OPERATIONS MANAGEMENT

Facilitator: Victor Shumba

Mobile: 0772855606
[email protected]
[email protected]
 COURSE OBJECTIVE
Despite your background and area of
work this lecture will assist you to
appreciate the importance of
OPERATIONS MANAGEMENT in your
organization.
 COURSE CONTENT
• Introduction to Operations Management (OM)
– Definitions
– Transformation process
– History of OM
– Critical decisions in OM
– Contemporary developments in OM
• Product and Service Designs
– Idea generation
– Product life cycle
– Product process matrix
– Service process matrix
– Managing bottlenecks
 Course content cntd
• Capacity
– Capacity vs capability
– Types of capacity
– Strategic importance of capacity decision
– Measuring capacity, BEP
• JIT
– Key concepts
– Applixability
• Total Quality Management (TQM)
 Course content cntd
• Inventory Management
– Types
• Location
– Strategic importance of location decisions
• Forecastings
– Definition and purpose
– Methods
• Reflections
 UNIT 1-INTRODUCTION
WHAT IS OPERATIONS MANAGEMENT ???
– Dfns
– Ops Management function
– Transformation Process
– Planning hierarchy
– History of OM
– Contemporary issues in OM
– 10 Critical decisions that OM make
 What is Operations?
• Operations is the term that refers to the
conversion of input to output.
• Economist use the term production.
• In managerial levels it is regarded as the
operative level of the Organizational Structure
 What is operations Management?
• Operations management is the set of activities
that creates goods and services by
transforming inputs into outputs of greater
value.
• The modern operations manager understands
the problems of his/her organisation, the
general models that have been developed to
solve similar problems and the assumptions
and implications of these models.
• Price
• Quality
• Speed
• Flexibility
• Dependability
Operations management function

RESOURCES

INPUTS TRANSFORMATION OUTPUTS

BUYPRODUCTS
 Transformation process examples
• Physical: as in manufacturing operations
• Locational: as in transportation or warehouse
operations.
• Exchange: as in retail operations
• Physiological: as in health care
• Psychological: as in entertainment
• Informational: as in communication
• ZPC???
 Inputs
1. Raw materials or components parts for
processing (ingredients for backing cakes)
2. Customer for direct processing (people to be
save in colleges, restaurants and banks)
3. Customer related material, goods, or
information for indirect processing
(automobiles or cars to be repaired)
 The Transformation Process
• The transformation is a production process
(goods-producing), transformation or service
transformation.
• A production transformation produces a direct
output that
i. Is a tangible object
ii. Is ultimately sold
iii. Has had a (physical) transformation in form
 The Transformation Process cntd
• The distance between the production operation and
the consumer is greater than the distance between the
service operation and the consumer.
• For eg there are two operations related to
automobiles: manufacturing and repair:
1. The output of an automobile plant is a car which sold
to the consumer after shipping (may be miles away).
2. The direct output from a repair shop (service
transformation) is the car repaired but which is not
sold to the consumer (which is in the neighbourhood).
 Output
1. Finished good to be used or sold (backed
cake/ produced drink).
2. Processed customer (educated student
/satisfied bank customer).
3. Processed entity for customer (repaired car)
 Resources
1. Labour
2. Machines and equipment
3. Energy
4. Facility
5. Materials
• Major emphasis in operations is acquire the
appropriate amount of each resource at the
appropriate time and use the resources in the
most efficient manner
 By-Products
• Almost every transformation has by-products
• In manufacturing by-products typically consist
of water and air pollution and scrap materials
• Another by-product is the hole left in the
ground by strip mining
• By-products from services (not obvious but
important) is customer satisfaction.
Example of transformation systems
 Operations in the Service Sector
• Services operations include repair and
maintenance, government, food and lodging,
transportation, insurance, trade, financial, real
estates, education, legal, medical,
entertainment and other professional
occupants
 Difference between operating a production
organisation and service operating organisation
1. It is possible for the customer to act as his or her
own service e.g. Self-service gasoline stations,
ATM,-- It is unusual, but not impossible for a
customer to be his or her own server in a
production system.
2. The other distinction is when the transformation
occurs after the demand (make to order) - service-
less risk while in other cases transformation occurs
before demand (make to stock)- production –more
risk.
 Differences between Goods and Services

Goods Services
• Selling is distinct from • Selling is often a part of the
production service
• Product is transportable • Provider not product is often
transportable
• Site of facility is important for • Site of facility is important for
cost customer contact
• Often easy to automate • Difficult to automate
• Revenue is generated primarily • Revenue is generated primarily
from the tangible product from service provided
• Aspects of quality are • Aspects of quality are difficult
measurable to measure
The economic system transforms inputs into
outputs
ZESA ELECTRICITY GENERATION

Input/Resources Transformation Outputs

-Transporting coal to plants

Coal, Turbines, -Burning of coal -Electricity (MW)
staff, equipment, -Steam rotating turbines -Useful/unuseful
etc -Turbines generating electricity waste

Feedback loop
e.g. high or low
volume generated
Fruit Juice Manufacture

Fruit, Pans, Fruit Preparation

Bottles, staff, • Fruit juice
i.e. Fruit washing, peal, cut
e.t.c. • Useful/unusef
Juice Production
ul waste
Pulping, mixing, packaging,
hot sealing, cooling

Feedback loop
Highly/poorly
testing juice
 Type of Questions to be asked
• Should machines be purchased or leased?
• How can we be efficient and effective?
• Should components be bought from outside
or made in-house?
• Should a new facility be opened?
• Which job should be run next on the
machine?
 Simple example
• Consider the operations management course you
are enrolled. The input to the course is the student
and the direct output is a student who is
knowledgeable about the operations management
function. Resources include books, teachers,
classrooms, computers, calculators, blackboards,
etc. The transformation is the education. By
products are related to the grade obtained. Note
that the goal is to educate the student.
Demonstrate the previous example by
network flows

Inputs Transformation Outputs

- - -
- - -
- - -

Feedback
-
-
Why do we study Operations Management

1. It structures our plan of approach/action

2. It points out all the important issues that we
have to cover in realizing and sustaining
growth in our operations
3. It makes us think through all the relevant
processes and decisions to optimize our
manufacturing and logistics
4. It makes it possible for us to look for flaws and
bottlenecks in our present operations and
solve problems
5. To know how people organize themselves for
productive purposes
6. To understand what OM managers do so that
we can develop the skills necessary to become
such a manager.
 The connecting role of OM

Strategic management
Management/
Accounting Function

Operations
Management

Marketing Management
Human Resources Management
Organising to produce goods and services
• To create goods and services, all organizations perform
three functions.
• These 5 functions are the necessary ingredients not only for
production but also for an organization's survival.
• -Strategic management – set the goals and objectives to be
achieved and gives the organization guidance
- Marketing – which generates the demand or at least takes
the order for a
product or service (nothing happens until there is a sale)
 Organising to produce goods and
services cntd
• - Production/Operations – which creates the
product.
• - Finance / Accounting – which tracks how
well the organization doing, pays bills and
collects money
• - Human resource – organizes the allocation
of work activities to employees, recruits, lead
and motivate employees
PLANNING HIERACRCHY
Feedback and
control Strategic/Tactical planning-
determines goals
Long range
I year plus
Capacity planning- determine
future capacity needs

Medium range Aggregate-set inventory and

(1-12 months) manpower levels Demand

Production Planning- decide

on production rate for each
product

Short range
(up to 1 month) Production Scheduling-
schedule machine and jobs
 WHAT OPERATIONS MANAGERS DO
• All good managers perform the basic function of the
management process.
- Planning
- Organizing
- Staffing
- Leading and
- Controlling
• OM apply this management process to the decisions
they make in the OM function.
• Managers contribute to production and operations
through the decisions shown below:
 TEN CRITICAL DECISIONS FOR OM
Decision Areas Issues
• Service or product design What product or service should
we offer? How should we
design these products and
services?
• Quality management
Who is responsible for quality?
How do we define the quality we
want in our service or
product.
• Process and capacity design What process will these products
require and in what order
Decision Areas Issues
• Location • Where should we put the
facility? On what criteria
should we base the
location?
• Layout design
• How should we arrange the
facility? How large the
facility must be to meet our
plan?
• Human resource and job • How do we provide a
design reasonable work
environment? How much
can we expect our
employees to produce?
• Supply chain • Should we make or buy
management this product? Who are
our suppliers and can
they be integrated into
our ecommerce
network?
• Inventory or material
• How much inventory of
requirement (JIT)
each type should we
have? When do we re-
order?
• Intermediate, short- • Is sub-contracting a
term and project good idea? Are better
scheduling off putting people on
the payroll during slow
down periods?

• Maintenance • Who is responsible for

maintenance?
 Heritage of OM
• The field of OM is relatively young, but its
history is rich and interesting.
• Our lives and the OM discipline have been
enhanced by the innovations and
contributions of numerous individuals.
• Below is an introduction to some of the
individuals and summary of significant events
in OM.
 Cost Focus
• Early Concepts (1776 – 1880)
- Labour specialization – Smith & Babbage
- Standardized parts – Whitney
• Scientific Management Era (1880 – 1910)
- Gantt Charts (Gantt)
- Motion and Time Studies (Gilbreth)
- Process Analysis (Taylor)
- Queuing Theory (Erlang)
• Mass Production Era (1910 – 1980)
- Moving Assembly Line (Ford / Sorensen)
Statistical Sampling (Shewhart)
- Economic Order Quantity (Harris)
- Linear Programming PERT/CPM (DuPont)
- Material Requirements
 Quality Focus
• Lean Production Era (1980 – 1995)
- Just-in-Time (JIT)
- Computer-Aided Design (CAD)
- Electronic Data Interchange (EDI)
- Total Quality Management (TQM)
- Malcolm Baldridge Award
- Empowerment
 Customization Focus
• Mass Customization Era (1995 – 2005)
- Globalization
- Internet
- Enterprise Resource Planning
- Learning Organization
International Quality Standards
- Finite Scheduling
- Supply Chain Management
- Agile Manufacturing
- E-commerce
 Will OM Grow or Improve?
OM will continue to progress with contributions
from other disciplines including:
- Industrial engineering and management
science these disciplines along with:
- Statistics
- Management
- Economics have contributed substantially to
greater productivity.
Contemporary developments in OM
• Covid 19
• Innovations from the physical sciences
- Biology
- Anatomy
- Chemistry
- Physics have also contributed to advances in
OM.
Contemporary developments in OM
• These innovations include new:
- Adhesives
- Chemical processes for printed circuit boards.
- Gamma rays to sanitize food products and
molten tin cables on which to float higher-
quality molten glass as it cools.
• The design of products and processes often
depends on the physical and biological
 Let’s reflect
1. What are the major areas of responsibility for
operations managers?
2. Why is it important to go beyond the
organization-specific, input/ processes/ output
model in modern day operations management
3. Using a company of your choice demonstrate
how that company has used its operations
management practices to create a sustainable
competitive advantage
4. Ikea case study
 UNIT 2

SERVICES AND PRODUCTS DESIGN

 Services and Products Design
• Ideas for new or improved designs come from
a variety of sources
• 1. Customer - focus groups, surveys, and
analysis of buying patterns
• Failure to satisfy customers can result in:-
customer complaints, returns, warranty and
guarantee claims
 Ideas for new service/product
design
• 2.Research and development - an organized
way of increasing scientific knowledge or
product innovation. Perce
– Perceptual mapping
• 3.Competitors- Benchmarking, competitive
and non-competitive aspects
• 4. Reverse engineering – dismantling and
inspecting a competitor’s product.
• Most products have limited life cycles and
companies must be constantly on the lookout
for new products to design, develop and
introduce to the market.
• Good operation managers insist on strong
communications between customers,
products, processes and suppliers
• An effective product strategy links product decisions
with investment, market share and product life cycle.
• The object of product design is to develop and
implement a product strategy that meets the demands
of the market place with a competitive advantage.
• Product strategy often focuses on developing a
competitive advantage through product differentiation,
low cost leadership, rapid responses, flexibility or a
combination of.
Objectives of product or service design

1. To bring new or revised products or services

to the market as quickly as possible
2. To design products/service that have
customer appeal
3. To increase the level of customer satisfaction
4. To improve quality
5. To reduce cost
 Life Cycle
• The stages of the life cycle are:
1. Introduction
2. Growth
3. Maturity
4. Decline
 1.Introduction
• When an item is first launched, it may be
treated as a curiosity
• Demand is generally low because potential
buyers may not be familiar with the product or
service
– E.gs Self driving cars
– Electric cars
 2. Growth
• As products/service survive the rigorous of the
introduction to the market, they will begin to
be more widely accepted
• Increasing numbers of customers accept the
value of the product/service and volume starts
to grow
– E.gs Online selling applications
– 3G printers
– Renewable energy products
 3. Maturity
• After a period of rapid growth, customers may
become bored with products/services
• Demand starts to level off as many customers
have already been supplied
– E.g Coke
– Coke
 4. Decline
• Sales start to decline and the product life cycle
is at the end
• No new capital investments are made in the
product
• E.g TVs with capacitors, Cotton Nappies
 OM Strategies within each stage
Introduction Growth Maturity Decline
Product design and Forecasting is Standardisation Little product
development is critical differentiation
critical
Frequent product Product and Less rapid product Cost minimisation
and process design process reliability changes- more
changes minor changes
Short production Competitive Increasing stability Overcapacity in the
runs product of process industry
improvement and
options
High production Increase capacity Long production Prune line to
cost runs eliminate (low
margin products)
Limited models Shift towards Product Reduce capacity
product focus improvement
Attention to quality Enhence Cost cutting
distribution
 Activity
• Compile a list of your organisation’s products
and then identify into which stage of the
product life cycle they fall
• Determine the strategies to focus on for each
stage and on this basis appraise your current
focus
 Process map your production
Storage
Delay Inspection Transport Decision
Operation

oranges Peeling
Washing Suitable Cutting

Central
Pulping
storage

Mixing
Hot
pack Capping filling
ing Labelling Cooling
 Why Process Mapping?
• Each activity can be systematically
challenged in an attempt to improve the
process
• Each activity should be mapped in the
duration and necessary resources in
machine hours and labour hours
What you will be required to calculate?

1. The work content (the total amount of

work required to produce a unit of
output)
2. Throughput time (time for a unit to
move through the process)
3. The cycle time (the average time
between units of outputs emerging
from the process)
 What you will be required to
calculate?
4. The work in progress (the amount of work
that is in the system which are not yet
finished products)
5. The capacity of the entire system
( number of units that can be held or
produced for a specific period of time)
6. Critical path (longest time required to
complete a certain task/or achieve
objective)-applicable in projects
What are possible process improvements?

1. Cutting down activities

2. Combining activities at one place or in
one machine/process or factor or
processing unit
3. Speeding up process by increasing
machine or labour capacity
 What are possible process
improvements? cntd
4. Hire addition labour force if the current
can not cope with the process
5. Minimise idle time of employees at work
by setting targets
6.Assess the capacity of the entire system
given available resources (toll processing
or subcontracting-outsourcing) e.t.c.
 Business process re-engineering
• It is a technique for implementing radical
changes in a process by defining the sequence
of activities that most effectively deliver the
output that customers want.
 Principles of Business Process – Re –
engineering.
• Application of a standard set of principles to
rethink a process and create a new sequence
of activities.
• Arrangement of process steps in natural
sequence.
• Development of multiple versions of a single
process .
• Devotion of the minimum possible resources
to checking and controlling work
(empowerment)
 Activity
1.Make a detailed mapping of your production
process at your work place
2. Suggest ways of improving the current
mapping and the production or operating
process.
Candidates to participate giving a detailed
mapping process of their organisation and
suggesting ways to improve
 Identify Operation Bottlenecks
• These are elements inside your organisation
that are part of operations procedures
(normal day activities) that do not help you to
achieve your desired goals.
• They are sometimes visible and sometimes
not – but they create all kinds of problems.
 Identify Operation Bottlenecks
cntd
• Although they seem to be at micro level,
they are able to severely impede and
sometimes stop the growth of the
company
• Important practical impediments for
growth can exist in the following areas:
a. Order intake
b. Procurement
c. Production stoppages
d. Poor planning and control
e. Distribution problems, e.t.c.
Order Intake bottleneck for growth
• The quality of the process of making
agreements with your customer does not
always come with smiles.
• Customers have demands and
expectations
• Some of the explicit – others not so clear
 It is your job to find out:
• What exactly your customer wants
• If you can deliver the product and or service
according to the wishes of the customer
• If delivery can be done under conditions that
you both find achievable and acceptable
(including delivery date, amount, quality,
price, e.t.c.)
 Avoid disappointing your customers
• The sure way of running your business is to
disappoint your customers sometimes, even on
small details.
• For first time customers disappointments can
even be more serious
• They will not buy again becoz they could have
come to know you as an unreliable partner
despite the fact that you may have an outstanding
organisation and good products availabe.
 If you can not deliver do not promise
• Sometimes we get blinded by the prospect of
possible sales and make agreements with
customers that at the end we cannot live up to
• A defective order intake will at best slowly
damage your reputation and at worst impede
your growth and create loss of sales
• Losing a customer becoz he finds you to be
unreliable is devastating for the development of
your business
 Do the right thing
• Although you may find that you have to
disappoint a customer at first contact in
meeting the details of the specific order, a
customer will be grateful if given clear
information on his order
• Your customer will find you to be reliable
simply because you will only take orders in on
mutual grounds that you are able to realize
and then he can build from that
 Be reliable in the eyes of the customer

• If there are no surprises for the customer

at the end, he will consider you to be a
reliable supplier.
• A satisfied customer will come back to
you and tell others about your reliability
How to eliminate order intake bottlenecks

• Improving the order intake process

entails four important areas of attention
that in practice may prove to be pitfalls
for many companies
 Areas of important attention
1. Formulate operational policies to manage
expectations
2. Eliminate mistakes by formulating the intake
3. Communicating a reliable delivery date
4. Linking sales orders to production orders to
enable reliable communication about
deliveries
 1. Formulating operational policies to
manage expectations
• At most times the order intake desk is the only
(operational) contact with the customer
• Clearly this contact should reveal the complete
and correct identity of the organisation the
customer is dealing with.
• You should realise that the way an employee on
the phone interacts with your customer is the
first and maybe the only way of revealing your
company’s identity to the outside world.
 The identity of your organisation can be
derived from the following:
• Mission, Vision
• Strategic position
• Operational resources
• Company processes
• NB With good management all these elements
may be interrelated
 With respect to order intake
• The way customer experiences good care however, is
a result of the following elements:
a. Whether the customer is being allowed to order
b. The manner in which the customer is helped
c. The information given during the contact
d. The after care
a. Whether the customer is being allowed to
order
• For a customer to be admitted and/or allowed
to order you have to ask yourself:
i. To which (type of) customer are you going
to say “I am sorry, we cannot serve you”?
ii. To which (type of) customer are you going
to say “yes, but under certain conditions”?
iii. To which (type of) customer are you going
to serve without reservations?
 Employees at the order desk ought to know
who can order
• This is one of the most basic types of
information the order desk should have but is
often lacking or ambiguous
• Don’t forget that the order desk is a very
important gate to politely refuse unwanted
customers.
• This may depend on elements like:
• Strategic identity and general market
strategy
• Financial credibility of customers
• Product marketing concepts you have
chosen
 b. The manner in which the customer is
helped
• The type of contract (face to face, phone,
fax, internet, e.t.c.)
• The amount of time spend
• The courtesy of employee
c. The information given during the contact
such as:

i. Products
ii. Amounts
iii. Conditions
iv. Delivery date
 d. The after care:
• The follow up of information
• The affirmation of orders and conditions
• Monitoring in-time deliverance
 Have clear rules at hand
• Once the customer is allowed to order, it
is essential for the order desk to have
clear rules at their disposal
• The employees at the order desk ought
to know what can and can not be agreed
upon with the customer
 Information that could be kept at the order
desk
Product Prices Delivery period Miscellaneous
Which type of Per product For shelf products How to behave
products
Package variety For consumers For on order Min/max time
products spent on customer
Minimum units per For wholesalers Magnitude order Information on
product related special agreements
General product Depending on Which store in Payment conditions
information distance or area which area
Which available on Amount of Which distributor How to check new
shelf discounts offered and in which area customers
 Important information
• The most important information (next to price)
often concerns the standard delivery time
• It involves which products are immediately
available and how long it would take to make
the products on order
• Clearly, these are a result of the capacity and
flexibility choices made in constructing the
operating building blocks
2.Eliminate mistakes by formatting the intake

• Formatting the order intake process will

help you prevent mistakes by employees.
• In addition, it makes it possible to
process relevant information for the rest
of the organisation in a standard and
easy way
 For this purpose you can:
i. Use checklists with respect to specific
products, customers, planning, internal and
external communication, e.t.c.
ii. Use standard forms to register the order every
time a customers orders
iii. Standardise the processing of these forms and
other information
iv. Store the order forms per time period and or
product and/or supplier
 Format order intake
i. Use a computer with general software
(spreadsheets, e.t.c.)
ii. Use a network with dedicated
software (have standard sheets)
iii. Use for online ordering
 Activity
• Evaluate the operational policies for your
order desk
• What improvements are there to make?
• How is your order intake formatted?
• What improvements can be made?
3.Communicate a reliable delivery date

• Dependability is more important than

speed for most customers
• If you cannot deliver by the date
expected by the customer, your promised
new date should not be missed
• Determine the time frame required
(days, weeks, months, e.t.c)
Aspects that determine the time frame

a) Delivery time
b) Throughput time
c) Number of orders
d) Magnitude of orders
e) Inventory cushion
 Be visible to everybody
• On a manual planning board, there is some
delay between the order being received and
presenting it on the board
• Connected computers make a real-time
capacity overview possible
 Communicate with production
• To get information back in case of
alterations in capacity
• Monitor the validity of your forecast
 4.Link sales orders to production orders to
monitor progress
• A production order is an assignment for the
production department to produce a certain
amount of goods and/or services
• These goods can be one item, batches or large
volumes of items
• Enables you to control amount of goods produced
• Enables you to time production
• Enables you to report accurately to the customer
on the status of the product
 Activity
• Explain how your organisation is linking sales
to productions in your own company.
• What benefits are the to the organisation in
terms of proper production and sales order
 Production as a bottleneck for growth

• Production of output (goods and services)

involves organisation, planning and control
(quality control and anticipation)
• For this presentation we assume that there is
no structural capacity shortage (at least on
paper)
• The aspect of location and plant design have
long been finalised
 Common problems include:
• Not using the capacity efficiently, thereby
decreasing the output
• Producing wrong goods or services or
producing wrong amounts
• Fluctuating quality and or too much waste
• Having loads of inventory in system
Optimizing the existing production process

• Areas of managerial attention:

1. Planning and control of capacity
2. Standard flexibility
3. Production administration
4. Quality control systems
5. Preventive maintenance
6. Balancing capacity
 Planning and controlling flow of goods

• There are three ways to control and plan the

flow of goods through the production process:
1. Synchronous production (SP)
2. Materials Requirement Planning (MRP)
3. Just-in-Time (JIT)
 Synchronous Production
• This is when you steer/control all individual
elements of production to work together inn
harmony.
• Found in cases of unpredictable and fluctuating
demand
• Important distinctions are:
1. A bottleneck
2. A capacity Constraint Resource (CCR)
3. A non-bottleneck
 1. A bottleneck
• A bottleneck – resource with no capacity to
meet demand
• Therefore, a bottleneck is working all time in
your company
 2. A capacity Constraint Resource
• Is a resource that is operating near capacity
but on the average has adequate capacity as
long as it is not incorrectly scheduled (e.g. Too
many set-ups or in production too larger
batches)
 3. A non-bottleneck
• Is a resource that has a greater capacity than
the demand that is placed on it
• A non-bottleneck should not therefore, work
constantly as it can produce more than is
needed
 Materials Requirements Planning
• Is when a date of delivery is set in the (near)
future and you derive all activities necessary
to produce that good or service from that
moment backward in time
• Found in cases of highly predictable and
reliable demand
 Process Selection (Products)
• Projects/ Jobs
– one-of-a-kind production of a product to customer
order
• Batch production
– process many different jobs at the same time in
groups or batches
• Mass production
– produce large volumes of a standard product for a
mass market
– Car manufacture
• Continuous production
– used for very-high volume commodity products
– Electricity generation
Product-Process Matrix
Examples
 Types of Processes
PROJECT
BATCH MASS CONT.
JOB

Made-to- Made-to-
Type of product Unique order stock Commodity
(customized) (standardized )

One-at-a- Few
Type of Mass Mass
customer time individual
market market
customers

Product
demand Infrequent Fluctuates Stable Very stable
 Types of Processes
PROJECT
BATCH MASS CONT.
JOB

Demand Low to
Very low High Very high
volume medium

No. of Infinite
different Many, varied Few Very few
products variety

Repetitive, Continuous,
Production Long-term Discrete, job
system assembly process
project shops
lines industries
 Types of Processes
PROJECT/
BATCH MASS CONT.
JOBBING

Varied General- Special- Highly

Equipment
purpose purpose automated

Mixing,
Primary type Specialized
of work Fabrication Assembly treating,
contracts
refining

Experts, Limited
Worker skills crafts- Wide range Equipment
range of
of skills monitors
persons skills
 Types of Processes
PROJECT BATCH MASS CONT.

Efficiency, Highly efficient,

Custom work, latest Flexibility,
Advantages technology quality
speed, large capacity,
low cost ease of control

Capital
Non-repetitive, Costly, slow, Difficult to change,
Dis- investment;
small customer difficult to far-reaching errors,
advantages lack of
base, expensive manage limited variety
responsiveness
Machine shops, Automobiles,
Construction,
print shops, televisions, Paint, chemicals,
Examples shipbuilding,
bakeries, computers, foodstuffs
spacecraft
education fast food
 Types of Processes
PROJECT BATCH MASS CONT.

Efficiency, Highly efficient,

Custom work, latest Flexibility,
Advantages technology quality
speed, large capacity,
low cost ease of control

Capital
Non-repetitive, Costly, slow, Difficult to change,
Dis- investment;
small customer difficult to far-reaching errors,
advantages lack of
base, expensive manage limited variety
responsiveness
Machine shops, Automobiles,
Construction,
print shops, televisions, Paint, chemicals,
Examples shipbuilding,
bakeries, computers, foodstuffs
spacecraft
education fast food
Let’s reflect
 UNIT 3
• CAPACITY MANAGEMENT
 CAPACITY MANAGEMENT
• Capacity management plans for physical resource
needs.
• It involves the evaluation of the requirements of a
firm’s transformation process for physical factors
of production such as plant facilities and
equipment to product the volume of output
specified by short term and long term business
plans.
• To treat the capacity management process as a
system for delivering value, managers must
include all four components of the value equation.
 Capacity management
• Managers can measure capacity as the
amount of resources available:
• Number of machine hours
• Number of labour hours
• Number of tools
• Available space
or as an amount of potential output
• Capacity is the rate of output from an
operations system per unit time.
• It determines the upper limit of the flow of
completed work out of the system input rate
describes the speed of flow of new jobs into a
process.
• The input rate creates the demands on the
system’s capacity
• Load is the volume of work that remains for a
process to complete at any given time.
 Strategic nature of capacity Issues
• Have a real impact on the ability of the organization to meet future
demands for products and services; capacity constraint essentially
limits the rate of output possible.
• Affect operating costs. Ideally capacity and demand requirements will
be matched, which will tend to minimize operating costs.
• Are usually a major determinant of initial cost. Typically the greater
the capacity of a procedure unit, the greater the cost.
• Often involve long term commitment and difficult to modify in the
short term
• Affect competitiveness if a firm has excess capacity or can quickly add
capacity; that fact may serve as a barrier to entry by other firms.
• Affects the ease of management; having appropriate capacity makes
management easier than when capacity is mismatched.
• Are critical because of globalisation and the resultant supply chains
• Involve substantial financial and other resources-planning is
therefore inevitable
 Types of Capacity
a. Maximum capacity or design capacity.
b. Effective capacity or planned capacity
c. Demonstrated capacity
• Each type of capacity describes a specific way
of measuring the potential out put process.
 a. Maximum Capacity
• It is a measure that defines the highest rate of
out put that a process or an activity can achieve:
• Maximum or design capacity of a process is
based on.
• The number and durations of available shifts
• The number of available machines
• The number of employees per shift
• The number of work days
• The determination of maximum capacity is
based on the following assumptions:
 Assumption of maximum capacity
i) Equally skilled workers
ii) No loss of time due to change overs and
preparations.
iii) No loss of capacity due to breakdowns etc.
iv) No loss of capacity due to preventive
maintenance of planned downtime.
v) No overtime work by employees.

• These impractical assumptions limit maximum

capacity to describing an upper limit for the
regular output rate of a process.
 b. Effective capacity
• It is measure that defines the output rate that
managers expect for a given process or activity.
• Production plans and schedules are based on this
measure of output.
• operations managers deliberately plan to operate at
effective capacity which is less than 100% on account
of the following considerations:
 Accommodating unexpected demand.
 Allowing time for preventive maintenance and other
activities that support capacity.
 Allowing for unexpected breakdowns
 Efficient employment
 c. Demonstrated capacity
• It is the actual level of output for a process or
activity over a period of time.
• It relates to actual rather than planned
production.
 Factors Influencing Capacity
- External factors
Government regulations (hours, pollution,
NOSA), union regulations, supplier capabilities.
- Internal Factors
product/service design, personnel and jobs
(training, motivation, job content, methods),
layout, process flow, equipment capabilities,
maintenance, materials management, quality
control systems and management capabilities
 Balancing capacity
• Almost always there are differences in capacity
among the production steps
• In most companies management tries to balance
capacity throughout the sequence of processes
in an attempt to match capacity with market
demand.
• This is done by adjusting machines or equipment
used, work loads, skills and type of labour
assigned, tools used, overtime budget, e.t.c
 Balancing capacity cntd
• It is bad practice to make all the capacities the
same
• Such a balance would only be possible if the
output times of all stations were constant and
had the same narrow range in variety
• Most of the time there is a normal variation in
output times between the different stages of
the process
 Balancing capacity cntd
• This leads to either idle time down stream
when upstream stations process for a longer
time and or inventory builds up stream when
upstream process in a shorter time.
• Balance flow not capacity- the rule is that
capacities within the process sequence should
not be balanced at the same levels
 Measuring capacity
• The main problem of measuring capacity is the
complexity of most operations.
• In cases where the output from the operation
does not vary in its nature the best would be to
choose an output capacity measure
• When a much wider range of output places
varying demands on the process then an input
capacity measure is better used to define
capacity
• Almost every type of operation could use a
mixture of both input and output measure,
but in practice most people choose either or
the other
 Input and output capacity measures
Operation Input measure of capacity Output measure of capacity
Hospital Beds available Number of patients treated
per week
Theatre Number of seats Number of customers
entertained per movie
University Number of students Students graduated per
year
Retail store Sales floor area Number of items sold per
day
Airline Number of seats available Number of passengers per
flight
Electricity company Generator size Megawatts generated
Mine Shafts operated Tonnes or kgs produced
Brewery Volume of fermented tanks Megalitres per day
 Capacity Efficiency
• System efficiency = (actual output/system capacity)
• E.G. The production manager recommended the
purchase of a new piece of production equipment
that could produce one part per second. To
management evaluated the performance of the
equipment recommended from the test run by the
manufacturer. It was found that the equipment
produces 40 units a minute for four months. What is
the efficiency of the equipment?
• Systems efficiency = (40/60)
= 0.667 or 66.7%
 Capacity ratios
• Efficiency- is the ratio of actual output to
effective capacity.
Efficiency = Actual Output
Effective Capacity
 Capacity Utilization- is the ratio of actual output
to design capacity
Utilization = Actual Output
Design Capacity
 Worked Exercise:

Given the following information, compute the efficiency and utilization of the vehicle repair
department.

Design capacity = 50 trucks per day

Effective capacity = 40 trucks per day
Actual output = 36 trucks per day 

Efficiency = Actual Output = 36 trucks per day = 90%

Effective Capacity 40 trucks per day
 
Utilization = Actual Output = 36 trucks per day = 72%
Design Capacity 50 trucks per day
 
Key to improving capacity utilization:
Is to increase effective capacity by correcting quality problems maintaining equipment in good
operating condition, fully training employees, fully utilizing bottleneck equipment.
 Assessing the Economic Cut-point output
Production Capacity
• This is mainly done using some calculations.
• Some mathematical calculations are usually
applied
• Break-Even Point (BEP)
• Expected Values
 BEP
• Is a cost-volume basis measure of determining
the output required to be produced to cover
cost.
• For the basic BEP three factors are important:
• Fixed cost (FC)
• Variable cost (VC) ($ per unit produced)
• Selling per unit (SP)
• BEP = FC/(SP-VC)
 Example
• ZESA is opting whether to import or generate
electricity locally. The cost of building a
generator to generate electricity is $30000.
The selling price per kWh generated is $0.10
and the calculated variable cost of producing a
kWh is $0.05. What are the units that ZESA
should generate in order to cover cost?
• BEP = FC/(SP-VC)
= 30000/(0.10 - 0.050)
= 30000/0.05
= 600000kWh
 Expected values (EV)
• The expected value in general is the sum of
probabilities multiplied by the value of
outcome
• EV = ∑ (probability of outcome i)X(value of outcome i)
 Example
• Suppose the demand estimates for a product
are given as follows:
• Demand Probability
• 100000 0.3
• 200000 0.5
• 300000 0.2
• What is the expected value of demand to be
produced by the company?
• Expected demand:
• = 100000(0.3)+200000(0.5)+300000(0.2)
• =30000+100000+60000
• =190000units
 Standard Flexibility
• Almost every production system should have standard
flexibility built into it
• Unexpected and unpredictable events are bound to occur:
a. Malfunctioning machines
b. Illness of employees
c. Late deliver of supplies
d. Mistakes made in planning
e. Unexpected large fluctuations in demand
f. Rush order from important customer
 Have a certain level of flexibility
• Flexibility allows you to cope with unexpected events
without having to interfere heavily with the working
system
• The level varies from company to company
• Having no flexibility built in will result in a culture of
continuous chaotic management
• The same applies to system that have no structures at
all
• Too much flexibility will also result in chaotic
management
 Ways to create flexibility
Capacity oriented solutions Production oriented solution
• Job rotation • Decreasing batch size
• Trained human capacity in • Use of inventory (to cover
reserve (on call) the rare products)
• Outsourcing • Changing the layout of
• Peer back up for key product to make them
employees interchangeable
• Multiple tasking machines
 Identify control points
• Every production system needs some kind of
control point(s) to manage the flow of
products through the system
• The control point is called the drum for it
strikes the beat that the rest of the system
uses to function
 Ideal control Points
• At bottleneck- so you can make sure upstream
operations do not over produce
• If there is no bottleneck use a CCR (capacity
constraint resource)
• If neither of the two exist put it anywhere –
the best position is at a divergent point where
the output is used in several downstream
operations
 THE PRODUCTIVITY MEASUREMENT

• The measurement of productivity can be quite

direct, it can be measured as labour – hours/tonne
of a specific type of steel or as the energy
necessary to generate a kilowatt of electricity.
• Single factor productivity - indicates the ratio of
one resource (input) to the goods and services
produced (output)
Productivity = Units produced
Input used
Productivity measures
• Multi factor productivity = indicates the ratio of
many or all resources (input) to the goods and
services produced (output)
Productivity = Output
j Labour + Material + Capital + Miscellaneous
• However, a broader view of productivity is multi
factor productivity which includes all inputs
(labour, energy, material, capital).
• Multi factor productivity is also known as total
factor productivity.
• To aid in the computation of multi factor
productivity, the individual inputs (the
denominator) can be explained in dollars and
summed.
• Use of productivity measures aids managers in
determining how well they are doing.
• The multi factor productivity measures provide better
information about the trade-offs among factors, but
substantial measurement problems remain, and these are:
- Quality
- External elements
- Precise units of measure may be lacking
• Productivity measurement is particularly difficult in the
service sector, where the end product can be hard to define
e.g the quality of haircut, the outcome of a court case, or
service of a retail store are all ignored in the economic data.
 Example
• The following information relates productivity
of TWO ltd. for the two months of June and
July 2009. Find the change in productivity that
occurred between June and July?
June July
Customers Served 50 70
Cost
Lawn mower maintenance $30 $40
Plants, flowers, bushes $100 $50
Gasoline $75 $100
Wages $200 $250
Total $405 $440
• PRjune = 50/405 = 0.123
• PRjuly = 70/440 = 0.159
• These numbers do not tell us much on their
own. Computation of ratios will give abetter
picture:
• PRjuly/Prjune = 0.159/0.123 = 1.289
• This means that there has bee a 28.9 percent
increase in productivity between June and July
UNIT 4

JIT
 Just-In-Time (JIT)
• The philosophy behind just-in-time (JIT) is one of continuing
improvement and enforced Problem solving.
• It is an organization wide quest to produce output within the
minimum possible lead time and that the lowest possible
total cost by continuously eliminating all forms of waste.
• JIT systems are designed to produce or deliver goods just as
they are needed.
• JIT addresses the elements of time, cost, waste and variance.
• JIT is related to quality in three ways.
 a.JIT cuts the cost of quality.
• This occurs because scrap, rework, inventory
investment, and damage costs are directly
related to inventory on hand.
• Because there is less inventory on hand with
JIT, costs are lower.
• Additionally, inventory hides bad quality
whereas JIT immediately exposes bad quality.
 b.JIT improves quality
• As JIT shrinks lead time, it keeps evidence of
errors fresh and limits the umber of potential
sources of error.
• JIT creates, in effect, an early warning system
for quality problems, both within the firm and
with vendors.
 c. Less inventory
• Often the purpose of keeping inventory is to
protect against poor production performance
resulting from unreliable quality.
• If consistent quality exists, JIT allows firms to
reduce all the costs associated with inventory.
 Other JIT
• Respect for people
• Kanban product
• Kaizen
• Uniform plant loading
• Lean manufacturing
• Quick set up times
• Zero defects
• Supply chain management
 Limitations to JIT
• It is ideal for mature products
• Ideal for medium to high volume
products/assembly line
• Ideal for standard products
• Remuneration should not be output based.
• Can we apply JIT in ZIM
 UNIT 5
INVENTORY MANAGEMENT
 Inventory management
• Inventory is a physical resource that a firm
holds in stock with the intent of selling it into a
more valuable state.
• Inventory categories:
 Raw materials/inputs
 Work in progress
 Finished goods
 Maintenance, repair and operating inventories
e.g tools.
 Stock in transit
 Functional Roles of Inventory
A well run organization identifies a purpose for
every action and an action for every purpose.
 Transit inventory – goods in transit from one
point to the other
 Buffer inventory – Protection against
disruptions due to unplanned events.
 Seasonal inventory – anticipatory inventory
that accommodates the mismatch between
availability of raw material inputs and
customer needs.
 Functional Roles of Inventory
 Decoupling inventory – accommodation of the
pattern of production and pattern of demand.
 Speculative inventory – this inventory serves
as a hedge against likely price increases and
supply shortages.
 Adding Value through inventory
management
• Quality – inventory policy should not
compromise quality
• Speed – investment in the inventory that the
customer wants
• Flexibility – matching product mix offerings
with customer needs.
• Cost – balancing inventory holding costs
against stock out costs
 Inventory Costs
• Carrying cost
– cost of holding an item in inventory e.g storage facilities,
handling, insurance, pilferage, breakage, obsolescence,
depreciation, taxes, and the opportunity cost of capital.
• Ordering cost
– cost of replenishing inventory typing, calling, transportation,
receiving, etc. This cost does not depend or vary on the
number ordered
• Shortage cost
– temporary or permanent loss of sales when demand cannot be
met
• Setup (or production change) costs: line conversion, equipment change-
over, report preparation, etc

• Cost of the item

 Macro issues in inventory
management:
 Need for finished goods inventories
 Ownership of inventories
 Specific contents of inventories
 Location of inventories
 Tracking inventories
 Responsibility for inventories
Micro-issues in inventory management
 Order quantity
 Re-Order level
• Economic order quantity
• Minimum stock level
• Maximum stock level
• Lead time
 Example
• ZESA purchases transformers from India at a
cost $350 a unit. The holding cost is about $35
per unit per year. The ordering cost is $120 per
order and usages are steady 400 per month.
What is the economic order quantity that
should be ordered by ZESA?
• EOQ = √ (2DC/h)
= √ (2X(400X12)X120)/35)

= 181.42
= 182 units
• Suppose that a liquor store sells 5200 Cases of
beer each year. The net cost of each case to
the store is $2. The wholesale supplier charges
$10 for each delivery and occurs a day after
the purchase day. The holding cost is 10% of
net cost of selling price.
• Calculate the economic order quantity.
Summary of inventory control
sytems
 Reflection
1. Recommend som eof the best methods of improving inventory
management at ZPC
2. A company that sells goods that are used by manufacturers would like
to reduce inventory costs by determining the optimal number of units
to order.
The annual demand is 100000 units, the ordering costs are $50000 per
order and the average carrying costs are $10000 per unit per year.
From the above information calculate the following;
(i) Economic Order Quantity
(ii) Number of orders per year
(iii) The expected time between orders
(iv) Total ordering costs
(v) Total carrying costs
(vi) Total inventory costs
 UNIT 6
QUALITY MANAGEMENT
 Total Quality Management (TQM)
• TQM establishes an organization wide focus on quality
merging the development of a quality oriented
corporate with intensive use of management and
statistical tools to ensure quality for the customer.
• Operating employees, not top or intermediate level
mangers determine the quality level that the firm offers.
• Total quality is an approach to doing business that
attempts to Maximise the competitiveness of an
organization through the continual improvement of the
quality of its products, services, people, processes and
environment.
WHAT IS QUALITY?
• The degree to which a set of inherent
characteristics fulfills the requirements stated or
implied.
• Quality in a product or service often refers to
fitness for use or fitness for purpose.
• To production managers quality is manufacturing
based they believe that quality means
conforming to standards and (making it right the
first time). Yet a third approach is product based,
which reviews quality as precise and measurable
variable.
• Quality may be in the eyes of the beholder, but to
build a product operations mangers must define
what the beholder (the consumer) expects.
 What Is Quality:
Customer’s Perspective
• Fitness for use
• how well product or service does what it is supposed to
• Quality of design
• designing quality characteristics into a product or service
• A Mercedes and a Ford are equally “fit for use,” but with different design
dimensions.
 Dimensions of Quality:
Manufactured Products
• Performance
• basic operating characteristics of a product; how well
a car handles or its gas mileage
• Features
• “extra” items added to basic features, such as a
stereo CD or a leather interior in a car
• Reliability
• probability that a product will operate properly
within an expected time frame; that is, a TV will work
without repair for about seven years
 Dimensions of Quality:
Manufactured Products
• Conformance
– degree to which a product meets pre–established
standards
• Durability
– how long product lasts before replacement; with care, L.
L. Bean boots may last a lifetime
• Serviceability
– ease of getting repairs, speed of repairs, courtesy and
competence of repair person
 Dimensions of Quality:
Manufactured Products
• Aesthetics
• how a product looks, feels, sounds, smells, or tastes
• Safety
• assurance that customer will not suffer injury or harm
from a product; an especially important consideration for
automobiles
• Perceptions
• subjective perceptions based on brand name, advertising,
etc.
 Dimensions of Quality: Services
• Time and timeliness
• how long must a customer wait for service, and is
it completed on time?
• is an overnight package delivered overnight?
• Completeness:
• is everything customer asked for provided?
• is a mail order from a catalogue company
complete when delivered?
 Dimensions of Quality: Service

• Courtesy:
• how are customers treated by employees?
• are catalogue phone operators nice and are their voices
pleasant?
• Consistency
• is same level of service provided to each customer each
time?
• is your newspaper delivered on time every morning?
 Dimensions of Quality: Service
• Accessibility and convenience
• how easy is it to obtain service?
• does service representative answer you calls quickly?
• Accuracy
• is service performed right every time?
• is your bank or credit card statement correct every month?
• Responsiveness
• how well does company react to unusual situations?
• how well is a telephone operator able to respond to a
customer’s questions?
 What Is Quality:
Producer’s Perspective
• Quality of conformance
• making sure product or service is produced
according to design
• if new tires do not conform to specifications, they
wobble
• if a hotel room is not clean when a guest checks in,
hotel is not functioning according to specifications of
its design
 IMPLICATIONS OF QUALITY
1. Company reputation. An organization can expect its reputation
for quality – be it good or bad – to follow it. Quality will show up
in perceptions about the firm’s new products, employment
practices, and supplier relation. Self-promotion is not a
substitute for quality products.
2. Product liability. The Consumer Product Safety Act of 1972 sets
and enforces product standards by banning products that do not
reach those standards. Impure foods that cause illness,
nightgowns that burn, or auto fuel tanks that explode upon
impact can all lead to huge legal expenses, large settlements or
losses, and terrible publicity.
3. Global implications. In this technological age, quality is an
international, as well as OM, concern. For both a company and a
country to compete effectively in the global economy, products
must meet global quality, design, and price expectations. As the
Yugoslavian Yugo demonstrated, inferior products harm a firm’s
profitability and a nation’s balance of payments.
• The figure below lays out the flow of activities
for an organization to use to achieve TQM. A
successful set of activities begins with an
organizational environment that :
- Fosters quality,
- followed by an understanding of the principles
of quality
- engages employees in the necessary activities
to implement quality
• When these necessary things are done well,
the organization typically satisfies, its
customers and obtains a competitive
advantage. The ultimate goal is to win
customers. Because quality causes so many
things to happen, it is a great place to start.
Organizational practices
Leadership
Mission statement
Effective operating procedures
Staff support
Training
Yields: What is important and what is to be accomplished.

Quality principles
Customer focus
Continuous improvement
Employee empowerment
Benchmarking
Just-in-time
Tools of TQM
Yields: How to do what is important and to be accomplished.

Employee fulfillment
Empowerment
Organizational commitment
Yields: Employee attitudes that can accomplish
what is important.
Customer satisfaction
Winning orders
Repeat customers
Yields: An effective organization with a
competitive advantage

The flow of activities that are necessary to achieve TQM

 HOW QUALITY IMPROVES PROFITABILITY

SALES GAINS
- Improved response
- Higher prices
- Improved reputation

Improved Quality
Increase Profits
REDUCED COSTS
- Increased productivity
- Lower rework and scrap costs
- Lower warranty costs
 Quality and Cost of Quality
• Quality is fitness for use or purpose
- Design : concept/specifications
- Conformance: achieving design intentions
- Availability: reliability/malfunction
- Safety: threat of harm
- Use : keeping quality before use
 Quality Cost
I) Internal failure costs: scrap, rework, excess
inventory inspection, salvage.
II) External failure costs: complaints compensation,
loss of good will repairs, field services and returns.
III) Appraisal costs: assessment, inspection of raw
materials, inspection of staff, maintenance of test
equipment.
IV) Prevention costs: preventing defects, limiting
failure, appraisal costs, quality planning, process
control, new product review, continuous
improvement, improvement project.
 TQM Tools
i) PROCESS FLOW CHART
Graphic representation of activities in a process, the
exact tasks of these activities and their organisation
within the process.

ii) RUN/TREND CHART

Trend analysis is a statistical method for determining the
equation that best fits the data in a scatter plot. It can
determine optimal operating conditions by providing an
equation that describes the relationship between the
dependent and independent variables. It can also
facilitate forecasting which enables the prediction of
what is likely to occur.
iii) Scatter Diagram
A scatter plot is a statistical tool that
graphically illustrates the relationship
between two quantitative variables.
They reveal bi-variate relationship such as
parts of variables e.g. defects per batch
against changes in the speed of the
production line.
iv) CONTROL CHART
A control chart is a statistical tool that displays performance
data as points across a set of limits for the upper and lower
boundaries of acceptable process performance.
Sample statistics that fall between the two limits indicate
acceptable performance and any that fall outside these limits
indicate problems with the process that generated the data.
Performance boundaries are set to correspond to a given
confidence interval.
Data within limits is attributed to random variation whilst
those outside the limits indicate underlying systematic
problems with the process.
 Quality certification bodies
• International – ISO 9000, ISO 1400. Approval
seals
• National – Standards Association of Zimbabwe
• Universities- ZIMCHE, South African based
SAQA
• Colleges- HEXCO
• Schools- ZIMSEC
 Reflection
1. With the aid of a flow chart, explain the production
process for one of the key products in your
organization. In your discussion also identify and
evaluate the effectiveness of the quality control
measures in place and suggest improvements that
can be made.
2. Discuss the effect of the JIT, Kaizen, Kanban, Quality
Circles, Benchmarking on TQM programmes
3. Discuss the feasibility issues surrounding the
implementation of JIT programs in Zimbabwean
manufacturing organisations.
 UNIT 7 LOCATION

• Why location is strategic

• Types of Facilities
• Site Selection: Where to Locate
• Global Supply Chain Factors
• Location Analysis Techniques
 Strategic importance of location
• Location support strategy Low cost leadership,
Differentiation and Focus/ Niche. In Bulawayo
Zimbabwe, Chinese stores that sale cheap
products are mainly located on the outskirts of the
CBD while affluent stores like Truworths, Edgars
are located in the middle of the CBD. Community
schools are located in the High density areas while
Trust and private colleges are found in the Low
Density areas
• Location decisions entail a long term commitment
 Strategic importance of location
cnt’d
• Location decisions have an impact on investment
requirements, operating costs, revenues and
operations. A poor choice might result in excessive
transportation costs, a shortage of qualified labour,
loss of competitive advantages, inadequate supplies
of raw materials. For services, a poor location could
result in lack of customers and or high operating
costs.
• E.g are Shopping malls built by pension funds in the
high density suburbs of Bulawayo, Zimbabwe
 Types of Facilities
• Heavy-manufacturing facilities
– large, require a lot of space, and are expensive
• Light-industry facilities
– smaller, cleaner plants and usually less costly
• Retail and service facilities
– smallest and least costly
 Factors to consider in Heavy
Manufacturing Location
• Construction costs
• Land costs
• Raw material & finished goods shipment modes
• Proximity to raw materials
• Utilities
• Means of waste disposal
• Labor availability
Factors to consider in Light Industry Location

• Land costs
• Transportation costs
• Proximity to markets
– depending on delivery requirements including
frequency of delivery required by customer
 Factors to consider in Retail Location

• Proximity to customers
• Location is everything
 Site Selection: Where to Locate
• Infrequent but important • Location criteria for
• being “in the right place at the manufacturing facility
right time” • nature of labor force
• Must consider other factors, • labor costs
especially financial • proximity to suppliers and
considerations markets
• distribution and transportation
• Location decisions made more costs
often for service operations • energy availability and cost
than manufacturing facilities • community infrastructure
• Location criteria for service • quality of life in community
• access to customers • government regulations and taxes
 Global Supply Chain Factors
• Government stability • Climate
• Government regulations • Number & proximity of
• suppliers
Political & economic systems
• Transportation & distribution
• Economic stability & growth system
• Exchange rates • Labor cost & education
• Culture • Available technology
• Export/import regulations, • Commercial travel
duties & tariffs • Technical expertise
• Raw material availability • Cross-border trade regulations
• Group trade agreements
 Regional and Community Location
Factors in Zimbabwe
• Labor (availability, education, • Modes and quality of
cost, and unions) transportation
• Proximity of customers • Transportation costs
• Number of customers • Community government Local
• Construction/leasing costs business regulations
• Land cost • Government services (e.g.,
Chamber of Commerce)
 Regional and Community
Location Factors in Zimbabwe.
• Business climate • Infrastructure (road &
• Community services utilities)
• Incentive packages • Quality of life
• Government regulations • Availability of sites
• Environmental regs. • Financial services
• Raw material availability • Community inducements
• Commercial travel • Proximity of suppliers
• Climate • Education system
 Location Incentives in Zimbabwe
• Tax credits
• Relaxed government regulation
• Job training
• Infrastructure improvement
• Money
• Cheaper power, registration and other
setup expenses
Geographic Information Systems (GIS)
• Computerized system for storing, managing,
creating, analyzing, integrating, and digitally
displaying geographic, i.e., spatial, data
• Specifically used for site selection
• Enables users to integrate large quantities of
information about potential sites and analyze
these data with many different, powerful
analytical tools
GIS Diagram
 Location Analysis Techniques

• Location factor rating

• Center-of-gravity
• Load-distance
• Break even analysis
 Location Factor Rating
• Identify important factors
• Weight factors (0.00 - 1.00)
• Subjectively score each factor (0 - 100)
• Sum weighted scores
E.Gs of factors
 Location Factor Rating
SCORES (0 TO 100)
LOCATION FACTOR WEIGHT Site 1 Site 2 Site 3
Labor pool and climate .30 80 65 90
Proximity to suppliers .20 100 91 75
Wage rates .15 60 95 72
Community environment .15 75 80 80
Proximity to customers .10 65 90 95
Shipping modes .05 85 92 65
Air service .05 50 65 90

Weighted Score for “Labor pool and climate” for

Site 1 = (0.30)(80) = 24
Location Factor Rating
WEIGHTED SCORES
Site 1 Site 2 Site 3
24.00 19.50 27.00
20.00 18.20 15.00
Site 3 has the
9.00 14.25 10.80
highest factor rating
11.25 12.00 12.00
6.50 9.00 9.50
4.25 4.60 3.25
2.50 3.25 4.50
77.50 80.80 82.05
Location Factor Rating With Excel
Location Factor Rating With OM
Tools
 Center-of-Gravity Technique
• Locate facility at center of movement in
geographic area
• Based on weight and distance traveled;
establishes grid-map of area
• Identify coordinates and weights shipped for
each location
 Grid-Map Coordinates
y
 xiWi  yiWi
2 (x2, y2), W2
y2 x= y=
 Wi  Wi
1 (x1, y1), W1
y1
where,
x, y = coordinates of new
3 (x3, y3), W3 facility at center of gravity
y3 xi, yi = coordinates of existing
facility i
Wi =annual weight shipped
from facility i

x1 x2 x3 x
 Center-of-Gravity Technique
y
A B C D
700
C x 200 100 250 500
600 (135) y 200 500 600 300
B
W 75 105 135 60
500 (105)
Miles

400
D
300
A (60)
200 (75)
100

0 100 200 300 400 500 600 700 x

Miles
 Center-of-Gravity Technique
 xW
i i
(200)(75) + (100)(105) + (250)(135) + (500)(60)
x= = = 238
75 + 105 + 135 + 60
 W
i

 yW
i i
(200)(75) + (500)(105) + (600)(135) + (300)(60)
y= = = 444
75 + 105 + 135 + 60
 W
i
 Center-of-Gravity Technique
y
A B C D
700
C x 200 100 250 500
600 (135) y 200 500 600 300
B
W 75 105 135 60
500 (105)
Center of gravity (238,
Miles

400 444) D
300
A (60)
200 (75)
100

0 100 200 300 400 500 600 700 x

Miles
Center-of-Gravity With Excel

Formula for
x coordinate
 Load-Distance Technique
• Compute (Load x Distance) for each site
• Choose site with lowest (Load x Distance)
• Distance can be actual or straight-line
SIMPLE EXAMPLE: A Load-Distance Model Example: Matrix Manufacturing is
considering where to locate its warehouse in order to service its four Ohio
stores located in Cleveland, Cincinnati, Columbus, Dayton. Two sites are being
considered; Mansfield and Springfield, Ohio. Use the load-distance model to
make the decision. Locate where the load distance score is low

Computing the Load-Distance Score for Springfield

City Load Distance ld
Cleveland 15 20.5 307.5
Columbus 10 4.5 45
Cincinnati 12 7.5 90
Dayton 4 3.5 14
Total Load-Distance Score(456.5)

Computing the Load-Distance Score for Mansfield

City Load Distance ld
Cleveland 15 8 120
Columbus 10 8 80
Cincinnati 12 20 240
Dayton 4 16 64
Total Load-Distance Score(504)
 Let’s reflect
Choppies currently has 4 supermarkets in Matabeleland
region but management has decided to open a Distribution
Centre to service the 4 stores. Use the Centre of gravity
method to find the coordinates of the new facility.
You have been given the following information:

Store Name x y Sales Volume

Nkulumane 125 100 1250
Ahrow Mart 250 75 3000
Lobengula 450 300 2750
Mgwanwini 250 350 1500
 Practice QSN 2

An electronics manufacturer wants to

expand by building a second facility. The
search has been narrowed to four locations.
Assessment of these sites in terms of 7
location factors and their relative weights is
shown below. The score is based on a rating
of 1to 5 where 1 is poor and 5 is excellent.
Calculate the weighted score of each
location and indicate which location is ideal.
 QSN 2 CNTD
A B C D

Climate 2 3 3 4

Labour 5 4 4 5

Quality of life 2 3 4 1

Transportation System 3 4 3 2

Proximity to raw materials 5 3 4 4

Taxes 2 5 5 4

Utilities (i.e water, infrastructure, 5 4 3 3

electricities)
 UNIT 8

Forecasting
 Lecture Outline
• Strategic Role of Forecasting in Supply Chain
Management
• Components of Forecasting Demand
• Time Series Methods
• Forecast Accuracy
• Time Series Forecasting Using Excel
• Regression Methods

12-237
 Forecasting
• Predicting the future
• Forecasting product demand is crucial to any supplier,
manufacturer, or retailer.
• Forecasts of future demand will determine the
quantities that should be purchased, produced, and
shipped
• Qualitative forecast methods
– subjective
• Quantitative forecast methods
– based on mathematical formulas

12-238
 Supply Chain Management
• Accurate forecasting determines inventory
levels in the supply chain
• Continuous replenishment
– supplier & customer share continuously updated
data
– typically managed by the supplier
– reduces inventory for the company
– Manage order cycle times
– speeds customer delivery, efficient operations and
high levels of customer service
• Variations of continuous replenishment
– quick response
– JIT (just-in-time) 12-239
The Effect of Inaccurate
Forecasting

12-240
 Forecasting
• Quality Management
– Accurately forecasting customer demand is a key
to providing good quality service
• Strategic Planning
– Successful strategic planning requires accurate
forecasts of future products and markets

12-241
 Types of Forecasting Methods
• Depend on
– time frame
– demand behavior
– causes of behavior

12-242
 Time Frame
• Indicates how far into the future is forecast
– Short- to mid-range forecast
• typically encompasses the immediate future
• daily up to two years
– Long-range forecast
• usually encompasses a period of time longer than two
years

12-243
 Demand Behavior
• Trend
– a gradual, long-term up or down movement of demand
• Random variations
– movements in demand that do not follow a pattern
• Cycle
– an up-and-down repetitive movement in demand
• Seasonal pattern
– an up-and-down repetitive movement in demand
occurring periodically

12-244
 Forms of Forecast Movement

Demand
Demand

Random
movement

Time Time
(a) Trend (b) Cycle

Demand
Demand

Time Time
(c) Seasonal pattern (d) Trend with seasonal pattern

12-245
•
Forecasting
Qualitative
Methods
– use management judgment, marketing, predictions,
expertise, and opinion to predict future demand
• Judgmental Approaches.
– The essence of the judgmental approach is to address the
forecasting issue by assuming that someone else knows
and can tell you the right answer.
• Experimental Approaches.
– Suitable when an item is "new" and when there is no other
information upon which to base a forecast e.g experiment
on a small group of customers and to extrapolate the
results to a larger population. (Customer surveys, Test
Marketing)
12-246
 Forecasting Methods

• Relational/Causal Approaches.
– The assumption behind a causal or relational forecast is that, simply
put, there is a reason why people buy our product. E.g people buy
umbrellas in rainy season, supplementary examinations are written
at the start of each semester
• Time series
– statistical techniques that use historical demand data to predict
future demand
• Regression methods
– attempt to develop a mathematical relationship between demand
and factors that cause its behavior

12-247
 Forecasting
• Delphi method
– involves soliciting forecasts about technological
advances from experts
– Repeating questionnaires until 3 experts working
unknown to each other reach a for of agreement

12-248
 Forecasting Process
1. Identify the 2. Collect historical 3. Plot data and identify
purpose of forecast data patterns

6. Check forecast 5. Develop/compute 4. Select a forecast

accuracy with one or forecast for period of model that seems
more measures historical data appropriate for data

7.
Is accuracy of No 8b. Select new
forecast forecast model or
acceptable? adjust parameters of
existing model
Yes
9. Adjust forecast based 10. Monitor results
8a. Forecast over
on additional qualitative and measure forecast
planning horizon
information and insight accuracy

12-249
 Time Series
• Assume that what has occurred in the past will
continue to occur in the future
• Relate the forecast to only one factor - time
• Include
– Naïve
– Simple average
– Weighted moving average
– exponential smoothing

12-250
 Simple averaging
• Naive forecast
– demand in current period is used as next period’s forecast
• Simple moving average
– uses average demand for a fixed sequence of periods
– stable demand with no pronounced behavioral patterns
• Weighted moving average
– weights are assigned to most recent data

12-251