacturing Resources Planning (MRP II) and
– Materials Requirement Planning (MRP)
– Automated Inspection.
Computer integrated manufacturing
Systems( CIMS) Computer integrated manufacturing is
characterized by:
• automatic line balancing, machine loading
(scheduling and sequencing), automatic inventory
control and inspection.
• Robotics( Automation)
• Laser technology
• Modern maintenance techniques
• Energy technology
• Flexible Manufacturing System (FMS)
B. Employee Based
• Financial and non-financial incentives at individual
and group level.
• Employee promotion.
• Job design, job enlargement, job enrichment and
job rotation.
• Worker participation in decision-making
• Quality Circles (QC), Small Group Activities (SGA)
• Personal development.
C. Material Based
• Material planning and control
• Purchasing, logistics
• Material storage and retrieval
• Source selection and procurement of quality material
• Waste elimination.
D. Process Based
• Methods engineering and work simplification
• Job design evaluation, job safety
• Human factors engineering.
E. Product Based
• Value analysis and value engineering
• Product diversification
• Standardization and simplification
• Reliability engineering
• Product mix and promotion.
F. Task Based
• Management style
• Communication in the organization
• Work culture
• Motivation
• Promotion group activity
Productivity Analysis
For the purposes of studies of productivity for improvement
purposes, following types of analysis can be carried out:
1. Trend analysis: Studying productivity changes for the firm over
a period of time.
2. Horizontal analysis: Studying productivity in comparison with
other firms of same size and engaged in similar business.
3. Vertical analysis: Studying productivity in comparison with
other industries and other firms of different sizes in the same
industry.
4. Budgetary analysis: Setting up a norm for productivity for a
future period as budget, based on studies as above, and planning
strategies to achieve it.
 Factors Affecting Productivity
The principal factors influencing productivity rate are:
1. Capital/labour ratio: It is a measure of whether enough
investment is being made in plant, machinery, and tools to make
effective use of labour hours.
2. Scarcity of some resources: Resources such as energy, water
and number of metals will create productivity problems.
3. Work-force changes: Change in work-force effect productivity
to a larger extent, because of the labour turnover.
4. Innovations and technology: This is the major cause
of increasing productivity.
5. Regulatory effects: These impose substantial
constraints on some firms, which lead to change in
productivity.
6. Bargaining power: Bargaining power of organized
labour to command wage increases excess of output
increases has had a detrimental effect on productivity.
7. Managerial factors: Managerial factors are the ways an
organization benefits from the unique planning and
managerial skills of its manager.
8. Quality of work life: It is a term that describes the
organizational culture, and the extent to which it motivates
and satisfies employees.
 Productivity Measurement

Productivity can be measured at

– Firm level,
– Industry level,
– National level and
– International level.
• A reduction in inputs while output remains constant, or
• An increase in output while inputs remain constant.
• Productivity = Units Produced/Input used
Single Factor Productivity
• Use single input
For example, if units produced =1000 and labour hours
used is 250.
Measure productivity.
Productivity = 1000/250 = 4 outputs per lobar hour
Multifactor Productivity
• Also known as total factor productivity
• Use all inputs (e.g., labor, material, energy, capital).
Productivity= Output/ Labor + Material + Energy + Capital +
Miscellaneous
Example 1
Collins Textile Company has a staff of 4 each working 8 hours
per day (for a payroll cost of $640 /day) and overhead expenses
of $400 per day. Collins processes and closes on 8 titles each day.
The company recently purchased a computerized title-search
system that will allow the processing of 14 titles per day.
Although the staff, their work hours, and pay will be the same,
the overhead expenses are now $800 per day.
Required
a. Measure Labor productivity with the old system
b. Measure Labor productivity with the new system
c. Measure Multifactor productivity with old system
d. Measure Multifactor productivity with new system
Solution
a. Labor productivity with the old system = 8 titles per day/ 32
labor-hours = 0.25 titles per per labor
b. Labor productivity with the new system = 14 titles per day/32
labor-hours = 0.4375 titles per labor hours
c. Multifactor productivity with the old system = 8 titles per
day/ 640+400 = 0.0077 titles per dollar
d. Multifactor productivity with the new system= 14 titles per
day/ 640 +800 = 0.0097 titles per dollar
The following information regarding the output produced and
inputs consumed for a particular time period for a particular
company is given below:
• Output – birr 10,000
• Human input – birr 3,000
• Material input – birr 2,000
• Capital input – birr 3,000
• Energy input – birr 1,000
• Other misc. input –birr 500 The values are in terms of base
year birr value.
• Required. Compute various productivity indices.
Exercise
Six hundred patients have visited a dental clinic
in one week. There are four dental surgeons
employed by the clinic. Assuming equal
distribution of work.
Required:
What is the productivity of an individual dentist
per week?
 Chapter Two
Operations Strategy for Competitive Advantage
Introduction
• Each of a firm’s strategies should be established in light of:
(1) the threats and opportunities in the environment and
(2) the strengths and weaknesses of the organization.
• Ultimately, every strategy is an attempt to answer the question,
“How do we satisfy a customer?” within these constraints.
• Organizations can no longer compete on a single dimension
such as low cost, high quality, or delivery, but must provide all
of these (and more) simultaneously.
• strategy refers to plans devised to out manoeuvre the
opposition.
• In business, firms attack where and when other firms are
vulnerable.
2.1. Identifying Missions and Strategies
An effective operations management effort must have:
• Mission so it knows where it is going and it knows
the rational for it’s existence and
• Strategy so it knows how to get there.
Mission
• The reason for the existence of an organization.
• Mission statement States the purpose of an
organization.
Economic success, indeed survival, is the result of
identifying missions to satisfy a customer’s needs and
wants.
• Mission refers to purpose
• what organization will contribute to society.
• Mission statements provide boundaries and focus for
organizations and the concept around which the firm
can rely.
• The mission states the rationale for the organization’s
existence.
• Developing a good strategy is difficult, but it is much
easier if the mission has been well defined.
• The mission can also be thought of as the intent of the
strategy―what the strategy is designed to achieve.
• Once an organization’s mission has been decided, each
functional area within the firm determines its supporting
mission.
• By “functional area” we mean the major disciplines
required by the firm, such as marketing, finance
/accounting, and production/operations.
• Missions for each functional area are developed to
support the firm’s overall mission.
• Then within that function lower-level supporting
missions are established for the operation management
functions.
• With the mission established, strategy and its
implementation can begin.
• Strategy is an organization’s action plan to achieve the
mission.
• Each functional area has a strategy for achieving its mission
and for helping the organization reach the overall mission.
• These strategies exploit opportunities and strengths,
neutralize threats, and avoid weaknesses.
• Firms achieve missions in three conceptual ways:
(1) differentiation,
(2) cost leadership, and
(3) quick response.
• This means operations managers are called on to
deliver goods and services that are:
(1) Better, or at least different,
(2) Cheaper, and
(3) More responsive.
• Operations managers translate these strategic concepts
into tangible tasks to be accomplished.
• Any one or combination of these three strategic
concepts can generate a system that has a unique
advantage over competitors.
Strategies and Tactics
• Strategies are plans for achieving goals.
• Goals Provide detail and scope of the mission.
• strategies are the road maps for reaching the
destinations.
• Strategies provide focus for decision-making.
Strategies could be classified as:
• Organizational strategies : relate to the entire
organization
• Functional Strategies: relate to each of the functional
areas of the organization.
Tactics
• Tactics are the methods and actions used to
accomplish strategies.
• They are more specific in nature than strategies
• they provide guidance and direction for carrying out
actual operations,
• They are the “how to” part of the process (e.g., how
to reach the destination, following the strategy road
map) and operations as the actual “doing” part of the
process.
 2.3. Operations Strategy

• Operation strategy is narrower in scope, deals

primarily with the operations aspect of the
organization.
• Operations strategy relates to products, processes,
methods, operating resources, quality, cost, lead
times, and scheduling.
• Operation strategy has to be linked to organization strategy;
• that is, the two should not be formulated independently.
• Formulation of organization strategy should take into account
the realities of operations’ strengths and weaknesses,
capitalizing on strengths and dealing with weaknesses.
• Operations strategy must be consistent with the overall
strategy of the organization, and formulated to support the
goals of the organization.
Strategy Formulation
Strategy formulation is almost always critical to the
success of a strategy.
To formulate an effective strategy:
• Take into account the distinctive competencies of the
organization,
 those special attributes or abilities possessed by an
organization that give it a competitive edge.
 scan the environment: referred to as the SWOT approach
Involves (strengths, weaknesses, opportunities,
and threats).
• Take into account both order qualifiers, and order
winners.
• Order Qualifiers refers to those characteristics
that potential customers perceive as minimum
standards of acceptability to be considered as a
potential for purchase.
• Order winners refers to those characteristics of
an organization’s goods or services that cause
them to be perceived as better than the
competition.
Achieving Competitive Advantage through Operations
• Competitive advantage implies the creation of a system that has a
unique advantage over competitors.
• The idea is to create customer value in an efficient and sustainable
way.
• Let us briefly look at how managers achieve competitive advantage
via:
Competing on Differentiation
• Differentiation: concerned with providing uniqueness
– are not located within a particular function or activity,
but can arise in virtually everything that the firm does.
– limited only by imagination. Because most products
include some service and most services include some
product
Competing on Low cost
• Low cost : Low-cost leadership entails achieving maximum
value as defined by your customer.
– A low-cost strategy does not imply low
value or low quality.
Competing on Responsiveness
• Response. is often thought of as flexible response, but it also
refers to reliable and quick response.
• Flexible response may be thought of as the ability to match
changes in a market place in which design innovations and
volumes fluctuate substantially.
These three concepts- differentiation, low cost, and response-are
often translated into six specific strategies:
1. flexibility in design and volume
2. low price
3. delivery
4. quality
5. after-sale service, and
6. a broad product line
Through these six specific strategies, operation management can
increase productivity and generate a sustainable competitive
advantage.
Operations Objectives
• Objectives in operations should be stated in specific
quantitative and measurable terms.
• They are the results that operations is expected to achieve
in the short and long run.
Examples of objectives for a manufacturing
Objectives Current 5 years Current world
company are: year from now class
competitor
55% 48% 50%

Customer satisfaction 75% 85% 75%

% satisfied with
product

Percentage of scrap 15% 5% 10%

and rework

Manufacturing cost 10 6 8
as % of sales
 Chapter Three
Design of The Operation System
3.1 Product and service design
3.1.1 Introduction
• Before products can flow into a market, we must design and invest
in the facilities and organization to produce them.
What is design?
Design is the process of imagining and planning the creation of
objects and system
Design concerned with:
• aesthetic design refers to external shape, colour texture and shape
• Performance design refers to efficiency
• Product or service design is concerned with:
• the functional and aesthetic requirement
• necessary to meet the demand of market the place
and achieve an acceptable rate of return.
• Inputs into product or service design decisions come
from
• marketing,
• engineering, and
• production.
3.1.2 Reasons for Product or Service Design and
Redesign
Reasons Include Design
• competitive by offering new products or services.
• to make the business grow and increase profits.
• alternative to downsizing
Product or service Redesign.
Reasons
• customer complaints, accidents or injuries, excessive
warranty claims, or low demand.
3.1.3. Objective of products or services design
Products or services design intended to achieve the
following objectives
• To bring new or revised products or services to the
market place as fast as possible
• To design products and service that have customer appeal
• To increase the level of customer satisfaction
• To increase quality
• To reduce cost
3.1.4. Trends in product and service design
Over the last few years, the designing of products and services has
increased emphasis on a number of aspects of design.
Among them are the following:
1. Increased emphasis on customer satisfaction and increased pressure
to be competitive.
2. Increased emphasis on reducing the time needed to introduce a new
product or service
3. Greater attention to environmental concerns, including waste
minimization, recycling parts, and disposal of worn-out products
4. Increased emphasis on designing products and services that is user-
friendly.
5. Increased effort to use less material for products (e.g., concentrated
liquid detergents) and less packaging.
3.1.5 Sources of ideas for new or redesigned products and
services
Internal sources for the organization are as follows
1. Employees:-
including
– those who make products or deliver service to customers,
– sales people, and
– purchasing agent, can be a rich source of ideas, if they are motivated
to offer suggestions.
2. Marketing and research and development departments:-
– these two departments are the primary source of ideas for product
and service design.
– Marketing people are often sources of ideas based on their studies of
markets, buying patterns, and familiarity with demographics.
External sources of product or service design ideas
Customer:
• Customers suggestion
• Quality function deployment, which seeks to
incorporate the “voice of the customer” into product
or and service design.
• Customer complaint
• product failures and warranty claims
Competitors
• By studying a competitor’s products or services and how the
competitors operate (pricing policies, return policies,
warranties, location strategies, etc), an organization can glean
many ideas.
• Reverse engineering. This is when companies purchase a
competitor’s product and then carefully dismantle and inspect
it, searching for ways to improve their own product.
3.1.6. Strategies for New-Product Introduction
There are three fundamentally different ways to introduce
new products.
Market pull-
• Argue that the market is the primary basis for
determining the products a firm should make, with little
regard to existing technology.
– A firm should make what it can sell.
– The customer needs are determined, and processes needed to
supply the customer.
– The market will “pull” through the products that are made.
Technology push- In this view, technology is the primary determinant
of the products that the firm should make, with little regard for the
market.
• This approach suggests that “you should sell what you can make”.
• The firm should pursue a technology based advantage by
developing superior technologies and products.
• The products are then pushed into the market, and the marketing’s
job is to create demand for these superior products.
• Since the products have superior technology, they will have a
natural advantage in the market and the customers will want to buy
them.
3. Inter-functional View-
• Argues that the product should not only fit the market needs
but have a technical advantage as well.
• To accomplish this, all functions (e.g., marketing,
engineering, operations, and finance) should cooperate to
design the new products needed by the firm.
• This is the most appealing of the three views but also the most
difficult to implement.
• Cross-functional rivalry and friction must be overcome to
achieve the degree of cooperation required for inter functional
product development to succeed.
3.1.7. The Design Process
The design process begins with the motivation for design.
For a new business or a new product, to achieve the goals
of the organization.
• For an existing business, there are more specific
factors(motivating factors) to consider, such as:
– government regulations, competitive pressures, customer
needs, and the appearance of new technologies that have
product or process applications.
Product Design Process
Generally, product design and development as iterative
process involves the following steps.
• Generating ideas from both internal and external
sources
• Concept development
• Conducting market, financial and technical feasibility
• Developing prototype of the product
• Test marketing
• Final design and full scale production
• The team approach of designing products and
processes is an interactive process.
• It is called concurrent or simultaneous engineering.
• Concurrent or simultaneous engineering is such an
approach (team approach) where:
– product design proceeds at the same time while process
design is in progress with continuous iteration.
– Designing products and processes is strategic function in
operation management
the design is guided by one or more of the following
concepts.
• Design for quality
• Design for ease of production
• Design for manufacturing
• Design for testability
• Design for supply chain management
Design for quality
• Has impact on the quality of the final product.
• Therefore, we need to incorporate the quality dimensions
including:
– performance, reliability, feature, serviceability,
appearance, durability, safety and customer service.
Design for ease of production
• The aim at designing product includes
• have fewer parts,
• can be assembled quickly and easily
• can reduce sources of error and improve overall product
quality and cost
There are three strategies association to designing for ease
production
1. Specification:
– detailed description of material, part or product including
their basic dimensions
– It provides production department with precise information
about:
• the characteristics of the product to be produced. One
form of such specification is to allow both ease of
assembly and effective function of the finished product.
2. Standardization: producing uniform products, where there is little or
no variety or customization for the customers.
3. Simplification: is related to eliminating unnecessary part which
would have the impact of raising the cost of producing the product.
3.1.8 Product Design tools
Approaches to product design including
• Product life cycles,
• Manufacturing design,
• Remanufacturing,
• Robust design,
• Concurrent engineering,
• Computer aided design,
• Quality function deployment,
• Value analysis (value engineering),
• Taguchi method,
1. Product Life Cycle
• Many new products go through a product life cycle in terms of
demand.
• In the last stage of a life cycle, firms adopt a defensive research
posture
• Defensive research posture refers to where by firms attempt to
prolong the useful life of a product or service
– by improving its reliability, reducing costs of producing it (and,
hence, the price), redesigning it, or changing the packaging.
2. Manufacturing Design(DFM)
• Used to indicate product design is compatible with an organization’s
capabilities.
Also related with:
• Design for assembly (DFA).
• DFA suggest that good design must take into how product will be
assembled.
• DFA focuses on reducing the number of parts in an assembly, the
assembly methods and sequence that will be employed.
• Design For Recycling (DFR). Raised from Environmental regulations and
recycling issue.
• the focus is on designing products to allow for:
– disassembly of used products
– for the purpose of recovering components and
– materials for reuse.
3. Remanufacturing
• Refers to removing some of the components of old products
and reusing them in new products.
Robust Design : This is when products perform as designed over
a much broader range of conditions.
• The more robust a product, the less likely it will fail due to a
change in the environment in which it is used or in which it is
performed.
• The Taguchi method is one of the most popular tools used in
robust design.
4. Taguchi’s approach is based on three principles:
i. when the value of a product attribute, such as:
• shape or length, deviates from its target value,
the cost to society (consumers and producers) in
terms of lower quality increases more than
linearly (increases at an increasing rate).
ii. The design features of the product and the production
process together determine the amount of variation in
the product attributes.
iii. Using experimentation, on those product and
process characteristics that affect product
attributes
– by manipulating these characteristics, products can
be designed to reduce the attribute variations that
result from normal production variations.
5. Concurrent Engineering
• This refers to using simultaneous development, or
concurrent engineering.
– means bringing design and manufacturing engineering people
together early in the design phase to simultaneously develop
the product and the processes for creating the product.
– We include people from Operations, Purchasing, and
Marketing.
– Customers and suppliers are also invited to participate in
certain stages of development.
– The purpose is to achieve product designs that reflect
customer wants as well as manufacturing capabilities.
Concurrent Engineering : benefits
• Operations personnel contribute early on to avoid
trial and errors and adapt the product to our
capabilities.
• New Equipment can be ordered more quickly and
reduce the time to market.
• Early consideration of the technical feasibility of a
particular design or a portion of a design.
• Approach is based on problem resolution as opposed
to conflict resolutions.
Potential difficulties:-
• Long-standing existing boundaries between design and
manufacturing can be difficult to overcome.
• extra communication and flexibility
6. Computer-Aided Design (CAD)
• Computer-aided design (CAD) uses computer graphics for
product design.
• A major benefit of CAD is the increased productivity of
designers.
• No longer is it necessary to laboriously prepare mechanical
drawings of products or parts and revise them repeatedly to
correct errors or incorporate revisions.
Benefits of CAD/CAM
• Product quality
• CAD provides an opportunity for the designer to investigate
more alternatives, potential problems and dangers.
• Shorter design time :- Since time is money, the shorter the
design phase, the lower the cost
• Production cost reductions :- Faster implementation of design
changes lowers costs
• Database availability
• Consolidating product data so everyone is operating
from the same information results in dramatic cost
reductions
• New range of capabilities
• CAD/CAM removes substantial detail work, allow in
designer to concentrate on the conceptual and
imaginative aspects of their task.
– This is indeed a major benefit of CAD/CAM
7. Quality function deployment
• Developed by professor Yoji Akao
• The method is based on completing a series of
matrices and then combining them into
comprehensive table referred to as the house of
quality.
Steps of preparing the matrix
• Identify customer wants
• Identify how the good/service will satisfy customer
wants
• Relate customer wants to product how’s
• Identify relationships between the firm’s how’s
• Develop importance ratings
• Evaluate competing products
• Compare performance to desirable technical
attributes
8. Value analysis/value engineering (VA/VE)
• Is a design methodology developed by Lawrence Miles in the late
1940s
• Focuses on the function of the product, rather than on its structure or
form, and tries to maximize the economic value of a product or
component relative to its cost.
• Three important aspects of value analysis are:
i. the use of multidisciplinary teams,
ii. a systematic procedure for evaluating product functionality and
value, and
iii. a focus on product simplification.
• The purpose of Value analysis/value engineering (VA/VE) is
• to simplify product and processes.
• Its objective is to achieve:
– equivalent or better performance at a lower cost while
maintaining all functional and aesthetic requirements defined
by the customer.
• VA/VE is the method for improving the product without
increasing its cost or reducing cost without reducing the
usefulness of the product for the customer.
• It can result in cost saving or a better product for the customer
or both.
• VA/VE does this by identifying and eliminating product feature
which will raise unnecessary cost without adding value to
customer.
• Value is defined as the ratio of usefulness to cost.
• Cost is an absolute term and measure the amount of
resources used to produce the product.
• Usefulness, on the other hand is a relative term describing
the functionality that the customer ascribes to the product.
• VA and VE are similar in terms of their purpose and
objective,
• Technically, VA deals with:
– Products already in production processes and used to
analyse product specification and requirements as
shown in production documents and purchase requests.
Benefits of value analysis/value engineering
• Reduced complexity of products.
• Improved functional aspects of product.
• Improved maintainability of the product.
• Lower costs
• Lower inventories
• Less labor required (simpler flows, easier tasks)
• Higher quality:
• Simple, easy-to-make products means fewer
opportunities to make mistakes
9. Modular Design
• Enable to have relatively high product variety and low component variety at the
same time.
• The basic idea is:
• to develop a series of basic product components, or modules that can be
assembled into a large number of different products.
• To the customer,
– it appears there are a great number of different products.
• To operations,
• there are only a limited number of basic components and processes.
• Modular design offers a fundamental way to change
product design thinking.
– Instead of designing each product separately, the company
designs products around standard component modules and
standard processes.
10. Product Variety
From marketing point of view
– the advantage of a large number of products is the
ability to offer customer more choices.
From operations point of view
– high product variety is seen as leading to higher
cost, greater complexity, and more difficulty in
specializing equipment and people.
Basic principles of designing products for production.
The overriding principle of product design is “Make it simple!”
Simplicity of design and simplicity of the production process can be
promoted by using the following
principles:
1. Minimize the number of parts
2. Use common components and processes
3. Use standard components and tools
4. Simplify assembly
5. Use modularity to obtain variety
6. Make product specifications and tolerances reasonable
7. Design products to be robust
3.1.10. Service Operations Design
• Service is an act, something that is done to or for a customer
(client, patient, etc.
• In the industrialized world today, service is the dominant
economic force.
• Yet, service production receives far too little emphasis in
operations Management.
Aspect of Service
– Simultaneous production and consumption
– Meaning, the customer must be in the production system
while production takes place
• This indicates that service cannot be stored or
transported; it must be produced at the point of
consumption.
Types of Services
• professional services Involves medicine, law,
education and architecture;
• capital-intensive services; such as airlines, electric
utilities;
• mass services such as retailing, wholesale, and fast
food.
Framework for Services
The framework assumes there are four elements,
which must be considered in producing services:
a. the customer,
b. people,
c. strategy, and
d. the system.
Service design:
• is the process of establishing all the characteristics of
service including physical, sensual and psychological
benefits.
Service Design Process
Phases in services design process
• Conceptualization
– Service concept
• Desired service experience
• Target customer
• Identify service package component
– Physical items
– Sensual benefits
• Performance specification
• Customer requirements
• Customer expectations
• Design specification
– Activities
– Facilities
– Provider skills
– Cost and time estimates
• Delivery specification
– Schedule
– Deliverable
– Location
Design guidelines
• Have a single, unifying theme, such as convenience
or speed.
– This will help personnel to work together rather than at
cross-purposes.
• Make sure the system has the capability to handle
any expected variability in service requirements,
• Include design features and checks to ensure that
service will be reliable and will provide consistently
high quality.
• Design the system to be user-friendly. This is
especially true for self-service systems.
Seven characteristics of well – designed
service system
• Each element of the service system is
consistent with the operating focus of the firm.
• It is use friendly
• It is robust
• It is structured consistent performance by its
people and system is easily maintained.
• It provides effective links between the back
office and the front office so that nothing falls
between the cracks.
– In football parlance, there should be “no fumbled
handoffs.”
• It manages the evidence of service quality in
such a way that customers see the value of the
service provided.
• It is cost effective.
Service–product bundle
• Most services come bundled with facilitating goods in a service-
goods package.
– For example when customers go to a restaurant, they receive not
only the food but the service, which they hope:
– is fast, courteous, and pleasant.
The service product bundle consists of three elements:
1. The physical goods (facilitating goods)
2. The sensual service provided (explicit service)
3. The psychological service (implicit service)
Service recovery
• Service recovery is an important part of the
product design.
• When there is a service failure, service recovery
is the ability to quickly compensate for the
failure and restore, if possible, the service
required by the customer.
Service guarantees
• Service as a way to define service and ensure its
satisfactory delivery to the customer.
• A service guarantee is like the product guarantee,
• except for one thing: the customer cannot return
the service if he or she does not like it.
• The advantage of a service guarantee is it builds
customer loyalty and clarifies exactly what the
service process must provide.
Cycle of service
• Every service is delivered in a cycle of service
• Each contact with a service system can be defined as a moment
of truth.
• A moment of truth is any time that the customer comes in
contact with the service system
• It is the cumulative effect of all of the moments of truth
that defines the service provided.
• A bad moment of truth can cancel out many positive
moments
• Perceived service = f (all previous moments of
truth).
Degree of Customer Contact
Low customer contact:
• it is possible to buffer the customer from the actual process
of production
• allows for more efficiency and greater standardization of
processes.
High customer contact
– lead to inefficient production process.
– High-contact systems can lead to a loss of efficiency as follows:
– Potential inefficiency =f (degree of customer contact)
– A highly efficient system is one with no customer contact,
where the order can be processed away from the customer.
Service-System Design Matrix
Characteristics of high-and low-contact services:
• Low-contact services are used when face-to-face interaction
is not required.
• High-contact operations are used for changing or uncertain
customer demand.
• Low-contact services require employees with technical
skills, efficient processing routines, and standardization of the
product and process.
• High-contact services require employees who are flexible,
personable, and willing to work with the costumer (the smile
factor).
• High-contact services generally require higher prices and
more customization due to the variable nature of the service
required.
Service delivery system design
• The design of the service delivery system addresses the
question of “how” the service concept is delivered to target
customers.
• Differing Service Designs
• There is no one model of successful service design. The
design selected should support the
• company’s service concept and provide the features of the
service package that the target
• customers want.
• Different service designs have proved successful in different
environments.
A. Substitute Technology for People
B. Get the Customer Involved
C. High Customer Attention Approach
Service Blueprint/ Service Mapping
• A method used in service design to describe
and analyse a proposed service
• is a technique used for service innovation.
– shows processes within the company,
• divided into different components which are
separated by lines
Service Blueprint Components
1. Customer Actions
• contains all of the steps that customers take as part of the
service delivery
• is always on top of the service blueprint.
2. Onstage / Visible Contact Employee Actions
• is separated from the customer actions by a ‘line of
interaction’.
• These actions are
• face-to-face actions between employees and customers.
3. Backstage / Invisible Contact Employee Actions
• The ‘line of visibility’ separates the Onstage from the
Backstage actions.
• Everything that appears above the line of visibility
can be seen by the customers, while everything under
the line of visibility is invisible for the customers.
• example of an action in this element, is a telephone
call; this is an action between an employee and a
customer, but they don’t see each other.
4. Support Processes
• The ‘internal line of interaction’ separates the contact
employees from the support processes.
• These are all the activities carried out by individuals
and units within the company who are not contact
employees.
• These activities need to happen in order for the
service to be delivered.
5. Physical Evidence
• These are all the tangibles that customers are exposed to that
can influence their quality perceptions.
Building a blueprint
• The process of structuring a blueprint involves six steps:
• The identification of the service process, that is supposed to
be blueprinted
• The identification of the customer segment or the customers
that are supposed to experience the service
• Picturing the service from the customer’s
perspective
• Picturing the actions of the contact employee
(onstage and backstage), and/or technology
actions
• Linking the contact activities to the needed
support functions
• Adding the evidence of service for every
customer action step
3.2. Process choice design decision/Process Selection
What is a process?
“Process” is defined as all operations or activities that
consume significant resources.
• Resources include:
• The utilization of materials,
• Labor,
• Energy, and
• Facility or plant capacity
Major Process Decisions
The five key decisions in process management are:
• Process Choice: Determines how processes are
designed relative to the kinds of resources needed,
how resources are partitioned between them, and
their key characteristics.
• Vertical Integration: The more processes in the
supply chain that the more vertically integrated it
are.
• If it doesn't perform some processes itself, it must
rely on outsourcing,
• Resource Flexibility: is the ease with which employees and
equipment can handle a wide variety of products, output
levels, duties, and functions.
• Customer Involvement: refers to the ways in which customers
become part of the process and the extent of their
participation.
• Capital intensity is the mix of equipment and human skills in a
process.
Process Strategies
• It Involves determining how best to produce a product or
provide a service
• The ultimate Objective of every process strategies are the
following
• Meet or exceed customer requirements
• Meet cost & managerial goals
Types of Process Strategies
• Virtually every good or service is made by using
some variation of one of four process strategies:
1. Process focus,
2. Repetitive focus,
3. Product focus and
4. Mass customization.
1. Process focus/ Intermittent Operations/JOB SHOP
• Devoted to making low-volume, high variety
products in place called “job shops”.
• organized around specific activities of processes.
• provide high degree of product flexibility as product
move intermittently between processes.
• Each process is designed to perform a wide variety of
activities and handle frequent changes.
• A job shop is a conversion process in which units for different
orders follow different sequences through the resource centres
grouped by function to satisfy special customer needs for
products or services.
• Facilities are organized by process; similar processes are
together
• Low volume, high variety products, Jumbled flow
Advantages
• Greater product flexibility-allows more customization
• More general purpose equipment
• Lower initial capital investment
Disadvantages
• More highly trained personnel
• More difficult production planning & control
• Low equipment utilization (5% to 25%)
• high variable cost
2. Repetitive Focus
• falls between the product and process focuses.
• Use modules. Modules are parts or components previously
prepared often in a continuous process.
• Facilities often organized by assembly lines
• More structured than process focused, less structured than
product focused
• Enables quasi-customization
• Using modules, it enjoys economic advantage of continuous
process and custom advantage of low-volume, high variety
model.
• Example Fast food firms
3. Product Focus/ Line flow production/Continuous production
• High volume, low variety processes are product focused.
• The facilities are organized around products.
• They are also called continuous processes, because they have
very long, continuous production runs.
• Products such as glass, paper, light bulbs, beers and tin sheets
are made via a continuous process.
• A flow shop is a conversion process in which successive
units of output undergo the same sequence of operations
with specialized equipment, usually positioned along a
product line.
• Product focused facility produces high volume and low-
Advantages
• Lower variable cost per unit
• Lower but more specialized labor skills
• Easier production planning and control
• Higher equipment utilization (70% to 90%)
Disadvantages
• Lower product flexibility
• More specialized equipment
• Usually higher capital investment
4. Mass customization
• Mass customization is rapid, low cost production of goods and
services that fulfil increasingly unique customer desires.
Other specialized types of process strategies
A. Project processes are used to make one-of-a-kind products
exactly to customer specifications.
B. Batch processes are used to produce small quantities of
products in groups or batches based on customer orders or
product specifications.
C. Line processes are designed to produce a large volume of a
standardized product for mass production.
• They are also known as flow shops, flow lines, or assembly
lines.
D. Continuous processes operate continually to produce a very
high volume of a fully standardized product.
• Examples include oil refineries, water treatment plants, and
certain paint facilities.
• They usually have a single input and a limited number of
outputs.
• Also, these facilities are usually highly capital intensive and
automated
Comparison Of The Two Major And Most Commonly Used Process
Strategies.
Decision Intermittent Operations Repetitive Operation
(process focused) (product focused)
Product variety Great Small

Degree of Low High

standardization
Organization of Grouped by function Line flow to accommodate
resources processing need
Path of products In a varied pattern, Line flow
through depending on product needs
facility

Factor driving Customer orders Forecast of future demands

production
Critical resource Labor intensive operations Capital intensive operation
(worker skills important) (equipment, automation,
and technology important)
Type of equipment General purpose Specialized

Degree of automation Low High

Through put time Longer shorter

Work in process More Less

inventory
Process Performance Metrics
• A key factor in the success of every organization is its ability
to measure performance.
• It provides management with the data necessary to determine
if established goals or standards are being met.
• As peter Ducker, a well-known management guru, has said, “If
you can’t measure it, you can’t manage it.”
Measure Definition

Throughput time Average amount of time product

Process performance matrices
takes to move through the system.

Process velocity =Total through put A measure of wasted time in the

time/Value Added time system

Productivity= Output/ Input A measure of how well a company

uses its
resources
Utilization = Time resource The proportion of time as resource is
b
used/ Time resource available actually
used
Efficiency= Actual out put/ Measures performance relative to a
Standard out put standard
Quality Measured by the defect rate of the
products
produced
Speed of delivery Measured using lead time and variabilit
in
delivery time
Flexibility A measure of how readily the company
transformation process can adjust to me
the
ever changing demands of its customer
Capacity
• Capacity utilization where capacity refers to the output of a process
in a given time period,
• It is typically presented in units of output per unit of time.
Defects
• Defects include those products that are identified as nonconforming,
both internally (prior to shipping the product to the customer) as
well as externally (i.e., products whose defects are found by the
customer).
Flexibility
Flexibility has three dimensions.
1. how quickly a process can convert from producing one
product or family of product to another.
2. ability to react to changes in volume
3. the ability of the process to produce more than one
product simultaneously.
The dimension of flexibility is especially important in
producing customized products
Example
1. If the throughput time for a product is six weeks, and the actual value-added time
to complete the product is four hours, then what is the process velocity of this
product?
2. XYZ Company is analyzing its operations in an effort to improve performance.
The following data have been collected: It takes an average of 4 hours to process
and close a title, with valueadded time estimated at 30 minutes per title; each title
officer is on payroll for 8 hours per day, though working 6 hours per day on
average, accounting for lunches and breaks. Industry standard for labor
utilization is 80 percent; The Company closes on 8 titles per day, with an
industry standard of 10 titles per day for a comparable facility.
Required: Determine the process velocity, labor utilization, and efficiency for the
company. Can you draw any conclusions?
Conclusion For Eg 2 Answer: A process velocity of eight indicates that the amount of
time spent on no value activities is 8 times that of value-added activities. In addition,
labor utilization and efficiency are both below
standard.
 Linking product Design and process selection
• Are directly linked and cannot be made independently of one another.
• Decisions of product design and process selection are directly linked
and cannot be made independently of one another.
• The type of product a company produces defines the type of operation
needed.
• The type of operation needed, in turn, defines many other aspects of
the organization.
• This includes how a company competes in the marketplace
(competitive priorities), the type or equipment and its arrangement in
the facility, the type of organizational structure, and future types of
products that can be produced by the facility.
3.3. Strategic Capacity Planning
• Capacity decisions are one of the key policy decision areas for
operations.
• Capacity issues are important for all organizations, and at all
levels of an organization.
Defining capacity
• the term capacity describes the level of output that the
organization can achieve over a specified period of time.
• Capacity can be defined in several different ways, among
others:
• Capacity refers to an upper limit or ceiling on the load that
an operating unit can handle.
• The capacity of an operating unit is an important piece of
information for planning purposes:
• It enables managers to quantify production capability in terms
of inputs or outputs, and thereby make other decisions or plans
related to those quantities.
• The basic questions in capacity planning of any sort are the
following:
1. What kind of capacity is needed?
2. How much is needed?
3. When is it needed?
Importance of Capacity Decisions
• Help to meet future demands for products and services;
– capacity essentially limits the rate of output possible.
• Having capacity to satisfy demand can allow a company to take
advantage of tremendous opportunities.
• Capacity decisions affect operating costs.
• Ideally, capacity and demand requirements will be
matched, which will tend to minimize operating costs.
• In practice, this is not always achieved because actual demand
either differs from expected demand or tends to vary
• Capacity is usually a major determinant of initial cost.
• Typically, the greater the capacity of a productive unit, the
greater its cost.
• This does not necessarily imply a one-for-one relationship;
larger units tend to cost proportionately less than smaller units.
• Capacity decisions often involve long-term commitment of
resources
• Capacity decisions can affect competitiveness.
Measuring Capacity
• No single measure of capacity will be appropriate in every
situation.
• Rather, the measure of capacity must be tailored to the
situation.
• Up to this point, we have been using a working definition
of capacity. Although it is functional, it can be refined
into two useful definitions of capacity:
• Design capacity: the maximum output that can possibly
be attained.
• Designed capacity of a facility is the planned or
engineered rate of output of goods or services under
normal or full scale operating conditions.
• System/effective capacity: the maximum possible output given a
product mix, scheduling difficulties, machine maintenance,
quality factors, and so on.
• System capacity is the maximum output of the specific product or
product mix the system of workers and machines is capable of
producing as an integrated whole.
• System capacity is less than design capacity or at the most equal
it because of the limitation of product mix, quality specification,
and breakdowns.
• These different measures of capacity are useful in defining two
measures of system effectiveness:
• efficiency and utilization.
• Efficiency is the ratio of actual output to effective capacity.
• Utilization is the ratio of actual output to design capacity.
Example
Given the information below, compute the efficiency and the utilization
of the vehicle repair department:
Design capacity = 50 trucks per day
Effective capacity = 40 trucks per day
Actual output= 36 trucks per day
Required
a. Find Efficiency
b. Find Utilization
Determinants of Effective Capacity
The main factors relate to the following:
• Facilities
• Products or service
• Processes
• Human considerations
• Operations
• External forces
Developing Capacity Alternatives
The considerations
1. Design flexibility into systems.
2. Take a "big picture" approach to capacity
changes.
3. Prepare to deal with capacity "chunks.“
4. Identify the optimal operating level.
Evaluating Alternatives
• A number of techniques are useful for evaluating capacity
alternatives from an economic standpoint.
• Some of the more common are cost-volume analysis, financial
analysis, decision theory, and waiting-line analysis.
Calculating Processing Requirements,
• Information needed
– accurate demand forecasts for each product, and
– know the standard processing time per unit for each product on
each alternative machine,
– the number of work days per year, and the number of shifts that
will be used.
• Example
A department works one eight-hour shift, 250 days a year, and has
these figures for usage of a machine that is currently being
considered:
• Working one eight-hour shift, 250 days a year provides an annual
capacity of 8 X 250 = 2,000 hours per year.
Product Annual Standard Processing Processing Time
Demand Time per Unit (Hr.) Needed (Hr.)

1 400 5 2,000
2 300 8 2,400
3 700 2 1,400
5,800
Required: What is Processing Requirement
Solution
Processing Requirement= 5,800 Hours/2,000 hour/machine= 2.9
machines.
• Cost-Volume Analysis, Cost-volume analysis focuses on
relationships between cost, revenue, and volume of output.
Purpose
• To estimate the income of an organization under different
operating conditions.
• It is particularly useful as a tool for comparing capacity
alternatives.
Involves
• FC= Fixed cost
• VC= Variable cost per unit
• TC= Total cost
• TR= Total revenue
• R= Revenue per unit
• Q= Quantity or volume of output
• QBEP= Break-even quantity
• P= Profit
The volume at which total cost and total revenue are equal is
referred to as the break-even point (BEP).
QBEP=FC/ R-VC
Example:
• The owner of Old-Fashioned Berry Pies, S. Simon, is
contemplating adding a new line of pies, which will require
leasing new equipment for a monthly payment of $6,000.
Variable costs would be $2.00 per pie, and pies would retail for
$7.00 each.
a. How many pies must be sold in order to break even?
b. What would the profit (loss) be if 1,000 pies are made and sold in
a month?
c. How many pies must be sold to realize a profit of $4,000?
 3.4. Facility Location & Layout

• is an important strategic level decision making for an

organization.
• the question of location is very much linked to two
competitive imperatives:
• The need to produce close to the customer due to time-based
competition, trade agreements, and shipping costs.
• The need to locate near the appropriate labor pool to take
advantage of low wage costs and /or high technical skills.
Issues In Facility Location
• The problem of facility location is common to new and
existing businesses.
• Criteria that influence manufacturing plant and warehouse
location planning are:
– Proximity to Customers
– Business Climate
– Total Costs
– Infrastructure
– Quality of Labor
– Suppliers
– Free Trade Zones
– Political Risk
– Government Barriers
– Environmental Regulation
– Host Community
– Competitive Advantage
The Strategic Importance of Location
• One of the most important strategic decisions companies make
is where to locate their operations.
• The strategic decision often depends on the type of business.
• the objective of location strategy is to maximize the benefit of
location to the firm.
• Location options include
(1) not moving, but instead expanding an existing facility,
(2) maintaining current sites, but adding another facility
elsewhere, closing the existing facility and moving to another
location.
Methods Of Evaluating Location Alternatives
Four major methods are used for solving location problems:
1. The factor-rating method,
2. Weighted factor rating
3. Centre-of gravity method, and
4. The transportation model/ Load Distance Method
5. Break-even analysis,
1. The factor-rating method
The process of selecting a new facility location involves a series of following
steps:
1. Identify the important location factors.
2. Rate each factor according to its relative importance, i.e., higher the
ratings is indicative
of prominent factor.
3. Assign each location according to the merits of the location for each factor.
4. Calculate the rating for each location by multiplying factor assigned to
each location with
basic factors considered.
5. Find the sum of product calculated for each factor and select best location
having highest
total score.
Example
Let us assume that a new medical facility, Health-care, is to be
located in Delhi. The location factors, factor rating and scores for
two potential sites are shown in the following table.
Which is the best location based on factor rating method?

S No Location Factor Factor Rating

rating
Location 1 Location 2
1 Facility Utilization 8 3 5
2 Total Patient per month 5 4 3
3 Average per emergency trip 6 4 5
4 Land and construction cost 3 1 2
5 Employee preferences 5 5 3
2. Weighted Factor Rating
• In this method to merge quantitative and qualitative factors,
factors are assigned weights based on relative importance and
weightage score for each site using a preference matrix is
calculated.
• The site with the highest weighted score is selected as the best
choice.
S No Location Factor Weights Rating
Location Location 2
1
1 Facility Utilization 0.25 3 5
2 Total Patient per month 0.25 4 3
3 Average per emergency trip 0.25 4 5
4 Land and construction cost 0.15 1 2
3. The Transportation/ Load-distance Method
• The load-distance method is a mathematical model used
to evaluate locations based on proximity factors.
• The objective is to select a location that minimizes the
total weighted loads moving into and out of the facility.
• The distance between two points is expressed by
assigning the points to grid coordinates on a map.
• An alternative approach is to use time rather than
distance.
Locating Service Facilities
• While the focus in industrial-sector location analysis is on
minimizing cost, the focus in the service sector is on
maximizing revenue.
• A common problem encountered by service-providing
organizations are deciding how many service outlets to
establish within a geographic area, and where.
Facility Layout Decisions
• entails determining the placement of departments, workstations,
machines, and stockholding points within a productive facility.
• Its general objective is to arrange these elements in a way that
ensures a smooth workflow (in a factory) or a particular traffic
pattern (in a service organization).
The inputs to the layout decision are:
• Specification of objectives of the system in output and flexibility.
• Estimation of product or service demand on the system.
• Processing requirements in number of operations and amount of
flow between departments and work centers.
• Space availability within the facility itself.
Strategic Importance Of Layout Decisions
An effective layout can help a firm to achieve the following:
• Higher utilization of space, equipment, and people.
• Improve flow of information, materials, or people.
• More convenience to the customer.
• Improved employee morale and safer working
conditions.
The objective of layout strategy is to develop economic
layout that will assist in these four areas while still meeting
the firm’s competitive requirements.
Types Of Layout
• Fixed-position layout-addresses the layout requirements of large,
bulky projects such as ships and buildings.
• Process-Oriented layout deals with low-volume, high-variety
production (also called “job shop” or intermittent production).
• Office layout- positions workers, their equipment, and spaces/offices
to provide for movement of information.
• Retail/service layout-allocates shelf space and responds to customer
behavior.
• Warehouse layout – addresses trade-offs between space and material
handling.
• Product-oriented layout – seeks the best personnel and machine
utilization in repetitive or continuous production.
 Chapter Four
Operation Planning and Control
Aggregate Production Planning
• It involves translating annual and quarterly
business plans into broad labor and output
plans
– Its objective is to minimize the cost of resources
required to meet demand over that period.
An overview of operations planning activities
Based on time dimension:
• Long range planning: is generally done annually,
focusing on a horizon greater than one year.
• Intermediate range planning: usually covers a period
from 6 to 18 months, with time increments that are
monthly or sometimes quarterly.
• Short range planning: covers a period from one day
or less to six months, with time increment usually
weekly.
• Process planning: deals with determining the specific
technologies and procedures required to produce a product or
service.
• Strategic capacity planning: deals with determining the
long- term capabilities (e.g. size and scope) of the production
system.
• Master production schedules (Mps): generates the amounts and dates of
specific items required for each order.
– Rough –cut capacity planning is then used to verify that
production and warehouse facilities, equipment, and labor are
available and that key vendors have allocated sufficient capacity
to provide materials when needed.
• Material requirements planning (MRP): takes the end product
requirements from the MPS and breaks them down into their component
parts and subassemblies to create a materials plan.
– This plan specifies when production and purchase orders must be
placed for each part and subassembly to complete the products
on schedule.
• Order scheduling: specifies the daily or weekly order scheduling of jobs
to specific machines, production lines, or work centres.
Aggregate production planning
• is concerned with setting production rates by product group
or other broad categories for the intermediate term (6 to 18
months).
• Aggregate plans precede the master schedule
– The main purpose is
• to specify the optimal combination of production rate, the
work force level, and inventory on hand.
– Production rate: refers to the number of units completed per unit
of time (such as per hour or per day).
– Workforce level: is the number of workers needed for production.
– Inventory on hand: is the balance of unused inventory carried over
from the previous period.
The production planning environment:
Internal factors:
• Activities required for production
• Inventory levels
• Current workforce
• Currently completed activities
External factors:
• Competitors behavior
• Raw materials availability
• Market demand
• Economic conditions
• External capacity( e.g. subcontractors)
Production planning strategies
• There are essentially three production planning strategies.
– These strategies involve trade- offs among the work force
size, work hours, inventory, and backlogs.
1. Chase strategy: Match the production rate to order rate by
hiring and laying off employees as the order rate varies.
– The success of this strategy depends on having a pool of
easily trained applicants to draw on as order volumes
increase.
2. Level strategy. Maintain a stable workforce working at a
constant output rate.
– Shortages and surpluses are absorbed by fluctuating inventory levels,
order backlogs, and lost sales.
Mixed strategy or combination strategy:
• Involves to subcontract some portion of production.
• Is similar to the chase strategy, but hiring and laying off are
translated into subcontracting, and not subcontracting.
Relevant costs to aggregate production planning
• There are four costs relevant to aggregate production planning.
• These costs relate to the production cost itself as well as the
cost to hold inventory and have unfilled orders.
• Basic production costs: the fixed and variable costs incurred in
producing a given product type in a given time period. It
includes direct and indirect labor costs and regular as well as
overtime compensation.
• Costs associated with changes in the production rate: costs
involved in hiring, training, and laying off personnel.
• Inventory holding costs: A major component is the cost of
capital tied up in inventory.
– Other components are storing, insurance, taxes, spoilage, and
obsolescence.
• Backordering costs. Usually these costs are very hard to
measure and include costs of expending, loss of customer
goodwill, and loss of sales revenues resulting from backordering.
Aggregate planning techniques:
Two methods are commonly used to develop aggregate plans:
1. A cut and try approach: involves costing out various
productions planning alternatives and selecting the one that
is best.
– Spread sheets incorporated with sophisticated linear
programming and simulations are used to facilitate the
decision process.
2. Graphic methods.
To illustrate the general principles in aggregate plan with a shorter
horizon, suppose we wish to set up a production plan for the J&Z
CO. for the next six months. We are given the following information.
Demand and working days

Jan. Feb. Mar. April May June Totals

Demand
forecast 1,800 1500 1100 900 1100 1600
8,000
Number of
working days 22 19 21 21 22 20 125
Marginal cost of stock out $ 5.00/unit/month

Marginal cost of subcontracting $20.00/unit ($120 subcontracting cost

Less $100 material savings)

Hiring and training cost
$200.00/worker
Layoff cost
$250.00/worker
Labour hrs required
$ 5/unit
Straight line cost (first eight hrs each day)
$4.00/hour
Overtime cost (time and half)
$6.00/hour
 Inventory

Beginning inventory 400 units

Safety stock 25% of month demand
• Beginning inventory at the end of the first period is 400 units.
Because the demand forecast is imperfect, the company has
determined that a safety stock (buffer inventory) should be
established to reduce the likelihood of stock outs.
• For this example, we assume the safety stock should be one –quarter
of the demand forecast.
•Before investigating alternative production plans, it is often useful to
convert demand forecasts into production requirements, which take
into account the safety stock estimates.
•Note that these requirements implicitly assume that the safety stock is never
actually used, so that the ending inventory each month equals the safety stock
for that month.
•For example, the January safety stock of 450(25% of January demand of
1800) the inventory at the end of January. The production requirement for
January is demand plus safety stock minus beginning inventory (1800+ 450-
400= 1,850).
• Note that these requirements implicitly assume that the safety
stock is never actually used, so that the ending inventory each
month equals the safety stock for that month.
• For example, the January safety stock of 450(25% of January
demand of 1800) the inventory at the end of January.
• The production requirement for January is demand plus safety
stock minus beginning inventory (1800+ 450-400= 1,850).
Developing Aggregate production planning Requirements:

Tot Jan Feb March April May Jun

Beginning Inventory 400 450 375 275 225 275

Demand forecast 1,800 1,500 1100 900 1100 1600

Safety stock (.25x 450 375 275 225 275 400

Demand forecast)

Production requirement 1,850 1425 1000 850 1150 1750

( Demand forecast
+Safety stock- Ending
inv)
Ending inventory :
( Beginning Inv.+ 450 375 275 225 275 400
production
Requirement - demand
forecast)
• Now, we must formulate alternative production plans for the
co. with the objective of finding the one with the lowest total
cost:
• Plan 1: Produce to exact monthly production requirements
using a regular eight hour day by varying the workforce size.
• Expected costs: hiring, layoff, straight time.
• Plan 2: produce to meet expected average demand over the
next six months by maintaining a constant workforce.
• This constant number of workers = Total production
requirement( pt)X Time required for each unit / the total
time that one person works over the horizon. [(8,000units
x5 hours per unit)/(125 days x hours per day) =40 workers]
• Inventory is allowed to accumulate, with shortages filled
from next month’s production by back ordering. Notice
that in this plan use our safety stock in January, February,
March and June to meet expected demand.
• Plan 3. Produce to meet the minimum expected
demand (April) using a constant workforce on regular
time. Subcontract to meet additional requirements.
• The number of workers is calculated by locating the
minimum monthly production requirement and
determining how many workers would be needed for
that month[(850 units x 5 hours per unit) /( 21 days x
8 hours per day)=25 workers]and subcontracting any
monthly difference between requirements and
production.
• Plan 4. Produce to meet expected demand for all but the
first two months using a constant workforce on a regular
time.
• Use overtime to meet additional output requirements.
• The number of workers is more difficult to compute for
this plan, but the goal is to finish June with an ending
inventory as close as possible to the June safety stock.
• By trial and error it can be shown that a constant
workforce of 38 workers is the closest approximation.
• In solving this problem, we can exclude the material costs.
• We could have included this $100 cost in all our calculations,
but if we assume that a $100 cost is common to each
demanded unit, then, we need only to concern ourselves with
the marginal costs.
• Because the subcontracting cost is $120, our true cost for
subcontracting is just $20 because we save the materials. Note
that many costs are expressed in a different form than typically
found in the accounting records of a firm.
• Therefore, do not expect to obtain all these cots directly from
such records, but obtain them directly from management
personnel, who can help interpret the data. The next is to
calculate the cost of each plan.
Cost Plan2: Constant
Plan1:Exact Workforce; Plan 3: constant Plan4: Constant
production; Vary Inventory Low Workforce;
Vary and Stockout Workforce; Overtime
Workforce Subcontract
Hiring $ 5,800 $ 0 $ 0 $ 0
Layoff 7,000 0 0 0
Excess 0 948 0 1,281
inventory 0 1,540 0 0
Shortage 0 0 60,000 0
Subcontract 0 0 0 12,2 10
Overtime 160,000 160,000 100,000 152,000
Straight time $1 7 2,8 0 0 $162,488 $160,000 $165,491
Operations Scheduling
• Detailed day-to- day planning of operations
• the last and most constrained decision in the hierarchy of
capacity planning decisions.
• results in a time phased plan, or schedule, of activities
• indicates what is to be done, when, by whom, and with what
equipment.
Aggregate Planning vs scheduling
• Aggregate planning seeks to determine the resources needed,
• Scheduling allocates the resources made available through
aggregate planning in the best manner to meet operations
objectives.
Scheduling deals with questions such as
 Which work centers will do which job?
 When should an operation / job be started? When should
it end?
 On which equipment should it be done, and by whom?
 What is the sequence in which jobs/ operations need to be
handled in facility or on
equipment?
Why scheduling is necessary?
• Scheduling provides the detailed instructions necessary to convert the
production objectives of the MPS into-day to day directives.
• helps the organization minimize inefficiency and maximize customer
service.
• to meet timely customer demand requirements.
• a tactical means of achieving a competitive advantage
Basics of scheduling
• Schedules should be easy to use,
• easy to understand,
• to carry out, and flexible enough to
• accommodate necessary demand requirement changes.
Scheduling methods
Most of the scheduling methods can be categorized as being:
• forward scheduling,
• backward scheduling, or
• some combination of both.
Forward Scheduling
• begin when a job Order is received.
• refers to the situation in which the system takes an order and
then schedules each operation that must be completed forward
in time
• Backward scheduling.
• production activities are scheduled by their due dates,
– i.e., starting in reverse order with the due dates for job orders,
production activity is scheduled backward from the finished
product to the procurement of materials.
– Backward scheduling starts from some date in the future (a
due date) and schedules the required operations in reverse
sequence.
A combination of both forward and backward scheduling
Scheduling Activities
Regardless of the method, scheduling requires the use of routing
information, job loading, job sequencing, and dispatching
• Routing sheets: to help management prepare a schedule,
routing sheets or routing files must exist on each product.
• Routing sheets (hard copy) or routing files (electronic
copy for computer based operations)
– are a et of detailed information that explains how a
product is to be produced in manufacturing or
prepared in service operations.
• Job loading: once the jobs are routed, management must
load them into the operation.
• Loading is the scheduling process by which the jobs are
assigned to individual work centers or workstations.
Loading scheduling systems can use either infinite loading or
finite loading.
•  Infinite loading occurs when work is assigned to a work
center simply based on what is needed overtime.
•  Finite loading a finite loading approach actually schedules
in each detail each resource using the setup and run-up time
required for each job.
• Job sequencing: Loading also involves the sequencing of jobs
(i.e., an initial ordering of jobs to achieve a specific objective
for the production facility as a whole).
•  Dispatching is the final act of releasing job orders to
workers for completion.
• A job order is dispatched in accordance with a planned
sequence, or the act of dispatching determines a job’s
sequence in the production process.
• In both manufacturing and service operations, dispatching
rules or priority rules are used to schedule production activity.
Common dispatching or priority rules include the following:
First -come, first –served.
Earliest due date
Longest processing time
Shortest processing time
The following standard measures of schedule performance are used
to evaluate priority rules:
1. Meeting due dates of customers or downstream operations.
2. Minimizing the flow time ( the time a job spends in the process)
3. Minimizing work in process inventory
4. Minimizing idle time of machines or workers.
Priority rules and Scheduling techniques
Scheduling methods include
• Gantt Charts,
• job sequencing rules,
• lot-sizing rules,
• JIT scheduling principles,
• queuing analysis,
• simulation analysis,
• critical- ratio method,
• optimized production
Job sequencing rules
• in all types of operations, scheduling jobs is a critical
scheduling activity.
• Operations sequencing is a scheduling activity that is
necessary to
• minimize the total time it takes to process a batch of job
orders,
• improve the efficiency of an operation, and minimize
the processing costs of a fixed number of jobs over a
given period of time.
• Johnson’s job sequencing rules can be used when we have a
set of known jobs (and timing requirements for each job) that
must each go through a two- stage production process.
Ten priority rules for job sequencing
■ FCFS (first come, first served).
■ SOT/SPT (shortest operating/Processing time)
■ Due date –Earliest due date first
■ Start date – Due date minus normal lead time
■ STR (slack time remaining): time remaining before the due
date – the processing time remaining. Orders with the shortest
STR are run first.
• STR /OP (Slack time remaining per operation), Orders with
shortest STR/OP is calculated as follows:
STR/OP = Time remaining before the due date – Remaining
processing time/ Number of remaining operations
• CR (Critical Ratio): This is calculated as the difference
between the due date and the current date divided by the
number of work days remaining.
• Orders with the smallest CR are run first.
CR= due date – processing time/ Make span time
 QR (Queue ratio): This is calculated the slack time remaining
in the schedule divided by the planned remaining queue time.
Orders with smallest QR are run first.
■ LCFS (Last come, First served). This rule occurs frequently by
default.
• As orders arrive they are placed on the top of the slack; the
operator usually picks up the order on top to run first.
■ Random order or whim: The supervisors or the operators
usually select whichever job they feel like running.
 Chapter Five
Quality Management and Control

5.1 Meaning and nature of quality

• Quality is one of the four key objectives of operations, along
with cost, flexibility, and delivery.
• Quality management is cross functional in nature and involves
the entire organization,
• an operation has special responsibility to produce a quality
product for the customer
Quality definitions
• Quality can be defined as
– the ability of a product or service to meet or exceed customers’ expectation.
• Quality can be defined in a number of different ways
According to:
• transcendent: synonymous with” innate excellence”
– claims that quality cannot be defined precisely.
– It is a simple unanalyzable property we learn to
recognize only through experience.
• product based: views quality as a precise and measurable variable.
– Limitation: A one-to –one correspondence between product
attribute and quality does not always exist.
• user based: the goods and services that best satisfy
individual consumer’s different wants or needs are regarded
as having the highest quality.
– This view of quality has is idiosyncratic and persona.
– subjective and focuses on issues of “fitness for use” by the
– individual consumer.
• manufacturing based or: focus on producers of goods and
services and are primarily concerned with engineering
and manufacturing practices.
• identify quality as conformance to requirements
Value based approaches: defines quality in terms of cots and
prices.
– Any quality product is therefore one that provides
performance or conformance at an acceptable price or cost.
– An inexpensive product is expected to be of lower quality
than similar, more expensive product.
But many scholars further define quality as follows:
Juran (1986) defined quality as fitness for use.
• He stated that only customers can determine the quality of a
product or service
Garvin (1988) suggested that multi dimensions are required to elicit
the most fundamental meaning of quality like performance,
Aesthetics, conformance, safety, reliability, Durability, perceived
quality and service after sale.
Garvin has also defined quality from the flowing five perspectives;
• Transcendent definition: excellence
• Product-based definition: quantities of product attributes
• User-based definition: fitness for intended use
• Value-based definition: quality vs. price
• Manufacturing-based definition: conformance to specifications
Crosby (1979) described the meaning of quality in a way he
called it the five absolutes of quality i.e.
• Quality is a conformance to requirements
• There is no such thing as a quality problem.
• There is no such thing as the economies of quality; it is always
cheaper to do the job right the first time.
• The only performance standard is zero defects.
• The only performance measurements are the cost of quality.
5.2 Cost of Quality
• Failure to produce quality product may result in one of the
following four costs incurred;
• Internal failure costs; discovered during the production
process due to: defective materials used, incorrect machine
setting, carelessness, improper or faulty handling etc. with in
the manufacturing site.
• And this may result in consequences like →production time
loss, scrap, rework, employee injury,
• schedule disruption and etc
External failure costs; discovered or recognized after the products
are delivered to the customers.
And this will incur costs like
• Warranty work
• Handling of complaints
• Liability /litigation
• Loss of customer good will
• Appraisal costs; costs incurred to uncover defective products
or to assure that products are defective free.
• Some examples include inspectors’ payment (fee), test
equipment, field testing cost etc.
• Prevention costs; these are related to the attempts to prevent
the occurrence of defects.
• These include:- planning, Administration, working with
vendors training on quality and the like costs.
How much important quality is?
5.3 Fundamental Factors Affecting Quality
The nine fundamental factors (9 M’s), which are affecting the quality of
products and services, are:
• Markets,
• Money,
• Management,
• Men,
• Motivation,
• Materials, machines and
• Mechanization.
• Modern information methods and
• Mounting product requirements.
5.4 Dimensions of Quality
Whether the product is a good or service, the following
dimensions of quality may be defined:
• Quality of design: determined before the product is produced.
– primary responsibility of cross –functional product design team
– Quality design is determined by market research, design
concept, and specifications.
• Quality of conformance: Refers to producing a product to
meet the specifications.
• The” abilities”- reliability and maintainability : Each of these
terms has a time dimension
Field Service: represents warranty and repair or
replacement of the product after it has been sold.
• Field service is also called customer service, sales
service, or just service.
• Field service is intangible, since it related to such
variables as promptness, competence, and integrity.
• The customer expects that any problem will be
corrected quickly, in satisfactory manner, and with a
high degree of honesty and courtesy.
Characteristics of Quality
• Performance: Main characteristics of a product as service. Here the
product is expected to perform all the expected functions from it.
• Aesthetics; (artistic nature of the product) Appearance, feel, test,
smell etc of a product A hard ware of a computer being attractive,
small space occupation, color etc.
• Special features; what special extra character a product owes.
Example modern and up dated soft wares included in a computer
that are extra to the originally required functions
• Safety; free from risk of injury or harm. The computers above need
not be releasing harmful lights to the customer eye.
• Eg. Gion Gas in its introduction phase.
• Perceived quality; indirect evaluation of quality. A computer
awarded for its processing speed
5.5 Total Quality Management (TQM)
• is a management concept that focuses the collective efforts of all
managers and employees on satisfying customer expectations by
continually improving operations management processes and
products.
• is a philosophical strategy for manufacturing and service
excellence that includes, but goes beyond, the concepts and
methods of total quality control.
• Focuses on a commitment by management to have a
continuous, company-wide, excellence in all aspects of products
and services that are important to the customer, it encompasses
entire organization, from supplier to customer.
Management commitment to TQM principles and methods &
long term Quality plans for the Organization
• Focus on customers
• Quality at all levels of the work force.
• Continuous improvement of the production or business process.
• Treating suppliers as partners
• Establish performance measures for the processes.
Why Total Quality Management is necessary?
• Improved flexibility and/ or improved productivity
• Reduce operating costs
• Reduce product/service price and or/ improved product service
quality
• Competitive advantage
• Increased product or service sales
• Increase sales
5.6 Quality planning, control and improvement
The quality cycle the implementation of planning, control,
and improvement of quality
Quality cycle requires this sequence of steps:
• Define quality attributes on the basis of customer needs.
• Decide how to measure each attribute.
• Set quality standards
• Establish appropriate tests for each standard.
• Find and correct causes of poor quality
• Continue to make improvements
5.7 The Elements of Total Quality Management
• The philosophical elements of TQM stress the operation of the
firm using quality as the integrating element.
• The generic tools consist of various statistical process control
(SPC) methods that are used for problem solving and
continuous improvement by quality teams; and
• quality function deployment that is typically used by managers
to derive the voice of the customer into the organization.
PHILOSOPHICAL ELEMENTS
• Customer- driven quality
• Leadership
• Continuous improvement
• Employee participation and development
• Quick response
• Design quality and prevention
• Management by fact
• Partnership development
• Corporate responsibility and citizenship
GENERIC TOOLS SPC TOOLS
1. Process Flow
Charts
2. Check Sheets
3. Pareto Anaysis And Histogram
4. Cause And Effect Diagrams
5. Run Charts
6. Scatter Diagrams
7. Control Charts
8. Quality Function
Deployment Tools Of The Qc Department
■ SQC Methods
1. Sampling Plans
2. Process Capability
Continuous Improvement
• Continuous Improvement (CI): Continuous improvement is an
integral part of total quality management system.
• Specifically continuous improvement seeks continual
improvement of machinery, materials, labor utilization, and
production methods through application of suggestions and
ideas of team members.
• Tools and Procedures of CI The approaches companies take to
CI as a process range from very structure programs utilizing
Statistical Process Control (SPC) tools to simple suggestion
systems relying on brain storming.
Some common SPC tools used for problem solving and
continuous improvement:
• Cause and effect diagram: a tool that uses a graphical
description of the process elements to analyze sources of
process variation.
• Run chart: a time sequence chart showing plotted values of a
characteristic.
• Scatter Diagram: also known as a correlation chart. A graph of
the values of one characteristic versus another characteristic.
• Control charts: A time sequence chart showing plotted values
of statistic, including central line and one or more statistically
derived control limits.
 Process Control Chart

Average + 3
standard

Average -3
standard
• Histogram: a distribution showing the frequency of
occurrences between the high and low range of data.
• Pareto analysis: a coordinated approach for identifying,
ranking, and working to Permanently eliminate defects.
Focuses on important error sources
• Check sheet: an organized method for recording data.
• PDCA: another tool is the PDCA (plan – Do- Check-Act)
cycle or often called the Deming Wheel,
• which conveys the sequential and continual nature of the CI
process.
• ISO 9000 ISO 9000 is s series of standards agreed up on by
the International Organization for Standardization (ISO) and
adopted in 1987.
• More than 100 countries now recognize the 9000 series for
quality standards and certification for international trade.
Employee Empowerment
Getting employees involved in product & process improvements
 Techniques
 Support workers
 Let workers make decisions
 Build teams & quality circles
• Quality Circles Group of employees from same work area
meet regularly to solve quality-related problems.
• Facilitator trains & helps with meetings.
Benchmarking
Selecting best practices to use as a standard for performance
 Determine what to benchmark
 Form a benchmark team
 Identify benchmarking partners
 Collect and analyze benchmarking information
 Take action to match or exceed the benchmark
Just- In- Time
• Just-In-Time (JIT) Manufacturing is a philosophy rather than a technique.
• By eliminating all waste and seeking continuous improvement, it aims at
creating manufacturing system that is response to the market needs.
• According to Voss, JIT is viewed as a “Production methodology which aims to
improve overall productivity through elimination of waste and which leads to
improved quality”.
• JIT provides an efficient production in an organization and delivery of only
the necessary parts in the right quantity, at the right time and place while using
the minimum facilities”.
Relationship to quality:
• JIT cuts cost of quality
• JIT improves quality
• Better quality means less inventory and better, easier-to-employ JIT system
Six Sigma
• Six sigma: Is a philosophy and methods companies use to
eliminate defects in their products & services.
• A measurement denoting near perfection, representing six
standard Deviations or 3.4 defects per million operations; the
ideal against which actual performance is measured.
• It seeks to reduce the variation in the processes that lead to
defects
• Six Sigma was born in Motorola and developed by Mikel J. Harry.
Motorola won Malcolm Baldridge Quality Award in 1987.
Benefits of Six Sigma
It allows managers:
• To readily describe the performance of a process in terms of its
variability.
• To compare different processes using a common metric. This metric is
defects per million opportunities- DPMO (defect per million
opportunities).
This calculation requires three pieces of data:
• Unit: the item produced/ being serviced.
• Defect: Any item/event that does not meet the customer’s requirements.
• Opportunity: a chance for defects
• The higher the sigma level, the lower the defect rate.
• The lower the defect rate, the higher the quality.
Example: ‘Y’ department performed 535 specific operations last
month. Of these, 43 were defective (they fell outside the
acceptable range of outcomes). This means that 492 of the
operations were successful. The yield was: 492 ÷ 535 = 91.9%
Sigma somewhere between 2.5 and 3.
Six Sigma is carried out as projects and mostly uses a
standard approach called DMAIC (define, measure, analyze,
improve and control) cycle-developed by General Electric.
5.8 Statistical Quality Controlcan be divided into acceptance
sampling and process
control.
 Acceptance sampling: involves testing a random sample of
existing goods and deciding whether to
accept an entire lot based on the quality of the random sample.
 Statistical process control (SPC): involves testing a random
sample of output from a process to
determine whether the process is producing items within a pre-
selected range.
• When the tested output exceeds that range, it a signal to
adjust the production process to force the output back into
the acceptable range.
• This is accomplished by adjusting the process itself.
Acceptance sampling is frequently used in purchasing or
receiving situations, while process control is in a
production situation of any type.
• Quality control for both acceptance sampling and process
control measures either attributes or variables.
• Goods or services may be observed to be either good or
bad, or functioning or malfunctioning.