OPERATIONS MANAGEMENT

Operation *For-Profit – prices customers willing to 1. Variety of Goods and Services Being
- responsible for producing goods/services pay; branding; the greater value, the greater Offered
amount of funds 2. Structural Variation in Demand
- core of what an organization does
Operations Management - trends and seasonal variation
MANUFACTURING VS SERVICES 3. Random Variation
- management of systems or processes that
creates goods/services Goods Services - natural variability
1. Output
*Goods – physical items (raw materials, Tangible Intangible 4. Assignable Variation
parts, subassemblies) 2. Degree of Customer Contact - caused by defectives
*Services – activities (time, location, form, Low High
psychological value) 3. Labor Content
Low High SCOPE OF OPERATIONS
4. Uniformity of Inputs MANAGEMENT
THREE BASIC FUNCTIONAL AREAS High Low
 Forecasting
5. Measurement of Productivity
1. Finance – secure financial resources and  Capacity Planning
Easy Hard
allocating resources 6. Opportunity to Correct  Facilities and Layout
2. Marketing – assess wants and needs, High Low  Scheduling
and selling and promotion 7. Inventory  Managing Inventories
Much Little  Assuring Quality
3. Operation – producing and providing 8. Wages
goods and services  Motivating and Training
Narrow Range Wide Range
9. Ability to Patent  Locating Facilities
Usually Not Usually
Supply chain
Process Management
- sequence of activities involved in
producing and delivering goods or services - management of the process in Goods-Oriented
transformation of products
- value increases as it moves through the - manufacturing and assembly operations
chain - central role of all management
Service-Oriented
*External: provide inputs *Process – action/s that transform inputs
- healthcare, transportation, food handling,
into outputs
*Internal: supply operations with materials and retailing
and labor 1. Upper-Management Process

Transformation Process – the storing, - govern the entire operation

Operations Manager
transporting, and repairing of product 2. Operational Process
- guide the system by decision-making
*Feedback – measurement taken to ensure - core process
- ultimate responsible to creation of goods
desired outputs are obtained
3. Supporting Process or provision of service
*Control – comparison of feedback to
- support the core process 1. System Design
know if correction is needed
*All business processes are composed of a - system capacity, geographic location,
Product Packages – combination of goods
series of supplier-customer-relationship. physical structures, product and service
and services
planning, equipment acquisition
- require long-term commitments
Essence of Operations Function:
Business Process Management (BPM) - “strategic decisions”
- add value during the process
- process design, execution, and monitoring 2. System Operation
Value-Added – difference between cost of
- managing process to meet demands and - management of personnel, inventory,
input and price of output
deal with process variability scheduling, project management, quality
*Non-Profit - value to society; the greater assurance
value, the greater effectiveness of Lead time – realistic estimate of how long
it will take to fill their orders - “tactical and operational decisions”
operations Organization,
Supplier Department, Customer
Individual
PROCESS VARIATION OTHER FUNCTIONAL AREAS
1. Accounting – prepared financial How: How will the product or service be Systems Approach
statements designed? How will the work be done? - considering the capability of other
2. Purchasing – procurement of materials, How will resources be allocated? departments in making decisions
supplies, and equipment How Much: How much money we need or - the whole is greater than the sum of its
3. Personnel – recruitment and training of effort/manpower? individual parts
employees, labor relations, etc. - concentrate on efficiency within
4. Public Relations – building and Models subsystems and thereby achieve overall
maintaining positive image - abstraction of reality, a simplified efficiency
5. Industrial Engineering – scheduling, representation *System – set of interrelated parts that
performance standards, etc. - decision making aids must work together
6. Distribution – shipping of goods 1. Physical – look like real-life counterpart
7. Maintenance – general upkeep and 2. Schematic – more abstract; less Establishing Priorities
repair resemblance to the physical reality - certain issues are more important than
8. Legal – consulted in contracts 3. Mathematical – most abstract; do not others
9. Management Information Systems look like real-life counterpart; easiest to Pareto Phenomenon
(MIS) – provides information needed to manipulate - a few factors account for a high
manage effectively Quantitative Approaches percentage of the occurrence of events
WHY LEARN OPERATIONS - attempt to obtain mathematically optimal - few issues are more important that it gives
MANAGEMENT? solutions disproportionately large impact
- every aspect of business is affected by 1. Linear Programming - you do not solve for big problems, look
operations for the root which causes the bigger
- optimum allocation of scarce resources
- to have a better understanding on the problem
2. Queuing Techniques
world we live in, global dependencies of
companies, success and failure of - analyzing situation in which waiting line
HISTORICAL EVOLUTION
businesses, and importance of working forms
with others 3. Inventory Models Industrial Revolution

- control inventories - began in 1770’s in England, and spread to

Europe and US in 19th Century
Operations Field Skill Set: 4. Project Models
- goods were produced in small shops by
1. People Skills: political awareness, - for planning, coordinating, and
craftsmen
mentoring ability, and collaboration, controlling large-scale projects
negotiation, and communication skills - only simple tools were available
5. Forecasting Techniques
2. Knowledge Skills: credibility and good - production changed when machine power
- for planning and scheduling
decision making, product/service and substituted human power
process knowledge, industry and global 6. Statistical Models Craft Production
knowledge, and financial and accounting - for decision making
- highly skilled workers using simple,
skills
Analysis of Trade-Offs flexible tools to produce small quantities of
- considering consequences in making customized goods
DECISION MAKING decisions Scientific Management
What: What resources are needed? - looking for the pros and cons - brought widespread changes to the
When: When will each resource be management of factories
needed? When should the work be Frederick Winslow
Degree of Customization
scheduled? When should materials and
- highly customized products/services tends - “Father of Scientific Management”
other supplies be ordered?
to be more labor intensive - based on observation, measurement,
Where: Where will the work be done?
- more time consuming, requires highly analysis, and improvement of work
Who: Who will do the work? methods, and economic incentives
skilled people, involves more flexible
Why: Why we need to produce or provide equipment - introduced moving assembly line
that service
- emphasized maximizing outputs
- Principles of Scientific Management, Douglas McGregor (1960s)
1911 - Theory X: workers do not like to work OPERATIONS TODAY
Frank Gilbreth and to be controlled to do good work E-Business
- “Father of Motion Study” (Therbligs) - Theory Y: workers enjoy physical and - use of internet to transact business
- developed principles of motion economy mental aspects of works and become E-Commerce
to small portion of tasks committed to work
- consumer-business transaction online
Henry Gantt William Ouchi (1970)
Technology
- the value of nonmonetary rewards to - Theory Z: Japanese approach of lifetime
employment - application of scientific discoveries to the
motivate workers
development and improvement of goods
- Gantt Chart: system for scheduling and services
Harrington Emerson Decision Models and Management
*High Technology - most advanced and
Science
- use of experts to improve organizational developed machines and methods
efficiency - the factory movement was accompanied
1. Product and Service Technology
by the development of several quantitative
Henry Ford - discovery and development of new
techniques
- an industrialist products and services
F.W. Harris (1915)
- known for his assembly lines - done by researchers and engineers
- developed the first model: a mathematical
- employed scientific management model for inventory order size 2. Process Technology
techniques - methods, procedures, and equipment used
H.F. Dodge, H.G. Romig, W. Shewhart
*Mass Production – large volumes of to produce goods and provide services
- statistical procedures for sampling and
standardized goods are produced by low- 3. Information Technology (IT)
quality control (1930)
skilled/semi-skilled workers using
L.H.C. Tippett (1935) - science and use of computers and other
specialized machineries
electronic equipment to store, process, and
*Interchangeable Parts – standardized - groundwork for statistical-sampling send information.
parts so it did not have to be custom fitted theory
(Eli Whitney, late 1700s) George Dantzig
*Division of Labor – production process is - Linear Programming
divided into small tasks, and individual
workers (Adam Smith, Wealth of Nations, Globalization
1776)
- the need for global supply chains have
broadened the scope of supply chain
INFLUENCE OF JAPANESE management
MANUFACTURERS
Human Relations Movement
- developed/refined management practices
- emphasized the importance of human that increased the productivity of the Operations Strategy
elements in job design operations and quality of products (W. 1. Working with Fewer Resources
Lilian Gilbreth Edwards & Joseph Juran) 2. Revenue Management/Yield
- wife of Frank Gilbreth - emphasized quality and continual Management
- focused on the human factor in work improvement, worker teams and 3. Process Analysis and Improvement
empowerment, and achieving customer
Elton Mayo (1930) *Six Sigma Process – reducing cost,
satisfaction
improving quality, and increasing customer
- worker motivation is critical in improving
- “Quality Revolution” satisfaction
productivity
- Kaizen: continuous improvement *Total Quality Management (TQM) – a
Abraham Maslow (1940)
- Customer Satisfaction: no complaints, quality focus emphasizes customer
- developed a motivational theory: satisfaction and often involves team-work
and no product returns
Hierarchy of Needs
- Just-in-Time (JIT) Production: stockless *Agility – ability to respond quickly to
Frederick Hertzberg (1950s) demands or opportunities
management
- refined Maslow’s Theory: Satisfiers and
- worker teams and empowerment
Dissatisfiers (Motivation and Hygiene)
*Lean System – use minimal amount of 2. Make sure the pertinent facts are known. 2. Cost
resources to produce a high volume of What options are available? 3. Location
high-quality goods with variety 3. Evaluate the options. 4. Quality
Key Issues 4. Identify the “best” option. 5. Quick Response
1. Economic Conditions 5. Consider the effect of your decision. 6. Flexibility
2. Innovating
7. Inventory Management
3. Quality Problem The Need to Manage the Supply Chain 8. Supply Chain Management
4. Risk Management 1. The need to improve the operations. 9. Service
5. Competing in A Global Economy 2. Increasing level of outsourcing. 10. Manager and Workers
*Outsourcing – buying goods or
ENVIRONMENTAL CONCERNS services instead of producing or providing
To Successfully compete:
Sustainability – using resources that do them to save cost.
First: What do customers wants?
not harm ecological systems that support 3. Increasing transportation cost.
human existence Second: What is the best way to satisfy
4. Competitive Pressures.
those wants?
Green Initiatives – reducing packaging, 5. Increasing globalization.
materials, water, and energy use, and the
6. Increasing importance of e-business.
environmental impact of the supply chain MISSION AND STRATEGIES
reconditioning used equipment for resale 7. The complexity of supply chains.
Mission – reason for existence
and recycling 8. The need to manage inventories.
Mission Statement – states the purpose of
an organization
Ethics Major Decision Areas in Supply Chain Goals – provide more detail and describe
- standard of behavior that guides how one 1. Location – choice of location for both the scope of the mission
should act production and distribution facilities Strategies – plans for achieving
Codes of Ethics 2. Production – what customer wants, organizational goals
- organizational ethics that is developed to when they want it, and how much is needed  Low Cost
guide employees conduct  Responsiveness – ability to
3. Distribution – transportation cost and
1. Utilitarian Principle delivery times respond to changing demands
- good done by an action should 4. Operational – scheduling, maintaining  Differentiation
outweigh any harm equipment, and meeting customer demand *Organizational Strategies – strategy for
2. Rights Principle 5. Inventory - determining inventory needs the entire organization
- action should respect and protect the and coordinating production and stocking *Functional Strategies – strategies of the
moral rights of others decisions functional areas of the organization

3. Fairness Principle Tactics

- equals should be held to, or evaluated CHAPTER 2: COMPETITIVENESS, - methods and actions used to accomplish
by, the same standards STRATEGY, AND PRODUCTIVITY strategies

4. Common Good Principle Competitiveness - provide guidance and direction for

carrying out actual operations
- action should contribute to the common - how effectively an organization meets the
good of the community wants and needs of customers relative to - “how to” part of the process
competitors
5. Virtue Principle
Marketing Influences: Different Strategies
- action should be consistent with certain
ideal virtues 1. Identifying Customer’s Wants/Needs 1. Low Cost – outsourcing operations
Ethical Framework 2. Price and Quality 2. Scale-Based Strategies – capital
- sequence of steps intended to guide 3. Advertising and Promotion intensive methods
thinking and subsequent decisions or Operation Influences: 3. Specialization – narrow product lines or
actions 1. Product and Service Design limited service
1. Recognize an ethical issue.
4. Newness – innovation 6. Technology Work Design Quality of Work
5. Flexible Operations – quick response 7. Suppliers Life, Employee
Safety,
6. High Quality – higher quality
Productivity
7. Service – helpful, courteous, reliable Profit Impact of Market Strategy Location Costs, Visibility
8. Sustainability – environmental friendly (PIMS)
Quality Ability to meet or
- used to guide strategic thinking exceed customer
Core Competencies – special attributes or - allows subscriber answer strategy expectations
abilities possessed that gives competitive questions Inventory Costs, Shortages
edge - helps managers understand ad react to the Maintenance Costs, Equipment
STRATEGY FORMULATION business environment Reliability,
*Database – collection of statistically Productivity
SWOT
documented experiences that help Scheduling Flexibility,
- analysis of internal (Strengths and
understand what strategy works best Efficiency
Weaknesses) and external (Threats and
Supply Chains Costs, Quality,
Opportunities)
Agility, Shortages,
Michael Porter’s Five Forces Model Vendor Relations
- analysis of threats of new entrants, threat Projects Costs, New
of substitute products, bargaining power of Supply Chain Strategy Products, Services,
buyers, and intensity of competition - specifies how it should function to or Operating
Order Qualifiers achieve supply chain goals Systems
- perceive as minimum standard of Sustainability Strategy
acceptability for a product - sustainability to the level of the org’s QUALITY AND TIME STRATEGIES
Order Winners governance, formulating goals, and striving Quality-Based Strategies
- perceived as better than the competitor’s for improvements - maintaining or improving the quality of a
Global Strategy product or service
Environmental Scanning - what works in one country/region may Time-Based Strategies
not work in another
- monitoring of events and trends that - reducing the time required to accomplish
present either threats or opportunities Operations Strategy various activities
External Factors: - deals primarily with the operations aspect - seek to improve service
strategy
1. Economic Condition – general health
and direction of the economy - should consider the realities of
To Achieve Time Reduction:
operations’ strengths and weaknesses
2. Political Condition – favorable or Planning Time: time needed to react,
unfavorable attitudes - must be consistent with the overall
develop, select, approve, and adopt
strategy
3. Legal Environment – laws Product/Service Design Time: time
4. Technology – rate at which product needed to develop and market
innovations are occurring Strategic Operations Management
Processing Time: time needed to produce
Decision Areas
5. Competition – the number and strength Changeover Time: time needed to change
of competitors, basis of competition, ease Decision Area What it Affects from one type to another
of market entry Product and Costs, Quality,
Delivery Time: time needed to fill order
6. Markets – knowledge on customers Service Design Liability and
Environmental Response Time: time to address
Internal Factors: Issue complaints
1. Human Resources Capacity Cost Structure,
2. Facilities and Equipment Flexibility Agile Operations
3. Financial Resources Process Selection Cost, Flexibility, - emphasize the use of flexibility to adapt
and Layout Skill Level and prosper in an environment of change
4. Customers
Needed, Capacity
5. Products and Services
TRANSFORMING STRATEGY INTO goods∨service produced 5. Management supports and encourages
ACTION
produce ¿ productivity improvement.
all inputs used ¿
Balance Scoreboard (BSC) 6. Measure improvements and publicize
- Robert Kaplan and David Norton, 1990 them.
Productivity in the Service Sector
- top-down management system that is use - more difficult to measure
to clarify their vision and strategy and CHAPTER 3: FORECASTING
- involves intellectual activities and high
transform them into action Forecast
degree of variability
- results used to improve strategic - estimate about the future value of a
*Process Yield – used in manufacturing to
performance variable such as demand
measure performance of the process
- no role in strategy formulation - determines how much capacity or supply
will be needed to meet demand
- made with reference to a specific time
horizon
Factors that Affect Productivity
Productivity - enable managers anticipate the future to
1. Technology – reduce tasks plan accordingly
- measure of the effective use of resources,
2. Standardizing – reduce variability *Short-Term Forecast
usually expressed as the ratio of output and
input 3. Quality Differences – distort - ongoing operations
productivity measurements
Productivity Ratios *Long-Term Forecast
4. Use of the Internet – lower costs of a
- used for planning workforce - require long lead time to develop,
wide range transactions
requirements, scheduling equipment, construct, or implement
financial analysis, and other 5. Computer Viruses – slow computer
Aspects of Forecast
performance
*Nonprofit Organization 1. Expected Level of Demand
6. Lost Items – waste of time
- higher productivity, lower cost - trend or seasonal variation
7. Scrap Rates – inefficient use of
*Profit-Base Organization 2. Forecast Accuracy
resources
- determines competitiveness - ability of forecasters to correctly model
8. New Workers – productivity lag
Productivity Growth demand, random variation, and unforeseen
9. Safety – accidents are inevitable
- increase in productivity from one period events
10. Shortage of technology-savvy
to the next relative to the productivity in
workers – hampers the ability to update
the preceding period Yield Management
11. Layoffs – take so much time
current − previous
Productivity= x 10012. Labor Turnover – replacement takes - percentage of capacity being used
previous Uses for Forecast
time to speed up
Productivity Measures
13. Design of the Workplace – may save 1. Plan the System
- used to track performance over time up time - long-range plans about the types of the
- used to judge performance of entire 14. Incentive Plans that Reward products to offer, facilities and equipment
industry or productivity of the country Productivity – boost productivity to have, where to locate…
- scorecards of the effective use of 2. Plan the Use of the System
resources - short-range and intermediate-range
Improving Productivity
1. Partial Productivity – single input planning
1. Develop productivity measures for all
Output operations.
Labor 2. Look at the system as a whole in Forecast Features Common to All
2. Multifactor Productivity – more than deciding which operations are most critical. 1. Same underlying causal system in the
one input 3. Develop methods for achieving past will continue to exist in the future.
Output productivity improvements. 2. It is not perfect. Actual results usually
Labor+ Machine 4. Establish reasonable growth. differ from predicted value.

3. Total Productivity – all inputs

3. Forecast for group items tend to be more - because of random variation, there will Judgmental Forecast
accurate than individual items. always be some residual error - analysis of subjective inputs obtained
4. Forecast accuracy decreases as time - it is necessary for the success of daily from various sources
period increases. activities - provide insights that are not available
*Series of Forecast – weekly tasks
Time-Series Forecast
Elements of A Good Forecast *Single Forecast – used for one-time - attempt to project past experience into the
1. Timely – certain amount of time is decision future
needed to respond to information Associative Models
2. Accurate – enable users plan for Forecast Error - use equations that consist of one or more
possible errors - difference between the actual value and explanatory variables that can be used to
3. Reliable – work consistently the predicted value for a given period predict demand
4. Expressed in Meaningful Units – to Error= Actual−Forecast Qualitative Forecast
know the specific unit needed Executive Opinions
*Positive Error: forecast is too low
5. In writing – objective basis for - group of upper level managers develop a
*Negative Error: forecast is too high
evaluating the forecast forecast
6. Simple – more comfortable to work with - part of long-range planning and new
Summarizing Forecast Accuracy
7. Cost-Effective – benefits should product development
outweigh the cost - to compare the accuracy of alternative
- advantage: knowledge and talents of
forecasting methods
managers
- to track error performance
Forecasting and Supply Chain - risk: may result to less pressure in
1. Mean Absolute Deviation (MAD) producing good forecast
- inaccurate forecast lead to shortages and
excesses - the average absolute error Salesforce Opinions
- inaccurate forecast can result to MAD=Σ∨Actual t−Forecast t ∨ ¿ ¿ - may unable to distinguish what customers
temporary increase and decrease in orders n like to do and what they will actually do
To reduce occurrence: 2. Mean Squared Error (MSE) - low sales or good sales may make them
- strive to develop the best possible - the average of squared errors pessimistic or optimistic with their forecast
forecasts Σ ( Actualt −Forecast t )2 Consumer Surveys
- collaborative planning and forecasting MSE= - can tap information that is not available in
n
- information sharing others

- increasing supply chain visibility - surveys are expensive and time-

consuming
- rapid communication about poor
forecasts Delphi Method
- iterative process intended to achieve a
3. Mean Absolute Percent Error consensus forecast
Steps in the Forecasting Process (MAPE)
- circulating a series of questionnaires to
1. Determine the purpose of the forecast - the average absolute percent error knowledgeable and could meaningfully
2. Establish a time horizon ¿contribute individuals
¿ Actualt −Forecast t ∨ x 100
3. Obtain, clean, analyze appropriate data Actual
- developed
¿using the previous information
t
MAPE=Σ
4. Select a forecasting technique n extracted

5. Make the forecast - useful for technological forecasting;

Approaches to Forecasting assessing changes in technology and its
6. Monitor the forecast errors
impact
1. Qualitative – subjective inputs that defy
precise numerical description
Forecast Accuracy
2. Quantitative – attempt to utilize causal Forecasts Based on Time-Series Data
- the complex nature of most real-world
(explanatory) variables to make a forecast Time-Series
variables makes it almost impossible to
correctly predict future values
- time-ordered sequence of observations 2. Weighted Moving Average – more
taken at regular intervals recent values in a series are given more Trend-Adjusted Exponential Smoothing
- made on the assumption that future values weight in computing forecast - “double smoothing”
of the series can be estimated from past
- various of exponential smoothing used
values
when a time series exhibits a linear trend
Analysis of Time-Series Data
- identify the underlying behavior of the
series
- through plotting the data and visually
examining it
3. Exponential Smoothing – based on a
previous forecast plus a percentage of the
Behaviors Variation forecast error
1. Trend – long-term upward or downward
movement
2. Seasonality – regular variations relative
to the calendar or time
3. Cycles – wavelike variations of more
Techniques for Seasonality
than one year’s duration Selecting a Smoothing Constant:
Seasonal Variations
4. Irregular Variations – caused by - a constant that balances the benefits of
unusual circumstances, does not reflect smoothing random variations with the - regular annual variations
typical behavior benefits of responding to real change if it - regularly repeating movements in series
occurs values that can be tied to recurring events
5. Random Variations – remain after all
other behaviors *Low Values = average is stable - expressed in terms of the amount that
*Higher Values = susceptible to change actual values deviate from the average
value of a series
Naïve Methods
Naïve Forecast Other Forecasting Methods
1. Additive
- uses a single previous value of a time Focus Forecasting
series as the basis of a forecast - expressed as quantity
- Bernard T. Smith
- advantages: no cost, easy to prepare, and - uses the forecasting method that shows - added to or subtracted from the series
understandable average
the best recent success
- objection: inability to provide high Diffusion Models 2. Multiplicative
accurate forecast - expressed as a percentage of the average
- based on rates of product adaption and
amount
usage spread
Techniques for Averaging - used to multiply the value of series
- used in marketing and to assess the merits
- averaging techniques generates forecasts of investing in new technologies
that reflect recent values of a time series Seasonal Relative
1. Moving Average – averages a number - percentage of average or trend
of recent actual values, updated as new
1. Deseasonalize Data
values become available
- to remove the seasonal component from
the data in order to get a clearer picture of
Techniques for Trend the nonseasonal components
Trend Equation - dividing each point by corresponding
seasonal relative
2. Incorporate Seasonality
- obtain trend estimates
- add seasonality to trend estimates

Computing Seasonal Relatives
Centered Moving Average
- a moving average positioned at the center
of the data that were used to compute it
Simple Average Method
- seasonal relative is the average for that
season divided by the average of all
seasons
Associative Forecasting Techniques
- identification of related variables that can
be used to predict valued of the variable of
interest
- development of an equation that
summarizes the effects of predictor
variables (used to predict variables of the
variable of interest)
Regression Technique
- fitting a line to a set of points
Simple Linear Regression
- simplest and most widely used
- obtain an equation of a straight line
*Least Squares Line
- minimizes the sum of the squared
vertical deviations around the line
*Standard Error of Estimate
- a measure of the scatter of points
around a regression line
Correlation
- measure of the strength and direction of 2. Proactive – requires explanatory model
or subjective assessment of the influence
relationship between two variables
on demand
Monitoring Forecast Error
Possible Sources of Forecast Error
1. Inadequate Model:
- omission of an important variable
- change or shift that cannot be dealt
with
- appearance of a new variable
2. Irregular variations due to natural 2. Refine existing products and services.
phenomena
3. Random Variation
Control Chart
- visual tool for monitoring forecast errors 7. document specifications.
“In Control” Errors
- it is within the control limit and no specifications into process specifications.
patterns are present
Tracking Signal
- cumulative forecast error to the average 2. Quality or Performance
absolute error
*Bias – persistent tendency for forecast to
be greater or less than the actual values of a
time series
CHOOSING A FORECASTING
TECHNIQUE
- cost and accuracy must be considered
*How much money is budgeted for
generating the forecast?
*What are the possible costs of errors,
and what are the benefits that may accrue
from an accurate forecast?
USING FORECAST INFORMATION
1. Reactive – probable future demand and
a manager reacts to meet the demand
CHAPTER 4: PRODUCT AND
SERVICE DESIGN
Essence of the Business
> Product and services it offers
> So, product and service design should be
closely tied to organization’s strategy
What does Product and Service Design
Do?
1. Translate customer wants and needs.
3. Develop new products/services.
4. Formulate quality.
5. Formulate cost targets.
6. Construct and test prototypes.
8. Translate product and service
Fundamental Considerations
Buyer’s Standpoint
1. Cost
Organization’s Standpoint
1. Is there demand for it?
2. Can we do it?
 Manufacturability – capability to
produce an item
 Serviceability – capability to provide
a service
3. What level of quality is appropriate?
4. Does it make sense from an economic
standpoint?
Reasons for Product and Service Design
 Market Opportunities
 Threats
Changes:
 Economic
 Social and Demographic
 Political, Liability, or Legal
 Competitive
 Cost or Availability
 Technological
> Advances in processing
technology: altering or design to
make it more compatible
> New digital recording
technology: allows skip of
 commercials, so products became
integral parts of the program
IDEA GENERATION
Customer Input: survey, focus groups,
complaints, and unsolicited siggestions
Supplier, Distributor, or Employee
Input: interviews, direct/indirect
suggestions, and complaints
Competitors Product and Services
- one of the strongest motivators for new
and improved products or services
Reverse Engineering
- purchasing a competitor’s product and
then carefully dismantle and inspect it to
improve their own products
Suppliers
- as it increases, it became important source
of ideas
Research and Development (R & D)
- organized efforts that are directed towards
increasing scientific knowledge and
product or process innovation
 Basic Research – advancing the state
of knowledge
 Applied Research – achieve
commercial applications (creating for
profit)
 Development – converting results of
basic research into useful commercial
applications
LEGAL AND ETHICAL
CONSIDERATIONS
Product Liability
- responsibility of a manufacturer for any
injuries or damages caused by a faulty
product
Uniform Commercial Code
- products carry an implication of
merchantability and fitness; that is, a
product must be usable for its intended
purpose
*Designers under pressure requires them to
make trade-off decisions, which involve
ethical considerations.
Guidelines:
1. Produce designs that are consistent with
the goals of the organization.
2. Give the customers the value they
expect.
3. Make health and safety a primary
concern.
HUMAN FACTORS
- This often arise in the design of consumer
products.
 Safety and Liability
- crashworthiness
 Addition of Features
- creeping featurism
CULTURAL FACTORS
- May result in different designs for
different countries or regions.
GLOBAL PRODUCT AND SERVICE
DESIGN
Global Product Design
- advantage: uses the combined efforts of a
team of designers who work in different
countries and even on different continents
- increase the marketability and utility of a more easily taken apart
product
Virtual Teams
- engaging the best human resources from
around the world without the need to
assemble them all in one place
Use of Global Team
- allows for customer needs assessment to
be done in more than one country
- yield different point of view and ideas
and information to enrich the design
process
ENVIRONMENTAL FACTORS:
SUSTAINABILITY
Cradle-to-Grave Assessment
- “life cycle analysis”
- assessment of the environmental
impact of a product or service
throughout its useful life
- goal: to choose products and services
that have the least environmental
impact while still taking into account technological change
economic considerations
End-of-Life Programs
- deal with products that have reached the
end of their useful lives
- include both consumer products and
business equipment
- purpose: to reduce the dumping of
products in landfills or third world
countries which convert materials into
hazardous air and water emissions and
toxic ash
Three R’s: Reduce, Reuse, and Recycle
1. Reduce: Value Analysis
- examination of the function of parts and
materials in an effort to reduce the cost or
improve the performance
2. Reuse: Remanufacturing
- refurbishing used products by replacing
worn-out or defective components, and
reselling the products
 Products can be sold about for about
50% of a new product.
 Requires mostly unskilled or
semiskilled workers.
 Fewer products end up in landfills.
Less depletion of natural resources.
- Design for Disassembly (DFD):
designing products so that they can be
3. Recycle
- recovering materials for future use
 Cost of Savings
 Environmental Concerns
 Environmental Regulations
- Design for Recycling (DFR): product
design that takes into account the ability to
disassemble a used product to recover the
recyclable parts
Life Cycle
- a series of stages over one’s useful life
-
often a matter of basic need and the rate of
 Introduction:
- product is treated as curiosity item
- all the bugs haven’t been worked out
- price may drop after the introductory
period
 Growth:
- design improvements and increasing
demand yield higher reliability and
lower costs
- it is important to obtain accurate
projections of the demand growth rate
  Maturity:
- demand levels off
- design changes are needed
- low cost and high productivity
 Decline:
- decisions must be made on whether:
 discontinue a product or service
and replace it with new ones
 abandon the market
 attempt to find new users
Standardization
- extent to which there is absence of variety
in a product, service, or process
- products are made in large quantities of
identical items
- every customer or item processed
receives essentially the same service
 Immediately available to customers
 0Has interchangeable parts
 Design costs are generally lower
 Save time and money while
increasing quality and reliability
 Reduced time and cost to train
employees and time to design jobs
 Limit the range of customers to
whom it may appeal
 A competitor may introduce a better
product or greater variety
 Design may freeze prematurely
Mass Customization
- producing standardized goods/services,
but incorporating some degree of
customization in the final product or
service
 Delayed Differentiation
- postponement tactic
- process of producing
product/service, postponing
completion until customer
preferences or specifications are
known
- a product or service with
customized features that can be
quickly produced, appealing to the
customers’ desire fir variety and
speed of delivery yet one that for the Organization
most part is standardized, enabling  Low level: a fairly quick and easy
the producer to realize the benefits transition to producing new
 Modular Design product
- groupings of component parts  High level: slower and more
into subassemblies usually to the difficult transition
point where the individual parts Market
lose their separate identity  Low level: little difficulty with
- failures are often easier to market acceptance but possibly
diagnose and remedy low profit potential
 High level: more difficulty with
Reliability acceptance or rapid gain in market
- measure of the ability of a product, part, share with high potential for profit
service, or an entire system to perform its
intended function under a prescribed set of Quality Function Deployment (QFD)
conditions - structured approach for integrating the
 Failure – an item does not “voice of the customer” into both the
perform as intended or does not product and service development process
function at all, or its performance - to ensure that customer requirements are
is substandard factored
 Normal Operating Conditions – - central feature: listening to and
certain conditions reliabilities are understanding the customer
specified with respect to (load - the main matrix relates customer
temperature and humidity) requirements (what) and their
Improving Reliability corresponding technical requirements
1. Improve component design. (how)
2. Improve production and assembly
operation. Kano Model
3. Improve testing. - Dr. Noriaki Kano
4. Use backups. - offered a perspective on customer
5. Improve preventive maintenance perceptions of quality
procedures. - different categories of quality and posited
6. Improve user education. that understanding them would better
7. Improve system design. position designers to assess and address
quality needs
Robust Design  Basic Quality
- design that results in products or services - customer requirements that have
that can function over a broad range of only a limited effect on customer
conditions satisfaction
Taguchi’s Approach - result in dissatisfaction when
- Genichi Taguchi missing or at low levels, but does
- it is often easier to design a product that is not satisfy when present
insensitive to environmental factors than to  Performance Quality
control the environmental factors - generate satisfaction or
 Parameter Design – determining dissatisfaction in proportion to their
a
the specification settings for both level of functionality and appeal
the product and the process - can result to satisfaction or
Degree of Newness dissatisfaction depending on the
1. Modification of an existing degree of presence
product/service  Excitement Quality
2. Expansion of an existing product line or - feature or attribute that was
service offering unexpected by the customers and
3. Clone of a competitor’s product/service causes excitement
4. New product or service
 - do not result to dissatisfaction but - focuses on reducing the number of parts 5. Translate design specifications into
have potential for disproportionate in a product and on assemble methods and delivery specifications
levels of satisfaction sequence
Manufacturability Service Blueprinting
PHASES IN PRODUCT DESIGN AND - ease with which products can be - method for describing and analyzing a
DEVELOPMENT fabricated and assembled service process
1. Feasibility Analysis Component Commonality - shows the basic customer and service
- entails market, economic, and technical - products or services have a high degree of action
analysis similarity of features and components 1. Establish boundaries
- marketing, finance, accounting, - true to product families and many 2. Identify and determine the consequence
engineering, and operations services 3. Develop time estimates
2. Product Specifications 4. Identify potential failure points and
- detailed description of what is needed to SERVICE DESIGN develop a plan to prevent or minimize them
meet or exceed customer wants Key Issues: Characteristics of Well-Designed Service
- legal, marketing, and operations  Degree of Variation System
3. Process Specifications  Degree of Customer Contact 1. Consistent
- process that will be needed to produce the Service 2. User-Friendly
product - act done to or for a customer 3. Robust
- accounting and operations - usually created and delivered 4. Easy to sustain
4. Prototype Development simultaneously 5. Cost-Effective
- made to see if there are any problems Service Delivery System 6. Value
with the product or process specifications - facilities, processes, and skills needed to 7. Effective Linkage
5. Design Review provide a service 8. Single, Unifying Theme
- necessary changes are made or the project Product Bundle 9. Ensure Reliability and High Quality
is abandoned - combination of goods and services Challenges of Service Design
- marketing, finance, engineering, design, provided to a customer 1. Variability
and operation Service Package 2. Balancing supply and demand
6. Market Test - physical resources needed to perform the 3. Describing precisely the nature
- used to determine the extent of consumer service, the accompanying good, and the Guidelines for Successful Service Design
acceptance explicit and implicit services included 1. Define the service package in detail.
7. Product Introduction Characteristics of Service Design: 2. Focus on the operation from the
- new product is promoted 1. It is intangible. customer’s perspective.
8. Follow-up Evaluation 2. It is created and delivered at the same 3. Consider the image that the service
- changes may be made or forecasts refined time. package will present.
3. It cannot be inventoried. 4. Recognize the designers’ familiarity with
Concurrent Engineering 4. It is highly visible to customers. the system.
- bringing design and manufacturing 5. Has low barrier to entry and exit. 5. Make sure that managers are involved.
engineering people together early in the 6. Location is often important. 6. Define quality for both tangibles and
design phase to simultaneously develop the 7. Service system ranges from little or no intangibles.
product and the process for creating the customer contact to very high degree of 7. Consistent with service expectations.
product customer contact. 8. Establish procedures.
- “over-the-wall approach” 8. Demand variability creates waiting lines 9. Establish systems.
Computer-Aided Design (CAD) or idle service. CHAPTER 5: STRATEGIC
- uses computer graphics for product PHASES IN THE SERVICE DESIGN CAPACITY PLANNING FOR
design PROCESS PRODUCTS AND SERVICE
- by means of a light pen, keyboard, 1.Conceptualize. Capacity Planning
joystick, or a similar device - idea generation - a key strategic component in designing
- increases productivity of the designers - assessment of customer wants and needs the system
from 3 to 10 times - assessment of demand potential - encompasses many basic decisions with
Design for Manufacturing (DFM) 2. Identify service package components long-term consequences for the
- indicate the designing of products that are needed organization
compatible with an organization’s 3. Determine performance specifications Capacity
capabilities 4. Translate performance specifications - upper limit or ceiling on the load that an
Design for Assembly (DFA) operating unit can handle
- might be in terms of: number of physical - the capacity of the productive - compensation
units produced or number of services unit may be expressed in terms of - learning rates
performed that item - absenteeism and labor turnover
 Overcapacity – operating costs  Multiple products/services 5. Policy Factors
are too high - using a simple measure of - management policy
 Undercapacity – causes strained capacity based on units of output 6. Operation Factors
resources and possible loss of can be misleading - scheduling
customers - should state capacities in terms - materials management
Goal: to achieve a match between the long- of each product - quality assurance
term supply capabilities and the predicted - Availability of Inputs: index to - maintenance policies
level of long-term demand be used when there is a frequent - equipment breakdowns
Reasons for Capacity Planning change in the mix of output 7. Supply Chain Factors
1. Changes in Demand 1. Design Capacity - substantial capacity changes
2. Changed in Technology - maximum output rate or service capacity 8. External Factors
3. Changes in the Environment 2. Effective Capacity - product standards
4. Perceived Threats or Opportunities - design capacity minus allowances - safety regulations
- always less than design capacity - unions
Key Questions: *Actual Output – cannot exceed effective - pollution control standards
1. What kind of capacity is needed? capacity and is often less than
2. How much is needed to match the STRATEGY FORMULATION
demand? Measures of System Effectiveness Leading Capacity Strategy
3. When is it needed? 1. Efficiency – ratio of actual output to - build in anticipation of future demand
effective capacity increases
Hedge their Bets Actual Output Following Strategy
- making a series of small changes and then
E= x 100 % - build when demand exceeds current
Effective Capacity
evaluating the results before committing to 2. Capacity Utilization – ratio of actual capacity
the next change output to design capacity Tracking Strategy
- adds capacity in relatively small
Actual Output
Capacity Decisions are Strategic CU = x 100 % increments to keep pace with increasing
Design Capacity demand
1. Have a real impact on the ability of the
> Both are expressed as percentages.
organization to meet future demands for
DETERMINANTS OF EFFECTIVE
products and services; capacity essentially
CAPACITY
limits the rate of output possible.
1. Facilities
2. Affect operating costs.
- design of facilities Capacity Strategy on Assumptions and
3. A major determinant of initial cost.
- locational factors Demands
4. Involve long-term commitment of
- layout of the work area 1. The growth rate and variability of
resources.
- environment demand
5. Can affect competitiveness.
2. Product/Service Factors 2. The costs of building and operating
6. Affects the ease of management; having
- product/service design facilities of various sizes
appropriate capacity makes management
 the more uniform the output, the 3. The rate and direction of technological
easier than when capacity is mismatched.
more opportunities there are for innovation
7. Globalization has increased the
standardization, which leads to 4. The likely behavior of competitors
importance and the complexity of capacity
greater capacity. 5. Availability of capital and other inputs
decisions.
- mix of products/services Capacity Cushion
8. Often involve substantial financial and
3. Process Factors - amount of capacity in excess of expected
other resources, it is necessary to plan for
- quantity capability demand when there is some uncertainty
them far in advance.
- quality capability about demand
- productivity - CC = capacity – expected demand
Capacity
4. Human Factors - ↑uncertainty = ↑cushion used
- upper limit on the rate of output
- job content
- measure of capacity should not require
- job design Steps in the Capacity Planning Process
the need for updating
- training and experience 1. Estimate future capacity requirements.  
 One product/service
- motivation
2. Evaluate existing capacity and facilities 2. Take stage of life cycle into account.
and identify gaps.    Introduction
3. Identify alternatives for meeting - difficult to determine both the
requirements.   size of the market and the
4. Conduct financial analyses of each organization’s eventual share
alternative.    Growth
5. Assess key qualitative issues for each Calculating Processing Requirements - the rate at which organization’s
alternative.   1. Reasonably accurate demand forecasts market share grows
6.Select the alternative to pursue that will 2. Standard processing time per units  Maturity
be best in the long term.   3. Number of work days per year - size of the market levels off and
7.Implement the selected alternative.   4. Number of shifts organizations tend to have stable
8. Monitor results.   Factors in Planning Service Capacity market shares
1. Need to be near to customers  Decline
FORECASTING CAPACITY 2. Inability to store services - organization is faced with
REQUIREMENTS 3. Degree of volatility of demand underutilization of capacity due to
1. Long-Term Considerations Demand Management Strategies declining demand
- overall level of capacity - used to offset capacity limitations 3. Take a “big-picture” approach to
- require forecasting demand over a time allowing organizations to achieve a closer capacity changes.
horizon and then converting it into capacity match in supply and demand - how parts of the system interrelate
requirements  Bottleneck Operation
 Trends are identified: DO IT IN-HOUSE OR OUTSOURCE - evidence of an unbalanced
1. How long the trend might IT? system
persist 1. Available Capacity - operation in a sequence of
2. Slope of the trend  In-House: if equipment, skills, operations whose capacity is
 Cycles are identified: and time is already available lower than the capacities of other
1. approximate length of the cycle  Outsource: increase capacity and operations in the sequence
2. amplitude of the cycle flexibility - capacity of the bottleneck
2. Short-Term Considerations 2. Expertise operation limits the system
- variations in capacity requirements  In-House: capacity
- can place a severe strain on a system’s  Outsource: it a firm lack 4. Prepare to deal with capacity
ability to satisfy demand and yet result in expertise “chunks”.
idle capacity 3. Quality Considerations - capacity increases are often acquired in
 Seasonal Variations  In-House: if desired to closely fairly large chunks rather than smooth
- monthly, weekly and even daily monitor quality increments
capacity requirements  Outsource: specialized firm may - difficulty to achieve a match between
 Random Variations offer higher quality desired capacity and feasible capacity
- variability of a process caused by 4. Nature of Demand 5. Attempt to smooth cost capacity
many irregular and erratic  In-House: demand is high and requirements.
fluctuations and chances factors steady - unevenness in capacity requirements
that cannot be anticipated,  Outsource: wide fluctuations in creates certain problems
detected or identified demand or small orders 6. Identify the optimal operating level.
 Irregular Variations 5. Cost  Economies of Scale
- most difficult or impossible to  In-House: if there are fixed costs - if the output rate is less than the
predict because it can be created associated with making an item optimal level, increasing the
by diverse forces or caused by  Outsource: helps avoid incurring output rate will result in
natural calamities fixed cost decreasing average unit costs
6. Risks a. Fixed costs are spread over
Probability Distributions more units, reducing the fixed cost
- used when time intervals are too short to DEVELOPING CAPACITY per unit.
have seasonal variations in demand STRATEGIES b. Construction costs increase at a
- Normal, Uniform, or Poisson Distribution 1. Design flexibility into systems. decreasing rate with respect to the
- due to long-term nature of many capacity size of the facility to be built.
decisions and risks c. Processing costs decrease as
output rates increase because
 operations become more
standardized, which reduces unit
costs.
 Diseconomies of Scale
- if output is increased beyond the
optimal level, average unit costs
will become increasingly larger
a. Distribution costs increase due
to traffic congestion and shipping
from one large centralized facility
instead of several smaller,
decentralized facilities.
b. Complexity increases costs;
control and communication
become more problematic.
c. Inflexibility can be an issue.
d. Additional levels of
bureaucracy exist, slowing
decision making and approvals for
changes.
7. Choose a strategy if expansion is
involved.
- choose whether incremental expansion or
single step is more appropriate
CONSTRAINT MANAGEMENT
- work of Eli Goldratt “The Theory of
Constraints”
- Eli Schragenheim and H. William
Dettmer "Manufacturing at Warp Speed"
Constraint
- limits the performance of a process or
system in achieving its goals
 Market: Insufficient demand.
 Resource: Too little of one or
more resources (e.g., workers,
equipment, and space )
 Material: Too little of one or more
materials.   5. The revenue per unit is same regardless additional capacity
 Financial: Insufficient funds.
  Supplier: Unreliable, long lead
time, substandard quality.
  Knowledge or competency:
Needed knowledge or skills
missing or incomplete.
  Policy: Laws or regulations
interfere.
Steps in Solving Constraints Issues
1. Identify the most pressing constraint.
2. Change the operation to achieve the
maximum benefit, given the constraint.
3. Make sure other portions of the process
are supportive of the constraint.
4. Explore and evaluate ways to overcome - expresses in current value the
the constraint. sum of all future cash flows of an
5. Repeat the process until the level of investment proposal
constraints is acceptable. Commonly Used Methods
1. Payback
EVALUATING ALTERNATIVES - focuses on the length of time it will take
Cost-Volume Analysis for an investment to return its original cost
- focuses on relationships between cost, 2. Present Value (PV)
revenue, and volume of output - summarizes the initial cost an investment,
- purpose: to estimate the income of an its estimated annual cash flows, and any
organization under different operating expected salvage value in a single value
conditions (equivalent current value)
- useful as a tool for comparing capacity 3. Internal Rate Return
alternatives - summarizes the initial cost, expected
 Fixed Cost – remain constant annual cash flows and estimated future
regardless of volume of output salvage value of an investment proposal in
 Variable Cost – vary directly an equivalent interest rate
with volume of output
 Break-Even Point (BEP) – the Decision Theory
volume of output at which total - identifying a set possible future
cost and total revenue are equal conditions that could influence results,
 Indifference Point – the quantity listing alternative courses of action, and
that would make two alternative developing a financial outcome for each
equivalent alternative-future condition combination
 Step Costs – costs that increase - helpful tool for financial comparison of
stepwise as potential volume alternatives under conditions of risk or
increases uncertainty
Waiting-Line Analysis
- useful for designing or modifying service
Cost-volume analysis can be a valuable systems
tool for comparing capacity alternatives - has a tendency to form in a wide variety
if certain assumption are satisfied: of service systems
1. One product is involved. - lines are symptoms of bottleneck
2. Everything produced can be sold. operations
3. The variable cost per unit is the same - useful in helping managers choose
regardless of the volume. capacity level that will be cost-effective
4. Fixed cost do not change with volume through balancing the cost of having
changes, or they are step changes. customers wait with the cost of providing
of volume. Simulation
6. Revenue per unit exceeds variable cost - useful tool in evaluating what-if scenarios
per unit.
OPERATIONS STRATEGY
Financial Analysis Capacity Decisions
- used to rank investment proposals, taking - establish a set of conditions within which
into account the time value of money operations will be required to function
 Cash Flow
- difference between the cash
received from sales and other
sources and the cash outflow for
labor, materials overhead, and
taxes
 Present Value
Flexibility 1. How much variety will the process need Product Service Profiling
- allows an organization to be agile – that - linking key product or service
is, responsive to changes in the requirements to process capabilities
marketplace - used to avoid any inconsistencies by
Maintaining a Capacity Cushion identifying product or service dimensions
- for blocking entry into the market by new and then selecting appropriate processes
competitors
- enables them to produce at costs lower Sustainable Production
than what new competition can - creation of goods and services using
Efficiency Improvements and process and systems that are nonpolluting,
Utilization Improvements conserving of energy and natural
- capacity increases achieved by resources, economically efficient, safe and
streamlining operations and reducing healthful workers, communities, and
waste to be able to handle? consumers, and socially and creatively
Bottleneck Management 2. How much volume will the process need rewarding for all working people
- way to increase effective capacity, by to be able to handle?  Wastes and ecologically
scheduling non-bottleneck operations to * the two are inversely related incompatible byproducts are
achieve maximum utilization of bottleneck * the need for flexibility is directly related reduced, eliminated, or recycle on-
operations to the level of the variety of the process site
 Chemical substances or physical
Determining the Timing and Degree of Process Types agents and conditions that present
Capacity Expansion 1. Job Shop hazards to human health or the
1. Expand-Early Strategy - operates on a relatively small scale environment are eliminated
- to achieve economies of scale, to expand - used when a low volume of high-variety  Energy and materials are
market share, or to preempt competitors goods/service are needed conserved, and the forms of
from expanding 2. Batch energy and materials used are
2. Wait-and-See Strategy - used when a moderate volume of most appropriate for the desired
- expand capacity only after demand goods/services is desired, and it can handle ends
materializes, perhaps incrementally a moderate variety in products/services  Work spaces are designed to
 Capacity Disposal 3. Repetitive minimize or eliminate chemical,
- result of the need to replace - when higher volumes of more ergonomic, and physical hazard
aging equipment with newer standardized goods/services are needed
equipment  Assembly Lean Process Design
 Mass Customization - guided by general principles
CHAPTER 6: PROCESS SELECTION 4. Continuous - focuses on variance reduction workload
AND FACILITY LAYOUT - when a very high volume of nondiscrete, over the entire process to achieve level
Process Selection highly standardized output is desired production and thereby improve process
- deciding to the way production of goods flow
or service is organized
- occurs when new products or services are Technology
being planned - application of scientific discoveries to the
Process Strategy development and improvement of goods
1. Capital Intensity and services or the process the produce or
- mix of equipment and labor provide them
2. Process Flexibility High Technology
- degree to which the system can be - most advanced and development
adjusted to changes in design, volume, and equipment and methods
technology Technological Innovation
3. Make or Buy Decisions - discovery and development of new or
- extent to which the organization will 5. Project improved products, services, or processes
produce goods or provide services in-house - used for work that is nonroutine, with a for producing or providing them
as opposed to relying on outside unique set of objectives to be accomplished Process Technology
organizations to produce or provide them in a limited time frame - methods, procedures, and equipment used
Process Selection to produce goods and services
Information Technology - requires significantly less changeover - reasonable one provides a sense of
- the science and use of computers to store, time freedom and control
process, and send information  Flexible Manufacturing System - control work on a timely basis and
- group of machines that include meeting performance objectives
Automation supervisory computer control,  Work Breaks
- machinery that has sensing and control automatic material handling, and - long work intervals generate
devices that enable it to operate robots or other automated boredom and fatigue
automatically processing equipment - workers look forward to something
- can range from factories that are  Computer-Integrated f. Occupational Health Care
completely automated to a single Manufacturing (CIM) - designing exercise and health-eating
automated operation - system that uses an integrating programs
Kinds of Automation computer system to link a broad g. Safety
1. Fixed Automation range of manufacturing activities - most basic issue
- least flexible - needs constant attentions, insurance,
- uses high-cost, specialized equipment for and compensation
a fixed sequence of operations  Accidents – physical suffering,
2. Programmable Automation CHAPTER 7: WORK DESIGN AND mental anguish, potential loss of
- use of high-cost, general purpose MEASUREMENT earning, and disruption of the work
equipment controlled by a computer Four Major Section: routine
program that provides both the sequence of 1. Quality of Work Life  Carelessness – unsafe acts such
operations and specific details about each 2. Job Design failure to follow safety
operation 3. Methods Analysis precautions
- fairly wide variety of low-volume 4. Work Measurement  Hazards – unsafe conditions
products in small batches  Housekeeping is an important safety
QUALITY OF WORK LIFE factor.
 Computer-Aided − People work to earn a living.  Cooperation: properly trained
Manufacturing − Affects workers’ overall sense of well- workers and management enforcing
- use of computers in process being, contentment, and productivity. safety procedures and equipment.’
control, ranging from robots to 1. Working Conditions  Posters: must communicate in
automated quality control a. Temperature and Humidity specific terms on how to avoid
 Numerically Controlled (N/C) - human being can function under a accidents.
Machines fairly wide range  Occupational Safety and Health
- programmed to follow a set of  Comfort Band Administration (OSHA)
processing instructions based on - depends on how strenuous the - created by the Occupational Safety
mathematical relationships that work is and Health Act in 1970
tell the machine the details of the - the more strenuous the work, the - important of safety considerations
operation to be performed lower the comfort range in systems design
 Robots b. Ventilation - ensure workers a healthy and safe
- machine consisting of - unpleasant and noxious odors working conditions
mechanical arm, power supply, c. Illumination - role as catalyst, spurring
and controller - the amount of glare and contrast, and companies to make changes that
 Computerized Numerical good lighting they knew were needed but does not
Control  more detailed work = higher level make
- own computer of individual of illumination needed h. Ethical Issues
machines d. Noise and Vibrations
 Direct Numerical Control  Noise 2. Compensation
(DNC) - unwanted sound caused by both - must develop suitable compensation
- computer that control number of equipment and humans plans
N/C machines  Vibrations  too low wages = difficulty in
3. Flexible Automation - factor even without a noise attracting and holding competent
- evolved from programmable automation component workers
- uses equipment that is more customized e. Work Time and Work Breaks  too high wages = lower profits and
than programmable automation  Work Time increases prices which affect
demand
 a. Time-Based System
- “hourly and measured daywork
systems”
- compensation based on time
employee has worked during a day period
 computation of wages is straight
forward
 can readily estimate labor cost for
a given employee level
 the pay is steady
b. Output-Based (Incentive) System
- compensation based on amount of
output an employee produced during a pay
period
- ties pay directly to performance
 Individual Incentives
- straight piecework: worker’s pay
is a direct linear function of his or
her output
- base rate: guaranteed minimum
amount regardless of output
- tied to an output standard:
produced less than standard will
be paid at the base rate
- bonus: pay for output above
standard
 Group Incentives
- team approach: emphasis on
team
- sharing of productivity gains
with employees
- team with greatest output and
reduction of cost and material use
c. Knowledge-Based Pay System
- pay system to reward workers who
undergo training that increases skill level
- compensation based on knowledge
and skills possessed
 Horizontal Skills – variety of tasks
capable of performing
 Vertical Skills – managerial tasks
capable of
 Depth Skills – reflect quality and
productivity results
d. Management Compensation
- reward managers and senior
executives on the basis of output
- executive pay is closely tied to the
success of the company or division
e. Recent Trends
- compensation systems that
emphasize flexibility and performance
objective
- variable pay based on performance
- profit sharing plans or bonuses based 2. Job Rotation
- ideal compensation: one that - workers periodically exchange jobs
balances motivation, profitability, and - avoid having one or few employees
retention of good employees stuck in monotonous jobs
- allows workers to broaden learning
JOB DESIGN experience and enables to fill in for others
- act of specifying the content and methods 3. Job Enrichment
of jobs - increase in level of responsibility for
 What will be done in a job planning and coordination of tasks
 Who will do the job - also referred as Vertical Loading
 How the job will be done - workers are cross-trained to be able to
 Where the job will be done perform a wider variety of tasks and given
more authority to manage their jobs
Two Basic School of Thoughts
1. Efficiency School
- systematic, logical approach to job
design
2. Behavioral School Motivation
- satisfaction of wants and needs - socialization, self-actualization, status,
psychological aspects of work, and a sense
of purpose and accomplishment
Specialization > awareness helps develop a
- primary issue of disagreement between motivational framework that encourages
efficiency and behavioral approaches workers to respond in a positive manner to
- work that concentrates on narrow aspect the goals
of a product or service - ideal: high level of trust between workers
Management Employees and management
Advantages:
Simplifies training Low education and Teams
skill requirement - nonroutine assignments are being given to
High productivity Minimum
teams who develop and implement
responsibilities
Low wage costs Little mental effort
solutions to problems
Disadvantages: 1. Short-Term Team
Difficult to motivate Monotonous work - formed to collaborate on a topic
quality - same or several functional areas,
Worker Limited depending on the scope of the problem
dissatisfaction, opportunities for
2. Long-Term Team
absenteeism, advancement
turnover, and
 Self-Directed Team
disruptive tactics - “self-managed teams”
Little control over - groups empowered to make certain
work changes in their work process
Little opportunity to - designed to achieve a higher level of
self-fulfillment teamwork and employee involvement
- those who are close to the process
Behavioral Approaches to Job Design
have the best knowledge, thus, better
- to have the potential to increase the
suited for most effective changes to
motivational power of jobs
improve the process
- improvement in the quality of work life
- lead to higher quality, higher
1. Job Enlargement
productivity, and greater worker
- giving a worker a larger portion of the
satisfaction, thus, less turnover and
total task
absenteeism
 Horizontal Loading – additional
 Successful Team Building (Robert
work is on the same level of skill
Bacal)
and responsibility as the original job
1. Vision and Goals
 2. Talent and Skills 5. Other factors (accidents, quality prob.) - systematic study of the human motions
3. Roles and Functions Basic Procedures used to perform an operation
4. Procedures and Norms 1. Identify the operation and gather all - eliminate the unnecessary motions and to
5. Interpersonal Relations pertinent facts. identify the best sequence of motions for
6. System of Reinforcement and 2. Discuss the job. maximum efficiency
Celebration 3. Study and document the present method 1. Motion Study Principles
7. Understanding of Team’s or develop charts based on the information. - guidelines for designing motion-efficient
Relationship 4. Analyze. work procedures
5. Propose new method.
Ergonomics (Human Factors) 6. Install the new method.
- incorporation of human factors in the 7. Follow up implementation.  Three categories:
design of the workplace - Principles for Use of the Body
- scientific discipline concerned with - Principles for Arrangement of the
understanding of interactions among Selecting an Operation to Study Workplace
humans and other element of a system, and 1. Have a high labor content. - Principles for the Design of Tools
the profession that applies theory, 2. Done frequently. and Equipment
principles, data, and methods to design in 3. Unsafe, tiring, unpleasant, or noisy.  In developing, the analyst tries to:
order to optimize human well-being and 4. Designated as problems. - eliminate unnecessary motions.
overall system performance Documenting the Current Method - combine activities.
- increase productivity by reducing worker - charts, graphs, and verbal description - reduce fatigue.
discomfort and fatigue - provide a good understanding and serve - improve the arrangement of the
1. Physical as a basis of comparison workplace.
- repetitive movements, layout, health, Analyzing the Job and Proposing New - improve the design of tools and
and safety Methods equipment.
2. Cognitive - what, why, when, where, and who of the 2. Therbligs
- mental workload, decision making, job - basic elemental motions that make up
human-computer interaction, and work  Flow Process Charts jobs
stress - used to review and critically examine - Gilbreth spelled backwards (except th)
3. Organizational the overall sequence of an operation by - to break jobs down into basic elements
- communication, teamwork, work focusing on the movements of the and base improvements on analysis of these
design, and telework operator or flow of materials basic element (eliminating, combining, or
Frederick Winslow Taylor - helpful in identifying nonproductive rearranging)
- father of scientific management parts of the process  Search – hunting for an item
Motion Study Principles  Worker-Machine Chart  Select – choose from groups of objects
- Frank and Lilian Gilbreth - used to determine the portions of a  Grasp – take hold of an object
- intended to improve worker efficiency work cycle during which an operator  Hold – retention of an object
and reduce injury and fatigue and equipment are busy or idle  Transportation Load – movement of an
Poor Posture - determine how many machines or object
- lead to fatigue, low productivity, and how much equipment the operator can  Release Load – deposit the object
injuries to the back, neck, and arm manage - other therbligs: inspect, position, plan,
Installing the Improved Method rest, and delay
METHODS ANALYSIS - convincing management of desirability of - for short, repetitive jobs
- analyzing of how a job is done the new method and obtaining the
 Micromotion Study
- moves from general to specific details, cooperation of workers
- use of motion pictures and slow
concentrating on the arrangement of the - if the proposed method constitutes a
motion to study motions that otherwise
workplace and movements of materials major change, workers may have to
would be too rapid to analyze
and/or workers undergo a certain amount of retraining, and
 Simo Chart
Sources of Need for Method Analysis full implementation will take some time
- used to study simultaneous motions
1. Changes in tools and equipment The Follow Up
of the hands
2. Changes in product design or - reviewing the operation after a reasonable
introduction of new products period and consult again
WORK MEASUREMENT
3. Changes in materials or procedures
- determining the length of time it should
4. Government regulations or contractual
take to complete the job
agreements MOTION STUDY
  Standard Time Confidence (%) - assumed to be the result of
- amount of time it should take a 90 1.65 observational error, thus,
qualified worker to complete a 95 1.96 discarded
specified task, working at a sustainable 95.5 2.00 *Abnormally Long Time:
98 2.33 - investigate observation to
rate, using given methods, tools, and
99 2.58
equipment, raw material inputs, and determine irregular occurring
 When the desired accuracy, e, is stated
workplace arrangement aspect, which should be factored
as an amount instead of percentage
- expected activity time plus 2
in the job time
zs
allowances for probable delays
- essential to provide a complete
n= ( )
e
 Limitations:
- only those jobs that can be observed
description of the parameters Where: can be studied
e = maximum acceptable amount of - cost of the study rules out its use
Commonly Used Methods time error - it disrupts the normal works routine
1. Stopwatch Time Study *take a small number of 2. Standard Elemental Times
- Frederick Winslow Taylor (late 19th) observations (10 to 20) and compute - derived from a firm’s own historical time
- most widely used the values x̅ and s, then recompute n study data common to many jobs
- for short, repetitive tasks using revised estimates of x̅ and s  Procedures:
- development of a time standard based on based on the increased data available a. Analyze the job.
observations of one worker taken over a  Observed Time b. Check the file for elements and
number of cycles - average of the recorded times record them.
 Basic Steps: ∑ xi c. Modify the file times.
a. Define the task and inform the OT = - the files may not pertain exactly to
n
worker. a specific task
Where:
b. Determine the number of cycles to d. Sum the elemental times.
OT = observed time
observe.  Advantages:
∑ x i = sum of recorded times
c. Time the job and rate the worker’s - potential savings in cost and effort
performance. n = number of observations created
d. Compute the standard time.  Normal Time - less disruption of work
 Reasons: - observed time adjusted for worker - performance rating do not have to be
a. some elements are not performed in performance done
every cycle NT =OT x PR  Disadvantages:
b. worker’s proficiency may not be the Where: - times may not exist for enough
same for all elements NT = normal time standard elements
c. to build a file of elemental times that PR = performance rating - file times may be biased or inaccurate
can be used to set times for other jobs NT =∑( x́ j x PR j) 3. Predetermined Time Standards
 The number of cycles the must be Where: - use of published data on standard
timed is a function of: x́ j = average time for element j elemental times
- the variability of observed times  Methods-Time Measurement
PR j = performance rating for element
- the desired accuracy (percentage of (MTM)
the mean of the observed times) j
- by Methods Engineering Council,
- desired level of confidence  Standard Time 1940
 Sample Size ST =NT x AF - based on extensive research of basic
2 Where: elemental motions and times
n= ( azsx́ ) ST = standard time
AF = allowance factor
a. Divide job into basic elements
(reach, move, turn, disengage)
Where:
AF job=1+ A b. Measure the distances
z = number of normal standard
Where: c. Rate the difficulty
deviations needed for desired
A = allowance percentage (job time) d. Refer to the appropriate table of
confidence
1 data
s = sample standard deviation AFday =
1− A  Standard Time
a = desired accuracy percentage
Where: - obtained by adding the times for all
x̅ = sample mean
A = allowance percentage (workday) of the basic elements
Typical values of z:
*Abnormally Short time:  Time Measurement Units (TMU)
Desired z value
- 1 TMU = 0.0006 minute
  Advantages:
- based on large numbers of workers
- not required to rate performance
- no disruption
- standards can be established even
before job is done
4. Work Sampling
- technique for estimating the proportion of
time that a worker or machine spends on
various activities and the idle time
- does not require timing an activity nor
continuous observation
- makes brief observations of a worker or
machine at random intervals and simply
notes that nature of activity
- resulting data: counts of the number of
activity or nonactivity observed
- goal: obtain an estimate that provides a
specified confidence no differing from the
true value by more than a specific error
 Two Primary Uses:
a. ratio-delay studies
- percentage of worker’s time that
involve unavoidable delays or the
proportion of time a machine is idle
b. analysis of nonrepetitive jobs
 Large Samples:
^p (1− ^p )
e=z
Where:
√ n
In the residential real estate market,
z = number of standard deviations location is an important factor.
^p = sample proportion (number of
occurrence ÷ sample size) Location decisions for many types of
businesses are made infrequently, but they
n = sample size
tend to have a significant impact on the
 Appropriate value for n: organization.
z 2^
n= ()e
p (1− ^p )
 Procedure:
a. Clearly identify the worker/machine
b. Notify about the purpose of the
study
c. Compute an initial estimate of
sample size using preliminary estimate
of ^p. Otherwise, use ^p = 0.50
d. Develop a random observation
schedule
e. Begin taking observations and
recompute the required sample size
f. Determine the estimated proportion
of time spent
 Random Number Table
- table consisting unordered sequence Objectives of Location Decision
of numbers used to determine random
As a general rule, profit-oriented
observation schedules organizations base their decisions on profit
- enables to incorporate randomness potential.
into the observation schedule
- digits are in groups of four Non-profit organizations strive to achieve a
balance between cost and the level of
- basic idea is to obtain numbers from
customer service they provide.
the table and to convert each one so it
corresponds to an observation time Most organizations do not set out with the
- 1st set = day, 2nd set = hour, and 3 rd intention of identifying the one best
set = minute location; rather, they hope to find a number
of acceptable locations from which to
- read the numbers in sequence (across
choose.
rows, down or up columns)
- one way to choose a starting point: Location criteria can depend on where a
dollar bill serial number business is in the supply chain.
a. Determine the number of days Site selection tends to focus more on:
and hours accessibility, consumer demographics,
b. Obtain the necessary number of traffic patterns and local customs.
sets
Web-based retail businesses are much
c. Repeat step 2 for hours and less dependent on location decisions; they
minutes can exist just about anywhere.
d. Link the days, hours, and
minute Supply Chain Considerations
e. Place in chronological order Supply chain management must address
supply chain configuration.
CHAPTER 8: LOCAL PLANNING
This includes determining the number and
AND ANALYSIS location of suppliers, production facilities,
The three most important determinants of warehouses, and distribution centers.
the value a property are “Location,
location and location”. A related issue is whether to have
centralized or decentralized distribution
Centralized distribution generally yields
scale economies as well as tighter control
than decentralized distribution, but it
sometimes incurs higher transportation
costs.
Decentralized distribution tends to be
Strategic
Decision
Importance of Location more responsive to local needs.
The decisions will have a significant
Location decisions are closely tied to an impact on costs, revenues, and
organization’s strategies. responsiveness.
Location choices can impact capacity and Location Options
flexibility.
Expand an existing facility. This option
Location decision important reasons: can be attractive if there is adequate room
for expansion, especially if the location has
 They entail a long-term commitment,
desirable features that are not readily
which makes mistakes difficult to
available elsewhere.
overcome.
 That location decisions often have an Add new locations while retaining
impact on investment requirements, existing ones. This is done in many retail
operating costs and revenues, and operations. Opening a new store in a
operations. shopping mall may simply draw customers
 The importance of location decisions is who already patronize an existing store in
their strategic importance to supply the same chain, rather than expand the
chains. market. On the other hand, adding locations
can be a defensive strategy designed to Financial - Companies can avoid the number of issues. One is how to maintain
maintain a market share or to prevent impact of currency changes that can occur operations without resorting to bribery.
competitors from entering a market. when goods are produced in one country
and sold in other countries. Cultural - Cultural differences may be
Shut down at one location and move to more real than apparent.
another. A shift in markets, exhaustion of Other - Globalization may provide new
raw materials, and the cost of operations sources of ideas for products and services, Managing Global Operation
often cause firms to consider this option new perspectives on operations, and Management styles may be quite different,
seriously. solutions to problems. so tactics that work well in one country
Do nothing. If a detailed analysis of Disadvantages may not work in another.
potential locations fails to uncover benefits Managers may have to deal with corruption
that make one of the previous three Transportation costs - High
transportation costs can occur due to poor and bribery as well as differences in work
alternatives attractive, a firm may decide to ethic.
maintain the status quo, at least for the time infrastructure or having to ship over great
being. distances, and the resulting costs can offset
The level of technology may be lower, and
savings in labor and materials costs. the resistance to technological change may
Global Location
Security costs - Increased security risks be higher than expected, making the
Globalization has opened new markets, and and theft can increase costs. Also, security integration of new technologies more
it has meant increasing dispersion of at international borders can slow shipments difficult.
manufacturing and service operations to other countries. General Procedure for Making Location
around the world. Decisions
Unskilled labor -Low labor skills may
In the past, companies tended to operate negatively impact quality and productivity, The way an organization approaches
from a “home base” that was located in a and the work ethic may differ from that in location decisions often depends on its size
single country. the home country. Additional employee and the nature or scope of its operations.
training may be required.
Facilitating Factors New or small organizations tend to adopt a
Import restrictions - Some countries place rather informal approach to location
Two Key Factors: restrictions on the importation of decisions. New firms typically locate in a
Trade Agreements. Barriers to manufactured goods, so having local certain area simply because the owner lives
international trade such as tariffs and suppliers avoids those issues. there.
quotas have been reduced or eliminated Criticisms - Critics may argue that cost
with trade agreements such as the North savings are being generated through unfair The general procedure for making
American Free Trade Agreement practices such as using sweatshops, in location decisions usually consists of the
(NAFTA), the General Agreement on which employees are paid low wages and following steps:
Tariffs and Trade (GATT), and the U.S.– made to work in poor conditions; using 1. Decide on the criteria to use for
China Trade Relations Act. Also, the child labor; and operating in countries that evaluating location alternatives, such
European Union has dropped many trade have less stringent environmental as increased revenues or community
barriers, and the World Trade Organization requirements. service.
is helping to facilitate free trade. 2. Identify important factors, such as
Risks location of markets or raw materials.
Technology. Technological advances in
communication and information sharing Political - Political instability and political 3. Develop location alternatives:
have been very helpful. These include unrest can create risks for personnel safety
faxing capability, e-mail, cell phones, and the safety of assets. a) Identify a country or countries for
teleconferencing, and the Internet. location.
Terrorism - Terrorism continues to be a b) Identify the general region for a
Benefits threat in many parts of the world, putting location.
personnel and assets at risk and decreasing c) Identify a small number of
Markets - Companies often seek the willingness of domestic personnel to community alternatives.
opportunities for expanding markets for travel to or work in certain areas. d) Identify site alternatives among the
their goods and services. community alternatives.
Economic - Economic instability might 4. Evaluate the alternatives and make a
Cost savings - Among the areas for create inflation or deflation, either of which
potential cost saving are transportation can negatively impact profitability. selection.
costs, labor costs, raw material costs, and
Identifying a Country, Region,
taxes. Legal - Laws and regulations may change,
Community, and Site
reducing or eliminating what may have
Legal and regulatory - There may be been key benefits.
Many factors influence location decisions.
more favorable liability and labor laws, and
However, it often happens that one or a few
less restrictive environmental and other Ethical - Corruption and bribery, common
f actors are so important that they dominate
regulations. in some countries, may be illegal in a
the decision.
company’s home country. This poses a
Transportation costs can be a major factor.
In service organizations, possible
dominating factors are market related and
include traffic patterns, convenience, and Financial:
competitors’ locations, as well as proximity
to the market.
Human factors can be very important, as
the following reading reveals. These might Technological:
include the “culture shock” that is often
experienced when employees are
transferred to an environment that differs
significantly from the current location.
Identifying a Country
Each country carries its own set of
potential benefits and risks, and decision Safety:
makers need to be absolutely clear on what
those benefits and risks are as well as their
likelihood of occurrence so that they can
make an informed judgment on whether Top three factors in determining where to
locating in that country is desirable.
Factors Relating to Foreign locations:
Government:
 Policies on foreign ownership of the profit in the foreign subsidiary.
production facilities
 Local content requirements
 Import restrictions
 Currency restrictions
 Environmental regulations
 Local product standards
 Liability laws
 Stability issues
Cultural differences:
 Living circumstances for foreign Location of Raw Material - Firms locate cost and availability of utilities,
workers and their dependents.
 Ways of doing business.
 Religious holidays/tradition.
Customer preferences:
 Possible “buy locally” sentiment.
Labor:
 Level of training and education of
workers
 Wage rates
 Labor productivity
 Work ethic
 Possible regulations limiting
number of foreign employees
 Language differences
Resources:
 Availability and quality of raw organizations choose locations relative to
materials, energy, transportation the needs of the users of their services,
infrastructure.
Competitive pressures for retail operations
can be extremely vital factors.
 Financial incentives, tax rates, Labor Factors - Primary labor
inflation rates, interest rates. considerations are the cost and availability
of labor, wage rates in an area, labor
productivity and attitudes toward work, and
whether unions are a serious potential
 Rate of technological change, rate problem.
of innovations.
Labor costs are very important for labor-
Market: intensive organizations.
 Market potential, competition. Most companies concentrate on the supply
of blue-collar workers, some firms are
more interested in scientific and technical
people as potential employees, and they
 Crime, terrorism threat. look for areas with high concentrations of
those types of workers.
locate manufacturing facilities were talent, Other Factors - Climate and taxes
labor costs, and energy costs. sometimes play a role in location decisions.
Transfer pricing rules that allow U.S. Identifying a Community
companies to establish a price for transfer
into the United States that keeps most of Local groups may actively seek to exclude
certain companies on such grounds, and a
company may have to go to great lengths to
Another factor to consider is the currency convince local officials that it will be a
and exchange rate risk that occurs when “responsible citizen”.
producing in one country and buying or
selling in another country. Community size can be particularly
important if a firm will be a major
Identifying the Region employer in the community; a future
decision to terminate or reduce operations
The primary regional factors involve raw in that location could have a serious impact
materials, markets, and labor on the economy of a small community.
considerations.
Other community-related factors are the
near or at the source of raw materials for environmental regulations, taxes, bond
three primary reasons: necessity, issues, tax abatements, low-cost loans,
perishability, and transportation cost. grants, and worker training.
Mining operations, farming, Another trend is just-in-time manufacturing
forestry, and fishing fall under necessity. techniques. Which encourage suppliers to
Firms involved in canning or freezing of locate near their customers to reduce
fresh fruits and vegetables, processing of supplier lead times.
dairy products, baking, and so on, must Microfactory refers to a small factory with
consider perishability when considering a narrow product focus, located near major
location. markets.
Transportation costs are important in It is likely that advances in information
industries where processing eliminates technology will enhance the ability of
much of the bulk connected with a raw manufacturing firms to gather, track, and
material, making it much less expensive to
distribute information that links
transport. purchasing, marketing, and distribution
Location of Markets - Profit-oriented with design, engineering, and
firms frequently locate near the markets manufacturing.
they intend to serve as part of their Ethical Issues - can arise during location
competitive strategy, whereas non-profit searches, so it is important for companies
and governments to have policies in place Market Area Plant Strategy - with this Service and retail are typically governed by
before that happens, and to keep ethical strategy, plants are designed to serve a somewhat different considerations than
aspects of decisions in mind while particular geographic segment of a market. manufacturing organizations in making
negotiating favorable treatment. location decisions.
Process Plant Strategy - with this
strategy, different plants concentrate on Manufacturers tend to be cost-focused,
different aspects of a process. concerned with labor, energy, and material
Identifying a Site costs and availability, as well as
General-Purpose Plant Strategy - with distribution costs.
The primary considerations related to sites this strategy, plants are flexible and capable
are land, transportation, and zoning or of handling a range of products. Service and retail businesses tend to be
other restrictions. profit or revenue focused, concerned with
Geographic information system (GIS) demographics such as age, income, and
Evaluation of potential sites may require refers to a computer-based tool for
consulting with engineers or architects, collecting, education, population/drawing area,
storing, retrieving, and competition, traffic volume/patterns, and
especially in the case of heavy displaying demographic data on maps.
manufacturing or the erection of large customer access/parking.
buildings or facilities with special Ways businesses use geographical Clustering refers to a similar types of
requirements. information systems: businesses locate near each other.
Clustering Similar types of businesses
Multiple Plant Manufacturing Strategies  Logistics companies use GIS data
locate near each other.
to plan fleet activities such as
One is to assign different product lines to routes and schedules based on the Locational Cost-Profit-Volume Analysis
different plants. locations of their customers.
Another is to assign different market areas  Publishers of magazines and Locational cost-profit volume analysis
to different plants. newspapers use a GIS to analyze refers to a technique for evaluating location
circulation and attract advertisers. choices in economic terms.
Third is to assign different processes to  Real estate companies rely
different plants. Each strategy carries The procedure for locational cost-
heavily on a GIS to make maps
certain cost and managerial implications. profit-volume analysis involves these
available online to prospective
steps:
home and business buyers.
Product Plant Strategy - With this
 Banks use a GIS to help decide 1. Determine the fixed and variable costs
strategy, entire products or product lines
where to locate branch banks and associated with each location alternative.
are produced in separate plants, and each
to understand the composition and
plant usually supplies the entire domestic
needs of different market 2. Plot the total-cost lines for all location
market. alternatives on the same graph.
segments.
Factors affecting location decisions:  Insurance companies use a GIS
3. Determine which location will have the
to determine premiums based on
Regional: lowest total cost for the expected level of
population distribution, crime
output. Alternatively, determine which
figures, and likelihood of natural
 Location of raw materials or location will have the highest profit.
disasters such as flooding in
supplies. various locations, and to manage The Transportation Model
 Location of markets risk.
 Labor  Retailers are able to link The transportation model of linear
information about sales, programming is very helpful. It is a special-
Community:
customers, and demographics to purpose algorithm used to determine the
 Quality of life geographic locations in planning minimum transportation cost that would
 Services locations. They also use a GIS to result if a potential new location were to be
 Attitudes develop marketing strategies and added to an existing system.
for customer mapping, site
 Taxes Factor rating is a technique that can be
selection, sales projections,
 Environmental Regulations applied to a wide range of decisions
promotions, and other store
 Utilities ranging from personal (buying a car,
portfolio management
 Development Support deciding where to live) to professional
applications.
(choosing a career, choosing among job
 Utility companies use a GIS to offers).
Site:
balance supply and demand, and
 Land identify problem areas. Factor rating is a general approach to
 Transportation  Emergency services use a GIS to evaluating locations that includes
 Environmental/legal allocate resources to locations to quantitative and qualitative inputs.
provide adequate coverage where
they are needed. The following procedure is used to
develop a factor rating:
Service and Retail Locations
1. Determine which factors are relevant
(e.g., location of market, water supply,
parking facilities, revenue potential).
2. Assign a weight to each factor that
indicates its relative importance
compared with all other factors.
3. Decide on a common scale for all
factors (e.g., 1 to 100), and set a
minimum acceptable score if
necessary.
4. Score each location alternative.
5. Multiply the factor weight by the score
for each factor, and sum the results for
each location alternative.
6. Choose the alternative that has the
highest composite score, unless it fails
to meet the minimum acceptable score.
Center of gravity method - for locating
a distribution center that minimizes
distribution cost.
CHAPTER 9: QUALITY
MANAGEMENT
QUALITY
- ability of a product or service to
consistently meet or exceed customer
requirements or expectations
- working definition of customer quality is
customer-dependent
INSIGHTS ON QUALITY
MANAGEMENT
Defining Quality: The Dimensions of
Quality
 Performance – Expectations
- equal; expectations have been met
- negative; expectations have not been
met
- positive; expectations have exceeded
 Both establishes a conceptual
framework, where it must be stated in
terms of specific measurable
characteristics.
Dimensions of Product Quality
 First four dimensions are judged by its
fitness for use.
 Price is not a dimension of quality.
1. Performance – main characteristics
2. Aesthetics – appearance, feel, smell,
taste
3. Special Features – extra characteristics
4. Conformance – corresponds to design
specification
5. Reliability – dependable performance
6. Durability – performance over time The Determinants of Quality
7. Perceived Quality – indirect evaluation 1. Design Phase
8. Serviceability – handling of complaints - starting point for the level of quality
and repairs eventually achieved
- involves decisions about the specific
Dimension of Service Quality characteristics
1. Convenience – availability and  Quality of Design
accessibility - intention of designers to include or
2. Reliability – ability to perform exclude certain features in a product
3. Responsiveness – willingness to help or service
customers to deal with problems - take into account customer wants,
4. Time – speed of delivery production or service capabilities,
5. Assurance – knowledge exhibited and safety and liability, costs, and other
ability to convey trust and confidence similar considerations
6. Courtesy – way customers are treated
7. Tangibles – physical appearance 2. Quality of Conformance
8. Consistency – same level of good - degree to which goods and services
quality repeatedly conform to the intent of the designers
- one important key is reducing the
Challenges of Service Quality variability in process outputs
 Customer wants are difficult to pin 3. Ease of Use
down. - the should and shouldn’t must be clearly
 Descriptions are difficult to translate written or it may adversely affect quality
into service specification. - consumer education through printed
 Customer expectations changes often instructions and labels must be clearly
changes over time. visible and easily understood
 Customers has different expectations. 4. Service after Delivery
 Each contact is “moment of truth”, - recall and repair, adjustment, replacement
service is instantly judged. or buyback, or reevaluation of a service
Assessing Service Quality Responsibility for Quality
SERVQUAL 1. Top Management
- designed to obtain feedback on the ability - has the ultimate responsibility
to provide quality service to customers - must institute programs to improve
- focuses on tangibles, reliability, quality; guide, direct, and motivate
responsiveness, assurance, and empathy managers and workers; and set an example
- identifies service strengths and 2. Design
weaknesses - where quality products and services
Discrepancies begin
- features, process to produce, and services
1. Actual customer expectations and
to deliver
management perceptions of those
3. Procurement
expectations.
- obtaining goods and services that will not
2. Management perceptions of customer
detract from the quality
expectations and service-quality
4. Productions/Operations
specifications.
- ensure that processes yield products and
3. Service quality and service actually
services that conform to design
delivered.
specifications
4. Service actually delivered and what is
- monitor process, and finding and
communicated about the service to
correcting root causes
customers.
5. Quality Assurance
5. Customers’ expectations of the service
- gathering and analyzing data on problems
provider and their perceptions of provider
and working with operations to solve
delivery.
problems
6. Packaging and Shipping
- ensures that goods are not damages,
packages are clearly labeled, instructions
are included, all parts are included, and
shipping occurs in a timely manner
7. Marketing and Sales
- determine customer need and
communicate with them
- report any problems with products or
services
8. Customer Service
- first department to learn of problems, and
communicate it to right department
- deal customers in reasonable manner and
work to resolve problems
Benefits of Good Quality
 Enhanced reputation for quality
 Ability to command premium prices
 Increase market share
 Greater customer loyalty
 Lower liability costs
 Fewer production or service problems
Consequences of Poor Quality
1. Loss of Business
- damages profit-oriented organization’s
reputations
- lead to decreased share of the market
- increases criticism
2. Liability
- damages or injuries resulting from either
faulty design or poor workmanship
- often substantial, especially if large
numbers of items are involved
3. Productivity
- rework or scrap items reduces the amount
of usable output for a given amount of
input
- redoing the service reduces service
productivity
4. Cost
- the earlier problem is identified, the
cheaper the cost to fix it
Costs of Quality
Appraisal Costs
- costs of activities designed to ensure
quality or uncover defects
Prevention Costs
- costs of preventing defects from
occurring
- investments for achieving good quality
Failure Costs
- costs caused by defective parts of
products or by faulty services
 Internal Failures
- discovered during the process
 External Failures
- discovered after the delivery
- defective products or poor service
that go undetected by the producer
- costs are typically much greater on a
per unit basis
Two School of Thoughts
1. Prevention costs will be out-weighed by
savings in appraisal and failure costs.
 As the cost of defect preventions
increases, the costs of appraisal and
failure decrease by much more.
 Net result is lower than total costs,
making quality free.
2. Attempting to go beyond a certain point  1924: Statistical Control Charts are
reduces the funds available for other
objectives.
 Return on Quality
- approach that evaluates the financial
return of investments in quality
- focuses on the economics of quality
efforts
Ethics and Quality Management
 All members of an organization have
an obligation to perform their duties in
an ethical manner.
 One major category is substandard
work, including parts defective
products and substandard service, poor
designs, shoddy workmanship,
substandard parts and raw materials.
 Knowledge of it, and failure to correct  Mid-1950s: manufacturing also included
and report it in a timely manner is
unethical.
 Consequences: increased costs in
terms of decreased productivity,  1960s: Zero Defects
increased accident rate,
inconveniences and injuries, and
increase liability costs
THE EVOLUTION OF QUALITY
MANAGEMENT
 Industrial Revolution
- skilled craftsmen performed all stages
of production
- one person or a small group are
responsible for an entire product
 Division of Labor
- each worker was then responsible for
only a small portion of each product
- responsibility of quality shifted to the
foremen
 Frederick Winslow Taylor
- Father of Scientific Management
- gave new emphasis to quality by
including product inspection and gauging
in his list of fundamental areas of
manufacturing management
 G. S. Radford
- notions of involving quality
considerations in product design stage
- making connections among high
quality, increased productivity, and
lower costs
used to monitor production.
 1930: Tables are used for sampling.
 Statistical quality control were not
widely used until World War II.
 World War II
- emphasis on quality control
- US Army refined sampling techniques
for large shipment of arms
 1940:
- trained engineers in other industries
- professional quality organizations were
emerging throughout the world
 American Society for Quality Control
(ASQC/ASQ)
- promoted quality with its publication,
seminars and conferences, and training
programs
 1950s: quality assurance.
product design and incoming raw
materials. There is a greater involvement
of the upper management.
- focused on employee motivation and
awareness, and the expectation of
perfection from each employee
- evolved from the success of the Martin
Company
 1970s: quality assurance increased
emphasis in service.
 Organization of Petroleum Exporting
Countries (OPEC)
- causes the increase in energy costs, and
automobile
- Japanese took advantage of these, and
captured an increased share of the
automobile market
 1980s: American producers tried to
improve their quality while lowering
their costs.
 Since 1970s: Strategic Approach
- focuses on preventing mistakes from
occurring in the first place
- greater emphasis on customer
satisfaction, and involves all level of
management in a continuing effort to
increase quality
The Foundations of Modern Quality
Management: The Gurus
1. Walter Shehart
- Father of Statistical Quality Control
- control charts for analysing output of
processes to determine when corrective
action was necessary
2. W. Edwards Deming
- assist the Japanese in improving quality
and productivity (after WWII)
 Deming Prize
- prized established by the Japanese
and awarded annually to firms that
distinguish themselves with quality
management programs
 Deming’s 14 Points
- prescription needed to achieve
quality
- guided Japan’s rise to a world
economic power
o System: cause of inefficiency and
poor quality
o Management’s Responsibility:
correct the system to achieve the
desired results
o Reduce Variation: special causes
(correctable) and common causes
(random)
3. Joseph M. Juran
- taught Japanese manufacturer how to
improve the quality of their goods
- viewed quality as fitness-for-use
- 80 percent of quality defects are
management controllable
- first to measure the cost of quality
 Trilogy
o Quality Planning: capability of
meeting standards
o Quality Control: to know when
corrective action is needed
o Quality Improvement: find better
ways of doing thing
 Philosophy: commitment
management to continual improvement
4. Armand Feiganbaum
- quality is total field and the customer
defines the quality
 Cost of Nonconformance Approach
- reason for management to commit
quality
5. Philip B. Crosby
- develop the concept of zero defects
- popularized “do it right the first time”
- any level of defects is too high
 Quality-is-Free Concept
- costs of poor quality are much greater
than traditionally defined
6. Kaoru Ishikawa
- strongly influenced by Deming and Juran
- first quality expert to call attention to the
internal customer
 Fishbone Diagram
- cause and effect diagram
- for problem solving
implementation of quality circles
7. Genichi Taguchi
- Taguchi Loss Function: formula for
determining the cost of poor quality
8. Taiichi Ohno and Shigeo Shing
- Kaizen: continuous improvement
QUALITY AWARDS
- to generate improvement in quality
The Baldridge Award
- named after the late Malcolm Baldridge
- annual award given by the US
government to recognize quality
achievements of US companies
- administered by National Institute of
Standard and Technology
Seven Main Areas
- leadership, information and analysis,
strategic planning, human resource
management, customer and market focus,
process management, and business results
Benefits for applying (did not win):
written summary of the strengths and
weaknesses of their quality management
and suggestions
Benefits of the Baldridge Competition
a. Winners achieve financial success.
b. Winners share their knowledge.
c. The process motivates employees.
of d. The process provides a well-
designed quality system
e. The process requires obtaining data.
f. The process provides feedback.
European Quality Award
- European award for organizational
excellence
- sits at the top of regional and national
quality awards
The Deming Prize
- in honor of the late W. Edwards Deming
- Japan’s highly coveted award recognizing
successful quality efforts
- focus is on statistical quality control,
especially more on customer satisfaction
QUALITY CERTIFICATION
International Organization for
Standardization (ISO)
- promotes worldwide standards for the
and
improvement of quality, productivity, and
operating efficiency through a series of
standards and guidelines
- standards have economic and social
benefits
- standards are meant to be generic
ISO 9000
- set of international standards on quality
management and quality assurance, critical
to international business (Europe)
 Categories:
− System requirements
− Management requirements
− Resource requirements
− Realization of requirements
− Remedial requirements
 Eight (8) Quality Management
Principles
− A customer focus
− Leadership
− Involvement of people
− A process approach
− A system approach to management
− Continual improvement
 − Use of a factual approach to decision
making
− Mutually beneficial supplier
relationship
ISO 14000
- set of international standards for assessing
a company’s environmental performance
 Management Systems
- systems development and integration
of environmental responsibilities into
business planning
 Operations
- consumption of natural resources and
energy
 Environmental Systems
- measuring, assessing, managing
emissions, effluents, and other waste
streams
ISO 24700
- set of international standards that pertains
to the quality and performance of office
equipment that contains reused components
- declaration of conformity to demonstrate
that a marketed product with reused
components performs equivalent to new,
meeting equivalent-to-new component
specifications and performance criteria
QUALITY AND THE SUPPLY CHAIN
 Developed countries often have a fair
level of sophistication, while little or no
awareness of modern quality practices
may be found in less-developed
countries.
 Emphasis on reducing outsourcing risk
as well as product or service variation
and overhead.
- from use of substandard materials or
work methods leading to inferior product
quality and potential product liability
 Supply chain can benefit from a
collaborative relationship with suppliers.
TOTAL QUALITY MANAGEMENT
Management’s Primary Role
- lead an organization in its daily operation
and to, maintain it as a viable entity
Customer Satisfaction
- in customer terms, it has become a
specific goal in the later 1980s
- through providing high quality
Operating Philosophy
- Base your management decisions on a
long-term philosophy, even at the expense
of a short-term financial goals.
- Generate value for the customer, society,
and the economy, it is the starting point.
- Evaluate every function in the company
in terms of its ability to achieve this.
Total Quality Management (TQM)
- philosophy that involves everyone in an
organization in a continual effort to
improve quality and achieve customer
satisfaction
- to prevent poor quality from occurring
Three Key Philosophies
1. Continuous Improvements
2. Involvement of Everyone
3. Customer Satisfaction
TQM Approach
1. Find out what customers wants
2. Design a product or service that will
meet what customers want
3. Design processes that facilitate doing
the job right the first time
4. Keep track of results, and use them to
guide improvement in the system.
5. Extend these concepts throughout the
supply chain
Elements of TQM
1. Continuous Improvement
- philosophy that seeks to improve all
factors related to the process of
converting inputs into outputs on a going
basis
- “just because it isn’t broke doesn’t
mean it can’t be improved”
2. Competitive Benchmarking
- identifying other organizations that are
the best at something and studying how
they do it to learn how to improve your
operation
3. Employee Empowerment
- giving workers the responsibility for
improvements and the authority to make
changes to accomplish them
4. Team Approach
- the use of teams
5. Decisions Based on Facts rather
than Opinions
- management gathers and analyses data
as a basis for decision making
6. Knowledge of Tools
- trained in the use of quality tools
7. Supplier Quality
- quality assurance and quality
improvement efforts so that their
processes are capable of delivering
quality parts and materials
8. Champion
- promote the value and importance of
TQM principles
9. Quality at the Source
- philosophy of making each worker
responsible for the quality of his or her
work
 places direct responsibility for
quality on the person(s) who
directly affect it
 removes the adversarial
relationship
 motivates workers
10. Suppliers
- they are partners in the process
- long-term relationships are encouraged
Six Sigma
- business process for improving quality,
reducing costs, and increasing customer
satisfaction
 statistically: having no more than 3.4
defects per million opportunities in any
process, product, or service
 conceptually: a program designed to
reduce the occurrence of defects to
achieve lower costs and improved
customer satisfaction
- key way to improve quality, save time,
cut costs, and improve customer
satisfaction
Management Component
- providing strong leadership, defining
performance metrics, selecting projects
likely to achieve business results, and
selecting and training appropriate people
Technical Component
- improving process performance, reducing
variation, utilizing statistical methods, and
designing a structured improvement
strategy, which involves definition,
measurement, analysis, improvement, and
control
Other Key Players
1. Program Champions
- identify and rank potential projects,
help select and evaluate candidates,
manage program resources, and serve as
advocates for the program
2. Master Black Belts
- have extensive training in statistics and
use of quality tools
- teachers and mentors of black belts
3. Black Belts
- project team leaders responsible for
implementing process improvement
projects
- completed four weeks of six-sigma
training
- demonstrated mastery of the subject
matter
4. Green Belts
- members of project teams
5. DMAIC
- a six-sigma process: define measure,
analyze, improve, and control
Lean/Six Sigma
- an approach to continuous improvement
that integrates lean operation principles and
six-sigma techniques
- process improvement that integrates
principles from lean operation and
statistical tool for variation reduction from
six sigma to achieve speed and quality
- combines the power of the workers and
the structured approach of six-sigma
methodology
Obstacles to Implementing TQM
1. Lack of companywide definition of
quality
2. Lack of a strategic plan for change
3. Lack of customer focus
4. Poor intra-organizational communication
5. Lack of employee empowerment
6. View of quality as a “quick fix”
7. Emphasis of short-term financial results
8. Inordinate presence of internal politics
and “turf” issues
9. Lack of strong motivation
10. Lack of time to devote quality
initiatives
11. Lack of leadership
Criticisms of TQM
1. Overzealous advocates may pursue  Evaluate the data collection
TQM programs blindly, focusing attention  Compare the result and original goals
on quality even though other priorities may 4. Act
be more important.  Successful: standardize and
2. Programs may not be linked to the communicate it
strategies of the organization in a  Unsuccessful: revise and repeat the
meaningful way. process or cease the project
3. Quality-related decisions may not be tied
to the market performance. PROCESS IMPROVEMENT
4. Failure to carefully plan a program - systematic approach to improving a
before embarking on it can lead to false process
starts, employee confusion, and - involves documentation, measurement,
meaningless results. and analysis for the purpose of improving
5. Organization sometimes pursue the functioning of a process
continuous improvement when dramatic A. Map the process
improvement is needed. 1. Collect information
6. Quality efforts may not be tied to results. 2. Prepare a flowchart
B. Analyze the process
PROBLEM SOLVING 1. Questions about the process
- one of the basic procedures of TQM 2. Questions about each steps
 Eliminating the cause C. Redesign the process
- important aspect of problem solving
in the TQM so that the problem does QUALITY TOOLS
not recur 1. Flowcharts
 Users like to think of problems as - diagram of the steps in a process
“opportunities for improvement” - helps identify possible points in a process
Basic steps in problem solving: where problems occur
Step 1: Define the problem and establish  Diamond: decision points
an improvement goal  Rectangular: procedures
Step 2: Develop performance measures  Arrows: direction of flow of the
and collect data steps
Step 3: Analyse the problem 2. Check Sheets
Step 4: Generate potential solutions - tool for recording and organizing data to
Step 5: Choose a solution identify a problem
Step 6: Implement solution 3. Histograms
Step 7: Monitor the solution to see if it
- chart of an empirical frequency
accomplishes the goal distribution
- useful in getting a sense of the
The Plan-Do-Study-Act Cycle (PSDA) distribution of observed values
- the Shewhart Cycle or the Deming Wheel - be able to observe:
- framework for problem solving and  If distribution is symmetrical
improvement activities
 Range of values
1. Plan
 Any unusual values
 Study the current process
- two peaks: possibility of two
 Document the process distributions of different centers
 Collect data 4. Pareto Analysis
 Analyze and develop a plan - Vilfredo Pareto
 Specify measures for evaluating - technique for classifying problem areas
2. Do according to degree of importance, and
 Implement the plan (on a small scale) focusing on the most important
 Document any changes - shows the number of occurrences by
 Collect data systematically category, arranged in order of frequency
3. Study  80-20 Rule
 - 80 percent of the problems come
from the 20 percent of the items
5. Scatter Diagram
- graph that shows the degree and direction
of relationship between two variables
- may point to a cause of a problem
 Scattered: little or no relationship
 Lined Up: higher correlation, less
scatter

6. Control Charts
- statistical chart of time-ordered values of
a sample statistic
- monitor a process to see if the process
output is random
- detect the presence of correctable causes
of variation
- can indicate when a problem occurs and
give insight into what cause the problem
7. Cause-and-Effect Diagram
- fishbone diagram or Ishikawa Diagram
- diagram used to search for the cause(s) of
a problem
- who, what, where when, why, and how
8. Run Charts
- tool for tracking result over a period of
time
- aid in identifying trends or other patterns
that may be occurring

Methods for Generating Ideas

1. Brainstorming
- technique for generating a free flow of
ideas in a group of people
- under a relaxed atmosphere that
encourages unrestrained uncollective
thinking
2. Quality Circles
- group of workers who meet to discuss
ways of improving products or processes
- less structured and more informal
3. Benchmarking
- process of measuring performance against
the best in the same or another industry