Operation Management (OM) 1

Operations Management Department Of Management
CHAPTER ONE
OPERATIONS MANAGEMENT-AN OVERVIEW
1.1 INTRODUCTIONS
When you think about operations, what picture comes to mind? If you’re like most people, you
think of a manufacturing plant or assembly line or operating machinery or producing goods.
While none of these ideas is wrong, the correct answer is much broader. Operations consist of
whatever an organization does to make inputs become outputs. It’s that simple. Really, whether
the organization is a service company, a government agency, a not-for-profit entity, or a publicly
traded corporation, it obtains inputs. Operations transform these inputs by adding value to them
and make them available to others as outputs. To define formally, "operation is the process of
changing inputs into outputs and thereby adding value to some entity having the requisite
quality level. Management is the process, which combines and transforms various resources
used in the operations subsystem of the organization into value added services in a controlled
manner as per the policies of the organization. The set of interrelated management activities,
which are involved in manufacturing certain products, is called as production management. If
the same concept is extended to services management, then the corresponding set of management
activities is called as operations management. Therefore, we will use the term operations to
include both manufacturing (production) and service in this course.
What is Operations management?

Deferent but related definitions are given to operation management. Some of them are:
Operations management: is the process whereby resources, flowing with in a defined system,
are combined and transformed in a controlled manner to add value in accordance with policies
communicated by management. It involves planning, organizing, directing and controlling the
production process.
Operations management (OM) is the business function that plans, organizes, coordinates, and
controls the resources needed to produce a company’s goods and services. Operations management is
a management function. It involves managing people, equipment, technology, information, and many
other resources. It is the process of planning, organizing, directing and control of the transformation
of input in to output.
1
Operations management is about the design, operation and improvement of the internal and
external systems, resources and technologies that create and deliver the firm’s primary product
and service combinations in any type of organization.
We may formally define an operation management as “one of the main management

functions of the organization that deals about design, operation and improvement of the system
that create and deliver the firm primary product and/or services with effective and efficient
transformation process of input into output by making decision on areas of operation process”.
1.2. Historical Background of Operations Management
For over two century’s operations and production management has been recognized as an
important factor in a country’s economic growth. The traditional view of manufacturing
management began in eighteenth century when Adam Smith recognized the economic benefits
of specialization of labor. He recommended breaking of jobs down into subtasks and recognizes
workers to specialized tasks in which they would become highly skilled and efficient. In the
early twentieth century, F.W. Taylor implemented Smith’s theories and developed scientific
management. From then till 1930, many techniques were developed prevailing the traditional
view. Brief information about the contributions to manufacturing management is shown in the
Table 1.1.
Production Management becomes the acceptable term from 1930s to 1950s. As F.W. Taylor’s
works become more widely known, managers developed techniques that focused on economic
efficiency in manufacturing. Workers were studied in great detail to eliminate wasteful efforts
and achieve greater efficiency. At the same time, psychologists, socialists and other social
scientists began to study people and human behavior in the working environment. In addition,
economists, mathematicians, and computer socialists contributed newer, more sophisticated
analytical approaches.
With the 1970s emerge two distinct changes in our views. The most obvious of these, reflected in
the new name Operations Management was a shift in the service and manufacturing sectors of
the economy. As service sector became more prominent, the change from ‘production’ to
‘operations’ emphasized the broadening of our field to service organizations. The second, more
2
suitable change was the beginning of an emphasis on synthesis, rather than just analysis, in
management practices. These days, organizational goals are more focused to meet consumers’
needs throughout the world. Quality concepts like TQM, ISO-9000, Quality function
deployment, etc. are all examples of this attitude of management.
Table 1.1. Historical summary of Operations Management
DAT Contribution Contributor

E
1976 Specialization of labor in manufacturing Adam Smith
1832 Division of labor by skill; assignment of jobs by skill; basics Charles Babbage
of time study
1900 Scientific management; time study and work study developed; Frederick W. Taylor
dividing planning and doing of work
1900 Motion study of jobs Frank B. Gilbreth
1901 Scheduling techniques for employees, machines, jobs in Henry L. Gantt

manufacturing
1927 Human relations; the Hawthorne studies Elton Mayo
1940 Operations research applications in World War II P. M. S. Blacket and others
1960 Organizational behavior; continued study of people at work L.Cummings, L. Porter,

and others
1970 Integrating operations into overall strategy and policy W.Skinner J. Orlicky and
Computer applications to manufacturing, scheduling, and O.Wright
control, material and requirements planning (MRP)
1980 Quality and productivity applications from Japan; robotics, W. E. Deming and J. Juran
computer-aided design and manufacturing (CAD/CAM)
3
1.3. SYSTEMS CONCEPTS IN OPERATIONS MANAGEMENT
A system may be defined as "a purposeful collection of people, objects and procedures for operating
within an environment". Thus every organization can be represented as a system consisting of
interacting sub-systems. The features of a system are that these have inputs and outputs. The basic
process of the system converts the resource inputs into some useful form of outputs. Of course,
depending upon the efficiency of the conversion process we may have undesirable outputs too-such
as pollution, scrap or wastage, rejections, loss of human life (in a hospital) etc. Using the generalized
concept of production (which includes services), we can call such systems as operation system.
It takes resource inputs and processes them to produce useful outputs in the form of goods or service.
Inputs to the system may be labor, material, energy, information and technology. Other inputs to
operating system can be-customers in a bank, patients in a hospital, commuter to a public transport
system, files and papers to an office situation, and programs to be run in a computer center etc.
Similarly outputs from a system may be in terms of finished products, transported goods, delivered
messages, cured patients, serviced customers etc.
A simplified production system is shown below:
4
Figure: 1.1. Describe a generalized concept of production system.
1.4. MANUFACTURING OPERATIONS AND SERVICE OPERATIONS
Organizations can be divided into two broad categories: manufacturing organizations and service
organizations. Manufacturing organizations produce physical, tangible goods that can be stored in
inventory before they are needed. By contrast, service organizations produce intangible products that
cannot be produced ahead of time. Also in manufacturing organizations most customers have no
direct contact with the operation. Customer contact is made through distributors and retailers.
However, in service organizations the customers are typically present during the creation of the
service.
For example, Mesfin Industries produces a lot of tangible products, whereas Ethiopian Airlines
provides air transport services to passengers which are an intangible output.
1.3.1 Distinguishing Between Manufacturing and Service Operations
Generally the following characteristics are used to distinguish between manufacturing and
service operations:
• Tangible and intangible nature of output
• Consumption of output
• Nature of work (jobs)
• Degree of customer contact
• Customer participation in conversion
• Measurement of performance
Put simply, the manufacturing is characterized by tangible outputs (products), outputs that
customers consume over time, jobs that use less labor and more equipment, little customer
contact, no customer participation in the conversion process (in production), and sophisticated
methods for measuring production activities and resource consumption as products are made.
Service, on the other hand, is characterized by intangible outputs, outputs that customers
consume immediately, jobs that use more labor and less equipment, direct customer contact,
frequent customer participation in the conversion process, and elementary methods for
5
measuring conversion activities and resource consumption. However, some service is equipment-
based like Computer software services, Internet services, telephone services, etc. Some service is
people-based like tax accounting services, hair styling, and golf instruction.
Let’s see the customers’ participation aspects in conversion process. In service operations,
managers sometimes find it useful to distinguish between output and throughput types of
customer participation. Output is a generated service; throughput is an item going through the
process. In a pediatrics clinic the output is the medical service to the child, who by going
through the conversion process is also a throughput. Same is the case with the students
undergoing training in Addis Ababa University. At a fast-food restaurant, in contrast, the
customer does not go through the conversion process. The outputs are burgers, pizzas, and
French fries served in a hurry (both goods and services), while the throughputs are the food items
as they are prepared and converted. The customer is neither a throughput nor an output. Both the
clinic and the restaurant provide services, even though the outputs and throughputs differ
considerably.
The table below indicates some differences between goods and services that impact OM decisions.
Attributes of goods (Tangible product) Attributes of services (intangible product)
Product can be resold Reselling a service is unusual

Product can be inventoried service cannot be inventoried
Some aspects of quality are measurable Many aspects of quality are difficult to measure
Product is transportable Provider, not product is often transportable
Site of facility is important for costs Site of facility is important for customer contact
Often easy to automate Service is often difficult to automate
Revenue is generated from the tangible product Revenue is generated from the intangible service
Manufacturer schedule operation Customer schedule operation
Capital intensive Labor intensive
Having made the distinction between goods and services, we should point out that in many cases, the
distinction is not clear-cut. In reality almost all services are a mixture of a service and a tangible
product. Similarly the sale of most goods includes service. Moreover, many service activities take
place within goods producing operations. HRM, logistics, accounting, training, field service and
6
repair are all service activities, but they take place within a manufacturing organization just as they
take place in the larger service sector of the economy. When a tangible product is not included in the
service, we may call it pure service. Example, counseling
1.5. OPERATIONAL DECISION MAKING
There are two types of decisions to be made: operational and otherwise. Operational decisions affect
all aspects of an organization. It may help to think of the organization’s mission statement as defining
what it does to add value and for whom; it follows that operational decisions impact how the
organization fulfills its mission. The typical operations textbook illustrates this breadth of decision
making with an inevitable survey of topics and techniques. Decision domains of product and service
design, process selection, project management, technological applications, facility layout, job
design, process analysis, capacity management, forecasting, inventory control, sequencing,
scheduling, resource acquisition and allocation, location selection, quality assurance, continuous
improvement, and management control are all within the purview of operations management.
In general there are four major decision frameworks for operation managers.
1. Process- decision in this category determines the physical process or facility used to produce the
product or service and workforce practice. The decision include the type of equipment, product and
service design, process selection, technological applications, facility layout, job design and workforce
policies.
2. Quality-the operation function is responsible for the quality of good and services produced. The
quality decision must stand to ensure the quality of product or service. Therefore, standards must be
seated, people trained, produce or service inspected, preferably by those who produced it. It mainly
focused on approach, training and suppliers.
3. Capacity- physical facility and labor which the organization should have. Capacity decisions are
aimed at providing the right amount of capacity at the right place and at the right time. It is about
facility size, location and investment.
4. Inventory- inventory decision in operation determines what to order, how much to order, and when
to order. Inventory control systems are used to manage materials from purchasing through row
materials, work in process, and finished goods inventories.
7
1.5. Productivity Measurement

Productivity competiveness and strategy are the three separate but related concepts that are
vitally important for business organizations. One of the primary responsibilities of operation
management is to achieve productive (efficient) use of organizations resources. Productivity is
an index that measure output (goods and services) relative the input (labor, materials, energy and
other resources) used to produce them. Productivity: A measure of the effective use of resources,
usually expressed as the ratio of output to input
Productivity measure
Productivity = Goods and services produced
Inputs used
So that, productivity measurement is the ratio of organizational outputs to organizational
inputs. Thus productivity ratios can be
— Partial productivity measurement
— Multi-factor productivity measurement
— Total productivity measurement
Partial Productivity Measurement
Partial productivity measurement is used when the firm is interested in the productivity of a
selected input factor. It is the ratio of output values to one class of input.
PPM= Outputs or Outputs or Outputs or Outputs
Labor Input Material input Capital input Energy input
Partial productivity indices, depending upon factors used, it measures the efficiency of individual
factor of production. The choice of productivity measure depends primarily on the purpose of the
measurement. If the purpose is to track improvements in labor productivity then labor becomes
the obvious input measure. The units of output used in productivity measures depends on the
type of job performed.
Labor productivity = Output in unit
Man hours worked
Management productivity = Output

Total cost of management
Land productivity = Total output
8
Area of Land used
Multi-factor Productivity Measurement
Multifactor productivity is calculated by combining the input units, as shown below. This
productivity measurement technique is used when the firm is interested to know the productivity
of a group of input factors but not all input factors.
MFPM= Outputs or Outputs

Labor +Material input Labor +Capital input
Total (Composite) Productivity Measures
A firm deals about composite productivity when it is interested to know about the overall
productivity of all input factors. This technique will give us the productivity of an entire
organization or even a nation.
TPM = Outputs or Outputs .
All input Labor + Material + Energy + Capital + Miscellaneous
To aid in the computation of productivity, the individual outputs can be expressed in terms of
money (Dollar).
Note: For survival of any organization, this productivity ratio must be at least 1.If it is more than
1, the organization is in a comfortable position. The ratio of output produced to the input
resources utilized in the production.
Example-1
The input and output data for an industry given blow. Find out various productivity measures
like total, multifactor and partial measure. Output and Input production data in dollar ($)
Output
1. Finished units 10,000

2. Work in progress 2,500
3. Dividends 1,000
Input
1. Human 3,000
2. Material 153
3. Capital 10,000
4. Energy 540
9
5. Other Expenses 1,500

Solution:
Total measure = Total Output = 13,500 = 0.89
Total Input 15,193
Multi factor measure = Total Output = 13,500 = 4.28

Human+Material 3,153
Partial Measure1 = Total Output = 13,500 = 25

Energy 540
Example 2
Zodiac pvt.ltd.co has 4 workers, each working 8 hours per day (for a payroll cost of $640/day)
and overhead expenses of $400 per day. Zodiac processes and closes on 8 goods each day. The
company recently purchased computerized good search system that will allow the processing of
14 goods/day. Although the staff, their work hours and pay will be the same, the overhead
expenses are now $800 per day.
Solution
Labor productivity with the old system=8 goods per day/32 labor hours = 0.25 goods/labor hour
Labor productivity with the new system=14 goods per day/32 labor hours = 0.4375 goods/labor
hour
Multifactor productivity with the old system= 8 goods/day/640+400=0.0077 goods per dollar
Multifactor productivity with the new system= 14 goods/day/640+800=0.0097 goods per dollar
Labor productivity has increased from 0.25 to 0.4375.The change is 0.4375/0.25=1.75 or 175%
increase in labor productivity
Multifactor productivity has increased from 0.0077 to 0.0097. This change is

0.0097/0.0077=1.259 or 125.9% increase in multifactor productivity.
Use of the productivity measure aids managers in determining how well they are doing. The
multifactor productivity measures provide better information about the tradeoffs among factors,
but substantial problems remain.
10
Chapter two
OPERATIONS STRATEGY & COMPETITIVENESS
2.1. Introduction
To maintain a competitive position in the marketplace, a company must have a long-range plan.
This plan needs to include the company’s long-term goals, an understanding of the marketplace,
and a way to differentiate itself from its competitors. All other decisions made by the company
must support this long-range plan. Otherwise, each person in the company would pursue goals
that he or she considered important, and the company would quickly fall apart.
The long-range plan of a business is called the business strategy. The role of each of the
individual business functions, such as operations, finance, and marketing, is to find ways to best
support the business strategy. The role of everyone in the company is to do his or her job in a
way that supports the business strategy.
In today’s highly competitive, Internet based, and global marketplace, it is more important than
ever for companies to have a clear plan for achieving their goals. In this chapter we discuss the
role of operations strategy, its relationship with the business strategy, and the ways in which the
operations function can best support the business strategy. Because strategy is about
competitiveness, we will also learn ways to measure the competitiveness of a business by
measuring its productivity.
The role of operations strategy is to provide a plan for the operations function so that it can
make the best use of its resources. Operations strategy specifies the operation objective and
policies for using the organization’s resources to support its long-term competitive strategy
Figure 2-1 shows this relationship. Operations strategy is the plan that specifies the competitive
priorities that the organization should focus and operation policies that help to achieve the
specified competitive priorities. It is the role of operations strategy to provide an overall plan for
the effective and efficient use of all resources that the firm has. The operations strategy must be
aligned with the company’s business strategy and enable the company to achieve its long-term
plan.
11
Now let’s look at how a company would go about developing a business strategy. Then we will
see how an operations strategy would be developed to support the company’s business strategy.
2.2. Developing a Business Strategy
A company’s business strategy is developed after its managers have considered many factors and
made some strategic decisions. These include developing an understanding of what business the
company is in (the company’s mission), analyzing and developing an understanding of the
market (environmental scanning), and identifying the company’s strengths (core or distinctive
competencies). These three factors are critical to the development of the company’s long-range
plan, or business strategy. They also called as three inputs in developing a business strategy. In
this section, we describe each of these factors in detail and show how they are combined to
formulate the business strategy.
Figure: 2.1. Relationship between the business strategy and the functional strategies
12
Mission
Statement that defines: What is our business; Who are our clients; and How our values define our
business. The first decision a company needs to make is to identify its mission. Every
organization, from IBM to the Boy Scouts, has a mission. The mission is a statement that
answers three overriding questions:
 What business will the company be in?

 Who will the customers be, and what are the expected customers attributes?
 How will the company’s basic beliefs define the business?
You can see that identifying the mission is a very important part of developing a business
strategy. The mission basically defines the company. In order to develop a long-term plan for a
business, you must first know exactly what business you are in, what customers you are serving,
and what your company’s values are. If a company does not have a well-defined mission it may
pursue business opportunities about which it has no real knowledge or that are in conflict with its
current pursuits, or it may miss opportunities altogether.
Environmental Scanning
A second factor that must be considered when developing a business strategy is the external
environment in which the business is operating. This environment includes trends in the market,
in the economic and political environment, and in society. These trends must be analyzed to
determine business opportunities and threats. This process of monitoring the external
environment is called environmental scanning. It is about monitoring the business environment
for market trends, threats, and opportunities
To remain competitive, companies have to continuously monitor their environment and be

prepared to change their business strategy, or long-range plan, in light of environmental changes.
13
Core Competencies
The third factor that helps define a business strategy is an understanding of the company’s
strengths. These are called core competencies or distinctive competence. It is our unique
strengths that can help us win in the market . In order to formulate a long term plan, the
company’s managers must know the competencies of their organization. Core competencies
could include special skills of workers, such as expertise in providing customized services or
knowledge of information technology. Another example might be flexible facilities that can
handle the production of a wide array of products. To be successful, a company must compete in
markets where its core competencies will help it win. The following are a list of some core
competencies that companies may have.
Organizational Core Competencies

1. Workforce; highly trained, Responsive in meeting customer needs, Flexible in performing a
variety of tasks, Strong technical capability and Creative in product design
2. Facilities; Flexible in producing a variety of products, technologically advanced, an efficient
distribution system
3. Market Understanding; Skilled in understanding customer wants and predicting market
trends
4. Financial Know-how; Skilled in attracting and raising capital
5. Technology; Use of latest production technology, Use of information technology and Quality
control techniques
Highly successful firms develop a business strategy that takes advantage of their core
competencies or strengths. To see why it is important to use core competencies, think of a
student developing plans for a successful professional career. Let’s say that this student is
particularly good at mathematics but not as good in verbal communication and persuasion.
Taking advantage of core competencies would mean developing a career strategy in which the
student’s strengths could provide an advantage, such as engineering or computer science. On the
other hand, pursuing a career in marketing would place the student at a disadvantage because of
a relative lack of skills in persuasion.
14
2.3. Developing an Operations Strategy
Once a business strategy has been developed, an operations strategy must be formulated. This
will provide a plan for the design and management of the operations function in ways that
support the business strategy. The operations strategy relates the business strategy to the
operations function. It focuses on specific capabilities of the operation that give the company a
competitive edge called competitive priorities or operation objective and identifying areas of
operation decision called operations policies.
2.3.1. Competitive Priorities
Competitiveness refers to the firm’s relative position in the market place in terms of how it
competes with the other firms in its industry.
Operations managers must work closely with marketing in order to understand the competitive
situation in the company’s market before they can determine which competitive priorities are
important. There are four broad categories of competitive priorities: cost, time, quality and
flexibly. Also they are called competitive dimensions or operation objectives.
1. Cost; Competing based on cost means offering a product at a low price relative to the prices
of competing products. The need for this type of competition emerges from the business strategy.
The role of the operations strategy is to develop a plan for the use of resources to support this
type of competition. Let’s look at some specific characteristics of the operations function we
might find in a company competing on cost.
To develop this competitive priority, the operations function must focus primarily on cutting
costs in the system, such as costs of labor, materials, and facilities. Companies that compete
based on cost study their operations system carefully to eliminate all waste. They might offer
extra training to employees to maximize their productivity and minimize scrap. Also, they might
invest in automation in order to increase productivity. Generally, companies that compete based
on cost offer a narrow range of products and product features, allow for little customization, and
have an operations process that is designed to be as efficient as possible.
15
2. Quality; Many companies claim that quality is their top priority, and many customers say that
they look for quality in the products they buy. Yet quality has a subjective meaning; it depends
on who is defining it. For example, to one person quality could mean that the product lasts a long
time. To another person quality might mean high performance.
When companies focus on quality as a competitive priority, they are focusing on the dimensions
of quality that are considered important by their customers. Quality as a competitive priority has
two dimensions. The first is high performance design. This means that the operations function
will be designed to focus on aspects of quality such as superior features, close tolerances, high
durability, and excellent customer service. The second dimension is product and service
consistency, which measures how often the product or service meets the exact design
specifications. Companies that compete on quality must deliver not only high-performance
design but product and service consistency as well.
A company that competes on this dimension needs to implement quality in every area of the
organization. One of the first aspects that need to be addressed is product design quality, which
involves making sure the product meets the requirements of the customer. A second aspect is
process quality, which deals with designing a process to produce error-free products. This
includes focusing on equipment, workers, materials, and every other aspect of the operation to
make sure it works the way it is supposed to. Companies that compete based on quality have to
address both of these issues: the product must be designed to meet customer needs, and the
process must produce the product exactly as it is designed.
3. Time; Time or speed is one of the most important competitive priorities today. Companies in
all industries are competing to deliver high-quality products in as short a time as possible.
Today’s customers don’t want to wait, and companies that can meet their need for fast service
are becoming leaders in their industries. Making time a competitive priority means competing
based on all time-related issues, such as rapid delivery and on-time delivery. Rapid delivery
refers to how quickly an order is received; on-time delivery refers to the number of times
deliveries are made on time. When time is a competitive priority, the job of the operations
function is to critically analyze the system and combine or eliminate processes in order to save
16
time. Often companies use technology to speed up processes, rely on a flexible workforce to
meet peak demand periods, and eliminate unnecessary steps in the production process.
4. Flexibility; as a company’s environment changes rapidly, including customer needs and

expectations, the ability to readily accommodate these changes can be a winning strategy. This is
flexibility. There are two dimensions of flexibility. One is the ability to offer a wide variety of
products or services and customize them to the unique needs of clients. This is called product
flexibility. A flexible system can quickly add new products that may be important to customers or
easily drop a product that is not doing well. Another aspect of flexibility is the ability to rapidly
increase or decrease the amount produced in order to accommodate changes in the demand. This
is called volume flexibility.
5. Service :-There now exists a fifth competitive priority “service” and it was the primary way in
which companies began to differentiate themselves in 1990s. it is about how products are
delivered and supported.
To provide a frame work for properly aligning the goods and services that a firm offers, Sandra
introduced the concept of the customer activity cycle (CAC). There are three major component
of (CAC).
1. The pre-purchase activity: focus on being responsible to customers inquires and ability
to demonstrate technical experts.
2. The purchase activity: center on the actual sales and delivery of the products and
collecting payment.
3. Post-purchase activity: includes after sale support services and product warranties.
2.3.2. Operation Policies
There are four main policy types that could be considered in developing operation strategy for
operation function: Process, Quality, Capacity and Inventory. They are also called the decision
areas of operation manager.
17
1. Process-refers to the physical process used to produce product or services and work force
practices. In this case span of process, automation, process flow, and job specialization
should be considered. Therefore, the strategic decision could be to make or buy the
product; handmade or machine made; flexible or specialized process flow; project,
batch, line or continuous production system; centralized or empowered supervision
system.
2. Quality- focuses on approaches to insure quality (like prevention or inspection), work
force training(like technical or managerial training), selecting criteria of suppliers
(quality or cost may be considered)
3. Capacity-it is about physical facilities, facility location, and type of labor the
organization should have. In this case the strategic decision will be about
- One large or several small facilities the organization should have
- Location is near to market, labor or material resources
- Permanent or temporary workers can have
4. Inventory- is about amount, distribution, and controlling system of inventory. Therefore,
in this case the strategic decision focuses on to have low or high level of inventory,
centralized or decentralized warehouses system, and controlling mechanisms of
inventory.
2.3.3. Linking Operation strategy to Business Strategy
Basically, we have two alternative business strategies
1. Product imitator (operational excellence) business strategy
It focuses on producing mature, price sensitive, and standardized product. In case cost is
a competitive priority that the company should focus. Therefore, the operation strategy
should strive to reduce cost of labor, using superior technology to increase productivity,
and having low inventory to reduce inventory cost. In product imitator strategy price is a
dominant form of computation.
2. Product innovation (product leadership) business strategy. It focuses on introducing
superior quality new product to the market continuously. Therefore, the operation
strategy should strive to produce quality product by making the process flexible to
18
produce new superior product to the market rapidly and effectively. In this case price
couldn’t be dominant form of computation.
Companies that compete based on flexibility and quality often cannot compete based on cost,
because it may take more resources to customize the product. However, flexible companies
often offer greater customer service and can meet unique customer requirements. To carry
out this strategy, flexible companies tend to have more general-purpose equipment that can
be used to make many different kinds of products. Also, workers in flexible companies tend
to have higher skill levels and can often perform many different tasks in order to meet
customer needs in terms of quality and speed.
19
CHAPTER 3
Design of the Operation System
3.1 Product and service design
3.1.1. Objectives of Product and Service Design
 To bring new or revised products and services to the market as quickly as possible
 To design products and/or services that have customer appeal
 To increase the level of customer satisfaction
 To increase quality and reduce costs
Sometimes product or service design is actually redesign. This, too, occurs for a number of
reasons such as customer complaints, accidents or injuries, excessive warranty claims, or low
demand. The desire to achieve cost reductions in labor or materials can also be a motivating
factor.
Trends in product and service design
Over the last few years, the designing of products and services has increased emphasis on a
number of aspects of design.. For the design process to occur, a business must have idea for new
or improved designs. These come from a variety of sources, most obviously the customer.
Marketing can tap this source of ideas in a number of ways, such as the use of focuses groups,
surveys, and analyses of buying patterns. Some organizations have research and development
departments that also generate ideas for new or improved products and services.
Competitors are another important source of ideas. By studying competitor’s products or

services, and how the competitor operates (E.g., pricing policies, return policies, warranties), an
organization can learn a great deal about achieving design improvements. Beyond that, some
companies buy a competitor’s newly designed product the moment it appears on the market.
Using a procedure called reverse engineering; they carefully dismantle and inspect the product.
This may uncover product improvements that can be incorporated in their own product.
20
Sometimes reverse engineering can lead to a product that is superior to the one being examined;
that is designers conceive an improved design, which enables them to “leapfrog” the competition
by quickly introducing an improved version of a competitor’s product within a short time.
3.1.2. Product Design Process

New product development is a crucial part of business. New products serve to provide growth
opportunities and a competitive advantage for the firm. Operations are greatly affected by new
product introduction.
Through close cooperation between operations, marketing, and other functions, the product
design can be integrated with decisions regarding process, quality, capacity, and inventory.
Product design is prerequisite for production, along with a forecast of production volume.
3.1.2.1. New-product Development Process
The new product development process consists of the following steps.
1. Idea Generation-ideas for new products can arise from a variety of sources within and
external sources to the firm. There are two principal sources for generating ideas:
 User needs, and

 Technological developments.
Manufacturers are always trying to develop new products that meet the needs of consumers, e.g.
development of small cars. Identification of market needs can lead to the development of new
technologies and products to meet those needs. Innovations can replace products based on older
technologies. Research and development (Rand D) plays an important role in developing new
products and advancing technology.
2. Screening- The purpose of screening is to eliminate ideas that do not appear to have a high
potential for success and thus avoid expensive development costs. Three major criteria are used
in initial screening;
21
 Product development-technical and operational feasibility

 Market criteria- current market and potential to grow
 Financial feasibility-Contribution to overall profitability and cash flow
Before a new product idea is put into preliminary design, it should be subjected to analysis
organized around these three tests. The purpose of screening is not to reach a conclusive decision
to produce and market the product. After initial development, more extensive analysis may be
conducted through test markets and pilot operations before a final decision is made to introduce
the product.
3. Preliminary product design-This process is concerned with developing the best design for
the new product idea. Preliminary product design must specify the product completely. At the
end of the product design phase, the firm has a set of product specifications and engineering
drawing (or computer images) specified in sufficient detail that production prototypes can be
built and tested.
4. Prototype testing-A model is tested for its physical properties or use under actual operating
conditions. Such testing is important in uncovering any problems and correcting them prior to
full-scale production.
5. Final product design-because of prototype testing certain changes may be incorporated into
the final design. Drawings and specifications for the product are developed. If the changes are
made, the product may be tested further to ensure final product performance.
3.1.2.2. Value Analysis
The term ‘Value’ is often confused with price or cost of an item. However, value is not
synonymous with cost. Value of an item is linked to its function, utility or purpose, quality,
elegance, prestige, etc. There is a need to improve the products and services we produce in order
to stay competitive. Value analysis (or value engineering)-is a method for improving the
usefulness of a product without increasing its cost or reducing the cost without reducing the
usefulness of the product. It can result in great cost savings or a better product for the customer,
or both. Value is defined as the ratio of usefulness to cost. Cost is an absolute term and measures
22
the amount of resources used to produce the product. Usefulness, on the other hand, is a relative
term describing the functionality that the customer ascribes to the product.
3.1.2.3. Issues for Product Design
This section provides an overview of various approaches to product design, including product
life cycles, manufacturing design, remanufacturing, robust design, concurrent engineering,
computer-aided design, and modular design.
A. Product life Cycle
Many new products go through a product life cycle in terms of demand. In the last stage of a life
cycle, some firms adopt a defensive research posture whereby they attempt to prolong the useful
life of a product or service by improving its reliability, reducing costs of producing it (and,
hence, the price), redesigning it, or changing the packaging.
B. Manufacturing Design
The term design for manufacturing (DFM) is also used to indicate the designing of products that
are compatible with an organization’s capabilities. A related concept in manufacturing is design
for assembly (DFA). A good design must take into account not only how a product will be
fabricated, but also how it will be assembled. Design for assembly focuses on reducing the
number of parts in an assembly, as well as the assembly methods and sequence that will be
employed.
C. Remanufacturing refers to removing some of the components of old products and reusing
them in new products. The original manufacturer or another company can do this. Among the
products that have remanufactured components are automobiles, printers, copier’s cameras,
computers, and telephones.
D. Robust Design
23
Some products will perform as designed only within a narrow range of conditions, while other
products will perform as designed over a much broader range of conditions. The more robust a
product, the less likely it will fail due to a change in the environment in which it is used or in
which it is performed.
E. Computer-Aided Design (CAD)
Computers are increasingly used for product design. The designer can modify an existing design
or create a new one by means of a light pen, keyboard, a joystick, or a similar device. Once the
design is entered in to the computer, the designer can maneuver it on the screen. It can be rotated
to provide the designer with different perspectives. The designer can obtain a printed version of
the completed design and file it electronically, making it accessible to people in the firm who
need this information (e.g.., marketing).A major benefit of CAD is the increased productivity of
designers.
F. product Variety
The issue of product variety must be considered from both marketing and an operations point of
view. From marketing point of view, the advantage of a large number of product varieties does
not be more profitable. From an operations point of view, high product variety is seen as leading
to higher cost, greater complexity, and more difficulty in specializing equipment and people.
The ideal operations situation is often seen as a few high volume products with stabilized
production configurations. Operations managers often prefer less product variety. There is an
optimum amount of product variety, which results in maximum profits. Both too little and too
much product variety will lead to low profits.
G. Modular Design
Modular design makes it possible to have relatively high product variety and low component
variety at the same time. The basic idea is to develop a series of basic product components, or
modules that can be assembled into a large number of different products. To the customer, it
24
appears there are a great number of different products. To operations, there are only a limited
number of basic components and processes.
Modular design offers a fundamental way to change product design thinking. Instead of
designing each product separately, the company designs products around standard component
modules and standard processes. Common modules should be developed that can serve more
than one product line, and unnecessary product frills should be eliminated. This approach will
still allow for a great deal of product varieties but the number of unnecessary product variations
will be reduced.
3.1.3. Service Operations Design
Service industries include banking, finance, insurance, transportation and communications etc.
Service is the dominant economic force in the industrialized world today, and growth projections
indicate this trend will continue. Yet, service production receives far too little emphasis in
operations Management courses and business course in general.
Service is an intangible product, which is produced and consumed simultaneously. Therefore,

service never exists, only the results of the service can be observed. If you get a haircut, the
effect is obvious, but the service itself was produced and consumed at the same time.
Simultaneous production and consumption is a critical aspect of service, because it implies that
the customer must be in the production system while production takes place the simultaneity of
production and consumption indicate that service cannot be stored or transported; it must be
produced at the point of consumption. For operations, this means that capacity must be located at
or near the customer’s location and that; the service cannot be produced now and placed into
inventory for later consumption.
Service consists of acts and interactions that involve social contacts. The interaction between the
producer and customer at the time of production is a critical attribute of service. There are
professional services such as medicine, law, education, and architecture; and Capital-intensive
service; such as airlines, electric utilities; Mass services such as retailing, wholesale, and fast
25
food. Designing services is challenging because they often have unique characteristics.
Consequently; service design focuses more on intangible factors than does product design
Services are often and received at the same time e.g. hair cut or cars wash. Because of this there
is less opportunity in finding and correcting errors before the customer has a chance to discover
them. Consequently, in service design training, process design and customer relations are
particularly important.
Location is often important in service design. Hence, design of services and choice of location
are often closely linked. The objective of service organizations mostly focuses on maximizing
revenue while manufacturing organizations on reducing cost. Due to this fact, services should be
located at the place where, more customers are located and manufacturing industries should be
located near raw material or input areas.
Framework for Services
The framework (the service triangle) shown below, assumes there are four elements, which must
be considered in producing services: the customer, people, strategy, and the system. It refers to
the contemporary view of service management.
The
service
strategy
The
customer
The
The
people
system
Figure 2.1; the service Triangle

 The customer is (or should be) the focal point of all decisions and actions of the service
organization.
 People are the employees of the service firm who serve the customer.
26
 The strategy is the vision or philosophy, which is used to guide all aspects of service
delivery.
 The service system includes procedure, equipment, and facilities.
 The line from the customer to the strategy indicates that the strategy should put the
customer first, by meeting the true needs of the customer.
 The customer-to-people line indicates that everyone should be customer driven, not only
the operations people who deliver the service, but also all people in the organization.
People are the most important element in delivering superior service.
 The people –to-system line indicates that people depend on the system to deliver good
service. Service systems should be designed to be simple, fast and efficient to operate.
 The strategy-to-people line indicates that everyone in the organization should be aware of
the strategy. The front-line people who deliver the service are often divorced from the
strategy.
3.2. PROCESS DESIGN
3.2.1. Introduction
PROCESS design is the strategic decision of selecting which kind if production processes to
have in the plant. The transformation process that converts inputs into outputs with added value
is the core element in the operations function. The selection of the process is therefore a strategic
decision for most organizations. The major considerations in any process selection e.g. capacity,
flexibility, lead time, and efficiency in using resources are so interdependent that changing the
process to alter one will almost invariably alter the others as well. There are numerous tradeoffs
available while selecting process-between different materials, between requirements of labor and
capital, between volume and variety, between cost of production and flexibility and so on. It is
important to know the consequences of every such tradeoff.
As a strategic decision, the process selection decision is influenced by the environment to a very
great extent. With newer materials are becoming available such as a different transformation
process which might become more appropriate. This phenomenon can be seen very clearly
wherever plastics are being used as newer substitutes of some natural material. Metal containers
27
giving way to plastic containers mean a totally different transformation process for the company
manufacturing containers.
Similarly, development of new technology may render a process obsolete as the new technology
is more economical, uses cheaper material or produces goods with a higher quality level.
The competitors might also affect the process selected for a transformation. For example, when
the competitors can deliver the product or service much faster than us, this may lead to a review
of the form of process selected for our operations function.
3.2.2. Types of Process

The production process can be classified based on:
1. What they DO ( type of product flow)
 Project form
 Intermittent form
 Line flow form
2. How they are designed (type of customer order)
 Make-to-stock
 Make-to-order
3.2.2.1. Classification Based On Types Product Flow
1. Project flow process
Project operations are characterized by complex sets of time-bound activities that must be
performed in a particular order. Distinctly different from all other forms of transformation
process such that each project has a definite beginning and a definite completion, the project
form of transformation is very useful when complex tasks involving many different functional
specializations have to be performed against strict deadlines.
If the output of the transformation process is a product, such products are generally characterized
by immobility during the transformation. Such operations are referred to as Fixed Position
assembly and can be seen in the production of ships, aircrafts, and construction of buildings,
28
roads, etc. As projects have limited lives, a project team is usually set up to manage a project.
Resources such as men, materials and equipment are brought together for the duration of the
project. Some materials are consumed in the transformation process, while others like equipment
and personnel are redeployed for other uses at the end of the project. An example for this project
form of operation process is job-shop operation system.
We give below a small list of projects to clarify our understanding of a project:
 setting up a new thermal power plant
 building a hospital
 modernizing a textile mill
 constructing roads, bridges, buildings
 organizing an annual sales conference
 launching a new product
 punching and delivering a program like Diploma in Management
 computerizing the purchase and the inventory control system
 Conducting a two-week training program.
2. Intermittent flow process

When the output variety is large, each output takes a different route through the organization,
uses different inputs, requires different operations and takes a different amount of time and also
sequence, the intermittent form of processing is often used. In this system, each output, or small
group of similar outputs (referred to as a batch or a lot), follows a different processing route
through the facility, from one location to another. There for, it described by butch production
system. The facilities are organized around similar operations functions. For' example, in a
hospital, there is a blood bank, an X-Ray department, a pathological laboratory and so on. The
flow through these departments depends on the exact needs of a patient. The intermittent process
is especially suited for service organizations because each service is often customized and so
each one requires a different set of operations in a different sequence. It is characterized by
medium flexibly and low cost
29
3. Line Flow Processes

As distinct from intermittent flow processes, all outputs are treated alike in this form of
processing and the workflow is thus relatively continuous. The production process is therefore
geared to produce one output, perhaps with some options added on. The variety is small and
volumes are high thus making it worthwhile to focus the transformation process on the output.
This would mean arranging the facilities in the sequence in which they are required for the
output, using high speed special purpose machines, laying out the facilities to minimize the
movement of materials and designing the production system so that there are no blockages as
well as no idle time for any of the resources.
Traditionally, services were considered to be too customized for this form of processing.
However, we are now finding that by standardizing the service and also by increasing the volume
of output, it is possible to use continuous processes even for services. One can give the example
of fast food joints or periodic servicing of automobiles towards these trends.
Continuous and mass production system typically describes this line flow process.
The industries e.g., fertilizer,' petrochemicals, petroleum, milk, drugs, etc. use continuous
processing system. On the other hand industries that produce automobiles, refrigerators,
computers, etc. use mass processing system.
3.2.2.1. Classification Based on Types Customer Order
Produce-to-stock or Produce-to-order
A related consideration for process selection is whether the product is to be produced and
stocked in our warehouses to be sold as and when the demand occurs, or is to be produced only
on receipt of an order from the customer. It is a related consideration because, usually standard
products with less variety are produced in batches and as sales proceed, we draw the products
from the inventory. When the inventory level -touches a predetermined minimum level, a fresh
batch of the product is produced and such a cycle goes on. In this system, goods are produced in
anticipation of sales orders and the customer gets immediate delivery and does not have to wait.
30
However, such a system can work only with inventorable products and the shorter the shelf life
of a product, the higher the risks undertaken by the producer. For example, newspapers have a
very short shelf life and so the risks of overproducing as well as under producing are high.
When we produce-to-order, the production process starts after receiving the sales order in
quantities dictated by each sales order. All custom-made products are produced-to-order since
the exact specifications are known only after receipt of the order. In such a system the customer
has to wait while his products are being produced and so the longer the lead time for production,
the longer the waiting period.
Services, by their very nature, cannot be inventoried and so services have to be. produced to
order. The transformation process in such a system has to be so selected and designed that the
waiting time for a customer is not excessive.
Finally, we can have a combination of both these systems as well. For example, where a large
number of options are provided on the product, the components and sub-assemblies might be
produced to stock whereas the final assembly is carried out on order. In restaurants, food is semi-
cooked in batches i.e. produced to stock and the final dish is prepared on receipt of a customer
order i.e. produced-to-order.
3.3. Facility (Plant) Location
The problem of how many facilities to have and where they should be located is encountered by
service and product organization in both the public and private sectors. Banks, restaurants,
recreation agencies, and manufacturing companies are all concerned with selecting sites that will
best enable them to meet their long-term goals. Since the operation managers fix many costs with
the location decision, both the efficiency and effectiveness of the conversion process are
dependent upon location.
Plant location refers to the choice of region and the selection of a particular site for setting up a
business. The location of the plant can have a crucial effect on the profitability of a project, and
the scope for future expansion. Many factors must be considered when selecting ideal location.
31
An ideal location is one where the cost of the product is kept to minimum, with a large market
share, the least risk and the maximum social gain. It is the place of maximum net advantage or
which gives lowest unit cost of production and distribution.
3.3.1. Factors affecting facility location

The factors to be taken into account depend on the type of industry to be located. Thus the
factors important for locating a steel plant may be different from the factors to be considered in
locating a computer assembly plant. However, the general factors affecting the location of plant
or facility are as mentioned below.
Proximity to Good Highways
This consists of the quality of highway system, its relationship to markets, raw materials, and
labor supply. It is obvious that availability of interstate super highways makes the suburbs, small
communities, and country easily accessible.
Abundant Labor Supply
It is always preferable to locate the plant in an area where skilled, semi-skilled, an unskilled
labor are available. Location of facility will also depend on the prevalent wage rate, facilities for
labor, history of relationship between trade-union and management in the area under
consideration. Rural labors can be hired at lower wages and Steel industry needs a lot of rural
labor.
Proximity to Markets
Plant should be located nearer to the consumers’ market. Plants related to cement, bricks,
roofing, and gypsum board are located nearer to the market. However, for those companies
producing items like fountain pens, jewelry, and watches in which the costs of materials and
labor are high, shipping costs are of secondary importance, and the location of plant is not on the
basis of proximity of markets. For many firms it is extremely important to locate the plant near
customers. Specially, service organizations, like drugstores, restaurants, post offices, or barbers,
find proximity to market as the primary location factor. Manufacturing firms find it useful to be
32
close to customers when transporting finished goods is expensive or difficult (perhaps because
they are bulky, heavy, or fragile).
Availability of Suitable Land and Land Cost
Cost of land is usually a minor factor in the location of a plant. In the communities that are
interested in attracting new plants, land may be offered at a reduced price or at no cost, which
may influence some plants to locate there.
Adequate Water Supply

Water is necessary for almost all kinds of plants. However, some plants heavily depend on water
supply. For example, thermal power plant, hydroelectric power plant, steel plant need lots of
water for its day to day operation. This needs the plant to be located nearer to the water sources
like lake or river.
Nearness to Raw Materials and Suppliers
In general, bulky or perishable products manufacturing companies are located near to the source
of the raw materials. For example, food processing industry should be located nearer to canning
factories, meat packing plants and creameries. Firms locate near their suppliers because of the
perishability of raw materials and products, and transportation costs. Bakeries, dairy plants, and
frozen seafood processors deal with perishable raw materials, so they often locate themselves
close to suppliers.
Nearness to an Existing Plant
It is advisable to keep the new plant reasonably close to the parent plant. Thus the truck assembly
plant can be kept close to a steel plant because the two plants can act as complementary to each
other. Product of one becomes the raw materials for the other. This way, executive supervision
and staff consultations can be made common and cost reduction will be possible. Engineers and
executives can make frequent trips to do the consultation and supervision work.
Transportation
Some companies find it desirable to be located near the seaport or near one of the inland
waterways to take advantage of the lower cost of transporting materials (e.g., coal, iron ore,
petroleum products, etc.) by boat, barge, or ship. Access to railroad or trucking facilities is also
desirable.
33
Power Supply
It is desirable to have power supply at low cost for the operation of the plant. Cost of power
supply per unit is generally cheaper in rural location than its urban counterpart. Some companies
prefer to maintain their own standby power station.
Water Disposal and Pollution
Anti-pollution law should be followed to avoid water pollution. Waste materials dumped into the
rivers or stream may create problems for new company needing a supply of fresh and pure water.
Taxes
Kinds and amounts of taxes (e.g., excise duty, sales tax, income tax, etc.) levied by a state should
also be considered in locating a plant. The kinds of taxes and the basis for fixing them should be
investigated beforehand. Some states and territories offer tax exemption for a stipulated period of
time to attract the investors to set up their plants to produce certain priority products.
Climate
Companies requiring controlled temperature, humidity, and ventilation should consider the
climatic factor while locating the plant. E.g. companies interested in manufacturing computer
components may be interested in a place with moderate climate and dust free environment.
National Defense
Industry related to defense or military hardware should be located on the basis of national
defense interest and may preferably be away from the country’s borders.
Community Administration and Attitude
Local authorities and people should be willing to have the plant located in their area. Community
should also provide the necessary municipal services, e.g. police and fire protection, maintenance
of streets, waste disposal, etc. Worker attitude may also differ from country to country, region to
region, and small town to city. Worker views about turnover, unions, and absenteeism are all
relevant factors.
Schools, Churches, Parks, and Residential Area
It makes sense to pick up a town or locality that will provide the best services and living
conditions for their employees and their families. Excellent schools, parks, hospitals, residential
areas, etc. should be desirable.
Space for Future Expansions
34
Demand of products is dynamic in nature. It may be required to increase the production capacity
of the plant in future if the demand increases or change the product altogether if the demand is
very low. Thus, there should be an adequate space for future expansion or diversification of the
plant.
3.3.2. General Decisions for Facility Location
Location of a plant or an organization can be seen as a two step decision. First, one has to select
a region, and second a choice of a site has to be made within the region.
3.3.2.1. Regional Decision
Depending on facility the region may be country or a metropolitan area. Example, Ethiopia,
Chaina, SA, north east USA, South west Europe, and...Etc. The first step depends on the plant’s
long-term strategies like technological, marketing, resource mobilization, and financial
strategies. The factors that should be considered in regional decision are market proximity, raw
material, availability of utilities, labor supply, average wage, power of labor union, national tax,
legal restriction and the like.
3.3.2.2. Site Decision
The choice of a site within a region can be decided by comparing the relative availability and
costs of required resources like: power, transport, labor, water, land, raw materials, in alternative
sites. While comparing various sites, one has to take into account both tangible and intangible
costs (climate, labor relations, community support, recreational facility, and presence of good
schools, etc.) related to the sites.
Different sites should be compared on the basis of various factors by asking relevant questions
on each issue. Some of them are discussed below:
Transportation facilities
 Is the location easily accessible by vehicles from the main highways?
 Are the railroad facilities sufficient for quick receipt and shipment of goods?
35
Availability of water, power, and gas

 Is water available in sufficient quantity and of required quality?
 Is adequate power available or not?
 Is gas and sewer system adequate to the plant’s needs?
Soil characteristics
 Is the bearing capacity of soil suitable to support the building and equipment?
 Will the soil provide adequate drainage?
Drainage
 Will the area drain away all surface water so that the buildings or work area will not be
flooded?
Parking space
 Is adequate space available to provide for employees and visitors’ vehicles parking?
Space for expansion
 Is enough space available for future expansion of the plant?
Accessibility by workers
 Can the sites be reached by public transport?
 Is the road and street network suitable for speedy entrance and exit of employees during
rush hours or emergency?
Cost of land
 Does the cost of land justify the selected site for the intended product?
 Can the location be shifted to some cheaper site with similar facilities?
Existing buildings
 Are the existing buildings suitable for company’s operation on rent or final purchase
basis?
3.4. FACILITY LAYOUT
Layout: the configuration of departments, work centers, and equipment, with particular
emphasis on movement of work (customers or materials) through the system. Layout decisions
entails determining the place of departments, workgroup within the departments, workstations,
machines and stockholding points within a production facility. The objective is to arrange
elements in a way that ensures smooth workflow (in factory) or a particular traffic pattern in
service organization).
Facility layout refers to planning for the location of all machines, utilities, employee
36
workstations, customer service areas, material storage areas, restrooms, lunchrooms, internal
walls, offices, and computer rooms. For the flow patterns of materials and people around, into,
and within buildings, Infrastructure services such as the delivery of line communications, energy,
and water and the removal of waste water all make up basic utilities.
3.4.1. Factors affecting Plant Layout

The factors affecting plant layout can be grouped into the following categories:
Machinery
Having information about the processes, machinery, tools and necessary equipment, as well as
their use and requirements is essential to design a correct layout. Regarding machinery, we have
to consider the type, total available for each type. It’s essential as well to know about space
required, shape, height, weight, quantity and type of workers required, risks for the personnel,
requirements of auxiliary services, etc.
Labor: Labor has to be organized in the production process (direct labor, supervision and
auxiliary services).
Environment considerations: employees’ safety, light conditions, ventilation, temperature, And
noise, etc.
Process considerations: personnel qualifications, flexibility, number of workers required at a
given time as well as the type of work to be performed by them.
3.4.2. Basic production Layout Forms
1. Product layout: Designed to produce a specific product efficiently
2. Process layout: Group similar resources together
3. Fixed position /project/: Product is two large to move; e.g. a building
4. Hybrid (Mixed): Combine aspects of both process and product layouts
1. Product (Assembly Line) Layouts
Operations are arranged in the sequence required to make the product. Product layouts achieve a
high degree of labor and equipment utilization. A job is divided into a series of standardized
tasks, permitting specialization of both labor and equipment. The large volumes handled by these
systems usually make it economical to invest huge amount of money in equipment and job
design. For instance, if a portion of a manufacturing operation required the sequence of cutting,
37
sanding, and painting, the appropriate pieces of equipment would be arranged in that same
sequence.
Characteristics of Product Layouts
 Special-purpose equipment are used
 Material flow is continuous
 Material handling equipment is fixed
 Little direct supervision is required
 Planning, scheduling and controlling functions are relatively straight-forward
 Production time for a unit is relatively short
 In-process inventory is relatively low
Advantage of product layout

 Lower material handling costs
 reduction in work in-process inventories
 easier training and supervision
Disadvantage of product layout
 High volume required because of large initial investment
 Work stoppage at any point ties up the whole process
 Lack of flexibility in handling variety of products or production rates
2. Process (Job Shop) Layouts
The layouts include departments or other functional groupings in which similar kinds of
activities are performed. Designed to facilitate processing items or providing services that
present a variety of processing requirements. Used when the operations system must handle a
wide variety of products in relatively small volumes A manufacturing example of a process
layout is the machine shop, which has separate departments for milling, grinding, drilling, and so
on. E.g. Systematic layout that analyze the closeness importance of one department for another.
Characteristics of Process Layouts
 General-purpose equipment is used
 Material handling equipment is flexible
 Operators are highly skilled
38
 Planning, scheduling and controlling functions are challenging

 Production time is relatively long
 In-process inventory is relatively high
Advantage of process layout
 Can handle a variety of processing requirements
 Not particularly vulnerable to equipment failures
 Equipment used is less costly
 Possible to use individual incentive plans
Disadvantage of process layout
 In-process inventory costs can be high
 Routing and scheduling are challenging
 Equipment utilization rates are low
 Material handling slow and inefficient
 Complexities often reduce span of supervision
3. Fixed-Position Layouts
It is an arrangement where labor, materials and equipment are brought to the job site. In fixed-
position layouts, the item being worked on remains stationary, and workers, materials, and
equipment are moved as needed. Fixed-position layouts are widely used for farming, firefighting,
road building, home building, power plants, dams, and drilling for oil.
Fixed Position Layout is characterized
Addresses the layout requirements of large and bulky projects such as ships and buildings. A
relatively low number of production units as compared with process and product layout
Materials and equipment’s are arranged concentrically around the production point in their order
of use and movement difficulty. Used in projects where the product cannot be moved.
Hybrid (Mixed) Layouts
39
Most manufacturing facilities use a combination of layout types. An example of a hybrid layout
is where departments are arranged according to the types of processes but the products flow
through on a product layout.
One of the most popular hybrid layouts uses Group Technology (GT) and a cellular layout.GT
has the advantage of bringing the efficiencies of a product layout to a process layout
environment. The grouping into part families of items with similar design or manufacturing
characteristics. These relate to the grouping of equipment and include faster processing time, less
material handling, less work-in-process inventory, and reduced setup time. Used when the
operations system must handle a moderate variety of products in moderate volumes.
3.5. Strategic Capacity Planning
In general business sense, Capacity is the amount of output that a system is capable of achieving
over a specified period of time. In service setting, this might be the number of customers that can
be handled in between 12 o’clock and 1 o’ clock in the afternoon. In manufacturing this might be
the number of automobiles that can be produced in a single shift. Capacity is the upper limit or
maximum load that an operating unit can handle. The operating unit might be a plant,
department, a machine, a store or a worker. The load can be specified in terms either inputs or
outputs.
Capacity is the maximum output rate of a facility. Capacity planning is the process of
establishing the output rate that can be achieved at a facility:
Strategic issues: how much and when to spend capital for additional facility & equipment
Tactical issues: workforce & inventory levels, & day-to-day use of equipment. Capacity is
usually purchased in “chunks”
What is the Goal of capacity planning?
 To achieve a match between the long-term supply capabilities of an organization and the
predicted level of long-run demand
 A gap between current and desired capacity will result in capacity that is out of balance
40
 Over capacity causes operating costs that are too high, while under capacity causes
strained resources and possible loss of customers
Why organizations are involved in capacity planning?
 Changes in demand
 Changes in technology
 Changes in environment
 Perceived threats and opportunities
Capacity Planning Questions

Key question
 What kind of capacity is needed? ( products/services that management tends to
produce/provide)
 How much capacity is needed to match demand?
 When is it needed? Capacity planning is governed by those choices. Forecasts are key
inputs used to answer the questions of how much capacity is needed and when it is
needed
Related Questions:
 How much will it cost?
 What are the potential benefits and risks?
 Are there sustainability issues that needed to be addressed?
 Should capacity be changed all at once, or through several smaller changes
 Can the supply chain handle the necessary changes?

Measuring Available Capacity
Design capacity:
The Maximum output rate/services capacity an operation, process or facility designed for Or
Maximum output rate under ideal conditions. A bakery can make 30 custom cakes per day when
pushed at holiday time
Effective capacity:
41
Maximum output rate under normal (realistic) conditions. Design capacity minus allowances
such as personal time, maintenance, and scrap
Usually less than design capacity owing to realities of changing product mix, the need for
periodic maintenance, lunch breaks, coffee breaks, problem in scheduling etc. On the average
this bakery can make 20 custom cakes per day
Actual output
The rate of output actually achieved - It cannot exceed effective capacity, is often less because of
machine break down, absenteeism, shortages of raw materials etc.
The above different measure of capacity is useful in defining two measures of system
effectiveness: Efficiency and Utilization.
actual output
Efficiency=
effective capacity
actual output
Utilization=
design capacity
3.6. JOB DESIGN AND WORK MEASUREMENT

3.6.1. Job Design
Job design is the consciously planned structuring of work effort performed by an individual or a
team of persons.
Job designers usually attempt to minimize the amount of physical human effort. Years ago,
employers looked for workers with the physical capabilities to suit a given task. Today jobs are
designed to suit an average worker and capability distinctions are more likely to be on the basis
of education and experience.
For organizational purposes, we divide job design into two basic elements, a human element and
a work element. Physiological, social and psychological considerations are important human
factors relating to job design. The work element has been considered in detail in the previous
unit. We shall, however, include some relevant points that we had deliberately left out while
discussing work design. There is increasing evidence that poorly designed jobs are a pervasive
42
societal problem affecting the mental and physical health of the worker both on and off the job.
The objective of job design is therefore to develop work assignments that meet the requirements
of the organization and the technology, and at the same time also satisfy the personal and
individual requirements of the job holder.
3.6.1.1. Job design decision
Good job designs must answer the job-related questions such as
 What work is to be performed,
 who is to perform the work; Mental and physical characteristics of the workforce
 where the work is to be done; Geographic place of organization, location of work areas
 when the work is to be done; Time of day, time of occurrence in the work flow
 why the job is necessary; Organizational rationale for the job; objectives and motivation
of the worker
 How the work should be accomplished; Method of performance and motivation
These the above decisions are affected by the following trends:
1. Quality control as part of the worker’s job. Now often referred to as “quality at the
source” (see Chapter 5), quality control is linked with the concept of empowerment.
Empowerment, in turn, refers to workers being given authority to stop a production line if
there is a quality problem, or to give a customer an on-the-spot refund if service was not
satisfactory.
2. Cross-training workers to perform multi-skilled jobs. As companies downsize, the
remaining workforce is expected to do more and different tasks.
3. Employee involvement and team approaches to designing and organizing work. This is a
central feature in total quality management (TQM) and continuous improvement efforts.
In fact, it is safe to say that virtually all TQM programs are team based.
4. “Information” ordinary workers through e-mail and the Internet, thereby expanding the
nature of their work and their ability to do it. In this context, information is more than
just automating work—it is revising work’s fundamental structure. Northeast Utilities’
43
computer system, for example, can pinpoint a problem in a service area before the
customer service representative answers the phone. The rep uses the computer to
troubleshoot serious problems, to weigh probabilities that other customers in the area
have been affected, and to dispatch repair crews before other calls are even received.
5. Extensive use of temporary workers. Manpower, a company specializing in pro-viding
temporary employees, has over 1.9 million temporary employees worldwide on its
payroll today.
6. Automation of heavy manual work. Examples abound in both services (one-person trash
pickup trucks) and manufacturing (robot spray painting on auto lines). These changes are
driven by safety regulations as well as economics and personnel reasons.
7. Most important of all, organizational commitment to providing meaningful and
rewarding jobs for all employees. Companies featured on Fortune magazine’s “100 Best
Companies to Work For” use creative means to keep employees satisfied, and offer
generous severance and compassion when cuts must be made (see www.fortune.com for
the current list of companies).
3.6.1.2. Behavioral Dimensions of Job Design
Traditionally, jobs have been designed to minimize immediate cost and maximize immediate
productivity. We agree that economic criteria are still paramount. We must not forget that
behavioral implications in job design can and do influence performance. With this goal in mind,
let us examine the behavioral ideas of job enlargement, job enrichment, job rotation and
participative job design.
Job Enlargement
If jobs become too specialized, workers perceive their job to be monotonous and boring, and this
leads to job dissatisfaction. Many workers become alienated and the result is high levels of
tardiness, absenteeism and turnover. Under such situations we should think of job enlargement.
An enlarged job would offer the employees opportunities such as (i) a larger variety and hence
the opportunity to use a variety of skills (ii) autonomy, the opportunity to exercise control over
how and when the work is completed, (iii) task identity, the opportunity to be responsible for an
entire piece or programmer of work and (iv) feedback, the opportunity to receive on line
44
information. Thus job enlargement is the procedure of redesigning jobs or modifying work so
that employees can feel more involved in and responsible for what they do.
Job Enrichment
Alternatively we could think of job enrichment. It presumes that many jobs are so highly
specialized that operative workers can no longer visualize how their work contributes to the
organization’s goals. The worker tightening a nut on a bolt all day long loses sight of the fact that
this nut helps hold a wheel on a new automobile and thereby provides safety for some new
owner. Job enrichment is a procedure of redesigning work content to make the job more
meaningful and enjoyable by involving employees in planning, organizing and controlling their
work. Management must supply information on goals and performance that previously was not
available to the workers. A proper organizational climate has to be established for success. For
some workers, enrichment might reduce social interaction. Many employees prefer a low level of
required competency, high security and relative independence to the increased responsibility and
growth that job enrichment implies.
Job Rotation
Yet another way to approach jobs that cannot be designed or automated to eliminate undesirable
features is to move or rotate employees into the job for a short period of time and then move
them out again. This job rotation technique seems to be working well in a large number of
situations that seem to defy job enrichment and/or enlargement.
However, one very important fact overlooked by designers is the person/operator who performs
the job. If the ultimate beneficiary, the person/operator could be involved in a participatory
design procedure, there would be greater success in implementing any changes that need to be
done in the organization.
3.6.2. Work Measurement
The fundamental purpose of work measurement is to set time standards for a job. Such standards
are necessary for four reasons:
1. To schedule work and allocate capacity. All scheduling approaches require some estimate
45
of how much time it takes to do the work being scheduled.

2. To provide an objective basis for motivating the workforce and measuring workers’
performance. Measured standards are particularly critical where output- based incentive
plans are employed.
3. To bid for new contracts and to evaluate performance on existing ones. Questions such
as “Can we do it?” and “How are we doing?” presume the existence of standards.
4. To provide benchmarks for improvement. In addition to internal evaluation,
benchmarking teams regularly compare work standards in their company with those of
similar jobs in other organizations.
W o r k M e a s u r e m e n t Te c h n i q u e s
There are two common techniques for measuring work and setting standards: time study and
work sampling. The choice of techniques depends on the level of detail desired and the nature of
the work itself. Highly detailed, repetitive work usually calls for time study analysis. When work
is infrequent or entails a long cycle time, work sampling is the tool of choice.
A time study is generally made with a stopwatch, either on the spot or by analyzing a videotape
for the job. The job or task to be studied is separated into measurable parts or elements, and each
element is timed individually.
Some general rules for breaking down the elements are
1. Define each work element to be short in duration but long enough so that it can be timed with
a stopwatch and the time can be written down.
2. If the operator works with equipment that runs separately (meaning the operator performs a
task and the equipment runs independently), separate the actions of the operator and of the
equipment into different elements.
3. Define any delays by the operator or equipment into separate elements.
After a number of repetitions, the collected times are averaged. The averaged times for each
element are added, yielding the performance time for the operator. However, to make this
operator’s time usable for all workers, a measure of speed or performance rating must be
included to “normalize” the job. The application of a rating factor gives what is called normal
time. For example, if an operator performs a task in two minutes and the time-study analyst
estimates her to be performing about 20 percent faster than normal, the operator’s performance
rating would be 1.2 or 120 percent of normal. The normal time would be computed as 2 minutes
× 1.2, or 2.4 minutes. In equation form,
46
Normal time = observed performance time per unit × Performance rating
In this example, denoting normal time by NT,
NT = 2 (1.2) = 2.4 minutes
When an operator is observed for a period of time, the number of units produced during this
time, along with the performance rating, gives
TIME WORKED
NT¿ ∗PERFORMANCE RATING
NUMBER OF UNIT PRODUCED
Standard time
Standard time is derived by adding to normal time allowances for personal needs (such as
washroom and coffee breaks), unavoidable work delays (such as equipment breakdown or lack
of materials), and worker fatigue (physical or mental). Two such equations are
Standard time = Normal time + (Allowances × Normal time)
ST = NT (1 + Allowances)
To illustrate, suppose that the normal time to perform a task is one minute and that allowances
for personal needs, delays, and fatigue total 15 percent; then
ST = 1(1 + 0.15) = 1.15 minutes
In an eight-hour day, a worker would produce 8 × 60/1.15, or 417 units. This implies 417
minutes working and 480 − 417 (or 63) minutes for allowances.
Chapter four
OPERATIONS PLANNING & CONTROL
47
4.1. Aggregate Operational Planning
Aggregate production planning is concerned with setting production rates by product group or
other broad categories for the intermediate term (6 to 18 months).
The main purpose of the aggregate plan is to specify that combination of production rate,
workforce level, and the resulting inventory on hand or backlogs that both minimizes costs
(efficiency) and satisfies the forecasted demand (effectiveness).
Production rate refers to the quantity of product competed per unit of time (such as automobiles
per day).Workforce level is the number of workers needed for production. When the number of
units produced in any given period exceeds demand, the result is an inventory on hand of the
product. When demand exceeds production, the result is a backlog (stock out), which represents
the shortfall. Both inventories and backlogs are carried forward to the next time period.
However, there can be situations when stock outs are not carried forward because the customer
decided to purchase the product elsewhere rather than wait.
Every organization must plan its’ activates at several level and operate these as a system. On the
time dimension production planning shown as long, intermediate and short range.
Long-range planning: is generally done once a year, focusing on a time horizon that is usually
greater than a year. The length of the time horizon will vary from industry to industry. For those
industries that require many years to plan and construct plants and facilities, and to install
specific process (e.g. refiners), the time horizon will vary may be 5 to 10 or more years. For
other industries where the ability to expand capacity is shorter (e.g. clothing manufacturing and
many service industries), the time horizon may be 2 to 5 years or less.
Intermediate-range planning: usually covers the period from 6 to 18 months in the future, with
time dimension or “buckets” that are monthly and or quarterly. (the near-term time increments
are often monthly, whereas those that the end of the time horizon tend to be quarterly, as these
are usually less accurate). internterimedate- range planning is typically re-viewed and updated
quarterly.
48
Short-range planning: covers the period from one day to six months, with the time increment
usually being weekly.as with long-range planning, the length of the time horizon for intermediate
and short- range planning will vary from industry to industry.
Production planning strategies
There are essentially three production strategies. These strategies involve tradeoffs among
workforce size, work hours, inventory and other backlogs. When there is a need to adjust the
workforce on a regular basis, many firms will maintain a nucleus of full-time employees, which
is then increased as required with temporary workers, who are often hired through an
employment agency. Those temporary workers who performed well then hired on a full- time
basis as the need arises.
1. Chase strategy: match the production rate to meet the order rate by hiring and laying off
employees as the order rate varies. There are obvious motivational issues with this
strategy. When order backlogs are low, employees may feel compelled to slow down out
of fear of being laid off as soon as existing orders are completed.
2. Stable workforce - variable work hours: vary the output by varying the number of hours
worked through flexible work schedule or overtime. By varying the number of work
hours, production quantities can be matched, within limits, to existing orders. This
strategy provides workforce continuity and avoids many of the emotional and tangible
costs of hiring and firing personnel that are associated with that chase.
3. Level strategy: maintain a stable workforce working at a constant output rate. Shortages
and surplus are absorbed by fluctuating inventory level, order backlogs, and lost sales.
Employees benefit from stable work hours, but inventory costs are increased. Another
concern is the possibility of inventoried products becoming obsolete.
Scheduling and sequencing jobs
Scheduling is establishing the timing of the use of equipment, facilities and human activities in
an organization. Is a time table for performing activities, utilizing reassure or allocate facilities.
Scheduling occur in any organization regardless of the nature of its activities.
49
E.g. -.manufacturing schedule production, educational institution schedule classroom, instruction

students and service provider scheduled appointments.
Effective scheduling can yield
 Cost savings
 Increases in productivity
 Jobs completed on time
 Company competitive advantage in terms of customer service.
 In educational institution effective scheduling reduce the need for expansion
 In hospital effective scheduling can save life& improve patient care.
Goals of scheduling
 Efficient utilization of staff, equipment and facilities

 Minimization of customer waiting time, inventories and processing time
Sequencing
 Sequencing is determining the order in which jobs at a work center will be processed.
 It is concerned with determining job processing order.
 Sequencing determines both the order in which jobs are processed at various work
centers and the order in which jobs are processed at individual workstations within the
work centers.
 If relatively lengthy jobs are involved, the order of processing can be very important in
terms of costs associated with jobs waiting for processing and in terms of idle time at
the work centers.
 In using this rules, job processing times and due dates are important pieces of
information. Job time usually includes setup and processing times.
Assumptions of priority rules:
 The set of jobs is known;

 no new jobs arrive after processing begins
 No jobs canceled.
 Setup time is independent of processing sequence
50
 There will be no interruption in processing such as machine breakdowns, accidents, or

worker illness.
 Job flow time: this is the length of time that a job is at a particular workstation or work
center.
It includes; Actual processing time, Any time waiting to be processed, Transportation times
between operations, Any waiting time related to equipment breakdowns, Unavailable parts, and
Quality problems and son on.
 Job flow time is the length of time that begins when a job arrives at the shop,
workstation, or work center, and ends when it leaves the shop, workstation, or work
center,
 The average flow time for a group of jobs is equal to the total flow time for the jobs
divided by the number of jobs.
 Job lateness (job tardiness): this is the length of time the job completion date is
expected to exceed the date that the job was due or promised to a customer.
 It is the difference between the actual completion time and the due date.
Average number of jobs: jobs that are in a shop are considered to be work-in-process
inventory. The average work-in-process for a group of jobs can be computed using the
following formula. Average number of jobs = total flow time/make span.
Priority rules for allocating Jobs to machines
The process of determine which job is started first on a particular machines or work center is
known as sequencing or priority sequencing. Priority rules are the criteria by which the
sequence of jobs is determined.
These can be very simple, requiring only that jobs be sequenced according to one piece of
data, such as processing time, due date, or order of arrivals. Ten of the more common priority
rules for sequencing jobs are.
1. FCFS: first come, first served. Orders are run in the order that they arrive in the
department.
51
2. SPT- shortest processing time. Run the jobs with the shortest completion time first, next
shortest second, and so on. This is identical to SOT- shortest operating time.
3. Due date-earliest due date first. Run the job with the earliest due date first.
4. Start date- due date minus normal lead time. Run the job with earliest start date first.
5. STR-slack time remaining; this is calculated as the difference between the time
remaining before the due date minus the processing time remaining. Orders with the
shortest STR are run first.
6. STR/OP- slack time remaining per operation. Order with shortest STR/OP are run first,
calculated as follows
STR/OP = time remaining before due date – remaining processing time
Number of remaining operation
7. CR critical ratio: this is calculated as the difference between the due date and the current
date divided by the work remaining. Order with the smallest CR is run first.
8. QR queue ratio: this is calculated as the slack time remaining in the schedule divided by
the planned remaining queue time. Orders with the smallest QR are first.
9. LCFS, last come, first served: this is rule occurs frequently by default. As orders arrive
they are placed on the top of the slack and the operator usually picks up the order on top
to run first.
10. Random order-whim: the supervisor or the operator usually select whichever job they feel
like running.
Scheduling n jobs on One machines
Consider the following examples:
Asian Mohammed is the supervisor of her computer center, which provides secretary and copy
services for samara university students in front of the campus under SATARA shops. Five
graduating students submitted their thesis at the beginning of the week for computer writing.
Specific scheduling data on these orders are as follows.
Job(in order of arrival) Processing time(days) Due date(days)

A 3 5
B 4 6
52
C 2 7
D 6 9
E 1 2
1. FCFS rule
job Processing time(in day) Due date(in days) Flow time(in days)
Start job time finish
A 3 5 0 + 3 = 3
B 4 6 3 + 4 = 7
C 2 7 7 + 2 = 9
D 6 9 9 + 6 = 15
E 1 2 15 + 1 = 16
Total flow time = 3+ 7+ 9 + 15 + 16 = 50 days
Mean flow time = 50/5 = 10 days
Comparing the due date of each job with its flow time, we observe that only Job A will be on
time. Job B, C, D and E will be late by 1, 2, 6 and 14 days, respectively. On the average a job
will be late by (0 + 1 + 2 + 6 + 14)/5 = 4.6 days.
2. SPT rules
job Processing time Due date Flow time

E 1 2 0+1=1
C 2 7 1+2=3
A 3 5 3+3=6
B 4 6 6 + 4 = 10
D 6 9 10 + 6 = 16
Total flow time = 1+3+6+10+16= 36 days
Mean flow time + 36/5 = 7.2 days
53
SPT results in lower average flow time. In addition Job E and C will be ready before the due date
and Job A is late by only one day. On the average a job will be late by (0+0+1+4+7)/5 = 2.4 days
3. Due date rules
Job Processing time Due date Flow time

E 1 2 0+1=1
A 3 5 1 +3=4
B 4 6 4+4=8
C 2 7 8+2=10
D 6 9 10+6=16
Total completion time= 1+4+8+10+16= 39 days
Men flow time= 7.8 days
In this case jobs B, C and D will be late. On average a job will be late by (0+0+2+3+7)/5=2.4
days.
4. LCFS rules

E 1 2 0+1=1
D 6 9 1+6=7
C 2 7 7+2=9
B 4 6 9+4=13
A 3 5 13+3=16
Total flow time = 46 days
Mean flow time= 9.2 days average day late=4 da
5. Random schedule
54
D 6 9 0+6=6
C 2 7 6+2=8
A 3 5 8+3=11
E 1 2 11+1=12
B 4 6 12+4=16
Mean flow time = 10.6 days Average day late 5.4 days
6. STR schedule

E 1 2 0+1=1
A 3 5 1+3=4
B 4 6 4+4=8
D 6 9 8+6=14
C 2 7 14+2=16
Mean flow time = 8.6 days Average day late = 3.2 days.
Scheduling n jobs on Two machines
Johnson rule consist of the following steps
1. List the operation time for each job on both machines

2. Select the job with the shortest operation time
3. If the shortest time is for the first machines, do that job first, if the shortest time is for the
second machines do the job last.
4. Repeat step 2 and 3 for each remaining job until the schedule is complete.
Consider the following examples:
We can illustrate the application of Johnson rule by scheduling four jobs through two machines.
Step1. List operation time
55
job Operation time machine 1 Operation time machine 2

A 3 2
B 6 8
C 5 6
D 7 4
Step 2 and 3: select shortest operation time and assign.
Job A is shortest on machine 2 and is assigned first and performed last.(job A is now no
longer available to be scheduled).
4. Repeat step 2 and 3 until completion of schedule
Select the shortest operation time among the remaining jobs. Job D is second shortest on
machine 2, thus it is performed second to last (remember job A is last). Now job A and D are not
available any more for scheduling. Job C is the shortest on machine 1 among the remaining jobs.
Job C is performed first. Now, only job B is left with the shortest operation time on machine 1.
Thus according to step 3, it is performed first among the remaining 0r second overall (job C was
already scheduled first).
In summary, the solution sequence is C B D A
56
CHAPTER FIVE
QUALITY MANAGEMENT AND CONTROL
5.1 Concept of Quality
One of the accepted definitions of quality is fitness for use. An equally good definition is
conformance to requirements. According to Webster dictionary, quality can be defined as the
degree of excellence of a thing. On the other hand, American society for quality defines as the
totality of features and characteristics that satisfies needs. Therefore, quality refers to the ability
of a product or service to consistently meet or exceed customer satisfaction. It also can be seen
from both consumer and producer prospective.
Consumer perspective: fitness for use, how well a product or service does what is supposed to
do? It also involves designing quality characteristics in to a product or service.
Producer’s perspectives: making sure whether it is produced according to design standards or
57
specifications.
5.1.1, Dimensions of quality
1. Dimensions of quality for manufactured products: Although they may vary somewhat from
product to product or product to service, the dimensions of quality include:
1. Performance: basic operating characteristics of the product, how to works.

2. Special features: extra item added to special features.
3. Conformance: the degree to which a product meets pre- established standards.
4. Reliability: consistency of performance or probability that a product will operate
properly within an expected time frame. TV will work for about 7 years without
replacement.
5. Durability; useful life of the product or service. How long a product lasts before
replacement?
6. Serviceability: ease of getting repairs, speed of repairs, courtesy and competency of the
repair person.
7. Aesthetics: how well a product looks, feels, smells, sounds or tests.
8. Safety: assurance that customers will not suffer injury or harm a product.
2, Dimensions of service quality: The personal component of services is more difficult to

measures than the quality of the tangible component. Generally, the user of a service like the
user of a good has features in mind that form a basis for comparisons among alternatives.
Lack of anyone features may eliminate the services from further consideration. Quality also
may be perceived as bundle of attributes to which many lesser characteristics are superior to
those of competitor. The followings are the Dimensions of service quality.
 Reliability: involves consistency of performance and dependability. It means that the

firm performs the service right the first time and that the firm honors its premises.
 Responsiveness: concerns the willingness or readiness of employers to provide service.
It involves timelines of service.
 Competence: means possession of the required skills and knowledge to perform the
service.
 Access: involves approachability and ease of contact
58
 Courtesy: involves politeness, respect, consideration and friendliness of contact

personnel (including receptionists, telephone operator).
 Communication: means keeping customers involved in language they can understand
and listening to them. It means that the company has adjusted its language for different
customers increasing the level of sophistications with a well-educated customer and
speaking simply and plainly with a novice.
 Credibility: involves trustworthiness, believability and honesty. It involves having the
customer’s best interest at heart.
 Security: it is freedom from danger, risk or doubt.
 Understanding/knowing the customer: involves making the effort to understand the
customer’s needs.
5.1.2. Cost of quality
The term cost of quality is often a misnomer. Cost of quality is a measure of the cost to the firm
for a lack of quality. It is very difficult to measure and often cannot be found in account books.
One has to carefully back calculate, as most of the cost elements are hidden. Quality costs are
distributed throughout the organization. Most organizations include only the cost of quality
control departments whereas the cost of inspection, and measurement carried out in production
departments are often ignored.
More importantly the cost of bad workmanship, wastages, rework, etc. is often not included in
quality costs. Careful examination of quality costs should account for Prevention, Assessment,
Control Costs and costs due to lack of control. “Quality is free, productivity. But it is not a gift".
This statement sums up the opinion that effective; permanent quality improvement is difficult to
achieve, but more than pays for it in increased
A. Costs of achieving good quality: prevention and appraisal costs

B. Costs of poor quality: internal failure and external failure costs.
1, Preventions costs
59
These are costs related to reducing the potential for quality problems. Preventions costs relate to
attempts to prevent defects before occurring. Example, quality improvement program, training
personnel, redesigning the product or service, purchasing new equipment and inspection of
incoming material before going to the process of production.
2, Appraisal costs
these involves costs of testing and inspecting materials, parts and products at various stages and
at the end of the process to conform with quality standards, costs of maintain equipment, costs of
labs, inspectors(operator), time spent by operator to get data for testing product quality or make
equipment adjustment to maintain quality and to stop work to asses quality.
3, Internal failure costs
These involve the different kinds of costs that result from production of defective
productive/services before delivery to customers. This includes the following.
Scarp costs: costs of poor quality products that must be discarded, including labor, material and
other costs.
Rework costs: costs of fixing defective products to conform to quality specifications.
Process failure costs: costs of determining why production process is producing poor quality
products.
Process downtime costs: costs of shutting down production process to fix a problem.
Price-down grading costs: costs of discounting poor quality products.
Internal failure costs occur because of several reasons. These are, receiving defective materials
from vendors, incorrect machine setting, usage of faulty equipment, carelessness, improper
materials handling procedures and lack of well-trained employees.
3, External failures costs

60
These are that occur after delivery of products or services to the customer. Example
 Warranty claim costs

 Customer compliant costs (costs of investigating and satisfactory responding to a
customer complaints resulting from poor products).
 Loos of customers(loos of good will)
 Product return costs (costs of handling and replacing poor quality products returned by a
customer).
5.2. Total Quality management (TQM)
TQM refers to an organizations- wide effort to achieve quality. It is a philosophy about quality
intended to involve everyone in the organizations in controlling quality. It extends to suppliers as
well as customers. Customer is the focal point in TQM and customer satisfaction is the driving
force and total involvement is important.
TQM is an interlocking arrangement of procedures and practices that ensures all employees in
every department are adequately trained and directed to continuously implement aligned
improvements in quality, service and total costs such that customer satisfaction are meet or
exceeded.
5.2.1. Fundamentals principles of TQM

1. Understand and answer the voice of the customer
2. All people must be involved in quality management
3. Continuously strive for zero defects/continuous improvements
4. Design and build quality in to the product
5. Focus on the process
6. Quality function deployment
7. Quality improvement tools
8. Suppliers are partners in quality
Understanding voice of the customer
We should find out customer want by means of customer survey, focus group discussion or
61
interview to integrate customer’s voice in decision making process. This is because designing a
product or service that meet or exceed customers want makes it easy to use and produce.
Employee involvement in quality management

This refers to involving employees in every stage of the production process. This includes
 Giving workers the responsibility for improvements
 Put decision making in to the hands of those who are closest to the job
 Everyone must be totally committed.
Continuous improvements
TQM requires never ending process of continuous improvements on people, equipment’s,
suppliers, materials and procedures. The basis of the philosophy is that every aspect of an
organization can be improved.
The end goal is perfection, which is never achieved but always sought. Ceasing improvement
lead to loss of competitive advantage a decreased level of customer satisfaction.
The Japanese work Kaisen refers to ongoing process of unending improvement as well as the in
U.S terms in TQM zero defects six sigma are also used to describe continuous improvement
efforts.
Design and build in to the product: this contains
 Design a quality product in the beginning
 Design to prevent quality problems
 Design for reliability and serviceability
 Specify methods of measurement
 Design must satisfy customers
Focus on the process
Process is a repetitive set of interacting activities that uses resources to transform inputs in to
outputs. So, focusing on the process involves
 Looking at variations i.e. special and common cause variations
 Variations due to chance(common cause) i.e. inherent variations, nothing can be 100%
 Variations due to special causes: example, warm parts, incorrect machines setting etc.
Quality function deployment
62
Customers should be involved in the design stage of new/redesigned products. The idea is to try
to much customer requirements with the engineering characteristics of a product.
Knowledge of TQM tools
To empower employees and implement TQM as a continuing effort, everyone in the
organizations is trained in the use of quality control and improvement tools. The term quality at
the sources refers to making each worker responsible for the quality of his/her work. When the
work is passed on to the next operation in the process (the internal customers who receive his
output) or if that step is the last step in the production process, the worker is certifying that it
meet quality standards.
Suppliers: are regarded as partners in the process. They are also expected to provide quality at
the source, thereby reducing or eliminating the need to inspect delivers from suppliers.
5.2.2. The Basic Quality Controls Tools

There are a number of tools that can be used to collect, present and analyze data about any kind
of process, including service processes. Within the quality literature, seven basic tools have been
identified that can assist managers in improving the quality of their process. Theses seven basic
quality control (QC) tools are:
1. Process flowchart(diagrams)
Processes flow diagrams or flow charts each of the steps that are required to produce either a
good or a service. The primary purpose for using flow chart analysis is to properly sequence the
various tasks that are required to produce a given product or services and to identify any
bottlenecks in the process that limits its overall capacity. The purpose of flowcharting, from a
quality improvement perspective is to identify those steps in the process that could be potential
source of error.
2. Check sheet
Most of us have collected data about some process by noting how frequently an event occurs and
making a tick mark for a particular category in a check sheet.
3. Bar charts and histograms
Bar charts and histograms visually display data variations. A bar chart is used to graph nominal
data (also called categorical or attribute data), which are data can be categorized and counted,
63
rather than measured.

4. Pareto charts
Pareto charts (sometimes referred to as Pareto analysis) are specialized bar charts.in this charts
the frequency of occurrence of errors is sorted in descending order and a cumulative percent line
is typically added to make it easier to determine how the errors add up.
Pareto charts can help to establish priorities for action, focusing attention on those errors that
occurs most frequently.
5. Scatterplots(diagrams)
Scatterplots show the relationship between two measured (no counted) variables. For example in
upscale restaurant, you may want to understand the relationship between how long customer
waits to have their orders taken and how satisfied they are with their service.
6. Run (trend) charts: Run charts show the behavior of some variable over time.
7. Cause-and-effect(fishbone ) diagrams
Cause-and-effect diagrams (also known as fishbone diagrams or Ishikawa diagrams, after their
inventor) are used to identify the cause that lead to a particular outcomes or effect.
Statistical analysis of process
There are two broad categories of statistical tools: Acceptance sampling: which assess the quality
of the parts or products after they have been produced. And statistical process control; which
assesses whether or not an ongoing process is performing within established limits.
Within each of these broad categories, statistical quality control methods can be further divided
on o two additional categories: the first approach uses attribute data (that is data that are
counted, such as the number of defective parts produced or the number of dissatisfied
customers); the second approach uses variables data (that is data that are measured such as the
length of a wire or the weight of a package of cereal).
Sampling errors
There are two types of sampling errors that can occur.
1. α error, type I error or producer risk: occurs when a sample says parts are bad or the
process is out of control when the opposite is true.
2. Β error, type II or consumer risk: occurs when a sample says parts are good or the process
is in control when just the reverse is true.
64
Acceptance sampling
Designing a sampling plan for attributes
Acceptance sampling, as previously stated, is performed on goods that already exist to determine
if they conform to specifications. These products may be items received from another company
and evaluated by the receiving department or they may be components that have passed through
processing step and are evaluated by company personnel either in production or later in the
warehousing function.
Acceptance sampling is executed through a sampling plan.in this section we discuss the planning
procedures, with respect to attributes, for a single sampling plan that is a plan in which the
quality is determined from the evaluation of one sample. A single sampling plan when we are
looking at attributes is defined by n and c, where n is the number of units in the sample and c is
the acceptance number. The size of n may vary from one to all the items in the lot (usually
denoted as N) from which it is drawn. The acceptance number c denotes the maximum number
of defectives items that can be found in the sample before the lot is rejected. Values for n and c
are determined by the interaction of four factors (AQL, α, LTPD and β) that quantify the
objectives of the products producers and its consumer.
The objectives of the producers are to ensure that the sampling plan has a low probability of
rejecting goods lots. Lots are defined as good if they contain no more than a specified level of
defectives, termed the acceptable quality level (AQL). The objectives of consumer are to ensure
that the sampling plan has a low probability of accepting bad lots. Lots are defined bad if the
percentage of defectives is greater than a specified amount, termed lot tolerance percent
defective (LTPD). The probability associated with rejecting a good lot is denoted by the Greek
letter alpha (α) and is termed the producer risk. The probability associated with accepting a bad
lot is denoted by the Greek letter beta (β) and is termed the consumer risk.
Example: Hi-Tech industries manufactures Z-band radar scanners used to detect speed traps.
The printed circuit boards to an AQL of 2 percent defectives and is willing to run a 5 percent risk
(α) of having lots of this level or fewer defectives rejected. Hi-Tech considers lots of 8 percent or
more defectives (LTPD) unacceptable and wants to ensure that it will accept such poor quality
lots no more 10percent of the time (β).a large shipment has just been delivered. What values of n
and c should be selected to determine the quality of this lot?
65
The parameter of the problem are AQL = 0.02, α = 0.05, LTPD = 0.08 and β = 0.10
Find n and c?
First divide LTPD by AQL (0.08/0.02 = 4).Then find the ratio in column 2 that is equal to or
just to or just greater than that amount(i.e4).the value is 4.057, which is associated with c =4.
Finally find the value in column 3 that is the same row as c = 4 and divide that the quantity by
AQL to obtain n (1.970/0.02=98.5). The appropriate sampling plan is c=4 and n=99.
c LTPD/AQL n.AQL c LTPD/AQL n.AQL

0 44.890 0.052 5 3.549 2.613
1 10.946 0.355 6 3.206 3.286
2 6.509 0.818 7 2.957 3.981
3 4.890 1.366 8 2.768 4.695
4 4.057 1.970 9 2.618 5.426
Except from a sampling plan table for α=0.05 and β=0.10
5.2.3. Statistical process control
Statistical process control (spc) is a quantitative method for monitoring a repetitive process to
determine whether that process is operating properly.SPC uses process data collected in real time
and compares current measures to baseline process performance measures. It then applies simple
statistical technique similar to those used in acceptance sampling to determine whether or not the
process has changed.SPC allows management and workers to distinguish between random
fluctuation inherent in the process and variations that might indicate that the process has
changed.
SPC using attributes measurement

Attribute data that are counted, such as good or bad units produced by a machine. If we draw
samples during our production run on that machines, we can count, for each sample, the number
of units that are good and the number of units are bad, based on our quality createria.we can then
compare the number of bad units in each sample to the longe-ran percentage of bad units for that
particular machines and determine whether the process is behaving the way we expect it to
66
behave. A process can be in control and producing bad output. For example if the long run
percent defectives for a particular process is 20 percent, that means that 20 percent of the output
is bad the process may continue to produce the same level of defectives-in other words be in
control but the defective are still being production.
other hands, if a process usually produce 20 percent defectives and something changes so that the
process now produce only 5 percent defectives the process is out of control-but has improved,
the goal is to find the cause of any nonrandom variation and either eliminate it(if it is producing
more defectives)or sustain it(if it has resulted in process improved).
Calculating control limits: the center line for an attribute chart is the long-run average for the
attribute in question, for example for a p- chart or present defectives chart the center line is p
(pronounced p- alpha).
Standard deviation of samples = sp =
Thus we have CL =
Upper control limit = UCL=
Lower control limit = LCL =
67

Operation Management (OM) 1

Uploaded by

Copyright:

Available Formats

You might also like

Operation Management (OM) 1

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Operation Management (OM) 1

Uploaded by

Copyright:

Available Formats

Operations Management Department Of Management

What is Operations management?

We may formally define an operation management as “one of the main management

1.2. Historical Background of Operations Management

Table 1.1. Historical summary of Operations Management

DAT Contribution Contributor

1976 Specialization of labor in manufacturing Adam Smith

1900 Motion study of jobs Frank B. Gilbreth

1901 Scheduling techniques for employees, machines, jobs in Henry L. Gantt

1927 Human relations; the Hawthorne studies Elton Mayo

1940 Operations research applications in World War II P. M. S. Blacket and others

1960 Organizational behavior; continued study of people at work L.Cummings, L. Porter,

1.3. SYSTEMS CONCEPTS IN OPERATIONS MANAGEMENT

A simplified production system is shown below:

Figure: 1.1. Describe a generalized concept of production system.

1.4. MANUFACTURING OPERATIONS AND SERVICE OPERATIONS

1.3.1 Distinguishing Between Manufacturing and Service Operations

• Tangible and intangible nature of output

• Nature of work (jobs)

• Degree of customer contact

• Customer participation in conversion

Attributes of goods (Tangible product) Attributes of services (intangible product)

Product can be resold Reselling a service is unusual

1.5. OPERATIONAL DECISION MAKING

1.5. Productivity Measurement

Management productivity = Output

Area of Land used

Multi-factor Productivity Measurement

MFPM= Outputs or Outputs

Total (Composite) Productivity Measures

1. Finished units 10,000

5. Other Expenses 1,500

Multi factor measure = Total Output = 13,500 = 4.28

Partial Measure1 = Total Output = 13,500 = 25

Multifactor productivity has increased from 0.0077 to 0.0097. This change is

2.2. Developing a Business Strategy

 What business will the company be in?

To remain competitive, companies have to continuously monitor their environment and be

Organizational Core Competencies

2.3. Developing an Operations Strategy

2.3.1. Competitive Priorities

4. Flexibility; as a company’s environment changes rapidly, including customer needs and

2.3.2. Operation Policies

3.1.1. Objectives of Product and Service Design

Trends in product and service design

Competitors are another important source of ideas. By studying competitor’s products or

3.1.2. Product Design Process

3.1.2.1. New-product Development Process

The new product development process consists of the following steps.

 User needs, and

 Product development-technical and operational feasibility

3.1.2.2. Value Analysis

3.1.2.3. Issues for Product Design

A. Product life Cycle

E. Computer-Aided Design (CAD)

3.1.3. Service Operations Design

Service is an intangible product, which is produced and consumed simultaneously. Therefore,

Figure 2.1; the service Triangle

3.2. PROCESS DESIGN