Revision

Production and Operation management definitions

Why study Operation management
OM’s Transformation Role
Comparison between Production and Operation management
Operation Management Critical Decisions
What Is Productivity
Types of Productivity
 Types of Productivity

• Single Factor Productivity :

P.M = one output / one input

One resource input  single-factor productivity

• Multi-Factor Productivity :
P.M = output / more than one
input
= output / (capital + management + labor + material + energy + other)

Multiple resource inputs  multi-factor productivity

1-4
 EXAMPLE 2:
COMPUTING SINGLE-FACTOR AND MULTIFACTOR GAINS IN PRODUCTIVITY

Collins Title Insurance Ltd. wants to evaluate its labor and multifactor productivity with a new
computerized title-search system.
The company has a staff of four, each working 8 hours per day (for a payroll cost of $640/day)
and overhead expenses of $400 per day.
Collins processes and closes on 8 titles each day.
The new computerized title-search system will allow the processing of 14 titles per day.
Although the staff, their work hours, and pay are the same, the overhead expenses are now
$800 per day.
(1-1) compute labor productivity .
(1-2) compute multifactor productivity.

3
 Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day

Old labor 8 titles/day

=
productivity 32 labor-hrs

© 2008 Prentice Hall, Inc. 1–9

 Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day

Old labor 8 titles/day

=
productivity 32 labor-hrs = .25 titles/labor-hr

© 2008 Prentice Hall, Inc. 1 – 10

 Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old labor 8 titles/day

=
productivity 32 labor-hrs = .25 titles/labor-hr

New labor 14 titles/day

=
productivity 32 labor-hrs

© 2008 Prentice Hall, Inc. 1 – 11

 Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old labor 8 titles/day

=
productivity 32 labor-hrs = .25 titles/labor-hr

New labor 14 titles/day

= = .4375 titles/labor-hr
productivity 32 labor-hrs

© 2008 Prentice Hall, Inc. 1 – 12

 Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

=
productivity $640 + 400

© 2008 Prentice Hall, Inc. 1 – 13

 Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

= = .0077 titles/dollar
productivity $640 + 400

© 2008 Prentice Hall, Inc. 1 – 14

 Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

= = .0077 titles/dollar
productivity $640 + 400

New multifactor 14 titles/day

=
productivity $640 + 800

© 2008 Prentice Hall, Inc. 1 – 15

 Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

= = .0077 titles/dollar
productivity $640 + 400

New multifactor 14 titles/day

= = .0097 titles/dollar
productivity $640 + 800

© 2008 Prentice Hall, Inc. 1 – 16

Conclusion

© Wiley 2010 4
3-18 Forecasting

Types of Forecasts
10 -16

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
 3-19 Forecasting

Practical part Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3-20 Forecasting

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3-22 Forecasting

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3-23 Forecasting

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Management
 Capacity versus Load
✓ Effective capacity is the capacity a firm expects to
achieve given current operating constraints and load .

➢ Capacity Utilization is the percent of design capacity

achieved
Utilization = Actual output/Design capacity
➢ Efficiency is the percent of effective capacity achieved

Efficiency = Actual output/Effective capacity

 Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

© 2008 Prentice Hall, Inc. S7 – 26

 Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

© 2008 Prentice Hall, Inc. S7 – 27

 Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Utilization = 148,000/201,600 = 73.4%

Utilization = Actual output/Design capacity

© 2008 Prentice Hall, Inc. S7 – 28

 Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Utilization = 148,000/201,600 = 73.4%

Utilization = Actual output/Design capacity

© 2008 Prentice Hall, Inc. S7 – 29

 Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Utilization = 148,000/201,600 = 73.4%

Efficiency = 148,000/175,000 = 84.6%

Efficiency = Actual output/Effective capacity
© 2008 Prentice Hall, Inc. S7 – 30
 Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Utilization = 148,000/201,600 = 73.4%

Efficiency = 148,000/175,000 = 84.6%

Efficiency = Actual output/Effective capacity
© 2008 Prentice Hall, Inc. S7 – 31
 Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts
Efficiency = 84.6%
Efficiency of new line = 75%

Expected Output of new line = (Effective Capacity)(Efficiency)

= (175,000)(.75) = 131,250 rolls

© 2008 Prentice Hall, Inc. S7 – 32

 Bakery Example
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts
Efficiency = 84.6%
Efficiency of new line = 75%

Expected Output of new line = (Effective Capacity)(Efficiency)

= (175,000)(.75) = 131,250 rolls

© 2008 Prentice Hall, Inc. S7 – 33

 Planning Over a Time Horizon

Long-range Add facilities

planning Add long lead time equipment *
Intermediate- Subcontract Add personnel
range Add equipment Build or use inventory
planning Add shifts

Schedule jobs
Short-range
planning
* Schedule personnel
Allocate machinery

Modify capacity Use capacity

* Limited options exist

© 2008 Prentice Hall, Inc. S7 – 34

Managing Bottlenecks
 Example Problem - Bottlenecks

Introduction to Materials Management, 7th Edition © 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ 07458.
Arnold, Chapman and Clive All Rights Reserved.
 Example Problem - Bottlenecks
◼ Wagon Wheel Assembly - 1200 sets (2) per week

◼ Handle Assembly - 450 per week

◼ Final Assembly - 550 wagons per week

a. What is the capacity of the factory?

b. What limits the throughput of the factory?

c. How many wheel assemblies should be made?

d. What is the utilization of the wheel assembly?

e. What happens if utilization is 100%

Introduction to Materials Management, 7th Edition © 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ 07458.
Arnold, Chapman and Clive All Rights Reserved.
 Problem answer - Bottlenecks
a. 450 units per week
b. Throughput is limited by the handle assembly operation
c. 900 wheel assemblies per week (450 x 2 wheels)
d. Utilization of the wheel assemblies =
900 ÷ 1200 = 75%
e. Excess inventory of wheel assemblies

Introduction to Materials Management, 7th Edition © 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ 07458.
Arnold, Chapman and Clive All Rights Reserved.
 3-39

McGraw-Hill/Irwin
Selecting Suppliers
©2006 The McGraw-Hill Companies, Inc., All Rights Reserved
 WEIGHTED-POINT PLAN
1. Select the factors
2. Assign a weight to each factor
3. Rate the suppliers for each factor
4. Rank each supplier
multiply the weight by the rate for each factor
 Manufacturing Lead Time
Introduction to Materials Management, 7th Edition
Arnold, Chapman and Clive
© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
 Manufacturing Lead Time
• Queue - time spent waiting before operation
• Setup - time to prepare the work center
• Run - time to make the product
• Wait - time spent after the operation
• Move - transit time between work centers
Cycle time : “The length of time from when material enters a production facility until it
exits”
• when material enters a production facility until it exits.” throughput time “ .
 Example Problem
Work Center A operation time = 30 + (100 x 10) = 1030 minutes
Wait time (4 x 60) = 240 minutes
Move time from A to B = 10 minutes
Work Center B operation time = 50 + (100 x 5) = 550 minutes
Wait time (4 x 60) = 240 minutes
Move time from B to stores = 15 minutes
Total manufacturing lead time = 2085minutes

= 34 hours, 45 minutes
 Operation Overlapping
◼ The next operation is allowed to begin before the entire
lot is completed
◼ Reduces the manufacturing lead time
◼ Order is divided into at least two transfer lots

Operation A
SU Lot 1 Lot 2
T=Transfer Time

SU Lot 1 Lot 2
Operation B
Introduction to Materials Management, 7th Edition © 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ 07458.
Arnold, Chapman and Clive All Rights Reserved.
 Operation Splitting
One Machine
SU Run

Two Machine Operation Splitting

SU Run
Reduction in
Lead Time

SU Run

Figure 6.9 Operation splitting

Introduction to Materials Management, 7th Edition © 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ 07458.
Arnold, Chapman and Clive All Rights Reserved.