Product Design

Meaning
Reasons of product design
Recent trends in PD
Standardization
Design process
Aspects of PD
Stages of PD
Service Design
QFD
Kano model
Product Design

PD is concerned with
the functional and
aesthetic requirements
necessary to meet the demands of the marketplace
and at the same time achieve an acceptable rate of
return.
Input into product or service design decisions come
primarily from
marketing,
engineering and
manufacturing personnel
Trends in Product & Service Design

Increased emphasis on or attention to:

Customer satisfaction

Reducing time to introduce new product

or service

Reducing time to produce product

 Increased emphasis on or attention to:
The organizations capabilities to produce or
deliver the item
Environmental concerns
Designing products & services that are user
friendly
Designing products that use less material
Product or Service Design Activities

Translate customer wants and needs into

product and service requirements
Refine existing products and services
Develop new products and services
Formulate quality goals
Formulate cost targets
Construct and test prototypes
Document specifications
Reasons for Product or Service Design

Be competitive
Increase business growth & profits
Avoid downsizing with development of new
products
Improve product quality
Achieve cost reductions in labor or materials
Phases in product development process

1. Idea generation: Supply chain, competitor & research based

2. Feasibility analysis
3. Product specifications
4. Process specifications
5. Prototype development
6. Design review
7. Market test
8. Product introduction
9. Follow-up evaluation
Idea generation

Supply chain based: Customer, supplier, distributors,

and employees
Customers input through survey, focus group,
complaints
Input from suppliers distributors, employees might
come from interview, direct, indirect suggestions
R&D may involve
Basic Research: objective is to advance the state of
knowledge about a subject
Applied research: has the objective of achieving
commercial applications.
Reverse Engineering

Competitor based:

Reverse engineering is the dismantling and

inspecting of a competitors product to discover
product improvements.

It sometimes enable a company to leapfrog the

competition.
Aspects of Product Design

Product Life Cycles

Robust Design
Concurrent Engineering
Computer-Aided Design
Modular Design
Life Cycles of Products or Services

Saturation

Maturity
Demand

Decline
Growth

Incubation

Time
Standardization:

This is the extent to which there is absence of variety

in a product, service or process.
Standardized products are made in large quantities of
identical items.
Standardized service implies that every customer or
item processed receives essentially the same service
Advantages of Standardization (Contd

Orders fillable from inventory

Opportunities for long production runs and
automation
Need for fewer parts justifies increased
expenditures on perfecting designs and
improving quality control procedures.
Disadvantages of Standardization

Designs may be frozen with too many

imperfections remaining.
High cost of design changes increases
resistance to improvements.
Decreased variety results in less consumer
appeal.
Mass Customization

Mass customization:
A strategy of producing standardized goods or
services, but incorporating some degree of
customization
Delayed differentiation
Modular design
Modular Design

Modular design is a form of standardization in

which component parts are subdivided into
modules that are easily replaced or
interchanged. It allows:
easier diagnosis and remedy of failures
easier repair and replacement
simplification of manufacturing and assembly
Reliability

Reliability: The ability of a product, part, or

system to perform its intended function under a
prescribed set of conditions
Failure: Situation in which a product, part, or
system does not perform as intended
Normal operating conditions: The set of
conditions under which an items reliability is
specified
Improving Reliability

Component design
Production/assembly techniques
Testing
Redundancy/backup
Preventive maintenance procedures
User education
Robust Design

Design that results in products or services that

can function over a broad range of conditions

Some products will perform as designed only with in

a narrow range of conditions, while other products
will perform as designed over a much broader range
of conditions, the latter have robust design.
 It can function over a broad range of conditions.

Consider a pair of fine leather boots not made for

trekking through mud or snow. The rubber boots that
have a design that is mere robust than the fine leather
boots.
Taguchi Approach Robust Design

Design a robust product

Insensitive to environmental factors either in
manufacturing or in use.
Central feature is Parameter Design.
Determines:
factors that are controllable and those not
controllable
their optimal levels relative to major product
advances
Smaller sample might be a near optimal
combination.ie chemical combination
Concurrent Engineering

Concurrent engineering is the bringing together

of engineering design and manufacturing
personnel early in the design phase.
 Over the Wall Approach

New
Product

Mf Desig
g n
Computer-Aided Design

Computer-Aided Design (CAD) is product design

using computer graphics.
increases productivity of designers, 3 to 10 times
creates a database for manufacturing information
on product specifications
provides possibility of engineering and cost
analysis on proposed designs
Service Design

Service is an act

Service delivery system

Facilities
Processes
Skills

Many services are bundled with products

 Service design involves
The physical resources needed

The goods that are purchased or consumed by the

customer
Explicit services: the essential/core features

Implicit services:ancillary /extra features

 Service
Something that is done to or for a customer
Service delivery system
The facilities, processes, and skills needed to provide a
service
Service package
The physical resources, explicit service, implicit service
and others
Phases in Service Design

1. Conceptualize
2. Identify service package components
3. Determine performance specifications
4. Translate performance specifications into design
specifications
5. Translate design specifications into delivery
specifications
Service Blueprinting

Service blueprinting
A method used in service design to describe and analyze
a proposed service
A useful tool for conceptualizing a service delivery
system
Major Steps in Service Blueprinting

1. Establish boundaries
2. Identify steps involved
3. Prepare a flowchart
4. Identify potential failure points
5. Establish a time frame
6. Analyze profitability
 Quality Function Deployment

Quality Function Deployment

Voice of the customer
House of quality

QFD: An approach that integrates the voice of the customer

into the product and service development process.
The House of Quality

Correlation
matrix

Design
requirements

Customer
Relationship Competitive
require-
matrix assessment
ments

Specifications
or
target values
House of Quality Example

Correlation:
X Strong positive
Positive
X X
Negative

Water resistance
X

Accoust. Trans.
Energy needed

ground needed
X X
Im * Strong negative

to close door

to open door
po

resistance
Door seal
Engineering Competitive evaluation
rta Characteristics

force on

Window
nc

Energy
X = Us

Check
et A = Comp. A

level
Customer oC B = Comp. B
(5 is best)
us 1 2 3 4 5
Requirements t.
X AB
Easy to close 7
Stays open on a hill 5 X AB

Easy to open 3 XAB

A XB
Doesnt leak in rain 3
No road noise 2 X A B

Importance weighting 10 6 6 9 2 3 Relationships:

level to 7.5 ft/lb
Reduce energy

Reduce energy
Reduce force

Strong = 9
current level

current level
current level
to 7.5 ft/lb.
Medium = 3
Maintain

Maintain
Target values Maintain
to 9 lb.

Small = 1

5 B BA BA
B B BXA X
Technical evaluation 4
3 A
X
A X
(5 is best) 2 X
X A
1
The Kano Model

Kano
KanoModel
Model
Satisfaction
CustomerSatisfaction

Excitement
Excitement
Expected
Expected
Must
MustHave
Have
Customer

Customer
CustomerNeeds
Needs
Process Analysis

Meaning
Facts of process design
Process analysis
Process

Is any part of an organization that takes inputs and

transforms them into output

Process selection
Deciding on the way production of goods or services will
be organized
Process Types

Variety Batch
How much
Flexibility Job shop Repetitiv
What degree
Volume Continuou
Expected output
Process Types

Job shop
Small scale
Batch
Moderate volume
Repetitive/assembly line
High volumes of standardized goods or services
Continuous
Very high volumes of non-discrete goods
Product and Service Processes
Process
Type
Job Shop Appliance
repair
Emergency
room
Batch Commercia
l
baking
Classroom
Lecture

Repetitive Automotive
assembly
Automatic
carwash
Continuou Steel
Production
s
Water
Process analysis

Analyzing a process allows some important questions

to be answered, such as
How many customers can the process handle per hour?

How long will it take to serve the customer?

What change is needed in the process to expand capacity?

How much does the process cost?

Process

Process or operating system : is any part of an

organization that takes input and transforms them
into output of greater value to the organization than
the original inputs.
An automobile assembly plan takes raw materials in
the form of parts and components. These materials,
along with labor, capital, equipment and energy are
transformed into automobiles. The transformation is
called assembly and the output is an automobile.
Process

A process is a collection of tasks connected by a flow

of goods and information that transforms various
inputs into useful output.
A process may have the capability to store both the
goods and information during the transformation
Components
input
Output
What goes in process

Tasks :
Typically involves the addition of some input that makes
the product or service nearly like the desired output ie
flying an airplane, anesthetizing a patient before an
operation.
Flows :
Two types of flows i.e. flows of goods and information
Difference between flows and tasks is that flows merely
change the position of a goods or service in the process
while a task usually changes its characteristics
 Storage; A storage results when no task is being
performed and the goods or service is not being
transported. it is shown by inverted triangles
 Process flow chart

Flow chart symbol

Tasks or Storage
operation

decision Flows of material

Process flow diagram

Mc Donald's process
RM= raw material
Place order

RM FG
cook assemble Deliver
Characteristics of process

Three performance characteristics of process are

Capacity

Efficiency

Flexibility
Capacity

Is the rate of output from the process

is measured in units of output per unit of time such as
A steel mill will produce some no of tons of steel per
year.
An insurance will process some no of claims per
hour.
Efficiency

is a measure that relates the amount or value of the output of

the process to the amount or value of the input.
Efficiency is widely used to measure physical process.
One common measure of efficiency is utilization
Utilization is the ratio of input actually used by the process to
create output, to the amount of that input that is available for use

Utilization= actual input used/available input*100

Flexibility

Is a measure of how long it would take to change the

process so that it could produce a different output or
Could use different sets of inputs.
Flexibility is the characteristics that allows a process
to respond to changes in its environment.
Process analysis

Process analysis involves adjusting the capacities

and balance among different parts of the process to
maximize output or minimize the costs with
available resources.
An example of process analysis

The XYZ company supplies a component to

several large automobile manufacturers. This
components is assembled in a shop by 15 workers
working an eight-hour shift on an assembly line
that moves at the rate of 150 components per hour.
Mgt believes that they could hire 15 more workers
for a second shift if necessary. Parts or the final
assembly come from two sources: The XYZ
molding dept makes one very critical part and rest
come from outside suppliers .There are eleven
Process analysis

machines capable of molding the one part done in

house, but historically one machine is always
being maintained or repaired at any given time.
Each machine requires a full time operator. The
machines can each produce 25 parts per hour. The
workers will work overtime at a 50% increase in
their wages. The workforce for molding is
flexible, and currently only six workers are on this
job. Four more are available from a labor pool
with in the company.
 Process analysis

To analyze a process we need to have a process flow

diagram

Mold parts Purchase parts

Molded parts inventory Purchased parts inventory

Final assembly

Finished goods inventory

Process analysis cont.

Once process is described it is useful to measure its

capacity
Molding
capacity=6machine*25parts/hour/machine*8hrs/day
*5days/week= 6000 parts/week.
The assembly capacity=150
components/hour*8hrs/day*5days/week=6000
components/week
We can conclude that the entire process has a
capacity of 6000 components/week and the capacity
of all tasks are balanced.
Process analysis

If XYZ increased to ten machines and ten workers

performing the molding task, it could produce 10000
parts/week. If no change is made in the final
assembly task, however, the entire process still only
has a capacity of 6000 components/week.
Because in the long run the overall capacity can not
exceed the rate of the slowest task.
Work measurement and standard

Work measurement & standard

Method of work measurement,
Learning curves,
Managerial considerations
Work measurement

Determining how long it should take to do a job.

The fundamental purpose of WM is to set time

standards for a job.
Why work measurement

Necessary for four reasons

i. To schedule work and allocate capacity

ii. To provide an objective basis for motivating the
workforce and measuring their performance
iii. To bid for new contract and evaluate performance on
existing one
iv. To provide benchmarks for improvement
Work measurement techniques

Basic techniques.such as
i. Standard time
ii. Stopwatch time study
iii. Historical times
iv. Predetermined data
v. Work Sampling
Standard time

The amount of time it should take a qualified worker to

complete a specific task,

working at a sustainable rate,

usinggiven methods, tools and equipment, raw

materials, and workplace arrangement.
 Stopwatch time study

Development of a time standard based on observations of one

worker taken over a number of cycles.
The basic steps in a time study:
1. Define the task to be studied
2. Determine the number of cycles to observe
3. Time the job
4. Compute the standard time
Time study

The job or task to be studied is separated into

measurable parts or elements
Each element is timed individually.
Normal time=observed performance time per
unit*performance rating
Standard time=NT(1+Allowances)
Allowances personal need such as washroom and
coffee breaks,unavoidable work delays,fatigue
(physical or mental)
Real life example of time study

Brandon is very organized and wants to plan his day

perfectly.To do this, he has his friend Kelly time his
daily activities.Here are the results of her timing
Brandon on polishing two pairs of black shoes using
the snapback method of timing.What is the standard
time for polishing two pair? (Assume a 5 %
allowance factor for Brandon to put something
mellow on the CD player.
Worked out example

Element Observed time Perfor

manc
e
rating

Get shoe shine .5 125%

kit
Polish shoes .94 .85 .8 .81 110%
Put away kit .75 80%
 Solution
t T Performan NT
ce Rating
Get shoe .5 .5/2=.25 125 .31
shine kit
Polish shoes 3.4 3.4/2=1. 110 1.8
2pair 7 7
Put away kit .75 . 80 .3
75/2=.3
75
NT for one 2.4
pair 8
the pair= NT(1+ALLOWANCE)=2.48*1.05=2.60 minu
Standard Elemental Times

Time standards derived from a firms historical data.

Steps for standard elemental times
1. Analyze the job
2. Check file for historical times
3. Modify file times if necessary
4. Sum elemental times to get normal time
Predetermined time standards

Published data based on extensive research to

determine standard elemental times.
Advantages:
1. Based on large number of workers under controlled
conditions
2. Analyst not requires to rate performance
3. No disruption of the operation
4. Standards can be established
Work sampling

technique for estimating the proportion of time that a

worker or machine spends on various activities and
idle time.
Work sampling involves making brief observations of
a worker or machine at random intervals
Work sampling does not require
timing an activity
continuous observation of an activity
Compensation

Time-based system
Compensation based on time an employee has worked
during a pay period
Output-based (incentive) system
Compensation based on the amount of output an
employee produces during a pay period
Form of incentive plan

Accurate
Easy to apply
Consistent
Easy to understand
Fair
Compensation

Individual Incentive Plans

Group Incentive Plans
Knowledge-Based Pay System
Management Compensation
Individual and small group
incentive plan
Rewarded performance by using output( often
defined by piece rates) and quality measures.
Skill development has been rewarded
Known as pay for knowledge
This means worker is compensated for learning new
tasks
Group Incentive Plans

Scanlon Plan
Encourage reductions in labor costs
Kaiser Plan
Committees suggest ways of reducing costs
Lincoln Plan
Profit sharing, job enlargement, and participative
management
Kodak Plan
Wages/bonus related to profits
Gain sharing plan

Giving organization wide bonuses.

Differs from profit sharing in two way
Typically measures controllable costs or units of
output in calculating bonuses
Second gain sharing is always combined with a
participative approach to mgt.
Learning curves

LC is a line displaying the relationship between unit

production time and the cumulative number of units
produced.
Application of learning curves.

Can be used to estimate the time for product design

and production as well as costs
LC are also integral part in planning corporate
strategy,such as decision concerning pricing,capital
investment and operating cost based on experience
curve.
Assumptions of LC

Base on three assumption

i. The amount of time required to complete a given
task or unit of a product will be less each time the
task is undertaken
ii. The unit time will decrease at a decreasing rate
iii. The reduction in time will follow a predictable
patten.
As for example100000 hrs for plane 1, 80000 hrs for
plane 2, 64000 hrs for plane 4
 Plotting learning curves

Unit Unit direct Cumulative direct Cumulative

number labor hours labor hrs average direct
(80%LC) labor
hrs=3c/1c
1 100000 100000 100000
2 80000 180000 90000
4 64000 314210 78553
8 51200 534591 66824
16 40960 892014 55751
32 32768 1467862 45871
64 26214 2392453 37382
128 20972 3874395 30269
Plotted LC

Learning curves plotted as times and

number of units

120000
Tim e per unit

100000 Cumulative
80000 average direct
albor hours
60000
Unit number
40000
20000
0

Unit number
General guidelines for learning

Individual learning
Organizational learning.
Individual learning

Two important factors affect an individual

performance and rate of learning.Such as
i. Rate of learning and
ii. initial starting level
Individual learning curve

Some guidelines to improve individual performance

based on LC
Proper selection of workers
Proper training
Do one or very few job at a time
Use tools or equipment that assists or supports
performance.
Organizational learning

Main source of organ learning is a result of the

individual learning of the employees.
An organ also acquires knowledge in its technology,
its structure, documents that it retains and standard
operating procedure.
Such as Mfg unit becomes experiences from
embedded knowledge in software and tooling used
for production.
Product layout or Line balancing

is the process of assigning tasks to

workstations in such a way that

The workstations have approximately

equal time requirements.
Steps of Line Balancing

i. Draw precedence diagram

ii. Determine workstation cycle time
iii. Determine theoretical minimum workstation
iv. Select assignment rule
i. Prioritize tasks in order of largest following tasks
ii. Prioritize in order of longest task time where ties exist
v. Assign task to workstation
vi. Calculate efficiency
 Cycle Time:
Cycle time is the maximum time
allowed at each workstation to
complete its set of tasks on a unit

OT
Output OT
Outputrate
rate=
= CT
CT

OT
OT operating
operatingtime
timeper
perday
day

D
D==Desired
Desiredoutput
outputrate
rate

OT
CT OT
CT==cycle
cycletime
time=
= D
D
Determine the Minimum Number
of Workstations Required

( t)
N=
CT

t = sum of task time

Precedence Diagram

Precedence diagram: Tool used in line balancing to

display elemental tasks and sequence requirements

0.1 min. 1.0 min.

A Simple Precedence
a b Diagram

c d e
0.7 min. 0.5 min. 0.2 min.
 Calculate Percent Idle Time

Idle time per cycle

Percent idle time =
(N)(CT)

Efficiency = 1 Percent idle

time
Efficiency =
( t)
Na * CT

t = sum of task time

Example
Task Immediate task Task time
a - .2
b a .2
c - .3
d c .6
e b .3
f e, d 1
g f .4
h g .3

i. Draw precedence diagram

ii. Assign Task to workstations
iii. Find out the efficiency
Assuming an eight-hour workday, compute the cycle time needed to obtain an o
of 400 units per day.
Steps to be followed

i. Draw precedence diagram

ii. Determine workstation cycle time
iii. Determine theoretical minimum workstation
iv. Select assignment rule
i. Prioritize tasks in order of largest following tasks
ii. Prioritize in order of longest task time where ties exist
v. Assign task to workstation
vi. Calculate efficiency
Example

a b e

f g h
c d
Solution

CT= OT/D= 8*60/400 =1.2

No of workstation= 3.3/1.2=2.66=3
Balance delay= Idle time per cycle/N actual*CT
Solution to Example

Station 1 Station 2 Station 3 Station 4

a b e
f g h
c d
Example-2
Desired daily output of an assembly line is 360 units, operates 450 minutes
per day. Following table contains info regarding task, time and preceding task
Time in seconds Preceding task/s
A 30 -
B 35 A
C 30 A
D 35 B
E 15 C
F 65 C
G 40 EF
H 25 DG

i. Draw precedence diagram

ii. Balance the line and calculate the efficiency
Quality Management
 Quality management
Meaning
Dimensions of quality
Determinants of quality
The consequence of poor quality
The cost of quality
Quality Gurus
TQM
Quality awards
Quality certification:ISO-9000
 Quality
Quality is the ability of a product or service to
consistently meet or exceed customer expectations.
 Dimensions of Quality
Performance - main characteristics of the
product/service
Aesthetics - appearance, feel, smell, taste
Special Features - extra characteristics
Conformance - how well product/service conforms to
customers expectations
Reliability - consistency of performance
 Durability - useful life of the product/service
Perceived Quality - indirect evaluation of quality (e.g.
reputation)
Serviceability - service after sale
 Examples of Quality Dimensions
Dimension (Product) (Service)
Automobile Auto Repair
1. Performance Everything works, fit & All work done, at agreed
finish price
Ride, handling, grade of Friendliness, courtesy,
materials used Competency, quickness
2. Aesthetics Interior design, soft touch Clean work/waiting area

3. Special features Gauge/control placement Location, call when ready

Cellular phone, CD Computer diagnostics
player
Dimension (Product) (Service)
Automobile Auto Repair
5. Reliability Infrequency of breakdowns Work done correctly,
ready when promised

6. Durability Useful life in miles, resistance Work holds up over

to rust & corrosion time

7. Perceived Top-rated car Award-winning service

quality department

8. Serviceability Handling of complaints and/or Handling of complaints

requests for information
Determinants of Quality

Ease of
Design
use

Conforms
to design Service
 Determinants of Quality (contd

Quality of design
Intension of designers to include or exclude features in a
product or service
Quality of conformance
The degree to which goods or services conform to the
intent of the designers
 The Consequences of Poor Quality

Loss of business
Liability
Productivity
Costs
 Costs of Quality
Failure Costs - costs incurred by defective parts/products
or faulty services.
Internal Failure Costs
Costs incurred to fix problems that are detected before the
product/service is delivered to the customer.
External Failure Costs
All costs incurred to fix problems that are detected after the
product/service is delivered to the customer.
 Costs of Quality (continued
Appraisal Costs
Costs of activities designed to ensure quality or uncover
defects
Prevention Costs
All TQ training, TQ planning, customer assessment,
process control, and quality improvement costs to
prevent defects from occurring
 Quality Gurus
W.Edward Deming
14 points i.e.
constancy of purpose
Drive out fear
Breakdown barriers
Eliminate numeric goals
Institute modern methods of training on the job
Joseph M. Juran
Trilogy such as
Quality planning
Quality control
Quality improvement
 Quality Gurus
Philip B. Crosby
Do it right the first time
Top mgt must demonstrate its commitment
Mgt must be persistent in effort to achieve good quality
Mgt must spell out what wants in term of quality and
what workers must do to achieve that
Make it right the first time.
 Quality Gurus
Kaoru Ishikawa
Cause and effect diagram for problem solving
Quality circle

Walter Shewhart
Statistical quality Control
Quality Awards

Baldrige Award

Deming Prize
 Malcolm Baldrige National Quality
Award
1.0 Leadership (125 points)
2.0 Strategic Planning (85 points)
3.0 Customer and Market Focus (85 points)
4.0 Information and Analysis (85 points)
5.0 Human Resource Focus (85 points)
6.0 Process Management (85 points)
7.0 Business Results (450 points)
 The Deming Prize
Honoring W. Edwards Deming

Japans highly coveted award

Main focus on statistical quality control

 Quality Certification
ISO 9000
Set of international standards on quality management
and quality assurance, critical to international business

Consists of five primary parts numbered as 9000

through 9004
 ISO 9000
ISO 9001; Model for quality assurance in design,
procurement, production, installation and servicing
(DPIS)
ISO 9002:model for quality assurance in production
and installation (PI)
ISO9003:Model for quality assurance in final
inspection test.
 ISO9000
ISO 9000 and ISO 9004 guidelines for use
 ISO14000
ISO 14000
A set of international standards for assessing a
companys environmental performance
 Total Quality Management
A philosophy that involves everyone in an organization
in a continual effort to improve quality and achieve
customer satisfaction.

T Q M
 The TQM Approach
1. Find out what the customer wants
2. Design a product or service that meets or exceeds
customer wants
3. Design processes that facilitates doing the job right
the first time
4. Keep track of results
5. Extend these concepts to suppliers
Elements of TQM

1. Philosophical element
2. Generic tools
i. Process flow chart
ii. Check sheets
iii. Cause and Effect Diagram
iv. Pareto analysis
3. Tools of the QC dept (SQC methods)
i. Sampling plan
ii. Process capability
iii. Taguchi methods
 Philosophical Elements of TQM
1. Continuous improvement
2. Competitive benchmarking
3. Employee empowerment: give responsibility for
improvements & authority to make changes
4. Team approach: for problem solving & achieve
consensus takes advantage of group synergy
5. Decisions based on facts rather than opinions
6. Knowledge of tools: employees are trained in the use
of quality tools
7. Supplier quality: must be included in QA and Q
improvement efforts
8. Quality at the source:
 Continuous Improvement
Philosophy that seeks to make never-ending
improvements to the process of converting inputs into
outputs.
Kaizen: Japanese
word for continuous
improvement.
 Quality at the Source
The philosophy of making each worker
responsible for the quality of his or her work
Benchmarking

Identifying other organization best at something and

studying how they do it to learn how to improve your
operation
 Quality Circles
Team approach
List reduction
Balance sheet
Paired comparisons
 Six Sigma
Statistically
Having no more than 3.4 defects per million
Conceptually
Program designed to reduce defects
Requires the use of certain tools and techniques

Six sigma: A business process for

Improving quality,
reducing costs, and
increasing
customer satisfaction.
 Six Sigma Programs
Six Sigma programs
Improve quality
Save time
Cut costs
Employed in
Design
Production
Service
Inventory management
Delivery
 Six Sigma Management
Providing strong leadership
Defining performance metrics
Selecting projects likely to succeed
Selecting and training appropriate people
 Six Sigma Technical
Improving process performance
Reducing variation
Utilizing statistical models
Designing a structured improvement strategy
 Six Sigma Team
Top management
Program champions
Master black belts
Black belts
Green belts
 Six Sigma Process
Define
Measure
Analyze DMAIC
Improve
Control
 Obstacles to Implementing TQM

Lack of:
Company-wide definition of quality
Strategic plan for change
Customer focus
Real employee empowerment
Strong motivation
Time to devote to quality initiatives
Leadership
 Obstacles to Implementing TQM

Poor inter-organizational communication

View of quality as a quick fix
Emphasis on short-term financial results
Internal political and turf wars
 Criticisms of TQM
1. Blind pursuit of TQM programs
2. Programs may not be linked to strategies
3. Quality-related decisions may not be tied to market
performance
4. Failure to carefully plan a program
 Basic Quality Tools
Flowcharts : ie SIPOC
Check sheets: are basic forms that help standardize data
collection.
Histograms :
Pareto Charts: large % of problems are due to small % of
causes. 80% complaints due to late deliveries
Scatter diagrams:
Control charts: time sequenced charts showing plotted values
Cause-and-effect diagrams
Run charts: depicts trend in data over time. Typically plot the
median of a process.
Check Sheet
Billing Errors Monday
Wrong Account

Wrong Amount

A/R Errors

Wrong Account

Wrong Amount
Histogram
 Pareto Analysis

Number of defects
80% problems
may be
attributed
to 20%
of causes
 Control Chart

1020
1010 UCL
1000
990
980 LCL
970
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
 Cause-and-Effect Diagram

Methods Materials
Cause
Cause
Cause
Cause
Cause Cause
Environment Effect
Cause Cause

Cause Cause
Cause Cause

People Equipment
 Run Chart
0.58
0.56
Diameter

0.54
0.52
0.5
0.48
0.46
0.44
1 2 3 4 5 6 7 8 9 10 11 12
Time (Ho urs )
Time (Hours)
 Statistical quality control method

Can be divided into acceptance sampling and process

control.
AS involves testing a random sample of existing
goods, and decide whether to accept an entire lot
based on the quality of random sampling.
Process control: involves testing a random sample of
output from a process to determine whether the
process is producing items with in a pre selected
range.
 Acceptance sampling:Design of a single
sampling plan
A single sample plan is defined by n and c, where n is
no of units in the sample and c is the acceptance
number.
c denotes maximum no of defective items that can be
found in the sample before the lot is rejected.
Values of n and c are determined by the interaction of
AQL, alpha, LTPD, and beta
 Acceptance sampling : Design of a single sampling
plan

AQL= acceptable quality level:Lots are defined as high

quality if they contain no more than a specified level of
defectives terms AQL
LTPD= lot tolerance percent defects: Lots are low quality if
the percentage of defective is greater than a specified amount
term LTPD.
Alpha= producer risk of rejecting good quality lot
Beta= consumer risk of accepting bad quality lot.
 Example: Hi tech purchases circuit board from a
vendor. The vendor produces the board to an AQL of
2 % defective and is willing to run 5% risk (alpha).Hi
tech consider lots of 8% or more defective LTPD
unacceptable and wants to ensure that it will accept
such poor quality lots no more than 10 % of time
(beta).A large shipment has just been delivered.
 The parameters of the problem are AQL=.02 alpha=.05,
LTPD=.08 and Beta=.10, We can use the table to find c and n
First divide LTPD by AQL (.08/.02)=4. Then, find the ratio in
column 2 that equal to or just grater than the amount.This
value is 4.057 which is associated with c=4
Finally, find the value in column 3 that is in the same row as
c=4 and divide that quantity by AQL to obtain
n(1.970/.02)=98.5).
The appropriate sampling plan is c=4 and n= 99
 Excerpt from a sampling plan
table
c
c LTPD/AQL N*AQL
0 44.890 .052
1 10.946 .355
2 6.509 .818
3 4.890 1.366
4 4.057 1.970
5 3.549 2.613
 Process control procedure
Concerned with monitoring quality while the product
or service is being produced
Objective of process control plans are to provide
timely information on whether currently produced
items are meeting design specification.
And to detect shifts in the process that signal that
future product may not meet specification
Process control with attribute measurements: Using
p chart
 Process control with attribute measurements: Using
p chart

Where p is the fraction defective, sp is the std

deviation, n is the sample size and z is the no of std
deviations for a specific confidence.Typically z=
3(99.7) % confidence or z= 2.58(99%) confidence are
used.
Example: An insurance company were sampled on a
daily basis as a check against the quality performance
of that department.To establish a tentative norm for
the dept, one sample of 100 units was collected each
day for 15 days with these result.
 Process control with attribute measurements:Using
p chart

sample Sample size No of forms with error

1 100 4
2 100 3
3 100 5
4 100 0
5 100 2
6 100 8
7 100 1
8 100 3
9 100 4
10 100 2
11 100 7
12 100 2
13 100 1
14 100 3
15 100 1
 A. develop a p chart using 95% confidence interval
(1.96 Sp )
Plot the 15 sample collected
What comments can you make about the process.
 Solution
P=46/15(100)=.307

Sp=P(1-P)/n= .307(1-.307)/100= .0003=.017

= P+z Sp =.031+1.96*.017=.064
UCL

LCL=P-z Sp =.031-1.96*.017=-.003 or zero

 Solution
B. The defectives are plotted below

C. Of the 15 samples 2 were out of the control

limits.Since the control limits were established as
95% or 1 out of 20, we would say that the process is
out of control. It needs to be examined to find the
cause of such wide spread variation.
Inventory Management
Inventory meaning
Independent demand VS Dependent demand
Types of inventory
Functions of inventory
Objectives of inventory
Requirements for effective inventory management.
Inventory model
Basic EOQ model
EPQ model
Quantity discount model
Re-order model
Single period model
Inventory
Independent Demand
a stock or store of goods

A Dependent Demand

B(4) C(2)

D(2) E(1) D(3)

F(2)

Independent demand is uncertain.

Dependent demand is certain.
Independent vs dependent

Independent demand finished goods, items that are

ready to be sold
E.g. a computer
Dependent demand components of finished
products
E.g. parts that make up the computer
Types of Inventories

Raw materials & purchased parts

Partiallycompleted goods called
work in progress
Finished-goods inventories
(manufacturing firms)
or merchandise
(retail stores)
Types of Inventories

Replacement parts,
tools, & supplies
Goods-in-transit to
warehouses or
customers
Functions of Inventory

To meet anticipated demand

To smooth production requirements
To decouple operations
To protect against stock-outs
Functions of Inventory (Contd)

To take advantage of order cycles

To help hedge against price increases
To permit operations
To take advantage of quantity discounts
Objective of Inventory Control

To achieve satisfactory levels of customer service

while keeping inventory costs within reasonable
bounds
Level of customer service
Costs of ordering and carrying inventory

Inventory turnover: is the ratio of average cost of goods

sold to average inventory investment.
Effective Inventory Management

A system to keep track of inventory

A reliable forecast of demand
Knowledge of lead times
Reasonable estimates of
Holding costs
Ordering costs
Shortage costs
A classification system
Inventory Counting Systems

Periodic System
Physical count of items made at periodic
intervals
Perpetual Inventory System
System that keeps track
of removals from inventory continuously, thus
monitoring current levels of each item
Inventory Counting Systems

Two-Bin System - Two containers of inventory;

reorder when the first is empty
Universal Bar Code - Bar code
printed on a label that has
information about the item
to which it is attached 0

21480 23208
Key Inventory Terms

Lead time: time interval between ordering and

receiving the order
Holding (carrying) costs: cost to carry an item in
inventory for a length of time, usually a year
Ordering costs: costs of ordering and receiving
inventory
Shortage costs: costs when demand exceeds supply
ABC Classification System

Classifying inventory according to some measure of importance

and allocating control efforts accordingly.
A - very important
B - mod. Important
High
C - least important A
Annual
$ value B
of items

Low C
Low High
Percentage of Items
Economic Order Quantity Models

Economic order quantity (EOQ) model

The order size that minimizes total annual cost
Economic production Quantity model
Quantity discount model
Assumptions of EOQ Model

Only one product is involved

Annual demand requirements known
Demand is even throughout the year
Lead time does not vary
Each order is received in a single delivery
There are no quantity discounts
 The Inventory Cycle

Q Usage Profile of Inventory Level Over

rate
Qua
ntity
on
hand
Reor
der
point
Receive PlaceReceivePlace
Receive Time
order order order orderorder
Lead time
Total Cost

Annual Annual
Total cost = carrying + ordering
cost cost
Q DS
TC = H +
2 Q
 Cost Minimization Goal

The Total-Cost Curve is U-Shaped

Q D
TC H S
Annual Cost

2 Q

Ordering Costs

Q(Ooptimal order quantity)

Deriving the EOQ

Using calculus, we take the derivative of the total cost

function and set the derivative (slope) equal to zero
and solve for Q.

2DS 2(Annual Demand)(Order or Setup Cost)

Q OPT = =
H Annual Holding Cost
Minimum Total Cost

The total cost curve reaches its minimum where the

carrying and ordering costs are equal.

Q DS
H =
2 Q
Example

A local distributor for a national tire company expects to sell

approximately 9600 tires of a certain size. Annual carrying
costs are $16 per tire and ordering costs are $75. The
distributor operates 288 days a year.
What is the EOQ?
How many times per year does the store reorder?
What is the length of an order cycle?
Solution
EOQ= 2DS/H = 22*9600*75/16 = 300 tires.
Number of orders per year D/EOQ = 9600/300 = 32
Length of order cycle = EOQ/ D = 300/9600 = 1/32
of a year, which is 1/32 *288= 9 days
Economic Production Quantity (EPQ)

Production done in batches or lots

Capacity to produce a part exceeds the parts usage or
demand rate
Assumptions of EPQ are similar to EOQ except
orders are received incrementally during production
Economic Run Size

2DS p
Q0
H p u
Derivation of EPQ
Problem:

A toy manufacturer uses 48000 rubber wheels per year for its popular
truck series. The firm makes its own wheels which it can produce at a rate
of 800 per day. The toy trucks are assembled uniformly over the entire
year. carrying cost is $1 per wheel a year. set up cost for production run of
wheels is $45. The firm operates 240 days per year. Determine each of the
following.

I. Optimum run size

II. Minimum total annual cost for carrying and setup

III. Cycle time for the optimal run size

IV. Run time.

 Solutions
D= 48000 wheel per year
S= $45
H= $1 per wheel per year
p= 800 wheels per day
u= 48000 wheels per 240 days or 200 wheels per day.
Q = 2DSP/H (p-u )= 2*48000*45 * 800/800-200 = 2400 wheels.

TC min = Carrying cost + set up cost = I max/2*H + DS/Q

I max= Q(p-u)/p = 2400(800-200)/800 = 1800 wheels.

Set up cost= 48000*45/2400 = 900

 TC min = Carrying cost + set up cost = I max/2*H + DS/Q = 1800/2+
900 = 900

Cycle time = Q/u = 2400/200 = 12 days

Run time = Q/p = 2400/800 = 3 days.

When to Reorder with EOQ Ordering

Reorder Point - When the quantity on hand of an item

drops to this amount, the item is reordered

Safety Stock - Stock that is held in excess of expected

demand due to variable demand rate and/or lead time.

Service Level - Probability that demand will not exceed

supply during lead time.
Determinants of the Reorder Point

The rate of demand

The lead time
Demand and/or lead time variability
Stock out risk (safety stock)
Safety Stock
Quantity

Maximum probable demand

during lead time

Expected demand
during lead time

ROP

Safety stock reduces risk of Safety stock

stockout during lead time
LT Time
Reorder Point

Service level
Risk of
Probability of a stockout
no stockout
Expected ROP Quantity
demand Safety
stock
0 z z-scale
When to reorder with EOQ
ordering
If demand and lead time are both constant, the reorder
point is simply:
ROP= d*LT
Where d= demand rate
LT= Lead time
When variability is present in demand or lead time, it
becomes necessary to carry additional inventory, ie
safety stock
ROP= Expected demand during lead time+ safety stock
Problem: when demand and LT are constant

John takes two a- day vitamins, which are delivered to his

home by a route man seven days after an order is called in. At
what point should John telephone his order in.
Solution:
Usage = 2 vitamin per day
Lead time= 7 days

ROP= Usage* Lead-time = 2 vitamin per day* 7 days = 14 vitamins.

Thus John should reorder when 14 vitamin tablets are left.
When demand and LT variability are
present

ROP= Expected demand during LT+ Z dLT

Where Z= no of std deviation and dLT= std deviation

of lead time demand
 Suppose that manager of a construction supply house
determined from historical records that demand for sand
during lead time average 50 tons. In addition. Suppose the
manager determined that demand during lead time could be
described by a normal distribution that has a mean of 50 tons
and standard deviation of 5 tons. Answer the questions,
assuming that the manager is willing to accept a stock out risk
of no more than 3%.
What value of z is appropriate?
How much safety stock should be held?
What ROP should be used?
 From appendix B table B using a service level of
1-.03= .97, we obtain a value of z= 1.88
Safety stock = dLT = 1.88*5=9.4 tons

ROP = Expected LT demand+ safety

stock=50+9.4=59.4 tons
Single Period Model

Model for ordering of perishables and other items

with limited useful lives
Shortage cost: generally the unrealized profits per
unit
CS = revenue-cost per unit
Excess cost: difference between purchase cost and
salvage value of items left over at the end of a period
Ce =cost per unit- salvage value
Single Period Model

Continuous stocking levels

Identifies optimal stocking levels
Optimal stocking level balances unit shortage and
excess cost
Discrete stocking levels
Service levels are discrete rather than continuous
Desired service level is equaled or exceeded
Optimal Stocking Level
Cs
Service level = Cs = Shortage cost per unit
Cs + Ce Ce = Excess cost per unit
Ce Cs

Service Level

Quantity

So
Balance point
 Demand varies uniformly between 300-500 liters per
week. Cindy pays 20 cents per liter for the cider and
charges 80 cents per liter for it. Unsold cider has no
salvage value and cannot be carried over into the next
week due to spoilage. Find the optimal stock level
and its stock out risk for that quantity.
Example

Ce = $0.20 per unit

Cs = $0.60 per unit
Service level = Cs/(Cs+Ce) = .6/(.6+.2)
Service
C level = .75

Cs
e
Service Level = 75%

Quantity

Stockout risk = 1.00 0.75 = 0.25

 Thus the optimal stocking level must satisfy demand
75% of the time. For the uniform distribution, this
will be at a point equal to the minimum demand plus
75 % of the difference between maximum and
minimum demands.

So = 300+ .75(500-300) =450 liters.

Problem:

A basket of fruits are delivered weekly to Jennys shop.

Demand varies uniformly between 400 kgs and 600 kgs per
week. Jenny pays 40 cent/kg and charges 90 cents/kg . Unsold
fruits has no salvage value and can not be carried over into the
next week due to spoilage. Find the optimal stocking level and
its stock out risk.
Solution: When demand is uniform

Cs = revenue per unit - cost per unit = $ .90- $. 40 = $. 50 per unit

Ce = cost per unit salvage value per unit = $ .40 - $0 = $.40
SL= Cs/Cs+ Ce = .50/.50+.20 = .71
Thus the optimum stocking level must satisfy demand 75 % of the time.
For the uniform distribution, this will be at a point equal to the minimum
demand plus 71% of the difference between maximum and minimum
demands.
S = 400+ .71(600-400) = 400+ .71*200 = 542 kgs.
Capacity decision:

Measuring capacity,
Economies of scale,
Focused facilities,
Globalization of operation
Capacity

The maximum rate of output for a process

Operation manager must provide capacity to meet
current and future demand
Capacity plans are made at two levels ie long and
short term capacity plan.
Long and short term capacity

Long term capacity plan deals with investment in new

facilities and equipments
These plans cover at least two years into the future.
Short term capacity plan focuses on workforce size ,
overtime budgets and inventories and other types of
decision.
This chapter deals with long term capacity plan.
Measures of capacity

No single capacity measure is applicable to all types

of situations.
A retailer measures capacity as annual sales dollars
generated per square foot
A theatre measures capacity as number of seats
A job shop measure capacity as number of machine
hours.
Measures of capacity

Capacity can be expresses in two ways

Output measures
Input measures
Output measures are high volume process
Nissans capacity is 450000/year
A restaurant capacity to handle 200 customers/hour.
Output measure is suitable when firm provides a
relatively small number of standardized product and
service.
Input measures

Are usual choice for low volume, flexible process

In photocopy shop capacity can be measured in
machine hours and or number of machines
Utilization

Capacity planning requires a knowledge of current capacity

and its utilization
Utilization refers the degree to which equipment, space or
labor is currently being used.
Utilization= Average output rate/Maximum capacity*100
Utilization rate indicates the need for adding extra capacity or
eliminating unneeded capacity.
Maximum capacity

Two definition of maximum capacity are

Peak capacity: The maximum output under ideal
condition a process or facility can achieve.

Effective capacity: The maximum output that a process

or firm can economically sustain under normal
condition.
Economies of scale

States that the average unit cost of good or service

can be reduced by increasing its output rate
Costs down when output increases.
Economies of scale for four reasons

i. Fixed costs are spread over more units

ii. Construction costs are reduced:
doubling size does not mean doubling the cost
iii. Costs of purchased materials are cut:
better bargaining position and opportunity to qty
discount
iv. Process advantages are found
high volumes speed up learning effect, reducing the
number of change
Diseconomies of scale

Average cost per unit increases as the facility's size

increases
Reasons are excessive size can bring
Complexities
Loss of focus
Inefficiencies
Too many layers of employees
Bureaucracy
Less agile
Capacity cushion

The amount of reserve capacity that a firm maintains

to handle sudden increase in demand or temporary
losses of production capacity.
Capacity cushion= 100% - utilization rate%
Two capacity strategies

i. Expansionist: involves large, infrequent jumps in

capacity

ii. Wait and see strategy: involves smaller and more

frequent jumps.
A systematic approach to capacity
decisions.
i. Estimate capacity requirements

ii. Identify gaps

iii. Develop alternative plans

iv. Evaluate each alternative by both qualitative and

quantitative ie change in cash for each alternative
Estimate capacity requirement

Foundation for estimating long term capacity is

Forecast of demand

Productivity

Competition and

Technological change
Identify Gaps

Any difference (positive or negative) between

projected demand and current capacity
Example:
Develop alternatives

To cope with projected gaps

One alternative is base case: doing nothing and losing
orders from any demand that exceeds current capacity.
Other alternatives: are various timing and sizing options
for adding new capacity.
Evaluate the alternatives

Evaluate each alternative by both

Qualitative: how each alternative fits overall capacity

strategies.

Quantitative i.e. change in cash flow for each alternative

Tools for capacity planning

Waiting line models

Simulation
Decision trees.
Waiting Lines

Uses probability distributions to provide estimates of

average customer delay time,
average length of waiting lines and
utilization of work center.
Manager can use this information to
choose the most cost effective capacity,
balancing customer service and
cost of adding capacity.
Simulation

Act of reproducing the behavior of a system using a

model that describe the process of the system

Identify the process bottlenecks and appropriate

capacity cushions, even for complex process with
random demand patterns with predictable surge in
demand during a typical day.
Descion tree

Valuable for evaluating different capacity expansion

alternatives when demand is uncertain and sequential
decision is involved.
Supply Chain Management

Meaning
Objectives
Supply Chain Design Strategy
Measuring supply chain performance
Business Logistics
Components of business logistics
Make or Buy decision
Supply Chain Mgt.

A supply chain is a system through which

organizations acquire raw material, produce products,
and deliver the products and services to their
customers.
Supply chain management:

is a philosophy that describes how organizations

should manage their various supply chains to
achieve strategic advantage. Supply chain
activities include
the management of different types of inventory,
inbound and outbound transportation of goods,
facilities,
purchasing
customer service,
order processing and
relationship building with supplier and customers.
 Typical Supply Chains

Production Distribution
Purchasing Receiving Storage Operations Storage
 Typical Supply Chain for a
Manufacturer

Supplier
}
SupplierStorage Mfg. Storage Dist. Retailer
Supplier
Customer
 Typical Supply Chain for a Service

Supplier

}
Supplier
Storage Service Customer
Objective of SCM

is to synchronize the requirements of the final

customer with the flow of materials and information
along the supply chain in order to reach a balance
between high customer satisfaction/service and cost.
Supply chain design strategy

Hau Lee characterizes 4 types of SC strategies

i. Efficient SCS

ii. Risk hedging SCS

iii. Responsive SCS ERRA

iv. Agile SCS
Efficient SC

These are SC that utilize strategies aimed at creating

the highest cost efficiency. To achieve
non value added activities should be eliminated

Scale economies should be pursued

Optimization techniques should be deployed

Most efficient, accurate, and cost effective transmission of info

across supply chain

Grocery, food, oil, gas use the strategy

Risk Hedging SC
These are SC that utilize strategies aimed at pooling and
sharing resources in a SC so that risks in supply disruption
can be shared
A single entity in SC can be vulnerable to supply disruption
but If there is more than one source then risk of disruptions
are reduced
Increasing safety stock and safety stock with other companies
can reduce that supply disruption
Common in retailing business
Responsive SC

Strategies aimed at being responsive and flexible to

the changing and diverse needs of the customers.
To be responsive, companies use
build to-order and
mass customization

Fashion apparel, computers, popular music use the

strategy
Agile SC

Strategies aimed at being responsive and flexible to

customer needs,
while the risk of supply shortages or disruptions are
hedged by pooling inventory and other capacity
resources
These are the combination of hedge and responsive
supply chain.
Telecom, high end computers, semiconductor use
agile sc strategy.
 Measuring SC performance/Efficiency

Two common measures to evaluate SC efficiency are

Inventory turn over
Week-of-supply
Costs of goods sold (CoGS)
Inventory Turnover =
Average aggregate inventory value (AAIV)
AAIV= is the total value of all items held in inventory :includes raw
material, WIP, Finished goods, distribution inventory considered
owned by the company
Weeks of supply

This is a measure of how many weeks worth of inventory is in

the system at a particular point in time.

Weeks of supply = (AAIV/CoGS)*52 weeks

CoGS is the annual cost for a company to produce the goods or

services provided to customers

It is sometimes referred to as the cost of revenue

It does not include selling and administrative expenses

Inventory turnover calculation
Dell computer reported the following information in its
1999 annual report

Net Revenue 912150

Cost of revenue 706850
Cost of production material 321150
WIP and Finished goods on hand 1950
Production materials-days of supply 6 days

Inventory Turnover =706850/321150+1950=51.78 turn per

year
Weeks of supply= (11750+1950/706850)*52=1 week
Bullwhip effect

The effect indicates a lack of synchronization among

supply chain member
The variability in demand is magnified as we move
from the customer to the producer in supply chain
 Bullwhip Effect

Demand

Initial Final Custome

Supplier

Inventory oscillations become progressively

larger looking backward through the supply chain
Cross-docking

Goods arriving at a warehouse from a supplier are

unloaded from the suppliers truck and loaded onto
outbound trucks
Avoids warehouse storage
CPFR

Collaborative Planning, Forecasting, and

Replenishment
Focuses on information sharing among trading
partners
Forecasts can be frozen and then converted into a
shipping plan
Eliminates typical order processing
Business Logistics

Refers to the movement of materials and information

within a facility and to incoming and outgoing
shipments of goods and materials in a supply chain
is the process of planning, implementing, and controlling
the efficient, cost effective flow and storage of goods,
services and related information from point of origin to
point of consumption for the purpose of conforming to
customer requirements.
Business Logistics

is a mgt functions that support the complete cycle of

material flow:
from purchase and internal control of production
materials
to the planning and control of WIP

to purchasing, shipping, distribution of the finished

goods.
 Materials Movement
Work center Work
Work center
center
Work Storage
center
Storage
RECEIVING

Storage

Shipping
Business Logistics

Three components:

i. the supplier network,

ii. the manufacturing unit and

iii. the customer network.

Supplier network:

The supplier network is made up of the group of suppliers,

both internal and external, that provide goods and services
to an organization.
Management focus is on the inbound flow of goods,
services, and information to the manufacturing unit.
Key issues addressed with in this component include:
How much material should be ordered and when?
From whom should the material be ordered?
Which criteria are appropriate for evaluating suppliers?
What transport mode and where should material be stored?
Manufacturing unit:

The manufacturing unit is the set of processing steps

used to transform incoming raw material and
components into finished products.
Management focus is on the flow of goods, services
and information through the internal process. Topic
such as
production planning and control,
inventory management,
aggregate planning,
capacity planning and just in time are related with this component.
Customer network:

It is made up of the group of distribution centers,

wholesalers, retailers, and ultimate customers that
receive finished products from the organization.
Management focus is on the outbound flow of goods,
services and information. This also includes
demand forecasts,
finished goods inventories,
product packaging,
transportation and customer service.
 Various elements of a company
logistics
The precisefunction:
list of components may differ from
company to company, but a general list would
include
transportation,
facilities,
procurements and purchasing,
packaging,
warehousing and storage,
inventory planning and control,
demand forecasting,
customer service,
order processing and
salvage and scrap disposal.
Purchasing:

Is the acquisition of needed goods and services at

optimum cost from competent, reliable sources.
Management should consider followings while taking
Purchasing decision.
Make or Buy decision:

Is deciding whether the company will make some or

all of a product or buy it from suppliers. It is more
economically attractive for the company to make the
item when TC make<TC buy. At the break-even
quantity (B), whether the company makes the item or
buys it from a vendor does not matter. The break even
quantity is easy to express

Make or Buy decision:

TC buy = TC make
C D = FC + (V*D) Here C= unit landed cost, D
= demand, FC= Fixed cost,
VC =Variable cost
C* B= FC +( V* B) Here B= Break even quantity
C*B V*B =FC
B( C-V)=FC
B = FC/C-V
Supplier evaluation:

One of the most important is the reliability of the

supplier in providing on time delivery. Supplier
evaluation criteria are as follows
Quality of product and services
Variability of product and services
Price and terms available
Responsiveness
Reliability
Flexibility
Technical sophistication
Management and worker skill, training and attitude
 Transportation:

Transportation element typically accounts for one-

half- to two thirds of all logistics costs. There are three
legal forms of transportation namely private, common
and contract carrier.
Five basic modes of transportation:
rail,
truck,
air,
water and
pipeline.
Transportation:

Rail shipment usually are low cost but rail time

schedule offer little flexibility.
Truck shipments offer highly flexible schedules,
door-to-door delivery.
Air shipment is expensive but offer speedy delivery.
Air is best suited for the movement high value light
weight items, emergency shipment and perishable
goods.
Transportation:

Water transport is usually the lowest cost per ton mile

but slow and competes primarily with rail roads for
basic bulk commodities and raw materials such as
iron, ore, grains, cement, coal and petroleum product.

The pipeline mode of transport provides effective

point- to point shipment of fluids, and some non-
fluids. Most pipelines today carry petroleum.
Ware housing:

Because of uncertainties in the procurement process

and production companies need ware housing
capability. Some companies own and operate their
ware houses; others use the service of a public ware
house. Warehouse operation includes
Receive and inspect goods
Sort and dispatch goods to storage
Hold goods
Dispatch the shipment
Prepare inventory record
Operations Strategy

Too much inventory

Tends to hide problems

Easier to live with problems than to eliminate them

Costly to maintain

Wise strategy
Reduce lot sizes

Reduce safety stock

Location analysis

1. Factors affecting location decision,

2. locating a single facility,

3. locating within a network of facilities,

4. globalization of operations
Factors

Proximity to customers
Business Climate
Total cost
Infrastructure
Quality of labor
Suppliers
Free trade zones
Political risk
Govt barriers
Environmental regulations
Plant Location Methods

i. Factor rating
ii. Transportation method of linear programming
iii. Centroid methods
Factor rating

Most widely used method

Because they provide a mechanism to combine
diverse factors in an easy to understand factors
By way of example, a refinery asigned the following
range of point values to major factors affecting a set
of possible sites
Factor rating
Factors Range
Fuels in region 0-330
Power availability & reliability 0-200
Labor climate 0-100
Living conditions 0-100
Transportation 0-50
Water supply 0-10
Climate 0-50
Supplies 0-60
Tax policies 0-20
Factor Rating Methods

Each site was then rated against each factor

And a point value was selected from its assigned
range
The sum of assigned points for each site were then
compared
The site with most points was selected.
Transportation method of LP

Is a special linear programming

Two common objectives of such problems are either
Minimize the cost of shipping n units to m
destinations
Or to maximize the profits of shipping n units to m
destinations
Centroid method

Is a method for locating single facilities that considers

The existing facilities
The distance between them
The volume of goods to be shipped
The technique is often used to locate intermediate and
distribution ware house
Another major application is location of
communication towers radio, TV and cell phones
Global Locations

Reasons for globalization

Benefits
Disadvantages
Risks
Global operations issues
Globalization

Facilitating Factors
Trade agreements
Technology
Benefits
Markets
Cost savings
Legal and regulatory
Financial
Globalization
Disadvantages
Transportation costs
Security
Unskilled labor
Import restrictions
Criticisms
Risks
Political
Terrorism
Legal
Cultural