Polytechnic University of the Philippines

Quezon City Branch

Written Report
MANA 4023 Production and Operations Management

Group 2

Submitted by:
Adamat, Mayprilyn Graida, Mikhaella
Balala, Shairine Llave, John Paul
Campo, Mary Grace Pogio, Maricel
Casenas, Ronald Allen Ruz, Jirah Anne
Dumandan, John Leo Tulay, Jerickson

Mr. PhilipSoberano
Professor
 CHAPTER FIVE: WORK DESIGN AND HUMAN RESOURCE MANAGEMENT

HUMAN RESOURCE MANAGEMENT AND THE OPERATIONS FUNCTION

The Changing Nature of Work

In the early 1990s Frederick Winslow Taylor proposed that a factory should be managed

scientifically. He advocated work methods design, work standards, worker selection and training,

and piecework incentives. Taylor separated the planning function from execution, because many

foremen and workers lacked the skills and education needed for planning their work.

Taylor System philosophy assumes that:

1. People are part of work processes.

2. Processes must be controlled externally to be productive.

3. Managers must carefully control what people do.

Recently, managers have begun to realize that this philosophy no longer works very well. The

new thinking is that:

1. People design and improve processes.

2. Processes must be controlled by the workers who run them.

3. Managers must obtain the commitment of people to design, control and improve

processes so that they can remain productive.

This view results in higher quality, lower costs, improved productivity and higher job

satisfaction. Employees must train and require handle responsibilities to be able to achieve the

goal which is to enhancing customer value and satisfaction.

MANAGING HIGH-PERFORMANCE WORK SYSTEMS

Leadership

It is the right to exercise authority and the ability to achieve results from people and systems

under ones authority.

Leaders:

Motivate and encourage employees, build consensus among diverse groups or

individuals, and force decisions to the lowest possible level.

Try to provide a motivating climate for employees and develop enthusiasm with rhetoric,

but actions often speak louder than words.

Set high expectations.

Provide an environment with few bureaucratic rules and procedures, in which

subordinates can experiment and take risks, employees talk openly about problems,

teamwork is encouraged and supported, and employees understand their responsibilities

for quality and productivity improvement.

Empowerment

It means giving employees authority to make decisions, gain greater control over their work, and

thus more easily satisfy customers.

The need to empower the entire workforce in order for quality efforts to succeed has long been

recognized, even though such empowerment has only recently been put into practice. Juran

wrote that ideally, quality control should be delegated to the workforce to the maximum extent

possible. Five of Demings 14 points relate directly to the notion of empowerment:

#6: Institute training.

#7: Teach and institute leadership

#8: Drive out fear. Create trust. Create a climate for innovation.

#10: Eliminate exhortations for the work force.

#13: Encourage education and self-improvement for everyone.

DESIGNING HIGH PERFORMANCE WORK SYSTEMS

Job-is a set of tasks an individual performs.

Job Design- involves determining the specific job tasks and responsibilities, the work

environment and the methods by which the tasks will be carried out to meet the goals of

production.

Socio-technical Approach to Job Design (1950s)-The socio-technical approach recognizes the

interaction of technical and human need in effective job design, combining the needs of the

people with the organization's need for technical efficiency.

Motivation and Work Design

Motivation- can be defined as individuals response to a felt need.

Content Models- describe how and why people are motivated to work. Two of the best known

are the hierarchy-of-needs theory developed by Abraham Maslow and the two-factor theory

develop by Frederick Herzberg.

Process Models- explain the dynamic process whereby individuals make choices in an effort to

obtain desired rewards. Included in this category are the expectancy concepts of Kurt Lewin and

E.C. Tolman, B. F. Skinners reinforcement model, Victor Vrooms valence/expectancy model,

and the performance/ satisfaction approach of Porter and Lawler.

Moderators:

1. Knowledge

2. Growth need strength

3. Context satisfactions
The Job Characteristics Model, developed by organizational psychologists J. Richard

Hackman and Greg Oldham, is a normative approach to job enrichment. It specifies five core

job dimensions that will lead to critical psychological states in the individual employee. The

model attempts to explain the motivational properties of job design by tying together the

technical and human components of a job. The model contains four major parts:

1. Core Job Characteristics

2. Critical psychological states

3. Moderating variables

4. Outcomes

Three Psychological states that drives the model:

1. Experienced meaningfulness is the psychological need of workers to feel that their

work is a significant contribution to the organization and society.

2. Experienced responsibility indicates the need of workers to be accountable for the

quality and quantity of their work.

3. Knowledge of results implies that all workers feel a need to know how their work is

evaluated and what the results of the evaluation are.

Five Core Job Characteristics:

1. Task Significance- the degree to which the job gives the participant the feeling that it has

a substantial impact on the organization, or the world.

 2. Task Identity- the degree to which theworker can perceive the task as a whole,

identifiable piece of work from start to finish.

3. Skill Variety-the degree to which the job requires the worker to have and to use a variety

of skills and talents.

4. Autonomy- the degree to which the task permits freedom, independence, and personal

control to be exercised over the work.

5. Feedback from the Job- the degree to which clear, timely information about the

effectiveness of individual performance is available.

Job Enlargement and Enrichment

Job enlargement- is the reverse of specialization. It is horizontal expansion of the job to give the

worker more variety- although not more responsibility.

Job enrichment- is vertical expansion of job duties to give the worker more responsibility.

Employee Involvement

The most specific way to encourage individual participation in operations management activities

is to institute a suggestion system.Suggestion system can inspire employees to think about ways

to save costs, increase quality, or improve other elements of work such as safety while they are

working.
TEAMS - a small number of people with complementary skills who are committed to a common

purpose, set performance goals, and approach for which they hold themselves mutually

accountable.

THE CENTRAL ROLE OF TEAMS, AND THE NEED FOR SUCH TEAM SKILLS

- Cooperation

- Interpersonal communications

- Cross-training

- Group decision-making
MOST COMMON TYPES OF TEAMS

1. Quality Circles- which meet regularly to address workplace problems involving quality

and productivity.

2. Problem-solving teams- which are formed to solve a specific problem after which they

disband

3. Management teams- which consist mainly of managers from various functions such as

sales and production that coordinate work among teams.

4. Work teams- which perform entire jobs, rather than specialized, assembly-line work.

When work teams are empowered, they are called self-managed teams.

5. Virtual teams- the members of which communicate by computer, take turns as leaders,

and join and leave the team as necessary.

TWO TYPES OF TEAM APPROACHHES

Quality (Control) Circles

- Was coined in Japan in the early 1960s and brought to the United States in the early

1970s

- These small groups of employees from the same work area meet regularly and voluntary

to identify, solve, implement solutions to work-related problems.

- The leader moderates discussion and promotes consensus while the circle members make

their own decisions.

- Quality Circles grew out of training the Japanese received in the 1950s from W.Edwards

Deming and Joseph Juran. Essentially the Japanese took American concepts of quality
 control and changed the organizational implementation according to the Japanese

philosophy of relying on production workers for much of the necessary planning and

creativity in production.

Self-Managed teams (self-directed work-team concept)

- For employees of SMTs, the focus on quality and improvement shifts from passive,

management-initiated one to a highly active, independent one.

- The SMT has been defined as highly trained group of employees. From 6 to 18, on

average, fully responsible for turning out a well-defined segment of finished work. The

segment could be a final product.

- The SMT concept was developed in Britain and Sweden in the 1950s.

Among the features of SMTs are that they

- Share various management and leadership functions.

- Plan, control, and improve their own work processes.

- Set their own goals and inspect their own work.

- Often create their own schedules and review their performance as a group.

- Often prepare their own budgets and coordinate their work with other departments.

- Usually order their materials, keep inventories, and deal with suppliers.

- Often are responsible for acquiring any new training they might need.

- Often hire their own replacements or assume responsibility for disciplining their own

members.

- Take responsibility for the quality of their products and services.

RECOGNITION AND REWARDS

REWARDS - can be monetary or non- monetary formal or informal, individual or group.

Intrinsic and Extrinsic rewards are the key to sustained individual efforts.

INTRINSIC REWARDS- are those supplied by the work itself.

EXTRINSIC REWARDS- a well- designed pay, benefit, and recognition system.

MONEY- usually the most effective extrinsic reward, but it can have an intrinsic effect, too,

since wages are important determinant of individuals psychological perception of their work

WAGE INCENTIVES- have been found to improve productivity without great capital

investment, to reduce costs, to increase morale, and to improve supervisory effectiveness.

GAINSHARING - a popular alternative to traditional piecework incentives, whereby both

employees and the company share in financial gains resulting from improved productivity and

profitability.

SOME KEY PRACTICES FOR EMPLOYEE RECOGNITION AND REWARDS

INCLUDE

1. Giving both individual and team awards

2. Involving everyone

3. Tying rewards to quality based on measurable objectives

4. Allowing peers and customers to nominate and recognize superior performance

5. Publicizing extensively

6. Making recognition fun

TRAINING AND EDUCATION

Training and Education have become an important responsibility to companies that support

employees empowerment, which entails acquisition of new knowledge and skills.

Training and education programs might include jo-enrichment skills and job rotation that

enhance employees career opportunities.

STRATEGIC ISSUES IN OPERATIONS

PRODUCT DECISIONS AND BUSINESS STRATEGY

The decision to develop new product is an important strategic decision that can make or

break a firm in a highly competitive market

P/OM Issues in Product Strategy

Three types of product

- Custom Products

- Option-Oriented Products

- Standard Products

PRODUCT-DEVELOPMENT PROCESS

When W.Edwards Deming lectured to Japanese Managers, he contrasted the old way of

product development- (1) design it, (2) make it, and (3)try to sell it- with a new way

1. Design the product(with appropriate test)

 2. Make it, and test it in the production line and in the laboratory

3. Put it on the market

4. Test it in service trough market research. Find out what the user thinks of it, and why the

nonuser has not bought it

5. Redesign the product in light of customer reactions to quality and price.

PRODUCT-DEVELOPMENT PROCESS, consisting of idea generation, concept

development, product/process development, full-scale production, product introduction and

market evaluation

IDEA GENERATION

Ideas for new products can arise from a variety of sources internal and external to the firm.

Such research begins with listening to the VOICE OF THE CUSTOMER- what customers say

they want.

A Japanese professor, Noriaki Kano, identifies the three classes of customer needs or wants

- Dissatisfiers- features that are expected in a product or service and therefore produce

dissatisfaction if they are absent.

- Satisfiers- features that customers specifically request for full satisfaction.

- Exciters/Delighters- innovative features that customers would not expect, and might

even know exist, but that they like.

COPNCEPT DEVELOPMENT

New ideas must be studied for feasibility: that is done in the concept-development phase.

Companies perform initial screenings and economic analyses to determine the market potential
and financial impacts of new ideas and eliminate ones that do not appear to have a high potential

for success, thus avoiding excessive development costs. Example: Using a Scoring Model for

New-Product Justification

SCORING MODELS provide a rough, quantitative measurement of product potential. The

purpose of economic analysis is to determine more specific quantitative measures of profitability

and return on investments as basis for deciding whether or not to commit further resources

toward development of an idea.

PRODUCT/PROCESS DEVELOPMENT

PRODUCT DESIGN

For manufactured Goods, the design process begins by determining specifications for all

materials, components, and parts. Specifications consist of nominal (or target) values or

tolerances

NOMINAL SPECIFICATIONS (product parameters), determine the functional ability

and performances characteristics of the product

TOLERANCES specify the precision required to achieve the desired performances

TESTING AND REFINEMENT

Product development includes prototype testing, in which model (real or simulated) is

constructed to test the products physical properties or use under actual operating

conditions. Such testing might include performance tests, stress tests, environmental tests,

ware-out tests and other reliability tests.

DESIGN FOR MANUFACTURE AND ASSEMBLY (DFM)

Design for Manufacture and Assembly (DFM) ensures that product design can be

efficiently executed on the production floor. Even product designs that use simple components

sometimes result in a complex or difficult assembly operations, and inexpensive product designs

sometimes results in products that are difficult or expensive to service or support. DFM is meant

to prevent such complications.

Computer-Aided Design (CAD)

- Facilitates DFM by enabling a designer to interact with the computer in the design

process and to eliminate time-consuming activities such as drawing blueprints and

construction prototypes.

Product Simplification

Product simplification is an important aspect of DFM. Simple designs enable

manufacturers to reduce assembly lead times and thus improve productivity, quality, flexibility,

and customer response. This encourages the use of standard parts and components that are

widely available and are less expensive because vendors can produce them on a mass basis.

One method of product simplification is modular design, which allows manufactured

parts and services to be combined in a large number of ways. Modular design enables

manufacturers to accommodate varying consumer preferences and still take advantage of the low

costs of mass production.

TEAMWORK IN PRODUCT DESIGN AND DEVELOPMENT

All departments play crucial roles in the design process. Whereas the designers objective

is to meet functional requirements, the manufacturing engineers objective is to produce the

designed product efficiently.

The cooperative approach to product development is called concurrent engineering or

simultaneous engineering. Basically, it entails the continuing product-development involvement

and responsibility of all major functions that contribute to getting a product to market, from

ideation through sales.

DESIGNING SERVICES

Researchers have suggested that services have three basic components: (1) physical

facilities, processes, and procedures; (2) employees behaviour, and (3) employees

professional judgment. Thus, designing a service essentially involves determining an effective

balance of those components.

Service Quality Standards

Many service standards are much more difficult to define and measure

than manufacturing specifications. They require extensive research into customer

needs and attitudes about timeliness, consistency, accuracy, and other service

attributes.

Service-Process Design
 A core service product is a processthat is, a method of doing things.

Service-process designers must focus on doing things right the first time,

minimizing process complexities, and making the process immune to inadvertent

human errors, particularly when employees are interacting with customers.

Error-Proofing Services

It simply means designing procedures to prevent errors from occurring.

Service error-proofing must account for the customers activities as well as those

of the producer, and fail-safe methods must be set-up for interactions conducted

directly or by phone, mail, or other technologies such as ATM. Error-proofing

procedures can be classified by the type of error they are designed to prevent:

server errors or customer errors.

Server Errors: result from the task, treatment, or tangibles of the service.

This includes doing work incorrectly, work not requested, work in the wrong

order, or too slowly.

Tangible Errors are those in the physical elements of the service,

such as unclean facilities, dirty uniforms, poor temperature control,

and document errors.

Customer Errors: occur during preparation, the service encounter, or resolution.

Customer errors in preparationinclude the failure to bring necessary materials to

the encounter, understand their role in the service transaction, and engage the

correct service. Customer errors during an encounter can be due to inattention,

 misunderstanding, or simply a memory lapse. Customers may also make errors at

the resolution stage of a service encounter. Errors include failure to signal service

failures, learn from experience, adjust expectations, and execute appropriate post-

encounter actions.

Automation in Service Design

Automation is clearly changing the way services are offered. In most

service industries, this means that fewer jobs are available and new skills are

required. Examples of the role of automation in different types of services follow.

Food-Service Industry. Using system that is designed to save time and

improve accuracy by standardizing the order-taking procedure and

eliminating handwritten orders.

Retail Sales. Grocery stores have been using bar-code scanners for many

years at checkout counters, and most major retail stores have adopted this

technology.

Financial Services. Today, automatic teller machines (ATMs) provide

improved customer service and reduce the costs associated with

conventional teller transactions.

Public and Government Services. The postal service also developed a

self-service, computerized change-of-address station. With a keyboard and

touch screen, users enter their change-of-address information and the

names and addresses of business that need to receive it

Health-Care Services. Healthcare has quickly adopted automation.

Automation can be found in nearly every type of medical technology.

 Computerized expert systems act as advisors to physicians in making

diagnoses and prescribing treatments.

Education Services. Computer-assisted instruction (CAI) is changing the

way many students learn; they can learn at their own pace, and the teacher

is freed of many time-consuming and repetitive tasks.

Hotel and Motel Services. The operation function of hotels and motels

uses electronic reservation systems, message and wake-up systems, and

key and lock systems. Such technologies improve the quality and

timeliness of service and reduce operating costs.

Customer-Driven Design

The voice of the customer should drive the design process. Extensive research and

analysis customer needs and expectations is essential

Ames Rubber Company

Product-development personnel at Ames maintain close communication with the

customer.

Ames Rubber Company, a producer of rubber rollers for office machines and a Malcolm

Baldrige National Quality Award Winner, uses a four step approach to product

development. Typically, a new product is initiated through a series of meetings with the

customer and Sales/Marketing or Technical Services Group.

Quality Function Deployment

 QFD represents a departure from the traditional product-planning process in which

product concepts are originated by design teams or R&D groups and then are tested and refined,

produced, and marketed.

Design for Quality and Reliability

During the 1980s the quality revolution awakened companies to the importance of

designing quality into products and services rather than simply trying to weed out defects or

recover from service error. Now the complexity of modern products has heightened the

importance of quality in design.

Robust Design

A products performance is affected by manufacturing imperfections, environmental

factors, and human variation in operating the product.

Techniques of Quality Engineering

The term quality engineering refers to a process of designing quality into a product based

on a prediction of potential quality problems prior to production.

Value Engineering/Value Analysis.

The object of value engineering and value analysis is to analyze the function of every

component of a product, system or service to determine how that function can be accomplished

most economically without degrading the quality of the product or service.

Design Reviews
 To ensure that all important design objectives are taken into account during the design

process, many companies have instituted formal design reviews.

Reliability is defined as the probability that a product, piece of equipment or system

performs its intended function for a stated period of time under specified operating

conditions.

Reliability engineering consists of a variety of techniques to build reliability into

products and test their performance

Reliability management - is the total process of establishing achieving and maintaining

reliability objectives.

System reliability - a system or a related group of components that work together to

accomplish a task. The reliability of a system is the probability that the system will

perform satisfactorily over a specified period of time.

Design for Disassembly

Environmental concerns are placing unprecedented government and consumer pressures

on product and process design.

Capacity is what a manufacturing or service system can produce in a particular time period.

Strategic capacity planning is the process of determining the types and amounts of resources

and production capacity necessary to implement an organizations strategic plan.

Important issues to be considered include:

1. How is the market for existing products changing, and how will current and future

technological innovations affect operations?

2. Can existing facilities accommodate new products and adapt to changing demand for existing

products?

3. Should new facilities be built? Should existing ones be modified, expanded, or closed? What

are the financial implications of such decisions?

4. How large should facilities be, and where should they be located? Should there be a few large

facilities near suppliers, or numerous smaller facilities near customers?

5. When should facility changes take place?

6. How much equipment and labor will be required for future operations?

Forecasting is the answer of these questions.

Forecasting in P/OM

Forecasting is the process of making predictions of the future based on past and present data and

most commonly by analysis of trends.

Forecasts of future demand are needed at all levels of organizational decision making. Operation

managers need estimates of the demand for goods and services for time horizons ranging from

one day to several years.

Long-range sales forecast are necessary to plan for the expansion of production and distribution

facilities and to determine future needs for equipment and labor.

Intermediate-range sales forecasts over a 3-12 months period are needed to plan workforce

levels, allocate budgets among product divisions, and establish purchasing policies.

Short-range sales forecasts are used by operations managers to plan production schedules and

assign workers to jobs, to determine short term capacity requirements, and to aid shipping

departments in planning transportation needs and establishing delivery schedules.

Classification of Forecasting Techniques

Statistical forecasting is based on the assumption that the future will be an extrapolation of the

past. Its most common methods, called time-series models, are trend projection, trend projection

adjusted for seasonal influences, and smoothing methods.

Judgmental forecasting happens when no historical data are available. But even when historical

data are available and appropriate, they cannot be the sole basis for prediction.

Techniques commonly used in judgmental forecasts:

Expert opinion consists of gathering judgments and opinions of key personnel based on their

experience and knowledge of the situation.

Market surveys use questionnaires, telephone contacts, or personal interviews as a means of

gathering data.

Delphi method several experts are questioned individually about their perceptions of future

events.

Strategic Issues in Capacity Planning

Capacity planning is a crucial element of the operations strategy because it has major cost

implications. The capacity decision must be made in the face of considerable uncertainty about

future product demand.

Life-cycle curve is a graph of sales volume versus time for a typical new product.

Capacity measurements must be translated into facility, equipment, and labor plans. Facility

needs can be met by expanding or contracting existing facilities, constructing new facilities, or

closing old ones. Equipment needs might be met by purchasing additional machines or by
replacing old machines with newer and faster technology. Labor needs might be met by hiring

new workers or retraining present employees.

CAPACITY DEFINITION AND MEASUREMENT

Capacity is defined and measured in a variety of ways. Two useful definitions are

theoretical capacity and demonstrated capacity.

THEORETICAL CAPACITY - The maximum output capability possible, allowing no

adjustments for preventive maintenance, unplanned downtime, shutdowns, and so on.

DEMONSTRATED CAPACITY - The proven capacity calculated from actual output

performance data. Demonstrated capacity is generally less than theoretical capacity when

production losses due to scrap, machine breakdowns, rework, sick time, and so on, are taken into

account.

Example:

Suppose a small machine shop that is designed to operate one shift per day five days per week

can produce 500 unites per shift with its current equipment, product mix, and workforce. The

theoretical capacity of the shop is

(500 units/shift) (1shift/day) (5 days/week) = 2,500 units/week.

Setup time is an important factor in demonstrated capacity.

SHORT SETUP TIMES

Clearly increase capacity. In addition, the increase flexibility by allowing rapid product

changeovers.

LONG SETUP TIMES

The reason for some manufacturers long production runs, which create excess inventory

and increase the time for product delivery.

With short production runs, both product delivery time and inventory are reduced. Fast setup

times are necessary if short production runs are to be feasible.

SINGLE-MINUTE EXCHANGE OF DIE (SMED) A method developed by Shigeo Shingo

has often reduced setup times from hours to minutes.

Many companies worldwide have adopted this technique and achieved substantial improvements

in productivity.

What is Capacity? Capacity is the ability to deliver in a defined time

Output measures are usual for high-volume, standardized processes, e.g.:

Automotive production line: number of cars per week

Hotel room service: number of guests served per hour

Call centre: customer calls per hour

Input measures are usual for low-volume, flexible processes and for many service operations,

e.g.

Hospital: beds available

Law firm: hours

Utilization is also a useful capacity measure, it is defined as:

average output rate/maximum capacity x 100%

Capacity-planning strategies involve:

Goals

The first step for a strategic approach to capacity planning is to specify the objectives your

strategy has to accomplish. You can then examine how capacity has to evolve so you can reach

your goals. For example, you may want to increase capacity to generate cost savings from higher

volume and use the lower costs to increase market share by 15 percent. On the other hand, your

goal may be to maintain profitability of 12 percent with lower capacity in the face of increased

competition and reduced demand. Your strategic goals influence your capacity planning.

Forecasting

Once you have set goals, you have to evaluate the business environment. Forecast what

demand, pricing, competition and costs will look like so you can fit your strategic approach to

the marketplace. Start by asking people close to the market, such as your sales employees, your

customers and your suppliers, how they think the market will evolve. Check what they think by

extrapolating from historical data. Finally, identify changes in the marketplace that affect the
historical data and add those influences. The forecasts let you adapt your strategy to ensure you

get the results you want.

Constraints

Execution of your strategy to achieve your goals is subject to constraints you have to

address. You may be able to increase capacity to a certain level but then need more machines.

You can add staff to increase your service offering, but eventually you'll need a bigger office.

For products, even if you increase capacity, your suppliers may not be able to deliver enough

material. For your strategy to be successful, you have to identify such constraints in your

business and supply chain.

Alternatives

Where there are constraints, there are alternatives. If the production limits of a piece of

equipment are preventing you from increasing capacity, you may be able to have some of the

parts manufactured by a sub-supplier. If you don't have enough office space, your employees can

work from home some of the time. Along with constraints, you have to identify the alternatives

that will let you implement your strategy and achieve your objectives.

Evaluation

An evaluation of your forecasts, constraints and alternatives allows you to finalize your

strategic approach and implement the most-effective capacity planning strategy for your

circumstances. Your strategy uses capacity planning to advance your company from the position

it would have according to your forecasts to a preferred position with improved performance

according to your goals. For example, if you goal includes cutting costs, you choose the lowest-
cost alternative to avoid relevant constraints. You plan for the capacity required to achieve your

objectives and execute the corresponding strategy.

Distribution-System Design:

Warehousing plays a crucial role in total distribution design. Consider for example, a large

national grocery chain that manufacturers many product under its own name, maintains regional

distribution centers, and owns hundreds of retail stores.

Supposed this firm does not own any warehouses, and that shipments of finished goods must be

made directly from its plans to its retail stores. If the factory is located far from its suppliers of

raw materials, premiums must be paid for transporting the materials to the plant (inbound

transportation costs).

Inbound transportation costs- from factory to the plant.

On the other hand, if the plant is located far from the clusters of retail stores, transportation costs

incurred in shipping from the plant to the retail store are higher (outbound transportation costs).

Outbound transportation costs- from plant to retail stores.

However the use of warehouses placed closed to the markets could provide quick, efficient

delivery to retail stores, while allowing factories to b near suppliers.

Warehouses and distribution centers play an important intermediary role between plants and

retail stores. Rather that shipping small quantities of supplies from various distributors, a

company use warehouse to consolidated orders.

Consolidate- to bring together (separate parts) into a single or unified whole; unite; combine.
Without Consolidation

With consolidation
Cost and service trade offs

As the number of distribution center increases, total transportation costs generally declined, since

facilities are closer to customers. On the other hand, inventory and order processing costs rises,

since more inventory is carried and there is a corresponding increase of paper work and other

administrative costs.

Warehouse Location: Center-of-Gravity-Method:

Center-of-Gravity-method- A method for determining the location for a single consolidation

warehouse.

The center of gravity method takes into account the locations of plants and markets, the volume

of goods moved, and transportation costs in arriving at the best location for a single immediate

warehouse.

To incorporate both distance and volume, the center of gravity method is defined as to the

location that minimizes the weighted distance between the warehouse and its supply and

distribution points, with the distance weighted by the volume supplied or consume.
There are two ways to determine the center of gravity:

The center of gravity method is based on the assumption that transportation rates to and from the
warehouse are equal.
DISTRIBUTION PLANNING AND ANALYSIS

Planning is essential to determine the optimal distribution network for providing

customers with the right quantity of goods, at the right places, at the right time and minimizing

total delivered cost of the product at its final destination. (The deliver cost is the cost of

manufacturing, warehousing, and transportation.)

Transportation Problem

This is a special type of linear program that arises in planning the distribution of

goodsand services from several supply points to several demand locations. If plant/ orwarehouse

locations are fixed, a minimum-cost distribution plan can be found by solving a transportation

problem.

Computer-Based Modeling

Two drawbacks in using the transportation model alone are that it assumes that facility

locations are fixed and does not consider location and transportation simultaneously.
 The transportation model can be used in naive fashion to address this situation. For

example, suppose three potential locations are available for constructing warehouses to serve

several markets. Each warehouse has a different fixed cost associated with its construction and

operations. A series of transportation problems can be solved using all combinations of one, two,

or three warehouses. By adding the appropriate fixed costs to the minimum transportation cost

for each alternative, the best combination of warehouses can be determined.

One of the most useful applications of computerized distribution-planning systems is

investigating the effects of environmental changes and business policies on the distribution

system. A computerized system that enables a manager to study potential changes, whether

controllable or otherwise, provides a great amount of information for decision making. Some

typical uses of such a system are investigating the effects of:

1. Changes in demand structure.

2. Changes in fuel costs for transportation.

3. Transportation strikes, natural disasters, and energy shortages.

4. Plant-capacity expansion proposals.

5. New product lines.

6. Deletion of product line.

7. Prices changes.

8. New markets.

9. Transportation using common carriers versus private fleets.

10. Adding new distribution centers.

 Computer-based distribution and location planning is receiving a boost from recent

developments in geographic information system (GIS) technology.

Service-Facility Location

In manufacturer operation, the location analysis considers distribution costs and customer

service. Service facilities, in contrast, do not have the traditional product-distribution channel

structure.

Retail-Facility Location

The major criterion in locating a retail facility is the volume of demand. It might be

measured by dollar sales revenue for a grocery store or restaurant, or by the number of visitors

each year for an amusement park. In any case, estiby the number of visitors each year for an

amusement park. In any case, estimates of demand must be obtained for potential locations.

Consider the situation of a bank that needs to determine future locations for automatic tellers

machines (ATMs). The statistical technique of regression analysis can be used by specifying a

set of independent variables that are related to the number of transactions. This can be

established through meetings with the bank executives and branch managers in charge of

existing sites.

1. Population in a given census tract.

2. Median income per census tract.

3. Median age per census tract.

4. Median educational level per census tract.

5. Location of the ATM at the bank branch or not.

6. Number of ATM cards in a given ZIP code(from bank records).

7. Commercial or residential nature of the ATM site.

8. Dollar sales per retail establishment.

9. Traffic counts at the site(obtained from the regional planning agency.

10. Number of employed person.

11. Number of occupied households.

12. Number of persons between the ages of 20 and 30.

13. Number of years existing ATM has been in use.

Public-Service -Facility Location

Public- service facilities include post offices, schools, highways, park, and so on.A major

problem in locating such facilities is the lack of easily quantifiable data. How does one define

social cost or social benefit? Some of the typical criteria used in public-service location

decisions include the average distance or time traveled by the users of the facilities and the

maximum distance or travel time between the facility and its intended population.

Emergency-Facility Location

Emergency facilities such as fire stations, ambulance stations, and police sub-stations

should be located so as to minimize response time between the notification of an emergency and

the delivery of service.

P/OM in Practice
Better Distribution through Better Marketing

In a common business practice called trade loading, wholesale and

retailcustomers(known as a trade) are induced by discounts and other promotions to load by

buying more product than they can promptly resell. As a result, particularly in packaged goods

businesses, products stack up in warehouses, trucks, and railcars. A typical grocery item takes 84

days to travel from the factory floor to the retail store shelf.

1. The manufacturer stockpiles ingredients and packaging supplies to meet peak

production levels.

2. Plants prepare huge runs.

3. Freight companies charge premium rates for the manufacturers periodic blow-out

shipment.

4. Distributions overstock as they binge on short-term discounts. Carton sit for weeks

inside warehouses.

5. At distribution centers the goods are over handled, and damaged items go back to the

manufacturer.

6. Twelve weeks after the items leave the production line, they may not be fresh for the

consumer.

Trade loading begins when manufacturers want higher market share or need to meet

quarterly profit target. It often requires deep discounts and deals that strain the logistics system,

resulting in higher costs and inventories. Consumer end up paying for the efficiency in higher

costs and lower quality.

1. Without trade loading, no more panic purchases are necessary.

2. Factories run on normal shifts.

3. The manufacturer eliminates peaks and valleys in its demand for distribution services, saving

as much as 5% in shipping cost.

4. Wholesalers inventories are reduced substantially, improving storage and handling costs by

as much as 17%.

5. Retailers received undamaged products. Their perception of the manufacturers quality

improves.

6. The consumer gets the goods 25 days earlier and at a 6% lower price.

Learning Curvey

Definitions

Learning curve theory states that as the

quantity of items produced doubles, costs

decrease at a predictable rate.

A learning curve is a graphical representation

of the increase of learning (vertical axis)

with experience (horizontal axis).The

term learning curve is used in two main ways: where the same task is repeated in a series of

trials, or where a body of knowledge is learned over time.

Graphical representation of the common sense principle that more one does something the better

one gets at it. Learning curve shows the rate of improvement in performing a task as a function

of time, or the rate of change in average cost (in hours or dollars) as a function of cumulative

output. Used in resource requirements planning, learning curves are also employed in setting

incentive rate schemes based on the statistical findings that as the cumulative output is doubled,

the average unit cost declines by a constant percentage.

Formula: y = axb

x = number of units produced

a = hours required to produce the first unit

y = time to produce the xth unit

b = constant equal to In p / In 2 for 100p percent learning curve

In Wright-Patterson Air Force Base in assembling of aircraft studies showed that the number of

labor hours required to produce the fourth plane was about 80 percent of the amount of time

spent on the second: the eight plane took only 80 percent as much time to as fourth: sixteenth

plane 80 percent of the time of the eight, and so on.

For example, it might cost $100 million to build the first copy of a new airplane, $80 million to

build the second, $64 million to make the fourth, $51 million for the eighth and so on, with the

unit cost falling 20% at every doubling of volume before reaching a plateau, say $15 million.
The planes get cheaper to build as the company learns how to do it more efficiently. Workers

work faster, make fewer mistakes and waste less material.

Learning curves graphically portray the costs and benefits of experience when performing

routine or repetitive tasks. Also known as experience curves, cost curves, efficiency curves, and

productivity curves, they illustrate how the cost per unit of output decreases over time as the

result of accumulated workforce learning and experience. That is, as cumulative output

increases, learning and experience cause the cost per unit to decrease. Experience and learning

curves are used by businesses in production planning, cost forecasting, and setting delivery

schedules, among other applications.

Learning curve can apply to individual operators or, in an aggregate sense to the entire process

for a new product. The terms improvement curve, experience curve, and manufacturing progress

function are often used to describe the learning phenomenon in the aggregate context. Those

curves can be used for cost estimating and pricing, short-term work scheduling, setting

manufacturing performance goals and determining incentive payments for piecework employees.

From a strategic perspective, a firm may use the learning curve concept to establish a pricing

schedule that does not initially cover cost in order to gain increased market share.

Learning curve theory is most applicable to new products or processes that have high potential to

improvement and when the benefits will be realized only when appropriate incentives and

effective motivation tools are used. Organizational changes may also have significant effects on

learning. Changes in technology or work methods will affect the learning curve, as will the

institution of productivity and quality-improvement programs.

The learning curve theory limitations:

The stable conditions necessary for the learning curve to take place may not be present

unplanned changes in production techniques or labor turnover will cause problems and

affect the learning rate.

The employees need to be motivated, agree to the plan and keep to the learning schedule

these assumptions may not hold.

Accurate and appropriate learning curve data may be difficult to estimate

Inaccuracy in estimating the initial labor requirement for the first unit.

Learning curves differ from company to company as well as industry to industry so

estimates should be developed for each organization

Learning curves are often based on time estimates which must be accurate and should be

reevaluated when appropriate

Any changes in personnel, design, or procedure can be expected to alter the learning

curve

Learning curves do not always apply to indirect labor or material

The culture of the workplace, resource availability, and changes in the process may alter

the learning curve

Applications
Pricing Decisions -It requires the ability of the management to use the learning effect to forecast

and make the cost reductions and obtain a considerable lead over the competitors by giving

better prices.

Work Scheduling-Useful in the management of delivery orders and related schedules.

Scheduling labor work requirements.

Standard Setting & Budgeting -Plays meaningful role in standard costing and applying

budgetary controls. Standard costs should reflect the point that has been reached on LC.

Pricing Contracts -The LC has been quite useful in determining the likely costs relating to

various contracts. It provides a rational basis for price negotiation and cost control.

Setting Incentive Wage Rates-The LC concept is applied in determining incentive wage rates

across the industries.

Inventory Management -The LC concept can be used in the planning, budgeting and purchasing

of inventory.

Time-Series Models

Definitions

Time series analysis is a useful business forecasting technique. The concept breaks down the

technicalities of time series analysis and gives a balanced overview of its strengths and

drawbacks - and how to avoid pitfalls when using it.

A time series is a series of data points indexed (or listed or graphed) in time order. Most

commonly, a time series is a sequence taken at successive equally spaced points in time. Time

series forecasting is the use of a model to predict future values based on previously observed

values.

Time series models are widely used in economics, business and engineering to predict the

seasonal variability of a target variable over time, where past values are used as the input

variables for the model.

Statistical Methods of forecasting are based on the analysis of historical data, called time series,

in which observations is measured at successive points in time or over successive periods of

time.

The Four Components of Time-Series Models:

Trend Component

This gradual shifting of the time series- usually due to such long-term factors as changes in

population, demographic characteristics, technology, consumer preferences and the like- is

referred to as the trend. The trend is the long term pattern of a time series. A trend can be

positive or negative depending on whether the time series exhibits an increasing long term

pattern or a decreasing long term pattern. If a time series does not show an increasing or

decreasing pattern then the series is stationary in the mean

*Non-Linear Trend *Linear Decreasing Trend *No Trend

O
L

T I M E

Cyclical Component

Any pattern showing an up and down movement around a given trend is identified as a cyclical

pattern. The duration of a cycle depends on the type of business or industry being analyzed.

Volume

Time

Cycle Cycle

Seasonal Component

Seasonality occurs when the time series exhibits regular fluctuations during the same month (or

months) every year, or during the same quarter every year. For instance, retail sales peak during

the month of December. For Example: Manufacturer of snow-removal equipment and heavy

clothing.
Volume

Time

Irregular Component

The time is the residual or catch-all factor that accounts for the deviation of the actual time

series value from what we would expect given the effects of trend cyclical and seasonal

components. It accounts for the random variability in the time series caused by short-term,

unanticipated and nonrecurring factors that affect the time series. This component is

unpredictable. Every time series has some unpredictable component that makes it a random

variable. In prediction, the objective is to model all the components to the point that the only

component that remains unexplained is the random component. The forecast are never 100

percent accurate.

Volume
 Time

Forecasting For time series may involve the:

Trend component (trend-projection model)

Trend and seasonal components (multiplicative time-series model)

Irregular component (moving-average and exponential-smoothing models)

Forecast Accuracy

Because the inherent ability of any model to forecast accurate, quantitative measures of forecast

accuracy are useful for evaluating the accuracy of alternative forecasting methods.

Forecast error is the different between the observed value of the time series and the forecast.

Mean square error (MSE) is an often-used measure of the accuracy of a forecasting method.

Time-Series Forecast Forecast 24/5 = 4.8 MSE

Week Value Value Error (Error)2

1 21 20 1 1

2 26 24 2 4

3 32 35 -3 9

4 29 28 1 1

5 22 25 -3 9

Total 24
Long-Range Forecasting using Trend Projection

Forecast the values of a times series that has a long-term linear trend.

Example:

Bicycle Sales Times-Series Data 35

30
Sales in Thousand
Year(t) (Y1)
25
1 21.6
2 22.9 20 Year(t)
3 25.5
4 21.9 15 Sales in
5 23.9 Thousand (Y1)
10
6 27.5
7 31.5 5
8 29.7
9 28.6 0
1 2 3 4 5 6 7 8 9 10
10 31.4

For linear Trend, the estimated sales volume expressed as a function of time can be written as:

Tt = b0+b1t

Where

Tt = trend value for bicycle sale in period t

b0= intercept of the trend line

b1= slope of the trend line

t = time in years
The approach most often used to determine the linear function that best approximates the trend is

based on the least-squares method, which identifies the values of b0 and b1 that minimize the

sum of squared forecast errors. That is,

n t=1 (Yt- Tt)2

Where

Yt= actual value of the time series in period t

Tt= forecast or trend value of times series in period t

n = number of periods

The least-squares method, which is also used for the statistical technique known as regression

analysis is described, is most elementary statistics books. These formulas can be used to compute

the value of b0 and the value of b1 using this approach:

b1 = tY1- (tYt) /n / t2 (t) 2 /n

b0 = Y b1t

where, Y = average value of the time series, that is

Y = Y1 / n

andt = average value of t; that is,t = t / n

The summations in these formulas are for values of t from one through n.
Computing a Linear Trend

t Yt tYt t2

1 21.6 21.6 1

2 22.9 45.8 4

3 25.5 76.5 9

4 21.9 87.6 16

5 23.9 119.5 25

6 27.5 165.0 36

7 31.5 220.5 49

8 29.7 237.6 64

9 28.6 257.4 81

10 31.4 314.0 100

Totals 55 264.5 1545.5 385

t = 55/10 = 5.5 years

Y = 264.5/10 = 26.45 thousands

b1 =1545.5 -(55) (264.5) /10 / 385- (55)2 /10 =90.75/ 82.5 = 1.1

b0 = 26.45- 1.10 (5.5) = 20.4

Therefore,

Tt = 20.4 + 11tis the expression for the linear component of the bicycle sales time series

Trend Projection

The slope 1.1 indicates that over the past 10 years the firm has had an average growth

in sales of around 1,100 units per year. If we assume that this 10-year trend in sales is a good

indicator for future, the equation Tt= b0+b1t can be used to project the trend component of the

time series. For example substituting t = 11 into the equation yields next years trend projection,

T11 or

T11 = 20.4 + 1.1(11) = 32.5

On the basis of the trend components, we would forecast sales of 32,500 bicycle next year.

Intermediate-Range Forecasting: Multiplicative Time Series Model

Forecast time series that has both trend and seasonal components. The approach we will take is

first to remove the deseasonalized time series. As a result, we can use the least-squares method

described in the previous section to identify the trend component. Then, using a trend projection

calculation, we will be able to forecast the trend component of the time series in future periods.

The final step in developing the forecast will be to incorporate the seasonal component by using a

seasonal factor to adjust the trend projection.

In additional to trend component (T) and a seasonal component (S), we will assume that the time

series also has an irregular component (l). The irregular component accounts for any random

effects in the time series that cannot be explained by the trend or seasonal component. We will

assume that actual time-series value, denoted by Yt, is described by the multiplicative time-series

model.

Y1 = T1 x S1 x It

In this model T1 is the trend measured in units of the items being forecast. However, the S1 and It

components are measured in relative terms: values above 1.00 indicate effects above the normal or

average level and values below 1.00 indicate below-average level for each component, to illustrate

the use of Y1 = T1 x S1 x It to model a time series, suppose we have a trend projection of 540 units.

In addition, suppose that St =1.10 shows a seasonal effect 10 percent above average, and It =0.98

shows an irregular effect 2 percent below average. With those values in equation the same time

series value would be Yt= 540 (1.10)(.98) =582.

Sales
Year Quarter (1000s)
1 1 4.8 9
2 4.1 8
3 6.0
7
4 6.5
2 1 5.8 6
2 5.2 5 Year
3 6.8 4 Quarter
4 7.4 3 Sales (1000s)
3 1 6.0
2
2 5.6
3 7.5 1
4 7.8 0
4 1 6.3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
2 5.9
 3 8.0
4 8.4
Calculation of Seasonal Indexes

The computation of seasonal indexes begins with the computation of moving averages for the

times series,

Four-Quarter Moving Centered Moving Seasonal Irregular

Year Quarter Sales
Average Average Component
1 1
4.8
2 4.1
3 6.0 5.350
5.475 1.096
4 6.5 5.600
2 1 5.8 5.875 5.738 1.133
2 5.2 6.075 5.975 0.971
3 6.8 6.300 6.188 0.84
4 7.4 6.350 6.325 1.075
3 1 6.0 6.450 6.400 1.156
2 5.6 6.625 6.538 0.918
3 7.5 6.725 6.675 0.839
4 7.8 6.800 6.763 1.109
4 1 6.3 6.875 6.838 1.141
2 5.9 7.000 6.938 0.908
3 8.0 7.150 7.075 0.834
4 8.4

Seasonal Index Calculations for Television- Set- Sales Times Series

Seasonal-Irregular Seasonal Index

Quarter Component Values
(St)
(StIt)
1 .971, .918, .908 0.93
2 .840, .839, .834 0.84
3 1.096, 1.075,1.109 1.09
4 1.133, 1.156, 1.141 1.14
Deseasonalizing the Times Series

The purpose of finding seasonal indexes is to remove the seasonal effect from a time series to

deseasonalized it. Using the notation of the multiplication model, we have

Y1 = T1 x S1 x It

To identify the trend we can use the same procedure we introduced for identifying trends when

forecasting with annual data. In this case, since we have deseasonalized the data, quarterly sales

values can be used. Thus for a linear trend, the estimated sales volumes expressed as a function

of time can be written:

Tt = b0+b1t

Tt = trend value for television-set sale in period t

b0= intercept of the trend line

b1= slope of the trend line

t = time in years
 Sales (1000s) Seasonal Index Deseasonalized Sales (YtlSt=
Year Quarter
Yt (St) TtIt)
1 1 4.8 0.93 5.16
2 4.1 0.84 4.88
3 6.0 1.09 5.5
4 6.5 1.14 5.7
2 1 5.8 0.93 6.24
2 5.2 0.84 6.19
3 6.8 1.09 6.24
4 7.4 1.14 6.49
3 1 6.0 0.93 6.45
2 5.6 0.84 6.67
3 7.5 1.09 6.88
4 7.8 1.14 6.84
4 1 6.3 0.93 6.77
2 5.9 0.84 7.02
3 8.0 1.09 7.34
4 8.4 1.14 7.37
The formulas for computing the value of b0 and the value of b1;

b1 = tY1- (tYt) /n / t2 (t) 2 /n

b0 = Y b1t

t Y1(deseasonalized) tYt t2
1 5.16 5.16 1
2 4.88 9.76 4
3 5.5 16.5 9
4 5.7 22.8 16
5 6.24 31.2 25
6 6.19 37.14 36
7 6.24 43.68 49
8 6.49 51.92 64
9 6.45 58.05 81
10 6.67 66.7 100
11 6.88 75.68 121
12 6.84 82.08 144
13 6.77 88.01 169
14 7.02 98.28 196
15 7.34 110.1 225
16 7.37 117.92 256
136 101.74 914.98 1496

From these calculations, we have

t = 136/ 16 =8.5

Y = 101.74 / 16 = 6.359

b1 = 914.98- (136) (101.74) /16 / 1496-(136)2 /16 = 50.19 /340 = .148

b0 = 6.359- 0.148 (8.5) = 5.101

Therefore,

Tt = 5.101 + 0.148t

If we substituiting t = 17 into equation yields next quarters trend projection, T17

Tt = 5.101 + 0.148(17) = 7,617

Using the trend component only, we would forecast sales of 7,167 television sets for the next

year.

Seasonal Adjustment

Trend Seasonal Quarterly

Year Quarter Forecast Index Forecast

5 1 7617 0.93 7083.81

2 7765 0.84 6522.6

3 7913 1.09 8625.17

4 8061 1.14 9189.54

 Short-Range Forecasting Using Smoothing Methods

* Forecasting with Moving Average Exponential Smoothing

*Exponential Smoothing Forecasting with Exponential Smoothing

FACILITY LOCATION AND DISTRIBUTION SYSTEM DESIGN

* Location decisions can have a profound effect on a firms competitive advantage. For Example,
a firm might choose to locate a plant in a new geographic region not only to reduce distribution
costs, but also to create cultural ties between the firm and the local community

*Business Logistics

*Push versus Pull Distribution System

* Location Planning and Analysis

Scoring Models for Facility Location

REFERENCES

Book: Production/Operation Mgmt.

Other References:

https://www.slideshare.net/shonki009/job-design-4667850

https://www.slideshare.net/ATBHATTI/learning-curve-15317153

https://www.inc.com/encyclopedia/learning-curves.html

https://theblogbyjavier.com/2014/03/03/learning-curves/

http://www.computerworld.com/article/2583163/the-learning-curve.html

http://www.shareyouressays.com/116331/what-are-the-assumptions-and-limitations-of-learning-

curve-explained

http://www.businessdictionary.com/definition/learning-curve.html

https://en.wikipedia.org/wiki/Learning_curve

https://www.kbmanage.com/concept/time-series-models

http://www.investopedia.com/terms/t/timeseries.asp

http://www.itl.nist.gov/div898/handbook/pmc/section4/pmc4.htm

http://www.itl.nist.gov/div898/handbook/pmc/section4/pmc41.htm

https://www.otexts.org/fpp/6/1

http://cmapskm.ihmc.us/rid=1052458821502_1749267941_6906/components.pdf

http://itfeature.com/time-series-analysis-and-forecasting/component-of-time-series-data
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omponent+of+time+series&imgrc=_