OM Merged

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Session 1
Operations Management
Dr. Siddhartha Kushwaha

ksiddhartha@ibsindia.org
Your Faculty : Dr. Siddhartha Kushwaha
• BE (Mechanical)
• MBA (Operations Management, IBS Hyderabad, 2011)
• PhD (Operations & Supply Chain Management, IBS Hyderabad, 2016)
• Visiting Scholar ( University of Memphis, the Fogelman College of
Business & Economics, TN, USA)
• Teaching Interest: Business Analytics, Operations Management,
Quality Management, Innovation Management, Project Management
• Research Interest: Sustainable Supply Chain Management,
Outsourcing
Course Description
• Design and Improvement of processes of both profit as well as non-profit
organizations that create Products and Services upon which economies depend.
• Production Processes in Manufacturing and Service Organizations need to both
increase revenues and reduce costs to have a competitive advantage as well as
remain relevant
• This course helps students understand, appreciate and apply concepts and
contemporary practices of managing operations in manufacturing as well as
service sectors.
• Students will learn several analytical techniques and frameworks used to
overcome the challenges faced in integration of numerous activities and
processes to produce products and services competitively.
• Operations Management is a Theory of Action.
• Many a plan runs aground due to poor execution.
• Strategy, Processes, logistics, Planning and control help managers succeed at
operations and its management.
Course Objectives
Upon the successful completion of the Course, the students are expected to:
• Identify and describe the strategic role of OM in creating and enhancing a
firm’s competitive advantages
• Classify and discuss key concepts and issues of OM in both manufacturing
and service organizations
• Define and organize business processes in services / manufacturing
required for improvement
• Identify the operational issues in the value addition processes of a firm
• Discuss and execute analytical skills and problem-solving tools to resolve
operational issues
Expected Learning Outcomes
• Discuss and explain the concepts related to manufacturing/services in
operations management.
• Identify and describe issues faced by operations manager and select the
possible solutions for the same.
• Define and demonstrate multiple process-oriented options related to the
design and management of quality, inventory, logistics, facility location and
layout and select the optimal solutions for the same.
• Describe industry-based relevant applications of the concepts (theoretical
and numerical) and provide necessary outcomes based on situations
• Discuss and examine the various issues related to the successful
implementation of operations strategies and the identification of remedial
measures for the same.
Recommended Text Book
• Operations Management, IUP, FedUni, 2020
Suggested Reference Books:
• “Operations & Supply Management” by Richard B. Chase, Ravi Shankar, F.
Robert Jacobs, (15th Edition), 2018
• “Operations Management”, William J. Stevenson, Tata McGraw-Hill
Education, New Delhi. 2009, 11eth Edition (Special Indian Edition)
• “Quantitative Analysis for Management” by Barry Render, Ralph M. Stair,
and Michael E. Hanna. Prentice Hall Publication, New Delhi. 2008. 9th
Edition. (For Linear Programming and Transportation Problems)
• “Production and Operations Management”, Everette E. Adam and Ronald J.
Ebert. Prentice Hall of India. New Delhi. 2004. 5th Edition.
• “Operations Management Strategy & Analysis”, Lee J. Krajweski and Larry P.
Ritzman. Person Education. New Delhi. 2002. 6th Edition.
Course Coverage
• Supply Chain Strategy
• Operations Strategy
• Transportation and Logistics
• Facility location
• Production Process & Facility Layout
• Product and Service design
• Process Analysis
• Intermediate Planning
• MRP
• Inventory Management
• Short Term Scheduling
• Project Management
Operations
Operations is that part of a business organization that is responsible for producing goods
• What is Operations?
and/or services.
• Chronological
• Sequence of
• Tasks/activity
• Towards producing product/rendering service
Types of Operations/ transformation
process
• Physical (manufacturing process)
process
• Storage ( warehouse)
process
• Location(transportation)
process
• Exchange (retail operations)
process
• Information (as in comm)
process
• Physiological (as in heallthcare)
process
• Psychological (as in entertaitment)
Quiz:
Which transformation process we can observe in video?
https://www.youtube.com/watch?v=qlxk6oLzCTw
Operations
• Goodsare physical items that include raw materials, parts, such as motherboards that go
Goods
into computers, and final products such as cell phones and automobiles.
• Examples
Examples: Automobiles, Commodities, Groceries
•Services
Servicesare activities that provide some combination of time, location, form, or psychological
value.
• Examples
Examples: : Healthcare, Banking, Mobile Communications
Operations Management, & Value
Addition
• Operations
Operations Management
management (OM) : the design, operation, and improvement of the systems that
create and deliver the firm’s primary products and services.
• Value Addition in Goods: How Raw Materials are Collected, Step-by-Step Distributed,
and Utilized to Develop the Final Product for Consumer Use.
I. Collect Raw Materials (Inputs)

II. Raw materials introduced in machines (Process)
III. Produce the final Product (Output)
How Information is Collected, Step-by-Step Distributed, and

• Value Addition in Services: Utilized to Develop the Final Service Package for Consumer
I. Customers arrive at Service Locations Utility
II. Service Person listens to Customer’s Requests
III. Service Person suggests solutions to Customers
IV. Based on the Customer convenience, the service
is delivered
Manufacturing of Product vs.
Rendering of Service
1. Degree of customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
9. Evaluation of work
10. Ability to patent design
Roles of Operations Manager
• Effective communicator
• Dealing with crisis and resolving conflicts
• Taking Strategic decisions related to
planning and designing of operating
systems
• Managing resources
• Inventory management
• Ensures operation systems compliance with organizations
goals
• Manufacturing
• Quality Control
• Maintenance
Quiz: What roles the professor Playing here?
https://www.youtube.com/watch?v=BKCLQbWkEKE
Historical Evolution of OM
• Industrial Revolution
• Scientific Management
• Decision Models and Management Science
• Influence of Japanese Manufacturers
Industrial Revolution
• Pre-Industrial Revolution
• Craft production - System in which highly skilled workers use simple, flexible
tools to produce small quantities of customized goods
• Some key elements of the industrial revolution
• Began in England in the 1770s
• Division of labor - Adam Smith, 1776
• Application of the “rotative” steam engine, 1780s
• Cotton Gin and Interchangeable parts - Eli Whitney, 1792
• Management theory and practice did not advance appreciably during this
period
Scientific Management
• Movement was led by efficiency engineer, Frederick Winslow
Taylor
• Believed in a “science of management” based on observation,
measurement, analysis and improvement of work methods, and
economic incentives
• Management is responsible for planning, carefully selecting and
training workers, finding the best way to perform each job, achieving
cooperate between management and workers, and separating
management activities from work activities
• Emphasis was on maximizing output
Scientific Management - contributors
• Frank Gilbreth - father of motion studies
• Henry Gantt - developed the Gantt chart scheduling system and recognized the
value of non-monetary rewards for motivating employees
• Henry Ford - employed scientific management techniques to his factories
• Moving assembly line
• Mass production
Decision Models & Management Science
• F.W. Harris – mathematical model for inventory management, 1915
• Dodge, Romig, and Shewart – statistical procedures for sampling and quality control, 1930s
• Tippett – statistical sampling theory, 1935
• Operations Research (OR) Groups – OR applications in warfare
• George Dantzig – linear programming, 1947
Influence of Japanese Manufacturers
• Refined and developed management practices that increased productivity
• Credited with fueling the “quality revolution
• Just-in-Time production
Assignment
• https://www.youtube.com/watch?v=KVcqbqpMfQY
• https://www.youtube.com/watch?v=1qlrRmRTbVY
• Watch above videos and answer following

Q : What supply chain challenges you think operations managers are
face?
Questions?
Thank you
Siddhartha Kushwaha
Dos & Don’ts
ON
Session 2
Supply Chain Management

Supply Chain
the sequence of organizations (suppliers, manufacturers, distributors, and customers)
- their facilities, functions, and activities - that are involved in producing and
delivering a product or service
Suppliers Service support Local service Customers

Services operations providers
Supply networks Transformation Output

Inputs Localization
Manufacturing
Suppliers Manufacturing Distribution Customers
Supply Chain
Feedback: To ensure
that the desired outputs
are obtained, an
organization takes
measurements at
various points
Transformation Process:
The creation of goods or
services involves
transforming or converting
inputs into outputs Control: Compare
Why Trucking is
feedback with
circled?
established standards
What is control in this What would be the to check need for
case? Feedback for trucking? corrective action
Logistics:
• The part of a supply chain
involved with the forward
and reverse flow of
goods, services, cash, and
information.
Managing Supply & Demand
Operations &
Supply Chains Sales & Marketing
Wasteful
Supply
> Demand Costly
Opportunity Loss
Supply
< Demand Customer
Dissatisfaction
The goal of SCM is to

Supply
= Demand Ideal
match supply to demand
as effectively and
efficiently as possible
Demand-Supply
Mismatch #1:
Bull-Whip Effect
https://www.youtube.com/watch?v=v3WK1Sgmu50
Bullwhip Effect
The magnification of variability in orders in the supply-chain
Retailer’s Orders Wholesaler’s Orders Manufacturer’s Orders
Time Time Time
A lot of …can lead to …can lead to

retailers each greater variability even greater
with little for a fewer number variability for a
variability in of wholesalers, single
their orders…. and… manufacturer.
Demand-Supply Mismatch #2: SCM functioning
1. Inventory management: (Managing procurement and suppliers)
• Carry extra inventory as a way to avoid shortages due to supply chain interruption
• Have backups for delivery from suppliers and to customers
2. Reducing risks
• Use only reliable suppliers
• Determine which suppliers are critical and get to know them and any challenges they have
• Measure supplier performance
• Recognize warning signs of supplier issues
• Have plans in place to manage supply chain problems
3. International trade
• Work with someone who has expertise to help oversee foreign suppliers
• Set expectations for demand and timing
• Do not rely on a single supplier
• Build goodwill to help in negotiations and resolving any problem that arise
• Consider using domestic suppliers if the risks of working with foreign suppliers are prohibitive
Demand-Supply Mismatch #4 : Outsourcing?
Outsourcing is defined as the act of moving a firm’s internal activities and
decision responsibility to outside providers
Reasons to Outsource
• Organizationally-driven
• Improvement-driven
• Financially-driven
• Revenue-driven
• Cost-driven
• Employee-driven
Benefits of Outsourcing
• Lower prices may result from lower labor costs
• The ability of the organization to focus on its core strengths
• Permits the conversion of some fixed costs to variable costs
• It can free up capital to address other needs
• Some risks can be shifted to the supplier
• The ability to take advantage of a supplier’s expertise
• Makes it easier to expand outside of the home country
Risks of Outsourcing
• Inflexibility due to longer lead times
• Increased transportation costs
• Language and cultural differences
• Loss of jobs
• Loss of control
• Lower productivity
• Loss of business knowledge
• Knowledge transfer and intellectual property concerns
• Increased effort required to manage the supply chain
NEXT Session : Case- ZARA: Future Ready?
Case Preparation Questions
• Identify Risk sources for ZARA.
• Identify Benefits of Outsourcing for ZARA
• Identify probable supply chain for ZARA
Video Resources:
• https://www.youtube.com/watch?v=2OvBYL6u0cg
• https://www.youtube.com/watch?v=Ir1b-ez2x5g
• https://www.youtube.com/watch?v=tLfNUD0-8ts
• https://hbr.org/webinar/2015/11/a-new-approach-to-manage-supply-
chain-risk
Questions?
Thank you
Siddhartha Kushwaha
Dos & Don’ts
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07-02-2021 Dr. Siddhartha Kushwaha 1

Session 4-5
Operations Strategy Concepts

2
Mission/Strategy/Tactics
Mission Strategy Tactics
How does mission, strategies and tactics relate to

decision making and distinctive competencies?

Strategy
• Strategies
• Plans for achieving organizational goals
• Mission
• The reason for existence for an organization
• Mission Statement
• Answers the question “What business are we in?”
• Goals
• Provide detail and scope of mission
• Tactics
• The methods and actions taken to accomplish strategies

Planning and Decision Making
Mission
Goals
Organizational Strategies
Functional Goals
Finance Marketing Operations

Strategies Strategies Strategies
Tactics Tactics Tactics
Operating Operating Operating

procedures procedures procedures
Examples of Strategies
• Low cost
• Scale-based strategies
• Specialization
• Flexible operations
• High quality
• Service

Strategy Example
Rita is a high school student. She would like to have a

career in business, have a good job, and earn enough
income to live comfortably
Mission: Live a good life
• Goal: Successful career, good income
• Strategy: Obtain a college education
• Tactics: Select a college and a major
• Operations: Register, buy books, take
courses, study, graduate, get job

ZARA Operation Strategy https://www.youtube.com/watch?v=whFsziS3x18

The Role of Operations Strategy
• Provide a plan that makes best use of resources which;
• Specifies the policies and plans for using organizational resources
• Supports Business Strategy as shown on next slide

Importance of Operations Strategy
• Essential differences between operational efficiency and strategy:
• Operational efficiency is performing tasks well, even better than competitors
• Strategy is a plan for competing in the marketplace
• Operations strategy ensures all tasks performed are the right tasks

Operations Strategy
Strategy Process Example
Customer Needs More Product
Corporate Strategy Increase Org. Size
Operations Strategy Increase Production Capacity
Decisions on Processes
and Infrastructure Build New Factory

Competing on Cost
• Offering product at a low price relative to competition
• Typically high volume products
• Often limit product range & offer little customization
• May invest in automation to reduce unit costs
• Can use lower skill labor
• Probably uses product focused layouts
• Low cost does not mean low quality

Competing on Quality
• Quality is often subjective
• Quality is defined differently depending on who is defining it
• Two major quality dimensions include
• High performance design:
• Superior features, high durability, & excellent customer service
• Product & service consistency:

• Meets design specifications
• Close tolerances
• Error free delivery
• Quality needs to address
• Product design quality – product/service meets requirements
• Process quality – error free products

Competing on Speed or Time
• Time/speed one of most important competition priorities
• First that can deliver often wins the race
• Time related issues involve
• Rapid delivery:
• Focused on shorter time between order placement and delivery
• On-time delivery:
• Deliver product exactly when needed every time

Competing on Flexibility
• Company environment changes rapidly
• Company must accommodate change by being flexible
• Product flexibility:
• Easily switch production from one item to another
• Easily customize product/service to meet specific requirements of a customer
• Volume flexibility:
• Ability to ramp production up and down to match market demands

List of Competitive Dimensions
• Cost or Price
• Make the Product or Deliver the Service Cheap
• Quality
• Make a Great Product or Deliver a Great Service
• Delivery Speed
• Make the Product or Deliver the Service Quickly
• Delivery Reliability
• Deliver It When Promised
• Coping with Changes in Demand
• Change Its Volume
• Flexibility and New Product Introduction Speed
• Change It
• Location
• Field or customer residence
• Other Product-Specific Criteria
• Support It
Dealing with Trade-offs

Cost
Durability
Flexibility Delivery
Location
Quality

https://www.youtube.com/watch?v=_qB2r2EwE6A
Strategy Formulation
• Order qualifiers
• Characteristics that customers perceive as minimum standards of
acceptability to be considered as a potential purchase
• Order winners
• Characteristics of an organization’s goods or services that cause it to be
perceived as better than the competition

Challenge ? Resource vs Requirement

Questions?

Thank you
Siddhartha Kushwaha

Dos & Don’ts
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Session 5
Operations Strategy Concepts
1. QUALITY
2. SPEED
3. DURABILITY/RELIABILITY
4. FLEXIBILITY
5. COST/PRICE
6. LOCATION
7. SERIVCE

07-02-2021 Dr. Siddhartha Kushwaha
2
Strategy Design Process
Strategy Map What it is about!
Financial Perspective Improve Shareholder Value
Customer Perspective Customer Value Proposition
Internal Perspective Build-Increase-Achieve
Learning and Growth Perspective A Motivated and Prepared

Workforce
• HERE IS APPLE RELATED VIDEO
• Link:
https://www.youtube.com/watch?v=M92I6rAbRfU

Key Internal Factors

Key External Factors
• Economic conditions
• Political conditions
• Legal environment
• Technology
• Competition
• Markets

OPERATIONS STRATEGY MATRIX
1.

2.

3

4

5
operations strategy bike share

6

Example

Strategy Formulation

What is Productivity?
Defined
Productivity is a common measure on how well resources

are being used. In the broadest sense, it can be defined as
the following ratio:
Outputs
Inputs

Total Measure Productivity
Total Measure Productivity = Outputs
Inputs
or
= Goods and services produced
All resources used

Partial Measure Productivity
• Partial measures of productivity =
Output or Output or Output or Output

Labor Capital Materials Energy

Multifactor Measure Productivity
• Multifactor measures of productivity =
• Output .
Labor + Capital + Energy
or
• Output .
Labor + Capital + Materials

Productivity Growth
Productivity Growth =
Current Period Productivity – Previous Period Productivity
Previous Period Productivity

Example of Productivity Measurement
7040 Units Produced
Sold for $1.10/unit
Cost of labor of $1,000 What is the labor,

material and
Cost of materials: $520 multifactor
productivity?
Cost of overhead: $2000

Example Solution
MFP = Output
Labor + Materials + Overhead
MFP = (7040 units)*($1.10)

$1000 + $520 + $2000
MFP = 2.20 LP = (7040 *1.1)/1000
MP = (7040*1.1)/520

Example of Productivity Measurement
• You have just determined that your service employees have used a
total of 2400 hours of labor this week to process 560 insurance
forms. Last week the same crew used only 2000 hours of labor to
process 480 forms.
• Which productivity measure should be used?
• Answer: Could be classified as a Total Measure or Partial Measure.
• Is productivity increasing or decreasing?
• Answer: Last week’s productivity = 480/2000 = 0.24, and this
week’s productivity is = 560/2400 = 0.23. So, productivity is
decreasing slightly.

Factors Affecting Productivity
Capital Quality
Technology Management

Other Factors Affecting Productivity
• Standardization
• Quality
• Use of Internet
• Computer viruses
• Searching for lost or misplaced items
• Scrap rates
• New workers

Other Factors Affecting Productivity
• Safety
• Shortage of IT workers
• Layoffs
• Labor turnover
• Design of the workspace
• Incentive plans that reward productivity

Bottleneck Operation
10/hr
Machine #1
10/hr
Machine #2
Bottleneck 30/hr
Operation
Machine #3
10/hr
Machine #4 10/hr

Improving Productivity
• Develop productivity measures
• Determine critical (bottleneck) operations
• Develop methods for productivity improvements
• Establish reasonable goals
• Get management support
• Measure and publicize improvements
• Don’t confuse productivity with efficiency

Questions?

Thank you
Siddhartha Kushwaha

1
Dos & Don’ts
KEEP CAMERA ON THROUGH OUT THE SESSION

1. If you are unable to hear/see the faculty member, Re-join the meeting.
2. If I go offline, will Re-join the meeting in 3-4 minutes.
6. I will address the questions from chat.

2
Session 10
Facility Location

2
3
https://www.youtube.com/watch?v=XqCLkE2ILBM
4
What are Facility Location

requirements for a Ship building plant?
• Near Water body/sea/cannal
• Large open space and Hangers/Sheds
• Skilled Workforce- Proximity
• Plan machnary equipment availability in proximity
5
https://www.youtube.com/watch?v=l1Zm9MtrYuM
6
• Skilled work force in proximity

• Proximity to crowd- Customer/consumers
• Colleges
• Office/busy routes/roads, crossroads
• University
• Malls/bazar
• Airport
• Facilities
• Raw material+vendor- dough/milk/coffee bean
• Equipment maintenance service
• Infrastructure- power + road + road + shop space
• Financial/cost of facilities aspect
• Competition- absence /less
• Extra ordinary- tsunami/terror/ flood/ fire/local crimes
7
https://www.youtube.com/watch?v=tGhjgNVnx-U
8
What are Benefits of Adani SEZ as a Good location

? • Geo location
• Connectivity to customers/business
• Connectivity to suppliers/vendor- easy raw material procurement
• Transportation cost is low
• Amenities for workforce- hospitals/residence/recreation
• Cost to land
• Workforce – skilled- edu. institute
• SEZ- tax benefit/FDI /single window/ease of business
• Infrastructure:
• Power supply
• Road network
• Land for company
• Port/airport/railway connectivity/ road
• Presence of interdependent industries
• Easy lobbying/liasoning
9
Competitive Imperatives Impacting

Location
• The need to produce close to the customer due to time-based
competition, trade agreements, and shipping costs
• The need to locate near the appropriate labor pool to take

advantage of low wage costs and/or high technical skills
10
Issues in Facility Location

• Proximity to Customers
• Business Climate
• Total Costs
• Infrastructure
• Quality of Labor
• Suppliers
• Other Facilities
11
Issues in Facility Location

• Free Trade Zones
• Political Risk
• Government Barriers
• Trading Blocs
• Environmental Regulation
• Host Community
• Competitive Advantage
Plant Location Methodology: Factor 12
Rating Method Example

Two refineries sites (A and B) are assigned the
following range of point values and respective points,
where the more points the better for the site location.
Sites
Major factors for site location Pt. Range A B
Fuels in region 0 to 330 123 156
Power availability and reliability 0 to 200 150 100
Labor climate 0 to 100 54 63
Living conditions 0 to 100 24 96
Transportation 0 to 50 45 50
Water supply 0 to 10 4 5
Climate 0 to 50 8 4
Supplies 0 to 60 5 50
Tax policies and laws 0 to 20 Best Site
5 20 is B
Total pts. 418 544
13
Plant Location Methodology:

Transportation Method of Linear
Programming
• Transportation method of linear programming seeks to

minimize costs of shipping n units to m destinations or its
seeks to maximize profit of shipping n units to m
destinations
14
Thanks
Dos & Don’ts

Dr. Siddhartha Kushwaha 19-01-2021 1

Process Analysis
 SHOE:
 https://www.youtube.com/watch?v=E-IcyDp3S1U
 Furniture
 https://www.youtube.com/watch?v=kYXCHggWUJM
 Swift
 https://www.youtube.com/watch?v=ztIk9n5CRpw
What is a process?
A process is a chronological sequence of interdependent

tasks that transforms set of inputs into output material of
higher value for the organization & stakeholders
Examples:
1. Honda transforms steel, rubber, and plastic into cars
2. McDonald’s transforms meat, lettuce, tomatoes,
potatoes, and sauces into packaged food
3. A hospital transforms a patient into a healthy person
using equipment, nurses, doctors, medicines
Process Analysis
Let’s look at the “black box” in more detail…
Why do we need to analyze the process?

- To identify inefficient tasks
- To spot possible effectiveness improvement tasks
- To understand where value can be added
How can we analyze a process? Map it!

What are the relevant performance measures?
Process Flow Charts
Graphical description of a process:
 Storage :
 Raw Materials, RM
 Work in Process, WIP
 Finished Goods Inventory, FGI
 Queue, Waiting line
 Flow of material or work or information or customers
 Processing step
 Decision point
HYPEBEAST
 https://www.youtube.com/watch?v=4J_kxwT9zX4
Top QIP
Sole Joining
Packaging
Make-to-order vs. make-to-stock
FGI
Task 1 Task 2
Demand
Task 1 Task 2
If demand is satisfied by FGI then the system is make-to-stock,

otherwise it is a make-to order system
Some examples…
What are the tradeoffs?
Process Analysis: the performance measures
Assume a process is in place. What do we need to measure

in order to understand how efficient it is?
Task 1 Task 2 Task 3

• What is its capacity? How many units per unit time go through
each task? The process as a whole?
• What is the bottleneck? Which production step limits the process
capacity?
• What is the throughput time? How long does it take to get through
the system?
How do we measure capacity?
Capacity of a task is the physical limitation in terms of
“how much can be processed at this task”
Cycle Time: Average time for completion of a unit at a production

step or process. Does not include waiting. Measured
as time/unit
Throughput Rate: Average number of units processed over a
time interval. Measured as units/time
1
Key Throughput rate = Cycle Time
Relationship
Capacity = throughput rate
Computing Cycle Times
Processing a fixed amount of work
Example: Producing 100 cars. On average, production takes 5

hours per car. It takes 50 hours to set up the production line.
Set-up Time + (Batch size) x (Time per unit)

Cycle Time =
Batch size
Computing Cycle Times
Setup time: Production Time:

15 min 25min/unit
A B
Question: What is the cycle time between points A and B

of the process, if we work in batches of 10?
CT= (15 + 25 X 10) / 10 = 26.5 mins/unit

What is a bottleneck?
Bottleneck is the
process stage with the
Longest cycle time
(smallest throughput rate)
Which task is the bottleneck?
3 units/hr 5 units/hr 2 units/hr

Capacity of a process
The capacity of the process is:

minimum throughput rate at any of the stages
What is the capacity of this process?
3 units/hr 5 units/hr 2 units/hr

How do we measure throughput time?
Throughput Time: Average time that a unit takes to go through

the entire process (including waiting time).
Measured as time
Work in Process(WIP): Average number of units in system
over a time interval. Measured as
units
WIP
Little’s Throughput time =
Law Throughput rate
How do we analyze a complex process…
1. Look at the process step by step

2. Determine throughput rate (i.e. capacity)
of each step
3. Identify the process bottleneck (smallest
processing rate, or largest cycle time).
4. The capacity of the process is equal to the
capacity of the bottleneck
Questions?

Thank you
Siddhartha Kushwaha
Dr. Siddhartha Kushwaha ksiddhartha@ibsindia.org
19-01-2021 19
Dos & Don’ts
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4. 5. During the lecture leave your questions in chat.
6. I will address the questions from chat. For any pending question see faculty during consultation hours.

Process Analysis1
RECAP
 A process is a chronological sequence of independent tasks that transforms set of inputs into
output material of higher value for the organization & stakeholders
 Capacity is number of units per unit time go through each task
 Bottleneck is the production step limits the process capacity?
 Throughput time is total time does it take for a single product to get through the system.
 Cycle Time: Average time for completion of a unit at a production step or process. Does not
include waiting. Measured as time/unit
Set-up Time + (Batch size) x (Time per unit)

Cycle Time =
Batch size
 Throughput Rate: Average number of units processed over a time interval. Measured as
units/time
 WIP: Little’s Law WIP
Throughput time =
Throughput rate
 make-to-stock, and make-to order
How do we analyze a complex process…
1. Look at the process step by step

2. Determine throughput rate (i.e. capacity)
of each step
3. Identify the process bottleneck (smallest
processing rate, or largest cycle time).
4. The capacity of the process is equal to the
capacity of the bottleneck
Session 14
Process Analysis :2

Example : hammer production process
https://www.youtube.com/watch?v=HD01Y7CymB4
Description
1. Work begins at the forging center. Here two lines form
the heads of the hammers and place them in a buffer.
2. Handles are attached at the assembly step.
3. Finished hammers are sent to the next stage, where they
are packed and shipped.
Forging
pack and
assembly
ship
Forgeing
Let’s analyze the hammer process…
Forging
pack and
assembly
ship
Forging
Process Data:
 Forging: Set up 80 min. 4 min per unit processing. Batch
size 200. Identical lines.
 Assembly: Manual by two workers (no set up). Each
hammer requires 40 min processing. 34 workers
available.
 Pack and ship: 30 min set up, 2 min per unit processing.
Lot sizes of 100.
Step 1: Forging
 Look at one line. 200 units require:
80 + 200  4 = 880 minutes/200 units
 The throughput rate is:
200 / 880 = 0.227 units/minute
= 13.63 units/hour
 But we have two identical lines, so for the forging step
capacity is 2  13.63 = 27.26 units/hour.
Step 2: Assembly
 1 unit requires 40 min processing time, so the

throughput rate is:
1 unit / 40 min = 0.025 units/min
= 1.5 units/hr
 34 workers available, but 2 workers are required for
each unit, so assembly capacity is:
17  1.5 = 25.5 units/hr
Step 3: Pack and ship
 Similar to forging: 100 units require

30 + 100  2 = 230 min/100 units
 Pack & ship capacity is: Throughput rate

= 100 / 230 = 0.43 units/min
= 26.09 units /hr
Hammer process: what is the capacity?
Which Stage is
Bottleneck?
Process Step Capacity (units/hr)

Forging 27.26
Assembly 25.50
Pack & Ship 26.09

Some vocabulary…
Buffering: Keep some inventory between stages
1/2
0 1
Starving: Stoppage of activity because of lack of material
0/2
1 0
Blocking: Stoppage of flow because there is no storage place

2/2
1 1
1 1
More Examples..
Let’s study this make-to-stock system.
CT = 3s CT = 1s
Task 1 Task 2 FGI
Note: No buffer space between stations, so upstream

station has to wait if downstream station is busy
Is any task starved or blocked?
What is the capacity of the process?
What is the throughput time?
What is the average WIP?

More Examples..
CT = 3s CT = 1s
Task 1 Task 2 FGI
• Task 2 starved for 2s. each time.

• Throughput rate = 20 units/min at Task 1, 60 units/min at Task 2
• Capacity (throughput rate) of process = 20 units/min
• Throughput time = 4 seconds = 1/15 min
WIP = Throughput rate x Throughput time

= 20 units/min x 1/15 min
= 1.33 units
More Examples..
Let’s study this make-to-stock system:
CT = 1s CT = 3s
Task 1 Task 2 FGI

Note: No buffer space between stations, so upstream
station has to wait if downstream station is busy
What is the throughput time?
What is the average WIP?
time 1 2 3 4 5 6 7 8 9 10
unit No.
1
2
3
4
5
time 1 2 3 4 5 6 7 8 9 10
unit No.
1
2 1 s block 2s block
3
4
5
time 1 2 3 4 5 6 7 8 9 10
unit No.
1
4
5
time 1 2 3 4 5 6 7 8 9 10
unit No.
1
4
5
More Examples..
CT = 1s CT = 3s
Task 1 Task 2 FGI
• Task 1 blocked for 2s. each time.

• Throughput rate for T1 = 60 units/min at Task 1, For T2 =20units/min at Task 2
• Capacity of process = 20 units/min
• Throughput time = 6 seconds = 0.1 min
• WIP = Throughput rate x Throughput time

= 20 units/min x 0.1 min
= 2 units
Process Throughput Time Reduction
 Perform activities in parallel
 Change the sequence of activities
 Reduce interruptions
More Examples..
Let’s study this make-to-stock assembly system:
CT = 3s CT = 3s
FGI
Task 1 Task 2 CT = 2s
CT = 4s Task 4
Task 3
Note: No buffer space between stations

More Examples..
CT = 3s CT = 3s
Task 1 Task 2 CT = 2s
CT = 4s Task 4 FGI
Task 3
• Tasks 1 and 2 are blocked by Task 3 for 1 second per product.
• Task 4 is starved for 2 seconds per product.
• The capacity of the process is 15 units/hour (limited by Task 3).
Questions?

Thank you
Siddhartha Kushwaha
Dos & Don’ts
ON

Process Analysis1
Hammer process: what is the capacity?
Which Stage is
Bottleneck?
Process Step Capacity (units/hr)

Forging 27.26
Assembly 25.50
Pack & Ship 26.09

Some vocabulary…
Buffering: Keep some inventory between stages
1/2
0 1
Starving: Stoppage of activity because of lack of material
0/2
1 0
Blocking: Stoppage of flow because there is no storage place

2/2
1 1
1 1
Process Throughput Time Reduction
 Perform activities in parallel
 Change the sequence of activities
 Reduce interruptions
Session 15
Process Selection and Layout

Processes at
High Project process
• Installing ERP for a manufacturing firm’s
manufacturing
business processes
• Construction of apartment/factory/metro rail organizations
network
Job process
• Machining precision metal tubes
• SOFA manufacturing/hair
Customization
cut/custom dress making/ bakery-

cake
Batch process
• Forging process to make fittings for pressure
vessels
• Shoe (Hpebeast), bakery- bread
Line process
• Auto assembly
• Automobiles/Laptops/ Mobiles/metro rail
cabin-cars
Continuous process
• Oil refining process/pharma/
chemicals
Low
Low High
Volume
Low volume, make-to-order
process Volume and Process
Decisions for
Project process
 Less vertical integration • Installing ERP for a manufacturing
 More resource flexibility firm’s business processes


More customer involvement
Manufacturing
Process design choices
Less capital intensity/

automation Job process
Batch process
High volume, make-to- vessels
stock process
 More vertical integration

Line process
Less resource flexibility • Auto assembly
 Less customer involvement
 More capital intensity/
automation Continuous process
• Oil refining process
Low High
Volume
Process Selection Criteria
 Type of product
 Type of customer
 Product demand frequency
 Demand volume
 No. of product in product line
 Production system
 Equipment
 Worker Skill
 Cost per unit
 Cost of the process system
Which process is this?
Which Process is this?
Which process is this ?
Facilities Layout
 Layout: the configuration of departments, work centers, and
equipment, with particular emphasis on movement of work
(customers or materials) through the system
Importance of Layout Decisions
 Requires substantial investments of money and effort
 Involves long-term commitments
 Has significant impact on cost and efficiency of short-
term operations
The Need for Layout Decisions
Inefficient operations
For Example: Changes in the design
High Cost of products or services
Bottlenecks
Accidents
The introduction of new
products or services
Safety hazards
The Need for Layout Design (Cont’d)
Changes in
environmental Changes in volume of
or other legal output or mix of
requirements products
Morale problems
Changes in methods
and equipment
Basic Layout Types
 Product layouts
 Process layouts
 Fixed-Position layout
 Combination layouts
Basic Layout Types
 Product layout
 Layout that uses standardized processing operations to
achieve smooth, rapid, high-volume flow
 Process layout
 Layout that can handle varied processing requirements
 Fixed Position layout
 Layout in which the product or project remains
stationary, and workers, materials, and equipment are moved as needed
Product Layout
Product Layout
(sequential)
Work Work Work

Station 1 Station 2 Station 3
Used for Repetitive Processing

Repetitive or Continuous
Product Layout
Raw
Station Station Station Station Finished
materials 1 2 3 4
or customer item
Material Material Material Material

and/or and/or and/or and/or
labor labor labor labor
Used for Repetitive or Continuous Processing

Advantages of Product Layout
 High rate of output
 Low unit cost
 Labor specialization
 Low material handling cost
 High utilization of labor and equipment
 Established routing and scheduling
 Routing accounting and purchasing
Disadvantages of Product Layout
 Creates dull, repetitive jobs
 Poorly skilled workers may not maintain equipment or
quality of output
 Fairly inflexible to changes in volume
 Highly susceptible to shutdowns
 Needs preventive maintenance
 Individual incentive plans are impractical
A U-Shaped Production Line
Figure 6.6
In 1 2 3 4
Workers
Out 10 9 8 7
Process Layout
Process Layout
(functional)
Dept. A Dept. C Dept. E
Dept. B Dept. D Dept. F
Used for Intermittent processing

Job Shop or Batch
Advantages of Process Layouts
 Can handle a variety of processing requirements
 Not particularly vulnerable to equipment failures
 Equipment used is less costly
 Possible to use individual incentive plans
Disadvantages of Process Layouts
 In-process inventory costs can be high
 Challenging routing and scheduling
 Equipment utilization rates are low
 Material handling slow and inefficient
 Complexities often reduce span of supervision
 Special attention for each product or customer
 Accounting and purchasing are more involved
Cellular Layouts
 Cellular Production
 Layout in which machines are grouped into a cell that
can process items that have similar processing
requirements
 Group Technology
 The grouping into part families of items with similar
design or manufacturing characteristics
Functional vs. Cellular Layouts
Dimension Functional Cellular

Number of moves many few
between departments
Travel distances longer shorter
Travel paths variable fixed
Job waiting times greater shorter
Throughput time higher lower
Amount of work in higher lower
process
Supervision difficulty higher lower
Scheduling complexity higher lower
Equipment utilization lower higher
Questions?

Thank you
Siddhartha Kushwaha
Logistics
ON

Process: Analysis & Layout
Processes at
High Project process
• Installing ERP for a manufacturing firm’s
manufacturing
business processes
• Construction of apartment/factory/metro rail organizations
network
Job process
• SOFA manufacturing/hair
Customization
cut/custom dress making/ bakery-

cake
Batch process
vessels
• Shoe (Hpebeast), bakery- bread
Line process
• Auto assembly
• Automobiles/Laptops/ Mobiles/metro rail
cabin-cars
Continuous process
• Oil refining process/pharma/
chemicals
Low
Low High
Volume
FACILITIES LAYOUT
 Layout: the configuration of departments, work centers,
and equipment, with particular emphasis on movement of
work (customers or materials) through the system
NEED
 Inefficient operations
 Product service design change/new design
 Change in demand
 Accidents
 Legal & regulation
 Methods/equipment change
 Moral
Basic Layout Types
 Product layouts
 Process layouts
 Fixed-Position layout
 Combination layouts
Session 16
Process Layout

ASSEMBLY LINE BALANCING
Designing Product Layouts
 Step 1: Identify tasks & immediate predecessors

 Step 2: Determine the desired output rate
 Step 3: Calculate the cycle time
 Step 4: Compute the theoretical minimum number
of workstations
 Step 5: Assign tasks to workstations (balance the
line)
 Step 6: Compute efficiency, idle time & balance
delay (% idle time)
Assembly Line Balancing
1. Precedence diagram: circles=tasks, arrows show

the required sequence.
2. Determine cycle time:
P production /time_unit
C= =
D demand(out put)/time_ unit
3. Determine required workstations (theoretical
minimum)
T  task_times
Nt = =
C cycle_time
4. Set rules for assigning tasks (number of
following tasks, longest task time)
Assembly Line Balancing
5. Assign tasks to first workstation, using rules and staying

within cycle time. Repeat for following workstations
until all tasks are assigned.
6. Evaluate line efficiency:
T
E= ;Na − actual_wor kstations
Na C
7. Rebalance if efficiency is not satisfactory.
Product layout for serving Demand of 480 pizzas per
day
Example 10.4 Vicki's Pizzeria and the Precedence Diagram
Immediate Task Time
Work Element Task Description Predecessor (seconds
A Roll dough None 50
B Place on cardboard backing A 5
C Sprinkle cheese B 25
D Spread Sauce C 15
E Add pepperoni D 12
F Add sausage D 10
G Add mushrooms D 15
H Shrinkwrap pizza E,F,G 18
I Pack in box H 15
Total task time 165
Example 10.4 Vicki's Pizzeria and the Precedence Diagram
Step 1: Identify Work Element Task Description
Immediate
Predecessor
Task Time
(seconds
Tasks & A
B
Roll dough
Place on cardboard backing
None
A
50
5
C Sprinkle cheese B 25
Immediate D
E
Spread Sauce
Add pepperoni
C
D
15
12
Predecessors F
G
Add sausage
Add mushrooms
D
D
10
15
H Shrinkwrap pizza E,F,G 18
I Pack in box H 15
Total task time 165
Precedence Diagram
Layout Calculations
 Step 2: Determine output rate

 Vicki needs to produce = 480 / 8 = 60 pizzas per hour
 Step 3: Determine cycle time
 The amount of time each workstation is allowed to
complete its tasks
available time (sec./day ) 60 min/hr x 60 sec/min
Cycle time (sec./unit ) = = = 60 sec./unit
desired output (units/hr ) 60 units/hr
 Limited by the bottleneck task (the longest task in a

process):
available time 3600 sec./hr.
Maximum output = = = 72 units/hr, or pizzas per hour
bottleneck task time 50 sec./unit
Layout Calculations :
Step 4: Compute the theoretical minimum number of
stations
 TM or Nmin or Nt = number of stations needed to
achieve 100% efficiency (every second is used)
 (task times ) 165 seconds

TM = = = 2.75, or 3 stations
cycle time 60 sec/station
 Always round up (no partial workstations)

 Serves as a lower bound for our analysis
Layout Calculations :Step 5: Assign tasks to workstations
 Start at the first station & choose the longest eligible task following precedence
relationships
 Continue adding the longest eligible task that fits without going over the desired
cycle time
 When no additional tasks can be added within the desired cycle time, begin assigning
tasks to the next workstation until finished
 Few other Assignment rules

 Most Following tasks : choose the task with the largest number of following tasks
 Ranked positional weight- task for which the sum of following task times is the
longest
 Shortest Processing time: choose the task with the shortest task time
 Least number of following task: choose the task with the least number of
subsequent tasks
WORKSTATION Eligible task Task selected Task time Idle time
1
Layout Calculations Step 5: Assign tasks to workstations
 Start at the first station & choose the longest eligible task following
precedence relationships
 Continue adding the longest eligible task that fits without going over the
desired cycle time
 When no additional tasks can be added within the desired cycle time,
begin assigning tasks to the next workstation until finished
Workstation Eligible task Task Selected Task time Idle time

A A 50 10
1
B B 5 5
C C 25 35
2 D D 15 20
E, F, G G 15 5
E, F E 12 48
F F 10 38
3
H H 18 20
I I 15 5
Layout Calculation:
Step 6: Compute efficiency and balance delay
 Efficiency (%) is the ratio of total productive time

divided by total time
Efficiency (%) =
 t
=
165 sec.
(100) = 91.7%
NC 3 stations x 60 sec.
 165/(4 X 50) = 82.5% ( FOR REVISED PROBLEM)
 Balance delay (%) is the amount by which the line

falls short of 100%
Balance delay = 100% − 91.7% = 8.3%
 Draw precedence diagram
 • Determine cycle time—demand = 50 units/hr
 • Theoretical minimum no. of work stations
 • Assign tasks to workstations using cycle time
 • Efficiency and balance delay of line?
 • Bottleneck?
 • Maximum output?
Questions?

Thank you
Siddhartha Kushwaha
1
Dos & Don’ts


2
Session 10
Product Design

2
3
DESIGN THINKING
• https://www.youtube.com/watch?v=_r0VX-aU_T8
4
Product and Service Design

• Major factors in design strategy
• Cost
• Quality
• Time-to-market
• Customer satisfaction
• Competitive advantage
Product and service design – or redesign – should be

closely tied to an organization’s strategy
5
Product or Service Design Activities

• Translate customer wants and needs into product and service
requirements
• Refine existing products and services
• Develop new products and services
• Formulate quality goals
• Formulate cost targets
• Construct and test prototypes
• Document specifications
6
Reasons for Product or Service Design

• Economic
• Social and demographic
• Political, liability, or legal
• Competitive
• Technological
7
Objectives of Product and Service Design
• Main focus
• Secondary focus
• Function of product/service
• Cost/profit
• Quality
• Appearance
• Ease of production/assembly
• Ease of maintenance/service
8
Designing For Operations

• Taking into account the capabilities of the organization in designing
goods and services
9
Legal, Ethical, and Environmental Issues
• Legal
• FDA, OSHA, IRS
• Product liability
• Uniform commercial code
• Ethical
• Releasing products with defects
• Environmental
• EPA
10
Regulations & Legal Considerations

• Product Liability - A manufacturer is liable for any injuries or damages
caused by a faulty product.
• Uniform Commercial Code - Products carry an implication of
merchantability and fitness.
11
Designers Adhere to Guidelines

• Produce designs that are consistant with the goals of the company
• Give customers the value they expect
• Make health and safety a primary concern
• Consider potential harm to the environment
12
Other Issues in Product and Service Design
• Product/service life cycles

• How much standardization
• Product/service reliability
• Range of operating conditions
13
Life Cycles of Products or Services

Figure 4.1
Saturation
Maturity
Demand
Decline
Growth
Introduction
Time
14
Product Life Cycle affects decisions
• Product life cycle – series of changing

product demand
• Consider product life cycle stages
• Introduction
• Growth
• Maturity
• Decline
• Facility & process investment depends
on life cycle
© 2010 Wiley 14
15
Standardization
• Standardization
• Extent to which there is an absence of variety in a product, service or process
• Standardized products are immediately available to customers
16
Advantages of Standardization
• Fewer parts to deal with in inventory & manufacturing
• Design costs are generally lower
• Reduced training costs and time
• More routine purchasing, handling, and inspection procedures
17
Advantages of Standardization (Cont’d)

• Orders fillable from inventory
• Opportunities for long production runs and automation
• Need for fewer parts justifies increased expenditures on perfecting
designs and improving quality control procedures.
18
Disadvantages of Standardization
• Designs may be frozen with too many imperfections remaining.
• High cost of design changes increases resistance to improvements.
• Decreased variety results in less consumer appeal.
19
Mass Customization
• Mass customization:
• A strategy of producing standardized goods or services, but incorporating
some degree degree of customization
• Delayed differentiation
• Modular design
• Commonality
• Complementarity
• Integration
20
Delayed Differentiation
• Delayed differentiation is a postponement tactic
• Producing but not quite completing a product or service until customer
preferences or specifications are known
21
Modular Design
Modular design is a form of standardization in which component parts
are subdivided into modules that are easily replaced or interchanged. It
allows:
• easier diagnosis and remedy of failures
• easier repair and replacement
• simplification of manufacturing and assembly

22
Reliability
• Reliability: The ability of a product, part, or system to perform its
intended function under a prescribed set of conditions
• Failure: Situation in which a product, part, or system does not perform
as intended
• Normal operating conditions: The set of conditions under which an
item’s reliability is specified
23
Improving Reliability
• Component design
• Production/assembly techniques
• Testing
• Redundancy/backup
• Preventive maintenance procedures
• User education
• System design
24
Product Design
• Product Life Cycles
• Robust Design
• Concurrent Engineering
• Computer-Aided Design
• Modular Design
25
Robust Design
Robust Design: Design that results in products or services that
can function over a broad range of conditions
26
Taguchi Approach Robust Design

• Design a robust product
• Insensitive to environmental factors either in manufacturing or in use.
• Central feature is Parameter Design.
• Determines:
• factors that are controllable and those not controllable
• their optimal levels relative to major product advances
27
Degree of Newness
1. Modification of an existing product/service
2. Expansion of an existing product/service
3. Clone of a competitor’s product/service
4. New product/service
28
Degree of Design Change

Table 4.3
Type of Design Change Newness of the Newness to the market
organization
Modification Low Low
Expansion Low Low
Clone High Low
New High High

29
https://www.youtube.com/watch?v=jU-imkEarvU
30
Product Design Process

• Idea developments selection affects
• Product quality
• Product cost
• Overall manufacturability – the ease with which the product can be made
© 2010 Wiley 30
31
The Product Design Process

Step 1 - Idea Development - Someone thinks of a need and a
product/service design to satisfy it: customers, marketing,
engineering, competitors, benchmarking, reverse engineering
Step 2 - Product Screening - Every business needs a formal/structured
evaluation process: fit with facility and labor skills, size of market,
contribution margin, break-even analysis, return on sales
Step 3 – Preliminary Design and Testing - Technical specifications are
developed, prototypes built, testing starts
Step 4 – Final Design - Final design based on test results, facility,
equipment, material, & labor skills defined, suppliers identified
© 2010 Wiley 31
32
The Product Design Process
Idea Feasibility
generation Product or service study Performance
concept specifications
Suppliers Customers Form design

R&D
Marketing Competitors Revising and testing prototypes
Functional Production
design design
Design specifications Manufacturing or
New product or delivery
service launch specifications
Pilot run
Final design and final tests
& process plans
33
Idea Generation
Supply chain based
Ideas Competitor based
Research based
34
Reverse Engineering
Reverse engineering is the

dismantling and inspecting
of a competitor’s product to discover product improvements.
35
Research & Development (R&D)

• Organized efforts to increase scientific knowledge or product
innovation & may involve:
• Basic Research advances knowledge about a subject without near-term
expectations of commercial applications.
• Applied Research achieves commercial applications.
• Development converts results of applied research into commercial
applications.
36
Manufacturability
• Manufacturability is the ease of fabrication and/or assembly which
is important for:
• Cost
• Productivity
• Quality
37
Designing for Manufacturing

Beyond the overall objective to achieve customer satisfaction while
making a reasonable profit is:
Design for Manufacturing(DFM)
The designers’ consideration of the organization’s manufacturing
capabilities when designing a product.
The more general term design for operations encompasses services as
well as manufacturing
38
Concurrent Engineering
Concurrent engineering
is the bringing together
of engineering design and manufacturing
personnel
early in the design phase.
39
Concurrent Engineering
Old “over-the-wall” sequential products

design process
• Each function did its work and passed it to

the next function
Improved Concurrent Engineering process
• All functions form a design team that

develops specifications, involves customers
early, solves potential problems, reduces
costs, & shortens time to market
© 2010 Wiley 39
40
Computer-Aided Design
• Computer-Aided Design (CAD) is product design using computer
graphics.
• increases productivity of designers, 3 to 10 times
• creates a database for manufacturing information on product specifications
• provides possibility of engineering and cost analysis on proposed designs
41
Product design
• Design for manufacturing (DFM)
• Design for assembly (DFA)
• Design for recycling (DFR)
• Remanufacturing
• Design for disassembly (DFD)
• Robust design
42
Questions?
43
Thank you
Siddhartha Kushwaha
Dos & Don’ts


RECAP
• Service Design- service + delivery + product bundle
• Feature/characteristics
• Customers- Internal /external
• Design Perspectives – cost & efficiency vs customer perception
Session 21
Service Process Design: BIXI BIKES case

3
Phases in Service Design
➢ Conceptualize
➢ Identify service package components
➢ Determine performance specifications
➢ Translate performance specifications into design specifications
➢ Translate design specifications into delivery specifications
The Service Design Process
Desired service
experience
Service Concept Service Package
Targeted
customer Physical Sensual Psychological
items benefits benefits
Performance Specifications
Customer Customer
requirements expectations
Design Specifications Service

Customer
Provider
Provider Cost and time

Activities Facility
skills estimates
Delivery Specifications
Schedule Deliverables Location
Service
Service Delivery System
Components of service delivery system:

➢Facilities
➢Processes
➢Skills
Service Businesses
A service business is the management of
organizations whose primary business requires
interaction with the customer to produce the
service
• Facilities-based services: Where the customer

must go to the service facility
• Field-based services: Where the production and

consumption of the service takes place in the
customer’s environment
BIXI: Facility or Field Based ??
• Facility Based service
+
Field based service
Service Design
• Service design involves

• The physical resources needed
• The goods that are purchased or consumed by
the customer
• Explicit services
• Implicit services
Performance Priorities in Service
Design
• Treatment of the customer
• Speed and convenience of service delivery
• Price
• Variety
• Quality of the tangible goods
• Unique skills that constitute the service offering
BIXI: Docking station https://www.youtube.com/watch?v=16DAn0EdoLw
Three Contrasting Service Designs
• The production line approach (ex. McDonald’s)
• The self-service approach (ex. automatic teller

machines)
• The personal attention approach (ex. Ritz-

Carlton Hotel Company)
Service Systems
➢ Service systems range from those with little or no

customer contact to very high degree of customer
contact such as:
– Insulated technical core (software development)
– Production line (automatic car wash)
– Personalized service (hair cut, medical service)
– Consumer participation (diet program)
– Self service (supermarket)
Q. What is Service design Approach for BIXI ?
Service-System Design Matrix
Degree of customer/server contact
Buffered Permeable Reactive
High core (none) system (some) system (much) Low
Face-to-face
total
customization
Face-to-face
Sales loose specs Production
Face-to-face
Opportunity tight specs
Efficiency
Phone
Internet & Contact
on-site
Mail contact technology
Low High
BIXI: Membership
• https://www.youtube.com/watch?v=1rx4xooo-TQ
Design for High-and-Low Contact
Services (1 of 2)
DESIGN DECISION HIGH-CONTACT SERVICE LOW-CONTACT SERVICE
Facility location Convenient to customer Near labor or transportation
Facility layout Must look presentable, Designed for efficiency

accommodate customer needs,
and facilitate interaction with
customer
Quality control More variable since customer is Measured against
involved in process; customer established standards;
expectations and perceptions of testing and rework possible
quality may differ; customer to correct defects
present when defects occur
Capacity Excess capacity required to Planned for average demand
handle peaks in demand
Design for High-and-Low Contact
Services (2 of 2)
DESIGN DECISION HIGH-CONTACT SERVICE LOW-CONTACT SERVICE
Worker skills Must be able to interact well with Technical skills
customers and use judgment in
decision making
Scheduling Must accommodate customer Customer concerned only
schedule with completion date
Service process Mostly front-room activities; Mostly back-room activities;

service may change during planned and executed with
delivery in response to customer minimal interference
Service package Varies with customer; includes Fixed, less extensive

environment as well as actual
service
summary
• Service design process
• Delivery system = facility + process + skills
field/facility
assembly
self service customer contact and interation
personalised
Questions?
Assignment: Service Blueprint for BIXI service
Thank you
Siddhartha Kushwaha
Dos & Don’ts


Session 22
Service Process Design: BIXI BIKES case

2
Service Blueprinting
 Service blueprinting
A method used in service design to describe
and analyze a proposed service
 A useful tool for conceptualizing a service
delivery system
Major Steps in Service Blueprinting
1. Establish boundaries
2. Identify sequence of customer interaction
3. Prepare a flowchart
4. Develop time estimates
5. Identify potential failure points
6. Determine which factors can influence
profitability
Example of Service Blueprinting
Standard Brush Apply Collect
execution time Buff
shoes polish payment
2 minutes
30 30 45 15
secs secs secs secs
Total acceptable
execution time
Wrong
5 minutes
color wax
Clean Fail
shoes point Materials
Seen by
(e.g., polish, cloth)
customer 45
secs
Line of Not seen by

visibility customer but Select and
necessary to purchase
performance supplies
Blueprint for an Installment Lending Operation
Loan
application Branch Officer
30 min. – 1 hr. Pay book
W W
Line of visibility
Receive Final
payment payment
Notify
Decline
customer
Issue
Confirm
Deny
check F
F
Verify Print
Credit Close
income Accept payment Delinquent
check account
data book
1 day 2 days 3 days

F
Initial
screening
Verify
payor
Confirm
F Credit Branch
Employer
bureau records
Bank
F
Accounting
accounts
Data base
records
F Fail point W Customer wait Employee decision

Service Blueprint
Service Fail-safing
Poka-Yokes (A Proactive Approach)
• Keeping a mistake
from becoming a
Task
service defect
• How can we fail-

safe the three Ts? Treatment Tangibles
Have we
compromised
one of the
3 Ts?
1. Task
2. Treatment
3. Tangible
Applying Behavioral Science to Service
Encounters
 The front-end and back-end of the encounter are
not created equal
 Segment the pleasure, combine the pain
 Let the customer control the process
 Pay attention to norms and rituals
 People are easier to blame than systems
 Let the punishment fit the crime in service
recovery
Characteristics of a Well-Designed
Service System (1 of 2)
1. Each element of the service system is consistent
with the strategic and operating focus of the firm
2. It is user-friendly
FedEx
3. It is robust and easy to
sustain
4. It is structured so that consistent performance by

its people and systems is easily maintained
Characteristics of a Well-Designed
Service System (2 of 2)
5. It provides effective links between the back office and
the front office so that nothing falls between the cracks
6. It manages the evidence of service quality in such a

way that customers see the value of the service
provided
7. It is cost-effective
8. It ensures reliability and high quality

Challenges of Service Design
1. Variable requirements
2. Difficult to describe
3. High customer contact
4. Service – customer encounter
Guidelines for Successful Service Design
1. Define the service package
2. Focus on customer’s perspective
3. Consider image of the service package
4. Recognize that designer’s perspective is different from
the customer’s perspecticve
5. Make sure that managers are involved
6. Define quality for tangible and intangibles
7. Make sure that recruitment, training and rewards are
consistent with service expectations
8. Establish procedures to handle exceptions
9. Establish systems to monitor service
Questions?
Thank you
Siddhartha Kushwaha
Questions?
Thank you
Siddhartha Kushwaha
Questions?
Thank you
Siddhartha Kushwaha
Questions?
Thank you
Siddhartha Kushwaha
Dos & Don’ts
ON
3. When asked, write SEAT_ENROLL_First NAME in chat e.g.
14_1234_Sidd
6. I will address the questions from chat. For any
Session 23
Aggregate Sales and Operations Planning
Process planning
Long
range
Strategic capacity planning
Intermediate Forecasting &

range demand Sales and operations (aggregate) planning
management
Sales plan Aggregate operations plan
Manufacturing
Services
Master scheduling
Material requirements planning
Weekly workforce and

Order scheduling customer scheduling
Short
range
Daily workforce and customer scheduling
Sales and Operations Planning Activities
• Long-range planning
• Greater than one year planning horizon
• Usually performed in annual increments
• Medium-range planning
• Six to eighteen months
• Usually with weekly, monthly or quarterly increments
• Short-range planning
• One day to less than six months
• Usually with weekly or daily increments
Strategic Capacity Planning Aggregate Planning Short-Term Planning
1. Long Term (more than 12 months or 18 1. Intermediate Term (3- 12/18 1. Short Term (less than 3
months) months months)
2. Decisions Relate to 2. Decisions Relate to 2. Detailed Plans

– Product /service – General level of – Machine loading
selection employment – Job Assignments
– Facility size/location – output – Job Sequencing
– Equipment/technology – Inventory – Production lot size
selection – Subcontracting – Order Quantities
– Facility layout – Backorders – Work Scheduling
– Product Design
– Work System Design
3. They establish the capacity constraints 3. They establish the capacity
within which intermediate planning must constraints within which short
function term planning must function
The Aggregate Operations Plan
• Main purpose: Specify the optimal combination of
• production rate (units completed per unit of time)
• workforce level (number of workers)
• inventory on hand (inventory carried from previous period)
• Product group or broad category (Aggregation)
• This planning is done over an intermediate-range planning
period of 3 to 18 months
Balancing Aggregate Demand
and Aggregate Production Capacity
10000
Suppose the figure to the right 10000
8000
represents forecast demand in 8000 7000
6000
units 6000 5500
4500
4000
Now suppose this lower figure 2000

represents the aggregate 0
capacity of the company to Jan Feb Mar Apr May Jun
meet demand
10000 9000
8000
8000
What we want to do is balance 6000
6000
4500 4000
out the production rate, 4000
4000
workforce levels, and inventory
to make these figures match up 2000
0
Jan Feb Mar Apr May Jun
Required Inputs to the Production Planning System
Competitors’behavior Raw material availability Market
demand
External to firm
External capacity Economic conditions

Planning for
production
Current Current workforce Inventory levels Activities required Internal to firm

physical for production
capacity
Key Strategies for Meeting Demand
• Chase- hire/fire emp, overtime, outsource
• Level – shortage (lost sales) / over production (

holding cost)
• Some combination of the two

Aggregate Planning Examples: Unit Demand and Cost Data
Suppose we have the following unit demand and
cost information:
Demand/mo Jan Feb Mar Apr May Jun
4500 5500 7000 10000 8000 6000
Materials $5/unit
Holding costs $1/unit per mo.
Marginal cost of stockout $1.25/unit per mo.
Hiring and training cost $200/worker
Layoff costs $250/worker
Labor hours required 0.15 hrs/unit
Straight time labor cost $8/hour
Beginning inventory 250 units
Productive hours/worker/day 7.25
Paid straight hrs/day 8
No of Worker 7
Cut-and-Try Example: Determining
Straight Labor Costs and Output
Given the demand and cost information below, what
are the aggregate hours/worker/month, units/worker, and dollars/worker?
Demand/mo Jan Feb Mar Apr May Jun

4500 5500 7000 10000 8000 6000 7.25x22
Productive hours/worker/day 7.25

Paid straight hrs/day 8 7.25x0.15=48.33 &
22x8hrsx$8=$1408 48.33x22=1063.33
Jan Fe b M ar Apr M ay Jun
Days/m o 22 19 21 21 22 20
Hrs/wo rke r/m o 1 5 9 .5 1 3 7 .7 5 1 5 2 .2 5 1 5 2 .2 5 1 5 9 .5 145
Units/wo rke r 1 0 6 3 .3 3 9 1 8 .3 3 1015 1015 1 0 6 3 .3 3 9 6 6 .6 7
$ /wo rke r $ 1 ,4 0 8 1 ,2 1 6 1 ,3 4 4 1 ,3 4 4 1 ,4 0 8 1 ,2 8 0
Chase Strategy
(Hiring & Firing to meet demand)
Lets assume our current workforce is 7 workers.
J an
D ays /m o 22
H rs /wo rke r/m o 1 5 9 .5 First, calculate net requirements for production, or
U nits /wo rke r 1 ,0 6 3 .3 3 4500-250=4250 units
$ /wo rke r $ 1 ,4 0 8
Then, calculate number of workers needed to

J an
produce the net requirements, or
D e m and 4 ,5 0 0
4250/1063.33=3.997 or 4 workers
B e g. inv. 250
N e t re q. 4 ,2 5 0
R e q. wo rke rs 3 .9 9 7
Finally, determine the number of workers to
H ire d
Fire d 3
hire/fire. In this case we only need 4 workers,
W o rkfo rc e 4 we have 7, so 3 can be fired.
Ending inve nto ry 0
Below are the complete calculations for the remaining months in the six month
planning horizon
Days/mo 22 19 21 21 22 20
Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145
Units/worker 1,063 918 1,015 1,015 1,063 967
$/worker $1,408 1,216 1,344 1,344 1,408 1,280

Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250
Net req. 4,250 5,500 7,000 10,000 8,000 6,000
Req. workers 3.997 5.989 6.897 9.852 7.524 6.207
Hired 2 1 3
Fired 3 2 1
Workforce 4 6 7 10 8 7
Ending inventory 0 0 0 0 0 0
Below are the complete calculations for the remaining months in the six month
planning horizon with the other costs included
Jan Feb M ar Apr M ay Jun
Demand 4 ,5 0 0 5 ,5 0 0 7 ,0 0 0 1 0 ,0 0 0 8 ,0 0 0 6 ,0 0 0
Beg. inv. 250
Net req. 4 ,2 5 0 5 ,5 0 0 7 ,0 0 0 1 0 ,0 0 0 8 ,0 0 0 6 ,0 0 0
Req. wo rkers 3 .9 9 7 5 .9 8 9 6 .8 9 7 9 .8 5 2 7 .5 2 4 6 .2 0 7
Hired 2 1 3
Fired 3 2 1
W o rkfo rce 4 6 7 10 8 7
Ending invento ry 0 0 0 0 0 0
Jan Feb M ar Apr M ay Jun Co sts

M aterial $ 2 1 ,2 5 0 .0 0 $ 2 7 ,5 0 0 .0 0 $ 3 5 ,0 0 0 .0 0 $ 5 0 ,0 0 0 .0 0 $ 4 0 ,0 0 0 .0 0 $ 3 0 ,0 0 0 .0 0 2 0 3 ,7 5 0 .0 0
Labo r 5 ,6 2 7 .5 9 7 ,2 8 2 .7 6 9 ,2 6 8 .9 7 1 3 ,2 4 1 .3 8 1 0 ,5 9 3 .1 0 7 ,9 4 4 .8 3 5 3 ,9 5 8 .6 2
Hiring co st 4 0 0 .0 0 2 0 0 .0 0 6 0 0 .0 0 1 ,2 0 0 .0 0
Firing co st 7 5 0 .0 0 5 0 0 .0 0 2 5 0 .0 0 1 ,5 0 0 .0 0
$260,408.62
Level Workforce Strategy (Surplus and Shortage Allowed)
Lets take the same problem as before
but this time use the Level Workforce
strategy J an
D e m and 4 ,5 0 0
This time we will seek to use a
workforce level of 6 workers Be g. inv. 250
N e t re q. 4 ,2 5 0
W o rke rs 6
P ro duc tio n 6 ,3 8 0
Ending inve nto ry 2 ,1 3 0
Surplus 2 ,1 3 0
Sho rtage
Below are the complete calculations for the remaining months in the six month planning horizon

Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250 2,130 2,140 1,230 -2,680 -1,300
Net req. 4,250 3,370 4,860 8,770 10,680 7,300
Workers 6 6 6 6 6 6
Production 6,380 5,510 6,090 6,090 6,380 5,800
Ending inventory 2,130 2,140 1,230 -2,680 -1,300 -1,500
Surplus 2,130 2,140 1,230
Shortage 2,680 1,300 1,500
Note, if we recalculate this sheet with 7 workers we would have a

surplus
Below are the complete calculations for the remaining months in
the six month planning horizon with the other costs included

4,500 5,500 7,000 10,000 8,000 6,000 Note, total costs under
250 2,130 10 -910 -3,910 -1,620 this strategy are less than
4,250 3,370 4,860 8,770 10,680 7,300 Chase at $260.408.62
6 6 6 6 6 6
6,380 5,510 6,090 6,090 6,380 5,800
2,130 2,140 1,230 -2,680 -1,300 -1,500
2,130 2,140 1,230
2,680 1,300 1,500

$8,448 $7,296 $8,064 $8,064 $8,448 $7,680 $48,000.00 Labor
31,900 27,550 30,450 30,450 31,900 29,000 181,250.00 Material
2,130 2,140 1,230 5,500.00 Storage
3,350 1,625 1,875 6,850.00 Stockout
$241,600.00
Questions?
Thank you
Siddhartha Kushwaha
Dos & Don’ts


Session 24/25
Inventory Control & Management

02-02-2021
ksiddhartha@ibsindia.org2
Inventory Systems
• Single-Period Inventory Model
– One time purchasing decision (Example: vendor selling t-
shirts at a football game)
– Seeks to balance the costs of inventory overstock and
under stock
• Multi-Period Inventory Models
– Fixed-Order Quantity Models
• Event triggered (Example: running out of stock)
– Fixed-Time Period Models
• Time triggered (Example: Monthly sales call by sales
representative)
Single-Period Inventory Model
This model states that we should
continue to increase the size of
Cu
P the inventory so long as the
probability of selling the last unit
Co  Cu added is equal to or greater than
the ratio of: Cu/Co+Cu
Where :
Co  Cost per unit of demand over estimated
Cu  Cost per unit of demand under estimated
P  Probability that the unit will be sold
Single Period Model Example
• Our college team is playing in a tournament game
this weekend. Based on our past experience we sell
on average 2,400 shirts with a standard deviation of
350. We make $10 on every shirt we sell at the
game, but lose $5 on every shirt not sold. How many
shirts should we make for the game?
Cu = $10 and Co = $5; P ≤ $10 / ($10 + $5) =
.667
Z.667 = .432 (from Z table) Therefore we need,
2,400 + .432(350) = 2,551 shirts
Multi-Period Models:
Fixed-Order Quantity Model Assumptions
• Demand for the product is constant and uniform

throughout the period
• Lead time (time from ordering to receipt) is

constant
• Price per unit of product is constant

Multi-Period Models: Fixed-Order Quantity
Model Assumptions (conti.)
• Inventory holding cost is based on average
inventory
• Ordering or setup costs are constant
• All demands for the product will be satisfied (No

back orders are allowed)
Basic Fixed-Order Quantity Model and Reorder Point Behavior
1. You receive an order quantity Q. 4. The cycle then repeats.
Number
of units
on hand
Q Q Q
R
2. Your start using L L
them up over time. 3. When you reach down to a
Time
R = Reorder point level of inventory of R, you
Q = Economic order quantity place your next Q sized order.
L = Lead time
Cost Minimization Goal
By adding the item, holding, and ordering costs together, we
determine the total cost curve, which in turn is used to find the
Qopt inventory order point that minimizes total costs
Total Cost
C
O
S Holding
T
Costs
Annual Cost of
Items (DC)
Ordering Costs
QOPT
Order Quantity (Q)
Basic Fixed-Order Quantity (EOQ) Model TC=Total annual
Formula cost
D =Demand
Total Annual Annual Annual
C =Cost per unit
Annual = Purchase + Ordering + Holding
Q =Order quantity
Cost Cost Cost Cost
S =Cost of placing
an order or setup
cost
R =Reorder point
D Q
TC = DC + S+ H L =Lead time
Q 2 H=Annual holding
and storage cost
per unit of inventory
Deriving the EOQ
Using calculus, we take the first derivative of the total
cost function with respect to Q, and set the derivative
(slope) equal to zero, solving for the optimized (cost
minimized) value of Qopt
2D S 2(A nnual D em and)(O rd er or S etu p C ost)
Q OPT = =
H A nnual H olding C ost
_
We also need a R e o rd e r p o in t, R = d L
reorder point to tell us _
when to place an d = average daily demand (constant)
order L = Lead time (constant)
EOQ Example (1) Problem Data
Given the information below, what are the EOQ and

reorder point?
Annual Demand = 1,000 units
Days per year considered in average
daily demand = 365
Cost to place an order = $10
Holding cost per unit per year = $2.50
Lead time = 7 days
Cost per unit = $15
EOQ Example (1) Solution
2D S 2(1,000 )(10)
Q O PT = = = 89.443 units or 90 units
H 2.50
1,000 units / year
d = = 2.74 units / day
365 days / year
_
R eo rd er p o in t, R = d L = 2 .7 4 u n its / d ay (7 d ays) = 1 9 .1 8 o r 2 0 u n its
In summary, you place an optimal order of 90 units. In the

course of using the units to meet demand, when you only
have 20 units left, place the next order of 90 units.
EOQ Example (2) Problem Data
Determine the economic order quantity
and the reorder point given the following…
Annual Demand = 10,000 units

Days per year considered in average daily demand
= 365
Cost to place an order = $10
Holding cost per unit per year = 10% of cost per unit
Lead time = 10 days
Cost per unit = $15
EOQ Example (2) Solution
2D S 2 (1 0 ,0 0 0 )(1 0 )
Q OPT = = = 3 6 5 .1 4 8 u n its , o r 3 6 6 u n its
H 1 .5 0
10,000 units / year

d = = 27.397 units / day
365 days / year
_
R = d L = 2 7 .3 9 7 u n its / d a y (1 0 d a ys) = 2 7 3 .9 7 o r 2 7 4 u n its
Place an order for 366 units. When in the course of using the
inventory you are left with only 274 units, place the next order of 366
units.
Fixed-Time Period Model with Safety Stock Formula
q = Average demand + Safety stock – Inventory currently on hand
q = d(T + L) + Z  T + L - I
Where :
q = quantitiy to be ordered
T = the number of days between reviews
L = lead time in days
d = forecast average daily demand
z = the number of standard deviations for a specified service probabilit y
 T + L = standard deviation of demand over the review and lead time
I = current inventory level (includes items on order)
Multi-Period Models: Fixed-Time Period Model:
Determining the Value of T+L
  
T+ L 2
 T+ L = di
i 1
Since each day is independent and  d is constant,

 T+ L = (T + L) d 2
• The standard deviation of a sequence of

random events equals the square root of the
sum of the variances
Example of the Fixed-Time Period Model
Given the information below, how many units
should be ordered?
Average daily demand for a product is 20 units. The review

period is 30 days, and lead time is 10 days. Management has
set a policy of satisfying 96 percent of demand from items in
stock. At the beginning of the review period there are 200 units
in inventory. The daily demand standard deviation is 4 units.
Example of the Fixed-Time Period Model: Solution
(Part 1)
 T+ L = (T + L) d 2 =  30 + 10  4  2 = 25.298
The value for “z” is found by using the Excel

NORMSINV function, or as we will do here, using
Appendix D. By adding 0.5 to all the values in
Appendix D and finding the value in the table that
comes closest to the service probability, the “z” value
can be read by adding the column heading label to
So, by adding 0.5 to the value from Appendix D of 0.4599, we have a probability of
the row
0.9599, whichlabel.
is given by a z = 1.75
Example of the Fixed-Time Period Model: Solution
(Part 2)
q = d(T + L) + Z  T + L - I
q = 20(30 + 10) + (1.75)(25. 298) - 200
q = 800  44.272 - 200 = 644.272, or 645 units
So, to satisfy 96 percent of the demand,

you should place an order of 645 units at
this review period
Price-Break Model Formula
Based on the same assumptions as the EOQ model, the price-break
model has a similar Qopt formula:
2DS 2(Annual Demand)(Or der or Setup Cost)

Q OP T = =
iC Annual Holding Cost
i = percentage of unit cost attributed to carrying inventory

C = cost per unit
Since “C” changes for each price-break, the formula

above will have to be used with each price-break cost
value
Price-Break Example Problem Data
(Part 1)
A company has a chance to reduce their inventory
ordering costs by placing larger quantity orders using
the price-break order quantity schedule below. What
should their optimal order quantity be if this company
purchases this single inventory item with an e-mail
ordering cost of $4, a carrying cost rate of 2% of the
inventory cost of the item,
Order Quantity(units) and an annual demand of
Price/unit($)
10,000 units?
0 to 2,499 $1.20
2,500 to 3,999 1.00
4,000 or more .98
Price-Break Example Solution (Part 2)
First, plug data into formula for each price-break value of “C”
Annual Demand (D)= 10,000 units Carrying cost % of total cost (i)= 2%
Cost to place an order (S)= $4 Cost per unit (C) = $1.20, $1.00, $0.98
Next, determine if the computed Qopt values are feasible or not
Interval from 0 to 2499, the Q OP T =

2DS
=
2(10,000)(4)
= 1,826 units
Qopt value is feasible iC 0.02(1.20)
Interval from 2500-3999, the 2DS 2(10,000)( 4)

Q OP T = = = 2,000 units
Qopt value is not feasible iC 0.02(1.00)
Interval from 4000 & more, the Q 2DS 2(10,000)( 4)

OP T = = = 2,020 units
Qopt value is not feasible iC 0.02(0.98)
Since the feasible solution occurred in the first price-break, it means that
all the other true Qopt values occur at the beginnings of each price-break
interval. Why?
Because the total annual cost function is a “u” shaped

Total function
annual
So the candidates for
costs
the price-breaks are
1826, 2500, and 4000
units
0 1826 2500 4000 Order Quantity

Next, we plug the true Qopt values into the total cost annual cost function to
determine the total cost under each price-break
D Q
TC = DC + S+ iC
Q 2
TC(0-2499)=(10000*1.20)+(10000/1826)*4+(1826/2)(0.02*1.20)
= $12,043.82
TC(2500-3999)= $10,041
TC(4000&more)= $9,949.20
Finally, we select the least costly Qopt, which is this problem occurs in the
4000 & more interval. In summary, our optimal order quantity is 4000 units
Miscellaneous Systems:
Optional Replenishment System
Maximum Inventory Level, M
q=M-I
M
Actual Inventory Level, I
Q = minimum acceptable order quantity
If q > Q, order q, otherwise do not order any.

Miscellaneous Systems:
Bin Systems
Two-Bin System
Order One Bin of

Inventory
Full Empty
One-Bin System
Order Enough to
Refill Bin
Periodic Check
ABC Classification System
• Items kept in inventory are not of equal importance in
terms of:
– dollars invested 60
% of
– profit potential $ Value
30 A
0 B
– sales or usage volume
% of 30 C
– stock-out penalties Use 60
So, identify inventory items based on percentage of total dollar value, where
“A” items are roughly top 15 %, “B” items as next 35 %, and the lower 65%
are the “C” items
Inventory Accuracy and Cycle Counting
• Inventory accuracy refers to how well the

inventory records agree with physical count
• Cycle Counting is a physical inventory-taking
technique in which inventory is counted on a
frequent basis rather than once or twice a
year
Questions?
Thank you
Siddhartha Kushwaha
Dos & Don’ts

3. When asked, write SEAT_ENROLL_First NAME in chat e.g.
14_1234_Sidd

Session 26
Material requirement Planning

Material Requirements Planning
• Materials requirements planning (MRP) is a
means for determining the number of parts,
components, and materials needed to produce a
product
• MRP provides time scheduling information
specifying when each of the materials, parts,
and components should be ordered or produced
• Dependent demand drives MRP
• MRP is a software system
Benefits of MRP
1. Better response to customer orders
2. Faster response to market changes
3. Improved utilization of facilities and
labor
4. Reduced inventory levels
MRP System Structure
Aggregate
Firm Product Demand
Orders Plan Forecast
Master
Design Inventory
Production
Changes Changes
Schedule
Bill of Inventory
MRP
Materials Records
System
File File
Master Production Schedule (MPS)
 Specifies what is to be made and when
 Must be in accordance with the aggregate
production plan
 Aggregate production plan sets the overall level of
output in broad terms
 As the process moves from planning to execution,
each step must be tested for feasibility
 The MPS is the result of the production planning
process
Master Production Schedule (MPS)
 MPS is established in terms of specific products
 Schedule must be followed for a reasonable length
of time
 The MPS is quite often fixed or frozen in the near
term part of the plan
 The MPS is a rolling schedule
 The MPS is a statement of what is to be produced,
not a forecast of demand
Master Production Schedule
• A master production schedule (MPS) is time-phased plan
specifying how many of each end item you plan to build and when.
Time Fences
• A time fence is a date fixed by management beyond which
no changes (or only limited changes) in the master
schedule are allowed.
• There are three types of time fences

– Frozen: No schedule changes are allowed within this window
– Moderately Firm: Specific changes allowed within product
groups as long as parts are available
– Flexible: Significant variation allowed as long as overall capacity
requirements remain at the same levels
Aggregate
Production Plan
Months January February
Aggregate Production Plan 1,500 1,200
(shows the total quantity of amplifiers)
Weeks 1 2 3 4 5 6 7 8
Master Production Schedule
(shows the specific type and
quantity of amplifier to be produced
240 watt amplifier 100 100 100 100
150 watt amplifier 500 500 450 450
75 watt amplifier 300 100
MPS Examples
For Nancy’s Specialty Foods
Gross Requirements for Crabmeat Quiche

Day 6 7 8 9 10 11 12 13 14 and so on
Amount 50 100 47 60 110 75
Gross Requirements for Spinach Quiche
Day 7 8 9 10 11 12 13 14 15 16 and so on
Amount 100 200 150 60 75 100
Dependent Demand
 The demand for one item is related to the
demand for another item
 Given a quantity for the end item, the demand
for all parts and components can be calculated
 In general, used whenever a schedule can be
established for an item
 MRP is the common technique
Dependent Demand
Effective use of dependent demand
inventory models requires the following
1. Master production schedule
2. Specifications or bill of material
3. Inventory availability
4. Purchase orders outstanding
5. Lead times
Bills of Material
 List of components, ingredients, and
materials needed to make product
 Provides product structure
 Items above given level are called
parents
 Items below given level are called
children
Bill of Materials
• A bill of materials (BOM) file gives complete product descriptions and
documents quantities of each component, part, ingredient, or raw
material needed to make that product or sub-assembly.
– Also called a product structure tree (as seen a few slides back)
• Special types of BOMs:
– Modular BOM
• Used for products containing major subassemblies which allow for product options
– Super BOM
• Used for products with fractional options
– Phantom BOM (“kits”)
• Used for subassemblies or groups of components that never really exist as a product but
are immediately consumed by next step
Sample Bill of Materials
Source: http://www.tycothermal.com/
Sample Bill of Materials (2)
Source: Hamdi Bashir (original source unknown)

Sample Modular Bill of Materials
Source: R. A. Russell, B. W. Taylor, Operations Management, 3rd edition, Prentice Hall, 2000.
Multi-Level versus Single-Level Lists
Sample Multi-Level Indented Bill of
Materials
Source: R. A. Russell, B. W. Taylor, Operations Management, 3rd edition, Prentice Hall, 2000.
BOM Product Hierarchy
Low-level coding
BOM Example
Level Product structure for “Awesome” (A)
0 A
1 B(2) Std. 12” Speaker kit C(3) Std. 12” Speaker kit w/
amp-booster
2 E(2) E(2) F(2) Std. 12” Speaker

booster assembly
Packing box and
3 D(2) installation kit of wire, G(1) D(2)
bolts, and screws
Amp-booster
12” Speaker 12” Speaker
BOM Example
Level Product structure for “Awesome” (A)
0 A
Part B: 2 x number of As = (2)(50) = 100
BPart C(3) = Std. 12” Speaker kit w/
1 (2) Std.
C: 12” Speaker
3 x numberkit of As = (3)(50) amp-booster 300
Part D: 2 x number of Bs
2 E(2) + 2 x number of Fs = E(2)(2)(100) + (2)(300)
F(2) Std.= 12” Speaker
800
Part E: 2 x number of Bs booster assembly
3 D(2) + 2Packing
x number box of
andCs = (2)(100)
G(1) + (2)(150)
D(2) = 500
installation kit of wire,
Part F: 2 x number
bolts, andofscrews
Cs = (2)(150) = 300
Part G: 1 x number of Fs = (1)(300) = 300
Amp-booster
12” Speaker 12” Speaker
• Given the following bill of material
• If the demand for product A is 50 units, what will

be the gross requirement for component C, D and
E, F , G?
• Given the following bill of material
• If the demand for product A is 50 units, what will

be the gross requirement for component C, D and
E, F?
Accurate Records
 Accurate inventory records are absolutely
required for MRP (or any dependent
demand system) to operate correctly
 Generally MRP systems require 99%
accuracy
 Outstanding purchase orders must
accurately reflect quantities and schedule
receipts
Lead Times
 The time required to purchase,
produce, or assemble an item
 For purchased items – the time
between the recognition of a need
and the availability of the item for
production
 For production – the sum of the
order, wait, move, setup, store, and
run times
Time-Phased Product Structure
Must have D and E
Start production of D completed here so
production can begin
1 week on Bto
2 weeks
D produce
B
2 weeks
E
A
2 weeks 1 week
E
2 weeks 1 week
G C
3 weeks
F
1 week
D
| | | | | | | |
Figure 14.4
1 2 3 4 5 6 7 8
Time in weeks
Scheduling
© 2014 Pearson Education, Inc. 15 - 1

Scheduling
Figure 15.1

Short-Term Scheduling
The objective of scheduling is to
allocate and prioritize demand
(generated by either forecasts or
customer orders) to available
facilities

Scheduling Issues
▶ Scheduling deals with the timing of operations
▶ The task is the allocation and prioritization of demand
▶ Significant factors are
1. Forward or backward scheduling
2. Finite or infinite loading
3. The criteria for sequencing jobs

Forward and Backward
Scheduling
▶ Forward scheduling starts as soon as the
requirements are known
▶ Produces a feasible schedule though it
may not meet due dates
▶ Frequently results in
buildup of work-in- Now
Due
Date
process inventory
Scheduling
▶ Backward scheduling begins with the due
date and schedules the final operation first
▶ Schedule is produced by working
backwards though the processes
▶ Resources may not
be available to Now
Due
Date
accomplish the schedule
Scheduling
▶ Backward scheduling begins with the due
date and schedules the final operation first
▶ Schedule is produced by working
backwards though the processes
▶ Resources may not
be available to Now
Due
Date
accomplish the
schedule
Finite and Infinite Loading
▶ Assigning jobs to work stations
▶ Finite loading assigns work up to the capacity of the
work station
▶ All work gets done
▶ Due dates may be pushed out
▶ Infinite loading does not consider capacity
▶ All due dates are met
▶ Capacities may have to be adjusted
Scheduling Criteria
1. Minimize completion time
2. Maximize utilization of facilities
3. Minimize work-in-process (WIP)
inventory
4. Minimize customer waiting time

Scheduling Process-
Focused Facilities
▶ High-variety, low volume
▶ Production differ considerably
▶ Schedule incoming orders without
violating capacity constraints
▶ Scheduling can be complex

Loading Jobs
▶ Assign jobs so that costs, idle time, or
completion time are minimized
▶ Two forms of loading
▶ Capacity oriented
▶ Assigning specific jobs to work centers

Sequencing Jobs
▶ Specifies the order in which jobs should
be performed at work centers
▶ Priority rules are used to dispatch or
sequence jobs
▶ FCFS: First come, first served
▶ SPT: Shortest processing time
▶ EDD: Earliest due date
▶ LPT: Longest processing time
Sequencing Example
Apply the four popular sequencing rules to
these five jobs
Job Work (Processing) Time Job Due Date
Job (Days) (Days)
A 6 8
B 2 6
C 8 18
D 3 15
E 9 23

Sequencing Example
FCFS: Sequence A-B-C-D-E
Job Work (Processing) Flow
Job Sequence Time Time Job Due Date Job Lateness
A 6 6 8 0
B 2 8 6 2
C 8 16 18 0
D 3 19 15 4
E 9 28 23 5
28 77 11

Sequencing Example
FCFS: Sequence A-B-C-D-E
Sum of total flow time
Average completion time = = 77/5 = 15.4 days
Number of jobs
Total job work time
Utilization metric = = 28/77 = 36.4%
Average number of = Sum of total flow time = 77/28 = 2.75 jobs
jobs in the system Total job work time
Total late days
Average job lateness = = 11/5 = 2.2 days
Number of jobs

Sequencing Example
SPT: Sequence B-D-A-C-E
B 2 2 6 0
D 3 5 15 0
A 6 11 8 3
C 8 19 18 1
E 9 28 23 5
28 65 9

Sequencing Example
SPT: Sequence B-D-A-C-E
Average completion time = = 65/5 = 13 days
Number of jobs
Total job work time
Total late days
Number of jobs

Sequencing Example
EDD: Sequence B-A-D-C-E
B 2 2 6 0
A 6 8 8 0
D 3 11 15 0
C 8 19 18 1
E 9 28 23 5
28 68 6

Sequencing Example
EDD: Sequence B-A-D-C-E
Number of jobs
Total job work time
Total late days
Number of jobs

Sequencing Example
LPT: Sequence E-C-A-D-B
Job Work (Processing)
Job Sequence Time Flow Time Job Due Date Job Lateness
E 9 9 23 0
C 8 17 18 0
A 6 23 8 15
D 3 26 15 11
B 2 28 6 22
28 103 48

Sequencing Example
LPT: Sequence E-C-A-D-B
Number of jobs
Total job work time
Total late days
Number of jobs

Sequencing Example
Summary of Rules
Average Average
Completion Time Utilization Metric Average Number Lateness
Rule (Days) (%) of Jobs in System (Days)
FCFS 15.4 36.4 2.75 2.2
SPT 13.0 43.1 2.32 1.8
EDD 13.6 41.2 2.43 1.2
LPT 20.6 27.2 3.68 9.6

Comparison of
Sequencing Rules
▶ No one sequencing rule excels on all criteria
1. SPT does well on minimizing flow time and number of
jobs in the system
► But SPT moves long jobs to
the end which may result
in dissatisfied customers
2. FCFS does not do especially
well (or poorly) on any criteria but
is perceived as fair by customers
3. EDD minimizes maximum lateness
Sequencing N Jobs on Two
Machines: Johnson’s Rule
▶ Works with two or more jobs that
pass through the same two
machines or work centers
▶ Minimizes total production time and
idle time
▶ An N/2 problem, N number of jobs
through 2 workstations
Johnson’s Rule
1. List all jobs and times for each work center
2. Choose the job with the shortest activity
time. If that time is in the first work center,
schedule the job first. If it is in the second
work center, schedule the job last.
3. Once a job is scheduled, it is eliminated from
the list
4. Repeat steps 2 and 3 working toward the
center of the sequence
Johnson’s Rule Example
WORK CENTER 1 WORK CENTER 2
JOB (DRILL PRESS) (LATHE)
A 5 2
B 3 6
C 8 4
D 10 7
E 7 12

A 5 2
B 3 6
C 8 4 B E D C A
D 10 7
E 7 12

A 5 2
B 3 6
C 8 4 B E D C A
D 10 7
E 7 12
Time 0 3 10 20 28 33
WC
1 B E D C A
Idle
WC
2
Job
completed

A 5 2
B 3 6
C 8 4 B E D C A
D 10 7
E 7 12
Time 0 3 10 20 28 33
WC
1 B E D C A
Idle
WC
2
B E D C A
Job
Time 0 1 3 5 7 9 10 11 12 13 17 19 21 22 2325 27 29 31 33 35 completed
B E D C A
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
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otherwise, without the prior written permission of the publisher.
Printed in the United States of America.

Logsitics
KEEP CAMERA ON

Session 30-31
Project Management
https://www.youtube.com/watch?v=RfB9kw7IpY0

Identify Activities and Construct Network
C(7) F(8)
A(21) G(2)
B(5) D(2) E(5)

Determine Early Start/Early Finish and Late
Start/Late Finish Schedule
Critical 21 28 28 36
Path 1:
ACFG C(7) F(8)
21 28 28 36
0 21 36 38
A(21) G(2)
0 21 36 38
21 26 26 28 28 33
Critical B(5) D(2) E(5)

Path 2:
ABDFG 21 26 26 28 31 36
Assignment-1
• A network consists of the activities in the following list. Times are
given in weeks.
• a. Draw the network diagram.
• b. Calculate the ES, EF, LS, LF, and Slack for each activity.
• c. What is project completion time?
Assignment -2
• A network consists of the following list. Times are given in weeks.
• a. Draw the network diagram.
• b. Which activities form the critical path?
• c. How much slack exists at activities A and F?
• d. What is the duration of the critical path?
CPM with Activity Time Estimates
• When activity times vary, a single time estimate may
not be reliable.
• Instead, estimate three values
• Minimum
• Maximum
• Most likely
• This allows calculation of a probability estimate of
completion time.
• This is the distinguishing characteristic of the PERT
method.
PERT Method Calculations
𝑎 = 𝑚𝑖𝑛𝑖𝑚𝑢𝑚 𝑎+4𝑚+𝑏
𝑏 = 𝑚𝑎𝑥𝑖𝑚𝑢𝑚 𝐸𝑇 =
6
𝑚 = 𝑚𝑜𝑠𝑡 𝑙𝑖𝑘𝑒𝑙𝑦
𝐸𝑇 = 𝑒𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑡𝑖𝑚𝑒 𝑏 −𝑎 2
𝜎2 =
𝜎 2 = 𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒 6
Three Time Estimates
Network with Time Estimates
21 28 28 36
C(7) F(8)
21 28 28 36
0 21 36 38
A(21) G(2)
0 21 36 38
21 26 26 28 28 33
B(5) D(2) E(5)
21 26 26 28 31 36
Advantages of PERT
• Forces managers to organize
• Provides graphic display of activities
• Identifies
• Critical activities
• Slack activities 4
2
1 5 6
3
Limitations of PERT
• Important activities may be omitted
• Precedence relationships may not be correct
• Estimates may include 4
a fudge factor
2
• May focus solely
on critical path
1 5 6
142 weeks
3
Assignment:
A PERT problem is detailed in the table below. Times are given in weeks.
• a. Calculate the expected

time for each activity. Enter
these values in the
appropriate column in
• the table above.
• b. Which activities form the
critical path?
• c. What is the estimated time
of the critical path?
Questions?
Thank you
Siddhartha Kushwaha
IS3320
Advanced Quantitative
Analysis
Teacher: Haram Ahmed
Office:33 Down Stair
Office hours Sunday8:00-12:00
Email:Haram481@gmail.com
Lectures and course’s materials will be dropped in drop box
Course Map
Assignm
Tutorial Exam
Week Lecture Lab 10% ent
5% 40%
5%
1 Academic Advising
√
2-5 √ √ √

6 √ √ √
√
7-11 √ √ √

12 √ √ √ √
13-15 √ √ √ √
17 Final exam 40%
1 Topics to be Covered
List of Topics No of Contac
Weeks t hours
3 9
Transportation Problem
2 6
Assignment Models
3 9
Linear and Nonlinear Programming
3 9
Integer Programming and Goal Programming
2 6
Waiting Lines and Queuing Theory Models
2 6
Simulation Modeling
© 2009 Prentice-Hall, Inc. 10 – 3

Course No: IS3320 ‫ﻧﺎﻝل‬٣۳٣۳٢۲٠۰ :‫ ﻭوﺍاﻟﺮﻣﺰ‬ ‫ﺍاﻟﺮﻗﻢ‬
Course: Advanced Quantitative Analysis ‫ ﺍاﻟﻤﺘﻘﺪﻡم‬ ‫ ﺍاﻟﻜﻤﻲ‬ ‫ ﺍاﻟﺘﺤﻠﻴﯿﻞ‬ :‫ ﺍاﻟﻤﻘﺮﺭر‬ ‫ﺇإﺳﻢ‬
Credits: 3 ( 3 + 1 + 0 ) ( ٠۰ + ١۱ + ٣۳ ) ٣۳ :‫ﺍاﻟﺴﺎﻋﺎﺕت‬
Pre-requisite: IS3310 ‫ﻧﺎﻝل‬٣۳٣۳١۱٠۰ :‫ ﺳﺎﺑﻖ‬ ‫ﻣﺘﻄﻠﺐ‬
،٬‫ ﺗﻄﺒﻴﻘﺎت اﶈﺎﻛﺎة‬،٬‫ ﺑﺮﳎﺔ اﳍﺪف‬،٬‫ ﺑﺮﳎﺔ اﻷﻋﺪاد اﻟﺼﺤﻴﺤﺔ‬،٬‫ﺣﻞ ﻣﺸﺎﻛﻞ ﺣﺎﻻت اﻷﻋﻤﺎل؛ ﳕﺎذج اﻟﻨﻘﻞ‬ ّ ‫ﳕﺎذج ّإﲣﺎذ اﻟﻘﺮار اﳌﺘﻘ ّﺪﻣﺔ ﰲ‬
.‫ ﰲ ﺣﺼﺺ اﻟﺴﻮق واﻟﱪﳎﺔ اﻟﺪﻳﻨﺎﻣﻴﻜﻴﺔ؛ دراﺳﺔ واﻗﻌﻴﺔ‬Markov ‫ﻋﻤﻠﻴﺔ‬
Advanced decision making models in solving business case problems; transportation
models, integer programming, goal programming, simulation applications, Markov
process in market shares and dynamic programming; case study.
Text Book
"Quantitative Analysis for Management" by ,Barry Render, Ralph M. Stair, and Michael E. Hanna
Prentice Hall Latest Edition

Chapter 10
Transportation and
Assignment Models
To accompany
Quantitative Analysis for Management, Tenth Edition,
by Render, Stair, and Hanna © 2008 Prentice-Hall, Inc.
Power Point slides created by Jeff Heyl © 2009 Prentice-Hall, Inc.
Learning Objectives
After completing this chapter, students will be able to:
1. Structure special LP problems using the

transportation and assignment models
2. Use the northwest corner, VAM, MODI, and
stepping-stone methods
3. Solve facility location and other application
problems with transportation models
4. Solve assignment problems with the
Hungarian (matrix reduction) method

Chapter Outline
10.1 Introduction
10.2 Setting Up a Transportation Problem
10.3 Developing an Initial Solution: Northwest
Corner Rule
10.4 Stepping-Stone Method: Finding a
Least-Cost Solution
10.5 MODI Method
10.6 Vogel’s Approximation Method: Another
Way to Find an Initial Solution
10.7 Unbalanced Transportation Problems

Chapter Outline
10.8 Degeneracy in Transportation Problems
10.9 More Than One Optimal Solution
10.10 Maximization Transportation Problems
10.11 Unacceptable or Prohibited Routes
10.12 Facility Location Analysis
10.13 Assignment Model Approach
10.14 Unbalanced Assignment Problems
10.15 Maximization Assignment Problems

Introduction
 In this chapter we will explore two special
linear programming models
 The transportation model
 The assignment model
 Because of their structure, they can be
solved more efficiently than the simplex
method
 These problems are members of a
category of LP techniques called network
flow problems

Introduction
 Transportation model
 The transportation problem deals with the
distribution of goods from several points of
supply (sources) to a number of points of
demand (destinations)
 Usually we are given the capacity of goods at
each source and the requirements at each
destination
 Typically the objective is to minimize total
transportation and production costs

Introduction
 Example of a transportation problem in a network
format
Factories Warehouses
(Sources) (Destinations)
100 Units Des Moines Albuquerque 300 Units
300 Units Evansville Boston 200 Units
300 Units Fort Lauderdale Cleveland 200 Units
Capacities Shipping Routes Requirements
Figure 10.1
Introduction
 Assignment model
 The assignment problem refers to the class of
LP problems that involve determining the most
efficient assignment of resources to tasks
 The objective is most often to minimize total
costs or total time to perform the tasks at hand
 One important characteristic of assignment
problems is that only one job or worker can be
assigned to one machine or project

Introduction
 Special-purpose algorithms
 Although standard LP methods can be used to
solve transportation and assignment problems,
special-purpose algorithms have been
developed that are more efficient
 They still involve finding and initial solution and
developing improved solutions until an optimal
solution is reached
 They are fairly simple in terms of computation

Introduction
 Streamlined versions of the simplex method are
important for two reasons
1. Their computation times are generally 100 times faster
2. They require less computer memory (and hence can
permit larger problems to be solved)
 Two common techniques for developing initial
solutions are the northwest corner method and
Vogel’s approximation
 The initial solution is evaluated using either the
stepping-stone method or the modified
distribution (MODI) method
 We also introduce a solution procedure called the
Hungarian method, Flood’s technique, or the
reduced matrix method
Setting Up a Transportation Problem
 The Executive Furniture Corporation

manufactures office desks at three locations: Des
Moines, Evansville, and Fort Lauderdale
 The firm distributes the desks through regional
warehouses located in Boston, Albuquerque, and
Cleveland
 Estimates of the monthly production capacity of
each factory and the desks needed at each
warehouse are shown in Figure 10.1

 Production costs are the same at the three

factories so the only relevant costs are shipping
from each source to each destination
 Costs are constant no matter the quantity
shipped
 The transportation problem can be described as
how to select the shipping routes to be used and
the number of desks to be shipped on each route
so as to minimize total transportation cost
 Restrictions regarding factory capacities and
warehouse requirements must be observed

 The first step is setting up the transportation

table
 Its purpose is to summarize all the relevant data
and keep track of algorithm computations
Transportation costs per desk for Executive Furniture

TO
FROM ALBUQUERQUE BOSTON CLEVELAND
DES MOINES $5 $4 $3
EVANSVILLE $8 $4 $3
FORT LAUDERDALE $9 $7 $5
Table 10.1

 Geographical locations of Executive Furniture’s

factories and warehouses
Boston
Cleveland
Factory
Des Moines
Evanston Warehouse
Albuquerque
Fort Lauderdale
Figure 10.2

Des Moines
 Transportation table for Executive Furniture capacity
constraint
TO WAREHOUSE WAREHOUSE WAREHOUSE

AT AT AT FACTORY
FROM ALBUQUERQUE BOSTON CLEVELAND CAPACITY
DES MOINES $5 $4 $3
100
FACTORY
EVANSVILLE $8 $4 $3
300
FACTORY
300
FACTORY
WAREHOUSE
300 200 200 700
REQUIREMENTS
Cell representing a
Table 10.2 Total supply source-to-destination
Cost of shipping 1 unit from Cleveland (Evansville to Cleveland)
Fort Lauderdale factory to and demand
warehouse shipping assignment
Boston warehouse demand that could be made
 In this table, total factory supply exactly

equals total warehouse demand
 When equal demand and supply occur, a
balanced problem is said to exist
 This is uncommon in the real world and
we have techniques to deal with
unbalanced problems

Developing an Initial Solution:
Northwest Corner Rule
 Once we have arranged the data in a table, we
must establish an initial feasible solution
 One systematic approach is known as the
northwest corner rule
 Start in the upper left-hand cell and allocate units
to shipping routes as follows
1. Exhaust the supply (factory capacity) of each row
before moving down to the next row
2. Exhaust the demand (warehouse) requirements of each
column before moving to the right to the next column
3. Check that all supply and demand requirements are
met.
 In this problem it takes five steps to make the
initial shipping assignments
1. Beginning in the upper left hand corner, we
assign 100 units from Des Moines to
Albuquerque. This exhaust the supply from Des
Moines but leaves Albuquerque 200 desks short.
We move to the second row in the same column.
TO ALBUQUERQUE BOSTON CLEVELAND FACTORY
FROM (A) (B) (C) CAPACITY
DES MOINES $5 $4 $3
100 100
(D)
EVANSVILLE $8 $4 $3
300
(E)
300
(F)
WAREHOUSE
300 200 200 700
REQUIREMENTS

2. Assign 200 units from Evansville to Albuquerque.
This meets Albuquerque’s demand. Evansville
has 100 units remaining so we move to the right
to the next column of the second row.

DES MOINES $5 $4 $3
100 100
(D)
EVANSVILLE $8 $4 $3
200 300
(E)
300
(F)
WAREHOUSE
300 200 200 700
REQUIREMENTS

3. Assign 100 units from Evansville to Boston. The
Evansville supply has now been exhausted but
Boston is still 100 units short. We move down
vertically to the next row in the Boston column.

DES MOINES $5 $4 $3
100 100
(D)
EVANSVILLE $8 $4 $3
200 100 300
(E)
300
(F)
WAREHOUSE
300 200 200 700
REQUIREMENTS

4. Assign 100 units from Fort Lauderdale to Boston.
This fulfills Boston’s demand and Fort
Lauderdale still has 200 units available.

DES MOINES $5 $4 $3
100 100
(D)
EVANSVILLE $8 $4 $3
200 100 300
(E)
100 300
(F)
WAREHOUSE
300 200 200 700
REQUIREMENTS

5. Assign 200 units from Fort Lauderdale to
Cleveland. This exhausts Fort Lauderdale’s
supply and Cleveland’s demand. The initial
shipment schedule is now complete.
Table 10.3
DES MOINES $5 $4 $3
100 100
(D)
EVANSVILLE $8 $4 $3
200 100 300
(E)
100 200 300
(F)
WAREHOUSE
300 200 200 700
REQUIREMENTS

 We can easily compute the cost of this shipping
assignment
ROUTE
UNITS PER UNIT TOTAL
FROM TO SHIPPED x COST ($) = COST ($)
D A 100 5 500
E A 200 8 1,600
E B 100 4 400
F B 100 7 700
F C 200 5 1,000
4,200
 This solution is feasible but we need to check to

see if it is optimal
Stepping-Stone Method:
Finding a Least Cost Solution
 The stepping-stone method is an iterative
technique for moving from an initial
feasible solution to an optimal feasible
solution
 There are two distinct parts to the process
 Testing the current solution to determine if
improvement is possible
 Making changes to the current solution to
obtain an improved solution
 This process continues until the optimal
solution is reached

Stepping-Stone Method:
Finding a Least Cost Solution
 There is one very important rule
 The number of occupied routes (or squares) must
always be equal to one less than the sum of the
number of rows plus the number of columns
 In the Executive Furniture problem this means the
initial solution must have 3 + 3 – 1 = 5 squares
used
Occupied shipping Number Number of
routes (squares) = of rows + columns – 1
 When the number of occupied rows is less than

this, the solution is called degenerate

Testing the Solution for
Possible Improvement
 The stepping-stone method works by
testing each unused square in the
transportation table to see what would
happen to total shipping costs if one unit
of the product were tentatively shipped on
an unused route
 There are five steps in the process

Five Steps to Test Unused Squares
with the Stepping-Stone Method
1. Select an unused square to evaluate
2. Beginning at this square, trace a closed path
back to the original square via squares that are
currently being used with only horizontal or
vertical moves allowed
3. Beginning with a plus (+) sign at the unused
square, place alternate minus (–) signs and plus
signs on each corner square of the closed path
just traced

4. Calculate an improvement index by adding
together the unit cost figures found in each
square containing a plus sign and then
subtracting the unit costs in each square
containing a minus sign
5. Repeat steps 1 to 4 until an improvement index
has been calculated for all unused squares. If all
indices computed are greater than or equal to
zero, an optimal solution has been reached. If
not, it is possible to improve the current solution
and decrease total shipping costs.

 For the Executive Furniture Corporation data
Steps 1 and 2. Beginning with Des Moines–Boston

route we trace a closed path using only currently
occupied squares, alternately placing plus and
minus signs in the corners of the path
 In a closed path, only squares currently used for
shipping can be used in turning corners
 Only one closed route is possible for each square
we wish to test

Step 3. We want to test the cost-effectiveness of the
Des Moines–Boston shipping route so we pretend
we are shipping one desk from Des Moines to
Boston and put a plus in that box
 But if we ship one more unit out of Des Moines
we will be sending out 101 units
 Since the Des Moines factory capacity is only
100, we must ship fewer desks from Des Moines
to Albuquerque so we place a minus sign in that
box
 But that leaves Albuquerque one unit short so we
must increase the shipment from Evansville to
Albuquerque by one unit and so on until we
complete the entire closed path
 Evaluating the unused Warehouse A Warehouse B
$5 $4
Des Moines–Boston Factory
100
D
shipping route – +
Factory
+ $8 – $4
E 200 100
TO FACTORY
ALBUQUERQUE BOSTON CLEVELAND
FROM CAPACITY
$5 $4 $3
DES MOINES 100 100
$8 $4 $3
EVANSVILLE 200 100 300
$9 $7 $5
FORT LAUDERDALE 100 200 300
WAREHOUSE
300 200 200 700 Table 10.4
REQUIREMENTS
$5 $4
99
100 1
D
Factory 201 + $8 99 – $4
E 200 100
TO FACTORY
FROM CAPACITY
$5 $4 $3
DES MOINES 100 100
$8 $4 $3
$9 $7 $5
WAREHOUSE
300 200 200 700 Table 10.4
REQUIREMENTS
$5 $4
99
100 1
D
Factory 201 + $8 99 – $4
E 200 100
TO FACTORY
FROM Result
CAPACITY of Proposed
$5 $4 $3 Shift in Allocation
DES MOINES 100 100
= 1 x $4
$8 $4 $3 – 1 x $5
EVANSVILLE 200 100 300 + 1 x $8
– 1 x $4 = +$3
$9 $7 $5
WAREHOUSE
300 200 200 700 Table 10.4
REQUIREMENTS
Step 4. We can now compute an improvement index
(Iij) for the Des Moines–Boston route
 We add the costs in the squares with plus signs
and subtract the costs in the squares with minus
signs
Des Moines–
Boston index = IDB = +$4 – $5 + $5 – $4 = + $3
 This means for every desk shipped via the Des

Moines–Boston route, total transportation cost
will increase by $3 over their current level

Step 5. We can now examine the Des Moines–
Cleveland unused route which is slightly more
difficult to draw
 Again we can only turn corners at squares that
represent existing routes
 We must pass through the Evansville–Cleveland
square but we can not turn there or put a + or –
sign
 The closed path we will use is
+ DC – DA + EA – EB + FB – FC

 Evaluating the Des Moines–Cleveland shipping
route
TO FACTORY
FROM CAPACITY
$5 $4 Start $3
DES MOINES 100 100
– +
$8 $4 $3
+ –
$9 $7 $5
+ –
WAREHOUSE
300 200 200 700
REQUIREMENTS
Table 10.5
Des Moines–Cleveland
improvement index = IDC = + $3 – $5 + $8 – $4 + $7 – $5 = + $4

 Opening the Des Moines–Cleveland route will not
lower our total shipping costs
 Evaluating the other two routes we find
Evansville-
Cleveland index = IEC = + $3 – $4 + $7 – $5 = + $1
 The closed path is
+ EC – EB + FB – FC
Fort Lauderdale–
Albuquerque index = IFA = + $9 – $7 + $4 – $8 = – $2
 The closed path is
+ FA – FB + EB – EA
 So opening the Fort Lauderdale-Albuquerque
route will lower our total transportation costs
Obtaining an Improved Solution
 In the Executive Furniture problem there is only

one unused route with a negative index (Fort
Lauderdale-Albuquerque)
 If there was more than one route with a negative
index, we would choose the one with the largest
improvement
 We now want to ship the maximum allowable
number of units on the new route
 The quantity to ship is found by referring to the
closed path of plus and minus signs for the new
route and selecting the smallest number found in
those squares containing minus signs

 To obtain a new solution, that number is added to

all squares on the closed path with plus signs
and subtracted from all squares the closed path
with minus signs
 All other squares are unchanged
 In this case, the maximum number that can be
shipped is 100 desks as this is the smallest value
in a box with a negative sign (FB route)
 We add 100 units to the FA and EB routes and
subtract 100 from FB and EA routes
 This leaves balanced rows and columns and an
improved solution

 Stepping-stone path used to evaluate route FA

TO FACTORY
A B C
FROM CAPACITY
$5 $4 $3
D 100 100
$8 $4 $3
E 200 100 300
– +
$9 $7 $5
F 100 200 300
+ –
WAREHOUSE
300 200 200 700
REQUIREMENTS
Table 10.6

 Second solution to the Executive Furniture
problem
TO FACTORY
A B C
FROM CAPACITY
$5 $4 $3
D 100 100
$8 $4 $3
E 100 200 300
$9 $7 $5
F 100 200 300
WAREHOUSE
300 200 200 700
REQUIREMENTS
Table 10.7
 Total shipping costs have been reduced by (100

units) x ($2 saved per unit) and now equals $4,000
 This second solution may or may not be optimal
 To determine whether further improvement is
possible, we return to the first five steps to test
each square that is now unused
 The four new improvement indices are
D to B = IDB = + $4 – $5 + $8 – $4 = + $3
(closed path: + DB – DA + EA – EB)
D to C = IDC = + $3 – $5 + $9 – $5 = + $2
(closed path: + DC – DA + FA – FC)
E to C = IEC = + $3 – $8 + $9 – $5 = – $1
(closed path: + EC – EA + FA – FC)
F to B = IFB = + $7 – $4 + $8 – $9 = + $2
(closed path: + FB – EB + EA – FA)
 Path to evaluate for the EC route
TO FACTORY
A B C
FROM CAPACITY
$5 $4 $3
D 100 100
E 100
$8
200
$4 Start $3
300
– +
$9 $7 $5
F 100 200 300
+ –
WAREHOUSE
300 200 200 700
REQUIREMENTS
Table 10.8
 An improvement can be made by shipping the

maximum allowable number of units from E to C
 Total cost of third solution
ROUTE
DESKS PER UNIT TOTAL
FROM TO SHIPPED x COST ($) = COST ($)
D A 100 5 500
E B 200 4 800
E C 100 3 300
F A 200 9 1,800
F C 100 5 500
3,900

 Third and optimal solution
TO FACTORY
A B C
FROM CAPACITY
$5 $4 $3
D 100 100
$8 $4 $3
E 200 100 300
$9 $7 $5
F 200 100 300
WAREHOUSE
300 200 200 700
REQUIREMENTS
Table 10.9

 This solution is optimal as the improvement
indices that can be computed are all greater than
or equal to zero
D to B = IDB = + $4 – $5 + $9 – $5 + $3 – $4 = + $2
(closed path: + DB – DA + FA – FC + EC – EB)
D to C = IDC = + $3 – $5 + $9 – $5 = + $2
(closed path: + DC – DA + FA – FC)
E to A = IEA = + $8 – $9 + $5 – $3 = + $1
(closed path: + EA – FA + FC – EC)
F to B = IFB = + $7 – $5 + $3 – $4 = + $1
(closed path: + FB – FC + EC – EB)

Summary of Steps in Transportation
Algorithm (Minimization)
1. Set up a balanced transportation table
2. Develop initial solution using either the northwest
corner method or Vogel’s approximation method
3. Calculate an improvement index for each empty
cell using either the stepping-stone method or
the MODI method. If improvement indices are all
nonnegative, stop as the optimal solution has
been found. If any index is negative, continue to
step 4.
4. Select the cell with the improvement index
indicating the greatest decrease in cost. Fill this
cell using the stepping-stone path and go to step
3.
Using Excel QM to Solve
Transportation Problems
 Excel QM input screen and formulas
Program 10.1A

Using Excel QM to Solve
Transportation Problems
 Output from Excel QM with optimal solution
Program 10.1B

MODI Method
 The MODI (modified distribution) method allows
us to compute improvement indices quickly for
each unused square without drawing all of the
closed paths
 Because of this, it can often provide considerable
time savings over the stepping-stone method for
solving transportation problems
 If there is a negative improvement index, then only
one stepping-stone path must be found
 This is used in the same manner as before to
obtain an improved solution

How to Use the MODI Approach
 In applying the MODI method, we begin with an

initial solution obtained by using the northwest
corner rule
 We now compute a value for each row (call the
values R1, R2, R3 if there are three rows) and for
each column (K1, K2, K3) in the transportation
table
 In general we let
Ri = value for assigned row i
Kj = value for assigned column j
Cij = cost in square ij (cost of shipping from
source i to destination j)

Five Steps in the MODI Method to
Test Unused Squares
1. Compute the values for each row and column, set
Ri + Kj = Cij
but only for those squares that are currently used
or occupied
2. After all equations have been written, set R1 = 0
3. Solve the system of equations for R and K values
4. Compute the improvement index for each unused
square by the formula
Improvement Index (Iij) = Cij – Ri – Kj
5. Select the best negative index and proceed to
solve the problem as you did using the stepping-
stone method
Solving the Executive Furniture
Corporation Problem with MODI
 The initial northwest corner solution is repeated
in Table 10.10
 Note that to use the MODI method we have added
the Ris (rows) and Kjs (columns)
Kj K1 K2 K3
TO FACTORY
Ri A B C
FROM CAPACITY
$5 $4 $3
R1 D 100 100
$8 $4 $3
R2 E 200 100 300
$9 $7 $5
R3 F 100 200 300
WAREHOUSE
300 200 200 700
REQUIREMENTS
Table 10.10
 The first step is to set up an equation for each
occupied square
 By setting R1 = 0 we can easily solve for K1, R2,
K2, R3, and K3
(1) R1 + K1 = 5 0 + K1 = 5 K1 = 5
(2) R2 + K1 = 8 R2 + 5 = 8 R2 = 3
(3) R2 + K2 = 4 3 + K2 = 4 K2 = 1
(4) R3 + K2 = 7 R3 + 1 = 7 R3 = 6
(5) R3 + K3 = 5 6 + K3 = 5 K3 = –1

 The next step is to compute the improvement
index for each unused cell using the formula
Improvement index (Iij) = Cij – Ri – Kj
 We have
Des Moines- IDB = C12 – R1 – K2 = 4 – 0 – 1

Boston index = +$3
Des Moines- IDC = C13 – R1 – K3 = 3 – 0 – (–1)
Cleveland index = +$4
Evansville- IEC = C23 – R2 – K3 = 3 – 3 – (–1)
Cleveland index = +$1
Fort Lauderdale- IFA = C31 – R3 – K1 = 9 – 6 – 5
Albuquerque index = –$2

 The steps we follow to develop an improved
solution after the improvement indices have been
computed are
1. Beginning at the square with the best
improvement index, trace a closed path back
to the original square via squares that are
currently being used
2. Beginning with a plus sign at the unused
square, place alternate minus signs and plus
signs on each corner square of the closed
path just traced

3. Select the smallest quantity found in those
squares containing the minus signs and add
that number to all squares on the closed path
with plus signs; subtract the number from
squares with minus signs
4. Compute new improvement indices for this
new solution using the MODI method
 Note that new Ri and Kj values must be
calculated
 Follow this procedure for the second and third
solutions

Vogel’s Approximation Method:
Another Way To Find An Initial Solution
 Vogel’s Approximation Method (VAM) is not as
simple as the northwest corner method, but it
provides a very good initial solution, often one
that is the optimal solution
 VAM tackles the problem of finding a good initial
solution by taking into account the costs
associated with each route alternative
 This is something that the northwest corner rule
does not do
 To apply VAM, we first compute for each row and
column the penalty faced if we should ship over
the second-best route instead of the least-cost
route
Vogel’s Approximation Method
 The six steps involved in determining an initial
VAM solution are illustrated below beginning with
the same layout originally shown in Table 10.2
VAM Step 1. For each row and column of the
transportation table, find the difference between
the distribution cost on the best route in the row
or column and the second best route in the row or
column
 This is the opportunity cost of not using the
best route
 Step 1 has been done in Table 10.11

 Transportation table with VAM row and column
differences shown
OPPORTUNITY
3 0 0 COSTS
TO TOTAL
FROM
A B C AVAILABLE
$5 $4 $3
D 100 100 1
$8 $4 $3
E 200 100 300 1
$9 $7 $5
F 100 200 300 2
TOTAL REQUIRED 300 200 200 700
Table 10.11

VAM Step 2. identify the row or column with the

greatest opportunity cost, or difference (column A in
this example)
VAM Step 3.Assign as many units as possible to the
lowest-cost square in the row or column selected
VAM Step 4. Eliminate any row or column that has
been completely satisfied by the assignment just
made by placing Xs in each appropriate square
VAM Step 5. Recompute the cost differences for the
transportation table, omitting rows or columns
eliminated in the previous step

 VAM assignment with D’s requirements satisfied
OPPORTUNITY
31 03 02 COSTS
TO TOTAL
FROM
A B C AVAILABLE
$5 $4 $3
D 100 X X 100 1
$8 $4 $3
E 300 1
$9 $7 $5
F 300 2
Table 10.12

VAM Step 6. Return to step 2 for the rows and

columns remaining and repeat the steps until an
initial feasible solution has been obtained
 In this case column B now has the greatest

difference, 3
 We assign 200 units to the lowest-cost square in
the column, EB
 We recompute the differences and find the
greatest difference is now in row E
 We assign 100 units to the lowest-cost square in
the column, EC

 Second VAM assignment with B’s requirements
satisfied
OPPORTUNITY
31 03 02 COSTS
TO TOTAL
FROM
A B C AVAILABLE
$5 $4 $3
D 100 X X 100 1
$8 $4 $3
E 200 300 1
$9 $7 $5
F X 300 2
Table 10.13

 Third VAM assignment with E’s requirements
satisfied
TO TOTAL
FROM
A B C AVAILABLE
$5 $4 $3
D 100 X X 100
$8 $4 $3
E X 200 100 300
$9 $7 $5
F X 300
Table 10.14

 Final assignments to balance column and row
requirements
TO TOTAL
FROM
A B C AVAILABLE
$5 $4 $3
D 100 X X 100
$8 $4 $3
E X 200 100 300
$9 $7 $5
F 200 X 100 300
Table 10.15

Unbalanced Transportation Problems
 In real-life problems, total demand is frequently

not equal to total supply
 These unbalanced problems can be handled
easily by introducing dummy sources or dummy
destinations
 If total supply is greater than total demand, a
dummy destination (warehouse), with demand
exactly equal to the surplus, is created
 If total demand is greater than total supply, we
introduce a dummy source (factory) with a supply
equal to the excess of demand over supply

Unbalanced Transportation Problems
 In either case, shipping cost coefficients of zero

are assigned to each dummy location or route as
no goods will actually be shipped
 Any units assigned to a dummy destination
represent excess capacity
 Any units assigned to a dummy source represent
unmet demand

Demand Less Than Supply
 Suppose that the Des Moines factory increases its
rate of production from 100 to 250 desks
 The firm is now able to supply a total of 850 desks
each period
 Warehouse requirements remain the same (700) so
the row and column totals do not balance
 We add a dummy column that will represent a fake
warehouse requiring 150 desks
 This is somewhat analogous to adding a slack
variable
 We use the northwest corner rule and either
stepping-stone or MODI to find the optimal
solution
Demand Less Than Supply
 Initial solution to an unbalanced problem where
demand is less than supply
TO DUMMY TOTAL
FROM
A B C WAREHOUSE AVAILABLE
$5 $4 $3 0
D 250 250
$8 $4 $3 0
E 50 200 50 300
$9 $7 $5 0
F 150 150 300
WAREHOUSE
300 200 200 150 850
REQUIREMENTS
Total cost = 250($5) + 50($8) + 200($4) + 50($3) + 150($5) + 150(0) = $3,350
New Des Moines

Table 10.16
capacity

Demand Greater than Supply
 The second type of unbalanced condition occurs
when total demand is greater than total supply
 In this case we need to add a dummy row
representing a fake factory
 The new factory will have a supply exactly equal
to the difference between total demand and total
real supply
 The shipping costs from the dummy factory to
each destination will be zero

 Unbalanced transportation table for Happy
Sound Stereo Company

FROM A B C PLANT SUPPLY
$6 $4 $9
PLANT W 200
$10 $5 $8
PLANT X 175
$12 $7 $6
PLANT Y 75
Totals
WAREHOUSE 450
DEMAND
250 100 150
500
do not
balance
Table 10.17

 Initial solution to an unbalanced problem in
which demand is greater than supply
PLANT SUPPLY
FROM A B C
$6 $4 $9
PLANT W 200 200
$10 $5 $8
PLANT X 50 100 25 175
$12 $7 $6
PLANT Y 75 75
0 0 0
PLANT Y 50 50
WAREHOUSE
250 100 150 500
DEMAND
Total cost of initial solution = 200($6) + 50($10) + 100($5) + 25($8) + 75($6)

+ $50(0) = $2,850
Table 10.18
Degeneracy in Transportation
Problems
 Degeneracy occurs when the number of occupied
squares or routes in a transportation table
solution is less than the number of rows plus the
number of columns minus 1
 Such a situation may arise in the initial solution
or in any subsequent solution
 Degeneracy requires a special procedure to
correct the problem since there are not enough
occupied squares to trace a closed path for each
unused route and it would be impossible to apply
the stepping-stone method or to calculate the R
and K values needed for the MODI technique

Degeneracy in Transportation
Problems
 To handle degenerate problems, create an
artificially occupied cell
 That is, place a zero (representing a fake
shipment) in one of the unused squares and then
treat that square as if it were occupied
 The square chosen must be in such a position as
to allow all stepping-stone paths to be closed
 There is usually a good deal of flexibility in
selecting the unused square that will receive the
zero

Degeneracy in an Initial Solution
 The Martin Shipping Company example illustrates

degeneracy in an initial solution
 They have three warehouses which supply three
major retail customers
 Applying the northwest corner rule the initial
solution has only four occupied squares
 This is less than the amount required to use
either the stepping-stone or MODI method to
improve the solution (3 rows + 3 columns – 1 = 5)
 To correct this problem, place a zero in an
unused square, typically one adjacent to the last
filled cell

Degeneracy in an Initial Solution
 Initial solution of a degenerate problem
TO WAREHOUSE
CUSTOMER 1 CUSTOMER 2 CUSTOMER 3
FROM SUPPLY
$8 $2 $6
WAREHOUSE 1 100 0 100
$10 $9 $9
WAREHOUSE 2 0 100 20 120
$7 $10 $7
WAREHOUSE 3 80 80
CUSTOMER
100 100 100 300
DEMAND
Table 10.19
Possible choices of
cells to address the
degenerate solution
Degeneracy During
Later Solution Stages
 A transportation problem can become degenerate
after the initial solution stage if the filling of an
empty square results in two or more cells
becoming empty simultaneously
 This problem can occur when two or more cells
with minus signs tie for the lowest quantity
 To correct this problem, place a zero in one of the
previously filled cells so that only one cell
becomes empty

Degeneracy During
 Bagwell Paint Example

 After one iteration, the cost analysis at Bagwell
Paint produced a transportation table that was
not degenerate but was not optimal
 The improvement indices are
factory A – warehouse 2 index = +2

factory A – warehouse 3 index = +1
factory B – warehouse 3 index = –15
factory C – warehouse 2 index = +11
Only route with
a negative index

Degeneracy During
 Bagwell Paint transportation table

FACTORY
FROM 1 2 3
CAPACITY
$8 $5 $16
FACTORY A 70 70
$15 $10 $7
FACTORY B 50 80 130
$3 $9 $10
FACTORY C 30 50 80
WAREHOUSE
150 80 50 280
REQUIREMENT
Table 10.20

Degeneracy During
 Tracing a closed path for the factory B –
warehouse 3 route
TO
WAREHOUSE 1 WAREHOUSE 3
FROM
$15 $7
FACTORY B 50
– +
$3 $10
FACTORY C 30 50
+ –
Table 10.21
 This would cause two cells to drop to zero

 We need to place an artificial zero in one of these
cells to avoid degeneracy
More Than One Optimal Solution
 It is possible for a transportation problem to have
multiple optimal solutions
 This happens when one or more of the
improvement indices zero in the optimal solution
 This means that it is possible to design
alternative shipping routes with the same total
shipping cost
 The alternate optimal solution can be found by
shipping the most to this unused square using a
stepping-stone path
 In the real world, alternate optimal solutions
provide management with greater flexibility in
selecting and using resources
Maximization Transportation Problems
 If the objective in a transportation problem is to

maximize profit, a minor change is required in the
transportation algorithm
 Now the optimal solution is reached when all the
improvement indices are negative or zero
 The cell with the largest positive improvement
index is selected to be filled using a stepping-
stone path
 This new solution is evaluated and the process
continues until there are no positive improvement
indices

Unacceptable Or Prohibited Routes
 At times there are transportation problems in

which one of the sources is unable to ship to one
or more of the destinations
 When this occurs, the problem is said to have an
unacceptable or prohibited route
 In a minimization problem, such a prohibited
route is assigned a very high cost to prevent this
route from ever being used in the optimal
solution
 In a maximization problem, the very high cost
used in minimization problems is given a
negative sign, turning it into a very bad profit

Facility Location Analysis
 The transportation method is especially useful in
helping a firm to decide where to locate a new
factory or warehouse
 Each alternative location should be analyzed
within the framework of one overall distribution
system
 The new location that yields the minimum cost for
the entire system is the one that should be
chosen

Locating a New Factory for
Hardgrave Machine Company
 Hardgrave Machine produces computer
components at three plants and they ship to four
warehouses
 The plants have not been able to keep up with
demand so the firm wants to build a new plant
 Two sites are being considered, Seattle and
Birmingham
 Data has been collected for each possible
location
 Which new location will yield the lowest cost for
the firm in combination with the existing plants
and warehouses

 Hardgrave’s demand and supply data
MONTHLY
DEMAND PRODUCTION MONTHLY COST TO PRODUCE
WAREHOUSE (UNITS) PLANT SUPPLY ONE UNIT ($)
Detroit 10,000 Cincinnati 15,000 48
Dallas 12,000 Salt Lake 6,000 50
New York 15,000 Pittsburgh 14,000 52
Los Angeles 9,000 35,000
46,000
Supply needed from new plant = 46,000 – 35,000 = 11,000 units per month
Table 10.22
ESTIMATED PRODUCTION COST
PER UNIT AT PROPOSED PLANTS
Seattle $53
Birmingham $49

 Hardgrave’s shipping costs
TO LOS
FROM DETROIT DALLAS NEW YORK ANGELES
CINCINNATI $25 $55 $40 $60
SALT LAKE 35 30 50 40
PITTSBURGH 36 45 26 66
SEATTLE 60 38 65 27
BIRMINGHAM 35 30 41 50
Table 10.23

 Optimal solution for the Birmingham location
TO LOS FACTORY
FROM DETROIT DALLAS NEW YORK ANGELES CAPACITY
73 103 88 108
CINCINNATI 10,000 1,000 4,000 15,000
85 80 100 90
SALT LAKE 1,000 5,000 6,000
88 97 78 118
PITTSBURGH 14,000 14,000
84 79 90 99
BIRMINGHAM 11,000 11,000
WAREHOUSE
10,000 12,000 15,000 9,000 46,000
REQUIREMENT
Table 10.24

 Optimal solution for the Seattle location
TO LOS FACTORY
FROM DETROIT DALLAS NEW YORK ANGELES CAPACITY
73 103 88 108
CINCINNATI 10,000 4,000 1,000 15,000
85 80 100 90
SALT LAKE 6,000 6,000
88 97 78 118
PITTSBURGH 14,000 14,000
113 91 118 80
SEATTLE 2,000 9,000 11,000
WAREHOUSE
10,000 12,000 15,000 9,000 46,000
REQUIREMENT
Table 10.25

 By comparing the total system costs of the two

alternatives, Hardgrave can select the lowest cost
option
 The Birmingham location yields a total system
cost of $3,741,000
 The Seattle location yields a total system cost of
$3,704,000
 With the lower total system cost, the Seattle
location is favored
 Excel QM can also be used as a solution tool

 Excel input screen
Program 10.2A
 Output from Excel QM analysis
Program 10.2A
Assignment Model Approach
 The second special-purpose LP algorithm is the
assignment method
 Each assignment problem has associated with it
a table, or matrix
 Generally, the rows contain the objects or people
we wish to assign, and the columns comprise the
tasks or things we want them assigned to
 The numbers in the table are the costs associated
with each particular assignment
 An assignment problem can be viewed as a
transportation problem in which the capacity
from each source is 1 and the demand at each
destination is 1
 The Fix-It Shop has three rush projects to repair
 They have three repair persons with different
talents and abilities
 The owner has estimates of wage costs for each
worker for each project
 The owner’s objective is to assign the three
project to the workers in a way that will result in
the lowest cost to the shop
 Each project will be assigned exclusively to one
worker

 Estimated project repair costs for the Fix-It shop
assignment problem
PROJECT
PERSON 1 2 3
Adams $11 $14 $6
Brown 8 10 11
Cooper 9 12 7
Table 10.26

 Summary of Fix-It Shop assignment alternatives
and costs
PRODUCT ASSIGNMENT
LABOR TOTAL
1 2 3
COSTS ($) COSTS ($)
Adams Brown Cooper 11 + 10 + 7 28
Adams Cooper Brown 11 + 12 + 11 34
Brown Adams Cooper 8 + 14 + 7 29
Brown Cooper Adams 8 + 12 + 6 26
Cooper Adams Brown 9 + 14 + 11 34
Cooper Brown Adams 9 + 10 + 6 25
Table 10.27

The Hungarian Method
(Flood’s Technique)
 The Hungarian method is an efficient method of
finding the optimal solution to an assignment
problem without having to make direct
comparisons of every option
 It operates on the principle of matrix reduction
 By subtracting and adding appropriate numbers
in the cost table or matrix, we can reduce the
problem to a matrix of opportunity costs
 Opportunity costs show the relative penalty
associated with assigning any person to a project
as opposed to making the best assignment
 We want to make assignment so that the
opportunity cost for each assignment is zero
Three Steps of the Assignment Method
1. Find the opportunity cost table by:
(a) Subtracting the smallest number in each row
of the original cost table or matrix from every
number in that row
(b) Then subtracting the smallest number in
each column of the table obtained in part (a)
from every number in that column
2. Test the table resulting from step 1 to see
whether an optimal assignment can be made by
drawing the minimum number of vertical and
horizontal straight lines necessary to cover all
the zeros in the table. If the number of lines is
less than the number of rows or columns,
proceed to step 3.
Three Steps of the Assignment Method
3. Revise the present opportunity cost table by

subtracting the smallest number not covered by
a line from every other uncovered number. This
same number is also added to any number(s)
lying at the intersection of horizontal and vertical
lines. Return to step 2 and continue the cycle
until an optimal assignment is possible.

Steps in the Assignment Method
Not
Set up cost table for problem Revise opportunity cost table
optimal
in two steps:
Step 1 (a) Subtract the smallest
number not covered by a line
from itself and every other
Find opportunity cost
uncovered number
(a) Subtract smallest number in
(b) add this number at every
each row from every number
intersection of any two lines
in that row, then
(b) subtract smallest number in
each column from every
number in that column Optimal solution at zero
locations. Systematically make
final assignments.
Step 2
(a) Check each row and column
for a unique zero and make the
Test opportunity cost table to first assignment in that row or
see if optimal assignments are column
possible by drawing the
minimum possible lines on (b) Eliminate that row and
columns and/or rows such that Optimal column and search for another
all zeros are covered unique zero. Make that
assignment and proceed in a
like manner.
Figure 10.3
 Step 1: Find the opportunity cost table
 We can compute row opportunity costs and
column opportunity costs
 What we need is the total opportunity cost
 We derive this by taking the row opportunity
costs and subtract the smallest number in that
column from each number in that column

 Cost of each person-  Row opportunity
project assignment cost table
PROJECT PROJECT
PERSON 1 2 3 PERSON 1 2 3
Adams $11 $14 $6 Adams $5 $8 $0
Brown 8 10 11 Brown 0 2 3
Cooper 9 12 7 Cooper 2 5 0
Table 10.28 Table 10.29
 The opportunity cost of assigning Cooper to

project 2 is $12 – $7 = $5
 We derive the total opportunity costs by taking
the costs in Table 29 and subtract the smallest
number in each column from each number in that
column
 Row opportunity  Total opportunity
cost table cost table
PROJECT PROJECT
PERSON 1 2 3 PERSON 1 2 3
Adams $5 $8 $0 Adams $5 $6 $0
Brown 0 2 3 Brown 0 0 3
Cooper 2 5 0 Cooper 2 3 0
Table 10.29 Table 10.30

 Step 2: Test for the optimal assignment
 We want to assign workers to projects in such
a way that the total labor costs are at a
minimum
 We would like to have a total assigned
opportunity cost of zero
 The test to determine if we have reached an
optimal solution is simple
 We find the minimum number of straight lines
necessary to cover all the zeros in the table
 If the number of lines equals the number of
rows or columns, an optimal solution has been
reached
 Test for optimal solution
PROJECT
PERSON 1 2 3
Adams $5 $6 $0
Brown 0 0 3 Covering line 1
Cooper 2 3 0
Table 10.31 Covering line 2
 This requires only two lines to cover the zeros so

the solution is not optimal

 Step 3: Revise the opportunity-cost table
 We subtract the smallest number not covered
by a line from all numbers not covered by a
straight line
 The same number is added to every number
lying at the intersection of any two lines
 We then return to step 2 to test this new table

 Revised opportunity cost table (derived by
subtracting 2 from each cell not covered by a line
and adding 2 to the cell at the intersection of the
lines)
PROJECT
PERSON 1 2 3
Adams $3 $4 $0
Brown 0 0 5
Cooper 0 1 0
Table 10.32

 Optimality test on the revised opportunity cost
table
PROJECT
PERSON 1 2 3
Adams $3 $4 $0
Brown 0 0 5 Covering line 2
Cooper 0 1 0
Table 10.33 Covering line 1 Covering line 3
 This requires three lines to cover the zeros so the

solution is optimal
Making the Final Assignment
 The optimal assignment is Adams to project 3,
Brown to project 2, and Cooper to project 1
 But this is a simple problem
 For larger problems one approach to making the
final assignment is to select a row or column that
contains only one zero
 Make the assignment to that cell and rule out its
row and column
 Follow this same approach for all the remaining
cells

 Total labor costs of this assignment are
ASSIGNMENT COST ($)
Adams to project 3 6
Brown to project 2 10
Cooper to project 1 9
Total cost 25

 Making the final assignments
(A) FIRST (B) SECOND (C) THIRD

ASSIGNMENT ASSIGNMENT ASSIGNMENT
1 2 3 1 2 3 1 2 3
Adams 3 4 0 Adams 3 4 0 Adams 3 4 0
Brown 0 0 5 Brown 0 0 5 Brown 0 0 5
Cooper 0 1 0 Cooper 0 1 0 Cooper 0 1 0
Table 10.34

Using Excel QM for the Fix-It Shop
Assignment Problem
 Excel QM assignment module
Program 10.3A
Using Excel QM for the Fix-It Shop
Assignment Problem
 Excel QM output screen
Program 10.3A

Unbalanced Assignment Problems
 Often the number of people or objects to be

assigned does not equal the number of tasks or
clients or machines listed in the columns, and the
problem is unbalanced
 When this occurs, and there are more rows than
columns, simply add a dummy column or task
 If the number of tasks exceeds the number of
people available, we add a dummy row
 Since the dummy task or person is nonexistent,
we enter zeros in its row or column as the cost or
time estimate

Unbalanced Assignment Problems
 The Fix-It Shop has another worker available
 The shop owner still has the same basic problem
of assigning workers to projects
 But the problem now needs a dummy column to
balance the four workers and three projects
PROJECT
PERSON 1 2 3 DUMMY
Adams $11 $14 $6 $0
Brown 8 10 11 0
Cooper 9 12 7 0
Davis 10 13 8 0
Table 10.35

Maximization Assignment Problems
 Some assignment problems are phrased in terms
of maximizing the payoff, profit, or effectiveness
 It is easy to obtain an equivalent minimization
problem by converting all numbers in the table to
opportunity costs
 This is brought about by subtracting every
number in the original payoff table from the
largest single number in that table
 Transformed entries represent opportunity costs
 Once the optimal assignment has been found, the
total payoff is found by adding the original
payoffs of those cells that are in the optimal
assignment

 The British navy wishes to assign four ships to
patrol four sectors of the North Sea
 Ships are rated for their probable efficiency in
each sector
 The commander wants to determine patrol
assignments producing the greatest overall
efficiencies

 Efficiencies of British ships in patrol sectors
SECTOR
SHIP A B C D
1 20 60 50 55
2 60 30 80 75
3 80 100 90 80
4 65 80 75 70
Table 10.36

 Opportunity cost of British ships
SECTOR
SHIP A B C D
1 80 40 50 45
2 40 70 20 25
3 20 0 10 20
4 35 20 25 30
Table 10.37

 First convert the maximization efficiency table

into a minimizing opportunity cost table by
subtracting each rating from 100, the largest
rating in the whole table
 The smallest number in each row is subtracted
from every number in that row and the smallest
number in each column is subtracted from every
number in that column
 The minimum number of lines needed to cover
the zeros in the table is four, so this represents
an optimal solution

 The overall efficiency
ASSIGNMENT EFFICIENCY
Ship 1 to sector D 55
Ship 2 to sector C 80
Ship 3 to sector B 100
Ship 4 to sector A 65
Total efficiency 300

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